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FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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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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Securities registered pursuant to Section 12(b) of the Act:
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||
Common Stock, $0.01 par value per share
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STRL
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The NASDAQ Stock Market LLC
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(Title of each class)
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(Trading Symbol)
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(Name of each exchange on which registered)
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. þ Yes ¨ No
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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þ Yes ¨ No
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes þ No
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Page
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Three Months Ended March 31,
|
||||||
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2020
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|
2019
|
||||
Revenues
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$
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296,688
|
|
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$
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223,949
|
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Cost of revenues
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(261,443
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)
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(204,446
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)
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Gross profit
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35,245
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|
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19,503
|
|
||
General and administrative expense
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(17,604
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)
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(11,889
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)
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Intangible asset amortization
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(2,837
|
)
|
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(600
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)
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||
Acquisition related costs
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(473
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)
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—
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Other operating expense, net
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(2,228
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)
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(2,294
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)
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||
Operating income
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12,103
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|
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4,720
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|
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Interest income
|
99
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|
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364
|
|
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Interest expense
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(7,803
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)
|
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(3,060
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)
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Income before income taxes
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4,399
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|
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2,024
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Income tax expense
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(1,184
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)
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(163
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)
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Net income
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3,215
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1,861
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Less: Net income attributable to noncontrolling interests
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(100
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)
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(46
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)
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Net income attributable to Sterling common stockholders
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$
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3,115
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$
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1,815
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Net income per share attributable to Sterling common stockholders:
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Basic
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$
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0.11
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$
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0.07
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Diluted
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$
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0.11
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$
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0.07
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Weighted average common shares outstanding:
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Basic
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27,736
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26,377
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Diluted
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27,992
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26,723
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Three Months Ended March 31,
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||||||
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2020
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2019
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Net income
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$
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3,215
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|
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$
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1,861
|
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Other comprehensive (loss) income, net of tax
|
|
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Loss on interest rate swap, net of tax (Note 11)
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(7,061
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)
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—
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Total comprehensive (loss) income
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(3,846
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)
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1,861
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Less: Comprehensive income attributable to noncontrolling interests
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(100
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)
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(46
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)
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Comprehensive (loss) income attributable to Sterling common stockholders
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$
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(3,946
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)
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$
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1,815
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March 31,
2020 |
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December 31,
2019 |
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Assets
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Current assets:
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Cash and cash equivalents ($7,126 and $7,538 related to variable interest entities (“VIEs”))
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$
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73,905
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$
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45,733
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Accounts receivable, including retainage ($30,550 and $24,642 related to VIEs)
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221,268
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248,247
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Costs and estimated earnings in excess of billings ($9,078 and $8,328 related to VIEs)
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54,791
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42,555
|
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Receivables from and equity in construction joint ventures ($7,729 and $7,406 related to VIEs)
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10,789
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|
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9,196
|
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Other current assets ($1,047 and $503 related to VIEs)
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10,335
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|
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11,790
|
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Total current assets
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371,088
|
|
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357,521
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Property and equipment, net ($5,627 and $5,619 related to VIEs)
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117,818
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116,030
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Operating lease right-of-use assets ($3,938 and $3,817 related to VIEs)
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14,790
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|
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13,979
|
|
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Goodwill ($1,501 and $1,501 related to VIEs)
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191,892
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|
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191,892
|
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Other intangibles, net
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253,486
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|
|
256,323
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Deferred tax asset, net
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27,149
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|
|
26,012
|
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Other non-current assets, net
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172
|
|
|
183
|
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Total assets
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$
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976,395
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$
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961,940
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Liabilities and Stockholders’ Equity
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Current liabilities:
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Accounts payable ($26,664 and $18,213 related to VIEs)
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$
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123,172
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$
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137,593
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Billings in excess of costs and estimated earnings ($7,443 and $9,649 related to VIEs)
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79,293
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85,011
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Current maturities of long-term debt ($13 and $39 related to VIEs)
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50,211
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42,473
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Current portion of long-term lease obligations ($1,742 and $1,838 related to VIEs)
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7,410
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|
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7,095
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Income taxes payable
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1,656
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|
|
1,212
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Accrued compensation ($2,298 and $1,521 related to VIEs)
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14,187
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|
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13,727
|
|
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Other current liabilities ($1,097 and $1,429 related to VIEs)
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10,403
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|
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6,393
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Total current liabilities
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286,332
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293,504
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Long-term debt ($2 and $2 related to VIEs)
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408,828
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390,627
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Long-term lease obligations ($2,196 and $1,979 related to VIEs)
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7,465
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6,976
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Members’ interest subject to mandatory redemption and undistributed earnings
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49,186
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49,003
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Other long-term liabilities
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5,654
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|
619
|
|
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Total liabilities
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757,465
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740,729
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Commitments and contingencies (Note 12)
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Stockholders’ equity:
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Common stock, par value $0.01 per share; 38,000 shares authorized, 28,282 and 28,290 shares issued, 27,966 and 27,772 shares outstanding
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283
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283
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Additional paid in capital
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250,689
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251,019
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Treasury Stock, at cost: 316 and 518 shares
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(4,247
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)
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(6,142
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)
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Retained deficit
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(21,918
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)
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(25,033
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)
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Accumulated other comprehensive loss
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(7,270
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)
|
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(209
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)
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Total Sterling stockholders’ equity
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217,537
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|
|
219,918
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Noncontrolling interests
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1,393
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1,293
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|
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Total stockholders’ equity
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218,930
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|
|
221,211
|
|
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Total liabilities and stockholders’ equity
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$
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976,395
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|
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$
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961,940
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Three Months Ended March 31,
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||||||
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2020
|
|
2019
|
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Cash flows from operating activities:
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|
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Net income
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$
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3,215
|
|
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$
|
1,861
|
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Adjustments to reconcile net income to net cash provided by (used in) operating activities:
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|
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Depreciation and amortization
|
8,285
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|
|
4,302
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|
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Amortization of debt issuance costs
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1,022
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|
|
833
|
|
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Gain on disposal of property and equipment
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(393
|
)
|
|
(38
|
)
|
||
Deferred taxes
|
913
|
|
|
141
|
|
||
Stock-based compensation expense
|
2,234
|
|
|
1,021
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|
||
Loss on interest rate hedge
|
171
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|
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—
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|
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Changes in operating assets and liabilities (Note 17)
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(4,676
|
)
|
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(27,362
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)
|
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Net cash provided by (used in) operating activities
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10,771
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|
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(19,242
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)
|
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Cash flows from investing activities:
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|
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Capital expenditures
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(7,354
|
)
|
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(3,814
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)
|
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Proceeds from sale of property and equipment
|
512
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|
|
137
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|
||
Net cash used in investing activities
|
(6,842
|
)
|
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(3,677
|
)
|
||
Cash flows from financing activities:
|
|
|
|
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Borrowings on revolving credit facility
|
30,000
|
|
|
—
|
|
||
Repayments of long-term debt
|
(5,082
|
)
|
|
(5,610
|
)
|
||
Distributions to noncontrolling interest owners
|
—
|
|
|
(5,100
|
)
|
||
Purchase of treasury stock
|
—
|
|
|
(3,201
|
)
|
||
Other
|
(675
|
)
|
|
(501
|
)
|
||
Net cash provided by (used in) financing activities
|
24,243
|
|
|
(14,412
|
)
|
||
Net change in cash and cash equivalents
|
28,172
|
|
|
(37,331
|
)
|
||
Cash and cash equivalents at beginning of period
|
45,733
|
|
|
94,095
|
|
||
Cash and cash equivalents at end of period
|
$
|
73,905
|
|
|
$
|
56,764
|
|
|
Three Months Ended March 31, 2020
|
||||||||||||||||||||||||||||||||||||
|
Common Stock
|
|
Additional Paid in Capital
|
|
Treasury Stock
|
|
Retained Deficit
|
|
Accumulated Other Comprehensive Loss
|
|
Total Sterling Stockholders’ Equity
|
|
Non-controlling Interests
|
|
Total Stockholders’ Equity
|
||||||||||||||||||||||
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Shares
|
|
Amount
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
||||||||||||||||||||||||
Balance at December 31, 2019
|
27,772
|
|
|
$
|
283
|
|
|
$
|
251,019
|
|
|
518
|
|
|
$
|
(6,142
|
)
|
|
$
|
(25,033
|
)
|
|
$
|
(209
|
)
|
|
$
|
219,918
|
|
|
$
|
1,293
|
|
|
$
|
221,211
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,115
|
|
|
—
|
|
|
3,115
|
|
|
100
|
|
|
3,215
|
|
||||||||
Loss on interest rate swap
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,061
|
)
|
|
(7,061
|
)
|
|
—
|
|
|
(7,061
|
)
|
||||||||
Stock-based compensation
|
—
|
|
|
—
|
|
|
2,234
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,234
|
|
|
—
|
|
|
2,234
|
|
||||||||
Issuance of stock
|
248
|
|
|
—
|
|
|
(2,460
|
)
|
|
(248
|
)
|
|
2,563
|
|
|
—
|
|
|
—
|
|
|
103
|
|
|
—
|
|
|
103
|
|
||||||||
Shares withheld for taxes
|
(54
|
)
|
|
—
|
|
|
(104
|
)
|
|
46
|
|
|
(668
|
)
|
|
—
|
|
|
—
|
|
|
(772
|
)
|
|
—
|
|
|
(772
|
)
|
||||||||
Balance at March 31, 2020
|
27,966
|
|
|
$
|
283
|
|
|
$
|
250,689
|
|
|
316
|
|
|
$
|
(4,247
|
)
|
|
$
|
(21,918
|
)
|
|
$
|
(7,270
|
)
|
|
$
|
217,537
|
|
|
$
|
1,393
|
|
|
$
|
218,930
|
|
|
Three Months Ended March 31, 2019
|
||||||||||||||||||||||||||||||||||||
|
Common Stock
|
|
Additional Paid in Capital
|
|
Treasury Stock
|
|
Retained Deficit
|
|
Accumulated Other Comprehensive Loss
|
|
Total Sterling Stockholders’ Equity
|
|
Non-controlling Interests
|
|
Total Stockholders’ Equity
|
||||||||||||||||||||||
|
Shares
|
|
Amount
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
||||||||||||||||||||||||
Balance at December 31, 2018
|
26,597
|
|
|
$
|
271
|
|
|
$
|
233,795
|
|
|
467
|
|
|
$
|
(4,731
|
)
|
|
$
|
(64,934
|
)
|
|
$
|
—
|
|
|
$
|
164,401
|
|
|
$
|
7,859
|
|
|
$
|
172,260
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,815
|
|
|
—
|
|
|
1,815
|
|
|
46
|
|
|
1,861
|
|
||||||||
Stock-based compensation
|
(1
|
)
|
|
—
|
|
|
1,021
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,021
|
|
|
—
|
|
|
1,021
|
|
||||||||
Distributions to owners
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,100
|
)
|
|
(5,100
|
)
|
||||||||
Purchase of treasury stock
|
(250
|
)
|
|
—
|
|
|
—
|
|
|
250
|
|
|
(3,201
|
)
|
|
—
|
|
|
—
|
|
|
(3,201
|
)
|
|
—
|
|
|
(3,201
|
)
|
||||||||
Issuance of stock
|
130
|
|
|
—
|
|
|
(1,314
|
)
|
|
(130
|
)
|
|
1,314
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Shares withheld for taxes
|
(52
|
)
|
|
—
|
|
|
—
|
|
|
45
|
|
|
(564
|
)
|
|
—
|
|
|
—
|
|
|
(564
|
)
|
|
—
|
|
|
(564
|
)
|
||||||||
Balance at March 31, 2019
|
26,424
|
|
|
$
|
271
|
|
|
$
|
233,502
|
|
|
632
|
|
|
$
|
(7,182
|
)
|
|
$
|
(63,119
|
)
|
|
$
|
—
|
|
|
$
|
163,472
|
|
|
$
|
2,805
|
|
|
$
|
166,277
|
|
1.
|
NATURE OF OPERATIONS
|
2.
|
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
|
•
|
Performance Obligations Satisfied Over Time (Heavy Civil and Specialty Services)
|
•
|
Performance Obligations Satisfied at a Point-in-Time (Residential)
|
•
|
Operating & Finance Leases—The Company determines if an arrangement is a lease at inception. The operating lease right-of-use (“ROU”) assets are included within the Company’s non-current assets and lease liabilities are included in current or non-current liabilities on the Company’s Condensed Consolidated Balance Sheets. Finance leases are included in “Property and equipment”, “Current maturities of long-term debt”, and “Long-term debt” on the Company’s Condensed Consolidated Balance Sheets. ROU assets represent the Company’s right to use, or control the use of, a specified asset
|
3.
|
PLATEAU ACQUISITION
|
Cash consideration transferred, net of $2,425 of cash acquired
|
$
|
375,000
|
|
Target working capital adjustment
|
21,323
|
|
|
Equity consideration transferred (1,245 shares at $13.01 per share(1))
|
16,195
|
|
|
Note payable to seller (See Note 9 - Debt)
|
10,000
|
|
|
Estimated tax basis election
|
5,141
|
|
|
Total consideration
|
$
|
427,659
|
|
Net tangible assets:
|
|
||
Accounts receivable, including retainage
|
$
|
81,921
|
|
Costs and estimated earnings in excess of billings
|
974
|
|
|
Other current assets
|
249
|
|
|
Property and equipment, net
|
65,492
|
|
|
Other non-current assets, net
|
10
|
|
|
Accounts payable
|
(22,039
|
)
|
|
Billings in excess of costs and estimated earnings
|
(16,540
|
)
|
|
Other current liabilities
|
(7,669
|
)
|
|
Total net tangible assets
|
102,398
|
|
|
Identifiable intangible assets
|
218,600
|
|
|
Goodwill
|
106,661
|
|
|
Total consideration transferred
|
$
|
427,659
|
|
|
Weighted Average Life (Years)
|
|
October 2, 2019
Fair Value
|
||
Customer relationships
|
25
|
|
$
|
191,800
|
|
Trade name
|
25
|
|
24,800
|
|
|
Non-compete agreements
|
5
|
|
2,000
|
|
|
Total
|
|
|
$
|
218,600
|
|
|
Three Months Ended March 31, 2019
|
||
Pro forma revenue
|
$
|
282,609
|
|
Pro forma net income attributable to Sterling
|
$
|
7,331
|
|
4.
|
REVENUE FROM CUSTOMERS
|
|
|
March 31,
2020 |
|
December 31,
2019 |
||||
Heavy Civil Backlog
|
|
$
|
886,575
|
|
|
$
|
834,049
|
|
Specialty Services Backlog
|
|
303,545
|
|
|
233,976
|
|
||
Total Heavy Civil and Specialty Services Backlog
|
|
$
|
1,190,120
|
|
|
$
|
1,068,025
|
|
|
Three Months Ended March 31,
|
||||||
Revenue by major end market
|
2020
|
|
2019
|
||||
Heavy Highway
|
$
|
96,374
|
|
|
$
|
93,610
|
|
Aviation
|
28,457
|
|
|
29,937
|
|
||
Water Containment and Treatment
|
21,809
|
|
|
15,234
|
|
||
Other
|
8,975
|
|
|
11,724
|
|
||
Heavy Civil Revenue
|
$
|
155,615
|
|
|
$
|
150,505
|
|
|
|
|
|
||||
Land Development
|
$
|
76,245
|
|
|
$
|
—
|
|
Commercial
|
28,478
|
|
|
30,679
|
|
||
Specialty Services Revenue
|
$
|
104,723
|
|
|
$
|
30,679
|
|
|
|
|
|
||||
Residential Revenue
|
$
|
36,350
|
|
|
$
|
42,765
|
|
|
|
|
|
||||
Revenues
|
$
|
296,688
|
|
|
$
|
223,949
|
|
|
|
|
|
||||
Revenue by contract type
|
|
|
|
||||
Fixed-Unit Price
|
$
|
141,739
|
|
|
$
|
141,219
|
|
Lump Sum
|
114,252
|
|
|
39,132
|
|
||
Residential and Other
|
40,697
|
|
|
43,598
|
|
||
Revenues
|
$
|
296,688
|
|
|
$
|
223,949
|
|
5.
|
CONSOLIDATED 50% OWNED SUBSIDIARIES
|
|
March 31,
2020 |
|
December 31,
2019 |
||||
Members’ interest subject to mandatory redemption
|
$
|
40,000
|
|
|
$
|
40,000
|
|
Net accumulated earnings
|
9,186
|
|
|
9,003
|
|
||
Total liability
|
$
|
49,186
|
|
|
$
|
49,003
|
|
6.
|
CONSTRUCTION JOINT VENTURES
|
|
Three Months Ended March 31,
|
||||||
|
2020
|
|
2019
|
||||
Balance, beginning of period
|
$
|
1,293
|
|
|
$
|
7,859
|
|
Net income attributable to noncontrolling interest
|
100
|
|
|
46
|
|
||
Distributions to noncontrolling interest owners
|
—
|
|
|
(5,100
|
)
|
||
Balance, end of period
|
$
|
1,393
|
|
|
$
|
2,805
|
|
|
March 31,
2020 |
|
December 31,
2019 |
||||
Current assets
|
$
|
60,517
|
|
|
$
|
92,710
|
|
Current liabilities
|
$
|
(77,164
|
)
|
|
$
|
(86,705
|
)
|
Sterling’s receivables from and equity in construction joint ventures
|
$
|
10,789
|
|
|
$
|
9,196
|
|
|
Three Months Ended March 31,
|
||||||
|
2020
|
|
2019
|
||||
Revenues
|
$
|
26,846
|
|
|
$
|
31,384
|
|
Income before tax
|
$
|
2,157
|
|
|
$
|
1,969
|
|
Sterling’s noncontrolling interest:
|
|
|
|
||||
Revenues
|
$
|
13,082
|
|
|
$
|
15,684
|
|
Income before tax
|
$
|
1,049
|
|
|
$
|
984
|
|
|
Three Months Ended March 31,
|
||||||
|
2020
|
|
2019
|
||||
Revenues
|
$
|
4,064
|
|
|
$
|
602
|
|
Operating income
|
$
|
296
|
|
|
$
|
38
|
|
Net income
|
$
|
299
|
|
|
$
|
38
|
|
7.
|
PROPERTY AND EQUIPMENT
|
|
|
March 31,
2020 |
|
December 31,
2019 |
||||
Construction and transportation equipment
|
|
$
|
221,336
|
|
|
$
|
217,945
|
|
Buildings and improvements
|
|
15,711
|
|
|
14,641
|
|
||
Land
|
|
3,891
|
|
|
3,891
|
|
||
Office equipment
|
|
2,607
|
|
|
2,767
|
|
||
Total property and equipment
|
|
243,545
|
|
|
239,244
|
|
||
Less accumulated depreciation
|
|
(125,727
|
)
|
|
(123,214
|
)
|
||
Total property and equipment, net
|
|
$
|
117,818
|
|
|
$
|
116,030
|
|
8.
|
OTHER INTANGIBLE ASSETS
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
||||||||||||
|
Weighted
Average Life |
|
Gross
Carrying Amount |
|
Accumulated Amortization |
|
Gross
Carrying Amount |
|
Accumulated Amortization |
||||||||
Customer relationships
|
25 years
|
|
$
|
232,623
|
|
|
$
|
(9,251
|
)
|
|
$
|
232,623
|
|
|
$
|
(6,911
|
)
|
Trade name
|
23 years
|
|
30,107
|
|
|
(2,071
|
)
|
|
30,107
|
|
|
(1,692
|
)
|
||||
Non-competition agreements
|
5 years
|
|
2,487
|
|
|
(409
|
)
|
|
2,487
|
|
|
(291
|
)
|
||||
Total
|
24 years
|
|
$
|
265,217
|
|
|
$
|
(11,731
|
)
|
|
$
|
265,217
|
|
|
$
|
(8,894
|
)
|
9.
|
DEBT
|
|
March 31,
2020 |
|
December 31,
2019 |
||||
Term Loan Facility
|
$
|
395,000
|
|
|
$
|
400,000
|
|
Revolving Credit Facility
|
50,000
|
|
|
20,000
|
|
||
Credit Facility
|
445,000
|
|
|
420,000
|
|
||
Note payable to seller, Plateau Acquisition
|
10,000
|
|
|
10,000
|
|
||
Notes and deferred payments to sellers, Tealstone Acquisition
|
12,500
|
|
|
12,230
|
|
||
Notes payable for transportation and construction equipment and other
|
723
|
|
|
805
|
|
||
Total debt
|
468,223
|
|
|
443,035
|
|
||
|
|
|
|
||||
Less - Current maturities of long-term debt
|
(50,211
|
)
|
|
(42,473
|
)
|
||
Less - Unamortized debt issuance costs
|
(9,184
|
)
|
|
(9,935
|
)
|
||
Total long-term debt
|
$
|
408,828
|
|
|
$
|
390,627
|
|
•
|
a Total Leverage Ratio (as defined in the Credit Agreement) at the last day of each fiscal quarter not to be greater than 4.00 to 1.00 ending on December 31, 2019 through and including June 30, 2020, 3.75 to 1.00 ending on September 30, 2020, 3.50 to 1.00 ending on December 31, 2020 through and including March 31, 2021, 3.25 to 1.00 ending on June 30, 2021 through and including September 30, 2021, and 3.00 to 1.00 ending on December 31, 2021 and thereafter; and
|
•
|
a Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of not less than 1.20 to 1.00 as of the last day of each fiscal quarter of the Company, commencing with the fiscal quarter ending December 31, 2019.
|
10.
|
LEASE OBLIGATIONS
|
|
Three Months Ended March 31,
|
||||||
|
2020
|
|
2019
|
||||
Operating lease cost
|
$
|
2,159
|
|
|
$
|
2,211
|
|
Short-term lease cost
|
$
|
3,281
|
|
|
$
|
4,743
|
|
|
|
|
|
||||
Finance lease cost:
|
|
|
|
||||
Amortization of right-of-use assets
|
$
|
56
|
|
|
$
|
32
|
|
Interest on lease liabilities
|
8
|
|
|
2
|
|
||
Total finance lease cost
|
$
|
64
|
|
|
$
|
34
|
|
|
Three Months Ended March 31,
|
||||||
|
2020
|
|
2019
|
||||
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
||||
Operating cash flows from operating leases
|
$
|
2,105
|
|
|
$
|
2,383
|
|
Operating cash flows from finance leases
|
$
|
8
|
|
|
$
|
2
|
|
Financing cash flows from finance leases
|
$
|
56
|
|
|
$
|
32
|
|
|
|
|
|
||||
Right-of-use assets obtained in exchange for lease obligations (noncash):
|
|
|
|
||||
Operating leases
|
$
|
3,540
|
|
|
$
|
3,101
|
|
Finance leases
|
$
|
—
|
|
|
$
|
76
|
|
|
March 31,
2020 |
|
December 31,
2019 |
||||
Operating Leases
|
|
|
|
||||
Operating lease right-of-use assets
|
$
|
14,790
|
|
|
$
|
13,979
|
|
|
|
|
|
||||
Current portion of long-term lease obligations
|
$
|
7,410
|
|
|
$
|
7,095
|
|
Long-term lease obligations
|
7,465
|
|
|
6,976
|
|
||
Total operating lease liabilities
|
$
|
14,875
|
|
|
$
|
14,071
|
|
|
|
|
|
||||
Finance Leases
|
|
|
|
||||
Property and equipment, at cost
|
$
|
1,479
|
|
|
$
|
1,479
|
|
Accumulated depreciation
|
(537
|
)
|
|
(482
|
)
|
||
Property and equipment, net
|
$
|
942
|
|
|
$
|
997
|
|
|
|
|
|
||||
Current maturities of long-term debt
|
$
|
198
|
|
|
$
|
204
|
|
Long-term debt
|
509
|
|
|
560
|
|
||
Total finance lease liabilities
|
$
|
707
|
|
|
$
|
764
|
|
|
|
|
|
||||
Weighted Average Remaining Lease Term
|
|
|
|
||||
Operating leases
|
2.6
|
|
|
2.5
|
|
||
Finance leases
|
3.9
|
|
|
4.0
|
|
||
|
|
|
|
||||
Weighted Average Discount Rate
|
|
|
|
||||
Operating leases
|
6.0
|
%
|
|
6.0
|
%
|
||
Finance leases
|
4.2
|
%
|
|
4.2
|
%
|
|
Operating
Leases
|
|
Finance
Leases
|
||||
Year Ending December 31,
|
|
|
|
||||
2020 (excluding the three months ended March 31, 2020)
|
$
|
5,159
|
|
|
$
|
168
|
|
2021
|
5,720
|
|
|
208
|
|
||
2022
|
3,768
|
|
|
161
|
|
||
2023
|
1,624
|
|
|
154
|
|
||
2024
|
198
|
|
|
77
|
|
||
Thereafter
|
11
|
|
|
—
|
|
||
Total lease payments
|
$
|
16,480
|
|
|
$
|
768
|
|
Less imputed interest
|
(1,605
|
)
|
|
(61
|
)
|
||
Total
|
$
|
14,875
|
|
|
$
|
707
|
|
11.
|
FINANCIAL INSTRUMENTS
|
•
|
Level 2—Fair value is based on internally developed models that use, as their basis, readily observable market parameters. Our derivative positions are classified within level 2 of the valuation hierarchy as they are valued using quoted market prices for similar assets and liabilities in active markets. These level 2 derivatives are valued utilizing an income approach, which discounts future cash flow based on current market expectations and adjusts for credit risk.
|
•
|
Level 3—Fair value is based on internally developed models that use, as their basis, significant unobservable market parameters. The Company did not have any level 3 classifications at March 31, 2020 or December 31, 2019.
|
|
|
March 31, 2020
|
|
December 31, 2019
|
||||||||||||||||||||||||||||
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||||||||||
Derivative Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Other current assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
216
|
|
|
$
|
—
|
|
|
$
|
216
|
|
Other non-current assets
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Total assets at fair value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
216
|
|
|
$
|
—
|
|
|
$
|
216
|
|
Derivative Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Other current liabilities
|
|
$
|
—
|
|
|
$
|
(4,086
|
)
|
|
$
|
—
|
|
|
$
|
(4,086
|
)
|
|
$
|
—
|
|
|
$
|
(61
|
)
|
|
$
|
—
|
|
|
$
|
(61
|
)
|
Other non-current liabilities
|
|
—
|
|
|
(5,438
|
)
|
|
—
|
|
|
(5,438
|
)
|
|
—
|
|
|
(398
|
)
|
|
—
|
|
|
(398
|
)
|
||||||||
Total liabilities at fair value
|
|
$
|
—
|
|
|
$
|
(9,524
|
)
|
|
$
|
—
|
|
|
$
|
(9,524
|
)
|
|
$
|
—
|
|
|
$
|
(459
|
)
|
|
$
|
—
|
|
|
$
|
(459
|
)
|
|
|
Before Tax Amount
|
|
Tax
Amount
|
|
Net of Tax
Amount
|
||||||
Net gain (loss) recognized in OCI
|
|
$
|
(9,174
|
)
|
|
$
|
2,064
|
|
|
$
|
(7,110
|
)
|
Net amount reclassified from AOCI into earnings (1)
|
|
63
|
|
|
(14
|
)
|
|
49
|
|
|||
Change in OCI
|
|
$
|
(9,111
|
)
|
|
$
|
2,050
|
|
|
$
|
(7,061
|
)
|
12.
|
COMMITMENTS AND CONTINGENCIES
|
13.
|
INCOME TAXES
|
|
Three Months Ended March 31,
|
||||||
|
2020
|
|
2019
|
||||
Current tax expense
|
$
|
271
|
|
|
$
|
22
|
|
Deferred tax expense
|
913
|
|
|
141
|
|
||
Income tax expense
|
$
|
1,184
|
|
|
$
|
163
|
|
|
|
|
|
||||
Cash paid for income taxes
|
$
|
44
|
|
|
$
|
—
|
|
14.
|
STOCK INCENTIVE PLAN AND OTHER EQUITY ACTIVITY
|
|
|
Shares
|
|
Weighted Average Grant-Date Fair Value per Share
|
|||
RSUs
|
|
127
|
|
|
$
|
14.08
|
|
PSUs
|
|
173
|
|
|
$
|
14.08
|
|
Total shares granted
|
|
300
|
|
|
|
|
|
Shares
|
|
RSUs (issued upon vesting)
|
|
39
|
|
PSUs (issued upon vesting)
|
|
86
|
|
ESPP (issued upon sale)
|
|
13
|
|
Total shares issued
|
|
138
|
|
|
Unrealized Fair Value of Swap (Cash Flow Hedge) (1)
|
||
Balance at December 31, 2019
|
$
|
(209
|
)
|
Net gain (loss) recognized in OCI, net of tax effect of $2,064
|
(7,110
|
)
|
|
Amount reclassified from AOCI into earnings, net of tax effect of ($14)
|
49
|
|
|
Change in OCI, net of tax
|
(7,061
|
)
|
|
Balance at March 31, 2020
|
$
|
(7,270
|
)
|
15.
|
EARNINGS PER SHARE
|
|
Three Months Ended March 31,
|
||||||
|
2020
|
|
2019
|
||||
Numerator:
|
|
|
|
|
|
||
Net income attributable to Sterling common stockholders
|
$
|
3,115
|
|
|
$
|
1,815
|
|
Denominator:
|
|
|
|
||||
Weighted average common shares outstanding — basic
|
27,736
|
|
|
26,377
|
|
||
Shares for dilutive unvested stock and warrants
|
256
|
|
|
346
|
|
||
Weighted average common shares outstanding — diluted
|
27,992
|
|
|
26,723
|
|
||
Basic net income per share attributable to Sterling common stockholders
|
$
|
0.11
|
|
|
$
|
0.07
|
|
Diluted net income per share attributable to Sterling common stockholders
|
$
|
0.11
|
|
|
$
|
0.07
|
|
16.
|
SEGMENT INFORMATION
|
|
Three Months Ended March 31,
|
||||||
|
2020
|
|
2019
|
||||
Revenue
|
|
|
|
||||
Heavy Civil
|
$
|
155,615
|
|
|
$
|
150,505
|
|
Specialty Services
|
104,723
|
|
|
30,679
|
|
||
Residential
|
36,350
|
|
|
42,765
|
|
||
Total Revenue
|
$
|
296,688
|
|
|
$
|
223,949
|
|
|
|
|
|
||||
Operating Income (Loss)
|
|
|
|
|
|
||
Heavy Civil
|
$
|
(3,622
|
)
|
|
$
|
(2,147
|
)
|
Specialty Services
|
11,114
|
|
|
1,048
|
|
||
Residential
|
5,084
|
|
|
5,819
|
|
||
Subtotal
|
12,576
|
|
|
4,720
|
|
||
Acquisition related costs
|
(473
|
)
|
|
—
|
|
||
Total Operating Income
|
$
|
12,103
|
|
|
$
|
4,720
|
|
17.
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
Three Months Ended March 31,
|
||||||
|
2020
|
|
2019
|
||||
Accounts receivable, including retainage
|
$
|
26,979
|
|
|
$
|
(1,976
|
)
|
Contracts in progress, net
|
(17,954
|
)
|
|
(9,400
|
)
|
||
Receivables from and equity in construction joint ventures
|
(1,593
|
)
|
|
(905
|
)
|
||
Other current and non-current assets
|
1,242
|
|
|
2,084
|
|
||
Accounts payable
|
(14,421
|
)
|
|
(17,556
|
)
|
||
Accrued compensation and other liabilities
|
888
|
|
|
2,602
|
|
||
Members' interest subject to mandatory redemption and undistributed earnings
|
183
|
|
|
(2,211
|
)
|
||
Changes in operating assets and liabilities
|
$
|
(4,676
|
)
|
|
$
|
(27,362
|
)
|
•
|
potential risks and uncertainties relating to the ultimate impact of COVID-19, including the geographic spread, the severity of the disease, the duration of the COVID-19 outbreak, actions that may be taken by governmental authorities to contain the COVID-19 outbreak or to treat its impact, and the potential negative impacts of COVID-19 on the global economy and financial markets;
|
•
|
factors that affect the accuracy of estimates inherent in the bidding for contracts, estimates of backlog, over time recognition accounting policies, including onsite conditions that differ materially from those assumed in the original bid, contract modifications, mechanical problems with machinery or equipment and effects of other risks discussed herein;
|
•
|
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;
|
•
|
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, including changes in U.S. trade policies and retaliatory responses from other countries, and cost escalations associated with subcontractors and labor;
|
•
|
change in cost to lease, acquire or maintain our equipment;
|
•
|
our dependence on a limited number of significant customers;
|
•
|
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;
|
•
|
a shutdown of the federal government;
|
•
|
our ability to qualify as an eligible bidder under government contract criteria;
|
•
|
changes in general economic conditions, including recessions, reductions in federal, state and local government funding for infrastructure services, changes in those governments’ budgets, practices, laws and regulations and adverse economic conditions in our geographic markets, such as those caused by the recent COVID-19 pandemic;
|
•
|
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;
|
•
|
design/build contracts which subject us to the risk of design errors and omissions;
|
•
|
our ability to obtain bonding or post letters of credit;
|
•
|
our ability to raise additional capital on favorable terms;
|
•
|
our ability to attract and retain key personnel;
|
•
|
increased unionization of our workforce or labor costs and any work stoppages or slowdowns;
|
•
|
adverse weather conditions;
|
•
|
our ability to successfully identify, finance, complete and integrate acquisitions, including the Plateau Acquisition;
|
•
|
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; and
|
•
|
the factors discussed in more detail in the Company’s annual report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”) under “Part I, Item 1A. Risk Factors” and “Part II, Item 1A. Risk Factors” of this Report.
|
|
Three Months Ended March 31,
|
|||||||||
(In thousands)
|
2020
|
|
2019
|
|
Variance
|
|||||
Revenues
|
$
|
296,688
|
|
|
$
|
223,949
|
|
|
32.5
|
%
|
Gross profit
|
35,245
|
|
|
19,503
|
|
|
80.7
|
%
|
||
General and administrative expenses
|
(17,604
|
)
|
|
(11,889
|
)
|
|
48.1
|
%
|
||
Intangible asset amortization
|
(2,837
|
)
|
|
(600
|
)
|
|
372.8
|
%
|
||
Acquisition related costs
|
(473
|
)
|
|
—
|
|
|
NM
|
|
||
Other operating expense, net
|
(2,228
|
)
|
|
(2,294
|
)
|
|
(2.9
|
)%
|
||
Operating income
|
12,103
|
|
|
4,720
|
|
|
156.4
|
%
|
||
Interest, net
|
(7,704
|
)
|
|
(2,696
|
)
|
|
185.8
|
%
|
||
Income tax expense
|
(1,184
|
)
|
|
(163
|
)
|
|
626.4
|
%
|
||
Less: Net income attributable to noncontrolling interests
|
(100
|
)
|
|
(46
|
)
|
|
117.4
|
%
|
||
Net income attributable to Sterling common stockholders
|
$
|
3,115
|
|
|
$
|
1,815
|
|
|
71.6
|
%
|
|
|
|
|
|
|
|||||
Gross margin
|
11.9
|
%
|
|
8.7
|
%
|
|
36.4
|
%
|
|
Three Months Ended March 31,
|
||||||||||
(In thousands)
|
2020
|
|
% of
Revenue
|
|
2019
|
|
% of
Revenue |
||||
Revenue
|
|
|
|
|
|
|
|
|
|
||
Heavy Civil
|
$
|
155,615
|
|
|
53%
|
|
$
|
150,505
|
|
|
67%
|
Specialty Services
|
104,723
|
|
|
35%
|
|
30,679
|
|
|
14%
|
||
Residential
|
36,350
|
|
|
12%
|
|
42,765
|
|
|
19%
|
||
Total Revenue
|
$
|
296,688
|
|
|
|
|
$
|
223,949
|
|
|
|
Operating Income (Loss)
|
|
|
|
|
|
|
|
|
|
||
Heavy Civil
|
$
|
(3,622
|
)
|
|
(2.3)%
|
|
$
|
(2,147
|
)
|
|
(1.4)%
|
Specialty Services
|
11,114
|
|
|
10.6%
|
|
1,048
|
|
|
3.4%
|
||
Residential
|
5,084
|
|
|
14.0%
|
|
5,819
|
|
|
13.6%
|
||
Subtotal
|
12,576
|
|
|
4.2%
|
|
4,720
|
|
|
2.1%
|
||
Acquisition related costs
|
(473
|
)
|
|
|
|
—
|
|
|
|
||
Total Operating Income
|
$
|
12,103
|
|
|
4.1%
|
|
$
|
4,720
|
|
|
2.1%
|
|
Three Months Ended March 31,
|
||||||
(In thousands)
|
2020
|
|
2019
|
||||
Net cash provided by (used in):
|
|
|
|
|
|
||
Operating activities
|
$
|
10,771
|
|
|
$
|
(19,242
|
)
|
Investing activities
|
(6,842
|
)
|
|
(3,677
|
)
|
||
Financing activities
|
24,243
|
|
|
(14,412
|
)
|
||
Total change in cash and cash equivalents
|
$
|
28,172
|
|
|
$
|
(37,331
|
)
|
(In thousands)
|
March 31,
2020 |
|
December 31,
2019 |
||||
Cash and cash equivalents
|
$
|
73,905
|
|
|
$
|
45,733
|
|
Working capital : Current Assets (Excluding Cash) Minus Current Liabilities
|
$
|
10,851
|
|
|
$
|
18,284
|
|
(In thousands)
|
March 31,
2020 |
|
December 31,
2019 |
||||
Generally Available
|
$
|
57,756
|
|
|
$
|
29,659
|
|
Consolidated 50% Owned Subsidiaries
|
12,792
|
|
|
12,004
|
|
||
Construction Joint Ventures
|
3,357
|
|
|
4,070
|
|
||
Total Cash
|
$
|
73,905
|
|
|
$
|
45,733
|
|
|
Three Months Ended March 31,
|
||||||
(In thousands)
|
2020
|
|
2019
|
||||
Costs and estimated earnings in excess of billings
|
$
|
(12,236
|
)
|
|
$
|
(2,591
|
)
|
Billings in excess of costs and estimated earnings
|
(5,718
|
)
|
|
(6,809
|
)
|
||
Contracts in progress, net
|
(17,954
|
)
|
|
(9,400
|
)
|
||
Accounts receivable, including retainage
|
26,979
|
|
|
(1,976
|
)
|
||
Receivables from and equity in construction joint ventures
|
(1,593
|
)
|
|
(905
|
)
|
||
Accounts payable
|
(14,421
|
)
|
|
(17,556
|
)
|
||
Contract Capital, net
|
$
|
(6,989
|
)
|
|
$
|
(29,837
|
)
|
Exhibit No.
|
Exhibit Title
|
||
3.1 (1)
|
|||
3.2 (1)
|
|||
31.1 (2)
|
|||
31.2 (2)
|
|||
32.1 (3)
|
|||
32.2 (3)
|
|||
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
|
|
STERLING CONSTRUCTION COMPANY, INC.
|
|
|
|
|
Date: May 5, 2020
|
By:
|
/s/ Ronald A. Ballschmiede
|
|
|
Ronald A. Ballschmiede
|
|
|
Chief Financial Officer and Duly Authorized Officer
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Sterling Construction Company, Inc.;
|
|
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.
|
|
By:
|
/s/ Joseph A. Cutillo
|
|
|
|
Joseph A. Cutillo
|
|
|
|
Chief Executive Officer
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Sterling Construction Company, Inc.;
|
|
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.
|
|
By:
|
/s/ Ronald A. Ballschmiede
|
|
|
|
Ronald A. Ballschmiede
|
|
|
|
Chief Financial Officer
|
(1)
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Dated: May 5, 2020
|
/s/ Joseph A. Cutillo
|
|
Joseph A. Cutillo
|
|
Chief Executive Officer
|
(1)
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Dated: May 5, 2020
|
/s/ Ronald A. Ballschmiede
|
|
Ronald A. Ballschmiede
|
|
Chief Financial Officer
|