-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ov8XYWtCvS5Sf65alJyqeXHqzxmDrCckUFiB9m671+6qjlOwHfUOVovIgugJkgK+ +VXQHSP2gY5vMjOK+kSSHQ== 0000950144-99-012806.txt : 19991115 0000950144-99-012806.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950144-99-012806 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIED HOLDINGS INC CENTRAL INDEX KEY: 0000909950 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 580360550 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13867 FILM NUMBER: 99747369 BUSINESS ADDRESS: STREET 1: 160 CLAIRMONT AVE STREET 2: STE 510 CITY: DECATUR STATE: GA ZIP: 30030 BUSINESS PHONE: 4043701100 MAIL ADDRESS: STREET 1: 160 CLAIREMONT AVENUE SUITE 510 CITY: DECATUR STATE: GA ZIP: 30030 10-Q 1 ALLIED HOLDINGS, INC. 1 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, 1999 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 21, 1999.............8,035,776 TOTAL NUMBER OF PAGES INCLUDED IN THIS REPORT: 17 1 2 INDEX PART I FINANCIAL INFORMATION
PAGE ITEM 1: FINANCIAL STATEMENTS Consolidated Balance Sheets as of September 30, 1999 and December 31, 1998................................................................ 3 Consolidated Statements of Operations for the Three and Nine Month Periods Ended September 30, 1999 and 1998.................................. 4 Consolidated Statements of Cash Flows for the Nine Month Periods Ended September 30, 1999 and 1998.................................. 5 Notes to Consolidated Financial Statements........................................... 6 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................. 9
PART II OTHER INFORMATION ITEM 1 Legal Proceedings................................................................... 16 ITEM 5 Other Information.................................................................... 16 ITEM 6 Exhibits and Reports on Form 8-K..................................................... 16 Signature Page....................................................................... 17
2 3 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS ALLIED HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
SEPTEMBER 30 DECEMBER 31 1999 1998 ------------ ----------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 35,266 $ 21,977 Short-term investments 15,898 23,323 Receivables, net of allowance for doubtful accounts 121,702 103,968 Inventories 7,772 6,788 Deferred tax assets 17,490 20,773 Prepayments and other current assets 21,694 18,930 --------- --------- Total current assets 219,822 195,759 --------- --------- PROPERTY AND EQUIPMENT, NET 295,864 297,530 --------- --------- OTHER ASSETS: Goodwill, net 93,529 94,577 Other 45,194 33,761 --------- --------- Total other assets 138,723 128,338 --------- --------- Total assets $ 654,409 $ 621,627 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 793 $ 2,746 Trade accounts payable 34,379 42,196 Accrued liabilities 85,695 100,788 --------- --------- Total current liabilities 120,867 145,730 --------- --------- LONG-TERM DEBT, LESS CURRENT MATURITIES 348,979 291,096 --------- --------- POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 10,982 11,165 --------- --------- DEFERRED INCOME TAXES 40,667 39,953 --------- --------- OTHER LONG-TERM LIABILITIES 71,001 70,830 --------- --------- STOCKHOLDERS' EQUITY: Common stock, no par value; 20,000 shares authorized, 7,991 and 7,878 shares outstanding at September 30, 1999 and December 31,1998, respectively 0 0 Additional paid-in capital 46,269 44,854 Retained earnings 21,658 25,354 Cumulative other comprehensive income, net of tax (4,011) (6,115) Unearned compensation (2,003) (1,240) --------- --------- Total stockholders' equity 61,913 62,853 --------- --------- Total liabilities and stockholders' equity $ 654,409 $ 621,627 ========= =========
The accompanying notes are an integral part of these consolidated balance sheets. 3 4 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 --------------------------------------------------------- 1999 1998 1999 1998 --------- --------- --------- --------- REVENUES $ 240,058 $ 217,468 $ 788,291 $ 751,499 --------- --------- --------- --------- OPERATING EXPENSES: Salaries, wages and fringe benefits 134,198 121,331 428,971 402,100 Operating supplies and expenses 41,345 39,109 135,827 127,106 Purchased transportation 22,866 22,566 77,395 82,551 Insurance and claims 11,695 8,943 37,572 29,163 Operating taxes and licenses 8,743 9,290 30,555 29,707 Depreciation and amortization 14,865 13,270 43,242 39,210 Rents 2,254 2,540 6,622 7,347 Communications and utilities 2,062 2,150 6,489 6,752 Other operating expenses 1,383 1,687 6,200 4,870 --------- --------- --------- --------- Total operating expenses 239,411 220,886 772,873 728,806 --------- --------- --------- --------- Operating income (loss) 647 (3,418) 15,418 22,693 --------- --------- --------- --------- OTHER INCOME (EXPENSE): Interest expense (8,129) (6,564) (23,296) (18,846) Interest income 716 1,197 1,336 2,218 --------- --------- --------- --------- (7,413) (5,367) (21,960) (16,628) --------- --------- --------- --------- (LOSS) INCOME BEFORE INCOME TAXES (6,766) (8,785) (6,542) 6,065 INCOME TAX BENEFIT (PROVISION) 2,943 3,825 2,846 (2,638) --------- --------- --------- --------- NET (LOSS) INCOME ($ 3,823) ($ 4,960) ($ 3,696) $ 3,427 ========= ========= ========= ========= PER COMMON SHARE: BASIC ($ 0.49) ($ 0.64) ($ 0.47) $ 0.44 ========= ========= ========= ========= DILUTED ($ 0.49) ($ 0.64) ($ 0.47) $ 0.44 ========= ========= ========= ========= COMMON SHARES OUTSTANDING: BASIC 7,818 7,748 7,818 7,747 ========= ========= ========= ========= DILUTED 7,818 7,748 7,818 7,858 ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated statements. 4 5 ALLIED HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30 ------------------------- 1999 1998 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income ($ 3,696) $ 3,427 -------- -------- Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation and amortization 43,242 39,210 Loss on sale of property and equipment 781 310 Deferred income taxes 2,415 (281) Compensation expense related to stock options and grants 441 235 Equity in earnings of joint ventures (1,189) (248) Payment of Teamsters Union signing bonus (9,654) 0 Change in operating assets and liabilities: Receivables, net of allowance for doubtful accounts (17,034) (3,961) Inventories (933) (1,388) Prepayments and other current assets (2,655) (143) Trade accounts payable (8,089) (9,106) Accrued liabilities (15,239) (13,303) -------- -------- Total adjustments (7,914) 11,325 -------- -------- Net cash (used in) provided by operating activities (11,610) 14,752 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (38,290) (36,919) Proceeds from sale of property and equipment 1,108 573 Purchase of business, net of cash acquired (1,879) 0 Investment in joint venture (80) (11,920) Decrease (increase) in short-term investments 7,425 (4,391) Increase in the cash surrender value of life insurance (47) (1,230) -------- -------- Net cash used in investing activities (31,763) (53,887) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt, net 55,930 45,769 Proceeds from issuance of common stock 211 0 Other, net 414 1,490 -------- -------- Net cash provided by financing activities 56,555 47,259 -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 107 (105) NET INCREASE IN CASH AND CASH EQUIVALENTS 13,289 8,019 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 21,977 10,530 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 35,266 $ 18,549 ======== ========
The accompanying notes are an integral part of these consolidated statements. 5 6 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 generally accepted accounting principles 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, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. 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 1998 Annual Report on Form 10-K. Note 2. Long-Term Debt 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 "Guarantors"). Separate financial statements of the Guarantors are not provided herein as (i) the Guarantors are jointly and severally liable for the Company's obligations under the Notes, (ii) the subsidiaries which are not Guarantors are inconsequential to the consolidated operations of the Company and its subsidiaries and (iii) the net assets and earnings of the Guarantors are substantially equivalent to the net assets and earnings of the consolidated entity as reflected in these consolidated financial statements. There are no restrictions on the ability of the Guarantors to make distributions to the Company. Note 3. Comprehensive Income Comprehensive income was a loss of $3.6 million for the third quarter 1999 versus a loss of $7.0 million for the third quarter of 1998, and a loss of $1.6 million for the first nine months of 1999 versus income of $51,000 for the first nine months of 1998. The difference between comprehensive income and net income is the change in the foreign currency translation adjustment, net of income taxes. 6 7 Note 4. Accounting for Derivative Instruments and Hedging Activities In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." 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. The Statement 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. During the second quarter of 1999, the Financial Accounting Standards Board issued SFAS No. 137, which deferred the effective date of SFAS No. 133. The Statement defers the effective date for all quarters of all fiscal years beginning after June 15, 2000. The Company will adopt this statement in the first quarter of 2001. The Company does not believe the adoption will have a material impact on its financial position or results of operations. Note 5. Segment Reporting The Company operates in one reportable industry segment: transporting automobiles and light trucks from manufacturing plants, ports, auctions, and railway distribution points to automotive dealerships. Geographic financial information is as follows (in thousands):
For the three months ended For the nine months ended September 30 September 30 ----------------------------- ----------------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Revenues: United States $ 202,684 $ 186,299 $ 658,029 $ 623,363 Canada 37,374 31,169 130,262 128,136 ---------- ---------- ---------- ---------- $ 240,058 $ 217,468 $ 788,291 $ 751,499 ========== ========== ========== ==========
Revenues are attributed to the respective countries based on the location of the origination terminal. Note 6. Stock Repurchase Plan The Company's Board of Directors has authorized management to take the necessary steps to repurchase up to 500,000 shares of the Company's outstanding common stock through fiscal year 2000 in open market transactions, subject to obtaining approval from 7 8 the Company's lenders. The timing of these purchases and the number of shares purchased will be dictated by market conditions and other relevant factors. Note 7. Litigation The Company has been added as a defendant in a lawsuit (Gateway Development & Manufacturing, Inc. v. Commercial Carriers, Inc., et al, Index No. 1997/8920), pending in Supreme Court of Erie County, New York. In the lawsuit, the Plaintiff claims that the Company tortiously interfered with a business transaction involving the plaintiff and one of the defendants. Plaintiff seeks compensatory damages of $18 million and punitive damages of $50 million. The Company has moved to dismiss the lawsuit. If the motion is unsuccessful, the Company believes this case is without merit and intends to vigorously defend this case. While the ultimate results of this litigation cannot be determined, management does not expect that the resolution of this proceeding will have a material adverse effect on the Company's consolidated financial position or results of operations. Note 8. Reclassifications Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Revenues were $240.1 million for the third quarter of 1999 versus revenues of $217.5 million for the third quarter of 1998, an increase of 10.4%. For the nine-month period ended September 30, 1999, revenues were $788.3 million, versus revenues of $751.5 million for the nine-month period ended September 30, 1998, an increase of 4.9%. The increase is attributed to reduced vehicle deliveries resulting from the GM strike during the third quarter of 1998, as well as increased vehicle production during 1999 which led to increased vehicle deliveries by the Company. The Company experienced a net loss of $3.8 million for the third quarter of 1999 versus a net loss of $5.0 million for the third quarter of 1998. Basic and diluted loss per share for the third quarter of 1999 were $0.49 versus basic and diluted loss per share of $0.64 for the third quarter of 1998. For the nine-month period ended September 30, 1999, the net loss was $3.7 million, versus net income of $3.4 million for the nine-month period ended September 30, 1998. Basic and diluted loss per share for the nine-month period ended September 30, 1999 were $0.47 versus basic and diluted earnings per share of $0.44 for the nine-month period ended September 30, 1998. During 1999 the Company has experienced a significant increase in the percentage of vehicles delivered that are light trucks as well as an overall increase in the size and weight of most vehicles delivered. Due to regulations on tractor and trailer length, height, width, and maximum weight capacity, this change in mix resulted in the number of vehicles delivered per load in the first nine months of 1999 being approximately 4% lower than the first nine months of 1998. The change in mix negatively impacts operating results as revenue is realized on a per vehicle basis, thus the Company's revenue per load decreased. The Company estimates that operating income for the first, second and third quarters of 1999 was reduced by approximately $5 million per quarter as a result of the load average decline. Throughout the second and third quarters, the Company has been discussing the load average decline with its customers. The Company has put into effect rate increases covering sixty to seventy percent of the vehicles it delivers; however, the increases were in effect for only a portion of the third quarter. The Company is continuing negotiations in an effort to obtain rate increases on its remaining traffic by year-end. The following is a discussion of the changes in the Company's major expense categories: Salaries, wages and fringe benefits increased slightly from 55.8% of revenues for the third quarter of 1998 to 55.9% of revenues for the third quarter of 1999, and increased from 53.5% of revenues for the first nine months of 1998 to 54.4% of revenues for the first nine months of 1999. The increase was due primarily to annual salary and benefit increases, offset by continued productivity and efficiency improvements. 9 10 Operating supplies and expenses decreased from 18.0% of revenues for the third quarter of 1998 to 17.2% of revenues for the third quarter of 1999, and increased from 16.9% of revenues for the first nine months of 1998 to 17.2% of revenues for the first nine months of 1999. The decrease from the third quarter of 1998 versus the third quarter of 1999 was due to efficiencies gained from an increase in volume in 1999. Volumes in 1998 were reduced due to the GM work stoppages. This offset higher fuel prices in the third quarter of 1999. The increase during the first nine months of 1999 versus the first nine months of 1998 is due primarily to the inefficiencies that resulted from the decrease in load averages and certain one-time costs related to contingency planning for US labor negotiations that occurred in 1999, together with the effect of higher fuel prices. Purchased transportation expense decreased from 10.4% of revenues for the third quarter of 1998 to 9.5% of revenues for the third quarter of 1999, and decreased from 11.0% of revenues for the first nine months of 1998 to 9.8% of revenues for the first nine months of 1999. The decrease was due primarily to the decrease in the mix of loads hauled by owner-operators and other carriers versus company drivers. The number of owner-operators year-to-year was comparable; thus company drivers delivered the additional loads hauled by the Company. Insurance and claims increased from 4.1% of revenues for the third quarter of 1998 to 4.9% of revenues for the third quarter of 1999, and increased from 3.9% of revenues for the first nine months of 1998 to 4.8% of revenues for the first nine months of 1999. The increase is due primarily to an increase in the frequency of damage claims. The Company has put in place new quality initiatives to reduce the frequency of damage claims. Depreciation and amortization expense increased slightly from 6.1% of revenues for the third quarter of 1998 to 6.2% of revenues for the third quarter of 1999, and from 5.2% of revenues for the first nine months of 1998 to 5.5% of revenues for the first nine months of 1999. The increase was related to an increase in the Company's capital expenditures during the second half of 1998 and the first nine months of 1999. Interest expense as a percentage of revenues increased from 3.0% of revenues for the third quarter of 1998 to 3.4% of revenues for the third quarter of 1999, and increased from 2.5% of revenues for the first nine months of 1998 to 3.0% for the first nine months of 1999. The increase was due primarily to higher long-term debt levels in 1999 versus 1998. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Net cash used by operating activities totaled $11.6 million for the nine-month period ended September 30, 1999 versus net cash provided by operating activities of $14.8 million for the nine-month period ended September 30, 1998. The increase in cash used by operating activities was due primarily to a $12.6 million reduction in pre-tax earnings during the first nine months of 1999 versus 1998 and a $9.7 million signing bonus payment during the third quarter of 1999, which was negotiated under the new US Teamsters Union Contract. The signing bonus was in lieu of a pay increase in the first year of the new contract and will be amortized over the life of the new contract. 10 11 Net cash used in investing activities totaled $31.8 million for the nine-month period ended September 30, 1999 versus $53.9 million for the nine-month period ended September 30, 1998. The decrease was due primarily to an $11.9 million investment in Axis Do Brazil in February of 1998. In addition, the Company's captive insurance company liquidated $7.4 million of short-term investments to cash and cash equivalents during the third quarter of 1999 in connection with the addition of new investment managers. Net cash provided by financing activities totaled $56.6 million for the nine-month period ended September 30, 1999 versus $47.3 million for the nine-month period ended September 30, 1998. The increase was due primarily to seasonal borrowings required to finance operating activities due to the reduction in pre-tax earnings. 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, 1999, which are recorded at fair value of $15.9 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 $1.6 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. 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 generally 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. A 10% increase in diesel fuel prices would reduce pre-tax income by $3.9 million over the next fiscal year. 11 12 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, 1999, are $81.1 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 $8.1 million. The Company does not use derivative financial instruments to hedge its exposure to changes in foreign currency exchange rates. YEAR 2000 Year 2000 ("Y2K" or "Year 2000") issues are being addressed by the Company. The Company, like most other major companies, is currently addressing a universal problem commonly referred to as "Year 2000 Compliance," which relates to the ability of computer programs and systems to properly recognize and process date sensitive information before and after January 1, 2000. The following discussion is based on information currently available to the Company. The Company has analyzed and continues to analyze its internal information technology ("IT") systems ("IT systems") to identify any computer programs that are not Year 2000 compliant and implement any changes required to make such systems Year 2000 compliant. The Company believes that its critical IT systems currently are capable of functioning without substantial Year 2000 Compliance problems. Of the non-critical, but important, IT systems that are not currently Year 2000 compliant, the Company believes such IT systems will be Year 2000 capable in a time frame that will avoid any material adverse effect on the Company. Also, the Company does not believe that the expenditures related to replacing or upgrading any of its IT systems to make them Year 2000 compliant will have a material adverse effect on the financial condition or results of operations of the Company. The Company has evaluated its critical equipment and critical systems that contain embedded software, ("Non-IT systems"), and the Company believes that all of its critical Non-IT systems are capable of functioning without substantial Year 2000 Compliance problems. The Company has engaged a leading computer consulting services firm to lead the Year 2000 remediation and testing process. The Company is also investigating each of its significant vendors, suppliers, financial service organizations, service providers and customers to confirm that the Company's operations will not be materially adversely affected by the failure of any such third party to have Year 2000 compliant computer programs. Regardless of the responses that the Company receives from such third parties, the Company is establishing contingency plans to reduce the Company's exposure resulting from the non-compliance of third parties. The Company has approached the Year 2000 project in phases. Phase I of the project involved identification of all software used by the Company, identification of all significant vendors, and establishment of a senior management committee to oversee the project. Phase I was completed in the third calendar quarter of 1998. Phase II of the 12 13 project involves (a) evaluation of each significant vendor and evaluation of major customers through letters and questionnaires (b) communication with customers concerning any products currently or recently sold by the Company that have Year 2000 issues, and (c) evaluating the Company's most reasonably likely worst case Year 2000 scenarios and contingency planning related thereto. Phase II was completed in the first calendar quarter of 1999. Phase III involves testing of the Company's IT systems and Non-IT systems to confirm Year 2000 compliance and/or discover any overlooked Year 2000 problems. Phase III was completed in the third calendar quarter of 1999. Last, Phase IV involves implementation of the Company's contingency plans. Phase IV will be completed in the fourth calendar quarter of 1999. The Company has material relationships with third parties whose failure to be Year 2000 compliant could have materially adverse impacts on the Company's business, operations or financial condition in the future. Third parties that are considered to be in this category for Y2K purposes include critically important customers, suppliers, vendors and public entities such as government regulatory agencies, utilities, financial entities and others. The Company derives most of its net operating revenues from the transportation of new and used automobiles and light trucks for all major domestic and foreign automotive manufacturers. The Company has made Y2K awareness information available to all customers and has asked each customer to advise the Company of its plans for reaching Y2K readiness. The Company has also contacted the customers to inquire about actions being taken with respect to third parties. Further action may be taken by the Company as it deems appropriate in particular cases. The Company classifies as critical those suppliers of products or services that, if interrupted, would materially disrupt the Company's ability to conduct operations. The Company completed reviews of these products and service providers during the third quarter of 1999. In the first calendar quarter of 1999, the Company began the planning and implementation of a Y2K program involving interaction with and assessment of public entities such as government regulatory agencies, utilities, financial entities and others. The Company has prepared contingency plans relating specifically to identify Y2K risks, and cost estimates relating to these plans are being developed. The Company began training designated employees in Y2K contingency planning matters during the first calendar quarter of 1999, and completed the Y2K contingency plans during the third calendar quarter of 1999. Contingency plans include establishing alternative means of communicating with employees at terminal locations and with customers, and other appropriate measures. Y2K contingency plans and related cost estimates will be continually refined, as additional information becomes available. While the Company currently believes that it will be able to modify or replace its affected systems in time to minimize any significant detrimental effects on its operations, failure to do so, or the failure of customers or other third parties to modify or replace their 13 14 affected systems, could have materially adverse impacts on the Company's business, operations or financial condition in the future. There can be no guarantee that such impacts will not occur. In particular, because of the interdependent nature of business systems, the Company could be materially adversely affected if private businesses, utilities and governmental entities with which it does business or that provide essential products or services are not Year 2000 compliant. Reasonably likely consequences of failure by the Company or third parties to resolve the Y2K problem include, among other things, temporary slowdowns or cessation of delivery operations at one or more Company terminals, or delays in the delivery of vehicles. However, the Company believes that its Y2K readiness program, including related contingency planning, should significantly reduce the possibility of significant interruptions of normal operations. As of September 30, 1999, the Company's total incremental costs (historical plus estimated future costs) of addressing Y2K issues are estimated to be in the range of $5.0 million, of which approximately $4.1 million has been incurred. The Company believes that approximately 30% of the costs expected to be incurred in 1999 will be internal costs, including compensation and benefits of employees assigned primarily to Y2K procedures. Internal costs addressing Y2K issues during 1998 were not material. These costs are being funded through operating cash flow. These amounts do not include: (i) any costs associated with the implementation of contingency plans, which are in the process of being developed, or (ii) costs associated with replacements of computerized systems or equipment in cases where replacement was not accelerated due to Y2K issues. Implementation of the Company's Y2K plan is an ongoing process. Consequently, the above-described estimates of costs and completion dates for the various components of the plan are subject to change. The preceding discussion on Y2K contains various forward-looking statements that represent the Company's beliefs or expectations regarding future events. When used in the Y2K discussion, the words "believes," "expects," "estimates" and similar expressions are intended to identify forward-looking statements. Forward-looking statements include, without limitation, the Company's expectations as to when it will complete the remediation and testing phases of its Y2K procedures as well as its Y2K contingency plans; its estimated cost of achieving Y2K readiness; and the Company's belief that its internal systems and equipment will be Year 2000 ready in a timely manner. All forward-looking statements involve a number of risks and uncertainties that could cause the actual results to differ materially from the projected results. Factors that may cause these differences include, but are not limited to, the availability of qualified personnel and other information technology resources; the ability to identify and remediate all date sensitive lines of computer code or to replace embedded computer chips in affected systems or equipment; and the actions of governmental agencies or other third parties with respect to Y2K problems. The Company does not currently believe that any of the foregoing will have a material adverse effect on its financial condition or its results of operations. However, the process of evaluating the Company's third party vendors and their systems is ongoing. Although not expected, failures of critical suppliers, critical customers, critical IT systems or 14 15 critical Non-IT systems could have a material adverse effect on the Company's financial condition or results of operations. As widely publicized, Year 2000 Compliance has many issues and aspects, not all of which the Company is able to accurately forecast or predict. There is no way to assure that Year 2000 Compliance will not have adverse effects on the Company, some of which could be material. 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 management information systems, and its ability to resolve any Year 2000 issues related thereto (iv) the Company's efforts to reduce costs, (v) the adequacy of the Company's sources of cash to finance its current and future operations and (vi) 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 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 increase 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 1999, 2000 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. 15 16 PART II. ITEM 1. LEGAL PROCEEDINGS. Refer to Note 7 on Page 8 of this Report on Form 10-Q for information on legal proceedings. ITEM 5. OTHER INFORMATION. The agreement by and between the Company and Ford Motor Company ("Ford") dated April 3, 1992 (the "Agreement") provided for an initial term ending on May 31, 1999. The parties have been operating pursuant to the terms of the Agreement since May 31, 1999 on a month to month basis. The Company and Ford entered into an extension of the Agreement effective August 1, 1999 which sets forth revised economic and other terms and provides that the parties will continue to operate on a month to month basis. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: (1) Exhibit 10.10* - Amendment to Agreement between Allied Automotive Group, Inc. and the Ford Motor Company dated October 21, 1999 EXHIBIT 27 FINANCIAL DATA SCHEDULE (b) Reports on Form 8-K: The Company filed a report on Form 8-K on October 25, 1999 in order to report the approval by the Company of a stock repurchase program whereby the Board of Directors authorized the Company to repurchase up to 500,000 shares of common stock, subject to approval by the Company's lenders. *Portions of Amendment are deleted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission in accordance with Rule 24b-2 under the Securities Exchange Act of 1934. 16 17 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 11, 1999 /s/ A. Mitchell Poole, Jr. - ----------------- ----------------------------------- (Date) A. Mitchell Poole, Jr. on behalf of Registrant as President, Chief Operating Officer, and Assistant Secretary November 11, 1999 /s/ Daniel H. Popky - ----------------- ----------------------------------- (Date) Daniel H. Popky on behalf of Registrant as Senior Vice President, Finance and Chief Financial Officer 17 EX-10.10 2 AMENDMENT TO AGREEMENT 1 EXHIBIT 10.10 Confidential Amendment To Agreement Dated April 3, 1992 Between Ford Motor Company and Allied Systems, Inc. (currently Allied Automotive Group) Effective August 1, 1999 Allied Automotive Group ("Allied") and Ford Motor Company ("Ford") are parties to a vehicle haulaway contract covering the transportation of motor vehicles to and from various points in intrastate, interstate, and international commerce (the "Contract"). This Amendment to the contract is generated to document the agreement concluded between the two parties relative to 1) adjusting contractual rates with respect to the 1999 Truck Design/Volume/Mix cost adjustment negotiations and 2) to establish the agreement for performance to transit standards and related methodology for any payments between the two parties for improvement/deterioration to the standards. The amended terms and conditions of the Contract are as follows: 1. 1999 Truck Design/Volume/Mix - Schedule I details the rate and current load ratio for the respective ramp and plant locations. Rates are effective 8/1/99. 2. Transit Standard Performance - Ford and Allied have agreed to the transit standards and transit standard performance/payment methodology as set forth in Schedule II. Ford and Allied agree that Ford's COPAC system will be used to calculate all applicable transit times. The Ford COPAC current transit measurement system measures vehicle transit time from release (plant: plant release to carrier; ramp: rallcar unloading transmission) to delivery to the dealer. [*] Transit standards and metric tracking are effective 10/1/99. 3. To the extent that anything in this Amendment conflicts with the terms and conditions of the Contract, this Amendment shall govern. 4. All other terms and conditions of the Contract remain unchanged and in full effect. IN WITNESS THEREOF, the parties hereto have caused this Amendment to be executed by their duly authorized representative on this 21 day of October 1999. FORD MOTOR COMPANY ALLIED AUTOMOTIVE GROUP BY: /s/ R. B. HUMM BY: /s/ JOE COLLIER --------------------------- ------------------------- R. B. Humm Joe Collier TITLE: Commodity Strategist TITLE: President Transportation Purchasing *Information has been deleted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission in accordance with Rule 246-2 under the Securities Exchange Act of 1934. 2 SCHEDULE I* - ---------------- * Schedule I has been deleted in its entirety pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission in accordance with Rule 24b-2 under the Securities Exchange Act of 1934. 3 SCHEDULE II* - ---------------- * Schedule II has been deleted in its entirety pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission in accordance with Rule 24b-2 under the Securities Exchange Act of 1934. EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF ALLIED HOLDINGS, INC. AND SUBSIDIARIES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 1 35,266 15,898 121,702 0 7,772 219,882 295,864 0 654,409 120,867 0 0 0 0 61,913 654,409 788,291 788,291 772,873 772,873 0 0 23,296 (6,542) 2,846 (3,696) 0 0 0 (3,696) (.47) (.47)
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