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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1999.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-22276
ALLIED HOLDINGS, INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-0360550
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer ID Number)
160 Clairemont Avenue, Suite 200, Decatur, Georgia 30030
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(Address of principal executive office)
Registrant's telephone number, including area code (404) 373-4285
Securities registered pursuant to Section 12(b) of the Act:
No par value Common Stock New York Stock Exchange
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(Title of Class) (Name of Exchange on which Registered)
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
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 [X] NO [ ]
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 Registrant's knowledge, in definitive proxy or information statements
incorporated by referenced in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
As of March 3, 2000 Registrant had outstanding 8,002,690 shares of common
stock. The aggregate market value of the common stock held by nonaffiliates of
the Registrant, based upon the closing sales price of the common stock on March
3, 2000 as reported on the New York Stock Exchange, was approximately
$38,436,585.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for Registrant's 2000 Annual Meeting of
Shareholders to be held May 17, 2000 are incorporated by reference in Part III.
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ALLIED HOLDINGS, INC.
TABLE OF CONTENTS
PAGE
CAPTION NUMBER
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PART I.
ITEM 1. BUSINESS...................................................................................2
ITEM 2. PROPERTIES.................................................................................7
ITEM 3. LEGAL PROCEEDINGS........................................ .................................8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................9
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.......................................................................11
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA......................................................12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................................................13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...............................................19
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE......................................19
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........................................19
ITEM 11. EXECUTIVE COMPENSATION....................................................................19
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................................................19
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................19
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K.......................................................................20
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PART I
ITEM 1. BUSINESS.
1. GENERAL
Allied Holdings, Inc. (the "Company" or "Allied"), founded in 1934, is
a holding company which operates through its wholly-owned subsidiaries. The
Company's principal operating divisions are Allied Automotive Group, Inc.
(collectively with its subsidiaries referred to as the "Allied Automotive Group"
or "Automotive Group") and Axis Group, Inc. ("Axis" or the "Axis Group"). Allied
Automotive Group is the largest motor carrier in the world specializing in the
transportation of new and used automobiles and light trucks utilizing
specialized tractor trailers ("Rigs" or "Rig") and serves all of the major
domestic and foreign automotive manufacturers. The Axis Group provides logistics
and distribution services to the new and used vehicle distribution market and
other segments of the automotive industry. Axis is the global logistics services
arm of the Allied Holdings family of companies.
Allied Automotive Group offers a full range of automotive delivery
services including transporting new, used and off-lease vehicles to dealers from
plants, rail ramps, ports and auctions, and providing vehicle rail-car loading
and unloading services. Allied Automotive Group represented approximately 98% of
the Company's consolidated 1999 revenues. Allied Automotive Group operates
primarily in the short-haul segment of the automotive transportation industry
with an average length of haul of less than 200 miles. General Motors, Ford and
DaimlerChrysler represent the Company's largest customers, accounting for in
total approximately 75% of 1999 revenues. Allied Automotive Group also provides
services to all of the major foreign manufacturers, including Honda, Mazda,
Nissan, Toyota, Isuzu, Volkswagen and Mitsubishi. Allied Automotive Group
participated in the transportation of approximately 65% of the new vehicles sold
in the United States and Canada in 1999, and had 1999 revenues nearly five times
greater than its closest competitor.
The Company provides logistics and distribution services to the
automotive market through the Axis Group that complement Allied's new vehicle
distribution services operations. Axis provides carrier management services for
various automotive clients, leases equipment for containerized international
shipment of vehicles, and provides vehicles processing services at ports and
inland distribution centers. In February 2000 Axis acquired CT Group, Inc. and
its subsidiaries, CT Services and Cordin Transportation, which provide a variety
of logistics services to the pre-owned vehicle market. In addition, Axis has
established joint ventures to manage the distribution of Ford vehicles in the
United Kingdom, a joint venture in Brazil to provide automotive logistics
services in the Mercosur region, and a subsidiary which provides logistics and
distribution services in Mexico.
2. INTEGRATION OF RYDER AUTOMOTIVE GROUP
On September 30, 1997, the Company acquired Ryder Automotive Carrier
Services, Inc. and RC Management Corp. (collectively, "Ryder Automotive Group")
from Ryder System, Inc. (the "Ryder Automotive Group Acquisition"). Ryder
Automotive Group, prior to its acquisition by the Company, was North America's
largest motor carrier of new and used automobiles and light trucks offering a
full range of automotive delivery services including transporting new, used and
off-lease vehicles to dealers from plants, railramps, ports and auctions, and
providing vehicle rail-car loading and unloading services. The Ryder Automotive
Group also provided logistics solutions and other services to the new and used
vehicle distribution market and other segments of the automotive industry,
including the growing used car superstore market.
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3. SERVICES
Allied Automotive Group is the largest motor carrier in North America
specializing in the transportation of new and used automobiles and light trucks
for all the major domestic and foreign automotive manufacturers. Allied
Automotive Group participated in the transportation of approximately 65% of the
new vehicles sold in the United States and Canada in 1999, including more than
50% of the North American production of General Motors, Ford and
DaimlerChrysler. Allied Automotive Group believes it can capture a larger
percentage of its major customers' North American production by building upon
its relationships with manufacturers and leveraging its reputation for high
quality services, competitive pricing and value-added services. Allied
Automotive Group also believes that it can expand the types of services
provided to its existing customers by utilizing its sophisticated technology in
order to deliver vehicles and provide other services more efficiently and cost
effectively than its competitors.
The Company has made a significant commitment to providing
complementary services to its existing customers and to new customers through
its Axis Group subsidiary. Axis Group is aggressively pursuing opportunities to
provide logistics and distribution services to customers in the automotive
industry and seeks to leverage its proprietary information systems in order to
efficiently provide such services. These services include identifying new and
innovative distribution methods for customers, providing solutions relating to
improving the management of inventory of new and used vehicles, and providing
reconditioning services relating to the used and remarketed vehicle market. The
Axis Group further believes that significant opportunities exist for it to
provide additional automotive distribution services to its existing customers in
the United States and internationally through acquisitions, and through the
formation of joint ventures or alliances with established local service
providers. For example, in February 2000 Axis Group acquired CT Group, Inc. and
its subsidiaries, CT Services and Cordin Transportation, which provide a variety
of logistics services to the pre-owned vehicle market. In 1999 Axis Group formed
two joint ventures for the purpose of managing the distribution of Ford vehicles
in the United Kingdom. In addition, Axis owns a minority interest in Axis
Sinimbu Logistica ("ASL"). ASL provides automotive distribution services to the
automotive industry in Brazil. Axis has also formed a subsidiary which provides
logistics and distribution services in Mexico.
4. CUSTOMER RELATIONSHIPS
Allied Automotive Group has contracts with most of its customers.
Allied Automotive Group's contracts with its customers establish rates for the
transportation of vehicles and generally are based upon a fixed rate per
vehicle transported and a variable rate for each mile a vehicle is transported.
Certain of these contracts provide that the rate per vehicle may vary depending
on the size and weight of the vehicle. While the contracts generally do not
permit Allied Automotive Group to recover for increases in fuel prices, fuel
taxes or labor cost, Allied Automotive Group has negotiated fuel surcharges
with certain of its customers as a result of fuel cost increases occurring in
1999. Allied Automotive Group operates under a 30 day rolling contract with
Ford which provides that the Allied Automotive Group is the primary carrier for
24 locations in the United States and 12 Canadian locations. A second contract
with Ford expires in June 2000 and provides that Allied Automotive Group is the
primary carrier for 6 locations in the United States. Allied Automotive Group
is the primary carrier for 18 locations in the United States and 14 in Canada
for DaimlerChrysler under contracts which may be terminated on thirty day's
notice by either party. Allied Automotive Group has a contract with General
Motors which expires in October 2000 and provides that Allied Automotive Group
is the primary carrier for 36 locations in the United States and 16 locations
in Canada.
Allied Automotive Group negotiated rate increases applicable to all of
the light trucks and sport utility vehicles it delivers in response to an
adverse change in the number of vehicles delivered per load in 1999. However,
the rate increases went into effect during the third or fourth quarter of 1999,
depending on the customer. The number of vehicles delivered per load has
decreased due to an increase in the number of light trucks and sport utility
vehicles delivered.
5. PROPRIETARY MANAGEMENT INFORMATION SYSTEMS
The Company has made a long-term commitment to utilizing technology to
serve its customers. The Company's information systems subsidiary, Link
Information Systems, Inc. ("Link") provides information systems services to the
Allied Automotive Group, Axis Group and other subsidiaries of the Company.
Link's advanced
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management information system is a centralized, fully integrated information
system utilizing a mainframe computer together with client servers. The system
is based on a company-wide information database, which allows Link 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 customers and for better
control and tracking of customer vehicle inventories. Through electronic data
interchange ("EDI"), Link communicates directly with manufacturers in the
process of delivering vehicles and electronically bills and collects from
manufacturers. Link also utilizes EDI to communicate with inspection companies,
railroads, port processors and other carriers.
Subsidiaries of the Company utilize Link's information system to allow
them to operate more efficiently. For example, the information systems
automatically design an optimal load for each Rig, taking 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 the vehicles to be transported.
6. MANAGEMENT STRATEGY
The Company has adopted a performance management strategy which it
believes contributes to quality, enhanced efficiency, safety and profitability
in its operations. The Company's management strategy and culture is designed to
enhance employee performance through careful selection and continuous training
of new employees, with individual performance goals established for each
employee and performance measured regularly through the Company's management
information system. The Company believes that its performance management
strategy is unique with respect to the role that employees play in the form of
participation in this process.
The Company has developed and implemented various programs to
encourage and reward increased employee productivity. The various programs
developed by the Company reward damage-free delivery by drivers, driver
efficiency and driver safety. The Company believes that these programs have
improved customer and employee satisfaction and driver related productivity in
areas such as damage-free deliveries.
The Company has adopted an economic value added ("EVA") based
performance measurement and incentive compensation system. EVA is the measure
used by the Company to determine incentive compensation for senior management.
EVA also provides management with a measure to gauge financial performance,
allocate capital to appropriate projects, assist in providing valuations in
regard to proposed acquisitions, and evaluate daily operating decisions. The
Company believes that the EVA based performance measurement and incentive
compensation system promotes the creation of economic value and shareholder
value by aligning the interests of senior management with that of the Company's
shareholders.
The Board of Directors and the shareholders of the Company have adopted
an Employee Stock Purchase Plan to provide all employees the opportunity to
purchase shares of the Company's common stock.
7. RISK MANAGEMENT AND INSURANCE
The Company's risk management subsidiary, Haul Risk Management
Services, Inc. ("HRMS"), is responsible for defining risks and securing
appropriate insurance programs and coverages at cost effective rates for the
Company. HRMS internally administers all claims for auto and general liability
and for workers compensation claims in Alabama, Florida, Georgia, Missouri,
North Carolina, Ohio, South Carolina, Tennessee and Virginia. Liability and
workers compensation claims are subject to periodic audits by the Company's
commercial insurance carriers. In the United States, the Company currently
retains up to $650,000 of liability for each claim for workers' compensation
and up to $500,000 of liability for automobile and general liability, including
personal injury and property damage claims. In addition to the $500,000 per
occurrence deductible for automobile liability, there is a $1,500,000 aggregate
deductible for those claims which exceed the $500,000 per occurrence
deductible, subject to a $1,000,000 per claim limit. The Company also retains
up to $250,000 of liability for each cargo damage claim. In Canada, the Company
retains up to C$100,000 of liability for each claim for personal injury,
property damage or cargo damage. If the Company were to experience a material
increase in the frequency or severity of accidents or workers' compensation
claims or unfavorable developments in existing claims, the Company's operating
results
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could be adversely affected. The Company formed Haul Insurance Limited in
December 1995 as a captive insurance subsidiary to provide insurance coverage
to the Company.
8. EQUIPMENT, MAINTENANCE AND FUEL
Allied Automotive Group operates approximately 5,200 Rigs with an
average age of 7 years. Allied Automotive Group has historically invested
heavily in both new equipment and equipment upgrades, which have served to
increase efficiency and extend the useful life of Rigs. Currently, new 75-foot
Rigs cost between $120,000 and $140,000 and have a useful life of between 10 to
15 years when properly maintained.
All of Allied Automotive Group's terminals have access to a central
parts warehouse through the management information system. The system
calculates maximum and minimum parts inventory quantities based upon usage and
automatically reorders parts. Minor modifications of equipment are performed at
terminal locations. Major modifications involving change in length,
configuration or load capacity are performed by the trailer manufacturers.
In order to reduce fuel costs, Allied Automotive Group purchases
approximately 30% of its fuel in bulk. Also, fuel is purchased by drivers on
the road from a few major suppliers that offer discounts and central billing.
Allied Automotive Group has entered into futures contracts to manage a portion
of its exposure to fuel price fluctuations.
9. COMPETITION
The transportation of vehicles in the long-haul segment of the
automotive industry has been primarily controlled by rail carriers. In the
1970s and 1980s, following deregulation of the trucking industry by the
Interstate Commerce Commission and as importers obtained a more significant
share of United States automobile sales, new motor carriers, some without union
contracts, began to compete for automobile traffic. In some instances, these
new carriers were created, or their creation facilitated, by automotive
manufacturers.
Fundamental changes which are being made by automotive manufacturers
are beginning to have an impact on competition. Automotive manufacturers are
making changes to their vehicle distribution systems in an effort to increase
the speed of delivery of finished vehicles to dealers with a goal of reducing
inventory and improving the reliability of delivery. Certain manufacturers are
creating vehicle consolidation centers where rail traffic from numerous
manufacturing plants is re-mixed for delivery to the dealers. In addition,
manufacturers are creating new rail ramps in order to place vehicles in more
central locations closer to the market but off the dealer lots. These new rail
ramps may reduce the average length of haul for motor carriers of automobiles.
In metropolitan areas, competition for traffic from the new rail ramps to the
dealers may increase as local delivery carriers and equipment and driver
leasing companies may become new competitors for the traffic. In addition, some
parties may attempt to utilize drive-away operators or dealer pick-ups to
deliver vehicles.
Another recent development, which is beginning to have an impact on
competition, is an increase in the use of fourth party logistics companies by
automotive manufacturers. An example is the recently announced joint venture
between Ford and Autogistics, Inc., a subsidiary of UPS Logistics. Ford has
announced that it has enlisted Autogistics to oversee its delivery network
whereby all Ford vehicles in North America will be shipped under the direction
of Autogistics. Management of the Company believes that the formation of this
joint venture will provide the Company with an opportunity to participate more
in the long haul segment of the industry and improve the speed and reliability
of vehicles delivered.
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Major motor carriers specializing in the delivery of new vehicles that
are competitors of the Allied Automotive Group include Leaseway, Jack Cooper,
Cassens, Hadley and E & L, all of which are privately held companies.
Additionally, motor carriers utilizing non-union labor have increased.
10. EMPLOYEES AND OWNER OPERATORS
The Company has approximately 9,100 employees, including approximately
6,100 drivers. All drivers and shop and yard personnel are represented by
various labor unions. The majority of Allied Automotive Group's employees are
covered by the Master Agreement with the International Brotherhood of Teamsters
("IBT") which expires on May 31, 2003. The Master Agreement was entered into in
June 1999 and provides for an increase of approximately 3% per year in wage and
benefits in excess of the prior contract with the IBT. The compensation and
benefits paid by Allied Automotive Group to union employees are established by
union contracts. Allied Automotive Group also utilizes approximately 800
owner-operators, with approximately 200 driving exclusively for Allied Systems
(Canada) Company, a subsidiary of Allied Automotive Group, in Canada and
approximately 600 driving exclusively from terminals in the United States. The
owner-operators are either paid a percentage of the revenues they generate or
receive normal driver pay plus a truck allowance.
11. REGULATION
The Company is regulated in the United States by the United States
Department of Transportation ("DOT") and various state agencies, and in Canada
by the National Transportation Agency of Canada and various provincial
transport boards. Truck and trailer length, height, width, maximum weight
capacity and other specifications are regulated federally in the United States,
as well as by individual states and provinces. In recent years, the automotive
manufacturers have increased the percentage of vehicles that are light trucks
as well as increased the size and weight of many vehicles. Due to the
regulations on truck and trailer length, height, width and maximum weight
capacity, the number of vehicles Allied Automotive Group delivers per load has
decreased. Allied Automotive Group successfully negotiated rate increases on
all of its sports utility and light truck business in 1999 to account for this
reduction in the number of deliveries per load. Interstate motor carrier
operations are subject to safety requirements prescribed by the DOT. The DOT
also regulates certain safety features incorporated in the design of Rigs. The
motor carrier transportation industry is also subject to regulatory and
legislative changes which can affect the economics of the industry by requiring
changes in operating policies or influencing the demand for, and the cost of
providing, services to shippers.
In addition, the Company's terminal operations are subject to
environmental laws and regulations enforced by federal, state, provincial and
local agencies, including those related to the treatment, storage and disposal
of wastes, and those related to the storage and handling of lubricants. The
Company maintains regular ongoing testing programs for those underground
storage tanks ("USTs") located at their terminals for compliance with
environmental laws and regulations.
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12. INDUSTRY OVERVIEW
The following table summarizes historic new vehicle production and
sales in the United States and Canada, the primary sources of the Company's
revenues:
YEAR ENDED DECEMBER 31,
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1996 1997 1998 1999
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NEW VEHICLE PRODUCTION (IN MILLIONS OF UNITS)
United States .................................... 11.5 11.8 11.6 12.6
Percent increase (decrease) over prior year ...... (0.9)% 2.6% (1.7)% 8.6%
Canada ........................................... 2.4 2.5 2.5 3.0
Percent increase (decrease) over prior year ...... 0.0% 4.2% 0.0% 20.0%
NEW VEHICLE SALES (IN MILLIONS OF UNITS)
United States .................................... 15.1 15.1 15.6 16.9
Percent increase (decrease) over prior year ...... 2.5% 0.0% 3.3% 8.3%
Canada ........................................... 1.2 1.4 1.4 1.5
Percent increase (decrease) over prior year ...... 3.5% 16.7% 0.0% 7.1%
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 shipped by truck.
The remaining vehicles are shipped by rail to rail ramps throughout the United
States and Canada where trucking companies 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 carrier's
custody. Automobiles manufactured in Europe and Asia are shipped into the United
States and Canada and usually are delivered directly to dealers from seaports by
truck or shipped by rail to rail ramps and delivered by trucks to dealers.
Vehicles transported are normally prepared for delivery in port processing
centers, which involves cleaning and may involve installing accessories. The
port processor releases the vehicles to the carrier which loads the vehicles and
delivers them to a rail ramp or directly to dealers.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements,
including statements regarding, among other items, (i) the Company's plans,
intentions or expectations, (ii) general industry trends, competitive
conditions and customer preferences, (iii) the Company's management information
systems, (iv) the Company's efforts to reduce costs, (v) the adequacy of the
Company's sources of cash to finance its current and future operations and (vi)
resolution of litigation without material adverse effect on the Company. This
notice is intended to take advantage of the "safe harbor" provided by the
Private Securities Litigation Reform Act of 1995 with respect to such
forward-looking statements. These forward-looking statements involve a number
of risks and uncertainties. Among others, factors that could cause actual
results to differ materially are the following: economic recessions or
downturns in new vehicle production or sales; the highly competitive nature of
the automotive distribution industry; dependence on the automotive industry;
loss or reduction of revenues generated by the Company's major customers; the
variability of quarterly results and seasonality of the automotive distribution
industry; labor disputes involving the Company or its significant customers;
the dependence on key personnel who have been hired or retained by the Company;
the availability of strategic acquisitions or joint venture partners; changes
in regulatory requirements which are applicable to the Company's business;
changes in vehicle sizes and weights which may adversely impact vehicle
deliveries per load; risks associated with doing business in foreign countries;
problems related to information technology systems and computations that must
be made by the Company or its customers and vendors in 2000 or beyond; and the
risk factors listed herein from time to time in the Company's Securities and
Exchange Commission reports, including but not limited to, its Annual Reports
on Form 10-K.
ITEM 2. PROPERTIES.
The Company's executive offices are located in Decatur, Georgia, a
suburb of Atlanta. The Company
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leases approximately 96,000 square feet of space for its executive offices,
which is sufficient to permit the Company to conduct its operations. The
Company operates from 121 terminals which are located at or near manufacturing
plants, ports, and railway terminals. The Company currently owns 29 of its
terminals. The Company leases the remainder of its facilities. Most of the
leased facilities are leased on a year to year basis from railroads at rents
that are not material to the Company.
Over the past 10 years, changes in governmental regulations have
gradually permitted the lengthening of Rigs from 55 to 75 feet. The Company has
worked closely with manufacturers to develop specialized equipment to meet the
specific needs of manufacturers.
Allied Automotive Group's Rigs are maintained at 57 shops by
approximately 570 maintenance personnel, including supervisors. Rigs are
scheduled for regular preventive maintenance inspections. Each shop is equipped
to handle repairs resulting from inspection or driver write up, including
repairs to electrical systems, air conditioners, suspension, hydraulic systems,
cooling systems, and minor engine repairs. Major engine overhaul and engine
replacement can be handled at larger terminal facilities, while smaller
terminals rely on outside vendors. The trend has been to use engine suppliers'
outlets for engine repairs due to the long-term warranties obtained by the
Company.
ITEM 3. LEGAL PROCEEDINGS.
The Company is routinely a party to litigation incidental to its
business, primarily involving claims for personal injury and property damage
incurred in the transportation of vehicles. The Company does not believe that
any of such pending litigation, if adversely determined, would have a material
adverse effect on the Company.
The Company is a defendant in a lawsuit (Gateway Development &
Manufacturing, Inc. v. Commercial Carriers, Inc., et al, Index No. 1997/8920),
pending in Supreme Court of Erie County, New York claiming that the Company
tortiously interfered with a business transaction involving the plaintiff and a
defendant in the action other than the Company. The Company has moved to
dismiss all claims against the Company. If the Company is unsuccessful with its
motion to dismiss, it intends to vigorously defend this case as it believes the
claims against the Company are without merit. While the ultimate results of
this litigation cannot be determined, management does not expect that the
resolution of this proceeding will have a material adverse effect on the
Company's consolidated financial position or results of operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE
Executive Officers of the Registrant
The following table sets forth certain information regarding the
executive officers of the Company and certain of its subsidiaries:
Name Age Title
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Robert J. Rutland 58 Chairman and Director
Guy W. Rutland, III 63 Chairman Emeritus and Director
A. Mitchell Poole, Jr. 52 Vice-Chairman, Chief Executive Officer, and Director
Bernard O. De Wulf 51 Vice-Chairman, Executive Vice-President and Director
Randall E. West 51 President, Chief Operating Officer and Director
Guy W. Rutland, IV 36 Senior Vice President of Operations of Allied
Automotive Group and Director
Joseph W. Collier 57 Executive Vice-President, Planning and Development
and Director
Hugh E. Sawyer 46 President of Allied Automotive Group
Douglas A. Lauer 36 President of Link Information Systems
Daniel H. Popky 35 Senior Vice President and Chief Financial Officer, and
President of Allied Industries
Herbert A. Terwilliger 50 President of Haul Risk Management Services and Haul
Insurance Limited
Thomas M. Duffy 39 Vice President, Corporate Affairs, General Counsel and
Secretary
Mr. Rutland has been Chairman of the Company since December 1995 and
was Chief Executive Officer from 1995 through December 1999. Mr. Rutland served
as President and Chief Executive Officer of the Company from 1986 to December
1995. Prior to October 1993, Mr. Rutland was Chief Executive Officer of each of
the Company's subsidiaries.
Guy Rutland, III was elected Chairman Emeritus in December 1995. Mr.
Rutland served as Chairman of the Board of the Company from 1986 to December
1995. Prior to October 1993, Mr. Rutland was Chairman or Vice Chairman of each
of the Company's subsidiaries.
Mr. Poole has been Vice-Chairman and Chief Executive Officer since
January 2000. Mr. Poole was President, Chief Operating Officer, and Assistant
Secretary of the Company from December 1995 through
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December 1999. Prior to December 1995, Mr. Poole served as Executive Vice
President and Chief Financial Officer of the Company. Mr. Poole continued to
serve as Chief Financial Officer until November 1998. Mr. Poole joined Allied
Systems, Ltd. in 1988 as Senior Vice President and Chief Financial Officer. He
was appointed President of Allied Industries, Inc. in December 1990 and served
in that capacity until December 1997. Prior to joining the Company in 1988, Mr.
Poole was an audit partner with Arthur Andersen LLP, independent public
accountants.
Mr. De Wulf has been Vice Chairman and an Executive Vice President of
the Company since October 1993. Prior to such time, Mr. De Wulf was Vice
Chairman of each of the Company's subsidiaries. Mr. De Wulf was Vice Chairman
of Auto Convoy from 1983 until 1988 when the Company and Auto Convoy became
affiliated.
Mr. West has been President and Chief Operating Officer of the Company
since January 2000. Mr. West was the President of Axis Group from October 1997
through December 1999. Mr. West was President of Ryder Automotive Carrier
Services, Inc. from January 1996 to October 1997 and Senior Vice President and
General Manager of Ryder International from 1993 to 1995.
Mr. Rutland, IV has been Senior Vice President - Operations of Allied
Automotive Group since November 1997. Mr. Rutland was Vice President -
Reengineering Core Team of Allied Automotive Group 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. 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.
Mr. Collier has been Executive Vice-President of Planning and
Development of the Company since January 2000. Mr. Collier was the President of
Allied Automotive Group from December 1995 through December 1999. Mr. Collier
had been Executive Vice President of Marketing and Sales and Senior Vice
President of Allied Systems, Ltd. since 1991. Prior to joining the Company in
1979, Mr. Collier served in management positions with Bowman Transportation and
also with the Federal Bureau of Investigation.
Mr. Sawyer has been President of Allied Automotive Group since January
2000. Mr. Sawyer was President and Chief Executive Officer of National Linen
Services, Inc from February 1996 through December 1999. Mr. Sawyer was
President and Chief Executive Officer of Wells Fargo Armored Service
Corporation, a subsidiary of Borg-Warner Corporation, from December 1995 to
July 1998.
Mr. Lauer has been President of Link Information Systems since July
1996. From January 1996 to July 1996 Mr. Lauer was Vice President and Chief
Information Officer of Allied Industries, Inc. Mr. Lauer has 11 years of
information technology experience. Prior to joining the Company, he was
Director, Information Systems at Exel Logistics.
Mr. Popky has been Senior Vice President and Chief Financial Officer
of the Company since November 1998. He was appointed President of Allied
Industries, Inc. in December 1997 and continues to serve in such capacity. Mr.
Popky was Senior Vice President, Finance of the Company from December 1997 to
November 1998. From December 1995 to December 1997, Mr. Popky was Vice
President, Finance of the Company. From January 1995 to December 1995 Mr. Popky
was Vice President and Controller and from October 1994 to January 1995 he was
Assistant Vice President and Controller for the Company. Prior to joining the
Company, Mr. Popky held various positions with Arthur Andersen LLP for 9 years.
Mr. Terwilliger has been President of Haul Insurance Limited since its
inception in December 1995 and President of Haul Risk Management Services since
its inception in April 1997. From August 1994 to April 1997, Mr. Terwilliger
was Vice President Risk Management of Allied Industries. From July 1992 to
August 1994, Mr. Terwilliger was Director Risk Management of Allied Industries.
Prior to joining the Company in 1992, Mr.
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Terwilliger spent 18 years with various companies in the insurance and risk
management industry.
Mr. Duffy has been Vice President, Corporate Affairs, General Counsel
and Secretary of the Company since June 1998. From May 1997 to 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.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock is traded on the New York Stock Exchange
under the symbol AHI. The common stock began trading on September 29, 1993 on
The Nasdaq Stock Market and has been trading on the New York Stock Exchange
since March 3, 1998. Prior to September 29, 1993, there had been no established
public trading market for the common stock. Market information regarding the
common stock is set forth in Financial Statements and Supplementary Data
included elsewhere herein.
As of March 1, 2000, there were approximately 2,500 holders of the
Company's common stock. The Company has paid no cash dividends in the last two
years.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for each of
the five years in the period ended December 31, 1999 are derived from the
Company's Consolidated Financial Statements which have been audited by Arthur
Andersen LLP, independent public accountants. The selected consolidated
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and notes thereto.
YEAR ENDED DECEMBER 31,
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
-----------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- --------- --------- ---------
STATEMENT OF OPERATION DATA:
Revenues $ 1,081,309 $ 1,026,799 $ 581,530 $ 392,547 $ 381,464
----------- ----------- --------- --------- ---------
Operating expenses:
Salaries, wages and fringe benefits 585,380 547,780 302,539 204,838 195,952
Operating supplies and expenses 185,541 169,498 96,206 62,880 62,179
Purchased transportation 103,967 109,884 59,925 34,533 32,084
Insurance and claims 48,252 40,339 22,737 16,849 16,022
Operating taxes and licenses 41,288 40,779 23,028 16,122 16,564
Depreciation and amortization 58,019 53,327 33,340 26,425 25,431
Rent expense 8,974 10,072 5,720 4,975 5,354
Communications and utilities 9,060 9,341 4,530 3,111 3,435
Other operating expenses 10,945 7,429 6,812 4,219 3,522
Acquisition related realignment(1) -- -- 8,914 -- --
----------- ----------- --------- --------- ---------
Total operating expenses 1,051,426 988,449 563,751 373,952 360,543
----------- ----------- --------- --------- ---------
Operating Income 29,883 38,350 17,779 18,595 20,291
----------- ----------- --------- --------- ---------
Equity in earnings (loss) of joint ventures, net of tax 1,733 (470) -- -- --
Interest expense (32,001) (26,146) (14,095) (10,720) (11,260)
Interest income 2,112 3,270 868 603 707
----------- ----------- --------- --------- ---------
Income before income taxes and extraordinary item 1,727 15,004 4,552 8,478 10,368
Income tax provision (178) (6,527) (2,150) (3,557) (4,222)
----------- ----------- --------- --------- ---------
Income before extraordinary item 1,549 8,477 2,402 4,921 6,146
Extraordinary loss on early extinguishment of debt -- -- -- (935) --
----------- ----------- --------- --------- ---------
Net Income $ 1,549 $ 8,477 $ 2,402 $ 3,986 $ 6,146
=========== =========== ========= ========= =========
Income before extraordinary item per share - basic $ 0.20 $ 1.09 $ 0.31 $ 0.64 $ 0.80
Income before extraordinary item per share - diluted 0.20 1.08 0.31 0.64 0.80
Net income per share - basic 0.20 1.09 0.31 0.52 0.80
Net income per share - diluted 0.20 1.08 0.31 0.52 0.80
Weighted average common shares outstanding - basic 7,810 7,747 7,728 7,725 7,725
Weighted average common shares outstanding - diluted 7,851 7,846 7,810 7,725 7,725
Balance Sheet Data:
Current assets $ 225,617 $ 195,759 $ 149,673 $ 49,202 $ 50,421
Current liabilities 128,771 145,730 157,679 48,494 43,257
Total assets 649,920 621,627 558,939 211,083 214,686
Long-term debt & capital lease obligations, less
current portion 330,101 291,096 228,003 93,708 106,634
Stockholders' equity 66,914 62,853 57,328 56,709 53,022
(1) Represents a non-cash charge the Company recorded during 1997 to write
down Company Rigs and terminal facilities that were idled or closed as a
result of the Ryder Automotive Group Acquisition.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of expense
items to revenues for the periods indicated:
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
----- ----- -----
Revenues 100.0% 100.0% 100.0%
----- ----- -----
Operating Expenses:
Salaries, wages and fringe benefits 54.1 53.3 52.0
Operating supplies and expenses 17.2 16.5 16.5
Purchased transportation 9.6 10.7 10.3
Insurance and claims 4.5 3.9 3.9
Operating taxes and licenses 3.8 4.0 4.0
Depreciation and amortization 5.4 5.2 5.7
Rent expense 0.8 1.0 1.0
Communications and utilities 0.8 0.9 0.8
Other operating expenses 1.0 0.8 1.2
Acquisition related realignment 0.0 0.0 1.5
----- ----- -----
Total operating expenses 97.2 96.3 96.9
----- ----- -----
Operating income 2.8 3.8 3.1
----- ----- -----
Other income(expense):
Equity in earnings(loss) of joint ventures, net of tax 0.2 (0.1) 0.0
Interest expense (3.0) (2.5) (2.4)
Interest income 0.2 0.3 0.1
----- ----- -----
(2.6) (2.1) (2.3)
----- ----- -----
Income before income taxes 0.2 1.5 0.8
Income tax provision (0.0) (0.7) (0.4)
----- ----- -----
Net Income 0.2% 0.8% 0.4%
===== ===== =====
1999 Compared to 1998
Revenues were $1.08 billion in 1999 compared to $1.03 billion in 1998,
an increase of $54.5 million, or 5.3%. The increase in revenues was
primarily the result of a 6.8% increase in the number of vehicles
delivered due to increased new vehicle sales in the United States and
Canada, together with rate increases implemented during the second
half of 1999. Revenues from higher vehicle delivery volumes were
offset by lower revenue per vehicle delivered due to a slightly lower
average length of haul. Net income in 1999 was $1.5 million compared
with net income of $8.5 million in 1998. Basic and diluted earnings
per share for 1999 were $0.20, versus basic earnings per share of
$1.09 and diluted earnings per share of $1.08 in 1998. Net income
during 1999 was adversely impacted by the effect of reduced load
averages.
During 1999 the Company experienced a significant increase in the
percentage of vehicles delivered that were light trucks as well as an
overall increase in the size and weight of most vehicles delivered.
Due to regulations on tractor and trailer length, height, width, and
maximum weight capacity, this change in mix resulted in the number of
vehicles delivered per load in 1999 being approximately 4% lower than
in 1998. The change in mix negatively impacts operating results as
revenue is realized on a per vehicle basis, thus the Company's revenue
per load decreased. The Company estimates that operating income for
1999 was reduced by approximately $5 million per quarter as a result
of the load average decline. Throughout the year, the Company
discussed the load average decline with its customers. The Company has
put into effect rate increases to offset the effect of the load
average decline; however, the increases were in effect for only a
portion of the year.
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The operating ratio (operating expenses as a percentage of revenues) for 1999
was 97.2%, compared to 96.3% in 1998.
The following is a discussion of the changes in the Company's major expense
categories:
Salaries, wages and fringe benefits increased from 53.3% of revenues in 1998 to
54.1% of revenues in 1999. The increase was primarily due to annual salary and
benefit increases combined with inefficiencies resulting from the load average
decline, which was offset by continued productivity and efficiency
improvements.
Operating supplies and expenses increased from 16.5% of revenues in 1998 to
17.2% of revenues in 1999. The increase was due primarily to the inefficiencies
that resulted in the decrease in load averages and certain one-time costs
related to contingency planning for US labor negotiations that occurred in
1999, combined with the effect of higher fuel prices.
Purchased transportation decreased from 10.7% of revenues in 1998 to 9.6% of
revenues in 1999. The decrease was due primarily to the decrease in the mix of
loads hauled by owner-operators and other carriers versus company drivers. The
number of owner-operators year-to-year was comparable; thus company drivers
delivered the additional loads hauled by the Company.
Insurance and claims expense increased from 3.9% of revenues in 1998 to 4.5% of
revenues in 1999. The increase was due primarily to an increase in the
frequency of damage claims. The Company has put in place new quality
initiatives to reduce the frequency of damage claims in 2000.
Operating taxes and licenses decreased from 4.0% of revenues in 1998 to 3.8% of
revenues in 1999. This was due to a reduction in the number of active rigs
operating during 1999 versus 1998 resulting from operating efficiencies
realized in 1999.
Depreciation and amortization increased from 5.2% of revenues in 1998 to 5.4%
of revenues in 1999. The increase was related to an increase in the Company's
capital expenditures in 1999.
Rent expense decreased from 1.0% of revenues in 1998 to 0.8% of revenues in
1999. The decrease was due primarily to terminal closures related to the Ryder
Acquisition Realignment.
Equity in earnings of joint ventures, net of tax, increased from a loss of
$470,000, or 0.1% of revenues, in 1998 to earnings of $1.7 million, or 0.2% of
revenues, in 1999. The increase was due to earnings from the Company's joint
ventures in the United Kingdom "UK", which started operations in May 1999.
Earnings from the UK ventures offset losses from the Company's Brazilian
venture, which began operations in February 1998.
Interest expense increased from $26.2 million, or 2.5% of revenues, in 1998 to
$32.0 million, or 3.0% of revenues, in 1999. The increase was due to higher
long-term debt levels in 1999 versus 1998 and an increase in the interest rates
on the Company's revolving credit facility.
Interest income decreased from 0.3% of revenues in 1998 to 0.2% of revenues in
1999. The decrease was due to lower investment income from the Company's
captive insurance subsidiary, Haul Insurance Limited, which was a result of
increasing interest rates in 1999 that lowered the value of the its bond
portfolio.
The effective tax rate decreased from 43.5% of pre-tax income in 1998 to 10.3%
of pre-tax income in 1999. This decrease was due solely to the equity in
earnings of the joint ventures being presented net of taxes. Including income
taxes on earnings from joint ventures, the effective tax rate was 43.5% in both
1998 and 1999.
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1998 Compared to 1997
Revenues were $1.03 billion in 1998 compared to $581.5 million in 1997, an
increase of $448.5 million, or 77%. The increase in revenues was primarily due
to a 75% increase in the number of vehicles delivered. The number of vehicles
delivered increased 71% because of the Ryder Automotive Group Acquisition and
the inclusion of the Ryder Automotive Group's results since September 30, 1997,
the date of the acquisition. The remaining increase in vehicle deliveries was
primarily due to increased new vehicle sales in the United States together with
rail-car shortages which led to increased deliveries by the Company's U.S.
operations. Net income in 1998 was $8.5 million compared with net income of
$2.4 million in 1997. Basic earnings per share for 1998 were $1.09 while
diluted earnings per share were $1.08, versus basic and diluted earnings per
share of $0.31 in 1997. The 1998 results were impacted by an eight-week work
stoppage at most General Motors manufacturing plants. The Company estimates
that the work stoppages reduced earnings in 1998 by approximately $0.75 per
share. In addition, the 1998 results include a $0.15 per share charge relating
to a voluntary early retirement program instituted in the fourth quarter. The
1997 results include a charge of $0.67 per share to write down Rigs and
terminal facilities idled or closed as a result of the Ryder Automotive Group
Acquisition. Excluding these unusual items, the significant increase in
earnings in 1998 was primarily due to contributions from the Ryder Automotive
Group acquisition.
The operating ratio (operating expenses as a percentage of revenues) for 1998
was 96.3%, compared to 96.9% in 1997. However, excluding the effect of the
General Motors work stoppages and voluntary early retirement program costs in
1998 and the acquisition-related charge in 1997, the operating ratio improved
from 95.4% in 1997 to 95.1% in 1998. The improvement in the operating ratio is
due to the operating income contribution from the Ryder Automotive Group.
The following is a discussion of the changes in the Company's major expense
categories:
Salaries, wages and fringe benefits increased from 52.0% of revenues in 1997 to
53.3% in 1998. The increase was primarily due to annual salary and benefit
increases together with additional labor costs due to inefficiencies caused by
the lower volumes from the loss of General Motors business as a result of the
work stoppages offset by continued productivity and efficiency improvements.
Also, the Company expensed approximately $2 million during 1998 for a voluntary
early retirement program and such costs are included in salaries, wages and
fringe benefits.
Operating supplies and expenses as a percentage of revenues remained unchanged
in 1998 from 1997. Lower fuel prices were offset by inefficiencies caused by
the lower volumes from the loss of General Motors business as a result of the
work stoppages.
Purchased transportation increased from 10.3% of revenues in 1997 to 10.7% in
1998 primarily due to an increase in the number of vehicles hauled by other
carriers for the Company as part of an exchange program to improve loaded
miles.
Depreciation and amortization as a percentage of revenues decreased from 5.7%
in 1997 to 5.2% in 1998. The decrease was primarily the result of depreciation
expense on the Rigs acquired as part of the Ryder Automotive Group acquisition
representing a lower percentage of revenues than the Company's due to the age
and useful lives of the Rigs.
Interest expense increased from $14.1 million, or 2.4% of revenues, in 1997, to
$26.2 million, or 2.5% of revenues in 1998. The increase is primarily due to
interest on additional borrowings used to finance the Ryder Automotive Group
acquisition.
Interest income increased from $0.9 million, or 0.1% of revenues in 1997, to
$3.3 million, or 0.3% of revenues in 1998. The increase is due to an increase
in earnings from the Company's captive insurance subsidiary, Haul Insurance
Limited, due to increases in the amount of investments that were held by the
Company's captive insurance company.
The income tax provision as a percentage of revenues increased from 0.4% in
1997 to 0.7% in 1998, however, the effective tax rate decreased from 47.2% of
pre-tax income in 1997 to 43.5% of pre-tax income in 1998. The
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17
decrease in the effective tax rate was due to lower pre-tax income in 1997
because of the acquisition-related charge, which made non-deductible expenses a
greater percentage of pre-tax income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of liquidity are funds provided by operations and
borrowings under its revolving credit facility with a syndicate of banks. The
Company's liquidity needs are for the acquisition and maintenance of Rigs and
terminal facilities, the payment of operating expenses and the payment of
interest on and repayment of long-term debt.
Net cash provided by operating activities totaled $25.6 million in 1998 versus
$20.1 million in 1999. The decrease in cash provided by operating activities
was primarily due to a $6.9 million reduction in net income during 1999, as
well as an $8.3 million signing bonus, net of amortization, paid in 1999. The
signing bonus was negotiated under the new US Teamsters Union Contract and was
in lieu of a pay increase in the first year of the new contract. The signing
bonus will be amortized over the life of the new contract. These decreases in
operating cash flows were offset by a decline in the rate of increase in the
receivables balance. The receivables balance increased in 1998 due to the
change in payment terms with one of the Company's customers, and increased a
lesser amount in 1999 due to higher revenues and additional receivables from
the Company's customers for rate increases that went into effect in 1999 but
had not been paid at year-end.
Net cash used in investing activities totaled $79.3 million in 1998 versus
$66.2 million in 1999. The decrease was due primarily to a change in the
investment portfolio mix of the Company's captive insurance company which
increased short-term investments by $21.0 million and reduced cash and cash
equivalents by a like amount in 1999. This was offset by an $11.9 million
investment in Axis do Brasil in 1998. In addition, cash paid to purchase
capital items decreased $16.8 million from 1998 to 1999. Total equipment
expenditures in 1999 were comparable to the 1998 levels; however, the Company
leased a portion of the new Rigs that were acquired in 1999.
Net cash provided by financing activities totaled $65.5 million in 1998 versus
$37.7 million in 1999. The decrease was primarily due to additional borrowings
from the Company's revolving credit facility in 1998 due to the losses
associated with the General Motors work stoppages, the change in payment terms
for a customer and the investment in Brazil. These decreases were offset by
borrowings in 1999 to finance operations.
In connection with the acquisition of the Ryder Automotive Group, the Company
refinanced its revolving credit facility, which was amended and restated in
January 2000, with a syndicate of banks. The new revolving credit facility
allows the Company to borrow, under a revolving line of credit, and issue
letters of credit, up to the lesser of $230 million or a borrowing base amount
that is determined based on a defined percentage of the Company's accounts
receivable and equipment. The credit facility matures in September 2002 and the
interest rate is, at the Company's option, either (i) the bank's base rate, as
defined, or (ii) the bank's Eurodollar rate, as defined, as determined at the
date of each borrowing, plus an applicable margin. The Company has the right to
repay the outstanding debt under the credit facility, in whole or in part,
without penalty or premium, subject to a limitation that prepayment of
Eurodollar rate loans will be subject to a breakage penalty if prepaid other
than on the last day of the applicable interest period. The Company will be
subject to mandatory prepayment with a defined percentage of net proceeds from
certain asset sales, new debt offerings and new equity offerings. The credit
facility gives the Company the ability to reduce the commitment amount and the
Company periodically reviews its borrowing needs. The Company had borrowings of
$140.0 million outstanding under the revolving credit facility at December 31,
1999 bearing interest at a weighted average interest rate of 8.6%. In addition,
the Company had approximately $2.5 million of letters of credit outstanding
under its revolving credit facility at December 31, 1999.
The credit facility, the $150 million of 8 5/8% Senior Notes due in 2007, and
the $40 million of 12% Senior Subordinated Notes due in 2003, set forth a
number of affirmative, negative, and financial covenants binding on the
Company. The negative covenants limit the ability of the Company to, among
other things, incur debt, incur liens, make investments, make dividend or other
distributions, or enter into any merger or other consolidation transaction.
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The financial covenants include the maintenance of a minimum consolidated
tangible net worth, compliance with two leverage ratios and a coverage ratio
and limitations on capital expenditures.
The Company's obligations under the Senior Notes due in 2007 are guaranteed by
substantially all of the subsidiaries of the Company (the "Guarantors").
Separate financial statements of the Guarantors are not provided herein as (i )
the Guarantors are jointly and severally liable for the Company's obligations
under the Notes, (ii) the subsidiaries which are not Guarantors are
inconsequential to the consolidated operations of the Company and its
subsidiaries, and (iii) the net assets and earnings of the Guarantors are
substantially equivalent to the net assets and earnings of the consolidated
entity as reflected in the Company's consolidated financial statements. There
are no restrictions on the ability of the Guarantors to make distributions to
the Company.
Disclosures About Market Risks
The market risk inherent in the Company's market risk sensitive instruments and
positions is the potential loss arising from adverse changes in short-term
investment prices, interest rates, fuel prices, and foreign currency exchange
rates.
SHORT-TERM INVESTMENTS - The Company does not use derivative financial
instruments in its investment portfolio. The Company places its investments in
instruments that meet high credit quality standards, as specified in the
Company's investment policy guidelines. The policy also limits the amount of
credit exposure to any one issue, issuer, and type of instrument. Short-term
investments at December 31, 1999, which are recorded at fair value of $44.3
million, have exposure to price risk. This risk is estimated as the potential
loss in fair value resulting from a hypothetical 10% adverse change in quoted
prices and amounts to $4.4 million.
INTEREST RATES - The Company primarily issues long-term debt obligations to
support general corporate purposes including capital expenditures and working
capital needs. The majority of the Company's long-term debt obligations bear a
fixed rate of interest. A one-percentage point increase in interest rates
affecting the Company's floating rate long-term debt would reduce pre-tax
income by $1.4 million over the next fiscal year. A one-percentage point change
in interest rates would not have a material effect on the fair value of the
Company's fixed rate long-term debt.
FUEL PRICES - The Company is dependent on diesel fuel to operate its fleet of
Rigs. Diesel fuel prices are subject to fluctuations due to unpredictable
factors such as weather, government policies, changes in global demand, and
global production. To reduce price risk caused by market fluctuations, the
Company generally follows a policy of hedging a portion of its anticipated
diesel fuel consumption. The instruments used are principally readily
marketable exchange traded futures contracts that are designated as hedges. The
changes in market value of such contracts have a high correlation to the price
changes of diesel fuel. Gains and losses resulting from fuel hedging
transactions are recognized when the underlying fuel being hedged is used. A
10% increase in diesel fuel prices would reduce pre-tax income by $4.0 million
over the next fiscal year.
FOREIGN CURRENCY EXCHANGE RATES - Although the majority of the Company's
operations are in the United States, the Company does have foreign subsidiaries
(primarily Canada). The net investments in foreign subsidiaries translated into
dollars using year-end exchange rates at December 31, 1999, is $84.6 million.
The potential loss in fair value impacting other comprehensive income resulting
from a hypothetical 10% change in quoted foreign currency exchange rates
amounts to $8.5 million. The Company does not use derivative financial
instruments to hedge its exposure to changes in foreign currency exchange
rates.
Year 2000
Year 2000 ("Y2K" ) issues were addressed by the Company. The Company, like most
other major companies, addressed a universal problem commonly referred to as
"Year 2000 Compliance," which related to the ability of
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computer programs and systems to properly recognize and process date sensitive
information before and after January 1, 2000.
The Company analyzed its internal information technology ("IT") systems ("IT
systems") to identify any computer programs that were not Year 2000 Compliant
and implemented changes required to make such systems Year 2000 Compliant. The
Company's critical IT systems functioned without substantial Year 2000
Compliance problems.
As of December 31, 1999, the Company's total incremental costs (historical plus
estimated future costs) of addressing Y2K issues were estimated to be in the
range of $5.0 million, of which approximately $4.1 million was incurred in
1999. The Company estimates that approximately 30% of the costs incurred in
1999 were internal costs, including compensation and benefits of employees
assigned primarily to Y2K procedures. Internal costs addressing Y2K issues
during 1998 were not material. These costs were funded through operating cash
flow. The Company does not expect to incur material Y2K related costs in 2000.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." The
statement establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting.
During 1999, SFAS No. 137 was issued which defers the effective date
of SFAS No. 133 until fiscal quarters of all fiscal years beginning after June
15, 2000. The Company will adopt this statement in the first quarter of 2001.
The Company has not yet quantified the impact of adopting SFAS No. 133 on the
consolidated financial statements. This statement could increase volatility in
earnings and other comprehensive income.
Seasonality and Inflation
The Company's revenues are seasonal, with the second and fourth
quarters generally experiencing higher revenues than the first and third
quarters. The volume of vehicles shipped during the second and fourth quarters
is generally higher due to the introduction of new models which are shipped to
dealers during those periods and the higher spring and early summer sales of
automobiles and light trucks. During the first and third quarters, vehicle
shipments typically decline due to lower sales volume during those periods and
scheduled plant shut downs. Inflation has not significantly affected the
Company's results of operations.
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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. Management's 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 of this Report.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
NONE.
PART III
Certain information required by Part III is omitted from this report
in that the Registrant will file a definitive Proxy Statement pursuant to
Regulation 14A (the "Proxy Statement") not later than 120 days after the end of
the fiscal year covered by this report, and certain information included
therein is incorporated herein by reference. Only those sections of the Proxy
Statement which specifically address the items set forth herein are
incorporated by reference. Such information does not include the Compensation
Committee Report or the Performance Graph included in the Proxy Statement.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning the Company's directors required by this
Item is incorporated by reference to the Company's Proxy Statement. The
information concerning the Company's executive officers required by this Item
is incorporated by reference to the section in Part I, Item 4, entitled
"Executive Officers of the Registrant."
The information regarding compliance with Section 16 of the Securities
Exchange Act of 1934, as amended, is to be set forth in the Proxy Statement and
is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference to
the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated by reference to
the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated by reference to
the Company's Proxy Statement.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements:
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Public Accountants ...................................................... F-1
Consolidated Balance Sheets at December 31, 1999 and 1998 ..................................... F-2
Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997 .... F-3
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
December 31, 1999, 1998, and 1997 .................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997 .... F-5
Notes to Consolidated Financial Statements .................................................... F-6
(2) Financial Statement Schedules:
INDEX TO FINANCIAL STATEMENT SCHEDULES
PAGE
----
Report of Independent Public Accountants ...................................................... S-1
Schedule II - Valuation and Qualifying Accounts for the Years Ended
December 31, 1999, 1998 and 1997 ............................................................ S-2
All other schedules are omitted as the required information is inapplicable or
the information is presented in the financial statements or related notes.
(b) Reports on Form 8-K.
(i) The Company filed a report on Form 8-K on October
25, 1999 regarding the issuance of a press release announcing
the adoption of a stock repurchase plan.
(ii) The Company filed a report on Form 8-K on December
6, 1999 regarding the issuance of a press release in
connection with the reorganization of certain aspects of
management of the Company.
(c) Exhibits;
(d) Financial Statement Schedules
SEPARATE FINANCIAL STATEMENTS OF SUBSIDIARIES' NOT CONSOLIDATED
The 1999 financial statements of ANSA Logistics Limited required to be
included in this report pursuant to Rule 3-09 of Regulation S-X, will be
included in an amendment to this report to be filed within 90 days of the date
of this report.
Exhibit Index filed as part of this report
20
22
EXHIBIT DESCRIPTION
- -------------------
(1) 3.1 Amended and Restated Articles of Incorporation of the Company.
3.2 Amended and Restated Bylaws of the Company.
3.3 Amendment to By-laws as of March 21, 2000.
(1) 4.1 Specimen Common Stock Certificate.
(6) 4.2 Indenture dated September 30, 1997 by and among the Company,
the Guarantors and The First National Bank of Chicago, as
Trustee.
4.3 $230 million Revolving Credit Agreement among Allied
Holdings, Inc. and BankBoston, N.A., individually and as
Administrative Agent, et al., dated January 20, 2000.
10.1 Form of the Company's Employment Agreement with executive
officers.
(1) 10.2 The Company's Long Term Incentive Plan dated July 1993.
(2) 10.3 The Company's 401(k) Retirement Plan and Defined Benefit
Pension Plan and Trust.
(3) 10.4 Form of 12% Senior Subordinated Notes due February 1, 2003.
(4) 10.5 Agreement between the Company and Ford Motor Company, as
amended.
(5) 10.7 Agreement between the Company and General Motors Corporation.
(7) 10.8 Acquisition Agreement among Allied Holdings, Inc., AH
Acquisition Corp., Canadian Acquisition Corp., and Axis
International Incorporated and Ryder System, Inc. dated
August 20, 1997.
(8) 10.9 The Company's 1999 Employee Stock Purchase Plan.
21.1 List of subsidiary corporations.
23.1 Consent of Arthur Andersen LLP.
24.1 Powers of Attorney (included within the signature pages of
this Report).
27.1 Financial Data Schedule (for SEC use only).
- ----------------------
(1) Incorporated by reference from Registration Statement (File Number
33-66620) as filed with the Securities and Exchange Commission on July
28, 1993 and amended on September 2, 1993 and September 17, 1993 and
deemed effective on September 29, 1993.
(2) Incorporated by reference from Registration Statement (File Number
33-76108) as filed with the SEC on March 4, 1994 and deemed effective
on such date, and Annual Report on Form 10-K for the year ended
December 31, 1993.
(3) Incorporated by reference from the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
(4) Incorporated by reference from form 10-Q filed with the Commission on
November 12, 1999. Portions of the agreement are omitted pursuant to a
request for confidential treatment granted by the Commission.
(5) Incorporated by reference from Form 10-K filed with the Commission on
March 30, 1999. Portions of the agreement are omitted pursuant to a
request for confidential treatment granted by the Commission.
(6) Incorporated by reference from Registration Statement (File Number
33-37113) as filed with the SEC on October 3, 1997.
(7) Incorporated by reference from Form 8-K filed with the Commission on
August 29, 1997. Portions of the agreement are omitted pursuant to a
request for confidential treatment granted by the Commission.
(8) Incorporated by reference from Registration Statement (File Number
333-72053) as filed with the SEC on February 9, 1999.
21
23
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: March 27, 2000 By: /s/ Robert J. Rutland
---------------------- ------------------------------------------------------
Robert J. Rutland, Chairman
Date: March 27, 2000 By: /s/ A. Mitchell Poole, Jr.
---------------------- ------------------------------------------------------
A. Mitchell Poole, Jr., Vice-Chairman and Chief Executive
Officer
Date: March 27, 2000 By: /s/ Daniel H. Popky
---------------------- ------------------------------------------------------
Daniel H. Popky, Senior Vice President and Chief Financial
Officer (Principal Financial and Accounting Officer)
22
24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert J. Rutland and A. Mitchell Poole,
Jr., 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
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 3-27-00
- -------------------------- Chairman and Director ------------------
Robert J. Rutland
/s/ Guy W. Rutland, III 3-27-00
- -------------------------- Chairman Emeritus and Director ------------------
Guy W. Rutland, III
/s/ A. Mitchell Poole, Jr. 3-27-00
- -------------------------- Vice-Chairman, Chief Executive ------------------
A. Mitchell Poole, Jr. Officer and Director
- -------------------------- Vice Chairman, Executive Vice ------------------
Bernard O. De Wulf President, and Director
/s/ Joseph W. Collier 3-27-00
- -------------------------- Executive Vice-President and Director ------------------
Joseph W. Collier
/s/ Randall E. West 3-27-00
- -------------------------- President, Chief Operating Officer and ------------------
Randall E. West Director
/s/ David G. Bannister 3-27-00
- -------------------------- Director ------------------
David G. Bannister
/s/ Robert R. Woodson 3-27-00
- -------------------------- Director ------------------
Robert R. Woodson
/s/ William P. Benton 3-27-00
- -------------------------- Director ------------------
William P. Benton
/s/ Berner F. Wilson, Jr. 3-27-00
- -------------------------- Director ------------------
Berner F. Wilson, Jr.
/s/ Guy W. Rutland, IV 3-27-00
- -------------------------- Director ------------------
Guy W. Rutland, IV
23
25
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Financial Statements
as of December 31, 1999 and 1998
Together With Auditors' Report
26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Allied Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of ALLIED HOLDINGS,
INC. (a Georgia corporation) AND SUBSIDIARIES as of December 31, 1999 and 1998
and the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the 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 financial statements referred to above present fairly, in
all material respects, the financial position of Allied Holdings, Inc. and
subsidiaries as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted
in the United States.
/s/ Arthur Andersen LLP
- -----------------------
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 11, 2000
F-1
27
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
ASSETS
1999 1998
--------- ---------
CURRENT ASSETS:
Cash and cash equivalents $ 13,984 $ 21,977
Short-term investments 44,325 23,323
Receivables, net of allowance for doubtful accounts of
$1,508 and $1,545 in 1999 and 1998, respectively 121,058 103,968
Inventories 7,949 6,788
Deferred tax assets 16,119 20,773
Prepayments and other current assets 22,182 18,930
--------- ---------
Total current assets 225,617 195,759
--------- ---------
PROPERTY AND EQUIPMENT, NET 287,838 297,530
--------- ---------
OTHER ASSETS:
Goodwill, net 93,104 94,577
Other 43,361 33,761
--------- ---------
Total other assets 136,465 128,338
--------- ---------
Total assets $ 649,920 $ 621,627
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 185 $ 2,746
Trade accounts payable 42,931 42,196
Accrued liabilities 85,655 100,788
--------- ---------
Total current liabilities 128,771 145,730
--------- ---------
LONG-TERM DEBT, LESS CURRENT MATURITIES 330,101 291,096
--------- ---------
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 11,973 11,165
--------- ---------
DEFERRED INCOME TAXES 37,409 39,953
--------- ---------
OTHER LONG-TERM LIABILITIES 74,752 70,830
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTES 5, 7, AND 8)
STOCKHOLDERS' EQUITY:
Common stock, no par value; 20,000 shares authorized,
7,997 and 7,878 shares outstanding at December 31,
1999 and 1998, respectively 0 0
Additional paid-in capital 44,437 43,614
Treasury stock, 29 shares at cost at December 31, 1999 (186) 0
Retained earnings 26,903 25,354
Accumulated other comprehensive income, net of tax (4,240) (6,115)
--------- ---------
Total stockholders' equity 66,914 62,853
--------- ---------
Total liabilities and stockholders' equity $ 649,920 $ 621,627
========= =========
The accompanying notes are an integral part of these consolidated
balance sheets.
F-2
28
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1999 1998 1997
----------- ----------- -----------
REVENUES $ 1,081,309 $ 1,026,799 $ 581,530
----------- ----------- -----------
OPERATING EXPENSES:
Salaries, wages, and fringe benefits 585,380 547,780 302,539
Operating supplies and expenses 185,541 169,498 96,206
Purchased transportation 103,967 109,884 59,925
Insurance and claims 48,252 40,339 22,737
Operating taxes and licenses 41,288 40,779 23,028
Depreciation and amortization 58,019 53,327 33,340
Rent expense 8,974 10,072 5,720
Communications and utilities 9,060 9,341 4,530
Other operating expenses 10,945 7,429 6,812
Acquisition related realignment 0 0 8,914
----------- ----------- -----------
Total operating expenses 1,051,426 988,449 563,751
----------- ----------- -----------
Operating income 29,883 38,350 17,779
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Equity in earnings (loss) of joint
ventures, net of tax 1,733 (470) 0
Interest expense (32,001) (26,146) (14,095)
Interest income 2,112 3,270 868
----------- ----------- -----------
(28,156) (23,346) (13,227)
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,727 15,004 4,552
INCOME TAX PROVISION (178) (6,527) (2,150)
----------- ----------- -----------
NET INCOME $ 1,549 $ 8,477 $ 2,402
=========== =========== ===========
PER COMMON SHARE:
Net income per common share--basic $ 0.20 $ 1.09 $ 0.31
=========== =========== ===========
Net income per common share--diluted $ 0.20 $ 1.08 $ 0.31
=========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 7,810 7,747 7,728
=========== =========== ===========
Diluted 7,851 7,846 7,810
=========== =========== ===========
The accompanying notes are an integral part of these consolidated statements.
F-3
29
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(IN THOUSANDS)
COMMON STOCK ADDITIONAL
COMPREHENSIVE ---------------------- PAID-IN TREASURY
INCOME SHARES AMOUNT CAPITAL STOCK
-------------- -------- -------- ----------- --------
BALANCE, DECEMBER 31, 1996 7,810 0 $ 42,977 $ 0
Net income $ 2,402 0 0 0 0
Other comprehensive income--foreign currency
translation adjustment, net of income taxes of
$1,331 (2,083) 0 0 0 0
--------
Comprehensive income $ 319
========
Nonqualified options exercised 17 0 163 0
Restricted stock, net (8) 0 137 0
-------- -------- -------- --------
BALANCE, DECEMBER 31, 1997 7,819 0 43,277 0
Net income $ 8,477 0 0 0 0
Other comprehensive income--foreign currency
translation adjustment, net of income taxes of
$2,089 (3,289) 0 0 0 0
--------
Comprehensive income $ 5,188
========
Issuance of common stock 1 0 22 0
Nonqualified options exercised 3 0 24 0
Restricted stock, net 55 0 291 0
-------- -------- -------- --------
BALANCE, DECEMBER 31, 1998 7,878 0 43,614 0
Net income $ 1,549 0 0 0 0
Other comprehensive income--foreign currency
translation adjustment, net of income taxes of
$1,432 1,875 0 0 0 0
--------
Comprehensive income $ 3,424
========
Issuance of common stock 71 0 415 0
Nonqualified options exercised 3 0 27 0
Repurchases of common stock (29) 0 0 (186)
Restricted stock, net 74 0 381 0
-------- -------- -------- --------
BALANCE, DECEMBER 31, 1999 7,997 $ 0 $ 44,437 $ (186)
======== ======== ======== ========
ACCUMULATED
OTHER
RETAINED COMPREHENSIVE
EARNINGS INCOME TOTAL
-------- ------------- --------
BALANCE, DECEMBER 31, 1996 $ 14,475 $ (743) $ 56,709
Net income 2,402 0 2,402
Other comprehensive income--foreign currency
translation adjustment, net of income taxes of
$1,331 0 (2,083) (2,083)
Comprehensive income
Nonqualified options exercised 0 0 163
Restricted stock, net 0 0 137
-------- -------- --------
BALANCE, DECEMBER 31, 1997 16,877 (2,826) 57,328
Net income 8,477 0 8,477
Other comprehensive income--foreign currency
translation adjustment, net of income taxes of
$2,089 0 (3,289) (3,289)
Comprehensive income
Issuance of common stock 0 0 22
Nonqualified options exercised 0 0 24
Restricted stock, net 0 0 291
-------- -------- --------
BALANCE, DECEMBER 31, 1998 25,354 (6,115) 62,853
Net income 1,549 0 1,549
Other comprehensive income--foreign currency
translation adjustment, net of income taxes of
$1,432 0 1,875 1,875
Comprehensive income
Issuance of common stock 0 0 415
Nonqualified options exercised 0 0 27
Repurchases of common stock 0 0 (186)
Restricted stock, net 0 0 381
-------- -------- --------
BALANCE, DECEMBER 31, 1999 $ 26,903 $ (4,240) $ 66,914
======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
F-4
30
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(IN THOUSANDS)
1999 1998 1997
------- ------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,549 $ 8,477 $ 2,402
------- ------- --------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 58,019 53,327 33,340
Loss (gain)on sale of property and equipment 628 (32) 141
Acquisition related realignment 0 0 8,914
Payment of teamsters union signing bonus, net of
amortization (8,298) 0 0
Equity in (income) loss, net of tax of joint ventures (1,733) 470 0
Compensation expense related to restricted stock grants 33 291 75
Deferred income taxes 718 1,852 2,990
Change in operating assets and liabilities, excluding
effect of businesses acquired:
Receivables, net (16,123) (30,321) (4,314)
Inventories (1,090) (1,505) 382
Prepayments and other current assets (3,102) 2,384 1,216
Trade accounts payable 359 6,366 2,296
Accrued liabilities (10,839) (15,751) 474
------- ------- --------
Total adjustments 18,572 17,081 45,514
------- ------- --------
Net cash provided by operating activities 20,121 25,558 47,916
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (45,027) (61,868) (27,243)
Proceeds from sale of property and equipment 2,749 606 953
Purchase of businesses, net of cash acquired (1,879) (942) (123,492)
Investment in joint ventures (306) (11,920) 0
Increase in short-term investments (21,002) (3,783) (11,020)
Increase in the cash surrender value of life insurance (773) (1,373) (2,451)
------- ------- --------
Net cash used in investing activities (66,238) (79,280) (163,253)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of long-term debt, net 36,444 62,859 133,052
Proceeds from exercise of stock options 27 24 163
Proceeds from issuance of common stock 415 0 0
Repurchase of common stock (186) 0 0
Other, net 971 2,613 (9,277)
------- ------- --------
Net cash provided by financing activities 37,671 65,496 123,938
------- ------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 453 (327) (44)
------- ------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (7,993) 11,447 8,557
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 21,977 10,530 1,973
------- ------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $13,984 $21,977 $ 10,530
======= ======= ========
The accompanying notes are an integral part of these statements.
F-5
31
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998, AND 1997
1. ORGANIZATION AND OPERATIONS
Allied Holdings, Inc. (the "Company"), a Georgia corporation, is a
holding company which operates through its wholly owned subsidiaries. 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 and light trucks from manufacturing
plants, ports, auctions, and railway distribution points to automobile
dealerships. Axis Group, through its subsidiaries, provides distribution
and logistics services for the automotive industry.
The Company acquired Ryder Automotive Carrier Services, Inc. and RC
Management Corp. (collectively, "Ryder Automotive Carrier Group") on
September 30, 1997 (Note 2), resulting in the Company becoming the largest
motor carrier of automobiles and light trucks in North America.
The Company has four additional operating divisions: Allied Industries,
Inc. ("Allied Industries"), Haul Insurance Limited ("Haul"), Link
Information Systems, Inc. ("Link"), and Haul Risk Management Services, Inc.
("Risk Management"), which provide services to Allied Automotive Group,
Axis Group, and the other subsidiaries of the Company. Allied Industries
provides administrative, financial, and other related services. Haul, a
captive insurance company, was formed for the purpose of insuring general
liability, automobile liability, and workers' compensation for the Company.
Link provides information systems hardware, software, and support. Risk
Management was incorporated in 1997 and offers a range of risk management
and claims administration services.
2. ACQUISITION OF RYDER AUTOMOTIVE CARRIER GROUP
On September 30, 1997, the Company completed the acquisition of Ryder
Automotive Carrier Group from Ryder System, Inc. for approximately $114.5
million in cash, subject to postclosing adjustments. The acquisition has
been accounted for under the purchase method, and accordingly, the
operating results of Ryder Automotive Carrier Group have been included in
the accompanying financial statements since the date of the acquisition.
In conjunction with the acquisition, the Company issued $150,000,000 of 8
5/8% senior notes (the "Senior Notes") in order to finance the acquisition,
pay related fees and expenses, and reduce borrowings (Note 6). Upon
completion of the acquisition, the Company recorded a pretax charge of
approximately $8.9 million (the "Acquisition Charge") to write down Company
rigs and terminal facilities that were idled or closed as a result of the
acquisition. During 1999 and 1998, the Company paid approximately
$1,950,000 and $5,887,977, respectively, against the Acquisition Charge
related to employee severance and in 1997 charged approximately $7,412,000
to the Acquisition Charge to write-down rigs and terminal facilities that
were idled or closed as a result of the acquisition.
F-6
32
The following unaudited pro forma results of operations for the year ended
December 31, 1997 assumes that the acquisition of Ryder Automotive Carrier
Group and the Senior Notes offering had occurred on January 1, 1997. The
pro forma results are not necessarily indicative of what actually would
have occurred if the acquisition had been consummated on January 1, 1997
nor are they intended to be a projection of future results from combined
operations (in thousands, except per share data).
1997
----------
Revenues $1,044,875
Operating income 43,904
Income before extraordinary item 15,515
Net income 15,515
Income per share before extraordinary item:
Basic $ 2.01
Diluted $ 1.99
Net income per share:
Basic $ 2.01
Diluted $ 1.99
Weighted average common shares outstanding 7,728
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany transactions and
accounts have been eliminated.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's foreign subsidiaries are
translated into U.S. dollars using current exchange rates in effect at the
balance sheet date, and revenues and expenses are translated at average
monthly exchange rates. The resulting translation adjustments are recorded
as accumulated other comprehensive income in the accompanying consolidated
statements of changes in stockholders' equity, net of related income taxes.
REVENUE RECOGNITION
Substantially all revenue is derived from transporting automobiles and
light trucks from manufacturing plants, ports, auctions, and railway
distribution points to automobile dealerships. Revenue is recorded by the
Company when the vehicles are delivered to the dealerships.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories consist primarily of tires, parts, materials, and supplies for
servicing the Company's tractors and trailers. Inventories are recorded at
the lower of cost (on a first-in, first-out basis) or market.
F-7
33
PREPAYMENTS AND OTHER CURRENT ASSETS
Prepayments and other current assets consist of the following at December
31, 1999 and 1998 (in thousands):
1999 1998
-------- --------
Tires on tractors and trailers $ 13,506 $ 13,378
Prepaid insurance 865 1,355
Other 7,811 4,197
-------- --------
$ 22,182 $ 18,930
======== ========
TIRES ON TRACTORS AND TRAILERS
New tires on tractors and trailers are capitalized and amortized to
operating supplies and expenses on a cents per mile basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major property additions,
replacements, and betterments are capitalized, while maintenance and
repairs which do not extend the useful lives of these assets are expensed
currently. Depreciation is provided using the straight-line method for
financial reporting and accelerated methods for income tax purposes. The
detail of property and equipment at December 31, 1999 and 1998 is as
follows (in thousands):
1999 1998 Useful Lives
----------- ----------- -----------
Tractors and trailers $ 395,288 $ 367,380 4 to 10 years
Buildings and facilities (including
leasehold improvements) 51,033 46,322 4 to 25 years
Land 17,722 17,772
Furniture, fixtures, and equipment 34,041 23,677 3 to 10 years
Service cars and equipment 2,879 2,309 3 to 10 years
----------- -----------
500,963 457,460
Less accumulated depreciation and amortization 213,125 159,930
----------- -----------
$ 287,838 $ 297,530
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
1999 1998 1997
------- ------- -------
Cash paid during the year for interest $31,982 $24,540 $ 9,189
Cash paid during the year for income taxes, net of refunds 1,056 378 278
Liabilities assumed in connection with businesses acquired* 0 0 (170,745)
*Includes trade accounts payable, accrued liabilities, postretirement
benefits other than pensions, deferred income taxes, and other
long-term liabilities.
F-8
34
GOODWILL
The acquisition of Ryder Automotive Carrier Group resulted in goodwill of
approximately $68,079,000. Goodwill related to the acquisition is being
amortized on a straight-line basis over 40 years. Other goodwill is being
amortized on a straight-line basis over 20 to 30 years. Amortization
(included in depreciation and amortization expense) for the years ended
December 31, 1999, 1998, and 1997 amounted to approximately $3,466,000,
$3,235,000, and $2,086,000, respectively. Accumulated amortization was
approximately $10,930,000 and $7,164,000 at December 31, 1999 and 1998,
respectively. The Company periodically evaluates the realizability of
goodwill based on expectations of nondiscounted cash flows and operating
income for each subsidiary having a material goodwill balance. In the
opinion of management, no impairment of goodwill exists at December 31,
1999.
CASH SURRENDER VALUE OF LIFE INSURANCE
The Company maintains life insurance policies for certain employees of the
Company. Under the terms of the policies, the Company will receive, upon
the death of the insured, the lesser of aggregate premiums paid or the face
amount of the policy. Any excess proceeds over premiums paid are remitted
to the employee's beneficiary. The Company records the increase in cash
surrender value each year as a reduction of premium expense. The Company
has recorded approximately $8,723,000 and $7,950,000 of cash surrender
value as of December 31, 1999 and 1998, respectively, included in other
assets on the accompanying balance sheets.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements. Estimates also affect the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
RECLASSIFICATION
Certain amounts in the December 31, 1999 and 1998 financial statements have
been reclassified to conform to the current year presentation.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures
About Fair Value of Financial Instruments," requires disclosure of the
following information about the fair value of certain financial instruments
for which it is practicable to estimate that value. For purposes of the
following disclosure, the fair value of a financial instrument is the
amount at which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced sale or liquidation.
The amounts disclosed represent management's best estimates of fair value.
In accordance with SFAS No. 107, the Company has excluded certain financial
instruments and all 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.
F-9
35
The methods and assumptions used to estimate fair value are as follows:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value due to the relatively
short period to maturity of these instruments.
SHORT-TERM INVESTMENTS
The Company's short-term investments are comprised of debt and equity
securities, all classified as trading securities, which are carried at
their fair value based on the quoted market prices of those
investments. Accordingly, net realized and unrealized gains and losses
on trading securities are included in net earnings.
LONG-TERM DEBT
The carrying amount approximates fair value based on the borrowing
rates currently available to the Company for borrowings with similar
terms and average maturities.
FUEL HEDGING CONTRACTS
The Company has entered into futures contracts to manage a portion of
the Company's exposure to fuel price fluctuations. Gains and losses
resulting from fuel hedging transactions are recognized when the
underlying fuel being hedged is used. The fair value of fuel hedging
contracts is estimated based on quoted market prices.
The financial instruments are generally executed with major financial
institutions which expose the Company to acceptable levels of market and
credit risks and may at times be concentrated with certain counterparties
or groups of counterparties. The creditworthiness of counterparties is
subject to continuing review and full performance is anticipated.
The asset and (liability) amounts recorded in the balance sheet and the
estimated fair values of financial instruments at December 31, 1999
consisted of the following (in thousands):
CARRYING FAIR
AMOUNT VALUE
-------- -------
Cash and cash equivalents $ 13,984 $ 13,984
Short-term investments 44,325 44,325
Long-term debt (330,101) (330,101)
Fuel hedging contracts 0 411
ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31, 1999 and 1998 (in
thousands):
1999 1998
-------- --------
Wages and benefits $ 39,728 $ 46,615
Claims and insurance reserves 24,691 23,158
Other 21,236 31,015
-------- --------
$ 85,655 $100,788
======== ========
F-10
36
The long-term portion of claims and insurance reserves is included in the
balance sheets as other long-term liabilities and amounts to approximately
$74,073,000 and $69,475,000 at December 31, 1999 and 1998, respectively.
CLAIMS AND INSURANCE RESERVES
In the United States, the Company retains liability up to $650,000 for each
workers' compensation claim and $500,000 for each claim for automobile and
general liability, including personal injury and property damage claims. In
addition to the $500,000 per occurrence deductible for automobile
liability, there is a $1,500,000 aggregate deductible for those claims
which exceed the $500,000 per occurrence deductible, subject to a
$1,000,000 per claim limit. In addition, the Company retains liability up
to $250,000 for each cargo damage claim. In Canada, the Company retains
liability up to CDN $100,000 for each claim for personal injury, property
damage, and cargo damage.
Most reserves for self-insured workers' compensation, automobile, and
general liability losses are based on actuarial estimates that are
discounted at 6% to their present value based on the Company's historical
claims experience adjusted for current industry trends. The undiscounted
amount of the reserves for claims and insurance at December 31, 1999 and
1998 was approximately $103,365,000 and $97,114,000, respectively. The
claims and insurance reserves are adjusted periodically as such claims
mature to reflect changes in actuarial estimates based on actual
experience.
The estimated costs of all known and potential losses are accrued by the
Company. In the opinion of management, adequate provision has been made for
all incurred claims.
COMPREHENSIVE INCOME
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income," which requires companies to report all changes in equity during a
period, except those resulting from investment by owners and distribution
to owners, in a financial statement for the period in which they are
recognized. The Company has chosen to disclose comprehensive income, which
encompasses net income and foreign currency translation adjustment, net of
income taxes, in the accompanying consolidated statements of changes in
stockholders' equity. The accompanying statement of stockholders' equity
for the year ended December 31, 1997 has been restated to conform to the
statement requirements.
INCOME TAXES
The Company follows the practice of providing for income taxes based on
SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 requires
recognition of deferred tax liabilities and assets for the expected future
tax consequences of events that have been included in the financial
statements or tax returns (Note 4).
EQUITY INVESTMENTS
During 1999 and 1998, Axis Group completed the formation of three joint
ventures for the purpose of managing the distribution of vehicles in the
United Kingdom and Brazil. Axis Group initially invested $10,395,000 in the
ventures. The Company is accounting for the investments under the equity
method of accounting with its share of the ventures' earnings or loss
reflected as equity in earnings (loss) of joint ventures in the
consolidated statements of operations. The related equity investments are
included in other assets in the accompanying consolidated balance sheets.
F-11
37
The majority of the Company's equity in earnings of joint ventures in 1999
was derived from its joint venture in the United Kingdom, Ansa Logistics
Limited. Summarized financial information of Ansa Logistics Limited as of
December 31, 1999 and the year then ended is as follows (in thousands):
1999
-------
Current assets $21,652
Other assets 7,235
-------
Total assets $28,887
=======
Current liabilities $25,273
=======
Revenues $85,345
=======
Operating income $ 5,758
=======
Income from continuing operations $ 5,703
=======
Net income $ 3,614
=======
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." This statement requires presentation of basic
and diluted earnings per share. Basic earnings per share are calculated by
dividing net income available to common stockholders by the weighted
average number of common shares outstanding for the years presented.
Diluted earnings per share reflect the potential dilution that could occur
if securities and other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock
that then shared in the earnings of the entity. Basic and diluted earnings
per share are not materially different for the years presented. A
reconciliation of the number of weighted average shares used in calculating
basic and diluted earnings per share is as follows (in thousands):
1999 1998 1997
-------- -------- --------
Weighted average number of common shares
outstanding--basic earnings per share 7,810 7,747 7,728
Effect of potentially dilutive shares outstanding 41 99 82
-------- -------- --------
Weighted average number of common shares
outstanding--diluted earnings per share 7,851 7,846 7,810
======== ======== ========
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The
statement establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as either an
asset or liability measured at its fair value. SFAS No. 133 requires that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a
company must formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting.
During 1999, SFAS No. 137 was issued which defers the effective date of
SFAS No. 133 until fiscal quarters of all fiscal years beginning after June
15,
F-12
38
2000. The Company will adopt this statement in the first quarter of 2001.
The Company has not yet quantified the impact of adopting SFAS No. 133 on
the consolidated financial statements. This statement could increase
volatility in earnings and other comprehensive income.
4. INCOME TAXES
The following summarizes the components of the income tax provision (in
thousands):
1999 1998 1997
-------- -------- --------
Current:
Federal $ 10 $ (38) $ (874)
State (239) 795 110
Foreign 1,058 1,316 340
Deferred:
Federal (3,533) 3,319 3,148
State (1,402) 215 415
Foreign 4,284 920 (989)
-------- -------- --------
Total income tax provision $ 178 $ 6,527 $ 2,150
======== ======== ========
The provision for income taxes differs from the amounts computed by applying
federal statutory rates due to the following (in thousands):
1999 1998 1997
-------- -------- --------
Provision computed at the federal statutory rate $ 587 $ 5,101 $ 1,548
State income taxes, net of federal income tax effects (1,083) 667 346
Insurance premiums, net of recovery 101 0 258
Amortization of goodwill 423 405 274
Earnings (losses) in jurisdictions taxed at rates different from
the statutory U.S. federal rate 1,024 (121) (166)
Equity income in affiliates, reflected net of tax (1,014) 0 0
Other, net 140 475 (110)
-------- -------- --------
Total income tax provision $ 178 $ 6,527 $ 2,150
======== ======== ========
The tax effect of significant temporary differences representing deferred tax
assets and liabilities at December 31, 1999 and 1998 is as follows (in
thousands):
F-13
39
1999 1998
-------- --------
Deferred tax assets:
Claims and insurance expense $ 19,729 $ 23,316
Accrued compensation expense 7,179 6,290
Postretirement benefits 5,045 4,567
Other liabilities not currently deductible 3,599 3,934
Tax carryforwards 15,516 9,625
Other, net 4,729 7,136
-------- --------
Total deferred tax assets 55,797 54,868
-------- --------
Deferred tax liabilities:
Prepaids currently deductible (5,704) (2,469)
Depreciation and amortization (65,115) (67,143)
Postemployment benefits (1,192) (299)
Other, net (5,076) (4,137)
-------- --------
Total deferred tax liabilities (77,087) (74,048)
-------- --------
Net deferred tax liabilities $(21,290) $(19,180)
======== ========
The Company has certain tax carryforwards available to offset future income
taxes consisting of net operating losses that expire from 2004 to 2019,
foreign tax credits that expire from 2001 to 2004, charitable contributions
that expire from 2002 to 2003, and alternative minimum tax credits that
have no expiration dates.
Management believes that a valuation allowance is not considered necessary
based on the Company's earnings history, the projections for future taxable
income, and other relevant considerations over the periods during which the
deferred tax assets are deductible.
The 1996 consolidated federal income tax return of the Company is presently
under examination by the Internal Revenue Service. The ultimate result of
the examination cannot be predicted at this time. In the opinion of
management, any additional tax liability resulting from the examination
would not have a material adverse impact on the consolidated financial
position or operating results of the Company.
5. LEASE COMMITMENTS
RELATED PARTIES
The Company leased office space through December 1997 from a related party
under a lease which was to expire in 2003. In the opinion of management,
the terms of this lease were as favorable as those which could be obtained
from unrelated lessors. On December 31, 1997, this space was sold to an
unrelated party, and a new and revised agreement was signed effective
January 1, 1998 which extends the lease term through 2007. Rental expense
under the noncancelable, related party lease amounted to approximately
$1,456,000 in 1997.
UNRELATED PARTIES
The Company leases equipment, office space, and certain terminal facilities
from unrelated parties under noncancelable operating lease agreements which
expire in various years through 2007. Rental expenses under these leases
amounted to approximately $9,118,000, $6,540,000, and $4,277,000 for the
years ended December 31, 1999, 1998, and 1997, respectively.
F-14
40
The Company also leases certain terminal facilities from unrelated parties
under cancelable leases (i.e., month-to-month terms). The total rental
expenses under these leases were approximately $3,686,000, $5,187,000, and
$2,198,000 for the years ended December 31, 1999, 1998, and 1997,
respectively.
During 1999, the Company entered into a sublease agreement with a third
party for a leased building obtained in connection with the Ryder
Automotive Carrier acquisition. The Company's commitment under the lease
expires in 2006. The sublease agreement with the third party expires in
2004. Total sublease income earned during 1999 was approximately $623,000.
Future minimum rental commitments and related sublease income under all
noncancelable operating lease agreements, excluding lease agreements that
expire within one year, are as follows as of December 31, 1999 (in
thousands):
SUBLEASE
COMMITMENTS INCOME
----------- ----------
2000 $ 10,479 $ 936
2001 10,368 961
2002 9,022 986
2003 8,403 1,011
2004 8,002 361
Thereafter 13,391 0
----------- ----------
Total $ 59,665 $ 4,255
=========== ==========
6. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1999 and 1998 (in
thousands):
1999 1998
---------- ----------
Revolving credit facility $ 140,000 $ 100,837
Senior notes 150,000 150,000
Senior subordinated notes 40,000 40,000
Other 286 3,005
---------- ----------
330,286 293,842
Less current maturities of long-term debt (185) (2,746)
---------- ----------
$ 330,101 $ 291,096
========== ==========
In September 1997, the Company issued $150,000,000 of Senior Notes through
a private placement. Subsequently, the Senior Notes were registered with
the Securities and Exchange Commission. The Senior Notes mature October 1,
2007 and bear interest at 8 5/8% annually. Interest on the Senior Notes is
payable semiannually in arrears on April 1 and October 1 of each year.
Borrowings under the Senior Notes are general unsecured obligations of the
Company. The Company's obligations under the Senior Notes are guaranteed by
substantially all of the subsidiaries of the Company (the "Guarantors").
Separate financial statements of the Guarantors are not provided herein as
(i) the Guarantors are jointly and severally liable for the Company's
obligations under the Senior Notes, (ii) the subsidiaries which are not
Guarantors are inconsequential to the consolidated operations of the
Company and its subsidiaries, and (iii) the net assets and earnings of the
Guarantors are substantially equivalent to the net assets and earnings of
the
F-15
41
consolidated entity, as reflected in these consolidated financial
statements. There are no restrictions on the ability of Guarantors to make
distributions to the Company.
The Senior Notes set forth a number of negative covenants binding on the
Company. The covenants limit the Company's 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).
Concurrent with the issuance of the Senior Notes, the Company closed on a
revolving credit facility (the "Revolving Credit Facility"). The Revolving
Credit Facility was subsequently amended and restated in January 2000. The
Revolving Credit Facility allows the Company to borrow under a revolving
line of credit and to issue letters of credit up to the lesser of
$230,000,000 or a borrowing base amount, as defined in the Revolving Credit
Facility. Annual commitment fees are due on the undrawn portion of the
commitment. Amounts outstanding under the Revolving Credit Facility mature
in 2002. The interest rate for the Revolving Credit Facility is, at the
Company's option, either (i) the bank's base rate, as defined, or (ii) the
bank's Eurodollar rate, as defined, as determined at the date of each
borrowing, plus an applicable margin.
Borrowings under the Revolving Credit Facility are secured by a first
priority security interest on assets (other than real estate) of the
Company and certain of its subsidiaries, including a pledge of stock of
certain subsidiaries. In addition, certain subsidiaries of the Company
jointly and severally guarantee the obligations of the Company under the
Revolving Credit Facility.
The Revolving Credit Facility sets forth a number of affirmative, negative,
and financial covenants binding on the Company. The negative covenants
limit the ability of the Company to, among other things, incur debt, incur
liens, make investments, make dividend or other distributions, or enter
into any merger or other consolidation transaction. The financial covenants
include the maintenance of a minimum consolidated net worth, compliance
with two leverage ratios and a coverage ratio, and limitations on capital
expenditures.
In February 1996, the Company issued $40,000,000 of senior subordinated
notes ("Senior Subordinated Notes") through a private placement. The Senior
Subordinated Notes mature February 1, 2003 and bear interest at 12%
annually. Proceeds from the Senior Subordinated Notes were used to reduce
outstanding company borrowings.
Future maturities of long-term debt are as follows at December 31, 1999 (in
thousands):
2000 $ 185
2001 101
2002 140,000
2003 40,000
2004 0
Thereafter 150,000
--------
$330,286
========
At December 31, 1999, the weighted average interest rate on borrowings
under the Revolving Credit Facility was 8.6%, and approximately $2,500,000
was committed under letters of credit. At December 31, 1999, the Company
had available borrowings under the Revolving Credit Facility of
approximately $83,000,000.
F-16
42
7. EMPLOYEE BENEFITS
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 United States, and the Pension Plan for Employees of
Allied Systems (Canada) Company and Associated Companies for management and
office personnel in Canada (the "Canada Plan") (collectively, the "Plans").
Under the Plans, benefits are paid to eligible employees upon retirement
based primarily on years of service and compensation levels at retirement.
Contributions to the Plans reflect benefits attributed to employees'
services to date and services expected to be rendered in the future. The
Company's funding policy is to contribute annually at a rate that is
intended to fund future service benefits at a level percentage of pay and
past service benefits over a 30-year period. At December 31, 1998,
participation in the Canada Plan was frozen.
The Company also provides certain health care and life insurance benefits
for eligible employees who retired prior to July 1, 1993 and their
dependents, except for certain employees participating in the Voluntary
Early Retirement Plan ("VERP"). Generally, the health care plan pays a
stated percentage of most medical expenses reduced for any deductibles and
payments by government programs or other group coverage. The life insurance
plan pays a lump-sum death benefit based on the employee's salary at
retirement. These plans are unfunded. Employees retiring after July 1, 1993
are not entitled to any postretirement medical or life insurance benefits.
In conjunction with the Ryder Automotive Carrier Group acquisition, the
Company took over a postretirement benefit plan to provide retired
employees with certain health care and life insurance benefits.
Substantially all employees not covered by union-administered medical plans
and who had retired as of September 30, 1997 are eligible for these
benefits. Benefits are generally provided to qualified retirees under age
65 and eligible dependents. Furthermore, the Company took over two defined
pension plans for a certain terminal. One of the plans benefit 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.
During 1998, the Company adopted SFAS No. 132, "Employers' Disclosures
about Pension and Other Postretirement Benefits." This statement requires
additional disclosure information on changes in plan assets and benefit
obligations. All disclosures related to the Company's pension and
postretirement benefit plans have been prepared in accordance with SFAS No.
132.
The change in the projected benefit obligation of the defined benefit
pension plans and the postretirement benefit plans consisted of the
following during fiscal 1999 and 1998 (in thousands):
F-17
43
DEFINED BENEFIT POSTRETIREMENT
PENSION PLANS BENEFIT PLANS
----------------------- ------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Change in benefit obligation:
Benefit obligation at beginning of
fiscal year $ 35,887 $ 31,886 $ 10,164 $ 10,642
Service cost 2,932 2,981 0 0
Interest cost 2,519 2,119 607 925
Foreign currency translation 348 (426) 0 0
Plan amendments and other (3,046) 2,219 (152) 98
Curtailment loss 0 1,092 0 790
Actuarial loss (gain) 4,536 (2,787) (696) (1,228)
Benefits paid (1,568) (1,197) (1,115) (1,063)
--------- --------- --------- ---------
Benefit obligation at end of fiscal year $ 41,608 $ 35,887 $ 8,808 $ 10,164
========= ========= ========= =========
The change in plan assets and funded status of the defined benefit pension
plans and the postretirement benefit plans consisted of the following
during fiscal 1999 and 1998 (in thousands):
DEFINED BENEFIT POSTRETIREMENT
PENSION PLANS BENEFIT PLANS
----------------------- ------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Change in plan assets:
Fair value of plan assets at beginning of
year $ 28,403 $ 26,673 $ 0 $ 0
Actual return on plan assets 3,415 1,539 0 0
Participants' contributions 0 162 0 0
Foreign currency translation 367 (382) 0 0
Employer contribution 1,159 1,608 1,115 1,063
Benefits paid (1,568) (1,197) (1,115) (1,063)
--------- --------- --------- ---------
Fair value of plan assets at end of year $ 31,776 $ 28,403 $ 0 $ 0
========= ========= ========= =========
Funded status $ (9,832) $ (7,484) $ (8,808) $ (10,164)
Unrecognized actuarial loss (gain) 5,347 4,469 (3,505) (1,185)
Unrecognized prior service cost 859 1,105 0 0
Unrecognized transition asset (168) (218) 0 0
--------- --------- --------- ---------
Accrued benefit cost $ (3,794) $ (2,128) $ (12,313) $ (11,349)
========= ========= ========= =========
F-18
44
DEFINED BENEFIT POSTRETIREMENT
PENSION PLANS BENEFIT PLANS
----------------------- ------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Amounts recognized in the consolidated balance sheets consist of:
Accrued liabilities $ (3,794) $ (2,128) $ (340) $ (184)
Postretirement benefit other than pension 0 0 (11,973) (11,165)
--------- --------- -------- ---------
$ (3,794) $ (2,128) $ (12,313) $ (11,349)
========= ========= ========= =========
The following assumptions were used in determining the actuarial present
value of the projected pension benefit obligation and postretirement
benefit obligation at December 31, 1999 and 1998:
DEFINED BENEFIT POSTRETIREMENT
PENSION PLANS BENEFIT PLANS
----------------------- ------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Weighted average discount rate 7.64% 6.84% 7.75% 7.00%
Weighted average expected long-term rate of return on
assets 9.20 9.29 N/A N/A
Weighted average rate of compensation increase 3.71 4.06 N/A N/A
The net periodic benefit cost recognized for the defined benefit pension
plans and the postretirement benefit plans includes the following
components at December 31, 1999 and 1998 (in thousands):
DEFINED BENEFIT POSTRETIREMENT
PENSION PLANS BENEFIT PLANS
----------------------- ------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Components of net periodic benefit cost:
Service cost $ 2,932 $ 2,981 $ 0 $ 0
Interest cost 2,519 2,119 607 925
Expected return on plan assets (2,642) (2,490) 0 0
Amortization of prior service cost 246 247 0 0
Amortization of transition asset (50) (52) 0 0
Curtailment loss (0) 1,092 0 790
Recognized actuarial loss (gain) 878 25 (41) (53)
--------- --------- -------- ---------
Net periodic benefit cost $ 3,883 $ 3,922 $ 566 $ 1,662
========= ========= ========= =========
As reflected in the net periodic benefit cost table above, for fiscal 1998,
the Company recognized an aggregate net curtailment loss of $1,882,000
related to the VERP offered to qualified nonunion employees in December
1998. The effect of the VERP was to increase the benefit obligation based
on the acceleration of years of credited service. This transaction is
recognized as a curtailment loss in accordance with SFAS No. 88, "Employer
Accounting for Settlements and Curtailments of Defined Benefit Pension
Plans."
F-19
45
The weighted average annual assumed rate of increase in the per capital
cost of covered benefits (i.e., health care trend rate) for the health
plans is 7.35% for 1998 and 7.15% for 1999, grading to 5.5% over five
years. The effect of a 1% increase in the assumed trend rate would have
increased the accumulated postretirement benefit obligation as of December
31, 1999 by approximately $231,000 The effect of this change on the
periodic postretirement benefit cost for 1999 would be approximately
$70,000.
At December 31, 1999, plan assets consisted primarily of U.S. and
international corporate bonds and stocks, convertible equity securities,
and U.S. and Canadian government securities.
A substantial number of the Company's employees are covered by
union-sponsored, collectively bargained multiemployer pension plans. The
Company contributed and charged to expense approximately $43,451,000,
$38,068,000, and $17,926,000 for the years ended December 31, 1999, 1998,
and 1997, respectively, for such plans. These contributions are determined
in accordance with the provisions of negotiated labor contracts and are
generally based on the number of man-hours worked.
Also, a substantial number of the Company's employees are covered by
union-sponsored, collectively bargained multiemployer health and welfare
benefit plans. The Company contributed and charged to expense approximately
$47,027,000, $44,796,000, and $22,402,000 in 1999, 1998, and 1997,
respectively, in connection with these plans. These required contributions
are determined in accordance with the provisions of negotiated labor
contracts and are for both active and retired employees.
401(K) PLAN
The Company has a 401(k) plan covering all of its employees in the United
States. The Company's administrative expense for the 401(k) plan was
approximately $110,000, $69,000, and $102,000 in fiscal years 1999, 1998,
and 1997, respectively. The Company contributes the lesser of 3% of
participant wages or $1,000 per year for each nonbargaining unit
participant of the plan. The Company contributed approximately $760,000,
$625,000, and $319,000 to the plan during the years ended December 31,
1999, 1998, and 1997, respectively.
EMPLOYEE STOCK PURCHASE PLAN
During December 1998, the Company approved an Employee Stock Purchase Plan
(the "ESPP"). The ESPP allows eligible employees, as defined, the right to
purchase common stock of the Company on a quarterly basis at 85% of the
lower of the fair market value on the first business day of the calendar
quarter or on the last business day of the calendar quarter. There are
350,000 shares of the Company's common stock reserved under the ESPP, of
which 71,000 shares were issued to employees during 1999.
8. COMMITMENTS AND CONTINGENCIES
The Company negotiates fixed rates with its customers for the delivery of
vehicles. The delivery rates are based on contract agreements that expire
at various dates through 2005. During 1999, the Company renegotiated rates
for the majority of its customers to adjust its contract pricing to reflect
the continuing trend toward shipments with larger vehicles.
The Company is involved in various litigation and environmental matters
relating to employment practices, damages, and other matters arising from
operations in the ordinary course of business. In the opinion of
management,
F-20
46
the ultimate disposition of these matters will not have a material adverse
effect on the Company's financial position or results of operations.
The Company has also been added as a defendant in a lawsuit (Gateway
Development & Manufacturing, Inc. vs. Commercial Carriers, Inc., et. al.)
pending in Supreme Court of Erie County, New York. In the lawsuit, the
plaintiff claims that the Company tortuously interfered with a business
transaction involving the plaintiff and one of the defendants. The Company
has moved to dismiss the lawsuit. The Company believes the case is without
merit and intends to vigorously defend this case. While the ultimate
resolution of this litigation cannot be determined, management does not
expect that the resolution of their proceeding will have a material adverse
effect on the Company's consolidated financial position or results of
operations.
The Company has entered into employment agreements with certain executive
officers of the Company. The agreements provide for compensation to the
officers in the form of annual base salaries and bonuses based on earnings.
The employment agreements also provide for severance benefits upon the
occurrence of certain events, including a change in control, as defined.
Approximately 86% of the Company's total labor force is covered by
collective bargaining agreements. Collective bargaining agreements
representing the majority of the total workforce were renewed during 1999
and expire in 2003.
9. REVENUES FROM MAJOR CUSTOMERS
Substantially all of the Company's revenues are realized through the
automotive industry.
In 1999, 1998, and 1997, approximately 75%, 73%, and 77%, respectively, of
the Company's revenues were derived from the three largest domestic
automobile manufacturers. In 1999, 1998, and 1997, General Motors
Corporation accounted for approximately 33%, 32%, and 22%, respectively, of
revenues, Ford Motor Company accounted for approximately 26%, 26%, and 41%,
respectively, of revenues, and Chrysler Corporation accounted for 16%, 15%,
and 14%, respectively, of revenues.
10. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
During 1998, the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 establishes
standards for reporting information about operating segments in annual
financial statements and requires reporting selected information about
operating segments in interim financial reports issued to stockholders.
The Company operates in one reportable industry segment: transporting
automobiles and light trucks from manufacturing plants, ports, auctions,
and railway distribution points to automotive dealerships. Geographic
financial information for 1999, 1998, and 1997 is as follows (in
thousands):
1999 1998 1997
----------- ----------- -----------
Revenues:
United States $ 902,364 $ 858,772 $ 425,090
Canada 178,945 168,027 156,440
----------- ----------- -----------
$ 1,081,309 $ 1,026,799 $ 581,530
=========== =========== ===========
F-21
47
1999 1998 1997
----------- ----------- -----------
Long-lived assets:
United States $ 352,556 $ 350,897 $ 333,061
Canada 71,747 74,971 76,205
----------- ----------- -----------
$ 424,303 $ 425,868 $ 409,266
=========== =========== ===========
Revenues are attributed to the respective countries based on the location
of the origination terminal.
11. STOCKHOLDERS' EQUITY
The Company has authorized 5,000,000 shares of preferred stock with no par
value. No shares have been issued, and therefore, there were no shares
outstanding at December 31, 1999 and 1998. The board of directors has the
authority to issue these shares and to fix dividends, voting and conversion
rights, redemption provisions, liquidation preferences, and other rights
and restrictions.
During 1999, the Company's board of directors authorized the repurchase of
up to 500,000 shares of the Company's outstanding common stock through
fiscal year 2000 in open market transactions. As of December 31, 1999 the
Company had repurchased 29,000 shares which are included as treasury stock
in the accompanying consolidated balance sheets.
The Company has a long-term incentive plan which allows the issuance of
grants or awards of incentive stock options, restricted stock, stock
appreciation rights, performance units, and performance shares to employees
and directors of the Company to acquire up to 650,000 shares of the
Company's common stock.
During 1999 and 1998, the Company granted 83,759 and 54,523 shares,
respectively, of restricted stock to certain employees of the Company. In
connection with the awards of the restricted stock, during 1999, 1998, and
1997, the Company recorded compensation expense of $33,000, $291,000, and
$286,000, respectively. Compensation expense is recorded over five years,
the vesting period of the restricted stock. During 1999, 1998, and 1997,
3,241, 5,282, and 8,000 shares, respectively, of restricted stock were
canceled.
In addition, the Company has granted nonqualified and incentive stock
options under the long-term incentive plan. Options granted become
exercisable after one year in 20% or 33 1/3% increments per year and expire
ten years from the date of the grant.
F-22
48
WEIGHTED
AVERAGE
OPTION PRICE EXERCISE
SHARES (PER SHARE) PRICE
------------ ------------ ------------
Outstanding as of December 31, 1996 171,050 $9.00-$11.75 $ 9.51
Granted 10,000 $17.13 17.13
Exercised (17,495) $9.00-$11.75 9.42
Canceled (18,500) $9.00-$11.75 9.07
------------
Outstanding as of December 31, 1997 145,055 $9.00-$17.13 10.11
Granted 15,000 $10.38 10.38
Exercised (2,500) $ 9.50 9.50
Canceled 0 N/A N/A
------------
Outstanding as of December 31, 1998 157,555 $9.00-$17.13 10.14
Granted 170,000 $ 7.06 7.06
Exercised (2,750) $9.50-$11.75 9.70
Canceled (40,255) $9.50-$11.75 9.70
------------
Outstanding as of December 31, 1999 284,550 $7.06-$17.13 8.37
============
1999 1998 1997
--------- --------- ---------
Options exercisable at year-end 87,882 115,855 75,048
Weighted average exercise price of options exercisable at year-end $ 10.13 $ 9.85 $ 9.70
Per share weighted average fair value of
options granted during the year $ 3.86 $ 5.09 $ 8.27
The weighted average remaining contractual life of options outstanding at
December 31, 1999 was nine years.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," but applies Accounting
Principles Board Opinion No. 25 and related interpretations in accounting
for the long-term incentive plan. If the Company had elected to recognize
compensation cost for the long-term incentive plan based on the fair value
at the grant dates for awards under the plan, consistent with the method
prescribed by SFAS No. 123, net income and earnings per share would have
been changed to the pro forma amounts indicated below at December 31, 1999,
1998, and 1997 (in thousands, except per share data):
1999 1998 1997
--------- --------- ---------
Net income:
As reported $ 1,549 $ 8,477 $ 2,402
Pro forma 1,421 8,367 2,305
Earnings per share:
As reported:
Basic $ .20 $ 1.09 $ 0.31
Diluted .20 1.08 0.31
Pro forma:
Basic $ .18 $ 1.08 $ 0.30
Diluted .18 1.07 0.30
The fair value of the Company's stock options used to compute pro forma net
income and earnings per share disclosures is the estimated present value at
grant date using the Black-Scholes option pricing model with the following
weighted average assumptions for 1999, 1998, and 1997: dividend yield of
0%,
F-23
49
expected volatility of 55%, 49% and 34%, respectively, a risk-free interest
rate of 5.84%, 5.09% and 5.7%, respectively, and an expected holding period
of five years.
The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input
of highly subjective assumptions, including expected stock price
volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
1999
------------------------------------------------------
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
------------------------------------------------------
Revenues $ 261,249 $ 286,984 $ 240,058 $ 293,018
Operating income (loss) 30 14,741 (734) 15,846
Net (loss) income (4,005) 4,132 (3,823) 5,245
Basic and diluted net (loss) income per share (.51) .53 (.49) .67
Average shares outstanding:
Basic 7,790 7,792 7,818 7,842
Diluted 7,790 7,800 7,818 7,859
Stock prices:
High $ 14.438 $ 9.563 $ 9.313 $ 7.688
Low 9.563 6.500 6.063 5.000
1998
------------------------------------------------------
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
------------------------------------------------------
Revenues $ 253,390 $ 280,641 $ 217,468 $ 275,300
Operating income (loss)* 6,787 19,324 (3,418) 15,187
Net income (loss)* 690 7,697 (4,960) 5,050
Net income (loss) per share:*
Basic $ 0.09 $ 0.99 $ (0.64) $ 0.65
Diluted 0.09 0.98 (0.64) 0.65
Average shares outstanding:
Basic 7,746 7,748 7,748 7,748
Diluted 7,746 7,861 7,748 7,829
Stock prices:
High $ 22.500 $ 22.313 $ 21.938 $ 16.750
Low 18.000 17.750 10.250 11.375
*The Company's second and third quarter earnings were impacted by
an eight-week work stoppage at most General Motors manufacturing
plants. Also, during the fourth quarter, the Company expensed
approximately $2 million for the VERP.
F-24
50
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Allied Holdings, Inc.:
We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements included in ALLIED
HOLDINGS, INC.'S 1999 annual report to stockholders and this Form 10-K, and
have issued our report thereon dated February 11, 2000. Our audit was made for
the purpose of forming an opinion on those financial statements taken as a
whole. The schedule listed in Item 14 of this Form 10-K is the responsibility
of the Company's management, is presented for purposes of complying with the
Securities and Exchange Commission's rules, and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 11, 2000
S-1
51
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(In Thousands)
Additions
Balance at Charged To Balance
Beginning Costs and at End
Classification of Period Expenses Deductions Adjustments of Year
- --------------- ---------- ---------- ---------- ----------- -------
YEAR ENDED DECEMBER 31, 1999:
Allowance for doubtful accounts $1,545 $136 (173)(a) 0 $1,508
YEAR ENDED DECEMBER 31, 1998:
Allowance for doubtful accounts 2,078 201 (734)(a) 0 1,545
YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful accounts 564 159 (19)(a) 1,374(b) 2,078
(a) Write-off of uncollectable accounts.
(b) Balance assumed from the acquisition of Ryder
Automotive Carrier Group.
S-2