e424b4
File
Pursuant to Rule 424(b)(4)
Registration No
333-134535
Prospectus Supplement
(To Prospectus dated June 6, 2006)
300,000 Shares
Sterling Construction Company,
Inc.
Common Stock
The selling stockholders named in this prospectus supplement are
offering 300,000 shares of our common stock.
Our common stock is quoted on The Nasdaq National Market, or
Nasdaq, under the symbol STRL. The last reported
sale price of our common stock on Nasdaq on June 8, 2006
was $25.76 per share.
Investing in our common stock involves a high degree of risk.
See Risk Factors beginning on page 6 of this
prospectus supplement.
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Per Share
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Total
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Public offering price
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$
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25.00
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$
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7,500,000
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Underwriting discounts and
commissions
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$
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0.94
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$
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281,250
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Offering proceeds to the selling
stockholders, before expenses
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$
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24.06
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$
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7,218,750
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The selling stockholders have granted, pro rata, the underwriter
the right to purchase up to 45,000 additional shares of common
stock to cover any over-allotments. The underwriter can exercise
this right at any time within 30 days after the offering.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these
securities or determined if this prospectus supplement or the
accompanying prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
D.A. Davidson &
Co.
June 9, 2006
TABLE OF
CONTENTS
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Page
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S-1
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S-1
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S-3
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S-4
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S-6
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S-18
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S-18
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S-19
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Prospectus
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Sterling Construction Company,
Inc.
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1
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Cautionary Comment Regarding
Forward-Looking Statements
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1
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Risk Factors
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3
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Use of Proceeds
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3
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Selling Stockholders
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3
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Plan of Distribution
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4
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Legal Matters
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5
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Experts
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5
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Where You Can Find More
Information Incorporation of Certain Documents
by Reference
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5
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ABOUT
THIS PROSPECTUS SUPPLEMENT
This prospectus supplement, which describes the terms of this
offering of shares of our common stock by the selling
stockholders named in this prospectus supplement, supplements
the accompanying prospectus, which provides more general
information. Generally, when we refer to the prospectus, we are
referring to this prospectus supplement and the accompanying
prospectus combined. If the description of this offering varies
between this prospectus supplement and the accompanying
prospectus, you should rely on the information in this
prospectus supplement. This prospectus supplement contains
information about the shares of our common stock offered in this
offering and may add to, update or change the information in the
accompanying prospectus. Before you invest in shares of our
common stock, you should carefully read this prospectus
supplement, along with the accompanying prospectus, in addition
to the information contained in the documents incorporated by
reference into this prospectus and referred to under the heading
Where You Can Find More Information in the
accompanying prospectus.
You should rely only on the information contained or
incorporated by reference in this prospectus supplement and the
accompanying prospectus. We and the selling stockholders have
not, and D.A. Davidson & Co., as underwriter, has
not, authorized anyone to provide you with different
information. We and the selling stockholders are not making an
offer of these securities in any jurisdiction where the offer or
sale is not permitted. You should assume that the information
contained or incorporated by reference in this prospectus
supplement and the accompanying prospectus is accurate as of the
date on the front of this prospectus supplement only. Our
business, financial condition, results of operations and
prospects may have changed since that date.
S-i
STERLING
CONSTRUCTION COMPANY, INC.
Sterling Construction Company, Inc. was founded in 1991 as a
Delaware corporation. Our construction business was founded in
1955 by a predecessor company in Michigan and is now operated by
one of our subsidiaries, Texas Sterling Construction, L.P., a
Texas limited partnership, or TSC. All references to
Sterling, we, us, and
our refer to Sterling Construction Company, Inc. and
its subsidiaries unless the context otherwise requires or where
otherwise indicated.
Sterling is a leading heavy civil construction company that
specializes in the building and reconstruction of transportation
and water infrastructure in large and growing markets in Texas.
Our transportation infrastructure projects include highways,
roads, bridges and light rail, and our water infrastructure
projects include water, wastewater and storm drainage systems.
We provide general contracting services primarily to public
sector clients including excavating, paving, pipe installation
and concrete placement. We currently perform approximately
three-quarters of the work required on our contracts with our
own crews and equipment. We purchase the necessary materials for
our contracts and generally engage subcontractors only for
ancillary services.
Since 1955, the construction business has expanded its service
profile and market areas. We currently operate in several major
Texas markets, including Houston, San Antonio,
Dallas/Fort Worth and Austin, and believe that we have the
capability to expand into other Gulf Coast and Southwestern
markets. We have also broadened our range of services, from our
original focus on water and wastewater projects, to include
concrete and asphalt paving, concrete slip forming, installation
of large-diameter water and wastewater distribution systems,
construction of bridges and similar large structures,
construction of light rail infrastructure, concrete crushing and
concrete batch plant operations.
Our principal executive offices are located at 20810 Fernbush
Lane, Houston, Texas 77073, and our telephone number at this
address is
(281) 821-9091.
Recent
Developments
Results
for First Quarter 2006
As reported in our quarterly report on
Form 10-Q,
operating results from continuing operations (our construction
business) for the first quarter ended March 31, 2006,
compared to the same period in 2005, were as follows:
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construction revenues rose 43% to $56.5 million, from
$39.4 million in 2005;
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pre-tax income increased to $4.6 million, from
$0.9 million last year;
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net income from continuing operations, at $3.0 million, was
more than five times greater than in 2005;
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diluted earnings per share rose to $0.27, from $0.06 in the
prior year, despite a 21% increase in the weighted average
number of diluted shares outstanding, resulting from our public
offering in January 2006.
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Consolidated net income in the first quarter of 2006 was
$3.2 million ($0.28 per diluted share), compared with
$0.8 million ($0.08 per diluted share) in the first
quarter of 2005. The consolidated results include net income
from discontinued operations of $0.2 million in each
period, reflecting the results of our distribution business,
Steel City Products LLC, which is held for sale.
Following capital expenditures of $11.4 million in fiscal
2005, we invested a further $9.9 million in the first
quarter of 2006, including $2.0 million for the assets of
Rathole Drilling, which will allow us to drill our own
foundation shafts for projects.
Gross margins improved to 11.8% in the first quarter of 2006,
from 8.5% in the prior year period. Combined with the 43%
increase in revenues, this led to a doubling of gross profits,
and enabled us to further leverage our overhead expense and
improve operating margin to 7.7% during the first quarter of
2006 from 3.5%
S-1
during the first quarter of 2005. In addition, although the
results reflect a full income tax charge, our tax loss
carryforwards continue to shelter most income from federal
income taxes.
Guidance
On May 11, 2006, we affirmed our full-year 2006 guidance
first announced on December 22, 2005, for construction
revenues of $230 to $250 million, income from continuing
operations of $11.5 million to $13.0 million, and net
income from continuing operations of $7.5 million to
$8.5 million, but with an expectation that results will be
toward the upper end of those ranges. This guidance is
forward-looking information that is subject to certain risks and
uncertainties, described in Risk Factors and
elsewhere in this prospectus, that should be considered in
connection with our guidance about expected results of
operations.
Our guidance does not reflect the effects of any possible
business acquisitions during 2006.
Amended
Credit Facility
In May 2006, the terms of the existing bank revolving line of
credit with Comerica Bank were renegotiated to provide for an
increase in the line from $17.0 million to
$35.0 million, subject to a borrowing base. The line was
renewed for a term of three years maturing in 2009 and will
continue to be secured by the machinery and equipment of TSC.
The facility was also modified to add TSCs general
partner, Sterling General, Inc., its limited partner, SHH, and
its parent, Sterling Construction Company, Inc., as
co-borrowers. The facility continues to be subject to certain
restrictive covenants, including requirements to maintain
certain financial ratios and tangible net worth. In addition,
the lender has agreed to provide us with a long-term loan of up
to $1.5 million repayable over 15 years to finance the
expansion of our corporate headquarters and maintenance
facilities in Houston, Texas.
Backlog
As of March 31, 2006, our contract backlog was
approximately $346 million, reflecting new contracts of
approximately $95 million added during our first quarter.
Contract backlog is our estimate of the billings that we expect
to make in future periods on our construction contracts. We add
the revenue value of new contracts to our contract backlog,
typically when we are the low bidder on a public sector contract
and management determines that there are no apparent impediments
to award of the contract. As construction on our contracts
progresses, we increase or decrease contract backlog to take
account of changes in estimated quantities under fixed unit
price contracts, as well as to reflect changed conditions,
change orders and other variations from initially anticipated
contract revenues and costs, including any completion penalties
and incentive awards. We subtract from contract backlog the
amounts we bill on contracts.
Potential
Acquisitions
We have been actively pursuing possible acquisition
opportunities in Texas and elsewhere since early 2005, and
management currently intends to pursue these efforts with the
objective of completing an acquisition during 2006. However, we
have not reached any agreement, or made any offer or commitment,
for any acquisition, and there is no assurance as to whether, or
when, we might consummate any acquisition. Any acquisition that
we might consummate in the future would entail risks for our
business, results of operations and financial condition, and the
announcement of an acquisition could cause a decrease in the
market price of our common stock. See Risk Factors,
particularly those described on
page S-11
and S-12.
Steel
City Products
Since management identified our distribution business as held
for sale, we have appointed a financial advisor to respond to
prior expressions of interest and to identify additional
potential acquirors of the business. As a result of this
process, a number of parties have expressed interest in
reviewing the acquisition of the Steel City Products business,
and we expect that this process will lead to a sale of the
business.
S-2
The
Offering
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Common stock offered by the selling stockholders |
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300,000 shares |
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Common stock outstanding before the offering |
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10,543,186 shares |
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Common stock outstanding after the offering |
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10,735,186 shares |
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Use of proceeds |
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We will not receive any proceeds from the sale of common stock
by the selling stockholders. We anticipate receiving cash of
$75,000 from the exercise of certain stock options underlying
shares offered by one of the selling stockholders, or $86,250 if
the underwriter exercises its over-allotment option in full. |
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Nasdaq Symbol |
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STRL |
The number of shares outstanding before and after the offering
is based on the number of shares outstanding as of May 31,
2006 and excludes:
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836,375 shares of common stock reserved for issuance upon
the exercise of outstanding stock options at a weighted average
exercise price per share of $2.756. The number of shares
outstanding after the offering includes 192,000 shares to
be issued pursuant to the exercise of options held by a selling
stockholder, of which 150,000 shares (or
172,500 shares if the over-allotment option is exercised)
will be sold by him in this offering;
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524,880 shares of common stock reserved for future awards
under our stock option plans; and
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356,266 shares of common stock reserved for issuance upon
the exercise of outstanding warrants at an average exercise
price per share of $1.50.
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Unless we indicate otherwise, the number of shares of common
stock shown to be outstanding after the offering assumes no
exercise by the underwriter of its option to purchase from the
selling stockholders up to 45,000 additional shares of our
common stock to cover over-allotments of shares.
S-3
Summary
Historical Financial and Operating Data
The following table sets forth our summary historical
consolidated financial and operating data for the periods
indicated. The summary consolidated statement of operations data
for the years ended December 31, 2003, 2004 and 2005, and
the summary consolidated balance sheet data at December 31,
2004 and 2005, have been derived from our audited consolidated
financial statements, which are included in our annual report on
Form 10-K
for the fiscal year ended December 31, 2005. The summary
historical financial and operating data at and for the three
months ended March 31, 2005 and 2006, are derived from our
unaudited consolidated financial statements, which are included
in our quarterly reports on
Form 10-Q
for the quarters ended March 31, 2006, and March 31,
2005. The unaudited consolidated financial statements have been
prepared on the same basis as our audited consolidated financial
statements and include all adjustments, consisting of normal and
recurring adjustments, that we consider necessary for a fair
presentation of our financial position and operating results for
the unaudited periods. The summary historical financial and
operating data at and for the three months ended March 31,
2006 are not necessarily indicative of the results that may be
obtained for a full year. Contract backlog is not a measure
defined in generally accepted accounting principles, or GAAP,
and has not been derived from our consolidated financial
statements.
The information presented below should be read in conjunction
with Selected Historical Financial and Operating
Data, Managements Discussion and Analysis of
Financial Condition and Results of Operations and the
consolidated financial statements and the notes thereto
incorporated by reference from our annual report on
Form 10-K
for the year ended December 31, 2005 and quarterly report
on
Form 10-Q
for the quarter ended March 31, 2006.
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Year Ended
December 31,
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Three Months Ended
March 31,
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2003
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2004
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2005
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2005
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2006
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(Unaudited)
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(Amounts in thousands, except
share and per share data)
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Statement of Operations
Data:
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Revenues
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$
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149,006
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$
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132,478
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$
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219,439
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$
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39,413
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$
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56,480
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Cost of revenues
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131,181
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119,217
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195,683
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36,055
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49,794
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Gross profit
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17,825
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13,261
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23,756
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3,358
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6,686
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General and administrative
expenses, net
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7,400
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7,696
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9,091
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1,980
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2,309
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Operating income
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10,425
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5,565
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14,665
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1,378
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4,377
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Net interest expense (income)
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1,842
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1,456
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1,336
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475
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(186
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Income from continuing operations
before minority interest and income taxes
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8,583
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4,109
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13,329
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903
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4,563
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Minority interest(1)
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1,627
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962
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Income from continuing operations
before income taxes
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6,956
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3,147
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13,329
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903
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4,563
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Income tax (benefit) expense
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1,752
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(2,134
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2,788
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307
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1,541
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Net income from continuing
operations
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5,204
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5,281
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10,541
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596
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3,022
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Net income from discontinued
operations
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215
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372
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559
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231
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171
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Net income
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$
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5,419
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$
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5,653
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$
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11,100
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$
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827
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$
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3,193
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Basic income per share:
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Continuing operations
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$
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1.02
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$
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0.99
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$
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1.36
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$
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0.08
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$
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0.30
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Discontinued operations
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0.04
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0.07
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0.07
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0.03
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0.02
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$
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1.06
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$
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1.06
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$
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1.43
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$
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0.11
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$
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0.32
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S-4
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Year Ended
December 31,
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Three Months Ended
March 31,
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2003
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2004
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2005
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2005
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2006
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(Unaudited)
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(Amounts in thousands, except
share and per share data)
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Diluted income per share:
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Continuing operations
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$
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0.80
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$
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0.75
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$
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1.11
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$
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0.06
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$
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0.27
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Discontinued operations
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0.03
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0.05
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0.05
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0.02
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0.01
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$
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0.83
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$
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0.80
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$
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1.16
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$
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0.08
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$
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0.28
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Weighted average number of shares
outstanding used in computing per share amounts:
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Basic
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5,089,849
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5,342,847
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7,775,476
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7,389,499
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10,002,088
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Diluted
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6,488,376
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7,027,682
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9,537,923
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9,283,485
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11,266,294
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Balance sheet data (end of
period):
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Cash and cash equivalents
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$
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2,651
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$
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3,449
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$
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22,267
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$
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530
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$
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35,419
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Working capital
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6,834
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16,052
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18,354
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9,665
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46,063
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Total assets
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|
|
75,578
|
|
|
|
89,544
|
|
|
|
118,455
|
|
|
|
96,658
|
|
|
|
144,650
|
|
Total debt
|
|
|
20,058
|
|
|
|
29,379
|
|
|
|
27,488
|
|
|
|
22,164
|
|
|
|
21,542
|
|
Stockholders equity
|
|
|
16,636
|
|
|
|
35,208
|
|
|
|
48,612
|
|
|
|
36,604
|
|
|
|
79,542
|
|
Other operating data:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
4,690
|
|
|
$
|
4,545
|
|
|
|
5,064
|
|
|
$
|
1,233
|
|
|
$
|
1,804
|
|
Capital expenditures
|
|
|
4,340
|
|
|
|
3,555
|
|
|
|
11,392
|
|
|
|
3,000
|
|
|
|
7,860
|
|
Contract backlog at end of period
(unaudited)(2)
|
|
$
|
141,000
|
|
|
$
|
232,000
|
|
|
$
|
307,000
|
|
|
$
|
246,000
|
|
|
$
|
346,000
|
|
|
|
|
(1) |
|
Minority interest represents the 19.9% of Sterling Houston
Holdings, Inc., or SHH, not owned by us until December 2004. |
|
(2) |
|
Contract backlog is our estimate of the billings that we expect
to make in future periods on our construction contracts. We add
the revenue value of new contracts to our contract backlog,
typically when we are the low bidder on a public sector contract
and management determines that there are no apparent impediments
to award of the contract. As our contracts progress, we increase
or decrease contract backlog to take account of changes in
estimated quantities under fixed unit price contracts, as well
as to reflect changed conditions, change orders and other
variations from initially anticipated contract revenues and
costs, including completion penalties and incentive awards. We
subtract from contract backlog the amounts we bill on contracts. |
S-5
Risk
Factors
An investment in our common stock involves various risks.
Before making an investment in our common stock, you should
carefully consider the following risks, as well as the other
information contained in this prospectus and in the materials
incorporated by reference into this prospectus, including our
consolidated financial statements and the notes thereto. The
risks described below are those which we believe are the
material risks that we face. Any of the risk factors described
below could significantly and adversely affect our business,
prospects, financial condition and results of operations. As a
result, the trading price of our common stock could decline, and
you could lose a part or all of your investment.
Risks
Relating to Our Business
If we
are unable to accurately estimate the overall risks or costs
when we bid on a contract which is ultimately awarded to us, we
may achieve a lower than anticipated profit or incur a loss on
the contract.
Substantially all of our revenues and contract backlog are
typically derived from fixed unit price contracts. Fixed unit
price contracts require us to perform the contract for a fixed
unit price irrespective of our actual costs. As a result, we
realize a profit on these contracts only if we successfully
estimate our costs and then successfully control actual costs
and avoid cost overruns. If our cost estimates for a contract
are inaccurate, or if we do not execute the contract within our
cost estimates, then cost overruns may cause us to incur losses
or cause the contract not to be as profitable as we expected.
This, in turn, could negatively affect our cash flow, earnings
and financial position.
The costs incurred and gross profit realized on those contracts
can vary, sometimes substantially, from the original projections
due to a variety of factors, including, but not limited to:
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onsite conditions that differ from those assumed in the original
bid;
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delays caused by weather conditions or by other factors outside
our control, such as utility relocation prior to contract
commencement;
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contract modifications creating unanticipated costs not covered
by change orders;
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changes in availability, proximity and costs of materials,
including steel, concrete, aggregate and other construction
materials (such as stone, gravel and sand), as well as fuel and
lubricants for our equipment;
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availability and skill level of workers in the geographic
location of a project;
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our suppliers or subcontractors failure to perform;
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fraud or theft committed by our employees;
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mechanical problems with our machinery or equipment;
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citations issued by a governmental authority, including the
Occupational Safety and Health Administration;
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difficulties in obtaining required governmental permits or
approvals;
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changes in applicable laws and regulations; and
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claims or demands from third parties alleging damages arising
from our work or from the project of which our work is part.
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Many of our contracts with public sector customers contain
provisions that purport to shift some or all of the above risks
from the customer to us, even in cases where the customer is
partly at fault. Our practice in many instances has been to
supersede these terms with an agreement to obtain insurance
covering both the customer and ourselves. In cases where
insurance is not obtained, our experience has often been that
public sector customers have been willing to negotiate equitable
adjustments in the contract compensation or completion time
provisions if unexpected circumstances arise. If we are unable
to obtain insurance, and if
S-6
public sector customers impose contractual risk-shifting
provisions more aggressively, we could face increased risks,
which may adversely affect our cash flow, earnings and financial
position.
Economic
downturns or reductions in government funding of infrastructure
projects, or the cancellation of significant contracts, could
reduce our revenues and profits and have a material adverse
effect on our results of operations.
Our business is highly dependent on the amount of infrastructure
work funded by various governmental entities, which, in turn,
depends on the overall condition of the economy, the need for
new or replacement infrastructure, the priorities placed on
various projects funded by governmental entities and federal,
state or local government spending levels. Decreases in
government funding of infrastructure projects could decrease the
number of civil construction contracts available and limit our
ability to obtain new contracts, which could reduce our revenues
and profits.
Contracts that we enter into with governmental entities can
usually be canceled at any time by them with payment only for
the work already completed. In addition, we could be prohibited
from bidding on certain governmental contracts if we fail to
maintain qualifications required by those entities. A sudden
cancellation of a contract or our debarment from the bidding
process could cause our equipment and work crews to remain
idled, perhaps for a significant period of time, until other
comparable work became available, which could have a material
adverse effect on our business and results of operations.
Our
operations are currently focused in Texas, and any adverse
change to the economy or business environment in Texas could
significantly affect our operations, which would lead to lower
revenues and reduced profitability.
Our operations are currently concentrated in Texas, and
primarily in the Houston area. Because of this concentration in
a specific geographic location, we are susceptible to
fluctuations in our business caused by adverse economic or other
conditions in this region, including natural or other disasters.
A stagnant or depressed economy in Texas generally or in Houston
specifically, or in any of the other markets that we serve,
could adversely affect our business, results of operations and
financial condition.
Our
industry is highly competitive, with a variety of larger
companies with greater resources competing with us, and our
failure to compete effectively could reduce the number of new
contracts awarded to us or adversely affect our margins on
contracts awarded.
Essentially all of the contracts on which we bid are awarded
through a competitive bid process, with awards generally being
made to the lowest bidder, but sometimes recognizing other
factors, such as shorter contract schedules or prior experience
with the customer. Within our markets, we compete with many
national, regional and local construction firms. Some of these
competitors have achieved greater market penetration than we
have in the markets in which we compete, and some have greater
financial and other resources than we have. In addition, there
are a number of national companies in our industry that are
larger than us that, if they so desired, could establish a
presence in our markets and compete with us for contracts. As a
result, we may need to accept lower contract margins in order to
compete against these competitors. If we are unable to compete
successfully in our markets, our relative market share and
profits would be reduced.
We may
perform work as a subcontractor on some future projects, which
would subject us to different risks than those we currently
experience.
We have historically performed contracting work directly for the
owner of a project. However, in the future we may become a
subcontractor for a prime contractor. Such subcontract
relationship would expose us to risks that we currently do not
experience. As a prime contractor, we have direct contact with
the project owner, which gives us the ability to receive payment
directly from the project owner, control the scope and timing of
the project and negotiate changes to the contract. As a
subcontractor, we would perform services for a prime contractor
that would serve as the point of contact with the project owner.
As a result, we would receive payments from the prime contractor
and be subject to financial and liquidity risks as well as
S-7
performance risks with respect to the prime contractor. In
addition, as a subcontractor, we may not have the ability to
control the scope or requirements of our performance obligations
or the ability to negotiate modifications to a contract. These
risks could have a negative impact on our business and results
of operations.
We may
not be able to fully realize the revenue anticipated by our
reported contract backlog.
At March 31, 2006, our contract backlog was approximately
$346 million. Almost all of our contracts are awarded by
public sector customers through a competitive bid process, with
the award generally being made to the lowest bidder. We add new
contracts to our announced contract backlog, typically when we
are the low bidder on a public sector contract and have
determined that there are no apparent impediments to award of
the contract. As construction on our contracts progresses, we
increase or decrease contract backlog to take account of changes
in estimated quantities under fixed unit price contracts, as
well as to reflect changed conditions, change orders and other
variations from initially anticipated contract revenues and
costs, including any completion penalties and incentive awards.
We subtract from contract backlog the amounts we bill on
contracts.
Most of the contracts with our public sector customers can be
terminated at their discretion. If a customer cancels, suspends,
delays or reduces a contract, we may be reimbursed for certain
costs, but typically will not be able to bill the total amount
that had been reflected in our contract backlog. Cancellation of
one or more contracts that constitute a large percentage of our
contract backlog, and our inability to find a substitute
contract, would have a material adverse effect on our business,
results of operations and financial condition.
If we
are unable to attract and retain key personnel, our ability to
bid for and successfully complete contracts may be negatively
impacted.
Our ability to attract and retain reliable, qualified personnel
is a significant factor that affects our ability to successfully
bid for and profitably complete our work. This includes members
of our management team, project managers, supervisors, foremen,
equipment operators and laborers. The loss of the services of
any of our management could have a material adverse effect on
us. Our future success will also depend on our ability to
attract and retain highly-skilled personnel. Competition for
these employees, in particular for experienced project managers
and supervisors, is intense, and we could experience difficulty
hiring and retaining the personnel necessary to support our
business. If we do not succeed in retaining our current
employees and attracting new highly-skilled employees, our
reputation may be harmed and our future earnings may be
negatively impacted.
Our
contracts may require us to perform extra or change order work,
which can result in disputes and could adversely affect our
working capital, profits and cash flows.
Our contracts generally require us to perform extra or change
order work as directed by the customer even if the customer has
not agreed in advance on the scope or price of the extra work to
be performed. This process may result in disputes over whether
the work performed is beyond the scope of the work included in
the original project plans and specifications or, if the
customer agrees that the work performed qualifies as extra work,
the price that the customer is willing to pay for the extra
work. These disputes may not be settled to our satisfaction.
Even when the customer agrees to pay for the extra work, we may
be required to fund the cost of that work for a lengthy period
of time until the change order is approved by the customer and
we are paid by the customer.
To the extent that actual recoveries with respect to change
orders or amounts subject to contract disputes or claims are
less than the estimates used in our financial statements, the
amount of any shortfall will reduce our future revenues and
profits, and this could have a material adverse effect on our
reported working capital and results of operations. In addition,
any delay caused by the extra work may adversely impact the
timely scheduling of other project work and our ability to meet
specified contract milestones, which could adversely affect our
profitability and performance on other contracts.
S-8
Our
dependence on subcontractors and suppliers of materials,
including petroleum-based products, could increase our costs and
impair our ability to complete contracts on a timely basis or at
all, which would adversely affect our profits and cash
flow.
We rely on third-party subcontractors to perform some of the
work on many of our contracts. We do not bid on contracts unless
we have the necessary subcontractors committed for the
anticipated scope of the contract and at prices that we have
included in our bid. To the extent that we cannot engage
subcontractors, our ability to bid for contracts may be
impaired. In addition, if a subcontractor is unable to deliver
its services according to the negotiated terms for any reason,
including the deterioration of its financial condition, we may
suffer delays and be required to purchase the services from
another source at a higher price. This may reduce the profit to
be realized, or result in a loss, on one or more contracts.
We also rely on third-party suppliers to provide all of the
materials, including aggregates, concrete, steel and pipe, for
our contracts. We do not own any quarries, and there are no
naturally occurring sources of aggregate in the Houston
metropolitan area. We do not bid on contracts unless we have
commitments from suppliers for the materials required to
complete the contract and at prices that we have included in our
bid. To the extent that we cannot obtain commitments from our
suppliers for materials, our ability to bid for contracts may be
impaired. In addition, if a supplier fails to deliver materials
according to the negotiated terms of a supply agreement for any
reason, including the deterioration of its financial condition,
we may suffer delays and be required to purchase the materials
from another source at a higher price. This may reduce the
profit to be realized, or result in a loss, on one or more
contracts.
Diesel fuel and other petroleum-based products are utilized to
operate the equipment used in our construction contracts.
Decreased supplies of those products relative to demand and
other factors can cause an increase in their cost. Future
increases in the costs of fuel and other petroleum-based
products used in our business, particularly if a bid has been
submitted for a contract and the costs of those products have
been estimated at amounts less than the actual costs thereof,
could result in a lower profit, or a loss, on one or more
contracts.
Our
failure to meet schedule or performance requirements of our
contracts could adversely affect us.
In most cases, our contracts require completion by a scheduled
acceptance date. Failure to meet any such schedule could result
in additional costs being incurred and penalties and liquidated
damages being assessed against us, and these could exceed
projected profit margins on the contract. Performance problems
on existing and future contracts could cause actual results of
operations to differ materially from those anticipated by us and
could cause us to suffer damage to our reputation within the
industry and among our customers.
Timing
of the award and performance of new contracts could have an
adverse effect on our operating results and cash
flow.
At any point in time, a substantial portion of our revenues may
be derived from a limited number of large construction
contracts. It is generally very difficult to predict whether and
when new contracts will be offered for tender, as these
contracts frequently involve a lengthy and complex design and
bidding process, which is affected by a number of factors, such
as market conditions, financing arrangements and governmental
approvals. Because of these factors, our results of operations
and cash flows may fluctuate from quarter to quarter and year to
year, and such fluctuations may be substantial.
The uncertainty of the timing of contract awards may also
present difficulties in matching the size of work crews with
contract needs. In some cases, we may maintain and bear the cost
of a ready work crew that is larger than currently required, in
anticipation of future employee needs for existing contracts or
expected future contracts. If a contract is delayed or an
expected contract award is not received, we would incur costs
that could have a material adverse effect on our anticipated
profit.
In addition, the timing of the revenues, earnings and cash flows
from our contracts can be delayed by a number of factors,
including adverse weather conditions such as prolonged or
intense periods of rain, storms or flooding, delays in receiving
material and equipment from suppliers and changes in the scope
of work to be
S-9
performed. Those delays, if they occur, could have an adverse
effect on our operating results for a particular period.
Our
dependence on a limited number of customers could adversely
affect our business and results of operations.
Due to the size and nature of our construction contracts, one or
a few customers have in the past and may in the future represent
a substantial portion of our consolidated revenues and gross
profits in any one year or over a period of several consecutive
years. For example, in 2005, approximately 75% of our revenues
was generated from three customers. Similarly, our contract
backlog frequently reflects multiple contracts for individual
customers; therefore, one customer may comprise a significant
percentage of contract backlog at a certain point in time. An
example of this is the Texas Department of Transportation, with
which we had 20 separate contracts representing an aggregate of
approximately 79% of our contract backlog at January 1,
2006. The loss of business from any one of those customers could
have a material adverse effect on our business or results of
operations. A default or delay in payment on a significant scale
could materially adversely affect our business, results of
operations and financial condition.
We may
incur higher costs to acquire and maintain equipment necessary
for our operations, and the market value of our equipment may
decline.
We have traditionally owned most of the construction equipment
used to build our projects, and we do not bid on contracts for
which we do not have, or cannot quickly procure (whether through
acquisition or lease), the necessary equipment. To the extent
that we are unable to buy construction equipment necessary for
our needs, either due to a lack of available funding or
equipment shortages in the marketplace, we may be forced to rent
equipment on a short-term basis, which could increase the costs
of completing contracts. In addition, our equipment requires
continuous maintenance for which we use our own repair
facilities. If we are unable to continue to maintain the
equipment in our fleet, we may be forced to obtain third-party
repair services, which could increase our costs.
The market value of our equipment may unexpectedly decline at a
faster rate than anticipated. Such a decline would reduce the
borrowing base under our construction business credit facility,
thereby reducing the amount of credit available to us and
impeding our ability to conduct and expand our business
consistent with historical levels.
Unanticipated
adverse weather conditions may cause delays, which could slow
completion of our contracts and negatively affect our revenues
and cash flow.
Because all of our construction projects are built outdoors,
work on our contracts is subject to unpredictable weather
conditions. For example, evacuations due to Hurricane Rita in
September 2005 resulted in our inability to perform work on all
Houston-area contracts for several days. Lengthy periods of wet
weather will generally interrupt construction, and this can lead
to under-utilization of crews and equipment, resulting in less
efficient rates of overhead recovery. While revenues can be
recovered following a period of bad weather, it is generally
impossible to recover the efficiencies, and hence, we may suffer
reductions in the expected profit on contracts. Future
hurricanes and adverse weather conditions could have significant
adverse effects on our business, results of operations and
financial condition.
An
inability to obtain bonding could limit the number of contracts
that we are able to pursue.
As is customary in the construction business, we are required to
provide surety bonds to secure our performance under most
construction contracts. Our ability to obtain surety bonds
primarily depends upon our capitalization, working capital, past
performance, management expertise and reputation and certain
external factors, including the overall capacity of the surety
market. Surety companies consider those factors in relation to
the amount of our contract backlog and their underwriting
standards, which may change from time to time. Events that
affect the insurance and bonding markets generally may result in
bonding becoming more difficult to obtain in the future, or
being available only at a significantly greater cost. Our
inability to obtain adequate
S-10
bonding, and, as a result, to bid on new contracts, could have a
material adverse effect on our future revenues and business
prospects.
Our
operations are subject to hazards that may cause personal injury
or property damage, thereby subjecting us to liabilities and
possible losses, which may not be covered by
insurance.
Our workers are subject to the usual hazards associated with
providing services on construction sites. Operating hazards can
cause personal injury and loss of life, damage to, or
destruction of, property, plant and equipment and environmental
damage. We self-insure our workers compensation claims,
subject to stop-loss insurance coverage. We also maintain
insurance coverage in amounts and against the risks that we
believe are consistent with industry practice, but this
insurance may not be adequate to cover all losses or liabilities
that we may incur in our operations.
Insurance liabilities are difficult to assess and quantify due
to unknown factors, including the severity of an injury, the
determination of our liability in proportion to other parties,
the number of incidents not reported and the effectiveness of
our safety program. If we were to experience insurance claims or
costs above our estimates, we might be required to use working
capital to satisfy these claims rather than to maintain or
expand our operations. To the extent that we experience a
material increase in the frequency or severity of accidents or
workers compensation claims, or unfavorable developments
on existing claims, our operating results and financial
condition could be materially and adversely affected.
Environmental
and other regulatory matters could adversely affect our ability
to conduct our business and could require expenditures that
could have a material adverse effect on our results of
operations and financial condition.
Our operations are subject to various environmental laws and
regulations relating to the management, disposal and remediation
of hazardous substances and the emission and discharge of
pollutants into the air and water. We could be held liable for
the contamination created not only by our own activities but
also by the historical activities of others on our project
sites, on properties that we acquire or properties held or
previously held by businesses that we may acquire. Our
operations are also subject to laws and regulations relating to
workplace safety and worker health, which, among other things,
regulate employee exposure to hazardous substances. Violations
of those laws and regulations could subject us to substantial
fines and penalties, cleanup costs, third-party property damage
or personal injury claims. In addition, these laws and
regulations have become, and are becoming, increasingly
stringent. Moreover, we cannot predict the nature, scope or
effect of legislation or regulatory requirements that could be
imposed, or how existing or future laws or regulations will be
administered or interpreted, with respect to products or
activities to which they have not been previously applied. Newly
discovered liabilities could require us to make substantial
expenditures for, among other things, cleaning up environmental
contamination or becoming responsible for faulty construction
processes utilized by an acquired company, or the acquisition or
modification of permits applicable to our activities.
One of
our growth strategies includes the acquisition of companies or
assets, which may not be successful.
In addition to organic growth of our construction business, we
intend to pursue growth through the acquisition of companies or
assets that may enable us to expand our project skill-sets and
capabilities, enlarge our geographic markets, add experienced
management and increase critical mass to enable us to bid on
larger or more complex contracts. However, we may be unable to
implement this growth strategy if we cannot reach agreement on
potential acquisitions on acceptable terms or for other reasons.
Successful acquisition of new companies will depend on various
factors, including but not limited to:
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our ability to obtain financing, which may not be available on
terms acceptable to us or at all;
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the competitive environment for acquisitions; and
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the business integration issues described in the next risk
factor.
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S-11
In addition, we may expend significant time and resources,
including management resources and costs, associated with
finding and reviewing acquisition opportunities, which may
divert our attention from our existing business. We may not be
able to acquire and successfully operate any particular business
or expand into desirous areas. The price of our common stock may
decline as a result of our announcement or completion of any
acquisition or if we fail to acquire additional businesses.
Difficulties
in integrating acquired businesses may result in reduced
revenues and income.
We may not be able to successfully integrate with our existing
business any business that we may acquire in the future. The
integration of any business that we acquire may be complex and
time consuming; this may place a significant strain on our
management, our information and reporting systems or other
resources, and this strain could disrupt our businesses.
Furthermore, if our combined businesses continue to grow
rapidly, we may be required to replace our current information
and reporting systems with systems designed for companies that
are larger than ours. We may encounter substantial difficulties,
costs and delays involved in integrating common accounting,
information and communication systems, operating procedures,
internal controls and human resources practices, including
incompatibility of business cultures and the loss of key
employees and customers. These difficulties may reduce our
ability to gain customers or retain existing customers, and may
increase operating expenses, resulting in reduced revenues and
income and a failure to realize the anticipated benefits of
acquisitions.
Any
business that we acquire may substantially change the nature of
our operations and business.
Any business we acquire may substantially change the nature and
geographic location of our operations and business as a result
of its character and location. An acquired business may have
substantially different operating characteristics and may be in
different geographic locations from our existing businesses. We
currently have operations in several major Texas markets,
including Houston, San Antonio, Dallas/Fort Worth and
Austin. Any business that we acquire outside of these markets,
whether within the State of Texas or outside the state, will
subject us to risks inherent in operating in a geographic
location where we do not have significant prior experience. We
may be required to place greater reliance on management of an
acquired business with whom we are not familiar and we may not
have the ability to exercise control over the operations of the
acquired business and the contracts it enters into equivalent to
the control that we exercise over our existing business.
Consequently, we may not be able to realize the economic
benefits of an acquisition efficiently, if at all, and
significant diversion of management resources may result.
We may
incur substantial liabilities in connection with an acquired
business that we may not have discovered in our due diligence or
that may occur in the ordinary course in connection with the
acquisition of any business, which would negatively affect our
revenues or significantly increase our costs.
Upon the consummation of any potential acquisition, we may
assume all of such companys past and future liabilities.
We may learn additional information about a business that we
acquire which may adversely affect us, such as unknown or
contingent liabilities and issues relating to internal controls
over financial reporting and issues relating to compliance with
the Sarbanes-Oxley Act of 2002 or other applicable laws. As a
result, any business that we acquire may not be successful for
our business and may, in fact, harm our business and negatively
affect our revenues and income.
We may
be unable to sustain our historical revenue and net income
growth rate.
Our revenue and net income have grown rapidly in recent years.
Our revenue increased by 66% from $132 million in 2004 to
$219 million in 2005, and our net income increased by 96%
from $5.7 million in 2004 to $11.1 million in 2005. We
may be unable to sustain our recent revenue and net income
growth rates for a variety of reasons, including limits on
additional growth in our current markets, less success in
competitive bidding for contracts, limitations on access to
necessary working capital and investment capital to sustain
growth, limitations on access to bonding to support increased
contracts and operations, the inability to hire and retain
essential personnel and to acquire equipment to support growth,
and the inability to identify
S-12
acquisition candidates and successfully integrate them into our
business. We may be unable to maintain our recent levels of
profitability if, for example, gross margins erode as a result
of more competitive bidding environments, we experience
increases in operating expenses that exceed our revenue growth,
or other factors. A decline in our revenue growth could have a
material adverse effect on our financial condition and results
of operations, including our net income, if we are unable to
reduce the growth of our operating expenses at the same rate.
Terrorist
attacks have impacted, and could continue to negatively impact,
the U.S. economy and the markets in which we
operate.
Terrorist attacks, such as those that occurred on
September 11, 2001, have in the recent past contributed to
economic instability in the United States, and future acts of
terrorism, violence or war could affect the markets in which we
operate, our business and our expectations. Armed hostilities
may increase, or terrorist attacks, or responses from the United
States, may lead to further acts of terrorism and civil
disturbances in the United States or elsewhere, which may
further contribute to economic instability in the United States.
These attacks or armed conflicts may affect our operations or
those of our customers or suppliers and could impact our
revenues, our production capability and our ability to complete
contracts in a timely manner.
Our
discontinued operations subject us to continuing liabilities and
other risks.
We will remain subject to the liabilities of the distribution
business operated by Steel City Products, LLC, our wholly-owned
subsidiary, until it is sold. Because we have reclassified the
business as being held for sale, customers may become concerned
about the continued viability of the business and may purchase
their products elsewhere, and suppliers may become concerned
about the continued viability of the business and limit
shipments to us, thereby decreasing the revenues and income
earned by the business. For similar reasons, we may have
difficulty attracting and retaining qualified personnel, the
discontinued business reputation may be harmed, and future
earnings may be negatively impacted. We may also have difficulty
finding a purchaser for the business, and we will incur costs in
connection with the disposition of the business and could
continue to remain responsible for certain liabilities after a
sale. As a result, we may record a loss from discontinued
operations, and we may also incur a loss upon the sale of the
business. In addition, we may have contractual or other further
liabilities with respect to the discontinued operations after a
sale of the distribution business is completed.
Risks
Related to Our Financial Results and Financing Plans
Actual
results could differ from the estimates and assumptions that we
use to prepare our financial statements.
To prepare financial statements in conformity with accounting
principles generally accepted in the United States of
America management is required to make estimates and assumptions
as of the date of the financial statements which affect the
reported values of assets and liabilities, revenues and
expenses, and disclosures of contingent assets and liabilities.
Areas requiring significant estimates by our management include
contract costs and profits, application of
percentage-of-completion
accounting, and revenue recognition of contract change order
claims; provisions for uncollectible receivables and customer
claims and recoveries of costs from subcontractors, suppliers
and others; valuation of assets acquired and liabilities assumed
in connection with business combinations; accruals for estimated
liabilities, including litigation and insurance reserves; and
the value of our deferred tax assets. Our actual results could
differ from those estimates.
In particular, we recognize contract revenue using the
percentage-of-completion
method. Under this method, estimated contract revenue is
recognized by applying the percentage of completion of the
contract for the period to the total estimated revenue for the
contract. Estimated contract losses are recognized in full when
determined. Contract revenue and total cost estimates are
reviewed and revised on a continuous basis as the work
progresses and as change orders are initiated or approved, and
adjustments based upon the percentage of completion are
reflected in contract revenue in the accounting period when
these estimates are revised. To the
S-13
extent that these adjustments result in an increase, a reduction
or an elimination of previously reported contract profit, we
recognize a credit or a charge against current earnings, as
appropriate, which could be material.
We
will be exposed to risks relating to the evaluation of internal
controls over financial reporting required by Section 404
of the Sarbanes-Oxley Act of 2002.
We expect to be required to comply with Section 404
beginning with our Annual Report on
Form 10-K
for the year ending December 31, 2006. We are currently in
the process of evaluating our internal control systems to allow
management to report on, and our independent auditors to attest
as to the effectiveness of our internal controls over financial
reporting. We will be completing the systems and process
evaluations and testing (and making any necessary remediation)
required to comply with the management certification and auditor
attestation requirements of Section 404 of the
Sarbanes-Oxley Act of 2002. These systems are designed to
produce accurate financial reports and to prevent fraudulent
financial activity. However, we cannot be certain as to the
timing of completion of our evaluation, testing and remediation
actions or the impact of the same on our operations.
Furthermore, upon completion of this process, we may identify
control deficiencies of varying degrees of severity under
applicable Securities and Exchange Commission, or SEC, and
Public Company Accounting Oversight Board rules and regulations,
which may remain un-remediated. As a public company, we will be
required to report, among other things, control deficiencies
that constitute a material weakness or changes in
internal controls that, or that are reasonably likely to,
materially affect internal controls over financial reporting. A
material weakness is a significant control weakness,
or a combination of significant deficiencies that results in
more than a remote likelihood that a material misstatement of
the annual or interim financial statements will not be prevented
or detected. If we fail to implement the requirements of
Section 404 in a timely manner, we may be subject to
sanctions or investigation by regulatory authorities such as the
SEC or Nasdaq. In addition, if any material weakness or
deficiency is identified or is not remedied, investors may lose
confidence in the accuracy of our reported financial
information, and our stock price could be significantly
adversely affected as a result.
We may
need to raise additional capital in the future for working
capital, capital expenditures
and/or
acquisitions, and we may not be able to do so on favorable terms
or at all, which would impair our ability to operate our
business or achieve our growth objectives.
In addition to our bank lines of credit, we have in the past
relied upon financing from our management and directors to
support a portion of our growth, but we do not expect to utilize
that source for financing in the future. In addition, our growth
has benefited in part from our utilization of net operating loss
carry-forwards, or NOLs, to reduce the amounts that we have paid
for federal income taxes, and, subject to levels of our future
taxable income, we expect that our NOLs will be fully utilized
by 2007 or 2008. To the extent that cash flow from operations is
insufficient to make future investments, make acquisitions or
provide needed additional working capital, we may require
additional financing from other sources of funds.
Our ability to obtain additional financing in the future will
depend in part upon prevailing capital market conditions, as
well as conditions in our business and our operating results;
those factors may affect our efforts to arrange additional
financing on terms satisfactory to us. We have pledged
substantially all of our fixed assets as collateral in
connection with our credit facilities, and our bonding capacity
is dependent on, among other things, maintaining an acceptable
level of unencumbered working capital. As a result, we may have
difficulty in obtaining additional financing in the future if
the financing requires us to pledge our assets as collateral. In
addition, under our credit facilities, we must obtain the
consent of our lenders to incur any amount of additional debt
from other sources (subject to certain exceptions). If future
financing is obtained by the issuance of additional shares of
common stock, our existing stockholders may suffer dilution. If
adequate funds are not available, or are not available on
acceptable terms, we may not be able to make future investments,
take advantage of acquisitions or other opportunities, or
respond to competitive challenges.
S-14
We are
subject to financial and other covenants under our credit
facilities that could limit our flexibility in managing our
business.
Our construction business and our discontinued operations each
has a revolving credit facility that restricts the borrower from
engaging in certain activities, including restrictions on the
ability (subject to certain exceptions) to:
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make distributions and dividends;
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incur liens or encumbrances;
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incur further indebtedness;
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guarantee obligations;
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dispose of a material portion of assets or otherwise engage in a
merger with a third party;
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pledge accounts receivable, in the case of the Steel City
Products revolving credit facility; and
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incur negative income for two consecutive quarters, in the case
of the construction business revolving credit facility.
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Our credit facilities contain financial covenants that require
us to maintain, in the case of the construction business
revolving credit facility, a specified debt ratio to tangible
net worth and a cash flow coverage ratio, and in the case of the
Steel City Products revolving credit facility, a specified fixed
charge coverage ratio. Our ability to borrow funds for any
purpose will depend on our satisfying these tests. If we are
unable to meet the terms of the financial covenants or fail to
comply with any of the other restrictions contained in our
credit facility agreements, an event of default could occur. An
event of default, if not waived by our lenders, could result in
the acceleration of any outstanding indebtedness, causing that
debt to become immediately due and payable. If such an
acceleration occurs, we may not be able to repay the
indebtedness on a timely basis. Because our construction
business credit facility and mortgages are secured by
substantially all of the construction business fixed assets and
the Steel City Products revolving credit facility and mortgages
are secured by substantially all of the Steel City Products
assets, acceleration of this debt could result in foreclosure of
those assets. In addition, the Steel City Products revolving
credit facility includes a subjective acceleration clause. In
the event of a foreclosure, we could be unable to conduct our
business and may be forced to discontinue operations.
We may
not be able to utilize all of our NOLs if we experience an
ownership change, and, even absent an ownership change, we
expect that our NOLs will be fully utilized by 2007 or
2008.
At December 31, 2005, we had NOLs of approximately
$26.6 million. These NOLs will expire in the years 2008
through 2020, although the amount available in any year to
offset our net taxable income will be reduced if we experience
an ownership change as defined in the Internal
Revenue Code of 1986, as amended. The tax laws pertaining to
NOLs may be changed from time to time such that the NOLs may not
be available to shield our future income from federal taxation.
In addition, our attempts to minimize the likelihood that an
ownership change will occur may not be successful. Finally, we
expect that, subject to levels of profitability, most of our
federally-taxable income will be offset by NOLs by 2007 or 2008,
by which time we expect to have used up all of our NOLs. After
the NOLs become unavailable to us or are fully utilized, our
future income will not be shielded from federal income taxation,
thereby reducing funds otherwise available for general corporate
purposes.
The
imposition of a material amount of entity level tax on our
construction operating subsidiary would result in a reduction in
our anticipated cash flow.
Our construction operating subsidiary is organized as a Texas
limited partnership, which under current law generally is not
subject to entity level federal income or state franchise tax on
its revenues in the jurisdiction in which it is organized and
operates. Because of state budget deficits and other reasons,
states have been considering and evaluating ways to subject
partnerships to entity level taxation through the
S-15
imposition of state income, franchise or other forms of
taxation. Partnerships will, for example, generally be subject
to a new state level tax on Texas source revenues with respect
to the tax year ending December 31, 2007. Imposition of a
material amount of entity-level tax upon our construction
operating subsidiary would reduce our net income and after-tax
cash flow.
Risks
Related to Our Common Stock and This Offering
Market
prices of our equity securities have fluctuated significantly
and could change further.
The market price of our common stock has substantially increased
since June 2005, at a rate exceeding our growth in earnings
generally. The price may decline from its current levels in
response to various factors and events beyond our control,
including the following:
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a shortfall in operating revenue or net income from that
expected by securities analysts and investors;
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changes in securities analysts estimates of our financial
performance or the financial performance of our competitors or
companies in our industry generally;
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general conditions in our industry;
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announcements of significant contracts by us or our competitors;
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announcements about acquisitions that we enter into;
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the passage of legislation or other regulatory developments that
affect us adversely;
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general conditions in the securities markets or the economy;
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the limited trading volume of our common stock;
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our issuance of a significant number of shares of our common
stock upon exercise of employee stock options or
warrants; and
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the other risk factors described herein.
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Limited
trading volume of our common stock may contribute to its price
volatility.
The average daily trading volume during 2005 for our common
stock as reported by the American Stock Exchange (on which our
common stock was traded from January 2004 to January 19,
2006) was approximately 83,000 shares, and for the
quarter ended March 31, 2006, the average daily trading
volume was approximately 74,000 shares as reported by
Nasdaq. We are uncertain as to whether a more active trading
market in our common stock will develop. As a result, relatively
small trades may have a significant impact on the price of our
common stock.
Fluctuations
in our quarterly revenues, operating results and contract
backlog may lead to reduced prices for our common
stock.
Because our operating results are primarily generated from a
limited number of significant construction contracts, operating
results in any given fiscal quarter can vary depending on the
timing of progress achieved and changes in the estimated
profitability of the contracts being reported. Progress on
contracts may also be delayed by unanticipated adverse weather
conditions and other factors beyond our control. Such delays, if
they occur, may result in fluctuating quarterly operating
results, which may in turn lead to reduced prices for our common
stock.
We
currently do not intend to pay dividends on our common stock
and, consequently, your only opportunity to achieve a return on
your investment is if the market price of our common stock
appreciates above the price that you pay for it.
We currently do not plan to declare dividends on shares of our
common stock for the foreseeable future. Furthermore, the
payment of dividends by us is restricted by our credit
facilities. Consequently, your only
S-16
opportunity to achieve a return on your investment in us will be
if the market price of our common stock appreciates and you sell
your shares at a profit.
Future
sales of our common stock in the public market could lower our
stock price.
Our principal stockholders, directors and executive officers
will beneficially own approximately 2.6 million shares of
our common stock after completion of this offering. These
stockholders generally will be free to sell those shares,
subject to the limitations of Rule 144 or Rule 144(k)
under the Securities Act of 1933, as amended, or the Securities
Act, and, subject to certain exceptions, the
60-day
lock-up
agreements that the selling stockholders have entered into with
the underwriter of this offering. In addition, the holders of
warrants to purchase 356,266 shares of our common stock
have registration rights that allow them to participate in any
public offering of our shares (with certain exceptions).
Registration of these restricted shares of common stock would
permit their sale into the public market immediately. We cannot
predict when these stockholders may sell their shares or in what
volumes. However, the market price of our common stock could
decline significantly if these stockholders sell a large number
of shares into the public market or if the market believes that
these sales may occur.
We may also issue our common stock from time to time as
consideration for future acquisitions and investments. In the
event that any such acquisition or investment is significant,
the number of shares of our common stock that we may issue could
in turn be significant. In addition, we may also grant
registration rights covering those shares in connection with any
such acquisition and investment.
Delaware
law, our charter document and our rights agreement may impede or
discourage a takeover or change of control.
Our rights agreement, certain provisions of our restated and
amended certificate of incorporation, as amended, our bylaws and
certain provisions of Delaware law, individually or
collectively, may impede a merger, takeover or other business
combination involving us or discourage a potential acquirer from
making a tender offer for our common stock, which could affect
the market price of our common stock.
S-17
Use of
Proceeds
We will not receive any proceeds from the sale of shares of
common stock offered by the selling stockholders. We anticipate
receiving cash of $75,000 from the exercise of stock options
underlying shares offered by one of the selling stockholders, or
$86,250 if the underwriter exercises its over-allotment option
in full.
Selling
Stockholders
The following table sets forth information regarding the selling
stockholders and the number of shares of common stock each
selling stockholder is offering. Under the rules of the SEC,
beneficial ownership includes shares over which the indicated
person exercises voting or investment power. Unless otherwise
indicated in the footnotes below, we believe the persons named
in the table below have sole voting and investment power with
respect to all shares beneficially owned by them. The
information regarding shares beneficially owned after the
offering assumes the sale of all shares offered by each selling
stockholder. The percentage ownership data is based on
10,543,186 shares of our common stock issued and
outstanding on May 31, 2006 and 10,735,186 shares
outstanding after the offering, reflecting 192,000 options
expected to be exercised by Mr. Hemsley simultaneously with
this offering. The post-offering ownership percentages do not
take into account the exercise of the underwriters
over-allotment option. Unless otherwise indicated by footnote,
the address of each selling stockholder is the address of our
principal executive offices.
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Shares Beneficially Owned
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Number of
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Shares Beneficially Owned
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Before the Offering
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Shares Being
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After the Offering
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Name
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Number
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Percent
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Offered
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Number
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Percent
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Joseph P. Harper, Sr.(1)
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823,415
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7.7
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%
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100,000
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723,415
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6.7
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%
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Maarten D. Hemsley(2)
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519,812
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4.7
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%
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150,000
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369,812
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3.4
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%
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Patrick T. Manning(3)
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237,820
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2.2
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%
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50,000
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187,820
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1.7
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%
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(1) |
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The number of shares beneficially owned before and after the
offering includes options to purchase 10,701 shares, and
warrants to purchase 127,574 shares of our common stock,
which are exercisable currently or within sixty days of
May 31, 2006. Mr. Harper is our President and Chief
Operating Officer and serves on our board of directors. |
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The number of shares beneficially owned before the offering
includes options to purchase 438,924 shares of common
stock. Mr. Hemsley plans to exercise options to purchase
192,000 shares of our common stock simultaneously with this
offering. Therefore, the number of shares beneficially owned
after the offering includes options to purchase
246,924 shares of common stock, which are exercisable
currently or within sixty days of May 31, 2006.
Mr. Hemsley is our Chief Financial Officer and serves on
our board of directors. |
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(3) |
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The number of shares beneficially owned before and after the
offering includes options to purchase 8,600 shares, and
warrants to purchase 22,220 shares of our common stock,
which are exercisable currently or within sixty days of
May 31, 2006. Patrick T. Manning is our Chairman of the
Board and Chief Executive Officer. |
S-18
Underwriting
The selling stockholders named in this prospectus supplement are
offering the shares of common stock described in this prospectus
supplement through D.A. Davidson & Co. We and the
selling stockholders have entered into a firm commitment
underwriting agreement with D.A. Davidson & Co. Subject
to the terms and conditions of the underwriting agreement, the
selling stockholders have agreed to sell to D.A.
Davidson & Co., and D.A. Davidson & Co. has
agreed to purchase from the selling stockholders, an aggregate
of 300,000 shares of common stock.
D.A. Davidson & Co. is offering the shares of common
stock subject to its acceptance of the shares from the selling
stockholders and subject to prior sale. The underwriting
agreement provides that the obligation of D.A.
Davidson & Co. to purchase the shares of common stock
offered by this prospectus is subject to the satisfaction of the
conditions contained in the underwriting agreement. D.A.
Davidson & Co. must purchase all of the shares of
common stock offered hereby if any of the shares are purchased,
except for the shares covered by the over-allotment option
described below, to the extent the option is exercised.
D.A. Davidson & Co. has advised the selling
stockholders and us that it proposes to offer the shares of
common stock directly to the public at the public offering price
set forth on the cover page of this prospectus supplement and to
dealers at the public offering price less a selling concession
not in excess of $0.56 per share. D.A. Davidson &
Co. also may allow, and dealers may reallow, a concession not in
excess of $0.10 per share to brokers and dealers. If all of
the shares are not sold at the public offering price, D.A.
Davidson & Co. may change the offering price and other
selling terms.
Over-Allotment Option. The selling
stockholders have granted D.A. Davidson & Co. an option
to purchase up to 45,000 additional shares of our common stock
at the public offering price less the underwriting discount.
D.A. Davidson & Co. may exercise this option solely for
the purpose of covering over-allotments, if any, made in
connection with the offering of the shares of common stock
offered by this prospectus. D.A. Davidson & Co. may
exercise this option, in whole or in part, at any time and from
time to time for 30 days from the date of the underwriting
agreement. To the extent that D.A. Davidson & Co.
exercises this option, it will be committed, as long as the
conditions of the underwriting agreement are satisfied, to
purchase the additional shares of common stock, and the selling
stockholders will be obligated to sell the shares of common
stock to D.A. Davidson & Co., pro rata in the same
proportion that the number of shares that each selling
stockholder has agreed to sell in this offering, as set forth in
the Selling Stockholder table on
page S-18,
bears to 300,000 shares. If purchased, the additional
shares will be sold by D.A. Davidson & Co. on the same
terms as those on which the other shares are sold.
Underwriting Discount and Offering
Expenses. The following table shows the per share
and total public offering price, underwriting discount to be
paid to D.A. Davidson & Co., and the net proceeds to
the selling stockholders before expenses. This information is
presented assuming both no exercise and full exercise by the
underwriter of its over-allotment option.
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Total
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Without
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With
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Per
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Overallotment
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Overallotment
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Share
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Exercise
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Exercise
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Public offering price
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$
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25.00
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$
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7,500,000
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$
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8,625,000
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Underwriting discount paid by the
selling stockholders
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$
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0.94
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$
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281,250
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$
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323,437
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Proceeds, before expenses, to the
selling stockholders
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$
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24.06
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$
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7,218,750
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$
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8,301,563
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We estimate that the expenses of this offering, all of which
will be paid by the selling stockholders, exclusive of the
underwriting discount, will be approximately $100,000.
In connection with NASD guidelines, the maximum compensation to
D.A. Davidson & Co. in connection with the sale of
shares pursuant to this prospectus will not exceed 8% of the
total offering price to the public of the shares as set forth on
the cover page of this prospectus supplement. It is anticipated
that such maximum compensation will be significantly less than
8% in connection with this offering.
Listing. Our common stock is quoted on Nasdaq
under the symbol STRL.
S-19
Stabilization. In connection with this
offering, D.A. Davidson & Co. may engage in activities
that stabilize, maintain or otherwise affect the price of our
common stock, including:
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stabilizing transactions;
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short sales;
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syndicate covering transactions;
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imposition of penalty bids; and
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purchases to cover positions created by short sales.
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Stabilizing transactions consist of bids or purchases made for
the purpose of preventing or retarding a decline in the market
price of our common stock while this offering is in progress.
Stabilizing transactions may include making short sales of our
common stock, which involves the sale by D.A.
Davidson & Co. of a greater number of shares of common
stock than it is required to purchase in this offering, and
purchasing shares of common stock from the selling stockholders
or on the open market to cover positions created by short sales.
Syndicate covering transactions involve purchases of our common
stock in the open market after the distribution has been
completed in order to cover syndicate short positions.
A naked short position is more likely to be created if D.A.
Davidson & Co. is concerned that there may be downward
pressure on the price of the common stock in the open market
that could adversely affect investors who purchased in this
offering. To the extent that D.A. Davidson & Co.
creates a naked short position, it will purchase shares in the
open market to cover the position.
D.A. Davidson & Co. also may impose a penalty bid on
dealers participating in the offering. This means that D.A.
Davidson & Co. may reclaim from the dealers
participating in the offering the underwriting discount,
commissions and selling concession on shares sold by them and
purchased by D.A. Davidson & Co. in stabilizing or
short covering transactions.
These activities may have the effect of raising or maintaining
the market price of our common stock or preventing or retarding
a decline in the market price of our common stock. As a result
of these activities, the price of our common stock may be higher
than the price that otherwise might exist in the open market. If
D.A. Davidson & Co. commences any of these activities,
it may discontinue them at any time. D.A. Davidson &
Co. may carry out these transactions on Nasdaq, in the
over-the-counter
market or otherwise.
In connection with this offering, selling group members who are
qualified market makers on Nasdaq may engage in passive market
making transactions in our common stock on Nasdaq. Passive
market making is allowed during the period when the SECs
rules would otherwise prohibit market activity by D.A.
Davidson & Co. and dealers who are participating in
this offering. Passive market making may occur during the
business day before the pricing of this offering or before the
commencement of offers or sales of the common stock. A passive
market maker must comply with applicable volume and price
limitations and must be identified as a passive market maker. In
general, a passive market maker must display its bid at a price
not in excess of the highest independent bid for our common
stock; but if all independent bids are lowered below the passive
market makers bid, the passive market maker must also
lower its bid once it exceeds specified purchase limits. Net
purchases by a passive market maker on each day are limited to a
specified percentage of the passive market makers average
daily trading volume in our common stock during the specified
period and must be discontinued when that limit is reached.
Passive market making may cause the price of our common stock to
be higher than the price that otherwise would exist in the open
market in the absence of those transactions. D.A.
Davidson & Co. and dealers are not required to engage
in a passive market making and may end passive market making
activities at any time.
Lock-up
Agreements. We and the selling stockholders have
agreed with D.A. Davidson & Co. that, during the period
ending 60 days after the date of this prospectus
supplement, which we refer to as the restricted period, none of
us will, without the prior consent of D.A. Davidson &
Co., directly or indirectly, offer, sell or otherwise dispose of
any shares of our common stock or any securities which may be
converted into or exchanged or exercised for any such shares of
common stock, or enter into any swap or other
S-20
arrangement that transfers to another person, in whole or in
part, any of the economic consequences of ownership of our
common stock. The restricted period is subject to a limited
extension in certain circumstances if shares if our common stock
are not actively traded securities, as defined in
Rule 101(c)(1) of Regulation M under the Securities
Exchange Act of 1934, as amended.
The foregoing restrictions do not apply to:
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the sale by the selling stockholders of shares of common stock
to D.A. Davidson & Co. in this offering;
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the issuance by us of shares of common stock pursuant to, or the
grant of options under, our existing stock incentive plans or
outstanding warrants;
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the sale of shares of common stock acquired in the public market
after the closing of this offering; or
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transfers of shares of common stock or securities convertible
into or exercisable or exchangeable for common stock by any of
the persons subject to a
lock-up
agreement (a) as a bona fide gift or gifts, (b) by
will or intestacy or (c) to any affiliate or member of such
persons immediate family or a trust created for the direct
or indirect benefit of such person or the immediate family
thereof; provided that, in any such case, the transferee or
transferees shall execute and deliver to D.A.
Davidson & Co., before such transfer, an agreement to
be bound by the restrictions on transfer described above.
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In addition, during the restricted period, subject to certain
exceptions, we have also agreed not to file any registration
statement for the registration of any shares of common stock or
any securities convertible into or exercisable or exchangeable
for common stock without the prior written consent of D.A.
Davidson & Co.
Indemnification. We and the selling
stockholders will indemnify D.A. Davidson & Co. against
some liabilities, including liabilities under the Securities
Act. If we and the selling stockholders are unable to provide
this indemnification, we and the selling stockholders will
contribute to payments D.A. Davidson & Co. may be
required to make in respect of those liabilities.
Selling Restrictions. D.A. Davidson &
Co. has agreed that it will not offer, sell or deliver any of
the shares, directly or indirectly, or distribute this
prospectus supplement or the accompanying prospectus, in or from
any jurisdiction except under circumstances that will, to the
best of the knowledge and belief of D.A. Davidson &
Co., result in compliance with the applicable laws and
regulations and which will not impose any obligations on us
except as set forth in the underwriting agreement.
Online Offering. A prospectus supplement with
the accompanying prospectus in electronic format may be made
available on the websites maintained by D.A. Davidson &
Co. Other than the prospectus supplement with the accompanying
prospectus in electronic format, the information on any such
website, or accessible through any such website, is not part of
the prospectus supplement or accompanying prospectus. Shares may
be sold by D.A. Davidson & Co. to securities dealers
who resell shares to online brokerage account holders.
Other Relationships. D.A. Davidson &
Co. and its affiliates may in the future provide various
investment banking and other financial services for us and our
affiliates, for which services they may in the future receive
customary fees. D.A. Davidson & Co. served as managing
underwriter of our January 2006 public offering, and has been
engaged by us as financial advisor to evaluate potential
acquisition opportunities.
The underwriter has advised the selling stockholders and us
that, except as specifically contemplated in the underwriting
agreement, they owe no fiduciary or other duties to the selling
stockholders or us in connection with this offering, and that
they have agreements and relationships with, and owe duties to,
third parties, including potential purchasers of the securities
in this offering, that may create actual, potential or apparent
conflicts of interest between the underwriter and us.
S-21
PROSPECTUS
690,000 Shares
Sterling Construction Company,
Inc.
Common Stock
Selling stockholders of Sterling Construction Company, Inc.
named in this prospectus may sell shares of our common stock
offered by this prospectus.
The selling stockholders may sell shares of our common stock
from time to time at market prices, in negotiated transactions
or otherwise. The selling stockholders may sell the shares
directly or through underwriters, brokers or dealers. The
selling stockholders will pay commissions or discounts to
underwriters, brokers or dealers in amounts to be negotiated
prior to the sale. We will not receive any of the proceeds from
the sale of the shares by the selling stockholders. See
Plan of Distribution on page 4 for more
information on this topic.
Our common stock is quoted on The Nasdaq Stock Markets
National Market under the symbol STRL.
Investing in our common stock
involves risks, including those incorporated by reference herein
as described under Risk Factors on page 3 of
this prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or has determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is June 6, 2006
STERLING
CONSTRUCTION COMPANY, INC.
Sterling Construction Company, Inc. was founded in 1991 as a
Delaware corporation. Our construction business was founded in
1955 by a predecessor company in Michigan and is now operated by
one of our subsidiaries, Texas Sterling Construction, L.P., a
Texas limited partnership. The terms Company,
Sterling, and we refer to Sterling
Construction Company, Inc. and its subsidiaries except when it
is clear from the context that those terms mean only the parent
company.
Sterling is a leading heavy civil construction company that
specializes in the building and reconstruction of transportation
and water infrastructure in large and growing markets in Texas.
Our transportation infrastructure projects include highways,
roads, bridges and light rail, and our water infrastructure
projects include water, wastewater and storm drainage systems.
We provide general contracting services primarily to public
sector clients including excavating, paving, pipe installation
and concrete placement. We purchase the necessary materials for
our contracts; we currently perform approximately three-quarters
of the work required on our contracts with our own crews and
equipment, and generally engage subcontractors only for
ancillary services.
Since 1955 the construction business has expanded its service
profile and market areas. We currently operate in several major
Texas markets, including Houston, San Antonio,
Dallas/Fort Worth and Austin, and believe that we have the
capability to expand into other Gulf Coast and Southwestern
markets. We have also broadened our range of services, from our
original focus on water and wastewater projects, to include
concrete and asphalt paving, concrete slip forming, installation
of large-diameter water and wastewater distribution systems,
construction of bridges and similar large structures (including
the necessary drill-shafts), light rail infrastructure, concrete
crushing and concrete batch plant operations.
Our principal executive offices are located at 20810 Fernbush
Lane, Houston, Texas 77073, and our telephone number at this
address is
(281) 821-9091.
CAUTIONARY
COMMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes statements that are, or may be
considered to be, forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933,
as amended, or the Securities Act, and Section 21E of the
Securities Exchange Act of 1934, as amended, or the Exchange
Act. These forward-looking statements are included throughout
this prospectus and in the materials incorporated by reference
into this prospectus as described under the sections entitled
Risk Factors, Managements Discussion and
Analysis of Financial Condition and Results of Operations
and Business, and relate to matters such as our
industry, business strategy, goals and expectations concerning
our market position, future operations, margins, profitability,
capital expenditures, liquidity and capital resources and other
financial and operating information. We have used the words
anticipate, assume, believe,
budget, continue, could,
estimate, expect, forecast,
intend, may, plan,
potential, predict, project,
will, future and similar terms and
phrases to identify forward-looking statements in this
prospectus.
Forward-looking statements reflect our current expectations
regarding future events, results or outcomes. These expectations
may or may not be realized. Some of these expectations may be
based upon assumptions or judgments that prove to be incorrect.
In addition, our business and operations involve numerous risks
and uncertainties, many of which are beyond our control, that
could result in our expectations not being realized or otherwise
could materially affect our financial condition, results of
operations and cash flows.
Actual events, results and outcomes may differ materially from
our expectations due to a variety of factors. Although it is not
possible to identify all of these factors, they include, among
others, the following:
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changes in general economic conditions or reductions in
government funding for infrastructure services;
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adverse economic conditions in our markets;
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delays or difficulties related to the commencement or completion
of contracts, including additional costs, reductions in revenues
or the payment of completion penalties or liquidated damages;
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actions of suppliers, subcontractors, customers, competitors and
others which are beyond our control;
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the estimates inherent in our
percentage-of-completion
accounting policies;
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possible cost increases in fixed-price contracts;
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our dependence on a few significant customers;
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adverse weather conditions;
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the presence of competitors with greater financial resources
than we have and the impact of competitive services and pricing;
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our ability to successfully identify, complete and integrate
acquisitions; and
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the other factors incorporated by reference as described under
Risk Factors.
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In reading this prospectus, you should consider these factors
carefully in evaluating any forward-looking statements, and you
are cautioned not to place undue reliance on forward-looking
statements. Although we believe that our plans, intentions and
expectations reflected in, or suggested by, the forward-looking
statements that we make in this prospectus are reasonable, we
can provide no assurance that they will be achieved.
The forward-looking statements included herein are made only as
of the date of this prospectus, and we undertake no obligation
to update any information contained in this prospectus or to
publicly release the results of any revisions to any
forward-looking statements to reflect events or circumstances
that occur, or that we become aware of after the date of this
prospectus, except as may be required by applicable securities
laws.
2
RISK
FACTORS
Please carefully consider the risk factors described in our
periodic reports filed pursuant to the Exchange Act on
Form 10-K
and
Form 10-Q
with the Securities and Exchange Commission, or the SEC, which
are incorporated by reference in this prospectus, as well as
other information we include or incorporate by reference in this
prospectus. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair
our business operations.
USE OF
PROCEEDS
We will not receive any proceeds from the shares sold by the
selling stockholders in this offering. We anticipate receiving
cash of $86,250 from the exercise of stock options underlying
shares offered by one of the selling stockholders.
SELLING
STOCKHOLDERS
The following table sets forth information regarding the selling
stockholders and the number of shares of common stock each
selling stockholder is offering. Under the rules of the SEC,
beneficial ownership includes shares over which the indicated
person exercises voting or investment power. Unless otherwise
indicated in the footnotes below, we believe the persons named
in the table below have sole voting and investment power with
respect to all shares beneficially owned by them. The
information regarding shares beneficially owned after the
offering assumes the sale of all shares offered by each selling
stockholder. The percentage ownership data is based on
10,499,808 shares of our common stock issued and
outstanding as of May 1, 2006 and 10,691,808 shares
outstanding after the offering, reflecting 192,000 options
expected to be exercised by Mr. Hemsley. Unless otherwise
indicated by footnote, the address of each selling stockholder
is the address of the Companys principal executive offices.
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Shares Beneficially Owned Before
the Offering
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Number of Shares
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Shares Beneficially Owned After
the Offering
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Name
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Number
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Percent
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Being Offered
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Number
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Percent
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Joseph P. Harper, Sr.(1)
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819,641
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7.8%
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230,000
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589,641
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5.4%
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Maarten D. Hemsley(2)
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519,812
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4.8%
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172,500
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347,312
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3.2%
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James D. Manning(3)
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557,602
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5.3%
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172,500
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385,102
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3.6%
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Patrick T. Manning(4)
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236,380
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2.3%
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115,000
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121,380
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1.1%
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The number of shares beneficially owned before and after the
offering includes options to purchase 10,700 shares and
warrants to purchase 127,574 shares of our common stock,
which are exercisable within sixty days of May 1, 2006.
Mr. Harper is our President and Chief Operating Officer and
serves on our board of directors. |
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The number of shares beneficially owned before the offering
includes options to purchase 438,924 shares of common
stock. Mr. Hemsley plans to exercise 192,000 of these
options simultaneously with this offering. Therefore, the number
of shares beneficially owned after the offering includes options
to purchase 246,924 shares of common stock, which are
exercisable within sixty days of May 1, 2006.
Mr. Hemsley is our Chief Financial Officer and serves on
our board of directors. |
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The number of shares beneficially owned before and after the
offering includes options to purchase 7,701 shares and
warrants to purchase 111,407 shares of our common stock,
which are exercisable within sixty days of May 1,
2006. James D. Manning, a founder of our construction business,
is the brother of Patrick T. Manning. |
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The number of shares beneficially owned before and after the
offering includes options to purchase 7,160 shares and
warrants to purchase 22,220 shares of our common stock,
which are exercisable within sixty days of May 1,
2006. Patrick T. Manning is our Chairman of the Board and Chief
Executive Officer. He is the brother of James D. Manning, a
founder of our construction business. |
3
PLAN OF
DISTRIBUTION
We are registering shares of common stock on behalf of the
selling stockholders, and we anticipate keeping this
registration statement effective for a period of up to two years
from its effective date. Selling stockholders
includes donees, pledgees, transferees or
successors-in-interest
selling securities received from a named selling stockholder as
a gift, pledge or other non-sale related transfer after the date
of this prospectus. All costs, expenses and fees, including
brokerage commissions and similar selling expenses, if any, in
connection with the registration of the shares of common stock
offered by this prospectus and the sale of shares will be borne
by the selling stockholders. Sales of shares may be effected by
the selling stockholders from time to time in one or more types
of transactions, including:
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block transactions;
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on the NASDAQ National Market System;
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in the
over-the-counter
market;
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in negotiated transactions;
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through put or call option transactions relating to the shares;
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through short sales of shares,
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a combination of these methods of sale; and
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through any lawful manner.
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The selling stockholders may sell shares directly to purchasers
or to or through underwriters or broker-dealers, who may act as
agents or principals. The underwriters or broker-dealers may
receive compensation in the form of discounts, concessions or
commissions from the selling stockholders
and/or the
purchasers of shares for whom the underwriters or broker-dealers
may act as agents or to whom they sell as principal, or both.
The amount and form of compensation for these services will be
determined by, and paid by, the selling stockholders and the
purchaser or purchasers, and may be in excess of customary
commissions. In connection with NASD guidelines, the maximum
compensation payable to any underwriter in connection with the
sale of shares pursuant to this prospectus and any prospectus
supplement will not exceed 8% of the total offering price to the
public.
The selling stockholders and any underwriters or broker-dealers
that act in connection with the sale of shares might be deemed
to be underwriters within the meaning of
Section 2(a)(11) of the Securities Act, and any commissions
received by these underwriters or broker-dealers and any profit
on the resale of the shares sold by them while acting as
principals might be deemed to be underwriting discounts or
commissions under the Securities Act. The selling stockholders
may agree to indemnify any underwriter, agent, or broker-dealer
that participates in transactions involving sales of the shares
against specified liabilities, including liabilities arising
under the Securities Act.
Because selling stockholders may be deemed to be
underwriters within the meaning of
Section 2(a)(11) of the Securities Act, the selling
stockholders will be subject to the prospectus delivery
requirements of the Securities Act, which may include delivery
through the facilities of the Nasdaq National Market System
pursuant to Rule 153 under the Securities Act. The Company
has informed the selling stockholders that the anti-manipulative
provisions of Regulation M of the Exchange Act may apply to
their sales in the market.
In addition to selling their shares under this prospectus, the
selling stockholders also may resell all or a portion of their
shares in open market transactions in reliance upon
Rule 144 under the Securities Act, provided they meet the
criteria and conform to the requirements of that rule.
4
If the selling stockholders notify us of any material
arrangement entered into with an underwriter or broker-dealer
for the sale of shares through a block trade, special offering,
exchange distribution or secondary distribution or a purchase by
a broker or dealer, a supplement to this prospectus will be
filed, if required, under Rule 424(b) under the Securities
Act, disclosing
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the name of each such selling stockholder and of the
participating underwriter or broker-dealer;
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the number of shares involved;
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the price at which the shares were sold;
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the commissions paid or discounts or concessions allowed to the
underwriter or, broker-dealer; and
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other facts material to the transaction.
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In addition, if we are notified by a selling stockholder that a
donee, pledgee, transferee or other
successor-in-interest
intends to sell more than 500 shares, a supplement to this
prospectus will be filed.
LEGAL
MATTERS
The validity of the shares of common stock offered in this
prospectus will be passed upon for us by Andrews Kurth LLP,
Houston, Texas.
EXPERTS
The consolidated financial statements incorporated in this
prospectus by reference to our annual report on
Form 10-K
for the year ended December 31, 2005 have been so
incorporated in reliance on the report of Grant Thornton LLP, an
independent registered public accounting firm, given on the
authority of said firm as experts in auditing and accounting.
WHERE YOU
CAN FIND MORE INFORMATION
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We are subject to the reporting requirements of the Exchange Act
and file reports, proxy statements and other information with
the SEC. We have filed with the SEC a registration statement to
register the common stock offered by this prospectus. This
prospectus, which forms part of the registration statement, does
not contain all of the information included in the registration
statement. For further information about us and the common stock
offered in this prospectus, you should refer to the registration
statement and its exhibits. You may read and copy the
registration statement and any other document that we file with
the SEC at the SECs Public Reference Room, 100 F Street,
NE, Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for further information on the operation of the Public Reference
Room. In addition, the SEC maintains a web site that contains
registration statements, reports, proxy statements and other
information regarding registrants, such as us, that file
electronically with the SEC. The address of the web site is
www.sec.gov.
The SEC allows us to incorporate by reference the
information we file with the SEC, which means we can disclose
information to you by referring to those documents. The
information incorporated by reference is an important part of
this prospectus, and information we file later with the SEC will
automatically update and take the place of this information. We
are incorporating by reference in this prospectus the following
documents filed with the SEC under the Exchange Act (other than
any portions of the respective filings that were furnished
pursuant to Item 2.02 or 7.01 of Current Reports on
Form 8-K
or other applicable SEC rules):
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Annual Report on
Form 10-K
for the year ended December 31, 2005;
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Quarterly Report on
Form 10-Q
for the period ended March 31, 2006;
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Current Reports on
Form 8-K,
as filed with the SEC on January 3, 2006 (two),
January 6, 2006, January 20, 2006, March 20,
2006, March 21, 2006 and May 16, 2006; and
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The description of our common stock contained in our
registration statement on Form 8A, filed on
January 11, 2006, including any amendment or report
updating the description.
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In addition, we incorporate by reference all documents we will
file with the SEC in the future under Sections 13, 14 or
15(d) of the Exchange Act until the termination of this
offering. We refer to these documents, and the documents listed
above, in this prospectus as incorporated documents.
You may request, without charge, a copy of any incorporated
document (excluding exhibits, unless we have specifically
incorporated an exhibit in an incorporated document) by writing
or telephoning us at our principal executive offices at the
following address:
Sterling
Construction Company, Inc.
Attention: Corporate Secretary
20810 Fernbush Lane
Houston, Texas 77073
(281) 821-9091
6
300,000 Shares
Sterling Construction Company,
Inc.
Common Stock
PROSPECTUS SUPPLEMENT
D.A. Davidson &
Co.