Exhibit 99.4
STERLING CONSTRUCTION COMPANY, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following unaudited pro forma condensed combined financial information gives effect to the acquisition of a 91.67% interest in Road and Highway Builders, LLC ( "RHB") by Sterling Construction Company, Inc. ("SCC"), accounted for as a business combination using the purchase method of accounting. The preliminary allocation of the purchase price used in the unaudited pro forma condensed combined financial information is based on management’s preliminary valuation. The estimates and assumptions are subject to change upon the finalization of valuations, which are contingent upon final appraisals of plant and equipment, identifiable intangible assets, adjustments to contract-related and other accounts and the results of operations in October 2007. Revisions to the preliminary purchase price allocation could result in significant deviations from the accompanying pro forma information.
The pro forma condensed combined statements of income reflect the acquisition of RHB as if it occurred on January 1, 2006. The historical results of operations included in the unaudited pro forma condensed combined statement of income for the fiscal year ended December 31, 2006 were derived from the audited financial statements of SCC and RHB. For SCC, this information was derived from its annual report on Form 10-K filed with the Securities and Exchange Commission on March 16, 2007, which is incorporated into this Form 8-K/A by reference. For RHB, this information is included elsewhere in this Form 8-K/A. The historical results of operations included in the unaudited pro forma condensed combined statement of income for the nine months ended September 30, 2007 were derived from the unaudited financial statements of each entity. For SCC, this information was derived from its quarterly report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2007, which is incorporated into this Form 8-K/A by reference. For RHB, this information is included elsewhere in this Form 8-K/A.
The pro forma condensed combined balance sheet reflects the acquisition of RHB as if it occurred on September 30, 2007. The historical balance sheets of SCC and RHB included in the unaudited pro forma condensed combined balance sheet were derived from the unaudited financial statements of each entity. For SCC, this information was derived from its quarterly report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2007. For RHB, this information is included elsewhere in this Form 8-K/A.
This unaudited pro forma condensed combined financial information has been prepared by SCC management for illustrative purposes only. The unaudited pro forma condensed combined financial information is not intended to represent or be indicative of the financial position or results of operations in future periods or the results that actually would have been realized had SCC and RHB been a combined company during the specified periods. Additionally, classifications of certain financial accounts of the acquired company may differ from those of SCC. The unaudited pro forma condensed combined financial information reflects the acquisition of the interest in RHB, which was financed with a combination of proceeds from the sale of short-term investments, borrowings under SCC’s new credit facility and 40,702 shares of common stock issued in the acquisition. SCC is evaluating the option of a public offering of common stock to repay its credit facility borrowings, which is not reflected in the pro forma results. The unaudited pro forma condensed combined financial information, including the notes thereto, is qualified in its entirety by reference to, and should be read in conjunction with, the historical financial statements and the notes thereto of RHB included elsewhere in this Form 8-K/A and in SCC ’s Form 10-K filed with the Securities Exchange Commission on March 16, 2007 and Form 10-Q filed with the Securities and Exchange Commission on November 9, 2007.
STERLING CONSTRUCTION COMPANY, INC.
Unaudited Pro Forma Condensed Combined Balance Sheet
At September 30, 2007
Sterling Construction Company, Inc. | Road and Highway Builders, LLC | Pro Forma Adjustments | Pro Forma Combined | ||||||||||||||
(Amounts in thousands) | |||||||||||||||||
Current Assets | |||||||||||||||||
Cash | $ | 14,894 | $ | 0 | $ | 9,030 | (a)(b)(d)(e)(f) | $ | 23,924 | ||||||||
Short-term investments | 32,630 | 0 | (32,630 | ) | (e) | 0 | |||||||||||
Contract receivables, including retention | 52,498 | 5,434 | 57,932 | ||||||||||||||
Costs and estimated earnings in excess of billings on uncompleted contracts | 7,247 | 553 | 7,800 | ||||||||||||||
Inventories | 1,047 | 449 | 1,496 | ||||||||||||||
Due from related party | 0 | 12,000 | (12,000 | ) | (a) | 0 | |||||||||||
Deferred tax asset | 1,038 | 0 | 1,038 | ||||||||||||||
Other current assets | 1,968 | 237 | 2,205 | ||||||||||||||
Total Current Assets | 111,322 | 18,673 | (35,600 | ) | 94,395 | ||||||||||||
Property and Equipment | 88,009 | 17,712 | (566 | ) | (c)(g) | 105,155 | |||||||||||
Less: Accumulated depreciation | (25,619 | ) | (6,719 | ) | 44 | (c) | (32,294 | ) | |||||||||
62,390 | 10,993 | (522 | ) | 72,861 | |||||||||||||
Investment in RHB | 0 | 0 | 0 | (f)(g) | 0 | ||||||||||||
Goodwill | 12,735 | 0 | 42,252 | (g) | 54,987 | ||||||||||||
Other assets | 660 | 0 | 660 | ||||||||||||||
Total Assets | $ | 187,107 | $ | 29,666 | $ | 6,130 | $ | 222,903 | |||||||||
Current Liabilities | |||||||||||||||||
Excess of outstanding checks over bank balance | $ | 0 | $ | 1,756 | $ | $ | 1,756 | ||||||||||
Current maturities of long term debt | 123 | 67 | 190 | ||||||||||||||
Accounts payable | 22,257 | 5,886 | 28,143 | ||||||||||||||
Billings in excess of costs and estimated earnings on uncompleted contracts | 21,979 | 3,035 | 25,014 | ||||||||||||||
Accrued expenses | 7,272 | 666 | 7,938 | ||||||||||||||
Total Current Liabilities | 51,631 | 11,410 | 63,041 | ||||||||||||||
Long term debt, less current maturities | 30,566 | 101 | (22,400 | ) | (d) | 53,067 | |||||||||||
Deferred tax liability | 2,975 | 0 | 2,975 | ||||||||||||||
Minority interest in RHB | 0 | 0 | (6,300 | ) | (g) | 6,300 | |||||||||||
Total Liabilities | 85,172 | 11,511 | (28,700 | ) | 125,383 | ||||||||||||
Equity | |||||||||||||||||
Common stock | 110 | 0 | (1 | ) | (f) | 111 | |||||||||||
Additional paid-in capital | 115,821 | 0 | (4,416 | ) | (f)(g) | 111,405 | |||||||||||
Accumulated deficit | (13,996 | ) | 0 | (13,996 | ) | ||||||||||||
Members' equity | 0 | 18,155 | 18,155 | (b)(c)(g) | 0 | ||||||||||||
Total Equity | 101,935 | 18,155 | 22,570 | 97,520 | |||||||||||||
Total Liabilities and Equity | $ | 187,107 | $ | 29,666 | $ | (6,130 | ) | $ | 222,903 |
Page 2
STERLING CONSTRUCTION COMPANY, INC. | ||||||
Unaudited Pro Forma Condensed Combined Balance Sheet | ||||||
Pro Forma Entries and Explanatory Notes | ||||||
At September 30, 2007 | ||||||
Amounts in thousands |
Pro Forma Entries | |||||
(a) | Collection in October 2007 of receivable due from Fisher Sand & Gravel, a related party of RHB | ||||
Cash | $ | 12,000 | |||
Due from related party | (12,000 | ) | |||
(b) | October 2007 cash distributions to Members of RHB | ||||
Members' equity | $ | 6,000 | |||
Cash | (6,000 | ) | |||
(c) | October 2007 distribution of land and buildings to Members of RHB | ||||
Accumulated depreciation | $ | 44 | |||
Property and equipment | (1,566 | ) | |||
Members' equity | 1,522 | ||||
(d) | Cash borrowed under new credit facility to purchase RHB | ||||
Cash | $ | 22,400 | |||
Long-term debt | (22,400 | ) | |||
(e) | Liquidation of investments to fund a portion of the purchase price of RHB | ||||
Cash | $ | 32,630 | |||
Short-term investments | (32,630 | ) | |||
(f) | Cash and common stock paid to purchase investment in RHB | ||||
Investment in RHB | $ | 53,000 | |||
Cash | (52,000 | ) | |||
Common stock | (1 | ) | |||
Additional paid-in capital | (999 | ) | |||
(g) | Entries in consolidation to reflect goodwill, step-up in basis of property and equipment and minority interest in RHB | ||||
Goodwill | $ | 42,252 | |||
Property and equipment | 1,000 | ||||
Additional paid-in capital | 5,415 | ||||
Members' equity | 10,633 | ||||
Investment in RHB | (53,000 | ) | |||
Minority interest in RHB (cost basis) | (6,300 | ) |
Summary of Purchase Price and Pro Forma Preliminary Allocation of Purchase Price | ||||
Summary of Purchase Price — | ||||
Cash borrowed under new credit facility | $ | 22,400 | ||
Issuance of common stock | 1,000 | |||
Cash from sale of short-term investments | 29,600 | |||
Total purchase price | $ | 53,000 | ||
Pro Forma Preliminary Allocation of Purchase Price — | ||||
Working capital | $ | 1,263 | ||
Property and equipment | 10,471 | |||
Long-term debt, less current maturities | (101 | ) | ||
Goodwill | 42,252 | |||
Minority interest | (885 | ) | ||
Total preliminary purchase price allocation | $ | 53,000 |
Page 3
STERLING CONSTRUCTION COMPANY, INC.
Unaudited Pro Forma Condensed Combined Statements of Income
Year Ended December 31, 2006 | Nine Months Ended September 30, 2007 | |||||||||||||||||||||||||||||||||
Sterling Construction Company, Inc. | Road and Highway Builders, LLC | Pro Forma Adjustments | Pro Forma Combined | Sterling Construction Company, Inc. | Road and Highway Builders, LLC | Pro Forma Adjustments | Pro Forma Combined | |||||||||||||||||||||||||||
(Amounts in thousands, except per share amounts) | ||||||||||||||||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||||||||||||||||
Revenues | $ | 249,348 | $ | 37,163 | $ | $ | 286,511 | $ | 217,877 | $ | 64,920 | $ | $ | 282,797 | ||||||||||||||||||||
Costs of earned contract revenues | 220,801 | 31,467 | 252,268 | 196,284 | 44,115 | 240,399 | ||||||||||||||||||||||||||||
Gross profit | 28,547 | 5,696 | 34,243 | 21,593 | 20,805 | 42,398 | ||||||||||||||||||||||||||||
General and administrative expenses | (10,825 | ) | (462 | ) | (11,287 | ) | (8,725 | ) | (399 | ) | (9,124 | ) | ||||||||||||||||||||||
Other operating income | 276 | 549 | 825 | 433 | 0 | 433 | ||||||||||||||||||||||||||||
Operating income | 17,998 | 5,783 | 23,781 | 13,301 | 20,406 | 33,707 | ||||||||||||||||||||||||||||
Other income | ||||||||||||||||||||||||||||||||||
Interest income | 1,426 | 487 | (1,426 | ) | (c) | 487 | 1,421 | 471 | (1,421 | ) | (c) | 471 | ||||||||||||||||||||||
Gain on sale of land & buildings | 0 | 0 | 0 | 0 | 90 | 90 | ||||||||||||||||||||||||||||
Interest expense | (220 | ) | (52 | ) | (1,792 | ) | (a) | (2,064 | ) | (55 | ) | (70 | ) | (1,344 | ) | (a) | (1,469 | ) | ||||||||||||||||
Income from continuing operations before minority interest and income taxes | 19,204 | 6,219 | (3,218 | ) | 22,205 | 14,667 | 20,897 | (2,765 | ) | 32,799 | ||||||||||||||||||||||||
Minority interest | 0 | 0 | (518 | ) | (d) | (518 | ) | 0 | 0 | (1,734 | ) | (d) | (1,734 | ) | ||||||||||||||||||||
Income from continuing operations before income taxes | 19,204 | 6,219 | (3,736 | ) | 21,687 | 14,667 | 20,897 | (4,499 | ) | 31,065 | ||||||||||||||||||||||||
Income tax expense | (6,566 | ) | 0 | (844 | ) | (a)(b)(c) | (7,410 | ) | (4,890 | ) | 0 | (5,575 | ) | (a)(b)(c) | (10,465 | ) | ||||||||||||||||||
Net income from continuing operations | 12,638 | 6,219 | (4,580 | ) | 14,277 | 9,777 | 20,897 | (10,074 | ) | 20,600 | ||||||||||||||||||||||||
Income (loss) from discontinued operations, net | 682 | 0 | 682 | (25 | ) | 0 | (25 | ) | ||||||||||||||||||||||||||
Net income | $ | 13,320 | $ | 6,219 | $ | (4,580 | ) | $ | 14,959 | $ | 9,752 | $ | 20,897 | $ | (10,074 | ) | $ | 20,575 | ||||||||||||||||
Basic Income per share: | ||||||||||||||||||||||||||||||||||
Continuing operations | $ | 1.19 | $ | 1.34 | $ | 0.89 | $ | 1.87 | ||||||||||||||||||||||||||
Discontinued operations | 0.06 | 0.06 | 0.00 | 0.00 | ||||||||||||||||||||||||||||||
Net income per share | $ | 1.25 | $ | 1.40 | $ | 0.89 | $ | 1.87 | ||||||||||||||||||||||||||
Weighted average number of shares outstanding used in computing basic per share amounts | 10,583 | 10,623 | 10,962 | 11,002 | ||||||||||||||||||||||||||||||
Diluted Income per share: | ||||||||||||||||||||||||||||||||||
Continuing operations | $ | 1.08 | $ | 1.21 | $ | 0.83 | $ | 1.74 | ||||||||||||||||||||||||||
Discontinued operations | 0.06 | 0.06 | 0.00 | 0.00 | ||||||||||||||||||||||||||||||
Net income per share | $ | 1.14 | $ | 1.27 | $ | 0.83 | $ | 1.74 | ||||||||||||||||||||||||||
Weighted average number of shares outstanding used in computing diluted per share amounts | 11,714 | 11,754 | 11,765 | 11,805 |
Page 4
STERLING CONSTRUCTION COMPANY, INC. | |||||||||||
Unaudited Pro Forma Condensed Combined Statements of Income | |||||||||||
Pro Forma Entries and Explanatory Notes | |||||||||||
Year Ended December 31, 2006 | Nine Months Ended September 30, 2007 | ||||||||
Pro Forma Entries (1) | (Amounts in thousands) | ||||||||
(a) | Interest expense at 8 percent per annum on funds borrowed to purchase interest in RHB | ||||||||
Retained earnings | $ | (1,183 | ) | $ | (887 | ) | |||
Interest expense (2) | 1,792 | 1,344 | |||||||
Income tax expense | (609 | ) | (457 | ) | |||||
(b) | Income taxes on RHB's income | ||||||||
Retained earnings | $ | (1,938 | ) | $ | (6,515 | ) | |||
Income tax expense | 1,938 | 6,515 | |||||||
(c) | Reduction in interest income for investments used in purchase of RHB | ||||||||
Interest income (2) | $ | 1,426 | $ | 1,421 | |||||
Income tax expense | (485 | ) | (483 | ) | |||||
Retained earnings | (941 | ) | (938 | ) | |||||
(d) | Minority interest in income of RHB | ||||||||
Minority interest - income statement | $ | 518 | $ | 1,344 | |||||
Minority interest - balance sheet | (518 | ) | (1,344 | ) |
Explanatory Notes
(1) No depreciation expense on the step-up in basis of property and equipment has been reflected in the pro forma condensed combined statements of income as any such expense would be an additional cost of contract revenues and, on the percentage-of-completion method of accounting, would increase revenues by approximately the increase in costs plus the gross profit thereon. As the amount of such depreciation on an annual basis, based on preliminary valuations and increase in revenues, would be approximately $200,000 each, the effect on the pro forma combined results of operations would be immaterial for the periods presented.
(2) A change of 1/8 percent in the per annum interest rate based on pro forma borrowings for the acquisition of RHB would change annual interest expense by $28,000.
Page 5