By Dan McCue
Staff Writer

American LaFrance lost $56 million last year on sales of less than $195 million after losing just more than $48 million a year earlier on sales of $233 million, according to a restructuring officer who may guide the company through its reorganization.

Crippling inventory and technical snafus contributed to American LaFrance’s decision to file for Chapter 11 protection on Monday, but they weren’t the only reasons, said William K. Snyder, who heads a company that specializes in corporate restructuring. 

Far more insurmountable were the “significant financial losses” the company incurred in the face of dramatically shrinking sales, he said in an affidavit filed in the U.S. Bankruptcy Court for the District of Delaware.

According to Snyder, American LaFrance’s debt structure as of Jan. 28, when the company filed for bankruptcy, consisted of approximately $150 million of debt owed to Patriarch Partners Agency Services.

The company was also confronting a looming debt of $50 million in unsecured loans, Snyder said.

In addition, American LaFrance had posted $24.8 million in performance bonds in connection with its obligation to construct vehicles for certain customers, bonds that are supported by secured letters of credit for $21 million.

Those letters of credit are secured by restricted cash in an amount equal to or greater than the amount of the letters of credit.

Snyder told the court that without reformulation of “certain pre-existing strategies” and reconfiguration of the company’s debt structure, he believes that short-term net losses will continue.

U.S. Bankruptcy Court Judge Brendan Linehan Shannon is scheduled to consider several motions later today that would allow American LaFrance to meet its current payroll and other financial obligations and continue to function without further disruption of its business.

More than 100 American LaFrance workers at the company’s Summerville headquarters have been furloughed since December 2007. The company has said it plans to restart manufacturing operations with some, but not all of those workers, on March 10.

In his filing, Snyder said approval of those motions is essential to the success of American LaFrance’s reorganization efforts.

In addition to addressing operational issues and establishing a team of consultants and attorneys to oversee the reorganization, the filings before Judge Shannon also ask the court to seal all documents containing “confidential or privileged information.”

“Any public dissemination of American LaFrance’s sensitive information such as business strategies and trade secrets would be detrimental to the company and its estate,” Snyder said.

While Snyder primarily dealt with financial issues at American LaFrance in his affidavit before the court, the company’s attorney, Christopher A. Ward, focused more closely on its operational problems.

According to Ward’s statement, the root of many of American LaFrance’s problems was a failed software implementation, a failure to successfully transfer inventory information between technical systems, and missing information on accounts payable, accounts receivable and general ledger balances.

Prior to its December 2005 purchase by Patriarch Partners, a private equity firm that specializes in investing in distressed companies, American LaFrance was a subsidiary of Freightliner.

Freightliner agreed to provide accounting, inventory, payroll and manufacturing process services to American LaFrance through June 2007. By then, the emergency vehicle manufacturer expected to be a standalone entity at a new $63 million facility in Summerville.

Leading up to the disengagement, American LaFrance contractors created a new software system to take over the Freightliner functions. According to court documents, American LaFrance recognized “serious deficiencies” almost as soon as it began moving to the new system.

“For the next several months following the changeover, American LaFrance attempted to solve the plethora of problems. Despite such efforts, and as a direct result of these problems, American LaFrance became unable to complete the manufacture of many preordered vehicles,” wrote Ward, the company attorney.

American LaFrance is considering filing a countersuit against its former parent company, court papers said.

In addition, American LaFrance is contemplating filing a lawsuit against IBM in connection with the “problem-ridden transition” to the new accounting software system.

However, Ward noted, “American LaFrance anticipates that the litigation of these matters will require the expenditure of significant professional fees” that the company cannot now pay.