Sterling Infrastructure Inc (STRL) 2011 Q4 法說會逐字稿

Greetings and welcome to the Sterling Construction Company fourth quarter 2011 conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Elizabeth Brumley, Chief Financial Officer of Sterling. Thank you, Ms. Brumley, you may begin.

Good morning, ladies and gentlemen. I'd like to welcome you to the Sterling Construction fourth quarter 2011 conference call. I'm joined today by Pat Manning, our Chairman and Chief Executive Officer, and Joe Harper, Sr., our President and Chief Operating Officer. In addition, Brian Manning, Executive VP of Business Development, and Maarten Hemsley, our Lead Director, are joining us on the call today to participate in the Q&A portion of this call.

I would like to 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. 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. Any such statements should be considered in light of these risks. Predictions that we may make at any time may not continue to reflect managements beliefs. And we do not undertake to publicly update them.

Results for the 2011 fourth quarter were impacted by two significant items. There was a pretax charge of $5.9 million due to revisions to previous estimates of revenues and costs on our construction projects. In addition we had a pretax $67 million charge related to the impairment of goodwill. In our February 2012 press release, we announced that we expected an after-tax loss as a result of the revision to previous estimates. And in addition, that we expected an impairment of goodwill would increase that loss.

Net of taxes and non-controlling interest, the charge related to the impairment of goodwill increased the net loss for the fourth quarter by $41.8 million or $2.55 per diluted share. Excluding the charge for impairment, the fourth quarter of 2011 we had an operating loss of $2 million, a net loss attributable to common stock holders of $1.8 million, and a net loss per diluted share of $0.17. The goodwill impairment was identified in connection with our annual review for impairment, is based on a pure value analysis of the Company. The Company has only one reporting unit which means that the valuation of fair value is done for the Company as a whole rather than for individual subsidiaries.

Revenues for the 2011 fourth quarter declined by $24 million from the 2010 fourth quarter. As discussed further in our press release, revenues declined for construction projects in Texas and Utah. This decline was partially offset by $11.6 million in revenues attributable to our newly-acquired Arizona and California operations. Gross profit and gross margins for the fourth quarter of 2011 declined substantially from fourth quarter 2010 levels due to net downward revisions of estimated revenues and gross margins on a number of construction projects, primarily in Texas. These revisions were the result of various factors affecting a number of contracts, some positively and some negatively. Just over 50% of the net charge is attributable to large revisions on seven construction projects. Five of these were downward and two were upward. The revisions were identified in connection with our normal review process.

For those who haven't had a chance to digest our press release, the primary factors which impacted the fourth quarter of 2011 were; on site conditions that differed from those in the original bid, contract or project modifications creating unanticipated costs not covered by change orders, failure by our suppliers, subcontractors or customers to perform their obligations, shortages of skilled workers, delays by our customers in starting projects which caused cost overruns on two large projects in Dallas and delays in quickly identifying and taking measures to address issues which arose during production. While the risks of cost overruns and changes in estimated contract revenues are an inherent part of the construction business, we are making changes which will minimize their impact. Joe will be discussing these changes later in the call. In addition to the factors discussed above which impact the profitability on individual projects, as many of you are well aware, the lack of a long-term multi-year federal highway bill has adversely affected the levels of infrastructure capital expenditures in all of our markets, leading to significant pressures on gross margin.

Turning to our outlook for 2012, we expect that 2012 revenues will be more than 25% higher than in 2011 as a result of several items. The strong backlog at the end of 2011 and contract awards since year-end. The impact from a full year of operations for Banicki and Myers in Arizona and California. We also currently estimate that almost $600 million of our $741 million in year-end backlog will be constructed in 2012. However, based on gross margins in our backlog, we expect our gross margins for 2012 to be lower than the 8% reported for 2011. We also anticipate that net income and diluted EPS for 2012 will be below the $5.9 million and $0.31 per share reported for 2011 after excluding the impact from the goodwill impairment. In addition to the operational issues in 2011, we determined that in some instances, the periodic revisions and estimates made by our operating personnel, and the reviews of those estimates on management, were not adequate or timely enough. And consequently, we determined there was a material weakness in internal control at year-end.

Despite these challenges, Sterling is in sound financial condition. Working capital at year-end totaled $97 million including $61 million of cash and short-term investments. We had no outstanding borrowings under our credit facility. And our bonding facility is principally based on the balance sheet strength and is available to support continued revenue growth.

With that, I will turn it over to Joe Harper.

Thanks, Liz, and good afternoon, everybody. We had some serious operational failures during the last couple of quarters in our Texas subsidiary. On many projects our crews failed to meet productivity expectations. And our managers at all levels were slow to respond with corrective actions. In addition, we believe that in some cases, our estimated cost of bid time were too optimistic. As I have looked back and assessed what happened, I believe one factor was that our project managers and superintendents became demoralized as they worked hard to achieve challenging estimates. I believe that we failed to maintain our discipline in the bid process and did not adequately drive the need for attention to detail in the building of our projects.

Rather than make excuses for these failures, let me explain some of the steps we have taken to right the ship. We added three new positions to the management of Texas Sterling, our largest subsidiary. We appointed Doug Clements as our Chief Executive Officer of Texas Sterling Construction, transferring him from Ralph L. Wadsworth. Doug has experience with the previous employer in correcting operating inefficiencies and promoting teamwork amongst the management group. Among his first initiatives will be improving operational performance, right-sizing and improving management of our equipment fleet, improving our review processes at bid time, and adding focus to our safety program.

Joe Harper, Jr. was moved from the corporate team to become Chief Operating Officer at TSC. He is charged with returning management's focus to the importance of planning and attention to details in order to improve the financial results of each project. This will include implementation of the system to provide better and faster information feedback to our field managers, improving training of managers at all levels of the organization, as well as better updating of forecasts on project profitability. We promoted a general superintendent from our Houston division, Richard [Widely], to Vice President of Operations at TSC to support the operations team and improve resource utilization and efficiency in field operations. Richard has over 30 years experience in the heavy civil business and has been a Sterling manager for approximately 22 years.

These management changes were in process toward the end of December. And we are impressed by the impacts to date and the ability of these new team players to identify problem areas, make the necessary personnel changes, and begin to rebuild morale across the organization. While I'm deeply disappointed with our quarterly results, I'm equally excited about our expectations of improvement from this new team.

The financial impact of poor operational performance has put us in a loss position for the fourth quarter of 2011, our first loss quarter since the mid 1980s. As well as reducing margin and backlog. Some of the reductions in gross profit on projects were a result of difficult conditions in new geography with new owners, like Corpus Christi, Texas, Baton Rouge, Louisiana, and the segmental bridge project in Montana. But most of the projects were neither different nor technically difficult. As a result of the write-down's, margin and backlog as of December 31, 2011 is somewhat lower than we reported for the entire year 2011.

As most of you are aware, our focus over the past several years has been to expand our business into new geographies, primarily with acquisitions. Since our first sizable addition with road and highway builders in Nevada, we have expanded operations in Utah, Arizona, and California. With some projects under construction or in backlog in Hawaii, Montana, Louisiana and Idaho. Our focus for 2012 is to capitalize on these opportunities and concentrate on operational efficiencies to improve the gross profit line.

Sterling's Involvement in joint ventures has begun on a very positive note. RLW's participation in the I-15 core project in Salt Lake is continuing on schedule, with better-than-expected financial results to date. TSC's joint venture in the Austin area with WW Webber is proceeding as expected, with completion scheduled for late 2013. Myers and Sons, LP, where we have a 50% interest, is working with our joint venture partner Shimmick Construction on pre-construction planning for our recent low bid in the Los Angeles area. Myers and Sons has a 30% interest on the $102 million project expected to require approximately 30 months to build out. It's taken a while to build the relationships with potential partners but it's now beginning to pay off.

I believe we have positioned ourselves well to take advantage of any return to normalization of our markets. We have executed the strategic plan we developed in 2006, adding profitable operations in the geographic regions we believe will provide the best opportunities through 2012 and beyond.

Pat?

Thanks, Joe. I agree with Joe on the benefits of the management reorganization in Texas. The entire construction industry has been hit with an extremely long downturn. And in the fourth quarter we had a number of problems in Texas. Although we found these problems in the normal course of our project reviews, we've instituted tighter controls in our project reassessments. We've added management oversight, which will add overhead, but the potential savings generated with operational efficiencies are significant.

I think the steps that we've taken should position us well when the markets that we are in finally turn. And turn they will. Our banking and bonding relationships have been developed over a long period of time and remain strong, with more than enough capacity for the anticipated growth in 2012 of over 25%. Our balance sheet also remains strong, and the goodwill write-down had no effect on our tangible net equity.

During 2011, we successfully completed two acquisitions and spread our geographical reach into Arizona, Idaho and California. We won our first design-build project in Texas in a joint venture. We are short-listed on a $225 million design-build project in California. A 38-mile section of the 180-mile Grand Parkway project encompassing Houston is proceeding towards bidding. And we are negotiating to align ourselves with one of the teams. Industry estimates indicate that this section of the project will cost over $800 million and the state has determined that it will go design-build. We are on a team in which we are a 33% partner that has submitted a pre-qualification for bidding an $800 million design-build project in Dallas. And a 20% partner on yet another $1 billion-plus design-build project, also in Dallas, that will soon be advertised.

We set out last year to obtain bonding takeover work. And, in fact, have completed or are working on seven different projects all across the state. We have built our backlog from $660 million at the end of 2010 to $741 million at year-end. And have already added to that in the first quarter with a pick up of $102 million in announced projects over $20 million. And $42 million for a number of smaller projects. Included in our backlog at December 31, 2011 is our first major project win in the amount of $44 million in California for road and highway builders of CA. We have transferred Anthony Colombo, one of our Executive VPs to California, to develop that market. We continue to see stiff competition in all our markets.

And although the margins and backlogs are down due to the write-down's and that severe competition, we are in a positive position to refocus our efforts. And to performing at the level that we have in years past. And in order to do that we recognize that we need to raise margins at bid time. I think the changes we've made, we are once again in position to move forward and reap the benefits of our expanded footprint in our numerous markets across the country.

Now if there's any questions we would be happy to take them.

(Operator Instructions) Rich Wesolowski with Sidoti & Company.

Quarters like these prompt us to take a harder look and skeptical look at the recent awards. Joe, I'm assuming the discovery of the project issues prompted management to pause on new bids and reevaluate what types of risks you'd like to assume. When exactly did that occur?

It was mid to late December, Rich, by the time we realized what was going on. And you're right. We did go back and begin focusing harder on both the preparation of the bids and the bid review process.

So you're fully comfortable with the awards that you've won, say, in 2012?

I believe that our cost estimates are solid.

Okay. I know this is probably a guess from your part, but how much of the $592 million in sales did you expect to recognize in 2012 from year-end backlog is impaired revenue from the five contracts that were written down in the fourth quarter?

I don't have that number available. I can probably get it back to you later today, but I don't have it.

Okay. Maybe alternatively, if you add back $5.9 million to the fourth quarter gross margin you get to 8.6%. Is that a fair representation of the margin you would expect to book the next job?

I think it's a little bit high. It depends on the project, obviously. We have bid work recently double-digit numbers. We have bid work mid single-digit numbers. It all depends on our assessment of the risk involved with the project and the competition we're facing.

Okay. And then, lastly, would anyone offer any timetable that you're shooting for regarding the search for a new CEO?

Rich, it's Maarten Hemsley. How are you? Good to speak to you again. I'll just answer that, as I'm heading up the search committee. We've already had some candidates identified, and the interview process will be beginning very shortly. We hope within the next couple months we'll see the end of that process.

Pat, if by chance this is your last call, it's too bad to end on a bad note, but it was a good run. I've enjoyed working with you. Best of luck in the future. Thank you very much.

Avi Fisher with BMO Capital Markets.

Can you elaborate a little bit on the seven projects you talked about, specifically the five with losses? I'd like to know if you can give a sense of when they were bid or how much longer they are to complete, if any of them are now unprofitable?

Some of them now are unprofitable. So we would have recognized the full amount of the loss in 2011. They were bid, the projects -- and I also probably need to give some caution, we culled out seven projects, but there was obviously more than seven projects that impacted the writedown. That's just a portion of it. So, they were bid at different times and are in different stages. Some of them were near the end of the project and then others are continuing on.

Do we have a sense of when they will be through the pipeline? Will they flow through all of 2012? The first half of 2012?

We haven't given anything there. I think our best indication is that we're not going to see margins above the 8% range for 2012.

I think we also said the $592 million of the $740 million would be completed next year.

Yes.

Right. But I'm curious just about these five projects specifically. When they are scheduled to complete. Because they have a way of skewing, obviously, the overall margins.

Right.

And regarding the bidding issues, I'm trying to drill down. Were the estimates on materials off, on labor, productivity off, or was it somewhere else?

Go ahead, Joe. We had a number of issues. I'll let Joe elaborate.

Yes, it was almost exclusively productivity issues. So that impacts both labor and equipment costs.

And when you get to the project level in productivity, is it that the estimates were too aggressive relative to normal productivity? Or is there a deficiency with the project management?

I think we had a little bit of both. We had optimism get built into the bid process. So, in a very difficult market where your win rate is substantially below normal, some of our estimators increased productivity to levels that it turned out were not achievable, at least the way we built the projects. We also had some projects where the A team wasn't there and the B team didn't perform the way we would have liked.

And where would the A team have been?

We've got 80-plus projects in backlog at year-end, so it was a busy year for us.

Right, bookings were up. And are you getting good productivity out of the A team, at least?

Yes. And I don't mean that to be just one team. That was just a euphemism.

I understand. Every company has A, B, and C teams. Are you getting good productivity out of your A teams?

Yes, I believe we are.

Pat had mentioned adding overhead. I wonder if you can elaborate on how much we should expect.

I'm going to jump in here, Pat. We haven't filed our 10-K yet, but I think you'll find some good details in the MD&A discussion that will help give some indicators on overhead. So at this point, we are not going to comment on that.

One other quick question. Rich touched on this but how is pricing today relative to 2011?

We see glimmers of hope. We see here in Texas the difference between second and third bidders being relatively high in the 8%, 10%, 12% range. But are still seeing in a majority of cases someone taking it extremely cheap. That's usually a precursor of things turning better, but it's on a day-by-day basis.

Okay, thank you for your time.

Tahira Afzal with KeyBanc.

My first question is in regards to one of the things you mentioned as being a reason for costs going up, and that's labor shortages. And you said you had pockets where skilled labor wasn't available. Could you provide color on that? And are you going to be keeping away from those areas? Are you adjusting up your bids some kind of labor inflation, given Texas is seeing a pretty healthy economy relative to the rest of the states?

Yes, this is Joe. We picked up several projects down in Corpus Christi, Texas. And our expectation of local available workforce there proved to be a little optimistic, so we ended upbringing crews from other divisions in Texas.

And probably the biggest one was the Baton Rouge, Louisiana project. We anticipated bringing one or two crews from our Texas operation over there, and building out local teams. And we struggle still today trying to find a local workforce that is both skilled and willing to work the way we need them to work. So, those are the two biggest cases.

Is it difficult to get crews from out of state to come to Texas? Because when I look at states, there's some states that are actually seeing pockets of material weakness. Is that just a very difficult thing to do legally?

In Texas, first, our wage rates are among the lowest in the country. And, second, the oil and gas field operations are running at full tilt. So, while I can't say it with certainty, I suspect strongly that a lot of the heavy civil workforce has found good work in the oil field businesses, and as a result, we have had a little squeeze of labor availability.

Got it. And the second question is in regards to seeing more PPPs, et cetera. I know that's been a pretty healthy trend in Texas to have private investors participate. How is that trend looking in terms of your booking prospects going forward? And then are there terms, in terms of how the projects are done and the milestones et cetera, and the risk-sharing any different to those of the traditional projects you've done, let's say, several years back?

Tahira, this is Brian. The model is quite a bit different. But with a lack of funding nationally, more and more agencies are embracing it. The PPP model in Texas, the Grand Parkway, as Pat mentioned, is going design-build. They were pursuing that along a dual track, if you will, but ultimately decided to go design-build. So, we do not have in our backlog any PPP.

Now, getting to your risk-sharing question, there's certain things that are put on a PPP team, such as right-of-way risk and environmental risk. And typically, you'd try and have the concessionaire accept that risk and not bring it down to the construction joint venture level. So, that's how they differ, and there is more risk involved with a PPP. The trend is going more and more towards public/private partnerships. And we are very aware of the risks involved in entering one of those projects.

Got it, thank you. And I'll jump back in the queue.

John Rogers with Davidson.

A couple of things. First of all, for Liz, in terms of the losses from the unconsolidated subsidiaries, how much of that was goodwill impairment?

We didn't have losses. I'm not sure -- I think you may have misunderstood. The losses were not from unconsolidated subsidiaries.

Okay. So, the negative minority interest, the $4.8 million, there was no goodwill impairment in that?

No, there was. That charge is related to ownership interest by our non-controlling owners. So, maybe I misunderstood your question. There is a portion that is attributable to the non-controlling interest.

Can you tell us how much that is? In other words, what would be the minority interest line without the goodwill impairment?

We haven't disclosed that. But I think the easiest way to back into it would be, our typical tax rate is going to be around 35%. So, you'll find that there's going to be a portion that's different. In addition, when you see the 10-K come out, there will be a rate reconciliation for taxes and it will disclose some portions of the writedown that were not where we didn't get a tax benefit. So I'm happy to walk you through that when we get our 10-K filed and help you put those pieces together.

Okay. But the subsidiaries where you've got minority interest, they are still profitable, is the heart of my question?

Yes.

And they're hitting your expectations?

Yes, that's absolutely true. It impacted various subsidiaries but it was simply a function of an allocation of the writedown. It was not because we attributed the writedown to a particular subsidiary. The goodwill impairment was done on the whole Company basis. That's how the number was calculated. So there wasn't anything that went to this subsidiary or that subsidiary, other than for simply an allocation.

Okay. And in terms of the $625 million-plus in revenue that you're looking at for 2012, Joe, you touched on this but what portion of that revenue is being completed at zero margins?

You're right. That question came up, John, or one very similar to it. I don't think I can quantify that for you accurately enough. Again, once the K is out I'd be happy to circle back with you on that.

Okay, but is it a substantial portion of it?

John, I don't know that we're going to give those kind of details. We are giving a blended margin for next year, but I think that's about the best we can do at this point.

Okay. Maybe I can approach it this way. You said that you don't expect margins above 8% for the whole year. But were you also saying you don't expect 8% or better margins for every quarter of next year? I'm just trying to think about how much of this difficult work runs off.

We're not giving it on a quarterly basis.

But any comment that you might have? Are we look at substantial losses the first part of the year and then hopefully getting better? Or is it just going to be difficult all the way through?

Typically, we will see lower margins in the first quarter, and sometimes in the fourth quarter depending on the stage of the project. We have some weather impacts going on in the first quarter so you might see lower margins then.

Right. But because of the project timing or the difficult projects that you have now, any confidence that we're actually going to get these completed this year?

Certainly, in some cases, we're going to see a lot of them completed this year.

I'm pretty confident, John, we're going to have all of them washed through by the end of the fourth quarter. The project sizes were all over the board. And smaller projects obviously are going to get done quicker. So you might make some assumptions on earlier quarters having more of a negative impact.

Okay. And Joe or Pat or Brian or whoever, you guys have made a pretty big push over the last couple of years to move up in terms of project sizes and do more complicated projects, where I think, in theory, there would have been fewer bidders. As you look at it now, are you seeing that bifurcation in the market? I don't know whether it's margins or profit opportunities with the large projects versus the small projects?

John, this is Brian. I think typically when you do get to those larger projects, you've got a higher risk profile, as well. They warrant the higher margins on them. We are seeing many projects in excess of $1 billion that would necessitate joint ventures. And, as such, we are with very substantial partners and we are able to spread that risk among the joint venture partners, as well. And learn from each other. So that's a positive thing.

But we are seeing a trend toward some of these larger projects. Now, on these larger projects, there's still opportunity. If we're not successful, we can come back at them and end up doing subcontract work because the project sizes are so large that it will take many contractors to complete them.

I think you are seeing compression in the margins on even the billion dollar projects from what they were two, three, five years ago. But they're still far in excess of what we're able to get on typical build work.

Okay. So the heart of it is, then, has that strategy to go after those -- because it sounds like you've got more of the problems in your traditional core projects. And I'm just wondering, are you better off chasing the small regional projects or trying to go after these larger projects which will be more volatile? I don't know, do they offer a better return over time?

I think they offer a better return on the one hand. On the other hand, these small regional projects have always been a portion of the work that we do and have typically provided us with decent margins that you've seen in the past. We have to wait until that market returns. I think it will always be part of our market but, yes, we are transitioning to the focus on larger projects where we believe the margins are better.

Okay. And then just last question. Were any of the difficulties in your water work? My impression was that that market had been pretty slow for a while so I'm assuming there wasn't a lot of work there.

No, you're right, there wasn't a lot of work there. And that specifically wasn't where our difficulties were.

Okay. And, Pat, are there opportunities for water projects in '12 and '13 on your planning horizon?

John, Brian again. There are some that we're looking at but the majority is going to be in the transportation arena.

Okay. And last question. Any other markets that you're looking at? You've expanded quite a bit throughout the West. I know in the past sometimes when you've hit tough spots you've gone further afield. Or is now the sense that you pull back into your historical cores?

I don't know that we're pulling back, but we have a 25% projection of growth revenues this year with our core businesses and the acquisitions that we made last year. So, I think we're going to focus on their profitable operations.

Okay. Great. Thank you.

Nick Coppola with Thompson Research Group.

I wanted to ask what specifically you've done to improve the estimating process. I heard some earlier comments, and I wonder if you can drill down on what has been done, what you can do, and what it looks like, to do a better job on that.

It's mostly just driving into each of the folks who do our estimating. A lot of our project managers are involved in the estimating process. And it's refocusing them on real expectations for productivity. Typically, we ask a foreman of either one of our own or one of our competitors how much pipe can you get in, or whatever productivity issue, they tend to remember their best days and forget about the days where things went amiss. And it takes real discipline to focus on, these are what we have averaged, this is the way we have historically built, these are the numbers that need to be in our estimates.

Okay, thank you for that. And then I understand the goodwill writedown was for the entire Company, but what were the components of the value there? Can you give me any guidance on what that was?

The components will change depending on which things you feel are more indicative of value at that time. And so, typically, you'll look at a range of components. And so we considered the market cap with a premium, we looked at a discounted cash flow model, and then we also looked at industry multiples.

And we weighted those, and came up with what we thought the valuation was. Another driver on the goodwill impairment is how you value the tangible assets of the Company. And so, when those tangible assets are valued fairly high, then that doesn't leave much left to allocate to goodwill. And so, sometimes that can increase the amount of your goodwill writedown.

Okay, thanks. That's helpful. And then you also, in the press release, mentioned two projections being delayed in Dallas. I wanted to ask, have those started yet? And if not, when and what was the cause of the delay?

Yes, they've both started and we're actively working and pursuing them now. The cause of the delay was owner financing. It just complicates the ability for us to put labor and crews in the right places at the right times, and to keep people so that we can perfect on those jobs. But they are both started now.

Okay. And a similar question. I saw the news release about the Bay Bridge toll plaza, and how Caltrans didn't award within the period they were supposed to. What happened there?

We had a subcontractor that, given the opportunity, refused to honor his price. And we couldn't hold it to him, and he was a significant subcontractor. So Caltrans, if they can't award in the time specified in the bid, gives you the option of opting out. So we did that and we will rebid it here in the next month or so.

Okay, interesting. And last question, as far as the weakness and internal controls that you mentioned earlier, is there anymore detail you can give me there on what that looked like, and what's being done to control better in the future?

It will take some time to cure those weaknesses. But basically it was part of the estimating process. What we discovered was that there was enough instances where our procedures that we are supposed to be performing were not being done either adequately, or on a timely basis. And so what we'll need to do is a combination of just looking over people's shoulders to make sure that the procedures are performed timely and adequately.

And then I anticipate that we're going to be adding some procedures on top of what we've been doing historically. You've got to implement those things, and then you have to let a few quarters go by in order to allow management to test it. So, I could very easily see that we wouldn't be able to report that the material weakness had been remediated, and that that remediation was validated, until maybe even into year-end.

Okay. Thank you very much.

(Operator Instructions) Rich Wesolowski with Sidoti.

Is the Company expected to be profitable in the first quarter?

That's guidance, Rich, and I don't think we can do that, anymore than we've released in the press release.

Okay. Does the performance on the I-15 contract, which sounds pretty good, represent any upside in the loose earnings forecast for '12? Or is that already anticipated in your call for lower earnings?

Our earnings forecast for 2012 is based on our current estimate of what the profitability is on our jobs in backlog as of year-end. Obviously, there can be some revisions to estimates as the project progresses during the year and so it's quite possible that margins on that job could increase or decrease throughout the year. And that would end up with a difference by year end.

Great. What is the Company's CapEx budget for '12, and how much of that is maintenance capital?

Rich, we'll give some guidance on that in the 10-K, but at this point, we're not going to comment. But if you'll look at our MD&A section, for liquidity.

Is there a reason why you wouldn't give it here if it's coming out in the K?

The reason why is because we haven't filed the 10-K yet. And so, we didn't put the information in our press release. We were focused on trying to explain the writedowns. And so, our legal counsel has cautioned us not to go beyond the press release with material information.

Okay, I'm not going to argue with him.

So, apologies, Rich. What we have in the 10-K, I think, will be helpful.

Great. And then lastly, with three board members on the panel, I'd ask whether we can expect the Company to expand its share repurchase program with the stock at $9. And whether the Company would consider borrowing money explicitly to buy back stock.

Rich, we were authorized to the tune of $10 million and we utilized about $3.6 million of that. So, as Treasurer, we've got clearance to go ahead and repurchase, as we think it's good to do. Second part of the question, to borrow money to repurchase shares, because our cash position is so strong, I haven't thought about that.

I just posed it that way in case you needed that cash for bonding purposes or working capital. It wouldn't seem so, but.

There's still room there to have more than adequate bonding capacity. Actually at our size, bonding is driven more by tangible net worth than it is working capital.

Great. Appreciate it. Thank you.

Tahira Afzal with KeyBanc.

This is a bit of a tricky question. But I know that there are a couple of your peers that trade publicly and they've been reporting more profitable quarters, indexes on the transportation side. What do you think the key differences might be between some of your peers who are still profitable and yours in terms of your operational standing right now? Maybe a couple of key differences, perhaps quarries, equipment. I don't know what it is, but anything would be of help.

Sure. This is Pat Manning, by the way. I'm not sure what peers you're talking about. Most of the competitors that I talk to in Texas are suffering from the same issues that we're suffering for. And the margins have been depressed. If you're talking about potentially Granite, I haven't seen how they've done but they are involved in pretty much the mega projects and in aggregates. So I'm not sure who you're speaking of, but our market has been extremely challenging.

Would James Construction be competing in the same area?

James is a competitor. And the projects they picked up were all in close proximity to a quarry that they acquired in conjunction with those projects. So, they likely had some cost advantages on us.

Got it. And the quarry, essentially your aggregates, the pricing of your aggregates might be different to theirs, and that might have been a key difference?

It may have been. And I heard that they had said that that was a major reason why they were able to acquire that backlog.

Got it, okay, thank you.

Avi Fisher with BMO.

Yes, just quick follow-up. I didn't catch, I don't know if you'll give it, the depreciation and amortization, the CapEx and the cash flow from operations in the quarter. Thank you.

We didn't disclose that, but that will be, of course, in the 10-K.

When do you expect the 10-K to be filed?

It should be filed by the due date which is tomorrow.

Okay, thank you.

John Rogers with Davidson.

For earnings in 2012, will you be generating cash given the timing of your projects?

A tricky way to try and get the answer to all the other questions we wouldn't answer.

[Multiple speakers] cash flow from operations, I think that's fair to say.

And maybe this will be in the K, but your D&A costs should be similar to what we saw in '12 in tax rates?

I think we'll pass on that question and let you investigate that in the 10-K.

Okay, all right.

Thank you. We have no further questions in queue at this time. I'd like to turn the floor back over to management for closing remarks.

Appreciate all your time. Look forward to talking to you next quarter, thank you.

Thanks, everybody.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.