<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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)
<TABLE>
<CAPTION>
ACQUISITION ADJUSTED OFFERING PRO FORMA
RYDER(1) ADJUSTMENTS RYDER ALLIED ADJUSTMENTS COMBINED
-------- ----------- -------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
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
======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma financial information.
4
<PAGE> 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)
<TABLE>
<CAPTION>
ACQUISITION ADJUSTED OFFERING PRO FORMA
RYDER(1) ADJUSTMENTS RYDER ALLIED ADJUSTMENTS COMBINED
-------- ----------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma financial information.
5
<PAGE> 6
ALLIED HOLDINGS, INC.
AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
AS OF JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUISITION ADJUSTED OFFERING COMBINED
RYDER(9) ADJUSTMENTS RYDER ALLIED ADJUSTMENTS PRO FORMA
-------- ----------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
======== ======== ======== ======== ========= ========
</TABLE>
See accompanying notes to unaudited pro forma financial information.
6
<PAGE> 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:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
<C> <S> <C> <C>
(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
===== =======
</TABLE>
(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:
<TABLE>
<C> <S> <C>
(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)
========
</TABLE>
(17) Write-up of Ryder property and equipment to fair market value.
7
<PAGE> 8
(18) Adjustment to goodwill reflects:
<TABLE>
<S> <S> <C>
(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
========
</TABLE>
(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
<PAGE> 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
<PAGE> 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
<PAGE> 11
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description Page
- -------------- ----------- ----
<S> <C> <C>
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 ---
</TABLE>
11
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 2
RYDER AUTOMOTIVE CARRIER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
-----------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 3
RYDER AUTOMOTIVE CARRIER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
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
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 4
RYDER AUTOMOTIVE CARRIER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
AND ADDITIONAL RETAINED TRANSLATION
PAID-IN CAPITAL EARNINGS ADJUSTMENT TOTAL
--------------- -------- ----------- --------
<S> <C> <C> <C> <C>
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
======== ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 5
RYDER AUTOMOTIVE CARRIER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
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 --
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
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)
</TABLE>
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
<PAGE> 10
RYDER AUTOMOTIVE CARRIER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 RECEIVABLES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1995 1996 1997
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
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
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Trailer manufacturing inventory............................. $ 9,499 $ 3,149
Parts, materials and fuel................................... 1,513 1,445
------- -------
$11,012 $ 4,594
======= =======
</TABLE>
NOTE 6 PREPAID EXPENSES AND OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
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
======= =======
</TABLE>
NOTE 7 REVENUE EARNING EQUIPMENT, NET
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
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
========= ========= =========
</TABLE>
F-10
<PAGE> 11
RYDER AUTOMOTIVE CARRIER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 OPERATING PROPERTY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
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
======== ========
</TABLE>
NOTE 9 OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
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
======= =======
</TABLE>
NOTE 10 ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
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
======== ========
</TABLE>
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
<PAGE> 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):
<TABLE>
<S> <C>
1997........................................................ $ 891
1998........................................................ 893
1999........................................................ 847
2000........................................................ 766
2001........................................................ 732
Thereafter.................................................. 3,063
------
$7,192
======
</TABLE>
NOTE 12 INCOME TAXES
The provision (benefit) for income taxes included the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
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)
======= ======= =======
</TABLE>
A reconciliation of the Federal statutory tax rate with the effective tax
rate follows:
<TABLE>
<CAPTION>
% OF PRETAX INCOME
--------------------
YEAR ENDED
DECEMBER 31,
--------------------
1994 1995 1996
----- ---- -----
<S> <C> <C> <C>
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)
===== ==== =====
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
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)
======== ========
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1995 1996
------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
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
======= ======== =======
</TABLE>
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:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
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
======= =======
</TABLE>
F-14
<PAGE> 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:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1994 1995 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
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
====== ====== ======
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
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%
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
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
<PAGE> 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
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
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) $ --
======= ======= ======= ====== =======
</TABLE>
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1995 1996 1997
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
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 $ --
======= ======= =======
</TABLE>
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
