e10-q
Table of Contents

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

FORM 10-Q

         
[x]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 – For the quarterly period ended September 30, 2001    
    or    
[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 – For the transition period from                 to                  
    Commission File Number:      0-22276    

ALLIED HOLDINGS, INC.


(Exact name of registrant as specified in its charter)
     
GEORGIA   58-0360550


(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification Number)

Suite 200, 160 Clairemont Avenue, Decatur, Georgia 30030


(Address of principal executive offices)

(404) 373-4285


(Registrant’s telephone number, including area code)

 


(Former name, former address and former fiscal year, if changed since last report)

     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.                [X] Yes     [ ] No

Outstanding common stock, No par value at October 29, 2001                      8,285,015

TOTAL NUMBER OF PAGES INCLUDED IN THIS REPORT: 26

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TABLE OF CONTENTS

PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF CASH FLOWS
Notes to Consolidated Financial Statements (Unaudited)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
Agreement between Allied Automotive Group
Agreement between Allied Automotive Group, Inc.


Table of Contents

INDEX

PART I

FINANCIAL INFORMATION

         
        PAGE
       
ITEM 1:   FINANCIAL STATEMENTS    
   
Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000
  3
   
Consolidated Statements of Operations for the Three and Nine Month Periods Ended September 30, 2001 and 2000
  4
   
Consolidated Statements of Cash Flows for the Nine Month Periods Ended September 30, 2001 and 2000
  5
    Notes to Consolidated Financial Statements   6
ITEM 2  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  19
 
 
PART II
 
OTHER INFORMATION
ITEM 1        
    Legal Proceedings   25
ITEM 5        
    Other Information   25
ITEM 6        
    Exhibits and Reports on Form 8-K   25
    Signature Page   26

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Table of Contents

PART 1 – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

ALLIED HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands)
                         
            September 30   December 31
            2001   2000
           
 
            (Unaudited)        
ASSETS              
CURRENT ASSETS:
               
 
Cash and cash equivalents
  $ 12,249     $ 2,373  
 
Short-term investments
    64,756       59,892  
 
Receivables, net of allowance for doubtful accounts
    94,789       114,266  
 
Inventories
    6,610       7,415  
 
Deferred tax assets
    11,968       10,191  
 
Prepayments and other current assets
    20,036       19,355  
 
   
     
 
     
Total current assets
    210,408       213,492  
 
   
     
 
PROPERTY AND EQUIPMENT, NET
    231,073       259,362  
 
   
     
 
OTHER ASSETS:
               
 
Goodwill, net
    91,303       95,159  
 
Other
    43,387       42,526  
 
   
     
 
     
Total other assets
    134,690       137,685  
 
   
     
 
     
Total assets
  $ 576,171     $ 610,539  
 
   
     
 
   
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
CURRENT LIABILITIES:
               
 
Current maturities of long-term debt
  $ 158,462     $ 109  
 
Trade accounts payable
    38,658       45,975  
 
Accrued liabilities
    81,969       79,487  
 
   
     
 
     
Total current liabilities
    279,089       125,571  
 
   
     
 
LONG-TERM DEBT, less current maturities
    190,003       324,876  
 
   
     
 
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
    9,565       9,943  
 
   
     
 
DEFERRED INCOME TAXES
    3,125       21,414  
 
   
     
 
OTHER LONG-TERM LIABILITIES
    73,215       69,594  
 
   
     
 
STOCKHOLDERS’ EQUITY:
               
 
Common stock, no par value; 20,000 shares authorized, 8,240 and 8,187 shares outstanding at September 30, 2001 and December 31, 2000, respectively
           
 
Additional paid-in capital
    46,500       45,990  
 
Retained (deficit) earnings
    (16,622 )     20,602  
 
Cumulative other comprehensive loss, net of tax
    (7,997 )     (6,744 )
 
Common stock in treasury, at cost, 139 shares at September 30, 2001 and December 31, 2000
    (707 )     (707 )
 
   
     
 
     
Total stockholders’ equity
    21,174       59,141  
 
   
     
 
     
Total liabilities and stockholders’ equity
  $ 576,171     $ 610,539  
 
   
     
 

The accompanying notes are an integral part of these consolidated balance sheets.

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ALLIED HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Data)
(Unaudited)
                                     
        For the Three Months Ended   For the Nine Months Ended
        September 30   September 30
       
 
        2001   2000   2001   2000
       
 
 
 
REVENUES
  $ 204,010     $ 236,347     $ 672,384     $ 815,128  
 
   
     
     
     
 
OPERATING EXPENSES:
                               
 
Salaries, wages and fringe benefits
    118,700       132,704       391,006       441,817  
 
Operating supplies and expenses
    33,810       40,953       115,147       140,837  
 
Purchased transportation
    23,228       23,513       75,190       79,967  
 
Insurance and claims
    10,531       11,226       37,588       36,369  
 
Operating taxes and licenses
    7,857       9,650       24,990       31,491  
 
Depreciation and amortization
    15,145       15,051       45,450       45,686  
 
Rents
    1,691       2,114       5,353       6,613  
 
Communications and utilities
    1,300       1,335       5,252       5,550  
 
Other operating expenses
    3,295       2,701       10,908       8,437  
 
   
     
     
     
 
   
Total operating expenses
    215,557       239,247       710,884       796,767  
 
   
     
     
     
 
   
Operating (loss) income
    (11,547 )     (2,900 )     (38,500 )     18,361  
 
   
     
     
     
 
OTHER INCOME (EXPENSE):
                               
 
Equity in earnings of joint ventures, net of tax
    1,054       1,502       3,593       4,201  
 
(Loss) gain on sale of assets
    (24 )     (84 )     2,719       (97 )
 
Interest expense
    (9,141 )     (8,321 )     (26,994 )     (25,070 )
 
Interest income
    424       1,644       2,014       3,653  
 
   
     
     
     
 
 
    (7,687 )     (5,259 )     (18,668 )     (17,313 )
 
   
     
     
     
 
(LOSS) INCOME BEFORE INCOME TAXES
    (19,234 )     (8,159 )     (57,168 )     1,048  
INCOME TAX BENEFIT
    6,588       3,549       19,944       196  
 
   
     
     
     
 
NET (LOSS) INCOME
  $ (12,646 )   $ (4,610 )   $ (37,224 )   $ 1,244  
 
   
     
     
     
 
PER COMMON SHARE – BASIC AND DILUTED
  $ (1.56 )   $ (0.58 )   $ (4.60 )   $ 0.16  
 
   
     
     
     
 
COMMON SHARES OUTSTANDING – BASIC AND DILUTED
    8,114       7,961       8,096       7,924  
 
   
     
     
     
 

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ALLIED HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)
                         
            For the Nine Months Ended
            September 30
           
            2001   2000
           
 
            (Unaudited)   (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
               
 
Net (loss) income
    ($37,224 )   $ 1,244  
 
   
     
 
 
Adjustments to reconcile net loss to net cash provided by operating activities:
               
   
Depreciation and amortization
    45,450       45,686  
   
(Gain) loss on sale of property and equipment
    (2,719 )     97  
   
Deferred income taxes
    (19,377 )     104  
   
Compensation expense related to stock options and grants
    207       452  
   
Equity in earnings of joint ventures
    (3,593 )     (4,201 )
   
Amortization of Teamsters Union signing bonus
    1,802       1,850  
   
Change in operating assets and liabilities excluding effect of businesses acquired:
               
     
Receivables, net of allowance for doubtful accounts
    18,190       (2,366 )
     
Inventories
    720       (7 )
     
Prepayments and other current assets
    (822 )     (1,717 )
     
Trade accounts payable
    (7,021 )     (6,587 )
     
Accrued liabilities
    6,028       (8,633 )
 
 
   
     
 
       
Total adjustments
    38,865       24,678  
 
 
   
     
 
       
Net cash provided by operating activities
    1,641       25,922  
 
 
   
     
 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
 
Purchases of property and equipment
    (18,274 )     (15,972 )
 
Proceeds from sale of property and equipment
    4,832       799  
 
Purchase of business, net of cash acquired
          (8,185 )
 
Investment in joint ventures
    (464 )      
 
Cash received from joint ventures
    3,578        
 
Increase in short-term investments
    (4,864 )     (14,044 )
 
Increase in the cash surrender value of life insurance
    (360 )     (128 )
 
 
   
     
 
       
Net cash used in investing activities
    (15,552 )     (37,530 )
 
 
   
     
 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
 
Proceeds from issuance of long-term debt, net
    23,480       771  
 
Proceeds from issuance of common stock
    303       626  
 
Repurchase of common stock
          (282 )
 
Other, net
    (64 )     1,894  
 
 
   
     
 
       
Net cash provided by financing activities
    23,719       3,009  
 
 
   
     
 
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
    68       (781 )
 
 
   
     
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    9,876       (9,380 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    2,373       13,984  
 
 
   
     
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ 12,249     $ 4,604  
 
 
   
     
 

The accompanying notes are an integral part of these consolidated statements.

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Allied Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1. Basis of Presentation

      The unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The statements contained herein reflect all adjustments, all of which are of a normal, recurring nature, which are, in the opinion of management, necessary to present fairly the financial condition, results of operations and cash flows for the periods presented. Operating results for the three and nine month periods ended September 30, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. The interim financial statements should be read in conjunction with the financial statements and notes thereto of Allied Holdings, Inc. and Subsidiaries (the “Company”) included in the Company’s 2000 Annual Report on Form 10-K.

Note 2. Long-Term Debt and Supplemental Guarantor Information

      On September 30, 1997, the Company issued $150 million of 8 5/8 % senior notes (the “Notes”) through a private placement. Subsequently, the senior notes were registered with the Securities and Exchange Commission. The net proceeds from the Notes were used to fund the acquisition of Ryder Automotive Carrier Services, Inc. and RC Management Corp., pay related fees and expenses, and reduce outstanding indebtedness. The Company’s obligations under the Notes are guaranteed by substantially all of the subsidiaries of the Company (the “Guarantor Subsidiaries”). Haul Insurance Ltd., Arrendadora de Equipo Para el Transporte de Automoviles, S. de R.L. de C.V., Axis Logistica, S. de R.L. de C.V. and Axis Netherlands C.V. do not guarantee the Company’s obligations under the Notes (the “Nonguarantor Subsidiaries”). The following condensed consolidating balance sheets, statements of operations and statements of cash flows present the financial statements of the parent company and the combined financial statements of the Guarantor Subsidiaries and Nonguarantor Subsidiaries. The Guarantors are jointly and severally liable for the Company’s obligations under the Notes and there are no restrictions on the ability of the Guarantors to make distributions to the Company.

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SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2001
(In Thousands)
(Unaudited)

                                                 
            ALLIED   GUARANTOR   NONGUARANTOR                
            HOLDINGS   SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
           
 
 
 
 
CURRENT ASSETS:
                                       
 
Cash and cash equivalents
  $ (142 )   $ 2,399     $ 9,992           $ 12,249  
 
Short-term investments
                64,756             64,756  
 
Receivables, net of allowance for doubtful accounts
    23       91,487       3,279             94,789  
 
Inventories
          6,600       10             6,610  
 
Deferred tax assets
    10,109       1,608       251             11,968  
 
Prepayments and other current assets
    1,762       18,081       193             20,036  
 
 
   
     
     
     
     
 
       
Total current assets
    11,752       120,175       78,481             210,408  
 
 
   
     
     
     
     
 
PROPERTY AND EQUIPMENT, NET
    12,521       214,952       3,600             231,073  
OTHER ASSETS:
                                       
 
Goodwill, net
    1,544       89,759                   91,303  
 
Other
    16,216       16,574       10,597             43,387  
 
Deferred tax asset – noncurrent
    35,943                   (35,943 )      
 
Intercompany receivables
    274,460                   (274,460 )      
 
Investment in subsidiaries
    33,662       15,019             (48,681 )      
 
 
   
     
     
     
     
 
       
Total other assets
    361,825       121,352       10,597       (359,084 )     134,690  
 
 
   
     
     
     
     
 
       
Total assets
  $ 386,098     $ 456,479     $ 92,678     $ (359,084 )   $ 576,171  
 
 
   
     
     
     
     
 
CURRENT LIABILITIES:
                                       
 
Current maturities of long-term debt
  $ 156,167     $ 2,295     $     $     $ 158,462  
 
Trade accounts payable
    2,881       35,229       548             38,658  
 
Intercompany payables
          272,146       2,314       (274,460 )      
 
Accrued liabilities
    15,876       52,126       13,967             81,969  
 
 
   
     
     
     
     
 
     
Total current liabilities
    174,924       361,796       16,829       (274,460 )     279,089  
 
 
   
     
     
     
     
 
LONG-TERM DEBT, less current maturities
    190,000       3                   190,003  
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
          9,565                   9,565  
DEFERRED INCOME TAXES
          39,068             (35,943 )     3,125  
OTHER LONG-TERM LIABILITIES
          31,701       41,514             73,215  
STOCKHOLDERS’ EQUITY:
                                       
 
Common stock, no par value
                             
 
Additional paid-in capital
    46,500       90,733       13,279       (104,012 )     46,500  
 
Retained deficit (earnings)
    (16,622 )     (65,771 )     23,294       42,477       (16,622 )
 
Cumulative other comprehensive income, net of tax
    (7,997 )     (10,616 )     (2,238 )     12,854       (7,997 )
 
Treasury stock
    (707 )                       (707 )
 
 
   
     
     
     
     
 
   
Total stockholders’ equity
    21,174       14,346       34,335       (48,681 )     21,174  
 
 
   
     
     
     
     
 
Total liabilities and stockholders’ equity
  $ 386,098     $ 456,479     $ 92,678     $ (359,084 )   $ 576,171  
 
 
   
     
     
     
     
 

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SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2000
(In Thousands)

                                                 
            ALLIED   GUARANTOR   NONGUARANTOR                
            HOLDINGS   SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
           
 
 
 
 
            (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)        
CURRENT ASSETS:
                                       
 
Cash and cash equivalents
  $ (1,213 )   $ 2,063     $ 1,523     $     $ 2,373  
 
Short-term investments
                59,892             59,892  
 
Receivables, net of allowance for doubtful accounts
    805       112,876       585             114,266  
 
Inventories
          7,415                   7,415  
 
Deferred tax asset – current
    8,009       1,600       582             10,191  
 
Prepayments and other current assets
    1,974       15,007       2,374             19,355  
 
 
   
     
     
     
     
 
       
Total current assets
    9,575       138,961       64,956             213,492  
 
 
   
     
     
     
     
 
PROPERTY AND EQUIPMENT, NET
    16,319       239,866       3,177             259,362  
OTHER ASSETS:
                                       
 
Goodwill, net
    1,633       93,526                   95,159  
 
Other
    15,732       16,372       10,422             42,526  
 
Deferred tax asset – noncurrent
    17,585                   (17,585 )      
 
Intercompany receivables
    260,850                   (260,850 )      
 
Investment in subsidiaries
    80,057       14,072             (94,129 )      
 
 
   
     
     
     
     
 
       
Total other assets
    375,857       123,970       10,422       (372,564 )     137,685  
 
 
   
     
     
     
     
 
       
Total assets
  $ 401,751     $ 502,797     $ 78,555     $ (372,564 )   $ 610,539  
 
 
   
     
     
     
     
 
CURRENT LIABILITIES:
                                       
 
Current maturities of long-term debt
  $     $ 109     $     $     $ 109  
 
Trade accounts payable
    1,590       43,475       910             45,975  
 
Intercompany payables
          259,268       1,582       (260,850 )      
 
Accrued liabilities
    16,592       51,684       11,211             79,487  
 
 
   
     
     
     
     
 
       
Total current liabilities
    18,182       354,536       13,703       (260,850 )     125,571  
 
 
   
     
     
     
     
 
LONG-TERM DEBT, less current maturities
    324,428       448                   324,876  
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
          9,943                   9,943  
DEFERRED INCOME TAXES
          38,999             (17,585 )     21,414  
OTHER LONG-TERM LIABILITIES
          36,660       32,934             69,594  
STOCKHOLDERS’ EQUITY:
                                       
 
Common stock, no par value
                             
 
Additional paid-in capital
    45,990       81,180       13,612       (94,792 )     45,990  
 
Retained earnings (deficit)
    20,602       (10,171 )     20,309       (10,138 )     20,602  
 
Cumulative other comprehensive income, net of tax
    (6,744 )     (8,798 )     (2,003 )     10,801       (6,744 )
 
Treasury stock
    (707 )                       (707 )
 
 
   
     
     
     
     
 
   
Total stockholders’ equity
    59,141       62,211       31,918       (94,129 )     59,141  
 
 
   
     
     
     
     
 
     
Total liabilities and stockholders’ equity
  $ 401,751     $ 502,797     $ 78,555     $ (372,564 )   $ 610,539  
 
 
   
     
     
     
     
 

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Table of Contents

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2001
(In Thousands)
(Unaudited)

                                             
        ALLIED   GUARANTOR   NONGUARANTOR                
        HOLDINGS   SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
       
 
 
 
 
REVENUES
  $ 7,425     $ 671,111     $ 28,550     $ (34,702 )   $ 672,384  
 
   
     
     
     
     
 
OPERATING EXPENSES:
                                       
 
Salaries, wages and fringe benefits
    7,791       383,215                   391,006  
 
Operating supplies and expenses
    1,316       113,746       85             115,147  
 
Purchased transportation
          75,190                   75,190  
 
Insurance and claims
          38,382       26,483       (27,277 )     37,588  
 
Operating taxes and licenses
    94       24,896                   24,990  
 
Depreciation and amortization
    2,550       42,361       539             45,450  
 
Rents
    1,585       3,764       4             5,353  
 
Communications and utilities
    218       5,026       8             5,252  
 
Other operating expenses
    5,218       12,943       172       (7,425 )     10,908  
 
   
     
     
     
     
 
   
Total operating expenses
    18,772       699,523       27,291       (34,702 )     710,884  
 
   
     
     
     
     
 
   
Operating (loss) income
    (11,347 )     (28,412 )     1,259             (38,500 )
 
   
     
     
     
     
 
OTHER INCOME (EXPENSE):
                                       
 
Equity in earnings of joint ventures, net of tax
          3,299       294             3,593  
 
Gain on sale of assets
            2,719                   2,719  
 
Interest expense
    (25,511 )     (24,336 )     (157 )     23,010       (26,994 )
 
Interest income
    23,031       155       1,838       (23,010 )     2,014  
 
Intercompany dividends
    1,980       (1,980 )                  
 
Equity in losses of subsidiaries
    (45,483 )                 45,483        
 
   
     
     
     
     
 
 
    (45,983 )     (20,143 )     1,975       45,483       (18,668 )
 
   
     
     
     
     
 
(LOSS) INCOME BEFORE INCOME TAXES
    (57,330 )     (48,555 )     3,234       45,483       (57,168 )
INCOME TAX BENEFIT (PROVISION)
    20,106       827       (989 )           19,944  
 
   
     
     
     
     
 
NET (LOSS) INCOME
  $ (37,224 )   $ (47,728 )   $ 2,245     $ 45,483     $ (37,224 )
 
   
     
     
     
     
 

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
(In Thousands)
(Unaudited)

                                             
        ALLIED   GUARANTOR   NONGUARANTOR                
        HOLDINGS   SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
       
 
 
 
 
REVENUES
  $ 3,728     $ 813,804     $ 25,574     $ (27,978 )   $ 815,128  
 
   
     
     
     
     
 
OPERATING EXPENSES:
                                       
 
Salaries, wages and fringe benefits
    3,609       438,208                   441,817  
 
Operating supplies and expenses
    856       139,953       28             140,837  
 
Purchased transportation
          79,967                   79,967  
 
Insurance and claims
          36,042       24,577       (24,250 )     36,369  
 
Operating taxes and licenses
    8       31,483                   31,491  
 
Depreciation and amortization
    321       45,085       280             45,686  
 
Rents
    57       6,556                   6,613  
 
Communications and utilities
    12       5,538                   5,550  
 
Other operating expenses
    1,549       10,465       151       (3,728 )     8,437  
 
   
     
     
     
     
 
   
Total operating expenses
    6,412       793,297       25,036       (27,978 )     796,767  
 
   
     
     
     
     
 
   
Operating (loss) income
    (2,684 )     20,507       538             18,361  
 
   
     
     
     
     
 
OTHER INCOME (EXPENSE):
                                       
 
Equity in earnings (loss) of joint ventures, net of tax
          4,359       (158 )           4,201  
 
Loss on sale of assets
          (97 )                 (97 )
 
Interest expense
    (22,111 )     (25,591 )     (372 )     23,004       (25,070 )
 
Interest income
    22,977       294       3,386       (23,004 )     3,653  
 
Equity in net income of subsidiaries
    2,079                   (2,079 )      
 
   
     
     
     
     
 
 
    2,945       (21,035 )     2,856       (2,079 )     (17,313 )
 
   
     
     
     
     
 
INCOME (LOSS) BEFORE INCOME TAXES
    261       (528 )     3,394       (2,079 )     1,048  
INCOME TAX BENEFIT (PROVISION)
    983       (124 )     (663 )           196  
 
   
     
     
     
     
 
NET INCOME (LOSS)
  $ 1,244     $ (652 )   $ 2,731     $ (2,079 )   $ 1,244  
 
   
     
     
     
     
 

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Table of Contents

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001
(In Thousands)
(Unaudited)

                                             
        ALLIED   GUARANTOR   NONGUARANTOR                
        HOLDINGS   SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
       
 
 
 
 
REVENUES
  $ 2,475     $ 203,586     $ 9,517     $ (11,568 )   $ 204,010  
 
   
     
     
     
     
 
OPERATING EXPENSES:
                                       
 
Salaries, wages and fringe benefits
    345       118,355                   118,700  
 
Operating supplies and expenses
    341       33,437       32             33,810  
 
Purchased transportation
          23,228                   23,228  
 
Insurance and claims
          10,680       8,944       (9,093 )     10,531  
 
Operating taxes and licenses
    1       7,856                   7,857  
 
Depreciation and amortization
    825       14,137       183             15,145  
 
Rents
    544       1,146       1             1,691  
 
Communications and utilities
    106       1,192       2             1,300  
 
Other operating expenses
    1,612       4,120       38       (2,475 )     3,295  
 
   
     
     
     
     
 
   
Total operating expenses
    3,774       214,151       9,200       (11,568 )     215,557  
 
   
     
     
     
     
 
   
Operating (loss) income
    (1,299 )     (10,565 )     317             (11,547 )
 
   
     
     
     
     
 
OTHER INCOME (EXPENSE):
                                       
 
Equity in earnings of joint ventures, net of tax
          862       192             1,054  
 
Loss on sale of assets
          (24 )                 (24 )
 
Interest expense
    (8,442 )     (8,204 )     (61 )     7,566       (9,141 )
 
Interest income
    7,536       43       411       (7,566 )     424  
 
Equity in losses of subsidiaries
    (17,366 )                 17,366        
 
   
     
     
     
     
 
 
    (18,272 )     (7,323 )     542       17,366       (7,687 )
 
   
     
     
     
     
 
(LOSS) INCOME BEFORE INCOME TAXES
    (19,571 )     (17,888 )     859       17,366       (19,234 )
INCOME TAX BENEFIT (PROVISION)
    6,925       (85 )     (252 )           6,588  
 
   
     
     
     
     
 
NET (LOSS) INCOME
  $ (12,646 )   $ (17,973 )   $ 607     $ 17,366     $ (12,646 )
 
   
     
     
     
     
 

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000
(In Thousands)
(Unaudited)

                                             
        ALLIED   GUARANTOR   NONGUARANTOR                
        HOLDINGS   SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
       
 
 
 
 
REVENUES
  $ 1,243     $ 235,973     $ 8,392     $ (9,261 )   $ 236,347  
 
   
     
     
     
     
 
OPERATING EXPENSES:
                                       
 
Salaries, wages and fringe benefits
    1,833       130,871                   132,704  
 
Operating supplies and expenses
    56       40,885       12             40,953  
 
Purchased transportation
          23,513                   23,513  
 
Insurance and claims
          10,813       8,431       (8,018 )     11,226  
 
Operating taxes and licenses
    2       9,648                   9,650  
 
Depreciation and amortization
    262       14,693       96             15,051  
 
Rents
    19       2,095                   2,114  
 
Communications and utilities
    4       1,331                   1,335  
 
Other operating expenses
    273       3,671               (1,243 )     2,701  
 
   
     
     
     
     
 
   
Total operating expenses
    2,449       237,520       8,539       (9,261 )     239,247  
 
   
     
     
     
     
 
   
Operating loss
    (1,206 )     (1,547 )     (147 )           (2,900 )
 
   
     
     
     
     
 
OTHER INCOME (EXPENSE):
                                       
 
Equity in earnings (loss) of joint ventures, net of tax
          1,557       (55 )           1,502  
 
Loss on sale of assets
          (84 )                 (84 )
 
Interest expense
    (7,216 )     (8,569 )     (133 )     7,597       (8,321 )
 
Interest income
    7,595       94       1,552       (7,597 )     1,644  
 
Equity in net losses of subsidiaries
    (7,400 )                 7,400        
 
   
     
     
     
     
 
 
    (7,021 )     (7,002 )     1,364       7,400       (5,259 )
 
   
     
     
     
     
 
(LOSS) INCOME BEFORE INCOME TAXES
    (8,227 )     (8,549 )     1,217       7,400       (8,159 )
INCOME TAX BENEFIT (PROVISION)
    3,617       (40 )     (28 )           3,549  
 
   
     
     
     
     
 
NET (LOSS) INCOME
  $ (4,610 )   $ (8,589 )   $ 1,189     $ 7,400     $ (4,610 )
 
   
     
     
     
     
 

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Table of Contents

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2001
(In Thousands)
(Unaudited)

                                                 
            ALLIED   GUARANTOR   NONGUARANTOR                
            HOLDINGS   SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
           
 
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                                       
 
Net (loss) income
  $ (37,224 )   $ (47,728 )   $ 2,245     $ 45,483     $ (37,224 )
 
   
     
     
     
     
 
 
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
                                       
   
Depreciation and amortization
    2,550       42,361       539             45,450  
   
Gain on sale of property and equipment
          (2,719 )                 (2,719 )
   
Deferred income taxes
    (19,657 )     (51 )     331             (19,377 )
   
Compensation expense related to stock options and grants
    207                         207  
   
Equity in earnings of joint ventures
          (3,299 )     (294 )           (3,593 )
   
Equity in losses of subsidiaries
    45,483                   (45,483 )      
   
Amortization of Teamsters Union signing bonus
          1,802                   1,802  
   
Change in operating assets and liabilities:
                                       
     
Receivables, net of allowance for doubtful accounts
    782       20,102       (2,694 )           18,190  
     
Inventories
          730       (10 )           720  
     
Prepayments and other current assets
    212       (3,215 )     2,181             (822 )
     
Trade accounts payable
    1,291       (7,950 )     (362 )           (7,021 )
       
Intercompany payables
    (13,610 )     12,878       732              
     
Accrued liabilities
    (716 )     (4,592 )     11,336             6,028  
 
   
     
     
     
     
 
       
Total adjustments
    16,542       56,047       11,759       (45,483 )     38,865  
 
   
     
     
     
     
 
       
Net cash (used in) provided by operating activities
    (20,682 )     8,319       14,004             1,641  
 
   
     
     
     
     
 
CASH FLOWS FROM INVESTING ACTIVITIES:
                                       
 
Purchases of property and equipment
    (67 )     (17,552 )     (655 )           (18,274 )
 
Intercompany sale of property and equipment
    1,403       (1,403 )                  
 
Proceeds from sale of property and equipment
          4,832                   4,832  
 
Investment in joint venture
                (464 )           (464 )
 
Cash received from joint ventures
          3,578                   3,578  
 
Intercompany dividend received (paid)
    1,980       (1,980 )                  
 
Increase in short-term investments
                (4,864 )           (4,864 )
 
Increase in cash surrender value of life insurance
    (360 )                       (360 )
 
   
     
     
     
     
 
       
Net cash provided by (used in) investing activities
    2,956       (12,525 )     (5,983 )           (15,552 )
 
   
     
     
     
     
 
CASH FLOWS FROM FINANCING ACTIVITIES:
                                       
 
Proceeds from issuance of long-term debt, net
    21,739       1,741                   23,480  
 
Proceeds from issuance of common stock
    303                         303  
 
Other, net
    (3,245 )     2,498       683             (64 )
 
   
     
     
     
     
 
       
Net cash provided by financing activities
    18,797       4,239       683             23,719  
 
   
     
     
     
     
 
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
          303       (235 )           68  
NET INCREASE IN CASH AND CASH EQUIVALENTS
    1,071       336       8,469             9,876  
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    (1,213 )     2,063       1,523             2,373  
 
   
     
     
     
     
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ (142 )   $ 2,399     $ 9,992     $     $ 12,249  
 
   
     
     
     
     
 

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Table of Contents

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000
(In Thousands)
(Unaudited)

                                                 
            ALLIED   GUARANTOR   NONGUARANTOR                
            HOLDINGS   SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
           
 
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                                       
 
Net income (loss)
  $ 1,244     $ (652 )   $ 2,731     $ (2,079 )   $ 1,244  
 
   
     
     
     
     
 
 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
                                       
   
Depreciation and amortization
    321       45,085       280             45,686  
   
Loss on sale of property and equipment
          97                   97  
   
Deferred income taxes
    567       119       (582 )           104  
   
Compensation expense related to stock options and grants
    452                         452  
   
Equity in (earnings) loss of joint ventures
          (4,359 )     158             (4,201 )
   
Equity in net income of subsidiaries
    (2,079 )                 2,079        
   
Amortization of Teamsters Union signing bonus
          1,850                   1,850  
   
Change in operating assets and liabilities:
                                       
     
Receivables, net of allowance for doubtful accounts
    (80 )     (2,144 )     (142 )           (2,366 )
     
Inventories
          (7 )                 (7 )
     
Prepayments and other current assets
    (127 )     (1,623 )     33             (1,717 )
     
Intercompany receivables and payables
    (12,049 )     12,695       (646 )            
     
Trade accounts payable
    124       (6,416 )     (295 )           (6,587 )
     
Accrued liabilities
    843       (15,233 )     5,757             (8,633 )
 
   
     
     
     
     
 
       
Total adjustments
    (12,028 )     30,064       4,563       2,079       24,678  
 
   
     
     
     
     
 
       
Net cash (used in) provided by operating activities
    (10,784 )     29,412       7,294             25,922  
 
   
     
     
     
     
 
CASH FLOWS FROM INVESTING ACTIVITIES:
                                       
 
Purchases of property and equipment
    (141 )     (14,955 )     (876 )           (15,972 )
 
Intercompany sale of property and equipment
    (8,716 )     8,716                    
 
Proceeds from sale of property and equipment
          799                   799  
 
Purchase of business, net of cash acquired
          (8,185 )                 (8,185 )
 
Return of capital
    11,999       (11,999 )                  
 
Intercompany dividend received (paid)
    4,349       (4,349 )                  
 
Increase in short-term investments
                (14,044 )           (14,044 )
 
Increase in cash surrender value of life insurance
          (128 )                 (128 )
 
   
     
     
     
     
 
       
Net cash provided by (used in) investing activities
    7,491       (30,101 )     (14,920 )           (37,530 )
 
   
     
     
     
     
 
CASH FLOWS FROM FINANCING ACTIVITIES:
                                       
 
Proceeds from issuance of long-term debt, net
    690       81                   771  
 
Proceeds from issuance of common stock
    626                         626  
 
Repurchase of common stock
    (282 )                       (282 )
 
Other, net
    787       313       794             1,894  
 
   
     
     
     
     
 
       
Net cash provided by financing activities
    1,821       394       794             3,009  
 
   
     
     
     
     
 
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
          315       (1,096 )           (781 )
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    (1,472 )     20       (7,928 )           (9,380 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    1,852       3,179       8,953             13,984  
 
   
     
     
     
     
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ 380     $ 3,199     $ 1,025     $     $ 4,604  
 
   
     
     
     
     
 

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Note 3. Comprehensive Loss

      Comprehensive income was a loss of $11.9 million for the third quarter of 2001 versus a loss of $5.6 million for the third quarter of 2000, and a loss of $38.5 million for the first nine months of 2001 versus a loss of $1.7 million for the first nine months of 2000. The difference between comprehensive income and net income is the change in the foreign currency translation adjustment, net of income taxes.

Note 4. Accounting for Derivative Instruments and Hedging Activities

      The Financial Accounting Standards Board issued Statement of Financial Accounting Standards “SFAS” No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended. The statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative’s gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting.
 
      From time to time, the Company enters into futures contracts to manage the risk associated with changes in fuel prices. Gains and losses from fuel hedging contracts are recognized as part of fuel expense when the Company uses the underlying fuel being hedged. The Company does not enter into fuel hedging contracts for speculative purposes. At September 30, 2001, the Company did not have any outstanding fuel hedging contracts or other derivative instruments that fall under the provisions of SFAS No. 133.

Note 5. Recent Accounting Pronouncements

      In June 2001, the Financial Accounting Standards Board approved Statement of SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 prospectively prohibits the pooling of interest method of accounting for business combinations initiated after June 30, 2001. SFAS No. 142 requires companies to cease amortizing goodwill that existed at June 30, 2001. The amortization of existing goodwill will cease on December 31, 2001. Any goodwill resulting from acquisitions completed after June 30, 2001 will not be amortized. SFAS No. 142 also establishes a new method of testing goodwill for impairment on an annual basis or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. The adoption of SFAS No. 142 will result in the Company’s discontinuation of amortization of its goodwill; however, the Company will be required to test its goodwill for impairment under the new standard beginning in the first quarter of 2002, which could have an adverse effect on the Company’s future results of operations if an impairment occurs.

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      In June 2001, the Financial Accounting Standards Board issued Statement No. 143, “Accounting for Asset Retirement Obligations"' which addresses accounting and reporting for asset retirement costs of long lived assets resulting from legal obligations associated with acquisition, construction or development transactions. The Company plans to adopt Statement No. 143 in the first quarter of fiscal 2003. Management has determined the adoption of this statement will not have a material effect on the Consolidated Financial Statements of the Company.
 
      In August 2001, The Financial Accounting Standards Board issued Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” which clarifies accounting and reporting for assets held for sale, scheduled for abandonment or other disposal, and recognition of impairment loss related to the carrying value of long-lived assets. The Company plans to adopt Statement No. 144 in the first quarter of fiscal 2003. Management is currently evaluating the effect of this statement on the Consolidated Financial Statements of the Company.

Note 6. Workforce Reduction Accrual

      The Company has implemented a program to achieve a significant reduction in corporate overhead expenses. Targeted in the plan are workforce reductions and additional efforts to decrease discretionary spending and eliminate fixed costs. The components of the workforce reduction accrual are as follows (Dollars in millions):
                                 
    Year Ended   Quarter Ended
   
 
    December 31,   March 31,   June 30,   September 30,
    2000   2001   2001   2001
   
 
 
 
Beginning Balance
  $ 0.0     $ 1.6     $ 4.7     $ 4.0  
Expense
    2.5       5.0       0.6       1.6  
Payments
    (0.9 )     (1.9 )     (1.3 )     (2.6 )
 
   
     
     
     
 
Ending Balance
    1.6       4.7       4.0       3.0  
 
   
     
     
     
 
Number of terminated employees during quarter
    100       65       20       63  

Note 7. Segment Reporting

      In accordance with the requirements of SFAS No. 131, “Disclosure About Segments of an Enterprise and Related Information,” the Company has identified two reportable industry segments through which it conducts its operating activities: Allied Automotive Group and Axis Group. These two segments reflect the organization used by management for internal reporting. Allied Automotive Group is engaged in the business of transporting automobiles and light trucks from manufacturing plants, ports, auctions, and railway distribution points to automobile dealerships. Axis Group provides distribution, automobile inspection, auction, and logistics services for the automotive industry. The following is a summary of certain financial information relating to the two segments (In thousands):

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    Three Months Ended   Nine Months Ended
    September 30,   September 30,
   
 
    2001   2000   2001   2000
   
 
 
 
Revenues – unaffiliated customers:
                               
Allied Automotive Group
  $ 197,168     $ 230,192     $ 651,982     $ 793,560  
Axis Group
    6,842       6,146       20,402       21,497  
Corporate/other
          9             71  
 
   
     
     
     
 
 
  $ 204,010     $ 236,347     $ 672,384     $ 815,128  
 
   
     
     
     
 
Depreciation and amortization:
                               
Allied Automotive Group
  $ 13,343     $ 12,880     $ 40,132     $ 39,200  
Axis Group
    977       806       2,768       2,247  
Corporate/other
    825       1,365       2,550       4,239  
 
   
     
     
     
 
 
  $ 15,145     $ 15,051     $ 45,450     $ 45,686  
 
   
     
     
     
 
Operating (loss) profit:
                               
Allied Automotive Group
  $ (10,483 )   $ (1,475 )   $ (27,701 )   $ 24,138  
Axis Group
    502       84       900       222  
Corporate/other
    (1,566 )     (1,509 )     (11,699 )     (5,999 )
 
   
     
     
     
 
 
    (11,547 )     (2,900 )     (38,500 )     18,361  
Reconciling items:
                               
Equity income in joint ventures
  1,054     1,502     3,593     4,201  
Gain (loss) on sale of assets
    (24 )     (84 )     2,719       (97 )
Interest expense
    (9,141 )     (8,321 )     (26,994 )     (25,070 )
Interest income
    424       1,644       2,014       3,653  
 
   
     
     
     
 
(Loss) income before income taxes
  $ (19,234 )   $ (8,159 )   $ (57,168 )   $ 1,048  
 
   
     
     
     
 
Capital expenditures:
                               
Allied Automotive Group
  $ 1,321     $ 4,763     $ 16,381     $ 9,780  
Axis Group
    11       856       1,826       1,780  
Corporate/other
          1,275       67       4,412  
 
   
     
     
     
 
 
  $ 1,332     $ 6,894     $ 18,274     $ 15,972  
 
   
     
     
     
 
                 
    September 30,   December 31,
    2001   2000
   
 
Total assets:
               
Allied Automotive Group
  $ 387,017     $ 437,945  
Axis Group
    67,641       64,869  
Corporate/other
    121,513       107,725  
 
   
     
 
 
  $ 576,171     $ 610,539  
 
   
     
 

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Geographic financial information for 2001 and 2000 is as follows (in thousands):

                                 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
   
 
    2001   2000   2001   2000
   
 
 
 
Revenues:
                               
United States
  $ 170,222     $ 195,219     $ 555,489     $ 672,397  
Canada
    33,788       41,128       116,895       142,731  
 
   
     
     
     
 
 
  $ 204,010     $ 236,347     $ 672,384     $ 815,128  
 
   
     
     
     
 

Note 8. Equity Investments

      Axis Group has entered into three joint ventures for the purpose of managing the distribution of vehicles in the United Kingdom and Brazil. The Company is accounting for the investments under the equity method of accounting with its share of the ventures’ earnings or loss reflected as equity in earnings (loss) of joint ventures in the consolidated statements of operations. The related equity investments are included in other assets in the accompanying consolidated balance sheets.
 
      Equity in earnings for these joint ventures is recorded net of income taxes in the consolidated statements of operations by the Company. Income taxes related to the joint ventures were $.6 million and $1.7 million for the three and nine months ended September 30, 2001 and $2,000 and $1.2 million for the three and nine months ended September 30, 2000. Included in the 2001 results are $1.7 million in fees related to management services provided to the joint venture and $1.5 million for similar fees is included in the 2000 results.
 
      The majority of the Company’s equity in earnings of joint ventures in 2001 was derived from its joint venture in the United Kingdom, Ansa Logistics Limited. Summarized unaudited financial information of Ansa Logistics Limited for the periods ended September 30, 2001 and 2000, is as follows (in thousands):
                   
      September 30,   December 31,
      2001   2000
     
 
Current assets
  $ 30,738     $ 34,799  
Other assets
    4,015       5,019  
 
   
     
 
 
Total assets
  $ 34,753     $ 39,818  
 
   
     
 
Current liabilities
  $ 18,413     $ 32,194  
 
   
     
 

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    Three Months Ended   Nine Months Ended
    September 30,   September 30
   
 
    2001   2000   2001   2000
   
 
 
 
Revenues
  $ 28,965     $ 24,125     $ 85,066     $ 79,890  
 
   
     
     
     
 
Operating income
  $ 2,963     $ 2,505     $ 7,840     $ 7,789  
 
   
     
     
     
 
Income from continuing operations
  $ 3,178     $ 2,620     $ 8,218     $ 7,903  
 
   
     
     
     
 
Net income
  $ 1,971     $ 1,624     $ 5,095     $ 4,900  
 
   
     
     
     
 

Note 9. Litigation

      The Company is routinely a party to litigation incidental to its business, primarily involving claims for personal injury and property damage incurred in the transportation of vehicles. The Company does not believe that any of such pending litigation, if adversely determined, would have a material adverse effect on the Company.
 
      The Company is defending two pieces of related litigation in the Supreme Court of Erie County, New York: Gateway Development & Manufacturing, Inc. v. Commercial Carriers, Inc., et al., Index No. 1997/8920 (the “Gateway Case”), and Commercial Carriers, Inc., v. Gateway Development & Manufacturing, Inc., et al. (the “CCI Case”), Index No. I2000/8184. The claims at issue in both the Gateway Case and the CCI Case center around the contention that the Company breached legal duties with respect to a failed business transaction involving Gateway Development & Manufacturing, Inc., Ryder Truck Rental, Inc., and Ryder System, Inc. In the Gateway Case, the Company has sought and received summary judgment in its favor on the sole claim (for tortious interference with contract) asserted against it by Gateway Development & Manufacturing, Inc., but the court has permitted the filing and service of cross-claims against the Company by the other defendants in that action. In the CCI Case, the Company has accepted service of a separate complaint asserting claims against the Company that are virtually identical to the cross-claims asserted against the Company by the other defendants in the Gateway Case. It is anticipated that the claims asserted in both the Gateway Case and the CCI Case will be resolved in a unified proceeding. With respect to the entirety of this litigation, the Company intends to continue its vigorous defense against the claims asserted it, as management believes all of those claims are without merit. While the ultimate results of this litigation cannot be predicted, if this litigation is resolved in a manner that is adverse to the Company, it could have a material adverse effect on the Company’s consolidated financial position or results of operations.
 
      The Company is defending a third piece of related litigation in the United States District Court for the Southern District of Florida, Ryder Systems, Inc. v. Allied Holdings, Inc., AH Acquisition Corp. and Allied Automotive Group, Inc., Case No. 01-3553-CIV-HUCK. The claims at issue in this case center around the Allied parties’ September 1997 stock acquisition of certain corporations wholly-owned by Ryder. Through that acquisition, Allied parties agreed to assume financial responsibility for certain third-

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      party injury claims arising on or before the September 1997 closing date. Ryder’s four-count complaint alleges in count one that the Allied parties have breached their agreement with Ryder by failing to undertake certain logistical actions to actually substitute Allied parties for Ryder under an insurance policy covering these third-party claims and with various states’ agencies who regulate matters such as self-insured workers’ compensation. In counts two through four, the complaint alleges that, if the contract does not create these obligations, the legal doctrines of promissory estoppel, good faith and fair dealing, and negligent misrepresentation, create them. The Allied parties have moved to dismiss all counts of the complaint or, alternatively, to transfer the case to the Northern District of Georgia. With respect to the entirety of this litigation, the Company intends to continue its vigorous defense against the claims asserted, as management believes all of those claims are without merit. While the ultimate results of this litigation cannot be predicted, management does not expect that the resolution of these proceedings will have a material adverse effect on the Company’s consolidated financial position or results of operations.

Note 10. Reclassifications

      Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

      Revenues were $204.0 million for the third quarter of 2001 versus revenues of $236.3 million for the third quarter of 2000, a decrease of 13.7%. For the nine-month period ended September 30, 2001 revenues were $672.4 million, versus revenues of $815.1 million for the nine-month period ended September 30, 2000, a decrease of 17.5%.
 
      Allied has initiated an aggressive plan to revitalize the Company. The key elements of the turnaround plan include:
 
      • Focus on Execution
      • De-leverage the Company
      • Eliminate Non-contributory Expense
      • Eliminate Non-performing Assets
      • Better Management of Cash
      • Price Adjustments
      • Optimize Invested Assets
      • Implement Strategic Growth Plan
 
      Unanticipated adjustments in new vehicle production by the auto manufacturers led to lower vehicle delivery volumes and a decline in revenues and earnings during the third quarter. The events of September 11, 2001 caused a significant drop in new vehicle productions during the balance of the month. The Company estimates its vehicle deliveries were reduced by approximately 85,000 units during September 2001 following the terrorist acts, which reduced net earnings by approximately $2 million for the month.
 
      As part of the initiative to adjust pricing, effective on or about September 6, 2001, the Company implemented an administrative processing fee for vehicles transported on behalf of its clients in the United States and Canada. Allied has implemented the new processing fee with clients representing approximately 85% of its annual revenues. The remaining portion of Allied’s business is under a contract which prohibits the implementation of the fee at the present time. The administrative processing fee is approximately an 8.5% price increase over the Company’s previous rates.
 
      The Company experienced a net loss of $12.6 million for the third quarter of 2001 versus a net loss of $4.6 million for the third quarter of 2000. Basic and diluted loss per share for the third quarter of 2001 was $1.56 versus basic and diluted loss per share of $0.58 for the third quarter of 2000. For the nine-month period ended September 30, 2001, the net loss was $37.2 million, versus net income of $1.2 million for the nine-month period ended September 30, 2000. Basic and diluted loss per share for the nine-month period ended September 30, 2001 were $4.60 versus basic and diluted earnings per share of $0.16 for the nine-month period ended September 30, 2000.
 
      As part of the initiative to eliminate non-performing assets, Allied announced that it will close certain non-performing and non-core terminal locations within the U.S. and Canada. Allied closed its Doremus, NJ facility on July 1, 2001. In the first nine months of 2001, the operations of Allied at Doremus, NJ generated approximately $4.8 million in revenues and posted an operating loss of approximately $1.4 million. Allied intends to close its Houston, TX, Selkirk, NY and Edison, NJ terminal facilities during the fourth quarter of 2001. In the first nine months of 2001, the operations of the automotive group at Houston, Selkirk and Edison generated approximately $23 million in revenues and posted operating losses of approximately $4 million.
 
      The following is a discussion of the changes in the Company’s major expense categories:

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      Salaries, wages and fringe benefits increased from 56.2% of revenues for the third quarter of 2000 to 58.2% of revenues for the third quarter of 2001, and increased from 54.2% of revenues for the first nine months of 2000 to 58.2% of revenues for the first nine months of 2001. The increase was due in part to severance charged to expense of $4.9 million in the first six months of 2001 and $1.6 million in the third quarter of 2001 included in the Company’s workforce and overhead reduction program, as well as annual wage increases for remaining employees. In addition, the significant drop in vehicle deliveries caused operating inefficiencies that increased salaries, wages, and fringe benefits as a percentage of revenues.
 
      Operating supplies and expenses decreased from 17.3% of revenues for the third quarter of 2000 to 16.6% of revenues for the third quarter of 2001, and also decreased from 17.3% of revenues for the first nine months of 2000 to 17.1% of revenues for the first nine months of 2001. The decrease was due primarily to an increase in the percentage of units hauled by owner operators versus company drivers. Owner operators are responsible for related operating expenses. In addition, operating supplies and expenses declined due to a decrease in parts and maintenance expense related to vigorous expense reduction programs and decreasing volumes, combined with lower fuel costs.
 
      Purchased transportation increased from 10.0% of revenues in the third quarter of 2000 to 11.4% of revenues in the third quarter of 2001, and increased from 9.8% of revenues for the first nine months of 2000 to 11.2% of revenues for the first nine months of 2001. As volumes decline, units are hauled by drivers with the highest seniority and owner operators generally have more seniority than company drivers in the current workforce. The number of owner operators stayed relatively constant from year to year while the number of company drivers decreased, resulting in higher purchased transportation for 2001 compared to 2000.
 
      Insurance and claims expense increased from 4.8% of revenues for the third quarter of 2000 to 5.2% of revenues for the third quarter of 2001, and increased from 4.5% of revenues for the first nine months of 2000 to 5.6% of revenues for the first nine months of 2001. The increase was a result of an increase in cargo claims expense and costs related to higher auto, general liability and property insurance premiums that were unaffected by the decline in vehicles delivered.
 
      Depreciation and amortization expense increased from 6.4% of revenues in the third quarter of 2000 to 7.4% of revenues in the third quarter of 2001, and increased from 5.6% of revenues for the first nine months of 2000 to 6.8% of revenues for the first nine months of 2001. The increase as a percentage of revenues was due primarily to a sharp decline in vehicles delivered which reduced revenues. Depreciation and amortization expense stayed relatively constant in 2001 versus 2000; depreciation and amortization expense was $15.1 million in the third quarter of 2001 versus $15.0 million in the third quarter of 2000, and $45.4 million for the first nine months of 2001 versus $45.7 million for the first nine months of 2000.
 
      Loss/gain on sale of assets increased from a loss of $97,000 for the first nine months of 2000 to a gain of $2,719,000 for the first nine months of 2001. The Company disposed of excess real estate and other assets in Canada during the second quarter of 2001.

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      Interest expense as a percentage of revenues increased from 3.5% of revenues for the third quarter of 2000 to 4.5% of revenues for the third quarter of 2001, and increased from 3.1% of revenues for the first nine months of 2000 to 4.1% for the first nine months of 2001. The increase was due to higher interest rates charged under the Company’s revolving credit facility and senior subordinated notes as a result of the amendments in the second quarter of 2001, as well as higher long-term debt levels and additional costs related to the amendments.

Financial Condition, Liquidity and Capital Resources

      Net cash provided by operating activities totaled $1.6 million for the nine-month period ended September 30, 2001 versus net cash provided by operating activities of $25.9 million for the nine-month period ended September 30, 2000. The decline in cash provided by operating activities was due primarily to reduced earnings during the first nine months of 2001 versus 2000, offset with a favorable change in operating assets and liabilities as the Company has implemented measures to improve asset utilization.
 
      Net cash used in investing activities totaled $15.6 million for the nine-month period ended September 30, 2001 versus $37.5 million for the nine-month period ended September 30, 2000. The decrease was due primarily to the purchase of CT Group, a logistics service group, in 2000 for $8.2 million, combined with a change in the investment portfolio mix of the Company’s captive insurance company which increased short-term investments by $14.0 million and reduced cash and cash equivalents by a like amount in 2000.
 
      Net cash provided by financing activities totaled $23.7 million for the nine-month period ended September 30, 2001 versus $3.0 million for the nine-month period ended September 30, 2000. The increase was due to an increase in borrowings during 2001 as a result of lower operating cash flow.
 
      In April 2001 the Company amended its revolving credit facility and its senior subordinated notes to avoid defaults relating to its financial covenants. The maturity date of the amended revolving credit facility has been accelerated from September 30, 2002 to January 31, 2002.
 
      The Company’s future cash flow would be insufficient to meet its debt payment obligations if it is required to repay the outstanding balance of the Credit Facility at its currently scheduled maturity in January 2002. The Company’s ability to meet its principal payment obligations at the January 2002 maturity will depend on whether it can arrange a refinancing, restructuring or extension of such facility on satisfactory terms within that time frame. The Company is engaged in discussions with a number of lenders to replace its revolving credit facility, and completion of the financing is anticipated by January 2002.
 
      If the Company is unable to refinance, restructure or extend its Credit Facility, the Company may be required to sell additional assets, reduce or delay capital investments or seek to raise additional capital, among other things. The Company cannot give any

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      assurance that any refinancing, restructuring or extension of the current Credit Facility would be possible, that any assets could be sold, or, if sold, of the timing of the sales and the amount of proceeds realized from those sales, or that additional capital could be obtained on acceptable terms, if at all. The Company’s inability to refinance, restructure or extend its indebtedness on commercially reasonable terms would have a material adverse effect on its business, financial condition, and results of operations. Additionally, the Company has been advised by its independent public accountants that if the Company is unable to refinance, restructure or extend its indebtedness, the auditor’s report on the consolidated financial statements for the year ended December 31, 2001 may contain a paragraph regarding uncertainties as to the Company’s ability to continue as a going concern. The debt under the Company’s Credit Facility is secured by liens on all of its assets, and the Company’s failure to pay these obligations when due would permit the lenders to pursue their remedies under the Credit Facility.
 
      The Company’s ability to obtain sufficient cash to make scheduled payments on its debt obligations as they become due until the January 2002 maturity will depend on future cash flow from operations, sales of assets and the Company’s financial performance, which will be affected by a range of economic, competitive and business factors. The Company cannot control many of these factors, such as general economic and financial conditions in the automotive industry and the economy at large.
 
      Allied is continuing its efforts in regard to the potential sale of its Axis Group, Inc. subsidiary. Allied is currently engaged in discussions with prospective buyers of Axis and expects to complete a transaction regarding Axis by January 2002.

Disclosures About Market Risks

      The market risk inherent in the Company’s market risk sensitive instruments and positions is the potential loss arising from adverse changes in short-term investment prices, interest rates, fuel prices, and foreign currency exchange rates.
 
      Short-term Investments – The Company does not use derivative financial instruments in its investment portfolio. The Company places its investments in instruments that meet high credit quality standards, as specified in the Company’s investment policy guidelines. The policy also limits the amount of credit exposure to any one issue, issuer, and type of instrument. Short-term investments at September 30, 2001, which are recorded at a fair value of $64.8 million, have exposure to price risk. This risk is estimated as the potential loss in fair value resulting from a hypothetical 10% adverse change in quoted prices and amounts to $6.5 million.
 
      Interest Rates – The Company primarily issues long-term debt obligations to support general corporate purposes including capital expenditures and working capital needs. The majority of the Company’s long-term debt obligations bear a fixed rate of interest. A one-percentage point increase in interest rates affecting the Company’s floating rate long-term debt would reduce pre-tax income by $1.6 million over the next fiscal year. A one-percentage point change in interest rates would not have a material effect on the fair value of the Company’s fixed rate long-term debt.

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      Fuel Prices – The Company is dependent on diesel fuel to operate its fleet of rigs. Diesel fuel prices are subject to fluctuations due to unpredictable factors such as weather, government policies, changes in global demand, and global production. To reduce price risk caused by market fluctuations, the Company periodically follows a policy of hedging a portion of its anticipated diesel fuel consumption. The instruments used are principally readily marketable exchange traded futures contracts that are designated as hedges. The changes in market value of such contracts have a high correlation to the price changes of diesel fuel. Gains and losses resulting from fuel hedging transactions are recognized when the underlying fuel being hedged is used. In addition, the Company has contractual agreements with certain customers that provide for fuel surcharges that mitigate the exposure to risk associated with fuel price increases. A 10% increase in diesel fuel prices would reduce pre-tax income by $4.7 million over the next fiscal year.
 
      Foreign Currency Exchange Rates – Although the majority of the Company’s operations are in the United States, the Company does have foreign subsidiaries (primarily Canada). The net investments in foreign subsidiaries translated into dollars using exchange rates at September 30, 2001, are $97.3 million. The potential loss in fair value impacting other comprehensive income resulting from a hypothetical 10% change in quoted foreign currency exchange rates amounts to $9.7 million. The Company does not use derivative financial instruments to hedge its exposure to changes in foreign currency exchange rates.
 
      Seasonality and Inflation
 
      The Company’s revenues are seasonal, with the second and fourth quarters generally experiencing higher revenues than the first and third quarters. The volume of vehicles shipped during the second and fourth quarters is generally higher due to the introduction of new models which are shipped to dealers during those periods and the higher spring and early summer sales of automobiles and light trucks. During the first and third quarters, vehicle shipments typically decline due to lower sales volume during those periods and scheduled plant shut downs. Inflation has not significantly affected the Company’s results of operations.
 
      Cautionary Notice Regarding Forward-Looking Statements
 
      Statements in this quarterly report on Form 10-Q contains forward-looking statements, including statements regarding, among other items, (i) the Company’s plans, intentions or expectations, (ii) general industry trends, competitive conditions and customer preferences, (iii) the Company’s efforts to reduce costs, (iv) the adequacy of the Company’s sources of cash to finance its current and future operations and (v) resolution of litigation without material adverse effect on the Company. This notice is intended to take advantage of the “safe harbor” provided by the Private Securities Litigation Reform Act of 1995 with respect to such forward-looking statements. These forward-looking statements involve a number of risks and uncertainties. Among others, factors that could cause actual results to differ materially are the following: economic recessions or downturns in new vehicle production or sales; the highly competitive nature of the automotive distribution industry; dependence on the automotive industry; loss or

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      reduction of revenues generated by the Company’s major customers; the variability of quarterly results and seasonality of the automotive distribution industry; labor disputes involving the Company or its significant customers; the dependence on key personnel who have been hired or retained by the Company; the availability of strategic acquisitions or joint venture partners; changes in regulatory requirements which are applicable to the Company’s business; changes in vehicle sizes and weights which may adversely impact vehicle deliveries per load; the ability to maintain the rates charged to customers; risks associated with doing business in foreign countries; problems related to information technology systems and computations that must be made by the Company or its customers and vendors in 2001 or beyond; and the risk factors listed herein from time to time in the Company’s Securities and Exchange Commission reports, including but not limited to, its Annual Reports on Form 10-K or 10 Q.

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PART II.

OTHER INFORMATION

Item 1. Legal Proceedings.

Refer to Note 9 on Page 16 of this Report on Form 10-Q for information on legal proceedings.

Item 5. Other Information.

On July 13, 2001, the Company announced that it had been advised by the New York Stock Exchange (“NYSE”) that the Company had fallen below the continued listing standard requiring stockholders’ equity of not less than $50 million and total market capitalization of not less than $50 million. Allied submitted a detailed plan to the Listing and Compliance Committee of the NYSE demonstrating how the Company plans to be in compliance with the continued listing standard on or before November 29, 2002, the deadline set by the NYSE. The Committee has accepted the plan and the Company is currently subject to quarterly monitoring for compliance with the plan.

In connection with the implementation of the administrative processing fee, effective September 7, 2001 Allied Automotive Group, Inc. entered into an amendment to its contract with UPS Autogistics, Inc. regarding the distribution of vehicles for Ford Motor Company extending the term of the agreement for 12 months as to ramp locations and 15 months as to plant locations. The amended agreement provides that the contract may be terminated on 75 days notice by either party. Allied Automotive Group also entered into an amendment to its contract with General Motors effective September 6, 2001, in order to provide for the payment of the administrative processing fee. The amended agreement is for a term of 30 months expiring March 6, 2004.

Item 6. Exhibits and Reports on Form 8-K.

         
(a)   Exhibits   Description
 
 
    (10.1)*   Agreement between Allied Automotive Group, Inc. and UPS Autogistics, Inc. dated September 30, 2001.
    (10.2)*   Agreement between Allied Automotive Group, Inc., and General Motors Corporation dated September 6, 2001.

*   Portions of the agreement are omitted pursuant to a request for confidential treatment filed with the SEC on November 13, 2001.

(b) Reports on Form 8-K: None

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

       
    Allied Holdings, Inc.
 
 
 
 
November 13, 2001   /s/Hugh E. Sawyer

 
(Date)   Hugh E. Sawyer
    on behalf of Registrant as
    President and
    Chief Executive Officer
 
 
November 13, 2001   /s/Daniel H. Popky

 
(Date)   Daniel H. Popky
    on behalf of Registrant as
    Senior Vice President, Finance
    and Chief Financial Officer

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