Exhibit 99.2

SHELLEY & COMPANY
Certified Public Accountants
11576 South State, Suite 1102
Draper, Utah 84020
Tel (801) 565-1547
Fax (801) 565-4709

 

To the Board of Directors and Stockholders of

Ralph L. Wadsworth Construction Company, Inc.

Draper, Utah

 

I have audited the comparative balance sheets of Ralph L. Wadsworth Construction Company, Inc. (A Utah Corporation) as of December 31, 2008 and 2007, and the comparative statements of income, retained earnings, and cash flows for the years ended December 31, 2008, 2007 and 2006. These financial statements are the responsibility of the Company’s management. My responsibility is to express an opinion on these financial statements based on my audit.

 

I conducted my audits in accordance with generally accepted auditing standards in the United States of America. Those standards require that I 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. I believe that my audits provide a reasonable basis for my opinion.

 

In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ralph L. Wadsworth Construction Company, Inc. as of December 31, 2008 and 2007, and the results of its operations and its comparative cash flows for the years ended December 31, 2008, 2007 and 2006 in conformity with generally accepted accounting principles, generally accepted in the United States of America.

 

/s/ Shelley & Company

Shelley & Company

 

Draper, Utah 84020

March 7, 2009

 

 

 

RALPH L. WADSWORTH CONSTRUCTION COMPANY, INC.

 

COMPARATIVE BALANCE SHEET

DECEMBER 31, 2008 AND 2007

 

 

The accompanying notes are an integral part of these financial statements.

 

RALPH L. WADSWORTH CONSTRUCTION COMPANY, INC.

 

COMPARATIVE STATEMENT OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006

 

 

The accompanying notes are an integral part of these financial statements.

 

RALPH L. WADSWORTH CONSTRUCTION COMPANY, INC.

 

COMPARATIVE STATEMENT OF RETAINED EARNINGS

FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006

 

 

The accompanying notes are an integral part of these financial statements.

 

RALPH L. WADSWORTH CONSTRUCTION COMPANY, INC.

 

COMPARATIVE STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2008, 2007 AND 2006

 

 

RALPH L. WADSWORTH CONSTRUCTION COMPANY, INC.

 

COMPARATIVE STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED DECEMBER 31, 2008, 2007 AND 2006

 

 

The accompanying notes are an integral part of these financial statements.

 

RALPH L. WADSWORTH CONSTRUCTION COMPANY, INC.

 

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2008

 

 

Company’s Activities and Operating Cycles

 

The Company’s expertise is in heavy highway and bridge construction for both public and private clients-throughout the intermountain west. Other areas of expertise include design-build, concrete paving, pile-driving and shoring, steel erection, commercial & industrial building construction and water tank construction. The work is performed under fixed contracts and unit price contracts modified by incentive and penalty provisions. Contract length varies from 3 to 30 months.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash on hand, cash in banks and all highly liquid investments with a maturity of three months or less at the time of purchase.

 

Marketable Securities — Held For Sale

 

All Marketable Securities are stated at market value. By policy, the Company invests primarily in high-grade marketable securities. All marketable securities are defined as trading securities . The Company used the first in, first out (FIFO) Method of determining cost for realized gains or losses. The total amount of $13,672,808 and $4,665,650 is presented as a current asset in 2008 and 2007 respectfully. The fair market value of assets is determined by outside valuation. Unrealized holding gains (loss) on securities of $(278,032) and $191,194 are shown as a separate line item of stockholders’ equity as of December 31, 2008 and 2007 respectively.

 

Fixed Assets and Depreciation

 

Fixed assets are carried at cost. Maintenance repairs and minor renewals are charged against earnings when incurred. Additions and major renewals are capitalized.

 

The cost and accumulated depreciation of assets sold or retired are removed from the respective accounts and any gain or loss is reflected in earnings.

 

The company uses straight line depreciation with the following useful lives:

 

 

Depreciation expense for the years ended December 31, 2008, 2007 and 2006 was as follows:

 

 

The Company has instigated a depreciation allocation program to allocate depreciation to various jobs based on equipment usage applied on an equipment usage rate previously. During 2008, 2007 and 2006 the Company applied $1,510,843, $978,846 and $820,637 in depreciation to jobs in progress.

 

RALPH L. WADSWORTH CONSTRUCTION COMPANY, INC.

 

NOTES TO FINANCIAL STATEMENTS — (Continued)

 

The Company instigated a maintenance allocation program to allocate maintenance and shop costs to various jobs based on fair value equipment usage. The Company applied in total $3,789,969, $3,281,705 and $3,102,765 in maintenance and depreciation to jobs in progress in 2008, 2007 and 2006.

 

Inventory

 

The Company has an inventory of construction materials. The inventory is carried at cost and consists of the following as of December 31, 2008 and 2007:

 

 

Prepaid Expenses

 

The Company has recognized as prepaid expenses the following items:

 

 

Managements Use of 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 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.

 

Warranty Costs

 

The Company has accrued a provision for estimated warranty costs for projects that specify a warranty provision in the contract. The warranty provision is based on the total estimated warranty costs specified in certain project contracts, multiplied by a warranty experienced probability rate determined by the Company’s warranty claim history. For the year ended December 31, 2008 the Company accrued $500,000 in warranty expenses to various jobs.

 

Income Taxes

 

The Company has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. The company will not incur federal or state income taxes, instead it’s earnings and losses will be included in the stockholders’ personal income tax returns and will be taxed based on the stockholders’ personal tax strategies.

 

The Company plans to pay dividends totaling $2,357,000 to stockholders in April 2009 for payment of personal income taxes arising from the Company’s 2008 income.

 

Construction Contracts

 

The Company has elected to report income from its long term construction contracts by the percentage of completion method for financial statement presentation. In management’s opinion this method fairly presents the company’s results of operations and changes in financial position. For income tax purposes the company

 

RALPH L. WADSWORTH CONSTRUCTION COMPANY, INC.

 

NOTES TO FINANCIAL STATEMENTS — (Continued)

 

has elected to also report on the percentage of completion method of accounting — See Note A — Income Taxes.

 

Earnings on long-term construction contracts are recognized on the percentage-of-completion method in the ratio that costs incurred bear to total estimated costs. Because of inherent uncertainties in estimating costs, it is at least reasonably possible that the estimates used will change within the near term. Earnings and costs on contracts are subject to revision throughout the terms of the contracts, and any required adjustments are made in the period in which revisions become known. Provisions are made for the full amounts of anticipated losses in the period in which they are first determinable. Claims for additional contract revenues are recognized to the extent of costs incurred if it is probable that the claim will result in additional revenue and the amount can be reliably estimated. Profit on such claims is not recognized until the claims have been allowed. Changes in job performance, job conditions, and estimated profitability may result in revisions to costs and income, which are recognized in the period in which the revisions are determined. Changes in estimated job profitability resulting from job performance, job conditions, contract penalty provisions, claims, change orders, and settlements, are accounted for as changes in estimates in the current period.

 

Balances billed but not paid pursuant to retainage provisions under construction contracts generally become due upon completion of the contracts and acceptance by the owners. Construction contracts are normally completed within one or two years.

 

Costs and estimated earnings in excess of billings on uncompleted contracts comprise principally revenues recognized on contracts for which billings have not been presented to the contract owners at the balance sheet date. Such revenues are expected to be billed and collected generally within one year.

 

Billings in excess of costs and estimated earnings on uncompleted contracts comprise principally revenues for which billings have been presented to contract owners for which a proportionate amount of costs have yet to be expended. Such costs are anticipated to be expended and excess billings earned within one year.

 

Un-Incorporated Joint Venture Interest

 

The Company as a 25% member/owner in an unincorporated limited liability company joint venture on the I-15 NOW Design Build project has included it’s 25% interest share of the following financial information in the financial statements for the year ended December 31, 2008, 2007 and 2006.

 

 

Compensated Absences

 

Employees of the Company are entitled to paid vacations and sick leave depending on job classification, length of service and other factors. The Company has recognized $216,705 and $208,514 as a liability for vacation and sick pay that is due and payable as of December 31, 2008 and 2007.

 

RALPH L. WADSWORTH CONSTRUCTION COMPANY, INC.

 

NOTES TO FINANCIAL STATEMENTS — (Continued)

 

401(k) Plan

 

The Company has established a 401(k) plan for employees of the corporation. The Board of Directors has elected to contribute $384,104, $333,704 and $177,725 for the periods ended December 31, 2008, 2007 and 2006.

 

Money Purchase Pension Plan

 

The Company has an approved Money Purchase Pension Plan which provides a contribution to all employees performing work on federally funded projects requiring certified payroll. Employees who are fully vested may withdraw the contribution from the plan upon termination of employment or retirement. Payments to the plan for the years ended December 31, 2008, 2007 and 2006 were $46,526, $111,388 and $119,096.

 

Dividends

 

The Board of Directors declared and paid dividends on outstanding shares of common stock at December 31, 2008 and 2007. The Company paid $10,109,111 in 2008 and $12,943,520 in 2007.

 

Impairment of Long-Lived Assets

 

In the event that facts and circumstances indicate that property and equipment or other assets may be impaired, an evaluation recoverability would be performed. If an evaluation required, the estimated future undiscounted cash flows associated with the asset are compared to the asset’s carrying amount to determine if a write-down to fair value is necessary.

 

 

The following summarizes the Company’s long-term debt at December 31, 2008 and 2007.

 

 

RALPH L. WADSWORTH CONSTRUCTION COMPANY, INC.

 

NOTES TO FINANCIAL STATEMENTS — (Continued)

 

 

The Company’s long-term maturities for the next five years are:

 

 

NOTE C  RELATED PARTY TRANSACTIONS

 

The Company rents an office building from a related party. The building is located at 166 East 14000 South #200, Draper, Utah. The rent for this location is $23,975 per month. The rate will increase 3% per year. The Company rents a shop on Dannon Way from related parties and pays $12,000 per month.

 

The future lease payments as of December 31, 2008 are as follows:

 

 

The Company entered into a service agreement with Wadsworth Development Group LLC, a Utah LLC, whose members are all related parties. The LLC is in the business of developing real property for retail, commercial, industrial and/or office uses. The Company has agreed to provide furnished office space, support staff and support equipment. All rates are based on fair market rates or actual costs. The term of the agreement is for one year beginning, January 1, 2005 with additional one year options. The options have been exercised for 2007 through 2009.

 

RALPH L. WADSWORTH CONSTRUCTION COMPANY, INC.

 

NOTES TO FINANCIAL STATEMENTS — (Continued)

 

The Company has various notes payable, as of December 31, 2008, to stockholders in the amount of $30,076 with interest at 5% per annum.

 

The Company has several contracts as of December 31, 2008 totaling $3,066,756 with backlog at $236,091 with related parties. These are handled in an arms length contract at cost and are subject to normal construction draws. Related party contracts are as follows:

 

 

 

Information with respect to contracts in process at December 31, 2008 and 2007 are as follows:

 

 

 

The following schedule summarizes changes in backlog on contracts during the years ended December 31, 2008, 2007 and 2006. Backlog represents the amount of revenue the company expects to realize from work to be performed on uncompleted contracts in progress at year end and from contractual agreements on which work has not yet begun.

 

 

RALPH L. WADSWORTH CONSTRUCTION COMPANY, INC.

 

NOTES TO FINANCIAL STATEMENTS — (Continued)

 

In addition, the Company has entered into additional contracts totaling $3,612,285 between January 1, 2009 and March 7, 2009. The Company also has an ongoing design build project estimated to be $52 million when approved.

 

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade accounts receivables. The Company places its temporary cash investments with financial institutions and limits the amount of credit exposure to any one financial institution. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company’s customer base and their dispersion across different industries and geographic areas. As of December 31, 2008 and 2007 the Company had no significant concentration of risk.

 

Concentrations of Credit Risk Arising from Cash Deposits in Excess of Insured Limits

 

The Company maintains cash balances at several financial institutions located in Utah. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000 per account. The Company also has additional accounts backed by the Full Faith & Credit of the United States Government. At December 31, 2008 and 2007, the Company’s uninsured cash balances total $11,400,408 and $21,675,408.