Acquisitions generated additional revenues from transportation services of $53.7 million ($3.2 million in the fourth quarter of 2007) and additional earnings before tax and discontinued operations of $6.2 million ($0.6 million in the fourth quarter of 2007) compared to the same periods in 2006.
In addition, management of the Fund spent considerable time negotiating with and securing new customers. The Fund was also awarded new work from existing customers during the year. These positive impacts have been offset by several significant events and circumstances.
In August 2007, UPM, a major customer of the Fund, closed down its plant in Eastern Canada. Revenues in 2007 from this customer were approximately $11.2 million (2006 revenues - $10.0 million) and amounted to $3.6 million in the fourth quarter of 2006. Management has been soliciting new business to replace this lost revenue. The Fund has closed several underperforming operations dating back to late 2006. The closures included terminals located in Regina SK, Hamilton ON, Milton ON, Woodstock NB and Winnipeg MB. The effect of these closures was to reduce revenues in 2007 by $15.2 million compared to 2006 ($4.3 million in the fourth quarter of 2007).
The Fund has also been adversely affected by a reduction in volumes of export shipments to the U.S. caused by the weakening of both the American economy and the U.S. dollar. Approximately 25% of the Fund's revenues are billed in U.S. dollars. The stronger Canadian dollar has resulted in a reduction in the value of the U.S. dollar denominated revenues by approximately $6.3 million in 2007. The Fund has some natural hedges in the form of U.S. dollar expenses, however, the majority of the Fund's expenses are incurred in Canadian funds. Management mitigates this risk by entering into foreign exchange forward contracts and through customer negotiations. The Fund has converted some customers to Canadian dollar-based billing from U.S. dollar-based billing and has adjustment clauses with many customers that automatically revise freight rates as exchange rates fluctuate.
The Fund's operating expense percentage has remained relatively constant in 2007 compared to 2006. Reduced empty miles, most notably in the Fund's van operations, and the impact of the Fund's less than truckload (LTL) operation acquired in the fourth quarter of 2006 have offset the effects of pricing pressure. This LTL operation has lower operating costs but higher selling, general and administration expenses ("SG&A") as a percentage of revenue compared to the Fund's other operations.
Acquisitions added $4.7 million (2006 - $4.3 million) to SG&A expenses during the year ($0.2 million in the fourth quarter of 2007). In 2007, the Fund recognized a foreign exchange loss of $0.4 million (2006 - gain of $0.1 million) which included an unrealized gain on forward contracts of $0.6 million. Foreign exchange losses in the fourth quarter of 2007 amounted to $0.2 million (2006 - exchange gain of $0.4 million).
Net interest expense increased due to the higher average debt levels in 2007. This increase was largely caused by the acquisitions made in the second half of 2006 and also due to purchases of property and equipment.
Amortization of intangibles increased in 2007 primarily due to having a full year's amortization from the acquisitions made in the second half of 2006.
On June 22, 2007, federal legislation (the "SIFT Rules") received royal assent. This has caused publicly-traded income trusts and partnerships to be subject to income taxes in the same manner as corporations commencing on January 1, 2011. Accordingly, the Fund was required to recognize a non-cash, future income tax provision of $7.6 million ($0.26 per unit) in 2007. -- www.cnxmarketlink.com
Comment and add to the story without registration, but keep the comments meaningful please. Links are not accepted.
