STERLING CONSTRUCTION CO INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - August 10, 2011

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8-K - STERLING CONSTRUCTION COMPANY, INC. FORM 8-K - STERLING CONSTRUCTION CO INCform_8k.htm

STERLING CONSTRUCTION COMPANY, INC. LOGO
 
 
STERLING CONSTRUCTION COMPANY, INC.
 
FOR IMMEDIATE RELEASE

STERLING CONSTRUCTION COMPANY, INC. REPORTS
2011 SECOND QUARTER RESULTS

HOUSTON, TX – August 8, 2011 – Sterling Construction Company, Inc. (NasdaqGS: STRL) (“Sterling” or “the Company”) today announced results for the second quarter and six months ended June 30, 2011.

$ in millions
(except per share data)
  
3 Months Ended
  6/30/11           6/30/10
    
% Change *
    
6 Months Ended
  6/30/11          6/30/10
    
% Change*
  
Revenues
   $ 128.5     $ 116.9       10.0 %   $ 227.7     $ 203.0       12.2 %
Gross profit
   $ 13.6     $ 12.7       6.9 %   $ 21.2     $ 21.0       1.1 %
Gross margin
     10.6 %     10.9 %     (2.8 )%     9.3 %     10.3 %     (9.7 )%
Operating income
   $ 7.3     $ 7.4       (1.2 )%   $ 9.0     $ 10.2       (12.0 )%
Net income attributable to
   common stockholders
   $ 4.2     $ 4.7       (9.8 )%   $ 4.3     $ 6.2       (31.6 )%
Diluted net income per
   share attributable to
   common stockholders
   $ 0.25     $ 0.28       (10.7 )%   $ 0.26     $ 0.38       (31.6 )%

             *  The percentages and amounts shown for changes between periods in the table above and in the discussions below are based on the amounts reported in the Form 10-Q
               and may differ from the amounts which would have been calculated from the table above as a result of rounding.
 
 
As was the case in this year’s first quarter, the increase in revenues in the second quarter of 2011 was primarily due to execution on contracts awarded in our Texas markets in 2010 and increased revenues resulting from a higher level of activity on joint ventures in which we participate, primarily in Utah.  Revenues for Nevada declined between the periods due to fewer contracts in process.  The increase in revenues in Texas was less than expected due to severe adverse weather conditions during the first quarter of 2011 and delays in starting two sizable contracts.

The increase in second quarter and first half revenues resulted in an increase in gross profit for the periods.  Gross margins for the quarter and six month periods, however, decreased as compared to gross margins in the 2010 periods.  As has been the case since 2008, gross margins continue to be negatively impacted by on-going competitive bidding pressures.  In addition, lower than expected activity levels in Texas and Nevada resulted in under absorption of indirect costs.  These decreases were partially offset by higher margins on jobs completed or nearing completion.

Operating income for the three and six months ended June 30, 2011 was also impacted by an increase in general and administrative expenses (“G&A”).  Added positions and an increase in salaries, wages and related benefits were the primary causes for the increase.  G&A as a percentage of revenues was comparable between the periods with 4.9% and 5.4% for the quarter and first half of 2011, respectively, versus 4.5% and 5.3%, for the quarter and first half of 2010, respectively.

In the second quarter of 2011, we had a non-operating loss of $41,000 versus a gain of $0.5 million in the second quarter of 2010 which was primarily attributable to losses in the 2011 second quarter on short-term investments versus gains in the 2010 second quarter.  The non-operating loss of $0.3 million for the six months ended June 30, 2011 included a loss incurred during the first quarter related to the sale of our position in certain exchange traded fund (“ETF”) securities, the assets of which were a crude oil commodity pool.  The non-operating gains of $1.0 million for the six months ended June 30, 2010 were primarily related to gains on the ETF securities as well as improved returns from mutual fund investments.
 
 
 
 

Our effective tax rates for the six months ended June 30, 2011 and 2010 were 14.4% and 27.7%, respectively.  The decline in the 2011 tax rate is the result of an increase in net income attributable to the noncontrolling interest owners, which is taxed to those owners rather than Sterling, and in 2011, non-taxable interest income.  In addition, the effective tax rate for the six months ended June 30, 2011 declined from the effective rate for the comparable prior year period as the 2011 period includes a $0.5 million decrease to the estimated state taxes for 2010 identified in connection with the preparation of the 2010 state income tax returns.

Working capital as of June 30, 2011 approximated $106 million, including cash, cash equivalents and short-term investments of $70.8 million and, at that date, we had no outstanding borrowings under our $75 million Credit Facility.  Under our previously announced $10 million share repurchase plan, the Company acquired 139,589 shares of its common stock for $1.8 million during the first half of 2011.

During the first half of 2010, we were awarded or were the apparent low bidder on $112 million of contracts whereas for the first half of 2011, we were awarded or were the apparent low bidder on contracts totaling $283 million, more than double that of the prior year period.  Our backlog increased from $660 million as of December 31, 2010 and $557 million at June 30, 2010 to $720 million at June 30, 2011.  The June 30, 2011 backlog included approximately $185 million of expected revenues for which the contracts had not yet been officially awarded.

Most of the increase in backlog is attributable to major wins in Texas including a $23.7 million highway project for the Texas Department of Transportation in Collin County, northeast of Dallas which is scheduled for construction from September 2011 to November 2013 and a $62 million award for the North Texas Tollway Authority which begins this month and is scheduled to be completed in November 2013.  Also following the sale of bonds in June, funding for a $207 million design-build project to construct the Manor Expressway northeast of Austin, in which Texas Sterling Construction Co. is a 45% participant, has been secured.  Work on a 6.2-mile section of the Manor Expressway has begun.

Patrick T. Manning, Sterling’s Chairman and Chief Executive Officer commented, “The business dynamics in which we operate have been somewhat stagnant for several years.  The deferral of new federal funding legislation and reductions in federal funding for highway and bridge construction continue to constrain contract awards in our markets.  Expenditures by municipalities have likewise been curtailed by limitations in federal, as well as state and local funding as declining home sales and high foreclosure rates have lowered property taxes and other local taxes, which are among the sources of funding for municipal road, bridge and water infrastructure construction.  We are all keenly aware of the ongoing disagreements in Congress over balancing the federal budget in the short-term and long-term as well as reducing the federal deficit.  These reasons, among others, have adversely affected the levels of transportation and water infrastructure capital awards and expenditures in our markets, reducing bidding opportunities and increasing competition for new project backlog.

“While we are pleased by the nearly 30% increase in second quarter revenues compared to the current first quarter, our overall expectations for 2011 as a whole have not changed.  We continue to expect that net income attributable to Sterling common stockholders and corresponding diluted earnings per common share will be significantly less than that of 2010.”

Mr. Manning concluded, “Nevertheless, Sterling remains in sound financial condition and is well positioned geographically and in terms of our diverse portfolio of skills and Company-owned equipment, to compete at acceptable profit margin levels for projects as they become available.  We are excited about Sterling’s acquisition last week of J. Banicki Construction, Inc. which allows us to expand into the Arizona market.”
 
 
 
 

Conference Call and Filings
 
Sterling’s management will hold a conference call to discuss these results and recent corporate developments, at 11:00 am EDT/10:00 am CDT today, Monday, August 8, 2011.  Interested parties may participate in the call by dialing (201) 493-6744 ten minutes before the conference call is scheduled to begin, and asking for the Sterling Construction call.

To listen to a simultaneous webcast of the call, please go to the Company’s website at www.sterlingconstructionco.com at least 15 minutes early to download and install any necessary audio software.  If you are unable to listen live, the conference call webcast will be archived on the Company’s website for 30 days.  We suggest listeners use Microsoft Explorer as their web browser.

The Company filed its 2011 Second Quarter Report on Form 10-Q with the U.S. Securities and Exchange Commission on August 8, 2011.



Contact:
 
Sterling Construction Company, Inc.                                                                                    Investor Relations Counsel
Brian Manning                                                                                       The Equity Group Inc.
EVP & Chief Business Development Officer                                                                        Linda Latman 212-836-9609
Elizabeth Brumley                                                                                           Lena Cati  212-836-9611
Chief Accounting Officer & Controller
281-821-9091

 (See Accompanying Tables)
 
 
 
 
 
STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Amounts in thousands, except share and per share data)
(Unaudited)
 
 
Three Months Ended June 30,
    
Six Months Ended June 30,
  
 
2011
  
2010
    
2011
  
2010
  
Revenues
$
128,498
  
$
116,865
    
$
227,740
  
$
203,022
  
Cost of revenues
  
114,916
    
104,162
      
206,559
    
182,066
  
Gross profit
  
13,582
    
12,703
      
21,181
    
20,956
  
General and administrative expenses
  
(6,300
)
  
(5,241
)
    
(12,356
)
  
(10,708
)
Other income (expense)
  
5
    
(83
)
    
150
    
(52
)
Operating income
  
7,287
    
7,379
      
8,975
    
10,196
  
Gain (loss) on sale of securities and other
  
(41
)
  
547
      
(245
)
  
964
  
Interest income
  
565
    
483
      
943
    
685
  
Interest expense
  
(374
)
  
(297
)
    
(588
)
  
(594
)
Income before income taxes and earnings attributable to noncontrolling interests
  
7,437
    
8,112
      
9,085
    
11,251
  
Income tax expense
  
(1,145
)
  
(2,263
)
    
(1,311
)
  
(3,121
)
Net income
  
6,292
    
5,849
      
7,774
    
8,130
  
Noncontrolling owners’ interests in earnings of subsidiaries and joint ventures
  
(2,081
)
  
(1,182
)
    
(3,519
)
  
(1,911
)
Net income attributable to Sterling common stockholders
$
4,211
  
$
4,667
    
$
4,255
  
$
6,219
  
                           
Net income per share attributable to Sterling common stockholders:
                          
Basic
$
0.26
  
$
0.29
    
$
0.26
  
$
0.39
  
Diluted
$
0.25
  
$
0.28
    
$
0.26
  
$
0.38
  
                           
Weighted average number of common shares outstanding used in computing per share amounts:
                          
Basic
  
16,483,691
    
16,119,234
      
16,474,074
    
16,106,786
  
Diluted
  
16,594,509
    
16,542,667
      
16,604,368
    
16,540,081
  


Page  of 5
 
 
 
 
STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 (Amounts in thousands, except share and per share data)

 
June 30, 2011
    
December 31, 2010
  
 
(Unaudited)
          
ASSETS
              
Current assets:
              
Cash and cash equivalents
$
10,267  
   
$
49,441  
 
Short-term investments
  
60,503
      
35,752
  
Contracts receivable, including retainage
  
77,635
      
70,301
  
Costs and estimated earnings in excess of billings on uncompleted contracts
  
19,440
      
10,058
  
Inventories
  
1,730
      
1,479
  
Income tax receivable
  
1,131
      
--
  
Deferred tax asset, net
  
100
      
82
  
Receivables from and equity in construction joint ventures
  
5,910
      
6,744
  
Deposits and other current assets
  
2,005
      
2,472
  
Total current assets
  
178,721
      
176,329   
 
Property and equipment, net
  
81,102
      
74,681
  
Goodwill
  
114,745
      
114,745
  
Other assets, net
  
1,320
      
1,376
  
Total assets
$
375,888  
   
$
367,131  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
              
Current liabilities:
              
Accounts payable
$
35,449   
   
$
35,432   
 
Billings in excess of costs and estimated earnings on uncompleted contracts
  
19,024
      
17,807
  
Current maturities of long-term debt
  
73
      
73
  
Income taxes payable
  
241
      
1,493
  
Accrued compensation
  
7,180
      
6,920
  
Other current liabilities
  
10,737
      
7,326
  
Total current liabilities
  
72,704
      
69,051
  
Long-term liabilities:
              
Long-term debt, net of current maturities
  
299
      
336
  
Deferred tax liability, net
  
20,442
      
18,591
  
Other long-term liabilities
  
177
      
--
  
Total long-term liabilities
  
20,918
      
18,927
  
               
Commitments and contingencies
              
               
Noncontrolling owners' interests in subsidiaries and joint ventures
  
28,903
      
28,724
  
               
Stockholders’ equity:
              
Preferred stock, par value $0.01 per share; 1,000,000 shares authorized, none issued
  
--
      
--
  
Common stock, par value $0.01 per share; 19,000,000 shares authorized, 16,546,914 and 16,468,369 shares issued
  
165
      
164
  
Treasury stock, 104,368 and 3,147 shares of common stock
  
(1,362
)
    
--
  
Additional paid in capital
  
198,749
      
198,849
  
Retained earnings
  
55,808
      
51,553
  
Accumulated other comprehensive income (loss)
  
3
      
(137
)
Total Sterling common stockholders’ equity
  
253,363
      
250,429
  
    Total liabilities and stockholders’ equity
$
375,888  
   
$
367,131  
 

 

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