Sterling Infrastructure Inc (STRL) 2010 Q4 法說會逐字稿

Greetings and welcome to the Sterling Construction Company fourth-quarter 2010 conference call. (Operator Instructions) As a reminder this conference is being recorded.

I will now turn the conference call over to Jim Allen, Chief Financial Officer for Sterling Construction Company. Thank you, Mr. Allen, you may begin.

Thank you, Diego. Good morning, ladies and gentlemen. I would like to welcome you to this Sterling Construction Company conference call to discuss our results for the fourth quarter and year ended December 31, 2010, which we released this morning.

I am joined today by Patrick T. Manning, our Chairman and Chief Executive Officer, and Brian Manning, our Executive Vice President and Chief Business Development Officer. I'm also joined by Elizabeth Brumley who, effective tomorrow, will become our new Chief Accounting Officer. A press release is being issued on her appointment and experience. Welcome, Liz.

Thank you, Jim.

Now a very important message that I know all of you've been waiting for. I must remind you that this call may include certain statements that fall within the definition of forward-looking statements under the Private Securities Litigation Reform Act of 1995. And any such statements are subject to risks and uncertainties including overall economic and market conditions; competitors', customers' and suppliers' actions; weather conditions; and other risks identified in our filings with the Securities and Exchange Commission, which could cause actual results to differ materially from those anticipated.

Accordingly, any such statements should be considered in light of those risks. Predictions that we make at any time may not continue to reflect management's beliefs and we do not undertake to publicly update them.

Turning now to the financial results, I am pleased to review our results of operations for the fourth quarter and the year ended December 31, 2010, with you. Revenues were $460 million in 2010, or an increase of 17.7%, which is $69 million over fiscal year 2009, with most of that increase arising in the fourth quarter of 2010. The increase was due to the inclusion of our Utah operations in the consolidated results of operations for all of 2010 compared to only one month in 2009.

As you will remember, our Utah operations were acquired on December 3, 2009. Partially offsetting the increase from our Utah operations were a fiscal year -- for the fiscal year 2010, were decreases in revenues of our Texas and Nevada operations due to the market conditions that have continued in those states since 2009, including increased competition and consequent lower bid prices, lack of visibility of federal highway funding to states, and lower gasoline and local sales and property taxes which support infrastructure spending by state, counties, and municipalities.

Gross profit was $63 million in 2010 which an increase -- which is an increase of $8.3 million, or 15% over the year 2009. The increase was due primarily to the inclusion of a full year of gross profit on revenues of our Utah operations in 2010. The difference is in the mix, the stage of completion, and gross margin of contracts in progress at December 31, 2010, compared to those at December 31, 2009, including finalization of change orders and revision of total estimated gross profit due to better visibility of revenues and costs on certain projects.

The increase in gross profit of our Utah operations was partially offset by lower gross profits of our Texas and Nevada operations as a result of lower revenue and approximately $3.8 million in underabsorption of depreciation and other costs related to lower equipment utilization, both due to lower activity in those states. We continue to believe, as we have said on previous calls, such equipment will be used when our Texas-Nevada markets return to a normalized level of activity and consequently believe there is no impairment in the value of such equipment.

Gross profit for the fourth quarter of 2010 of $28.7 million was $21.3 million greater than the comparable 2009 period because of the inclusion of our Utah operations and the consolidation for all three months in the fourth quarter of 2010 compared with only one month in the fourth quarter of 2009, better weather in Texas in the fourth quarter of 2010 than 2009, and differences, as discussed above, in the mix in the stage of completion and gross margin of contracts in progress at December 31, 2010.

The fourth quarter of 2010 was a strong quarter. Our crews and equipment were able to run at full speed, which is reflected in our revenue and gross profit for that quarter. While gross profit increased $8.3 million in 2010 as compared to 2009, operating income decreased $1 million, or 2.8%, to $36 million in 2009 as compared to $37 million in -- I'm sorry, $36 million in 2010 as compared to $37 million in 2009.

Offsetting the increase of $8.3 million in gross profit was an increase in general and administrative expenses and other operating expenses in 2010 of $9.4 million over 2009. The primary reasons for the increase in G&A and other operating expenses were G&A incurred by our Utah operations consolidated for a full year in 2010 as compared to one month in 2009, professional fees associated with the appeal of a lawsuit, and strategic and management planning activities, higher information technology expenses, and a write-off of certain specialized equipment with a net book value of $1.5 million that we no longer believe will be used on any future projects.

Also during the fourth quarter of 2009, the Company incurred $1.2 million in direct costs of the acquisition of our Utah operations under -- which under GAAP had to be charged to expense rather than capitalized as part of the acquisition costs. In addition, in January 2010, a jury awarded $1 million to a subcontractor plaintiff against the Company which was recorded as an expense at December 31, 2009. The Company has appealed that verdict as it believes the judgment was in error.

G&A and other operating expenses increased to 5.8% of revenues in 2010 versus 4.5% in 2009 to the -- due to the reasons we have just discussed. The decrease in effective income tax rate to 28.1% in 2010 versus 32.5% in 2009 was due to higher net income attributable to noncontrolling interest owners, which is taxed to those owners rather than to Sterling, and higher nontaxable interest income.

The net income attributable to noncontrolling owners' interest in earnings of subsidiaries and joint ventures increased from $1.8 million in 2009 to $7.1 million in 2010, because of increased earnings of those entities in 2010 versus 2009 and as a result of the acquisition of our Utah operations in December 2009.

Net income and net income share -- per share attributable to Sterling common stockholders were $19.1 million and $1.13 per share -- rate per share -- fully diluted share, for the year ended December 31, 2010, as compared to $23.7 million and $1.71 per share in the comparable 2009 period, and was $9.3 million and $0.54 per share in the fourth quarter 2010 as compared to $800,000 and $0.03 per share in the fourth quarter 2009. All for the reasons we have just discussed.

In many respects, we had a good year in 2010; however, due to the uncertainties related to competition, prices being bid on available projects and lack of visibility on federal funding for infrastructure projects, we anticipate that net income and fully diluted earnings per share attributable to Sterling's common stockholders in 2011 will be below our results for 2010. I will now turn the discussion of our results over to Pat Manning.

Thanks and good morning, everyone. We had outstanding results for the fourth quarter which helped to bring the yearly returns up to a reasonable level, although far short of our record year for earnings per share in 2009. Gross margins ended up very similar to last year as a result of RLW outperforming expectations and a number of good things happening to all of our operating divisions. We are pleased with our ongoing successful acquisition strategy which added geographical and economic diversity and alternative delivery methods to our platform.

The I-15 core project, the $1.2 billion contract that RLW, you'll recall, was a 12 -- is a 12.5% partner with Fluor and two other companies, is performing well and on schedule. As we gained experience with the design-build project in Europe -- in Utah, we were able to build on that in Texas resulting in an award of a $207 million project and a 45% owned joint venture for the same type of procurement.

I believe the larger more complex projects will significantly help us grow in to the future. Brian will give you some ideas of what we are looking at immediately following my comments.

We are also beginning to see the effect of the stress on our competition with the number of bidders reducing in some of our markets and the prices appearing to start to stabilize. We were second this month on a $111 million bid in Dallas at reasonable margins with nine total bidders, instead of the double-digit numbers we have been used to seeing.

President Obama signed yet another extension of the highway bill through September 2011 but a permanent five- or six-year bill is needed to give visibility to the states for funding of transportation and infrastructure. At least current spending levels were maintained.

CapEx will be up substantially in 2011 from last year, both due to replacing the equipment fleet, which had been deferred in 2009 and 2010, and to allow us to capitalize on several large flat projects, including the I-15 core, the $92 million project in Dallas, and our $207 million design-build project in Austin. These projects provide us with, not only additional requirements, but opportunities to enhance profits with additional purchases. We will certainly pay close attention to our markets and our CapEx expenditures as we always have.

And finally, we will continue to be attentive to our balance sheet and the importance of its continued strength. As you've seen from our financial statements, equity has risen to $250 million and working capital, including a strong cash and short-term investment position, is over $100 million. We have less than $500,000 in debt and no borrowings under our $75 million line of credit.

Our bonding relationship is solid, and that, coupled with our equity position and working capital, puts us in good position to navigate our existing operations in this difficult economic period and continue our acquisition strategy. With that, I'll turn it over to Brian.

Thank you, Pat. We are pleased that at the end of 2010 we have $660 million in backlog and have picked up an additional $120 million in the first quarter of 2011.

As Pat mentioned, we are seeing signs of improvement on margin in bids that are submitted. There's still a larger number of contractors than have historically been bidding on contracts but fewer than several months ago. Some of this reduced competition is due to contractor failure as the practice of bidding with no margin cannot be sustained.

We have capitalized on opportunities in the form of completion contracts for owners on behalf of the sureties. As we stated in our last call, we expected and have, in fact, picked up more completion contracts in the first half of this year. Our subsidiary, Texas Sterling, has won a second contract for surety in Corpus Christi, Texas, and our presence there has led to two more hard bid contracts in Corpus Christi.

We continue to explore opportunities outside our traditional geographic boundaries. In addition to our home states of Texas, Nevada, and Utah, we continue to pursue work in Louisiana, Oklahoma, Idaho, Montana, Arizona, California, and Hawaii. These additional pursuits within these states will supplement our existing contracts in Louisiana, Idaho, Montana, and Hawaii.

Even within our home states, we are exploring more opportunities. In Texas, for example, we have been working in El Paso and Corpus Christi and have also been pursuing more design-build and private work throughout the state. The port of Houston is expanding to meet the needs of larger ships arriving as a result of the Panama Canal expansion and there are more public/private partnership opportunities throughout the state of Texas in transportation.

We're making headway on alternative delivery and continue to make alliances on larger projects with strategic partners. With the recent win in Texas by the Central Texas Mobility Constructors, our JV with Webber, is an example of alternative delivery projects that we had told you that we would pursue. This is a significant win for the team and includes our design partner Michael Baker Jr., Inc.

Our efforts on M&A, we are seeing more favorable deals from a pricing perspective. We have strong cash position that gives us the opportunity to make an acquisition of appropriate size without dilution. We continue to explore acquisitions mindful of the lack of visibility of long-term infrastructure funding to sustain those potential acquisitions.

However, with increasing population comes a need for increased infrastructure. We're cognizant of the fact -- of this fact in our M&A strategy and continue to work and look towards demographics as a driver for infrastructure opportunities.

Now, if there are any questions, we'd be happy to answer them.

Thank you. Ladies and gentlemen, at this time we will conduct our question-and-answer session. (Operator Instructions) Our first question comes from Rich Wesolowski with Sidoti & Company. Please state your question.

Thanks. Good morning, everybody.

Good morning.

I realize that Sterling is not a steady quarter-to-quarter business, but is there any way to distinguish the claims, re-estimations, those type of items that benefited from the quarter from what you consider more typical output?

Rich, I'm sorry, you said re-estimations from what?

Claims and re-estimations, any sort of more one-off items that benefited the quarter. From our conversations, you're certainly not bidding contracts at a 20% margin so something must have been in there to help a little bit.

Well, yes. As we go along -- and we've said this for several -- for two or three years now -- as we go along on contracts, the margins do change. And as you get more visibility on the cost and the revenues in terms of that you progress more, you have better feel for all the conditions that are on a contract, you get a better feel for the cost.

Secondly, we're always looking for ways to improve the profit on a project and one of the things we have the most control over is cost. And if we can find a way to do the project more efficiently, then we will do it and that will give us more profit.

Now, you cannot see all those ways when you bid the job. You often have to have permission of the owner to do something a different way and you don't get that until you are in the job. So, you cannot include those in your original bid.

Also, as you go along, there will be changes in scope of work and we don't recognize the profit on all that change in scope of work until such time as we've gotten the owner to agree that we're going to be paid more than our cost. Finally, there's always -- not always -- on some contracts there are incentives for meeting milestones, but those incentives are normally towards the end of the contract. So, I fully expect that most contracts should become more profitable as time goes along.

Now, we've maintained very good profit, particularly compared to what we've been bidding, and that's a big portion of it. As you know also, we've done more design-build work and that's kept us up in the profit level as well. I don't know if I fully answered your question, but if I haven't, please ask me some more.

No. That helps a great deal. Given the $4 million in minority interest, I take it the bulk of these favorable changes came from Utah?

Well, certainly Utah contributed to the better results in the fourth quarter and also contributed to the results in the whole year. But we're really proud of what our Texas and Nevada offices have done as well.

They -- we've had some problem projects a few years back. We've turned that around. We've done some hard negotiation on some change orders, which didn't come to fruition until the fourth quarter. Just a number of things.

I think that -- and plus the weather was good and our crews in Texas and in Hawaii as well have been able to really go at full throttle. So, yes, Utah did contribute modestly to our results, but we're proud of what Texas and Nevada did also.

Okay. It looks like from your 10-K notes that the joint venture has not made any changes to the margin on the I-15 project despite, as Pat said, progressing nicely. Is that correct?

Things are progressing nicely. We're still only -- we're less than 50% done on that and I did -- I'm not trying to say we're 49% either. But we're less than 50% done on that project, and you noticed we're just barely past where the engineering is supposed to be done. So, yes, we're maintaining their margins. I think the positive thing there is we're not decreasing them.

Right. And then lastly, I was wondering if the Texas DOT is awarding contracts under the assumption that it will get another bump from the Proposition 12 bonds or are you expecting the volume of work to drop considerably as you enter fiscal '12?

Well, in fiscal '12 the Department of Transportation in Texas has requested $2.7 billion in funds for construction of highways and bridges. Now, they've also -- in the last session of the legislature it said Texas, TxDOT, go ahead and plan on the use of $2 billion in 2012 and '13. But -- $2 billion. I'm not sure whether I said billion or million, but $2 billion out of the Prop 12 funds in 2012 and '13.

TxDOT did not include that in their budget request but did mention that $2 billion, what the legislature has done, and inferred that that would ultimately be included.

Now I need to back up one thing. That $2.7 billion is not their budget request, it's their schedule of lettings for 2012, which should be in line with their budget request unless they -- and I haven't seen the budget request. But I would suspect that we're going to see something more like $4 billion at least in 2012.

But all of this hinges on what the federal government does as far as its continued funding. If Congress cuts or takes some of that -- those highway gasoline taxes, then nobody knows what's going to happen.

Right. And what was the fiscal '11 spending number?

Fiscal '11 is approximately $4.8 billion and that, I believe, is very secure.

Great. Thank you.

Our next question comes from Avi Fisher with BMO Capital Markets. Please state your question.

Just a few quick questions. You have $660 million in bookings -- in backlog, I'm sorry, at year end. You could say that about 70% of that was booked this year. I mean, you booked $472 million. So, assuming the other 30%, a lot of that may have fallen into projects that were booked during periods of intense competition and therefore lower margins. How long will it take to burn the rest of that off?

Let me first say that $472 million you're talking about does not include the I-15 core project. And that -- the gross profit on that, while it's not astronomical, it's not during an intense competition bid. It's design-build. How long will it take to burn the $460 million off? I don't know the exact number but you can -- I'd say if we got -- did not get another contract --

It's two to three years.

Yes, more like two.

I wasn't asking about the $462 million. I was asking about the work that carried over from last year.

Well, that will probably be burnt off this year.

So, mostly -- and is that a major -- is that a big part of sort of the headwind in margins and kind of the last of the worst of the margins?

Maybe not all of that would be burned off this year because I-15 core is in there and that's going to go on into 2012 or maybe early 2013. But, again, you're looking at jobs which typically range from two to three years, and if you don't get any more backlog we're looking at 18 months to 22 months burning off everything. Now what -- you started to ask another question and I didn't get it.

No, I was just curious about -- in terms of the work you didn't book this year but work you've booked last year, excluding I-15, that is in backlog. It sounds like a lot of that burns off this year and that's work that was booked during periods of intense competition in the TxDOT market.

It was -- you're correct for the most part. You're correct that it was booked during periods of intense competition. But much of that competition was at margins we would not bid at so -- and so we didn't get the job. Therefore our margins on the contract -- on the work should be better than what that intense competition was getting.

Would apply -- okay. And the surety work it sounds like you're picking up, how do margins on the surety work compare to the core margins?

Typically on surety work you are getting into a project that is partially complete and, as a result, has many issues connected with it. So, typically those projects will be a little bit higher because of going back and reworking work that was possibly substandard.

Avi, I don't want minimize the work for the sureties, because we're certainly interested in it, and so forth, but remember -- these jobs so far, we're proud of them, but yet they haven't been big jobs.

Right. I assume they're smaller revenue work.

If they had been, we would have announced them based upon our policy for announcing jobs.

They are smaller, but it signals a change for us in the competitive structure, as I mentioned in our -- in my comments that we are seeing the practice of bidding very low margin to no margin cannot be sustained.

Yes. In terms of guidance, I assume there's a certain amount of minority interest baked in that's higher than in 2011 -- that's higher than 2010. Now -- and 4Q was a little higher than we've seen in the past. I was wondering what projects are sort of driving that minority interest and how should we think about it for 2011 and beyond.

Well, certainly, it's no secret that the I-15 core project in Utah is a big project, and so that's one of the main drivers. There's now -- we now have the job near Austin with Webber where that's a JV. We also have a couple three other jobs up in Utah where we have JVs.

So, there will continue to be a substantial -- first of all, from the Sterling standpoint to begin with, there will continue to be a substantial minority interest. Secondly, those subsidiaries themselves have minority interest in the JVs and that will continue as well. But the line before the JV is still bigger than the JV line. The line between the (inaudible) and the subsidiary is still bigger than the amounts there.

Right. And, obviously, a negative minority interest means you're getting profits on the project, which is a good thing.

That's right. I'll share my profits as long as they make them.

And finally, it's in the 10-K that Utah DOT contributed about $120 million in revenues in 2010. I'm assuming that's obviously RLW. Is there a lot, a substantial amount of work that RLW does outside of the Utah DOT?

Yes, there is. They do work for various owners, I'm amazed, and they actually go out and seek some much smaller jobs than what we do here in Texas.

I think Brian mentioned that they're working in Idaho and Montana as we speak right now and looking for work in Arizona. So I think any areas around Utah, yes, that's true.

And don't forget that they do light rail, commuter rail, which is for another owner than UDOT.

Okay. I appreciate the color. Thanks very much.

Thank you.

Thank you. Our next question comes from Todd Vencil with Davenport. Please state your question.

Thanks. Good morning, everybody.

Good morning, Todd.

Jim, I don't think I caught this. If I missed it, I'm sorry. Did you quantify the amount of the accounting adjustments that contributed to gross profit in the quarter?

The accounting adjustments? I don't really know what that means, but I did not quantify the various things that contributed to our gross profit in the fourth quarter.

Okay. I assume --

I'm not being evasive.

I'm sorry?

[Taking] an accounting adjustment sounds like there's a gimmick and there's no gimmicks.

Well, I certainly didn't mean to imply gimmicks. I just meant the amount of the change orders and revision of total estimated gross profit that would have applied to prior period revenues.

No, we have not quantified that, and, of course, we don't get into that in our discussions of our results of operations.

Fair enough.

We look at each contract, not at the whole -- we look at each contract demands of the organization.

Got it. Understood. If we did look at those without quantifying them, were they all related to revenue that was previously booked in 2010, or might it have gone back further than that?

I do not have -- I cannot answer that question, because I don't know.

Okay. Fair enough.

We don't go back to see, well, is this something -- is this particular change here related to a contract that started in 2009 or 2008? We're managing the contracts going forward.

I think it's (inaudible) to assume that the majority would be in 2010. Although some change orders or some issues drag on, until we get resolution we don't include them in earnings. So that -- you're right, the earnings had been achieved or the cost spent as we went along, and then all of a sudden you get one big blip where we don't have any costs against it but we get all the earnings.

Sure, makes sense.

We typically are recognizing revenue, at least equal to our cost as we go along, if we believe it is probable that we will at least recover our cost.

Got it. That makes sense. And was there -- those issues that we were just discussing, those only impact gross profit, or would there have been any impact on revenue from that as well in the fourth quarter?

Obviously, if you -- say you have a change order that you've only recognized costs and revenues equal to costs, and then all of a sudden you've got the visibility to see that you will you get a profit on that change order, then to the extent that you have profit on the job, that profit's all going to pop into revenues in that quarter.

That makes sense. Okay, thanks for that. And is there any -- I mean, you talked a bit about the surety job. I just wanted to drill down a little bit on that. I mean, is there any sort of -- is there any consistency in who you seem to be picking these things up from, either in terms of the project owner being the surety company or the contractor that was performing them?

On the surety projects, we -- those are kind of across the board, so it's not any one in particular surety are we focusing on but there are projects in the Corpus Christi area that we mentioned in particular that we've been successful on. And as the contractors are releasing their earnings and the bonding lines are tightening up, we will see more opportunities from different geographic areas and different sureties.

Yes, Todd, I think we have four or five main sureties. We potentially would do business with all of them. When a contractor goes broke, he --

Ladies and gentlemen, the management is now reconnected. You may continue.

Okay. Sorry for that, I don't know what happened. But, in any event, we're using a cell phone now to do this, so go right ahead if there's any more questions.

Mr. Vencill, your line is still open.

Thanks, guys. Sorry I broke your call.

Oh, I doubt that you did it.

You never know. I did have one more question. You mentioned that you put up another $120 million of awards so far in the first quarter. Is there -- should we think about the opportunity to maybe win a few more in the next few weeks, or do you think that's probably going to be the total for the quarter?

As you know, TxDOT lettings occur in the first 10 days of the month usually. So, while there -- we're rebidding on some things between now and the end of the month and we could get some more work --.

There's nothing major, Todd.

Right, there's nothing major.

The rest of this month.

Got it. Okay, thanks very much.

Our next question comes from David Wells with Thompson Research Group. Please state your question.

Hi. Good morning, everyone.

Good morning.

First off, looking at the financing delay associated with the $91 million project, does that change when that project will actually get underway? I think it was previously -- you thought it would be sometime in the second quarter. Would that move it into the third quarter now?

No, we're proceeding on that project. You're referring to the one in Austin? (multiple speakers)

The [Karen] County project.

That one will be pushed off likely to the third quarter. It was listed in the contract that they had the right to do that, so it was not unexpected. But certainly it pushed the timing out.

Okay. Is there any color that you can give about the financing delays that they're seeing specifically? And does that give you pause for concern about the recent Austin win, which it looked like that was still contingent on financing as well?

No, the Austin win is proceeding forward, and we're providing everything that we need to to them. And I think that they have extra budget for that particular project and it came in below the estimate, so all the signs are positive for Austin.

Okay. And then looking at the Austin project, specifically, in the third-quarter call it sounded like that project was anticipated around $300 million, and then the announcement was just over $200 million. Is there another piece of the project that you didn't participate in that would account for the difference or is that just a difference in their estimation versus where the market is right now for that kind of work?

That's partially a difference in the -- how they estimated it -- the engineers estimated it and the owner did, but it also involves our particular approach to the project. Because it is a design-build, we have some leeway with design and we're able to design things more efficiently. And we are taking advantage of utilizing local contractors for that job to help supplement our crews and that resulted in cost savings as well.

Remember, when they do an engineer's estimates on a project like this, as opposed to the typical bid-build projects that you see us doing, they don't have any plans. They just have a sheet of paper and say they're going get from A to B. It's 6.7 miles long, let's put it in for $20 million a mile or $50 million or whatever the number is.

They don't go to how many bridges there are, or what storm tour. So, it's a very loose estimate for funding -- for them sewing the funds, they want to make sure they have covered it at a large enough number.

Okay. That's helpful. For that project will you be bringing some folks from Utah on the project management side? I'm just curious how the experience that you're getting in other parts of the business are translating into this kind of work, which is newer for the Texas side of things.

We have -- we built that organization chart based on the best available folks from both Webber and Sterling. And we've utilized some of the experience from our RLW group, but no significant managers will come to Austin from RLW to help run that project. We will utilize our experience, crews and personnel from Texas.

Okay. And looking at what's been going on with diesel fuel more recently, can you talk a little bit about cost escalators in any contracts and your ability to pass on those diesel prices as they move up here as we head into the summer months?

Yes. Let me try to handle that question; Pat will back me up on it. One, we estimate the fuel for each job and we also look out at pricing and say, hey, we believe while it's this price today that we probably are going to be seeing somewhat of a higher price or a lower price. In most of our jobs we've said we'll see a higher price than what it was at the time.

And so we have -- we think right now that we're covered in our estimates, but we -- it all depends on where diesel prices go. If they continue to go up, it'll be -- we've got a problem. Now, one thing we are doing is looking at doing some actual hedging of our fuel, and that may come about as well.

One other thing is that fuel, while it's significant to us, the significance of it is that we are unable to get a supply contract to lock in the price. From the standpoint of the overall contract, it's only -- it's a far less percentage than everybody thinks it is.

Okay. And then, lastly, with the CapEx increase for next year, would you anticipate being free cash flow positive, or would you anticipate having to draw some on the revolving credit facility?

I do not anticipate -- I'm giving guidance, I guess here. I don't anticipate drawing on it. If you look at our cash balance and short-term investments balance, we've got $85 million and we don't have anything drawn on the line of credit.

All right, that's helpful. Thanks for your time.

You're welcome.

Our next question comes from [Craig Bell] with Energy Cap Partners. Please state your question.

Good morning. I just wanted to follow up on the NTTA project. My understanding is that there's going to be a public hearing next week on that, just to communicate what they're doing on that, but there's not really a funding issue. Is that correct?

As far as I know, that's correct. They have given us no indication that they believe there's a problem, only that they let -- I forget the numbers, four or five contracts, so it's a fairly significant amount of money, and they needed more time to put together the bonds program.

You know, Craig, we rely upon you to keep us informed with the Dallas/Fort Worth area. And so when we start talking about it, we have to look back at our notes that -- on our conversations with you.

Well, I know they're having a public meeting on it next week down in Cleburne. So, I didn't know if that was going to be the last one, and I guess you already answered it on the start date for that one.

Fire me off an e-mail as soon as you know the results of it.

Okay. And then also I wanted to talk about what kind of impact you think you're going to see in the first quarter here from the weather.

Obviously, up in DFW area I'm pretty sure you guys lost probably about a week's worth of work. I know you had some impact down in the Houston area. Is that -- do you think it's more or less than what you saw a year ago?

I'm trying to think back a year ago.

A long time ago.

I have to go back and look at everything from -- on a --

Certainly we had issues up in Dallas and we probably lost closer to two weeks. The rest of the operations have not been too bad in the first quarter; a little trouble in Houston. So, --

Our earnings -- our revenues for the first quarter of 2010 were probably a little low, if you look at the second quarter and if you look at the third quarter the preceding year. The fourth quarter of 2009 was a wet, hard winter for us and the first quarter of 2010, while it was up from the fourth quarter, it still was a little bit lower.

So, yes, we'll probably see the effect of it, but it may not be much different than what we had the first quarter of last year. It might not be.

And then lastly, I know you had a little bit about in this the 10-K but, obviously, this year you have the put call on the RHB acquisition. And just wanted to sort of get more clarity on where that stands. I think in the K it said that you were renegotiating that.

We are negotiating with Rich Buenting on that and -- but we have not finalized that negotiation. He has not put it to us; we have not called it.

Okay, so -- (multiple speakers) but I mean in terms of the renegotiation, I mean if -- should we think about that in terms of sort of the similar structure to what's in place today?

The terms haven't been finalized, but I would expect that -- yes, something like that, although it may be fixed in amount. We just don't know yet.

Okay. But it was more that he was going to maintain the ownership interest there likely?

He is and we're obviously very happy about that.

Okay, great. Thanks a lot, guys.

Thank you, Craig.

Thank you. Our next question comes from Saagar Parikh with KeyBanc Capital Markets. Please state your question.

Hi, guys. Great quarter.

I am going to return your phone call as soon as I get off of this conference call.

Sounds great. Thanks, Jim. But, real quick, so the first question, I am looking at revenue year-over-year increase, approximately around $66 million, and I know two months of that was additional from RLW. Could you guys break out how much of that was inorganic and if there was any organic part in that?

Well, I consider RLW now organic, as opposed to inorganic. But, no, we don't break that out -- how much of it was from RLW or whatever.

But just looking at the numbers, there should have been quite a bit of organic growth, or ex-RLW growth, in the quarter, which was a positive, so --.

That would be positives, for sure. But again, we do not get into specifics in dollar terms of our various operations.

No worries. Thanks, Jim. And then looking at -- you said acquisitions, you're starting to see them a little bit better priced. Are you still looking at New Mexico, Arizona, Colorado, as potential areas? I know you guys had mentioned that on previous calls.

Typically we are looking at mostly the Sun Belt states from California to Florida. So those would be within that boundary or that area that we would be looking at.

And would you be looking at increasing their transportation expertise in those areas, or would you even look at water infrastructure?

It just depends on the acquisition. We evaluate each of them, so we're not concentrating necessarily on transportation. We have professed in our investor conferences that we are looking to integrate the best of each of the companies.

So, if it happens to be a water contractor and we can supplement with the transportation, we will do that or, if it is a -- strictly a transportation contractor, we can also add the expertise of water or sanitary to that particular acquisition.

Great. And then we've heard from a couple other transportation infrastructure firms that since the November elections, they've seen pretty much bidding opportunities shut down. And, I mean, your bookings numbers in 4Q and thus far in 1Q '11 have been great.

Do you guys -- are you guys seeing any of that? Where state and local governments are just shutting down bidding opportunities because they're concerned about federal funding?

We have not seen, per say, shutting down. As a matter of fact, Jim mentioned that the budget for 2011 for Tex-DOT was fairly strong. Certainly we've seen some slower bidding in our municipal markets, but it ranges terminally from different areas of the state. San Antonio has been fairly busy on the municipal side. Houston's a little slow. So, it varies. But nothing (technical difficulty) that I've seen.

So that tells me you guys are in stronger markets, so that's a positive.

That's -- I think you hit upon a key there. Utah and Texas have strong -- have been stronger markets than the rest of the country. Nevada is a little bit slow. But as long -- soon as the high rollers get going -- start going back to Las Vegas we'll see more activity there too.

Sounds great. Well, thank you very much, gentlemen.

Our next question comes from Paul Betz, BB&T Capital Markets. Please state your question.

Hi, guys. Most of my questions been answered. But, quickly, the $1.5 million write-down of equipment, where does that show up on the income statement? Is that in G&A or other income expense?

Yes, [it's total] operating expenses in the -- just one second and I'll tell you where it is. In the other income and expense.

Okay. The G&A line at $7.4 million was a little higher than I think what you expected. Was there maybe some compensation expense in there?

I'm sorry?

Was the $7.4 million of G&A, was there maybe some compensation expense in there? I thought last quarter you expected it to be about $5.5 million to $6 million.

There is compensation expense in G&A, obviously, but it's, one, bringing in the Utah operation for a full year versus one month last year.

Okay.

Two, the $1.5 million write-off. Three, the professional fees we mentioned. And also the -- I think there's one other thing that I can't remember now, but they're all discussed there in our press release and the Form 10-K.

Okay. And I assume since it was a strong quarter there wasn't any under-absorption in the fourth quarter, the $3.8 million total.

[Nothing] material. I think the number is approximately the same as we had had in the previous -- at a previous time in during 2010. We've got -- fourth quarter was, remember, a very active month. And we're doing a pretty good job on resource utilization.

Okay. And just broadly speaking, you mentioned you're looking into Hawaii and -- or doing more projects in Hawaii, Louisiana. What's the bidding environment or funding levels there? Do you have any specific numbers there, or --?

With respect to Hawaii, I don't have a state funding level because this is a Federal Highway Administration job that we're doing there. And the bigger ones we're looking at bidding there will be continuation of this particular road for the Federal Highway Administration.

Now, we have bid on some local work, but that's pretty darn competitive. And as far as Louisiana, maybe Brian has a feel, but the work we have now is municipal-type work for the city and parish of Baton Rouge, Louisiana.

They're under a federal EPA mandate and they have a $1.2 billion program going there. Competition is fairly high because any time you get an EPA-mandated program it draws competitors. But we have been fairly successful to date on -- in that particular area.

And we haven't really been involved in trying to bid on state highway projects there.

Okay, great. Thanks, guys.

Thank you.

Our next question comes from [Jeremy Hellman] with [Avenue T Fund]. Please state your question.

Hi. Good morning, everybody.

Good morning.

I just wanted to kind of talk about the real long-term funding environment around transportation, particularly given the backdrop of electric vehicle introduction and the impact that could have on gas taxes.

Are you guys seeing anyone, politically, that's really trying to sow the seeds of changing how all this gets funded over the long term in terms of it all comes from gas taxes now? And if electric vehicles ever take a big bite out of the rolling vehicle market that obviously is going to have to change. So, I'm just kind of curious if you're hearing anyone working on that.

If electric vehicles come to pass we're going to have a lot more natural gas production. And so we're still going to see a Houston and Texas market booming because of the operation extension.

Jeremy, the tax issue is -- you hit it on the head there. As we get more fuel-efficient vehicles and we get electric vehicles, that structure cannot sustain itself. The talk is more towards a vehicle miles traveled and that will be the whole debate for the transportation going forward.

They're also looking at coming up with alternative ways of funding projects and tolls certainly would be helpful in that regard. And on Tuesday a bipartisan group of Senators met, including Texas' Kay Bailey Hutchison, and they're looking at creating a $10 billion infrastructure bank that would attract as much as $642 million in private investment over the next 10 years. So, they're looking at creating low interest rate loans for private investment in public infrastructure.

Okay. And so is there anyone politically at the Fed level that you're looking at that could be like really the flag bearer in terms of kind of making -- putting forth the policy change around the taxes?

That's going to be a tough issue. And I think as far as the fuel taxes are concerned, it's going to play itself out in the political realm. And at this point, there's no -- clearly they are the things that we've looked at, and as we go forward and get closer to September I think those leaders will become apparent.

When you see -- President Obama spoke of the infrastructure in the United States being behind other countries and that we need to soar that development, and you hear talk of $500 billion to $600 billion over the next six years. But as Brian said, we don't see a clear leader to push it forward and it's going to be a difficult process.

Okay. Thanks.

Thank you. (Operator Instructions) Our next question comes from Rich Wesolowski with Sidoti & Company. Please state your question.

Thank you. I was wondering if you guys were having any trouble with supply agreements for steel or any other commodity that would hamper your bidding activity.

Well, not so far. Steel actually slipped in price at the last letting, $0.02 or $0.03 a pound for rebar. So, so far, no.

Okay. And then lastly, can you talk about the difference in your construction business in Nevada versus that in Utah and Texas, specifically the difference in competitive position you have in Nevada because you have aggregates there, and if that gives you any thoughts on trying to replicate that in Texas and Utah with the purchase of quarries?

Aggregates for us in Nevada are not a significant plus. We have some around Carson City, but typically -- I mean that covers an area maybe, say, 35 miles in radius. So, it doesn't affect jobs in southern Nevada or Las Vegas or even areas farther north.

And the aggregate here in Texas, we have ready access and great players, most of them in the Martin Marietta. So, there's no anticipation of moving more into that.

Okay. Best of luck in 2011.

Ladies and gentlemen, there are no further questions at this time. I'll turn the conference back over to management for closing remarks. Thank you.

We want to thank you for joining our conference call today. If you do have any questions, please do not hesitate to call one of us. Our number is 281-821-9091; we'll be happy to answer your questions. Thanks, until next time.

Thank you. This concludes today's conference. All parties may now disconnect. Have a great day.