UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

 

Commission file number: 001-31902

SIRVA, INC.
(Exact name of registrant as specified in its charter)

 

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o  No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o  No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o  No x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   Yes o No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o No x

The aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 30, 2005, was $628,394,450.

As of December 31, 2006, 73,964,515 shares of the Registrant’s common stock were outstanding.

Documents incorporated by reference:
None

EXPLANATORY NOTE

On January 17, 2007, SIRVA, Inc. (the “Company”) filed Amendment No. 1 on Form 10-K/A (“Form 10-K/A”) to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2004. The Company originally filed its 2004 Annual Report on Form 10-K with the Securities and Exchange Commission on November 22, 2005. The Form 10-K/A restated the Company’s consolidated financial statements for the years ended December 31, 2004, 2003 and 2002 to correct accounting errors. The most significant error was to the balance sheet, which resulted from not attributing certain goodwill and trade names and associated deferred tax liabilities related to foreign operations to the appropriate foreign entities. As a result, the Company failed to translate the balances using the applicable foreign currency translation rates. In addition, the Company used incorrect foreign currency translation rates for goodwill and intangible assets related to other foreign operations. The financial information in this Form 10-K reflects these restatements. For a more detailed discussion of the corrections and their effects on the 2004, 2003 and 2002 consolidated financial statements, see Note 2 “Restatement” to the consolidated financial statements in Item 8 of the Form 10-K/A for the fiscal year ended December 31, 2004.

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TABLE OF CONTENTS

 

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PART I

ITEM 1.                BUSINESS

Unless the context otherwise requires, the words “we,” “us,” “our” and similar terms, as well as references to “SIRVA” or the “Company” refer to the business of SIRVA, Inc. and all of its subsidiaries, including North American Van Lines, Inc. (“NAVL”), Allied Van Lines, Inc. (“AVL”) and Global Van Lines, Inc. (“GVL”). NAVL, AVL and GVL sometimes are referred to herein collectively as the “Van Lines.”

The Company

We are a world leader in the global relocation industry, providing our relocation solutions (relocation services and moving services) to a well-established and diverse customer base, including more than 11,000 corporate clients and governmental agencies, as well as thousands of individual consumers around the world. Our goal is to provide our customers with comprehensive, customizable relocation solutions that improve their employee’s relocation experience, streamline employee transfer administration, reduce real estate market risk and lower relocation costs. Our services include transferee counseling, home purchase programs, real estate broker and agent referrals to assist transferees with home sales and purchases, mortgage originations, expense management, movement of household goods, global program management and the provision of destination “settling in” services. We globally market and deliver these services under the SIRVA® Relocation brand, as well as a variety of household goods moving brands worldwide.

We provide relocation services through our operating centers located in the United States, Asia, continental Europe, the United Kingdom, Australia and New Zealand. In each location, our customer service and account management teams regularly interact with our corporate clients and their transferring employees to meet their global relocation needs. Most corporate relocations originate in the United States and the United Kingdom.

We also are a world leader in moving household goods. We operate in more than 40 countries under well-recognized brand names, including Allied®, northAmerican®, and Global® in North America; Pickfords, Hoults and Allied Pickfords in the United Kingdom; Huet International in France; Kungsholms in Sweden; ADAM in Denmark; Majortrans Flytteservice in Norway; Allied Arthur Pierre in Belgium, Luxembourg, and France; Allied Varekamp in the Netherlands; Rettenmayer in Germany; and Allied Pickfords in the Asia Pacific region. We provide moving services for corporate, military/government and consumer clients through our worldwide proprietary agent network. In North America, we provide moving services through our branded network of 679 agents who own the trucks and trailers used in moves and are responsible for the packing, hauling, storage and distribution of household goods. We act as a network manager for our agents and provide, among other services, brand management, sales and marketing support, interstate dispatch and planning, billing, collection and claims handling. Outside North America, we provide moving services through a network of Company-operated, agent-owned and franchised locations in Europe and the Asia Pacific region.

We are impacting the global relocation market by combining our relocation service offerings with our proprietary moving services network on a global basis. We provide relocation and moving services through a team of more than 5,700 employees worldwide, operating within four reportable segments—Global Relocation Services, Moving Services North America, Moving Services Europe and Asia Pacific, and Corporate. For certain financial information concerning the Company’s operating segments, see Note 18 “Operating Segments” in the Notes to the Consolidated Financial Statements included in this report.

Global Relocation Services

We offer our customers complete outsourcing of their employee relocation programs. Our services include home sale, purchase and marketing assistance, global program consultation and management,

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expense tracking, compliance reporting, tax reporting, and payroll interface services. We have the ability to aggregate data across all of a customer’s relocation activities, which can provide clients a valuable overview of their relocation program expenses and suggest ways to cut costs and improve services.

Our goal is to meet the needs of transferees with a full suite of customer-focused, innovative service offerings. These services include:

Home Sale.   On behalf of our customers, we manage the appraisal process and arrange for the sale of a transferring employee’s home. In most cases, we arrange and manage an advance on the equity in the home enabling the employee to purchase a new home before the existing home is sold. In addition, under some programs, if an employee’s home is not sold within a specified period, we will purchase the home based on an objective appraised value and continue to market the property until it is sold.

We provide these services under two different product offerings: a traditional model and a fixed-fee model. Under a traditional model, we provide all services on a cost plus basis, and any loss on the home sale and all holding costs incurred while the home is “in inventory” are borne by the customer. Under a fixed-fee model, we provide all of these services to our U.S. customers for a fixed-fee, set as a percentage of the transferee’s home value. For both product offerings, we utilize our network of independent real estate brokers to assist with the transferee home sale and, in the United States, receive a referral fee from the broker.

In the fixed-fee product, we take responsibility for all costs in the home sale process and agree to purchase the home if it is not sold within a pre-determined period or if a third-party sale falls through. When we take a home into inventory, which occurred approximately 16% of the time in 2005 as compared to 13% in 2004, we assume all carrying costs and any loss on resale of the home. In addition, we continue to service the transferring employee’s mortgage until the home is sold or, in the case of government service agencies and some corporate clients, we immediately pay off the mortgage. We have a comprehensive and sophisticated process for minimizing our risk and cost of providing the fixed-fee product and have experienced acceptable home sale losses on individual properties over the history of the program. We believe this product better aligns our interests with our customer’s interests, because it is in our mutual interests to avoid holding homes in inventory for long periods of time and incurring losses on resale. For the year ended December 31, 2005, our fixed-fee product represented approximately 41% of our corporate relocations.

Home Purchase.   Our home finding service provides transferring employees with the tools to empower them throughout the home purchasing process. At each stage of the process, we provide appropriate information, guidance and materials to make the transferee an informed buyer. As with the home sale process, we utilize our network of independent real estate brokers to assist corporate transferees in locating a new home at the destination location. In the United States, we provide this service at no cost to our customer, but receive a referral fee from the real estate broker for any home purchase. In Europe, we perform this service for an agreed-upon set fee. We actively monitor and rate our real estate brokers to ensure cost-effective, high-quality service.

Mortgage Origination.   SIRVA Mortgage, Inc. (“SIRVA Mortgage”) focuses on the mortgage needs of the transferring employee. Our mortgage services complement our home finding services and simplify the overall relocation process for the transferee while reducing total relocation costs for our customer. We simplify relocation lending by providing free consultation, quick pre-approval, minimal paperwork, relocation-specific loan programs, direct bill arrangements, and one-stop shopping through our multi-lender network. SIRVA Mortgage’s multi-lender approach allows us to research rates and loan options offered by national lenders and help the consumer make an informed decision. We provide mortgage services to our customers’ transferring employees, underwriting the mortgage for a transferee’s home purchase. Before a mortgage is underwritten, we obtain the agreement of one of various third-party financial institutions to purchase the mortgage from us. There typically is a processing lag of 20 to 30 days

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from the time we write the mortgages to the time we complete the sale. During this time, the mortgages are carried as current assets and are financed through our mortgage warehouse facility. For the years ended December 31, 2005 and 2004, we originated $1,339.3 million and $1,035.1 million of mortgages, respectively.

Destination Services.   We assist our customers in making relocations more successful by providing a range of services that reduces the inconvenience to transferring employees (and their families) and facilitates their integration into the new location. These services include city orientation, school selection, visa and immigration management, language and cultural training, and other services. We provide these services through a combination of third-party contractors and SIRVA employees, depending, in part, upon the custom for such services in the local market. In cases where we utilize third parties for these services, we typically receive a referral fee from the local service provider.

Global Services.   We have Global Service Centers in 12 countries, with a network of certified business suppliers in 150 countries, enabling us to provide global solutions to local issues. Through these global offices, we offer a full suite of specialized global relocation services to customers and their transferring employees, including assignment management, process management, visa and immigration services, complete destination services, and expense management.

Move Management.   We provide move management services to transferring employees, coordinating the packing, storage and moving of a transferring employee’s household goods, as well as assistance with questions and claims. We provide these services through our own fulfillment network, described below under “Household Goods Moving Services,” or, at a customer’s election, through a non-SIRVA moving company.

We provide all of these relocation services through operating centers located in and around major metropolitan areas throughout the world: the United States, Asia, continental Europe, United Kingdom, Australia and New Zealand. We have a staff of over 900 key relocation specialists dedicated to serving the needs of our clients and transferees. Speaking more than 30 languages and representing many nationalities, this staff coordinates our extended network of service providers, including moving services companies, real estate brokers, appraisers and destination service providers.

Customers expect a streamlined communication process between their human resource managers, transferring employees and us. To meet these needs, account managers provide this single point of contact and accountability for our clients. For individual transferring employees, we provide the full range of relocation services through a lead relocation counselor who draws on other specialists as needed during the relocation process.

We also offer consumers a range of relocation services through employee programs provided by customers and member programs provided by associations and member service organizations. These services currently include real estate broker referrals, mortgage financing and moving services.

Moving Services North America

Through our Allied®, northAmerican® and Global® branded networks, we provide interstate moving services, including household goods packing, storage and transportation services throughout the United States and Canada. We have a leadership position in the industry, and our Allied® and northAmerican® trademarks are considered two of the most widely recognized and respected brand names in moving services.

Household Goods Moving Services.   In North America, we primarily provide our household goods moving services through our network of 679 branded agents. Agents are independently-owned local moving companies that provide customers with the local packing, warehousing and the majority of the hauling required to support household moves. Our network of agents and their drivers own most of the

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equipment used in our moving operations. We act as a network manager for our agents, providing, among other services, brand management, sales and marketing support, interstate dispatch and planning, billing, collection and claims handling. We also have a centralized consumer contact center in the United States that facilitates direct consumer inquiries from a broad range of affinity partners, internet, and other third-party lead sources, as well as from our branded web sites. The contact center provides immediate customer response, service qualification, and real time connection to a preferred local agent.

We hold U.S. transportation authority for all interstate moves and have entered into contracts with local agents with respect to interstate moves and recognize revenues accordingly. In contrast, our agents generally conduct intrastate moves under their own state transportation authorities using our brands, except in certain states such as Texas and California, where we hold intrastate transportation authorities. Therefore, we are not a party to most intrastate transactions and do not recognize revenues and associated costs in connection with such transactions.

Agent Network.   We have developed long-term relationships with our branded agent network, and some of our agents have been affiliated with our company for several generations. Our relationship with the agent network is governed by an agency contract that defines the terms and conditions of the agents’ exclusive representation of us in all interstate household goods shipments, as well as the compensation structure for services provided. While we enter into certain short-term contracts, we will often enter into long-term contracts, typically for a 3 to 16 year period, with selected agents. Our long-term contracts provide security to both parties and ensure us long-term representation and revenues in key markets. In May 2005, a new three-year contract was signed by more than94% of our Allied® agents. As a result of these arrangements, we have historically experienced relatively low agent turnover. No single agent accounted for more than 4% of our linehaul revenues for our Moving Services Household Goods business in 2005.

Owner-Operators.   Owner-operators are independent contractors who work with our agent network and us and provide household goods and specialty transportation fulfillment services. In most circumstances, they own their trucks and coordinate obtaining the labor needed to service customer moves. At December 31, 2005, across our network in North America, there were approximately 1,800 owner-operators contracted almost exclusively by agents in household goods moving and 34 agent contracted owner-operators in our Special Products moving business, which provides for the transportation of non-household goods freight. There are approximately 31 owner-operators contracted directly by NAVL and 17 owner-operators contracted directly by our Special Products moving business.

Moving Services Europe and Asia Pacific

Through our multiple brands in Europe and the Asia Pacific region, we provide international household goods packing, storage and moving services. The combination of these operations, together with our moving services operations in North America, provides us with a leadership position in the moving services industry around the world.

In Europe and the Asia Pacific region, we primarily provide household goods moving services, as well as office and industrial moving services, through a combination of our company-operated locations, our proprietary agent network, and our network of affiliated preferred providers. We operate a majority of the fulfillment assets in Europe and the Asia Pacific regions. During 2005, we continued to dispose of a number of U.K. owned properties, thereby shifting towards a less capital intensive business model. We have continued this shift as we implement the use of more service providers who maintain their own equipment.

We are subject to certain risks relating to our international operations. For a description of these risks, see Item 1A, Risk Factors, “The international scope of our operations may adversely affect our business” and “ We are exposed to currency fluctuations, which may have an adverse effect on us.”

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Customers

We serve a diverse range of customers around the world, including corporations of all sizes, military and government agencies and individual consumers. This diverse client base helps to lower our exposure to downturns or volatility in any one industry or region.

Corporate Customers.   Our corporate customers range from small businesses to large multinational companies. Many of our contracts with corporate customers are terminable by the customer on short notice and generally do not specify a minimum transaction volume. Our customers operate businesses in a variety of industries, including consumer packaged goods, automotive, manufacturing, business and financial services, retail, technology and pharmaceuticals. They are based throughout the United States, Canada, Europe and the Asia Pacific region. No single corporate customer accounted for more than 5.4% of our 2005 revenues.

Military/Government Agencies.   We provide household goods moving services to state and federal government agencies in the United States, including the U.S. Department of Agriculture, the Drug Enforcement Administration, the Federal Bureau of Investigation, all branches of the U.S. military, and government agencies of other countries around the world. These military and government agencies traditionally have represented a stable source of demand for our services and are less subject to economic cycles than our corporate customers. We also provide relocation services to certain U.S. government agencies. In addition, our agreements with the U.S. military may be terminated at the government’s election under certain circumstances. See also Item 1A, Risk Factors, “Because we have not filed our periodic reports with the SEC on a timely basis, we may suffer adverse business consequences, including the delisting of our common stock by the New York Stock Exchange.”

Consumer Market.   We provide domestic and international household goods moving services to consumers around the world. The consumer household goods moving market traditionally has been stable in terms of both volume and price. Selection of a moving company generally is driven by brand, quality, price and capacity.

Seasonality

Our operations are subject to seasonal trends. Revenues and operating income from continuing operations for the quarters ending in March and December are typically lower than the quarters ending in June and September. The stronger performance in the second and third quarters is due to the higher moving shipment count and relocation initiations associated with the summer moving season, which also allows for somewhat higher pricing than in the winter months. The seasonal impact on our quarterly revenues from continuing operations is illustrated by the following table showing quarterly revenues from continuing operations as a percent of the total for the indicated full fiscal years.

 

Sales and Marketing

We have a corporate sales and marketing team of approximately 145 members and a network of over 2,000 agent sales personnel serving the corporate and consumer channels. We address the consumer market through multiple channels, including a customer contact center, printed telephone directories and

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various Internet-based efforts. In addition, we have a dedicated sales team for the military/government market.

While we strive to grow our business in each market, we believe our largest opportunity for continued growth is in the corporate market. Because of our long-standing moving services relationships with many of our corporate clients, we have a performance history that enables us to offer related relocation services to many of them. This combined offering of relocation and moving services can often reduce a customer’s costs, while maintaining or improving the quality of service, and simplifying their administrative effort.

In our corporate market, our sales and marketing groups work in conjunction with our service delivery personnel to pursue four broad objectives:

·                    Attract new clients with our customizable relocation solutions that streamline administration, reduce risk exposure and reduce relocation costs;

·                    Retain existing customers by delivering an increasing level of satisfaction;

·                    Develop innovative new products and services; and

·                    Continually strengthen and support our branded network of agents and their salespeople.

Competition

Global Relocation Services.   The relocation services business is highly competitive and includes a number of major companies that provide a full suite of relocation services, including Realogy Corporation, Prudential Financial Inc., Weichert Relocation Resources Inc., Primacy Relocation LLC and GMAC Home Services, Inc. The remainder of the relocation business is highly fragmented, with a variety of companies, including real estate brokers, moving companies, accounting firms, mortgage firms, destination service providers and business process outsourcing firms, offering individual services.

We believe the basis for competing successfully in this market rests on a company’s ability to meet the needs of customers, including high quality, low cost, low risk, simplified administration and effective knowledge management. The majority of our major competitors approach the market based on their strength in real estate. We approach the market based on our innovative service offerings and our global capabilities.

Moving Services North America.   The moving services business is highly competitive and fragmented within North America. A number of large moving companies provide national services. The remainder of the industry is extremely fragmented with many small private companies that have strong positions in local markets. We compete primarily with national moving companies, including Unigroup Inc. (the operator of United Van Lines, LLC and Mayflower Transit, LLC), Atlas World Group, Graebel Companies, Inc. and Bekins Vanlines, LLC. In the Moving Services North America segment, we also face competition from other types of competitors. These competitors include independent movers, as well as self-storage and self-haul service providers. Quality, customer service, price and capacity are key factors in the mover selection process.

Moving Services Europe and Asia Pacific.   Within Europe and the Asia Pacific region, the moving services industry is also extremely fragmented with competition from regional, national and local moving companies. Many of these companies may specialize in segments of the moving market such as international, domestic or office moving. In Asia Pacific, our chief competitors include Crown Worldwide Holding Ltd., Santa Fe Transports Intl. Ltd., and the Asian Tigers Group. In Europe, competitors include the Brittania Group, Bishop Removals, Crown Relocations, and White and Company in the U.K. domestic moving market and Team Relocations Ltd., Sterling International Group, AGS, UTS, Michael Gerson Ltd., and Interdean Holdings Limited in the international moving market. In the office moving market, competitors include Business Moves Group Ltd. and Harrow Green Ltd.

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Government Regulation

Moving Services North America.   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. interstate motor carrier operations, as a common and contract carrier, are regulated by the Surface Transportation Board (“STB”) and the Federal Motor Carrier Safety Administration (“FMCSA”), which are independent agencies within the U.S. Department of Transportation (“DOT”). The STB has jurisdiction similar to the former Interstate Commerce Commission (“ICC”) over such issues as rates, tariffs, antitrust immunity and undercharge and overcharge claims. The DOT, and in particular the FMCSA, also has jurisdiction over such matters as safety; the registration of motor carriers, domestic freight-forwarders and brokers; insurance (financial responsibility) matters; financial reporting requirements; enforcement of equipment leasing, loading and unloading practices; and consumer protection regulation. 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, which was eliminated in 1996; some of its regulatory functions are now performed by the DOT, the STB and the FMCSA. With respect to interstate motor carrier operations, the FMCSA is the principal regulator in terms of safety, including carrier and driver qualification, drug and alcohol testing of drivers, hours of service requirements and maintenance and qualification of equipment.

Furthermore, in the United States, the Van Lines have been participants in certain collective activities, including collective rate-making 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.

We also are an ocean transportation intermediary pursuant to the Shipping Act of 1984, as amended (“Shipping Act”). As such, we hold ocean freight-forwarder licenses issued by the Federal Maritime Commission (“FMC”), and are subject to FMC bonding requirements applicable to ocean freight-forwarders. We also conduct certain operations as a non-vessel-operating common carrier and are subject to the regulations relating to FMC tariff filing and bonding requirements, and under the Shipping Act, 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 international operations in the United States are subject to various customs and export-control laws and regulation, and we are subject to similar laws and 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.

United Kingdom and Europe.   In the United Kingdom, we are authorized and regulated under the Financial Services Authority in order to sell insurance-style products to our customers. In addition, SIRVA Conveyancing Limited is licensed under the Administration of Justice Act of 1985 to carry out the legal process for the transfer of real property. In both Europe and the United Kingdom, we hold operator licenses and international transport licenses in nine of the countries in which we operate trucks. Operating licenses are not required in all European countries in which we operate. Operating licenses are approvals from the relevant local authority permitting the operation of commercial vehicles from specified bases. One of the prerequisites for these licenses is the employment by the relevant business of individuals who hold certain certificates of professional competence concerning their management of the business’s fleet of vehicles.

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In the United Kingdom and continental Europe, we hold licenses for bonded warehouses at certain major ports of entry in connection with our receipt of imported goods. Across Europe, we are required to comply with data protection legislation to ensure the safe guarding of customers’ information.

Asia Pacific.   In the Asia Pacific region, we hold various commercial vehicle licenses. In Australia, we hold licenses for international relocation for our customs, quarantine and air freight operation and to store dangerous goods in connection with our management and operation of gas refueling tanks. We are licensed under Australia’s Financial Services Reform Act to comply with a 2004 requirement that applies to our sale of insurance-style products within our moving business. In New Zealand, we hold a goods service license to operate as a removalist, licenses for bonded warehouses at major ports of entry in connection with our receipt of imported goods, and government approvals in connection with our establishment as a customs bonded area and an approved facility for exams.

Real Estate Title, Brokerage and Settlement Services.   In order to receive referral fees, SIRVA Relocation is currently licensed as a real estate broker in Ohio and other states. Each state has a varying degree of regulatory and reporting requirements. Various governmental (including the federal, state and local jurisdictions of the many countries in which we operate) laws, rules and regulations, including, but not limited to, those laws, rules and regulations concerning tax obligations, privacy of information, financial controls and real estate, also have a significant impact on our Global Relocation Services segment. SIRVA Settlement, Inc. (formerly known as SIRVA Title Agency, Inc.) is licensed as an insurance title agent in seven states and is pursing title agent licenses in 25 additional states. Each state has a varying degree of regulatory requirements. SIRVA Settlement, Inc. is a registered title agent for five title insurance companies. State title insurance licensing laws and regulation activities, as well as the rules of the title insurance companies, have a significant impact on our title insurance activities.

Mortgage Services.   SIRVA Mortgage is permitted to conduct first lien mortgage lending activity as a mortgage banker in all 50 states and the District of Columbia and second lien mortgage activity in 49 states and the District of Columbia. SIRVA Mortgage has obtained a mortgage lending license and is licensed in good standing (or has received an exemption from regulation) in all states where required. Second lien mortgage activity may be limited in some states due to the type of license SIRVA Mortgage holds or by state laws and regulations. State mortgage licensing laws and regulation activities, as well as federal laws such as the Real Estate Settlement Procedures Act of 1974, as amended, the Truth in Lending Act and the Federal Credit Reporting Act, have a significant impact on our mortgage lending activities.

General.   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 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 conduct international operations primarily through local branches owned or leased by various subsidiaries, as well as franchises in over 40 countries outside the United States and in a number of additional countries through agents and non-exclusive representatives. We are subject to certain customary risks inherent in carrying on business abroad, including the effect of regulatory and legal restrictions imposed by foreign governments.

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Environmental Matters

Our facilities and operations are subject to environmental laws and regulations in the various foreign, U.S., state and local jurisdictions in which we operate. These requirements govern, among other things, discharges of pollutants into the air, water and land, the management and disposal of solid and hazardous substances and wastes, and the cleanup of contamination. In some parts of Europe, we are subject to regulations governing the extent to which we recycle waste. Some of our operations require permits intended to prevent or reduce air and water pollution and these may be reviewed, modified or revoked by the issuing authorities.

We actively monitor our compliance with environmental laws and regulations and management believes that we are presently in material compliance with all applicable requirements. Compliance costs are included in our results of operations and are not significant. We will continue to incur ongoing capital and operating expenses to maintain or achieve compliance with applicable environmental requirements, upgrade existing equipment at our facilities as necessary and 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 or results of operations.

We have been, and in the future may be, responsible for investigating or remediating contamination at our facilities or at off-site locations to which we sent wastes for disposal. For example, because we own or lease or have in the past owned or leased facilities at which underground storage tanks are located and operated, we are subject to regulations governing the construction, operation and maintenance of underground storage tanks and for preventing or cleaning up releases from these tanks. We have incurred, and in the future may 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 materially adverse effect on our financial position or results of operations. Contaminants have been detected at certain of our present or former sites principally in connection with historical operations. We could incur significant costs if we were required to investigate and remediate these sites.

We also purchase residential properties from time-to-time as part of our relocation home sales programs. Such properties may contain underground storage tanks, be contaminated with hazardous mold, otherwise pose hazardous environmental conditions, or be in violation of environmental rules and regulations. As a result, we would be required to manage these environmental issues, including the clean-up of environmental hazards. Any such clean-up may be subject to state and federal regulations, as well as local ordinances.

We have also been named as a potentially responsible party (“PRP”) in two environmental cleanup proceedings brought under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (“CERCLA”), or similar state statutes. Based on all known information, we believe that our established reserves are reasonable under the circumstances. We are not presently able to reasonably estimate additional potential losses, if any, related to these proceedings. We could incur unanticipated costs, however, if additional contamination is found at these sites, or if we are named as a PRP in other proceedings.

Based on our assessment of facts and circumstances now known, management believes it is unlikely that any identified environmental matters, either individually or in aggregate, will have a materially adverse effect on our financial position, results of operations, or liquidity. As conditions may exist on our properties related to environmental problems that are latent or as yet unknown, however, there can be no assurance that we will not incur liabilities or costs, the amount and significance of which cannot be reliably estimated at this time.

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Trademarks

We have registered the marks SIRVA®, northAmerican®, Allied®, Relocation Redefined®, Home Touch!®, and Worldtrac® in the United States and various other countries. Other brand or product names used in this report are trademarks or registered trademarks of their respective owners.

We have been highly active in seeking worldwide protection for numerous marks and logos relating to the “SIRVA,” “northAmerican,” “Allied,” “Global,” “Pickfords” and several of our other brands. We have actively contested unauthorized use of the “SIRVA,” “northAmerican,” “Global” and “Allied” marks. We have largely been successful in protecting our marks, but in a few exceptional circumstances have tolerated some third-party use of similar marks in transport-related commerce where we felt that there was no confusion by such use and no confusion was likely to occur in the future.

Employees

At December 31, 2005, our workforce comprised approximately 5,930 employees. Of these employees, approximately 5,730 were engaged within continuing operations, while approximately 200 were employed within discontinued operations. Approximately 2,080 employees were covered by union agreements, while not all covered employees have elected membership within those unions. The employees covered by union agreements are located in the United Kingdom, Sweden, Norway, Denmark, Australia and New Zealand. We believe our relationships with our employees are good. We have not experienced any major work stoppages in the last ten years.

Discontinued Operations

On September 9, 2004, our Board of Directors authorized, approved and committed us to a disposal plan (the “Disposal Plan”) involving our logistics businesses, which included Specialized Transportation in Europe (“Specialized Transportation”) and our Transportation Solutions segment in North America (“Transportation Solutions”). In February and August 2005, we completed the sale of Specialized Transportation and Transportation Solutions, respectively.

Although not originally contemplated in the Disposal Plan, we completed the sale of our Fleet Service operations in March 2005. In May and August 2005, we completed the sale of our Blanketwrap and Flatbed truckload operations, respectively. This completed our exit from a majority of our commercial freight/logistics businesses.

In December 2005, we completed the sale of our Australian and New Zealand operations of Pickfords Records Management, which was part of our Moving Services Europe and Asia Pacific segment. In December 2005, we also completed the sale of Transguard Insurance Company of America, Inc., National Association of Independent Truckers, LLC, Vanguard Insurance Agency, Inc., and other related companies of the U.S. insurance business (“U.S. Insurance Business”).

Each of the above referenced divested business units were identifiable components of our company, as their operations and cash flows could be clearly distinguished, operationally and for financial reporting purposes, from the rest of our business. The results of these businesses have been reported in discontinued operations in our consolidated financial statements for all periods presented in which they were owned. As part of the classification of these businesses as discontinued operations, general corporate overhead expenses, that were previously allocated to these businesses but will remain after their disposal, have been reclassified to other segments in our consolidated financial statements for all periods presented.

Additional Information

Our filings with the Securities and Exchange Commission (“SEC”), which include this and other annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy

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statements, other reports filed under the Securities Exchange Act of 1934 (“Exchange Act”) and all related amendments, are available free of charge on our website at www.sirva.com and can be found by clicking on “Investors” or “For Investors” and then “SEC Filings.” Our SEC filings are available as soon as reasonably practicable after we electronically submit this material to the SEC. Our reports are also available free of charge on the SEC’s website, www.sec.gov. Our Internet website and the information contained therein or incorporated therein are not intended to be incorporated into this Annual Report on Form 10-K.

For 2005, we filed our annual Chief Executive Officer certification, dated January 18, 2006, with the New York Stock Exchange. Attached as exhibits to this Form 10-K, you will find certifications of our Chief Executive Officer and Chief Financial Officer, as required under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.

ITEM 1A.        RISK FACTORS

If any of the following risks or uncertainties actually occurs, our business, financial condition, operating results, or liquidity could be materially and adversely affected. The trading price of our common stock could decline. In addition, this report contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in those forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this report. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Forward-Looking Statements.”

Material weaknesses in internal control over financial reporting have affected and could continue to affect the timeliness of our filings with the SEC or other regulatory authorities. Such material weaknesses have resulted in the restatement of prior year financial statements.

Management has identified a number of continuing material weaknesses in our internal control over financial reporting. As a result of these weaknesses, we previously restated our audited consolidated financial statements for the years ended December 31, 2004, 2003 and 2002, as well as our unaudited condensed consolidated financial statements for the quarters ended March 31, June 30 and September 30, 2004 and 2003. Although we continue to remediate these weaknesses by implementing further changes to our control environment, the process is not yet complete. Consequently, there remains a risk that the transitional procedures on which we currently rely will fail to be sufficiently effective to assess the effectiveness of our internal controls. The ineffectiveness of these remedial measures, or a delay in their implementation, could affect the timing and accuracy of our future filings with the SEC or other regulatory authorities. See Item 9A “Controls and Procedures” for a further discussion on these matters.

Because we have not filed our annual reports for the years ended December 31, 2004 and 2005, or any of our quarterly reports in 2005 or 2006 on a timely basis, we may suffer adverse business consequences, including the delisting of our common stock by the New York Stock Exchange, defaulting on our credit facilities, loss of customers and a loss of liquidity.

We have not filed any of our periodic reports with the SEC on a timely basis since we last filed our quarterly report on Form 10-Q for the quarter ended September 30, 2004. As a result, we have had to amend the covenants in both our credit agreement and our receivables sale agreement to provide us with more time to make these filings. If we cannot meet these extended deadlines for filing our quarterly reports for 2006, we will have to seek further amendments and waivers. Although we have previously received such amendments and waivers, we cannot give assurance that we will be able to do so again.

Our continued failure to file our quarterly reports for 2006 on a timely basis also could jeopardize our relocation and moving service agreements with the U.S. military. Under the terms of these agreements, our failure to timely file such periodic reports provides the different departments of the U.S. military with the

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right to terminate such agreements. If the U.S. military were to terminate any of these agreements, our revenues would be materially and adversely impacted.

Furthermore, our continued failure to timely file our quarterly reports for 2006 exposes us to the risk that the New York Stock Exchange (“NYSE”) may delist our common stock from trading. If our common stock were delisted from trading on the NYSE, investors would be adversely affected because our common stock would be less liquid.

The occurrence of any of these events, or other unanticipated events resulting from our failure to timely file our quarterly reports in 2006, could harm our overall business and financial results.

We are subject to litigation and governmental investigations as a result of our operations.

We are subject to litigation resulting from our operations, including litigation resulting from accidents involving our agents and drivers. These accidents have involved, and in the future may involve, serious injuries or the loss of lives. In addition, we occasionally are subject to litigation resulting from our home sale transactions. These lawsuits generally involve disclosure and property damage issues. Any such litigation may result in liability to us or harm our reputation. While the impact of any such litigation has been immaterial to our operations and financial condition, there can be no assurance that its impact will not be material in the future.

In addition, we are being investigated by European antitrust regulators regarding potential antitrust violations in Europe. We have established a reserve in accordance with the guidelines set forth in Statement of Financial Accounting Standards No. 5, Accounting for Contingencies that we consider appropriate in the circumstances. Any potential penalties, however, may have a material impact on our earnings in the period in which they are recognized.

Furthermore, we are the subject of a securities class action filed in November 2004 on behalf of all persons who acquired our common stock between November 25, 2003 and November 9, 2004, as well as a second lawsuit brought by an individual plaintiff against us and certain of our directors and officers. These lawsuits were consolidated in January 2006 and allege, among other matters, that we made false and misleading statements in certain press releases and SEC filings, including the prospectuses to our initial and secondary public offerings. This case is in the preliminary stages; its outcome is not predictable at this time, and we are not presently able to reasonably estimate potential losses, if any, related to this lawsuit. Therefore, no amounts have been accrued for these claims. An unfavorable outcome in this case could have a material adverse effect on our business, financial condition, results of operations and cash flow. The defense of any litigation may be costly and divert our attention from the day-to-day operations of our business. In addition, we are under a formal investigation by the SEC related to our January 31, 2005 earnings guidance.

For a more detailed discussion of these and other legal proceedings, see Item 3 “Legal Proceedings” below.

Our ability to engage in certain businesses may be impaired by the regulatory investigations described above.

The regulatory investigations described above may reduce the willingness of counterparties to engage in business with us. Uncertainty concerning the ultimate outcome of these actions and proceedings may also make our products and services less attractive in the marketplace.

Our success depends in part on our strategy of offering a global comprehensive relocation solution to customers.

Historically, the majority of our revenues and income from continuing operations was derived from our moving services businesses. A significant element of our growth model, however, is our strategy of offering a global comprehensive relocation solution to customers by combining our higher-margin

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relocation services with our proprietary moving services network. If we are not successful in implementing our strategy, we could experience an adverse effect on our financial condition or results of operations.

We have had net losses in certain years and we may not be profitable in the future.

We had net losses of $265.4 million, $69.1million, and $39.7 million for the years ended December 31, 2005, 2004 and 2001, respectively. We cannot provide assurance that we will not report net losses in future periods. We cannot predict what impact potential net losses might have on our ability to finance our operations in the future or on the market value of our common stock.

If we do not successfully compete within the highly competitive industries in which we operate, our revenues and profitability could be adversely affected.

The global relocation industry is highly competitive. Our main competitors are other corporate relocation service providers such as Prudential Financial, Inc. and Realogy Corporation, which are also significant customers of our moving services business. The moving services industry is extremely fragmented. We compete primarily with national moving companies, including UniGroup Inc. (the operator of United Van Lines, LLC and Mayflower Transit, LLC), Atlas World Group, Graebel Companies, Inc. and Bekins Vanlines, LLC. In the moving services segment, we also face competition from other types of competitors, including independent movers, self-storage and self-haul service providers. There are many small private participants that have strong positions in local markets.

Competition may force us to lower our prices thereby adversely affecting our revenues and profitability.

Competition in the relocation solutions industry and potential new entrants into this industry may force us to lower our prices, thereby affecting our revenues and profitability. If we do not successfully compete within this highly competitive industry, we will lose customers, in which case our revenues and profitability would be adversely affected. As we are subject to intense competition, we may not be able to achieve our growth objectives in a timely fashion, if at all.

Our business and financial condition could be adversely affected by future economic downturns and other external events.

We serve numerous industries and customers that experience significant fluctuation in demand based on economic conditions and other factors beyond our control. As our operating results are subject to customer demand, a downturn in the business of our customers or a decrease in the frequency of household moves could materially adversely affect the performance of our business. In the past, our results of operations have been negatively impacted by economic downturns.

The volume of U.K. home sale transactions started to decline in the third quarter of 2004 and continues to be weak. This decline, together with difficult market conditions in the European international moving market, may lead to our European operations suffering price pressures as the competition attempts to capture the remaining business volume. There can be no assurance that this period of reduced moving activity will not continue to exert price pressure on our European operations, resulting in lower revenues and profitability.

Similarly, terrorist attacks or other acts of violence or war may affect the financial markets, in general, or our business, financial condition and results of operation, in particular. We cannot provide assurance that there will not be future terrorist attacks affecting any of the markets we serve. Any such attacks or armed conflict may directly affect our physical facilities or those of our agents, owner-operators, customers and vendors. In addition, these events could cause consumer confidence and spending to decrease or could result in increased volatility in the U.S. and world financial markets and economies.

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We have substantial existing debt and may incur substantial additional debt in the future, and the agreements governing our debt contain restrictions that could significantly restrict our ability to operate our business.

At December 31, 2005, we had total outstanding debt of $559.9 million and stockholders’ equity of $96.8 million. We may incur additional debt in the future, which would result in a greater portion of our cash flow from operations being dedicated to the payment of principal and interest on our indebtedness, thereby reducing the funds available to us for other purposes.

Our senior secured credit facility contains a number of significant covenants that, among other things, restrict our ability to incur additional indebtedness, pay dividends, make acquisitions or engage in mergers or consolidations and make capital expenditures. In addition, under our senior secured credit facility, we are required to comply with specified financial ratios and tests, including consolidated leverage ratio and consolidated interest coverage ratio requirements.

In addition, our senior secured credit facility imposes deadlines for providing our annual and quarterly financial statements to our lenders. Unless we further amend the terms of our senior secured credit facility, our failure to timely provide our lenders with quarterly financial statements would result in an event of default under the credit facility. Although we have been able to amend our senior secured credit facility in the past to extend these deadlines, we can give no assurance that we will be able to do so in the future.

Our ability to comply with the covenants and restrictions contained in our debt instruments may be affected by events beyond our control, including prevailing economic, financial and industry conditions. In the past, we have had to amend our agreements in order to stay in compliance with our debt covenants. There can be no assurance that we would be able to comply with such covenants or restrictions in the future. The breach of any of these covenants or restrictions could result in a default or cross default under our debt instruments and would permit the lenders to declare all amounts outstanding thereunder to be due and payable, together with accrued and unpaid interest, and the commitments of our senior secured lenders to make further extensions of credit under our senior secured credit facility could be terminated. If we were unable to repay our indebtedness to our senior secured lenders, these lenders could proceed against the collateral securing that indebtedness.

The recent downgrades in SIRVA’s and SIRVA Worldwide’s credit ratings will increase our borrowing costs.

In May 2006, Standard & Poor’s Ratings Services (“S&P”) lowered its ratings on SIRVA and SIRVA Worldwide, Inc. (“SIRVA Worldwide”) from B+ to B, with all ratings on CreditWatch with negative implications. S&P previously lowered its ratings on SIRVA and SIRVA Worldwide from BB to B+ in August 2005. In July 2005, Moody’s Investors Services also lowered the SIRVA Worldwide, Corporate Family Rating from Ba3 to B2, with a negative outlook. In October 2006, S&P withdrew its ratings on SIRVA and SIRVA Worldwide, reflecting the continued delay in filing updated financial statements for both 2005 and 2006 and the lack of adequate financial information to properly determine SIRVA’s current credit standing and evaluate creditor’s risks. Also in October 2006, Moody’s Investors Services withdrew its ratings for SIRVA and SIRVA Worldwide due to a lack of adequate financial information to maintain the ratings. Because we rely on external sources of financing to fund our operations, the recent downgrades and withdrawals of our debt ratings will increase our borrowing costs or potentially reduce our liquidity and, therefore, adversely affect our results of operations.

Our Global Relocation Services business exposes us to some of the risks of the real estate industry, including risks relating to the purchase, ownership and resale of transferred employees’ homes at a loss.

The growth of our relocation solutions business exposes us to the risks of engaging in the real estate business. As part of our global relocation solutions package, we offer customers home purchase and sale services for their employees. If a transferee’s home cannot be sold within a given period of time

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(“Marketing Period”), we may have to purchase the home for our own account and may ultimately have to sell the home to a third-party at a loss. Some of these fixed-fee programs have short Marketing Periods. In the future, if fixed-fee programs become a larger portion of our business, we may be required to purchase additional homes. In addition, a decline in the volume or value of existing home sales due to adverse economic changes could increase the number of homes that we may have to purchase, and we may have to sell those homes at a loss or carry these homes for longer periods of time, thereby adversely affecting our results of operations.

Weakening real estate markets can increase the number of homes that our Relocation Services business takes into inventory, resulting in increased costs and lower profitability.

Weakening real estate markets continue to negatively impact our home sale programs, resulting in an increase in the number of homes that we purchase and take into inventory. This may continue to increase our inventory costs and the potential for a loss on the sale of a home. Because we finance the purchase of homes taken into inventory, an increase in the number of homes that we take into inventory also increases our borrowings under our revolving credit facility. As a result, these increased costs may result in lower revenues and profitability and increased use of working capital, which may adversely affect our liquidity.

We may not be able to recruit and retain a sufficient number of agents, representatives or owner-operators to sustain our moving services business.

Our Moving Services North America operations 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 and our agents have had some difficulty obtaining or retaining qualified owner-operators in the past due to industry conditions.

Our agents are independent businesses that provide moving and storage services to our and their own customers, and 20 of our 679 agents account for approximately 29% of our moving and storage business in North America. If an agent were to terminate its relationship with us, we might not be able to recruit a replacement to service the same geographic region. Generally, there are few additional new entrants into this business and thus recruiting new agents often requires a conversion of an agent from a competing van line. Competing companies also recruit our agents.

Owner-operators are independent contractors who own their trucks and provide hauling and other services. Fluctuations in the economy and fuel prices, as well as a lifestyle that requires drivers to often be away from home from four to eight weeks at a time, create challenges for new entrants to that business. Further, competition for long haul owner-operators is strong among competing moving companies.

We cannot provide assurance 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 qualified personnel. A loss in the number of experienced drivers could lead to an increased frequency of accidents, potential claims exposure and result in increased insurance costs. Because agents have the primary relationship with customers, we expect that some customers would terminate their relationship should there be a separation between the agent and ourselves. In addition, a loss of agents could impair our ability to guarantee moving capacity to our relocation customers.

Actions taken by our agents may harm our brands or reputation, or result in legal actions against us.

We believe that our strong brand names, including Allied® and northAmerican®, are among our most valuable assets. Our proprietary network of agents in North America operate their businesses using our brand names and, in the case of most intrastate moves, without our involvement. Our agents are independent third parties with their own financial objectives, and actions taken by them, including

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breaches of their contractual obligations to us, could harm our brands or reputation, or result in legal actions against us. Any negative publicity associated with our agents may affect our reputation and thereby adversely impact our results of operations.

We are a holding company with no significant independent operations and, therefore, rely on our subsidiaries to make funds available to us.

We are a holding company with no significant independent operations and no significant assets other than the capital stock of our subsidiaries, including SIRVA Worldwide. Therefore, we depend on the receipt of dividends or other distributions from our subsidiaries. Our senior credit facility contains a number of significant covenants that, among other matters, restrict our ability to incur additional indebtedness, incur capital lease obligations, pay dividends, make acquisitions or engage in mergers or consolidations and make capital expenditures. While the senior credit agreement generally permits dividends and distributions on the capital stock of SIRVA Worldwide’s subsidiaries to SIRVA Worldwide, such dividends and distributions from SIRVA Worldwide to us are limited to 20% of net income, subject to exceptions for transfers to fund our operating expenses in the ordinary course of business. In addition, under our senior secured credit facility, we are required to comply with specified financial ratios and tests, including consolidated leverage ratio and consolidated interest coverage ratio requirements. Our inability to receive funds from our operating subsidiaries could adversely affect our ability to meet our obligations and to make dividend payments and other distributions to holders of our common stock.

Potential liability associated with accidents in the trucking 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 these drivers are involved in accidents, including accidents occurring in operations that do not involve us. 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.

We carry insurance to cover liability and workers’ compensation claims. We cannot provide assurance, 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 our liability, workers’ compensation and casualty premiums were to increase substantially.

If we lost one or more of our government licenses or permits or became subject to more onerous government regulations, including the recent federal safety rules on truck driver work hours and the recent federal consumer protection regulations governing the moving industry, 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. For example, in the United States, we maintain licenses and permits issued by the Surface Transportation Board, the Federal Motor Carrier Safety Administration and the Department of Transportation, as well as the Federal Maritime Commission and banking regulators. We also hold various real estate broker licenses, title insurance licenses and mortgage lending licenses.

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In Europe, we hold operator licenses and international transport licenses issued by the relevant local authorities in nine countries. Across Europe, we are required to comply with data protection legislation ensuring the safeguarding of customers’ information. In the United Kingdom, we are licensed under the Administration of Justice Act of 1985 to carry out the legal process for the transfer of property. In the United Kingdom, we also are licensed by the Financial Services Authority to sell insurance to our customers. We also hold licenses that permit us to sell insurance in certain European and Asia Pacific countries. Furthermore, we hold various commercial vehicle licenses, as well as other licenses for international relocation, in the Asia Pacific region.

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, which in turn could restrict our ability to conduct our business effectively and to provide competitive customer services and thereby have an adverse impact on our financial condition.

We cannot provide assurance that existing laws or regulations will not be revised or that new more restrictive laws or regulations will not be adopted or become applicable to us. For example, new federal safety rules on truck driver work hours were reissued on October 1, 2005. These rules, among other things, increased the time that truck drivers must rest while off duty and decreased the total time that truck drivers could be on duty. In addition, a new federal consumer protection statute enacted on August 20, 2005, deals with consumer moving transactions, and changed, among other things, the requirements relating to estimation and collection practices of movers. We cannot provide assurance that new, more restrictive laws or regulations, including these new rules and regulations, will not materially and adversely affect our productivity and efficiency. We also cannot provide assurance that we will be able to recover from our customers any or all increased costs of compliance or that our business and financial condition will not be materially and adversely affected by these or future changes in applicable laws and regulations.

Furthermore, in the United States, the Van Lines have been participants in certain collective activities, including collective rate-making 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.

Any difficulties with our information systems or our information systems providers could delay or disrupt our ability to service our customers and impair our competitiveness.

Sophisticated information systems are vital to our growth and our ability to manage and monitor the flow of goods that we are transporting and to provide relocation services. As these systems continue to rapidly evolve, 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. These difficulties could have a materially 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 them to provide lower priced or enhanced services and superior quality compared to those we provide. The above circumstances could have a materially adverse effect on our ability to compete.

In the United States, two third-party vendors together provide 100% of our domestic moving services information systems infrastructure and our application software development. We provide information

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systems infrastructure and our application software development resources for Global Relocation Services. In Europe and the Asia Pacific region, the information systems infrastructure and application software development are provided through a combination of third-party vendors and company-owned networks and employees. While we have a disaster recovery plan in conjunction with these vendors, we can provide no assurance that the plan will be adequate in the event of an actual disaster. Adverse conditions affecting the financial condition and other important aspects of these vendors’ operations may adversely affect our ability to operate efficiently or to continue operations under certain adverse conditions.

We depend on our highly trained executive officers and employees. Any loss of these employees or any difficulty in hiring equally qualified employees could 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 materially adverse effect on us. In addition, our success depends on our ability to continue to attract, recruit and retain sufficient qualified personnel as we grow. Competition for qualified personnel is intense. We cannot provide assurance that we will be able to retain senior management, integrate new managers or recruit qualified personnel in the future.

If we acquire any companies or technologies in the future, they could prove difficult to integrate, disrupt our business, dilute stockholder value or have an adverse effect on our results of operations.

We intend to expand our business through the combination of internal growth and strategic acquisitions. The execution of future acquisitions could involve numerous risks, including:

·                    potential disruption of our ongoing business and distraction of management;

·                    difficulty integrating the operations and products of the acquired business;

·                    unanticipated expenses related to technology integration;

·                    exposure to unknown liabilities, including litigation against the companies we may acquire;

·                    additional costs due to differences in culture, geographic locations and duplication of key talent; and

·                    potential loss of key employees or customers of the acquired company.

If we make acquisitions in the future, acquisition-related accounting charges may affect our balance sheet and results of operations. We may not be successful in addressing these risks or any other problems encountered in connection with any acquisitions.

A few significant stockholders exercise significant influence over the direction of our business. If the ownership of our common stock continues to be highly concentrated, it will prevent other stockholders from influencing important corporate decisions.

Clayton, Dubilier & Rice Fund V Limited Partnership (“Fund V”) and Clayton, Dubilier & Rice Fund VI Limited Partnership (“Fund VI” and, together with Fund V, the “CD&R Funds”) beneficially own approximately 23.1% and 9.6%, respectively, of the outstanding shares of our common stock. As a result, the CD&R Funds will continue to exercise significant influence over matters requiring stockholder approval and over our policy and affairs. In addition, Clayton, Dubilier & Rice, Inc. (“CD&R”), which manages Fund V and Fund VI, will continue to provide us with financial advisory and management consulting services for which it may be entitled to receive fees, including financial advisory fees, in the future.

The concentrated holdings of the CD&R Funds and the presence on our Board of Directors of Fund V designees may result in a delay or the deterrence of possible changes in control of our company, which may reduce the market price of our common stock. In addition, two of our directors are also partners of

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ValueAct Capital, which beneficially owns approximately 9.6% of the outstanding shares of our common stock. ValueAct Capital also holds a note which, subject to stockholder approval, is convertible into approximately 20.2% of the outstanding shares of our common stock based upon the number of shares outstanding as of December 31, 2006. Further, ValueAct Capital, as a holder of our Series A preferred stock, has the right to elect two directors to our Board of Directors.

The interests of our principal stockholders may conflict with the interests of our other stockholders. Our Board of Directors has adopted corporate governance guidelines that require each director to avoid taking actions or having interests that might result in a conflict of interest with our company. Each director is required to ethically handle all actual or apparent conflicts of interest between personal and professional relationships, including promptly informing the corporate secretary if such a conflict arises and recusing himself or herself from any discussion or decision affecting his or her personal interests. Accordingly, our directors who are employees of CD&R or ValueAct Capital will be required to recuse themselves from any discussion or decision regarding any transaction with the respective stockholders. In addition, we have adopted a code of business conduct that, among other things, requires our employees to avoid actions or relationships that might conflict or appear to conflict with their job responsibilities or the interests of SIRVA, and to disclose their outside activities, financial interests and relationships that may present a possible conflict of interest or the appearance of a conflict to management or corporate counsel. These guidelines and code do not, by themselves, prohibit transactions with our principal stockholders.

Fuel is a significant cost element in the trucking transportation industry. Fuel prices are currently high and may continue to rise. Fuel prices and the availability of fuel have been subject to volatility in the past.

We utilize numerous trucks and tractor trailers that depend on fuel in the performance of day-to-day services in the household goods and office moving lines of our business, which are parts of our Moving Services North America and Moving Services Europe and Asia Pacific segments. We often employ the services of third-party transportation providers, particularly owner-operators in the U.S. domestic moving business, who also depend on fuel and, as a result, are subject to variations in fuel prices. We cannot provide assurance that fuel prices will remain stable or that supplies of fuel will always be available. Should costs escalate, we may be unable to fully recover the cost increase by increasing the price for our services. Third parties who provide transportation services to us may be unwilling to continue to do so without an increase in compensation. As a result, our operating margins could decrease, thereby adversely affecting our profitability.

Contingent or future environmental liabilities could cause us to incur significant costs and adversely affect our operations.

We are subject to a wide range of environmental laws and regulations under the foreign, U.S., state and local laws that govern our operations. Among other things, these requirements regulate discharges of pollutants into the water, air and land, the use, management and disposal of hazardous substances, and the cleanup of contaminated sites. In certain European locations, we are required to recycle specified portions of our waste products. We could incur substantial costs, including cleanup costs, fines and civil or criminal penalties, third-party property damage or personal injury claims, or the reduction or suspension of our operations as a result of violations of or liabilities under environmental laws or non-compliance with the environmental permits required at our facilities. Contaminants have been detected at some of our present or former sites, principally in connection with historical operations. In addition, we own or lease, or in the past have owned or leased, facilities at which underground storage tanks are located, some of which have leaked in the past. We have been, and may in the future be responsible for, investigating and remediating contamination at these sites, or at off-site locations where we sent hazardous wastes for disposal. While we regularly make capital and operating expenditures to stay in compliance with environmental laws, future or contingent environmental liabilities, including remediation costs, could have a material effect on our business. See Item 1, “Business - Environmental Matters.”

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Our business is highly seasonal, which leads to fluctuations in our operating results and working capital needs.

The relocation and moving businesses are highly seasonal due to the increase in moving activity during the summer months. Our results of operations and cash flow fluctuate significantly from quarter to quarter due to the higher shipment and home closing amounts experienced in the summer months. Certain of our operating expenses are fixed and cannot be reduced during the fall and winter months, when there is decreased demand for relocation and moving services. If we are unable to capitalize on the peak summer season or successfully manage the decreased activity during other parts of the year, our annual performance may be materially adversely affected. The seasonal nature of the relocation and moving businesses results in increased short-term working capital requirements in summer months.

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 obligations could increase significantly.

From time-to-time, certain parties, including the Internal Revenue Service, state authorities and the owner-operators themselves, have sought to assert that owner-operators in the trucking industry are employees rather than independent contractors. To date, these parties have not been successful in making these assertions against us. We consider all of our owner-operators to be independent contractors. We cannot provide assurance 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, these changes may be applied retroactively, and if so we may be required to pay additional amounts to compensate for prior periods.

Our certificate of incorporation, by-laws and Delaware law may discourage takeovers and business combinations that our stockholders might consider in their best interests.

Provisions in our restated certificate of incorporation and amended and restated by-laws may delay, defer, prevent or render more difficult a takeover attempt that our stockholders might consider in their best interests. These provisions include:

·                    authorization of the issuance of preferred stock, the terms of which may be determined at the sole discretion of the board of directors;

·                    establishment of a classified board of directors with staggered, three year terms;

·                    provisions giving the board of directors sole power to set the number of directors;

·                    limitation on the ability of stockholders to remove directors;

·                    prohibition on stockholders from calling special meetings of stockholders;

·                    establishment of advance notice requirements for stockholder proposals and nominations for election to the board of directors at stockholder meetings; and

·                    requirement of the approval by the holders of at least 75% of our outstanding common stock for the amendment of our by-laws and provisions of our certificate of incorporation governing:

·                     the classified board of directors,

·                     the removal of directors only for cause by holders of at least 75% of our outstanding common stock,

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·                     the liability of directors, and

·                     the elimination of stockholder actions by written consent.

These provisions may prevent our stockholders from receiving the benefit from any premium to the market price of our common stock offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging takeover attempts in the future.

Our restated certificate of incorporation and amended and restated by-laws may also make it difficult for stockholders to replace or remove our management. These provisions may facilitate management entrenchment that may delay, defer or prevent a change in our control, which may not be in the best interests of our stockholders.

The international scope of our operations may adversely affect our business.

We face certain risks because we conduct an international business, including:

·                    restrictions on foreign ownership of subsidiaries;

·                    compliance with import/export and customs laws of the United States and other countries;

·                    tariffs and other trade barriers;

·                    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 or where our information systems support and application software development is performed could have a materially adverse effect on us.

We are exposed to currency fluctuations, which may have an adverse effect on us.

A large portion of our revenues are from operations outside of the United States. These revenues are denominated in the local currency of the country in which our international subsidiaries own their primary assets. Although the majority of expenses are incurred in the same currency in which corresponding revenues are generated, we are exposed to fluctuation in foreign currencies in the translation of the applicable currencies into U.S. dollars. We utilize foreign currency forward contracts in the regular course of business to manage our exposure against foreign currency fluctuations; however, any fluctuation in value of the U.S. dollar relative to these currencies could have an adverse effect on us.

ITEM 1B.       UNRESOLVED STAFF COMMENTS

None.

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ITEM 2.                PROPERTIES

Our facilities consist primarily of leased office space located throughout the world. Facilities owned or leased include 17 for Global Relocations Services, five for Moving Services North America, 171 for Moving Services Europe and Asia Pacific, five for Corporate, ten facilities which are shared by Global Relocation and Moving Services, and one facility which is shared by Global Relocation Services and Corporate. At December 31, 2005, we had 224 facilities around the world, 15 owned and 209 leased. These totals include four facilities in the United States and three facilities in New Zealand which are not utilized in operations and are subleased. The following table sets forth our owned or leased properties by segment and location:

 

We believe that our office, warehouse, and distribution facilities are generally well maintained and suitable to support our current and planned business needs. There is an ample supply of alternative space available on similar terms and conditions in each market.

ITEM 3.                LEGAL PROCEEDINGS

Securities Class Action

In November 2004, a purported securities class action complaint, Central Laborers’ Pension Fund v. SIRVA Inc., et al., No. 04-CV-7644, was filed in the U.S. District Court for the Northern District of Illinois against us and certain of our current and former officers and directors. The court has appointed Central Laborers’ Pension Fund as the lead plaintiff and Saxena White P.A. as lead plaintiff’s counsel. On May 13, 2005, plaintiff filed a “corrected” complaint which alleged, among other things, that defendants had made false and misleading statements in certain press releases and SEC filings, including the prospectuses for SIRVA’s initial and secondary public offerings.

On October 11, 2005,  plaintiff filed its Consolidated Amended Class Action Complaint (the “Amended Complaint”), followed by a corrected version on October 19, 2005. The Amended Complaint

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added ten new defendants, including an additional SIRVA director, the seven underwriters which participated in our initial and secondary public offerings, our independent registered public accounting firm, and the private investment fund that manages our controlling shareholder. The Amended Complaint purported to be brought on behalf of all those who acquired SIRVA’s common stock between November 25, 2003 and January 31, 2005. The Amended Complaint also contained allegations relating to the following areas: our restatement of financial statements and accounting errors for years 2000 through 2003 and the first nine months of 2004, problems in our European operations, insurance reserves, financial forecasting, and internal controls. The statements subject to the Amended Complaint are alleged to violate Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended (the “Securities Act”), as well as Sections 10(b), 20(a), and 20A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Plaintiff seeks unspecified damages.

On January 3, 2006, we and all other defendants moved to dismiss the Amended Complaint for failure to state a claim upon which relief can be granted. On September 22, 2006, the court granted in part and denied in part that motion. It dismissed in full, without prejudice, the claim under Section 12(a)(2) of the Securities Act, as well as various allegations underlying the other claims, and granted plaintiff 30 days to amend its complaint. On October 23, 2006, plaintiff filed its Consolidated Second Amended Class Action Complaint (the “Second Amended Complaint”) in order to replead claims that the court dismissed without prejudice. On November 14, 2006, we and all other defendants filed our answer to the Second Amended Complaint. On November 15, 2006, we and certain of the other defendants moved in part to dismiss the Second Amended Complaint.

This case is in the preliminary stages; its outcome is not predictable at this time, and we are not presently able to reasonably estimate potential losses, if any, related to this lawsuit. Therefore, we have not established a reserve for these claims. An unfavorable outcome in this case could have a material adverse effect on our overall operations, financial condition, or liquidity. In addition, the defense of any litigation may be costly and divert our attention from the day-to-day operations of our business.

SEC Investigation

In February 2005, we received notice of an informal inquiry from the SEC related to our January 31, 2005 earnings guidance announcement for the fourth quarter and full year ended December 31, 2004. In June 2005, the SEC staff informed us that the inquiry had been converted into a formal investigation. We continue to cooperate with the investigation.

We believe that, based on information currently available, the outcome of the SEC investigation will not have a material adverse impact on our overall operations, financial condition or liquidity, although there can be no assurance that it will not. Any potential penalties, however, may have a material impact on our earnings in the period in which they are recognized.

Governmental Investigations—Department of Justice

We entered into a plea agreement with the Department of Justice (the “DOJ”) in February 2006, pursuant to which one of our subsidiaries, Allied Freight Forwarding, Inc. (“Allied Freight”), entered guilty pleas to two counts of violating the Sherman Antitrust Act, 15 U.S.C §1. Pursuant to the plea agreement, Allied Freight was required to pay a fine of approximately $1.0 million to the U.S. government, which was accrued in 2004. This settlement resolves the DOJ’s criminal investigation of certain conduct by Allied Freight and certain former employees occurring between April 2000 and October 2001. That investigation related to the transportation of U.S. military members’ household goods between the United States and foreign countries, which is managed by the Surface Deployment and Distribution Command (formerly known as the Military Traffic Management Command) of the U.S. Army, utilizing private moving companies.

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Governmental Investigations—European Union

Some of our moving services operations in Europe are being investigated by European antitrust regulators. The investigations involve certain anticompetitive practices and may expose us to administrative and other penalties.

In Europe, antitrust regulators have the authority to levy fines. The total amount of any fine levied by a regulator for a particular infringement cannot exceed 10% of the total revenue of the entity on which the fine is levied in the year preceding the levying of the fine. The amount of any fine takes account of the scale of the infringing entity and is computed based on the gravity of the infringement and its duration. It is adjusted to take account of any aggravating or attenuating circumstances and may be reduced to reflect cooperation with the investigative process. Any fine is imposed by way of a regulatory decision, which is preceded by the issuing of a statement of objections in which the regulator sets out its preliminary findings on any infringement. The addressee of the statement of objections is given the opportunity to respond to the findings set out in the statement of objections. In October 2006, we received a statement of objections from the European Commission. In December 2006, we provided our response to the statement of objections.

We are cooperating with the investigations. For the year ended December 31, 2005 and 2004, we incurred $1.1 million and $1.0 million, respectively, in legal fees and expenses in relation to this matter and have established a reserve that we consider appropriate under the circumstances.

We believe that, based on information currently available, the outcome of the European antitrust investigation will not have a material adverse impact on our overall operations, financial condition or liquidity, although there can be no assurance that it will not. Any potential penalties, however, may have a material impact on our earnings in the period in which they are recognized, which could have a material adverse effect on our overall operations, financial condition or liquidity.

Governmental Investigation—Australia

In August 2004, our Australian moving subsidiary, SIRVA (Australia) Pty. Ltd. (“SIRVA Australia”), received notice from the Australian Competition & Consumer Commission (“ACCC”) stating that the ACCC was aware of allegations that SIRVA Australia may have been involved in, or may have documents or information in relation to, collusive arrangements or understandings to fix prices and share tenders with respect to moves made within and from the Australian Capital Territory, which were contracted by and on behalf of certain Australian government agencies. The ACCC’s notice identified 12 other companies that were alleged to have been involved in the arrangements that are the subject of the investigation. SIRVA Australia produced records in response to this notice. In the first quarter of 2006, the ACCC decided not to take any further action in this investigation.

Environmental Cleanup Proceedings

We have been named as a potentially responsible party (“PRP”) in two environmental cleanup proceedings brought under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, or similar state statutes. Based on all known information, we believe that our established reserves are reasonable under the circumstances. We are not presently able to reasonably estimate additional potential losses, if any, related to these proceedings. We could incur significant unanticipated costs, however, if additional contamination is found at these sites, or if we are named as a PRP in other proceedings.

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Other

The Owner-Operator Independent Driver Association (“OOIDA”), an association for truck drivers that has litigated numerous lawsuits against trucking companies throughout the United States, has filed lawsuits against NAVL, AVL and an AVL agent, alleging violations of federal Truth in Leasing regulations. The OOIDA lawsuits are in their preliminary stages and their outcome cannot be predicted at this time. Consequently, we are not presently able to reasonably estimate potential losses, if any, related to these lawsuits.

In addition, we are involved from time-to-time in other routine legal matters incidental to our business, including lawsuits relating to the conduct of our agents and drivers. Such accidents have included, and in the future may include, serious injuries or the loss of lives. While we may be liable for damages or suffer reputational harm from litigation, we believe that such legal proceedings will not have a materially adverse effect on our financial position, results of operations or liquidity.

Also, see Note 17 “Commitments and Contingencies” to our Notes to the Consolidated Financial Statements, which is included in this report and incorporated by reference herein.

ITEM 4.                SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On December 30, 2005, we held our annual meeting of stockholders, and Brian P. Kelley and General Sir Jeremy Mackenzie were re-elected to the Board of Directors as Class II Directors for three-year terms expiring at the 2008 annual meeting of stockholders. In addition, the stockholders approved the recommendation of the Audit Committee that PricewaterhouseCoopers LLP be appointed as the Company’s independent registered public accounting firm for 2005. The votes on these matters were as follows:

Election of Directors

 

The term of office of each of the following directors continued after the meeting: Kathleen J. Affeldt, Frederic F. Brace, Robert J. Dellinger, John R. Miller, Robert W. Nelson, James W. Rogers, Axel Rückert, Richard J. Schnall and Carl T. Stocker.

Ratification of PricewaterhouseCoopers LLP as independent registered public accounting firm for 2005

 

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PART II

ITEM 5.     MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed on the NYSE under the symbol “SIR.” At January 1, 2007, there were 135 stockholders of record. The following table sets forth, for the period indicated, the high and low sale prices, as reported on the NYSE:

 

 

 

We have not paid, and do not expect for the foreseeable future to pay, dividends on our common stock. Instead, we anticipate that all of our earnings in the foreseeable future will be used for the operation and growth of our business and the repayment of debt. The payment of dividends by us to holders of our common stock is limited by our credit agreements, which restrict our operating subsidiaries’ ability to pay dividends to SIRVA. Any future determination to pay dividends on our common stock is subject to the discretion of our Board of Directors and will depend upon various factors, including our results of operations, financial condition, liquidity requirements, restrictions imposed by applicable law and our contracts, and other factors deemed relevant by our Board of Directors. In addition, our ability to pay and declare dividends on our common stock is restricted by the preferential rights of holders of our convertible perpetual preferred stock to receive specified dividends.

We maintain a corporate governance page on our website that includes key information about our corporate governance initiatives. That information includes our Corporate Governance guidelines, Code of Business Conduct and charters for our Audit, Compensation, Nominating and Governance, Executive and Finance Committees. The corporate governance page can be found at www.sirva.com, by clicking on “Investors” and then “Corporate Governance.” Links to the relevant charters and guidelines appear under the headings “Committee Charters” and “Governance Documents.” Copies of the code, the guidelines, and these charters are also available to stockholders upon request, addressed to SIRVA, Inc., 700 Oakmont Lane, Westmont, Illinois 60559, Attention: Investor Relations, or by calling 630-570-3000. The information on our website is not a part of this report.

During the period covered by this report, there were no repurchases of common stock, sales of unregistered securities, or proceeds from the sale of registered securities. See Item 12 “Security Ownership

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of Certain Beneficial Owners and Management and Related Stockholder Matters—Equity Compensation Plan Information” for further information concerning compensation plans under which our equity securities are authorized for issuance.

ITEM 6.     SELECTED FINANCIAL DATA

*       Fiscal years 2004, 2003, 2002 and 2001 financial information is restated as reflected in the Form 10-K/A Amendment No. 1 for the year ended December 31, 2004.

(1)   In 2005, within the Corporate segment, we recognized $61.1 million of expense as a result of certain independent and internal reviews conducted by the Audit Committee of our Board of Directors and

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management (see Note 4 “Independent and Internal Reviews” in the Notes to the Consolidated Financial Statements). For a description of these reviews, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  We also recognized impairments of $52.8 million related to goodwill, intangibles, and property and equipment of the continental Europe business within the Moving Services Europe and Asia Pacific segment (see Note 7 “Goodwill and Intangible Assets” in the Notes to the Consolidated Financial Statements). In addition, we recognized restructuring expense of $9.9 million related to the U.K. and continental Europe restructuring plan. In 2004, there was a charge of $2.8 million related to the U.K. operations in conjunction with the 2004 Disposal Plan (see Note 5 “Restructuring Expense” in the Notes to the Consolidated Financial Statements).

(2)   In 2005, charges to increase the valuation allowance for U.S. and certain foreign subsidiaries’ net deferred tax assets of $169.5 million were recorded, of which $150.5 million was allocated to continuing operations (see Note 9 “Income Taxes” in the Notes to the Consolidated Financial Statements). In 2004, we recognized $1.8 million of debt extinguishment expenses consisting of $0.8 million of early payment premium and $1.0 million of deferred debt issuance costs on the retirement of $11.0 million of 133¤8% senior subordinate loans. In 2003, we recognized $37.6 million of debt extinguishment expense, consisting of $25.0 million of bond tender premium on the 133¤8% senior subordinated notes and a $12.6 million write-off of deferred debt issuance costs on the prior senior credit facility and indenture. In addition, we recorded a $1.3 million write-off of unrecognized interest rate hedging losses in connection with our debt refinancing.

(3)   Earnings per share and weighted-average common shares outstanding give effect to the split of each share of our common stock by way of reclassification into 3.17 shares of common stock that became effective on November 24, 2003. Income available to common stockholders is reduced by preferred share dividends of $1.9 million, $3.6 million and $3.4 million in 2003, 2002 and 2001, respectively. There were no preferred share dividends recognized in 2005 or 2004.

(4)   We adopted SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”), with effect from January 1, 2002. In accordance with SFAS No. 142, we no longer amortize goodwill and indefinite-lived intangibles. Goodwill and indefinite-lived intangible amortization expense, net of tax was $8.8 million, or $0.21 per basic and diluted share in 2001.

(5)   Short-term debt consists of the current portion of long-term debt and capital leases, amounts outstanding under our mortgage warehouse credit facilities and our relocation financing facilities, and other short-term debt.

(6)   Long-term debt consists of long-term debt and capital lease obligations.

(7)   Prior to the initial public offering of SIRVA common stock, which began on November 25, 2003, certain of our key employees had the right to require us to repurchase at fair value all of the shares and the exercisable portion of options held upon death, disability, retirement at normal age or termination without “Cause” (as defined in the SIRVA, Inc. Stock Incentive Plan). Such securities were classified as “Redeemable Shares of Common Stock” within mezzanine equity. This repurchase right terminated upon the consummation of the initial public offering and, as a result, these securities were reclassified to common stock.

(8)   In connection with the acquisition of the Allied and Pickfords businesses, we issued 24,500 shares of redeemable junior preferred stock, due in 2010, to an affiliate of Exel plc. Effective July 1, 2003, we adopted SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, which resulted in a reclassification of our redeemable junior preferred stock from mezzanine equity to a liability. The redeemable junior preferred obligation was redeemed with the proceeds of the initial public offering.

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(9)   EBITDA from continuing operations is defined as income (loss) from continuing operations before income taxes, interest, and depreciation and amortization. We believe that EBITDA from continuing operations is a relevant measurement for assessing performance since it attempts to eliminate variances caused by the effects of differences in taxation, the amount and types of capital employed, the results of discontinued operations, and depreciation and amortization policies. EBITDA from continuing operations is not a measure determined in accordance with generally accepted accounting principles and should not be considered by investors as an alternative to income from continuing operations or net income as an indicator of our performance. The EBITDA from continuing operations disclosed here is not necessarily comparable to EBITDA from continuing operations disclosed by other companies because EBITDA from continuing operations is not uniformly defined.

The following table shows a reconciliation of EBITDA from continuing operations to income (loss) from continuing operations before income taxes:

 

Amortization of debt issuance costs of $1.8 million, $1.6 million, $1.7 million, $1.6 million and $1.4 million for the years ended December 31, 2005 through 2001, respectively, have been excluded from interest expense, net in the table above and included in depreciation and amortization.

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ITEM 7.                MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We are a world leader in the global relocation industry providing our solutions, including transferring corporate and government employees and moving individual consumers, to a well-established and diverse customer base. We operate in more than 40 countries under well-recognized brand names including SIRVA®, Allied®, northAmerican®, Global® and SIRVA Relocation in North America; Pickfords in the United Kingdom; Maison Huet in France; Kungsholms in Sweden; ADAM in Denmark; Majortrans Flytteservice in Norway; Rettenmayer in Germany; Allied Arthur Pierre in Belgium, France and Luxembourg; Allied Varekamp in the Netherlands; and Allied Pickfords in the Asia Pacific region. We are impacting the global relocation market by combining our relocation service offerings with our proprietary moving services network on a worldwide basis. This combination addresses our corporate and government customers’ needs for a comprehensive service offering with global reach from a single supplier. In addition, we offer a variety of services targeted at meeting the needs of truck drivers, fleet owners and agents, both inside and outside our proprietary agent network.

On January 17, 2007, we filed Amendment No. 1 on Form 10-K/A (“Form 10-K/A”) to our Annual Report on Form 10-K for our fiscal year ended December 31, 2004. We originally filed our 2004 Annual Report on Form 10-K with the SEC on November 22, 2005. The Form 10-K/A restated our consolidated financial statements for the years ended December 31, 2004, 2003 and 2002 to correct accounting errors. The most significant error was to the balance sheet, which resulted from not attributing certain goodwill and trade names and associated deferred tax liabilities related to foreign operations to the appropriate foreign entities. As a result, we failed to translate the balances using the applicable foreign currency translation rates. In addition, we used incorrect foreign currency translation rates for goodwill and intangible assets related to other foreign operations. The financial information in this Form 10-K reflects these restatements. For a more detailed discussion of the corrections and their effects on the 2004, 2003 and 2002 consolidated financial statements, see Note 2 “Restatement” to our consolidated financial statements in Item 8 of the Form 10-K/A for the fiscal year ended December 31, 2004.

The results for 2005 reflected challenges on several fronts. The decline in the European moving industry that started in late 2004 reached its full impact in 2005 with moving volumes, especially in the United Kingdom, down substantially. This European market situation necessitated restructuring activities and resulted in an impairment of goodwill and intangibles. The summer moving volumes in North America remained healthy, but the cost to purchase capacity outside our network increased causing overall results to decline. Global Relocation Services began to feel the impact of a slower U.S. housing market late in 2005, increasing the costs related to homes entering inventory. While Global Relocation Services continued to grow and win new clients, margins were reduced in a slowing U.S. housing market. In addition, we incurred significant cost and devoted substantial management energies on the internal reviews and independent investigations conducted by our Audit Committee of the Board of Directors. As a result, operating margins declined in all segments. We did make significant strategic progress in 2005 in divesting non-core businesses to allow us to focus on our Relocation Solutions business. The divestitures of a majority of our remaining logistics businesses, the sale of our U.S. Insurance Business, and the divestiture of the Records Management businesses in Asia Pacific were completed. In March 2006, we completed the sale of our U.K. and Ireland Records Management business.

In 2005 and 2006, we have also observed a decline in the U.S. housing market. We are carefully monitoring this and other economic indicators. This decline is revealing itself in lower moving volumes in our Moving Services North America segment as well as slower home sales in our Global Relocation Services segment. A broad decline in the U.S. housing market would significantly impact our profitability both in our Moving Services North America and Global Relocation Services segments. The Moving

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Services North America segment is susceptible to volume swings, and our Global Relocation Services segment is exposed to U.S. real estate trends and prices due to the nature of its fixed-fee product offering.

We have embarked on a strategy to grow our fixed-fee business. Our fixed-fee product, which better aligns our interests with those of our customers, provides corporations with a lower and more predictable overall cost solution than traditional cost-plus relocation products. While increased market acceptance of the fixed-fee product has been the primary driver of our growth, it has also increased our risk in a declining real estate market. A key component of the fixed-fee product is the provision whereby we will purchase the transferring employee’s home at an appraised value if it does not sell on the open market within a specified period of time. While there are many detailed contractual provisions included in this product offering that help to mitigate our risk associated with this product, we bear the risk that the sale of certain homes will be delayed and that we will be required by contract to purchase the home. This risk is different for each customer depending on the contractual amount of time allowed to sell the home in the open market and local real estate market conditions. We price the fixed-fee product as a percentage of home value which includes a pricing adjustment for these risk factors. The rate at which homes come into our inventory and magnitude of average losses have a significant impact on both our profitability and working capital requirement. Beginning in 2005, we began experiencing both a slowdown in the residential real estate market and changes in customer mix, which shortened the average marketing period before a home is eligible to come into inventory. As a result, while the Global Relocation Services segment continues to gain new customers and thus increase its revenue despite the market weakness, costs associated with the fixed-fee product also continue to rise.As a result of these factors, 16.7% of home sale closings were purchased into inventory in 2005, and total inventory at December 31, 2005 increased 25.7% from December 31, 2004. In addition to higher levels of inventory, we also experienced higher average losses as homes closed out of inventory due to the decline in the real estate market. Gross margin on home sale revenue was a loss of $13.9 million in 2005, as compared to a loss of $6.0 million in 2004, due to a combination of higher inventory volumes and higher losses on sale.

In our Moving Services North America segment, volume demand and pricing power remained healthy throughout 2005 contributing to a 7.7% increase in revenue from 2004. Operating income declined 45.7% due to higher absorption of corporate support costs previously absorbed by discontinued operations and higher peak season  transportation costs as a result of constrained summer hauling capacity.

In the Moving Services Europe and Asia Pacific segment, Europe faced a very difficult market exiting 2004, which continued throughout all of 2005. In response, throughout 2005 we took the necessary steps to rationalize the cost structure of the business and to continually reduce our asset base in Europe. Significant progress was made on both fronts.

·       Cost reductions were made in most of the European countries in which we operate, but the United Kingdom and France had the largest changes. In the United Kingdom., which experienced a 30% year-over-year market decline resulting in significant gross margin pressure, we have reduced headcount by 21% since the start of the market decline. In addition, we have moved from a structure of 18 operating regions down to four to streamline costs and decision making.

·       In France, we combined our two branded businesses, Allied Arthur Pierre and Maison Huet, into one operation. This, along with a number of cost reductions, resulted in a 50% reduction in headcount and a 40% reduction in costs.

·       In total, annualized costs in Europe, including both direct and operating expenses, have been reduced by over $20.0 million, and headcount has been reduced by more than 20%.

·       We sold the Records Management businesses in the United Kingdom in March 2006 and in Asia-Pacific in December 2005, along with a number of operating and non-operating facilities.

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·       We reduced the fixed asset base in our non-U.S. moving businesses.  In 2005, we converted Spain from an owned operation to an agent franchise model and started our first Pickfords franchise in the United Kingdom, where an independent operator franchises the Pickfords brand name and delivers moving services to a defined market.

·       These changes have allowed us to reduce our fixed asset base outside North America by 58.1% since January 2005, from $108.3 million to $45.4 million and to reduce our non-North American capital expenditures from more than $20.0 million in 2004 to an estimated $5.0 million in 2006.

As a result of the above initiatives, during 2005 we incurred $9.7 million in restructuring charges. These restructuring initiatives included a reduction in personnel, facilities, equipment, and other overhead expenses. Also, an impairment charge of $4.3 million was recorded in 2005 for two information technology projects abandoned as part of the restructuring. We estimate that the restructuring will generate ongoing cost savings of approximately $20.0 million in 2006 and $24.0 million annually thereafter.

In 2005, due to adverse changes in the business climate, the Moving Services Continental Europe (“continental Europe”) and Moving Services United Kingdom businesses were tested for impairment. In 2005, an impairment charge of $48.5 million was recorded to write-off all goodwill and intangible assets relating to our continental Europe operations.

We have principally relied on the following factors in our assessment of the realizability of our net deferred tax assets:  future taxable income from our core businesses, estimated operating expenses to support an anticipated level of business, and the expiration dates and amounts of net operating loss carryforwards. However, after considering our cumulative pre-tax losses in recent years, as well as the impact of continued losses expected in 2006, we have concluded that we no longer could expect sufficient future taxable income and it was more likely than not that deferred tax assets would not be realizable before expiration. This conclusion was reached in the third quarter of 2005 when we had a perspective on full-year results and future forecasts, as we had completed our busy season when we historically recognize a significant amount of our profits. Although earnings in the core business are projected in upcoming years, it is difficult to place similar weight on these projections versus the actual results in 2005, 2004 and 2003. As a result of the assessment, a full valuation allowance for the U.S. and certain foreign subsidiaries’ net deferred tax assets has been recorded at December 31, 2005. We expect to continue to maintain valuation allowances on future tax benefits in such jurisdictions until other positive evidence is sufficient to justify realization. In 2005, non-cash charges of $169.5 million, of which $150.5 million was allocated to continuing operations, were recorded in the Consolidated Statement of Operations to increase the valuation allowance for net deferred tax assets.

In addition, our 2005 operating results from continuing operations were negatively impacted by $61.1 million of costs for third-party professional services related to the independent and internal reviews described below. After 2005, we do not expect to incur any additional significant expenses relating to the independent and internal reviews.

Independent and Internal Reviews

In early January 2005, the Audit Committee of our Board of Directors formally initiated a comprehensive, independent review (“Independent Review” or “Review”) after we received a letter sent on behalf of our former chief financial officer. At that time, the Audit Committee engaged the services of Cleary Gottlieb Steen & Hamilton LLP (“Cleary Gottlieb”), led by former Securities and Exchange Commission (“SEC”) general counsel David M. Becker, to advise it in connection with the Review. Cleary Gottlieb retained Deloitte & Touche LLP as forensic accountants to assist in the Review. The Audit Committee instructed Cleary Gottlieb to exercise its independent judgment on all matters involved in the Review. Furthermore, the Audit Committee directed Cleary Gottlieb to bring to its attention indications of any improprieties.

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In addition to the Independent Review, our management conducted an internal review in connection with the preparation of the 2004 consolidated financial statements (“Internal Review”). This review was undertaken in connection with implementing procedures to comply with Section 404 of the Sarbanes-Oxley Act, the disappointing performance of our Insurance and European businesses in the third quarter of 2004, and as part of our year-end closing process.

Management’s conclusions regarding the findings of both the Independent Review and its own Internal Review are summarized in our Annual Report on Form 10-K, as amended by the Form 10-K/A Amendment No. 1, for the year ended December 31, 2004. A more detailed summary of Clearly Gottlieb’s findings, conclusions and recommendations to the Audit Committee is incorporated herein by reference to exhibit 99.1 of our current report on Form 8-K filed with the SEC on September 21, 2005.

The Independent Review did not reveal a scheme to misstate our financial statements. However, both the Independent Review and the Internal Review did reveal material weaknesses in our control environment, organizational structure, and in our consistent application of generally accepted accounting principles. We are using the conclusions of the reviews as a basis to drive improvements in these areas across each of our business units. A more detailed discussion of these material weaknesses appears in Item 9A “Controls and Procedures.”

Seasonality

Our operations are subject to seasonal trends. Revenues and operating income from continuing operations for the quarters ending in March and December are typically lower than the quarters ending in June and September. The stronger performance in the second and third quarters is due to the higher moving shipment count and relocation initiations associated with the summer moving season, which also allows for somewhat higher pricing than in the winter months. The seasonal impact on our quarterly revenues from continuing operations is illustrated by the following table showing quarterly revenues from continuing operations as a percent of the total for the indicated full fiscal years.

 

Results of Continuing Operations

2005 Compared to 2004

Consolidated Results of Continuing Operations

*                    Not meaningful

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Revenues:   Revenues from continuing operations were $3,681.2 million in 2005, which represents a $449.8 million, or 13.9%, increase compared to $3,231.4 million in 2004. The increase in revenues was primarily the result of organic growth in our Global Relocation Services and Moving Services North America segments, as well as favorable currency exchange impacts within the Moving Services Europe and Asia Pacific segment. Acquisitions contributed $40.0 million and $6.4 million to our Global Relocation Services and Moving Services Europe and Asia Pacific growth in revenues, respectively. Organic growth in Global Relocation Services was driven by a 22.0% increase in the number of fixed-fee homes sold in North America. The increase in Moving Services North America was primarily driven by a 6.3% improvement in household goods revenue per shipment due to strong pricing environments in the consumer and military channels and an increase in the fuel price surcharge. Shipment volume was flat in 2005 compared to the corresponding period in 2004.

Gross margin:   Gross margin from continuing operations was $374.4 million in 2005, which represents a $6.0 million, or 1.6%, increase compared to $368.4 million in 2004. Excluding acquisitions and a favorable foreign exchange impact of $25.7 million and $0.8 million, respectively, gross margin declined $20.5 million. Moving Services Europe and Asia Pacific gross margin declined due to the decline in revenue and gross margin rates in Europe. Moving Services North America gross margin declined due to the increase in purchased transportation expenses.

Gross margin as a percentage of revenue in 2005 was 10.2%, which represents a 1.2 percentage point decrease compared to 11.4% in 2004. Gross margin as a percentage of revenue declined in all segments with the exception of Global Relocation Services. Excluding acquisitions, Global Relocation Services also declined. The decline in gross margin percentage was driven by the higher fuel surcharge in Moving Services North America and significant price pressures throughout Europe.

Operating expenses:   Operating expenses in 2005 were $499.6 million, which represents a $179.4 million, or 56.0%, increase compared to $320.2 million for 2004. The most significant drivers of the increase were $52.8 million of impairment charges in Moving Services Europe related to goodwill, intangibles and two abandoned information technology projects; $61.1 million of costs associated with the previously discussed Independent and Internal Reviews; and an additional $7.1 million of restructuring expenses in 2005 compared to 2004 to address difficult market conditions in Europe. The restructuring initiatives included a reduction in personnel, facilities, equipment and other overhead expenses. Acquisitions increased operating expenses by $17.5 million. Excluding the effects of acquisitions, salaries and benefits increased by $17.0 million. Shared-service expenses absorbed by the continuing operations increased by $12.7 million due to the discontinuance of various businesses in 2004 and 2005. During 2004, we had gains on sales of assets of $5.9 million which were offset by $3.2 million of costs to establish and expand its relocation receivable securitization facility, neither of which occurred in 2005.

Intangibles amortization in 2005 was $11.6  million, which represents a $5.4 million increase, compared to $6.2 million in 2004. This increase was directly related to acquisitions made in the previous year.

Operating expenses as a percentage of revenues were 13.6% and 9.9% in 2005 and 2004, respectively. The 3.7 percentage point increase resulted from the increase in costs noted above.

Operating (loss) income from continuing operations:   Operating loss from continuing operations was $125.2 million in 2005, which represents a $173.4 million decrease, compared to operating income from continuing operations of $48.2 million in 2004. As discussed above, the decline primarily resulted from a decrease in the gross margin rate coupled with the expenses associated with the Independent and Internal Reviews, Moving Services Europe restructuring and impairments, an increase in shared-service expenses absorbed by continuing operations, and gains on sales of assets in 2004 which did not occur in 2005.

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Interest expense:   Interest expense was $35.0 million in 2005, which represents a $15.3 million, or 77.6%, increase compared to $19.7 million in 2004. The increase was due to a $95.8 million increase in average debt outstanding and an increase in the effective interest rate to 6.82% in 2005 from 5.41% in 2004. Average debt outstanding increased primarily as a result of the purchase of Executive Relocation Corporation (“ERC”) in December 2004 and costs paid in 2005 as a result of the Independent and Internal Reviews.

Debt extinguishment expense:   During 2005, debt extinguishment expense was $1.7 million. In 2004, we recognized $1.8 million of debt extinguishment expense associated with the retirement of $11.0 million of Senior Subordinated Notes, consisting of $0.8 million of bond tender premium and $1.0 million of deferred debt issuance costs.

Provision for income taxes:   Our provision for income tax in 2005 of $104.3 million was primarily due to the establishment of a full valuation allowance for the U.S. and certain foreign subsidiaries net deferred tax assets, as well as the impairment of non-deductible goodwill associated with our continental Europe operations. Exclusive of non-cash charges for deferred tax valuation allowances and pre-tax charges for non-deductible goodwill impairments, the provision for income taxes would have been a tax benefit of $47.0 million based on a pre-tax loss from continuing operations of $126.4 million, resulting in an effective tax rate of 37.2%. In 2004, our provision for income tax was $1.9 million, based on pre-tax income of $27.3 million, due to the impairment of non-deductible goodwill associated with our U.S. Insurance Business. Exclusive of the non-deductible goodwill impairment charge, our provision for income tax would have been $1.9 million based on pre-tax income of $6.9 million, resulting in an effective tax rate of 27.3%. The reduction in the tax in 2005 is primarily attributable to a tax benefit recorded for prior year tax return filing differences, as well as the net tax benefit recorded for the repatriation of foreign earnings under the American Jobs Creation Act of 2004 (“the Jobs Act”), as described below.

In October 2004, the President signed the Jobs Act, which became effective for all reporting periods beginning after signing and created a temporary incentive for U.S. corporations to repatriate accumulated income earned abroad by providing an 85% dividend received deduction for certain dividends from controlled foreign corporations. In the first quarter of 2005, the Executive Committee of our Board of Directors approved our Overall Domestic Reinvestment Plan as required by the Jobs Act, which authorizes up to $500.0 million of repatriation of unremitted foreign earnings. In 2005, we repatriated $93.7 million of foreign earnings. The tax liability associated with the repatriated funds from continuing operation is more than offset by the reversal of the associated deferred taxes, which were established on the foreign earnings prior to making an election to permanently reinvest foreign earnings. The net tax benefit associated with the repatriated funds was not significant and has been included in continuing operations in 2005. Net tax expense of $4.2 million associated with the repatriated funds from discontinued operations has been included in the tax on discontinued operations in 2005.

Income (loss) from continuing operations:   Loss from continuing operations was $266.5 million, or $3.61 per diluted share, in 2005, which represents a $291.9 million, or $3.95 per diluted share, decrease compared to income from continuing operations of $25.4 million, or $0.34per diluted share, in 2004. As discussed above, the decline primarily resulted from the impairment charges, the Independent and Internal Review expenses, and the tax valuation allowance.

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Segment Results of Continuing Operations

 

Global Relocation Services

Total revenues were $1,830.5 million in 2005, which represents a $361.2 million, or 24.6%, increase compared to $1,469.3 million in 2004. Home sale revenues were $1,510.2 million in 2005, which represents a $282.9 million, or 23.1%, increase compared to $1,227.3 million for 2004. The increase was driven by a 22.0% increase in homes sold coupled with an increase in the average market value of homes sold. Service revenues were $320.3 million in 2005, which represents a $78.3 million, or 32.4%, increase compared to $242.0 million in 2004. In 2005, service revenues included $40.0 million from the acquisitions of ERC, D.J. Knight & Co., Ltd. (“DJK”) and Relocation Dynamics, Inc. (“RDI”). Excluding acquisitions and exchange rate changes, service revenue increased 15.8% driven primarily by a 16.0% and 5.8% increase in the number of fixed-fee and traditional closings, respectively, in North America, which accounts for approximately 99% of total Global Relocation Services’ revenue.

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Gross margin was $102.5 million in 2005, representing a $23.1 million, or 29.2%, increase compared to $79.4 million in 2004. Gross margin as a percentage of revenues was 5.6% for 2005, which represents a 0.2 percentage point increase compared to 5.4% in 2004.

Gross margin on home sale revenue in 2005 was a loss of $13.9 million, which represents a $7.9 million increase from a loss of $6.0 million in 2004. In 2005, we wrote-down home inventory by $9.1 million to estimated net realizable value due to the decline in the housing market compared to $1.0 million in 2004. Gross margin on service revenue was $116.4 million in 2005, representing a $31.0 million, or 36.3%, increase compared to $85.4 million in 2004. Gross margin percentage on service revenue was 36.3% in 2005, which represents a 1.0 percentage point increase compared to 35.3% in 2004. The increase in service revenue gross margin percentage was driven by acquisitions, which carry a higher gross margin than existing business.

Operating expenses were $83.6 million in 2005, which represents a $31.5 million, or 60.8%, increase compared to $52.1 million in 2004. Acquisitions added $15.5 million in operating expenses in 2005, of which $5.3 million related to intangibles amortization expense. Excluding the impact of acquisitions, operating expenses increased $16.0 million, or 30.9%, driven by an increase in salaries and benefits from additional headcount, corporate support costs, professional fees, and provisions for bad debt.

Operating income was $18.9 million in 2005, which represents an $8.4 million decrease compared to operating income of $27.3 million in 2004. Operating income as a percent of revenues was 1.0% in 2005, as compared to 1.9% in 2004. Acquisitions added $8.7 million of operating income in 2005. Excluding the impact of acquisitions, operating income declined $17.1 million driven by a lower gross margin rate and higher operating expenses.

Moving Services North America

Revenues were $1,414.6 million in 2005, which represents a $101.8 million, or 7.7%, increase compared to $1,312.8 million in 2004. Changes in exchange rates increased revenues by $5.3 million. As a result, organic growth was $96.5 million. The increase in revenues was primarily driven by a 6.3% improvement in household goods revenue per shipment due to strong pricing environments in the consumer and military channels and an increase in the fuel price surcharge. Shipment volume was flat in 2005 compared to 2004.

Gross margin was $128.7 million in 2005, which represents a $4.3 million decrease compared to $133.0 million in 2004. Gross margin as a percentage of revenues was 9.1% for 2005, which represents a 1.0 percentage point decrease compared to 10.1% in 2004. The decline in gross margin was primarily driven by increased purchased transportation expense and the aforementioned increased fuel price surcharge which, although increases revenue, has a dilutive impact on gross margin.

Total operating expenses were $111.2 million in 2005, which represents a $10.4 million, or 10.3%, increase compared to $100.8 million in 2004. The increase was driven by higher absorption of corporate support costs resulting from the discontinuation of our logistics businesses and an increase in bad debt expense and professional fees.

Operating income from continuing operations was $17.5 million in 2005, which represents a $14.7 million, or 45.8%, decline compared to income of $32.2 million in 2004. This decline was due to the previously discussed increase in purchased transportation expense, higher absorption of corporate overhead, and increases in bad debt expense and professional fees.

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Moving Services Europe and Asia Pacific

Revenues were $436.1 million in 2005, which represents a $13.2 million, or 2.9%, decrease compared to $449.3 million in 2004. Changes in exchange rates and the acquisition of Rettenmayer Internationale Umzugslogistik GmbH (“Rettenmayer”), a German-based moving and relocation services business, in April 2004 increased revenue by $2.7 million and $6.5 million, respectively. Excluding the impact of the changes in exchange rates and the acquisition, revenues declined $22.4 million, or 5.0%, from 2004.

The decline in revenues is due to the Europe operations, which experienced an 8.3% decline, partially offset by a 12.9% growth in Asia Pacific. The U.K. housing market continued to decline in the volume of home sale transactions leading to price decreases per move. In addition, the international moving business in the United Kingdom, France and Switzerland declined, along with the domestic and business moving businesses in Norway and Sweden.

Gross margin was $146.0 million in 2005, which represents an $11.2 million, or 7.2%, decrease compared to $157.2 million in 2004. The gross margin as a percentage of revenues in 2005 was 33.5%, which represents a 1.5 percentage point decrease compared to 35.0% in 2004. Excluding the favorable effects of changes in exchange rates of $0.3 million and the acquisition of Rettenmayer’s gross margin of $1.5 million, gross margin declined $13.0 million. The decline in revenue drove the overall decrease in gross margin and significant price pressures throughout Europe, especially in the United Kingdom, reduced the gross margin rate.

Operating expenses were $234.3 million in 2005, which represents a $76.5 million, or 48.4%, increase compared to $157.8 million in 2004. Changes in exchange rates decreased operating expenses by $0.3 million, while the acquisition of Rettenmayer added an additional $1.9 million of expenses. Excluding the effect of exchange rates and the Rettenmayer operating expenses, operating expenses increased $74.9 million, or 47.4%, from 2004. The increase was primarily driven by impairment charges in Europe related to goodwill and intangibles of $48.5 million as well as $4.3 million for information technology projects abandoned as part of the restructuring. Excluding the effects of the Rettenmayer acquisition and changes in exchange rates, salaries and benefits increased $4.5 million, primarily due to an increase in bonuses associated with the Asia Pacific revenue growth. In addition, professional fees increased $4.1 million, primarily due to the Independent Review and audit fees. In 2004, Europe recognized a gain of $5.9 million on the sales of assets which did not recur in 2005.

Operating loss was $88.3 million in 2005, which represents an $87.7 million decrease, compared to $0.6 million loss in 2004. The net effect of changes in exchange rates and the acquisition of Rettenmayer increased operating income by $0.3 million. The decline in revenue along with reduced gross margins, higher operating expenses, higher restructuring charges, impairment charges in 2005, and gains on sales of property in 2004, which did not recur in 2005, resulted in a significant decrease in operating income from 2004.

Corporate

In 2005, we incurred $73.3 million of corporate expense, representing a $62.6 million increase compared to $10.7 million in 2004. The increase was primarily attributable to $60.3 million of costs associated with the previously discussed Independent and Internal Reviews. Increases in corporate insurance, legal and Board of Director costs, were partially offset by lower stock compensation expense and $1.2 million of secondary offering expenses in 2004 which were not incurred in 2005.

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2004 Compared to 2003

Consolidated Results of Continuing Operations

*                    Not meaningful

Revenues:   Revenues from continuing operations were $3,231.4 million in 2004, which represents a $645.4 million, or 25.0%, increase compared to $2,586.0 million in 2003. The increase in revenues was primarily the result of organic growth in our Global Relocation Services and Moving Services North America segments. Also, there was a $54.0 million favorable currency exchange impact primarily within the Moving Services Europe and Asia Pacific segment. Acquisitions contributed $36.6 million and $10.7 million to our Moving Services Europe and Asia Pacific and Global Relocations Services segments growth in revenues, respectively.

Gross margin:   Gross margin was $368.4 million in 2004, which represents a $43.1 million, or 13.2%, increase compared to $325.3 million in 2003. Acquisitions and a favorable foreign exchange impact increased gross margin by $15.4 million and $16.5 million, respectively. Global Relocation Services and Moving Services North America experienced strong organic growth which was offset by a decline in the Moving Services Europe and Asia Pacific segment. Gross margin as a percentage of revenue in 2004 was 11.4%, which represents a 1.2 percentage point decrease compared to 12.6% in 2003. Gross margin as a percentage of revenue declined in all segments.

Operating expenses:   Operating expenses in 2004 were $320.2 million, which represents a $70.7 million, or 28.3%, increase compared to $249.5 million in 2003. Acquisitions and changes in exchange rates increased operating expenses by $14.5 million and $16.3 million, respectively. Excluding the effects of acquisitions and exchange rates, salaries and benefits increased $10.2 million and professional fees increased $13.1 million. We recognized $3.2 million of costs in 2004 to establish and expand our relocation receivable securitization facility and $2.8 million of restructuring expense, neither of which occurred in 2003. Offsetting the increase were gains on sales of assets of $5.9 million in 2004 compared to $1.8 million in 2003.

Intangibles amortization in 2004 was$6.2 million, which represents a $1.9 million increase compared to $4.3 million in 2003. Acquisitions made in 2004 and 2003 resulted in an increase of $0.6 million.

Operating expenses as a percentage of revenues were 9.9% and 9.6% in 2004 and 2003, respectively.

Operating income from continuing operations:   Operating income from continuing operations was $48.2 million in 2004 compared to operating income from continuing operations of $75.8 million in 2003. The decrease of $27.6 million, or 36.5%, is a result of higher operating expenses described above.

Interest expense:   Interest expense was $19.7 million in 2004, which represents a $22.1 million, or 52.9%, decrease compared to $41.8 million in 2003. The decrease is due primarily to the retirement of our Senior Subordinated Notes and our Senior Discount Notes, which were retired using the proceeds from our initial public offering. The retirements resulted in an $18.8 million favorable impact. The remainder of the decrease resulted from the payment of various acquisition loans and the effect of interest rate swap agreements. In 2003, we recorded $1.3 million of interest expense that had been previously treated as

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accretion of junior preferred stock dividends. Also in 2003, we wrote off $0.9 million of unrecognized hedging losses to interest expense in connection with our debt refinancing.

Debt extinguishment expense:   In 2004, we recognized $1.8 million of debt extinguishment expense associated with the retirement of $11.0 million of Senior Subordinated Notes. In connection with our initial public offering of our common stock in 2003, we recognized $37.6 million of debt extinguishment expense, consisting of $25.0 million of bond tender premium on our Senior Subordinated Notes and a $12.6 million write-off of deferred debt issuance costs on the prior senior credit facility and indenture.

Provision (benefit) for income taxes:   In 2004, our provision for income tax was $1.9 million based on pre-tax income of $27.3 million, an effective tax rate that is not meaningful due to the impairment of non-deductible goodwill associated with our U.S. Insurance Business. Exclusive of the non-deductible goodwill impairment charge, our provision for income tax would have been $1.9 million based on pre-tax income of $6.9 million, resulting in an effective tax rate of 27.3%. In 2003, our income tax benefit was $4.2 million based on a pre-tax loss of $3.8 million, resulting in an effective tax rate that is not meaningful on a consolidated basis due to the blend of domestic pre-tax loss offset by foreign pre-tax income. Due to tax incentive programs for which we have qualified in certain foreign jurisdictions, the foreign pre-tax income has been taxed at a lower overall effective tax rate.

Income from continuing operations:   Income from continuing operations was $25.4 million, or $0.34 per diluted share, in 2004, which represents a $25.1 million, or $0.37 per diluted share, increase compared to income from continuing operations of $0.4 million, which after preferred share dividends, results in a loss of $0.03per diluted share, in 2003. The decline in the gross margin rate and increase in operating expenses was more than offset by the decline in interest expense and debt extinguishment costs.

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Segment Results of Continuing Operations

 

Global Relocation Services

Total revenues were $1,469.3 million in 2004, which represents a $473.1 million, or 47.5%, increase compared to $996.2 million in 2003. Home sale revenues were $1,227.3 million in 2004, which represents a $400.3 million, or 48.4%, increase compared to $827.0 million in 2003. Service revenues were $242.0 million in 2004, which represents a $72.8 million, or 43.0%, increase compared to $169.2 million in 2003. Acquisitions contributed $10.7 million to the growth in service revenues. Changes in exchange rates increased service revenue by $1.4 million. Excluding acquisitions and the impact from the change in exchange rates, service revenues increased $60.7 million. The improvement was primarily the result of a 35.0% increase in the number of fixed-fee home closings in North America, which accounts for approximately 99% of Global Relocation Services’ revenue. During 2004, we continued to gain share in the relocation market. Average fixed-fee home values rose 11.7% in 2004, a reflection of both the general housing market strength and the mix impact that resulted from winning large accounts with transaction volumes between geographic areas with higher average home values. In 2004, we added companies such as Dell, CSX, Delphi, Textron and 3M to our client base.

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Gross margin was $79.3 million in 2004, representing a $17.9 million, or 29.2%, increase compared to $61.4 million in 2003. Gross margin as a percentage of revenues was 5.4% in 2004, which represents a 0.8 percentage point decrease compared to 6.2% in 2003. This reflects a shift in product mix toward fixed-fee relocations, which contribute higher gross margin dollars, but carry a lower gross margin rate than our traditional relocation services.

Gross margin on home sale revenue in 2004 was a loss of $6.0 million, which represents a $1.8 million decrease compared to a loss of $4.2 million in 2003, and reflects our loss on homes sold. Gross margin on service revenue was $85.4 million in 2004, representing a $19.8 million, or a 30.0%, increase compared to $65.6 million in 2003. The increase is attributable to the growing fixed-fee product penetration as discussed above.

Operating expenses were $52.1 million in 2004, which represents an $8.5 million, or 19.5%, increase compared to $43.6 million in 2003. Excluding the impact of acquisitions and changes in exchange rates of $5.5 million and $0.7 million, respectively, operating expenses increased $2.3 million, or 5.2%. Operating expenses in 2004 included $3.2 million of costs to establish and expand our receivables securitization program.

Operating income from continuing operations was $27.3 million in 2004, which represents a $9.5 million, or 53.1%, increase compared to $17.8 million in 2003. Operating income from continuing operations as a percent of revenues was 1.9% in 2004, compared to 1.8% in 2003. Excluding minimal impact of changes in currency rates and the impact of acquisitions of $1.1 million, operating income increased $8.5 million, or 47.8%.

Moving Services North America

Revenues were $1,312.8 million in 2004, which represents a $97.1 million, or 8.0%, increase compared to $1,215.7 million in 2003. The increase in revenues was driven primarily by an organic increase of $93.5 million. The remainder of the increase was due to favorable changes in exchange rates of $3.6 million.

The increase in revenues was driven by a 3.6% increase in moving shipments for the year, highlighted by a return to growth of the corporate channel, where shipments increased 5.3% compared to 2003. Also contributing to revenue growth was a 5% increase in household goods revenue per shipment due to strong pricing environments in the consumer and military channels. These strong moving fundamentals more than offset a $7.7 million decline in the special products portion of this segment.

Gross margin was $133.0 million in 2004, which represents a $6.0 million, or 4.8%, increase compared to $127.0 million in 2003. Gross margin as a percentage of revenues was 10.1% in 2004, which represents a 0.3 percentage point decrease compared to 10.4% in 2003. The decline in gross margin rate was primarily driven by higher claims expense experienced in the fourth quarter of 2004. Our network resources (transportation equipment, drivers, and crews) were insufficient to handle the strong volumes experienced in the peak summer season, resulting in the use of alternative capacity sources to service a portion of the demand, which required more handling and resulted in higher claim rates.

Operating expenses were $100.8 million in 2004, which represents a $10.9 million, or 12.1%, increase compared to $89.9 million in 2003. In the fourth quarter of 2004, we incurred $2.1 million of unanticipated charges associated with certain legal matters. The remainder of the increase was driven by higher allocated support costs, as well as incremental investments in sales and marketing. In addition, we modified certain domestic employee benefit programs to standardize them across all U.S. operations resulting in a one-time reduction in expense of $1.2 million in 2003.

Operating income from continuing operations was $32.2 million in 2004, which represents a $4.9 million, or 13.1%, decrease compared to $37.1 million in 2003. The decline was due to higher operating expenses, which offset an increase in gross margin.

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