AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NORTH AMERICAN VAN LINES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 4213 52-1840893
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
------------------------------
5001 U.S. HIGHWAY 30 WEST
P.O. BOX 988
FT. WAYNE, INDIANA 46801-0988
(219) 429-2511
(Address, including ZIP code, and telephone number,
including area code, of Registrant's principal executive offices)
------------------------------
RALPH A. FORD
NORTH AMERICAN VAN LINES, INC.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
5001 U.S. HIGHWAY 30 WEST
P.O. BOX 988
FT. WAYNE, INDIANA 46801-0988
(219) 429-2511
(Name, address, including ZIP code, and telephone number,
including area code, of Registrant's agent for service)
------------------------------
WITH COPY TO:
DAVID A. BRITTENHAM, ESQ.
DEBEVOISE & PLIMPTON
875 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 909-6000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities of an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------------
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED
OFFERING MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE PRICE PER AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED SECURITY(1) OFFERING PRICE REGISTRATION FEE
13 3/8% Senior Subordinated Notes Due 2009... $150,000,000 100% $150,000,000 $39,600.00
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 promulgated under the Securities Act of 1933, as
amended.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
OTHER REGISTRANTS
ADDRESS, INCLUDING ZIP
PRIMARY STANDARD CODE, AND TELEPHONE
JURISDICTION OF INDUSTRIAL I.R.S. EMPLOYER NUMBER, INCLUDING AREA
INCORPORATION OR CLASSIFICATION IDENTIFICATION CODE, OF PRINCIPAL
NAME OF REGISTRANT FORMATION NUMBER NUMBER EXECUTIVE OFFICE
- ------------------ ---------------- ---------------- --------------- -------------------------
Allied Freight Forwarding, Inc. Delaware 4731 36-2405833 5001 U.S. Highway 30 West
P.O. Box 988
Ft. Wayne, Indiana
46801-0988
(219) 429-2511
Allied International N.A., Inc. Delaware 4731 36-2906660 5001 U.S. Highway 30 West
P.O. Box 988
Ft. Wayne, Indiana
46801-0988
(219) 429-2511
Allied Van Lines, Inc. Delaware 4212, 4213, 4225 36-0719320 5001 U.S. Highway 30 West
P.O. Box 988
Ft. Wayne, Indiana
46801-0988
(219) 429-2511
Allied Van Lines Terminal Company Delaware 4213 36-2582535 5001 U.S. Highway 30 West
P.O. Box 988
Ft. Wayne, Indiana
46801-0988
(219) 429-2511
A Relocation Solutions Management Delaware 4731 36-3295067 5001 U.S. Highway 30 West
Company P.O. Box 988
Ft. Wayne, Indiana
46801-0988
(219) 429-2511
Fleet Insurance Management, Inc. Indiana 6411 35-1471355 5001 U.S. Highway 30 West
P.O. Box 988
Ft. Wayne, Indiana
46801-0988
(219) 429-2511
FrontRunner Worldwide, Inc. Delaware 4731 35-1900598 5001 U.S. Highway 30 West
P.O. Box 988
Ft. Wayne, Indiana
46801-0988
(219) 429-2511
Great Falls North American, Inc. Montana 4214/4213 81-0288174 5001 U.S. Highway 30 West
P.O. Box 988
Ft. Wayne, Indiana
46801-0988
(219) 429-2511
NACAL, Inc. California 4213 95-2368626 5001 U.S. Highway 30 West
P.O. Box 988
Ft. Wayne, Indiana
46801-0988
(219) 429-2511
NAVTRANS International Freight Indiana 4731 35-6296161 5001 U.S. Highway 30 West
Forwarding, Inc. P.O. Box 988
Ft. Wayne, Indiana
46801-0988
(219) 429-2511
ii
ADDRESS, INCLUDING ZIP
PRIMARY STANDARD CODE, AND TELEPHONE
JURISDICTION OF INDUSTRIAL I.R.S. EMPLOYER NUMBER, INCLUDING AREA
INCORPORATION OR CLASSIFICATION IDENTIFICATION CODE, OF PRINCIPAL
NAME OF REGISTRANT FORMATION NUMBER NUMBER EXECUTIVE OFFICE
- ------------------ ---------------- ---------------- --------------- -------------------------
North American Distribution Systems, Indiana 4212 35-1115697 5001 U.S. Highway 30 West
Inc. P.O. Box 988
Ft. Wayne, Indiana
46801-0988
(219) 429-2511
North American Logistics, Ltd. Indiana 4731 13-2890402 5001 U.S. Highway 30 West
P.O. Box 988
Ft. Wayne, Indiana
46801-0988
(219) 429-2511
North American Van Lines of Texas, Texas 4731/4213 75-1440447 5001 U.S. Highway 30 West
Inc. P.O. Box 988
Ft. Wayne, Indiana
46801-0988
(219) 429-2511
Relocation Management Systems, Inc. Delaware 5045 35-1635373 5001 U.S. Highway 30 West
P.O. Box 988
Ft. Wayne, Indiana
46801-0988
(219) 429-2511
Vanguard Insurance Agency, Inc. Illinois 6411 36-2777624 215 W Diehl Road
Naperville, Illinois
60563
(630) 717-5522
iii
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 4, 2000
PROSPECTUS
- -------------
OFFER TO EXCHANGE ALL OUTSTANDING
13 3/8% SENIOR SUBORDINATED NOTES DUE 2009
FOR REGISTERED
13 3/8% SENIOR SUBORDINATED NOTES DUE 2009
THE NEW NOTES:
- The terms of the new notes are identical to the terms of the old notes
except that the new notes are registered under the Securities Act of 1933
and will not contain restrictions on transfer or provisions relating to
additional interest and will contain different administrative terms.
INVESTING IN THE NEW NOTES INVOLVES RISKS. YOU SHOULD CAREFULLY REVIEW THE
RISK FACTORS BEGINNING ON PAGE 11 OF THIS PROSPECTUS.
THE EXCHANGE OFFER:
- Our offer to exchange old notes for new notes will be open until
5:00 p.m., New York City time, on , 2000, unless we extend the
offer.
- No public market currently exists for the notes.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this prospectus is , 2000
TABLE OF CONTENTS
PAGE
--------
Certain Regulatory Issues................................... iii
Presentation of Financial Information....................... iv
Summary..................................................... 1
Risk Factors................................................ 11
The Exchange Offer.......................................... 22
The Allied Acquisition...................................... 30
Use of Proceeds............................................. 31
Capitalization.............................................. 32
Unaudited Pro Forma Financial Statements.................... 33
Selected Historical Financial Data of NAVL.................. 42
Selected Historical Financial Data of Allied................ 44
Management's Discussion and Analysis of Results of
Operations and Financial Condition........................ 47
Business.................................................... 68
Management.................................................. 84
Ownership of Capital Stock.................................. 96
Certain Relationships and Related Party Transactions........ 98
Description of Other Indebtedness........................... 101
Description of Notes........................................ 104
Certain United States Federal Tax Considerations............ 161
Plan of Distribution........................................ 166
Legal Matters............................................... 166
Experts..................................................... 167
Where You Can Find More Information......................... 168
Index to Financial Statements............................... F-1
------------------------
The indentures pursuant to which the notes are issued require us to
distribute to the holders of the notes annual reports containing our financial
statements audited by our independent public accountants and quarterly reports
containing unaudited condensed consolidated financial statements for the first
three quarters of each fiscal year. When we refer to "North American Van Lines"
we are referring to North American Van Lines, Inc., the issuer of the notes.
When we refer to ourselves generally, we are referring to North American Van
Lines and its subsidiaries and their predecessors (including subsidiaries
acquired in the Allied acquisition described in the section of this prospectus
called "The Allied Acquisition"), except where the context otherwise requires.
When we refer to "NAVL," we are referring to North American Van Lines and its
subsidiaries prior to the Allied acquisition or, after that acquisition, to our
operations carried out under the northAmerican brand name, as the context
requires. When we refer to "Allied" or to "NFC Moving Services Group," we are
referring to the Allied and Pickfords businesses prior to the Allied acquisition
or, after that acquisition, to our operations carried out under the Allied and
Pickfords brand names, as the context requires.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS ABOUT THE TRANSACTIONS WE DISCUSS IN THIS PROSPECTUS OTHER THAN
THOSE CONTAINED HEREIN. IF YOU ARE GIVEN ANY INFORMATION OR REPRESENTATIONS
ABOUT THESE MATTERS THAT IS NOT DISCUSSED, YOU MUST NOT RELY ON THAT
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY SECURITIES ANYWHERE OR TO ANYONE WHERE OR TO WHOM WE ARE NOT
PERMITTED TO OFFER OR SELL SECURITIES UNDER APPLICABLE LAW. THE DELIVERY OF THIS
PROSPECTUS OR THE NOTES OFFERED HEREBY DOES NOT, UNDER ANY CIRCUMSTANCES, MEAN
THAT THERE HAS NOT BEEN A CHANGE IN OUR AFFAIRS SINCE THE DATE HEREOF. IT ALSO
DOES NOT MEAN THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT AFTER THIS
DATE.
ii
CERTAIN REGULATORY ISSUES
You must comply with all applicable laws and regulations in force in any
jurisdiction in which you purchase, offer or sell the new notes and must obtain
any consent, approval or permission required by you for the purchase, offer or
sale by you of the new notes under the laws and regulations in force in any
jurisdiction to which you are subject or in which you make any purchases, offers
or sales, and we will not have any responsibility for your failure to do so.
THE NOTES MAY NOT BE OFFERED OR SOLD DIRECTLY OR INDIRECTLY TO THE PUBLIC IN
THE REPUBLIC OF FRANCE. NEITHER THIS DOCUMENT, WHICH HAS NOT BEEN SUBMITTED FOR
THE APPROVAL OF THE COMMISSION DE OPERATIONS DE BOURSE, NOR ANY OFFERING
MATERIAL RELATING TO THE NOTES MAY BE RELEASED OR ISSUED TO THE PUBLIC IN THE
REPUBLIC OF FRANCE IN CONNECTION WITH ANY SUCH OFFER.
THE NOTES HAVE NOT BEEN AND WILL NOT BE QUALIFIED FOR SALE UNDER THE
SECURITIES LAWS OF ANY PROVINCE OR TERRITORY OF CANADA. THE NOTES ARE NOT BEING
OFFERED AND MAY NOT BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN CANADA OR TO
OR FOR THE ACCOUNT OF ANY RESIDENT OF CANADA IN CONTRAVENTION OF THE SECURITIES
LAWS OF ANY PROVINCE OR TERRITORY THEREOF. THIS PROSPECTUS IS NOT, AND UNDER NO
CIRCUMSTANCES IS TO BE CONSTRUED AS, AN ADVERTISEMENT OR A PUBLIC OFFERING OF
THE NOTES IN CANADA.
THE NOTES MAY NOT BE OFFERED IN THE NETHERLANDS OR ELSEWHERE AS PART OF
THEIR INITIAL DISTRIBUTION, TO THE ACCOUNT OF ANY PERSON OR ENTITY OTHER THAN TO
PERSONS WHO, OR ENTITIES WHICH, TRADE OR INVEST IN SECURITIES IN THE CONDUCT OF
A PROFESSION OR BUSINESS WITHIN THE MEANING OF THE SECURITIES TRANSACTIONS
SUPERVISION ACT 1995 (WET TOEZICHT EFFECTENVERKEER 1995) AND ITS IMPLEMENTING
REGULATIONS (WHICH INCLUDE BANKS, INVESTMENT INSTITUTIONS, OTHER INSTITUTIONAL
INVESTORS AND OTHER PARTIES INCLUDING INTER ALIA TREASURIES AND FINANCE
COMPANIES OF LARGE ENTERPRISES THAT REGULARLY, AS AN ANCILLARY ACTIVITY, TRADE
OR INVEST IN SECURITIES).
THE NOTES MAY BE OFFERED AND SOLD IN THE FEDERAL REPUBLIC OF GERMANY ONLY IN
ACCORDANCE WITH THE PROVISIONS OF THE SECURITIES SALES PROSPECTUS ACT OF THE
FEDERAL REPUBLIC OF GERMANY (WERTPAPIER-VERKAUF-SPROSPEKTGESETZ)AND ANY OTHER
APPLICABLE GERMAN LAW. ANY RESALE OF THE NOTES IN THE FEDERAL REPUBLIC OF
GERMANY MAY BE MADE ONLY IN ACCORDANCE WITH THE PROVISIONS OF THE SECURITIES
SALES PROSPECTUS ACT AND ANY OTHER APPLICABLE GERMAN LAW.
THE NOTES MAY NOT BE OFFERED OR SOLD IN OR INTO THE UNITED KINGDOM EXCEPT IN
CIRCUMSTANCES WHICH DO NOT CONSTITUTE AN OFFER TO THE PUBLIC WITHIN THE MEANING
OF THE PUBLIC OFFERS OF SECURITIES REGULATIONS 1995. ALL APPLICABLE PROVISIONS
OF THE FINANCIAL SERVICES ACT 1986 MUST BE COMPLIED WITH IN RESPECT OF ANYTHING
DONE IN RELATION TO THE NOTES IN, FROM OR OTHERWISE INVOLVING THE UNITED
KINGDOM. THE NOTES MAY BE SOLD, AND THIS PROSPECTUS MAY BE ISSUED OR
DISTRIBUTED, ONLY TO A PERSON OF A KIND DESCRIBED IN ARTICLE 11(3) OF THE
FINANCIAL SERVICES ACT 1986 (INVESTMENT ADVERTISEMENTS) (EXEMPTIONS) ORDER 1996
(AS AMENDED) OR TO SUCH OTHER PERSON AS THE NOTES MAY OTHERWISE BE LAWFULLY SOLD
OR THIS PROSPECTUS MAY OTHERWISE BE LAWFULLY ISSUED OR PASSED ON.
THE NOTES HAVE NOT BEEN REGISTERED UNDER SPANISH SECURITIES LAW AND MAY NOT
BE OFFERED OR SOLD WITHIN THE KINGDOM OF SPAIN EXCEPT TO INSTITUTIONAL INVESTORS
UNDER ARTICLE 7.1. A) OF THE ROYAL DECREE 291/1992 DATED MARCH 27, ON ISSUANCES
AND PUBLIC OFFERINGS (AS AMENDED BY ROYAL DECREE 2590/1998) AND OTHER SPANISH
SECURITIES REGULATIONS, ONCE THE PRIOR NOTICE AND THE OTHER DOCUMENTS REFERRED
TO IN ARTICLE 5.2 A) AND B) OF ROYAL DECREE 291/1992 HAVE BEEN REGISTERED BY THE
SPANISH SECURITIES EXCHANGE COMMISSION.
THE NOTES SHALL NOT BE OFFERED WITHIN THE KINGDOM OF SPAIN BY MEANS OF
ADVERTISING ACTIVITIES WHICH MIGHT INFRINGE IN ANY WAY THE REGULATIONS CURRENTLY
IN FORCE ON PUBLIC OFFERINGS AND ISSUES OF SECURITIES AND, IN PARTICULAR, THE
PROSPECTUS AND ANY OTHER MATERIAL INFORMATION RELATING TO THE NOTES SHALL NOT BE
DISTRIBUTED TO SPANISH INVESTORS EXCEPT IN COMPLIANCE WITH THE SPANISH
SECURITIES AND EXCHANGE REGULATIONS.
iii
INDUSTRY DATA
Industry data used throughout this prospectus are derived from either
(1) research conducted by us based upon data collected by the Department of
Transportation and other unaffiliated third-party sources which we believe to be
reliable, or (2) reports and other information published by the Council of
Logistics Management, the American Moving and Storage Association, an industry
research company and publisher, and Cass ProLogis, an industry research firm.
Although we believe our third-party sources to be reliable, the accuracy and
completeness of the information provided to us is not guaranteed. Neither such
data nor the information included in the industry publications we reference,
including market and competitive position data, have been independently verified
by us. Although such market and competitive position data are inherently
imprecise, based on its understanding of the markets in which we compete,
management believes that such data are generally indicative of our relative
market share and competitive position.
Market research on Allied and northAmerican brand identity described in this
prospectus was performed by the Gallup Organization in 1997. In aided recall
polls, Allied ranked first among van lines. In unaided recall polls, Allied
ranked second to a competitor. northAmerican ranked third in both polls.
PRESENTATION OF FINANCIAL INFORMATION
In this prospectus, except where otherwise indicated, references to
- "U.S. Dollars," "Dollars" or "$" are to the currency of the United States,
and
- "Pounds sterling," "Pounds," or "L" are to the currency of the United
Kingdom.
Except as otherwise stated, in this prospectus, translations of non-dollar
currencies to dollars in the financial statements and the other information
included herein have been calculated, for income statement purposes, on the
basis of average exchange rates over the related periods and, for balance sheet
purposes, the rate in effect on the date thereof. These translations should not
be construed as representations that the non-dollar currency amounts actually
represent such dollar amounts or could be converted into dollars at the rates
indicated or at any other rates.
Solely for your convenience, this prospectus contains translations of
certain financial data of Allied from pounds to dollars. The following table
reflects the exchange rates used as well as other information for your benefit.
We do not represent that the pound amounts shown in this prospectus would have
been converted into Dollars at the quoted exchange rates.
As of , , 2000, the noon buying rate with respect to the pound was
L1.00 = and the closing rate with respect to the pound was L1.00=$ .
FISCAL YEAR ENDED NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
------------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
Exchange rate at the end of period.................... 1.56 1.62 1.70 1.67 1.58
Average exchange rate during period................... 1.54 1.63 1.65 1.65 1.63
High exchange rate during period...................... 1.50 1.62 1.61 1.61 1.58
Low exchange rate during period....................... 1.59 1.69 1.71 1.71 1.72
iv
SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION REGARDING OUR COMPANY, THE SECURITIES BEING SOLD AND OUR
CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS.
OUR COMPANY
We are the world's largest global relocation and moving services company and
also the largest logistics services provider among all U.S. van lines. We are a
global network manager of agents, owner/operators and company-owned branches
with locations in 21 countries. Our relocation businesses provide high-quality
packing, warehousing, hauling and delivery for both domestic and international
residential moves. We also provide a broad portfolio of services to commercial
customers, including office and industrial relocations and records management.
Our logistics services segment provides customized solutions to facilitate the
movement of high-value products that require specialized transport and handling
such as electronics, telecommunications and medical equipment and fine art. Our
diversified customer base includes many leading Fortune 500 and FTSE-100
companies, private transferees and the government and military of the United
States and other countries. We recently acquired the Allied and Pickfords moving
services businesses, and believe that the combination of NAVL and Allied will
result in substantial operating synergies due to complementary product
offerings, distribution networks and significant economies of scale, which will
generate incremental cash flow and fund future growth.
THE ALLIED ACQUISITION
On November 19, 1999, we acquired the Allied and Pickfords moving van
businesses from NFC plc. In the acquisition, we acquired capital stock of
various NFC subsidiaries located throughout the world, and the moving
van-related assets of NFC's Canadian operating subsidiary. Concurrently with the
closing of the acquisition, and as part of the financing for the transaction,
North American Van Lines issued and sold the old notes, and borrowed an
aggregate of $325.0 million in term loan borrowings and $65.0 million in
revolving credit borrowings under a new senior secured credit facility. In
addition, as part of that financing, Allied Worldwide, Inc., our parent
(formerly known as NA Holding Corporation), incurred $35.0 million initial
accreted value of unsecured senior discount term loan borrowings. The lenders
under this senior discount loan are expected to exchange the senior discount
loan for senior discount notes of Allied Worldwide prior to February 17, 2000.
Further, also as part of that financing, Allied Worldwide borrowed
$40.0 million in term loan borrowings under an interim loan facility. On
December 1, 1999, Clayton, Dubilier & Rice Fund V Limited Partnership, our
controlling shareholder, and a subsidiary of NFC subscribed for and purchased
additional common stock of Allied Worldwide for $40.0 million in cash. The
proceeds from this stock purchase were used to repay this $40.0 million interim
loan.
CLAYTON, DUBILIER & RICE FUND V LIMITED PARTNERSHIP
The controlling shareholder of our parent, Allied Worldwide, is Clayton,
Dubilier & Rice Fund V Limited Partnership. Clayton, Dubilier & Rice Fund V
Limited Partnership, a Cayman Islands exempted limited partnership formed in
March 1995, is a private investment fund that receives management services from
Clayton, Dubilier & Rice, Inc., a Delaware corporation.
* * *
North American Van Lines' principal executive offices are located at
5001 U.S. Highway 30 West, P.O. Box 988, Ft. Wayne, Indiana 46801-0988. Its
phone number is (219) 429-2511.
1
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
On November 19, 1999, we completed a private offering of $150,000,000
principal amount of 13 3/8% senior subordinated notes. In this prospectus, we
refer to (1) the notes sold in that original offering as the old notes, (2) the
notes offered hereby in exchange for the old notes as the new notes, and
(3) the old notes and the new notes together as notes.
The Exchange Offer........................ You may exchange old notes for new notes.
Resale of New Notes....................... We believe the new notes that will be issued in this
exchange offer may be resold by most investors without
compliance with the registration and prospectus delivery
provisions of the Securities Act, subject to certain
conditions. You should read the discussion under the
heading "The Exchange Offer" for further information
regarding the exchange offer and resale of the new
notes.
Registration Rights Agreement............. We have undertaken this exchange offer pursuant to the
terms of a registration rights agreement entered into
with the initial purchasers of the old notes. See "The
Exchange Offer" and "Description of Notes--Registration
Rights."
Consequence of Failure to Exchange Old
Notes................................... You will continue to hold old notes that remain subject
to their existing transfer restrictions if:
- you do not tender your old notes or
- you tender your old notes and they are not accepted
for exchange.
Subject to certain limited exceptions, we will have no
obligation to register the old notes after we consummate
the exchange offer. See "The Exchange Offer--Terms of
the Exchange Offer" and "--Consequences of Failure to
Exchange."
Expiration Date........................... The exchange offer will expire at 5:00 p.m., New York
City time, on , 2000, unless we extend it,
in which case "expiration date" means the latest date
and time to which the exchange offer is extended.
Interest on the New Notes................. The new notes will accrue interest at a rate of 13 3/8%
per annum from November 19, 1999, the issue date of the
old notes, or from the most recent date to which
interest has been paid or provided for on the old notes.
No additional interest will be paid on old notes
tendered and accepted for exchange.
Condition to the Exchange Offer........... The exchange offer is subject to certain customary
conditions, which we may waive. See "The Exchange
Offer--Conditions."
2
Procedures for Tendering Old Notes........ If you wish to accept the exchange offer, you must
submit required documentation and effect a tender of old
notes pursuant to the procedures for book-entry transfer
(or other applicable procedures) all in accordance with
the instructions described in this prospectus and in the
relevant letter of transmittal. See "The Exchange
Offer--Procedures for Tendering," "--Book-Entry
Transfer," and "--Guaranteed Delivery Procedures." Other
procedures may apply with respect to book-entry
transfers. See "The Exchange Offer--Exchanging
Book-Entry Notes."
Guaranteed Delivery Procedures............ If you wish to tender your old notes, but cannot
properly do so prior to the expiration date, you may
tender your old notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
Withdrawal Rights......................... Tenders of old notes may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the expiration
date. To withdraw a tender of old notes, a written or
facsimile transmission notice of withdrawal must be
received by the exchange agent at its address set forth
herein under "The Exchange Offer--Exchange Agent" prior
to 5:00 p.m., New York City time, on the expiration
date.
Acceptance of Old Notes and Delivery of
New Notes............................... Subject to certain conditions, any and all old notes
that are validly tendered in the exchange offer prior to
5:00 p.m., New York City time, on the expiration date
will be accepted for exchange. The new notes issued
pursuant to the exchange offer will be delivered as soon
as practicable following the expiration date. See "The
Exchange Offer--Terms of the Exchange Offer."
Certain U.S. Tax Considerations........... We believe that the exchange of the old notes for new
notes should not constitute a taxable exchange for
U.S. federal income tax purposes. See "Certain United
States Federal Tax Considerations."
Exchange Agent............................ State Street Bank and Trust Company is serving as
exchange agent.
3
SUMMARY OF THE TERMS OF THE NEW NOTES
The terms of the new notes are identical to the terms of the old notes
EXCEPT that the new notes:
- are registered under the Securities Act, and therefore will not contain
restrictions on transfer,
- will not contain provisions relating to additional interest, and
- will contain terms of an administrative nature that differ from those of
the old notes.
Maturity.................................. December 1, 2009.
Interest.................................. Interest will be payable in cash on June 1 and
December 1 of each year, beginning on June 1, 2000.
Ranking................................... The notes are our senior subordinated debt. Accordingly,
they will rank:
- behind all of our existing and future senior debt;
- equally with all our future subordinated, unsecured
debt that does not expressly provide that it is
subordinated to the notes;
- ahead of any of our future debt that expressly
provides that it is subordinated to the notes; and
- behind all of the liabilities of our existing and
future foreign subsidiaries, and our domestic
subsidiaries that do not guarantee our payment of our
bank indebtedness.
Assuming we had completed the offering and consummated
each of the transactions we describe in the section "The
Allied Acquisition," in each case, on September 25,
1999, the notes would have been subordinated to
approximately $387.3 million of our senior debt. In
addition, the notes are effectively subordinated to all
of the liabilities of our foreign subsidiaries, and our
domestic subsidiaries that do not guarantee our payment
of our bank indebtedness.
Guarantees................................ The notes will be guaranteed by our domestic
subsidiaries that guarantee our payment of our bank
indebtedness.
Optional Redemption....................... On or after December 1, 2004, we may redeem some or all
of the notes at any time at the redemption prices
described in the "Description of Notes--Optional
Redemption."
Prior to December 1, 2002, we may redeem up to 35% of
the notes with proceeds from certain equity offerings at
the redemption prices described in the section
"Description of Notes--Optional Redemption."
Mandatory Offer to Repurchase............. If we sell certain assets or experience specific kinds
of change of control, we must offer to repurchase the
notes at the prices described in the section
"Description of Notes--Change of Control."
Basic Covenants of Indenture.............. The indenture under which the notes are issued contains
covenants that will, among other things, restrict our
ability to:
- borrow money;
4
- pay dividends on stock or repurchase stock;
- make investments;
- use assets as security in other transactions; and
- sell certain assets or merge with or into other
companies.
See "Description of Notes--Certain Covenants."
RISK FACTORS
YOU SHOULD REFER TO THE SECTION ENTITLED "RISK FACTORS" FOR AN EXPLANATION
OF CERTAIN RISKS RELATING TO US, OUR BUSINESS, AND AN INVESTMENT IN THE NOTES.
5
SUMMARY UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The summary unaudited pro forma condensed financial data have been derived
from and should be read in conjunction with the unaudited pro forma condensed
financial statements, including the introductory paragraph and related notes.
See "Unaudited Pro Forma Financial Statements." The summary unaudited pro forma
balance sheet data illustrates the effect of (1) the Allied acquisition,
(2) the receipt of the proceeds from the issuance of the notes and initial
borrowings under the new senior credit facility and (3) the payment of all fees
and expenses related to the Allied acquisition and its financing as if they had
occurred on September 25, 1999. The pro forma statement of operations and other
data illustrate the effect of (1) the Allied acquisition, (2) the receipt of
proceeds from the issuance of the notes and initial borrowings under the new
senior credit facility, (3) an increase in stockholders' equity resulting from
the issuance of junior preferred stock, senior discount notes, common stock and
a common stock warrant by Allied Worldwide, and (4) the payment of all fees and
expenses related to the Allied acquisition and its financing as if they had
occurred on December 28, 1997. The pro forma financial data are presented for
informational purposes only and are not necessarily indicative of the actual or
future results had the Allied acquisition and anticipated borrowings been
completed on the dates indicated.
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 26, 1998 SEPTEMBER 25, 1999
----------------- ------------------
STATEMENT OF OPERATIONS DATA:
Operating revenues.......................... $2,118,647 $1,581,021
Operating income............................ 44,479 19,431
Net loss.................................... (2,564) (16,045)
OTHER DATA:
EBITDA(1)................................... 115,181 73,859
Depreciation and amortization............... 62,138 45,480
Capital expenditures........................ 31,850 20,306
Ratio of earnings to fixed charges.......... 0.62 0.34
AS OF
SEPTEMBER 25, 1999
------------------
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 1,228
Working capital............................................. 27,461
Fixed assets, net........................................... 171,267
Total assets................................................ 1,089,107
Total debt.................................................. 537,259
Stockholders' equity........................................ 171,294
- ------------------------
(1) EBITDA for the pro forma periods presented is calculated as described in
note (h) to Unaudited Pro Forma Condensed Income Statement.
EBITDA does not represent and should not be considered as an alternative to
net income or cash flow from operations as determined by generally accepted
accounting principles, and our calculation thereof may not be comparable to
that reported by other companies. We believe that it is widely accepted that
EBITDA provides useful information regarding a company's ability to service
and/or incur indebtedness. EBITDA does not take into account a company's
working capital requirements, debt service requirements and other
commitments and, accordingly, is not necessarily indicative of amounts that
may be available for discretionary use.
6
SUMMARY HISTORICAL FINANCIAL DATA OF NAVL
We derived the historical financial data for the years ended 1996 and 1997,
for the three-month period ended March 28, 1998 and for the nine-month period
ended December 26, 1998 from the audited financial statements of NAVL or its
predecessor for the periods then ended. The historical financial data of NAVL as
of September 25, 1999, for the nine months ended September 25, 1999 and the six
months ended September 26, 1998 are derived from the unaudited interim financial
statements of NAVL. The unaudited interim financial statements reflect all
adjustments which, in the opinion of management, are necessary for a fair
statement of the financial condition and results of operations as of and for the
periods presented. Operating results for the interim periods are not necessarily
indicative of the results that may be expected for the full year. The
presentation of historical financial data is only a summary and you should read
it together with the historical financial statements and related notes of NAVL
appearing elsewhere in this prospectus.
ANNUAL DATA NINE-MONTH DATA
--------------------------------------------------------- --------------------------------------------
PREDECESSOR(1) NAVL PREDECESSOR NAVL
------------------------------------------ ------------ ------------ -----------------------------
UNAUDITED
NINE-MONTH -----------------------------
PERIOD FROM
THREE-MONTH MARCH 29, THREE-MONTH SIX-MONTH
PERIOD FROM 1998 PERIOD FROM PERIOD FROM
DECEMBER 28, (INCEPTION) DECEMBER 28, MARCH 29, NINE MONTHS
YEAR ENDED YEAR ENDED 1997 THROUGH THROUGH 1997 THROUGH 1998 THROUGH ENDED
DECEMBER 28, DECEMBER 27, MARCH 28, DECEMBER 26, MARCH 28, SEPTEMBER 26, SEPTEMBER 25,
1996 1997 1998 1998 1998 1998 1999
------------ ------------ ------------ ------------ ------------ ------------- -------------
(DOLLARS IN MILLIONS)
STATEMENT OF
OPERATIONS DATA:
Operating revenues... $930.2 $941.5 $207.3 $759.2 $207.3 $521.0 $771.2
Gross profit......... 197.3 199.1 44.9 165.2 44.9 113.9 163.6
Operating income..... 28.1 31.2 (1.3) 11.5 (1.3) 11.0 2.9
Net income/(loss).... 17.5 22.3 (0.7) (1.2) (0.7) 0.7 (6.9)
OTHER DATA:
Net cash provided by
(used for)
operating
activities......... $ 39.7 $ 28.9 $ 10.3 $ (1.6) $ 10.3 $(12.2) $ (1.6)
EBITDA(2)............ 37.9 38.2 6.2 34.0 6.2 26.2 29.9
Depreciation and
amortization....... 12.7 12.5 2.9 22.5 2.9 15.2 21.1
Non-recurring
items(3)........... (2.9) (5.5) 4.6 -- 4.6 -- 5.9
Capital
expenditures....... 7.4 10.6 1.4 5.7 1.4 4.1 5.5
Ratio of earnings to
fixed charges(4)... 5.53 6.61 (0.98) 0.74 (0.98) 0.95 0.16
BALANCE SHEET DATA
(AT THE END OF
PERIOD):
Cash and cash
equivalents........ $ 1.9 $ 2.9 $ 9.2 $ 2.1 $ 9.2 $ 3.7 $ 1.2
Working capital...... 55.8 62.0 63.2 31.4 63.2 33.8 28.5
Fixed assets, net.... 57.1 57.8 56.4 73.6 56.4 78.1 59.1
Total assets......... 287.3 302.3 284.3 392.1 284.3 414.2 412.9
Total debt........... 0.7 0.7 0.7 168.6 0.7 170.0 178.3
Stockholders'
equity............. 86.1 108.1 101.0 63.7 101.0 65.3 56.8
- ------------------------
(1) See note 1 to Selected Historical Financial Data of NAVL appearing elsewhere
in this prospectus.
(2) EBITDA for the historical periods presented is calculated as described in
note 4 to Selected Historical Financial Data of NAVL.
7
EBITDA does not represent and should not be considered as an alternative to
net income or cash flow from operations as determined by generally accepted
accounting principles, and our calculation thereof may not be comparable to
that reported by other companies. We believe that it is widely accepted that
EBITDA provides useful information regarding a company's ability to service
and/or incur indebtedness. EBITDA does not take into account a company's
working capital requirements, debt service requirements and other
commitments and, accordingly, is not necessarily indicative of amounts that
may be available for discretionary use.
(3) See note 3 to Selected Historical Financial Data of NAVL appearing elsewhere
in this prospectus.
(4) The ratio of earnings to fixed charges for the years ended December 28, 1996
and December 27, 1997, for the three-month period ended March 28, 1998 and
for the nine-month period ended December 26, 1998 includes non-cancellable
lease expenses as the basis of determining the interest component of
operating leases. The ratio of earnings to fixed charges for the six-month
period ended September 26, 1998 and for the nine months ended September 25,
1999 include cancellable and non-cancellable lease expenses as the basis of
determining the interest component of operating leases.
8
SUMMARY HISTORICAL FINANCIAL DATA OF ALLIED
We derived the historical financial data for the twelve months ended
September 30, 1996 through 1998 from the audited combined financial statements
of Allied for the fiscal years ended September 30, 1996 through 1998, all of
which are presented in Pounds and in accordance with accounting principles
generally accepted in the United Kingdom (U.K. GAAP). The historical financial
data of Allied as of and for the nine months ended June 30, 1998 and June 30,
1999 are derived from the unaudited interim combined financial statements of
Allied. The unaudited interim combined financial statements reflect all
adjustments, consisting only of normal, recurring adjustments, which, in the
opinion of Allied's management, are necessary for a fair statement of the
combined financial condition and results of operations for the periods
presented. Operating results for the interim periods are not necessarily
indicative of the results that may be expected for the full year. The
presentation of historical financial data is only a summary and you should read
it together with the historical financial statements and related notes of Allied
appearing elsewhere in this prospectus.
ANNUAL DATA NINE-MONTH DATA
---------------------------------------------- -------------------------
TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, JUNE 30, JUNE 30,
1996 1997 1998 1998 1999
U.K. GAAP(1) ------------- -------------- ------------- ----------- -----------
(IN MILLIONS)
UNAUDITED
---------
STATEMENT OF OPERATIONS DATA:
Operating revenues................ L 658.1 L 680.7 L 698.3 L486.3 L496.8
Operating profit before
exceptional items(2)............ 15.7 19.0 24.5 12.7 12.4
Profit for the financial period... 8.9 11.8 20.0 10.9 9.6
OTHER DATA:
Net cash provided by operations... L 17.5 L 33.6 L 36.3 L 23.8 L 17.0
EBITDA(3)......................... 28.4 31.7 37.1 22.1 22.6
Depreciation...................... 8.3 8.4 9.0 6.9 7.4
Exceptional items(4).............. (4.0) 0.0 (1.7) (1.0) (1.0)
Capital expenditures.............. 9.9 12.2 15.0 11.5 9.1
Ratio of earnings to fixed
charges......................... 4.45 3.94 7.46 5.22 3.83
BALANCE SHEET DATA (AT THE END OF
PERIOD):
Cash.............................. L -- L 13.9 L 18.0 L 19.4 L 25.9
Working capital................... -- 31.9 34.2 24.2 39.7
Fixed assets, net................. -- 45.4 48.8 48.1 51.4
Total assets...................... -- 266.3 281.9 193.0 232.5
Intercompany payable to NFC,
net............................. -- 47.8 37.8 13.6 168.9
Stockholders' equity.............. -- 32.3 49.2 63.6 (63.0)
U.S. GAAP DATA(1)(5):
Operating revenues................ $1,013.5 $1,109.5 $1,152.2 $802.4 $809.8
EBITDA(3)......................... 45.9 54.1 64.7 38.8 38.8
Stockholders' equity.............. -- 87.3 119.9 142.6 (68.1)
- --------------------------
(1) The combined financial statements of Allied for the periods presented have
been prepared in accordance with U.K. GAAP, which differs in certain
significant respects from generally accepted accounting principles in the
United States (U.S. GAAP). See note 22 of Notes to the Combined Financial
Statements of Allied and note 4 of Notes to the Condensed Combined Financial
Statements of Allied included elsewhere in this prospectus. In anticipation
of the Allied acquisition, the historical financial statements were prepared
to show the performance of moving services businesses and assets of Allied
separate from the operations of its parent, NFC. These historical financial
statements were prepared for the three years ended September 30, 1998, as if
the moving services business had been in
9
existence from October 1, 1995. Financial information for Allied operations
is not available for periods prior to October 1, 1995.
(2) Includes operating exceptional items.
(3) EBITDA for the historical periods presented is calculated as described in
note 3 to Selected Historical Financial Data of Allied.
EBITDA does not represent and should not be considered as an alternative to
net income or cash flow from operations as determined by generally accepted
accounting principles, and our calculation thereof may not be comparable to
that reported by other companies. We believe that it is widely accepted that
EBITDA provides useful information regarding a company's ability to service
and/or incur indebtedness. EBITDA does not take into account a company's
working capital requirements, debt service requirements and other
commitments and, accordingly, is not necessarily indicative of amounts that
may be available for discretionary use.
(4) Includes profit/loss on disposal of properties, loss on disposal of
operations and operating exceptional items.
(5) See note 3 to Selected Historical Financial Data of Allied.
10
RISK FACTORS
YOU SHOULD READ AND CONSIDER CAREFULLY EACH OF THE FOLLOWING FACTORS, AS
WELL AS THE OTHER INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE INTO
THIS PROSPECTUS, BEFORE MAKING A DECISION TO INVEST IN THE NOTES.
IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL
CONDITION, RESULTS OF OPERATIONS OR ABILITY TO PAY PRINCIPAL OR INTEREST ON THE
NOTES COULD BE MATERIALLY ADVERSELY AFFECTED. IN THAT EVENT, YOU MAY LOSE ALL OR
PART OF YOUR INVESTMENT.
RISKS RELATING TO THE NOTES
IF YOU DO NOT PROPERLY TENDER YOUR OLD NOTES, YOU WILL CONTINUE TO HOLD
UNREGISTERED OLD NOTES AND YOUR ABILITY TO TRANSFER OLD NOTES WILL BE ADVERSELY
AFFECTED.
We will only issue new notes in exchange for old notes that are timely and
properly tendered. Therefore, you should allow sufficient time to ensure timely
delivery of the old notes and you should carefully follow the instructions on
how to tender your old notes. Neither we nor the exchange agent are required to
tell you of any defects or irregularities with respect to your tender of the old
notes. If you do not exchange your old notes for new notes pursuant to the
exchange offer, the old notes you hold will continue to be subject to the
existing transfer restrictions. In general, the old notes may not be offered or
sold, unless registered under the Securities Act, or exempt from registration
under the Securities Act and applicable state securities laws. We do not
anticipate that we will register old notes under the Securities Act.
After the exchange offer is consummated, if you continue to hold any old
notes, you may have trouble selling them because there will be fewer old notes
of such series outstanding. In addition, if a large number of old notes are not
tendered or are tendered improperly, the limited amount of new notes that would
be issued and outstanding after we consummate the exchange offer could lower the
market price of such new notes.
OUR SUBSTANTIAL INDEBTEDNESS AND OUR ABILITY TO INCUR MORE INDEBTEDNESS COULD
PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES.
We have significant indebtedness. On September 25, 1999, after giving pro
forma effect to the Allied acquisition and its financing (see "The Allied
Acquisition"), including the issuance of the notes, we would have had total
indebtedness, consisting of indebtedness for borrowed money and capital leases
and excluding letters of credit, of approximately $537.3 million (of which
$150.0 million would have consisted of the notes and the balance would have
consisted of borrowings of $385.4 million under the new senior credit facility
and other debt of $1.9 million (see "Capitalization")) and stockholders' equity
of approximately $171.3 million. In addition after giving pro forma effect to
these transactions, our ratio of earnings to fixed charges for the twelve months
ended December 26, 1998 would have been 0.62 to 1. The indenture pursuant to
which the notes are issued, the agreements governing Allied Worldwide's $35.0
million of senior discount debt and the agreements governing the new senior
credit facility limit, but do not prohibit, our incurrence of additional
indebtedness. A substantial level of debt may make it more difficult for us to
repay you.
Our indebtedness will have important consequences to you. For example, it
could:
- make it more difficult for us to make payments on the notes;
- limit our ability to borrow additional money for working capital, capital
expenditures, debt service requirements or other purposes;
- require us to use a substantial portion of our future cash flow from
operations to pay principal and interest on our indebtedness and other
obligations, thereby reducing the availability of this cash
11
flow to fund working capital, capital expenditures, debt service
requirements or other general corporate expenditures;
- limit our flexibility in planning for, or reacting to changes in, our
business and restrict our ability to take advantage of future business
opportunities;
- place us at a competitive disadvantage to those competitors with less
indebtedness; and
- limit our ability to react to changing market conditions, changes in our
industry and economic downturns.
WE MAY NOT HAVE ENOUGH CASH AVAILABLE TO SERVICE OUR INDEBTEDNESS.
Our ability to pay interest on the notes and meet our other debt service
obligations will depend on our future performance, which in turn depends on
successful implementation of our strategy and on financial, competitive,
regulatory, technical and other factors, many of which are beyond our control.
If we cannot generate sufficient cash flow from operations or meet our debt
service requirements, we may be required to refinance our indebtedness,
including the notes. Our ability to obtain such financing will depend on our
financial condition at the time, the restrictions in the agreements governing
our indebtedness and other factors, including general market and economic
conditions. If such refinancing were not possible, we could be forced to dispose
of assets at unfavorable prices. In addition, we could default on our debt
obligations, including our obligations to make payments on the notes. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Financial Condition--Pro Forma Liquidity and Capital Resources."
OUR DEBT AGREEMENTS IMPOSE OPERATING AND FINANCIAL RESTRICTIONS ON US THAT MAY
PREVENT US FROM CAPITALIZING ON BUSINESS OPPORTUNITIES.
The indenture pursuant to which the notes are issued, the agreements
governing Allied Worldwide's $35.0 million of senior discount debt and the
agreements governing the new senior credit facility impose significant operating
and financial restrictions on us. The terms of any other financings we may
obtain may do so as well. These restrictions may substantially limit or prohibit
us from taking various actions, including incurring additional debt, making
investments, paying dividends to our shareholders, creating liens, selling
assets, engaging in mergers and consolidations, repurchasing or redeeming
capital stock and capitalizing on business opportunities.
Failure to comply with the covenants and restrictions in the indenture or
other financing agreements could trigger defaults under such agreements even if
we are able to make payments on our debt. These defaults could result in a
default on the notes and could delay or preclude payment of principal of or
interest on the notes.
THE NOTES WILL BE SUBORDINATED TO OUR SENIOR DEBT, INCLUDING THE NEW SENIOR
CREDIT FACILITY.
The notes will be subordinated in right of payment to all of North American
Van Lines' current and future senior indebtedness. North American Van Lines has
senior indebtedness, including the new senior credit facility, and may incur
additional senior indebtedness in the future. If we default on our senior
indebtedness or, in the event of bankruptcy, liquidation or reorganization, the
holders of our senior debt will be entitled to be paid in full in cash before
any payment may be made with respect to the notes. Also, in the event of
bankruptcy, liquidation or reorganization, holders of the notes will participate
ratably with all holders of our subordinated indebtedness that is deemed to be
of the same class as the notes, and potentially with all our other general
creditors, in distributions of our remaining assets. In these events, we cannot
assure you that there would be sufficient assets to pay you in full or at all.
See "Description of Notes--Ranking."
12
As of September 25, 1999, after giving pro forma effect to the Allied
acquisition and its financing (see "The Allied Acquisition"), including the
issuance of the notes, we would have had senior indebtedness for borrowed money
and capital leases (including borrowings under the new senior credit facility)
of approximately $387.3 million, and approximately $89.6 million would have been
available for additional borrowing under the new senior credit facility.
THE NOTES WILL BE EFFECTIVELY SUBORDINATED TO OBLIGATIONS OF OUR FOREIGN
SUBSIDIARIES AND ANY DOMESTIC SUBSIDIARY THAT DOES NOT GUARANTEE THE NOTES.
North American Van Lines conducts a substantial portion of its business
through direct or indirect subsidiaries. Only those domestic subsidiaries that
guarantee its payment of its bank indebtedness will guarantee payment of the
notes. Creditors of North American Van Lines' other subsidiaries (including
holders of indebtedness and trade creditors) would generally be entitled to
payment of their claims from the assets of the affected subsidiaries before any
funds were made available for distribution to North American Van Lines. The
indenture permits the incurrence of additional indebtedness by North American
Van Lines and its subsidiaries and will permit investments by North American Van
Lines in its subsidiaries. In the event of a bankruptcy, liquidation or
reorganization of a subsidiary that does not guarantee the notes, holders of any
such subsidiary's indebtedness will have a claim to the assets of the subsidiary
that is prior to North American Van Lines' interest in those assets.
As of September 25, 1999, after giving pro forma effect to the Allied
acquisition, the issuance of the notes and the borrowings under the new senior
credit facility, those North American Van Lines subsidiaries that will not
guarantee the notes upon the closing of the Allied acquisition would have had
substantial liabilities including indebtedness for borrowed money, trade
payables and other balance sheet liabilities. If any subsidiary indebtedness
were to be accelerated, we cannot assure you that the assets of such subsidiary
would be sufficient to pay that indebtedness or that the assets of North
American Van Lines and its subsidiaries that then guarantee the notes would be
sufficient to repay in full North American Van Lines' indebtedness, including
the notes.
OUR ACCESS TO THE CASH FLOW OF OUR SUBSIDIARIES IS RESTRICTED.
Although a substantial portion of North American Van Lines' business is
conducted through its subsidiaries, only those domestic subsidiaries that
guarantee its payment of its bank indebtedness will guarantee the notes. None of
our subsidiaries will have any other obligation, contingent or otherwise, to
make any funds available to us for payment of the notes. Accordingly, our
ability to pay the notes is dependent upon the earnings of these subsidiaries
and the distribution of funds from these subsidiaries to North American Van
Lines.
These subsidiaries are permitted under the indenture to incur substantial
additional indebtedness that may severely restrict or prohibit the making of
distributions, the payment of dividends and the making of loans by such
subsidiaries to North American Van Lines. Applicable law of the jurisdictions in
which these subsidiaries are organized or contractual or other obligations to
which they are subject may limit their ability to pay dividends or make or repay
on intercompany loans, including any that may be made with the proceeds of the
offering of the notes. In particular, our insurance subsidiaries are subject to
extensive regulation in their respective jurisdictions that limit loans, the
transfer of assets, or payments by such insurance subsidiaries to their
affiliates, including North American Van Lines. Such regulations could limit
North American Van Lines' ability to draw on these insurance subsidiaries'
assets to repay its indebtedness, including the notes. See "Business--Government
Regulation." In addition, we are currently developing an e-commerce business
strategy but are still in the process of determining the structure and scope of
this business. We cannot assure you that the development of this business will
not occur through a spin-off, other divestiture or other manner, such as a joint
venture, that may make the profits generated by this business, if any,
unavailable, or available only to a limited extent, to North American Van Lines
to make payments on the notes.
13
Additionally, those subsidiaries that are not guaranteeing the notes may
generate substantial revenue that will not be available to pay the notes unless
and until such revenue is distributed to North American Van Lines or an
intermediate parent company that does guarantee the notes. Furthermore, the
payment of interest and principal on intercompany loans and advances as well as
the payment of dividends by North American Van Lines' subsidiaries may be
subject to taxes.
We cannot assure you that our operations will generate sufficient cash flow
to support payment of the notes, or that dividends, distributions, loans or
other funds will be available from North American Van Lines' subsidiaries to
fund these payments.
WE MAY NOT BE ABLE TO FINANCE A CHANGE OF CONTROL OFFER REQUIRED BY THE
INDENTURE.
If we undergo certain types of changes of control, we may be required to
offer to repurchase all outstanding notes. However, we cannot assure you that
sufficient funds will be available at the time of any of these occurrences to
make any required repurchases of notes tendered or that restrictions in the new
senior credit facility or the debt agreements of Allied Worldwide will allow us
to make such required repurchases. Notwithstanding these provisions, we could
enter into certain transactions, including certain recapitalizations, that would
not constitute a change of control as defined in the indenture but would
increase the amount of debt outstanding at such time. See "Description of
Notes--Change of Control."
THERE WILL BE NO PUBLIC TRADING MARKET FOR THE NOTES, AND YOUR ABILITY TO
TRANSFER THEM IS LIMITED.
No active trading market currently exists for the notes. If these securities
are traded after we issue them, they may trade at a discount from their initial
offering price, depending on prevailing interest rates, the market for similar
securities and other factors, including general economic conditions and our
financial condition, performance and prospects, as well as recommendations of
securities analysts. We cannot assure you that an active trading market for the
notes will develop or, if one does develop, that it will be sustained. The
liquidity of, and trading market for, the notes may also be impacted by declines
in the market for high yield securities generally. Such a decline may materially
and adversely affect any liquidity and trading of the notes independent of our
financial performance and prospects.
UNDER CERTAIN CIRCUMSTANCES, A COURT COULD AVOID OR SUBORDINATE THE AMOUNTS
OWING UNDER THE GUARANTEES AND THE NOTES TO OUR PRESENTLY EXISTING AND FUTURE
INDEBTEDNESS, AND COULD TAKE OTHER ACTIONS DETRIMENTAL TO YOUR INTERESTS AS A
NOTE HOLDER.
The incurrence of indebtedness by North American Van Lines and any of its
subsidiaries that guarantee the notes, such as the notes and the note
guarantees, may be subject to review under federal or state fraudulent transfer
laws in the event that North American Van Lines or any note guarantor is the
subject of a bankruptcy filing or lawsuit commenced by or on behalf of unpaid
creditors of North American Van Lines or such note guarantor. Under such laws,
if a court in a lawsuit by a creditor or a representative of creditors of North
American Van Lines or any note guarantor, such as a trustee in bankruptcy, were
to find that, at the time North American Van Lines or such note guarantor
incurred indebtedness, including indebtedness under the notes or the relevant
note guarantee, North American Van Lines or such note guarantor
(1) was insolvent or rendered insolvent by reason of such incurrence,
(2) was engaged in a business or transaction for which its remaining assets
constituted an unreasonably small amount of capital,
(3) intended to incur, or believed that it would incur, debts beyond its
ability to pay as they matured, or
(4) intended to hinder, delay or defraud current or future creditors
14
and, in the case of clauses (1), (2) and (3), that North American Van Lines or
such note guarantor did not receive reasonably equivalent value or fair
consideration for incurring such indebtedness, such court could avoid or
subordinate the amounts owing under the notes or the relevant note guarantee to
presently existing and future indebtedness of North American Van Lines or such
note guarantor and take other actions detrimental to holders of the notes.
If a court were to find that North American Van Lines or such note guarantor
came within any of clauses (1) through (4) above, North American Van Lines or
such note guarantor, or its creditors or the trustee in bankruptcy, could seek
to avoid the grant of security interests to the lenders under the senior credit
facility. This would result in an event of default with respect to indebtedness
incurred under the senior credit facility which, under the terms of such
indebtedness (subject to applicable law), would allow the lenders to terminate
their obligations thereunder and to accelerate payment of such indebtedness.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law of the jurisdiction which is being applied. Generally, however, a
company would be considered insolvent for purposes of the foregoing if, at the
time it incurred the indebtedness,
(1) the sum of such company's debts including contingent liabilities is
greater than all such company's property at a fair valuation,
(2) the present fair saleable value of such company's assets is less than
the amount that will be required to pay its probable liability on its
existing debts and liabilities (including contingent liabilities) as they
become absolute and matured or
(3) the company incurred obligations beyond its ability to pay as such
obligations become due.
There can be no assurance as to what standards a court would use to determine
whether North American Van Lines or a note guarantor was solvent at the relevant
time, or whether, whatever standards were to be used, the notes or the note
guarantees would not be avoided or further subordinated on another of the
grounds set forth above. Moreover, any solvency analysis conducted in connection
with the Allied acquisition and its financing would not be binding on a court
and there can be no assurance that a court would not determine that North
American Van Lines or a note guarantor was insolvent at the time of or after
giving effect to the Allied acquisition, the offering of the notes or the
borrowings under the senior credit facility.
Management believes that at the time the indebtedness constituting the notes
and the note guarantees were incurred initially by North American Van Lines and
the note guarantors, each of North American Van Lines and the note guarantors
(1) was
(a) neither insolvent nor rendered insolvent by reason of such
occurrence,
(b) in possession of sufficient capital to run its respective business
effectively and
(c) incurring debts within its respective ability to pay as the same
mature or become due and
(2) will have sufficient assets to satisfy any probable money judgment
against it in any pending action.
In reaching the foregoing conclusions, management has relied upon its analyses
of internal cash flow projections and estimated values of assets and liabilities
of North American Van Lines and the note guarantors. We cannot assure you,
however, that a court passing on such questions would reach the same
conclusions.
15
RISKS RELATING TO OUR COMPANY
WE HAVE A HISTORY OF NET LOSSES, AND MAY NOT BE PROFITABLE IN THE FUTURE.
Since the acquisition of NAVL by Clayton, Dubilier & Rice Fund V Limited
Partnership in March of 1998, we have had significant interest expense.
Consequently, NAVL reported a net loss of $6.9 million for the nine months ended
September 25, 1999, and $1.2 million for the nine-month period ended
December 26, 1998.
After giving effect to the Allied acquisition and the initial borrowings
under the new senior credit facility, we continue to have a substantial amount
of interest expense. We also expect that continued development of our business
will require significant additional capital expenditures. We expect that these
continued expenses will result in future net losses and affect our ability to
reduce our leverage.
WE MAY EXPERIENCE DIFFICULTY INTEGRATING THE NEWLY ACQUIRED ALLIED BUSINESSES.
ANY SUCH DIFFICULTIES COULD ADVERSELY AFFECT OUR OPERATIONS.
The integration and consolidation of Allied will require substantial
management, financial and other resources. While we believe that we have
sufficient resources to manage this effort, the Allied acquisition involves a
number of significant risks, including diversion of management's attention, the
inability to integrate successfully Allied's operations, difficulties in
assimilating the technologies, services and products of Allied, the inability to
retain key management employees of Allied and unanticipated events or
circumstances, some or all of which could have a material adverse effect on our
business, financial condition or results of operations. Moreover, we cannot
provide assurances as to the timing or the extent of the anticipated benefits of
the Allied acquisition. Our inability to integrate and manage Allied
successfully, or to achieve a substantial portion of the anticipated benefits
within the time frame anticipated by management, could have a material adverse
effect on our business, financial condition or results of operations.
WE MAY BE UNABLE TO ACHIEVE ESTIMATED COST SAVINGS.
Our business plan anticipates that we will have the ability to achieve
substantial cost savings through (1) our Fast Forward program, (2) synergies
arising as a result of the combination of NAVL and Allied, and (3) our ability
to operate our business with lower costs than the overhead allocated by former
owners. See "Business--Business and Growth Strategy." These estimated cost
savings are based upon analyses completed by members of our management. Such
estimates and analyses necessarily involve assumptions as to future events,
including general business and industry conditions, competitive factors, local
labor markets and labor productivity, many of which are beyond our control and
may not materialize. While we believe these analyses and underlying assumptions
to be reasonable, there could be unforeseen factors that may offset the
estimated cost savings or other components of our business plan in whole or in
part. As a result, our actual cost savings may vary considerably in amount
and/or character, or be considerably delayed, compared to the estimates
described in this prospectus. In addition, we expect to incur certain
significant costs in connection with implementing the above savings (see
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Financial Condition--Liquidity and Capital Resources").
WE MAY NOT BE ABLE TO RECRUIT AND RETAIN A SUFFICIENT NUMBER OF AGENTS,
REPRESENTATIVES OR OWNER/OPERATORS TO CARRY OUT OUR GROWTH PLANS.
We rely on the services of agents to market our services and to act as
intermediaries with customers, and on agents and owner/operators to provide a
significant portion of our packing, warehousing and hauling services. Although
we believe our relationships with our agents and owner/operators are good, we
have had some difficulty in obtaining or retaining qualified owner/operators in
the past due to other available employment choices with more earnings potential
or individuals' desire to pursue a lifestyle that
16
is not "on-the-road." In April of 1999, the initial term of the agency contracts
between Allied and U.S. agents representing approximately 52.1% of Allied's 1998
revenue booked by U.S. domestic agents expired. Although the majority of these
agents have signed eighteen-month extensions, the contracts for the remainder of
these agents (representing 8.0% of Allied's 1998 revenue booked by U.S. domestic
agents), although still in effect, may be terminated by these agents on three
months' notice. Although we have experienced relatively low agent turnover in
the past, we cannot assure you that these contracts will be renewed on favorable
terms or at all. In addition, NAVL's fourteenth largest agent terminated its
relationship with us on January 30, 2000.
We cannot assure you that we will be successful in retaining our agents or
owner/operators or that agents or owner/operators that terminate their contracts
can be replaced by equally qualified personnel. A loss in the number of
qualified drivers could lead to an increased frequency of accidents, potential
claims exposure and, indirectly, insurance costs. Because agents have the
primary relationship with customers, we expect that some customers would
terminate their relationship with us were the agent that handles such customers'
business to terminate its relationship with us.
WE HAVE NO CONTROL OVER THIRD PARTIES ON WHOM WE RELY FOR THE PROVISION OF
CERTAIN ASPECTS OF OUR SERVICES AND IF THEY OR THEIR FACILITIES DO NOT PERFORM
OR FUNCTION ADEQUATELY, OUR OPERATIONS MAY BE IMPAIRED.
We rely on third parties for certain aspects of our services, including
warehousing and the provisioning of some distribution facilities and cargo
space. If these third parties or their facilities do not perform or function
adequately, our operations may be impaired. We are also subject to other risks
outside our control, such as the risk to customer goods from fire, power loss,
flooding and other natural disasters.
WE LICENSE A SIGNIFICANT PORTION OF OUR INFORMATION TECHNOLOGY SYSTEMS FROM A
THIRD PARTY. THEREFORE, OUR RIGHT TO USE THESE SYSTEMS MAY BE LIMITED.
Our range of logistics services is supported by an integrated information
system that links order processing, inventory management and product tracking
with physical distribution features. Although we developed one of these systems
internally, we transferred ownership of it to, and currently license it from, a
third party. In addition, other information technology systems that are crucial
to our business are licensed from third parties. These licenses set forth the
terms of our continued use of this software and impose restrictions on our
ability to use this software in certain business segments. See
"Business--Information Technology."
WE MAY HAVE DIFFICULTY INTEGRATING OR ENHANCING SOPHISTICATED LOGISTICS
INFORMATION SYSTEMS. ANY SUCH DIFFICULTIES COULD DELAY OR DISRUPT OUR ABILITY TO
SERVICE OUR CUSTOMERS OR IMPAIR OUR COMPETITIVENESS.
Sophisticated information systems are vital to our growth and our ability to
manage and monitor the flow of goods we are transporting and to provide
attractive logistics solutions services, which depend on technologically
advanced systems. As these systems are evolving rapidly, we will need to
continually enhance them. We may encounter difficulties in enhancing these
systems or in integrating new technology into our systems in a timely and
cost-effective manner. Such difficulties could have a material adverse effect on
our ability to operate efficiently and to provide competitive customer service.
To compete effectively, we must anticipate and adapt to technological
changes and offer, on a timely basis, competitively priced services that meet
evolving industry standards and customer preferences. We may choose new
technologies that later prove to be inadequate, or may be forced to implement
new technologies at substantial cost to remain competitive. In addition,
competitors may implement new technologies before we do, allowing such
competitors to provide lower priced or enhanced services and superior quality
compared to those we provide. This development could have a material adverse
effect on our ability to compete.
17
OUR OWNER/OPERATORS ARE CURRENTLY NOT CONSIDERED TO BE EMPLOYEES BY TAXING AND
OTHER REGULATORY AUTHORITIES. SHOULD THESE AUTHORITIES CHANGE THEIR POSITION AND
CONSIDER OUR OWNER/OPERATORS TO BE OUR EMPLOYEES, OUR COSTS RELATED TO OUR TAX,
UNEMPLOYMENT COMPENSATION AND WORKERS' COMPENSATION PAYMENTS COULD INCREASE
SIGNIFICANTLY.
From time to time, certain parties, including the Internal Revenue Service
and state authorities, have sought to assert that owner/operators in the
trucking industry are employees rather than independent contractors. At times,
these parties have been successful in making these assertions. We consider all
of our owner/operators to be independent contractors. We cannot assure you that
tax authorities will not successfully challenge this position, that
interpretations supporting our position will not change, or that federal and
state tax or other applicable laws will not change. If owner/operators were
deemed to be employees, our costs related to tax, unemployment compensation, and
workers' compensation could increase significantly. In addition, such changes
may be applied retroactively, and if so we may be required to pay additional
amounts to compensate for prior periods.
WE ARE DEPENDENT ON OUR HIGHLY TRAINED EXECUTIVE OFFICERS AND EMPLOYEES. ANY
DIFFICULTY IN MAINTAINING OUR CURRENT EMPLOYEES OR IN HIRING SIMILAR EMPLOYEES
WOULD ADVERSELY AFFECT OUR ABILITY TO OPERATE OUR BUSINESS.
Our operations are managed by a small number of key executive officers. The
loss of any of these individuals could have a material adverse effect on us. In
addition, our success depends on our ability to continue to attract, recruit and
retain sufficient qualified personnel in an increasingly technology-based
industry as we grow. Competition for qualified personnel is intense. We cannot
assure you that we will be able to retain senior management, integrate new
managers, or recruit qualified personnel in the future.
WE ARE CONTROLLED BY PARTIES WHOSE INTERESTS MAY NOT BE ALIGNED WITH YOURS.
Clayton, Dubilier & Rice Fund V Limited Partnership indirectly holds
approximately 72.3% of our capital stock on an undiluted basis and 62.4% on a
fully diluted basis. Such ownership may present conflicts of interest between
these owners and you if we encounter financial difficulties or if these owners
cause us to pursue transactions that could enhance their equity investment while
involving risks to your interests.
WE MAY BE ADVERSELY AFFECTED BY YEAR 2000 ISSUES.
Computer programs that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000, which could result in
miscalculations or a major system failure. We cannot assure you that our systems
will continue to function adequately during the year 2000 or thereafter. A
failure of our computer or other systems could have a material adverse effect on
us. We cannot assure you either that the systems of our vendors, suppliers,
agents, representatives and customers are Year 2000 compliant. Any failure of
their computer systems could materially and adversely affect our ability to
operate our business and could impose significant costs on us. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition--Impact
of Year 2000."
RISKS RELATING TO OUR INDUSTRY
POTENTIAL LIABILITY ASSOCIATED WITH ACCIDENTS IN THE TRUCKING TRANSPORTATION
INDUSTRY IS SEVERE AND OCCURRENCES ARE UNPREDICTABLE. IN ADDITION, AN INCREASE
IN LIABILITY, PROPERTY OR CASUALTY INSURANCE PREMIUMS COULD CAUSE US TO INCUR
SIGNIFICANT COSTS.
We use the services of a significant number of drivers in connection with
our pick-up and delivery operations, and from time to time such drivers are
involved in accidents. Potential liability associated with accidents in the
trucking industry may be severe and occurrences are unpredictable. We are also
subject to substantial exposure due to workers' compensation and cargo claims
expense, whether or not injuries or damage occur in the context of a traffic
accident.
18
We carry insurance to cover liability and workers' compensation claims. We
cannot assure you, however, that our insurance will be adequate to cover all of
our liabilities. To the extent we were to experience a material increase in the
frequency or severity of accidents, cargo claims or workers' compensation
claims, or in the unfavorable resolution of existing claims, we might be
required to incur substantial costs to cover these claims. In addition, our
results of operations would be adversely affected if the premiums for our
liability, workers' compensation and casualty claims were to increase
substantially.
OUR OPERATING RESULTS ARE SUBJECT TO SEASONAL FLUCTUATIONS.
Our operations are subject to seasonal trends common to the moving industry.
Results of operations for the quarter ending in March are typically lower than
the quarters ending in June, September and December due to reduced shipments and
higher operating costs in the winter months. We serve numerous industries and
customers that experience significant fluctuations in demand based on economic
conditions and other factors beyond our control. Demand for our services could
be materially adversely affected by downturns in the business of our corporate
customers or a decrease in the frequency of household moves. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition--
Seasonality."
IF WE DO NOT SUCCESSFULLY COMPETE WITHIN THE HIGHLY COMPETITIVE RELOCATION AND
LOGISTICS SERVICES INDUSTRY, WE MAY BE UNABLE TO REPAY THE NOTES.
The relocation services business is highly competitive and fragmented. Aside
from the handful of large van lines, the industry remains extremely fragmented
with many small private participants that may have strong positions in local
markets. We compete primarily with truckload carriers and independent
contractors and, with respect to certain aspects of our business, intermodal
transportation, railroads and less-than-truckload carriers. Intermodal
transportation (the hauling of truck trailers or containers on rail cars or
ships) has increased in recent years as reductions in train crew size and the
development of new rail technology have reduced costs of intermodal shipping.
The logistics industry is becoming increasingly consolidated due to, among other
things, the need for global distribution networks, large vehicle fleets and
global information technology systems. In addition, consolidation is driven by
customers' desire for integrated services, the high growth in international and
cross-border delivery segments and, in Europe, the deregulation of European
delivery markets. Industry participants are acquiring, merging with or forming
alliances with partners that can expand global reach, breadth of services or
technological capabilities in order to better enable those participants to
compete in a rapidly changing global environment. One of our largest logistics
customers recently indicated that it is considering alternative suppliers, which
will result in its doing less business with us. See "Business--Customers and
Marketing." If we do not successfully compete within the highly competitive
relocation and logistics services industry, we may be unable to pay the notes.
IF WE LOST ONE OR MORE OF OUR GOVERNMENT LICENSES OR PERMITS OR BECAME SUBJECT
TO MORE ONEROUS GOVERNMENT REGULATIONS, WE COULD BE ADVERSELY AFFECTED.
Our operations are subject to a number of complex and stringent
transportation, environmental, labor, employment and other laws and regulations.
These laws and regulations generally require us to maintain a wide variety of
certificates, permits, licenses and other approvals. Our failure to maintain
required certificates, permits or licenses, or to comply with applicable laws,
ordinances or regulations, could result in substantial fines or possible
revocation of our authority to conduct our operations.
We cannot assure you that existing laws or regulations will not be revised
or that new laws or regulations, which could have an adverse impact on our
operations, will not be adopted or become applicable to us. We also cannot
assure you that we will be able to recover any or all increased costs of
compliance from our customers or that our business and financial condition will
not be materially and
19
adversely affected by future changes in applicable laws and regulations. See
"Business--Government Regulation."
THE INTERNATIONAL SCOPE OF OUR OPERATIONS MAY ADVERSELY AFFECT OUR BUSINESS.
We may face certain risks because we conduct an international business,
including:
- regulatory restrictions or prohibitions on the provision of our services;
- restrictions on foreign ownership of subsidiaries;
- tariffs and other trade barriers;
- longer payment cycles;
- problems in collecting accounts receivables;
- political risks; and
- potentially adverse tax consequences of operating in multiple
jurisdictions.
In addition, an adverse change in laws or administrative practices in
countries within which we operate could have a material adverse effect on us.
We are exposed to fluctuation in foreign currencies, as our revenues, costs,
assets and liabilities are denominated in multiple local currencies. Our payment
obligations with respect to the notes and a significant amount of our other
indebtedness are denominated in U.S. Dollars, but a substantial portion of our
revenues is denominated in other currencies as well. Any appreciation in the
value of the U.S. Dollar relative to such currencies could have an adverse
effect on us.
EVENTS DESCRIBED BY OUR FORWARD LOOKING STATEMENTS MAY NOT OCCUR.
This prospectus contains forward-looking statements that are subject to
risks and uncertainties. You should not place undue reliance on these
statements. Forward-looking statements include information concerning our
possible or assumed future results of operations, including descriptions of our
business strategies. These statements often include words such as "believe,"
"expect," "anticipate," "intend," "plan," "estimate," "seek," "will," "may" or
similar expressions. These statements are based on certain assumptions that we
have made in light of our experience in the industry as well as our perceptions
of historical trends, current conditions, expected future developments and other
factors we believe are appropriate in these circumstances. As you read and
consider this prospectus, you should understand that these statements are not
guarantees of performance or results. They involve risks, uncertainties and
assumptions. Many factors could affect our actual financial results or results
of operations and could cause actual results to differ materially from those in
the forward-looking statements. These factors include:
- operations and prospects,
- ability to achieve estimated cost savings,
- funding needs and financing sources,
- expected financial position,
- business and financing plans,
- markets, including the future growth of the logistics and relocation
markets,
- expected characteristics of competition,
- expected actions of third parties such as agents, representatives,
owner/operators and suppliers and
20
- various other factors beyond our control.
All future written and oral forward-looking statements by us or persons
acting on our behalf are expressly qualified in their entirety by the cautionary
statements contained or referred to above. We do not have any obligation or
intention to update or revise any forward-looking statements to reflect events
or circumstances in the future or to reflect the occurrence of unanticipated
events.
THESE RISKS AND UNCERTAINTIES ARE NOT THE ONLY ONES FACING US.
Additional risks and uncertainties not presently known to us or that we may
currently deem immaterial may also impair our business operations.
21
THE EXCHANGE OFFER
The following contains a summary of the material provisions of the
registration rights agreement. It does not contain all of the information that
may be important to an investor in the notes. Reference is made to the
provisions of the registration rights agreement, which has been filed as an
exhibit to the registration statement. Copies are available as set forth under
the heading "Where You Can Find More Information."
TERMS OF THE EXCHANGE OFFER
GENERAL. In connection with the issuance of the old notes pursuant to a
purchase agreement, dated as of November 12, 1999, between North American Van
Lines and the initial purchasers, the initial purchasers and their respective
assignees became entitled to the benefits of the registration rights agreement.
Under the registration rights agreement, we have agreed (1) to use our
reasonable best efforts to cause to be filed with the Commission the
registration statement of which this prospectus is a part with respect to a
registered offer to exchange the old notes for the new notes and (2) to use all
commercially reasonable efforts to cause the registration statement to be
declared effective under the Securities Act within 210 calendar days after the
initial issuance of the old notes. We will keep the exchange offer open for the
period required by applicable law, but in any event for at least ten business
days after the date notice of the exchange offer is mailed to holders of the old
notes. The exchange offer being made hereby, if consummated within 240 days
after the initial issuance of the old notes, will satisfy those requirements
under the registration rights agreement.
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, all old notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on the expiration date will be
accepted for exchange. New notes will be issued in exchange for an equal
principal amount of outstanding old notes accepted in the exchange offer. Old
notes may be tendered only in integral multiples of $1,000. This prospectus,
together with the letter of transmittal, is being sent to all registered holders
as of , 2000. The exchange offer is not conditioned upon any minimum
principal amount of old notes being tendered for exchange. However, the
obligation to accept old notes for exchange pursuant to the exchange offer is
subject to certain customary conditions as set forth herein under
"--Conditions."
Old notes shall be deemed to have been accepted as validly tendered when, as
and if we have given oral or written notice thereof to the exchange agent. The
exchange agent will act as agent for the tendering holders of old notes for the
purposes of receiving the new notes and delivering new notes to such holders.
Based on interpretations by the Staff of the Commission as set forth in
no-action letters issued to third parties (including Exxon Capital Holdings
Corporation (available May 13, 1988), Morgan Stanley & Co. Incorporated
(available June 5, 1991), K-III Communications Corporation (available May 14,
1993) and Shearman & Sterling (available July 2, 1993)), we believe that the new
notes issued pursuant to the exchange offer may be offered for resale, resold
and otherwise transferred by any holder thereof (other than any such holder that
is a broker-dealer or an "affiliate" of us within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that:
- such new notes are acquired in the ordinary course of business,
- at the time of the commencement of the exchange offer such holder has no
arrangement or understanding with any person to participate in a
distribution of such new notes, and
- such holder is not engaged in, and does not intend to engage in, a
distribution of such new notes.
22
We have not sought, and do not intend to seek, a no-action letter from the
Commission with respect to the effects of the exchange offer, and there can be
no assurance that the Staff would make a similar determination with respect to
the new notes as it has in such no-action letters.
By tendering old notes in exchange for new notes and executing the letter of
transmittal, each holder will represent to us that:
- any new notes to be received by it will be acquired in the ordinary
course of business,
- it has no arrangements or understandings with any person to participate
in the distribution of the old notes or new notes within the meaning of
the Securities Act, and
- it is not our "affiliate," as defined in Rule 405 under the Securities
Act.
If such holder is a broker-dealer, it will also be required to represent that
the old notes were acquired as a result of market-making activities or other
trading activities and that it will deliver a prospectus in connection with any
resale of new notes. See "Plan of Distribution." Each holder, whether or not it
is a broker-dealer, shall also represent that it is not acting on behalf of any
person that could not truthfully make any of the foregoing representations
contained in this paragraph. If a holder of old notes is unable to make the
foregoing representations, such holder may not rely on the applicable
interpretations of the Staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction unless such sale is made
pursuant to an exemption from such requirements.
Each broker-dealer that receives new notes for its own account in exchange
for old notes where such new notes were acquired by such broker-dealer as a
result of market-making or other trading activities, must acknowledge that it
will deliver a prospectus meeting the requirements of the Securities Act and
that it has not entered into any arrangement or understanding with us or an
affiliate of ours to distribute the new notes in connection with any resale of
such new notes. See "Plan of Distribution."
Upon consummation of the exchange offer, any old notes not tendered will
remain outstanding and continue to accrue interest but, subject to certain
limited exceptions, holders of old notes who do not exchange their old notes for
new notes in the exchange offer will no longer be entitled to registration
rights and will not be able to offer or sell their old notes, unless such old
notes are subsequently registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. Subject to limited exceptions, we will have no
obligation to effect a subsequent registration of the old notes.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION. The expiration date
shall be , 2000, unless North American Van Lines, in its sole
discretion, extends the exchange offer, in which case the expiration date shall
be the latest date to which the exchange offer is extended.
To extend the expiration date, we will notify the exchange agent of any
extension by oral or written notice and will notify the holders of old notes by
means of a press release or other public announcement prior to 9:00 A.M., New
York City time, on the next business day after the previously scheduled
expiration date. Such announcement may state that we are extending the exchange
offer for a specified period of time.
We reserve the right
(1) to delay acceptance of any old notes, to extend the exchange offer or to
terminate the exchange offer and not permit acceptance of old notes not
previously accepted if any of the conditions set forth herein under
"--Conditions" shall have occurred and shall not have been waived by us
prior to the expiration date, by giving oral or written notice of such
delay, extension or termination to the exchange agent, or
23
(2) to amend the terms of the exchange offer in any manner deemed by it to
be advantageous to the holders of the old notes.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
exchange agent. If the exchange offer is amended in a manner determined by us to
constitute a material change, we will promptly disclose such amendment in a
manner reasonably calculated to inform the holders of the old notes of such
amendment.
Without limiting the manner in which we may choose to make public
announcement of any delay, extension, amendment or termination of the exchange
offer, we shall have no obligations to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to an appropriate news agency.
INTEREST ON THE NEW NOTES
The new notes will accrue interest at the rate of 13 3/8% per annum from the
last interest payment date on which interest was paid on the old note
surrendered in exchange therefor, or, if no interest has been paid on such old
note, from the issue date of such old note, PROVIDED, that if an old note is
surrendered for exchange on or after a record date for an interest payment date
that will occur on or after the date of such exchange and as to which interest
will be paid, interest on the new note received in exchange therefor will accrue
from the date of such interest payment date. Interest on the new notes is
payable on December 1 and June 1 of each year, commencing June 1, 2000. No
additional interest will be paid on old notes tendered and accepted for
exchange.
PROCEDURES FOR TENDERING
To tender in the exchange offer, a holder must complete, sign and date the
applicable letter of transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the letter of transmittal, and mail or
otherwise deliver such letter of transmittal or such facsimile, together with
any other required documents, to the exchange agent prior to 5:00 p.m., New York
City time, on the expiration date. In addition, either
- certificates of such old notes must be received by the exchange agent
along with the applicable letter of transmittal, or
- a timely confirmation of a book-entry transfer of such old notes, if such
procedure is available, into the exchange agent's account at the
book-entry transfer facility, The Depository Trust Company, pursuant to
the procedure for book-entry transfer described below, must be received
by the exchange agent prior to the expiration date with the applicable
letter of transmittal, or
- the holder must comply with the guaranteed delivery procedures described
below.
THE METHOD OF DELIVERY OF OLD NOTES, LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE NOTE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO OLD NOTES, LETTERS OF TRANSMITTAL OR OTHER
REQUIRED DOCUMENTS SHOULD BE SENT TO US. Delivery of all old notes (if
applicable), letters of transmittal and other documents must be made to the
exchange agent at its address set forth below. Holders may also request their
respective brokers, dealers, commercial banks, trust companies or nominees to
effect such tender for such holders.
The tender by a holder of old notes will constitute an agreement between
such holder and us in accordance with the terms and subject to the conditions
set forth herein and in the applicable letter of transmittal. Any beneficial
owner whose old notes are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and who wishes to tender should contact
such registered holder promptly and instruct such registered holder to tender on
his behalf.
24
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by any member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor" institution within the meaning of
Rule 17Ad-15 under the Securities Exchange Act of 1934 (each an "Eligible
Institution") unless the old notes tendered pursuant thereto are tendered
(1) by a registered holder of old notes who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal or (2) for the account of an Eligible Institution.
If a letter of transmittal is signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such person should so indicate when
signing, and unless waived by us, evidence satisfactory to us of their authority
to so act must be submitted with such letter of transmittal.
All questions as to the validity, form, eligibility, time of receipt and
withdrawal of the tendered old notes will be determined by us in our sole
discretion, which determination will be final and binding. We reserve the
absolute right to reject any and all old notes not properly tendered or any old
notes which, if accepted, would, in the opinion of counsel for us, be unlawful.
We also reserve the absolute right to waive any irregularities or conditions of
tender as to particular old notes. Our interpretation of the terms and
conditions of the exchange offer, including the instructions in the letter of
transmittal, will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of old notes must be cured
within such time as we shall determine. Neither we, the exchange agent nor any
other person shall be under any duty to give notification of defects or
irregularities with respect to tenders of old notes, nor shall any of them incur
any liability for failure to give such notification. Tenders of old notes will
not be deemed to have been made until such irregularities have been cured or
waived. Any old note received by the exchange agent that is not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned without cost to such holder by the exchange agent,
unless otherwise provided in the letter of transmittal, as soon as practicable
following the expiration date.
In addition, we reserve the right in our sole discretion, subject to the
provisions of the indentures pursuant to which the notes are issued,
- to purchase or make offers for any old notes that remain outstanding
subsequent to the expiration date or, as set forth under "--Conditions,"
to terminate the exchange offer,
- to redeem old notes as a whole or in part at any time and from time to
time, as set forth under "Description of the Notes--Optional
Redemption," and
- to the extent permitted under applicable law, to purchase old notes in
the open market, in privately negotiated transactions or otherwise.
The terms of any such purchases or offers could differ from the terms of the
exchange offer.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
all old notes properly tendered will be accepted promptly after the expiration
date, and the new notes will be issued promptly after acceptance of the old
notes. See "--Conditions." For purposes of the exchange offer, old notes shall
be deemed to have been accepted as validly tendered for exchange when, as and if
we have given oral or written notice thereof to the exchange agent. For each old
note accepted for exchange, the holder of such old note will receive a new note
having a principal amount equal to that of the surrendered old note.
In all cases, issuance of new notes for old notes that are accepted for
exchange pursuant to the exchange offer will be made only after timely receipt
by the exchange agent of
25
- certificates for such old notes or a timely book-entry confirmation of
such old notes into the exchange agent's account at the applicable
book-entry transfer facility,
- a properly completed and duly executed letter of transmittal, and
- all other required documents.
If any tendered old notes are not accepted for any reason set forth in the terms
and conditions of the exchange offer, such unaccepted or such nonexchanged old
notes will be returned without expense to the tendering holder thereof (if in
certificated form) or credited to an account maintained with such book-entry
transfer facility as promptly as practicable after the expiration or termination
of the exchange offer.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the old notes at the book-entry transfer facility for purposes of the
exchange offer within two business days after the date of this prospectus. Any
financial institution that is a participant in the book-entry transfer
facility's systems may make book-entry delivery of old notes by causing the
book-entry transfer facility to transfer such old notes into the exchange
agent's account at the book-entry transfer facility in accordance with such
book-entry transfer facility's procedures for transfer. However, although
delivery of old notes may be effected through book-entry transfer at the
book-entry transfer facility, the letter of transmittal or facsimile thereof
with any required signature guarantees and any other required documents must, in
any case, be transmitted to and received by the exchange agent at one of the
addresses set forth below under "--Exchange Agent" on or prior to the expiration
date or the guaranteed delivery procedures described below must be complied
with.
EXCHANGING BOOK-ENTRY NOTES
The exchange agent and the book-entry transfer facility have confirmed that
any financial institution that is a participant in the book-entry transfer
facility may utilize the book-entry transfer facility Automated Tender Offer
Program ("ATOP") procedures to tender old notes.
Any participant in the book-entry transfer facility may make book-entry
delivery of old notes by causing the book-entry transfer facility to transfer
such old notes into the exchange agent's account in accordance with the
book-entry transfer facility's ATOP procedures for transfer. However, the
exchange for the old notes so tendered will only be made after a book-entry
confirmation of the book-entry transfer of old notes into the exchange agent's
account, and timely receipt by the exchange agent of an agent's message and any
other documents required by the letter of transmittal. The term "agent's
message" means a message, transmitted by the book-entry transfer facility and
received by the exchange agent and forming part of a book-entry confirmation,
which states that the book-entry transfer facility has received an express
acknowledgment from a participant tendering old notes that are the subject of
such book-entry confirmation that such participant has received and agrees to be
bound by the terms of the letter of transmittal, and that we may enforce such
agreement against such participant.
GUARANTEED DELIVERY PROCEDURES
If the procedures for book-entry transfer cannot be completed on a timely
basis, a tender may be effected if
- the tender is made through an Eligible Institution,
- prior to the expiration date, the exchange agent receives by facsimile
transmission, mail or hand delivery from such Eligible Institution a
properly completed and duly executed letter of transmittal and notice of
guaranteed delivery, substantially in the form provided by us, which
26
(1) sets forth the name and address of the holder of old notes and the
amount of old notes tendered,
(2) states that the tender is being made thereby, and
(3) guarantees that within three New York Stock Exchange ("NYSE") trading
days after the date of execution of the notice of guaranteed delivery,
the certificates for all physically tendered old notes, in proper form
for transfer, or a book-entry confirmation, as the case may be, and any
other documents required by the letter of transmittal will be deposited
by the Eligible Institution with the exchange agent, and
- the certificates for all physically tendered old notes, in proper form
for transfer, or a book-entry confirmation, as the case may be, and all
other documents required by the letter of transmittal are received by the
exchange agent within three NYSE trading days after the date of execution
of the notice of guaranteed delivery.
WITHDRAWAL OF TENDERS
Tenders of old notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the expiration date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent prior to 5:00 p.m., New York City time on the
expiration date at the address set forth below under "--Exchange Agent." Any
such notice of withdrawal must
- specify the name of the person having tendered the old notes to be
withdrawn,
- identify the old notes to be withdrawn, including the principal amount
of such old notes,
- in the case of old notes tendered by book-entry transfer, specify the
number of the account at the book-entry transfer facility from which the
old notes were tendered and specify the name and number of the account
at the book-entry transfer facility to be credited with the withdrawn
old notes and otherwise comply with the procedures of such facility,
- contain a statement that such holder is withdrawing its election to have
such old notes exchanged,
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such old notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer to have the trustee with respect to the old notes
register the transfer of such old notes in the name of the person
withdrawing the tender, and
- specify the name in which such old notes are registered, if different
from the person who tendered such old notes.
All questions as to the validity, form, eligibility and time of receipt of such
notice will be determined by us, whose determination shall be final and binding
on all parties. Any old notes so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the exchange offer. Any old notes
which have been tendered for exchange but which are not exchanged for any reason
will be returned to the tendering holder thereof without cost to such holder, in
the case of physically tendered old notes, or credited to an account maintained
with the book-entry transfer facility for the old notes as soon as practicable
after withdrawal, rejection of tender or termination of the exchange offer.
Properly withdrawn old notes may be retendered by following one of the
procedures described under "--Procedures for Tendering" and "--Book-Entry
Transfer" above at any time on or prior to 5:00 p.m., New York City time, on the
expiration date.
27
CONDITIONS
Notwithstanding any other provision of the exchange offer, we shall not be
required to accept for exchange, or to issue new notes in exchange for, any old
notes and may terminate or amend the exchange offer if at any time prior to
5:00 p.m., New York City time, on the expiration date, we determine in our
reasonable judgment that the exchange offer violates applicable law, any
applicable interpretation of the Staff of the Commission or any order of any
governmental agency or court of competent jurisdiction.
The foregoing conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition or may be
waived by us in whole or in part at any time and from time to time in our
reasonable discretion. Our failure at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right and each such right shall
be deemed an ongoing right which may be asserted at any time and from time to
time.
In addition, we will not accept for exchange any old notes tendered, and no
new notes will be issued in exchange for any such old notes, if at such time any
stop order shall be threatened or in effect with respect to the registration
statement of which this prospectus constitutes a part or the qualification of
either indenture under the Trust Indenture Act of 1939, as amended. We are
required to use every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the registration statement at the earliest
possible time.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as exchange agent for
the exchange offer. Questions and requests for assistance and requests for
additional copies of this prospectus or of the letter of transmittal should be
directed to the exchange agent addressed as follows:
BY MAIL, HAND DELIVERY OR FOR INFORMATION CALL:
OVERNIGHT CARRIER: (617) 662-1603
State Street Bank and Trust Company FACSIMILE TRANSMISSION NUMBER:
Corporate Trust Department (617) 662-1452
5th Floor CONFIRM BY TELEPHONE:
2 Avenue de Lafayette (617) 662-1603
Boston, Massachusetts 02111
Attention: Meaghan Haight
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the exchange offer will be
borne by us. The principal solicitation for tenders pursuant to the exchange
offer is being made by mail; however, additional solicitations may be made by
telegraph, telephone, telecopy or in person by our officers and regular
employees.
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. We will, however, pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket expenses in connection
therewith. We may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of the prospectus and related documents to the beneficial owners of the
old notes, and in handling or forwarding tenders for exchange.
The expenses to be incurred by us in connection with the exchange offer will
be paid by us, including fees and expenses of the exchange agent and trustee and
accounting, legal, printing and related fees and expenses.
28
We will pay all transfer taxes, if any, applicable to the exchange of old
notes pursuant to the exchange offer. If, however, new notes or old notes for
principal amounts not tendered or accepted for exchange are to be registered or
issued in the name of any person other than the registered holder of the old
notes tendered, or if tendered old notes are registered in the name of any
person other than the person signing the letter of transmittal, or if a transfer
tax is imposed for any reason other than the exchange of old notes pursuant to
the exchange offer, then the amount of any such transfer taxes imposed on the
registered holder or any other persons will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the letter of transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of old notes who do not exchange their old notes for new notes
pursuant to the exchange offer will continue to be subject to the restrictions
on transfer of such old notes as set forth in the legend thereon as a
consequence of the issuance of the old notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the old notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. North American Van Lines does not currently
anticipate that it will register the old notes under the Securities Act. To the
extent that old notes are tendered and accepted in the exchange offer, the
trading market for untendered and tendered but unaccepted old notes could be
adversely affected.
29
THE ALLIED ACQUISITION
On November 19, 1999, pursuant to an acquisition agreement, dated
September 14, 1999, between Allied Worldwide and NFC, we acquired the Allied and
Pickfords businesses from NFC. At the time of the acquisition, we acquired
(through purchase or subscription) stock of various NFC subsidiaries located
throughout the world, and the moving van-related assets of NFC's Canadian
operating subsidiary, in exchange for (1) $400.0 million, (2) 24,500 shares of
junior preferred stock of Allied Worldwide, having an initial liquidation
preference of $24.5 million, (3) 174,961 shares of common stock of Allied
Worldwide, representing approximately 20.0% of Allied Worldwide's issued and
outstanding common stock (giving effect to vested options as of September 14,
1999) and (4) a warrant to purchase 87,480 shares of common stock of Allied
Worldwide at an exercise price of $400.00 per share.
The closing of the acquisition occurred simultaneously with the initial
offering of the notes and the initial borrowings under the new senior credit
facility, which facility includes a $150.0 million term loan, a $175.0 million
term loan and a $150.0 million revolving credit facility. In addition, as part
of the financing for the Allied acquisition, Allied Worldwide incurred
$35.0 million initial accreted value of unsecured senior discount term loan
borrowings. The lenders under this senior discount loan are expected to exchange
the senior discount loan for senior discount notes of Allied Worldwide prior to
February 17, 2000. Further, also as part of that financing, Allied Worldwide
borrowed $40.0 million in term loan borrowings under an interim loan facility.
On December 1, 1999, Clayton, Dubilier & Rice Fund V Limited Partnership, our
controlling shareholder, and NFC subscribed for and purchased additional shares
of common stock of Allied Worldwide for $32.0 million and $8.0 million in cash,
respectively. The proceeds from this stock subscription were used to repay this
$40 million interim loan. See "Description of Other Indebtedness."
Following the acquisition, Clayton, Dubilier & Rice Fund V Limited
Partnership continues to be the controlling shareholder of Allied Worldwide,
owning approximately 62.4% of the outstanding common stock of Allied Worldwide
on a fully diluted basis. In addition, on a fully diluted basis, NFC owns
approximately 23.7% of the outstanding common stock of Allied Worldwide, and the
remaining 13.9% is held by various investors, including members of management
and agents.
The following table summarizes the estimated sources and uses of funds for
the acquisition and related transactions (in millions):
SOURCES OF FUNDS: AMOUNT
- ----------------- --------
Revolving credit facility(1)......... $ 74.0
Term loans........................... 325.0
Old notes............................ 150.0
Allied Worldwide senior discount
loan............................... 35.0
Junior preferred stock............... 24.5
Allied Worldwide common stock and
warrant(2)......................... 65.5
------
Total Sources of Funds............. $674.0
======
USES OF FUNDS: AMOUNT
- -------------- --------
Purchase of Allied:
Cash consideration................. $400.0
Junior preferred stock............. 24.5
Allied Worldwide common stock and
warrant......................... 25.5
Repayment of existing NAVL
indebtedness....................... 190.0
Estimated fees and expenses.......... 34.0
------
Total Uses of Funds................ $674.0
======
- ------------------------
(1) Represents the initial drawdown under the new $150.0 million revolving
credit facility.
(2) Of this $65.5 million, $40.0 million was initially in the form of an interim
loan to Allied Worldwide. Allied Worldwide repaid this loan with the
proceeds of the stock subscription described above.
30
USE OF PROCEEDS
There will be no proceeds from the issuance of new notes pursuant to the
exchange offer.
The net proceeds from the original offering were $145.4 million, after
deducting discounts and commissions and expenses of the original offering
payable by North American Van Lines. We used the net proceeds from the original
offering primarily to finance the Allied acquisition.
31
CAPITALIZATION
The following table sets forth NAVL's and Allied's total capitalization at
September 25, 1999 and June 30, 1999, respectively, and as adjusted to reflect
the Allied acquisition, the issuance of the notes and the application of the net
proceeds as described under "Use of Proceeds," and the initial borrowings under
the new senior credit facility, as if such transactions had been consummated on
September 25, 1999. This table should be read in conjunction with the audited
and unaudited financial statements and related notes appearing elsewhere in this
prospectus and "Management's Discussion and Analysis of Results of Operations
and Financial Condition."
AS OF SEPTEMBER 25, 1999
-------------------------------------------------
HISTORICAL
----------------------- PRO FORMA
NAVL ALLIED(1)(2) ADJUSTMENTS PRO FORMA
-------- ------------ ----------- ---------
(DOLLARS IN THOUSANDS)
Cash and cash equivalents......................... $ 1,228 $ 40,922 $ (40,922) $ 1,228
======== ======== ========= ========
Debt, including current maturities:
Existing credit facilities(3)................... 176,375 -- (176,375) --
Intercompany payable to NFC..................... -- 266,862 (266,862) --
New revolving credit facility................... -- -- 60,375 60,375
New term loans.................................. -- -- 325,000 325,000
Notes........................................... -- -- 150,000 150,000
Other debt(4)................................... 1,884 -- -- 1,884
-------- -------- --------- --------
Total debt.................................... 178,259 266,862 92,138 537,259
Minority interests................................ 488 -- -- 488
Stockholders' equity(5)........................... 56,835 (68,098) 182,557 171,294
-------- -------- --------- --------
Total capitalization.............................. $235,582 $198,764 $ 274,695 $709,041
======== ======== ========= ========
- ------------------------
(1) Represents the capitalization of Allied as of June 30, 1999.
(2) The historical Allied capitalization has been translated from Pounds
sterling to U.S. Dollars using the end-of-period exchange rate as of
June 30, 1999 and has been adjusted to conform to U.S. GAAP.
(3) The difference between the amount of existing NAVL indebtedness of
$176.4 million reflected above versus $190.0 million shown in the sources
and uses table under "The Allied Acquisition" above is solely due to
drawdowns during the period from September 25, 1999 through November 19,
1999 on the revolving credit facility in place prior to the Allied
acquisition.
(4) Comprised of borrowings of $1,337 by NAVL's Canadian subsidiary against that
subsidiary's CAN$2,500 revolving line of credit, a bank loan held by NAVL's
Canadian subsidiary of $70 and a capital lease obligation of $477 for NAVL's
joint venture, Manufacturing Support Services, LLC.
(5) See note (d) to Unaudited Pro Forma Balance Sheet for further details
regarding the pro forma adjustments to stockholders' equity.
32
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements of North
American Van Lines are based on the historical financial statements of NAVL and
the historical financial statements of Allied included elsewhere in this
prospectus, adjusted to give effect to the following: (1) the Allied
acquisition; (2) the receipt of the proceeds from the offering of the notes and
initial borrowings under the new senior credit facility; (3) an increase in
shareholders' equity resulting from the issuance of junior preferred stock,
senior discount notes, common stock and a common stock warrant by Allied
Worldwide, and (4) the payment of all fees and expenses related to the Allied
acquisition and its financing. See "The Allied Acquisition."
The pro forma adjustments presented are based upon available information and
certain assumptions that management believes are reasonable. The historical
condensed income statements for the nine months ended September 25, 1999 (NAVL)
and June 30, 1999 (Allied) and the historical consolidated balance sheet data at
September 25, 1999 (NAVL) and June 30, 1999 (Allied) were derived from the
unaudited financial statements of NAVL and the unaudited condensed financial
statements of Allied included elsewhere in this prospectus. The historical
condensed income statements for the periods ended December 26, 1998 (NAVL) and
September 30, 1998 (Allied) were derived from the audited consolidated financial
statements of NAVL and the audited combined financial statements of Allied
appearing elsewhere in this prospectus.
The historical Allied financial statements included in the pro forma periods
presented have been translated from Pounds sterling to U.S. Dollars as indicated
using the exchange rate table included in the section "Presentation of Financial
Information" above. Additionally, the historical Allied financial statements
have been adjusted to reflect U.S. GAAP.
The historical Allied financial statements reflect estimated revenue and
related transportation expenses on the date a shipment is loaded ("loaded
basis"). North American Van Lines recognizes estimated revenue and related
transportation expenses on the date a shipment is delivered or services are
completed ("delivered basis"), the preferred method under U.S. GAAP. The effect
of this change, including the impact to accounts receivable, accrued liabilities
and goodwill, has not yet been completed. However, management believes that the
impact of changing Allied financial statements from a loaded basis to a
delivered basis on operating revenue and income from operations is not expected
to be material.
The unaudited pro forma condensed income statements for the nine months
ended September 25, 1999, for the twelve months ended December 26, 1998, give
effect to the Allied acquisition and its financing as if they had occurred on
December 28, 1997. The unaudited pro forma condensed balance sheet data gives
effect to the Allied acquisition and its financing as if they had occurred on
September 25, 1999.
The unaudited pro forma financial data should be read in conjunction with
the historical consolidated financial statements of NAVL and the notes thereto,
the historical combined financial statements of Allied and the notes thereto,
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and other financial data appearing elsewhere in this prospectus as
well as the information concerning the Allied acquisition.
The pro forma financial data and related notes are provided for
informational purposes only and do not necessarily reflect the results of
operations or financial position of North American Van Lines that would have
actually resulted had the events referred to above or in the notes to the
unaudited pro forma financial data been consummated as of the date and for the
periods indicated and are not intended to project North American Van Lines'
results of operations or financial position for any future period.
33
NORTH AMERICAN VAN LINES, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AS OF SEPTEMBER 25, 1999
(DOLLARS IN THOUSANDS)
NAVL AS OF ALLIED
SEPTEMBER 25, AS OF PRO FORMA
1999 JUNE 30, 1999 ADJUSTMENTS PRO FORMA
------------- ------------- ----------- ----------
ASSETS:
Current assets:
Cash and cash equivalents............. $ 1,228 $ 40,922 $(40,922)(a) $ 1,228
Accounts receivable, net.............. 168,870 173,168 342,038
Other current assets.................. 46,866 5,688 52,554
--------- -------- -------- ----------
Total current assets................ 216,964 219,778 (40,922) 395,820
Property and equipment, net............. 59,087 70,310 41,870 (a) 171,267
Intangible assets, net.................. 93,408 46,452 (46,452)(a) 93,408
Investments............................. 1,484 49,928 51,412
Unallocated excess (goodwill)........... 301,694 (a) 301,694
Other assets............................ 41,935 10,112 (5,673)(c) 75,506
26,920 (a)
2,212 (c)
--------- -------- -------- ----------
Total assets........................ $ 412,878 $396,580 $279,649 $1,089,107
========= ======== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of long-term debt..... $ 5,475 $ -- $ (5,475)(b) $ --
Revolving credit facility............. 37,337 60,375 (b) 61,712
(36,000)(b)
Accounts payable...................... 44,490 44,490
Accrued transportation and other...... 101,155 101,155
--------- -------- -------- ----------
Total current liabilities........... 188,457 161,002 18,900 368,359
Long-term debt, less current portion.... 135,447 266,862 67,763 (b) 475,547
5,475 (b)
Other liabilities....................... 32,139 36,814 5,850 (a) 73,907
(896)(a)
--------- -------- -------- ----------
Total liabilities................... 356,043 464,678 97,092 917,813
Total stockholders' equity.............. 56,835 (68,098) 182,557 (d) 171,294
--------- -------- -------- ----------
Total liabilities and stockholders'
equity................................ $ 412,878 $396,580 $279,649 $1,089,107
========= ======== ======== ==========
See accompanying notes to Unaudited Pro Forma Condensed Balance Sheet.
34
NOTES TO UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(a) The Allied acquisition was accounted for as a purchase. Under purchasing
accounting, the total purchase cost and fair value of liabilities assumed
has been allocated to the assets and liabilities of North American Van Lines
based on their respective fair values as of the closing based on valuations
and other studies that have not yet been finalized. A preliminary allocation
of the purchase cost has been made to major categories of assets and
liabilities in the accompanying pro forma condensed financial information
based on management estimates. The actual allocation of purchase cost and
the resulting effect on income from operations may differ significantly from
the estimated pro forma amounts included herein.
Purchase cost:
Purchase price before estimated fees and expenses........... $450,000
Fees and expenses........................................... 34,000
--------
Total purchase cost....................................... 484,000
Adjusted book value of net assets acquired:
Adjusted net assets at June 30, 1999........................ (68,098)
Deferred financing costs.................................... 26,920
Transaction costs related to the issuance of equity......... 7,080
Cash not acquired........................................... (40,922)
Intercompany payable to NFC not assumed..................... 266,862
Elimination of historical goodwill.......................... (46,452)
--------
Adjusted book value of net assets acquired.................. 145,390
--------
Excess of purchase cost over adjusted book value of net
assets acquired........................................... 338,610
Preliminary allocation of purchase cost:
Decrease in surplus properties accrual...................... 896
Decrease due to leasehold disadvantage...................... (5,850)
Increase in property and equipment to estimated fair market
value..................................................... 41,870
--------
Total preliminary allocation of purchase cost............. 36,916
--------
Unallocated excess (goodwill)............................... $301,694
========
(b) The estimated increase in debt consists of the following:
New revolving credit facility............................... $ 60,375
New term loans.............................................. 325,000
Notes offered hereby........................................ 150,000
Repayment of existing revolving credit facility............. (36,000)
Repayment of existing term loan facility (including current
portion of $5,475)........................................ (140,375)
Intercompany payable to NFC not assumed..................... (266,862)
--------
Increase in total debt...................................... 92,138
Less net change in revolving credit facility classified as
current................................................... 24,375
--------
Net increase in long-term debt.............................. $ 67,763
========
(c) To reflect the write-off of existing NAVL deferred debt issuance costs and
the establishment of a deferred tax asset in respect of the write-off.
35
NOTES TO UNAUDITED PRO FORMA CONDENSED BALANCE SHEET (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(d) The pro forma net increase in stockholders' equity of $182,557 results from:
Capital contribution(1)..................................... $125,000
--------
Less:
Elimination of Allied historical equity..................... 68,098
Transaction costs related to the issuance of equity......... (7,080)
Write-off of existing deferred financing costs, net of
tax....................................................... (3,461)
--------
57,557
--------
Net increase in stockholders' equity........................ $182,557
========
- ------------------------
(1) Includes (1) equity securities valued at $65,500, consisting of (a) 456,651
shares of Allied Worldwide common stock and (b) a warrant to purchase 87,480
shares of Allied Worldwide common stock at an exercise price of $400.00 per
share, (2) 24,500 shares of junior preferred stock of Allied Worldwide with
an initial liquidation preference of $24,500, and (3) senior discount notes
due 2009 issued by Allied Worldwide for aggregate proceeds of
$35.0 million. Of the equity securities valued at $65.5 million,
$40.0 million was initially in the form of an interim loan to Allied
Worldwide. Allied Worldwide repaid this loan with the proceeds of the stock
subscription.
36
NORTH AMERICAN VAN LINES, INC.
UNAUDITED PRO FORMA CONDENSED INCOME STATEMENT
NINE MONTHS ENDED SEPTEMBER 25, 1999
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED
----------------------------------
SEPTEMBER 25, 1999 JUNE 30, 1999
------------------ ------------- PRO FORMA
NAVL ALLIED ADJUSTMENTS PRO FORMA
------------------ ------------- ----------- ----------
Operating revenues.............................. $771,237 $809,784 -- $1,581,021
Cost of services:
Cost of services.............................. 747,256 772,688 (900)(a) 1,516,110
(2,934)(f)
Depreciation and amortization................. 21,083 15,254 10,449 (b) 45,480
(1,306)(e)
-------- -------- --------- ----------
Total operating expenses...................... 768,339 787,942 5,309 1,561,590
-------- -------- --------- ----------
Income from operations.......................... 2,898 21,842 (5,309) 19,431
Interest expense, net......................... 12,395 489 27,932 (c) 43,750
2,934 (f)
Other expenses/(income)....................... 7 7
-------- -------- --------- ----------
Income/(loss) before minority interests and
income taxes.................................. (9,504) 21,353 (36,175) (24,326)
Minority interests in income of subsidiaries.... (179) (179)
-------- -------- --------- ----------
Income/(loss) before income taxes............... (9,683) 21,353 (36,175) (24,505)
Provision/(benefit) for income taxes............ (2,752) 6,194 (11,902)(d) (8,460)
-------- -------- --------- ----------
Net income/(loss)............................... $ (6,931) $ 15,159 $ (24,273) $ (16,045)
======== ======== ========= ==========
See accompanying notes to Unaudited Pro Forma Condensed Income Statement.
37
NORTH AMERICAN VAN LINES, INC.
UNAUDITED PRO FORMA CONDENSED INCOME STATEMENT
TWELVE MONTHS ENDED DECEMBER 26, 1998
(DOLLARS IN THOUSANDS)
NINE MONTHS THREE MONTHS TWELVE MONTHS ENDED
ENDED ENDED ----------------------------
DECEMBER 26, MARCH 28, DECEMBER 26, SEPTEMBER 30,
1998 1998 1998 1998
------------ ------------ CD&R ------------ -------------
PURCHASE PRO
ACCOUNTING ADJUSTED FORMA
NAVL PREDECESSOR ADJUSTMENTS(G) NAVL ALLIED ADJUSTMENTS
------------ ------------ -------------- ------------ ------------- -----------
Operating revenues.............. $759,207 $207,245 $ -- $966,452 $1,152,195 $ --
Cost of services:
Cost of services.............. 725,129 205,685 511 931,325 1,086,360 (1,200)(a)
(4,455)(f)
Depreciation and
amortization................ 22,511 2,895 4,902 30,308 19,305 14,010 (b)
(1,485)(e)
-------- -------- ------- -------- ---------- --------
Total operating expenses...... 747,640 208,580 5,413 961,633 1,105,665 6,870
-------- -------- ------- -------- ---------- --------
Income/(loss) from operations... 11,567 (1,335) (5,413) 4,819 46,530 (6,870)
Interest expense, net......... 11,758 (240) 3,747 15,265 (330) 37,151 (c)
4,455 (f)
Other income.................. (147) (10) -- (157)
-------- -------- ------- -------- ---------- --------
Income/(loss) before minority
interests and income taxes.... (44) (1,085) (9,160) (10,289) 46,860 (48,476)
Minority interests in loss of
subsidiaries.................. (57) (13) -- (70)
-------- -------- ------- -------- ---------- --------
Income/(loss) before income
taxes......................... (101) (1,098) (9,160) (10,359) 46,860 (48,476)
Provision/(benefit) for income
taxes......................... 1,111 (448) (3,515) (2,852) 9,405 (15,964)(d)
-------- -------- ------- -------- ---------- --------
Net income/(loss)............... $ (1,212) $ (650) $(5,645) $ (7,507) $ 37,455 $(32,512)
======== ======== ======= ======== ========== ========
PRO
FORMA
RESULTS
-----------
Operating revenues.............. $ 2,118,647
Cost of services:
Cost of services.............. 2,012,030
Depreciation and
amortization................ 62,138
-----------
Total operating expenses...... 2,074,168
-----------
Income/(loss) from operations... 44,479
Interest expense, net......... 56,541
Other income.................. (157)
-----------
Income/(loss) before minority
interests and income taxes.... (11,905)
Minority interests in loss of
subsidiaries.................. (70)
-----------
Income/(loss) before income
taxes......................... (11,975)
Provision/(benefit) for income
taxes......................... (9,411)
-----------
Net income/(loss)............... $ (2,564)
===========
See accompanying notes to Unaudited Pro Forma Condensed Income Statement.
38
NOTES TO UNAUDITED PRO FORMA CONDENSED INCOME STATEMENTS
(DOLLARS IN THOUSANDS)
(a) As a result of the Allied acquisition, NFC transferred assets in excess of
assumed liabilities so as to provide for a five-year "funding holiday" for
U.K. pensions. The amounts of $900 for the nine months ended September 25,
1999 and $1,200 for the twelve months ended December 26, 1998 have been
actuarially determined based on projected funding requirements and represent
pension cost reductions resulting from such excess pension assets.
(b) These amounts reflect additional depreciation expense of $4,792 for the nine
months ended September 25, 1999 and $6,468 for the twelve months ended
December 26, 1998, as a result of the preliminary fair values assigned to
property and equipment, and additional goodwill amortization ($5,657 for the
nine months ended September 25, 1999 and $7,542 for the twelve months ended
December 26, 1998) based on estimated goodwill resulting from the Allied
acquisition amounting to $301,694 amortized over 40 years.
(c) The pro forma adjustments to interest expense, net, are based on the pro
forma borrowing amounts and the rates in effect as of the closing of the
Allied acquisition:
NINE MONTHS TWELVE MONTHS
ENDED ENDED
SEPTEMBER 25, DECEMBER 26,
1999 1998
-------------- -------------
Revolving credit facility--$62,800 and $48,900,
respectively, at 8.59%(1).................... $ 4,046 $ 4,201
Term loan facility tranche A--$150,000 at
8.59%(1)..................................... 9,664 12,885
Term loan facility tranche B--$175,000 at
9.59%(1)..................................... 12,587 16,783
Senior subordinated notes--$150,000 at
13.375%...................................... 15,047 20,063
Other interest income, net..................... (72) (695)
Amortization of deferred debt issuance costs... 2,478 3,304
------- -------
Pro forma interest expense, net................ 43,750 56,541
Elimination of historical interest expense..... 15,818 19,390
------- -------
Pro forma adjustment to interest expense,
net.......................................... $27,932 $37,151
======= =======
----------------------------
(1) These balances are based on weighted average balances for the period
presented. Interest rates with respect to borrowings under these
facilities are variable. A 0.125% change in interest rates on borrowings
under the new senior credit facility would increase or decrease pro forma
interest expense $355 for the nine months ended September 25, 1999 and
$456 for the twelve months ended December 26, 1998.
(d) The tax effect of the pro forma adjustments to income/(loss) before income
taxes is based on estimated applicable statutory tax rates which are
estimated to be 39.0% in the relevant jurisdictions. The pro forma
adjustments assume that no valuation allowance would be required under
SFAS 109 "Accounting for Income Taxes" and that goodwill is not deductible
for tax purposes.
Undistributed earnings of North American Van Lines' foreign subsidiaries are
generally considered to be indefinitely reinvested and, accordingly, no
provision for U.S. federal and state income taxes has been made. Upon
distribution of those earnings in the form of dividends or otherwise, North
American Van Lines would be subject to other U.S. income taxes (subject to
an adjustment for foreign tax credits) and withholding taxes payable to the
various foreign countries.
39
NOTES TO UNAUDITED PRO FORMA CONDENSED INCOME STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(e) Amounts reflect the removal of amortization expenses recognized in respect
of Allied's existing goodwill balances that were written off in conjunction
with pro forma purchase accounting adjustments.
(f) Reclassifications of interest income earned on investments held by Allied's
property and casualty insurance subsidiary were made to conform with NAVL's
financial statement presentation.
(g) Purchase accounting adjustments were recorded to reflect the effects of
purchase accounting from the acquisition of NAVL by Clayton, Dubilier & Rice
Fund V Limited Partnership on March 29, 1998, as if the transaction had
occurred on December 28, 1997. The purchase accounting adjustments primarily
relate to an increase in depreciation resulting from the fair market
valuation of fixed assets acquired, the amortization of goodwill resulting
from the acquisition, the increase in interest expense on debt issued to
finance the acquisition, and the related income tax impact of the
adjustments.
(h) EBITDA for the pro forma periods presented below is generally calculated in
accordance with the definition of that term given in the senior credit
agreement governing our new senior credit facility, using management's
estimate of pro forma insurance expense reductions as further discussed in
note (5) below. It has been calculated as follows:
NINE MONTHS TWELVE MONTHS
ENDED ENDED
SEPTEMBER 25, DECEMBER 26,
1999 1998
-------------- -------------
Operating earnings before depreciation and
amortization................................. $64,911 $106,617
One-time consulting costs relating to the Fast
Forward Program(1)........................... 3,382 --
Non-recurring charges to rationalize Allied's
U.K. and European operations(2).............. 2,282 2,640
Non-recurring (profit)/loss on disposal of
properties and operations(3)................. (546) (3,795)
One-time executive compensation costs relating
to the sale of NAVL(4)....................... -- 4,612
Pro forma savings of insurance expenses(5)..... 3,830 5,107
------- --------
EBITDA......................................... $73,859 $115,181
======= ========
----------------------------
(1) NAVL incurred $3,382 of third-party consulting costs during the nine
months ended September, 1999 in connection with its
restructuring/rationalization Fast Forward Program that have been
reflected in the Unaudited Pro Forma Condensed Income Statements.
(2) Allied incurred costs of approximately $2,282 for the nine months ended
June 30, 1999 and approximately $2,640 for the twelve months ended
September 30, 1998 relating to the reduction in personnel-related
expenses and the rationalization of facilities in respect of its U.K. and
European operations.
(3) NAVL realized a loss of $106 on the sale of fixed assets for the nine
months ended September 25, 1999. Allied recorded a gain of $652 for the
nine months ended June 30, 1999 and $3,795 for the twelve months ended
September 30, 1998, relating to the disposal of properties and
operations.
(4) NAVL incurred $4,612 of incremental compensation costs due to contracts
with key executives with incentive provisions to encourage these
executives to remain with NAVL until the
40
NOTES TO UNAUDITED PRO FORMA CONDENSED INCOME STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
acquisition of NAVL by Clayton, Dubilier & Rice Fund V Limited
Partnership from Norfolk Southern.
(5) The amounts of $3,830 and $5,107 for the nine months ended
September 25, 1999 and for the twelve months ended December 26, 1998,
respectively, represent management's estimate of reductions to insurance
expense, based upon the combined businesses, their respective insurance
loss histories and current market conditions.
EBITDA does not represent and should not be considered as an alternative to
net income or cash flow from operations as determined by generally accepted
accounting principles, and our calculation thereof may not be comparable to
that reported by other companies. We believe that it is widely accepted that
EBITDA provides useful information regarding a company's ability to service
and/or incur indebtedness. EBITDA does not take into account a company's
working capital requirements, debt service requirements and other
commitments and, accordingly, is not necessarily indicative of amounts that
may be available for discretionary use.
41
SELECTED HISTORICAL FINANCIAL DATA OF NAVL
We derived the selected historical financial data for the years ended 1994
through 1997 and for the three-month period ended March 28, 1998 and for the
nine-month period ended December 26, 1998 from the audited financial statements
of NAVL or its predecessor for the periods then ended. The selected historical
financial data of NAVL as of and for the nine months ended September 25, 1999
and the six months ended September 26, 1998 are derived from the unaudited
interim financial statements of NAVL. The unaudited interim financial statements
reflect all adjustments which, in the opinion of management, are necessary for a
fair statement of the financial condition and results of operations as of and
for the periods presented. Operating results for the interim periods are not
necessarily indicative of the results that may be expected for the full year.
The presentation of selected historical financial data is only a summary and you
should read it together with the historical financial statements and related
notes of NAVL appearing elsewhere in this prospectus.
ANNUAL DATA
----------------------------------------------------------------------------------------
PREDECESSOR(1) NAVL
------------------------------------------------------------------------- -------------
NINE-MONTH
THREE-MONTH PERIOD FROM
PERIOD FROM MARCH 29,
DECEMBER 28, 1998
1997 (INCEPTION)
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH THROUGH
DECEMBER 31, DECEMBER 30, DECEMBER 28, DECEMBER 27, MARCH 28, DECEMBER 26,
1994 1995 1996 1997 1998 1998
------------- ------------- ------------- ------------- ------------- -------------
(DOLLARS IN MILLIONS)
STATEMENT OF OPERATIONS
DATA(2):
Operating revenues........ $891.4 $895.5 $930.2 $941.5 $207.3 $759.2
Gross profit.............. 192.8 197.4 197.3 199.1 44.9 165.2
Operating expenses........ 170.7 175.1 172.1 173.4 41.6 153.7
Non-recurring items(3).... -- 3.9 (2.9) (5.5) 4.6 --
Income/(loss) from
operations.............. 22.1 18.4 28.1 31.2 (1.3) 11.5
Net income (loss)......... 9.7 13.8 17.5 22.3 (0.7) (1.2)
OTHER DATA:
Net cash provided by (used
for) operating
activities.............. $ 32.7 $ 54.6 $ 39.7 $ 28.9 $ 10.3 $ (1.6)
EBITDA(4)................. 41.6 38.6 37.9 38.2 6.2 34.0
Capital expenditures...... 5.9 6.6 7.4 10.6 1.4 5.7
Agent contract
expenditures(5)......... 3.4 1.5 2.2 9.2 2.2 1.5
Depreciation and
amortization(6)......... 19.5 16.3 12.7 12.5 2.9 22.5
Ratio of earnings to fixed
charges(7).............. 2.52 3.53 5.53 6.61 (0.98) 0.74
BALANCE SHEET DATA (AT END
OF PERIOD):
Cash and cash
equivalents............. $ 8.4 $ 2.3 $ 1.9 $ 2.9 $ 9.2 $ 2.1
Working capital........... 81.5 60.4 55.8 62.0 63.2 31.4
Total assets.............. 336.7 298.2 287.3 302.3 284.3 392.1
Total debt(8)............. 22.1 0.9 0.7 0.7 0.7 168.6
Stockholders' equity...... 89.6 103.6 86.1 108.1 101.0 63.7
NINE-MONTH DATA
---------------------------------------------
PREDECESSOR NAVL
------------- ------------------------------
(UNAUDITED)
------------------------------
THREE-MONTH SIX-MONTH
PERIOD FROM PERIOD FROM
DECEMBER 28, MARCH 29, NINE
1997 1998 MONTHS
THROUGH THROUGH ENDED
MARCH 28, SEPTEMBER 26, SEPTEMBER 25,
1998 1998 1999
------------- -------------- --------------
(DOLLARS IN MILLIONS)
STATEMENT OF OPERATIONS
DATA(2):
Operating revenues........ $207.3 $521.0 $771.2
Gross profit.............. 44.9 113.9 163.6
Operating expenses........ 41.6 102.9 154.8
Non-recurring items(3).... 4.6 -- 5.9
Income/(loss) from
operations.............. (1.3) 11.0 2.9
Net income (loss)......... (0.7) 0.7 (6.9)
OTHER DATA:
Net cash provided by (used
for) operating
activities.............. $ 10.3 $(12.2) $ (1.6)
EBITDA(4)................. 6.2 26.2 29.9
Capital expenditures...... 1.4 4.1 5.5
Agent contract
expenditures(5)......... 2.2 0.8 1.6
Depreciation and
amortization(6)......... 2.9 15.2 21.1
Ratio of earnings to fixed
charges(7).............. (0.98) 0.95 0.16
BALANCE SHEET DATA (AT END
OF PERIOD):
Cash and cash
equivalents............. $ 9.2 $ 3.7 $ 1.2
Working capital........... 63.2 33.8 28.5
Total assets.............. 284.3 414.2 412.9
Total debt(8)............. 0.7 170.0 178.3
Stockholders' equity...... 101.0 65.3 56.8
- ------------------------
(1) On March 29, 1998, Allied Worldwide (whose majority stockholder is Clayton,
Dubilier & Rice Fund V Limited Partnership), through its wholly owned
subsidiary NA Acquisition, acquired all of the outstanding shares of common
stock of NAVL. On such date, NA Acquisition was merged into NAVL with NAVL
remaining as the surviving corporation and a wholly owned subsidiary of
Allied Worldwide. The acquisition was accounted for as a purchase in
accordance with U.S. GAAP.
The consolidated financial statements for periods prior to March 29, 1998
have been prepared on the historical cost basis using accounting principles
that had been adopted by NAVL's predecessor. After the acquisition by
42
Clayton, Dubilier & Rice Fund V Limited Partnership of NAVL on March 29,
1998, NAVL changed its accounting basis to recognize estimated revenue and
related transportation expenses when shipments are delivered, the preferred
method under U.S. GAAP. NAVL's predecessor company recognized estimated
revenue and related transportation expenses when shipments were loaded.
Management estimates that the impact of this difference on reporting
operating revenues and income from operations is not material.
(2) Operating revenues in 1998, 1997 and 1996 are derived from audited financial
statements. Operating revenues in 1995 and 1994, which are presented on a
basis consistent with 1998, 1997 and 1996, are based on company internal
reports. Operating revenues for the periods ended September 25, 1999 and
September 26, 1998 are based on unaudited interim financial statements.
Gross profit and operating expenses are derived from audited financial
statements or unaudited interim financial statements. Certain 1998, 1997,
1996, 1995 and 1994 amounts have been reclassified to conform with the 1999
presentation. These reclassifications had no impact on net income.
(3) Unusual and non-recurring operating charges or credits of NAVL or its
predecessor have been included in this line item as follows: (a) in 1999,
NAVL incurred $5.9 million of expense, consisting primarily of incremental
expenses of $3.4 million for professional services in connection with Fast
Forward, a one-time comprehensive productivity review of NAVL's operations
and $2.4 million of restructuring costs for severance related costs,
building lease terminations and losses on the sale of equipment; (b) in
1998, the predecessor incurred incremental compensation due to contracts
with key executives with incentive provisions to encourage them to remain
with the predecessor until a sale of the business was completed; (c) in
1997, the predecessor received payment in settlement of an auto liability
insurance coverage dispute which had been in litigation; (d) in 1996, the
predecessor reversed a portion of a litigation accrual which was first
established in 1993 regarding a breach of contract suit. A portion of the
initial damage award was overturned on appeal; and (e) in 1995, the
predecessor recorded an accrual related principally to the curtailment of
certain operations in Canada and to the closure of a subsidiary operation in
Panama.
(4) EBITDA for the historical periods presented is generally calculated in
accordance with the definition of that term given in the senior credit
agreement governing our new senior credit facility, without taking into
account insurance savings allowable thereunder.
EBITDA does not represent and should not be considered as an alternative to
net income or cash flow from operations as determined by generally accepted
accounting principles, and our calculation thereof may not be comparable to
that reported by other companies. We believe that it is widely accepted that
EBITDA provides useful information regarding a company's ability to service
and/or incur indebtedness. EBITDA does not take into account a company's
working capital requirements, debt service requirements and other
commitments and, accordingly, is not necessarily indicative of amounts that
may be available for discretionary use.
(5) Represents cash outflows to agents to secure long-term contracts.
(6) Includes depreciation expense for property and equipment and amortization
expense for intangible assets and deferred agent contract expenditures.
Excludes amortization expense for deferred debt issuance costs, which are
recorded as part of interest expense.
(7) The ratio of earnings to fixed charges for the years ended December 31,
1994, December 30, 1995, December 28, 1996 and December 27, 1997, for the
three-month period ended March 28, 1998 and for the nine-month period ended
December 26, 1998 includes non-cancellable lease expenses as the basis of
determining the interest component of operating leases. The ratio of
earnings to fixed charges for the six-month period ended September 26, 1998
and for the nine months ended September 25, 1999 includes cancellable and
non-cancellable lease expenses as the basis of determining the interest
component of operating leases.
(8) Total debt consists of long-term debt, current portion of long-term debt,
capital lease obligations, amounts outstanding under the revolving credit
facility and other short-term debt.
43
SELECTED HISTORICAL FINANCIAL DATA OF ALLIED
We derived the selected historical financial data for the fiscal years ended
September 30, 1996, 1997 and 1998 from the audited combined financial statements
of Allied. The selected historical financial data of Allied as of and for the
nine months ended June 30, 1998 and June 30, 1999 are derived from the unaudited
combined financial statements of Allied for those periods. The unaudited
combined financial statements reflect all adjustments, consisting only of normal
recurring adjustments which, in the opinion of Allied's management, are
necessary for a fair statement of the combined financial condition and results
of operation as of and for the periods presented. Operating results for the
interim periods are not necessarily indicative of the results that may be
expected for the full year. The selected historical financial data is only a
summary and you should read it together with the historical financial statements
and related notes of Allied appearing elsewhere in this prospectus.
TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, JUNE 30, JUNE 30,
U.K. GAAP(1) 1996 1997 1998 1998 1999
- ------------ -------------- -------------- -------------- ----------- -----------
(IN MILLIONS)
UNAUDITED
-------------------------
STATEMENT OF OPERATIONS DATA:
Operating revenues.................. L 658.1 L 680.7 L 698.3 L 486.3 L 496.8
Operating profit before exceptional
items............................. 18.7 21.3 26.1 13.7 13.8
Operating exceptional items......... (3.0) (2.3) (1.6) (1.0) (1.4)
-------- -------- -------- -------- --------
Operating profit.................... 15.7 19.0 24.5 12.7 12.4
Non operating exceptional
items(2).......................... (1.0) 2.3 (0.1) -- 0.4
Interest expense, net............... (0.7) (2.2) 0.2 0.6 (0.3)
Taxation............................ (5.0) (7.2) (4.6) (2.4) (2.9)
Minority interests.................. (0.1) (0.1) -- -- --
-------- -------- -------- -------- --------
Profit for the financial period..... 8.9 11.8 20.0 10.9 9.6
OTHER DATA:
Net cash provided by operations..... L 17.5 L 33.6 L 36.3 L 23.8 L 17.0
EBITDA(3)........................... 28.4 31.7 37.1 22.1 22.6
Capital expenditures................ 9.9 12.2 15.0 11.5 9.1
Depreciation........................ 8.3 8.4 9.0 6.9 7.4
Ratio of earnings to fixed
charges........................... 4.45 3.94 7.46 5.22 3.83
BALANCE SHEET DATA (AT THE END OF
PERIOD):
Cash................................ L -- L 13.9 L 18.0 L 19.4 L 25.9
Working capital..................... -- 31.9 34.2 24.2 39.7
Total assets........................ -- 266.3 281.9 193.0 232.5
Intercompany payable to NFC, net.... -- 47.8 37.8 13.6 168.9
Stockholders' equity................ -- 32.3 49.2 63.6 (63.0)
U.S. GAAP DATA(1)(3)
Operating revenues.................. $1,013.5 $1,109.5 $1,152.2 $ 802.4 $ 809.8
EBITDA(3)........................... 45.9 54.1 64.7 38.8 38.8
Stockholders' equity................ -- 87.3 119.9 142.6 (68.1)
- ------------------------
(1) The combined financial statements of Allied for the periods presented have
been prepared in accordance with U.K. GAAP, which differs in certain
significant respects from U.S. GAAP. See note 22 of Notes to the Combined
Financial Statements of Allied and note 4 of Notes to the
44
Condensed Combined Financial Statements of Allied appearing elsewhere in
this prospectus. In anticipation of the Allied acquisition, the historical
financial statements were prepared to show the performance of moving
services businesses and assets of Allied separate from the operations of its
parent, NFC. These historical financial statements were prepared for the
three years ended September 30, 1998 as if the moving services businesses
had been in existence from October 1, 1995. Financial information for Allied
operations is not available for periods prior to October 1, 1995.
(2) Includes profit/(loss) on disposal of properties and loss on disposal of
operations.
(3) EBITDA for the historical periods presented is generally calculated in
accordance with the definition of that term given in the senior credit
agreement governing our new senior credit facility, without taking into
account insurance savings allowable thereunder.
EBITDA does not represent and should not be considered as an alternative to
net income or cash flow from operations as determined by generally accepted
accounting principles, and our calculation thereof may not be comparable to
that reported by other companies. We believe that it is widely accepted that
EBITDA provides useful information regarding a company's ability to service
and/or incur indebtedness. EBITDA does not take into account a company's
working capital requirements, debt service requirements and other
commitments and, accordingly, is not necessarily indicative of amounts that
may be available for discretionary use.
45
The following table provides a reconciliation of Allied net income,
stockholders' equity and operating income before exceptional items as reported
in U.K. GAAP to U.S. GAAP. Detailed explanations of reconciling items are
located within the NFC Moving Services Group financial statements and related
notes appearing elsewhere in this prospectus.
TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, JUNE 30, JUNE 30,
1996 1997 1998 1998 1999
------------- ------------- ------------- ----------- -----------
(IN MILLIONS)
Profit for the financial
period (U.K. GAAP, U.K.
Pounds sterling)............ L 8.9 L 11.8 L 20.0 L 10.9 L 9.6
Profit for the financial
period (U.K. GAAP, U.S.
Dollars).................... $ 13.7 $ 19.2 $ 33.0 $ 18.0 $ 15.7
U.S. GAAP adjustments:
Pension and benefits........ $ 2.2 $ 2.4 $ 3.5 $ 2.3 $ 2.0
Depreciation................ (1.1) (1.6) (1.2) (1.0) (1.0)
Profit on disposal of land
and buildings............. 11.1 (3.6) 4.0 4.0 --
Taxes....................... 11.5 (0.4) (1.8) (1.5) (1.5)
-------- -------- -------- -------- -------
Net income for the financial
period adjusted to U.S.
GAAP........................ $ 37.4 $ 16.0 $ 37.5 $ 21.8 $ 15.2
======== ======== ======== ======== =======
Stockholders' equity (U.K.
GAAP, U.K. Pounds
sterling)................... L -- L 32.3 L 49.2 L 63.6 L (63.0)
Stockholders' equity (U.K.
GAAP, U.S. Dollars)......... $ -- $ 52.3 $ 83.6 $ 106.2 $ (99.5)
U.S. GAAP adjustments:
Intangible assets........... $ -- $ 41.5 $ 42.0 $ 41.6 $ 37.9
Unrealized holding gains on
investments............... $ -- 2.3 0.5 1.5 2.2
Property, plant and
equipment................. $ -- (9.6) (10.8) (10.9) (10.9)
Accounts receivable......... $ -- (3.9) -- -- --
Accruals and deferred
income.................... $ -- (4.7) (4.2) (4.3) (4.0)
Taxes....................... $ -- 9.4 8.8 8.5 6.2
-------- -------- -------- -------- -------
Stockholders' equity adjusted
to U.S. GAAP................ $ -- $ 87.3 $ 119.9 $ 142.6 $ (68.1)
======== ======== ======== ======== =======
46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
Our operating revenues are derived from the following business segments:
(1) our van line network, (2) our moving and storage services and (3) our
logistics services.
Our van line network segment, which is based in North America and operates
under both the northAmerican and Allied brand names, provides two types of
relocation services: (1) domestic, which provides residential relocation
services in the United States and Canada through a network of exclusive agents
who provide the sales, packing, loading, transportation, delivery and
warehousing services and (2) international, which targets multi-national
companies primarily based in the United States and provides or coordinates
relocation services for residential shipments destined to or originating in
foreign countries using our exclusive agent network in North America and
authorized representatives around the world to complete the service offering.
Our moving and storage services segment operates in the United Kingdom,
Europe and Asia/Pacific through a network of company-owned branches that utilize
the Pickfords or Allied Pickfords brand names. This segment provides complete
domestic and international residential relocation services, including sales,
packing, loading, transportation, delivery and warehousing. The moving and
storage services segment also provides records management and office and
industrial relocation services.
Customers of the van line network and moving and storage services segments
are: (1) corporate accounts, (2) private transferees and (3) government and
military.
Our logistics services segment consists of: (1) logistics solutions, which
includes finished goods and emergency parts distribution, order fulfillment,
project-specific delivery management and the tracking of products through the
supply chain, with a focus on high-value products, (2) specialized
transportation services, which facilitates the movement of computers,
electronics, telecommunications and medical equipment, trade show exhibition
materials, fine art and other products that require specialized transportation,
distribution or delivery solutions and (3) European operations, which handles
logistics solutions and specialized transportation of high-value products to and
from any major city in the United Kingdom and Europe operating under the trade
name midiData-Registered Trademark-.
BUSINESS TRENDS AND INITIATIVES
Our operating income and cash flow from operations are influenced by
industry volume and market share as well as selling prices for our services.
Additionally, they are impacted by the costs and availability of hauling
capacity and by a number of significant business, economic and competitive
factors, many of which are not within our control.
Our van line network segment has historically experienced stable pricing for
its service offerings, although relocation revenues are subject to seasonal
swings and competition from other van lines or service providers for available
shipments. The van line network and its agents primarily use independent
owner/operators to provide hauling capacity and, in general, the industry has
had difficulty in attracting and retaining qualified haulers. NAVL has changed
its residential hauling commission structure in an effort to attract and retain
more qualified haulers and to increase agent hauling capacity during the peak
season.
Our moving and storage services segment has also historically experienced
stable pricing in a competitive market for its services, although relocation
revenues are subject to seasonal swings. This segment has some ability to adjust
pricing, labor and equipment based on demand. This segment is now employing
business development specialists to focus our corporate account sales efforts,
primarily in the areas of international relocations and business moving.
Additionally, the moving and storage services
47
segment recently acquired an industrial engineering firm to augment its
industrial moving business, increasing the scope of our services in Europe.
Our logistics services segment has also experienced stable pricing. Our
revenues are affected by competition from other van lines and from
less-than-truckload and logistics service providers as well as changes in
business demand for computer, electronics and other specialty products. One of
our largest logistics customers recently indicated that it is considering
alternative suppliers, which will result in its doing less business with us. See
"Business--Customers and Marketing."
We are pursuing a number of long-term initiatives designed to improve
productivity and profitability through programs such as Fast Forward, an
innovative, NAVL-initiated process and efficiency project. In early 1999, a team
of consultants and employees spent approximately six months evaluating NAVL's
business and generated numerous ideas to be implemented across NAVL's
operations. Implementation began in July of 1999 and is expected to be
substantially completed by the end of 2000.
Allied has implemented a select service provider network and compensation
structure aimed at increasing corporate sales volume. Additionally, it has
continued development of its Professional Sales Association training programs
and has enhanced several technological tools designed to attract additional
corporate customers, including a new move management system, enhanced corporate
reporting, on-line claims reporting and enhanced web-site capabilities.
RESULTS OF OPERATIONS--NAVL
NAVL's operating revenues are derived from its van line network and
logistics services segments.
Transportation expenses for the van line network are comprised of the
compensation paid to (1) owner/operators or agent drivers on a predetermined
rate schedule to provide equipment and haul shipments, (2) owner/operators or
agent crews for services such as packing, crating, loading and unloading,
(3) agents for booking, estimating and customer service and (4) other third
parties such as ocean freight carriers for other transportation services.
Transportation expenses for the logistics services segment are comprised of
the following: (1) compensation paid to owner/operators, employee or agent
drivers on a predetermined rate schedule to provide equipment and haul
shipments, (2) compensation paid to owner/operators, employee or agent crews for
services such as pick-up, delivery and installation, (3) facility costs,
including lease expense and labor costs associated with running the
transportation network and (4) sub-contracted transportation expenses in
providing supply chain management services.
Operating expenses include NAVL's consolidated insurance and claims, bad
debt and general and administrative expenses. Employee compensation and benefits
account for over 50% of general and administrative expense. Other significant
components of general and administrative expenses are communication costs, rent,
supplies and other purchased services.
As presented in the Selected Historical Financial Data appearing elsewhere
in this prospectus, NAVL's financial statements reflect operations since its
acquisition by Clayton, Dubilier & Rice Fund V Limited Partnership on March 29,
1998, through September 26, 1998 and through December 26, 1998 and for the nine
months ended September 25, 1999. After its acquisition by Clayton, Dubilier &
Rice Fund V Limited Partnership, in accordance with Emerging Issues Task Force
91-9, "Revenue and Expense Recognition for Freight Services in Process," NAVL
changed its accounting basis to recognize estimated revenue and direct costs
when shipments are delivered. NAVL's predecessor company recognized estimated
revenue and direct costs when shipments were loaded. Management believes the
impact of this difference on reported operating revenues and income from
operations is not material. As a result of purchase accounting, and to conform
to EITF 91-9, accounts receivable and accrued liabilities were reduced by
$16.5 million and $13.0 million, respectively, with a corresponding increase of
$3.5 million to goodwill. The results of operations for the period December 28,
1997 through March 28, 1998 and for the
48
years ended December 27, 1997 and December 28, 1996 represent the historical
results of operations of NAVL's predecessor prior to the closing of the Clayton,
Dubilier & Rice Fund V Limited Partnership acquisition and under the ownership
of Norfolk Southern Corporation. Solely to facilitate comparison and assessment
of the trends in the results of operations, the following presentation of
results of operations for the nine months ended September 26, 1998 and the year
ended December 26, 1998 was obtained by combining the historical results of
operations of NAVL's predecessor for the period from December 28, 1997 through
March 28, 1998 with (1) the results of operations of NAVL for the period from
March 29, 1998 through September 26, 1998 (the "1998 Nine-Month Period") and
(2) with the results of operations for NAVL for the period from March 29, 1998
through December 26, 1998 (the "1998 Period") adjusted for the effects of
purchase accounting as if the transaction had occurred as of December 28, 1997.
The following table sets forth the percentage relationship of certain items
to operating revenues for NAVL for the periods indicated:
NINE MONTHS
YEAR ENDED YEAR ENDED 1998 ENDED
DECEMBER 28, DECEMBER 27, 1998 NINE-MONTH SEPTEMBER 25,
1996 1997 PERIOD PERIOD 1999
(PERCENT OF REVENUES) ------------- ------------- -------- ---------- --------------
Operating revenues:
Van line network................. 56.8% 55.1% 52.7% 53.9% 51.7%
Logistics services............... 43.2% 44.9% 47.3% 46.1% 48.3%
----- ----- ----- ----- -----
Operating revenues................. 100.0% 100.0% 100.0% 100.0% 100.0%
Transportation expenses.......... 78.8% 78.7% 78.3% 78.2% 78.8%
----- ----- ----- ----- -----
Gross profit....................... 21.2% 21.3% 21.7% 21.8% 21.2%
Operating expenses............... 18.5% 18.6% 20.8% 19.9% 20.0%
Non-recurring items.............. (0.3)% (0.6)% 0.4% 0.6% 0.8%
----- ----- ----- ----- -----
Income from operations............. 3.0% 3.3% 0.5% 1.3% 0.4%
Other income (expense)........... 0.0% 0.0% 0.0% 0.0% 0.0%
Interest income (expense)........ (0.1)% 0.1% (1.6)% (1.1)% (1.7)%
----- ----- ----- ----- -----
Income (loss) before taxes......... 2.9% 3.4% (1.1)% 0.2% (1.3)%
Income taxes..................... 1.3% 1.3% (0.3)% (0.2)% 0.4%
Discontinued operations............ 0.3% 0.3% 0.0% 0.0% 0.0%
----- ----- ----- ----- -----
Net income (loss).................. 1.9% 2.4% (0.8)% 0.0% (0.9)%
===== ===== ===== ===== =====
Income from operations:
Van line network................. 1.5% 1.6% 0.2% 0.6% 0.3%
Logistics services............... 1.5% 1.7% 0.3% 0.7% 0.1%
Income from operations............. 3.0% 3.3% 0.5% 1.3% 0.4%
49
NINE MONTHS ENDED SEPTEMBER 25, 1999 AS COMPARED TO THE 1998 NINE-MONTH PERIOD
The following table sets forth certain figures regarding NAVL's results of
operations for the nine months ended September 25, 1999, as compared to the 1998
Nine-Month Period which has been adjusted for the effects of purchase accounting
as if the Clayton, Dubilier & Rice Fund V Limited Partnership acquisition had
occurred as of December 28, 1997.
NINE MONTHS % INCREASE
ENDED 1998 (DECREASE)
SEPTEMBER 25, NINE-MONTH FROM
1999 PERIOD PRIOR PERIOD
(DOLLARS IN MILLIONS) -------------- ---------- ------------
Operating revenues:
Van line network....................... $398.5 $392.8 1.5%
Logistics services..................... 372.7 335.4 11.1%
------ ------
Operating revenues....................... 771.2 728.2 5.9%
Gross profit............................. 163.6 158.7 3.1%
Operating expenses..................... 154.8 144.4 7.2%
Non-recurring items.................... 5.9 4.6 28.3%
------ ------
Income from operations:
Van line network....................... 2.1 4.5 (53.3)%
Logistics services..................... 0.8 5.2 (84.6)%
------ ------
Income from operations................... $ 2.9 $ 9.7 (70.1)%
====== ======
OPERATING REVENUES. Shipment counts are a measure of activity commonly used
by the transportation industry. The following table represents shipments handled
by NAVL's van line network and logistics services segments. A van line network
shipment is the movement of household goods from the point of origin to the
final destination. Logistics services shipments represent the movement of
truckload or less-than-truckload quantities of products from the point of origin
to the final destination.
NUMBER OF SHIPMENTS
---------------------------
NINE MONTHS
ENDED 1998 % INCREASE
SEPTEMBER 25, NINE-MONTH FROM
1999 PERIOD PRIOR PERIOD
-------------- ---------- ------------
Van line network:
U.S. and Canada........................ 80,564 80,372 0.2%
International.......................... 20,748 20,327 2.1%
Logistics services:
Specialized transportation............. 265,042 215,318 23.1%
European operations.................... 218,137 198,256 10.0%
Operating revenues for the nine months ended September 25, 1999 increased
$43.0 million, or 5.9%, compared with the 1998 Nine-Month Period. Operating
revenues in the van line network increased $5.7 million in the nine months ended
September 25, 1999, or 1.5%, to $398.5 million from $392.8 million in the 1998
Nine-Month Period. The increase is due primarily to price gains. Operating
revenues in logistics services increased $37.3 million in the nine months ended
September 25, 1999, or 11.1%, to $372.7 million from $335.4 million in the 1998
Nine-Month Period. The growth is due principally to an increase in shipments
from NAVL's core customer base and incremental logistics programs from new
accounts including Ericsson and MGE.
GROSS PROFIT. Gross profit in the van line network decreased $4.7 million,
or 7.0%, to $63.3 million in the nine months ended September 25, 1999, as
compared to $68.1 million in the 1998 Nine-Month Period, while gross profit
margin decreased to 15.9% in the nine months ended September 25, 1999 from 17.3%
in
50
the 1998 Nine-Month Period. The decrease in gross profit resulted primarily from
essentially flat sales volume and increased expenses due to changes in the
hauling commission structure.
Gross profit in logistics services increased $9.6 million, or 10.6%, to
$100.3 million in the nine months ended September 25, 1999, as compared to
$90.7 million in the 1998 Nine-Month Period, while gross profit margin decreased
to 26.9% in the nine months ended September 25, 1999 from 27.0% in the 1998
Nine-Month Period. The increase in gross profit resulted principally from
increased sales volume from new accounts.
As a result of the factors described above, gross profit for the nine months
ended September 25, 1999 increased $4.9 million, or 3.1%, to $163.6 million from
$158.7 million in the 1998 Nine-Month Period. The gross profit margin decreased
to 21.2% for the nine months ended September 25, 1999 from 21.8% in the 1998
Nine-Month Period.
OPERATING EXPENSES. Operating expenses increased $10.4 million, or 7.2%, to
$154.8 million in the nine months ended September 25, 1999 as compared to
$144.4 million in the 1998 Nine-Month Period and as a percentage of operating
revenues, increased to 20.0% for the nine months ended September 25 1999 from
19.9% in the 1998 Nine-Month Period. The expense increase is due primarily to
corporate systems expenses, new quality initiatives, an agent conference, the
addition of an internal audit function and new management infrastructure costs,
all of which represent incremental stand-alone expenses not present in the 1998
Nine-Month Period.
NON-RECURRING ITEMS. In the nine months ended September 25, 1999,
non-recurring items totaled $5.9 million of expense, consisting primarily of
$3.4 million of professional services in connection with Fast Forward, a
one-time comprehensive productivity review of NAVL's operations and
$2.4 million of restructuring costs for severance related costs, building lease
terminations and losses on the sale of equipment. In the 1998 Nine-Month Period,
non-recurring items totaled $4.6 million of expense, consisting primarily of
incremental compensation due to contracts with key executives with incentive
provisions to encourage them to remain with NAVL until a sale of the business
was completed. The 1999 expense for the Fast Forward project and the 1998
expense for incremental incentives were incurred by both the van line network
and logistics services segments, while in 1999, a loss on an asset sale was
entirely related to the van line network. These allocations significantly
affected those segments' income from operations as discussed below.
INCOME FROM OPERATIONS. Income from operations in the van line network
decreased $2.4 million, or 53.3%, to $2.1 million in the nine months ended
September 25, 1999, from $4.5 million in the 1998 Nine-Month Period, primarily
as a result of the revenue and expense charges described above.
Income from operations in logistics services decreased $4.4 million to
$0.8 million in the nine months ended September 25, 1999 from $5.2 million in
the 1998 Nine-Month Period, primarily as a result of the revenue and expense
changes described above.
In total, income from operations in the nine months ended September 25, 1999
decreased $6.8 million to $2.9 million from $9.7 million in the 1998 Nine-Month
Period primarily due to incremental stand-alone expenses as a result of the
Clayton, Dubilier & Rice Fund V Limited Partnership acquisition.
INTEREST EXPENSE. Interest expense increased $4.6 million to $12.4 million
in the nine months ended September 25, 1999, from $7.8 million in the 1998
Nine-Month Period, due to increased borrowing on the existing revolving line of
credit.
INCOME TAX EXPENSE. In the nine months ended September 25, 1999, income tax
benefit was $2.8 million. During the 1998 Nine-Month Period, income tax expense
was $1.9 million. This difference results primarily from the increase in pre-tax
loss.
51
1998 PERIOD AS COMPARED TO YEAR ENDED DECEMBER 27, 1997
The following table sets forth certain figures regarding NAVL's results of
operations for the 1998 Period which have been adjusted for the effects of
purchase accounting as if the Clayton, Dubilier & Rice Fund V Limited
Partnership acquisition had occurred as of December 28, 1997, as compared to the
fiscal year 1997 of NAVL's predecessor, which is unadjusted.
YEAR ENDED % INCREASE
1998 DECEMBER 27, (DECREASE) FROM
PERIOD 1997 PRIOR PERIOD
(DOLLARS IN MILLIONS) -------- ------------- ---------------
Operating revenues:
Van line network........................ $509.6 $518.6 (1.7)%
Logistics services...................... 456.9 422.9 8.0%
------ ------
Operating revenues........................ 966.5 941.5 2.7%
Gross profit.............................. 210.1 200.6 4.7%
Operating expenses...................... 200.7 174.9 14.8%
Non-recurring items..................... 4.6 (5.5) nm
------ ------
Income from operations:
Van line network........................ $ 1.7 $ 15.4 (89.0)%
Logistics services...................... 3.1 15.8 (80.4)%
------ ------
Income from operations.................... $ 4.8 $ 31.2 (84.6)%
====== ======
OPERATING REVENUES. Shipment counts are a measure of activity commonly used
by the transportation industry. The following table represents shipments handled
by NAVL's van line network and logistics services segments. A van line network
shipment is the movement of household goods from the point of origin to the
final destination. Logistics services shipments represent the movement of
truckload or less-than-truckload quantities of products from the point of origin
to the final destination.
NUMBER OF SHIPMENTS
------------------------
YEAR ENDED % INCREASE
1998 DECEMBER 27, (DECREASE) FROM
PERIOD 1997 PRIOR PERIOD
-------- ------------- ---------------
Van line network:
U.S. and Canada........................ 102,250 106,500 (4.0)%
International.......................... 28,500 33,250 (14.3)%
Logistics services:
Specialized transportation............. 319,000 297,750 7.1%
European operations.................... 293,500 241,750 21.4%
Operating revenues for the 1998 Period increased $25.0 million, or 2.7%,
compared with 1997. Operating revenues in the van line network decreased
$9.0 million in the 1998 Period, or 1.7%, to $509.6 million from $518.6 million
in 1997. The decrease is due primarily to lower shipment activity, partly offset
by an increase in price. Operating revenues in logistics services increased
$34.0 million in the 1998 Period, or 8.0%, to $456.9 million from
$422.9 million in 1997. The increase is due principally to an increase in
shipment activity in specialized transportation services and European operations
as well as new logistics programs for Hewlett Packard and Digital Equipment.
GROSS PROFIT. Gross profit in the van line network decreased $1.6 million,
or 1.8%, to $87.3 million in the 1998 Period as compared to $88.9 million in
1997, while gross profit margin was 17.1% in the 1998 Period as well as in 1997.
The decrease in gross profit resulted primarily from decreased sales volume.
Gross profit in logistics services increased $12.6 million, or 11.4%, to
$122.8 million in the 1998 Period as compared to $110.2 million in 1997, while
gross profit margin increased to 26.9% in the 1998 Period as
52
compared to 26.1% in 1997. The increase in gross profit resulted principally
from increased sales volume and cost reductions resulting from improved network
utilization.
As a result of the factors described above, gross profit for the 1998 Period
increased $9.5 million, or 4.7%, to $210.1 million from $200.6 million in 1997.
The gross profit margin increased to 21.7% for the 1998 Period from 21.3% in
1997.
OPERATING EXPENSES. Operating expenses increased $25.8 million, or 14.8%,
to $200.7 million in the 1998 Period as compared to $174.9 million in 1997 and
as a percentage of operating revenues, increased to 20.8% in the 1998 Period
from 18.4% in 1997. The increase is due primarily to depreciation relating to
stepped-up costs of acquired fixed assets of $19.6 million and additional
stand-alone expenses such as new management infrastructure costs, professional
services, financing fees and board of director expenses incurred as a result of
the Clayton, Dubilier & Rice Fund V Limited Partnership acquisition.
NON-RECURRING ITEMS. In the 1998 Period, non-recurring items totaled
$4.6 million of expense, consisting primarily of incremental compensation due to
contracts with key executives with incentive provisions to encourage them to
remain with NAVL until a sale of the business was completed. In 1997,
non-recurring items included a gain of $(5.5) million, consisting primarily of a
payment received in settlement of an auto liability insurance coverage dispute
that had been in litigation and the release of fuel tax reserves based on
completion of taxing authority audits. The 1998 expense was incurred by both the
van line network and logistics services segments, while the gain in 1997 was
entirely related to the van line network segment. This allocation significantly
affected those segments' income from operations as reported below.
INCOME FROM OPERATIONS. Income from operations in the van line network
decreased $13.7 million, or 89.0%, to $1.7 million in the 1998 Period from
$15.4 million in 1997, while operating margin decreased to 0.3% in the 1998
Period from 3.0% in 1997, primarily as a result of the revenue and expense
changes described above.
Income from operations in logistics services decreased $12.7 million, or
80.4%, to $3.1 million in the 1998 Period from $15.8 million in 1997, while
operating margin decreased to 0.7% in the 1998 Period from 3.7% in 1997,
primarily as a result of the revenue and expense changes described above.
In total, income from operations in the 1998 Period decreased
$26.4 million, or 84.6%, to $4.8 million from $31.2 million in 1997, while
operating margin decreased to 0.5% in the 1998 Period from 3.3% in 1997 due
primarily to the change in non-recurring items and incremental stand-alone
expenses and purchased asset expenses as a result of the Clayton, Dubilier &
Rice Fund V Limited Partnership acquisition.
INTEREST EXPENSE. Interest expense (income) increased $16.1 million to an
expense of $15.3 million in the 1998 Period from $(0.8) million income in 1997.
The increase in the 1998 Period interest expense is due to the debt associated
with the new capital structure after the Clayton, Dubilier & Rice Fund V Limited
Partnership acquisition.
INCOME TAX EXPENSE. In the 1998 Period, income tax benefit was
$2.9 million on a loss before taxes of $10.4 million. During 1997, NAVL
recognized an income tax expense of $11.9 million on income before taxes of
$31.9 million. These differences are a result of the statutory income tax rate
primarily, in the 1998 Period, due to the book versus tax treatment of certain
items associated with the Clayton, Dubilier & Rice Fund V Limited Partnership
acquisition and, in 1997, because of the reversal of valuation allowances
previously established on net operating loss carry-forward assets at NAVL's
international locations, where the realization of such benefits became more
likely than not.
53
YEAR ENDED DECEMBER 27, 1997 AS COMPARED TO YEAR ENDED DECEMBER 28, 1996
The following table sets forth certain figures regarding NAVL's
predecessor's results of operations for the fiscal year 1997, as compared to the
fiscal year 1996.
YEAR ENDED YEAR ENDED % INCREASE
DECEMBER 27, DECEMBER 28, (DECREASE) FROM
1997 1996 PRIOR PERIOD
(DOLLARS IN MILLIONS) ------------- ------------- ---------------
Operating revenues:
Van line network.................... $518.6 $528.5 (1.9)%
Logistics services.................. 422.9 401.7 5.3%
------ ------
Operating revenues.................... 941.5 930.2 1.2%
Gross profit.......................... 200.6 197.3 1.7%
Operating expenses.................. 174.9 172.1 1.6%
Non-recurring items................. (5.5) (2.9) 89.7%
------ ------
Income from operations:
Van line network.................... $ 15.4 $ 13.7 12.4%
Logistics services.................. 15.8 14.4 9.7%
------ ------
Income from operations................ $ 31.2 $ 28.1 11.0%
====== ====== ====
OPERATING REVENUES. Shipment counts are a measure of activity commonly used
by the transportation industry. The following table represents shipments handled
by NAVL's van line network and logistics services segments. A van line network
shipment is the movement of household goods from the point of origin to the
final destination. Logistics services shipments represent the movement of
truckload or less-than-truckload quantities of products from the point of origin
to the final destination.
NUMBER OF SHIPMENTS
-----------------------------
YEAR ENDED YEAR ENDED % INCREASE
DECEMBER 27, DECEMBER 28, (DECREASE) FROM
1997 1996 PRIOR PERIOD
------------- ------------- ---------------
Van line network:
U.S. and Canada..................... 106,500 114,500 (7.0)%
International....................... 33,250 25,759 29.1%
Logistics services:
Specialized transportation.......... 297,750 282,000 5.6%
European operations................. 241,750 207,000 16.8%
Operating revenues for 1997 increased $11.3 million, or 1.2% compared with
1996. Operating revenues in the van line network decreased $9.9 million in 1997,
or 1.9%, to $518.6 million from $528.5 million in 1996. The decrease is due
primarily to lower shipment activity in domestic relocations, partially offset
by an increase in price. Domestic relocation shipment activity decreased in the
second half of 1997 due in part to the departure of NAVL's largest agent,
Atlantic Moving & Storage, Inc. (based on 1996 line-haul revenue of
approximately $34.8 million for van line network and $24.0 million for logistics
services), from the company agent group (see "Business--Agent Network").
Operating revenues in logistics services increased $21.2 million in 1997, or
5.3%, to $422.9 million from $401.7 million in 1996. The growth is due
principally to an increase in shipment activity in specialized transportation
services, European operations and logistics programs.
GROSS PROFIT. Gross profit in the van line network decreased $1.9 million,
or 2.1%, to $88.9 million from $90.8 million in 1996. Gross profit margin was
relatively flat at 17.1% in 1997 compared to 17.2% in 1996. The slight decrease
in gross profit resulted primarily from decreased sales volume.
54
Gross profit in logistics services increased $3.7 million, or 3.5%, to
$110.2 million in 1997 as compared to $106.5 million in 1996, while gross profit
margin decreased to 26.1% in 1997 as compared to 26.5% in 1996. The decrease in
gross profit margin resulted principally from costs associated with start-up
activities for a new distribution center and certain logistics programs.
As a result of the factors described above, 1997 gross profit increased in
total $3.3 million, or 1.7%, to $200.6 million from $197.3 million in 1996.
Gross profit margin increased to 21.3% for 1997 from 21.2% in 1996.
OPERATING EXPENSES. Operating expenses increased $2.8 million, or 1.6%, to
$174.9 million in 1997, as compared to $172.1 million in 1996 and, as a
percentage of operating revenues, increased to 18.6% in 1997 from 18.5% in 1996.
NON-RECURRING ITEMS. In 1997, non-recurring items included a gain of
$(5.5) million, consisting primarily of a payment received in settlement of an
auto liability insurance coverage dispute which had been in litigation and the
release of fuel tax reserves based on completion of taxing authority audits. In
1996, non-recurring gains totaled $(2.9) million, consisting primarily of a
partial reversal of a litigation accrual which was first established in 1993
regarding a breach of contract suit. A portion of the initial damage award was
overturned on appeal. Both items related to the van line network and
significantly affected that segment's income from operations as reported below.
INCOME FROM OPERATIONS. Income from operations in the van line network
increased $1.7 million, or 12.4%, to $15.4 million in 1997 from $13.7 million in
1996, while operating margin increased to 3.0% in 1997 from 2.6% in 1996,
primarily as a result of the revenue and expense changes described above.
Income from operations in logistics services increased $1.4 million, or
9.7%, to $15.8 million in 1997 from $14.4 million in 1996, while operating
margin increased to 3.7% in 1997 from 3.6% in 1996, primarily as a result of the
revenue and expense changes described above.
In total, income from operations in 1997 increased $3.1 million, or 11.0%,
to $31.2 million from $28.1 million in 1996, while the operating margin
increased to 3.3% in 1997 from 3.0% in 1996.
INTEREST EXPENSE. For 1997 and 1996, interest was charged to NAVL based
upon the net intercompany payable to Norfolk Southern, its parent company. The
intercompany account was a liability in 1996 versus being a net receivable in
1997. Furthermore, NAVL received interest income as part of the settlement of
litigation referenced in "Non-recurring Items" above.
INCOME TAX EXPENSE. In 1997, income tax expense was $11.9 million, or 37.3%
of income before taxes, compared to $12.2 million, or 44.7% of income before
taxes in 1996. These expenses differ from the statutory income tax rate
primarily because of changes in both current provision rates for international
operations and a reduction of valuation allowances previously established on net
operating loss carry-forward assets at NAVL's international locations, where the
realization of such benefits became more likely in 1997.
RESULTS OF OPERATIONS--ALLIED
Allied's operating revenues are derived from its van line network, moving
and storage services and logistics services segments.
Operating expenses include transportation expenses, insurance, claims and
general and administrative expenses.
Transportation expenses for the van line network are comprised of the
compensation to (1) agents on a predetermined rate schedule to provide equipment
and hauling services and other services such as crating, packing, loading and
unloading, (2) agents for booking, estimating and customer service and
(3) other third parties such as ocean freight carriers for other transportation
services.
55
Transportation expenses for the moving and storage services segment are
similar to those in the van line network, except that expenses incurred to
provide moving and storage services are largely in the form of direct labor and
equipment expenses rather than in the form of agent expenses.
Transportation expenses for the logistics services segment are comprised of
(1) compensation paid to owner/operators or employee or agent drivers on a
predetermined rate schedule to provide equipment and haul shipments,
(2) compensation paid to owner/operators or agent crews for services such as
pick-up, delivery and installation and (3) agent costs incurred with running the
transportation network.
The financial information included below is prepared on the basis of U.K.
GAAP and reported in Pounds sterling. Such principles differ from U.S. GAAP in
the following significant areas: deferred taxation, disposal of property,
revaluation of land and buildings, reorganization costs, staff costs, pension
costs, investments, goodwill and exceptional items. Allied recognizes revenues
on a loaded basis. Similar to NAVL, the impact of changing to a delivered basis
of accounting on operating revenues and income from operations is not expected
to be material. The calculation of this change, including the impact on accounts
receivable, accrued liabilities and goodwill has not yet been completed.
The following table sets forth the percentage relationship of certain items
to operating revenues for Allied for the periods indicated. Interest income from
Allied's insurance affiliate, TransGuard Insurance Company of America, Inc., is
reflected in Allied's financial statements within interest (net).
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, JUNE 30, JUNE 30,
1996 1997 1998 1998 1999
(PERCENT OF REVENUES) -------------- -------------- -------------- ----------- -----------
Operating revenues:
Van line network.............. 66.2% 65.6% 66.2% 64.7% 63.9%
Logistics services............ 6.1% 6.2% 6.5% 6.9% 7.3%
Moving and storage services... 27.7% 28.2% 27.3% 28.4% 28.8%
----- ----- ----- ----- -----
Operating revenues.............. 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses before
exceptional items........... 97.2% 96.9% 96.3% 97.2% 97.2%
----- ----- ----- ----- -----
Operating profit before
exceptional items............. 2.8% 3.1% 3.7% 2.8% 2.8%
Operating exceptional items... (0.4)% (0.3)% (0.2)% (0.2)% (0.3)%
----- ----- ----- ----- -----
Total operating profit.......... 2.4% 2.8% 3.5% 2.6% 2.5%
Non-operating exceptional
items....................... (0.2)% 0.3% 0.0% 0.0% 0.1%
Interest income (expense)..... (0.1)% (0.3)% 0.0% 0.1% (0.1)%
----- ----- ----- ----- -----
Income before taxes............. 2.1% 2.8% 3.5% 2.7% 2.5%
Income taxes.................. 0.7% 1.1% 0.6% (0.5)% (0.6)%
----- ----- ----- ----- -----
Net income...................... 1.4% 1.7% 2.9% 2.2% 1.9%
===== ===== ===== ===== =====
Operating profit before
operating exceptional items:
Van line network.............. 1.2% 1.1% 1.3% 0.7% 0.7%
Logistics services............ 0.0% 0.0% 0.0% 0.0% 0.0%
Moving and storage services... 1.6% 2.0% 2.4% 2.1% 2.1%
----- ----- ----- ----- -----
Operating profit before
exceptional items............. 2.8% 3.1% 3.7% 2.8% 2.8%
===== ===== ===== ===== =====
56
NINE MONTHS ENDED JUNE 30, 1999 AS COMPARED TO NINE MONTHS ENDED JUNE 30, 1998
The following table sets forth certain figures regarding Allied's results of
operations for the nine months ended June 30, 1999, as compared to the nine
months ended June 30, 1998.
NINE MONTHS NINE MONTHS % INCREASE
ENDED ENDED (DECREASE) FROM
JUNE 30, 1999 JUNE 30, 1998 PRIOR PERIOD
(POUNDS IN MILLIONS) -------------- -------------- ---------------
Operating revenues:
Van line network.................... L 317.4 L 314.3 1.0%
Logistics services.................. 36.5 33.7 8.3%
Moving and storage services......... 142.9 138.3 3.3%
-------------- --------------
Operating revenues.................... 496.8 486.3 2.2%
Operating expenses before exceptional
items............................... 483.0 472.6 2.2%
-------------- --------------
Operating profit before exceptional
items............................... 13.8 13.7 0.7%
-------------- --------------
Operating exceptional items........... (1.4) (1.0) 40.0%
-------------- --------------
Total operating profit................ 12.4 12.7 (2.4)%
-------------- --------------
Operating profit before exceptional
items(1):
Van line network.................... 3.4 3.6 (5.6)%
Logistics services.................. 0.2 (0.2) nm
Moving and storage services......... 10.2 10.3 (1.0)%
-------------- --------------
L 13.8 L 13.7 0.7%
============== ==============
- ------------------------
(1) Operating profit before exceptional items does not include interest income
from Allied's insurance affiliate, which was L1.8 million and L2.5 million
in the nine months ended June 30, 1999 and 1998, respectively.
OPERATING REVENUES. Shipment counts are a measure of activity commonly used
by the transportation industry. The following table represents shipments handled
by Allied's van line network and logistics services segments. A van line network
shipment is the movement of household goods from the point of origin to the
final destination. Logistics services shipments represent the movement of
truckload or less-than-truckload quantities of products from the point of origin
to the final destination. Moving and storage services, which are located outside
of North America (principally the United Kingdom and Australia), generate
revenues approximately evenly divided among three major activities: domestic
moving, international moving and business moving services. While shipments are
an indicator of revenue in residential moving, aggregate shipment counts for our
moving and storage services segment are not routinely prepared and therefore are
not provided.
NUMBER OF SHIPMENTS
-------------------------------
NINE MONTHS NINE MONTHS % INCREASE
ENDED ENDED (DECREASE) FROM
JUNE 30, 1999 JUNE 30, 1998 PRIOR PERIOD
-------------- -------------- ---------------
Van line network:
U.S. and Canada..................... 110,019 114,973 (4.3)%
International....................... 17,855 18,859 (5.3)%
Logistics services.................... 67,795 64,250 5.5%
Operating revenues from the van line network increased L3.1 million, or
1.0%, to L317.4 million for the nine months ended June 30, 1999, as compared to
L314.3 million for the same period in 1998. The
57
increase is due principally to international account activities and improvements
in the private transferee market, partially offset by a decline in both domestic
and international military activities and reduced domestic corporate account
volumes.
Operating revenues from logistics services increased L2.8 million, or 8.3%,
to L36.5 million for the nine months ended June 30, 1999, as compared to
L33.7 million for the same period in 1998. This increase is principally due to
shipment growth.
Operating revenues from moving and storage services increased L4.6 million,
or 3.3%, to L142.9 million for the nine months ended June 30, 1999, as compared
to L138.3 million in the same period in 1998. International activity continued
to increase in all markets, while domestic moving activity declined slightly in
the United Kingdom and increased in Australia.
In total, operating revenues for the nine months ended June 30, 1999
increased L10.5 million, or 2.2%, to L496.8 million as compared to
L486.3 million in the same period in 1998, as a result of the factors described
above.
OPERATING PROFIT BEFORE EXCEPTIONAL ITEMS. Operating profit before
exceptional items in the van line network decreased L0.2 million, or 5.6%, to
L3.4 million in the nine months ended June 30, 1999 as compared to L3.6 million
in the same period of 1998. Operating margin was unchanged at 1.1% in the nine
months ended June 30, 1999 from the same period of 1998. The nine months ended
June 30, 1999, however, includes costs of L1.3 million, an increase of
L0.5 million over the same period in 1998 as a result of information technology
investment for an on-going process improvement project.
Operating profit before exceptional items in logistics services increased
L0.4 million in the nine months ended June 30, 1999, to L0.2 million, as
compared to L(0.2) million for the same period of 1998. This improvement
reflects the increase in volume as operating margin was 0.5% in the nine months
ended June 30, 1999, as compared to (0.6)% in the same period of 1998.
Operating profit before exceptional items in moving and storage services
decreased L0.1 million, or 1.0%, to L10.2 million in the nine months ended
June 30, 1999 as compared to L10.3 million in the same period of 1998. Operating
margin decreased to 7.1% in the nine months ended June 30, 1999 from 7.4% in the
same period of 1998. The results are primarily attributable to lower revenue
levels in the U.K. domestic business.
In total, as a result of the factors described above, operating profit
before exceptional items in the nine months ended June 30, 1999 increased
L0.1 million, or 0.7%, to L13.8 million as compared to L13.7 million in the same
period of 1998. Operating margin was unchanged at 2.8% in the nine months ended
June 30, 1999 from the same period of 1998.
OPERATING EXCEPTIONAL ITEMS. Operating exceptional items totaled
L1.4 million of expense in the nine months ended June 30, 1999 as compared to
L1.0 million in the same period of 1998, consisting primarily of additional
restructuring expenses principally related to overhead reductions and
rationalization of property in the United Kingdom and continental Europe.
TOTAL OPERATING PROFIT. Primarily as a result of the factors discussed
above, total operating profit in the nine months ended June 30, 1999 decreased
L0.3 million, or 2.4%, to L12.4 million as compared to L12.7 million in the same
period of 1998, while the operating margin declined to 2.5% in the nine months
ended June 30, 1999 from 2.6% in the same period of 1998.
INTEREST. Interest expense increased L0.9 million to L0.3 million net
interest expense in the nine months ended June 30, 1999 as compared to
L0.6 million net interest income in the same period of 1998.
INCOME TAX EXPENSE. In the nine months ended June 30, 1999, income tax
expense increased L0.5 million, or 20.8%, to L2.9 million as compared to
L2.4 million in the same period of 1998. These
58
expenses differ primarily due to the group's effective rate of tax on profit
from ordinary activities, the tax effects of exceptional items and prior-year
adjustments.
YEAR ENDED SEPTEMBER 30, 1998 AS COMPARED TO YEAR ENDED SEPTEMBER 30, 1997
The following table sets forth certain figures regarding Allied's results of
operations for the fiscal year 1998, as compared to the fiscal year 1997.
YEAR ENDED YEAR ENDED % INCREASE
SEPTEMBER 30, SEPTEMBER 30, (DECREASE) FROM
1998 1997 PRIOR PERIOD
(POUNDS IN MILLIONS) -------------- -------------- ---------------
Operating revenues:
Van line network................... L 462.0 L 446.8 3.4%
Logistics services................. 45.3 42.1 7.6%
Moving and storage services........ 191.0 191.8 (0.4)%
-------------- --------------
Operating revenues................... L 698.3 L 680.7 2.6%
Operating expenses before exceptional
items.............................. 672.2 659.4 1.9%
-------------- --------------
Operating profit before exceptional
items.............................. 26.1 21.3 22.5%
Operating exceptional items.......... (1.6) (2.3) (30.4)%
-------------- --------------
Total operating profit............... 24.5 19.0 28.9%
Operating profit before exceptional
items(1):
Van line network................... L 9.4 L 7.9 19.0%
Logistics services................. (0.3) (0.2) 50.0%
Moving and storage services........ 17.0 13.6 25.0%
-------------- --------------
L 26.1 L 21.3 22.5%
- ------------------------
(1) Operating profit before exceptional items does not include interest income
from Allied's insurance affiliate, which was L2.7 million and L2.0 million
in the years ended September 30, 1998 and 1997, respectively.
OPERATING REVENUES. Shipment counts are a measure of activity commonly used
by the transportation industry. The following table represents shipments handled
by Allied's van line network and logistics services segments. A van line network
shipment is the movement of household goods from the point of origin to the
final destination. Logistics services shipments represent the movement of
truckload or less-than-truckload quantities of products from the point of origin
to the final destination. Moving and storage services, which are located outside
of North America (principally the United Kingdom and Australia), generate
revenues approximately evenly divided among three major activities: domestic
moving, international moving and business moving services. While shipments are
an indicator of revenue in residential moving, aggregate shipment counts for our
moving and storage services segment are not routinely prepared and therefore are
not provided.
NUMBER OF SHIPMENTS
-------------------------------
YEAR ENDED YEAR ENDED % INCREASE
SEPTEMBER 30, SEPTEMBER 30, (DECREASE) FROM
1998 1997 PRIOR PERIOD
-------------- -------------- ---------------
Van line network:
U.S. and Canada.................... 165,617 169,903 (2.5)%
International...................... 27,468 24,523 12.0%
Logistics services................... 84,249 76,259 10.5%
59
Operating revenues in the van line network increased L15.2 million, or 3.4%,
to L462.0 million in 1998 as compared to L446.8 million in 1997. The increase is
due primarily to price increases across a consistent volume base, offsetting a
volume decline principally in Canadian military shipments.
Operating revenues in logistics services increased L3.2 million, or 7.6%, to
L45.3 million in 1998 as compared to L42.1 million in 1997. The increase is due
principally to increased shipment activity in specialized transportation
services.
Operating revenues in moving and storage services decreased L0.8 million, or
0.4%, to L191.0 million in 1998, as compared to L191.8 million in 1997. The
decrease is a net result of marginal positive revenue improvements in all
segments except U.K. domestic moving, which was impacted by softness in the U.K.
moving market.
In total, as a result of the factors described above, operating revenues for
1998 increased L17.6 million, or 2.6%, to L698.3 million as compared to
L680.7 million in 1997.
OPERATING PROFIT BEFORE EXCEPTIONAL ITEMS. Operating profit before
exceptional items in the van line network increased L1.5 million, or 19.0%, to
L9.4 million in 1998, as compared to L7.9 million in 1997, while operating
profit margin improved to 2.0% in 1998 from 1.8% in 1997. The increase in
operating profit resulted primarily from improvements in price and reductions in
claims expense. The results also included a one-time benefit of L1.0 million in
U.S. retirement program costs partially offset by the start-up costs of Meridian
Mobility Resources (Allied's captive third-party relocation service subsidiary)
and the development of the information technology to support business process
improvement.
Operating loss before exceptional items in logistics services increased
L0.1 million, or 50.0%, to L0.3 million in 1998, as compared to L0.2 million in
1997, while its operating profit margin declined to (0.7)% in 1998 compared to
(0.5)% in 1997. The decrease in operating profit resulted principally from
increased transportation expenses.
Operating profit before exceptional items in moving and storage services
increased L3.4 million, or 25.0%, to L17.0 million in 1998, as compared to
L13.6 million in 1997, while operating profit margin improved to 8.9% in 1998
from 7.1% in 1997. The increase in operating profit is primarily due to better
utilization of resources, lower costs arising from more efficient workload
management and lower overhead as a result of a restructuring program implemented
in mid-1997.
In total, as a result of the factors described above, operating profit
before exceptional items for 1998 increased L4.8 million, or 22.5%, to
L26.1 million in 1998 as compared to L21.3 million in 1997, while operating
profit margin increased to 3.7% in 1998 from 3.1% in 1997.
OPERATING EXCEPTIONAL ITEMS. Exceptional reorganization costs were
L1.6 million in 1998, primarily due to costs in relation to the restructuring
initiative commenced in 1997, compared to L2.3 million in 1997.
TOTAL OPERATING PROFIT. Primarily as a result of the factors discussed
above, total operating profit increased L5.5 million, or 28.9%, to
L24.5 million in 1998 as compared to L19.0 million in 1997, while the operating
margin increased to 3.5% in 1998 from 2.8% in 1997.
NON-OPERATING EXCEPTIONAL ITEMS. In 1998 non-operating exceptional items
comprised a loss of L0.3 million arising from the disposal of operations, partly
offset by a profit of L0.2 million arising on the disposal of properties. In
1997 there was a profit of L2.3 million arising from the disposal of properties.
INTEREST. Interest income increased L2.4 million, or 109.1%, to
L0.2 million net interest income in 1998, as compared to L2.2 million net
interest expense in 1997, primarily due to lower levels of net borrowings during
the year following the disposals of property.
INCOME TAX EXPENSE. In 1998, income tax expense was L4.6 million or 18.7%
of income before taxes as compared to L7.2 million, or 37.7% of income before
taxes in 1997. These expenses differ primarily due to a higher level of
adjustments relating to prior years in 1998.
60
YEAR ENDED SEPTEMBER 30, 1997 AS COMPARED TO YEAR ENDED SEPTEMBER 30, 1996
The following table sets forth certain figures regarding Allied's results of
operations for the fiscal year 1997, as compared to the fiscal year 1996.
YEAR ENDED YEAR ENDED % INCREASE
SEPTEMBER 30, SEPTEMBER 30, (DECREASE) FROM
1997 1996 PRIOR PERIOD
(POUNDS IN MILLIONS) -------------- -------------- ---------------
Operating revenues:
Van line network....................... L446.8 L435.7 2.5%
Logistics services..................... 42.1 39.9 5.5%
Moving and storage services............ 191.8 182.5 5.1%
------ ------
Operating revenues....................... L680.7 L658.1 3.4%
Operating expenses before exceptional
items(1)............................... 659.4 639.4 3.1%
------ ------
Operating profit before exceptional
items.................................. 21.3 18.7 13.9%
Operating exceptional items.............. (2.3) (3.0) (23.3)%
------ ------
Total operating profit................... 19.0 15.7 21.0%
Operating profit before exceptional
items:
Van line network....................... L 7.9 L 8.1 (2.5)%
Logistics services..................... (0.2) (0.3) (33.3)%
Moving and storage services............ 13.6 10.9 24.8%
------ ------
L 21.3 L 18.7 13.9%
====== ======
- ------------------------
(1) Operating profit before exceptional items does not include interest income
from Allied's insurance affiliate, which was L2.0 million and L1.6 million
in the years ended September 30, 1997 and 1996, respectively.
OPERATING REVENUES. Shipment counts are a measure of activity commonly used
by the transportation industry. The following table represents shipments handled
by Allied's van line network and logistics services segments. A van line network
shipment is the movement of household goods from the point of origin to the
final destination. Logistics services shipments represent the movement of
truckload or less-than-truckload quantities of products from the point of origin
to the final destination. Moving and storage services, which are located outside
of North America (principally the United Kingdom and Australia), generate
revenues approximately evenly divided among three major activities: domestic
moving, international moving and business moving services. While shipments are
an indicator of revenue in residential moving, aggregate shipment counts for our
moving and storage services segment are not routinely prepared and therefore are
not provided.
NUMBER OF SHIPMENTS
-------------------------------
YEAR ENDED YEAR ENDED % INCREASE
SEPTEMBER 30, SEPTEMBER 30, (DECREASE) FROM
1997 1996 PRIOR PERIOD
-------------- -------------- ---------------
Van line network:
U.S. and Canada.................... 169,903 161,974 4.9%
International...................... 24,523 22,033 11.3%
Logistics services................... 76,259 68,166 11.9%
Operating revenues in the van line network increased L11.1 million, or 2.5%,
to L446.8 million in 1997, as compared to L435.7 million in 1996. The increase
is due primarily to increases in shipment volume.
61
Operating revenues in logistics services increased L2.2 million, or 5.5%, to
L42.1 million in 1997, as compared to L39.9 million in 1996. The increase is due
principally to increased shipment activity in specialized transportation
services, offset by a decline in the average revenue per shipment due to smaller
shipments.
Operating revenues in moving and storage services increased L9.3 million, or
5.1%, to L191.8 million in 1997, as compared to L182.5 million in 1996. The
increase is primarily a result of increased volumes across all segments.
In total, as a result of the factors described above, operating revenues
increased L22.6 million, or 3.4%, to L680.7 million in 1997, as compared to
L658.1 million in 1996.
OPERATING PROFIT BEFORE EXCEPTIONAL ITEMS. Operating profit before
exceptional items in the van line network decreased L0.2 million, or 2.5%, to
L7.9 million in 1997 as compared to L8.1 million in 1996. Operating profit
margin declined to 1.8% in 1997 from 1.9% in 1996.
Operating loss before exceptional items in logistics services improved
L0.1 million, or 33.3%, to L0.2 million in 1997 as compared to L0.3 million in
1996. Operating profit margin increased to (0.5)% in 1997, as compared to (0.7)%
in 1996. The decrease in operating loss resulted principally from volume
increases and a continued focus on service improvements and cost reduction.
Operating profit before exceptional items in moving and storage services
increased L2.7 million, or 24.8%, to L13.6 million in 1997 as compared to
L10.9 million in 1996. Operating profit margin increased to 7.1% in 1997 from
6.0% in 1996. The increase in operating profit resulted primarily from volume
improvements and lower overhead as a result of a restructuring program
implemented in the middle of 1997.
In total, as a result of the factors described above, 1997 operating profit
increased L2.6 million, or 13.9%, to L21.3 million in 1997 as compared to
L18.7 million in 1996. Operating profit margin increased to 3.1% for 1997 from
2.8% in 1996 as a result of the factors described above.
OPERATING EXCEPTIONAL ITEMS. Exceptional reorganization costs were
L2.3 million in 1997, primarily relating to a strategic restructuring initiative
in the United Kingdom and continental Europe, compared to L3.0 million in 1996.
TOTAL OPERATING PROFIT. Primarily as a result of the factors discussed
above, total operating profit increased L3.3 million, or 21.0%, to
L19.0 million in 1997 as compared to L15.7 million in 1996. Operating margin
increased to 2.8% in 1997 from 2.4% in 1996.
NON-OPERATING EXCEPTIONAL ITEMS. In 1997 these comprised a profit of
L2.3 million arising from the disposal of properties. In 1996 there was a loss
of L1.0 million arising from the disposal of properties.
INTEREST. Interest expense increased L1.5 million, or 14.3%, to
L2.2 million in 1997 as compared to L0.7 million in 1996. The increase in 1997
interest expense is due largely to an increase in net borrowings.
INCOME TAX EXPENSE. In 1997, income tax expense was L7.2 million, or 37.7%,
of income before taxes, compared to L5.0 million, or 35.7% of income before
taxes in 1996. These expenses differ primarily due to a higher level of
adjustments relating to prior years in 1996.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
We broadly define liquidity as our ability to generate sufficient cash flow
from operating activities to meet our obligations and commitments. In addition,
liquidity includes the ability to obtain appropriate debt and equity financing
and to convert into cash those assets that are no longer required to meet
existing
62
strategic and financial objectives. Therefore, liquidity cannot be considered
separately from capital resources that consist of current or potentially
available funds for use in achieving long-range business objectives and meeting
debt service commitments.
Our liquidity needs will arise primarily from debt service on the
substantial indebtedness incurred in connection with the Allied acquisition,
from the funding of working capital and capital expenditures and the
non-recurring cost of the implementation of the entire Fast Forward program and
the cost of integrating the NAVL and Allied businesses (which costs (excluding
capital expenditures) are expected to be approximately $15.0 million), although
these costs are expected to be offset entirely by the savings expected to result
from Fast Forward and synergies arising as a result of the combination of NAVL
and Allied. See "Business--Business and Growth Strategy."
DEBT SERVICE. Principal and interest payments under the new senior credit
facility and interest payments on the notes will represent significant liquidity
requirements for us. Giving pro forma effect to the Allied acquisition, as of
September 25, 1999, we had approximately $537.3 million of indebtedness
comprised of indebtedness for borrowed money and capital leases, consisting of
the $150.0 million principal amount of the notes, $325.0 million outstanding
under our new term loans (consisting of two term loans amounting to
$150.0 million and $175.0 million, respectively) and approximately
$60.4 million outstanding under our new $150.0 million revolving credit facility
and $1.9 million of other debt. As a result, our interest expense will be
substantially higher than in prior periods, and we will be required to devote a
substantial amount of our cash flow to service this indebtedness. We will be
required to repay our $150.0 million tranche A term loan in quarterly principal
payments over seven years and our $175.0 million tranche B term loan in
quarterly principal payments over eight years. We will be required to repay any
amounts borrowed under the revolving credit facility by the seventh anniversary
of the initial borrowings under the new senior credit facility. See "Description
of Other Indebtedness--Senior Credit Facility." All borrowings under the new
senior credit facility bear interest at floating rates based upon the interest
rate option elected by us.
COVENANT RESTRICTIONS. The new senior credit facility imposes restrictions
on our ability to make capital expenditures and the new senior credit facility,
the indenture governing the notes and the agreements governing Allied
Worldwide's $35.0 million of senior discount debt limit our ability to incur
additional indebtedness. Such restrictions could limit our ability to respond to
certain market conditions, to meet our capital spending program, to provide for
unanticipated capital investments or to take advantage of business
opportunities. The covenants in the new senior credit facility also, among other
things, restrict our ability to dispose of assets, incur guarantee obligations,
prepay other indebtedness, make restricted payments, create liens, make equity
or debt investments, make acquisitions, modify terms of the indenture, engage in
mergers or consolidations, change the business conducted by us, make capital
expenditures or engage in certain transactions with affiliates. See "Description
of Other Indebtedness--Senior Credit Facility--Covenants and Events of Default."
The indenture and the agreements governing Allied Worldwide's $35.0 million of
senior discount debt contain a number of similar restrictions. See "Description
of Notes" and "Description of Other Indebtedness--Allied Worldwide Senior
Discount Debt."
CAPITAL AND AGENT CONTRACT EXPENDITURES. NAVL's historical capital
expenditures since 1996 have been $7.4 million, $10.6 million and $7.1 million
for 1996, 1997 and 1998 respectively, and in substantial part result from the
purchase of transportation, terminal and distribution equipment and investments
in systems technologies. NAVL also leases a portion of its long-haul trailer
fleet under operating leases. We converted $13.0 million of these leases to
capital leases in the fourth quarter of 1999. We anticipate using capital leases
for our fleet where available and more cost effective. Allied's historical
capital expenditures since 1996 have been $15.2 million, $19.9 million and
$24.8 million for 1996, 1997 and 1998 respectively, and in substantial part
result from the purchase of transportation, terminal and distribution equipment
and investments in systems technologies. Expenditures for 1999 were
approximately $39.5 million for the
63
combined company, relate primarily to the items mentioned above, and do not
include the possible use of capital leases. The increase over 1998 relates to
additional equipment required for moving and storage services and for additional
logistics systems expenditures. We estimate that capital expenditures for 2000
will be approximately $47.0 million and this incremental spending relates
primarily to the integration of NAVL and Allied systems.
In the van lines network, both NAVL and Allied commit to certain payments to
agents as an incentive either to convert from a competing van line or to renew
or otherwise enter into long-term contracts with the van line. NAVL's historical
agent contract expenditures since 1996 have averaged approximately $2.6 million
annually (not considering certain unusual expenditures caused by the departure
of NAVL's largest agent in 1997). Allied's historical agent contract
expenditures since 1996 have averaged approximately $3.0 million annually.
Expenditures for 1999 are estimated to be approximately $6.0 million for the
combined company. We estimate that agent contract expenditures for 2000 will be
at similar levels.
FINANCING SOURCES. As of December 31, 1999, $85.0 million was available
under the new revolving credit facility entered into in connection with the
Allied acquisition to meet our future working capital and other business needs.
We believe that cash generated from operations, together with amounts available
under the revolving credit facility and any other available sources of liquidity
will be adequate to permit us to meet our debt services obligations, capital
expenditure program requirements, ongoing operating costs and working capital
needs for at least the next twelve months, although no assurance can be given in
this regard. Our future operating performance and ability to service or
refinance the notes and to repay, extend or refinance the new senior credit
facility will be, among other things, subject to future economic conditions and
to financial, business and other factors, many of which are beyond our control.
FOREIGN CURRENCY TRANSLATION
The following is a historical discussion of currency translations for NAVL
and Allied. The future magnitude and direction of the adjustments described
depends on the relationship of the U.S. Dollar to other foreign currencies. The
effects of foreign currency fluctuations in our foreign operations are somewhat
mitigated by the fact that the majority of expenses are incurred in the same
currency in which corresponding revenues are generated.
NAVL
Operating revenues from operations outside of the United States during the
nine months ended September 25, 1999, amounted to approximately $59.4 million,
or 7.7% of NAVL's combined operating revenues. At September 25, 1999,
approximately 5.0% of NAVL's total net assets were denominated in currencies
other than the U.S. Dollar. The functional currency for NAVL's international
subsidiaries is the local currency for the country in which the subsidiaries own
their primary assets. NAVL has operations in countries that use the Canadian
dollar, the British Pound sterling or the German Mark as their functional
currencies.
The translation of the applicable currencies into U.S. Dollars is performed
for balance sheet accounts using current exchange rates in effect at the balance
sheet date and for revenue and expense accounts using a weighted average
exchange rate during the period. The effect of U.S. Dollar currency exchange
rates in Canada, Britain and Germany produced a net currency translation
adjustment loss of approximately $0.2 million, which was recorded as an
adjustment to stockholders' equity as an element of comprehensive income, for
the nine months ended September 25, 1999.
ALLIED
Operating revenues from operations outside of the United States for the nine
months ended June 30, 1999 amounted to L142.9 million, or 28.8% of Allied's
combined operating revenues. At June 30, 1999,
64
Allied's net assets were L(63.0) million. Allied has operations in numerous
countries which have different functional currencies, principally the Pound
sterling and the Australian dollar.
The translation of the applicable currencies into Pounds sterling is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts using weighted
average exchange rates during the period. Due to currency fluctuations, the net
currency translation adjustment for the nine months ended June 30, 1999, was
approximately L.1.8 million which was recorded as an adjustment to stockholders'
equity.
INFLATION
We believe that inflation generally does not have a material effect on the
results of our operations.
SEASONALITY
Our operations are subject to seasonal trends common to the moving industry.
Results of our operations for the quarters ending in December and March are
typically lower than the quarters ending in June and September due to reduced
shipments and higher operating costs in the winter months. With respect to the
van line network, over half of the network revenue is typically generated from
May through September. For logistics services, shipping requirements of the
customer base result in higher shipment volumes at the end of each quarter.
Moving and storage services experiences seasonality with respect to residential
relocations; however, this is somewhat diminished by the geographic diversity of
our business moving activities.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). In June 1999, the FASB issued
Statement of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133" (FAS 137). FAS 137 deferred the effective date of FAS 133 to
all fiscal quarters of fiscal years beginning after June 15, 2000 (January 1,
2001 for our Company). FAS 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and the type of hedge transaction. Management anticipates that, due
to its limited use of derivative instruments, the adoption of FAS 133 will not
have a significant effect on our results of operations or financial position.
IMPACT OF YEAR 2000
The "Year 2000 issue" generally describes the various problems that may
result from the improper processing of dates and date-sensitive calculations by
computers and other equipment as a result of computer hardware and software
using two digits, rather than four digits, to define the applicable year. If a
computer program or other piece of equipment fails to properly process dates
including and after the Year 2000, date-sensitive calculations may be inaccurate
or a major system failure may occur. Any such miscalculations or system failures
may cause disruptions in operations including, among other things, a temporary
inability to process transactions, send invoices or engage in other routine
business activities. A failure of our computer systems could have a material
adverse effect on our operations, including its ability to make payments on the
notes.
STATE OF READINESS
We have not experienced significant disruptions or other problems since the
beginning of the year 2000. However, no assurance can be given that the Year
2000 issue will be resolved without any future
65
disruption or that we will not incur significant expense in resolving the issue.
For example, we cannot assure you that such problems will not arise in
connection with billing, accounting or other periodic information gathering.
NAVL and Allied have contacted their vendors, suppliers, agents,
representatives, franchisees, service providers and major customers to help
evaluate these parties' efforts to prepare for the Year 2000 and the degree of
our corresponding exposure if such efforts are inadequate. NAVL and Allied
received satisfactory responses from most of these parties but have not
independently confirmed or verified the accuracy of such parties'
representations.
RISK OF YEAR 2000 ISSUES
Any failure of our computer systems or of the computer systems of our
vendors, suppliers, agents, representatives, franchisees, service providers or
major customers as a result of not being Year 2000 compliant could materially
and adversely affect our ability to provide our services and retain customers.
CONTINGENCY PLANS AND COSTS TO ADDRESS YEAR 2000 ISSUES
We have developed plans, including a contingency plan to assess the
likelihood of and address worst case scenarios, to deal with potential Year 2000
problems experienced by us or by our vendors, suppliers, agents,
representatives, franchisees, service providers or major customers. With respect
to Allied operations, assessment of key operating and commercial risks and
development of appropriate contingency plans has taken place. The plans are
developed for each location, involving staff and plans of the customers as
necessary.
As of December 31, 1999 we had incurred approximately $7.0 million of cost
to deal with the Year 2000 issue, which equals our total estimated cost of this
project. To the extent that systems need to be replaced or remediated,
additional material costs could be incurred. We do not currently expect that
other costs of our Year 2000 compliance program will be material to our
financial condition or results of operations. We may however, have to bear costs
and expenses in connection with the failure of our vendors, suppliers, agents,
representatives, franchisees, service providers and major customers to be Year
2000 compliant. Because no material Year 2000 issues have yet been identified in
connection with external sources, we cannot reasonably estimate costs which may
be required for remediation or for implementation of contingency plans.
MARKET RISK
We are exposed to various market risks, including changes in interest rates,
and foreign currency exchange rates.
From time to time we utilize interest rate agreements and foreign exchange
contracts to manage interest rate and foreign currency exposures. The principal
objective of such contracts is to minimize the risks and/or costs associated
with financial and international operating activities. We do not utilize
financial instruments for trading or other speculative purposes. The
counterparties to these contractual arrangements are financial institutions with
which we also have other financial relationships. We are exposed to credit loss
in the event of nonperformance by these counterparties. However, we do not
anticipate nonperformance by the other parties, and no material loss would be
expected from their nonperformance.
We enter into interest rate swap agreements to manage the impact of changes
in interest rates on our floating rate debt. The notional amount of the interest
rate agreement is used to measure interest to be paid or received and does not
represent the amount of exposure to credit loss. The net cash amounts paid or
received on the interest rate swap agreement are accrued and recognized as an
adjustment to interest expense.
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As of September 25, 1999, we had outstanding an interest rate protection
agreement denominated in Dollars, terminating on June 29, 2001, with a notional
amount of $75.0 million. This agreement established an interest rate cap of
7.0%, protecting against upward movement in interest rates on our existing term
loans. Interest on these loans is variable and based on LIBOR. Based on the
amount that we would pay to exit this contract, the fair value of the interest
rate protection agreement at September 25, 1999, was $0.2 million.
We may enter into forward currency exchange contracts from time to time in
the regular course of business to manage our exposure against foreign currency
fluctuations on transactions denominated in foreign currencies. We had no open
positions on forward exchange contracts as of September 25, 1999.
Other assets at September 25, 1999, included marketable equity securities
which are classified as available-for-sale and are recorded at fair value.
Unrealized holding gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and are reported as a
separate compnonent of other comprehensive income until realized.
67
BUSINESS
OUR COMPANY
We are the world's largest global relocation and moving services company and
also the largest logistics services provider among all U.S. van lines. We are a
global network manager of agents, owner/operators and company-owned branches
with locations in 21 countries. Our diversified customer base includes many
leading Fortune 500 and FTSE-100 companies, private transferees and the
government and military of the United States and other countries. We believe
that the combination of NAVL and Allied will result in substantial operating
synergies due to complementary product offerings, distribution networks and
significant economies of scale, which will generate incremental cash flow and
fund future growth.
Our relocation businesses provide high-quality packing, warehousing, hauling
and delivery for both domestic and international residential moves. In the
United States and Canada, we operate our van line network segment through a
network of 896 agents in approximately 1,300 locations and through 581
representatives worldwide. We moved 246,900 households within the United States
in 1998, representing a 27% market share of the moves handled by the top 18
national van lines. Outside of the United States and Canada, our moving and
storage services segment operates through 183 company-owned branches throughout
the United Kingdom, continental Europe, Australia, New Zealand and Asia. We also
provide a broad portfolio of services to commercial customers, including office
and industrial relocations and records management. Our global relocations
business has a well established and diverse customer base, including the U.S.
military and government, Cendant Mobility, Ford, Boeing, Texas Instruments,
Motorola, British Aerospace and Barclays.
Our logistics services segment provides customized solutions to facilitate
the movement of high-value products that require specialized transport and
handling such as electronics, telecommunications and medical equipment and fine
art. We are the largest provider of these services among U.S. van lines. Our
technology-based logistics services link order processing, inventory management
and product tracking with transport services on a global basis. We have
established numerous long-term relationships with large corporate customers,
including IBM, Hewlett Packard, Lucent Technologies, Sears, GE, EMC Corporation,
Siemens and Hitachi, with no single customer representing more than 5.0% of our
logistics revenues in 1998. According to industry sources, about half of all
logistics costs for transportation and inventory management incurred in the
United States are for services purchased from independent suppliers. Within this
$440.0 billion market serviced by independent suppliers, approximately
$22.0 billion, or 5.0%, is provided by "third-party provider" logistics firms
such as ourselves. We estimate that this third-party provider market will
experience double-digit growth for the foreseeable future as more companies
outsource these services. We believe that the outsourced transportation and
logistics market serviced by national van lines was approximately
$824.0 million in the United States in 1998, representing 1.2 million shipments.
In the same year, we generated $351.0 million in revenue from high-value product
logistics services, representing a 42% market share among the top 18 national
van lines.
The table below contains certain statistics about our operations as of
December 31, 1999.
EXCLUSIVE AGENTS
Number of Agents.......................................... 896
Number of Agent Locations................................. 1,265
NON-EXCLUSIVE REPRESENTATIVES (located in 125 countries
outside of the United States and Canada).................. 581
COMPANY-OWNED MOVING AND STORAGE BRANCHES
Europe.................................................... 106
Asia/Pacific.............................................. 75
LOGISTICS FACILITIES
United States............................................. 85
Europe.................................................... 14
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COMPETITIVE STRENGTHS
The combination of NAVL and Allied provides us with a strong competitive
position driven by the following:
- INDUSTRY LEADER: The expanded scope of our operations will provide us with
leading positions in the markets in which we compete. We are the global
leader among van lines in providing residential relocation services, with
the number two market position in the United States and, management
believes, number one in international moves originating in or destined to
the United States. We are the leading U.S. van line serving the high-value
product logistics market. We have the most extensive relocation and
logistics network among U.S. van lines, with operations in 21 countries
throughout the world. Our global capabilities and leading market positions
will be a competitive advantage in attracting and retaining customers who
seek suppliers that are capable of serving them around the world.
- LEADING BRANDS: As a result of the Allied acquisition, we will own some of
the most internationally recognizable brand names in the industry,
including northAmerican, Allied and Pickfords. Independent research has
shown that Allied and northAmerican are two of the three most recognized
brand names, respectively, in the van line industry in the United States
and that Pickfords is the most recognized moving services company in the
United Kingdom.
- DIVERSIFICATION: The combination of NAVL and Allied diversifies and
expands our revenue base, geographic presence and customer base. The
markets that the van line network, moving and storage services and
logistics services segments serve, while complementary, are diversified in
their response to changes in market and economic conditions, competition
and capital intensity. Management believes these segments' combination of
asset and non-asset based operations, geographic distinctiveness, broad
service offerings and diversified customers provides an attractive level
of risk diversification.
- LONG-STANDING CUSTOMER RELATIONSHIPS: Throughout the world, we have
long-standing customer relationships with numerous Fortune 500 and
FTSE-100 companies and governments and military in the United States and
other countries. We believe that these relationships are due in part to
our emphasis on high-quality customized solutions and services. Our
customer relationships include long-standing relationships with the U.S.
Department of Defense, IBM, GE, Hewlett Packard, Sears, Siemens and
Cendant Mobility. We believe that these relationships provide us with
significant credibility when marketing our services to new customers and
in cross-selling additional services to our existing customers.
- EXPERIENCED MANAGEMENT TEAM: Our management team brings together a
combination of industry expertise and Fortune 100 companies' best
practices.
BUSINESS AND GROWTH STRATEGY
The key elements of our business and growth strategies are as follows:
- CAPITALIZE ON OPERATIONAL EFFICIENCIES: Prior to the Allied acquisition,
NAVL's management team initiated a major process improvement program
entitled Fast Forward to identify and implement operational efficiencies.
In addition, as a result of the Allied acquisition, we expect to realize
significant synergies. We believe that the ongoing realization of Fast
Forward efficiencies and the achievement of operating synergies and cost
savings from the acquisition (as further described below) will generate
significant cash flow.
- FAST FORWARD. In early 1999, a team of consultants and employees spent
approximately six months evaluating the NAVL business and generated
numerous ideas to be implemented across NAVL operations. The emphasis
of the Fast Forward initiatives includes
69
(1) employment reductions due to work elimination, process innovation
and automation, (2) terminal and network efficiencies and other
reductions in operating costs, (3) revenue, price and fee enhancements
and (4) other general and administrative savings primarily as a result
of process redesign and productivity. Management expects the
implementation of Fast Forward to be substantially completed by the end
of the year 2000 and to result in significant savings.
- OPERATING SYNERGIES. In addition to the savings resulting from our
Fast Forward project, management of NAVL and Allied together have
identified potential synergies resulting from the Allied acquisition,
including: (1) employment reductions due to consolidation,
(2) capacity planning and facility efficiencies, (3) "best practice"
adoption, (4) employee benefit group insurance savings and
(5) purchasing synergies. The total potential savings as a result of
these synergies are expected to result in annualized savings of
approximately $20.0 million per year by 2002.
- REINVESTMENT IN BUSINESS OPERATIONS: We intend to use a portion of the
funds generated by the operational efficiencies and synergies detailed
above to develop capabilities that differentiate ourselves from our
competition. We will reinvest in three main components: information
technology, process capability and human capital. We intend to:
- Enhance our technology strategy in logistics services to include
additional capabilities and tracking and communication techniques in
order to maintain and grow our logistics business. In the van line
network, Allied has developed advanced systems designs, which we plan
to implement across the entire agent network to improve operating
efficiencies. We are currently in the process of developing an
e-commerce strategy which may allow us to utilize our current operating
systems to take advantage of the changing consumer dynamics in the
markets we serve. However, we have not yet determined the structure and
scope of this business and cannot assure you that the development of
this business will not occur through a spin-off, other divestiture or
other manner (such as a joint venture) that may make the profits
generated by this business, if any, unavailable to North American Van
Lines.
- Improve our process capability to enhance our quality, service and
back-room process to achieve higher customer satisfaction, lower costs
and increased cash flow.
- Develop training and education programs for agents, drivers and
associates to ensure sharing of best practices, operational
effectiveness throughout the network and sustained productivity gains.
- PRIORITIZE GROWTH OPPORTUNITIES: We intend to pursue growth opportunities
in logistics and international and domestic relocations.
- The logistics services segment has been our fastest growing segment and
offers a high return on assets. We intend to expand the capacity,
product line offering and geographic presence through organic growth
and/or selective strategic acquisitions.
- We are the world's largest provider of international residential
relocation services. We intend to leverage our position in this segment
to benefit from the continued growth in international residential
relocation.
- Our van line network is our largest segment and exhibits stable cash
flow. We intend to implement best practices to further improve our
quality, service and costs and to then leverage them to increase market
share in the residential relocation business.
- Our moving and storage services segment has a significant global
presence and broad product diversification. We intend to grow certain
profitable services in other geographic areas in Europe and
Asia/Pacific.
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INDUSTRY OVERVIEW
RELOCATION SERVICES INDUSTRY
Generally speaking, the residential relocation services industry consists of
relocations handled by professional movers and "do-it-yourself" relocations. As
to professional movers, a distinction typically is made between regional and
national moving companies, as well as between international and domestic movers.
The greater the territory covered, the greater network is required.
Management estimates that, in the United States, the 18 national van lines
generated gross interstate revenues of approximately $3.4 billion in 1998. The
main participants in the U.S. professional residential relocation services
industry are (1) van lines, which operate through agency networks, of which
there are an estimated 18 providing national services; (2) approximately 980
independent carriers, which are companies that provide full moving services
without van line affiliation; (3) approximately 4,500 agents, which are
independently owned companies affiliated with van lines; and (4) approximately
30,000 owner/ operators, which are independent contractors that are retained by
van lines, independent carriers or agents and who own and drive tractors and are
responsible for transporting, loading and unloading shipments. Traffic in the
residential relocation industry is fueled by the mobility of populations, due,
for example, to relocations in response to changes in employment location,
retirement or lifetime change. This industry generally markets to three distinct
customer groups: (1) corporate accounts that pay for the relocation of their
employees, (2) private transferees that pay for their own moves and
(3) governments, which pay for the relocation of their civil and military
personnel.
According to the latest study of the U.S. Bureau of Census, 42.1 million
Americans changed residence in the year ending March 1997. Based on an average
family size of 2.34 persons, this translates into approximately 18.2 million
household moves each year. Of the 18.2 million total household moves,
2.8 million are estimated to be interstate. Local and intrastate professional
moves are predominantly handled by local agents. Professional movers service an
estimated 7.6% of the total estimated 18.2 million U.S. household moves each
year.
Management views the market in the United Kingdom, Australia and New
Zealand, as fragmented, with a few large suppliers providing the full range of
packing, loading, hauling and unpacking, and a considerable number of smaller,
low-cost operators. In the United Kingdom, there were approximately 1.8 million
household moves in 1997. The entire Western European residential relocation
market is estimated to be L4.2 billion.
The U.S. international residential relocation services market, which targets
multi-national companies primarily based in the United States and provides or
coordinates relocation services for residential shipments destined to or
originating in foreign countries, has grown due to increasing globalization of
economies and the advent of free trade. International relocation services are
principally offered by companies that provide services through non-exclusive
representatives at the destination locations around the world. There are a few
companies that own and operate their own businesses in markets abroad, as we do
in the United Kingdom, Australia and New Zealand.
Similarly, the international relocation market in the United Kingdom,
Australia and New Zealand has grown due to the growth in intra-European business
moving and renewed investment activity in Asia/ Pacific. Another driver of the
international relocation market abroad is the issuing of visas for private
transferees. Typically this traffic is from the United Kingdom to Australia and
New Zealand. In recent years, this market has remained stable as the receiving
countries have held steady the number of migrant visas issued.
The office relocation industry, in which we operate primarily in the United
Kingdom, is driven primarily by economic change and the life cycles of
businesses. Both economic growth and decline affect this market. Both bring on
circumstances that may require businesses to move. The records management
market, in which we operate primarily in the United Kingdom and Australia, is
driven by an increasing
71
demand for companies to retain a broader range of documentation for legal
purposes. In addition, pressure on office space is also forcing companies to
seek external storage facilities rather than relocate and, even when they do
relocate, many companies take that opportunity to store surplus documents. The
industrial relocation industry is fueled by the movement to global
manufacturing, the recycling of plants to developing countries and the
reinvestment in new technologies. As with business relocations, economic cycles
and changes can affect this industry, and both economic growth and decline can
trigger shifts in manufacturing capacity and location.
LOGISTICS SERVICES INDUSTRY
Many businesses have decided to outsource management of all or a part of
their distribution chain, and as a result, third-party logistics providers, such
as us, have become extensively involved in the full range of customer supply
chain functions. Logistics services include order fulfillment, freight bill
auditing and payment, cross-docking, product marking, labeling and packaging,
inventory and warehouse management, parts return and repair and the actual
physical movement of goods. According to industry sources, about half of all
logistics costs incurred in the U.S. relate to services provided by independent
suppliers. The trend towards outsourcing transportation and inventory management
is expected to cause this $440.0 billion market to continue to grow
significantly. Within this current $440.0 billion market, approximately
$22.0 billion, or 5.0%, is outsourced to "third-party provider" logistics firms
such as ourselves, who have the technology-based solutions to manage the entire
supply chain network. This $22.0 billion market is itself expected to experience
double digit growth for the foreseeable future as more companies look to
third-party providers for complete packages of supply chain solutions for
certain aspects of their logistics needs.
We believe that this fragmented logistics market will continue to grow
significantly over the next several years and will experience consolidation. The
demand for integrated logistics services is growing with an increase in the
outsourcing of transportation services as well as an increase in the number of
large-scale manufacturers who adopt just-in-time processes. The need for
just-in-time and other time-definite delivery has increased as a result of the
globalization of manufacturing, greater implementation of demand-driven supply
chains and the shortening of product cycles. In addition, the growing demand for
global consumer brands, the increasing number of multinational corporations,
global sourcing and the removal of trade barriers have all spurred substantial
growth in complex, cross-border delivery. Moreover, there has been dramatic
growth in the utilization of e-commerce by both consumers and businesses for the
transfer of goods. Companies that sell to customers through the Internet require
and expect rapid, multi-destination delivery capabilities. As a result of these
factors, companies are increasingly demanding complex distribution management
solutions from third-party providers.
Companies are requiring increased precision in tracking and timely
information about service disruptions. As a result, logistics service providers
need increasing amounts of technology, and advanced information systems have
become central to the logistics infrastructure. The ability to provide accurate,
up-to-date information on the status of shipments to ensure on-time delivery,
real-time visibility of inventory on a global basis and efficient operations
provides competitive advantages in the transportation and distribution services
industry.
Additionally, the logistics segment of the moving industry is driven by
corporations' increasing need for specialized handling of sophisticated
equipment. This segment traditionally has been focused largely on the computer
and electronics sector, but has recently experienced increasing growth in the
telecommunications and medical equipment sectors.
The logistics industry is consolidating because of the advantages of global
distribution networks, large vehicle fleets and global information technology
systems. In addition, consolidation is driven by the customers' desire for
integrated services, the high growth in international and cross-border delivery
segments and, in Europe, the deregulation of European delivery markets. Industry
participants are
72
acquiring, merging with or forming alliances with partners that can expand
global reach, breadth of services or technological capabilities in order to
better enable those participants to compete in a rapidly changing global
environment.
SERVICES AND OPERATIONS
RELOCATION SERVICES
VAN LINE NETWORK. Operating under the brand names northAmerican and Allied
throughout the United States and Canada, we are a leading provider of both
domestic and international residential relocation services. The nature of our
van line network is that of a coordinator, administrator and processor of both
domestic and international residential moves with access to a vast collection of
physical assets primarily owned by agents and owner/operators. Our van line
network business is primarily conducted through a network of over 880 exclusive
NAVL or Allied agents in the United States and Canada. Agents are independently
owned local moving companies that provide customers with the local packing,
warehousing and a portion of the hauling required to support household moves
anywhere in the world. We, in turn, provide our agents with a broad range of
services including identification and coordination of hauling capacity,
coordination of shipments, optimization of capacity and sophisticated
transportation and logistics technology. We also provide insurance, national
advertising and marketing services under recognized brand names and other
services to agents and owner/operators.
We participate in all lines of the residential relocation interstate
transportation business and have a highly diversified customer base. Van line
network customers are (1) corporate accounts, (2) private transferees and
(3) government and military.
The NAVL and Allied agents are the primary sales channels for most of our
business activities and market our services locally or as intermediaries with
customers. Owner/operators are independent contractors who own and drive their
tractors for us. The majority of the equipment used in van line network is owned
by our network of agents and owner/operators. This allows us to leverage our
agent and owner/operator infrastructure by minimizing capital expenditures and
generating a superior return on assets and investments. See "--Agent Network"
and "--Owner/Operators."
For domestic moves, we coordinate both ends of the move through our agents.
For international moves originating in the United States and Canada, our NAVL
line acts primarily as a freight forwarder, arranging for cross-border
transportation services with third-party providers and subcontracting with non-
exclusive representatives for the hauling, delivery and unpacking required at
the destination. With respect to Allied, international moves are coordinated by
Allied's international moving services network. This network consists of
Allied's wholly owned moving services companies in the major non-U.S. markets
and independent affiliated agents in major U.S. markets. Each network member is
responsible for providing origin and freight-forwarding services for moves
originating in its country of operation, as well as coordinating destination
services using network members in the country of delivery. Customers moving
either domestically or internationally contact local agents who obtain shipment
details and provide moving cost estimates. Once a quote turns into a booking,
the agents register the move with us, and we coordinate all parties involved in
the move and arrange and process the transaction.
MOVING AND STORAGE SERVICES. Our moving and storage services segment
provides residential relocation services primarily in the United Kingdom,
Australia and New Zealand by operating local moving branches which provide
similar services as agents do in the van line network segment. Unlike the van
line network, moving and storage services owns or leases property and vehicle
assets used in its network. Management believes that Pickfords, in operation
since 1646, is the number one provider of relocation services in the United
Kingdom. Pickfords' company-owned branches deal directly with corporate clients,
private transferees and government departments.
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In Australia and New Zealand, we also provide domestic and international
relocation services through company-owned branches operating under the Allied
Pickfords brand name. In Asia, the network is a combination of company-owned
branches, franchises and preferred agents, with a focus on international, rather
than domestic, relocations.
In addition to its residential relocation services, Pickfords also provides
crating services, storage services and records management which includes, among
other things, the cataloging, storage, retrieval, look-up, destruction and
transportation of customers' records. Pickfords also provides a full range of
office and industrial relocation services involving the transport of office
furnishings and equipment in connection with the relocation of any aspect of a
business' operations throughout Europe. Another component of moving and storage
services is contract engineering services such as moving heavy plant equipment
and installing electrical facilities. In late 1998, Pickfords acquired Vanguard
Engineering, an industrial mover, and management believes the combination
resulted in the United Kingdom's largest industrial moving business. Allied
Pickfords provides office relocation and records management services in
Australia and New Zealand.
Allied Arthur Pierre, based in Belgium, is a market leader in international
residential relocations in Belgium and Luxembourg and also operates in France.
Our other moving operations in continental Europe include Allied Varekamp, a
market leader in international household relocations in the Netherlands. Allied
also has operations in major cities in Eastern Europe, including Budapest,
Moscow, Prague and Warsaw.
LOGISTICS SERVICES
Our logistics services segment manages the coordination of complex supply
chain networks, with a focus on high-value products that require specialized
transport and handling such as electronics, telecommunication equipment and
medical equipment. Our logistics services segment is organized into three
business units: (1) logistics solutions, which uses customized information
technology to coordinate a variety of services to customers such as finished
goods and emergency parts distribution, order fulfillment, project-specific
delivery management and the tracking of products through the supply chain;
(2) specialized transportation; and (3) European operations, which handles
logistics solutions and specialized transportation of high-value products to and
from any major city in the United Kingdom and Europe through wholly owned
subsidiaries operating under the trade name midiData. Logistics services manages
the cost efficiency of clients' shipments primarily through its OnTrac Network,
a system that combines logistics tools with 32 distribution centers and agent
service points. We have established numerous ongoing relationships with key
corporate logistics clients, including many Fortune 500 companies.
We have developed sophisticated technology-based solutions to manage all
stages of the distribution chain, with a specific focus on high-tech industries.
We offer a range of logistics solutions supported by an integrated information
system (AMPTS) that links order processing, inventory management and product
tracking with physical distribution functions. This business combines our
delivery services with advanced logistics design expertise to control costs,
reduce inventory and increase productivity. Specifically, we provide our clients
with integrated supply chain management, the management of spare parts,
distribution facilities, turnkey new store equipment transportation and set up,
freight forwarding and product assembly.
These services are provided to clients primarily in the United States,
Canada and Europe with distribution systems that range from regional to global.
Logistics services include:
- finished goods and emergency parts distribution on a national and
international basis;
- domestic and international freight forwarding;
74
- third-party carrier management services (brokerage);
- order fulfillment including after-market parts distribution, kitting,
assembly, delivery and return;
- project-specific delivery management through the OnTrac Network, logistics
centers and agents;
- field merges, including single delivery of products from multiple-origin
locations to specific customer requirements;
- finished goods configuration, assembly/disassembly postponement programs;
and
- reverse logistics capability to take back products and/or materials for
purpose of reuse, recycling or environmentally responsible disposition.
In addition, we provide the physical, specialized transportation of
high-value products unsuited for typical freight hauling. With our fleet of
trucks specifically equipped to handle the loading, unloading and hauling of
sensitive, technology-based products including computer equipment, robotics,
fine art, industrial equipment and store fixtures, we can combine our physical
distribution capabilities with our logistics solutions to provide our clients
with a complete package of efficient distribution management.
As in relocation services, the nature of our operations in logistics is that
of a coordinator, administrator and processor of our customers' distribution
chains. The specialized product delivery process is similar to that in
relocation services, where corporate accounts contact local representatives to
establish individual shipment requirements and we then contract with the
owner/operators. The majority of the logistics hauling is done by
owner/operators.
In 1999, we explored the feasibility of expanding our logistics services
segment into the home delivery market. While we had been providing home delivery
services for a small number of current logistics customers for a number of
years, a new customer, Williams & Sonoma was secured in mid-1999 as a high
volume, home delivery customer for the purpose of entering and establishing a
base within this market. In late 1999, we decided to exit the home delivery
market, because it was not profitable nor did it fit strategically or
operationally in our current business model. We are working with Williams &
Sonoma to transition out of the home delivery service market and we expect costs
to be associated with this transition.
We own the majority of the specialized trailers used in logistics services.
Management believes that we maintain the industry's largest and most advanced
delivery fleet among van lines focused on the transport of sensitive commodities
and freight. Throughout our history, we have developed equipment designed to
facilitate safer and more efficient delivery. We hold a number of patents for
specialized moving and packaging tools. In addition, we lease and operate
several of the distribution centers in the logistics network. Each of these
distribution centers is equipped with state-of-the-art inventory management and
product tracking systems.
OTHER SERVICES
In support of our business segments, we also operate insurance and fleet
services operations. We have a captive insurance subsidiary licensed in Indiana,
North American Transport Insurance Company, which historically was part of NAVL.
This subsidiary principally markets physical damage insurance, and provides such
coverage to the majority of NAVL's owner/operator fleet and a portion of NAVL's
agent fleet. We also own an insurance group, which historically was part of
Allied, consisting of an insurance agency, a general agency and an insurance
company, TransGuard Insurance Company of America, Inc. (an Illinois corporation
which is licensed in forty-three states). This insurance group provides
(1) commercial property and casualty insurance; (2) life, health and disability
insurance; and (3) workers' compensation and occupational accident insurance.
The profits from these operations have historically been included in the results
of operations of the van line network or, in the case of our North American
Transport Insurance Company subsidiary, split between the van line network and
logistics services segments in the proportion of
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drivers covered by such segments. We also operate The Baxendale Insurance
Company Ltd. (licensed in Ireland) as part of our moving and storage services
segment.
We also operate a fleet service operation, which provides full service
vehicle maintenance and repair work from two locations, generating approximately
$22.0 million of revenue annually. We provide repair service for our own tractor
and trailer fleet as well as the equipment of our owner/operators, agents and
outside commercial customers. We are also a tractor and trailer equipment
dealer, and provide conditional sales contract financing for equipment sold to
our owner/operators and agents. The operating profit from this operation is
allocated to the segments which use its services.
AGENT NETWORK
In our van line network and logistics services segments, our agents provide
(1) local sales, packing and warehousing; (2) hauling services and distribution
of goods; and (3) direct sales solicitation and customer development. The agents
own the assets associated with operating in their markets (warehouses, tractors,
trailers and other equipment) and in many instances have contracts with
owner/operators or have hired employee drivers to bring hauling capacity to the
network.
We have established (in both our NAVL and Allied lines) exclusive long-term
relationships with an extensive network of agents in approximately 1,300
locations in the United States and Canada. Our relationships with our agents
often extends across generations. Agents typically enter into renewable,
multiyear contractual relationships with us. In April of 1999, the initial term
of the agency contracts between Allied and U.S. agents representing
approximately 52.1% of Allied's 1998 revenue booked by U.S. domestic agents
expired. Although a majority of these agents have signed eighteen-month
extensions, the contracts for the remainder of these agents (representing 8.0%
of Allied's 1998 revenue booked by U.S. domestic agents), although still in
effect, may be terminated by these agents on three months' notice. We intend to
negotiate renewals of these contracts with these agents, but we cannot assure
you that these contracts will be renewed on favorable terms or at all. However,
we have historically experienced relatively low agent turnover due to
management's focus on service and quality and its ability to maintain a
reasonable yet profitable relationship with the agent network. NAVL's top 20
agents have an average remaining contract life of 6.3 years and Allied's top 20
agents have an average remaining contract life of 3.0 years. There is no
significant number of NAVL contracts up for renewal; however, NAVL's fourteenth
largest agent terminated its relationship with us on of January 30, 2000. No one
agent constituted more than approximately 3.0% of the combined 1998 revenues of
the van line network and logistics services segments.
We compete with other van lines for the resources of the best individual
agents. We retain a percentage of the revenue and commission from the
participating agents for our services. Fundamental to maintaining long-term
exclusive relationships with our agents, we provide them with the following:
- internationally recognized and marketed brand names;
- global network of agents through which a local agent can rely on other
quality agents to pack, ship, store and/or unpack, as needed, the agent's
customers' goods and can reduce the need for making a costly empty return
trip after delivering goods to a distant location;
- load planning, consolidation and optimization, dispatch, shipment tracking
and customer service;
- the disbursement of cash for hauling and packing revenues before cash is
collected from the customers, taking credit risk, eliminating the cost of
carrying uncollected funds and providing liquidity to agents (we also
collect and distribute revenues among agents and owner/operators);
- administrative services, such as claims resolution, data processing and
calculation of fuel and other taxes and fees required to be submitted to
the states through which the agents haul goods;
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- national advertising and marketing and sales support; and
- the logistics services operations network and associated logistics
services.
In addition, we use various software to optimize traffic flows and, from our
corporate headquarters, track shipments and coordinate logistics for
longer-distance moves, which may require the use of multiple trucks and agents.
We also provide in some instances additional services to our agents, including
local agency computer systems, packing materials, uniforms and other supplies,
fleet maintenance services, tractor and trailer sales and financing and
brokerage of insurance packages.
OWNER/OPERATORS
Owner/operators are independent contractors with either us or with our
agents. They (1) provide the hauling skills required to transport shipments
interstate; (2) provide or contract with temporary workers to provide labor
required for servicing the customer; (3) provide an element of customer service
at the pick-up or delivery point; and (4) supply equipment they own to provide
hauling services. The owner/operators enter into contractual agreements with
either us or an agent which sets compensation rates and other terms and usually
provides for their exclusive service to us or that agent. NAVL maintains
approximately 700 company or agent owner/operators for relocation services and
approximately 1,000 company owner/ operators for logistics services. These
owner/operators own or lease their own tractors, but in most cases, pull
company-owned trailers. Owner/operators provide most of the logistics hauling
capacity and supplement the relocation fleet of agent drivers. In addition to
the primary owner/operator contract for transportation, we have also developed
additional programs or services offered to owner/operators that provide us with
additional sources of revenue, including tractor sales and financing, fleet
service maintenance and fuel sales and physical damage insurance coverage.
INFORMATION TECHNOLOGY
We have available to us a broad set of computing services for our network
management, network of service providers, and end customers. Over the next year,
we intend to combine Allied's and NAVL's information technology systems,
selecting the best aspects of the information technology resources of each of
Allied and NAVL, and migrating to that platform. We expect to incur
approximately $5.8 million of expenses in connection with this integration.
We have developed a number of innovative software solutions to support the
network management function. Our core systems provide product information,
pricing, shipment load planning, routing, dispatch of its fleets, and billing.
In addition, these systems provide the revenue distribution (settlement) systems
to the network of service providers. Enhancements to the core systems have been
made over many years to: (1) simplify complex processes and ease user adoption;
(2) further automate complex problems; and (3) improve the quality of data. In
addition, we have implemented systems to support expansion of products and
services to other countries on an "as needed" basis. Management believes we are
more automated than many of our competitors, and that this automation aids in
attracting and retaining agents.
NAVL's agents use many of these same systems in support of both network and
local business. Asset management automation is used as a sophisticated logistics
tool for broader inventory management applications, such as field merge and
just-in-time ("JIT") programs. The software tracks product level and status
regardless of location and manages component shipping through the product
tracking feature on a timely basis.
NAVL was one of the first van lines to implement a satellite communication
system (developed by Qualcomm, Inc.) and to fully equip its fleet with such
advanced communication capabilities. The system can determine locations within
1,000 feet and facilitates real-time data communication between our network
management group, the network of driver service providers, and service provider
personnel. This
77
communication system provides much of the information which supports the
shipment tracking component of our internet sites for the benefit of the
end-customer.
Allied recently made a number of advanced technological improvements
including integration of a new general ledger and accounting package
(PeopleSoft). Several service-provider-focused, web-based initiatives have been
implemented including: (1) a critical shipment event alerting system; (2) an
integrated task management tool to reduce paperwork, streamline repetitive tasks
and improve communication and service; and (3) the implementation of a high
speed wide-area network for many of Allied's service providers. In addition, the
following customer-focused, web-based initiatives have been implemented:
(1) shipment tracking that allows customers to track the status of a shipment
from origin to destination; (2) on-line claims reporting that allows customers
to file claims over the internet; and (3) enhanced corporate reporting that
improves access to and the reporting parameters of corporate accounts.
Our relocation and logistics operations are implementing programs that
management expects to improve operating efficiency in the near future. A
relocation services estimating system is expected to electronically capture
shipment information, reduce paperwork, increase accuracy and expedite billing.
Additionally, a logistics services integration project is planned to support
improved order registration and permit more complete data entry to improve
customer service and expedite billing. Improved transportation management
systems are expected to help us manage third-party service providers. With the
ability to maintain separate tracking information by shipment, these systems are
expected to be accessible to customers as well as to interface directly with the
billing/service provider settlement system while providing real-time updates.
In 1998, NAVL transferred ownership of its internally developed computer
software, including an integrated information system (AMPTS), and other elements
comprising or supporting the Customized Options in Logistics Technology ("COLT")
to Norfolk Southern (COLT is comprised of a warehouse management module, a
serialized inventory module, AMPTS and TMS). In connection with this transfer,
Norfolk Southern and an affiliate of Norfolk Southern granted NAVL a perpetual,
royalty-free license to use, modify and sublicense certain subsidiaries and
affiliated companies to use the COLT software. The license provides that NAVL
has the exclusive right to use the COLT software in connection with its
relocation and logistics businesses (as those businesses are defined in the
licensing agreement) in North America and Europe. The terms of the license
prohibit NAVL from using the software in connection with the automotive and
chemical businesses in North America and Europe and from providing logistics
services to a railroad or acting as a service bureau for certain kinds of motor
carriers.
A significant portion of Allied's proprietary software was developed over an
extended period of time by numerous employees and independent contractors, some
of whom did not execute written agreements with respect to their work product.
Therefore, with respect to certain portions of such software, we are unable to
confirm that Allied's ownership cannot be contested. However, we do not believe
any such discrete portion to be of material independent value, which reduces the
risk that any such employee or independent contractor would assert its rights in
these portions.
CUSTOMERS AND MARKETING
We have long-standing customer relationships with numerous Fortune 500 and
FTSE-100 companies and governments and military in the United States and other
countries. We believe that these long-standing relationships are due in part to
our emphasis on high-quality customized solutions and services and provide us
with significant credibility when marketing our services to new customers and in
cross-selling additional services to our existing customers. Our customer
relationships include long-standing relationships with the U.S. Department of
Defense, IBM, GE, Hewlett Packard, Sears, Siemens and Cendant Mobility. However,
IBM, one of our largest logistics customers, recently indicated that it is
considering alternative suppliers, which will result in its doing less business
with us.
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Allied has an innovative customer measurement system administered by The
Gallup Organization. In addition to identifying the key drivers of customer
satisfaction, this system provides a significant tool for targeting continuous
improvement initiatives. Electronically based, the system provides on-line
results immediately available to all service providers so that corrective action
and/or reward and recognition can be provided for on a timely basis. As part of
this system, Allied ranks and rates all agents and their impact on "internal
commerce" by making scores available to network members. These scores can be
used as a basis for selecting service providers on out-of-area moves.
The key driver of customer satisfaction identified by Gallup is consistent
communication throughout the move. To this end, we intend to adopt an
Allied-created, proprietary, web-based move management system. This system
automates agent communication standards. It prompts the move coordinator and
notifies the system of any changes or problems.
Our marketing department provides a full range of agency sales support
programs and has been recognized by the American Trucking Association many times
for its award-winning material. The marketing organization includes a product
manager structure that allows for a specific, customized marketing approach for
both the relocation and logistics services operations, which ensures a
consistent image and message throughout the world. Our centralized sales,
support and marketing department, which coordinates our efforts
- evaluates target markets and sets a customer-driven sales agenda,
- ensures the consistency of customer communication,
- encourages product managers to "think global-act local,"
- directs local input via the Corporate Marketing Agent Advisory Council and
- provides the ability for agents to customize advertising and sales-support
programs and collateral.
Our sales force is comprised of experienced agents and product sales
specialists. We provide a broad range of professional sales training programs
and customized sales management training to our agents and employees. For
example, our Professional Sales Association is an Allied-backed sales training
and educational organization for sales representatives employed by Allied
agents. The Professional Sales Association's interactive web site is a way to
introduce new products and services and provide access to resources of product
knowledge. The training branch of the Professional Sales Association provides
both classroom training and interactive web-based training. Extensive modules
are self-administered and available on demand 24 hours per day, seven days per
week. Management believes interactive sales training via the web provides a
cost-effective way to train a diverse sales force. We also support industry
association-based training and certification programs such as the American
Moving and Storage Association's Certified Moving Consultant and Registered
International Mover.
Advertising campaigns work in tandem with directory advertising to create
leading brand awareness in the industry. We advertise primarily on cable
television and through national billboard buys. Advertising targets key customer
segments, as well as owner/operators.
We believe that the agent organization will be re-energized through a series
of changes that will include more aggressive sales channel enhancements and
greater emphasis on agent capacity development. A variety of employee, driver
and customer initiatives and on-going programs at both Allied and NAVL are
expected to provide additional appeal and effectiveness, including the NAVL
customer publication "Worldwide" and the NAVL web site and Allied's recently
developed web-enabled technologies, such as Allied's corporate web site (which
provides not only company information, but information to facilitate a
successful move), sales training web site, move management system, on-line
claims reporting and enhanced corporate reporting.
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COMPETITION
The relocation services business is highly competitive and fragmented. With
respect to our van line network, aside from the handful of large van lines the
industry remains extremely fragmented with many small private players that may
have strong positions in local markets. We compete primarily with other van
lines, truckload carriers and independent contractors and, with respect to
certain aspects of its business, intermodal transportation, railroads and
less-than-truckload carriers. Intermodal transportation (the hauling of truck
trailers or containers on rail cars or ships) has increased in recent years as
reductions in train crew size and the development of new rail technology have
reduced costs of intermodal shipping. Some of our chief competitors in the van
line network are Unigroup (United and Mayflower), Atlas, Bekins and Global.
The moving and storage services segment is also extremely fragmented between
regional, national and local companies. Many of these companies may specialize
in segments of the moving market such as international, domestic or office
moving. Price is a key driver in selection of a mover, so there is a need to
operate cost effectively while maintaining high customer service standards. Our
chief competitors in the moving and storage services include Crown Pacific,
Britannia, TransEuro, White & Company and Interdean in residential relocations,
Harrow Green and Edes in office relocation and Beck & Pollitzer and Ainscough in
industrial relocation.
The logistics industry is also highly competitive and fragmented but is
consolidating because of the advantages of global distribution networks, large
vehicle fleets and global information technology systems. In addition,
consolidation is driven by the customers' desire for integrated services, the
high growth in international and cross-border delivery segments and, in Europe,
the deregulation of European delivery markets. Industry participants are
acquiring, merging with or forming alliances with partners that can expand
global reach, breadth of services or technological capabilities in order to
better enable those participants to compete in a rapidly changing global
environment. In specialized transportation services, we compete with a broad
spectrum of transportation providers including forwarders, brokers and various
logistics providers. In Europe, the industry is fragmented with no single
provider offering a pan-European specialized distribution capacity; however, as
in the United States, logistics services providers are bundling services to
offer single-source logistics solutions. Some of our chief competitors in
logistics services are Ryder Logistics, Caliber Logistics, Menlo Logistics, Geo
Logistics, United and UPS Logistics.
Competition for the freight we transport is based in the long term primarily
on service, freight rate, reliability, transit times and scope of operations. In
the United States, competition and the reduction in regulation caused by the
Motor Carrier Act of 1980 has created downward pressure on the logistics
industry's pricing structure.
GOVERNMENT REGULATION
Our operations are subject to various federal, state, local and foreign laws
and regulations that in many instances require permits and licenses. Our U.S.
motor carrier operations as a common and contract carrier are regulated by the
Surface Transportation Board (the "STB") which is an independent, three-member
agency within the U.S. Department of Transportation (the "DOT"). The STB has
jurisdiction similar to the former Interstate Commerce Commission (the "ICC")
which includes issues such as rates, tariffs, antitrust immunity and undercharge
and overcharge claims. The DOT, and in particular the Federal Highway
Administration (the "FHWA") within the DOT, also has jurisdiction over such
matters as safety, the registration of motor carriers, freight forwarders and
brokers, insurance (financial responsibility) matters, financial reporting
requirements and enforcement of leasing and loading and unloading practices. In
addition to motor carrier operations, we also conduct domestic operations as a
licensed or permitted freight forwarder and property broker. Many of the
licenses and permits that we hold were issued by the ICC. When the ICC was
abolished at the end of 1995, jurisdiction over motor carriers was transferred
to the STB and DOT. With respect to interstate motor carrier operations, the
FHWA is the principal
80
regulator in terms of safety including issues such as carrier and driver
qualification, drug and alcohol testing of drivers, hours of service
requirements and maintenance and qualification of equipment.
We are an ocean transportation intermediary pursuant to the Shipping Act of
1984, as amended. As such, we hold ocean freight forwarder licenses issued by
the Federal Maritime Commission (the "FMC") and are subject to the FMC bonding
requirements applicable to ocean freight forwarders. We also conduct certain
operations as a non-vessel operating common carrier ("NVOCC") and are subject to
the regulations relating to FMC tariff filing and bonding requirement bonds, and
under the Shipping Act of 1984, particularly with respect to terms thereof
proscribing rebating practices. The FMC does not currently regulate the level of
our fees in any material respect.
Our U.S. customs brokerage activities are licensed by the United States
Department of the Treasury and are regulated by the United States Customs
Service. We are also subject to similar regulations by the regulatory
authorities of foreign jurisdictions in which we operate.
With respect to U.S. state and Canadian provincial licenses, the permitting
and licensing structure largely parallels the U.S. federal licensing regulatory
structure.
In the United States, both NAVL and Allied have been participants in certain
collective activities, including collective ratemaking with other motor carriers
pursuant to an exemption from the antitrust laws as currently set forth in The
Motor Carrier Act of 1980. Over the years, the scope of the antitrust exemption
has decreased and there can be no assurance that such exemption from the
antitrust laws will continue in the future. The loss of such exemption could
result in an adverse effect on our operations or financial condition.
In Europe, including the United Kingdom, we hold "O" (operators) licenses,
international transport licenses and certificates of professional competences.
These licenses are approvals from the relevant local authority permitting the
operation of commercial vehicles from specified bases. One of the pre-requisites
for these licenses is the employment by the relevant business of individuals who
hold certain certificates of professional competence.
The Baxendale Insurance Company Ltd. (licensed in Ireland) and our other
insurance subsidiaries such as TransGuard Insurance Company of America, Inc.
(registered in Illinois) and North American Transport Insurance Company
(registered in Indiana) are subject to extensive supervision and regulation by
insurance regulators in their respective jurisdictions, including regulations
limiting the transfer of assets, loans, or the payments of dividends from such
insurance subsidiaries to their affiliates, including us. Such regulation could
limit our ability to draw on these insurance subsidiaries' assets to repay its
indebtedness, including the notes.
Any violation of the laws and regulations discussed above could increase
claims and/or liabilities, including claims for uninsured punitive damages.
Failure to maintain required permits or licenses, or to comply with applicable
regulations, including environmental permits and regulations could subject us to
fines or, in the event of a serious violation, suspension or revocation of
operating authority or criminal penalties. All of these regulatory authorities
have broad powers generally governing activities such as authority to engage in
motor carrier operations, rates and charges and certain mergers, consolidations
and acquisitions. Although compliance with these regulations has not had a
materially adverse effect on our operations or financial condition in the past,
there can be no assurance that such regulations or any changes to such
regulations will not materially adversely impact our operations in the future.
We are also subject to environmental regulation. See "--Environmental
Matters."
ENVIRONMENTAL MATTERS
Our operations are subject to a range of environmental requirements in the
various foreign, federal, state and local jurisdictions in which we operate. In
particular, because we own or lease or have in the past
81
owned or leased facilities at which underground storage tanks are located and
operated, we are subject to regulations governing the design, construction and
operation of underground storage tanks and governing releases from these tanks.
We have incurred, and will continue to incur, costs related to our investigation
and cleanup of releases of materials from underground storage tanks, though such
costs are not expected to have a material adverse effect on our financial
position, results of operations or liquidity.
We have been named as a potentially responsible party ("PRP") in several
environmental cleanup proceedings by federal or state authorities or by other
PRPs. The suits are brought under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or other federal or state
statutes. Based on all known information, it is estimated that the settlement
cost of each PRP site would not be materially or significantly larger than the
reserves established. It is possible that additional claims or lawsuits
involving known or unknown environmental matters may arise in the future.
We actively monitor our compliance with various U.S. federal, state and
local environmental regulations and management believes that we are presently in
material compliance with all applicable U.S. federal, state and local
environmental laws and regulations. Allied recently began to monitor its
compliance with foreign environmental regulations and management believes that
we are presently in substantial compliance with all applicable foreign
environmental laws and regulations.
We can be expected to continue to incur ongoing capital and operating
expenses to maintain compliance with applicable environmental requirements, to
upgrade existing equipment at its facilities and to meet new regulatory
requirements. While it is not possible to predict with certainty future
environmental compliance requirements, management believes that future
expenditures relating to environmental compliance requirements will not
materially adversely affect our financial condition.
As conditions may exist on our properties related to environmental problems
that are latent or undisclosed, there can be no assurance that we will not incur
liabilities or costs, the amount and materiality of which cannot be reliably
estimated at this time. However, based on our assessment of facts and
circumstances now known, management believes it is unlikely that any identified
matters, either individually or in aggregate, will have a material adverse
effect on our financial position, results of operations, or liquidity.
TRADEMARKS
Our northAmerican-Registered Trademark- and Allied-Registered Trademark-
trademarks are considered two of the most valuable brand names in the van line
industry, and northAmerican and Allied are consistently ranked by Gallup polls
among the top U.S. van lines in terms of brand recognition and customer
satisfaction. The marks northAmerican-Registered Trademark-,
Allied-Registered Trademark-, Home Touch!-Registered Trademark- and
Worldtrac-Registered Trademark- are registered trademarks. Other brand or
product names used in this prospectus are trademarks or registered trademarks of
their respective companies.
We have been highly active in seeking protection for numerous marks and
logos relating to the "northAmerican," "Allied" and "Pickfords" brands. We have
actively contested unauthorized use of the "northAmerican" and "Allied" marks.
We have largely been successful, but in a few exceptional circumstances have
tolerated some third-party use of the mark in transport-related commerce not
directly competitive with our business.
EMPLOYEES
As of December 31, 1999, our workforce comprised approximately 7,000
employees, of which approximately 1,750 were unionized. We believe our
relationships with our employees are good. The unionized employees consisted of
approximately 1,600 employees covered by union agreements in the United Kingdom,
and, management believes, approximately 150 employees in Asia, primarily
Australia, and a small number of U.S. employees in our NAVL logistics business.
We have not experienced any major work stoppages in the 1990s.
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PROPERTIES
We own executive and administrative office space at our headquarters at 5001
U.S. HWY 30 West, Ft. Wayne, Indiana, of approximately 385,676 square feet and
operate warehouse spaces of approximately 211,860 square feet (which is
primarily owned). All the other properties used in our operations consist of
freight forwarding offices and warehouse and distribution facilities. As of
December 31, 1999, we had 314 facilities in 21 countries around the world, 30 of
which were owned and 284 of which were leased. We own or lease major facilities
in Naperville, Illinois, Canada and throughout the United Kingdom, Australia and
New Zealand, and own or lease facilities at significant moving services
locations in many countries throughout the world. The following table sets forth
our owned or leased properties by location.
LOCATION OWNED LEASED TOTAL
- -------- -------- -------- --------
United States and Canada............................... 5 108 113
Europe................................................. 24 102 126
Australia & New Zealand................................ 1 60 61
Asia (including United Arab Emirates).................. 0 14 14
Total.................................................. 30 284 314
Management believes that our office, warehouse and distribution facilities are
generally well maintained and suitable to support our current and planned
business needs.
LITIGATION
We are involved from time to time in routine legal matters incidental to our
business. We believe that the resolution of such matters will not have a
material adverse effect on our financial position or results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to our
directors and officers as of January 15, 2000.
NAME AGE POSITION
- ---- -------- ---------------------------------------------------
James W. Rogers........................... 48 Chairman of the Board and Director
Michael G. Babiarz........................ 33 Director
Edmund M. Carpenter....................... 57 Director
Kevin J. Conway........................... 40 Director
Robert G. Dettmer......................... 68 Director
Darryl D. Fry............................. 60 Director
Kenneth E. Homa........................... 51 Director
Robert D. Lake............................ 56 Director
David A. Novak............................ 31 Director
Charles P. Pieper......................... 53 Director
Jeffrey P. Gannon......................... 48 President and Chief Executive Officer and Director
Gene Elkins............................... 45 Vice President, Allied and northAmerican Brands
Michael P. Fergus......................... 47 President of Van Line Network
Ralph A. Ford............................. 53 Senior Vice President, General Counsel and
Secretary
J. Michael Gunkel......................... 49 President of Logistics
Jeffrey Kaczka............................ 40 Chief Financial Officer
Bradley McGuire........................... 41 Chief Information Officer
Barry C. Meeks............................ 44 Treasurer
Ronald L. Milewski........................ 48 Vice President, Corporate Controller
Julian Nicholls........................... 48 Managing Director, Moving & Storage Europe
Michael Petersen.......................... 49 Vice President of International Relocation
Kevin Pickford............................ 42 Managing Director, Moving & Storage Asia/Pacific
Peter Schleicher.......................... 56 Managing Director, Logistics Europe
Larry Writt............................... 42 Vice President, Insurance
JAMES W. ROGERS is a principal of Clayton, Dubilier & Rice, Inc. and a
limited partner of CD&R Associates V Limited Partnership. Mr. Rogers serves as
Chairman and as a director of Alliant Foodservice, Inc. Prior to joining
Clayton, Dubilier & Rice, Inc. in 1998, Mr. Rogers was a Senior Vice President
and a member of the Corporate Executive Council of General Electric Company.
From 1995 to 1998, Mr. Rogers was President and Chief Executive Officer of GE
Industrial Control Systems. Mr. Rogers has an undergraduate degree in economics
from Rutgers College. Mr. Rogers serves as the Chairman of the Board, and is a
Director, of our company.
MICHAEL G. BABIARZ is a principal of Clayton, Dubilier & Rice, Inc. and a
limited partner of CD&R Associates V Limited Partnership. Prior to joining
Clayton, Dubilier & Rice, Inc. in 1996, he worked in mergers and acquisitions at
Drexel Burnham Lambert Incorporated. Mr. Babiarz serves as a director of RACI
Holding, Inc. and Remington Arms Company, Inc. He holds a B.S. in Economics from
the University of Pennsylvania's Wharton School. Mr. Babiarz serves as a
Director of our company.
EDMUND M. CARPENTER is President and Chief Executive Officer of Barnes
Group Inc. and is a former professional employee of Clayton, Dubilier & Rice,
Inc. Mr. Carpenter is also a director of Campbell Soup Company, Dana
Corporation, Texaco Inc. and The Business Council. From 1988 to 1995,
Mr. Carpenter was Chairman and Chief Executive Officer of General Signal
Corporation. Prior to 1988, Mr. Carpenter served as President and Chief
Operating Officer of ITT Corporation. Mr. Carpenter has also served as president
of the Automotive Truck Group at Kelsey Hayes Company and President of Freuhauf
de Brazil.
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Mr. Carpenter attended the University of Michigan, where he earned both a B.S.E.
and an M.B.A. Mr. Carpenter serves as a Director of our company.
KEVIN J. CONWAY is a principal of Clayton, Dubilier & Rice, Inc. and a
limited partner of CD&R Associates V Limited Partnership. Mr. Conway is also a
director of the Riverwood International Corporation and U.S. Office Products
Company. Prior to joining Clayton, Dubilier & Rice, Inc., he spent ten years
with Goldman, Sachs & Co., where he was elected a partner. He was a senior
member of the Mergers & Acquisitions Department at Goldman, Sachs & Co. and
served as the Chief of Staff of the Investment Banking Division. Mr. Conway is a
graduate of Amherst College, Columbia University School of Business and Columbia
Law School. Mr. Conway serves as a Director of our company.
ROBERT G. DETTMER served as Executive Vice President and Chief Financial
Officer of PepsiCo, Inc. from May 1986 until September 1996. Prior to serving in
such positions, Mr. Dettmer served in a number of management and executive
positions with PepsiCo, Inc. Mr. Dettmer is currently a director of Valero
Energy Corp. and the Harvard Business School Club of New York. Mr. Dettmer has
previously served as Chairman of the Board of American Movers Conference and as
a director of Pantasote, Inc. Mr. Dettmer holds an M.B.A. from Harvard Business
School and a Bachelor of Business and Engineering Administration from
Massachusetts Institute of Technology. Mr. Dettmer serves as a Director of our
company.
DARRYL D. FRY recently retired from his position as Chairman and Chief
Executive Officer of Cytec Industries Inc., which he had held since the spinoff
of Cytec from American Cyanamid Company in 1993. Prior to that time, Mr. Fry
held various executive and management positions with American Cyanamid Company.
Mr. Fry currently serves as a director of Cytec, Fortis Inc. and EPMed Systems.
Mr. Fry earned a B.Sc. degree from the Memorial University of Newfoundland and a
B. Eng. degree in chemical engineering from the Nova Scotia Technical
University. Mr. Fry serves as a Director of our company.
KENNETH E. HOMA is currently on the faculty of Georgetown University School
of Business where he teaches graduate courses in marketing, new product
development and operations. Prior to joining Georgetown, Mr. Homa held various
executive and management positions with Black & Decker and the housewares
division of General Electric Corporation. Mr. Homa has an undergraduate degree
in economics from Princeton University and an M.B.A. from the University of
Chicago, where he was a lecturer in marketing and strategic planning. Mr. Homa
serves as a Director of our company.
ROBERT D. LAKE currently serves as the Chief Operating Officer of Exel
Logistics Worldwide. Previously, Mr. Lake oversaw the Exel Logistics and
Allied/Pickfords operations in the Americas and Asia Pacific as Chief Executive
Officer of NFC International Logistics and Moving Services, Americas & Asia
Pacific. Mr. Lake also serves as a director of NFC plc. Mr. Lake holds a B.S.
degree in Manufacturing Technology from Purdue University and a M.S. degree in
Industrial Administration from Purdue's Krannert School of Management. Mr. Lake
serves as a Director of our company.
DAVID A. NOVAK is a professional employee of Clayton, Dubilier & Rice, Inc.
and a limited partner of CD&R Associates V Limited Partnership. Prior to joining
Clayton, Dubilier & Rice, Inc. in 1997, Mr. Novak worked in the Merchant Banking
and Investment Banking Divisions of Morgan Stanley & Co. Incorporated and for
the Central European Development Corporation. Mr. Novak serves as a director of
CDRJ Investments (Lux) S.A. Mr. Novak is a graduate of Amherst College and has
an M.B.A. from Harvard Business School. Mr. Novak serves as a Director of our
company.
CHARLES P. PIEPER is a principal of Clayton, Dubilier & Rice, Inc. and a
limited partner of CD&R Associates V Limited Partnership. In addition,
Mr. Pieper serves as Chairman, and is a director of, U.S. Office Products
Company and is a director of Alliant Foodservice, Inc. and Dynatech Corporation.
Previously, Mr. Pieper was President and Chief Executive Officer of several
General Electric businesses. Mr. Pieper graduated from Harvard College and holds
an M.B.A. from Harvard Business School. Mr. Pieper serves as a Director of our
company.
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JEFFREY P. GANNON joined us in 2000 and serves as President and Chief
Executive Officer and is a director of our company. Before joining us,
Mr. Gannon was President and Chief Executive Officer of Zenith Electronics
Company. Prior to joining Zenith in 1998, Mr. Gannon was with General Electric
for 25 years, most recently as Vice President--International Business
Development from 1997 to 1998 and as President and Chief Executive Officer of GE
Lighting Asia Pacific Operations from 1994 to 1997. Mr. Gannon earned a B.E. in
mechanical engineering from Villanova and successfully completed General
Electric's Manufacturing Management Program and its Executive Development
Course. Mr. Gannon is a former director of the American Chamber of Commerce in
Mexico, Goodwill Industries, the Capital Club in Beijing and seventeen General
Electric joint ventures.
GENE ELKINS serves as Vice President of the Allied and northAmerican Brands.
Mr. Elkins has been Allied's Senior Vice President of Transportation since 1998.
Prior to that, he served Allied as Vice President of Operations from 1995 to
1998. Mr. Elkins joined Allied in 1991 as Director of Agency Development. Prior
to joining Allied, Mr Elkins held a variety of executive positions with Bekins
Van Lines. Mr. Elkins received a degree in transportation and traffic management
from the College of Advance Traffic.
MICHAEL P. FERGUS serves as President of Van Line Network. Mr. Fergus has
been President and Chief Executive Officer of Allied Van Lines since 1995.
Mr. Fergus joined Allied in 1973 and held various management positions in the
company including Vice President, Allied International; Senior Vice President,
Operations, and Chief Operating Officer. Mr. Fergus holds a B.S. in
communications from Southern Illinois University and is a member of the World
Trade Club.
RALPH A. FORD joined us in 1999 and serves as Senior Vice President, General
Counsel and Secretary. Previously, Mr. Ford served 18 years in the General
Electric legal department, most recently as General Counsel to GE Industrial
Control Systems. Prior to that, Mr. Ford served as group counsel for Bell &
Howell Company and as an attorney for E.I. duPont deNemours & Co. Mr. Ford
earned a B.A. from Morgan State College and a J.D. from Boston University Law
School.
J. MICHAEL GUNKEL joined us in 1991 and currently serves as President of
Logistics. Before joining us, Mr. Gunkel acted as regional Vice President for
Burlington Air Express from 1989 to 1991 and Regional General Manager for Emery
Worldwide from 1976 to 1989. Mr. Gunkel holds a B.A. in history from Dayton
University. He is an active member of the American Moving and Storage
Association, American Trucking Association and National Industrial
Transportation League. He serves on both the American Moving and Storage
Association Advisory Council and ATA Technical Councils.
JEFFREY KACZKA joined us in 1999 and serves as the Chief Financial Officer.
Before joining us, Mr. Kaczka was Chief Financial Officer of I-NET. Prior to
holding that position, Mr. Kaczka held several financial management positions at
General Electric, including Vice President-Finance of GE Information Services.
He was also a member of the GE Corporate Finance Council. Mr. Kaczka earned a
B.A. in economics from Rutgers College.
BRADLEY MCGUIRE serves as Chief Information Officer. Mr. McGuire joined
Allied Van Lines in 1993 as Vice President of Finance for Allied Canada. In
1996, he assumed the position of Vice President of Finance, Strategy and
Development for NFC North America. In June, 1997, he became Chief Financial
Officer and Chief Information Officer of Allied North America and is currently
Allied's Chief Operating Officer. Prior to joining Allied, Mr. McGuire was with
Price Waterhouse in several management capacities. Mr. McGuire received a
Bachelor of Commerce degree from the University of Alberta and holds a chartered
accountants designation.
BARRY C. MEEKS joined us in 1998 and serves as Treasurer. Previously,
Mr. Meeks served as a Director, Corporate Credit, for General Signal
Corporation. Prior to General Signal, Mr. Meeks held a variety of positions for
over 15 years with Ingersoll-Rand Company, including Director, Corporate Credit
and Trade Finance and Manager, Credit and Financial Services for
Ingersoll-Rand's Construction Equipment Group, Worldwide. Mr. Meeks earned his
bachelor's degree at Ursinus College, his M.B.A. at Rutgers University,
86
and completed the Graduate School of Credit & Financial Management Executive
Program at Dartmouth College.
RONALD L. MILEWSKI joined us in 1990 as Vice President Finance and serves as
Vice President, Corporate Controller. Previously, Mr. Milewski served as Group
Controller at Johnson Controls from 1985 to 1990 and Assistant Controller for
Hoover Universal from 1979 to 1985. Mr. Milewski holds a B.B.A. in accounting
from Eastern Michigan University and is a Certified Public Accountant. He is a
member of the American Institute of Certified Public Accountants and the
American Moving and Storage Association and the ATA Technical Councils.
JULIAN NICHOLLS serves as Managing Director, Moving & Storage Europe.
Mr. Nicholls joined NFC plc in 1996 and most recently was Managing Director of
Moving Services Europe for NFC and a member of the NFC Europe Executive. Prior
to joining NFC, Mr. Nicholls held senior management positions in a range of
service companies, including InterMatrix, PrimeComputervision and BET Plc. At
BET, Nicholls was head of corporate marketing and managing director of BET's
computer services and facilities management businesses. Mr. Nicholls has a B.A.
from Durham University, an M.Sc. from Reading University and earned his M.B.A.
at City University in London. Mr. Nicholls was a director of the NFC Foundation.
MICHAEL PETERSEN serves as Vice President, International Relocation.
Mr. Petersen joined Allied Van Lines in 1977 and has held a variety of
management positions. From 1995 through 1998, Mr. Petersen served as Allied Van
Lines representative on the board of directors of the Household Goods Carrier's
Bureau. Mr. Petersen received a B.S. in business from the University of
Illinois, Chicago Circle Campus.
KEVIN PICKFORD serves as Managing Director, Moving & Storage Asia Pacific.
Mr. Pickford joined NFC in 1978 and has held a variety of senior management
roles. From 1997 until the Allied acquisition, he was Managing Director for
NFC's Asia Pacific Moving Services. Prior to this, he was Managing Director for
Allied Pickfords P/L with responsibility for Australian and New Zealand
operations. Mr. Pickford is a graduate and member of the Chartered Association
of Certified Accountants and additionally holds membership in the Australian
Institute of Company Directors.
PETER SCHLEICHER joined us in 1986 and currently serves as Executive Vice
President, Europe. Prior to that, Mr. Schleicher was President for Global
International Forwarding and held various executive management positions
overseas with Global Van Lines. Mr. Schleicher qualified as a graduate from a
business college specializing in freight forwarding.
LAWRENCE A. WRITT serves as Vice President, Insurance. Mr. Writt joined
Allied Van Lines in 1979 and since 1991 has been President and Chief Executive
Officer of TransGuard Insurance Company of America, Inc. and Vanguard Insurance
Agency, Inc., both wholly owned by subsidiaries of Allied Van Lines. Mr. Writt
is also a director of both TransGuard and Vanguard as well. Mr. Writt has a B.S.
in economics and accounting from St. Joseph's College.
COMPOSITION OF BOARD AND COMMITTEES
The business and affairs of North American Van Lines are managed under the
direction of its Board of Directors. Each of the directors of North American Van
Lines is also a director of Allied Worldwide (the holder of all of North
American Van Lines' outstanding common stock). The Board is composed of 11
directors, none of whom, with the exception of Mr. Gannon, are officers of
Allied Worldwide or North American Van Lines. No director who is (1) an officer
or employee of Clayton, Dubilier & Rice, Inc. at any time that Clayton,
Dubilier & Rice, Inc. is providing consulting services to North American Van
Lines or (2) an officer of North American Van Lines is entitled to receive any
compensation for his services as a director (although he may be reimbursed for
his reasonable expenses in connection with such service). Each director may hold
office until his successor has been duly elected and qualified, or until his
earlier death, resignation or removal.
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The North American Van Lines Board has established the following committees:
EXECUTIVE COMMITTEE
The Executive Committee may, in the intervals between meetings of the Board,
exercise the powers and authority of the Board in the management of the
property, affairs and business of North American Van Lines.
The Executive Committee currently consists of James W. Rogers (Chairman),
Edmund M. Carpenter and Kevin J. Conway.
COMPENSATION COMMITTEE
The Compensation Committee makes recommendations to the Board regarding
salaries and any supplemental employee compensation of the executive officers
and acts upon management's recommendations for salary and supplemental
compensation for all other employees. The Compensation Committee also acts upon
management's recommendations which require director action with respect to all
employee pension and welfare benefit plans. The Compensation Committee currently
consists of Darryl D. Fry (Chairman), Edmund M. Carpenter, Kenneth E. Homa and
James W. Rogers.
AUDIT COMMITTEE
The Audit Committee recommends to the Board the firm of independent
certified public accountants to annually audit the books and records of North
American Van Lines. The Audit Committee reviews and reports on the activities of
the independent certified public accountants to the Board and reviews and
advises the Board as to the adequacy of North American Van Lines' system of
internal accounting controls. The Audit Committee currently consists of
Robert G. Dettmer (Chairman), Michael G. Babiarz and Kevin J. Conway.
OTHER COMMITTEES
The Board may form such other committees of the Board as it deems
appropriate.
COMPENSATION OF DIRECTORS
Members of the North American Van Lines Board and of the Allied Worldwide
Board who are not employees of North American Van Lines, Allied Worldwide or
Clayton, Dubilier & Rice, Inc. receive an annual retainer fee of $40,000. An
additional annual fee of $10,000 is paid to the chairman of each committee who
is not an employee of North American Van Lines, Allied Worldwide or Clayton,
Dubilier & Rice, Inc. Members of the Allied Worldwide Board do not receive any
additional compensation for their services in such capacity. All directors are
reimbursed for reasonable travel and lodging expenses incurred to attend
meetings.
COMPENSATION OF NAMED EXECUTIVE OFFICERS
The following table describes the compensation paid to (1) the current and
former Chief Executive Officers for services rendered during the fiscal year
ended December 31, 1999, (2) the four other most highly compensated executive
officers for services rendered during the fiscal year ended December 31, 1999,
and (3) two additional individuals, each of whom would have been one of the four
most highly compensated executives but for their departure from North American
Van Lines during the fiscal year 1999 (collectively, the "Named Executives").
88
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION AWARDS
---------------------------
ANNUAL COMPENSATION SECURITIES
------------------------------ OTHER ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(5) ($) ($)(6) (#)(7) ($)
- --------------------------- -------- -------- -------- ------------ ------------ ------------
R. Barry Uber(1) ................ 1999 $500,000 $502,500 -- -- $1,000,000(8)
Director, President and Chief
Executive Officer
James W. Rogers(2) .............. 1999 -- -- -- -- --
Chairman of the Board,
President and Chief Executive
Officer
Ron Milewski .................... 1999 $148,399 $ 85,011 -- 6,000 --
Vice-President and Corporate
Controller
Don Saulic ...................... 1999 $189,999 $ 57,000 -- 1,120 --
Chief Information Officer
Gregory S. Maiers ............... 1999 $175,959 $119,909 $ 694.21 4,500 --
Executive Vice President and
General Manager, Relocation
Services Division
Michael Gunkel .................. 1999 $170,807 $100,000 $ 135.17 5,000 --
Executive Vice President and
General Manager, Logistics
Ian M. Nicolson(3) .............. 1999 $266,586 $234,824 $1,551.75 -- $ 215,040(9)
Chief Operating Officer
Michael Kranisky(4) ............. 1999 $280,460 -- -- -- --
Executive Vice President,
Corporate Development
- ------------------------
(1) Mr. Uber resigned on December 2, 1999. See "--Separation Agreement with R.
Barry Uber," below.
(2) Mr. Rogers was elected President and Chief Executive Officer on December 2,
1999. Mr. Rogers is a principal of Clayton, Dubilier & Rice, Inc. and a
limited partner of CD&R Associates Fund V Limited Partnership. Mr. Rogers
received no compensation for his services as President and Chief Executive
Officer which continued until the appointment of his successor, Mr. Gannon,
on January 5, 2000 (Mr. Rogers continues to serve as Chairman of the Board).
See "--Employment Agreement with Jeffrey P. Gannon," below.
(3) Mr. Nicolson retired from service on September 1, 1999.
(4) Mr. Kranisky retired from service on April 1, 1999.
(5) Amounts in this column include all amounts contributed by the Named
Executives to the North American Van Lines, Inc. Savings Plan and Trust, a
plan qualified under section 401(k) of the Internal Revenue Code of 1986, as
amended.
(6) Amounts in this column reflect the dollar value of preferential earnings on
compensation deferred at the election of the Named Executives pursuant to
the North American Van Lines' Executives' Deferred Compensation Plan.
89
(7) All options are held under the Allied Worldwide Stock Incentive Plan.
(8) Mr. Uber entered into a separation agreement with Allied Worldwide and North
American Van Lines on December 2, 1999. This figure represents a severance
benefits payment of $1,000,000. See "--Separation Agreement with R. Barry
Uber," below.
(9) This figure represents a severance benefits payment to Mr. Nicolson upon his
retirement.
STOCK OPTION GRANTS AND FISCAL YEAR-END VALUES
The following tables set forth information regarding grants of options to
purchase shares of Allied Worldwide common stock and the fiscal year-end value
of such options, which were granted to the executive officers listed in the
Summary Compensation Table pursuant to the Allied Worldwide Stock Incentive Plan
(described below).
OPTION/SAR GRANTS IN LAST FISCAL YEAR
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/SARS GRANTED TO EXERCISE OR
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION
NAME (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ---- ------------ ---------------- ----------- ---------- ----------- -----------
Don Saulic(1)............ 2120 17.99% $118 5/5/2009 $157,324.28 $398,690.61
- ------------------------
(1) See description of option vesting provisions under "--Allied Worldwide Stock
Incentive Plan," below.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR-END FISCAL YEAR-END
SHARES (#) ($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED UNEXERCISABLE UNEXERCISABLE
- ---- ------------ -------- --------------------- ----------------
R. Barry Uber(1)..................... -- $142,254 0/0 0/0
Don Saulic........................... -- -- 0/1,120 $26,880
Ron Milewski......................... -- -- 1,017/4,983 $42,714/$209,286
Gregory S. Maiers.................... -- -- 763/3,737 $32,046/$156,954
Michael Gunkel....................... -- -- 847/4,153 $35,574/$174,426
- ------------------------
(1) Mr. Uber's 3,387 vested options were purchased from him by Allied Worldwide
based on a market value of $142 per share, resulting in a cash payment to
him of $42 per share.
ALLIED WORLDWIDE STOCK INCENTIVE PLAN
GENERAL
The Allied Worldwide Board administers the Allied Worldwide Stock Incentive
Plan. Under this plan, the Allied Worldwide Board may grant shares and options
to purchase shares to executives, officers and other key employees selected by
the Board. The Allied Worldwide Board may delegate the authority to administer
the plan to the Compensation Committee of the Allied Worldwide Board.
The options allow participants to purchase shares of Allied Worldwide common
stock. A maximum of 300,000 shares may be issued under the plan. Of those
shares, up to 100,000 shares of common stock are
90
permitted to be sold to management and up to 200,000 options may be granted.
Options granted under the plan that are canceled without having been exercised
may be reissued under the plan. As of January 14, 2000, 47,684 shares and 95,868
options were outstanding under the plan.
SHARES
Participants must agree not to sell or otherwise dispose of the shares
purchased under the stock incentive plan, except in compliance with the
Securities Act. In each case, the sale or other disposition must also be made in
compliance with any applicable state and foreign securities laws. If Allied
Worldwide files a registration statement under the Securities Act with respect
to an underwritten public offering of the common stock, participants may not
sell or distribute any shares of common stock to the public during the 20 days
before and the 180 days after the effective date of the registration statement,
other than as part of the public offering.
The foregoing restrictions on transfer will continue following a public
offering of the common stock.
Participants are not permitted to transfer shares purchased at any time
before an underwritten public offering of Allied Worldwide common stock led by
at least one underwriter of nationally recognized standing except under limited
circumstances. Allied Worldwide has no current plans to effect a public
offering. Clayton, Dubilier & Rice Fund V Limited Partnership is the only
stockholder that currently has a right to initiate a public offering.
OPTIONS
Under the stock incentive plan, two options are granted with each share of
Allied Worldwide common stock sold to the officers and other key employees.
Options granted are of two types: service options and performance options.
Service options are vested in equal annual installments on each of the first
five anniversaries of the grant date. Performance options generally become
vested upon achievement of specified cumulative or annual EBITDA targets, except
that, to the extent not vested sooner, they become vested on the ninth
anniversary of the grant date. In addition, the Allied Worldwide Board may
accelerate the exercisability of any option at any time and from time to time.
All options granted expire after ten years from the grant date.
The exercise price of the options equals the fair market value of the common
stock at the date of the grant. Fair market value was determined by the Board
based on an independent appraisal using various financial methodologies.
Grantees who choose to exercise their options must pay whatever taxes are due
upon exercise. To exercise an option, a holder may pay the exercise price in
full in cash or cash equivalents, including by personal check, at the time of
exercise. The exercise price of any options exercised at any time following a
public offering may be paid in full or in part in the form of shares of Allied
Worldwide common stock that have been owned by the holder for at least six
months, based on the fair market value of such shares of common stock on the
date of exercise.
In the event of termination of service with Allied Worldwide or any
subsidiary by reason of death, disability or retirement at age 65, those options
that have vested shall remain exercisable until the first to occur of (1) the
day that is six months after the date of termination of employment or (2) the
expiration of the term of the option. Those options that have not become vested
and exercisable prior to the date of termination of service by reason of death,
disability or retirement at age 65 shall be canceled immediately upon such
termination of employment.
In the event of termination of service with Allied Worldwide or any
subsidiary for cause, then all vested and unvested options held by a grantee
terminate immediately and are not exercisable.
In the event of termination of service with Allied Worldwide or any
subsidiary for any other reason, vested and exercisable options remain
exercisable solely until the first to occur of: (1) the 60th day after the
earliest of the expiration of Clayton, Dubilier & Rice Fund V Limited
Partnership's right to purchase the options and receipt of written notice that
Clayton, Dubilier & Rice Fund V Limited Partnership does not intend to exercise
its right to purchase the options; and (2) the expiration of the term of the
options. Options that have not become vested and exercisable by the date of the
optionee's termination of employment will terminate and will not become
exercisable.
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Upon a "Change in Control" of Allied Worldwide or North American Van Lines
(as defined in the plan), each vested and unvested service option, all vested
performance options and a percentage of the unvested performance options will be
canceled in exchange for a payment in cash of an amount equal to the excess, if
any, of the price paid in the change in control transaction over the exercise
price. All remaining unvested performance options will be canceled. Any payments
made in such event will generally be paid within 30 days after the change in
control and will be made in cash or in shares of capital stock of the acquiror,
as determined by the Allied Worldwide Board. Notwithstanding the foregoing, if
the Allied Worldwide Board determines before the change in control either that
(1) all outstanding options will be honored or assumed by the acquiror or
(2) alternative options with equal or better terms will be made available, the
outstanding options will not be canceled, their vesting and exercisability will
not be accelerated, and there will be no payment in exchange for the options. To
be approved by the Board, any alternative options offered must (1) have
substantially equivalent economic value to the outstanding options and (2) must
have terms which provide, upon the involuntary termination of an optionee's
employment within two years of the Change in Control, for either
(a) unrestricted exercisability and transferability of the alternative options
or (b) a payment in exchange for any alternative options that equals the
difference between the exercise price of such alternative options and the fair
market value of the stock subject to such alternative options at the time of the
involuntary termination.
Options cannot be transferred or assigned by grantees other than by will or
by the laws of descent or to the issuer or Clayton, Dubilier & Rice Fund V
Limited Partnership under their right to purchase options on termination of
employment. In addition, options can be exercised only by a grantee or a
grantee's estate after death.
REPURCHASE PROVISIONS
If the employment of a grantee terminates for any reason before the first
public offering, the issuer and Clayton, Dubilier & Rice Fund V Limited
Partnership each have an option to repurchase all or any portion of any shares
of Allied Worldwide common stock or options to purchase shares of Allied
Worldwide common stock. The issuer and Clayton, Dubilier & Rice Fund V Limited
Partnership are not obligated to purchase securities, except in very limited
circumstances.
If service is terminated by Allied Worldwide or any subsidiary (1) without
cause, (2) by death, disability or retirement at age 65 or (3) by resignation of
the participant, the repurchase price for the stock is its fair market value as
determined in good faith by the Allied Worldwide Board. The purchase price for
any options equals the excess, if any, of (1) the fair market value of the
shares issuable upon exercise of the options purchased over (2) the aggregate
exercise price of the options.
If service is terminated by Allied Worldwide or any subsidiary with cause,
the repurchase price for the stock is the lesser of the fair market value and
the original purchase price. Any options are immediately forfeited.
Participants who have terminated their employment with Allied Worldwide or
any subsidiary are entitled to keep any shares that are not repurchased by the
issuer or Clayton, Dubilier & Rice Fund V Limited Partnership.
Participants have the right to require the issuer to repurchase their shares
if their employment terminates by reason of death, disability or retirement at
age 65.
All repurchase rights and obligations will expire automatically upon the
consummation of a public offering and will not apply to shares offered or sold
in connection with such an offering.
The issuer and Clayton, Dubilier & Rice Fund V Limited Partnership are
entitled to apply any portion of the purchase price of shares or options to
discharge any indebtedness a participant may owe to Allied Worldwide or to North
American Van Lines or indebtedness that is guaranteed by North American Van
92
Lines, including, without limitation, indebtedness incurred by such participant
to purchase shares of common stock.
REGISTRATION RIGHTS
Allied Worldwide and Clayton, Dubilier & Rice Fund V Limited Partnership are
parties to a registration and participation agreement, dated as of March 30,
1998. On November 19, 1999, Allied Worldwide and Clayton, Dubilier & Rice Fund V
Limited Partnership amended the registration and participation agreement to add
NFC as a party. This agreement permits holders of securities of Allied Worldwide
who collectively own at least 50% of Allied Worldwide common stock to require
Allied Worldwide to register their securities and pay for such registration
under certain conditions. Because Clayton, Dubilier & Rice Fund V Limited
Partnership holds more than 50% of Allied Worldwide common stock, it is the only
shareholder able to initiate the initial registration. Furthermore, members of
management generally do not have registration rights under the registration and
participation agreement for shares of Allied Worldwide common stock issued upon
exercise of options if Allied Worldwide has registered such shares under the
Securities Act. If Allied Worldwide files a registration statement under the
Securities Act with respect to a public offering of its common stock, members of
management who have previously purchased Allied Worldwide common stock are not
permitted to effect any public sale or distribution of any shares such stock
during the 20 days before and the 180 days after the effective date of the
registration statement (other than as part of the public offering).
EXECUTIVE EMPLOYMENT AGREEMENTS
SEPARATION AGREEMENT WITH R. BARRY UBER
Allied Worldwide, North American Van Lines and R. Barry Uber entered into a
separation agreement which served to terminate his employment agreement with
Allied Worldwide and North American Van Lines and his service as a Director of
Allied Worldwide and North American Van Lines effective as of December 2, 1999.
Under the separation agreement, Mr. Uber will receive his annual base salary
of $500,000 for two additional years. In addition, Allied Worldwide repurchased
from Mr. Uber (1) 10,000 shares of Allied Worldwide common stock and (2) 3,387
vested and exercisable options to purchase shares of Allied Worldwide common
stock based on a fair market value for the stock of $142. Mr. Uber will continue
to receive medical and welfare benefits from the date of termination of service
to the second anniversary thereof as if he had remained in the employ of North
American Van Lines, provided that, if he becomes eligible for a comparable
benefit by reason of his employment, such obligation of North American Van Lines
shall terminate.
Mr. Uber has agreed that during the ten years following termination of his
employment with Allied Worldwide and North American Van Lines, he will refrain
from disclosing confidential information regarding North American Van Lines.
Additionally, for the two years following termination, Mr. Uber will not
(1) participate in any business that is engaged in the business of or that is
otherwise in competition with any business conducted by Allied Worldwide or its
subsidiaries, (2) induce or attempt to induce any employee of North American Van
Lines to leave the employ of Allied Worldwide or North American Van Lines, or
(3) attempt to induce any supplier, distributor or customer of North American
Van Lines or its affiliates to cease doing business with North American Van
Lines.
EMPLOYMENT AGREEMENT WITH JEFFREY P. GANNON
Effective January 5, 2000 Jeffrey Gannon became Allied Worldwide's and North
American Van Lines' President and Chief Executive Officer. He will receive an
annual base salary of $500,000 and participate in the management bonus plan,
with a target annual bonus opportunity up to 100% of his base salary. If
Mr Gannon's employment is terminated without cause, he will continue to receive
his annual base salary
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for one year (or, if earlier, until he obtains other employment). Upon such an
involuntary termination following a change of control he will instead receive a
payment equal to twice his annual base salary, as well as a pro rated bonus for
the year of termination (based on his target opportunity for such year). In
connection with his employment, Mr. Gannon will be afforded the opportunity to
purchase 10,000 shares of Allied Worldwide's Common Stock at $142 per share. It
is expected that Mr. Gannon will also be granted options to purchase up to
30,000 such shares in conjunction with such purchase, half of which will
generally vest over five years based on the passage of time and his continued
employment. The remaining half will vest upon the achievement of specified
cumulative or annual EBITDA targets, except that to the extent not vested
sooner, they will become vested on the ninth anniversary of the grant date.
RETIREMENT PLANS
Allied Worldwide sponsors the NAVL, Inc. Employee Retirement Plan, a funded,
non-contributory defined benefit pension plan covering eligible employees of
North American Van Lines in the United States. Allied Worldwide also sponsors an
excess benefit plan which is an unfunded, non-qualified plan that provides
retirement benefits not otherwise provided under the retirement plan because of
the benefit limitations imposed by Section 415 and 401(a)(17) of the Internal
Revenue Code. The excess benefit plan ensures that an executive receives the
total pension benefit to which he or she would otherwise be entitled, were it
not for such Code limitations.
BENEFITS FOR SERVICES RENDERED THROUGH DECEMBER 31, 1995
For services rendered through December 31, 1995, several formulas are
applicable for determining benefits which have accrued under the retirement plan
and the excess benefit plan. Generally, under each of these formulas the rate of
accrual is greater for the first ten (10) years of service than in later years,
with a cap that applies at either thirty (30) or thirty-five (35) years of
service. The formulas each take into account Social Security benefits payable to
each participant. The following table shows the estimated pension benefits
payable to each of the Named Executives which have accrued under the various
formulas which apply through December 31, 1995.
PENSION PLAN TABLE FOR BENEFITS WHICH HAVE ACCRUED TO
EACH NAMED EXECUTIVE THROUGH DECEMBER 31, 1995
ANNUAL PENSION BENEFIT ACCRUED THROUGH
NAMED EXECUTIVE DECEMBER 31, 1995
- --------------- --------------------------------------
R. Barry Uber (1).................... --
James W. Rogers (2).................. --
Ron Milewski......................... $23,724
Don Saulic (1)....................... --
Gregory S. Maiers.................... $41,208
Michael Gunkel....................... $18,624
Ian M. Nicolson...................... $84,276
Michael Kranisky..................... $81,480
- ------------------------
(1) Because they were hired after December 31, 1995, neither Mr. Uber nor
Mr. Saulic are eligible for benefits accrued under the formulas in effect
through that date.
(2) Because he was not compensated for his services, Mr. Rogers did not
participate in either the retirement plan or the excess benefit plan.
BENEFITS FOR SERVICES RENDERED AFTER DECEMBER 31, 1995
For services rendered after December 31, 1995, the retirement plan provides
each eligible employee with retirement benefits based principally on years of
service with North American Van Lines,
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compensation rates over that time, and estimated primary Social Security
benefits. The following table shows the estimated annual pension benefits
payable to a covered participant at normal retirement age (65) under both the
retirement plan and the excess benefit plan. These benefits are based on the
final pay formula contained in the retirement plan which applies to all benefits
which accrue under both plans after December 31, 1995.
PENSION PLAN TABLE FOR
BENEFITS WHICH ACCRUE AFTER DECEMBER 31, 1995
YEARS OF SERVICE
----------------
REMUNERATION 5 10 15 20 25
- ------------ ---------------- -------- -------- -------- --------
$200,000...................... $13,827 $ 27,653 $ 41,480 $ 55,307 $ 69,133
$225,000...................... $15,702 $ 31,403 $ 47,105 $ 62,807 $ 78,508
$250,000...................... $17,577 $ 35,153 $ 52,730 $ 70,307 $ 87,883
$275,000...................... $19,452 $ 38,903 $ 58,355 $ 77,807 $ 97,258
$300,000...................... $21,327 $ 42,653 $ 63,980 $ 85,307 $106,633
$400,000...................... $28,827 $ 57,653 $ 86,480 $115,307 $144,133
$600,000...................... $43,827 $ 87,653 $131,480 $175,307 $219,133
$800,000...................... $58,827 $117,653 $176,480 $235,307 $294,133
$1,000,000.................... $73,827 $147,653 $221,480 $295,307 $369,133
$1,200,000.................... $88,827 $177,653 $266,480 $355,307 $444,133
Benefits available under the retirement plan and the excess benefit plan
after December 31, 1995 are subject to offset for Social Security benefits.
Compensation taken into account under the plans is the average monthly
compensation paid to a participant during the consecutive 60-month period over
the most recent 120-month period that produces the highest average compensation.
For this purpose, compensation includes the total of base salary and bonus.
Benefits are payable in the form of a straight life annuity or a joint and
survivor annuity. For benefits which accrue under the table (i.e., after
December 31, 1995), as of December 31, 1999 Mr. Uber had 1.75 years of credited
service; Mr. Milewski, Mr. Maiers and Mr. Gunkel each have 4 years of credited
service; and Mr. Saulic has 1.17 years of credited service. As of their
respective retirement dates, Mr. Nicolson had 3.67 years of credited service and
Mr. Kranisky had 3.25 years of credited service.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board established a Compensation Committee to review all compensation
arrangements for executive officers of North American Van Lines. The individuals
serving on the Compensation Committee during 1999 were Darryl D. Fry (Chairman),
Edmund M. Carpenter, Kenneth E. Homa and James W. Rogers. Both Mr. Babiarz and
Mr. Conway are principals of Clayton, Dubilier & Rice, Inc. and limited partners
of CD&R Associates Fund V Limited Partnership. Clayton, Dubilier & Rice, Inc.
receives an annual fee for management and financial consulting services to North
American Van Lines, including expenses. The consulting fees paid to Clayton,
Dubilier & Rice, Inc. were $400,000 for each of 1998 and 1999. Such consulting
fees will be reviewed on an annual basis. Allied Worldwide and North American
Van Lines have also agreed to indemnify the members of the Boards to the full
extent permitted by Delaware law, and to indemnify Clayton, Dubilier & Rice,
Inc. and Clayton, Dubilier & Rice Fund V Limited Partnership (together with
their respective directors, officers, partners, employees, agents and
controlling persons) against certain liabilities incurred under the federal
securities laws and other laws regulating the business of North American Van
Lines and certain other claims and liabilities with respect to their services
for Allied Worldwide and North American Van Lines.
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OWNERSHIP OF CAPITAL STOCK
Allied Worldwide owns all of the outstanding capital stock of North American
Van Lines. The outstanding capital stock of Allied Worldwide is beneficially
owned as set forth in the following table, which includes information as of
January 14, 2000 as to
(1) each person known to North American Van Lines to own five percent or
more of the common stock of Allied Worldwide,
(2) each director of North American Van Lines,
(3) each executive officer of North American Van Lines listed in the Summary
Compensation Table under "Management" above and
(4) all directors and executive officers of North American Van Lines as a
group.
NUMBER PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OF SHARES OF SHARES
- --------------------------------------- --------- ----------
Clayton, Dubilier & Rice Fund V Limited Partnership(2) ..... 840,402 66.9%
1403 Foulk Road, Suite 106
Wilmington, Delaware 19803
NFC International Holdings (Netherlands II) BV(3) .......... 318,779 25.4%
c/o NFC plc
66 Chiltern Street
London WIM 2LT
England
NAME OF EXECUTIVE OFFICER OR DIRECTOR(4)
- ------------------------------------------------------------
Jeffrey P. Gannon(5)........................................ -- --
Ronald L. Milewski(6)....................................... 4,017 *
Donald B. Saulic(7)......................................... 2,734 *
Gregory S. Maiers(8)........................................ 3,013 *
J. Michael Gunkel(9)........................................ 3,347 *
James W. Rogers............................................. 5,000 *
Micahel G. Babiarz.......................................... -- --
Edmund M. Carpenter......................................... -- --
Kevin J. Conway............................................. -- --
Robert G. Dettmer........................................... 2,500 *
Darryl D. Fry............................................... 2,500 *
Kenneth E. Homa............................................. 2,500 *
Robert D. Lake.............................................. -- --
David A. Novak.............................................. -- --
Charles P. Pieper........................................... -- --
All directors and executive officers as a group
(18 persons)(10).......................................... 34,985 2.8%
- ------------------------
* Less than 1%
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, a person is deemed a "beneficial owner" of a security if he or she
has or shares the power to vote or direct the voting of such security or the
power to dispose or direct the disposition of such security. A person is
also deemed to be a beneficial owner of any securities which that person has
the right to acquire beneficial ownership of within 60 days. More than one
person may be deemed to be a beneficial owner of the same securities.
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(2) CD&R Associates V Limited Partnership, a Cayman Islands exempted limited
partnership ("Associates V"), is the general partner of Clayton, Dubilier &
Rice Fund V Limited Partnership and has the power to direct Clayton,
Dubilier & Rice Fund V Limited Partnership as to the voting and disposition
of shares held by Clayton, Dubilier & Rice Fund V Limited Partnership. CD&R
Investment Associates II, Inc., a Cayman Island exempted company
("Investment Associates II"), is the managing general partner of Associates
V and has the power to direct Associates V as to its direction of Clayton,
Dubilier & Rice Fund V Limited Partnership's voting and disposition of the
shares held by Clayton, Dubilier & Rice Fund V Limited Partnership. No
person controls the voting and disposition of Investment Associates II with
respect to the shares owned by Clayton, Dubilier & Rice Fund V Limited
Partnership. Each of Associates V and Investment Associates II expressly
disclaims beneficial ownership of the shares owned by Clayton, Dubilier &
Rice Fund V Limited Partnership. The business address for each of Clayton,
Dubilier & Rice Fund V Limited Partnership, Associates V and Investment
Associates II is 1403 Foulk Road, Suite 106, Wilmington, Delaware 19803.
(3) Includes 87,480 shares issuable to NFC International Holdings (Netherlands
II) upon exercise of the warrant received by NFC as part of the
consideration for the sale of the Allied business.
(4) Messrs. Uber, Nicholson and Kranisky have resigned or retired. See
"Management--Compensation of Named Executive Officers" and "--Executive
Employment Agreements--Separation Agreement with R. Barry Uber." None of
them owns shares or holds options to acquire shares.
(5) Mr. Gannon, recently appointed a director and President and Chief Executive
Officer of North American Van Lines, does not currently own any shares or
hold any options to acquire shares. Allied Worldwide expects to offer Mr.
Gannon 10,000 shares and 30,000 options to acquire shares (none of which
options will be exercisable within 60 days) in early 2000.
(6) Includes 1,017 shares issuable to Mr. Milewski upon exercise of options
exercisable within 60 days.
(7) Includes 424 shares issuable to Mr. Saulic upon exercise of options
exercisable within 60 days.
(8) Includes 763 shares issuable to Mr. Maiers upon exercise of options
exercisable within 60 days.
(9) Includes 847 shares issuable to Mr. Gunkel upon exercise of options
exercisable within 60 days.
(10) Includes approximately 3,255 options exercisable within 60 days.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Clayton, Dubilier & Rice Fund V Limited Partnership, a Cayman Islands
exempted limited partnership, is a private investment fund managed by Clayton,
Dubilier & Rice, Inc. Amounts contributed to Clayton, Dubilier & Rice Fund V
Limited Partnership by its limited partners are invested at the discretion of
the general partner in equity or equity-related securities of entities formed to
effect leveraged acquisition transactions and in the equity of corporations
where the infusion of capital, coupled with the provision of managerial
assistance by Clayton, Dubilier & Rice, Inc., can be expected to generate
returns on investments comparable to returns historically achieved in leveraged
acquisition transactions. The general partner of Clayton, Dubilier & Rice Fund V
Limited Partnership is Associates V. Associates V has three general partners.
The managing general partner of Associates V is Investment Associates II. The
other general partners of Associates V are CD&R Cayman Investment
Associates, Inc., a Cayman Islands exempted company ("Associates Cayman Inc."),
and CD&R Investment Associates, Inc., a Delaware corporation
("Associates Inc."). Under the partnership agreement of Associates V, all
management authority (other than with respect to the amendment of the
partnership agreement) is vested in Investment Associates II.
Each of James Rogers, Michael Babiarz, Kevin Conway and Charles Pieper, who
are principals of Clayton, Dubilier & Rice, Inc., and limited partners of
Associates V and stockholders of Investment Associates II, is a director of
North American Van Lines. David Novak, who is a professional employee of
Clayton, Dubilier & Rice, Inc. and a limited partner of Associates V, is also a
director of North American Van Lines. In addition, Edmund Carpenter, a director
of North American Van Lines, is a former professional employee of Clayton,
Dubilier & Rice, Inc.
Clayton, Dubilier & Rice, Inc. is a private investment firm that is
organized as a Delaware corporation. Clayton, Dubilier & Rice, Inc. is the
manager of a series of investment funds, including Clayton, Dubilier & Rice Fund
V Limited Partnership, formed to invest in equity or equity-related securities.
Clayton, Dubilier & Rice, Inc. generally assists in structuring, arranging
financing for and negotiating the transactions in which the funds it manages
invest. After the consummation of such transactions, Clayton, Dubilier & Rice,
Inc. generally provides management and financial consulting services to the
companies in which its investment funds have invested during the period of such
funds' investment. Such services include helping such companies to establish
effective banking, legal and other business relationships and assisting
management in developing and implementing strategies for improving the
operational, marketing and financial performance of such companies.
Allied Worldwide, North American Van Lines and Clayton, Dubilier & Rice,
Inc. are parties to a Consulting Agreement, dated as of March 30, 1998, as
amended, pursuant to which Clayton, Dubilier & Rice, Inc. is paid a management
fee ($400,000 annually) for financial advisory and management consulting
services. Allied Worldwide and North American Van Lines have also entered into
an Indemnification Agreement, dated as of March 30, 1998, in favor of Clayton,
Dubilier & Rice, Inc. and Clayton, Dubilier & Rice Fund V Limited Partnership
(together with their respective directors, officers, partners, employees, agents
and controlling persons, the "Indemnitees"), pursuant to which Allied Worldwide
and North American Van Lines have agreed, subject to certain exceptions, to
indemnify and hold harmless the members of the boards of directors of Allied
Worldwide and North American Van Lines to the full extent permitted by Delaware
law, and to indemnify the Indemnitees from and against any suits, claims,
damages or expenses that may be made against or incurred by them under
applicable securities laws in connection with offerings of securities of North
American Van Lines, liabilities to third parties arising out of any action or
failure to act by North American Van Lines, and, except in the case of gross
negligence or intentional misconduct, the provision by Clayton, Dubilier & Rice,
Inc. of management, consulting and financial advisory services.
North American Van Lines has guaranteed loans in an aggregate principal
amount of $1,509,690 (of which $609,690 remains outstanding) to various members
of management in connection with their
98
investment in Allied Worldwide, including a $175,000 loan to Mr. Kaczka (of
which the total amount remains outstanding) and two $62,250 loans to Don B.
Saulic (of which the total amount of both remains outstanding). These loans
mature on various dates in 2003 and 2004, and bear interest at the prime rate
plus 1.0%.
An affiliate of NFC, NFC International Holdings (Netherlands II) BV, holds a
Common Stock Purchase Warrant issued by Allied Worldwide in connection with the
Allied aquisition. The warrant entitles the holder to purchase 87,480 shares of
common stock of Allied Worldwide, par value $0.01 per share, at an exercise
price of $400.00 per share. The term of the warrant is five years and it
contains customary anti-dilution protections. In addition, the warrant and any
shares issued upon its exercise are subject to certain transfer restrictions,
including rights of first refusal and drag-along rights in our favor and in
favor of Clayton, Dubilier & Rice Fund V Limited Partnership and hold-back
covenants.
An affiliate of NFC also holds 24,500 shares of junior preferred stock of
Allied Worldwide having an initial liquidation preference of $24.5 million. The
dividend rate on this junior preferred stock is 12.4% compounded quarterly,
although the payment of dividends is subject to the discretion of the Board of
Directors of Allied Worldwide and the ability of Allied Worldwide to pay
dividends is subject to our various debt agreements (including the indenture and
the new senior credit facility). In certain circumstances the junior preferred
stock is exchangeable at the option of Allied Worldwide for subordinated
exchange debentures of Allied Worldwide. Subject to the terms of our debt
agreements (including the indenture and the new senior credit facility
agreements), the junior preferred stock is required to be redeemed on the
eleventh anniversary of its issue date, or upon the occurrence of certain other
events. In addition, Allied Worldwide has a right, subject to the terms of its
debt agreements, to redeem the junior preferred stock at any time after the
first anniversary of its issue date.
Allied Worldwide and NFC are parties to a letter agreement which gives NFC
the right (so long as it or any of its affiliates holds ten percent of the
outstanding shares of Allied Worldwide) to nominate one director to the board of
directors of Allied Worldwide and North American Van Lines. The remaining
members of the boards are appointed by Clayton, Dubilier & Rice Fund V Limited
Partnership. The letter agreement also imposes certain restrictions on the
transfer of the 174,961 shares of common stock of Allied Worldwide held by NFC
International Holdings (Netherlands II), such as rights of first refusal,
drag-along rights and hold-back covenants.
Allied Worldwide and Clayton, Dubilier & Rice Fund V Limited Partnership are
parties to a Registration and Participation Agreement, dated as of March 30,
1998, which permits holders of securities of Allied Worldwide to require Allied
Worldwide to register their securities and pay for such registration under
certain conditions. In connection with the Allied acquisition, this agreement
was amended to include NFC as a party and to accord NFC the right (so long as it
or its affiliate owns 87,480 shares of common stock of Allied Worldwide) to
demand that Allied Worldwide register its securities. In addition, the amendment
allows NFC or such affiliate to participate in the demand rights exercised by
other holders of Allied Worldwide securities and to participate in the rights
accorded to certain accredited investors to buy additional shares from Allied
Worldwide pro rata if Clayton, Dubilier & Rice Fund V Limited Partnership
subscribes for additional shares.
Allied Worldwide and Clayton, Dubilier & Rice Fund V Limited Partnership are
parties to a Stock Subscription Agreement, dated as of March 30, 1998, which
sets forth the terms and conditions of the purchase by Clayton, Dubilier & Rice
Fund V Limited Partnership of 615,050 shares of common stock of Allied
Worldwide. Pursuant to such agreement, Clayton, Dubilier & Rice Fund V Limited
Partnership is entitled to consult with Allied Worldwide with respect to the
operation of Allied Worldwide or any of its subsidiaries at any time, to have
observers attend meetings of the board of directors of Allied Worldwide and to
receive all quarterly and annual financial reports and budgets, as well as other
documents, of Allied Worldwide. In addition, the Stock Subscription Agreement
imposes certain restrictions on the transfer of
99
the shares of common stock of Allied Worldwide owned by Clayton, Dubilier & Rice
Fund V Limited Partnership.
On December 1, 1999, pursuant to two Stock Subscription Agreements, each
dated as of November 19, 1999, Clayton, Dubilier & Rice Fund V Limited
Partnership and NFC purchased 225,352 and 56,338 shares of common stock of
Allied Worldwide, respectively. These Stock Subscription Agreements impose
certain restrictions on the transfer of the shares of common stock purchased
thereunder, and provide that the purchasers of such stock are entitled to the
rights and subject to the obligations created under the Registration and
Participation Agreement described above. The proceeds of this stock subscription
were used to repay a $40 million interim loan incurred by Allied Worldwide in
connection with the Allied acquisition. As a result of this stock subscription,
accredited investors who were stockholders of Allied Worldwide at the time of
such subscription, including members of management, are entitled to buy, on a
pro rata basis, additional shares of common stock from Allied Worldwide. The
total number of shares offered to these accredited investors was 27,555. As of
January 14, 2000, the purchase of these shares had not been completed. Upon
completion of the offering of these shares, NFC will have the right to purchase
up to 6,889 additional shares of the common stock of Allied Worldwide.
In connection with the Allied acquisition, in December, 1999, Allied
Worldwide initiated a management stock offering and has sold to certain members
of North American Van Lines' management shares (and options to purchase shares)
of its common stock, pursuant to the Allied Worldwide Stock Incentive Plan. As
of January 14, 2000, members of management had purchased approximately 27,091
shares of such stock and had been granted options to purchase 44,682 additional
shares of such stock pursuant to this management stock offering. Allied
Worldwide currently anticipates making a second management stock offering to
certain members of management in February of 2000. It is anticipated that up to
13,000 shares and 36,000 options to purchase shares will be offered in this
management stock offering. See "Management--Allied Stock Incentive Plan."
North American Van Lines and its subsidiary North American Transport
Insurance Company ("NATIC") are parties to a Management and Cost Allocation
Agreement, dated as of July 18, 1990, pursuant to which North American Van Lines
provides office space and services, telecommunications and computer services,
and legal and accounting services to NATIC on a cost reimbursement basis. This
agreement has been filed with the Indiana Department of Insurance.
Allied Van Lines, Inc.'s wholly-owned subsidiary, TransGuard Insurance
Company of America, Inc., is party to several intercompany agreements, with
Vanguard Insurance Agency, Inc., Allied Van Lines, ClaimGuard, Inc. and
TransGuard General Agency, Inc., governing various matters such as the terms and
conditions of the solicitation of accounts by Vanguard on behalf of TransGuard
and the payment by Allied of certain of TransGuard's operating expenses.
Consistent with Illinois law governing the insurance industry and with the
exception of the payment by TransGuard to Vanguard on a commission basis, all
payments made pursuant to these intercompany agreements are made on a
cost-reimbursement basis, with payment amounts ranging from $0.5 million to
$2.5 million per year.
NFC and its affiliates have agreed to provide certain services to us, such
as information technology and real property services, pursuant to a transition
services agreement entered into in connection with the Allied acquisition. In
addition there are a number of properties in the United Kingdom which are used
both for operations of the moving and storage services businesses which were
acquired by us from NFC and also for operations of other businesses of NFC which
NFC is retaining. To facilitate a smooth transition, certain subsidiaries of NFC
have leased (or subleased as the case may be) portions of those facilities which
such subsidiaries are retaining to Pickfords Limited (a North American Van Lines
subsidiary following the Allied acquisition) for its use in its operations of
the acquired businesses. Similarly, in the case of the shared sites which we
acquired in connection with the Allied acquisition, Pickfords Limited has leased
(or subleased, as the case may be) to certain NFC entities portions of those
facilities for their use in the retained businesses. The terms of these leasing
and subleasing arrangements range from less than one year to up to ten years and
are generally at market rents and conditions.
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DESCRIPTION OF OTHER INDEBTEDNESS
SENIOR CREDIT FACILITY
GENERAL. In connection with the Allied acquisition, we entered into a new
credit facility with a syndicate of financial institutions and The Chase
Manhattan Bank as administrative agent (the "Agent") and Banc of America
Securities LLC as syndication agent. The following summary is a description of
the principal terms of the senior credit agreement and the related documents
governing the facility (the "Credit Documentation") and is subject to and
qualified in its entirety by reference to the Credit Documentation. The senior
credit agreement governing the facility has been filed as an exhibit to the
registration statement of which this prospectus is a part. It is available as
set forth under the heading "Where You Can Find More Information."
The senior credit agreement provides for senior secured credit facilities in
an aggregate principal amount of up to $475.0 million, consisting of (1) a
revolving credit facility in an aggregate principal amount of up to
$150.0 million, (2) a seven-year term loan of $150.0 million (the "Tranche A
Term Loan") and (3) an eight-year term loan of $175.0 million (the "Tranche B
Term Loan"), which will be made available to North American Van Lines. The
revolving credit facility may also be made available to certain foreign
subsidiaries of North American Van Lines (together with North American Van
Lines, the "Borrowers").
USE OF FACILITY. In connection with the closing of the Allied acquisition,
North American Van Lines used the term loans and borrowed under the revolving
credit facility to refinance certain existing indebtedness and as part of the
financing for the Allied acquisition. See "The Allied Acquisition." The
remaining unused commitment under the revolving credit facility will be
available to the Borrowers from time to time for general corporate purposes.
GUARANTEE AND SECURITY. The obligations of North American Van Lines are
guaranteed by Allied Worldwide and certain of the existing and subsequently
acquired or organized domestic subsidiaries of North American Van Lines. In the
event that any foreign subsidiary of North American Van Lines is permitted to
borrow under the senior credit facility, its obligations will be guaranteed by
Allied Worldwide, North American Van Lines, certain of North American Van Lines'
domestic subsidiaries and certain of the subsidiaries (including foreign
subsidiaries) of such foreign subsidiary borrower. North American Van Lines'
obligations under the senior credit facility are secured by substantially all of
the tangible and intangible assets of Allied Worldwide, North American Van Lines
and certain of its domestic subsidiaries, except that (1) the stock or
securities of the foreign subsidiaries of North American Van Lines (other than
any direct first-tier foreign subsidiary of North American Van Lines) is not
required to be pledged to secure these obligations, (2) no more than 65% of the
stock or securities of a direct first-tier foreign subsidiary of North American
Van Lines is required to be pledged to secure these obligations, and (3) no more
than 65% of the stock or securities of any domestic subsidiary of North American
Van Lines that acts as a holding company for foreign subsidiaries of North
American Van Lines is required to be pledged to secure these obligations. In the
event that any foreign subsidiary of North American Van Lines is permitted to
borrow under the senior credit facility, its obligations will be secured by not
more than 65% of the stock of such foreign subsidiary borrower and by
substantially all of the tangible and intangible assets of such foreign
subsidiary borrower, Allied Worldwide, North American Van Lines, certain of
North American Van Lines' domestic subsidiaries and the capital stock of certain
of the subsidiaries (including foreign subsidiaries) of such foreign subsidiary
borrower.
AMORTIZATION; INTEREST; FEES; MATURITY. The term loan obligations under the
senior credit agreement are repayable in quarterly principal payments over seven
years, in the case of the Tranche A Term Loan, or eight years, in the case of
the Tranche B Term Loan. Loans under the revolving credit facility mature on the
seventh anniversary of the initial borrowing. The term loans and loans under the
revolving credit facility bear interest at floating rates based upon the
interest rate option we elect.
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The transaction fees and expenses set forth in the sources and uses of funds
for the Allied acquisition (see "The Allied Acquisition") include transaction
fees payable in connection with the commitments under the senior credit
agreement. In addition, a commitment fee is payable quarterly on the daily
average undrawn portion of the revolving credit facility, in the amount of 0.50%
per annum or less (depending on our financial performance).
PREPAYMENTS. The senior credit agreement permits voluntary prepayment of
the term loans or loans under the revolving credit facility without premium or
penalty except for breakage costs incurred in connection with prepayment during
a euro currency interest period and except as provided for in the next sentence.
Optional prepayments of Tranche B Term loans and any prepayments (whether
optional or mandatory) made as a result of or in connection with a change of
control, or any refinancing of any of the senior credit facilities, shall be at
par plus accrued interest plus a premium. The premium shall initially be 2.0% of
the aggregate principal amount prepaid, declining to 0.0% after the second
anniversary of the closing date. Subject to certain exceptions, mandatory
prepayments will be required to be made from net cash proceeds of certain asset
sales, net cash proceeds of certain debt issuances and 50% of excess cash flow,
such percentage to be reduced to zero upon our achievement of certain
performance criteria.
COVENANTS AND EVENTS OF DEFAULT. The senior credit facility is subject to
covenants that, among other things, restrict our ability to dispose of assets,
incur indebtedness or guarantee obligations, prepay other indebtedness, make
dividends and other restricted payments, create liens, make equity or debt
investments, make acquisitions, modify terms of the indenture, engage in mergers
or consolidations, change the business we conduct, make capital expenditures or
engage in certain transactions with affiliates. In addition, under the senior
credit facility, North American Van Lines is also subject to certain financial
covenants, including the requirement to maintain a minimum interest expense
coverage ratio and a maximum leverage ratio. These financial tests become more
restrictive in future years. The senior credit facility is subject to customary
events of default.
ALLIED WORLDWIDE SENIOR DISCOUNT DEBT
GENERAL. In connection with the Allied acquisition, Allied Worldwide
incurred $35.0 million initial accreted value of unsecured senior discount term
loan borrowings from The Chase Manhattan Bank and Blue Ridge Investments, LLC
(affiliates of the initial purchasers of the old notes). This senior discount
loan will accrete at a rate of 16% per annum from its initial accreted value of
$35.0 million at November 19, 1999. Under the loan agreement relating to the
senior discount loan (the "Senior Discount Loan Agreement"), the lenders
thereunder may, at their option, exchange the senior discount loan for senior
discount notes due 2009 at any time prior to February 17, 2000 (90 days after
the initial closing date), by giving written notice to Allied Worldwide, and if
they have not done so by that date, they will be deemed to have given that
notice on that date. The issuance and delivery of the senior discount notes to
the initial holders thereof (who are expected to be the lenders under the senior
discount loan or affiliates thereof) will be in exchange for, and repayment in
full and cancellation of, the senior discount loan. The initial accreted value
of the senior discount notes will equal the then accreted value of the senior
discount loan. Allied Worldwide will not receive any proceeds from the offering
and sale of the senior discount notes by the initial holders to purchasers.
So long as the Allied Worldwide senior discount debt is held by Blue Ridge
Investments and The Chase Manhattan Bank (or their respective affiliates) as
loans under the Senior Discount Loan Agreement, the senior discount debt may be
redeemed in whole or in part, at a price equal to the accreted value thereof
plus accrued and unpaid interest, if any.
The following is a brief summary of the principal terms of the senior
discount notes, and is subject to and qualified in its entirety by reference to
the indenture by which the senior discount notes will be governed. The senior
discount loan has economic and other substantive terms substantially identical
to those of the senior discount notes.
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PAYMENT. The senior discount notes will accrete until December 1, 2004 at a
rate of 16.00% per annum. Thereafter, the senior discount notes will bear
interest at a rate of 16.00% per annum, payable semi-annually. The senior
discount notes will be senior unsecured obligations of Allied Worldwide, and
will not have the benefit of guarantees.
CHANGE OF CONTROL. Each holder of senior discount notes will be entitled to
require Allied Worldwide, and Allied Worldwide must offer, to repurchase the
senior discount notes held by such holder at a price of 101% of the aggregate
principal amount, or accreted value, as the case may be, thereof, plus accrued
and unpaid interest and liquidated damages, if any, to the date of repurchase,
upon the occurrence of a Change of Control Triggering Event (as defined in the
senior discount notes indenture).
OPTIONAL REDEMPTION. Allied Worldwide may redeem all or a part of the
senior discount notes at the redemption prices set forth in the senior discount
notes indenture plus accrued and unpaid interest, if any, thereon, to the
applicable redemption date. The senior discount notes will not be subject to any
mandatory redemption requirements.
COVENANTS, EVENTS OF DEFAULT AND REGISTRATION RIGHTS. The senior discount
notes will be subject to covenants, events of default and registration
requirements similar to those relating to the notes described in this
prospectus.
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DESCRIPTION OF NOTES
GENERAL
North American Van Lines issued the old notes, and will issue the new notes,
under an indenture, dated as of November 19, 1999, among itself, the initial
Note Guarantors and State Street Bank and Trust Company, as trustee. The
indenture has been filed as an exhibit to the registration statement of which
this prospectus is a part. It is available as set forth under the heading "Where
You Can Find More Information." The terms of the new notes are identical to the
terms of the old notes, except that the new notes will be registered under the
Securities Act, and therefore will not contain restrictions on transfer, will
not contain provisions relating to additional interest, and will contain terms
of an administrative nature that differ from those of the old notes. New notes
will otherwise be treated as notes for the purposes of the indenture.
The following is a summary of the material provisions of the indenture. This
summary does not contain all of the information that may be important to an
investor in the notes. It is subject to, and is qualified in its entirety by
reference to, all the provisions of the indenture, including terms defined in
the indenture and provisions of the Trust Indenture Act of 1939, as amended
("TIA"). Whenever particular defined terms of the indenture not otherwise
defined here are referred to, those defined terms are incorporated here by
reference. For definitions of certain capitalized terms used in the following
summary, see "--Certain Definitions" below. In this summary, "North American Van
Lines" refers only to North American Van Lines, Inc., and its successors under
the indenture and not to any of North American Van Lines, Inc.'s subsidiaries.
The notes will be unsecured obligations of North American Van Lines, ranking
subordinate in right of payment to all Senior Indebtedness of North American Van
Lines.
TERMS OF THE NOTES
The notes will mature on December 1, 2009. Each note will bear interest at a
rate of 13 3/8% per annum from the date of issuance, or from the most recent
date to which interest has been paid or provided for, payable semiannually in
cash on June 1 and December 1 of each year, commencing June 1, 2000, to holders
of record at the close of business on the May 15 or November 15 immediately
preceding the interest payment date. Interest on the notes will accrue from the
date of original issuance or, if interest has already been paid, from the date
it was most recently paid. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months.
In addition to the notes offered hereby, North American Van Lines may from
time to time issue additional notes ("Additional Notes") in an aggregate
principal amount equal to the aggregate principal amount of notes issued on the
date of the indenture. Any offering of Additional Notes is subject to the
covenant described below under the caption "--Certain Covenants--Limitation on
Indebtedness." The notes and any Additional Notes subsequently issued under the
indenture would be treated as a single class for all purposes under the
indenture, including, without limitation, waivers, amendments, redemptions and
offers to purchase. North American Van Lines will issue notes in fully
registered form, without coupons, in denominations of $1,000 and integral
multiples thereof. The notes will mature on December 1, 2009.
Except where the context otherwise requires, in this "Description of Notes,"
references to the notes include any old notes or Additional Notes, as well as
the new notes.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
Payments of principal, premium, if any, and interest will be made at the
office or agency of North American Van Lines in the Borough of Manhattan, The
City of New York (which initially shall be the corporate trust office of an
affiliate of the trustee) or the corporate trust office of an affiliate of the
Paying Agent in New York City, except that, at the option of North American Van
Lines, payment of interest may
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be made by check mailed to the address of each registered holder of the notes as
such address appears in the Note Register, or, if a holder has given wire
instructions to North American Van Lines, by wire transfer to a United States
dollar account maintained by the holder with a bank located in New York City.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The trustee will initially act as principal Paying Agent and Registrar at
the corporate trust offices of its affiliate in the City of New York, State of
New York. North American Van Lines may change the Paying Agent or Registrar
without prior notice to the holders, and North American Van Lines or any of its
Subsidiaries may act as Paying Agent or Registrar.
OPTIONAL REDEMPTION
The notes will be redeemable, at North American Van Lines' option, in whole
or in part, and from time to time on and after December 1, 2004 and prior to
maturity. Such redemption may be made upon notice mailed by first-class mail to
each holder's registered address, not less than 30 nor more than 60 days prior
to the redemption date. The notes will be so redeemable at the following
redemption prices (expressed as a percentage of principal amount), plus accrued
interest, if any, to the relevant redemption date (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date), if redeemed during the 12-month period
commencing on December 1 of the years set forth below:
REDEMPTION
PERIOD PRICE
- ------ ----------
2004........................................................ 106.688%
2005........................................................ 104.458%
2006........................................................ 102.229%
2007 and thereafter......................................... 100.000%
In addition, at any time and from time to time prior to December 1, 2002,
North American Van Lines at its option may redeem notes in an aggregate
principal amount equal to up to 35% of the original aggregate principal amount
of the notes (including the principal amount of any Additional Notes), with
funds in an aggregate amount (the "Redemption Amount") not exceeding the
aggregate proceeds of one or more Equity Offerings (as defined below) at a
redemption price (expressed as a percentage of principal amount thereof) of
113.375% plus accrued interest, if any, to the redemption date (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date); provided, however, that an aggregate
principal amount of notes equal to at least 65% of the original aggregate
principal amount of the notes (including the principal amount of any Additional
Notes) must remain outstanding after each such redemption. "Equity Offering"
means a sale of Capital Stock (other than Disqualified Stock) (X) that is a sale
of Capital Stock of North American Van Lines, or (Y) proceeds of which in an
amount equal to or exceeding the Redemption Amount are contributed to North
American Van Lines or any of its Restricted Subsidiaries. North American Van
Lines may make such redemption upon notice mailed by first-class mail to each
holder's registered address, not less than 30 nor more than 60 days prior to the
redemption date (but in no event more than 180 days after the completion of the
related Equity Offering).
SELECTION
In the case of any partial redemption, selection of the notes for redemption
will be made by the trustee on a PRO RATA basis, by lot or by such other method
as the trustee in its sole discretion shall deem to be fair and appropriate,
although no note of $1,000 in original principal amount or less will be redeemed
in part. If any note is to be redeemed in part only, the notice of redemption
relating to such note shall state the portion of the principal amount thereof to
be redeemed. A new note in principal amount equal to the
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unredeemed portion thereof will be issued in the name of the holder thereof upon
cancellation of the original note.
NOTE GUARANTEES
On the Issue Date, each Domestic Subsidiary that then guarantees payment by
North American Van Lines of Bank Indebtedness of North American Van Lines will
also guarantee payment of the notes. In addition, after the Issue Date, North
American Van Lines will cause each Domestic Subsidiary that guarantees payment
by North American Van Lines of Bank Indebtedness of North American Van Lines to
execute and deliver to the trustee a supplemental indenture or other instrument
pursuant to which such Subsidiary will guarantee payment of the notes, whereupon
such Subsidiary will become a Note Guarantor for all purposes under the
indenture. North American Van Lines will also have the right to cause any other
Subsidiary so to guarantee payment of the Notes. Note Guarantees will be subject
to release and discharge under certain circumstances prior to payment in full of
the notes. See "--Certain Covenants--Future Note Guarantors."
RANKING
The indebtedness evidenced by the notes is unsecured Senior Subordinated
Indebtedness of North American Van Lines, is subordinated in right of payment,
as set forth in the indenture, to the payment when due in full in cash of all
existing and future Senior Indebtedness of North American Van Lines, including
North American Van Lines' obligations under the Senior Credit Facility, ranks
PARI PASSU in right of payment with all existing and future Senior Subordinated
Indebtedness of North American Van Lines and is senior in right of payment to
all existing and future Subordinated Obligations of North American Van Lines.
The notes are also effectively subordinated to any Secured Indebtedness of North
American Van Lines to the extent of the value of the assets securing such
Indebtedness. However, payment from the money or the proceeds of U.S. Government
Obligations held in any defeasance trust described under "--Defeasance" below is
not subordinated to any Senior Indebtedness or subject to the restrictions
described herein.
At September 25, 1999, on a pro forma basis after giving effect to the
Transactions, Senior Indebtedness consisting of indebtedness for borrowed money
of North American Van Lines was $387.3 million and North American Van Lines had
additional availability of $89.6 million for borrowings under the Senior Credit
Facility, all of which would have been Secured Indebtedness, and no Senior
Subordinated Indebtedness (other than the Indebtedness represented by the notes)
and no Subordinated Obligations. Although the indenture contains limitations on
the amount of additional Indebtedness that North American Van Lines may Incur,
under certain circumstances the amount of such Indebtedness could be substantial
and, in any case, such Indebtedness may be Senior Indebtedness or Secured
Indebtedness. See "--Certain Covenants--Limitation on Indebtedness" below.
The obligations of each Note Guarantor under the Note Guarantee to which it
is a party will be unsecured Guarantor Senior Subordinated Indebtedness of such
Note Guarantor, will be subordinated in right of payment, as set forth in the
indenture, to the payment when due in full in cash of all existing and future
Guarantor Senior Indebtedness of such Note Guarantor, including the Note
Guarantor's obligations under or relating to the Senior Credit Facility, will
rank PARI PASSU in right of payment with all existing and future Guarantor
Senior Subordinated Indebtedness of such Note Guarantor and will be senior in
right of payment to all existing and future Guarantor Subordinated Obligations
of such Note Guarantor. The Note Guarantee of each Note Guarantor will also be
effectively subordinated to any Secured Indebtedness of such Note Guarantor to
the extent of the value of the assets securing such Indebtedness. The terms on
which each Note Guarantee will be subordinated to the prior payment in full of
Guarantor Senior Indebtedness will be substantially identical to those described
below governing the subordination of the notes to the prior payment in full of
Senior Indebtedness.
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A substantial part of the operations of North American Van Lines are
conducted through its Subsidiaries. Claims of creditors of such Subsidiaries
(other than Subsidiaries that are Note Guarantors), including trade creditors,
and claims of preferred shareholders (if any) of such Subsidiaries will have
priority with respect to the assets and earnings of such Subsidiaries over the
claims of creditors of North American Van Lines, including holders of the notes.
The notes, therefore, will be effectively subordinated to creditors (including
trade creditors) and preferred shareholders (if any) of Subsidiaries of North
American Van Lines (other than Subsidiaries that are Note Guarantors). Certain
of the operations of a Note Guarantor may be conducted through Subsidiaries
thereof that are not also Note Guarantors. Claims of creditors of such
Subsidiaries, including trade creditors, and claims of preferred shareholders
(if any) of such Subsidiaries will have priority with respect to the assets and
earnings of such Subsidiaries over the claims of creditors of such Note
Guarantor, including claims under the Note Guarantee of such Note Guarantor.
Such Note Guarantee, therefore, will be effectively subordinated to creditors
(including trade creditors) and preferred shareholders (if any) of such
Subsidiaries. Although the indenture limits the incurrence of Indebtedness
(including preferred stock) by certain of North American Van Lines'
Subsidiaries, such limitation is subject to a number of significant
qualifications. As of September 25, 1999, after giving pro forma effect to the
Transactions, North American Van Lines Subsidiaries (other than Subsidiaries who
became Note Guarantors on the Issue Date) would have had substantial
liabilities, including Indebtedness for borrowed money and other balance sheet
liabilities (including trade payables). No preferred stock of such Subsidiaries
was outstanding at such date. See "--Certain Covenants--Limitation on
Indebtedness" below.
"Senior Indebtedness" means, with respect to North American Van Lines, the
following obligations, whether outstanding on the date of the indenture or
thereafter issued, without duplication:
(A) all Bank Indebtedness,
(B) all obligations in respect of any Receivables Financing, and
(C) all obligations consisting of the principal of and premium, if any, and
accrued and unpaid interest (including interest accruing on or after the
filing of any petition in bankruptcy or for reorganization relating to
North American Van Lines regardless of whether post-filing interest is
allowed in such proceeding) on, and fees and other amounts owing in
respect of, all other Indebtedness of North American Van Lines,
unless, in the instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is expressly provided that the obligations in
respect of such Indebtedness are not senior in right of payment to the notes;
provided, however, that Senior Indebtedness shall not include
(1) any obligation of North American Van Lines to any Subsidiary,
(2) any liability for Federal, state, foreign, local or other taxes owed or
owing by North American Van Lines,
(3) any accounts payable or other liability to trade creditors arising in
the ordinary course of business (including Guarantees thereof or
instruments evidencing such liabilities),
(4) any Indebtedness of North American Van Lines (or Guarantee by North
American Van Lines of any Indebtedness) that is expressly subordinated in
right of payment to any other Indebtedness of North American Van Lines
(or Guarantee by North American Van Lines of any Indebtedness),
(5) any Capital Stock of North American Van Lines or
(6) that portion of any Indebtedness of North American Van Lines that is
Incurred by North American Van Lines in violation of the covenant
described under "--Certain Covenants--Limitation on Indebtedness" (but no
such violation shall be deemed to exist for purposes of this clause (6)
if any holder of such Indebtedness or such holder's representative shall
have received
107
an Officer's Certificate of North American Van Lines to the effect that
such Incurrence of such Indebtedness does not (or that the Incurrence by
North American Van Lines of the entire committed amount thereof at the
date on which the initial borrowing thereunder is made would not) violate
such covenant).
If any Senior Indebtedness is disallowed, avoided or subordinated pursuant to
the provisions of Section 548 of Title 11 of the United States Code or any
applicable state fraudulent conveyance law, such Senior Indebtedness
nevertheless will constitute Senior Indebtedness.
Only Indebtedness of North American Van Lines that is Senior Indebtedness
will rank senior to the notes in accordance with the provisions of the
indenture. The notes will in all respects rank PARI PASSU with all other Senior
Subordinated Indebtedness of North American Van Lines. Only Indebtedness of a
Note Guarantor that is Guarantor Senior Indebtedness will rank senior to the
Note Guarantee of such Note Guarantor in accordance with the provisions of the
indenture. Such Note Guarantee will in all respects rank PARI PASSU with all
other Guarantor Senior Subordinated Indebtedness of such Note Guarantor. North
American Van Lines has agreed in the indenture that it will not Incur, directly
or indirectly, any Indebtedness that is expressly subordinated in right of
payment to Senior Indebtedness of North American Van Lines unless such
Indebtedness is PARI PASSU with, or subordinated in right of payment to, the
notes. Each Note Guarantor will agree that it will not Incur, directly or
indirectly, any Indebtedness that is expressly subordinated in right of payment
to Guarantor Senior Indebtedness of such Note Guarantor unless such Indebtedness
is PARI PASSU with, or subordinated in right of payment to, the Note Guarantee
of such Note Guarantor. Unsecured Indebtedness is not deemed to be subordinate
or junior to Secured Indebtedness merely because it is unsecured, and
Indebtedness that is not guaranteed by a particular Person is not deemed to be
subordinate or junior to Indebtedness that is so guaranteed merely because it is
not so guaranteed.
North American Van Lines may not pay principal of, or premium (if any) or
interest on, the notes or make any deposit pursuant to the provisions described
under "--Defeasance" below and may not otherwise purchase, redeem or otherwise
retire any notes (except that holders of notes may receive and retain Permitted
Junior Securities and payments made from the trust described under
"--Defeasance" if the funding of such trust is permitted under the defeasance
section of the indenture) (collectively, "pay the notes") if
(1) any Senior Indebtedness is not paid when due in cash or Cash Equivalents
or
(2) any other default on Senior Indebtedness occurs and the maturity of such
Senior Indebtedness is accelerated in accordance with its terms
(either such event, a "Payment Default") unless, in either case,
(A) the Payment Default has been cured or waived and any such acceleration
has been rescinded in writing or
(B) such Senior Indebtedness has been paid in full in cash or Cash
Equivalents.
However, North American Van Lines may pay the notes without regard to the
foregoing if North American Van Lines and the trustee receive written notice
approving such payment from the Representative for the Designated Senior
Indebtedness with respect to which the Payment Default has occurred and is
continuing.
In addition, during the continuance of any default (other than a Payment
Default) with respect to any Designated Senior Indebtedness pursuant to which
the maturity thereof may be accelerated immediately without further notice
(except such notice as may be required to effect such acceleration) or the
expiration of any applicable grace period (a "Non-payment Default"), North
American Van Lines may not pay the notes for the period specified as follows (a
"Payment Blockage Period") (except that holders of notes may receive and retain
Permitted Junior Securities and payments made from the trust described under
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"--Defeasance" if the funding of such trust is permitted under the defeasance
section of the indenture). The Payment Blockage Period shall commence upon the
receipt by the trustee (with a copy to North American Van Lines) of written
notice (a "Blockage Notice") of such Non-payment Default from the Representative
for such Designated Senior Indebtedness specifying an election to effect a
Payment Blockage Period and shall end on the earliest to occur of the following
events:
(1) 179 days shall have elapsed since such receipt of such Blockage Notice,
(2) the Non-payment Default giving rise to such Blockage Notice is no longer
continuing (and no other Payment Default or Non-payment Default is then
continuing),
(3) such Designated Senior Indebtedness shall have been discharged or repaid
in full in cash or Cash Equivalents or
(4) such Payment Blockage Period shall have been terminated by written
notice to the trustee and North American Van Lines from the Person or
Persons who gave such Blockage Notice.
North American Van Lines shall promptly resume payments on the notes, including
any missed payments, after such Payment Blockage Period ends, unless any Payment
Default otherwise exists. Not more than one Blockage Notice may be given in any
360 consecutive day period, irrespective of the number of defaults with respect
to Designated Senior Indebtedness during such period. In no event may the total
number of days during which any Payment Blockage Period is in effect extend
beyond 179 days from the date of receipt by the trustee of the relevant Blockage
Notice, and there must be a 181 consecutive day period during any 360
consecutive day period during which no Payment Blockage Period is in effect.
No nonpayment default that existed or was continuing on the date of delivery
of any Blockage Notice to the trustee shall be, or be made, the basis for a
subsequent Blockage Notice unless such default shall have been cured or waived
for a period of not less than 90 consecutive days.
Upon any payment or distribution of the assets of North American Van Lines
upon a total or partial liquidation or dissolution or reorganization of or
similar proceeding relating to North American Van Lines or its property, or in a
bankruptcy, insolvency, receivership or similar proceeding relating to North
American Van Lines or its property, the holders of Senior Indebtedness will be
entitled to receive payment in full in cash of the Senior Indebtedness before
the noteholders are entitled to receive any payment (except that holders of
notes may receive and retain Permitted Junior Securities and payments made from
the trust described under "--Defeasance" if the funding of such trust is
permitted under the defeasance section of the indenture) and until the Senior
Indebtedness is paid in full in cash, any payment or distribution to which
noteholders would be entitled but for the subordination provisions of the
indenture will be made to holders of the Senior Indebtedness as their interests
may appear. If a distribution is made to noteholders that due to the
subordination provisions should not have been made to them, such noteholders are
required to hold it in trust for the holders of Senior Indebtedness and pay it
over to them as their interests may appear.
If North American Van Lines fails to make any payment on the notes when due
or within any applicable grace period, whether or not on account of the payment
blockage provisions referred to above, such failure would constitute an Event of
Default under the indenture and would enable the holders of the notes to
accelerate the maturity thereof. See "--Defaults." If payment of the notes is
accelerated because of an Event of Default, North American Van Lines or the
trustee shall promptly notify the holders of the Bank Indebtedness or the
Representative of such holders of the acceleration. Such acceleration will not
be effective until five Business Days after such holders or the Representative
of such holders receive notice of such acceleration. Thereafter, North American
Van Lines may pay the notes only if the subordination provisions of the
indenture otherwise permit payment at that time.
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By reason of such subordination provisions contained in the indenture, in
the event of liquidation, receivership, reorganization or insolvency,
(1) creditors of North American Van Lines that are holders of Senior
Indebtedness may recover more, ratably, than the noteholders,
(2) trade creditors of North American Van Lines that are not holders of
Senior Indebtedness or of Senior Subordinated Indebtedness (including the
notes) may recover less, ratably, than holders of Senior Indebtedness and
may recover more, ratably, than holders of Senior Subordinated
Indebtedness, and
(3) North American Van Lines may be unable to meet its obligations on the
notes.
In addition, as described above, the notes will be effectively subordinated,
with respect to North American Van Lines' Subsidiaries, to the claims of
creditors of those Subsidiaries.
CHANGE OF CONTROL
Upon the occurrence after the Issue Date of a Change of Control (as defined
below) and the failure of the notes to have, on the 30th day after such Change
of Control, a rating of at least BBB- (or equivalent successor rating) by S&P
and a rating of at least Baa3 (or equivalent successor rating) by Moody's (a
"Change of Control Triggering Event"), each holder will have the right to
require North American Van Lines to repurchase all or any part of such holder's
notes at a purchase price in cash equal to 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of repurchase (subject to
the right of holders of record on the relevant record date to receive interest
due on the relevant interest payment date); provided, however, that North
American Van Lines shall not be obligated to repurchase notes pursuant to this
covenant in the event that it has exercised its right to redeem all of the notes
as described under "--Optional Redemption."
The term "Change of Control" means:
(1) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders or Holding, is or
becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act), directly or indirectly, of more than 50% of the total
voting power of the Voting Stock of North American Van Lines, provided
that so long as North American Van Lines is a Subsidiary of Holding, no
Person shall be deemed to be or become a "beneficial owner" of more than
50% of the total voting power of the Voting Stock of North American Van
Lines unless such Person shall be or become a "beneficial owner" of more
than 50% of the total voting power of the Voting Stock of Holding;
(2) North American Van Lines sells or transfers (in one or a series of
related transactions) all or substantially all of the assets of North
American Van Lines and its Restricted Subsidiaries to another Person
(other than one or more Permitted Holders or Holding or one or more
Subsidiaries thereof); or
(3) during any period of two consecutive years (during which period North
American Van Lines has been a party to the indenture), individuals who at
the beginning of such period were members of the board of directors of
North American Van Lines (together with any new members thereof whose
election by such board of directors or whose nomination for election by
holders of Capital Stock of North American Van Lines was approved by one
or more Permitted Holders or by a vote of a majority of the members of
such board of directors then still in office who were either members
thereof at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to
constitute a majority of such board of directors then in office.
110
In the event that, at the time of such Change of Control Triggering Event,
the terms of the Bank Indebtedness restrict or prohibit the repurchase of notes
pursuant to this covenant, then prior to the mailing of the notice to holders
provided for in the immediately following paragraph but in any event not later
than 30 days following the date North American Van Lines obtains actual
knowledge of any Change of Control Triggering Event (unless North American Van
Lines has exercised its right to redeem all the notes as described under
"--Optional Redemption"), North American Van Lines shall
(1) repay in full all Bank Indebtedness or offer to repay in full all Bank
Indebtedness and repay the Bank Indebtedness of each lender who has
accepted such offer or
(2) obtain the requisite consent under the agreements governing the Bank
Indebtedness to permit the repurchase of the notes as provided for in the
immediately following paragraph.
North American Van Lines shall first comply with the provisions of the
immediately preceding sentence before it shall be required to repurchase notes
pursuant to the provisions described below. North American Van Lines' failure to
comply with such provisions or the provisions of the immediately following
paragraph shall constitute an Event of Default described in clause (4) and not
in clause (2) under "--Defaults" below.
Unless North American Van Lines has exercised its right to redeem all the
notes as described under "--Optional Redemption," North American Van Lines
shall, not later than 30 days following the date North American Van Lines
obtains actual knowledge of any Change of Control Triggering Event having
occurred, mail a notice to each holder with a copy to the trustee stating:
(1) that a Change of Control Triggering Event has occurred or may occur and
that such holder has, or upon such occurrence will have, the right to
require North American Van Lines to purchase such holder's notes at a
purchase price in cash equal to 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of holders of record on a record date to receive
interest on the relevant interest payment date);
(2) the circumstances and relevant facts and financial information regarding
such Change of Control;
(3) the repurchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed);
(4) the instructions determined by North American Van Lines, consistent with
this covenant, that a holder must follow in order to have its notes
purchased; and
(5) if such notice is mailed prior to the occurrence of a Change of Control
or Change of Control Triggering Event, that such offer is conditioned on
the occurrence of such Change of Control Triggering Event.
North American Van Lines will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, North American Van Lines
will comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under this covenant by virtue thereof.
The Change of Control Triggering Event purchase feature is a result of
negotiations between North American Van Lines and the initial purchasers. North
American Van Lines has no present plans to engage in a transaction involving a
Change of Control, although it is possible that North American Van Lines would
decide to do so in the future. Subject to the limitations discussed below, North
American Van Lines could, in the future, enter into certain transactions,
including acquisitions, refinancings or recapitalizations, that would not
constitute a Change of Control under the indenture, but that could increase the
amount of
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Indebtedness outstanding at such time or otherwise affect North American Van
Lines' capital structure or credit ratings.
The occurrence of a Change of Control would constitute a default under the
Senior Credit Agreement. Agreements governing future Senior Indebtedness of
North American Van Lines may contain prohibitions of certain events that would
constitute a Change of Control or require such Senior Indebtedness to be
repurchased or repaid upon a Change of Control. Moreover, the exercise by the
holders of their right to require North American Van Lines to repurchase the
notes could cause a default under such agreements, even if the Change of Control
itself does not, due to the financial effect of such repurchase on North
American Van Lines. Finally, North American Van Lines' ability to pay cash to
the holders upon a repurchase may be limited by North American Van Lines' then
existing financial resources. There can be no assurance that sufficient funds
will be available when necessary to make any required repurchases.
The definition of Change of Control includes a phrase relating to the sale
or other transfer of "all or substantially all" of North American Van Lines'
assets, as such phrase is used in the Revised Model Business Corporation Act.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise definition of the phrase under
applicable law. Accordingly, in certain circumstances there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of North American Van
Lines, and therefore it may be unclear as to whether a Change of Control has
occurred and whether the holders of the notes have the right to require North
American Van Lines to repurchase such notes.
CERTAIN COVENANTS
The indenture contains covenants including, among others, the following:
LIMITATION ON INDEBTEDNESS. (a) North American Van Lines will not, and will
not permit any Restricted Subsidiary to, Incur any Indebtedness; provided,
however, that North American Van Lines or any Note Guarantor may Incur
Indebtedness if on the date of the Incurrence of such Indebtedness, after giving
effect to the Incurrence thereof, the Consolidated Coverage Ratio would be
greater than 2.00:1.00 if such Indebtedness is Incurred on or prior to
December 1, 2001 or 2.25:1.00 if such Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), North American Van Lines
and its Restricted Subsidiaries may Incur the following Indebtedness:
(1) Indebtedness Incurred pursuant to Credit Facilities (including but
not limited to in respect of letters of credit or bankers' acceptances
issued or created thereunder) and (without limiting the foregoing) any
Refinancing Indebtedness in respect thereof, in a maximum principal amount
at any time outstanding (giving effect to any refinancing thereof) not
exceeding in the aggregate the amount equal to the sum of
(A) $475.0 million and
(B) the aggregate amount by which the Borrowing Base determined as of
the date of such Incurrence exceeds $245.0 million
(plus in the case of any refinancing of any Credit Facility or any portion
thereof, the aggregate amount of fees, underwriting discounts, premiums and
other costs and expenses incurred in connection with such refinancing) LESS
the aggregate principal amount of Indebtedness Incurred pursuant to this
clause (b)(1) under the Credit Facilities (or any refinancing thereof) that
is permanently repaid pursuant to the covenant described below under
"--Limitation on Sales of Assets and Subsidiary Stock";
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(2) Indebtedness
(A) of any Restricted Subsidiary to North American Van Lines or
(B) of North American Van Lines or any Restricted Subsidiary to any
Restricted Subsidiary; provided, that any subsequent issuance or
transfer of any Capital Stock of such Restricted Subsidiary to
which such Indebtedness is owed, or other event, that results in
such Restricted Subsidiary ceasing to be a Restricted Subsidiary
or any other subsequent transfer of such Indebtedness (except to
North American Van Lines or a Restricted Subsidiary) will be
deemed, in each case, an Incurrence of such Indebtedness by the
issuer thereof;
(3) Indebtedness represented by the notes (other than Additional Notes),
any Indebtedness (other than the Indebtedness described in clauses (1) or
(2) above) outstanding on the Issue Date and any Refinancing Indebtedness
Incurred in respect of any Indebtedness described in this clause (3) or
paragraph (a) above;
(4) Purchase Money Obligations and Capitalized Lease Obligations, and
any Refinancing Indebtedness with respect thereto, in an aggregate principal
amount at any time outstanding (giving effect to any refinancing thereof)
not exceeding an amount equal to the greater of
(A) $35.0 million and
(B) 5% of Consolidated Tangible Assets;
(5) Indebtedness of any Person that is assumed by North American Van
Lines or any Restricted Subsidiary in connection with its acquisition of
assets from such Person or any Affiliate thereof or is issued and
outstanding on or prior to the date on which such Person was acquired by
North American Van Lines or any Restricted Subsidiary or merged or
consolidated with or into any Restricted Subsidiary (other than Indebtedness
Incurred to finance, or otherwise in connection with, such acquisition),
PROVIDED that on the date of such acquisition, merger or consolidation,
after giving effect thereto, North American Van Lines could Incur at least
$1.00 of additional Indebtedness pursuant to paragraph (a) above; and any
Refinancing Indebtedness with respect to any such Indebtedness;
(6) (A) Guarantees by North American Van Lines or any Restricted
Subsidiary of Indebtedness or any other obligation or liability
of North American Van Lines or any Restricted Subsidiary (other
than any Indebtedness incurred by North American Van Lines or
such Restricted Subsidiary, as the case may be, in violation of
the covenant described under "--Limitation on Indebtedness"), or
(B) without limiting the covenant described under "--Limitation on
Liens," Indebtedness of North American Van Lines or any
Restricted Subsidiary arising by reason of any Lien granted by or
applicable to such Person securing Indebtedness of North American
Van Lines or any Restricted Subsidiary (other than any
Indebtedness incurred by North American Van Lines or such
Restricted Subsidiary, as the case may be, in violation of the
covenant described under "--Limitation on Indebtedness");
(7) Indebtedness of North American Van Lines or any Restricted
Subsidiary
(A) arising from the honoring of a check, draft or similar instrument
of such Person drawn against insufficient funds, provided that
such Indebtedness is extinguished within five Business Days of
its incurrence, or
(B) consisting of guarantees, indemnities, obligations in respect of
earnouts or other purchase price adjustments, or similar
obligations, Incurred in connection with the acquisition or
disposition of any business, assets or Person (including pursuant
to the Allied Acquisition);
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(8) Indebtedness of North American Van Lines or any Restricted
Subsidiary in respect of
(A) letters of credit, bankers' acceptances or other similar
instruments or obligations issued, or relating to liabilities or
obligations incurred, in the ordinary course of business
(including those issued to governmental entities in connection
with self-insurance under applicable workers' compensation
statutes),
(B) completion guarantees, surety, judgment, appeal or performance
bonds, or other similar bonds, instruments or obligations,
provided, or relating to liabilities or obligations incurred, in
the ordinary course of business,
(C) Hedging Obligations entered into for bona fide hedging purposes
in the ordinary course of business,
(D) Management Guarantees,
(E) Agent Guarantees in an aggregate principal amount not exceeding
$10.0 million outstanding at any time, or
(F) the financing of insurance premiums in the ordinary course of
business;
(9) Indebtedness of a Receivables Subsidiary secured by a Lien on all or
part of the assets disposed of in, or otherwise incurred in connection with,
a Financing Disposition, which Indebtedness is, except for Standard
Receivables Obligations, otherwise without recourse to North American Van
Lines or any Restricted Subsidiary of North American Van Lines (other than
any Receivables Subsidiary);
(10) Indebtedness of a Foreign Subsidiary if, on the date of Incurrence
of such Indebtedness, after giving effect to the Incurrence thereof,
(A) the Consolidated Coverage Ratio would be at least 2.25:1.00 and
(B) if, as a result of such Incurrence, such Foreign Subsidiary shall
then become subject to any restriction or limitation (under any
agreement or instrument governing such Indebtedness) on its
ability to pay dividends or make other distributions to North
American Van Lines, the Foreign Subsidiary Coverage Ratio would
be greater than 2.75:1.00;
provided, that if such Indebtedness is not incurred pursuant to the
preceding clause (B), such Indebtedness shall not be amended, modified or
otherwise supplemented such that such Foreign Subsidiary will become subject
to any such restriction or limitation referred to in such clause unless such
Indebtedness could then be Incurred pursuant to such clause; and any
Refinancing Indebtedness with respect to any such Indebtedness;
(11) Indebtedness of North American Van Lines or any Restricted
Subsidiary in an aggregate principal amount at any time outstanding (giving
effect to any refinancing thereof) not exceeding an amount equal to
$45.0 million.
(c) For purposes of determining compliance with, and the outstanding
principal amount of any particular Indebtedness Incurred pursuant to and in
compliance with, this covenant,
(1) any other obligation of the obligor on such Indebtedness (or of any
other Person who could have Incurred such Indebtedness under this covenant)
arising under any Guarantee, Lien or letter of credit, bankers' acceptance
or other similar instrument or obligation supporting such Indebtedness shall
be disregarded to the extent that such Guarantee, Lien or letter of credit,
bankers' acceptance or other similar instrument or obligation secures the
principal amount of such Indebtedness;
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(2) in the event that Indebtedness meets the criteria of more than one
of the types of Indebtedness described in paragraph (b) above, North
American Van Lines, in its sole discretion, shall classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses; and
(3) the amount of Indebtedness issued at a price that is less than the
principal amount thereof shall be equal to the amount of the liability in
respect thereof determined in accordance with GAAP.
(d) For purposes of determining compliance with any Dollar-denominated
restriction on the Incurrence of Indebtedness denominated in a foreign currency,
the Dollar-equivalent principal amount of such Indebtedness Incurred pursuant
thereto shall be calculated based on the relevant currency exchange rate in
effect on the date that such Indebtedness was Incurred, in the case of term
Indebtedness, or first committed, in the case of revolving credit Indebtedness,
provided that
(1) the Dollar-equivalent principal amount of any such Indebtedness
outstanding on the Issue Date shall be calculated based on the relevant
currency exchange rate in effect on the Issue Date,
(2) if such Indebtedness is Incurred to refinance other Indebtedness
denominated in a foreign currency, and such refinancing would cause the
applicable Dollar-denominated restriction to be exceeded if calculated at
the relevant currency exchange rate in effect on the date of such
refinancing, such Dollar-denominated restriction shall be deemed not to have
been exceeded so long as the principal amount of such refinancing
Indebtedness does not exceed the principal amount of such Indebtedness being
refinanced and
(3) the Dollar-equivalent principal amount of Indebtedness denominated
in a foreign currency and Incurred pursuant to the Senior Credit Facility
shall be calculated based on the relevant currency exchange rate in effect
on, at North American Van Lines' option,
(A) the Issue Date,
(B) any date on which any of the respective commitments under the
Senior Credit Facility shall be reallocated between or among
facilities or subfacilities thereunder, or on which such rate is
otherwise calculated for any purpose thereunder, or
(C) the date of such Incurrence.
The principal amount of any Indebtedness Incurred to refinance other
Indebtedness, if Incurred in a different currency from the Indebtedness being
refinanced, shall be calculated based on the currency exchange rate applicable
to the currencies in which such respective Indebtedness is denominated that is
in effect on the date of such refinancing.
LIMITATION ON LAYERING. North American Van Lines shall not Incur any
Indebtedness that is expressly subordinated in right of payment to any Senior
Indebtedness of North American Van Lines, unless such Indebtedness so Incurred
ranks PARI PASSU in right of payment with the notes, or is subordinated in right
of payment to the notes. No Note Guarantor shall Incur any Indebtedness that is
expressly subordinated in right of payment to any Guarantor Senior Indebtedness
of such Note Guarantor, unless such Indebtedness so Incurred ranks PARI PASSU in
right of payment with such Note Guarantor's Note Guarantee, or is subordinated
in right of payment to such Note Guarantor's Note Guarantee. Unsecured
Indebtedness is not deemed to be subordinate or junior to secured Indebtedness
merely because it is unsecured, and Indebtedness that is not guaranteed by a
particular Person is not deemed to be subordinate or junior to Indebtedness that
is so guaranteed merely because it is not so guaranteed.
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LIMITATION ON RESTRICTED PAYMENTS. (a) North American Van Lines shall not,
and shall not permit any Restricted Subsidiary, directly or indirectly, to
(1) declare or pay any dividend or make any distribution on or in
respect of its Capital Stock (including any such payment in connection with
any merger or consolidation to which North American Van Lines or any
Restricted Subsidiary is a party) except
(x) dividends or distributions payable solely in its Capital
Stock (other than Disqualified Stock) and
(y) dividends or distributions payable to North American Van
Lines or any Restricted Subsidiary
(and, in the case of any such Restricted Subsidiary making such dividend or
distribution, to other holders of its Capital Stock on no more than a pro
rata basis, measured by value),
(2) purchase, redeem, retire or otherwise acquire for value any Capital
Stock of North American Van Lines held by Persons other than North American
Van Lines or a Restricted Subsidiary,
(3) purchase, repurchase, redeem, defease or otherwise acquire or retire
for value, prior to scheduled maturity, scheduled repayment or scheduled
sinking fund payment, any Subordinated Obligations (other than a purchase,
redemption, defeasance or other acquisition or retirement for value in
anticipation of satisfying a sinking fund obligation, principal installment
or final maturity, in each case due within one year of the date of such
acquisition or retirement) or
(4) make any Investment (other than a Permitted Investment) in any
Person (any such dividend, distribution, purchase, redemption, repurchase,
defeasance, other acquisition or retirement or Investment being herein
referred to as a "Restricted Payment"), if at the time North American Van
Lines or such Restricted Subsidiary makes such Restricted Payment:
(x) a Default shall have occurred and be continuing (or would result
therefrom);
(y) North American Van Lines could not incur at least an additional
$1.00 of Indebtedness pursuant to paragraph (a) of the covenant described
under "--Limitation on Indebtedness"; or
(z) the aggregate amount of such Restricted Payment and all other
Restricted Payments (the amount so expended, if other than in cash, to be
as determined in good faith by the Board of Directors, whose
determination shall be conclusive) declared or made subsequent to the
Issue Date and then outstanding would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from September 30, 1999 to the
end of the most recent fiscal quarter ending prior to the date of
such Restricted Payment for which consolidated financial
statements of North American Van Lines are available (or, in case
such Consolidated Net Income shall be a negative number, 100% of
such negative number);
(B) the aggregate Net Cash Proceeds and the fair market value of
Qualified Proceeds received (X) by North American Van Lines as
capital contributions to North American Van Lines after the Issue
Date or from the issuance or sale (other than to a Restricted
Subsidiary) of its Capital Stock (other than Disqualified Stock)
after the Issue Date or (Y) by North American Van Lines or any
Restricted Subsidiary from the issuance and sale by North
American Van Lines or any Restricted Subsidiary after the Issue
Date of Indebtedness that shall have been converted into or
exchanged for Capital Stock of North American Van Lines (other
than Disqualified Stock), PLUS the amount of cash and the fair
market value of Qualified Proceeds received by North American Van
Lines or any Restricted Subsidiary upon such conversion or
exchange;
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(C) the aggregate amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from
(1) dividends, distributions, interest payments, return of
capital, repayments of Investments or other transfers of assets
to North American Van Lines or any Restricted Subsidiary from any
Unrestricted Subsidiary (in each case, in the form of cash, Cash
Equivalents or Qualified Proceeds), or
(2) the redesignation of any Unrestricted Subsidiary as a
Restricted Subsidiary (valued in each case as provided in the
definition of "Investment"),
not to exceed in the case of any such Unrestricted Subsidiary the
aggregate amount of Investments (other than Permitted Investments)
made by North American Van Lines or any Restricted Subsidiary in
such Unrestricted Subsidiary after the Issue Date; and
(D) in the case of any disposition or repayment of any Investment (in
each case, in the form of cash, Cash Equivalents or Qualified
Proceeds) constituting a Restricted Payment (without duplication
of any amount deducted in calculating the amount of Investments
at any time outstanding included in the amount of Restricted
Payments), an amount in the aggregate equal to the lesser of the
return of capital, repayment or other proceeds with respect to
all such Investments and the initial amount of all such
Investments.
(b) The provisions of the foregoing paragraph (a) will not prohibit any of
the following (each, a "Permitted Payment"):
(1) any purchase, redemption, repurchase, defeasance or other
acquisition or retirement of Capital Stock of North American Van Lines or
Subordinated Obligations made by exchange (including any such exchange
pursuant to the exercise of a conversion right or privilege in connection
with which cash is paid in lieu of the issuance of fractional shares) for,
or out of the proceeds of the substantially concurrent issuance or sale of,
Capital Stock of North American Van Lines (other than Disqualified Stock and
other than Capital Stock issued or sold to a Subsidiary) or a substantially
concurrent capital contribution to North American Van Lines; provided, that
the Net Cash Proceeds from such issuance, sale or capital contribution shall
be excluded in subsequent calculations under clause (B) of the preceding
paragraph (a);
(2) any purchase, redemption, repurchase, defeasance or other
acquisition or retirement of Subordinated Obligations (x) made by exchange
for, or out of the proceeds of the substantially concurrent issuance or sale
of, Refinancing Indebtedness Incurred in compliance with the covenant
described under "--Limitation on Indebtedness"; (y) from Net Available Cash
to the extent permitted by the covenant described under "--Limitation on
Sales of Assets and Subsidiary Stock"; or (Z) to the extent required by the
agreement governing such Subordinated Obligations only following the
occurrence of a Change of Control Triggering Event (or, in the case of
Acquired Debt, any similar event), but only if in each case, North American
Van Lines shall have complied with the covenant described under "--Change of
Control" and, if required, purchased all notes tendered pursuant to the
offer to repurchase all the notes required thereby, prior to purchasing or
repaying such Subordinated Obligations;
(3) dividends paid within 60 days after the date of declaration thereof
if at such date of declaration such dividend would have complied with the
preceding paragraph (a);
(4) loans, advances, dividends or distributions by North American Van
Lines to Holding to permit Holding to repurchase or otherwise acquire its
Capital Stock (including any options, warrants or other rights in respect
thereof), or payments by North American Van Lines to repurchase or otherwise
acquire Capital Stock (including any options, warrants or other rights in
respect thereof), in each case from Management Investors, such payments,
loans, advances, dividends or distributions not
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to exceed an amount (net of repayments of any such loans or advances equal
to (A) $12.5 million PLUS (B) $2.5 million multiplied by the number of
calendar years that have commenced since the Issue Date PLUS (C) the Net
Cash Proceeds received by North American Van Lines since the Issue Date
from, or as a capital contribution from, the issuance or sale to Management
Investors of Capital Stock (including any options, warrants or other rights
in respect thereof), to the extent such Net Cash Proceeds are not included
in any calculation under clause (3)(B)(x) of the preceding paragraph (a);
(5) the payment by North American Van Lines of, or loans, advances,
dividends or distributions by North American Van Lines to Holding to pay,
dividends on the common stock or equity of North American Van Lines or
Holding following a public offering of such common stock or equity, in an
amount not to exceed in any fiscal year 6% of the aggregate gross proceeds
received by North American Van Lines in or from such public offering;
(6) Restricted Payments (including loans or advances) in an aggregate
amount outstanding at any time not to exceed $10.0 million (net of
repayments of any such loans or advances);
(7) loans, advances, dividends or distributions to Holding or other
payments by North American Van Lines or any Restricted Subsidiary (A) to
satisfy or permit Holding to satisfy obligations under the Management
Agreements, (B) pursuant to the Tax Sharing Agreement, or (C) to pay or
permit Holding to pay any Holding Expenses or any Related Taxes;
(8) payments by North American Van Lines, or loans, advances, dividends
or distributions by North American Van Lines to Holding to make payments, to
holders of Capital Stock of North American Van Lines or Holding in lieu of
issuance of fractional shares of such Capital Stock, not to exceed $100,000
in the aggregate outstanding at any time;
(9) the distribution, as a dividend or otherwise, of Investments in
Unrestricted Subsidiaries (with the exception of Investments in Unrestricted
Subsidiaries acquired pursuant to the definition of Permitted Investments
other than pursuant to clause (17) of such definition);
(10) the Transactions; and
(11) any purchase, redemption, retirement or other acquisition of Capital
Stock that may be deemed to occur upon exercise of stock options, warrants
or similar rights to the extent such Capital Stock represents all or part of
the exercise price thereof;
provided, that
(A) in the case of clauses (3) and (5), the net amount of any such
Permitted Payment shall be included in subsequent calculations of the amount
of Restricted Payments,
(B) in the case of clause (4), 50% of the amount of any such Permitted
Payment shall be included in subsequent calculations of the amount of
Restricted Payments,
(C) in all cases other than pursuant to clauses (A) and (B) immediately
above, the net amount of any such Permitted Payment shall be excluded in
subsequent calculations of the amount of Restricted Payments and
(D) with respect to clauses (5) and (6), no Default or Event of Default
shall have occurred or be continuing at the time of any such Permitted
Payment after giving effect thereto.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. North American Van Lines will not, and will not permit any
Restricted Subsidiary to, create or otherwise cause to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to
(A) pay dividends or make any other distributions on its Capital Stock or
pay any Indebtedness or other obligations owed to North American Van Lines,
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(B) make any loans or advances to North American Van Lines or
(C) transfer any of its property or assets to North American Van Lines,
except any encumbrance or restriction:
(1) pursuant to an agreement or instrument in effect at or entered
into on the Issue Date (including, without limitation, the Senior Credit
Facility), the indenture or the notes;
(2) pursuant to any agreement or instrument of a Person, or relating
to Indebtedness or Capital Stock of a Person, which Person is acquired by
or merged or consolidated with or into North American Van Lines or any
Restricted Subsidiary, or which agreement or instrument is assumed by
North American Van Lines or any Restricted Subsidiary in connection with
an acquisition of assets from such Person, as in effect at the time of
such acquisition, merger or consolidation (except to the extent that such
Indebtedness was incurred to finance, or otherwise in connection with,
such acquisition, merger or consolidation), provided that for purposes of
this clause (2), if another Person is the Successor Company, any
Subsidiary thereof or agreement or instrument of such Person or any such
Subsidiary shall be deemed acquired or assumed, as the case may be, by
North American Van Lines or a Restricted Subsidiary, as the case may be,
when such Person becomes the Successor Company;
(3) pursuant to an agreement or instrument (a "Refinancing
Agreement") effecting a refinancing of Indebtedness Incurred pursuant to,
or that otherwise extends, renews, refunds, refinances or replaces, an
agreement or instrument referred to in clause (1) or (2) of this covenant
or this clause (3) (an "Initial Agreement") or contained in any
amendment, supplement or other modification to an Initial Agreement (an
"Amendment"); provided, however, that the encumbrances and restrictions
contained in any such Refinancing Agreement or Amendment taken as a whole
are not materially less favorable to the holders of the notes than
encumbrances and restrictions contained in the Initial Agreement or
Initial Agreements to which such Refinancing Agreement or Amendment
relates (as determined in good faith by North American Van Lines);
(4) (a) that restricts in a customary manner the subletting,
assignment or transfer of any property or asset that is subject to a
lease, license or similar contract, or the assignment or transfer of any
lease, license or other contract,
(b) by virtue of any transfer of, agreement to transfer, option
or right with respect to, or Lien on, any property or assets of North
American Van Lines or any Restricted Subsidiary not otherwise
prohibited by the indenture,
(c) contained in mortgages, pledges or other security agreements
securing Indebtedness of a Restricted Subsidiary to the extent
restricting the transfer of the property or assets subject thereto,
(d) pursuant to customary provisions restricting dispositions of
real property interests set forth in any reciprocal easement
agreements of North American Van Lines or any Restricted Subsidiary,
(e) pursuant to Purchase Money Obligations that impose
encumbrances or restrictions on the property or assets so acquired,
(f) on cash or other deposits or net worth imposed by customers
under agreements entered into in the ordinary course of business,
(g) pursuant to customary provisions contained in agreements and
instruments entered into in the ordinary course of business
(including but not limited to leases and joint venture and other
similar agreements entered into in the ordinary course of business)
or
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(h) that arises or is agreed to in the ordinary course of
business and does not detract from the value of property or assets of
North American Van Lines or any Restricted Subsidiary in any manner
material to North American Van Lines or such Restricted Subsidiary;
(5) with respect to a Restricted Subsidiary (or any of its property
or assets) imposed pursuant to an agreement entered into for the direct
or indirect sale or disposition of all or substantially all the Capital
Stock or assets of such Restricted Subsidiary (or the property or assets
that are subject to such restriction) pending the closing of such sale or
disposition;
(6) required by any applicable law, rule, regulation or order or by
any regulatory authority having jurisdiction over North American Van
Lines or any Restricted Subsidiary or any of their businesses; or
(7) pursuant to an agreement or instrument (A) relating to any
Indebtedness permitted to be Incurred subsequent to the Issue Date
pursuant to the provisions of the covenant described under "--Limitation
on Indebtedness," if North American Van Lines determines in good faith
that the encumbrances and restrictions contained in the agreements and
instruments relating to such Indebtedness, taken as a whole, are not
materially less favorable to the holders of the notes than encumbrances
and restrictions contained in the agreements and instruments referred to
in clause (1) of this covenant, (B) relating to Indebtedness of a Foreign
Subsidiary incurred pursuant to clause (b)(1) or (b)(10) of the covenant
described under "--Limitation on Indebtedness," (C) relating to a sale of
accounts receivable by a Foreign Subsidiary on customary terms (as
determined in good faith by North American Van Lines) or (D) relating to
Indebtedness of or a Financing Disposition to or by any Receivables
Entity.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (a) North American Van
Lines will not, and will not permit any Restricted Subsidiary to, make any Asset
Disposition unless
(1) North American Van Lines or such Restricted Subsidiary receives
consideration (including by way of relief from, or by any other Person
assuming responsibility for, any liabilities, contingent or otherwise) at
the time of such Asset Disposition at least equal to the fair market value
of the shares and assets subject to such Asset Disposition, as such fair
market value may be determined (and shall be determined, to the extent such
Asset Disposition or any series of related Asset Dispositions involves
aggregate consideration in excess of $10.0 million) in good faith by the
Board of Directors, whose determination shall be conclusive (including as to
the value of all noncash consideration),
(2) in the case of any Asset Disposition (or series of related Asset
Dispositions) at least 75% of the consideration therefor (excluding, in the
case of an Asset Disposition (or series of related Asset Dispositions) of
assets, any consideration by way of relief from, or by any other Person
assuming responsibility for, any liabilities, contingent or otherwise, that
are not Indebtedness) received by North American Van Lines or such
Restricted Subsidiary is in the form of (a) cash, or (b) Designated Noncash
Assets having an aggregate fair market value, taken together with all other
Designated Noncash Assets received in consideration for Asset Dispositions
pursuant to this clause (b) that are at the time outstanding, not to exceed
the greater of (x) 5% of Consolidated Tangible Assets and
(y) $35.0 million at the time of receipt of such Designated Noncash Assets;
and
(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by North American Van Lines (or any Restricted
Subsidiary, as the case may be) as follows:
(A) FIRST, either
(X) to the extent North American Van Lines elects (or is required
by the terms of any Senior Indebtedness or Indebtedness of a
Restricted Subsidiary), to prepay, repay or purchase Senior
Indebtedness or such Indebtedness of a Restricted Subsidiary (in each
case
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other than Indebtedness owed to North American Van Lines or a
Restricted Subsidiary) within 365 days after the date of such Asset
Disposition, or
(Y) to the extent North American Van Lines or such Restricted
Subsidiary elects, to reinvest in Additional Assets (including by
means of an investment in Additional Assets by a Restricted
Subsidiary with Net Available Cash received by North American Van
Lines or another Restricted Subsidiary) within 365 days from the date
of such Asset Disposition;
(B) SECOND, to the extent of the balance of such Net Available Cash
after application in accordance with clause (A) above (such balance, the
"Excess Proceeds"), to make an offer to purchase notes and (to the extent
North American Van Lines or such Restricted Subsidiary elects, or is
required by the terms thereof) to purchase, redeem or repay any other
Senior Subordinated Indebtedness or Guarantor Senior Subordinated
Indebtedness, pursuant and subject to the conditions of the indenture and
the agreements governing such other Indebtedness; and
(C) THIRD, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A) and (B) above, to fund
(to the extent consistent with any other applicable provision of the
indenture) any general corporate purpose (including but not limited to
the repurchase, repayment or other acquisition or retirement of any
Subordinated Obligations);
provided, however, that in connection with any prepayment, repayment or purchase
of Indebtedness pursuant to clause (A)(x) or (B) above, North American Van Lines
or such Restricted Subsidiary will retire such Indebtedness and will cause the
related loan commitment (if any) to be permanently reduced in an amount equal to
the principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions of this covenant, North American
Van Lines and the Restricted Subsidiaries shall not be required to apply any Net
Available Cash in accordance with this covenant except to the extent that the
aggregate Net Available Cash from all Asset Dispositions that is not applied in
accordance with this covenant exceeds $15.0 million. If the aggregate principal
amount of notes, Senior Subordinated Indebtedness and Guarantor Senior
Subordinated Indebtedness validly tendered and not withdrawn (or otherwise
subject to purchase, redemption or repayment) in connection with an offer
pursuant to clause (B) above exceeds the Excess Proceeds, the Excess Proceeds
will be apportioned between the notes and such Senior Subordinated Indebtedness
and Guarantor Senior Subordinated Indebtedness, with the portion of the Excess
Proceeds payable in respect of the notes to equal the lesser of:
(x) the Excess Proceeds amount multiplied by a fraction, the numerator
of which is the outstanding principal amount of the notes and the
denominator of which is the sum of the outstanding principal amount of the
notes and the outstanding principal amount of the relevant Senior
Subordinated Indebtedness and Guarantor Senior Subordinated Indebtedness,
and
(y) the aggregate principal amount of notes validly tendered and not
withdrawn.
For the purposes of clause (2) of paragraph (a) above, the following are
deemed to be cash:
(1) Temporary Cash Investments and Cash Equivalents,
(2) the assumption of Indebtedness of North American Van Lines (other
than Disqualified Stock of North American Van Lines) or any Restricted
Subsidiary and the release of North American Van Lines or such Restricted
Subsidiary from all liability on payment of the principal amount of such
Indebtedness in connection with such Asset Disposition,
(3) Indebtedness of any Restricted Subsidiary that is no longer a
Restricted Subsidiary as a result of such Asset Disposition, to the extent
that North American Van Lines and each other
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Restricted Subsidiary are released from any Guarantee of payment of the
principal amount of such Indebtedness in connection with such Asset
Disposition,
(4) securities received by North American Van Lines or any Restricted
Subsidiary from the transferee that are converted by North American Van
Lines or such Restricted Subsidiary into cash within 180 days after the
consummation of such Asset Disposition and
(5) consideration consisting of outstanding Indebtedness of North
American Van Lines or a Restricted Subsidiary which is then retired.
(b) In the event of an Asset Disposition that requires the purchase of notes
pursuant to clause (3)(B) of paragraph (a) above, North American Van Lines will
be required to purchase notes tendered pursuant to an offer by North American
Van Lines for the notes (the "Offer") at a purchase price of 100% of their
principal amount plus accrued and unpaid interest to the Purchase Date in
accordance with the procedures (including prorating in the event of
oversubscription) set forth in the indenture. If the aggregate purchase price of
the notes tendered pursuant to the Offer is less than the Net Available Cash
allotted to the purchase of notes, the remaining Net Available Cash will be
available to North American Van Lines for use in accordance with clause (3)(B)
of paragraph (a) above (to repay Senior Subordinated Indebtedness or Guarantor
Senior Subordinated Indebtedness) or clause (3)(C) of paragraph (a) above. North
American Van Lines shall not be required to make an Offer for notes pursuant to
this covenant if the Net Available Cash available therefor (after application of
the proceeds as provided in clause (3)(A) of paragraph (a) above) is less than
$15.0 million for any particular Asset Disposition (which lesser amounts shall
be carried forward for purposes of determining whether an Offer is required with
respect to the Net Available Cash from any subsequent Asset Disposition).
(c) North American Van Lines will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, North American Van Lines
will comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under this covenant by virtue thereof.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. (a) North American Van Lines
will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, enter into or conduct any transaction or series of related
transactions (including the purchase, sale, lease or exchange of any property or
the rendering of any service) with any Affiliate of North American Van Lines (an
"Affiliate Transaction") unless
(1) the terms of such Affiliate Transaction are not materially less
favorable to North American Van Lines or such Restricted Subsidiary, as the
case may be, than those that could be obtained at the time in a transaction
with a Person who is not such an Affiliate and
(2) if such Affiliate Transaction involves aggregate consideration in
excess of $10.0 million, the terms of such Affiliate Transaction have been
approved by a majority of the Disinterested Directors.
For purposes of this paragraph, any Affiliate Transaction shall be deemed to
have satisfied the requirements set forth in this paragraph if (X) such
Affiliate Transaction is approved by a majority of the Disinterested Directors
or (Y) in the event there are no Disinterested Directors, a fairness opinion is
provided by a nationally recognized appraisal or investment banking firm with
respect to such Affiliate Transaction.
(b) The provisions of the preceding paragraph (a) will not apply to:
(1) any Restricted Payment Transaction,
(2) (A) the entering into, maintaining or performance of any employment
contract, collective bargaining agreement, benefit plan, program or
arrangement, related trust agreement or any
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other similar arrangement for or with any employee, officer or director
heretofore or hereafter entered into in the ordinary course of business,
including vacation, health, insurance, deferred compensation, severance,
retirement, savings or other similar plans, programs or arrangements,
(B) the payment of compensation, performance of indemnification or
contribution obligations, or any issuance, grant or award of stock,
options, other equity-related interests or other securities, to
employees, officers or directors in the ordinary course of business,
(C) the payment of fees to directors of North American Van Lines or
any of its Subsidiaries,
(D) any transaction with an officer or director in the ordinary
course of business not involving more than $100,000 in any one case, or
(E) Management Advances and payments in respect thereof,
(3) any transaction with North American Van Lines, any Restricted
Subsidiary, or any Receivables Entity,
(4) any transaction arising out of agreements or instruments in
existence on the Issue Date, and any payments made pursuant thereto,
(5) execution, delivery and performance of the Tax Sharing Agreement and
Management Agreements, including (A) payment to CDR or any Affiliate of CDR
of a fee of $5.0 million plus out-of-pocket expenses in connection with the
Transactions, and (B) payment to CDR or any Affiliate of CDR of fees of up
to $1.0 million in any fiscal year plus all out-of-pocket expenses incurred
by CDR or any such Affiliate in connection with its performance of
management consulting, monitoring, financial advisory or other services with
respect to North American Van Lines and its Restricted Subsidiaries,
(6) the Transactions, all transactions in connection therewith
(including but not limited to the financing thereof), and all fees or
expenses paid or payable in connection with the Transactions,
(7) any transaction in the ordinary course of business on terms not
materially less favorable to North American Van Lines or the relevant
Restricted Subsidiary than those that could be obtained at the time in a
transaction with a Person who is not an Affiliate of North American Van
Lines, and
(8) any transaction in the ordinary course of business, or approved by a
majority of the Board of Directors, between North American Van Lines or any
Restricted Subsidiary and any Affiliate of North American Van Lines
controlled by North American Van Lines that is a joint venture or similar
entity.
LIMITATION ON LIENS. North American Van Lines shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, create or permit to
exist any Lien (other than Permitted Liens) on any of its property or assets
(including Capital Stock of any other Person), whether owned on the date of the
indenture or thereafter acquired, securing any Indebtedness of North American
Van Lines or any Note Guarantor that by its terms is expressly subordinated in
right of payment to or ranks PARI PASSU in right of payment with the notes or
such Note Guarantor's Note Guarantee (the "Initial Lien"), unless
contemporaneously therewith effective provision is made to secure the
Indebtedness due under the indenture and the notes or, in respect of Liens on
any Restricted Subsidiary's property or assets, any Note Guarantee of such
Restricted Subsidiary, equally and ratably with such obligation for so long as
such obligation is so secured by such Initial Lien. Any such Lien thereby
created in favor of the notes or any such Note Guarantee will be automatically
and unconditionally released and discharged upon
(1) the release and discharge of the Initial Lien to which it relates,
or
(2) any sale, exchange or transfer to any Person not an Affiliate of
North American Van Lines of the property or assets secured by such Initial
Lien, or of all of the Capital Stock held by North
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American Van Lines or any Restricted Subsidiary in, or all or substantially
all the assets of, any Restricted Subsidiary creating such Lien.
FUTURE NOTE GUARANTORS. After the Issue Date, North American Van Lines will
cause each Domestic Subsidiary that guarantees payment by North American Van
Lines of Bank Indebtedness of North American Van Lines to execute and deliver to
the trustee a supplemental indenture or other instrument pursuant to which such
Subsidiary will guarantee payment of the notes, whereupon such Subsidiary will
become a Note Guarantor for all purposes under the indenture. In addition, North
American Van Lines may cause any Subsidiary that is not a Note Guarantor so to
guarantee payment of the notes and become a Note Guarantor.
Each Note Guarantor, as primary obligor and not merely as surety, will
jointly and severally, irrevocably and fully and unconditionally Guarantee, on a
senior subordinated basis, the punctual payment when due, whether at Stated
Maturity, by acceleration or otherwise, of all monetary obligations of North
American Van Lines under the indenture and the notes, whether for principal of
or interest on the notes, expenses, indemnification or otherwise (all such
obligations guaranteed by such Note Guarantors being herein called the
"Guaranteed Obligations"). Such Note Guarantor will agree to pay, in addition to
the amount stated above, any and all reasonable out-of-pocket expenses
(including reasonable counsel fees and expenses) incurred by the trustee or the
holders in enforcing any rights under its Note Guarantee.
The obligations of each Note Guarantor will be limited to the maximum
amount, as will, after giving effect to all other contingent and fixed
liabilities of such Note Guarantor, result in the obligations of such Note
Guarantor under the Note Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under applicable law, or being void or unenforceable under
any applicable law, including any law relating to insolvency of debtors.
Each such Note Guarantee shall be a continuing Guarantee and shall:
(1) remain in full force and effect until payment in full of the
principal amount of all outstanding notes (whether by payment at maturity,
purchase, redemption, defeasance, retirement or other acquisition) and all
other Guaranteed Obligations then due and owing, unless earlier terminated
as described below,
(2) be binding upon such Note Guarantor and
(3) inure to the benefit of and be enforceable by the trustee, the
holders and their permitted successors, transferees and assigns.
Notwithstanding the preceding paragraph, any Note Guarantor will
automatically and unconditionally be released from all obligations under its
Note Guarantee, and such Note Guarantee shall thereupon terminate and be
discharged and of no further force or effect,
(1) concurrently with any sale or disposition (by merger or otherwise)
of any Note Guarantor or any interest therein in accordance with the terms
of the indenture (including the covenant described under "--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock") by North
American Van Lines or a Restricted Subsidiary, following which such Note
Guarantor is no longer a Restricted Subsidiary of North American Van Lines,
(2) pursuant to the terms of its Note Guarantee,
(3) at any time that such Note Guarantor is released from all of its
obligations under all of its Guarantees of payment by North American Van
Lines of Bank Indebtedness of North American Van Lines,
(4) upon the merger or consolidation of any Note Guarantor with and into
North American Van Lines or another Note Guarantor that is the surviving
Person in such merger or consolidation,
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(5) upon legal or covenant defeasance of North American Van Lines'
obligations, or satisfaction and discharge of the indenture, or
(6) subject to customary contingent reinstatement provisions, upon
payment in full of the aggregate principal amount of all notes then
outstanding and all other Guaranteed Obligations then due and owing.
In addition, North American Van Lines will have the right, upon 30 days' notice
to the trustee, to cause any Note Guarantor that has not guaranteed payment by
North American Van Lines of any Bank Indebtedness of North American Van Lines to
be unconditionally released from all obligations under its Note Guarantee, and
such Note Guarantee shall thereupon terminate and be discharged and of no
further force or effect. Upon any such occurrence specified in this paragraph,
the trustee shall execute any documents reasonably required in order to evidence
such release, discharge and termination in respect of such Note Guarantee.
Neither North American Van Lines nor any such Note Guarantor shall be
required to make a notation on the notes to reflect any such Guarantee or any
such release, termination or discharge.
SEC REPORTS. Notwithstanding that North American Van Lines may not be
required to be or remain subject to the reporting requirements of Section 13(a)
or 15(d) of the Exchange Act, North American Van Lines will file with the SEC
(unless such filing is not permitted under the Exchange Act or by the SEC), so
long as notes are outstanding, the annual reports, information, documents and
other reports that North American Van Lines is required to file with the
Commission pursuant to such Section 13(a) or 15(d) or would be so required to
file if North American Van Lines were so subject. North American Van Lines will
also, within 15 days after the date on which North American Van Lines was so
required to file or would be so required to file if North American Van Lines
were so subject (or, if later, 120 days after the Issue Date), transmit by mail
to all holders, as their names and addresses appear in the Note Register, and to
the trustee copies of any such information, documents and reports (without
exhibits) so required to be filed (or, in lieu of one or more of the annual
reports for the fiscal year ended December 25, 1999 and the quarterly reports
for the following fiscal year, a registration statement filed with the SEC under
the Securities Act or any amendment thereto, provided such registration
statement or amendment contains the information that would have been included in
each such report). North American Van Lines will be deemed to have satisfied
such requirements if Holding files and provides reports, documents and
information of the types otherwise so required, in each case within the
applicable time periods, and North American Van Lines is not required to file
such reports, documents and information separately under the applicable rules
and regulations of the SEC (after giving effect to any exemptive relief) because
of the filings by Holding. North American Van Lines also will comply with the
other provisions of TIA Section 314(a).
MERGER AND CONSOLIDATION
North American Van Lines will not consolidate with or merge with or into, or
convey, transfer or lease all or substantially all its assets to, any Person,
unless:
(1) the resulting, surviving or transferee Person (the "Successor
Company") will be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
the Successor Company (if not North American Van Lines) will expressly
assume all the obligations of North American Van Lines under the notes and
the indenture by executing and delivering to the trustee a supplemental
indenture or one or more other documents or instruments in form reasonably
satisfactory to the trustee;
(2) immediately after giving effect to such transaction (and treating
any Indebtedness that becomes an obligation of the Successor Company or any
Restricted Subsidiary as a result of such transaction as having been
Incurred by the Successor Company or such Restricted Subsidiary at the time
of such transaction), no Default will have occurred and be continuing;
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(3) immediately after giving effect to such transaction, the Successor
Company could Incur at least $1.00 of additional Indebtedness pursuant to
paragraph (a) of the covenant described under "--Certain
Covenants--Limitation on Indebtedness";
(4) each Note Guarantor (other than any party to any such consolidation
or merger) shall have delivered a supplemental indenture or other document
or instrument in form reasonably satisfactory to the trustee, confirming its
Note Guarantee; and
(5) North American Van Lines will have delivered to the trustee an
Officer's Certificate and an Opinion of Counsel, each to the effect that
such consolidation, merger or transfer complies with the provisions
described in this paragraph, provided that (x) in giving such opinion such
counsel may rely on an Officer's Certificate as to compliance with the
foregoing clauses (2) and (3) and as to any matters of fact, and (y) no
Opinion of Counsel will be required for a consolidation, merger or transfer
described in the last paragraph of this covenant.
Any Indebtedness that becomes an obligation of North American Van Lines or any
Restricted Subsidiary (or that is deemed to be Incurred by any Restricted
Subsidiary that becomes a Restricted Subsidiary) as a result of any such
transaction undertaken in compliance with this covenant, and any Refinancing
Indebtedness with respect thereto, shall be deemed to have been Incurred in
compliance with the covenant described under "--Certain Covenants--Limitation on
Indebtedness."
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, North American Van Lines under the indenture,
and thereafter the predecessor Company shall be relieved of all obligations and
covenants under the indenture.
Clauses (2) and (3) of the first paragraph of this "Merger and
Consolidation" section will not apply to any transaction in which
(a) any Restricted Subsidiary consolidates with, merges into or
transfers all or part of its assets to North American Van Lines or
(b) North American Van Lines consolidates or merges with or into or
transfers all or substantially all its properties and assets to (X) an
Affiliate incorporated or organized for the purpose of reincorporating or
reorganizing North American Van Lines in another jurisdiction or changing
its legal structure to a corporation or other entity or (Y) a Restricted
Subsidiary of North American Van Lines so long as all assets of North
American Van Lines and the Restricted Subsidiaries immediately prior to such
transaction (other than Capital Stock of such Restricted Subsidiary) are
owned by such Restricted Subsidiary and its Restricted Subsidiaries
immediately after the consummation thereof.
DEFAULTS
An Event of Default is defined in the indenture as:
(1) a default in any payment of interest on any note when due, continued
for 30 days,
(2) a default in the payment of principal of any note when due, whether
at its Stated Maturity, upon optional redemption, upon required repurchase,
upon declaration or otherwise, whether or not such payment is prohibited by
the provisions described under "--Ranking" above,
(3) the failure by North American Van Lines to comply for 30 days after
notice with its obligations under the covenant described under "--Merger and
Consolidation" above,
(4) the failure by North American Van Lines to comply for 30 days after
notice with any of its obligations under the covenant described under
"--Change of Control" above (other than a failure to purchase notes),
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(5) the failure by North American Van Lines to comply for 60 days after
notice with its other agreements contained in the notes or the indenture,
(6) the failure by any Note Guarantor to comply for 45 days after notice
with its obligations under its Note Guarantee,
(7) the failure by North American Van Lines or any Significant
Subsidiary to pay any Indebtedness within any applicable grace period after
final maturity or the acceleration of any such Indebtedness by the holders
thereof because of a default, if the total amount of such Indebtedness so
unpaid or accelerated exceeds $15.0 million or its foreign currency
equivalent (the "cross acceleration provision"),
(8) certain events of bankruptcy, insolvency or reorganization of North
American Van Lines or a Significant Subsidiary (the "bankruptcy
provisions"),
(9) the rendering of any judgment or decree for the payment of money in
an amount (net of any insurance or indemnity payments actually received in
respect thereof prior to or within 90 days from the entry thereof, or to be
received in respect thereof in the event any appeal thereof shall be
unsuccessful) in excess of $15.0 million or its foreign currency equivalent
against North American Van Lines or a Significant Subsidiary that is not
discharged, or bonded or insured by a third Person, if such judgment or
decree remains outstanding for a period of 90 days following such judgment
or decree and is not discharged, waived or stayed (the "judgment default
provision"),
(10) the failure of any Note Guarantee by a Note Guarantor that is a
Significant Subsidiary to be in full force and effect (except as
contemplated by the terms thereof or of the indenture) or the denial or
disaffirmation in writing by any Note Guarantor that is a Significant
Subsidiary of its obligations under its Note Guarantee, if such Default
continues for 10 days, or
(11) the failure of Holding to consummate the Holding Stock Issuance on
or before December 31, 1999.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a Default under clause (3), (4), (5) or (6) will not constitute an
Event of Default until the trustee or the holders of at least 25% in principal
amount of the outstanding notes notify North American Van Lines of the Default
and North American Van Lines does not cure such Default within the time
specified in such clause after receipt of such notice.
If an Event of Default (other than a Default relating to certain events of
bankruptcy, insolvency or reorganization of North American Van Lines) occurs and
is continuing, the trustee by notice to North American Van Lines, or the holders
of at least a majority in principal amount of the outstanding notes by notice to
North American Van Lines and the trustee, may declare the principal of and
accrued but unpaid interest on all the notes to be due and payable, provided
that so long as any Bank Indebtedness shall be outstanding, such acceleration
shall not be effective until the earlier to occur of:
(x) five Business Days following delivery of a written notice of such
acceleration of the notes to North American Van Lines and the holders of all
Bank Indebtedness or each Representative thereof and
(y) the acceleration of any Bank Indebtedness. Upon the effectiveness of
such a declaration, such principal and interest will be due and payable
immediately.
Notwithstanding the foregoing, if an Event of Default relating to certain events
of bankruptcy, insolvency or reorganization of North American Van Lines occurs
and is continuing, the principal of and accrued interest on all the notes will
become immediately due and payable without any declaration or other act on
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the part of the trustee or any holders. Under certain circumstances, the holders
of a majority in principal amount of the outstanding notes may rescind any such
acceleration with respect to the notes and its consequences.
Notwithstanding the foregoing, in the event of a declaration of acceleration
in respect of the notes because an Event of Default specified in clause (7)
above shall have occurred and be continuing, such declaration of acceleration of
the notes and such Event of Default and all consequences thereof (including
without limitation any acceleration or resulting payment default) shall be
annulled, waived and rescinded, automatically and without any action by the
trustee or the holders, and be of no further effect, if within 60 days after
such Event of Default arose
(x) the Indebtedness that is the basis for such Event of Default has
been discharged, or
(y) the holders thereof have rescinded or waived the acceleration,
notice or action (as the case may be) giving rise to such Event of Default,
or
(z) the default in respect of such Indebtedness that is the basis for
such Event of Default has been cured.
Subject to the provisions of the indenture relating to the duties of the
trustee, in case an Event of Default occurs and is continuing, the trustee will
be under no obligation to exercise any of the rights or powers under the
indenture at the request or direction of any of the holders unless such holders
have offered to the trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal or interest when due, no holder may pursue any remedy with respect to
the indenture or the notes unless
(a) such holder has previously given the trustee written notice that an
Event of Default is continuing,
(b) holders of at least 25% in principal amount of the outstanding notes
have requested the trustee in writing to pursue the remedy,
(c) such holders have offered the trustee reasonable security or
indemnity against any loss, liability or expense,
(d) the trustee has not complied with such request within 60 days after
the receipt of the request and the offer of security or indemnity and
(e) the holders of a majority in principal amount of the outstanding
notes have not given the trustee a direction inconsistent with such request
within such 60-day period.
Subject to certain restrictions, the holders of a majority in principal amount
of the outstanding notes are given the right to direct the time, method and
place of conducting any proceeding for any remedy available to the trustee or of
exercising any trust or power conferred on the trustee. The trustee, however,
may refuse to follow any direction that conflicts with law or the indenture or
that the trustee determines is unduly prejudicial to the rights of any other
holder or that would involve the trustee in personal liability. Prior to taking
any action under the indenture, the trustee will be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
The indenture provides that if a Default occurs and is continuing and is
known to the trustee, the trustee must mail to each holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of, or premium (if any) or interest on, any note, the trustee may
withhold notice if and so long as a committee of its Trust Officers in good
faith determines that withholding notice is in the interests of the noteholders.
In addition, North American Van Lines is required to deliver to the trustee,
within 120 days after the end of each fiscal year, a certificate indicating
whether the signers thereof know of any Default that occurred during the
previous year. North American Van Lines also is required to deliver to the
trustee, within 30 days after the occurrence thereof, written notice of any
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event that would constitute certain Defaults, their status and what action North
American Van Lines is taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the indenture may be amended with the consent
of the holders of a majority in principal amount of the notes then outstanding
and any past default or compliance with any provisions may be waived with the
consent of the holders of a majority in principal amount of the notes then
outstanding (including in each case, consents obtained in connection with a
tender offer or exchange offer for notes). However, without the consent of each
holder of an outstanding note affected, no amendment or waiver may
(1) reduce the principal amount of notes whose holders must consent to
an amendment or waiver,
(2) reduce the rate of or extend the time for payment of interest on any
note,
(3) reduce the principal of or extend the Stated Maturity of any note,
(4) reduce the premium payable upon the redemption of any note or change
the date on which any note may be redeemed as described under "Optional
Redemption" above,
(5) make any note payable in money other than that stated in the note,
(6) make any change to the subordination provisions of the indenture
that adversely affects the rights of any holder in any material respect,
(7) impair the right of any holder to receive payment of principal of
and interest on such holder's notes on or after the due dates therefor or to
institute suit for the enforcement of any payment on or with respect to such
holder's notes or
(8) make any change in the amendment or waiver provisions described in
this sentence.
Without the consent of any holder, North American Van Lines, the trustee and
(as applicable) any Note Guarantor may amend the indenture to cure any
ambiguity, omission, defect or inconsistency, to provide for the assumption by a
successor of the obligations of North American Van Lines under the indenture, to
provide for uncertificated notes in addition to or in place of certificated
notes, to add Guarantees with respect to the notes, to secure the notes, to
confirm and evidence the release, termination or discharge of any Guarantee or
Lien with respect to or securing the notes when such release, termination or
discharge is provided for under the indenture, to add to the covenants of North
American Van Lines for the benefit of the noteholders or to surrender any right
or power conferred upon North American Van Lines, to provide that any
Indebtedness that becomes or will become an obligation of the Successor Company
or a Note Guarantor pursuant to a transaction governed by the provisions
described under "--Merger and Consolidation" (and that is not a Subordinated
Obligation) is Senior Subordinated Indebtedness or Guarantor Senior Subordinated
Indebtedness for purposes of the indenture, to provide for or confirm the
issuance of Additional Notes, to make any change that does not adversely affect
the rights of any holder, or to comply with any requirement of the SEC in
connection with the qualification of the indenture under the TIA or otherwise.
However, no amendment may be made to the subordination provisions of the
indenture that adversely affects the rights of any holder of Senior Indebtedness
then outstanding (which Senior Indebtedness has been previously designated in
writing by North American Van Lines to the trustee for this purpose) unless the
holders of such Senior Indebtedness (or any group or representative thereof
authorized to give a consent) consent to such change.
The consent of the noteholders is not necessary under the indenture to
approve the particular form of any proposed amendment or waiver. It is
sufficient if such consent approves the substance of the proposed
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amendment or waiver. Until an amendment or waiver becomes effective, a consent
to it by a noteholder is a continuing consent by such noteholder and every
subsequent holder of all or part of the related note. Any such noteholder or
subsequent holder may revoke such consent as to its note by written notice to
the trustee or North American Van Lines, received thereby before the date on
which North American Van Lines certifies to the trustee that the holders of the
requisite principal amount of notes have consented to such amendment or waiver.
After an amendment or waiver under the indenture becomes effective, North
American Van Lines is required to mail to noteholders a notice briefly
describing such amendment or waiver. However, the failure to give such notice to
all noteholders, or any defect therein, will not impair or affect the validity
of the amendment or waiver.
DEFEASANCE
North American Van Lines at any time may terminate all its obligations under
the notes and the indenture ("legal defeasance"), except for certain
obligations, including those relating to the defeasance trust and obligations to
register the transfer or exchange of the notes, to replace mutilated, destroyed,
lost or stolen notes and to maintain a registrar and paying agent in respect of
the notes. North American Van Lines at any time may terminate its obligations
under certain covenants under the indenture, including the covenants described
under "--Certain Covenants" and "--Change of Control," the operation of the
default provisions relating to such covenants described under "--Defaults"
above, the operation of the cross acceleration provision, the bankruptcy
provisions with respect to Subsidiaries and the judgment default provision
described under "--Defaults" above, and the limitations contained in clauses
(3), (4) and (5) under "--Merger and Consolidation" above ("covenant
defeasance"). If North American Van Lines exercises its legal defeasance option
or its covenant defeasance option, each Note Guarantor will be released from all
of its obligations with respect to its Note Guarantee.
North American Van Lines may exercise its legal defeasance option
notwithstanding its prior exercise of its covenant defeasance option. If North
American Van Lines exercises its legal defeasance option, payment of the notes
may not be accelerated because of an Event of Default with respect thereto. If
North American Van Lines exercises its covenant defeasance option, payment of
the notes may not be accelerated because of an Event of Default specified in
clause (4), (5) (as it relates to the covenants described under "--Certain
Covenants" above), (6), (7), (8) (but only with respect to events of bankruptcy,
insolvency or reorganization of a Significant Subsidiary), (9) or (10) under
"Defaults" above or because of the failure of North American Van Lines to comply
with clause (3), (4) or (5) under "--Merger and Consolidation" above.
Either defeasance option may be exercised to any redemption date or to the
maturity date for the notes. In order to exercise either defeasance option,
North American Van Lines must irrevocably deposit in trust (the "defeasance
trust") with the trustee money or U.S. Government Obligations, or a combination
thereof, for the payment of principal of, and premium (if any) and interest on,
the notes to redemption or maturity, as the case may be, and must comply with
certain other conditions, including delivery to the trustee of an Opinion of
Counsel to the effect that holders of the notes will not recognize income, gain
or loss for Federal income tax purposes as a result of such deposit and
defeasance and will be subject to Federal income tax on the same amount and in
the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law since the Issue
Date).
SATISFACTION AND DISCHARGE
The indenture will be discharged and cease to be of further effect (except
as to surviving rights of registration of transfer or exchange of the notes, as
expressly provided for in the indenture) as to all outstanding notes when
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(1) either
(a) all the notes previously authenticated and delivered (other than
certain lost, stolen or destroyed notes, and certain notes for which
provision for payment was previously made and thereafter the funds have
been released to North American Van Lines) have been delivered to the
trustee for cancellation or
(b) all notes previously delivered to the trustee for cancellation
(X) have become due and payable, (Y) will become due and payable at their
Stated Maturity within one year or (Z) are to be called for redemption
within one year under arrangements reasonably satisfactory to the trustee
for the giving of notice of redemption by the trustee in the name, and at
the expense, of North American Van Lines;
(2) North American Van Lines has irrevocably deposited or caused to be
deposited with the trustee money, U.S. Government Obligations, or a
combination thereof, sufficient to pay and discharge the entire indebtedness
on the notes not previously delivered to the trustee for cancellation, for
principal, premium, if any, and interest to the date of deposit (in the case
of notes that have become due and payable) or to the Stated Maturity or
redemption date, as the case may be;
(3) North American Van Lines has paid or caused to be paid all other
sums payable under the indenture by North American Van Lines; and
(4) North American Van Lines has delivered to the trustee an Officer's
Certificate and an Opinion of Counsel each to the effect that all conditions
precedent under the "Satisfaction and Discharge" section of the indenture
relating to the satisfaction and discharge of the indenture have been
complied with, provided that any such counsel may rely on any Officer's
Certificate as to matters of fact (including as to compliance with the
foregoing clauses (1), (2) and (3)).
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATORS AND
STOCKHOLDERS
No director, officer, employee, incorporator, member or stockholder, as
such, of North American Van Lines, Holding, any Note Guarantor or any Subsidiary
of any thereof shall have any liability for any obligation of North American Van
Lines, Holding or any Note Guarantor under the indenture, the notes or any Note
Guarantee, or for any claim based on, in respect of, or by reason of, any such
obligation or its creation. Each noteholder, by accepting the notes, waives and
releases all such liability. The waiver and release are part of the
consideration for issuance of the notes.
CONCERNING THE TRUSTEE
State Street Bank and Trust Company is the trustee under the indenture and
has been appointed by North American Van Lines as Registrar and Paying Agent
with regard to the notes.
The indenture will provide that, except during the continuance of an Event
of Default, the trustee will perform only such duties as are set forth
specifically in the indenture. During the existence of an Event of Default, the
trustee will exercise such of the rights and powers vested in it under the
indenture and use the same degree of care and skill in their exercise as a
prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The indenture and the TIA will impose certain limitations on the rights of
the trustee, should it become a creditor of North American Van Lines, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The trustee is
permitted to engage in other transactions; provided, that if it acquires any
conflicting interest as described in the TIA, it must eliminate such conflict,
apply to the SEC for permission to continue as trustee with such conflict, or
resign.
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GOVERNING LAW
The indenture provides that it and the notes will be governed by, and
construed in accordance with, the laws of the State of New York, without giving
effect to any principles of conflict of laws to the extent that the application
of the law of another jurisdiction would be required thereby.
BOOK-ENTRY, DELIVERY AND FORM
The notes will be represented by one or more notes in registered, global
form deposited with the trustee as custodian for the Depository Trust Company
("DTC") and registered in the name of Cede & Co. as nominee of DTC, in each case
for credit to the accounts of DTC participants and indirect participants (each
as described below) including, without limitation, Morgan Guaranty Trust Company
of New York, Brussels office, as operator (the "Euroclear Operator") of the
Euroclear System and Cedelbank.
Except in the limited circumstances set forth below, notes in certificated
form will not be issued.
DEPOSITARY PROCEDURES
DTC has advised North American Van Lines as follows: DTC is a limited
purpose trust company organized under the laws of the State of New York, a
"banking organization" within the meaning of New York Banking Law, a member of
the Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for persons who have accounts with it ("DTC participants") and to
facilitate the clearance and settlement of securities transactions between DTC
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. DTC participants include securities brokers and dealers, banks,
trust companies and clearing corporations and may include certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a DTC participant, either directly or indirectly
("indirect participants").
DTC has advised North American Van Lines that pursuant to procedures
established by it,
(1) upon initial deposit of a global note, DTC will credit the accounts
of DTC participants with portions of the principal amount of such global
note deposited,
(2) for DTC participants, initial ownership of interests in such global
note will be shown on, and the transfer of ownership thereof will be
effected through, records maintained by DTC and
(3) for non-DTC participant owners, ownership interests in such global
note will only be shown on, and the transfer of ownership thereof will only
be effected through, the records of the DTC participants, including
Euroclear and Cedelbank, or others through which they hold their account.
All interests in a global note deposited with DTC, including those held through
Euroclear and Cedelbank, are subject to the procedures and requirements of DTC.
Those interests held through Euroclear are also subject to the procedures and
requirements of such system.
Except as described below, owners of interests in any global note will not
have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
holders of notes for any purpose. So long as DTC (or its nominee) is the
registered owner or holder of a global note, such party will be considered the
sole owner or holder of the notes represented by such global note for all
purposes under the indenture and the notes. Accordingly, each person owning a
beneficial interest in a global note must rely on the procedures of DTC and its
participants to exercise any rights and remedies of a holder of notes under the
indenture. Payments of
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principal and interest on any global note will be made to DTC or its nominee as
the registered owners thereof.
The laws of some countries and some states in the United States require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer beneficial interests in a global
note to such persons may be limited to that extent. Because DTC can act only on
behalf of its participants, the ability of a person having beneficial interests
in a global note to pledge such interests to persons or entities that do not
participate in the relevant clearing system, or otherwise take actions in
respect of such interests, may be affected by the lack of a physical certificate
evidencing such interests.
PAYMENTS ON THE GLOBAL NOTES
Payments in respect of the principal of, and premium, if any, and interest
on a global note will be made through a payment agent appointed pursuant to the
indenture and will be payable to DTC (or its nominee) in its capacity as the
registered holder of such notes under the indenture. Under the terms of the
indenture, the Issuer and the trustee will treat the persons in whose names the
notes, including the global notes, are registered as the owners thereof for the
purpose of receiving such payments and for any and all other purposes
whatsoever. Consequently, none of North American Van Lines, the trustee, or any
agent of North American Van Lines or the trustee has or will have any
responsibility or liability for (1) any aspect or accuracy of the records of the
relevant clearing system, the participants therein or the account holders
thereof, as the case may be, relating to payments made on account of beneficial
ownership interests in the global notes, or for maintaining, supervising or
reviewing any records of such clearing system, participant or account holder
relating to beneficial ownership interests in the global notes, or (2) any other
matter relating to the actions and practices of the relevant clearing system or
the participants therein or the account holders thereof.
North American Van Lines understands that DTC, upon receipt of any such
payment, will immediately credit the accounts of its relevant participants with
payments in amounts proportionate to their respective holdings in principal
amount of beneficial interests in the relevant global note, as shown on the
records of DTC. North American Van Lines expects that payments by such
participants to the beneficial owners of global notes will be governed by
standing instructions and customary practices and will be the responsibility of
such participants. Neither North American Van Lines nor the trustee will have
responsibility or liability for the payment of amounts owing in respect of
beneficial interests in the global notes held by DTC.
TRANSFERS OF GLOBAL SECURITIES AND INTERESTS THEREIN
Unless definitive securities are issued, a global note may be transferred,
in whole and not in part, only to another nominee of DTC or to a successor of
DTC or its nominee.
Transfers of beneficial interests in the global notes will be subject to the
applicable rules and procedures of DTC and its direct and indirect participants
(including, if applicable, those of Euroclear and Cedelbank), which are subject
to change from time to time. Any secondary market trading activity in beneficial
interests in the global notes is expected to occur through the participants of
DTC, and the securities custody accounts of investors are expected to be
credited with their holdings against payment in same-day funds on the settlement
date.
No service charge will be made for any registration of transfer or exchange
of notes, but the trustee or North American Van Lines may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
Although DTC has agreed to certain procedures to facilitate transfers of
interests in the global notes among participants in DTC, it is under no
obligation to perform or to continue to perform such
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procedures, and such procedures may be discontinued at any time. None of North
American Van Lines, the trustee, nor any agent of North American Van Lines or
the trustee will have any responsibility for the nonperformance or
misperformance (as a result of insolvency, mistake, misconduct or otherwise) by
DTC, or its participants or indirect participants, of their respective
obligations under the rules and procedures governing their operations.
North American Van Lines understands that under existing industry practices,
if either North American Van Lines or the trustee requests any action of holders
of notes, or if an owner of a beneficial interest in a global note desires to
give instructions or take an action that a holder is entitled to give or take
under the indenture, DTC would authorize its participants owning the relevant
beneficial interest to give such instructions or take such action, and such
participants would authorize indirect participants to give such instructions or
take such action, or would otherwise act upon the instructions of such indirect
participants.
North American Van Lines understands that under existing practices of DTC,
if less than all of the respective class of notes are to be redeemed at any
time, DTC will credit its participants' accounts on a proportionate basis (with
adjustments to prevent fractions) or by lot or on such other basis as DTC deems
fair and appropriate, provided that no beneficial interests of less than $1,000
may be redeemed in part.
CERTIFICATED NOTES
Beneficial interests in a global note are exchangeable for definitive notes
in registered certificated form only if
(1) DTC (a) notifies North American Van Lines that it is unwilling or
unable to continue as depositary for such global note or (b) has ceased to
be a "clearing agency" registered under the Exchange Act and, in each case,
North American Van Lines thereupon is unable to locate a qualified successor
depositary within 90 days;
(2) North American Van Lines, at its option, notifies the trustee in
writing that it elects to cause the issuance of notes in definitive form
under the indenture; or
(3) upon the occurrence of certain other events.
In all cases, certificated notes delivered in exchange for any global note or
beneficial interest therein will be registered in the names, and issued in any
approved denominations, requested by or on behalf of DTC in accordance with its
customary procedures. The notes may not be issued in bearer form.
In the case of the issuance of certificated notes in the limited
circumstances set forth above, the holder of any such certificated note may
transfer such note by surrendering it at the offices or agencies of North
American Van Lines maintained for such purpose within the City and State of New
York. Until otherwise designated by North American Van Lines, North American Van
Lines' office or agency in the City and State of New York will be the office of
an affiliate of the trustee maintained for such purpose. In the event of a
partial transfer of a holding of notes represented by one certificate, or
partial redemption of such a holding represented by one certificate, a new
certificate shall be issued to the transferee in respect of the part transferred
or redeemed and a further new certificate in respect of the balance of the
holding not transferred or redeemed shall be issued to the transferor, provided
that no certificate in denominations less than $1,000 shall be issued.
North American Van Lines shall not be required to register the transfer or
exchange of certificated notes for a period of 15 days preceding (a) the due
date for any payment of principal of or interest on the notes or (b) a selection
of notes to be redeemed. Also, North American Van Lines is not required to
register the transfer or exchange of any notes selected for redemption. In the
event of the transfer of any certificated note, the trustee may require a
holder, among other things, to furnish appropriate
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endorsements and transfer documents, and North American Van Lines may require a
holder to pay any taxes and fees required by law and permitted by the indenture
and the notes.
If certificated notes are issued and a holder of a certificated note claims
that the note has been lost, destroyed or wrongfully taken or if such note is
mutilated and is surrendered to the trustee, North American Van Lines shall
issue and the trustee shall authenticate a replacement note if the trustee's and
North American Van Lines' requirements are met. If required by the trustee or
North American Van Lines, an indemnity bond sufficient in the judgment of both
to protect North American Van Lines, the trustee and any paying agent or
authenticating agent appointed pursuant to the indenture from any loss which any
of them may suffer if a note is replaced must be posted. North American Van
Lines may charge for its expenses in replacing a note.
In case any such mutilated, destroyed, lost or stolen note has become or is
about to become due and payable, or is about to be redeemed or purchased by
North American Van Lines pursuant to the provisions of the indenture, North
American Van Lines in its discretion may, instead of issuing a new note, pay,
redeem or purchase such note, as the case may be.
REGISTRATION RIGHTS
The following summary of certain provisions of the registration rights
agreement does not contain all of the information that may be important to an
investor in the notes. It is subject to, and is qualified in its entirety by
reference to, all the provisions of the registration rights agreement. A copy of
the registration rights agreement is available as set forth under the heading
"Where You Can Find More Information."
Pursuant to the registration rights agreement, North American Van Lines has
agreed to use its reasonable best efforts to file a registration statement for
this exchange offer and to use all commercially reasonable efforts to cause it
to become effective. The registration statement of which this prospectus is a
part constitutes the registration statement to be filed pursuant to the
registration rights agreement.
If, as a result of a change in law or interpretations of the staff of the
SEC North American Van Lines is not permitted to effect the exchange offer, or
if any holder of the notes (other than the initial purchasers, an affiliate of
North American Van Lines or a noteholder that cannot make required
representations) is not permitted by applicable law to participate in, or to
receive the benefit of, the exchange offer, North American Van Lines will use
its reasonable best efforts to file a shelf registration statement with respect
to resales of old notes or new notes, as the case may be, and to cause the shelf
registration statement to be declared effective under the Securities Act within
270 days after the Issue Date. After such shelf registration statement is
declared effective, North American Van Lines will use its reasonable best
efforts to keep the shelf registration statement in effect until the earlier of
two years from the Issue Date (or one year in the case of a shelf registration
effected at the request of the initial purchasers) or such shorter period that
will terminate when all the old notes or new notes covered by the shelf
registration statement (1) have been sold pursuant thereto or (2) are
distributed to the public pursuant to Rule 144 or become eligible for resale
pursuant to Rule 144 without volume restriction, if any. Under certain
circumstances, North American Van Lines may suspend the availability of the
shelf registration statement for certain periods of time.
North American Van Lines will, in the event a shelf registration statement
is filed, among other things, provide to each holder for whom such shelf
registration statement was filed copies of the prospectus that is a part of the
shelf registration statement, notify each such holder when the shelf
registration statement has become effective and take certain other actions as
are required to permit unrestricted resales of the old notes or the new notes,
as the case may be. A holder of notes selling such notes pursuant to the shelf
registration statement generally would be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by certain
provisions of the registration rights agreement (including certain
indemnification obligations). In addition, each such
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holder of notes will be required, among other things, to deliver information to
be used in connection with the shelf registration statement within the time
periods set forth in the registration rights agreement in order to benefit from
the provisions regarding additional interest set forth in the following
paragraph.
If the exchange offer is not consummated on or before the 240th day after
the original issue date of the old notes or, if a shelf registration statement
is required to be filed, such shelf registration statement is not declared
effective by the SEC with respect to the old notes on or before the 270th day
after the original issue date of the old notes, the interest rate borne for such
old notes will be increased by 0.25% per annum. This additional interest will
increase by 0.25% per annum every twelve weeks thereafter, but will not exceed
0.50% per annum in the aggregate in any event. This additional interest will
accrue until the exchange offer is consummated or the shelf registration
statement is declared effective.
CERTAIN DEFINITIONS
"Acquired Debt" means Indebtedness of any Person that is assumed by North
American Van Lines or any Restricted Subsidiary in connection with its
acquisition of assets from such Person or any Affiliate thereof or is issued and
outstanding on or prior to the date on which such Person was acquired by North
American Van Lines or any Restricted Subsidiary or merged or consolidated with
or into North American Van Lines or any Restricted Subsidiary (other than
Indebtedness Incurred to finance, or otherwise in connection with or in
contemplation of, such acquisition).
"Additional Assets" means
(1) any property or assets that replace the property or assets that are
the subject of an Asset Disposition;
(2) any property or assets (other than Indebtedness and Capital Stock)
to be used by North American Van Lines or a Restricted Subsidiary in a
Related Business;
(3) the Capital Stock of a Person that is engaged in a Related Business
and becomes a Restricted Subsidiary as a result of the acquisition of such
Capital Stock by North American Van Lines or another Restricted Subsidiary;
or
(4) Capital Stock of any Person that at such time is a Restricted
Subsidiary, acquired from a third party.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agent" means any moving or storage company or contractor, or other Person,
that provides sales, packing, warehousing, hauling or other services in
connection with the ordinary course of business or operations of North American
Van Lines or any of its Subsidiaries, or any Affiliate of any such Agent.
"Agent Guarantee" means any Guarantee by North American Van Lines or any
Restricted Subsidiary of Indebtedness or other obligations of any Agent, entered
into in accordance with the indenture.
"all or substantially all" has the meaning given to such phrase in the
Revised Model Business Corporation Act and commentary thereto.
"Allied Acquisition" means the acquisition of Capital Stock and/or assets of
certain Subsidiaries of NFC plc engaged in moving services businesses pursuant
to the Acquisition Agreement dated as of September 14, 1999 between Holding and
NFC plc, and the other transactions contemplated thereby.
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"Asset Disposition" means any sale, lease, transfer or other disposition of
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares, or (in the case of a Foreign Subsidiary) to the extent
required by applicable law), property or other assets (each referred to for the
purposes of this definition as a "disposition") by North American Van Lines or
any of its Restricted Subsidiaries (including any disposition by means of a
merger, consolidation or similar transaction), other than
(1) a disposition to North American Van Lines or a Restricted
Subsidiary,
(2) a disposition in the ordinary course of business,
(3) the sale or discount (with or without recourse, and on customary or
commercially reasonable terms) of accounts receivable or notes receivable
arising in the ordinary course of business, or the conversion or exchange of
accounts receivable for notes receivable,
(4) any Restricted Payment Transaction,
(5) a disposition that is governed by the provisions described under
"--Merger and Consolidation,"
(6) any Financing Disposition,
(7) any "fee in lieu" or other disposition of assets to any governmental
authority or agency that continue in use by North American Van Lines or any
Restricted Subsidiary, so long as North American Van Lines or any Restricted
Subsidiary may obtain title to such assets upon reasonable notice by paying
a nominal fee,
(8) any exchange of like property pursuant to Section 1031 (or any
successor section) of the Code,
(9) any financing transaction with respect to property built or acquired
by North American Van Lines or any Restricted Subsidiary after the Issue
Date, including without limitation any sale/ leaseback transaction or asset
securitization,
(10) any disposition arising from foreclosure, condemnation or similar
action with respect to any property or other assets,
(11) any disposition of Capital Stock, Indebtedness or other securities
of an Unrestricted Subsidiary,
(12) a disposition of Capital Stock of a Restricted Subsidiary pursuant
to an agreement or other obligation with or to a Person (other than North
American Van Lines or a Restricted Subsidiary) from whom such Restricted
Subsidiary was acquired, or from whom such Restricted Subsidiary acquired
its business and assets (having been newly formed in connection with such
acquisition), entered into in connection with such acquisition,
(13) a disposition of not more than 5% of the outstanding Capital Stock
of a Foreign Subsidiary to one or more members of the management of such
Foreign Subsidiary that has been approved by the Board of Directors, or
(14) any disposition or series of related dispositions for aggregate
consideration not to exceed $2.5 million.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing
(1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment of
such Indebtedness or redemption or similar payment with respect to such
Preferred Stock multiplied by the amount of such payment by
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(2) the sum of all such payments.
"Bank Indebtedness" means any and all amounts, whether outstanding on the
Issue Date or thereafter incurred, payable under or in respect of the Senior
Credit Facility, including without limitation principal, premium (if any),
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to North American Van Lines or any
Restricted Subsidiary whether or not a claim for post-filing interest is allowed
in such proceedings), fees, charges, expenses, reimbursement obligations,
guarantees, other monetary obligations of any nature and all other amounts
payable thereunder or in respect thereof.
"Board of Directors" means the board of directors or other governing body of
North American Van Lines or, if North American Van Lines is owned or managed by
a single entity, the board of directors or other governing body of such entity,
or, in either case, any committee thereof duly authorized to act on behalf of
such board or governing body.
"Borrowing Base" means 85% of accounts receivables of North American Van
Lines and its Restricted Subsidiaries (determined in accordance with GAAP as of
the end of the most recently ended fiscal quarter for which consolidated
financial statements of North American Van Lines are available).
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banking institutions are authorized or required by law to close
in New York City.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligation" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP. The Stated Maturity of any Capitalized Lease
Obligation shall be the date of the last payment of rent or any other amount due
under the related lease.
"Cash Equivalents" means any of the following:
(a) securities issued or fully guaranteed or insured by the United
States Government or any agency or instrumentality thereof,
(b) time deposits, certificates of deposit or bankers' acceptances of
(1) any lender under the Senior Credit Agreement or (2) any commercial bank
having capital and surplus in excess of $500,000,000 and the commercial
paper of the holding company of which is rated at least A-1 or the
equivalent thereof by S&P or at least P-1 or the equivalent thereof by
Moody's (or if at such time neither is issuing ratings, then a comparable
rating of another nationally recognized rating agency),
(c) commercial paper rated at least A-l or the equivalent thereof by S&P
or at least P-1 or the equivalent thereof by Moody's (or if at such time
neither is issuing ratings, then a comparable rating of another nationally
recognized rating agency) and
(d) investments in money market funds complying with the risk limiting
conditions of Rule 2a-7 or any successor rule of the SEC under the
Investment Company Act of 1940, as amended.
"CDR" means Clayton, Dubilier & Rice, Inc.
"CDR Fund V" means Clayton, Dubilier & Rice Fund V Limited Partnership, a
Cayman Islands exempted limited partnership, and any successor in interest
thereto.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means North American Van Lines, Inc., a Delaware corporation, and
any successor in interest thereto.
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"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (x) the aggregate amount of Consolidated EBITDA of North American Van
Lines and its Restricted Subsidiaries for the period of the most recent four
consecutive fiscal quarters ending prior to the date of such determination for
which consolidated financial statements of North American Van Lines are
available to (y) Consolidated Interest Expense for such four fiscal quarters (in
each case, determined, for each fiscal quarter (or portion thereof) of the four
fiscal quarters ending prior to the Issue Date, on a pro forma basis to give
effect to the Allied Acquisition as if it had occurred at the beginning of such
four-quarter period); provided, that
(1) if since the beginning of such period North American Van Lines or
any Restricted Subsidiary has Incurred any Indebtedness that remains
outstanding on such date of determination or if the transaction giving rise
to the need to calculate the Consolidated Coverage Ratio is an Incurrence of
Indebtedness, Consolidated EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been Incurred on the first day of
such period (except that in making such computation, the amount of
Indebtedness under any revolving credit facility outstanding on the date of
such calculation shall be computed based on (A) the average daily balance of
such Indebtedness during such four fiscal quarters or such shorter period
for which such facility was outstanding or (B) if such facility was created
after the end of such four fiscal quarters, the average daily balance of
such Indebtedness during the period from the date of creation of such
facility to the date of such calculation),
(2) if since the beginning of such period North American Van Lines or
any Restricted Subsidiary has repaid, repurchased, redeemed, defeased or
otherwise acquired, retired or discharged any Indebtedness (each, a
"Discharge") or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio involves a Discharge of Indebtedness (in each
case other than Indebtedness Incurred under any revolving credit facility
unless such Indebtedness has been permanently repaid), Consolidated EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving effect on a pro forma basis to such Discharge of such Indebtedness,
including with the proceeds of such new Indebtedness, as if such Discharge
had occurred on the first day of such period,
(3) if since the beginning of such period North American Van Lines or
any Restricted Subsidiary shall have disposed of any company, any business
or any group of assets constituting an operating unit of a business (any
such disposition, a "Sale"), the Consolidated EBITDA for such period shall
be reduced by an amount equal to the Consolidated EBITDA (if positive)
attributable to the assets that are the subject of such Sale for such period
or increased by an amount equal to the Consolidated EBITDA (if negative)
attributable thereto for such period and Consolidated Interest Expense for
such period shall be reduced by an amount equal to
(A) the Consolidated Interest Expense attributable to any Indebtedness of
North American Van Lines or any Restricted Subsidiary repaid,
repurchased, redeemed, defeased or otherwise acquired, retired or
discharged with respect to North American Van Lines and its
continuing Restricted Subsidiaries in connection with such Sale for
such period (including but not limited to through the assumption of
such Indebtedness by another Person)
plus
(B) if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period attributable to the
Indebtedness of such Restricted Subsidiary to the extent North
American Van Lines and its continuing Restricted Subsidiaries are no
longer liable for such Indebtedness after such Sale,
(4) if since the beginning of such period North American Van Lines or
any Restricted Subsidiary (by merger, consolidation or otherwise) shall have
made an Investment in any Person that thereby becomes a Restricted
Subsidiary, or otherwise acquired any company, any business or any group of
139
assets constituting an operating unit of a business, including any such
Investment or acquisition occurring in connection with a transaction causing
a calculation to be made hereunder (any such Investment or acquisition, a
"Purchase"), Consolidated EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto (including
the Incurrence of any related Indebtedness) as if such Purchase occurred on
the first day of such period, and
(5) if since the beginning of such period any Person became a Restricted
Subsidiary or was merged or consolidated with or into North American Van
Lines or any Restricted Subsidiary, and since the beginning of such period
such Person shall have Discharged any Indebtedness or made any Sale or
Purchase that would have required an adjustment pursuant to clause (2),
(3) or (4) above if made by North American Van Lines or a Restricted
Subsidiary during such period, Consolidated EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto as if such Discharge, Sale or Purchase occurred on the first day of
such period.
For purposes of this definition, whenever pro forma effect is to be given to
any Sale, Purchase or other transaction, or the amount of income or earnings
relating thereto and the amount of Consolidated Interest Expense associated with
any Indebtedness Incurred or repaid, repurchased, redeemed, defeased or
otherwise acquired, retired or discharged in connection therewith, the pro forma
calculations in respect thereof may include anticipated cost savings relating to
any such Sale, Purchase or other transaction that North American Van Lines
reasonably believes in good faith could have been achieved during the relevant
four quarter period as a result of such Sale, Purchase or other transaction
(PROVIDED that both (1) such cost savings were identified and quantified in an
Officer's Certificate delivered to the trustee at the time of the consummation
of such transaction and (2) with respect to each such transaction completed
prior to the 90(th) day preceding the relevant date of determination, actions
were commenced or initiated by North American Van Lines within 90 days of the
consummation of such transaction to effect such cost savings identified in such
Officer's Certificate and with respect to any other transaction, such Officer's
Certificate sets forth the specific steps to be taken within the 90 days after
the consummation of such transaction to accomplish such cost savings). If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Agreement applicable to
such Indebtedness). If any Indebtedness bears, at the option of North American
Van Lines or a Restricted Subsidiary, a rate of interest based on a prime or
similar rate, a eurocurrency interbank offered rate or other fixed or floating
rate, and such Indebtedness is being given pro forma effect, the interest
expense on such Indebtedness shall be calculated by applying such optional rate
as North American Van Lines or such Restricted Subsidiary may designate. If any
Indebtedness that is being given pro forma effect was Incurred under a revolving
credit facility, the interest expense on such Indebtedness shall be computed
based upon the average daily balance of such Indebtedness during the applicable
period. Interest on a Capitalized Lease Obligation shall be deemed to accrue at
an interest rate determined in good faith by a responsible financial or
accounting officer of North American Van Lines to be the rate of interest
implicit in such Capitalized Lease Obligation in accordance with GAAP.
"Consolidated EBITDA" means, for any period, the Consolidated Net Income for
such period, plus the following to the extent deducted in calculating such
Consolidated Net Income:
(1) provision for all taxes (whether or not paid, estimated or accrued)
based on income, profits or capital,
(2) Consolidated Interest Expense,
(3) depreciation, amortization (including but not limited to
amortization of goodwill and intangibles and amortization and write-off of
financing costs) and all other non-cash charges or non-cash losses,
140
(4) any expenses or charges related to any Equity Offering, Investment
or Indebtedness permitted by the indenture (whether or not consummated or
incurred) and
(5) the amount of any minority interest expense.
To the extent Consolidated EBITDA would otherwise include the amount of any
Receivables Fees excluded from Consolidated Interest Expense pursuant to
clause (3) of the definition of Consolidated Interest Expense, Consolidated
EBITDA shall be reduced by such amount.
"Consolidated Interest Expense" means, for any period,
(1) the total interest expense of North American Van Lines and its
Restricted Subsidiaries to the extent deducted in calculating Consolidated
Net Income, net of any interest income of North American Van Lines and its
Restricted Subsidiaries, including without limitation any such interest
expense consisting of
(a) interest expense attributable to Capitalized Lease Obligations,
(b) amortization of debt discount,
(c) interest in respect of Indebtedness of any other Person that has
been Guaranteed by North American Van Lines or any Restricted
Subsidiary of North American Van Lines (other than Indebtedness
Guaranteed under any Management Guarantee or Agent Guarantee,
except to the extent the interest thereon is actually being paid
by North American Van Lines or a Restricted Subsidiary thereof),
(d) non-cash interest expense,
(e) the interest portion of any deferred payment obligation, and
(f) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing,
plus
(2) dividends paid in cash in respect of Disqualified Stock of North
American Van Lines or a Restricted Subsidiary or in respect of Preferred
Stock of a Restricted Subsidiary of North American Van Lines and
minus
(3) to the extent otherwise included in such interest expense referred
to in clause (1) above, Receivables Fees and amortization or write-off of
financing costs,
in each case under clauses (1) through (3) as determined on a Consolidated basis
in accordance with GAAP; provided, that gross interest expense shall be
determined after giving effect to any net payments made or received by North
American Van Lines and its Restricted Subsidiaries with respect to Interest Rate
Agreements.
"Consolidated Net Income" means, for any period, the net income (loss) of
North American Van Lines and its Restricted Subsidiaries, determined on a
consolidated basis in accordance with GAAP and before any reduction in respect
of Preferred Stock dividends; provided, that there shall not be included in such
Consolidated Net Income:
(1) any net income (loss) of any Person if such Person is not a
Restricted Subsidiary, except that (A) subject to the limitations contained
in clause (4) below, North American Van Lines' equity in the net income of
any such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount actually distributed by such Person during
such period to North American Van Lines or a Restricted Subsidiary of North
American Van Lines as a dividend or other distribution
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(subject, in the case of a dividend or other distribution to a Restricted
Subsidiary of North American Van Lines, to the limitations contained in
clause (3) below) and (B) North American Van Lines' equity in the net loss
of such Person shall be included to the extent of the aggregate Investment
of North American Van Lines or any of its Restricted Subsidiaries in such
Person,
(2) any net income (loss) of any Person acquired by North American Van
Lines or a Restricted Subsidiary of North American Van Lines in a pooling of
interests transaction for any period prior to the date of such acquisition,
(3) any net income (loss) of any Restricted Subsidiary of North American
Van Lines if such Restricted Subsidiary is subject to restrictions, directly
or indirectly, on the payment of dividends or the making of similar
distributions by such Restricted Subsidiary, directly or indirectly, to
North American Van Lines by operation of the terms of such Restricted
Subsidiary's charter or any agreement, instrument, judgment, decree, order,
statute or governmental rule or regulation applicable to such Restricted
Subsidiary or its stockholders (other than (x) restrictions that have been
waived or otherwise released, (y) restrictions pursuant to the notes or the
indenture and (z) restrictions in effect on the Issue Date with respect to a
Restricted Subsidiary and other restrictions with respect to such Restricted
Subsidiary that taken as a whole are not materially less favorable to the
noteholders than such restrictions in effect on the Issue Date), except that
(A) subject to the limitations contained in clause (4) below, North American
Van Lines' equity in the net income of any such Restricted Subsidiary for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of any dividend or distribution that was or that could have
been made by such Restricted Subsidiary during such period to North American
Van Lines or another Restricted Subsidiary of North American Van Lines
(subject, in the case of a dividend that could have been made to another
Restricted Subsidiary, to the limitation contained in this clause) and
(B) the net loss of such Restricted Subsidiary shall be included to the
extent of the aggregate Investment of North American Van Lines or any of its
other Restricted Subsidiaries in such Restricted Subsidiary,
(4) any gain or loss realized upon the sale or other disposition of any
asset of North American Van Lines or any Restricted Subsidiary of North
American Van Lines (including pursuant to any sale/ leaseback transaction)
that is not sold or otherwise disposed of in the ordinary course of business
(as determined in good faith by the Board of Directors),
(5) any item classified as an extraordinary, unusual or nonrecurring
gain, loss or charge (including without limitation (a) any compensation
expense for stock options that will be cashed out, converted, exchanged or
otherwise retired in connection with the Allied Acquisition, (b) any charge
or expense incurred for employee bonuses in connection with the Allied
Acquisition, and (c) fees, expenses and charges associated with the Allied
Acquisition or any acquisition, merger or consolidation after the Issue
Date),
(6) the cumulative effect of a change in accounting principles,
(7) all deferred financing costs written off and premiums paid in
connection with any early extinguishment of Indebtedness,
(8) any unrealized gains or losses in respect of Currency Agreements,
(9) any unrealized foreign currency transaction gains or losses in
respect of Indebtedness of any Person denominated in a currency other than
the functional currency of such Person, and
(10) any non-cash compensation charge arising from any grant of stock,
stock options or other equity based awards.
In the case of any unusual or nonrecurring gain, loss or charge not included
in Consolidated Net Income pursuant to clause (5) above in any determination
thereof, North American Van Lines will deliver
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an Officer's Certificate to the trustee promptly after the date on which
Consolidated Net Income is so determined, setting forth the nature and amount of
such unusual or nonrecurring gain, loss or charge.
"Consolidated Tangible Assets" means, as of any date of determination, the
total assets less the total intangible assets (including, without limitation,
goodwill) shown on the consolidated balance sheet of North American Van Lines
and its Restricted Subsidiaries as of the most recent date for which such a
balance sheet is available, determined on a consolidated basis in accordance
with GAAP (and, in the case of any determination relating to any Incurrence of
Indebtedness or any Investment, on a pro forma basis including any property or
assets being acquired in connection therewith).
"Consolidation" means the consolidation of the accounts of each of the
Restricted Subsidiaries with those of North American Van Lines in accordance
with GAAP; provided that "Consolidation" will not include consolidation of the
accounts of any Unrestricted Subsidiary, but the interest of North American Van
Lines or any Restricted Subsidiary in any Unrestricted Subsidiary will be
accounted for as an investment. The term "Consolidated" has a correlative
meaning.
"Credit Facilities" means, one or more of (x) the Senior Credit Facility and
(y) other facilities or arrangements, in each case with one or more banks or
other institutions providing for revolving credit loans, term loans, receivables
financings (including without limitation through the sale of receivables to such
institutions or to special purpose entities formed to borrow from such
institutions against such receivables), letters of credit or other Indebtedness,
in each case, including all agreements, instruments and documents executed and
delivered pursuant to or in connection with any of the foregoing, in each case
as the same may be amended, supplemented, waived or otherwise modified from time
to time, or refunded, refinanced, restructured, replaced, renewed, repaid,
increased or extended from time to time (whether in whole or in part, whether
with the original banks or other institutions or other banks or other
institutions or otherwise, and whether provided under any original Credit
Facility or one or more other credit agreements, indentures, financing
agreements or other Credit Facilities or otherwise). Without limiting the
generality of the foregoing, the term "Credit Facility" shall include any
agreement
(1) changing the maturity of any Indebtedness incurred thereunder or
contemplated thereby,
(2) adding Subsidiaries of North American Van Lines as additional
borrowers or guarantors thereunder,
(3) increasing the amount of Indebtedness incurred thereunder or
available to be borrowed thereunder or
(4) otherwise altering the terms and conditions thereof.
"Currency Agreement" means, in respect of a Person, any foreign exchange
contract, currency swap agreement or other similar agreement or arrangements
(including derivative agreements or arrangements), as to which such Person is a
party or a beneficiary.
"Default" means any event or condition that is, or after notice or passage
of time or both would be, an Event of Default.
"Designated Noncash Assets" means any non-cash consideration received by
North American Van Lines or one of its Restricted Subsidiaries in connection
with an Asset Disposition that is designated as Designated Noncash Assets
pursuant to an Officer's Certificate executed by the principal financial officer
of North American Van Lines or such Restricted Subsidiary. Such Officer's
Certificate shall state the basis of valuation of such consideration which shall
be the good faith determination of the Board of Directors. The fair market value
of each outstanding item of Designated Noncash Assets shall equal its value
measured at the time received and without giving effect to subsequent changes in
value, less the amount of cash or Cash Equivalents received upon any subsequent
sale or other disposition of any portion thereof; provided that such cash and
Cash Equivalents are applied in accordance with the covenant described under
143
"--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock," to
the extent required thereby.
"Designated Senior Indebtedness" means (1) the Bank Indebtedness and
(2) any other Senior Indebtedness that, at the date of determination, has an
aggregate principal amount equal to or under which, at the date of
determination, the holders thereof are committed to lend up to, at least
$25.0 million and is specifically designated by North American Van Lines in an
agreement or instrument evidencing or governing such Senior Indebtedness as
"Designated Senior Indebtedness" for purposes of the indenture.
"Disinterested Director" means, with respect to any Affiliate Transaction, a
member of the Board of Directors having no material direct or indirect financial
interest in or with respect to such Affiliate Transaction. A member of the Board
of Directors shall not be deemed to have such a financial interest by reason of
such member's holding Capital Stock of North American Van Lines or Holding or
any options, warrants or other rights in respect of such Capital Stock.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
(other than Management Stock) that by its terms (or by the terms of any security
into which it is convertible or for which it is exchangeable or exercisable) or
upon the happening of any event
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise,
(2) is convertible or exchangeable for Indebtedness or Disqualified
Stock or
(3) is redeemable at the option of the holder thereof, in whole or in
part, in each case on or prior to the 91(st) day following the final Stated
Maturity of the notes.
Notwithstanding the preceding sentence,
(a) any Capital Stock that would constitute Disqualified Stock solely
because the holders thereof have the right to require North American Van
Lines to repurchase such Capital Stock upon the occurrence of an event
described therein as a change of control or an asset sale shall not
constitute Disqualified Stock if the terms of such Capital Stock provide
that North American Van Lines may not repurchase or redeem any such Capital
Stock pursuant to such provisions unless such repurchase or redemption
complies with the covenant described above under the caption "--Certain
Covenants--Limitation on Restricted Payments"; and
(b) any Capital Stock that would constitute Disqualified Stock solely
because such Capital Stock is issued pursuant to any plan for the benefit of
employees and may be required to be repurchased by North American Van Lines
in order to satisfy applicable regulatory obligations shall not constitute
Disqualified Stock.
"Domestic Subsidiary" means any Restricted Subsidiary of North American Van
Lines other than a Foreign Subsidiary.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Financing Disposition" means any sale, transfer, conveyance or other
disposition of property or assets by North American Van Lines or any Subsidiary
thereof to any Receivables Entity, or by any Receivables Subsidiary, in each
case in connection with the Incurrence by a Receivables Entity of Indebtedness,
or obligations to make payments to the obligor on Indebtedness, which may be
secured by a Lien in respect of such property or assets.
"Foreign Subsidiary" means
(a) any Restricted Subsidiary of North American Van Lines that is not
organized under the laws of the United States of America or any state
thereof or the District of Columbia and
144
(b) any Restricted Subsidiary of North American Van Lines that has no
material assets other than securities of one or more Foreign Subsidiaries,
and other assets relating to an ownership interest in any such securities or
Subsidiaries.
"Foreign Subsidiary Coverage Ratio" as of any date of determination means
the ratio of
(1) the combined portion attributable to Foreign Subsidiaries, taken as
a whole, of the aggregate amount of Consolidated EBITDA of North American
Van Lines and its Restricted Subsidiaries for the period of the most recent
four consecutive fiscal quarters ending prior to the date of such
determination for which consolidated financial statements of North American
Van Lines are available to
(2) the combined portion attributable to Foreign Subsidiaries, taken as
a whole, of Consolidated Interest Expense for such four fiscal quarters,
all calculated after giving effect to all intercompany eliminations applied in
preparing the relevant consolidated financial statements of North American Van
Lines (and without giving effect to clause (3) of the definition of the term
Consolidated Net Income as it relates to restrictions on the payment of
dividends or the making of similar distributions by any Foreign Subsidiary to
North American Van Lines or any Domestic Sudsidiary, but giving effect to such
clause as it relates to any such restrictions on the payment of dividends or the
making of similar distributions by any Foreign Subsidiary to another Foreign
Subsidiary), and otherwise in accordance with the definition of the term
"Coverage Ratio" (including but not limited to in accordance with all pro forma
and other adjustments provided for in such definition).
"GAAP" means generally accepted accounting principles in the United States
of America as in effect on the Issue Date (for purposes of the definitions of
the terms "Consolidated Coverage Ratio," "Foreign Subsidiary Coverage Ratio,"
"Consolidated EBITDA," "Consolidated Interest Expense," "Consolidated Net
Income" and "Consolidated Tangible Assets," all defined terms in the indenture
to the extent used in or relating to any of the foregoing definitions, and all
ratios and computations based on any of the foregoing definitions) and as in
effect from time to time (for all other purposes of the indenture), including
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
the indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person; provided that the term "Guarantee" shall not include endorsements
for collection or deposit in the ordinary course of business. The term
"Guarantee" used as a verb has a corresponding meaning.
"Guarantor Senior Indebtedness" means, with respect to any Note Guarantor,
the following obligations, whether outstanding on the date of the indenture or
thereafter issued, without duplication:
(a) any Guarantee of Bank Indebtedness by such Note Guarantor and all
other Guarantees by such Note Guarantor of Senior Indebtedness of North
American Van Lines or Guarantor Senior Indebtedness of any other Note
Guarantor;
(b) all obligations in respect of any Receivables Financing; and
(c) all obligations consisting of the principal of and premium, if any,
and accrued and unpaid interest (including interest accruing on or after the
filing of any petition in bankruptcy or for reorganization relating to the
Note Guarantor regardless of whether post-filing interest is allowed in such
proceeding) on, and fees and other amounts owing in respect of, all other
Indebtedness of the Note Guarantor, unless, in the instrument creating or
evidencing the same or pursuant to which the
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same is outstanding, it is expressly provided that the obligations in
respect of such Indebtedness are not senior in right of payment to the
obligations of such Note Guarantor under its Note Guarantee;
provided, however, that Guarantor Senior Indebtedness shall not include
(1) any obligations of such Note Guarantor to North American Van Lines
or any other Subsidiary of North American Van Lines,
(2) any liability for Federal, state, local, foreign or other taxes owed
or owing by such Note Guarantor,
(3) any accounts payable or other liability to trade creditors arising
in the ordinary course of business (including Guarantees thereof or
instruments evidencing such liabilities),
(4) any Indebtedness of such Note Guarantor (or Guarantee by such Note
Guarantor of Indebtedness) that is expressly subordinated in right of
payment to any other Indebtedness of such Note Guarantor (or Guarantee by
such Note Guarantor of Indebtedness),
(5) any Capital Stock of such Note Guarantor or
(6) that portion of any Indebtedness of such Note Guarantor that is
Incurred by such Note Guarantor in violation of the covenant described under
"--Certain Covenants--Limitation on Indebtedness" (but no such violation
shall be deemed to exist for purposes of this clause (6) if any holder of
such Indebtedness or such holder's representative shall have received an
Officer's Certificate to the effect that such Incurrence of such
Indebtedness does not (or that the Incurrence by such Note Guarantor of the
entire committed amount thereof at the date on which the initial borrowing
thereunder is made would not) violate such covenant).
If any Guarantor Senior Indebtedness is disallowed, avoided or subordinated
pursuant to the provisions of Section 548 of Title 11 of the United States Code
or any applicable state fraudulent conveyance law, such Guarantor Senior
Indebtedness nevertheless will constitute Guarantor Senior Indebtedness.
"Guarantor Senior Subordinated Indebtedness" means, with respect to a Note
Guarantor, (1) the obligations of such Note Guarantor under its Note Guarantee
and (2) any other Indebtedness of such Note Guarantor that ranks PARI PASSU in
right of payment with the obligations of such Note Guarantor under its Note
Guarantee.
"Guarantor Subordinated Obligations" means, with respect to a Note
Guarantor, any Indebtedness of such Note Guarantor (whether outstanding on the
Issue Date or thereafter Incurred) that is expressly subordinated in right of
payment to the obligations of such Note Guarantor under the Note Guarantee
pursuant to a written agreement.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"holder" or "noteholder" means the Person in whose name a note is registered
in the Note Register.
"Holding" means NA Holding Corporation, a Delaware corporation, and any
successor in interest thereto.
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"Holding Expenses" means
(1) costs (including all professional fees and expenses) incurred by
Holding to comply with its reporting obligations under federal or state laws
or under the indenture or the Holding Notes, including any reports filed
with respect to the Securities Act, Exchange Act or the respective rules and
regulations promulgated thereunder,
(2) indemnification obligations of Holding owing to directors, officers,
employees or other Persons under its charter or by-laws or pursuant to
written agreements with any such Person,
(3) fees and expenses payable by Holding in connection with the
Transactions,
(4) other operational expenses of Holding incurred in the ordinary
course of business,
(5) expenses incurred by Holding in connection with any public offering
of Capital Stock or Indebtedness (X) where the net proceeds of such offering
are intended to be received by or contributed or loaned to North American
Van Lines or a Restricted Subsidiary, or (Y) in a prorated amount of such
expenses in proportion to the amount of such net proceeds intended to be so
received, contributed or loaned, or (Z) otherwise on an interim basis prior
to completion of such offering so long as Holding shall cause the amount of
such expenses to be repaid to North American Van Lines or the relevant
Restricted Subsidiary out of the proceeds of such offering promptly if
completed, and
(6) interest payments on the Holding Loan for any period or portion
thereof ending on or prior to December 31, 1999.
"Holding Loan" means $40.0 million in aggregate principal amount of
Indebtedness Incurred by Holding in connection with the Transactions.
"Holding Notes" means the senior discount notes due 2009 issued (or any
Indebtedness in lieu thereof Incurred) by Holding on the Issue Date, and any
refinancing in respect thereof, together with any agreement or instrument
evidencing, governing or otherwise relating to any of the foregoing.
"Holding Stock Issuance" means one or more issuances by Holding, subsequent
to the Issue Date, of Capital Stock of Holding for gross proceeds of not less
than $40.0 million in the aggregate.
"Incur" means issue, assume, enter into any Guarantee of, incur or otherwise
become liable for; provided, however, that any Indebtedness or Capital Stock of
a Person existing at the time such Person becomes a Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred
by such Subsidiary at the time it becomes a Subsidiary. Accrual of interest, the
accretion of accreted value and the payment of interest in the form of
additional Indebtedness will not be deemed to be an Incurrence of Indebtedness.
Any Indebtedness issued at a discount (including Indebtedness on which interest
is payable through the issuance of additional Indebtedness) shall be deemed
Incurred at the time of original issuance of the Indebtedness at the initial
accreted amount thereof. The term "Incurrence" shall have a correlative meaning.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(1) the principal of indebtedness of such Person for borrowed money,
(2) the principal of obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments,
(3) all reimbursement obligations of such Person in respect of letters of
credit or other similar instruments (the amount of such obligations being
equal at any time to the aggregate then undrawn and unexpired amount of
such letters of credit or other instruments plus the aggregate amount of
drawings thereunder that have not then been reimbursed),
147
(4) all obligations of such Person to pay the deferred and unpaid purchase
price of property (except Trade Payables), which purchase price is due
more than one year after the date of placing such property in final
service or taking final delivery and title thereto,
(5) all Capitalized Lease Obligations of such Person,
(6) the redemption, repayment or other repurchase amount of such Person with
respect to any Disqualified Stock of such Person or (if such Person is a
Subsidiary of North American Van Lines other than a Note Guarantor) any
Preferred Stock of such Subsidiary, but excluding, in each case, any
accrued dividends (the amount of such obligation to be equal at any time
to the maximum fixed involuntary redemption, repayment or repurchase
price for such Capital Stock, or if less (or if such Capital Stock has no
such fixed price), to the involuntary redemption, repayment or repurchase
price therefor calculated in accordance with the terms thereof as if then
redeemed, repaid or repurchased, and if such price is based upon or
measured by the fair market value of such Capital Stock, such fair market
value shall be as determined in good faith by the Board of Directors or
the board of directors or other governing body of the issuer of such
Capital Stock),
(7) all Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person;
provided that the amount of Indebtedness of such Person shall be the
lesser of (A) the fair market value of such asset at such date of
determination (as determined in good faith by North American Van Lines)
and (B) the amount of such Indebtedness of such other Persons,
(8) Guarantees of all Indebtedness of other Persons to the extent so
Guaranteed by such Person, and
(9) to the extent not otherwise included in this definition, net Hedging
Obligations of such Person (the amount of any such obligation to be equal
at any time to the termination value of such agreement or arrangement
giving rise to such Hedging Obligation that would be payable by such
Person at such time).
The amount of Indebtedness of any Person at any date shall be determined as
set forth above or otherwise provided in the indenture, or otherwise shall equal
the amount thereof that would appear on a balance sheet of such Person
(excluding any notes thereto) prepared in accordance with GAAP.
"Interest Rate Agreement" means, with respect to any Person, any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement (including derivative agreements or arrangements), as to which
such Person is party or a beneficiary.
"Inventory" means goods held for sale or lease by a Person in the ordinary
course of business, net of any reserve for goods that have been segregated by
such Person to be returned to the applicable vendor for credit, as determined in
accordance with GAAP.
"Investment" in any Person by any other Person means any direct or indirect
advance, loan or other extension of credit (other than to customers, suppliers,
Agents, directors, officers or employees of any Person in the ordinary course of
business) or capital contribution (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others) to, or any purchase or acquisition of Capital Stock, Indebtedness
or other similar instruments issued by, such Person. For purposes of the
definition of "Unrestricted Subsidiary" and the covenant described under
"--Certain Covenants--Limitation on Restricted Payments,"
(1) "Investment" shall include the portion (proportionate to North
American Van Lines' equity interest in such Subsidiary) of the fair market
value of the net assets of any Subsidiary of North American Van Lines at the
time that such Subsidiary is designated an Unrestricted Subsidiary, provided
that upon a redesignation of such Subsidiary as a Restricted Subsidiary,
North American Van
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Lines shall be deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary in an amount (if positive) equal to (X) North
American Van Lines' "Investment" in such Subsidiary at the time of such
redesignation less (Y) the portion (proportionate to North American Van
Lines' equity interest in such Subsidiary) of the fair market value of the
net assets of such Subsidiary at the time of such redesignation,
(2) property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer, and
(3) in each case under clause (1) or (2) above, fair market value shall
be as determined in good faith by the Board of Directors. A Guarantee shall
not be deemed to be or give rise to an Investment until such Guarantee is
funded (in whole or in part).
The amount of any Investment outstanding at any time shall be the original cost
of such Investment, reduced (at North American Van Lines' option) by any
dividend, distribution, interest payment, return of capital, repayment or other
amount or value received in respect of such Investment; provided, that to the
extent that the amount of Restricted Payments outstanding at any time is so
reduced by any portion of any such amount or value that would otherwise be
included in the calculation of Consolidated Net Income, such portion of such
amount or value shall not be so included for purposes of calculating the amount
of Restricted Payments that may be made pursuant to paragraph (a) of the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments."
"Investors" means CDR Fund V.
"Issue Date" means the first date on which notes are issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Management Advances" means
(1) loans or advances made to directors, officers or employees of
Holding, North American Van Lines or any Restricted Subsidiary (x) in
respect of travel, entertainment or moving-related expenses incurred in the
ordinary course of business, (y) in respect of moving-related expenses
incurred in connection with any closing or consolidation of any facility, or
(z) in the ordinary course of business and (in the case of this clause (z))
not exceeding $2.5 million in the aggregate outstanding at any time,
(2) promissory notes of Management Investors acquired in connection with
the issuance of Management Stock to such Management Investors,
(3) loans to Management Investors of funds applied to purchase
Management Stock in an aggregate principal amount not exceeding
$10.0 million outstanding at any time (less the aggregate principal amount
of then outstanding borrowings by Management Investors then guaranteed by
North American Van Lines pursuant to clause (x) of the definition of
Management Guarantees),
(4) Management Guarantees, or
(5) other Guarantees of borrowings by Management Investors in connection
with the purchase of Management Stock, which Guarantees are permitted under
the covenant described under "--Certain Covenants--Limitation on
Indebtedness."
"Management Agreements" means, collectively, the Consulting Agreement, dated
as of March 30, 1998, among Holding, North American Van Lines and CDR (and, in
each case, its respective permitted successors and assigns thereunder) and the
Indemnification Agreement, dated as of March 30, 1998, among Holding, North
American Van Lines, CDR and the Investors (and, in each case, its respective
permitted successors and assigns thereunder), as each may be amended,
supplemented, waived or otherwise modified from time to time in accordance with
the terms thereof and of the indenture.
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"Management Guarantees" means guarantees
(x) of up to an aggregate principal amount of $10.0 million of
borrowings by Management Investors in connection with their purchase of
Management Stock outstanding at any time (less the aggregate principal
amount of then outstanding loans made to Management Investors by North
American Van Lines pursuant to clause (3) of the definition of Management
Advances) or
(y) made on behalf of, or in respect of loans or advances made to,
directors, officers or employees of Holding, North American Van Lines or any
Restricted Subsidiary (1) in respect of travel, entertainment and
moving-related expenses incurred in the ordinary course of business, or
(2) in the ordinary course of business and (in the case of this clause (2))
not exceeding $2.5 million in the aggregate outstanding at any time.
"Management Investors" means the officers, directors, employees and other
members of the management of Holding, North American Van Lines or any of their
respective Subsidiaries (or of any Agent), or family members or relatives
thereof, or trusts or partnerships for the benefit of any of the foregoing, or
any of their heirs, executors, successors and legal representatives, or any
Agent, who at any date beneficially own or have the right to acquire, directly
or indirectly, Capital Stock of North American Van Lines or Holding.
"Management Stock" means Capital Stock of North American Van Lines or
Holding (including any options, warrants or other rights in respect thereof)
held by any of the Management Investors.
"Moody's" means Moody's Investors Service, Inc., and its successors.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other non-cash form) therefrom, in each case net of
(1) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, and all Federal, state, provincial, foreign and
local taxes required to be paid or accrued as a liability under GAAP, as a
consequence of such Asset Disposition (including as a consequence of any
transfer of funds in connection with the application thereof in accordance
with the covenant described under "--Certain Covenants--Limitation on Sales
of Assets and Subsidiary Stock"),
(2) all payments made, and all installment payments required to be made,
on any Indebtedness that is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon such assets, or
that must by its terms, or in order to obtain a necessary consent to such
Asset Disposition, or by applicable law, be repaid out of the proceeds from
such Asset Disposition,
(3) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition, or to any other Person (other than North American Van Lines or
a Restricted Subsidiary) owning a beneficial interest in the assets disposed
of in such Asset Disposition and
(4) any liabilities or obligations associated with the assets disposed
of in such Asset Disposition and retained by North American Van Lines or any
Restricted Subsidiary after such Asset Disposition, including without
limitation pension and other post-employment benefit liabilities,
liabilities related to environmental matters, and liabilities relating to
any indemnification obligations associated with such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of any securities
of North American Van Lines or any Subsidiary by North American Van Lines or any
Subsidiary, or any capital contribution, means
150
the cash proceeds of such issuance, sale or contribution net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance, sale or contribution and net of taxes paid or
payable as a result thereof.
"Note Guarantee" means any of (1) the guarantees of the notes by the
Domestic Subsidiaries to be entered into on the Issue Date as described under
"--Note Guarantees," and (2) any guarantee that may from time to time be entered
into by a Restricted Subsidiary of North American Van Lines pursuant to the
covenant described under "--Certain Covenants--Future Note Guarantors."
"Note Guarantor" means any Restricted Subsidiary of North American Van Lines
that enters into a Note Guarantee.
"Officer" means, with respect to North American Van Lines or any other
obligor upon the notes, the Chairman of the Board, the President, the Chief
Executive Officer, the Chief Financial Officer, any Vice President, the
Controller, the Treasurer or the Secretary (a) of such Person or (b) if such
Person is owned or managed by a single entity, of such entity (or any other
individual designated as an "Officer" for the purposes of the indenture by the
Board of Directors).
"Officer's Certificate" means, with respect to North American Van Lines or
any other obligor upon the notes, a certificate signed by one Officer of such
Person.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the trustee. The counsel may be an employee of or
counsel to North American Van Lines or the trustee.
"Permitted Holder" means any of the following: (1) any of the Investors,
Management Investors, CDR and their respective Affiliates; (2) any investment
fund or vehicle managed, sponsored or advised by CDR; and (3) any Person acting
in the capacity of an underwriter in connection with a public or private
offering of Capital Stock of Holding or North American Van Lines.
"Permitted Investment" means an Investment by North American Van Lines or
any Restricted Subsidiary in, or consisting of, any of the following:
(1) a Restricted Subsidiary, North American Van Lines, or a Person that
will, upon the making of such Investment, become a Restricted
Subsidiary;
(2) another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, or is liquidated into, North American
Van Lines or a Restricted Subsidiary;
(3) Temporary Cash Investments or Cash Equivalents;
(4) receivables owing to North American Van Lines or any Restricted
Subsidiary, if created or acquired in the ordinary course of business;
(5) any securities or other Investments received as consideration in, or
retained in connection with, sales or other dispositions of property or
assets, including Asset Dispositions made in compliance with the
covenant described under "--Certain Covenants--Limitation on Sales of
Assets and Subsidiary Stock";
(6) securities or other Investments received in settlement of debts created
in the ordinary course of business and owing to North American Van Lines
or any Restricted Subsidiary, or as a result of foreclosure, perfection
or enforcement of any Lien, or in satisfaction of judgments, including
in connection with any bankruptcy proceeding or other reorganization of
another Person;
(7) Investments in existence or made pursuant to legally binding written
commitments in existence on the Issue Date;
151
(8) Currency Agreements, Interest Rate Agreements and related Hedging
Obligations, which obligations are Incurred in compliance with the
covenant described under "--Certain Covenants--Limitation on
Indebtedness";
(9) pledges or deposits (x) with respect to leases or utilities provided to
third parties in the ordinary course of business or (y) otherwise
described in the definition of "Permitted Liens" or made in connection
with Liens permitted under the covenant described under "--Certain
Covenants--Limitation on Liens";
(10) Investments in joint ventures or similar entities that are not
Restricted Subsidiaries, or in any Related Business, in an aggregate
amount outstanding at any time not to exceed the greater of
(x) $15.0 million and (y) 2.5% of Consolidated Tangible Assets;
(11) (1) Investments in any Receivables Subsidiary, or in connection with a
Financing Disposition by or to any Receivables Entity, including
Investments of funds held in accounts permitted or required by the
arrangements governing such Financing Disposition or any related
Indebtedness, or (2) any promissory note issued by North American Van
Lines or Holding, provided that if Holding receives cash from the
relevant Receivables Entity in exchange for such note, an equal cash
amount is contributed by Holding to North American Van Lines;
(12) bonds secured by assets leased to and operated by North American Van
Lines or any Restricted Subsidiary that were issued in connection with
the financing of such assets so long as North American Van Lines or any
Restricted Subsidiary may obtain title to such assets at any time by
paying a nominal fee, canceling such bonds and terminating the
transaction;
(13) notes;
(14) any Investment to the extent made using Capital Stock of North American
Van Lines (other than Disqualified Stock), or Capital Stock of Holding,
as consideration;
(15) Management Advances and payments in respect thereof;
(16) Agent Guarantees in an aggregate principal amount not exceeding
$10.0 million outstanding at any time and payments in respect thereof;
and
(17) other Investments in an aggregate amount outstanding at any time not to
exceed $10.0 million.
"Permitted Junior Securities" means:
(a) debt securities of North American Van Lines as reorganized or
readjusted, if applicable, and guaranteed by the Note Guarantors, or
debt securities of North American Van Lines (or any other company, trust
or organization provided for by a plan of reorganization or readjustment
succeeding to the assets and liabilities of North American Van Lines)
and guaranteed by the Note Guarantors, in each of the foregoing cases,
which securities and guarantees are subordinated, to at least the same
extent as the notes and the Note Guarantees, to the payment of all
Senior Indebtedness and guarantees thereof that will be outstanding
after giving effect to such reorganization or readjustment, if
applicable, so long as
(1) such debt securities are not entitled to the benefit of covenants
or defaults more beneficial to the holders of such debt securities than
those in effect with respect to the notes (or the Senior Indebtedness,
after giving effect to such reorganization or readjustment, if
applicable) and
(2) such debt securities shall not provide for amortization-including
sinking fund and mandatory prepayment provisions (other than a mandatory
prepayment of the type described under the caption "--Change of Control")
commencing prior to the date which is one year after
152
the final scheduled maturity date of the Senior Indebtedness (as modified
by such reorganization or readjustment, if applicable),
or
(b) Capital Stock in North American Van Lines or any Note Guarantor;
provided, that in each case with respect to clauses (a) and (b) above, if a
new corporation results from any such reorganization or readjustment, such
corporation assumes all Senior Indebtedness that will be outstanding after
giving effect thereto and provided further, that the rights of the holders of
Senior Indebtedness are not impaired.
"Permitted Liens" means:
(a) Liens for taxes, assessments or other governmental charges not yet
delinquent or the nonpayment of which in the aggregate would not
reasonably be expected to have a material adverse effect on North
American Van Lines and its Restricted Subsidiaries, or that are being
contested in good faith and by appropriate proceedings if adequate
reserves with respect thereto are maintained on the books of North
American Van Lines or a Subsidiary thereof, as the case may be, in
accordance with GAAP;
(b) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business in respect of obligations that are not overdue for a period of
more than 60 days, or that are bonded or that are being contested in good
faith and by appropriate proceedings;
(c) pledges, deposits or Liens in connection with workers' compensation,
unemployment insurance and other social security and other similar
legislation or other insurance-related obligations (including, without
limitation, pledges or deposits securing liability to insurance carriers
under insurance or self-insurance arrangements);
(d) pledges, deposits or Liens to secure the performance of bids, tenders,
trade, government or other contracts (other than for borrowed money),
obligations for utilities, leases, licenses, statutory obligations,
completion guarantees, surety, judgment, appeal or performance bonds,
other similar bonds, instruments or obligations, and other obligations of
a like nature incurred in the ordinary course of business;
(e) easements (including reciprocal easement agreements), rights-of-way,
building, zoning and similar restrictions, utility agreements, covenants,
reservations, restrictions, encroachments, changes, and other similar
encumbrances or title defects incurred, or leases or subleases granted to
others, in the ordinary course of business, which do not in the aggregate
materially interfere with the ordinary conduct of the business of North
American Van Lines and its Subsidiaries, taken as a whole;
(f) Liens existing on, or provided for under written arrangements existing
on, the Issue Date, or (in the case of any such Liens securing
Indebtedness of North American Van Lines or any of its Subsidiaries
existing or arising under written arrangements existing on the Issue
Date) securing any Refinancing Indebtedness in respect of such
Indebtedness so long as the Lien securing such Refinancing Indebtedness
is limited to all or part of the same property or assets (plus
improvements, accessions, proceeds or dividends or distributions in
respect thereof) that secured (or under such written arrangements could
secure) the original Indebtedness;
(g) (1) mortgages, liens, security interests, restrictions, encumbrances or
any other matters of record that have been placed by any developer,
landlord or other third party on property over which North American Van
Lines or any Restricted Subsidiary of North American Van Lines has
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easement rights or on any leased property and subordination or similar
agreements relating thereto and (2) any condemnation or eminent domain
proceedings affecting any real property;
(h) Liens securing Hedging Obligations, Purchase Money Obligations or
Capitalized Lease Obligations Incurred in compliance with the covenant
described under "--Certain Covenants--Limitation on Indebtedness";
(i) Liens arising out of judgments, decrees, orders or awards in respect of
which North American Van Lines shall in good faith be prosecuting an
appeal or proceedings for review, which appeal or proceedings shall not
have been finally terminated, or if the period within which such appeal
or proceedings may be initiated shall not have expired;
(j) leases, subleases, licenses or sublicenses to third parties;
(k) Liens securing
(1) Indebtedness Incurred in compliance with clause (b)(1), (b)(4),
(b)(5), (b)(7) or (b)(8)(F) of the covenant described under "--Certain
Covenants--Limitation on Indebtedness,"
(2) Bank Indebtedness,
(3) commercial bank Indebtedness,
(4) the notes or
(5) Indebtedness or other obligations of any Receivables Entity;
(l) Liens existing on property or assets of a Person at the time such Person
becomes a Subsidiary of North American Van Lines (or at the time North
American Van Lines or a Restricted Subsidiary acquires such property or
assets); provided, however, that such Liens are not created in connection
with, or in contemplation of, such other Person becoming such a
Subsidiary (or such acquisition of such property or assets), and that
such Liens are limited to all or part of same property or assets (plus
improvements, accessions, proceeds or dividends or distributions in
respect thereof) that secured (or, under the written arrangements under
which such Liens arose, could secure) the obligations to which such Liens
relate;
(m) Liens on Capital Stock or other securities of an Unrestricted Subsidiary
that secure Indebtedness or other obligations of such Unrestricted
Subsidiary;
(n) any encumbrance or restriction (including, but not limited to, put and
call agreements) with respect to Capital Stock of any joint venture or
similar arrangement pursuant to any joint venture or similar agreement;
and
(o) Liens securing Refinancing Indebtedness Incurred in respect of any
Indebtedness secured by, or securing any refinancing, refunding,
extension, renewal or replacement (in whole or in part) of any other
obligation secured by, any other Permitted Liens, provided that any such
new Lien is limited to all or part of the same property or assets (plus
improvements, accessions, proceeds or dividends or distributions in
respect thereof) that secured (or, under the written arrangements under
which the original Lien arose, could secure) the obligations to which
such Liens relate.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock" as applied to the Capital Stock of any corporation means
Capital Stock of any class or classes (however designated) that by its terms is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
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"Purchase Money Obligations" means any Indebtedness Incurred to finance or
refinance the acquisition, leasing, construction or improvement of property
(real or personal) or assets, and whether acquired through the direct
acquisition of such property or assets or the acquisition of the Capital Stock
of any Person owning such property or assets, or otherwise.
"Qualified Proceeds" means property or assets that are used, usable or
useful in, or a majority of the Voting Stock of any Person engaged in, a Related
Business; provided that the fair market value of any such assets or Capital
Stock shall be determined by the Board of Directors in good faith.
"Receivable" means a right to receive payment arising from a sale or lease
of goods or services by a Person pursuant to an arrangement with another Person
pursuant to which such other Person is obligated to pay for goods or services
under terms that permit the purchase of such goods and services on credit, as
determined in accordance with GAAP.
"Receivables Entity" means
(x) any Receivables Subsidiary or
(y) any other Person that is engaged in the business of acquiring,
selling, collecting, financing or refinancing Receivables, accounts (as
defined in the Uniform Commercial Code as in effect in any jurisdiction from
time to time), other accounts and/or other receivables, and/or related
assets.
"Receivables Fees" means distributions or payments made directly or by means
of discounts with respect to any participation interest issued or sold in
connection with, and other fees paid to a Person that is not a Restricted
Subsidiary in connection with, any Receivables Financing.
"Receivables Financing" means any financing of Receivables of North American
Van Lines or any Restricted Subsidiary that have been transferred to a
Receivables Entity in a Financing Disposition.
"Receivables Subsidiary" means a Subsidiary of North American Van Lines that
(a) is engaged solely in the business of acquiring, selling, collecting,
financing or refinancing Receivables, accounts (as defined in the Uniform
Commercial Code as in effect in any jurisdiction from time to time) and
other accounts and receivables (including any thereof constituting or
evidenced by chattel paper, instruments or general intangibles), all
proceeds thereof and all rights (contractual and other), collateral and
other assets relating thereto, and any business or activities incidental or
related to such business, and
(b) is designated as a "Receivables Subsidiary" by the Board of
Directors.
"Receivables Repurchase Obligation" means any obligation of a seller of
receivables to repurchase receivables (including Receivables, accounts (as
defined in the Uniform Commercial Code as in effect in any jurisdiction from
time to time) and other accounts and receivables (including any thereof
constituting or evidenced by chattel paper, instruments or general intangibles))
arising as a result of a breach of a representation, warranty or covenant or
otherwise, including as a result of a receivable or portion thereof becoming
subject to any asserted defense, dispute, off-set or counterclaim of any kind as
a result of any action taken by, any failure to take action by or any other
event relating to the seller.
"refinance" means refinance, refund, replace, renew, repay, modify, restate,
defer, substitute, supplement, reissue, resell or extend (including pursuant to
any defeasance or discharge mechanism); and the terms "refinances," "refinanced"
and "refinancing" as used for any purpose in the indenture shall have a
correlative meaning.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refinance
any Indebtedness existing on the date of the indenture or Incurred in compliance
with the indenture (including Indebtedness of North American Van Lines that
refinances Indebtedness of any Restricted Subsidiary (to the extent permitted in
the indenture) and Indebtedness of any Restricted Subsidiary that refinances
Indebtedness of
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another Restricted Subsidiary) including Indebtedness that refinances
Refinancing Indebtedness; provided, that
(1) if the Indebtedness being refinanced is Subordinated Obligations or
Guarantor Subordinated Obligations, the Refinancing Indebtedness has an
Average Life at the time such Refinancing Indebtedness is Incurred that is
equal to or greater than the Average Life of the Indebtedness being
refinanced,
(2) such Refinancing Indebtedness is Incurred in an aggregate principal
amount (or if issued with original issue discount, an aggregate issue price)
that is equal to or less than the sum of (x) the aggregate principal amount
(or if issued with original issue discount, the aggregate accreted value)
then outstanding of the Indebtedness being refinanced, plus (y) fees,
underwriting discounts, premiums and other costs and expenses incurred in
connection with such Refinancing Indebtedness and
(3) Refinancing Indebtedness shall not include (x) Indebtedness of a
Restricted Subsidiary that is not a Note Guarantor that refinances
Indebtedness of North American Van Lines or a Note Guarantor that was
incurred by North American Van Lines or a Note Guarantor pursuant to
paragraph (a) of the covenant described under "--Certain
Covenants-Limitation on Indebtedness" or (y) Indebtedness of North American
Van Lines or a Restricted Subsidiary that refinances Indebtedness of an
Unrestricted Subsidiary.
"Related Business" means those businesses in which North American Van Lines
or any of its Subsidiaries is engaged on the date of the indenture, or that are
related, complementary, incidental or ancillary thereto or extensions,
developments or expansions thereof.
"Related Taxes" means
(x) any taxes, charges or assessments, including but not limited to
sales, use, transfer, rental, ad valorem, value-added, stamp, property,
consumption, franchise, license, capital, net worth, gross receipts, excise,
occupancy, intangibles or similar taxes, charges or assessments (other than
federal, state or local taxes measured by income and federal, state or local
withholding imposed on payments made by Holding), required to be paid by
Holding by virtue of its being incorporated or having Capital Stock
outstanding (but not by virtue of owning stock or other equity interests of
any corporation or other entity other than North American Van Lines or any
of its Subsidiaries), or being a holding company parent of North American
Van Lines or receiving dividends from or other distributions in respect of
the Capital Stock of North American Van Lines, or having guaranteed any
obligations of North American Van Lines or any Subsidiary thereof, or having
made any payment in respect of any of the items for which North American Van
Lines is permitted to make payments to Holding pursuant to the covenant
described under "--Certain Covenants--Limitation on Restricted Payments," or
(y) any other federal, state, foreign, provincial or local taxes
measured by income for which Holding is liable up to an amount not to exceed
with respect to such federal taxes the amount of any such taxes that North
American Van Lines would have been required to pay on a separate company
basis or on a consolidated basis if North American Van Lines had filed a
consolidated return on behalf of an affiliated group (as defined in
Section 1504 of the Code or an analogous provision of state, local or
foreign law) of which it were the common parent, or with respect to state
and local taxes, on a combined basis if North American Van Lines had filed a
combined return on behalf of an affiliated group consisting only of North
American Van Lines and its Subsidiaries, or
(z) any federal, state, foreign, provincial or local withholding taxes
paid by Holding by virtue of any dividend distributions in respect of the
Preferred Stock issued in the Allied Acquisition (other than any such
dividend distributions paid in cash).
156
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Indebtedness.
"Restricted Payment Transaction" means any Restricted Payment permitted
pursuant to the covenant described under "--Certain Covenants--Limitation on
Restricted Payments," any Permitted Payment, any Permitted Investment, or any
transaction specifically excluded from the definition of the term "Restricted
Payment."
"Restricted Subsidiary" means any Subsidiary of North American Van Lines
other than an Unrestricted Subsidiary.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of North American Van Lines
secured by a Lien.
"Senior Credit Agreement" means the credit agreement dated as of the Issue
Date among North American Van Lines, any Subsidiaries of North American Van
Lines party thereto from time to time, the banks and other financial
institutions party thereto from time to time, Banc of America Securities LLC, as
syndication agent, and The Chase Manhattan Bank as collateral agent and
administrative agent, as such agreement may be assumed by any successor in
interest, and as such agreement may be amended, supplemented, waived or
otherwise modified from time to time, or refunded, refinanced, restructured,
replaced, renewed, repaid, increased or extended from time to time (whether in
whole or in part, whether with the original agent and lenders or other agents
and lenders or otherwise, and whether provided under the original Senior Credit
Agreement or otherwise).
"Senior Credit Facility" means the collective reference to the Senior Credit
Agreement, any Loan Documents (as defined therein), any notes and letters of
credit issued pursuant thereto and any guarantee and collateral agreement,
patent and trademark security agreement, mortgages, letter of credit
applications and other guarantees, pledge agreements, security agreements and
collateral documents, and other instruments and documents, executed and
delivered pursuant to or in connection with any of the foregoing, in each case
as the same may be amended, supplemented, waived or otherwise modified from time
to time, or refunded, refinanced, restructured, replaced, renewed, repaid,
increased or extended from time to time (whether in whole or in part, whether
with the original agent and lenders or other agents and lenders or otherwise,
and whether provided under the original Senior Credit Agreement or one or more
other credit agreements, indentures (including the indenture) or financing
agreements or otherwise). Without limiting the generality of the foregoing, the
term "Senior Credit Facility" shall include any agreement
(1) changing the maturity of any Indebtedness incurred thereunder or
contemplated thereby,
(2) adding Subsidiaries of North American Van Lines as additional
borrowers or guarantors thereunder,
(3) increasing the amount of Indebtedness incurred thereunder or
available to be borrowed thereunder or
(4) otherwise altering the terms and conditions thereof.
"Senior Subordinated Indebtedness" means the notes and any other
Indebtedness of North American Van Lines that ranks PARI PASSU with the notes.
"Significant Domestic Subsidiary" means any Domestic Subsidiary that is a
Significant Subsidiary.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" of North American Van Lines within the meaning of
Rule 1-02 under Regulation S-X promulgated by the SEC, as in effect on the Issue
Date.
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"S&P" means Standard & Poor's Ratings Service, a division of The McGraw-Hill
Companies, Inc., and its successors.
"Standard Receivable Obligations" means representations, warranties,
covenants, indemnities and other obligations (including Guarantees and
Indebtedness) that are reasonably customary in connection with a Financing
Disposition (as determined by North American Van Lines in good faith),
including, without limitation, those relating to the servicing of the assets of
a Receivables Entity, it being understood that any Receivables Repurchase
Obligation shall be deemed to be a Standard Receivable Obligation.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency).
"Subordinated Obligations" means any Indebtedness of North American Van
Lines (whether outstanding on the date of the indenture or thereafter Incurred)
that is expressly subordinated in right of payment to the notes pursuant to a
written agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other equity interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (1) such Person or (2) one or
more Subsidiaries of such Person.
"Successor Company" shall have the meaning assigned thereto in clause (1)
under "--Merger and Consolidation."
"Tax Sharing Agreement" means the Tax Sharing Agreement, dated as of the
Issue Date, between North American Van Lines and Holding, as the same may be
amended, supplemented, waived or otherwise modified from time to time in
accordance with the terms thereof and of the indenture.
"Temporary Cash Investments" means any of the following:
(1) any investment in (X) direct obligations of the United States of
America or any agency or instrumentality thereof or obligations Guaranteed
by the United States of America or any agency or instrumentality thereof, or
(Y) direct obligations of any foreign country recognized by the United
States of America rated at least "A" by S&P or "A-1" by Moody's (or, in
either case, the equivalent of such rating by such organization or, if no
rating of S&P or Moody's then exists, the equivalent of such rating by any
nationally recognized rating organization),
(2) overnight bank deposits, and investments in time deposit accounts,
certificates of deposit, bankers' acceptances and money market deposits (or,
with respect to foreign banks, similar instruments) maturing not more than
one year after the date of acquisition thereof issued by (X) any lender
under the Senior Credit Agreement or (Y) a bank or trust company that is
organized under the laws of the United States of America, any state thereof
or any foreign country recognized by the United States of America having
capital and surplus aggregating in excess of $250 million (or the foreign
currency equivalent thereof) and whose long term debt is rated at least "A"
by S&P or "A-1" by Moody's (or, in either case, the equivalent of such
rating by such organization or, if no rating of S&P or Moody's then exists,
the equivalent of such rating by any nationally recognized rating
organization) at the time such Investment is made,
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) or (2) above
entered into with a bank meeting the qualifications described in clause (2)
above,
158
(4) investments in commercial paper, maturing not more than 270 days
after the date of acquisition, issued by a Person (other than North American
Van Lines or any of its Subsidiaries), with a rating at the time as of which
any Investment therein is made of "P-2" (or higher) according to Moody's or
"A-2" (or higher) according to S&P (or, in either case, the equivalent of
such rating by such organization or, if no rating of S&P or Moody's then
exists, the equivalent of such rating by any nationally recognized rating
organization),
(5) Investments in securities maturing not more than one year after the
date of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision
or taxing authority thereof, and rated at least "A" by S&P or "A" by Moody's
(or, in either case, the equivalent of such rating by such organization or,
if no rating of S&P or Moody's then exists, the equivalent of such rating by
any nationally recognized rating organization),
(6) investment funds investing 95% of their assets in securities of the
type described in clauses (1)--(5) above (which funds may also hold
reasonable amounts of cash pending investment and/or distribution),
(7) any money market deposit accounts issued or offered by a domestic
commercial bank or a commercial bank organized and located in a country
recognized by the United States of America, in each case, having capital and
surplus in excess of $250 million (or the foreign currency equivalent
thereof), or investments in money market funds complying with the risk
limiting conditions of Rule 2a-7 (or any successor rule) of the SEC under
the Investment Company Act of 1940, as amended, or
(8) similar short-term investments approved by the Board of Directors in
the ordinary course of business.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
SectionSection77aaa-7bbbb) as in effect on the date of the indenture.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Transactions" means, collectively, the Allied Acquisition, the offering and
issuance of the notes and the Holding Notes, the initial borrowings under the
Senior Credit Facility, the issuance by Holding of Capital Stock as part of the
consideration for the Allied Acquisition, the Holding Stock Issuance, and all
other related transactions.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the trustee assigned by the trustee to
administer its corporate trust matters.
"Unrestricted Subsidiary" means
(1) any Subsidiary of North American Van Lines that at the time of
determination is an Unrestricted Subsidiary, as designated by the Board of
Directors in the manner provided below, and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of North American Van Lines
(including any newly acquired or newly formed Subsidiary of North American Van
Lines) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, North American Van Lines or any other Restricted
Subsidiary of North American Van Lines that is not a Subsidiary of the
Subsidiary to be so designated; provided, that either
(A) the Subsidiary to be so designated has total consolidated assets of
$1,000 or less or
159
(B) if such Subsidiary has consolidated assets greater than $1,000, then
such designation would be permitted under the covenant described under
"--Certain Covenants--Limitation on Restricted Payments."
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, that immediately after giving effect to such
designation either
(x) North American Van Lines could incur at least $1.00 of additional
Indebtedness under paragraph (a) in the covenant described under "--Certain
Covenants--Limitation on Indebtedness" or
(y) the Consolidated Coverage Ratio would be greater than it was immediately
prior to giving effect to such designation.
Any such designation by the Board of Directors shall be evidenced to the trustee
by promptly filing with the trustee a copy of the resolution of North American
Van Lines' Board of Directors giving effect to such designation and an Officer's
Certificate of North American Van Lines certifying that such designation
complied with the foregoing provisions.
"Voting Stock" of an entity means all classes of Capital Stock of such
entity then outstanding and normally entitled to vote in the election of
directors or all interests in such entity with the ability to control the
management or actions of such entity.
160
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
UNITED STATES FEDERAL TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
consequences of the acquisition, ownership and disposition of the notes. This
summary applies only to a beneficial owner of a note who acquired a note at the
initial offering from the initial purchasers and for the original offering price
thereof.
This summary is based on provisions of the U.S. Internal Revenue Code of
1986, as amended (the "Code"), existing and proposed U.S. Treasury regulations
promulgated thereunder (the "Treasury Regulations") and administrative and
judicial interpretations thereof, all as of the date hereof and all of which are
subject to change, possibly on a retroactive basis.
This summary does not address the tax consequences to subsequent purchasers
of the notes, and is limited to acquirors who hold the notes as capital assets.
This summary is for general information only, and does not address all of the
tax consequences that may be relevant to particular acquirors in light of their
personal circumstances, or to certain types of acquirors (such as banks and
other financial institutions, real estate investment trusts, regulated
investment companies, insurance companies, tax-exempt organizations, dealers in
securities, persons who hold the notes as part of a hedge or a straddle with
other investments). In addition, this summary does not include any description
of the tax laws of any state, local or non-U.S. government that may be
applicable to a particular acquiror.
PROSPECTIVE ACQUIRORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE PARTICULAR U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO
THEM OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NOTES, AS WELL AS THE
TAX CONSEQUENCES UNDER STATE, LOCAL, NON-U.S. AND OTHER U.S. FEDERAL TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN TAX LAWS.
EXCHANGE OFFER
The exchange of any old note for a new note should not constitute a taxable
exchange of the old note. As a result, the new notes should have the same issue
price (and adjusted issue price immediately after the exchange) and the same
amount of original issue discount, if any, as the old notes, and each holder
should have the same adjusted tax basis and holding period in the new notes as
it had in the old notes immediately before the exchange. The following
discussion assumes that the exchange of old notes for new notes pursuant to the
exchange offer will not be treated as a taxable exchange and that the old notes
and the new notes will be treated as the same security for federal income tax
purposes.
TAXATION OF U.S. HOLDERS
As used herein, the term "U.S. holder" means a holder of a note that is, for
U.S. federal income tax purposes, (a) a citizen or resident of the United
States, (b) a corporation or partnership created or organized in the United
States or under the laws of the United States or of any state of the United
States, (c) an estate whose income is includable in gross income for
U.S. federal income tax purposes regardless of its source or (d) a trust if
(1) a court within the United States is able to exercise primary supervision
over the administration of the trust and (2) at least one U.S. person has
authority to control all substantial decisions of the trust. The Code authorizes
the issuance of Treasury Regulations that, under certain circumstances, could
reclassify as a non-U.S. partnership a partnership that would otherwise be
treated as a U.S. partnership, or could reclassify as a U.S. partnership a
partnership that would otherwise be treated as a non-U.S. partnership. Such
regulations would apply only to partnerships created or organized after the date
that proposed Treasury Regulations are filed with the Federal Register (or, if
earlier, the date of issuance of a notice substantially describing the expected
contents of the regulations).
161
PAYMENT OF INTEREST ON THE NOTES OTHER THAN PAYMENTS UPON REGISTRATION
DEFAULT. In general, interest paid on a note (other than payments upon a
registration default discussed below) will be taxable to a U.S. holder as
ordinary interest income, as received or accrued, in accordance with such
holder's method of accounting for federal income tax purposes. If original issue
discount on a note is not greater than a DE MINIMIS amount equal to 0.25% of its
stated principal amount multiplied by the number of complete years to its
maturity, any such discount will be deemed to be equal to zero, and a holder
will not be required to accrue a portion of such discount as income in each
taxable year. See, however, the discussion below under "--Payments upon
Registration Default." Holders should consult their tax advisors as to the
possible effect of payments upon a registration default on the treatment of
original issue discount on the note if any.
PAYMENTS UPON REGISTRATION DEFAULT. Because the notes provide for the
payment of additional interest under the circumstances described above under
"Description of Notes--Registration Rights," the notes could be subject to
certain Treasury Regulations relating to debt instruments that provide for one
or more contingent payments (the "Contingent Payment Regulations"). Under the
Contingent Payment Regulations, however a payment is not a contingent payment
merely because of a contingency that, as of the issue date, is either "remote"
or "incidental." The Company intends to take the position that, for purposes of
the Contingent Payment Regulations, the payment of such additional interest is a
remote or incidental contingency as of the issue date. Accordingly, the
Contingent Payment Regulations should not apply to the notes unless payments are
actually made upon a registration default, in which case, the rules described
below would apply to such payments.
If payments of additional interest were actually made, then such payments
would be includable in a U.S. holder's gross income in the taxable year in which
such payments were actually made, regardless of the tax accounting method used
by such holder. If payments of additional interest were actually made and such
payments were "not insignificant" under the Contingent Payment Regulations, the
notes would be treated as reissued for purposes of applying the original issue
discount rules. As a consequence of such reissuance, a U.S. holder could be
required to accrue all payments on a note in excess of its issue price
(including, possibly, amounts that would otherwise constitute DE MINIMIS
original issue discount) on a constant yield basis.
If the U.S. Internal Revenue Service (the "IRS") were to take the position
that, as of the date of issuance, the payment of such additional interest were
not a "remote" or "incidental" contingency for purposes of the Contingent
Payment Regulations, then (1) all payments (including any projected payments of
such additional interest) on a note in excess of its issue price would
effectively be treated as original issue discount, and (2) in each taxable year,
a holder would be required to include an allocable portion of such amounts in
gross income on a constant yield basis whether or not the payment of such
additional interest were fixed or determinable in the taxable year.
The Company's position for purposes of the Contingent Payment Regulations
that the payment of such additional interest is a remote contingency as of the
issue date is binding on each holder for federal income tax purposes, unless
such holder discloses in the proper manner to the IRS that it is taking a
different position.
Prospective acquirors should consult their tax advisors as to the tax
considerations relating to debt instruments providing for payments such as the
additional interest payable upon a registration default, particularly in
connection with the possible application of the Contingent Payment Regulations.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES. Upon the sale, exchange,
redemption, retirement at maturity or other disposition of a note, a
U.S. holder will generally recognize taxable gain or loss equal to the
difference between the sum of the cash and the fair market value of all other
property received on such disposition (except to the extent such cash or
property is attributable to accrued interest, which will be taxable as ordinary
income) and such holder's adjusted tax basis in the note.
162
Gain or loss recognized on the disposition of a note generally will be
capital gain or loss, and will be long-term capital gain or loss if, at the time
of such disposition, the holder's holding period for the note is more than one
year. A reduced tax rate on capital gain will apply to an individual
U.S. holder if such holder's holding period for the note is more than one year
at the time of disposition.
MARKET DISCOUNT. A U.S. holder (other than a holder who makes the election
described below) that acquires a note with market discount that is not de
minimis, except in certain non-recognition transactions, generally will be
required to treat any gain realized upon the disposition of the note as interest
income to the extent of the market discount that accrued during the period such
holder held such note. (For this purpose, a person disposing of a market
discount note in a transaction other than a sale, exchange or involuntary
conversion generally is treated as realizing an amount equal to the fair market
value of the note.) A holder may also be required to recognize as ordinary
income any principal payments with respect to a note to the extent such payments
do not exceed the accrued market discount on the note. For these purposes,
market discount generally equals the excess of the stated redemption price of
the note over the tax basis of the note in the hands of the holder immediately
after its acquisition. However, market discount is deemed not to exist if the
market discount is less than a de minimis amount equal to 0.25% of the note's
redemption price at maturity multiplied by the number of complete years to the
note's maturity after the holder acquired the note (or, in the case of a holder
that acquires a new note pursuant to the exchange offer, the old note exchanged
for such new note).
The market discount rules also provide that any holder of notes that were
acquired at a market discount may be required to defer the deduction of a
portion of the interest on any indebtedness incurred or maintained to acquire or
carry the notes, until the notes are disposed of.
A holder of a note acquired at a market discount may elect to include market
discount in income as the discount accrues. In such a case, the foregoing rules
with respect to the recognition of ordinary income on dispositions and with
respect to the deferral of interest deductions on indebtedness related to such
note would not apply. The current inclusion election applies to all market
discount obligations acquired on or after the first day of the first taxable
year to which the election applies, and may not be revoked without the consent
of the IRS.
AMORTIZABLE BOND PREMIUM. Generally, if the tax basis of an obligation held
as a capital asset exceeds the amount payable at maturity of the obligation,
such excess may constitute amortizable bond premium that the holder of such
obligation may elect to amortize under the constant interest rate method and
deduct over the period from the holder's acquisition date to the obligation's
maturity date. A holder that elects to amortize bond premium must reduce its tax
basis in the related obligation by the amount of the aggregate deductions
allowable for the amortizable bond premium. Any election to amortize bond
premium applies to all bonds (other than bonds the interest on which is
excludible from gross income) held by the holder at the beginning of the first
taxable year to which the election applies or thereafter acquired by the holder.
The election may not be revoked without the consent of the IRS.
In the case of an obligation, such as a note, that may be called at a
premium prior to maturity, an earlier call date is treated as its maturity date,
and the amount of bond premium is determined by treating the amount payable on
such call date as the amount payable at maturity if such a calculation produces
a smaller amortizable bond premium than any other call date or the method
described in the preceding paragraph. For purposes of amortizing bond premium,
if a holder of a note is required to amortize and deduct bond premium by
reference to a call date, the note will be treated as maturing on such date for
the amount payable, and, if not redeemed on such date, the note will be treated
as reissued on such date for the amount so payable. If a note purchased at a
premium is redeemed pursuant to a call prior to such early call date or its
maturity, a purchaser who has elected to deduct bond premium may deduct the
excess of its adjusted tax basis in the note over the amount received on
redemption (or, if greater, the amount payable on maturity) as an ordinary loss
in the taxable year of redemption.
163
The amortizable bond premium deduction is treated as a reduction of interest
on the bond instead of as a deduction. The offset of amortizable bond premium
against interest income on the bond occurs when income is taxable to a holder as
received or accrued, in accordance with such holder's method of accounting for
such income.
BACKUP WITHHOLDING AND INFORMATION REPORTING. In general, a U.S. holder
will be subject to backup withholding at the rate of 31% with respect to
interest, principal and premium, if any, paid on, and the proceeds of a
disposition of, a note, unless the holder (a) is an entity that is exempt from
withholding (including corporations, tax-exempt organizations and certain
qualified nominees) and, when required, demonstrates this fact, or (b) provides
the Company with its taxpayer identification number ("TIN") (which for an
individual would be the holder's social security number), certifies under
penalties of perjury that the TIN provided to the Company is correct and that
the holder has not been notified by the IRS that it is subject to backup
withholding due to underreporting of interest or dividends, and otherwise
complies with applicable requirements of the backup withholding rules. In
addition, such payments of principal, premium and interest to U.S. holders that
are not exempt entities will generally be subject to information reporting
requirements. A U.S. holder who does not provide the Company with its correct
TIN may be subject to penalties imposed by the IRS.
The Company will report to U.S. holders and the IRS the amount of any
"reportable payments" (including any interest paid) and any amount withheld with
respect to the notes during the calendar year.
The amount of any backup withholding from a payment to a U.S. holder will be
allowed as a credit against such holder's federal income tax liability and may
entitle such holder to a refund, provided that the required information is
furnished to the IRS. Treasury Regulations, generally effective for payments
made after December 31, 2000 (the "New Withholding Regulations"), modify certain
of the certification requirements for backup withholding. It is possible that
the Company and other withholding agents may request a new withholding exemption
from holders in order to qualify for continued exemption from backup withholding
under the New Withholding Regulations.
TAXATION OF NON-U.S. HOLDERS
PAYMENT OF INTEREST ON THE NOTES. In general payments of interest received
by any holder of a note that is not a U.S. holder will not be subject to a
U.S. federal income tax (or any withholding thereof, except as described below
under "Backup Withholding and Information Reporting"), provided that (a) under
an exemption for certain portfolio interest, (1) the non-U.S. holder does not
actually or constructively own 10% or more of the total combined voting power of
all classes of stock of the Company entitled to vote, (2) the holder is not a
"controlled foreign corporation" (generally, a non-U.S. corporation controlled
by U.S. shareholders) that is related to the Company actually or constructively
through stock ownership and (3) either (x) the beneficial owner of the note,
under penalties of perjury, provides the Company or its agent with the
beneficial owner's name and address and certifies that it is not a U.S. person
on IRS Form W-8 (or a suitable substitute form) or (y) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business holds the note and
certifies to the Company or its agent under penalties of perjury that such a
Form W-8 (or suitable substitute form) has been received by it from the
beneficial owner or qualifying intermediary and furnishes the payor a copy
thereof, (b) the non-U.S. holder is subject to U.S. federal income tax with
respect to the note on a net basis because payments received with respect to the
note are effectively connected with the conduct of a trade or business within
the United States by the holder (in which case the holder may also be subject to
U.S. "branch profits tax") and provides the Company with a properly executed IRS
Form 4224 or a successor form, or (c) the non-U.S. holder is entitled to the
benefits of an income tax treaty under which the interest is exempt from
U.S. withholding tax and the holder or such holder's agent provides a properly
executed IRS Form 1001 or a successor form claiming the exemption. Payments of
interest not exempt from U.S. federal income tax as described above will be
subject to withholding at the rate of 30% (subject to reduction under an
applicable income tax treaty).
164
Pursuant to a recent notice issued by the IRS, the New Withholding
Regulations generally will be effective with respect to payments made after
December 31, 2000, regardless of the issue date of the instrument with respect
to which such payments are made. The New Withholding Regulations generally will
not affect the certification rules described in the preceding paragraph, but
will provide alternative methods for satisfying such requirements. The New
Withholding Regulations also generally will require, in the case of notes held
by a non-U.S. partnership, that (a) the certification described in the preceding
paragraph be provided by the partners rather than the foreign partnership and
(b) the partnership provide certain information. A look-through rule will apply
in the case of tiered partnerships. In addition, the New Withholding Regulations
may require that a non-U.S. holder (including a non-U.S. partnership or a
partner thereof) obtain a taxpayer identification number and make certain
certifications if interest in respect of a note is not portfolio interest and
the non-U.S. holder wishes to claim a reduced rate of withholding under an
income tax treaty. Each non-U.S. holder should consult its own tax advisor
regarding the application of the New Withholding Regulations.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES. A non-U.S. holder generally will
not be subject to U.S. federal income tax (or withholding thereof) in respect of
gain realized on the sale, exchange, redemption, retirement at maturity or other
disposition of notes, unless (a) the gain is effectively connected with the
conduct of a trade or business within the United States by the holder, or
(b) the holder is an individual who is present in the United States for a period
or periods aggregating 183 or more days in the taxable year of the disposition
and certain other conditions are met.
As described under "--Taxation of U.S. Holders--Payments upon Registration
Default," the notes provide for the payment of additional interest upon a
registration default. Non-U.S. holders should consult their tax advisors as to
the tax considerations relating to debt instruments providing for payments such
as the additional interest, in particular as to the availability of the
exemption for portfolio interest, and the ability of holders to claim the
benefits of income tax treaty exemptions from U.S. withholding tax on interest,
in respect of such additional interest.
BACKUP WITHHOLDING AND INFORMATION REPORTING. Under current Treasury
Regulations, backup withholding and certain information reporting do not apply
to payments made by the Company or a paying agent to non-U.S. holders if the
certification described under "Payment of Interest on the Notes" is received,
provided that the payor does not have actual knowledge that the holder is a
U.S. person. If any payments of principal and interest are made to the
beneficial owner of a note by or through the non-U.S. office of a non-U.S.
custodian, non-U.S. nominee or other non-U.S. agent of such beneficial owner, or
if the non-U.S. office of a non-U.S. "broker" (as defined in applicable Treasury
Regulations) pays the proceeds of the sale of a note or a coupon to the seller
thereof, backup withholding and information reporting will not apply.
Information reporting requirements (but not backup withholding) will apply,
however, to a payment by a non-U.S. office of a broker that is a U.S. person,
that derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States, or that is a "controlled
foreign corporation" (generally, a non-U.S. corporation controlled by
U.S. shareholders) with respect to the United States, unless the broker has
documentary evidence in its records that the holder is a non-U.S. person and
certain other conditions are met, or the holder otherwise establishes an
exemption. Payment by a U.S. office or a broker is subject to both backup
withholding at a rate of 31% and information reporting unless the holder
certifies under penalties of perjury that it is a non-U.S. person, or otherwise
establishes an exemption. A non-U.S. holder may obtain a refund or a credit
against such holder's U.S. federal income tax liability of any amounts withheld
under the backup withholding rules, provided the required information is
furnished to the IRS.
In addition, in certain circumstances, interest on a note owned by a
non-U.S. holder will be required to be reported annually on IRS Form 1042S, in
which case such form will be filed with the IRS and furnished to the holder.
165
The New Withholding Regulations revise (substantially in certain respects)
the procedures that withholding agents and payees must follow to comply with, or
to establish an exemption from, these information reporting and backup
withholding provisions for payments after December 31, 2000. It is possible that
the company and other withholding agents may request a new withholding exemption
from non-U.S. holders in order to qualify for continued exemption from backup
withholding under the New Withholding Regulations. Each non-U.S. holder should
consult its own tax advisor regarding the application to such holder of the New
Withholding Regulations.
ESTATE TAX. Subject to applicable estate tax treaty regulations, notes held
at the time of death (or theretofore transferred subject to certain retained
rights or powers) by an individual who at the time of death is a non-U.S. holder
will not be included in such holder's gross estate for U.S. federal estate tax
purposes, provided that (a) the individual does not actually or constructively
own 10% of more of the total combined voting power of all classes of stock of
the Company entitled to vote and (b) the income on the notes is not effectively
connected with the conduct of a U.S. trade or business by the individual.
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge and represent that it will deliver a
prospectus in connection with any resale of such new notes. This prospectus, as
it may be amended or supplemented from time to time, may be used by certain
broker-dealers (as specified in the registration rights agreement) in connection
with resales of new notes received in exchange for old notes where such old
notes were acquired as a result of market-making activities or other trading
activities. We have agreed that, for a period not to exceed 90 days after the
expiration date, we will make this prospectus, as amended or supplemented
available to any such broker-dealer for use in connection with any such resale.
In addition, until , 2000, all dealers effecting transactions in the
new notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the new notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such new notes. Any broker-dealer that
resells new notes that were received by it for its own account pursuant to the
exchange offer and any broker or dealer that participates in a distribution of
such new notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of new notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 90 days after the expiration date, we will send additional
copies of this prospectus to certain broker-dealers (as specified in the
registration rights agreement) that request such documents in the letter of
transmittal. We have agreed to pay certain expenses incident to the exchange
offer, and will indemnify holders of the notes (including broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the new notes offered hereby and the subsidiary guarantees
will be passed upon for North American Van Lines by Debevoise & Plimpton, New
York, New York, special New York counsel to North American Van Lines. Franci J.
Blassberg, Esq., a member of Debevoise & Plimpton, is married to
166
Joseph L. Rice III, who is a shareholder of the managing general partner of the
general partner of Clayton, Dubilier & Rice Fund V Limited Partnership.
EXPERTS
The financial statements of North American Van Lines as of December 26, 1998
and March 28, 1998 and for the nine-month period ended December 26, 1998 and the
three-month period ended March 28, 1998 included in this prospectus have been
audited by PricewaterhouseCoopers LLP, independent auditors, as stated in their
reports herein, and are included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing. With respect to the
unaudited condensed interim consolidated financial statements of North American
Van Lines as of September 25, 1999 and for the nine-month period ended
September 25, 1999 included in this prospectus, PricewaterhouseCoopers LLP have
reported that they have applied limited procedures in accordance with
professional standards for a review of such information. However, their separate
report appearing herein states that they did not audit and they do not express
an opinion on these interim financial statements. Accordingly, the degree of
reliance on their report on these financial statements should be restricted
considering the limited nature of the review procedures applied. The financial
statements of North American Van Lines' predecessor as of and for the years
ended December 27, 1997 and December 28, 1996 included in this prospectus have
been audited by KPMG LLP, independent auditors, as stated in their report
herein, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The combined financial statements of NFC Moving Services Group as of
September 30, 1998 and 1997 and for each of the three years in the period ended
September 30, 1998, included in this prospectus have been audited by Ernst &
Young, independent auditors, as set forth in their report appearing herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
With respect to the unaudited condensed combined interim financial
information of NFC Moving Services Group for the nine-month periods ended
June 30, 1999 and 1998, included in this prospectus, Ernst & Young have reported
that they have applied limited procedures in accordance with professional
standards for a review of such information. However, their separate report
appearing herein states that they did not audit and they do not express an
opinion on that interim financial information. Accordingly, the degree of
reliance on their reports on such information should be restricted considering
the limited nature of the review procedures applied.
The independent auditors are not subject to the liability provisions of
Section 11 of the Securities Act for their reports on the unaudited interim
financial information because such reports are not a "report" or a "part" of the
registration statement prepared or certified by the auditors within the meaning
of Sections 7 and 11 of the Securities Act.
167
WHERE YOU CAN FIND MORE INFORMATION
Upon effectiveness of the registration statement of which this prospectus is
a part, we will file annual and quarterly and other information with the
Securities and Exchange Commission (the "Commission"). You may read and copy any
reports, statements and other information we file at the Commission's public
reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois.
Please call 1-800-SEC-0330 for further information on the public reference
rooms. Our filings will also be available to the public from commercial document
retrieval services and at the web site maintained by the Commission at
http://www.sec.gov.
We have filed a registration statement on Form S-4 to register with the
Commission the new notes to be issued in exchange for the old notes. This
prospectus is part of that registration statement. As allowed by the
Commission's rules, this prospectus does not contain all of the information you
can find in the registration statement or the exhibits to the registration
statement.
168
INDEX TO FINANCIAL STATEMENTS
PAGE
--------
NORTH AMERICAN VAN LINES, INC. CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED):
Report of Independent Accountants......................... F-3
Condensed Consolidated Balance Sheets at September 25,
1999 and December 26, 1998 (unaudited).................. F-4
Condensed Consolidated Statements of Income for the
periods December 27, 1998 through September 25, 1999,
June 27, 1999 through September 25, 1999, June 28, 1998
through September 26, 1998, March 29, 1998 through
September 26, 1998 and December 28, 1997 through
March 28, 1998 (Predecessor) (unaudited)................ F-5
Condensed Consolidated Statement of Changes in
Stockholders' Equity for the period December 26, 1998
through September 25, 1999 (unaudited).................. F-6
Condensed Consolidated Statements of Cash Flows for the
periods December 27, 1998 through September 25, 1999,
March 29, 1998 through September 26, 1998 and
December 28, 1997 through March 28, 1998
(Predecessor)(unaudited)................................ F-7
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................. F-8
NORTH AMERICAN VAN LINES, INC. CONSOLIDATED FINANCIAL
STATEMENTS:
Report of Independent Accountants......................... F-15
Consolidated Balance Sheets at December 26, 1998 and
March 29, 1998.......................................... F-16
Consolidated Statement of Income for the period March 29,
1998 (inception) through December 26, 1998.............. F-18
Consolidated Statement of Changes in Stockholders' Equity
for the period March 29, 1998 (inception) through
December 26, 1998....................................... F-19
Consolidated Statement of Cash Flows for the period
March 29, 1998 (inception) through December 26, 1998.... F-20
Notes to Consolidated Financial Statements................ F-21
NORTH AMERICAN VAN LINES, INC. CONSOLIDATED FINANCIAL
STATEMENTS:
Report of Independent Accountants......................... F-40
Consolidated Balance Sheet at March 28, 1998.............. F-41
Consolidated Statement of Income for the period
December 28, 1997 through March 28, 1998................ F-43
Consolidated Statement of Changes in Stockholders' Equity
for the period December 28, 1997 through March 28,
1998.................................................... F-44
Consolidated Statement of Cash Flows for the period
December 28, 1997 through March 28, 1998................ F-45
Notes to Consolidated Financial Statements................ F-46
NORTH AMERICAN VAN LINES, INC. CONSOLIDATED FINANCIAL
STATEMENTS:
Independent Auditors' Report.............................. F-63
Consolidated Balance Sheets, December 27, 1997 and
December 28, 1996....................................... F-64
Consolidated Statements of Income and Retained Income,
years ended December 27, 1997 and December 28, 1996..... F-66
Consolidated Statements of Cash Flows, years ended
December 27, 1997 and December 28, 1996................. F-68
Notes to Consolidated Financial Statements................ F-69
NFC MOVING SERVICES GROUP CONDENSED COMBINED FINANCIAL
STATEMENTS (UNAUDITED):
Review Report of Independent Auditors..................... F-88
Condensed combined balance sheets at June 30, 1998 and
1999.................................................... F-89
F-1
PAGE
--------
Condensed combined profit and loss accounts for the nine
months ended June 30, 1998 and 1999..................... F-90
Condensed combined statements of total recognized gains
and losses for the nine months ended June 30, 1998 and
1999.................................................... F-91
Condensed combined cash flow statements for the nine
months ended June 30, 1998 and 1999..................... F-92
Condensed combined statements of changes in NFC Group
investment for the nine months ended June 30, 1998 and
1999.................................................... F-93
Notes to the condensed combined financial statements...... F-94
NFC MOVING SERVICES GROUP COMBINED FINANCIAL STATEMENTS:
Report of Independent Auditors............................ F-97
Combined balance sheets at September 30, 1997 and 1998.... F-98
Combined profit and loss accounts for the years ended
September 30, 1996, 1997 and 1998....................... F-99
Combined statements of total recognized gains and losses
for the years ended September 30, 1996, 1997 and
1998.................................................... F-100
Combined cash flow statements for the years ended
September 30, 1996, 1997 and 1998....................... F-101
Combined statements of changes in NFC Group investment for
the years ended September 30, 1996, 1997 and 1998....... F-102
Notes to the combined financial statements................ F-103
F-2
[LOGO]
- --------------------------------------------------------------------------------
PRICEWATERHOUSECOOPERS
LLP
200 East Randolph Drive
Chicago IL 60601
Telephone (312) 540 1500
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
NA Holding Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of North
American Van Lines, Inc. and its subsidiaries (the "Company") as of
September 25, 1999, and the related condensed consolidated statements of income
for the periods June 27, 1999 through September 25, 1999 and December 27, 1998
through September 25, 1999, the condensed consolidated statement of
shareholders' equity for the period December 27, 1998 through September 25, 1999
and the condensed consolidated statement of cash flows for the period
December 27, 1998 through September 25, 1999. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated interim financial statements
for them to be in conformity with generally accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
November 12, 1999, except as to Note 6 and Note 8,
for which the date is January 31, 2000
F-3
NORTH AMERICAN VAN LINES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AT SEPTEMBER 25, 1999 AND DECEMBER 26, 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
SEPTEMBER 25, DECEMBER 26,
1999 1998
------------- ------------
Current assets:
Cash and cash equivalents................................. $ 1,228 $ 2,074
Accounts and notes receivable, net of allowance for
doubtful accounts of $3,998 and $1,128 respectively..... 168,870 137,925
Deferred and recoverable income taxes..................... 17,785 15,127
Other current assets...................................... 29,081 25,167
-------- --------
Total current assets........................................ 216,964 180,293
-------- --------
Property and equipment...................................... 93,812 91,795
Less accumulated depreciation............................. (34,725) (18,194)
-------- --------
59,087 73,601
Intangible assets........................................... 93,408 97,450
Other assets................................................ 43,419 40,719
-------- --------
Total assets................................................ $412,878 $392,063
======== ========
Current liabilities:
Current portion of long-term debt and lease obligation.... $ 5,475 $ 3,599
Revolving credit facility and notes payable............... 37,337 25,000
Accounts payable.......................................... 44,490 35,078
Accrued transportation expense............................ 32,301 22,224
Other current liabilities................................. 68,854 62,987
-------- --------
Total current liabilities................................... 188,457 148,888
-------- --------
Long-term debt and lease obligation......................... 135,447 140,021
Deferred income taxes....................................... 4,281 5,352
Other liabilities........................................... 27,858 34,152
-------- --------
Total liabilities........................................... 356,043 328,413
-------- --------
Stockholders' equity:
Common stock, $.01 par value, 1,000 authorized, issued and
outstanding, respectively............................... -- --
Additional paid-in-capital................................ 65,000 65,000
Retained earnings (deficit)............................... (8,143) (1,212)
Accumulated other comprehensive income (loss)............. (22) (138)
-------- --------
Total stockholders' equity................................ 56,835 63,650
-------- --------
Total liabilities and stockholders' equity.................. $412,878 $392,063
======== ========
See accompanying notes to condensed consolidated financial statements.
F-4
NORTH AMERICAN VAN LINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS DECEMBER 27, 1998 THROUGH SEPTEMBER 25, 1999, JUNE 27, 1999
THROUGH
SEPTEMBER 25, 1999, JUNE 28, 1998 THROUGH SEPTEMBER 26, 1998, MARCH 29, 1998
THROUGH
SEPTEMBER 26, 1998, AND DECEMBER 28, 1997 THROUGH MARCH 28, 1998 (PREDECESSOR)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
COMPANY PREDECESSOR
------------------------------------------------- -----------
NINE THREE THREE THREE
MONTHS MONTHS MONTHS SIX MONTHS MONTHS
ENDED ENDED ENDED ENDED ENDED
SEPT. 25, SEPT. 25, SEPT. 26, SEPT. 26, MARCH 28,
1999 1999 1998 1998 1998
---------- ---------- ---------- ---------- -----------
Operating revenues................. $771,237 $311,135 $285,083 $520,988 $207,245
Operating expenses:
Transportation................... 607,608 247,638 223,795 407,115 162,381
Administration................... 102,255 32,031 30,597 62,053 34,240
Insurance and claims............. 23,998 9,587 9,920 18,412 6,538
Depreciation..................... 17,404 5,878 6,335 12,547 2,256
Amortization..................... 3,679 1,242 1,285 2,610 639
Maintenance, tires, and other
operating...................... 16,410 5,745 5,989 11,122 4,302
Equipment sales and services,
net............................ (2,984) (1,061) (1,010) (2,496) (977)
Insurance and supply programs,
net............................ (2,431) (515) (602) (1,385) (799)
Restructuring.................... 2,400 2,400 -- -- --
-------- -------- -------- -------- --------
Total operating expenses....... 768,339 302,945 276,309 509,978 208,580
-------- -------- -------- -------- --------
(Loss)/income from
operations................... 2,898 8,190 8,774 11,010 (1,335)
Non-operating (expense)/income..... (7) 135 109 139 10
Minority interest.................. (179) (33) (32) (9) (13)
-------- -------- -------- -------- --------
(Loss)/income before interest
and taxes.................... 2,712 8,292 8,851 11,140 (1,338)
Interest expense................... 12,395 4,311 4,152 8,089 (240)
-------- -------- -------- -------- --------
(Loss)/income before income
taxes........................ (9,683) 3,981 4,699 3,051 (1,098)
Provision for income taxes......... (2,752) 2,223 2,895 2,386 (448)
-------- -------- -------- -------- --------
Net (loss)/income.............. $ (6,931) $ 1,758 $ 1,804 $ 665 $ (650)
======== ======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
F-5
NORTH AMERICAN VAN LINES, INC.
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD DECEMBER 26, 1998 THROUGH SEPTEMBER 25, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ACCUMULATED
RETAINED OTHER ADDITIONAL
COMPREHENSIVE EARNINGS COMPREHENSIVE COMMON PAID IN
TOTAL INCOME (LOSS) (DEFICIT) INCOME (LOSS) STOCK CAPITAL
-------- ------------- --------- ------------- -------- ----------
Balance at December 26,
1998........................ $63,650 $(1,212) $(138) $0 $65,000
Comprehensive income (loss)
Net income (loss)........... (6,931) $(6,931) (6,931)
-------
Gross unrealized holding
gains..................... 138 138
Foreign currency
translation............... (22) (22)
-------
Other comprehensive income
(loss).................... 116 116
-------
Comprehensive income (loss)... $(6,815)
------- ======= ------- ----- -- -------
Balance at September 25,
1999........................ $56,835 $(8,143) $ (22) $0 $65,000
======= ======= ===== == =======
See accompanying notes to condensed consolidated financial statements.
F-6
NORTH AMERICAN VAN LINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS DECEMBER 27, 1998 THROUGH SEPTEMBER 25, 1999, MARCH 29, 1998
THROUGH
SEPTEMBER 26, 1998 AND DECEMBER 28, 1997 THROUGH MARCH 28, 1998 (PREDECESSOR)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
COMPANY PREDECESSOR
-------------------------------- ---------------
NINE MONTHS SIX MONTHS THREE MONTHS
ENDED ENDED ENDED
SEPT. 25, 1999 SEPT.26, 1998 MARCH 28, 1998
--------------- -------------- ---------------
Net cash (used for) provided by operating
activities.............................. $ (1,559) $(12,178) $10,295
--------- -------- -------
Cash flows from investing activities:
Additions of property and equipment..... (5,473) (4,062) (1,402)
Proceeds from sale of property and
equipment............................. 3,216 464 162
Other investing activities.............. (1,302) (714) (2,166)
--------- -------- -------
Net cash used for investing activities.... (3,559) (4,312) (3,406)
--------- -------- -------
Cash flows from financing activities:
Collection of intercompany balance with
NS.................................... -- -- 10,204
Borrowings on revolving credit facility
and notes payable..................... 140,686 63,821 244
Repayment of revolving credit facility
and notes payable..................... (128,349) (38,532) (844)
Change in balance of outstanding
checks................................ 1,726 225 (1,598)
Payment for sale of insurance
liabilities........................... (7,271) (13,500) --
Common dividends paid................... -- -- (6,464)
Other financing activities.............. (2,520) (1,032) (7)
--------- -------- -------
Net cash provided by financing
activities.............................. 4,272 10,982 1,535
--------- -------- -------
Net cash flows from continuing
operations.............................. (846) (5,508) 8,424
Net cash flows from the payment or
transfer of liabilities attributable to
discontinued operations................. -- -- (2,145)
--------- -------- -------
Net increase in cash and cash
equivalents............................. (846) (5,508) 6,279
Cash and cash equivalents at beginning of
period.................................. 2,074 9,227 2,948
--------- -------- -------
Cash and cash equivalents at end of
period.................................. $ 1,228 $ 3,719 $ 9,227
========= ======== =======
Supplemental disclosure of cash flow
information--cash paid
Interest................................ $ 9,141 $ 4,485 $ 140
Income taxes............................ $ 1,427 $ 5,515 $ 225
========= ======== =======
See accompanying notes to condensed consolidated financial statements.
F-7
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 25, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
(1) BASIS OF PRESENTATION
This report covers North American Van Lines, Inc. and its subsidiaries
(collectively, "NAVL" or the "Company").
The accompanying unaudited condensed consolidated financial statements
should be read together with the Company's audited consolidated financial
statements for the periods December 28, 1997 through March 28, 1998
(Predecessor) and the Company's parent's (NA Holding Corporation's) audited
consolidated financial statements for the period March 29, 1998 through
December 26, 1998. Certain information and footnote disclosures normally
included in aforementioned financial statements prepared in accordance with
generally accepted accounting principles are condensed or omitted. Management of
the Company believes the interim financial statements include all adjustments,
including normal recurring adjustments, necessary for a fair presentation of the
financial condition and results of operations for the interim periods presented.
On March 29, 1998, NA Acquisition Corporation, a wholly-owned subsidiary of
NA Holding Corporation ("NA Holding"), agreed to acquire all of the capital
stock of North American Van Lines, Inc. from Norfolk Southern Corporation and
J.P. Morgan Venture Corporation (the "Predecessor"). NA Acquisition and NA
Holding were formed by Clayton, Dubilier and Rice Fund V Limited Partnership
("Fund V"), a private investment fund that is managed by Clayton, Dubilier and
Rice, Inc. Prior to the acquisition, the Predecessor recognized estimated
revenue and related transportation expense on the date a shipment was picked up
from the customer. Subsequent to the acquisition, the Company recognizes
estimated revenue and related transportation expenses on the date a shipment is
delivered or services are completed.
(2) OPERATING SEGMENTS
The Company has two reportable segments--Van Line Network and Logistics
Services.
The Van Line Network segment provides domestic and international residential
relocation services through a network of exclusive agents. It is comprised of
the Relocation Services Division, which provides packing, loading,
transportation, delivery and warehousing services for any type of household move
in the U.S. and Canada, and the International Division, which provides or
coordinates these same services for customers on a global basis.
The Logistics Services segment provides customized logistics solutions,
specialized transportation services, warehousing, distribution, and delivery
services to commercial customers. It is comprised of the Logistics Division,
which provides these specialized services to principally electronics, medical
equipment and other suppliers of sensitive goods requiring specialized handling
in the U.S., the Blanket Wrap/Flatbed Division, which provides transportation of
truckload freight requiring specialized handling in the U.S., and the Europe
Division, which provides these same logistics services in Europe and the U.K.
The accounting policies of the segments are the same as those described in
the footnotes to the aforementioned Consolidated Statements. Segment income from
operations is based on earnings before non-operating income or expense, minority
interest, interest and taxes.
F-8
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 25, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
(2) OPERATING SEGMENTS (CONTINUED)
The following information about the segments is for the periods
December 27, 1998 through September 25, 1999, June 27, 1999 through
September 25, 1999, June 28, 1998 through September 26, 1998, March 29, 1998
through September 26, 1998, and December 28, 1997 through March 28, 1998
(Predecessor).
COMPANY PREDECESSOR
------------------------------------------------------ ------------
NINE MONTHS THREE MONTHS THREE MONTHS SIX MONTHS THREE MONTHS
ENDED, ENDED, ENDED, ENDED, ENDED,
SEPT. 25, SEPT. 25, SEPT. 26, SEPT. 26, MARCH 28,
1999 1999 1998 1998 1998
----------- ------------ ------------ ---------- ------------
Revenues
Van Line Network............... $398,513 $182,167 $169,710 $293,125 $ 99,687
Logistics Services............. 372,724 128,968 115,373 227,863 107,558
-------- -------- -------- -------- --------
Consolidated revenues............ $771,237 $311,135 $285,083 $520,988 $207,245
======== ======== ======== ======== ========
Income (loss) from operations
Van Line Network............... $ 2,073 $ 6,774 $ 7,053 $ 7,142 $ (2,656)
Logistics Services............. 825 1,416 1,721 3,868 1,321
-------- -------- -------- -------- --------
Consolidated income (loss) from
operations..................... $ 2,898 $ 8,190 $ 8,774 $ 11,010 $ (1,335)
======== ======== ======== ======== ========
SEPT. 25, DEC. 26,
1999 1998
--------- --------
Total assets
Van Line Network...................................... $118,228 $ 94,595
Logistics Services.................................... 113,327 110,876
Corporate............................................. 181,323 186,592
-------- --------
Consolidated total assets............................... $412,878 $392,063
======== ========
(3) INTANGIBLE ASSETS
Intangible assets included the following:
SEPT. 25, DEC. 26,
1999 1998
--------- --------
Trade names........................................... $75,700 $75,700
Goodwill.............................................. 22,212 23,612
Accumulated amortization.............................. (4,504) (1,862)
------- -------
$93,408 $97,450
======= =======
F-9
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 25, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
(4) LONG-TERM DEBT AND LEASE OBLIGATION
SEPT. 25, DEC. 26,
1999 1998
--------- --------
Note payable--Tranche A interest at 90 day LIBOR rate plus
2.5% with interest and principle paid quarterly........... $ 42,125 $ 44,000
Note payable--Tranche B interest at 90 day LIBOR rate plus
2.75% with interest and principle paid quarterly.......... 98,250 99,000
Other....................................................... 547 620
-------- --------
Total long-term debt and capital lease obligation........... $140,922 $143,620
Less current maturities..................................... 5,475 3,599
-------- --------
$135,447 $140,021
======== ========
The Credit Agreement contains various loan covenants including an interest
coverage ratio and a senior debt ratio. The Credit Agreement also includes a
general lien on certain NAVL assets.
The Company has available unused lines of credit of $49,334 and $61,616 at
September 25, 1999 and December 26, 1998, respectively. The fair value of the
Company's long-term debt approximates the carrying amount based on the present
value of cash flows discounted at the current rates offered to the Company on
similar debt instruments.
(5) COMMITMENTS AND CONTINGENCIES
(a) LETTERS OF CREDIT AND DEBT GUARANTEES
The Company's German subsidiary, midiData, has guarantees to WTB Leasing
GmbH and CommerzLease for equipment leases. These leases extend through the year
2003. The Company's United Kingdom subsidiary, North American Van Lines, Ltd.,
has guarantees to various parties for customs and excise taxes.
(b) LAWSUITS
The Company and certain subsidiaries are defendants in numerous lawsuits
relating principally to motor carrier operations. While the final outcome of
these lawsuits cannot be predicted with certainty, it is the opinion of
management, after consulting with its legal counsel, that the amount of NAVL 's
ultimate liability will not materially affect NAVL's consolidated financial
position, results of operations or liquidity.
(c) ENVIRONMENTAL MATTERS
The Company has been named as a potentially responsible party (PRP) in two
environmental cleanup proceedings by federal or state authorities and one
additional environmental clean-up proceeding by a group of PRP's. The suits are
brought under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, or other federal or state statutes. Based on
all known information, it is estimated that the settlement cost of each PRP site
would not be materially or significantly larger than
F-10
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 25, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
(5) COMMITMENTS AND CONTINGENCIES (CONTINUED)
the litigation reserves established, which totaled $35 on September 25, 1999 and
December 26, 1998. It is possible that additional claims or lawsuits involving
unknown environmental matters or now unidentified environmental sites may arise
in the future. The Company owns or has owned and leases or has leased facilities
at which underground storage tanks for diesel fuel are located and operated.
Management believes that the Company has taken the appropriate and necessary
action with regard to releases of diesel fuel that have occurred. As conditions
may exist on these properties related to environmental problems that are latent
or undisclosed, there can be no assurance that the Company will not incur
liabilities or costs, the amount and materiality of which cannot be estimated
reliably at this time. However, based on its assessment of the facts and
circumstances now known and after consulting with its legal counsel, management
believes that it has recorded appropriate estimates of liability for those
environmental matters of which the Company is aware. Further, management
believes it is unlikely that any identified matters, either individually or in
aggregate, will have a material adverse effect on the Company's financial
position, results of operations or liquidity.
(d) PURCHASE COMMITMENTS
The Company has entered into certain purchase commitments for trailers and
software licenses in the amount of $778 and $2,984 as of September 25, 1999 and
December 26, 1998, respectively.
(6) SUBSEQUENT EVENT
On September 14, 1999, the Company signed an acquisition agreement to
acquire substantially all of the assets of certain subsidiaries of NFC, plc.
(the "Seller") that are engaged in the Seller's moving services business. The
acquisition closed on November 19, 1999 and the transaction was accounted for as
a purchase. Total purchase consideration was $400 million cash plus a
combination of preferred stock, common stock and common stock warrants with a
combined value of $50 million.
The acquisition was funded through borrowings under new credit facilities of
$390.0 million, proceeds from the issuance of $150.0 million of NAVL senior
subordinated notes, and an increase to stockholders' equity resulting from
issuance of $24.5 million of junior preferred stock, $35.0 million of senior
discounted notes, and a common stock warrant totaling $65.5 million by NAVL's
parent, NA Holding. Of the $65.5 million, $40.0 million was initially in the
form of an interim loan facility made available to NA Holding. On December 1,
1999, Fund V and the Seller subscribed for and purchased additional shares of
common stock of NA Holding for $32.0 million and $8.0 million in cash,
respectively. The proceeds from this stock subscription were used to repay the
$40.0 million interim loan.
(7) RESTRUCTURING
In January 1999 the Company initiated the Fast Forward Program with a
detailed evaluation of its existing cost structure by NAVL employees and outside
consultants. The program is a comprehensive review of a number of initiatives
but primarily will result in reduced headcount. The Company began implementing
these initiatives during the third quarter of 1999 and recorded a charge of
$2,400. This charge includes the estimated severance related costs for 237
employees across all operating divisions of
F-11
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 25, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
(7) RESTRUCTURING (CONTINUED)
the Company and other exit costs for outplacement services, building lease
terminations and losses on the sale of equipment. As of September 25, 1999, 107
employees have been terminated and $552 of severance and other restructuring
related costs had been charged to the reserve.
The following table provides details of the restructuring accrual and
payments to date:
PAYMENTS RESTRUCTURING
INITIAL AS OF ACCRUAL AS OF
RESTRUCTURING SEPTEMBER 25, SEPTEMBER 25,
CHARGE 1999 1999
------------- ------------- -------------
Severance cost......................... $1,808 $531 $1,277
Outplacement services.................. 318 21 297
Building lease termination cost........ 246 -- 246
Loss on sale of equipment.............. 28 -- 28
------ ---- ------
Total restructuring cost............... $2,400 $552 $1,848
====== ==== ======
(8) SUPPLEMENTAL INFORMATION
The following summarized consolidating balance sheet, statement of income,
and statement of cash flows have been presented in contemplation of the
transaction between NA Holding and a third party, as described in Note 6. Such
financial statements have been segregated between those entities that have
guaranteed the NAVL senior subordinated notes issued in connection with the
transaction ("Guarantor" entities), and those entities that did not guarantee
such debt ("Non-Guarantor" entities).
Consolidating balance sheet data as of September 25, 1999 is summarized as
follows:
(1) (2) NON- TOTAL
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
Current assets........................ $178,702 $ 9,413 $ 29,184 $ (335) $216,964
Non-current assets.................... 220,507 12,440 102,642 (139,675) 195,914
-------- ------- -------- --------- --------
Total assets.......................... $399,209 $21,853 $131,826 $(140,010) $412,878
======== ======= ======== ========= ========
Current liabilities................... $152,867 $ 6,370 $ 29,555 $ (335) $188,457
Non-current liabilities............... 189,507 1,262 7,673 (30,856) 167,586
-------- ------- -------- --------- --------
Total liabilities..................... 342,374 7,632 37,228 (31,191) 356,043
Stockholders' equity.................. 56,835 14,221 94,598 (108,819) 56,835
-------- ------- -------- --------- --------
Total liabilities and equity.......... $399,209 $21,853 $131,826 $(140,010) $412,878
======== ======= ======== ========= ========
F-12
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 25, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
(8) SUPPLEMENTAL INFORMATION (CONTINUED)
Consolidating statement of income data for the period December 27, 1998
through September 25, 1999 is summarized as follows:
(1) (2) NON- TOTAL
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
Operating revenues.................... $654,943 $45,206 $ 78,730 $ (7,642) $771,237
Total operating expenses.............. 656,034 41,920 77,131 (6,746) 768,339
-------- ------- -------- --------- --------
Income (loss) from operations......... (1,091) 3,286 1,599 (896) 2,898
Interest expense and other............ 8,592 98 928 2,963 12,581
-------- ------- -------- --------- --------
Income (loss) before income taxes..... (9,683) 3,188 671 (3,859) (9,683)
Provision/(benefit) for income
taxes............................... (2,752) 905 190 (1,095) (2,752)
-------- ------- -------- --------- --------
Net income (loss)..................... $ (6,931) $ 2,283 $ 481 $ (2,764) $ (6,931)
======== ======= ======== ========= ========
Income taxes have been calculated for purposes of this footnote based on an
assumed consolidated effective rate of 28.4%.
Consolidating statement of cash flows data for the period December 27, 1998
through September 25, 1999 is summarized as follows:
(1) (2) NON- TOTAL
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
Net cash provided by (used in)
operating activities................ $ 166 $ (46) $ (1,679) $ -- $ (1,559)
Net cash used in investing
activities.......................... (3,312) -- (247) -- (3,559)
Net cash provided by financing
activities.......................... 3,404 32 836 -- 4,272
Net increase (decrease) in cash and
cash equivalents.................... 258 (14) (1,090) -- (846)
Cash at beginning of period........... 311 95 1,668 -- 2,074
-------- ------- -------- --------- --------
Cash at end of period................. $ 569 $ 81 $ 578 $ -- $ 1,228
======== ======= ======== ========= ========
- ------------------------
(1) Parent includes the accounts of North American Van Lines, Inc., a Delaware
corporation and the issuer of the debt in connection with the transaction.
(2) Total Guarantors include the accounts of the following subsidiaries of North
American Van Lines, Inc.: Fleet Insurance Management, Inc., an Indiana
corporation; FrontRunner Worldwide, Inc., a Delaware corporation; NACAL,
Inc., a California corporation; NAVTRANS International Freight
F-13
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 25, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
(8) SUPPLEMENTAL INFORMATION (CONTINUED)
Forwarding, Inc., an Indiana corporation; North American Distribution
Systems, Inc., an Indiana corporation; North American Logistics, Ltd., an
Indiana corporation, North American Van Lines of Texas, Inc., a Texas
corporation; Relocation Management Systems, Inc., a Delaware corporation;
and Great Falls North American, Inc., a Montana corporation. Each Guarantor
is a wholly owned subsidiary of North American Van Lines, Inc. and will
jointly and severally, irrevocably and fully and unconditionally guarantee
the punctual payment of such debt issued in connection with the transaction.
F-14
[LOGO]
- --------------------------------------------------------------------------------
PRICEWATERHOUSECOOPERS
LLP
200 East Randolph Drive
Chicago IL 60601
Telephone (312) 540 1500
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
NA Holding Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, stockholders' equity, and cash flows present
fairly, in all material respects, the financial position of North American Van
Lines, Inc. and its subsidiaries (the "Company") at December 26, 1998 and
March 29, 1998, and the results of their operations and cash flows for the
period March 29, 1998 (inception) through December 26, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
February 3, 1999, except as to Note 17,
for which the date is September 27, 1999,
and Note 18 for which the date is January 31, 2000
F-15
NORTH AMERICAN VAN LINES, INC.
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 26, 1998 AND MARCH 29, 1998
(DOLLARS IN THOUSANDS)
DECEMBER 26, 1998 MARCH 29, 1998
----------------- --------------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,074 $ 9,227
Short-term investments.................................... 2,057 1,861
Accounts and notes receivable, net of allowance for
doubtful accounts of $1,128 and $0 respectively......... 137,925 123,727
Current portion of contract receivables, net of valuation
allowance of $25 and $0 respectively.................... 7,525 5,982
Supplies inventory........................................ 1,489 1,674
Equipment held for sale................................... 3,693 3,223
Current portion of deferred agent contract costs.......... 587 261
Prepaid expenses and other current assets................. 9,816 10,891
Deferred income taxes..................................... 15,127 12,157
-------- --------
Total current assets........................................ 180,293 169,003
-------- --------
Long-term portion of contract receivables................... 13,120 10,427
Long-term portion of notes receivable....................... 1,794 2,482
Investments................................................. 1,097 1,061
Property and equipment:
Land...................................................... 1,584 1,612
Buildings................................................. 16,760 16,818
Trailers.................................................. 26,676 27,049
Other equipment........................................... 46,775 42,025
-------- --------
91,795 87,504
Less accumulated depreciation............................. (18,194) --
-------- --------
73,601 87,504
Deferred agent contract costs............................... 14,233 14,995
Intangible assets........................................... 97,450 99,312
Other assets................................................ 10,475 8,323
-------- --------
Total assets................................................ $392,063 $393,107
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-16
NORTH AMERICAN VAN LINES, INC.
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 26, 1998 AND MARCH 29, 1998
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
DECEMBER 26, 1998 MARCH 29, 1998
----------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and lease obligation.... $ 3,599 $ 2,958
Revolving credit facility and notes payable............... 25,000 125
Accounts payable.......................................... 25,177 21,136
Outstanding checks........................................ 9,901 11,106
Accrued transportation expense............................ 22,224 19,696
Other current liabilities................................. 24,171 28,973
Insurance reserves and accruals........................... 20,441 39,693
Compensation and benefits................................. 14,027 14,318
Income taxes.............................................. 4,348 4,077
-------- --------
Total current liabilities................................... 148,888 142,082
-------- --------
Long-term debt and lease obligation......................... 140,021 142,645
Insurance reserves and accruals............................. 14,312 14,152
Compensation and benefits................................... 19,531 18,380
Deferred income taxes....................................... 5,352 10,597
Minority interest........................................... 309 251
-------- --------
Total liabilities........................................... 328,413 328,107
-------- --------
Stockholders' equity:
Common stock, $.01 par value, 1,000 shares authorized,
issued and outstanding at December 26, 1998 and at March
29, 1998................................................ -- --
Additional paid-in-capital................................ 65,000 65,000
Retained earnings (deficit)............................... (1,212) --
Accumulated other comprehensive income (loss)............. (138) --
-------- --------
Total stockholders' equity.................................. 63,650 65,000
-------- --------
Total liabilities and stockholders' equity.................. $392,063 $393,107
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-17
NORTH AMERICAN VAN LINES, INC.
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD MARCH 29, 1998 (INCEPTION) THROUGH DECEMBER 26, 1998
(DOLLARS IN THOUSANDS)
Operating revenues.......................................... $759,207
Operating expenses:
Transportation............................................ 593,979
Administration............................................ 95,389
Insurance and claims...................................... 25,150
Depreciation.............................................. 18,763
Amortization.............................................. 3,748
Maintenance, tires and other operating.................... 16,483
Equipment sales and services, net......................... (3,694)
Insurance and supply programs, net........................ (2,178)
--------
Total operating expenses................................ 747,640
--------
Income from operations.................................. 11,567
Non-operating income........................................ 147
Minority interest........................................... (57)
--------
Income before interest and taxes........................ 11,657
Interest expense............................................ 11,758
--------
Loss before income taxes................................ (101)
Provision for income taxes.................................. 1,111
--------
Net loss................................................ $ (1,212)
========
The accompanying notes are an integral part of the consolidated financial
statements.
F-18
NORTH AMERICAN VAN LINES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD MARCH 29, 1998 (INCEPTION) THROUGH DECEMBER 26, 1998
(DOLLARS IN THOUSANDS)
ACCUMULATED
RETAINED OTHER ADDITIONAL
COMPREHENSIVE EARNINGS COMPREHENSIVE COMMON PAID IN
TOTAL INCOME (LOSS) (DEFICIT) INCOME (LOSS) STOCK CAPITAL
-------- ------------- --------- ------------- ---------- ----------
Balance at March 29, 1998........ $65,000 $ 0 $ 0 $ -- $65,000
Comprehensive income (loss)......
Net income (loss).............. (1,212) $(1,212) (1,212)
-------
Gross unrealized holding
gains........................ 172 172
Foreign currency translation... (310) (310)
-------
Other comprehensive income
(loss)....................... (138) (138)
-------
Comprehensive income (loss)...... $(1,350)
=======
------- ------- ----- ---------- -------
Balance at December 26, 1998..... $63,650 $(1,212) $(138) $ -- $65,000
======= ======= ===== ========== =======
The accompanying notes are an integral part of the consolidated financial
statements.
F-19
NORTH AMERICAN VAN LINES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD MARCH 29, 1998 (INCEPTION) THROUGH DECEMBER 26, 1998
(DOLLARS IN THOUSANDS)
Cash flows from operating activities:
Loss from operations...................................... $ (1,212)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation............................................ 18,763
Amortization of intangibles............................. 1,862
Amortization of deferred agent contract costs........... 1,886
Amortization of deferred debt issuance costs............ 705
Provision for losses on accounts and notes receivable... 1,128
Deferred income taxes................................... (8,215)
Gain on sale of equipment............................... (36)
Change in other comprehensive income (loss)............. (138)
Change in assets and liabilities:
Accounts and notes receivable......................... (14,638)
Contracts receivable.................................. (4,236)
Prepaids and other current assets..................... (98)
Accounts payable...................................... 4,041
Other current liabilities............................. 4,927
Insurance reserves and accruals....................... (5,592)
Other long-term assets and liabilities................ (980)
Income tax payable.................................... 271
--------
Net cash used for operating activities...................... (1,562)
--------
Cash flows from investing activities:
Additions of property and equipment....................... (5,698)
Proceeds from sale of property and equipment.............. 874
Purchases of investments.................................. (135)
Proceeds from maturity or sale of investments............. 100
Payment of deferred agent contract costs.................. (1,485)
--------
Net cash used for investing activities...................... (6,344)
--------
Cash flows from financing activities:
Borrowings on revolving credit facility and notes
payable................................................. 96,000
Repayment of revolving credit facility and notes
payable................................................. (71,125)
Change in balance of outstanding checks................... (1,205)
Borrowings on long-term debt.............................. 83
Principal payments on long-term debt...................... (2,004)
Principal payments under capital lease obligation......... (62)
Payment for sale of insurance liabilities................. (13,500)
Minority interest......................................... 58
Payment to NS for working capital purchase price
adjustment.............................................. (7,492)
--------
Net cash provided by financing activities................... 753
--------
Net decrease in cash and cash equivalents................... (7,153)
Cash and cash equivalents at March 29, 1998................. 9,227
--------
Cash and cash equivalents at December 26, 1998.............. $ 2,074
========
Supplemental disclosure of cash flow information--cash paid
during the period March 29, 1998 (inception) through
December 26, 1998:
Interest.................................................. $ 11,347
Income taxes.............................................. $ 9,211
The accompanying notes are an integral part of the consolidated financial
statements.
F-20
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 AND MARCH 29, 1998
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BUSINESS DESCRIPTION AND ORGANIZATION
On January 9, 1998, NA Acquisition Corporation, a Delaware Corporation (NA
Acquisition) and a wholly-owned subsidiary of NA Holding Corporation, a Delaware
Corporation (NA Holding), agreed to acquire (the "Acquisition") all of the
capital stock of NAVL from Norfolk Southern Corporation (NS) and J.P. Morgan
Ventures Corporation (J.P. Morgan) for an aggregate purchase price of $222,135,
including fees and expenses of $13,600. NA Acquisition and NA Holding were
formed by Clayton, Dubilier & Rice Fund V Limited Partnership, a Cayman Islands
exempted limited partnership (Fund V), and a private investment fund that is
managed by Clayton, Dubilier & Rice, Inc.
At the closing of the Acquisition (the "Closing") on March 29, 1998, NA
Acquisition purchased all of the issued and outstanding common stock of North
American Van Lines, Inc. (NAVL or the Company) from NS for an aggregate purchase
price of $200,025, subject to pre- and post-closing purchase price adjustment
provisions based on changes in net working capital between December 27, 1997,
and closing, and all of the issued and outstanding preferred stock of NAVL from
J.P. Morgan for cash in the aggregate amount of $1,000 plus all accrued and
unpaid dividends through the Closing of $18. Based on the purchase price
adjustment provisions, $7,492 was paid by NAVL to NS on August 26, 1998. After
the Closing, NA Acquisition was merged with and into NAVL, with NAVL being the
surviving corporation and a direct wholly-owned subsidiary of NA Holding.
The Acquisition of NAVL was financed through a combination of $150,000 in
senior secured debt and $65,000 in cash equity contributed by Fund V and NAVL
management investors. On March 30, 1998, the Company entered into a senior
secured credit facility (the "Credit Agreement") with several lenders including
The Bank of New York and Chase Manhattan Bank. The senior secured credit
facility is comprised of a seven year $45,000 term loan facility (Tranche A), an
eight year $100,000 term loan facility (Tranche B), and a seven year $85,000
revolving credit facility (Revolving Credit Facility). The purchase method of
accounting was used to record the Acquisition. Independent appraisals were used
where appropriate.
NAVL is a diversified motor carrier operating principally throughout the
United States, Canada, Germany, and the United Kingdom. NAVL's principal lines
of business are household goods moving which provide 53% of revenues and high
value products transportation and logistics services which provide 47% of
revenues. Approximately 95% of revenues are derived from operations in the
United States and Canada with 5% from operations in Europe. NAVL conducts
operations primarily through a network of exclusive agents with over 750
locations in the U.S. and Canada and approximately 400 representatives on an
international basis.
The Company includes a subsidiary which operates as a multiple-line property
and liability insurance company under the provisions of the insurance laws of
the State of Indiana and primarily insures owner-operators and agents of NAVL
against loss from certain risks, primarily physical damage to tractors and
straight trucks.
F-21
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND MARCH 29, 1998
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b) BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of North American
Van Lines, Inc. and its subsidiaries, all but one of which are wholly owned. In
June 1997 the Company acquired a 51% share of a limited liability company (LLC),
Manufacturing Support Services, LLC (MSS). The financial statements include the
results of MSS and an appropriate recognition of minority interest is reflected
in the financial statements. All material intercompany accounts and transactions
have been eliminated in consolidation. The Consolidated Statement of Income
includes the results of operations for the period from the date of acquisition,
March 29, 1998, through December 26, 1998.
(c) CASH EQUIVALENTS
Cash equivalents are highly liquid investments purchased three months or
less from maturity.
(d) CONTRACTS RECEIVABLE AND EQUIPMENT HELD FOR SALE
In the normal course of business, the Company sells revenue equipment
(equipment held for sale) to its agents and to owner-operators under conditional
sales agreements (contracts receivable). Sales of revenue equipment are recorded
using the installment method of accounting. Gains are recognized as cash is
received and losses are recognized as incurred. Unrealized gains on these
transactions amounted to $3,311 and $3,752 at December 26, 1998 and March 29,
1998, respectively, of which $1,496 and $1,793, respectively, are netted against
current portion of contracts receivable and $1,815 and $1,959, respectively, are
netted against long-term portion of contracts receivable. Equipment held for
sale is recorded at the lower of cost or net realizable value.
(e) SUPPLIES INVENTORY
Supplies inventory consists of replacement parts, tires and other items for
resale, supplies for revenue equipment and office supplies and is valued at the
lower of average cost or market value.
(f) INVESTMENTS
Investments consist of U.S. Treasury, corporate debt and equity securities.
The Company classifies its debt and equity securities in one of two categories:
available-for-sale, or held-to-maturity. Held-to-maturity securities are those
securities in which the Company has the ability and intent to hold the security
until maturity (primarily bonds). All other securities are classified as
available-for-sale.
Available-for-sale securities are recorded at fair value. Held-to-maturity
securities are recorded at amortized cost, adjusted for the amortization or
accretion of premiums or discounts. Unrealized holding gains and losses, net of
the related tax effect, on available-for-sale securities are excluded from
earnings and are reported as a separate component of other comprehensive income
until realized. Realized gains and losses from the sale of available-for-sale
securities are determined on a specific identification basis.
F-22
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND MARCH 29, 1998
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) PROPERTY AND EQUIPMENT
Property and equipment are stated primarily at cost. Depreciation is
computed on a straight-line basis over the estimated useful lives of the
respective assets. The estimated useful lives and salvage values as of December
26, 1998 used in computing depreciation are summarized as follows:
USEFUL LIFE SALVAGE VALUE
-------------- ----------------------
Buildings..................................... 20 to 40 years --
Trailers...................................... 15 years $2 per unit
Other Equipment............................... 1 to 10 years 0-25%, max $5 per unit
Repairs and maintenance expenditures are charged to expenses as incurred.
The amount of internally developed software that was capitalized during the
nine months ended December 26, 1998 was $519 and is included in Other Equipment.
(h) INTANGIBLE ASSETS
Intangible assets consist of trade names and goodwill totaling $99,312 as of
March 29, 1998 and $97,450 as of December 26, 1998. Trade names and goodwill are
amortized on a straight-line basis over their estimated lives of 40 years.
Accumulated amortization was $1,862 at December 26, 1998.
(i) LONG-LIVED ASSETS
Long-lived assets, including intangible assets, 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.
(j) DEFERRED AGENT CONTRACT COSTS
Deferred agent contract costs are commitments made to agents for entering
into long-term contracts with NAVL. These commitments are capitalized and
amortized over the lives of the related contracts, which are generally 10 years.
(k) INSURANCE RESERVES AND ACCRUALS
The Company has sold its casualty and workers' compensation liabilities for
claims incurred in 1997 and prior to American International Group (AIG) for
$40,000 payable in three installments. The first installment of $13,500 was paid
in April of 1998 and the following two payments will be made in 1999 and 2000.
At the same time NAVL purchased first dollar coverage for all insurance areas
except cargo damage and delay claims. The Company estimates costs relating to
cargo damage and delay claims based on actuarial methods.
F-23
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND MARCH 29, 1998
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l) REVENUE RECOGNITION
The Company recognizes estimated revenue and related transportation expenses
on the date a shipment is delivered or services are completed. The estimate of
revenue remains in a receivable account called Delivered Not Processed (DNP)
until the customer is invoiced. The estimated Purchased Transportation Expenses
(PTE) are not reversed until invoicing occurs and actual expenses are recorded.
(m) FOREIGN CURRENCY TRANSLATION
The Company's foreign 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. Income statement items are
translated at the average exchange rate for the nine month period. The impact of
currency fluctuation is included in stockholders' equity as accumulated other
comprehensive income.
(n) INCOME TAXES
Income taxes are accounted for under the asset and liability method of
accounting. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax laws
and tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities due to a change in tax rates is recognized
in income in the period that includes the enactment date. In addition, the
amount of any future tax benefits are reduced by a valuation allowance to the
extent such benefits are not expected to be realized on a more likely than not
basis.
(o) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Some of the
areas where estimation is significant are as follows: DNP is the estimated
revenue associated with shipments delivered or services completed and not
invoiced. PTE is the associated purchased transportation expense that is
estimated corresponding to the DNP revenue. Accounts and notes receivable
reserves for doubtful accounts are estimates based on historical writeoff data
to establish the uncollectible portion of the receivables. Costs relating to
cargo damage and delay claims are estimated based on actuarial methods.
F-24
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND MARCH 29, 1998
(DOLLARS IN THOUSANDS)
(2) INVESTMENTS
Investments consist primarily of debt and equity securities held by the
Company's insurance subsidiary. These marketable investment securities at
December 26, 1998 and March 29, 1998 include:
DECEMBER 26, 1998 MARCH 29, 1998
--------------------------------- ---------------------------------
UNREALIZED UNREALIZED
FAIR AMORTIZED HOLDING FAIR AMORTIZED HOLDING
VALUE COST GAINS VALUE COST GAINS
-------- --------- ---------- -------- --------- ----------
Current
Available-for-sale................. $1,947 $1,699 $248 $1,752 $1,752 $ --
Held-to-maturity................... 110 109 1 109 109 --
------ ------ ---- ------ ------ -----
Total current........................ $2,057 $1,808 $249 $1,861 $1,861 $ --
====== ====== ==== ====== ====== =====
Noncurrent
Available-for-sale................. $ -- $ -- $ -- $ -- $ -- $ --
Held-to-maturity................... 843 823 20 839 827 12
------ ------ ---- ------ ------ -----
Total noncurrent..................... $ 843 $ 823 $ 20 $ 839 $ 827 $ 12
====== ====== ==== ====== ====== =====
The market value of this portfolio includes gross unrealized gains of $248
and $0 at December 26, 1998 and March 29, 1998 respectively.
In addition, investments of $274 and $234 at December 26, 1998 and March 29,
1998, respectively, included noncurrent investments in joint ventures.
(3) PREPAID EXPENSES AND OTHER CURRENT ASSETS
DECEMBER 26, 1998 MARCH 29, 1998
----------------- --------------
Prepaid expenses and other current assets are comprised
of the following:
Prepaid rent......................................... $ 999 $ 901
Prepaid systems maintenance.......................... 109 813
Prepaid taxes and licenses........................... 547 882
Prepaid insurance.................................... 376 207
Intercompany receivable from NA Holding.............. 6,806 6,546
Other................................................ 979 1,542
------ -------
$9,816 $10,891
====== =======
F-25
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND MARCH 29, 1998
(DOLLARS IN THOUSANDS)
(4) INTANGIBLE ASSETS
DECEMBER 26, 1998 MARCH 29, 1998
----------------- --------------
Intangible assets included the following:
Trade names.......................................... $75,700 $75,700
Goodwill............................................. 23,612 23,612
Accumulated amortization............................. (1,862) --
------- -------
$97,450 $99,312
======= =======
(5) OTHER ASSETS
DECEMBER 26, 1998 MARCH 29, 1998
----------------- --------------
Other assets consisted of the following:
Deferred debt issuance costs......................... $ 6,349 $7,054
Prepaid pension...................................... 3,304 490
Deposits............................................. 556 453
Other................................................ 266 326
------- ------
$10,475 $8,323
======= ======
(6) INCOME TAXES
(a) PROVISION FOR INCOME TAXES
The Company files a consolidated federal income tax return with its
wholly-owned domestic subsidiaries.
The provision for income taxes for the period March 29, 1998 through
December 26, 1998 includes:
Current:
Federal................................................... $ 6,682
Foreign................................................... 1,247
State..................................................... 1,500
-------
Total current taxes......................................... $ 9,429
-------
Deferred:
Federal................................................... $(7,120)
Foreign................................................... (44)
State..................................................... (1,154)
-------
Total deferred taxes........................................ $(8,318)
-------
Provision for income taxes.................................. $ 1,111
=======
F-26
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND MARCH 29, 1998
(DOLLARS IN THOUSANDS)
(6) INCOME TAXES (CONTINUED)
(b) RECONCILIATION OF STATUTORY RATE TO EFFECTIVE RATE
Total income taxes as reflected in the Consolidated Statement of Income
differ from the amounts computed by applying the statutory federal corporate tax
rate as follows:
Federal income tax at statutory rate........................ $ (35)
State income taxes, net of federal tax benefit.............. 225
Foreign taxes............................................... 279
Intangibles................................................. 155
Contingent liabilities...................................... 368
Other, net.................................................. 119
------
Provision for income taxes.................................. $1,111
======
(c) DEFERRED TAX ASSETS AND LIABILITIES
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 26,
1998 and March 29, 1998 were as follows:
DECEMBER 26, 1998 MARCH 29, 1998
----------------- --------------
Deferred tax assets:
Property..................................... $ 3,862 $ 155
Reserves, including casualty and other
claims..................................... 15,464 11,629
Employee benefits............................ 4,111 2,992
Taxes other than income taxes................ 2,434 2,142
Postretirement benefits other than pension
and postemployment benefits................ 6,080 5,595
Foreign tax net operating loss
carryforwards.............................. 607 1,290
Other........................................ 97 5
------- --------
Total gross deferred tax assets................ 32,655 23,808
Less valuation allowance....................... (103) (924)
------- --------
Net deferred tax asset......................... 32,552 22,884
------- --------
Deferred tax liabilities:
Employee benefits............................ 1,385 865
State income taxes........................... 472 40
Amortization, unrealized gains and other..... 20,920 20,419
------- --------
Total gross deferred tax liabilities........... 22,777 21,324
------- --------
Net deferred tax assets........................ 9,775 1,560
Less net current deferred tax assets........... 15,127 12,157
------- --------
Net long-term deferred tax liabilities......... $(5,352) $(10,597)
======= ========
F-27
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND MARCH 29, 1998
(DOLLARS IN THOUSANDS)
(6) INCOME TAXES (CONTINUED)
At December 26, 1998 and March 29, 1998, a valuation allowance has been
established due to the uncertainty of realization of foreign net operating loss
(NOL) carryforwards. The net change in the total valuation allowance for the
period March 29, 1998 through December 26, 1998 was a decrease of $821. The
decrease was a result of a utilization of certain NOL benefits and a reduction
to the valuation allowance as realization appears more certain. Management
believes all other deferred tax assets will be realized based on the Company's
anticipated future earnings or available tax planning alternatives.
(d) TAXING AUTHORITY REVIEWS
Consolidated federal income tax returns of NS (which include Predessor) have
been examined and Revenue Agent Reports have been received for all years up to
and including 1994. The consolidated federal income tax returns of NS for 1995
and 1996 are being audited by the IRS. NS will indemnify The Company for any tax
liabilities prior to the acquisition to the extent they were not accrued at the
purchase date.
(7) REVOLVING CREDIT FACILITY
Under the Revolving Credit Facility the Company may borrow up to $85,000.
The Credit Agreement requires that the balance borrowed under the Revolving
Credit Facility be no greater than $45,000 for 30 consecutive days in the first
quarter of each year. Interest on Revolving Credit Facility borrowing is based
on LIBOR or ABR rates, dependent upon the maturity date of the loan selected and
required notice of the borrowing request, plus a margin of 0.5% to 2.5%.
Interest and principal are paid on the maturity date of the loan with the
principal being reborrowed if desired. Each advance is made in increments of no
less than $5,000. If lesser amounts are required, then a swing line loan may be
activated. Interest on swing line borrowing is based on the ABR rate plus a
margin of 0.5% to 1.5%. Interest is paid at the end of each quarter and
principal when funds are available. The Company pays a commitment fee of 0.3% to
0.5% on the unused portion of the Revolving Credit Facility. See "Long-term Debt
and Lease Obligation" disclosure regarding covenants relating to this facility.
F-28
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND MARCH 29, 1998
(DOLLARS IN THOUSANDS)
(8) OTHER CURRENT LIABILITIES
DECEMBER 26, 1998 MARCH 29, 1998
----------------- --------------
The components of other current liabilities are
as follows:
Accrued purchase price adjustment............ $ -- $ 7,492
Accrued transaction fees..................... 238 5,002
Accrued agent and owner operator
incentives................................. 5,236 1,972
Accrued customer volume discounts............ 1,362 1,074
Accrued interest............................. 1,389 1,227
Accrued unvouchered payables................. 6,150 6,136
Accrued other taxes.......................... 5,105 4,926
Deferred credits............................. 761 761
Intercompany payable to NA Holding........... 3,569 --
Other........................................ 361 383
------- -------
$24,171 $28,973
======= =======
(9) LONG-TERM DEBT AND LEASE OBLIGATION
DECEMBER 26, 1998 MARCH 29, 1998
----------------- --------------
Note payable--Tranche A interest at 90 day
LIBOR rate plus 2.5% with interest and
principle paid quarterly..................... $ 44,000 $ 45,000
Note payable--Tranche B interest at 90 day
LIBOR rate plus 2.75% with interest and
principle paid quarterly..................... 99,000 100,000
Note payable with interest at prime, monthly
installments of $1.4, expiring in 2003....... 79 --
Capital lease obligation with interest at 5.5%
and expiring in 2005......................... 541 603
-------- --------
Total long-term debt and capital lease
obligation................................... $143,620 $145,603
Less current maturities........................ 3,599 2,958
-------- --------
$140,021 $142,645
======== ========
The Credit Agreement contains various loan covenants including an interest
coverage ratio and a senior debt ratio. The Credit Agreement also includes a
general lien on certain of the Company's assets.
F-29
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND MARCH 29, 1998
(DOLLARS IN THOUSANDS)
(9) LONG-TERM DEBT AND LEASE OBLIGATION (CONTINUED)
Aggregate principle payments for the next five years subsequent to December
26, 1998 are as follows:
TRANCHE OTHER LONG- CAPITAL
A & B DEBT TERM DEBT LEASE TOTAL
---------- ----------- -------- --------
1999................................. $ 3,500 $16 $ 83 $ 3,599
2000................................. 6,000 16 92 6,108
2001................................. 8,000 16 97 8,113
2002................................. 8,000 16 102 8,118
2003................................. 11,000 15 108 11,123
The Company has available unused lines of credit of $61,616 and $87,642 at
December 26, 1998 and March 29, 1998, respectively.
The fair value of the Company's long-term debt approximates the carrying
amount based on the present value of cash flows discounted at the current rates
offered to the Company on similar debt instruments.
(10) RETIREMENT, POSTRETIREMENT MEDICAL PLANS
The Company's United States plans' funded status and amount recognized in
the Company's consolidated financial statements at December 26, 1998 and March
29, 1998 (based on actuarial valuation) are as follows:
PENSION BENEFITS OTHER BENEFITS
---------------- --------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at March 29, 1998............. $43,726 $12,066
Service cost..................................... 2,062 677
Interest cost.................................... 2,368 641
Plan participants' contribution.................. -- 15
Actuarial loss................................... 2,764 629
Benefits paid.................................... (2,117) (342)
------- -------
Benefit obligation at December 26, 1998........ $48,803 $13,686
======= =======
CHANGE IN PLAN ASSETS
Fair value of plan assets at March 29, 1998...... $43,472
Actual return on plan assets..................... 2,552
Employer contribution............................ 4,070
Benefits paid.................................... (2,117)
-------
Fair value of plan assets at December 26,
1998......................................... $47,977
=======
F-30
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND MARCH 29, 1998
(DOLLARS IN THOUSANDS)
(10) RETIREMENT, POSTRETIREMENT MEDICAL PLANS (CONTINUED)
PENSION BENEFITS OTHER BENEFITS
---------------------------------- ----------------------------------
DECEMBER 26, 1998 MARCH 29, 1998 DECEMBER 26, 1998 MARCH 29, 1998
----------------- -------------- ----------------- --------------
Benefit obligation................ $48,803 $43,726 $ 13,686 $ 12,066
Plan assets....................... 47,977 43,472 -- --
------- ------- -------- --------
Funded status..................... (826) (254) (13,686) (12,066)
Unrecognized net actuarial loss... 3,277 -- 629 --
------- ------- -------- --------
Prepaid (accrued) benefit cost.... $ 2,451 $ (254) $(13,057) $(12,066)
======= ======= ======== ========
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate..................... 6.90% 7.25% 6.90% 7.25%
Expected return on plan assets.... 9.00% 9.00%
Rate of compensation increase..... 4.40% 5.00%
For measurement purposes, an 8% annual rate of increase in the per capita
cost of covered health care benefits was assumed for the period March 29, 1998
through December 26, 1998. The rate was assumed to decrease gradually to 5% for
2004 and remain at that level thereafter.
PENSION BENEFITS OTHER BENEFITS
---------------- --------------
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost..................................... $ 2,062 $ 677
Interest cost.................................... 2,368 641
Expected return on plan assets................... (3,065) --
------- ------
Net periodic benefit cost........................ $ 1,365 $1,318
======= ======
The Company sponsors the NAVL, Inc. Employee Retirement Plan, a funded,
noncontributory defined benefit pension plan (Qualified Plan) covering eligible
employees in the United States. The Qualified Plan provides for eligible
employees to receive retirement benefits based principally on years of service
with the Company, compensation rates over that time, and estimated primary
Social Security benefits. Contributions to the Qualified Plan are made on the
basis of not less than minimum funding standards set forth in the Employee
Retirement Income Security Act of 1974, as amended. Plan assets consist
primarily of common stocks and government securities.
The Company also has an Excess Benefit Plan which is an unfunded,
nonqualified plan that provides retirement benefits not otherwise provided under
the Qualified Plan because of the benefit limitations imposed by Section 415 and
401(a)(17) of the Internal Revenue Code. The Excess Benefit Plan ensures that an
executive receives the total pension benefit to which he/she otherwise would be
entitled, were it not for such limitations.
In addition, the Overlap Benefit Plan, an unfunded, nonqualified retirement
plan, provides retirement benefits forfeited by the highly compensated employees
under the Qualified Plan because of the changes to the retirement plan formula
which took effect April 18, 1989.
F-31
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND MARCH 29, 1998
(DOLLARS IN THOUSANDS)
(10) RETIREMENT, POSTRETIREMENT MEDICAL PLANS (CONTINUED)
The Company has nonpension postretirement benefit plans that provide
specific health care and death benefits to eligible retired employees. Under the
present plans, which may be amended or terminated at the Company's option, a
defined percentage of health care expenses is covered, after reductions for any
deductibles, co-payments, Medicare payments and, in some cases, coverage
provided by other group insurance policies. The cost of such health care
coverage to a retiree may be determined in part by a retiree's years of vested
service with the Company prior to retirement. Death benefits are based on a
fixed amount at time of retirement.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:
1-PERCENTAGE-POINT 1-PERCENTAGE-POINT
INCREASE DECREASE
------------------ ------------------
Effect on total of service and interest cost
components................................. $ 255 $ (210)
Effect on postretirement benefit
obligation................................. 1,739 (2,482)
The Company's German subsidiary, midiData, has an unfunded pension plan
under which certain employees of the company will receive certain percentages of
their monthly income when they retire. At the end of 1998, the accumulated
benefit obligation was $1,683 and the projected benefit obligation was $1,756.
The remaining transition obligation of $225 is being amortized over the
remaining average service life of 9 years.
The Company's Canadian subsidiary, North American Van Lines Canada Ltd., has
a defined benefit plan with the benefits generally based upon years of service
and the highest five-year average salary during employment. At the end of 1998,
the actuarial present value of accrued pension benefits was $1,356 and the
aggregate market value of pension plan assets was $1,539.
In 1994, the Company's United Kingdom subsidiary, North American Van Lines,
Ltd., established a contributory defined contribution plan for eligible
employees. The plan is funded through contributions from employees, generally 3%
of earnings, that are matched by the Company.
The Company maintains an employee savings plan for eligible employees which
qualifies under Sections 401(a) and 401(k) of the Internal Revenue Code. The
Company has made no contributions to the plan since its inception.
(11) POSTEMPLOYMENT MEDICAL PLAN
The Company provides certain postemployment benefits to inactive employees
and their dependents during the period following employment but before
retirement. Effective the beginning of 1994, the Company adopted FAS No. 112
which requires the accrual of the cost of postemployment benefits rather than
expensing the costs when paid. These benefits are for continuation of health
care coverage. At December 26, 1998, the accumulated postemployment benefit
obligation was $1,933.
F-32
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND MARCH 29, 1998
(DOLLARS IN THOUSANDS)
(12) INCENTIVE AND DEFERRED COMPENSATION
The Company maintains a Management Incentive Plan for certain executives and
key management employees. The plan is administered by the Board of Directors who
do not participate in the plan. Incentive compensation is based upon achievement
of certain predetermined corporate performance goals.
The Company also maintains Evidence of Success incentive programs for
eligible employees not included in the Management Incentive Plan. The plan is
administered by the Vice President Human Resources, who does not participate in
the plan. Incentive compensation is based upon achievement of certain
predetermined corporate performance goals. The expense associated with the
incentive plans was $5,032 for the period March 29, 1998 through December 26,
1998.
(13) STOCK OPTION PLAN
In 1998, NA Holding adopted a stock option plan (the "Plan") for officers
and other key employees. At December 26, 1998, a total of 71,400 shares of
authorized but unissued common stock have been reserved for issuance under the
Plan upon the exercise of the options. The administrator of the Plan is
NA Holding's Board of Directors. Under the Plan, two options have been granted
with each share of stock sold to the officers and other key employees. Options
granted are of two types: Service Options and Performance Options. Service
Options are vested in equal annual installments on each of the first five
anniversaries of the grant date. Performance Options are vested dependant on
achievement of cumulative EBITDA targets, or if not vested sooner, become vested
on the ninth anniversary of the grant date. All options granted expire after ten
years from the grant date. The exercise price of the options equaled the fair
market value of common stock at the date of the grant. Fair market value was
determined by management to be equal to the price paid for common stock issued
in respect to the Acquisition.
Information with respect to the options granted by NA Holding under the Plan
is as follows:
# OF WEIGHTED AVG.
SHARES EXERCISE PRICE
-------- --------------
Outstanding at March 29, 1998
Options granted...................................... 76,600 $100
Options exercised.................................... -- --
Options cancelled.................................... 5,200 100
------ ----
Outstanding at December 26, 1998....................... 71,400 $100
====== ====
In accordance with the provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", NA Holding
has elected to continue to account for stock-based compensation under the
intrinsic value based method of accounting described by Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees". Under
APB No. 25, generally no cost is recorded for stock options issued to employees
unless the option price is below market at the time options are granted.
Had NA Holding elected to apply the provisions of SFAS No. 123 regarding
recognition of compensation expense to the extent of the calculated fair value
of stock options granted during the period March 29, 1998 through December 26,
1998, NA Holding would have charged the Company for the
F-33
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND MARCH 29, 1998
(DOLLARS IN THOUSANDS)
(13) STOCK OPTION PLAN (CONTINUED)
additional compensation expense. Therefore, the net loss of the Company would
have been increased as follows:
Net loss as reported........................................ $(1,212)
Pro forma net loss.......................................... $(1,381)
The fair value of each option is estimated on the date of grant, using the
Black-Scholes option pricing model with the following weighted average
assumptions used: risk-free interest rates ranging from 4.67% to 5.72%, expected
option lives of 5 years and no dividend payments.
(14) COMMITMENTS AND CONTINGENCIES
(a) LETTERS OF CREDIT AND DEBT GUARANTEES
The Company's German subsidiary, midiData, has guarantees to WTB Leasing
GmbH and CommerzLease for equipment leases. These leases extend through the year
2003. The Company's United Kingdom subsidiary, North American Van Lines, Ltd.,
has guarantees to various parties for customs and excise taxes.
(b) LAWSUITS
The Company and certain subsidiaries are defendants in numerous lawsuits
relating principally to motor carrier operations. While the final outcome of
these lawsuits cannot be predicted with certainty, it is the opinion of
management, after consulting with its legal counsel, that the amount of the
Company's ultimate liability will not materially affect the Company's
consolidated financial position, results of operations or liquidity.
(c) ENVIRONMENTAL MATTERS
The Company has been named as a potentially responsible party (PRP) in two
environmental cleanup proceedings by federal or state authorities and one
additional environmental clean-up proceeding by a group of PRP's. The suits are
brought under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, or other federal or state statutes. Based on
all known information, it is estimated that the settlement cost of each PRP site
would not be materially or significantly larger than the litigation reserves
established, which totaled $35 and $57 on December 26, 1998 and March 29, 1998,
respectively. It is possible that additional claims or lawsuits involving
unknown environmental matters or now unidentified environmental sites may arise
in the future.
The Company owns or has owned and leases or has leased facilities at which
underground storage tanks for diesel fuel are located and operated. Management
believes that the Company has taken the appropriate and necessary action with
regard to releases of diesel fuel that have occurred. As conditions may exist on
these properties related to environmental problems that are latent or
undisclosed, there can be no assurance that the Company will not incur
liabilities or costs, the amount of which cannot be estimated reliably at this
time. However, based on its assessment of the facts and circumstances now known
and after consulting with its legal counsel, management believes that it has
recorded appropriate estimates
F-34
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND MARCH 29, 1998
(DOLLARS IN THOUSANDS)
(14) COMMITMENTS AND CONTINGENCIES (CONTINUED)
of liability for those environmental matters of which the Company is aware.
Further, management believes it is unlikely that any identified matters, either
individually or in aggregate, will have a material effect on the Company's
financial position, results of operations or liquidity.
(d) PURCHASE COMMITMENTS
The Company has entered into certain purchase commitments for trailers and
software licenses in the amount of $2,984 as of December 26, 1998 and $0 as of
March 29, 1998.
(15) LEASE COMMITMENTS
The Company has noncancelable lease commitments under operating leases for
rental of office space, warehouse facilities, and office equipment. The
Company's rental expense under these operating leases was $12,448 for the nine
months ended December 26, 1998. Future minimum lease commitments under
noncancelable leases are as follows: 1999, $16,945; 2000, $13,644; 2001,
$10,946; 2002, $8,468; 2003, $4,117, and thereafter $7,437.
(16) FINANCIAL INSTRUMENTS
The Company utilizes interest rate agreements and foreign exchange contracts
to manage interest rate and foreign currency exposures. The principal objective
of such contracts is to minimize the risks and/or costs associated with
financial and international operating activities. The Company does not utilize
financial instruments for trading or other speculative purposes. The
counterparties to these contractual arrangements are financial institutions with
which the Company also has other financial relationships. The Company is exposed
to credit loss in the event of nonperformance by these counterparties. However,
the Company does not anticipate nonperformance by the other parties, and no
material loss would be expected from their nonperformance.
(a) INTEREST RATE INSTRUMENTS
The Company entered into an interest rate swap agreement on June 4, 1998 to
reduce the impact of changes in interest rates on its floating rate debt. The
swap agreement is a contract to exchange floating rate for fixed interest
payments periodically over the life of the agreement without the exchange of the
underlying notional amount. The notional amount of the interest rate agreement
is used to measure interest to be paid or received and does not represent the
amount of exposure to credit loss. The net cash amounts paid or received on the
interest rate swap agreement are accrued and recognized as an adjustment to
interest expense.
As of December 26, 1998, the Company had the following interest rate swap in
effect:
Notional amount............................................. $75,000
Fixed interest rate......................................... 5.90%
Strike period............................................... 6/1998-6/2001
F-35
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND MARCH 29, 1998
(DOLLARS IN THOUSANDS)
(16) FINANCIAL INSTRUMENTS (CONTINUED)
Based on the amount that the Company would pay to exit the contract, the
fair value of the interest rate swap agreement at December 26, 1998 was $1,358.
(b) FOREIGN EXCHANGE INSTRUMENTS
The Company enters into forward currency exchange contracts in the regular
course of business to manage its exposure against foreign currency fluctuations
on transactions denominated in foreign currencies. The Company had no open
positions on forward exchange contracts at December 26, 1998 and March 29, 1998.
(17) OPERATING SEGMENTS
The Company has two reportable segments--Van Line Network and Logistics
Services.
The Van Line Network segment provides domestic and international residential
relocation services through a network of exclusive agents. It is comprised of
the Relocation Services Division, which provides packing, loading,
transportation, delivery and warehousing services for any type of household move
in the U.S. and Canada, and the International Division, which provides or
coordinates these same services for customers on a global basis.
The Logistics Services segment provides customized logistics solutions,
specialized transportation services, warehousing, distribution, and delivery
services to commercial customers. It is comprised of the Logistics Division,
which provides these specialized services to principally electronics, medical
equipment and other suppliers of sensitive goods requiring specialized handling
in the U.S., the Blanket Wrap/Flatbed Division, which provides transportation of
truckload freight requiring specialized handling in the U.S., and the Europe
Division, which provides these same logistics services in Europe and the U.K.
The table below represents information about revenues, income from
operations and total assets by segment used by the chief decision-makers of the
Company for the period March 29, 1998 through December 26, 1998 and as of
December 26, 1998:
VAN LINE LOGISTICS CONSOLIDATED
NETWORK SERVICES CORPORATE(1) TOTALS
-------- --------- ------------ ------------
Revenues......................................... $409,944 $349,263 $ -- $759,207
Income from Operations........................... 6,151 5,416 -- 11,567
Total Assets..................................... 94,595 110,876 186,592 392,063
- ------------------------
(1) Total assets by segment are specific assets such as revenue equipment and
trade receivables. Assets included in the corporate category include
non-allocated assets such as the corporate headquarters building, computer
hardware and software, contracts receivable associated with equipment sales,
deferred taxes and goodwill.
F-36
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND MARCH 29, 1998
(DOLLARS IN THOUSANDS)
(17) OPERATING SEGMENTS (CONTINUED)
Specified items included in segment results for the period March 29, 1998
through December 26, 1998:
VAN LINE LOGISTICS CONSOLIDATED
NETWORK SERVICES CORPORATE(2) TOTALS
-------- --------- ------------ ------------
Depreciation and amortization...................... $8,141 $14,370 $ -- $22,511
Non-operating income (expense) and minority
interest......................................... 182 (92) -- 90
- ------------------------
(2) Depreciation expense for capital expenditures in the corporate category is
allocated to the segments in order to determine segment income from
operations.
Specified items included in segment assets of December 26, 1998:
VAN LINE LOGISTICS CONSOLIDATED
NETWORK SERVICES CORPORATE TOTALS
-------- --------- ---------- ------------
Capital expenditures............................... $ 718 $ 2,591 $2,389 $ 5,698
Revenue and long-lived asset information by geographic area for the period
March 29, 1998 through December 26, 1998 and as of December 26, 1998:
LONG-LIVED
REVENUE ASSETS
-------- ----------
United States........................................... $696,224 $208,009
Foreign................................................. 62,983 3,761
-------- --------
Total................................................... $759,207 $211,770
======== ========
Foreign revenue is based on the country in which the sales originated.
(18) SUPPLEMENTAL INFORMATION
On November 19, 1999, pursuant to an acquisition agreement dated
September 14, 1999, the Company acquired substantially all of the assets of
certain subsidiaries of NFC, plc, (the "Seller") that are engaged in the
Seller's moving services business. The acquisition was accounted for as a
purchase. Total purchase consideration was $400 million cash plus a combination
of preferred stock, common stock and common stock warrants with a combined value
of $50 million.
The acquisition was funded through borrowings under new credit facilities of
$390.0 million, proceeds from the issuance of $150.0 million of NAVL senior
subordinated notes, and an increase to stockholders' equity resulting from the
issuance of $24.5 million of junior preferred stock, $35.0 million of senior
discounted notes, and a common stock warrant totaling $65.5 million by NAVL's
parent, NA Holding. Of the $65.5 million, $40.0 million was initially in the
form of an interim loan facility made available to NA Holding. On December 1,
1999, Fund V and the Seller subscribed for and purchased additional shares of
common stock of NA Holding for $32.0 million and $8.0 million in cash,
respectively. The proceeds from this stock subscription were used to repay the
$40.0 million interim loan.
F-37
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND MARCH 29, 1998
(DOLLARS IN THOUSANDS)
(18) SUPPLEMENTAL INFORMATION (CONTINUED)
The following summarized consolidating balance sheet, statement of income,
and statement of cash flows have been presented in contemplation of the
transaction between NA Holding and the Seller, as described above. Such
financial statements have been segregated between those entities that have
guaranteed the NAVL senior subordinated notes issued in connection with the
transaction ("Guarantor" entities), and those entities that did not guarantee
such debt ("Non-Guarantor" entities).
Consolidating balance sheet data as of December 26, 1998 is summarized as
follows:
(1) (2) NON- TOTAL
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
Current assets........................ $141,485 $ 9,098 $ 31,170 $ (1,460) $180,283
Non-current assets.................... 245,403 9,743 85,269 (128,645) 211,770
-------- ------- -------- --------- --------
Total assets.......................... $386,888 $18,841 $116,439 $(130,105) $392,063
======== ======= ======== ========= ========
Current liabilities................... $122,909 $ 6,531 $ 20,908 $ (1,460) $148,888
Non-current liabilities............... 200,329 718 2,650 (24,172) 179,525
-------- ------- -------- --------- --------
Total liabilities..................... 323,238 7,249 23,558 (25,632) 328,413
Stockholders' equity.................. 63,650 11,592 92,881 (104,473) 63,650
-------- ------- -------- --------- --------
Total liabilities and equity.......... $386,888 $18,841 $116,439 $(130,105) $392,063
======== ======= ======== ========= ========
Consolidating statement of income data for the period March 29, 1998
(inception) through December 26, 1998 is summarized as follows:
(1) (2) NON- TOTAL
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
Operating revenues.................... $650,603 $45,205 $ 73,010 $ (9,611) $759,207
Total operating expenses.............. 644,038 42,464 69,745 (8,607) 747,640
-------- ------- -------- --------- --------
Income (loss) from operations......... 6,565 2,741 3,265 (1,004) 11,567
Interest expense and other............ 6,666 43 2,006 2,953 11,668
-------- ------- -------- --------- --------
Income (loss) before income taxes..... (101) 2,698 1,259 (3,957) (101)
Provision/(benefit) for income
taxes............................... 1,111 1,079 504 (1,583) 1,111
-------- ------- -------- --------- --------
Net income (loss)..................... $ (1,212) $ 1,619 $ 755 $ (2,374) $ (1,212)
======== ======= ======== ========= ========
F-38
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND MARCH 29, 1998
(DOLLARS IN THOUSANDS)
(18) SUPPLEMENTAL INFORMATION (CONTINUED)
Consolidating statement of cash flows data for the period March 29, 1998
(inception) through December 26, 1998 is summarized as follows:
(1) (2) NON- TOTAL
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
Net cash provided by (used in)
operating activities.................. $ (2,956) $ 10 $ 1,384 $ -- $ (1,562)
Net cash used in investing
activities.......................... (5,483) -- (861) -- (6,344)
Net cash provided by (used in)
financing activities................ 2,998 58 (2,303) -- 753
Net increase (decrease) in cash and
cash equivalents.................... (5,441) 68 (1,780) -- (7,153)
Cash at beginning of period........... 5,752 27 3,448 -- 9,227
-------- ------- -------- --------- --------
Cash at end of period................. $ 311 $ 95 $ 1,668 $ -- $ 2,074
======== ======= ======== ========= ========
- ------------------------
(1) Parent includes the accounts of North American Van Lines, Inc., a Delaware
corporation and the issuer of the debt in connection with the transaction.
(2) Total Guarantors include the accounts of the following subsidiaries of North
American Van Lines, Inc.: Fleet Insurance Management, Inc., an Indiana
corporation; FrontRunner Worldwide, Inc., a Delaware corporation; NACAL,
Inc., a California Corporation; NAVTRANS International Freight Forwarding,
Inc., and Indiana corporation; North American Distribution Systems, Inc., an
Indiana corporation; North American Logistics, Ltd., an Indiana corporation,
North American Van Lines of Texas, Inc., a Texas corporation; Relocation
Management Systems, Inc., a Delaware corporation; and Great Falls North
American, Inc., a Montana corporation. Each Guarantor is a wholly owned
subsidiary of North American Van Lines, Inc. and will jointly and severally,
irrevocably and fully and unconditionally guarantee the punctual payment of
such debt issued in connection with the transaction.
F-39
[LOGO]
- --------------------------------------------------------------------------------
PRICEWATERHOUSECOOPERS
LLP
200 East Randolph Drive
Chicago IL 60601
Telephone (312) 540 1500
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
North American Van Lines, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, stockholders' equity, and cash flows present
fairly, in all material respects, the financial position of North American Van
Lines, Inc. and its subsidiaries (the "Company") at March 28, 1998, and the
results of their operations and cash flows for the period December 28, 1997
through March 28, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCooper LLP
March 18, 1999, except as to Note 16,
for which the date is September 27, 1999,
and Note 17, for which the date is January 31, 2000.
F-40
NORTH AMERICAN VAN LINES, INC.
CONSOLIDATED BALANCE SHEET
AT MARCH 28, 1998
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 9,227
Short-term investments.................................... 1,861
Accounts and notes receivable, net of allowance for
doubtful accounts of $12,469............................ 139,044
Current portion of contract receivables, net of valuation
allowance of $221....................................... 5,982
Supplies inventory........................................ 1,924
Equipment held for sale................................... 3,223
Current portion of deferred agent contract costs.......... 408
Prepaid expenses.......................................... 4,637
Deferred income taxes..................................... 21,899
---------
Total current assets........................................ 188,205
---------
Long-term portion of contract receivables................... 10,427
Long-term portion of notes receivables...................... 2,482
Investments................................................. 1,061
Deferred income taxes....................................... 8,865
Property and equipment:
Land...................................................... 1,743
Buildings................................................. 27,163
Trailers.................................................. 74,687
Other equipment........................................... 77,694
---------
181,287
Less accumulated depreciation............................. (124,933)
---------
56,354
Deferred agent contract costs............................... 16,065
Other assets................................................ 855
---------
Total assets................................................ $ 284,314
=========
The accompanying notes are an integral part of the consolidated financial
statements.
F-41
NORTH AMERICAN VAN LINES, INC.
CONSOLIDATED BALANCE SHEET
AT MARCH 28, 1998
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and lease obligations... $ 83
Revolving credit facility and notes payable............... 125
Accounts payable.......................................... 21,136
Outstanding checks........................................ 8,560
Accrued transportation expense............................ 32,739
Other current liabilities................................. 15,327
Insurance reserves and accruals........................... 23,437
Compensation and benefits................................. 19,474
Income taxes.............................................. 4,077
---------
Total current liabilities................................... 124,958
---------
Long-term debt and lease obligation......................... 520
Insurance reserves and accruals............................. 29,165
Compensation and benefits................................... 28,438
Minority interest........................................... 251
---------
Total liabilities........................................... 183,332
---------
Stockholders' equity
Preferred stock, $100.00 par value, 10,000 shares
authorized, issued, and outstanding..................... 1,000
Common stock, $1.00 par value, 10,000 shares authorized,
issued, and outstanding................................. 10
Additional paid-in-capital................................ 79,372
Retained earnings......................................... 20,819
Accumulated other comprehensive income (loss)............. (219)
---------
Total stockholders' equity.................................. 100,982
---------
Total liabilities and stockholders' equity $ 284,314
=========
The accompanying notes are an integral part of the consolidated financial
statements.
F-42
NORTH AMERICAN VAN LINES, INC.
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD DECEMBER 28, 1997 THROUGH MARCH 28, 1998
(DOLLARS IN THOUSANDS)
Operating revenues.......................................... $207,245
Operating expenses:
Transportation............................................ 162,381
Administration............................................ 34,240
Insurance and claims...................................... 6,538
Depreciation.............................................. 2,256
Amortization.............................................. 639
Maintenance, tires and other operating.................... 4,302
Equipment sales and services, net......................... (977)
Insurance and supply programs, net........................ (799)
--------
Total operating expenses................................ 208,580
--------
Loss from operations.................................... (1,335)
Non-operating income........................................ 10
Minority interest........................................... (13)
--------
Loss before interest and taxes.......................... (1,338)
Interest income............................................. (240)
--------
Loss before income taxes................................ (1,098)
Income tax benefit.......................................... (448)
--------
Net loss................................................ $ (650)
========
The accompanying notes are an integral part of the consolidated financial
statements.
F-43
NORTH AMERICAN VAN LINES, INC
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD DECEMBER 28, 1997 THROUGH MARCH 28, 1998
(DOLLARS IN THOUSANDS)
ACCUMULATED
OTHER ADDITIONAL
COMPREHENSIVE RETAINED COMPREHENSIVE PREFERRED COMMON PAID IN
TOTAL INCOME (LOSS) EARNINGS INCOME (LOSS) STOCK STOCK CAPITAL
-------- ------------- -------- ------------- --------- -------- ----------
Balance at December 27,
1997........................ $108,116 $27,933 $(199) $1,000 $10 $79,372
Comprehensive income (loss)...
Net loss.................... (650) $(650) (650)
-----
Gross unrealized holding
gains..................... 88 88
Foreign currency
translation............... (108) (108)
-----
Other comprehensive income
(loss).................... (20) (20)
-----
Comprehensive income (loss)... $(670)
=====
Dividends declared on common
stock....................... (6,464) (6,464)
-------- ------- ----- ------ --- -------
Balance at March 28, 1998..... $100,982 $20,819 $(219) $1,000 $10 $79,372
======== ======= ===== ====== === =======
The accompanying notes are an integral part of the consolidated financial
statements.
F-44
NORTH AMERICAN VAN LINES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD DECEMBER 28, 1997 THROUGH MARCH 28, 1998
(DOLLARS IN THOUSANDS)
Cash flows from operating activities:
Loss from operations...................................... $ (650)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation............................................ 2,256
Amortization of deferred agent contract costs........... 639
Provision for losses on accounts and notes receivable... 54
Deferred income taxes................................... 784
Gain on sale of equipment............................... (103)
Change in other comprehensive income (loss)............. (20)
Change in assets and liabilities:
Accounts and notes receivable......................... 9,475
Contracts receivable.................................. 1,110
Prepaids and other current assets..................... (489)
Accounts payable...................................... (499)
Other current liabilities............................. 903
Insurance reserves and accruals....................... (1,226)
Other long-term assets and liabilities................ (3,244)
Income tax payable.................................... 1,305
-------
Net cash provided by operating activities................... 10,295
-------
Cash flows from investing activities:
Additions of property and equipment....................... (1,402)
Proceeds from sale of property and equipment.............. 162
Payment of deferred agent contract costs.................. (2,166)
-------
Net cash used for investing activities...................... (3,406)
-------
Cash flows from financing activities:
Borrowings on revolving credit facility and notes
payable................................................. 244
Repayment of revolving credit facility and notes
payable................................................. (844)
Change in balance of outstanding checks................... (1,598)
Principal payments under capital lease obligation......... (20)
Minority interest......................................... 13
Collection of NS advance receivable....................... 10,204
Common dividends paid to NS............................... (6,464)
-------
Net cash provided by financing activities................... 1,535
-------
Net cash flows from continuing operations................... 8,424
Net cash flows from the payment or transfer of liabilities
attributable to discontinued operations................... (2,145)
-------
Net increase in cash and cash equivalents................... 6,279
Cash and cash equivalents at December 27, 1997.............. 2,948
-------
Cash and cash equivalents at March 28, 1998................. $ 9,227
=======
Supplemental disclosure of cash flow information--cash paid
during the period December 28, 1997 through March 28,
1998:
Interest.................................................. $ 140
Income taxes.............................................. $ 225
=======
The accompanying notes are an integral part of the consolidated financial
statements.
F-45
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 1998
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BUSINESS DESCRIPTION AND ORGANIZATION
North American Van Lines, Inc. ("NAVL" or "the Company") is a diversified
motor carrier operating principally throughout the United States, Canada,
Germany, and the United Kingdom. NAVL's principal lines of business are
household goods moving which provide 48% of revenues and high value products
transportation and logistics services which provide 52% of revenues.
Approximately 94% of revenues are derived from operations in the United States
and Canada with 6% from operations in Europe. NAVL conducts operations primarily
through a network of exclusive agents with over 750 locations in the U.S. and
Canada and approximately 400 representatives on an international basis.
On January 9, 1998, NA Acquisition Corporation, a Delaware Corporation (NA
Acquisition) and a wholly-owned subsidiary of NA Holding Corporation, a Delaware
Corporation (NA Holding), agreed to acquire (the "Acquisition") all of the
capital stock of NAVL from Norfolk Southern Corporation (NS) and J.P. Morgan
Ventures Corporation (J.P. Morgan) for an aggregate purchase price of $222,135,
including fees and expenses of $13,600. NA Acquisition and NA Holding were
formed by Clayton, Dubilier & Rice Fund V Limited Partnership, a Cayman Islands
exempted limited partnership (Fund V), and a private investment fund that is
managed by Clayton, Dubilier & Rice, Inc.
At the closing of the Acquisition (the "Closing") on March 29, 1998, NA
Acquisition purchased all of the issued and outstanding common stock of NAVL
from NS for an aggregate purchase price of $200,025, subject to pre- and
post-closing purchase price adjustment provisions based on changes in net
working capital between December 27, 1997, and closing, and all of the issued
and outstanding preferred stock of NAVL from J.P. Morgan for cash in the
aggregate amount of $1,000 plus all accrued and unpaid dividends through the
Closing of $18. Based on the purchase price adjustment provisions, $7,492 was
paid by NAVL to NS on August 26, 1998. After the Closing, NA Acquisition was
merged with and into NAVL, with NAVL being the surviving corporation and a
direct wholly-owned subsidiary of NA Holding.
The Acquisition of NAVL was financed through a combination of $150,000 in
senior secured debt and $65,000 in cash equity contributed by Fund V and NAVL
management investors. On March 30, 1998, the Company entered into a senior
secured credit facility (the "Credit Agreement") with several lenders including
The Bank of New York and Chase Manhattan Bank. The senior secured credit
facility is comprised of a seven year $45,000 term loan facility (Tranche A), an
eight year $100,000 term loan facility (Tranche B), and a seven year $85,000
revolving credit facility (Revolving Credit Facility). The purchase method of
accounting was used to record the Acquisition. Independent appraisals were used
where appropriate.
The Company includes a subsidiary which operates as a multiple-line property
and liability insurance company under the provisions of the insurance laws of
the State of Indiana and primarily insures owner-operators and agents of NAVL
against loss from certain risks, primarily physical damage to tractors and
straight trucks.
(b) BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of NAVL and its
subsidiaries, all but one of which are wholly owned. In June 1997 the Company
acquired a 51% share of a limited liability company (LLC), Manufacturing Support
Services, LLC (MSS). The financial statements include the results of MSS
F-46
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 28, 1998
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and an appropriate recognition of minority interest is reflected in the
financial statements. All material intercompany accounts and transactions have
been eliminated in consolidation. The Consolidated Statement of Income includes
the results of operations for the period from December 28, 1997 through
March 28, 1998.
(c) CASH EQUIVALENTS
Cash equivalents are highly liquid investments purchased three months or
less from maturity.
(d) CONTRACTS RECEIVABLE AND EQUIPMENT HELD FOR SALE
In the normal course of business, the Company sells revenue equipment
(equipment held for sale) to its agents and to owner-operators under conditional
sales agreements (contracts receivable). Sales of revenue equipment are recorded
using the installment method of accounting. Gains are recognized as cash is
received and losses are recognized as incurred. Unrealized gains on these
transactions amounted to $3,752 at March 28, 1998, of which $1,793 is netted
against current portion of contracts receivable and $1,959 is netted against
long-term portion of contracts receivable. Equipment held for sale is recorded
at the lower of cost or net realizable value.
(e) SUPPLIES INVENTORY
Supplies inventory consists of replacement parts, tires and other items for
resale, supplies for revenue equipment and office supplies and is valued at the
lower of average cost or market value.
(f) INVESTMENTS
Investments consist of U.S. Treasury, corporate debt and equity securities.
The Company classifies its debt and equity securities in one of two categories:
available-for-sale, or held-to-maturity. Held-to-maturity securities are those
securities in which the Company has the ability and intent to hold the security
until maturity (primarily bonds). All other securities are classified as
available-for-sale.
Available-for-sale securities are recorded at fair value. Held-to-maturity
securities are recorded at amortized cost, adjusted for the amortization or
accretion of premiums or discounts. Unrealized holding gains and losses, net of
the related tax effect, on available-for-sale securities are excluded from
earnings and are reported as a separate component of other comprehensive income
until realized. Realized gains and losses from the sale of available-for-sale
securities are determined on a specific identification basis.
F-47
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 28, 1998
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) PROPERTY AND EQUIPMENT
Property and equipment are stated primarily at cost. Depreciation is
computed on a straight-line basis over the estimated useful lives of the
respective assets. The estimated useful lives and salvage values as of March 28,
1998 used in computing depreciation are summarized as follows:
USEFUL LIFE SALVAGE VALUE
-------------- -------------
Buildings........................................ 20 to 40 years --
Trailers......................................... 15 years $2 per unit
Other Equipment.................................. 1 to 10 years 0-25%
Repairs and maintenance expenditures are charged to expenses as incurred.
The amount of internally developed software that was capitalized during the
period December 28, 1997 through March 28, 1998 was $183 and is included in
Other Equipment.
(h) LONG-LIVED ASSETS
Long-lived assets 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.
(i) DEFERRED AGENT CONTRACT COSTS
Deferred agent contract costs are commitments made to agents for entering
into long-term contracts with NAVL. These commitments are capitalized and
amortized over the lives of the related contracts, which are generally 10 years.
(j) INSURANCE RESERVES AND ACCRUALS
The liability for the self-insured portion of cargo loss and damage,
workers' compensation and cargo claims is based on estimated amounts utilizing
primarily historical payment experience and a provision for claims incurred but
not reported. The Company's method of estimating costs relating to workers'
compensation, casualty, and cargo claims is based on actuarial valuations or
techniques.
Liability is limited, on a single occurrence basis, to $1,000 for workers'
compensation, and $5,000 for casualty claims. Claims in excess of these amounts
are covered by insurance.
Subsequent to the Acquisition, the Company sold its casualty and workers'
compensation liabilities for claims incurred in 1997 and prior to American
International Group (AIG) for $40,000 payable in three installments. The first
installment of $13,500 was paid in April of 1998 and the following two payments
will be made in 1999 and 2000. At the same time NAVL purchased first dollar
coverage for all insurance areas except cargo damage and delay claims. The
Company estimates costs relating to cargo damage and delay claims based on
actuarial methods.
F-48
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 28, 1998
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(k) REVENUE RECOGNITION
The Company recognizes estimated revenue and related transportation expense
on the date a shipment is picked up from the customer. The method of recognizing
revenue and expense for the motor carrier industry has been studied by the
Emerging Issues Task Force of the Financial Accounting Standards Board. The Task
Force reached a consensus that either (1) recognition of both revenue and direct
costs should be recorded when the shipment is completed or (2) allocation of
revenue between reporting periods based on relative transit time in each
reporting period with expenses recognized as incurred are acceptable methods of
recognizing revenue and expense for the motor carrier industry. A change to
either of the above methods by the Company would not have a material effect on
the Company's financial condition and results of operation.
Subsequent to the Acquisition, the Company recognizes estimated revenue and
related transportation expenses on the date a shipment is delivered or services
are completed. The estimate of revenue remains in a receivable account called
Delivered Not Processed (DNP) until the customer is invoiced. The estimated
Purchased Transportation Expenses (PTE) are not reversed until invoicing occurs
and actual expenses are recorded.
(l) FOREIGN CURRENCY TRANSLATION
The Company's foreign 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. Income statement items are
translated at the average exchange rate for the period December 28, 1997 through
March 28, 1998. The impact of currency fluctuation is included in stockholders'
equity as accumulated other comprehensive income.
(m) INCOME TAXES
Income taxes are accounted for under the asset and liability method of
accounting. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax laws
and tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities due to a change in tax rates is recognized
in income in the period that includes the enactment date. In addition, the
amount of any future tax benefits are reduced by a valuation allowance to the
extent such benefits are not expected to be realized on a more likely than not
basis.
(n) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Some of the
areas where estimation is significant are as follows: LNP is the estimated
F-49
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 28, 1998
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
revenue associated with shipments loaded or services completed and not invoiced.
PTE is the associated purchased transportation expense that is estimated
corresponding to the LNP revenue. Accounts and notes receivable reserves for
doubtful accounts are estimates based on historical writeoff data to establish
the uncollectible portion of the receivables. Costs relating to cargo damage and
delay claims are estimated based on actuarial methods.
(2) RELATED PARTIES
The Company is charged or credited for transactions with NS. However, the
cost for administrative services performed by NS are not allocated to the
Company.
Certain software with a book value of $1,202 comprising the customized
option in logistics technology was dividended to NS prior to the close of
business on March 28, 1998. Additionally, certain assets and liabilities were
assumed by NS prior to the close of business on March 28, 1998, including:
- Intercompany accounts with NS.
- Obligation associated with discontinued operations.
- Current federal income tax liabilities and certain state income tax
liabilities, and related interest, with respect to returns consolidated
with and filed by NS.
(3) INVESTMENTS
Investments consist primarily of debt and equity securities held by the
company's insurance subsidiary. These marketable investment securities at
March 28, 1998 include:
UNREALIZED
FAIR AMORTIZED HOLDING
VALUE COST GAINS
-------- --------- ----------
Current
Available-for-sale........................................ $1,752 $1,121 $631
Held-to-maturity.......................................... 109 109 --
------ ------ ----
Total current............................................... $1,861 $1,230 $631
====== ====== ====
Noncurrent..................................................
Available-for-sale........................................ $ -- $ -- $ --
Held-to-maturity.......................................... 839 827 12
------ ------ ----
Total noncurrent.......................................... $ 839 $ 827 $ 12
====== ====== ====
The market value of this portfolio includes gross unrealized gains of $631
at March 28, 1998.
In addition, investments of $234 at March 28, 1998 included noncurrent
investments in joint ventures and a workers' compensation imprest fund.
F-50
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 28, 1998
(DOLLARS IN THOUSANDS)
(4) PREPAID EXPENSES
Prepaid expenses are comprised of the following:
Prepaid rent.............................................. $ 901
Prepaid systems maintenance............................... 813
Prepaid taxes and licenses................................ 882
Prepaid insurance......................................... 649
Other..................................................... 1,392
------
$4,637
======
(5) OTHER ASSETS
Other assets consisted of the following:
Prepaid pension........................................... $ 76
Deposits.................................................. 453
Other..................................................... 326
----
$855
====
(6) INCOME TAXES
(a) PROVISION FOR INCOME TAXES
Prior to its sale, NAVL was included in the consolidated federal income tax
return of NS. NAVL provides for federal income tax expense on a stand-alone
basis in accordance with the NS Tax Allocation Agreement. Tax expense or benefit
is recorded on a separate company basis whether or not such benefit would be
currently available on a separate company basis. In accordance with the NS Tax
Allocation Agreement, intercompany federal income tax accounts are recorded
between companies in the NS consolidated group. Generally, federal income taxes
are paid and settled through NS while state and foreign taxes are paid directly
to taxing authorities by NAVL.
NAVL files a consolidated federal income tax return with its wholly-owned
domestic subsidiaries.
F-51
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 28, 1998
(DOLLARS IN THOUSANDS)
(6) INCOME TAXES (CONTINUED)
The provision for income taxes for the period December 28, 1997 through
March 28, 1998 includes:
Current:
Federal................................................... $(287)
Foreign................................................... 74
State..................................................... (167)
-----
Total current taxes......................................... (380)
-----
Deferred:
Federal................................................... (44)
State..................................................... (24)
-----
Total deferred taxes........................................ (68)
-----
Income tax benefit........................................ $(448)
=====
(b) RECONCILIATION OF STATUTORY RATE TO EFFECTIVE RATE
Total income taxes as reflected in the Consolidated Statement of Income
differ from the amounts computed by applying the statutory federal corporate tax
rate as follows:
AMOUNT PERCENT
-------- --------
Federal income tax at statutory rate........................ $(384) 35.0%
State income taxes, net of federal tax benefit.............. (124) 11.3
Other, net.................................................. 60 (5.5)
----- ----
Income tax benefit........................................ $(448) 40.8%
===== ====
F-52
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 28, 1998
(DOLLARS IN THOUSANDS)
(6) INCOME TAXES (CONTINUED)
(c) DEFERRED TAX ASSETS AND LIABILITIES
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at March 28,
1998 were as follows:
Deferred tax assets:
Reserves, including casualty and other claims............. $ 19,935
Employee benefits......................................... 12,105
Postretirement benefits other than pension and
postemployment benefits................................. 9,183
Foreign tax net operating loss carryforwards.............. 1,290
Other..................................................... 3,211
--------
Total gross deferred tax assets............................. 45,724
Less valuation allowance.................................... (924)
--------
Net deferred tax asset...................................... 44,800
--------
Deferred tax liabilities:
Property.................................................. (11,367)
Other..................................................... (2,669)
--------
Total gross deferred tax liabilities........................ (14,036)
--------
Net deferred tax assets..................................... 30,764
Less net current deferred tax assets........................ 21,899
--------
Net long-term deferred tax assets........................... $ 8,865
========
At March 28, 1998, a valuation allowance has been established due to the
uncertainty of realization of foreign net operating loss (NOL) carryforwards.
The net change in the total valuation allowance for the period December 28, 1997
through March 28, 1998 was $0. Management believes all other deferred tax assets
will be realized based on the Company's anticipated future earnings or available
tax planning alternatives.
(d) TAXING AUTHORITY REVIEWS
Consolidated federal income tax returns of NS (which include NAVL) have been
examined and Revenue Agent Reports have been received for all years up to and
including 1994. The consolidated federal income tax returns of NS for 1995 and
1996 are being audited by the IRS. NS will indemnify NAVL for any tax
liabilities prior to the acquisition to the extent they were not accrued at the
purchase date.
F-53
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 28, 1998
(DOLLARS IN THOUSANDS)
(7) OTHER CURRENT LIABILITIES
The components of other current liabilities are as follows:
Accrued agent and owner operator incentives................. $ 1,972
Accrued customer volume discounts........................... 1,074
Accrued interest............................................ 1,227
Accrued unvouchered payables................................ 4,803
Accrued other taxes......................................... 5,106
Deferred credits............................................ 761
Other....................................................... 384
-------
$15,327
=======
(8) LEASE OBLIGATION
The Company's 51% owned subsidiary, Manufacturing Support Services, LLC
(MSS) has a capital lease agreement of $603 as of March 28, 1998 with Patriot
Rental. The Company's principal payments were $20 for the period December 28,
1997 through March 28, 1998. Future minimum lease commitments under the capital
lease are as follows: remainder of 1998, $62; 1999, $83; 2000, $92; 2001, $97;
2002, $102; and thereafter $163.
The Company had unused lines of credit of $2,642 at March 28, 1998.
(9) RETIREMENT, POSTRETIREMENT MEDICAL PLANS
The Company's United States plans' funded status and amount recognized in
the Company's consolidated financial statements at March 28, 1998 (based on
actuarial valuation) are as follows:
PENSION BENEFITS OTHER BENEFITS
---------------- --------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at December 27, 1997.......... $43,316 $14,176
Service cost..................................... 687 226
Interest cost.................................... 770 208
Plan participants' contribution.................. -- 5
Actuarial gain................................... (508) (2,431)
Benefits paid.................................... (539) (118)
------- -------
Benefit obligation at March 28, 1998........... $43,726 $12,066
======= =======
CHANGE IN PLAN ASSETS
Fair value of plan assets at December 27, 1997... $40,791
Actual return on plan assets..................... 2,906
Employer contribution............................ 314
Benefits paid.................................... (539)
-------
Fair value of plan assets at March 28, 1998.... $43,472
=======
F-54
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 28, 1998
(DOLLARS IN THOUSANDS)
(9) RETIREMENT, POSTRETIREMENT MEDICAL PLANS (CONTINUED)
PENSION BENEFITS OTHER BENEFITS
---------------- --------------
Benefit obligation............................... $ 43,726 $ 12,066
Plan assets...................................... 43,472 --
-------- --------
Funded status.................................... (254) (12,066)
Unrecognized initial net obligation.............. 562 --
Unrecognized net actuarial loss.................. 3,917 781
Unrecognized prior service benefit............... (12,104) (8,615)
-------- --------
Accrued benefit cost............................. $ (7,879) $(19,900)
======== ========
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate.................................... 7.25% 7.25%
Expected return on plan assets................... 9.00%
Rate of compensation increase.................... 5.00%
For measurement purposes, an 8% annual rate of increase in the per capita
cost of covered health care benefits was assumed for the period December 28,
1997 through March 28, 1998. The rate was assumed to decrease gradually to 5%
for 2004 and remain at that level thereafter.
PENSION BENEFITS OTHER BENEFITS
---------------- --------------
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost..................................... $ 687 $ 226
Interest cost.................................... 770 208
Expected return on plan assets................... (826) --
Amortization of initial net obligation........... 51 --
Recognized net actuarial loss.................... 148 --
Amortization of prior service benefit............ (448) (312)
----- -----
Net periodic benefit cost........................ $ 382 $ 122
===== =====
NAVL sponsors the NAVL, Inc. Employee Retirement Plan, a funded,
noncontributory defined benefit pension plan (Qualified Plan) covering eligible
employees in the United States. The Qualified Plan provides for eligible
employees to receive retirement benefits based principally on years of service
with the Company, compensation rates over that time, and estimated primary
Social Security benefits. Contributions to the Qualified Plan are made on the
basis of not less than minimum funding standards set forth in the Employee
Retirement Income Security Act of 1974, as amended. Plan assets consist
primarily of common stocks and government securities.
NAVL also has an Excess Benefit Plan which is an unfunded, nonqualified plan
that provides retirement benefits not otherwise provided under the Qualified
Plan because of the benefit limitations imposed by Section 415 and 401(a)(17) of
the Internal Revenue Code. The Excess Benefit Plan ensures that an executive
receives the total pension benefit to which he/she otherwise would be entitled,
were it not for such limitations.
F-55
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 28, 1998
(DOLLARS IN THOUSANDS)
(9) RETIREMENT, POSTRETIREMENT MEDICAL PLANS (CONTINUED)
In addition, the Overlap Benefit Plan, an unfunded, nonqualified retirement
plan, provides retirement benefits forfeited by the highly compensated employees
under the Qualified Plan because of the changes to the retirement plan formula
which took effect April 18, 1989.
The Company has nonpension postretirement benefit plans that provide
specific health care and death benefits to eligible retired employees. Under the
present plans, which may be amended or terminated at NAVL's option, a defined
percentage of health care expenses is covered, after reductions for any
deductibles, co-payments, Medicare payments and, in some cases, coverage
provided by other group insurance policies. The cost of such health care
coverage to a retiree may be determined in part by a retiree's years of vested
service with NAVL prior to retirement. Death benefits are based on a fixed
amount at time of retirement.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:
1-PERCENTAGE-POINT 1-PERCENTAGE-POINT
INCREASE DECREASE
------------------ ------------------
Effect on total of service and interest cost
components................................. $ 85 $ (70)
Effect on postretirement benefit
obligation................................. 1,412 (2,126)
The Company's German subsidiary, midiData, has an unfunded pension plan
under which certain employees of the company will receive certain percentages of
their monthly income when they retire. At December 27, 1997, the accumulated
benefit obligation was $1,595 and the projected benefit obligation was $1,668.
The remaining transition obligation at December 27, 1997 of $243 is being
amortized over the remaining average service life of 10 years.
The Company's Canadian subsidiary, North American Van Lines Canada Ltd., has
a defined benefit plan with the benefits generally based upon years of service
and the highest five-year average salary during employment. At December 27, 1997
the actuarial present value of accrued pension benefits was $1,285 and the
aggregate market value of pension plan assets was $1,686.
In 1994, the Company's United Kingdom subsidiary, North American Van Lines,
Ltd., established a contributory defined contribution plan for eligible
employees. The plan is funded through contributions from employees, generally 3%
of earnings, that are matched by the Company.
The Company maintains an employee savings plan for eligible employees which
qualifies under Sections 401(a) and 401(k) of the Internal Revenue Code. The
Company has made no contributions to the plan since its inception.
(10) POSTEMPLOYMENT MEDICAL PLAN
NAVL provides certain postemployment benefits to inactive employees and
their dependents during the period following employment but before retirement.
Effective the beginning of 1994, the Company adopted FAS No. 112 which requires
the accrual of the cost of postemployment benefits rather than
F-56
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 28, 1998
(DOLLARS IN THOUSANDS)
(10) POSTEMPLOYMENT MEDICAL PLAN (CONTINUED)
expensing the costs when paid. These benefits are for continuation of health
care coverage. At March 28, 1998, the accumulated postemployment benefit
obligation was $2,158.
(11) INCENTIVE AND DEFERRED COMPENSATION
The Company maintains a Management Incentive Plan for certain executives and
key management employees. The plan is administered by the Board of Directors who
do not participate in the plan. Incentive compensation is based upon achievement
of certain predetermined corporate performance goals.
The Company also maintains Evidence of Success incentive programs for
eligible employees not included in the Management Incentive Plan. The plan is
administered by the Vice President Human Resources, who does not participate in
the plan. Incentive compensation is based upon achievement of certain
predetermined corporate performance goals. The expense associated with the
incentive plans was $1,108 for the period December 28, 1997 through March 28,
1998.
(12) COMMITMENTS AND CONTINGENCIES
(a) LETTERS OF CREDIT AND DEBT GUARANTEES
In connection with its insurance agreements, at March 28, 1998, the Company
had outstanding letters of credit of $10,719, of which $8,000 was
unconditionally guaranteed by NS. None of these letters of credit have been
utilized. At March 28, 1998, the Company was contingently liable as guarantors
with respect to $2,318.
The Company's German subsidiary, midiData, has guarantees to WTB Leasing
GmbH and CommerzLease for equipment leases. These leases extend through the year
2003. The Company's United Kingdom subsidiary, North American Van Lines, Ltd.,
has guarantees to various parties for customs and excise taxes.
(b) LAWSUITS
The Company and certain subsidiaries are defendants in numerous lawsuits
relating principally to motor carrier operations. While the final outcome of
these lawsuits cannot be predicted with certainty, it is the opinion of
management, after consulting with its legal counsel, that the amount of NAVL's
ultimate liability will not materially affect NAVL's consolidated financial
position, results of operations or liquidity.
(c) ENVIRONMENTAL MATTERS
The Company has been named as a potentially responsible party (PRP) in two
environmental cleanup proceedings by federal or state authorities and one
additional environmental clean-up proceeding by a group of PRP's. The suits are
brought under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, or other federal or state statutes. Based on
all known information, it is estimated that the settlement cost of each PRP site
would not be materially or significantly larger than the litigation reserves
established, which totaled $57 on March 28, 1998. It is possible that additional
claims or lawsuits involving unknown environmental matters or now unidentified
environmental sites may arise in the future.
F-57
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 28, 1998
(DOLLARS IN THOUSANDS)
(12) COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company owns or has owned and leases or has leased facilities at which
underground storage tanks for diesel fuel are located and operated. Management
believes that the Company has taken the appropriate and necessary action with
regard to releases of diesel fuel that have occurred. As conditions may exist on
these properties related to environmental problems that are latent or
undisclosed, there can be no assurance that the Company will not incur
liabilities or costs, the amount of which cannot be estimated reliably at this
time. However, based on its assessment of the facts and circumstances now known
and after consulting with its legal counsel, management believes that it has
recorded appropriate estimates of liability for those environmental matters of
which the Company is aware. Further, management believes it is unlikely that any
identified matters, either individually or in aggregate, will have a material
effect on the Company's financial position, results of operations or liquidity.
(13) LEASE COMMITMENTS
The Company has noncancelable lease commitments under operating leases for
rental of office space, warehouse facilities, and office equipment. The
Company's rental expense under these operating leases was $4,035 for the period
December 28, 1997 through March 28, 1998. Future minimum lease commitments under
noncancelable leases are as follows: remainder of 1998, $10,924; 1999, $13,375;
2000, $10,394; 2001, $8,245; 2002, $6,406; 2003, $2,626, and thereafter $6,693.
(14) PREFERRED STOCK (PER SHARE AMOUNTS IN WHOLE DOLLARS)
There are 10,000 shares of $100 par value series A (nonvoting) preferred
stock authorized, issued, and outstanding. Holders of preferred stock are
entitled to receive cumulative dividends at the annual rate of $7 per share,
payable in arrears, on a quarterly basis. If the required dividend payment for
any quarter is not paid in full within five business days after the end of such
quarter, the annual rate of dividends on the preferred stock increases to $9 per
share for the period from the end of such quarter to the date when payment of
all dividends is fully current. The fixed liquidation price for each share of
preferred stock is its par value, plus an amount equal to all dividends, whether
or not declared, that are accrued and unpaid to the date of payment of the
liquidation price.
(15) FINANCIAL INSTRUMENTS
The Company utilizes foreign exchange contracts to manage foreign currency
exposures. The principal objective of such contracts is to minimize the risks
and/or costs associated with international operating activities. The Company
does not utilize financial instruments for trading or other speculative
purposes. The counterparties to these contractual arrangements are financial
institutions with which the Company also has other financial relationships. The
Company is exposed to credit loss in the event of nonperformance by these
counterparties. However, the Company does not anticipate nonperformance by the
other parties, and no material loss would be expected from their nonperformance.
The Company enters into forward currency exchange contracts in the regular
course of business to manage its exposure against foreign currency fluctuations
on transactions denominated in foreign currencies. The Company had no open
positions on forward exchange contracts at March 28, 1998.
F-58
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 28, 1998
(DOLLARS IN THOUSANDS)
(16) OPERATING SEGMENTS
The Company has two reportable segments--Van Line Network and Logistics
Services.
The Van Line Network segment provides domestic and international residential
relocation services through a network of exclusive agents. It is comprised of
the Relocation Services Division, which provides packing, loading,
transportation, delivery and warehousing services for any type of household move
in the U.S. and Canada, and the International Division, which provides or
coordinates these same services for customers on a global basis.
The Logistics Services segment provides customized logistics solutions,
specialized transportation services, warehousing, distribution, and delivery
services to commercial customers. It is comprised of the Logistics Division,
which provides these specialized services to principally electronics, medical
equipment and other suppliers of sensitive goods requiring specialized handling
in the U.S., the Blanket Wrap/Flatbed Division, which provides transportation of
truckload freight requiring specialized handling in the U.S., and the Europe
Division, which provides these same logistics services in Europe and the U.K.
The table below represents information about revenues, income from
operations and total assets by segment used by the chief decision-makers of the
Company for the period December 28, 1997 through March 28, 1998 and as of
March 28, 1998:
VAN LINE LOGISTICS CONSOLIDATED
NETWORK SERVICES CORPORATE(1) TOTALS
-------- --------- ------------ ------------
Revenues.......................... $99,687 $107,558 $ -- $207,245
Income from Operations............ (2,656) 1,321 -- (1,335)
Total Assets...................... 95,317 102,973 86,024 284,314
- ------------------------
(1) Total assets by segment are specific assets such as revenue equipment and
trade receivables. Assets included in the corporate category include
non-allocated assets such as the corporate headquarters building, computer
hardware and software, contracts receivable associated with equipment sales
and deferred taxes.
Specified items included in segment results for the period December 28, 1997
through March 28, 1998:
VAN LINE LOGISTICS CONSOLIDATED
NETWORK SERVICES CORPORATE(2) TOTALS
-------- --------- ------------ ------------
Depreciation and amortization..... $ 1,154 $ 1,741 $ -- $2,895
Non-operating income (expense) and
minority interest............... 23 (26) -- (3)
- ------------------------
(2) Depreciation expense for capital expenditures in the corporate category is
allocated to the segments in order to determine segment income from
operations.
F-59
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 28, 1998
(DOLLARS IN THOUSANDS)
(16) OPERATING SEGMENTS (CONTINUED)
Specified items included in segment assets of March 28, 1998:
VAN LINE LOGISTICS CONSOLIDATED
NETWORK SERVICES CORPORATE TOTALS
-------- --------- --------- ------------
Capital expenditures.................. $61 $327 $1,014 $1,402
Revenue and long-lived asset information by geographic area for the period
December 28, 1997 through March 28, 1998 and as of March 28, 1998:
LONG-LIVED
REVENUE ASSETS
-------- ----------
United States........................................... $190,542 $83,667
Foreign................................................. 16,703 3,577
-------- -------
Total................................................... $207,245 $87,244
======== =======
Foreign revenue is based on the country in which the sales originated.
(17) SUPPLEMENTAL INFORMATION
On November 19, 1999, pursuant to an acquisition agreement dated
September 14, 1999, the Company acquired substantially all of the assets of
certain subsidiaries of NFC, plc. (the "Seller") that are engaged in the
Seller's moving services business. The acquisition was accounted for as a
purchase. Total purchase consideration was $400 million cash plus a combination
of preferred stock, common stock and common stock warrants with a combined value
of $50 million.
The acquisition was funded through borrowings under new credit facilities of
$390.0 million, proceeds from the issuance of $150.0 million of NAVL senior
subordinated notes, and an increase to stockholders' equity resulting from the
issuance of $24.5 million of junior preferred stock, $35.0 million of senior
discounted notes, and a common stock warrant totalling $65.5 million by NAVL's
parent, NA Holding. Of the $65.5 million, $40.0 million was initially in the
form of an interim loan facility made available to NA Holding. On December 1,
1999, Fund V and the Seller subscribed for and purchased additional shares of
common stock of NA Holding for $32.0 million and $8.0 million in cash,
respectively. The proceeds from this stock subscription were used to repay the
$40.0 million interim loan.
The following summarized consolidating balance sheet, statement of income,
and statement of cash flows have been presented in contemplation of the
transaction between NA Holding and the Seller, as described above. Such
financial statements have been segregated between those entities that have
guaranteed the NAVL senior subordinated notes issued in connection with the
transaction ("Guarantor" entities), and those entities that did not guarantee
such debt ("Non-guarantor" entities).
F-60
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 28, 1998
(DOLLARS IN THOUSANDS)
(17) SUPPLEMENTAL INFORMATION (CONTINUED)
Consolidating balance sheet data as of March 28, 1998 is summarized as
follows:
(1) (2) NON- TOTAL
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
Current assets........................ $150,560 $20,083 $19,239 $ (1,677) $188,205
Non-current assets.................... 119,134 264 21,709 (44,998) 96,109
-------- ------- ------- -------- --------
Total assets.......................... $269,694 $20,347 $40,948 $(46,675) $284,314
======== ======= ======= ======== ========
Current liabilities................... $106,973 $ 5,664 $13,708 $ (1,387) $124,958
Non-current liabilities............... 61,739 4,111 12,897 (20,373) 58,374
-------- ------- ------- -------- --------
Total liabilities..................... 168,712 9,775 26,605 (21,760) 183,332
Stockholders' equity.................. 100,982 10,572 14,343 (24,915) 100,982
-------- ------- ------- -------- --------
Total liabilities and equity.......... $269,694 $20,347 $40,948 $(46,675) $284,314
======== ======= ======= ======== ========
Consolidating statement of income data for the period December 28, 1997
through March 28, 1998 is summarized as follows:
(1) (2) NON- TOTAL
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
Operating revenues.................... $176,274 $14,594 $19,466 $ (3,089) $207,245
Total operating expenses.............. 178,212 13,617 19,462 (2,711) 208,580
-------- ------- ------- -------- --------
Income (loss) from operations......... (1,938) 977 4 (378) (1,335)
Interest expense and other............ (840) -- 988 (385) (237)
-------- ------- ------- -------- --------
Income (loss) before income taxes..... (1,098) 977 (984) 7 (1,098)
Provision/(benefit) for income
taxes............................... (448) 399 (402) 3 (448)
-------- ------- ------- -------- --------
Net income (loss)..................... $ (650) $ 578 $ (582) $ 4 $ (650)
======== ======= ======= ======== ========
Income taxes have been calculated for purposes of this footnote based on an
assumed consolidated effective rate of 40.8%.
F-61
NORTH AMERICAN VAN LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 28, 1998
(DOLLARS IN THOUSANDS)
(17) SUPPLEMENTAL INFORMATION (CONTINUED)
Consolidating statement of cash flows data for the period December 28, 1997
through March 28, 1998 is summarized as follows:
(1) (2) NON- TOTAL
PARENT GUARANTORS GUARANTORS ELIMINATIONS COMBINED
-------- ---------- ---------- ------------ --------
Net cash provided by operating
activities............................ $ 7,968 $ 302 $ 2,025 $ -- $ 10,295
Net cash provided by (used in) investing
activities............................ (3,445) -- 39 -- (3,406)
Net cash provided (used in) financing
activities............................ 2,762 (217) (1,010) -- 1,535
-------- ------- ------- -------- --------
Net cash flows from continuing
operations............................ 7,285 85 1,054 -- 8,424
Net cash flows from the payment of
liabilities attributable to
discontinued operations............... (2,145) -- -- -- (2,145)
Net increase in cash and cash
equivalents........................... 5,140 85 1,054 -- 6,279
-------- ------- ------- -------- --------
Cash at beginning of period............. 612 (58) 2,394 -- 2,948
-------- ------- ------- -------- --------
Cash at end of period................... $ 5,752 $ 27 $ 3,448 $ -- $ 9,227
======== ======= ======= ======== ========
- ------------------------
(1) Parent includes the accounts of North American Van Lines, Inc., a Delaware
corporation and the issuer of the debt in connection with the transaction.
(2) Total Guarantors include the accounts of the following subsidiaries of North
American Van Lines, Inc., Fleet Insurance Management, Inc., an Indiana
corporation; FrontRunner Worldwide, Inc., a Delaware corporation; NACAL,
Inc., a California corporation; NAVTRANS International Freight Forwarding,
Inc., an Indiana corporation; North American Distribution Systems, Inc., an
Indiana corporation; North American Logistics, Ltd., an Indiana corporation;
North American Van Lines of Texas, Inc., a Texas corporation; Relocation
Management Systems, Inc., a Delaware corporation; and Great Falls North
American, Inc., a Montana corporation. Each Guarantor is a wholly owned
subsidiary of North American Van Lines, Inc. and will jointly and severally,
irrevocably and fully and unconditionally guarantee the punctual payment of
such debt issued in connection with the transaction.
F-62
[LOGO]
2100 Dominion Tower
999 Waterside Drive
Norfolk, VA 23510
INDEPENDENT AUDITORS' REPORT
The Board of Directors
North American Van Lines, Inc.:
We have audited the accompanying consolidated balance sheets of North
American Van Lines, Inc. and subsidiaries (the Company) as of December 27, 1997
and December 28, 1996, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for the years then ended. 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 North
American Van Lines, Inc. and subsidiaries as of December 27, 1997 and
December 28, 1996, and the results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
January 21, 1998, except as to Note 17,
for which the date is November 19, 1999
F-63
NORTH AMERICAN VAN LINES, INC.
(ALL OF THE COMMON STOCK OF WHICH IS OWNED BY NS)
CONSOLIDATED BALANCE SHEETS
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
1997 1996
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,948 1,867
Short-term investments.................................... 1,609 2,103
Accounts and notes receivable, net of allowance for
doubtful accounts of $12,415 and $12,706................ 148,581 149,987
Current portion of contracts receivables, net of valuation
allowance of $224 and $139.............................. 6,359 5,896
Supplies inventory........................................ 1,904 1,782
Equipment held for sale................................... 2,532 2,675
Current portion of deferred agent contract costs.......... 2,601 1,814
Prepaids and other current assets......................... 3,699 3,435
Deferred income taxes..................................... 22,644 26,086
-------- --------
Total current assets........................................ 192,877 195,645
-------- --------
Long-term portion of contracts receivable................... 11,160 7,955
Long-term portion of notes receivable....................... 2,559 1,221
Investments................................................. 1,053 1,830
Advances to parent.......................................... 10,204 4,102
Deferred income taxes....................................... 8,904 9,570
Property and equipment:
Land...................................................... 1,743 1,960
Buildings................................................. 27,165 27,714
Trailers.................................................. 75,064 74,486
Other equipment........................................... 81,595 77,439
-------- --------
185,567 181,599
Less accumulated depreciation............................. 127,800 124,491
-------- --------
57,767 57,108
Deferred agent contract costs............................... 16,924 9,324
Other assets................................................ 887 503
-------- --------
Total assets................................................ $302,335 287,258
======== ========
See accompanying notes to consolidated financial statements.
F-64
NORTH AMERICAN VAN LINES, INC.
(ALL OF THE COMMON STOCK OF WHICH IS OWNED BY NS)
CONSOLIDATED BALANCE SHEETS
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
1997 1996
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 32,518 30,530
Accrued transportation expense............................ 31,242 35,688
Other current liabilities................................. 21,928 24,023
Casualty and other claims................................. 25,721 26,354
Compensation and benefits................................. 15,858 11,637
Income taxes.............................................. 2,772 6,524
Accrued liabilities attributable to discontinued
operations.............................................. 838 5,046
-------- --------
Total current liabilities................................... 130,877 139,802
Income taxes payable to parent.............................. 2,708 118
Casualty and other claims................................... 28,107 26,053
Benefits and other liabilities.............................. 30,982 32,574
Accrued liabilities attributable to discontinued
operations................................................ 1,307 2,595
Minority interest........................................... 238 --
-------- --------
Total liabilities........................................... 194,219 201,142
-------- --------
Stockholders' equity:
Preferred stock, $100.00 par value, 10,000 shares
authorized, issued, and outstanding..................... 1,000 1,000
Common stock, $1.00 par value, 10,000 shares authorized,
issued, and outstanding................................. 10 10
Additional paid-in capital................................ 79,372 79,372
Retained income........................................... 27,933 5,681
Accumulated other comprehensive income (loss)............. (199) 53
-------- --------
Total stockholders' equity.................................. 108,116 86,116
-------- --------
Total liabilities and stockholders' equity.................. $302,335 287,258
======== ========
F-65
NORTH AMERICAN VAN LINES, INC.
(ALL OF THE COMMON STOCK OF WHICH IS OWNED BY NS)
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 27, 1997 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
1997 1996
-------- --------
Operating revenues.......................................... $941,501 930,248
Operating expenses:
Transportation............................................ 740,891 732,934
Administration............................................ 119,306 108,652
Casualty and other claims................................. 27,705 36,422
Maintenance, tires, and other operating................... 18,500 19,388
Depreciation and amortization............................. 12,467 12,735
Equipment sales and services.............................. (4,960) (4,677)
Insurance and supply programs............................. (3,571) (3,273)
-------- --------
Total operating expenses.................................... 910,338 902,181
-------- --------
Income from operations...................................... 31,163 28,067
Other income (expense):
Interest income........................................... 1,408 917
Interest expense.......................................... (602) (1,768)
Minority interest......................................... (89) --
-------- --------
Income before income taxes.................................. 31,880 27,216
Provision for income taxes.................................. 11,864 12,156
-------- --------
Income from continuing operations........................... 20,016 15,060
Discontinued operations--credit (less applicable income
taxes of $1,494 and $1,600)............................... 2,306 2,470
-------- --------
Net income.................................................. 22,322 17,530
======== ========
See accompanying notes to consolidated financial statements.
F-66
NORTH AMERICAN VAN LINES, INC.
(ALL OF THE COMMON STOCK OF WHICH IS OWNED BY NS)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 27, 1997 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
ACCUMULATED
OTHER ADDITIONAL
COMPREHENSIVE RETAINED COMPREHENSIVE PREFERRED COMMON PAID IN
TOTAL INCOME EARNINGS INCOME (LOSS) STOCK STOCK CAPITAL
-------- -------------- -------- ------------- --------- -------- ----------
Balance at December 30, 1995...... $103,639 23,404 (147) 1,000 10 79,372
Comprehensive income
Net income...................... 17,530 17,530 17,530
Gross unrealized holding
gains......................... 165 165
Foreign currency translation.... 35 35
------
Other comprehensive income...... 200 200
Comprehensive income.............. 17,730
======
Dividends paid on common stock.... (35,183) (35,183)
Dividends paid on preferred
stock........................... (70) (70)
-------- ------- ---- ----- --- ------
Balance At December 28, 1996...... $ 86,116 5,681 53 1,000 10 79,372
Comprehensive income
Net income...................... 22,322 22,322 22,322
Gross unrealized holding
gains......................... (84) (84)
Foreign currency translation.... (168) (168)
------
Other comprehensive loss........ (252) (252)
Comprehensive income.............. 22,070
======
Dividends paid on preferred
stock........................... (70) (70)
-------- ------- ---- ----- --- ------
Balance at December 27, 1997...... $108,116 27,933 (199) 1,000 10 79,372
======== ======= ==== ===== === ======
See accompanying notes to consolidated financial statements.
F-67
NORTH AMERICAN VAN LINES, INC.
(ALL OF THE COMMON STOCK OF WHICH IS OWNED BY NS)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 27, 1997 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
1997 1996
-------- --------
Continuing operations:
Cash flows from operating activities:
Income from continuing operations....................... $ 20,016 15,060
Adjustments to reconcile income from continuing
operations to net cash provided by operating
activities:
Depreciation and amortization......................... 12,467 12,735
Deferred income taxes................................. 2,614 3,620
Gain on sale of equipment............................. (677) (156)
Change in assets and liabilities:
Accounts and notes receivable....................... 68 (648)
Prepaids and other current assets................... (243) 4,146
Contracts receivable................................ (3,668) 1,996
Accounts payable.................................... 1,988 (1,675)
Other current liabilities........................... (6,072) (1,823)
Casualty and other claims........................... 1,421 3,440
Other long-term assets and liabilities.............. 1,014 2,979
-------- --------
Net cash provided by operating activities................... 28,928 39,674
-------- --------
Cash flows from investing activities:
Additions of property and equipment..................... (10,588) (7,445)
Proceeds from sale of property and equipment............ 1,466 1,124
Investment purchases and other (including joint
ventures)............................................. (4,001) (2,128)
Investment sales and other.............................. 4,872 2,890
Deferred agent contract costs........................... (11,714) (2,680)
-------- --------
Net cash used for investing activities...................... (19,965) (8,239)
-------- --------
Cash flows from financing activities:
Decrease (increase) in advances to parent............... (6,102) 4,284
Common dividends paid................................... -- (35,183)
Preferred dividends paid................................ (70) (70)
-------- --------
Net cash used for financing activities...................... (6,172) (30,969)
-------- --------
Effect of cumulative translation adjustment............... (168) 35
Minority interest......................................... 238 --
Unrealized investment gains (net of deferred taxes)....... (84) 165
-------- --------
Net cash flows from continuing operations................... 2,777 666
Net cash flows from the payment of liabilities attributable
to discontinued operations................................ (1,696) (1,107)
-------- --------
Net increase (decrease) in cash and cash equivalents........ 1,081 (441)
Cash and cash equivalents at beginning of year.............. 1,867 2,308
-------- --------
Cash and cash equivalents at end of year.................... $ 2,948 1,867
======== ========
Supplemental disclosure of cash flow information--cash paid
during the year for:
Interest.................................................. $ 1,118 341
Income taxes paid to parent............................... 8,946 6,481
Income taxes paid to governmental authorities............. 1,233 607
See accompanying notes to consolidated financial statements.
F-68
NORTH AMERICAN VAN LINES, INC.
(ALL OF THE COMMON STOCK OF WHICH IS OWNED BY NS)
CONSOLIDATED BALANCE SHEETS
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION/CONCENTRATION OF RISK
North American Van Lines, Inc. (NAVL or the Company) is a diversified motor
carrier operating principally throughout the United States, Canada, Germany, and
the United Kingdom. NAVL's principal lines of business are household goods
moving and high value products transportation which provide 55% and 45% of
revenues, respectively. Approximately 95% of revenues are derived from
operations in the United States and Canada with 5% from operations in Europe.
NAVL conducts operations primarily through a network of 388 agents with 620
locations in the United States. During 1997, NAVL renewed long-term contracts
with agents whose revenues approximate 16% of total revenues and had agents
whose revenues approximate 9% of total revenues not renew their contracts.
During 1998, NAVL will be negotiating renewal contracts with agents
approximating 1% of total revenues. NAVL is a subsidiary of Norfolk Southern
Corporation (NS). All of the common stock of NAVL is owned by NS. See note 16
for information regarding subsequent event.
The Company was formed on December 31, 1993, when NS contributed the assets
and liabilities of certain trucking businesses previously held by a predecessor
corporation to the Company. The assets and liabilities included those of certain
discontinued operations of the predecessor adjusted to estimated realizable
value and substantially all of which have been liquidated by the Company. For
financial reporting purposes the contribution of assets and liabilities from NS
was recorded at the historical cost of such assets and liabilities. Common stock
and additional paid-in capital were recorded at the net amount.
The Company includes a subsidiary which operates as a multiple-line property
and liability insurance company under the provisions of the insurance laws of
the State of Indiana and insures owner-operators and agents of NAVL against loss
from certain risks, primarily physical damage to tractors and straight trucks.
(b) BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of NAVL and its
subsidiaries, all but one of which are wholly owned. In June 1997, the Company
acquired a 51% share of a limited liability company (LLC), Manufacturing Support
Services LLC, (MSS). The financial statements include the results of MSS and the
minority interest is reflected in long-term liabilities. All material
intercompany accounts and transactions have been eliminated in consolidation.
(c) CASH EQUIVALENTS
Cash equivalents are highly liquid investments purchased three months or
less from maturity.
(d) CONTRACTS RECEIVABLE AND EQUIPMENT HELD FOR SALE
In the normal course of business, the Company sells revenue equipment
(equipment held for sale) to its agents and to owner-operators under conditional
sales agreements (contracts receivable). Sales of revenue equipment are recorded
using the installment method of accounting. Gains are recognized as cash is
received and losses are recognized as incurred. Unrealized gains on these
transactions amounted to
F-69
NORTH AMERICAN VAN LINES, INC.
(ALL OF THE COMMON STOCK OF WHICH IS OWNED BY NS)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
$3,684 and $3,773 at December 27, 1997 and December 28, 1996, respectively, of
which $1,752 and $1,958, respectively, are netted against current portion of
contracts receivable and $1,932 and $1,815, respectively, are netted against
long-term portion of contracts receivable. Equipment held for sale is recorded
at the lower of cost or net realizable value.
(e) SUPPLIES INVENTORY
Supplies inventory consists of replacement parts, tires and other items for
resale, supplies for revenue equipment, and office supplies and is valued at the
lower of average cost or net realizable value.
(f) TIRES IN SERVICE
In 1995, the Company recognized a change in accounting related to tires in
service. Effective July 1, 1995, all tires in service were expensed as purchased
and the remaining balance as of July 1, 1995 was amortized over a 12-month
period from that date. Because of this change, maintenance, tires, and other
operating expense was increased $1,193 in 1996.
Replacement tires are charged to expense when purchased.
(g) INVESTMENTS
Investments consist of U.S. Treasury, corporate debt, and equity securities.
The Company classifies its debt and equity securities in one of two categories:
available-for-sale or held-to-maturity. Held-to-maturity securities are those
securities in which the Company has the ability and intent to hold the security
until maturity (primarily bonds). All other securities are classified as
available for sale.
Available-for-sale securities are recorded at fair value. Held-to-maturity
securities are recorded at amortized cost, adjusted for the amortization or
accretion of premiums or discounts. Unrealized holding gains and losses, net of
the related tax effect, on available-for-sale securities are excluded from
earnings and are reported as a separate component of stockholders' equity until
realized. Realized gains and losses from the sale of available-for-sale
securities are determined on a specific identification basis.
(h) PROPERTY AND EQUIPMENT
Property and equipment are stated primarily at cost. Depreciation is
computed on a straight-line basis over the estimated useful lives of the
respective assets. The estimated useful lives and salvage values as of
December 27, 1997 used in computing depreciation are summarized as follows:
USEFUL LIFE SALVAGE VALUE
-------------- -------------
Buildings........................................ 20 to 40 years --
Trailers......................................... 15 years $2
Other equipment.................................. 1 to 10 years 0-25%
Repairs and maintenance expenditures are charged to expenses as incurred.
F-70
NORTH AMERICAN VAN LINES, INC.
(ALL OF THE COMMON STOCK OF WHICH IS OWNED BY NS)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A change in policy regarding the capitalization of software developed for
internal use was made effective in 1996. The amount that was capitalized in 1997
and in 1996 was $723 and $687, respectively, and is included in other equipment.
(i) DEFERRED CONTRACT COSTS
Included in deferred contract costs are commitments made to agents for
entering into long-term contracts with NAVL. These commitments are capitalized
and amortized over the lives of the related contracts, generally 10 years. The
portions of the commitments to be amortized over the next 12 months are
classified as current assets. Unpaid commitments are included in either
short-term or long-term liabilities.
(j) CASUALTY AND OTHER CLAIMS
The liability for the self-insured portion of casualty, workers'
compensation and cargo claims is based on estimated amounts primarily utilizing
historical payment experience and a provision for claims incurred but not
reported. The Company's method of estimating costs relating to casualty,
workers' compensation and cargo claims is based on actuarial valuations or
techniques.
Liability is limited, on a single occurrence basis, to $1,000 for workers'
compensation, and $5,000 for casualty claims. Claims in excess of these amounts
are covered by insurance.
(k) REVENUE RECOGNITION
The Company recognizes estimated revenue and related transportation expense
on the date a shipment is picked up from the customer. The method of recognizing
revenue and expense for the motor carrier industry has been studied by the
Emerging Issues Task Force of the Financial Accounting Standards Board. The Task
Force reached a consensus that either (1) recognition of both revenue and direct
costs should be recorded when the shipment is completed or (2) allocation of
revenue between reporting periods based on relative transit time in each
reporting period with expenses recognized as incurred are acceptable methods of
recognizing revenue and expense for the motor carrier industry. A change to
either of the above methods by the Company would not have a material effect on
the Company's financial condition and results of operation.
The Company has historically reported freight forwarding and accessorial
revenues net of related expenses. In 1997, the Company changed its presentation
of revenues and expenses from a net to a gross basis. This change in
presentation does not affect income from operations. The 1996 income statement
has been reclassified to conform with the 1997 presentation.
(l) FOREIGN CURRENCY TRANSLATION
Certain foreign exchange unrealized gains and losses are charged directly to
stockholders' equity in the cumulative translation adjustment account.
F-71
NORTH AMERICAN VAN LINES, INC.
(ALL OF THE COMMON STOCK OF WHICH IS OWNED BY NS)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(m) INCOME TAXES
Income taxes are accounted for under the asset and liability method of
accounting. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax laws
and tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities due to a change in tax rates is recognized
in income in the period that includes the enactment date.
(n) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(o) RECLASSIFICATIONS
Certain 1996 amounts have been reclassified to conform with the 1997
presentation.
(2) RELATED PARTIES
The Company is charged or credited for transactions with NS. However, the
cost for administrative services performed by NS are not allocated to the
Company. The balances reflected in advances to parent are not subject to any
specific repayment terms. The receivable is periodically repaid by means of a
dividend to NS. NAVL paid dividends of $-0- and $35,183 to NS in 1997 and 1996,
respectively.
F-72
NORTH AMERICAN VAN LINES, INC.
(ALL OF THE COMMON STOCK OF WHICH IS OWNED BY NS)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
(3) INVESTMENTS
Investments consist primarily of debt and equity securities held by the
company's insurance subsidiary. These marketable investment securities at
December 27, 1997 and December 28, 1996 include:
1997 1996
--------------------------------- -------------------------------------
UNREALIZED UNREALIZED
FAIR AMORTIZED HOLDING FAIR AMORTIZED HOLDING
VALUE COST GAINS VALUE COST GAINS (LOSSES)
-------- --------- ---------- -------- --------- --------------
Current:
Available-for-sale.................. $1,501 1,019 482 1,902 1,279 623
Held-to-maturity.................... 108 108 -- 201 201 --
------ ----- --- ----- ----- ---
Total current......................... $1,609 1,127 482 2,103 1,480 623
====== ===== === ===== ===== ===
Noncurrent:
Available-for-sale.................. -- -- -- -- -- --
Held-to-maturity.................... 841 832 9 1,631 1,638 (7)
------ ----- --- ----- ----- ---
Total noncurrent...................... $ 841 832 9 1,631 1,638 (7)
====== ===== === ===== ===== ===
The market value of this portfolio includes gross unrealized gains of $482
and $623 in 1997 and 1996, respectively.
In addition, investments of $221 and $192 at December 27, 1997 and
December 28, 1996, respectively, included noncurrent investments in joint
ventures and a workers' compensation imprest fund.
(4) INCOME TAXES
(a) PROVISION FOR INCOME TAXES
NAVL is included in the consolidated federal income tax return of NS. NAVL
provides for federal income tax expense on a stand-alone basis in accordance
with the NS Tax Allocation Agreement. Tax expense or benefit is recorded on a
separate company basis whether or not such benefit would be currently available
on a separate company basis. In accordance with the NS Tax Allocation Agreement,
intercompany federal income tax accounts are recorded between companies in the
NS consolidated group. Generally, federal income taxes are paid and settled
through NS while state and foreign taxes are paid directly to taxing authorities
by NAVL.
F-73
NORTH AMERICAN VAN LINES, INC.
(ALL OF THE COMMON STOCK OF WHICH IS OWNED BY NS)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
(4) INCOME TAXES (CONTINUED)
The 1997 and 1996 provision for income taxes for continuing operations
includes:
1997 1996
-------- --------
Current:
Federal.................................................. $ 6,935 5,841
Foreign.................................................. 689 1,517
State.................................................... 1,626 1,178
------- ------
Total current taxes........................................ 9,250 8,536
------- ------
Deferred:
Federal.................................................. 2,367 2,886
Foreign.................................................. (242) 142
State.................................................... 489 592
------- ------
Total deferred taxes....................................... 2,614 3,620
------- ------
Provision for income taxes................................. $11,864 12,156
======= ======
(b) RECONCILIATION OF STATUTORY RATE OF EFFECTIVE RATE
Total income taxes as reflected in the consolidated statements of income and
retained income differ from the amounts computed by applying the statutory
federal corporate tax rate as follows:
1997 1996
------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- --------
Federal income tax at statutory rate...................... $11,158 35.0% $ 9,526 35.0%
State income taxes, net of federal tax benefit............ 1,375 4.3 1,151 4.2
Foreign taxes............................................. 743 2.3 1,571 5.8
Reduction of valuation allowance.......................... (1,314) (4.1) (536) (2.0)
Other, net................................................ (98) (0.3) 444 1.6
------- ---- ------- ----
Provision for income taxes................................ $11,864 37.2% $12,156 44.6%
======= ==== ======= ====
F-74
NORTH AMERICAN VAN LINES, INC.
(ALL OF THE COMMON STOCK OF WHICH IS OWNED BY NS)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
(4) INCOME TAXES (CONTINUED)
(c) DEFERRED TAX ASSETS AND LIABILITIES
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 27, 1997 and December 28, 1996 were as follows:
1997 1996
-------- --------
Deferred tax assets:
Reserves, including casualty and other claims.......... $ 20,938 23,108
Employee benefits...................................... 11,989 12,919
Postretirement benefits other than pension and
postemployment benefits.............................. 9,089 9,094
Foreign tax net operating loss carryforwards........... 1,290 2,238
Other.................................................. 2,948 2,897
-------- -------
Total gross deferred tax assets.......................... 46,254 50,256
Less valuation allowance............................... 924 2,238
-------- -------
Net deferred tax asset................................... 45,330 48,018
-------- -------
Deferred tax liabilities:
Property............................................... (11,588) (11,176)
Other.................................................. (2,194) (1,186)
-------- -------
Total gross deferred tax liabilities..................... (13,782) (12,362)
-------- -------
Net deferred tax assets.................................. 31,548 35,656
Less net current deferred tax assets..................... 22,644 26,086
-------- -------
Net long-term deferred tax assets........................ $ 8,904 9,570
======== =======
At December 27, 1997 and December 28, 1996, a valuation allowance has been
established due to the uncertainty of realization of foreign net operating loss
(NOL) carryforwards. The valuation allowance for deferred tax assets as of
December 27, 1997 and December 28, 1996 was $924 and $2,238, respectively. The
net change in the total valuation allowance for the years ended December 27,
1997 and December 28, 1996 was a decrease of $1,314 and a decrease of $536,
respectively. The decreases were a result of utilization of certain NOL benefits
and a reduction, in 1997, of the valuation allowance as realization appears
likely. Management believes all other deferred tax assets will be realized based
on the Company's anticipated future earnings.
(d) TAXING AUTHORITY REVIEWS
Consolidated federal income tax returns of NS (which include NAVL) have been
examined and Revenue Agent Reports have been received for all years up to and
including 1992. The consolidated federal income tax returns of NS for 1993 and
1994 are being audited by the IRS. Management believes that adequate provision
has been made for any additional taxes and interest thereon that might arise as
a result of these examinations.
F-75
NORTH AMERICAN VAN LINES, INC.
(ALL OF THE COMMON STOCK OF WHICH IS OWNED BY NS)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
(5) DEBT
The Company's Canadian subsidiary had amounts outstanding under a revolving
line of credit of $600 at an average rate of 4.95% as of December 27, 1997, and
$702 at an average rate of 4.80% as of December 28, 1996. These amounts are
included in accounts payable in the consolidated balance sheets.
The Company's 51% owned subsidiary, Manufacturing Support Services, LLC, has
a short-term note payable of $125 due to Valley Logistics, LLC, the 49% owner.
This note is due March 3, 1998 and is included in accounts payable in the
consolidated balance sheet.
The Company had unused lines of credit of $2,045 and $1,616 at December 27,
1997 and December 28, 1996, respectively.
(6) RETIREMENT, POSTRETIREMENT MEDICAL PLANS
The Company's United States plans' funded status and amount recognized in
the Company's consolidated financial statements as of and for the years ended
December 27, 1997 and December 28, 1996 (based on actuarial valuation) are as
follows:
PENSION BENEFITS OTHER BENEFITS
----------------------------- -----------------------------
DECEMBER 27, DECEMBER 28, DECEMBER 27, DECEMBER 28,
1997 1996 1997 1996
------------- ------------- ------------- -------------
CHANGES IN BENEFIT OBLIGATION
Benefit obligation at beginning of year..... $33,523 31,963 12,623 14,559
Service cost................................ 2,220 2,207 901 1,006
Interest cost............................... 2,710 2,500 905 843
Plan participants contribution.............. -- -- -- --
Actuarial gain (loss)....................... 6,217 (577) 202 (3,307)
Benefits paid............................... (1,354) (2,570) (455) (478)
------- ------- -------- --------
Benefit obligation at end of year........... $43,316 33,523 14,176 12,623
======= ======= ======== ========
CHANGES IN PLAN ASSETS
Fair value of plan assets at beginning of
year...................................... 33,308 28,182
Actual return on plan assets................ 7,951 4,611
Employer contribution....................... 886 3,085
Benefit paid................................ (1,354) (2,570)
------- -------
Fair value of plan assets at end of year.... $40,791 33,308
======= =======
Benefit obligation.......................... $43,316 $33,523 $ 14,176 $ 12,623
Plan assets................................. 40,791 33,308 -- --
------- ------- -------- --------
Funded status............................... (2,525) (215) (14,176) (12,623)
Unrecognized prior service cost............. (11,939) (13,528) (8,927) (10,174)
Unrecognized net actuarial gain............. 6,709 6,463 3,359 3,327
------- ------- -------- --------
Accrued benefit cost........................ $(7,755) $(7,280) $(19,744) $(19,470)
======= ======= ======== ========
F-76
NORTH AMERICAN VAN LINES, INC.
(ALL OF THE COMMON STOCK OF WHICH IS OWNED BY NS)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
(6) RETIREMENT, POSTRETIREMENT MEDICAL PLANS (CONTINUED)
PENSION BENEFITS OTHER BENEFITS
----------------------------- -----------------------------
DECEMBER 27, DECEMBER 28, DECEMBER 27, DECEMBER 28,
1997 1996 1997 1996
------------- ------------- ------------- -------------
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate............................... 7.25% 7.75% 7.25% 7.75%
Expected return on plan assets.............. 9.00% 9.00%
Rate of compensation increase............... 5.00% 5.00%
For measurement purposes, an 11% and 9.8% annual rate of increase in the per
capita cost of covered health care benefits was assumed for the years ended
December 28, 1996 and December 27, 1997, respectively. The rate was assumed to
decrease gradually to 5.5% for 2005 and remain at that level thereafter.
PENSION BENEFITS OTHER BENEFITS
----------------------------- -----------------------------
DECEMBER 27, DECEMBER 28, DECEMBER 27, DECEMBER 28,
1997 1996 1997 1996
------------- ------------- ------------- -------------
COMPONENTS OF NET PERIODIC BENEFITS COST
Service cost................................ $ 2,220 2,208 901 1,006
Interest cost............................... 2,710 2,500 905 844
Expected return on plan assets.............. (2,741) (2,409) -- --
Amortization of transition obligation....... 204 204 -- --
Amortization of prior service cost.......... (1,793) (1,793) (1,246) (1,246)
Amortization of Recognized actuarial (gain)
loss...................................... 762 1,396 166 284
------- ------ ------ ------
Net periodic benefits cost.................. $ 1,362 2,106 726 888
======= ====== ====== ======
The Company sponsors the NAVL, Inc. Employee Retirement Plan, a funded,
noncontributory defined benefit pension plan (Qualified Plan) covering eligible
employees in the United States. The Qualified Plan provides for eligible
employees to receive retirement benefits based principally on years of service
with the Company, compensation rates over that time, and estimated primary
Social Security benefits. Contributions to the Qualified Plan are made on the
basis of not less than minimum funding standards set forth in the Employee
Retirement Income Security Act of 1974, as amended. Plan assets consist
primarily of common stocks and government securities.
The Company also has an Excess Benefit Plan which is an unfunded,
nonqualified plan that provides retirement benefits not otherwise provided under
the Qualified Plan because of the benefit limitations imposed by Section 415 and
401(a)(17) of the Internal Revenue Code. The Excess Benefit Plan ensures that an
executive receives the total pension benefit to which he/she otherwise would be
entitled, were it not for such limitations.
In addition, the Overlap Benefit Plan, an unfunded, nonqualified retirement
plan, provides retirement benefits forfeited by the highly compensated employees
under the Qualified Plan because of the changes to the retirement plan formula
which took effect April 18, 1989.
F-77
NORTH AMERICAN VAN LINES, INC.
(ALL OF THE COMMON STOCK OF WHICH IS OWNED BY NS)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
(6) RETIREMENT, POSTRETIREMENT MEDICAL PLANS (CONTINUED)
The Company has nonpension postretirement benefit plans that provide
specific health care and death benefits to eligible retired employees. Under the
present plans, which may be amended or terminated at the Company's option, a
defined percentage of health care expenses is covered, after reductions for any
deductibles, co-payments, Medicare payments and, in some cases, coverage
provided by other group insurance policies. The cost of such health care
coverage to a retiree may be determined in part by a retiree's years of vested
service with the Company prior to retirement. Death benefits are based on a
fixed amount at time of retirement.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:
1997
---------------------------------------
1-PERCENTAGE-POINT 1-PERCENTAGE-POINT
INCREASE DECREASE
------------------ ------------------
Effect on total of service and interest cost
components................................. $ 334 $ (272)
Effect on postretirement benefit
obligation................................. 2,302 (1,928)
1996
---------------------------------------
1-PERCENTAGE-POINT 1-PERCENTAGE-POINT
INCREASE DECREASE
------------------ ------------------
Effect on total of service and interest cost
components................................. $ 314 $ (261)
Effect on postretirement benefit
obligation................................. 1,629 (1,418)
The Company's German subsidiary, midiData, has an unfunded pension plan
under which certain employees of the company will receive certain percentages of
their monthly income when they retire. The accumulated benefit obligation was
$1,595 and $1,808 at the end of 1997 and 1996, respectively, and the projected
benefit obligation was $1,668 and $1,996, respectively. The net periodic pension
cost for the plan was $193 and $228 in 1997 and 1996, respectively. The
transition obligation of $316 is being amortized over the average remaining
service life of 13 years.
The Company's Canadian subsidiary, North American Van Lines Canada Ltd., has
a defined benefit plan with the benefits generally based upon years of service
and the highest five-year average salary during employment. At the end of 1997
and 1996, the actuarial present value of accrued pension benefits was $1,285 and
$1,499, respectively, and the aggregate market value of pension plan assets was
$1,686 and $1,621, respectively.
The Company's United Kingdom subsidiary, North American Van Lines, Ltd., has
a defined contribution plan for eligible employees. The plan is funded through
contributions from employees, generally 3% of earnings, that are matched by the
Company. The Company and employee contributions associated with the plan were
$61 and $38 for 1997 and 1996, respectively.
F-78
NORTH AMERICAN VAN LINES, INC.
(ALL OF THE COMMON STOCK OF WHICH IS OWNED BY NS)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
(6) RETIREMENT, POSTRETIREMENT MEDICAL PLANS (CONTINUED)
The Company maintains an employee savings plan for eligible employees which
qualifies under Sections 401(a) and 401(k) of the Internal Revenue Code. The
Company has made no contributions to the plan since its inception.
(7) POSTEMPLOYMENT MEDICAL PLAN
The Company provides certain postemployment benefits to inactive employees
and their dependents during the period following employment but before
retirement. Effective the beginning of 1994, the Company adopted FAS No. 112
which requires the accrual of the cost of postemployment benefits rather than
expensing the costs when paid. These benefits are for continuation of health
care coverage. At the end of 1997 and 1996, the accumulated postemployment
benefit obligation was $2,088 and $2,256, respectively.
(8) INCENTIVE AND DEFERRED COMPENSATION
The Company maintains a Management Incentive Plan and an Executives'
Deferred Compensation Plan for certain executives and key management employees.
The plans are administered by the Board of Directors, who do not participate in
the plans. Interest expense is recognized based upon deferred compensation
balances.
The Company also maintains other incentive programs for eligible employees
not included in the Management Incentive Plan. The programs are administered by
the Vice-President of Human Resources, who does not participate.
Incentive compensation is based upon achievement of certain predetermined
corporate, departmental or individual performance goals. The expense associated
with incentive plans and programs was $6,233 and $5,302 for 1997 and 1996,
respectively. The interest expenses associated with the deferred compensation
program was $403 and $339 for 1997 and 1996, respectively.
(9) COMMITMENTS AND CONTINGENCIES
(a) LETTERS OF CREDIT AND DEBT GUARANTEES
In connection with its insurance agreements, at December 27, 1997 and
December 28, 1996, the Company had outstanding letters of credit of $13,869 and
$14,741, respectively, of which $9,500 is unconditionally guaranteed by NS. None
of these letters of credit have been utilized. At December 27, 1997 and
December 28, 1996, the Company is contingently liable as guarantors with respect
to $2,471 and $2,054, respectively.
(b) LAWSUITS
The Company and certain subsidiaries are defendants in numerous lawsuits
relating principally to motor carrier operations. While the final outcome of
these lawsuits cannot be predicted with certainty, it is the opinion of
management, after consulting with its legal counsel, that the amount of NAVL's
ultimate liability will not materially affect NAVL's consolidated financial
position, results of operations, or liquidity.
F-79
NORTH AMERICAN VAN LINES, INC.
(ALL OF THE COMMON STOCK OF WHICH IS OWNED BY NS)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
(9) COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company had filed suit in the Circuit Court of Palm Beach County,
Florida, to recover approximately $5,000 in costs and expenses incurred in
defending and settling MICHAUD V. NAVL, INC., a personal injury/wrongful death
case which arose out of an August 1989 motor vehicle accident. The Company
recovered $4,750 in 1997 which was recorded as a reduction of casualty and other
claims expense.
In 1996, litigation brought in 1987 by a former agent was resolved in a
manner favorable to the Company. As a result, reserves established for the
contingent liability were reversed, reducing administration expenses by $3,650.
(c) ENVIRONMENTAL MATTERS
The Company has been named as a potentially responsible party (PRP) in four
environmental cleanup proceedings by federal or state authorities and one
additional environmental clean-up proceeding by a group of PRPs. The suits are
brought under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, or other federal or state statutes. Based on
all known information, it is estimated that the settlement cost of each PRP site
would not be materially or significantly larger than the reserves established,
which totaled $72 and $73 on December 27, 1997 and December 28, 1996,
respectively. It is possible that additional claims or lawsuits involving
unknown environmental matters or now unidentified environmental sites may arise
in the future.
The Company owns or has owned, and leases or has leased facilities at which
underground storage tanks for diesel fuel are located and operated. Management
believes that the Company has taken the appropriate and necessary action with
regard to releases of diesel fuel that have occurred. As conditions may exist on
these properties related to environmental problems that are latent or
undisclosed, there can be no assurance that the Company will not incur
liabilities or costs, the amount and materiality of which cannot be estimated
reliably at this time. However, based on its assessment of the facts and
circumstances now known and after consulting with its legal counsel, management
believes that it has recorded appropriate estimates of liability for those
environmental matters of which the Company is aware. Further, management
believes it is unlikely that any identified matters, either individually or in
aggregate, will have a material adverse effect on the Company's financial
position, results of operations, or liquidity.
(10) LEASE COMMITMENTS
The Company has noncancelable lease commitments under operating leases for
rental of office space, warehouse facilities, and office equipment. The
Company's rental expense under these operating leases was $12,345 and $9,918 in
1997 and 1996, respectively. Future minimum lease commitments under
noncancelable leases are as follows: 1998, $11,931; 1999, $9,559; 2000, $7,008;
2001, $5,282; 2002, $4,000; and thereafter, $7,084.
(11) PREFERRED STOCK (PER SHARE AMOUNTS IN WHOLE DOLLARS)
There are 10,000 shares of $100 par value series A (nonvoting) preferred
stock authorized, issued, and outstanding as of December 27, 1997 and
December 28, 1996. Holders of preferred stock are entitled to
F-80
NORTH AMERICAN VAN LINES, INC.
(ALL OF THE COMMON STOCK OF WHICH IS OWNED BY NS)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
(11) PREFERRED STOCK (PER SHARE AMOUNTS IN WHOLE DOLLARS) (CONTINUED)
receive cumulative dividends at the annual rate of $7 per share, payable in
arrears, on a quarterly basis. If the required dividend payment for any quarter
is not paid in full within five business days after the end of such quarter, the
annual rate of dividends on the preferred stock increases to $9 per share for
the period from the end of such quarter to the date when payment of all
dividends is fully current. The fixed liquidation price for each share of
preferred stock is its par value, plus an amount equal to all dividends, whether
or not declared, that are accrued and unpaid to the date of payment of the
liquidation price.
(12) FINANCIAL INSTRUMENTS
The Company has used financial instruments, principally forward contracts,
in its management of foreign currency exposures. At December 27, 1997 and
December 28, 1996 the Company had no open positions on forward contracts.
(13) DISCONTINUED OPERATIONS
In 1997 and 1996 liabilities attributable to discontinued operations of the
corporation were reduced by $3,800 ($2,306 after tax) and $4,070 ($2,470 after
tax), respectively. The reversals were primarily from reductions in accrued
casualty and workers' compensation claims based on actuarial valuations.
(14) YEAR 2000
In 1996, the Company developed a plan to deal with the Year 2000 problem and
began converting its computer systems and applications to be Year 2000
compliant. The plan provides for the conversion efforts to be completed by the
end of 1998. The year 2000 problem is the result of computer programs being
written using two digits rather than four to define the applicable year. The
total cost of the project is estimated to be $2,000 and is being funded through
operating cash flows. The Company is expensing all costs associated with these
systems changes as the costs are incurred. As of December 27, 1997, $1,116 had
been expensed.
(15) OPERATING SEGMENTS
The Company has presented information on two segments for disclosure
purposes: Van Line Network and Logistics Services.
The Van Line Network segment provides domestic and international residential
relocation services through a network of exclusive agents. It is comprised of
the Relocation Services Division, which provides packing, loading,
transportation, delivery and warehousing services for any type of household move
in the U.S. and Canada, and the International Division, which provides or
coordinates these same services for customers on a global basis.
The Logistics Services segment provides customized logistics solutions,
specialized transportation services, warehousing, distribution, and delivery
services to commercial customers. It is comprised of the Logistics Division,
which provides these specialized services to principally electronics, medical
equipment and other suppliers of sensitive goods requiring specialized handling
in the U.S., the Blanket Wrap/Flatbed
F-81
NORTH AMERICAN VAN LINES, INC.
(ALL OF THE COMMON STOCK OF WHICH IS OWNED BY NS)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
(15) OPERATING SEGMENTS (CONTINUED)
Division, which provides transportation of truckload freight requiring
specialized handling in the U.S., and the Europe Division, which provides these
same logistics services in Europe and the U.K.
The table below represents information about revenues, income from
operations and total assets by segment used by the chief decision makers of the
Company as of and for the years ended December 27, 1997 and December 28, 1996:
VAN LINE LOGISTICS CONSOLIDATED
NETWORK SERVICES CORPORATE(1) TOTALS
-------- --------- ------------ ------------
DECEMBER 27, 1997
Operating revenues.............. $518,628 422,873 -- $941,501
Income from operations.......... 15,350 15,813 -- 31,163
Total assets.................... 109,357 102,431 90,547 302,335
DECEMBER 28, 1996
Operating revenues.............. $528,495 401,753 -- $930,248
Income from operations.......... 13,705 14,362 -- 28,067
Total assets.................... 107,879 97,322 82,057 287,258
- ------------------------
(1) Total assets by segment are specific assets such as revenue equipment and
trade receivables. Assets included in the corporate category include
non-allocated assets such as the corporate headquarters building, computer
hardware and software, contracts receivable associated with equipment sales,
deferred taxes, and goodwill.
Specified items included in segment results for the years ended
December 27, 1997 and December 28, 1996:
VAN LINE LOGISTICS CONSOLIDATED
NETWORK SERVICES CORPORATE(2) TOTALS
-------- --------- ------------ ------------
DECEMBER 27, 1997
Depreciation and amortization.... $5,349 7,118 -- $12,467
Non-operating income (expense)
and minority interests......... -- (89) -- (89)
Discontinued operations credit,
net............................ -- -- 2,306 2,306
DECEMBER 28, 1996
Depreciation and amortization.... $5,568 7,167 -- $12,735
Non-operating income (expense)
and minority interests......... 160 (160) -- --
Discontinued operations credit,
net............................ -- -- 2,470 2,470
- ------------------------
(2) Depreciation expense for corporate property and equipment is allocated to
the segments in order to determine segment income from operations.
F-82
NORTH AMERICAN VAN LINES, INC.
(ALL OF THE COMMON STOCK OF WHICH IS OWNED BY NS)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
(15) OPERATING SEGMENTS (CONTINUED)
Specified items included in segment assets as of December 27, 1997 and
December 28, 1996:
VAN LINE LOGISTICS CONSOLIDATED
NETWORK SERVICES CORPORATE TOTALS
-------- --------- --------- ------------
DECEMBER 27, 1997
Capital expenditures................ $2,432 5,504 2,652 $10,588
DECEMBER 28, 1996
Capital expenditures................ $1,661 3,622 2,162 $ 7,445
Revenue and long-lived asset information by geographic area as of and for
the years ended December 27, 1997 and December 28, 1996:
REVENUES LONG-LIVED ASSETS
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
United States.......................... $855,019 843,050 $ 96,764 77,557
Foreign................................ 86,482 87,198 3,790 4,486
-------- ------- -------- ------
Total.................................. $941,501 930,248 $100,554 82,043
======== ======= ======== ======
Revenue designation is based on the country in which the sales originated.
(16) SUBSEQUENT EVENTS
On January 12, 1998, NS announced a definitive agreement with Clayton,
Dubilier & Rice, Inc. (CD&R) to sell North American Van Lines for $200 million.
CD&R is a private investment company headquartered in New York. The sale,
subject to customary closing conditions, is expected to be completed within the
first half of 1998. The financial statements do not reflect any adjustments
which may result due to the sale.
(17) SUPPLEMENTAL INFORMATION
The accompanying supplementary information was prepared to segregate the
financial statements between the parent, those entities that will guarantee debt
pursuant to an agreement dated November 19, 1999 ("Guarantor entities"), and
those entities that will not guarantee such debt ("Nonguarantor entities").
F-83
NORTH AMERICAN VAN LINES, INC.
(ALL OF THE COMMON STOCK OF WHICH IS OWNED BY NS)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
(17) SUPPLEMENTAL INFORMATION (CONTINUED)
Consolidated condensed statements of income data for the years ended
December 27, 1997 and December 28, 1996 are as follows:
TWELVE MONTHS ENDED DECEMBER 27, 1997
----------------------------------------------------------------
(2)
(1) TOTAL NON- NAVL
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
Operating revenues..................... $820,541 38,510 96,719 (14,269) 941,501
Total operating expenses............... 793,157 39,224 93,898 (15,941) 910,338
-------- ------ ------ ------- -------
Income (loss) from operations.......... 27,384 (714) 2,821 1,672 31,163
Other (income) expenses................ (3,751) -- (253) 3,198 (806)
-------- ------ ------ ------- -------
Income (loss) before minority interest
and income taxes..................... 31,135 (714) 3,074 (1,526) 31,969
Minority interest in income of
subsidiaries......................... -- 89 -- -- 89
-------- ------ ------ ------- -------
Income (loss) before income taxes...... 31,135 (803) 3,074 (1,526) 31,880
Provision (benefit) for income taxes... 11,119 (396) 1,141 -- 11,864
-------- ------ ------ ------- -------
Income (loss) from continuing
operations........................... 20,016 (407) 1,933 (1,526) 20,016
Discontinued operations--credit (less
applicable income taxes of $1,494)... 2,306 -- -- -- 2,306
-------- ------ ------ ------- -------
Net income (loss)...................... $ 22,322 (407) 1,933 (1,526) 22,322
======== ====== ====== ======= =======
TWELVE MONTHS ENDED DECEMBER 28, 1996
----------------------------------------------------------------
(2)
(1) TOTAL NON- NAVL
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
Operating revenues..................... $811,119 37,897 94,959 (13,727) 930,248
Total operating expenses............... 786,346 37,671 93,296 (15,132) 902,181
-------- ------ ------ ------- -------
Income (loss) from operations.......... 24,773 226 1,663 1,405 28,067
Other (income) expenses................ (526) -- (567) 1,944 851
-------- ------ ------ ------- -------
Income (loss) before income taxes...... 25,299 226 2,230 (539) 27,216
Provision (benefit) for income taxes... 10,239 (1) 1,918 -- 12,156
-------- ------ ------ ------- -------
Income (loss) from continuing
operations........................... 15,060 227 312 (539) 15,060
Discontinued operations--credit (less
applicable income taxes of $1,600)... 2,470 -- -- -- 2,470
-------- ------ ------ ------- -------
Net income (loss)...................... $ 17,530 227 312 (539) 17,530
======== ====== ====== ======= =======
F-84
NORTH AMERICAN VAN LINES, INC.
(ALL OF THE COMMON STOCK OF WHICH IS OWNED BY NS)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
(17) SUPPLEMENTAL INFORMATION (CONTINUED)
Consolidated condensed statement of balance sheets data as of December 27,
1997 and December 28, 1996 is summarized as follows:
DECEMBER 27, 1997
----------------------------------------------------------------
(2)
(1) TOTAL NON- NAVL
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
Current assets......................... $155,491 17,589 22,638 (2,841) 192,877
Non-current assets..................... 130,916 774 20,889 (43,121) 109,458
-------- ------ ------ ------- -------
Total assets........................... $286,407 18,363 43,527 (45,962) 302,335
======== ====== ====== ======= =======
Current liabilities.................... 110,755 4,988 16,829 (1,695) 130,877
Non-current liabilities................ 67,536 3,379 12,719 (20,292) 63,342
-------- ------ ------ ------- -------
Total liabilities...................... 178,291 8,367 29,548 (21,987) 194,219
Stockholders' equity................... 108,116 9,996 13,979 (23,975) 108,116
-------- ------ ------ ------- -------
Total liabilities and equity........... $286,407 18,363 43,527 (45,962) 302,335
======== ====== ====== ======= =======
DECEMBER 28, 1996
----------------------------------------------------------------
(2)
(1) TOTAL NON- NAVL
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
Current assets......................... $160,387 15,554 23,427 (3,723) 195,645
Non-current assets..................... 112,743 419 12,077 (33,626) 91,613
-------- ------ ------ ------- -------
Total assets........................... $273,130 15,973 35,504 (37,349) 287,258
======== ====== ====== ======= =======
Current liabilities.................... 120,927 4,528 16,888 (2,541) 139,802
Non-current liabilities................ 66,087 1,637 4,223 (10,607) 61,340
-------- ------ ------ ------- -------
Total liabilities...................... 187,014 6,165 21,111 (13,148) 201,142
Stockholders' equity................... 86,116 9,808 14,393 (24,201) 86,116
-------- ------ ------ ------- -------
Total liabilities and equity........... $273,130 15,973 35,504 (37,349) 287,258
======== ====== ====== ======= =======
F-85
NORTH AMERICAN VAN LINES, INC.
(ALL OF THE COMMON STOCK OF WHICH IS OWNED BY NS)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
(17) SUPPLEMENTAL INFORMATION (CONTINUED)
Consolidated condensed statement of cash flows data for the years ended
December 27, 1997 and December 28, 1996 is summarized as follows:
TWELVE MONTHS ENDED DECEMBER 27, 1997
-------------------------------------------------
(2)
(1) TOTAL NON- NAVL
PARENT GUARANTORS GUARANTORS CONSOLIDATED
-------- ---------- ---------- ------------
Net cash provided by (used in) operating
activities...................................... $ 28,371 (138) 695 28,928
Net cash provided by (used in) investing
activities...................................... (20,703) -- 738 (19,965)
Net cash used in financing activities............. (6,172) -- -- (6,172)
Effect of exchange rate changes on cash........... -- -- (168) (168)
Minority interest................................. 238 -- -- 238
Unrealized investment gains (net of deferred
taxes).......................................... -- -- (84) (84)
-------- ------ ------ -------
Net cash flows from continuing operations......... 1,734 (138) 1,181 2,777
-------- ------ ------ -------
Net cash flows from the payment of liabilities
attributable to discontinued operations......... (1,696) -- -- (1,696)
-------- ------ ------ -------
Net increase in cash and cash equivalents......... 38 (138) 1,181 1,081
Cash at beginning of period....................... 574 80 1,213 1,867
-------- ------ ------ -------
Cash at end of period............................. $ 612 (58) 2,394 2,948
======== ====== ====== =======
TWELVE MONTHS ENDED DECEMBER 28, 1996
-------------------------------------------------
(2)
(1) TOTAL NON- NAVL
PARENT GUARANTORS GUARANTORS CONSOLIDATED
-------- ---------- ---------- ------------
Net cash provided by (used in) operating
activities...................................... $ 40,909 108 (1,343) 39,674
Net cash provided by (used in) investing
activities...................................... (8,244) -- 5 (8,239)
Net cash used in financing activities............. (30,969) -- -- (30,969)
Effect of exchange rate changes on cash........... -- -- 35 35
Unrealized investment gains (net of deferred
taxes).......................................... -- -- 165 165
-------- ------ ------ -------
Net cash flows from continuing operations......... 1,696 108 (1,138) 666
-------- ------ ------ -------
Net cash flows from the payment of liabilities
attributable to discontinued operations......... (1,107) -- -- (1,107)
-------- ------ ------ -------
Net increase in cash and cash equivalents......... 589 108 (1,138) (441)
Cash at beginning of period....................... (15) (28) 2,351 2,308
-------- ------ ------ -------
Cash at end of period............................. $ 574 80 1,213 1,867
======== ====== ====== =======
- ------------------------
(1) Parent includes the accounts of North American Van Lines, Inc., a Delaware
corporation and the issuer of the debt.
F-86
NORTH AMERICAN VAN LINES, INC.
(ALL OF THE COMMON STOCK OF WHICH IS OWNED BY NS)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
(17) SUPPLEMENTAL INFORMATION (CONTINUED)
(2) Total Guarantors include the accounts of the following subsidiaries of North
American Van Lines, Inc.: Fleet Insurance Management, Inc., an Indiana
corporation; FrontRunner Worldwide, Inc., a Delaware corporation;
NACAL, Inc., a California corporation; NAVTRANS International Freight
Forwarding, Inc., an Indiana corporation; North American Distribution
Systems, Inc., an Indiana corporation; North American Logistics, Ltd., an
Indiana Corporation; North American Van Lines of Texas, Inc., a Texas
corporation; Relocation Management Systems, Inc., a Delaware corporation;
and Great Falls North American, Inc., a Montana corporation. Each Guarantor
is a wholly owned subsidiary of North American Van Lines, Inc. and will
jointly and severally, irrevocably and fully and unconditionally guarantee
the punctual payment of such debt.
F-87
NFC MOVING SERVICES GROUP
REVIEW REPORT OF INDEPENDENT AUDITORS
To: The Board of Directors
NFC plc
We have reviewed the accompanying condensed combined balance sheets of NFC
Moving Services Group as at June 30, 1998 and 1999, and the related condensed
combined profit and loss accounts and condensed combined statements of total
recognized gains and losses, cash flows and NFC Group Investment for each of the
nine month periods ended June 30, 1998 and 1999. These financial statements are
the responsibility of the management of NFC Moving Services Group.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed combined financial statements referred to
above for them to be in conformity with accounting principles generally accepted
in the United Kingdom, which differ in certain respects from those generally
accepted in the United States (see Note 4 of Notes to the Condensed Combined
Financial Statements).
/s/ Ernst & Young
ERNST & YOUNG
London, England
September 20, 1999
F-88
NFC MOVING SERVICES GROUP
CONDENSED COMBINED BALANCE SHEETS
(UNAUDITED)
JUNE 30
------------------------------
1998 1999
------------- --------------
(L MILLION)
FIXED ASSETS
Property, plant and equipment............................. 48.1 51.4
Investments............................................... 25.4 30.2
Goodwill.................................................. -- 5.4
------------- --------------
73.5 87.0
------------- --------------
CURRENT ASSETS
Inventories............................................... 3.4 3.6
Debtors: Amounts falling due within one year.............. 91.4 109.6
Debtors: Amounts falling due after more than one year..... 5.3 6.4
Cash at bank and in hand.................................. 19.4 25.9
------------- --------------
119.5 145.5
CURRENT LIABILITIES
Creditors: Amounts falling due within one year............ (90.0) (99.4)
NFC Group balances........................................ (13.6) (168.9)
------------- --------------
NET CURRENT ASSETS/(LIABILITIES)............................ 15.9 (122.8)
------------- --------------
TOTAL ASSETS LESS CURRENT LIABILITIES....................... 89.4 (35.8)
Provisions for liabilities and charges...................... (25.8) (27.2)
------------- --------------
NET ASSETS.................................................. 63.6 (63.0)
============= ==============
NFC GROUP INVESTMENT........................................ 63.6 (63.0)
============= ==============
- ------------------------
(i) Amounts owed by and to NFC Group businesses are not necessarily
representative of amounts that would have been reported by NFC Moving
Services Group on a stand-alone basis or that will be reported by NFC Moving
Services Group in the future.
(ii) A summary of the significant adjustments to NFC Group investment which
would be required if US generally accepted accounting principles had been
applied instead of those generally accepted in the United Kingdom is given
in the Note to the Combined Financial Statements.
See Notes to the Condensed Combined Financial Statements
F-89
NFC MOVING SERVICES GROUP
CONDENSED COMBINED PROFIT AND LOSS ACCOUNTS
(UNAUDITED)
NINE MONTHS ENDED JUNE 30
-------------------------
1998 1999
----------- -----------
(L MILLION)
NET SALES--(NOTE 2)......................................... 486.3 496.8
===== =====
OPERATING PROFIT (I)--(NOTE 3)
before exceptional items.................................. 13.7 13.8
Exceptional costs of reorganization....................... (1.0) (1.4)
----- -----
TOTAL OPERATING PROFIT...................................... 12.7 12.4
Profit on disposals of properties........................... -- 0.4
----- -----
PROFIT BEFORE INTEREST...................................... 12.7 12.8
Interest (net) (ii)......................................... 0.6 (0.3)
----- -----
Profit before tax and exceptional items..................... 14.3 13.5
Exceptional items........................................... (1.0) (1.0)
----- -----
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION............... 13.3 12.5
Taxation (ii)............................................... (2.4) (2.9)
----- -----
PROFIT FOR THE PERIOD (I) (II).............................. 10.9 9.6
===== =====
- ------------------------
(i) A summary of the significant adjustments to profit for the financial year
which would be required if US generally accepted accounting principles had
been applied instead of those generally accepted in the United Kingdom is
given in Note 4 of Notes to the Condensed Combined Financial Statements.
(ii) Interest (net) and taxation are not necessarily representative of the
income and charges that would have been earned or incurred by NFC Moving
Services Group on a stand-alone basis or that will be earned or incurred by
NFC Moving Services Group in the future.
See Notes to the Condensed Combined Financial Statements
F-90
NFC MOVING SERVICES GROUP
CONDENSED COMBINED STATEMENTS OF TOTAL RECOGNIZED GAINS AND LOSSES
(UNAUDITED)
NINE MONTHS
ENDED JUNE 30
-----------------------
1998 1999
-------- --------
(L MILLION)
PROFIT FOR THE PERIOD....................................... 10.9 9.6
Unrealized surplus on revaluation of properties............. 0.7 0.6
Exchange differences........................................ (1.9) 1.8
---- ----
TOTAL GAINS AND LOSSES RELATING TO THE PERIOD (I)........... 9.7 12.0
==== ====
- ------------------------
(i) The significant differences between the combined statements of total
recognized gains and losses presented above and the combined statements of
comprehensive income required under US generally accepted accounting
principles are described in Note 4 of Notes to the Condensed Combined
Financial Statements.
See Notes to the Condensed Combined Financial Statements
F-91
NFC MOVING SERVICES GROUP
CONDENSED COMBINED CASH FLOW STATEMENTS (I)
(UNAUDITED)
NINE MONTHS
ENDED
JUNE 30
-----------------------
1998 1999
-------- --------
(L MILLION)
NET CASH INFLOW FROM OPERATING ACTIVITIES................... 23.8 17.0
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received (net)..................................... 2.9 2.3
NFC Group interest (net).................................... (2.3) (2.4)
----- -----
NET CASH INFLOW/(OUTFLOW) FROM RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE (II)................................. 0.6 (0.1)
TAX PAID (II)............................................... (3.5) (2.9)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchases of property, plant and equipment.................. (11.5) (9.1)
Purchases of investments (net).............................. (3.3) (2.1)
Disposals of property, plant and equipment.................. 3.6 2.6
----- -----
NET CASH OUTFLOW FROM CASH EXPENDITURE AND FINANCIAL
INVESTMENT................................................ (11.2) (8.6)
----- -----
FREE CASH FLOW.............................................. 9.7 5.4
ACQUISITIONS AND DISPOSALS
Purchases of subsidiary undertakings........................ (0.2) (9.9)
----- -----
NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING.................. 9.5 (4.5)
NET CASH INFLOW/(OUTFLOW) FROM FINANCING (II)............... (10.0) 4.7
----- -----
INCREASE/(DECREASE) IN CASH................................. (0.5) 0.2
===== =====
RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOW
OPERATING PROFIT............................................ 12.7 12.4
Depreciation................................................ 6.9 7.4
Profit on disposals of tangible fixed assets................ (0.2) (0.2)
Movements in provisions..................................... 1.8 (0.9)
Movements in working capital................................ 2.6 (1.7)
----- -----
NET CASH INFLOW FROM OPERATING ACTIVITIES................... 23.8 17.0
===== =====
- ------------------------
(i) The significant differences between the combined cash flow statements
presented above and those required under US generally accepted accounting
principles are described in Note 4 of Notes to the Condensed Combined
Financial Statements.
(ii) Net interest received/(paid), tax paid and financing cash flows are not
necessarily representative of the amounts that would have been earned or
incurred in NFC Moving Services Group on a stand-alone basis or that will be
earned or incurred by NFC Moving Services Group in the future.
See Notes to the Condensed Combined Financial Statements
F-92
NFC MOVING SERVICES GROUP
CONDENSED COMBINED STATEMENTS OF CHANGES IN NFC GROUP INVESTMENT
(UNAUDITED)
NINE MONTHS ENDED JUNE 30
-------------------------
1998 1999
----------- -----------
(L MILLION)
Profit for the period....................................... 10.9 9.6
NFC Group funding/(divestment) (net)........................ 21.6 (124.2)
Unrealized surplus on revaluation of properties............. 0.7 0.6
Exchange differences........................................ (1.9) 1.8
---- ------
Movement in the period...................................... 31.3 (112.2)
Opening balance............................................. 32.3 49.2
---- ------
Closing balance............................................. 63.6 (63.0)
==== ======
See Notes to the Condensed Combined Financial Statements
F-93
NFC MOVING SERVICES GROUP
NOTES TO THE CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--BASIS OF PREPARATION
These condensed combined financial statements, which are unaudited, have
been prepared on the same basis as and in accordance with the accounting
policies described in the audited combined financial statements of NFC Moving
Services Group for the three years ended September 30, 1998, except that from
October 1, 1998, goodwill is capitalized and amortized over its useful life in
accordance with Financial Reporting Standard 10, Goodwill and Intangible Assets.
In the opinion of the management of NFC Moving Services Group, all adjustments
considered necessary for a fair presentation have been included. Operating
results for the nine months ended June 30, 1999, are not necessarily indicative
of the results that may be expected for the year ending September 30, 1999.
NOTE 2--NET SALES
NINE MONTHS ENDED
JUNE 30
-----------------------
1998 1999
-------- --------
(L MILLION)
United Kingdom and Ireland................................. 87.4 88.9
Continental Europe......................................... 13.6 14.5
Americas................................................... 348.0 353.9
Asia Pacific............................................... 37.3 39.5
----- -----
486.3 496.8
===== =====
The analysis of net sales is by management structure. The analysis by
destination would not be materially different. Net sales between geographical
segments are not material.
NOTE 3--OPERATING PROFIT
NINE MONTHS ENDED
JUNE 30
-----------------------
1998 1999
-------- --------
(L MILLION)
United Kingdom and Ireland................................. 8.7 7.7
Continental Europe......................................... 0.1 0.4
Americas................................................... 3.4 3.6
Asia Pacific............................................... 1.5 2.1
----- -----
13.7 13.8
Exceptional items
United Kingdom and Ireland................................. (0.7) (0.4)
Continental Europe....................................... (0.3) (1.0)
----- -----
12.7 12.4
===== =====
F-94
NFC MOVING SERVICES GROUP
NOTES TO THE CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4-- DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The effect of the significant adjustments to profit for the period,
comprehensive income and NFC Group Investment which would be required if US GAAP
had been applied instead of UK GAAP is summarized below.
NINE MONTHS ENDED JUNE 30
-------------------------
1998 1999
----------- -----------
(L MILLION)
PROFIT FOR THE PERIOD
Profit for the period as reported........................... 10.9 9.6
US GAAP adjustments:
Operating charges
Staff costs -- wages and salaries......................... 0.3 --
-- pensions...................................... 1.1 1.2
Depreciation and amortization--goodwill................... (0.7) (0.7)
--revaluation of land and
buildings.................... 0.1 0.1
Profit on disposal of land and buildings.................... 2.4 --
Taxation--standalone adjustment............................. (0.3) (0.2)
Deferred taxation........................................... (0.6) (0.7)
---- ----
2.3 (0.3)
---- ----
Profit for the as adjusted to accord with US GAAP........... 13.2 9.3
==== ====
COMPREHENSIVE INCOME
Total recognized gains and losses as reported............... 9.7 12.0
US GAAP adjustments:
Adjustments to profit for the period as shown above......... 2.3 (0.3)
Unrealized surplus on revaluation of properties............. (0.7) (0.6)
Unrealized holding gains/(losses) on investments............ (0.5) 1.1
Deferred taxation on unrealized holding gains/(losses) on
investments............................................... 0.2 (0.4)
---- ----
Comprehensive income in accordance with US GAAP............. 11.0 11.8
==== ====
F-95
NFC MOVING SERVICES GROUP
NOTES TO THE CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4-- DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
JUNE 30,
NFC GROUP INVESTMENT ---------------------------------------------------------------
1998 1999
------------------------------ ------------------------------
(L MILLION)
NFC Group Investment as reported.................... 63.6 (63.0)
US GAAP adjustments:
Intangible assets--goodwill--cost................... 34.1 34.1
--amortization............... (9.2) 24.9 (10.1) 24.0
---- -----
Unrealized holding gains on investments............. 0.9 1.4
Property, plant and equipment (revaluation)
-- cost or valuation.......................... (4.9) (5.1)
-- depreciation............................... (1.6) (6.5) (1.8) (6.9)
---- -----
Accruals and deferred income........................ (2.6) (2.5)
Taxation--standalone adjustment..................... (0.4) (0.7)
Deferred taxation................................... 5.5 4.6
----- -----
21.8 19.9
----- -----
NFC Group Investment as adjusted to accord with
US GAAP........................................... 85.4 (43.1)
===== =====
The categories of cash flow activity under US GAAP are summarized below:
NINE MONTHS
ENDED JUNE 30
-----------------------
1998 1999
-------- --------
(L MILLION)
Cash inflows from operating activities...................... 20.9 14.0
Cash outflows on investing activities....................... (11.4) (18.5)
Cash inflows/(outflows) from financing activities........... (3.0) 11.1
Effect of exchange rate changes on cash..................... (1.0) 1.3
----- -----
Increase in cash and cash equivalents....................... 5.5 7.9
Cash and cash equivalents at beginning of period............ 13.9 18.0
----- -----
Cash and cash equivalents at beginning of period............ 19.4 25.9
===== =====
F-96
NFC MOVING SERVICES GROUP
REPORT OF INDEPENDENT AUDITORS
To: The Board of Directors
NFC plc
We have audited the combined balance sheets of NFC Moving Services Group as at
September 30, 1997 and 1998, and the related combined profit and loss accounts,
and combined statements of total recognized gains and losses, cash flows and NFC
Group Investment for each of the three years in the period ended September 30,
1998. These financial statements are the responsibility of the management of NFC
Moving Services Group. Our responsibility is to form an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States 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 provided a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of NFC Moving Services
Group at September 30, 1997 and 1998, and the combined results of its operations
and its combined cash flows for each of the three years in the period ended
September 30, 1998 in conformity with accounting principles generally accepted
in the United Kingdom which differ in certain respects from those generally
accepted in the United States (see Note 22 of Notes to the Combined Financial
Statements).
[LOGO]
ERNST & YOUNG
London, England
September 13, 1999
F-97
NFC MOVING SERVICES GROUP
COMBINED BALANCE SHEETS
SEPTEMBER 30
-------------------
1997 1998
-------- --------
(L MILLION)
FIXED ASSETS
Property, plant and equipment--(Note 10).................. 45.4 48.8
Investments--(Note 11).................................... 22.9 26.0
------ ------
68.3 74.8
------ ------
CURRENT ASSETS
Inventories............................................... 3.7 3.3
Debtors: Amounts falling due within one year (i)--(Note
12)....................................................... 175.8 181.6
Debtors: Amounts falling due after more than one
year--(Note 13)........................................... 4.6 4.2
Cash at bank and in hand.................................. 13.9 18.0
------ ------
198.0 207.1
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR (i)--(NOTE
14)....................................................... (209.3) (206.5)
------ ------
NET CURRENT ASSETS/(LIABILITIES)............................ (11.3) 0.6
------ ------
TOTAL ASSETS LESS CURRENT LIABILITIES....................... 57.0 75.4
Provisions for liabilities and charges--(Note 15)........... (24.7) (26.2)
------ ------
NET ASSETS--(NOTE 17)....................................... 32.3 49.2
====== ======
NFC GROUP INVESTMENT (ii)................................... 32.3 49.2
====== ======
- ------------------------
(i) Amounts owed by and to NFC Group businesses are not necessarily
representative of amounts that would have been reported by NFC Moving
Services Group on a stand-alone basis or that will be reported by NFC Moving
Services Group in the future.
(ii) A summary of the significant adjustments to NFC Group Investment which
would be required if US generally accepted accounting principles had been
applied instead of those generally accepted in the United Kingdom is given
in Note 22 of Notes to the Combined Financial Statements.
F-98
NFC MOVING SERVICES GROUP
COMBINED PROFIT AND LOSS ACCOUNTS
YEARS ENDED SEPTEMBER 30
------------------------------
1996 1997 1998
-------- -------- --------
(L MILLION)
NET SALES--(Note 4)......................................... 658.1 680.7 698.3
===== ===== =====
OPERATING PROFIT (i)--(Note 7)
Before exceptional items.................................. 18.7 21.3 26.1
Exceptional costs of reorganization....................... (3.0) (2.3) (1.6)
----- ----- -----
TOTAL OPERATING PROFIT...................................... 15.7 19.0 24.5
Profit/(loss) on disposals of properties.................... (1.0) 2.3 0.2
Loss on disposal of operations.............................. -- -- (0.3)
----- ----- -----
PROFIT BEFORE INTEREST...................................... 14.7 21.3 24.4
Interest (net) (ii)--(Note 8)............................... (0.7) (2.2) 0.2
----- ----- -----
Profit before tax and exceptional items..................... 18.0 19.1 26.3
Exceptional items........................................... (4.0) -- (1.7)
----- ----- -----
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION............... 14.0 19.1 24.6
Taxation (ii)--(Note 9)..................................... (5.0) (7.2) (4.6)
----- ----- -----
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION................ 9.0 11.9 20.0
Equity minority interests................................... (0.1) (0.1) --
----- ----- -----
PROFIT FOR THE FINANCIAL YEAR (I) (II)...................... 8.9 11.8 20.0
===== ===== =====
- ------------------------
(i) A summary of the significant adjustments to profit for the financial year
which would be required if US generally accepted accounting principles had
been applied instead of those generally accepted in the United Kingdom is
given in Note 22 of Notes to the Combined Financial Statements.
(ii) Interest (net) and taxation are not necessarily representative of the
income and charges that would have been earned or incurred by NFC Moving
Services Group on a stand-alone basis or that will be earned or incurred by
NFC Moving Services Group in the future.
F-99
NFC MOVING SERVICES GROUP
COMBINED STATEMENTS OF TOTAL RECOGNIZED GAINS AND LOSSES
YEARS ENDED SEPTEMBER 30
------------------------------
1996 1997 1998
-------- -------- --------
(L MILLION)
PROFIT FOR THE FINANCIAL YEAR............................... 8.9 11.8 20.0
Exchange differences........................................ 0.3 (0.6) (2.0)
Unrealized surplus/(deficit) on revaluation of properties... (0.7) 0.4 0.7
---- ---- ----
TOTAL GAINS AND LOSSES RELATING TO THE YEAR (i)............. 8.5 11.6 18.7
==== ==== ====
- ------------------------
(i) The significant differences between the combined statements of total
recognized gains and losses presented above and the combined statements of
comprehensive income required under US generally accepted accounting
principles are described in Note 22 of Notes to the Combined Financial
Statements.
COMBINED STATEMENTS OF HISTORICAL COST PROFITS AND LOSSES
YEARS ENDED SEPTEMBER 30
------------------------------
1996 1997 1998
-------- -------- --------
(L MILLION)
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION............... 14.0 19.1 24.6
Revaluation surpluses realized on disposals of properties... 7.1 0.2 --
Difference between depreciation based on historical costs
and on revalued amounts................................... 0.2 0.2 0.2
---- ---- ----
HISTORICAL COST PROFIT ON ORDINARY ACTIVITIES BEFORE
TAXATION.................................................. 21.3 19.5 24.8
==== ==== ====
Historical cost profit for the financial year............... 16.2 12.2 20.2
==== ==== ====
F-100
NFC MOVING SERVICES GROUP
COMBINED CASH FLOW STATEMENT (I)
YEARS ENDED SEPTEMBER 30
------------------------------------
1996 1997 1998
-------- -------- --------
(L MILLION)
NET CASH INFLOW FROM OPERATING ACTIVITIES................... 17.5 33.6 36.3
RETURNS ON INVESTMENTS END SERVICING OF FINANCE
Interest received........................................... 2.2 2.4 3.7
Interest paid............................................... (0.2) (0.2) (0.3)
NFC Group interest (net).................................... (3.0) (4.6) (3.0)
----- ----- -----
NET CASH INFLOW/OUTFLOW FROM RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE (ii)................................. (1.0) (2.4) 0.4
TAXATION
UK corporation tax paid..................................... (0.1) -- (1.9)
Overseas tax paid........................................... (6.9) (1.9) (5.2)
NFC Group tax (net)......................................... (1.0) (3.1) (2.8)
----- ----- -----
TAX PAID (ii)............................................... (8.0) (5.0) (9.9)
----- ----- -----
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchases of property, plant and equipment.................. (9.9) (12.2) (15.0)
Purchases of investments (net).............................. (2.4) (3.0) (4.3)
Disposals of property, plant and equipment.................. (10.5) 1.2 3.6
----- ----- -----
NET CASH OUTFLOW FROM CAPITAL EXPENDITURE AND FINANCIAL
INVESTMENT................................................ (1.8) (14.0) (15.7)
----- ----- -----
FREE CASH FLOW.............................................. 6.7 12.2 11.1
ACQUISITIONS AND DISPOSALS
Purchases of subsidiary undertakings--(Note 20)............. (0.7) (1.3) (0.3)
----- ----- -----
NET CASH INFLOW BEFORE FINANCING............................ 6.0 10.9 10.8
NET CASH OUTFLOW FROM FINANCING (ii)--(NOTE 20)............. (6.5) (7.8) (7.3)
----- ----- -----
(DECREASE)/INCREASE IN CASH--(NOTE 20)...................... (0.5) (3.1) 3.5
===== ===== =====
RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOW
OPERATING PROFIT............................................ 15.7 19.0 24.5
Depreciation................................................ 8.3 8.4 9.0
Profit on disposals of tangible fixed assets................ -- (0.1) (0.1)
Movements in provisions--(Note 20).......................... 0.2 3.2 4.3
Movements in working capital--(Note 20)..................... (6.7) 3.1 (1.4)
----- ----- -----
NET CASH INFLOW FROM OPERATING ACTIVITIES................... 17.5 33.6 36.3
===== ===== =====
- ------------------------
(i) The significant differences between the combined cash flow statements
presented above and those required under US generally accepted accounting
principles are described in Note 22 of Notes to the Combined Financial
Statements.
(ii) Net interest received/(paid), tax paid and financing cash flows are not
necessarily representative of the amounts that would have occurred in NFC
Moving Services Group on a stand-alone basis or that will occur in NFC
Moving Services Group in the future.
F-101
NFC MOVING SERVICES GROUP
COMBINED STATEMENTS OF CHANGES IN NFC GROUP INVESTMENT
YEARS ENDED SEPTEMBER 30
---------------------------------------------
1996 1997 1998
------------- ------------- -------------
(L MILLION)
Profit for the financial year............................... 8.9 11.8 20.0
NFC Group funding/(divestment) (net)........................ (7.8) 2.1 (1.8)
Unrealized surplus/(deficit) on revaluation of properties... (0.7) 0.4 0.7
Goodwill on acquisitions.................................... (1.1) (0.5) --
Exchange differences........................................ 0.3 (0.6) (2.0)
------------- ------------- -------------
Movement in year............................................ (0.4) 13.2 16.9
Opening balance............................................. 19.5 19.1 32.3
------------- ------------- -------------
Closing balance (i)......................................... 19.1 32.3 49.2
============= ============= =============
- ------------------------
(i) At September 30, 1998, the cumulative goodwill written off, excluding that
relating to undertakings disposed of, was L63.4 million
(1997--L63.4 million).
F-102
NFC MOVING SERVICES GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PREPARATION
Under a draft proposed agreement, NA Holding Corporation will acquire all of
the moving services businesses and assets (NFC Moving Services Group) of NFC
plc.
These combined financial statements have been prepared to show the
performance of NFC Moving Services Group for the three years ended
September 30, 1998 as if it had been in existence from October 1, 1995. They are
based on the audited financial information of the NFC Group as if the businesses
which comprise NFC Moving Services Group had been part of NFC Moving Services
Group for all of this three year period.
The funding of NFC Moving Services Group's operations included share
capital, loans from NFC plc group companies (both interest free and interest
bearing) and/or external borrowings. These combined financial statements include
interest income and expense actually earned by or charged to NFC Moving Services
Group in respect of external deposits or borrowings or deposits with or
borrowings from members of the NFC Group not included in NFC Moving Services
Group. These amounts are not necessarily representative of the amounts that
would have been earned or incurred by NFC Moving Services Group on a stand-alone
basis or that will arise in NFC Moving Services Group in the future.
The businesses within NFC Moving Services Group have been included in the
tax arrangements of the NFC Group. These combined financial statements include
tax charges and cash flows actually borne by the businesses within NFC Moving
Services Group. These charges and cash flows are not necessarily representative
of the charges or cash flows that would have arisen in NFC Moving Services Group
on a stand-alone basis or that will arise in NFC Moving Services Group in the
future.
These combined financial statements include an allocation of NFC Group's
central overhead costs based on the level of operating profit. Management
believes that this is a reasonable basis for allocation. These amounts are not
necessarily representative of the amounts that would have arisen in NFC Moving
Services Group on a stand-alone basis or that will arise in NFC Moving Services
Group in the future.
NOTE 2--ACCOUNTING POLICIES
(A) ACCOUNTING CONVENTION
The combined financial statements are prepared under the historical cost
convention as modified by the revaluation of certain land and buildings and are
in accordance with all applicable UK accounting standards, including Financial
Reporting Standard 12, Provisions, Contingent Liabilities and Contingent Assets.
Operational freehold and long leasehold land and buildings are revalued to
existing use value over a five year rolling period.
(B) FOREIGN CURRENCIES
Assets, liabilities, revenues and costs denominated in foreign currencies
are recorded at the rates of exchange ruling at the date of the transactions;
monetary assets and liabilities at balance sheet dates are translated at year
end rates of exchange. All exchange differences thus arising are reported as
part of the result for the relevant year.
On combination, the results of businesses accounting in foreign currencies
are translated at average rates of exchange ruling during the relevant year. The
assets and liabilities of such businesses are translated at rates ruling at
balance sheet dates. Differences arising on net investment in overseas
businesses are taken to NFC Group Investment.
F-103
NFC MOVING SERVICES GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--ACCOUNTING POLICIES (CONTINUED)
(C) FIXED ASSETS AND DEPRECIATION
Depreciation of property, plant and equipment (excluding freehold land,
which is not depreciated) is calculated on straight line basis at rates
estimated to write off the whole of the revalued amount or cost of each asset
over its estimated useful life. Assets which are not expected to be held for the
whole of their useful life are written down to estimated residual values at the
expected times of disposal. The categories of property, plant and equipment are
as follows.
Freehold buildings The maximum useful life is estimated at 50 years.
Leasehold land and buildings Costs are written off over the terms of the leases or, in
respect of buildings, the estimated remaining life if
shorter.
Revenue earning vehicles, plant Estimated lives are mainly five to ten years with a few
and equipment exceptions for specialized equipment, for which the maximum
estimated life is 15 years.
Disposals of land and buildings are taken into account when sale agreements
have been entered into prior to the balance sheet date, provided that the
disposal has been completed before the UK statutory accounts are approved.
(D) LEASED ASSETS
Assets held under leasing arrangements which transfer substantially all the
risks and rewards of ownership to the businesses are capitalized. The capital
element of the related rental obligations is included in accounts payable. The
interest element of the rental obligations is charged to the profit and loss
account so as to produce a constant periodic rate of charge on the remaining
balance of the obligation. Hire purchase arrangements, which are not separately
distinguished, are dealt with similarly. Rentals for other leased assets
acquired under the terms of operating leases are charged directly to the profit
and loss account on the straight line basis over the terms of the leases.
(E) NET SALES
Net sales comprise the value of charges, exclusive of value added tax and
equivalent taxes, made to outside parties for services rendered.
(F) GOODWILL
Goodwill arising on acquisitions is set off against NFC Group Investment. On
the disposal of a business, any goodwill relating thereto that can be identified
and has not previously been charged to profit and loss account is included in
the profit or loss on disposal.
(G) DEFERRED TAXATION
Deferred taxation is provided at expected future rates of tax on all timing
differences to the extent that it is probable that a liability or asset will
crystallize.
F-104
NFC MOVING SERVICES GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--ACCOUNTING POLICIES (CONTINUED)
(H) PENSIONS
The UK businesses included in these financial statements contribute to the
NFC Retirement Plan for the funding of retirement benefits for each scheme
member during his or her working life in order to pay benefits to them after
retirement and to their dependents after their death. The regular cost of
providing these benefits is assessed by external professional actuaries and is
charged to the combined profit and loss account. Overseas businesses make
provisions for pensions in accordance with local law and practice. There are no
other post-retirement benefits.
(I) SURPLUS PROPERTIES
When properties become surplus to requirements, a provision for holding
costs through to estimated disposal dates is charged to the combined profit and
loss account.
NOTE 3--EXCHANGE RATES
The significant exchange rates relative to L sterling used in the
preparation of these financial statements are as follows. Average rates are
weighted according to monthly net sales.
YEARS ENDED SEPTEMBER 30
---------------------------------------------------------------
1996 1997 1998
------------------- ------------------- -------------------
AVERAGE YEAR END AVERAGE YEAR END AVERAGE YEAR END
RATE RATE RATE RATE RATE RATE
-------- -------- -------- -------- -------- --------
Australian dollar.......... 2.01 1.98 2.12 2.23 2.57 2.87
United States dollar....... 1.54 1.56 1.63 1.62 1.65 1.70
==== ==== ==== ==== ==== ====
NOTE 4--NET SALES
YEARS ENDED
SEPTEMBER 30
------------------------------
1996 1997 1998
-------- -------- --------
(L MILLION)
United Kingdom and Ireland............................. 106.8 117.6 120.1
Continental Europe..................................... 24.2 21.0 20.7
Americas............................................... 475.6 488.9 507.3
Asia Pacific........................................... 51.5 53.2 50.2
----- ----- -----
658.1 680.7 698.3
===== ===== =====
The analysis of net sales is by management structure. The analysis by
destination would not be materially different. Net sales between geographical
segments are not material.
F-105
NFC MOVING SERVICES GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--OPERATING CHARGES
YEARS ENDED
SEPTEMBER 30
------------------------------
1996 1997 1998
-------- -------- --------
(L MILLION)
Raw materials, consumables and other purchases......... 13.0 11.7 12.7
Staff costs
wages and salaries................................... 76.4 80.2 82.1
social security costs................................ 7.6 7.7 7.0
other pension costs--(Note 14)....................... 3.0 3.3 2.5
Depreciation........................................... 8.3 8.4 9.0
Operating lease rentals (including short term hire)
vehicles, plant and equipment........................ 6.2 6.4 5.1
land and buildings................................... 11.9 11.1 10.8
Redundancy............................................. 0.2 0.2 --
Auditors' remuneration................................. 0.3 0.3 0.3
Exceptional costs of reorganization.................... 3.0 2.3 1.6
Sub-contractors' and agents' charges................... 437.4 447.2 447.9
Other operating charges................................ 75.1 82.9 94.8
----- ----- -----
642.4 661.7 673.8
===== ===== =====
The remuneration of the auditors for non-audit work amounted to
L0.1 million (1997--Lnil, 1996 Lnil) in respect of UK businesses and Lnil
(1997--L0.1 million, 1996--L0.1 million) in respect of overseas businesses.
NOTE 6--EMPLOYEES
The average number of persons employed during each year was as follows:
YEARS ENDED
SEPTEMBER 30
------------------------------
1996 1997 1998
-------- -------- --------
United Kingdom and Ireland............................. 1,745 1,783 1,763
Continental Europe..................................... 336 320 336
Americas............................................... 829 871 906
Asia Pacific........................................... 677 742 802
----- ----- -----
3,587 3,716 3,807
===== ===== =====
F-106
NFC MOVING SERVICES GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--EMPLOYEES (CONTINUED)
The number of persons employed at the end of each year was as follows:
YEARS ENDED
SEPTEMBER 30
------------------------------
1996 1997 1998
-------- -------- --------
United Kingdom and Ireland............................. 1,745 1,770 1,651
Continental Europe..................................... 335 330 339
Americas............................................... 848 876 890
Asia Pacific........................................... 702 762 813
----- ----- -----
3,630 3,738 3,693
===== ===== =====
NOTE 7--OPERATING PROFIT
YEARS ENDED
SEPTEMBER 30
------------------------------
1996 1997 1998
-------- -------- --------
(L MILLION)
United Kingdom and Ireland............................. 8.7 11.4 13.2
Continental Europe..................................... (0.2) 0.5 1.6
Americas............................................... 7.8 7.7 9.1
Asia Pacific........................................... 2.4 1.7 2.2
----- ----- -----
18.7 21.3 26.1
===== ===== =====
Exceptional items
United Kingdom and Ireland........................... (1.4) (0.7) (1.2)
Continental Europe................................... (0.7) (0.6) (0.4)
Americas............................................. (0.9) (1.0) --
----- ----- -----
15.7 19.0 24.5
===== ===== =====
F-107
NFC MOVING SERVICES GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--INTEREST (NET) (i)
YEARS ENDED
SEPTEMBER 30
------------------------------
1996 1997 1998
-------- -------- --------
(L MILLION)
Interest on bank loans and overdrafts.................. (0.2) (0.2) (0.3)
NFC Group interest payable............................. (5.1) (6.7) (7.5)
----- ----- -----
(5.3) (6.9) (7.8)
Interest income........................................ 2.4 2.5 3.5
NFC Group interest receivable.......................... 2.2 2.2 4.5
----- ----- -----
(0.7) (2.2) 0.2
===== ===== =====
- ------------------------
(i) As explained in Note 1, interest (net) is not necessarily representative of
the income and charges that would have been reported by NFC Moving Services
Group on a stand-alone basis or that will be reported by NFC Moving Services
Group in the future.
NOTE 9--TAXATION (i)
The analysis of the taxation charge is as follows:
YEARS ENDED
SEPTEMBER 30
------------------------------
1996 1997 1998
-------- -------- --------
(L MILLION)
UK corporation tax at 31% (1997--32%, 1996--33%)....... 3.3 4.8 3.7
Double taxation relief................................. (0.1) (0.1) (0.1)
Deferred corporation tax............................... 0.1 0.1 0.1
Overseas taxes--current................................ 2.8 2.8 4.1
--deferred................................. 2.0 (1.0) (1.7)
Adjustments relating to prior years--United Kingdom.... -- -- (0.1)
--overseas............... (3.1) 0.6 (1.4)
----- ----- -----
5.0 7.2 4.6
===== ===== =====
On ordinary activities before exceptional items........ 4.0 6.6 5.0
On exceptional items................................... 1.0 0.6 (0.4)
----- ----- -----
5.0 7.2 4.6
===== ===== =====
- ------------------------
(i) As explained in Note 1, taxation is not necessarily representative of the
charges that would have been reported by NFC Moving Services Group on a
stand-alone basis or that will be reported by NFC Moving Services Group in
the future.
F-108
NFC MOVING SERVICES GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--PROPERTY, PLANT AND EQUIPMENT
LAND AND BUILDINGS
-------------------------------- REVENUE PLANT
LONG SHORT EARNING AND
FREEHOLD LEASEHOLD LEASEHOLD VEHICLES EQUIPMENT TOTAL
-------- --------- --------- -------- ---------- --------
(L MILLION)
COST OR VALUATION
OCTOBER 1, 1995............................................. 27.1 1.3 1.2 22.6 32.1 84.3
Exchange differences........................................ -- -- -- 0.2 0.4 0.6
Additions
by purchase of businesses................................. -- -- -- 0.2 -- 0.2
other..................................................... 0.2 -- -- 4.6 5.1 9.9
Disposals................................................... (9.8) -- -- (1.9) (1.9) (13.6)
Arising on revaluations..................................... (1.1) -- -- -- -- (1.1)
---- ---- ---- ---- ---- -----
SEPTEMBER 30, 1996.......................................... 16.4 1.3 1.2 25.7 35.7 80.3
Exchange differences........................................ (0.7) -- (0.1) (1.0) (1.8) (3.6)
Additions................................................... -- -- 0.2 6.6 5.4 12.2
Disposals................................................... -- (0.3) -- (1.3) (0.7) (2.3)
---- ---- ---- ---- ---- -----
SEPTEMBER 30, 1997.......................................... 15.7 1.0 1.3 30.0 38.6 86.6
Exchange differences........................................ (0.6) -- -- (1.4) (2.7) (4.7)
Additions................................................... -- -- -- 7.2 7.8 15.0
Disposals................................................... -- (0.1) (0.3) (2.2) (1.0) (3.6)
Arising on revaluations..................................... 0.3 -- -- -- -- 0.3
---- ---- ---- ---- ---- -----
SEPTEMBER 30, 1998.......................................... 15.4 0.9 1.0 33.6 42.7 93.6
==== ==== ==== ==== ==== =====
DEPRECIATION AND AMORTIZATION
OCTOBER 1, 1995............................................. 2.3 0.1 0.8 10.0 18.1 31.3
Exchange differences........................................ -- -- -- 0.1 0.3 0.4
Charge for year............................................. 0.4 -- 0.1 3.4 4.4 8.3
Disposals................................................... (1.3) -- -- (1.2) (0.7) (3.2)
Released on revaluations.................................... (0.4) -- -- -- -- (0.4)
---- ---- ---- ---- ---- -----
SEPTEMBER 30, 1996.......................................... 1.0 0.1 0.9 12.3 22.1 36.4
Exchange differences........................................ (0.1) -- (0.1) (0.6) (1.1) (1.9)
Charge for year............................................. 0.4 -- 0.1 3.6 4.3 8.4
Disposals................................................... -- -- -- (0.7) (0.6) (1.3)
Released on revaluations.................................... (0.4) -- -- -- -- (0.4)
---- ---- ---- ---- ---- -----
SEPTEMBER 30, 1997.......................................... 0.9 0.1 0.9 14.6 24.7 41.2
Exchange differences........................................ (0.1) -- (0.1) (0.8) (1.6) (2.6)
Charge for year............................................. 0.5 -- 0.1 3.9 4.5 9.0
Disposals................................................... (0.1) -- (0.2) (1.3) (0.8) (2.4)
Released on revaluations.................................... (0.3) (0.1) -- -- -- (0.4)
---- ---- ---- ---- ---- -----
SEPTEMBER 30, 1998.......................................... 0.9 -- 0.7 16.4 26.8 44.8
==== ==== ==== ==== ==== =====
NET BOOK VALUE
September 30, 1996.......................................... 15.4 1.2 0.3 13.4 13.6 43.9
September 30, 1997.......................................... 14.8 0.9 0.4 15.4 13.9 45.4
September 30, 1998.......................................... 14.5 0.9 0.3 17.2 15.9 48.8
==== ==== ==== ==== ==== =====
The revaluations of operational properties during Fiscal 1998 were made as
at April 30, 1998 by firms of Chartered Surveyors or their overseas equivalents
on the basis of existing use value.
F-109
NFC MOVING SERVICES GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Cost or valuation of land and buildings comprise:
SEPTEMBER 30
---------------------------------------------------------------------------------------------
1997 1998
--------------------------------------------- ---------------------------------------------
LONG SHORT LONG SHORT
FREEHOLD LEASEHOLDS LEASEHOLDS TOTAL FREEHOLD LEASEHOLDS LEASEHOLDS TOTAL
-------- ---------- ---------- -------- -------- ---------- ---------- --------
(L MILLION)
At cost.......................... 1.5 -- 1.3 2.8 0.2 -- 1.0 1.2
At valuation on
October 2, 1993................ 3.0 0.7 -- 3.7 -- -- -- --
October 1, 1994................ 4.4 0.3 -- 4.7 4.1 0.3 -- 4.4
September 30, 1995............. 0.9 -- -- 0.9 0.9 -- -- 0.9
April 30, 1996................. 3.5 -- -- 3.5 3.5 -- -- 3.5
April 30, 1997................. 2.4 -- -- 2.4 2.1 -- -- 2.1
April 30, 1998................. -- -- -- -- 4.6 0.6 -- 5.2
---- --- --- ---- ---- --- --- ----
15.7 1.0 1.3 18.0 15.4 0.9 1.0 17.3
==== === === ==== ==== === === ====
Under the historical cost convention, land and buildings would have been
shown at the following amounts:
SEPTEMBER 30
--------------------------------------------------------------------------
1997 1998
---------------------------------- ----------------------------------
NET BOOK NET BOOK
COST DEPRECIATION VALUE COST DEPRECIATION VALUE
---- ------------ -------- -------- ------------ --------
(L MILLION)
Freeholds............................. 11.7 2.2 9.5 11.0 2.2 8.8
Long leaseholds....................... 0.5 0.2 0.3 0.4 0.2 0.2
Short leaseholds...................... 1.3 0.9 0.4 1.0 0.7 0.3
---- --- ---- ---- --- ---
13.5 3.3 10.2 12.4 3.1 9.3
==== === ==== ==== === ===
NOTE 11--INVESTMENTS
COST
(L MILLION)
OCTOBER 1, 1996............................................. 20.6
Exchange differences........................................ (0.7)
Additions (net)............................................. 3.0
----
SEPTEMBER 30, 1997.......................................... 22.9
Exchange differences........................................ (1.2)
Additions (net)............................................. 4.3
----
SEPTEMBER 30, 1998.......................................... 26.0
====
The investments are listed and their market value was L26.3 million
(1997--L24.3 million).
F-110
NFC MOVING SERVICES GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--DEBTORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
SEPTEMBER 30
-------------------
1997 1998
-------- --------
(L MILLION)
Trade debtors............................................... 96.2 90.7
Amounts owned by NFC Group businesses....................... 62.2 76.3
Other debtors............................................... 12.5 10.5
Prepayments and accrued income.............................. 4.9 4.1
----- -----
175.8 181.6
===== =====
NOTE 13--DEBTORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
SEPTEMBER 30
-----------------------
1997 1998
-------- --------
(L MILLION)
Other debtors and prepayments............................... 4.6 4.2
=== ===
NOTE 14--CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
SEPTEMBER 30
-------------------
1997 1998
-------- --------
(L MILLION)
Bank overdrafts............................................. 0.5 2.2
Trade creditors............................................. 40.7 36.3
Amounts owned by NFC Group businesses....................... 110.0 114.1
Taxation.................................................... 9.8 6.2
Other taxes and social security............................. 3.3 3.9
Other creditors............................................. 21.6 28.1
Accruals and deferred income................................ 23.4 15.7
----- -----
209.3 206.5
===== =====
F-111
NFC MOVING SERVICES GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--PROVISIONS FOR LIABILITIES AND CHARGES
SURPLUS DEFERRED
PROPERTIES INSURANCE TAXATION OTHER TOTAL
---------- --------- -------- -------- --------
OCTOBER 1, 1995.................................... 1.3 17.6 0.2 1.8 20.9
Exchange differences............................... -- 0.2 -- -- 0.2
Charged to profit and loss account................. -- 25.9 2.1 (0.3) 27.7
Utilized........................................... (0.5) (24.4) -- (0.5) (25.4)
---- ----- ---- ---- -----
SEPTEMBER 30, 1996................................. 0.8 19.3 2.3 1.0 23.4
Exchange differences............................... -- (0.8) (0.1) (0.1) (1.0)
Charged to profit and loss account................. 0.3 27.9 (0.9) 0.3 27.6
Utilized........................................... (0.1) (24.9) -- (0.3) (25.3)
---- ----- ---- ---- -----
SEPTEMBER 30, 1997................................. 1.0 21.5 1.3 0.9 24.7
Exchange differences............................... -- (1.2) -- -- (1.2)
Charged to profit and loss account................. -- 33.0 (1.6) -- 31.4
Utilized........................................... (0.2) (28.4) -- (0.1) (28.7)
---- ----- ---- ---- -----
SEPTEMBER 30, 1998................................. 0.8 24.9 (0.3) 0.8 26.2
==== ===== ==== ==== =====
The major components of the provision for deferred taxation and the amounts
not provided are as follows:
PROVIDED NOT PROVIDED
---------------------- ----------------------
SEPTEMBER 30 SEPTEMBER 30
---------------------- ----------------------
1997 1998 1997 1998
-------- -------- -------- --------
(L MILLION)
Accelerated tax depreciation.................. 0.9 1.2 1.9 2.4
Other (provisions, losses, etc.).............. 0.4 (1.5) (13.5) (12.6)
--- ---- ----- -----
1.3 (0.3) (11.6) (10.2)
=== ==== ===== =====
The above summary does not include any liability to tax on capital gains
which might arise if land and building were to be sold at their revalued
amounts.
NOTE 16--PENSIONS
The UK businesses covered by these combined financial statements participate
in the NFC Retirement Plan which is fully funded. It is a defined benefit plan,
except for that part of it for members under 40 which is a defined contribution
plan. The assets of the Plan are held in trust funds independent of the
participating businesses. The Plan has a surplus which is recognized and
disclosed in the financial statements of NFC plc but none of which has been
allocated to any of the businesses covered by these financial statements.
Employer and employee contributions to the Plan are determined across
participating businesses in the NFC Group in consultation with external
professional actuaries, whose latest valuation was made as at March 31, 1997.
The charge in these combined financial statements in respect of the Plan is the
regular cost of benefits accruing.
The majority of overseas plans are defined contribution plans. The Allied
Van Lines retirement program consisted of a defined benefit plan and a defined
contribution plan. These plans were terminated on December 31, 1997 and the
accrued benefits frozen. The terminated plans have been replaced by defined
contribution plans. The latest actuarial valuations of overseas defined benefit
plans show that they are adequately funded.
F-112
NFC MOVING SERVICES GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17--NET OPERATING ASSETS
YEARS ENDED SEPTEMBER 30
------------------------------------
1996 1997 1998
-------- -------- --------
(L MILLION)
United Kingdom and Ireland........................... 23.3 27.6 31.6
Continental Europe................................... 2.4 2.2 3.2
Americas............................................. 23.9 17.1 10.0
Asia Pacific......................................... 7.4 7.5 5.5
----- ----- -----
57.0 54.4 50.3
Less non-operating liabilities (net)................. (37.9) (22.1) (1.1)
----- ----- -----
19.1 32.3 49.2
===== ===== =====
Net assets comprise tangible fixed assets, stocks and debtors less creditors
and provisions. Non-operating liabilities comprise investments, net cash,
taxation and related items.
NOTE 18--FINANCIAL COMMITMENTS
CAPITAL COMMITMENTS
SEPTEMBER 30
-----------------------
1997 1998
-------- --------
(L MILLION)
Contracted.................................................. 2.2 3.0
=== ===
OPERATING LEASES
There were commitments during the next financial year in respect of
noncancelable operating leases as follows:
SEPTEMBER 30
----------------------------------------------
1997 1998
-------------------- --------------------
VEHICLES, VEHICLES,
PLANT AND PLANT AND
PROPERTY EQUIPMENT PROPERTY EQUIPMENT
-------- --------- -------- ---------
(L MILLION)
Operating leases which expire
within one year.................... 0.5 0.3 0.4 0.5
in the second to fifth years
inclusive........................ 2.6 1.1 5.1 1.9
in the sixth and subsequent
years............................ 5.1 -- 2.6 --
--- --- --- ---
8.2 1.4 8.1 2.4
=== === === ===
F-113
NFC MOVING SERVICES GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18--FINANCIAL COMMITMENTS (CONTINUED)
Total commitments were as follows:
SEPTEMBER 30
----------------------------------------------
1997 1998
-------------------- --------------------
VEHICLES, VEHICLES,
PLANT AND PLANT AND
PROPERTY EQUIPMENT PROPERTY EQUIPMENT
-------- --------- -------- ---------
(L MILLION)
Amounts payable
within one year.................... 8.2 1.4 8.1 2.4
between one and five years......... 25.5 2.1 23.7 2.1
after five years................... 22.1 -- 15.8 --
---- --- ---- ---
55.8 3.5 47.6 4.5
==== === ==== ===
A large proportion of operating leases in respect of land and buildings is
subject to rent reviews.
NOTE 19--CONTINGENT LIABILITIES
The nature of the businesses included in these financial statements and the
extent of their operations are such that they are from time to time involved in
legal proceedings, as plaintiff or defendant. No such proceedings as of
September 30, 1998, are expected to have a material effect on these businesses.
One of the UK businesses included in these financial statements, together
with businesses not so included, has given cross guarantees to and entered into
set off arrangements with bankers which guarantee and offset any monies owing or
owed from time to time, including principal, interest and other related charges,
in respect of the cash management facilities of the NFC Group. At September 30,
1998, the relevant business had no liabilities under these arrangements.
Some of the companies included in these financial statements are guarantors
of agreements entered into by NFC plc for the provision of borrowing facilities
and they are jointly and severally liable for all borrowing thereunder. At
September 30, 1998, there were no drawings under these facilities.
One of the businesses included in these financial statements is a user and
another is a guarantor of letters of credit made in the ordinary course of
business; no liabilities are expected to arise under these arrangements.
For VAT purposes, the UK businesses included in these financial statements
were members of the Pickfords VAT group, under which they had joint and several
liability for amounts due by other members of that group. Since September 30,
1998, those businesses have joined the NFC VAT group and they are jointly and
severally liable for amounts due by other members (including businesses not
included in these accounts) of that VAT group.
F-114
NFC MOVING SERVICES GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20--CONSOLIDATED CASH FLOW STATEMENTS
YEARS ENDED SEPTEMBER 30
------------------------------------
1996 1997 1998
-------- -------- --------
(L MILLION)
MOVEMENTS IN PROVISIONS
Insurance................................................... 1.5 3.0 4.6
Surplus property............................................ (0.5) 0.2 (0.2)
Other....................................................... (0.8) -- (0.1)
----- ---- -----
0.2 3.2 4.3
===== ==== =====
MOVEMENTS IN WORKING CAPITAL
Inventories................................................. (0.1) (0.8) 0.1
Receivables................................................. (15.1) (3.2) 0.5
Payables.................................................... 8.5 7.1 (2.0)
----- ---- -----
(6.7) 3.1 (1.4)
===== ==== =====
ACQUISITIONS
Consideration and costs..................................... 0.7 0.9 --
Deferred consideration...................................... (0.6) -- --
Previous deferred consideration settled..................... 0.6 0.4 0.3
----- ---- -----
Cash paid................................................... 0.7 1.3 0.3
===== ==== =====
FINANCING
NFC Group funding (net)..................................... (6.2) (7.6) (7.3)
Debt falling due within one year--repayments................ (0.2) (0.2) --
Capital element of finance lease rental payments............ (0.1) -- --
----- ---- -----
(6.5) (7.8) (7.3)
===== ==== =====
CASH
BANK
CASH OVERDRAFTS TOTAL
-------- ---------- --------
(L MILLION)
OCTOBER 1, 1995............................................. 12.4 (0.6) 11.8
Exchange differences........................................ 0.1 -- 0.1
Movements................................................... (0.8) 0.3 (0.5)
----- ----- -----
SEPTEMBER 30, 1996.......................................... 11.7 (0.3) 11.4
Exchange differences........................................ (1.1) -- (1.1)
Movements................................................... 3.3 (0.2) 3.1
----- ----- -----
SEPTEMBER 30, 1997.......................................... 13.9 (0.5) 13.4
Exchange differences........................................ (1.2) 0.1 (1.1)
Movements................................................... 5.3 (1.8) 3.5
----- ----- -----
SEPTEMBER 30, 1998.......................................... 18.0 (2.2) 15.8
===== ===== =====
F-115
NFC MOVING SERVICES GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20--CONSOLIDATED CASH FLOW STATEMENTS (CONTINUED)
LOAN AND FINANCE LEASE OBLIGATIONS
FINANCE
LOANS LEASES
-------- --------
(L MILLION)
OCTOBER 1, 1995............................................. 0.4 0.1
Repayments.................................................. (0.2) (0.1)
---- ----
SEPTEMBER 30, 1996.......................................... 0.2 --
Repayments.................................................. (0.2) --
---- ----
SEPTEMBER 30, 1997 AND 1998................................. -- --
==== ====
RECONCILIATION OF CASH
YEARS ENDED SEPTEMBER 30
---------------------------------
1996 1997 1998
-------- -------- --------
(L MILLION)
Net cash inflow before financing............................ 6.0 10.9 10.8
Exchange differences........................................ 0.1 (1.1) (1.1)
Net NFC Group funding....................................... (6.2) (7.6) (7.3)
----- ----- -----
Movement in net cash........................................ (0.1) 2.2 2.4
Net cash at beginning of year............................... 11.3 11.2 13.4
----- ----- -----
Net cash at end of year..................................... 11.2 13.4 15.8
===== ===== =====
ANALYSIS OF NET CASH
YEARS ENDED SEPTEMBER 30
---------------------------------
1996 1997 1998
-------- -------- --------
(L MILLION)
Cash at bank and in hand.................................... 11.7 13.9 18.0
Overdrafts.................................................. (0.3) (0.5) (2.2)
Loans....................................................... (0.2) -- --
----- ----- -----
11.2 13.4 15.8
===== ===== =====
NOTE 21--RELATED PARTY TRANSACTIONS
NFC Moving Services Group does not operate as a separate group and
consequently there were a number of transactions between its businesses and
companies and other businesses and companies within the NFC plc group in the
three years ended September 30, 1998. These included transactions relating to
insurance management and underwriting, pension administration, treasury,
property and taxation management and other central services supported by NFC
plc. The transactions have not been identified individually as it is not
practical to do so. Transitional arrangements have been agreed for the provision
on normal commercial terms of pensions administration and certain other central
services periods after the acquisition.
F-116
NFC MOVING SERVICES GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 22-- DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
The accounting policies under which these combined financial statements have
been prepared conform with accounting principles generally accepted in the
United Kingdom ("UK GAAP"). Such principles differ from those generally accepted
in the United States ("US GAAP") in the following significant respects.
TAXATION: Deferred taxation is provided at expected future rates of tax
using the liability method on all material timing differences where, in the
opinion of the Directors, liabilities or assets will crystallize in the
foreseeable future. Under US GAAP, deferred tax is recognized on all temporary
differences between the tax and book bases of assets and liabilities including
the differences between the assigned fair values and tax bases of assets and
liabilities acquired, subject to a valuation allowance if it is more likely than
not that some or all of a deferred tax asset will not be realised. The taxation
charges included in these combined financial statements are not representative
of those that would have arisen in NFC Moving Services Group on a stand-alone
basis or would arise in NFC Moving Services Group in the future. The
reconciliations below include adjustments required to show taxation charges on a
stand-alone basis.
DISPOSAL OF PROPERTY: Profits and losses on the disposal of property are
taken into account where sale agreements have been entered into prior to the
accounting date and completion of such agreements has taken place before the
date of approval of the UK statutory accounts. Under US GAAP such profits and
losses would only be accounted for if completion had taken place on or before
the accounting date.
REVALUATIONS OF LAND AND BUILDINGS: Certain properties were revalued at
October 1, 1994, September 30, 1995, April 30, 1996, April 30, 1997 and
April 30, 1998 and those revaluations have been incorporated in the financial
statements. Accordingly, in subsequent years the amortization and depreciation
charges are based on the relevant valuations. Under US GAAP property is shown at
cost and amortization and depreciation charges are related thereto.
STAFF COSTS: The Group's policy in respect of holiday pay is to charge it as
it is paid. US GAAP require that account must be taken of all such payments due
but not paid.
PENSION COSTS: Provision is made for the cost of retirement benefits payable
by the NFC Retirement Plan as assessed by external professional actuaries and is
charged to the profit and loss account so as to spread the cost over the period
during which the employer derives benefit from the employee's services. Under US
GAAP, the NFC Retirement Plan would be treated as a multiemployer plan. As such,
the contributions made to the Plan would be recognized as the pension cost in
the year. These financial statements include the regular cost of pensions which
are paid to a company in the NFC Group. As these contributions are not paid by
that company to the Plan, they would, under US GAAP, be treated as distributions
to the NFC Group and would be included in NFC Group Investment.
INVESTMENTS: Under UK GAAP, investments are stated at cost less any
provision for permanent diminution in value. Under US GAAP investments available
for sale are included at market value. Under US GAAP, unrealized gains on
investments are included in comprehensive income.
GOODWILL: Goodwill arising on acquisitions is written off to NFC Group
Investment on acquisition and, on the subsequent sale of a business, is taken
into account in the determination of the gain or loss on sale. Under US GAAP,
goodwill is amortized over its estimated useful life not exceeding 40 years. For
the purposes of the summary below goodwill has been amortized over its estimated
useful life which is estimated to range from 10 to 40 years. From October 1,
1998, goodwill is capitalized and amortized over
F-117
NFC MOVING SERVICES GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 22-- DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
its useful life in accordance with FRS 10. On the sale of a business, any
unamortized goodwill relating thereto would be taken into account in the
determination of the gain or loss on the sale. For the purposes of US GAAP, the
businesses periodically evaluate the recoverability of goodwill based on
estimates of future profitability. If an impairment is determined, the amount of
such impairment is calculated based on estimated recoverability.
EXCEPTIONAL ITEMS: Under US GAAP, the presentation of operating profit
before exceptional items and profit before tax and exceptional items is not
permitted. The amounts reported as exceptional items, which include the profit
or loss on disposals of properties and the loss on disposal of operations
reported after operating profit under UK GAAP, would be included in the
determination of operating profit under US GAAP.
The effect of the significant adjustments to profit for the financial year,
comprehensive income and NFC Group investment which would be required if US GAAP
had been applied instead of UK GAAP is summarized below.
YEAR ENDED
SEPTEMBER 30
------------------------------
1996 1997 1998
-------- -------- --------
(L MILLION)
PROFIT FOR THE FINANCIAL YEAR
Profit for the financial year as reported................... 8.9 11.8 20.0
US GAAP adjustments:
Operating charges
Staff costs--wages and salaries........................... (0.2) (0.2) 0.4
--pensions....................................... 1.6 1.7 1.7
Depreciation and amortization--goodwill................... (0.9) (1.2) (0.9)
-- revaluation of land and
buildings..................... 0.2 0.2 0.2
Profit on disposal of land and buildings.................... 7.2 (2.2) 2.4
Taxation--stand-alone adjustment............................ (0.5) (0.1) (0.5)
Deferred taxation--methodology.............................. 5.9 0.2 (0.6)
--on adjustments above....................... 2.1 (0.4) --
---- ---- ----
15.4 (2.0) 2.7
---- ---- ----
Profit for the financial year as adjusted to accord with US
GAAP...................................................... 24.3 9.8 22.7
==== ==== ====
COMPREHENSIVE INCOME
Total recognized gains and losses as reported............... 8.5 11.6 18.7
US GAAP adjustments:
Adjustments to profit for the financial year as above....... 15.4 (2.0) 2.7
Unrealized (surplus)/deficit on revaluation of properties... 0.7 (0.4) (0.7)
Unrealized holding (losses)/gains on investments............ (0.3) 1.3 (1.1)
Deferred taxation on unrealized holding gains/(losses) on
investments............................................... 0.1 (0.5) 0.4
---- ---- ----
Comprehensive income in accordance with US GAAP............. 24.4 10.0 20.0
==== ==== ====
F-118
NFC MOVING SERVICES GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 22-- DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
SEPTEMBER 30,
---------------------------------------------------------------
NFC GROUP INVESTMENT 1997 1998
- -------------------- ------------------------------ ------------------------------
(L MILLION)
NFC Group Investment as reported............................ 32.3 49.2
US GAAP adjustments:
Intangible assets--goodwill--cost........................... 34.1 34.1
--amortization................................ (8.5) 25.6 (9.4) 24.7
----- -----
Unrealized holding gains on investments..................... 1.4 0.3
Property, plant and equipment (revaluation)
--cost or valuation............................. (4.6) (4.9)
--depreciation.................................. (1.3) (5.9) (1.5) (6.4)
----- -----
Accounts receivable......................................... (2.4) --
Accruals and deferred income................................ (2.9) (2.5)
Taxation--stand-alone adjustment............................ (0.1) (0.5)
Deferred taxation--methodology.............................. 4.5 3.9
--on adjustments above....................... 1.4 1.8
----- -----
21.6 21.3
----- ----
NFC Group Investment as adjusted to accord with US GAAP..... 53.9 70.5
===== ====
CASH FLOW STATEMENTS: The consolidated statements of cash flows prepared in
accordance with UK GAAP present substantially the same information as that
required under US GAAP by SFAS 95. These standards differ, however, with regard
to classification of items within the statements and as regards the definition
of cash. Under UK GAAP cash consists of cash in hand and deposits repayable on
demand less advances from banks repayable on demand. Under US GAAP, such bank
advances would not be deducted from cash (see Note 20).
Under UK GAAP, cash flows are presented separately for operating activities,
returns on investments and servicing of finance, taxation, capital expenditure
and financial investment, acquisitions and disposals, dividends paid and
financing activities. US GAAP, however, requires only three categories of cash
flow activity to be reported: operating, investing and financing. Cash flows
from taxation and returns on investments and servicing of finance shown under UK
GAAP would be included as operating activities under US GAAP. The payment of
dividends, including minority dividends, would be included as a financing
activity under US GAAP. Under US GAAP, capitalized interest is treated as part
of the cost of the asset to which it relates and thus is included as part of
investing cash flows; under UK GAAP all interest is treated as part of returns
on investments and servicing of finance. Under US GAAP, cash and cash
equivalents would not include bank overdrafts and borrowings with initial
maturities of less than three months.
F-119
NFC MOVING SERVICES GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 22-- DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
The categories of cash flow activity under US GAAP are summarized below:
YEARS ENDED SEPTEMBER 30
---------------------------------
1996 1997 1998
-------- -------- --------
(L MILLION)
Cash inflows from operating activities...................... 8.5 26.2 26.8
Cash outflows on investing activities....................... (2.5) (15.3) (16.0)
Cash outflows from financing activities..................... (6.8) (7.6) (5.5)
Effect of exchange rate changes on cash..................... 0.1 (1.1) (1.2)
----- ----- -----
Increase/(decrease) in cash and cash equivalents............ (0.7) 2.2 4.1
Cash and cash equivalents at beginning of year.............. 12.4 11.7 13.9
----- ----- -----
Cash and cash equivalents at end of year.................... 11.7 13.9 18.0
===== ===== =====
F-120
- --------------------------------------------------------------------------------
PROSPECTUS
- --------------------------------------------------------------------------------
NORTH AMERICAN VAN LINES, INC.
OFFER TO EXCHANGE ITS
13 3/8% SENIOR SUBORDINATED NOTES DUE 2009
, 2000
- --------------------------------------------------------------------------------
DEALER PROSPECTUS DELIVERY OBLIGATION
Until , 2000, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
North American Van Lines' Restated Certificate of Incorporation and its
By-Laws, as amended, authorize the indemnification of officers and directors of
the corporation consistent with Section 145 of the Delaware Corporation Law, as
amended, and to the full extent permitted under Delaware law.
Section 145 of the Delaware Corporation Law, as amended, provides in regards
to indemnification of directors and officers as follows:
"145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE.--(a) A corporation shall have power to indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that the person is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not,
of itself, create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was
unlawful.
(b) A corporation shall have power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or
settlement of such action or suit if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances
because the person has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section.
II-1
Such determination shall be made, with respect to a person who is a director
or officer at the time of such determination (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (2) by a committee of such directors
designated by majority vote of such directors, even though less than a
quorum, or (3) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion, or (4) by the
stockholders.
(e) Expenses (including attorney's fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount
if it shall ultimately be determined that such person is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by former directors and officers or
other employees and agents may be so paid upon such terms and conditions, if
any, as the corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any by-law, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action
in such person's official capacity and as to action in another capacity
while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against such person and incurred by such person in any such capacity, or
arising out of such person's status as such, whether or not the corporation
would have the power to indemnify such person against such liability under
this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under this section with respect
to the resulting or surviving corporation as such person would have with
respect to such constituent corporation if its separate existence had
continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to any employee benefit
plan; and references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner such person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person."
II-2
Article VI of the By-Laws of North American Van Lines authorizes
indemnification of officers and directors in cases of liability if the director
or officer
(1) acted in good faith and in a manner reasonably believed to be or not
opposed to the best interests of the corporation and
(2) with respect to any criminal action, had no reasonable cause to
believe his conduct was unlawful.
In cases involving an action or suit by or on behalf of North American Van
Lines, indemnification is limited to expenses actually or reasonably incurred
and prohibit in cases where the officer or director has been adjudged liable
unless otherwise ordered by the Delaware Court of Chancery or the court in which
the original action or suit was brought. Section 6.01 of the By-Laws of North
American Van Lines further provide that in a cases involving an action or suit
by or on behalf of North American Van Lines, such indemnification is limited to
expenses actually and reasonably incurred by such director or officer and
indemnification of officers and directors to the full extent permitted under
Delaware law, including a provision eliminating (except under certain enumerated
circumstances) the liability of directors for duty of care violations.
In addition, North American Van Lines' Restated Certificate of
Incorporation, consistent with Section 102(b) of the Delaware Corporation Law,
as amended, precludes indemnification of directors in cases of liability of any
director
(1) for any breach of loyalty to the corporation or its stockholders,
(2) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law,
(3) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware Corporation Law, as
amended and
(4) for any transaction from which the director derived an improper
personal benefit.
The indemnification provided for the Delaware Corporation Law is not
exclusive of any other rights of indemnification, and a corporation may maintain
insurance against liabilities for which indemnification is not expressly
provided by the Delaware Corporation Law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) List of Exhibits.
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- ------------------------------------------------------------
3.1 Restated Certificate of Incorporation of North American Van
Lines, Inc.
3.2 Amended and Restated By-Laws of North American Van Lines,
Inc.
3.3 Amended Certificate of Incorporation of NA Holding
Corporation, now known as Allied Worldwide, Inc.
3.4 Amended and Restated By-Laws of NA Holding Corporation, now
known as Allied Worldwide, Inc.
3.5 Articles of Incorporation of Fleet Insurance Management,
Inc.
3.6 By-Laws of Fleet Insurance Management, Inc.
3.7 Certificate of Incorporation of FrontRunner Worldwide, Inc.
3.8 By-Laws of FrontRunner Worldwide, Inc.
II-3
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- ------------------------------------------------------------
3.9 Articles of Incorporation of Tri-City Moving & Storage,
Inc., now known as North American Distribution Systems, Inc.
3.10 By-Laws of Tri-City Moving & Storage, Inc. now known as
North American Distribution Systems, Inc.
3.11 Amended Articles of Incorporation of North American Travel
Service, Inc., now known as North American Logistics, Inc.
3.12 By-Laws of North American Travel Service, Inc., now known as
North American Logistics, Inc.
3.13 Amended Articles of Incorporation of North American
Distribution Systems, Inc., now known as NAVTRANS
International Freight Forwarding, Inc.
3.14 By-Laws of North American Distribution Systems, Inc., now
known as NAVTRANS International Freight Forwarding, Inc.
3.15 Certificate of Incorporation of Relocation Management
Systems, Inc.
3.16 By-Laws of Relocation Management Systems, Inc.
3.17 Articles of Incorporation of NACAL, Inc.
3.18 By-Laws of NACAL, Inc.
3.19 Amended Articles of Incorporation of Marlew, Inc., now known
as North American Van Lines of Texas, Inc.
3.20 By-Laws of Marlew, Inc., now known as North American Van
Lines of Texas, Inc.
3.21 Articles of Incorporation of Great Falls North American,
Inc.
3.22 By-Laws of Great Falls North American, Inc.
3.23 Amended Articles of Incorporation of Relocation Solutions
Management, Inc., now known as A Relocation Solutions
Management, Inc.
3.24 By-Laws of Relocation Solutions Management, Inc., now known
as A Relocation Solutions Management, Inc.
3.25 Amended Articles of Incorporation of Allied Sea Van Company,
now known as Allied Freight Forwarding, Inc.
3.26 Restated By-Laws of Allied Van Lines International
Corporation, now known as Allied Freight Forwarding, Inc.
3.27 Amended Certificate of Incorporation of Allied Pickfords
U.S.A., Inc., now known as Allied International N.A., Inc.
3.28 Restated By-Laws of Allied International N.A., Inc.
3.29 Certificate of Agreement of Merger of NFC Merger Corporation
with and into Allied Van Lines, Inc.
3.30 By-Laws of Allied Van Lines, Inc.
3.31 Amended Articles of Incorporation of Allied Van Lines
Insurance Agency, Inc., now known as Vanguard Insurance
Agency, Inc.
3.32 By-Laws of Allied Van Lines Insurance Agency, Inc., now
known as Vanguard Insurance Agency, Inc.
3.33 Certificate of Incorporation of Allied Van Lines Terminal
Company
3.34 Restated By-Laws of Allied Van Lines Terminal Corporation
II-4
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- ------------------------------------------------------------
4.1 Indenture, dated as of November 19, 1999, among North
American Van Lines, State Street Bank and Trust Company and
the subsidiary guarantors party thereto
4.2 Registration Rights Agreement, dated November 19, 1999,
among North American Van Lines, Inc., Banc of America
Securities LLC, Chase Securities Inc. and the subsidiary
guarantors party thereto
4.3 Form of 13 3/8 Senior Subordinated Note due 2009 (included
in Exhibit 4.1)
5.1 Opinion of Debevoise & Plimpton*
10.1 Acquisition Agreement, dated as of September 14, 1999,
between NA Holding Corporation and NFC plc
10.2 Amendment No. 1 to the Acquisition Agreement, dated as of
November 19, 1999, between NA Holding Corporation and NFC
plc
10.3 Credit Agreement, dated as of November 19, 1999 and amended
as of November 23, 1999, among North American Van Lines, the
foreign subsidiary borrowers from time to time parties
thereto, the several banks and other financial institutions
from time to time parties thereto, The Bank of New York, as
documentation agent, Banc of America Securities LLC, as
syndication agent, and The Chase Manhattan Bank, as
collateral and administrative agent
10.4 Guaranty and Collateral Agreement, dated as of November 19,
1999, made by NA Holding Corporation, North American Van
Lines, Inc. and certain of its subsidiaries in favor of The
Chase Manhattan Bank, as collateral agent and administrative
agent
10.5 Common Stock Purchase Warrant No. 1, dated as of November
19, 1999, for 87,480 shares of NA Holding Common Stock,
issued in the name of NFC International Holdings
(Netherlands II) BV
10.6 Indemnification Agreement, dated as of March 30, 1998, among
NA Holding Corporation, NA Acquisition Corporation, North
American Van Lines, Clayton, Dubilier & Rice, Inc. and
Clayton, Dubilier & Rice Fund V Limited Partnership
10.7 Consulting Agreement, dated as of March 30, 1998, by and
among NA Holding Corporation, NA Acquisition Corporation,
and North American Van Lines, Inc. and Clayton, Dubilier &
Rice, Inc.
10.8 Registration and Participation Agreement, dated as of March
30, 1998, among NA Holding Corporation and Clayton,
Dubilier & Rice Fund V Limited Partnership
10.9 Amendment No. 1, dated as of November 19, 1999, to the
Registration and Participation Agreement, dated as of
March 30, 1998, among NA Holding Corporation and Clayton,
Dubilier & Rice Fund V Limited Partnership
10.10 Letter Agreement, dated as of November 19, 1999, among NA
Holding Corporation, Clayton, Dubilier & Rice Fund V Limited
Partnership and NFC plc with respect to rights and
obligations of NFC by virtue of its acquisition of 174,961
shares of common stock, par value $0.01 per share, of NA
Holding Corporation
10.11 Stock Subscription Agreement, dated as of November 19, 1999,
between the NA Holding Corporation and Clayton, Dubilier &
Rice Fund V Limited Partnership
10.12 Stock Subscription Agreement, dated as of November 19, 1999,
between NA Holding Corporation and NFC plc
10.13 Form of Management Stock Subscription Agreement for Allied
Worldwide, Inc. (formerly NA Holding Corporation)
II-5
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- ------------------------------------------------------------
10.14 Form of Management Stock Option Agreement for Allied
Worldwide, Inc. (formerly NA Holding Corporation)
10.15 Transition Services Agreement, dated as of November 19,
1999, by and between NFC plc and NA Holding Corporation
10.16 Tax Matters Agreement, dated as of September 14, 1999,
between NA Holding Corporation and NFC plc
10.17 Amendment No. 1, dated as of April 1, 1998 to the Consulting
Agreement, dated as of March 30, 1998, by and among NA
Holding Corporation, NA Acquisition Corporation, North
American Van Lines, Inc., and Clayton, Dubilier & Rice, Inc.
12.1 Calculation of Ratios
15.1 Letter of PricewaterhouseCoopers LLP regarding unaudited
interim financial information
15.2 Letter of Ernst & Young regarding unaudited interim
financial information
21.1 List of Subsidiaries of North American Van Lines
23.1 Consent of Debevoise & Plimpton (contained in Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of KPMG
23.4 Consent of Ernst & Young
24.1 Powers of Attorney (contained on signature pages)
25.1 Statement of Eligibility of State Street Bank and Trust on
Form T-1
27.1 Financial Data Schedule
99.1 Form of Letter of Transmittal*
99.2 Form of Notice of Guaranteed Delivery*
99.3 Instruction to Registered Holder and/or Book Entry Transfer
Participant from Beneficial Owner for Tender of 13 3/8
Senior Subordinated Notes Due 2009 for registered 13 3/8
Senior Subordinated Notes Due 2009*
- ------------------------
* To be filed by amendment.
(b) Financial Statement Schedules.
Financial statement schedules of North American Van Lines for which
provision is made in the applicable accounting regulations of the Securities and
Exchange Commission are not required, are inapplicable or not material, or the
information called for thereby is otherwise included in the financial statements
or related notes and therefore have been omitted.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which,
II-6
individually or in the aggregate, represent a fundamental change in
the information set forth the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities would not exceed
that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement;
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offering therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
(4) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(5) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business
day of receipt of such request, and to send the incorporated documents by
first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(6) The undersigned registrant hereby undertakes to supply by means of
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of Ft.
Wayne, State of Indiana, on February 4, 2000.
NORTH AMERICAN VAN LINES, INC.
By: /s/ JEFFREY P. GANNON
-----------------------------------------
Name: Jeffrey P. Gannon
Title:PRESIDENT AND CHIEF
EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ralph A. Ford, Jeffrey Kaczka, and Ronald L.
Milewski, jointly and severally, as his true and lawful attorney-in-fact and
agent, acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to this registration statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact full power and authority to do and reform each and every
act and thing requisite or necessary to be done in and about the premises, as
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Director, President and
/s/ JEFFREY P. GANNON Chief Executive Officer
- ------------------------------------------- (Principal executive February 4, 2000
Jeffrey P. Gannon officer)
/s/ JEFFREY KACZKA Chief Financial Officer
- ------------------------------------------- (Principal financial February 4, 2000
Jeffrey Kaczka officer)
/s/ RONALD L. MILEWSKI Vice President, Controller
- ------------------------------------------- (Principal accounting February 4, 2000
Ronald L. Milewski officer)
/s/ MICHAEL G. BABIARZ Director
- ------------------------------------------- February 4, 2000
Michael G. Babiarz
/s/ EDMUND M. CARPENTER Director
- ------------------------------------------- February 4, 2000
Edmund M. Carpenter
II-8
/s/ KEVIN J. CONWAY Director
- ------------------------------------------- February 4, 2000
Kevin J. Conway
/s/ ROBERT G. DETTMER Director
- ------------------------------------------- February 4, 2000
Robert G. Dettmer
/s/ DARRYL D. FRY Director
- ------------------------------------------- February 4, 2000
Darryl D. Fry
/s/ KENNETH E. HOMA Director
- ------------------------------------------- February 4, 2000
Kenneth E. Homa
/s/ ROBERT D. LAKE Director
- ------------------------------------------- February 4, 2000
Robert D. Lake
/s/ DAVID A. NOVAK Director
- ------------------------------------------- February 4, 2000
David A. Novak
/s/ CHARLES P. PIEPER Director
- ------------------------------------------- February 4, 2000
Charles P. Pieper
/s/ JAMES W. ROGERS Director
- ------------------------------------------- February 4, 2000
James W. Rogers
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of Ft.
Wayne, State of Indiana, on February 4, 2000.
FLEET INSURANCE MANAGEMENT, INC.
By: /s/ JAMES E. PHILLABAUM
-----------------------------------------
Name: James E. Phillabaum
Title: VICE PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ralph A. Ford, Jeffrey Kaczka, and Ronald L.
Milewski, jointly and severally, as his true and lawful attorney-in-fact and
agent, acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to this registration statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact full power and authority to do and reform each and every
act and thing requisite or necessary to be done in and about the premises, as
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ JAMES E. PHILLABAUM Vice President (Principal
- ------------------------------------------- executive officer) February 4, 2000
James E. Phillabaum
/s/ JEFFREY KACZKA (Principal financial
- ------------------------------------------- officer) February 4, 2000
Jeffrey Kaczka
/s/ RONALD L. MILEWSKI Treasurer (Principal
- ------------------------------------------- accounting officer) February 4, 2000
Ronald L. Milewski
/s/ RALPH A. FORD Director
- ------------------------------------------- February 4, 2000
Ralph A. Ford
/s/ JEFFREY KACZKA Director
- ------------------------------------------- February 4, 2000
Jeffrey Kaczka
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of Ft.
Wayne, State of Indiana, on February 4, 2000.
FRONTRUNNER WORLDWIDE, INC.
By: /s/ BARRY C. MEEKS
-----------------------------------------
Name: Barry C. Meeks
Title: TREASURER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ralph A. Ford, Jeffrey Kaczka, and Ronald L.
Milewski, jointly and severally, as his true and lawful attorney-in-fact and
agent, acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to this registration statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact full power and authority to do and reform each and every
act and thing requisite or necessary to be done in and about the premises, as
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ BARRY C. MEEKS Treasurer (Principal
- ------------------------------------------- executive officer) February 4, 2000
Barry C. Meeks
/s/ JEFFREY KACZKA (Principal financial
- ------------------------------------------- officer) February 4, 2000
Jeffrey Kaczka
/s/ RONALD L. MILEWSKI (Principal accounting
- ------------------------------------------- officer) February 4, 2000
Ronald L. Milewski
/s/ GERALD A. BURNS Director
- ------------------------------------------- February 4, 2000
Gerald A. Burns
/s/ JEFFREY KACZKA Director
- ------------------------------------------- February 4, 2000
Jeffrey Kaczka
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of Ft.
Wayne, State of Indiana, on February 4, 2000.
NORTH AMERICAN DISTRIBUTION
SYSTEMS, INC.
By: /s/ J. MICHAEL GUNKEL
-----------------------------------------
Name: J. Michael Gunkel
Title: VICE PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ralph A. Ford, Jeffrey Kaczka, and Ronald L.
Milewski, jointly and severally, as his true and lawful attorney-in-fact and
agent, acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to this registration statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact full power and authority to do and reform each and every
act and thing requisite or necessary to be done in and about the premises, as
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ J. MICHAEL GUNKEL Vice President (Principal
- ------------------------------------------- executive officer) February 4, 2000
J. Michael Gunkel
/s/ JEFFREY KACZKA Vice President (Principal
- ------------------------------------------- financial officer) February 4, 2000
Jeffrey Kaczka
/s/ RONALD L. MILEWSKI (Principal accounting
- ------------------------------------------- officer) February 4, 2000
Ronald L. Milewski
/s/ GERALD A. BURNS Director
- ------------------------------------------- February 4, 2000
Gerald A. Burns
/s/ JEFFREY KACZKA Director
- ------------------------------------------- February 4, 2000
Jeffrey Kaczka
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of Ft.
Wayne, State of Indiana, on February 4, 2000.
NORTH AMERICAN LOGISTICS LTD.
By: /s/ J. MICHAEL GUNKEL
-----------------------------------------
Name: J. Michael Gunkel
Title: VICE PRESIDENT AND GENERAL MANAGER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ralph A. Ford, Jeffrey Kaczka, and Ronald L.
Milewski, jointly and severally, as his true and lawful attorney-in-fact and
agent, acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to this registration statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact full power and authority to do and reform each and every
act and thing requisite or necessary to be done in and about the premises, as
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ J. MICHAEL GUNKEL Vice President and General
- ------------------------------------------- Manager (Principal February 4, 2000
J. Michael Gunkel executive officer)
/s/ JEFFREY KACZKA Vice President (Principal
- ------------------------------------------- financial officer) February 4, 2000
Jeffrey Kaczka
/s/ RONALD L. MILEWSKI (Principal accounting
- ------------------------------------------- officer) February 4, 2000
Ronald L. Milewski
/s/ GERALD A. BURNS Director
- ------------------------------------------- February 4, 2000
Gerald A. Burns
/s/ RONALD L MILEWSKI Director
- ------------------------------------------- February 4, 2000
Ronald L. Milewski
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of Ft.
Wayne, State of Indiana, on February 4, 2000.
NAVTRANS INTERNATIONAL FREIGHT
FORWARDING, INC.
By: /s/ JEFFREY KACZKA
-----------------------------------------
Name: Jeffrey Kaczka
Title: VICE PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ralph A. Ford, Jeffrey Kaczka, and Ronald L.
Milewski, jointly and severally, as his true and lawful attorney-in-fact and
agent, acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to this registration statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact full power and authority to do and reform each and every
act and thing requisite or necessary to be done in and about the premises, as
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Vice President (Principal
/s/ JEFFREY KACZKA executive officer and
- ------------------------------------------- principal financial February 4, 2000
Jeffrey Kaczka officer)
/s/ RONALD L. MILEWSKI Treasurer (Principal
- ------------------------------------------- accounting officer) February 4, 2000
Ronald L. Milewski
/s/ GERALD A. BURNS Director
- ------------------------------------------- February 4, 2000
Gerald A. Burns
/s/ JEFFREY KACZKA Director
- ------------------------------------------- February 4, 2000
Jeffrey Kaczka
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of Ft.
Wayne, State of Indiana, on February 4, 2000.
RELOCATION MANAGEMENT SYSTEMS, INC.
By: /s/ RALPH A. FORD
-----------------------------------------
Name: Ralph A. Ford
Title: VICE PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ralph A. Ford, Jeffrey Kaczka, and Ronald L.
Milewski, jointly and severally, as his true and lawful attorney-in-fact and
agent, acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to this registration statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact full power and authority to do and reform each and every
act and thing requisite or necessary to be done in and about the premises, as
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ RALPH A. FORD Vice President (Principal
- ------------------------------------------- executive officer) February 4, 2000
Ralph A. Ford
/s/ JEFFREY KACZKA Vice President (Principal
- ------------------------------------------- financial officer) February 4, 2000
Jeffrey Kaczka
/s/ RONALD L. MILEWSKI Treasurer (Principal
- ------------------------------------------- accounting officer) February 4, 2000
Ronald L. Milewski
/s/ GERALD A. BURNS Director
- ------------------------------------------- February 4, 2000
Gerald A. Burns
/s/ JEFFREY KACZKA Director
- ------------------------------------------- February 4, 2000
Jeffrey Kaczka
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of Ft.
Wayne, State of Indiana, on February 4, 2000.
NACAL, INC.
By: /s/ JEFFREY KACZKA
-----------------------------------------
Name: Jeffrey Kaczka
Title: VICE PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ralph A. Ford, Jeffrey Kaczka, and Ronald L.
Milewski, jointly and severally, as his true and lawful attorney-in-fact and
agent, acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to this registration statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact full power and authority to do and reform each and every
act and thing requisite or necessary to be done in and about the premises, as
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Vice President (Principal
/s/ JEFFREY KACZKA executive officer and
- ------------------------------------------- principal financial February 4, 2000
Jeffrey Kaczka officer)
/s/ RONALD L. MILEWSKI Treasurer (Principal
- ------------------------------------------- accounting officer) February 4, 2000
Ronald L. Milewski
/s/ GERALD A. BURNS Director
- ------------------------------------------- February 4, 2000
Gerald A. Burns
/s/ JEFFREY KACZKA Director
- ------------------------------------------- February 4, 2000
Jeffrey Kaczka
II-16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of Ft.
Wayne, State of Indiana, on February 4, 2000.
NORTH AMERICAN VAN LINES OF TEXAS, INC.
By: /s/ JEFFREY KACZKA
-----------------------------------------
Name: Jeffrey Kaczka
Title: VICE PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ralph A. Ford, Jeffrey Kaczka, and Ronald L.
Milewski, jointly and severally, as his true and lawful attorney-in-fact and
agent, acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to this registration statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact full power and authority to do and reform each and every
act and thing requisite or necessary to be done in and about the premises, as
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Vice President (Principal
/s/ JEFFREY KACZKA executive officer and
- ------------------------------------------- principal financial February 4, 2000
Jeffrey Kaczka officer)
/s/ RONALD L. MILEWSKI Treasurer (Principal
- ------------------------------------------- accounting officer) February 4, 2000
Ronald L. Milewski
/s/ GERALD A. BURNS Director
- ------------------------------------------- February 4, 2000
Gerald A. Burns
/s/ JEFFREY KACZKA Director
- ------------------------------------------- February 4, 2000
Jeffrey Kaczka
II-17
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of Ft.
Wayne, State of Indiana, on February 4, 2000.
GREAT FALLS NORTH AMERICAN, INC.
By: /s/ JEFFREY KACZKA
-----------------------------------------
Name: Jeffrey Kaczka
Title: VICE PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ralph A. Ford, Jeffrey Kaczka, and Ronald L.
Milewski, jointly and severally, as his true and lawful attorney-in-fact and
agent, acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to this registration statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact full power and authority to do and reform each and every
act and thing requisite or necessary to be done in and about the premises, as
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Vice President (Principal
/s/ JEFFREY KACZKA executive officer and
- ------------------------------------------- principal financial February 4, 2000
Jeffrey Kaczka officer)
/s/ RONALD L MILEWSKI Treasurer (Principal
- ------------------------------------------- accounting officer) February 4, 2000
Ronald L. Milewski
/s/ GERALD A. BURNS Director
- ------------------------------------------- February 4, 2000
Gerald A. Burns
/s/ JEFFREY KACZKA Director
- ------------------------------------------- February 4, 2000
Jeffrey Kaczka
II-18
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of Ft.
Wayne, State of Indiana, on February 4, 2000.
ALLIED VAN LINES, INC.
By: /s/ MICHAEL P. FERGUS
-----------------------------------------
Name: Michael P. Fergus
Title: CHIEF EXECUTIVE OFFICER AND
PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ralph A. Ford, Jeffrey Kaczka, and Ronald L.
Milewski, jointly and severally, as his true and lawful attorney-in-fact and
agent, acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to this registration statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact full power and authority to do and reform each and every
act and thing requisite or necessary to be done in and about the premises, as
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ MICHAEL P. FERGUS Chief Executive Officer and
- ------------------------------------------- President (Principal February 4, 2000
Michael P. Fergus executive officer)
/s/ JEFFREY KACZKA (Principal financial
- ------------------------------------------- officer) February 4, 2000
Jeffrey Kaczka
/s/ RONALD L. MILEWSKI (Principal accounting
- ------------------------------------------- officer) February 4, 2000
Ronald L. Milewski
/s/ DAVID M. BUTH Director
- ------------------------------------------- February 4, 2000
David M. Buth
/s/ MICHAEL P. FERGUS Director
- ------------------------------------------- February 4, 2000
Michael P. Fergus
II-19
/s/ ROBERT J. HENRY Director
- ------------------------------------------- February 4, 2000
Robert J. Henry
/s/ BRADLEY J. MCGUIRE Director
- ------------------------------------------- February 4, 2000
Bradley J. McGuire
II-20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of Ft.
Wayne, State of Indiana, on February 4, 2000.
ALLIED INTERNATIONAL N.A., INC.
By: /s/ MICHAEL PETERSEN
-----------------------------------------
Name: Michael Petersen
Title: VICE PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ralph A. Ford, Jeffrey Kaczka, and Ronald L.
Milewski, jointly and severally, as his true and lawful attorney-in-fact and
agent, acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to this registration statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact full power and authority to do and reform each and every
act and thing requisite or necessary to be done in and about the premises, as
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ MICHAEL PETERSEN Vice President (Principal
- ------------------------------------------- executive officer) February 4, 2000
Michael Petersen
/s/ JEFFREY KACZKA (Principal financial
- ------------------------------------------- officer) February 4, 2000
Jeffrey Kaczka
/s/ RONALD L. MILEWSKI (Principal accounting
- ------------------------------------------- officer) February 4, 2000
Ronald L. Milewski
/s/ DAVID M. BUTH Director
- ------------------------------------------- February 4, 2000
David M. Buth
/s/ MICHAEL P. FERGUS Director
- ------------------------------------------- February 4, 2000
Michael P. Fergus
/s/ MICHAEL PETERSEN Director
- ------------------------------------------- February 4, 2000
Michael Petersen
II-21
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of Ft.
Wayne, State of Indiana, on February 4, 2000.
ALLIED FREIGHT FORWARDING, INC.
By: /s/ MICHAEL P. FERGUS
-----------------------------------------
Name: Michael P. Fergus
Title: CHAIRMAN OF THE BOARD AND PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ralph A. Ford, Jeffrey Kaczka, and Ronald L.
Milewski, jointly and severally, as his true and lawful attorney-in-fact and
agent, acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to this registration statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact full power and authority to do and reform each and every
act and thing requisite or necessary to be done in and about the premises, as
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ MICHAEL P. FERGUS Chairman of the Board and
- ------------------------------------------- President (Principal February 4, 2000
Michael P. Fergus executive officer)
/s/ JEFFREY KACZKA (Principal financial
- ------------------------------------------- officer) February 4, 2000
Jeffrey Kaczka
/s/ RONALD L. MILEWSKI (Principal accounting
- ------------------------------------------- officer) February 4, 2000
Ronald L. Milewski
/s/ DAVID M. BUTH Director
- ------------------------------------------- February 4, 2000
David M. Buth
/s/ MICHAEL PETERSEN Director
- ------------------------------------------- February 4, 2000
Michael Petersen
/s/ BRADLEY J. MCGUIRE Director
- ------------------------------------------- February 4, 2000
Bradley J. McGuire
II-22
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of Ft.
Wayne, State of Indiana, on February 4, 2000.
A RELOCATION MANAGEMENT SOLUTIONS COMPANY
By: /s/ MICHAEL P. FERGUS
-----------------------------------------
Name: Michael P. Fergus
Title: CHAIRMAN OF THE BOARD AND PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ralph A. Ford, Jeffrey Kaczka, and Ronald L.
Milewski, jointly and severally, as his true and lawful attorney-in-fact and
agent, acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to this registration statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact full power and authority to do and reform each and every
act and thing requisite or necessary to be done in and about the premises, as
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ MICHAEL P. FERGUS Chairman of the Board and
- ------------------------------------------- President (Principal February 4, 2000
Michael P. Fergus executive officer)
/s/ JEFFREY KACZKA (Principal financial officer)
- ------------------------------------------- February 4, 2000
Jeffrey Kaczka
/s/ RONALD L. MILEWSKI (Principal accounting
- ------------------------------------------- officer) February 4, 2000
Ronald L. Milewski
/s/ DAVID M. BUTH Director
- ------------------------------------------- February 4, 2000
David M. Buth
/s/ ROBERT J. HENRY Director
- ------------------------------------------- February 4, 2000
Robert J. Henry
/s/ BRADLEY J. MCGUIRE Director
- ------------------------------------------- February 4, 2000
Bradley J. McGuire
II-23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of Ft.
Wayne, State of Indiana, on February 4, 2000.
ALLIED VAN LINES TERMINAL COMPANY
By: /s/ MICHAEL P. FERGUS
-----------------------------------------
Name: Michael P. Fergus
Title: CHAIRMAN OF THE BOARD AND PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ralph A. Ford, Jeffrey Kaczka, and Ronald L.
Milewski, jointly and severally, as his true and lawful attorney-in-fact and
agent, acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to this registration statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact full power and authority to do and reform each and every
act and thing requisite or necessary to be done in and about the premises, as
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ MICHAEL P. FERGUS Chairman of the Board and
- ------------------------------------------- President (Principal February 4, 2000
Michael P. Fergus executive officer)
/s/ JEFFREY KACZKA (Principal financial officer)
- ------------------------------------------- February 4, 2000
Jeffrey Kaczka
/s/ RONALD L. MILEWSKI (Principal accounting
- ------------------------------------------- officer) February 4, 2000
Ronald L. Milewski
/s/ DAVID M. BUTH Director
- ------------------------------------------- February 4, 2000
David M. Buth
/s/ ROBERT J. HENRY Director
- ------------------------------------------- February 4, 2000
Robert J. Henry
/s/ BRADLEY J. MCGUIRE Director
- ------------------------------------------- February 4, 2000
Bradley J. McGuire
II-24
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of
Naperville, State of Illinois, on February 4, 2000.
VANGUARD INSURANCE AGENCY, INC.
By: /s/ LAWRENCE A. WRITT
-----------------------------------------
Name: Lawrence A. Writt
Title: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ralph A. Ford, Jeffrey Kaczka, and Ronald L.
Milewski, jointly and severally, as his true and lawful attorney-in-fact and
agent, acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to this registration statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact full power and authority to do and reform each and every
act and thing requisite or necessary to be done in and about the premises, as
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ LAWRENCE A. WRITT President and Chief Executive
- ------------------------------------------- Officer (Principal February 4, 2000
Lawrence A. Writt executive officer)
/s/ JEFFREY KACZKA (Principal financial officer)
- ------------------------------------------- February 4, 2000
Jeffrey Kaczka
/s/ RONALD L. MILEWSKI (Principal accounting
- ------------------------------------------- officer) February 4, 2000
Ronald L. Milewski
/s/ MICHAEL P. FERGUS Director
- ------------------------------------------- February 4, 2000
Michael P. Fergus
/s/ LAWRENCE A. WRITT Director
- ------------------------------------------- February 4, 2000
Lawrence A. Writt
/s/ MARSHALL B. FELBEIN Director
- ------------------------------------------- February 4, 2000
Marshall B. Felbein
II-25
EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- ------------------------------------------------------------
3.1 Restated Certificate of Incorporation of North American Van
Lines, Inc.
3.2 Amended and Restated By-Laws of North American Van Lines,
Inc.
3.3 Amended Certificate of Incorporation of NA Holding
Corporation, now known as Allied Worldwide, Inc.
3.4 Amended and Restated By-Laws of NA Holding Corporation, now
known as Allied Worldwide, Inc.
3.5 Articles of Incorporation of Fleet Insurance Management,
Inc.
3.6 By-Laws of Fleet Insurance Management, Inc.
3.7 Certificate of Incorporation of FrontRunner Worldwide, Inc.
3.8 By-Laws of FrontRunner Worldwide, Inc.
3.9 Articles of Incorporation of Tri-City Moving & Storage,
Inc., now known as North American Distribution Systems, Inc.
3.10 By-Laws of Tri-City Moving & Storage, Inc., now known as
North American Distribution Systems, Inc.
3.11 Amended Articles of Incorporation of North American Travel
Service, Inc., now known as North American Logistics, Inc.
3.12 By-Laws of North American Travel Service, Inc., now known as
North American Logistics, Inc.
3.13 Amended Articles of Incorporation of North American
Distribution Systems, Inc., now known as NAVTRANS
International Freight Forwarding, Inc.
3.14 By-Laws of North American Distribution Systems, Inc., now
known as NAVTRANS International Freight Forwarding, Inc.
3.15 Certificate of Incorporation of Relocation Management
Systems, Inc.
3.16 By-Laws of Relocation Management Systems, Inc.
3.17 Articles of Incorporation of NACAL, Inc.
3.18 By-Laws of NACAL, Inc.
3.19 Amended Articles of Incorporation of Marlew, Inc., now known
as North American Van Lines of Texas, Inc.
3.20 By-Laws of Marlew, Inc., now known as North American Van
Lines of Texas, Inc.
3.21 Articles of Incorporation of Great Falls North American,
Inc.
3.22 By-Laws of Great Falls North American, Inc.
3.23 Amended Articles of Incorporation of Relocation Solutions
Management, Inc., now known as A Relocation Solutions
Management, Inc.
3.24 By-Laws of Relocation Solutions Management, Inc., now known
as A Relocation Solutions Management, Inc.
3.25 Amended Articles of Incorporation of Allied Sea Van Company,
now known as Allied Freight Forwarding, Inc.
3.26 Restated By-Laws of Allied Van Lines International
Corporation, now known as Allied Freight Forwarding, Inc.
3.27 Amended Certificate of Incorporation of Allied Pickfords
U.S.A., Inc., now known as Allied International N.A., Inc.
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- ------------------------------------------------------------
3.28 Restated By-Laws of Allied International N.A., Inc.
3.29 Certificate of Agreement of Merger of NFC Merger Corporation
with and into Allied Van Lines, Inc.
3.30 By-Laws of Allied Van Lines, Inc.
3.31 Amended Articles of Incorporation of Allied Van Lines
Insurance Agency, Inc., now known as Vanguard Insurance
Agency, Inc.
3.32 By-Laws of Allied Van Lines Insurance Agency, Inc., now
known as Vanguard Insurance Agency, Inc.
3.33 Certificate of Incorporation of Allied Van Lines Terminal
Company
3.34 Restated By-Laws of Allied Van Lines Terminal Company
4.1 Indenture, dated as of November 19, 1999, among North
American Van Lines, State Street Bank and Trust Company and
the subsidiary guarantors party thereto
4.2 Registration Rights Agreement, dated November 19, 1999,
among North American Van Lines, Inc., Banc of America
Securities LLC, Chase Securities Inc. and the subsidiary
guarantors party thereto
4.3 Form of 13 3/8 Senior Subordinated Note due 2009 (included
in Exhibit 4.1)
5.1 Opinion of Debevoise & Plimpton*
10.1 Acquisition Agreement, dated as of September 14, 1999,
between NA Holding Corporation and NFC plc
10.2 Amendment No. 1 to the Acquisition Agreement, dated as of
November 19, 1999, between NA Holding Corporation and NFC
plc
10.3 Credit Agreement, dated as of November 19, 1999 and amended
as of November 23, 1999, among North American Van Lines, the
foreign subsidiary borrowers from time to time parties
thereto, the several banks and other financial institutions
from time to time parties thereto, The Bank of New York, as
documentation agent, Banc of America Securities LLC, as
syndication agent, and The Chase Manhattan Bank, as
collateral and administrative agent
10.4 Guaranty and Collateral Agreement, dated as of November 19,
1999, made by NA Holding Corporation, North American Van
Lines, Inc. and certain of its subsidiaries in favor of The
Chase Manhattan Bank, as collateral agent and administrative
agent
10.5 Common Stock Purchase Warrant No. 1, dated as of November
19, 1999, for 87,480 shares of NA Holding Common Stock,
issued in the name of NFC International Holdings
(Netherlands II) BV
10.6 Indemnification Agreement, dated as of March 30, 1998, among
NA Holding Corporation, NA Acquisition Corporation, North
American Van Lines, Clayton, Dubilier & Rice, Inc. and
Clayton, Dubilier & Rice Fund V Limited Partnership
10.7 Consulting Agreement, dated as of March 30, 1998, by and
among NA Holding Corporation, NA Acquisition Corporation,
and North American Van Lines, Inc. and Clayton, Dubilier &
Rice, Inc.
10.8 Registration and Participation Agreement, dated as of March
30, 1998, among NA Holding Corporation and Clayton,
Dubilier & Rice Fund V Limited Partnership
10.9 Amendment No. 1, dated as of November 19, 1999, to the
Registration and Participation Agreement, dated as of March
30, 1998, among NA Holding Corporation and Clayton,
Dubilier & Rice Fund V Limited Partnership
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- ------------------------------------------------------------
10.10 Letter Agreement, dated as of November 19, 1999, among NA
Holding Corporation, Clayton, Dubilier & Rice Fund V Limited
Partnership and NFC plc with respect to rights and
obligations of NFC by virtue of its acquisition of 174,961
shares of common stock, par value $0.01 per share, of NA
Holding Corporation
10.11 Stock Subscription Agreement, dated as of November 19, 1999,
between the NA Holding Corporation and Clayton, Dubilier &
Rice Fund V Limited Partnership
10.12 Stock Subscription Agreement, dated as of November 19, 1999,
between NA Holding Corporation and NFC plc
10.13 Form of Management Stock Subscription Agreement for Allied
Worldwide, Inc. (formerly NA Holding Corporation)
10.14 Form of Management Stock Option Agreement for Allied
Worldwide, Inc. (formerly NA Holding Corporation)
10.15 Transition Services Agreement, dated as of November 19,
1999, between NFC plc and NA Holding Corporation
10.16 Tax Matters Agreement, dated as of September 14, 1999,
between NA Holding Corporation and NFC plc
10.17 Amendment No. 1, dated as of April 1, 1998 to the Consulting
Agreement, dated as of March 30, 1998, by and among NA
Holding Corporation, NA Acquisition Corporation, North
American Van Lines, Inc., and Clayton, Dubilier & Rice, Inc.
12.1 Calculation of Ratios
15.1 Letter of PricewaterhouseCoopers LLP regarding unaudited
interim financial information
15.2 Letter of Ernst & Young regarding unaudited interim
financial information
21.1 List of Subsidiaries of North American Van Lines
23.1 Consent of Debevoise & Plimpton (contained in Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of KPMG
23.4 Consent of Ernst & Young
24.1 Powers of Attorney (contained on signature pages)
25.1 Statement of Eligibility of State Street Bank and Trust on
Form T-1
27.1 Financial Data Schedule
99.1 Form of Letter of Transmittal*
99.2 Form of Notice of Guaranteed Delivery*
99.3 Instruction to Registered Holder and/or Book Entry Transfer
Participant from Beneficial Owner for Tender of 13 3/8
Senior Subordinated Notes Due 2009 for registered 13 3/8
Senior Subordinated Notes Due 2009*
- ------------------------
* To be filed by amendment.