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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
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Commission File Number: 0-22276
ALLIED HOLDINGS, INC.
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(Exact name of registrant as specified in its charter)
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GEORGIA 58-0360550
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
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SUITE 200, 160 CLAIREMONT AVENUE, DECATUR, GEORGIA 30030
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(Address of principal executive offices)
(404) 373-4285
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(Registrant's telephone number, including area code)
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(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
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INDEX
PART I
FINANCIAL INFORMATION
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PAGE
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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
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PART II
OTHER INFORMATION
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ITEM 1
Legal Proceedings................................................................... 16
ITEM 5
Other Information.................................................................... 16
ITEM 6
Exhibits and Reports on Form 8-K..................................................... 16
Signature Page....................................................................... 17
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PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ALLIED HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
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SEPTEMBER 30 DECEMBER 31
1999 1998
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(UNAUDITED)
ASSETS
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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
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PROPERTY AND EQUIPMENT, NET 295,864 297,530
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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
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Total current liabilities 120,867 145,730
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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
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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
========= =========
</TABLE>
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)
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FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
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1999 1998 1999 1998
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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
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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ALLIED HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
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FOR THE NINE MONTHS ENDED
SEPTEMBER 30
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1999 1998
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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
======== ========
</TABLE>
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 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.
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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):
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For the three months ended For the nine months ended
September 30 September 30
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1999 1998 1999 1998
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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
========== ========== ========== ==========
</TABLE>
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
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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.
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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.
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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.
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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.
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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
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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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 35,266
<SECURITIES> 15,898
<RECEIVABLES> 121,702
<ALLOWANCES> 0
<INVENTORY> 7,772
<CURRENT-ASSETS> 219,882
<PP&E> 295,864
<DEPRECIATION> 0
<TOTAL-ASSETS> 654,409
<CURRENT-LIABILITIES> 120,867
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 61,913
<TOTAL-LIABILITY-AND-EQUITY> 654,409
<SALES> 788,291
<TOTAL-REVENUES> 788,291
<CGS> 772,873
<TOTAL-COSTS> 772,873
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,296
<INCOME-PRETAX> (6,542)
<INCOME-TAX> 2,846
<INCOME-CONTINUING> (3,696)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (3,696)
<EPS-BASIC> (.47)
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