-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Smu9oDHbv54IRVPprfSkMI3pif+SGFjn4G2bYOALUflx4o9EeCTgIIBXu61cqlCz O6By/NZObqOvRj5dk7WyjA== 0000950144-97-009712.txt : 19970912 0000950144-97-009712.hdr.sgml : 19970912 ACCESSION NUMBER: 0000950144-97-009712 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970902 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19970902 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIED HOLDINGS INC CENTRAL INDEX KEY: 0000909950 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 580360550 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-22276 FILM NUMBER: 97673939 BUSINESS ADDRESS: STREET 1: 160 CLAIRMONT AVE STREET 2: STE 510 CITY: DECATUR STATE: GA ZIP: 30030 BUSINESS PHONE: 4043701100 MAIL ADDRESS: STREET 1: 160 CLAIREMONT AVENUE SUITE 510 CITY: DECATUR STATE: GA ZIP: 30030 8-K 1 ALLIED HOLDINGS, INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 Date of Report (Date of earliest event reported): September 2, 1997 (September 2, 1997) Allied Holdings, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Georgia 0-22276 58-0360550 - -------------------------------------------------------------------------------- (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 160 Clairemont Avenue, Suite 510, Decatur, Georgia 30030 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) 404/370-1100 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not applicable - -------------------------------------------------------------------------------- Former name or former address, if changed since last report) The Total Number of Pages in this Document is 31. 2 ITEM 5. Other Events On September 2, 1997, Allied Holdings, Inc. ("Allied" or the "Company") issued the press release filed herewith as Exhibit 99.1 in connection with its offering (the "Offering") of its Senior Notes Due 2007 (the "Notes"). As set forth in the press release, the net proceeds of the Offering, if consummated, will be used to fund the proposed acquisition (the "Acquisition") by the Company from Ryder System, Inc. ("Ryder System") of Ryder Automotive Carrier Services, Inc. and RC Management Corp (collectively "Ryder"). In connection with the Offering, the Company prepared a Preliminary Offering Memorandum which contains a pro forma financial statement of operations for the six months ended June 30, 1997 and for the year ended December 31, 1996, and a pro forma balance sheet as of June 30, 1997. These pro forma financial statements are set forth below. 2 3 ALLIED HOLDINGS, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA FINANCIAL INFORMATION The following unaudited pro forma financial information has been derived from the historical financial statements of the Company and Ryder, and gives pro forma effect to the Acquisition and the Offering as if they had occurred as of January 1, 1996 with respect to the unaudited condensed pro forma statements of operations and as of June 30, 1997 with respect to the unaudited condensed pro forma balance sheet. The unaudited pro forma financial information does not purport to represent what the Company's results of operations actually would have been if each of such transactions had occurred as of the dates indicated or will be for any future periods. The unaudited pro forma financial information is based upon assumptions believed appropriate by management of the Company and does not reflect all potential cost savings or improvements in revenues that the Company believes could be realized as a result of the Acquisition. However, there can be no assurance that any of these anticipated savings can be achieved or that the effects of any such savings will not be offset by unexpected, unforeseen increases in other costs. The Acquisition will be accounted for under the purchase method of accounting. The total purchase price for the Acquisition will be allocated to the assets and liabilities acquired based upon their relative fair values at the closing of the Acquisition, based upon valuation and other studies which are not yet complete. The allocation of the purchase price reflected herein is subject to revision when additional information from the valuations and studies become available. However, the Company does not expect that the effects of the final allocation will differ materially from those set forth herein. 3 4 ALLIED HOLDINGS, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1997 (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
ACQUISITION ADJUSTED OFFERING PRO FORMA RYDER(1) ADJUSTMENTS RYDER ALLIED ADJUSTMENTS COMBINED -------- ----------- -------- -------- ----------- ---------- REVENUES................... $315,156 $(2,663)(2) $315,696 $208,969 $ -- $524,665 3,203(3) -------- ------- -------- -------- -------- -------- OPERATING EXPENSES Depreciation and amortization.......... 19,818 (190)(2) 19,636 13,786 108(5) 33,530 8(3) Other operating expenses.............. 285,497 (2,637)(2) 286,013 183,733 (6,340)(6) 463,406 3,153(3) -------- ------- -------- -------- -------- -------- Total operating expenses....... 305,315 334 305,649 197,519 (6,232) 496,936 -------- ------- -------- -------- -------- -------- OPERATING INCOME........... 9,841 206 10,047 11,450 6,232 27,729 -------- ------- -------- -------- -------- -------- OTHER INCOME (EXPENSE) Interest expense......... (334) (1)(3) (335) (5,408) (6,089)(7) (11,832) Interest income.......... 1,228 (137)(2) 1,091 357 -- 1,448 Other income (expense), net................... 738 14(2) 752 -- -- 752 -------- ------- -------- -------- -------- -------- 1,632 (124) 1,508 (5,051) (6,089) (9,632) -------- ------- -------- -------- -------- -------- INCOME BEFORE INCOME TAXES.................... 11,473 82 11,555 6,399 143 18,097 INCOME TAX PROVISION....... 3,818 724(4) 4,542 2,688 914(4) 8,144 -------- ------- -------- -------- -------- -------- NET INCOME (LOSS).......... $ 7,655 $ (642) $ 7,013 $ 3,711 $ (771) $ 9,953 ======== ======= ======== ======== ======== ======== EARNINGS PER SHARE......... $ 0.48 $ 1.29 ======== ======== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING....... 7,725 7,725 EBITDA(8).................. $ 30,435 $ 25,236 $ 62,011 ======== ======== ========
See accompanying notes to unaudited pro forma financial information. 4 5 ALLIED HOLDINGS, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
ACQUISITION ADJUSTED OFFERING PRO FORMA RYDER(1) ADJUSTMENTS RYDER ALLIED ADJUSTMENTS COMBINED -------- ----------- -------- -------- ----------- --------- REVENUES................... $583,292 $(15,178)(2) $568,114 $392,547 $ -- $960,661 -------- -------- -------- -------- -------- -------- OPERATING EXPENSES Depreciation and amortization.......... 38,838 (718)(2) 38,120 26,425 115(5) 64,660 Restructuring charge..... 18,328 (7,023)(2) 11,305 -- -- 11,305 Other operating expenses.............. 543,315 (25,216)(2) 518,099 347,527 (12,678)(6) 852,948 -------- -------- -------- -------- -------- -------- Total operating expenses....... 600,481 (32,957) 567,524 373,952 (12,563) 928,913 -------- -------- -------- -------- -------- -------- OPERATING (LOSS) INCOME.... (17,189) 17,779 590 18,595 12,563 31,748 -------- -------- -------- -------- -------- -------- OTHER INCOME (EXPENSE) Interest expense......... (866) -- (866) (10,720) (12,179)(7) (23,765) Interest income.......... 895 (282)(2) 613 603 -- 1,216 Other income (expense), net................... 2,470 2(2) 2,472 -- -- 2,472 -------- -------- -------- -------- -------- -------- 2,499 (280) 2,219 (10,117) (12,179) (20,077) -------- -------- -------- -------- -------- -------- (LOSS) INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM..................... (14,690) 17,499 2,809 8,478 384 11,671 INCOME TAX (BENEFIT) PROVISION................ (1,256) 3,837(4) 2,581 3,557 127(4) 6,265 -------- -------- -------- -------- -------- -------- (LOSS) INCOME BEFORE EXTRAORDINARY ITEM....... $(13,434) $ 13,662 $ 228 $ 4,921 $ 257 $ 5,406 ======== ======== ======== ======== ======== ======== EARNINGS PER SHARE......... $ 0.64 $ 0.70 ======== ======== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING....... 7,725 7,725 EBITDA(8).................. $ 41,182 $ 45,020 $ 98,880 ======== ======== ========
See accompanying notes to unaudited pro forma financial information. 5 6 ALLIED HOLDINGS, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED) AS OF JUNE 30, 1997 (IN THOUSANDS)
ACQUISITION ADJUSTED OFFERING COMBINED RYDER(9) ADJUSTMENTS RYDER ALLIED ADJUSTMENTS PRO FORMA -------- ----------- -------- ---------- ----------- --------- ASSETS CURRENT ASSETS Cash and cash equivalents........ $ 6,047 $ 170(10) $ 1,217 $ 4,409 $ -- $ 5,626 (5,000)(11) Short-term investments........... -- -- -- 8,821 -- 8,821 Receivables, net of allowance for doubtful accounts.............. 46,396 650(10) 47,046 28,325 -- 75,371 Deferred income taxes............ 6,509 (293)(11) 11,608 -- -- 11,608 4,433(12) 959(13) Other current assets............. 17,552 (7,861)(11) 9,691 18,469 -- 28,160 -------- -------- -------- -------- --------- -------- Total current assets...... 76,504 (6,942) 69,562 60,024 -- 129,586 -------- -------- -------- -------- --------- -------- PROPERTY AND EQUIPMENT, net........ 161,299 46(10) 159,122 126,364 14,500(17) 299,986 (2,223)(11) -------- -------- -------- -------- --------- -------- OTHER ASSETS Goodwill, net.................... 42,550 -- 42,550 33,800 14,055(18) 90,405 Other............................ 10,862 (4,695)(11) 6,167 8,506 4,600(19) 19,273 -------- -------- -------- -------- --------- -------- Total other assets........ 53,412 (4,695) 48,717 42,306 18,655 109,678 -------- -------- -------- -------- --------- -------- Total assets.............. $291,215 $(13,814) $277,401 $228,694 $ 33,155 $539,250 ======== ======== ======== ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term debt........................... $ -- $ -- $ -- $ 8,248 $ -- $ 8,248 Trade accounts payable........... 21,246 710(10) 21,956 12,910 -- 34,866 Accrued liabilities.............. 57,657 50(10) 69,845 37,433 13,082(20) 120,360 (3,329)(11) 12,909(14) 2,558(15) -------- -------- -------- -------- --------- -------- Total current liabilities............. 78,903 12,898 91,801 58,591 13,082 163,474 -------- -------- -------- -------- --------- -------- LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current maturities....................... 805 -- 805 96,986 125,000(21) 222,791 DEFERRED INCOME TAXES.............. 26,300 765(11) 9,274 8,700 5,655(22) 23,629 (17,791)(12) OTHER LONG-TERM LIABILITIES........ 20,615 79(10) 65,665 4,260 (726)(23) 69,199 (1,419)(11) 46,390(14) STOCKHOLDERS' EQUITY............... 164,592 (54,736)(16) 109,856 60,157 (109,856)(23) 60,157(24) -------- -------- -------- -------- --------- -------- Total liabilities and stockholders' equity.... $291,215 $(13,814) $277,401 $228,694 $ 33,155 $539,250 ======== ======== ======== ======== ========= ========
See accompanying notes to unaudited pro forma financial information. 6 7 ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION (DOLLARS IN THOUSANDS) (1) Represents the historical results of operations of Ryder Automotive Carrier Services, Inc. ("RACS") for the period indicated. (2) Elimination of the operations of RACS not included in the Acquisition. (3) Addition of the operations of RC Management Corp. ("RCMC"), which will be acquired as part of the Acquisition. RCMC began operations in January 1997. (4) Reflects the income tax effect of the adjustments. (5) Reflects the net effect of the change in goodwill amortization expense related to the Acquisition, as follows:
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, 1996 ------------- ----------------- (a) Increased goodwill amortization expense based upon the preliminary purchase price allocation of the Acquisition, using the straight-line method over a 40-year life........................................... $ 708 $ 1,415 (b) Elimination of goodwill amortization expense from Ryder's operations..................................... (600) (1,300) ----- ------- $ 108 $ 115 ===== =======
(6) Represents elimination of the following costs: (a) Salaries and wages, rent expenses and other operating expenses to be eliminated as a result of closing duplicate terminals and offices. (b) Management and other fees allocated to Ryder by Ryder System which will not be incurred by Ryder under the Company's ownership. (7) Reflects interest expense at an assumed interest rate of 9 3/8% and amortization of deferred debt costs incurred in connection with the issuance of the Notes. A 1/8% increase in the assumed interest rate on the Notes would increase interest expense by approximately $78 and $156 for the six months ended June 30, 1997 and the year ended December 31, 1996, respectively. (8) Represents income before interest expense, interest income, income tax provision and depreciation and amortization. EBITDA is presented because it provides useful information regarding a company's ability to service and/or incur debt. EBITDA should not be considered in isolation from or as a substitute for net income, cash flows from operating activities and other consolidated income or cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. (9) Represents the historical assets and liabilities of RACS as of June 30, 1997. (10) Addition of the assets and liabilities of RCMC, which will be acquired as part of the Acquisition. (11) Elimination of the assets and liabilities of RACS not included in the Acquisition. (12) Deferred income tax assets and liabilities related to the assumption by Ryder of certain insurance liabilities from Ryder System as part of the Acquisition (see note 14). (13) Effect on deferred income taxes related to severance liability (see note 15). (14) Reflects the transfer to Ryder of certain insurance liabilities, including workers' compensation, post employment benefits other than pensions, and general liability, previously maintained on the books of Ryder System. (15) Severance liability related to termination of certain Ryder personnel in connection with the Acquisition. (16) Effect on stockholders' equity of pro forma adjustments to assets and liabilities as follows: (a) Insurance liabilities assumed from Ryder System, net of deferred taxes.............................................. $(37,075) (b) Severance liability assumed from Ryder System, net of deferred taxes.............................................. (1,599) (c) Assets and liabilities of RACS not acquired................. (16,089) (d) Assets and liabilities of RCMC acquired..................... 27 -------- Total effect on stockholders' equity........................ $(54,736) ========
(17) Write-up of Ryder property and equipment to fair market value. 7 8 (18) Adjustment to goodwill reflects: (a) Addition of goodwill related to the Acquisition............. $ 56,605 (b) Elimination of goodwill recorded by Ryder................... (42,550) -------- Total effect on goodwill.................................... $ 14,055 ========
(19) Estimated Offering expenses to be deferred and amortized over the life of the Notes. (20) Estimated additional liabilities incurred in connection with the Acquisition, including severance and Acquisition costs. (21) Reflects the issuance of the Notes. (22) Deferred income taxes, recorded at 39%, related to the write-up of Ryder property and equipment to fair market value. (23) Elimination of Ryder advances to affiliates and stockholders' equity. (24) Excludes an after-tax charge of approximately $5.0 million the Company intends to record upon completion of the Acquisition to write down Company rigs and terminal facilities that will be idled or closed as a result of the Acquisition. 8 9 ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial Statements of business acquired. The following financial statements of Ryder Automotive Carrier Services, Inc. and subsidiaries are attached hereto as Exhibit 99.2; Consolidated Balance Sheets as of December 31, 1995 and 1996 and the six months ended June 30, 1997; Consolidated Statements of Operations for the years ended December 31, 1994, 1995, and 1996 and the six months ended June 30, 1996 and 1997. Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995, and 1996 and the six months ended June 30, 1996 and 1997 (unaudited). Notes to Consolidated Financial Statements. (b) Pro Forma Financial Information (included in Item 5 of this Report). (c) Exhibits. 23.1 Consent of KPMG Peat Marwick LLP 99.1 Press release dated September 2, 1997. 99.2 Ryder Automotive Carrier Services, Inc. Consolidated Financial Statements as of December 31, 1994, 1995 and 1996 and the six months ended June 30, 1996 and 1997. 9 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. ALLIED HOLDINGS, INC. September 2, 1997 /s/ Daniel H. Popky ------------------------------------------ Daniel H. Popky, Vice President, Finance 10 11 INDEX TO EXHIBITS
Exhibit Number Description Page - -------------- ----------- ---- 23.1 Consent of KPMG Peat Marwick LLP --- 99.1 Press Release dated September 2, 1997 --- 99.2 Ryder Automotive Carrier Services, Inc. Consolidated Financial Statements as of December 31, 1994, 1995 and 1996 and the six months ended June 30, 1996 and 1997 ---
11 EX-23.1 2 CONSENT OF KPMG PEAT MARWICK 1 Exhibit 23.1 The Board of Directors Allied Holdings, Inc. We consent to the inclusion of our report dated February 28, 1997, with respect to the consolidated balance sheets of Ryder Automotive Carrier Services, Inc. and subsidiaries as of December 31, 1995 and 1996, and the related consolidated statements of operations, shareholder's equity, and cash flows for each of the years in the three-year period ended December 31, 1996, which report appears in the Form 8-K of Allied Holdings, Inc. dated September 2, 1997. This consent should not be regarded as in any way updating the aforementioned report or representing that we performed any procedures subsequent to the date of such report. KPMG PEAT MARWICK LLP Miami, Florida September 2, 1997 EX-99.1 3 PRESS RELEASE DATED SEPTEMBER 2, 1997 1 EXHIBIT 99.1 ALLIED HOLDINGS, INC. ANNOUNCES PRIVATE OFFERING OF SECURITIES Atlanta, Georgia (September 2, 1997) -- Allied Holdings, Inc. (Nasdaq: HAUL) announced today that it is commencing a private offering of its securities due 2007. The offering is expected to be resold by the initial purchasers pursuant to Rule 144A under the Securities Act of 1933, as amended. Allied will be offering $125 million aggregate principal amount of senior notes. The net proceeds from the offering will be used to fund the acquisition from Ryder System, Inc., of Ryder Automotive Carrier Services, Inc. and RC Management Corp. The senior notes to be sold in the offering will not and have not been registered under the Securities Act of 1933, as amended or any state's securities law or blue sky laws, and may not be offered or sold in the United States or in any state thereof absent registration or an applicable exemption from the registration requirements of such laws. Allied Holdings, Inc. is the parent company of several subsidiaries engaged in the automotive distribution business. The Allied Automotive Group is the second largest motor carrier in North America specializing in the delivery of automobiles and light trucks. The Automotive Group transports for all major domestic and foreign manufacturers primarily from manufacturing plants, rail ramps, ports and auctions to automobile dealers throughout the United States and Canada. The Axis Group, Inc. provides logistics solutions based on an underlying business philosophy of Move, Improve, Inform to the automotive market, both in the United States and internationally. This involves identifying new and innovative methods of distribution as well as better utilizing traditional and emerging technologies to help customers solve the most complex transportation, inventory management and logistics problems. 6 EX-99.2 4 RYDER CONSOLIDATED FINANCIAL STATEMENTS 1 EXHIBIT 99.2 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholder of Ryder Automotive Carrier Services, Inc.: We have audited the accompanying consolidated balance sheets of Ryder Automotive Carrier Services, Inc. and subsidiaries as of December 31, 1995 and 1996, and the related consolidated statements of operations, cash flows and shareholder's equity for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ryder Automotive Carrier Services, Inc. and subsidiaries as of December 31, 1995 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Miami, Florida February 28, 1997 F-1 2 RYDER AUTOMOTIVE CARRIER SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, ------------------- JUNE 30, 1995 1996 1997 -------- -------- ----------- (UNAUDITED) ----------- ASSETS Current assets: Cash...................................................... $ 4,558 $ 1,441 $ 6,047 Receivables, net.......................................... 43,945 39,404 46,396 Inventories............................................... 11,012 4,594 3,624 Deferred income taxes..................................... 5,653 7,620 6,509 Prepaid expenses and other current assets................. 13,768 12,813 13,928 -------- -------- -------- Total current assets.............................. 78,936 65,872 76,504 Revenue earning equipment, net.............................. 137,967 142,535 134,493 Operating property and equipment, net....................... 37,326 28,641 26,806 Goodwill.................................................... 40,113 43,266 42,550 Other assets................................................ 11,955 13,200 10,862 -------- -------- -------- Total Assets...................................... $306,297 $293,514 $291,215 ======== ======== ======== LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Accounts payable.......................................... $ 25,531 $ 22,700 $ 21,246 Accrued expenses and other current liabilities............ 53,116 59,452 57,657 -------- -------- -------- Total current liabilities......................... 78,647 82,152 78,903 -------- -------- -------- Deferred income taxes....................................... 28,685 26,992 26,300 Other non-current liabilities............................... 15,924 19,574 20,773 Advances (to) from Ryder.................................... 2,692 (2,154) 647 Shareholder's equity: Common stock and additional paid-in capital, $1 par value, 7,500 shares authorized, 1,000 shares issued and outstanding............................................ 157,335 157,384 157,384 Retained earnings......................................... 25,074 11,640 9,314 Translation adjustment.................................... (2,060) (2,074) (2,106) -------- -------- -------- Total shareholder's equity........................ 180,349 166,950 164,592 -------- -------- -------- Total Liabilities and Shareholder's Equity........ $306,297 $293,514 $291,215 ======== ======== ========
See accompanying notes to consolidated financial statements. F-2 3 RYDER AUTOMOTIVE CARRIER SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------ ------------------- 1994 1995 1996 1996 1997 -------- -------- -------- -------- -------- (UNAUDITED) Revenue..................................... $645,402 $594,446 $583,292 $297,945 $315,156 -------- -------- -------- -------- -------- Operating Expense: Salaries, wages and benefits.............. 321,363 293,145 301,276 153,981 166,290 Operating supplies and expenses........... 99,569 90,331 95,178 49,437 46,146 Purchased transportation.................. 61,988 63,596 62,670 30,853 38,080 Insurance and claims...................... 28,384 28,143 37,569 15,754 14,388 Depreciation and amortization............. 37,262 40,700 38,838 20,608 19,818 Rent expense.............................. 2,525 2,914 3,291 1,633 1,470 Communications and utilities.............. 4,651 4,934 5,727 2,823 3,344 Operating taxes and licenses.............. 27,247 24,715 23,976 12,444 11,136 Restructuring charges..................... -- -- 18,328 4,174 -- Other operating expense................... 12,563 9,730 13,628 5,616 4,643 -------- -------- -------- -------- -------- Total operating expense........... 595,552 558,208 600,481 297,323 305,315 -------- -------- -------- -------- -------- Operating income (loss)........... 49,850 36,238 (17,189) 622 9,841 -------- -------- -------- -------- -------- Other Income: Miscellaneous income, net................. 310 4,504 2,470 1,269 738 Interest income (expense)................. (82) 2,402 29 697 894 -------- -------- -------- -------- -------- 228 6,906 2,499 1,966 1,632 -------- -------- -------- -------- -------- Earnings (Loss) Before Income Taxes......... 50,078 43,144 (14,690) 2,588 11,473 Provision (Benefit) For Income Taxes........ 20,428 17,777 (1,256) 1,163 3,818 -------- -------- -------- -------- -------- Net Earnings (Loss)......................... $ 29,650 $ 25,367 $(13,434) $ 1,425 $ 7,655 ======== ======== ======== ======== ========
See accompanying notes to consolidated financial statements. F-3 4 RYDER AUTOMOTIVE CARRIER SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (IN THOUSANDS)
COMMON STOCK AND ADDITIONAL RETAINED TRANSLATION PAID-IN CAPITAL EARNINGS ADJUSTMENT TOTAL --------------- -------- ----------- -------- At December 31, 1993............................. $139,640 $ 24,794 $(1,744) $162,690 Net earnings................................... -- 29,650 -- 29,650 Dividend....................................... (13,229) (53,057) -- (66,286) Currency adjustment............................ -- -- (558) (558) -------- -------- ------- -------- At December 31, 1994............................. 126,411 1,387 (2,302) 125,496 Net earnings................................... -- 25,367 -- 25,367 Dividend....................................... -- (1,680) -- (1,680) Capital contribution........................... 30,924 -- -- 30,924 Currency adjustment............................ -- -- 242 242 -------- -------- ------- -------- At December 31, 1995............................. 157,335 25,074 (2,060) 180,349 Net loss....................................... -- (13,434) -- (13,434) Capital contribution........................... 49 -- -- 49 Currency adjustment............................ -- -- (14) (14) -------- -------- ------- -------- At December 31, 1996............................. 157,384 11,640 (2,074) 166,950 Net earnings................................... -- 7,655 -- 7,655 Dividend....................................... -- (9,981) -- (9,981) Currency adjustment............................ -- -- (32) (32) -------- -------- ------- -------- At June 30, 1997 (unaudited)..................... $157,384 $ 9,314 $(2,106) $164,592 ======== ======== ======= ========
See accompanying notes to consolidated financial statements. F-4 5 RYDER AUTOMOTIVE CARRIER SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------ ------------------- 1994 1995 1996 1996 1997 -------- -------- -------- -------- -------- (UNAUDITED) Cash flows from operating activities: Net earnings (loss)....................... $ 29,650 $ 25,367 $(13,434) $ 1,425 $ 7,655 Depreciation and amortization............. 37,262 40,700 38,838 20,608 19,818 Deferred income tax expense (benefit)..... (89) 2,861 362 257 324 Decrease (increase) in receivables........ 6,158 (2,334) 4,541 (12,876) (6,992) Decrease (increase) in inventories........ (2,912) (2,722) 6,418 4,190 970 Decrease (increase) in prepaid and other current assets......................... (4,267) (600) 955 (1,083) (1,115) Increase (decrease) in accounts payable... 13,185 (18,610) (2,831) (1,162) (1,454) Increase (decrease) in accrued expenses and other liabilities.................. (5,651) (9,250) 6,336 (10,556) (1,795) Increase in other non-current liabilities............................ 3,157 8,912 3,650 (12,135) 1,199 Other, net................................ (1,826) (6,173) 2,005 2,636 1,910 -------- -------- -------- -------- -------- 74,667 38,151 46,840 (8,696) 20,520 Cash flows from investing activities: Purchases of property and revenue earning equipment.............................. (43,789) (64,563) (45,222) (20,420) (10,035) Sales of property and revenue earning equipment.............................. 3,103 11,910 10,011 5,112 1,996 Other, net................................ 2,609 (5,606) 1,926 (637) (663) -------- -------- -------- -------- -------- (38,077) (58,259) (33,285) (15,945) (8,702) Cash flows from financing activities: Net increase (decrease) in advances from Ryder.................................. 29,163 (8,951) (16,721) 23,814 2,769 Dividends................................. (66,286) (1,680) -- -- (9,981) Capital contributions..................... -- 30,924 49 -- -- -------- -------- -------- -------- -------- (37,123) 20,293 (16,672) 23,814 (7,212) -------- -------- -------- -------- -------- Increase (decrease) in cash................. (533) 185 (3,117) (827) 4,606 Cash at beginning of period............... 4,906 4,373 4,558 4,558 1,441 -------- -------- -------- -------- -------- Cash at end of period....................... $ 4,373 $ 4,558 $ 1,441 $ 3,731 $ 6,047 ======== ======== ======== ======== ======== Summary of Noncash Activities: Contribution of goodwill from Ryder....... $ -- $ -- $ 7,853 $ 7,853 $ -- Increase in advances from Ryder........... -- -- 7,853 7,853 --
See accompanying notes to consolidated financial statements. F-5 6 RYDER AUTOMOTIVE CARRIER SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization. Ryder Automotive Carrier Services, Inc. ("RACS"), a Florida corporation and a wholly-owned subsidiary of Ryder System, Inc. ("Ryder"), is a holding company which operates through its wholly-owned subsidiaries. The principal subsidiaries of RACS are Ryder Automotive Operations, Inc. ("RAOI"), MCL Ryder Transport, Inc. ("MCL"), a Canadian corporation, QAT, Inc. ("QAT") and Blazer Truck Lines, Inc. (Blazer). RAOI is principally comprised of Commercial Carriers, Inc. ("CCI"), Ryder Freight Broker, Inc. and F. J. Boutell Driveaway Co., Inc. ("Boutell"). CCI, Boutell, QAT and MCL are engaged in the business of transporting automobiles and light and medium-duty trucks from manufacturing plants, ports and railway distribution points to other distribution points and automobile dealers. CCI also manufacturers equipment for RACS's use in the transportation and delivery of automobiles and trucks. Blazer provided inbound logistics to the automobile industry and was sold on February 28, 1997 (see Note 19). Basis of Presentation. The accompanying consolidated financial statements include the operations, assets and liabilities of Ryder Automotive Carrier Services, Inc. and subsidiaries (the "Company"). The financial statements do not include assets and liabilities of Ryder not specifically identifiable to the Company. Reserves for workers' compensation claims, postretirement benefits other than pensions, auto and general liability claims which are from $500,000 to $1,000,000 per occurrence and medical and dental claims are maintained by Ryder. The financial information included herein is not necessarily indicative of the financial position and results of operations or cash flows that would have occurred had the Company been an independent stand-alone entity during the periods presented, nor is it necessarily indicative of future results of the Company. All significant intercompany accounts and transactions have been eliminated. Revenue Recognition. Revenue is recorded by the Company when the vehicles are dispatched to the dealerships and other distribution points. Estimated direct costs to complete delivery of freight in-transit are accrued. All other expenses are recognized as incurred. Receivables. Receivables consist primarily of trade receivables resulting from vehicle shipments. Receivables are reduced by amounts considered by management to be uncollectible based on historical loss experience and review of the current status of existing receivables. Inventories. Inventories consist primarily of parts, materials and fuel as well as inventory related to the manufacturing of trailers and headramps. Inventories are stated at the lower of cost or market. Tires in Service. The Company allocates a portion of the acquisition costs of tractors and trailers to tires in service and amortizes this amount on a straight-line basis over seven years. The cost of replacement tires and tire repairs are expensed when incurred. Revenue Earning Equipment, Operating Property and Equipment and Depreciation. Revenue earning equipment, principally tractors and trailers, and operating property and equipment are stated at cost. Provision for depreciation is computed using the straight-line method on all depreciable assets. Annual straight-line depreciation rates are 14% for revenue earning equipment, 3% to 10% for buildings and improvements and 14% to 20% for furniture, fixtures and equipment. Effective January 1, 1995, the estimated residual values used to calculate the provision for depreciation on certain types of revenue earning equipment were changed to reflect recent experience. As a result of this change, depreciation expense was decreased by $2.2 million and $1.2 million for the years ended December 31, 1995 and 1996, respectively. Gains on sales of revenue earning equipment, net of vehicle disposition costs, are reported as reductions of other operating expense and totaled $0.8 million, $2.6 million and $0.1 million for the years ended December 31, 1994, 1995 and 1996, respectively, and $0.1 million for each of the six month periods ended F-6 7 RYDER AUTOMOTIVE CARRIER SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) June 30, 1996 and 1997. Gains on sales of operating property and equipment are also reflected in other operating expense. Goodwill. Goodwill is amortized on a straight-line basis over 40 years. Amortization (included in depreciation and amortization expense) amounted to approximately $1.3 million for each of the years in the three-year period ended December 31, 1996. Accumulated amortization was approximately $11.5 million at December 31, 1995 and 1996, respectively. During 1996, Ryder contributed $7.9 million in goodwill to the Company for acquisitions made in prior years. Impairment of Long-Lived Assets. Long-lived assets, including goodwill, used in the Company's operations are reviewed for impairment when circumstances indicate that the carrying amount of an asset may not be recoverable. The primary indicators of recoverability are the associated current and forecasted undiscounted operating cash flows. If management has made a decision to dispose of an asset or a group of assets, those assets are reported at the lower of carrying amount or the estimated fair value less costs to sell. Accrued Insurance and Loss Reserves. The Company participates in Ryder's overall risk management programs for vehicle and general liability, workers' compensation, property (including cargo) and other. The major programs are summarized as follows: Vehicle and general liability -- The Company has recorded reserves which reflect the Company's portion of the undiscounted estimated liabilities up to $500,000 per occurrence (plus allocated loss adjustment expense) and an estimate of claims incurred but not reported. For exposures from $500,000 to $1 million per occurrence, the Company is charged a premium by Ryder based on the Company's loss experience and the related liability is retained by Ryder. Costs associated with insurance premiums to third party insurance companies for coverage in excess of $1 million are charged by Ryder to the Company based on the Company's pro rata share of Ryder's revenue. Workers' compensation -- Ryder has recorded reserves which reflect the Company's portion of the undiscounted estimated workers' compensation liabilities up to $1 million per injury (plus allocated loss adjustment expense) and an estimate of claims incurred but not reported. The Company is billed by Ryder based on actuarial projections of expected losses. For losses in excess of $1 million per injury, Ryder has third party insurance coverage, the cost of which is charged by Ryder to the Company based on the Company's proportionate share of losses up to $1 million. At December 31, 1995 and 1996 and June 30, 1997 the workers' compensation reserves maintained by Ryder on the Company's behalf were $58.3 million, $47.1 million, and $46.2 million, respectively. Property, including cargo -- The Company has recorded reserves for estimated damages to transported vehicles. The accruals for these claims include both reported claims and an estimate of claims incurred but not reported for amounts up to $50,000 per occurrence. Damages in excess of $50,000 per occurrence are insured by a third party insurance company. Such liabilities, whether recorded as a liability by Ryder or the Company, are necessarily based on estimates and, while management believes that the amounts are adequate, there can be no assurance that changes to management's estimates may not occur due to limitations inherent in the estimation process. Changes in the estimates of these reserves are charged or credited to income in the period determined. For reserves recorded by the Company, amounts estimated to be paid within one year have been classified as accrued expenses with the remainder included in other non-current liabilities. Income Taxes. The Company has been included in consolidated income tax filings of Ryder for Federal and state income tax purposes. However, the income tax provisions included in the accompanying Consolidated Financial Statements have been determined as if the Company was an independent stand-alone entity filing separate income tax returns. F-7 8 RYDER AUTOMOTIVE CARRIER SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred taxes are provided using the asset and liability method for temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax balances are adjusted for any tax law changes in the periods that include the enactment date of such changes. See Note 12. Foreign Currency Translation. The Company's Canadian operations use the local currency as their functional currency. Assets and liabilities of these operations are translated at the exchange rates in effect on the balance sheet date. Items included in the Statements of Operations are translated at the average exchange rates for the year. The impact of currency fluctuation is included in shareholder's equity as a translation adjustment. 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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Interim Unaudited Data for the Six Months Ended June 30, 1996 and 1997. In the opinion of management, the unaudited consolidated financial statements contain all of the normal and recurring adjustments necessary to present fairly the consolidated financial position of the Company at June 30, 1997 and the consolidated results of operations and cash flows of the Company for the six months ended June 30, 1996 and 1997. NOTE 2 TRANSACTIONS WITH RYDER Certain Ryder branch locations provide fuel, vehicle repairs and maintenance services to the Company. Rates charged to the Company for these items approximate rates charged to significant Ryder customers for similar items and reflect the cost plus a mark-up. The Company participates in Ryder's combined risk management programs for vehicle and general liability, workers' compensation liability and property losses and Ryder processes claims related to vehicle and general liability and workers' compensation. The Company also participates in Ryder's medical and dental, postretirement and savings plans. See Notes 14 and 15. Ryder provides various general and administrative services to the Company including treasury, legal, human resources, accounting and others. Costs for these services are charged to the Company through a management fee, which is based on the Company's equity and revenue levels. The Company's cash and financing needs are managed by Ryder. The accompanying Consolidated Balance Sheets do not include Ryder's general corporate debt, which is used to finance the operations of all of Ryder's business units. However, Ryder allocates its corporate interest expense to each business unit based upon a target debt to equity ratio. The Company's shareholder's equity in the Consolidated Balance Sheets has been periodically adjusted to effect this target debt to equity ratio. Interest expense charged (or credited) to the Company by Ryder is principally based upon the interest cost incurred by Ryder for certain of its indebtedness. Management believes the methods used to determine intercompany charges and cost allocations are reasonable, however, such costs may not be representative of those which would be incurred if the Company operated as an independent stand-alone entity. F-8 9 RYDER AUTOMOTIVE CARRIER SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Amounts charged and allocated by Ryder and its subsidiaries to the Company for the above expense items are summarized in the following table:
YEAR ENDED DECEMBER 31, --------------------------- 1994 1995 1996 ------- ------- ------- (IN THOUSANDS) Operating expense: Salaries, wages and benefits: Medical and dental................................... $ 3,653 $ 2,589 $ 2,615 Postretirement....................................... 1,305 1,139 2,536 Savings plan......................................... 277 368 402 Other................................................ 1,306 117 118 Operating supplies and expense: Fuel, repairs and maintenance........................ 23,700 19,094 21,459 Insurance and claims.................................... 24,674 18,754 22,823 Other operating expense: General and administrative expense................... 721 432 1,542 Management fees...................................... 3,370 3,258 3,098 Interest income (expense)................................. 858 (511) (252)
NOTE 3 RESTRUCTURING AND OTHER CHARGES During 1996, the Company implemented several restructuring initiatives in an effort to reduce costs, improve profitability and align the organizational structure with the strategic direction of the Company. As a result of the initiatives, the Company recorded pretax charges in 1996 of $18.3 million which included restructuring costs of $5.5 million, early retirement costs of $4.2 million, asset write-downs of $6.0 million and other charges of $2.6 million. The charges reduced net income by $14.4 million. The pre tax charge of $4.2 million related to early retirement costs is included in the results of operations for the six month period ended June 30, 1996. The Company's pretax charges included $8.0 million in employee-related costs, which were primarily related to the planned elimination of approximately 140 positions. This amount included $4.2 million for approximately 60 employees who retired pursuant to a voluntary early retirement program. The headcount reductions resulted from consolidating and reorganizing corporate and field operations and affected employee groups across all levels of the Company. Nearly 50% and 65% of the separations occurred by December 31, 1996 and June 30, 1997, respectively, with the remaining separations expected to be completed by the end of 1997. The Company recorded $7.7 million in estimated closure costs, including asset write-downs of $6.0 million relating to both anticipated property sales and the anticipated sale of Blazer Truck Lines, Inc. (See Note 19). The Company also incurred $2.6 million of other costs, including employee relocation relating to the implementation of the restructuring. Management believes that the remaining restructuring liabilities of approximately $6.0 million and $2.0 million at December 31, 1996 and June 30, 1997, respectively, are adequate to complete its plans and that the liabilities will be substantially paid by the end of 1997. The additional pension and postretirement liabilities will be paid in accordance with the provisions of the existing plans. As a result of these actions, and prior to considering the effect of the sale of the Company discussed in Note 20, earnings are ultimately expected to be benefited by approximately $9.0 million annually. F-9 10 RYDER AUTOMOTIVE CARRIER SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 4 RECEIVABLES
DECEMBER 31, ----------------- JUNE 30, 1995 1996 1997 ------- ------- -------- (IN THOUSANDS) Trade accounts receivable................................... $36,152 $35,706 $39,496 Current portion of owner-operator notes receivable.......... 1,813 2,932 3,097 Other receivables........................................... 6,158 1,507 4,538 ------- ------- ------- 44,123 40,145 47,131 Allowance for doubtful accounts............................. (178) (741) (735) ------- ------- ------- $43,945 $39,404 $46,396 ======= ======= =======
No bad debt expense was recorded for the year ended December 31, 1994. Bad debt expense totaled $0.1 million and $0.6 million for the years ended December 31, 1995 and 1996, respectively. NOTE 5 INVENTORIES
DECEMBER 31, ----------------- 1995 1996 ------- ------- (IN THOUSANDS) Trailer manufacturing inventory............................. $ 9,499 $ 3,149 Parts, materials and fuel................................... 1,513 1,445 ------- ------- $11,012 $ 4,594 ======= =======
NOTE 6 PREPAID EXPENSES AND OTHER CURRENT ASSETS
DECEMBER 31, ----------------- 1995 1996 ------- ------- (IN THOUSANDS) Prepaid pension............................................. $ 5,876 $ 5,457 Tires in service............................................ 4,037 3,944 Licenses and permits........................................ 1,706 1,410 Operating taxes............................................. 1,002 882 Other....................................................... 1,147 1,120 ------- ------- $13,768 $12,813 ======= =======
NOTE 7 REVENUE EARNING EQUIPMENT, NET
DECEMBER 31, --------------------- JUNE 30, 1995 1996 1997 --------- --------- --------- (IN THOUSANDS) Tractors.................................................... $ 226,505 $ 226,941 $ 225,944 Trailers.................................................... 142,858 150,453 147,998 Other....................................................... 966 279 1,349 --------- --------- --------- 370,329 377,673 375,291 Accumulated depreciation.................................... (232,362) (235,138) (240,798) --------- --------- --------- $ 137,967 $ 142,535 $ 134,493 ========= ========= =========
F-10 11 RYDER AUTOMOTIVE CARRIER SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 8 OPERATING PROPERTY AND EQUIPMENT, NET
DECEMBER 31, ------------------- 1995 1996 -------- -------- (IN THOUSANDS) Buildings and improvements.................................. $ 43,316 $ 37,227 Furniture, fixtures and equipment........................... 20,265 20,455 Land........................................................ 12,265 8,866 Service vehicles and other.................................. 6,653 3,513 -------- -------- 82,499 70,061 Accumulated depreciation.................................... (45,173) (41,420) -------- -------- $ 37,326 $ 28,641 ======== ========
NOTE 9 OTHER ASSETS
DECEMBER 31, ----------------- 1995 1996 ------- ------- (IN THOUSANDS) Long-term portion of owner-operator notes receivable........ $ 4,035 $ 6,322 Long-term portion of property notes receivable.............. 2,871 2,173 Properties held for sale.................................... 4,845 4,518 Other....................................................... 204 187 ------- ------- $11,955 $13,200 ======= =======
NOTE 10 ACCRUED EXPENSES AND OTHER LIABILITIES
DECEMBER 31, ------------------- 1995 1996 -------- -------- (IN THOUSANDS) Vehicle and general liability reserves...................... $ 20,207 $ 26,552 Salaries and wages.......................................... 22,760 21,805 Employee benefits........................................... 9,448 6,708 Cargo liability reserves.................................... 5,910 5,782 Operating taxes............................................. 4,255 4,140 Environmental liabilities................................... 543 1,198 Other, including restructuring.............................. 5,917 12,841 -------- -------- 69,040 79,026 Non-current portion......................................... (15,924) (19,574) -------- -------- Accrued expenses and other liabilities...................... $ 53,116 $ 59,452 ======== ========
During 1995 and 1996, the Company released employee benefit reserves of $9.9 million and $0.8 million, respectively, related to prior year FICA taxes. F-11 12 RYDER AUTOMOTIVE CARRIER SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 11 LEASES The Company leases offices and office equipment under operating lease agreements. During 1994, 1995 and 1996, rent expense was $3.3 million, $3.2 million and $2.8 million, respectively. Future minimum payments for operating leases in effect at December 31, 1996 are as follows (in thousands): 1997........................................................ $ 891 1998........................................................ 893 1999........................................................ 847 2000........................................................ 766 2001........................................................ 732 Thereafter.................................................. 3,063 ------ $7,192 ======
NOTE 12 INCOME TAXES The provision (benefit) for income taxes included the following components:
YEAR ENDED DECEMBER 31, --------------------------- 1994 1995 1996 ------- ------- ------- (IN THOUSANDS) Current tax expense (benefit): Federal................................................. $18,188 $13,469 $(1,214) State................................................... 2,472 1,288 (404) Foreign................................................. (143) 159 -- ------- ------- ------- 20,517 14,916 (1,618) ------- ------- ------- Deferred tax expense (benefit): Federal................................................. (621) 1,517 68 State................................................... 355 1,321 334 Foreign................................................. 177 23 (40) ------- ------- ------- (89) 2,861 362 ------- ------- ------- Provision (benefit) for income taxes...................... $20,428 $17,777 $(1,256) ======= ======= =======
A reconciliation of the Federal statutory tax rate with the effective tax rate follows:
% OF PRETAX INCOME -------------------- YEAR ENDED DECEMBER 31, -------------------- 1994 1995 1996 ----- ---- ----- Statutory tax rate.......................................... 35.0 35.0 (35.0) Impact on deferred taxes for changes in tax rates........... 0.6 -- -- State income taxes, net of Federal income tax benefit....... 3.1 4.0 (0.3) Amortization of goodwill.................................... 0.9 1.0 3.1 Restructuring and other charges............................. -- -- 19.1 Miscellaneous items, net.................................... 1.2 1.2 4.5 ----- ---- ----- Effective tax rate.......................................... 40.8 41.2 (8.6) ===== ==== =====
The lower 1996 effective tax rate is primarily due to the permanent differences associated with the charge for restructuring and other items. Additionally, lower income before taxes increased the rate impact of normal, recurring permanent differences. F-12 13 RYDER AUTOMOTIVE CARRIER SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) As described in Note 1, the Company was wholly-owned by Ryder for all of the periods presented in the accompanying Consolidated Financial Statements. The deferred tax assets and liabilities shown below have been determined as though the Company was a separate company and not part of Ryder's consolidated Federal income tax returns. The components of the net deferred income tax liability were as follows:
DECEMBER 31, ------------------- 1995 1996 -------- -------- (IN THOUSANDS) Deferred income tax assets: Accrued insurance and loss reserves....................... $ 9,761 $ 11,091 Accrued compensation and benefits......................... 4,027 3,733 Restructuring and other charges........................... -- 1,622 Miscellaneous accruals and other.......................... 3,656 6,256 -------- -------- 17,444 22,702 Valuation allowance....................................... (1,812) (3,490) -------- -------- Deferred income tax assets........................ 15,632 19,212 -------- -------- Deferred income tax liabilities: Property and equipment bases differences.................. (32,984) (32,510) Other items............................................... (5,680) (6,074) -------- -------- Deferred income tax liabilities................... (38,664) (38,584) -------- -------- Net deferred income tax liability........................... $(23,032) $(19,372) ======== ========
A valuation allowance has been established to reduce the income tax benefits of tax loss carryforwards to amounts expected to be realized. Income taxes paid totaled $19 million in 1994 and $15 million in 1995. There were no income tax payments in 1996. NOTE 13 FAIR VALUES OF FINANCIAL INSTRUMENTS The carrying amounts of the Company's notes receivable, which originate from the sale of equipment to owner-operators, were $5.8 million and $9.3 million as of December 31, 1995 and 1996, respectively. As of the same dates, the fair values of the notes receivable were $6.0 million and $9.5 million, respectively. The fair values were determined from discounted future cash flows through maturity or expiration using current rates. The fair values of all other financial instruments approximate their carrying amounts. F-13 14 RYDER AUTOMOTIVE CARRIER SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 14 PENSION AND SAVINGS PLANS The Company sponsors three defined benefit pension plans, covering substantially all employees not covered by union-administered plans. These plans generally provide participants with benefits based on years of service and recent average compensation levels. Funding policy for these plans is to make contributions based on normal costs plus amortization of unfunded past service liability but not greater than the maximum allowable contribution deductible for Federal income tax purposes. The majority of the plans' assets are invested in a master trust which, in turn, is primarily invested in listed stocks and bonds. Total pension expense was as follows:
YEAR ENDED DECEMBER 31, ---------------------------- 1994 1995 1996 ------- -------- ------- (IN THOUSANDS) Company-administered plans: Present value of benefits earned during the year....... $ 1,604 $ 1,203 $ 1,443 Interest cost on projected benefit obligation.......... 3,214 3,320 3,755 Return on plan assets: Actual.............................................. (710) (14,145) (8,397) Deferred............................................ (3,583) 9,669 2,863 Additional expense from early retirement program....... -- -- 2,650 Other, net............................................. (575) (583) (691) ------- -------- ------- (50) (536) 1,623 Union-administered plans................................. 19,625 18,948 20,921 ------- -------- ------- Net pension expense...................................... $19,575 $ 18,412 $22,544 ======= ======== =======
As a part of the Company's restructuring and other profit improvement initiatives, certain employees accepted early retirement benefits, which increased 1996 pension expense by $2.7 million. The following table sets forth the plans' funded status and the Company's prepaid pension expense:
DECEMBER 31, ----------------- 1995 1996 ------- ------- (IN THOUSANDS) Plan assets at fair value................................... $66,734 $71,334 Actuarial present value of service rendered to date: Accumulated benefit obligation, including vested benefits of $43,819 and $47,770 in 1995 and 1996, respectively........................................... 44,429 50,107 Additional benefit based on estimated future salary levels................................................. 2,972 4,225 ------- ------- Projected benefit obligation................................ 47,401 54,332 ------- ------- Plan assets in excess of projected benefit obligation....... 19,333 17,002 Unrecognized transition amount.............................. (4,311) (3,685) Other, primarily unrecognized prior service cost and net gains..................................................... (9,146) (7,860) ------- ------- Prepaid pension expense..................................... $ 5,876 $ 5,457 ======= =======
F-14 15 RYDER AUTOMOTIVE CARRIER SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table sets forth the actuarial assumptions used for the Company's dominant plan:
DECEMBER 31, ------------------ 1994 1995 1996 ---- ---- ---- Discount rate............................................... 8.5% 7.5% 7.5% Rate of increase in compensation levels..................... 5.0% 5.0% 5.0% Expected long-term rate of return on plan assets............ 8.5% 8.5% 8.5% Transition amortization in years............................ 17 17 17 Gain and loss amortization in years......................... 9 9 9
The Company also contributed to various defined benefit, union-administered, multi-employer plans for employees under collective bargaining agreements. The Company contributed and charged to expense approximately $19.6 million, $18.9 million, and $20.9 million for the years ended December 31, 1994, 1995, and 1996, 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 hours or days worked. In addition, the Company participates in certain defined contribution savings plans sponsored by Ryder that cover substantially all eligible employees. Contributions to the plans include employee contributions and contributions made by Ryder under a matching program. Defined contribution expense totaled $0.3 million, $0.4 million and $0.4 million for the years ended December 31, 1994, 1995 and 1996, respectively. NOTE 15 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Company participates in Ryder plans which provide retired employees with certain health care and life insurance benefits. Substantially all employees not covered by union-administered health and welfare plans are eligible for these benefits. Health care benefits are generally provided to qualified retirees and eligible dependents. Generally, these plans require employee contributions which vary based on years of service and include provisions which cap Company contributions. Reserves related to these plans are carried by Ryder. Total periodic postretirement benefit expense was as follows:
YEAR ENDED DECEMBER 31, ------------------------ 1994 1995 1996 ------ ------ ------ (IN THOUSANDS) Current year service cost................................... $ 230 $ 216 $ 185 Interest accrued on postretirement benefit obligation....... 867 923 828 Additional expense from early retirement program............ -- -- 1,523 Other, net.................................................. 208 -- -- ------ ------ ------ Periodic postretirement benefit expense..................... $1,305 $1,139 $2,536 ====== ====== ======
As part of the Company's restructuring and other profit improvement initiatives, certain employees accepted early retirement benefits which increased 1996 postretirement benefit expense by $1.5 million. F-15 16 RYDER AUTOMOTIVE CARRIER SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company's postretirement benefit plans are not funded. The following summarizes the reserves carried by Ryder:
DECEMBER 31, ----------------- 1995 1996 ------- ------- (IN THOUSANDS) Accumulated postretirement benefit obligation: Retirees.................................................. $ 9,509 $10,006 Fully eligible active plan participants................... 863 800 Other active plan participants............................ 2,908 2,314 ------- ------- 13,280 13,120 Unrecognized net gains (losses)............................. (1,872) 300 ------- ------- Accrued unfunded postretirement benefit obligation.......... $11,408 $13,420 ======= ======= Discount rate............................................... 7.5% 7.5%
The actuarial assumptions include health care cost trend rates projected ratably from 11% in 1997 to 6% in the year 2003 and thereafter. Increasing the assumed health care cost trend rates by 1% in each year would have increased the accumulated postretirement benefit obligation as of December 31, 1996 by $1.0 million and would not have had a material effect on periodic postretirement benefit expense for 1996. NOTE 16 ENVIRONMENTAL MATTERS The Company's operations involve storing and dispensing petroleum products, primarily diesel fuel. In 1988, the Environmental Protection Agency issued regulations that established requirements for testing and replacing underground storage tanks. The Company is involved in various stages of investigation, cleanup and tank replacement to comply with the regulations. In addition, the Company received notices from the Environmental Protection Agency and others that it has been identified as a potentially responsible party (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act, the Superfund Amendments and Reauthorization Act and similar state statutes and may be required to share in the cost of cleanup of four identified disposal sites. The Company records a liability for environmental assessments and/or cleanup when it is probable a loss has been incurred. Generally, the timing of these accruals coincides with the identification of an environmental problem through the Company's internal procedures or upon notification from regulatory agencies. The estimate of loss is based on information obtained from independent environmental engineers and/or from Company experts regarding the nature and extent of environmental contamination, remedial alternatives available and the cleanup criteria required by relevant governmental agencies. The estimated costs include amounts for anticipated site testing, consulting, remediation, disposal, post-remediation monitoring and legal fees, as appropriate. These amounts represent the estimated undiscounted costs to fully resolve the environmental matters in accordance with prevailing Federal, state and local requirements based on information presently available. The liability includes estimates of cost sharing with other PRPs at Superfund sites. The Company's environmental expenses were $0.6 million, $2.0 million and $1.2 million for the years ended December 31, 1994, 1995 and 1996, respectively. The ultimate costs of the Company's environmental liabilities cannot be projected with certainty due to the presence of several unknown factors, primarily the level of contamination, the effectiveness of selected remediation methods, the stage of investigation at individual sites, the determination of the Company's liability in proportion to other responsible parties and the recoverability of such costs from third parties. Based on information presently available, management believes that the ultimate disposition of these matters, although potentially material to the results of operations in any one year, will not have a material adverse effect on the Company's financial condition or liquidity. F-16 17 RYDER AUTOMOTIVE CARRIER SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 17 INDUSTRY SEGMENT, MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION The Company operates solely in the automotive industry, primarily transporting automobiles and light and medium-duty trucks from manufacturing plants, ports and railway distribution points to automobile dealerships and other distribution points. In 1994, 1995 and 1996, approximately 83.8%, 84.9% and 85.6%, respectively, of the Company's revenue was derived from six customers, one of which, General Motors, accounted for approximately 51.1%, 51.6% and 49.9% of revenue, respectively. The Company operates in the United States and Canada. Operating income (loss) shown below includes gains on the sale of operating property and equipment in the amounts of $0.2 million, $3.5 million and $1.6 million for 1994, 1995 and 1996, respectively. Geographic financial information is as follows:
YEAR ENDED DECEMBER 31, ------------------------------ 1994 1995 1996 -------- -------- -------- (IN THOUSANDS) Revenue: United States........................................ $610,088 $556,663 $547,158 Canada............................................... 35,314 37,783 36,134 -------- -------- -------- $645,402 $594,446 $583,292 ======== ======== ======== Operating income (loss): United States........................................ $ 50,800 $ 37,107 $(13,186) Canada............................................... (950) (869) (4,003) -------- -------- -------- $ 49,850 $ 36,238 $(17,189) ======== ======== ======== Identifiable assets: United States........................................ $233,645 $265,200 $257,095 Canada............................................... 40,942 41,097 36,419 -------- -------- -------- $274,587 $306,297 $293,514 ======== ======== ========
NOTE 18 COMMITMENTS AND CONTINGENCIES The Company is a party to various claims, legal actions and complaints arising in the ordinary course of business which relate to the Company's operations, including the manufacture of trailers and headramps. While any proceeding or litigation has an element of uncertainty, management believes that the disposition of these matters will not have a material impact on the financial condition, liquidity or results of operations of the Company. 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. F-17 18 RYDER AUTOMOTIVE CARRIER SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 19 SALE OF BLAZER In the fourth quarter of 1996, management made a decision to dispose of Blazer, an in-bound logistics provider to the automotive industry. Consistent with this decision and included within the full year restructuring charge discussed in Note 3, management recorded restructuring and other charges of $2.8 million and asset write-downs of $4.2 million to reduce the carrying values of Blazer assets to an estimate of fair value less costs to sell. The Company sold Blazer on February 28, 1997. The condensed financial statements of Blazer are as follows: STATEMENTS OF OPERATIONS AND CHANGES IN COMPANY INVESTMENT
FOR THE SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, --------------------------- ------------------ 1994 1995 1996 1996 1997 ------- ------- ------- ------- -------- (IN THOUSANDS) Revenue................................... $25,529 $19,366 $14,520 $7,565 $ 2,204 Operating expense......................... 25,897 19,816 22,203 8,357 2,277 ------- ------- ------- ------ ------- Operating loss............................ (368) (450) (7,683) (792) (73) Other expense............................. (378) (110) (9) 10 14 ------- ------- ------- ------ ------- Loss before income taxes.................. (746) (560) (7,692) (802) (87) Income tax benefit........................ (19) (472) (320) 275 739 ------- ------- ------- ------ ------- Net income (loss)......................... (727) (88) (7,372) (527) 652 Company investment at beginning of period.................................. 721 5 (151) (151) (7,648) Net change in Company investment.......... 11 (68) (125) 453 6,996 ------- ------- ------- ------ ------- Company investment at end of period....... $ 5 $ (151) $(7,648) $ (225) $ -- ======= ======= ======= ====== =======
BALANCE SHEETS
DECEMBER 31, ----------------- JUNE 30, 1995 1996 1997 ------- ------- -------- (IN THOUSANDS) Current assets............................................ $ 2,049 $ 1,526 $ -- Property and equipment, net............................... 1,687 428 -- Other assets, principally goodwill........................ 3,428 -- -- ------- ------- ------- Total assets.............................................. $ 7,164 $ 1,954 $ -- ======= ======= ======= Current liabilities....................................... $ 2,768 $ 5,976 -- Other liabilities......................................... 4,547 3,626 -- Company investment........................................ (151) (7,648) -- ------- ------- ------- Total liabilities and Company investment.................. $ 7,164 $ 1,954 $ -- ======= ======= =======
NOTE 20 SUBSEQUENT EVENT On August 21, 1997, Ryder announced that it had reached a definitive agreement and received the necessary regulatory approvals to sell the stock of the Company, along with another business unit, to Allied Holdings, Inc. ("Allied") for approximately $114.5 million in cash and assumption of certain liabilities of the business. The sale of the Company to Allied is expected to be completed by September 30, 1997. F-18 -----END PRIVACY-ENHANCED MESSAGE-----