UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended: June 30, 2012
Or
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from___ to ___
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Commission file number 1-31993
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STERLING CONSTRUCTION COMPANY, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE
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25-1655321
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State or other jurisdiction of incorporation
or organization
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(I.R.S. Employer
Identification No.)
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20810 Fernbush Lane
Houston, Texas
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77073
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(Address of principal executive office)
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(Zip Code)
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Registrant’s telephone number, including area code (281) 821-9091
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(Former name, former address and former fiscal year, if changed from last report)
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
[√] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [√] Yes [ ] No
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer [ ] Accelerated filer [√]
Non-accelerated filer [ ] Smaller reporting company [ ]
(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [√] No
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At July 31, 2012, there were 16,393,716 shares outstanding of the issuer’s common stock, par value $0.01 per share.
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PART I. FINANCIAL INFORMATION
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PART II – OTHER INFORMATION
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June 30,
2012
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December 31,
2011
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|||||||
(Unaudited)
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||||||||
ASSETS
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||||||||
Current assets:
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||||||||
Cash and cash equivalents
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$ | 19,112 | $ | 16,371 | ||||
Short-term investments
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49,676 | 44,855 | ||||||
Contracts receivable, including retainage
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88,788 | 74,875 | ||||||
Costs and estimated earnings in excess of billings on uncompleted contracts
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16,131 | 16,509 | ||||||
Inventories
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3,547 | 1,922 | ||||||
Deferred tax asset, net
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666 | 1,302 | ||||||
Receivables from and equity in construction joint ventures
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6,889 | 6,057 | ||||||
Other current assets
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5,032 | 2,132 | ||||||
Total current assets
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189,841 | 164,023 | ||||||
Property and equipment, net
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102,403 | 83,429 | ||||||
Goodwill
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54,460 | 54,050 | ||||||
Other assets, net
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6,178 | 2,329 | ||||||
Total assets
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$ | 352,882 | $ | 303,831 | ||||
LIABILITIES AND EQUITY
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||||||||
Current liabilities:
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||||||||
Accounts payable
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$ | 62,272 | $ | 40,064 | ||||
Billings in excess of costs and estimated earnings on uncompleted contracts
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24,437 | 18,583 | ||||||
Current maturities of long-term debt
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573 | 573 | ||||||
Income taxes payable
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5 | 2,013 | ||||||
Accrued compensation
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7,419 | 5,329 | ||||||
Current obligation for noncontrolling owners’ interests in subsidiaries and joint ventures
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21,800 | -- | ||||||
Other current liabilities
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4,367 | 2,723 | ||||||
Total current liabilities
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120,873 | 69,285 | ||||||
Long-term liabilities:
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||||||||
Long-term debt, net of current maturities
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268 | 263 | ||||||
Deferred tax liability, net
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368 | -- | ||||||
Other long-term liabilities
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2,417 | 2,597 | ||||||
Total long-term liabilities
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3,053 | 2,860 | ||||||
Commitments and contingencies (Note 7)
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||||||||
Obligation for noncontrolling owners’ interests in subsidiaries and joint ventures
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18,369 | 16,848 | ||||||
Equity:
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||||||||
Sterling stockholders’ equity:
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||||||||
Preferred stock, par value $0.01 per share; 1,000,000 shares authorized, none issued
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-- | -- | ||||||
Common stock, par value $0.01 per share; 19,000,000 shares authorized, 16,393,716 and 16,321,116 shares issued
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163 | 163 | ||||||
Additional paid in capital
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196,325 | 196,143 | ||||||
Retained earnings
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11,818 | 16,509 | ||||||
Accumulated other comprehensive income
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498 | 496 | ||||||
Total Sterling common stockholders’ equity
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208,804 | 213,311 | ||||||
Noncontrolling interests
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1,783 | 1,527 | ||||||
Total equity
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210,587 | 214,838 | ||||||
Total liabilities and equity
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$ | 352,882 | $ | 303,831 |
Three Months Ended
June 30,
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Six Months Ended
June 30,
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|||||||||||||||
2012
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2011
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2012
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2011
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|||||||||||||
Revenues
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$ | 168,709 | $ | 128,498 | $ | 267,134 | $ | 227,740 | ||||||||
Cost of revenues
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(153,550 | ) | (114,916 | ) | (250,103 | ) | (206,559 | ) | ||||||||
Gross profit
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15,159 | 13,582 | 17,031 | 21,181 | ||||||||||||
General and administrative expenses
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(8,444 | ) | (6,300 | ) | (16,110 | ) | (12,356 | ) | ||||||||
Other operating income (expense), net
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1,525 | 5 | 2,756 | 150 | ||||||||||||
Operating income
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8,240 | 7,287 | 3,677 | 8,975 | ||||||||||||
Gain (loss) on sale of securities and other
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333 | (41 | ) | 1,083 | (245 | ) | ||||||||||
Interest income
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511 | 565 | 927 | 943 | ||||||||||||
Interest expense
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(432 | ) | (374 | ) | (818 | ) | (588 | ) | ||||||||
Income before income taxes and earnings attributable to noncontrolling interests
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8,652 | 7,437 | 4,869 | 9,085 | ||||||||||||
Income tax benefit (expense)
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(984 | ) | (1,145 | ) | 2,992 | (1,311 | ) | |||||||||
Net income
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7,668 | 6,292 | 7,861 | 7,774 | ||||||||||||
Noncontrolling owners’ interests in earnings of subsidiaries and joint ventures
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(4,381 | ) | (2,081 | ) | (12,076 | ) | (3,519 | ) | ||||||||
Net income (loss) attributable to Sterling common stockholders
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$ | 3,287 | $ | 4,211 | $ | (4,215 | ) | $ | 4,255 | |||||||
Net income (loss) per share attributable to Sterling common stockholders:
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||||||||||||||||
Basic
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$ | 0.15 | $ | 0.26 | $ | (0.29 | ) | $ | 0.26 | |||||||
Diluted
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$ | 0.15 | $ | 0.25 | $ | (0.29 | ) | $ | 0.26 | |||||||
Weighted average number of common shares outstanding used in computing per share amounts:
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||||||||||||||||
Basic
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16,359,597 | 16,483,691 | 16,341,037 | 16,474,074 | ||||||||||||
Diluted
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16,444,324 | 16,594,509 | 16,341,037 | 16,604,368 |
Six Months Ended June 30,
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||||||||
2012
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2011
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|||||||
Net income (loss) attributable to Sterling common stockholders
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$ | (4,215 | ) | $ | 4,255 | |||
Net income attributable to noncontrolling interest included in equity
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296 | -- | ||||||
Net income attributable to noncontrolling interest included in liabilities
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11,780 | 3,519 | ||||||
Add /(deduct) other comprehensive income, net of tax:
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||||||||
Realized (gain) loss from available-for-sale securities
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(326 | ) | 143 | |||||
Change in unrealized holding gain (loss) on available-for-sale securities
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312 | 122 | ||||||
Realized loss from settlement of derivatives
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29 | 8 | ||||||
Change in the effective portion of unrealized gain (loss) in fair market value of derivatives
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(13 | ) | (133 | ) | ||||
Comprehensive income
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$ | 7,863 | $ | 7,914 |
STERLING CONSTRUCTION COMPANY, INC. STOCKHOLDERS
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||||||||||||||||||||||||||||||||||||
Common Stock
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Treasury Stock
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Addi-
tional
Paid in
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Retained
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Accu-
mulated
Other
Compre-
hensive
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Noncontrolling
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|||||||||||||||||||||||||||||||
Shares
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Amount
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Shares
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Amount
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Capital
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Earnings
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Income
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Interests
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Total
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||||||||||||||||||||||||||||
Balance at January 1, 2012
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16,321 | $ | 163 | -- | $ | -- | $ | 196,143 | $ | 16,509 | $ | 496 | $ | 1,527 | $ | 214,838 | ||||||||||||||||||||
Net income (loss)
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-- | -- | -- | -- | -- | (4,215 | ) | -- | 296 | (3,919 | ) | |||||||||||||||||||||||||
Other comprehensive income
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-- | -- | -- | -- | -- | -- | 2 | -- | 2 | |||||||||||||||||||||||||||
Stock issued upon option exercises
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23 | -- | -- | -- | 47 | -- | -- | -- | 47 | |||||||||||||||||||||||||||
Tax impact from exercise of stock options
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-- | -- | -- | -- | (129 | ) | -- | -- | -- | (129 | ) | |||||||||||||||||||||||||
Issuance and amortization of restricted stock
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50 | -- | -- | -- | 264 | -- | -- | -- | 264 | |||||||||||||||||||||||||||
Revaluation of noncontrolling interest RLW put/call liability and other, net of tax
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-- | -- | -- | -- | -- | (476 | ) | -- | (40 | ) | (516 | ) | ||||||||||||||||||||||||
Balance at June 30, 2012
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16,394 | $ | 163 | -- | $ | -- | $ | 196,325 | $ | 11,818 | $ | 498 | $ | 1,783 | $ | 210,587 |
Six Months Ended June 30,
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||||||||
2012
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2011
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|||||||
Net income (loss) attributable to Sterling common stockholders
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$ | (4,215 | ) | $ | 4,255 | |||
Plus: Noncontrolling owners’ interests in earnings of subsidiaries and joint ventures
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12,076 | 3,519 | ||||||
Net income
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7,861 | 7,774 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities:
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||||||||
Depreciation and amortization
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9,384 | 8,436 | ||||||
Gain on disposal of property and equipment
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(2,724 | ) | (154 | ) | ||||
Deferred tax expense (benefit)
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(3,136 | ) | 1,665 | |||||
Stock-based compensation expense
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264 | 258 | ||||||
Interest expense accreted on noncontrolling interests
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497 | 424 | ||||||
Loss (gain) on sale of securities and other
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(696 | ) | 245 | |||||
Tax impact from exercise of stock options
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129 | -- | ||||||
Other changes in operating assets and liabilities:
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||||||||
Increase in contracts receivable
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(13,913 | ) | (7,334 | ) | ||||
(Increase) decrease in costs and estimated earnings in excess of billings on uncompleted contracts
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378 | (9,382 | ) | |||||
Increase in income tax receivable
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-- | (1,131 | ) | |||||
(Increase) decrease in prepaid expenses and other assets
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(3,986 | ) | 203 | |||||
(Increase) decrease in receivables from and equity in construction joint ventures
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(832 | ) | 834 | |||||
Increase in trade payables
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22,208 | 3,148 | ||||||
Increase in billings in excess of costs and estimated earnings on uncompleted contracts
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5,854 | 1,217 | ||||||
Increase in accrued compensation and other liabilities
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1,843 | 365 | ||||||
Net cash provided by operating activities
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23,131 | 6,568 | ||||||
Cash flows from investing activities:
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||||||||
Additions to property and equipment
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(17,856 | ) | (15,171 | ) | ||||
Proceeds from sale of property and equipment
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6,847 | 564 | ||||||
Purchases of short-term securities, available for sale
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(19,083 | ) | (83,162 | ) | ||||
Sales of short-term securities, available for sale
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14,742 | 58,601 | ||||||
Net cash used in investing activities
|
(15,350 | ) | (39,168 | ) | ||||
Cash flows from financing activities:
|
||||||||
Cumulative daily drawdowns – Credit Facility
|
3,000 | 2,000 | ||||||
Cumulative daily repayments – Credit Facility
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(3,000 | ) | (2,000 | ) | ||||
Repayments under long-term obligations
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(73 | ) | (37 | ) | ||||
Purchases of treasury stock
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-- | (1,841 | ) | |||||
Issuance of common stock pursuant to warrants and options exercised
|
47 | 122 | ||||||
Distributions to noncontrolling interest owners
|
(4,885 | ) | (4,818 | ) | ||||
Utilization of tax impact from exercise of stock options
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(129 | ) | -- | |||||
Net cash used in financing activities
|
(5,040 | ) | (6,574 | ) | ||||
Net increase (decrease) in cash and cash equivalents
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2,741 | (39,174 | ) | |||||
Cash and cash equivalents at beginning of period
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16,371 | 49,441 | ||||||
Cash and cash equivalents at end of period
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$ | 19,112 | $ | 10,267 | ||||
Supplemental disclosures of cash flow information:
|
||||||||
Cash paid during the period for interest
|
$ | 534 | $ | 64 | ||||
Cash paid during the period for income taxes
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$ | 2,755 | $ | 2,029 | ||||
Non-cash items:
|
||||||||
Revaluation of noncontrolling interest – RLW put/call liability, net of tax
|
$ | 476 | $ | -- | ||||
Reclassification of amounts payable to noncontrolling interest owner
|
$ | -- | $ | 1,054 | ||||
Issuance of noncontrolling interest in RHB in exchange for net assets of acquired companies
|
$ | 15,196 | $ | -- |
1.
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Summary of Business and Significant Accounting Policies
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·
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Reduced federal, state and local spending on transportation and water-related infrastructure.
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·
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Traditional competitors on larger transportation and water infrastructure projects appear to have been bidding at less than normal margins, sometimes at bid levels below our break-even pricing, in order to replenish their backlogs.
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·
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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.
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·
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The entry of new competitors from other states.
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· contracts receivable, including retainage
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· revenue recognition
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· valuation of property and equipment, goodwill and other long-lived assets
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· construction joint ventures
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· income taxes
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· segment reporting
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2.
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Cash and Cash Equivalents and Short-term Investments
|
June 30, 2012
|
||||||||||||||||||||
Total Fair
Value
|
Level 1
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Level 2
|
Gross
Unrealized
Gains
(pre-tax)
|
Gross
Unrealized
Losses
(pre-tax)
|
||||||||||||||||
Mutual funds
|
$ | 29,012 | $ | 29,012 | $ | -- | $ | 258 | $ | 12 | ||||||||||
Municipal bonds
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20,664 | -- | 20,664 | 765 | 46 | |||||||||||||||
Total securities available-for-sale
|
$ | 49,676 | $ | 29,012 | $ | 20,664 | $ | 1,023 | $ | 58 |
December 31, 2011
|
||||||||||||||||||||
Total Fair
Value
|
Level 1
|
Level 2
|
Gross
Unrealized
Gains
(pre-tax)
|
Gross
Unrealized
Losses
(pre-tax)
|
||||||||||||||||
Mutual funds
|
$ | 24,851 | $ | 24,851 | $ | -- | $ | 383 | $ | -- | ||||||||||
Municipal bonds
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20,004 | -- | 20,004 | 617 | 15 | |||||||||||||||
Total securities available-for-sale
|
$ | 44,855 | $ | 24,851 | $ | 20,004 | $ | 1,000 | $ | 15 |
3.
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Construction Joint Ventures
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June 30,
2012
|
December 31,
2011
|
|||||||
Total combined:
|
||||||||
Current assets
|
$ | 6,364 | $ | 108,458 | ||||
Less current liabilities
|
(3,517 | ) | (86,023 | ) | ||||
Net assets
|
$ | 2,847 | $ | 22,435 | ||||
Backlog
|
$ | 435,385 | $ | 539,844 | ||||
Sterling’s noncontrolling interest in backlog
|
$ | 121,877 | $ | 127,130 | ||||
Sterling’s receivables from and equity in construction joint ventures
|
$ | 6,889 | $ | 6,057 |
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
Total combined:
|
||||||||||||||||
Revenues
|
$ | 215,210 | $ | 113,550 | $ | 305,584 | $ | 200,236 | ||||||||
Income before tax
|
20,299 | 9,478 | 28,861 | 16,405 | ||||||||||||
Sterling’s proportionate share:
|
||||||||||||||||
Revenues
|
$ | 37,885 | $ | 14,189 | $ | 53,801 | $ | 25,030 | ||||||||
Income before tax
|
3,337 | 1,184 | 4,750 | 2,012 |
4.
|
Property and Equipment
|
June 30,
2012
|
December 31,
2011
|
|||||||
Construction equipment
|
$ | 135,511 | $ | 125,222 | ||||
Transportation equipment
|
16,428 | 17,963 | ||||||
Buildings
|
7,186 | 4, 729 | ||||||
Office equipment
|
1,292 | 1,077 | ||||||
Construction in progress
|
1,051 | 2,544 | ||||||
Land
|
4,886 | 3,026 | ||||||
Water rights
|
200 | 200 | ||||||
166,554 | 154,761 | |||||||
Less accumulated depreciation
|
(64,151 | ) | (71,332 | ) | ||||
$ | 102,403 | $ | 83,429 |
5.
|
Derivative Financial Instruments
|
Balance Sheet Location
|
June 30,
2012
|
December 31,
2011
|
||||||
Derivative assets:
|
||||||||
Deposits and other current assets
|
$ | -- | $ | -- | ||||
Other assets, net
|
-- | -- | ||||||
$ | -- | $ | -- | |||||
Derivative liabilities:
|
||||||||
Other current liabilities
|
$ | 156 | $ | 147 | ||||
Other long-term liabilities
|
42 | 76 | ||||||
$ | 198 | $ | 223 |
June 30,
|
June 30,
|
|||||||
2012
|
2011
|
|||||||
Increase in fair value of derivatives included in other comprehensive income (effective portion)
|
$ | 25 | $ | -- | ||||
Realized loss included in cost of revenues (effective portion)
|
(44 | ) | -- | |||||
Increase (decrease) in fair value of derivatives included in cost of revenues (ineffective portion)
|
-- | -- |
6.
|
Income Taxes
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
Current tax expense (benefit)
|
$ | 1,169 | $ | 748 | $ | 144 | $ | (354 | ) | |||||||
Deferred tax expense (benefit)
|
(185 | ) | 397 | (3,136 | ) | 1,665 | ||||||||||
Total tax expense (benefit)
|
$ | 984 | $ | 1,145 | $ | (2,992 | ) | $ | 1,311 |
2012
|
2011
|
|||||||||||||||
Amount
|
%
|
Amount
|
%
|
|||||||||||||
Tax expense at the federal statutory rate
|
$ | 1,698 | 35.0 | % | $ | 3,180 | 35.0 | % | ||||||||
State income tax expense (benefit), net of federal benefit
|
9 | 0.2 | (444 | ) | (4.9 | ) | ||||||||||
Taxes on subsidiaries' and joint ventures’ earnings attributable to noncontrolling ownership interests, which are liabilities of such owners
|
(4,213 | ) | (86.8 | ) | (1,232 | ) | (13.6 | ) | ||||||||
Interest income not subject to federal tax
|
(235 | ) | (4.8 | ) | (210 | ) | (2.3 | ) | ||||||||
Other permanent differences
|
(251 | ) | (5.3 | ) | 17 | 0.2 | ||||||||||
Income tax expense
|
$ | (2,992 | ) | (61.7 | )% | $ | 1,311 | 14.4 | % |
7.
|
Contingencies Related to Litigation
|
8.
|
Acquisitions and Subsidiaries and Joint Ventures with Noncontrolling Owners’ Interests
|
Revenue
|
Net Income
Attributable
to Sterling
Common
Stockholders
|
|||||||
JBC actual from January 1, 2012 to June 30, 2012
|
$ | 20,176 | $ | 888 | ||||
Myers actual from January 1, 2012 to June 30, 2012
|
23,570 | 192 | ||||||
Supplemental pro forma results of the Company, JBC, and Myers on a combined basis for 1/1/2011 – 6/30/2011 (unaudited)
|
237,304 | 4,184 |
Six Months Ended
June 30,
|
||||||||
2012
|
2011
|
|||||||
Balance, beginning of period
|
$ | 16,848 | $ | 28,724 | ||||
Noncontrolling owners’ interests in earnings of subsidiaries and joint ventures
|
11,780 | 3,519 | ||||||
Accretion of interest on RLW Put/Call
|
497 | 424 | ||||||
Change in fair value of RLW Put/Call
|
733 | -- | ||||||
Change in fair value of RHB put/call
|
-- | 1,054 | ||||||
Issuance of noncontrolling interest in RHB in exchange for net assets of acquired companies
|
15,196 | -- | ||||||
Distributions to noncontrolling interest owners
|
(4,885 | ) | (4,818 | ) | ||||
Balance, end of period
|
$ | 40,169 | $ | 28,903 |
9.
|
Stockholders’ Equity
|
10.
|
Variable Interest Entities
|
June 30,
2012
|
December 31,
2011
|
|||||||
Assets:
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 3,155 | $ | 1,365 | ||||
Contracts receivable, including retainage
|
12,133 | 2,244 | ||||||
Other current assets
|
135 | 419 | ||||||
Total current assets
|
15,423 | 4,028 | ||||||
Property and equipment, net
|
2,713 | 926 | ||||||
Goodwill
|
1,501 | 1,541 | ||||||
Total assets
|
$ | 19,637 | $ | 6,495 | ||||
Liabilities:
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$ | 12,010 | $ | 1,134 | ||||
Other current liabilities
|
4,061 | 2,323 | ||||||
Total current liabilities
|
16,071 | 3,457 | ||||||
Long-term liabilities:
|
||||||||
Other long-term liabilities
|
-- | -- | ||||||
Total long-term liabilities
|
-- | -- | ||||||
Total liabilities
|
$ | 16,071 | $ | 3,457 |
Three Months Ended
June 30,
2012
|
Six Months Ended
June 30,
2012
|
|||||||
Revenues
|
$ | 19,056 | $ | 23,570 | ||||
Operating income
|
633 | 602 | ||||||
Net income attributable to Sterling common stockholders
|
204 | 192 |
11.
|
Net Income (Loss) per Share Attributable to Sterling Common Stockholders
|
Three Months
Ended June 30,
|
Six Months
Ended June 30,
|
|||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
Numerator:
|
||||||||||||||||
Net income (loss) attributable to Sterling common stockholders
|
$ | 3,287 | $ | 4,211 | $ | (4,215 | ) | $ | 4,255 | |||||||
Revaluation of the RLW noncontrolling interest put/call liability reflected in retained earnings, net of tax
|
(777 | ) | -- | (476 | ) | -- | ||||||||||
$ | 2,510 | $ | 4,211 | $ | (4,691 | ) | $ | 4,255 | ||||||||
Denominator:
|
||||||||||||||||
Weighted average common shares outstanding — basic
|
16,360 | 16,484 | 16,341 | 16,474 | ||||||||||||
Shares for dilutive stock options and warrants
|
84 | 111 | -- | 130 | ||||||||||||
Weighted average common shares outstanding and assumed conversions— diluted
|
16,444 | 16,595 | 16,341 | 16,604 | ||||||||||||
Basic net income (loss) per share attributable to Sterling common stockholders
|
$ | 0.15 | $ | 0.26 | $ | (0.29 | ) | $ | 0.26 | |||||||
Diluted net income (loss) per share attributable to Sterling common stockholders
|
$ | 0.15 | $ | 0.25 | $ | (0.29 | ) | $ | 0.26 |
·
|
changes in general economic conditions, including recessions, 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;
|
·
|
design/build contracts which subject us to the risk of design errors and omissions;
|
·
|
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 limited number of 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 ours, 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 where non-compliance can result in penalties and/or termination of contracts as well as civil and criminal liability;
|
·
|
the instability of certain financial institutions, which could cause losses on our cash and cash equivalents and short-term investments;
|
·
|
adverse economic conditions in our markets; and
|
·
|
the other factors discussed in more detail in our Annual Report on Form 10-K for the year ended December 31, 2011 (“2011 Form 10-K”) under “Item 1A. —Risk Factors.”
|
·
|
changing roles and responsibilities to improve functional support and controls;
|
·
|
developing management tools designed to improve the estimating process and increase the oversight of that process;
|
·
|
implementing processes designed to better identify, evaluate and quantify risks for individual projects;
|
·
|
improving the methodologies for allocating overhead, indirect costs and equipment costs to individual projects; and
|
·
|
improving the timeliness and content of reporting available to operations management.
|
·
|
Reduced federal, state and local spending on transportation and water-related infrastructure.
|
·
|
Traditional competitors on larger transportation and water infrastructure projects appear to have been bidding at less than normal margins, sometimes at bid levels below our break-even pricing, in order to replenish their backlogs.
|
·
|
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.
|
·
|
The entry of new competitors from other states.
|
Three Months ended June 30,
|
Six Months ended June 30,
|
|||||||||||||||||||||||
2012
|
2011
|
% Change
|
2012
|
2011
|
% Change
|
|||||||||||||||||||
Revenues
|
$ | 168,709 | $ | 128,498 | 31.3 | % | $ | 267,134 | $ | 227,740 | 17.3 | % | ||||||||||||
Gross profit
|
$ | 15,159 | $ | 13,582 | 11.6 | $ | 17,031 | $ | 21,181 | (19.6 | ) | |||||||||||||
General and administrative expenses, net
|
(8,444 | ) | (6,300 | ) | 34.0 | (16,110 | ) | (12,356 | ) | 30.4 | ||||||||||||||
Other operating income
|
1,525 | 5 |
NM
|
2,756 | 150 |
NM
|
||||||||||||||||||
Operating income
|
8,240 | 7,287 | 13.1 | 3,677 | 8,975 | (59.0 | ) | |||||||||||||||||
Gains (loss) on the sale of securities and other
|
333 | (41 | ) |
NM
|
1,083 | (245 | ) |
NM
|
||||||||||||||||
Interest income
|
511 | 565 | (9.6 | ) | 927 | 943 | (1.7 | ) | ||||||||||||||||
Interest expense
|
(432 | ) | (374 | ) | 15.5 | (818 | ) | (588 | ) | 39.1 | ||||||||||||||
Income before taxes
|
8,652 | 7,437 | 16.3 | 4,869 | ) | 9,085 | (46.4 | ) | ||||||||||||||||
Income tax benefit (expense)
|
(984 | ) | (1,145 | ) | (14.1 | ) | 2,992 | (1,311 | ) |
NM
|
||||||||||||||
Net income
|
7,668 | 6,292 | 21.9 | 7,861 | 7,774 | 1.1 | ||||||||||||||||||
Noncontrolling owners’ interests in earnings of subsidiaries and joint ventures
|
(4,381 | ) | (2,081 | ) | 110.5 | (12,076 | ) | (3,519 | ) | 243.2 | ||||||||||||||
Net income (loss) attributable to Sterling common stockholders
|
$ | 3,287 | $ | 4,211 | (21.9 | ) | $ | (4,215 | ) | $ | 4,255 |
NM
|
||||||||||||
Gross margin
|
9.0 | % | 10.6 | % | (15.1 | ) | 6.4 | % | 9.3 | % | (31.2 | ) | ||||||||||||
Operating margin
|
4.9 | % | 5.7 | % | (14.0 | ) | 1.4 | % | 3.9 | % | (64.1 | ) |
Amount as of
|
||||||||||||
June 30,
2012
|
March 31,
2012
|
December 31,
2011
|
||||||||||
Contract Backlog, end of period
|
$ | 782,000 | $ | 868,000 | $ | 741,000 |
·
|
conditions or contract requirements that differed from those assumed in the original bid or contract;
|
·
|
lower than expected productivity levels; and
|
·
|
delays in quickly identifying and taking measures to address issues which arose during construction.
|
Six Months Ended
June 30,
|
||||||||
2012
|
2011
|
|||||||
Net cash provided by (used in):
|
||||||||
Operating activities
|
$ | 23,131 | $ | 6,568 | ||||
Capital expenditures
|
(17,856 | ) | (15,171 | ) | ||||
Proceeds from sale of property and equipment
|
6,847 | 564 | ||||||
Net purchases of short-term securities
|
(4,341 | ) | (24,561 | ) | ||||
Distributions to noncontrolling interest owners
|
(4,885 | ) | (4,818 | ) | ||||
Purchases of treasury stock
|
-- | (1,841 | ) | |||||
Other
|
(155 | ) | 85 | |||||
Total
|
$ | 2,741 | $ | (39,174 | ) |
Amount as of
|
||||||||
June 30,
2012
|
December 31,
2011
|
|||||||
Cash and cash equivalents
|
$ | 19,112 | $ | 16,371 | ||||
Working capital
|
$ | 68,968 | $ | 94,738 |
·
|
depreciation and amortization, which increased from $8.4 million in the Prior Period to $9.4 million in the Current Period as a result of an increase in capital expenditures as well as depreciation associated with JBC and Myers which were acquired August 1, 2011; and
|
·
|
deferred tax expense (benefit); we had a deferred tax benefit of $3.1 million in the Current Period which is primarily attributable to the $2.4 million tax impact of the additional earnings to noncontrolling interest owners of $6.7 million discussed in Note 8; deferred tax of $1.7 million in the Prior Period is mainly attributable to amortization for tax return purposes of goodwill and accelerated tax depreciation.
|
·
|
net working capital attributable to contracts receivable, costs in excess of billings on uncompleted contracts, billings in excess of costs on uncompleted contracts and accounts payable decreased $14.5 million in the Current Period primarily; net working capital attributable to these items increased $15.5 million in the Prior Period; and
|
·
|
accrued compensation and other liabilities increased by $3.7 million in the Current Period and increased by $3.5 million in the Prior Period.
|
·
|
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
|
$ | 7,861 | ||
Current portion of obligation to noncontrolling interest owners of RLW
|
(21,800 | ) | ||
Depreciation and amortization
|
9,384 | |||
Deferred tax benefit
|
(3,136 | ) | ||
Capital expenditures
|
(17,856 | ) | ||
Proceeds from sales of property and equipment, net of gain (loss)
|
4,123 | |||
Distributions to noncontrolling interest owners
|
(4,885 | ) | ||
Other
|
539 | |||
Total decrease in working capital
|
$ | (25,770 | ) |
·
|
Make distributions or pay dividends;
|
·
|
Incur liens and encumbrances;
|
·
|
Incur further indebtedness;
|
·
|
Guarantee obligations;
|
·
|
Dispose of a material portion of assets or merge with a third party; and
|
·
|
Make investments in securities.
|
Price Per Gallon
|
Remaining
|
Fair Value of
|
||||||||||||
Beginning
|
Ending
|
Range
|
Weighted
Average
|
Volume
(gallons)
|
Derivatives at
June 30, 2012
(in thousands)
|
|||||||||
July 1, 2012
|
December 31, 2012
|
$3.03–$3.33
|
$3.16
|
210,000
|
$
|
(84
|
)
|
|||||||
January 1, 2013
|
December 31, 2013
|
$2.80–$3.29
|
$3.01
|
410,000
|
(114
|
)
|
||||||||
$
|
(198
|
)
|
31.1*
|
Certification of Patrick T. Manning, Chief Executive Officer of Sterling Construction Company, Inc.
|
31.2*
|
Certification of Elizabeth D. Brumley, Chief Financial Officer of Sterling Construction Company, Inc.
|
32*
|
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 Elizabeth D. Brumley, Chief Financial Officer
|
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
|
|
31.1*
|
Certification of Patrick T. Manning, Chief Executive Officer of Sterling Construction Company, Inc.
|
|
31.2*
|
Certification of Elizabeth D. Brumley, Chief Financial Officer of Sterling Construction Company, Inc.
|
|
32*
|
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 Elizabeth D. Brumley, Chief Financial Officer.
|
|
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 six months ended June 30, 2012;
|
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 six months ended June 30, 2012;
|
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 June 30, 2012 (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.
|
Note 11 - Net Income (Loss) per Share Attributable to Sterling Common Stockholders (Detail)
|
6 Months Ended | |
---|---|---|
Jun. 30, 2012
|
Jun. 30, 2011
|
|
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number | 2,800 | 95,107 |
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 86,544 |
Note 10 - Variable Interest Entities (Detail) - Summary financial information of Myers included int consolidated balance sheet: (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2012
|
Dec. 31, 2011
|
Jun. 30, 2011
|
Dec. 31, 2010
|
---|---|---|---|---|
Current assets: | ||||
Cash and cash equivalents | $ 19,112 | $ 16,371 | $ 10,267 | $ 49,441 |
Contracts receivable, including retainage | 88,788 | 74,875 | ||
Other current assets | 5,032 | 2,132 | ||
Total current assets | 189,841 | 164,023 | ||
Property and equipment, net | 102,403 | 83,429 | ||
Goodwill | 54,460 | 54,050 | ||
Total assets | 352,882 | 303,831 | ||
Current liabilities: | ||||
Accounts payable | 62,272 | 40,064 | ||
Total current liabilities | 4,367 | 2,723 | ||
Variable Interest Entity, Primary Beneficiary [Member]
|
||||
Current assets: | ||||
Cash and cash equivalents | 3,155 | 1,365 | ||
Contracts receivable, including retainage | 12,133 | 2,244 | ||
Other current assets | 135 | 419 | ||
Total current assets | 15,423 | 4,028 | ||
Property and equipment, net | 2,713 | 926 | ||
Goodwill | 1,501 | 1,541 | ||
Total assets | 19,637 | 6,495 | ||
Current liabilities: | ||||
Accounts payable | 12,010 | 1,134 | ||
Other current liabilities | 4,061 | 2,323 | ||
Total current liabilities | 16,071 | 3,457 | ||
Long-term liabilities: | ||||
Total liabilities | $ 16,071 | $ 3,457 |
Note 4 - Property and Equipment (Detail) - Property and equipment are summarized as follows (in thousands): (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2012
|
Dec. 31, 2011
|
---|---|---|
Property, Plant, and Equipment | $ 166,554 | $ 154,761 |
Less accumulated depreciation | (64,151) | (71,332) |
102,403 | 83,429 | |
Construction Equipment [Member]
|
||
Property, Plant, and Equipment | 135,511 | 125,222 |
Transportation Equipment [Member]
|
||
Property, Plant, and Equipment | 16,428 | 17,963 |
Building [Member]
|
||
Property, Plant, and Equipment | 7,186 | 4,729 |
Office Equipment [Member]
|
||
Property, Plant, and Equipment | 1,292 | 1,077 |
Construction in Progress [Member]
|
||
Property, Plant, and Equipment | 1,051 | 2,544 |
Land [Member]
|
||
Property, Plant, and Equipment | 4,886 | 3,026 |
Water Rights [Member]
|
||
Property, Plant, and Equipment | $ 200 | $ 200 |
Note 8 - Acquisitions and Subsidiaries and Joint Ventures with Noncontrolling Owners' Interests (Tables)
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2012
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Equity Method Investments [Table Text Block] |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Note 8 - Acquisitions and Subsidiaries and Joint Ventures with Noncontrolling Owners' Interests (Detail) - Summary of noncontrolling interests revenues and earnings included in the Company's condensed consolidated financial statements: (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2011
|
Jun. 30, 2012
|
Jun. 30, 2011
|
|
Revenue | $ 168,709 | $ 128,498 | $ 267,134 | $ 227,740 |
Supplemental pro forma results of the Company, JBC, and Myers on a combined basis for 1/1/2011 – 6/30/2011 (unaudited) | 237,304 | |||
Supplemental pro forma results of the Company, JBC, and Myers on a combined basis for 1/1/2011 – 6/30/2011 (unaudited) | 4,184 | |||
JBC [Member]
|
||||
Revenue | 20,176 | |||
Net Income Attributable to Sterling Common Stockholders | 888 | |||
Myers & Sons Construction L.P. [Member]
|
||||
Revenue | 23,570 | |||
Net Income Attributable to Sterling Common Stockholders | $ 192 |
Note 6 - Income Taxes (Detail) (USD $)
|
6 Months Ended | |
---|---|---|
Jun. 30, 2012
|
Jun. 30, 2011
|
|
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate | 35.00% | 35.00% |
RLW [Member]
|
||
Increase (Decrease) in Income Taxes | 2,351,000 | |
Income (Loss) from Continuing Operations Attributable to Noncontrolling Interest | 6,717,000 |
Note 10 - Variable Interest Entities (Detail) - Summary financial information of Myers included in the consolidated statements of operations: (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2011
|
Jun. 30, 2012
|
Jun. 30, 2011
|
|
Revenues | $ 168,709 | $ 128,498 | $ 267,134 | $ 227,740 |
Operating income | 8,240 | 7,287 | 3,677 | 8,975 |
Net income attributable to Sterling common stockholders | (12,076) | (3,519) | ||
Variable Interest Entity, Primary Beneficiary [Member]
|
||||
Revenues | 19,056 | 23,570 | ||
Operating income | 633 | 602 | ||
Net income attributable to Sterling common stockholders | $ 204 | $ 192 |
Note 2 - Cash and Cash Equivalents and Short-term Investments
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2012
|
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Cash, Cash Equivalents, and Short-term Investments [Text Block] |
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
June 30, 2012, $18.4 million of cash and cash equivalents
were fully insured by the FDIC under its standard maximum
deposit insurance amount guidelines. At June 30,
2012, cash and cash equivalents included $3.7 million
belonging to majority-owned joint ventures consolidated in
these financial statements, which generally cannot be used
for purposes outside the joint ventures.
Short-term
investments include mutual funds and government bonds which
are considered available-for-sale securities and measured
at fair value as required under applicable
GAAP. Government bonds have maturity dates of
2013-2043. At June 30, 2012 and December 31,
2011, the Company had short-term investments as follows (in
thousands):
The
amortized cost basis of the above securities at June 30,
2012 and December 31, 2011 was $48.7 million and $44.3
million, respectively. Municipal bond securities
are the only securities held by the Company where fair
value does not equal amortized cost. The
amortized cost for municipal bond securities was $19.7
million and $19.4 million at June 30, 2012 and December 31,
2011, 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
and losses realized on short-term investment securities
are included in “Gains (losses) on sale of
securities and other” in the accompanying
statements of operations. Unrealized gains
(losses) on short-term investments are included in
accumulated other comprehensive income in
stockholders’ equity, net of tax, as the gains and
losses may be temporary. For the six months
ended June 30, 2012, total proceeds from sales of
short-term investments were $14.7 million with gross
realized gains of $501,000 and gross realized losses of
$0. The unrealized gains (losses) on
short-term investments included in accumulated other
comprehensive income, net of taxes of $338,000, was
$627,000 at June 30, 2012. Upon the sale of
short-term investments, the cost basis used to determine
the gain or loss is based on the specific identification
of the security sold. All items included in
accumulated other comprehensive income are at the
corporate level, and no portion is attributable to
noncontrolling interests.
For
the three and six months ended June 30, 2012 and 2011, the
Company earned interest income of $352,000 and $703,000,
and $378,000 and $943,000, respectively, on its cash, cash
equivalents and short-term investments.
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