STERLING CONSTRUCTION CO INC - FORM 8-K - EX-99.5 - December 3, 2009

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8-K - FORM 8-K - STERLING CONSTRUCTION CO INCh68920e8vk.htm
EX-2.1 - EX-2.1 - STERLING CONSTRUCTION CO INCh68920exv2w1.htm
EX-99.2 - EX-99.2 - STERLING CONSTRUCTION CO INCh68920exv99w2.htm
EX-23.2 - EX-23.2 - STERLING CONSTRUCTION CO INCh68920exv23w2.htm
EX-99.4 - EX-99.4 - STERLING CONSTRUCTION CO INCh68920exv99w4.htm
EX-99.1 - EX-99.1 - STERLING CONSTRUCTION CO INCh68920exv99w1.htm
EX-99.3 - EX-99.3 - STERLING CONSTRUCTION CO INCh68920exv99w3.htm
EX-23.1 - EX-23.1 - STERLING CONSTRUCTION CO INCh68920exv23w1.htm
Exhibit 99.5
STERLING CONSTRUCTION COMPANY, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
     The following unaudited pro forma condensed combined financial information gives pro forma effect to the acquisition of an 80.0% ownership interest in Ralph L. Wadsworth Construction Company, LLC (formerly Ralph L. Wadsworth Construction Company, Inc.) ( “RLW”) by Sterling Construction Company, Inc. (“Sterling” or “SCC”), accounted for as a business combination using the purchase method of accounting. The preliminary allocation of the purchase price used in the unaudited pro forma condensed combined financial information is based on management’s preliminary valuation. The estimates and assumptions are subject to change upon the finalization of valuations, which are contingent upon final appraisals of plant and equipment, identifiable intangible assets, adjustments to contract-related and other accounts through December 3, 2009 and the results of operations through December 31, 2009. Revisions to the preliminary purchase price allocation could result in significant deviations from the accompanying pro forma information.
     The pro forma condensed combined statements of income reflect the acquisition of RLW as if it occurred on January 1, 2008. The historical results of operations included in the unaudited pro forma condensed combined statement of income for the fiscal year ended December 31, 2008 were derived from the audited financial statements of each entity. For SCC, this information was derived from its annual report on Form 10-K/A filed with the Securities and Exchange Commission on September 10, 2009, which is included elsewhere in this Form 8-K. For RLW, this information is included elsewhere in this Form 8-K. The historical results of operations included in the unaudited pro forma condensed combined statement of income for the nine months ended September 30, 2009 were derived from the unaudited financial statements of each entity. For SCC, this information was derived from its quarterly report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2009, which is incorporated into this Form 8-K by reference. For RLW, this information is included elsewhere in this Form 8-K.
     The pro forma condensed combined balance sheet reflects the acquisition of RLW as if it occurred on September 30, 2009. The historical balance sheets of SCC and RLW included in the unaudited pro forma condensed combined balance sheet were derived from the unaudited financial statements of each entity. For SCC, this information was derived from its quarterly report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2009. For RLW, this information is included elsewhere in this Form 8-K.
     This unaudited pro forma condensed combined financial information has been prepared by SCC management for illustrative purposes only. The unaudited pro forma condensed combined financial information is not intended to represent or be indicative of the financial position or results of operations in future periods or the results that actually would have been realized had SCC and RLW been a combined company during the specified periods. The unaudited pro forma adjustments reflect, among other things, pre-closing distributions by RLW to its equity holders of certain assets and cash and securities that were not required for the operations of the business. In addition, classifications of certain combined financial accounts of RLW may differ from those of Sterling. The unaudited pro forma condensed combined financial information reflects the acquisition of the interest in RLW, which Sterling financed with a combination of cash and cash equivalents and proceeds from the sale of short-term securities. The unaudited pro forma condensed combined financial information, including the notes thereto, is qualified in its entirety by reference to, and should be read in conjunction with, the historical financial statements and the notes thereto of Sterling and RLW included elsewhere in this Form 8-K and in SCC’s Form 10-Q filed with the Securities and Exchange Commission on November 9, 2009.

 

STERLING CONSTRUCTION COMPANY, INC.
 
Unaudited Pro Forma Condensed Combined Balance Sheet
At September 30, 2009
 
                                 
                Pro Forma
 		    Pro Forma
 		 
    Sterling     RLW     Adjustments     Combined  
 
ASSETS
Current Assets
                               
Cash and cash equivalents
  $ 62,239     $ 12,676     $ (69,887 )(a)(b)(d)(e)   $ 5,028  
Short-term investments
    41,231       18,027       (13,217 )(b)(c)(d)     46,041  
Contracts receivable, including retainage
    66,387       37,288       —       103,675  
Costs and estimated earnings in excess of billings on uncompleted contracts
    6,196       1,470       —       7,666  
Inventories
    1,224       264       —       1,488  
Deposits and other current assets
    1,257       128       —       1,385  
                                 
Total Current Assets
    178,534       69,853       (83,104 )     165,283  
Property and equipment, net
    71,681       11,864       (714 )(c)     82,831  
Investment in RLW
    —       —       — (e)(f)     —  
Goodwill
    57,232       —       58,625 (f)     115,857  
Other assets, net
    1,424       25       —       1,449  
                                 
Total Assets
  $ 308,871     $ 81,742     $ (25,193 )   $ 365,420  
                                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
                               
Accounts payable
  $ 27,475     $ 20,810     $ —     $ 48,285  
Billings in excess of costs and estimated earnings of uncompleted contracts
    25,693       17,911       —       43,604  
Current maturities of long-term debt
    73       2,096       (2,096 )(a)     73  
Income taxes payable
    23       —       —       23  
Other accrued expenses
    9,492       1,628       —       11,120  
                                 
Total Current Liabilities
    62,756       42,445       (2,096 )     103,105  
Commitments and Contingencies
                               
Long-term Liabilities
                               
Long-term debt, net of current maturities
    40,428       4,780       (4,780 )(a)     40,428  
Deferred tax liability, net
    15,051       —       —       15,051  
Put liabilities related to and noncontrolling owners’ interests in subsidiaries
    7,568       —       16,200 (e)     23,768  
                                 
Total Long-term Liabilities
    63,047       4,780       11,420       79,247  
Stockholders’ Equity
                               
Preferred stock
    —       —       —       —  
Common stock
    132       5       (5 )(f)     132  
Additional paid-in capital
    150,902       —       —       150,902  
Retained earnings
    32,034       34,512       (34,512 )(b)(c)(f)     32,034  
                                 
Total Sterling Common Stockholders’ Equity
    183,068       34,517       (34,517 )     183,068  
                                 
Total Liabilities and Stockholders’ Equity
  $ 308,871     $ 81,742     $ (25,193 )   $ 365,420  
                                 
 
See Pro Forma Adjustments and Explanatory Notes on next page.

 

STERLING CONSTRUCTION COMPANY, INC.

Unaudited Pro Forma Condensed Combined Balance Sheet
Pro Forma Adjustments and Explanatory Notes
At September 30, 2009
Amounts in thousands
 
             
 
Pro Forma Adjustments
 
(a)
  RLW debt reduction payments        
    Current maturities of long-term debt   $ 2,096  
    Long-term debt, net of current maturities     4,780  
    Cash and cash equivalents     (6,876 )
(b)
  Estimated withdrawals by RLW stockholders to reduce working capital and stockholders’ equity to amounts required under the Definitive Purchase Agreement        
    Retained earnings   $ 11,066  
    Cash and cash equivalents     (5,800 )
    Short-term investments     (5,266 )
(c)
  Distributions of assets to RLW stockholders        
    Retained earnings   $ 1,176  
    Property and equipment     (714 )
    Short-term investments     (462 )
(d)
  Liquidation of Sterling short-term investments to fund part of the purchase price        
    Cash and cash equivalents   $ 7,489  
    Short-term investments     (7,489 )
(e)
  Investment in RLW        
    Investment in RLW   $ (80,900 )
    Cash     (64,700 )
    Put liability related to and noncontrolling owners’ interests in RLW     (16,200 )
(f)
  Entries in consolidation to reflect goodwill, step-up in basis of property and equipment and noncontrolling interests in RLW        
    Goodwill   $ 58,625  
    Retained earnings     22,270  
    Common stock     5  
    Investment in RLW     (80,900 )
Explanatory Notes
 
(1)
  Summary of Purchase Price -        
    Cash, cash equivalents and cash from sale of short-term investments   $ 64,700  
             
      Total purchase price*   $ 64,700  
             
    Pro Forma Preliminary Allocation of Purchase Price —        
      Working capital   $ 11,100  
      Property and equipment     11,150  
      Other assets     25  
      Goodwill     58,625  
      Noncontrolling interests     (16,200 )
             
         Total preliminary purchase price allocation*   $ 64,700  
             
 
* Pursuant to the terms of the Purchase Agreement, the purchase price is subject to adjustments when RLW’s working capital and tangible stockholders’ equity as of November 30, 2009, and the results of operations for the month of December 2009, are agreed upon by RLW’s selling stockholders and Sterling. The purchase price

 

shown in the Pro Forma Condensed Combined Balance Sheet includes management’s estimate of such adjustments.
 
(2) In 2013, the noncontrolling interest of 20% of RLW retained by the RLW noncontrolling interest holders may be put to Sterling, and Sterling has the right to call such interests. The price to be paid to the Sellers will be 20% of RLW’s simple average EBITDA for calendar years 2010, 2011 and 2012 multiplied by a multiple, as defined in the Purchase Agreement, not to be greater than 4.5 or less than 4.0. Such contingent consideration has been recorded in Pro Forma Entry (e) above at its estimated fair value at closing in accordance with GAAP.
 
(3) The effect of the above pre-acquisition Pro Forma Adjustments of RLW on its historical working capital and stockholders’ equity is as follows:
 
                         
        Working
 		  Stockholders’
        Capital   Equity
 
Historical Balances of RLW as of September 30, 2009
  $ 27,408     $ 34,517  
  (a )   RLW debt reduction payments     (4,780 )     —  
  (b )   Estimated withdrawals by RLW stockholders to reduce working capital and stockholders’ equity to amounts required under the definitive purchase agreement     (11,066 )     (11,066 )
  (c )   Distributions of assets to RLW stockholders     (462 )     (1,176 )
                         
Pro Forma Balances of RLW as of September 30, 2009
  $ 11,100     $ 22,275  
                 

 

STERLING CONSTRUCTION COMPANY, INC.
 
Unaudited Pro Forma Condensed Combined Statements of Income
 
                                                                         
    Year Ended December 31, 2008     Nine Months Ended September 30, 2009  
                Pro Forma
 		        Pro Forma
 		                Pro Forma
 		        Pro Forma
 		 
    Sterling     RLW     Adjustments         Combined     Sterling     RLW     Adjustments         Combined  
 
Revenues
  $ 415,074     $ 126,122     $ —         $ 541,196     $ 319,170     $ 112,257     $ —         $ 431,427  
Costs of earned contract revenues
    373,102       100,486       —           473,588       272,238       83,678       —           355,916  
                                                                         
Gross profit
    41,972       25,636       —           67,608       46,932       28,579       —           75,511  
General and administrative expenses
    (13,763 )     (5,041 )     —           (18,804 )     (10,536 )     (4,081 )     —           (14,617 )
Other income (expense)
    (81 )     (35 )     —           (116 )     (30 )     21       —           (9 )
                                                                         
Operating income
    28,128       20,560       —           48,688       36,366       24,519       —           60,885  
Interest and dividend income and gain on sale of investments
    1,070       1,135       (1,091 )   (a)(b)     1,114       406       510       (756 )   (a)(b)     160  
Interest expense
    (199 )     (120 )     —           (319 )     (154 )     (160 )     —           (314 )
                                                                         
Income before income taxes and earnings attributable to noncontrolling interest
    28,999       21,575       (1,091 )         49,483       36,618       24,869       (756 )         60,731  
Income tax expense
    (10,025 )     —       (6,231 )   (b)(d)     16,256       (12,154 )     —       (7,361 )   (b)(d)     (19,515 )
                                                                         
Net income
    18,974       21,575       (7,322 )         33,227       24,464       24,869       (8,117 )         41,216  
Less: Net income attributable to noncontrolling interest in earnings of subsidiary
    (908 )     —       (4,265 )   (c)     (5,173 )     (1,521 )     —       (4,900 )   (c)     (6,421 )
                                                                         
Net income attributable to Sterling common stockholders
  $ 18,066     $ 21,575     $ (11,587 )       $ 28,054     $ 22,943     $ 24,869     $ (13,017 )       $ 34,795  
                                                                         
Net income per share attributable to Sterling common stockholders:
                                                                       
Basic
  $ 1.38                         $ 2.14     $ 1.73                         $ 2.63  
Diluted
  $ 1.32                         $ 2.05     $ 1.67                         $ 2.53  
Weighted average number of common shares outstanding used in computing per share amounts:
                                                                       
Basic
    13,120                           13,120       13,229                           13,229  
Diluted
    13,702                           13,702       13,733                           13,733  
 
See Pro Forma Adjustments and Explanatory Notes on next page.

 

STERLING CONSTRUCTION COMPANY, INC.
 
Unaudited Pro Forma Condensed Combined Statements of Income
Pro Forma Adjustments and Explanatory Notes
 
                     
Pro Forma
 		      Year Ended
 		  Nine Months Ended
Adjustments
      December 31, 2008   September 30, 2009
        (Amounts in thousands)
 
(a)
  Reduction in interest/investment income for investments used in pro forma withdrawals of RLW stockholders--See Pro Forma Notes (a), (b) and (c) to Pro Forma Balance Sheet                
    Interest and dividend income   $ 250     $ 368  
    Retained earnings     (250 )     (368 )
(b)
  Reduction in interest/investment income for investments used by Sterling in purchase of RLW                
    Interest income   $ 841     $ 388  
    Income tax expense     (294 )     (136 )
    Retained earnings     (547 )     (252 )
(c)
  Noncontrolling interest in income of RLW, net of its portion of (a) above                
    Noncontrolling interest — income statement   $ 4,265     $ 4,900  
    Noncontrolling interest — balance sheet     (4,265 )     (4,900 )
(d)
  Tax effect of Sterling’s 80% of RLW’s Net Income at federal and Utah net statutory rate of 38.25%                
    Income tax expense   $ 6,525     $ 7,497  
    Income taxes payable     (6,525 )     (7,497 )

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