Exhibit 99.4
STX FREIGHT COMPANY
CONROE, TEXAS
FINANCIAL STATEMENTS
AND SUPPLEMENTARY INFORMATION
YEARS ENDED
DECEMBER 31, 2012, 2011 AND 2010
STX FREIGHT COMPANY
TABLE OF CONTENTS
DECEMBER 31, 2012, 2011 AND 2010
| | Page |
| | |
INDEPENDENT AUDITORS’ REPORT | | 1 |
FINANCIAL STATEMENTS | | 3 |
Balance Sheets | | 4 |
Statements of Income | | 5 |
Statements of Changes in Stockholders’ Equity | | 6 |
Statements of Cash Flows | | 7 |
Notes to Financial Statements | | 8 |
SUPPLEMENTARY INFORMATION | | 11 |
Supporting Schedules of General and Administrative Expenses | | 13 |
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HLSK
Hereford, Lynch, Sellars & Kirkham
Certified Public Accountants · A Professional Corporation
Conroe
1406 Wilson Rd., Suite 100
Conroe, Texas 77304
Tel 936-756-8127
Metro 936-441-1338
Fax 936-756-8132 | Members of the
American Institute of Certified Public Accountants
Texas Society of Certified Public Accounts
Private Companies Practice Section
of the AICPA Division for Firms
| Cleveland
111 East Boothe
Cleveland, Texas 77327
Tel 281-592-6443
Fax 281-592-7706 |
INDEPENDENT AUDITORS’ REPORT
To the Stockholders of
STX Freight Company
9733 Meador Road
Conroe, TX 77303
We have audited the accompanying financial statements of STX Freight Company (a Texas S Corporation) which comprise the balance sheets as of December 31, 2012, 2011 and 2010, and the related statements of income, changes in stockholder’s equity, and cash flows for the years then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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 from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of STX Freight Company as of December 31, 2012, 2011 and 2010 and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
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Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The Supporting Schedules of General and Administrative Expenses are presented for purposes of additional analysis and are not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audits of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as whole.
Hereford, Lynch, Sellars & Kirkham, P.C.
HEREFORD, LYNCH, SELLARS & KIRKHAM, P.C.
Certified Public Accountants
Conroe, Texas
November 15, 2013
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STX FREIGHT COMPANY
CONROE, TEXAS
BALANCE SHEETS
DECEMBER 31, 2012, 2011 AND 2010
| | 2012 | | 2011 | | 2010 | |
ASSETS | | | | | | | |
Current Assets | | | | | | | |
Cash | | $ | 281,729 | | $ | 350,196 | | $ | 265,978 | |
Accounts Receivable | | 35,330 | | 45,649 | | 58,282 | |
Prepaid Insurance | | 157,975 | | 132,741 | | 141,436 | |
Total Current Assets | | 475,034 | | 528,586 | | 465,696 | |
TOTAL ASSETS | | $ | 475,034 | | $ | 528,586 | | $ | 465,696 | |
LIABILITIES AND STOCKHOLDERS EQUITY | | | | | | | |
Current Liabilities | | | | | | | |
Accounts Payable | | $ | — | | $ | 9,906 | | $ | — | |
Note Payable-Insurance | | 116,915 | | 98,439 | | 125,466 | |
Total Current Liabilities | | 116,915 | | 108,345 | | 125,466 | |
TOTAL LIABILITIES | | 116,915 | | 108,345 | | 125,466 | |
STOCKHOLDERS’ EQUITY | | | | | | | |
Common stock, no par value 1,000,000 shares authorized; 9,000 shares issued; 9,000 outstanding | | 43,000 | | 43,000 | | 43,000 | |
Retained earnings | | 315,119 | | 377,241 | | 297,230 | |
Total Stockholders’ Equity | | 358,119 | | 420,241 | | 340,230 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 475,034 | | $ | 528,586 | | $ | 465,696 | |
The accompanying notes are an integral part of these financial statements.
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STX FREIGHT COMPANY
CONROE, TEXAS
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
| | 2012 | | 2011 | | 2010 | |
NET SALES | | $ | 7,440,937 | | $ | 6,194,350 | | $ | 5,226,223 | |
COST OF SALES | | | | | | | |
Equipment Rental | | 967,492 | | 749,833 | | 822,994 | |
Fuel | | 1,327,582 | | 965,288 | | 626,009 | |
Insurance | | 277,097 | | 207,370 | | 249,144 | |
Labor | | 1,801,251 | | 1,316,124 | | 1,025,868 | |
Maintenance and Repairs | | 917,621 | | 610,408 | | 626,447 | |
| | 5,291,043 | | 3,849,023 | | 3,350,462 | |
GROSS PROFIT | | 2,149,894 | | 2,345,327 | | 1,875,761 | |
GENERAL AND ADMINISTRATIVE EXPENSES | | 196,925 | | 121,753 | | 111,561 | |
OPERATING INCOME | | 1,952,969 | | 2,223,574 | | 1,764,200 | |
OTHER INCOME (EXPENSE) | | | | | | | |
Miscellaneous income | | 609 | | 1,706 | | 423 | |
Total Other Income (Expense) | | 609 | | 1,706 | | 423 | |
INCOME BEFORE INCOME TAXES | | 1,953,578 | | 2,225,280 | | 1,764,623 | |
PROVISION FOR INCOME TAXES | | 35,700 | | 30,269 | | 25,858 | |
NET INCOME | | $ | 1,917,878 | | $ | 2,195,011 | | $ | 1,738,765 | |
The accompanying notes are an integral part of these financial statements.
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STX FREIGHT COMPANY
CONROE, TEXAS
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
| | COMMON
STOCK | | RETAINED
EARNINGS | | TOTAL
STOCKHOLDERS’
EQUITY | |
BALANCE AS OF DECEMBER 31, 2009 | | $ | 8,000 | | $ | 110,965 | | $ | 118,965 | |
Stock Issued | | 35,000 | | — | | 35,000 | |
Distributions | | — | | (1,552,500 | ) | (1,552,500 | ) |
Net income | | — | | 1,738,765 | | 1,738,765 | |
BALANCE AS OF DECEMBER 31, 2010 | | 43,000 | | 297,230 | | 340,230 | |
Distributions | | — | | (2,115,000 | ) | (2,115,000 | ) |
Net income | | — | | 2,195,011 | | 2,195,011 | |
BALANCE AS OF DECEMBER 31, 2011 | | 43,000 | | 377,241 | | 420,241 | |
Distributions | | — | | (1,980,000 | ) | (1,980,000 | ) |
Net income | | — | | 1,917,878 | | 1,917,878 | |
BALANCE AS OF DECEMBER 31, 2012 | | $ | 43,000 | | $ | 315,119 | | $ | 358,119 | |
The accompanying notes are an integral part of these financial statements.
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STX FREIGHT COMPANY
CONROE, TEXAS
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
| | 2012 | | 2011 | | 2010 | |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | |
Cash received from customers | | $ | 7,451,865 | | $ | 6,208,689 | | $ | 5,228,723 | |
Cash paid to suppliers and employees | | (5,504,632 | ) | (3,979,202 | ) | (3,452,637 | ) |
State income taxes paid | | (35,700 | ) | (30,269 | ) | (25,858 | ) |
Net cash provided (used) by operating activities | | 1,911,533 | | 2,199,218 | | 1,750,228 | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | |
Stock issued | | — | | — | | 35,000 | |
Distributions paid | | (1,980,000 | ) | (2,115,000 | ) | (1,552,500 | ) |
Net cash provided (used) by financing activities | | (1,980,000 | ) | (2,115,000 | ) | (1,517,500 | ) |
Net increase (decrease) in cash | | (68,467 | ) | 84,218 | | 232,728 | |
Cash at beginning of year | | 350,196 | | 265,978 | | 33,250 | |
Cash at end of year | | $ | 281,729 | | $ | 350,196 | | $ | 265,978 | |
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: | | | | | | | |
Net income | | $ | 1,917,878 | | $ | 2,195,011 | | $ | 1,738,765 | |
(Increase) Decrease in: | | | | | | | |
Accounts receivable | | 10,319 | | 12,633 | | 2,077 | |
Prepaid Insurance | | (25,234 | ) | 8,695 | | (43,484 | ) |
Increase (Decrease) in: | | | | | | | |
Accounts payable | | (9,906 | ) | 9,906 | | — | |
Notes Payable-Insurance | | 18,476 | | (27,027 | ) | 52,870 | |
Net cash provided (used) by operating activities | | $ | 1,911,533 | | $ | 2,199,218 | | $ | 1,750,228 | |
The accompanying notes are an integral part of these financial statements.
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STX FREIGHT COMPANY
CONROE, TEXAS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Activities
STX Freight Company was organized in the State of Texas on February 4, 1994, and is engaged in providing private carrier freight services for Chemical Specialists and Development, Inc. (CSD, Inc.) and common carrier freight services to serve as a carrier for-hire to handle backhaul loads for CSD, Inc. customers. CSD, Inc. provides the work force for the Company and is reimbursed by the Company for all wages and benefits.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the date of acquisition to be “cash equivalents.”
Accounts Receivable
The Company generally charges off any account deemed to be uncollectible. In the opinion of management, there is no need for a reserve for uncollectible accounts. This is based on the Company’s experience with its customers. Accounts receivable are stated at their net realizable value, which approximates their fair value.
Property and Equipment
The Company does not own any property or equipment. All equipment is leased.
Income Taxes
The Company, with the consent of its stockholders, has elected under the Internal Revenue Code to be an S corporation. The stockholders of an S corporation are taxed individually on their proportionate share of the Company’s taxable income. Therefore, no provision or liability for federal income taxes has been included in these financial statements. The Company accounts for Texas Franchise Tax in accordance with FASB ASC 740, Income Taxes, as the tax is derived from a taxable base that consists of income less deductible expenses.
Uncertain Tax Provisions
Management has determined that the Company does not have any uncertain tax positions and associated unrecognized benefits or liabilities that materially impact the financial statements or related disclosures. Since tax matters are subject to some degree of uncertainty, there can be no assurance that the Company’s tax returns will not be challenged by the taxing authorities and that the Company or its stockholders will not be subject to additional tax, penalties, and interest as a result of such challenge. Generally, the Company’s tax returns remain open for three years for federal and state income tax examination.
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STX FREIGHT COMPANY
CONROE, TEXAS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010
NOTE 2 - CASH
The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
The company leases all of its equipment under operating leases. Trucks, tractors, and trailers are leased from various sources with terms ranging from thirty (30) days to seventy-two (72) months. Equipment rental expenses for the years ended December 31, 2012, 2011 and 2010 were $967,492, $749,833 and $822,994 respectively. See Note 4 for further information on leases with related parties.
The following is a schedule by years of future minimum rental payments under non-related party leases at December 31, 2012:
Year Ending
December 31 | | | |
2013 | | $ | 182,357 | |
2014 | | 182,357 | |
2015 | | 182,357 | |
2016 | | 182,357 | |
2017 | | 140,007 | |
2018 and later | | 39,713 | |
Total | | $ | 909,148 | |
NOTE 4 - RELATED PARTY TRANSACTIONS
A reciprocal agreement exists between CSD, Inc. and the Company. CSD, Inc. provides administrative support services to the Company on the business premises of CSD, Inc. and the Company provides CSD, Inc. with all of its shipping and freight forwarding services. During the term of the agreement, CSD, Inc. agrees to furnish at its sole cost and without reimbursement from the Company, the cost of all facilities, utilities and insurance for all personal property. The Company reimburses CSD, Inc. for all payroll and benefit expenses. A majority of the stockholders of the Company are stockholders of CSD, Inc. The following table illustrates the amounts transacted with CSD, Inc.
| | 2012 | | 2011 | | 2010 | |
Sales to CSD, Inc. | | $ | 6,563,831 | | $ | 5,284,897 | | $ | 4,402,743 | |
Amounts remitted to CSD, Inc. included in Cost of Sales | | $ | 1,801,251 | | $ | 1,316,124 | | $ | 1,025,868 | |
Amounts remitted to CSD, Inc. included in General and Administrative expenses | | $ | 90,896 | | $ | 49,783 | | $ | 55,568 | |
The Company leases trucks, tractors, and trailers from a company owned by a shareholder of the Company. The terms of these leases have been significantly affected by the fact that the lessee (the Company) and the lessor are related. Therefore, the classifications and accounting for these related party leases have been treated as operating leases. The following is a schedule by years of future minimum rental payments under the related party leases at December 31, 2012:
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STX FREIGHT COMPANY
CONROE, TEXAS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010
Year Ending
December 31 | | | |
2013 | | $ | 708,200 | |
2014 | | 667,800 | |
2015 | | 501,300 | |
2016 | | 342,625 | |
2017 | | 187,600 | |
2018 and later | | 89,100 | |
Total | | $ | 2,496,625 | |
The Consolidation Topic of the FASB Accounting Standards Codification requires nonpublic companies with a variable interest in a variable interest entity (VIE) to make certain disclosures and/or consolidate the VIE into its financial statements. The Company has evaluated its relationship with CSD, Inc. and has determined that the entity does not meet the criteria to be considered a VIE; therefore, the application of this interpretation is not applicable to the Company for the years ended December 31, 2012, 2011 and 2010.
NOTE 5 - MAJOR CUSTOMERS
CSD, Inc. is a major customer for the Company. Annual sales to CSD, Inc. for the years ended December 31, 2012, 2011 and 2010 represented eighty-eight percent (88%), eighty-five (85%), and eighty-four percent (84%), respectively, of total sales.
NOTE 6 - FEDERAL AND STATE INCOME TAXES
The Company files income tax returns in the U.S. federal jurisdiction and the State of Texas jurisdiction. Components of income tax provision for the years ended December 31 are as follows:
| | Year Ended
2012 | | Year Ended
2011 | | Year Ended
2010 | |
Current: | | | | | | | |
State | | $ | 35,900 | | $ | 30,269 | | $ | 25,858 | |
Deferred: | | | | | | | |
State | | — | | — | | — | |
Income Tax Provision | | $ | 35,900 | | $ | 30,269 | | $ | 25,858 | |
NOTE 7 - SUBSEQUENT EVENTS
The Company, along with CSD, Inc., is part of a planned business acquisition by Nexeo Solutions. Nexeo Solutions has planned to complete the transaction on December 2, 2013. As of the closing date, CSD, Inc. will enter into a revised equipment lease acceptable to Nexeo and the various rental trucking equipment suppliers discussed in Note 3.
Events occurring after December 31, 2012 have been evaluated through November 15, 2013, the date when these financial statements were available to be issued.
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SUPPLEMENTARY INFORMATION
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STX FREIGHT COMPANY
CONROE, TEXAS
SUPPORTING SCHEDULES
OF GENERAL AND ADMINISTRATIVE EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
| | 2012 | | 2011 | | 2010 | |
OPERATING EXPENSES | | | | | | | |
Clerical Salaries | | $ | 90,896 | | $ | 49,783 | | $ | 55,568 | |
Education and Training | | 1,985 | | 292 | | — | |
License and Permits | | 22,957 | | 15,031 | | 19,180 | |
Interest and Service Charges | | 10,620 | | 4,032 | | 991 | |
Legal and Professional | | — | | 1,285 | | 1,120 | |
Office Supplies | | 2,884 | | 814 | | 4,253 | |
Taxes-Other | | 18,978 | | 17,986 | | 2,384 | |
Travel | | 48,605 | | 32,530 | | 28,065 | |
| | $ | 196,925 | | $ | 121,753 | | $ | 111,561 | |
See notes to financial statements.
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