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Gee whiz! A national moving company hauling a double load of junk bonds and still making a $1 million profit - in a recession?

Back in 1981, The Wall Street Journal asked Norman Gee about debt.

Gee (pronounced with a hard "g") was a vice president of Atlas Van Lines at the time. "They took one of my quotes and set it in very large type within the story," recalls Gee, now chairman and CEO.

"Right there in the Journal, in big print on the front page, it read, 'We're trying to do everything we can not to borrow money.' Hey, it seemed like a good idea at the time," Gee says now.

Today, like its namesake, Atlas Van Lines Inc. has been sentenced to bear a heavy burden: huge debt from two heavily leveraged buy-outs in 1986 and 1988. But unlike the Greek god, whom Zeus condemned to bear the weight of the heavens forever, the Indiana company can see an end to its extraordinary labors.

Atlas, the company, expects to report profits of nearly $1 million this year. This will be its second year in a row in the black after several years of having its operating profits erased by mammoth interest payments.

Despite dragging a heavy double leveraged buy-out ball-and-chain of debt, Atlas can boast of several accomplishments during the past three years in addition to turning red into black:

* It has moved from sixth to fifth on the list of the largest U.S. moving companies.

* Revenues grew from $242 million the year of the buy-out to $267 million in 1990.

* Domestic revenues are down only 1.1 percent in this recession.

* The company hasn't failed a single financial test on the very long list submitted by Heller Financial Inc., the commercial lending arm of Fuji Bank of Tokyo, which financed Atlas' junk bonds in 1988.

Actually, Atlas has paid down its debts more quickly than required under its lending agreements with Heller, according to Patricia Weitzman, assistant vice president with Heller in Chicago. "We spend less time talking about any problems we have with Atlas" than with other junk bond-financed clients, Weitzman says. "It's been pretty much smooth sailing with Atlas so far."

Atlas took on $95 million in debt in September 1988 when 27 agents bought the company from an investment group dominated by principals of Wesray Corp. Wesray, led by former U.S. Secretary of the Treasury William Simon and his partner, Raymond Chambers, in 1984 bought the company for $66.5 million, in typical high-leverage style. Atlas' board sought out the Wesray purchase, because Atlas was looking for a white knight to stave off a hostile takeover by Canadian investors and Edward Bland, a former president of Atlas.

Atlas' troubles started in 1980 when it went public, according to Gee. The company then "got greedy" when it floated two more stock offerings over the next few years, leaving itself vulnerable to Bland's unwanted courtship.

Now that Atlas has joined United Van Lines, the nation's second-largest mover, as an entirely agent-owned company, Gee doubts that Atlas' stock ever will be publicly traded again. The agents have made it crystal clear to him that management would be "lynched" if it ever suggested another public offering, the sincere and affable Gee says with a chuckle.

The Atlas story began in Indiana in 1947. At a convention of movers in French Lick, a small group discussed a common goal of forming a national operating organization. O.H. Frisbie, who later became chairman of Atlas, was named to a committee to pursue that goal. The next year, 33 movers incorporated the organization and set up shop in Chicago.

In 1960, Atlas moved to modest headquarters just off U.S. 41 in Evansville, across the highway from the mammoth Whirlpool factory. At that point, annual revenues were about $8 million. In the following years, Atlas expanded its scope through acquisitions, eventually building revenues to their current level of more than a quarter of a billion dollars.

Gee--a native of Canada who became a U.S. citizen in 1973 and now is an avid collector of American historical items--has been at Atlas for 12 years. He has lived through such trials as the company's midnight green-mail payoff in 1984 to rid itself of Bland and the growing discontent among its agents with the four-year rule of profit-driven Wesray. Following the agent buy-out in September 1988, Gee was tapped to head the company, replacing Wesray-appointed Thomas Fagan. In that buy-out year, Atlas lost $2.3 million.

By necessity, Gee, whose moving company background is on the financial side, believes in running a lean-and-mean operation. Under him, the Atlas corporate staff has shrunk from 30 to 22, employment has fallen through attrition from about 450 to the current 394, and corporate frills have been cut back drastically. "That is one of the clues to our success as far as I'm concerned," Gee says. "We run a tight ship."

Thomas Shetler, an Atlas agent in Evansville who is one of a dozen agents on the company's 15-member board of directors, says the tight-fisted Gee was the right choice to take charge when Atlas' numbers were down. "One thing about Norman, it doesn't matter whose money he's spending, he doesn't spend a heck of a lot of it."

The other foundation of the new Atlas is agent ownership. Ask an Atlas executive about any aspect of the business, and he'll tell you the key to success in that sector is the agents. Atlas has nearly 400 agents in the United States, nearly 200 in Canada and about 970 worldwide. The agents, whom Atlas charges a 10 percent fee for its scheduling, referral, accounting and other services, are the backbone of the company, Gee says.

Atlas' return to profitability and growth have come about because the agents own the company and the company works for the agents, says Michael L. Shaffer, president of the Atlas U.S. transportation group. "We were serving two masters," he says, describing the tug-of-war that management went through in following Wesray orders while, at the same time, trying to meet agents' needs. "Now we're back to one."

"When you're owned by a third party, they're going to be profit-driven," Shetler adds. Shetler was one of three agents to spearhead the 1988 buy-out. "When other agents see board members are made up of fellow Atlas agents, they know everything they're doing is not only on behalf of Atlas Van Lines, but their decisions won't be detrimental to the Atlas agents."

After the second buy-out Atlas' debt-to-equity ratio--a standard barometer of financial health--stood at nearly 95 to 1. The company owed $95 million, and when its debts were subtracted from its assets, a grand total of $1.1 million remained. Finance professors used to preach that a company should have no more than $2 of debt for each $1 of equity. Though that rule was liberalized in the debt-happy 1980s, 95-to-1 is enough to scare anyone with a present-value function on his or her calculator.

Following a $7.5 million stock offering to agents, ownership is now shared by 88 owners of Atlas moving companies. By making all of its regular interest payments, plus some early repayments, that huge debt-to-equity ratio has been trimmed to less than 13-to-1, according to Atlas CFO Howard Parker.

By the end of this year, the company's debt should be about $65 million. Atlas hopes to refinance its more expensive borrowings, Parker says. While interest rates on most of the Atlas junk bonds are between 12.65 percent and 16 percent, holders of about $11 million of the debt earn up to 30 percent annually, says Parker. But with the planned refinancing, Atlas' annual interest payments would fall below $10 million, putting the company in a much better position to enjoy the profits of its labors.

Gee is particularly proud of Atlas' standing as the most efficient among the major carriers. According to the Household Goods Carrier's Bureau, an association of movers that publishes rates, Atlas' operating ratio over the first nine months of 1991 was 94.4 percent. That means in Atlas' household goods business, which is its core operation, the company had just over 94 cents of expenses for every $1 of revenue, leaving just under 6 cents of operating profit. The next best operating ratio belonged to North American Van Lines, a Fort Wayne-based company that is the industry's largest mover, which turned an operating profit of just over 4 cents on the dollar.

"The trouble with many companies is that some of them build empires," Gee says.

There is a tendency in growing businesses "to add a person here and add a person there," says Shaffer. He points to the plethora of U.S. businesses that are slashing employment these days. "How can you cut 40,000 people if you don't have fluff?" Shaffer asks incredulously.

"We don't have that layered kind of management. It's very hands-on," Gee says.

It hasn't always been that way at Atlas. Before the Wesray buy-out piled up the corporate debt, Atlas had frills including a corporate jet and a company hydroplane for racing in events such as Evansville's Thunder on the Ohio. The Wesray years reinforced management's resolve to watch every dollar it spent, Gee says. "It's made it easier in that we were used to it."

Since the beginning of the recession, the household goods business has been flat. Particularly painful was the near total disappearance of military relocations in the early months of 1991 because of the Persian Gulf War. Traditionally, the military accounts for 10 percent of Atlas' business.

But a big growth area for Atlas has been its specialized moving business, now $36 million a year. Specialized moving is the transport of things that pose unique or difficult problems in hauling. Atlas, for instance, moved all of Amoco Corp.'s computer records in a dozen climate-controlled trailers. Had those 200,000 tape cartridges not arrived on time, Amoco would have had difficulty conducting its business.

In particular, Atlas has become a mover and shaker in the trade-show business, reports Jim Stamm, president of the specialized transportation group. Trade shows can pose even more challenges than moving Amoco's computer tapes. At these shows, an exhibitor has to have his display up at a certain time; if he's late, there can be a heavy penalty. The mover typically has a one-hour window for delivery, Stamm says. In one of its biggest specialty moves, Atlas transported 58 van loads of medical equipment to Chicago for a radiology show last Thanksgiving.

While Atlas managers are still a very financially driven bunch, it is hoped there will come a time in five or 10 years when the balance sheet is cured and managers can breathe a little more easily knowing the economics will allow at least some margin for error.

What would Atlas do differently if it had the money? In typical agent-focused fashion, Gee says the company's top priority, once a new financial structure is reached, will be to reduce the 10 percent fee paid by agents.

Parker, who as CFO is particularly under the gun, allows that he is breathing a little more easily already, now that the debt situation has improved. With a grin, he also admits that the focus on finance makes his job interesting, if not downright fun. He concludes, "It's particularly exciting because it's working."
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Title Annotation:Commodities; Atlas Van Lines Inc.'s Chief Executive Officer Norman Gee
Author:Sword, Doug
Publication:Indiana Business Magazine
Article Type:Company Profile
Date:Feb 1, 1992
Words:1880
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