ALLIED HOLDINGS, INC.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the year ended December 31, 2005 |
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TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 0-22276
Allied Holdings, Inc.
(Exact name of registrant as specified in its charter)
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Georgia |
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58-0360550 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
ID Number) |
160 Clairemont Avenue, Suite 200, Decatur, Georgia
30030
(Address of principal executive office)
(Registrants telephone number, including area code)
(404) 373-4285
Securities registered pursuant to Section 12(b) of the
Act:
None
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
No par value Common Stock
(Title of Class)
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to
such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K is
not contained herein, and will not be contained, to the best of
Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any
amendment to this
Form 10-K. þ
Indicate by check mark whether the Registrant is a large
accelerated filer, accelerated filer or a non-accelerated filer.
See definition of accelerated filer and large
accelerated filer in
Rule 12b-2 of the
Exchange Act.
Large Accelerated
Filer o Accelerated
Filer o Non-Accelerated
Filer þ
Indicate by check mark whether the Registrant is a shell company
(as defined in Exchange Act
Rule 12b-2). Yes o No þ
The number of shares outstanding of the Registrants common
stock as of May 31, 2006 was 8,980,329.
The aggregate market value of the common stock held by
non-affiliates of the Registrant, based upon the closing stock
price of the common stock as of June 30, 2005 as reported
on the American Stock Exchange, was approximately
$3.0 million. Shares of the Registrants common stock
owned by its directors and executive officers were excluded from
this aggregate market value calculation; however, shares owned
by the Registrants institutional stockholders were
included.
DOCUMENTS INCORPORATED BY REFERENCE
None.
ALLIED HOLDINGS, INC.
TABLE OF CONTENTS
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PART I
When we use the terms Allied, we,
us, and our, we mean Allied Holdings,
Inc. and its subsidiaries on a consolidated basis, and as the
context requires, Allied Holdings, Inc. and its subsidiaries
that filed for Chapter 11 protection pursuant to the
U.S. Bankruptcy Code.
Our Company
We are a vehicle-hauling company providing a range of logistics
and other support services to the automotive industry. Our
principal operating subsidiaries are Allied Automotive Group,
Inc. (collectively with its subsidiaries referred to as
Allied Automotive or the/our Automotive
Group) and Axis Group, Inc. (Axis or the
Axis Group). Allied Automotive is our largest
subsidiary comprising 97% of our 2005 revenues.
Voluntary Reorganization under Chapter 11
On July 31, 2005 (the Petition Date), Allied
Holdings, Inc. and substantially all of its subsidiaries filed
voluntary petitions seeking protection under Chapter 11 of
the U.S. Bankruptcy Code (Chapter 11). Our
captive insurance company, Haul Insurance Limited, as well as
our subsidiaries in Mexico, Bermuda and South Africa (the
Non-debtors) were not included in the
Chapter 11 filings. Our Canadian subsidiaries obtained
approval for creditor protection under the Companies
Creditors Arrangement Act in Canada and are included among
the subsidiaries that filed voluntary petitions seeking
bankruptcy protection. Like Chapter 11, the Companies
Creditors Arrangement Act in Canada allows for reorganization
under the protection of the court system. On October 28,
2005, with Bankruptcy Court approval, we sold our interest in
Kar-Tainer International, LLC (case # 05-12527) and Kar-Tainer
Intl (Pty) Ltd, a South African company. As a result of
the sale, the Kar-Tainer International, LLC bankruptcy case was
dismissed on November 4, 2005.
The Chapter 11 filings were precipitated by various
factors, including the decline in new vehicle production at
certain of our major customers, rising fuel costs, historically
high levels of debt, increasing wage and benefit obligations for
our employees covered by the Master Agreement with the
International Brotherhood of Teamsters (IBT or the
Teamsters) and the increase in non-union car-haul
competition. We are currently operating our business as
debtors-in-possession
under the jurisdiction of the U.S. Bankruptcy Court for the
Northern District of Georgia (Bankruptcy Court) and
cannot engage in transactions considered to be outside of the
ordinary course of business without obtaining Bankruptcy Court
approval. We will refer to the proceedings between the Petition
Date and the date that a plan of reorganization is consummated
as the Chapter 11 Proceedings.
In connection with the Chapter 11 filings, we entered into
a financing agreement (the DIP Facility) for
debtor-in-possession
financing of up to $230 million. General Electric Capital
Corporation and Morgan Stanley Senior Funding, Inc. currently
serve as the agents for the lenders. Using the funds received
from the DIP Facility, we paid in full the amounts due and
payable under our previous credit facility (Pre-petition
Facility). Subject to compliance with the terms of the DIP
Facility, funds under the DIP Facility are available to help
satisfy our working capital obligations during the
Chapter 11 Proceedings, including payment under normal
terms for goods and services provided after the Petition Date,
payment of wages and benefits to active employees and retirees
and other items approved by the Bankruptcy Court.
We amended the DIP Facility effective November 17, 2005 to
exclude in the aggregate up to $3.5 million of
self-insurance liability expense recognized in the month of
September 2005 for the purpose of calculating compliance with
financial covenants set forth in the DIP Facility for any period
that includes the fiscal month of September 2005. On
January 30, 2006, we entered into a consent agreement with
respect to the DIP Facility. The consent agreement extended the
required date for delivery of our annual operating plan for
fiscal year 2006 to February 28, 2006.
On March 3, 2006 we informed our lenders that are party to
the DIP Facility that we were not in compliance with certain of
the financial covenants set forth in the DIP Facility. Such
covenant violations are an event of default under the DIP
Facility. As a result, on March 9, 2006, we entered into a
forbearance
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agreement with the lenders that are party to the DIP Facility.
Pursuant to the forbearance agreement our lenders agreed that
the financial covenant violations would not constitute a default
or an event of default as defined in the DIP Facility and to
temporarily refrain from exercising certain of the remedies set
forth in the DIP Facility through April 3, 2006. On
April 3, 2006, we entered into an amendment to the
forbearance agreement extending the forbearance period through
April 18, 2006, or the earlier of any occurrence of any
other event of default under the DIP Facility, or our failure to
comply with any of the conditions of the forbearance agreement.
In addition, as a condition to agreeing to extend the
forbearance period, the lenders required us to retain an
operational consultant. As a result, on March 21, 2006 we
retained Glass and Associates, Inc. as our operational
improvement advisor.
On April 18, 2006, we entered into a fourth amendment (the
Fourth Amendment) to the DIP Facility which extended
the forbearance period to May 18, 2006. The Fourth
Amendment provided for an over advance facility under the
$80 million term loan (Term Loan B) in the
DIP Facility pursuant to which we may be advanced up to
$5 million at the discretion of Morgan Stanley Senior
Funding, Inc. as the Term Loan B Agent (the Term B
Agent). The over advance facility had a maturity date of
May 18, 2006 and bore interest at a rate equal to one-month
LIBOR plus 9.5%. However, as a result of our covenant violations
discussed above in connection with the forbearance agreement, we
are required under the Fourth Amendment to pay the default rate
of interest under the DIP Facility on all outstanding loans,
including the over advance facility. The default rate of
interest is 2% over the otherwise applicable interest rates. We
did not draw any funds from the over advance facility prior to
its expiration. Under the terms of the Fourth Amendment, if we
are able to secure a commitment for additional funds to be
provided to us on or before June 19, 2006 in an amount not
less than $20 million, the interest rates under the DIP
Facility will revert back to the non-default rates provided
there are no additional covenant violations.
The Fourth Amendment also created a prepayment penalty, equal to
1% of the principal amount of the loans that are prepaid under
the DIP Facility, in the event we prepay any or all of the term
loans under the DIP Facility. The prepayment penalty will not
apply if the prepayment results from a refinancing provided by
the Term B Agent. In addition, the Fourth Amendment revised
certain financial covenants only for the applicable periods
ending March 31, 2006, April 30, 2006 and May 31,
2006. The temporary modification of these covenants did not
affect our prior covenant violations covered by the forbearance
agreement. However, under the terms of the Fourth Amendment, the
forbearance period discussed above has been extended until the
maturity date of the over advance facility.
On May 1, 2006 our lenders consented to extend the filing
date for our annual audited financial statements for the year
ended December 31, 2005 from May 15, 2006 to
May 30, 2006. On May 18, 2006 we further extended the
forbearance period from May 18, 2006 to June 1, 2006.
Effective May 30, 2006 the forbearance period and the
filing date for our annual audited financial statements
mentioned above were extended to June 16, 2006.
We are currently negotiating with our lenders in an effort to
enter into a consent and fifth amendment to the DIP Facility
based upon the terms and conditions of a non-binding term sheet
which we have received from certain of our existing lenders and
an additional lender. The term sheet contemplates that the
consent and fifth amendment will waive the various events of
default which exist under the DIP Facility and also that a new
Term Loan C will be established whereby the Term Loan C lenders
would commit to lend us up to an additional $30 million.
The term sheet contemplates that certain conditions must be
satisfied prior to the Term Loan C becoming effective or
our company being able to borrow these funds, including the fact
that the interim order previously granted by the Bankruptcy
Court which allows us to reduce by 10% the wages earned under
the Master Agreement with the Teamsters during the months of May
and June 2006 and avoid the June 2006 wage increases must remain
in effect beyond June 30, 2006. We have filed a motion with
the Bankruptcy Court requesting that the interim 10% wage
reduction and the wage increase avoidance be extended by an
order of the Bankruptcy Court until September 30, 2006.
The term sheet regarding the consent and fifth amendment
contemplates that the $30 million Term Loan C will
bear interest, payable in kind, at a rate equal to LIBOR plus
5%, and contemplates that Term Loan C may be borrowed in up
to four draws in an amount of not less than $10 million for
each of the first and second draws and not less than
$5 million for each of the third and fourth draws. The term
sheet also
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contemplates that the lenders may at their sole election
exchange outstanding principal amounts due under Term
Loan C into common equity equal to up to 18% of our total
voting common equity upon our reorganization and emergence from
Chapter 11.
The commitment letter contemplates that we will pay fees to the
lenders for the amendment to the DIP Facility and commitment
fees related to Term Loan C. We must finalize negotiations
with our lenders and the lenders under the Term Loan C and
execute a definitive consent and fifth amendment which consent
and fifth amendment must be approved by the Bankruptcy Court
prior to becoming effective. No assurances can be provided that
we will be able to secure any commitment for additional funds.
During the Chapter 11 Proceedings, actions by creditors to
collect pre-petition indebtedness are stayed and other
contractual obligations generally may not be enforced against
us. As
debtors-in-possession,
we have the right, subject to Bankruptcy Court approval and
certain other limitations, to assume or reject executory
contracts and unexpired leases. The term executory contracts
refer to contracts in which the obligations of both parties are
unperformed. In this context rejection means that we
are relieved from our obligations to perform further under the
contract or lease but are subject to a claim for damages for the
related breach. Any damages resulting from rejection are treated
as general unsecured pre-petition claims during the
Chapter 11 Proceedings. Parties affected by these
rejections may file claims with the Bankruptcy Court in
accordance with bankruptcy procedures. Pre-petition claims,
which were contingent or unliquidated at the commencement of the
Chapter 11 Proceedings, are generally allowable against the
debtor-in-possession in
amounts fixed by the Bankruptcy Court. A contingent claim is one
which is dependent on the occurrence of a certain event whereas
an unliquidated claim is one in which the amount is uncertain.
The rights of and ultimate payment by us under pre-petition
obligations are subject to resolution under a plan of
reorganization to be approved by the Bankruptcy Court after
submission of the required vote by affected parties and these
obligations may be substantially altered. The Securities and
Exchange Commission (SEC) has informed us that it
intends to monitor our Chapter 11 Proceedings and our plan
of reorganization.
In connection with the Chapter 11 Proceedings, the
Bankruptcy Court granted several first day orders
that enable us generally to operate in the ordinary course of
business. In addition, the Office of the United States
Trustee has appointed a committee of unsecured creditors
(Creditors Committee). The Creditors Committee and
its legal representatives have the right to be heard on all
matters that come before the Bankruptcy Court, including any
plan of reorganization that we may propose. We can provide no
assurance that the Creditors Committee will support our
positions during the Chapter 11 Proceedings or any plan of
reorganization that we may propose. Any disagreement with the
Creditors Committee could delay the Chapter 11 Proceedings
and negatively impact our ability to operate or emerge from
Chapter 11.
Under the priority plan established by the Bankruptcy Code,
certain post-petition and pre-petition liabilities must be
satisfied before stockholders are entitled to any distributions.
The bar date for creditors to file claims with the Bankruptcy
Court was February 17, 2006 and we are currently in the
process of reconciling these claims to our records. The rights
and claims of various creditors and security holders will be
determined by the plan of reorganization and the ultimate
recovery during the Chapter 11 Proceedings to creditors and
security holders, if any, will not be determined until
confirmation of the plan of reorganization. We can provide no
assurance concerning the values, if any, that will be ascribed
in the Chapter 11 Proceedings to the interests of each of
these constituencies and it is possible that our equity or other
debt securities will be restructured in a manner that will
substantially reduce or eliminate any remaining value. If a plan
of reorganization is not approved, it is possible that our
assets will be liquidated.
At this time, it is not possible to accurately predict the
effect of the Chapter 11 Proceedings on our business and if
or when we will emerge from Chapter 11. Our ability to
emerge from Chapter 11 will be affected by many factors,
including our ability to amend our DIP Facility by June 16,
2006 to waive existing defaults and obtain new funding needed to
meet our working capital needs, which is expected to be needed
in July 2006, or obtain the agreement of our lenders to extend
beyond June 16, 2006, the expiration date of the current
forbearance period relating to the DIP Facility. Further, we
will need to successfully execute on our plans to emerge from
Chapter 11, including improving contract terms regarding
our Master Agreement as to employees in the U.S. represented by
the IBT and ultimately implement a plan of reorganization. Our
future results of operations will depend on the timely and
successful confirmation and implementation of a plan of
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reorganization and we can provide no assurance that the
Bankruptcy Court will confirm the proposed plan of
reorganization, or that any such plan will be consummated. The
Company currently has the exclusive right to file a plan of
reorganization until July 15, 2006 and to solicit
acceptance of the plan through September 13, 2006. The
exclusivity date can be extended at our request, if approved by
the Bankruptcy Court. However, we can provide no assurance as to
whether any request to extend the exclusivity date will be
approved.
Principal Operating Subsidiaries
With its specialized tractors and trailers, called
Rigs, the Automotive Group serves and supports
substantially all of the major domestic and foreign automotive
manufacturers offering a range of automotive delivery services,
including the transportation of new, pre-owned and off-lease
vehicles to dealers from plants, rail ramps, inland distribution
centers, ports and auctions, while also providing yard
management services including vehicle rail-car loading and
unloading services. Though there is limited public information
available about our competitors, most of whom are
privately-owned companies, we believe that our Automotive Group
is the largest transporter of new automobiles, sport-utility
vehicles (SUVs) and light trucks via specialized
Rigs in North America. We base this on the number of vehicles
our Automotive Group delivers annually versus total vehicles
produced and on revenues generated from vehicle deliveries.
Allied Automotives largest customers are General Motors,
Ford, DaimlerChrysler, Toyota and Honda. During 2005, these
customers accounted for approximately 88% of the Automotive
Groups revenues. Other customers include the other major
foreign manufacturers, namely Mazda, Nissan, Isuzu, Volkswagen,
Hyundai, and KIA. Allied Automotive operates primarily in the
short-haul segment of the automotive transportation
industry. When we use the term short-haul, we mean
average hauled distances of less than 200 miles from the
point of origin.
The Axis Group complements the services provided by our
Automotive Group, providing vehicle distribution and
transportation support services to both the pre-owned and new
vehicle markets as well as to other segments of the automotive
and car rental industries. Axis provides the following services:
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vehicle inspection services for the pre-owned and off-lease
markets; |
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carrier management and brokerage services for various automotive
clients; |
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a variety of related support services to the pre-owned and
off-lease vehicle markets, title storage, marshalling and rail
yard management (offered through its subsidiaries CT Services,
Inc. and Axis Canada); |
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a computerized vehicle tracking service for Toyota; |
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vehicle processing services at ports and inland distribution
centers; and |
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logistics and distribution services to the Mexican automobile
industry (offered through its subsidiary, Axis Logistica). |
Information regarding our revenues, operating income (loss) and
total assets for each of our operating segments and the revenues
and total assets for each major geographic area for 2005, 2004
and 2003 is included in Note 19 of our consolidated
financial statements included in this Annual Report on
Form 10-K.
Our Operations
Our operations team is responsible for the management of our
terminals in the U.S. and Canada. Our Automotive Group operates
a total of 76 terminals while our Axis Group operates 39
terminals. Our
day-to-day operations
are directed from these terminals. Our Automotive Groups
terminals rely upon one customer service center in Decatur,
Georgia to design optimal loads for each Rig and to coordinate
our line-haul dispatch function. Our Axis Groups carrier
management services relies upon a separate customer dispatch
center in Decatur, Georgia to coordinate pickup and delivery of
customer vehicles. Terminal staffing varies based on a number of
factors including complexity, size, delivery profile and number
of customers served but may include a terminal manager, an
assistant terminal manager, an operations manager, a shop
manager, a quality or safety manager (these two positions are
sometimes combined), yard supervisors and other yard
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employees, mechanics, dispatchers, drivers, an office supervisor
and administrative associates. Our corporate office is located
in Decatur, Georgia. Some centralized management services for
our Automotive Group and our Axis Group are provided by our
corporate office and include logistics and load planning,
information technology, sales and marketing, purchasing, finance
and accounting, human resources, legal services, planning,
insurance and risk management.
Our Automotive Group currently owns approximately 2,900 Rigs,
which are substantially maintained primarily at our 42 garages.
Our Automotive Group also leases approximately 450 Rigs. In
addition, the Automotive Group utilizes approximately 590 Rigs
owned by Teamster-represented owner-operators.
Corporate History
We were founded as Motor Convoy in 1934. Following
industry deregulation in the early 1980s, we expanded
geographically through acquisitions. In 1986, Motor Convoy and
Auto Convoy, a carhaul company based in Dallas, Texas, formed a
joint venture, which allowed us to enter new markets in Texas,
Missouri, Louisiana, and Kentucky. The two firms merged in 1988
to create Allied Systems. In 1993, we went public as Allied
Holdings, Inc., a company incorporated under the laws of the
state of Georgia.
In 1994, we obtained approximately 90% of the Canadian motor
carrier market when we acquired Auto Haulaway. In 1997, we
became the major auto transporter in North America by acquiring
certain subsidiaries of Ryder System, Inc. known as Ryder
Automotive Group, a transaction that expanded our
operations in the western section of the U.S. and substantially
increased the volume of our business with certain customers,
particularly General Motors.
As part of the decision to expand internationally, in 1988,
through our Axis Group, we formed a Brazilian joint venture to
provide logistics services to the auto transport market in the
Mercosur region of South America. A year later, we set up
an Axis business unit in Mexico. We sold our interest in the
Brazilian joint venture in 2001. In 1999, the Axis Group created
a joint venture with AutoLogic Holdings (a logistics firm
serving the car industry in Belgium, France, the Netherlands,
and the UK) to manage Fords distribution of vehicles in
the United Kingdom. We sold our interest in this joint venture
in 2001.
In 2000, our Axis Group purchased CT Group, Inc., a provider of
vehicle inspection services to the pre-owned and off-lease
vehicle market. In 2001, the Axis Group established a deal with
Toyota Motor Sales to provide vehicle tracking of more than
1.5 million vehicles per year.
Since 2000, we have made no significant acquisitions. Instead,
we have focused on the restructuring and streamlining of our
operations including closing terminals deemed to be unprofitable
and focusing on cost reduction initiatives. Positive
developments in these areas were, however, hampered by our
historically high debt level as well as by certain automotive
industry dynamics including, but not limited to, the rising
costs of fuel, the decline in new vehicle production at certain
of our major customers, the increase in non-union car-haul
competition and increasing wages and benefits under our
collective bargaining agreements with the Teamsters. These
challenges and other factors culminated in our Chapter 11
filings on July 31, 2005.
Customer Relationships
Allied Automotive has one-year or multi-year contracts in place
with substantially all of its customers. However, most of these
contracts can be terminated by either party upon a specified
period of notice. These contracts establish rates for the
transportation of vehicles and are generally based upon a fixed
rate per vehicle transported, a variable rate for each mile that
a vehicle is transported plus an administrative processing fee.
Certain contracts provide for rate variation per vehicle
depending on the size and weight of the vehicle. During 2005,
substantially all of our customers paid us a fuel surcharge that
allowed us to recover at least a portion of the fuel price
increases that occurred during the year. Except in cases where
we are able to obtain the customers agreement, these
contracts do not permit the recovery of increases in fuel taxes
or labor costs.
Our Automotive Group has developed and maintained long-term
relationships with its significant customers and has
historically been substantially successful in negotiating the
renewal of contracts with these customers. Current customer
contracts include the following:
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a contract with DaimlerChrysler, which was renewed in December
2005, expires on September 30, 2007, and grants the
Automotive Group primary carrier rights for 24 locations in the
U.S. and 13 in Canada. The contract may be terminated by
location on 150 days notice by either party. This contract, |
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as renewed, provides for an increase in underlying base rates as
of October 1, 2005 and again on October 1, 2006. This
renewed agreement was approved by the Bankruptcy Court in March
2006; |
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a contract with General Motors which expires in December 2008
grants the Automotive Group primary carrier rights for 36
locations in the U.S. and Canada. This contract was renewed in
December 2005 with rate increases effective January 1, 2006
and January 1, 2007. General Motors does not have the right
to contract with other automobile-hauling service providers at a
location under the terms of the contract unless the Automotive
Group fails to comply with service or quality standards at such
location. Should an event of non-compliance occur, the
Automotive Group has 30 days in which to cure. If Allied
Automotive does not cure, General Motors may give 60 days
notice of termination with respect to the applicable location.
This renewed agreement was approved by the Bankruptcy Court in
January 2006; |
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a contract with American Honda Motor Company for vehicles
delivered in the United States which extends the Automotive
Groups current contract with Honda in the United States
through March 31, 2009. Pursuant to the terms of the
agreement which was renewed in March 2006, the Automotive Group
will continue performing vehicle delivery services at all of the
locations in the United States that it currently serves for
Honda. The contract renewal includes increases in the underlying
rates paid by Honda to the Automotive Group for vehicle delivery
services effective April 1, 2006, and again on
April 1, 2007 and April 1, 2008; |
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an agreement in principle with Toyota regarding a contract which
will expire on March 31, 2007. This agreement in principle
provides that the contract may be terminated by either party by
giving 60 days notice and provides for an increase in base
rates effective February 1, 2006 at locations which
generated approximately 68% of the revenues for 2005 associated
with the Toyota account. In addition, during the first quarter
of 2006, we ceased performing vehicle delivery services at
locations that generated approximately 32% of the 2005 revenues
associated with the Toyota account. This agreement in principle
remains subject to the execution of a definitive agreement and
approval of the agreement by the Bankruptcy Court; and |
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an agreement in principle reached in December 2005 with Ford
Motor Company through Autogistics, a service relationship
between Ford and UPS Logistics, that oversees Fords
vehicle delivery network. This agreement in principle grants the
Automotive Group primary carrier rights for 22 locations in the
U.S. and Canada. The agreement in principle provides for the
Automotive Group to retain all of its business in North America
for Ford for a two-year term expiring December 31, 2007,
and required the Automotive Group to reduce its rates at one
location served for Ford effective December 2005. The Automotive
Group will increase rates on all business served to Ford,
effective January 1, 2007 under the agreement in principle.
The agreement in principle contemplates that each party to the
contract will have the right to terminate the agreement by
location on 75 days notice. This agreement in principle
remains subject to the execution of a definitive agreement and
approval of the agreement by the Bankruptcy Court. |
Under written contracts, the Automotive Group has served Ford
since 1934, DaimlerChrysler since 1979 and General Motors since
1997. We anticipate that the Automotive Group will be able to
continue these relationships with its customers without
interruption of service but can provide no assurance that we
will be able to successfully renew these contracts on terms
satisfactory to us on or prior to their expiration dates or
without a loss of market share or a reduction in pricing or that
we will be able to continue to serve these customers without
service interruption.
Proprietary Management Information Systems
We are committed to using our technology to serve our customers.
Our Automotive Groups management information system is a
centralized, fully integrated information system that serves as
a company-wide database, which allows the Automotive Group to
quickly respond to customer information requests without having
to combine data files from several sources. Updates with respect
to vehicle load, dispatch and delivery are immediately available
for reporting to our customers and with our information system,
we are able to control and track customer vehicle inventories.
Through electronic data interchange (EDI), our Automotive Group
communicates directly with manufacturers in the process of
delivering vehicles and electronically bills
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and collects from these manufacturers. Allied Automotive Group
also utilizes EDI to communicate with inspection companies,
railroads, port processors, and other carriers.
The information system of Allied Automotive is a tool used by
its personnel to design certain loads to be delivered by the
Automotive Group and takes into account factors such as the
capacity of the Rig, the size of the vehicles, the route, the
drop points, applicable weight and height restrictions and the
formula for paying drivers. The system also determines the most
economical and efficient load sequence and drop sequence for
certain vehicles to be transported. Load sequence is defined as
the order or arrangement of vehicles (each of which may vary in
weight) on a trailer, whereas the drop sequence is defined as
the order in which vehicles will be delivered. Loads are also
designed manually by our Automotive Group personnel, taking into
account the same factors described above. Additionally, Axis has
developed both a yard management system, which maintains the
vehicle inventory in a storage facility, as well as a vehicle
tracking system, which estimates the dates and times of vehicle
arrivals at the dealerships from multiple origination points and
channels of distribution. Axis operates the vehicle tracking
system for Toyota whereby Axis manages dealer transit and
delivery data on behalf of Toyota for all of their vehicles sold
in the U.S.
Management Strategy and Employee Incentives
We utilize a performance management strategy, which we believe
contributes to driver productivity, customer cargo claim
prevention, enhanced efficiency, safety, and consistency of
operations. This management strategy and culture is
results-driven and is designed to enhance employee performance
through high standards, accountability, precise measurement
matrices, careful employee selection, and continuous training.
Beginning in 2003 and continuing into 2005, we made significant
changes to our field management teams, which we believe has
improved the quality of service that we offer to our customers
and has provided us with a strong leadership base.
Risk Management and Insurance
As part of our risk management strategy, we identify the
potential risks that we face and secure appropriate insurance
coverage. Through a combination of deductibles, self-insurance
retentions and third-party insurance coverage, we insure the
following risks: workers compensation; business automobile
liability; commercial general liability; property, including
business interruption; cargo damage and automobile physical
damage; fuel storage tank liability; directors and
officers liability; fiduciary liability; employment
practices liability; employee fidelity; and chaplains
professional liability.
We retain losses within certain limits through high deductibles
or self-insured retentions. For certain risks, coverage for
losses is provided by primary and reinsurance companies
unrelated to our company. Haul Insurance Limited, our captive
insurance subsidiary, provides reinsurance coverage to certain
of our licensed insurance carriers for certain types of losses
for certain years within our insurance program, primarily
insured workers compensation, automobile and general
liability risks. Haul Insurance Limited was not included in the
companies that filed for Chapter 11.
For 2005, we were self-insured, primarily through our captive
insurance company, for the majority of our workers
compensation losses which will be paid over a number of years.
In contrast, the majority of our risk related to workers
compensation claims in 2006 is covered by a fully insured
program with no deductible, for which we paid the premiums in
December 2005.
Effective January 1, 2006, we retain liability for
U.S. automobile liability claims for the first
$1 million per occurrence with no aggregate limit. For
claim amounts in excess of $1 million per occurrence, we
are covered by excess insurance. In Canada, we retain liability
up to CDN $500,000 for each auto liability claim, with no
aggregate limit. For claim amounts in excess of CDN $500,000, we
are covered by excess insurance.
For claim years ended December 31, 2005 and 2004, we
utilize three layers of coverage for automobile claims in the
U.S. as follows:
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The first layer includes the first $1 million of every
claim. We retain liability for this layer, with no aggregate
limit. |
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|
The second layer includes the amount by which individual claims
exceed $1 million up to $5 million per occurrence. For
this second layer, we retain liability up to an aggregate
deductible of $7 million. Aggregate claim amounts in the
second layer in excess of $7 million are covered by excess
insurance. |
8
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The third layer includes the amount by which individual claims
exceed $5 million per occurrence. Individual claim amounts
greater than $5 million are covered by excess insurance to
a limit of $150 million per occurrence. |
For the claim years ended December 31, 2005 and 2004, we
also utilize three layers of coverage for automobile claims in
Canada as follows:
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The first layer includes the first CDN $500,000 of every claim.
We retain liability for this layer, with no aggregate limit. |
|
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|
The second layer includes the amount by which individual claims
exceed CDN $500,000 up to CDN $1 million, per
occurrence. For this second layer, we retain liability up to an
aggregate deductible of CDN $500,000. Aggregate claim amounts in
the second layer in excess of CDN 500,000 are covered by excess
insurance. |
|
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|
The third layer includes the amount by which individual claims
exceed CDN $1 million, per occurrence. Individual claim
amounts that are greater than CDN $1 million are covered by
excess insurance to a limit of $150 million per occurrence. |
The parties to the insurance arrangements have agreed that
certain contractual documentation needs to be corrected within
the automobile policy. We intend to file a motion with the
Bankruptcy Court to obtain approval for the amendments agreed to
by the parties.
For the claim years 2006, 2005 and 2004, we retain liability of
up to $250,000 for each cargo damage claim in the U.S. and up to
CDN $250,000 for each cargo damage claim in Canada. There is no
aggregate limit. Claim amounts in excess of these amounts are
covered by excess insurance.
For certain of our operating subsidiaries, we are qualified to
self-insure against losses relating to workers
compensation claims in the states of Florida, Georgia, Missouri
and Ohio. For these states, we retain respective liabilities of
$400,000, $500,000, $500,000 and $350,000, per occurrence. Claim
amounts in excess of these amounts are covered by excess
insurance. In those states where we are insured for
workers compensation claims, the majority of our risk in
2006 is covered by a fully insured program with no deductible.
Prior to January 1, 2006, our captive insurance subsidiary
provided insurance coverage and the deductible was
$650,000 per claim. Claims in excess of that amount are
covered by excess insurance.
Workers compensation losses in Canada are covered by
government insurance programs to which we make premium payments.
In one province, we are also subject to retrospective premium
adjustments based on actual claims losses compared to expected
losses.
We are also required to provide collateral to our insurance
companies and various states for losses in respect of worker
injuries, accident, theft, and other loss claims. For this
purpose, we utilize cash and/or letters of credit. To reduce our
risks in these areas as well as the letter of credit or
underlying collateral requirements, we have implemented various
risk management programs. However, we can provide no assurance
that the current letter of credit requirements will be reduced
nor can we provide assurance that these letter of credit
requirements will not increase.
Equipment, Maintenance and Fuel
Allied Automotive presently owns approximately 2,900 Rigs (each
Rig is comprised of one specialized tractor and one specialized
car-haul trailer) which it operates along with approximately 450
leased Rigs and approximately 590 Rigs owned and operated by
owner-operators represented by the Teamsters. Allied Automotive
manages a total fleet of approximately 3,940 Rigs which serve
and support all of the major domestic and foreign automotive
manufacturers. Included in our fleet of Rigs are some that we
have remanufactured. We believe that remanufacturing extends the
useful life of Rigs. A new 75-foot Rig currently costs
approximately $180,000 and has an approximate useful life of
15 years, on average, if properly maintained and
remanufactured half-way through its useful life. At
December 31, 2005, the average age of the Rigs that we own
was approximately 10.7 years and the average remaining
useful life was approximately 4.3 years. The average age is
generally calculated based on the tractor manufacture dates.
Certain equipment in our fleet is kept in service past the
fifteen year useful life.
9
During 2005, we spent approximately $17.2 million in
capital on our fleet of Rigs, which included $8.3 million
for the remanufacture of 164 Rigs, along with 1 additional
trailer, and $8.4 million on the replacement of 441 engines
in the tractors that are a part of each Rig.
Remanufacturing of a Rig typically involves major structural
restoration of the tractor head-rack and the trailer but does
not always include an engine replacement. This structural
restoration of the tractor and trailer varies depending on the
age and condition of the equipment to be remanufactured.
We utilize primarily one company to remanufacture and supply
certain parts needed to maintain a significant portion of our
fleet of Rigs. While we believe that a limited number of other
companies could provide comparable remanufacturing services and
parts, a change in this service provider could cause a delay in
and increase the cost of the remanufacturing process and the
maintenance of our Rigs. Such delays and additional costs could
adversely affect our operating results as well as our Rig
remanufacturing and maintenance programs. In addition, we
purchase our tractors primarily through one manufacturing
company. We have not yet determined whether another manufacturer
could provide us with the number of specialized tractors that we
need to operate our fleet of Rigs, and if so, we can not
determine the cost.
We plan to spend approximately $33.3 million for capital
expenditures in 2006, $30.5 million of which we expect to
spend on our fleet of Rigs. Of this amount, Allied Automotive
expects to spend approximately $9.5 million to
purchase 53 new Rigs, approximately $10.5 million to
remanufacture 152 existing Rigs, approximately $7.1 million
to replace approximately 314 engines, and approximately
$2.7 million to purchase certain Rigs which we lease. Our
Axis Group expects to spend about $2.6 million of capital
in 2006. If we do spend only $30.5 million on our fleet of
Rigs in 2006 as planned, we believe that approximately 230 of
the Rigs that we own are at risk of failing as early as 2006.
These Rigs may fail due to tractor engine failures, trailer
failures or the Rigs otherwise reaching the end of their useful
lives. The failure of these Rigs will adversely affect our
operations and financial results or could impair customer
relationships.
We presently believe that the fleet of Rigs at our Automotive
Group will require substantial capital investment in 2007 and
for several years to follow as we must replace a significant
number of our Rigs that are approaching the end of their useful
lives. We believe that approximately 67% of our active fleet of
Rigs will reach the end of their useful lives and must be
replaced with new Rigs between the years 2006 and 2010. In
addition, we have operated under a reduced capital expenditure
plan with respect to our fleet of Rigs due to the reduction in
cash flow available to us in recent years. As a result of our
inability to purchase new Rigs, remanufacture existing Rigs or
replace engines at the time necessary to maintain the current
number of our active Rigs and because 67% of the active Rigs in
our fleet must be replaced in 2006 through 2010 due to Rigs
approaching the end of their useful lives, we expect our capital
spending needs to increase significantly.
We presently believe that we will be required to spend
approximately $89 million of capital on our fleet of Rigs
in 2007, and approximately $75 million in each of the years
2008, 2009 and 2010. Further, we believe that the average annual
capital expenditure requirements for our Automotive Group will
be approximately $50 to $60 million per year thereafter.
Our estimates of capital expenditure requirements assume that we
will continue to operate our current number of owned and leased
Rigs.
We have removed approximately 838 tractors and 910 trailers from
our operations since the beginning of 2004, and as a result, we
presently have no excess Rigs that we could utilize to service
our existing business beyond the Rigs that we presently operate.
In the event we do not have sufficient funds available to make
the capital expenditures outlined above at the appropriate time
or if our Rig engines or trailers fail, we will be required to
remove Rigs from operations. In the event we are required to
remove Rigs from operations for this or other reasons, there
will be an adverse effect on our operations, our financial
results and customer relationships.
We spent approximately $19.4 million of capital in 2005,
$17.2 million of which was spent on our fleet of Rigs. Of
this amount, our Automotive Group spent approximately
$8.4 million to replace approximately 441 engines. We
replaced more engines in 2005 than we replaced in 2004 because
the expected useful life of approximately 470 engines was to
expire in 2005. In addition, our Automotive Group spent
approximately $8.3 million on the remanufacture of Rigs in
2005. Our Axis Group spent approximately $1.5 million on
other capital expenditures in 2005.
10
We experienced an increase in repairs and maintenance expense
for our fleet of Rigs in 2005 and expect a significant increase
in this expense in 2006. Repairs and maintenance expense has
been increasing due to the age and condition of our existing
fleet. The reduced investment in our fleet of Rigs in recent
years caused by the lack of funds available for capital
expenditures has increased repairs and maintenance expense. We
expect repairs and maintenance expense per mile driven to
continue to increase for the next three years until the savings
derived from the increased level of capital spending discussed
above offsets the escalating costs associated with an aging
fleet. If we are unable to make planned reinvestments in the
fleet because of liquidity or other constraints, or if there is
inadequate manufacturing or remanufacturing capacity when we
require it, repairs and maintenance expense will be adversely
impacted.
We manage equipment parts through a centralized parts vendor.
All of our Automotive Groups terminals have access to this
warehouse through our management information system. Based upon
usage, this management information system calculates maximum and
minimum inventory quantities and automatically generates an
order for parts, as supplies are needed. Minor modifications of
equipment are generally performed at our terminal locations
while major modifications are generally performed by the trailer
manufacturers.
In order to reduce fuel costs, our Automotive Group utilizes
bulk fuel purchasing. In addition, while on delivery routes, its
drivers may purchase fuel from several suppliers with whom we
have negotiated competitive discounts and central billing
arrangements. During 2005, Allied Automotive purchased
approximately 36% of its fuel in bulk.
Competition and Market Share
In 1997, after we acquired Ryder Automotive Group, our
Automotive Group became the largest transporter of new vehicles
in the U.S. and Canada. However, between 1997 and 2001, our
Automotive Group lost market share primarily as a result of
decisions by our Automotive Group to close certain unprofitable
terminals, return certain unprofitable business or lanes of
traffic to our customers and customers decisions to remove
certain business from our portfolio, primarily as a result of
pricing actions by Allied Automotive. In addition, during 2002,
we decided to terminate our services to substantially all Nissan
customers located in the U.S.
We believe that our Automotive Group continues to be the largest
motor carrier in North America specializing in the
transportation of new automobiles, SUVs and light trucks via
specialized Rigs for substantially all the major domestic and
foreign automotive manufacturers.
In recent years, the use of third-party logistics companies by
automotive manufacturers has increased, particularly among the
Big Three. When we use the term Big Three, we mean General
Motors, Ford and Daimler Chrysler. The following are examples of
the use of logistics companies:
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|
General Motors utilizes Vector SCM, a division of CF
Corporation, which acts as the global lead logistics service
provider for General Motors; |
|
|
|
Ford has engaged Autogistics to oversee its vehicle delivery
network. All Ford vehicles in North America are shipped
under the operating direction of Autogistics which has a service
relationship with Ford through UPS Logistics; and |
|
|
|
DaimlerChrysler has formed Insight, a joint venture with the
Union Pacific Railroad. |
We hope to prevent further deterioration to our market share by
seeking modification of certain provisions in the Master
Agreement with the IBT in the United States in an attempt to
make the Automotive Group more economically and operationally
competitive and thereby reduce our market share losses. We
attempt to differentiate our service based on our extensive
capacity, the flexibility of our distribution network and
reliability of execution. We also hope to prevent further
deterioration to our market share on the basis of reliability
through our experienced drivers, effective management,
productive and service-driven operations, extensive and flexible
distribution network, and management of risk, particularly with
respect to cargo claims, worker injuries and traffic accidents.
However, we can provide no assurance that we will be able to
prevent further loss of our market share through these
initiatives.
Our Automotive Groups major competitor is Performance
Transportation Services, Inc. (PTS), which is the
parent company for E & L Transport Company, Hadley Auto
Transport and Leaseway Auto Carrier. PTS is the second largest
automobile-hauling company in North America. PTS and each of
these three
11
subsidiaries filed a voluntary petition for protection under
Chapter 11 of the U.S. Bankruptcy Code in January
2006. Allied Automotives other competitors include:
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The Waggoners Trucking (Waggoners); and |
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Cassens Transport Company (Cassens); |
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Jack Cooper Transport Co., Inc. (Jack Cooper); |
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Blue Thunder Auto Transport, Inc. (Blue Thunder); |
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United Road Service (United Road); |
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Fleet Car-lease, Inc. (Fleet). |
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Active Transportation (Active); |
We believe the Rig capacity and market share represented by the
non-union sector of the automobile-hauling industry has been
increasing but is less than the capacity of the union companies.
The labor force of E & L Transport Company, Hadley Auto
Transport, Leaseway Auto Carrier, Jack Cooper, Cassens and
Active are unionized while those of Blue Thunder, Waggoner,
United Road and Fleet are non-unionized. These companies provide
services similar to those we provide and some, particularly
those that are non-unionized, may be able to provide these
services to Allied Automotives customers at lower prices
or in a more flexible manner.
Employees and Owner-Operators
At December 31, 2005, we had approximately 6,400 employees,
including approximately 3,700 drivers employed by our Automotive
Group. These drivers, along with shop mechanics and yard
personnel employed by our Automotive Group, are primarily
represented by the IBT. The Master Agreement with the Teamsters
covering employees of certain of our subsidiaries in the
U.S. expires on May 31, 2008. This Master Agreement
was negotiated and executed by subsidiaries of our Automotive
Group and we believe that it is identical to the agreement that
the National Automobile Transporters Labor Division (the
NATLD) negotiated with the IBT. The NATLD is a
voluntary labor association of union companies not including our
Automotive Group, which are involved in the transportation of
new vehicles. The Master Agreement covers all of our terminal
operations in the U.S. and provides for wage and benefit
increases in each of the remaining years of the contract.
On March 8, 2006, certain of our subsidiaries, including
Allied Systems, Ltd, made a proposal to the IBT for a new
collective bargaining agreement regarding their employees in the
U.S. represented by the Teamsters, by modifying the current
collective bargaining agreement which covers approximately
3700 drivers and yard and shop personnel employed by our
Automotive Group. The proposal seeks to eliminate future
increases to wages, health and welfare benefits and pension
contributions as contemplated by the Master Agreement and in the
aggregate seeks to reduce current Teamster employee compensation
by approximately 14.5%. We believe our proposal would reduce our
costs during the remaining term of the collective bargaining
agreement by approximately $65 million per year as long as
the proposed terms remain in effect. We have proposed a new
agreement which would expire on May 31, 2011 and have
commenced negotiations with the IBT.
As a result of our projected liquidity shortfall discussed
elsewhere in this Annual Report on
Form 10-K and
pursuant to the conditions of the Fourth Amendment to the DIP
Facility, on April 13, 2006 we filed a motion with the
Bankruptcy Court requesting a 10% reduction in wages earned
under the Master Agreement in May and June of 2006. The
Bankruptcy Court granted this motion on May 1, 2006. The
order granted by the Bankruptcy Court also allows us to avoid
paying wage and cost of living increases for the month of June
2006 that were previously scheduled under the Master Agreement
to go into effect on June 1, 2006. The order will reduce
our labor costs for employees covered by the Master Agreement in
the U.S. by approximately $2 million per month in May
and June 2006. The IBT has appealed the order granted by the
Bankruptcy Court and the appeal is pending. On June 8,
2006, we filed a motion with the Bankruptcy Court requesting
that an order be entered extending the 10% reduction in wages
earned under the Master Agreement through September 30,
2006, and allowing our company to avoid paying the wage and cost
of living increases as well as increases relating to health,
welfare and pension obligations of our company under the Master
Agreement through September 30, 2006. The Bankruptcy Court
previously entered an order allowing us to reduce wages
12
earned under the Master Agreement for our employees represented
by the IBT in the United States in the months of May and June by
10% and allowing us to forego wage and cost of living increases
for the month of June 2006. We can provide no assurance that we
will be able to obtain interim relief beyond June 30, 2006
as requested by this motion.
During the fourth quarter of 2005 our employees in Eastern
Canada who are subject to a contract between Allied Systems
(Canada) Company and the Teamsters Union in Eastern Canada
ratified a one-year extension of the agreement without
significant changes to the economic terms. This contract covers
the drivers, mechanics, and yard personnel represented by the
Teamsters Union in the provinces of Ontario and Quebec, who
comprise approximately 70% of our Canadian employees who are
covered by bargaining agreements.
We can provide no assurance that our union contracts which are
negotiated as current contracts expire or our attempts to modify
the Master Agreement with the IBT in the United States will not
result in increased labor costs, labor disruptions and/or work
stoppages, increased employee turnover or higher risk management
costs, which could in turn materially and adversely affect our
financial condition, results of operations or customer
relationships.
In addition to utilizing our drivers for automotive deliveries,
subsidiaries of our Automotive Group also utilize an estimated
680 owner-operators. These owner-operators utilize their Rigs to
deliver vehicles on our behalf and are either paid a percentage
of the revenues that they generate or a set fee plus a truck
allowance. Of the estimated 680 owner-operators that we utilize,
approximately 150 drive exclusively from terminals in Canada for
our subsidiary, Allied Systems (Canada) Company, while
approximately 530 drive exclusively from terminals in the
U.S. for our subsidiary Allied Systems. There can be no
assurance that subsidiaries of our Automotive Group will
continue to utilize owner-operators under the terms or the scale
our company has historically experienced.
Regulation
Certain of our subsidiaries domiciled in the U.S. are
regulated by the U.S. Department of Transportation
(DOT) along with various state agencies. Our
Canadian subsidiary is regulated by the National Transportation
Agency of Canada along with various provincial transport boards.
Regulations by these agencies include restrictions on truck and
trailer length, height, width, maximum weight capacity and other
specifications. With the percentage increase in the production
of light trucks and SUVs and the associated increases in the
size and weight of the average vehicle per load, the average
number of vehicles delivered per load has decreased.
In addition, our interstate motor carrier operations are subject
to safety requirements prescribed by the DOT. These regulations
were amended effective January 1, 2004 to require shorter
hours of service for drivers of commercial motor vehicles.
Because some of our business consists of relatively short hauls,
not all of our drivers were affected by the new regulations. We
estimate that approximately 60% of our drivers were affected by
the new regulations, which served to increase or decrease their
flexibility and hours of service. The reduced flexibility and
hours of service had no material impact on our operating costs
due to Allieds relatively short length of haul.
Other regulations include safety regulations by the DOT in the
design of our Rigs as well as environmental laws and regulations
enforced by federal, state, provincial, and local agencies.
Environmental laws and regulations affect the regulatory
environment in which our Automotive Groups terminals
operate. Areas regulated include the treatment, storage and
disposal of waste, and the storage and handling of fuel and
lubricants. In an effort to ensure compliance with environmental
laws and regulations, our Automotive Group maintains regular
ongoing testing programs for underground fuel storage tanks
located at its terminals.
Future regulatory and legislative changes within the motor
carrier transportation industry may affect the economics of the
automobile-hauling industry by requiring changes in operating
policies or by influencing the demand for, and the cost of
providing services to shippers. While we believe that we are in
compliance, in all material respects, with the various
regulations, any failure to so comply, as well as any changes in
the regulation of the industry through legislative, judicial,
administrative or other action, could materially and adversely
affect us.
13
Revenue Variability
Our revenues are variable and can be impacted by changes in
original equipment manufacture (OEM) production
levels, especially sudden unexpected or unanticipated changes in
production schedules, changes in distribution patterns, product
type, product mix, product design or the weight or configuration
of vehicles transported by our Automotive Group. As an example,
our revenue will be adversely affected by recent decisions
announced by General Motors and Ford to close certain
manufacturing plants in the future. In addition, our revenues
are seasonal, with the second and fourth quarters generally
experiencing higher revenues than the first and third quarters.
The volume of vehicles shipped during the second and fourth
quarters is generally higher due to the introduction of new
customer models which are shipped to dealers during those
periods as well as to the higher spring and early summer sales
of automobiles, light trucks and SUVs. During the first and
third quarters, vehicle shipments typically decline due to lower
sales volume during those periods and scheduled OEM plant
shutdowns, which generally occur in the third quarter. However,
given the unpredictable nature of consumer sentiment and our
customers emphasis on more effective use of plant
capacity, particularly at the Big Three, there can be no
assurance that historical revenue patterns or manufacturer
production levels will be an accurate indicator of future OEM
shipment activity. Shipment activity at our Automotive Group and
the Axis Group can also be impacted by the availability of rail
cars, rail transportation schedules or changes in customer
service demands.
Industry Overview
The following table summarizes historic new vehicle production
in North America and sales in the U.S. and Canada, the primary
source of our revenues:
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2005 | |
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2004 | |
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|
vs. | |
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vs. | |
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|
2004 | |
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2003 | |
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|
2005 | |
|
2004 | |
|
Change | |
|
2003 | |
|
Change | |
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| |
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| |
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| |
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| |
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| |
New Vehicle Production (in millions of units)
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United States:
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Big Three(1)
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8.0 |
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8.4 |
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(4.8 |
)% |
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8.9 |
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|
(5.6 |
)% |
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Other
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3.5 |
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|
3.2 |
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9.4 |
% |
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2.9 |
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10.3 |
% |
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Total
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11.5 |
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|
11.6 |
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|
(0.9 |
)% |
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|
11.8 |
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|
(1.7 |
)% |
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|
|
|
|
|
|
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|
|
Canada:
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|
|
|
|
|
|
Big Three(1)
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|
1.8 |
|
|
|
1.9 |
|
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|
(5.3 |
)% |
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|
1.8 |
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|
|
5.6 |
% |
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Other
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|
0.9 |
|
|
|
0.8 |
|
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|
12.5 |
% |
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0.7 |
|
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|
14.3 |
% |
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Total
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2.7 |
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|
2.7 |
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% |
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2.5 |
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|
8.0 |
% |
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Mexico:
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|
Big Three(1)
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0.9 |
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|
0.9 |
|
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% |
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0.9 |
|
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% |
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Other
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|
0.7 |
|
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|
0.6 |
|
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|
16.7 |
% |
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|
0.6 |
|
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% |
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Total
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1.6 |
|
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|
1.5 |
|
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|
6.7 |
% |
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1.5 |
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% |
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New Vehicle Sales (in millions of units)
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|
|
|
|
|
|
|
|
|
|
|
United States:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Big Three(1)
|
|
|
10.2 |
|
|
|
10.6 |
|
|
|
(3.8 |
)% |
|
|
10.8 |
|
|
|
(1.9 |
)% |
|
Import
|
|
|
2.7 |
|
|
|
2.7 |
|
|
|
|
% |
|
|
2.7 |
|
|
|
0.0 |
% |
|
Transplant(2)
|
|
|
3.8 |
|
|
|
3.4 |
|
|
|
11.8 |
% |
|
|
3.2 |
|
|
|
6.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
16.7 |
|
|
|
16.7 |
|
|
|
|
% |
|
|
16.7 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Big Three(1)
|
|
|
1.0 |
|
|
|
0.9 |
|
|
|
11.1 |
% |
|
|
1.0 |
|
|
|
(10.0 |
)% |
|
Other
|
|
|
0.6 |
|
|
|
0.6 |
|
|
|
|
% |
|
|
0.6 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1.6 |
|
|
|
1.5 |
|
|
|
6.7 |
% |
|
|
1.6 |
|
|
|
(6.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Represents General Motors Corporation, Ford Motor Company and
DaimlerChrysler Corporation. |
|
(2) |
Represents foreign vehicles made in the U.S. |
14
Source: December 2005 Edition of North American Light
Vehicle Industry Forecast Report (a production of Global Insight
Automotive formerly DRI Automotive).
Domestic automotive manufacturing plants are typically dedicated
to manufacturing a particular model or models. Vehicles destined
for dealers within a radius of approximately 250 miles from
the plant are usually transported via Rigs. The remaining
vehicles are shipped by rail to various rail-ramps located
throughout the U.S. and Canada where trucking companies handle
final delivery to dealers utilizing Rigs. The rail or truck
carrier is responsible for loading the vehicles on railcars or
trailers and for any damages incurred while the vehicles are in
the carriers custody. Automobiles manufactured in Europe
and Asia are transported by ship into the U.S. and Canada and
are usually delivered directly to dealers from seaports by truck
or shipped by rail to the rail-ramps and then delivered by Rigs
to dealers. Vehicles transported by ship are normally prepared
for final dealer delivery at port processing centers, where
cleaning and sometimes accessory installation takes place. The
port processor then releases the vehicles to the carrier who is
responsible for loading and delivery to a rail ramp or delivery
directly to the dealers.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
We make forward-looking statements in this Annual Report on
Form 10-K and in
other materials we file with the SEC or otherwise make public.
In this Annual Report on
Form 10-K, both
Item 1 Business and Item 7
Managements Discussion and Analysis of Financial
Conditions and Results of Operations, contain
forward-looking statements. In addition, our senior management
might make forward-looking statements orally to analysts,
investors, the media and others. Statements concerning our
future operations, prospects, strategies, financial condition,
future economic performance (including our ability to emerge
from Chapter 11) and demand for our services, and other
statements of our plans, beliefs, or expectations, are
forward-looking statements. In some cases these statements are
identifiable through the use of words such as
anticipate, believe,
estimate, expect, intend,
plan, project, target,
can, could, may,
should, will, would and
similar expressions. You are cautioned not to place undue
reliance on these forward-looking statements. The
forward-looking statements we make are not guarantees of future
performance and are subject to various assumptions, risks and
other factors that could cause actual results to differ
materially from those suggested by these forward-looking
statements. These factors include, among others, those set forth
in Item 1A Risk Factors, in this Annual Report
on Form 10-K and
in the other documents that we file with the SEC. There also are
other factors that we may not describe, generally because we
currently do not perceive them to be material, which could cause
actual results to differ materially from our expectations.
We expressly disclaim any obligation to update or revise any
forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by
law.
SEC Filings
This Annual Report on
Form 10-K, our
Quarterly Reports on
Form 10-Q, Current
Reports on
Form 8-K and any
amendments to these reports are available free of charge on our
website (www.alliedholdings.com) as soon as practicable after
they have been filed with the SEC.
You may also read and copy any of the materials that we file
with the SEC at the SECs Public Reference Room located at
100 F Street, N.E., Washington, DC 20549. You may also obtain
information about the Public Reference Room by calling the SEC
at 1-800-SEC-0330. In
addition, the SEC maintains an Internet website
(http://www.sec.gov) that contains our filings, proxy and other
information about us.
Our business is subject to certain risks, including the risks
described below. Readers of this Annual Report on
Form 10-K should
take such risks into account in evaluating any investment
decision involving our common stock. This Item 1A does not
describe all risks applicable to our business and is intended
only as a summary of certain material factors that affect our
operations and the car-haul industry in which we operate. More
detailed information concerning these and other risks is
contained in other sections of this Annual Report on
Form 10-K.
15
|
|
|
We may not be able to successfully reorganize under
Chapter 11, which would likely terminate our future
business prospects and our ability to continue as a going
concern and result in a liquidation of our assets. |
On July 31, 2005, Allied Holdings, Inc. and substantially
all its subsidiaries filed for voluntary reorganization under
Chapter 11. Our ability to successfully reorganize could be
hampered by a number of factors including our ability to obtain
the required votes of the Creditors Committee to approve and
implement a plan of reorganization, our ability to reach
agreements with the Teamsters in the United States on
modifications to the Master Agreement which we believe are
necessary to allow us to emerge from Chapter 11, our
ability to comply with our DIP Facility and to obtain suitable
additional financing as contemplated by the Fourth Amendment to
the DIP Facility, as well as financing to replace the DIP
Facility upon the earlier of our emergence from Chapter 11
or the termination of such facility, our ability to motivate and
retain key employees and suppliers and the extent to which the
reorganization process serves to divert managements
attention away from the daily running of the business. In
addition, the adverse publicity regarding our Chapter 11
filing and performance could affect our results going forward.
Any adverse effect on our credit standing with our lenders and
suppliers could affect the costs of doing business and our
negotiating power with lenders and creditors. We can provide no
assurance that the reorganization process will be successful. If
it is not successful, it is likely that we would be forced to
cease operations and liquidate our assets.
|
|
|
We currently face a liquidity shortfall that, if not
resolved, could jeopardize our ability to continue as a going
concern and could ultimately require our liquidation. |
We believe that we may not have sufficient availability under
the DIP Facility to meet our working capital needs as soon as
July 2006. Further, we believe that between the filing date of
this Annual Report on
Form 10-K and
August 2006 we will operate often with minimal availability
under the DIP Facility, which could prevent us from meeting our
working capital requirements. We are taking steps to reduce or
eliminate this projected shortfall. We filed a motion with the
Bankruptcy Court, which was granted on May 1, 2006,
providing us with interim relief from certain wages payable and
scheduled cost of living increases for our employees covered by
the Master Agreement with the IBT during May and June 2006, as
well as requiring mandatory unpaid furloughs to be taken by
certain of our non-bargaining salaried employees in
North America during May and June of 2006. However, the
order granting this motion does not provide for any relief
beyond June 2006. We have also implemented other cost-savings
initiatives which include freezing all company travel, deferring
capital needed for our aging fleet of Rigs and seeking to
terminate certain non-bargaining retiree benefits. In addition,
we are currently in negotiations with the lenders under our
DIP Facility and others to provide us with additional funds
for working capital. However, at this time no assurance can be
provided that any of our efforts to eliminate this projected
liquidity shortfall will be successful or that we will be able
to secure additional funds from our current lenders or others.
If we are not able to sufficiently reduce our costs to eliminate
the projected shortfall or if we are unable to secure additional
funding, we may not have sufficient capital to continue as a
going concern. If we are unable to continue as a going concern,
it is likely that we will be required to liquidate through the
Bankruptcy Court Proceedings.
|
|
|
We have a significant amount of debt and substantially all
our assets are pledged as collateral for long-term obligations,
which could limit our operational flexibility and customer
relationships or otherwise adversely affect our financial
condition. |
As of December 31, 2005, we had consolidated term debt and
borrowings under our DIP Facility of approximately
$152.0 million and Senior Notes outstanding of
$150 million. As more fully discussed in Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations Liquidity and Capital
Resources, additional borrowings may be available under
our DIP Facility. However, we are exposed to the risks normally
associated with substantial amounts of debt such as:
|
|
|
|
|
We may not be able to repay, refinance or extend our debt as it
matures. The DIP Facility matures on February 2, 2007; |
|
|
|
If we are not able to refinance or extend our debt when it
matures, we may not be able to repay the debt; |
16
|
|
|
|
|
Substantially all our assets are pledged as collateral for our
debt and as a result we are limited in our ability to sell
assets to generate additional cash; |
|
|
|
Our flexibility in responding to changes in the business and
industry may be reduced; |
|
|
|
We may be more vulnerable to economic downturns; |
|
|
|
We may be unable to invest in our fleet of Rigs; |
|
|
|
We may be unable to meet customer demands; and |
|
|
|
We may be limited in our ability to withstand competitive
pressures. |
|
|
|
The terms of our DIP Facility place restrictions on us,
which create risks of default and reduces our
flexibility. |
Our DIP Facility contains a number of affirmative, negative, and
financial covenants, which limit our ability to, among other
things, incur or repay debt (with the exception of payment of
interest or principal at stated maturity), incur liens, make
investments, purchase or redeem stock, make dividend or other
distributions or enter into a merger or consolidation
transaction.
If we fail to comply with the covenants contained in our DIP
Facility, and these are not waived, or we do not adequately
service our DIP Facility, our lenders could declare a default
under the DIP Facility. If a default occurs under our DIP
Facility, our lenders may elect to declare all borrowings
outstanding, together with interest and other fees, to be
immediately due and payable. Borrowings under our DIP Facility
are collateralized with substantially all of our assets. If we
were unable to repay any borrowings under our DIP Facility
when due, our lenders would have the right to proceed against
the collateral granted to them to secure the debt. Any default
under our DIP Facility, particularly any default that resulted
in acceleration of indebtedness or foreclosure on collateral,
would have a material and adverse affect on us.
|
|
|
We will be required to make significant capital
expenditures on our Rigs in the coming years or we may not be
able to maintain our current level of terminal operations or
customer relationships. |
In recent years, as a result of our financial condition, we have
operated under a reduced capital expenditure plan with respect
to our fleet of Rigs. As a result, we have been unable to
replace or remanufacture the number of Rigs or engines we
normally would have if we had not been forced to significantly
reduce our capital expenditures. We believe that approximately
67% of our active fleet of Rigs will reach the end of their
useful lives and must be replaced in 2006 through 2010, which
will require a significant increase in our capital spending on
the fleet, from approximately $30.5 million in 2006 to
approximately $89 million in 2007 and approximately
$75 million in each of the years 2008, 2009 and 2010. No
assurances can be provided that we will have the necessary
capital from our operations or that we will be able to obtain
financing on terms acceptable to us, or at all, to support this
necessary increase in capital investment. In addition, even if
we are able to invest the $30.5 million budgeted for our
fleet of Rigs in 2006, we still believe that approximately 230
of the Rigs that we own will be at risk of failing during 2006
as a result of tractor engine failures or trailer failures or
the Rigs otherwise reaching the end of their useful lives. A
large number of Rig failures in 2006 or beyond could result in
our inability to meet our service requirements under existing
customer contracts, which could result in the termination of
such agreements by our customers and would likely have a
material adverse effect on our operations and financial results.
Additionally, we have removed approximately 838 tractors and 910
trailers from our operations since the beginning of 2004, and as
a result, we presently have no excess Rigs that we could utilize
to service our existing business beyond the Rigs that we
presently operate. In the event we do not have sufficient funds
available to make the capital expenditures outlined above at the
appropriate time or if our Rig engines or tractors fail, we will
be required to remove Rigs from operations. In the event we are
required to remove Rigs from operations for this or other
reasons, there will be an adverse effect on our operations, our
financial results and customer relationships.
17
|
|
|
If we are not able to modify our Master Agreement in the
U.S. or renegotiate our other union contracts on terms
favorable to us as they expire, or if work stoppages or other
labor disruptions occur during such negotiations, it could
preclude us from emerging from bankruptcy and would have a
material adverse effect on our operations. |
On March 8, 2006, certain of our subsidiaries, including
Allied Systems, Ltd, made a proposal to the IBT for a new
collective bargaining agreement regarding their employees in the
U.S. represented by the Teamsters, by modifying the current
collective bargaining agreement, which expires on May 31,
2008 and covers approximately 3,700 drivers and yard and shop
personnel employed by our Automotive Group. The proposal seeks
to eliminate future increases to wages, health and welfare
benefits and pension contributions as contemplated by the Master
Agreement and in the aggregate seeks to reduce current Teamster
employee compensation by approximately 14.5%. We believe our
proposal would reduce our costs, during the remaining term of
the collective bargaining agreement, by approximately
$65 million per year as long as our proposed terms remain
in effect. We have proposed a new agreement which would expire
on May 31, 2011 and have commenced negotiations with the
IBT.
As a result of our projected liquidity shortfall and pursuant to
the conditions of the Fourth Amendment to the DIP Facility, on
April 13, 2006 we filed a motion with the Bankruptcy Court
requesting a 10% reduction in wages earned under the Master
Agreement in May and June 2006. The Bankruptcy Court granted
this motion on May 1, 2006. The order granted by the
Bankruptcy Court also allows us to avoid paying the wage and
cost of living increases for the month of June 2006 that were
previously scheduled under the Master Agreement to go into
effect on June 1, 2006. The order will reduce our labor
costs for employees covered by the Master Agreement in the
U.S. by approximately $2 million per month in May and
June 2006. The IBT has appealed the order granted by the
Bankruptcy Court and the appeal is pending. On June 8,
2006, we filed a motion with the Bankruptcy Court requesting
that an order be entered extending the 10% reduction in wages
earned under the Master Agreement through September 30,
2006, and allowing our company to avoid paying the wage and cost
of living increases as well as increases relating to health,
welfare and pension obligations of our company under the Master
Agreement through September 30, 2006. The Bankruptcy Court
previously entered an order allowing us to reduce wages earned
under the Master Agreement for our employees represented by the
IBT in the United States in the months of May and June by 10%
and allowing us to forego wage and cost of living increases for
the month of June 2006. We can provide no assurance that we will
be able to obtain interim relief beyond June 30, 2006 as
requested by this motion.
We can provide no assurance that we will be able to obtain
interim relief beyond June 30, 2006 as requested by this
motion. If the interim relief is not extended, we may not be
able to enter into a consent and fifth amendment to the DIP
Facility. In addition, we can provide no assurance that we will
be able to modify our Master Agreement in the U.S. as
necessary to allow us to emerge from Chapter 11 or to
negotiate new union contracts as the current contracts expire,
or that such contracts will be on terms acceptable to us or that
these contracts will not result in increased labor costs, labor
disruptions, increased employee turnover, higher risk management
costs, work stoppages, or lost customer market share which could
in turn, have a material adverse effect on our financial
condition, results of operations or customer relationships.
|
|
|
Rising interest rates could adversely affect our cash flow
and interest expense. |
A portion of our indebtedness is subject to variable rates of
interest. In addition, we may also incur additional debt
obligations attracting interest at variable rates and/or may
refinance our current debt at higher interest rates.
Therefore, our interest expense could increase which in turn
would reduce the amounts available for servicing our debt,
funding our operations and capital expenditure program, meeting
customer demands and pursuing new business opportunities.
18
|
|
|
A shortage of fuel or higher fuel prices resulting from
fuel shortages or other factors could have a detrimental effect
on the automotive industry or the automotive transportation
industry and could materially and adversely affect our
operations. |
Higher fuel prices or a shortage of fuel could impact the sales
of SUVs or light trucks at our major customers which could
impair our revenues and negatively impact our earnings. Further,
fuel is a major expense in the transportation of automobiles,
and the cost and availability of fuel are subject to economic
and political factors and events, which we can neither control
nor accurately predict. We attempt to minimize the effect of
fuel price fluctuations by periodically purchasing a portion of
our fuel in advance, but we can provide no assurance that such
activity will effectively mitigate our exposure. In addition, we
have negotiated fuel surcharges with substantially all of our
customers, which now enables us to pass on a portion of any
increase in fuel costs to these customers. Customer fuel
surcharges typically reset at the beginning of each quarter
based on the fuel prices from the previous quarter. Therefore,
there is a one-quarter lag between the time fuel prices change
and the time that the fuel surcharge is adjusted. Nevertheless,
we can provide no assurance that we will be able to continue to
obtain fuel surcharges from these customers. Furthermore, in
periods of rising fuel prices and declining vehicle deliveries,
we may not recover all of the fuel price increase through our
fuel surcharge programs since fuel surcharge rates in any
quarter reset at the beginning of the quarter based on fuel
prices in the preceding quarter and are also influenced by our
customers production levels.
Higher fuel prices resulting from fuel shortages or other
factors could materially and adversely affect us if we are
unable to pass on the full amount of fuel price increases to our
customers through fuel surcharges or higher shipment rates. In
addition, higher fuel prices, even if passed on to customers, or
a shortage of fuel supply, or the timing of fuel surcharge
recoveries could have an adverse effect on the automotive
transportation industry and our business in general.
|
|
|
A further decline in the automotive industry could have a
material adverse effect on our operations. |
The automotive transportation industry in which we operate is
dependent upon the volume of new automobiles, SUVs, and light
trucks manufactured, imported and sold in North America. The
automotive industry is highly cyclical, and the demand for new
automobiles, SUVs, and light trucks is directly affected by such
external factors as general economic conditions in the U.S and
Canada, unemployment, consumer confidence, government policies,
continuing activities of war, terrorist activities, and the
availability of affordable new car financing. As a result, our
results of operations could be adversely affected by further
downturns in the general economy and in the automotive industry
and by consumer preferences in purchasing new automobiles, SUVs,
and light trucks or the overall financial condition of our major
customers. A significant decline in the volume of automobiles,
SUVs, and light trucks manufactured, distributed, and sold in
North America could have a material adverse effect on our
operations.
|
|
|
The internal strategies of our largest customers could
have a material effect on our performance |
Allied Automotives business is highly dependent on its
largest customers, General Motors, Ford, DaimlerChrysler, Toyota
and Honda. General Motors and Ford have publicly announced plans
to reduce production levels and eliminate excess manufacturing
capacity including plans to eliminate jobs and reduce costs for
certain employees. The efforts underway by our customers to
improve their overall financial condition could result in
numerous changes that are beyond our control including
additional unannounced customer plant closings, changes in
products or distribution patterns, further volume reductions,
labor disruptions, changes or disruptions in our accounts
receivable, mandatory reductions in our pricing, terms or
service conditions or market share losses. We cannot accurately
anticipate some of the risks associated with the financial
condition of our largest customers.
|
|
|
Losses may exceed our insurance coverage or
reserves. |
Because we retain liability for a significant portion of our
risks, an increase in the number or severity of accidents, on
the job injuries, other loss events over those anticipated, or
adverse developments in existing claims including wage and
medical cost inflation could have a material adverse effect on
our profitability. While we currently have insurance coverage
for claims above our retention levels, there can be no assurance
that we will be able to obtain insurance coverage in the future.
19
We establish liabilities for our self-insured obligations based
on actuarial valuations, our historical claims experience and
managements evaluation of the nature and severity of
claims made against us. If the cost of these claims exceeds our
estimates, as could occur if there were unfavorable developments
in existing claims, we would be required to record additional
expense in subsequent years.
|
|
|
We have a history of losses and may not be able to improve
our performance to achieve profitability. |
We reported net losses of $125.7 million,
$53.9 million, $8.6 million, $7.5 million and
$39.5 million for the years ended December 31, 2005,
2004, 2003, 2002 and 2001, respectively. In addition, our
accumulated deficit at December 31, 2005 was
$214.6 million. Our ability to improve our performance and
profitability are dependent upon several factors including the
timely and successful confirmation and implementation of a plan
of reorganization, the economy, the dynamics of the automotive
transportation industry including actions by our major
customers, our ability to develop and implement successful
business strategies, our ability to maintain effective
relationships with our employees including those represented by
the Teamsters, our ability to maintain effective relationships
with our suppliers, the price and availability of fuel and our
ability to successfully manage other operational challenges. If
we fail to improve our performance, it could continue to have an
adverse effect on our financial condition, cash flow, liquidity
and business prospects and our operations would not likely be
profitable in the ensuing years.
|
|
|
Our restricted cash, cash equivalents and other time
deposits are not available for use in our operations even if
they were needed to fund our operations. |
As of December 31, 2005, our restricted cash, cash
equivalents and other time deposits were approximately
$102.6 million. We use these restricted cash and
investments to collateralize letters of credit required by
third-party insurance companies for the settlement of insurance
claims. These assets are not available for use in our operations
even if needed for our continued operations or to service our
debt obligations.
|
|
|
If we do not maintain our relationships with major
customers or these relationships are terminated, reduced or
redesigned, our operations could be materially and adversely
affected. |
Allied Automotives business is highly dependent on its
largest customers, General Motors, Ford, DaimlerChrysler, Toyota
and Honda. Approximately 88% of our Automotive Groups 2005
revenues were generated through the services provided to these
customers. Allied Automotive anticipates that it will continue
to renew its contracts with its significant customers on or
before expiration of the existing contracts or will serve its
customers without interruption under the terms of current
contracts, which may expire. However, we can provide no
assurance that we will be able to successfully renew these
contracts on or prior to their expiration on terms satisfactory
to us or that we will be able to continue to serve these
customers without service interruption. In addition, the
Automotive Group faces the risk of losing market share in
connection with its negotiations to renew its customer
contracts. For instance, in 2004, the Automotive Group renewed
its agreement with DaimlerChrysler and though the agreement
resulted in increased billing rates, the Automotive Group lost
DaimlerChryslers business at six locations in connection
with the contract renewal. Also, in 2005, in connection with the
renewal of its contract with Toyota, the Automotive Group lost
business at locations that generated approximately 32% of the
2005 revenues associated with the Toyota account. A continued
loss in market share without an increase in revenues or pricing
or an adequate reduction in costs would likely have an adverse
effect on our operations.
Certain of our agreements with our customers remain subject to
approval by the Bankruptcy Court before they are enforceable. In
addition, although our Automotive Group believes that its
relationships with these customers are mutually satisfactory, we
can provide no assurance that these relationships will not be
terminated in whole or in part in the future. Furthermore,
automotive manufacturers are relying increasingly on logistics
companies and re-engineering vehicle delivery practices, which
could result in a reduction of services provided by us or an
increase in the Automotive Groups cost of delivery for
some or all of our major customers. A significant reduction in
vehicle production levels, plant closings, or the imposition of
vendor price reductions by these manufacturers, or the loss of
General Motors, Ford, DaimlerChrysler, Toyota or Honda as
customers, or a significant reduction or a change in the design,
definition, frequency or terms of the services provided for any
of these customers by our Automotive Group would have a material
adverse effect on
20
our operations. General Motors, DaimlerChrysler, and Ford, in
particular, have publicly announced plans to significantly
reduce vendor costs including those costs associated with
logistics services.
|
|
|
Competition in the automotive transportation industry
could result in a loss of our market share or a reduction in our
rates, which could have a material adverse effect on our
operations. |
The automotive transportation industry is highly competitive.
Our Automotive Group currently competes with other motor
carriers of varying sizes, as well as with railroads and
independent owner-operators. Allied Automotive also competes
with non-union motor carriers that may be able to provide
services to their customers at lower prices and in a more
flexible manner than us. The development of new methods for
hauling vehicles could also lead to increased competition. For
example, some customers occasionally utilize local drive-away
services to facilitate local delivery of products. There has
also been an increase in the number of automobile-hauling
companies that utilize non-union labor, and we believe that the
market share and Rig capacity represented by such companies is
increasing. Automobile-hauling companies that utilize non-union
labor operate at a significant cost advantage as compared to our
Automotive Group and other unionized automobile-hauling
companies. Non-union car-haul competitors also operate without
restrictive work rules that apply to our Automotive Group and
other unionized companies. Railroads, which specialize in
long-haul transportation, may be able to provide delivery
services at costs to customers that are less than the long-haul
delivery cost of Allied Automotives services. Further, the
railroads could form alliances for local delivery of customer
products. If we lose market share to these competitors or have
to reduce our rates in order to retain our market share, our
financial condition and results of operations could be
materially and adversely affected.
|
|
|
Our common stock is not currently listed on a national
securities exchange, which could make it more difficult for
investors to liquidate their shares, result in a decline in the
stock price and make it difficult for us to raise additional
capital. |
We voluntarily requested that our common stock be delisted from
the American Stock Exchange (AMEX) during 2005 since
we did not believe that we would be able to comply with the
continuing listing requirements of the AMEX. The stock was
subsequently delisted in August 2005 and is currently traded on
the Pink Sheets, which are a daily listing of bid and ask prices
for over-the-counter
stocks not included on the daily
over-the-counter
bulletin boards. We can provide no assurance that we will be
able to re-list our common stock on a national securities
exchange or that the stock will continue being traded on the
Pink Sheets.
|
|
|
Adverse changes in the foreign business climate, primarily
in Canada, could adversely affect our operations. |
Although the majority of our operational activity takes place in
the U.S., we derive a portion of our revenues and earnings from
operations in foreign countries, primarily Canada. The risks of
doing business in foreign countries include the potential for
adverse changes in the local political climate, adverse changes
in diplomatic relations between foreign countries and the U.S.,
hostility from local populations, terrorist activity, the
potential adverse effects of currency exchange controls,
increased security at U.S. border crossings which could
slow the movement of freight and increase our operating costs,
deterioration of foreign economic conditions, currency rate
fluctuations, foreign exchange restrictions and potential
changes in local taxation policies. Due to the foregoing risks,
any of which, if realized, could have a material adverse effect
on our operations, we believe that our business activities
outside of the U.S. involve a higher degree of risk than
our domestic activities.
|
|
|
Major changes in key personnel on whom we depend could
adversely affect our operations. |
Our success is dependent upon our senior management team, as
well as our ability to attract and retain qualified personnel.
If our management team is unable to develop successful
strategies, achieve company objectives or maintain satisfactory
relationships with our customers, employees, suppliers and
creditors, our ability to grow our business and meet business
challenges could be impaired. We can provide no assurance that
we will be able to retain our existing senior management team or
that we will be able to attract qualified replacement personnel.
21
|
|
|
The loss of our Teamster drivers and mechanics could
adversely affect our operations |
Our ability to perform daily operations on behalf of our
customers is dependent upon our ability to attract and retain
qualified drivers and mechanics to staff our Automotive
Groups terminals and garages. Should we experience higher
Teamster employee retirements or resignations due to our efforts
to seek interim wage relief or modifications in our Master
Agreement, our ability to grow our business, maintain our
current business levels and meet customer service requirements
could be adversely impacted. We can provide no assurance that we
will be able to retain existing Teamster personnel at existing
staffing levels or attract new Teamster employees to replenish
our work force.
|
|
|
We have previously had material weaknesses in our internal
control over financial reporting, and any unidentified material
weaknesses could cause us to fail to meet our SEC and other
reporting requirements. |
In connection with its audits of our consolidated financial
statements for years ended December 31, 2003 and 2004,
including reviews of the quarterly periods for those years, KPMG
advised the Audit Committee and management that KPMG had
identified deficiencies in our analysis, evaluation and review
process for financial reporting. KPMG informed the Audit
Committee and management that it believed such deficiencies were
a material weakness in our internal control over
financial reporting, with respect to our analysis, evaluation
and review of financial information included in our financial
reporting.
In connection with the audit of our consolidated financial
statements for the year ended December 31, 2005, KPMG
indicated that certain deficiencies continue to exist and were
considered to be a material weakness as of December 31,
2005. However, KPMG acknowledged to the Audit Committee and
management that they had observed improvement in processes and
controls with respect to our analysis, evaluation and review of
financial information included in our financial reporting. While
improvements had been made, KPMG indicated that the design and
operating effectiveness of these controls could only be
comprehensively evaluated after they have been in place and
operating for a reasonable period of time.
Since we are not an accelerated filer (as defined in Exchange
Act Rule 12b-2),
we have not conducted the initial assessment of our internal
control over financial reporting mandated by Section 404 of
the Sarbanes-Oxley Act of 2002 nor has KPMG audited the
effectiveness of our internal control over financial reporting.
We will report on that annual assessment in our Annual Report on
Form 10-K, when
required, which will be no earlier than for the year ending
December 31, 2007. That process could identify significant
deficiencies or material weaknesses not previously reported.
We can provide no assurances that additional material weaknesses
or significant deficiencies in our internal control over
financial reporting will not be discovered in the future. If we
fail to remediate any such material weakness, our operating
results or customer relationships could be adversely affected or
we may fail to meet our SEC reporting requirements or our
financial statements may contain a material misstatement.
Internal control over financial reporting cannot provide
absolute assurance of achieving financial reporting objectives
or of preventing fraud due to its inherent limitations,
regardless of how well designed or implemented.
Internal control over financial reporting is a process that
involves human diligence and compliance and as a result is
subject to lapses in judgment and breakdowns resulting from
human failures. Because of these and other limitations, there is
a risk that material misstatements or instances of fraud may not
be prevented or detected on a timely basis by our internal
control over financial reporting.
|
|
Item 1B. |
Unresolved Staff Comments |
None
Our executive offices are located in Decatur, Georgia, a suburb
of Atlanta. We lease approximately 100,000 square feet of
space for our executive offices, which we believe is sufficient
to permit us to conduct our corporate business. We have
subleased approximately 15,000 square feet of this space
for varying terms. Our Automotive Group also operates from 76
terminals throughout the U.S. and Canada, which are located at
22
or close to manufacturing plants, ports, and railway terminals.
Allied Automotive currently owns 17 of these terminals and
leases the remainder. Most of the leased facilities are leased
on a year-to-year basis
from railroads at amounts that are not individually material to
us. In addition, the Axis Group operates from 39 terminals.
As more fully disclosed in Note 14 of the notes to our
consolidated financial statements included in Item 15 of
this Annual Report on
Form 10-K,
borrowings under our DIP Facility are secured by a first
priority security interest on certain of our assets. If we were
unable to repay any borrowings under our DIP Facility as they
are due, our lenders would have the right to proceed against the
collateral.
Changes in governmental regulations, particularly in the
1990s, have over time permitted the lengthening of Rigs
from 55 to 75 feet. Our Automotive Group has worked closely
with automobile manufacturers to develop specialized equipment
to meet their specific needs. Our Automotive Groups Rigs
are substantially maintained at 42 garages (also referred to as
shops) located throughout the U.S. and Canada. Approximately 419
maintenance personnel, including managers and supervisors, staff
these garages. Of the 42 shops, our Automotive Group owns 14 and
leases the remaining 28. We schedule our Rigs for regular
preventative maintenance inspections. Each shop is equipped to
handle repairs resulting from regular preventative maintenance
inspections and daily post-trip vehicle inspections documented
by our drivers, including repairs to electrical systems, air
conditioning systems, suspension, hydraulic systems, cooling
systems, and minor engine repairs. Major engine overhaul and
engine replacement and services relating to our remanufacturing
program are generally performed by outside vendors.
|
|
Item 3. |
Legal Proceedings |
We are involved in various litigation and environmental matters
relating to workers compensation, products liability, auto
liability, employment practices, and other matters arising from
operations in the ordinary course of business. We believe that
the ultimate disposition of these matters will not have a
material adverse effect on our financial position or results of
operations. As previously discussed, on July 31, 2005,
Allied Holdings, Inc. and substantially all of its subsidiaries
filed voluntary petitions seeking protection under
Chapter 11. These petitions and other legal proceedings are
discussed more fully in Note 18 of the notes to our
consolidated financial statements included in Item 15 of
this Annual Report on
Form 10-K.
|
|
Item 4. |
Submission of Matters to a Vote of Security Holders |
None.
Executive Officers of the Registrant
The following table sets forth certain information regarding our
executive officers:
|
|
|
|
|
|
|
Name |
|
Age | |
|
Title |
|
|
| |
|
|
Robert J. Rutland
|
|
|
64 |
|
|
Chairman and Director |
Hugh E. Sawyer
|
|
|
51 |
|
|
President, Chief Executive Officer, and Director |
Guy W. Rutland, IV
|
|
|
42 |
|
|
Senior Vice President and Director |
Thomas M. Duffy
|
|
|
45 |
|
|
Executive Vice President, General Counsel and Secretary |
Thomas H. King
|
|
|
51 |
|
|
Executive Vice President and Chief Financial Officer |
Joseph V. Marinelli
|
|
|
49 |
|
|
Senior Vice President, Field Operations |
Mr. Robert Rutland has been our Chairman since 1995. He
served as Chairman and Chief Executive Officer between February
2001 and June 2001, as Chairman between December 1995 and
December 1999 and as President and Chief Executive Officer
between 1986 and December 1995. Prior to October 1993,
Mr. Rutland served as Chief Executive Officer of each of
our subsidiaries.
Mr. Sawyer has been our President and Chief Executive
Officer since June 2001. Between April 2000 and June 2001, he
served as President and Chief Executive Officer of Aegis
Communications Corp. Mr. Sawyer also served briefly as
President of our Automotive Group between January 2000 and April
2000, as President and Chief Executive Officer of National Linen
Service (a subsidiary of National Service
23
Industries, Inc.) between 1996 and 2000 and as President of
Wells Fargo Armored Service Corp. (a subsidiary of Borg-Warner
Corp.) between 1988 and 1995. Mr. Sawyer previously served
as member of the board of directors of Spiegel, Inc. from
October 2003 to June 2005.
Guy W. Rutland IV has been a Senior Vice President since
July 2001. Mr. Rutland was Executive Vice President and
Chief Operating Officer of our Automotive Group between February
2001 and July 2001, Senior Vice President Operations
of our Automotive Group between November 1997 and February 2001
and Vice President Reengineering Core Team of our
Automotive Group between November 1996 and November 1997.
Between January 1996 and November 1996, Mr. Rutland was
Assistant Vice President of the Central and Southeast Operations
of Allied Systems, Ltd, one of our subsidiaries. Between March
1995 and January 1996, Mr. Rutland was Assistant Vice
President of Operations for the Central Division of Allied
Systems, Ltd and Assistant Vice President of its Eastern
Division between June 1994 and March 1995. Between 1993 and June
1994, Mr. Rutland was assigned to the special projects
department during which time he performed an assignment in the
Industrial Relations/ Labor Department. Between 1988 and 1993,
Mr. Rutland served as our Director of Performance
Management.
Mr. Duffy has been our Executive Vice President, General
Counsel and Secretary since February 2004, was Senior Vice
President, General Counsel and Secretary between November 2000
and February 2004, and was Vice President, General Counsel and
Secretary from June 1998 to November 2000. Between May 1997 and
June 1998, Mr. Duffy was a partner with the law firm of
Troutman Sanders LLP. Prior to May 1997, Mr. Duffy was a
partner with the law firm of Peterson Dillard Young
Asselin & Powell LLP.
Mr. King was appointed Executive Vice President and Chief
Financial Officer on January 25, 2005, prior to which he
served us as a full-time accounting consultant when he was with
Tatum Partners. Tatum Partners is a consulting group, which he
joined in 2000 that provides clients with a full range of chief
financial officer services. While at Tatum Partners,
Mr. King served as interim CFO and financial vice-president
for a number of public and private companies. Prior to joining
Tatum Partners, Mr. King served as Chief Financial Officer
of John Galt Holdings, Ltd. & Affiliates. Mr. King
is a certified public accountant and has worked at the
accounting firms of Deloitte & Touche LLP and
PricewaterhouseCoopers.
Mr. Marinelli has been our Senior Vice President of Field
Operations since April of 2004. Prior to joining our company,
Mr. Marinelli worked with Aegis Communications where he
served as Executive Vice President Operations from
July 2001 and as Senior Vice President of Field of Operations
between July 2000 and June 2001. Between April 1998 and April
2000, Mr Marinelli was the Senior Vice President of Field
Operations at National Linen Services.
PART II
|
|
Item 5. |
Market for the Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities |
From April 2002 until August 2005, our common stock was traded
on the AMEX under the symbol AHI. Between
March 3, 1998 and the date the stock began trading on the
AMEX, it was listed on the New York Stock Exchange and between
September 29, 1993 and March 3, 1998 it was traded on
the NASDAQ Stock Market. Prior to that, there was no established
public trading of our common stock.
24
In August 2005 we voluntarily delisted our common stock from the
AMEX. Since the voluntary delisting, our common stock has been
and is currently quoted on the Pink Sheets under the symbol
AHIZQ.PK. The following table sets forth for the
periods indicated (i) the high and low sales prices on the
AMEX and (ii) the high and low bid prices on the Pink
Sheets. The Pink Sheets bid prices reflect inter-dealer prices
without retail mark-up, mark-down or commission and may not
represent actual transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Period: |
|
High | |
|
Low | |
|
High | |
|
Low | |
|
|
| |
|
| |
|
| |
|
| |
First Quarter
|
|
$ |
4.50 |
|
|
$ |
2.10 |
|
|
$ |
7.89 |
|
|
$ |
4.86 |
|
Second Quarter
|
|
$ |
2.30 |
|
|
$ |
0.41 |
|
|
$ |
6.21 |
|
|
$ |
3.85 |
|
Third Quarter
|
|
$ |
0.81 |
|
|
$ |
0.06 |
|
|
$ |
4.26 |
|
|
$ |
2.18 |
|
Fourth Quarter
|
|
$ |
0.65 |
|
|
$ |
0.18 |
|
|
$ |
3.34 |
|
|
$ |
1.97 |
|
As of March 23, 2006, common stock holders of record
totaled approximately 2,200 in number.
We have paid no cash dividends since our stock became publicly
traded in 1993. Furthermore, the DIP Facility contains
covenants restricting our ability to pay dividends on our common
stock. In addition, under the Bankruptcy Code, certain
pre-petition and post-petition liabilities must be satisfied
before we can make any distributions to our stockholders. See
also Item 7. Managements Discussion and
Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources and
Note 14 in the notes to our consolidated financial
statements included in Item 15 of this Annual Report on
Form 10-K.
Equity Compensation Plan Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities to be | |
|
|
|
Number of Securities | |
|
|
Issued Upon Exercise of | |
|
Weighted-Average | |
|
Remaining Available for Future | |
|
|
Outstanding Options, | |
|
Exercise Price of | |
|
Issuance Under Equity | |
Plan Category |
|
Warrants and Rights | |
|
Outstanding Options | |
|
Compensation Plans | |
| |
Equity compensation plans approved by security holders(1)
|
|
|
1,572,667 |
|
|
$ |
3.67 |
|
|
|
520,010 |
(2) |
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,572,667 |
|
|
$ |
3.67 |
|
|
|
520,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Consists of our 1993 Long-Term Incentive Plan as adopted in
1993, amended in 2000, amended and restated in 2001, amended in
2002, and amended and restated in 2004. For a description of our
equity compensation plan, see Note 20 of our consolidated
financial statements included in this Annual Report on
Form 10-K. |
|
(2) |
Includes our Employee Stock Purchase Plan, which has
199,269 shares available for future issuance. However, in
June 2005 the Employee Stock Purchase Plan was amended to
suspend future purchases under the plan. |
25
|
|
Item 6. |
Selected Consolidated Financial Data |
You should read the following selected consolidated financial
data in conjunction with Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and
notes thereto, which are included in Item 15 of this Annual
Report on
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
(In thousands except per share amounts) | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Selected Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
892,934 |
|
|
$ |
895,213 |
|
|
$ |
865,463 |
|
|
$ |
898,060 |
|
|
$ |
896,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes, reorganization items and cumulative
effect of change in accounting principle
|
|
|
(129,425 |
) |
|
|
(41,522 |
) |
|
|
(2,338 |
) |
|
|
(4,563 |
) |
|
|
(60,789 |
) |
|
Reorganization items
|
|
|
(7,131 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and cumulative effect of change in
accounting principle
|
|
|
(136,556 |
) |
|
|
(41,522 |
) |
|
|
(2,338 |
) |
|
|
(4,563 |
) |
|
|
(60,789 |
) |
|
Income tax benefit (expense)
|
|
|
10,832 |
|
|
|
(12,361 |
) |
|
|
(6,266 |
) |
|
|
1,129 |
|
|
|
21,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of change in accounting principle
|
|
|
(125,724 |
) |
|
|
(53,883 |
) |
|
|
(8,604 |
) |
|
|
(3,434 |
) |
|
|
(39,496 |
) |
|
Cumulative effect of change in accounting principle, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,092 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(125,724 |
) |
|
$ |
(53,883 |
) |
|
$ |
(8,604 |
) |
|
$ |
(7,526 |
) |
|
$ |
(39,496 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted
|
|
$ |
(14.02 |
) |
|
$ |
(6.15 |
) |
|
$ |
(1.02 |
) |
|
$ |
(0.91 |
) |
|
$ |
(4.86 |
) |
|
Weighted average common shares outstanding basic and
diluted
|
|
|
8,970 |
|
|
|
8,757 |
|
|
|
8,475 |
|
|
|
8,301 |
|
|
|
8,128 |
|
Selected Balance Sheet Data (period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
383,116 |
|
|
$ |
421,532 |
|
|
$ |
460,063 |
|
|
$ |
468,387 |
|
|
$ |
537,104 |
|
|
Debtor-in-possession credit facility
|
|
|
(151,997 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-petition long-term debt, including current portion and
revolving credit facility
|
|
|
|
|
|
|
251,238 |
|
|
|
246,500 |
|
|
|
248,475 |
|
|
|
289,158 |
|
|
Other long-term liabilities
|
|
|
74,096 |
|
|
|
70,444 |
|
|
|
59,697 |
|
|
|
64,792 |
|
|
|
72,296 |
|
|
Stockholders (deficit) equity
|
|
|
(187,367 |
) |
|
|
(41,549 |
) |
|
|
8,814 |
|
|
|
10,314 |
|
|
|
17,997 |
|
|
|
Item 7. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations |
You should read the discussion and analysis in this
section in conjunction with the consolidated financial
statements and accompanying notes included in Item 15 of
this Annual Report on
Form 10-K.
Executive Overview
Since July 31, 2005, Allied Holdings, Inc. and
substantially all of its subsidiaries have been operating under
Chapter 11 of the Bankruptcy Code and continuation of our
company as a going concern is predicated upon, among other
things: (i) our ability to obtain confirmation of a plan of
reorganization; (ii) compliance with the provisions of the
DIP Facility; (iii) our ability to reach an agreement with
the IBT on a new collective bargaining agreement; (iv) our
ability to generate cash flows from operations; (v) our
ability to obtain financing sufficient to satisfy our future
obligations; and (vi) our ability to comply with the terms
of the ultimate plan of reorganization. These matters create
uncertainty concerning our ability to continue as a going
concern.
We are an automobile-hauling company with annual revenues in
excess of $890 million. We offer a range of automotive
delivery services to dealers including the transportation of
new, pre-owned and off-lease vehicles from plants, rail ramps,
ports and auctions, while also providing vehicle rail-car
loading and unloading services.
26
Our principal operating subsidiaries are the Allied Automotive
Group and the Axis Group. Allied Automotive Group is our largest
subsidiary comprising 97% of our 2005 revenues.
Using our Rigs, we serve and support all the major domestic and
foreign automobile manufacturers. Though there is limited public
information available about our competitors, most of whom are
privately-owned companies, we believe that our Automotive Group
is the largest motor carrier in North America, based on the
number of vehicles we deliver annually versus total vehicles
produced as well as revenues generated from vehicle deliveries.
Allied Automotives largest customers are General Motors,
Ford, DaimlerChrysler, Toyota and Honda. Other North American
customers include the major foreign manufacturers, namely Mazda,
Nissan, Isuzu, Volkswagen, Hyundai, and KIA. The Automotive
Group operates primarily in the short-haul segment
of the automotive transportation industry. When we use the term
short-haul, we mean average hauled distances of less
than 200 miles.
Our Axis Group complements the services provided by our
Automotive Group, providing vehicle distribution and
transportation support services to the pre-owned, off-lease and
new vehicle markets as well as to other segments of the
automotive industry. Other services provided by Axis to the
automotive industry include automobile inspections, auction and
yard management services, vehicle tracking, vehicle
accessorization, and dealer preparatory services.
In this section, we discuss the following:
|
|
|
|
|
The Chapter 11 Proceedings; |
|
|
|
Summary of Other Events; |
|
|
|
Our Customers; |
|
|
|
Our Competitors; |
|
|
|
Collective Bargaining Agreements and Regulations Which Impact Us; |
|
|
|
Results of Operations; |
|
|
|
Liquidity and Capital Resources; |
|
|
|
Off-Balance Sheet Arrangements; |
|
|
|
Disclosures About Market Risks; |
|
|
|
Critical Accounting Policies and Estimates; and |
|
|
|
Recent Accounting Pronouncements. |
The Chapter 11 Proceedings
As discussed above, on July 31, 2005, Allied Holdings, Inc.
and substantially all of its subsidiaries filed voluntary
petitions seeking protection under Chapter 11. The
Chapter 11 filings were precipitated by various factors
including the decline in new vehicle production at certain of
our major customers, rising fuel costs, historically high levels
of debt, increasing wage and benefit obligations for our
employees covered by the Master Agreement with the Teamsters and
the increase in non-union car-haul competition. See Note 3
of the consolidated financial statements included in
Item 15 of this Annual Report on
Form 10-K for
further information regarding these petitions.
We are currently operating our business as
debtors-in-possession
under the jurisdiction of the U.S. Bankruptcy Court. As
debtors-in-possession,
we are continuing to operate our business without significant
interruption during the restructuring process under the
jurisdiction of the Bankruptcy Court and in accordance with the
applicable provisions of the Bankruptcy Code, the Federal Rules
of Bankruptcy Procedure, applicable court orders, as well as
other applicable laws and rules. In general, a
debtor-in-possession is
authorized under Chapter 11 to continue to operate as an
ongoing business, but may not engage in transactions outside the
ordinary course of business without the prior approval of the
Bankruptcy Court. However, we can provide no assurance that we
can continue to operate our business without significant
interruption.
27
In connection with the Chapter 11 filing, we entered into
the DIP Facility with a group of lenders to provide us with
financing during the Chapter 11 Proceedings. Using the
funds received from the DIP Facility, we paid in full the
amounts due and payable under our Pre-petition Facility. Subject
to compliance with the terms of the DIP Facility, funds under
the DIP Facility allow us to operate in the normal course of
business and are available to help satisfy our working capital
needs during the Chapter 11 Proceedings, including payment
under normal terms for goods and services provided after the
Petition Date, payment of wages and benefits to active employees
and retirees and other items approved by the Bankruptcy Court.
The DIP Facility is more fully discussed in the Liquidity and
Capital Resources section and Note 14 of the consolidated
financial statements included in this Annual Report on
Form 10-K.
The Bankruptcy Court has granted certain orders, in connection
with the Chapter 11 cases, including orders that authorize
Allied and each of its subsidiaries to continue to:
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pay pre-petition wages, payroll taxes, certain employee benefits
and related expenses; |
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maintain and pay obligations with respect to our insurance
programs, including the continued payment of workers
compensation claims on an uninterrupted basis in the ordinary
course of business, all premiums and other amounts due and owing
with respect to the insurance programs; and |
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enter into financing arrangements for insurance premiums on a
continuing basis. |
Certain other orders have been entered by the Bankruptcy Court
relative to the Chapter 11 filing that include orders
authorizing us to maintain our existing cash management systems,
continue to use existing bank accounts, to honor pre-petition
cargo claims and to reduce wages by 10% in May and June 2006 for
our employees in the U.S. who are represented by the
Teamsters. Certain other motions have been filed and are pending
the Bankruptcy Courts approval including a motion filed by
us to reject certain post-retirement benefit contracts, and a
motion to extend the interim relief granted under
Section 1113(e) of the Bankruptcy Code through
September 30, 2006.
The office of the United States Trustee has appointed a
Creditors Committee which has the right to be heard on all
matters that come before the Bankruptcy Court. Under the
priority plan established by the Bankruptcy Code, certain
post-petition and pre-petition liabilities must be satisfied
before stockholders are entitled to any distributions. The bar
date for creditors to file claims with the Bankruptcy Court was
February 17, 2006 and we are currently in the process of
reconciling these claims to our records. The rights and claims
of various creditors and security holders will be determined by
the plan of reorganization and the ultimate recovery during the
Chapter 11 Proceedings to creditors and security holders,
if any, will not be determined until confirmation of the plan of
reorganization. We can provide no assurance concerning the
values, if any, that will be ascribed in the Chapter 11
Proceedings to the interests of each of these constituencies and
it is possible that our equity or other debt securities will be
restructured in a manner that will substantially reduce or
eliminate any remaining value. If a plan of reorganization is
not approved, it is possible that our assets will be liquidated.
At this time, it is not possible to accurately predict the
effect of the Chapter 11 Proceedings on our business and if
or when we will emerge from Chapter 11. Our future results
of operations will depend on the timely and successful
confirmation and implementation of a plan of reorganization and
we can provide no assurance that the Bankruptcy Court will
confirm the proposed plan of reorganization, or that any such
plan will be consummated. The Company currently has the
exclusive right to file a plan of reorganization until
July 15, 2006 and to solicit acceptance of the plan through
September 13, 2006. The exclusivity date can be extended at
our request, if approved by the Bankruptcy Court. However we can
provide no assurance as to whether any request to extend the
exclusivity date will be approved.
We are working towards emerging from the Chapter 11 process
with a redesigned capital structure in order to lower debt
through improved customer contracts and improved contract terms
with the IBT regarding our employees in the
U.S. represented by the Teamsters. As previously discussed,
in connection with the amendment to the DIP Facility in April
2006, we agreed to engage Glass as an operational advisor to
assist us in various issues relating to the operations of our
business. We can, however, provide no assurance that any of
these actions will succeed. Further, we can provide no assurance
that the Creditors Committee will support the proposed plan of
reorganization and actions by the Committee could delay the
approval of our plan of
28
reorganization and our subsequent emergence from
Chapter 11. If the Chapter 11 Process is delayed, we
may incur increased legal and professional fees which could
adversely affect our operations. Due to these
uncertainties, an investment in our common stock or debt
securities is highly speculative and accordingly, we urge
investors to exercise caution with respect to existing and
future investments in our common stock or debt
securities.
Summary of Other Events
During 2005 we were impacted by liquidity constraints.
Throughout the year we took various steps to preserve our
liquidity, including rescheduling and deferring capital
expenditures, delaying payroll for certain salaried,
non-bargaining employees for two weeks and negotiating more
favorable payment terms with certain of our vendors and service
providers for a limited period of time. We added a
$25 million term loan to our Pre-petition Facility during
the second quarter of 2005 and to remain in compliance with the
Pre-petition Facility, amended the facility at various intervals
between April and July 2005. Subsequent to the Chapter 11
filing, using funds received from our DIP Facility, we paid in
full all amounts due under the Pre-petition Facility including
the premium due for prepayment of the facility prior to
maturity. To remain in compliance with the DIP Facility, we
amended the facility on November 17, 2005, entered into a
consent agreement on January 30, 2006, entered into a
forbearance agreement on March 9, 2006 which was extended
on April 3, 2006, extended again on April 18, 2006 in
connection with the Fourth Amendment to the DIP Facility and
further extended on May 18, 2006 and May 30, 2006 each
of which is described more fully below in our discussion of
liquidity matters.
We recorded net losses of $125.7 million,
$53.9 million and $8.6 million in 2005, 2004 and 2003,
respectively. Factors affecting the results for these years
include the following:
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2005 a non-cash impairment charge related to our
Automotive Groups goodwill; a reduction in the number of
vehicles we delivered; an increase in the cost of fuel and
labor; recognition of a withdrawal liability related to
multiemployer pension plans from which we withdrew; additional
expenses related to the Chapter 11 Proceedings; and an
increase in interest expense associated with higher average
outstanding debt and higher effective interest rates. |
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2004 increased expenses related to our
self-insurance programs including a non-cash charge related to
our conclusion that we could no longer reliably determine
insurance reserves on a discounted basis due to continued
adverse development for claims incurred in prior years, as well
as higher than expected costs for insurance premiums; a non-cash
impairment related to goodwill at the Axis Group; increased
audit and accounting costs; increased depreciation expense on
some of our Rigs due to a revision of their estimated useful
lives; a non-cash charge to record an additional valuation
allowance against our deferred tax assets; increased maintenance
costs; the adverse impact of excess costs associated with lower
than expected shipment levels in January 2004; and dramatically
higher fuel prices beginning in the second quarter and
continuing throughout the year. |
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2003 the adverse impact of the decline in new
vehicle production; a non-cash charge to record a valuation
allowance against our deferred tax assets; the adverse effects
to our net loss were partially offset by a pre-tax gain from the
settlement of litigation with Ryder System; the strengthening of
the Canadian dollar against the U.S. dollar; reduced
depreciation as a result of fully depreciated assets in our
fleet of Rigs; and the elimination of certain non-performing
terminal locations that operated at a loss. |
During the Chapter 11 Proceedings we have renewed contracts
with rate increases with certain of our major customers and
renewed our contract with the Teamsters in Eastern Canada for a
period of one year. We reached an agreement in principle with
Toyota in the U.S. which included rate increases, however,
it excluded, beginning in the first quarter of 2006, vehicle
delivery services at locations that generated approximately 32%
of the 2005 revenues associated with the Toyota account. We do
not anticipate that the lower volume will materially impact our
operating income since we expect the rate increases to offset
the adverse impact of the loss of volume.
On June 17, 2005, we filed an application with the SEC to
voluntarily delist our common stock from trading on the AMEX. We
were operating under a plan that was approved by the AMEX in
February 2005 to
29
bring our stockholders equity above the continued listing
requirement of the AMEX by May 2006. We made the decision to
voluntarily delist our common stock from trading on the AMEX
because we no longer believed that we would be able to comply
with the plan as submitted to the AMEX. On August 18, 2005,
the SEC issued an order granting the application and our common
stock was delisted from the AMEX on such date. Currently, our
common stock is quoted on the Pink Sheets, which are a daily
listing of bid and ask prices for
over-the-counter stocks
not included on the daily
over-the-counter
bulletin boards. We can provide no assurance that our common
stock will continue to be quoted on the Pink Sheets.
Our Customers
Allied Automotives business is highly dependent on its
largest customers, General Motors, Ford, DaimlerChrysler, Toyota
and Honda. Approximately 88% of our Automotive Groups 2005
revenues were generated from the services provided to these
customers. A significant reduction in production, changes in
production mix, plant closings, changes in production schedules,
changes in our customers distribution strategies or the
imposition of vendor price reductions by these manufacturers, or
the loss of General Motors, Ford, DaimlerChrysler, Toyota or
Honda as a customer, or a significant reduction in the services
provided to any of these customers by our Automotive Group would
have a material adverse effect on our operations. General
Motors, DaimlerChrysler, and Ford, in particular, have publicly
announced plans to significantly reduce vendor costs including
those associated with transportation services. In addition, our
two largest customers have recently announced plans regarding
their intent to close certain production facilities, some of
which we serve. A loss of volume would negatively impact our
financial results.
Allied Automotive has contracts or agreements in principle in
place with substantially all of its customers with varying terms
up to March 2009. However, most of these contracts can be
terminated by either party upon a specified period of notice.
These contracts establish rates for the transportation of
vehicles. Generally, rates are based on a fixed rate per vehicle
transported and a variable rate for each mile that a vehicle is
transported, as well as an administrative processing fee.
Certain contracts provide for rate variation per vehicle
depending on the size and weight of the vehicle. Since the third
quarter of 2004, substantially all of our customers have agreed
to the payment of a fuel surcharge that allows us to recover at
least a portion of fuel price increases. Except in cases where
we are able to obtain the customers agreement, these
contracts do not permit the recovery of increases in fuel taxes
or labor costs.
Our Automotive Group has developed and maintained long-term
relationships with its significant customers and has
historically been substantially successful in negotiating the
renewal of contracts with these customers. Allied Automotive
anticipates that it will be able to continue these relationships
with its customers without service interruption. However, there
can be no assurance that it will be able to successfully renew
contracts with its major customers on terms satisfactory to
Allied Automotive prior to the expiration of these contracts, or
that it will continue to serve its customers without
interruption or without a loss of market share or reduced
pricing under the terms of the current contracts as they expire.
Current customer contracts include the following:
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a contract with DaimlerChrysler, which was renewed in December
2005, expires on September 30, 2007, and grants the
Automotive Group primary carrier rights for 24 locations in the
U.S. and 13 in Canada. The contract may be terminated by
location on 150 days notice by either party. This contract,
as renewed, provides for an increase in underlying base rates as
of October 1, 2005 and again on October 1, 2006. This
renewed agreement was approved by the Bankruptcy Court in March
2006; |
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a contract with General Motors which expires in December 2008
grants the Automotive Group primary carrier rights for 36
locations in the U.S. and Canada. This contract was renewed in
December 2005 with rate increases effective January 1, 2006
and January 1, 2007. General Motors does not have the right
to contract with other automobile-hauling service providers at a
location under the terms of the contract unless the Automotive
Group fails to comply with service or quality standards at such
location. Should an event of non-compliance occur, the
Automotive Group has 30 days in which to cure. If Allied
Automotive does not cure, General Motors may give 60 days
notice of termination with respect to the applicable location.
This renewed agreement was approved by the Bankruptcy Court in
January 2006; |
30
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a contract with American Honda Motor Company for vehicles
delivered in the United States which extends the Automotive
Groups current contract with Honda in the United States
through March 31, 2009. Pursuant to the terms of the
agreement which was renewed in March 2006, the Automotive Group
will continue performing vehicle delivery services at all of the
locations in the United States that it currently serves for
Honda. The contract renewal includes increases in the underlying
rates paid by Honda to the Automotive Group for vehicle delivery
services effective April 1, 2006, and again on
April 1, 2007 and April 1, 2008; |
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an agreement in principle with Toyota regarding a contract which
will expire on March 31, 2007. This agreement in principle
provides that the contract may be terminated by either party by
giving 60 days notice and provides for an increase in base
rates effective February 1, 2006 at locations which
generated approximately 68% of the revenues for 2005 associated
with the Toyota account. In addition, during the first quarter
of 2006, we ceased performing vehicle delivery services at
locations that generated approximately 32% of the 2005 revenues
associated with the Toyota account. This agreement in principle
remains subject to the execution of a definitive agreement and
approval of the agreement by the Bankruptcy Court; and |
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an agreement in principle reached in December 2005 with Ford
Motor Company through Autogistics, a service relationship
between Ford and UPS Logistics, that oversees Fords
vehicle delivery network. This agreement in principle grants the
Automotive Group primary carrier rights for 22 locations in the
U.S. and Canada. The agreement in principle provides for the
Automotive Group to retain all of its business in North America
for Ford for a two-year term expiring December 31, 2007,
and required the Automotive Group to reduce its rates at one
location served for Ford effective December 2005. The Automotive
Group will increase rates on all business served to Ford,
effective January 1, 2007 under the agreement in principle.
The agreement in principle contemplates that each party to the
contract will have the right to terminate the agreement by
location on 75 days notice. This agreement in principle
remains subject to the execution of a definitive agreement and
approval of the agreement by the Bankruptcy Court. |
Our Competitors
Automotive manufacturers have increased their use of third party
logistics companies to assist them in the distribution of their
products. We believe that the formation of these logistic
providers may provide us with an opportunity to collaborate more
directly with logistics professionals and we hope to increase
market share on the basis of superior customer value
propositions by differentiating ourselves from our competitors
on the basis of our experienced drivers, effective management,
productive and service-driven operations, extensive and flexible
distribution network, and superior management of risk, worker
injuries and traffic accidents. We also hope to differentiate
our service based on our speed and reliability of execution.
In addition, the number of motor carriers that utilize non-union
labor and the market share represented by those carriers have
been increasing. Non-unionized companies are able to provide the
services that we offer at lower prices and in a more flexible
manner.
Our Automotive Groups major competitor is PTS. As
previously discussed, on January 25, 2006, PTS and certain
of its subsidiaries filed for Chapter 11 protection under
the U.S. Bankruptcy Code.
Collective Bargaining Agreements and Regulations Which Impact
Us
At December 31, 2005, we had approximately 3,700 drivers
employed by our Automotive Group. These drivers, along with shop
mechanics and yard personnel employed by our Automotive Group,
are represented by various labor unions, but the majority are
represented by the Teamsters. The Master Agreement with the
Teamsters expires on May 31, 2008 and covers approximately
80% of our U.S. employees. Economic provisions of the
agreement include a wage freeze for the first two years of the
agreement (June 2003 through May 2005) and wage increases of
approximately 2.0% on June 1, 2005, 2.0% on June 1,
2006, and an additional 2.5% on June 1, 2007. The agreement
also provides for increases in health, welfare and pension
contributions during each year of the agreement. The economic
provisions of the contract are anticipated to increase our
U.S. Teamster labor costs in each year of the agreement.
The U.S. Teamsters labor costs would
31
increase under the Master Agreement by 2.5% over the year ended
May 31, 2005, 2.5% in the year ended May 31, 2007, and
3.0% in the year ended May 31, 2008.
On March 8, 2006, certain of our subsidiaries including
Allied Systems, made a proposal to the IBT for a new collective
bargaining agreement regarding their employees in the
U.S. represented by the Teamsters, by modifying the current
collective bargaining agreement, which expires in May 2008 and
covers approximately 3,700 drivers and yard and shop personnel
employed by our Automotive Group. The proposal seeks to
eliminate future increases to wages, health and welfare benefits
and pension contributions as contemplated by the Master
Agreement and in the aggregate seeks to reduce current Teamster
employee compensation by approximately 14.5%. We believe our
proposal would reduce our costs during the remaining term of the
collective bargaining agreement by approximately
$65 million per year as long as the proposed terms remain
in effect. We have proposed a new agreement which would expire
on May 31, 2011 and have commenced negotiations with the
IBT.
As a result of our projected liquidity shortfall and pursuant to
the conditions of the Fourth Amendment to the DIP Facility, on
April 13, 2006 we filed a motion with the Bankruptcy Court
requesting a 10% reduction in wages earned under the Master
Agreement in May and June of 2006. The Bankruptcy Court granted
this motion on May 1, 2006. The order granted by the
Bankruptcy Court also allows us to avoid paying the wage and
cost of living increases for the month of June 2006 that were
previously scheduled under the Master Agreement to go into
effect on June 1, 2006. The order will reduce our labor
costs for employees covered by the Master Agreement in the
U.S. by approximately $2 million per month in May and
June 2006. The IBT has appealed the order granted by the
Bankruptcy Court and the appeal is pending. On June 8,
2006, we filed a motion with the Bankruptcy Court requesting
that an order be entered extending the 10% reduction in wages
earned under the Master Agreement through September 30,
2006, and allowing our company to avoid paying the wage and cost
of living increases as well as increases relating to health,
welfare and pension obligations of our company under the Master
Agreement through September 30, 2006. The Bankruptcy Court
previously entered an order allowing us to reduce wages earned
under the Master Agreement for our employees represented by the
IBT in the United States in the months of May and June by 10%
and allowing us to forego wage and cost of living increases for
the month of June 2006. We can provide no assurance that we will
be able to obtain interim relief beyond June 30, 2006 as
requested by this motion.
During the fourth quarter of 2005 our employees in Eastern
Canada who are subject to a contract between Allied Systems
(Canada) Company and the Teamsters Union in Eastern Canada
ratified a one-year extension of the agreement without
significant changes to the economic terms. This contract covers
the drivers, mechanics, and yard personnel represented by the
Teamsters Union in the provinces of Ontario and Quebec, who
comprise approximately 70% of our Canadian employees who are
covered by bargaining agreements.
We can provide no assurance that we will be able to modify our
Master Agreement in the U.S. as necessary to allow us to
emerge from Chapter 11 or to negotiate new union contracts
as the current contracts expire, or that such contracts will be
on terms acceptable to us or that these contracts will not
result in increased labor costs, labor disruptions, increased
turnover and/or work stoppages or higher risk management costs,
or lost customer market share which could in turn, have a
material adverse effect on our financial condition, results of
operations or customer relationships.
Certain of our subsidiaries domiciled in the U.S. are
regulated by the Department of Transportation along with various
state agencies. Our Canadian subsidiary is regulated by the
National Transportation Agency of Canada along with various
provincial transport boards. Regulations by these agencies
include restrictions on truck and trailer length, height, width,
maximum weight capacity and other specifications.
32
Results of Operations
The following table sets forth the percentage relationship of
expense items to revenues for the years ended December 31,
2005, 2004 and 2003:
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|
|
|
|
|
|
|
|
|
|
|
|
|
As a % of revenues | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
% | |
|
% | |
|
% | |
Revenues
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages, and fringe benefits
|
|
|
54.0 |
% |
|
|
54.6 |
% |
|
|
54.3 |
% |
|
Operating supplies and expenses
|
|
|
20.2 |
% |
|
|
18.1 |
% |
|
|
16.0 |
% |
|
Purchased transportation
|
|
|
13.4 |
% |
|
|
12.4 |
% |
|
|
11.5 |
% |
|
Insurance and claims
|
|
|
4.7 |
% |
|
|
4.6 |
% |
|
|
4.4 |
% |
|
Operating taxes and licenses
|
|
|
3.3 |
% |
|
|
3.3 |
% |
|
|
3.5 |
% |
|
Depreciation and amortization
|
|
|
3.4 |
% |
|
|
4.8 |
% |
|
|
5.3 |
% |
|
Rents
|
|
|
0.8 |
% |
|
|
1.0 |
% |
|
|
0.7 |
% |
|
Communications and utilities
|
|
|
0.7 |
% |
|
|
0.7 |
% |
|
|
0.8 |
% |
|
Other operating expenses
|
|
|
1.3 |
% |
|
|
1.1 |
% |
|
|
1.2 |
% |
|
Impairment of goodwill
|
|
|
8.9 |
% |
|
|
0.9 |
% |
|
|
0.0 |
% |
|
(Gain) loss on disposal of operating assets
|
|
|
(0.1 |
)% |
|
|
(0.1 |
)% |
|
|
0.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
110.6 |
% |
|
|
101.4 |
% |
|
|
97.9 |
% |
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(10.6 |
)% |
|
|
(1.4 |
)% |
|
|
2.1 |
% |
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(4.4 |
)% |
|
|
(3.5 |
)% |
|
|
(3.4 |
)% |
|
Investment income
|
|
|
0.3 |
% |
|
|
0.1 |
% |
|
|
0.4 |
% |
|
Foreign exchange gain
|
|
|
0.2 |
% |
|
|
0.2 |
% |
|
|
0.4 |
% |
|
Other, net
|
|
|
0.1 |
% |
|
|
0.0 |
% |
|
|
0.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense):
|
|
|
(3.8 |
)% |
|
|
(3.2 |
)% |
|
|
(2.4 |
)% |
|
|
|
|
|
|
|
|
|
|
Loss before reorganization items and income taxes
|
|
|
(14.4 |
)% |
|
|
(4.6 |
)% |
|
|
(0.3 |
)% |
Reorganization items
|
|
|
(0.8 |
)% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(15.2 |
)% |
|
|
(4.6 |
)% |
|
|
(0.3 |
)% |
Income tax benefit (expense)
|
|
|
1.2 |
% |
|
|
(1.4 |
)% |
|
|
(0.7 |
)% |
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(14.0 |
)% |
|
|
(6.0 |
)% |
|
|
(1.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005 Compared to Year Ended
December 31, 2004 |
Revenues were $892.9 million in 2005 versus revenues of
$895.2 million in 2004, a decrease of 0.3% or
$2.3 million. This decrease in revenue was due primarily to
a decline of 6.3% in the number of vehicles we delivered, which
was due, in part, to a 7.9% decline in vehicle production by our
two largest customers and the removal of six locations from our
contract with DaimlerChrysler during the fourth quarter of 2004.
The decline in the number of vehicles delivered was partially
offset by an increase in revenue per vehicle delivered. Revenue
per vehicle delivered increased by $6.08 per unit in 2005,
or 6.2%, due primarily to the positive impact of the fuel
surcharge programs, the strengthening of the Canadian dollar and
rate increases negotiated with certain customers, which were
partially offset by a decrease in our average length of haul.
The fuel surcharge programs allow us to mitigate rising fuel
costs by passing on at least a portion of the increase in costs
to customers who participate in the programs. In 2005, revenue
from fuel surcharges represented 5.2% of our Automotive
Groups revenues, whereas, in 2004, revenue from fuel
surcharges represented only 2.2% of our Automotive Groups
revenues, an increase of approximately $26.0 million. For
33
eight of the twelve months of 2004, fuel surcharge programs were
in place with customers who comprised only 59% of our Automotive
Groups revenues whereas for the full year of 2005, fuel
surcharge programs were in place with customers comprising
substantially all of our Automotive Groups revenues. The
impact of the fuel surcharge program on our revenue per vehicle
delivered was an increase of approximately $3.28 per unit.
The majority of our fuel surcharges reset at the beginning of
the quarter based on fuel prices in the previous quarter, which
causes a one-quarter lag between the time when fuel prices
change and when the fuel surcharge is adjusted. Future revenues
derived from fuel surcharges would be impacted if any of our
customers terminate their fuel surcharge agreement with us.
The Canadian dollar strengthened relative to the
U.S. dollar during 2005. Revenues from our Canadian
subsidiary are positively impacted when the Canadian dollar
strengthens relative to its U.S. counterpart. During 2005,
the Canadian dollar averaged the equivalent of U.S. $0.8262
versus U.S $0.7701 during 2004 which resulted in an estimated
increase in revenues of $11.7 million or $1.41 per
unit in 2005 versus 2004.
Revenue per unit was also increased by $1.83 per unit as a
result of certain rate increases negotiated with our customers.
Offsetting the increases in revenue per vehicle delivered was a
decline of $0.26 per unit due to a reduction in the average
length of haul. The average length of haul refers to the average
distance driven to deliver a vehicle. Since a portion of our
revenue is based on the number of miles driven to deliver a
vehicle, a decrease in the average length of haul reduces our
revenue and revenue per unit. The average length of haul may
fluctuate based on changes in the distribution patterns of our
customers and how the vehicle deliveries are dispatched from our
terminal locations.
Our revenues are variable and can be impacted by changes in OEM
production levels, especially sudden unexpected or unanticipated
changes in production schedules, changes in distribution
patterns, product type, product mix, product design or the
weight or configuration of vehicles transported by our
Automotive Group. As an example, our revenue will be adversely
affected by recent decisions announced by General Motors and
Ford to close certain manufacturing plants in the future. In
addition, our revenues are seasonal, with the second and fourth
quarters generally experiencing higher revenues than the first
and third quarters. The volume of vehicles shipped during the
second and fourth quarters is generally higher due to the
introduction of new customer models which are shipped to dealers
during those periods as well as to the higher spring and early
summer sales of automobiles, light trucks and SUVs. During the
first and third quarters, vehicle shipments typically decline
due to lower sales volume during those periods and scheduled OEM
plant shutdowns, which generally occur in the third quarter.
However, given the unpredictable nature of consumer sentiment
and our customers emphasis on more effective use of plant
capacity, particularly at the Big Three, there can be no
assurance that historical revenue patterns or manufacturer
production levels will be an accurate indicator of future OEM
shipment activity. Shipment activity at our Automotive Group and
the Axis Group can also be impacted by the availability of rail
cars, rail transportation schedules or changes in customer
service demands.
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Salaries, wages, and fringe benefits |
Salaries, wages and fringe benefits decreased from 54.6% of
revenues in 2004 to 54.0% of revenues in 2005 primarily as a
result of a decrease in workers compensation expense. For
2004, workers compensation expense was 6.1% of revenues
versus 4.5% of revenues for 2005. Workers compensation
expense decreased from $55.0 million in 2004 to
$40.0 million in 2005. This decrease was due primarily to
the discontinuation of discounting of our insurance reserves in
the fourth quarter of 2004, which resulted in a non-cash charge
of approximately $10.0 million during 2004. Workers
compensation expense also decreased as a result of the decline
in the number of units hauled in 2005 versus 2004. We have
improved trends in certain areas affecting our workers
compensation costs. The number of lost time injuries decreased
15.7% and the number of lost time days due to worker injuries
decreased 13.1% in 2005. Workers compensation expense for
2005 and 2004 include comparable charges related to the
unfavorable development of claims incurred in prior years. In
order to more effectively manage these risk management costs in
future periods, we continue to implement initiatives to improve
our hiring and training practices, prevention of employee
injuries, the claims management process and the expeditious
settlement of outstanding historical claims.
34
Driver pay, which is based primarily on the number of miles
driven to deliver vehicles, is affected by changes in revenue
related to changes in volume. As a result of the decrease in
volume, we estimate that driver pay decreased by approximately
$16.5 million. However, this decrease was partially offset
by increases in wage rates and benefits related to our
bargaining employees. As a result of the agreed-upon rate
increases for our employees covered by the Master Agreement with
the Teamsters, an increase in benefits went into effect on
August 1 of 2004 and 2005 and a 2% wage increase went into
effect on June 1, 2005. As a result, our bargaining labor
costs per vehicle delivered increased by approximately 5.1% and
resulted in additional expense of approximately
$13.7 million in 2005 compared to 2004.
The effects of the decreases described above were almost
completely offset by a $15.8 million charge for a probable
withdrawal liability for our estimated portion of the under
funded benefit obligation of two multiemployer pension plans to
which we have contributed. The withdrawal liability is
attributable to employee services performed prior to the
Petition Date. Therefore, the withdrawal liability is classified
as a liability subject to compromise.
The current agreement with the Teamsters in the U.S. covers
approximately 80% of our U.S. employees. Pursuant to the
terms of the Master Agreement, a 2% wage increase went into
effect on June 1, 2005. Subject to any amendments to this
agreement, economic provisions of the agreement include future
wage increases of approximately 2.0% on June 1, 2006, and
an additional 2.5% on June 1, 2007. However, the scheduled
increase in June 2006 was precluded by the order granting
interim relief entered by the Bankruptcy Court on May 1,
2006. The agreement also provides for increases in health,
welfare and pension contributions during each year of the
agreement. Subject to any amendment, the economic provisions of
the contract are anticipated to increase our U.S. Teamster
labor costs in each year of the agreement. For the contract year
ending May 31, 2006 (year three of the agreement) the
U.S. Teamsters labor costs are expected to increase 2.5%
over the year ended May 31, 2005. Additional increases of
2.5% in the year ended May 31, 2007, and 3.0% in the year
ended May 31, 2008 are expected under the current Master
Agreement.
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Operating supplies and expenses |
Operating supplies and expenses increased from 18.1% of revenues
in 2004 to 20.2% of revenues in 2005. The increase is due
primarily to an increase in fuel expense, which increased from
6.2% of revenues in 2004 to 8.4% of revenues in 2005. The
average price of fuel was approximately 32.6% higher in 2005
than 2004 for our U.S. operations. We estimate that the
increase in the cost of fuel resulted in an increase in fuel
expense of approximately $22.8 million. The corresponding
effect of fuel surcharges, which are included in revenues, was
approximately $21.8 million, resulting in an unfavorable
impact of $1.0 million on our operating income for 2005.
Operating supplies and expenses were also impacted by an
increase in repairs and maintenance. Repairs and maintenance
expense per mile driven has been increasing due to the age of
our fleet of Rigs, due to the lack of funds available for
capital expenditures. Repairs and maintenance expense per mile
driven increased by 8.5% in 2005 compared to 2004 and resulted
in an increase of $3.1 million in repairs and maintenance
expense in 2005 compared to 2004. The increase in 2005 was
offset by a reduction of $2.7 million due to a decrease in
the number of miles driven to deliver vehicles. During 2006, we
expect to see an additional increase in repairs and maintenance
since we believe that the age of our fleet will continue to
impact this expense at least for the coming year.
Purchased transportation increased from 12.4% of revenues in
2004 to 13.4% of revenues in 2005. Purchased transportation
primarily represents the cost to our Automotive Group of
utilizing owner-operators of Rigs covered by the collective
bargaining agreement with the Teamsters, who receive a
percentage of the revenue generated from transporting vehicles
on our behalf. Purchased transportation increased in 2005
primarily as a result of the increase in fuel surcharge revenue
discussed above and an increase in revenue generated by
owner-operators versus company drivers. Fuel surcharge revenue
derived from vehicle deliveries by owner-operators is included
in revenues while the reimbursement of the fuel surcharge
revenue to the owner-operator is included in purchased
transportation expense. The percentage of revenues generated by
owner-operators versus company drivers increased in 2005 over
2004. This percentage fluctuates based on changes in the
distribution patterns of our customers and how the vehicle
deliveries are dispatched from our
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terminal locations. These increases in purchased transportation
were partially offset by a decrease in the number of vehicles
delivered by third-party carriers as a result of the overall
decrease in vehicles delivered.
Insurance and claims expense remained relatively flat from 4.6%
of revenues in 2004 to 4.7% of revenues in 2005. The largest
cost component in this category, auto and general liability
insurance, was comparable year over year. The expense in 2005
increased due to the effect of one major accident that occurred
during the fourth quarter of 2005, which was offset by favorable
development of claims from prior years of approximately
$1.6 million, the cost of one large claim in 2004 and the
effect of discontinuing the discounting of the reserves in 2004
of approximately $0.6 million.
Cargo claims expense remained flat year over year also. We
continue to manage cargo claims costs as part of our on-going
cost-reduction initiatives. As such, we have continued to
emphasize cargo claims prevention to our drivers, re-engineered
the claims review process so that we can more quickly identify
damage that we did not cause and deny claims that are not in
compliance with our documented guidelines. As a result of our
ongoing initiatives to improve quality and deliver damage-free
vehicles, damage-free vehicle deliveries improved from 99.76%
for 2004 to 99.80% for 2005, an improvement of 5,395 damage-free
units.
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Depreciation and amortization |
Depreciation and amortization expense decreased from 4.8% of
revenues in 2004 to 3.4% of revenues in 2005 due primarily to a
decline in the depreciable asset base as a result of a
5-year decline in fixed
asset purchases and the removal of idled equipment in 2004 with
a net book value of $5.0 million from the asset base, which
resulted in a non-cash charge of approximately $4.2 million
in the fourth quarter of 2004 to reflect the change in the
estimated useful life of the idled equipment. However, the
decrease in depreciation expense due to the factors discussed
above was partially offset by an increase in depreciation
expense of approximately $1.0 million due to the removal of
additional idled equipment from the asset base in the fourth
quarter of 2005 to reflect the change in its estimated useful
life.
Rent expense decreased from $8.6 million in 2004 to
$7.5 million in 2005. During 2004 we had additional rent
expense of approximately $1.0 million related to a lease we
assumed in the 1997 acquisition of the Ryder Automotive
Group. The liability for this lease was fully accrued as of
December 31, 2004. Subsequent to the Petition Date, this
lease and the related subleases were rejected. Additionally, we
rejected two leases in Canada and accrued the potential claim
for these leases as reorganization expense of approximately
$115,000. The estimated allowed claims related to the rejected
leases are classified as liabilities subject to compromise.
Other operating expenses increased from $10.1 million
during 2004 to $11.8 million in 2005 primarily as a result
of an increase in legal and professional fees incurred for the
preparation of the Chapter 11 filings.
The impairment of goodwill of $79.2 million was recorded at
our Automotive Group in the second quarter of 2005 and
represented the entire carrying amount of goodwill for this
reporting unit, since the estimated fair value of the reporting
units goodwill was determined to be zero. To determine the
fair value of the reporting unit, management considered
available information including market values of securities,
appraisals of the Automotive Groups long-term tangible
assets and discounted cash flows from our revised forecasts. The
fair value of goodwill at our Automotive Group was affected by a
decrease in projected sales volume for this reporting unit that
was impacted by a decline in actual and projected OEM production
levels, particularly at our two largest customers, as well as
managements analysis of other cash flow factors and
trends, including capital expenditure requirements in excess of
previous estimates.
The impairment of goodwill of $8.3 million during 2004 was
recorded at our Axis Group and represented the excess of the
carrying amount of goodwill for this reporting unit over its
estimated fair value as determined during our annual assessment
of goodwill.
36
Interest expense increased from $31.4 million in 2004 to
$39.4 million in 2005 due primarily to the following:
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The write off of $4.9 million in deferred financing costs
related to the Pre-petition Facility. Based on the financial
reports delivered on July 29, 2005 to our lenders under the
Pre-petition Facility, we were in violation of one of the
financial covenants in our Pre-petition Facility as of
June 30, 2005. As a result, we wrote off the related
$4.9 million in deferred financing costs during the second
quarter of 2005; |
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Payment of a $1.9 million prepayment penalty related to our
Pre-petition Facility; |
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An increase in our average outstanding debt. Average outstanding
debt increased by approximately $20.3 million during 2005
versus 2004 resulting in additional interest expense of
approximately $2.5 million; |
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An increase in the effective interest rate from 9.58% in 2004 to
12.2% in 2005 resulting in additional interest expense of
approximately $2.9 million; |
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An increase in lender fees of approximately $0.9 million
including commitment, agent and letter of credit fees as well as
additional fees related to amendments to the Pre-petition
Facility; and |
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An increase in amortization of debt issuance costs of
approximately $0.9 million. Although total deferred debt
issuance costs related to the DIP Facility are less than those
related to the Pre-petition Facility, the amortization period is
much shorter, resulting in higher amortization charges year over
year. |
The increases noted above were partially offset by:
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The discontinuation of interest accrued on the Senior Notes
effective August 1, 2005. Contractual interest not accrued
or paid on the Senior Notes was $5.4 million for
2005; and |
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A decrease of approximately $1.0 million related to
interest on prior year tax assessments. |
Investment income increased primarily as a result of an increase
of $10.4 million in the average restricted cash, cash
equivalents and other time deposits held at our captive
insurance subsidiary, Haul Insurance Limited as well as an
increase in interest rates on time deposits. The average amount
of restricted cash, cash equivalents and other time deposits
increased as a result of additional amounts required to
collateralize letters of credit issued to secure the payment of
insurance claims.
Other, net in 2005 represents the gain on sale of our interests
in Kar-Tainer International, LLC and
Kar-Tainer
International (Pty) Ltd. On October 28, 2005, with
Bankruptcy Court approval, we sold our interests in Kar-Tainer
International, LLC and Kar-Tainer Intl (Pty) Ltd, a South
African subsidiary. Other, net of $0.2 million in 2004
relates to the write off of the equity of our last remaining
joint venture based on managements assessment that our
investment in this joint venture was not recoverable.
During 2005, we incurred approximately $7.1 million in
costs related to the Chapter 11 Proceedings. These costs
are primarily for legal and professional services rendered and
the write-off of deferred financing costs related to the
issuance of our Senior Notes. See Note 3 of the audited
consolidated financial statements included in this Annual Report
on Form 10-K for a
summary of the reorganization items.
We recorded a tax benefit of $10.8 million in 2005 and a
tax expense of $12.4 million in 2004. For both years, the
income tax expense differed from the amounts computed by
applying statutory rates to the reported loss before income
taxes since we did not meet the more likely than not criteria to
recognize the tax benefits of losses in most of our
jurisdictions. The loss before income taxes generated deferred
tax assets for which we
37
increased the valuation allowance. During 2005, we did recognize
a tax benefit related to the impairment of goodwill in the
second quarter of 2005 to the extent that related deferred tax
liabilities existed. In 2004, due to the continuing losses
during the year and the worsening trend in the fourth quarter,
we concluded that it was more likely than not that
additional deferred tax assets would not be recovered and
recorded an additional valuation allowance of $11.3 million
at December 31, 2004. In our evaluation of the valuation
allowance, we consider all sources of taxable income, including
tax-planning strategies.
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Year Ended December 31, 2004 Compared to Year Ended
December 31, 2003 |
Our revenues were $895.2 million in 2004 versus revenues of
$865.5 million in 2003, an increase of 3.4% or
$29.7 million. This increase was due primarily to an
increase in revenue per vehicle delivered. Our revenue per
vehicle delivered increased while the number of vehicles
delivered decreased. During 2004, revenue per vehicle delivered
increased by $4.13 or 4.4% over 2003 primarily as a result of
the increase in fuel surcharges, certain price increases and the
strengthening of the Canadian dollar.
During 2004, revenues from fuel surcharges represented 2.2% of
our Automotive Groups revenues, whereas, in 2003, revenues
earned from surcharges represented only 1.3% of our Automotive
Groups revenues. Fuel surcharges were in place with
customers who comprised 59% of our Automotive Groups
revenues during 2003 and from January through August 2004. From
September through December 2004 fuel surcharges were in place
with customers who comprised substantially all of the Automotive
Groups revenues.
During 2004, the Canadian dollar strengthened relative to the
U.S. dollar. Since we earn part of our revenues from our
Canadian subsidiary, our revenues are positively impacted when
the Canadian dollar strengthens against its
U.S. counterpart. During 2004, the Canadian dollar averaged
the equivalent of U.S.$0.7701 dollars versus U.S.$0.7163 dollars
in 2003. This currency fluctuation resulted in an estimated
increase in revenue per unit of $1.28.
The volume of vehicles that we delivered decreased by 0.4% in
2004 versus 2003. This reduction was due primarily to a 0.8%
reduction in OEM production, but we were also impacted by the
reduced volume in our business with DaimlerChrysler. Though we
experienced a net reduction in vehicles delivered, we also
benefited from increases gained through organic growth of
business, primarily with Toyota and Ford.
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Salaries, wages, and fringe benefits |
Salaries, wages and fringe benefits increased from 54.3% of
revenues in 2003 to 54.6% of revenues in 2004.
Workers compensation expense increased by
$18.1 million due primarily to a non-cash charge of
approximately $10.0 million relating to our self-insurance
reserves in 2004. Prior to the fourth quarter of 2004, the
estimates for workers compensation claims in the
U.S. were discounted. However, in the fourth quarter of
2004, we determined that the continuing adverse development of
our aged claims was such that we could no longer reliably
determine our self-insurance reserves on a discounted basis. In
addition, workers compensation expense increased primarily
due to claims incurred in prior years that developed adversely
during 2004. Despite the adverse development of these aged
claims, we experienced positive trends during 2004 in our
operational metrics that affect workers compensation
costs. For example, during 2004, lost time days decreased by
approximately 19.9% as compared to the number of lost time days
in 2003.
Benefits for our employees covered by the collective bargaining
agreement with the Teamsters increased by $5.2 million
primarily as a result of the annual benefit increases required
under the terms of the agreement.
Offsetting the above increases, was a decrease in wages and
benefits received by our non-bargaining employees as a result of
reduced headcounts combined with reduced wages and benefits for
these employees of approximately $1.7 million.
Additionally, during the first quarter of 2004, we outsourced
our remaining information technology services with IBM. This
resulted in a decrease to wages and benefits of
$4.5 million. Expenses related to the IBM outsourcing
agreement are included in Operating supplies and
expenses in our statement of operations.
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Operating supplies and expenses |
Operating supplies and expenses increased from 16.0% of revenues
in 2003 to 18.1% of revenues in 2004. This increase was due
primarily to increases in fuel, parts and repairs, and
information technology services.
Fuel expense increased from 5.2% of revenues in 2003 to 6.2% of
revenues in 2004. The increase was due primarily to an increase
in fuel prices. The average price of fuel was approximately 20%
higher in 2004 than 2003 for our U.S. operations. We
estimate that the increase in the cost of fuel resulted in
additional expenses of approximately $10.6 million, and the
corresponding effect of fuel surcharges included in revenues was
approximately $8.2 million, resulting in a net unfavorable
impact on our operating income of $2.4 million.
Parts and repairs expense in 2004 increased from 4.1% of
revenues in 2003 to 4.4% of revenues in 2004. During the fourth
quarter of 2004, we performed an analysis of our fleet of Rigs
and determined that a total of 710 tractors and 834 trailers
were not viable for remanufacture. Pursuant to this
determination, we expensed the tire component of these assets,
resulting in an increase in operating supplies and expenses of
$1.2 million. Other parts and maintenance increased by
approximately $4.0 million due, in part, to the increase in
the average age of our fleet.
Information technology costs increased in 2004 compared to 2003
as a result of our decision to outsource our remaining
information technology services. In April 2001, we entered into
a five-year commitment with IBM to provide our mainframe
computer processing services. In December 2003, we amended the
agreement, effective February 2004, for IBM to provide
additional services over a period of 10 years. Under the
amended agreement, IBM manages our Electronic Data Interchange
(EDI) applications and provides network services, technical
services, applications development and support services. The
agreement includes outsourcing at determinable prices defined
within the agreement. Costs related to the IBM outsourcing were
$11.1 million in 2004 and $5.9 million in 2003.
Purchased transportation increased from 11.5% of revenues in
2003 to 12.4% of revenues in 2004. Purchased transportation
primarily represents the cost of utilizing Teamster
owner-operators of Rigs by our Automotive Group, who receive a
percentage of the revenue generated from transporting vehicles
on our behalf. Purchased transportation increased in 2004 over
2003 primarily due to an increase in vehicle deliveries at
locations where we utilize more owner-operators and handle
traffic with longer lengths of haul. During 2004, the average
length of haul driven by owner-operators increased by 7.7%.
Also, purchased transportation was affected by the increase in
fuel surcharge revenue. Fuel surcharge revenue derived from
deliveries by owner-operators is reimbursed to the
owner-operator and recorded in purchased transportation. Also
included in purchased transportation is the expense related to
the leasing of Rigs. During 2004, we entered into three new
operating leases, each with a term of 5.5 years, relating
to 51 Rigs in aggregate. As a result, lease expense related to
our Rigs increased by $0.7 million.
Insurance and claims expense for 2004 increased over 2003 as a
result of an increase in auto and general liability expense
which was partially offset by a reduction in cargo claims. Auto
and general liability expense was $18.4 million in 2004
compared to $14.3 million in 2003. This increase was due
primarily to the severity of a single claim incurred during 2004
and an increase in premiums and other fees related to our
insurance programs. In addition, expense was higher in 2004 due
to a non-cash charge of approximately $0.6 million in 2004
relating to our self-insurance reserves. Prior to the fourth
quarter of 2004, the estimates for auto and general liability
claims were discounted. However, in the fourth quarter of 2004,
we determined that the continuing adverse development of our
aged claims was such that we could no longer reliably determine
our self-insurance reserves on a discounted basis. Cargo claims
expense decreased by $1.0 million for 2004 versus 2003
primarily as a result of our ongoing initiatives to improve
quality and deliver damage-free vehicles. Damage-free vehicle
deliveries improved from 99.70% for 2003 to 99.76% for 2004, an
improvement of 4,695 damage-free units.
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Operating taxes and licenses |
Operating taxes and licenses decreased from 3.5% of revenues in
2003 to 3.3% of revenues in 2004. The decrease was due primarily
to a change in estimate relating to a liability established in
2001 for license fees. During 2001, these fees were properly
calculated and recorded. However, during the first quarter of
2004, we determined that payment of these fees was no longer
probable. Based on this determination we reversed the accrual
resulting in a decrease to operating taxes and licenses of
$1.2 million. Partially offsetting this decrease was an
increase in fuel taxes, due to an increase in fuel purchased
during 2004 compared to 2003.
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Depreciation and amortization |
Depreciation and amortization was $42.9 million in 2004
versus $45.6 million in 2003, a reduction of
$2.7 million due primarily to an overall reduction in
capital spending in fiscal years 2001 through 2004 resulting in
a decrease in the depreciable asset base. The depreciable asset
base has also been reduced since certain aged equipment reached
the depreciable limits and because of our decision to upgrade
and extend our fleet through our remanufacturing program. The
implementation of the fleet remanufacturing program has reduced
our capital spending and resulted in a higher percentage of
remanufactured Rigs in our fleet with lower depreciation expense
as compared to new Rigs. Also, in 2004, we decided to lease 51
Rigs which did not result in an increase to our depreciation and
amortization expense. During 2003, we leased only seven Rigs. As
these leases are deemed to be operating leases, the related
expenses are included in purchased transportation in
our statement of operations.
The reduction in depreciation as a result of the factors
discussed above was partially offset by an increase in
depreciation expense related to 710 tractors and 834 trailers.
During the fourth quarter of 2004, we performed an analysis of
our fleet of Rigs and determined that these tractors and
trailers, which had been temporarily idled, were not viable
candidates for remanufacture. Pursuant to this determination, we
changed the estimated remaining useful life of these assets and
recorded additional depreciation expense of $4.2 million
during the fourth quarter of 2004, such that these assets are
valued at estimated scrap value at December 31, 2004.
Rent expense increased from $6.1 million in 2003 to
$8.6 million in 2004. During 2004, our Axis Group entered
into a lease for a new facility for vehicle inspections,
processing and other services that increased rent expense by
approximately $0.8 million. We also had additional rent
expense in 2004 of $1.0 million related to a lease we
assumed in the 1997 acquisition of the Ryder Automotive Group.
The facility, which we exited subsequent to the acquisition, was
fully subleased until April 2004. During 2004, the lease cost in
excess of sublease rentals was recognized as rent expense.
During 2004 we also determined that it was no longer probable
that we would sublease the remaining portion of the facility
through the expiration of the lease in April 2006 and recognized
a liability for the estimated lease costs in excess of the
estimated sublease rentals.
During the fourth quarter of 2004, we recorded goodwill
impairment of $8.3 million at our Axis Group. This
impairment represented the excess of the carrying amount of
goodwill for this reporting unit over its estimated fair value.
Fair value was derived using a discounted cash flow analysis,
which involved estimates and assumptions by management regarding
future sales volume, prices, inflation, expenses, capital
spending, discount rates, exchange rates, tax rates and other
factors. These assumptions were consistent with those used by
the reporting unit for internal purposes. The fair value of
goodwill at our Axis Group was affected by a decrease in
projected operating income for this reporting unit that was
impacted by a decline in the reporting units 2004
performance as well as managements analysis of trends in
operational metrics.
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Gain (loss) on disposal of operating assets |
During 2004, we recorded a gain on disposal of operating assets
of $0.8 million versus a loss of $1.3 million in 2003.
The gain in 2004 was primarily due to the sale of excess land
located in Canada during the first quarter of 2004. During 2003,
we disposed of obsolete equipment with a net book value of
approximately $1.3 million that resulted in a loss.
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Interest expense increased from $29.1 million in 2003 to
$31.4 million in 2004 primarily as a result of an increase
in the effective interest rate on Term Loan A of the
Pre-petition Facility, increased borrowings to satisfy
collateral requirements relating to the financing of our
insurance obligations of $11.9 million and interest related
to a proposed settlement with the Canadian taxing authority.
Also contributing to the increase was the amortization of
deferred financing costs related to the amendment of the
Pre-petition Facility in 2003. The 2003 amendment occurred at
the end of the third quarter of 2003, resulting in an additional
eight months of amortization in 2004 versus 2003.
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Other nonoperating expenses |
The decrease in investment income was due primarily to the
holding of our collateral assets mainly in cash, cash
equivalents and other time deposits in 2004 versus a mixed
portfolio of cash, fixed income, debt and equity securities
during 2003. The mixed portfolio in 2003 yielded higher
investment returns.
The reduction in Other, net was due to the recording
of income of $2.0 million in 2003 related to settlement of
litigation with Ryder System, Inc. The expense of
$0.2 million in 2004 relates to the write off of the equity
of our last remaining joint venture based on managements
assessment that our investment in this joint venture was not
recoverable.
The foreign exchange gain was related primarily to the currency
fluctuation on an intercompany payable denominated in
U.S. dollars that is included in the balance sheet of one
of our Canadian subsidiaries. The reduction in foreign exchange
gains of $1.2 million was due to the fluctuation in the
currency rates between the Canadian dollar relative to the
U.S. dollar. During 2004, the Canadian dollar gained value
of approximately 7.45% compared to 22.0% during 2003.
In 2004 and 2003, we recorded income tax expenses of
$12.4 million and $6.3 million, respectively. The
income tax expense for 2004 and 2003 differs from the amount
computed by applying the statutory tax rates primarily as a
result of increases in the valuation allowance in both years.
The net changes in the valuation allowance for 2004 and 2003
were increases of $27.1 million and $7.8 million,
respectively. Included in the change in the valuation allowance
for the year ended December 31, 2004 was a non-cash charge
of $26.4 million. The net loss recorded in 2004 generated
additional deferred tax assets of approximately
$15.1 million, for which we increased the valuation
allowance during the year. Due to the continuing losses during
the year and a worsening trend in the fourth quarter of 2004, we
concluded that it was more likely than not that
additional deferred tax assets would not be recovered and
recorded an additional valuation allowance of $11.3 million
at December 31, 2004. Included in the increase in the
valuation allowance for 2003 was a $6.8 million non-cash
charge.
Liquidity and Capital Resources
Our primary sources of liquidity are funds provided by
operations and borrowings under our DIP Facility. We use our
cash primarily for the purchase, remanufacture and maintenance
of our Rigs and terminal facilities, the payment of operating
expenses, the servicing of our debt, and the funding of other
capital expenditures. We also use our cash to pay legal and
professional fees related to the Chapter 11 Proceedings. We
use restricted cash, cash equivalents and other time deposits to
collateralize letters of credit required by third-party
insurance companies for the settlement of insurance claims.
These collateral assets are not available for our general use in
operations, but are restricted for payment of insurance claims.
As previously discussed, on August 1, 2005, we obtained the
DIP Facility to provide
debtor-in-possession
financing in connection with our Chapter 11 filing. On
August 2, 2005, using funds received from our
DIP Facility, we repaid all obligations outstanding under
the Pre-petition Facility, including the $1.9 million
premium due for prepayment of the facility prior to maturity. As
more fully discussed under Credit Facilities below,
due to certain financial covenant violations under the DIP
Facility, on March 9, 2006 we entered into a forbearance
agreement with the lenders under the DIP Facility, which was
extended on April 3, 2006, extended again on April 18,
2006 in connection with the Fourth Amendment to the DIP Facility
and
41
further extended on May 18, 2006 and May 30, 2006.
However, if we are unable to obtain new funding to replace the
DIP Facility or obtain a waiver for these covenant violations
prior to June 16, 2006, the expiration date of the
forbearance period, we will seek to extend the forbearance
period beyond June 16, 2006. If the forbearance period is
not extended in this circumstance, the lenders under the DIP
Facility will have the right to accelerate the maturity of all
loans under the DIP Facility and may foreclose on the collateral
securing the DIP Facility, which may require us to sell our
assets in order to satisfy our obligations under the DIP
Facility at that time. No assurances can be provided that we
will be able to obtain new funding to replace the DIP Facility
or that the lenders under the DIP Facility will waive such
covenant violations or further extend the forbearance period.
As of June 10, 2006, we had borrowings of approximately
$11.9 million available under the Revolver. However, we
believe that we will have a liquidity shortfall by July 2006
unless we successfully create additional liquidity through cost
reductions and/or additional borrowings. If we cannot obtain or
create this additional liquidity, we would expect to have an
event of default under the DIP Facility. Such an event of
default would provide our lenders with the right to accelerate
the maturity date of all loans outstanding under the DIP
Facility and to foreclose on the collateral securing the DIP
Facility. Further, we believe that between the date of this
Annual Report on
Form 10-K and
August 2006 we will often operate with minimal availability
under the DIP Facility which could prevent us from meeting our
working capital needs. We have undertaken a number of internal
initiatives in order to reduce or eliminate this projected
shortfall, including filing a motion with the Bankruptcy Court
to temporarily reduce wages earned by our collective bargaining
employees under the Master Agreement by 10% in May and June of
2006. The Bankruptcy Court granted this motion on May 1,
2006. The order granted by the Bankruptcy Court also allows us,
to avoid paying the wage and cost of living increases for the
month of June 2006 that were previously scheduled under the
Master Agreement to go into effect on June 1, 2006. The
order will reduce our labor costs for employees covered by the
Master Agreement in the U.S. by approximately
$2 million per month in May and June 2006. The IBT has
appealed the order granted by the Bankruptcy Court and the
appeal is pending. On June 8, 2006, we filed a motion with
the Bankruptcy Court requesting that an order be entered
extending the 10% reduction in wages earned under the Master
Agreement through September 30, 2006, and allowing our
company to avoid paying the wage and cost of living increases as
well as increases relating to health, welfare and pension
obligations of our company under the Master Agreement through
September 30, 2006. The Bankruptcy Court previously entered
an order allowing us to reduce wages earned under the Master
Agreement for our employees represented by the IBT in the United
States in the months of May and June by 10% and allowing us to
forego wage and cost of living increases for the month of June
2006. We can provide no assurance that we will be able to obtain
interim relief beyond June 30, 2006 as requested by this
motion.
With the approval of the motion discussed above, we are also
implementing non-paid furloughs for our non-bargaining, salaried
employees in North America to reduce or eliminate our projected
liquidity shortfall. Those employees with annual salaries of
less than $80,000 will be required to accept a five-day, unpaid
furlough in the month of June 2006 and those with annual
salaries of $80,000 or more will be required to accept ten days
of unpaid furlough by June 2006. These unpaid furloughs will
reduce our non-bargaining labor costs by approximately $200,000
and $800,000 in May and June 2006, respectively. In addition, we
have implemented other cost-saving initiatives which include
freezing all company travel, which will save approximately
$150,000 per month, deferring capital needed for our aging
fleet of Rigs and seeking to terminate certain non-bargaining
retiree benefits, the termination of which will save
approximately $100,000 per month.
On January 6, 2006, in connection with our Chapter 11
filing, the Bankruptcy Court approved an employee retention
plan, which provides for retention payments to approximately 82
employees, both executive and non-executive. The employee
retention plan is designed to provide certain financial
incentives aimed at retaining certain employees and provides for
the payment of up to approximately $4 million in retention
bonuses and approximately $6 million in severance payments
in the event that participants are terminated as employees
without cause. We expect to make the retention bonus payments
during 2006. Certain of these retention payments are contingent
upon the achievement of certain milestones such as the filing of
a plan of reorganization and our emergence from Chapter 11.
42
Our ability to continue as a going concern is predicated upon,
among other things, our ability to obtain confirmation of a plan
of reorganization, compliance with the provisions of the DIP
Facility, our ability to reach agreement with the IBT on a new
collective bargaining agreement, our ability to generate cash
flows from operations, our ability to obtain financing
sufficient to satisfy our future obligations and our ability to
comply with the terms of the ultimate plan of reorganization. We
can provide no assurance that we will be successful in achieving
these milestones. If we are unable to complete the
reorganization we would likely cease as a going concern and be
forced to liquidate our assets.
We use the indirect method to prepare our statement of cash
flows. Accordingly we compute net cash provided by operating
activities by adjusting the net loss for all items included in
the net loss that do not currently affect operating cash
receipts and payments. Cash used in operating activities was
$35.0 million for 2005 compared to cash provided by
operating activities of $13.5 million in 2004. The decrease
in cash from operating activities was due to increased cash
outlays for operating and reorganization items which were
partially offset by improved cash collections from our customers.
The largest contributor to the increase in cash outlays for
operating items was an increase in prepaid insurance of
$46.1 million primarily as a result of the prepayment
during the fourth quarter of 2005 of insurance premiums for
policies relating to the 2006 insurance year. For 2005, we were
self-insured, primarily through our captive insurance company,
for the majority of our workers compensation losses which
will be paid over a number of years. In contrast, the majority
of our risk related to workers compensation claims in 2006
is covered by a fully insured program with no deductible, for
which we paid the premiums in December 2005. In addition, during
2005 we were required to increase deposits to collateralize
letters of credit related to our self-insurance reserves by
$7.2 million and place $1.0 million in deposits with
certain vendors. Cash outflows for operating activities also
increased due to an increase in the amounts paid for fuel as a
result of the increase in the average fuel price during 2005.
To a lesser extent, cash outlays for operating activities also
increased as a result of the payment of $2.9 million in
reorganization items during 2005 which is related to our
Chapter 11 filing. Cash outflows for operating activities
were reduced due to the stay of pre-petition liabilities of
$26.1 million of accounts and notes payable and other
accrued liabilities that were stayed by the Chapter 11
filing. Accounts and notes payable, excluding amounts classified
as liabilities subject to compromise, decreased by
$9.1 million from December 31, 2004 to
December 31, 2005 due to revisions to our credit terms with
certain vendors resulting from the Chapter 11 filing, which
partially offset the effect of the stay of the pre-petition
liabilities.
Partially offsetting the increased cash outlays discussed above,
were increased cash inflows from our customers. Though revenues
for 2005 decreased by $2.3 million over 2004, cash received
from our customers increased by approximately $2.6 million.
This includes amounts received for fuel surcharges. During 2004
receivables increased by $4.7 million whereas during 2005
receivables increased by only $2.7 million. Additionally,
during 2004 we contributed approximately $3.8 million to
one of our defined benefit pension plans. No such contribution
was made during 2005 due to the Chapter 11 filing but we
have met the minimum funding requirements.
During 2005, we used $37.6 million in investing activities
compared to $17.4 million in 2004. Cash used in investing
activities increased as a result of the increase in restricted
cash, cash equivalents and other time deposits required to
collateralize our self-insurance reserves at our captive
insurance company and other changes related to our insurance
programs. The increase in the collateral requirements resulted
in an increase in our restricted cash and other time deposits.
Since these funds are not available for our use, an increase in
restricted funds negatively impacts our cash flows. During 2004,
we financed substantially all of our 2004 insurance costs
through insurance financing arrangements whereas during 2005 we
only financed a portion of our insurance costs. These
arrangements require a portion of the proceeds from the
financing arrangements to be held in escrow and returned to us
as we pay our self-insurance claims. The level of insurance
costs that are financed and the timing of related claims
payments impact these cash flows, which resulted in net cash
used in
43
these activities of $3.8 million in 2005 compared to net
cash provided from these activities of $2.9 million during
2004.
As noted above we are required to collateralize our
self-insurance reserves at our captive insurance company. We
make payments on insurance claims on an ongoing basis. Our
captive insurance company is able to repay us for amounts
covered by insurance when the collateral is released. As a
result of the Chapter 11 filing, adverse development of
claims and other factors, the future release of collateral may
be affected, which would impact the timing of reimbursement by
our captive insurance company.
Offsetting the increase in cash used in investing activities
discussed above were proceeds received from the sale of our
interest in two of our subsidiaries. During the fourth quarter
of 2005, we sold our interest in Kar-Tainer International, LLC
and Kar-Tainer International (Pty) Ltd, the sale of which
generated gross proceeds of $2.0 million.
We also reduced our total capital expenditures from
$22.5 million in 2004 to $19.4 million in 2005. We
invested approximately $18.7 million in our fleet of Rigs
during 2004 and approximately $17.2 million during 2005.
During 2005, we remanufactured 164 tractors, 165 trailers and
replaced (overhauled) approximately 441 engines. During
2004, we remanufactured 114 tractors, 128 trailers, replaced
(overhauled) approximately 256 engines and purchased 44 new
Rigs and 37 additional trailers.
We plan to spend approximately $33.3 million for capital
expenditures in 2006, $30.5 million of which we expect to
spend on our fleet of Rigs. Of this amount, our Automotive Group
expects to spend approximately $9.5 million to
purchase 53 new Rigs, approximately $10.5 million to
remanufacture 152 existing Rigs, approximately
$7.1 million replace approximately 314 engines, and
approximately $2.7 million to purchase certain Rigs which
we lease. Our Axis Group expects to spend approximately
$2.6 million of capital in 2006. If we do spend only
$30.5 million on our fleet of Rigs in 2006 as planned, we
believe that approximately 230 of the Rigs that we own are at
risk of failing during 2006. These Rigs may fail due to tractor
engine failures, trailer failures or the Rigs otherwise reaching
the end of their useful lives. The failure of these Rigs will
adversely affect our operations and financial results or could
impair customer relationships.
We presently believe that the fleet of Rigs at our Automotive
Group will require substantial capital investment in 2007 and
for several years to follow as we must replace a significant
number of our Rigs that are approaching the end of their useful
lives. We believe that approximately 67% of our active fleet of
Rigs will reach the end of their useful lives and must be
replaced with new Rigs between the years 2006 and 2010. In
addition, we have been operating under a reduced capital
expenditure plan with respect to our fleet of Rigs due to the
reduction in cash flow available to us in recent years. As a
result of our inability to purchase new Rigs, remanufacture
existing Rigs or replace engines at the time necessary to
maintain the current number of active Rigs and because 67% of
the active Rigs in our fleet must be replaced in 2006 through
2010 due to Rigs approaching the end of their useful lives, we
expect our capital spending needs to increase significantly.
We presently believe that we will be required to spend
approximately $89 million of capital on our fleet of Rigs
in 2007, and approximately $75 million in each of the years
2008, 2009 and 2010. Further, we believe that the average annual
capital expenditure requirements for our Automotive Group will
be approximately $50 to $60 million per year thereafter.
Our estimates of capital expenditure requirements assume that we
will continue to operate our current number of owned and leased
Rigs.
We have removed approximately 838 tractors and 910 trailers from
our operations since the beginning of 2004, and as a result, we
presently have no excess Rigs that we could utilize to service
our existing business beyond the Rigs we presently operate. In
the event we do not have sufficient funds available to make the
capital expenditures outlined above at the appropriate time or
if Rig engines or tractors fail, we will be required to remove
Rigs from operations. In the event we are required to take Rigs
out of our operations for this or other reasons, there will be
an adverse effect on our operations, our financial results and
customer relationships.
Our estimates of the planned investment in our fleet as set
forth above could vary based upon factors such as liquidity
constraints, the financial covenants included in the DIP
Facility, our plan of reorganization, the level of new vehicle
production by our customers, changes in our market share,
changes in customer requirements regarding Rig specifications,
the availability of tractors or engines, changes in the number of
44
Rigs which we lease or utilize through owner-operators, and our
ability to continue remanufacturing our Rigs primarily through
our current provider.
We utilize primarily one company to remanufacture and supply
certain parts needed to maintain a significant portion of our
fleet of Rigs. We believe that a limited number of other
companies could provide comparable remanufacturing services and
parts. However, a change in this service provider could cause a
delay in and increase the cost of the remanufacturing process
and the maintenance of our Rigs. Such delays and additional
costs could adversely affect our operating results as well as
our Rig remanufacturing and maintenance programs and customer
relationships. In addition, we purchase our tractors primarily
through one manufacturing company. We have not yet determined
whether another manufacturer could provide us with the tractors
we need to operate our fleet of Rigs, and if so, we cannot
determine what the cost would be.
Financing activities provided net cash of $74.2 million
during 2005 compared to $3.5 million during 2004. Our net
borrowings, including the payment of debt issuance costs,
increased by $38.2 million during 2005. The increase was
due primarily to additional borrowings required to offset the
reduction in cash provided from operations and to provide cash
collateral for letters of credit issued to secure payment of
insurance claims. In addition, $31.1 million of premiums
for our 2006 insurance programs, as discussed above, were
financed with premium financing arrangements in the fourth
quarter of 2005. As a result of borrowings to fund our 2006
insurance programs during 2005, proceeds from insurance
financing arrangements, net of repayments, increased
$33.0 million in 2005 compared to 2004.
The DIP Facility obtained in connection with our Chapter 11
filing and which was used to repay in full all amounts owing
under our Pre-petition Facility, provides for aggregate
financing of up to $230 million comprised of (i) a
$130 million Revolver, which includes a swing-line credit
commitment of $10 million and up to $75 million in
letters of credit, (ii) a $20 million term loan
(DIP Facility Term Loan A) and (iii) an
$80 million term loan (DIP Facility Term
Loan B). The Revolver bears interest at an annual
rate, at our option, of either an annual index rate (based on
the greater of the base rate on corporate loans as published
from time to time in The Wall Street Journal or the
federal funds rate plus 0.50%) plus 2.00%, or LIBOR plus 3.00%.
In addition, we are charged a letter of credit fee under the
Revolver payable monthly at a rate per annum equal to 2.75%
times the amount of all outstanding letters of credit under the
Revolver. DIP Facility Term Loan A bears interest at an
annual rate of LIBOR plus 5.50% and DIP Facility Term
Loan B bears interest at an annual rate of LIBOR plus
9.50%. In addition, there is a fee of 0.5% on the unused portion
of the Revolver. As of December 31, 2005, the interest
rates on the Revolver, DIP Facility Term Loan A and DIP
Facility Term Loan B were 9.25%, 9.74% and 13.74%,
respectively. Pursuant to the Fourth Amendment to the DIP
Facility, on April 18, 2006 the interest rates on all
outstanding debt included in the DIP Facility increased by an
additional 2%.
The DIP Facility will mature on February 2, 2007. However,
we will be obligated to repay the DIP Facility at an earlier
date if a plan of reorganization is confirmed by the Bankruptcy
Court and becomes effective prior to the expiration of the
18-month term of the
DIP Facility. The DIP Facility also requires mandatory
prepayment from the net cash proceeds of any asset sales,
extraordinary receipts, or any insurance proceeds that we
receive. The DIP Facility also includes customary affirmative,
negative, and financial covenants binding on us, including
implementation of a cash management system as set forth in the
DIP Facility. The negative covenants limit our ability to, among
other things, incur debt, incur liens, make investments, sell
assets, or declare or pay any dividends on our capital stock.
The financial covenants included in the DIP Facility also limit
the amount of our capital expenditures, set forth a minimum
fixed charge coverage ratio and a maximum leverage ratio, and
require us to maintain minimum consolidated earnings before
interest, taxes, depreciation and amortization as set forth in
the DIP Facility.
In addition, the DIP Facility includes customary events of
default including events of default related to (i) the
failure to comply with the financial covenants set forth in the
DIP Facility, (ii) the failure to establish and maintain
the cash management system set forth in the DIP Facility,
(iii) the conversion of the Chapter 11 Proceedings to
a Chapter 7 case or appointment of a Chapter 11
trustee with enlarged powers, (iv) the
45
granting of certain other super-priority administrative expense
claims or non-permitted liens or the invalidity of liens
securing the DIP Facility, (v) the stay, amendment or
reversal of the Bankruptcy Court orders approving the DIP
Facility, (vi) the confirmation of a plan of reorganization
or entry of an order by the court dismissing the Chapter 11
case which does not provide for payment in full of the DIP
Facility or (vii) the granting of relief from the automatic
stay to holders of security interests in our assets that would
have a material adverse effect on us.
Obligations under the DIP Facility are secured by 100% of the
capital stock of our domestic and Canadian subsidiaries, 66% of
the capital stock of our direct foreign subsidiaries other than
those domiciled in Canada, and all of our current and
after-acquired U.S. and Canadian personal and real property. The
DIP Facility entitles the lenders to super-priority
administrative expense claim status under the Bankruptcy Code
and will generally permit the ordinary course payment of
professionals and administrative expenses prior to the
occurrence of an event of default under the DIP Facility or a
default under the Bankruptcy Court orders approving the DIP
Facility.
We have classified the Revolver as current based on the
requirement of Emerging Issues Task Force (EITF)
Issue No. 95-22, Balance Sheet Classification of
Borrowings Outstanding under Revolving Credit Agreements that
include both a Subjective Acceleration Clause and a
Lock-Box Arrangement. The amount available under the
$130 million Revolver may be reduced based on the
calculation of eligible Revolver collateral. As of
December 31, 2005, $115.6 million of eligible Revolver
collateral was available. As of December 31, 2005,
approximately $38.1 million of the Revolver was committed
under letters of credit primarily related to the settlement of
insurance claims and $52.0 million in loans were
outstanding under the Revolver. We had approximately
$21.2 million and $11.9 million available under the
Revolver as of December 31, 2005 and June 10, 2006,
respectively.
We amended the DIP Facility effective November 17, 2005 to
exclude in the aggregate up to $3.5 million of
self-insurance liability expense recognized in the month of
September 2005 for the purpose of calculating compliance with
financial covenants set forth in the DIP Facility for any period
that includes the fiscal month of September 2005. In addition,
on January 30, 2006, we entered into a consent agreement
with respect to the DIP Facility. The consent agreement extended
the required date for delivery of our annual operating plan for
fiscal year 2006 to February 28, 2006.
On March 3, 2006, we informed our lenders that are party to
the DIP Facility that we were not in compliance with certain of
the financial covenants set forth in the DIP Facility. Such
covenant violations are an event of default under the DIP
Facility. As a result, on March 9, 2006, we entered into a
forbearance agreement with the lenders that are party to the DIP
Facility. Pursuant to the forbearance agreement our lenders
agreed that the financial covenant violations would not
constitute a default or an event of default as defined in the
DIP Facility and to temporarily refrain from exercising certain
of the remedies set forth in the DIP Facility through
April 3, 2006. On April 3, 2006 we entered into an
amendment to the forbearance agreement extending the forbearance
period through April 18, 2006 or the earlier of any
occurrence of any other event of default under the DIP Facility,
or our failure to comply with any of the conditions of the
forbearance agreement. In addition, as a condition to agreeing
to extend the forbearance period, the lenders required us to
retain an operational consultant. As a result, on March 21,
2006 we retained Glass and Associates, Inc. as our operational
improvement advisor.
On April 18, 2006, we entered into the Fourth Amendment to
the DIP Facility which extended the forbearance period to
May 18, 2006. The Fourth Amendment provided for an over
advance facility under the $80 million Term Loan B in
the DIP Facility pursuant to which we may be advanced up to
$5 million at the discretion of Morgan Stanley Senior
Funding, Inc. as the Term Loan B Agent. The over advance
facility had a maturity date of May 18, 2006 and bore
interest at a rate equal to one-month LIBOR plus 9.5%. However,
as a result of our covenant violations discussed above in
connection with the forbearance agreement, we are required under
the Fourth Amendment to pay the default rate of interest under
the DIP Facility on all outstanding loans, including the over
advance facility. We did not draw any funds from the over
advance facility prior to its expiration. The default rate of
interest is 2% over the otherwise applicable interest rates.
Under the terms of the Fourth Amendment, if we are able to
secure a commitment for additional funds to be
46
provided to us on or before June 19, 2006 in an amount not
less than $20 million, the interest rates under the DIP
Facility will revert back to the non-default rates provided
there are no additional covenant violations.
The Fourth Amendment also created a prepayment penalty, equal to
1% of the principal amount of the loans that are prepaid under
the DIP Facility, in the event we prepay any or all of the loans
under the DIP Facility. The prepayment penalty will not apply if
the prepayment results from a refinancing provided by the Term B
Agent. In addition, the Fourth Amendment revised certain
financial covenants only for the applicable periods ending
March 31, 2006, April 30, 2006 and May 31, 2006.
The temporary modification of these covenants did not affect our
prior covenant violations covered by the forbearance agreement.
However, under the terms of the Fourth Amendment, the
forbearance period discussed above has been extended until the
maturity date of the over advance facility.
On May 1, 2006 our lenders consented to extend the filing
date for our annual audited financial statements for the year
ended December 31, 2005 from May 15, 2006 to
May 30, 2006. On May 18, 2006 we further extended the
forbearance period from May 18, 2006 to June 1, 2006.
Effective May 30, 2006 the forbearance period and the
filing date for our annual audited financial statements
mentioned above were extended to June 16, 2006.
We are currently negotiating with our lenders in an effort to
enter into a consent and fifth amendment to the DIP Facility
based upon the terms and conditions of a non-binding term sheet
which we have received from certain of our existing lenders and
an additional lender. The term sheet contemplates that the
consent and fifth amendment will waive the various events of
default which exist under the DIP Facility and also that a new
Term Loan C will be established whereby the Term Loan C lenders
would commit to lend us up to an additional $30 million.
The term sheet contemplates that certain conditions must be
satisfied prior to the Term Loan C becoming effective or our
company being able to borrow these funds, including the fact
that the interim order previously granted by the Bankruptcy
Court which allows us to reduce by 10% the wages earned under
the Master Agreement during the months of May and June 2006 and
avoid the June 2006 wage increases must remain in effect beyond
June 30, 2006. We have filed a motion with the Bankruptcy
Court requesting that the interim 10% wage reduction and the
wage increase avoidance be extended by an order of the
Bankruptcy Court until September 30, 2006.
The term sheet regarding the consent and fifth amendment
contemplates that the $30 million Term Loan C will
bear interest, payable in kind, at a rate equal to LIBOR plus
5%, and contemplates that Term Loan C may be borrowed in up to
four draws in an amount of not less than $10 million for
each of the first and second draws and not less than
$5 million for each of the third and fourth draws. The term
sheet also contemplates that the lenders may at their sole
election exchange outstanding principal amounts due under Term
Loan C into common equity equal to up to 18% of our total voting
common equity upon our reorganization and emergence from
Chapter 11.
The commitment letter contemplates that we will pay fees to the
lenders for the amendment to the DIP Facility and commitment
fees related to Term Loan C. We must finalize negotiations with
our lenders and the lenders under Term Loan C and execute a
definitive consent and fifth amendment which consent and fifth
amendment must be approved by the Bankruptcy Court prior to
becoming effective. No assurances can be provided that we will
be able to secure any commitment for additional funds.
On September 30, 1997, we issued $150 million of
85/8
% senior notes (the Senior Notes)
through a private placement. The Senior Notes were subsequently
registered with the SEC, are payable in semi-annual installments
of interest only and are scheduled to mature on October 1,
2007.
Borrowings under the Senior Notes are general unsecured
obligations of Allied Holdings, Inc. and are guaranteed by
substantially all of our subsidiaries (the Guarantor
Subsidiaries). The guarantees are full and unconditional
and there are no restrictions on the ability of the Guarantor
Subsidiaries to make distributions to our company. Allied
Holdings, Inc. owns 100% of the Guarantor Subsidiaries. See
Note 14 of our consolidated financial statements included
in this Annual Report on
Form 10-K for a
list of the companies that do not guarantee our obligations
under the Senior Notes (the Nonguarantor
Subsidiaries).
47
The indenture governing the Senior Notes sets forth a number of
negative covenants which would limit our ability to, among other
things, purchase or redeem stock, make dividend or other
distributions, make investments, and incur or repay debt (with
the exception of payment of interest and principal at stated
maturity). One such covenant would limit our ability to incur
more than $230 million of additional indebtedness beyond
the $150 million that existed on the date that the Senior
Notes were issued. Although we are not presently in compliance
with some of these covenants as a result of the filing for
protection under Chapter 11 of the Bankruptcy Code, any
action to be taken by the holders of the Senior Notes as a
result of these violations has been stayed by the Bankruptcy
Court.
The filing for protection under Chapter 11 on July 31,
2005 constituted an event of default under the Senior Notes. The
indenture agreement governing the Senior Notes provides that as
a result of this event of default, the outstanding amount of the
Senior Notes became immediately due and payable without further
action by any holder of the Senior Notes or the trustee under
the indenture. However, payment of the Senior Notes, including
the semi-annual interest payments, is automatically stayed as of
the Petition Date, absent further order of the Bankruptcy Court.
As a result of the Chapter 11 Proceedings, and pursuant to
SOP 90-7, we have
reclassified the outstanding balance on the Senior Notes along
with the related interest accrued as of the Petition Date to
liabilities subject to compromise.
Contractual
Obligations
We set forth in the table below our minimum contractual
obligations as of December 31, 2005 (in thousands). Other
than the DIP Facility and the Senior Notes and related accrued
interest, these obligations are not recorded in our consolidated
balance sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due In | |
|
|
|
|
| |
Contractual Obligations |
|
Total | |
|
2006 | |
|
2007-2008 | |
|
2009-2010 | |
|
Thereafter | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
DIP Facility(1)
|
|
$ |
151,997 |
|
|
$ |
51,997 |
|
|
$ |
100,000 |
|
|
$ |
|
|
|
$ |
|
|
Operating Lease Obligations
|
|
|
25,718 |
|
|
|
11,360 |
|
|
|
10,771 |
|
|
|
3,219 |
|
|
|
368 |
|
Purchase Obligations(2)
|
|
|
88,184 |
|
|
|
10,385 |
|
|
|
21,347 |
|
|
|
21,766 |
|
|
|
34,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
265,899 |
|
|
|
73,742 |
|
|
|
132,118 |
|
|
|
24,985 |
|
|
|
35,054 |
|
Liabilities Subject to Compromise(3)
|
|
|
154,313 |
|
|
|
|
|
|
|
154,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
420,212 |
|
|
$ |
73,742 |
|
|
$ |
286,431 |
|
|
$ |
24,985 |
|
|
$ |
35,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The DIP Facility in the table above excludes interest payable.
As discussed above, the Revolver and the term loans included in
the DIP Facility are classified as current; however, the
payments are not due until 2007. The DIP Facility has a
contractual maturity date of February 2, 2007 unless it is
otherwise accelerated. |
|
(2) |
This obligation relates to the previously mentioned IBM
agreement. In April 2001, we entered into a five-year commitment
with IBM whereby IBM would provide our mainframe computer
processing services. In December 2003, we amended this
agreement. The amended agreement is a ten-year commitment,
commencing February 2004, for IBM to provide additional services
to manage applications for EDI, network services, technical
services, and applications development and support. The
agreement includes outsourcing at prices defined within the
agreement. Our Chapter 11 filing has not affected the terms
and services under this contract. |
|
(3) |
Includes the Senior Notes and related accrued interest. The
payment date is based on our best estimate of when they will be
settled. |
At December 31, 2005, we had agreements with third parties
to whom we have issued $140.7 million of letters of credit
primarily relating to settlements of insurance claims and
reserves and support for a line of credit at one of our foreign
subsidiaries. Of the $140.7 million, $38.1 million of
these letters of credit are secured by borrowings under the
Revolver and $102.6 million are issued by our wholly owned
captive insurance subsidiary, Haul Insurance Limited and are
collateralized by $102.6 million of restricted cash and
48
cash equivalents held by this subsidiary. We renew these letters
of credit annually. The amount of letters of credit that we may
issue under the Revolver may not exceed $75 million. We had
utilized $38.1 million of this availability at
December 31, 2005. The remaining letter of credit
availability under the DIP Facility as of December 31, 2005
was $21.2 million.
As part of the previously disclosed settlement agreement with
Ryder System Inc. (Ryder), we have issued a letter
of credit in favor of Ryder. At December 31, 2005, the
letter of credit totaled $9.5 million and is included in
the $38.1 million of outstanding letters of credit under
the Revolver. The letter of credit total as of December 31,
2005 includes the previously agreed upon increase of
$1 million made for the first quarter of 2005. Ryder may
only draw the letter of credit if we fail to pay workers
compensation and liability claims assumed by us in the Ryder
Automotive Group acquisition. We have provided the letter of
credit in favor of Ryder because Ryder has issued a letter of
credit to its insurance carrier relating to the workers
compensation and liability claims we assumed. Under the
agreement with Ryder, effective March 31, 2005 and
periodically thereafter, an actuarial valuation will be
performed to determine the remaining amount outstanding of
workers compensation and liability claims that we assumed.
Based on the results of the actuarial valuation, the letter of
credit will be adjusted as appropriate. As a result of the
valuation that was completed on January 11, 2006 the letter
of credit was reduced by $2.0 million on January 20,
2006. The letter of credit currently totals $7.5 million.
Off-Balance Sheet Arrangements
The amounts for operating leases reflected in the table above
under Contractual Obligations, represent future
minimum lease payments of $25.7 million under noncancelable
operating leases at December 31, 2005. See also
Note 13, Lease Commitments, in the notes to the
consolidated financial statements included in Item 15 of
this Annual Report on
Form 10-K.
Disclosures About Market Risks
The market risks inherent in our market risk sensitive
instruments and positions is the potential loss arising from
adverse changes in interest rates, fuel prices, self-insured
claims and foreign currency exchange rates.
Our Automotive Group is dependent on diesel fuel to operate its
fleet of Rigs. Diesel fuel prices are subject to fluctuations
due to unpredictable factors such as the weather, government
policies, and changes in global demand and global production. To
reduce the price risk caused by market fluctuations, Allied
Automotive Group periodically purchases fuel in advance of
consumption. A 10% increase in diesel fuel prices would increase
costs by $9.4 million over the next twelve months assuming
levels of fuel consumption in the next twelve months are
consistent with levels of fuel consumed in 2005. This increase
in costs would be partially offset by our fuel surcharge
arrangements with our customers. Currently, we have in place
fuel surcharges with substantially all of our customers. In
periods of rising fuel prices and declining vehicle deliveries,
we may not recover all of the fuel price increase through our
fuel surcharge programs since fuel surcharge rates in any
quarter reset at the beginning of the quarter based on fuel
prices in the preceding quarter.
We enter into debt obligations to support general corporate
purposes including capital expenditures and working capital
needs. Prior to the Chapter 11 filing, the Senior Notes
bore interest at a fixed rate. During the Chapter 11
Proceedings, the Senior Notes rank as an unsecured claim and we
have ceased the accrual and payment of interest pending
consummation of a plan of reorganization. As of
December 31, 2005, we had $152.0 million outstanding
under the DIP Facility subject to variable rates of interest.
The interest rates on the Revolver in our DIP Facility may vary
based on either an annual index rate (based on the greater of
the base rate on corporate loans as published from time to time
in The Wall Street Journal and the federal funds rate
plus 0.50%) plus 2.00%, or LIBOR plus 3.00%. The
$20 million term loan bears interest at an annual rate of
LIBOR plus 5.50% and the $80 million term loan bears
interest at an annual rate of LIBOR plus 9.50%. Based
49
on the outstanding balance of the DIP Facility as of
December 31, 2005, the impact of a three-percentage point
increase in interest rates would result in an increase in our
annual interest expense of approximately $4.6 million.
|
|
|
Risk Management Retention |
We retain losses within certain limits through high deductibles
or self-insured retentions. For certain risks, coverage for
losses is provided by primary and reinsurance companies
unrelated to our company. Our coverage is based on the date that
a claim is incurred. Haul Insurance Limited, our captive
insurance subsidiary, provides reinsurance coverage to certain
of our licensed insurance carriers for certain types of losses
for certain years within our insurance program, primarily
insured workers compensation, automobile and general
liability risks. Haul Insurance Limited was not included in the
companies that filed for Chapter 11.
For 2005, we were self-insured, primarily through our captive
insurance company, for the majority of our workers
compensation losses which will be paid over a number of years.
In contrast, the majority of our risk related to workers
compensation claims in 2006 is covered by a fully insured
program with no deductible, for which we paid the premiums in
December 2005.
Effective January 1, 2006, we retain liability for
U.S. automobile liability claims for the first
$1 million per occurrence with no aggregate limit. For
claim amounts in excess of $1 million per occurrence, we
are covered by excess insurance. In Canada, we retain liability
up to CDN $500,000 for each auto liability claim, with no
aggregate limit. For claim amounts in excess of CDN $500,000, we
are covered by excess insurance.
For claim years ended December 31, 2005 and 2004, we
utilize three layers of coverage for automobile claims in the
U.S. as follows:
|
|
|
|
|
The first layer includes the first $1 million of every
claim. We retain liability for this layer, with no aggregate
limit. |
|
|
|
The second layer includes the amount by which individual claims
exceed $1 million up to $5 million per occurrence. For
this second layer, we retain liability up to an aggregate
deductible of $7 million. Aggregate claim amounts in the
second layer in excess of $7 million are covered by excess
insurance. |
|
|
|
The third layer includes the amount by which individual claims
exceed $5 million per occurrence. Individual claim amounts
greater than $5 million are covered by excess insurance to
a limit of $150 million per occurrence. |
For claim years ended December 31, 2005 and 2004, we also
utilize three layers of coverage for automobile claims in Canada
as follows:
|
|
|
|
|
The first layer includes the first CDN $500,000 of every claim.
We retain liability for this layer, with no aggregate limit. |
|
|
|
The second layer includes the amount by which individual claims
exceed CDN $500,000 up to CDN $1 million, per
occurrence. For this second layer, we retain liability up to an
aggregate deductible of CDN $500,000. Aggregate claim amounts in
the second layer in excess of CDN 500,000 are covered by excess
insurance. |
|
|
|
The third layer includes the amount by which individual claims
exceed CDN $1 million, per occurrence. Individual claim
amounts that are greater than CDN $1 million are covered by
excess insurance to a limit of $150 million per occurrence. |
The parties to the insurance arrangements have agreed that
certain contractual documentation needs to be corrected within
the automobile policy. We intend to file a motion with the
Bankruptcy Court to obtain approval for the amendments agreed to
by the parties.
For the claim years 2006, 2005 and 2004, we retain liability of
up to $250,000 for each cargo damage claim in the U.S. and up to
CDN $250,000 for each cargo damage claim in Canada. There is no
aggregate limit. Claim amounts in excess of these amounts are
covered by excess insurance.
For certain of our operating subsidiaries, we are qualified to
self-insure against losses relating to workers
compensation claims in the states of Florida, Georgia, Missouri
and Ohio. For these states, we retain respective liabilities of
$400,000, $500,000, $500,000 and $350,000, per occurrence. Claim
amounts in excess of these amounts are covered by excess
insurance. In those states where we are insured for
workers compensation claims, the majority of our risk in
2006 is covered by a fully insured program with no deductible.
50
Prior to January 1, 2006, our captive insurance subsidiary
provided insurance coverage and the deductible was
$650,000 per claim. Claims in excess of that amount are
covered by excess insurance.
Workers compensation losses in Canada are covered by
government insurance programs to which we make premium payments.
In one province, we are also subject to retrospective premium
adjustments based on actual claims losses compared to expected
losses. Our reserves include an estimate of retrospective
adjustments based on historical experience and the most recently
available actual claims data provided by the government.
We are also required to provide collateral to our insurance
companies and various states for losses in respect of worker
injuries, accident, theft, and other loss claims. For this
purpose, we utilize cash and/or letters of credit. To reduce our
risks in these areas as well as the letter of credit or
underlying collateral requirements, we have implemented various
risk management programs. However, we can provide no assurance
that the current letter of credit requirements will be reduced
nor can we provide assurance that these letter of credit
requirements will not increase.
Because we retain liability for a significant portion of our
risks, an increase in the number or severity of accidents, on
the job injuries, other loss events over those anticipated, or
adverse development of existing claims including wage and
medical cost inflation could have a material adverse effect on
our profitability. While we currently have insurance coverage
for claims above our retention levels, there can be no assurance
that we will be able to obtain insurance coverage in the future.
|
|
|
Foreign Currency Exchange Rates |
Though we operate primarily in the U.S., we own foreign
subsidiaries, the most significant being Allied Systems (Canada)
Company. The net investment in our foreign subsidiaries
translated into U.S. dollars using the rate of exchange in
effect at December 31, 2005, was $37.0 million. The
potential impact on other comprehensive income resulting from a
hypothetical 10% change in quoted foreign currency exchange
rates approximates $3.7 million.
At December 31, 2005, we had an intercompany payable
balance of $40.2 million denominated in U.S. dollars
recorded on our Canadian subsidiarys balance sheet. The
potential impact from a hypothetical 10% change in quoted
foreign currency exchange rates related to this balance would be
a $4.0 million charge or credit to the income statement. We
do not use derivative financial instruments to hedge our
exposure to changes in foreign currency exchange rates.
While we may have been subject to some measure of inflation, we
do not believe that this has impacted our results significantly.
In addition, it would be difficult to isolate such effects on
our operations.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the
U.S. requires us to make decisions based upon estimates,
assumptions, and factors we consider relevant to the
circumstances. Such decisions include the selection of
applicable accounting principles and the use of judgment in
their application, the results of which impact reported amounts
and disclosures. Changes in future economic conditions or other
business circumstances may affect the outcomes of our estimates
and assumptions. Accordingly, actual results could differ from
those anticipated.
A summary of the significant accounting policies followed in
preparation of the financial statements is contained in
Note 2 of our consolidated financial statements included in
Item 15 of this Annual Report on
Form 10-K. Other
footnotes describe various elements of the financial statements
and the assumptions on which specific amounts were determined.
We believe that the following critical accounting policies and
underlying estimates and judgments involve a higher degree of
complexity than others do:
LIABILITIES SUBJECT TO COMPROMISE AND REORGANIZATION
ITEMS The consolidated financial statements included
in Item 15 of this Annual Report on
Form 10-K include
as liabilities
51
subject to compromise our estimate of pre-petition liabilities
at the amounts expected to be allowed by the Bankruptcy Court,
which, are not necessarily the amounts at which they will be
settled. We also include in liabilities subject to compromise
our estimate of liabilities for damage under rejected contracts.
Though based on the best available information, we expect that
some of these estimates will change when resolved under a plan
of reorganization. In addition, liabilities classified as
subject to compromise may change to the extent that payment of a
pre-petition liability is approved by the Bankruptcy Court.
Furthermore, the classification of an item of income or expense
as a reorganization item requires managements judgment in
deciding whether the item is directly associated with the
Chapter 11 Proceeding. Reorganization items for the year
ended December 31, 2005 were approximately
$7.1 million.
CLAIMS AND INSURANCE RESERVES As detailed above in
Disclosures About Market Risks Risk Management
Retention, we retain liability for a significant portion
of our risks through self-insured retentions and/or deductibles.
Claims and insurance reserves reflect the estimated cost of
claims for workers compensation, cargo loss and damage,
automobile and general liability, and products liability losses
that are not covered by insurance. Amounts that we estimate will
be paid within the next year have been classified as current in
accrued liabilities in our consolidated balance
sheet while the noncurrent portion is included in other
long-term liabilities. Costs related to these reserves are
included in the statement of operations in insurance and
claims expense, except for workers compensation,
which is included in salaries, wages, and fringe
benefits.
We utilize a third-party claims administrator, who works under
our direction, and third-party actuarial valuations to assist in
the determination of the majority of our claims and insurance
reserves. The third-party claims administrator sets claims
reserves on a case-by-case basis. The third-party actuary
utilizes the aggregate data from those reserves, along with
historical paid and incurred amounts, to determine, by loss
year, the projected ultimate cost of all claims reported and not
yet reported, including possible adverse developments. Our
reserve for estimated retrospective premium adjustments for
workers compensation losses in Canada is based on
historical experience and the most recently available actual
claims data provided by the Canadian government. Our product
liability claims reserves are set on a case-by-case basis by our
management in conjunction with legal counsel handling the
claims, and include an estimate for claims incurred but not yet
reported. We track cargo claims and record reserve amounts on a
case-by-case basis. The reserve for cargo claims includes an
estimate of incurred but not reported claims.
The process of determining reserves for all losses is subject to
our evaluation of accident frequency, the nature and severity of
claims, litigation risks and historical claims experience
adjusted for current industry trends. The claims and insurance
reserves are adjusted periodically as such claims develop to
reflect changes in estimates made by our third-party claims
processors and changes in actuarial estimates by our third-party
actuary based on actual experience. Changes in the estimate of
these accruals are charged or credited to expense in the period
determined. If we were to use different assumptions or if
different conditions occur in future periods, future operating
results or liquidity could be materially impacted.
Based on self-insurance accruals at December 31, 2005, if
our estimate of unpaid claims was increased by 5%, the
accrual and operating loss would have increased by approximately
$5.6 million.
ACCOUNTS RECEIVABLE VALUATION RESERVES Substantially
all our revenue is derived from transporting new automobiles,
SUVs, and light trucks from manufacturing plants, ports,
auctions, and railway distribution points to automobile
dealerships. We record revenues when vehicles are delivered to
the dealerships and make estimates to determine the
collectibility of our accounts receivable. Estimates include
assessments of the potential for customer billing adjustments
based on the timing of delivery, the accuracy of pricing, as
well as evaluations of the historical aging of customer
accounts. In addition, estimates include periodic evaluations of
the creditworthiness of customers including the impact of market
and economic conditions on their ability to honor their
obligations to us. If billing adjustments outside of our
estimates arose or the financial condition of a customer were to
deteriorate, additional allowances may be required. Accounts
receivable balances at December 31, 2005 and 2004 were
$61.4 million and $57.3 million, respectively, net of
allowances for doubtful accounts of $2.2 million as of
December 31, 2005 and 2004.
52
ACCOUNTING FOR INCOME TAXES As part of the process
of preparing our consolidated financial statements, we are
required to determine income taxes related to each of the
jurisdictions in which we operate. This process involves
estimating current tax exposure, together with assessing
temporary differences resulting from differing treatments of
items for tax versus financial reporting purposes. These
differences result in deferred tax assets and liabilities in our
consolidated balance sheet. We must then assess the likelihood
that the deferred tax assets will be recovered from future
taxable income and to the extent we believe that recovery is not
likely, we must establish a valuation allowance. In determining
the required level of valuation allowance, we consider whether
it is more likely than not that all or some portion of the
deferred tax assets will not be realized. This assessment is
based on managements expectations as to whether sufficient
taxable income of an appropriate character will be realized
within tax carryback and carryforward periods. Our assessment
involves estimates and assumptions about matters that are
inherently uncertain, and unanticipated events or circumstances
could cause actual results to differ from these estimates.
Should we change our estimate of the amount of deferred tax
assets that we would be able to realize, a change to the
valuation allowance would result in an increase or decrease to
the provision for income taxes in the period in which such
change in estimate was made.
At December 31, 2005, we had U.S. federal net
operating loss carryforwards of $83.4 million that expire
between 2021 and 2025. Included in the federal loss
carryforwards are the federal taxable losses related to our
Canadian operations, whose income and losses are included in the
U.S tax return as well as in the Canadian tax returns. The net
operating loss carryforwards for Canadian tax filing purposes
total CDN $29.8 million, and expire between 2009 and 2015.
We have federal capital loss carryforwards of $4.5 million
that expire between 2007 and 2009. In addition,
$6.5 million of tax credit carryforwards are available to
reduce future income taxes. Of the tax credit carryforwards,
$5.8 million consists of foreign tax credits that expire
from 2011 to 2015, and $0.7 million consists of alternative
minimum tax credits that have no expiration.
In the normal course of business, we are subject to audits from
the federal, state, Canadian provincial and other tax
authorities regarding various tax liabilities. We record refunds
from audits when receipt is assured and record assessments when
a loss is probable and estimable. These audits may alter the
timing or amounts of taxable income or deductions or the
allocation of income among tax jurisdictions. The amount
ultimately paid upon resolution of issues raised may differ from
the amounts accrued.
PENSION AND POSTRETIREMENT BENEFITS Our pension and
other postretirement benefit costs are calculated using various
actuarial assumptions and methodologies as prescribed by
SFAS No. 87, Employers Accounting for
Pensions and SFAS No. 106, Employers
Accounting for Postretirement Benefits Other than Pensions.
These assumptions include discount rates, healthcare cost trend
rates, inflation, rate of compensation increases, expected
return on plan assets, mortality rates, and other factors.
Actual results that differ from our assumptions are accumulated
and amortized over future periods and, therefore, generally
affect the expense we recognize and obligation we record in such
future periods. Though there is authoritative guidance on how
these assumptions should be selected, management must exercise
some measure of judgment in the selection of these assumptions.
We believe that the assumptions utilized in recording the
obligations under our plans are reasonable based on input from
our third-party actuaries and other advisors and information as
to historical experience and performance. Differences in actual
experience or changes in assumptions may affect our pension and
other postretirement obligations and future expense. Disclosure
of the significant assumptions used in calculating the
2005 net pension expense is presented in Note 16,
Employee Benefit Plans, in the notes to the
consolidated financial statements included in Item 15 of
this Annual Report on
Form 10-K. We have
estimated that an increase or decrease of 0.25% in the discount
factor or rate of return on assets used in the calculation of
the projected 2006 net periodic pension expense would not
have a significant effect.
Our discount rates are based primarily on the Moody AA Corporate
Bond Rates with a twenty-year maturity, rounded up to the
nearest quarter point, since we believe that this approximates
the ultimate payout of the benefits in our plans.
The expected long-term rate of return on plan assets was reduced
from 8.5% to 8.0% in 2005. Our targeted rate of return on plan
assets is between 8.0% and 9.0%. In determining the long-term
rate of return for
53
our plans, we consider the historical rates of return, the
nature of the plans investments and the targeted rate of
return on plan assets. The weighted average asset allocation of
the pension plans as of December 31, 2005 and 2004 are
shown in Note 16 of the notes to the consolidated financial
statements included in Item 15 of this Annual Report on
Form 10-K.
A substantial number of our employees are covered by
union-sponsored, collectively bargained, multiemployer pension
plans. Contributions to these plans are determined in accordance
with the provisions of negotiated labor contracts and are
generally based on the number of man-hours worked. In the event
we withdraw our participation in any of these plans, we could
incur a withdrawal liability for a portion of the unfunded
benefit obligation of the plan, if any. If a withdrawal were to
occur, the liability would be actuarially determined based on
factors at the time of withdrawal.
PROPERTY AND EQUIPMENT We operate approximately
2,900 company-owned Rigs to transport motor vehicles for
our customers. Property and equipment, including these Rigs, are
stated at cost less accumulated depreciation and any impairment
charges. We compute depreciation by taking the cost of these
assets less the residual value and dividing the result by the
estimated useful lives of these assets. This method of
depreciation is referred to as the straight-line method. We also
evaluate the carrying amount of these long-lived assets for
impairment by analyzing the operating performance and future
cash flows of these assets, whenever events or changes in
circumstances indicate that their carrying amounts may not be
recoverable, including the need to adjust the carrying amount of
the underlying assets if the sum of the expected cash flows is
less than the carrying amount. Our evaluation of the carrying
amount can be impacted by our projection of future cash flows,
the level of actual cash flows, the salvage values, the methods
of estimation used for determining fair values and the impact of
guaranteed residuals. Any changes in our judgments could impact
our estimates of annual depreciation expense and impairment
charges.
GOODWILL In accordance with SFAS No. 142,
we do not amortize goodwill but instead we evaluate it annually
for impairment and will evaluate it between annual tests if an
event occurs or circumstances change which indicate that the
carrying amount of reporting unit goodwill might be impaired. We
complete our annual impairment tests in the fourth quarter of
each year and generally recognize an impairment loss when the
carrying amount of reporting unit goodwill exceeds the
units estimated fair value. The fair value of goodwill is
derived by using a discounted cash flow analysis. This analysis
involves estimates and assumptions by management regarding
future sales volume, prices, inflation, expenses and capital
spending, appropriate discount rates, exchange rates, tax rates
and other factors. We believe that the estimates and assumptions
are reasonable, and that they are consistent with the
assumptions, which the reporting units use for internal planning
purposes. However, significant judgment is involved in
estimating these factors and they include inherent
uncertainties. If we had used other estimates and assumptions,
the analysis could have resulted in different conclusions
regarding the amount of goodwill impairment, if any.
Furthermore, additional future impairment losses could result if
actual results differ from those estimates.
POTENTIAL APPLICABILITY OF FRESH START-ACCOUNTING We
may be required, as part of our emergence from bankruptcy
protection, to adopt fresh-start accounting in a future period.
If fresh-start accounting is applicable, our assets and
liabilities will be recorded at fair value as of the fresh-start
reporting date. The fair value of our assets and liabilities may
differ materially from the recorded values of assets and
liabilities on our consolidated balance sheets. In addition, if
fresh-start accounting is required, the financial results of our
company after the application of fresh-start accounting could
differ materially from historical results.
See Note 3 to our consolidated financial statements
included elsewhere in this Annual Report on
Form 10-K for
additional information on our accounting during the
Chapter 11 Proceedings.
Recent Accounting Pronouncements
In May 2005, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 154, Accounting
Changes and Error Corrections. SFAS No. 154
replaces Accounting Principles Board (APB) Opinion
No. 20, Accounting Changes and
SFAS No. 3, Reporting Changes in Interim
Financial Statements. SFAS No. 154 changes
the accounting for, and reporting of, a change in accounting
principle. SFAS No. 154 requires retrospective
application to prior
54
periods financial statements of voluntary changes in
accounting principle and changes required by new accounting
standards when the standard does not include specific transition
provisions, unless it is impracticable to do so.
SFAS No. 154 is effective for accounting changes and
corrections of errors during fiscal years beginning after
December 15, 2005. Early adoption is permitted for
accounting changes and corrections of errors during fiscal years
beginning after June 1, 2005. We will adopt this statement
effective January 2006.
In March 2005, the FASB issued FASB Interpretation No. 47
(FIN 47), Accounting for Conditional Asset
Retirement Obligations, which clarifies that the term
conditional asset retirement obligation as used in
SFAS No. 143, Accounting for Asset Retirement
Obligations, refers to a legal obligation to perform an
asset retirement activity in which the timing and
(or) method of settlement are conditional on a future event
that may or may not be within the control of the entity. The
obligation to perform the asset retirement activity is
unconditional even though uncertainty exists about the timing
and (or) method of settlement. Accordingly, an entity is
required to recognize a liability for the fair value of a
conditional asset retirement obligation if the fair value of the
liability can be reasonably estimated. Uncertainty about the
timing and (or) method of settlement of a conditional asset
retirement obligation should be factored into the measurement of
the liability when sufficient information exists. FIN 47
also clarifies when an entity would have sufficient information
to reasonably estimate the fair value of an asset retirement
obligation. FIN 47 was effective for us on
December 31, 2005. The adoption of FIN 47 had no
impact on our financial position or results of operations.
In December 2004, the FASB issued SFAS No. 123
(revised 2004), Share-Based Payment
(SFAS No. 123R), which replaces
SFAS No. 123, Accounting for Stock-Based
Compensation, supersedes Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock
Issued to Employees and amends SFAS No. 95,
Statement of Cash Flows. SFAS No. 123R requires
all share-based payments to employees, including grants of
employee stock options, to be recognized in the financial
statements based on their fair values. The pro forma disclosures
previously permitted under SFAS No. 123 are no longer
an alternative to financial statement recognition.
SFAS No. 123R also requires the benefits of tax
deductions in excess of recognized compensation expense to be
reported as a financing cash flow, rather than as an operating
cash flow as required under current literature. In March 2005,
the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 107, which provides
interpretive guidance regarding the interaction of
SFAS No. 123R and certain SEC rules and regulations
related to share-based payment transactions with nonemployees,
valuation methods, classification of compensation expense,
non-GAAP measures, accounting for income tax effects,
modification of employee share options prior to adoption and
disclosures in Managements Discussion and Analysis. The
FASB has also issued various implementation guidance in relation
to SFAS No. 123R.
SFAS No. 123R is effective for us on January 1,
2006. We will use the modified prospective method upon adoption
and hence will not restate prior period results.
Under the modified prospective method, awards that are granted,
modified or settled after the adoption date shall be measured
and accounted for in accordance with SFAS No. 123R.
Unvested equity awards granted prior to the effective date will
continue to be measured under SFAS No. 123 except that
the related compensation expense must be recognized in the
income statement. The Companys unrecognized compensation
expense associated with unvested stock options was approximately
$594,000 at December 31, 2005, which, subject to any
modifications that may occur in future years, will be recognized
at $372,000, $197,000 and $25,000 during the years ending
December 31, 2006, 2007 and 2008, respectively. We do not
expect to grant any stock options during the Chapter 11
Proceedings.
|
|
Item 7A. |
Quantitative and Qualitative Disclosures About Market
Risk |
The information required under this item is provided under the
caption Disclosures About Market Risks under
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations.
|
|
Item 8. |
Financial Statements and Supplementary Data |
Financial statements and supplementary data are set forth
beginning on page F-1 in Item 15 of this Annual Report on
Form 10-K.
55
|
|
Item 9. |
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure |
None.
|
|
Item 9A. |
Controls and Procedures |
(a) Evaluation of Disclosure Controls and
Procedures. As of the end of the period covered by this
annual report, Allied, under the supervision and with the
participation of Allieds management, including the Chief
Executive Officer and the Chief Financial Officer, has evaluated
the effectiveness of Allieds disclosure controls and
procedures (as defined in Sections 13a -15(e) and
15d-15(e) of the
Securities Exchange Act of 1934). Based upon that evaluation,
the Chief Executive Officer and Chief Financial Officer
concluded that Allieds disclosure controls and procedures
were effective as of December 31, 2005, in alerting them in
a timely manner of material information required to be included
in Allieds periodic SEC filings.
|
|
|
(b) Changes in Internal Control over Financial
Reporting: |
In connection with its audits of our consolidated financial
statements for the years ended December 31, 2003 and 2004,
including reviews of the quarterly periods for those years, KPMG
advised the Audit Committee and management that KPMG had
identified deficiencies in our analysis, evaluation and review
process for financial reporting. KPMG informed the Audit
Committee and management that it believed such deficiencies were
a material weakness in our internal control over
financial reporting, with respect to our analysis, evaluation
and review of financial information included in our financial
reporting.
During 2004 and 2005, in response to the material weakness, we
undertook a review and, where necessary, revised our accounting
policies and procedures to ensure that all reasonable steps were
being taken to address and correct the material weakness
identified by KPMG. As part of this process, we hired an
external consulting firm to assist us in reviewing and revising
our policies and procedures, hired a new Chief Financial
Officer, replaced our Corporate Controller in January 2005,
staffed a new role of Vice President, Finance and Accounting and
added several other accounting professionals in February and
March 2005. We believe that these actions, among others,
established the appropriate foundation upon which to remediate
this material weakness as processes, including regular
evaluation and management reviews, were put in place and
strengthened during 2005. However, we believe that the enhanced
processes, including regular evaluation and management reviews,
must be in place and operating consistently and effectively over
a reasonable period of time to determine that this previously
identified material weakness has been adequately mitigated.
The activities related to the Chapter 11 Proceedings have
made significant demands on our accounting organization. The
Quarterly Reports on Form 10-Q for the quarters ended
June 30, 2005 and September 30, 2005 and this Annual
Report on Form 10-K were not filed by the filing deadlines
due to delays related to the Chapter 11 filing and other
matters. As a result, actions to remediate and improve our
procedures and controls were not accomplished according to our
plan. However, in the first quarter of 2006 we have allocated
additional resources to achieve our plan to remediate the
material weakness.
In connection with the audit of our consolidated financial
statements for the year ended December 31, 2005, KPMG
identified certain deficiencies that were considered to be a
material weakness as of December 31, 2005. While KPMG
acknowledged to the Audit Committee and management that they had
observed improvement in processes and controls with respect to
our analysis, evaluation and review of certain financial
information included in our financial reporting, KPMG indicated
that the design and operating effectiveness of these new
controls could only be evaluated when they have been operating
for a reasonable period of time.
Since we are not an accelerated filer (as defined in Exchange
Act Rule 12b-2),
we have not conducted the initial assessment of our internal
control over financial reporting mandated by Section 404 of
the Sarbanes-Oxley Act of 2002 and will report on that annual
assessment in our Annual Report on
Form 10-K, when
required, which will be no earlier than for the year ending
December 31, 2007. That process could identify significant
deficiencies or material weaknesses not previously reported.
KPMG has not audited the effectiveness of our internal control
over financial reporting in accordance with the standards of the
Public Company Accounting Oversight Board (United States), and
they have not expressed an opinion on managements
assessment of, and the effective operation of, internal control
over financial reporting.
56
We can provide no assurances that additional material weaknesses
or significant deficiencies in our internal control over
financial reporting will not be discovered in the future. If we
fail to remediate any such material weakness, our operating
results or customer relationships could be adversely affected or
we may fail to meet our SEC reporting requirements or our
financial statements may contain a material misstatement.
Internal control over financial reporting cannot provide
absolute assurance of achieving financial reporting objectives
or of preventing fraud due to its inherent limitations,
regardless of how well designed or implemented. Internal control
over financial reporting is a process that involves human
diligence and compliance and is subject to lapses in judgment
and breakdowns resulting from human failures. Because of these
limitations, there is a risk that material misstatements or
instances of fraud may not be prevented or detected on a timely
basis by our internal control over financial reporting.
Other than the items identified above, there were no other
changes in our internal control over financial reporting that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
|
|
Item 9B. |
Other Information |
None.
PART III
|
|
Item 10. |
Directors and Executive Officers of the Registrant |
Set forth below are the names, ages, summary background and
experience of each of our directors:
DIRECTORS WHOSE TERMS EXPIRE AT THE 2006 ANNUAL MEETING
DAVID G. BANNISTER
Director since 1993
Age 50
Mr. Bannister is Senior Vice president Strategy
and Development of FTI Consulting, Inc. (FTI) and
has held that position since June 2005. FTI is a critical issues
solution firm that advises major corporations, financial
institutions and law firms in such areas as financial and
operational improvement, mergers and acquisitions, complex
litigation and economic and regulatory matters. From January
2004 until January 2005 Mr. Bannister was a private
investor. From 1998 to December 2003, Mr. Bannister was a
General Partner of Grotech Capital Group, a private equity and
venture capital firm. Prior to joining Grotech Capital Group in
May 1998, Mr. Bannister was a Managing Director at Deutsche
Bank Alex. Brown Incorporated. Mr. Bannister also serves on
the Board of Directors of Landstar System, Inc.
WILLIAM P. BENTON
Director since 1998
Age 82
Mr. Benton became a director of our company in February
1998. He retired from Ford Motor Company as its Vice President
of Marketing worldwide after a
37-year career with
that company. During this time, Mr. Benton held the
following major positions: VP/ General Manager of Lincoln/
Mercury Division; VP/General Manager, Ford Division;
4 years in Europe as Group of VP Ford in Europe; and member
of the companys Product Planning Committee, responsible
for all products of the company worldwide. Mr. Benton was
vice chairman of Wells Rich Greene, an advertising agency in New
York, from September 1986 to January 1997, and Executive
Director of Ogilvy & Mather Worldwide, an advertising
agency in New York from January 1997 to January 2002.
Mr. Benton has been a director of Speedway Motor Sports,
Inc. since February 1995, and has been a director of Sonic
Automotive, Inc. since December 1997.
57
ROBERT J. RUTLAND
Director since 1965
Age 64
Mr. Rutland has been Chairman of our company since 1995. He
also served as our Chairman and Chief Executive Officer from
February 2001 to June 2001 and from December 1995 to December
1999. Mr. Rutland was also our President and Chief
Executive Officer from 1986 to December 1995. Prior to October
1993, Mr. Rutland was the Chief Executive Officer of each
of our subsidiaries. Mr. Rutland is a member of the board
of directors of Fidelity National Bank, a national banking
association.
HUGH E. SAWYER
Director since 2001
Age 51
Mr. Sawyer has been President and Chief Executive Officer
of our company since June 2001. He served as President and Chief
Executive Officer of Aegis Communications Group, Inc. from April
2000 to June 2001. Mr. Sawyer also served as President of
Allied Automotive Group, Inc., one of our subsidiaries, from
January 2000 to April 2000. Mr. Sawyer was President and
Chief Executive Officer of National Linen Service, a subsidiary
of National Service Industries, Inc., from 1996 to 2000, and
President of Wells Fargo Armored Service Corp., a subsidiary of
Borg-Warner Corp., from 1988 to 1995. Mr. Sawyer previously
served as member of the board of directors of Spiegel, Inc. from
October 2003 to June 2005.
DIRECTORS WHOSE TERMS EXPIRE AT THE 2007 ANNUAL MEETING
THOMAS E. BOLAND
Director since 2001
Age 71
Mr. Boland retired as Chairman of the Board of Wachovia
Corporation of Georgia and Wachovia Bank of Georgia, N.A., in
April, 1994. He joined Wachovia (formerly The First National
Bank of Atlanta) in 1954 and was a senior executive in various
capacities until his retirement. Mr. Boland has been
Special Counsel to the President of Mercer University of Macon
and Atlanta since October 1995. Mr. Boland currently serves
on the boards of directors of Citizens Bancshares, Inc. and its
subsidiary Citizens Trust Bank in Atlanta and Neighbors
Bancshares, Inc. and its subsidiary Neighbors Bank, Alpharetta,
Georgia. Mr. Boland is past chairman of the board of
directors of Minbanc Capital Corporation of
Washington, D.C. and formerly served on the board of
directors of InfiCorp Holdings, Inc., of Atlanta, VISA
International and VISA U.S.A. of San Mateo, California.
GUY W. RUTLAND, IV
Director since 1993
Age 42
Mr. Rutland has been Senior Vice President of Performance
Management and Chaplaincy of our company since July 2001, and
was Executive Vice President and Chief Operating Officer of
Allied Automotive Group, Inc., one of our subsidiaries, from
February 2001 to July 2001. Mr. Rutland was Senior Vice
President Operations of Allied Automotive Group,
Inc. from November 1997 to February 2001. He was Vice
President Reengineering Core Team of Allied
Automotive Group, Inc., from November 1996 to November 1997.
From January 1996 to November 1996, Mr. Rutland was
Assistant Vice President of the Central and Southeast Region of
Operations for Allied Systems, Ltd., one of our subsidiaries.
From March 1995 to January 1996, Mr. Rutland was Assistant
Vice President of the Central Division of Operations for Allied
Systems, Ltd. From June 1994 to March 1995, Mr. Rutland was
Assistant Vice President of the Eastern Division of Operations
for Allied Systems, Ltd. From 1993 to June 1994,
Mr. Rutland was assigned to special projects with an
assignment in Industrial Relations/ Labor Department and from
1988 to 1993, Mr. Rutland was Director of Performance
Management for Allied Systems, Ltd.
58
BERNER F. WILSON, JR.
Director since 1993
Age 67
Mr. Wilson retired as Vice President and Vice-Chairman of
our company in June 1999. He was our Secretary from December
1995 to June 1998. Prior to October 1993, Mr. Wilson was an
officer or Vice Chairman of several of our subsidiaries.
Mr. Wilson joined our company in 1974 and held various
finance, administration, and operations positions prior to his
retirement in 1999. He currently serves on the board of
directors of Mountain Heritage Bank in Clayton, Georgia.
DIRECTORS WHOSE TERMS EXPIRE AT THE 2008 ANNUAL MEETING
GUY W. RUTLAND, III
Director since 1964
Age 69
Mr. Rutland was elected Chairman Emeritus in December 1995
and served as Chairman of our Board from 1986 to December 1995.
Prior to October 1993, Mr. Rutland was Chairman or Vice
Chairman of each of our subsidiaries.
J. LELAND STRANGE
Director since 2002
Age 64
Mr. Strange is Chairman of the board of directors, Chief
Executive Officer and President of Intelligent Systems
Corporation and has been with that company since its merger with
Quadram Corporation in 1982. Mr. Strange is Chairman of the
Georgia Tech Research Corp. He also serves on the advisory board
of the Georgia Institute of Technologys College of
Management.
ROBERT R. WOODSON
Director since 1993
Age 74
Mr. Woodson retired as a member of the board of directors
of John H. Harland Company in April 1999 and served as its
Chairman from October 1995 to April 1997. Mr. Woodson was
also the President and Chief Executive Officer of John H.
Harland Company prior to October 1995. Mr. Woodson also
served as a director of Haverty Furniture Companies, Inc.
through May 2002.
AUDIT COMMITTEE
The Audit Committee assists the Board of Directors in fulfilling
its oversight responsibilities with respect to our
companys financial matters. The Board of Directors has
adopted a written charter for the Audit Committee, which was
included as Appendix A to the Companys Proxy
Statement for the 2004 annual meeting of shareholders as filed
with the SEC on April 16, 2004. Under the charter, the
Audit Committees principal responsibilities include hiring
our independent auditors; reviewing the plans and results of the
audit engagement with the independent auditors; inquiring as to
the adequacy of our internal accounting controls; monitoring
compliance with material policies and laws, including our Code
of Conduct; and reviewing our financial statements, reports and
releases.
The Audit Committee oversees our Code of Conduct, which applies
to all of our directors, executive officers and non-bargaining
unit employees. The Code of Conduct was included as an exhibit
to our 2003 annual report on
Form 10-K filed
with the SEC on April 13, 2004.
The members of our Audit Committee are David G. Bannister,
William P. Benton, Robert R. Woodson and Thomas
E. Boland, with Mr. Bannister serving as the Chairman.
The Board has determined that Messrs. Bannister, Boland and
Woodson each qualifies as an audit committee financial
expert as that term is defined by the SEC rules adopted
pursuant to the Sarbanes-Oxley Act of 2002. During 2005, the
Audit Committee held 10 meetings.
59
EXECUTIVE OFFICERS
The information concerning our executive officers required by
this Item is included in Part I following Item 4,
under the heading Executive Officers of the
Registrant of this Annual Report on
Form 10-K.
SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires our officers and directors, and persons who
own more than 10% of our Common Stock, to file reports of
ownership and changes in ownership of our Common Stock with the
SEC and the American Stock Exchange. Officers, directors and
greater than 10% beneficial owners are required by applicable
regulations to furnish us with copies of all Section 16(a)
forms that they file.
Based solely upon a review of the copies of the forms and
written representations furnished to us, we believe that during
the 2005 fiscal year, our officers, directors and 10%
shareholders complied with all applicable filing requirements.
|
|
Item 11. |
Executive Compensation |
Compensation of Directors
When we filed for Chapter 11 on July 31, 2005, we owed
our directors an aggregate of $177,167 in fees for meetings of
the Board and committee meetings that they attended, as well as
for reimbursement of expenses for attending meetings prior to
August 1, 2005. As a result of our Chapter 11 filing,
we did not pay these fees nor did we reimburse our directors for
expenses incurred.
For the year ended December 31, 2005, each director who was
not also an employee was entitled to receive an annual fee of
$25,000 and a fee of $1,500 for each meeting of the Board or any
of its committees attended, plus reimbursement of expenses for
attending meetings. An additional fee of $5,000 was paid to the
chairman of each committee of the Board. Directors are also
eligible to participate in our companys Amended and
Restated Long-Term Incentive Plan (the LTI Plan). No
awards were made to directors under the LTI Plan in 2005.
Executive Compensation Table
Remuneration paid for 2005, 2004 and 2003 to the following named
executive officers and the principal positions of such
individuals at December 31, 2005 is set forth in the
following table:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Compensation | |
|
|
|
|
|
|
| |
|
|
|
|
Annual Compensation | |
|
Securities | |
|
|
|
|
|
|
| |
|
Underlying | |
|
|
|
|
|
|
|
|
Other Annual | |
|
Options | |
|
All Other | |
Name and Principal Position |
|
Year | |
|
Salary(1) | |
|
Bonus | |
|
Compensation | |
|
Awards(2) | |
|
Compensation(3) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Hugh E. Sawyer
|
|
|
2005 |
|
|
$ |
722,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President and |
|
|
2004 |
|
|
|
673,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Executive Officer
|
|
|
2003 |
|
|
|
496,937 |
|
|
$ |
275,000 |
|
|
|
|
|
|
|
|
|
|
$ |
3,619 |
|
Robert J. Rutland
|
|
|
2005 |
|
|
|
432,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,195 |
|
|
Chairman
|
|
|
2004 |
|
|
|
394,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,928 |
|
|
|
|
|
2003 |
|
|
|
385,966 |
|
|
|
123,060 |
|
|
$ |
37,606 |
|
|
|
|
|
|
|
17,185 |
|
Thomas M. Duffy
|
|
|
2005 |
|
|
|
348,074 |
|
|
|
86,625 |
|
|
|
|
|
|
|
20,000 |
|
|
|
18,090 |
|
|
Executive Vice President, |
|
|
2004 |
|
|
|
303,974 |
|
|
|
|
|
|
|
|
|
|
|
20,000 |
|
|
|
|
|
|
General Counsel, Secretary(4) |
|
|
2003 |
|
|
|
235,471 |
|
|
|
150,000 |
|
|
|
678 |
|
|
|
|
|
|
|
|
|
David A. Rawden
|
|
|
2005 |
|
|
|
33,223 |
|
|
|
|
|
|
|
231,198 |
|
|
|
|
|
|
|
|
|
|
Executive Vice President and |
|
|
2004 |
|
|
|
317,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Financial Officer(5) |
|
|
2003 |
|
|
|
310,855 |
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas H. King
|
|
|
2005 |
|
|
|
321,080 |
|
|
|
|
|
|
|
|
|
|
|
40,000 |
|
|
|
|
|
|
Executive Vice President and
Chief Financial Officer(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph Marinelli
|
|
|
2005 |
|
|
|
236,043 |
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
|
|
|
Senior Vice-President |
|
|
2004 |
|
|
|
156,713 |
|
|
|
|
|
|
|
|
|
|
|
40,000 |
|
|
|
|
|
|
of Field Operations(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
(1) |
Each individual was required to take two one-week unpaid
furloughs in 2004. Mr. Sawyer was required to take five
one-week non-paid furloughs in 2003, and each remaining
individual was required to take three one-week unpaid furloughs
in 2003. |
|
(2) |
For Mr. Duffy, represents 20,000 shares subject to
options granted in 2004 and 20,000 shares subject to
options granted in 2005. For Mr. King, represents
40,000 shares subject to options granted in 2005. For
Mr. Marinelli, represents 40,000 shares subject to
options granted in 2004 and 10,000 shares subject to
options granted in 2005. |
|
(3) |
Amounts in this column for Bob Rutland in 2005, 2004 and 2003
include the taxable compensation recognized by Mr. Rutland
in regard to premiums paid from the cash surrender value under
split dollar insurance agreements. As a result of
the termination of these agreements due to our Chapter 11
filing, we will in the future receive back the aggregate of the
premiums paid by us less certain adjustments. The amounts
reported are required by the SECs rules. As a result of
changes in the law, including the Sarbanes-Oxley Act of 2002, we
discontinued paying the premiums on these policies as of
July 30, 2002. See Agreements with Executive Officers
and Directors. For Mr. Sawyer, amounts include
premiums paid by our company on a term life insurance policy on
his life for the benefit of his family. For Mr. Duffy,
amounts include premiums paid by our company on certain life
insurance policies for the benefit of his family. |
|
(4) |
Became Executive Vice President, General Counsel and Secretary
in February 2004. |
|
(5) |
Employment was terminated and was removed as Executive Vice
President and Chief Financial Officer in January 2005.
Mr. Rawden was paid $165,000 in severance pay and $66,197
to reimburse him for certain relocation expenses, as required by
his employment agreement. |
|
(6) |
Became Executive Vice President and Chief Financial Officer in
January 2005. |
|
(7) |
Joined our company in April 2004. |
The following table sets forth information regarding the grant
of stock options to each of the named executive officers during
2005 and the value of such options held by each such person as
of December 31, 2005:
Option Grants for Last Fiscal Year
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|
Potential Realizable | |
|
|
|
|
|
|
|
|
Value at Assumed | |
|
|
Individual Grants | |
|
|
|
|
|
Annual Rates of Stock | |
|
|
| |
|
|
|
|
|
Price Appreciation for | |
|
|
|
|
|
|
|
|
Option Term | |
|
|
|
|
% of Total | |
|
|
|
|
|
(10 Years)* | |
|
|
|
|
Options | |
|
|
|
|
|
| |
|
|
Number of | |
|
Granted to | |
|
|
|
|
|
5% | |
|
10% | |
|
|
Securities | |
|
Employees | |
|
Exercise | |
|
|
|
| |
|
| |
|
|
Underlying | |
|
in Fiscal | |
|
Price | |
|
Expiration | |
|
Aggregate | |
|
Aggregate | |
Name |
|
Options(1) | |
|
Year | |
|
($/Share) | |
|
Date | |
|
Value | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Thomas M. Duffy(1)
|
|
|
20,000 |
|
|
|
11.8 |
|
|
$ |
4.16 |
|
|
|
2/16/15 |
|
|
$ |
52,324 |
|
|
$ |
132,599 |
|
Thomas H. King(2)
|
|
|
40,000 |
|
|
|
|
|
|
|
3.81 |
|
|
|
1/25/15 |
|
|
|
95,844 |
|
|
|
242,886 |
|
Joseph V. Marinelli(3)
|
|
|
10,000 |
|
|
|
5.9 |
|
|
|
4.16 |
|
|
|
2/16/15 |
|
|
|
26,162 |
|
|
|
66,300 |
|
|
|
* |
The dollar gains under these columns result from calculations
assuming 5% and 10% growth rates from the closing price of our
Common Stock on the date of grant, as prescribed by the SEC, and
are not intended to forecast future price appreciation of the
Common Stock. |
|
(1) |
Represents 20,000 shares subject to options granted on
February 16, 2005. Mr. Duffys options vest over
three years at a rate of 33% per year. |
|
(2) |
Represents 40,000 shares subject to options granted on
January 25, 2005. Mr. Kings options vest over
three years at a rate of 33% per year. |
|
(3) |
Represents 10,000 shares subject to options granted on
February 16, 2005. Mr. Marinellis options vest
over three years at a rate of 33% per year. |
61
The following table sets forth as to each of the named executive
officers (i) the number of shares of Common Stock acquired
pursuant to options exercised and the number of shares
underlying stock appreciation rights exercised during 2005,
(ii) the aggregate dollar value realized upon the exercise
of such options and stock appreciation rights, (iii) the
total number of shares underlying exercisable and
non-exercisable stock options and stock appreciation rights held
on December 31, 2005 and (iv) the aggregate dollar
value of in-the-money
unexercised options and stock appreciation rights on
December 31, 2005:
Aggregated Option Exercises During Last Fiscal Year And
Fiscal Year-End Option Values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of | |
|
|
|
|
|
|
|
|
Shares | |
|
|
|
Number of Shares | |
|
Value of Unexercised In-the- | |
|
|
Acquired | |
|
|
|
Underlying Unexercised | |
|
Money Options at Fiscal | |
|
|
Upon | |
|
Value | |
|
Options at Fiscal Year End | |
|
Year End(1) | |
|
|
Exercise | |
|
Realized Upon | |
|
| |
|
| |
Name |
|
of Option | |
|
Exercise | |
|
Exercisable | |
|
Unexercisable | |
|
Exercisable | |
|
Unexercisable | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Hugh E. Sawyer
|
|
|
|
|
|
|
|
|
|
|
600,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas M. Duffy
|
|
|
|
|
|
|
|
|
|
|
101,667 |
|
|
|
23,333 |
|
|
|
|
|
|
|
|
|
Thomas H. King
|
|
|
|
|
|
|
|
|
|
|
13,334 |
|
|
|
26,666 |
|
|
|
|
|
|
|
|
|
Joseph V. Marinelli
|
|
|
|
|
|
|
|
|
|
|
16,667 |
|
|
|
33,333 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
In accordance with the SECs rules, values are calculated
by subtracting the exercise price from the fair market value of
the underlying Common Stock. For purposes of this table, fair
market value is deemed to be $0.60, the closing price of the
Common Stock on December 31, 2005. No value is assigned to
options or stock appreciation rights where the exercise price
for the options and stock appreciation rights was in excess of
the fair market value of the underlying Common Stock on
December 31, 2005. |
Agreements with Named Executive Officers and Directors
|
|
|
Employment and Severance Agreements |
Effective August 1, 2005, the Bankruptcy Court approved the
Severance Pay, Retention and Emergence Bonus Plan for Key
Employees (the Retention Plan). The Retention Plan
applies to certain employees and has been approved by the
Bankruptcy Court. As described in more detail below, the
Retention Plan provides participating employees with both
severance benefits and bonuses for staying with us during the
Chapter 11 Proceedings. The Retention Plan supersedes any
severance or bonus payments that would otherwise be payable to
participating employees, including any benefits payable under
employment agreements with such participants. Any employee
eligible to participate in the Retention Plan had the right to
opt out of the Retention Plan and to continue to be covered by
any severance or bonus arrangement in place for such individual.
No employee has elected to opt our of the Retention Plan.
However, in May of 2006, Mr. Sawyer voluntarily removed
himself from the bonus component of the Retention Plan. Further,
Mr. Sawyer, also voluntarily reduced his base salary by 15%
effective March 1, 2006. Mr. Robert Rutland is not
covered by the Retention Plan.
Under the terms of the Retention Plan, participants are entitled
to receive a lump-sum severance payment that is payable no later
than 30 days after an involuntary termination or a
voluntary termination for good reason, as defined. The amount of
any severance payment is equal to a percentage of the
employees annual base salary, excluding bonus payments or
other extraordinary income, for the year in which he or she is
terminated. Under the Retention Plan, each of
Messrs. Sawyer, Duffy and King would be entitled to a
severance payment equal to 150% of his base salary and
Mr. Marinelli would be entitled a severance payment equal
to 100% of his base salary.
The Retention Plan provides for a retention bonus payable upon
the achievement of certain milestones. The last payment is
payable on or after our emergence from Chapter 11. The
retention bonus is based on a percentage of the employees
annual base salary. Under the Retention Plan, each of
Messrs. Duffy and King are eligible to receive a total
bonus equal to 75% of his annual base salary and
Mr. Marinelli is eligible to receive a bonus equal to 70%
of his annual base salary. The bonuses for Messrs. King,
Duffy and Marinelli are payable in three installments: 30% of
the bonus is payable upon our filing of a plan of reorganization
with the
62
Bankruptcy Court, 35% of the bonus is payable upon confirmation
of our plan of reorganization by the Bankruptcy Court and the
remaining 35% is payable 60 days after our emergence from
Chapter 11.
Robert Rutland has entered into an employment agreement with our
company, which has been renewed for a two-year term ending in
February 2007, and is automatically renewed for an additional
two-year period at the end of each term. Mr. Rutlands
employment agreement was amended in January 2005 in order to
provide that calculations of bonus amounts are made pursuant to
the bonus plans utilized by our company from time to time.
Mr. Sawyer entered into an employment agreement with our
company for a five-year term ending in June 2006, which is
automatically renewed for an additional two-year period at the
end of each term. Mr. Duffy entered into an employment
agreement with our company for a one-year term ending in
December 2005, which automatically renews for an additional
one-year period at the end of each term. Also, we entered into
an employment agreement with Mr. Marinelli for a one-year
term ending in October 2005, which automatically renews for an
additional one-year period at the end of each term. These
agreements provide for compensation to the officers in the form
of annual base salaries, plus percentage annual increases in
subsequent years based upon either the Consumer Price Index for
certain executive officers, or such amount established by the
Compensation and Nominating Committee.
The employment agreements also provide for bonus and severance
payments. However, as a result of the adoption of the Retention
Plan, such provisions in the employment agreements for
Messrs. Sawyer, Duffy, King and Marinelli are not
applicable during the Chapter 11 Proceedings. Robert
Rutlands employment agreement provides that he will
receive severance benefits if: (i) his employment is
terminated due to death or disability; (ii) we terminate
his employment other than for cause or elect not to extend his
employment beyond the initial or any renewal term of the
agreement, (iii) he terminates his employment with us as a
result of (A) a material change in his duties or
responsibilities or a failure to be elected or appointed to the
position held by him, (B) our relocating him or requiring
him to perform substantially all of his duties outside the
metropolitan Atlanta, Georgia area, (C) our committing any
material breach of the agreement that remains uncured for
30 days following written notice thereof from him,
(D) our liquidation, dissolution, consolidation or merger
(other than with an affiliated entity), or (E) a petition
in bankruptcy being filed by or against us or our making an
assignment for the benefit of creditors or seeking appointment
of a receiver or custodian; or (iv) within two years
following a change of control with respect to us,
his employment agreement is terminated by us or by
Mr. Rutland or not extended for any renewal term.
The severance benefits payable to Mr. Robert Rutland
include a cash payment equal to three times (i) his annual
base salary for the year such termination occurs, plus
(ii) his bonus.
For purposes of the severance benefits set forth above, the term
bonus includes an amount equal to (A) the
greatest of (1) the average of each of the previous two
years bonus payments under the incentive plan in effect,
(2) the average of each of the previous two years
target bonus amounts under the incentive plan in
effect or (3) the amount of the target bonus
for Mr. Robert Rutland under the incentive plan in effect
for the year in which his employment with us is terminated, plus
(B) an amount equal to the dollar value of his restricted
stock target or other form of equity award with respect to the
most recent annual award of restricted stock or other equity
award made under the LTI Plan.
A change of control under Robert Rutlands
employment agreement occurs (i) in the event of a merger,
consolidation or reorganization of our company following which
the shareholders of our company immediately prior to such
reorganization, merger or consolidation own in the aggregate
less than seventy percent (70%) of the outstanding shares of
common stock of the surviving corporation, (ii) upon the
sale, transfer or other disposition of all or substantially all
of the assets or more than thirty percent (30%) of the then
outstanding shares of common stock of our company, other than as
a result of a merger or other combination of our company and an
affiliate of our company, (iii) upon the acquisition by any
person of beneficial ownership (as defined in the Exchange Act)
of twenty percent (20%) or more of the combined voting power of
our companys then outstanding voting securities or
(iv) if the members of the Board of Directors who served as
such on the date of the applicable employment agreement (or any
successors approved by two-thirds (2/3) of such Board members)
cease to constitute at least two-thirds (2/3) of the membership
of the Board.
63
The maximum severance benefits that would have been due upon
termination meeting the criteria for severance compensation
under the Retention Plan, with respect to Messrs. Sawyer,
Duffy, King and Marinelli and the employment agreement with
respect to Mr. Robert Rutland as of December 31, 2005
are approximately: $892,500 to Mr. Sawyer, $495,000 to
Mr. Duffy, $495,000 to Mr. King, $225,000 to
Mr. Marinelli and $1,415,190 to Mr. Robert Rutland.
In connection with the adoption of any plan of reorganization to
emerge from Chapter 11, we may enter into new employment
agreements with each of these named executive officers. However,
we may also choose to reject such employment agreements or
assume their current terms.
In January 2005, the employment between our company and David
Rawden was terminated. We agreed to pay, in accordance with his
employment agreement, Mr. Rawdens current base salary
of $330,000 for a period of one year following the date of his
termination as severance benefits. In addition, we agreed to
continue to provide Mr. Rawden with a monthly automobile
allowance and to pay for his current medical benefits in each
case for a period of one year following the date of his
termination.
We rejected his employment agreement and ceased making payments
under this severance agreement on July 31, 2005 when we
filed for Chapter 11.
|
|
|
Split-Dollar Life Insurance Agreements |
We are party to contractual agreements related to life insurance
policies that cover certain current and former employees,
directors and officers of our company. These contractual
agreements are between our company and the trusts that own the
policies. Each of these agreements was entered into while such
persons were employed as executive officers with our company.
The agreements are between our company and certain trusts
established for the benefit of the executive officers and
directors. The trusts retain any proceeds in excess of our
companys interest in the policies, net of any outstanding
policy loans.
We paid the premiums on the life insurance policies for
Messrs. Berner F. Wilson, Guy W. Rutland III, Guy W.
Rutland, IV and Robert J. Rutland until the enactment of the
Sarbanes-Oxley Act of 2002 on June 30, 2002, at which time
we discontinued such payments. As permitted by the trusts,
premiums due on these policies have been paid by increasing
loans taken against the available cash surrender value of the
policies since June 30, 2002 through the year ended
December 31, 2005. A portion of the premiums paid by our
company is taxable compensation recognized by the director or
executive officer.
The following table sets forth the annual amount of premiums
payable on these policies for each of these agreements as of
December 31, 2005:
|
|
|
|
|
Name of Insured |
|
Annual Premiums | |
|
|
| |
Berner F. Wilson, Jr.
|
|
$ |
62,976 |
|
Guy W. Rutland III
|
|
|
324,638 |
|
Guy W. Rutland IV
|
|
|
13,098 |
|
Robert J. Rutland
|
|
|
257,441 |
|
As a result of our Chapter 11 filing, we believe that the
contractual arrangements were terminated and that we continue to
retain our interest in the policies. In this regard, notice of
termination of the contractual arrangements has been given to
the life insurance companies and the trusts. We also believe
that we are entitled to receive our interest in each policy in
cash upon the earlier of the death of the insured or the
termination of the contractual arrangement related to the
policy. However, certain of the trusts believe that even though
the contractual arrangements may have terminated, we will be
entitled to receive our interest in each policy only upon the
earlier of the death of the insured or upon the surrender of the
policy. At this time we are unable to determine the timing of
future cash flows from these policies.
Long-Term Incentive Plan
Our companys LTI Plan allows for the issuance of an
aggregate of 2,150,000 shares of Common Stock. The LTI Plan
authorizes us to grant incentive stock options, non-qualified
stock options, stock appreciation rights, restricted stock, and
performance awards to eligible employees and directors,
including each of the executive officers named herein, as
determined under the LTI Plan. The LTI Plan was adopted and
approved
64
by the Board of Directors and shareholders in July 1993, amended
in 2000, amended and restated in 2001, amended in 2002 and
amended and restated in 2004.
The Compensation and Nominating Committee selects those
employees to whom awards are granted under the LTI Plan and
determines the number of stock options, performance units,
performance shares, shares of restricted stock, and stock
appreciation rights and the amount of cash awards granted
pursuant to each award and prescribes the terms and conditions
of each such award.
|
|
|
Nonqualified Stock Options |
The Board of Directors may grant non-qualified stock options
under the LTI Plan. We granted no non-qualified stock options
during 2005. Non-qualified options to acquire
682,705 shares of Common Stock pursuant to the LTI Plan
were exercisable at December 31, 2005.
The Board of Directors may grant restricted stock under the LTI
Plan. We granted no restricted stock in 2005 and no such shares
are outstanding.
During 2005, we granted incentive stock options to
purchase 210,000 shares. These options become
exercisable after one year in increments of 33.3% per year
and expire 10 years from the date of grant. Options that
are granted pursuant to the incentive stock option provisions of
the LTI Plan are intended to qualify as incentive stock options
within the meaning of the Internal Revenue Code of 1986, as
amended (the Code). Incentive stock options to
acquire 572,791 shares of Common Stock pursuant to the LTI
Plan were exercisable at December 31, 2005.
|
|
|
Stock Appreciation Rights |
The Board of Directors of our company adopted the Stock
Appreciation Rights Plan (SAR Plan) pursuant to the
terms of the LTI Plan effective January 1, 1997. The
purpose of the SAR Plan is to provide incentive compensation to
certain management employees of our company. Such incentive
compensation shall be based upon the award of stock appreciation
rights units, the value of which are related to the appreciation
in fair market value of the Common Stock. All payments under the
SAR Plan are made in cash. The Compensation and Nominating
Committee determines the applicable terms for each award under
the SAR Plan. The SAR awards vest over 3 years and may be
exercised only during the fourth year. The exercise price
increases 6% per year. We have granted no SARs during
the past three years.
65
Retirement Plans
We maintain a tax qualified defined benefit pension plan (the
Retirement Plan). The table set forth below
illustrates the total combined estimated annual benefits payable
under the Retirement Plan to eligible salaried employees in
specified compensation and years of credited service
classifications, assuming normal retirement at age 65.
Allied Defined Benefit Pension Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years of Service | |
|
|
| |
Remuneration |
|
10 | |
|
15 | |
|
20 | |
|
25 | |
|
30 | |
|
35 or More | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
$100,000
|
|
$ |
20,000 |
|
|
$ |
30,000 |
|
|
$ |
40,000 |
|
|
$ |
50,000 |
|
|
$ |
50,000 |
|
|
$ |
50,000 |
|
125,000
|
|
|
25,000 |
|
|
|
37,500 |
|
|
|
50,000 |
|
|
|
62,500 |
|
|
|
62,500 |
|
|
|
62,500 |
|
150,000
|
|
|
30,000 |
|
|
|
45,000 |
|
|
|
60,000 |
|
|
|
75,000 |
|
|
|
75,000 |
|
|
|
75,000 |
|
175,000
|
|
|
34,000 |
|
|
|
51,000 |
|
|
|
68,000 |
|
|
|
85,000 |
|
|
|
85,000 |
|
|
|
85,000 |
|
200,000
|
|
|
34,000 |
|
|
|
51,000 |
|
|
|
68,000 |
|
|
|
85,000 |
|
|
|
85,000 |
|
|
|
85,000 |
|
225,000
|
|
|
34,000 |
|
|
|
51,000 |
|
|
|
68,000 |
|
|
|
85,000 |
|
|
|
85,000 |
|
|
|
85,000 |
|
250,000
|
|
|
34,000 |
|
|
|
51,000 |
|
|
|
68,000 |
|
|
|
85,000 |
|
|
|
85,000 |
|
|
|
85,000 |
|
275,000
|
|
|
34,000 |
|
|
|
51,000 |
|
|
|
68,000 |
|
|
|
85,000 |
|
|
|
85,000 |
|
|
|
85,000 |
|
300,000
|
|
|
34,000 |
|
|
|
51,000 |
|
|
|
68,000 |
|
|
|
85,000 |
|
|
|
85,000 |
|
|
|
85,000 |
|
The Retirement Plan uses average compensation, as defined by the
Retirement Plan, paid to an employee by the plan sponsor during
a plan year for computing benefits. Compensation includes
bonuses and any amount contributed by a plan sponsor on behalf
of an employee pursuant to a salary reduction agreement, which
is not includable in the gross income of the employee under Code
Sections 125, 402(a)(8), or 402(h). However, compensation
in excess of Code Section 401(a)(17) limit shall not be
included. The limit under the Retirement Plan for 2004 is
$170,000.
We amended the Retirement Plan effective April 30, 2002 in
order to freeze the Retirement Plan. As a result of this
amendment to the Retirement Plan, commencing April 30,
2002, participants do not accrue credit towards years of
service, participants do not accrue credit for pay increases
received, and new employees may not become participants in the
Retirement Plan. However, vesting does continue to accrue after
April 30, 2002. The compensation covered by the Retirement
Plan for each of Messrs. Bob Rutland, Sawyer, Duffy and Guy
Rutland is $170,000.
The estimated years of credited service for each of the named
executive officers as of December 31, 2005 is as follows:
|
|
|
|
|
|
|
Years of Credited Service | |
Name |
|
as of December 31, 2005 | |
|
|
| |
Robert J. Rutland
|
|
|
37.7 |
|
Hugh E. Sawyer
|
|
|
0.6 |
|
Thomas M. Duffy
|
|
|
3.6 |
|
Guy W. Rutland, IV
|
|
|
17.5 |
|
David A. Rawden
|
|
|
0.0 |
|
Thomas H. King
|
|
|
0.0 |
|
Joseph V. Marinelli
|
|
|
0.0 |
|
The benefits shown in the Pension Plan Table are payable in the
form of a straight-line annuity commencing at age 65. There
is no reduction for social security benefits or other offset
amounts.
Compensation and Nominating Committee Interlocks and Insider
Participation in Compensation Decisions
David G. Bannister, William P. Benton, Robert
R. Woodson and J. Leland Strange served as members of the
Compensation and Nominating Committee during the year ended
December 31, 2005. None of the members of the Compensation
and Nominating Committee has served as an officer of our
company, and none
66
of the executive officers of our company has served on the board
of directors or the compensation committee of any entity that
had officers who served on our companys Board of Directors.
|
|
Item 12. |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |
COMMON STOCK OWNERSHIP BY MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information about
beneficial ownership of our Common Stock as of March 31,
2006 by (i) each director and each named executive officer
of our company named herein, and (ii) all directors and
executive officers of our company as a group. Unless otherwise
indicated, the beneficial owners of the Common Stock listed
below have sole voting and investment power with respect to all
shares shown as beneficially owned by them.
|
|
|
|
|
|
|
|
|
|
|
Number of Shares | |
|
Percentage of Shares | |
Beneficial Owner |
|
Beneficially Owned(1) | |
|
Outstanding(2) | |
|
|
| |
|
| |
Robert J. Rutland(3)
|
|
|
1,123,894 |
|
|
|
12.5 |
|
Guy W. Rutland, III(4)
|
|
|
850,718 |
|
|
|
9.5 |
|
Guy W. Rutland, IV(5)
|
|
|
651,936 |
|
|
|
7.3 |
|
Hugh E. Sawyer(6)
|
|
|
620,000 |
|
|
|
6.5 |
|
Berner F. Wilson, Jr.(7)
|
|
|
108,743 |
|
|
|
1.2 |
|
Thomas M. Duffy(8)
|
|
|
113,197 |
|
|
|
1.2 |
|
David A. Rawden
|
|
|
16,600 |
|
|
|
* |
|
David G. Bannister(9)
|
|
|
39,334 |
|
|
|
* |
|
Robert R. Woodson(9)
|
|
|
39,334 |
|
|
|
* |
|
William P. Benton(9)
|
|
|
37,334 |
|
|
|
* |
|
Thomas E. Boland(9)
|
|
|
38,334 |
|
|
|
* |
|
J. Leland Strange(9)
|
|
|
35,334 |
|
|
|
* |
|
Thomas H. King(10)
|
|
|
13,334 |
|
|
|
* |
|
Joseph V. Marinelli(11)
|
|
|
16,667 |
|
|
|
* |
|
All executive officers and directors as a group (12)
(14 persons)
|
|
|
3,704,759 |
|
|
|
37.5 |
|
|
|
(1) |
Under the rules of the SEC, a person is deemed to be a
beneficial owner of any securities that such person has the
right to acquire beneficial ownership of within 60 days as
well as any securities owned by such persons spouse,
children or relatives living in the same household. |
|
(2) |
Based on 8,980,329 shares outstanding as of April 5,
2006. Shares underlying outstanding stock options or warrants
held by the person indicated and exercisable within 60 days
of such date are deemed to be outstanding for purposes of
calculating the percentage owned by such holder. |
|
(3) |
Includes 18,099 shares owned by his wife as to which he
disclaims beneficial ownership. |
|
(4) |
Includes 18,099 shares owned by his wife and 67,800 shares
owned by a private foundation as to which he disclaims
beneficial ownership. |
|
(5) |
Includes 647,211 shares held in a limited partnership of
which he is the direct beneficiary. |
|
(6) |
Includes options to acquire 600,000 shares. |
|
(7) |
Includes options to acquire 8,334 shares. |
|
(8) |
Includes 5,245 shares owned by his wife as to which he
disclaims beneficial ownership, and options to acquire
105,000 shares. |
|
(9) |
Includes options to acquire 33,334 shares for each
individual. |
|
|
(10) |
Includes options to acquire 13,334 shares. |
|
(11) |
Includes options to acquire 16,667 shares. |
67
|
|
(12) |
Includes options to acquire 896,671 shares. |
The following table sets forth certain information about
beneficial ownership of each person known to us to own more than
5% of the outstanding Common Stock as of April 5, 2006,
other than directors of our company:
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares | |
|
Percentage of | |
Name and Address of Beneficial Owner |
|
Beneficially Owned | |
|
Shares Outstanding | |
|
|
| |
|
| |
Robert E. Robotti, Robotti & Company, LLC,
Robotti &
|
|
|
594,390 |
|
|
|
6.6 |
|
|
Company Advisors, LLC and The Ravenswood Management Company, LLC
and the Ravenswood Investment Company, L.P.(1) |
|
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52 Vanderbilt Avenue, |
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Suite 503 New York, New York 10017 |
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Nikon Hecht, Aspen Advisors LLC, Sopris Capital Partners,
|
|
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794,895 |
|
|
|
8.9 |
|
|
L.P., Sopris Capital, LLC, Sopris Capital Advisors, LLC(2) |
|
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152 West
57th Street
New York, New York 10019 |
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(1) |
According to a Schedule 13G filed on February 14, 2006
on behalf of Robert E. Robotti, Robotti & Company,
LLC and Robotti & Company Advisors LLC, in its role as
a broker dealer and an investment advisor, and The Ravenswood
Management Company, LLC and the Ravenswood Investment Company,
L.P., of which Mr. Robotti serves as Managing Member of the
General Partner of such limited partnership. Mr. Robotti
possesses shared voting and investment power as to the
securities but does not have sole voting or investment power as
to the securities. |
|
(2) |
According to a Schedule 13G filed on March 16, 2006 on
behalf of Nikos Hecht, Sopris Capital Partners, L.P., Sopris
Capital, LLL, Aspen Advisors, LLL and Sopris Capital Advisors,
LLC, in its role as a broker dealer and an investment advisor,
Mr. Hecht is the managing member and owner of a majority of
the membership interests of Sopris Capital, Aspen Advisors and
Sopris Advisors. Each of Sopris Capital, Aspen Advisors and
Sopris Advisors, as investment managers for their respective
private clients, has discretionary investment authority over the
common stock held by their respective private clients.
Mr. Hecht possesses shared voting and investment power but
does not have sole voting and investment power. |
|
|
Item 13. |
Certain Relationships and Related Transactions |
During February and April 2006, we subleased certain space in
our home office headquarters in Decatur, Georgia to an entity of
which Robert J. Rutland, Chairman of the Board of
Directors, owns approximately one-third of the equity. We
believe that the rental rate charged to this entity is the fair
market rate for the space based upon rental rates paid for
comparable space in the area. The annual rents to be collected
by us are approximately $128,000 based upon the terms of the
sublease agreement, which is comparable to other sublease
agreements we utilize with our subtenants.
|
|
Item 14. |
Principal Accountant Fees and Services |
The Audit Committee has selected KPMG LLP, independent auditors,
to serve as our companys principal accounting firm for the
fiscal year ending December 31, 2006. Approval of our
companys accounting firm is not a matter required to be
submitted to the shareholders. Our Company, upon the
recommendation of the Audit Committee, first appointed KPMG LLP
on April 2, 2002 to serve as our independent public
accountants for the fiscal year ending December 31, 2002.
We have been advised by KPMG LLP that neither it nor any member
thereof has any financial interest, direct or indirect, in our
company or any of its subsidiaries in any capacity. KPMG LLP is
considered by our company to be well qualified.
Audit Fees
Fees for KPMG LLPs audit services totaled approximately
$1,800,000 in 2005 and $1,660,000 in 2004, including fees for
professional services rendered for the audit of our annual
financial statements and the review of our quarterly reports on
Form 10-Q.
68
Audit-Related Fees
The aggregate fees billed by KPMG LLP for professional services
rendered for the issuance of debt compliance letters for 2004
was $15,000.
Tax Fees
The aggregate fees billed by KPMG LLP for professional services
rendered for income tax consulting was $14,000 in 2004. No
similar fees were billed in 2005.
All Other Fees
There were no fees billed by KPMG LLP for professional services
rendered other than as stated under the captions Audit
Fees, Audit-Related Fees, and Tax
Fees.
All of KPMGs fees for services, whether for audit or
non-audit services, are pre-approved by the Audit Committee,
which concluded that the provision of such services by KPMG was
compatible with the maintenance of that firms independence
in the conduct of its auditing functions.
PART IV
|
|
Item 15. |
Exhibits and Financial Statement Schedules |
(a) The following documents are filed as part of this
report:
|
|
|
(1) Financial Statements: |
INDEX TO FINANCIAL STATEMENTS
|
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Page | |
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| |
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F-1 |
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F-2 |
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F-3 |
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F-4 |
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F-5 |
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F-6 |
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|
(2) Financial Statement Schedules: |
INDEX TO FINANCIAL STATEMENT SCHEDULES
All other schedules are omitted as the required information is
inapplicable or the information is presented in the financial
statements or related notes.
|
|
|
(3) Exhibits: The list of exhibits required by this item is
set forth in (b) Exhibits below. |
(b) Exhibits.
69
Exhibit Index filed as part of this report
|
|
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|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
|
3 |
.1 |
|
Amended and Restated Articles of Incorporation of the Company
(incorporated by reference from Exhibit 3.1 to the
Registration Statement on Form S-1 (File
Number 33-66620) filed with the Commission on July 28,
1993, as amended on September 2, 1993 and
September 17, 1993 and deemed effective on
September 29, 1993). |
|
|
3 |
.2 |
|
Amended and Restated Bylaws of the Company (incorporated by
reference from Exhibit 3.2 to the Annual Report on
Form 10-K filed with the Commission on April 16, 2001). |
|
|
4 |
.1 |
|
Form of certificate representing shares of the Companys
common stock (incorporated by reference from Exhibit 4.1 to
the Registration Statement on Form S-1 (File
Number 33-66620) filed with the Commission on July 28,
1993, as amended on September 2, 1993 and
September 17, 1993 and deemed effective on
September 29, 1993). |
|
|
4 |
.2 |
|
Indenture by and among the Company, the Guarantors listed
therein, and The First National Bank of Chicago, as Trustee,
dated September 30, 1997 (incorporated by reference from
Exhibit 4.1 to the Registration Statement on Form S-4
(File Number 333-37113) filed with the Commission on
October 3, 1997). |
|
|
4 |
.3 |
|
Senior Secured, Super Priority Debtor-in-Possession Credit
Agreement, dated as of August 1, 2005, by and among Allied
Holdings, Inc., Allied Systems, Ltd. (L.P.), each subsidiary
listed as a credit party thereto, General Electric Capital
Corporation, Morgan Stanley Senior Funding, Inc., Marathon
Structured Finance Fund, L.P., GECC Capital Markets, Inc. and
the lenders from time to time party thereto (incorporated by
reference from Exhibit 4.4 to the Current Report on
Form 8-K filed with the Commission on September 23,
2005). |
|
|
4 |
.3(a) |
|
Third Amendment, dated November 16, 2005 to the Senior
Secured, Super Priority Debtor-in-Possession Credit Agreement,
dated as of August 1, 2005, by and among Allied Holdings,
Inc., Allied Systems, Ltd. (L.P.), each subsidiary listed as a
credit party thereto, General Electric Capital Corporation,
Morgan Stanley Senior Funding, Inc., Marathon Structured Finance
Fund, L.P., GECC Capital Markets, Inc. and the lenders from time
to time party thereto (incorporated by reference from
Exhibit 4.4(a) to the Quarterly Report on Form 10-Q
filed with the Commission on December 9, 2005). |
|
|
4 |
.3(b)* |
|
Consent Agreement, dated January 30, 2006 to Senior
Secured, Super Priority Debtor-in-Possession Credit Agreement,
dated as of August 1, 2005, by and among Allied Holdings,
Inc., Allied Systems, Ltd. (L.P.), each subsidiary listed as a
credit party thereto, General Electric Capital Corporation,
Morgan Stanley Senior Funding, Inc., Marathon Structured Finance
Fund, L.P., GECC Capital Markets, Inc. and the lenders from time
to time party thereto. |
|
|
4 |
.3(c)* |
|
Consent Agreement, dated February 17, 2006 to Senior
Secured, Super Priority Debtor-in-Possession Credit Agreement,
dated as of August 1, 2005, by and among Allied Holdings,
Inc., Allied Systems, Ltd. (L.P.), each subsidiary listed as a
credit party thereto, General Electric Capital Corporation,
Morgan Stanley Senior Funding, Inc., Marathon Structured Finance
Fund, L.P., GECC Capital Markets, Inc. and the lenders from time
to time party thereto. |
|
|
4 |
.3(d)* |
|
Forbearance Agreement, dated March 9, 2006 to Senior
Secured, Super Priority Debtor-in-Possession Credit Agreement,
dated as of August 1, 2005, by and among Allied Holdings,
Inc., Allied Systems, Ltd. (L.P.), each subsidiary listed as a
credit party thereto, General Electric Capital Corporation,
Morgan Stanley Senior Funding, Inc., Marathon Structured Finance
Fund, L.P., GECC Capital Markets, Inc. and the lenders from time
to time party thereto. |
|
|
4 |
.3(e)* |
|
Forbearance Agreement, dated April 3, 2006 to Senior
Secured, Super Priority Debtor-in-Possession Credit Agreement,
dated as of August 1, 2005, by and among Allied Holdings,
Inc., Allied Systems, Ltd. (L.P.), each subsidiary listed as a
credit party thereto, General Electric Capital Corporation,
Morgan Stanley Senior Funding, Inc., Marathon Structured Finance
Fund, L.P., GECC Capital Markets, Inc. and the lenders from time
to time party thereto. |
70
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
|
|
4 |
.3(f)* |
|
Consent and Fourth Amendment, dated April 18, 2006 to
Senior Secured, Super Priority Debtor-in-Possession Credit
Agreement, dated as of August 1, 2005, by and among Allied
Holdings, Inc., Allied Systems, Ltd. (L.P.), each subsidiary
listed as a credit party thereto, General Electric Capital
Corporation, Morgan Stanley Senior Funding, Inc., Marathon
Structured Finance Fund, L.P., GECC Capital Markets, Inc. and
the lenders from time to time party thereto. |
|
|
4 |
.3(g)* |
|
Consent dated May 1, 2006 to Senior Secured, Super Priority
Debtor-in-Possession Credit Agreement, dated as of
August 1, 2005, by and among Allied Holdings, Inc., Allied
Systems, Ltd. (L.P.), each subsidiary listed as a credit party
thereto, General Electric Capital Corporation, Morgan Stanley
Senior Funding, Inc., Marathon Structured Finance Fund, L.P.,
GECC Capital Markets, Inc. and the lenders from time to time
party thereto. |
|
|
4 |
.3(h)* |
|
Forbearance dated May 18, 2006 to Senior Secured, Super
Priority Debtor-in-Possession Credit Agreement, dated as of
August 1, 2005, by and among Allied Holdings, Inc., Allied
Systems, Ltd. (L.P.), each subsidiary listed as a credit party
thereto, General Electric Capital Corporation, Morgan Stanley
Senior Funding, Inc., Marathon Structured Finance Fund, L.P.,
GECC Capital Markets, Inc. and the lenders from time to time
party thereto. |
|
|
4 |
.3(i)* |
|
Consent and Forbearance dated May 30, 2006 to Senior
Secured, Super Priority Debtor-in-Possession Credit Agreement,
dated as of August 1, 2005, by and among Allied Holdings,
Inc., Allied Systems, Ltd. (L.P.), each subsidiary listed as a
credit party thereto, General Electric Capital Corporation,
Morgan Stanley Senior Funding, Inc., Marathon Structured Finance
Fund, L.P., GECC Capital Markets, Inc. and the lenders from time
to time party thereto. |
|
|
10 |
.1 |
|
Amended and Restated Long Term Incentive Plan of Allied
Holdings, Inc. (incorporated by reference from Exhibit 10.2
to the Annual Report on Form 10-K for the year ended
December 31, 2000, filed with the Commission on
April 16, 2001). |
|
|
10 |
.2 |
|
Allied Holdings, Inc. 401(k) Retirement Plan (incorporated by
reference from Exhibit 10 to the Registration Statement on
Form S-8 (File Number 33-76108) filed with the
Commission on March 4, 1994). |
|
|
10 |
.3 |
|
Allied Holdings, Inc. Deferred Compensation Plan (incorporated
by reference from Exhibit 4 to the Registration Statement
on Form S-8 (File Number 333-51102) filed with the
Commission on December 1, 2000). |
|
|
10 |
.4 |
|
Allied Holdings, Inc. Amended and Restated 1999 Employee Stock
Purchase Plan, as amended through June 19, 2003
(incorporated by reference from Exhibit 10.2 to the
Quarterly Report on Form 10-Q filed with the Commission on
August 12, 2003). |
|
|
10 |
.4(a) |
|
First Amendment to Allied Holdings, Inc. Amended and Restated
1999 Employee Stock Purchase Plan (incorporated by reference
from Exhibit 10.4(a) to the Current Report on Form 8-K
filed with the Commission on June 22, 2005). |
|
|
10 |
.5*£ |
|
Allied Holdings, Inc. Amended Severance Pay and Retention and
Emergence Bonus Plan for Key Employees and Summary Plan
Description. |
|
|
10 |
.6 |
|
Intentionally Omitted. |
|
|
10 |
.7 |
|
Intentionally Omitted. |
|
|
10 |
.8 |
|
Employment Agreement between Allied Holdings, Inc. and Hugh E.
Sawyer (incorporated by reference from Exhibit 10.1 to the
Quarterly Report on Form 10-Q filed with the Commission on
August 14, 2001). |
|
|
10 |
.8(a) |
|
First Amendment to Employment Agreement between Allied Holdings,
Inc. and Hugh E. Sawyer (incorporated by reference from
Exhibit 10.1 to the Quarterly Report on Form 10-Q
filed with the Commission on May 15, 2002). |
|
|
10 |
.8(b) |
|
Second Amendment to Employment Agreement between Allied
Holdings, Inc. and Hugh E. Sawyer (incorporated by reference
from Exhibit 10.8(b) to the Quarterly Report on
Form 10-Q filed with the Commission on May 17, 2004). |
71
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
|
|
10 |
.9 |
|
Employment Agreement between Allied Holdings, Inc. and Thomas
King (incorporated by reference from Exhibit 10.21 to the
Current Report on Form 8-K filed with the Commission on
January 27, 2005). |
|
10 |
.9(a) |
|
First Amendment to Employment Agreement between Allied Holdings,
Inc. and Thomas King (incorporated by reference from
Exhibit 10.21(a) to the Current Report on Form 8-K
filed with the Commission on May 27, 2005). |
|
|
10 |
.10 |
|
Amended and Restated Employment Agreement between Allied
Holdings, Inc. and Thomas Duffy (incorporated by reference from
Exhibit 10.10 to the Current Report on Form 8-K filed
with the Commission on January 27, 2005). |
|
|
10 |
.10(a) |
|
First Amendment to Amended and Restated Employment Agreement
between Allied Holdings, Inc. and Thomas Duffy (incorporated by
reference from Exhibit 10.10(a) to the Current Report on
Form 8-K filed with the Commission on May 27, 2005). |
|
|
10 |
.11 |
|
Employment Agreement between Allied Holdings, Inc. and Robert J.
Rutland (incorporated by reference from Exhibit 10.4 to the
Quarterly Report on Form 10-Q filed with the Commission on
May 15, 2002). |
|
|
10 |
.11(a) |
|
First Amendment to Employment Agreement between Allied Holdings,
Inc. and Robert J. Rutland (incorporated by reference from
Exhibit 10.11(a) to the Current Report on Form 8-K
filed with the Commission on January 27, 2005). |
|
|
10 |
.12 |
|
Employment Agreement between Allied Holdings, Inc. and Guy
Rutland IV (incorporated by reference from
Exhibit 10.12 to the Annual Report on Form 10-K filed
with the Commission on April 18, 2005). |
|
|
10 |
.13 |
|
Intentionally Omitted. |
|
|
10 |
.14 |
|
Summary of Financial Terms of Collective Bargaining Agreement
with the International |
|
|
|
|
|
Brotherhood of Teamsters in the United States, effective
June 1, 2003 (incorporated by reference from
Exhibit 10.1 to the Quarterly Report on Form 10-Q
filed with the Commission on August 12, 2003). |
|
|
10 |
.15£ |
|
Agreement between Allied Automotive Group, Inc. and UPS
Autogistics, Inc., as amended (incorporated by reference from
Exhibit 10.1 to the Quarterly Report on Form 10-Q
filed with the Commission on November 13, 2001). |
|
|
10 |
.15(a)£ |
|
Amendment No. 2 to Agreement between Allied Automotive
Group, Inc. and UPS Autogistics, Inc. (incorporated by reference
from Exhibit 10.1 to the Quarterly Report on Form 10-Q
filed with the Commission on November 14, 2002). |
|
|
10 |
.15(b) |
|
Amendment to Agreement between Allied Automotive Group, Inc. and
UPS Autogistics, Inc. (incorporated by reference from
Exhibit 10.15(b) to the Current Report on Form 8-K
filed with the Commission on July 18, 2005). |
|
|
10 |
.16£ |
|
Agreement between the Company and DaimlerChrysler Corporation
(incorporated by reference from Exhibit 10.6 to the Annual
Report on Form 10-K filed with the Commission on
April 16, 2001). |
|
|
10 |
.16(a)£ |
|
Amendment to Agreement between the Company and DaimlerChrysler
Corporation (incorporated by reference from
Exhibit 10.12(a) to the Annual Report on Form 10-K
filed with the Commission on March 27, 2003). |
|
|
10 |
.16(b)£ |
|
Amendment dated October 29, 2004 to the Agreement between
the Company and DaimlerChrysler Corporation (incorporated by
reference from Exhibit 10.16(b) to the Current Report on
Form 8-K filed with the Commission on November 3,
2004). |
|
|
10 |
.16(c)£* |
|
Amendment dated December 19, 2005 to the Agreement between
the Company and DaimlerChrysler Corporation. |
|
|
10 |
.17£ |
|
Agreement between the Company and General Motors Corporation
(incorporated by reference from Exhibit 10.17 to the Annual
Report on Form 10-K filed with the Commission on
April 13, 2004). |
|
|
10 |
.17(a)£ |
|
Amendment to Agreement between the Company and General Motors
dated April 6, 2005 (incorporated by reference from
Exhibit 10.19 to the Current Report on Form 8-K filed
with the Commission on April 18, 2005). |
72
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
|
|
10 |
.17(b)£* |
|
Amendment to Agreement between the Company and General Motors
dated December 8, 2005. |
|
|
10 |
.18£* |
|
Amendment to Agreement between the Company and American Honda
Motor Company dated January 30, 2006. |
|
|
10 |
.19 |
|
Intentionally Omitted. |
|
|
10 |
.20 |
|
Agreement between the Company and Toyota Motor Sales, U.S.A.,
Inc., dated April 1, 1990 (incorporated by reference from
Exhibit 10.20 to the Annual Report on Form 10-K filed
with the Commission on April 18, 2005). |
|
|
10 |
.20(a)£ |
|
Amendment to Agreement between the Company and Toyota Motor
Sales, U.S.A., Inc. dated December 20, 2004 (incorporated
by reference from Exhibit 10.20(a) to the Annual Report on
Form 10-K filed with the Commission on April 18, 2005). |
|
|
10 |
.21 |
|
Intentionally Omitted. |
|
|
10 |
.22£ |
|
Agreement between the Company and American Honda Motor Co.,
Inc., dated April 1, 2002 (incorporated by reference from
Exhibit 10.22 to the Annual Report on Form 10-K filed
with the Commission on April 18, 2005). |
|
|
10 |
.23 |
|
IBM Global Services National Agreement between Allied Holdings,
Inc. and International Business Machines Corporation, dated
April 1, 2001 (incorporated by reference from Exhibit 10.12
to the Annual Report on Form 10-K filed with the Commission
on March 27, 2002). |
|
|
10 |
.23(a) |
|
Amendment No. 4 to the IBM Global Services National
Agreement between Allied Holdings, Inc. and International
Business Machines Corporation, effective February 1, 2004
(incorporated by reference from Exhibit 10.20(a) to the
Annual Report on Form 10-K filed with the Commission on
April 13, 2004). |
|
|
21 |
.1* |
|
Subsidiaries of Allied Holdings, Inc. |
|
|
23 |
.1* |
|
Consent of KPMG LLP. |
|
|
24 |
.1* |
|
Powers of Attorney (included within the signature page of this
Report). |
|
|
31 |
.1* |
|
Rule 13a-14(a)/15d-14(a) Certification by Hugh E. Sawyer. |
|
|
31 |
.2* |
|
Rule 13a-14(a)/15d-14(a) Certification by Thomas H. King. |
|
|
32 |
.1* |
|
Section 1350 Certification by Hugh E. Sawyer. |
|
|
32 |
.2* |
|
Section 1350 Certification by Thomas H. King. |
|
|
99 |
.1 |
|
Charter of the Audit Committee of the Board of Directors
(incorporated by reference from Exhibit 99.1 to the Annual
Report on Form 10-K filed with the Commission on
April 13, 2004). |
|
|
99 |
.2 |
|
Charter of the Compensation and Nominating Committee of the
Board of Directors (incorporated by reference from
Exhibit 99.2 to the Annual Report on Form 10-K filed
with the Commission on April 13, 2004). |
|
|
99 |
.3 |
|
Allied Holdings, Inc. Code of Conduct (incorporated by reference
from Exhibit 99.3 to the Annual Report on Form 10-K
filed with the Commission on April 13, 2004) |
|
|
£ |
Confidential treatment has been requested and/or granted with
respect to portions of this exhibit. |
|
|
|
Management contract, compensatory plan or arrangement. |
(c) Financial Statement Schedules. The list of exhibits
required by this item is set forth above.
73
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: June 16, 2006
|
|
|
|
|
Hugh E. Sawyer, |
|
President and |
|
Chief Executive Officer |
|
(Principal Executive Officer) |
Date: June 16, 2006
|
|
|
|
|
Thomas H. King, |
|
Executive Vice President and |
|
Chief Financial Officer |
|
(Principal Financial and Accounting Officer) |
74
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Robert J.
Rutland and Hugh E. Sawyer, jointly and severally, his
attorneys-in-fact, each
with the power of substitution, for him in any and all
capacities to sign any amendments to this Annual Report on
Form 10-K, and to
file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of
said attorneys-in-fact,
or his substitute or substitutes, may do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
/s/ Robert J. Rutland
Robert J. Rutland |
|
Chairman and Director |
|
June 16, 2006 |
|
/s/ Guy W.
Rutland, III
Guy W. Rutland, III |
|
Chairman Emeritus and Director |
|
June 16, 2006 |
|
/s/ Hugh E. Sawyer
Hugh E. Sawyer |
|
President, Chief Executive Officer and Director |
|
June 16, 2006 |
|
/s/ David G. Bannister
David G. Bannister |
|
Director |
|
June 16, 2006 |
|
/s/ William P. Benton
William P. Benton |
|
Director |
|
June 16, 2006 |
|
/s/ Thomas E. Boland
Thomas E. Boland |
|
Director |
|
June 16, 2006 |
|
/s/ Guy W.
Rutland, IV
Guy W. Rutland, IV |
|
Senior Vice President and Director |
|
June 16, 2006 |
|
/s/ J. Leland Strange
J. Leland Strange |
|
Director |
|
June 16, 2006 |
|
/s/ Berner F.
Wilson, Jr.
Berner F. Wilson, Jr. |
|
Director |
|
June 16, 2006 |
|
/s/ Robert R. Woodson
Robert R. Woodson |
|
Director |
|
June 16, 2006 |
75
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors Allied Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of
Allied Holdings, Inc. and subsidiaries (the Company) as of
December 31, 2005 and 2004, and the related consolidated
statements of operations, changes in stockholders
(deficit) equity and cash flows for each of the years in
the three-year period ended December 31, 2005. In
connection with our audits of the consolidated financial
statements, we have also audited the financial statement
schedule as listed at Item 15(a)(2) of the accompanying
index. These consolidated financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Allied Holdings, Inc. and subsidiaries as of
December 31, 2005 and 2004, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2005, in conformity
with U.S. generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial
statements as a whole, presents fairly, in all material
respects, the information set forth therein.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. The Company incurred losses of $125.7 million,
$53.9 million and $8.6 million from operations during
2005, 2004 and 2003, respectively, and has an accumulated
deficit at December 31, 2005 and 2004, and, as discussed in
Notes 2 and 3 to the consolidated financial statements,
filed voluntary petitions seeking to reorganize under
Chapter 11 of the federal bankruptcy laws. All of these
conditions raise substantial doubt about the Companys
ability to continue as a going concern. Managements plans
in regard to these matters are also described in Notes 2
and 3. The accompanying consolidated financial statements do not
include any adjustments that might result from the outcome of
these uncertainties.
As discussed in Note 2 to the consolidated financial
statements, in 2005 the Company adopted the provisions of
Statement of
Position 90-7,
Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code.
Atlanta, Georgia
June 16, 2006
F-1
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession
since July 31, 2005)
CONSOLIDATED BALANCE SHEETS
December 31, 2005 and 2004
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
4,117 |
|
|
$ |
2,516 |
|
|
Restricted cash, cash equivalents and other time deposits
|
|
|
32,830 |
|
|
|
27,378 |
|
|
Receivables, net of allowances of $2,218 and $2,156 as of
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
and December 31, 2004, respectively
|
|
|
61,427 |
|
|
|
57,309 |
|
|
Inventories
|
|
|
5,132 |
|
|
|
4,649 |
|
|
Deferred income taxes
|
|
|
128 |
|
|
|
4,632 |
|
|
Prepayments and other current assets
|
|
|
59,434 |
|
|
|
12,414 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
163,068 |
|
|
|
108,898 |
|
Property and equipment, net of accumulated depreciation
|
|
|
123,904 |
|
|
|
135,635 |
|
Goodwill, net
|
|
|
3,545 |
|
|
|
83,977 |
|
Other assets:
|
|
|
|
|
|
|
|
|
|
Restricted cash, cash equivalents and other time deposits
|
|
|
69,764 |
|
|
|
55,502 |
|
|
Other noncurrent assets
|
|
|
22,835 |
|
|
|
37,520 |
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
92,599 |
|
|
|
93,022 |
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
383,116 |
|
|
$ |
421,532 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT |
Current liabilities not subject to compromise:
|
|
|
|
|
|
|
|
|
|
Debtor-in-possession credit facility
|
|
$ |
151,997 |
|
|
$ |
|
|
|
Accounts and notes payable
|
|
|
57,196 |
|
|
|
34,690 |
|
|
Accrued liabilities
|
|
|
83,317 |
|
|
|
85,463 |
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
13,500 |
|
|
Borrowings under pre-petition revolving credit facility
|
|
|
|
|
|
|
2,972 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
292,510 |
|
|
|
136,625 |
|
|
|
|
|
|
|
|
Long-term liabilities not subject to compromise:
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
|
|
|
|
|
234,766 |
|
|
Postretirement benefits other than pensions
|
|
|
4,412 |
|
|
|
5,082 |
|
|
Deferred income taxes
|
|
|
143 |
|
|
|
16,164 |
|
|
Other long-term liabilities
|
|
|
74,096 |
|
|
|
70,444 |
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
78,651 |
|
|
|
326,456 |
|
Liabilities subject to compromise
|
|
|
199,322 |
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders deficit:
|
|
|
|
|
|
|
|
|
|
Preferred stock, no par value. Authorized 5,000 shares;
none outstanding
|
|
|
|
|
|
|
|
|
|
Common stock, no par value. Authorized 20,000 shares; 8,980
and 8,919 shares outstanding at December 31, 2005 and
December 31, 2004, respectively
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
48,545 |
|
|
|
48,421 |
|
|
Treasury stock, 139 shares at cost
|
|
|
(707 |
) |
|
|
(707 |
) |
|
Accumulated deficit
|
|
|
(214,631 |
) |
|
|
(88,907 |
) |
|
Accumulated other comprehensive loss, net of tax
|
|
|
(20,574 |
) |
|
|
(356 |
) |
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(187,367 |
) |
|
|
(41,549 |
) |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficit
|
|
$ |
383,116 |
|
|
$ |
421,532 |
|
|
|
|
|
|
|
|
See accompanying notes to these consolidated financial
statements.
F-2
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession
since July 31, 2005)
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2005, 2004 and 2003
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Revenues
|
|
$ |
892,934 |
|
|
$ |
895,213 |
|
|
$ |
865,463 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages, and fringe benefits
|
|
|
482,609 |
|
|
|
488,728 |
|
|
|
469,540 |
|
|
Operating supplies and expenses
|
|
|
180,481 |
|
|
|
162,266 |
|
|
|
138,512 |
|
|
Purchased transportation
|
|
|
119,431 |
|
|
|
111,214 |
|
|
|
99,604 |
|
|
Insurance and claims
|
|
|
42,033 |
|
|
|
40,821 |
|
|
|
38,168 |
|
|
Operating taxes and licenses
|
|
|
29,841 |
|
|
|
29,804 |
|
|
|
30,376 |
|
|
Depreciation and amortization
|
|
|
29,925 |
|
|
|
42,943 |
|
|
|
45,556 |
|
|
Rents
|
|
|
7,500 |
|
|
|
8,556 |
|
|
|
6,090 |
|
|
Communications and utilities
|
|
|
6,090 |
|
|
|
6,342 |
|
|
|
7,138 |
|
|
Other operating expenses
|
|
|
11,797 |
|
|
|
10,124 |
|
|
|
10,671 |
|
|
Impairment of goodwill
|
|
|
79,172 |
|
|
|
8,295 |
|
|
|
|
|
|
(Gain) loss on disposal of operating assets, net
|
|
|
(869 |
) |
|
|
(839 |
) |
|
|
1,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
988,010 |
|
|
|
908,254 |
|
|
|
846,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(95,076 |
) |
|
|
(13,041 |
) |
|
|
18,483 |
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (excludes contractual interest of
$5.4 million in 2005)
|
|
|
(39,410 |
) |
|
|
(31,355 |
) |
|
|
(29,138 |
) |
|
Investment income
|
|
|
2,813 |
|
|
|
1,136 |
|
|
|
3,172 |
|
|
Foreign exchange gains, net
|
|
|
1,414 |
|
|
|
1,929 |
|
|
|
3,169 |
|
|
Other, net
|
|
|
834 |
|
|
|
(191 |
) |
|
|
1,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(34,349 |
) |
|
|
(28,481 |
) |
|
|
(20,821 |
) |
|
|
|
|
|
|
|
|
|
|
Loss before reorganization items and income taxes
|
|
|
(129,425 |
) |
|
|
(41,522 |
) |
|
|
(2,338 |
) |
Reorganization items
|
|
|
(7,131 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(136,556 |
) |
|
|
(41,522 |
) |
|
|
(2,338 |
) |
Income tax benefit (expense)
|
|
|
10,832 |
|
|
|
(12,361 |
) |
|
|
(6,266 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(125,724 |
) |
|
$ |
(53,883 |
) |
|
$ |
(8,604 |
) |
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$ |
(14.02 |
) |
|
$ |
(6.15 |
) |
|
$ |
(1.02 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
8,970 |
|
|
|
8,757 |
|
|
|
8,475 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession
since July 31, 2005)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
(DEFICIT) EQUITY
Years Ended December 31, 2005, 2004, and 2003
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
Common Stock |
|
Additional | |
|
|
|
Retained | |
|
Other | |
|
|
|
|
Comprehensive | |
|
|
|
Paid-In | |
|
Treasury | |
|
Earnings | |
|
Comprehensive | |
|
|
|
|
Income (Loss) | |
|
Shares | |
|
Amount |
|
Capital | |
|
Stock | |
|
(Deficit) | |
|
Income (Loss) | |
|
Total | |
|
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
Balance, December 31, 2002
|
|
|
|
|
|
|
8,421 |
|
|
$ |
|
|
|
$ |
46,801 |
|
|
$ |
(707 |
) |
|
$ |
(26,420 |
) |
|
$ |
(9,360 |
) |
|
$ |
10,314 |
|
|
Net loss
|
|
$ |
(8,604 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,604 |
) |
|
|
|
|
|
|
(8,604 |
) |
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of income taxes of
$(3,974)
|
|
|
6,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,192 |
|
|
|
6,192 |
|
|
|
Minimum pension liability, net of income taxes of $(126)
|
|
|
202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
202 |
|
|
|
202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$ |
(2,210 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
|
|
|
|
161 |
|
|
|
|
|
|
|
450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450 |
|
|
Compensation expense for restricted stock, net of forfeitures
|
|
|
|
|
|
|
182 |
|
|
|
|
|
|
|
260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
|
|
|
|
|
8,764 |
|
|
|
|
|
|
|
47,511 |
|
|
|
(707 |
) |
|
|
(35,024 |
) |
|
|
(2,966 |
) |
|
|
8,814 |
|
|
Net loss
|
|
$ |
(53,883 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53,883 |
) |
|
|
|
|
|
|
(53,883 |
) |
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of income taxes of
$(256)
|
|
|
2,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,941 |
|
|
|
2,941 |
|
|
|
Minimum pension liability, net of income taxes of $0
|
|
|
(331 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(331 |
) |
|
|
(331 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$ |
(51,273 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
|
|
|
|
196 |
|
|
|
|
|
|
|
589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
589 |
|
|
Compensation expense for restricted stock, net of forfeitures
|
|
|
|
|
|
|
(41 |
) |
|
|
|
|
|
|
321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
|
|
|
|
|
8,919 |
|
|
$ |
|
|
|
$ |
48,421 |
|
|
$ |
(707 |
) |
|
$ |
(88,907 |
) |
|
$ |
(356 |
) |
|
$ |
(41,549 |
) |
|
Net loss
|
|
$ |
(125,724 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(125,724 |
) |
|
|
|
|
|
|
(125,724 |
) |
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of income taxes of
$256
|
|
|
(1,075 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,075 |
) |
|
|
(1,075 |
) |
|
|
Minimum pension liability, net of income taxes of $0
|
|
|
(19,143 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,143 |
) |
|
|
(19,143 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$ |
(145,942 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
|
|
|
|
61 |
|
|
|
|
|
|
|
124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
|
|
|
|
|
8,980 |
|
|
$ |
|
|
|
$ |
48,545 |
|
|
$ |
(707 |
) |
|
$ |
(214,631 |
) |
|
$ |
(20,574 |
) |
|
$ |
(187,367 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these consolidated financial
statements.
F-4
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession
since July 31, 2005)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2005, 2004, and 2003
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(125,724 |
) |
|
$ |
(53,883 |
) |
|
$ |
(8,604 |
) |
|
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense paid in kind
|
|
|
|
|
|
|
|
|
|
|
1,065 |
|
|
|
Write-off and amortization of deferred financing costs
|
|
|
8,631 |
|
|
|
2,797 |
|
|
|
3,697 |
|
|
|
Depreciation and amortization
|
|
|
29,925 |
|
|
|
42,943 |
|
|
|
45,556 |
|
|
|
Impairment of goodwill
|
|
|
79,172 |
|
|
|
8,295 |
|
|
|
|
|
|
|
Reorganization items
|
|
|
7,131 |
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on disposal of assets
|
|
|
(1,703 |
) |
|
|
(839 |
) |
|
|
1,325 |
|
|
|
Foreign exchange gains
|
|
|
(1,414 |
) |
|
|
(1,929 |
) |
|
|
(3,169 |
) |
|
|
Deferred income taxes
|
|
|
(11,261 |
) |
|
|
11,275 |
|
|
|
6,914 |
|
|
|
Compensation expense related to stock options and grants
|
|
|
|
|
|
|
321 |
|
|
|
260 |
|
|
|
Amortization of Teamsters Union contract costs
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net of allowances
|
|
|
(2,712 |
) |
|
|
(4,727 |
) |
|
|
8,378 |
|
|
|
|
Inventories
|
|
|
(623 |
) |
|
|
414 |
|
|
|
272 |
|
|
|
|
Prepayments and other assets
|
|
|
(32,039 |
) |
|
|
(3,272 |
) |
|
|
(158 |
) |
|
|
|
Accounts and notes payable
|
|
|
13,045 |
|
|
|
(1,747 |
) |
|
|
(3,512 |
) |
|
|
|
Accrued liabilities
|
|
|
5,518 |
|
|
|
13,860 |
|
|
|
(16,186 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities before
payment of reorganization items
|
|
|
(32,054 |
) |
|
|
13,508 |
|
|
|
36,838 |
|
|
|
|
Reorganization items paid
|
|
|
(2,939 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(34,993 |
) |
|
|
13,508 |
|
|
|
36,838 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(19,405 |
) |
|
|
(22,542 |
) |
|
|
(18,555 |
) |
|
Proceeds from sales of property and equipment
|
|
|
3,253 |
|
|
|
3,040 |
|
|
|
685 |
|
|
Proceeds from sale of equity in subsidiaries
|
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
Increase in restricted cash, cash equivalents and other time
deposits
|
|
|
(19,714 |
) |
|
|
(796 |
) |
|
|
(81,279 |
) |
|
Decrease in restricted investments
|
|
|
|
|
|
|
|
|
|
|
60,732 |
|
|
Funds deposited with insurance carriers
|
|
|
(9,766 |
) |
|
|
(32,072 |
) |
|
|
(22,680 |
) |
|
Funds returned from insurance carriers
|
|
|
5,969 |
|
|
|
34,995 |
|
|
|
19,560 |
|
|
Decrease (increase) in the cash surrender value of life insurance
|
|
|
46 |
|
|
|
(27 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(37,617 |
) |
|
|
(17,402 |
) |
|
|
(41,535 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to debtor-in-possession revolving credit facility, net
|
|
|
51,997 |
|
|
|
|
|
|
|
|
|
|
Additions to debtor-in-possession facility term borrowings
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
(Repayments of) additions to revolving credit facilities, net
|
|
|
(2,972 |
) |
|
|
2,972 |
|
|
|
(24,635 |
) |
|
Additions to pre-petition debt
|
|
|
25,000 |
|
|
|
20,000 |
|
|
|
99,875 |
|
|
Repayment of pre-petition debt
|
|
|
(123,266 |
) |
|
|
(18,234 |
) |
|
|
(78,280 |
) |
|
Payment of deferred financing costs
|
|
|
(8,271 |
) |
|
|
(475 |
) |
|
|
(3,038 |
) |
|
Proceeds from insurance financing arrangements
|
|
|
42,401 |
|
|
|
31,252 |
|
|
|
19,313 |
|
|
Repayments of insurance financing arrangements
|
|
|
(10,827 |
) |
|
|
(32,634 |
) |
|
|
(17,634 |
) |
|
Proceeds from issuance of common stock
|
|
|
124 |
|
|
|
589 |
|
|
|
450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
74,186 |
|
|
|
3,470 |
|
|
|
(3,949 |
) |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
25 |
|
|
|
792 |
|
|
|
1,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
1,601 |
|
|
|
368 |
|
|
|
(7,300 |
) |
Cash and cash equivalents at beginning of year
|
|
|
2,516 |
|
|
|
2,148 |
|
|
|
9,448 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
4,117 |
|
|
$ |
2,516 |
|
|
$ |
2,148 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid (refunds received) during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
27,461 |
|
|
$ |
27,136 |
|
|
$ |
24,562 |
|
|
Income taxes, net
|
|
|
(346 |
) |
|
|
489 |
|
|
|
(739 |
) |
See accompanying notes to these consolidated financial
statements.
F-5
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession
since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004, and 2003
|
|
(1) |
Organization and Operations |
Allied Holdings, Inc. (Allied), a Georgia
corporation, is a holding company which operates through its
wholly owned subsidiaries. The accompanying consolidated
financial statements include the accounts of Allied and its
wholly owned subsidiaries (collectively the
Company). The principal operating divisions of the Company
are Allied Automotive Group, Inc. (Allied Automotive Group) and
Axis Group, Inc. (Axis Group). Allied Automotive Group, through
its subsidiaries, is engaged in the business of transporting
automobiles, light trucks, and sport utility vehicles
(SUVs) from manufacturing plants, ports, auctions,
and railway distribution points to automobile dealerships. Axis
Group, through its subsidiaries, is engaged in the business of
securing and managing vehicle distribution services, automobile
inspections, auction and yard management services, vehicle
tracking, vehicle accessorization, and dealer preparatory
services for the automotive industry.
On July 31, 2005 (the Petition Date), Allied
and substantially all of its subsidiaries (the
Debtors) filed voluntary petitions seeking
protection under Chapter 11 of the U.S. Bankruptcy
Code (Chapter 11). The Companys captive
insurance company, Haul Insurance Limited, as well as its
subsidiaries in Mexico, Bermuda and South Africa (the
Non-debtors) were not included in the
Chapter 11 filings. The Canadian subsidiaries obtained
approval for creditor protection under the Companies
Creditors Arrangement Act in Canada and are included among
the subsidiaries that filed voluntary petitions seeking
bankruptcy protection. Like Chapter 11, the Companies
Creditors Arrangement Act in Canada allows for reorganization
under the protection of the court system. On October 28,
2005, with Bankruptcy Court approval, the Company sold its
interest in Kar-Tainer International, LLC and Kar-Tainer
Intl (Pty) Ltd, a South African company.
The Debtors are currently operating their business as
debtors-in-possession
under the jurisdiction of the U.S. Bankruptcy Court for the
Northern District of Georgia (Bankruptcy Court) and
cannot engage in transactions considered to be outside of the
ordinary course of business without obtaining Bankruptcy Court
approval. Proceedings between the Petition Date and the date
that the plan of reorganization is consummated will be referred
to as the Chapter 11 Proceedings. See Note 3 for other
Chapter 11-related disclosures.
|
|
(2) |
Summary of Significant Accounting Policies |
|
|
(a) |
Basis of Presentation |
The accompanying consolidated financial statements have been
prepared on a going concern basis in accordance with accounting
principles generally accepted in the United States of America
(GAAP). All significant intercompany transactions
and accounts have been eliminated in consolidation.
As a result of the Companys Chapter 11 filing, the
Company has applied the guidance of the American Institute of
Certified Public Accountants Statement of
Position 90-7
(SOP 90-7),
Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code in the preparation of the accompanying
consolidated financial statements.
SOP 90-7 does not
change the application of GAAP in the preparation of financial
statements. However,
SOP 90-7 does
require that financial statements, for periods including and
subsequent to the filing of a Chapter 11 petition,
distinguish transactions and events that are directly associated
with the reorganization from the ongoing operations of the
business and also that liabilities subject to compromise be
segregated from those not subject to compromise (See
Note 3).
The going concern basis assumes that the Company will continue
in operation for the foreseeable future and will realize its
assets and discharge its post-petition liabilities in the
ordinary course of business. However, the Companys ability
to continue as a going concern is predicated upon, among other
things, the confirmation
F-6
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession
since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of a plan of reorganization, compliance with the provisions of
the financing agreement entered into in connection with its
Chapter 11 filing, its ability to reach agreement with the
International Brotherhood of Teamsters (IBT) on a
new collective bargaining agreement, its ability to generate
cash flows from operations, its ability to obtain financing
sufficient to satisfy its future obligations and to comply with
the terms of the ultimate plan of reorganization. As a result of
the Chapter 11 Proceedings, the Company may take, or be
required to take, actions that may cause assets to be realized
or liabilities to be settled for amounts other than those
reflected in the financial statements. The appropriateness of
continuing to present financial statements on a going concern
basis is dependent upon, among other things, the terms of the
ultimate plan of reorganization, future profitable operations,
the ability to comply with the terms of its financing agreements
and the ability to generate sufficient cash from operations and
financing sources to meet obligations. The accompanying
consolidated financial statements do not include any adjustments
relating to the recoverability and classification of assets and
liabilities that might be necessary should the Company be unable
to continue as a going concern, nor do they include any
adjustments to the carrying values of assets and liabilities
that might be required as a result of the plan of
reorganization. A plan of reorganization could substantially
change the amounts currently recorded in the accompanying
consolidated financial statements. Asset and liability carrying
amounts do not purport to represent the realizable or settlement
values that will be reflected in the plan of reorganization and
it is not possible to estimate the impact of the Chapter 11
filing on the Companys financial statements.
On August 1, 2005, the Company obtained the DIP Facility to
provide debtor-in-possession financing in connection with its
Chapter 11 filing. As more fully discussed in note 14,
due to certain financial covenant violations under the DIP
Facility, on March 9, 2006 the Company entered into a
forbearance agreement with the lenders under the DIP Facility,
which was extended on April 3, 2006, extended again on
April 18, 2006 in connection with the Fourth Amendment to
the DIP Facility and further extended on May 18, 2006 and
May 30, 2006. However, if the Company is unable to obtain
new funding to replace the DIP Facility or obtain a waiver for
these covenant violations prior to June 16, 2006, the
expiration date of the forbearance period, the Company will seek
to extend the forbearance period beyond June 16, 2006. If
the forbearance period is not extended in this circumstance, the
lenders under the DIP Facility will have the right to accelerate
the maturity of all loans under the DIP Facility and may
foreclose on the collateral securing the DIP Facility, which may
require it to sell assets in order to satisfy its obligations
under the DIP Facility at that time. No assurances can be
provided that the Company will be able to obtain new funding to
replace the DIP Facility or that the lenders under the DIP
Facility will waive such covenant violations or further extend
the forbearance period.
In addition, the Company believes that it will have a liquidity
shortfall by July 2006 unless the Company successfully creates
additional liquidity through cost reductions and/or additional
borrowings. If the Company cannot obtain or create this
additional liquidity, the Company would expect to have an event
of default under the DIP Facility. Such an event of default
would provide the lenders with the right to accelerate the
maturity date of all loans outstanding under the DIP Facility
and to foreclose on the collateral securing the DIP Facility.
|
|
(b) |
Foreign Currency Translation |
The Companys functional currency is the local currency for
each of its subsidiaries. The assets and liabilities of the
Companys foreign subsidiaries are translated into
U.S. dollars using current exchange rates in effect at the
balance sheet date. Revenues and expenses are translated using
average monthly exchange rates. The resulting translation
adjustments are recorded as accumulated other comprehensive
income (loss) in the accompanying consolidated statements of
changes in stockholders (deficit) equity, net of
related income taxes.
F-7
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession
since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(c) |
Revenue Recognition and Related Allowances |
Substantially all revenue is derived from transporting
automobiles, light trucks, and SUVs from manufacturing plants,
ports, auctions, and railway distribution points to automobile
dealerships, providing vehicle rail-car loading and unloading
services, providing yard management services, and other
distribution and transportation support services to the
pre-owned and new vehicle market. Revenue is recorded by the
Company when the vehicles are delivered to the dealerships or
when services are performed. The Company records an allowance
for estimated customer billing adjustments and an allowance for
potentially uncollectible accounts based on an evaluation of
specific aged customer accounts and historical collection and
adjustment patterns. Included in receivables, net of allowances,
are $7.1 million and $3.6 million of amounts due from
other than trade customers as of December 31, 2005 and
2004, respectively.
|
|
(d) |
Cash, Cash Equivalents and Other Time Deposits |
The Company considers all highly liquid investments with an
original maturity of three months or less from the date of
purchase to be cash equivalents. The time deposits have original
maturities of twelve months or less. The portion of cash, cash
equivalents and other time deposits that are contractually
restricted to secure outstanding letters of credit for the
settlement of insurance claims are identified as restricted in
the accompanying consolidated financial statements. Restricted
cash, cash equivalents and other time deposits are not available
to the Company for general use in its operations but are
restricted for payment of insurance claims.
Inventories consist primarily of parts and supplies for
servicing the Companys tractors and trailers and are
recorded at the lower of cost (on a
first-in, first-out
basis) or market. Inventories consisted of the following as of
December 31, 2005 and 2004 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Parts
|
|
$ |
3,863 |
|
|
$ |
3,576 |
|
Shop supplies
|
|
|
345 |
|
|
|
388 |
|
Bulk fuel
|
|
|
660 |
|
|
|
475 |
|
Other
|
|
|
264 |
|
|
|
210 |
|
|
|
|
|
|
|
|
|
|
$ |
5,132 |
|
|
$ |
4,649 |
|
|
|
|
|
|
|
|
|
|
(f) |
Tires on Tractors and Trailers |
New or replacement tires on tractors and trailers are charged to
operating supplies and expenses based on expected usage. The
Company estimates the average useful life of a tire to be
approximately two years. Tires with estimated remaining useful
lives of one year or less are classified as current within
prepayments and other current assets. Tires with estimated
remaining useful lives in excess of one year are classified
within other noncurrent assets.
|
|
(g) |
Property and Equipment |
Property and equipment are stated at cost less accumulated
depreciation. Major property additions, replacements, and
betterments are capitalized, while maintenance and repairs that
do not extend the useful lives of these assets are expensed.
Depreciation is provided using the straight-line method over the
estimated useful lives of the assets which are as follows:
|
|
|
|
|
4 to 10 years for tractors and trailers; |
|
|
|
6 years for costs capitalized as part of the tractor and
trailer remanufacturing program; |
F-8
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession
since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
5 to 30 years for buildings and facilities (including
leasehold improvements); and |
|
|
|
3 to 10 years for furniture, fixtures, service cars and
equipment. |
|
|
(h) |
Impairment of Long-Lived Assets |
In accordance with Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, long-lived
assets, such as property and equipment, and purchased
intangibles subject to amortization, are reviewed for impairment
whenever events or changes in circumstances indicate that their
carrying amounts may not be recoverable. Recoverability of
assets to be held and used is measured by comparing their
carrying amounts to the estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of
an asset exceeds its estimated future cash flows, an impairment
charge is recognized for the amount by which the carrying amount
of the asset exceeds its fair value. Assets to be disposed of
would be reported at the lower of the carrying amount or fair
value less costs to sell, and would no longer be depreciated. No
charges for impairment of long-lived assets were recorded during
the years ended December 31, 2005, 2004 or 2003.
On August 1, 2005, the Company entered into a financing
agreement (the DIP Facility) for
debtor-in-possession
financing of up to $230 million. General Electric Capital
Corporation and Morgan Stanley Senior Funding, Inc. currently
serve as agents for the lenders. The deferred financing costs as
of December 31, 2005 represent costs related to the DIP
Facility which are being amortized as interest expense over the
eighteen-month term of the financing agreement. The deferred
financing costs related to the revolving credit facility portion
of the DIP Facility are amortized using the straight-line method
of amortization and the effective interest rate method is used
to amortize the deferred financing costs related to the term
loans. Deferred financing costs are included in other noncurrent
assets net of accumulated amortization.
The deferred financing costs related to the revolving credit
facility portion of the pre-petition facility and the
Companys senior notes were being amortized using the
straight-line method of amortization over the term of the
related debt. The effective interest rate method was used to
amortize the deferred financing costs related to the term loans
included in the Companys pre-petition facility. However,
based on the financial reports delivered to its lenders under
the pre-petition facility on July 29, 2005, the Company was
in violation of one of the financial covenants in its
pre-petition facility at June 30, 2005. As a result, during
the second quarter of 2005, the Company wrote off the related
deferred financing costs of $4.9 million, which are
included in interest expense. Further, the Chapter 11
filing on July 31, 2005, as described in Note 1 above,
constituted an event of default under the senior notes.
Accordingly, during the third quarter of 2005, the Company wrote
off to reorganization items the related deferred financing costs
of $1.4 million.
Pursuant to a collective bargaining agreement entered into in
June 1999 between a subsidiary of the Company and the IBT, the
Company paid its employees a lump-sum payment as an inducement
to enter into the agreement and to provide for lower base wage
rates than the Company would otherwise have been required to pay
in future years. The Company capitalized the lump-sum payment
and amortized it on a straight-line basis over the four-year
life of the contract. These costs were fully amortized in May
2003. The related amortization charge for the year ended
December 31, 2003 was $1.0 million.
|
|
(j) |
Interest in Split-Dollar Life Insurance Policies |
The Company is party to contractual arrangements related to life
insurance policies that cover certain current and former
employees, directors and officers of the Company. These
contractual arrangements are between the Company and the trusts
that own the policies. The Company records as a noncurrent asset
the lesser of its interest in each policy (equal to net cash
outlay less certain adjustments) as defined in the contractual
arrangements or the cash surrender value of the policy. The
Company records the increase or
F-9
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession
since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
decrease in its interest each year as a reduction or increase to
premium expense. The trusts retain any proceeds in excess of the
Companys interest in the policies, net of any outstanding
policy loans. During the year ended December 31, 2002, the
Company discontinued making premium payments on the policies for
current directors and officers due to the enactment of the
Sarbanes-Oxley Act of 2002. As permitted by the trusts, premiums
due on these policies have been paid by increasing loans taken
against the available cash surrender value of the policies from
the time of enactment of the Sarbanes-Oxley Act of 2002 through
the year ended December 31, 2005.
As a result of the Companys Chapter 11 filing, the
Company believes that the contractual arrangements were
terminated and that it continues to retain its interest in the
policies. In this regard, notice of termination of the
contractual arrangements has been given to the life insurance
companies and the trusts. The Company also believes that it is
entitled to receive its interest in each policy in cash upon the
earlier of the death of the insured or the termination of the
contractual arrangement related to the policy. However, certain
of the trusts believe that even though the contractual
arrangements may have terminated, the Company will be entitled
to receive its interest in each policy only upon the earlier of
the death of the insured or upon the surrender of the policy. At
this time the Company is unable to determine the timing of
future cash flows from these policies.
|
|
(k) |
Goodwill and Other Intangible Assets |
Goodwill represents the excess of the purchase price and related
costs over the fair value of the net tangible and identifiable
intangible assets of businesses acquired. In accordance with
SFAS No. 142, Goodwill and Other Intangible
Assets, goodwill and intangible assets acquired in a
business combination and determined to have indefinite useful
lives are not amortized, but instead are evaluated for
impairment annually, and between annual tests if an event occurs
or circumstances change which indicate that the asset might be
impaired. An impairment loss is recognized to the extent that
the carrying amount exceeds the assets fair value.
In accordance with SFAS No. 142, intangible assets,
other than those determined to have an indefinite life, are
amortized to their estimated residual values on a straight-line
basis over their estimated useful lives. These intangible assets
are reviewed for impairment in accordance with
SFAS No. 144.
|
|
(l) |
Fair Value of Financial Instruments |
SFAS No. 107, Disclosures About Fair Values of
Financial Instruments, requires disclosure of the
information below about the fair value of certain financial
instruments for which it is practicable to estimate that value.
For purposes of the following disclosure, the fair value of a
financial instrument is the amount at which the instrument could
be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation.
The amounts disclosed represent managements best estimates
of fair value. In accordance with SFAS No. 107, the
Company has excluded certain financial instruments and other
assets and liabilities from its disclosure. Accordingly, the
aggregate fair value amounts presented are not intended to, and
do not, represent the underlying fair value of the Company.
The methods and assumptions used to estimate fair value are as
follows:
|
|
|
|
|
The carrying amount of cash, cash equivalents and other time
deposits, including restricted amounts, approximates fair value
due to the relatively short period to maturity of these
instruments. |
|
|
|
The carrying amount of the Companys credit facilities
approximates fair value based on the borrowing rates currently
available to the Company for borrowings with similar terms and
average maturities. The fair value of the Senior Notes is based
on the year-end market price, based on actual transactions. |
F-10
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession
since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The asset and (liability) amounts recorded on the balance
sheets and the estimated fair values of financial instruments as
of December 31, 2005 and 2004 consisted of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount | |
|
Fair Value | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Cash, cash equivalents and other time deposits (including
restricted amounts)
|
|
$ |
106,711 |
|
|
$ |
85,396 |
|
|
$ |
106,711 |
|
|
$ |
85,396 |
|
Debtor-in-possession financing
|
|
|
(151,997 |
) |
|
|
|
|
|
|
(151,997 |
) |
|
|
|
|
Pre-petition credit facility
|
|
|
|
|
|
|
(101,238 |
) |
|
|
|
|
|
|
(101,238 |
) |
85/8
% senior notes
|
|
|
(150,000 |
) |
|
|
(150,000 |
) |
|
|
(119,250 |
) |
|
|
(120,000 |
) |
|
|
(m) |
Claims and Insurance Reserves |
The Company retains losses within certain limits through high
deductibles or self-insured retentions. For certain risks,
coverage for losses is provided by unrelated primary and
reinsurance companies. The Companys coverage is based on
the date that a claim is incurred. Haul Insurance Limited, the
Companys captive insurance subsidiary, provides
reinsurance coverage to certain of the Companys licensed
insurance carriers for certain types of losses for certain years
within its insurance program, primarily insured workers
compensation, automobile and general liability risks. Haul
Insurance Limited was not included in the Chapter 11 filing.
Claims and insurance reserves reflect the estimated cost of
claims for workers compensation, cargo loss and damage,
automobile and general liability, and products liability losses
that are not covered by insurance. Amounts that the Company
estimates will be paid within the next year have been classified
as current in accrued liabilities in the
consolidated balance sheet while the noncurrent portion is
included in other long-term liabilities. Costs
related to these reserves are included in the statement of
operations in insurance and claims expense, except
for workers compensation, which is included in
salaries, wages, and fringe benefits.
The Company utilizes a third-party claims administrator, who
works under managements direction, and third-party
actuarial valuations to assist in the determination of the
majority of its claims and insurance reserves. The third-party
claims administrator sets claims reserves on a case-by-case
basis. The third-party actuary utilizes the aggregate data from
these reserves, along with historical paid and incurred amounts,
to determine, by loss year, the projected ultimate cost of all
claims reported and not yet reported, including potential
adverse developments. The Companys reserve for estimated
retrospective premium adjustments for workers compensation
losses in Canada is based on historical experience and the most
recently available actual claims data provided by the Canadian
government. The Companys product liability claims reserves
are set on a case-by-case basis by management in conjunction
with legal counsel handling the claims, and include an estimate
for claims incurred but not yet reported. The Company tracks
cargo claims and records reserve amounts on a case-by-case
basis. The reserve for cargo claims includes an estimate of
incurred but not reported claims.
As part of its insurance programs, the Company is required to
provide collateral to its insurance companies and various states
for losses in respect of worker injuries, accident, theft, and
other loss claims. For this purpose, the Company utilizes cash
included in restricted cash and/or letters of credit.
|
|
(n) |
Stock-Based Compensation |
For the years ended December 31, 2005, 2004 and 2003, the
Company applied the intrinsic-value-based method of accounting
prescribed by Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations to account for its
fixed-plan stock options. Under this method, compensation
expense is recorded on the date of grant only if the market
price of the underlying stock, on the date of grant, exceeds the
exercise price of the stock option. SFAS No. 123,
Accounting for Stock-Based Compensation and
SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure, an amendment
of FASB Statement No. 123, established accounting and
disclosure requirements
F-11
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession
since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
using a fair value-based method of accounting for stock-based
employee compensation plans. As allowed by
SFAS No. 123, the Company elected to continue to apply
the intrinsic value-based method of accounting described above,
and adopted only the disclosure requirements of
SFAS No. 123 and the amended disclosure requirements
of SFAS No. 148.
SFAS No. 123 was revised in December 2004
(SFAS 123R). The provisions of SFAS 123R
are summarized in Note 4 and will be adopted by the Company
effective January 1, 2006. Upon the consummation of a plan
of reorganization, the rights and values of the Companys
current stock options could be modified significantly. As a
result, the options could lose value, be rendered null and void,
be replaced by new options or be otherwise impacted.
The impact on net loss and loss per share of applying the fair
value recognition provisions of SFAS No. 123 for the
years ended December 31, 2005, 2004, and 2003 are
illustrated in the table below (in thousands, except per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Reported net loss
|
|
$ |
(125,724 |
) |
|
$ |
(53,883 |
) |
|
$ |
(8,604 |
) |
|
Plus: stock-based employee compensation included in reported net
loss
|
|
|
|
|
|
|
321 |
|
|
|
390 |
|
|
Less: stock-based employee compensation determined under the
fair value method
|
|
|
(923 |
) |
|
|
(1,119 |
) |
|
|
(1,180 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
$ |
(126,647 |
) |
|
$ |
(54,681 |
) |
|
$ |
(9,394 |
) |
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$ |
(14.02 |
) |
|
$ |
(6.15 |
) |
|
$ |
(1.02 |
) |
|
Pro forma:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$ |
(14.12 |
) |
|
$ |
(6.24 |
) |
|
$ |
(1.11 |
) |
There is no applicable tax expense on the stock-based employee
compensation in the table above since during the fourth quarter
of 2003, the Company discontinued the recording of tax benefits
on losses and began recording valuation allowances against its
deferred tax assets.
The fair value of the Companys stock options used to
compute pro forma net loss and loss per common share disclosures
is estimated at the grant date, using the Black-Scholes option
pricing model, with the following weighted-average assumptions
for the years ended December 31, 2005, 2004 and 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Dividend yield
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Expected volatility
|
|
|
74 |
% |
|
|
72 |
% |
|
|
71 |
% |
Risk-free interest rate
|
|
|
4.16% and 4.20 |
% |
|
|
3.56% and 4.39 |
% |
|
|
2.71 |
% |
Expected holding period
|
|
|
7.85 years |
|
|
|
7.85 years |
|
|
|
7 years |
|
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective
assumptions, including expected stock price volatility.
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply
F-12
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession
since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date.
The Company assesses the recoverability of deferred tax assets
based on estimates of future taxable income and establishes a
valuation allowance against its deferred tax assets if it
believes that it is more likely than not that the deferred tax
asset will not be recoverable.
|
|
(p) |
Pension and Other Benefit Plans |
The Company has a defined benefit pension plan for management
and office personnel in the U.S. The benefits are based on
years of service and the employees compensation during the
five years before retirement. However, during 2002, the Company
froze employee participation in the plan. No funding was
provided to this plan during the year ended December 31,
2005. The Company also has two defined benefit pension plans
that are currently active for a specific terminals
employees.
The Company sponsors a self-insured healthcare plan for
substantially all employees. The amount of the Companys
obligation under this plan is measured based on the
Companys best estimate of claims incurred and claims
incurred but not reported which is recorded in salaries, wages
and fringe benefits in the statement of operations.
The Company also sponsors postretirement plans for certain of
its retired employees.
A substantial number of the Companys employees are covered
by union-sponsored, collectively bargained, multiemployer
pension plans. Contributions to these plans are determined in
accordance with the provisions of negotiated labor contracts and
are generally based on the number of man-hours worked.
SFAS No. 128, Earnings Per Share, requires
presentation of basic and diluted earnings or loss per share.
Basic earnings or loss per share is calculated by dividing net
income or loss available to common stockholders by the
weighted-average number of common shares outstanding for the
years presented. Diluted earnings or loss per share reflects the
potential dilution that could occur if securities and other
contracts to issue common stock were exercised or converted into
common stock or if they resulted in the issuance of common
stock. The following were excluded from the calculation of
diluted earnings per share as the impact would have been
antidilutive:
|
|
|
|
|
For the years ended December 31, 2005, 2004 and 2003,
options to acquire 1,572,667, 1,588,667 and
1,709,967 shares of common stock, respectively; and |
|
|
|
For the years ended December 31, 2004 and 2003, 8,957 and
170,993 shares of unvested restricted stock, respectively. |
Any plan of reorganization could require the issuance of new or
additional common stock or common stock equivalents which could
dilute current equity interests.
|
|
(r) |
Commitments and Contingencies |
Liabilities for loss contingencies arising from claims,
assessments, litigation, fines, penalties, and other sources are
recorded when it is probable that a liability has been incurred
and the amount of the assessment can be reasonably estimated.
F-13
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession
since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(s) |
Guarantees and Indemnifications |
The Company leases office space, certain terminal facilities,
computer equipment, tractor-trailers (Rigs) and
other equipment under noncancelable and cancelable operating
lease agreements, some of which provide guarantees to third
parties. No accruals for guarantees were required at
December 31, 2005 and 2004.
The Company enters into agreements containing indemnification
provisions with certain of its customers, suppliers, service
providers, and business partners in the ordinary course of
business. Under the indemnification provisions, subject to
various limitations and qualifications, the Company generally
indemnifies and holds harmless the indemnified party for losses
suffered or incurred by the indemnified party as a result of the
Companys activities. The potential losses primarily relate
to obligations that are insured under the Companys
insurance programs. These indemnification provisions generally
survive termination of the underlying agreement. The maximum
potential amount of future payments that the Company could be
required to make under these indemnification provisions is
unlimited. The Company has not incurred material costs to defend
lawsuits or settle claims related to these indemnification
provisions and does not expect to incur any such costs at this
time. No accruals for these indemnification provisions were
considered necessary at December 31, 2005 and 2004.
In addition, the Company is obligated to indemnify its directors
and officers who are, or were, serving at the Companys
request in such capacities, subject to the Companys
By-laws. The maximum potential amount of future payments that
the Company could be required to make under the indemnification
provisions of its By-laws is unlimited; however, the Company has
Director and Officer insurance policies that, in most cases,
would enable it to recover a portion of any future amounts paid.
Historically, the Company has not incurred any costs to settle
claims related to these indemnifications, and there were no
claims outstanding at December 31, 2005. No accruals for
these indemnification provisions were considered necessary at
December 31, 2005 and 2004.
|
|
(t) |
Derivatives and Hedging Activities |
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended, establishes accounting
and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in
other contracts) be recorded on the balance sheet as either an
asset or a liability measured at its fair value.
SFAS No. 133 requires that changes in the
derivatives fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivatives
gains and losses to offset related results on the hedged item in
the statement of operations and requires a company to formally
document, designate, and assess the effectiveness of
transactions that receive hedge accounting.
From time to time, the Company enters into futures contracts to
manage the risk associated with changes in fuel prices. Gains
and losses from fuel hedging contracts are recognized as part of
fuel expense when the Company uses the underlying fuel being
hedged. The Company does not enter into fuel hedging contracts
for speculative purposes. During the years ended
December 31, 2005, 2004, and 2003, the Company had no fuel
hedging contracts or other derivative instruments that fall
within the provisions of SFAS No. 133, as amended.
The preparation of the consolidated financial statements
requires management to make a number of estimates and
assumptions relating to the reported amounts of assets and
liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements
and the reported amounts
F-14
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession
since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of revenues and expenses during the period. Significant items
subject to such estimates and assumptions include the carrying
amount of property and equipment and goodwill; valuation
allowances for receivables and deferred income tax assets;
self-insurance reserves; liabilities subject to compromise,
reorganization items and assets and obligations related to
employee benefits. Actual results could differ from those
estimates.
|
|
(v) |
Other Comprehensive Loss |
Accumulated other comprehensive loss, net of income taxes of
$1.9 million and $1.6 million as of December 31,
2005 and 2004, respectively, consists of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Foreign currency translation adjustment
|
|
$ |
317 |
|
|
$ |
1,392 |
|
Minimum pension liability adjustment
|
|
|
(20,891 |
) |
|
|
(1,748 |
) |
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
$ |
(20,574 |
) |
|
$ |
(356 |
) |
|
|
|
|
|
|
|
During the year ended December 31, 2005, the Company
recorded a minimum pension liability of $19.7 million for
the Allied Defined Benefit Pension Plan (See Note 16). The
increase in the valuation allowance for deferred income taxes
for the year ended December 31, 2005 includes
$7.7 million related to increases in deferred tax assets
through other comprehensive income. During the year ended
December 31, 2004, the Company recorded $990,000 of credits
to other comprehensive income related to the reversal of the
beginning of the year valuation allowance for deferred tax
assets.
|
|
(3) |
Chapter 11 Proceedings |
As disclosed in Note 1, on July 31, 2005, Allied
Holdings, Inc. and substantially all of its subsidiaries filed
voluntary petitions seeking protection under Chapter 11.
The Chapter 11 filings were precipitated by various
factors, including the decline in new vehicle production at
certain of the Companys major customers, rising fuel
costs, historically high levels of debt, increasing wage and
benefit obligations for the Companys employees covered by
the Master Agreement with the International Brotherhood of
Teamsters (IBT or the Teamsters) and the
increase in non-union carhaul competition.
During the Chapter 11 Proceedings, actions by creditors to
collect pre-petition indebtedness are stayed and other
contractual obligations generally may not be enforced against
the Debtors. As
debtors-in-possession,
the Debtors have the right, subject to Bankruptcy Court approval
and certain other limitations, to assume or reject executory
contracts and unexpired leases. Executory contracts refer to
contracts in which the obligations of both parties are
unperformed. In this context rejection means that
the Debtors are relieved from their obligations to perform
further under the contract or lease but are subject to a claim
for damages for the related breach. Any damages resulting from
rejection are treated as general unsecured pre-petition claims
during the Chapter 11 Proceedings. Parties affected by
these rejections may file claims with the Bankruptcy Court in
accordance with bankruptcy procedures. Though the Debtors
review of contracts and leases for assumption or rejection is
incomplete, the Debtors have exercised their right to reject
certain contracts and have included in liabilities subject to
compromise their estimate of liabilities for damages under those
contracts and leases that they have rejected. Ultimately, all of
the Debtors contracts and leases will either be assumed or
rejected. The Debtors have until the confirmation of its plan of
reorganization to assume or reject contracts and leases and
cannot reasonably predict the ultimate liability that may result
if it rejects other contracts or leases or if others file claims
for damages related to rejected contracts and leases. Such
rejections or claims could result in additional liabilities.
Pre-petition claims, which were contingent or unliquidated at
the commencement of the Chapter 11 Proceedings, are
generally allowable against the
debtor-in-possession in
amounts fixed by the Bankruptcy
F-15
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession
since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Court. A contingent claim is one which is dependent on the
occurrence of a certain event whereas an unliquidated claim is
one in which the amount is uncertain. The rights of and ultimate
payment by the Debtors under pre-petition obligations are
subject to resolution under a plan of reorganization to be
approved by the Bankruptcy Court after submission of the
required vote by affected parties and these obligations may be
substantially altered. The Securities and Exchange Commission
(SEC) has informed the Debtors of its intention to
monitor its Chapter 11 Proceedings and the development of
its plan of reorganization.
In connection with the Chapter 11 Proceedings, the
Bankruptcy Court granted the Debtors several first
day orders which allowed the payment of certain
pre-petition liabilities and enabled the Debtors generally to
operate in the ordinary course of business. In addition, the
Office of the United States Trustee has appointed a committee of
unsecured creditors (Creditors Committee). The
Creditors Committee and its legal representatives have the right
to be heard on all matters that come before the Bankruptcy
Court, including any plan of reorganization that the Debtors may
propose. Any disagreement with the Creditors Committee could
delay the Chapter 11 Proceedings, negatively impact the
Debtors ability to operate or emerge from Chapter 11.
It is not possible to accurately predict the effect of the
Chapter 11 Proceedings on the Companys business and
if or when the Company will emerge from Chapter 11. Its
future results of operations will depend on the timely and
successful confirmation and implementation of a plan of
reorganization and no assurance can be provided that the
Bankruptcy Court will confirm the proposed plan of
reorganization or that any such plan of reorganization will be
consummated. The rights and claims of various creditors and
security holders will be determined by the plan of
reorganization and under the priority plan established by the
Bankruptcy Code, certain post-petition and pre-petition
liabilities must be satisfied before stockholders are entitled
to any distributions. The ultimate recovery during the
Chapter 11 Proceedings to creditors and stockholders, if
any, will not be determined until confirmation of the plan of
reorganization. No assurance can be provided concerning the
values, if any, that will be ascribed in the Chapter 11
Proceedings to the interests of each of these constituencies and
it is possible that the Companys equity or other debt
securities will be restructured in a manner that will
substantially reduce or eliminate any remaining value. Also, if
no plan of reorganization is approved, it is possible that the
assets of the Debtor will be liquidated.
The bar date for creditors to file claims with the Bankruptcy
Court was February 17, 2006 and the Company has not
reconciled these claims to its records. The Company currently
has the exclusive right to file a plan of reorganization until
July 15, 2006 and to solicit acceptance of the plan through
September 13, 2006. The exclusivity date can be extended at
the Companys request, if approved by the Bankruptcy Court.
However, the Company can provide no assurance as to whether any
request to extend the exclusivity date will be approved.
DIP Facility
As disclosed in Note 2, in connection with the
Chapter 11 Proceedings, the Company entered into the DIP
Facility which provided financing of up to $230 million. On
August 2, 2005, using funds received from the DIP Facility,
the Company paid in full the amounts due and payable under its
credit facility (Pre-petition Facility). Funds under
the DIP Facility are available to help satisfy the
Companys working capital obligations during the
Chapter 11 Proceedings, including payment under normal
terms for goods and services provided after the Petition Date,
payment of wages and benefits to active employees and retirees
and other items approved by the Bankruptcy Court. The DIP
Facility and the Pre-petition Facility are more fully discussed
in Note 14.
F-16
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession
since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Accounting for Reorganization |
As disclosed in Note 2,
SOP 90-7 requires
that financial statements, for periods including and subsequent
to the filing of a Chapter 11 petition, distinguish
transactions and events that are directly associated with the
reorganization from the ongoing operations of the business. In
accordance with
SOP 90-7, the
Debtors have:
|
|
|
|
|
separated liabilities that are subject to compromise from
liabilities that are not subject to compromise; |
|
|
|
distinguished transactions and events that are directly
associated with the reorganization from the ongoing operations
of the business; and |
|
|
|
ceased accruing interest on the
85/8
% senior notes (Senior Notes). |
|
|
|
Liabilities Subject to Compromise |
Liabilities subject to compromise include certain known
liabilities incurred by the Debtors prior to the Petition Date.
Liabilities subject to compromise exclude pre-petition claims
for which the Debtors have received the Bankruptcy Courts
approval to pay, such as claims related to active employees and
retirees, maintenance of insurance programs, cargo damage claims
and claims related to certain critical service vendors.
Liabilities subject to compromise are included at amounts
expected to be allowed by the Bankruptcy Court and are subject
to future adjustments that may result from negotiations, actions
by the Bankruptcy Court, developments with respect to disputed
claims or matters arising out of the proof of claims process
whereby a creditor may prove that the amount of a claim differs
from the amount that the Company has recorded.
The bar date set by the Bankruptcy Court for the submission of
claims by creditors was February 17, 2006. A number of
proofs of claim were filed against the Debtors by various
creditors and security holders. As part of the claims
reconciliation process, the Debtors will review these claims for
validity. As claims are reconciled, the Debtors may need to
record additional liabilities subject to compromise. Adjustments
arising out of the claims reconciliation process could have a
material effect on the financial statements.
The Company ceased the recording of interest on liabilities
subject to compromise, primarily the Senior Notes as of the
Petition Date. Contractual interest on the Senior Notes in
excess of reported interest was approximately $5.4 million
for the year ended December 31, 2005, excluding any
potential compound or default interest arising from events of
default related to the Chapter 11 Proceedings.
Liabilities subject to compromise are as follows at
December 31, 2005 (in thousands):
|
|
|
|
|
Accounts payable
|
|
$ |
24,922 |
|
Senior Notes
|
|
|
150,000 |
|
Accrued interest on Senior Notes
|
|
|
4,313 |
|
Multiemployer pension withdrawal liabilities
|
|
|
15,847 |
|
Accrued claims and insurance reserves
|
|
|
3,109 |
|
Other accrued liabilities
|
|
|
1,131 |
|
|
|
|
|
|
|
$ |
199,322 |
|
|
|
|
|
F-17
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession
since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Reorganization items are presented separately in the
accompanying consolidated statements of operations and represent
expenses identified as directly relating to the Chapter 11
Proceedings. These items are summarized below for the year ended
December 31, 2005 (in thousands):
|
|
|
|
|
Legal and professional fees
|
|
$ |
5,153 |
|
Write-off of deferred financing costs
|
|
|
1,442 |
|
Provision for rejected executory contracts and leases
|
|
|
220 |
|
Employee retention plan
|
|
|
173 |
|
Other reorganization items
|
|
|
143 |
|
|
|
|
|
|
|
$ |
7,131 |
|
|
|
|
|
|
|
|
Condensed Financial Statement Information of the Debtors
and Non-Debtors |
As disclosed in Note 1, the Companys captive
insurance company, Haul Insurance Limited, as well as its
subsidiaries in Mexico, Bermuda and South Africa (the
Non-debtors) were not among the subsidiaries that
filed for Chapter 11. On October 28, 2005, with
Bankruptcy Court approval, the Company sold its interest in
Kar-Tainer International, LLC and this bankruptcy case was
dismissed on November 4, 2005. Included in the sale was
Kar-Tainer Intl (Pty) Ltd, the Companys South
African subsidiary. Presented below are condensed consolidating
financial statement information of the Debtors and the
Non-debtors. The results of operations for the ten month period
ending October 28, 2005 of Kar-Tainer International, LLC
and Kar-Tainer Intl (Pty) Ltd are included in the
condensed statement of operations of the Non-debtors.
Condensed Consolidating Balance Sheet Information
December 31, 2005
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debtors | |
|
Non-Debtors | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
Current assets
|
|
$ |
121,807 |
|
|
$ |
41,261 |
|
|
$ |
|
|
|
$ |
163,068 |
|
Intercompany receivables (payables)
|
|
|
14,744 |
|
|
|
(14,744 |
) |
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
120,212 |
|
|
|
3,692 |
|
|
|
|
|
|
|
123,904 |
|
Goodwill, net
|
|
|
3,545 |
|
|
|
|
|
|
|
|
|
|
|
3,545 |
|
Investment in related party
|
|
|
26,402 |
|
|
|
6,223 |
|
|
|
(32,625 |
) |
|
|
|
|
Other assets
|
|
|
22,366 |
|
|
|
70,233 |
|
|
|
|
|
|
|
92,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
309,076 |
|
|
$ |
106,665 |
|
|
$ |
(32,625 |
) |
|
$ |
383,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities not subject to compromise:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$ |
264,265 |
|
|
$ |
28,245 |
|
|
|
|
|
|
$ |
292,510 |
|
|
Other noncurrent liabilities
|
|
|
26,684 |
|
|
|
51,967 |
|
|
|
|
|
|
|
78,651 |
|
Liabilities subject to compromise
|
|
|
199,322 |
|
|
|
|
|
|
|
|
|
|
|
199,322 |
|
Stockholders (deficit) equity
|
|
|
(181,195 |
) |
|
|
26,453 |
|
|
|
(32,625 |
) |
|
|
(187,367 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders (deficit) equity
|
|
$ |
309,076 |
|
|
$ |
106,665 |
|
|
$ |
(32,625 |
) |
|
$ |
383,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession
since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed Consolidating Statement of Operations
Information
For the Year Ended December 31, 2005
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debtors | |
|
Non-Debtors | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
Revenues
|
|
$ |
889,643 |
|
|
$ |
41,413 |
|
|
$ |
(38,122 |
) |
|
$ |
892,934 |
|
Operating expenses
|
|
|
982,931 |
|
|
|
43,201 |
|
|
|
(38,122 |
) |
|
|
988,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(93,288 |
) |
|
|
(1,788 |
) |
|
|
|
|
|
|
(95,076 |
) |
Other (expense) income, net
|
|
|
(43,482 |
) |
|
|
9,133 |
|
|
|
|
|
|
|
(34,349 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before reorganization items and income taxes
|
|
|
(136,770 |
) |
|
|
7,345 |
|
|
|
|
|
|
|
(129,425 |
) |
Reorganization items
|
|
|
(7,131 |
) |
|
|
|
|
|
|
|
|
|
|
(7,131 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(143,901 |
) |
|
|
7,345 |
|
|
|
|
|
|
|
(136,556 |
) |
Income tax benefit (expense)
|
|
|
12,021 |
|
|
|
(1,189 |
) |
|
|
|
|
|
|
10,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$ |
(131,880 |
) |
|
$ |
6,156 |
|
|
$ |
|
|
|
$ |
(125,724 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
Information
For the Year Ended December 31, 2005
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debtors | |
|
Non-Debtors | |
|
Eliminations |
|
Consolidated | |
|
|
| |
|
| |
|
|
|
| |
Net cash (used in) provided by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$ |
(56,660 |
) |
|
$ |
21,667 |
|
|
$ |
|
|
|
$ |
(34,993 |
) |
|
Investing activities
|
|
|
(17,024 |
) |
|
|
(20,593 |
) |
|
|
|
|
|
|
(37,617 |
) |
|
Financing activities
|
|
|
74,186 |
|
|
|
|
|
|
|
|
|
|
|
74,186 |
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
527 |
|
|
|
1,074 |
|
|
|
|
|
|
|
1,601 |
|
Cash and cash equivalents at beginning of year
|
|
|
203 |
|
|
|
2,313 |
|
|
|
|
|
|
|
2,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
730 |
|
|
$ |
3,387 |
|
|
$ |
|
|
|
$ |
4,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4) |
Recent Accounting Pronouncements |
In May 2005, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 154, Accounting
Changes and Error Corrections. SFAS No. 154
replaces Accounting Principles Board (APB) Opinion
No. 20, Accounting Changes and
SFAS No. 3, Reporting Changes in Interim
Financial Statements. SFAS No. 154 changes
the accounting for, and reporting of, a change in accounting
principle. SFAS No. 154 requires retrospective
application to prior periods financial statements of
voluntary changes in accounting principle and changes required
by new accounting standards when the standard does not include
specific transition provisions, unless it is impracticable to do
so. SFAS No. 154 is effective for accounting changes
and corrections of errors during fiscal years beginning after
December 15, 2005. Early adoption is permitted for
accounting changes and corrections of errors during fiscal years
beginning after June 1, 2005. The Company will adopt this
statement effective January 2006.
In March 2005, the FASB issued FASB Interpretation No. 47
(FIN 47), Accounting for Conditional Asset
Retirement Obligations, which clarifies that the term
conditional asset retirement obligation as used in
F-19
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession
since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
SFAS No. 143, Accounting for Asset Retirement
Obligations, refers to a legal obligation to perform an
asset retirement activity in which the timing and
(or) method of settlement are conditional on a future event
that may or may not be within the control of the entity. The
obligation to perform the asset retirement activity is
unconditional even though uncertainty exists about the timing
and (or) method of settlement. Accordingly, an entity is
required to recognize a liability for the fair value of a
conditional asset retirement obligation if a legal obligation to
perform the asset retirement activity exists and the fair value
of the liability can be reasonably estimated. Uncertainty about
the timing and (or) method of settlement of a conditional
asset retirement obligation should be factored into the
measurement of the liability when sufficient information exists.
FIN 47 also clarifies when an entity would have sufficient
information to reasonably estimate the fair value of an asset
retirement obligation. FIN 47 was effective for the Company
on December 31, 2005. The adoption of FIN 47 had no
impact on the Companys financial position or results of
operations.
In December 2004, the FASB issued SFAS No. 123
(revised 2004), Share-Based Payment
(SFAS No. 123R), which replaces
SFAS No. 123, Accounting for Stock-Based
Compensation, supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees and amends
SFAS No. 95, Statement of Cash Flows.
SFAS No. 123R requires all share-based payments to
employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair
values. The pro forma disclosures previously permitted under
SFAS No. 123 will no longer be an alternative to
financial statement recognition. SFAS No. 123R also
requires the benefits of tax deductions in excess of recognized
compensation expense to be reported as a financing cash flow,
rather than as an operating cash flow as required under current
literature. In March 2005, the Securities and Exchange
Commission (SEC) issued Staff Accounting
Bulletin No. 107, which provides interpretive guidance
regarding the interaction of SFAS No. 123R and certain
SEC rules and regulations related to share-based payment
transactions with nonemployees, valuation methods,
classification of compensation expense, non-GAAP measures,
accounting for income tax effects, modification of employee
share options prior to adoption and disclosures in
Managements Discussion and Analysis. The FASB has also
issued various implementation guidance in relation to
SFAS No. 123R.
SFAS No. 123R is effective for the Company on
January 1, 2006. The Company will use the modified
prospective method upon adoption and hence will not restate
prior period results. Under the modified prospective
method, awards that are granted, modified or settled after the
adoption date shall be measured and accounted for in accordance
with SFAS No. 123R. Unvested equity awards granted
prior to the effective date will continue to be measured as
under SFAS No. 123 except that the related
compensation expense must be recognized in the income statement
in accordance with SFAS No. 123R. The Companys
unrecognized compensation expense associated with unvested stock
options was approximately $594,000 at December 31, 2005,
which, subject to any modifications that may occur in future
years, will be recognized at $372,000, $197,000 and $25,000
during the years ending December 31, 2006, 2007 and 2008,
respectively. The Company does not expect to grant any new stock
options during the Chapter 11 Proceedings.
F-20
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession
since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(5) |
Restricted Investments and Investment Income |
There were no restricted investments as of December 31,
2005 or December 31, 2004 as during 2004, all of the
Companys investments, which consisted of federal, state,
and municipal government obligations, corporate securities, and
equity securities, were converted to cash, cash equivalents and
other time deposits. The cost of securities sold was based on
the specific identification method. Sales of securities for the
years ended December 31, 2004, and 2003 are summarized
below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
Cash proceeds
|
|
$ |
157,950 |
|
|
$ |
78,360 |
|
|
Gross realized gains
|
|
|
120 |
|
|
|
2,206 |
|
|
Gross realized losses
|
|
|
(299 |
) |
|
|
(616 |
) |
Equity securities:
|
|
|
|
|
|
|
|
|
|
Cash proceeds
|
|
|
|
|
|
|
13,506 |
|
|
Gross realized gains
|
|
|
|
|
|
|
2,072 |
|
|
Gross realized losses
|
|
|
|
|
|
|
(1,217 |
) |
Investment income (loss) consists of the following for the years
ended December 31, 2005, 2004, and 2003 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Interest and dividend income
|
|
$ |
2,813 |
|
|
$ |
1,315 |
|
|
$ |
2,045 |
|
Realized (losses) gains
|
|
|
|
|
|
|
(179 |
) |
|
|
2,445 |
|
Unrealized losses
|
|
|
|
|
|
|
|
|
|
|
(1,318 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,813 |
|
|
$ |
1,136 |
|
|
$ |
3,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(6) |
Prepayments and Other Current Assets |
Prepayments and other current assets consist of the following at
December 31, 2005 and 2004 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Tires on tractors and trailers
|
|
$ |
2,245 |
|
|
$ |
2,231 |
|
Prepaid insurance
|
|
|
50,185 |
|
|
|
4,058 |
|
Prepaid licenses
|
|
|
1,532 |
|
|
|
1,570 |
|
Short-term deposits with Pre-petition lenders
|
|