Exhibit 99.1
BUSINESS ACQUISITION REPORT
Item 1 Identity of Company
Item 1.1 Name and Address of Company
Vitran Corporation Inc.
185 The West Mall, Suite 701
Toronto, Ontario
M9C 5L5
185 The West Mall, Suite 701
Toronto, Ontario
M9C 5L5
Item 1.2 Executive Officer
Sean P. Washchuk, Vice President Finance and Chief Financial Officer, 416-596-7664
Items 2 Details of Acquisition
Item 2.1 Nature of Business Acquired
Vitran Corporation Inc. (“Vitran”), through its wholly-owned subsidiary Vitran Corporation acquired all of the common shares of PJAX, Inc. and all the real estate held by Woodhurst Realty LLC and Northridge Enterprises LP ., collectively operating as PJAX Freight System (“PJAX”). Prior to the acquisition by Vitran, PJAX was a privately held Pennsylvania-based regional less-than-truckload freight carrier, providing coverage to the Mid-Atlantic United States.
Item 2.2 Date of Acquisition
October 2, 2006
Item 2.3 Consideration
The purchase consideration of PJAX was USD$138.7 million (including transaction costs), comprised of USD$80.0 million of cash, common shares of Vitran valued at USD$12.8 million (676,923 common shares valued at USD$18.90 per share), hold-backs of USD$11.7 million payable over the next year and assumed debt of approximately USD$27.1 million. Transaction costs amounted to approximately USD$1.6 million. Approximately USD$5.5 million of additional consideration is payable upon a joint election to structure the transaction as an asset sale for tax purposes. The cash portion of the transaction was financed from debt facilities and existing cash on hand.
Item 2.4 Effect on Financial Position
The acquisition of PJAX provides Vitran with new coverage into the Eastern United States, and will allow Vitran to leverage its existing customer base into this new region.
There are no plans or proposals for material changes in the business affairs of PJAX which may have a significant effect on the consolidated results of operations and financial position of Vitran including PJAX.
Item 2.5 Prior Valuations
None
Item 2.6 Parties to Transaction
Not applicable
Item 2.7 Date of Report
DATED this 8th day of December, 2006
Vitran Corporation Inc. | ||||||
By: | /s/ SEAN P. WASHCHUK | |||||
Sean P. Washchuk | ||||||
Vice President Finance and | ||||||
Chief Financial Officer |
Item 3 Financial Statements
The following financial statements are included as part of this Business Acquisition Report;
(a) | Audit report and financial statements of PJAX, Inc. and Related Companies for the year ended December 31, 2005 including the reconciliation of differences between United States and Canadian Generally Accepted Accounting Principles; |
(b) | Unaudited interim financial statements of PJAX, Inc. and Related Companies for the nine month period ended September 30, 2006 including the reconciliation of differences between United States and Canadian Generally Accepted Accounting Principles; and |
(c) | Unaudited pro forma consolidated balance sheet at September 30, 2006 of Vitran and the unaudited pro forma consolidated statements of operations for the nine months ended September 30, 2006 and year ended December 31, 2005 including the reconciliation of differences between United States and Canadian Generally Accepted Accounting Principles. |
Combined Financial Statements
(In U.S. dollars)
(In U.S. dollars)
PJAX, INC. AND RELATED COMPANIES
As of and for the Years Ended December 31, 2005 and 2004,
and Independent Auditors’ Report
and Independent Auditors’ Report
INDEPENDENT AUDITORS’ REPORT
To the Stockholders and Partners of PJAX, Inc., Northridge Enterprises, LP and Woodhurst Realty, LLC: We have audited the accompanying combined balance sheets of PJAX, Inc. and related companies (collectively, the “Company”) as of December 31, 2005 and 2004, and the related combined statements of earnings, stockholders’ equity and partners’ capital, and of cash flows for the years then ended. The combined financial statements include the accounts of PJAX, Inc., Northridge Enterprises, LP, and Woodhurst Realty, LLC. These companies are under common ownership and management. 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 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 of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the combined financial position of PJAX, Inc. and related companies as of December 31, 2005 and 2004, and the combined results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
March 17, 2006 (April 18, 2006 as to Note 3, October 2, 2006 as to Note 6, and November 7, 2006 as to Note 7)
PJAX, INC. AND RELATED COMPANIES
COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 2005 AND 2004
AS OF DECEMBER 31, 2005 AND 2004
2005 | 2004 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash | $ | 1,072,466 | $ | 350,533 | ||||
Accounts receivable—trade (no allowance for doubtful accounts deemed necessary) | 20,216,933 | 20,281,050 | ||||||
Prepaid expenses and other current assets | 3,534,606 | 3,018,581 | ||||||
Total current assets | 24,824,005 | 23,650,164 | ||||||
PROPERTY AND EQUIPMENT—At cost: | ||||||||
Land | 4,890,601 | 4,300,292 | ||||||
Buildings | 12,228,882 | 10,122,152 | ||||||
Parking lots and land improvements | 8,483,785 | 7,826,195 | ||||||
Tractors, straight trucks, and trailers | 48,554,833 | 37,842,777 | ||||||
Automobiles | 647,170 | 578,774 | ||||||
Furniture and office equipment | 3,812,048 | 3,269,095 | ||||||
Shop and garage equipment | 3,794,620 | 3,356,700 | ||||||
Building and land improvements | 1,728,683 | 1,546,459 | ||||||
84,140,622 | 68,842,444 | |||||||
Less accumulated depreciation | 30,429,369 | 23,370,770 | ||||||
Total property and equipment—Net | 53,711,253 | 45,471,674 | ||||||
OTHER ASSETS | 102,908 | 127,619 | ||||||
TOTAL | $ | 78,638,166 | $ | 69,249,457 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY AND PARTNERS’ CAPITAL | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable—trade | $ | 7,185,541 | $ | 7,097,883 | ||||
Accrued salaries, wages, and payroll taxes | 3,707,726 | 2,313,208 | ||||||
Accrued profit sharing | 1,000,000 | 800,000 | ||||||
Other current liabilities | 1,868,084 | 3,606,557 | ||||||
Current maturities of long-term debt | 8,918,162 | 7,356,921 | ||||||
Total current liabilities | 22,679,513 | 21,174,569 | ||||||
LONG-TERM DEBT—Less current maturities | 29,080,000 | 25,515,918 | ||||||
STOCKHOLDERS’ EQUITY AND PARTNERS’ CAPITAL—PJAX, Inc.: | ||||||||
Common stock, $1 par value; authorized, 100,000 shares; issued and outstanding, 9,488 shares in 2005 and 2004 | 9,488 | 9,488 | ||||||
Additional paid-in capital | 30,512 | 30,512 | ||||||
Partners’ capital | 6,250,657 | 5,498,000 | ||||||
Advance to stockholders | (392,330 | ) | (445,947 | ) | ||||
Retained earnings | 20,980,326 | 17,466,917 | ||||||
Total stockholders’ equity and partners’ capital | 26,878,653 | 22,558,970 | ||||||
TOTAL | $ | 78,638,166 | $ | 69,249,457 | ||||
See notes to combined financial statements.
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PJAX, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
2005 | 2004 | |||||||
REVENUE | $ | 164,222,154 | $ | 149,982,473 | ||||
OPERATING EXPENSES: | ||||||||
Salaries and wages | 65,607,244 | 62,708,788 | ||||||
Operating supplies and expenses | 39,990,745 | 33,005,730 | ||||||
Employee benefits | 9,888,478 | 10,258,112 | ||||||
Payroll taxes | 6,668,378 | 6,259,418 | ||||||
Insurance | 4,912,507 | 4,223,560 | ||||||
Operating taxes and licenses | 1,458,773 | 1,336,564 | ||||||
Terminal rent | 1,077,326 | 1,461,207 | ||||||
Depreciation and amortization | 7,849,319 | 6,656,977 | ||||||
Total operating expenses | 137,452,770 | 125,910,356 | ||||||
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES | 17,573,550 | 15,937,032 | ||||||
GAIN ON SALE OF PROPERTY AND EQUIPMENT | 242,402 | 671,711 | ||||||
EARNINGS FROM OPERATIONS | 9,438,236 | 8,806,796 | ||||||
INTEREST EXPENSE | (1,761,031 | ) | (1,470,650 | ) | ||||
NET EARNINGS | $ | 7,677,205 | $ | 7,336,146 | ||||
See notes to combined financial statements.
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PJAX, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS’ EQUITY AND PARTNERS’ CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
Common | Additional | Advances | ||||||||||||||||||||||
Stock | Paid-In | Partners’ | to | Retained | ||||||||||||||||||||
PJAX, Inc. | Capital | Capital | Stockholders | Earnings | Total | |||||||||||||||||||
BALANCE—December 31, 2003 | $ | 9,488 | $ | 30,512 | $ | 4,096,907 | $ | (495,456 | ) | $ | 12,518,354 | $ | 16,159,805 | |||||||||||
Distributions to stockholders | (936,981 | ) | (936,981 | ) | ||||||||||||||||||||
Stockholder repayments | 49,509 | 49,509 | ||||||||||||||||||||||
Partners’ capital distributions | (49,509 | ) | (49,509 | ) | ||||||||||||||||||||
Net earnings | 1,450,602 | 5,885,544 | 7,336,146 | |||||||||||||||||||||
BALANCE—December 31, 2004 | 9,488 | 30,512 | 5,498,000 | (445,947 | ) | 17,466,917 | 22,558,970 | |||||||||||||||||
Distributions to stockholders | (3,039,177 | ) | (3,039,177 | ) | ||||||||||||||||||||
Stockholder repayments | 53,617 | 53,617 | ||||||||||||||||||||||
Partners’ capital distributions | (371,962 | ) | (371,962 | ) | ||||||||||||||||||||
Net earnings | 1,124,619 | 6,552,586 | 7,677,205 | |||||||||||||||||||||
BALANCE—December 31, 2005 | $ | 9,488 | $ | 30,512 | $ | 6,250,657 | $ | (392,330 | ) | $ | 20,980,326 | $ | 26,878,653 | |||||||||||
See notes to combined financial statements.
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PJAX, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
2005 | 2004 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net earnings | $ | 7,677,205 | $ | 7,336,146 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 7,849,319 | 6,656,977 | ||||||
Gain on sale of property and equipment | (242,402 | ) | (671,711 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable—trade | 64,117 | (2,810,947 | ) | |||||
Prepaid expenses and other current assets | (516,026 | ) | (1,695,657 | ) | ||||
Other assets | (8,085 | ) | (35,174 | ) | ||||
Accounts payable—trade | 87,659 | 1,586,278 | ||||||
Accrued salaries, wages, payroll taxes, and profit sharing | 1,594,518 | (463,013 | ) | |||||
Other current liabilities | (1,738,473 | ) | (131,421 | ) | ||||
Net cash provided by operating activities | 14,767,832 | 9,771,478 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Capital expenditures | (4,557,172 | ) | (8,723,388 | ) | ||||
Proceeds from sale of equipment | 489,204 | 1,629,150 | ||||||
Net cash used in investing activities | (4,067,968 | ) | (7,094,238 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from long-term borrowings | 1,785,000 | 7,660,000 | ||||||
Principal payments on long-term debt | (8,405,409 | ) | (7,647,958 | ) | ||||
Net repayments under line of credit—bank | (1,930,000 | ) | ||||||
Distributions to stockholders | (3,039,177 | ) | (936,981 | ) | ||||
Stockholder repayments | 53,617 | 49,509 | ||||||
Partners’ capital distributions | (371,962 | ) | (49,509 | ) | ||||
Net cash used in financing activities | (9,977,931 | ) | (2,854,939 | ) | ||||
NET INCREASE (DECREASE) IN CASH | 721,933 | (177,699 | ) | |||||
CASH—Beginning of year | 350,533 | 528,232 | ||||||
CASH—End of year | $ | 1,072,466 | $ | 350,533 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
Cash paid during the year for interest | $ | 1,761,000 | $ | 1,471,000 | ||||
Capital leases incurred for equipment | $ | 11,745,732 | $ | 5,971,252 | ||||
See notes to combined financial statements.
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PJAX, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Principles of Combination—The accompanying combined financial statements include the accounts of PJAX, Inc. (“PJAX”), Northridge Enterprises, LP (“Northridge”), and Woodhurst Realty, LLC (“Woodhurst”), all of which are under common ownership and common management. All such entities are hereinafter referred to collectively as the “Company.” All material intercompany transactions and balances have been eliminated in combination. PJAX operates as a nonunion less-than-truckload carrier, primarily in the northeast United States of America. Northridge and Woodhurst own certain operating terminals for PJAX.
Property and Equipment—Property and equipment are depreciated over the estimated useful lives (buildings – 39 years, parking lots and land improvements – 10 years, tractors, straight trucks, and trailers – 5 to 10 years, automobiles – 5 years, furniture and office equipment – 3 to 5 years, shop and garage equipment – 3 to 5 years, building and land improvements – 10 years) of the assets using the straight-line method. Management evaluates the valuation and depreciation of property and equipment considering both the current and future levels of undiscounted net cash flows generated by the related assets to determine when impairment has occurred. Any write-downs due to impairment are charged to operations at the time the impairment is identified. No such impairments have been recorded in 2005 and 2004.
Income Taxes—PJAX has elected to be taxed under Subchapter S of the Internal Revenue Code. Northridge is a partnership and Woodhurst is a limited liability company for federal and state income tax purposes. Taxable income or loss as well as other tax attributes are reported by the stockholders or partners on their respective tax returns for each of these entities.
Workers’ Compensation—PJAX retains occurrence and aggregated deductible risk related to workers’ compensation losses in certain states. Losses incurred over the deductible are covered by commercial policies with an independent insurer. Accrued workers’ compensation costs include estimates of PJAXs’ ultimate costs for both reported claims and claims incurred but not reported.
Use of Estimates in Preparing Financial Statements—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 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. The significant estimates used by management are those in determining depreciation of property and equipment, the necessity for an allowance for doubtful accounts, and accrued workers’ compensation costs.
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PJAX, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
Revenue Recognition—Revenue is recognized by the Company when freight is delivered to customers.
New Accounting Pronouncements— Effective January 1, 2006, the Company will be required to implement Statement of Financial Accounting Standards (“SFAS”) Statement No. 123(R),Share-Based Payment. This Statement supersedes Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees. This Statement provides guidance on how to account for transactions in which an entity exchanges its equity instruments for goods or services. Management has not evaluated the impact, if any, that Statement 123(R) will have on the combined financial statements.
Effective January 1, 2007, the Company will be required to adopt SFAS Statement No. 156,Accounting for Servicing of Financial Assets. This Statement amends SFAS No. 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This Statement addresses the recognition, measurement, and presentation of separately recognized servicing assets and servicing liabilities resulting from entrance into a service contract. Management does not believe Statement No. 156 will have a material effect on the Company’s combined financial statements.
Effective January 1, 2008, the Company will be required to adopt SFAS Statement No. 157,Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Management does not believe Statement No. 157 will have a material effect on the Company’s combined financial statements.
Effective January 1, 2007, the Company will be required to adopt Staff Accounting Bulletin (“SAB”) No. 108 which provides guidance on quantifying and evaluating the materiality of unrecorded misstatements. Management does not believe SAB No. 108 will have a material effect on the Company’s combined financial statements.
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PAX, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
2. | COMPOSITON OF CERTAIN BALANCE SHEET AMOUNTS |
The composition of prepaid expenses and other current assets and other current liabilities is as follows at December 31, 2005 and 2004:
2005 | 2004 | |||||||
Prepaid expenses | $ | 1,708,601 | $ | 1,745,176 | ||||
Loans and advances to employees | 1,826,005 | 1,273,405 | ||||||
Total prepaid expense and other assets | $ | 3,534,606 | $ | 3,018,581 | ||||
2005 | 2004 | |||||||
Accrued workers’ compensation | $ | 1,056,786 | $ | 1,245,856 | ||||
Accrued legal settlements | 1,597,243 | |||||||
Other | 811,298 | 763,458 | ||||||
Total other current liabilities | $ | 1,868,084 | $ | 3,606,557 | ||||
3. | BORROWING ARRANGEMENTS |
Long-term debt as of December 31, 2005 and 2004 is comprised of the following:
2005 | 2004 | |||||||
PJAX—Installment loans and capital leases payable through 2010 for vehicle and equipment purchases, interest rates ranging between 3.90% and 7.08% at December 31, 2005 | $ | 27,311,328 | $ | 22,592,876 | ||||
Woodhurst—term loans payable, variable interest rate of 6.54% at December 31, 2005 | 10,686,834 | 10,239,374 | ||||||
Northridge—construction and term loan—bank, no outstanding borrowings at December 31, 2005 | 40,589 | |||||||
Current and long-term | 37,998,162 | 32,872,839 | ||||||
Less current maturities | 8,918,162 | 7,356,921 | ||||||
Long-term debt—less current maturities | $ | 29,080,000 | $ | 25,515,918 | ||||
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PJAX, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
PJAX has a revolving credit agreement with a bank. The revolving credit agreement, as amended, provides for borrowings up to $11,000,000 or 80% of qualifying accounts. The revolving credit agreement expires on June 30, 2006. Additionally, as part of an amendment in May 2004, PJAX obtained a term loan in the amount of $3,000,000. The term loan requires monthly principal and interest payments through April 2009. The December 31, 2005, balance of the term loan was $2,000,000. In April 2006, the revolving credit agreement was extended to June 30, 2009.
Interest on borrowings under the revolving credit agreement and term loan are calculated, at the option of PJAX, based on either the Prime Rate Option (the bank’s prime rate, plus “Applicable Basis Points”) or the Euro-Rate Option (LIBOR plus “Applicable Basis Points”). Applicable Basis Points are calculated based on PJAX earnings before interest, taxes, depreciation, and amortization and range from 0 to 50 basis points for the Prime Rate Option and range from 150 to 225 basis points for the Euro-Rate Option (175 to 250 basis points for the Euro-Rate Option on the term loan). Interest on the term loan at December 31, 2005, was 6.54%. Borrowings under the revolving credit agreement are collateralized by the accounts receivable, equipment, and other assets of PJAX. The revolving credit agreement requires PJAX to maintain a lockbox account with the lender to which all checks, drafts, cash, and other remittances are deposited and applied to borrowings outstanding under the revolving credit agreement. If necessary, drawdowns on the revolving credit line are made as checks are presented for clearing. No such drawdowns occurred during or subsequent to December 31, 2005, with respect to these checks.
At December 31, 2005 and 2004, PJAX had no borrowings under the revolving credit agreement and had standby letters of credit in the amount of $5,041,237 and $4,387,000, respectively, outstanding. These standby letters of credit relate to workers’ compensation and automotive agreements and are required in the ordinary course of business.
The revolving credit agreement requires certain positive and negative covenants by PJAX, including the maintenance of prescribed debt to equity ratios, minimum tangible net worth, and debt service coverage ratios. On April 18, 2006 certain of these financial covenants were amended by the bank.
Woodhurst has three term loan agreements with a bank for the financing of certain terminals utilized by PJAX in its operations. The three term loans require monthly principle payments, plus interest through 2011, at a variable rate of LIBOR, plus a margin. The margin ranges from 1.5% to 2.25% depending upon certain financial ratios of PJAX. At December 31, 2005 the interest rate was 6.54%.
During 2003, Woodhurst entered into an interest rate swap to pay a fixed rate of 2.99% on one of the variable rate term loans with the counterparty paying a variable rate based on LIBOR. The mark-to-market effect of the interest rate swap was not material to the 2005 and 2004 financial statements.
Each of the Woodhurst and Northridge term loans also require the maintenance of certain financial covenants by PJAX and are collateralized by the properties owned by Woodhurst and Northridge. Additionally, Woodhurst and Northridge are each required to maintain a cash flow coverage ratio.
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PJAX, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
A substantial majority of the Company’s debt instruments have variable interest rates. As such, management believes that the fair value of debt approximates carrying value.
Future payments under long-term debt for the next five years are as follows:
2006 | $ | 10,122,901 | ||
2007 | 9,407,081 | |||
2008 | 8,390,638 | |||
2009 | 5,197,058 | |||
2010 | 3,147,772 | |||
Thereafter | 4,847,228 | |||
Total payments | 41,112,678 | |||
Amounts representing interest expense on capital leases | (3,114,516 | ) | ||
Total principal payments | $ | 37,998,162 | ||
4. | COMMITMENTS AND CONTINGENCIES |
The Company leases certain terminal facilities and certain office and operating equipment under operating leases. Total rent expense for 2005 and 2004 was $3,642,000 and $4,720,000, respectively. Future minimum annual obligations under noncancelable operating leases for the next five years are as follows:
2006 | $ | 1,870,533 | ||
2007 | 723,179 | |||
2008 | 118,774 |
The Company, in the ordinary course of business, is involved in various legal proceedings, lawsuits, and claims. It is the Company’s policy to accrue a liability for the amounts related to these legal matters if it is probable that a liability has been incurred and an amount is reasonably estimable.
5. | EMPLOYEE MATTERS |
PJAX maintains a profit-sharing and 401(k) plan covering all employees. Contributions to this plan are determined annually at the discretion of the board of directors of PJAX. Expense relating to the 401(k) plan was $1,000,000 for both 2005 and 2004.
During 2001, the Company and its stockholders entered into agreements with a key employee. The agreements provided for the purchase of minority interests in PJAX and Woodhurst by the employee at the estimated fair value of the entities at the date of the agreement, compensation and continued employment by the individual, and covenants not to compete. Stock-based compensation under these agreements, which are subject to variable plan accounting based on guidance set forth in APB 25, was not material to the combined financial statements at December 31, 2005 and 2004.
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PJAX, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
6. | SUBSEQUENT EVENT |
On October 2, 2006, the Company sold all the outstanding shares of PJAX and all the real estate held by Woodhurst and Northridge to Vitran Corporation Inc. The aggregate sale price was approximately $131,600,000, comprised of $80,300,000 in cash, Vitran common shares valued at $12,800,000, assumed debt of approximately $26,500,000 and an additional $12,000,000 in cash that is contingent upon certain future events which is payable over the next year.
7. | DIFFERENCES BEETWEEN UNITED STATES AND CANADIAN GENEARALLY ACCEPTED ACCOUNTING PRINCIPLES |
The Company has no material differences between United States and Canadian generally accepted accounting principles.
******
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Interim Combined Financial Statements
(In U.S. dollars)
(In U.S. dollars)
PJAX, INC. AND RELATED COMPANIES
Nine months ended September 30, 2006
(Unaudited)
(Unaudited)
PJAX, INC. AND RELATED COMPANIES
Interim Combined Balance Sheet
(In thousands of U.S. dollars)
(Unaudited)
(In thousands of U.S. dollars)
(Unaudited)
September 30, | December 31, | |||||||
2006 | 2005 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | $ | 2,129 | $ | 1,072 | ||||
Accounts receivable | 20,338 | 20,217 | ||||||
Prepaid expenses, deposits and other current assets | 2,620 | 3,535 | ||||||
25,087 | 24,824 | |||||||
Capital assets (note 2) | 49,002 | 53,711 | ||||||
Other assets | — | 103 | ||||||
$ | 74,089 | $ | 78,638 | |||||
Liabilities and Stockholders’ Equity and Partners’ Capital | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 16,802 | $ | 13,761 | ||||
Current portion of long-term debt (note 3) | 16,835 | 8,918 | ||||||
33,637 | 22,679 | |||||||
Long-term debt (note 3) | 15,665 | 29,080 | ||||||
Stockholders’ equity and partners’ capital: | ||||||||
Common stock: | ||||||||
Authorized: 100,000 common shares, $1 par value | ||||||||
Issued and outstanding: 9,488 common shares | 9 | 9 | ||||||
Additional paid-in capital | 31 | 31 | ||||||
Partners’ capital | 6,388 | 6,251 | ||||||
Advances to stockholders | (349 | ) | (392 | ) | ||||
Retained earnings | 18,708 | 20,980 | ||||||
24,787 | 26,879 | |||||||
Commitments and contingencies (note 4) | ||||||||
Subsequent event (notes 3 and 9) | ||||||||
$ | 74,089 | $ | 78,638 | |||||
See accompanying notes to interim combined financial statements.
1
PJAX, INC. AND RELATED COMPANIES
Interim Combined Statement of Income
(In thousands of U.S. dollars)
(Unaudited)
(In thousands of U.S. dollars)
(Unaudited)
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Revenue | $ | 44,260 | $ | 42,146 | $ | 131,363 | $ | 122,228 | ||||||||
Operating expenses | 37,444 | 33,509 | 104,387 | 96,316 | ||||||||||||
Selling, general and administrative expenses | 10,009 | 4,434 | 18,994 | 13,387 | ||||||||||||
Other income | (78 | ) | (50 | ) | (149 | ) | (227 | ) | ||||||||
Depreciation and amortization | 2,156 | 1,919 | 6,354 | 5,756 | ||||||||||||
49,531 | 39,812 | 129,586 | 115,232 | |||||||||||||
Income (loss) before the undernoted | (5,271 | ) | 2,334 | 1,777 | 6,996 | |||||||||||
Interest expense on long-term debt | 666 | 416 | 1,733 | 1,224 | ||||||||||||
Net income (loss) | $ | (5,937 | ) | $ | 1,918 | $ | 44 | $ | 5,772 | |||||||
See accompanying notes to interim combined financial statements.
2
PJAX, INC. AND RELATED COMPANIES
Interim Combined Statement of Stockholders’ Equity and Partners’ Capital and Comprehensive Income
(In thousands of U.S. dollars)
Interim Combined Statement of Stockholders’ Equity and Partners’ Capital and Comprehensive Income
(In thousands of U.S. dollars)
Nine months ended September 30, 2006, with comparative figures
for the nine months ended September 30, 2005
(Unaudited)
for the nine months ended September 30, 2005
(Unaudited)
Common | Additional | Advances | ||||||||||||||||||||||
stock of | paid-in | Partners’ | to | Retained | ||||||||||||||||||||
PJAX, Inc. | capital | capital | stockholders | earnings | Total | |||||||||||||||||||
Balance, December 31, 2005 | $ | 9 | $ | 31 | $ | 6,251 | $ | (392 | ) | $ | 20,980 | $ | 26,879 | |||||||||||
Distributions to stockholders | — | — | — | — | (2,000 | ) | (2,000 | ) | ||||||||||||||||
Stockholder repayments | — | — | — | 43 | — | 43 | ||||||||||||||||||
Partners’ capital distributions | — | — | (179 | ) | — | — | (179 | ) | ||||||||||||||||
Net income (loss) and comprehensive income (loss) | — | — | 316 | — | (272 | ) | 44 | |||||||||||||||||
Balance, September 30, 2006 | $ | 9 | $ | 31 | $ | 6,388 | $ | (349 | ) | $ | 18,708 | $ | 24,787 | |||||||||||
Balance, December 31, 2004 | $ | 9 | $ | 31 | $ | 5,498 | $ | (446 | ) | $ | 17,467 | $ | 22,559 | |||||||||||
Distributions to stockholders | — | — | — | — | (2,075 | ) | (2,075 | ) | ||||||||||||||||
Stockholder repayments | — | — | — | 40 | — | 40 | ||||||||||||||||||
Partners’ capital distributions | — | — | (266 | ) | — | — | (266 | ) | ||||||||||||||||
Net income and comprehensive income | — | — | 870 | — | 4,902 | 5,772 | ||||||||||||||||||
Balance, September 30, 2005 | $ | 9 | $ | 31 | $ | 6,102 | $ | (406 | ) | $ | 20,294 | $ | 26,030 | |||||||||||
See accompanying notes to interim combined financial statements.
3
PJAX, INC. AND RELATED COMPANIES
Interim Combined Statement of Cash Flows
(In thousands of U.S. dollars)
(Unaudited)
Interim Combined Statement of Cash Flows
(In thousands of U.S. dollars)
(Unaudited)
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Cash flows from (used in) operating activities: | ||||||||||||||||
Net income (loss) | $ | (5,937 | ) | $ | 1,918 | $ | 44 | $ | 5,772 | |||||||
Items not involving cash: | ||||||||||||||||
Depreciation and amortization | 2,156 | 1,919 | 6,354 | 5,756 | ||||||||||||
Gain on sale of capital assets | (78 | ) | (50 | ) | (149 | ) | (227 | ) | ||||||||
Change in non-cash operating working capital | 6,856 | (2,302 | ) | 3,835 | (3,089 | ) | ||||||||||
2,997 | 1,485 | 10,084 | 8,212 | |||||||||||||
Cash flows from (used in) financing activities: | ||||||||||||||||
Revolving credit facility | — | 1,390 | — | 2,590 | ||||||||||||
Proceeds from long-term debt | 277 | — | 277 | 1,775 | ||||||||||||
Principal payments on long-term debt | (1,994 | ) | (2,078 | ) | (6,931 | ) | (6,089 | ) | ||||||||
Distributions to stockholders | (354 | ) | (120 | ) | (2,000 | ) | (2,075 | ) | ||||||||
Stockholder repayments | 15 | 14 | 43 | 40 | ||||||||||||
Partners’ capital distributions | (81 | ) | (82 | ) | (179 | ) | (266 | ) | ||||||||
(2,137 | ) | (876 | ) | (8,790 | ) | (4,025 | ) | |||||||||
Cash flows from (used in) investing activities: | ||||||||||||||||
Purchase of capital assets | (182 | ) | (432 | ) | (483 | ) | (4,140 | ) | ||||||||
Proceeds from sale of capital assets | 174 | 51 | 246 | 227 | ||||||||||||
(8 | ) | (381 | ) | (237 | ) | (3,913 | ) | |||||||||
Increase in cash | 852 | 228 | 1,057 | 274 | ||||||||||||
Cash, beginning of period | 1,277 | 397 | 1,072 | 351 | ||||||||||||
Cash, end of period | $ | 2,129 | $ | 625 | $ | 2,129 | $ | 625 | ||||||||
Change in non-cash operating working capital components: | ||||||||||||||||
Accounts receivable | $ | 2,012 | $ | 199 | $ | (121 | ) | $ | (1,790 | ) | ||||||
Prepaid expenses, deposits and other current assets | 1,482 | 227 | 915 | (971 | ) | |||||||||||
Accounts payable and accrued liabilities | 3,362 | (2,728 | ) | 3,041 | (328 | ) | ||||||||||
$ | 6,856 | $ | (2,302 | ) | $ | 3,835 | $ | (3,089 | ) | |||||||
Supplemental cash flow information: | ||||||||||||||||
Interest paid | $ | 552 | $ | 416 | $ | 1,663 | $ | 1,224 | ||||||||
Supplemental disclosure of non-cash transactions: | ||||||||||||||||
Capital leases incurred for equipment | 1,156 | 5,562 | 1,156 | 10,535 |
See accompanying notes to interim combined financial statements.
4
PJAX, INC. AND RELATED COMPANIES
Notes to Interim Combined Financial Statements
(In thousands of U.S. dollars, unless otherwise indicated)
Notes to Interim Combined Financial Statements
(In thousands of U.S. dollars, unless otherwise indicated)
Nine months ended September 30, 2006
(Unaudited)
(Unaudited)
1. | Significant accounting policies: |
(a) | Principles of combination: | ||
The accompanying combined financial statements include the accounts of PJAX, Inc. (“PJAX”), Northridge Enterprises LP (“Northridge”) and Woodhurst Realty LLC (“Woodhurst”), all of which are under common ownership and common management (referred to collectively as the “Company”). All material intercompany transactions and balances have been eliminated in combination. PJAX operates as a non-union less-than-truckload carrier, primarily in the mid-Atlantic United States of America. Northridge and Woodhurst own certain operating terminals for PJAX. | |||
(b) | Capital assets: | ||
Capital assets are recorded at cost. Depreciation of capital assets is provided on a straight-line basis from the date the assets are put in service over their estimated useful lives as follows: |
Buildings | 39 years | |||
Building and land improvements | 10 years | |||
Vehicles: | ||||
Trailers | 5-10 years | |||
Trucks | 5-8 years | |||
Machinery and equipment | 5 years |
An impairment is recognized when the carrying amount of an asset to be held and used exceeds the sum of the estimated undiscounted cash flows expected from its use and disposal, and is measured as the amount by which the carrying amount the of asset exceeds its fair value. During 2006, the Company has not identified any indicators that would require recognition of impairment.
5
PJAX, INC. AND RELATED COMPANIES
Notes to Interim Combined Financial Statements (continued)
(In thousands of U.S. dollars, unless otherwise indicated)
Notes to Interim Combined Financial Statements (continued)
(In thousands of U.S. dollars, unless otherwise indicated)
Nine months ended September 30, 2006
(Unaudited)
(Unaudited)
1. | Significant accounting policies (continued): |
(c) | Income taxes: | ||
PJAX has elected to be taxed under Subchapter S of the Internal Revenue Code Section 1362(a). Northridge is a partnership and Woodhurst is a limited liability company for federal and state income tax purposes. Taxable income or loss, as well as other tax attributes, are reported by the shareholders or partners on their respective tax returns for each of these entities. | |||
(d) | Claims and insurance accruals: | ||
Claims and insurance accruals reflect the estimated total cost of claims, including amounts for claims incurred but not reported, for cargo loss and damage, bodily injury and property damage, workers’ compensation, long-term disability and group health. The Company has self-insurance retention amounts per incident for auto liability, casualty, cargo claims, workers’ compensation and employee medical. In establishing these accruals, management evaluates and monitors each claim individually and uses factors such as historical experience, known trends and third party estimates to determine the appropriate reserves for potential liability. | |||
(e) | 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 disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. These estimates include the estimated useful life of long-lived assets, whether there has been any impairment of long-lived assets, estimates of claims and insurance accruals and for doubtful accounts receivable. Actual results could differ from those estimates. | |||
(f) | Revenue recognition: | ||
Revenue is recognized upon the delivery of the related freight. |
6
PJAX, INC. AND RELATED COMPANIES
Notes to Interim Combined Financial Statements (continued)
(In thousands of U.S. dollars, unless otherwise indicated)
Notes to Interim Combined Financial Statements (continued)
(In thousands of U.S. dollars, unless otherwise indicated)
Nine months ended September 30, 2006
(Unaudited)
(Unaudited)
1. | Significant accounting policies (continued): |
(g) | Accounts payable and accrued liabilities: |
September 30, | December 31, | |||||||
2006 | 2005 | |||||||
Accounts payable | $ | 6,733 | $ | 7,185 | ||||
Accrued salaries, wages and payroll taxes | 5,069 | 3,708 | ||||||
Accrued profit sharing | 750 | 1,000 | ||||||
Other current liabilities | 4,250 | 1,868 | ||||||
$ | 16,802 | $ | 13,761 | |||||
(h) | Advertising costs: | ||
Advertising costs are expensed as incurred. Advertising costs amounted to $200 for the nine months ended September 30, 2006 (2005 — $150) and $67 for the three months ended September 30, 2006 (2005 — $50). | |||
(i) | Accounts receivable: | ||
Accounts receivable are presented net of allowance for doubtful accounts of $0.9 million at September 30, 2006 (2005 — nil). | |||
(j) | New accounting pronouncements: | ||
SFAS Statement 156 amends SFAS Statement 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect to the accounting for separately recognized servicing assets and servicing liabilities. The Statement addresses the recognition and measurement of separately recognized servicing assets and liabilities and provides an approach to simplify efforts to obtain hedge-like (offset) accounting. SFAS 156 will be adopted January 1, 2007 as required by the Statement. The requirements of SFAS 156 are not expected to have an effect on the Company’s combined financial statements. |
7
PJAX, INC. AND RELATED COMPANIES
Notes to Interim Combined Financial Statements (continued)
(In thousands of U.S. dollars, unless otherwise indicated)
Notes to Interim Combined Financial Statements (continued)
(In thousands of U.S. dollars, unless otherwise indicated)
Nine months ended September 30, 2006
(Unaudited)
(Unaudited)
1. | Significant accounting policies (continued): |
SFAS Statement 155 amends SFAS Statement 133, Accounting for Derivatives and Hedging Activities, and SFAS Statement 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and allows an entity to remeasure at fair value a hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation from the host, if the holder irrevocably elects to account for the whole instrument on a fair value basis. Subsequent changes in the fair value of the instrument would be recognized in income. SFAS 155 will be adopted January 1, 2007 as required by the Statement. The requirements of SFAS 155 are not expected to have an effect on the Company’s combined financial statements.
SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. SAB 108 will be adopted January 1, 2007 as required by the Bulletin. The requirements of SAB 108 are not expected to have an effect on the Company’s combined financial statements.
2. | Capital assets: |
September 30, | December 31, | |||||||
2006 | 2005 | |||||||
Land | $ | 4,891 | $ | 4,891 | ||||
Buildings | 12,229 | 12,229 | ||||||
Building and land improvements | 10,219 | 10,212 | ||||||
Vehicles | 49,254 | 49,202 | ||||||
Machinery and equipment | 7,975 | 7,606 | ||||||
84,568 | 84,140 | |||||||
Less accumulated depreciation | 35,566 | 30,429 | ||||||
$ | 49,002 | $ | 53,711 | |||||
Capital assets include assets acquired under capital leases of $41.2 million (2005 — $42.0 million) and accumulated depreciation of $17.2 million (2005 — $13.8 million).
8
PJAX, INC. AND RELATED COMPANIES
Notes to Interim Combined Financial Statements (continued)
(In thousands of U.S. dollars, unless otherwise indicated)
Notes to Interim Combined Financial Statements (continued)
(In thousands of U.S. dollars, unless otherwise indicated)
Nine months ended September 30, 2006
(Unaudited)
(Unaudited)
3. | Long-term debt: | |
Long-term debt is comprised of the following: |
September 30, | December 31, | |||||||
2006 | 2005 | |||||||
PJAX: | ||||||||
Capital leases payable through 2013 for vehicle and equipment purchases, interest rates ranging between 3.90% and 7.08% at September 30, 2006 | $ | 21,320 | $ | 25,311 | ||||
Term loan payable, variable interest rate of 7.58% at September 30, 2006 | 1,600 | 2,000 | ||||||
Woodhurst: | ||||||||
Term loans payable, variable interest rate of 7.58% at September 30, 2006 | 9,580 | 10,687 | ||||||
32,500 | 37,998 | |||||||
Less current portion | 16,835 | 8,918 | ||||||
$ | 15,665 | $ | 29,080 | |||||
PJAX has a revolving credit agreement with a bank. The revolving credit agreement, as amended, provides for borrowings up to $11.0 million or 80% of qualifying accounts receivable. The revolving credit agreement was amended in April 2006 and expires on June 30, 2009. In May 2004, PJAX obtained a term loan in the amount of $3.0 million. The term loan requires monthly principal and interest payments through April 2009. The balance of the term loan was $1.6 million at September 30, 2006.
Interest on borrowings under the revolving credit agreement and term loan are calculated, at the option of PJAX, based on either the Prime Rate Option (the bank’s prime rate, plus “Applicable Basis Points”) or the Euro-Rate Option (LIBOR plus “Applicable Basis Points”). Applicable Basis Points are calculated based on PJAX’s earnings before interest, taxes, depreciation and amortization and range from nil to 50 basis points for the Prime Rate Option and range from 150 to 225 basis points for the Euro-Rate Option (175 to 250 basis points for the Euro-Rate Option on the term loan).
9
PJAX, INC. AND RELATED COMPANIES
Notes to Interim Combined Financial Statements (continued)
(In thousands of U.S. dollars, unless otherwise indicated)
Notes to Interim Combined Financial Statements (continued)
(In thousands of U.S. dollars, unless otherwise indicated)
Nine months ended September 30, 2006
(Unaudited)
(Unaudited)
3. | Long-term debt (continued): | |
Borrowings under the revolving credit agreement are collateralized by the accounts receivable, equipment and other assets of PJAX. The revolving credit agreement requires PJAX to maintain a lockbox account with the lender to which all cheques, drafts, cash and other remittances are deposited and applied to borrowings outstanding under the revolving credit agreement. If necessary, drawdowns on the revolving credit line are made as cheques are presented for clearing. No such drawdowns occurred during or subsequent to September 30, 2006 with respect to these cheques. | ||
At September 30, 2006, PJAX had nil borrowings (2005 — nil) under the revolving credit agreement and had standby letters of credit in the amount of $5.4 million (2005 — $5.0 million) outstanding. These standby letters of credit relate to workers’ compensation and automotive insurance agreements and are required in the ordinary course of business. | ||
The revolving credit agreement requires certain financial maintenance tests. | ||
Woodhurst has three term loan agreements with a bank for the financing of certain terminals utilized by PJAX in its operations. The three term loans require monthly principle payments, plus interest through 2011, at a variable rate of LIBOR plus a margin based on certain financial ratios. | ||
During 2003, Woodhurst entered into an interest rate swap to pay a fixed rate of 2.99% on one of the variable rate term loans with the counterparty paying a variable rate based on LIBOR. The mark-to-market effect of the interest rate swap was not material at September 30, 2006. | ||
Each of the Woodhurst term loans is collateralized by the properties owned by Woodhurst and Northridge. At September 30, 2006, the Company was in violation of certain financial maintenance tests with respect to the Woodhurst term loans, as such, the term loans are classified as a current liability. However, on October 2, 2006 in conjunction with the sale of all the real estate (note 9), all the term loans were repaid by the Company or refinanced by Vitran Corporation. Therefore, on October 2, 2006, the Company was not in violation of any financial maintenance tests. |
10
PJAX, INC. AND RELATED COMPANIES
Notes to Interim Combined Financial Statements (continued)
(In thousands of U.S. dollars, unless otherwise indicated)
Notes to Interim Combined Financial Statements (continued)
(In thousands of U.S. dollars, unless otherwise indicated)
Nine months ended September 30, 2006
(Unaudited)
(Unaudited)
3. | Long-term debt (continued): | |
Future payments under long-term debt and capital leases for the next five years and thereafter are as follows: |
2007 | $ | 18,663 | ||
2008 | 6,681 | |||
2009 | 3,621 | |||
2010 | 1,687 | |||
2011 | 1,162 | |||
Thereafter | 686 | |||
$ | 32,500 | |||
4. | Commitments and contingencies: | |
The Company leases certain terminal facilities and certain office and operating equipment under operating leases. Total rent expense for the nine-month period ended September 30, 2006 was $3.0 million (2005 — $2.7 million) and $1.0 million for the three months ended September 30, 2006 (2005 — $0.9 million). Future minimum annual obligations under non-cancellable operating leases for the next five years and thereafter are as follows: |
2007 | $ | 3,431 | ||
2008 | 1,768 | |||
2009 | 1,528 | |||
2010 | 1,480 | |||
2011 | 1,442 | |||
Thereafter | 1,205 | |||
$ | 10,854 | |||
The Company is subject to legal proceedings that arise in the ordinary course of business. In the opinion of management, the aggregate liability, if any, with respect to these actions, will not have a material adverse effect on the combined financial position, results of operations or cash flows of the Company. Legal costs are expensed as incurred.
11
PJAX, INC. AND RELATED COMPANIES
Notes to Interim Combined Financial Statements (continued)
(In thousands of U.S. dollars, unless otherwise indicated)
Notes to Interim Combined Financial Statements (continued)
(In thousands of U.S. dollars, unless otherwise indicated)
Nine months ended September 30, 2006
(Unaudited)
(Unaudited)
5. | Employee benefits: | |
PJAX maintains a profit-sharing and 401(k) plan covering all employees. Contributions to this plan are determined annually at the discretion of the boards of directors of PJAX. Expense relating to the 401(k) plan was $0.75 million for the nine months ended September 30, 2006 (2005 — $0.75 million) and $0.25 million for the three months ended September 30, 2006 (2005 — $0.25 million). These expenses are included in operating expenses. | ||
6. | Financial instruments: | |
The fair values of cash, accounts receivable and accounts payable and accrued liabilities approximate the carrying values because of the short-term nature of these instruments. The fair value of the Company’s long-term debt, determined based on the future cash flows associated with each debt instrument discounted using an estimate of the Company’s current borrowing rate for similar debt instruments of comparable maturity, is approximately equal to the carrying values at September 30, 2006 and December 31, 2005. | ||
7. | Comparative figures: | |
Certain comparative figures have been reclassified to conform with the financial statement presentation adopted in the current period. | ||
8. | United States and Canadian accounting policy differences: | |
There are no material policy differences between United States and Canadian generally accepted accounting principles. |
12
PJAX, INC. AND RELATED COMPANIES
Notes to Interim Combined Financial Statements (continued)
(In thousands of U.S. dollars, unless otherwise indicated)
Notes to Interim Combined Financial Statements (continued)
(In thousands of U.S. dollars, unless otherwise indicated)
Nine months ended September 30, 2006
(Unaudited)
(Unaudited)
9. | Subsequent event: | |
On October 2, 2006, Vitran Corporation Inc. (“Vitran”) through its wholly owned subsidiary, Vitran Corporation, acquired all the outstanding shares of PJAX, Inc. and all the real estate held by Woodhurst Realty LLC and Northridge Enterprises LP. The aggregate purchase consideration was approximately $138.7 million (including transaction costs), comprised of approximately $80.0 million in cash, Vitran common shares valued at $12.8 million (676,923 common shares valued at $18.90 per share), assumed debt of approximately $27.1 million and holdbacks of $11.7 million payable over the next year. Transaction costs amounted to approximately $1.6 million. Additional consideration of $5.5 million was contingent upon a joint election with Vitran and the vendors to structure the transaction as an asset sale for tax purposes. Vitran had 30 days from the closing of the transaction to execute this election. Vitran has executed this election and, as such, the additional proceeds are payable to the vendors. |
13
Pro Forma Consolidated Financial Statements
(Expressed in thousands of United States dollars)
(Expressed in thousands of United States dollars)
Vitran Corporation Inc.
As at and for the nine months ended
September 30, 2006 (unaudited) and
year ended December 31, 2005 (unaudited)
September 30, 2006 (unaudited) and
year ended December 31, 2005 (unaudited)
Vitran Corporation Inc.
Pro Forma Consolidated Balance Sheet
September 30, 2006 (unaudited)
(Expressed in thousands of United States dollars)
Pro Forma Consolidated Balance Sheet
September 30, 2006 (unaudited)
(Expressed in thousands of United States dollars)
Pro forma | Pro forma | |||||||||||||||||||
Vitran | PJAX | adjustments | Notes | consolidated | ||||||||||||||||
Assets | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 102,207 | $ | 2,129 | $ | (79,994 | ) | 3 | (b) | $ | 24,342 | |||||||||
Accounts receivable | 54,660 | 20,338 | — | 74,998 | ||||||||||||||||
Inventory, deposits and prepaid expenses | 9,277 | 2,620 | — | 11,897 | ||||||||||||||||
Future income taxes | 2,593 | — | — | 2,593 | ||||||||||||||||
168,737 | 25,087 | (79,994 | ) | 113,830 | ||||||||||||||||
Capital assets | 82,133 | 49,002 | 13,846 | 3 | (a) | 144,981 | ||||||||||||||
Intangible assets | 2,749 | — | 11,500 | 3 | (a) | 14,249 | ||||||||||||||
Goodwill | 62,906 | — | 56,795 | 3 | (a) | 119,701 | ||||||||||||||
Other assets | — | — | 165 | 3 | (a) | 165 | ||||||||||||||
$ | 316,525 | $ | 74,089 | $ | 2,312 | $ | 392,926 | |||||||||||||
Liabilities and Shareholders’ Equity | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Accounts payable and accrued liabilities | $ | 52,413 | $ | 16,802 | $ | 19,697 | 3 | (c) | $ | 88,912 | ||||||||||
Income and other taxes payable | 1,717 | — | — | 1,717 | ||||||||||||||||
Current portion of long-term debt | 8,053 | 16,835 | (8,560 | ) | 3 | (d) | 16,328 | |||||||||||||
62,183 | 33,637 | 11,137 | 106,957 | |||||||||||||||||
Long-term debt | 90,015 | 15,665 | 3,165 | 3 | (d) | 108,845 | ||||||||||||||
Future income taxes | 7,749 | — | — | 7,749 | ||||||||||||||||
Shareholders’ equity: | ||||||||||||||||||||
Common shares | 64,130 | 9 | 12,788 | 3 | (e) | 76,927 | ||||||||||||||
Additional paid-in capital | 1,395 | 31 | (31 | ) | 3 | (e) | 1,395 | |||||||||||||
Retained earnings | 85,978 | 18,708 | (18,708 | ) | 3 | (e) | 85,978 | |||||||||||||
Partners’ capital | — | 6,388 | (6,388 | ) | 3 | (e) | — | |||||||||||||
Advance to stockholders | — | (349 | ) | 349 | 3 | (e) | — | |||||||||||||
Accumulated other comprehensive income | 5,075 | — | — | 5,075 | ||||||||||||||||
156,578 | 24,787 | (11,990 | ) | 169,375 | ||||||||||||||||
$ | 316,525 | $ | 74,089 | $ | 2,312 | $ | 392,926 | |||||||||||||
1
Vitran Corporation Inc.
Pro Forma Consolidated Statement of Operations
Nine Months Ended September 30, 2006 (unaudited)
(Expressed in thousands of United States dollars, except for per share amounts)
Pro Forma Consolidated Statement of Operations
Nine Months Ended September 30, 2006 (unaudited)
(Expressed in thousands of United States dollars, except for per share amounts)
Pro forma | Pro forma | |||||||||||||||||||
Vitran | PJAX | adjustments | Notes | consolidated | ||||||||||||||||
Revenue | $ | 360,280 | $ | 131,363 | $ | — | $ | 491,643 | ||||||||||||
Operating expenses | 299,617 | 104,387 | — | 404,004 | ||||||||||||||||
Selling, general and administrative expenses | 33,675 | 18,994 | — | 52,669 | ||||||||||||||||
Other income | (404 | ) | (149 | ) | — | (553 | ) | |||||||||||||
Depreciation and amortization | 7,495 | 6,354 | 971 | 4 | (a) | 14,820 | ||||||||||||||
340,383 | 129,586 | 971 | 470,940 | |||||||||||||||||
Income from operations before undernoted | 19,897 | 1,777 | (971 | ) | 20,703 | |||||||||||||||
Interest expense, net | (621 | ) | (1,733 | ) | (4,137 | ) | 4 | (b) | (6,491 | ) | ||||||||||
Income from operations before income taxes | 19,276 | 44 | (5,108 | ) | 14,212 | |||||||||||||||
Income taxes (recovery) | 4,992 | — | (1,851 | ) | 4 | (c) | 3,141 | |||||||||||||
Net income before cumulative effect of a change in accounting principle based on United States GAAP and net income based on Canadian GAAP | $ | 14,284 | $ | 44 | $ | (3,257 | ) | $ | 11,071 | |||||||||||
Earnings per share based on United States and Canadian GAAP: | ||||||||||||||||||||
Before cumulative effect of a change in accounting principle: | ||||||||||||||||||||
Basic | $ | 1.12 | $ | 0.83 | ||||||||||||||||
Diluted | $ | 1.10 | $ | 0.81 | ||||||||||||||||
Weighted average number of shares based on United States and Canadian GAAP: | ||||||||||||||||||||
Basic | 12,710,225 | 676,923 | 4 | (d) | 13,387,148 | |||||||||||||||
Potential exercise of options | 246,436 | 246,436 | ||||||||||||||||||
Diluted shares | 12,956,661 | 676,923 | 4 | (d) | 13,633,584 |
2
Vitran Corporation Inc.
Pro Forma Consolidated Statement of Operations
Year ended December 31, 2005 (unaudited)
(Expressed in thousands of United States dollars, except for per share amounts)
Pro Forma Consolidated Statement of Operations
Year ended December 31, 2005 (unaudited)
(Expressed in thousands of United States dollars, except for per share amounts)
Pro forma | Pro forma | |||||||||||||||||||
Vitran | PJAX | adjustments | Notes | consolidated | ||||||||||||||||
Revenue | $ | 428,192 | $ | 164,222 | $ | — | $ | 592,414 | ||||||||||||
Operating expenses | 357,960 | 129,603 | — | 487,563 | ||||||||||||||||
Selling, general and administrative expenses | 37,881 | 17,574 | — | 55,455 | ||||||||||||||||
Other income | (41 | ) | (242 | ) | — | (283 | ) | |||||||||||||
Depreciation and amortization | 6,965 | 7,849 | 1,293 | 4 | (a) | 16,107 | ||||||||||||||
402,765 | 154,784 | 1,293 | 558,842 | |||||||||||||||||
Income from operations before undernoted | 25,427 | 9,438 | (1,293 | ) | 33,572 | |||||||||||||||
Interest expense, net | (298 | ) | (1,761 | ) | (5,564 | ) | 4 | (b) | (7,623 | ) | ||||||||||
Income from operations before income taxes | 25,129 | 7,677 | (6,857 | ) | 25,949 | |||||||||||||||
Income taxes | 7,191 | — | 487 | 4 | (c) | 7,678 | ||||||||||||||
Net income based on United States and Canadian GAAP | $ | 17,938 | $ | 7,677 | $ | (7,344 | ) | $ | 18,271 | |||||||||||
Earnings per share based on United States and Canadian GAAP: | ||||||||||||||||||||
Basic | $ | 1.43 | $ | 1.38 | ||||||||||||||||
Diluted | $ | 1.40 | $ | 1.35 | ||||||||||||||||
Weighted average number of shares based on United States and Canadian GAAP: | ||||||||||||||||||||
Basic | 12,516,265 | 676,923 | 4 | (d) | 13,193,188 | |||||||||||||||
Potential exercise of options | 332,095 | 332,095 | ||||||||||||||||||
Diluted shares | 12,848,360 | 676,923 | 4 | (d) | 13,525,283 |
3
Vitran Corporation Inc.
Notes to Pro Forma Consolidated Financial Statements
As at and for the nine months ended September 30, 2006 (unaudited)
and year ended December 31, 2005 (unaudited)
(Expressed in thousands of United States dollars)
Notes to Pro Forma Consolidated Financial Statements
As at and for the nine months ended September 30, 2006 (unaudited)
and year ended December 31, 2005 (unaudited)
(Expressed in thousands of United States dollars)
1. | Transaction | |
On October 2, 2006, Vitran Corporation Inc. (“Vitran”) through its wholly-owned subsidiary Vitran Corporation acquired all the outstanding shares of PJAX, Inc. and all the real estate held by Woodhurst Realty LLC and Northridge Enterprises LP, collectively known as PJAX Freight System (“PJAX”). The aggregate purchase consideration was approximately $138.7 million (including transaction costs), comprised of approximately $80.0 million in cash, Vitran common shares valued at $12.8 million (676,923 common shares valued at $18.90 per share), assumed debt of approximately $27.1 million and holdbacks of $11.7 million payable during the year subsequent to the date of acquisition. Transaction costs amounted to approximately $1.6 million. Additional consideration of $5.5 million was contingent upon a joint election with Vitran and the vendors to structure the transaction as an asset sale for tax purposes. Vitran had 30 days from the closing of the transaction to execute this election. As of the date of this filing, Vitran has executed this election, and as such the additional proceeds are payable to the vendors. | ||
2. | Basis of presentation | |
The unaudited pro forma consolidated financial statements should be read in conjunction with Vitran’s 2005 annual report on Form 10-K, Vitran’s September 30, 2006 quarterly report on Form 10-Q, PJAX’s audited combined financial statements as at and for the years ended December 31, 2005 and 2004 and PJAX’s unaudited combined interim financial statements as at and for the nine months ended September 30, 2006. | ||
The underlying assumptions for the pro forma adjustments provide a reasonable basis for presenting the significant financial effects directly attributable to such transactions; however, the unaudited pro forma consolidated financial statements are not necessarily indicative of the results that actually would have been achieved if the transactions reflected therein had been completed on the dates indicated or the results that may be obtained in the future. In the opinion of management, these unaudited pro forma consolidated financial statements include all adjustments necessary for fair presentation. | ||
The unaudited pro forma consolidated financial statements are not intended to reflect the results of operations which would have actually resulted had the transactions and other adjustments been affected on the dates indicated. Further, pro forma results of operations are not necessarily indicative of the results of operations that may be obtained by Vitran in the future. |
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Vitran Corporation Inc.
Notes to Pro Forma Consolidated Financial Statements - continued
As at and for the nine months ended September 30, 2006 (unaudited)
and year ended December 31, 2005 (unaudited)
(Expressed in thousands of United States dollars)
Notes to Pro Forma Consolidated Financial Statements - continued
As at and for the nine months ended September 30, 2006 (unaudited)
and year ended December 31, 2005 (unaudited)
(Expressed in thousands of United States dollars)
2. | Basis of presentation — continued | |
The accompanying unaudited pro forma consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles, the unaudited pro forma consolidated statements of operations have been reconciled to Canadian generally accepted accounting principles. The accompanying unaudited pro forma consolidated balance sheet as at September 30, 2006 gives effect to the acquisition by Vitran of PJAX as though it had taken place on September 30, 2006. The accompanying unaudited pro forma consolidated statements of operations for the year ended December 31, 2005 and for the nine months ended September 30, 2006 give effect to the acquisition as though it had taken place on January 1, 2005. | ||
The accompanying unaudited pro forma consolidated balance sheet as at September 30, 2006 has been prepared from information derived from the unaudited consolidated balance sheet of Vitran as at September 30, 2006, the unaudited combined balance sheet of PJAX as at September 30, 2006, and the adjustments and assumptions outlined below. | ||
The accompanying unaudited pro forma statements of operations have been prepared from information derived from the audited consolidated income statement of Vitran for the year ended December 31, 2005, the audited combined income statement of PJAX for the year ended December 31, 2005, the unaudited consolidated income statement of Vitran for the nine months ended September 30, 2006, the unaudited combined income statement for PJAX for the nine months ended September 30, 2006, and the assumptions and adjustments outlined below. | ||
The accounting policies used in preparation of the unaudited pro forma consolidated financial statements are those disclosed in Vitran’s annual report on Form 10-K as at and for the year ended December 31, 2005. |
5
Vitran Corporation Inc.
Notes to Pro Forma Consolidated Financial Statements - continued
As at and for the nine months ended September 30, 2006 (unaudited)
and year ended December 31, 2005 (unaudited)
(Expressed in thousands of United States dollars)
Notes to Pro Forma Consolidated Financial Statements - continued
As at and for the nine months ended September 30, 2006 (unaudited)
and year ended December 31, 2005 (unaudited)
(Expressed in thousands of United States dollars)
3. | Unaudited pro forma consolidated balance sheet | |
The following assumptions and pro forma adjustments have been made for the purpose of the unaudited pro forma consolidated balance sheet as at September 30, 2006: |
(a) | The total purchase consideration was $111.6 million (including transaction costs) excluding assumed debt. This consists of cash of approximately $80.0 million, common shares valued at $12.8 million (676,923 common shares valued at $18.90 per share) and $11.7 million payable to the vendors over the next year. Transaction costs amounted to $1.6 million. Vitran has made the election described in note 1 and, therefore, has recorded an additional $5.5 million in consideration. In addition, Vitran assumed debt of approximately $27.1 million bringing the aggregate purchase consideration to $138.7 million. The fair values below are based on management’s preliminary estimates and are subject to change once the final valuations have been completed. |
Current assets | $ | 25,087 | ||
Capital assets | 62,848 | |||
Intangible assets | 11,500 | |||
Goodwill | 56,795 | |||
Other assets | 165 | |||
156,395 | ||||
Current liabilities | 17,646 | |||
Assumed capital lease | 21,319 | |||
Assumed term loans | 5,786 | |||
Net assets acquired | $ | 111,644 | ||
(b) | A decrease in cash to reflect the payment of the cash portion of the purchase price. | ||
(c) | An increase in accounts payable and accrued liabilities for transaction costs of $1,650, holdbacks payable to the vendors of $11,701 over the next year, accounting adjustments to bring PJAX into compliance with Vitran accounting policies of $844 and additional consideration of $5,502 for the election described in Note 1. Due to Vitran executing this election, full fair value is given to the assets and liabilities for tax purposes; therefore, as at September 30, 2006 there is no future income tax asset or liability due to the transaction. |
6
Vitran Corporation Inc.
Notes to Pro Forma Consolidated Financial Statements - continued
As at and for the nine months ended September 30, 2006 (unaudited)
and year ended December 31, 2005 (unaudited)
(Expressed in thousands of United States dollars)
Notes to Pro Forma Consolidated Financial Statements - continued
As at and for the nine months ended September 30, 2006 (unaudited)
and year ended December 31, 2005 (unaudited)
(Expressed in thousands of United States dollars)
3. | Unaudited pro forma consolidated balance sheet — continued |
(d) | A decrease of $5,395 in the long-term debt obligations for the long-term debt not assumed by Vitran and retired by the vendors on the date of the acquisition. | ||
(e) | PJAX’s shareholders’ equity has been eliminated. The increase in common shares is for the value of common shares issued to the vendors as part of the purchase consideration. |
4. | Unaudited pro forma consolidated statements of operations | |
The following pro forma income adjustments have been made for the purpose of the unaudited pro forma consolidated statements of operations: |
(a) | An increase in amortization expense due to identifiable intangible assets (customer relationships and covenants not to compete) being amortized straight-line over seven years (customer relationships) and six years (covenants not to compete) based on preliminary estimates by management. This is partially offset by a decrease in depreciation expense based on a change to Vitran’s depreciation policy. | ||
(b) | An increase in interest expense as a result of the debt incurred by Vitran to finance the acquisition. This is partially offset by the elimination of PJAX’s interest expense related to the debt not assumed by Vitran. | ||
(c) | Adjustment to income taxes as a result of the pro forma adjustments in (a) and (b) above and to reflect income taxes that would have been incurred by PJAX on income from operations before income taxes had PJAX not elected to be taxed under Subchapter S of the Internal Revenue Code Section 1362(a). This represents an increase in tax expense of $487 in the pro forma consolidated statement of operations for the year ended December 31, 2005 as Vitran would have had additional tax expense. This represents a decrease in tax expense of $1,851 in the pro forma consolidated statement of operations for the nine months ended September 30, 2006 as Vitran would have had a tax benefit. | ||
(d) | Vitran issued 676,923 common shares valued at $12.8 million as part of the consideration paid for PJAX. This resulted in an increase in the weighted average shares outstanding for the year ended December 31, 2005 and for the nine months ended September 30, 2006, of 676,923 shares from the pro forma transaction date of January 1, 2005. |
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