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 |
For the year ended December 31, 2006
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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
(State or other jurisdiction of
incorporation or organization)
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58-0360550
(I.R.S. Employer
ID Number) |
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160 Clairemont Avenue, Suite 200, Decatur, Georgia 30030
(Address of principal executive office)
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(404) 373-4285
(Registrants telephone number, including area code) |
Securities
registered pursuant to Section 12(b) of the Act:
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None
(Title of Class)
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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
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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 3, 2007 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, 2006 as reported on the Pink Sheets, was
approximately $5.6 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
PART I
Item 1. Business
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 2006 revenues.
Voluntary Reorganization under Chapter 11
On July 31, 2005 (the Petition Date), Allied Holdings, Inc. and substantially all of its subsidiaries (the Debtors) filed voluntary petitions with the U.S. Bankruptcy Court for the Northern District of Georgia (the Bankruptcy Court) 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 and Bermuda (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.
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 bargaining employees in the U.S. and the increase in non-union vehicle-hauling competition. The majority of our bargaining employees in the U.S. are covered by the National Master Automobile Transporters Agreement (Master Agreement) with the International Brotherhood of Teamsters (the Teamsters or IBT). We are currently operating our business as debtors-in-possession under the jurisdiction of the 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 effective as the Chapter 11 Proceedings.
On April 6, 2007, the Bankruptcy Court approved the Disclosure Statement (Disclosure Statement) for the Second Amended Joint Plan of Reorganization (as amended, the Joint Plan) filed by the Debtors, the Teamsters National Automobile Transportation Industry Negotiating Committee, on behalf of the Teamsters and Yucaipa American Alliance Fund I, LP and Yucaipa American Alliance (Parallel) Fund I, LP (collectively Yucaipa) and authorized its use in connection with the solicitation of votes from those creditors and other parties in interest that were entitled to vote on a plan of reorganization. We subsequently received the votes needed and the Bankruptcy Court approved the Joint Plan on May 18, 2007. The Joint Plan includes several conditions precedent to the effective date, including the closing and funding of exit financing.
The Disclosure Statement for the Joint Plan contemplates that we will continue to operate in substantially our current form, and contemplates the resolution of the outstanding claims against and interests in the Debtors pursuant to the Bankruptcy Code. Upon the effective date of the Joint Plan, the Debtors would be reorganized through, among other things, the consummation of the following transactions:
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Payment of the Original DIP Facility and funding of the exit financing, both of which have been facilitated by the New DIP Facility, subject to certain conditions; |
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Payment in cash, reinstatement, return of collateral or other treatment of other secured claims agreed between the holder of each such claim and Yucaipa; |
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Distribution of new common stock on a pro rata basis to the holders of allowed general unsecured claims; |
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Cancellation of the existing common stock interests in the Debtors (holders of equity interests will receive nothing under the Disclosure Statement for the Joint Plan); and |
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Assumption of assumed contracts. |
On March 30, 2007, we obtained financing arranged
by an affiliate of Goldman Sachs & Co., (the New DIP Facility) which provides
debtor-in-possession financing of up to $315 million.
The New DIP Facility, which was amended in April 2007, replaces the financing obtained on August 1, 2005 in connection with our
Chapter 11 filing (the Original DIP Facility) and subject to the satisfaction of
certain conditions, the New DIP Facility may convert, at
our option, to a senior secured credit facility upon our emergence from Chapter 11. See Note 14 of our consolidated financial statements included in
Item 15 of this Annual Report on Form 10-K for additional discussion on the
New DIP Facility.
As more fully discussed in Equipment, Maintenance and Fuel below, subsequent to December 31, 2006, we entered into an agreement with Yucaipa pursuant to which Yucaipa will purchase approximately 150 specialized tractors and car-haul trailers (Rigs) from the bankruptcy auction of Blue Thunder Auto Transport, Inc. (the Blue Thunder Rigs). The Blue Thunder Rigs will then be sold by Yucaipa to us at cost.
We are financing the purchase of these Rigs with purchase money financing provided to us by Yucaipa (the Rig Financing), which Rig Financing was approved by the Bankruptcy Court on April 6, 2007. The maximum amount financed under the Rig Financing will not exceed $15 million. At the option of Yucaipa, upon our successful emergence from Chapter 11, Yucaipa may convert the Rig Financing into additional equity of our company. As of May 3, 2007, we had purchased 117 of these Rigs
from Yucaipa at a cost of $8.9 million.
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 appointed a committee of unsecured creditors (Creditors Committee). The Creditors Committee and its legal representatives had the right to be heard on all matters that came before the Bankruptcy Court, including the Joint Plan.
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. We had until the confirmation of the Joint Plan to assume or reject contracts and leases.
Pre-petition claims that 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 bar date for creditors to file claims with the Bankruptcy Court was February 17, 2006 and we are in the process of reconciling these claims to our records. The rights of and ultimate payment of pre-petition obligations are subject to resolution under the Joint Plan.
At this time, it is not possible to accurately predict the effect of the Chapter 11 Proceedings on our business. Our future results of operations will depend on the timely and successful implementation of the Joint Plan and we can provide no assurance that the Joint Plan will be consummated. The rights and claims of various creditors and security holders are determined by the Joint Plan under the priority plan established by the Bankruptcy Code.
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The Securities and Exchange Commission (SEC) has informed the Debtors of its intention to monitor the Chapter 11 Proceedings.
See Note 3 of our consolidated financial statements included in Item 15 of this Annual Report on Form 10-K for other Chapter 11 related disclosures. The discussion concerning our Chapter 11 filings that we include in this Annual Report on Form 10-K provides general background information and is not intended to be an exhaustive summary. Detailed information pertaining to our Chapter 11 filings may be viewed at
www.administar.net or on our website at www.alliedholdings.com.
Principal Operating Subsidiaries
Allied Automotive Group
With its specialized tractors and car-haul trailers, the Automotive Group serves and supports
substantially all of the major domestic and foreign automotive manufacturers offering a range of
vehicle 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 2006, 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.
Axis Group
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 2006, 2005
and 2004 is included in Note 19 of our consolidated financial statements included in Item 15 of
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 73 terminals and 40 garages while our Axis Group operates 41
terminals. Our day-to-day operations are directed from these terminals. Our Rigs are primarily
maintained at the 40 garages. 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
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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 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.
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. 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 and the Brazilian 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 cost of fuel, the decline in new
vehicle production at certain of our major customers, the increase in non-union vehicle-hauling
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 and in certain cases an administrative processing fee. Certain contracts
provide for rate variation per vehicle depending on the size and weight of the vehicle. During 2005
and 2006, 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 these years. 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. Under written contracts, the Automotive Group has served Ford
since 1934, DaimlerChrysler since 1979 and General Motors since 1997. 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, provided 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 vehicle-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 executed agreement with Toyota regarding a contract commencing on April 1, 2007,
which will expire on March 31, 2008. This agreement was approved by the
Bankruptcy Court on May 10, 2007 and provides for an increase in the base rates
effective as of May 10, 2007; and |
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an agreement in principle 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 rights to 22 locations in
the U.S. and Canada, provided that Ford will have the right to resource certain business
from Allied at locations which are mutually acceptable to both Ford and Allied. The
agreement in principle provides for increased rates on all business served by Allied for Ford
beginning when we emerge from Chapter 11. This agreement in principle
remains subject to the execution of a definitive agreement between the parties and the
approval of the agreement by the Bankruptcy Court. |
We anticipate that the Automotive Group will be able to continue these relationships with its
customers without interruption of service, but we 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 without a change in service
conditions 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 and collects from these manufacturers.
Allied Automotive Group also utilizes EDI to communicate with inspection companies, railroads, port
processors, and other carriers.
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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 Groups personnel, taking into account the same factors
described above and customer service requirements. 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
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,
new hire training and continuous training.
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 (third-party insurance carriers). Haul Insurance Limited, our captive insurance
subsidiary, provides reinsurance coverage to certain of our third-party insurance carriers for
certain types of losses for certain years within our insurance program, primarily insured workers
compensation, automobile and general liability risks.
Effective January 1, 2006 and continuing into 2007, 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 the claim year ended December 31, 2005, 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. |
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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 year ended December 31, 2005, 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. |
For the claim years 2007, 2006 and 2005, 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
2007 and 2006 is covered by a fully insured program with no deductible. For 2007, the premium paid
is adjustable upward or downward proportionally based on any variance between actual and estimated
payroll. For 2005, our captive insurance subsidiary provided insurance coverage for the majority of
our workers compensation losses 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 certain provinces, 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 third-party insurance carriers 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
As of December 31, 2006, Allied Automotive owned approximately 2,600 Rigs that it operated
along with approximately 315 leased Rigs and approximately 500 Rigs owned and operated by
owner-operators represented by the Teamsters. Allied Automotives fleet of Rigs serves and supports
all of the major domestic and foreign automotive manufacturers. Included in our fleet of Rigs are
some that we have remanufactured.
A new 75-foot Rig currently costs approximately $185,000 and has an approximate useful life of 15
years, on average, if it is properly maintained, it is remanufactured near the midpoint of its
useful life and it has a replacement engine installed at the appropriate mileage interval.
Remanufacturing of a Rig typically involves major structural restoration of the tractor head-rack
and the trailer. This structural restoration of the tractor and trailer varies depending on the age
and condition of the equipment to be remanufactured.
At December 31, 2006, the average age of the Rigs that we own was approximately 12.6 years and the
average remaining useful life was approximately 2.4 years. The average age is generally calculated
based on the tractor manufacture dates. Certain equipment in our fleet is kept in service past the
15 year useful life.
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
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affect our operating results as well as our Rig remanufacturing and maintenance programs. In
addition, we purchase our specialized tractors primarily through one manufacturing company. While
this and other manufacturers also produce non-specialized tractors, we have not determined the
impact on our equipment and operating costs should the specialized tractors not be available in the
future.
In addition, 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.
Capital expenditures for 2006 were $35.8 million, most of which was spent on our fleet of Rigs.
During 2006, we purchased 53 new tractors, 53 new trailers and 124 Rigs previously leased. We also
remanufactured 191 tractors and 261 trailers and replaced approximately 320 engines usually with
overhauled, used engines. During 2005, we purchased one new and two used Rigs, remanufactured 164
tractors and 165 trailers, and replaced approximately 380 engines.
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 2007 through 2010,
which will require a significant increase in our capital spending, from approximately $35.8 million
in 2006 to approximately $66.8 million in 2007 (excluding the Blue Thunder Rigs) and $70 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.
Of the $66.8 million for capital expenditures in 2007 (excluding the Blue Thunder Rigs), we expect
to spend $61.4 million on our fleet of Rigs. Of the $61.4 million, Allied Automotive expects to
spend approximately $27.0 million to purchase over 125 new Rigs, approximately $16.3 million to
remanufacture approximately 200 existing Rigs and an additional 55 trailers, approximately $8.0
million to replace approximately 346 engines, $7.1 million to purchase certain used Rigs and
approximately $2.9 million to purchase certain Rigs which we currently lease. Our Axis Group
expects to spend about $3.6 million of capital in 2007.
Even if we are able to invest the amounts indicated above each year, we will be operating a
substantial number of Rigs beyond their scheduled replacement or remanufacturing due dates.
Accordingly, Rigs may have to be taken out of service sooner than planned as a result of equipment
failures or the Rigs otherwise reaching the end of their useful lives. We presently have no excess
Rigs to service our existing business or to seek additional business. A large number of Rig
failures 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
may be forced to increase repair and maintenance spending in an effort to maintain the number of
Rigs in service. 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.
Subsequent to December 31, 2006, we entered into an agreement with Yucaipa pursuant to which
Yucaipa will purchase the Blue Thunder Rigs, which will then be sold to us at cost. The Blue
Thunder Rigs range between three to five years in age. The Rig Financing, which was provided by
Yucaipa, was approved by the Bankruptcy Court on April 6, 2007. The maximum amount financed
under the Rig Financing will not exceed $15 million and includes additional funds to
retrofit and make any necessary repairs to the Blue Thunder Rigs, and to pay certain costs and
expenses associated with the purchase, such as registration expenses.
The notes under the Rig Financing bear interest at LIBOR plus 4%,
payable quarterly by addition to principal. In addition, at the option of Yucaipa, upon our successful
emergence from Chapter 11, Yucaipa may convert the Rig Financing into additional equity of our
company. As of May 3, 2007, we had purchased 117 of these Rigs from Yucaipa at a cost of $8.9
million.
9
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 2006, Allied Automotive
purchased approximately 39% 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 locations 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.
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 vehicle-hauling company in North America. In January 2006, PTS and
certain of its subsidiaries filed for Chapter 11 protection under the U.S. Bankruptcy Code and, in
January 2007, emerged from Chapter 11. Yucaipa currently has a majority ownership interest in
PTS. Allied Automotives other competitors include:
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The Waggoners Trucking (Waggoners); |
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Cassens Transport Company (Cassens); |
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Jack Cooper Transport Co., Inc. (Jack Cooper); |
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United Road Service (United Road); |
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Fleet Car-lease, Inc. (Fleet); and |
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Active Transportation (Active); |
We believe the Rig capacity and market share represented by the non-union sector of the
vehicle-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 Waggoner, United Road and Fleet are
non-unionized. These companies provide services similar to those we provide and some, particularly
those that are non-union, 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, 2006, we had approximately 5,600 employees, including approximately 2,900 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, made a proposal to the IBT
for a new collective bargaining agreement regarding their employees in the U.S. represented by the
Teamsters to modify the
10
existing collective bargaining agreement. This agreement covers certain drivers as well as certain
yard and shop personnel employed by our Automotive Group. The proposal sought to eliminate future
increases to wages, health, welfare benefits and pension contributions as contemplated by the
Master Agreement, sought to reduce existing wages and contribution levels regarding wages, health,
welfare benefits and pension contributions and sought to modify certain operational procedures.
On February 2, 2007, the Debtors filed a motion, with the Bankruptcy Court, seeking approval to
reject the Master Agreement with the Teamsters. We filed a consent order staying the motion on
February 20, 2007 as a result of ongoing negotiations with the Teamsters. The Disclosure Statement
for the Joint Plan incorporates modifications to our collective bargaining agreement with the
Teamsters in the U.S. The proposed amendment, which was subsequently ratified by the affected
employees, is scheduled to take effect upon the effective date of the Joint Plan and our emergence
from Chapter 11 and would be renewable three years from that date. On April 16, 2007, we were
informed by the IBT that our employees covered by the Master Agreement had ratified the
modification to the Master Agreement as set forth in the Joint Plan. These modifications remain
subject to certain conditions, including our emergence from Chapter 11 under the Joint Plan. Other
significant terms of the proposed agreement include:
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Total U.S. wage concessions of 15%, limited to $35 million per year during the three-year
duration of the agreement; |
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The elimination of future Teamster wage increases; |
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A wage freeze relating to the salaries of management and other nonbargaining employees
during the three-year duration of the agreement (with a few exceptions); and |
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Entitlement of the U.S. Teamsters to a portion of earnings before interest, taxes,
depreciation and amortization (EBITDA) in excess of the projections included in the
Disclosure Statement for the Joint Plan. |
The modifications to the Master Agreement remain subject to various conditions, including our
emergence from Chapter 11 under the Disclosure Statement for the Joint Plan and the appointment of
a new Chief Executive Officer (CEO) reasonably acceptable to the IBT prior to our emergence from
Chapter 11. In connection with these conditions, on April 30, 2007, we reached a decision to
terminate Mr. Sawyers employment effective upon our emergence date from Chapter 11 or on such earlier date after June 1, 2007 as we may determine at our sole discretion. See Item
11. Director and Executive Compensation for further discussion of the terms of Mr. Sawyers
termination.
As a result of a projected liquidity shortfall that was projected to occur during 2006 and pursuant
to the conditions of an amendment to the Original DIP Facility, during 2006, we requested and the
Bankruptcy Court approved a 10% reduction in wages earned under the Master Agreement in May and
June 2006. The order granted by the Bankruptcy Court also allowed us to delay, to July 1, 2006,
wage and cost of living increases that were previously scheduled under the Master Agreement to go
into effect on June 1, 2006.
We had also begun negotiations with the Teamsters Union in Eastern Canada regarding our collective
bargaining agreement that expired on October 31, 2006. This agreement covers those drivers,
mechanics and yard personnel that are represented by the Teamsters Union in the provinces of
Ontario and Quebec, which represent approximately 70% of our Canadian bargaining employees. These
negotiations have been postponed and are scheduled to recommence on our emergence from Chapter 11.
No assurance can be provided that we will be able to negotiate a new union contract with the
Teamsters union regarding our employees in the Provinces of Ontario and Quebec, or that such
contract, if negotiated, will be on terms acceptable to us or that the contract will not result in
increased labor costs or work stoppages, or lost customer market share which could, in turn, have a
material adverse effect on our operations. No work stoppage may be commenced in regard to this
contract in Eastern Canada until a minimum of 60 days after the parties have bargained to impasse.
We can provide no assurance that our union contracts which are negotiated as current contracts
expire 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 our drivers, the employee total above also includes approximately 560
owner-operators that our Automotive Group utilizes for vehicle deliveries along with our drivers.
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
11
truck allowance. Of the estimated 560 owner-operators that we utilize, approximately 95 drive
exclusively from terminals in Canada for our subsidiary, Allied Systems (Canada) Company, while
approximately 465 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.
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 these regulations. We estimate that
approximately 60% of our drivers were affected by these 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 vehicle-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.
Revenue Variability
Our revenues are variable and can be impacted by changes in original equipment manufacturer (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 as a result of the higher volume of vehicles
delivered. The volume of vehicles delivered is generally higher during the second quarter as
North American light vehicle production has historically been at its highest level during this
quarter due to higher consumer sales of automobiles, light trucks and SUVs in the spring and early
summer. The introduction of new models in the fall of each year, combined with the manufacturers
motivation to ship vehicles before calendar year end, increase shipments to dealers through the
fourth quarter. During the first and third quarters, vehicle deliveries typically decline due to
lower production volume during those periods. The third quarter volume does benefit from the
introduction of new models, but the net volume for the quarter is typically lower than the second
and fourth quarters due to the scheduled OEM plant shutdowns, which generally occur early in the
third quarter. The first quarter volume is negatively impacted by the holiday shutdown in December
of each year and the relatively low inventory of vehicles to ship as a result of maximizing
shipments at the end of the year. 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. Delivery 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.
12
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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2006 |
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2005 |
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vs. |
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vs. |
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2005 |
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2004 |
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2006 |
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2005 |
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Change |
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2004 |
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Change |
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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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7.3 |
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8.0 |
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(8.8 |
)% |
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8.4 |
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(4.8 |
)% |
Other |
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3.5 |
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3.5 |
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% |
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3.2 |
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9.4 |
% |
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Total |
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10.8 |
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11.5 |
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(6.1 |
)% |
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11.6 |
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(0.9 |
)% |
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Canada: |
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Big Three(1) |
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1.6 |
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1.8 |
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(11.1 |
)% |
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1.9 |
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(5.3 |
)% |
Other |
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0.9 |
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0.9 |
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% |
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0.8 |
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12.5 |
% |
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Total |
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2.5 |
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2.7 |
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(7.4 |
)% |
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2.7 |
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% |
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Mexico: |
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Big Three(1) |
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1.2 |
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0.9 |
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33.3 |
% |
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0.9 |
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% |
Other |
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0.8 |
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0.7 |
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14.3 |
% |
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0.6 |
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16.7 |
% |
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Total |
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2.0 |
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1.6 |
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25.0 |
% |
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1.5 |
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6.7 |
% |
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|
New Vehicle Sales (in millions of units) |
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United States: |
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|
Big Three(1) |
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9.6 |
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10.2 |
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(5.9 |
)% |
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10.6 |
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(3.8 |
)% |
Import |
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3.0 |
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2.7 |
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11.1 |
% |
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2.7 |
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% |
Transplant(2) |
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3.9 |
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3.8 |
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2.6 |
% |
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3.4 |
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11.8 |
% |
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Total |
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16.5 |
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16.7 |
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(1.2 |
)% |
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16.7 |
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% |
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Canada: |
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|
Big Three(1) |
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1.0 |
|
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|
1.0 |
|
|
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% |
|
|
0.9 |
|
|
|
11.1 |
% |
Other |
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|
0.6 |
|
|
|
0.6 |
|
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|
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% |
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|
0.6 |
|
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% |
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|
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Total |
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|
1.6 |
|
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|
1.6 |
|
|
|
|
% |
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|
1.5 |
|
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6.7 |
% |
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|
(1) |
|
Represents General Motors Corporation, Ford Motor Company and DaimlerChrysler Corporation. |
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(2) |
|
Represents foreign vehicles made in the U.S. |
Source: December 2006 Edition of North American Light Vehicle Industry Forecast Report (a
production of Global Insight 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, utilizing Rigs, handle
final delivery to dealers. 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 Condition 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.
13
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, as well as other documents that we file with the SEC, 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.
Item 1A.
Risk Factors
Our business is subject to certain risks, including the risks described below. 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. The risks described below, as well as the other risks that are generally set
forth in this Annual Report on Form 10-K, could materially and adversely affect our business,
results of operations and financial condition. Readers of this Annual Report on Form 10-K should
take such risks into account in evaluating any investment decision involving our common stock or
debt securities.
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. On May 18, 2007, the
Bankruptcy Court approved the Joint Plan filed by the Debtors, the Teamsters and Yucaipa. Our ability to successfully reorganize
could be hampered by a number of factors including our ability to
consummate the Joint Plan, our ability to comply with the covenants contained within the New DIP
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.
Investors
in our common stock and debt securities will suffer a loss since, under the Disclosure
Statement for the Joint Plan, equity shareholders will receive nothing and debt holders will
receive less than the amount of their initial investment.
The Joint Plan provides that our currently outstanding
common stock will have no value and will be canceled and that the holders thereof will not receive
a distribution of any type. Further, the value of our various pre-petition liabilities
14
and other securities is highly speculative. Accordingly, caution should be exercised with respect
to existing and future investments in any of these liabilities and securities.
We have a significant amount of debt and substantially all our assets are pledged as collateral for
debt obligations, which could limit our operational flexibility and customer relationships or
otherwise adversely affect our financial condition.
As of December 31, 2006, we had consolidated term debt and borrowings under the Original DIP
Facility of approximately $161.4 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 on March 30, 2007, the Original DIP Facility was replaced by the New DIP Facility,
which provides financing of up to $315 million. However, we are still exposed to the risks normally
associated with substantial amounts of debt such as:
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We may not be able to repay, refinance or extend our debt as it matures. The New DIP
Facility matures on September 30, 2007 if we do not emerge from Chapter 11 on or prior to
that date; |
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If we are not able to refinance or extend our debt when it matures, we may not be able
to repay the debt; |
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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; |
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Our flexibility in responding to changes in the business and industry may be reduced; |
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We may be more vulnerable to economic downturns; |
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We may be unable to invest in our fleet of Rigs; |
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We may be unable to meet customer demands; and |
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We may be limited in our ability to withstand competitive pressures. |
The terms of the New DIP Facility place restrictions on us, which create risks of default and
limits our flexibility.
The New 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 the New DIP Facility, and these are not
waived, or we do not adequately service this debt, our lenders could declare a default under the
New DIP Facility. If a default occurs under the New 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 the New DIP Facility are collateralized with substantially all of our
assets. If we were unable to repay any borrowings under the New 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 the New DIP Facility, particularly any default that results 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 and 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 2007 through 2010,
which will require a significant increase in our capital spending, from approximately $35.8 million
in 2006 to approximately $66.8 million in 2007 (excluding the Blue Thunder Rigs) and $70 million in
each of the years 2008, 2009 and 2010. No assurances can be provided that we will have the
15
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.
Even if we are able to invest the amounts indicated above each year, we will be operating a
substantial number of Rigs beyond their scheduled replacement or remanufacturing due dates.
Accordingly, Rigs may have to be taken out of service sooner than planned as a result of equipment
failures or the Rigs otherwise reaching the end of their useful lives. We presently have no excess
Rigs to service our existing business or to seek additional business. A large number of Rig
failures 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
may be forced to increase repair and maintenance spending in an effort to maintain the number of
Rigs in service. 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.
If we are not able to renegotiate our union contracts on terms favorable to us as they expire, or
if work stoppages or other labor disruptions occur during such negotiations, it could have a
material adverse effect on our operations.
The Disclosure Statement for the Joint Plan incorporates modifications to our collective bargaining
agreement with the Teamsters in the U.S. The proposed amendment, which has been ratified by the
affected employees, is scheduled to take effect upon the effective date of the Disclosure Statement
for the Joint Plan and would be renewable three years from that date. The modifications to the
Master Agreement remain subject to various conditions, including our emergence from Chapter 11
under the Disclosure Statement for the Joint Plan and the appointment of a new CEO reasonably
acceptable to the IBT prior to our emergence from Chapter 11. We can provide no assurance that
these conditions will be met or that we will emerge from Chapter 11.
In addition, we can provide no assurance that we will be able 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.
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 sale 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 reset at varying intervals which do not exceed one quarter,
based on the fuel prices from the applicable previous period. Therefore, there is a 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.
16
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, fuel prices, 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 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.
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 expenses in
subsequent years.
We are also required to provide collateral to our third-party insurance carriers 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. 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.
We have a history of losses and may not be able to improve our performance to achieve
profitability.
We
reported net losses of $12.3 million, $125.7 million, $53.9 million, $8.6 million and $7.5
million for the years ended December 31, 2006, 2005, 2004, 2003 and 2002, respectively. In
addition, our accumulated deficit at December 31, 2006 was $228.4 million. Our ability to improve
our performance and profitability is dependent upon several factors including the timely and
successful 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
17
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, 2006, our restricted cash, cash equivalents and other time deposits were
approximately $98.3 million. We use these restricted cash and investments to collateralize letters
of credit required by third-party insurance carriers 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 2006 revenues were
generated through the services provided to these customers. 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. The Automotive Group recently
reached an agreement in principle with Ford which would give Ford the right to resource certain of
our business at locations mutually acceptable to Allied and Ford. 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.
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 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 we can. 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 vehicle-hauling companies that
utilize non-union labor, and we believe that the market share and Rig capacity represented by such
companies is increasing. Vehicle-hauling companies that utilize non-union labor operate at a
significant cost advantage as compared to our Automotive Group and other unionized vehicle-hauling
companies. Non-union vehicle-hauling 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. We 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.
18
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. On April 30, 2007, the Board of Directors notified Mr. Sawyer that his
employment would be terminated on or about May 31, 2007. We are currently conducting a search for
a new CEO to replace Mr. Sawyer. 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, including a new CEO who is reasonably acceptable to the Teamsters.
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 than historical Teamster employee retirements or resignations
which could occur as a result of our efforts to seek interim wage relief and modifications to the
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, when necessary.
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 the years ended December
31, 2005, 2004 and 2003, including reviews of the quarterly periods
for those years, KPMG LLP (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, 2006, KPMG indicated that they did not identify a
material weakness as of December 31, 2006. 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 our annual assessment of internal control over financial reporting 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.
19
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.
Item 2. Properties
Our executive offices are located in Decatur, Georgia, a suburb of Atlanta. We lease approximately
113,000 square feet of space for our executive offices, which we believe is sufficient to permit us
to conduct our corporate business. This lease expires on December 31, 2007 and we are considering
alternatives regarding the lease requirements for our corporate offices. We have subleased
approximately 28,000 square feet of this space for varying terms. Our Automotive Group also
operates from 73 terminals throughout the U.S. and Canada, which are located at or close to
manufacturing plants, ports, and railway terminals. Allied Automotive currently owns 15 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 41 terminals, one of which is owned.
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 the New DIP Facility are secured by
a first priority security interest in certain of our assets. If we were unable to repay any
borrowings under the New DIP Facility as they are due, our lenders would have the right to proceed
against the collateral.
Our Automotive Groups Rigs are substantially maintained at 40 garages (also referred to as shops)
located throughout the U.S. and Canada. Approximately 510 maintenance personnel, including managers
and supervisors, staff these garages. Of the 40 shops, our Automotive Group owns 16 and leases the
remaining 24. 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 to our consolidated financial
statements included in Item 15 of this Annual Report on Form 10-K.
20
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth quarter of 2006.
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.
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.
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Year Ended December 31, |
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2006 |
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|
2005 |
|
Period: |
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
First Quarter |
|
$ |
1.01 |
|
|
$ |
0.55 |
|
|
$ |
4.50 |
|
|
$ |
2.10 |
|
Second Quarter |
|
$ |
0.95 |
|
|
$ |
0.81 |
|
|
$ |
2.30 |
|
|
$ |
0.41 |
|
Third Quarter |
|
$ |
0.94 |
|
|
$ |
0.54 |
|
|
$ |
0.81 |
|
|
$ |
0.06 |
|
Fourth Quarter |
|
$ |
1.42 |
|
|
$ |
0.45 |
|
|
$ |
0.65 |
|
|
$ |
0.18 |
|
As of May 4, 2007, common stock holders of record totaled approximately 2,700 in number.
We have paid no cash dividends since our stock became publicly traded in 1993. Furthermore, the New
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 and Note 14 in the notes
to our consolidated financial statements included in Item 15 of this Annual Report on Form 10-K.
Performance Graph
The following graph compares the cumulative total stockholder returns (stock price appreciation
plus dividends) on our common stock with the cumulative total return of the NASDAQ Composite Index
(U.S. Companies) and of the NASDAQ Transportation Index for the period beginning December 31, 2001
through December 31, 2006. We believe that the NASDAQ Composite Index and the NASDAQ
Transportation Index are the appropriate indices for purposes of this Performance Graph.
21
Notwithstanding anything to the contrary set forth in any of our filings under the Securities Act
of 1933, or the Securities Act of 1934 that might incorporate future filings, including this Annual
Report on Form 10-K, in whole or in part, the performance graph presented above shall not be
incorporated by reference into any such filings.
22
Item 6. Selected 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. Factors affecting comparability of the information reflected in the years ended December 31, 2006, 2005 and 2004 are included in those Items. Factors affecting the years ended December 31, 2003 and 2002 are included in footnotes to the table.
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Year Ended December 31, |
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|
|
(In thousands, except per share amounts) |
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|
|
2006 |
|
|
2005 |
|
|
2004 |
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|
2003 |
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2002 |
|
Selected Statement of Operations Data: |
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|
|
|
|
Revenues |
|
$ |
893,837 |
|
|
$ |
892,934 |
|
|
$ |
895,213 |
|
|
$ |
865,463 |
|
|
$ |
898,060 |
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|
Income (loss) before income taxes, |
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|
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|
reorganization items and cumulative |
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|
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|
|
|
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|
|
|
effect of change in accounting principle |
|
|
836 |
|
|
|
(129,425 |
) |
|
|
(41,522 |
) |
|
|
(2,338 |
) |
|
|
(4,563 |
) |
Reorganization items |
|
|
(12,772 |
) |
|
|
(7,131 |
) |
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|
Loss before income taxes and cumulative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
effect of change in accounting principle |
|
|
(11,936 |
) |
|
|
(136,556 |
) |
|
|
(41,522 |
) |
|
|
(2,338 |
) |
|
|
(4,563 |
) |
Income tax (expense) benefit |
|
|
(389 |
) |
|
|
10,832 |
|
|
|
(12,361 |
) |
|
|
(6,266 |
) |
|
|
1,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in accounting principle |
|
|
(12,325 |
) |
|
|
(125,724 |
) |
|
|
(53,883 |
) |
|
|
(8,604 |
) |
|
|
(3,434 |
) |
Cumulative effect of change in accounting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
principle, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,092 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(12,325 |
) |
|
$ |
(125,724 |
) |
|
$ |
(53,883 |
) |
|
$ |
(8,604 |
) |
|
$ |
(7,526 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted |
|
$ |
(1.37 |
) |
|
$ |
(14.02 |
) |
|
$ |
(6.15 |
) |
|
$ |
(1.02 |
) |
|
$ |
(0.91 |
) |
Weighted-average common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding basic and diluted |
|
|
8,980 |
|
|
|
8,970 |
|
|
|
8,757 |
|
|
|
8,475 |
|
|
|
8,301 |
|
Selected Balance Sheet Data (period end): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
338,768 |
|
|
$ |
383,116 |
|
|
$ |
421,532 |
|
|
$ |
460,063 |
|
|
$ |
468,387 |
|
Debtor-in-possession credit facility |
|
|
(161,357 |
) |
|
|
(151,997 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Pre-petition long-term debt, including |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
current portion and revolving credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
facilities |
|
|
|
|
|
|
|
|
|
|
(251,238 |
) |
|
|
(246,500 |
) |
|
|
(248,475 |
) |
Long-term liabilities other |
|
|
(81,422 |
) |
|
|
(78,887 |
) |
|
|
(91,690 |
) |
|
|
(86,013 |
) |
|
|
(82,884 |
) |
Liabilities subject to compromise |
|
|
(199,212 |
) |
|
|
(199,322 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders (deficit) equity |
|
|
(204,132 |
) |
|
|
(187,367 |
) |
|
|
(41,549 |
) |
|
|
8,814 |
|
|
|
10,314 |
|
1 |
Income tax expense for the year ended December 31, 2003 included a charge of $6.8 million to record a valuation allowance against our deferred tax assets. |
|
2 |
Effective January 1, 2002, we adopted the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, and recorded a charge related to the impairment of goodwill of the Axis Group. |
We may be required, as part of our emergence from bankruptcy protection, to adopt fresh-start
reporting in a future period. If fresh-start reporting 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 amounts of assets and liabilities on our
consolidated balance sheets and, if fresh-start reporting is required, our financial results after
the application of fresh-start reporting could differ materially from historical results. In
addition, the Joint Plan could substantially change the amounts currently
recorded. Asset and liability carrying amounts do not purport to represent the realizable or
settlement values that will be reflected in the Joint Plan and, at this time,
it is not possible to estimate the impact on our financial statements.
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
We are a vehicle-hauling company with annual revenues of approximately $900 million. We offer a
range of vehicle 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. Our principal operating subsidiaries are the Allied
Automotive Group and the Axis Group. Allied Automotive Group is our largest subsidiary comprising
97% of our 2006 revenues. Using its Rigs, the Automotive Group serves and supports 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 it delivers
annually versus
23
total vehicles produced as well as revenues generated from vehicle deliveries. As more fully
discussed in Item 1. Business, Allied Automotives largest customers are General Motors, Ford,
DaimlerChrysler, Toyota and Honda. 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.
Since July 31, 2005, Allied Holdings, Inc. and substantially all of its subsidiaries have been operating under Chapter 11 of the Bankruptcy Code. On April 6, 2007, the Bankruptcy Court approved the Disclosure Statement and authorized its use in connection with the solicitation of votes from those creditors and other parties in interest that were entitled to vote on a plan of reorganization.
We received the votes needed and the Bankruptcy Court
approved the Joint Plan on May 18, 2007.
The Disclosure Statement for the Joint Plan contemplates that we will continue to operate in
substantially our current form, and contemplates the resolution of the outstanding claims against
and interests in the Debtors pursuant to the Bankruptcy Code. Upon
the effective date of the Joint Plan, the Debtors would be reorganized through, among other things, the consummation of
the following transactions:
|
i) |
|
Payment of the Original DIP Facility and funding of the exit financing, both of which
have been facilitated by the New DIP Facility, subject to certain conditions; |
|
|
ii) |
|
Payment in cash, reinstatement, return of collateral or other treatment of other
secured claims agreed between the holder of each such claim and Yucaipa; |
|
|
iii) |
|
Distribution of new common stock on a pro rata basis to the holders of allowed general
unsecured claims; |
|
|
iv) |
|
Cancellation of the existing common stock interests in the Debtors (holders of equity
interests would receive nothing under the Disclosure Statement for the Joint Plan); and |
|
|
v) |
|
Assumption of assumed contracts. |
The Chapter 11 Proceedings and the Disclosure Statement for the Joint Plan are more fully discussed
in Item 1. Business.
On March 30, 2007, we entered into a New DIP Facility arranged by an affiliate of Goldman Sachs &
Co., which provides financing of up to $315 million. The New DIP Facility replaces the Original DIP
Facility and subject to the satisfaction of certain conditions, the New DIP Facility may convert, at our option, to a
senior secured credit facility upon our emergence from Chapter 11. The New DIP Facility is more
fully discussed in the Liquidity section below. Also, as more fully discussed in the Liquidity
section below, subsequent to December 31, 2006, we entered into an agreement with Yucaipa pursuant
to which Yucaipa will purchase the Blue Thunder Rigs, which will then be sold to us at cost. The
Rig Financing, which was provided by Yucaipa, was approved by the Bankruptcy Court on April 6,
2007. It is expected that the maximum amount financed under the Rig Financing will not exceed $15
million, including up to $450,000 that may be used for the repair of these Rigs. At the option of
Yucaipa, upon our successful emergence from Chapter 11, Yucaipa may convert the Rig Financing into
additional equity of our company.
On February 2, 2007, the Debtors filed a motion with the Bankruptcy Court seeking approval to
reject the Master Agreement with the Teamsters. We filed a consent order staying the motion on
February 20, 2007 as a result of ongoing negotiations with the Teamsters. The Disclosure Statement
for the Joint Plan incorporates modifications to our collective bargaining agreement with the
Teamsters in the U.S. The proposed amendment, which was subsequently ratified by the affected
employees, is scheduled to take effect upon the effective date of the Joint Plan and our emergence
from Chapter 11 and would be renewable three years from that date. Other significant terms of the
proposed agreement include:
|
|
|
Total U.S. wage concessions of 15%, limited to $35 million per year during the
three-year duration of the agreement; |
|
|
|
|
The elimination of future Teamster wage increases; |
24
|
|
|
A wage freeze relating to the salaries of management and other nonbargaining employees
during the three-year duration of the agreement (with certain exceptions); and |
|
|
|
|
Entitlement of the U.S. Teamsters to a portion of EBITDA in excess of the projections
included in the Disclosure Statement for the Joint Plan. |
The modifications to the Master Agreement remain subject to various conditions, including our
emergence from Chapter 11 under the Disclosure Statement for the Joint Plan and the appointment of
a new CEO reasonably acceptable to the IBT prior to our emergence from Chapter 11. In connection
with these conditions, on April 30, 2007, we reached a decision to terminate Mr. Sawyers
employment effective upon our emergence date from Chapter 11 or on such earlier date after June 1, 2007 as we may determine at our sole discreption. See Item 11. Director and Executive
Compensation for further discussion of the terms of Mr. Sawyers termination and Item 1.
Business for additional discussion on our collective bargaining agreements.
Continuation of our company as a going concern is predicated upon, among other things: (i) our
ability to fund our cash requirements through the effective date the
Joint Plan; (ii)
our ability to consummate the Joint Plan, which depends on a number of
factors, including our ability to satisfy the conditions under the New DIP Facility necessary for exit financing, (iii) our ability to operate under the
terms of the New DIP Facility; (iv) the availability of sufficient cash to meet our working capital
needs; (v) our ability to resolve labor disputes involving us and our employees; (vi) the outcome
of any third party action to obtain the Bankruptcy Courts approval to modify or terminate the
automatic stay, to appoint a Chapter 11 trustee or to convert the Chapter 11 cases to Chapter 7
cases; (vii) our ability to maintain contracts that are critical to our operations; and (viii) our
ability to retain key executives and employees. These matters create uncertainty concerning our
ability to continue as going concern.
As more fully discussed in the Liquidity section below, during the first half of 2006, we
continued to be impacted by liquidity constraints and violated various covenants included in the
Original DIP Facility. The covenant violations were waived pursuant to a fifth amendment to the
Original DIP Facility which among other things, provided us with an additional $30 million of
liquidity through a new term loan. Those violations required us to enter into certain forbearance
agreements and amendments to the Original DIP Facility. To create additional liquidity, we also
requested and received from the Bankruptcy Court interim relief to temporarily reduce wages earned
by our collective bargaining employees under the Master Agreement with the Teamsters in the U.S. by
10% in May and June of 2006, and undertook a number of internal cost-saving initiatives.
During 2006, the number of vehicles delivered by our Automotive Group was consistently less than
the number of vehicles delivered during comparable periods of 2005. Furthermore, the level of
decline on a year-over-year basis has been increasing. The decline was 2% in the first quarter of
2006, 6% in the second quarter of 2006, 10% in the third quarter of 2006 and 16% in the fourth
quarter of 2006. During the Chapter 11 Proceedings, we were able to renew contracts and obtain
rate increases with certain of our major customers, which has offset at least a portion of the
unfavorable effect on our revenue caused by the reduction in the volume of vehicles delivered. Our
Automotive Groups largest customers, General Motors, Ford and DaimlerChrysler each reduced
production levels during 2006, including selected plant closures in the U.S., some of which we
serve. Further, General Motors and Ford have publicly announced additional plans to further 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.
We are working towards emerging from the Chapter 11 process with a redesigned capital structure,
improved customer contracts and improved contract terms with the IBT regarding our employees in the
U.S. represented by the Teamsters but can provide no assurance that any of these actions will
succeed. If the Chapter 11 process is delayed, we may incur increased legal and professional fees
or other costs 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.
In this section, we discuss the following:
25
|
|
|
Results of Operations; |
|
|
|
|
Liquidity and Capital Resources; |
|
|
|
|
Off-Balance Sheet Arrangements; |
|
|
|
|
Disclosures About Market Risks; |
|
|
|
|
Critical Accounting Policies and Estimates; and |
|
|
|
|
Recent Accounting Pronouncements. |
Results of Operations
We
recorded net losses of $12.3 million, $125.7 million and $53.9 million in 2006, 2005 and 2004,
respectively. Factors affecting the results for these years included the following:
|
|
|
2006 a reduction in the number of vehicles delivered, which was primarily offset by
an improvement in revenue per vehicle delivered, resulting from customer rate increases and
fuel surcharge revenue; lower interest costs; and additional expenses related to the
Chapter 11 Proceedings. |
|
|
|
|
2005 a non-cash impairment charge related to our Automotive Groups goodwill; a
reduction in the number of vehicles delivered; an increase in the cost of fuel and labor;
recognition of a withdrawal liability related to multiemployer pension plans from which we
withdrew; expenses related to the Chapter 11 Proceedings; and increased interest expense
associated with higher average outstanding debt and higher effective interest rates. |
|
|
|
|
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 charge 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. |
The following table sets forth the percentage relationship of expense items to revenues for the
years ended December 31, 2006, 2005 and 2004:
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a % of revenues |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
% |
|
|
% |
|
|
% |
|
Revenues |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages, and fringe benefits |
|
|
50.4 |
% |
|
|
54.0 |
% |
|
|
54.6 |
% |
Operating supplies and expenses |
|
|
20.5 |
% |
|
|
20.2 |
% |
|
|
18.1 |
% |
Purchased transportation |
|
|
12.9 |
% |
|
|
13.4 |
% |
|
|
12.4 |
% |
Insurance and claims |
|
|
4.7 |
% |
|
|
4.7 |
% |
|
|
4.6 |
% |
Operating taxes and licenses |
|
|
3.1 |
% |
|
|
3.3 |
% |
|
|
3.3 |
% |
Depreciation and amortization |
|
|
3.3 |
% |
|
|
3.4 |
% |
|
|
4.8 |
% |
Rents |
|
|
0.8 |
% |
|
|
0.8 |
% |
|
|
1.0 |
% |
Communications and utilities |
|
|
0.7 |
% |
|
|
0.7 |
% |
|
|
0.7 |
% |
Other operating expenses |
|
|
0.9 |
% |
|
|
1.3 |
% |
|
|
1.1 |
% |
Impairment of goodwill |
|
|
0.0 |
% |
|
|
8.9 |
% |
|
|
0.9 |
% |
Gain on disposal of operating assets, net |
|
|
(0.4 |
)% |
|
|
(0.1 |
)% |
|
|
(0.1 |
)% |
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
96.9 |
% |
|
|
110.6 |
% |
|
|
101.4 |
% |
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
3.1 |
% |
|
|
(10.6 |
)% |
|
|
(1.4 |
)% |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(3.4 |
)% |
|
|
(4.4 |
)% |
|
|
(3.5 |
)% |
Investment income |
|
|
0.5 |
% |
|
|
0.3 |
% |
|
|
0.1 |
% |
Foreign exchange (losses) gains, net |
|
|
(0.1 |
)% |
|
|
0.2 |
% |
|
|
0.2 |
% |
Other, net |
|
|
0.0 |
% |
|
|
0.1 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
(3.0 |
)% |
|
|
(3.8 |
)% |
|
|
(3.2 |
)% |
|
|
|
|
|
|
|
|
|
|
Income (loss) before reorganization items and income taxes |
|
|
0.1 |
% |
|
|
(14.4 |
)% |
|
|
(4.6 |
)% |
Reorganization items |
|
|
(1.4 |
)% |
|
|
(0.8 |
)% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(1.3 |
)% |
|
|
(15.2 |
)% |
|
|
(4.6 |
)% |
Income tax (expense) benefit |
|
|
(0.0 |
)% |
|
|
1.2 |
% |
|
|
(1.4 |
)% |
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(1.3 |
)% |
|
|
(14.0 |
)% |
|
|
(6.0 |
)% |
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
During 2006, the number of vehicles delivered was 8.4% lower than it was in 2005. However, the
effect on revenues of the lower vehicle deliveries was almost completely offset by an increase in
our revenue per vehicle delivered, which was due primarily to customer rate increases, an increase
in fuel surcharges and the strengthening of the Canadian dollar. Our operating income for 2006
reflected an improvement of $121.1 million over 2005 and our net loss improved $112.7 million over
2005. The improvement in our operating income and our net loss were primarily a result of the
$79.2 million impairment of goodwill recorded during 2005 and a $15.8 million charge recorded
during 2005 to recognize the withdrawal liability for our estimated portion of the underfunded
benefit obligation of two multiemployer pension plans. Also positively impacting our operating
performance and net loss were customer rate increases, which were partially offset by the effect of
the lower number of vehicles that we delivered and certain categories of higher expenses including
insurance. Also, our net loss was positively impacted by a reduction in interest expense in 2006
compared to 2005 but was negatively impacted by higher reorganization items in 2006, as well as a
$10.8 million income tax benefit recorded during 2005 related to the impairment of goodwill.
Revenues
Revenues were relatively flat year over year although the number of vehicles delivered by our
Automotive Group declined from 8,275,000 in 2005 to 7,578,000 in 2006, a decrease of 8.4%. This
reduction was due primarily to a 6.2% decline in vehicle production by our three largest customers.
To a lesser extent, the number of vehicles delivered by our Automotive Group was also negatively
impacted by the discontinuation of unprofitable business for one of our major customers at one of
our terminal locations, the closure of certain unprofitable terminal locations in the latter part
of 2005 and fewer vehicles hauled for Toyota and Honda due to lost market share. The effect of the
decrease in volume was primarily offset by an increase in revenue per vehicle delivered by our
Automotive Group. During 2006, revenue per vehicle delivered increased by $9.51 or 9.1% over 2005.
The
27
increase in revenue per unit was due primarily to certain customer rate increases, an increase in
fuel surcharges received from customers and the strengthening of the Canadian dollar.
During the Chapter 11 Proceedings, we renewed contracts with rate increases with certain of our
major customers. As a result of these rate increases, our revenues increased by approximately
$37.6 million or $4.96 per unit in 2006 versus 2005.
Revenues from our fuel surcharge programs represent billings to our customers related to the price
of fuel in excess of certain levels established with those customers. The fuel surcharge programs
mitigate, in part, the rising cost of fuel by allowing us to pass on at least a portion of the
increase to those customers who participate in the programs. In 2006, revenues from fuel
surcharges represented 7.3% of the Automotive Groups revenues, whereas, in 2005, revenues from the
fuel surcharge programs represented only 5.2% of our Automotive Groups revenues. Rate increases
related to the fuel surcharge programs contributed $2.96 to the overall increase in revenue per
unit and $22.4 million to the overall increase in revenues. However, this increase was partially
offset by a reduction of $3.7 million due to the lower number of vehicles delivered, resulting in
an overall increase of $18.7 million. The increase in fuel surcharge revenues is due primarily to
the increase in the average price of fuel, which was approximately 12.5% higher in 2006 than 2005
for our U.S. operations. For our Canadian operations, the average price of fuel was 5.4% higher
without considering the impact of the strengthening of the Canadian dollar and 12.5% higher after
factoring in the currency impact. Customer fuel surcharges reset at varying intervals, which do
not exceed one quarter, based on fuel prices in the applicable preceding time period. This results
in a lag between the time period when fuel prices change and the time period when the fuel
surcharge is adjusted. Future revenues derived from fuel surcharges would be impacted if any
customer terminated its fuel surcharge agreement with us.
The Canadian dollar strengthened relative to the U.S. dollar in 2006 compared to 2005. During
2006, the Canadian dollar averaged the equivalent of U.S. $0.8821 versus U.S. $0.8262 during 2005,
which resulted in an increase in revenues of approximately $12.5 million. This amount contributed
$1.65 to the overall increase in revenue per unit of $9.51. However, the effect on operating
income was partially offset by a corresponding increase in expenses for our Canadian subsidiary
related to the currency fluctuation.
Revenues for our Axis Group increased $1.8 million in 2006 over 2005 primarily as a result of new
business in Mexico, which commenced in the latter part of 2005 and which increased revenues by
approximately $2.2 million. Additional business from the Axis Groups other Mexican locations
accounted for an increase of approximately $0.8 million. However, these increases were partially
offset by reduced revenues of $1.3 million from our South African operations due to the sale of
the Axis Groups interest in Kar-Tainer International, LLC and Kar-Tainer International (Pty) Ltd.
during the fourth quarter of 2005.
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 2006 revenues were adversely affected by
recent decisions by General Motors, Ford and DaimlerChrysler to reduce production in the fourth
quarter of 2006 at several of its manufacturing plants and will be adversely affected by recent
announcements 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 as a result of the higher volume of vehicles
delivered. The volume of vehicles delivered is generally higher during the second quarter as
North American light vehicle production has historically been at its highest level during this
quarter due to higher consumer sales of automobiles, light trucks and SUVs in the spring and early
summer. The introduction of new models in the fall of each year combined with the manufacturers
motivation to ship vehicles before calendar year-end, increase shipments to dealers through the
fourth quarter. During the first and third quarters, vehicle deliveries typically decline due to
lower production volume during those periods. The third quarter volume does benefit from the
introduction of new models, but the net volume for the quarter is typically lower than the second
and fourth quarters due to the scheduled OEM plant shutdowns, which generally occur early in the
third quarter. The first quarter volume is negatively impacted by the holiday shutdown in December
of each year and the relatively low inventory of vehicles to ship as a result of maximizing
shipments at the end of the year. 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
28
OEM shipment activity. Delivery 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.
Salaries, wages and fringe benefits
Salaries,
wages and fringe benefits decreased from 54.0% of revenues in 2005 to 50.4% of revenues
in 2006. The decrease in salaries, wages and fringe benefits as a percentage of revenues was due
in part to a $15.8 million charge recorded during 2005 for a probable withdrawal liability for our
estimated portion of the underfunded benefit obligation of two multiemployer pension plans to which
we contributed. Salaries, wages and fringe benefits as a percentage of revenues also decreased as
a result of the increases in revenues related to the fuel surcharge programs and customer rate
increases, which do not cause salary expense to vary, as well as a decrease in expense for our
nonbargaining employees. Driver pay is based primarily on the number of miles driven to deliver
vehicles and is affected by changes in revenue related to changes in volume, but is not affected by
fluctuations in customer rates or fluctuations in fuel surcharge revenues. Salaries, wages and
fringe benefits related to our nonbargaining employees, who are not directly involved in the
generation of revenues, decreased by approximately $3.2 million. This decrease was due primarily to
a reduction in headcount, the effect of unpaid furloughs and lower employee benefit costs.
Employees with annual salaries of less than $80,000 were required to accept a five-day unpaid
furlough in the month of June 2006 and those with annual salaries of $80,000 or more were required
to accept ten days of unpaid furlough by the end of June 2006. The unpaid furloughs of our
salaried nonbargaining employees reduced our salaries, wages and fringe benefits by approximately
$200,000 in May 2006 and $800,000 in June 2006.
Our labor costs for employees covered by bargaining agreements related to the delivery of vehicles
decreased $20.9 million in 2006 compared to 2005 primarily as a result of the lower number of
vehicles that we delivered during 2006. However, the labor cost per vehicle delivered for these
employees increased by approximately 3.1%. The effect of the lower number of vehicles delivered is
estimated to be approximately $31.8 million, partially offset by the increase in the bargaining
labor cost per vehicle delivered, which we estimate to be approximately $10.9 million. The
increase in bargaining labor cost per vehicle delivered was due primarily to the agreed-upon rate
increases related to our employees covered by the Master Agreement with the Teamsters, an increase
in the average distance driven to deliver a vehicle (the average length of haul) and the
strengthening of the Canadian dollar. Our salaries, wages and fringe benefit expense increased by
approximately $6.3 million in 2006 compared to 2005 as a result of the agreed-upon rate increases
related to employees covered by the Master Agreement with the Teamsters, partially offset by the
10% reduction in wages earned by these employees in May and June 2006. An increase in health,
welfare and pension benefits went into effect on August 1, 2005, a 2% wage increase went into
effect on June 1, 2005 and another 2% wage increase was effected on July 1, 2006. The average
length of haul for vehicles delivered by these employees was approximately 1.4% higher in 2006
compared to 2005. We estimate that the strengthening of the Canadian dollar resulted in an
increase in bargaining labor costs of approximately $4.6 million in 2006 compared to 2005.
Workers compensation expense, which is a component of salaries, wages and fringe benefit expense,
increased by approximately $8.4 million during 2006 as compared to 2005 due primarily to the change
in our insurance programs, and higher charges related to the unfavorable development of claims
incurred in prior years. As previously discussed, in 2006, a fully insured program with no
deductible covers the majority of our risk for workers compensation claims resulting in an
increase in our premium expense. Charges related to the unfavorable development of claims were
$5.9 million in 2006 versus $4.8 million in 2005. In order to more effectively manage risk
management costs in future periods, we continue to implement initiatives to improve our hiring and
training practices, prevent employee injuries, improve the claims management process and expedite
the settlement of outstanding historical claims.
Operating supplies and expenses
Operating supplies and expenses increased from 20.2% of revenues in 2005 to 20.5% of revenues in
2006. The increase was due primarily to an increase in fuel expense, which increased from 8.4% of
revenues in 2005 to 8.9% of revenues in 2006. See the revenue section above for a discussion of
the approximate price increases. We estimate that the increase in the price of fuel resulted in
additional fuel expense of approximately $11.6 million in 2006 compared to 2005. The increase in
fuel expense related to the increase in price of fuel was partially offset by a decrease of $6.3
million related to the reduced number of vehicles delivered in 2006 compared with 2005. Due to the
fuel surcharge agreements we have in place with substantially all of our customers, any unfavorable
impact on
29
our operating income due to the increase in fuel prices was mitigated as the corresponding effect
of fuel surcharges, net of broker participation, was approximately $20.6 million, resulting in a
favorable impact of $9.0 million on our operating income. The difference between the increase in
fuel expense resulting from higher fuel prices and the amount of fuel surcharges received from
customers during any quarter is due to the timing difference described above in the revenue
discussion.
Repairs and maintenance expense increased from 4.5% of revenues in 2005 to 4.8% of revenues in
2006. The actual expense increased $3.1 million due primarily to an increase in the frequency and
nature of vehicle repairs as a result of the increasing age of our fleet. Due to the significance
of their nature, more of these repairs required outside vendor assistance.
Purchased transportation
Purchased transportation as a percentage of revenues decreased from 13.4% of revenues in 2005 to
12.9% of revenues in 2006 and actual purchased transportation expense decreased $4.2 million, or
3.5%. Purchased transportation primarily represents the cost to our Automotive Group of utilizing
owner-operators of Rigs. The payments to the owner-operators, who receive a percentage of the
revenue generated from transporting vehicles on our behalf, are covered by collective bargaining
agreements with the Teamsters. The decrease in the expense was a result of a 5.2% reduction in the
average length of haul driven by owner-operators in 2006, partially offset by the impact of the
increase in fuel surcharge revenue per vehicle delivered as well as the customer rate increases
discussed in revenues above. Purchased transportation, as a percentage of revenues fluctuates based
on changes in the distribution patterns of our customers and how the vehicle deliveries are
dispatched from our terminal locations. Fuel surcharge revenue and customer rate increases derived
from deliveries by owner-operators are reimbursed to the owner-operator and recorded in purchased
transportation. 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.
Insurance and claims
Insurance and claims expense as a percentage of revenues was relatively flat year over year
although there was (i) a change in coverage for 2006 to reduce the amount of risk that we retain,
which resulted in higher premiums, and (ii) we experienced unfavorable development of claims from
prior years. The 2006 expense includes unfavorable development of claims from prior years of $2.1
million while the 2005 expense reflects favorable development of claims of $1.6 million.
Offsetting these 2006 increases were the impact of a major accident that occurred during the fourth
quarter of 2005 and lower cargo claims expense in 2006. Cargo claims expense was lower in 2006
primarily as a result of the lower volume of vehicles delivered, partially offset by an increase in
the cost per unit as the percentage of damage-free vehicle deliveries was 99.70% compared to 99.80%
for 2005, a decline of approximately 1,000 units. 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.
Other operating expenses
Other operating expenses decreased from 1.3% of revenues in 2005 to 0.9% of revenues in 2006
primarily as a result of the incurrence of professional fees relating to the review of various
strategic alternatives related to our operating performance and highly leveraged financial position
and to prepare for a potential Chapter 11 filing during 2005.
Impairment of goodwill
The impairment of goodwill of $79.2 million was recorded at our Automotive Group during 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
30
estimates. The goodwill reflected in our consolidated balance sheet as of December 31, 2006 relates
to the Axis reporting unit. No such impairment was found on the remaining goodwill in 2006.
Gain on disposal of operating assets, net
For 2006, the gain on disposal of operating assets, net of $3.3 million primarily represents the
gain on the sale of a portion of property located in Ontario, Canada. There were no significant
asset sales in 2005.
Interest expense
Interest
expense decreased from $39.4 million in 2005 to $30.2 million in 2006. This reduction was
primarily the result of:
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The discontinuation of interest accrued on our Senior Notes subsequent to the Petition
Date. Effective August 1, 2005 and in accordance with 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, we ceased accruing interest on our
Senior Notes since the repayment of this debt and related interest are stayed by the
Bankruptcy Court as a result of the Chapter 11 Proceedings. Interest expense recognized on
the Senior Notes was $7.5 million for 2005; |
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Lower charges related to deferred financing costs. Charges related to deferred
financing costs decreased $2.8 million in 2006 compared to 2005. This was due primarily to
the write-off of $4.9 million in deferred financing costs during 2005 as a result of the
violation of one of the financial covenants in our pre-petition facility as of June 30,
2005, the effect of which was partially offset by higher amortization of deferred financing
costs related to the Original DIP Facility in 2006. The amortization was higher in 2006 as
a result of the revision, in March 2006, of the end of the amortization period of the
deferred financing costs related to the Original DIP Facility as a result of certain
financial covenant violations. As a result of the covenant violations related to the
Original DIP Facility, we revised the end of the amortization period from February 2, 2007,
the initial maturity date of the Original DIP Facility, to May 18, 2006, the end of the
forbearance period under the Original DIP Facility; |
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The prepayment penalty of $1.9 million, which we paid to our pre-petition lenders in
August 2005; and |
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Reduced letter of credit fees. Letter of credit fees were approximately $1.2 million
lower in 2006 than 2005 due to the incurrence, during 2005, of line of credit fees on both
the Original DIP Facility as well as the pre-petition facility as we transitioned from one
facility to the other. |
The decreases discussed above were partially offset by an increase in our effective interest rate,
an increase in our average outstanding debt and a $1.2 million increase in lender fees which was
due primarily to the amendments and forbearance agreements negotiated with the lenders of the
Original DIP Facility during the second quarter of 2006. Our effective interest rate was
approximately 60 basis points higher in 2006 versus 2005 resulting in additional interest expense
of approximately $0.8 million. Our average outstanding debt, excluding the Senior Notes, increased
during 2006 by approximately $18.8 million over 2005, resulting in additional interest expense of
approximately $2.4 million.
Investment income
Investment income increased from $2.8 million in 2005 to $4.8 million in 2006, which was due
primarily to an increase in interest rates on time deposits as well as an increase of $4.7 million
in the average amount of restricted cash, cash equivalents and other time deposits held by our
captive insurance subsidiary, Haul Insurance Limited. The average amount of restricted cash, cash
equivalents and other time deposits increased as a result of additional amounts required, in the
second half of 2005, to collateralize letters of credit issued to secure the payment of insurance
claims.
Foreign exchange losses/gains, net
Foreign exchange losses were $0.6 million in 2006 compared to foreign exchange gains of $1.4
million in 2005. This fluctuation was due primarily to the effect of changes in currency exchange
rates on the intercompany payable
31
balance denominated in U.S dollars recorded on one of our Canadian subsidiarys balance sheet. The
Canadian dollar was relatively flat to the U.S. dollar at the end of 2006 compared to the beginning
resulting in an immaterial foreign exchange effect on the opening intercompany balance. However,
the intercompany payable balance increased approximately $7.7 million during 2006 and the Canadian
dollar weakened at the end of December 2006 to U.S $0.8581 compared to the average of U.S $0.8821
maintained during 2006 thereby resulting in a loss on exchange. The Canadian dollar was 3.3%
stronger at the end of 2005 than at the beginning resulting in a gain on exchange in 2005. In
addition, the average outstanding intercompany amount payable by this subsidiary increased by $8.0
million during 2005 which contributed to the exchange gain during 2005.
Reorganization items
During 2006 and 2005, we incurred approximately $12.8 million and $7.1 million, respectively, in
costs related to the Chapter 11 Proceedings. These costs are primarily for legal and professional
services rendered in connection with the Chapter 11 Proceedings and for 2005, included the
write-off of $1.4 million of deferred financing costs. Since we filed for Chapter 11 on July 31,
2005, the results for 2005 include only five months of reorganization items whereas the results for
2006 include twelve months of reorganization items. Also, as more fully discussed in the liquidity
section below, the Bankruptcy Court approved an employee retention plan, in connection with our
Chapter 11 filing, which provides for potential payments to approximately 82 employees, both
executive and non-executive. Reorganization items for 2005 include only twelve days of
amortization of this expense related to the retention plan whereas reorganization items for 2006
include twelve months of this expense. See Note 3 to the consolidated financial statements included
in Item 15 of this Annual Report on Form 10-K for a summary of these reorganization items.
Income taxes
In 2006, a
tax expense of $389,000 was recognized. In 2005, a tax benefit of $10.8 million was
recognized. In 2006 and 2005, the income tax expense differed from the amount 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 increased the valuation allowance. During
2005, we did recognize a tax benefit related to the impairment of goodwill to the extent that
related deferred tax liabilities existed. For both periods, we recognized tax expenses related to
foreign jurisdictions where the valuation allowance is not required. In our evaluation of the
valuation allowance, we consider all sources of taxable income, including tax-planning strategies.
Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
During 2005, the number of vehicles delivered was 6.3% lower than 2004. However, the effect on
revenues of the lower volumes was partially offset by an increase in revenue per vehicle delivered,
primarily the result of the positive impact of the fuel surcharge programs, the strengthening of
the Canadian dollar and rate increases negotiated with certain customers. The operating loss and
net loss for 2005 were $82.0 million and $71.8 million
higher than 2004, respectively. The higher
operating loss and net loss were primarily a result of the $79.2 million impairment of goodwill
recorded during 2005 and the $15.8 million charge, recorded during 2005, for probable withdrawal
liability for the estimated portion of underfunded benefit obligation of two multiemployer pension
plans. Operating performance and net loss were also negatively impacted by the effect of the lower
volume of vehicles delivered partially offset by the positive impact of customer rate increases.
The net loss was also negatively impacted by an increase in interest expense and the incurrence of
reorganization expenses in 2005 in connection with the Chapter 11 filing in July 2005, but
benefited from a $10.8 million income tax benefit recorded during 2005 related to the impairment of
goodwill compared to a $12.4 million income tax expense in 2004 related to the recording of
additional valuation allowances.
Revenues
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
32
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.
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 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 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 increase in revenues of $11.7 million or $1.41 per
unit in 2005 versus 2004.
Revenue per unit was also higher 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. 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.
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. Workers compensation expense for 2005 and 2004 include comparable charges
related to the unfavorable development of claims incurred in prior years.
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, 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 the $15.8 million
charge related to the withdrawal from two multiemployer pension plans previously discussed.
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 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.
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Purchased transportation
Purchased transportation increased from 12.4% of revenues in 2004 to 13.4% of revenues in 2005.
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. The percentage of revenues generated by owner-operators versus company drivers increased
in 2005 over 2004. 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
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, but 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. Damage-free vehicle deliveries improved
from 99.76% for 2004 to 99.80% for 2005, an improvement of 5,395 damage-free units.
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.
Rents
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
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.
Impairment of goodwill
As more fully discussed above, the impairment of goodwill of $79.2 million was recorded at our
Automotive Group in 2005 and represented the entire carrying amount of goodwill for this reporting
unit.
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.
Interest expense
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, discussed above; |
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Payment of the $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 9.6% 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 Original DIP Facility are less
than those related to the pre-petition facility, the amortization period was 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
Investment income increased primarily as a result of an increase in interest rates on time deposits
as well as 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. 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
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.
Reorganization items
During 2005, we incurred approximately $7.1 million in costs related to the Chapter 11 Proceedings.
These costs were primarily for legal and professional services rendered and the write-off of
deferred financing costs related to the issuance of our Senior Notes.
Income taxes
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 increased the valuation allowance. As discussed above,
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.
Liquidity and Capital Resources
Overview
Our primary sources of liquidity are funds provided by operations and borrowings under the Original
DIP Facility, now replaced by the New 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.
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We use restricted cash, cash equivalents and other time deposits to collateralize letters of credit
required by third-party insurance carriers 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. We obtained the Original DIP Facility and the New DIP Facility to
provide debtor-in-possession financing in connection with our Chapter 11 filing. Funds under the
New DIP Facility will allow us to continue to operate in the normal course of business and 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. In addition, we periodically borrow under insurance financing arrangements to
fund our insurance programs.
During 2006, we continued to be impacted by liquidity constraints and took various steps to
preserve our liquidity, which included:
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Rescheduling and deferring capital expenditures; |
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Obtaining the Bankruptcy Courts approval to reduce wages paid to our collective
bargaining employees covered under the Master Agreement with the IBT by 10% for the months
of May and June 2006; |
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Obtaining the Bankruptcy Courts approval to delay, to July 1, 2006, wage and cost of
living increases to our collective bargaining employees that were previously scheduled to
go into effect on June 1, 2006; |
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Implementing unpaid furloughs for certain nonbargaining employees for certain periods in
May and June 2006; and |
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Implementing other internal cost-saving initiatives. |
The reduction of wages paid to our collective bargaining employees covered by the Master Agreement
with the IBT decreased our labor costs by approximately $2 million per month in May and June 2006.
The wage and cost of living increases scheduled to go into effect on June 1, 2006 for those
employees were delayed until July 1, 2006 resulting in cost savings of approximately $325,000 in
June 2006. The unpaid furloughs required of our salaried nonbargaining employees reduced our
nonbargaining labor costs by approximately $200,000 in May and $800,000 in June 2006.
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. A portion of the bonus payments were
made in 2006 and we expect to pay the remaining bonus payments during 2007. Certain of these
retention payments are contingent upon the achievement of certain milestones such as our emergence from Chapter 11.
Continuation of our company as a going concern is predicated upon, among other things: (i) our
ability to fund our cash requirements through the effective date of the Joint Plan; (ii) our ability to consummate the Joint Plan, which depends on a number of
factors, including our ability to satisfy the conditions under the New DIP Facility necessary for exit financing; (iii) our ability to operate under the
terms of the New DIP Facility; (iv) the availability of sufficient cash to meet our working capital
needs; (v) our ability to resolve labor disputes involving us and our employees; (vi) the outcome
of any third party action to obtain the Bankruptcy Courts approval to modify or terminate the
automatic stay, to appoint a Chapter 11 trustee or to convert the Chapter 11 cases to Chapter 7
cases; (vii) our ability to maintain contracts that are critical to our operations; and (viii) our
ability to retain key executives and employees. These matters create uncertainty concerning our
ability to continue as going concern.
Operating Activities
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 provided by operating
activities was $48.8 million for 2006 compared to cash used in operating activities of $34.9
million for 2005, an increase in operating cash flows of $83.7 million. This increase in cash from
operating activities was primarily due to a reduction in payments relating to insurance in
36
2006 compared to 2005 and to a lesser extent to improved collections from our customers and lower
payments relating to interest and salaries, wages and fringe benefits.
Although premiums for insurance coverage for 2006 were higher than in 2005, insurance payments for
2006 were less as a result of the payment during 2005 of the majority of the 2006 insurance
premiums along with the majority of the 2005 insurance premiums. The majority of the payments for
2006 coverage were made in December 2005. In contrast, the majority of the premiums for 2007 will
be paid at intervals during 2007. Cash collections, primarily from our customers, increased
approximately $14.0 million primarily as a result of improved collection efforts. Interest paid in
2006 was $7.5 million lower than 2005 primarily as a result of the in-kind payment of interest
during 2006 of $6.4 million which was added to the principal balance on the term loans as well as
the payment of interest on the Senior Notes of $6.5 million during 2005. These factors were
partially offset by an increase in interest payments resulting from increased lender fees, an
increase in our outstanding debt and an increase in our effective interest rate. Payments relating
to salaries, wages and fringe benefits were lower primarily as a result of the lower volume of
vehicles hauled.
The positive impact of these items on operating activities were partially offset by the benefit,
obtained in 2005, from 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. Also offsetting
the payment reductions discussed above was an $8.8 million increase in payments relating to
reorganization items as a result of a full year of Chapter 11 Proceedings in 2006 compared to only
five months in 2005.
Investing Activities
During 2006, we used $24.4 million in investing activities compared to $37.7 million during 2005.
During 2005, restricted cash, cash equivalents and other time deposits required to collateralize
our self-insurance reserves at our captive insurance subsidiary increased $19.7 million compared to
a decrease of $4.3 million in 2006. The collateral requirements are based on the third-party
insurance carriers estimates of future claims payments. There was no increase in 2006 for
workers compensation since we are covered by a fully insured policy for most states. In addition,
the net amount deposited with insurance carriers was $7.9 million lower during 2006 compared to
2005.
The lower amount of cash required for investing in the activities above were partially offset by
higher capital expenditures in 2006 versus 2005. Capital expenditures for 2006 and 2005 were $35.8
million and $19.4 million, respectively, most of which was spent on our fleet of Rigs. During
2006, we purchased 53 new tractors, 53 new trailers and 124 Rigs previously leased. We also
remanufactured 191 tractors and 261 trailers and replaced (overhauled) approximately 320 engines.
During 2005, we purchased one new Rig, two used Rigs and remanufactured 164 tractors and 165
trailers and replaced (overhauled) approximately 380 engines.
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 2007 through 2010,
which will require a significant increase in our capital spending, from approximately $35.8 million
in 2006 to approximately $66.8 million in 2007 (excluding the Blue Thunder Rigs) and $70 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.
Of the $66.8 million for capital expenditures in 2007 (excluding the Blue Thunder Rigs), we expect
to spend $61.4 million on our fleet of Rigs. Of this amount, Allied Automotive expects to spend
approximately $27.1 million to purchase over 125 new Rigs, approximately $16.3 million to
remanufacture approximately 200 existing Rigs and an additional 55 trailers, approximately $8.0
million to replace approximately 346 engines, $7.1 million to purchase certain used Rigs and
approximately $2.9 million to purchase certain Rigs which we currently lease. Our Axis Group
expects to spend about $3.6 million of capital in 2007.
Even if we are able to invest the amounts indicated above each year, we will be operating a
substantial number of Rigs beyond their scheduled replacement or remanufacturing due dates.
Accordingly, Rigs may have to be taken out of service sooner than planned as a result of equipment
failures or the Rigs otherwise reaching the end of their
37
useful lives. We presently have no excess Rigs to service our existing business or to seek
additional business. A large number of Rig failures 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, which would likely have a material adverse effect on our
operations and financial results. Additionally, we may be forced to increase repair and
maintenance spending in an effort to maintain the number of Rigs in service. 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.
Subsequent to December 31, 2006, we entered into an agreement with Yucaipa pursuant to which
Yucaipa will purchase the Blue Thunder Rigs, which will then be sold to us at cost. The Blue
Thunder Rigs range between three to five years in age. The Rig Financing, which was provided by
Yucaipa, was approved by the Bankruptcy Court on April 6, 2007. The maximum amount financed
under the Rig Financing will not exceed $15 million and includes additional funds to
retrofit and make any necessary repairs to the Blue Thunder Rigs, and to pay certain costs and
expenses associated with the purchase, such as registration expenses. The notes under the Rig Financing bear interest at LIBOR plus 4%,
payable quarterly by addition to principal. In addition, at the option of Yucaipa, upon our
successful emergence from Chapter 11, Yucaipa may convert the Rig Financing into additional equity
of our company. As of May 3, 2007, we had purchased 117 of these Rigs from Yucaipa at a cost of
$8.9 million.
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 New DIP Facility,
the ultimate 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 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. 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 specialized
tractors primarily through one manufacturing company. While this and other manufacturers also
produce non-specialized tractors, we have not determined the impact on our equipment and operating
costs should the specialized tractors not be available in the future.
Financing activities
We used $25.4 million in financing activities during 2006 while financing activities provided net
cash of $74.2 million during 2005. During 2006, borrowings on credit facilities increased by $3.0
million compared to an increase in borrowings of $50.8 million in 2005. We paid $0.3 million of
deferred financing costs during 2006 compared to $8.3 million for 2005. In addition, we only
borrowed $6.4 million under insurance financing arrangements during 2006 since we were able to
obtain funding for most of our 2006 insurance programs in the fourth quarter of 2005 and we were
not required to finance the majority of our 2007 insurance premiums in 2006. This is in contrast
to 2005 when we borrowed $42.4 million under insurance financing arrangements, since we did not
finance our 2005 insurance premiums at the end of 2004. Additionally, during 2006, the repayments
under insurance financing arrangements were $23.6 million higher than the repayments during 2005
since more premiums were financed for the 2006 coverage.
Credit facilities
On March 30, 2007, we entered into a New DIP Facility arranged by an affiliate of Goldman Sachs &
Co., which provides financing of up to $315 million. The New DIP Facility, which was amended in
April 2007, replaced the Original DIP Facility and subject to satisfaction of certain conditions,
the New DIP Facility may be
converted to a senior secured credit facility upon our emergence from Chapter 11. To the extent
that the New DIP Facility is converted to a post-bankruptcy senior secured credit facility, such
facility will mature five years after the effective date of the Joint
Plan. If
the conditions for conversion of the New DIP Facility are not satisfied or if we do not exercise
the option to convert the New DIP Facility to a post-bankruptcy secured credit facility upon
successful emergence from bankruptcy, the New DIP Facility will mature on the earlier of (i)
September 30, 2007 and (ii) the effective
38
date of a plan of reorganization or our emergence from Chapter 11. The New DIP Facility includes a
$230 million secured term loan facility, a $50 million synthetic senior letter of credit facility
and a $35 million senior secured revolving credit facility (New Revolver), which includes a
swing-line credit commitment of $10 million. Proceeds from the New DIP Facility of $205 million at
March 30, 2007 were used to repay all amounts outstanding under
the Original DIP Facility and associated fees, and provide additional liquidity for working capital needs. The
excess funds are being invested in overnight interest-bearing repurchase agreements. In connection
with the termination of the Original DIP Facility and the funding of the New DIP Facility, we paid
fees of approximately $9.4 million, $1.3 million of which related to termination of the Original
DIP Facility and $8.1 million of which related to the New DIP Facility. The fees relating to the
Original DIP Facility will be expensed during the first quarter of 2007 as part of the
extinguishment of debt while the fees relating to the New DIP Facility will be deferred and
amortized through September 30, 2007.
The New DIP Facility will provide us with working capital during and after the Chapter 11
Proceedings. The interest rates on the term loans in the New DIP Facility may vary based on either
the Base Rate plus 2.50%, or Adjusted Eurodollar Rate plus 3.50%. The interest on the New Revolver
may vary based on either the Base Rate plus 1.0%, or Adjusted Eurodollar Rate plus 2.0%. The swing
line loans bear interest at the Base Rate plus 1.0%. Base Rate means, for any day, a rate per
annum equal to the greater of (i) the Prime Rate in effect on such day and (ii) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. The Adjusted Eurodollar Rate means any
Eurodollar Rate Loan adjusted for any reserve requirement as regulations may be issued from time to
time by the Board of Governors of the Federal Reserve System. In addition, we will be charged a
participation fee pursuant to the letter of credit facility equal to approximately 3.80% per annum
of the amount of the synthetic letter of credit facility plus a fronting fee of 0.55% of the
average daily maximum amount available to be drawn under letters of credit issued under the
synthetic letter of credit facility. We also will be obligated to pay a commitment fee equal to
0.375% per annum times the daily average undrawn portion of the New Revolver and a commitment fee
of 1.75% per annum times the daily average undrawn portion of the term loan facility.
As of
May 3, 2007, $35 million of the New Revolver was available.
Approximately $41.6 million was
committed under letters of credit primarily related to the settlement of insurance claims, $205
million in term loans were outstanding and approximately $25 million in term loans were available.
The Original DIP Facility was entered into on July 31, 2005 in connection with the Chapter 11
filing and during its tenure was amended at certain intervals including the fifth amendment entered
into on June 30, 2006, which provided us with an additional $30 million of liquidity through a new
term loan, reduced the interest rate on certain other portions of the Original DIP Facility, waived
all the defaults previously disclosed, permitted a portion of the interest due to be paid in kind
by addition to principal on a monthly basis and extended the maturity date on the term loans to
June 30, 2007. The revolving credit facility under the Original DIP Facility (Original DIP
Revolver) was scheduled to mature on March 30, 2007 and the term loans were scheduled to mature on
June 30, 2007.
During 2006, we invoked the option to pay interest in kind under the Original DIP Facility and paid
interest in kind with an addition to principal of approximately $6.3 million.
As of May 3, 2007, we were in compliance with the covenants of the New DIP Facility but can provide
no assurance that we will be able to comply with these covenants or, if we fail to do so, that we
will be able to obtain amendments or waivers of such covenants.
On September 30, 1997, we issued $150 million of 8 5/8% 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 to the consolidated financial statements included in Item 15
of 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).
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
39
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.
Our credit facilities and the Senior Notes are more fully discussed in Note 14 of our consolidated
financial statements included in Item 15 of this Annual Report on Form 10-K.
Contractual Obligations
We set forth in the table below our minimum contractual obligations as of December 31, 2006 (in
thousands). The operating lease obligations, purchase obligations and insurance premium commitments
are not recorded in our consolidated balance sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due In |
|
Contractual Obligations |
|
Total |
|
|
2007 |
|
|
2008-2009 |
|
|
2010-2011 |
|
|
Thereafter |
|
Original DIP Facility(1) |
|
$ |
161,357 |
|
|
$ |
161,357 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Operating lease obligations |
|
|
18,967 |
|
|
|
10,043 |
|
|
|
7,253 |
|
|
|
1,145 |
|
|
|
526 |
|
Insurance premium financing(2) |
|
|
5,414 |
|
|
|
5,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability for unfunded defined benefit
pension and other postretirement plans(3) |
|
|
15,564 |
|
|
|
1,337 |
|
|
|
2,541 |
|
|
|
2,322 |
|
|
|
9,364 |
|
Purchase obligations(4) |
|
|
77,799 |
|
|
|
10,658 |
|
|
|
21,538 |
|
|
|
21,984 |
|
|
|
23,619 |
|
Insurance premium commitments |
|
|
22,678 |
|
|
|
22,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims and insurance reserves(5) |
|
|
103,093 |
|
|
|
38,786 |
|
|
|
28,058 |
|
|
|
12,491 |
|
|
|
23,758 |
|
Senior Notes(6) |
|
|
154,313 |
|
|
|
154,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
559,185 |
|
|
$ |
404,586 |
|
|
$ |
59,390 |
|
|
$ |
37,942 |
|
|
$ |
57,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes interest payable of $445,000. The Original DIP Facility was replaced by
the New DIP Facility on March 30, 2007. The Original DIP Facility and the New DIP Facility
are more fully discussed in Note 14 to the consolidated financial statements included in
Item 15 of this Annual Report on Form 10-K. |
|
(2) |
|
Excludes interest payable of $21,000. See Note 11 to the consolidated financial
statements included in Item 15 of this Annual Report on Form 10-K for a discussion of
these financing arrangements. |
|
(3) |
|
The table above includes only the liability for the defined benefit
postretirement plans other than pensions since these plans are the only unfunded plans. We
also have one underfunded defined benefit pension plan with a recognized liability of
$899,000, which is not included in the table above. |
|
(4) |
|
This obligation relates to an agreement with IBM. 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. The
obligation amount included in the table does not include a pre-petition obligation to IBM
of $977,000 pursuant to this agreement since the timing and amount of the payment is
uncertain. |
|
(5) |
|
Expected payouts of the aggregate amount of claims exclude liabilities subject to
compromise since the timing of expected payouts cannot be estimated. |
|
(6) |
|
The Senior Notes, and related accrued interest as of the Petition Date, are
expected to be allowed general unsecured claims. The Disclosure Statement for the Joint
Plan contemplates distribution of new common stock on a pro rata basis to the holders of
general unsecured claims. |
The Pension Protection Act of 2006 (PPA) may impact the funding requirements for our pension
plans beginning in 2008. Among other legislative changes, the PPA alters the manner in which
liabilities and asset values are determined for the purpose of calculating required pension
contributions and the timing and manner in which required contributions to under-funded pension
plans would be made. These changes could result in an increase in the funding requirements for our
pension plans.
40
We have no significant income tax or litigation-related obligations, except for those covered by
our insurance programs. For more information on income taxes and litigation, claims and
assessments, see Notes 18 and 19 of our consolidated financial statements included in Item 15 of
this Annual Report on Form 10-K
Letters of Credit
We renew our letters of credit annually. At December 31, 2006, we had agreements with third
parties to whom we had issued $138.3 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 $138.3 million, $40.0 million of these letters of credit were secured by
borrowings under the Original DIP Revolver and $98.3 million were issued by our wholly owned
captive insurance subsidiary, Haul Insurance Limited, and were collateralized by $98.3 million of
restricted cash, cash equivalents and other time deposits held by this subsidiary. As previously
discussed, the Original DIP Facility was replaced by the New DIP Facility on March 30, 2007.
The amount of letters of credit that we may issue under the New Revolver included in the New DIP
Facility may not exceed $50 million. As of May 3, 2007, we
had utilized $41.6 million of this
availability and had $8.4 million available. See also Note 18 (d) of our consolidated financial
statements included in Item 15 of this Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement
involving an unconsolidated entity under which a company (1) has made a guarantee (2) has a
retained or contingent interest in transferred assets (3) has an obligation under a contract that
would be accounted for as a derivative except that it is indexed to the companys stock and
included in stockholders equity (4) has an obligation arising out of a variable interest in the
unconsolidated entity and the unconsolidated entity provides financing, liquidity, market risk or
credit risk support to the company or engages in leasing, hedging or research and development
services with the company. Operating lease arrangements have potential off-balance sheet
implications. Future minimum lease payments under our noncancelable operating leases at December
31, 2006 are reflected in the table above under Contractual Obligations. See also Note 13 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.
Fuel Prices
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 $9.8 million over the next twelve months
assuming levels of fuel consumption in the next twelve months are consistent with levels of fuel
consumed in 2006. This increase in costs would at least 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 reset at varying intervals based on fuel prices in the preceding applicable period.
Interest Rates
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, 2006, we had $161.4 million outstanding under the Original DIP Facility which
was subject to variable rates of interest. As previously discussed, the Original DIP Facility was
replaced by the New DIP Facility on March 30, 2007. The interest rates on the term loans and New
Revolver in the New DIP Facility may vary based on either the Base Rate plus 2.50%, or LIBOR plus
3.50%. The swing line loans bear interest at the Base Rate plus 1.0%. Based on the outstanding
balance of
41
the Original DIP Facility as of December 31, 2006, the impact of a three-percentage point increase
in interest rates would result in an increase in our annual interest expense of approximately $4.8
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 third-party
insurance carriers for certain types of losses for certain years within our insurance program,
primarily insured workers compensation, automobile and general liability risks. Our retentions
and deductibles are more fully discussed in Note 12 of the consolidated financial statements
included in Item 15 of this Annual Report on Form 10-K
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 2007 and 2006 is covered by a fully
insured program with no deductible.
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.
Claims and insurance reserves are adjusted periodically, as claims develop, to reflect changes in
actuarial estimates based on actual experience. During 2006, the estimated ultimate amount of
claims from prior years increased approximately $8.0 million or $0.89 per share. During 2005, the
estimated ultimate amount of claims from prior years increased approximately $3.2 million or $0.36
per share.
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, 2006, was $38.3 million. The
potential impact on other comprehensive income resulting from a hypothetical 10% change in quoted
foreign currency exchange rates approximates $3.8 million.
At December 31, 2006, we had an intercompany payable balance of $43.0 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 $4.3 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.
Inflation
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
42
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 materially from those anticipated.
A summary of the significant accounting policies followed in the 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 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 damages 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, 2006 were approximately $12.8
million.
CLAIMS AND INSURANCE RESERVES As discussed 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 third-party claims administrators, who work 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 administrators set 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, 2006, if our estimate of unpaid claims was
increased by 5%, the accrual and operating loss would have increased by approximately $5.3 million.
43
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. For such services, 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, 2006 and 2005 were $52.4 million and $61.4 million,
respectively, net of allowances for doubtful accounts of $1.7 million and $2.2 million,
respectively as of December 31, 2006 and 2005.
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, 2006, we had U.S. federal net operating loss carryforwards of $81.5 million that
expire between 2021 and 2026. 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 $23.7 million, which expire between 2009 and 2015. We had federal
capital loss carryforwards of $0.3 million that expire in 2009. In addition, $7.0 million of tax
credit carryforwards are available to reduce future income taxes. Of the tax credit carryforwards,
$6.3 million consists of foreign tax credits that expire between 2011 and 2016 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, 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 As more fully discussed in Note 16 of the Notes to the
consolidated financial statements included in Item 15 of this Annual Report on Form 10-K, at
December 31, 2006, we adopted the recognition and disclosure provisions of Statement of Financial
Accounting Standards (SFAS) No. 158, Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans an amendment of FASB Statements No. 87, 88, 106 and 132(R). Accordingly, we
recognized the funded status of our defined benefit pension and other postretirement benefit plans
in our consolidated balance sheet at December 31, 2006. The funded status is measured as the
difference between the fair value of plan assets and the benefit obligation. The adoption of SFAS
No. 158 had no effect on our consolidated statement of operations for the year ended December 31,
2006. The incremental effects on our consolidated balance sheet at December 31, 2006 are disclosed in
Note 16 of the Notes to the consolidated financial statements included in Item 15 of this Annual
Report on Form 10-K.
Our pension and other postretirement benefit costs are calculated using various actuarial
assumptions and methodologies as prescribed by SFAS No. 87, Employers Accounting for Pension 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
44
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 2006 net pension expense is presented in Note 16 of the notes
to the consolidated financial statements included in Item 15 of this Annual Report on Form 10-K.
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.
Our targeted rate of return on plan assets is between 8.0% and 9.0%. To calculate pension expense,
the expected long-term rate of return on plan assets was 8.0% in 2006. In determining the
long-term rate of return on assets for 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, 2006 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.
We have estimated that the approximate effect, on the calculation of the projected 2007 net
periodic benefit cost, of an increase or decrease of 0.25% in the discount rate or expected rate of
return on assets would be as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
Discount rate |
|
Investment return |
|
|
Impact |
|
5.50% |
|
|
8.00% |
|
|
|
(12.9 |
)% |
6.00% |
|
|
8.00% |
|
|
|
10.0 |
% |
5.75% |
|
|
8.25% |
|
|
|
8.5 |
% |
5.75% |
|
|
7.75% |
|
|
|
(8.5 |
)% |
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 hours worked. In
the event we reduce the level of 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 the actuarially determined
unfunded obligation based on factors at the time of
withdrawal. During 2005, we recorded a $15.8 million charge for a probable withdrawal liability
for our estimated portion of the underfunded benefit obligation of two multiemployer pension plans.
PROPERTY AND EQUIPMENT We own approximately 2,600 Rigs which we use 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 estimated 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, Goodwill and Other Intangible Assets, 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
45
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.
ADOPTION OF SEC STAFF ACCOUNTING BULLETIN NO. 108 - In September 2006, the SEC issued Staff Accounting Bulletin (SAB) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB No. 108 requires registrants to quantify misstatements using both the balance-sheet and the income-statement approaches and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. When the effect of initial adoption is determined to be material, SAB No. 108 allows registrants to record that effect as a cumulative-effect adjustment to beginning-of-year retained earnings or accumulated deficit. The new guidance applies when uncorrected misstatements in a previous year affect the current year, either because misstatements carry over or reverse.
We were required to consider the provisions of SAB No. 108 in the preparation of our financial statements for the year ended December 31, 2006 and recorded a cumulative-effect adjustment to accumulated deficit as of January 1, 2006 of $1.5 million. We identified three uncorrected misstatements affecting the prior year financial statements that were not material to those
statements individually, or in the aggregate, using the
balance-sheet approach. However, the impact of
correcting these misstatements was material to the financial
statements for the year ended December 31, 2006 under the income-statement approach. Therefore, in accordance with SAB No. 108 we recorded the cumulative-effect adjustment as of January 1, 2006. The detail of the items included in the adjustment were as follows:
|
|
|
In 1994, in connection with the acquisition of Auto Haulaway, a Canadian company, we assumed the obligations of a postretirement benefit plan to provide certain retired employees with healthcare and life insurance benefits. The obligation of $810,000 as of January 1, 2006, related to this plan had not been reflected in our consolidated balance sheet. |
|
|
|
We identified several uncertain tax positions during 2006 that did not meet the criteria under GAAP for recognition of the benefit. The estimated liability for tax, interest and penalties of $370,000 as of January 1, 2006 had not been reflected in our consolidated balance sheet. |
|
|
|
|
A number of proofs of claim were filed against the Debtors by various creditors and security holders prior to the bar date set by the Bankruptcy Court. As part of the claims reconciliation process, the Debtors are reviewing these claims for validity. In reconciling proofs of claims submitted by creditors, we identified additional pre-petition liabilities of $296,000 during 2006 that had not been reflected in liabilities subject to compromise. As additional proofs of claim are reconciled, the Debtors may need to record additional liabilities subject to compromise. Such adjustments could have a material effect on the consolidated financial statements. |
POTENTIAL APPLICABILITY OF FRESH START-REPORTING We may be required, as part of our emergence
from bankruptcy protection, to adopt fresh-start reporting in a future period. If fresh-start
reporting 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 reporting is required, the financial results of our company after the application of
fresh-start reporting could differ materially from historical results.
In addition, pursuant to SOP 90-7, changes in accounting principles that will be required within
twelve months following the adoption of fresh-start reporting will need to be adopted at the date
we implement fresh-start reporting.
See Note 3 to our consolidated financial statements included in Item 15 of this Annual Report on
Form 10-K for additional information on our accounting during the Chapter 11 Proceedings.
Recent Accounting Pronouncements
For a discussion of recently issued accounting pronouncements that have not yet been adopted, see
Note 4 to the consolidated financial statements included in Item 15 of this Annual Report on Form
10-K.
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.
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, 2006, 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, 2005, 2004 and 2003, 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.
46
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 and two senior level accounting staff members 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, which were put in place and strengthened
during 2005. During 2006, we allocated additional resources to address the material weakness and
made continuing improvements.
In connection with the audit of our consolidated financial statements for the year ended December
31, 2006, KPMG indicated that they did not identify a
material weakness as of December 31, 2006. 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.
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.
47
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Set forth below are the names, ages, summary background and experience of each of our directors:
DAVID G. BANNISTER
Director Since 1993
Age 51
Mr. Bannister is Senior Vice President Strategy and Development of FTI Consulting, Inc. and has
held that position since June 2005. Mr. Bannister was a private investor from January 2004 to May
2005 and was Managing Director of Grotech Capital Group, a private equity group, from June 1998 to
December 2003. Mr. Bannister was Managing Director in the Transportation Group of BT Alex Brown
Incorporated and was employed by that firm in various capacities from 1983 to June 1998. Mr.
Bannister is also a director of Landstar System, Inc.
THOMAS E. BOLAND
Director Since 2001
Age 72
Mr. Boland retired as Chairman of the Board of Wachovia Corporation of Georgia and Wachovia Bank of
Georgia, N.A., in April, 1994. Mr. Boland 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 boards of directors of
InfiCorp Holdings, Inc. of Atlanta, and VISA International and VISA U.S.A. of San Mateo,
California.
GUY W. RUTLAND, III
Director Since 1964
Age 70
Mr. Rutland was elected Chairman Emeritus in December 1995 and served as Chairman of the Board from
1986 to December 1995. Prior to October 1993, Mr. Rutland was Chairman or Vice Chairman of each of
our subsidiaries.
GUY W. RUTLAND, IV
Director Since 1993
Age 43
Mr. Rutland has been our Senior Vice President of Labor and Recruiting since July 2001, and was
Executive Vice President and Chief Operating Officer of Allied Automotive Group, Inc., a subsidiary
of our company, from February 2001 to July 2001. Mr. Rutland was Senior Vice President -
Operations of Allied Automotive Group, Inc. from November 1997 to February 2001. Mr. Rutland 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., a subsidiary of our company.
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.
ROBERT J. RUTLAND
Director Since 1965
Age 65
48
Mr. Rutland has been our Chairman since 1995, and served as Chief Executive Officer from February
2001 to June 2001 and from December 1995 to December 1999 and President and Chief Executive Officer
from 1986 to December 1995. Prior to October 1993, Mr. Rutland was 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 52
Mr. Sawyer has been our President and Chief Executive Officer since June 2001. Mr. Sawyer served
as President and Chief Executive Officer of Aegis Communications Group, Inc. from April 2000 to
June 2001. Mr. Sawyer served as President of Allied Automotive Group, Inc., a subsidiary of our
company, 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.
J. LELAND STRANGE
Director Since 2002
Age 65
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 serves on the
advisory board of the Georgia Institute of Technologys College of Management.
BERNER F. WILSON, JR.
Director Since 1993
Age 68
Mr. Wilson retired as Vice President and ViceChairman of our company in June 1999. Mr. Wilson was
Secretary of our company 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.
Mr. Wilson currently serves on the board of directors of Mountain Heritage Bank in Clayton,
Georgia.
ROBERT R. WOODSON
Director Since 1993
Age 75
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 our 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 nonbargaining 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.
49
The members of our Audit Committee are David G. Bannister, Thomas E. Boland and Robert R. Woodson,
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. All members of the audit
committee are independent in accordance with the AMEX rules governing independence. During 2005
the Audit Committee held 10 meetings and in 2006 the Audit Committee held 4 meetings.
EXECUTIVE OFFICERS
The following table sets forth certain information regarding our executive officers:
|
|
|
|
|
|
|
Name |
|
Age |
|
Title |
Robert J. Rutland
|
|
|
65 |
|
|
Chairman and Director |
Hugh E. Sawyer
|
|
|
52 |
|
|
President, Chief Executive Officer and Director |
Guy W. Rutland, IV
|
|
|
43 |
|
|
Senior Vice President and Director |
Thomas M. Duffy
|
|
|
46 |
|
|
Executive Vice President, General Counsel and Secretary |
Thomas H. King
|
|
|
52 |
|
|
Executive Vice President and Chief Financial Officer |
Joseph V. Marinelli
|
|
|
50 |
|
|
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, also 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. Rutland is a member of the board of directors of Fidelity National
Bank, a national banking association.
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 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
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.
50
Mr. Marinelli has been our Senior Vice President, Field Operations since April 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.
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. 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 and 2006 fiscal years, our officers, directors and 10% shareholders
complied with all applicable filing requirements.
Item 11. Director and Executive Compensation
Director Compensation
The following table presents information relating to total compensation of our non-employee
directors for the fiscal year ended December 31, 2006.
Director Compensation Table
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Change in |
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Pension Value |
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Fees |
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and Non- |
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Earned |
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qualified |
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or Paid |
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Option |
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Non-Equity |
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Deferred |
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in Cash |
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Stock |
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|
Awards |
|
|
Incentive Plan |
|
|
Compensation |
|
|
All Other |
|
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|
|
(1) |
|
|
Awards |
|
|
(2) |
|
|
Compensation |
|
|
Earnings |
|
|
Compensation |
|
|
Total |
|
Name |
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
David G. Bannister |
|
|
79,500 |
|
|
|
|
|
|
|
2,367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81,867 |
|
Thomas E. Boland |
|
|
74,500 |
|
|
|
|
|
|
|
2,367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,867 |
|
Guy W. Rutland, III |
|
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56,500 |
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|
|
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|
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|
|
|
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|
|
|
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|
|
|
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56,500 |
|
J. Leland Strange |
|
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61,000 |
|
|
|
|
|
|
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2,367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,367 |
|
Berner F. Wilson,
Jr. |
|
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56,500 |
|
|
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|
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2,367 |
|
|
|
|
|
|
|
|
|
|
|
|
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58,867 |
|
Robert R. Woodson |
|
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76,000 |
|
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|
|
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2,367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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78,367 |
|
William P. Benton(3) |
|
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69,000 |
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2,367 |
|
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|
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|
|
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|
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71,367 |
|
|
|
|
(1) |
|
For the year ended December 31, 2006, each director who was not also an employee
received 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 Amended and Restated Long-Term Incentive
Plan (the LTI Plan). No awards were made to directors under the LTI Plan in 2006. |
|
(2) |
|
Option Awards. The amounts in this column represent the amount of the expense
recognized in the consolidated financial statements for the year ended December 31, 2006
attributable to all outstanding stock option awards for each nonemployee director,
disregarding any adjustments for estimated |
51
|
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|
|
|
forfeitures, and thus include amounts attributable to option awards made prior to 2006. No
awards were granted in 2006. See Note 2(n) to the consolidated financial statements included
in Item 15 of this Annual Report on Form 10-K for the year ended December 31, 2006 for an
explanation of the assumptions made in the valuation of these awards. |
|
(3) |
|
Mr. Benton resigned from the Board in March 2007. |
For the year ended December 31, 2006, each director who was not also an employee received 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 Amended
and Restated Long-Term Incentive Plan (the LTI Plan). No awards were made to directors under the
LTI Plan in 2006.
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.
Compensation Discussion and Analysis
The Compensation and Nominating Committee of the Board (the Compensation Committee) has
responsibility for establishing and administering the compensation program for our executive
officers. The primary components of our executive compensation program include the payment of base
salary, incentive compensation, and stock compensation to our executive officers. The Compensation Committee considers recommendations of the CEO in setting compensation for the named executive officers other than the CEO.
The components of our compensation program were impacted in 2006 by the continuation of the Chapter
11 Proceedings during 2006. An objective of the Compensation Committee during 2006 was to retain
its executive officers as we attempted to emerge from Chapter 11. As an example, the Compensation
Committee approved the Severance Pay, Retention and Emergence Bonus Plan for Key Employees (the
Retention Plan) in 2005 as a means of providing an incentive for our executive officers to remain
with us during the Chapter 11 Proceedings. The Bankruptcy Court later approved this plan.
The Compensation Committee determined that because the Retention Plan was in place and we were
attempting to reduce our labor costs under the collective bargaining agreement with the Teamsters
in the U.S. to facilitate the successful reorganization and exit from Chapter 11, it would not
increase the base salaries paid to executive officers nor would it adopt any management incentive
compensation programs for 2006.
The Compensation Committee also did not grant any stock options or other form of equity awards to
any executive officers during 2006. The Compensation Committee was uncertain about how stock
options or the underlying equity would be treated as we attempted to reorganize and emerge from
Chapter 11 and therefore did not believe that it should issue any form of stock options or equity
awards during 2006. Further, we did not make any significant modifications to the benefits plans
or the underlying benefits provided to our executive officers during 2006.
We have filed the Disclosure Statement for the Joint Plan with the Bankruptcy Court and anticipate
that we will emerge from Chapter 11 during the first half of 2007. We have not yet announced the
specific plans for compensation programs subsequent to our anticipated emergence from Chapter 11.
Executive Compensation Components.
Our executive compensation philosophy is to link compensation with enhancement of shareholder value
and retain executive talent that we consider important for long-term success. Our executive
compensation is based on the following three principal components, each of which is intended to
support the overall compensation philosophy:
Base Salary. The Compensation Committee considers several factors in determining the annual salary
of each of the executive officers. Factors considered by the committee include its evaluation of
each executive officers performance, its assessment of the executive officers value to the
organization and any planned change in functional responsibilities of the executive officer. Base
salary amounts for each of the named executive officers are specified in their employment
agreements. The Compensation Committee believes these base salary amounts
52
are appropriate given the need to attract and retain qualified executives and that these base
salary amounts are competitive with those paid to executives of other leading companies engaged in
the transportation, logistics and trucking industries, and turnaround management.
Incentive Compensation. The Compensation Committee considers several factors in determining
whether to award incentive compensation to its executive officers, including criteria related to
the implementation and achievement of our companys turnaround plan and executive officers
individual performance in connection with the revitalization initiatives that we adopted. For
2006, the Compensation Committee did not award any incentive compensation for the named executive
officers.
Retention
Plan. Effective August 1, 2005, the Bankruptcy Court
approved the Severance Pay, Retention and Emergence Bonus Plan for
Key Employees (the Retention Plan), which
applies to certain employees. 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 out 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, as of the eligibility date for benefits under the Retention Plan. 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 to 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 60 days after the
effective date of the confirmed
plan of reorganization. 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 the filing of a plan of reorganization with
the Bankruptcy Court, 35% of the bonus is payable upon confirmation
of the plan of reorganization
by the Bankruptcy Court and the remaining 35% is payable 60 days after the effective date of the
confirmed plan of reorganization. We filed a plan of reorganization on March 2, 2007 and
in accordance with the terms of the Retention Plan, on March 5, 2007 paid $74,250 to Mr. Duffy,
$74,250 to Mr. King and $47,250 to Mr. Marinelli.
Stock Compensation. The Compensation Committee believes that stock options assist us in the
long-term retention of our executives and serve to align the interests of the executives with the
shareholders by increasing their ownership stake in our company. Executive officers are eligible
to receive annual grants of incentive stock options, non-qualified stock options, stock
appreciation rights, restricted stock, performance units and performance shares under the LTI Plan.
During 2006, the Compensation Committee did not award incentive stock options or non-qualified
stock options to any named executive officer, pursuant to the LTI Plan. We did not award any
shares of restricted stock to any of our executive officers in 2006.
Other Compensation. In January 2005, the Compensation Committee approved an amendment to the
Employment Agreement of Thomas M. Duffy to provide for a bonus to be paid to him if he remained
employed with us as of certain dates in 2005 and 2006. We paid Mr. Duffy $86,625 in April 2005 in
accordance with such agreement. We did not pay Mr. Duffy the amount due under such agreement in
September 2005 or in March 2006.
CEO Compensation. The Compensation Committee believes that Mr. Sawyers compensation as Chief
Executive Officer for the year ended December 31, 2006 was appropriately related to our short and
long-term performance. Mr. Sawyers base salary in 2006 was $700,000; however, his base salary was
reduced by 15% effective March 1, 2006 due to a voluntary wage reduction taken by Mr. Sawyer. Mr.
Sawyer was not paid a bonus for the year ended December 31, 2005 or 2006. The Compensation
Committee believes that the base salary and benefits
53
provided by Mr. Sawyers employment agreement provide for appropriate compensation to Mr. Sawyer in
light of our goal of attracting and retaining a qualified chief executive, and considers the
compensation received by Mr. Sawyer for 2006 to have been comparable to chief executive officers of
other leading companies engaged in the transportation, logistics and trucking industries or
companies engaged in revitalization efforts.
On April 30, 2007, the Board of Directors notified Mr. Sawyer that his employment would be
terminated on or about May 31, 2007. We paid Mr. Sawyer $1,050,000, the severance amount due to
him under the Retention Plan, on or about May 8, 2007 and agreed to continue to pay Mr. Sawyers
salary at the rate of $700,000 per year on a pro rata basis and his existing benefits through his
last day of employment. The Compensation Committee also authorized a payment to Mr. Sawyer of
$80,000 on May 3, 2007 to assist him in defraying his legal fees incurred in connection with the
termination of his employment and the cost of outplacement services.
Compensation Committee Report
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis
section of this Annual Report on Form 10-K with management and, based on such review and
discussion, the Compensation Committee recommends to the Board of Directors that it be included in
this Annual Report on Form 10-K.
COMPENSATION COMMITTEE
David G. Bannister
Robert R. Woodson
J. Leland Strange
Notwithstanding anything to the contrary which is or may be set forth in any of our filings under
the Securities Act of 1933 or the Exchange Act that might incorporate company filings, including
this Annual Report on Form 10-K, in whole or in part, the preceding Compensation Committee Report
shall not be incorporated by reference in any such filings.
Summary Compensation Table
The following table presents information relating to total compensation paid to Hugh E. Sawyer, our
President and Chief Executive Officer, Robert J. Rutland, our Chairman, Thomas H. King, our
Executive Vice President and Chief Financial Officer, Thomas M. Duffy, our Executive Vice
President, General Counsel and Secretary, and Joseph V. Marinelli, our Senior Vice President, Field
Operations. We refer to these officers as our named executive officers.
54
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Change in |
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|
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Pension Value |
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Non- |
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and |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
Nonqualified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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Stock |
|
|
Option |
|
|
Plan |
|
|
Compensation |
|
|
All Other |
|
|
|
|
Name and |
|
|
|
Salary |
|
|
Bonus |
|
|
Awards |
|
|
Awards |
|
|
Compensation |
|
|
Earnings (7) |
|
|
Compensation |
|
|
Total |
|
Principal Position |
|
Year |
|
($) |
|
|
($) |
|
|
($) |
|
|
($)(1) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
Hugh E. Sawyer
President and Chief
Executive Officer |
|
2006 |
|
|
589,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96 |
|
|
|
17,964 |
(2) |
|
|
607,675 |
|
Robert J. Rutland
Chairman |
|
2006 |
|
|
394,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,869 |
(3) |
|
|
438,292 |
|
Thomas H. King
Executive Vice
President and Chief
Financial Officer |
|
2006 |
|
|
317,308 |
|
|
|
|
|
|
|
|
|
|
|
37,867 |
|
|
|
|
|
|
|
|
|
|
|
11,964 |
(4) |
|
|
367,139 |
|
Thomas M. Duffy
Executive Vice
President, General
Counsel and
Secretary |
|
2006 |
|
|
317,308 |
|
|
|
|
|
|
|
|
|
|
|
20,800 |
|
|
|
|
|
|
|
|
|
|
|
43,317 |
(5) |
|
|
381,425 |
|
Joseph V. Marinelli
Senior Vice
President, Field
Operations |
|
2006 |
|
|
216,346 |
|
|
|
|
|
|
|
|
|
|
|
64,533 |
|
|
|
|
|
|
|
|
|
|
|
10,481 |
(6) |
|
|
291,360 |
|
|
|
|
(1) |
|
Option Awards. The amounts in this column represent the amount of the expense
recognized in the consolidated financial statements for the year ended December 31, 2006
attributable to all outstanding stock option awards for each of the named executive officers,
disregarding any adjustments for estimated forfeitures, and thus include amounts attributable
to option awards made prior to 2006. No awards were granted in 2006.
See Note 2(n) to the
consolidated financial statements included in Item 15 of this Annual Report on Form 10-K for
the year ended December 31, 2006 for an explanation of the assumptions made in the valuation
of these awards. |
|
(2) |
|
Consists of a car allowance of $15,600 and $2,364 for long-term disability and life
insurance enhancements. |
|
(3) |
|
Consists of a car allowance of $9,600 and $34,269 for long-term disability and life
insurance enhancements. |
|
(4) |
|
Consists of a car allowance of $9,600 and $2,364 for long-term disability and life
insurance enhancements. |
|
(5) |
|
Consists of a car allowance of $9,600 and $2,344 for long-term disability and life
insurance enhancements and $31,257 for certain premiums for life insurance for Mr. Duffy and
his wife. |
|
(6) |
|
Consists of a car allowance of $8,400 and $2,081 for long-term disability and life
insurance enhancements. |
|
(7) |
|
The amounts in this column represent the change in the present value of the
accumulated benefit obligation in the Allied Holdings Defined Benefit Plan during 2006
attributable to the named executive officer. The accumulated benefit obligation was
calculated using assumptions consistent with those used for financial reporting purposes. For
the year ended December 31, 2006 we revised some of these assumptions. Due to this and the
application of various actuarial factors, the accumulated benefit obligation decreased for
Messrs. Rutland and Duffy. Therefore, there is no compensation expense reported in this
category for these individuals. Messrs. King and Marinelli are not participants in the
pension plan. The assumptions are included in Note 16 of the notes to the consolidated
financial statements included in Item 15 of this Annual Report on Form 10-K. |
55
For additional information regarding the compensation reflected in the Summary Compensation table
above, see Agreements with Named Executive Officers and
Directors and Long-Term Incentive Plans
below.
Grants of Plan-Based Awards
No grants of plan-based awards were made in 2006 to the named executive officers.
Outstanding Equity Awards at Fiscal Year-End
The following table presents information concerning the number and value of unexercised options,
stock appreciation rights and similar instruments, nonvested stock (including restricted stock,
restricted stock units or other similar instruments) and incentive plan awards for the named
executive officers outstanding as of the end of the fiscal year ended December 31, 2006.
|
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|
Option Awards (1) |
|
|
Stock Awards |
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Equity |
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Equity |
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Equity |
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Incentive |
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Incentive Plan |
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Incentive |
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Plan |
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Awards: |
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Plan |
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Number |
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Market |
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Awards: |
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Market or |
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Number |
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Awards: |
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of Shares |
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Value of |
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Number of |
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Payout Value |
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of |
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Number of |
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Number of |
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or Units |
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Shares or |
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Unearned |
|
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of Unearned |
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Securities |
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Securities |
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Securities |
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of Stock |
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Units of |
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Shares, |
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Shares, Units |
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Underlying |
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Underlying |
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Underlying |
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That |
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Stock |
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|
Units or |
|
|
or Other |
|
|
|
Unexercised |
|
|
Unexercised |
|
|
Unexercised |
|
|
Option |
|
|
|
|
|
|
Have |
|
|
That Have |
|
|
Other Rights |
|
|
Rights That |
|
|
|
Options |
|
|
Options |
|
|
Unearned |
|
|
Exercise |
|
|
Option |
|
|
Not |
|
|
Not |
|
|
That Have |
|
|
Have Not |
|
|
|
Exercisable |
|
|
Unexercisable |
|
|
Options |
|
|
Price |
|
|
Expiration |
|
|
Vested |
|
|
Vested |
|
|
Not Vested |
|
|
Vested |
|
Name |
|
(#) |
|
|
(#) |
|
|
(#) |
|
|
($) |
|
|
Date |
|
|
(#) |
|
|
($) |
|
|
(#) |
|
|
($) |
|
Hugh E. Sawyer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,626 |
|
|
|
|
|
|
|
|
|
|
|
2.68 |
|
|
|
6/18/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
425,374 |
|
|
|
|
|
|
|
|
|
|
|
2.68 |
|
|
|
6/18/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
3.70 |
|
|
|
12/17/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert J. Rutland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas H. King: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,333 |
|
|
|
26,667 |
|
|
|
|
|
|
|
3.68 |
|
|
|
1/25/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas M. Duffy: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
|
7.06 |
|
|
|
11/29/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
2.77 |
|
|
|
6/1/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
2.60 |
|
|
|
9/24/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,333 |
|
|
|
6,667 |
|
|
|
|
|
|
|
6.65 |
|
|
|
2/11/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,667 |
|
|
|
13,333 |
|
|
|
|
|
|
|
4.16 |
|
|
|
2/16/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph V. Marinelli: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,667 |
|
|
|
13,333 |
|
|
|
|
|
|
|
5.50 |
|
|
|
5/19/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,333 |
|
|
|
6,667 |
|
|
|
|
|
|
|
4.16 |
|
|
|
2/16/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
|
|
|
(1) |
|
Each option grant has a ten-year term and vests in equal annual installments
commencing one year from the date of grant with full vesting occurring on the second, third or
fifth anniversary of the grant date. Vesting may be accelerated upon the occurrence of certain
events, such as death, disability, retirement or certain changes in control of our company. All
options were granted with an exercise price equal to the closing price of the common stock on the
date of grant. |
Option Exercises and Stock Vested
There were no option or stock awards during the fiscal year ended December 31, 2006 and no options
were exercised during 2006.
Pension Benefits
The following table presents information concerning our tax qualified defined benefit pension plan
(the Retirement Plan) that provides for payments or other benefits to the named executive
officers at, following, or in connection with retirement.
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Present |
|
|
|
|
|
|
Years |
|
Value of |
|
Payments |
|
|
|
|
Credited |
|
Accumulated |
|
During Last |
|
|
|
|
Service |
|
Benefit |
|
Fiscal Year |
Name |
|
Plan Name |
|
(#) |
|
($) |
|
($) |
Hugh E. Sawyer
|
|
Allied Defined Benefit
Pension Plan
|
|
0.6
|
|
10,418
|
|
|
Robert J. Rutland
|
|
Allied Defined Benefit
Pension Plan
|
|
37.7
|
|
944,446
|
|
|
Thomas H. King
|
|
Allied Defined Benefit
Pension Plan
|
|
0.0
|
|
0.0
|
|
|
Thomas M. Duffy
|
|
Allied Defined Benefit
Pension Plan
|
|
3.6
|
|
45,954
|
|
|
Joseph V. Marinelli
|
|
Allied Defined Benefit
Pension Plan
|
|
0.0
|
|
0.0
|
|
|
57
Allied Defined Benefit Pension 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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.
Nonqualified Deferred Compensation
The Company does not have any plan that provides for the deferral of compensation of the named
executive officers on a basis that is not tax qualified.
Agreements with Named Executive Officers and Directors
Employment and Severance Agreements
Effective August 1, 2005, the
Bankruptcy Court approved the Retention Plan. 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
out 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.
Employees are required to agree to covenants restricting their ability to solicit our customers or employees after the termination of their employment for one year in order to receive payment of their severance.
58
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, as of the date of eligibility for benefits under the Plan. 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 60 days after the confirmation of a plan of
reorganization. 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 Bankruptcy Court, 35% of the bonus is payable upon confirmation of a plan of reorganization by
the Bankruptcy Court and the remaining 35% is payable 60 days after the confirmation of a plan of
reorganization.
Robert Rutland has entered into an employment agreement with our company, which has been renewed
for a two-year term ending in February 2009, 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 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.
59
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.
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, 2006
are approximately: $1,050,000 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.
On April 30, 2007, the Board of Directors notified Mr. Sawyer that his employment would be
terminated on or about May 31, 2007. We paid Mr. Sawyer $1,050,000, the severance amount due to
him under the Retention Plan, on or about May 8, 2007 and agreed to continue to pay Mr. Sawyers
salary at the rate of $700,000 per year on a pro rata basis and his existing benefits through his
last day of employment. The Compensation Committee also authorized a payment to Mr. Sawyer of
$80,000 on May 3, 2007 to assist him in defraying his legal fees incurred in connection with the
termination of his employment and the cost of outplacement services.
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, 2006. 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, 2006:
|
|
|
|
|
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 |
|
60
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 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 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 or 2006. Non-qualified options to acquire 684,374 shares
of common stock pursuant to the LTI Plan were exercisable at December 31, 2006.
Restricted Stock Awards
The Board of Directors may grant restricted stock under the LTI Plan. We granted no restricted
stock in 2005 or 2006 and no such shares are outstanding.
Incentive Stock Options
No incentive stock options were granted in 2006. 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 683,461 shares of common stock pursuant to the LTI Plan were
exercisable at December 31, 2006.
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 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.
61
Compensation 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 Committee during the year ended December 31, 2005 and 2006. Mr. Benton resigned
as a member of the Compensation Committee in March 2007. None of the members of the Compensation
Committee has served as an officer of our company, and none 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
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) |
|
|
1,550,167 |
|
|
$ |
3.66 |
|
|
|
542,510 |
(2) |
Equity compensation
plans not approved
by security holders. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,550,167 |
|
|
$ |
3.66 |
|
|
|
542,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 plans, see Note 20 to our consolidated financial
statements included in Item 15 of 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. |
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 May 3,2007 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 G. Bannister(9) |
|
|
39,334 |
|
|
|
* |
|
Robert R. Woodson(9) |
|
|
39,334 |
|
|
|
* |
|
Thomas E. Boland(9) |
|
|
38,334 |
|
|
|
* |
|
J. Leland Strange(9) |
|
|
35,334 |
|
|
|
* |
|
Thomas H. King(10) |
|
|
13,333 |
|
|
|
* |
|
Joseph V. Marinelli(11) |
|
|
30,000 |
|
|
|
* |
|
All executive officers and directors as
a group(12) (12 persons) |
|
|
3,664,157 |
|
|
|
37.0 |
|
62
|
|
|
(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 May 3, 2007. 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 13,333 shares. |
|
(11) |
|
Includes options to acquire 30,000 shares. |
|
(12) |
|
Includes options to acquire 923,337 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 May 3, 2007, other than directors
of our company:
|
|
|
|
|
|
|
|
|
Name and Address of |
|
Number of Shares |
|
|
Percentage of Shares |
|
Beneficial Owner |
|
Beneficially Owned |
|
|
Outstanding |
|
Robert E. Robotti, Robotti & Company,
LLC, Robotti & Company Advisors, LLC and
The Ravenswood Management Company, LLC
and the Ravenswood Investment Company,
L.P.(1)
52 Vanderbilt Avenue, Suite 503
New York, New York 10017 |
|
|
594,390 |
|
|
|
6.6 |
|
Nikon Hecht
Aspen Advisors LLC
Sopris Capital Partners, L.P.
Sopris Capital, LLC
Sopris Capital Advisors, LLC(2)
152 West 57th Street
New York, New York 10019 |
|
|
889,895 |
|
|
|
9.9 |
|
Armory Master Fund Ltd., Armory Fund LP,
Armory Partners LLC, Armory Offshore Fund
Ltd., Armory Advisors LLC, The Seaport
Group, LLC Profit Sharing Plan, Stephen
C. Smith, Michael Meagher and Jay
Burnham(3)
999 Fifth Avenue, Suite 450
San Rafael, California 94901 |
|
|
648,700 |
|
|
|
7.2 |
|
|
|
|
(1) |
|
According to a Schedule 13G filed on February 15, 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. |
63
|
|
|
(2) |
|
According to a Schedule 13D/A filed on April 24, 2007 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. |
|
(3) |
|
According to a Schedule 13G filed on February 7, 2007 on behalf of Armory Master
Fund Ltd., Armory Fund LP, Armory Partners LLC, Armory Offshore Fund Ltd., Armory Advisors
LLC, in its role as an investment advisor, The Seaport Group, LLC Profit Sharing Plan, Stephen
C. Smith, Michael Meagher and Jay Burnham. Armory Advisors LLC, as investment manager for its
private clients, has discretionary investment authority over the common stock held by its
respective private clients. Mr. Smith and Mr. Meagher possess shared voting and investment
power but do not have sole voting and investment power. |
If we emerge from Chapter 11, we will
experience a change in control. See Voluntary Reorganization under Chapter 11 under Item 1.
Business for more information.
Item 13. Certain Relationships, Related Transactions and Director Independence
Beginning in the first quarter of 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.
The Board has determined that the following directors, which constitute a majority of the Board,
are independent in accordance with the AMEX rules governing director independence: Messrs.
Bannister, Boland, Strange, Wilson and Woodson.
Item 14. Principal Accountant Fees and Services
The Audit Committee has selected KPMG to serve as our independent registered public accounting
firm for the fiscal year ending December 31, 2007. Approval of our companys accounting firm is
not a matter required to be submitted to the shareholders. Upon the recommendation of the Audit
Committee, we first appointed KPMG on April 2, 2002 to serve as our independent registered
public accounting firm for the fiscal year ended December 31, 2002. We have been advised by KPMG 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 is considered by our company to be
well qualified.
Audit Fees
Fees for KPMGs audit services totaled approximately $1,572,000 in 2006 and $1,800,000 in 2005,
including fees for professional services rendered for the audit of our annual financial statements
included in Item 15 of this Annual Report on 10-K and the review of our quarterly reports on Form
10-Q.
Audit-Related Fees
No audit-related fees were billed by KPMG during 2006 or 2005.
Tax Fees
There were no fees billed by KPMG for professional services rendered for income tax consulting
services in 2006 or 2005.
64
All Other Fees
There were no fees billed by KPMG for professional services rendered in 2006 and 2005 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.
65
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
|
|
|
|
|
|
|
Page |
|
|
|
|
F-1 |
|
|
|
|
F-2 |
|
|
|
|
F-3 |
|
|
|
|
F-4 |
|
|
|
|
F-5 |
|
|
|
|
F-6 |
|
(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.
Exhibit Index filed as part of this report
|
|
|
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*
|
|
SECURED SUPER-PRIORITY DEBTOR IN POSSESSION AND EXIT CREDIT AND
GUARANTY AGREEMENT, dated as of March 30, 2007, entered into by and
among ALLIED HOLDINGS, INC., a Georgia corporation and a debtor and
debtor in possession under Chapter 11 of the Bankruptcy Code (as
defined) (Holdings), ALLIED SYSTEMS, LTD. (L.P.), a Georgia limited
partnership and a debtor and debtor in possession under Chapter 11 of
the Bankruptcy Code (Systems and, together with Holdings, the
Borrowers), CERTAIN SUBSIDIARIES OF BORROWERS, as Subsidiary
Guarantors, the Lenders party hereto from time to time, GOLDMAN SACHS
CREDIT PARTNERS L.P. (GSCP), as Syndication Agent (in such capacity,
Syndication Agent), and THE CIT GROUP/BUSINESS CREDIT, INC. (CIT), |
66
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
as Administrative Agent (together with its permitted successors in
such capacity, Administrative Agent) and as Collateral Agent
(together with its permitted successor in such capacity, Collateral
Agent) |
|
|
|
4.3 (a)*
|
|
First Amendment dated April 18, 2008 to the SECURED SUPER-PRIORITY
DEBTOR IN POSSESSION AND EXIT CREDIT AND GUARANTY AGREEMENT, dated as
of March 30, 2007, entered into by and among ALLIED HOLDINGS, INC., a
Georgia corporation and a debtor and debtor in possession under
Chapter 11 of the Bankruptcy Code (as defined) (Holdings), ALLIED
SYSTEMS, LTD. (L.P.), a Georgia limited partnership and a debtor and
debtor in possession under Chapter 11 of the Bankruptcy Code
(Systems and, together with Holdings, the Borrowers), CERTAIN
SUBSIDIARIES OF BORROWERS, as Subsidiary Guarantors, the Lenders party
hereto from time to time, GOLDMAN SACHS CREDIT PARTNERS L.P. (GSCP),
as Syndication Agent (in such capacity, Syndication Agent), and THE
CIT GROUP/BUSINESS CREDIT, INC. (CIT), as Administrative Agent
(together with its permitted successors in such capacity,
Administrative Agent) and as Collateral Agent (together with its
permitted successor in such capacity, Collateral Agent). |
|
|
|
4.4*
|
|
LOAN AND SECURITY AGREEMENT AND GUARANTY dated April 5, 2007, by and
among ALLIED SYSTEMS, LTD. (L.P.), a Georgia limited partnership and a
debtor and debtor in possession under Chapter 11 of the Bankruptcy
Code (Borrower) ALLIED HOLDINGS, INC., a Georgia corporation and a
debtor and debtor in possession under Chapter 11 of the Bankruptcy
Code (Holdings), THE OTHER SUBSIDIARIES (AS DEFINED) OF HOLDINGS
PARTY HERETO (such Subsidiaries, together with any future Subsidiaries
of Holdings, the Subsidiary Guaranters,and together with Borrower
and Holdings, collectively, the Loan Parties, and individually, a
Loan Party), and YUCAIPA TRANSPORTATION, LLC, A Delaware limited
liability company (Lender). |
|
|
|
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
(incorporated by reference from Exhibit 10.5 to the Annual Report on
Form 10-K filed with the Commission on June 16, 2006). |
|
|
|
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). |
67
|
|
|
Exhibit |
|
|
No. |
|
Description |
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). |
|
|
|
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*
|
|
Severance Agreement and Full Release dated April 20, 2007 by and
between Hugh E. Sawyer and Allied Holdings, Inc., a Georgia
corporation. |
|
|
|
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 |
68
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
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 (incorporated by reference from
Exhibit 10.16(c) to the Annual Report on Form 10-K filed with the
Commission on June 16, 2006). |
|
|
|
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). |
|
|
|
10.17(b) £
|
|
Amendment to Agreement between the Company and General Motors dated
December 8, 2005 (incorporated by reference from Exhibit 10.17(b) to
the Annual Report on Form 10-K filed with the Commission on June 16,
2006). |
|
|
|
10.18 £
|
|
Amendment to Agreement between the Company and American Honda Motor
Company dated January 30, 2006 (incorporated by reference from Exhibit
10.18 to the Annual Report on Form 10-K filed with the Commission on
June 16, 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). |
|
|
|
10.24*
|
|
Settlement Agreement entered into by and among (a) Allied Holdings,
Inc., and its affiliates that are debtors and debtors in possession
(collectively, the Debtors), (b) Yucaipa American Alliance Fund I,
LP and Yucaipa American Alliance (Parallel) Fund I, LP (collectively,
Yucaipa), (c) the Official Committee of Unsecured Creditors in the
Bankruptcy Cases (the Creditors Committee), (d) Sopris Capital
Advisors, LLC, Aspen Advisors LLC and Armory Advisors LLC
(collectively, the Equity Holders), (e) Andrews & Kurth LLP, (f)
Sonnenschein Nath & Rosenthal LLP, (g) Kilpatrick Stockton LLP and (h)
Jeffries & Company, Inc. |
|
|
|
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). |
69
|
|
|
Exhibit |
|
|
No. |
|
Description |
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). |
|
|
|
* |
|
Filed herewith. |
|
£ |
|
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. |
70
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.
|
|
|
|
|
|
ALLIED HOLDINGS, INC.
|
|
Date: May 23, 2007 |
By: |
/s/ HUGH E. SAWYER
|
|
|
|
Hugh E. Sawyer, |
|
|
|
President and
Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
Date: May 23, 2007 |
By: |
/s/ THOMAS H. KING
|
|
|
|
Thomas H. King, |
|
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
71
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
|
|
May 23, 2007 |
/s/ GUY W. RUTLAND, III
Guy W. Rutland, III |
|
Chairman Emeritus and Director
|
|
May 23, 2007 |
/s/ HUGH E. SAWYER
Hugh E. Sawyer |
|
President, Chief Executive Officer and
Director
|
|
May 23, 2007 |
/s/ DAVID G. BANNISTER
David G. Bannister |
|
Director
|
|
May 23, 2007 |
/s/ THOMAS E. BOLAND
Thomas E. Boland |
|
Director
|
|
May 23, 2007 |
/s/ GUY W. RUTLAND, IV
Guy W. Rutland, IV |
|
Senior Vice President and Director
|
|
May 23, 2007 |
/s/ J. LELAND STRANGE
J. Leland Strange |
|
Director
|
|
May 23, 2007 |
/s/ BERNER F. WILSON, JR.
Berner F. Wilson, Jr. |
|
Director
|
|
May 23, 2007 |
/s/ ROBERT R. WOODSON
|
|
Director
|
|
May 23, 2007 |
Robert R. Woodson |
|
|
|
|
72
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, 2006 and 2005, 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, 2006. 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, 2006 and 2005, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2006, 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 $12.3 million, $125.7 million and $53.9 million from operations during 2006, 2005 and 2004, respectively, and has an accumulated deficit at December 31, 2006 and 2005, 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 Notes
2 and 20 to the consolidated financial statements, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 123(R), Share-Based
Payment
effective January 1, 2006. Also, as discussed in Notes 2
and 16 to the consolidated financial statements, the Company adopted the recognition and
disclosure provisions of Statement of Financial Accounting Standards
No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans as of December 31, 2006.
As discussed in Note 1, to the consolidated financial statements,
the Company adopted the Securities and Exchange Commission's Staff
Accounting Bulletin No. 108, Considering the Effects of Prior-Year
Misstatements when Quantifying Misstatements in Current Year Financial Statements.
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
May 23, 2007
F-1
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
CONSOLIDATED BALANCE SHEETS
December 31, 2006 and 2005
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,314 |
|
|
$ |
4,117 |
|
Restricted cash, cash equivalents and other time deposits |
|
|
32,436 |
|
|
|
32,830 |
|
Receivables,
net of allowances of $1,701 and $2,218 as of December 31,
2006 and December 31, 2005, respectively |
|
|
52,427 |
|
|
|
61,427 |
|
Inventories |
|
|
4,916 |
|
|
|
5,132 |
|
Deferred income taxes |
|
|
1,907 |
|
|
|
128 |
|
Prepayments and other current assets |
|
|
21,463 |
|
|
|
59,434 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
115,463 |
|
|
|
163,068 |
|
Property and equipment, net of accumulated depreciation |
|
|
129,231 |
|
|
|
123,904 |
|
Goodwill, net |
|
|
3,545 |
|
|
|
3,545 |
|
Other assets: |
|
|
|
|
|
|
|
|
Restricted cash, cash equivalents and other time deposits |
|
|
65,857 |
|
|
|
69,764 |
|
Other noncurrent assets |
|
|
24,672 |
|
|
|
22,835 |
|
|
|
|
|
|
|
|
Total other assets |
|
|
90,529 |
|
|
|
92,599 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
338,768 |
|
|
$ |
383,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT |
|
|
|
|
|
|
|
|
Current liabilities not subject to compromise: |
|
|
|
|
|
|
|
|
Debtor-in-possession credit facility |
|
$ |
161,357 |
|
|
$ |
151,997 |
|
Accounts and notes payable |
|
|
26,364 |
|
|
|
56,960 |
|
Accrued liabilities |
|
|
74,439 |
|
|
|
83,317 |
|
Deferred income taxes |
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
262,266 |
|
|
|
292,274 |
|
|
|
|
|
|
|
|
Long-term liabilities not subject to compromise: |
|
|
|
|
|
|
|
|
Postretirement benefits other than pensions |
|
|
14,227 |
|
|
|
4,648 |
|
Deferred income taxes |
|
|
1,926 |
|
|
|
143 |
|
Other long-term liabilities |
|
|
65,269 |
|
|
|
74,096 |
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
81,422 |
|
|
|
78,887 |
|
Liabilities subject to compromise |
|
|
199,212 |
|
|
|
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 shares
outstanding at December 31, 2006 and December 31, 2005 |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
49,081 |
|
|
|
48,545 |
|
Treasury stock, 139 shares at cost |
|
|
(707 |
) |
|
|
(707 |
) |
Accumulated deficit |
|
|
(228,432 |
) |
|
|
(214,631 |
) |
Accumulated other comprehensive loss, net of tax |
|
|
(24,074 |
) |
|
|
(20,574 |
) |
|
|
|
|
|
|
|
Total stockholders deficit |
|
|
(204,132 |
) |
|
|
(187,367 |
) |
|
|
|
|
|
|
|
Total liabilities and stockholders deficit |
|
$ |
338,768 |
|
|
$ |
383,116 |
|
|
|
|
|
|
|
|
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, 2006, 2005 and 2004
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Revenues |
|
$ |
893,837 |
|
|
$ |
892,934 |
|
|
$ |
895,213 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and fringe benefits |
|
|
451,018 |
|
|
|
482,609 |
|
|
|
488,728 |
|
Operating supplies and expenses |
|
|
183,723 |
|
|
|
180,481 |
|
|
|
162,266 |
|
Purchased transportation |
|
|
115,209 |
|
|
|
119,431 |
|
|
|
111,214 |
|
Insurance and claims |
|
|
41,651 |
|
|
|
42,033 |
|
|
|
40,821 |
|
Operating taxes and licenses |
|
|
28,059 |
|
|
|
29,841 |
|
|
|
29,804 |
|
Depreciation and amortization |
|
|
29,430 |
|
|
|
29,925 |
|
|
|
42,943 |
|
Rents |
|
|
7,158 |
|
|
|
7,500 |
|
|
|
8,556 |
|
Communications and utilities |
|
|
6,252 |
|
|
|
6,090 |
|
|
|
6,342 |
|
Other operating expenses |
|
|
7,810 |
|
|
|
11,797 |
|
|
|
10,124 |
|
Impairment of goodwill |
|
|
|
|
|
|
79,172 |
|
|
|
8,295 |
|
Gain on disposal of operating assets, net |
|
|
(3,297 |
) |
|
|
(869 |
) |
|
|
(839 |
) |
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
867,013 |
|
|
|
988,010 |
|
|
|
908,254 |
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
26,824 |
|
|
|
(95,076 |
) |
|
|
(13,041 |
) |
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (excludes contractual interest of $12.9 million
and $5.4 million in 2006 and 2005, respectively) |
|
|
(30,160 |
) |
|
|
(39,410 |
) |
|
|
(31,355 |
) |
Investment income |
|
|
4,807 |
|
|
|
2,813 |
|
|
|
1,136 |
|
Foreign exchange (losses) gains, net |
|
|
(635 |
) |
|
|
1,414 |
|
|
|
1,929 |
|
Other, net |
|
|
|
|
|
|
834 |
|
|
|
(191 |
) |
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
(25,988 |
) |
|
|
(34,349 |
) |
|
|
(28,481 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) before reorganization items and income taxes |
|
|
836 |
|
|
|
(129,425 |
) |
|
|
(41,522 |
) |
Reorganization items |
|
|
(12,772 |
) |
|
|
(7,131 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(11,936 |
) |
|
|
(136,556 |
) |
|
|
(41,522 |
) |
Income tax (expense) benefit |
|
|
(389 |
) |
|
|
10,832 |
|
|
|
(12,361 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(12,325 |
) |
|
$ |
(125,724 |
) |
|
$ |
(53,883 |
) |
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(1.37 |
) |
|
$ |
(14.02 |
) |
|
$ |
(6.15 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
8,980 |
|
|
|
8,970 |
|
|
|
8,757 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these 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, 2006, 2005, and 2004
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Comprehensive |
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Income |
|
|
Common Stock |
|
|
Paid-in |
|
|
Treasury |
|
|
Accumulated |
|
|
Comprehensive |
|
|
|
|
|
|
(Loss) |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Stock |
|
|
Deficit |
|
|
Income (Loss) |
|
|
Total |
|
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 income (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 |
) |
Cumulative-effect adjustment
resulting from the adoption of
SAB 108, net of income taxes of $0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,476 |
) |
|
|
|
|
|
|
(1,476 |
) |
Net loss |
|
$ |
(12,325 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,325 |
) |
|
|
|
|
|
|
(12,325 |
) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustment, net of income
taxes of $0 |
|
|
(161 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(161 |
) |
|
|
(161 |
) |
Adjustment to minimum pension
liability, net of income taxes of $0 |
|
|
20,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,169 |
|
|
|
20,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
7,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to initially apply
Statement of Financial
Accounting Standards No. 158,
net of income taxes of $0 |
|
$ |
(23,508 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,508 |
) |
|
|
(23,508 |
) |
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006 |
|
|
|
|
|
|
8,980 |
|
|
$ |
|
|
|
$ |
49,081 |
|
|
$ |
(707 |
) |
|
$ |
(228,432 |
) |
|
$ |
(24,074 |
) |
|
$ |
(204,132 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2006, 2005, and 2004
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(12,325 |
) |
|
$ |
(125,724 |
) |
|
$ |
(53,883 |
) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
29,430 |
|
|
|
29,925 |
|
|
|
42,943 |
|
Impairment of goodwill |
|
|
|
|
|
|
79,172 |
|
|
|
8,295 |
|
Gain on disposal of operating assets, net |
|
|
(3,297 |
) |
|
|
(1,703 |
) |
|
|
(839 |
) |
Write-off and amortization of deferred financing costs |
|
|
5,817 |
|
|
|
8,631 |
|
|
|
2,797 |
|
Interest expense paid in kind |
|
|
6,351 |
|
|
|
|
|
|
|
|
|
Foreign exchange losses (gains), net |
|
|
635 |
|
|
|
(1,414 |
) |
|
|
(1,929 |
) |
Reorganization items |
|
|
12,772 |
|
|
|
7,131 |
|
|
|
|
|
Deferred income taxes |
|
|
110 |
|
|
|
(11,261 |
) |
|
|
11,275 |
|
Stock-based compensation expense |
|
|
536 |
|
|
|
|
|
|
|
321 |
|
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net of allowances |
|
|
8,979 |
|
|
|
(2,712 |
) |
|
|
(4,727 |
) |
Inventories |
|
|
216 |
|
|
|
(623 |
) |
|
|
414 |
|
Prepayments and other assets |
|
|
33,193 |
|
|
|
(31,993 |
) |
|
|
(3,299 |
) |
Accounts and notes payable |
|
|
(2,236 |
) |
|
|
13,045 |
|
|
|
(1,747 |
) |
Accrued liabilities |
|
|
(19,646 |
) |
|
|
5,518 |
|
|
|
13,860 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities before payment of
reorganization items |
|
|
60,535 |
|
|
|
(32,008 |
) |
|
|
13,481 |
|
Reorganization items paid |
|
|
(11,690 |
) |
|
|
(2,939 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
48,845 |
|
|
|
(34,947 |
) |
|
|
13,481 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(35,846 |
) |
|
|
(19,405 |
) |
|
|
(22,542 |
) |
Proceeds from sales of property and equipment |
|
|
4,496 |
|
|
|
3,253 |
|
|
|
3,040 |
|
Proceeds from sale of equity in subsidiaries |
|
|
|
|
|
|
2,000 |
|
|
|
|
|
Decrease (increase) in restricted cash, cash equivalents and other time deposits |
|
|
4,301 |
|
|
|
(19,714 |
) |
|
|
(796 |
) |
Funds deposited with insurance carriers |
|
|
(1,856 |
) |
|
|
(9,766 |
) |
|
|
(32,072 |
) |
Funds returned from insurance carriers |
|
|
4,512 |
|
|
|
5,969 |
|
|
|
34,995 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(24,393 |
) |
|
|
(37,663 |
) |
|
|
(17,375 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
(Repayment of) addition to debtor-in-possession revolving credit facility, net |
|
|
(6,991 |
) |
|
|
51,997 |
|
|
|
|
|
(Repayments of) additions to pre-petition revolving credit facilities, net |
|
|
|
|
|
|
(2,972 |
) |
|
|
2,972 |
|
Additions to debtor-in-possession term debt |
|
|
10,000 |
|
|
|
100,000 |
|
|
|
|
|
Additions to pre-petition term debt |
|
|
|
|
|
|
25,000 |
|
|
|
20,000 |
|
Repayment of pre-petition term debt |
|
|
|
|
|
|
(123,266 |
) |
|
|
(18,234 |
) |
Payment of financing costs |
|
|
(345 |
) |
|
|
(8,271 |
) |
|
|
(475 |
) |
Proceeds from insurance financing arrangements |
|
|
6,362 |
|
|
|
42,401 |
|
|
|
31,252 |
|
Repayments of insurance financing arrangements |
|
|
(34,446 |
) |
|
|
(10,827 |
) |
|
|
(32,634 |
) |
Proceeds from issuance of common stock |
|
|
|
|
|
|
124 |
|
|
|
589 |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(25,420 |
) |
|
|
74,186 |
|
|
|
3,470 |
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(835 |
) |
|
|
25 |
|
|
|
792 |
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
(1,803 |
) |
|
|
1,601 |
|
|
|
368 |
|
Cash and cash equivalents at beginning of year |
|
|
4,117 |
|
|
|
2,516 |
|
|
|
2,148 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
2,314 |
|
|
$ |
4,117 |
|
|
$ |
2,516 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid (refunds received) during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
19,943 |
|
|
$ |
27,461 |
|
|
$ |
27,136 |
|
Income taxes, net |
|
|
313 |
|
|
|
(346 |
) |
|
|
489 |
|
Supplemental disclosure of noncash financing activity: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid in kind via addition to term debt |
|
$ |
6,351 |
|
|
$ |
|
|
|
$ |
|
|
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, 2006, 2005, and 2004
(1) Organization and Operations
Company Overview
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.
Chapter 11 Overview
On July 31, 2005 (the Petition Date), Allied and substantially all of its subsidiaries (the
Debtors) filed voluntary petitions with the U.S. Bankruptcy Court for the Northern District of
Georgia (the Bankruptcy Court) 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 and Bermuda (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. The Debtors are currently
operating their business as debtors-in-possession under the jurisdiction of the 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 a plan of reorganization is effective will be referred to as the Chapter 11 Proceedings.
On April 6, 2007, the Bankruptcy Court approved the Disclosure Statement (Disclosure Statement)
for the Second Amended Joint Plan of Reorganization (as amended, the Joint Plan) filed by the
Debtors, the Teamsters National Automobile Transportation Industry Negotiating Committee, on behalf
of the International Brotherhood of Teamsters (the Teamsters or IBT) and Yucaipa American
Alliance Fund I, LP and Yucaipa American Alliance (Parallel) Fund I, LP (collectively Yucaipa)
and authorized its use in connection with the solicitation of votes from those creditors and other
parties in interest that were entitled to vote on a plan of reorganization. The Company
subsequently received the votes needed and the Bankruptcy Court approved the Joint Plan on May 18,
2007. The Joint Plan includes several conditions precedent to the effective date, including the
closing and funding of exit financing. See Note 3 for other Chapter 11 related disclosures.
On March 30, 2007, the Company obtained financing arranged by an affiliate of Goldman Sachs & Co.,
(the New DIP Facility) which provides debtor-in-possession financing of up to $315 million. The
New DIP Facility, which was amended in April 2007, replaces the financing obtained on August 1,
2005 in connection with the Chapter 11 filing (the Original DIP Facility) and subject to the
satisfaction of certain conditions, the New DIP Facility may convert, at the Companys option, to a
senior secured credit facility upon its emergence from Chapter 11. Also, subsequent to December
31, 2006, the Company entered into an agreement with Yucaipa pursuant to which Yucaipa will
purchase approximately 150 specialized tractors and car-haul trailers (Rigs) from the bankruptcy
auction of Blue Thunder Auto Transport, Inc. (the Blue Thunder Rigs). The Blue Thunder Rigs will
then be sold by Yucaipa to the Company at cost. The purchase of these Rigs are being financed with
purchase money financing provided by Yucaipa (the Rig Financing), which Rig Financing was
approved by the Bankruptcy Court on April 6, 2007. The maximum amount financed under the Rig
Financing will not exceed $15 million. At the option of Yucaipa, upon the Companys successful
emergence from Chapter 11, Yucaipa may convert the Rig Financing into additional equity of the
Company. See Note 14 for additional discussion on the New DIP Facility and the Rig Financing.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
F - 6
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.
F - 7
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 Joint Plan becoming effective, compliance with
the provisions of the New DIP Facility, 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 Joint Plan. 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 Joint Plan, 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 amounts of assets and liabilities that might be required as a
result of the Joint Plan. The Joint Plan 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 Joint Plan and, at this time, it is not possible to estimate
the impact on the Companys financial statements.
(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.
(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 $4.2 million and $5.9 million of amounts due from other than trade customers as
of December 31, 2006 and 2005, 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. These amounts
are allocated between
F - 8
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
current and noncurrent in the accompanying consolidated balance sheets in proportion to the related
insurance claims reserves.
(e) Inventories
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, 2006 and 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Parts |
|
$ |
3,696 |
|
|
$ |
3,863 |
|
Shop supplies |
|
|
331 |
|
|
|
345 |
|
Bulk fuel |
|
|
738 |
|
|
|
660 |
|
Other |
|
|
151 |
|
|
|
264 |
|
|
|
|
|
|
|
|
|
|
$ |
4,916 |
|
|
$ |
5,132 |
|
|
|
|
|
|
|
|
(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; |
|
|
|
|
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, 2006, 2005 or 2004.
(i) Financing Costs
On August 1, 2005, in connection with its Chapter 11 filing, the Company entered into the Original
DIP Facility for debtor-in-possession financing of up to $230 million. As previously discussed, on
March 30, 2007, the Original DIP
Facility was replaced by the New DIP Facility. The deferred financing costs as of December 31, 2006
and December 31, 2005 are included in other noncurrent assets net of accumulated amortization and
represent costs related to the Original DIP Facility. Amortization of the Companys deferred
financing costs are included in interest expense. The New DIP Facility and amendments to the
Original DIP Facility are more fully discussed in Note 14.
F - 9
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The deferred financing costs at December 31, 2005 were fully amortized as interest expense as of
May 18, 2006. As more fully disclosed in Note 14, during the first quarter of 2006, the Company
obtained forbearance from its lenders as a remedy to certain covenant violations. The forbearance
period ended on May 18, 2006. Accordingly, the Company reduced the amortization period of the
deferred financing costs to coincide with the end of the forbearance period resulting in the full
amortization of these costs as of May 18, 2006. Fees of approximately $558,000 related to the
forbearance agreements were recognized as expense as incurred and are included in interest expense
in the accompanying consolidated statement of operations. Additional costs were deferred in 2006
related to the fifth amendment to the Original DIP Facility, which extended the term of the
Original DIP Facility. These costs were being amortized using the straight-line method of
amortization. The deferred financing costs at December 31, 2006, which relate to the fifth
amendment to the Original DIP Facility, will be expensed in the first quarter of 2007 since, during
the first quarter of 2007, the Original DIP Facility was replaced by the New DIP Facility.
(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 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, 2006.
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.
F - 10
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 85/8% senior notes is
based on trade prices of transactions at or prior to the year-end measurement date. The
pricing of such trades may have been impacted by the limited trading of these notes. |
The asset and (liability) amounts recorded on the balance sheets and the estimated fair values of
financial instruments as of December 31, 2006 and 2005 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount |
|
|
Estimated Fair Value |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Cash, cash equivalents and other
time deposits (including restricted
amounts) |
|
$ |
100,607 |
|
|
$ |
106,711 |
|
|
$ |
100,607 |
|
|
$ |
106,711 |
|
Debtor-in-possession financing |
|
|
(161,357 |
) |
|
|
(151,997 |
) |
|
|
(161,357 |
) |
|
|
(151,997 |
) |
85/8% senior notes |
|
|
(150,000 |
) |
|
|
(150,000 |
) |
|
|
(103,500 |
) |
|
|
(119,250 |
) |
(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 (third-party insurance carriers). 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 third-party insurance carriers for certain types
of losses for certain years within its insurance program, primarily insured workers compensation,
automobile and general liability risks.
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 third-party claims administrators, who work 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 administrators set 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 third-party
insurance carriers and various states for losses in respect of worker injuries, accident, theft and
other loss claims. For this purpose, the Company utilizes letters of credit and/or cash, cash
equivalents and other time deposits, classified as restricted in the consolidated balance sheet.
F-11
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(n) Stock-Based Compensation
Effective
January 1, 2006, the Company adopted SFAS No. 123 (revised
2004), Share-Based Payment ("SFAS 123(R)")
using the modified prospective transition method under which compensation expense is recognized for
any new stock options granted and for the unvested portion of outstanding stock options at the date
of adoption of SFAS No. 123(R). The Company recognizes compensation expense on a straight-line
basis over the vesting period. Compensation expense is adjusted for estimated forfeitures based on
the Companys historical experience. In accordance with the provisions of the modified prospective
method, the financial statements of prior periods have not been restated.
For the years ended December 31, 2005 and 2004, 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 was recorded on the date of grant only if the
market price of the underlying stock, on the date of grant, exceeded 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 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.
If the Company had applied the fair-value-based method prescribed by SFAS No. 123 prior to January
1, 2006, net loss and loss per common share would have been changed to the pro forma amounts
presented below for the years ended December 31, 2005 and 2004 (in thousands, except per share
data):
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
Reported net loss |
|
$ |
(125,724 |
) |
|
$ |
(53,883 |
) |
Plus: stock-based employee compensation included in reported net loss |
|
|
|
|
|
|
321 |
|
Less: stock-based employee compensation determined under the fair value method |
|
|
(923 |
) |
|
|
(1,119 |
) |
|
|
|
|
|
|
|
Pro forma net loss |
|
$ |
(126,647 |
) |
|
$ |
(54,681 |
) |
|
|
|
|
|
|
|
Loss per share: |
|
|
|
|
|
|
|
|
As reported: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(14.02 |
) |
|
$ |
(6.15 |
) |
Pro forma: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(14.12 |
) |
|
$ |
(6.24 |
) |
There is no applicable tax expense on the stock-based employee compensation in the table above
since the Company has valuation allowances against its deferred tax assets.
The grant-date fair value of the Companys stock options was estimated using the Black-Scholes
option pricing model with the following weighted-average assumptions for the years ended December
31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
Dividend yield |
|
|
0 |
% |
|
|
0 |
% |
Expected volatility |
|
|
74 |
% |
|
|
72 |
% |
Risk-free interest rate |
|
4.16% and 4.20% |
|
3.56% and 4.39% |
Expected holding period |
|
7.85 years |
|
7.85 years |
(o) Income Taxes
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 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.
F-12
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 assets 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, employee participation in the plan has been frozen since 2002. No funding was
provided to this plan during the years ended December 31, 2006 and 2005. The Company also has two
defined benefit pension plans that are currently active for a specific terminals employees. The
Pension Protection Act of 2006 (PPA) may impact the funding requirements for the Companys
pension plans beginning in 2008. Among other legislative changes, the PPA alters the manner in
which liabilities and asset values are determined for the purpose of calculating required pension
contributions and the timing and manner in which required contributions to underfunded pension
plans would be made. These changes could result in an increase in the funding requirements for the
Companys pension plans.
The Company sponsors a self-insured healthcare plan for substantially all U.S. employees. The
amount of the Companys obligation under this plan is measured based on the Companys best estimate
of claims costs incurred, including an estimate for claims incurred but not reported. The cost is
recorded in salaries, wages and fringe benefits in the accompanying consolidated statement of
operations.
The Company also sponsors postretirement plans that provide healthcare and other benefits for
certain of its retired employees.
A substantial number of the Companys employees are covered by union-sponsored, collectively
bargained, multiemployer pension and health and welfare plans. Contributions to these plans are
determined in accordance with the provisions of negotiated labor contracts and are generally based
on the number of hours worked.
As more fully discussed in Note 16, the Company adopted the recognition and disclosure provisions
of SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans
an amendment of FASB Statements No. 87, 88, 106 and 132(R), at December 31, 2006. Accordingly,
the Company recognized the funded status of its defined benefit pension and other postretirement
plans in its consolidated balance sheet at December 31, 2006.
(q) Earnings Per Share
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, 2006, 2005 and 2004, options to acquire 1,550,167,
1,572,667 and 1,588,667 shares of common stock, respectively; and |
|
|
|
|
For the year ended December 31, 2004, 8,957 shares of unvested restricted stock. |
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
F-13
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
(s) Guarantees and Indemnifications
Guarantees
The Company leases office space, certain terminal facilities, computer equipment, 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, 2006 and
2005.
Indemnifications
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, 2006 and 2005.
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, 2006. No accruals for
these indemnification provisions were considered necessary at December 31, 2006 and 2005.
(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, 2006, 2005,
and 2004, the Company had no fuel hedging contracts or other derivative instruments that fall
within the provisions of SFAS No. 133.
(u) Use of Estimates
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
disclosures about contingent assets and liabilities at the date of the consolidated financial
statements as well as the reported amounts 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-
F-14
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
insurance reserves; liabilities subject to compromise, reorganization items and assets and
obligations related to employee benefits. Actual results could differ materially from those
estimates.
(v) Other Comprehensive Loss
Accumulated other comprehensive loss, net of income taxes of $1.9 million as of December 31, 2006
and 2005, consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Foreign currency translation adjustment |
|
$ |
(156 |
) |
|
$ |
(317 |
) |
Pension and other postretirement benefit plan adjustments |
|
|
24,230 |
|
|
|
20,891 |
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
$ |
24,074 |
|
|
$ |
20,574 |
|
|
|
|
|
|
|
|
During the
year ended December 31, 2005, the Company recorded net increases
to its additional minimum pension
liabilities of $19.1 million through other comprehensive
loss. During the year ended December 31, 2006, the Company
recorded decreases to its additional minimum pension liabilities of
$20.2 million through other
comprehensive loss. The incremental effect of adopting SFAS No. 158 at December 31, 2006 was to
increase accumulated other comprehensive loss by $23.5 million.
The increase in the valuation allowance for deferred income taxes for the years ended December 31,
2006 and 2005 included $1.4 million and $7.7 million, respectively, related to increases in
deferred tax assets through accumulated other comprehensive loss. 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.
(w) Adoption of SEC Staff Accounting Bulletin No. 108
In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin
(SAB) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements
in Current Year Financial Statements. SAB No. 108 requires registrants to quantify misstatements
using both the balance-sheet and the income-statement approaches and to evaluate whether either
approach results in quantifying an error that is material in light of relevant quantitative and
qualitative factors. When the effect of initial adoption is determined to be material, SAB No. 108
allows registrants to record that effect as a cumulative-effect adjustment to beginning-of-year
retained earnings or accumulated deficit. The new guidance applies when uncorrected misstatements
in a previous year affect the current year, either because misstatements carry over or reverse.
The Company was required to consider the provisions of SAB No. 108 in the preparation of its
financial statements for the year ended December 31, 2006 and recorded a cumulative-effect
adjustment to accumulated deficit as of January 1, 2006 of $1.5 million. The Company identified
three uncorrected misstatements affecting the prior year financial statements that were not
material to those statements individually, or in the aggregate, using the balance-sheet approach. However, the impact of correcting these
misstatements was material to the financial
statements for the year ended December 31, 2006 under the income-
statement approach. Therefore, in accordance with SAB No. 108 the
Company recorded the cumulative-effect adjustment as of January 1, 2006. The detail of the items
included in the adjustment were as follows:
|
|
|
In 1994, in connection with the acquisition of Auto Haulaway, a Canadian company, the
Company assumed the obligations of a postretirement benefit plan to provide certain retired
employees with healthcare and life insurance benefits. The obligation of $810,000 as of
January 1, 2006, related to this plan had not been reflected in the Companys consolidated
balance sheet. |
|
|
|
|
The Company identified several uncertain tax positions during 2006 that did not meet the
criteria under GAAP for recognition of the benefit. The estimated liability for tax,
interest and penalties of $370,000 as of January 1, 2006 had not been reflected in the
Companys consolidated balance sheet. |
|
|
|
|
A number of proofs of claim were filed against the Debtors by various creditors and
security holders prior to the bar date set by the Bankruptcy Court. As part of the claims
reconciliation process, the Debtors are reviewing these claims for validity. In reconciling
proofs of claims submitted by creditors, the Company identified additional pre-petition
liabilities of $296,000 during 2006 that had not been reflected in liabilities subject to
compromise. As additional proofs of claim are reconciled, the Debtors may need to record
additional liabilities subject to compromise. Such adjustments could have a material
effect on the consolidated financial statements. |
(3) Chapter 11 Proceedings
Summary of 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 bargaining employees
in the U.S. and the increase in non-union vehicle-hauling
competition. The majority of our bargaining employees in the U.S. are
covered by the National Master Automobile Transporters Agreement
(Master Agreement) with the International Brotherhood of
Teamsters (the Teamsters or IBT).
On April 6, 2007, the Bankruptcy Court approved the Disclosure Statement for the Joint Plan, filed
by the Debtors, the Teamsters and Yucaipa, and authorized its use in connection with the
solicitation of votes from those creditors and other parties in interest that were entitled to vote
on a plan of reorganization. The Company received the votes needed, and the Joint Plan was
confirmed by the Bankruptcy Court on May 18, 2007. The Joint Plan includes several conditions
precedent to the effective date, including the closing and funding of exit financing.
On March 30, 2007, the Original DIP Facility was replaced by the New DIP Facility, which may be
converted to an exit financing facility upon the Companys emergence from Chapter 11. See Note 14
for additional discussion on the New DIP Facility.
The Disclosure Statement for the Joint Plan contemplates that the Company will continue to operate
in substantially its current form, and contemplates the resolution of the outstanding claims
against and interests in the Debtors pursuant to the Bankruptcy Code. Upon the effective date of
the Joint Plan, the Debtors will be reorganized through, among other things, the consummation of
the following transactions:
|
i) |
|
Payment of the Original DIP Facility and funding of the exit financing, both of which
have been facilitated by the New DIP Facility, subject to certain conditions; |
|
|
ii) |
|
Payment in cash, reinstatement, return of collateral or other treatment of other
secured claims agreed between the holder of each such claim and Yucaipa; |
|
|
iii) |
|
Distribution of new common stock on a pro rata basis to the holders of allowed general
unsecured claims; |
F-15
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
iv) |
|
Cancellation of the existing common stock interests in the Debtors (holders of equity
interests would receive nothing under the Disclosure Statement for the Joint Plan); and |
|
|
v) |
|
Assumption of assumed contracts. |
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 potential 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. 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 had until
the confirmation of the Joint Plan to assume or reject contracts and leases and cannot reasonably
predict the ultimate liability that may result if others file claims for damages related to
rejected contracts and leases. Such claims could result in additional liabilities subject to
compromise.
Pre-petition claims that 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 bar date for
creditors to file claims with the Bankruptcy Court was February 17, 2006, and the Company is in the
process of reconciling these claims to its records. The rights of and ultimate payment by the
Debtors under pre-petition obligations are subject to resolution under the Joint Plan.
In connection with the Chapter 11 Proceedings, the Bankruptcy Court granted the Debtors several
first day orders that 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 appointed a committee of unsecured creditors (Creditors Committee). The
Creditors Committee and its legal representatives had the right to be heard on all matters that
came before the Bankruptcy Court, including the Joint Plan.
It is not possible to accurately predict the effect of the Chapter 11 Proceedings on the Companys
business. Its future results of operations will depend on the timely and successful
implementation of the Joint Plan and no assurance can be provided that the Joint Plan will be
consummated. The rights and claims of various creditors and security holders are determined by the
Joint Plan under the priority plan established by the Bankruptcy Code.
The SEC has informed the Debtors of its intention to monitor the Chapter 11 Proceedings.
Credit Facilities
On August 2, 2005, using funds received from the Original DIP Facility, the Company paid in full
the amounts due and payable under its pre-petition facility. As more fully discussed in Note 14,
on March 30, 2007, the Original DIP Facility was replaced by the New DIP Facility. Funds under the
New DIP Facility are available to help satisfy the Companys working capital obligations during the
remaining term of the Chapter 11 Proceedings, including
F-16
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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 provide proof
of a valid claim and that claim differs from the amount that the Company has recorded.
A number of proofs of claim were filed against the Debtors by various creditors and security
holders prior to the bar date set by the Bankruptcy Court. As part of the claims reconciliation
process, the Debtors are reviewing 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 consolidated 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 $12.9 million and $5.4 million for the years ended December 31, 2006 and
2005, respectively. As of December 31, 2006, contractual interest not accrued since the Petition
Date was approximately $18.3 million, 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, 2006 and 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Accounts payable |
|
$ |
25,156 |
|
|
$ |
24,922 |
|
Senior Notes |
|
|
150,000 |
|
|
|
150,000 |
|
Accrued interest on Senior Notes |
|
|
4,313 |
|
|
|
4,313 |
|
Multiemployer pension withdrawal liabilities |
|
|
15,847 |
|
|
|
15,847 |
|
Accrued claims and insurance reserves |
|
|
3,000 |
|
|
|
3,109 |
|
Other accrued liabilities |
|
|
896 |
|
|
|
1,131 |
|
|
|
|
|
|
|
|
|
|
$ |
199,212 |
|
|
$ |
199,322 |
|
|
|
|
|
|
|
|
Reorganization Items
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 years ended December 31, 2006 and 2005 (in thousands):
F-17
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Legal and professional fees |
|
$ |
9,859 |
|
|
$ |
5,153 |
|
Write-off of deferred financing costs |
|
|
|
|
|
|
1,442 |
|
Provision for rejected executory contracts and leases |
|
|
|
|
|
|
220 |
|
Employee retention plan |
|
|
2,576 |
|
|
|
173 |
|
Other reorganization items |
|
|
337 |
|
|
|
143 |
|
|
|
|
|
|
|
|
|
|
$ |
12,772 |
|
|
$ |
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 and Bermuda (the Non-debtors) were not among the subsidiaries that
filed for Chapter 11. Presented below are condensed consolidating financial statement information
of the Debtors and the Non-debtors:
Condensed Consolidating Balance Sheet Information
December 31, 2006
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debtors |
|
|
Non-Debtors |
|
|
Eliminations |
|
|
Consolidated |
|
Current assets |
|
$ |
78,646 |
|
|
$ |
36,796 |
|
|
$ |
21 |
|
|
$ |
115,463 |
|
Intercompany receivables (payables) |
|
|
16,953 |
|
|
|
(16,953 |
) |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
125,236 |
|
|
|
3,995 |
|
|
|
|
|
|
|
129,231 |
|
Goodwill, net |
|
|
3,545 |
|
|
|
|
|
|
|
|
|
|
|
3,545 |
|
Investment in subsidiaries |
|
|
18,931 |
|
|
|
6,220 |
|
|
|
(25,151 |
) |
|
|
|
|
Other assets |
|
|
24,402 |
|
|
|
66,127 |
|
|
|
|
|
|
|
90,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
267,713 |
|
|
$ |
96,185 |
|
|
$ |
(25,130 |
) |
|
$ |
338,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities not subject to compromise: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
237,603 |
|
|
$ |
26,273 |
|
|
$ |
(1,610 |
) |
|
$ |
262,266 |
|
Other noncurrent liabilities |
|
|
34,092 |
|
|
|
47,330 |
|
|
|
|
|
|
|
81,422 |
|
Liabilities subject to compromise |
|
|
199,212 |
|
|
|
|
|
|
|
|
|
|
|
199,212 |
|
Stockholders (deficit) equity |
|
|
(203,194 |
) |
|
|
22,582 |
|
|
|
(23,520 |
) |
|
|
(204,132 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders (deficit) equity |
|
$ |
267,713 |
|
|
$ |
96,185 |
|
|
$ |
(25,130 |
) |
|
$ |
338,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 subsidiaries |
|
|
21,169 |
|
|
|
6,223 |
|
|
|
(27,392 |
) |
|
|
|
|
Other assets |
|
|
22,366 |
|
|
|
70,233 |
|
|
|
|
|
|
|
92,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
303,843 |
|
|
$ |
106,665 |
|
|
$ |
(27,392 |
) |
|
$ |
383,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities not subject to compromise: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
264,029 |
|
|
$ |
28,245 |
|
|
$ |
|
|
|
$ |
292,274 |
|
Other noncurrent liabilities |
|
|
26,920 |
|
|
|
51,967 |
|
|
|
|
|
|
|
78,887 |
|
Liabilities subject to compromise |
|
|
199,322 |
|
|
|
|
|
|
|
|
|
|
|
199,322 |
|
Stockholders (deficit) equity |
|
|
(186,428 |
) |
|
|
26,453 |
|
|
|
(27,392 |
) |
|
|
(187,367 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders (deficit) equity |
|
$ |
303,843 |
|
|
$ |
106,665 |
|
|
$ |
(27,392 |
) |
|
$ |
383,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations Information
For the Year Ended December 31, 2006
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debtors |
|
|
Non-Debtors |
|
|
Eliminations |
|
|
Consolidated |
|
Revenues |
|
$ |
889,638 |
|
|
$ |
5,561 |
|
|
$ |
(1,362 |
) |
|
$ |
893,837 |
|
Operating expenses |
|
|
856,907 |
|
|
|
11,468 |
|
|
|
(1,362 |
) |
|
|
867,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
32,731 |
|
|
|
(5,907 |
) |
|
|
|
|
|
|
26,824 |
|
Other (expense) income, net |
|
|
(32,396 |
) |
|
|
4,383 |
|
|
|
2,025 |
|
|
|
(25,988 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before reorganization
items and income taxes |
|
|
335 |
|
|
|
(1,524 |
) |
|
|
2,025 |
|
|
|
836 |
|
Reorganization items |
|
|
(12,772 |
) |
|
|
|
|
|
|
|
|
|
|
(12,772 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(12,437 |
) |
|
|
(1,524 |
) |
|
|
2,025 |
|
|
|
(11,936 |
) |
Income tax benefit (expense) |
|
|
112 |
|
|
|
(2,132 |
) |
|
|
1,631 |
|
|
|
(389 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(12,325 |
) |
|
$ |
(3,656 |
) |
|
$ |
3,656 |
|
|
$ |
(12,325 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
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 |
|
|
(37,326 |
) |
|
|
9,133 |
|
|
|
(6,156 |
) |
|
|
(34,349 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before reorganization
items and income taxes |
|
|
(130,614 |
) |
|
|
7,345 |
|
|
|
(6,156 |
) |
|
|
(129,425 |
) |
Reorganization items |
|
|
(7,131 |
) |
|
|
|
|
|
|
|
|
|
|
(7,131 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(137,745 |
) |
|
|
7,345 |
|
|
|
(6,156 |
) |
|
|
(136,556 |
) |
Income tax benefit (expense) |
|
|
12,021 |
|
|
|
(1,189 |
) |
|
|
|
|
|
|
10,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(125,724 |
) |
|
$ |
6,156 |
|
|
$ |
(6,156 |
) |
|
$ |
(125,724 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows Information
For the Year Ended December 31, 2006
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debtors |
|
|
Non-Debtors |
|
|
Eliminations |
|
|
Consolidated |
|
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
53,397 |
|
|
$ |
(4,552 |
) |
|
$ |
|
|
|
$ |
48,845 |
|
Investing activities |
|
|
(27,724 |
) |
|
|
3,331 |
|
|
|
|
|
|
|
(24,393 |
) |
Financing activities |
|
|
(25,420 |
) |
|
|
|
|
|
|
|
|
|
|
(25,420 |
) |
Effect of exchange rate changes on cash and
cash equivalents |
|
|
(794 |
) |
|
|
(41 |
) |
|
|
|
|
|
|
(835 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
(541 |
) |
|
|
(1,262 |
) |
|
|
|
|
|
|
(1,803 |
) |
Cash and cash equivalents at beginning of year |
|
|
730 |
|
|
|
3,387 |
|
|
|
|
|
|
|
4,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
189 |
|
|
$ |
2,125 |
|
|
$ |
|
|
|
$ |
2,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows Information
For the Year Ended December 31, 2005
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debtors |
|
|
Non-Debtors |
|
|
Eliminations |
|
|
Consolidated |
|
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
(56,614 |
) |
|
$ |
21,667 |
|
|
$ |
|
|
|
$ |
(34,947 |
) |
Investing activities |
|
|
(17,070 |
) |
|
|
(20,593 |
) |
|
|
|
|
|
|
(37,663 |
) |
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
F-20
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48 (FIN
48), Accounting for Uncertainty in Income Taxes. FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprises financial statements in accordance with
FASB Statement No. 109, Accounting for Income Taxes, and prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure and transition.
The evaluation of a tax position in accordance with FIN 48 is a two-step process. The first step
is recognition: The enterprise determines whether it is more likely than not that a tax position
will be sustained upon examination based on the technical merits of the position. The second step
is measurement: A tax position that meets the more-likely-than-not recognition threshold is
measured to determine the amount of the benefit to recognize in the financial statements. The tax
position is measured at the largest amount of benefit that is greater than 50 percent likely of
being realized. FIN 48 requires the evaluation of tax positions to be completed prior to assessing
the need for a valuation allowance for deferred tax assets. Additional disclosure requirements of
the Interpretation include a rollforward of unrecognized tax benefits, information regarding the
uncertainty of unrecognized tax benefits, a description of all open tax years by jurisdiction and
the accounting policy on the income statement classification of interest and penalties and amounts
of each recognized in the financial statements. FIN 48 is effective for fiscal years beginning
after December 15, 2006 January 1, 2007 for the
Company. The cumulative-effect, if any, of
applying the provisions of this Interpretation will be reported as an adjustment to the opening
balance of accumulated deficit in the year ending December 31, 2007. The Company has not completed
its evaluation of the impact of FIN 48 on its financial statements. Therefore, it has not
quantified the amount of the adjustments, if any, that might be required.
In September 2006, the FASB ratified the consensus reached by the Emerging Issues Task Force
(EITF) on EITF Issue No. 06-05, Accounting for Purchases of Life Insurance Determining the
Amount that Could be Realized in Accordance with FASB Technical Bulletin No 85-4, Accounting for
Purchases of Life Insurance. This consensus provides guidance regarding the accounting for life
insurance policies purchased by entities. Based on the consensus, a policyholder should consider
any additional amounts included in the contractual terms of the policy in determining the amount
that could be realized under the insurance contract. Contractual limitations should be considered
when determining the realizable amounts. Those amounts that are recoverable by the policyholder at
the discretion of the insurance company should be excluded from the amount that could be realized.
Fixed amounts that are recoverable by the policyholder in future periods in excess of one year from
the surrender of the policy should be recognized at their present value. Any amount that is
ultimately realized by the policyholder upon the assumed surrender of the final policy (or final
certificate in a group policy) shall be included in the amount that could be realized under the
insurance contract. This consensus is to be applied through either (a) a change in accounting
principle through a cumulative-effect adjustment to retained earnings or to other components of
equity or net assets in the balance sheet as of the beginning of the year of adoption or (b) a
change in accounting principle through retrospective application to all prior periods. This
consensus is effective for fiscal years beginning after December 15, 2006. The Company has
evaluated the impact of this consensus and does not expect it to have a material impact on its
financial condition or results of operations.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 establishes
a single authoritative definition of fair value, sets out a framework for measuring fair value and
requires expanded disclosures about fair-value measurements. SFAS No. 157 applies only to
fair-value measurements that are already required or permitted by other accounting standards and is
expected to increase the consistency of those measurements. SFAS No. 157 clarifies the definition
of fair value. Specifically, this Statement clarifies that the exchange price is the price in an
orderly transaction between market participants to sell the asset or transfer the
F-21
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
liability in the market in which the reporting entity would transact for the asset or liability,
that is, the principal or most advantageous market for the asset or liability. This Statement also
emphasizes that fair value is a market-based measurement, not an entity-specific measurement.
Therefore, a fair-value measurement should be determined based on the assumptions that market
participants would use in pricing the asset or liability. SFAS No. 157 expands disclosures about
the use of fair value to measure assets and liabilities in interim and annual periods subsequent to
initial recognition. The disclosures focus on the inputs used to measure fair value and, for
recurring fair-value measurements using significant unobservable inputs, the effect of the
measurements on earnings for the period. This Statement encourages entities to combine the fair
value information disclosed under this Statement with the fair value information disclosed under
other accounting pronouncements, including SFAS No. 107, Disclosures about Fair Value of Financial
Instruments, where practicable. SFAS No. 157 will be effective for the Companys financial
statements for the year ending December 31, 2008, and interim periods within 2008. However, if the
Company implements fresh-start reporting pursuant to SOP 90-7 during 2007, the provisions of this
Statement will be applied as of the date it implements fresh-start reporting. The provisions of
this Statement should be applied prospectively, except for limited exceptions, in which case, it
should be applied retrospectively. The Company has not determined whether the provisions of SFAS
No. 157 will require any changes to its fair-value measurements after the effective date of the
Statement. However, expanded disclosures of fair value will be required.
In October 2006, the FASB issued FASB Staff Position FAS 123(R)-5, an amendment of FASB Staff
Position FAS 123(R)-1 and FASB Staff Position FAS 123(R)-6, Technical Corrections of FASB Statement
No. 123(R). These FASB Staff Positions were effective for the Companys financial statements
beginning in the fourth quarter of 2006 and had no impact on its financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option For Financial Assets and
Financial Liabilities, including an Amendment of SFAS No. 115. SFAS No. 159 permits entities to
choose, at specified election dates, to measure eligible items at fair value (the fair value
option). A business entity is required to report unrealized gains and losses on items for which
the fair value option has been elected in earnings at each subsequent reporting date. Upfront costs
and fees related to items for which the fair value option is elected are to be recognized in
earnings as incurred and not deferred. SFAS No. 159 is effective at the beginning of fiscal years
beginning on or after November 15, 2007. The Company has not yet decided whether it will elect the
fair value option in 2008 nor has it determined the associated impact if it makes this election.
(5) Restricted Investments and Investment Income
There were no restricted investments as of December 31, 2006 or December 31, 2005 since during
2004, all of the Companys investments, which consisted of federal, state, and municipal government
obligations and corporate 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 year ended December 31, 2004 are summarized below (in thousands):
|
|
|
|
|
|
|
2004 |
|
Cash proceeds |
|
$ |
157,950 |
|
Gross realized gains. |
|
|
120 |
|
Gross realized losses |
|
|
(299 |
) |
Investment income consists of the following for the years ended December 31, 2006, 2005, and 2004
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Interest and dividend income |
|
$ |
4,807 |
|
|
$ |
2,813 |
|
|
$ |
1,315 |
|
Realized losses |
|
|
|
|
|
|
|
|
|
|
(179 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,807 |
|
|
$ |
2,813 |
|
|
$ |
1,136 |
|
|
|
|
|
|
|
|
|
|
|
(6) Prepayments and Other Current Assets
Prepayments and other current assets consist of the following at December 31, 2006 and 2005 (in
thousands):
F-22
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Prepaid insurance |
|
$ |
14,689 |
|
|
$ |
50,185 |
|
Tires on tractors and trailers |
|
|
2,360 |
|
|
|
2,245 |
|
Prepaid licenses |
|
|
1,285 |
|
|
|
1,532 |
|
Short-term deposits with Pre-petition lenders |
|
|
11 |
|
|
|
2,679 |
|
Prepaid taxes |
|
|
1,065 |
|
|
|
1,163 |
|
Other |
|
|
2,053 |
|
|
|
1,630 |
|
|
|
|
|
|
|
|
|
|
$ |
21,463 |
|
|
$ |
59,434 |
|
|
|
|
|
|
|
|
In connection with the Companys fleet analyses of tractors and trailers discussed in Note 7,
during the years ended December 31, 2006, 2005 and 2004, the Company expensed $497,000, $158,000
and $1.1 million, respectively, relating to the tires on these units.
(7) Property and Equipment
Property and equipment consisted of the following at December 31, 2006 and 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Tractors and trailers |
|
$ |
423,899 |
|
|
$ |
424,057 |
|
Buildings and facilities (including leasehold improvements) |
|
|
45,360 |
|
|
|
45,191 |
|
Furniture, fixtures and equipment |
|
|
44,286 |
|
|
|
44,066 |
|
Land |
|
|
9,786 |
|
|
|
10,415 |
|
Service cars and equipment |
|
|
4,513 |
|
|
|
4,477 |
|
|
|
|
|
|
|
|
|
|
|
527,844 |
|
|
|
528,206 |
|
Less accumulated depreciation |
|
|
(398,613 |
) |
|
|
(404,302 |
) |
|
|
|
|
|
|
|
|
|
$ |
129,231 |
|
|
$ |
123,904 |
|
|
|
|
|
|
|
|
Depreciation expense was $29.3 million, $29.7 million and $42.7 million for the years ended
December 31, 2006, 2005 and 2004, respectively.
Of the amount reported as Gain on disposal of operating assets, net in the Companys consolidated
statement of operations for the year ended December 31, 2006, approximately $3.0 million relates to
the sale of a portion of land located in Ontario, Canada previously owned by the Companys
Automotive Group. The sale was approved by the Bankruptcy Court and was completed on December 8,
2006. Gross proceeds of sale were approximately CDN$4.3 million.
The Company is continuing the remanufacturing program related to its tractors and trailers that
began in 2002. Remanufacturing involves structural improvements and/or engine replacements to the
tractors and trailers (together called Rigs) and is expected to increase the useful life of a Rig
to approximately 15 years. The cost of these newly remanufactured assets is depreciated over an
estimated useful life of 6 years using the straight-line method of depreciation. Total capital
expenditures related to the remanufacturing program, including engine replacements, were
approximately $21.6 million, $16.7 million and $11.7 million for the years ended December 31, 2006,
2005 and 2004, respectively.
The Company utilizes primarily one company to remanufacture and supply certain parts needed to
maintain a significant portion of its fleet of Rigs. While the Company believes 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 its Rigs. Such delays and additional costs could adversely affect the
Companys operating results as well as its Rig remanufacturing and maintenance programs. While
this and other manufacturers also produce non-specialized tractors, the Company has not determined
the impact on its equipment and operating costs should the specialized tractors not be available in
the future.
During 2006, the Company performed an analysis of the fleet of tractors and trailers and determined
that a total of 298 tractors and 302 trailers would not be remanufactured and would be sold for
scrap value. As a result, the Company revised the estimated useful lives of these tractors and
trailers and recorded depreciation expense of approximately $1.8 million to record these assets at
estimated scrap value. During 2005, the Company performed a similar analysis of the fleet of
tractors and trailers and determined that a total of 128 tractors and 76 trailers would not be
remanufactured and would be sold for scrap value. As a result, the Company revised the estimated
useful
F-23
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
lives of these assets and recorded depreciation expense of approximately $1.0 million to record
these assets at estimated scrap value at December 31, 2005. The analysis performed in 2004
identified a total of 710 tractors and 834 trailers, which were temporarily idled and which would
not have been remanufactured but would instead be sold for scrap value. As a result, the company revised the estimated useful lives of the assets and recorded depreciation expense of approximately $4.2 million to record
these assets at scrap value at December 31, 2004.
(8) Goodwill and Other Intangible Assets
In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, the Company reviews its
goodwill annually for impairment or on an interim basis if an event occurs or circumstances change
that would potentially reduce the fair value of its goodwill below its carrying amount. The annual
test may be performed at any time during the fiscal year provided that the test is performed at the
same time each year. The Company has elected October 1 to be its annual assessment date. SFAS No.
142 requires that if the fair value of a reporting unit is less than its carrying amount, including
goodwill (Step I), further analysis (Step II) is required to measure the amount of the impairment
loss, if any. The amount by which the reporting units carrying amount of goodwill exceeds the
implied fair value of the reporting units goodwill, determined in Step II, is to be recognized as
an impairment loss. The Companys reporting units are the Allied Automotive Group and the Axis
Group.
As a result of circumstances affecting Allied Automotive Group that culminated at the end of the
second quarter of 2005, the Company reassessed its goodwill for impairment as of June 30, 2005.
Allied Automotive Group was adversely affected by the actual and forecasted reduction of Original
Equipment Manufacturer (OEM) production of automobiles in 2005. Accordingly, the Company revised
its forecasts downward in the second quarter of 2005 from those used to perform its annual
impairment test as of October 1, 2004. The Companys deteriorating financial performance combined
with its lenders reaction to its revised forecasts resulted in the need to execute amendments to
its pre-petition facility on a weekly basis to address its borrowing capacity and various covenant
violations during the second quarter of 2005. The assessment resulted in an impairment loss of
$79.2 million and represented the entire carrying amount of goodwill for this reporting unit, since
the estimated fair value of this 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 the Companys revised forecasts.
The annual review of the Axis reporting unit goodwill was completed as of October 1, 2006 and 2005.
No impairment was identified.
With respect to the year ended December 31, 2004, the Company completed its annual review for
impairment of goodwill during the fourth quarter of 2004. No impairment was identified with
respect to Allied Automotive Group. However, the analysis resulted in an impairment loss of $8.3
million related to the Axis Group. The fair value of goodwill, which was used to measure the
amount of impairment to be recognized, was derived using discounted cash flow analyses. During the
year ended December 31, 2004, Axis experienced a decline in operating performance compared to prior
years. As a result of this decline and managements analysis of trends in operational metrics, the
Company lowered the projected future operating cash flows for the Axis Group. This was the primary
contributing factor that resulted in the impairment loss of $8.3 million for the year ended
December 31, 2004.
The discounted cash flow analyses involved estimates and assumptions by management regarding future
sales volume, prices, inflation, expenses and capital spending, discount rates, exchange rates, tax
rates and other factors. The assumptions used in these discounted cash flow analyses were
consistent with the assumptions that were used for internal planning. Impairment losses are
reflected as impairment of goodwill in the accompanying consolidated statement of operations.
The following table summarizes the activity in the carrying amount of goodwill by reporting unit
for the year ended December 31, 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allied |
|
|
|
|
|
|
|
|
|
Automotive |
|
|
|
|
|
|
|
|
|
Group |
|
|
Axis Group |
|
|
Total |
|
Balance as of December 31, 2004 |
|
$ |
80,041 |
|
|
$ |
3,936 |
|
|
$ |
83,977 |
|
Impairment of goodwill |
|
|
(79,172 |
) |
|
|
|
|
|
|
(79,172 |
) |
Change in carrying amount due to a change in currency rates |
|
|
(869 |
) |
|
|
3 |
|
|
|
(866 |
) |
F-24
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposal of reporting unit component |
|
|
|
|
|
|
(394 |
) |
|
|
(394 |
) |
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2005 |
|
$ |
|
|
|
$ |
3,545 |
|
|
$ |
3,545 |
|
|
|
|
|
|
|
|
|
|
|
There was no activity for the year ended December 31, 2006.
The table below provides a summary of the carrying and unamortized amounts relating to the
Companys other intangible assets as of December 31, 2006 and 2005 which are included in other
noncurrent assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Gross carrying amount |
|
$ |
1,333 |
|
|
$ |
1,504 |
|
Accumulated amortization |
|
|
(1,067 |
) |
|
|
(1,040 |
) |
|
|
|
|
|
|
|
Unamortized balances |
|
$ |
266 |
|
|
$ |
464 |
|
|
|
|
|
|
|
|
The intangibles are being amortized over the estimated useful life of ten years. Amortization
expense for these intangible assets was approximately $150,000 for each of the years ended December
31, 2006, 2005 and 2004 and the Company currently expects amortization expense to be approximately
$150,000 for the year ending December 31, 2007 and $116,000 for the year ending December 31, 2008.
(9) Other Noncurrent Assets
Other noncurrent assets consist of the following at December 31, 2006 and 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Deposits with insurance companies |
|
$ |
10,547 |
|
|
$ |
5,100 |
|
Interest in split-dollar life insurance policies. |
|
|
5,973 |
|
|
|
6,181 |
|
Other deposits |
|
|
2,336 |
|
|
|
2,503 |
|
Tires on tractors and trailers |
|
|
2,950 |
|
|
|
2,619 |
|
Overfunded pension plans |
|
|
2,473 |
|
|
|
|
|
Deferred financing costs |
|
|
124 |
|
|
|
5,595 |
|
Other |
|
|
269 |
|
|
|
837 |
|
|
|
|
|
|
|
|
|
|
$ |
24,672 |
|
|
$ |
22,835 |
|
|
|
|
|
|
|
|
Deferred financing costs and the related accumulated amortization are shown below as of December
31, 2006 and 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Cost |
|
$ |
345 |
|
|
$ |
7,646 |
|
Accumulated amortization |
|
|
(221 |
) |
|
|
(2,051 |
) |
|
|
|
|
|
|
|
Net |
|
$ |
124 |
|
|
$ |
5,595 |
|
|
|
|
|
|
|
|
The deferred financing costs at December 31, 2006 and December 31, 2005 represent costs related to
the debtor-in-possession financing discussed in Note 11. The deferred financing costs at December
31, 2006 relate to the fifth amendment to the debtor-in-possession financing. As disclosed in Note
2, deferred financing costs at December 31, 2005 were fully amortized as interest expense as of May
18, 2006.
The Chapter 11 filing on July 31, 2005 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. Further, based on the financial reports
delivered to the 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 is included in interest expense.
Charges relating to the amortization and write-off of deferred financing costs were $5.8 million,
$10.0 million and $2.8 million for the years ended December 31, 2006, 2005 and 2004, respectively.
The charges for the year ended December 31, 2005 include the $4.9 million write-off related to the
pre-petition facility and the $1.4 million write-off related to the Senior Notes. These charges
are included in interest expense, except for the $1.4 million related to the Senior Notes, which
are included in reorganization items.
(10) Equity in Joint Ventures and Other Income (Expenses)
The amount of $834,000 reported as other, net in the consolidated statement of operations for the
year ended December 31, 2005 represents the gain on sale of the Companys interest in Kar-Tainer
International, LLC and Kar-
F-25
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tainer Intl (Pty) Ltd. These subsidiaries were owned by the Axis Group and were sold for $2
million in October 2005. Included in other, net in the statement of operations for the year
ended December 31, 2004 is $191,000 related to the write off of the equity of the Companys last
remaining joint venture. Accordingly, there were no equity investments in joint ventures included
in the consolidated balance sheets as of December 31, 2006 and 2005. No equity in earnings from
joint ventures is included in the accompanying consolidated statements of operations for the years
ended December 31, 2006, 2005 and 2004.
(11) Accounts and Notes Payable and Accrued Liabilities
The Company enters into notes payable with third parties for insurance financing arrangements.
Outstanding notes payable for insurance financing arrangements as of December 31, 2006 and 2005
were $5.4 million and $33.4 million, respectively, and are included in accounts and notes payable
in the consolidated balance sheets. The notes outstanding at December 31, 2006 bear interest at
rates ranging between 7.99% and 8.38% and are due in monthly installments, over a period of less
than one year. The weighted-average interest rate on amounts outstanding at December 31, 2006 was
8.15%.
Accrued liabilities consists of the following at December 31, 2006 and 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Wages and benefits |
|
$ |
27,272 |
|
|
$ |
30,748 |
|
Claims and insurance reserves |
|
|
38,786 |
|
|
|
39,602 |
|
Accrued interest |
|
|
738 |
|
|
|
3,761 |
|
Accrued taxes |
|
|
3,797 |
|
|
|
4,017 |
|
Purchased transportation |
|
|
2,723 |
|
|
|
3,563 |
|
Other |
|
|
1,123 |
|
|
|
1,626 |
|
|
|
|
|
|
|
|
|
|
$ |
74,439 |
|
|
$ |
83,317 |
|
|
|
|
|
|
|
|
The Company executed activities, as part of its turnaround initiatives, to achieve significant
reductions in corporate overhead, improvements in personnel quality and increases in productivity.
Targeted in these strategies were workforce reductions as well as additional efforts to decrease
discretionary spending and eliminate certain fixed costs. As part of the initiative for a reduction
in the workforce, during the years ended December 31, 2006, 2005 and 2004, severance was paid to
approximately 14, 47 and 94 terminated corporate and field employees. The following table
summarizes the activity in the accrual for termination benefits for the years ended December 31,
2006, 2005 and 2004 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Beginning balance |
|
$ |
459 |
|
|
$ |
434 |
|
|
$ |
808 |
|
Additions to reserve charged to salaries, wages, and fringe benefits |
|
|
74 |
|
|
|
1,116 |
|
|
|
1,670 |
|
Cash payments |
|
|
(173 |
) |
|
|
(1,091 |
) |
|
|
(2,044 |
) |
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
360 |
|
|
$ |
459 |
|
|
$ |
434 |
|
|
|
|
|
|
|
|
|
|
|
Approximately $360,000 of the accrual for termination benefits is included in liabilities subject
to compromise at December 31, 2006 and 2005. The remainder at December 31, 2005 was included in
accrued liabilities wages and benefits above and was paid during 2006.
(12) Claims and Insurance Reserves
For the claim year ended December 31, 2006, the Company retains liability for U.S. automobile
liability claims for the first $1 million per occurrence with no aggregate limit. Claim amounts in
excess of $1 million per occurrence are covered by excess insurance. In Canada, the Company
retains liability up to CDN $500,000 for each auto liability claim, with no aggregate limit. Claim
amounts in excess of CDN $500,000 are covered by excess insurance.
For claim year ended December 31, 2005 and 2004, the Company has three layers of coverage for
automobile claims in the U.S. as follows:
|
|
|
The first layer includes the first $1 million of every claim. The Company retains
liability for this layer, with no aggregate limit. |
F-26
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
The second layer includes the amount by which individual claims exceed $1 million up to
$5 million per occurrence. For this second layer, the Company retains 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, the Company also has three layers of coverage for
automobile claims in Canada as follows:
|
|
|
The first layer includes the first CDN $500,000 of every claim. The Company retains
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, the Company retains 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. |
For the claim years 2006, 2005 and 2004, the Company retains 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 its operating subsidiaries, the Company is qualified to self-insure against losses
relating to workers compensation claims in the states of Florida, Georgia, Missouri and Ohio. For
these states, the Company retains 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 the Company is insured for workers compensation claims, the majority of the
risk in 2006 is covered by a fully insured program with no deductible. For the 2005 and 2004 claim
years, the Companys captive insurance subsidiary provided insurance coverage for the majority of
its workers compensation losses and the deductible was $650,000 per claim. Claims in excess of
that amount are covered by excess insurance.
Claims and insurance reserves are adjusted periodically, as claims develop, to reflect changes in
actuarial estimates based on actual experience. During 2006, the estimated ultimate amount of
claims from prior years increased approximately $8.0 million or $0.89 per share. During 2005, the
estimated ultimate amount of claims from prior years increased approximately $3.2 million or $0.36
per share. During 2004, the estimated ultimate amount of claims from prior years increased
approximately $5.4 million or $0.62 per share.
Workers compensation losses in Canada are covered by government insurance programs to which the
Company makes premium payments. In certain provinces, the Company is also subject to retrospective
premium adjustments based on actual claims losses compared to expected losses. The Companys
reserves include an estimate of retrospective adjustments based on historical experience and the
most recently available actual claims data provided by the government. During 2006, the estimate
for adjustments for prior years was reduced by approximately $1.5 million or $0.17 per share.
Prior to the fourth quarter of 2004, the estimates for workers compensation, automobile and general
liability and product liability claims were discounted to their present values using the Companys
estimate of weighted-average risk-free interest rates for each claim year. The discount rate for
the first three quarters of 2004 was 3.0%. However, in the fourth quarter of 2004, the Company
determined that the continuing adverse development of aged claims was such that it could no longer
reliably determine its self-insurance reserves on a discounted basis and in this regard, recorded a
change in estimate, which resulted in a charge to expense of approximately $11.0 million in the
fourth quarter of 2004, based upon the discount amounts previously recorded. This adjustment
increased the Companys
F-27
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
loss per share by approximately $1.26 and was recorded as a $10.0 million increase in salaries,
wages and fringe benefits and a $1.0 million increase in insurance and claims expense.
The amounts recognized in the consolidated balance sheets as of December 31, 2006 and 2005
represent the undiscounted estimated ultimate amount of claims, net of payments, and are reflected
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Accrued liabilities current |
|
$ |
38,786 |
|
|
$ |
39,602 |
|
Other long-term liabilities noncurrent |
|
|
64,307 |
|
|
|
70,040 |
|
|
|
|
|
|
|
|
|
|
|
103,093 |
|
|
|
109,642 |
|
Liabilities subject to compromise |
|
|
3,000 |
|
|
|
3,109 |
|
|
|
|
|
|
|
|
Total liability included in the consolidated balance sheets |
|
$ |
106,093 |
|
|
$ |
112,751 |
|
|
|
|
|
|
|
|
Expected payouts of the aggregate amount of claims, excluding liabilities subject to compromise for
which the timing of expected payouts cannot be estimated, are as follows at December 31, 2006 (in
thousands):
|
|
|
|
|
2007 |
|
$ |
38,786 |
|
2008 |
|
|
17,213 |
|
2009 |
|
|
10,845 |
|
2010 |
|
|
7,372 |
|
2011 |
|
|
5,119 |
|
2012 and thereafter |
|
|
23,758 |
|
|
|
|
|
|
|
$ |
103,093 |
|
|
|
|
|
The majority of the Companys pre-petition liabilities related to insurance and claims are not
classified as liabilities subject to compromise since the Company received the Bankruptcy Courts
approval to maintain its existing insurance programs. Pre-petition liabilities classified as
subject to compromise represent reserves for product liability claims only.
Management believes adequate provision has been made for all incurred claims, including those not
reported. Favorable or unfavorable developments subsequent to December 31, 2006 could have a
material impact on the consolidated financial statements.
(13) Lease Commitments
The Company leases office space, certain terminal facilities, tractors and trailers, computer
equipment and other equipment under noncancelable operating lease agreements that, as of December
31, 2006, expire at various times through 2018. Rental expense under noncancelable leases was
approximately $13.4 million, $14.3 million and $14.3 million for the years ended December 31, 2006,
2005, and 2004, respectively.
Included in the noncancelable leases discussed above are operating lease commitments for
approximately 315 Rigs. The original lease terms relating to these operating lease commitments
range between five and seven years. However, during 2006 and 2005, the Company amended certain of
these lease agreements to extend them for an additional year. These operating leases expire
between 2007 and 2010 and contain residual guarantees of up to 25% of the original cost of the
Rigs. The residual value guarantees were included in the calculations performed to determine the
proper classification of the leases. No accruals for these guarantees were considered necessary at
December 31, 2006.
The Company also leases certain terminal facilities under cancelable leases. The total rental
expense under cancelable building and equipment leases was approximately $2.1 million, $2.6 million
and $2.9 million for the years ended December 31, 2006, 2005, and 2004, respectively.
In addition, the Company has sublease agreements with third parties for portions of one leased
building. The subleases expire in 2007. Total sublease income earned during the years ended
December 31, 2006, 2005, and 2004 was approximately $0.4 million, $0.4 million and $0.8 million,
respectively.
Future minimum lease commitments and related sublease income for operating leases having initial or
remaining noncancelable lease terms in excess of one year are as follows as of December 31, 2006
(in thousands):
F-28
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sublease |
|
|
|
Commitments |
|
|
Income |
|
2007 |
|
$ |
10,043 |
|
|
$ |
465 |
|
2008 |
|
|
4,408 |
|
|
|
|
|
2009 |
|
|
2,845 |
|
|
|
|
|
2010 |
|
|
807 |
|
|
|
|
|
2011 |
|
|
338 |
|
|
|
|
|
Thereafter |
|
|
526 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
18,967 |
|
|
$ |
465 |
|
|
|
|
|
|
|
|
During 2006, the Company subleased certain space in its home office headquarters in Decatur,
Georgia to an entity in which Robert J. Rutland, Chairman of the Board of Directors, has an equity
ownership of approximately one-third. The Company believes 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. In connection with this sublease, the Company recorded sublease income of approximately
$28,000 during 2006.
(14) Debt
The Companys debt consisted of the following at December 31, 2006 and 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Current liabilities not subject to compromise: |
|
|
|
|
|
|
|
|
Original DIP Revolver |
|
$ |
45,005 |
|
|
$ |
51,997 |
|
Original DIP Facility Term Loan A |
|
|
20,000 |
|
|
|
20,000 |
|
Original DIP Facility Term Loan B |
|
|
85,709 |
|
|
|
80,000 |
|
Original DIP Facility Term Loan C |
|
|
10,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
161,357 |
|
|
$ |
151,997 |
|
|
|
|
|
|
|
|
Liabilities subject to compromise: |
|
|
|
|
|
|
|
|
Senior Notes |
|
$ |
150,000 |
|
|
$ |
150,000 |
|
|
|
|
|
|
|
|
Credit Facilities
In connection with the Chapter 11 Proceedings, on August 1, 2005, the Company entered into the
Original DIP Facility for debtor-in-possession financing of up to $230 million. General Electric
Capital Corporation and Morgan Stanley Senior Funding, Inc. served as agents for the lenders. The
Original DIP Facility initially provided for aggregate financing of up to $230 million comprised of
(i) a $130 million revolving credit facility (Original DIP Revolver), which included a swing-line
credit commitment of $10 million and up to $75 million in letters of credit, (ii) a $20 million
term loan (Original DIP Facility Term Loan A) and (iii) an $80 million term loan (Original DIP
Facility Term Loan B). The Original DIP Revolver bore interest at an annual rate, at the Companys
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, the Company was charged a letter of credit fee under the
Original DIP Revolver payable monthly at a rate per annum equal to 2.75% times the amount of all
outstanding letters of credit under the Original DIP Revolver. There was also a fee of 0.5% on the
unused portion of the Original DIP Revolver.
During 2006, the Company continued to be impacted by liquidity constraints and violated various
covenants included in the Original DIP Facility. These violations required the Company to enter
into certain forbearance agreements and amendments. On June 30, 2006, the Company entered into a
fifth amendment (the Fifth Amendment) to the Original DIP Facility to provide $30 million of
additional availability through a new term loan (Original DIP Facility Term Loan C). The
Original DIP Facility Term Loan C bore interest at an annual rate of LIBOR plus 9.5%, payable at
the Companys option in cash each month or in kind by addition to principal on a monthly basis,
with interest compounded on a monthly basis. The Fifth Amendment had provided the Company with
additional availability by allowing the payment of interest in kind on Original DIP Facility Term
Loan B by addition to principal on a monthly basis. Accordingly, subsequent to the Fifth Amendment,
the Original DIP Facility provided for debtor in possession financing of up to $260 million plus
interest paid in kind. During 2006, the Company paid interest in kind by addition to principal of
approximately $6.3 million. Of the $6.3 million interest
F-29
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
paid in kind, $5.7 million was added to Original DIP Facility Term Loan B and $0.6 million was
added to Original DIP Facility Term Loan C. Further, the Fifth Amendment reduced the interest rate
on Original DIP Facility Term Loan B from LIBOR plus 9.5% to LIBOR plus 8.5%. The interest rate on
Original DIP Facility Term Loan A remained unchanged at an annual rate of LIBOR plus 5.5%. As of
December 31, 2006, the interest rates on the Original DIP Revolver, Original DIP Facility Term Loan
A, Original DIP Facility Term Loan B and Original DIP Facility Term Loan C were 9.14%, 10.85%,
13.85% and 14.85%, respectively. The Original DIP Revolver was scheduled to mature on March 30,
2007 and the term loans included in the Original DIP Facility were scheduled to mature on June 30,
2007.
On March 30, 2007, the Company entered into a New DIP Facility arranged by an affiliate of Goldman
Sachs & Co., which provides financing of up to $315 million. The New DIP Facility, which was
amended in April 2007 replaced the Original DIP Facility and subject to satisfaction of certain
conditions, the New DIP
Facility may be converted to a senior secured credit facility upon the Companys emergence from
Chapter 11. To the extent that the New DIP Facility is converted to a post-bankruptcy senior
secured credit facility, such facility will mature five years after the effective date of the
Joint Plan. If the conditions for conversion of the New DIP Facility are not
satisfied or if the Company does not exercise its option to convert the New DIP Facility to a
post-bankruptcy secured credit facility upon successful emergence from bankruptcy, the New DIP
Facility will mature on the earlier of (i) September 30,
2007 and (ii) the effective date of the Joint Plan or the Companys emergence from Chapter 11. The New DIP Facility includes a $230
million secured term loan facility, a $50 million synthetic senior letter of credit facility and a
$35 million senior secured revolving credit facility (New Revolver), which includes a swing-line
credit commitment of $10 million. Proceeds from the New DIP Facility of $205 million at March 30,
2007 were used to repay all amounts outstanding under the Original
DIP Facility and associated fees, and to provide additional liquidity for working capital needs. In
connection with the termination of the Original DIP Facility and the funding of the New DIP
Facility, the Company paid fees of approximately $9.4 million, $1.3 million of which related to
termination of the Original DIP Facility and $8.1 million of which related to the New DIP Facility.
The fees relating to the Original DIP Facility will be expensed during the first quarter of 2007 as
part of the extinguishment of debt while the fees relating to the New DIP Facility will be deferred
and amortized through September 30, 2007.
The interest rates on the term loans in the New DIP Facility may vary based on either the Base Rate
plus 2.50%, or Adjusted Eurodollar Rate plus 3.50%. The interest rate on the New Revolver may vary
based on either the Base Rate plus 1% or Adjusted Eurodollar rate plus 2%. The swing line loans
bear interest at the Base Rate plus 1.0%. Base Rate means, for any day, a rate per annum equal to
the greater of (i) the Prime Rate in effect on such day and (ii) the Federal Funds Effective Rate
in effect on such day plus 1/2 of 1%. The Adjusted Eurodollar Rate means any Eurodollar rate Loan
adjusted for any reserve requirement as regulations may be issued from time to time by the Board of
Governors of the Federal Reserve System. In addition, the Company will be charged a participation
fee pursuant to the letter of credit facility equal to approximately 3.80% per annum of the amount
of the synthetic letter of credit facility plus a fronting fee of 0.55% of the average daily
maximum amount available to be drawn under letters of credit issued under the synthetic letter of
credit facility. The Company also will be obligated to pay a commitment fee equal to 0.375% per
annum times the daily average undrawn portion of the New Revolver and a commitment fee of 1.75% per
annum times the daily average undrawn portion of the term loan facility.
The New DIP Facility includes customary affirmative, negative, and financial covenants binding on
the Company, including delivery of financial statements and other reports, maintenance of
existence, and anti-hoarding of cash. The negative covenants limit the ability of the Company to,
among other things, incur debt, incur liens, make investments, sell assets, or declare or pay any
dividends on its capital stock. The financial covenants included in the New DIP Facility limit the
amount of annual capital expenditures, set forth a maximum total leverage ratio for the Company and
minimum interest coverage ratio, and require the Company to maintain minimum consolidated earnings
before interest, taxes, depreciation and amortization. In addition, the New DIP Facility requires
mandatory prepayment with the net cash proceeds from certain asset sales, equity offerings, and any
insurance proceeds received by the Company.
The New DIP Facility includes customary events of default including events of default related to
(i) failure to make payments when due under the New DIP Facility, (ii) failure to comply with the
financial covenants set forth in the New DIP Facility, (iii) defaults under other agreements or
instruments of indebtedness, (iv) the conversion of the Chapter 11 Cases to a chapter 7 case or
appointment of a Chapter 11 trustee with enlarged powers, (v) the granting of certain other
super-priority administrative expense claims or non-permitted liens or the invalidity of liens
securing
F-30
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the New DIP Facility, (vi) the stay, amendment or reversal of the Bankruptcy Court orders approving
the New DIP Facility, (vii) the confirmation of a plan of reorganization or entry of a dismissal
order which does not provide for payment in full of the New DIP Facility, or (viii) the granting of
relief from the automatic stay to holders of security interests in assets of the Company with a
book value in excess of $1 million that would have a material adverse effect on the Company or (ix)
following emergence from bankruptcy, the failure of Yucaipa American Alliance Fund I, L.P. and
Yucaipa American Alliance (Parallel) Fund I, L.P. to elect a majority of the board of directors of
the Company.
Obligations under the New DIP Facility are secured by 100% of the capital stock of the Companys
domestic and Canadian subsidiaries, 65% of the capital stock of the Companys direct foreign
subsidiaries, all of the Companys current and after-acquired personal and real property and all
intercompany debt.
The obligations under the New DIP Facility are entitled to super-priority administrative expense
claim status under the Bankruptcy Code. The New DIP Facility will generally permit the ordinary
course payment of professionals and administrative expenses prior to the occurrence of an event of
default under the New DIP Facility or a default under the Bankruptcy Court orders approving the New
DIP Facility.
As of May 3, 2007, the Company had approximately $35 million of New Revolver loans available.
Approximately $41.6 million was committed under letters of credit primarily related to the
settlement of insurance claims, $205 million in term loans were outstanding and approximately $25
million in term loans was available.
Canadian Revolving Credit Facility
The Companys subsidiary, Allied Systems (Canada) Company, also has a $2.5 million revolving credit
facility with a bank in Canada (the Canadian Revolver) for use in its Canadian operations. The
Canadian Revolver bears interest at the banks prime lending rate plus 0.5% and is secured by a
letter of credit of $2.6 million, which is included in the $41.6 million of outstanding letters of
credit discussed in the paragraph above.
Rig Financing
Subsequent to December 31, 2006, the Company entered into an agreement with Yucaipa pursuant to
which Yucaipa will purchase the Blue Thunder Rigs, which will then be sold to the Company at cost.
The Blue Thunder Rigs range between three to five years in age. The Rig Financing, provided by
Yucaipa, was approved by the Bankruptcy Court on April 6, 2007. The
maximum amount financed under the Rig Financing will not exceed
$15 million and includes
additional funds to retrofit and make any necessary repairs to the Blue Thunder Rigs, and to pay
certain costs and expenses associated with the purchase, such as registration expenses. The notes under the Rig Financing bear
interest at the three month LIBOR rate plus 4%, payable quarterly by addition to principal. In
addition, at the option of Yucaipa, upon the Companys successful emergence from Chapter 11,
Yucaipa may convert the Rig Financing into additional equity of the Company. As of May 3, 2007
the Company had purchased 117 of these Rigs from Yucaipa at a cost of
$8.9 million.
Pre-petition Facility
The
pre-petition facility provided the Company with a $90 million revolving credit facility, a $100
million term loan, a $20 million term loan and a
$25 million term loan. The $100 million term loan
was payable in quarterly installments of principal and interest and
the $25 million and $20 million term loans
were payable in full at maturity, September 4, 2007, with monthly payments of interest.
The
Chapter 11 filing on July 31, 2005 constituted an event of default under the pre-petition
facility and as a result, all commitments from the Companys
lenders under the pre-petition
facility were automatically terminated and all debt outstanding under
the pre-petition facility
became automatically due and payable. On August 2, 2005, using funds received from the Original
DIP Facility, the Company repaid all obligations outstanding under
the pre-petition facility, which
included $24.6 million due under a revolving credit facility, $113.6 million in outstanding term
loans and $7.0 million in related fees and interest which includes the premium of $1.9 million due
for prepayment of the facility prior to maturity. Certain events of default occurred under the
pre-petition facility during 2005 prior to the Chapter 11 filing.
F-31
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Senior Notes
On September 30, 1997, the Company issued the $150 million 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 mature on October 1, 2007.
Borrowings under the Senior Notes are general unsecured obligations of Allied Holdings, Inc. The
Companys obligations under the Senior Notes are guaranteed by substantially all of the
subsidiaries of the Company (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 the Company. The Company owns 100% of the Guarantor Subsidiaries. The following
companies (the Nonguarantor Subsidiaries) do not guarantee the Companys obligations under the
Senior Notes:
|
|
|
Haul Insurance Ltd. ; |
|
|
|
|
Arrendadora de Equipo Para el Transporte de Automoviles, S. de R.L. de C.V. ; |
|
|
|
|
Axis Logistica, S. de R.L. de C.V. ; |
|
|
|
|
Axis Operadora Hermosillo; |
|
|
|
|
Ace Operations, LLC. |
See Note 22 for combined balance sheet information, combined statement of operations information
and combined statement of cash flows information for the Guarantor Subsidiaries and the
Nonguarantor Subsidiaries.
The agreement governing the Senior Notes sets forth a number of negative covenants, which would
limit the Companys 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 or principal at stated maturity). One such covenant would limit the Companys 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 the Company is 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, the Company reclassified the
outstanding balance on the Senior Notes along with the related interest accrued as of the Petition
Date to liabilities subject to compromise.
(15) Other Long-Term Liabilities
Other long-term liabilities consists of the following at December 31, 2006 and 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Claims and insurance reserves |
|
$ |
64,307 |
|
|
$ |
70,040 |
|
Other |
|
|
962 |
|
|
|
4,056 |
|
|
|
|
|
|
|
|
|
|
$ |
65,269 |
|
|
$ |
74,096 |
|
|
|
|
|
|
|
|
(16) Employee Benefits
(a) Pension and Postretirement Benefit Plans
The Company maintains the Allied Defined Benefit Pension Plan, a trusteed noncontributory defined
benefit pension plan for management and office personnel in the U.S., under which benefits are paid
to eligible employees upon retirement based primarily on years of service and compensation levels
at retirement. Effective April 30, 2002, the Company froze employee years of service and
compensation levels in the Allied Defined Benefit Pension Plan.
F-32
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Contributions to the plan reflect benefits attributed to employees services. The Companys funding
policy is to contribute annually at a rate that is intended to fund past service benefits over a
30-year period. However, during the years ended December 31, 2006 and 2005, the Company did not
fund past service benefits due to the Chapter 11 filing but it has met the minimum funding
requirements.
The Company also provides certain healthcare and life insurance benefits for eligible U.S.
employees who retired prior to July 1, 1993 and their dependents, and for certain U.S. employees
participating in the 1999 voluntary early retirement plan. Generally, the healthcare plan pays a
stated percentage of most medical expenses reduced for any deductibles and payments by government
programs or other group coverage. During 2004, the Company began requiring participants to
contribute to the monthly healthcare premiums. The life insurance plan pays a lump-sum death
benefit based on the employees salary at retirement. The Company currently funds the cost of
these premiums as they become due. Employees retiring after July 1, 1993 who are not participants
in the 1999 voluntary early retirement plan are not entitled to any postretirement medical or life
insurance benefits under this plan.
In 1997, in connection with the Ryder acquisition, the Company assumed the obligations of a
postretirement benefit plan to provide retired employees with certain healthcare and life insurance
benefits. Substantially all employees employed at the time of the acquisition and not covered by
union-administered medical plans and who had retired as of September 30, 1997 were eligible for
these benefits. Benefits were generally provided to qualified retirees under age 65 and eligible
dependents. Employees retiring after September 30, 1997 are not entitled to any postretirement
medical or life insurance benefits under this plan. Furthermore, in the acquisition, the Company
assumed two defined benefit pension plans for employees at a certain terminal. Both plans are
currently active. One of the plans provides a monthly benefit based on years of service upon
retirement. The other plan provides benefits to eligible employees upon retirement based primarily
on years of service and compensation levels at retirement.
In 1994, in connection with the acquisition of Auto Haulaway, a Canadian company, the Company
assumed the obligations of a postretirement benefit plan to provide certain retired employees with
healthcare and life insurance benefits. The benefits are provided in the form of insurance premium
payments for life, medical and dental coverage. This plan has been frozen since July 1, 1995, and
as a result no new retirees are being added to the plan. Prior to January 1, 2006, the obligation
related to this plan was not reflected in the Companys consolidated balance sheets. The Company
recognized the obligation of $810,000 at January 1, 2006 as a
cumulative-effect adjustment to accumulated deficit in accordance
with SAB No. 108. The effect of initially recognizing the obligation in 2006 is included in the
line plan amendments and other in the table below that describes the changes in the projected
benefit obligation.
Effective December 31, 2006, the Company adopted the recognition and disclosure provisions of SFAS
No. 158 which required the Company to initially recognize the funded status of its defined benefit
pension and other postretirement benefit plans in the December 31, 2006 consolidated balance sheet
and provide certain disclosures as of December 31, 2006. The funded status is measured as the
difference between the fair value of plan assets and the benefit obligation. In accordance with the
transition provisions of SFAS No. 158, the balance sheet was adjusted first by applying the
provisions of SFAS No. 87, Employers Accounting for Pensions, and SFAS No. 106, including amounts
required to recognize any additional minimum pension liability, prior to applying the initial
recognition provisions of SFAS No. 158. The balance sheet was then adjusted so that gains or
losses and prior service costs that had not yet been recognized in expense were recognized as an
adjustment of the ending balance of accumulated other comprehensive loss, net of tax.
Actuarial gains and losses and prior service costs or credits that arise in future periods that are
not recognized as components of net periodic benefit cost pursuant to SFAS No. 87 or SFAS No. 106
will be recognized as a component of other comprehensive income, net of tax. Amounts recognized in
accumulated other comprehensive income, including the gains or losses and prior service costs or
credits are adjusted as they are subsequently recognized as components of net periodic benefit cost
pursuant to the recognition and amortization provisions of those Statements.
F-33
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SFAS No. 158 also requires the measurement of defined benefit plan assets and obligations as of the
date of the employers fiscal year-end balance sheet for the year ending December 31, 2008.
However, if the Company implements fresh-start reporting pursuant to SOP 90-7 during 2007, the
measurement provisions of this Statement will be applied as of the fresh-start reporting date. The
Company uses a measurement date of December 31 for the postretirement benefit plans and for the
Allied Defined Benefit Pension Plan. With respect to the other two defined benefit pension plans,
the Company uses a measurement date of September 30.
The adoption of SFAS No. 158 had no effect on the Companys consolidated statements of operations
for the years ended December 31, 2006. The incremental effects of applying SFAS No. 158 were as follows
at December 31, 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before |
|
|
|
|
|
|
After |
|
|
|
Application of |
|
|
SFAS No. 158 |
|
|
Application of |
|
|
|
SFAS No. 158 |
|
|
Adjustments |
|
|
SFAS No. 158 |
|
Other noncurrent assets |
|
$ |
40,349 |
|
|
$ |
(15,677 |
) |
|
$ |
24,672 |
|
Total other assets |
|
|
106,206 |
|
|
|
(15,677 |
) |
|
|
90,529 |
|
Postretirement benefits other than pensions |
|
|
6,396 |
|
|
|
7,831 |
|
|
|
14,227 |
|
Total long-term liabilities |
|
|
73,591 |
|
|
|
7,831 |
|
|
|
81,422 |
|
Accumulated other comprehensive loss, net of tax |
|
|
566 |
|
|
|
23,508 |
|
|
|
24,074 |
|
Total stockholders deficit |
|
|
180,624 |
|
|
|
23,508 |
|
|
|
204,132 |
|
The amounts included in accumulated other comprehensive loss at December 31, 2006, that have not
been recognized in net periodic benefit costs are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit |
|
|
Postretirement |
|
|
|
|
|
|
Pension Plans |
|
|
Benefit Plans |
|
|
Total |
|
Net actuarial losses |
|
$ |
16,273 |
|
|
$ |
12,257 |
|
|
$ |
28,530 |
|
Net prior service cost (credits) |
|
|
39 |
|
|
|
(3,459 |
) |
|
|
(3,420 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
16,312 |
|
|
$ |
8,798 |
|
|
$ |
25,110 |
|
|
|
|
|
|
|
|
|
|
|
The amounts in accumulated other comprehensive loss expected to be recognized as components of net
periodic benefit cost for the year ending December 31, 2007 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit |
|
|
Postretirement |
|
|
|
|
|
|
Pension Plans |
|
|
Benefit Plans |
|
|
Total |
|
Amortization of net actuarial losses |
|
$ |
1,299 |
|
|
$ |
898 |
|
|
$ |
2,197 |
|
Amortization of net prior service cost (credits) |
|
|
48 |
|
|
|
(304 |
) |
|
|
(256 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,347 |
|
|
$ |
594 |
|
|
$ |
1,941 |
|
|
|
|
|
|
|
|
|
|
|
The change in the projected benefit obligation of the defined benefit pension plans and the
postretirement benefit plans consisted of the following for the years ended December 31, 2006, 2005
and 2004 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Pension Plans Benefit |
|
|
Postretirement Benefit Plans |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Benefit obligation at beginning of year |
|
$ |
54,884 |
|
|
$ |
52,942 |
|
|
$ |
43,647 |
|
|
$ |
12,503 |
|
|
$ |
15,874 |
|
|
$ |
8,610 |
|
Service cost |
|
|
92 |
|
|
|
84 |
|
|
|
94 |
|
|
|
56 |
|
|
|
52 |
|
|
|
58 |
|
Interest cost |
|
|
3,049 |
|
|
|
3,014 |
|
|
|
2,674 |
|
|
|
658 |
|
|
|
708 |
|
|
|
396 |
|
Plan amendments and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
810 |
|
|
|
|
|
|
|
(3,807 |
) |
Actuarial loss (gain) |
|
|
114 |
|
|
|
2,086 |
|
|
|
9,216 |
|
|
|
2,691 |
|
|
|
(2,720 |
) |
|
|
11,920 |
|
Benefits paid |
|
|
(3,007 |
) |
|
|
(3,242 |
) |
|
|
(2,689 |
) |
|
|
(1,154 |
) |
|
|
(1,411 |
) |
|
|
(1,303 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year |
|
$ |
55,132 |
|
|
$ |
54,884 |
|
|
$ |
52,942 |
|
|
$ |
15,564 |
|
|
$ |
12,503 |
|
|
$ |
15,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-34
The accumulated benefit obligation for the defined benefit pension plans was the same as the
projected benefit obligation at December 31, 2006, 2005 and 2004.
The change in plan assets of the defined benefit pension and postretirement benefit plans for the
years ended December 31, 2006, 2005 and 2004 and funded status as of December 31, 2006, 2005 and
2004, consisted of the following (in thousands):
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit |
|
|
Postretirement Benefit |
|
|
|
Pension Plans |
|
|
Plans |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
$ |
51,761 |
|
|
$ |
50,924 |
|
|
$ |
44,836 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Actual return on plan assets |
|
|
7,603 |
|
|
|
3,462 |
|
|
|
4,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer contributions |
|
|
350 |
|
|
|
617 |
|
|
|
4,453 |
|
|
|
1,236 |
|
|
|
1,411 |
|
|
|
1,303 |
|
Benefits paid |
|
|
(3,007 |
) |
|
|
(3,242 |
) |
|
|
(2,689 |
) |
|
|
(1,236 |
) |
|
|
(1,411 |
) |
|
|
(1,303 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
$ |
56,707 |
|
|
$ |
51,761 |
|
|
$ |
50,924 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of funded status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status excess (deficiency) |
|
$ |
1,575 |
|
|
$ |
(3,123 |
) |
|
$ |
(2,018 |
) |
|
$ |
(15,564 |
) |
|
$ |
(12,503 |
) |
|
$ |
(15,874 |
) |
Unrecognized actuarial loss |
|
|
|
|
|
|
21,804 |
|
|
|
20,797 |
|
|
|
|
|
|
|
10,240 |
|
|
|
13,603 |
|
Unrecognized prior service cost (credits) |
|
|
|
|
|
|
87 |
|
|
|
135 |
|
|
|
|
|
|
|
(3,785 |
) |
|
|
(4,111 |
) |
Additional minimum liability |
|
|
|
|
|
|
(22,145 |
) |
|
|
(3,112 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset (liability) recognized |
|
$ |
1,575 |
|
|
$ |
(3,377 |
) |
|
$ |
15,802 |
|
|
$ |
(15,564 |
) |
|
$ |
(6,048 |
) |
|
$ |
(6,382 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance
sheets consist of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets |
|
$ |
2,473 |
|
|
$ |
|
|
|
$ |
18,114 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,337 |
) |
|
|
(1,400 |
) |
|
|
(1,300 |
) |
Long-term liabilities |
|
|
(898 |
) |
|
|
(3,377 |
) |
|
|
(2,312 |
) |
|
|
(14,227 |
) |
|
|
(4,648 |
) |
|
|
(5,082 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,575 |
|
|
$ |
(3,377 |
) |
|
$ |
15,802 |
|
|
$ |
(15,564 |
) |
|
$ |
(6,048 |
) |
|
$ |
(6,382 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement benefits expected to be paid for the next five years and the aggregate
amounts expected to be paid for the five fiscal years thereafter are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit |
|
|
Postretirement |
|
|
|
Pension Plans |
|
|
Benefit Plans |
|
2007 |
|
$ |
2,572 |
|
|
$ |
1,337 |
|
2008 |
|
|
2,660 |
|
|
|
1,310 |
|
2009 |
|
|
2,741 |
|
|
|
1,231 |
|
2010 |
|
|
2,927 |
|
|
|
1,168 |
|
2011 |
|
|
3,120 |
|
|
|
1,154 |
|
2012-2016 |
|
|
17,799 |
|
|
|
5,350 |
|
Prior to the adoption of SFAS No. 158 as of December 31, 2006, SFAS No. 87 required that the
Company recognize an additional minimum pension liability for the amount, if any, by which the
accumulated benefit obligation exceeded the sum of the fair market value of plan assets and accrued
amounts previously recorded. The additional liability could be offset by an intangible asset, to
the extent of previously unrecognized prior service cost. During the year ended December 31, 2005,
the Company recognized an additional minimum pension liability of $19.7 million for the Allied
Defined Benefit Pension Plan. The prepaid pension asset at December 31, 2005 was $17.9 million. The
increase for the additional liability was reported in other comprehensive loss, a component of
stockholders deficit. An intangible asset related to prior service cost of the pension plans of
approximately $370,000 and $480,000 was recorded as of December 31, 2005 and 2004, respectively,
which was included in other noncurrent assets.
At December 31, 2006, the fair value of plan assets of the Allied Defined Benefit Pension Plan
exceeded the accumulated benefit obligation by $2.1 million. Accordingly, the minimum pension
liability of $19.7 million was eliminated. In addition, the additional minimum pension liability
for one of the other pension plans was reduced by $0.5 million. The combined $20.2 million was
reported in other comprehensive loss for 2006.
F-35
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Debtor-in-Possession since July 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At December 31, 2006, the Company had two defined benefit plans in which the fair values of plan
assets exceeded the benefit obligation. The aggregate fair value of the plan assets and the
aggregate benefit obligation were $51.4 million and $48.9 million, respectively. At December 31,
2005, the Company had one defined benefit plan in which the fair value of plan assets exceeded the
benefit obligation. The fair value of the plan assets and the benefit obligation were $2.2 million
and $2.0 million, respectively.
At December 31, 2006, the Company had one defined benefit plan in which the fair value of the plan
assets was less than the benefit obligation. The fair value of the plan assets and the benefit
obligation were $5.3 million and $6.2 million, respectively. At December 31, 2005, the Company had
two defined benefit plans in which the fair values of the plan assets were less than the benefit
obligation. The aggregate fair value of the assets and the aggregate benefit obligation were $49.5
million and $52.9 million, respectively.
The following assumptions were used in determining the actuarial present value of the projected
pension benefit obligation and postretirement benefit obligation at December 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit |
|
|
Postretirement |
|
|
|
Pension Plans |
|
|
Benefit Plans |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Weighted-average discount rate |
|
|
5.75 |
% |
|
|
5.50 |
% |
|
|
5.75 |
% |
|
|
5.50 |
% |
Weighted-average rate of compensation increase |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
In connection with the Medicare Prescription Drug, Improvement and Modernization Act of 2003, (the
Act), the Company, in consultation with its actuaries, has determined that it provides retiree
healthcare benefits that are at least actuarially equivalent to Medicare Part D. However, the
impact of the Act is not considered to be significant with respect to the Companys plans and was
not incorporated into the Companys December 31, 2005 measurement of its benefit obligations. The
effects of the Act are incorporated into the measurement of the Companys expense and benefit
obligations for the year ended December 31, 2006.
The following assumptions were used in determining the net periodic benefit cost for the years
ended December 31, 2006, 2005 and 2004: