Re FZR.UN..Atlas Cold Storage: Who is responsible for this..Does the Board Directors or managers have any responsibility other than collecting their cheque's..Anybody going to jail for this??What a farce.I only lost a couple hundred on this experiment.
Atlas Cold Storage reports preliminary unaudited financial information for third quarter of 2003 and updates planned restatement of financial statements
Monday December 1, 8:26 am ET
TORONTO, Dec. 1 /CNW/ - Atlas Cold Storage Income Trust today reported selected preliminary unaudited financial information for the third quarter of 2003 and provided an update with respect to its previously announced planned restatement of its 2001 and 2002 financial statements.
The financial information for the third quarter of 2003 reported today by Atlas is unaudited, preliminary in nature and therefore subject to change. Atlas is releasing only preliminary selected financial information for the third quarter of 2003 at this time pending completion of the audit by Atlas' external auditor of Atlas' restated 2001 and 2002 financial statements, completion of the related additional procedures being undertaken by Atlas in connection with such audit and completion of other procedures being undertaken in connection with Atlas' previously announced unaudited financial statements for the first two quarters of 2003. The audit of Atlas' restated 2001 and 2002 financial statements and these additional procedures may impact the preliminary financial information for the third quarter of 2003 announced today and will impact Atlas' previously disclosed financial statements for its 2001 and 2002 fiscal years and for the first two quarters of 2003.
The preliminary financial information for the third quarter of 2003 announced today has not been the subject of a review or audit engagement by Atlas' external auditor, Ernst & Young LLP.
Third Quarter 2003 Preliminary Financial Information
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Revenues were $140.3 million for the third quarter of 2003. Earnings before property lease rental, interest, amortization and income taxes amounted to $11.1 million for the third quarter. Atlas incurred a net loss during the third quarter of $9.0 million (or $0.15 per unit on a fully-diluted basis).
Atlas generated a total distributable cash deficiency during the third quarter of 2003 of $4.4 million (or $0.07 per unit). Distributable cash is a non-GAAP measure and, accordingly, may not be comparable to similar measures presented by other issuers. Atlas believes, however, that the presentation of distributable cash is often the best available measure of Atlas' ability to generate and distribute cash.
The preliminary financial information for the three months ended September 30, 2003 reported today reflects the following items:
- total losses from discontinued operations of $6.7 million related to
Atlas' Canadian linehaul trucking operations and other asset-based
logistics services which are being discontinued (as more fully
described under "Third Quarter 2003 Preliminary Financial Information
- Discontinued Canadian Asset-Based Transportation Operations"
below), comprised of an after-tax loss of $0.8 million, as well as
write-downs and obligation accruals related to these discontinued
operations, net of tax recoveries, of $5.9 million;
- costs aggregating approximately $4.0 million incurred in connection
with matters giving rise to the planned restatement of Atlas' 2001
and 2002 financial statements and the activities of the Special
Committee of Atlas established on September 18, 2003, including:
- a provision of $2.3 million for professional fees and other costs
related to the investigation of matters related to the restatement
of Atlas' financial statements and the activities of the Special
Committee (comprising the $2.6 million of actual and potential
costs previously announced less $300,000 of such costs that were
expensed prior to the third quarter). A further provision in
respect of these costs will be required during the fourth quarter
of 2003;
- a previously announced charge of $1.25 million for potential
severance costs; and
- approximately $0.4 million of expenses for bank waiver fees.
Excluding these items and their associated tax effect, Atlas generated net income of $0.3 million (nil per unit on a fully-diluted basis) during the third quarter and total distributable cash of $6.5 million (or $0.11 per unit).
Atlas' preliminary financial information for the third quarter, as reported today, has been prepared on the basis that all adjustments to Atlas' 2001 and 2002 financial statements announced on August 29, 2003 have been recorded in the manner announced by Atlas on that date, and that the further expected adjustments to these financial statements referred to under "Update on Planned Restatement of 2001 and 2002 Financial Statements" below have also been recorded during 2001 and 2002, respectively.
Discontinued Canadian Asset-Based Transportation Operations
On September 19, 2003, Atlas announced that it would discontinue certain of its Canadian trucking operations and, in connection with this decision, would record during the third quarter of 2003 a cash charge of $3.0 million as well as an estimated non-cash charge of $2.9 million. After further study, Atlas has also determined to discontinue its other Canadian asset-based transportation operations and to wind-up all of these operations.
These discontinued operations had after tax operating losses during the third quarter of 2003 of $0.8 million. The reasons for the losses include: rate deterioration resulting from competition; a general drop in export shipments due to the rise in the Canadian dollar; and the onset of "mad cow" disease that resulted in a revenue decline of approximately $750,000 per month from the third week of May 2003.
The resulting impairment and write-off of trucking and other assets resulted in a charge of $7.1 million during the third quarter. In addition, costs of $1.1 million related to severance and lease obligations have been accrued. These adjustments, net of related tax recoveries of $2.3 million, total $5.9 million. This $5.9 million, together with the $0.8 million of after-tax operating losses referred to above, are expected to be reflected as a "Loss from Discontinued Operations" of $6.7 million in the third quarter when Atlas releases its third quarter unaudited financial statements.
An auction process is being developed, with a view to selling the equipment of Atlas' Canadian asset-based transportation business. Anticipated auction proceeds of approximately $7.0 million are expected to be used to partially satisfy banking, lease and other obligations of Atlas Supply Chain Services Limited, a wholly-owned subsidiary of Atlas. Net of these anticipated auction proceeds, Atlas currently expects that the realization of the assets, and extinguishment of the obligations, of Atlas Supply Chain Services Limited will require a total cash outlay by Atlas of approximately $3.8 million during the winding up of the operations of Atlas Supply Chain Services Limited in the fourth quarter of 2003 and the first quarter of 2004.
Liquidity and Capital Resources
As of September 30, 2003, Atlas had total current assets of $59.5 million and total current liabilities, excluding bank debt, of $82.3 million. As of September 30, 2003, Atlas had approximately $204.2 million outstanding to its lending syndicate under an amended and restated credit agreement dated October 22, 2002. This credit facility expires in July 2004 and, accordingly, represents a current liability as of the third quarter of 2003. Atlas is not in compliance with its obligations under this credit facility and Atlas' lenders have capped availability under the facility at the amount presently outstanding. See "Banking Arrangements" below.
Excluding this current bank debt, Atlas had a working capital deficiency of approximately $22.8 million as of September 30, 2003. As discussed under "Banking Arrangements" below, Atlas does not currently have access to its credit facility to assist it in dealing with its working capital deficiency.
Pending the completion of audited restated financial statements for 2001 and 2002 and Atlas' lenders agreeing to waivers and/or amendments to Atlas' credit agreement (as more fully described under "Banking Arrangements" below), Atlas is reviewing material cash expenditures, including budgeted fixed asset expenditures, and attempting to manage its cash expenditures as appropriate. Further, as described under "Fourth Quarter Distribution" below, Atlas will not be paying a quarterly cash distribution in the fourth quarter of 2003.
Business Operations
-------------------
After reflecting the addition of a leased facility located in Phoenix, Arizona on November 2, 2003, Atlas' Public Refrigerated Warehousing ("PRW") business now encompasses 51 facilities with 208 million cubic feet of temperature-controlled space and employs approximately 2,100 employees. In addition to the new facility in Phoenix, Atlas now has facilities located from coast to coast in Canada and in four geographical regions within the United States (Midwest, American Heartland, Mid Atlantic and South East).
By the end of the third quarter, Atlas' Canadian PRW business was operating at or near full capacity. In Ontario, there were significant unplanned labour and freight costs related to the transitioning of a major account into the Vaughan facility. Currently, the twenty facilities that comprise Atlas' four Canadian PRW divisions are all operating at or near capacity. In Ontario, the unplanned labour and freight costs at the Vaughan facility have been and continue to be addressed and expectations are that this situation will improve.
A majority of Atlas' PRW facilities in the United States met expectations during the third quarter, with notable exceptions in Chicago, Georgia and Wisconsin. The variances in these regions can be traced primarily to volume shortfalls. Currently, most of Atlas' facilities in the United States are performing to expectations. Operations in Georgia have for some time failed to meet expectations due to continuing over-capacity in that market. A new, stronger management team is now in place to strengthen Atlas' results in Georgia. In Chicago, Atlas has lost some volume due to restructuring by customers of their supply chains and relocation of their inventories to other regions. Atlas is focusing on replacing this business.
During the last year, integration of the facilities acquired in connection with the CS Integrated ("CSI") acquisition in late 2002 has been a focal point, and this is continuing. Atlas is now in a position to take advantage of its greater geographic coverage arising from the acquisition of these facilities.
The U.S. retail logistics business acquired from CSI, in which Atlas manages grocery retail distribution centers owned by a major U.S. food retailer, is performing well. The U.S. retail logistics business comprises four facilities, 66 million cubic feet and in excess of 2,100 employees. The facilities and operations are located in Shelbyville, Indiana; Roanoke, Virginia; Atlanta, Georgia; and Phoenix, Arizona.
The U.S. freight forwarding and freight brokerage operations continue to provide strong contributions to Atlas and to help leverage Atlas' PRW investment in the regions in which Atlas provides these services. These operations, which are continuing, operate from six Atlas PRW facilities that are located in Buffalo, New York; Green Bay, Wisconsin; Chicago, Illinois; Atlanta, Georgia; Denver, Colorado; and Hatfield, Pennsylvania. This business employs 23 Atlas employees.
Management
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As announced on November 24, 2003, Jack Scott, an experienced food industry executive who has been a director of Atlas since 1998, was appointed Chief Executive Officer of Atlas, on an interim basis, following the resignation on November 21, 2003 of Patrick Gouveia as President and Chief Executive Officer.
Mr. Scott has significant food industry experience from his tenure as President of Oshawa Foods, the Ontario division of The Oshawa Group Limited that operated grocery stores, warehouses and freezer warehouses, and distributed food products to IGA and other retail outlets. He was also, prior to that, President of General Foods, Canada.
A search has been commenced for a permanent President and Chief Executive Officer.
Update on Planned Restatement of 2001 and 2002 Financial Statements
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As previously announced, during the course of the audit by Ernst & Young LLP of Atlas' unaudited restated 2001 and 2002 financial statements, certain additional adjustments to Atlas' 2001 and 2002 financial statements have been identified that are expected to be necessary, and Atlas has become aware of additional accounting irregularities and errors that have had the effect of misstating Atlas' financial affairs for 2001 and 2002.
Atlas is currently performing certain additional procedures with respect to its 2001 and 2002 financial statements and the Special Committee of Atlas established on September 18, 2003 is directing an investigation into the accounting irregularities and errors identified to date. This work is ongoing, and may result in adjustments being required to Atlas' 2001 and 2002 financial statements other than those disclosed below.
Based upon the procedures and investigations undertaken to date, in addition to the adjustments to Atlas' 2001 and 2002 financial statements disclosed by Atlas on August 29, 2003, Atlas has identified, on a preliminary basis, further adjustments to its 2001 and 2002 financial statements that are expected to be necessary on the basis of presently known information as set forth below:
- In respect of its 2001 financial statements, net understatements of
expenses that should have been recorded during 2001 aggregating
approximately $3.6 million, including:
- approximately $950,000 of expenses related to under-recorded U.S.
employee benefits;
- approximately $916,000 of customer claims related to one customer
that were originally inappropriately recorded in Atlas' 2002
financial statements;
- net adjustments of approximately $700,000 arising from various
items previously considered immaterial;
- approximately $400,000 of employee bonuses that were not accrued;
and
- approximately $200,000 of under-recorded U.S. sales and use taxes.
- In respect of its 2002 financial statements, net understatements of
expenses and other pre-tax adjustments that should have been recorded
during 2002 aggregating approximately $3.3 million (after taking into
account expenses that were originally recorded during 2002 but that
should have been recorded during 2001 and are included in the further
adjustments to Atlas' 2001 financial statements referred to above),
including:
- approximately $600,000 of purchase price refunds that were
incorrectly recorded as income during 2002 and that should have
been recorded as a reduction in the purchase price paid in respect
of assets acquired by Atlas during 2002 from the receiver of TCT
Logistics Inc. and as a reduction in certain fixed asset costs;
- approximately $600,000 of under-accrued taxes, including property,
capital, sales and withholding taxes;
- approximately $530,000 of under-recorded customer claims
- a reduction in 2002 revenues of $400,000 resulting from the
elimination of deferred revenues originally recorded in connection
with Atlas' acquisition from CSI;
- approximately $380,000 of additional interest payable to Atlas'
lenders as a result of the effect of the required restatements of
Atlas' financial statements;
- approximately $300,000 of under-accrued fees relating to the
original external audit of Atlas' 2002 financial statements;
- approximately $240,000 of under-recorded expenses for customer
pallets related to Atlas' Canadian trucking operations;
- approximately $150,000 of expenses that were inappropriately
capitalized during 2002; and
- approximately $150,000 of under-recorded allowances for doubtful
accounts.
The expected adjustments referred to above are preliminary in nature and therefore subject to change pending completion of the additional procedures currently underway with respect to Atlas' 2001 and 2002 financial statements and completion by Ernst & Young LLP of its own procedures with respect to the audit of Atlas' restated 2001 and 2002 financial statements.
In respect of 2001, the effect of the expected adjustments referred to above would be to, among other things, reduce net earnings for 2001 from $10.1 million (or $0.29 per unit on a fully-diluted basis) as previously disclosed in connection with the restatement announced on August 29, 2003, to $7.4 million (or $0.24 per unit), and to reduce total distributable cash for 2001 from $28.2 million (or $0.82 per unit) to $24.6 million (or $0.74 per unit).
In respect of 2002, the effect of the expected adjustments referred to above would be to, among other things, reduce net earnings for 2002 from $16.0 million (or $0.34 per unit on a fully-diluted basis) as previously disclosed in connection with the restatement announced on August 29, 2003, to $14.0 million (or $0.30 per unit), and to reduce total distributable cash for 2002 from $40.6 million (or $0.81 per unit) to $37.2 million (or $0.76 per unit).
In addition, the fully-diluted net earnings per unit in 2001 and 2002 will be further adjusted to reflect the accretion of the equity component of Atlas' outstanding convertible debentures. The effect of this adjustment in 2001 and 2002 is to further reduce fully-diluted net earnings per unit from $0.24 to $0.13, and $0.30 to $0.25, respectively. This adjustment will not affect distributable cash per unit in either 2001 or 2002.
Atlas expects to release audited restated 2001 and 2002 financial statements as soon as practicable following completion of the additional procedures being undertaken by Atlas and Ernst & Young LLP, respectively. It is presently anticipated by Atlas that this will occur no later than January 29, 2004. As previously announced, pending the issuance by Ernst & Young LLP of its audit opinion in respect of Atlas' restated 2001 and 2002 financial statements, those financial statements and the auditor's report thereon as originally issued should not be relied upon by investors.
Expected Adjustments to Q1 and Q2 2003 Financial Statements
-----------------------------------------------------------
Based upon procedures conducted to date in connection with Atlas' previously announced unaudited financial statements for the first two quarters of 2003, Atlas has identified, on a preliminary basis, adjustments aggregating approximately $3.7 million on a net basis to its previously disclosed unaudited financial statements for the first two quarters of 2003 that are expected to be necessary on the basis of presently known information (after taking into account expenses that were originally recorded during the first six months of 2003 but that should have been recorded during 2002 and are included in the further adjustments to Atlas' 2002 financial statements referred to above), including those set forth below:
- expenditures aggregating approximately $2.0 million that were
originally incorrectly recorded as additions to capital assets during
the first two quarters of 2003 that should have been expensed;
- approximately $400,000 of previously unrecorded expenses related to
U.S. employee benefits, including workers' compensation, employee
benefit claims and group health insurance, that should have been
expensed;
- approximately $300,000 of previously unrecorded customer claims that
should have been expensed;
- approximately $200,000 of incremental banking costs resulting from
the restatements;
- approximately $200,000 of expenses that should have been recorded in
respect of allowances for doubtful accounts; and
- approximately $600,000 of expenses that should have been recorded
related to other under-accruals, primarily in respect of previously
unrecorded U.S. sales taxes, legal invoices and other matters.
These expected adjustments are preliminary in nature and therefore subject to change pending completion of the additional procedures currently underway with respect to Atlas' 2001 and 2002 financial statements and its financial statements for the first two quarters of 2003, and completion by Ernst & Young LLP of its own procedures with respect to the audit of Atlas' restated 2001 and 2002 financial statements.
The effect of the expected adjustments referred to above would be, among other things, to reduce net earnings for the first six months of 2003 from $11.7 million (or $0.18 per unit on a fully-diluted basis) as previously reported, to $9.3 million (or $0.15 per unit), and to reduce total distributable cash for the first six months of 2003 from $26.2 million (or $0.43 per unit) to $22.5 million (or $0.37 per unit).
Atlas expects that it will be necessary to restate its previously announced unaudited financial statements for the first two quarters of 2003, and that such restated unaudited quarterly financial statements will be released contemporaneously with the release of its audited restated financial statements for 2001 and 2002.
Anticipated Filing of Third Quarter 2003 Financial Statements
-------------------------------------------------------------
Under applicable securities legislation, Atlas is required to file with relevant regulatory authorities its unaudited financial statements for the third quarter of 2003, prepared in accordance with generally accepted accounting principles, within sixty days of the end of the quarter. The selected preliminary unaudited financial information for the third quarter of 2003 announced today by Atlas does not satisfy that requirement.
Until such time as Atlas completes its ongoing procedures with respect to its 2001 and 2002 restated financial statements, Ernst & Young LLP completes its audit of such restated financial statements and Atlas completes the additional procedures currently being undertaken in connection with Atlas' previously announced unaudited financial statements for the first two quarters of 2003, Atlas does not expect to be able to file unaudited financial statements for the third quarter of 2003 as required by applicable securities legislation (in part because such unaudited financial statements are required to include comparative information for the three months and nine months ended September 30, 2002).
Accordingly, Atlas is in default of its obligation to file unaudited financial statements for the third quarter of 2003. Pending remedy of this default through the filing of unaudited financial statements for the third quarter of 2003, Atlas intends to satisfy the Alternative Information Guidelines recommended by Ontario Securities Commission Policy 57-603 and Canadian Securities Administrators' Staff Notice 57-301.
It is presently anticipated by Atlas that it will be able to file unaudited financial statements for the third quarter of 2003 no later than January 29, 2004. In the event that Atlas does not do so by such date, the Ontario Securities Commission and other Canadian securities regulators may impose a cease trade order that would cease all trading in securities of Atlas for such period of time as may be specified by the regulators.
As contemplated by OSC Policy 57-603 and CSA Staff Notice 57-301, the Ontario Securities Commission and other Canadian securities regulators may, in light of Atlas not having filed its third quarter financial statements, now impose a cease trade order related to Atlas securities against some or all persons and companies who have been directors, officers or insiders of Atlas during the period commencing July 1, 2003. Such a cease trade order would generally not affect the ability of persons who have not been directors, officers or insiders of Atlas to trade in its securities.
Banking Arrangements
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Atlas Cold Storage Income Trust and its operating arm, Atlas Cold Storage Holdings Inc., and their direct and indirect subsidiaries, are party to an amended and restated credit agreement (the "Credit Agreement") dated October 22, 2002 with a syndicate of lending institutions. The credit facility provided under the Credit Agreement expires in July 2004. At present, approximately $204.2 million (U.S. $151.3 million) is outstanding under the Credit Agreement. Atlas is not in compliance with its obligations under the Credit Agreement. Except for relatively small amounts relating to interest margin adjustments which may arise when restated financial statements for prior periods are finalized, there has been no failure by Atlas to pay amounts when due. In response to the non-compliance, the lenders have capped availability under the Credit Agreement at the amount presently outstanding. For so long as Atlas is not in compliance with the Credit Agreement, any future advances will be made only in the discretion of the lenders. While the lenders have capped availability in response to the non-compliance, they have not demanded payment. Subject to the rights of the lenders to take further action with respect to the non-compliance at any time, Atlas' intention is to request that the lenders agree to amendments and/or waivers to the Credit Agreement to bring Atlas back into compliance when audited restated 2001 and 2002 financial statements and other financial and operating information requested by the lenders are available. There can be no assurance that Atlas will be successful in obtaining such amendments and/or waivers. The failure to obtain such amendments and/or waivers may have a material adverse impact on Atlas' financial position, results of operations and cash flows.
Fourth Quarter Distribution
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In light of current circumstances, including that the additional procedures being undertaken by Atlas and its auditors have not yet been completed and Atlas' need to carefully manage its cash resources, it has been determined not to pay a quarterly cash distribution in the fourth quarter of 2003.
Atlas Cold Storage is Canada's largest and North America's second largest integrated temperature-controlled distribution network. Trust units and convertible debentures are listed on the Toronto Stock Exchange (under FZR.UN and FZR.DB, respectively).
%SEDAR: 00004374E
newswire.ca
For further information
contact: J. Nicholas Ross, Chairman of the Board, Atlas Cold Storage Holdings Inc. or Darrell Ewert, Corporate Secretary, Atlas Cold Storage Holdings Inc., (416) 512-3631 (telephone), (416) 225-2353 (facsimile)
Source: Atlas Cold Storage Income Trust |
