EX-99.2 9 exhibit_992twl.htm SEPTEMBER 30 2009 TWL FINANCIAL STATEMENTS exhibit_992twl.htm

Exhibit 99.2

 

 

 

 
T.W. LAQUAY DREDGING INC.
 
FINANCIAL STATEMENTS
 
AND
 
SUPPLEMENTARY INFORMATION
 
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
 

 

 

 

 

 

 

 

 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
Garland R. Sandhop
 
 
Certified Public Accountant
 
 
Edna, Texas
 
 


 
 

 

TABLE OF CONTENTS
 
ACCOUNTANT'S REPORT                                                                                                                                                        PAGE
 
Standard Review Report with Supplementary Information Covered by Review                  1
 
 Procedures
 
FINANCIAL STATEMENTS
Balance Sheet                                                                                                                                                         2-3
 
Statement of Income                                                                                                                                                              4
 
Statement of Cash Flows                                                                                                                                                   5-6
 
Notes to Financial Statements                                   7-12
 
 
********
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
GARLAND R. SANDHOP
CERTIFIED PUBLIC ACCOUNTANT
MEMBER OF                                                                                                                                       (361) 782-5213
TEXAS SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS                               608 NORTH WELLS-EDNA, TEXAS 77957
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS                             FAX – (361) 782-5135
 
 

 
 

 
 

 
 

 
 

 
 

 
 
Standard Review with Supplementary
 
 
Information Covered by Review Procedures
 
 

 
 

 
 

 
 
To the Board of Directors and Stockholders
 
 
of  T.W. LaQuay Dredging, Inc.
 
 

 
We have reviewed the accompanying balance sheet of T. W. LaQuay Dredging, Inc. (a Texas S corporation), as of September 30, 2009, and the related statements of income, retained earnings and cash flows for the nine months then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of T. W. LaQuay Dredging, Inc.
 
A review consists principally of inquiries of Company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
 
Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles.
 
Our review was made for the purpose of expressing limited assurance that there are no material modifications that should be made to the financial statements in order for them to be in conformity with generally accepted accounting principles. The information included in the accompanying schedules is presented only for supplementary analysis purposes. Such information has been subjected to the inquiry and analytical procedures applied in the review of the basic financial statements, and we are not aware of any material modifications that should be made thereto.
 
 
Garland R. Sandhop
 
Certified Public Accountant
 

 
December 8, 2009
 

 
 

 





















FINANCIAL STATEMENTS

 
 

 

T.W. LAQUAY DREDGING, INC.
BALANCE SHEET
SEPTEMBER 30, 2009



ASSETS


 
Current Assets
 
         
 
Cash on hand and in banks
    2,640,976.29    
 
Certificates of deposit
    29,373.61    
 
Contracts receivables
    4,268,449.48    
 
Costs and earnings in excess of billings
    2,291,304.98    
 
Prepaid expenses
    891,886.63    
 
Advances
    11,833.24    
Total Current Assets
         
10,133,824.23


Property, Equipment & Vehicles
   
 
Land
882,172.88
 
 
Equipment
33,826,990.75
 
 
Leasehold improvements
1,128,529.33
 
 
Office furniture, fixtures & equipment
238,680.14
 
 
Vehicles
900,342.88
 
 
Accumulated depreciation
(7,581,661.25)
 
Total property, equipment & vehicles
 
29,395,054.73





Other Assets
     
 
Prepaid loan costs
35,000.00
 
 
Amortization of
Prepaid loan costs
(20,625.00)
 
       
Total other assets
   
14,375.00
TOTAL ASSETS
   
39,543,253.96









See accompanying notes and accountant’s report.

 
 

 

T.W. LAQUAY DREDGING, INC.
BALANCE SHEET
SEPTEMBER 30, 2009



 

LIABILITIES AND SHAREHOLDER’S EQUITY

Current Liabilities
     
 
Accounts Payable
1,068,880.70
 
 
Billings in excess of costs and earnings
1,084,228.09
 
 
Insurance Payable
557,107.22
 
 
Payroll liabilities
559,761.56
 
 
Sales tax payable
0.00
 
 
Interest payable
71,179.84
 
 
Notes payable-current portion
2,713,149.59
 
Total current liabilities
   
6,064,307.00

Long-term Liabilities
     
 
Notes payable-long term portion
11,989,278.85
 
 
Recent payable – shareholders
210,000.00
 
       
Total long-term liabilities
 
12,199,278.85
Total Liabilities
   
18,263,585.85

Shareholders’ Equity
     
 
Capital stock, $0.01 par value, 500,000 shares
Authorized 1,950 issued and outstanding
19.50
 
 
Paid surplus
1,848,454.48
 
 
Retained earnings
19,431,194.13
 
Total shareholders’ equity
 
21,279,668.11
Total Liabilities and Shareholders’ Equity
 
39,543,253.96













See accompanying notes and accountant’s report.

 
 

 

T.W. LAQUAY DREDGING, INC
STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009


INCOME
     
 
Completed contracts
   
 
Revenues
11,002.118.08
 
 
Costs
(3,734,840.40)
 
     
7,267,277.68

 
Contracts in progress
 
 
Revenues
18,057,571.33
 
 
Costs
(8,963,690.90)
 
     
9,093,880.4

 
     
GROSS PROFIT
   
                     16,361,158.10
OPERATING EXPENSES(Schedule)
 
                    (8,843,531.76)
NET INCOME BEFORE OTHER INCOME
 
                     7,517,626.35
       
OTHER INCOME
     
 
Grant income –TCEQ
1,540,610.36
 
 
Gain (Loss) on sale assets
0.00
 
 
Interest income
683.14
 
 
Other income
355,821.08
 
 
Other job income
432,108.08
 
TOTAL
   
2,329,222.66
       
       
NET INCOME (LOSS)
   
9,846,849.01
     
RETAINED EARNINGS, JANUARY 1,2009
 
9,584,345.12
     Distributions toShareholders
 
0.00
RETAINED EARNINGS, SEPTEMBER 30, 2009
 
19,431,194.13



 


See accompanying notes and accountant’s report.

 
 

 

T.W. LAQUAY DREDGING, INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009





CASH FLOWS FROM OPERATING ACTIVITIES
   
 
Cash received from customers
25,864,361.70
 
 
Cash paid to suppliers and employees
(21,024,764.00)
 
 
Interest paid
696,813.25
 
 
Interest income
683.14
 
 
Miscellaneous income
355,821.08
 
 
Other jobs income
432,108.08
 
 
Sale of assets
0.00
 
 
Grant income – TCEQ
1,540,610.36
 
Net cash provided (used) by operating activities
 
6,472,007.11

CASH FLOWS FROM INVESTING ACTIVITIES
   
 
Sale of assets
0.00
 
 
Purchase of capital assets
8,234,135.48
 
 
Investments
(683.14)
 
Net cash provided (used) by investing activities
 
(8,234,818.62)
     
CASH FLOWS FROM FINANCING ACTIVITIES
   
 
Borrowings
4,600,932.73
 
 
Debt reduction
(2,135,510.40)
 
 
Distributions to shareholders
               0.00
 
Net cash provided (used) by financing activities
 
2,465,422.33
       
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
702,610.82
   
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
1,938,365.4
   
CASH AND CASH EQUIVALENTS AT END OF PERIOD
2,640,976.29
See accompanying notes and accountant’s report
 
 

 










 
 
T.W. LAQUAY DREDGING, INC
 
STATEMENT OF CASH FLOWS
 
FOR THE NINE MONTHS ENDED SEPTEMBER 30,2009




 
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
 
BY OPERATING ACTIVITIES
 
 
Net income (loss)
   
9,846,849.01
Adjustments to reconcile net income to net cash provided by operating activities
 
 
Depreciation
1,381,730.57
 
 
Amortization of prepaid loan costs
1,875.00
 
 
 
(Increase) Decrease in contract receivables
3,195,327.71)
 
 
Increase) Decrease in costs and earnings in excess of billings
(1,421,684.24)
 
 
(Increase) Decrease in prepaid expenses
1,758,509.83
 
 
(Increase) Decrease in advances
0.00
 
 
Increase (Decrease) in accounts payable
(34,017.51)
 
 
Increase (Decrease) in billings in excess of costs and earnings
(448,564.95)
 
 
 
Increase (Decrease) in insurance payable
(1,701,918.20)
 
 
 
Increase (Decrease) in payroll liabilities
164,846.69
 
 
 
Increase (Decrease) in accrued interest payable
29,708.62
 
 
 
Increase (Decrease) in rent payable
90,000.00
 
TOTAL ADJUSTMENTS
 
(3,374,841.90)
NET CASH PROVIDED BY OPERATING ACTIVITIES
6,472,007.11
 


See accompanying notes and accountant’s report.




















NOTES TO FINANCIAL STATEMENTS








































 
 

 

T.W. LAQUAY DREDGING, INC.
NOTES TO FINANCIAL STATEMENTS
 
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
 

 
1.  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Business Activity:
 

 
The Corporation is engaged in marine dredging and construction. The work is performed under fixed·price contracts and unit-price contracts. The lengths of the contracts vary but are typically less than one year.
 

 
Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used.
 

 
Method of Accounting
 

 
The accrual method of accounting is used for tax reporting and for financial reporting.
 

 
Cash and Cash Equivalents:
 

 
Cash and cash equivalents consist of cash and highly liquid temporary cash investments of three months or less.
 

 
Receivables:
 

 
It is the policy of the Corporation to write off doubtful receivables directly to expense when deemed uncollectible. The effect of this method does not differ materially from generally accepted accounting principles. No receivables have been written off for the nine months ended September 30, 2009.
 

 
Property and Equipment:
 

 
Property and equipment are carried at cost. A provision for depreciation of property and equipment of $986,225.21 for the nine months ended September 30, 2009 has been computed using the straight-line method for financial reporting purposes at rates based on the following estimated useful lives:
 

 
Buildings and improvements                                                                                                31.5 Years
 
Automobiles and trucks                                                                                                  5 Years
 
Tools and equipment                                                                                            5-20 Years
   
Office equipment and furniture                                                                                                10 Years
 

 
For federal income tax purposes, depreciation is computed using the accelerated methods allowed. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for normal maintenance and repairs are charged to expense when incurred.
 

 
Use of Estimates
 

 
Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used.
 

 
Financial Instruments
 
The following methods and assumptions were used by the Corporation to estimate the fair values of financial instruments as disclosed herein:
 

 
 
T.W. LAQUAY DREDGING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,2009
 

 
Cash and equivalents: The carrying amount approximates fair value because of the short period to maturity of the instruments.
 
Short-term borrowings: The carrying amount approximates fair value since the interest rate fluctuates with the lending bank's prime rate.
 
Long-term debt: The fair value of long-term debt is estimated based on interest rates for the same or similar debt offered to the Corporation having the same or similar remaining maturities and collateral requirements.
 
Revenues and Costs Recognition:
 
The Corporation recognizes revenues for financial and tax purposes from fixed-price construction contracts on the percentage-of-completion method. Under this method, profits from construction contracts are recognized by applying percentage of completion to the total estimated profit for each respective contract. The percentage of completion is determined by the percentage of cost incurred to date to total cost for each contract. Unbilled income represents the excess of contract costs and profit recognized over billings to date on certain contracts.
 
Revenues from unit-price dredging contracts are recognized on the estimated number of units excavated. The estimated number of cubic yards excavated is determined by engineering surveys.
 
Other revenues and expenses are recorded on the accrual basis. Revenues are reported when earned and expenses are deducted when incurred.
 
2. CONCENTRATION OF CREDIT RISK
 
The Corporation has no cash deposits in financial institutions which exceed the insured amounts as of September 30, 2009. The financial institutions are participating in the FDIC's Transaction Account Guarantee Program. All non-interest-bearing transaction accounts are fully guaranteed by the FDIC. Management does not believe that receivables are concentrated so as to create a credit risk.
 

3.  CONTRACT RECEIVABLES
September 30      2009
Contract receivables consist of :
Billed:
 
  Completed contracts                                   
         1,784,784.83
  Contracts in progress                                                                                                               2,483,664.65
Total                                                                                               4,268,449.48

Unbilled:
  Completed contracts                                                                                                                         0.00
Contracts in progress                                                                                                                         0.00
Total                                                                                                             0.00

    Total Contract Receivables                                                                                            4,268,449.48

4.  PREPAID EXPENSES

Prepaid expensed consist of prepaid insurance of $891,886.63 as of September 30,2009.

 
 

 

T.W. LAQUAY DREDGING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,2009

5.  PAYROLL LIABILITIES

 
     As of September 30, 2009, the company had liabilities relating to payroll for accrued payroll and taxes for $569,761.56.

 
6.  NOTES PAYABLE

 
Notes payable at September 30, 2009 consist of the following:

 
Note to payable to NewFirst National Bank, secured by equipment, payable in
monthly installments of  $95,750.00 through July 9, 2014, with interest of 7.75%.

 
4,616,511.45
 
Note payable to NewFirst National Bank, secured by Dredges Tulsa and Linda
LaQuay, in the amount of $970,000.00 payable in monthly installments of
interest only through October 5, 2009, with payments of $14,650.00 beginning
October 5, 2009 with interest at the rate of 6.00%
   970,000.00
Note payable to NewFirst National Bank, secured by real estate, with
adjustable interest, currently 6.00% revolving credit up to $1,000,000.00.
1,000,000.00
Note payable to First National Bank, secured by certificates of deposit
held by shareholders, payable in full  on April 3, 2010, with stated interest
of 4.75%
   100,000.00
Note payable to Seaport Bank, secured by certificated of deposit held by
shareholders, payable in full on March 15, 2010, with stated interest of 3.74%.
   100,000.00
Note payable to NewFirst National Bank, secured by real estate, Baytown,
Texas with stated interest of 7.75%.  Monthly payments are $7,000.74.
   692,748.26
Note payable dated November 5, 2008 to New First National Bank secured by
Dredge Linda LaQuay, advancing line of credit up to $7,500,000.00. Current
balance is $4,050,550.00.  Payable interest only for first 12 months at variable
rate with a 6% floor and 7.5% ceiling.  Payments $89,000.00 beginning
December 5,2009.                                                                                                                     7,223,168.73

Total notes payable                                                                                              14,702,428.44
Less current portion                                                                                                2,713,149.59

Long-term debt                                                                                                       11,989,278.85

The maturity of the notes payable is as follows:

September 30,
2010           2,713,149.59
2011           1,733,797.86
2012           1,990,979.76
2014           1,937,035.00
2015 and after          4,469,592.06

14,702,428.44

7.  INTEREST EXPENSE
  Interest expense for the nine months ended September 30, 2009 as $696,813.25.

 
 

 

T.W. LAQUAY DREDGING, INC.
NOTES TO FINANCIAL STATEMENTS
 
FOR THE NINE MONTHS ENDED SEPTEMBER 30. 2009
 
8. INCOME TAXES
 
The Corporation reports its taxable income as a Subchapter S Corporation under provisions of Sections 1371 and 1372 of the Internal Revenue Code. Under this election, taxable income of the Corporation is reported on the tax returns of its shareholders. As a result, the Corporation has not provided for federal income taxes as of September 30, 2009.
 
9. TAX DISCLOSURE -PASS THROUGH ENTITIES
 
Taxable income is reported on the federal tax returns of individual owners/shareholders/members. Accordingly, no provision has been made for federal income tax in the accompanying financial statements.
 
The amount of taxable income to owners/shareholders/members at September 30, 2009 is $8,736,777.59. Subsequent to September 30, 2009, management will have to make distributions for income taxes.
 
Due to various timing differences, income is recognized in different periods for tax reporting purposes than for financial statement purposes.  The deferred taxable income and the resulting deferred taxes that would have been recognized if the company were not considered a pass through entity are comprised of the following:

Timing Differences                                                      Deferred Taxes
Contract income recognition differences:                                                      0.00                                                  0.00

Differences in deprecation methods:                                               10,448,249.19              3,552,404.72

Other timing differences:                                                                      (179,171.89)                                (60,918.44)

Totals:                                                                  10,269,077.30                3,491,486.28

10. COMMITMENTS AND CONTINGENCIES

The Corporation is currently the plaintiff in a lawsuit against Anthony Crane Rental of Texas, L.P. dba Maxim Crane Works. This lawsuit involved an accident whereby a Maxim Crane Works operator caused damage to a crane that had been rented by the Corporation. The Corporation filed a Declaratory Judgment Act seeking to establish that the rental agreement they signed did not indemnify the Defendants for the defendant's own negligence. Maxim Crane Works has countersued the Corporation for breach of contract under the lease agreement for $97,037.39 in damages plus attorney fees and court costs. The case has been on file since November 8, 2001 and very little legal work was done on the case in 2002. There was no action by either the Plaintiff or the Defendant on the lawsuit during the calendar years 2003 -2006 and the Corporation and legal counsel hope to have the case dismissed if it remains dormant. It is difficult to predict the likelihood of the outcome of this case; however, the range of potential loss would probably be in the maximum range of $150,000.00 if Maxim Crane Works were to prevail on their claim and receive their attorney fees from the Court.
 
We are not aware of any other material claims pending against the Corporation.
 
11. LEASING ARRANGEMENTS AND OTHER RELATED PARTY TRANSACTIONS
 
The following transactions occurred between the Corporation and other affiliated corporations or related parties:

 
 

 

T.W. LAQUAY DREDGING, INC.
NOTES TO FINANCIAL STATEMENTS
 
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
 
Land and buildings in Port Lavaca are leased from officers and major shareholders. The monthly rent is $10,000.00. Rents will increase to $22,000.00 per month effective October 1, 2009. Rents accrued for the nine months ended September 30,2009 were $210,000.00.
 
12. EMPLOYEE BENEFITS
 
The Corporation provides a medical insurance plan to employees through Pacific Life & Annuity. The cost of this plan for the nine months ended September 30,2009 was $205,231.51.
 
The plan summary is as follows:
 
Deductible
 
Network                                                       $500
 
Non-network                                            $1,000
 
In-Network Benefit                                          70%
 
Out of Network Benefit                                  50%
 
Maximum out of pocket
Network                                                      $3,000.00 individual
Non-network                                             $6,000.00 individual

Doctor Co-pay                                                                $25
Rx Co-pay                                                      $5 – generic / $9 brand name


13. BACKLOG
 
The following schedule summarizes changes in backlog on contracts obtained during the nine months ended September 30, 2009. Backlog represents the amount of revenue the Corporation expects to realize from work to be performed on contracts in progress at period-end and from contractual agreements on which work has not yet begun.
 
September 30,
      2009

Backlog balance at January 1                                        21,632,914.25
New contracts during the period                                  28,420,183.08
Total                                                                  50,053,097.33
Less contract revenue earned during the period                                       29,059,689.41

Backlog balance at September 30                                20,993,407.92

The Corporation entered into additional contracts of $13,612,660.00 between September 30,2009 and the date of this report.

14. SUBSEQUENT EVENTS
 
There were no subsequent events that would have a material effect on the financial statements for the nine months ended September 30, 2009.


 
 

 

T.W. LAQUAY DREDGING, INC.
NOTES TO FINANCIAL STATEMENTS
 
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
 
15. RISK MANAGEMENT
 
The Company is exposed to various risks of loss related to torts, theft, damage or destruction of assets, errors, and omissions, injuries to employees, and natural disasters. There were no significant reductions in coverage in the past year and there were no settlements exceeding coverage for each of the past three years. See subsequent events.
 
16. COMPENSATED ABSENCES
 
The Company has no liabilities for vacation days or sick days. Employees cannot accumulate days.
 
17. TCEQ -EMISSIONS REDUCTION INCENTIVE GRANT
 
The Company received a grant of $2,732,866.00 from the Texas Commission on Environmental Quality to install equipment in a dredge that would reduce emissions. The agreement was made in 2006. The Company received $1,192,255.64 in 2008. On April 28, 2009 the final payment of $1,540,610.36 was approved and has been paid. The proceeds were used to pay a note payable to NewFirst National Bank for advances used to pay for the equipment installed.