Bird Construction Inc. — M&A Activity 2020

Oct 29, 2020

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Bird Construction Inc.

BUSINESS ACQUISITION REPORT

BIRD CONSTRUCTION INC.

Form 51-102F4

BUSINESS ACQUISITION REPORT

1. Identity of the Company

1.1 Name and Address of Company

Bird Construction Inc. (“Bird” or the “Company”) 5700 Explorer Drive, Suite 400 Mississauga, ON L4W 0C6 Canada

1.2 Executive Officer

The name and business telephone number of an executive officer of Bird who is knowledgeable about the significant acquisition and this business acquisition report is:

Wayne R. Gingrich Chief Financial Officer Phone: 905-602-4122

2. Details of Acquisition

2.1 Nature of Business Acquired

On September 25, 2020, Bird and Stuart Olson Inc. ("Stuart Olson") completed a plan of arrangement under the Business Corporations Act (Alberta) (the "Arrangement"), pursuant to which Bird acquired all of the issued and outstanding common shares of Stuart Olson ("SOX Shares") in exchange for common shares of Bird ("Bird Shares"), and completed the payout and termination of Stuart Olson's secured bank credit agreement and Stuart Olson's $70.0 million aggregate principal amount of 7.00% convertible unsecured subordinated debentures due September 20, 2024 (the "Debentures").

Stuart Olson was, prior to the completion of the Arrangement, a publicly traded construction and industrial services company in Canada that provided general contracting and electrical building systems contracting in the institutional and commercial construction markets as well as general contracting, electrical, mechanical and specialty trades, such as insulation, cladding and asbestos abatement, in the industrial construction and services market, to a wide array of clients in both the public and private sectors.

2.2 Acquisition Date

The Arrangement was completed effective September 25, 2020.

2.3 Consideration

Under the terms of the Arrangement:

• Stuart Olson's secured creditors (collectively, the "Lenders") received an aggregate cash payment of $70.0 million in full satisfaction of all obligations, indebtedness and liabilities of Stuart Olson and its affiliates under the bank credit facility, including unpaid interest, fees and expenses;

• Canso Investment Counsel Ltd. ("Canso"), in its capacity as portfolio manager for and on behalf of certain accounts managed by it, acquired an aggregate of 6,329,114 Bird Shares for gross proceeds of approximately $40.0 million; this amount combined with Bird's cash investment of $30.0 million constituted the $70.0 million aggregate cash payment paid to the Lenders;

• those accounts managed by Canso, in its capacity as portfolio manager, that held the Debentures received $22.5 million of Bird Shares (or 3,560,127 Bird Shares at a deemed issue price equal to $6.32 per share) in full satisfaction of all indebtedness, accrued interest and obligations of Stuart Olson and its affiliates under the indenture governing the Debentures; and

• Stuart Olson shareholders received an aggregate of 632,835 Bird Shares, representing an exchange ratio of 0.02006051 of a Bird Share for each SOX Share, and those Stuart Olson shareholders entitled only to receive less than one Bird Share for all SOX Shares held thereby received a cash payment (rounded down to the nearest cent) determined by reference to the volume weighted average trading price of the Bird Shares on the Toronto Stock Exchange for the five trading days immediately preceding September 25, 2020.

Bird's $30.0 million cash investment was funded through a draw down on Bird's credit facility.

2.4 Effect on Financial Position

Other than the changes occurring as a result of the Arrangement, Bird does not have any current plans or proposals for material changes in its business affairs or the affairs of Stuart Olson, which may have a significant effect on the financial performance and financial position of Bird.

For information relating to the expected effects of the Arrangement on Bird's financial performance and financial position, please refer to the unaudited pro forma condensed consolidated financial statements referred to under Item 3 below and attached hereto as Schedule "A".

2.5 Prior Valuations

To the knowledge of Bird, there has been no valuation opinion obtained within the last twelve months by Stuart Olson or Bird required by securities legislation or a Canadian exchange or market to support the consideration paid by Bird in connection with the Arrangement.

2.6 Parties to Transaction

The Arrangement was not with an "informed person", "associate" or "affiliate" (each as defined under applicable Canadian securities laws) of Bird.

2.7 Date of Report

October 28, 2020

3. Financial Statements and Other Information

The following financial statements of Stuart Olson, together with the notes thereto, filed with the securities commissions or similar authorities in each of the provinces of Canada (other than Québec) and available under Stuart Olson's profile at www.sedar.com, are specifically incorporated by reference in, and form a part of, this business acquisition report:

• (i) the audited consolidated financial statements of Stuart Olson as at and for the years ended December 31, 2019 and 2018, together with the notes thereto and the auditors' report thereon; and

• (ii) the unaudited condensed consolidated interim financial statements of Stuart Olson as at and for the three and six month periods ended June 30, 2020 and 2019, together with the notes thereto.

The following financial statements of Bird, together with the notes thereto, filed with the securities commissions or similar authorities in each of the provinces of Canada (other than Québec) and available under Bird's profile at www.sedar.com, are specifically incorporated by reference in, and form a part of, this business acquisition report:

• (i) the audited annual consolidated financial statements of Bird as at and for the years ended December 31, 2019 and December 31, 2018, together with the notes thereto and the auditors' report thereon; and

• (ii) the unaudited interim condensed consolidated financial statements of Bird as at and for the three and six month periods ended June 30, 2020 and 2019, together with the notes thereto.

Attached as Schedule "A" to this business acquisition report are the following pro forma financial statements:

• (i) the unaudited pro forma consolidated statement of financial position as at June 30, 2020; and

• (ii) the unaudited pro forma consolidated statement of income (loss) for the year ended December 31, 2019 and for the six months ended June 30, 2020, including pro forma earnings per share calculations.

SCHEDULE A

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS See attached

BIRD CONSTRUCTION INC.

PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(in thousands of Canadian dollars, except per share amounts) (unaudited)

BIRD CONSTRUCTION INC. PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION (in thousands of Canadian dollars, except per share amounts) (unaudited)	BIRD CONSTRUCTION INC. PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION (in thousands of Canadian dollars, except per share amounts) (unaudited)
Bird Construction Inc. Stuart Olson Inc. Subtotal Pro-forma adjustments Total June 30, 2020
ASSETS Current assets: Cash $ 171,378 4,643 176,021 $ 176,021 Bankers' acceptances and short-term deposits 90 - 90 90 Accounts receivable 329,068 254,583 583,651 (2,191) 2B 581,460 Contract assets 18,904 28,037 46,941 46,941 Contract assets - alternative finance projects 126,014 - 126,014 126,014 Inventory 549 328 877 877 Prepaid expenses 1,712 3,120 4,832 4,832 Income taxes recoverable 13,849 92 13,941 13,941 Investments held for sale 2,921 - 2,921 2,921 Other assets 567 962 1,529 1,529 Total current assets 665,052 291,765 956,817 (2,191) 954,626 Non-current assets: Other assets 7,089 1,800 8,889 8,889 Leases receivable - 4,782 4,782 4,782 Property and equipment 45,103 13,313 58,416 (263) 2C 58,153 Right-of-use assets 30,452 38,008 68,460 68,460 Investments in equity accounted entities 17,046 - 17,046 17,046 Deferred income tax asset 10,554 19,803 30,357 (5,966) 2H 24,391 Intangible assets 2,902 7,073 9,975 25,100 2D 35,075 Goodwill 16,389 42,930 59,319 (39,586) 2E 19,733 Total non-current assets 129,535 127,709 257,244 (20,715) 236,529 TOTAL ASSETS $ 794,587 419,474 1,214,061 (22,906) - $ 1,191,155 LIABILITIES Current liabilities: Accounts payable $ 331,992 160,462 492,454 8,157 2B, 2G $ 500,611 Contract liabilities 101,587 50,261 151,848 151,848 Dividends payable to shareholders 1,382 - 1,382 1,382 Income taxes payable 5,142 5,887 11,029 11,029 Non-recourse project financing 125,226 - 125,226 125,226 Current portion of loans and borrowings 4,865 1,333 6,198 6,198 Current portion of right-of-use liabilities 7,855 8,750 16,605 16,605 Provisions 12,077 1,487 13,564 13,564 Other liabilities 2,469 - 2,469 2,469 Total current liabilities 592,595 228,180 820,775 8,157 828,932 Non-current liabilities: Loans and borrowings 32,855 78,248 111,103 (48,248) 2F 62,855 Right-of-use liabilities 20,205 41,070 61,275 61,275 Convertible debentures - 66,140 66,140 (66,140) 2F - Deferred income tax liability 14,285 7,253 21,538 7,412 2H 28,950 Pension liability - 6,562 6,562 6,562 Other liabilities 8,537 1,665 10,202 10,202 Share based payments 1,095 1,095 (1,095) 2G - Total non-current liabilities 75,882 202,033 277,915 (108,071) 169,844 SHAREHOLDERS' EQUITY Shareholders' capital 42,527 151,682 194,209 (83,519) 2I 110,690 Convertible debentures - 1,623 1,623 (1,623) - Share-based payment reserve - 11,589 11,589 (11,589) - Contributed surplus 1,956 16,817 18,773 (16,817) 1,956 Retained earnings/(deficit) 81,653 (192,450) (110,797) 190,556 79,759 Accumulated other comprehensive income (26) - (26) - (26)
	592,595 228,180 820,775 8,157 828,932
	32,855 78,248 111,103 (48,248) 2F 62,855 20,205 41,070 61,275 61,275 - 66,140 66,140 (66,140) 2F - 14,285 7,253 21,538 7,412 2H 28,950 - 6,562 6,562 6,562 8,537 1,665 10,202 10,202 1,095 1,095 (1,095) 2G -
	75,882 202,033 277,915 (108,071) 169,844
	42,527 151,682 194,209 (83,519) 2I 110,690 - 1,623 1,623 (1,623) - - 11,589 11,589 (11,589) - 1,956 16,817 18,773 (16,817) 1,956 81,653 (192,450) (110,797) 190,556 79,759 (26) - (26) - (26)
Accumulated other comprehensive income
Total shareholders' equity 126,110 (10,739) 115,371 77,008 192,379 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 794,587 419,474 1,214,061 (22,906) $ 1,191,155	126,110 (10,739) 115,371 77,008 192,379

BIRD CONSTRUCTION INC.

PRO FORMA CONSOLIDATED STATEMENT OF INCOME (LOSS)

For the year ended December 31, 2019

(in thousands of Canadian dollars, except per share amounts)

(unaudited)

		Bird						Total
		Construction	Stuart Olson		Pro-forma			December 31,
		Inc.	Inc.	Subtotal	adjustments			2019
Construction revenue	$	1,376,408	929,152	2,305,560	(7,258)	3A	$	2,298,302
Costs of construction		1,305,458	857,352	2,162,810	(7,258)	3A		2,155,552
Gross profit		70,950	71,800	142,750	-			142,750
Income from equity accounted investments		2,693	-	2,693				2,693
General and administrative expenses		(58,722)	(84,982)	(143,704)	1,642	3B (i), (ii)		(142,062)
Impairment of goodwill and intangible assets		-	(142,182)	(142,182)	142,182	3C		-
Income (loss) from operations		14,921	(155,364)	(140,443)	143,824			3,381
Finance income		2,596	602	3,198				3,198
Finance and other costs		(5,558)	(14,819)	(20,377)	10,951	3D		(9,426)
Income (loss) before income taxes		11,959	(169,581)	(157,622)	154,775			(2,847)
Income tax expense (recovery)		2,475	(6,519)	(4,044)	3,656	3E		(388)
Net income (loss) for the year	$	9,484	(163,062)	(153,578)	151,119		$	(2,459)
Basic and diluted earnings (loss) per share	$	0.22				3F	$	(0.05)

BIRD CONSTRUCTION INC.

PRO FORMA CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

For the year ended December 31, 2019

(in thousands of Canadian dollars, except per share amounts) (unaudited)

		Bird						Total
		Construction	Stuart Olson		Pro-forma			December	31,
		Inc.	Inc.	Subtotal	adjustments			2019
Net income (loss) for the year	$	9,484	(163,062)	(153,578)	151,119	$		(2,459)
Other comprehensive income (loss) for the year:
Exchange differences on translating equity accounted investments		37	-	37					37
Defined benefit plan actuarial loss		-	(237)	(237)					(237)
Deferred tax recovery on other comprehensive (loss) earnings		-	57	57					57
Total of items that may be reclassified to net income in subsequent periods		37	(180)	(143)	-				(143)
Total comprehensive income (loss) for the year	$	9,521	(163,242)	(153,721)	151,119		$	(2,602)

BIRD CONSTRUCTION INC.

PRO FORMA CONSOLIDATED STATEMENT OF INCOME (LOSS)

For the six-month period ended June 30, 2020

(in thousands of Canadian dollars, except per share amounts)

(unaudited)

		Bird
		Construction	Stuart Olson		Pro-forma			Total June 30,
		Inc.	Inc.	Subtotal	adjustments			2020
Construction revenue	$	604,412	445,009	1,049,421	(3,660)	3A	$	1,045,761
Costs of construction		567,020	409,957	976,977	(3,660)	3A		973,317
Gross profit		37,392	35,052	72,444	-			72,444
Income from equity accounted investments		3,846	-	3,846				3,846
General and administrative expenses		(28,260)	(34,778)	(63,038)	2,904	3B (i), (ii), (iii)		(60,134)
Impairment of goodwill and intangible assets		-	(43,533)	(43,533)	43,533	3C		-
Income (loss) from operations		12,978	(43,259)	(30,281)	46,437			16,156
Finance income		1,091	897	1,988				1,988
Finance and other costs		(4,643)	(7,092)	(11,735)	5,266	3D		(6,469)
Income (loss) before income taxes		9,426	(49,454)	(40,028)	51,703			11,675
Income tax expense (recovery)		2,679	(3,927)	(1,248)	5,468	3E		4,220
Net income (loss) for the period	$	6,747	(45,527)	(38,780)	46,235		$	7,455
Basic and diluted earnings (loss) per share	$	0.16				3F	$	0.14

BIRD CONSTRUCTION INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

For the six-month period ended June 30, 2020

(in thousands of Canadian dollars, except per share amounts) (unaudited)

		Bird
		Construction	Stuart Olson		Pro-forma		Total June	30,
		Inc.	Inc.	Subtotal	adjustments		2020
Net income (loss) for the period	$	6,747	(45,527)	(38,780)	46,235	$	7,455
Other comprehensive income (loss) for the period:
Exchange differences on translating equity accounted investments		(64)	-	(64)				(64)
Foreign currency translation		(2)	-	(2)				(2)
Defined benefit plan actuarial loss		-	(3,591)	(3,591)			(3,591)
Deferred tax recovery on other comprehensive (loss) earnings		-	888	888				888
Total of items that may be reclassified to net income in subsequent periods		(66)	(2,703)	(2,769)	-		(2,769)
Total comprehensive income (loss) for the period	$	6,681	(48,230)	(41,549)	46,235	$	4,686

Notes to the Pro Forma Consolidated Financial Statements

(thousands of Canadian dollars, except per share amounts) (unaudited)

On July 29, 2020, Bird Construction Inc. (“Bird”) entered into an arrangement agreement (“Arrangement Agreement”) pursuant to which, among other things, Bird has agreed to acquire all of the outstanding common shares of Stuart Olson Inc. (“Stuart Olson”) by way of a plan of arrangement under the Business Corporations Act (Alberta) (the "Arrangement").

Under the terms of the Arrangement, upon closing:

• Stuart Olson’s secured creditors will receive an aggregate cash payment of $70,000 in full satisfaction of all indebtedness, accrued interest and obligations of Stuart Olson and its affiliates under the bank credit facility, including unpaid interest, fees and expenses (plus additional cash consideration on a dollar for dollar basis if the secured indebtedness, including accrued and unpaid interest, fees and expenses, and excluding letters of credit, are over $100,000);

• Canso Investment Counsel Ltd., in its capacity as portfolio manager for and on behalf of certain accounts managed by it, will acquire an aggregate of 6,329,114 Bird shares for gross proceeds of $40,000 cash; this $40,000 combined with Bird’s cash investment of $30,000 will constitute the $70,000 aggregate cash payment to be paid to Stuart Olson’s secured creditors;

• those accounts managed by Canso Investment Counsel Ltd., in its capacity as portfolio manager, that hold the convertible debentures will receive 3,560,127 Bird shares in full satisfaction of all indebtedness, accrued interest and obligations of Stuart Olson and its affiliates under the indenture governing the convertible debentures; and

• Stuart Olson shareholders will receive an aggregate of 632,911 Bird shares, representing an exchange ratio of 0.02006051 of a Bird share for each Stuart Olson share.

1. Basis of Presentation

These unaudited pro forma consolidated financial statements (the "pro forma information") of Bird have been prepared in connection with the Arrangement for inclusion in Stuart Olson’s Management Information Circular. The pro forma information gives pro forma effect to the Arrangement in accordance with National Instrument 51-102 Continuous Disclosure Obligations by applying pro forma adjustments to Bird’s and Stuart Olson’s historical consolidated financial statements. The pro forma reporting entity includes Bird and its subsidiaries (as at June 30, 2020) as well as Stuart Olson. The pro forma consolidated statement of financial position as at June 30, 2020 gives effect to the Arrangement and assumptions described herein as if they had occurred on June 30, 2020. The pro forma consolidated statements of income (loss) for the six months ended June 30, 2020 and the year ended December 31, 2019 give effect to the Arrangement and assumptions described herein as if they had occurred on January 1, 2019. The accounting policies used in the preparation of the pro forma information are those set out in Bird’s audited annual consolidated financial statements as at and for the year ended December 31, 2019 and Bird’s unaudited interim condensed consolidated financial statements as at and for the three and six month periods ended June 30, 2020, which were prepared in accordance with International Financial Reporting Standards ("IFRS"). The pro forma information has been prepared from information derived from and should be read in conjunction with:

• Bird’s audited annual consolidated financial statements as at and for the year ended December 31, 2019, together with the notes thereto and the auditor’s report thereon;

• Bird’s unaudited interim condensed consolidated financial statements as at and for the three and six month periods ended June 30, 2020, together with the accompanying notes;

• Stuart Olson’s audited consolidated financial statements as at and for the year ended December 31, 2019, together with the notes thereto and auditor’s report thereon; and

• Stuart Olson’s unaudited condensed consolidated interim financial statements as at and for the three and six month periods ended June 30, 2020, together with the accompanying notes.

Certain line items presented on Stuart Olson’s statement of financial position and statement of income (loss) have been reclassified for the purposes of the pro forma financial statements to match Bird’s classifications.

The pro forma information may not be indicative of the results that would have occurred if the events reflected herein had been in effect on the dates indicated or of the results which may be obtained in the future. No adjustments have been made to reflect the operating synergies and administrative cost savings that could result from the combination of these entities. The allocation of the total consideration to the net assets acquired in the Arrangement is preliminary and based on estimates of fair value and other amounts and such estimates may be adjusted in the future. As these amounts are preliminary, differences in the actual amounts assigned to the fair values of the identifiable assets and liabilities upon the completion of detailed valuations and calculations could differ materially and result in changes in periods subsequent to the completion of the Arrangement. In the opinion of management, the pro forma information includes all material adjustments necessary for a fair presentation of the financial results and financial position of Bird.

2. Pro forma consolidated statement of financial position

The Arrangement has been accounted for as a business combination using the acquisition method of accounting whereby the assets acquired, and liabilities assumed are recognized at their fair value. The fair value assigned to the net assets acquired is preliminary and based on estimates and assumptions using information available at the time of preparation of this pro forma financial information. Accordingly, these estimates may be adjusted in the future.

(in thousands of Canadian dollars, except per share amounts) Number of Bird common shares issued as consideration Bird common shareprice at close on August 13,2020 $	4,193,038 6.80
Equity consideration Cash consideration	28,513 70,000
Total Consideration $ Fair value of assets and liabilities of Stuart Olson acquired: Cash and cash equivalents $ Accounts receivable Contract assets Other assets Property and equipment Lease receivable Right-of-use assets Intangible assets Accounts payable Contract liabilities Right-of-use liabilities Pension liability Other liabilities Net deferred tax liability Goodwill	98,513 4,643 254,583 28,037 5,340 13,050 5,744 38,008 32,173 (168,744) (50,261) (49,820) (6,562) (10,372) (650) 3,344
Total preliminary purchase price $	98,513

The following assumptions have been applied in determining the above estimates:

A. Consideration and Purchase Price Equation

The equity consideration assumes 4,193,038 Bird shares are at a share price of $6.80. This equity consideration will change based on fluctuations in Bird’s share price on the closing date of the Arrangement. The cash consideration of $70,000 will be funded by the $40,000 received from the subscription by Canso Investment Counsel Ltd. for Bird shares and $30,000 from Bird’s existing credit facility.

Determinations of fair value often require management to make assumptions and estimates about future events. The purchase price equation is preliminary as the acquisition has not closed as of the date of the pro forma information. The final calculation of the purchase price will be based on the fair value of the net assets purchased following the closing date of the Arrangement and other information available at that time. There may be material differences from this pro forma purchase price equation as a result of finalizing the valuation.

B. Accounts payable

Total acquisition-related transaction costs, including advisory, legal, valuation, and other professional fees expected to be incurred by Bird are approximately $3,300, of which $1,276 was incurred and recorded in the six months ended June 30, 2020. The remaining $2,024 are reflected in the pro forma information as an increase to accounts payable and a charge to retained earnings. Approximately $350 of share issuance costs, on a before tax basis, have also been added to accounts payable at June 30, 2020, with the offset against shareholder’s capital. Accounts payable assumed as at June 30, 2020 has been adjusted by $3,200 for Stuart Olson's estimated transaction costs associated with the Arrangement, and an estimated $4,400 for Stuart Olson’s compensation costs relating to change of control provisions triggered by the closing of the Arrangement. Accounts payable has also been decreased to remove $308 of interest accrued relating to Stuart Olson’s credit facility, which is settled in full on closing including unpaid interest, fees and expenses. The sharebased payment liability has been revalued and included in accounts payable at June 30, 2020 (see Note 2G).

Accounts payable and accounts receivable have been reduced by $2,191 at June 30, 2020 to eliminate any intercompany balances between Bird and Stuart Olson.

C. Property and equipment

The fair values of property and equipment were determined using significant estimates and assumptions. An initial assessment resulted in a net reduction of $263. The fair value of property and equipment is preliminary and subject to change based on more detailed valuation procedures to be performed upon closing.

D. Intangible assets

A preliminary fair value estimate of $32,173 has been allocated to identifiable intangible assets acquired, primarily consisting of backlog, customer relationships, tradename and an enterprise resource planning software. The amortization period for each definite-lived intangible asset is estimated based on analyses of the expected cash flows generated by each respective intangible asset. Indefinite-lived intangible assets will be subject to impairment testing at least annually and more frequently if events and circumstances provide an indicator that impairment may exist.

E. Goodwill

Goodwill is calculated as the excess of the preliminary estimate of the total consideration transferred over the preliminary estimate of the fair values assigned to the identifiable assets acquired and liabilities assumed. The value of goodwill will be adjusted for any changes in the total consideration based on fluctuations in share

price, and the final fair value of net assets acquired on closing. The Stuart Olson goodwill appearing on the statement of financial position has been eliminated and replaced with the goodwill described above. Goodwill is not deductible for tax purposes. Goodwill will be subject to impairment testing at least annually and more frequently if events and circumstances in the intervening period provide an indicator that impairment may exist.

F. Loans and borrowings and convertible debentures

The cash consideration of $30,000 will be funded through available capacity under Bird’s existing revolving credit facilities with the Bank of Montreal. Under the terms of the Arrangement Agreement, Stuart Olson’s secured creditors will receive an aggregate cash payment of $70,000 in full satisfaction of all obligations, indebtedness and liabilities of Stuart Olson and its affiliates under the bank credit facility, including unpaid interest, fees and expenses (plus additional cash consideration on a dollar for dollar basis if the secured indebtedness, including accrued and unpaid interest, fees and expenses, and excluding letters of credit, are over $100,000). Those accounts managed by Canso Investment Counsel Ltd., in its capacity as portfolio manager, that hold the convertible debentures will receive 3,560,127 of Bird shares in full satisfaction of all indebtedness, accrued interest and obligations of Stuart Olson and its affiliates under the indenture governing the convertible debentures.

G. Share-based payments

Under the terms of the Arrangement Agreement, any outstanding Stuart Olson deferred share units, performance share units and restricted share units are to be settled based on a weighted average share price of Stuart Olson, as described in the applicable share-based payment plan. The share-based payment included in non-current liabilities has been eliminated, and the current portion is included in accounts payable on the statement of financial position at June 30, 2020, and has been re-measured based on the estimated amount to be payable at the acquisition date.

H. Deferred income tax asset and liability

The deferred income tax liability was determined by applying the statutory tax rate to the temporary differences between the fair value of assets acquired, and liabilities assumed. An additional $6,800 of deferred tax liability has been recorded to reflect the net increase in the intangible assets recognized. The adjustment to the deferred tax asset and liability also reflect the impact of changes to the non-capital loss carryforwards that are reported in the deferred tax asset balance in the financial statements of Stuart Olson at June 30, 2020. Certain non-capital loss carryforwards previously reflected in the deferred tax balances will expire following the change of control, resulting in a decrease in the deferred tax asset balance of $5,966 and an increase in the deferred tax liability balance of $2,789. Other adjustments to the deferred tax liability balance at June 30, 2020 relate to changes in temporary differences as a result of the acquisition.

I. Shareholder’s capital

Shareholder’s capital has been adjusted for the issuance of 6,329,114 Bird shares at the agreed aggregate subscription price of $40,000 to Canso Investment Counsel Ltd. (in its capacity as portfolio manager) as part of the share subscription contemplated by the Arrangement Agreement. This increase is offset by the elimination of the shareholder’s capital of Stuart Olson. Share issuance costs expected to be incurred in connection with the share subscription of $40,000 are estimated to be approximately $350, on a before tax basis. These costs are reflected as a reduction to shareholder’s capital and an increase to current liabilities. Shareholder’s capital has also been adjusted for the issuance of 4,193,038 Bird shares at an estimated share price of $6.80. The pro forma adjustments assume that no Stuart Olson shareholder will elect to exercise dissent rights in connection with the Arrangement. For purposes of these unaudited pro forma consolidated financial statements, the carrying values for all other assets and liabilities that are not discussed above are assumed to approximate fair value based on the nature of the assets and liabilities. Upon closing of the Arrangement, Bird will conduct a detailed valuation of those assets and liabilities as of the acquisition date.

3. Pro forma consolidated statement of income (loss)

The unaudited consolidated pro forma statement of income (loss) for the year ended December 31, 2019 and the six months ended June 30, 2020 gives effect to the following assumptions and adjustments:

A. Revenue and Construction Costs

Intercompany revenue and construction costs between Bird and Stuart Olson have been eliminated in the pro forma statement of income (loss), with no impact to gross profit.

B. General and administrative expense

i. Depreciation and Amortization

The depreciation and amortization expense were decreased by $1,281 for the year ended December 31, 2019 and $1,201 for the six months ended June 30, 2020. The adjustment reflects the impact of adopting Bird’s accounting policy of diminishing balance method of depreciation for certain equipment and intangible software assets acquired, as well as the impact on depreciation for any fair value adjustments to property and equipment as part of the purchase price allocation.

Adjustments to record amortization, of the preliminary fair value increment allocated to identified intangible assets, of $3,993 and $1,997 were made for the year ended December 31, 2019 and the six months ended June 30, 2020, respectively. The amortization period for each definite-lived intangible asset is estimated based on analyses of the expected cash flows generated by each respective intangible asset. The Stuart Olson intangible asset amortization of $7,004 and $3,266 appearing on the statement of income (loss) for the year ended December 31, 2019 and for the six month period ended June 30, 2020, respectively, have been eliminated.

ii. Share-based compensation (recovery) expense

Under the terms of the Arrangement Agreement, any outstanding Stuart Olson deferred share units, performance share units and restricted share units will be settled as part of the Arrangement. Therefore, the share-based payment recovery of $2,650 and $842 appearing on the statement of income (loss) for the year ended December 31, 2019 and for the six months ended June 30, 2020, respectively, have been eliminated as this is not considered a continuing (recovery)/expense of the combined company.

iii. Transaction costs

Acquisition related transaction costs incurred by Bird totalling $1,276, have been reversed in the statement of income (loss) for the six months ended June 30, 2020 as they relate specifically to this transaction, and are not considered a continuing expense of the combined company.

C. Impairment

Impairment expense of $142,182 and $43,533 have been reversed for the year ended December 31, 2019 and the six months ended June 30, 2020, respectively, as the impairment relates to Stuart Olson assets which are not included as part of the purchase price allocation.

D. Finance costs

Finance costs have been adjusted to include the estimated interest costs associated with the $30,000 to be drawn on Bird’s existing revolving credit facilities. Finance costs of $1,035 and $517 were included for the year ended December 31, 2019 and the six months ended June 30, 2020, respectively. Finance costs of $11,986 and $5,783 for the year ended December 31, 2019 and the six months ended June 30, 2020, respectively, associated with Stuart Olson’s revolving credit facility and convertible debentures, have been eliminated.

E. Income tax expense

Income tax expense of $3,656 and $5,468 have been recorded for the year ended December 31, 2019 and the six month period ended June 30, 2020, respectively, to reflect the tax effect on the pro forma adjustments to the statements of income (loss) described above, at the estimated statutory tax rate.

F. Weighted average common shares

Pro forma basic and diluted net income (loss) per share was calculated using the pro forma net income (loss) divided by the weighted average number of Bird shares outstanding after giving effect to the Arrangement (see Note 2A) as if it occurred on January 1, 2019.