EX-99 3 ex991.txt EXHIBIT 99.1 Exhibit 99.1 Transportation Resources, Inc. Accountants' Report and Consolidated Financial Statements December 31, 2006 Transportation Resources, Inc. December 31, 2006 Contents Independent Accountants' Report.................................1 Consolidated Financial Statements Balance Sheet.................................................2 Statement of Income...........................................4 Statement of Shareholders' Equity.............................5 Statement of Cash Flows.......................................6 Notes to Financial Statements.................................7 Independent Accountants' Report Board of Directors Transportation Resources, Inc. Joplin, Missouri We have audited the accompanying consolidated balance sheet of Transportation Resources, Inc., as of December 31, 2006, and the related consolidated statements of income, shareholders' equity and cash flows for the year then ended. 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 audit 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 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. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Transportation Resources, Inc., as of December 31, 2006, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 8, in 2006 the Company changed its method of accounting for Stock Based Compensation through retrospective application to prior year's financial statements. As discussed in Note 9, the Company changed its method of recognizing gains and losses on the sale of assets in 2006. /s/ BKD, LLP Tulsa, Oklahoma March 2, 2007 1 Transportation Resources, Inc. Consolidated Balance Sheet December 31, 2006 Assets Current Assets Cash and cash equivalents $ 4,281,431 Short-term investments - U.S. Treasury bills 917,000 Trade receivables, net of allowance for doubtful accounts of $1,636,018 48,227,963 Other receivables 668,061 Prepaid tires 4,214,328 Other prepaid expenses 7,012,375 Operating supplies, fuel and parts 1,741,544 -------------- Total current assets 67,062,702 -------------- Property and Equipment, at Cost Land 11,957,223 Structures and land improvements 45,209,954 Revenue equipment 394,730,163 Other operating equipment 9,559,782 Furniture, fixtures and data processing equipment 8,201,926 Construction in progress 113,048 -------------- Total property and equipment 469,772,096 Less accumulated depreciation 196,555,478 -------------- Net property and equipment 273,216,618 -------------- Other Assets 1,050,812 -------------- $ 341,330,132 ============== 2 Transportation Resources, Inc. Consolidated Balance Sheet December 31, 2006 Liabilities and Shareholders' Equity Current Liabilities Outstanding checks in excess of bank balance $ 3,342,083 Line of credit 6,440,000 Current maturities of long-term debt 2,049,311 Accounts payable 7,398,557 Accounts payable-interline 7,444,048 Customer credit balances 3,762,510 Salaries and wages payable 4,761,231 Claims and insurance accruals 11,527,742 Other current and accrued liabilities 6,872,139 -------------- Total current liabilities 53,597,621 -------------- Long-term Obligations Long-term debt 1,106,642 Claims and insurance accruals 4,906,101 Stock based awards 19,176,140 Other long-term obligations 170,484 -------------- Total long-term obligations 25,359,367 -------------- Shareholders' Equity Common stock, $0.01 par value; 15,000,000 shares authorized; 6,033,016 shares issued and outstanding 55,656 Additional paid-in capital 152,764,748 Earnings reinvested in the business 109,505,120 Accumulated other comprehensive income 47,620 -------------- Total shareholders' equity 262,373,144 -------------- $ 341,330,132 ============== 3 Transportation Resources, Inc. Consolidated Statement of Income Year Ended December 31, 2006 Operating Revenues $ 427,638,927 -------------- Operating Expenses Salaries, wages and fringe benefits 175,290,931 Fuel and supplies 63,152,713 Depreciation 45,101,633 Equipment rent and purchased transportation 33,050,429 Operating taxes and licenses 29,349,199 Insurance and claims 18,884,910 Communications and utilities 2,946,134 Gain on asset disposition (12,997,675) Other operating expenses 4,518,414 -------------- Total operating expenses 359,296,688 -------------- Operating Income 68,342,239 -------------- Other Income (Expense) Interest income 956,482 Interest expense (405,602) Investment income 4,481 Other (49,621) -------------- Total other income 505,740 -------------- Income Before Income Taxes 68,847,979 -------------- Provision for Income Taxes State income tax 855,780 Foreign income tax 168,592 -------------- Net Income $ 67,823,607 ============== 4 Transportation Resources, Inc. Consolidated Statement of Shareholders' Equity Year Ended December 31, 2006
Earnings Other Additional Reinvested Accumulated Common Paid-in in the Comprehensive Treasury Stock Capital Business Income (Loss) Stock Total -------------- -------------- -------------- -------------- -------------- -------------- Balance, January 1, 2006, as previously reported $ 59,716 $ 158,839,192 $ 57,859,230 $ 78,069 $ (174,358) $ 216,661,849 -------------- -------------- -------------- -------------- -------------- -------------- Retrospective Change in Accounting Principle (Note 8) (4,060) (6,074,444) (1,422,280) -- 174,358 (7,326,426) -------------- -------------- -------------- -------------- -------------- -------------- Balance, January 1, 2006 $ 55,656 $ 152,764,748 $ 56,436,950 $ 78,069 $ -- $ 209,335,423 -------------- -------------- -------------- -------------- -------------- -------------- Net income -- 67,823,607 -- -- 67,823,607 Foreign currency translation -- -- -- (30,449) -- (30,449) -------------- -------------- -------------- -------------- -------------- -------------- Total comprehensive income -- -- 67,823,607 (30,449) -- 67,793,158 Cash distributions -- -- (14,755,437) -- -- (14,755,437) -------------- -------------- -------------- -------------- -------------- -------------- Balance, December 31, 2006 $ 55,656 $ 152,764,748 $ 109,505,120 $ 47,620 $ -- $ 262,373,144 ============== ============== ============== ============== ============== ============== 5
Transportation Resources, Inc. Consolidated Statement of Cash Flows Year Ended December 31, 2006 Operating Activities Net income $ 67,823,607 Items not requiring (providing) cash Depreciation 45,101,633 Gain on disposition of operating property (12,755,215) Non-cash compensation expense 5,334,029 Changes in Accounts receivable 1,305,755 Prepaid expenses (1,889,584) Accounts payable 454,586 Other current and accrued liabilities (1,033,435) Other assets and liabilities (455,230) -------------- Net cash provided by operating activities 103,886,146 -------------- Investing Activities Proceeds from maturities of short-term investments 916,000 Purchases of short-term investments (917,000) Purchases of property and equipment (137,928,355) Proceeds from disposition of operating property 32,688,211 -------------- Net cash used in investing activities (105,241,144) -------------- Financing Activities Net borrowings under line-of-credit agreement 6,440,000 Principal payments on long-term debt (3,788,497) Proceeds from issuance of long-term debt 1,106,642 Outstanding checks in excess of bank balance 3,342,083 Cash distributions (14,755,437) -------------- Net cash used in financing activities (7,655,209) -------------- Decrease in Cash and Cash Equivalents (9,010,207) Cash and Cash Equivalents, Beginning of Year 13,291,638 -------------- Cash and Cash Equivalents, End of Year $ 4,281,431 ============== Supplemental Cash Flows Information Interest paid $ 326,528 Income taxes paid 1,710,682 6 Transportation Resources, Inc. Notes to Consolidated Financial Statements December 31, 2006 Note 1: Significant Accounting Policies Nature of Operations Transportation Resources, Inc. (the Company) is a holding company whose majority-owned subsidiaries and primary business activities are: Subsidiary Business Activity -------------------------------------------------------------------------------- Contract Freighters, Inc. Truckload carrier Transportation Equipment Leasing, LLC Transportation equipment leasing Transportation Property Leasing, LLC Property leasing Orcas Aircraft Leasing, Inc. Aircraft leasing CFI Custom Freight Management, Inc. Transportation logistics Orcas Logistics, Inc. Transportation logistics The Company and the above subsidiaries operate primarily in the United States of America (U.S.) and Canada. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All significant intercompany transactions have been eliminated. 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 revenues and expenses during the reporting period. Actual results could differ from these estimates. Cash and Cash Equivalents The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. At December 31, 2006, cash equivalents consisted primarily of money market investment accounts. The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. 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. 7 Accounts Receivable Accounts receivable are stated at the amount billed to customers. The Company provides an allowance for uncollectible accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions. Accounts receivable are ordinarily due 15 days from the invoice date. Accounts outstanding more than 30 days from the invoice date are considered delinquent. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the customer. The accounts receivable portfolio is well diversified geographically and by industry. Credit is granted to customers and ongoing credit evaluations are performed, thereby eliminating the need for collateral. Historically, credit losses have been minimal. Operating Supplies, Fuel and Parts Operating supplies, fuel and parts are stated at the lower of cost or market (operating supplies and parts on an average cost basis and fuel on the first-in, first-out basis). Tires The cost of tires purchased on new revenue equipment is recorded as a prepaid asset and amortized over the estimated tire life. Replacement tires are expensed as they are removed from inventory and placed on the operating equipment. Property and Equipment Property and equipment are recorded at cost, with such cost depreciated using the straight-line method beginning when property is placed in service. Depreciation is based on the following useful lives: Structures 20 years Trailers 6 years Tractors 5 years Other operating property 3-10 years Prior to 2006, when revenue equipment was traded with either a vendor from whom replacement equipment was acquired or a qualified intermediary and its trade-in value exceeded its book value, the purchase price of the replacement property was reduced by this excess when calculating the depreciable basis of the new property. When revenue equipment was sold and replacement property was not acquired, any gain or loss was recognized. When other properties were sold, any gain or loss was reflected in income. In 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 153, Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29, as discussed in Note 9. 8 Capitalized Software Certain internal and external costs incurred to acquire or create internal use software are capitalized in accordance with Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. Capitalized software is included in property and equipment under furniture, fixtures and data processing equipment and is amortized over its useful life when development is complete. Claims and Insurance Accruals Insurance programs for liability (personal injury and property damage), workers' compensation and group health claims are self-insured up to certain retention limits which vary depending upon the year of occurrence. The claims and insurance accruals represent the estimated uninsured portion of pending claims, including adverse development of known claims, legal fees, and incurred but not reported claims. Claims expected to be paid beyond one year of the balance sheet date are classified as long-term. These estimates are based on historical information along with certain assumptions about future events. Changes in assumptions as well as changes in actual experience could cause these estimates to change. Insurance Program Retention Limits Program Retention Limit ----------------------------------------------------------------------------- Liability $1,000,000 per claim Workers' compensation $ 500,000 per claim Group health $ 150,000 per claim/1,000,000 per individual lifetime maximum Fair Values of Financial Instruments The carrying amounts reported in the balance sheet for cash and cash equivalents, accounts receivable, accounts payable, other accrued liabilities and variable interest borrowings approximate their fair values. The fair value of notes payable at December 31, 2006 is estimated to be $2,080,894 using a discounted cash flow analysis, based on the estimated current borrowing rate for similar types of borrowing arrangements. These amounts relate to borrowings with fixed interest rates and principal balances of $2,049,311 in current maturities of long- term debt at December 31, 2006. Income Taxes The shareholders of the Company have elected to be taxed individually on the Company's earnings under the S Corporation provisions of the Internal Revenue Code. Accordingly, federal income taxes are not reflected in the Company's financial statements. The provision for income taxes reflected in these statements is for foreign and certain state income taxes only. 9 Comprehensive Income The Company reports the components of other comprehensive income in the consolidated statement of shareholders' equity. Comprehensive income refers to revenues, expenses, gains and losses that are included in comprehensive income but excluded from net income. At December 31, 2006, other comprehensive income consisted of foreign currency translation adjustments. Revenue Recognition For the truckload carrier subsidiary, operating revenues are recognized at the time the shipment is received from the customer. For transportation logistics subsidiaries, operating revenues are recognized when the services are performed. Related transportation and delivery expenses directly associated with these shipments are recorded at the time the revenue is recognized. Included as a reduction to fuel and supplies expense in 2006 are $85,081,757 in fuel surcharges earned when fuel costs exceeded contractually agreed-upon levels. The fuel surcharges are based on the United States Department of Energy diesel fuel index. Maintenance and Repairs Maintenance and repairs are charged to operations in the period incurred. Note 2: Long-term Debt Notes payable to financial institutions due through 2007, bearing interest at rates ranging from 6.39% to 8.30%, collateralized by revenue equipment having a net book value of $309,670 at December 31, 2006 $ 49,311 Senior secured note payable to an insurance company due June 2007, bearing interest at 9.08%, secured by a First Deed of Trust 2, 000,000 Promissory note payable to financial institution due March 2009, bearing interest at 6.58% 1, 106,642 -------------- 3, 155,953 Less current maturities 2, 049,311 -------------- $ 1, 106,642 ============== 10 Note 3: Line of Credit and Other Short-Term Borrowings A subsidiary, Transportation Equipment Leasing, LLC (TEL), has secured revolving credit facilities with four banks that provide for maximum borrowings of $30,000,000 prior to September 30, 2007, although any borrowings may, at TEL's option, be converted to a two-year term loan on or before September 30, 2007. The credit facilities are secured by assignments of lease proceeds for certain groups of equipment leased by TEL to its major customer, Contract Freighters, Inc. Interest on outstanding borrowings is based on the Daily Reset LIBOR rate (5.35% as of December 31, 2006) plus an increment ranging from 45 to 65 basis points. As of December 31, 2006, there was a total of $6,440,000 outstanding on the four credit facilities with $23,560,000 available for additional advances. Another subsidiary, Contract Freighters, Inc., has an unsecured revolving credit facility with a bank that provides for maximum borrowings or letters of credit issuances in the amount of $25,000,000 prior to November 30, 2007, and $6,000,000 thereafter through December 1, 2008. There were $11,508,368 in undrawn upon letters of credit outstanding as of December 31, 2006. There was capacity for advances or additional letters of credit in the amount of $13,491,632 at December 31, 2006. Interest on outstanding borrowings (none at December 31, 2006) is based on the Daily Reset LIBOR rate plus an increment ranging from 50 to 100 basis points, depending upon a defined financial ratio. This facility contains a conditional security agreement that becomes effective upon the occurrence of certain triggering events as defined in the agreement. The revolving credit facility contains customary covenants which, among other things, require that certain financial ratios are maintained. Note 4: Retirement Plan A 401(k) profit-sharing plan is available to U.S. employees who have completed one year of service. Participants may contribute between 1% and 50% of their compensation to the plan. The Company matches 50% of the participants' contributions up to 7% of individual compensation. Matching contributions were $1,040,410 in 2006. Note 5: Stock Based Awards The Company has a management stock incentive plan under which stock awards may be granted to key employees of the Company and its subsidiaries as designated by the Board of Directors. A maximum of 15% of the total number of issued and outstanding shares of Company stock may be issued pursuant to this plan. Fair value of the stock issued is equal to the net book value per share of the Company as of the end of the calendar month immediately preceding the date of the grant. Provisions of the plan restrict the sale and transfer of shares. Upon any retirement or cessation of employment, the shares must be sold to the Company at net book value as of the preceding month end. 11 There was $2,943,895 of non-cash compensation expense related to the appreciation in book value of the shares outstanding under this plan. Certain recipients of the grants may elect to receive a component of the grant in cash. The book value of the stock awards and cash payments elected under the plan provision were charged against current earnings and totaled $5,914,755. Note 6: General Litigation The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations and cash flows of the Company. Note 7: Subsequent Events On January 9, 2007, the Board of Directors declared a distribution of $2,594,575 to shareholders of record as of that date, paid on January 12, 2007. Note 8: Adoption of New Accounting Standard - Stock-Based Compensation In 2006, the Company adopted the 2004 revision of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, in accordance with the modified retrospective transition method. The modified retrospective transition method allows the Company to adjust financial statements for prior periods to give effect to the fair-value-based method of accounting for stock awards granted, modified or settled in cash in prior years. Because the Company's award program provides stock awards to be settled at net book value, the awards are valued at net book value which approximates fair value. Adoption of SFAS No. 123 required the Company to reduce equity and increase long-term liabilities by $7,326,426 for awards granted prior to January 1, 2006. As of January 1, 2006, previously reported equity was reduced and long-term liabilities were increased by $7,326,426. Previously reported compensation expense for the year ended December 31, 2005, was increased by $147,999. Note 9: Adoption of New Accounting Standard - Exchanges of Nonmonetary Assets In 2006, the Company adopted SFAS No. 153, Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29. APB Opinion No. 29, Accounting for Nonmonetary Transactions, requires that exchanges of nonmonetary assets be measured and reported on the fair value of the assets exchanged. The opinion provided certain exceptions to that principle for the exchange of similar productive assets. SFAS No. 153 eliminates that exception. Prior to 2006, the Company reduced the carrying value of new tractors and trailers by any gain on trades. Beginning in 2006, gains are reported on the fair value of assets exchanged and resulted in $12,778,811 of gains recognized for the year ended December 31, 2006. 12 Note 10:Future Change in Accounting Principles The Financial Accounting Standards Board recently issued Interpretation No. 48 Accounting for Uncertainty in Income Taxes, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. The Company expects to first apply the new statement during fiscal year ending December 31, 2007. The impact of applying the new statement has not yet been determined. The Financial Accounting Standards Board recently issued Statement No. 157 Fair Value Measurements, which requires expanded disclosures about fair value measurements. The Company expects to first apply the new statement during fiscal year ending December 31, 2008, through prospective application. The impact of applying the new statement has not yet been determined. 13