Exhibit 99.6
JAMES CONSTRUCTION GROUP, L.L.C.
SEPTEMBER 30, 2008
UNAUDITED INTERIM FINANCIAL STATEMENTS
CONTENTS
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Unaudited Interim Financial Statements: |
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Balance Sheet |
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Statement of Income |
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Statement of Changes in Members’ Equity |
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Statement of Cash Flows |
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Notes to Financial Statements |
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JAMES CONSTRUCTION GROUP, L.L.C.
BALANCE SHEET
AS OF SEPTEMBER 30, 2008
(Unaudited)
ASSETS
Current Assets: |
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Cash |
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| $ | 21,641,781 |
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Accounts Receivable: |
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Progress Billings |
| $ | 64,155,044 |
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Retainage |
| 4,300,246 |
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Other |
| 158,899 |
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| 68,614,189 |
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Costs and Estimated Earnings in Excess of Billings on Incomplete Contracts |
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| 4,847,156 |
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Uninstalled Contract Materials |
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| 24,540,319 |
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Prepaid Expenses |
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| 27,110 |
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Total Current Assets |
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| 119,670,555 |
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Property and Equipment: |
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Buildings, Furniture and Other |
| $ | 2,801,552 |
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Machinery and Equipment |
| 51,661,785 |
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| 54,463,337 |
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Less: Accumulated Depreciation |
| (21,328,323 | ) |
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| 33,135,014 |
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Land |
| 1,473,878 |
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| 34,608,892 |
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Other Assets Primarily Goodwill |
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| 1,938,948 |
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| $ | 156,218,395 |
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The accompanying notes are an integral part of this statement
JAMES CONSTRUCTION GROUP, L.L.C.
BALANCE SHEET
AS OF SEPTEMBER 30, 2008
(Unaudited)
LIABILITIES AND MEMBERS’ EQUITY
Current Liabilities: |
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Current Maturities of Long-Term Debt |
| $ | 3,031,000 |
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Accounts Payable - Trade |
| 31,859,458 |
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Billings in Excess of Costs and Estimated Earnings on Incomplete Contracts |
| 43,152,788 |
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Accrued Liabilities |
| 18,757,131 |
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Total Current Liabilities |
| 96,800,377 |
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Deferred Compensation - Long Term Portion |
| $ | 3,430,239 |
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Long-Term Debt |
| 6,804,049 |
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Total Liabilities |
| 107,034,665 |
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Members’ Equity |
| 49,183,730 |
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| $ | 156,218,395 |
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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 NINE MONTHS ENDED SEPTEMBER 30, 2008
(Unaudited)
Contract Revenues Earned |
| $ | 295,248,552 |
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Cost of Revenues Earned |
| 262,089,973 |
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Gross Profit |
| 33,158,579 |
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General and Administrative Expenses |
| 10,942,500 |
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Operating Profit |
| 22,216,079 |
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Other Income (Expense): |
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Other Income/(Expense) |
| 499,120 |
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Gain on Disposals of Property and Equipment |
| 1,008,940 |
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Net Income |
| $ | 23,724,139 |
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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 NINE MONTHS ENDED SEPTEMBER 30, 2008
(Unaudited)
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Balance at January 1, 2008 |
| $ | 39,417,723 |
| $ | (3,318,447 | ) | $ | 36,099,276 |
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Net Income |
| 23,724,139 |
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| 23,724,139 |
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Cash Reciepts (Disbursements) - Members |
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| — |
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Distributions to Members |
| (10,639,685 | ) | — |
| (10,639,685 | ) | |||
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Balance at September 30, 2009 |
| $ | 52,502,177 |
| $ | (3,318,447 | ) | $ | 49,183,730 |
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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 NINE MONTHS ENDED SEPTEMBER 30, 2008
(Unaudited)
Cash Flows From Operating Activities: |
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Net Income |
| $ | 23,724,139 |
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Adjustments to Reconcile Net Income to Net Cash |
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Provided by Operating Activities: |
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Depreciation/Amortization |
| 4,465,954 |
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Gain on Disposals of Property and Equipment |
| (1,008,940 | ) | |
Changes in Assets and Liabilities: |
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Increase in Accounts Receivable |
| (8,831,535 | ) | |
Increase in Uninstalled Contract Materials |
| (18,279,610 | ) | |
Decrease in Costs and Estimated Earnings in Excess of Billings on Incomplete Contracts |
| 263,309 |
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Increase in Accounts Payable and Accrued Liabilities |
| 6,843,516 |
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Decrease in Billings in Excess of Costs and Estimated Earnings on Incomplete Contracts |
| 17,257,176 |
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Increase in Accrued Liabilities |
| — |
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Increase in Deferred Compensation Payable |
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Net Cash Provided by Operating Activities |
| 24,434,009 |
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Cash Flows From Investing Activities: |
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Purchases of Property and Equipment |
| (6,287,918 | ) | |
Proceeds from Sales of Property and Equipment |
| 1,937,631 |
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Net Cash Used in Investing Activities |
| (4,350,287 | ) | |
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Cash Flows From Financing Activities: |
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Proceeds/(payments) on line of credit |
| (10,000,000 | ) | |
Proceeds from equipment obligations |
| 4,093,263 |
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Net Payments on equipment obligations |
| (2,086,232 | ) | |
Distributions to Members |
| (10,639,685 | ) | |
Net Cash Used in Financing Activities |
| (18,632,654 | ) | |
Net Increase in Cash |
| 1,451,068 |
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Cash - Beginning of Year |
| 20,190,713 |
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Cash - End of Year |
| $ | 21,641,781 |
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The accompanying notes are an integral part of this statement
JAMES CONSTRUCTION GROUP, L.L.C.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
(Unaudited)
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. 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
SEPTEMBER 30, 2008
(Unaudited)
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.
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
SEPTEMBER 30, 2008
(Unaudited)
Income Taxes
Effective January 1, 2006, the Company 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 $2,500,000 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. As of September 30, 2008, the “mandatory tax distributions” and “mandatory debt distributions” totaled $8,139,685 and $2,500,000, 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 September 30, 2008, is as follows:
Costs on Contracts in Progress |
| $ | 589,222,570 |
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Earnings to Date on Contracts in Progress |
| 42,051,985 |
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| 631,274,555 |
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Less: Related Billings |
| (669,580,187 | ) | |
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| $ | (38,305,632 | ) |
The following amounts are included in the accompanying Balance Sheet under the captions:
Costs and Estimated Earnings in Excess of Billings on Incomplete Contracts |
| $ | 4,847,156 |
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Billings in Excess of Costs and Estimated Earnings on Incomplete Contracts |
| (43,152,788 | ) | |
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| $ | (38,305,632 | ) |
The backlog for construction contracts in progress was $489,065,000 as of September 30, 2008.
JAMES CONSTRUCTION GROUP, L.L.C.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
(Unaudited)
Note 3 - 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 September 30, 2008 totaled $7,486,525. As of September 30, 2008, the outstanding balance under the revolving credit agreement for the Company and AICC totaled $0 and $0, respectively.
Note 4 - Long-Term Debt -
Long-term debt at September 30, 2008 consists of the following:
Equipment financing arrangements with various balloon payments and monthly installments ranging from $2,092 to $41,895 including interest at rates between 0% and 7.34%, due from October 2009 through 2013. Each agreement is collateralized by equipment. The aggregate cost of collateralized equipment is approximately $15,107,000. |
| $ | 9,835,049 |
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| $ | 9,835,049 |
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Less current portion |
| 3,031,000 |
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Long-term portion |
| $ | 6,804,049 |
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The aggregate maturities of principal payments on the long-term portion of debt are as follows for the periods as follows:
October 1, 2009 to December 31, 2009 |
| $ | 952,082 |
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Year ended December 31, 2010 |
| 2,837,253 |
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Year ended December 31, 2011 |
| 1,456,907 |
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Year ended December 31, 2012 |
| 988,890 |
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Year ended December 31, 2013 |
| 568,919 |
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| $ | 6,804,049 |
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JAMES CONSTRUCTION GROUP, L.L.C.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
(Unaudited)
Note 5 - 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 September 30, 2008 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 9 - Membership Repurchase Requirement, for a further discussion of these provisions.
Note 6 - Employee Benefit Plan -
The Company has a profit-sharing plan with a 401(k) provision for eligible employees. The Company, at its discretion, may match a portion of employee contributions. The plan also has a profit sharing provision for additional contributions allowed to be made by the Company at its discretion. Profit sharing and 401(k) expense for the nine months ended September 30, 2008 was approximately $746,000.
Note 7 - Deferred Compensation Payable -
The Company has deferred compensation plans in place as of September 30, 2008. The current and long-term deferred compensation payable as of September 30, 2008 totaled $396,461 (included in Accrued Liabilities) and $3,430,239, respectively.
Note 8 - Related Party Transactions -
During the nine months ended September 30, 2008, the Company received payments of approximately $117,000 for administrative services provided by the Company to AICC.
JAMES CONSTRUCTION GROUP, L.L.C.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
(Unaudited)
Note 9 - Commitments and Contingencies -
Membership Repurchase Requirement
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.
Self-Insurance
The Company is self-insured for general liability and has large deductible plans for workers’ compensation and automobile liability claims. The Company accrued the estimated liability for claims through September 30, 2008, including provisions for 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, 2008 through March 31, 2009 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 $8,700,000 per contract arrangement with the insurance company for the policy year.
Letters of credit totaling $6,931,525 have been provided in connection with the self-insurance program.
JAMES CONSTRUCTION GROUP, L.L.C.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
(Unaudited)
Operating Leases and Rent Expense
The Company leases office facilities and equipment under operating leases which expire at various dates through 2013. The long-term lease commitments are as follows:
October 1, 2008 to December 31, 2008 |
| $ | 1,324,072 |
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Year ended December 31, 2009 |
| 3,749,140 |
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Year ended December 31, 2010 |
| 3,264,557 |
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Year ended December 31, 2011 |
| 2,263,638 |
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Year ended December 31, 2012 and Thereafter |
| 1,179,335 |
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| $ | 11,780,742 |
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The total rent expense for the nine months ended September 30, 2008, including the above leases, totaled approximately $17,371,000.
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.
Note 10 - 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 11 - Concentration of Credit Risk -
Approximately 53% of revenue earned during the nine months ended September 30, 2008 was derived from two customers. Accounts receivable related to these customers approximated $32,414,000 at September 30, 2008.
The Company maintains cash accounts with commercial banks, the balances of which may periodically exceed the federally insured limits.