Exhibit 99.4
JAMES CONSTRUCTION GROUP, L.L.C.
DECEMBER 31, 2006
FINANCIAL STATEMENTS
CONTENTS
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Audited Financial Statements: |
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Independent Auditor’s Report | 1 |
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Balance Sheet | 2-3 |
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Statement of Income | 4 |
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Statement of Changes in Members’ Equity | 5 |
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Statement of Cash Flows | 6 |
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Notes to Financial Statements | 7-14 |
Hannis T. Bourgeois, LLP
Certified Public Accountants
Baton Rouge, Louisiana
March 9, 2007
Independent Auditor’s Report
To the Members
James Construction Group, L.L.C.
We have audited the accompanying Balance Sheet of James Construction Group, L.L.C. as of December 31, 2006, and the related Statements of Income, Changes in Members’ Equity, and Cash Flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of James Construction Group, L.L.C. as of December 31, 2006, and the results of its operations, changes in members’ equity, and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
| Respectfully submitted, |
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| /s/ Hannis T. Bourgeois, LLP |
JAMES CONSTRUCTION GROUP, L.L.C.
BALANCE SHEET
AS OF DECEMBER 31, 2006
ASSETS
Current Assets: |
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Cash |
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| $ | 22,289,502 |
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Accounts Receivable: |
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Progress Billings |
| $ | 44,591,033 |
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Retainages |
| 6,025,966 |
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Unbilled Revenue on Completed Contracts |
| 1,803,447 |
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Other |
| 319,359 |
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| 52,739,805 |
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Costs and Estimated Earnings in Excess of Billings on Incomplete Contracts |
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| 3,455,219 |
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Uninstalled Contract Materials |
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| 9,043,419 |
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Prepaid Expenses |
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| 27,110 |
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Total Current Assets |
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| 87,555,055 |
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Property and Equipment: |
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Buildings and Land Improvements |
| $ | 2,005,514 |
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Machinery and Equipment |
| 31,438,411 |
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Office Furniture and Equipment |
| 685,515 |
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| 34,129,440 |
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Less: Accumulated Depreciation |
| (15,059,920 | ) |
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| 19,069,520 |
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Land |
| 1,728,878 |
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| 20,798,398 |
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Other Assets Principally Goodwill |
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| 1,941,865 |
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| $ | 110,295,318 |
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The accompanying notes are an integral part of this statement.
JAMES CONSTRUCTION GROUP, L.L.C.
BALANCE SHEET
AS OF DECEMBER 31, 2006
LIABILITIES AND MEMBERS’ EQUITY
Current Liabilities: |
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Current Maturities of Long-Term Debt |
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| $ | 2,138,177 |
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Accounts Payable: |
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Trade |
| $ | 22,053,209 |
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Retainages |
| 3,475,148 |
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| 25,528,357 |
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Billings in Excess of Costs and Estimated Earnings on Incomplete Contracts |
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| 26,543,897 |
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Accrued Liabilities: |
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Insurance |
| $ | 6,745,617 |
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Compensation, Taxes and Benefits |
| 3,784,877 |
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Other |
| 893,337 |
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| 11,423,831 |
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Total Current Liabilities |
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| 65,634,262 |
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Long-Term Debt |
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| 15,104,325 |
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Deferred Compensation Payable |
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| 1,908,000 |
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Related Party Payable |
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| 375,000 |
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Members’ Equity: |
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Members’ Equity |
| $ | 28,859,614 |
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Members’ Receivables |
| (1,585,883 | ) |
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| 27,273,731 |
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| $ | 110,295,318 |
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The accompanying notes are an integral part of this statement
JAMES CONSTRUCTION GROUP, L.L.C.
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2006
Contract Revenues Earned |
| $ | 320,098,962 |
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Cost of Revenues Earned |
| 291,527,838 |
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Gross Profit |
| 28,571,124 |
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General and Administrative Expenses |
| 12,432,036 |
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Operating Profit |
| 16,139,088 |
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Other Income (Expense): |
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Interest Expense |
| (736,081 | ) | |
Other Income |
| 251,851 |
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Interest Income |
| 205,540 |
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Gain on Disposals of Property and Equipment |
| 730,833 |
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| 452,143 |
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Net Income |
| $ | 16,591,231 |
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The accompanying notes are an integral part of this statement.
JAMES CONSTRUCTION GROUP, L.L.C.
STATEMENT OF CHANGES IN MEMBERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2006
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| Receivables |
| Total |
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Balance at January 1, 2006 |
| $ | 13,826,258 |
| $ | (297,863 | ) | $ | 13,528,395 |
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Net Income |
| 16,591,231 |
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| 16,591,231 |
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Cash Receipts (Disbursements) - Members |
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| (1,288,020 | ) | (1,288,020 | ) | |||
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Distributions to Members |
| (1,557,875 | ) | — |
| (1,557,875 | ) | |||
Balance at December 31, 2006 |
| $ | 28,859,614 |
| $ | (1,585,883 | ) | $ | 27,273,731 |
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The accompanying notes are an integral part of this statement.
JAMES CONSTRUCTION GROUP, L.L.C.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2006
Cash Flows from Operating Activities: |
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Net Income |
| $ | 16,591,231 |
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Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: |
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Depreciation |
| 3,772,903 |
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Gain on Disposals of Property and Equipment |
| (730,833 | ) | |
Changes in Assets and Liabilities: |
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Increase in Accounts Receivable |
| (4,888,299 | ) | |
Increase in Uninstalled Contract Materials |
| (5,417,950 | ) | |
Decrease in Prepaid Expenses |
| 30,650 |
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Decrease in Costs and Estimated Earnings in Excess of Billings on Incomplete Contracts |
| 325,854 |
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Decrease in Other Assets |
| 8,616 |
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Decrease in Accounts Payable |
| (1,746,821 | ) | |
Increase in Billings in Excess of Costs and Estimated Earnings on Incomplete Contracts |
| 12,646,469 |
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Increase in Accrued Liabilities |
| 4,947,340 |
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Increase in Deferred Compensation Payable |
| 1,908,000 |
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Net Cash Provided by Operating Activities |
| 27,447,160 |
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Cash Flows from Investing Activities: |
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Purchases of Property and Equipment |
| (4,216,601 | ) | |
Proceeds from Sales of Property and Equipment |
| 1,350,830 |
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Net Cash Used in Investing Activities |
| (2,865,771 | ) | |
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Cash Flows from Financing Activities: |
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Net Borrowings on Revolving Credit Line |
| 100,000 |
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Payments on Long-Term Debt |
| (2,068,317 | ) | |
Cash Receipts (Disbursements) - Members |
| (1,288,020 | ) | |
Payment of Related Party Payable |
| (6,000,000 | ) | |
Distributions to Members |
| (1,557,875 | ) | |
Net Cash Used in Financing Activities |
| (10,814,212 | ) | |
Net Increase in Cash |
| 13,767,177 |
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Cash - Beginning of Year |
| 8,522,325 |
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Cash - End of Year |
| $ | 22,289,502 |
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Non - Cash Transactions: |
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Equipment Acquired through Issuance of Debt |
| $ | 3,126,044 |
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Supplemental Cash Flow Information: |
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Cash Paid for Interest |
| $ | 725,739 |
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The accompanying notes are an integral part of this statement.
JAMES CONSTRUCTION GROUP, L.L.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
Note 1 - Organization and Summary of Accounting Policies -
Nature of Operations
James Construction Group, L.L.C. (the Company), engages in highway, industrial and environmental construction, primarily in Louisiana, Texas and Florida, with a significant portion of contract revenues earned derived from work performed for state and local units of government. A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investments, with maturities less than three months, as cash equivalents.
Recognition of Income on Construction Contracts
The Company uses the percentage of completion method for recognizing profits on incomplete contracts. Estimates of percentage of completion are based on costs incurred to date as a percentage of the latest estimate of total costs anticipated. This method is used because management considers costs incurred to be the best available measure of progress on these contracts. Because of the inherent uncertainties in estimating costs, it is at least reasonably possible that the Company’s estimates of costs and revenues will change in the near future. No profit is recognized on contracts before the percentage of completion exceeds 10%. Provisions for anticipated losses on contracts are made when such losses become apparent.
Operating Cycle and Types of Contracts
The Company performs under fixed-price contracts, cost reimbursable contracts, unit-price, and fixed-price and cost reimbursable contracts modified by incentive and penalty provisions. Each of the contracts may contain components of more than one of the above contract types. The duration of the significant contracts entered into by the Company varies but generally ranges from one to three years. The Company, under the operating cycle concept, includes in current assets and liabilities all contract related items regardless of whether cash will be received or paid within a twelve month period.
Accounts Receivable
Management considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required. If accounts become uncollectible, they are charged directly against earnings when they are determined to be uncollectible. Use of this method does not result in a material difference from the valuation method required by generally accepted accounting principles.
JAMES CONSTRUCTION GROUP, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2006
Property and Equipment
Property and equipment are recorded in the accounts of the Company at cost. Additions and improvements are capitalized. Ordinary maintenance and repair expenses are charged to income as incurred. The cost of property sold or otherwise disposed of and the accumulated depreciation thereon are eliminated from the property and related accumulated depreciation accounts, and any gain or loss is credited or charged to income. Depreciation is provided at rates based upon estimated useful service lives using the straight-line method for financial reporting purposes.
Goodwill
In accordance with FAS No. 142, Goodwill and Other Intangible Assets, goodwill cannot be amortized; however, it must be tested annually for impairment. This impairment test is calculated at the reporting unit level. The goodwill impairment test has two steps. The first, identifies potential impairments by comparing the fair value of a reporting unit with its book value, including goodwill. If the fair value of the reporting unit exceeds the carrying amount, goodwill is not impaired and the second step is not necessary. If the carrying value exceeds the fair value, the second step calculates the possible impairment loss by comparing the implied fair value of goodwill with the carrying amount. If the implied goodwill is less than the carrying amount, an impairment loss is recorded. There was no impairment of goodwill for the year ended December 31, 2006.
Included in other assets is $1,913,324 of goodwill, net of $275,344 amortized in prior years.
Uninstalled Contract Materials
Uninstalled contract materials consist of various contract material cost incurred on uncompleted construction projects that have not been installed as of the balance sheet date. Uninstalled contract materials are carried at the lower of cost or market using the first-in, first-out method.
Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
JAMES CONSTRUCTION GROUP, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2006
Income Taxes
Effective January 1, 2006, the Company has elected, by consent of its members, to be taxed under the provisions of Subchapter S of the Internal Revenue Code.
As a limited liability company, taxed as an S Corporation, the income or loss of the Company is passed through to its members and taxed at their individual rates for income tax purposes.
Distributions
The Company’s operating agreement has specific provisions related to its distributions. Distributions to its members shall first constitute a “mandatory tax distribution” in an amount equal to its members’ estimated tax liability attributable to the taxable income of the Company, and then constitute “mandatory debt distributions”, as defined in the operating agreement, subject to approval by the Company’s lenders, up to $1,275,000 per year. Additional non-mandatory distributions may be made at the discretion of the Board of Managers, subject to approval by the Company’s lenders. In 2006, the “mandatory tax distributions” and “mandatory debt distributions” totaled $337,405 and $1,220,470, respectively. As a result of the Company being taxed as an S Corporation and due to specified provisions in its operating agreement, the Company expects to continue to make distributions in the future for member income taxes and other purposes. Although amounts have not been determined, future distributions could be material to the financial statements.
Note 2 - Construction Contracts in Progress -
Information with respect to lump-sum construction contracts in progress as of December 31, 2006, is as follows:
Costs on Contracts in Progress |
| $ | 273,652,771 |
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Earnings to Date on Contracts in Progress |
| 8,561,478 |
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| 282,214,249 |
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Less: Related Billings |
| (305,302,927 | ) | |
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| $ | (23,088,678 | ) |
The following amounts are included in the accompanying Balance Sheet under the captions:
Costs and Estimated Earnings in Excess of Billings on Incomplete Contracts |
| $ | 3,455,219 |
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Billings in Excess of Costs and Estimated Earnings on Incomplete Contracts |
| (26,543,897 | ) | |
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| $ | (23,088,678 | ) |
JAMES CONSTRUCTION GROUP, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2006
Note 3 - Backlog -
The following schedule summarizes changes in backlog during the year ended December 31, 2006. Backlog represents the amount of revenue the Company expects to realize from work to be performed on incomplete contracts in progress at year end and from contractual agreements on which work has not yet begun.
Backlog at Beginning of Year |
| $ | 274,394,239 |
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New Contracts During the Year |
| 301,204,211 |
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| 575,598,450 |
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Less: Contract Revenue Earned During the Year |
| (320,098,962 | ) | |
Backlog at End of Year |
| $ | 255,499,488 |
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Note 4 - Revolving Credit Agreement -
The Company and Angelo Iafrate Construction Company (AICC), a related party, have a revolving credit agreement with a bank that allows for borrowings as follows:
Revolving credit advances |
| $ | 31,000,000 |
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Swingline loans |
| $ | 3,000,000 |
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Letters of credit |
| $ | 15,000,000 |
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Aggregate limit on above |
| $ | 31,000,000 |
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The credit agreement is collateralized by substantially all of the assets of the Company and AICC, guaranteed by certain companies related through common ownership, and provides for restrictions on dividends and distributions and the maintenance of certain financial ratios. Letters of credit issued and outstanding at December 31, 2006 totaled $8,682,026. As of December 31, 2006, the outstanding balance under the revolving credit agreement for the Company and AICC totaled $10,000,000 and $5,000,000, respectively.
Note 5 - Long-Term Debt -
Long-term debt at December 31, 2006 consists of the following:
Revolving credit agreement advances bearing interest at variable rates tied to either the LIBOR or prime rate (8.25% at December 31, 2006). No stipulated principal payments are required and the agreement expires March 2009. |
| $ | 10,000,000 |
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(CONTINUED)
JAMES CONSTRUCTION GROUP, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2006
Equipment financing arrangements with monthly installments ranging from $2,092 to $64,819 including interest at rates between 2.63% and 7.29%, due from January 2007 through May 2013. Each agreement is collateralized by equipment with a cost of approximately $10,683,000. |
| 7,242,502 |
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| 17,242,502 |
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Less current portion |
| 2,138,177 |
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Long-Term Portion |
| $ | 15,104,325 |
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The aggregate maturities of principal payments on the long-term portion of debt are as follows for the years ending December 31:
2008 |
| $ | 1,592,016 |
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2009 |
| 11,664,458 |
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2010 |
| 1,297,770 |
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2011 |
| 367,658 |
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2012 |
| 119,471 |
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Thereafter |
| 62,952 |
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| $ | 15,104,325 |
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Note 6 - Members’ Equity -
The Company’s operating agreement authorizes 100 units of membership interest designated into two classes. The number and class of member units outstanding as of December 31, 2006 are as follows:
Class A |
| 65 |
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Class B |
| 35 |
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Total |
| 100 |
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Each member holding a class of units has such rights, preferences, privileges and obligations of a member as specified in the operating agreement for such class.
In connection with the two classes of membership units, the Company has defined certain restrictions and mandatory requirements related to its distribution of earnings. See Note 1 - Distributions, for a further discussion of these provisions.
The operating agreement also identifies certain triggering events which can create an obligation for the Company to purchase member units. See Note 10 - Membership Repurchase Requirement, for a further discussion of these provisions.
JAMES CONSTRUCTION GROUP, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2006
Note 7 - Employee Benefit Plan -
The Company has a profit-sharing plan with a 401(k) provision for eligible employees. The Company may match a portion of employee contributions; the plan has a profit sharing provision for additional discretionary contributions by the Company. Profit sharing and 401(k) expense for the year was approximately $639,000.
Note 8 - Deferred Compensation Payable -
The Company has a deferred compensation plan in place as of December 31, 2006. The current and long-term deferred compensation payable as of December 31, 2006 totaled $225,000 and $1,908,000, respectively.
Note 9 - Related Party Transactions -
During 2006, the Company paid back net advances from AICC totalling $6,000,000. During 2006, the Company paid AICC interest of $141,987. The total long-term related party payable at December 31, 2006 is $375,000.
Note 10 - Commitments and Contingencies -
Membership Repurchase Requirement
In connection with the amendment of its operating agreement during 2005, the members of the Company have entered into an agreement that, among other things, defines certain triggering events which can create an obligation for the Company to purchase member units at fair market value as defined in the operating agreement. A summation of such triggering events is as follows:
Class A members upon desire to sell their membership units, must first offer such units for sale to Class B members then to potential third party buyers. In the event that Class A units are not sold to Class B members or to third party buyers within a specified period of time, the Class A member can require the Company to purchase the Class A units at fair market value as defined in the operating agreement.
Class B members, upon death or retirement must first offer Class B units to other Class B members. In the event the other Class B members elect not to purchase such units, the Class B member can require the Company to purchase the Class B shares at fair value as defined in the operating agreement.
JAMES CONSTRUCTION GROUP, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2006
Self-Insurance
The Company is self-insured for workers’ compensation, general liability, and automobile liability claims. The policy is to accrue the estimated liability for claims through December 31, 2006, including claims incurred but not reported. The Company, and other companies related through common ownership, have obtained automobile liability, general liability and workers’ compensation insurance for the policy year April 1, 2006 through March 31, 2007 as follows:
· The large deductible program insures the Company, and related companies, for losses exceeding $500,000 for workers’ compensation and losses exceeding $250,000 for general liability and automobile liability.
· Umbrella insurance for all three lines to a limit of $20,000,000 over primary.
Maximum aggregate exposure for the Company’s losses, as well as the related companies, for workers’ compensation, general liability and automobile liability is approximately $6,900,000 per contract arrangement with the insurance company for the policy year.
Letters of credit totaling $8,052,000 have been provided in connection with the self-insurance program.
Operating Leases and Rent Expense
The Company leases office facilities and equipment under operating leases which expire at various dates through 2012. The long-term lease commitments are as follows:
2007 |
| $ | 2,315,382 |
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2008 |
| 1,795,955 |
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2009 |
| 1,402,132 |
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2010 |
| 1,046,079 |
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2011 |
| 644,304 |
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Thereafter |
| 432,433 |
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Total |
| $ | 7,636,285 |
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The total rent expense for the year ended December 31, 2006, including the above leases, totaled approximately $6,347,000.
Litigation
The Company is a party to various negotiations and legal proceedings arising in the normal course of its business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial position, results of operations or liquidity.
JAMES CONSTRUCTION GROUP, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2006
Note 11 - Contract Guarantees -
The Company is generally required to furnish performance and payment surety bonds to contract owners. The bonds are secured by receivables from bonded contracts.
In the normal course of its business, the Company has also subcontracted to various specialty contractors who may or may not have obtained surety bonds. Management has adequate controls in place to monitor the pre-qualifications and performance of the subcontractors. Therefore, no accruals have been considered necessary by management for financial guarantees related to the non-bonded subcontractors.
Note 12 - Concentration of Credit Risk -
Approximately 48% of revenue earned during the year ended December 31, 2006 was derived from three customers. Accounts receivable related to these customers approximated $17,369,000 at December 31, 2006.
The Company maintains cash accounts with commercial banks, the balances of which may periodically exceed the federally insured amount of $100,000.
Note 13 - Hurricane Recovery - Concentrations -
Hurricane Katrina hit the coasts of southeast Louisiana, Mississippi and Alabama on August 29, 2005. Hurricane Rita hit the coasts of southwest Louisiana and southeast Texas on September 24, 2005. Damages due to wind and flooding were catastrophic in these areas, and the Company has performed a significant amount of work in the recovery effort. For the year ended December 31, 2006, the contract billings associated with the storms totaled approximately $67,700,000 and the related accounts and retainage receivables included on the Balance Sheet at December 31, 2006 are approximately $617,000.