PART I. FINANCIAL INFORMATION
|
|||
ITEM 1.
|
FINANCIAL STATEMENTS
|
1
|
|
ITEM 2.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
15
|
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
|
21
|
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
22
|
|
PART II – OTHER INFORMATION
|
|||
ITEM 1.
|
LEGAL PROCEEDINGS
|
22
|
|
ITEM 1A.
|
RISK FACTORS
|
22
|
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
23
|
|
ITEM 3.
|
DEFAULTS UPON SENIOR SECURITIES
|
23
|
|
ITEM 4.
|
RESERVED BY SECURITIES AND EXCHANGE COMMISSION
|
23
|
|
ITEM 5.
|
OTHER INFORMATION
|
23
|
|
ITEM 6.
|
EXHIBITS
|
23
|
|
SIGNATURES
|
24
|
September 30, 2011
|
December 31, 2010
|
||||||
(Unaudited)
|
|||||||
ASSETS
|
|||||||
Current assets:
|
|||||||
Cash and cash equivalents
|
$
|
16,650
|
$
|
49,441
|
|||
Short-term investments
|
49,824
|
35,752
|
|||||
Contracts receivable, including retainage
|
92,909
|
70,301
|
|||||
Costs and estimated earnings in excess of billings on uncompleted contracts
|
25,660
|
10,058
|
|||||
Inventories
|
1,910
|
1,479
|
|||||
Income tax receivable
|
1,366
|
--
|
|||||
Deferred tax asset, net
|
78
|
82
|
|||||
Receivables from and equity in construction joint ventures
|
8,135
|
6,744
|
|||||
Deposits and other current assets
|
1,536
|
2,472
|
|||||
Total current assets
|
198,068
|
176,329
|
|||||
Property and equipment, net
|
83,719
|
74,681
|
|||||
Goodwill
|
121,010
|
114,745
|
|||||
Other assets, net
|
1,237
|
1,376
|
|||||
Total assets
|
$
|
404,034
|
$ |
367,131
|
|||
LIABILITIES AND EQUITY
|
|||||||
Current liabilities:
|
|||||||
Accounts payable
|
$
|
51,379
|
$
|
37,631
|
|||
Billings in excess of costs and estimated earnings on uncompleted contracts
|
15,967
|
17,807
|
|||||
Current maturities of long-term debt
|
573
|
73
|
|||||
Income taxes payable
|
156
|
1,493
|
|||||
Accrued compensation
|
9,051
|
6,920
|
|||||
Liability for put exercised by noncontrolling owner
|
8,205
|
--
|
|||||
Other current liabilities
|
6,556
|
5,127
|
|||||
Total current liabilities
|
91,887
|
69,051
|
|||||
Long-term liabilities:
|
|||||||
Long-term debt, net of current maturities
|
8,281
|
336
|
|||||
Deferred tax liability, net
|
22,524
|
18,591
|
|||||
Other long-term liabilities
|
2,657
|
--
|
|||||
Total long-term liabilities
|
33,462
|
18,927
|
|||||
Commitments and contingencies
|
|||||||
Obligation for noncontrolling owners' interests in subsidiaries and joint ventures
|
21,943
|
28,724
|
|||||
Equity:
|
|||||||
Sterling stockholders’ equity:
|
|||||||
Preferred stock, par value $0.01 per share; 1,000,000 shares authorized, none issued
|
--
|
--
|
|||||
Common stock, par value $0.01 per share; 19,000,000 shares authorized, 16,443,114 and 16,468,369 shares issued
|
164
|
164
|
|||||
Treasury stock, 122,002 and 3,147 shares of common stock
|
(1,432
|
)
|
--
|
||||
Additional paid in capital
|
197,463
|
198,849
|
|||||
Retained earnings
|
59,101
|
51,553
|
|||||
Accumulated other comprehensive income (loss)
|
140
|
(137
|
)
|
||||
Total Sterling common stockholders’ equity
|
255,436
|
250,429
|
|||||
Noncontrolling interests
|
1,306
|
--
|
|||||
Total equity
|
256,742
|
250,429
|
|||||
Total liabilities and equity
|
$
|
404,034
|
$
|
367,131
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||
Revenues
|
$
|
159,427
|
$
|
118,874
|
$
|
387,167
|
$
|
321,896
|
||||||
Cost of revenues
|
144,671
|
105,876
|
351,230
|
287,942
|
||||||||||
Gross profit
|
14,756
|
12,998
|
35,937
|
33,954
|
||||||||||
General and administrative expenses
|
(7,071
|
)
|
(6,774
|
)
|
(19,427
|
)
|
(17,482
|
)
|
||||||
Other income (expense)
|
76
|
(45
|
)
|
226
|
(97
|
)
|
||||||||
Operating income
|
7,761
|
6,179
|
16,736
|
16,375
|
||||||||||
Gain (loss) on sale of securities and other
|
212
|
80
|
(33
|
)
|
1,044
|
|||||||||
Interest income
|
309
|
583
|
1,252
|
1,268
|
||||||||||
Interest expense
|
(357
|
)
|
(297
|
)
|
(945
|
)
|
(891
|
)
|
||||||
Income before income taxes and earnings attributable to noncontrolling interests
|
7,925
|
6,545
|
17,010
|
17,796
|
||||||||||
Income tax expense
|
(1,984
|
)
|
(1,824
|
)
|
(3,295
|
)
|
(4,945
|
)
|
||||||
Net income
|
5,941
|
4,721
|
13,715
|
12,851
|
||||||||||
Noncontrolling owners’ interests in earnings of subsidiaries and joint ventures
|
(2,480
|
)
|
(1,225
|
)
|
(5,999
|
)
|
(3,136
|
)
|
||||||
Net income attributable to Sterling common stockholders
|
$
|
3,461
|
$
|
3,496
|
$
|
7,716
|
$
|
9,715
|
||||||
Net income per share attributable to Sterling common stockholders:
|
||||||||||||||
Basic
|
$
|
0.21
|
$
|
0.22
|
$
|
0.47
|
$
|
0.60
|
||||||
Diluted
|
$
|
0.21
|
$
|
0.21
|
$
|
0.47
|
$
|
0.59
|
||||||
Weighted average number of common shares outstanding used in computing per share amounts:
|
||||||||||||||
Basic
|
16,385,729
|
16,199,356
|
16,444,302
|
16,135,108
|
||||||||||
Diluted
|
16,440,835
|
16,549,056
|
16,558,074
|
16,548,062
|
Nine Months Ended September 30,
|
|||||||
2011
|
2010
|
||||||
Net income attributable to Sterling common stockholders
|
$
|
7,716
|
$
|
9,715
|
|||
Net income attributable to noncontrolling interest included in equity
|
80
|
--
|
|||||
Net income attributable to noncontrolling interest included in liabilities
|
5,919
|
3,136
|
|||||
Add /(deduct) other comprehensive income, net of tax:
|
|||||||
Realized (gain) / loss from available-for-sale securities
|
20
|
(678
|
)
|
||||
Net change in unrealized holding gain (loss) on available-for-sale securities
|
535
|
760
|
|||||
Realized (gain) / loss from derivatives
|
41
|
--
|
|||||
Net change in the effective portion of unrealized gain (loss) in fair market value of derivatives
|
(319
|
)
|
--
|
||||
Comprehensive net income
|
$
|
13,992
|
$
|
12,933
|
STERLING CONSTRUCTION COMPANY, INC. STOCKHOLDERS
|
|||||||||||||||||||||||||||||||||
Common Stock
|
Treasury Stock
|
Additional
Paid in
|
Retained
|
Accumulated
Other
Comprehensive
Income
|
Noncon-trolling
|
||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Earnings
|
(Loss)
|
Interests
|
Total
|
|||||||||||||||||||||||||
Balance at January 1, 2011
|
16,468
|
$
|
164
|
(3
|
)
|
$
|
--
|
$
|
198,849
|
$
|
51,553
|
$
|
(137
|
)
|
$
|
--
|
$
|
250,429
|
|||||||||||||||
Net income
|
--
|
--
|
--
|
--
|
--
|
7,716
|
--
|
80
|
7,796
|
||||||||||||||||||||||||
Other comprehensive income
|
--
|
--
|
--
|
--
|
--
|
--
|
277
|
--
|
277
|
||||||||||||||||||||||||
Purchases of treasury shares
|
--
|
--
|
(286
|
)
|
(3,592
|
)
|
--
|
--
|
--
|
--
|
(3,592
|
)
|
|||||||||||||||||||||
Cancellation of treasury shares
|
(167
|
)
|
(1
|
)
|
167
|
2,160
|
(1,991
|
)
|
(168
|
)
|
--
|
--
|
--
|
||||||||||||||||||||
Stock issued upon option & warrant exercises
|
96
|
1
|
--
|
--
|
155
|
--
|
--
|
--
|
156
|
||||||||||||||||||||||||
Excess tax benefits from exercise of stock options
|
--
|
--
|
--
|
--
|
68
|
--
|
--
|
--
|
68
|
||||||||||||||||||||||||
Issuance and amortization of restricted stock
|
46
|
--
|
--
|
--
|
352
|
--
|
--
|
--
|
352
|
||||||||||||||||||||||||
Stock based compensation expense
|
--
|
--
|
--
|
--
|
30
|
--
|
--
|
--
|
30
|
||||||||||||||||||||||||
Equity attributable to noncontrolling interests in acquired companies
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
1,226
|
1,226
|
||||||||||||||||||||||||
Balance at September 30, 2011
|
16,443
|
$
|
164
|
(122
|
)
|
$
|
(1,432
|
)
|
$
|
197,463
|
$
|
59,101
|
$
|
140
|
$
|
1,306
|
$
|
256,742
|
Nine Months Ended September 30,
|
|||||||
2011
|
2010
|
||||||
Cash flows from operating activities:
|
|||||||
Net income attributable to Sterling common stockholders
|
$
|
7,716
|
$
|
9,715
|
|||
Plus: Noncontrolling owners’ interests in earnings of subsidiaries and joint ventures
|
5,999
|
3,136
|
|||||
Net income
|
13,715
|
12,851
|
|||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
|||||||
Depreciation and amortization
|
12,775
|
11,816
|
|||||
(Gain) loss on disposal of property and equipment
|
(226
|
)
|
212
|
||||
Deferred tax expense
|
3,834
|
2,014
|
|||||
Interest expense accreted on noncontrolling interests
|
636
|
877
|
|||||
Stock-based compensation expense
|
382
|
473
|
|||||
Loss (gain) on sale of securities and other
|
33
|
(1,044
|
)
|
||||
Tax benefits from exercise of stock options
|
(68
|
)
|
--
|
||||
Other changes in operating assets and liabilities:
|
|||||||
(Increase) decrease in contracts receivable
|
(16,101
|
)
|
4,459
|
||||
(Increase) decrease in costs and estimated earnings in excess of billings on uncompleted contracts
|
(15,072
|
)
|
(1,511
|
)
|
|||
(Increase) decrease in receivables from and equity in construction joint ventures
|
(1,391
|
)
|
(5,258
|
)
|
|||
(Increase) decrease in other current assets
|
(993
|
)
|
134
|
||||
Increase (decrease) in trade payables
|
9,009
|
10,159
|
|||||
Increase (decrease) in billings in excess of costs and estimated earnings on uncompleted contracts
|
(3,155
|
)
|
97
|
||||
Increase (decrease) in accrued compensation and other liabilities
|
1,259
|
2,152
|
|||||
Net cash provided by operating activities
|
4,637
|
37,431
|
|||||
Cash flows from investing activities:
|
|||||||
Net assets of acquired companies, net of cash acquired
|
(3,911
|
)
|
--
|
||||
Additions to property and equipment
|
(19,592
|
)
|
(7,798
|
)
|
|||
Purchases of short-term securities, available for sale
|
(97,719
|
)
|
(90,024
|
)
|
|||
Sales of short-term securities, available for sale
|
84,473
|
61,581
|
|||||
Proceeds from sale of property and equipment
|
930
|
272
|
|||||
Net cash used in investing activities
|
(35,819
|
)
|
(35,969
|
)
|
|||
Cash flows from financing activities:
|
|||||||
Cumulative daily drawdowns – Credit Facility
|
16,000
|
55,000
|
|||||
Cumulative daily repayments – Credit Facility
|
(8,000
|
)
|
(95,000
|
)
|
|||
Distributions to noncontrolling interest owners
|
(6,185
|
)
|
(3,394
|
)
|
|||
Purchases of treasury stock
|
(3,592
|
)
|
--
|
||||
Other
|
168
|
602
|
|||||
Net cash used in financing activities
|
(1,609
|
)
|
(42,792
|
)
|
|||
Net increase (decrease) in cash and cash equivalents
|
(32,791
|
)
|
(41,330
|
)
|
|||
Cash and cash equivalents at beginning of period
|
49,441
|
54,406
|
|||||
Cash and cash equivalents at end of period
|
$
|
16,650
|
$
|
13,076
|
|||
Supplemental disclosures of cash flow information:
|
|||||||
Cash paid during the period for interest
|
$
|
232
|
$
|
40
|
|||
Cash paid during the period for income taxes
|
$
|
2,391
|
$
|
2,500
|
|||
Non-cash items:
|
|||||||
Reclassification of amounts payable to noncontrolling interest owner
|
$
|
1,054
|
$
|
--
|
|||
Net liabilities assumed in connection with acquisitions
|
$
|
1,961
|
$
|
--
|
1.
|
Basis of Presentation
|
· contracts receivable, including retainage
|
· revenue recognition
|
· valuation of property and equipment, goodwill and other long-lived assets
|
· construction joint ventures
|
· income taxes
|
· segment reporting
|
2.
|
Cash and Cash Equivalents and Short-term Investments
|
September 30, 2011
|
||||||||||||||||||||
Total Fair Value
|
Level 1
|
Level 2
|
Gross
Unrealized
Gains
(pre-tax)
|
Gross
Unrealized
Losses
(pre-tax)
|
||||||||||||||||
Mutual funds
|
$ | 29,655 | $ | 29,655 | $ | -- | $ | 265 | $ | 65 | ||||||||||
Government bonds
|
20,169 | -- | 20,169 | 451 | 8 | |||||||||||||||
Total securities available-for-sale
|
$ | 49,824 | $ | 29,655 | $ | 20,169 | $ | 716 | $ | 73 |
December 31, 2010
|
|||||||||||||||||
Total Fair Value
|
Level 1
|
Gross
Unrealized
Gains
(pre-tax)
|
Gross
Unrealized
Losses
(pre-tax)
|
||||||||||||||
Mutual funds
|
$ | 31,992 | $ | 31,992 | $ | 2 | $ | 189 | |||||||||
Exchange traded funds
|
3,510 | 3,510 | 13 | 36 | |||||||||||||
Total securities available-for-sale
|
35,502 | $ | 35,502 | $ | 15 | $ | 225 | ||||||||||
Certificates of deposit with original maturities between 90 and 365 days
|
250 | ||||||||||||||||
Total short-term investments
|
$ | 35,752 |
3.
|
Construction Joint Ventures
|
September 30, 2011
|
December 31, 2010
|
||||||
Total combined:
|
|||||||
Current assets
|
$
|
117,898
|
$
|
79,588
|
|||
Less current liabilities
|
(91,653
|
)
|
(61,629
|
)
|
|||
Net assets
|
$
|
26,245
|
$
|
17,959
|
|||
Backlog
|
$
|
646,930
|
$
|
750,398
|
|||
Sterling’s noncontrolling interest in backlog
|
$
|
143,255
|
$
|
93,931
|
|||
Sterling’s receivables from and equity in construction joint ventures
|
$
|
8,135
|
$
|
6,744
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Total combined:
|
||||||||||||||||
Revenues
|
$ | 128,450 | $ | 75,159 | $ | 328,686 | $ | 173,822 | ||||||||
Income before tax
|
10,516 | 5,926 | 26,921 | 14,050 | ||||||||||||
Sterling’s proportionate share:
|
||||||||||||||||
Revenues
|
$ | 21,060 | $ | 9,355 | $ | 46,090 | $ | 21,707 | ||||||||
Income before tax
|
1,676 | 700 | 3,688 | 1,721 |
4.
|
Property and Equipment, stated at cost (in thousands):
|
September 30, 2011
|
December 31, 2010
|
||||||
Construction equipment
|
$
|
124,227
|
$
|
109,432
|
|||
Transportation equipment
|
17,950
|
14,915
|
|||||
Buildings
|
4,730
|
4,673
|
|||||
Office equipment
|
1,053
|
870
|
|||||
Construction in progress
|
1,776
|
870
|
|||||
Land
|
2,916
|
2,916
|
|||||
Water rights
|
200
|
200
|
|||||
152,852
|
133,876
|
||||||
Less accumulated depreciation
|
(69,133
|
)
|
(59,195
|
)
|
|||
$
|
83,719
|
$
|
74,681
|
5.
|
Derivative Financial Instruments
|
Derivative Assets
|
Derivative Liabilities
|
||||||||
Balance Sheet Location
|
September 30, 2011
|
Balance Sheet Location
|
September 30, 2011
|
||||||
Deposits and other current assets
|
$ | -- |
Other current liabilities
|
$ | 341,000 | ||||
Other assets, net
|
-- |
Other long-term liabilities
|
151,000 | ||||||
$ | -- | $ | 492,000 |
Three Months Ended
September 30, 2011
|
Nine Months Ended
September 30, 2011
|
||||||
|
|
||||||
Increase (decrease) in fair value of derivatives included in other comprehensive income (effective portion)
|
$
|
(285
|
)
|
$
|
(491
|
)
|
|
Realized gain (loss) included in cost of revenues (effective portion)
|
(51
|
)
|
(63
|
)
|
|||
Increase (decrease) in fair value of derivatives included in cost of revenues (ineffective portion)
|
(31
|
)
|
(31
|
)
|
6.
|
Litigation
|
7.
|
Acquisitions and Subsidiaries and Joint Ventures with Noncontrolling Owners' Interests
|
Assets acquired and liabilities assumed:
|
||||
Current assets, including cash of $4,662
|
$ | 8,839 | ||
Current liabilities
|
(5,708 | ) | ||
Working capital acquired
|
3,131 | |||
Property and equipment
|
2,018 | |||
Other
|
49 | |||
Total tangible net assets acquired at fair value
|
5,198 | |||
Goodwill
|
4,763 | |||
Total consideration
|
9,961 | |||
Fair value of earn-out
|
(2,370 | ) | ||
Cash paid, net of $409 receivable from seller
|
$ | 7,591 |
Assets acquired and liabilities assumed:
|
||||
Current assets, including cash of $654
|
$ | 3,208 | ||
Current liabilities
|
(2,464 | ) | ||
Working capital acquired
|
744 | |||
Property and equipment
|
708 | |||
Debt due to noncontrolling interest owner
|
(500 | ) | ||
Total tangible net assets acquired at fair value
|
952 | |||
Goodwill
|
1,502 | |||
Total consideration
|
2,454 | |||
Fair value of noncontrolling owners' interest in Myers
|
(1,227 | ) | ||
Cash paid
|
$ | 1,227 |
Revenue
|
Net Income Attributable to Sterling Common Stockholders
|
|||||||
JBC actual from 8/1/2011 – 9/30/2011
|
$ | 4,371 | $ | 99 | ||||
Myers actual from 8/1/2011 – 9/30/2011
|
3,515 | 52 | ||||||
Supplemental pro forma results of the Company, JBC, and Myers on a combined basis for 1/1/2011 – 9/30/2011 (unaudited)
|
401,187 | 7,550 | ||||||
Supplemental pro forma results of the Company, JBC, and Myers on a combined basis for 1/1/2010 – 12/31/2010 (unaudited)
|
475,906 | 19,878 |
Nine Months Ended
September 30,
|
|||||||
2011
|
2010
|
||||||
Balance, beginning of period
|
$
|
28,724
|
$
|
23,887
|
|||
Noncontrolling owners' interests in earnings of subsidiaries and joint ventures
|
5,919
|
3,136
|
|||||
Accretion of interest on Puts
|
636
|
877
|
|||||
Increase in price of RHB put/call
|
1,054
|
--
|
|||||
Distributions to noncontrolling interest owners
|
(6,185
|
)
|
(3,394
|
)
|
|||
Balance, end of period
|
$
|
30,148
|
$
|
24,506
|
8.
|
Variable Interest Entities
|
September 30, 2011
|
||||
(Unaudited)
|
||||
ASSETS
|
||||
Current assets:
|
||||
Cash and cash equivalents
|
$ | 533 | ||
Contracts receivable, including retainage
|
4,288 | |||
Other current assets
|
201 | |||
Total current assets
|
5,022 | |||
Property and equipment, net
|
758 | |||
Total assets
|
$ | 5,780 | ||
LIABILITIES
|
||||
Current liabilities:
|
||||
Accounts payable
|
$ | 3,030 | ||
Other current liabilities
|
1,639 | |||
Total current liabilities
|
4,669 | |||
Long-term liabilities:
|
||||
Other long-term liabilities
|
-- | |||
Total long-term liabilities
|
-- | |||
Total liabilities
|
$ | 4,669 |
Period from August 1, 2011
(acquisition date) to
September 30, 2011
|
||||
Revenues
|
$ | 3,515 | ||
Operating income
|
162 | |||
Net income attributable to Sterling common stockholders
|
52 |
9.
|
Stock-Based Compensation Plan and Warrants
|
10.
|
Income Taxes
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Current tax expense (benefit)
|
$ | (185 | ) | $ | 754 | $ | (539 | ) | $ | 2,931 | ||||||
Deferred tax expense
|
2,169 | 1,070 | 3,834 | 2,014 | ||||||||||||
Total tax expense
|
$ | 1,984 | $ | 1,824 | $ | 3,295 | $ | 4,945 |
2011
|
2010
|
||||||||||||||
Amount
|
%
|
Amount
|
%
|
||||||||||||
Tax expense at the federal statutory rate
|
$
|
5,954
|
35.0
|
%
|
$
|
6,229
|
35.0
|
%
|
|||||||
State income tax expense (benefit), net of federal benefit
|
(402
|
)
|
(2.4
|
)
|
319
|
1.8
|
|||||||||
Taxes on subsidiaries' and joint ventures’ earnings attributable to noncontrolling ownership interests, which are liabilities of such owners
|
(2,100
|
)
|
(12.2
|
)
|
(1,003
|
)
|
(5.6
|
)
|
|||||||
Tax benefit of Domestic Production Activities Deduction
|
--
|
--
|
(241
|
)
|
(1.4
|
)
|
|||||||||
Interest income not subject to federal tax
|
(249
|
)
|
(1.5
|
)
|
(309
|
)
|
(1.7
|
)
|
|||||||
Other permanent differences
|
92
|
0.5
|
(50
|
)
|
(0.3
|
)
|
|||||||||
Income tax expense
|
$
|
3,295
|
19.4
|
%
|
$
|
4,945
|
27.8
|
%
|
11.
|
Net Income per Share Attributable to Sterling Common Stockholders
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Numerator:
|
||||||||||||||||
Net income attributable to Sterling common stockholders
|
$ | 3,461 | $ | 3,496 | $ | 7,716 | $ | 9,715 | ||||||||
Denominator:
|
||||||||||||||||
Weighted average common shares outstanding — basic
|
16,386 | 16,199 | 16,444 | 16,135 | ||||||||||||
Shares for dilutive stock options and warrants
|
55 | 350 | 114 | 413 | ||||||||||||
Weighted average common shares outstanding and assume conversions— diluted
|
16,441 | 16,549 | 16,558 | 16,548 | ||||||||||||
Basic net income per share attributable to Sterling common stockholders
|
$ | 0.21 | $ | 0.22 | $ | 0.47 | $ | 0.60 | ||||||||
Diluted net income per share attributable to Sterling common stockholders
|
$ | 0.21 | $ | 0.21 | $ | 0.47 | $ | 0.59 |
12.
|
Subsequent Event
|
·
|
changes in general economic conditions, including the current economic downturn, reductions in federal, state and local government funding for infrastructure services and changes in those governments’ budgets, practices, laws and regulations;
|
·
|
delays or difficulties related to the completion of our projects, including additional costs, reductions in revenues or the payment of liquidated damages, or delays or difficulties related to obtaining required governmental permits and approvals;
|
·
|
actions of suppliers, subcontractors, design engineers, joint venture partners, customers, competitors, banks, surety companies and others which are beyond our control, including suppliers’, subcontractors’ and joint venture partners’ failure to perform;
|
·
|
the effects of estimates inherent in our percentage-of-completion accounting policies, including onsite conditions that differ materially from those assumed in our original bid, contract modifications, mechanical problems with our machinery or equipment and effects of other risks discussed in this document;
|
·
|
cost escalations associated with our contracts, including changes in availability, proximity and cost of materials such as steel, cement, concrete, aggregates, oil, fuel and other construction materials, and cost escalations associated with subcontractors and labor;
|
·
|
our dependence on a few significant customers;
|
·
|
adverse weather conditions; although we prepare our budgets and bid contracts based on historical rain and snowfall patterns, the incidence of rain, snow, hurricanes, etc., may differ materially from these expectations;
|
·
|
the presence of competitors with greater financial resources or lower margin requirements than us, and the impact of competitive bidders on our ability to obtain new backlog at reasonable margins acceptable to us;
|
·
|
our ability to successfully identify, finance, complete and integrate acquisitions;
|
·
|
citations issued by any governmental authority, including the Occupational Safety and Health Administration;
|
·
|
federal, state and local environmental laws and regulations, the noncompliance of which can result in penalties and /or termination of contracts as well as civil and criminal liability;
|
·
|
the current instability of financial institutions, which could cause losses on our cash and cash equivalents and short-term investments; and
|
·
|
adverse economic conditions in our markets in Texas, Utah, Nevada, Arizona and California.
|
·
|
While our business includes only minimal residential and commercial infrastructure work, the severe fall-off in new projects in those markets has resulted in some residential and commercial infrastructure contractors bidding on smaller public sector transportation and water infrastructure projects, sometimes at bid levels below our break-even pricing, thus increasing competition and creating downward pressure on bid prices in our markets.
|
·
|
Traditional competitors on larger transportation and water infrastructure projects also appear to have been bidding at less than normal margins, sometimes at bid levels below our break-even pricing, in order to replenish their reduced backlogs.
|
·
|
The entrance of new competitors from other states.
|
Three Months ended
September 30,
|
Nine Months ended
September 30,
|
||||||||||||||||||
2011
|
2010
|
% Change
|
2011
|
2010
|
% Change
|
||||||||||||||
Revenues
|
$
|
159,427
|
$
|
118,874
|
34.1
|
%
|
$
|
387,167
|
$
|
321,896
|
20.3
|
%
|
|||||||
Gross profit
|
14,756
|
12,998
|
13.5
|
35,937
|
33,954
|
5.8
|
|||||||||||||
General and administrative expenses, net
|
(7,071
|
)
|
(6,774
|
)
|
4.4
|
(19,427
|
)
|
(17,482
|
)
|
11.1
|
|||||||||
Other income (loss)
|
76
|
(45
|
)
|
226
|
(97
|
)
|
|||||||||||||
Operating income
|
7,761
|
6,179
|
25.6
|
16,736
|
16,375
|
2.2
|
|||||||||||||
Gains (loss) on the sale of securities and other
|
212
|
80
|
(33
|
)
|
1,044
|
||||||||||||||
Interest income
|
309
|
583
|
1,252
|
1,268
|
|||||||||||||||
Interest expense
|
(357
|
)
|
(297
|
)
|
(945
|
)
|
(891
|
)
|
|||||||||||
Income before taxes
|
7,925
|
6,545
|
21.1
|
17,010
|
17,796
|
(4.4
|
)
|
||||||||||||
Income tax expense
|
(1,984
|
)
|
(1,824
|
)
|
8.8
|
(3,295
|
)
|
(4,945
|
)
|
(33.4
|
)
|
||||||||
Net income
|
5,941
|
4,721
|
25.8
|
13,715
|
12,851
|
6.7
|
|||||||||||||
Noncontrolling owners’ interests in earnings of subsidiaries and joint ventures
|
(2,480
|
)
|
(1,225
|
)
|
102.4
|
(5,999
|
)
|
(3,136
|
)
|
91.3
|
|||||||||
Net income attributable to Sterling common stockholders
|
$
|
3,461
|
$
|
3,496
|
(1.0
|
)
|
$
|
7,716
|
$
|
9,715
|
(20.6
|
)
|
|||||||
Gross margin
|
9.3
|
%
|
10.9
|
%
|
9.3
|
%
|
10.5
|
%
|
|||||||||||
Operating margin
|
4.9
|
%
|
5.2
|
%
|
4.3
|
%
|
5.1
|
%
|
Amount as of
|
||||||||||||
September 30, 2011
|
June 30, 2011
|
December 31, 2010
|
||||||||||
Contract Backlog, end of period
|
$ | 672,000 | $ | 720,000 | $ | 660,000 |
Nine Months Ended
September 30,
|
||||||
2011
|
2010
|
|||||
Net cash provided by (used in):
|
||||||
Operating activities
|
$
|
4,637
|
$
|
37,431
|
||
Capital expenditures
|
(19,592
|
)
|
(7,798
|
)
|
||
Net purchases of short-term securities
|
(13,246
|
)
|
(28,443
|
)
|
||
Acquisitions and other investing activities
|
(2,981
|
)
|
272
|
|||
Financing activities
|
(1,609
|
)
|
(42,792
|
)
|
Amount as of
|
||||||||
September 30, 2011
|
December 31, 2010
|
|||||||
Cash and cash equivalents
|
$
|
16,650
|
$
|
49,441
|
||||
Working capital
|
$
|
106,181
|
$
|
107,278
|
·
|
depreciation and amortization, which totaled $12.8 million in the 2011 period, an increase of $1.0 million from 2010 primarily as a result of equipment additions, and
|
·
|
deferred tax expense was $3.8 million in the 2011 period, versus deferred tax expense of $2.0 million in 2010; deferred tax expense in both periods is mainly attributable to amortization for tax return purposes of goodwill and accelerated tax depreciation. The increase in deferred tax expense between the periods is due to the difference between accelerated tax depreciation over book depreciation in 2011 versus 2010, primarily due to recent tax law changes which allow the expensing for tax return purposes in 2011 of new equipment additions.
|
·
|
an increase in contracts receivable in 2011 of $16.1 million primarily because of higher activity levels resulting in higher billings at the end of September 30, 2011 versus December 31, 2010 for our operations in Texas, Utah and Nevada;
|
·
|
an increase in costs and estimated earnings in excess of billings on uncompleted projects along with a decrease in billings in excess of costs and estimated earnings on uncompleted contracts, of $18.2 million because of an unusual amount of jobs starting near September 30, 2011 along with an increase in the volume of materials purchased on other existing jobs at September 30, 2011, which are not billable until future periods under the terms of the contract, as compared to December 2010. Further, December 2010 was impacted by lower activity due to the holiday season;
|
·
|
trade payables increased by $9.0 million in the first nine months of 2011 primarily due higher activity levels; and
|
·
|
income tax receivable increased $1.4 million in 2011 as a result of anticipated refunds of federal income tax payments.
|
·
|
customer receivables and contract retentions;
|
·
|
costs and estimated earnings in excess of billings;
|
·
|
billings in excess of costs and estimated earnings;
|
·
|
the size and status of contract mobilization payments and progress billings; and
|
·
|
the amounts owed to suppliers and subcontractors.
|
Net income
|
$ | 13,715 | ||
Depreciation and amortization
|
12,775 | |||
Deferred tax expense
|
3,834 | |||
Capital expenditures
|
(19,592 | ) | ||
Distributions paid to noncontrolling interest owners
|
(6,185 | ) | ||
Treasury stock purchases
|
(3,592 | ) | ||
Reclassification of amounts payable to noncontrolling interest owner
|
1,054 | |||
Reclassification of obligation for put exercised by noncontrolling interest owner
|
(8,205 | ) | ||
Debt borrowings
|
8,000 | |||
Cash paid for acquired companies, net of working capital acquired
|
(5,352 | ) | ||
Other
|
2,451 | |||
Total decrease in working capital
|
$ | (1,097 | ) |
Price Per Gallon
|
||||||||||||||||||||
Period
|
Beginning
|
Ending
|
Range
|
Weighted Average
|
Remaining Volume (gallons)
|
Fair Value of Derivatives at September 30, 2011
(in thousands)
|
||||||||||||||
October 1, 2011 – December 31, 2011
|
October 1, 2011
|
December 31, 2011
|
$ | 3.09 – 3.10 | $ | 3.09 | 392,000 | $ | (118 | ) | ||||||||||
2012
|
January 1, 2012
|
December 31, 2012
|
3.02 – 3.34 | 3.17 | 520,000 | (227 | ) | |||||||||||||
2013
|
January 1, 2013
|
December 31, 2013
|
2.99 – 3.29 | 3.11 | 270,000 | (114 | ) | |||||||||||||
$ | (459 | ) |
Item 1.
|
Legal Proceedings
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
Period
|
Total Number
of Shares Purchased
|
Average Price Paid per
Share
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
|
Approximate Dollar Value of Shares that may yet be Purchased under the Plans or Programs (a)
(In thousands)
|
||||||||||||
July
|
15,000 | $ | 12.73 | 15,000 | $ | 7,968 | ||||||||||
August
|
132,000 | 11.82 | 132,000 | 6,408 |
(a)
|
In October 2008, the Company announced a share-repurchase program to purchase up to $5 million in shares of common stock. In August 2010, the Company announced an increase to the share-repurchase program to purchase an additional $5 million in shares of common stock, for a total up to $10 million. The specific timing and amount of repurchase will vary based on market conditions, securities law limitations and other factors.
|
Item 3.
|
Defaults upon Senior Securities
|
Item 4.
|
Reserved by the Securities and Exchange Commission
|
Item 5.
|
Other Information
|
Item 6.
|
Exhibits
|
Certification of Patrick T. Manning, Chief Executive Officer of Sterling Construction Company, Inc.
|
Certification of Joseph P. Harper, Jr., Chief Financial Officer of Sterling Construction Company, Inc.
|
Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) of Patrick T. Manning, Chief Executive Officer, and Joseph P. Harper, Jr., Chief Financial Officer
|
Summary of the standard director compensation arrangements of Sterling Construction Company, Inc. adopted by the Board of Directors on August 3, 2011
|
Consent and Second Amendment to Credit Agreement by and among Sterling Construction Company, Inc., Texas Sterling Construction Co., Oakhurst Management Corporation and Comerica Bank and the other lenders from time to time party thereto, and Comerica Bank as administrative agent for the lenders, dated as of November 8, 2011
|
101.INS**
|
XBRL Instance Document
|
101.SCH**
|
XBRL Taxonomy Extension Schema Document
|
101.CAL**
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
101.DEF**
|
XBRL Taxonomy Extension Definition Linkbase Document
|
101.LAB**
|
XBRL Taxonomy Extension Label Linkbase Document
|
101.PRE**
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
Exhibit No.
|
Description
|
|
|
Certification of Patrick T. Manning, Chief Executive Officer of Sterling Construction Company, Inc.
|
|
Certification of Joseph P. Harper, Jr., Chief Financial Officer of Sterling Construction Company, Inc.
|
||
Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) of Patrick T. Manning, Chief Executive Officer, and Joseph P. Harper, Jr., Chief Financial Officer.
|
||
Summary of the standard director compensation arrangements of Sterling Construction Company, Inc. adopted by the Board of Directors on August 3, 2011
|
||
Consent and Second Amendment to Credit Agreement by and among Sterling Construction Company, Inc., Texas Sterling Construction Co., Oakhurst Management Corporation and Comerica Bank and the other lenders from time to time party thereto, and Comerica Bank as administrative agent for the lenders, dated as of November 8, 2011
|
||
101.INS**
|
XBRL Instance Document
|
|
101.SCH**
|
XBRL Taxonomy Extension Schema Document
|
|
101.CAL**
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
101.DEF**
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
101.PRE**
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
*
|
Filed herewith.
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Sterling Construction Company, Inc. for the three and nine months ended September 30, 2011;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Sterling Construction Company, Inc. for the three and nine months ended September 30, 2011;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
(i)
|
the Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(ii)
|
the information contained in the Form 10-Q fairly represents, in all material respects, the financial condition and results of operations of the Company.
|
Annual Fees
|
|
Annual Fees — Each Non-Employee Director:
|
|
$17,500 (payable in quarterly installments)
|
|
An award on the date of each Annual Meeting of Stockholders of shares of restricted common stock that has an accounting income charge under FAS 123R of $50,000 and that is subject to the following basic terms:
|
|
Restrictions: The shares may not be sold, assigned, transferred, pledged or otherwise disposed of until they vest. In addition, as a condition to the award, the recipient must agree that so long as he is a director of the Company, he will retain and not sell or otherwise dispose of at least that number of shares of the Company's common stock that have been awarded to him as director compensation that is equal in market value to the sum of the cash fees paid to him in the previous two calendar years.
Vesting: Vesting of the restricted stock award shares shall occur on the trading day immediately preceding the following year's Annual Meeting of Stockholders, but earlier upon the death of the director; upon the director becoming permanently disabled; and upon a change in control of the Company as defined in the Company's Stock Incentive Plan.
Forfeiture: The shares of restricted stock shall be forfeited in the event that prior to vesting, the director ceases to be a director other than by reason of his death, permanent disability or a change in control of the Company.
|
|
Additional Annual Fees:
(payable in quarterly installments)
|
|
Lead Director
|
$10,000
|
Chairman of the Audit Committee
|
$12,500
|
Chairman of the Compensation Committee
|
$7,500
|
Chairman of the Corporate Governance & Nominating Committee
|
$7,500
|
Meeting Fees*
|
|
In-Person Meetings
|
Per Director/Per Meeting
|
Board Meetings
|
$1,500
|
Committee Meetings
|
|
Audit Committee Meetings
in connection with a Board meeting
not in connection with a Board meeting
Other Committee Meetings
in connection with a Board meeting
not in connection with a Board meeting
|
$1,000
$1,500
$750
$1,500
|
Telephonic Meetings (Board & Committee Meetings; Flash Report Conference Calls)
|
|
One hour or longer
|
$750
|
Less than one hour
|
$500
|
*
|
Board and committee meetings (in person) that run over from one day to the next are paid as a single meeting. Meetings of non-employee directors in person or by conference telephone call that are not formal, minuted meetings are paid as a regular Board meeting. Time spent by non-employee directors at the Company's investor conferences or attending continuing education events are not separately compensated, but the expenses of doing so are reimbursed.
|
1.
|
Section 1 of the Credit Agreement is hereby amended as follows:
|
2.
|
The following is added as new Section 2.13 of the Credit Agreement:
|
|
(i)
|
a pro forma Covenant Compliance Report demonstrating that, upon giving effect to the applicable increase, all financial covenants set forth in Section 7.9 would be satisfied on a pro form basis on such date and for the most recent determination period for which the Borrowers have delivered or is required to have delivered financial statements pursuant to Section 7.1(a) or (b);
|
|
(ii)
|
a certificate signed by a Responsible Officer of Borrowers (A) certifying and attaching the resolutions adopted by Borrowers approving or consenting to such increase, and (B) certifying that, before and after giving effect to such increase, (1) the representations and warranties contained in this Agreement and the other Loan Documents are true and correct in all material respects on and as of the date such increase becomes available, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct in all material respects as of such earlier date, and (2) no Default or Event of Default shall have occurred and be continuing; and
|
3.
|
Each of Section 7.9(a) and Section 7.9(e) of the Credit Agreement is hereby deleted and the following is inserted in each place:
|
4.
|
Section 7.9(c) of the Credit Agreement is hereby deleted and the following is inserted in its place:
|
6.
|
Notwithstanding anything to the contrary in the Credit Agreement and provided that no Default or Event of Default has occurred and is continuing or could reasonably be expected to result therefrom, the Borrowers are hereby permitted to incur up to $10,000,000 in aggregate amount of fuel Hedging Transactions outstanding at any one time (provided that such Hedging Transactions are entered into for risk management purposes and not for speculative purposes), which Hedging Transactions may be secured by a lien on Borrowers’ cash in an aggregate amount not in excess of $10,000,000.
|
7.
|
This Second Amendment shall become effective (according to the terms hereof) on the date that the following conditions have been fully satisfied (the “Second Amendment Effective Date”):
|
(a)
|
Agent shall have received counterpart copies, with originals to follow of this Second Amendment duly executed and delivered by the Borrowers, the Agent and the requisite Lenders (as applicable) and in form and substance satisfactory to Agent and an original Revolving Credit Note payable to Comerica Bank in form and substance acceptable to the Agent..
|
(b)
|
Agent shall have received secretary’s certificates and resolutions for each of the Borrowers.
|
(c)
|
Agent shall have received departing lender letters from each of the other Lenders party to the Credit Agreement besides Comerica Bank.
|
(d)
|
No Default or Event of Default shall have occurred and be continuing.
|
(e)
|
All representations and warranties of the Borrowers are true and correct as of the Second Amendment Effective Date, except to the extent such representation and warranty relates solely to another date certain.
|
(f)
|
Sterling shall have paid to Agent a $50,000 amendment fee.
|
8.
|
Each Borrower hereby represents and warrants that, after giving effect to the amendments contained herein (a) execution and delivery of this Second Amendment and the other Loan Documents required to be delivered hereunder, and the performance by the Company of its obligations under the Credit Agreement as amended hereby (herein, as so amended, the “Amended Credit Agreement”) are within such undersigned’s corporate powers, have been duly authorized, are not in contravention of law or the terms of its articles of incorporation or bylaws or other organic documents of the parties thereto, as applicable, and except as have been previously obtained do not require the consent or approval, material to the amendments contemplated in this Second Amendment or the Amended Credit Agreement, of any governmental body, agency or authority, and this Second Amendment, the Amended Credit Agreement and the other Loan Documents required to be delivered hereunder, will constitute the valid and binding obligations of such undersigned parties enforceable in accordance with its terms, except as enforcement thereof may be limited by applicable bankruptcy, reorganization, insolvency, moratorium, ERISA or similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity (whether enforcement is sought in a proceeding in equity or at law), (b) the representations and warranties set forth the Amended Credit Agreement are true and correct on and as of the date hereof (except to the extent such representations specifically relate to an earlier date), and such representations and warranties are and shall remain continuing representations and warranties during the entire life of the Amended Credit Agreement, and (c) as of the Second Amendment Effective Date, no Default or Event of Default shall have occurred and be continuing.
|
9.
|
Except as specifically set forth above, this Second Amendment shall not be deemed to amend or alter in any respect the terms and conditions of the Credit Agreement, any of the Notes issued thereunder or any of the other Loan Documents, or to constitute a waiver by the Agent or any Lender of any right or remedy under or a consent to any transaction not meeting the terms and conditions of the Credit Agreement, any of the Notes issued thereunder or any of the other Loan Documents.
|
10.
|
Each Borrower hereby acknowledges and agrees that this Second Amendment and the amendments contained herein do not constitute any course of dealing or other basis for altering any obligation of such Borrower or any other party or any rights, privilege or remedy of the Agent or any Lender under the Credit Agreement, any other Loan Document, any other agreement or document, or any contract or instrument.
|
11.
|
Each Borrower hereby reaffirms its obligations under the Credit Agreement, as amended as of the date hereof, and each other Loan Document previously executed and delivered by it, or executed and delivered in accordance with this Second Amendment. Each reference in the Credit Agreement to “this Agreement” or “the Credit Agreement” shall be deemed to refer to Credit Agreement as amended by this Second Amendment and each other amendment thereto from time to time.
|
12.
|
Unless otherwise defined to the contrary herein, all capitalized terms used in this Second Amendment shall have the meaning set forth in the Credit Agreement.
|
13.
|
This Second Amendment may be executed in counterpart in accordance with Section 13.9 of the Credit Agreement.
|
14.
|
This Second Amendment shall be construed in accordance with and governed by the laws of the State of Texas (without giving effect to principles of conflict of laws).
|
Basis for Pricing
|
||||
Revolving Credit Eurodollar Margin
|
175.00 | |||
Revolving Credit Prime-Based Rate Margin
|
0.00 | |||
Revolving Credit Facility Fee
|
25.00 | |||
Letter of Credit Fees (exclusive of facing fees)
|
175.00 |
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) (USD $) | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Stockholders' equity: | ||
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized (in shares) | 1,000,000 | 1,000,000 |
Preferred stock, shares issued (in shares) | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized (in shares) | 19,000,000 | 19,000,000 |
Common stock, shares issued (in shares) | 16,443,114 | 16,468,369 |
Treasury stock, at cost (in shares) | 122,002 | 3,147 |
Document And Entity Information (USD $) | 9 Months Ended | ||
---|---|---|---|
Sep. 30, 2011 | Oct. 31, 2011 | Jun. 30, 2011 | |
Entity Registrant Name | STERLING CONSTRUCTION CO INC | ||
Entity Central Index Key | 0000874238 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Accelerated Filer | ||
Entity Public Float | $ 226,413,858 | ||
Entity Common Stock, Shares Outstanding | 16,321,112 | ||
Document Fiscal Year Focus | 2011 | ||
Document Fiscal Period Focus | Q3 | ||
Document Type | 10-Q | ||
Amendment Flag | false | ||
Document Period End Date | Sep. 30, 2011 |
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Derivative Financial Instruments | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Financial Instruments | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Financial Instruments |
During the quarter ended June 30, 2011, the Company began entering into various fixed rate commodity swap contracts in an effort to manage its exposure to price volatility of diesel fuel. Historically, fuel prices have been volatile because of supply and demand factors, worldwide political factors and general economic conditions. The objective of the Company in executing the hedge is to mitigate the fuel price volatility that could adversely affect forecasted cash flows and earnings related to construction contracts. Swaps are designed so that the Company receives or makes payments based on a differential between fixed and variable prices for off-road ultra-low sulphur diesel (“ULSD”). The Company has designated its commodity derivative contracts as cash flow hedges designed to achieve more predictable cash flows, as well as to reduce its exposure to price volatility. While the use of derivative instruments limits the downside risk of adverse price movements, they also limit future benefits from reductions in costs as a result of favorable price movements. All of the Company’s outstanding derivative financial instruments are recognized in the balance sheet at their fair values. All changes in the fair value of outstanding derivatives, except any ineffective portion, are recorded in accumulated other comprehensive income (loss) until earnings are impacted by the hedged transaction. Amounts in accumulated other comprehensive income (loss) are reclassified to earnings when the related hedged items affect earnings or the anticipated transactions are no longer probable. All items included in accumulated other comprehensive income (loss) are at the corporate level, and no portion is attributable to noncontrolling interests. At September 30, 2011, pre-tax accumulated other comprehensive income (loss), excluding taxes of $150,000, consisted of unrecognized losses of $428,000 representing the inception to date unrealized change in mark-to-market value of the effective portion of the Company’s commodity contracts, designated as cash flow hedges, as of the balance sheet date. For the three and nine months ended September 30, 2011, the Company recognized pre-tax net realized cash settlement losses on commodity contracts of $51,000 and $63,000, respectively. At September 30, 2011, the Company had hedged its exposure to the variability in future cash flows from forecasted diesel fuel purchases totaling 1,182,000 gallons. The monthly volumes hedged range from 10,000 gallons to 168,000 gallons over the period from October 2011 to December 2013 at fixed prices per gallon ranging from $2.99 to $3.34. The derivative instruments are recorded on the consolidated balance sheet at fair value and include $33,000 in other current liabilities for the September 2011 contract which settled in October 2011. The fair values are as follows:
The following table summarizes the effects of commodity derivative instruments on the consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2011 (in thousands):
The Company’s derivative instruments contain certain credit-risk-related contingent features which apply both to the Company and to the counterparties. The counterparty to the Company’s derivative contracts is a high credit quality financial institution. Fair Value Derivative financial instruments are carried at fair value. Commodity derivative instruments consist of fixed rate commodity swaps to hedge the price risk associated with changes in the price of diesel fuel. The Company’s swaps are valued based on a discounted future cash flow model. The primary input for the model is the forecasted prices for ULSD. The Company’s model is validated by the counterparty’s mark-to-market statements. The swaps are designated as Level 2 within the valuation hierarchy. Refer to Note 2 for a description of the inputs used to value the information shown above. At September 30, 2011, the Company did not have any derivative assets or liabilities measured at fair value on a recurring basis that meet the definition of Level 1 or Level 3. |
Income Taxes | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes |
The Company and its subsidiaries file U.S. federal and various state income tax returns. The Company's 2007 through 2009 U.S. federal income tax returns are currently being examined by the I.R.S.; however, management expects there will be no material adjustments, interest or penalties from such examination. The Company’s policy is to recognize interest related to any underpayment of taxes as interest expense, and penalties as administrative expenses. The income tax expense in the accompanying condensed consolidated financial statements consist of the following for the three and nine months ended September 30, 2011 and 2010 (in thousands):
Tax expense for the three and nine months ended September 30, 2011 reflects the impact of a $0.5 million decrease to the estimated state tax expense for 2010 identified in 2011 in connection with the preparation of the 2010 state income tax returns. Current income tax expense (benefit) represents federal and state taxes based on income or a component thereof expected to be included in the tax returns for the years shown. The current tax expense (benefit) in the three and nine months ended September 30, 2011 reflects, among other temporary timing differences, the benefit from the expensing for tax purposes new equipment additions allowed by a change in the tax law late in 2010. The deferred income tax expense, based on temporary timing differences, is expected to be payable in the future years. The income tax provisions for the nine months ended September 30, 2011 and 2010 differ from the amount using the statutory federal income tax rate of 35% of income before taxes and earnings attributable to noncontrolling interests for the following reasons (in thousands, except for percentages):
Management has determined that the Company does not have any material uncertain tax positions. |
Basis of Presentation | 9 Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | |||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||
Basis of Presentation |
Sterling Construction Company, Inc. (“Sterling” or “the Company”) a Delaware Corporation, is a leading heavy civil construction company that specializes in the building, reconstruction and repair of transportation and water infrastructure in large and growing markets in Texas, Utah, Nevada, Arizona, California and other states in which we see opportunities. Our transportation infrastructure projects include highways, roads, bridges and light and commuter rail foundations and structures, and our water infrastructure projects include water, wastewater and storm drainage systems. Sterling provides general contracting services, including excavating, concrete and asphalt paving, installation of large-diameter water and wastewater distribution systems, construction of bridges and similar large structures, construction of light and commuter rail infrastructure, concrete and asphalt batch plant operations, and concrete crushing and aggregate operations primarily to public sector clients. We perform the majority of the work required by our contracts with our own crews and equipment. For a more detailed discussion of the Company's business, readers of this Report are urged to review “Item 1. Business” of the Annual Report on Form 10-K for the year ended December 31, 2010 (“2010 Form 10-K”) and the sections of this Report entitled “Backlog at September 30, 2011” and “Our Markets” under Item 2. The accompanying condensed consolidated financial statements include the accounts of subsidiaries and construction joint ventures in which the Company has a greater than 50% ownership interest or otherwise controls such entities, and all significant intercompany accounts and transactions have been eliminated in consolidation. For all periods presented, the Company had no subsidiaries where its ownership interests were less than 50%. Under accounting principles generally accepted in the United States (“GAAP”), the Company must determine whether each entity, including joint ventures, in which it participates is a variable interest entity. This determination focuses on identifying which owner or joint venture partner, if any, has the power to direct the activities of the entity and the obligation to absorb losses of the entity or the right to receive benefits from the entity disproportionate to its interest in the entity, which could have the effect of requiring us to consolidate the entity in which we have a noncontrolling variable interest. On August 1, 2011, we acquired a 50% interest in a limited partnership which we determined to be a variable interest entity. Prior to this, we had no participation in an entity determined to be a variable interest entity. As discussed further in Note 8, we determined that the Company exercises primary control over activities of the partnership and it is exposed to more than 50% of potential losses from the partnership. Therefore, we consolidate this partnership in our consolidated financial statements and include the other partners' interests in the equity and net income of the partnership in the balance sheet line item “Noncontrolling interests” in “Equity” and the statement of operations line item “Noncontrolling owners’ interests in earnings of subsidiaries and joint ventures,” respectively. See Notes 7 and 8 regarding this acquisition. Where we are a noncontrolling joint venture partner, we account for our share of the operations of such construction joint ventures on a pro rata basis in the consolidated statements of operations and as a single line item ("Receivables from and equity in construction joint ventures") in the consolidated balance sheets. See Note 3 for further information regarding the Company’s construction joint ventures, including those where the Company does not have a controlling ownership interest. The condensed consolidated financial statements included herein have been prepared by Sterling, without audit, in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the 2010 Form 10-K. Certain information and note disclosures prepared in accordance with GAAP have been either condensed or omitted pursuant to SEC rules and regulations. The condensed consolidated financial statements reflect, in the opinion of management, all normal recurring adjustments necessary to present fairly the Company’s financial position at September 30, 2011 and the results of operations and cash flows for the periods presented. The December 31, 2010 condensed consolidated balance sheet data was derived from audited financial statements, but, as discussed above, does not include all disclosures required by GAAP. Interim results may be subject to significant seasonal variations, and the results of operations for the three and nine months ended September 30, 2011 are not necessarily indicative of the results to be expected for the full year or subsequent quarters. Critical Accounting Policies Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Certain of the Company’s accounting policies require higher degrees of judgment than others in their application. These include recognition of revenue and earnings from construction contracts under the percentage-of-completion method, the valuation of long-term assets, and income taxes. Management continually evaluates all of its estimates and judgments based on available information and experience; however, actual results could differ from these estimates and such differences could be material. Other Critical Accounting Policies On an ongoing basis, the Company evaluates the critical accounting policies used to prepare its consolidated financial statements, including, but not limited to, those related to:
The Company’s significant accounting policies are more fully described in Note 1 of the Notes to Consolidated Financial Statements in the 2010 Form 10-K. There have been no material changes to such significant accounting policies since December 31, 2010. Financial Instruments The fair value of financial instruments is the amount at which the instrument could be exchanged in a current transaction between willing parties. The Company’s financial instruments are cash and cash equivalents, short-term investments, contracts receivable, derivatives, accounts payable, mortgage payable, a credit facility with Comerica Bank (“Credit Facility”), $500,000 of demand notes payable and the puts related to certain noncontrolling owners’ interests in subsidiaries. The recorded values of cash and cash equivalents, short-term investments, contracts receivable and accounts payable approximate their fair values based on their short-term nature. The recorded value of the Credit Facility debt approximates its fair value, as interest approximates market rates. See Note 5 regarding the fair value of derivatives and Note 7 regarding the fair value of the puts. We had one mortgage outstanding at September 30, 2011 and December 31, 2010 with a remaining balance of $354,000 and $409,000, respectively. The mortgage was accruing interest at 3.50% at both September 30, 2011 and December 31, 2010 and contains pre-payment penalties. At September 30, 2011 and December 31, 2010 the fair value of the mortgage was $375,000 and $412,000, respectively. To determine the fair value of the mortgage, the amount of future cash flows was discounted using the Company’s borrowing rate on its Credit Facility. The recorded value of the demand notes payable approximates the fair value as the interest rate approximates market rates and as the notes are due upon demand (i.e., they are short-term in nature). See Note 8 for further information regarding the demand notes payable. Recent Accounting Pronouncements In December 2010, the FASB provided additional guidance related to business combinations to require each public entity that presents comparative financial statements to disclose the revenue and earnings of the combined entity as if the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. In addition, this amendment expands the supplemental pro forma disclosures related to such a business combination to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. In accordance with this guidance, we have applied the pronouncement prospectively for business combinations for which the acquisition date is on or after January 1, 2011, including the acquisitions made in 2011 as discussed further in Note 7. This pronouncement had no material impact on our financial position, results of operations or cash flows. In December 2010, the FASB issued additional guidance related to accounting for intangible assets and goodwill. The amendments in this update modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with the existing guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual test dates if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. In accordance with this pronouncement, we adopted this standard beginning January 1, 2011 with no material effect on our financial position, results of operations or cash flows. The FASB issued further guidance related to accounting for goodwill in September 2011. The amendments in this update allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 with early adoption permitted. We adopted this pronouncement for impairment tests completed subsequent to September 15, 2011, the issuance date of this pronouncement. Until such tests are performed, however, we are unable to determine whether the adoption will have a material effect on our financial position, results of operations or cash flows. In June 2011, the FASB issued additional guidance related to the presentation of comprehensive income. The amendments are effective for fiscal years, and interim period within those years, beginning after December 15, 2011 with early adoption permitted. The Company has been presenting comprehensive income in accordance with this guidance, and therefore this guidance has no impact on the presentation of our consolidated financial statements. In September 2011, the FASB issued additional guidance related to the disclosures about an employer’s participation in a multiemployer pension plan. The amendments in this update call for additional quantitative and qualitative disclosures about an employer’s participation in a multiemployer pension plan and the commitments and risks involved with participating in multiemployer pension plans. The amendments are effective for fiscal years ending after December 15, 2011. As discussed in Note 8 of the Notes to Consolidated Financial Statements in the 2010 Form 10-K, the Company makes contributions to several multiemployer benefit plans as required under certain of its union agreements. We will make the disclosures about these multiemployer plans as required under the new pronouncement in our annual report for the fiscal year ending December 31, 2011. This pronouncement has no material impact on our financial position, results of operations or cash flows. Reclassifications Balances related to accrued job costs which had been included in “Other current liabilities” in the prior year balance sheet have been reclassified to “Accounts payable” to conform to current year presentation. |
Acquisitions and Subsidiaries and Joint Ventures with Noncontrolling Owners' Interests | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Noncontrolling Interest [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Subsidiaries and Joint Ventures with Noncontrolling owners' interests |
On August 1, 2011, Ralph L. Wadsworth Construction Company, LLC (“RLW”), Sterling’s majority owned subsidiary, purchased all of the outstanding shares of capital stock of J. Banicki Construction, Inc. (“JBC”). JBC is a heavy civil construction business located in Tempe, Arizona, that builds roads and highways in Arizona, primarily for municipalities. This acquisition expanded the geographic footprint of the Company into Arizona and JBC’s capabilities in structural concrete utilities and paving as well as performing construction manager at risk type contracts complement the Company’s current operations. RLW paid an initial purchase price for JBC of $7.6 million (net of a receivable from the seller determined subsequent to the acquisition date) which was funded by available cash and short-term investments of RLW and the Company. The purchase agreement provides for additional purchase price of up to $5 million to be paid over a five-year period. The additional purchase price is in the form of an earn-out which is calculated generally as 50% of the amount by which earnings before interest, taxes, depreciation and amortization (“EBITDA”) exceeds $2 million for each of the calendar years 2011 through 2015 and $1.2 million for the seven months ended July 31, 2016. The discounted present value of the additional purchase price was estimated to be $2.4 million as of August 1, 2011, the acquisition date, and this liability is included in other long-term liabilities in the accompanying condensed consolidated balance sheets. The following table summarizes the initial allocation of the purchase price for JBC (in thousands):
Acquisition related costs of $328,000 are included in general and administrative expenses in the Company’s consolidated statements of operations for the three and nine months ended September 30, 2011. The fair value of the financial assets acquired includes receivables with a fair value of $3.8 million, which are deemed fully collectible. On August 1, 2011, the Company purchased a 50% interest in Myers & Sons Construction, L.P. (“Myers”). Myers is a construction limited partnership located in California and was acquired in order to expand the geographic scope of the Company’s operations into California. The Company paid a purchase price of $1.2 million, which was funded by available cash of the Company. The terms of the purchase include a buy-back option on August 1, 2016 and again on August 1, 2018 under which certain of the sellers have the option to repurchase the 50% limited partnership interests from the Company for an amount equal to 50% of 4.5 times the limited partnership’s average annual trailing twenty-four months earnings before interest, taxes, depreciation and amortization. The following table summarizes the initial allocation of the purchase price for Myers (in thousands):
The fair value of the noncontrolling interests was determined based on the negotiated price at which the Company purchased its 50% interest which was based in part on expectations of future earnings. Acquisition related costs of $99,000 are included in general and administrative expenses in the Company’s consolidated statements of operations for the three and nine months ended September 30, 2011. The fair value of the financial assets acquired includes receivables with a fair value of $2.1 million, which are expected to be fully collectible. See Note 8 regarding the determination that Myers’ is a variable interest entity and the resulting impact on the consolidated financial statements. The purchase price allocation for both the JBC and Myers acquisitions has not been finalized due to the short time period between the acquisition date and the date of the financial statements. The nature and amount of any material adjustments ultimately made to the initial allocation of the purchase price will be disclosed when determined. The amounts of JBC’s and Myers’ revenue and earnings included in the Company’s consolidated statements of operations and cash flows for the nine months ended September 30, 2011, and the revenue and earnings of the combined entity had the acquisition dates been January 1, 2011, or January 1, 2010, are (in thousands):
On December 3, 2009, we completed the acquisition of an 80% interest in privately-owned RLW, a Utah limited liability company which is headquartered in Draper, Utah, near Salt Lake City. The noncontrolling interest owners of RLW have the right to put, or require the Company to buy, their remaining 20% interest in RLW, and concurrently, the Company has the right to require that the owners sell their 20% interest to the Company, in 2013. The purchase price in each case is 20% of the product of the simple average of RLW’s EBITDA (income before interest, taxes, depreciation and amortization) for the calendar years 2010, 2011 and 2012 times a multiple of a minimum of 4 and a maximum of 4.5. On October 31, 2007, the Company purchased a 91.67% interest in RHB and all of the outstanding capital stock of RHB Inc, then an inactive Nevada corporation. The noncontrolling interest owner of RHB had the right to put, or require the Company to buy, his remaining 8.33% interest in the subsidiary and, concurrently, the Company had the right to require that the owner sell his 8.33% interest to the Company, in 2011. On March 17, 2011, the right to put/call the RHB noncontrolling interest was extended to anytime between that date and December 31, 2012. In addition the price was increased from $7.1 million to $8.2 million which settled $1.1 million of accrued amounts due to the noncontrolling interest owner under the October 31, 2007 purchase agreement. In September 2011, the noncontrolling owner exercised his right to put his remaining interest of 8.33% in RHB to the Company for $8.2 million. This transaction is expected to be completed in December 2011 under the terms of the agreement. Consequently, the liability is included with other current liabilities in the consolidated balance sheet. The value of the puts held by the RLW noncontrolling interest owners is included in “Obligation for noncontrolling owners’ interests in subsidiaries and joint ventures” in the accompanying condensed consolidated balance sheets. See Note 12 to the consolidated financial statements in the 2010 Form 10-K for further information regarding the RLW and RHB acquisitions discussed above. Changes in Obligation for Noncontrolling Interests The following table summarizes the changes in the liability for noncontrolling owners' interests in subsidiaries and joint ventures (in thousands):
The balance as of September 30, 2011 includes $8.2 million attributable to the put exercised by the RHB noncontrolling interest owner reflected in current liabilities discussed above. |
Subsequent Events | 9 Months Ended | ||
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Sep. 30, 2011 | |||
Subsequent Events | |||
Subsequent Events |
On October 31, 2007, the Company and its subsidiaries entered into a new credit facility (“Credit Facility”) with Comerica Bank, which replaced a prior Revolver, and which was scheduled to mature on October 31, 2012. In November 2011, the Credit Facility was amended to extend the maturity date to September 30, 2016. Up to $50 million in borrowings are available under the amended Credit Facility with, under certain circumstances, an optional increase amount of $50 million. Management believes that the Credit Facility, as amended, will provide adequate funding for the Company’s working capital, debt service and capital expenditure requirements, including seasonal fluctuations at least through December 31, 2012. |
Variable Interest Entities | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Variable Interest Entities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Variable interest entities |
We own a 50% interest in Myers of which we are the primary beneficiary and have consolidated Myers into our financial statements. Further see Note 7 above for additional information on the acquisition of this limited partnership. The partnership agreement requires that Sterling provide a $3 million line of credit to the limited partnership. In addition the partnership is relying on the Company’s surety bonding capacity in order to bid and perform large construction jobs resulting in the Company having joint and several liability for completion of such jobs, and the Company will provide management to the partnership to oversee bidding and management of larger projects. Although the Company will receive 50% of the income from the partnership, it may suffer more than 50% of any losses as a result of its obligation to provide the $3 million line of credit and its obligations under the surety bonds. Because the Company exercises primary control over activities of the partnership and it is exposed to the majority of potential losses of the partnership, the Company consolidated Myers within the Company’s financial statements from August 1, 2011, the date of acquisition. The condensed financial information of Myers which is reflected in our condensed consolidated balance sheets and statements of operations is as follows (in thousands):
Other current liabilities shown in the table above includes $500,000 in demand notes payable that are due to one of the noncontrolling interest owners. |
Litigation | 9 Months Ended | ||
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Sep. 30, 2011 | |||
Commitments and Contingencies Disclosure [Abstract] | |||
Litigation |
In January 2010, a jury trial was held to resolve a dispute between Road and Highway Builders LLC (“RHB”), a subsidiary of the Company, and a subcontractor. The jury rendered a verdict of $1.0 million against the subsidiary, exclusive of interest, court costs and attorney’s fees. While the Company has recorded this verdict amount as an expense in the consolidated financial statements for the year ended December 31, 2009, the Company has appealed this judgment as it believes that, as a matter of law, the jury erred in its decision. The Company has posted a bond of $1.3 million to cover the judgment and estimated court costs and attorney's fees pending the appeal. The case was heard by the Nevada Supreme Court on November 3, 2011, and we anticipate that the court will make its decision by mid-2012. The Company has other litigation in the ordinary course of business, but management does not believe that it will have a material impact on its financial position, results of operations or cash flows. |
Cash and Cash Equivalents and Short-term Investments | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Cash and Cash Equivalents [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash and Cash Equivalents and Short-term Investments |
The Company considers all highly liquid investments with original or remaining maturities of three months or less at the time of purchase to be cash equivalents. At September 30, 2011, $1.4 million of cash and cash equivalents were fully insured by the FDIC under its standard maximum deposit insurance amount guidelines. At September 30, 2011, cash and cash equivalents included $11.4 million belonging to majority-owned joint ventures consolidated in these financial statements, which generally cannot be used for purposes outside the joint ventures. The Company includes certificates of deposit with a remaining maturity of 90 days or less at purchse in "Cash and cash equivalents." All other short-term investments are included in "Short-term investments." Mutual funds, government bonds and exchange traded funds are considered available-for-sale securities. Government bonds have maturity dates of 2014-2041. At September 30, 2011 and December 31, 2010, the Company had short-term investments as follows (in thousands):
The amortized cost basis of the above securities at September 30, 2011 and December 31, 2010 was $49.2 million and $35.7 million, respectively. The valuation inputs for Levels 1, 2 and 3 are as follows: Level 1 Inputs – Valuation based upon quoted prices for identical assets in active markets that the Company has the ability to access at the measurement date. Level 2 Inputs – Based upon quoted prices (other than Level 1) in active markets for similar assets, quoted prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable for the asset such as interest rates, yield curves, volatilities and default rates and inputs that are derived principally from or corroborated by observable market data. Level 3 Inputs – Based on unobservable inputs reflecting the Company’s own assumptions about the assumptions that market participants would use in pricing the asset based on the best information available. The Company had no short-term investments valued with Level 3 inputs at either of the balance sheet dates. Gains (losses) on sale of securities in the accompanying statements of operations are comprised entirely of gains and losses realized on short-term investment securities. Unrealized gains (losses) on short-term investments are included in accumulated other comprehensive income (loss) in stockholders' equity as the gains and losses may be temporary. Upon the sale of short-term investments, the average cost basis is used to determine the gain or loss. All items included in accumulated other comprehensive income (loss) are at the corporate level, and no portion is attributable to noncontrolling interests. For the nine months ended September 30, 2011 and 2010, the Company earned interest income of $1,252,000, and $1,268,000, respectively, on its cash, cash equivalents and short-term investments. |
Construction Joint Ventures | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Equity Method Investments and Joint Ventures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Construction Joint Ventures |
We participate in various construction joint ventures. Generally, each construction joint venture is formed to accomplish a specific project and is jointly controlled by the joint venture partners. See Note 1 to the consolidated financial statements in the 2010 Form 10-K for further information. Condensed combined financial amounts of joint ventures in which the Company has a noncontrolling interest and the Company's share of such amounts which are included in the Company's consolidated financial statements as of and for the three and nine months ended September 30, 2011 are shown below along with comparable amounts as of December 31, 2010 and for the three and nine months ended September 30, 2010 (in thousands):
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Net Income per Share Attributable to Sterling Common Stockholders | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Net income per share attributable to Sterling common stockholders: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income per Share Attributable to Sterling Common Stockholders |
Basic net income per share attributable to Sterling common stockholders is computed by dividing net income attributable to Sterling common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income per common share attributable to Sterling common stockholders is the same as basic net income per share attributable to Sterling common stockholders but includes dilutive stock options and warrants using the treasury stock method. Diluted earnings per common share attributable to Sterling common stockholders excludes stock options which were outstanding during the three and nine months ended September 30, 2011 to purchase 16,507 and 16,507 shares, respectively, and stock options which were outstanding during the three and nine months ended September 30, 2010 to purchase 119,407 and 119,407 shares, respectively, as such impact was anti-dilutive. During the three months ended September 30, 2011, stock options for 78,600 shares were forfeited. The following table reconciles the numerators and denominators of the basic and diluted per common share computations for net income attributable to Sterling common stockholders for the three and nine months ended September 30, 2011 and 2010, respectively (in thousands, except per share data):
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Property and Equipment, stated at cost (in thousands) | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and Equipment, stated at cost (in thousands) |
Construction in progress at September 30, 2011 and December 31, 2010 consists primarily of expenditures for new maintenance shop facilities and offices at various locations in Texas. |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (USD $) In Thousands | 9 Months Ended | |
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Sep. 30, 2011 | Sep. 30, 2010 | |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) [Abstract] | ||
Net income attributable to Sterling common stockholders | $ 7,716 | $ 9,715 |
Net income attributable to noncontrolling interest included in equity | 80 | 0 |
Net income attributable to noncontrolling interest included in liabilities | 5,919 | 3,136 |
Add /(deduct) other comprehensive income, net of tax: | ||
Realized (gain)/loss from available-for-sale securities | 20 | (678) |
Net change in unrealized holding gain (loss) on available-for-sale securities | 535 | 760 |
Realized (gain)/loss from derivatives | 41 | 0 |
Net change in the effective portion of unrealized gain (loss) in fair market value of derivatives | (319) | 0 |
Comprehensive net income | $ 13,992 | $ 12,933 |
Stock-Based Compensation Plan and Warrants | 9 Months Ended | ||
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Sep. 30, 2011 | |||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||
Stock-Based Compensation Plan and Warrants |
The Company has a stock-based incentive plan which is administered by the Compensation Committee of the Board of Directors. See Note 7 to the consolidated financial statements in the 2010 Form 10-K for further information. We recorded stock-based compensation expense of $125,000 and $176,000 for the three months ended September 30, 2011 and 2010, respectively, and $382,000 and $473,000 for the nine months ended September 30, 2011 and 2010, respectively. Unrecognized compensation expense related to stock options at September 30, 2011 and 2010 was $0 and $43,000, respectively, to be recognized over a weighted average period of approximately 0.0 and 0.8 years, respectively. Proceeds received by the Company from the exercise of options and warrants for the nine months ended September 30, 2011 and 2010 were approximately $156,000 and $656,000, respectively. No options were granted in the nine months ended September 30, 2011 or 2010. Unrecognized compensation expense related to restricted stock awards at September 30, 2011 and 2010 was $683,000 and $663,000, respectively, to be recognized over a weighted average period of 2.5 and 2.6 years, respectively. In July 2011, one non-employee director of the Company was granted a total of 3,418 shares of restricted stock at the grant date market price of $13.64. This will result in an expense of $47,000 to be recognized ratably over a ten-month restriction period. In May 2011 and 2010, the five and eight non-employee directors of the Company were granted an aggregated total of 17,090 and 25,167 shares of restricted stock, respectively, at the grant-date market price of $14.63 and $15.89, respectively. This will result in an expense of $250,000 and $400,000, respectively, to be recognized ratably over the one-year restriction period. In May 2011 a key employee was granted a total of 789 shares of restricted stock at $14.63 per share, resulting in an expense of $12,000 to be recognized ratably over the restriction period of five years. In March 2011 and March 2010, several key employees were granted an aggregated total of 25,817 and 10,714 shares of restricted stock, respectively, at $12.67 and $15.89 per share, resulting in an expense of $327,000 and $170,000 to be recognized ratably over the restriction periods which are primarily five years. At September 30, 2011, there were 217,687 shares of common stock covered by outstanding restricted stock and stock options and zero shares covered by outstanding stock warrants. All of these were vested except for 71,480 shares of restricted stock. |
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