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: September 30, 2008
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 and 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
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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 [ ] (Do not check if a smaller
reporting
company) 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
November 1, 2008, there were 13,165,152 shares outstanding of the issuer’s
common stock, par value $0.01 per share
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3
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||
3
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||
7
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||
12
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||
20
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20
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20
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20
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||
20
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21
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21
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22
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September
30,
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December 31,
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|||||||
2008
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2007
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|||||||
ASSETS
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||||||||
Current
assets:
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||||||||
Cash
and cash equivalents
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$ |
62,094
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$ |
80,649
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||||
Short-term
investments
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17,383
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54
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||||||
Contracts
receivable, including retainage
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67,241
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54,394
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||||||
Costs
and estimated earnings in excess of billings on uncompleted
contracts
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7,991
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3,747
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||||||
Inventories
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1,099
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1,239
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||||||
Deferred
tax asset, net
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1,006
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1,088
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||||||
Prepaid
Federal income tax
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1,075
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--
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||||||
Deposits
and other current assets
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1,278
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1,779
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||||||
Total
current assets
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159,167
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142,950
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||||||
Property
and equipment, net
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78,582
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72,389
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||||||
Goodwill
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57,232
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57,232
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||||||
Other
assets, net
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1,732
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1,944
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||||||
Total
assets
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$ |
296,713
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$ |
274,515
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||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
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||||||||
Current
liabilities:
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||||||||
Accounts
payable
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$ |
30,488
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$ |
27,190
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||||
Billings
in excess of costs and estimated earnings on uncompleted
contracts
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25,120
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25,349
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||||||
Current
maturities of long term obligations
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74
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98
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||||||
Income
taxes payable
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--
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1,102
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||||||
Other
accrued expenses
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9,924
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7,148
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||||||
Total
current liabilities
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65,606
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60,887
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||||||
Long-term
liabilities:
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||||||||
Long-term
debt, net of current maturities
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60,501
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65,556
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||||||
Deferred
tax liability, net
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9,288
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3,098
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||||||
Minority
interest in subsidiary
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7,557
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6,362
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||||||
Total
long-term liabilities
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77,346
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75,016
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||||||
Commitments
and contingencies
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||||||||
Stockholders’
equity:
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||||||||
Preferred
stock, par value $0.01 per share; authorized 1,000,000shares,
none issued
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--
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--
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||||||
Common
stock, par value $0.01 per share; authorized 19,000,000shares, 13,142,932
and 13,006,502 shares issued and outstanding
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131
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130
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||||||
Additional
paid-in capital
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148,700
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147,786
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||||||
Retained
earnings (deficit)
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4,930
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(9,304)
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||||||
Total
stockholders’ equity
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153,761
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138,612
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||||||
Total
liabilities and stockholders’ equity
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$ |
296,713
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$ |
274,515
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Three
months ended September 30,
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Nine
months ended September 30,
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|||||||||||||||
2008
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2007
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2008
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2007
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|||||||||||||
Revenues
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$ | 114,148 | $ | 77,714 | $ | 305,802 | $ | 217,877 | ||||||||
Cost
of revenues
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101,576 | 69,799 | 273,389 | 196,284 | ||||||||||||
Gross
profit
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12,572 | 7,915 | 32,413 | 21,593 | ||||||||||||
General
and administrative expenses
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(3,201 | ) | (3,257 | ) | (10,090 | ) | (8,750 | ) | ||||||||
Other
income (expense)
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61 | -- | (41 | ) | 433 | |||||||||||
Operating
income
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9,432 | 4,658 | 22,282 | 13,276 | ||||||||||||
Interest
income
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303 | 480 | 813 | 1,421 | ||||||||||||
Interest
expense
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(144 | ) | (13 | ) | (426 | ) | (55 | ) | ||||||||
Income before income
taxes andminority interest
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9,591 | 5,125 | 22,669 | 14,642 | ||||||||||||
Income
tax expense
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(3,245 | ) | (1,682 | ) | (7,616 | ) | (4,890 | ) | ||||||||
Minority
interest in earnings ofsubsidiary
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(368 | ) | -- | (819 | ) | -- | ||||||||||
Net
income
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$ | 5,978 | $ | 3,443 | $ | 14,234 | $ | 9,752 | ||||||||
Net
income per share:
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||||||||||||||||
Basic
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$ | 0.46 | $ | 0.31 | $ | 1.09 | $ | 0.89 | ||||||||
Diluted
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$ | 0.44 | $ | 0.29 | $ | 1.04 | $ | 0.83 | ||||||||
Weighted
average number of common shares outstanding used in computing
per share amounts:
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||||||||||||||||
Basic
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13,125,671 | 11,003,346 | 13,101,766 | 10,962,009 | ||||||||||||
Diluted
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13,705,477 | 11,774,116 | 13,702,800 | 11,765,287 |
Additional
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||||||||||||||||||||
Common
Stock
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Paid-in
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Retained
Earnings
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||||||||||||||||||
Shares
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Amount
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Capital
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(Deficit)
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Total
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||||||||||||||||
Balance
at January 1, 2008
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13,007 | $ | 130 | $ | 147,786 | $ | (9,304 | ) | $ | 138,612 | ||||||||||
Net
income
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-- | -- | -- | 14,234 | 14,234 | |||||||||||||||
Stock
issued upon option and warrantexercises
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112 | 1 | 162 | -- | 163 | |||||||||||||||
Excess
tax benefits from exercise of stockoptions
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-- | -- | 522 | -- | 522 | |||||||||||||||
Issuance
and amortization of restricted stock
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24 | -- | 214 | -- | 214 | |||||||||||||||
Stock-based
compensation expense
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-- | -- | 159 | -- | 159 | |||||||||||||||
Expenditures
related to 2007 equity offering
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-- | -- | (143 | ) | -- | (143 | ) | |||||||||||||
Balance
at September 30, 2008
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13,143 | $ | 131 | $ | 148,700 | $ | 4,930 | $ | 153,761 |
Nine
months ended September 30,
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||||||||
2008
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2007
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|||||||
Net
income
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$ | 14,234 | $ | 9,752 | ||||
Adjustments
to reconcile income from operations to
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||||||||
net cash provided by operating
activities:
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||||||||
Depreciation
and amortization
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9,755 | 6,764 | ||||||
Loss
(gain) on sale of property and equipment
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41 | (390 | ) | |||||
Deferred
tax expense
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6,272 | 4,646 | ||||||
Stock-based
compensation expense
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373 | 982 | ||||||
Excess
tax benefits from exercise of stock options
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(522 | ) | -- | |||||
Interest
expense accreted on minority interest
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378 | -- | ||||||
Minority interest in net
earnings of subsidiary
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819 | -- | ||||||
Other
changes in operating assets and liabilities:
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||||||||
(Increase)
in contracts receivable
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(12,846 | ) | (9,693 | ) | ||||
(Increase)
in costs and estimated earnings
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||||||||
in excess of billings on
uncompleted contracts
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(4,244 | ) | (4,090 | ) | ||||
(Increase)
decrease in other current assets
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(596 | ) | 94 | |||||
Increase
in accounts payable
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3,298 | 4,884 | ||||||
Increase
(decrease) in billings in excess of costs and
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||||||||
estimated earnings on
uncompleted contracts
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(228 | ) | 443 | |||||
Increase
in other accrued expenses
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2,195 | 1,256 | ||||||
Net cash provided by operating
activities
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18,929 | 14,648 | ||||||
Cash
flows from investing activities:
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||||||||
Additions
to property and equipment
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(16,972 | ) | (23,033 | ) | ||||
Proceeds
from sale of property and equipment
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1,171 | 908 | ||||||
Purchases
of short-term securities, available for sale
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(17,329 | ) | (92,832 | ) | ||||
Sales
of short-term securities, available for sale
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-- | 86,371 | ||||||
Net cash used in investing
activities
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(33,130 | ) | (28,586 | ) | ||||
Cash
flows from financing activities:
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||||||||
Cumulative
daily drawdowns – Credit Facility
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180,000 | 75,000 | ||||||
Cumulative
daily reductions – Credit Facility
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(185,080 | ) | (75,093 | ) | ||||
Payments
received on note receivable
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184 | 249 | ||||||
Excess
tax benefits from exercise of stock options
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522 | -- | ||||||
Issuance
of common stock pursuant to the exercise ofoptions and
warrants
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163 | 210 | ||||||
Expenditures
related to 2007 equity offering
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(143 | ) | -- | |||||
Net cash provided (used) by
financing activities
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(4,354 | ) | 366 | |||||
Net
increase (decrease) in cash and cash equivalents
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(18,555 | ) | (13,572 | ) |
Cash
and cash equivalents at beginning of period
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80,649 | 28,466 | ||||||
Cash
and cash equivalents at end of period
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$ | 62,094 | $ | 14,894 | ||||
Supplemental
disclosures of cash flow information:
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||||||||
Cash
paid during the period for interest
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$ | 122 | $ | 55 | ||||
Cash
paid during the period for taxes
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$ | 3,000 | $ | 530 |
●
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revenue
recognition
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●
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contracts
and retainage receivables
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●
|
inventories
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●
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impairment
of long-term assets
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●
|
income
taxes
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●
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self-insurance;
and
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●
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stock-based
compensation
|
September 30, 2008
|
December 31, 2007
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|||||||
Construction
equipment
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$ | 95,469 | $ | 83,739 | ||||
Transportation
equipment
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11,434 | 9,279 | ||||||
Buildings
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1,562 | 1,573 | ||||||
Office
equipment
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563 | 602 | ||||||
Construction
in progress
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2,934 | 856 | ||||||
Land
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2,906 | 2,718 | ||||||
Water
rights
|
200 | 200 | ||||||
115,068 | 98,967 | |||||||
Less
accumulated depreciation
|
(36,486 | ) | (26,578 | ) | ||||
$ | 78,582 | $ | 72,389 |
Three months ended September
30,
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||||||||
2008
|
2007
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|||||||
Numerator:
|
||||||||
Net
income
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$ | 5,978 | $ | 3,443 | ||||
Denominator:
|
||||||||
Weighted
average common shares outstanding – basic
|
13,126 | 11,003 | ||||||
Shares
for dilutive stock options, restricted stock andwarrants
|
579 | 771 | ||||||
Weighted
average common shares outstanding and assumedconversions –
diluted
|
13,705 | 11,774 |
Basic
net income per common share:
|
$ | 0.46 | $ | 0.31 | ||||
Diluted
net income per common share:
|
$ | 0.44 | $ | 0.29 |
Nine months ended September
30,
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||||||||
2008
|
2007
|
|||||||
Numerator:
|
||||||||
Net
income
|
$ | 14,234 | $ | 9,752 | ||||
Denominator:
|
||||||||
Weighted
average common shares outstanding – basic
|
13,102 | 10,962 | ||||||
Shares
for dilutive stock options, restricted stock andwarrants
|
601 | 803 | ||||||
Weighted
average common shares outstanding and assumedconversions –
diluted
|
13,703 | 11,765 |
Basic
net income per common share:
|
$ | 1.09 | $ | 0.89 | ||||
Diluted
net income per common share:
|
$ | 1.04 | $ | 0.83 |
Tangible assets acquired at
estimated fair value, includingapproximately $10,000 of property, plant
and equipment
|
$ | 19,334 | ||
Current liabilities
assumed
|
(9,686 | ) | ||
Goodwill
|
44,496 | |||
Total
|
$ | 54,144 |
|
·
|
changes
in general economic conditions, reductions in federal, state and local
government funding for infrastructure services and changes in those
governments' laws and regulations;
|
|
·
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adverse
economic conditions in our markets in Texas and Nevada and the
availability, cost and skill level of workers in those geographic
locations;
|
|
·
|
delays
or difficulties related to the completion of our projects, including
additional costs, reductions in revenues or the payment of liquidated
damages or obtaining required governmental permits and
approvals;
|
|
·
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actions
of suppliers, subcontractors, customers, competitors, banks, surety
companies and others which are beyond our control including suppliers' and
subcontractors' failure to perform;
|
|
·
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cost
escalations associated with our fixed-unit-price contracts, including
changes in availability, proximity and cost of materials such as steel,
concrete, aggregates, oil, fuel and other construction
materials;
|
|
·
|
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 and
snowfall may differ materially from these
expectations;
|
|
·
|
the
presence of competitors with greater financial resources and the impact of
competitive services and pricing;
|
|
·
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our
ability to successfully identify, finance, complete and integrate
acquisitions;
|
|
·
|
the
effects of estimates inherent in our percentage-of-completion accounting
policies including onsite conditions that differ from those assumed in the
original bid, contract modifications, mechanical problems with our
machinery or equipment and the effects of other risks discussed above;
and
|
|
·
|
citations
issued by any governmental authority, including the Occupational Safety
and Health Administration.
|
|
·
|
The
current instability of financial institutions could cause losses on our
cash and cash equivalents and short-term
investments.
|
(dollar
amounts in thousands) (unaudited):
|
2008
|
2007
|
% change
|
||||||||||
Revenues
|
$ | 114,148 | $ | 77,714 | 46.9 | % | |||||||
Gross
profit
|
12,572 | 7,915 | 58.8 | % | |||||||||
Gross margin
|
11.0 | % | 10.2 | % | 7.8 | % | |||||||
General,
administrative and other expenses
|
3,140 | 3,257 | (3.6 | %) | |||||||||
Operating
income
|
9,432 | 4,658 | 102.5 | % | |||||||||
Operating margin
|
8.3 | % | 6.0 | % | 38.3 | % | |||||||
Interest
income, net
|
159 | 467 | (66.0 | %) | |||||||||
Income
before taxes and minority interest
|
9,591 | 5,125 | 87.1 | % | |||||||||
Income
taxes
|
3,245 | 1,682 | 92.9 | % | |||||||||
Minority
interest in earnings of subsidiary
|
368 | -- |
Nm
|
||||||||||
Net
income
|
$ | 5,978 | $ | 3,443 | 73.6 | % |
(dollar
amounts in thousands) (unaudited):
|
2008
|
2007
|
% change
|
||||||||||
Revenues
|
$ | 305,802 | $ | 217,877 | 40.4 | % | |||||||
Gross
profit
|
32,413 | 21,593 | 50.1 | % | |||||||||
Gross margin
|
10.6 | % | 9.9 | % | 7.1 | % | |||||||
General,
administrative and other expenses
|
10,131 | 8,317 | 21.8 | % | |||||||||
Operating
income
|
22,282 | 13,276 | 67.8 | % | |||||||||
Operating margin
|
7.3 | % | 6.1 | % | 19.7 | % | |||||||
Interest
income, net
|
387 | 1,366 | (71.7 | %) | |||||||||
Income
before taxes and minority interest
|
22,669 | 14,642 | 54.8 | % | |||||||||
Income
taxes
|
7,616 | 4,890 | 55.7 | % | |||||||||
Minority
interest in earnings of subsidiary
|
819 | -- |
Nm
|
||||||||||
Net
income
|
$ | 14,234 | $ | 9,752 | 46.0 | % |
Nine
months ended
|
||||||||
September
30
|
||||||||
2008
|
2007
|
|||||||
Cash
and cash equivalents at end of period
|
$ | 62,094 | $ | 14,894 | ||||
Net
cash provided by (used in):
|
||||||||
Operating
activities
|
18,929 | 14,648 | ||||||
Investing
activities
|
(33,130 | ) | (28,586 | ) | ||||
Financing
activities
|
(4,354 | ) | 366 | |||||
(Decrease)
in cash and cash equivalents
|
$ | (18,555 | ) | $ | (13,572 | ) | ||
Capital
expenditures
|
$ | 16,972 | $ | 23,033 | ||||
Working
capital at end of period
|
$ | 93,561 | $ | 59,691 |
|
●
|
depreciation
and amortization, which for the first nine months of the current year
totaled $9.8 million, an increase of $3.0 million from last year, as a
result of the continued increase in the size of our construction fleet in
recent years and the RHB
acquisition;
|
|
●
|
deferred
tax expense in 2008 and 2007 of $6.3 million and $4.6 million,
respectively, mainly attributable to accelerated depreciation methods used
on equipment for tax purposes
|
|
●
|
contracts
receivable increased by $12.8 million in the current year due to the
increase in year to date revenues of $87.9 million, including those of the
Nevada operations, as compared to an increase of $9.7 million in 2007 in
contract receivables which was due to an increase in revenue and a higher
level of customer retentions;
|
|
●
|
the
increases in cost and estimated earnings in excess of billings on
uncompleted contracts of $4.2 million as of September 30, 2008, versus an
increase of $4.1 million as of September 30, 2007, were comparable and
reflect the increase in volume of
work;
|
|
●
|
accounts
payable increased by $3.3 million in the first nine months of this year
due to the increased volume of work-in-progress. Accounts
payable increased $4.9 million in the first nine months of 2007 as a
result of changes in the volume of materials and sub-contractor services
purchased in that 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;
|
|
·
|
the
amounts owed to suppliers and
subcontractors.
|
|
31.1
|
Certification
of Patrick T. Manning, Chief Executive Officer pursuant to Exchange Act
Rule 13a-14(a)
|
|
31.2
|
Certification
of James H. Allen, Jr., Chief Financial Officer, pursuant to Exchange Act
Rule 13a-14(a)
|
|
32.0
|
Certification
of Patrick T. Manning, Chief Executive Officer and James H. Allen, Jr.,
Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 (Section 906
of the Sarbanes-Oxley Act of
2002)
|
Exhibit
No.
|
Description
|
|
Certification
by the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
||
Certification
by the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
||
Certification
of Periodic Financial Report by the Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|