Austin Industries, Inc

SWOT Analysis

SWOT ANALYSIS

Austin Industries engages in industrial and commercial construction. It also provides other services
like preconstruction, design build and construction management. The company is well diversified in
terms of end markets that it serves. The diversified portfolio not only provides protection against
unfavorable forces in specific market but also enable it to benefit from opportunities available in
various industries. However, the rising raw material prices could lead to higher construction costs
which could negatively impact the future profitability and cash flows of the company.

Strengths Weaknesses

Diversified business portfolio Lack of geographic diversification

Strong regional operations Employee inefficiency
Strong client base Lack of scale
Lack of transparency

Opportunities Threats

New projects Rising raw material prices

Rise in non-residential construction Economic slowdown in the US
Steady demand for asphalt Intense competition
Government regulation

Strengths

Diversified business portfolio

The company is well diversified in terms of end markets that it serves. Austin Industries (Austin) and
its operating companies offer their services to three major sectors: Civil, Commercial and Industrial
construction. Austin also offers in-plant maintenance and capital construction services to the refining
and petrochemical industries. The company operates through its subsidiaries: Austin Bridge & Road,
Austin Commercial and Austin Industrial.

The company through its subsidiaries engages in the construction of roads, and bridges, as well as
provides plant services, maintenance, instrumentation and electrical services. In addition the company
is engaged in the commercial construction of corporate headquarters, advanced technology, health
care, aviation, hospitality, light industrial and manufacturing. The company also owns and operates
asphalt plants in major Texas markets.

The diversified portfolio not only provides protection against unfavorable forces in specific market
but also enable it to benefit from opportunities available in various industries.

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SWOT Analysis

Strong regional operations

Austin Industries is a privately-owned diversified construction company. It serves the three major
sectors: Civil, Commercial and Industrial construction through its network of affiliate companies.
Forbes magazine ranks the company 279 among the nation’s 400 Largest Private companies.

In 2006, the Engineering News-Record (ENR), a construction industry website ranked the company
40 among top 400 Contractors of US. The company also holds strong position in global contractors.
In 2006 the company was awarded 91st rank by ENR among top 225 global contractors. In addition
to that Austin Commercial’s subsidiary T.I. R-FAB team was selected as “Project of the Year” by the
American Subcontractors Association in March 2006. Later in May 2006 the company Austin
Commercial was awarded the Associated Builders and Contractors (ABC) Safety Excellence Award
for 2005 for General Construction Contractors. The company’s subsidiary Austin Commercial's DFW
International Airport Terminal D project was awarded with the Associated Builders and Contractors
(ABC) 2005 National Merit Award in the same month.

Moreover the company was ranked 15th position in General contractor and construction manager
in 2007. Strong regional operations in the contracting market enhance the brand image of the
company and provide it with scale benefits.

Strong client base

Austin Industries has an impressive range of clients such as AMD, American Airlines, EDS, Exxon
Mobil Corporation, Federal Reserve Bank of Dallas, Fina, GE, IBM, Kimberly, Clark, MCI, Motorola,
Southwest Airlines, Texas Instruments, Texas Department of Transportation and USAA. The company
has been able to maintain long-term relations with many of its clients. In addition the company has
built many major projects for its clients. For an instance the company’s subsidiary Austin Bridge &
Road built the longest bridge in Texas, the Port Isabella Causeway to the Texas Department of
Transportation. Moreover in 2006 the company’s another subsidiary Austin Bridge & Road has been
awarded the largest project in its history by Texas Department of Transportation (TxDOT). Totaling
more than $153 million, the TxDOT project involves building a four-level interchange at IH 30 and
US 59 in Texarkana. It also calls for 10 miles of reconstruction of IH 30 service road and five local
bridges over IH 30. Strong relationship with clients enables the company to secure new projects.

Weaknesses

Lack of geographic diversification

The company derives majority of its revenues from the US market. It does not have operations in
the emerging economies like China and India, which are key end markets for the construction sector
in recent years. India is expected to see the highest rate of global construction spending growth in
the 2006-2008 period, estimated at about 10% per annum. Also, construction spending in China is
expected to continue to expand rapidly with an estimated growth of 9% per annum in 2006-2008

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SWOT Analysis

period. China's strong expansion is driven primarily by foreign direct investment, exports, public
infrastructure spending, preparations for the 2008 Olympics in Beijing, and the 2010 World Expo in
Shanghai.

Therefore, despite having very strong operations in US, the company looses opportunities arising
in the potential markets like China and India by not having operations there. In addition, the
performance of the company is highly correlated with US economy performance; hence lack of
geographic spread would adversely affect the company's performance in difficult times.

Moreover, this lack of market share in these emerging regions, which are also growing to become
the top economies of the world, may eventually cause Austin Industries to lose potential revenues
and thus lose out in terms of global market share.

Employee inefficiency

Austin Industries posted weak revenues in proportion to the total number of employees. During fiscal
2006, the company recorded total revenues of $1,300 million with a total of 5,800 employees. The
revenue per employee of the company stood at $0.22 million, significantly lower than some of its
competitors Fluor Corporation ($1.03 million), Granite Construction ($0.57 million) and Bechtel Group
($0.51 million).The weak revenue per employee of the company indicates its weaker productivity
and operational inefficiency.

Lack of scale

The company is small in size compared to its competitors. Many of its competitors, such as Bechtel,
Granite Construction and Fluor are larger in size and enjoy a competitive advantage in accessing
financial, technical and human resources. Bechtel, based in San Francisco, is the leader in
engineering, procurement, and construction and project management services in the US and
generated $20,500 million revenues during fiscal 2006. Granite Construction generated $2,969.6
million revenues and Fluor generated $14,078.5 million revenues during the same year. In addition,
these competitors are able to absorb raw material price hikes better than Austin Industries, which
generated revenues of around $1,300 million during 2006. Therefore, the weak revenues of the
company as compared to its peers indicate the lack of scale and weaker market position of the
company.

Lack of transparency

Being a private company Austin Industries is not subjected to such stringent government scrutiny
as its publicly-held competitors such as Granite Construction, and AECOM. The company does not
publish consolidated balance sheets and is under no obligation to comment on its financial state.
These aspects of Austin Industries operations may make some customers wary, and may result in
Austin Industries losing business to public competitors, whose business and financial performance
is more transparent. In addition, the company does not have any access to capital market funding
such as public debt or equity markets. Austin Industries has to depend on cash generated through
its operations to fund expansion and growth opportunities.

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Opportunities

New projects

In June 2006, GE Energy selected Austin as construction contractor for Florida Municipal Power
Authority's Stock Island Unit 4 power plant in the Florida Keys. In the next month Austin was selected
to perform construction of a Delayed Coker unit and a Vacuum Distillation unit at the Conoco Phillips
Borger Refinery. The company work scope includes civil and structural, mechanical, underground
piping, and equipment erection to GE.

Later in August 2006, Calpine selected Austin Industrial to perform lump sum construction services
of this 501F 1x1 combined cycle power plant at Dow Chemical in Freeport, Texas. Austin's work
scope includes foundations and other civil work, structural, piping, and major equipment erection
(501F turbine, Nooter Erikson HRSG, and steam turbine). In October 2006, the company’s subsidiary
Austin Bridge & Road has been awarded the largest project in its history by Texas Department of
Transportation (TxDOT). Totaling more than $153 million, the TxDOT project involves building a
four-level interchange at IH 30 and US 59 in Texarkana. It also calls for 10 miles of reconstruction
of IH 30 service road and five local bridges over IH 30.The contract was expected to complete in
2010.

In January 2007, The FruCon-Austin joint venture was selected to perform construction of a grassroots
ethanol facility in Ravenna, Nebraska by Nordic Biofuels . This facility is expected to produce more
than 84 million gallons per year of high-grade ethanol. Austin’s work scope includes construction
responsibility for civil, structural, mechanical (including piping and equipment installation), and plant
start-up. New projects besides strengthening the company efficiency would boost the company’s
revenue growth.

Rise in non-residential construction

The US non residential construction market has been witnessing strong growth in last three years.
The public spending on construction has grown at a CAGR of 5% during the Period 2004-2006.
Spending on nonresidential construction expanded at a 16% annual rate during the year ending
September 2006. The trend is expected to continue although at a lower growth rate of 8% in 2007.
Manufacturing construction spending jumped 20% in 2006. Healthcare construction spending growth
doubled to 15% in 2006 and is expected to stay at this pace through 2008. The company could
benefit from the positive outlook for the US non residential construction market.

Steady demand for asphalt

Austin Industries also manufactures asphalt in four modern asphalt plants, for use on Austin Bridge
& Road asphalt paving projects and for sale to outside customers. The non-residential building
market for asphalt is expected to enjoy the strong growth over the next few years as construction
activity rebounds. Growth is expected at a similar pace in the two large asphalt-using markets,

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namely, paving and roofing. US asphalt demand is expected to exceed 37 million tons in 2007 and
is further expected to increase 1.2% annually to 38.8 million tons in 2009. The value of
asphalt-containing products may reach about $10.8 billion in that year. Growth will proceed at a
similar pace in the two large asphalt-using markets: paving and roofing. While this growth is
unspectacular, it does represent a solid market for Austin industries operations.

Threats

Rising raw material prices

High international and domestic demand for raw materials is leading to an increase in prices for
home builders, real estate developers, small businesses and manufacturers in the US. Some of the
raw materials are from domestic sources while others are international imports. Commercial builders
and manufacturers face high demand and rising prices for a wide range of raw materials, including
concrete, steel, insulation, copper wiring, electrical parts and drywall. For instance, globally, the
price of cold rolled steel coil rose from $543 per ton in January 2006 to a high of $625 per ton in
January 2007. The price of copper wire rod rose by 45.8% to reach $6,675 per ton by the end of
December 2006, from $4,577 per ton at December 2005. The rising raw material prices would lead
to the lower margins for construction companies such as Austin Industries.

Economic slowdown in the US

The US is a key market for Austin Industries. According to an International Monetary Fund (IMF)
projection, the GDP growth of the US economy is forecast to slow down from 3.3% in 2006 to 2.2%
in 2007.

More importantly, the US has seen 17 successive interest rate hikes over the past few years leading
to the current high of 5.25%. A weak economic outlook for the US would put pressure on the revenues
of the company. Economic slow down in the US could impact industrial development, which would
adversely affect margins of the company.

Intense competition

The company is engaged in highly competitive businesses in which customer contracts are often
awarded through bidding processes based on price and the acceptance of certain risks.The company
competes with other general and specialty contractors, both foreign and domestic, including large
international contractors and small local contractors Austin Industries faces stiff competition from
companies such as Bechtel and Granite Construction. These competitors have greater financial and
other resources than Austin Industries. Since financial strength is a factor in deciding whether to
grant a contract in the business, the company may lose contracts to larger players.

Government regulation

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SWOT Analysis

The company is subjected to extensive and complex laws and regulations that affect the land
development and homebuilding process, including laws and regulations related to zoning, permitted
land uses, levels of density, building design, warranties, storm water, and use of open spaces. In
addition, the company is also subjected to a variety of laws and regulations concerning safety and
the protection of health and the environment.

In some of the markets the company is required to pay environmental impact fees, use energy-saving
construction materials and make commitments to municipalities to provide certain infrastructure such
as roads and sewage systems. It is possible that increasingly stringent requirements will be imposed
on developers and homebuilders in the future. This could result in time-consuming and expensive
compliance programs and substantial expenditures, which could cause delays in civil, commercial
and industrial construction and also increase the company's cost of operations.

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