ITEM 1. BUSINESS.
1. General. Allied Holdings, Inc.(the "Company") is a holding company which operates through its wholly-owned subsidiaries. The principal subsidiary of the Company is the Allied Automotive Group, Inc. ("Allied Automotive Group"). The Allied Automotive Group is comprised of Allied Systems, Ltd. ("Allied Systems"), Auto Haulaway, Inc. ("Auto Haulaway"), Inter Mobile, Inc. ("Inter Mobile"), Legion Transportation, Inc. ("Legion") and Auto Haulaway Releasing Services (1981) Limited ("Releasing"). Allied Systems was formed effective January 1, 1988 by the combination of The Motor Convoy, Inc. ("Motor Convoy") and Auto Convoy, Co., Ltd. ("Auto Convoy"). The Company acquired all of the outstanding capital stock of Auto Haulaway on October 31, 1994 (the "Acquisition"). Allied Systems and Auto Haulaway are engaged in the business of transporting automobiles and light trucks from manufacturing plants, ports, auctions, and railway distribution points to automobile dealerships. Inter Mobile provides railroad terminal and loading services; Legion brokers automobile transportation services; and Releasing provides releasing services at Canadian manufacturing plants.
Axis Group, Inc. ("Axis"), a wholly owned subsidiary of the Company, provides logistics solutions to selected segments of the automotive market based on an underlying business philosophy of Move, Improve, Inform. This involves identifying new and innovative methods of distribution as well as better utilization of traditional and emerging technologies to help customers solve the most complex transportation, distribution, inventory management, and logistics problems. Axis is pursuing an increasing number of opportunities in the growing and evolving remarketed vehicle market, working with companies throughout the channel (such as used car superstores, leasing companies, financial institutions, and auctions) to develop and implement logistics solutions which are simple, consistent, cost-effective, time sensitive, and responsive to market changes. Axis is also working with major vehicle manufacturers as they begin redesigning their vehicle distribution systems to be more market responsive. Other markets and market segments being addressed by Axis are vehicle manufacturer service parts, aftermarket maintenance and repair parts, and international automotive projects.
In addition to the Allied Automotive Group and the Axis, the Company has three other operating subsidiaries that provide support services to the Company's subsidiaries. Allied Industries Incorporated provides administrative, financial, risk management, and other related services, Haul Insurance Limited is a captive insurance company, and Link Information Systems, Inc. ("Link") provides information systems hardware, software, and support.
The Company completed an initial public offering in October 1993 whereby it sold 3,225,000 shares of its common stock, resulting in net proceeds to the Company of $40,640,000 which were primarily used to retire debt and to redeem certain limited partnership interests in the Company (the "Offering").
On October 31, 1994, the Company acquired all of the outstanding capital stock of Auto Haulaway for an aggregate consideration of approximately $65 million; $30 million of which was paid in cash at closing and $35 million through the refinancing of existing debt of Auto Haulaway.
The Company was incorporated in the State of Georgia in 1934. The Company's executive offices are located at 160 Clairemont Avenue, Suite 510,
Decatur, Georgia 30030 and its principal telephone number is (404) 370-1100.
2. Introduction. The Company is the parent company of several subsidiaries engaged in the automotive distribution business, primarily the delivery of automobiles and light trucks. Allied Automotive Group is the second largest motor carrier in North America specializing in the delivery of automobiles and light trucks. Ford Motor Company, Inc. ("Ford") and Chrysler Corporation ("Chrysler") are the Company's largest customers, accounting for approximately 53% and 18%, respectively, of the Company's revenues during 1996. The Company hauled approximately 55% of Ford's North American production during 1996 and hauled approximately 46% of Chrysler's North American production. The Company has served Ford since 1934 and Chrysler since 1980.
Allied Automotive Group operates 50 terminals located near rail ramps, manufacturing plants, ports and auctions. Pursuant to contracts with domestic and foreign automobile manufacturers, Allied Automotive Group provides carrier services throughout the eastern half of the United States and all of Canada, with its terminals predominately located in the Southeastern, Northeastern, and Mid-Atlantic United States, Texas, and Missouri and in nine of the ten Canadian provinces and the two Canadian territories. Allied Automotive Group operates a fleet of approximately 2,000 modern, specialized tractor-trailers ("Rigs"). Allied Automotive Group operates primarily in the short-haul segment of the automobile transportation industry with an average length of haul of less than 200 miles.
In April 1996, the Company formed Axis as a wholly-owned subsidiary. Axis is pursuing opportunities in the remarketed finished vehicles market, including the used vehicle superstore segment. Axis is also working with major vehicle manufacturers on projects dealing with finished vehicle logistics systems in North America and other countries, plus pursuing entrance into the automotive service and after-market parts market. Axis is a primary sponsor of the International Car Distribution Program North American research project.
In July 1996, the Company moved its information systems group into a separate company, Link. The Company's strong industry reputation for its systems and increased reliance on information systems by the business and its customers, caused growth in this area. Link's plans include developing and marketing its services externally with systems capabilities, which complement the other subsidiaries of the Company.
3. Industry Overview. Allied Automotive Group was North America's second largest carrier of vehicles in 1996. The Company's operating results are directly related to new automobile and light truck sales, primarily by Ford, Chrysler and other manufacturers.
The following is a summary of North American automobile and light truck production, excluding Mexican production not sold in the United States or Canada, and United States and Canadian import sales for 1992 through 1996:
(1) Includes vehicle production in North American plants by foreign manufacturers and excludes Mexican production not sold in the United States or Canada. Source: Ward's Automotive Reports.
The following table shows the United States and Canadian market share of sales of automobiles and light trucks of the leading manufacturers:
Source: Ward's Automotive Reports.
Domestic automotive manufacturing plants are typically dedicated to manufacturing a particular model or models. Vehicles are usually shipped by rail to rail ramps throughout the United States and Canada where trucking companies handle final delivery to dealers. Vehicles destined for dealers within a radius of approximately 250 miles from the plant are usually shipped by truck. 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 transported into the United States and Canada by ship and usually delivered directly to dealers from seaports by truck or shipped by rail to rail ramps and delivered by trucks to dealers. Vehicles transported by ship are normally unloaded by stevedores and 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.
4. Competition. Since the 1950's, competition has been characterized by periods of stability, interrupted by periods of intense change and heightened competition. First, advances in multi-level rail cars allowed rail carriers to obtain a dominant position in the long-haul carriage of automobiles, one that continues. Then, in the 1970's, particularly as importers obtained a more significant share of U.S. automobile sales, new motor carriers, some without union contracts, began to compete for automobile traffic, even while rail carriers solidified their dominance over long haul. In some instances, these new carriers were created, or their creation facilitated, by importer interests.
Now, a confluence of a variety of changes has engendered a new era of heightened competition and a reduction in real freight charges by rail and motor carriers of automobiles. The elimination of I.C.C. regulation and collective ratemaking provided the basis upon which automobile manufacturer have been able to enhance their own competitiveness and profitability, as it relates to transportation of their products. By the mid-1980's, nearly all transportation was pursuant to contracts entered into by negotiation or competitive bid. The competition for these contracts has been vigorous with bids from rail and motor carriers and with motor carriers bidders including companies using Teamsters drivers, those using drivers who are members of other unions, those using non-union drivers, those using contractor drivers, and those using drivers obtained from third parties. The marketplace is so competitive that many negotiations and bids result in contracts which do not allow for recovery of increased costs of labor or fuel over the contract term and many of which offer initial rate reductions of varying magnitude.
Two other developments of recent vintage are now beginning to have an impact. The first is the rise in the use of third party logistics companies by auto makers. This is expected to convert further traffic to competitive bidding and ease entry for less well capitalized, less sophisticated haulers as the logistics companies provide the information systems and integrate, more comprehensively, the full distribution function. The second is the fundamental changes the automotive manufacturers are making to their finished vehicle distribution systems in order to expediate the delivery time of finished vehicles to the dealers. Manufacturers are creating vehicle mixing centers where rail traffic from numerous manufacturing plants are re-mixed for delivery to the closest railramp to the dealer. These mixing centers offer opportunity for longer haul business to be obtained through competitive bidding. In addition, manufacturers are creating new railramps in order to place vehicles in more central locations closer to the markets but off the dealer lots. These new rail ramps may reduce the average length of haul for motor carriers of autos. In metropolitan areas, competition for traffic from the railramps to the dealers could be very intense as local delivery carriers, equipment and driver leasing companies and driveaway operators may become new competitors for the traffic, with dealer pickup possibly expanding.
While there has been, and will continue to be, consolidation among the traditional motor carrier transporters of automobiles, particularly those using Teamster drivers, the trends also show growing competition from rail carriers and, importantly, from non-traditional sources.
The company expects that, through the development of further efficiencies and scale economies, it will respond to these new competitive forces. It is prepared to entertain acquisitions which enhance its efficiencies and competitiveness.
5. Strategy. The Company's mission is to meet its customers' needs by being the leading provider of the highest quality and most cost effective automotive distribution services. The Company's business strategy is to capitalize on its established position and reputation to increase its volume of business with existing customers and to attract business from customers with which it has not previously done business.
The Company is making a major commitment to the logistics business, having been encouraged by major manufacturers to help with their transportation logistics both in North America and internationally. The Company's relationship with the manufacturers, its industry leadership in information systems, and its skill base have uniquely positioned the Company to provide logistics services for vehicle distribution in the growing out source logistics market.
In addition to internal growth, the Company intends to seek strategic acquisitions of logistics skills based companies and other companies engaged in the automotive distribution industry.
6. Customer Relationships. Ford is the largest customer of the Company, accounting for approximately 53% of the Company's revenues in 1996. In addition to Ford, Chrysler accounted for approximately 18% of 1996 revenues. Other companies for which the Company provides transportation services include Mazda Motor of America (Central), Inc., Nissan North America, Inc., Honda Motor Co., General Motors Corporation, and Toyota Motor Sales USA, Inc., among others.
In the United States and Canada, Allied Automotive Group and Ford have a five year agreement through May 1999. The agreement then continues month-to-month thereafter unless cancelled upon 30 days' written notice. The agreement provides that the Allied Automotive Group is the primary carrier from 24 locations in the United States and all of Ford's Canadian locations and provides the applicable rates. If performance of the agreement has been made "impracticable" by any unforeseen contingency, the agreement contains a provision permitting it to be renegotiated, or terminated upon failure to renegotiate, by either party.
The Allied Automotive Group and Chrysler Corporation have a contract through June 30, 2000. The contract provides for the Allied Automotive Group to be the primary carrier for 26 locations throughout the United States and Canada and provides the applicable rates.
7. Employees. As of December 31, 1996 the Company had approximately 3,600 employees, approximately 2,300 of whom are drivers for the Allied Automotive Group. All Allied Automotive Group drivers and shop and yard personnel, approximately 3,000 employees, are union labor represented by the various labor unions. The compensation and benefits paid by Allied Automotive Group to union employees are established by union contracts. These employee amounts include approximately 200 owner-operators who deliver exclusively for Auto Haulaway. The owner-operators are either paid a percentage of the revenues they generate or they receive normal driver pay plus a truck allowance.
The Master Agreement with the Teamsters Union to which Allied Systems, along with other carriers in the United States which in the aggregate transport more than 95% of all new vehicles are signatories, is for the period June 1, 1995 through May 31, 1999 and applies to Allied System's drivers and shop and yard personnel. The obligations of each of the signatory employers under the agreement are binding on any successors in the event of any merger, sale, change of control or other form of business transfer.
In Canada, Auto Haulaway's drivers and shop and yard personnel, including owner-operators, operate under collectively bargained contracts with the Teamsters Union. There are four different labor agreements, each covering certain of the Canadian provinces and territories. The labor contract for union employees in the province of British Columbia expired December 31, 1996. The Company is currently renegotiating the contract and the employees are operating under the provisions of the existing contract until a new agreement is finalized. The Company does not anticipate any stoppage of work prior to the renegotiation of a new contract. The three remaining labor contracts expire at various dates from May 31, 1998 to March 31, 2000.
Employee benefits for United States non-union employees include a defined benefit pension plan, a 401(k) plan, life insurance, a medical plan and disability coverage which provides benefits equal to two-thirds of the employee's annual compensation up to age 65.
Employee benefits for Canadian non-union employees include, a defined benefit pension plan, life insurance, a medical plan and disability coverage which provides benefits equal to 70% of the employee's monthly compensation up to a maximum of $10,000 monthly.
The Company believes its employee relations are good.
ITEM 2.
ITEM 2. PROPERTIES.
The Company's executive offices are located in Decatur, Georgia, a suburb of Atlanta, in an office building owned by a partnership controlled by officers and directors of the Company. The Company leases approximately 62,493 square feet of space for its executive offices, which is sufficient to permit the Company to conduct its operations. The Company operates from 50 terminals which are located at or near manufacturing plants, ports, and railway terminals. The Company currently owns 14 of its terminals and 3 shop facilities. 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. This has increased load factors and improved operating efficiency by permitting Allied Automotive Group to haul more vehicles with fewer Rigs and employees. Allied Automotive Group has worked closely with manufacturers to develop specialized equipment to efficiently meet the specific needs of manufacturers.
Allied Automotive Group's fleet consists of approximately 2,000 Rigs, of which approximately 99% in the United States and 85% in Canada are 75 foot models. 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. When possible, Allied Automotive Group modifies its trailers to lengthen them which costs substantially less than purchasing new Rigs. A Rig, consisting of a tractor and a trailer, usually stays together throughout the life of the Rig.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings pending or threatened against the Company. 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 maintains insurance which it believes is adequate to cover its liability risks.
ITEM 4.
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 Company's executive officers:
Robert Rutland has been Chairman and Chief Executive Officer of the Company since December 1995. 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 President and Chief Operating Officer of the Company since December 1995. Prior to December 1995, Mr. Poole served as Executive Vice President and Chief Financial Officer of the Company. Mr. Poole joined Allied Systems in 1988 as Senior Vice President and Chief Financial Officer. He was appointed President of Allied Industries Incorporated in December 1990 and continues to serve in such capacity. 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. Wilson has been Vice President of the Company since October 1993 and
Vice Chairman of the Board of Directors and Secretary since December 1995. Prior to October 1993, Mr. Wilson was an officer or Vice Chairman of several of the Company's subsidiaries. Mr. Wilson joined the Company in 1974 and has held various finance, administration, and operations positions.
Mr. Rutland, IV has been Vice President of the Company since October 1993 and Vice President - Reengineering Core Team of Allied Automotive Group, Inc., since November 1996. 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 was appointed as a director of the Company in December 1995. Mr. Collier has been the President of Allied Automotive Group, Inc. since December 1995. 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. Cartin has been President of Axis Group since October 1995. From April 1995 to October 1995 Mr. Cartin was Vice President of Allied Industries. Mr. Cartin has 20 years of international senior management level expertise in providing third party integrated supply chain logistics solutions. Prior to joining the Company, he held a number of positions over a 13 year period at National Freight Consortium (NFC).
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. 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 Vice President, Finance of the Company since December 1995. 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.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded on the NASDAQ National Market tier of the NASDAQ Stock Market under the symbol HAUL. The common stock began trading on September 29, 1993. 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 12, 1997 there were approximately 2,000 holders of the Company's common stock. The Company has paid no cash dividends in the last two years.
ITEM 6.
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, 1996 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.
(1) Prior to the Company's initial public offering, Allied Systems, Ltd. as a limited partnership, and its general partners, as corporations, were subject to taxation under Subchapter S and did not pay federal or most state taxes. Accordingly, the Company's consolidated financial statements for the periods prior to the offering include a pro forma provision for income taxes.
(2) Effective January 1, 1993, the Company adopted the provisions of SFAS 106, "Employers Accounting for Postretirement Benefits Other Than Pensions." Adoption of this accounting standard resulted in a one-time, after pro forma tax, non-cash charge to earnings of $2,592,000.
ITEM 7.
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:
1996 Compared to 1995
Revenues were $392,547,000 in 1996 compared to $381,464,000 in 1995, an increase of $11,083,000, or 2.9%. The increase in revenues was primarily due to an increase in the number of vehicles delivered. The Company delivered approximately 5% more vehicles in 1996 compared to 1995. Additional revenues generated from the increase in vehicle deliveries were offset by a decrease in the revenue generated per vehicle delivered due to an increase in the percentage of shorter haul shuttle and city deliveries.
The operating ratio (operating expenses as a percentage of revenues) for 1996 was 95.3%, compared to 94.5% in 1995. The increase was primarily due to planned start-up costs for the Axis Group together with increased fuel costs and an increase in the percentage of light trucks hauled by the Allied Automotive Group which led to lower load averages and increased costs.
Salaries, wages and fringe benefits increased from 51.4% of revenues in 1995 to 52.2% of revenues in 1996. This change as a percent of revenues is primarily due to the addition of payroll costs for the Axis Group, inefficiencies and increased costs resulting from the General Motors strike during March and again during October and the severe winter weather during the first quarter of 1996.
Operating supplies and expenses as a percentage of revenues decreased from 16.3% in 1995 to 16.0% in 1996. Operating supplies and expenses have decreased despite the rise in diesel fuel prices. This decrease is primarily due to an increase in the units delivered by owner-operators combined with the use of newer, more efficient equipment
which has reduced the costs to operate the Company's Rigs and has increased fuel efficiency. Owner-operators are responsible for all costs to operate their Rigs and such costs are included in purchased transportation. In addition, the Company has implemented productivity and efficiency programs that have reduced operating expenses.
Purchased transportation has increased from 8.4% of revenues in 1995 to 8.8% in 1996. This is mainly due to an increase in the number of units hauled by owner-operators and by other carriers for the Company as part of an exchange program to improve the backhaul ratio.
Interest expense for the year ended December 31, 1996 decreased to $10,720,000 compared to $11,260,000 in 1995. This decrease is primarily the result of reductions in long-term debt during the year due to debt repayments.
The effective tax rate increased from approximately 41% of pre-tax income in 1995 to approximately 42% of pre-tax income in 1996. This increase was due to higher state taxes.
1995 Compared to 1994
Revenues were $381,464,000 in 1995 compared to $297,236,000 in 1994, an increase of $84,228,000 or 28.3%. The significant increase in revenues was primarily attributable to the acquisition of Auto Haulaway which was completed in October 31, 1994. Auto Haulaway contributed revenues amounting to $123,426,000 in 1995. The additional revenues gained from the acquisition of Auto Haulaway were offset by decreased revenues from the Company's U. S. operations due to a decrease in vehicles delivered arising from a weaker U.S. auto market compared to 1994.
The operating ratio for 1995 was 94.5%, compared to 90.3% in 1994. The increase was primarily due to decreases in vehicles delivered because of decreases in new vehicle production and sales. U. S. car and light truck sales for 1995 decreased approximately 2% from 1994 and Canada's car and light truck sales were approximately 7% below that of 1994. In addition, 1995 new vehicle production in Canada for Auto Haulaway's largest customer decreased approximately 22% from 1994, mainly due to model changeovers. New vehicle production in the U.S. and Canada during 1995 was impacted by numerous model changeovers as well as slower than expected ramp-up of production after the model changeovers at two of the Company's primary customers. As a result of the decline in new vehicle production and sales, the number of vehicles delivered by Auto Haulaway during 1995 decreased 13% compared to 1994.
Salaries, wages and fringe benefits decreased from 53.1% of revenues in 1994 to 51.4% of revenues in 1995. This decrease as a percentage of revenue is primarily because Auto Haulaway utilizes approximately 200 owner-operators. Owner-operators are either paid a percentage of the revenues they generate or they receive normal driver pay plus a truck allowance, and amounts earned by the owner-operators are included as purchased transportation expense. Prior to the acquisition of Auto Haulaway, all of the Company's drivers were employees of the Company.
Operating supplies and expenses as a percentage of revenues decreased from 17.3% in 1994 to 16.3% in 1995. This decrease is primarily attributable to the inclusion of a full year of Auto Haulaway's operating results as Auto Haulaway's owner-operators are responsible for all costs to operate their Rigs, so the operating supplies and expenses related to the vehicles delivered by the owner-operator are greatly reduced.
Purchased transportation has increased from 3.2% of revenues in 1994 to 8.4% in 1995. As discussed above, this increase is the result of Auto Haulaway utilizing owner-operators to deliver vehicles.
Depreciation and amortization expense increased from 5.5% of revenues in 1994 to 6.7% of revenues in 1995 mainly due to the acquisition of additional Rigs together with the additional goodwill amortization resulting from the acquisition of Auto Haulaway.
Interest expense for the year ended December 31, 1995 increased to $11,260,000 compared to $5,462,000 in 1994. This increase was due to the increase in long-term debt resulting from the acquisition of Auto Haulaway and due to a rise in interest rates.
The effective tax rate increased from approximately 40% of pre-tax income in 1994 to approximately 41% of pre-tax income in 1995. This increase was due to higher effective tax rates in Canada.
Liquidity and Capital Resources
On October 31, 1994, the Company acquired all of the capital stock of Auto Haulaway for approximately $30 million. In connection with the Acquisition, the Company refinanced approximately $35 million of Auto Haulaway's long-term debt. The source of funds utilized for the payment of the purchase price and the debt refinancing was borrowings under the Company's revolving credit agreement and available cash on hand.
The Company's sources of liquidity are funds provided by operations and borrowings under credit agreements with financial institutions.
Net cash provided by operating activities totaled $39,621,000 for 1996 and $30,062,000 for 1995. This increase in cash flows from operations is mainly due to changes in working capital.
Net cash used in investing activities totaled $33,026,000 and $18,031,000 for 1996 and 1995, respectively. This increase was primarily due to an increase in the number of new rigs that were acquired, modifications of existing equipment, and renovations and additions to terminal and maintenance facilities. This increase is also due to the Company investing funds held by its captive insurance company in short term investments.
Net cash used in financing activities was $15,689,000 for 1996 versus $12,779,000 during 1995. These amounts include repayments of long-term debt of $57,691,000 in 1996 and $11,952,000 in 1995. During the first quarter of 1996, the Company issued $40,000,000 of senior subordinated notes, the proceeds of which were used to repay long-term debt.
In February 1996, The Company issued $40,000,000 of senior subordinated notes ("Senior Notes") through a private placement. The Senior Notes mature February 1, 2003 and bear interest at 12% annually. Proceeds from the Senior Note were used to reduce borrowing under the Company's revolving credit and term loan agreement (the "Agreement"). In connection with the issuance of the Senior Notes, the Company refinanced the Agreement (the "Refinancing") to provide for the Senior Notes. In addition, a floating rate installment note payable in the amount of approximately $8,909,000 was amended and refinanced to allow for the Senior Notes, and the interest rate was changed from prime plus 2% to the LIBOR rate plus 2.25%.
The Agreement enables the Company to borrow up to the lesser of $130,000,000 or the borrowing base amount, as defined in the Agreement. After the refinancing, annual commitment fees are .375% of the undrawn portion of the commitment. Amounts outstanding under the revolving portion of the Agreement, after giving consideration to the refinancing, mature February 1998, subject to one-year extensions, at which
time the balance outstanding converts into a term loan which matures four years after the maturity date of the revolving portion of the Agreement. The interest rate for the Agreement 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.
At December 31, 1996, the Company had a working capital surplus of approximately $708,000 compared to the 1995 working capital surplus of $7,164,000. The decrease is mainly due to the utilization of working capital to repay long-term debt. The Company believes that available borrowing under the revolving credit agreement, available cash and internally generated funds will be sufficient to support its working capital requirements for the foreseeable future.
Seasonality and Inflation
The Company generally experiences its highest revenues during the second and fourth quarters of each calendar year due to the shipment of new models and because the first and third quarters are impacted by manufacturing plant downtime. During the past three years, inflation has not significantly affected the Company's results of operations.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements and supplementary data are set forth on page of this Report.
ITEM 9.
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.
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.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference to the Company's Proxy Statement.
ITEM 12.
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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated by reference to the Company's Proxy Statement.
PART IV
ITEM 14.
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:
(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, 1996, 1995 and 1994........................... 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 - None.
(c) Exhibits;
Exhibit Index filed as part of this report 22
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(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.
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 26, 1997 By: /s/ Robert J. Rutland ------------------------------------- Robert J. Rutland, Chairman and Chief Executive Officer
Date: March 26, 1997 By: /s/ Mitchell Poole, Jr. ------------------------------------- A. Mitchell Poole, Jr., President and Chief Operating Officer
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND 1995 TOGETHER WITH AUDITORS' REPORT
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, 1996 and 1995 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, 1996. 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 generally accepted auditing standards. 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, 1996 and 1995 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia February 4, 1997
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
ASSETS
The accompanying notes are an integral part of these consolidated balance sheets.
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The accompanying notes are an integral part of these consolidated statements.
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS)
The accompanying notes are an integral part of these consolidated statements.
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS)
The accompanying notes are an integral part of these consolidated statements.
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
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 subsidiary of the Company is Allied Automotive Group, Inc. ("Allied Automotive Group"), a Georgia corporation. Allied Automotive Group is comprised of Allied Systems, Ltd. ("Allied Systems"), a Georgia limited partnership, Auto Haulaway, Inc. ("Auto Haulaway"), an Ontario, Canada corporation, Inter Mobile, Inc. ("Inter Mobile"), Legion Transportation, Inc. ("Legion"), and Auto Haulaway Releasing Services (1981) Limited ("Releasing"). Allied Systems and Auto Haulaway are engaged in the business of transporting automobiles and light trucks from manufacturing plants, ports, auctions, and railway distribution points to automobile dealerships. The Company acquired all of the outstanding capital stock of Auto Haulaway on October 31, 1994 (Note 2). Currently, Inter Mobile, Legion, and Releasing are not significant to the consolidated financial position or results of operations of the Company.
During 1996, the Company incorporated Axis Group, Inc. ("Axis Group"). Axis Group provides logistics solutions to the finished vehicle, service, and aftermarket parts segments of the automotive market. Axis Group identifies new and innovative methods of distribution as well as better use of traditional and emerging technologies to help customers solve the most complex transportation, inventory management, and logistics problems.
The Company has three other operating subsidiaries, Allied Industries, Inc. ("Allied Industries"), Haul Insurance Limited ("Haul"), and Link Information Systems, Inc. ("Link"). These subsidiaries provide services to Allied Systems, Auto Haulaway, and the other subsidiaries of the Company. Allied Industries provides administrative, financial, risk management, and other related services. During December 1995, the Company incorporated Haul as a captive insurance company. Haul was formed for the purpose of insuring general liability, automobile liability, and workers' compensation for the Company. Link, which was incorporated in 1996, provides information systems hardware, software, and support.
2. ACQUISITION OF AUTO HAULAWAY
On October 31, 1994, the Company acquired all of the outstanding capital stock of Auto Haulaway for approximately $30 million. The acquisition has been accounted for under the purchase method, and accordingly, the operating results of Auto Haulaway have been included in the accompanying financial statements since the date of the acquisition.
In connection with the acquisition, the Company refinanced approximately $35 million of Auto Haulaway's long-term debt which resulted in an extraordinary loss on the extinguishment of the debt of approximately $2.6 million, net of income taxes of approximately $2.1 million. The source of funds utilized for the payment of the purchase price and the debt refinancing were borrowings under the Company's revolving credit agreement and available cash on hand.
The following unaudited pro forma results of operations for the year ended December 31, 1994 assume that the acquisition of Auto Haulaway had occurred on January 1, 1994. The pro forma results are not necessarily indicative of what actually would have occurred if the acquisition of Auto Haulaway had been consummated on January 1, 1994. In addition, they are not intended to be a projection of future results and do not reflect any synergies that might be achieved from combined operations (in thousands, except per share data).
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 Canadian 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 a separate component of 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.
PREPAYMENTS AND OTHER CURRENT ASSETS
Prepayments and other current assets consist of the following at December 31, 1996 and 1995 (in thousands):
TIRES ON TRACTORS AND TRAILERS
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, 1996 and 1995 is as follows (in thousands):
GOODWILL
The acquisition of Auto Haulaway resulted in goodwill of approximately $23,425,000. Goodwill related to the acquisition is being amortized on a straight-line basis over 20 years. Other goodwill is being amortized on a straight-line basis over ten years. Amortization (included in depreciation and amortization expense) for the years ended December 31, 1996, 1995, and 1994 amounted to approximately $1,541,000, $1,407,000, and $607,000, respectively. Accumulated amortization was approximately $5,623,000 and $4,082,000 at December 31, 1996 and 1995, respectively. The Company periodically evaluates the realizability of goodwill based upon expectations of nondiscounted cash flows and operating income for each subsidiary having a material goodwill balance. The Company believes no impairment of goodwill exists at December 31, 1996.
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 $4,127,000 and $2,146,000 of cash surrender value as of December 31, 1996 and 1995, 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 ("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.
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 securities, all classified as trading securities, which are carried at their fair value based upon 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 bank loans with similar terms and average maturities.
INTEREST RATE CAP AGREEMENTS
The Company has entered into several interest rate protection agreements which expire at various dates through February 1999. The agreements protect outstanding floating rate debt at varying amounts ranging from $47,000,000 in 1996 to $33,000,000 in 1999. Under the agreements, the Company is reimbursed when actual interest rates exceed a limit, as defined. The limit, based primarily upon the 90-day LIBOR, ranges from 6.5% to 8% over the protection period and certain of the agreements limit the reimbursement if actual LIBOR exceeds a specified rate. The fair value of the interest rate cap agreements is the amount at which they could be settled, based on estimates obtained from brokers.
The asset and (liability) amounts recorded in the balance sheet and the estimated fair values of financial instruments at December 31, 1996 consisted of the following (in thousands):
ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31, 1996 and 1995 (in thousands):
CLAIMS AND INSURANCE RESERVES
In the United States, the Company retains liability up to $500,000 for each claim for automobile, workers' compensation, 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 $250,000 aggregate deductible for those claims which exceed the $500,000 per occurrence deductible. 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. 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.
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).
EARNINGS PER SHARE
Earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding for the years presented. The dilutive effect of equivalent shares derived from stock options and restricted stock was less than 3% for 1996 and 1995, and therefore, the equivalent shares were not included in the computation of earnings per share.
RECLASSIFICATION
Certain amounts in the December 31, 1995 and 1994 financial statements have been reclassified to conform to the current year presentation.
4. INCOME TAXES
For all periods presented, the accompanying financial statements reflect provisions for income taxes computed in accordance with the requirements of SFAS No. 109.
The following summarizes the components of the income tax provision (in thousands):
The provision for income taxes differs from the amounts computed by applying federal statutory rates due to the following (in thousands):
The tax effect of significant temporary differences representing deferred tax assets and liabilities at December 31, 1996 and 1995 is as follows (in thousands):
The Company has certain tax carryforwards available to offset future income taxes consisting of net operating losses that expire from 2002 to 2012, foreign tax credits that expire from 2001 to 2002, and alternative minimum tax credits that have no expiration dates.
Management believes that a valuation allowance is not considered necessary based upon 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.
5. LEASE COMMITMENTS
RELATED PARTIES
Prior to December 1995, the Company leased automobiles and service trucks from a related party under leases generally having one-year to three-year lease terms at fixed monthly rental rates. In addition, the Company leases office space from a related party under a lease which expires in 2003. Rental expenses under these noncancelable leases amounted to approximately $1,030,000 in 1996, $1,652,000 in 1995, and $1,398,000 in 1994. In the opinion of management, the terms of these leases are as favorable as those which could be obtained from unrelated lessors.
UNRELATED PARTIES
The Company leases equipment and certain terminal facilities from unrelated parties under noncancelable operating lease agreements which expire in various years through 2003. Rental expenses under
these leases amounted to approximately $3,245,000, $1,796,000, and $454,000 in 1996, 1995, and 1994, respectively.
The Company also leases certain terminal facilities and revenue equipment from unrelated parties under cancelable leases (i.e., month-to-month terms). The total rental expenses under these leases were approximately $2,142,000, $1,965,000, and $1,973,000 for the years ended December 31, 1996, 1995, and 1994, respectively.
Future minimum rental commitments under all noncancelable operating lease agreements, excluding lease agreements that expire within one year, are as follows as of December 31, 1996 (in thousands):
6. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1996 and 1995 (in thousands):
In February 1996, the Company issued $40,000,000 of senior subordinated notes ("Senior Notes") through a private placement. The Senior Notes mature February 1, 2003 and bear interest at 12% annually. Proceeds from the Senior Notes were used to reduce
borrowings under the Company's revolving credit and term loan agreement (the "Agreement"). In connection with the issuance of the Senior Notes, the Company refinanced the Agreement (the "Refinancing") to provide for the Senior Notes. In addition, the floating rate installment note payable was amended and refinanced to allow for the Senior Notes, and the interest rate was changed from prime plus 2% to the LIBOR plus 2.25%.
The Agreement enables the Company to borrow up to the lesser of $130,000,000 or the borrowing base amount, as defined in the Agreement. After the Refinancing, annual commitment fees are .375% of the undrawn portion of the commitment. Amounts outstanding under the revolving portion of the Agreement, after giving consideration to the Refinancing, mature February 1998, subject to one-year extensions, at which time the balance outstanding converts into a term loan which matures four years after the maturity date of the revolving portion of the Agreement. The interest rate for the Agreement is, at the Company's option, either (1) the bank's base rate, as defined, or (2) the bank's Eurodollar rate, as defined, as determined at the date of each borrowing, plus an applicable margin.
The Agreement is unsecured and contains restrictive covenants which, among other things, limit indebtedness and distributions, require certain cash flow and leverage ratios to be maintained, and require a minimum consolidated tangible net worth, as defined.
After the Refinancing, and assuming that the extension of the revolving portion of the Agreement is not exercised, future maturities of long-term debt are as follows at December 31, 1996 (in thousands):
At December 31, 1996, the weighted average interest rate on borrowings under the revolving credit agreement was 7.3%, and approximately $8,520,000 was committed under letters of credit. At December 31, 1996, the Company had available borrowings under the Agreement of approximately $48,000,000.
Property and equipment with a net book value of approximately $10,348,000 at December 31, 1996 are secured as collateral under an installment note payable.
7. EMPLOYEE BENEFITS
PENSION 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 Auto Haulaway, Inc. and Associated Companies for management and office personnel in Canada (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 as a level percentage of pay and past service benefits over a 30-year period.
The following table sets forth the Plans' status and amounts recognized in the Company's balance sheets as of December 31, 1996 and 1995 (in thousands):
The net periodic pension cost consisted of the following components for the years ended December 31, 1996, 1995, and 1994 (in thousands):
At December 31, 1996, 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 $11,444,000, $10,916,000, and $8,350,000 for the years ended December 31, 1996, 1995, and 1994, 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.
401(K) PLAN
The Company has a 401(k) plan covering all of its employees in the United States. Prior to July 1, 1993, the Company did not contribute to this plan; however, the Company did incur the cost of administering this plan. The Company's administrative expense for the 401(k) plan was approximately $165,000, $160,000, and $221,000 in fiscal years 1996, 1995, and 1994, respectively. Beginning July 1, 1993, 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 $225,000, $225,000, and $183,000 to the plan during the years ended December 31, 1996, 1995, and 1994, respectively.
POSTRETIREMENT BENEFIT PLANS
The Company provides certain health care and life insurance benefits for eligible employees who retired prior to July 1, 1993 and their dependents. Generally, the medical 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. The plans are unfunded. Employees retiring after July 1, 1993 are not entitled to any postretirement medical or life insurance benefits.
The following table sets forth the status of the plan reconciled to the accrued postretirement benefit cost recognized in the Company's balance sheets at December 31, 1996 and 1995 (in thousands):
Net periodic benefit cost for 1996, 1995 and 1994 included the following components (in thousands):
Assumptions used in the computation of the accumulated postretirement benefit obligation and net periodic benefit cost are as follows:
If the health care cost trend rate were increased 1%, the accumulated postretirement benefit obligation as of December 31, 1996 would have increased by approximately $177,000. The effect of
this change on the periodic postretirement benefit cost for 1996 would be approximately $13,000.
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 $14,811,000, $13,723,000, and $11,700,000 in 1996, 1995, and 1994, 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.
8. COMMITMENTS AND CONTINGENCIES
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, 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 entered into employment agreements with certain executive officers of the Company. The agreements, which are substantially similar, 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.
9. REVENUES FROM MAJOR CUSTOMERS
Substantially all of the Company's trade receivables and revenues are realized through the automotive industry.
In 1996, 1995, and 1994, approximately 81%, 80%, and 77%, respectively, of the Company's revenues were derived from three customers, one of which, Ford Motor Company ("Ford"), accounted for approximately 53%, 52%, and 58% of revenues, respectively.
The Company had accounts receivable from Ford of approximately $8,964,000 and $8,081,000 at December 31, 1996 and 1995, respectively.
10. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment: transporting automobiles and light trucks from manufacturing plants, ports, auctions, and railway distribution points to automotive
dealerships. Prior to the acquisition of Auto Haulaway on October 31, 1994, the Company only operated in the United States. Auto Haulaway operates in Canada. Geographic financial information for 1996, 1995 and 1994 is as follows (in thousands):
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, 1996 and 1995. 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.
In addition, the Company adopted 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 400,000 shares of the Company's common stock.
During December 1996, the Company granted 85,000 shares of restricted stock to certain employees of the Company. In connection with the award of the restricted stock, the Company recorded $680,000 of unearned compensation in the accompanying balance sheets which will be amortized over five years, the vesting period of the restricted stock.
In addition, the Company has granted nonqualified 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. Approximately 41,867 options were exercisable at December 31, 1996.
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, 1996 and 1995 (in thousands, except per share data):
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 1996 and 1995: dividend yield of 0%, expected volatility of 34%, a risk-free interest rate of 5.7%, and an expected holding period of five years.
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
* During the first quarter of 1996, the Company recorded an extraordinary loss on extinguishment of debt of approximately $935,000, net of taxes.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Allied Holdings, Inc.:
We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in ALLIED HOLDINGS, INC.'S 1996 annual report to shareholders and this Form 10K, and have issued our report thereon dated February 4, 1997. 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' management, is presented for purposes of complying with the Securities and Exchange Commissions 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.
Atlanta, Georgia February 4, 1997
S-1 ALLIED HOLDINGS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
(a) Write-off of uncollectible accounts.
S-2