ATS Andlauer Income Fund Releases September 30, 2005 Financial Statements.TORONTO Toronto (tərŏn`tō), city (1998 est pop. 2,400,000), provincial capital, S Ont., Canada, on Lake Ontario. Toronto is the largest city in Canada and since the 1970s has been one of the fastest-changing cities in North America, experiencing -- ATS Andlauer Income Fund (the "Fund") (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :ATS.UN) is pleased to announce the release of its September September: see month. 30, 2005 financial statements. On September 30, 2005, the Fund completed an initial public offering ("IPO (Initial Public Offering) The first time a company offers shares of stock to the public. While not a computer term per se, many founders, employees and insiders of computer companies have found this acronym more exciting than any tech term they ever heard. ") of 9,324,200 trust units ("Fund Units") for $10.00 per unit, for gross proceeds of $93.2 million. Concurrent At the same time. It implies that multiple processes are taking place simultaneously. See concurrent operation. with the closing of the IPO, the Fund used the gross proceeds from the sale of its Fund Units to indirectly acquire an 80.1% interest in ATS Andlauer Transportation Services Limited Partnership ("ATS Andlauer LP"), comprising 9,324,200 Ordinary LP Units, and ATS Andlauer LP used cash and the issuance of Exchangeable LP Units to acquire certain of the net assets Net assets The difference between total assets on the one hand and current liabilities and noncapitalized long-term liabilities on the other hand. net assets See owners' equity. of the Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. transportation solutions business (the "Business"), of ATS Andlauer Transportation Services Inc. (the "Vendor"), for an aggregate purchase price of $121.0 million. The Vendor holds the remaining 19.9% interest in ATS Andlauer LP comprising 2,316,442 Exchangeable LP Units. The Fund was inactive in·ac·tive adj. 1. Not active or tending to be active. 2. a. Not functioning or operating; out of use: inactive machinery. b. prior to completing its IPO and accordingly, statements of operations and cash flows have not been presented as part of the consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: interim financial statements. The consolidated interim financial statements present the transactions relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the IPO as of September 30, 2005. Since the acquisition was completed on the last day of September, to provide more meaningful information to investors, the Management Discussion and Analysis ("MD&A") that accompanying ac·com·pa·ny v. ac·com·pa·nied, ac·com·pa·ny·ing, ac·com·pa·nies v.tr. 1. To be or go with as a companion. 2. the financial statements refers to the pre-acquisition operating results of the Business. Readers are cautioned that the operating results discussed in the MD&A are not the results of the Fund. ATS Andlauer LP is a leading single source transportation solutions provider in Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of , providing integrated trucking, courier A monospaced typeface originating from the typewriter that is commonly used for letters. It is still considered by many to be the "appropriate" typeface for business correspondence. , air freight air freight n → flete m por avión air freight n → fret aérien air freight air n → Luftfracht f and value added Value Added The enhancement a company gives its product or service before offering the product to customers. Notes: This can either increase the products price or value. transportation and distribution services to consumer product companies. It operates facilities in 23 centres across Canada Across Canada was an afternoon program that formerly aired on The Weather Network. The segment ran from early 1999 until mid 2002. The show ran from 3:00PM ET until 7:00 PM ET. and serves approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 1,400 diversified diversified (di·verˑ·s customers. The Fund's units trade on the Toronto Stock Exchange Toronto Stock Exchange (TSE) Canada's largest stock exchange, trading approximately 1,200 company stocks and 33 options. under the symbol ATS.UN. Additional information relating to the Fund, including all public filings, is available on www.sedar.com. Management's Discussion and Analysis Management's discussion and analysis (MD&A) A report from management to shareholders that accompanies the firm's financial statements in the annual report. It explains the period's financial results and enables management to discuss topics that may not be apparent in the financial September 30, 2005 The following management's discussion and analysis ("MD&A") as of November November: see month. 9, 2005, is a review of the financial condition of ATS Andlauer Income Fund ("the Fund") and the results of the pre-acquisition operations of the Canadian transportation solutions Business as defined below. It should be read in conjunction conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. with the interim financial statements and accompanying notes of the Fund for the initial period ending September 30, 2005 and with the final prospectus Final Prospectus A legal document stating the price of a newly issued security, the delivery date, and other facts that are important for investors. Notes: The final prospectus must be given to every investor who purchases a new issue of registered securities. of the Fund dated September 22, 2005. The financial statements of the Fund are prepared in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with Canadian generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting ("GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). "). The fiscal year of the Fund ends December December: see month. 31. The following discussion contains certain forward looking statements, which are subject to a variety of factors that could cause actual results to differ materially from those contemplated by these statements. See ''Forward Looking Statements'' for a discussion of the risks, uncertainty and assumptions relating to those statements. Some of the factors that could cause results or events to differ from current expectations include, but are not limited to, the factors described under ''Risk Factors''. This discussion also refers to certain non-GAAP measures to assist in assessing the Fund's financial performance. Non-GAAP measures do not have standard meanings prescribed pre·scribe v. pre·scribed, pre·scrib·ing, pre·scribes v.tr. 1. To set down as a rule or guide; enjoin. See Synonyms at dictate. 2. To order the use of (a medicine or other treatment). by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. See ''Definition of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become , Adjusted EBITDA, and Non-GAAP Measures". FORMATION OF THE FUND The Fund is an unincorporated Adj. 1. unincorporated - not organized and maintained as a legal corporation unorganised, unorganized - not having or belonging to a structured whole; "unorganized territories lack a formal government" open-ended o·pen-end·ed adj. 1. Not restrained by definite limits, restrictions, or structure. 2. Allowing for or adaptable to change. 3. trust governed gov·ern v. gov·erned, gov·ern·ing, gov·erns v.tr. 1. To make and administer the public policy and affairs of; exercise sovereign authority in. 2. by the laws of the Province of Ontario Ontario, city, United States Ontario, city (1990 pop. 133,179), San Bernardino co., S Calif., near Los Angeles, in a region of vineyards; inc. 1891. pursuant to the Declaration of Trust dated August 22, 2005. On September 30, 2005, the Fund completed an initial public offering ("IPO") of 9,324,200 trust units ("Fund Units") for $10.00 per unit, for gross proceeds of $93.2 million. Concurrent with the closing of the IPO, the Fund used the gross proceeds from the sale of its Fund Units to indirectly acquire an 80.1% interest in ATS Andlauer Transportation Services Limited Partnership ("ATS Andlauer LP"), comprising 9,324,200 Ordinary LP Units, and ATS Andlauer LP used cash and the issuance of Exchangeable LP Units to acquire certain of the net assets of the Canadian transportation solutions business (the "Business"), of ATS Andlauer Transportation Services Inc. (the "Vendor"), for an aggregate purchase price of $121.0 million. The Vendor holds the remaining 19.9% interest in ATS Andlauer LP comprising 2,316,442 Exchangeable LP Units. The acquisition was accounted for by the purchase method. ATS Andlauer LP is now a leading single source transportation solutions provider in Canada, providing integrated trucking, courier, air freight and value added transportation and distribution services to consumer product companies. It operates facilities in 23 centres across Canada and serves approximately 1,400 diversified customers. DISTRIBUTIONS The Fund intends to make monthly cash distributions to the unitholders of record on the last business day of each month, payable on or about the 15th day of the following month. The first distribution for the Fund was declared de·clare v. de·clared, de·clar·ing, de·clares v.tr. 1. To make known formally or officially. See Synonyms at announce. 2. To state emphatically or authoritatively; affirm. 3. on October October: see month. 19, 2005 for unitholders of record on October 31, 2005. The first distribution will cover the period from September 30, 2005 to October 31, 2005 in the amount of $0.085 per Unit and be paid on November 15, 2005. BASIS OF MANAGEMENT'S DISCUSSION AND ANALYSIS The Fund was established on August 22, 2005 and indirectly acquired the Business of the Vendor through the acquisition of an indirect 80.1% interest in ATS Andlauer LP on September 30, 2005. Accordingly, consolidated statements of earnings and cash flows for the period ending September 30, 2005 have not been provided. Therefore, to provide meaningful information to the reader, the following MD&A refers to the pre-acquisition operating results of the Business for the three month period ended September 30, 2005 compared to the pre-acquisition results of operations of the Business for the same period for fiscal 2004. Commencing in April 2004, the domestic operations of Concord Concord, cities, United States Concord (kŏng`kərd, kŏn`kôrd'). 1 city (1990 pop. 111,348), Contra Costa co., W central Calif.; settled c.1852, inc. 1906. Transportation Inc. ("Concord"), a wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. of the Vendor, were integrated into those of the Business and the domestic customers of Concord were migrated to the Business or discontinued dis·con·tin·ue v. dis·con·tin·ued, dis·con·tin·u·ing, dis·con·tin·ues v.tr. 1. To stop doing or providing (something); end or abandon: . Accordingly the results of the comparative period were impacted by certain integration costs and as such the three month period ending September 30, 2004 does not represent typical operating results of the Business. The integration of the domestic operations and the migration of the domestic customers of Concord was completed effective November 1, 2004. Readers are cautioned that the operating results presented are not the results of the Fund for the three month period ended September 30, 2005 and have been presented only to provide the reader with additional information to enhance the usefulness of this MD&A. PRE-ACQUISITION THIRD QUARTER RESULTS Selected Financial and Operating Information The following selected historical financial and operating information has been derived de·rive v. de·rived, de·riv·ing, de·rives v.tr. 1. To obtain or receive from a source. 2. from the unaudited historical financial statements of the Business pre-acquisition.
Three Months Ended
September 30,
2005 2004
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(unaudited) (unaudited)
($ thousands)
Earnings Statement Highlights
Revenue 43,025 33,651
Gross margin(1) 16,835 11,923
Gross margin percentage 39.1% 35.4%
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Net Income 3,598 1,561
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EBITDA(2) 5,786 2,596
Adjusted EBITDA(3) 6,083 2,803
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(1) Gross margin is a non-GAAP measure that represents the contribution of operating activities to earnings. It is considered a key measure by Management as it reflects the ability of the Business to generate earnings necessary to fund overhead costs overhead costs see fixed costs. , capital investment and distributions. Gross margin has been calculated as follows:
Three Months Ended
September 30,
2005 2004
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(unaudited) (unaudited)
($ thousands)
Revenue 43,025 33,651
Cost of sales 26,189 21,728
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Gross margin 16,836 11,923
Gross margin (percentage) equals
Gross margin / Revenue 39.1% 35.4%
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(2) EBITDA is a non-GAAP measure that Management considers a key measure as an indicator Indicator Anything used to predict future financial or economic trends. Notes: In the context of technical analysis, an indicator is a mathematical calculation based on a securities price and/or volume. The result is used to predict future prices. of the ability of the Business to meet its capital and financing commitments. EBITDA is not a recognized measure under GAAP and does not have a standardized standardized pertaining to data that have been submitted to standardization procedures. standardized morbidity rate see morbidity rate. standardized mortality rate see mortality rate. meaning under GAAP. EBITDA may not be comparable to similar measures presented by other issuers. See "Definition of EBITDA, Adjusted EBITDA, and Non-GAAP Measures". EBITDA has been calculated as follows:
Three Months Ended
September 30,
2005 2004
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(unaudited) (unaudited)
($ thousands)
Net income 3,598 1,561
Plus: Income taxes 2,035 882
Plus: Depreciation and amortization 153 153
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EBITDA 5,786 2,596
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(3) Adjusted EBITDA represents EBITDA adjusted for certain items that Management believes facilitate the comparability of historical periods. EBITDA and Adjusted EBITDA may not be comparable to similar measures presented by other issuers. See "Definition of EBITDA, Adjusted EBITDA, and Non-GAAP Measures". Revenue Revenue is generated from the provision of trucking, courier, air freight forwarding and value added services to customers. Customers pay fees to transport goods from one destination to another over a fixed time period. Fees are determined and collected based on the weight and size of the shipment, the mode or modes of transportation used, and the provision of incremental Additional or increased growth, bulk, quantity, number, or value; enlarged. Incremental cost is additional or increased cost of an item or service apart from its actual cost. value added services such as temperature management, appointment deliveries, and returns management services. Revenue is generally categorized cat·e·go·rize tr.v. cat·e·go·rized, cat·e·go·riz·ing, cat·e·go·riz·es To put into a category or categories; classify. cat as either ground or air, depending on the primary mode of transport. Revenue is also generated from fuel surcharges through which fuel price increases are passed through to its customers. Costs and Expenses The following costs are incurred associated with the delivery of services to customers: - Linehaul - includes ground and air freight transfers between facilities. A combination of third party carriers, owner-operators and company drivers are used to facilitate the movement of freight The price or compensation paid for the transportation of goods by a carrier. Freight is also applied to the goods transported by such carriers. The liability of a carrier for freight damaged, lost, or destroyed during shipment is determined by contract, statute, or , keeping its costs variable. - Pickup Pickup A gain in yield made by selling one bond and buying another. Also referred to as "yield pickup." Notes: When the present yield is relatively low compared to the longer-term yields, pickups will be done by investors trying to increase the yield and duration of their and delivery - relates to the pickup and subsequent delivery of customer freight. Owner-operators who own the equipment used to deliver the freight are used extensively in the provision of such services. In addition, employee drivers are used for some city work using equipment leased by the company. It is able to add additional rental RENTAL. A roll or list of the rents of an estate containing the description of the lands let, the names of the tenants, and other particulars connected with such estate. This is the same as rent roll, from which it is said to be corrupted. units or use third party carriers when necessary. - Handling costs - relates to dock labour at the various terminals to handle freight. By using contract labour, the company is able to maintain a cost variable with revenue and allows for additional labour staffing during peak periods. In addition, the following costs are incurred: - Terminal expenses, which include salaries, employee benefits, utilities, building rent, maintenance and equipment expenses. - Selling expenses, which include sales salaries, commissions and travel expenses. - Administrative expenses, which include executive salaries, information technology, human resources The fancy word for "people." The human resources department within an organization, years ago known as the "personnel department," manages the administrative aspects of the employees. , accounting and training expenses. Seasonality of Operations The activities of the Business are subject to general demand for freight transportation. Historically, demand has been rather stable with the exception of the winter months, in which demand slightly decreases, and the fall months, in which demand increases. Consequently, the Business's activities in its second, third and fourth quarters are usually stronger than the first quarter. RESULTS OF PRE-ACQUISITION OPERATIONS For the three months ended September 30, 2005 compared to the three months ended September 30, 2004
Three Months Ended
September 30,
2005 2004
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(unaudited) (unaudited)
($ thousands)
Revenue 43,025 33,651
Cost of goods sold 26,189 21,728
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Gross margin 16,835 11,923
Gross margin % 39.1% 35.4%
Terminal 6,971 6,020
Selling 1,594 1,303
Administration 2,638 2,157
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Income before income taxes 5,633 2,443
Income taxes 2,035 882
Net Income 3,598 1,561
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Revenue Revenue for the three months ended September 30, 2005 was $43.0 million, an increase of $9.3 million or 27.9% over $33.7 million for the same period in 2004. Organic growth of the existing customer base accounted for 74.4% of the total dollar revenue increase, fuel surcharges accounted for 23.0%, and new account generation represented 9.1% while account attrition Attrition The reduction in staff and employees in a company through normal means, such as retirement and resignation. This is natural in any business and industry. Notes: reduced revenue by 6.5%. All three major customer categories - entertainment, pharmaceutical and health care and consumer products - experienced volume increases in the current period resulting in the significant quarter over quarter organic growth. In particular, unforeseen weekend activity in the entertainment vertical caused a spike A burst of extra voltage in a power line that lasts only a few nanoseconds. See power surge, power swell, sag and surge suppression. (jargon) spike - To defeat a selection mechanism by introducing a (sometimes temporary) device that forces a specific result. in volumes during the month of September 2005. Cost of Sales and Gross Margin Cost of sales increased from $21.7 million for the period ending September 30, 2004 to $26.2 million for the period ending September 30, 2005; however cost of sales as a percentage of revenue decreased from 64.6% for the period ending September 30, 2004 to 60.9% for the period ending September 30, 2005. Linehaul and pickup and delivery costs as a percentage of revenue decreased by approximately 2.8% in the current quarter compared to the same period in the prior year as a result of higher linehaul payloads (pounds per trailer In communications, a code or set of codes that make up the last part of a transmitted message. See trailer label. ) due to increased volumes, and improved pickup and delivery costs as a result of an increase in coincidence Coincidence is the noteworthy alignment of two or more events or circumstances without obvious causal connection. The word is derived from the Latin co- ("in", "with", "together") and incidere ("to fall on"). of delivery. Handling costs as a percentage of revenue decreased by about 0.9% in the period ending September 30, 2005 compared to the same period in 2004 as a result of improved productivity relating to dock labour as a result of increased volumes and increased management focus. Gross margin increased from 35.4% for the three months ended September 30, 2004 to 39.1% for the same period in 2005 due to the combined effect of increased activity, including premium weekend activity, improved linehaul payloads, higher coincidence of delivery, improved labour productivity, and the absence of integration costs relating to Concord. Terminal Expenses Terminal expenses increased from $6.0 million for the three months ended September 30, 2004 to $7.0 million in the same period in 2005. The increase was mainly a result of an increase in wages of $0.3 million and rent and utilities of $0.4 million due to additional resources required compared to the previous year to support revenue growth. Terminal expenses as a percentage of revenue declined by 1.6%. Selling and Administrative Sales and marketing expenses increased from $1.3 million for the three months ended September 30, 2004 to $1.6 million for the same period in 2005. The increase in selling costs was due to an increase in sales commissions and rebates as a result of increased revenue. Selling costs as a percentage of revenue declined by 0.2%. Administrative expenses increased from $2.2 million for the three months ended September 30, 2004 to $2.6 million in the same period in 2005 due to an increase in salary costs of $0.2 million and an increase in incentive plan payments of $0.2 million. As a percentage of revenue, administrative expenses declined by 1.0%. Net Income Net income for the three month period ending September 30, 2005 was $3.6 million, or 8.3% of revenue, compared to $1.6 million, or 4.6% of revenue, for the same period in 2004. Adjusted EBITDA Adjusted EBITDA was $6.1 million for the three months ended September 30, 2005, up from $2.8 million in the same period in 2004, representing growth of 115.6%. The increase was the result of the significant growth in revenue coupled with the increase in gross margin. As a percentage of revenue, Adjusted EBITDA was 14.0% for the three months ended September 30, 2005, compared to 8.3% in the same period in 2004. Adjusted EBITDA for these periods is calculated as follows:
Three Months Ended
September 30,
2005 2004
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(unaudited) (unaudited)
($ thousands)
Net income 3,598 1,561
Add:
Depreciation and amortization 153 153
Income taxes 2,035 882
Executive compensation and management fees 126 7
Other 171 200
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Adjusted EBITDA 6,083 2,803
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Amortization expenses remained stable over the three months ended September 30, 2005 and 2004 at approximately $0.15 million. Income tax expense was recorded at an effective rate of 36.12% for both the three months ended September 30, 2005 and the three months ended September 30 2004. LIQUIDITY AND CAPITAL RESOURCES Credit Facilities credit facilities npl → facilidades fpl de crédito credit facilities npl → facilités fpl de paiement credit facilities At the time of its IPO, ATS Andlauer LP established credit facilities with a Canadian chartered bank Chartered Bank A financial institution whose primary roles are to accept and safeguard monetary deposits from individuals and organizations, and to lend money out. The details vary from country to country, but usually a chartered bank in operation has obtained government permission . These credit facilities consist of a three year committed $15.0 million revolving credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. facility to finance general operating requirements, as well as a three year committed $4.0 million revolving credit facility to finance future leases of operational assets, collectively the "Credit Facilities". Security for the Credit Facilities includes a first security interest on substantially all of the assets of the Fund and its subsidiaries, including accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying . Interest on the Credit Facilities will vary, depending on certain financial ratios, between the lender's Canadian prime rate plus 0% and 0.75% and between the bankers' acceptance A bankers' acceptance, or BA, is a time draft drawn on and accepted by a bank. Before acceptance, the draft is not an obligation of the bank; it is merely an order by the drawer to the bank to pay a specified sum of money on a specified date to a named person or to the rate plus 1.5% and 2.25%. The Credit Facilities are subject to customary terms and conditions, including limits on incurring in·cur tr.v. in·curred, in·cur·ring, in·curs 1. To acquire or come into (something usually undesirable); sustain: incurred substantial losses during the stock market crash. 2. additional indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. or granting encumbrances without the consent of the lender LENDER, contracts. He from whom a thing is borrowed. 2. The contract of loan confers rights, and imposes duties on the lender. 1. The lender has the right to revoke the loan at his mere pleasure; 9 Cowen, R. 687; 8 Johns. Rep. 432; 1 T. R. 480; 2 Campb. Rep. . The terms of the Credit Facilities are subject to change from time to time. The Credit Facilities may in certain circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or restrict In the C programming language, the data pointed to by a pointer declared with the restrict qualifier may not be pointed to by any other pointer. This allows for more effective optimization. the ability of ATS Andlauer LP to pay distributions to the holders of its Units, including the Fund, and of the Fund to pay distributions to Unitholders if the payment would result in a default under the Credit Facilities. At the closing of the IPO, $5.6 million was drawn on the $15.0 million revolving credit facility in order to fund the purchase of the Business of the Vendor. The $4.0 million three year committed revolving credit facility has not been utilized to date. Management believes that the credit facilities are sufficient to meet the Fund's working capital requirements Capital requirements Financing required for the operation of a business, composed of long-term and working capital plus fixed assets. . Capital Expenditures On September 30, 2005, the Fund indirectly acquired property and equipment $2.0 million from the Vendor. Capital expenditures of $0.4 million are anticipated for the balance of the year. Future capital expenditures will be funded from cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses . SUMMARY OF CONTRACTUAL OBLIGATIONS As at September 30, 2005, the Fund did not have any off-balance sheet arrangements other than those disclosed dis·close tr.v. dis·closed, dis·clos·ing, dis·clos·es 1. To expose to view, as by removing a cover; uncover. 2. To make known (something heretofore kept secret). below:
Payments
($ thousands)
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Total 2005 2006 2007 2008 2009 Thereafter
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Premise
leases(1)(2) 49,719 1,447 6,747 5,883 5,444 5,259 24,939
Equipment
leases(1)(3) 15,810 1,077 4,102 3,676 3,353 2,875 727
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Total(4) 65,530 2,524 10,849 9,559 8,797 8,134 25,666
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Notes: (1) Payments for operating leases Operating Lease A lease contract that allows the use of an asset, but does not convey rights similar to ownership of the asset. Notes: An operating lease is not capitalized it is accounted for as a rental expense. are deducted de·duct v. de·duct·ed, de·duct·ing, de·ducts v.tr. 1. To take away (a quantity) from another; subtract. 2. To derive by deduction; deduce. v.intr. from cash flow from operating activities. (2) Premise PREMISE Productivity in Embedded Software Engineering of Electronics Based Equipment leases include minimum lease payment obligations associated with leases for office and terminal space. (3) Equipment leases include minimum lease payment obligations associated with leases for trucks and trailers required for the transportation of freight. (4) Purchase arrangements made in the ordinary course of business have been excluded as they are discretionary. TRANSACTIONS WITH RELATED PARTIES During the three months ending September 30, 2005 and September 30, 2004, the Business entered into the following transactions with related parties, which were accounted for at their exchange amount:
Three Months Ended
September 30,
2005 2004
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(unaudited) (unaudited)
($ thousands)
Paid transportation costs to Concord 1,788 1,752
Received transportation revenue
from Concord 863 547
Paid management fees to AMG 125 125
Paid for labour from Read Staffing
Solutions Inc. 1,500 1,427
Paid lease payments to 9143-5271
Quebec Inc. 225 -
Paid rent for use of equipment from
Andlauer Leasing Inc. 151 257
Received transportation revenue from
Associated Logistics Solutions Inc. 44 206
Received transportation revenue from
Logisti-Solve Inc. 92 46
Paid rent to Andlauer Properties Inc. 18 18
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Note: The President and Chief Executive Officer or his spouse spouse A legal marriage partner as defined by state law directly or indirectly controls all of these companies. CRITICAL ACCOUNTING POLICIES AND ESTIMATES In preparing its financial statements and accounting for the underlying transactions and balances, the Fund has applied the accounting policies as disclosed in the notes to the financial statements Notes to the financial statements A detailed set of notes immediately following the financial statements in an annual report that explain and expand on the information in the financial statements. of the Fund. Preparation of the Fund's financial statements in conformity with GAAP requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets Contingent Asset An asset in which the possibility of ownership depends solely upon future events uncontrollable by the company. Notes: An example might be a settlement from a lawsuit. See also: Asset, Balance Sheet, Contingent Liability, Liability and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. The Fund evaluates estimates and judgments on an ongoing basis including those related to the determination of reserves for the allowance for doubtful accounts Allowance for Doubtful Accounts An estimation made by a company and documented on its balance sheet for receivables that might go uncollected. Notes: It is standard practice for a company to have funds set aside for money that cannot be collected. , amortization expense, and evaluation of contingent liabilities Contingent Liability 1. The possibility of an obligation to pay certain sums dependent on future events. 2. Defined obligations by a company that must be met, but the probability of payment is minimal. Notes: 1. . Estimates are based on historical experience and various other factors believed to be reasonable under the circumstances. The more significant accounting estimates are as follows: Accounts receivable valuation The Fund records a valuation allowance covering its accounts receivable. The allowance is composed of both a provision for revenue adjustments as well as potential future bad debts. Revenue adjustments represent revisions ReVisions is a 2004 anthology of alternate history short-stories. It is edited by Julie E. Czerneda and Isaac Szpindel. Contents Title Author The Resonance of Light James Alan Gardner Out of China Julie E. to rates previously invoiced to customers. The provision for revenue adjustments is established by Management based on both actual adjustments and a formula based on past rate adjustment experience as a percentage of gross revenue. The Fund also performs ongoing credit evaluations of its customers' financial condition with the objective of assessing the likelihood that accounts receivable may not be collectible collectible An asset of limited supply that is sought for a variety of reasons including, it is hoped, an increase in value. Stamps, antiques, coins, and works of art are among the many things usually classified as collectibles. from customers due to credit risk. Potential credit risk can arise through industry conditions but it is Management's opinion that the risk is low. The Fund had recorded a valuation allowance of $0.4 million at September 30, 2005. Capital assets capital assets n. equipment, property, and funds owned by a business. (See: capital, capital account) and amortization Capital assets are recorded at acquisition cost. Amortization is provided as follows: Computer equipment 30% declining balance Furniture 20% declining balance Leasehold improvements term of the lease Pickup and delivery equipment 20% declining balance Allocation The apportionment or designation of an item for a specific purpose or to a particular place. In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as of purchase price The acquisition has been accounted for by the purchase method. The purchase price is subject to a working capital adjustment which has not been finalized See finalization. , and accordingly, the final allocation of fair value of net assets acquired has yet to be completed. Financial Instruments The Fund's financial instruments consist of cash, accounts receivable, and accounts payable and accrued liabilities Accrued liabilities are liabilities which have occurred, but have not been paid or logged under accounts payable during an accounting period; in other words, obligations for goods and services provided to a company for which invoices have not yet been received. and are shown at fair value. It is Management's opinion that the Fund is not exposed to significant interest rate or currency risks. Financial instruments that potentially subject the Fund to concentrations of credit risk consist principally of accounts receivable. See ''Management's Discussion and Analysis of Financial Condition and Results of Operations -Critical Accounting Estimates - Accounts receivable valuation''. OUTLOOK The Management of the Fund believes that following the recent transactions the funds available under the Credit Facilities and the Fund's ongoing cash flow from operations will be sufficient to allow it to meet ongoing requirements for capital expenditures, working capital and distributions over the next 12 months. The Fund's future needs may, however, change and in such an event the Fund's ability to satisfy its obligations will be dependent upon its future financial performance, which in turn will be subject to a number of risks and uncertainties, including elements beyond the Fund's control. See "Risk Factors". The Fund expects to continue to achieve organic growth with the existing customer base and obtain new customers due to its competitive position in the healthcare industry, in particular its ability to offer temperature management services. FORWARD LOOKING STATEMENTS This management's discussion and analysis contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. . All statements other than statements of historical fact contained in this management's discussion and analysis are forward-looking statements, including, without limitation, statements regarding the future financial position, cash distributions, business strategy, proposed acquisitions, budgets, litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. , projected costs and plans and objectives of or involving the Fund or ATS Andlauer LP. You can identify many of these statements by looking for Looking for In the context of general equities, this describing a buy interest in which a dealer is asked to offer stock, often involving a capital commitment. Antithesis of in touch with. words such as ''believe'', ''expects'', ''will'', ''intends'', ''projects'', ''anticipates'', ''estimates'', ''continues'' or similar words or the negative thereof. These forward-looking statements include statements with respect to the amount and timing of the payment of the distributions of the Fund. There can be no assurance that the plans, intentions or expectations upon which these forward-looking statements are based will occur. Forward looking statements are subject to risks, uncertainties and assumptions, including, but not limited to, those discussed elsewhere in this management's discussion and analysis. There can be no assurance that such expectations will prove to be correct. Some of the factors that could affect future results and could cause results to differ materially from those expressed in the forward-looking statements contained herein include, but are not limited to, those discussed under 'Risks Factors". The information contained in this management's discussion and analysis, including the information set forth under ''Risk Factors'', identifies additional factors that could affect the operating results and performance of the Fund and ATS Andlauer LP. The forward-looking statements contained herein are expressly qualified in their entirety The whole, in contradistinction to a moiety or part only. When land is conveyed to Husband and Wife, they do not take by moieties, but both are seised of the entirety. by this cautionary statement. The forward-looking statements included in this management's discussion and analysis are made as of the date of this management's discussion and analysis and the Fund assumes no obligation to update or revise them to reflect new events or circumstances except as expressly required by applicable securities law. DEFINITION OF EBITDA, ADJUSTED EBITDA, AND NON-GAAP MEASURES References in this MD&A to: ''EBITDA'' are to net income before provision for interest, income taxes and depreciation and amortization. Management believes that in addition to net income or loss, EBITDA is a useful supplemental measure of cash available for distribution before debt service, changes in working capital, maintenance capital expenditures and taxes. ''Adjusted EBITDA'' are to EBITDA adjusted for certain non-recurring items that Management believes facilitate the comparison of historical periods. Non-recurring items are transactions or events that Management believes are unusual in the context of a publicly-traded issuer in the transportation services industry and are not expected to reoccur within the foreseeable fore·see tr.v. fore·saw , fore·seen , fore·see·ing, fore·sees To see or know beforehand: foresaw the rapid increase in unemployment. future and include management salaries and fees (paid to owner-managers and related parties) and other non-recurring items. EBITDA, and Adjusted EBITDA are measures that are not recognized by generally accepted accounting principles in Canada (''GAAP'') and do not have standardized meanings prescribed by GAAP. Therefore, EBITDA, and Adjusted EBITDA may not be comparable to similar measures presented by other issuers. Investors are cautioned that EBITDA, and Adjusted EBITDA should not be construed as alternatives to net income or loss determined in accordance with GAAP as indicators of the Fund's performance. ''Gross margin'' is a non-GAAP measure that represents the contribution of operating activities to earnings. It is considered a key measure by Management as it reflects the ability of the Business to generate earnings necessary to fund overhead costs, capital investment and distributions. It is calculated by deducting cost of goods sold Cost of goods sold The total cost of buying raw materials, and paying for all the factors that go into producing finished goods. cost of goods sold from revenue. RISK FACTORS General Economic Conditions The price of fuel, equipment, and other input costs, insurance costs, interest rates, fluctuations in customers' business cycles and national and regional economic conditions are economic factors over which the Fund has little or no control. Demand for transportation services is closely linked to the state of the overall economy. Consequently, a decline in general economic growth may adversely impact the Fund's performance. In addition, significant increases in fuel prices, equipment prices, other input prices, interest rates or insurance costs, to the extent not offset by increases in transportation rates or contractual surcharges, or disruptions in fuel supply, would reduce profitability and could adversely affect the Fund's ability to service its debts or maintain distributions. There can be no assurance of the Fund's ability to pass on fuel or other cost increases in the future and, in such event, cash distributions may be reduced. The Fund cannot predict the impact of future economic conditions and there is no assurance that the operations of the Fund will continue to be profitable. Reliance on Major Customers; Contract Renewals A significant proportion of ATS Andlauer LP's customers are under contract, with most of those contracts being able to be terminated ter·mi·nate v. ter·mi·nat·ed, ter·mi·nat·ing, ter·mi·nates v.tr. 1. To bring to an end or halt: on short notice. In addition, most of ATS Andlauer LP's customer contracts are subject to renewal annually. There can be no assurance that current customers will continue their relationships with ATS Andlauer LP or that contracts that come up for renewal will be renewed re·new v. re·newed, re·new·ing, re·news v.tr. 1. To make new or as if new again; restore: renewed the antique chair. 2. or, if they are renewed, that customers will contract for the same volume amounts to be transported or that they will pay the same rates and surcharges as they have in the past. The loss of one or more major customers, the failure to renew customer contracts, or any decrease in transportation volumes purchased or prices paid or any other changes to the terms of service (networking) Terms Of Service - (TOS) The rules laid down by an on-line service provider such as AOL that members must obey or risk being "TOS-sed" (disconnected). under renewed contracts could have a material adverse effect on ATS Andlauer LP's profitability and, as a result, the amount of cash available for distribution to Unitholders. A significant portion of ATS Andlauer LP's customer contracts, including contract renewals, are subject to competitive tender processes, and there can be no assurance that ATS Andlauer LP will be successful in acquiring new business or retaining existing business subject to competitive tender. Use of Third Party Transportation Providers As an air freight forwarder Forwarder Acts as a travel agent for cargo. A forwarder specializes in arranging the transport and completing required shipping documentation. Some are affiliated with NVOCC services. In the United States they are licensed by the Federal Maritime Commission. , ATS Andlauer LP purchases air cargo air cargo: see aviation. capacity from aircraft operators. Changes in the availability or price for air cargo could have a material adverse effect on ATS Andlauer LP's operations and financial condition thereby reducing cash available for distribution to Unitholders. ATS Andlauer LP routinely purchases linehaul services from truckload carriers Merrian-Webster online dictionary defines truckload as " a load or amount that fills or could fill a truck". A truckload carrier is a trucking company that generally contracts an entire trailer-load to a single customer. . Changes in the availability or price of such services could have a material adverse effect on ATS Andlauer LP's operations and financial condition thereby reducing cash available for distribution to Unitholders. Absence of Operating History as a Public Company Although Management has substantial experience in the freight transportation industry, it has limited experience operating ATS Andlauer LP as part of a public entity. To operate effectively, ATS Andlauer LP will be required to continue to implement changes in certain aspects of its business, improve and expand its management information systems and develop, manage and train management level and other employees to comply with on-going Adj. 1. on-going - currently happening; "an ongoing economic crisis" ongoing current - occurring in or belonging to the present time; "current events"; "the current topic"; "current negotiations"; "current psychoanalytic theories"; "the ship's current position" public company requirements. Failure to take such actions, or delay in the implementation thereof, could adversely its business, financial condition, liquidity and results of operations. Information Technology ATS Andlauer LP has made significant investments in information technology and relies on its information systems to support its business model. In the event that irreparable ir·rep·a·ra·ble adj. Impossible to repair, rectify, or amend: irreparable harm; irreparable damages. [Middle English, from Old French, from Latin damage was caused to ATS Andlauer LP's information systems and databases or the information contained in its information systems was lost, ATS Andlauer LP's operational ability would be impaired See assistive technology. and its ability to provide service to its customers compromised. In such event, ATS Andlauer LP's financial condition, results of operation, and the amount of cash available for distribution to Unitholders could be materially adversely affected. Changes in Tax Treatment of Income Trusts There is a risk that regulatory authorities Noun 1. regulatory authority - a governmental agency that regulates businesses in the public interest regulatory agency administrative body, administrative unit - a unit with administrative responsibilities could alter the tax treatment of trusts, the distribution of trust income, or the tax on corporations and dividends, which could affect the structure of income trusts such as the Fund and their market valuations. The Federal Government has recently stated it intends to review the effect of trusts and other flow-through entities A flow-through entity (FTE) is a corporate legal entity where income "flows through" to investors (unitholders) in the form of regular cash distributions. The FTE is normally the operating arm of a holdings company or trust to which the earnings from operations are transferred as a and tax changes may be made, which could adversely affect the tax treatment of trusts. As of this report those changes, if any, are unknown. For a discussion of these risks and other risks associated with an investment in Fund Units, see "Risk Factors" detailed in the Fund's final prospectus dated September 22, 2005 available at www.sedar.com.
Consolidated Interim Financial Statements
ATS Andlauer Income Fund
September 30, 2005
(unaudited)
ATS ANDLAUER INCOME FUND
Consolidated Balance Sheet
As at September 30, 2005
(Unaudited - in thousands of dollars)
---------------------------------------------------------------------
$
ASSETS
Current
Cash and cash equivalents 1,235
Accounts receivable 25,632
Prepaid expenses and deposits 1,442
---------------------------------------------------------------------
28,309
Capital assets (note 4) 2,029
Deferred financing costs 48
Goodwill 35,320
Intangible assets (note 5) 65,600
---------------------------------------------------------------------
131,306
---------------------------------------------------------------------
---------------------------------------------------------------------
LIABILITIES AND UNITHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 17,262
---------------------------------------------------------------------
Long-term debt (note 6) 5,595
---------------------------------------------------------------------
22,857
Non-controlling interest (note 7) 23,164
Unitholders' equity
Trust units (note 8) 85,285
---------------------------------------------------------------------
131,306
---------------------------------------------------------------------
---------------------------------------------------------------------
The accompanying notes are an integral component of the consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge 1. THE FUND ATS Andlauer Income Fund (the "Fund") is an unincorporated open-ended trust governed by the laws of the Province of Ontario pursuant to the Declaration of Trust dated August 22, 2005. The Fund was established to invest in the freight transportation business, through an indirect acquisition of the controlling interest controlling interest The ownership of a quantity of outstanding corporate stock sufficient to control the actions of the firm. Controlling interest often involves ownership of significantly less than 51% of a firm's outstanding stock because many owners fail of ATS Andlauer Transportation Services Limited Partnership ("ATS Andlauer LP") and its general partner, ATS Andlauer Transportation Services GP Inc. (the "GP"). The Fund was inactive prior to completing an initial public offering (the "IPO"), and through its indirect acquisition of the controlling interest of ATS Andlauer LP, acquired certain net assets of the Canadian transportation solutions business of ATS Andlauer Transportation Services Inc. (the "Vendor") on September 30, 2005. Accordingly, statements of operations and cash flows have not been presented and these consolidated financial statements present the transactions relating to the IPO as of September 30, 2005. The Fund is a leading single source transportation solutions provider in Canada, providing integrated trucking, courier, air freight and value added transportation and distribution services to consumer product companies. 2. INITIAL PUBLIC OFFERING AND ACQUISITION On September 30, 2005, the Fund completed an IPO of 9,324,200 trust units (the "Units") for $10.00 per unit, for gross proceeds of $93,242. The cost of issuing units was $7,957 for net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). of $85,285. On September 30, 2005, in conjunction with the IPO, the Fund used the proceeds of the offering, together with a portion of the funds drawn under its credit facilities (note 6) and the issuance of Exchangeable Limited Partnership Units of ATS Andlauer LP (note 7), to acquire certain of the net assets of the Canadian transportation solutions business of the Vendor for an aggregate purchase price of $121,047. The acquisition has been accounted for by the purchase method. The purchase price is subject to a working capital adjustment which has not been finalized, and accordingly, the final allocation of fair value of net assets acquired has yet to be completed. The preliminary allocation of the purchase price is summarized as follows:
$
---------------------------------------------------------------------
Net working capital 18,098
---------------------------------------------------------------------
Capital assets 2,029
Goodwill 35,320
Other intangible assets 65,600
---------------------------------------------------------------------
Net assets acquired 121,047
---------------------------------------------------------------------
---------------------------------------------------------------------
Consideration
Cash 93,242
Exchangeable Limited Partnership Units (note 7) 23,164
Preliminary Working Capital Adjustment (note 11) 4,641
---------------------------------------------------------------------
121,047
---------------------------------------------------------------------
---------------------------------------------------------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The unaudited interim consolidated financial statements of the Fund have been prepared by management in accordance with Canadian generally accepted accounting principles. The significant accounting policies are summarized as follows: Principles of consolidation The consolidated financial statements include the accounts of the Fund and its subsidiaries, ATS Andlauer Operating Trust, ATS Andlauer Transportation Services GP Inc., and ATS Andlauer Transportation Services Limited Partnership. All significant inter-company transactions have been eliminated on consolidation. Revenue recognition Revenue for freight transportation is recognized with the completion of freight forwarding services, which is generally at the time of delivery of the freight. Capital assets and amortization Capital assets are recorded at acquisition cost. Amortization is provided as follows: Computer equipment 30% declining balance Furniture 20% declining balance Leasehold improvements term of the lease Pickup and delivery equipment 20% declining balance Goodwill Goodwill represents the excess of the cost of an acquired business over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized and is tested for impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. on an annual basis or when an event or circumstance Circumstance or circumstances can refer to:
Intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. Intangible assets acquired that have a definite life, such as customer relationships and proprietary technology, are capitalized Capitalized Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives longer than one year. and amortized on a straight-line straight-line adj. 1. Lying in a straight line. 2. Relating to a device whose linkage produces or copies motion in straight lines. 3. basis over ten years and six years, respectively, and are further tested for impairment if events or circumstances indicate that the assets might be impaired. Intangible assets acquired that have an indefinite INDEFINITE. That which is undefined; uncertain. INDEFINITE, NUMBER. A number which may be increased or diminished at pleasure. 2. When a corporation is composed of an indefinite number of persons, any number of them consisting of a majority of those useful life, such as trademarks, are not amortized and are tested for impairment annually, or more frequently if events or circumstances indicate that the asset might be impaired. The impairment test compares the carrying amount of the intangible asset with its fair value and an impairment loss is recognized for the excess, if any. Impairment of long-lived long-lived adj. 1. Having a long life: a long-lived aunt. 2. Lasting a long time; persistent: a long-lived rumor. 3. assets The Fund reviews its long-lived assets, such as capital assets and intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the total of the expected undiscounted future cash flows is less than carrying amount of an asset, a loss, if any, is recognized to the extent that the carrying amount exceeds the fair value of the asset. Deferred financing costs Financing costs related to credit facilities are capitalized and amortized on a straight-line basis over the term of the credit facilities. Non-controlling interest Non-controlling interest represents a non-controlling equity interest in the Fund through exchangeable limited partnership units in ATS Andlauer LP, a subsidiary. Exchangeable unitholders are entitled en·ti·tle tr.v. en·ti·tled, en·ti·tling, en·ti·tles 1. To give a name or title to. 2. To furnish with a right or claim to something: to earnings that are economically ec·o·nom·i·cal adj. 1. Prudent and thrifty in management; not wasteful or extravagant. See Synonyms at sparing. 2. Intended to save money, as by efficient operation or elimination of unnecessary features; economic: equivalent to distributions of the Fund. The exchangeable units were recorded at the value which the Fund's Units were issued to the public through the IPO. Exchanges of exchangeable units are recorded at the carrying value Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. of the exchangeable units at issuance net of net earnings and distributions attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to participating units to the date of the exchange. Use of estimates The preparation of these consolidated financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, as at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. The more significant accounting estimates relate to revenue adjustments and the allocation of the purchase price of the acquired business to the identifiable net assets and their related useful lives. Management believes that the estimates utilized in preparing the consolidated financial statements are reasonable and prudent; however, actual results could differ from these estimates.
4. CAPITAL ASSETS
Capital assets consist of the following:
September 30, 2005
---------------------------------------------------------------------
Accumulated Net Book
Cost amortization Value
$ $ $
---------------------------------------------------------------------
Computer equipment 16 - 16
Furniture 559 - 559
Leasehold improvements 624 - 624
Pickup and delivery equipment 830 - 830
---------------------------------------------------------------------
2,029 - 2,029
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---------------------------------------------------------------------
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
September 30, 2005
---------------------------------------------------------------------
Accumulated Net Book
Cost amortization Value
$ $ $
---------------------------------------------------------------------
Customer relationships 56,200 - 56,200
Proprietary technology 3,000 - 3,000
Trademarks 6,400 - 6,400
---------------------------------------------------------------------
65,600 - 65,600
---------------------------------------------------------------------
---------------------------------------------------------------------
6. LONG-TERM DEBT Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. The Fund has a three year committed credit facility consisting of a $15,000 revolving facility to finance general operating requirements and a $4,000 revolving facility to finance future leases of operational assets (collectively, the "Credit Facility"). Interest on the Credit Facility will vary, depending on certain financial ratios, between the lender's prime rate plus 0% and 0.75% or between the banker's acceptance Banker's Acceptance A short-term credit investment created by a non-financial firm and guaranteed by a bank. Notes: Acceptances are traded at a discount from face value on the secondary market. rate plus 1.5% and 2.25%. Under the terms of the Credit Facility, the Fund is required, amongst other conditions, to meet certain covenants, of which the Fund was in compliance as at September 30, 2005. The Credit Facility is collateralized by a general security agreement covering all present and future assets of the Fund and its subsidiary companies. At the closing of the IPO, $5,595 was drawn on the $15,000 revolving credit facility in order to fund the purchase of certain of the net assets of the Canadian transportation solutions business of the Vendor. Under the acquisition agreement between ATS Andlauer LP and the Vendor, the purchase price will be adjusted at a later date to reflect the actual working capital acquired. Financing costs of $48 were incurred in connection with the Credit Facility. These costs have been capitalized and will be amortized over the three-year term of the debt.
7. NON-CONTROLLING INTEREST
Amount
Number $
---------------------------------------------------------------------
ATS Andlauer Transportation Services LP
Exchangeable Units 2,316,442 23,164
---------------------------------------------------------------------
ATS Andlauer Transportation Services LP Exchangeable LP Units ("Exchangeable LP Units") The Exchangeable LP Units issued by ATS Andlauer LP have economic and voting rights Voting rights The right to vote on matters that are put to a vote of security holders. For example the right to vote for directors. voting rights The type of voting and the amount of control held by the owners of a class of stock. equivalent to the Fund Units (note 8), except in connection with the exchangeability terms. They are exchangeable, directly or indirectly, on a one-for-one basis for Fund Units at the option of the holder, under the terms of the Exchange Agreement. The Exchangeable LP Units are not required to be exchanged for Fund Units before transferring to third parties. As a result, they have been treated as non-controlling interest. Each Exchangeable LP Unit entitles the holder to receive distributions from ATS Andlauer LP pro rata [Latin, Proportionately.] A phrase that describes a division made according to a certain rate, percentage, or share. In a Bankruptcy case, when the debtor is insolvent, creditors generally agree to accept a pro rata share of what is owed to them. with distributions made on Fund Units. 8. UNITHOLDERS' EQUITY The beneficial interests in the Fund are divided into interests of two classes, described and designated as Units and Special Voting Units, respectively. An unlimited number of Units and Special Voting Units may be authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: and issued pursuant to the Declaration of Trust. Units Each Unit is transferable and represents an equal undivided UNDIVIDED. That which is held by the same title by two or more persons, whether their rights are equal, as to value or quantity, or unequal. 2. Tenants in common, joint-tenants, and partners, hold an undivided right in their respective properties, until beneficial interest in any distributions of the Fund and in the net assets of the Fund. All Units have equal rights and privileges privileges, n the authority granted to a physician or dental professional by a hospital governing board to provide patient care in the hospital. Clinical privileges are limited to the individual's license, experience, and competence. . Each Unit entitles the holder to participate equally in all allocations and distributions and to one vote at all meetings of unitholders for each whole Unit held.
Amount
Number $
---------------------------------------------------------------------
Trust units
Issued on initial public offering 9,324,200 93,242
Issuance costs (7,957)
---------------------------------------------------------------------
Balances at September 30, 2005 85,285
---------------------------------------------------------------------
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Special Voting Units Fund Special Voting Units are non-participating and are used solely for providing voting rights to persons holding Exchangeable LP Units. Fund Special Voting Units are not transferable separately from Exchangeable LP Units to which they relate. Fund Special Voting Units will automatically be transferred upon transfer of the Exchangeable LP Units to which they relate. The Fund Special Voting Units are not entitled to any beneficial interest in any distribution from the Fund or in the net assets of the Fund in the event of a termination The point where a line, channel or circuit ends. See SCSI termination and hybrid. or winding up of the Fund. Each Fund Special Voting Unit entitles the holder thereof to one vote at all meetings of Unitholders. If the Exchangeable Units are purchased in accordance with the Exchange Agreement, a like number of Fund Special Voting Units will be redeemed re·deem tr.v. re·deemed, re·deem·ing, re·deems 1. To recover ownership of by paying a specified sum. 2. To pay off (a promissory note, for example). 3. by the Fund for a nominal Trifling, token, or slight; not real or substantial; in name only. Nominal capital, for example, refers to extremely small or negligible funds, the use of which in a particular business is incidental. NOMINAL. Relating to a name. amount. There were 2,316,442 Special Voting Units issued and outstanding as at September 30, 2005. 9. DISTRIBUTIONS Distributions to unitholders are determined based on earnings, before interest and amortization, but reduced by certain general and administrative expenses and maintenance capital expenditures. The Fund makes regular distributions to unitholders of record as of the last business day of each month (note 16). 10. LONG-TERM Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. INCENTIVE PLAN The Fund has adopted a long-term incentive plan (the "Plan") to provide key senior management of the Fund with compensation opportunities that will enhance the ability of the Fund to attract, retain and motivate key personnel and reward these key employees for significant performance and associated per Unit cash flow growth. Fund bonuses, in the form of Units of the Fund, will be provided to eligible employees on an annual basis where the distributable cash of the Fund exceeds certain specified spec·i·fy tr.v. spec·i·fied, spec·i·fy·ing, spec·i·fies 1. To state explicitly or in detail: specified the amount needed. 2. To include in a specification. 3. threshold The point at which a signal (voltage, current, etc.) is perceived as valid. amounts. If the distributable cash flow per Unit exceeds the specified threshold amount, a percentage of the distributable cash (the "participation rate") is contributed by the Fund into a long-term incentive pool. The funds in the pool are used to purchase Units of the Fund in the open market, to be provided to eligible employees as bonus compensation. Threshold amounts and participation rates are as follows:
Excess percentage Proportion of excess percentage
paid to Plan trustee
5% or less Nil
Greater than 5% and up to 10% 10% of any excess over 5%
Greater than 10% and up to 20% 10% of any excess over 5% to 10%,
plus 20% of any excess over 10%
Greater than 20% 10% of any excess over 5% to 10%,
plus 20% of any excess over 10%
to 20%, plus 25% of any excess
over 20%
11. RELATED PARTY TRANSACTIONS Transactions with related parties include ATS Andlauer LP's purchase of certain of the net assets of the Canadian transportation solutions business of the Vendor, a company controlled by the President and Chief Financial Officer of the GP. As of September 30, 2005, $4,641 was due to the Vendor. This amount arose as a result of the difference between the August 31, 2005 estimated amount of working capital that would be purchased by the Fund as of September 30, 2005 and the current estimate (note 2). In addition the Exchangeable LP Units that were issued as part of the IPO, and included in note 7 of these financial statements, are held by the Vendor. The Fund provides freight transportation services to several companies whom are directly or indirectly controlled by a trustee A user or group of users that has been given access rights to files on a network server. See also TRUSTe. . Included in accounts receivable are amounts relating to Concord Transportation Inc. of $314 and Logisti-Solve Inc. of $214 relating to these transactions. The Fund also contracts labour services from Ready Staffing Solutions Inc., a company controlled by the spouse of a trustee. Included in accounts payable and accrued liabilities is $404 relating to these services. 12. INCOME TAXES The Fund is taxed as a "mutual fund trust" for income tax purposes. Pursuant to the Declaration of Trust, the trustees intend to distribute or designate des·ig·nate tr.v. des·ig·nat·ed, des·ig·nat·ing, des·ig·nates 1. To indicate or specify; point out. 2. To give a name or title to; characterize. 3. all taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. earned by the Fund to unitholders of the Fund and to deduct de·duct v. de·duct·ed, de·duct·ing, de·ducts v.tr. 1. To take away (a quantity) from another; subtract. 2. To derive by deduction; deduce. v.intr. such distributions and designations for income tax purposes. Therefore, no provision for income taxes is required. 13. FINANCIAL INSTRUMENTS The fair value of long-term debt approximates its carrying value as the long-term debt bears interest at floating rates. The fair values of all other financial assets Financial assets Claims on real assets. and liabilities approximate ap·prox·i·mate v. To bring together, as cut edges of tissue. adj. 1. Relating to the contact surfaces, either proximal or distal, of two adjacent teeth; proximate. 2. Close together. their carrying values. The Fund has long-term floating rate debt which creates an exposure to fluctuations to interest rates. Given the Fund's contractual terms A contractual term is "[a]ny provision forming part of a contract"[1] Each term gives rise to a contractual obligation, breach of which will can give rise to litigation. with its customers, it is not exposed to significant currency risk or commodity risk arising from fluctuations in fuel costs. Financial instruments that potentially subject the Fund to concentrations of credit risk consist principally of accounts receivable. The Fund performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral collateral (kəlăt`ərəl), something of value given or pledged as security for payment of a loan. Collateral consists usually of financial instruments, such as stocks, bonds, and negotiable paper, rather than physical goods, although from its customers. Concentration of credit risk with respect to trade receivables Receivables An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed is limited due to the large number of customers comprising the Fund's customer base. As of September 30, 2005, the Fund had no significant concentration of credit risk. 14. COMMITMENTS Operating lease commitments Future minimum payments for operating leases that have initial or remaining terms of one year or more consisted of the following amounts:
Payments
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Total 2005 2006 2007 2008 2009 Thereafter
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Premise leases 49,719 1,447 6,747 5,883 5,444 5,259 24,939
Equipment
leases 15,810 1,077 4,102 3,676 3,353 2,875 727
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Total 65,530 2,524 10,849 9,559 8,797 8,134 25,666
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15. SEGMENTED INFORMATION The Fund manages its operations in one business segment, which is providing integrated trucking, courier, air freight and value added transportation and distribution services to consumer product companies. All operations are conducted in Canada. 16. SUBSEQUENT EVENT On October 19, 2005, the trustees of the Fund declared the first distribution for unitholders of record on October 31, 2005. The distribution will cover the period from September 30, 2005 to October 31, 2005 in the amount of $0.085 per Unit and will be paid on November 15, 2005. ATS Andlauer Income Fund (TSX:ATS.UN) |
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