[X]
annual report pursuant to section 13 or 15(
d
) of the securities exchange act of 1934
|
For the fiscal year ended: December 31, 2014
|
[ ]
transition report pursuant to section 13 or 15(
d
) of the securities exchange act of 1934
For the transition period from _______________________to ________________________________
|
Delaware
State or other jurisdiction of
incorporation or organization
|
25-1655321
(I.R.S. Employer
Identification No.)
|
1800 Hughes Landing Blvd.
The Woodlands, Texas
(Address of principal executive offices)
|
77380
(Zip Code)
|
Securities registered pursuant to Section 12(b) of the Act:
|
Name of each exchange on which registered
|
Title of each class
Common Stock, $0.01 par value per share
(Title of Class)
|
The NASDAQ Stock Market LLC
|
Sterling Construction Company, Inc.
Annual Report on Form 10-K
Table of Contents
|
PART I
|
|
PART II
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|
PART III
|
|
PART IV
|
|
·
|
changes in general economic conditions, including recessions, reductions in federal, state and local government funding for infrastructure services and changes in those governments’ budgets, practices, laws and regulations;
|
·
|
delays or difficulties related to the completion of our projects, including additional costs, reductions in revenues or the payment of liquidated damages, or delays or difficulties related to obtaining required governmental permits and approvals;
|
·
|
actions of suppliers, subcontractors, design engineers, joint venture partners, customers, competitors, banks, surety companies and others which are beyond our control, including suppliers’, subcontractors’ and joint venture partners’ failure to perform;
|
·
|
factors that affect the accuracy of estimates inherent in our bidding for contracts, estimates of backlog, percentage-of-completion accounting policies, including onsite conditions that differ materially from those assumed in our original bid, contract modifications, mechanical problems with our machinery or equipment and effects of other risks discussed in this document;
|
·
|
design/build contracts which subject us to the risk of design errors and omissions;
|
·
|
cost escalations associated with our contracts, including changes in availability, proximity and cost of materials such as steel, cement, concrete, aggregates, oil, fuel and other construction materials, and cost escalations associated with subcontractors and labor;
|
·
|
our dependence on a limited number of significant customers;
|
·
|
adverse weather conditions; although we prepare our budgets and bid contracts based on historical rain and snowfall patterns, the incidence of rain, snow, hurricanes, etc., may differ materially from these expectations;
|
·
|
the presence of competitors with greater financial resources or lower margin requirements than ours, and the impact of competitive bidders on our ability to obtain new backlog at reasonable margins acceptable to us;
|
·
|
our ability to successfully identify, finance, complete and integrate acquisitions;
|
·
|
citations issued by any governmental authority, including the Occupational Safety and Health Administration;
|
·
|
federal, state and local environmental laws and regulations where non-compliance can result in penalties and/or termination of contracts as well as civil and criminal liability;
|
·
|
adverse economic conditions in our markets; and
|
·
|
the other factors discussed in more detail in Item 1A. —Risk Factors.
|
·
|
We continue to change roles and responsibilities to improve functional support and controls when needed.
|
·
|
We continue to develop management tools designed to improve the estimating process and increase the oversight of that process where needed and continue to refine existing tools.
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·
|
We continue to implement processes designed to better identify, evaluate and quantify risks for individual projects where needed and continue to refine existing process.
|
·
|
We continue to improve the methodologies for allocating overhead, indirect costs and equipment costs to individual projects in order to provide more accurate job cost and future bidding estimates.
|
·
|
We continue to improve the timeliness and content of reporting available to operations management.
|
·
|
Continue to add construction capabilities: by adding capabilities that augment our core contracting and construction competencies, we are able to improve gross margin opportunities and more effectively compete for contracts that might not otherwise be available to us.
|
·
|
Expand into new markets and selectively pursue opportunities and strategic acquisitions: we will continue to seek to identify attractive new markets and opportunities in select western, southwestern and southeastern U.S. areas. We will also continue to assess opportunities to extend our service capabilities and expand our markets through acquisitions.
|
·
|
Apply core competencies across our markets: we will seek to capitalize on opportunities to export our Texas experience constructing water infrastructure projects and our Nevada earthmoving, aggregates and asphalt paving experience into Utah markets. Similarly, we believe that RLW’s experience with design-build, construction manager and general contractor (“CM/GC”) and other alternative project delivery methods in Utah, and its development of accelerated bridge construction (“ABC”) techniques can enhance opportunities for us in our Texas, California, Arizona and Nevada markets.
|
·
|
Increase our market leadership in our core markets: we have a strong presence in a number of markets in Texas, Utah and Nevada and intend to expand our presence in these states as well as Arizona, California, Hawaii and other states where we believe opportunities exist.
|
·
|
Position our business for future infrastructure spending: currently there are considerable uncertainties surrounding federal, state and local funding in our markets; however, we believe there is awareness of the need to build, reconstruct and repair our country’s infrastructure, including transportation infrastructure, such as bridges, highways, and mass transit systems and water infrastructure, such as water, wastewater and storm drainage systems. We will continue to build our expertise to capture this infrastructure spending. We also see opportunities to make enhancements to our operations that should yield improving performance over time. These include a tighter integration of the acquisitions we have made over the past several years which should result in cost reductions and better collaboration between business units when pursuing new contract opportunities.
|
·
|
Continue to attract, retain and develop our employees: we believe that our employees are key to the successful implementation of our business strategy, and we will continue allocating significant resources in order to attract and retain talented managers and supervisory and field personnel.
|
·
|
onsite conditions that differ from those assumed in the original bid or contract;
|
·
|
failure to include required materials or work in a bid, or the failure to estimate properly the quantities or costs needed to complete a lump sum contract;
|
·
|
delays caused by weather conditions;
|
·
|
contract or project modifications creating unanticipated costs not covered by change orders;
|
·
|
changes in availability, proximity and costs of materials, including steel, concrete, aggregates and other construction materials (such as stone, gravel, sand and oil for asphalt paving), as well as fuel and lubricants for our equipment;
|
·
|
inability to predict the costs of accessing and producing aggregates and purchasing oil required for asphalt paving projects;
|
·
|
availability and skill level of workers in the geographic location of a project;
|
·
|
failure by our suppliers, subcontractors, designers, engineers, joint venture partners or customers to perform their obligations;
|
·
|
fraud, theft or other improper activities by our suppliers, subcontractors, designers, engineers, joint venture partners or customers or our own personnel;
|
·
|
mechanical problems with our machinery or equipment;
|
·
|
citations issued by any governmental authority, including the Occupational Safety and Health Administration;
|
·
|
difficulties in obtaining required governmental permits or approvals;
|
·
|
changes in applicable laws and regulations;
|
·
|
delays in quickly identifying and taking measures to address issues which arise during production; and
|
·
|
claims or demands from third parties for alleged damages arising from the design, construction or use and operation of a project of which our work is part.
|
·
|
difficulties in the integration of operations and systems;
|
·
|
difficulties applying our expertise in one market into another market;
|
·
|
regulatory requirements that impose restrictions on bidding for certain projects because of historical operations by Sterling or the acquired company;
|
·
|
the key personnel, customers and project partners of the acquired company may terminate or diminish their relationships with the acquired company;
|
·
|
we may experience additional financial and accounting challenges and complexities in areas such as tax planning and financial reporting;
|
·
|
we may assume or be held liable for risks and liabilities (including for environmental-related costs and liabilities) as a result of our acquisitions, some of which we may not discover during our due diligence;
|
·
|
we may not adequately anticipate competitive and other market factors applicable to the acquired company;
|
·
|
our ongoing business may be disrupted or receive insufficient management attention; and
|
·
|
we may not be able to realize cost savings or other financial benefits we anticipated or we may not realize the anticipated benefits in the time frame that we expected.
|
·
|
make distributions, pay dividends and buy back shares;
|
·
|
incur liens or encumbrances;
|
·
|
incur other indebtedness;
|
·
|
guarantee obligations;
|
·
|
dispose of a material portion of assets;
|
·
|
engage in a merger with a third party; and
|
·
|
make acquisitions.
|
·
|
contract receivables and contract retentions;
|
·
|
costs and estimated earnings in excess of billings;
|
·
|
billings in excess of costs and estimated earnings;
|
·
|
the size and status of contract mobilization payments and progress billings; and
|
·
|
the amounts owed to suppliers and subcontractors.
|
Name
|
Age
|
Position/Offices
|
Executive
Officer Since
|
Paul J. Varello
|
71
|
Chairman of the Board of Directors, Chief Executive Officer
|
2015
|
Thomas R. Wright
|
51
|
Executive Vice President & Chief Financial Officer, Treasurer
|
2013
|
Roger M. Barzun
|
73
|
Senior Vice President & General Counsel, Secretary
|
2006
|
High
|
Low
|
|||||||
Year Ended December 31, 2013
|
||||||||
First Quarter
|
$ | 11.78 | $ | 9.80 | ||||
Second Quarter
|
10.97 | 8.91 | ||||||
Third Quarter
|
10.50 | 9.13 | ||||||
Fourth Quarter
|
12.17 | 8.67 | ||||||
Year Ended December 31, 2014
|
||||||||
First Quarter
|
$ | 11.63 | $ | 8.67 | ||||
Second Quarter
|
9.60 | 6.78 | ||||||
Third Quarter
|
9.88 | 7.46 | ||||||
Fourth Quarter
|
9.15 | 5.67 |
December
2009
($)
|
December
2010
($)
|
December
2011
($)
|
December
2012
($)
|
December
2013
($)
|
December
2014
($)
|
|||||||||||||||||||
Sterling Construction Company, Inc.
|
100.00 | 68.13 | 56.27 | 51.93 | 61.29 | 33.39 | ||||||||||||||||||
Dow Jones US Total Return Index
|
100.00 | 116.65 | 118.22 | 137.52 | 182.86 | 206.53 | ||||||||||||||||||
Dow Jones US Heavy Construction Index
|
100.00 | 128.40 | 105.86 | 128.54 | 168.74 | 125.68 |
Years ended December 31,
|
||||||||||||||||||||
2014
|
2013
|
2012
|
2011
|
2010
|
||||||||||||||||
Revenues
|
$ | 672,230 | $ | 556,236 | $ | 630,507 | $ | 501,156 | $ | 459,893 | ||||||||||
(Loss) Income before income taxes and earnings attributable to noncontrolling interests
|
$ | (4,593 | ) | $ | (68,804 | ) | $ | 17,133 | $ | (51,716 | ) | $ | 36,494 | |||||||
Income tax (expense) benefit
|
(632 | ) | (1,222 | ) | 579 | 17,012 | (10,270 | ) | ||||||||||||
Net (loss) income
|
(5,225 | ) | (70,026 | ) | 17,712 | (34,704 | ) | 26,224 | ||||||||||||
Noncontrolling owners’ interests in earnings of subsidiaries
|
(4,556 | ) | (3,903 | ) | (18,009 | ) | (1,196 | ) | (7,137 | ) | ||||||||||
Net income (loss) attributable to Sterling common stockholders
|
$ | (9,781 | ) | $ | (73,929 | ) | $ | (297 | ) | $ | (35,900 | ) | $ | 19,087 | ||||||
Net income (loss) per share attributable to Sterling common stockholders:
|
||||||||||||||||||||
Basic
|
$ | (0.54 | ) | $ | (4.91 | ) | $ | (0.26 | ) | $ | (2.24 | ) | $ | 1.15 | ||||||
Diluted
|
$ | (0.54 | ) | $ | (4.91 | ) | $ | (0.26 | ) | $ | (2.24 | ) | $ | 1.13 | ||||||
Weighted average number of common shares outstanding used in computing per share amounts:
|
||||||||||||||||||||
Basic
|
18,063 | 16,635 | 16,421 | 16,396 | 16,195 | |||||||||||||||
Diluted
|
18,063 | 16,635 | 16,421 | 16,396 | 16,563 | |||||||||||||||
Cash dividends declared
|
$ | -- | $ | -- | $ | -- | $ | -- | $ | -- | ||||||||||
Balance sheet:
|
||||||||||||||||||||
Total assets
|
$ | 306,451 | $ | 273,018 | $ | 331,510 | $ | 303,831 | $ | 367,131 | ||||||||||
Long-term debt
|
$ | 37,021 | $ | 8,331 | $ | 24,201 | $ | 263 | $ | 336 | ||||||||||
Equity attributable to Sterling common stockholders
|
$ | 133,686 | $ | 128,893 | $ | 210,148 | $ | 213,311 | $ | 250,429 | ||||||||||
Book value per share of outstanding common stock attributable to Sterling common stockholders
|
$ | 7.11 | $ | 7.74 | $ | 12.74 | $ | 13.07 | $ | 15.21 | ||||||||||
Shares outstanding
|
18,803 | 16,658 | 16,495 | 16,321 | 16,468 |
·
|
Revenue recognition
|
·
|
Contracts receivable, including retainage
|
·
|
Valuation of long-lived assets and goodwill
|
·
|
Income taxes
|
·
|
Segment reporting
|
·
|
The nature of the products and services — each of our local offices perform similar construction projects — they build, reconstruct and repair roads, highways, bridges, light rail and water, waste water and storm drainage systems.
|
·
|
The nature of the production processes — our heavy civil construction services rendered in the construction process for each of our construction projects performed by each local office is the same — they excavate dirt, remove existing pavement and pipe, lay aggregate or concrete pavement, pipe and rail and build bridges and similar large structures in order to complete our projects.
|
·
|
The type or class of customer for products and services — substantially all of our customers are state departments of transportation, cities, counties, and regional water, rail and toll-road authorities. A substantial portion of the funding for the state departments of transportation to finance the projects we construct is furnished by the federal government.
|
·
|
The methods used to distribute products or provide services — the heavy civil construction services rendered on our projects are performed primarily with our own field work crews (laborers, equipment operators and supervisors) and equipment (backhoes, loaders, dozers, graders, cranes, pug mills, crushers, and concrete and asphalt plants).
|
·
|
The nature of the regulatory environment — we perform substantially all of our projects for federal, state and municipal governmental agencies, and all of the projects that we perform are subject to substantially similar regulation under U.S. and state department of transportation rules, including prevailing wage and hour laws; codes established by the federal government and municipalities regarding water and waste water systems installation; and laws and regulations relating to workplace safety and worker health of the U.S. Occupational Safety and Health Administration and to the employment of immigrants of the U.S. Department of Homeland Security.
|
2014
|
2013
|
% Change
|
||||||||||
(Dollar amounts in thousands)
|
||||||||||||
Revenues
|
$ | 672,230 | $ | 556,236 | 20.9 | % | ||||||
Gross profit (loss)
|
$ | 32,421 | $ | (29,944 | ) |
NM
|
||||||
General and administrative expenses
|
(36,897 | ) | (40,951 | ) | (9.9 | ) | ||||||
Other income
|
252 | 1,737 | (85.5 | ) | ||||||||
Operating loss
|
(4,224 | ) | (69,158 | ) | (93.9 | ) | ||||||
Gains on sale of securities
|
-- | 91 |
NM
|
|||||||||
Interest income
|
754 | 879 | (14.2 | ) | ||||||||
Interest expense
|
(1,123 | ) | (616 | ) | 82.3 | |||||||
Loss before income taxes and earnings attributable to noncontrolling interests
|
(4,593 | ) | (68,804 | ) | (93.3 | ) | ||||||
Income tax expense
|
(632 | ) | (1,222 | ) | (48.3 | ) | ||||||
Net loss
|
(5,225 | ) | (70,026 | ) | (92.5 | ) | ||||||
Noncontrolling owners’ interests in earnings of subsidiaries and joint ventures
|
(4,556 | ) | (3,903 | ) | 16.7 | |||||||
Net loss attributable to Sterling common stockholders
|
$ | (9,781 | ) | $ | (73,929 | ) | (86.8 | ) | ||||
Gross margin (deficit)
|
4.8 | % | (5.4 | )% |
NM
|
|||||||
Operating margin (deficit)
|
(0.6 | )% | (12.5 | )% | (95.2 | ) | ||||||
Contract backlog, end of year
|
$ | 764,000 | $ | 687,000 | 11.2 |
·
|
conditions or contract requirements that differed from those assumed in the original bid or contract;
|
·
|
delays in taking measures to address issues which arose during construction;
|
·
|
subcontractors performance issues and vendor material spot shortages which caused project progress delays; and
|
·
|
shortage of skilled labor, particularly in our Texas market.
|
2013
|
2012
|
% Change
|
||||||||||
(Dollar amounts in thousands)
|
||||||||||||
Revenues
|
$ | 556,236 | $ | 630,507 | (11.8 | )% | ||||||
Gross profit (loss)
|
$ | (29,944 | ) | $ | 47,472 |
NM
|
||||||
General and administrative expenses
|
(40,951 | ) | (35,187 | ) | 16.4 | |||||||
Unusual items
|
-- | (511 | ) |
NM
|
||||||||
Other income
|
1,737 | 4,217 | (58.8 | ) | ||||||||
Operating income (loss)
|
(69,158 | ) | 15,991 |
NM
|
||||||||
Gains on sale of securities
|
91 | 785 | (88.4 | ) | ||||||||
Interest income
|
879 | 1,301 | (32.4 | ) | ||||||||
Interest expense
|
(616 | ) | (944 | ) | (34.7 | ) | ||||||
Income (loss) before income taxes and earnings attributable to noncontrolling interests
|
(68,804 | ) | 17,133 |
NM
|
||||||||
Income tax (expense) benefit
|
(1,222 | ) | 579 |
NM
|
||||||||
Net income (loss)
|
(70,026 | ) | 17,712 |
NM
|
||||||||
Noncontrolling owners’ interests in earnings of subsidiaries and joint ventures
|
(3,903 | ) | (18,009 | ) | (78.3 | ) | ||||||
Net loss attributable to Sterling common stockholders
|
$ | (73,929 | ) | $ | (297 | ) |
NM
|
|||||
Gross margin (deficit)
|
(5.4 | )% | 7.5 | % |
NM
|
|||||||
Operating margin (deficit)
|
(12.5 | )% | 2.4 | % |
NM
|
|||||||
Contract backlog, end of year
|
$ | 687,000 | $ | 656,000 | 4.7 |
·
|
conditions or contract requirements that differed from those assumed in the original bid or contract;
|
·
|
lower than expected productivity levels; and
|
·
|
delays in quickly identifying and taking measures to address issues which arose during production.
|
Years Ended December 31,
|
||||||||||||
2014
|
2013
|
2012
|
||||||||||
Net cash provided by (used in):
|
||||||||||||
Operating activities
|
$ | (10,513 | ) | $ | (22,072 | ) | $ | 24,789 | ||||
Capital expenditures
|
(13,509 | ) | (14,390 | ) | (37,359 | ) | ||||||
Proceeds from sale of property and equipment
|
6,078 | 6,787 | 12,464 | |||||||||
Acquisition of noncontrolling interest
|
-- | -- | (23,144 | ) | ||||||||
Net sales (purchases) of short-term securities
|
-- | 48,236 | (3,493 | ) | ||||||||
Distributions to noncontrolling interest owners
|
(1,191 | ) | (3,565 | ) | (10,185 | ) | ||||||
Net proceeds from stock issuance
|
14,046 | -- | -- | |||||||||
Net drawdowns (repayment) on the Credit Facility
|
26,793 | (16,204 | ) | 24,012 | ||||||||
Other
|
(733 | ) | (62 | ) | (313 | ) | ||||||
Total increase (decrease) in cash and cash equivalents
|
$ | 20,971 | $ | (1,270 | ) | $ | (13,229 | ) |
As of December 31,
|
||||||||
2014
|
2013
|
|||||||
Cash and cash equivalents
|
$ | 22,843 | $ | 1,872 | ||||
Working capital
|
$ | 52,324 | $ | 8,686 |
·
|
contracts receivable increased by $1.7 million and $6.4 million in 2014 and 2013, respectively, and decreased by $4.1 million in 2012 while the net cash flow result of billings in excess of costs and estimated earnings and costs and estimated earnings in excess of billings decreased by $27.6 million in 2014, increased by $21.6 million in 2013, and decreased by $3.7 million in 2012;
|
·
|
accounts payable increased by $5.2 million in 2014, $13.8 million in 2013 and $7.7 million in 2012;
|
·
|
accrued compensation and other liabilities decreased by $2.5 million in 2014 and increased by $4.1 million in 2013 and decreased by $2.4 million in 2012; and
|
·
|
Member’s interest subject to mandatory redemption and undistributed earnings decreased by $1.1 million as a result of an increase in undistributed earnings of $2.1 million and distributions of $3.2 million for the year ended December 31, 2014.
|
·
|
contract receivables and contract retentions;
|
·
|
costs and estimated earnings in excess of billings;
|
·
|
billings in excess of costs and estimated earnings;
|
·
|
the size and status of contract mobilization payments and progress billings; and
|
·
|
the amounts owed to suppliers and subcontractors.
|
Net loss
|
$ | (5,225 | ) | |
Depreciation and amortization
|
18,348 | |||
Capital expenditures
|
(13,509 | ) | ||
Proceeds from sales of property and equipment, net of gain (loss)
|
5,083 | |||
Distributions to noncontrolling interest owners
|
(1,191 | ) | ||
Net drawdown on the Credit Facility
|
26,793 | |||
Net proceeds from stock issued
|
14,046 | |||
Other
|
(707 | ) | ||
Total increase in working capital
|
$ | 43,638 |
·
|
Make distributions and dividends;
|
·
|
Incur liens and encumbrances;
|
·
|
Incur further indebtedness;
|
·
|
Guarantee obligations;
|
·
|
Dispose of a material portion of assets or merge with a third party;
|
·
|
Make acquisitions; and
|
·
|
Make investments in securities.
|
·
|
Removed the prohibition against acquisitions and amended the definition of Permitted Acquisition in the Credit Agreement to provide that the Company may, without the lender's consent, but subject to certain restrictions, acquire another entity or its assets for a price of up to $8 million payable in shares of the Company's common stock.
|
·
|
Modified the Company’s Tangible Net Worth requirement.
|
·
|
Eliminated the covenant which capped losses per quarter.
|
·
|
Changed the monthly Covenant Compliance Reports to quarterly reports.
|
·
|
A reduction in our availability of $5 million for total availability of $35 million as of March 12, 2015;
|
·
|
A reduction in our availability of $10 million at June
1, 2015, for total availability of $25 million;
|
·
|
A reduction in our availability of $10 million at September 1, 2015, for total availability of $15 million;
|
·
|
An increase in our annual interest rate from prime rate plus 150 basis points, or 4.75%, to prime rate plus 350 basis points, or 6.75%;
|
·
|
The tangible net worth covenant is modified to include $11.3 million of available headroom from the $86.3 million of tangible net worth calculated at December 31, 2014;
|
·
|
Our first covenant test will begin at the end of April using April annualized figures; and
|
·
|
A fee of $0.4 million is due in four equal payments. The first payment was due upon execution of the Seventh Amendment and the second, third and fourth payments are due on June 30
th
, September 30
th
, and December 31
st
of 2015, respectively. However, any remaining unpaid fees are waived if at any point during the year we liquidate and terminate our Credit Facility a month before a payment becomes due.
|
Payments due by period
|
||||||||||||||||||||
Total
|
< 1
Year
|
1 - 3
Years
|
4 – 5
Years
|
> 5
Years
|
||||||||||||||||
(Amounts in thousands)
|
||||||||||||||||||||
Credit Facility
|
$ | 34,601 | $ | -- | $ | 34,601 | $ | -- | $ | -- | ||||||||||
Operating leases*
|
8,793 | 1,550 | 2,591 | 2,476 | 2,176 | |||||||||||||||
Mortgage
|
116 | 73 | 43 | -- | -- | |||||||||||||||
Notes payable for equipment
|
3,269 | 892 | 1,565 | 812 | -- | |||||||||||||||
Earn-out liability to former owner of JBC
|
333 | 168 | 165 | -- | -- | |||||||||||||||
Member’s interest subject to mandatory redemption and undistributed earnings
**
|
22,879 | -- | -- | -- | 22,879 | |||||||||||||||
$ | 69,991 | $ | 2,683 | $ | 38,965 | $ | 3,288 | $ | 25,055 |
Price Per Gallon
|
Fair Value of
Derivatives at
|
|||||||||||||||||
Beginning
|
Ending
|
Range
|
Weighted
Average
|
Remaining
Volume
(gallons)
|
December 31,
2014
(in thousands)
|
|||||||||||||
January 1, 2015
|
August 31, 2015
|
$ | 2.75– 2.79 | $ | 2.77 | 100,000 | $ | 101 |
Item 10 Information
|
Location or Heading
in the Proxy Statement
|
|
Directors
|
Election of Directors (Proposal 1) Board Operations
|
|
Compliance With Section 16(a) of the Exchange Act
|
Stock Ownership Information
|
|
Code of Ethics
|
The Corporate Governance & Nominating Committee
|
|
Communication with the Board; nominations; Board and committee meetings; committees of the Board; Board leadership and risk oversight; and director compensation.
|
The Board of Directors
|
·
|
Equity Compensation Plan Information can be found in the proxy statement under the heading
Executive Compensation
.
|
·
|
Information regarding the ownership of the Company’s common stock can be found in the proxy statement under the heading
Stock Ownership Information
.
|
·
|
Information regarding any relationships between directors and officers and the Company can be found in the proxy statement under the heading
Transactions with Related Persons
.
|
·
|
Information about director independence can be found in the proxy statement under the heading
Election of Directors (Proposal 1)
.
|
10.8.2#
|
Amendment to the Employment Agreement of Thomas R. Wright dated September 26, 2014 (incorporated by reference to Exhibit 10.1 to Sterling Construction Company, Inc.'s Current Report on Form 8-K filed on September 29, 2014 (SEC File No. 1-31993)).
|
||
10.9.1#
|
Program Description — 2015 Short-Term Incentive Compensation Program & 2015 Long-Term Incentive Compensation Program (incorporated by reference to Exhibit 10.1 to Sterling Construction Company, Inc.'s Current Report on Form 8-K filed on December 17, 2014 (SEC File No. 1-31993))
|
||
10.9.2#
|
Form of Long-Term Incentive Program Award Agreement (incorporated by reference to Exhibit 10.2 to Sterling Construction Company, Inc.'s Current Report on Form 8-K filed on December 17, 2014 (SEC File No. 1-31993)).
|
||
10.9.3#*
|
Amended form of Long-Term Incentive Program Award Agreement.
|
||
10.10#*
|
Employment Agreement dated as of March 9, 2015 between Sterling Construction Company, Inc. and Paul J. Varello. | ||
21
|
Subsidiaries of Sterling Construction Company, Inc.:
|
||
Name
|
State of Incorporation or Organization
|
||
Texas Sterling Construction Co.
|
Delaware
|
||
Road and Highway Builders, LLC
|
Nevada
|
||
Road and Highway Builders Inc.
|
Nevada
|
||
RHB Properties, LLC
|
Nevada
|
||
Road and Highway Builders of California, Inc.
|
California
|
||
Sterling Hawaii Asphalt, LLC
|
Hawaii
|
||
Ralph L. Wadsworth Construction Company, LLC
|
Utah
|
||
Ralph L. Wadsworth Construction Co. LP
|
California
|
||
J. Banicki Construction, Inc.
|
Arizona
|
||
Myers & Sons Construction, L.P.
|
California
|
||
23.1*
|
Consent of Grant Thornton, LLP
|
||
31.1*
|
Certification of Paul J. Varello, Chief Executive Officer of Sterling Construction Company, Inc.
|
||
31.2*
|
Certification of Thomas R. Wright, Executive Vice President & Chief Financial Officer of Sterling Construction Company, Inc.
|
||
32.1*
|
Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) of Paul J. Varello Chief Executive Officer, and Thomas R. Wright, Executive Vice President & Chief Financial Officer.
|
||
95.1*
|
Mine Safety Disclosure
|
|
|
# Management contract or compensatory plan or arrangement.
|
|
* Filed herewith.
|
Date: March 16, 2015
|
By: |
/s/ Paul J. Varello
|
|
Paul J. Varello, Chief Executive Officer
|
|||
(duly authorized officer)
|
Signature
|
Title
|
Date
|
/s/ Milton L. Scott
|
Chairman of the Board of Directors
|
March 16, 2015
|
Milton L. Scott
|
||
/s/ Paul J. Varello
|
Chief Executive Officer (principal executive officer)
|
March 16, 2015
|
Paul J. Varello
|
||
/s/ Thomas R. Wright
|
Executive Vice President & Chief Financial Officer
|
March 16, 2015
|
Thomas R. Wright
|
(principal financial officer and principal accounting officer), Treasurer | |
/s/ Marian M. Davenport
|
Director
|
March 16, 2015
|
Marian M. Davenport
|
||
/s/Maarten D. Hemsley
|
Director
|
March 16, 2015
|
Maarten D. Hemsley
|
||
/s/ Charles R. Patton
|
Director
|
March 16, 2015
|
Charles R. Patton
|
||
/s/ Richard O. Schaum
|
Director
|
March 16, 2015
|
Richard O. Schaum
|
2014
|
2013
|
2012
|
||||||||||
Revenues
|
$ | 672,230 | $ | 556,236 | $ | 630,507 | ||||||
Cost of revenues
|
(639,809 | ) | (586,180 | ) | (583,035 | ) | ||||||
Gross profit (loss)
|
32,421 | (29,944 | ) | 47,472 | ||||||||
General and administrative expenses
|
(36,897 | ) | (40,951 | ) | (35,187 | ) | ||||||
Direct costs of acquisitions
|
- | - | (202 | ) | ||||||||
Provision for loss on lawsuit
|
- | - | (309 | ) | ||||||||
Other operating income, net
|
252 | 1,737 | 4,217 | |||||||||
Operating (loss) income
|
(4,224 | ) | (69,158 | ) | 15,991 | |||||||
Gain on sale of securities
|
- | 91 | 785 | |||||||||
Interest income
|
754 | 879 | 1,301 | |||||||||
Interest expense
|
(1,123 | ) | (616 | ) | (944 | ) | ||||||
(Loss) income before income taxes and earnings attributable to noncontrolling interests
|
(4,593 | ) | (68,804 | ) | 17,133 | |||||||
Income tax (expense) benefit
|
(632 | ) | (1,222 | ) | 579 | |||||||
Net (loss) income
|
(5,225 | ) | (70,026 | ) | 17,712 | |||||||
Noncontrolling owners’ interests in earnings of subsidiaries and joint ventures
|
(4,556 | ) | (3,903 | ) | (18,009 | ) | ||||||
Net loss attributable to Sterling common stockholders
|
$ | (9,781 | ) | $ | (73,929 | ) | $ | (297 | ) | |||
Net loss per share attributable to Sterling common stockholders:
|
||||||||||||
Basic and diluted
|
$ | (0.54 | ) | $ | (4.91 | ) | $ | (0.26 | ) | |||
Weighted average number of common shares outstanding used in computing per share amounts:
|
||||||||||||
Basic and diluted
|
18,063,466 | 16,635,179 | 16,420,886 |
2014
|
2013
|
2012
|
||||||||||
Net loss attributable to Sterling common stockholders
|
$ | (9,781 | ) | $ | (73,929 | ) | $ | (297 | ) | |||
Net income attributable to noncontrolling interest included in equity
|
4,556 | 1,879 | 1,068 | |||||||||
Net income attributable to noncontrolling interest included in liabilities
|
- | 2,024 | 16,941 | |||||||||
Add /(deduct) other comprehensive income, net of tax:
|
||||||||||||
Realized gain from available-for-sale securities
|
- | (90 | ) | (510 | ) | |||||||
Change in unrealized holding gain (loss) on available-for-sale securities
|
- | (601 | ) | 560 | ||||||||
Realized (gain) loss from settlement of derivatives
|
137 | (48 | ) | 43 | ||||||||
Change in the effective portion of unrealized (loss) gain in fair market value of derivatives
|
(355 | ) | 160 | 107 | ||||||||
Comprehensive (loss) income
|
$ | (5,443 | ) | $ | (70,605 | ) | $ | 17,912 |
STERLING CONSTRUCTION COMPANY, INC.
STOCKHOLDERS
|
||||||||||||||||||||||||||||
Common Stock
|
Addi-
tional
Paid in
|
Retained
Earnings
|
Accu-
mulated
Other
Compre-
hensive
Income
|
Noncontrolling
|
||||||||||||||||||||||||
Shares
|
Amount
|
Capital
|
(Deficit)
|
(Loss)
|
Interests
|
Total
|
||||||||||||||||||||||
Balance at January 1, 2012
|
16,321 | $ | 163 | $ | 196,143 | $ | 16,509 | $ | 496 | $ | 1,527 | $ | 214,838 | |||||||||||||||
Net (loss) income
|
- | - | - | (297 | ) | - | 1,068 | 771 | ||||||||||||||||||||
Other comprehensive income
|
- | - | - | - | 200 | - | 200 | |||||||||||||||||||||
Stock issued upon option and warrant exercises
|
24 | - | 66 | - | - | - | 66 | |||||||||||||||||||||
Tax impact from exercise of stock options
|
- | - | (79 | ) | - | - | - | (79 | ) | |||||||||||||||||||
Issuance and amortization of restricted stock
|
150 | 2 | 694 | - | - | - | 696 | |||||||||||||||||||||
Revaluation of noncontrolling interest liabilities and other, net of tax
|
- | - | 243 | (3,992 | ) | - | (40 | ) | (3,789 | ) | ||||||||||||||||||
Distribution to owners
|
- | - | - | - | - | (117 | ) | (117 | ) | |||||||||||||||||||
Balance at December 31, 2012
|
16,495 | 165 | 197,067 | 12,220 | 696 | 2,438 | 212,586 | |||||||||||||||||||||
Net (loss) income
|
- | - | - | (73,929 | ) | - | 1,879 | (72,050 | ) | |||||||||||||||||||
Other comprehensive loss
|
- | - | - | - | (579 | ) | - | (579 | ) | |||||||||||||||||||
Stock issued upon option exercises
|
9 | - | 26 | - | - | - | 26 | |||||||||||||||||||||
Tax impact from exercise of stock options
|
- | - | (15 | ) | - | - | - | (15 | ) | |||||||||||||||||||
Issuance and amortization of common and restricted stock
|
154 | 2 | 926 | - | - | - | 928 | |||||||||||||||||||||
Revaluation of noncontrolling interest and other, net of tax
|
- | - | (7,078 | ) | (608 | ) | - | - | (7,686 | ) | ||||||||||||||||||
Distribution to owners
|
- | - | - | - | - | (416 | ) | (416 | ) | |||||||||||||||||||
Balance at December 31, 2013
|
16,658 | 167 | 190,926 | (62,317 | ) | 117 | 3,901 | 132,794 | ||||||||||||||||||||
Net (loss) income
|
- | - | - | (9,781 | ) | - | 4,556 | (5,225 | ) | |||||||||||||||||||
Other comprehensive loss
|
- | - | - | - | (218 | ) | - | (218 | ) | |||||||||||||||||||
Stock issued upon option exercises
|
4 | - | 12 | - | - | - | 12 | |||||||||||||||||||||
Issuance and amortization of restricted stock
|
41 | - | 849 | - | - | - | 849 | |||||||||||||||||||||
Distribution to owners
|
- | - | - | - | - | (994 | ) | (994 | ) | |||||||||||||||||||
Stock issued in equity offering, net of expense
|
2,100 | 21 | 14,025 | - | - | - | 14,046 | |||||||||||||||||||||
Other
|
- | - | (115 | ) | - | - | (1 | ) | (116 | ) | ||||||||||||||||||
Balance at December 31, 2014
|
18,803 | $ | 188 | $ | 205,697 | $ | (72,098 | ) | $ | (101 | ) | $ | 7,462 | $ | 141,148 |
2014
|
2013
|
2012
|
||||||||||
Cash flows from operating activities:
|
||||||||||||
Net loss attributable to Sterling common stockholders
|
$ | (9,781 | ) | $ | (73,929 | ) | $ | (297 | ) | |||
Plus: Noncontrolling owners’ interests in earnings of subsidiaries and joint ventures
|
4,556 | 3,903 | 18,009 | |||||||||
Net (loss) income
|
(5,225 | ) | (70,026 | ) | 17,712 | |||||||
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
|
||||||||||||
Depreciation and amortization
|
18,348 | 18,650 | 18,997 | |||||||||
Gain on disposal of property and equipment
|
(995 | ) | (1,837 | ) | (3,184 | ) | ||||||
Deferred tax expense (benefit)
|
- | 5,150 | (1,167 | ) | ||||||||
Interest expense accreted on noncontrolling interests
|
- | - | 993 | |||||||||
Stock-based compensation expense
|
849 | 928 | 694 | |||||||||
Gain on sale of securities
|
- | (91 | ) | (785 | ) | |||||||
Tax impact from exercise of stock options and restricted stock
|
- | 15 | 79 | |||||||||
Changes in operating assets and liabilities:
|
||||||||||||
Contracts receivable
|
(1,651 | ) | (6,430 | ) | 4,060 | |||||||
Costs and estimated earnings in excess of billings on uncompleted contracts
|
(21,719 | ) | 8,908 | (4,083 | ) | |||||||
Receivables from and equity in construction joint ventures
|
(3,035 | ) | 4,887 | (4,948 | ) | |||||||
Income tax receivable
|
4,784 | (6,011 | ) | - | ||||||||
Other current assets
|
2,480 | (6,722 | ) | (9,234 | ) | |||||||
Accounts payable
|
5,192 | 13,794 | 7,730 | |||||||||
Billings in excess of costs and estimated earnings on uncompleted contracts
|
(5,927 | ) | 12,658 | 335 | ||||||||
Accrued compensation and other liabilities
|
(2,504 | ) | 4,055 | (2,410 | ) | |||||||
Member’s interest subject to mandatory redemption and undistributed earnings
|
(1,110 | ) | - | - | ||||||||
Net cash (used in) provided by operating activities
|
(10,513 | ) | (22,072 | ) | 24,789 | |||||||
Cash flows from investing activities:
|
||||||||||||
Acquisition of noncontrolling interests
|
- | - | (23,144 | ) | ||||||||
Additions to property and equipment
|
(13,509 | ) | (14,390 | ) | (37,359 | ) | ||||||
Proceeds from sale of property and equipment
|
6,078 | 6,787 | 12,464 | |||||||||
Purchases of short-term securities, available-for-sale
|
- | (1,638 | ) | (30,154 | ) | |||||||
Sales of short-term securities, available-for-sale
|
- | 49,874 | 26,661 | |||||||||
Net cash (used in) provided by investing activities
|
(7,431 | ) | 40,633 | (51,532 | ) | |||||||
Cash flows from financing activities:
|
||||||||||||
Cumulative daily drawdowns – Credit Facility
|
330,338 | 219,026 | 75,012 | |||||||||
Cumulative daily repayments – Credit Facility
|
(303,545 | ) | (235,230 | ) | (51,000 | ) | ||||||
Distributions to noncontrolling interest owners
|
(1,191 | ) | (3,565 | ) | (10,185 | ) | ||||||
Net proceeds from stock issued
|
14,046 | - | - | |||||||||
Issuance of common stock pursuant to warrants and options exercised
|
12 | 26 | 68 | |||||||||
Tax impact from exercise of stock options
|
- | (15 | ) | (79 | ) | |||||||
Other
|
(745 | ) | (73 | ) | (302 | ) | ||||||
Net cash provided by (used in) financing activities
|
38,915 | (19,831 | ) | 13,514 | ||||||||
Net increase (decrease) in cash and cash equivalents
|
20,971 | (1,270 | ) | (13,229 | ) | |||||||
Cash and cash equivalents at beginning of period
|
1,872 | 3,142 | 16,371 | |||||||||
Cash and cash equivalents at end of period
|
$ | 22,843 | $ | 1,872 | $ | 3,142 | ||||||
Supplemental disclosures of cash flow information:
|
||||||||||||
Cash paid during the period for interest
|
$ | 1,075 | $ | 595 | $ | 88 | ||||||
Cash paid during the period for income taxes
|
$ | 1 | $ | 170 | $ | 2,990 | ||||||
Non-cash items:
|
||||||||||||
Revaluation of noncontrolling interests
|
$ | - | $ | (7,686 | ) | $ | 3,992 | |||||
Issuance of noncontrolling interest in RHB in exchange for net assets of acquired companies
|
$ | - | $ | - | $ | 9,767 | ||||||
Goodwill adjustments
|
$ | - | $ | - | $ | 410 | ||||||
Transportation and construction equipment acquired through financing arrangements
|
$ | 3,159 | $ | 510 | $ | - |
1.
|
Summary of Business and Significant Accounting Policies
|
Buildings (years)
|
39
|
|||
Construction equipment (years)
|
5 |
-
|
15 | |
Land improvements (years)
|
5 |
-
|
15 | |
Office furniture and fixtures (years)
|
3 |
-
|
10 | |
Leasehold improvements (years or lease period, if shorter)
|
3 |
-
|
10 | |
Transportation equipment (years)
|
5
|
·
|
The nature of the products and services — each of our local offices perform similar construction projects — they build, reconstruct and repair roads, highways, bridges, light rail and water, waste water and storm drainage systems.
|
·
|
The nature of the production processes — our heavy civil construction services rendered in the construction process for each of our construction projects performed by each local office is the same — they excavate dirt, remove existing pavement and pipe, lay aggregate or concrete pavement, pipe and rail and build bridges and similar large structures in order to complete our projects.
|
·
|
The type or class of customer for products and services — substantially all of our customers are federal and state departments of transportation, cities, counties, and regional water, rail and toll-road authorities. A substantial portion of the funding for the state departments of transportation to finance the projects we construct is furnished by the federal government.
|
·
|
The methods used to distribute products or provide services — the heavy civil construction services rendered on our projects are performed primarily with our own field work crews (laborers, equipment operators and supervisors) and equipment (backhoes, loaders, dozers, graders, cranes, pug mills, crushers, and concrete and asphalt plants).
|
·
|
The nature of the regulatory environment — we perform substantially all of our projects for federal, state and municipal governmental agencies, and all of the projects that we perform are subject to substantially similar regulation under U.S. and state department of transportation rules, including prevailing wage and hour laws; codes established by the federal government and municipalities regarding water and waste water systems installation; and laws and regulations relating to workplace safety and worker health of the U.S. Occupational Safety and Health Administration and to the employment of immigrants of the U.S. Department of Homeland Security.
|
2.
|
Acquisitions and Subsidiaries and Joint Ventures with Noncontrolling Owners’ Interests
|
Years Ended December 31,
|
||||||||
2014
|
2013
|
|||||||
Member’s interest subject to mandatory redemption
|
$ | 20,000 | $ | 20,000 | ||||
Undistributed earnings attributable to this interest
|
6,079 | 3,989 | ||||||
Earnings distributed
|
(3,200 | ) | - | |||||
Total liability
|
$ | 22,879 | $ | 23,989 |
Years Ended December 31,
|
||||||||||||
2014
|
2013
|
2012
|
||||||||||
Balance, beginning of period
|
$ | 4,097 | $ | 20,046 | $ | 18,375 | ||||||
Net income attributable to noncontrolling interest included in liabilities
|
- | 2,024 | 16,941 | |||||||||
Net income attributable to noncontrolling interest included in equity
|
4,556 | 1,879 | 1,068 | |||||||||
Accretion of interest on puts
|
- | - | 993 | |||||||||
Change in fair value of RLW put/call
|
- | (59 | ) | 3,797 | ||||||||
Change in fair value of RHB put/call
|
- | 1,875 | 2,473 | |||||||||
Change due to the RHB amendment
|
- | (18,103 | ) | - | ||||||||
Issuance of noncontrolling interest in RHB in exchange for net assets of acquired companies
|
- | - | 9,767 | |||||||||
Distributions to noncontrolling interests owners
|
(1,191 | ) | (3,056 | ) | (10,185 | ) | ||||||
Acquisition of RLW noncontrolling interest
|
- | (509 | ) | (23,144 | ) | |||||||
Other
|
- | - | (39 | ) | ||||||||
Balance, end of period
|
$ | 7,462 | $ | 4,097 | $ | 20,046 |
3.
|
Variable Interest Entities
|
As of December 31,
|
||||||||
2014
|
2013
|
|||||||
Assets:
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 148 | $ | 566 | ||||
Contracts receivable, including retainage
|
21,327 | 6,475 | ||||||
Other current assets
|
7,656 | 7,964 | ||||||
Total current assets
|
29,131 | 15,005 | ||||||
Property and equipment, net
|
9,303 | 6,869 | ||||||
Other assets, net
|
- | 5 | ||||||
Goodwill
|
1,501 | 1,501 | ||||||
Total assets
|
$ | 39,935 | $ | 23,380 | ||||
Liabilities:
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$ | 15,795 | $ | 8,361 | ||||
Other current liabilities
|
9,000 | 7,080 | ||||||
Total current liabilities
|
24,795 | 15,441 | ||||||
Long-term liabilities:
|
||||||||
Other long-term liabilities
|
16 | 137 | ||||||
Total liabilities
|
$ | 24,811 | $ | 15,578 |
Year Ended December 31,
|
||||||||||||
2014
|
2013
|
2012
|
||||||||||
Revenues
|
$ | 144,837 | $ | 82,421 | $ | 84,877 | ||||||
Operating income
|
9,319 | 3,764 | 2,152 | |||||||||
Net income attributable to Sterling common stockholders
|
4,657 | 1,879 | 694 |
4.
|
Cash and Cash Equivalents and Short-term Investments
|
5.
|
Costs and Estimated Earnings and Billings on Uncompleted Contracts
|
As of December 31,
|
||||||||
2014
|
2013
|
|||||||
Costs incurred and estimated earnings on uncompleted contracts
|
$ | 1,566,831 | $ | 1,334,322 | ||||
Billings on uncompleted contracts
|
(1,559,077 | ) | (1,354,214 | ) | ||||
Excess of costs incurred and estimated earnings over billings (excess of billings over costs incurred and estimated earnings) on uncompleted contracts
|
$ | 7,754 | $ | (19,892 | ) |
As of December 31,
|
||||||||
2014
|
2013
|
|||||||
Costs and estimated earnings in excess of billings on uncompleted contracts
|
$ | 33,403 | $ | 11,684 | ||||
Billings in excess of costs and estimated earnings
on uncompleted contracts
|
(25,649 | ) | (31,576 | ) | ||||
Net amount of costs and estimated earnings on uncompleted contracts above (below) billings
|
$ | 7,754 | $ | (19,892 | ) |
6.
|
Construction Joint Ventures
|
As of December 31,
|
||||||||
2014
|
2013
|
|||||||
Total combined:
|
||||||||
Current assets
|
$ | 18,132 | $ | 51,329 | ||||
Less current liabilities
|
(49,035 | ) | (64,531 | ) | ||||
Net assets
|
$ | (30,903 | ) | $ | (13,202 | ) | ||
Backlog
|
$ | 55,063 | $ | 101,014 |
Years Ended December 31,
|
||||||||||||
2014
|
2013
|
2012
|
||||||||||
Total combined:
|
||||||||||||
Revenues
|
$ | 51,015 | $ | 135,699 | $ | 438,756 | ||||||
Income before tax
|
3,606 | (20,758 | ) | 95,765 | ||||||||
Sterling’s noncontrolling interest:
|
||||||||||||
Share of revenues
|
$ | 20,243 | $ | 54,096 | $ | 82,519 | ||||||
Share of income before tax
|
2,111 | (11,088 | ) | 12,424 |
As of December 31,
|
||||||||
2014
|
2013
|
|||||||
Sterling’s noncontrolling interest in backlog
|
$ | 15,889 | $ | 30,652 | ||||
Sterling’s receivables from and equity in construction joint ventures
|
9,153 | 6,118 |
7.
|
Property and Equipment
|
As of December 31,
|
||||||||
2014
|
2013 | |||||||
Construction equipment
|
$ | 129,150 | $ | 127,199 | ||||
Transportation equipment
|
18,205 | 19,132 | ||||||
Buildings
|
10,777 | 10,512 | ||||||
Office equipment
|
2,761 | 2,025 | ||||||
Leasehold Improvement
|
878 | 816 | ||||||
Construction in progress
|
387 | - | ||||||
Land
|
5,530 | 5,309 | ||||||
Water rights
|
200 | 200 | ||||||
167,888 | 165,193 | |||||||
Less accumulated depreciation
|
(80,790 | ) | (71,510 | ) | ||||
$ | 87,098 | $ | 93,683 |
8.
|
Goodwill
|
Balance at January 1, 2012
|
$ | 54,050 | ||
Additional goodwill related to acquisitions
|
360 | |||
Goodwill adjustments
|
410 | |||
Balance at December 31, 2013 and 2014
|
$ | 54,820 |
9.
|
Derivative Financial Instruments
|
As of December 31,
|
||||||||
Balance Sheet Location
|
2014
|
2013
|
||||||
Derivative assets:
|
||||||||
Deposits and other current assets
|
$
|
-
|
$
|
109
|
||||
Other assets, net
|
-
|
8
|
||||||
$
|
-
|
$
|
117
|
|||||
Derivative liabilities:
|
||||||||
Other current liabilities
|
$
|
(101
|
)
|
$
|
-
|
|||
Other long-term liabilities
|
-
|
-
|
||||||
$
|
(101
|
)
|
$
|
-
|
Years Ended December 31,
|
||||||||||||||
2014
|
2013
|
2012
|
||||||||||||
Increase (decrease) in fair value of derivatives included in other comprehensive income (loss) (effective portion)
|
$ | (218 | ) | $ | 109 | $ | 231 | |||||||
Realized gain (loss) included in cost of revenues (effective portion)
|
(137 | ) | 48 | (66 | ) | |||||||||
Increase (decrease) in fair value of derivatives included in cost of revenues (ineffective portion)
|
- | - | - |
10.
|
Changes in Accumulated Other Comprehensive (Loss) Income by Component
|
Twelve
Months Ended
December 31,
2014 (*)
|
||||
Unrealized Gain
and Loss on Cash
Flow Hedges
|
||||
Beginning Balance
|
$ | 117 | ||
Other comprehensive loss before reclassification
|
(355 | ) | ||
Amounts reclassified from accumulated other comprehensive income
|
137 | |||
Net current-period other comprehensive loss
|
(218 | ) | ||
Ending Balance
|
$ | (101 | ) |
Amount Reclassified From
Accumulated Other Comprehensive
(Loss) Income (*)
|
||||||||||||||
Twelve Months Ended December 31,
|
||||||||||||||
Details About Accumulated Other
Comprehensive (Loss) Income Components
|
2014
|
2013
|
2012
|
Statement of
Operations Classification
|
||||||||||
Realized gains on available-for sale securities
|
$
|
-
|
$
|
90
|
$
|
785
|
Gain on sale of securities and other
|
|||||||
Less: Income tax expense
|
-
|
(33
|
)
|
(275
|
)
|
Income tax (expense)
|
||||||||
Tax valuation allowance
|
-
|
33
|
-
|
benefit | ||||||||||
Total reclassification related to available-for-sale securities
|
$
|
-
|
$
|
90
|
$
|
510
|
Net income (loss)
|
|||||||
Realized gains (losses) on cash flow hedges
|
$
|
(137
|
)
|
$
|
48
|
$
|
(66
|
)
|
Cost of revenues
|
|||||
Less: Income tax (expense) benefit
|
|
-
|
(17
|
)
|
23
|
Income tax (expense)
|
||||||||
Tax valuation allowance
|
-
|
17
|
-
|
benefit
|
||||||||||
Total reclassification related to cash flow hedges
|
$
|
(137
|
)
|
$
|
48
|
$
|
(43
|
)
|
Net income (loss)
|
11.
|
Line of Credit and Long-Term Debt
|
As of December 31,
|
||||||||
2014
|
2013
|
|||||||
Credit facility
|
$ | 34,601 | $ | 7,808 | ||||
Mortgage due monthly through June 2016
|
116 | 189 | ||||||
Notes payable for transportation and construction equipment
|
3,269 | 468 | ||||||
37,986 | 8,465 | |||||||
Less current maturities of long-term debt
|
(965 | ) | (134 | ) | ||||
Total long-term debt
|
$ | 37,021 | $ | 8,331 |
·
|
Make distributions and dividends;
|
·
|
Incur liens and encumbrances;
|
·
|
Incur further indebtedness;
|
·
|
Guarantee obligations;
|
·
|
Dispose of a material portion of assets or merge with a third party;
|
·
|
Make acquisitions; and
|
·
|
Make investments in securities.
|
·
|
Removed the prohibition against acquisitions and amended the definition of Permitted Acquisition in the Credit Agreement to provide that the Company may, without the lender's consent, but subject to certain restrictions, acquire another entity or its assets for a price of up to $8 million payable in shares of the Company's common stock.
|
·
|
Modified the Company’s Tangible Net Worth requirement.
|
·
|
Eliminated the covenant which capped losses per quarter.
|
·
|
Changed the monthly Covenant Compliance Reports to quarterly reports.
|
Years Ending
December 31,
|
Amount
|
|||
2015
|
$ | 965 | ||
2016
|
35,499 | |||
2017
|
710 | |||
2018
|
553 | |||
2019
|
259 | |||
Thereafter
|
- | |||
$ | 37,986 |
12.
|
Income Taxes and Deferred Tax Asset/Liability
|
Years Ended December 31,
|
||||||||||||
2014
|
2013
|
2012
|
||||||||||
Current tax expense (benefit)
|
$ | 632 | $ | (3,928 | ) | $ | 588 | |||||
Deferred tax expense (benefit)
|
- | 5,150 | (1,167 | ) | ||||||||
Total tax expense (benefit)
|
$ | 632 | $ | 1,222 | $ | (579 | ) |
As of December 31,
|
||||||||||||||||
2014
|
2013
|
|||||||||||||||
Current
|
Long
Term
|
Current
|
Long
Term
|
|||||||||||||
Assets related to:
|
||||||||||||||||
Accrued compensation and other
|
$ | 1,059 | $ | 809 | $ | 265 | $ | 451 | ||||||||
Amortization and impairment of goodwill
|
- | 10,816 | - | 11,108 | ||||||||||||
Accreted interest to put
|
- | - | - | 985 | ||||||||||||
Contingency on lawsuit
|
- | - | - | 106 | ||||||||||||
Noncontrolling interest
|
- | 2,326 | - | 1,439 | ||||||||||||
Deferred revenue
|
125 | - | 6,993 | - | ||||||||||||
Revaluation of put/call liabilities
|
- | 8,471 | - | 5,127 | ||||||||||||
Net operating loss carryforwards
|
- | 27,172 | - | 18,302 | ||||||||||||
Valuation allowance for deferred tax assets
|
(1,184 | ) | (35,393 | ) | (7,258 | ) | (23,773 | ) | ||||||||
Liabilities related to:
|
||||||||||||||||
Depreciation of property and equipment
|
- | (14,186 | ) | - | (12,669 | ) | ||||||||||
Other
|
- | (15 | ) | - | (1,076 | ) | ||||||||||
Net asset
|
$ | - | $ | - | $ | - | $ | - |
Years Ended December 31,
|
||||||||||||||||||||||||
2014
|
2013
|
2012
|
||||||||||||||||||||||
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||||||||
Tax expense (benefit) at the U.S. federal statutory rate
|
$ | (1,608 | ) | 35.0 | % | $ | (24,081 | ) | 35.0 | % | $ | 5,997 | 35.0 | % | ||||||||||
State tax based on income, net of refunds and federal benefits
|
(155 | ) | 3.4 | (1,280 | ) | 1.8 | (58 | ) | (0.3 | ) | ||||||||||||||
Taxes on subsidiaries’ and joint ventures’ earnings allocated to noncontrolling interests owners
|
(2,365 | ) | 51.5 | (1,375 | ) | 2.0 | (5,938 | ) | (34.7 | ) | ||||||||||||||
Tax benefits of Domestic Production Activities Deduction
|
- | - | - | (84 | ) | (0.5 | ) | |||||||||||||||||
Impairment associated with goodwill that is not amortizable for tax
|
- | - | - | - | - | |||||||||||||||||||
Valuation Allowance
|
4,152 | (90.4 | ) | 28,215 | (41.0 | ) | - | - | ||||||||||||||||
Reduction of tax receivable
|
524 | (11.4 | ) | - | - | - | - | |||||||||||||||||
Non-taxable interest income
|
- | (195 | ) | 0.3 | (529 | ) | (3.1 | ) | ||||||||||||||||
Other permanent differences
|
84 | (1.9 | ) | (62 | ) | 0.1 | 33 | 0.2 | ||||||||||||||||
Income tax expense (benefit)
|
$ | 632 | (13.8 | )% | $ | 1,222 | (1.8 | )% | $ | (579 | ) | (3.4 | )% |
Year
|
Amount
|
|||
2020
|
$ | 15 | ||
2021
|
50 | |||
2028
|
8,744 | |||
2029
|
3,410 | |||
2033
|
70,003 | |||
2034
|
27,312 | |||
Total
|
$ | 109,534 |
13.
|
Commitments and Contingencies
|
·
|
Coverage for medical and prescription drug claim amounts in excess of $55,000 for RLW and JBC, and $95,000 for all other entities, for each insured person within a plan year.
|
·
|
Combined coverage for medical and prescription drug claim amounts in excess of $5.2 million within a plan year.
|
14.
|
Operating Leases
|
Years Ending December 31,
|
Amount
|
|||
2015
|
$ | 1,550 | ||
2016
|
1,359 | |||
2017
|
1,232 | |||
2018
|
1,251 | |||
2019
|
1,225 | |||
Thereafter
|
2,176 | |||
Total future minimum rental payments
|
$ | 8,793 |
15.
|
Net Loss Per Share Attributable to Sterling Common Stockholders
|
Years Ended December 31,
|
||||||||||||
2014
|
2013
|
2012
|
||||||||||
Numerator:
|
||||||||||||
Net loss attributable to Sterling common stockholders
|
$ | (9,781 | ) | $ | (73,929 | ) | $ | (297 | ) | |||
Revaluation of noncontrolling interest put/call liability reflected in additional paid in capital or retained earnings, net of tax
|
- | (7,686 | ) | (3,992 | ) | |||||||
$ | (9,781 | ) | $ | (81,615 | ) | $ | (4,289 | ) | ||||
Denominator:
|
||||||||||||
Weighted average common shares outstanding — basic
|
18,063 | 16,635 | 16,421 | |||||||||
Shares for dilutive stock options and warrants
|
- | - | - | |||||||||
Weighted average common shares outstanding and assumed
conversions— diluted
|
18,063 | 16,635 | 16,421 | |||||||||
Basic and diluted net loss per share attributable to Sterling common stockholders
|
$ | (0.54 | ) | $ | (4.91 | ) | $ | (0.26 | ) |
16.
|
Stockholders’ Equity
|
Number of Shares
|
Weighted Average
Fair Value
Per Share
|
|||||||
Nonvested at January 1, 2012
|
71,469 | $ | 14.68 | |||||
Granted
|
149,704 | 9.75 | ||||||
Vested
|
(34,543 | ) | 13.05 | |||||
Forfeited
|
- | - | ||||||
Nonvested at December 31, 2012
|
186,630 | 11.03 | ||||||
Granted
|
60,032 | 9.74 | ||||||
Vested
|
(56,602 | ) | 10.57 | |||||
Forfeited
|
(8,944 | ) | 13.57 | |||||
Nonvested at December 31, 2013
|
181,116 | 10.61 | ||||||
Granted
|
61,957 | 9.05 | ||||||
Vested
|
(73,190 | ) | 6.88 | |||||
Forfeited
|
(20,412 | ) | 11.66 | |||||
Nonvested at December 31, 2014
|
149,471 | 11.65 |
Years Ended December 31,
|
||||||||||||
2014
|
2013
|
2012
|
||||||||||
Shares awarded to each non-employee director
|
6,203 | 4,975 | 5,155 | |||||||||
Total shares awarded
|
43,421 | 34,825 | 30,930 | |||||||||
Average grant-date market price per share
|
$ | 8.06 | $ | 10.06 | $ | 9.70 | ||||||
Total compensation cost attributable to shares awarded
|
$ | 350,000 | $ | 350,000 | $ | 300,000 | ||||||
Compensation cost recognized related to current and prior year awards
|
$ | 316,750 | $ | 333,499 | $ | 283,333 |
2001 Plan
|
||||||||
Shares
|
Weighted Average
Exercise Price
|
|||||||
Outstanding at December 31, 2012
|
22,200 | $ | 3.08 | |||||
Exercised
|
(8,500 | ) | 3.08 | |||||
Expired/forfeited
|
(6,200 | ) | 3.07 | |||||
Outstanding at December 31, 2013
|
7,500 | 3.10 | ||||||
Exercised
|
(4,000 | ) | 3.10 | |||||
Expired/forfeited
|
(3,500 | ) | 3.10 | |||||
Outstanding at December 31, 2014
|
- | - |
Number
of Shares
|
Aggregate
Intrinsic
Value
|
|||||||
Total options exercised during 2014
|
4,000 | $ | 21,911 |
17.
|
Employee Benefit Plans
|
·
|
Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers. If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.
|
·
|
If the Company chooses to stop participating in some of its multiemployer plans, the Company may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.
|
1
|
The most recent PPA zone status available in 2014 and 2013 is for the plan’s year-end during 2013 and 2012, respectively. The zone status is based on information that we received from the plan and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally less than 65 percent funded, plans in the orange zone are less than 80 percent funded and have an Accumulated Funding Deficiency in the current year or projected into the next six years, plans in the yellow zone are less than 80 percent funded, and plans in the green zone are at least 80 percent funded.
|
2
|
Indicates whether the plan has a financial improvement plan (“FIP”) or a rehabilitation plan (“RP”) which is either pending or has been implemented.
|
3
|
Lists the expiration date(s) of the collective-bargaining agreement(s) to which the plans are subject.
|
4
|
These funds include multiemployer plans for pensions and other employee benefits. The total individually insignificant multiemployer pension costs contributed were $903,000, $603,000 and $466,000 for 2014, 2013 and 2012, respectively, and are included in the contributions to all other funds along with contributions to other types of benefit plans. Other employee benefits include certain coverage for medical, prescription drug, dental, vision, life and accidental death and dismemberment, disability and other benefit costs.
|
18.
|
Concentration of Risk and Enterprise Wide Disclosures
|
Years Ended December 31,
|
||||||||||||||||||||||||
2014
|
2013 | 2012 | ||||||||||||||||||||||
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||||||||
Utah Department of Transportation (“UDOT”)
|
$ | * | * | % | $ | * | * | % | $ | 100,658 | 16.0 | % | ||||||||||||
California Department of Transportation (“Caltrans”)
|
97,637 | 14.5 | 92,159 | 16.6 | 94,171 | 15.0 |
19.
|
Related Party Transactions
|
20.
|
Quarterly Financial Information
|
2014 Quarters Ended (unaudited)
|
||||||||||||||||||||
March 31
|
June 30
|
September 30
|
December 31
|
Total
|
||||||||||||||||
Revenues
|
$ | 134,538 | $ | 194,806 | $ | 189,275 | $ | 153,611 | $ | 672,230 | ||||||||||
Gross profit
|
7,869 | 12,499 | 8,356 | 3,697 | 32,421 | |||||||||||||||
Income (loss) before income taxes and earnings attributable to noncontrolling interests
|
480 | 2,473 | (1,671 | ) | (5,875 | ) | (4,593 | ) | ||||||||||||
Net income (loss) attributable to Sterling common stockholders
|
205 | 1,200 | (3,935 | ) | (7,251 | ) | (9,781 | ) | ||||||||||||
Net income (loss) per share attributable to Sterling common stockholders:
|
||||||||||||||||||||
Basic
|
$ | 0.01 | $ | 0.07 | $ | (0.21 | ) | $ | (0.39 | ) | $ | (0.54 | ) | |||||||
Diluted
|
0.01 | 0.07 | (0.21 | ) | (0.39 | ) | (0.54 | ) |
2013 Quarters Ended (unaudited)
|
||||||||||||||||||||
March 31
|
June 30
|
September 30
|
December 31
|
Total
|
||||||||||||||||
Revenues
|
$ | 111,035 | $ | 133,350 | $ | 185,935 | $ | 125,916 | $ | 556,236 | ||||||||||
Gross profit (loss)
|
1,385 | (16,635 | ) | 8,359 | (23,053 | ) | (29,944 | ) | ||||||||||||
Income (loss) before income taxes and earnings attributable to noncontrolling interests
|
(7,219 | ) | (25,967 | ) | 1,715 | (37,333 | ) | (68,804 | ) | |||||||||||
Net loss attributable to Sterling common stockholders
|
(4,580 | ) | (17,025 | ) | (189 | ) | (52,135 | ) | (73,929 | ) | ||||||||||
Net loss per share attributable to Sterling common stockholders:
|
||||||||||||||||||||
Basic
|
$ | (0.39 | ) | $ | (0.93 | ) | $ | (0.06 | ) | $ | (3.52 | ) | $ | (4.91 | ) | |||||
Diluted
|
(0.39 | ) | (0.93 | ) | (0.06 | ) | (3.52 | ) | (4.91 | ) |
21.
|
Subsequent Events – CEO Departure, Goodwill and Covenant Compliance
|
·
|
A reduction in our availability of $5 million for total availability of $35 million as of March 12, 2015;
|
·
|
A reduction in our availability of $10 million at June
1, 2015, for total availability of $25 million;
|
·
|
A reduction in our availability of $10 million at September 1, 2015, for total availability of $15 million;
|
·
|
An increase in our annual interest rate from the prime rate plus 150 basis points, or 4.75%, to the prime rate plus 350 basis points, or 6.75%;
|
·
|
The tangible net worth covenant is modified to include $11.3 million of available headroom from the $86.3 million of tangible net worth calculated at December 31, 2014;
|
·
|
Our first covenant test will begin at the end of April using April annualized figures; and
|
·
|
A fee of $0.4 million is due in four equal payments. The first payment was due upon execution of the Seventh Amendment and the second, third and fourth payments are due on June 30
th
, September 30
th
, and December 31
st
of 2015, respectively. However, any remaining unpaid fees are waived if at any point during the year the Company liquidates and terminates the Credit Facility a month before a payment becomes due.
|
1.
|
Term
. This Agreement will commence on the Effective Date and will expire at the close of business on the third anniversary of the Effective Date (the "
Term
").
|
2.
|
Title
. During the Term, Mr. Varello will be elected the Chief Executive Officer of the Company when the other officers of the Company are elected.
|
3.
|
Reporting Relationship
. As Chief Executive Officer, Mr. Varello will report to the Board of Directors of the Company.
|
4.
|
Responsibilities
. Mr. Varello will devote his full working time to diligently carrying out the customary duties and responsibilities of a chief executive officer of a publicly-traded company and such other appropriate duties as the Board of Directors of the Company may assign to him from time to time. In addition, Mr. Varello will serve on the Board of Directors of the Company so long as he is elected a director of the Company.
|
5.
|
Compensation & Benefits
. So long as Mr. Varello is an employee of the Company under this Agreement —
|
(a)
|
Salary
. He will be paid a salary of one dollar ($1.00) per year and for any portion of a year in which he remains the Chief Executive Officer of the Company.
|
(b)
|
Restricted Stock Award
. As of the Effective Date, the Compensation Committee of the Board of Directors will make a one-time award to Mr. Varello of 600,000 shares of common stock of the Company (the "
Restricted Shares
") under a Special CEO Plan, as follows:
|
(i)
|
The Restricted Shares will be subject to restrictions on their sale or other transfer according to the terms and conditions of the form of Restricted Stock Agreement attached hereto as
Attachment A
, which constitutes the Special CEO Plan.
|
(ii)
|
The Special CEO Plan will be subject to the approval of the stockholders of the Company at its 2015 Annual Meeting of Stockholders.
|
(iii)
|
In the event that the Special CEO Plan is not approved by stockholders, the restricted stock award will become null and void, the Restricted Shares will be canceled, and Mr. Varello and the Company will in good faith re-negotiate his salary, his equity compensation, and the various consequences of a termination of his employment under
Section 13
, below.
|
(c)
|
Health Benefits
. The Company will reimburse Mr. Varello for his out-of-pocket costs of maintaining the family health insurance coverage that he has been maintaining prior to the date hereof, or any replacement coverage that he may elect to obtain from time to time.
|
(d)
|
Vacation
. Mr. Varello will be entitled to three weeks of paid vacation per year.
|
(e)
|
Company Vehicle
. During the Term, the Company will provide Mr. Varello with the use of a Company-owned vehicle.
|
6.
|
Other Activities
. During Mr. Varello's employment, he may participate in charitable activities and personal investment and business activities so long as those activities and any related directorships do not interfere with the performance of his duties and responsibilities hereunder.
|
7.
|
Place of Employment
. Mr. Varello's place of employment will be in Montgomery County or a contiguous county in Texas except for required travel on the Company's business.
|
8.
|
Business Expense Reimbursement
. Mr. Varello will be reimbursed in accordance with the Company's business expense reimbursement policy from time to time in effect for all reasonable business expenses incurred by him in the performance of his duties and responsibilities.
|
9.
|
Legal Fees
. The Company will pay to Mr. Varello's counsel the reasonable legal fees incurred by Mr. Varello in connection with reviewing, drafting and negotiating this Agreement.
|
10.
|
Indemnification
.
|
(a)
|
Mr. Varello will be indemnified by the Company with respect to claims made against him as a director, officer and/or employee of the Company and of any affiliate of the Company (as defined in
Section 19(c)(iii)
, below) to the fullest extent permitted by the Company's charter and by-laws, and by the laws of the State of Delaware.
|
(b)
|
So long as the directors of the Company are themselves covered by a directors and officers liability insurance policy, the Company will ensure that in his capacity as an officer of the Company, Mr. Varello is similarly covered at no cost to himself.
|
11.
|
Confidential Information
.
|
(a)
|
During Mr. Varello's employment by the Company and thereafter, he may not disclose to any person or entity Confidential Information (as defined below) except in the proper performance of his duties and responsibilities under this Agreement, or except as may be expressly authorized by the Board of Directors of the Company.
|
(b)
|
For purposes of this Agreement, "Confidential Information" is defined as any information of the Company or its affiliates that derives independent economic value from not being generally known or readily ascertainable by proper means, and includes trade secrets, customer names and lists, vendor names and lists, employee names, titles and lists, business plans, marketing plans, non-public financial data, product specifications, and bid information, as well as designs, inventions, discoveries, processes, drawings, documents, records, and software, and includes, in addition, any information of a third party that is held by the Company and/or its affiliates under an obligation of confidentiality.
|
(c)
|
Notwithstanding the above, Confidential Information does not include any information that is generally known in the industry or is in the public domain, or becomes generally known through no fault of Mr. Varello's.
|
12.
|
Non-Compete Obligations
. For purposes of this
Section 12
, only, the term "the Company" includes the Company's affiliates. Mr. Varello's obligations with respect to competing with the Company and soliciting the Company's employees and customers (together the "
Non-Compete Obligations
") are as follows:
|
(a)
|
Mr. Varello will not render services or advice, whether for compensation or without compensation, and whether as an employee, officer, director, principal, consultant or otherwise, to any person or organization with respect to any product or service that is competitive with —
|
(i)
|
A product or service of the Company —
|
(A)
|
With which during his employment by the Company Mr. Varello was actively engaged; or
|
(B)
|
Of which Mr. Varello had detailed knowledge; or
|
(ii)
|
Any planned business of the Company in which —
|
(A)
|
Mr. Varello had an active part in the planning; or
|
(B)
|
Of which Mr. Varello had detailed knowledge.
|
(b)
|
Mr. Varello agrees that he will not either directly or indirectly as agent or otherwise in any manner solicit, influence or encourage any customer of the Company to take away or to divert or direct its business to himself or to any person or entity by or with which he is employed, associated, affiliated or otherwise related (other than the Company.)
|
(c)
|
Mr. Varello agrees that he will not knowingly recruit or otherwise solicit or induce any employee of the Company to terminate his or her employment, or otherwise cease his or her relationship with the Company.
|
(d)
|
The Non-Compete Obligations will continue so long as Mr. Varello is an employee of the Company. After his employment terminates for any reason, the Non-Compete Obligations —
|
(i)
|
Will continue for a period of eighteen (18) months; and
|
(ii)
|
Will apply in Texas and in any other state in which the Company received more than 10% of its annual revenues in the calendar year immediately preceding the calendar year in which Mr. Varello's employment terminated.
|
13.
|
Termination by the Company
. The Company may terminate Mr. Varello's employment only pursuant to the following terms and on the following conditions:
|
(a)
|
Termination Without Cause
. The Company may terminate Mr. Varello's employment Without Cause (as defined below) by giving him ninety days' prior written notice thereof, in which event all then outstanding shares of restricted common stock then held by him will vest, and he may purchase any insurance maintained by the Company for its own benefit on Mr. Varello's life at its then cash surrender value, if any.
|
(b)
|
Definition of Without Cause
. Mr. Varello's employment will be deemed to have been terminated by the Company Without Cause if
termination is for one of the following reasons:
|
(i)
|
A termination of his employment that is not based on one or more of the reasons set forth in
Section 13(c)(i)
(Definition of Cause) below, but rather is for the convenience of the Company;
|
(ii)
|
The failure of the Company to renew this Agreement on or before the expiration of the Term;
|
(iii)
|
Mr. Varello's replacement as Chief Executive Officer of the Company other than for Cause;
|
(iv)
|
Mr. Varello becoming permanently disabled;
|
(v)
|
Mr. Varello's death; or
|
(vi)
|
A termination of Mr. Varello's employment by him under
Section 14(b)
(Constructive Termination) below.
|
(c)
|
Termination for Cause
. The Company may terminate Mr. Varello's employment for Cause (as defined below) by giving him written notice of termination. In the event of the termination of Mr. Varello's employment for Cause, the Company will pay him any of his accrued but unpaid salary through the date of termination and any other amounts required to be paid by applicable law through that date.
|
(i)
|
Definition of Cause
. For purposes of this
Section 13(c)
, "Cause" for termination of Mr. Varello's employment means any one or more of the following:
|
(A)
|
His gross neglect of his duties, gross negligence in the performance of his duties, or his refusal to perform his duties.
|
(B)
|
His unsatisfactory performance of his duties that is not cured within thirty working days after written notice is given to him identifying each reason why his performance is unsatisfactory and what he can do to cure the unsatisfactory performance.
|
(C)
|
Any act of theft or other dishonesty by Mr. Varello, including any intentional misapplication of the Company's or its affiliates' funds or other property.
|
(D)
|
His conviction of any criminal activity not described in the immediately preceding
Subsection
(C)
, or his participation in any activity involving moral turpitude that is or could reasonably be expected to be injurious to the business or reputation of the Company.
|
(E)
|
His immoderate use of alcohol and/or the use of non-prescribed narcotics that adversely and materially affect the performance of his duties.
|
(F)
|
His material breach of
Section 15
(Company Policies), below.
|
14.
|
Termination by Mr. Varello of his Employment
.
|
(a)
|
Voluntary Resignation
. Mr. Varello may resign his employment with the Company on ninety days' prior written notice to the Company (the "
90-Day Notice Period
.") Upon receipt of a notice of resignation, the Company may accelerate the effective date of his resignation to any date within the 90-Day Notice Period and/or may deem his notice of resignation a resignation as a director of the Company and a resignation by him of any one or more of the offices then held by him in the Company, and any one or more of the directorships and offices then held by him in the Company's affiliates, in each case to be effective on any date or dates within the 90-Day Notice Period as determined by the Company, but the Company will nevertheless pay Mr. Varello his then current salary for the ninety-day period.
|
(b)
|
Constructive Termination
. Mr. Varello may terminate his employment if (i) the Company commits a Breach (as defined below) of this Agreement; and if (ii) he gives the Company detailed written notice of the Breach within thirty days after the occurrence thereof; and if (iii) the Company fails to cure the Breach within thirty days after the receipt of the notice or, if the nature of the Breach is such that it cannot practicably be cured in thirty days, if the Company fails to diligently and in good faith commence a cure of the Breach within the thirty-day period.
|
(i)
|
In the event Mr. Varello terminates his employment by reason of a Breach by the Company, the termination will be deemed for purposes of this Agreement to be a termination by the Company Without Cause, and the Company will be required to perform all of its obligations described in
Section 13(a)
, above.
|
(ii)
|
For purposes of this
Section 14(b)
, "Breach" means the occurrence of any of the following: (A) a material diminution in Mr. Varello's duties, responsibilities, title or authority, or a change in his reporting relationship provided for in this Agreement; (B) he is not nominated for election by the stockholders of the Company as a director; (C) he is required by the Company, without his agreement, to relocate his principal office outside of Montgomery County and its contiguous counties; (D) a material reduction in his then current salary; or (E) a material breach by the Company of any other material term or condition of this Agreement.
|
15.
|
Company Policies
. In addition to the terms and conditions contained in this Agreement, Mr. Varello agrees to abide by all of the Company's written policies from time to time in effect.
|
16.
|
Notices
. All notices required or permitted under this Agreement (other than routine correspondence) must be in writing and will be deemed given by a party when hand delivered to the other party against a receipt therefor, or when deposited with a delivery service that provides next-business-day delivery and proof of delivery, in either case, addressed as follows:
|
17.
|
Severability
. If any provision or part of a provision of this Agreement is finally declared to be invalid by any tribunal of competent jurisdiction, that part will be deemed automatically adjusted, if possible, to conform to the requirements for validity, but, if that adjustment is not possible, it will be deemed deleted from this Agreement as though it had never been included herein. In either case, the balance of the provision and of this Agreement will remain in full force and effect. Notwithstanding the foregoing, however, no provision will be deleted if it is clearly apparent under the circumstances that either or both of the parties would not have entered into this Agreement without the provision.
|
18.
|
Survival
. Notwithstanding the expiration or earlier termination of this Agreement or of Mr. Varello's employment for any reason, the following sections will survive the expiration or termination:
|
(a)
|
Section 11
(Confidential Information);
|
(b)
|
Section 12
(Non-Compete Obligations);
|
(c)
|
Any right or obligation that accrued prior to the expiration or termination; and
|
(d)
|
Any other obligation of a party that by its terms is to be performed or is to have continued effect after expiration or termination of this Agreement.
|
19.
|
Miscellaneous
.
|
(a)
|
Withholdings
. All compensation of any kind payable under this Agreement will be subject to all legally-required withholdings and deductions as determined in good faith by the Company.
|
(b)
|
Entire Agreement
. This Agreement together with
Attachment A
contains the entire understanding of the parties on the subject matter hereof and supersedes all other documents on the subject hereof; may not be amended, except by written agreement of the parties signed by each of them; will be binding upon, and inure to the benefit of, the parties and their personal representatives, successors and permitted assigns; and may not be assigned by either party without the prior written consent of the other party.
|
(c)
|
Construction
.
|
(i)
|
Each party has read and understood this Agreement, and each party has had an opportunity to review this Agreement with counsel. Accordingly, each provision of this Agreement is to be interpreted and enforced without the aid of any canon, custom or rule of law requiring or suggesting construction against the party drafting or causing the drafting of the provision.
|
(ii)
|
The words "herein," "hereof," "hereunder," "hereby," "herewith" and words of similar import when used in this Agreement are to be construed to refer to this Agreement as a whole.
|
(iii)
|
An "affiliate" of the Company is any entity controlling, controlled by, or under common control with, the Company.
|
(iv)
|
The words "include" "includes" "including" and words of similar import mean considered as part of a larger group, and not limited to any one or more enumerated items.
|
(v)
|
When used in this Agreement, the word "will" is either predictive or is synonymous with the word "shall," meaning "required"; and the word "may" means "permitted."
|
(d)
|
Prior Dealings etc
. No representation, affirmation of fact, course of prior dealings, promise or condition in connection herewith or usage of the trade that is not expressly incorporated herein will be binding on the parties.
|
(e)
|
Waiver
. The failure to insist upon strict compliance with any term, covenant or condition contained herein will not be deemed a waiver of that term, nor will any waiver or relinquishment of any right at any one or more times be deemed a waiver or relinquishment of that right at any other time or times. No term or condition hereof will be waived unless in writing by the party to be bound by the waiver.
|
(f)
|
Captions
. The captions of the paragraphs herein are for convenience only, and are not to be used to construe or interpret this Agreement.
|
(g)
|
Counterparts & Execution
. This Agreement may be executed in multiple counterparts, each of which may be considered an original, but all of which together constitute but one and the same instrument. This Agreement when signed by a party may be delivered by electronic facsimile transmission with the same force and effect as if the same were an executed and delivered original, manually-signed counterpart.
|
(h)
|
Governing Law & Jurisdiction
. This Agreement will be governed by, and construed in accordance with, the domestic laws of the State of Texas without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Texas or of any other jurisdiction) that would cause the application hereto of the laws of any jurisdiction other than the State of Texas. Any judicial proceeding brought against a party to this Agreement, or any dispute arising out of this Agreement or matter related hereto must be brought in the state courts of Montgomery County, Texas, and each party accepts the exclusive jurisdiction of those courts.
|
20.
|
Compliance with Section 409A of the Code
.
|
(a)
|
To the extent that any payment to Mr. Varello under this Agreement is deemed to be deferred compensation subject to the requirements of Section 409A of the Internal Revenue Code of 1986 (the "
Code
") this Agreement shall be operated in compliance with the applicable requirements of Section 409A of the Code ("
Section 409A
") and its corresponding regulations and related guidance with respect to the payment in question. Notwithstanding anything in this Agreement to the contrary, any payment under this Agreement that is subject to the requirements of Section 409A may only be made in a manner and upon an event permitted by Section 409A. To the extent that any provision of this Agreement would cause a conflict with the requirements of Section 409A, or would cause the administration of this Agreement to fail to satisfy the requirements of Section 409A, such provision shall be deemed null and void to the extent permitted by applicable law, and the Company may modify this Agreement in such a manner as to comply with such requirements without Mr. Varello's consent.
|
(b)
|
If Mr. Varello is a key employee (as defined in Section 416(i) of the Code (without regard to paragraph 5 thereof)) except to the extent permitted under Section 409A, no benefit or payment that is subject to Section 409A (after taking into account all applicable exceptions to Section 409A, including but not limited to the exceptions for short-term deferrals and for separation pay only upon an involuntary separation from service) shall be made under this Agreement on account of his separation from service (as defined in Section 409A) with the Company until the later of —
|
(i)
|
The date prescribed for payment in this Agreement; and
|
(ii)
|
The first day of the seventh calendar month that begins after the date of Mr. Varello's separation from service (or, if earlier, the date of Mr. Varello's death.)
|
(c)
|
All payments that were delayed by reason of the application of the date prescribed by
Section 20(b)(ii)
, above (the "
Section 20(b)(ii) Date
") shall be aggregated and paid to Mr. Varello on the Section 20(b)(ii) Date in a lump sum together with interest computed from the date each such payment would have first been paid to him absent the application of the Section 20(b)(ii) Date until paid using the Non-LIBOR rate of interest the Company would have paid had it borrowed the amount of the payment under its revolving line of credit. After the Section 20(b)(ii) Date, the Company shall pay any other amounts provided for herein to the extent and in the manner provided in this Agreement.
|
(d)
|
To the extent that any payment to Mr. Varello under this Agreement is payable on account of the termination of his employment with the result that the income tax under Section 409A of the Code would apply or be imposed on such payment, but where such tax would not apply or be imposed if the meaning of the term "termination" included and met the requirements of a "separation from service" within the meaning of Treas. Reg. §1.409A 1(h), then the term "termination" herein shall mean, but only with respect to the income so affected, an event, circumstance or condition that constitutes both a "termination" as defined in the preceding sentence and a "separation from service" within the meaning of Treas. Reg. §1.409A-1(h).
|
Sterling Construction Company, Inc
.
By:
/s/ Richard O. Schaum
Richard O. Schaum
Chair of the Compensation Committee
|
/s/ Paul J. Varello
Paul J. Varello
|
1.
|
The Restrictions
.
|
(a)
|
From the Effective Date until the occurrence of one of the events set forth in
Subsection (b)
, below, Mr. Varello may not sell, assign, transfer, pledge or otherwise dispose of or encumber any of the Restricted Shares or any of his rights or interests in the Restricted Shares except by his will or according to the laws of descent and distribution (the "
Restrictions
.")
|
(b)
|
Expiration of the Restrictions
.
|
(i)
|
Unless the Restricted Shares have earlier been forfeited as provided herein, the Restrictions will lapse and the Restricted Shares will vest in three equal installments of 200,000 shares each on the first, second and third anniversaries of the Effective Date. Restricted Shares that have vested are referred to herein as "
Vested Shares.
"
|
(ii)
|
Notwithstanding the foregoing, the Restrictions will lapse and all the Restricted Shares will vest upon the termination of Mr. Varello's employment Without Cause (as defined in the Employment Agreement) and upon the effective date of a change of control of the Company as that term is defined in the Sterling Construction Company, Inc. Stock Incentive Plan, which definition is incorporated into this Restricted Stock Agreement by this reference.
|
2.
|
Forfeiture of the Restricted Shares
. Restricted Shares will be deemed forfeited by Mr. Varello without any act by the Company or by Mr. Varello, and without the payment of any compensation to Mr. Varello if either of the following events occurs:
|
(a)
|
Mr. Varello resigns his employment under
Section 14(a)
(Voluntary Resignation) of the Employment Agreement); or
|
(b)
|
Mr. Varello's employment is terminated for Cause as that term is defined in the Employment Agreement.
|
3.
|
Rights as a Stockholder
. Subject to the Restrictions and the other limitations and conditions set forth in this Restricted Stock Agreement, as owner of the Restricted Shares, Mr. Varello will have all of the rights of a stockholder of the Company, including the right to vote the Restricted Shares and to receive any dividends paid on the Restricted Shares.
|
4.
|
Other Terms and Conditions
.
|
(a)
|
Stock Dividends etc
. Any additional shares of common stock of the Company that are issued on account of the Restricted Shares as a result of stock dividends, stock splits or recapitalizations (whether by way of mergers, consolidations, combinations or exchanges of shares or the like) will be subject to the terms and conditions of this Restricted Stock Agreement and are deemed included in the definition of the term "Restricted Shares."
|
(b)
|
The Shares
.
|
(i)
|
The Restricted Shares will be issued to Mr. Varello as a book entry by the Company's transfer agent, and Mr. Varello will be advised of their issuance. When Restricted Shares vest as provided herein, subject to the provisions of
Subsection 4(c)
below, Mr. Varello may either leave the Vested Shares in his account at the transfer agent; he may have his broker transfer them electronically to his brokerage account; or he may have the Vested Shares delivered to him in the form of a stock certificate.
|
(ii)
|
All Restricted Shares that are forfeited will be returned to the Company and canceled without the payment of any compensation to Mr. Varello.
|
(c)
|
Securities and Other Laws
. The Company may require as a pre-condition to the delivery of the Vested Shares to Mr. Varello that they shall have been duly listed, upon official notice of issuance, upon any national securities exchange or automated quotation system on which the Company's common stock may then be listed or quoted; and that either (i) a registration statement under the Securities Act of 1933 (the "
Act
") relating to the Vested Shares is in effect; or (ii) in the opinion of counsel to the Company, the issuance of the Vested Shares is exempt from registration under the Act, in which event Mr. Varello shall have made such undertakings and agreements with the Company as the Company may reasonably require; and that such other steps, if any, as counsel to the Company considers necessary to comply with any law applicable to the Vested Shares shall have been taken by Mr. Varello, by the Company, or both. Any certificate representing the Vested Shares may contain such legends as counsel for the Company considers necessary to comply with applicable laws.
|
(d)
|
Withholdings
.
|
(i)
|
All legally-required withholdings and deductions arising out of this Agreement, including the lapse of the Restrictions, will be made as determined in good faith by the Company.
|
(ii)
|
Mr. Varello will be permitted to take advantage of the non-cash method of paying to the Company its withholding obligations that the Compensation Committee of the Board of Directors authorized on April 19, 2013 for restricted stock awards made under the Sterling Construction Company, Inc. Stock Incentive Plan.
|
(e)
|
Decisions by the Committee
. Any dispute or disagreement that arises under, or as a result of, or pursuant to, this Restricted Stock Agreement or the Plan will be resolved by the Compensation Committee of the Board of Directors of the Company (the "
Committee
") in its sole and absolute discretion, and any such resolution or any other determination by the Committee and any interpretation by the Committee of the terms and conditions of this Restricted Stock Agreement and the Plan will be final, binding, and conclusive on all persons affected thereby.
|
Sterling Construction Company, Inc
.
By: ____________________________________
Richard O. Schaum,
Chair of the Compensation Committee
|
_____________________________________
Paul J. Varello
|
1.
|
I have reviewed this Annual Report on Form 10-K of Sterling Construction Company, Inc. for the fiscal year ended December 31, 2014;
|
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.
|
Dated: March 16, 2015
|
s/ Paul J. Varello
|
|
Paul J. Varello
|
||
Chief Executive Officer
|
1.
|
I have reviewed this Annual Report on Form 10-K of Sterling Construction Company, Inc. for the fiscal year ended December 31, 2014;
|
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.
|
Dated: March 16, 2015
|
/s/ Thomas R. Wright
|
|
Thomas R. Wright
|
||
Chief Financial Officer
|
Dated: March 16, 2015
|
/s/ Paul J. Varello
|
|
Paul J. Varello
Chief Executive Officer
|
||
Dated: March 16, 2015
|
/s/ Thomas R. Wright
|
|
Thomas R. Wright
|
||
Chief Financial Officer
|
1.
|
Portable Crusher #1002 – MSHA ID #2601858
|
2.
|
Portable Crusher #1006 – MSHA ID #2602200
|
● |
MSHA did not issue any
citations for health or safety standards that could significantly and substantially contribute to a serious injury if left unabated under §104 of the Mine Act.
|
● |
MSHA did not issue any orders requiring persons to be withdrawn from the areas affected by any alleged violations of mandatory health or safety standards under Section 104(b) of the Mine Act.
|
● |
MSHA did not issue any citations and orders for an alleged unwarrantable failure of the mine operator to comply with mandatory health or safety standards under Section 104(d) of the Mine Act.
|
● |
MSHA did not identify any flagrant violations under Section 110(b)(2) of the Mine Act.
|
● |
MSHA did not issue any imminent danger orders requiring immediate withdrawal from the affected areas under Section 107(a) of the Mine Act.
|
● |
We did not experience any mining-related fatalities.
|
● |
We did not receive written notice of a pattern of violations of mandatory health or safety standards from MSHA under Section 104(e) of the Mine Act or written notice of the potential to have a pattern of violations of mandatory health or safety standards from MSHA.
|