Edgar Filing: ALLIED HOLDINGS INC

Allied Holdings, Inc.

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

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 — For the quarterly period ended June 30, 2002

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 IN BALLOT BOX Yes OPEN BALLOT BOX No


Outstanding common stock, No par value at July 19, 2002			8,386,051

TABLE OF CONTENTS


PART I FINANCIAL INFORMATION
	ITEM 1 FINANCIAL STATEMENTS
		CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2002 AND DECEMBER 31, 2001
		CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2002 AND 2001
		CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2002 AND 2001
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II OTHER INFORMATION
	ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
	SIGNATURE PAGE

INDEX

PART I

FINANCIAL INFORMATION


		PAGE

ITEM 1: FINANCIAL STATEMENTS

	Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001		3

	Consolidated Statements of Operations for the Three and Six Month Periods Ended June 30, 2002 and 2001		4

	Consolidated Statements of Cash Flows for the Six Month Periods Ended June 30, 2002 and 2001		5

	Notes to Consolidated Financial Statements		6

ITEM 2
	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20

ITEM 3
	Quantitative and Qualitative Disclosures about Market Risk		26

PART II

OTHER INFORMATION

ITEM 4
	Submission of Matters to a Vote of Security Holders		28

ITEM 6
	Exhibits and Reports on Form 8-K		28
	Signature Page		29

PART I. — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS

ALLIED HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In Thousands)


			June 30,			December 31,
			2002			2001

			(Unaudited)
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents		$	19,471		$	10,543
	Short-term investments			66,023			64,794
	Receivables, net of allowance for doubtful accounts of $5,403 and $11,058, respectively			61,902			72,292
	Inventories			5,150			5,349
	Deferred tax assets			34,394			32,403
	Prepayments and other current assets			18,940			18,921

		Total current assets		205,880			204,302

PROPERTY AND EQUIPMENT, NET				194,426			214,641

OTHER ASSETS:
	Goodwill, net			86,114			90,230
	Other			26,770			24,219

		Total other assets		112,884			114,449

		Total assets	$	513,190		$	533,392


LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:
	Current maturities of long-term debt		$	3,500		$	2,625
	Trade accounts payable			40,669			40,232
	Accrued liabilities			84,231			82,963

		Total current liabilities		128,400			125,820

LONG-TERM DEBT, less current maturities				261,483			286,533

POSTRETIREMENT BENEFITS OTHER THAN PENSIONS				9,171			9,363

DEFERRED INCOME TAXES				23,849			21,383

OTHER LONG-TERM LIABILITIES				73,261			72,296

STOCKHOLDERS’ EQUITY:
	Common stock, no par value; 20,000 shares authorized, 8,362 and 8,274 shares outstanding at June 30, 2002 and December 31, 2001, respectively			—			—
	Additional paid-in capital			46,829			46,520
	Treasury stock at cost, 139 shares at June 30, 2002 and December 31, 2001			(707	)		(707	)
	Retained deficit			(22,033	)		(18,894	)
	Accumulated other comprehensive loss, net of tax			(7,063	)		(8,922	)

		Total stockholders’ equity		17,026			17,997

		Total liabilities and stockholders’ equity	$	513,190		$	533,392

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

ALLIED HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)


			For the Three Months Ended						For the Six Months Ended
			June 30,						June 30,

			2002			2001			2002			2001


REVENUES			$	238,984		$	250,195		$	452,243		$	468,374

OPERATING EXPENSES:
	Salaries, wages and fringe benefits			127,513			140,589			246,049			272,306
	Operating supplies and expenses			35,906			39,895			66,811			81,337
	Purchased transportation			25,328			28,666			47,107			51,962
	Insurance and claims			12,929			13,768			23,500			27,057
	Operating taxes and licenses			8,630			8,507			17,093			17,133
	Depreciation and amortization			13,282			15,281			26,945			30,305
	Rents			1,856			1,592			3,210			3,662
	Communications and utilities			1,873			1,914			3,865			3,952
	Other operating expenses			1,455			3,590			4,715			7,613
	Loss (gain) on disposal of operating assets, net			315			(2,576	)		(714	)		(2,743	)

		Total operating expenses		229,087			251,226			438,581			492,584

		Operating income (loss)		9,897			(1,031	)		13,662			(24,210	)

OTHER INCOME (EXPENSE):
	Equity in earnings of UK and Brazil joint ventures, net of tax			—			1,330			—			2,539
	Interest expense			(7,610	)		(9,387	)		(15,732	)		(17,853	)
	Interest income			615			626			887			1,590
	Gain on early extinguishment of debt			—			—			2,750			—
	Other, net			—			—			(207	)		—

				(6,995	)		(7,431	)		(12,302	)		(13,724	)

INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE				2,902			(8,462	)		1,360			(37,934	)

INCOME TAX (EXPENSE) BENEFIT				(793	)		2,746			(407	)		13,356

INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE				2,109			(5,716	)		953			(24,578	)

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAX				—			—			(4,092	)		—

NET INCOME (LOSS)			$	2,109			($5,716	)		($3,139	)		($24,578	)

BASIC & DILUTED NET INCOME (LOSS) PER COMMON SHARE:

INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
	BASIC		$	0.25			($0.71	)	$	0.12			($3.04	)
	DILUTED		$	0.24			($0.71	)	$	0.11			($3.04	)

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAX
	BASIC			—			—			($0.50	)		—
	DILUTED			—			—			($0.47	)		—

NET INCOME (LOSS)
	BASIC		$	0.25			($0.71	)		($0.38	)		($3.04	)

	DILUTED		$	0.24			($0.71	)		($0.36	)		($3.04	)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
	BASIC			8,300			8,086			8,259			8,083

	DILUTED			8,781			8,086			8,793			8,083

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

ALLIED HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)


					For the Six Months Ended
					June 30,

					2002			2001

					(Unaudited)			(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net loss					($3,139	)		($24,578	)
	Adjustments to reconcile net loss to net cash provided by operating activities:
		Gain on early extinguishment of debt				(2,750	)		—
		Interest expense paid in kind				377			—
		Amortization of deferred financing costs				2,028			1,653
		Depreciation and amortization				26,945			30,305
		Cumulative effect of change in accounting principle				5,194			—
		Gain on disposal of assets and other, net				(507	)		(2,743	)
		Deferred income taxes				(634	)		(13,356	)
		Compensation expense related to stock options and grants				148			138
		Equity in earnings of joint ventures				—			(2,539	)
		Amortization of Teamsters Union contract costs				1,200			1,202
		Change in operating assets and liabilities:
			Receivables, net of allowance for doubtful accounts			10,957			20,827
			Inventories			238			415
			Prepayments and other current assets			92			(1,635	)
			Trade accounts payable			217			(4,084	)
			Accrued liabilities			1,993			12,620

				Total adjustments		45,498			42,803

				Net cash provided by operating activities		42,359			18,225

CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of property and equipment					(7,470	)		(16,942	)
	Proceeds from sale of property and equipment					2,857			4,745
	Investment in joint ventures					—			(464	)
	Proceeds from sale of equity investment in joint venture					2,700			—
	Increase in short-term investments					(1,229	)		(2,590	)
	Increase in the cash surrender value of life insurance					(317	)		(240	)

				Net cash used in investing activities		(3,459	)		(15,491	)

CASH FLOWS FROM FINANCING ACTIVITIES:
	(Repayments) additions to revolving credit facilities, net					(60,723	)		11,869
	Additions to long-term debt					82,751			—
	Repayment of long-term debt					(43,830	)		(104	)
	Payment of deferred financing costs					(8,829	)		(2,507	)
	Proceeds from issuance of common stock					161			217
	Other, net					373			281

				Net cash (used in) provided by financing activities		(30,097	)		9,756


EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS						125			(1,429	)

NET INCREASE IN CASH AND CASH EQUIVALENTS						8,928			11,061

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR						10,543			2,373

CASH AND CASH EQUIVALENTS AT END OF PERIOD					$	19,471		$	13,434

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

Allied Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)

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 six month periods ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. 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 2001 Annual Report on Form 10-K.

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

2.		Use of Estimates

		The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

3.		Comprehensive Income

		Statement of Financial Accounting Standards (“SFAS”) No. 130, Reporting Comprehensive Income,” requires companies to report all changes in equity during a period, except those resulting from investment by stockholders and distribution to stockholders. The Company had comprehensive income of $4.1 million for the second quarter of 2002 versus a comprehensive loss of $4.0 million for the second quarter of 2001. For the first six months of 2002, the Company had a comprehensive loss of $1.3 million, versus a comprehensive loss of $26.6 million for the first six months of 2001. The difference between comprehensive income and net income is the foreign currency translation net of income taxes.

4.		Accounting for Derivative Instruments and Hedging Activities

		SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, 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 future 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. During 2001, Allied Automotive Group entered into a forward purchase commitment to purchase one million gallons of low sulfur diesel fuel per month until August 2002 at determinable prices defined within the agreement. The Company is evaluating additional forward purchase commitments. The Company does not enter into fuel hedging contracts for speculative purposes. At June 30, 2002, the Company did not have any outstanding fuel hedging contracts or other derivative instruments that fall under the provisions of SFAS No. 133 as amended by SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities.”

5.		Recent Accounting Pronouncements

		In June 2001, the Financial Accounting Standards Board (“FASB”), issued SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 prospectively prohibits the pooling-of-interests 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 Company adopted SFAS No. 142 effective January 1, 2002. For information regarding goodwill and the impact of adoption of SFAS No. 142 had on the Company’s consolidated financial statements, refer to Note 6. SFAS No. 141 did not impact the earnings or financial position of the Company.

		In June 2001, the FASB issued SFAS 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 SFAS No. 143 in the first quarter of fiscal year 2003. Management will evaluate the impact of the adoption of this standard on the consolidated financial statements during fiscal year 2002.

		In August 2001, the FASB issued SFAS 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 adopted this standard on January 1, 2002 and there was no impact on the financial position or results of operations of the Company as of the date of the adoption.

		In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” The Statement updates, clarifies and simplifies existing accounting pronouncements. The Statement requires that in certain circumstances previous items classified as extraordinary that do not meet the criteria in Opinion 30 must be reclassified. The Statement is effective for fiscal years beginning after May 15, 2002. The Company elected early adoption of the standard. Accordingly, the after-tax gain on early extinguishment of debt that was reported as an extraordinary item in the first quarter of 2002 has been reclassified and is currently reported as other income.

		In July 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). This Statement requires recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred, as opposed to when the entity commits to an exit plan under EITF No. 94-3. The Statement is effective prospectively for exit or disposal activities initiated after December 31, 2002. Management does not anticipate that the Statement will have a material impact on the financial position or results of operations of the Company as of the date of adoption.

6.		Goodwill

		In accordance with SFAS No. 142, the Company no longer amortizes goodwill but will review it annually for impairment, or on an interim basis if an event occurs or circumstances change that would reduce the fair value of goodwill below its carrying value. Pursuant to the adoption of SFAS No. 142, the Company evaluated its reporting units within the guidance of SFAS No. 142 and SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”. The Company’s reporting units are the Allied Automotive Group and the Axis Group. The adoption of SFAS No. 142 required the Company to perform an initial impairment assessment on all goodwill and indefinite lived intangible assets as of January 1, 2002. The Company compared the fair value of goodwill to current carrying value. Fair values were derived using discounted cash flow analyses. The assumptions used in these discounted cash flow analyses were consistent with the Company’s internal planning. The cumulative effect of this change in accounting principle was a $5.2 million decrease to the Axis Group goodwill. The deferred income tax benefit related to this change was approximately $1.1 million. The $4.1 million cumulative effect of this change in accounting principle, net of income taxes, is included in the accompanying statements of operations for the six months ended June 30, 2002.

		The following table sets forth the carrying value of goodwill by reporting unit as of June 30, 2002 and December 31, 2001 (in thousands):


	Allied
	Automotive
	Group		Axis Group			Total

Balance as of December 31, 2001	$	72,839	$	17,391		$	90,230
Increase in carrying amount due to a change in currency rates		1,073		5			1,078
Impairment loss		—		(5,194	)		(5,194	)

Balance as of June 30, 2002	$	73,912	$	12,202		$	86,114

The following table summarizes and reconciles net income before the cumulative effect of the accounting change for the three and six months ended June 30, 2002 and 2001, adjusted to exclude amortization expense recognized in such periods related to goodwill (in thousands):


			For the three months ended					For the six months ended
			June 30					June 30

			2002		2001			2002		2001

Reported net income (loss) before cumulative effect of accounting change			$	2,109	$	(5,716	)	$	953	$	(24,578	)
Add back after-tax amounts:
	Goodwill amortization			—		598			—		1,150

Adjusted net income (loss) before cumulative effect of accounting change			$	2,109	$	(5,118	)	$	953	$	(23,428	)

Income (loss) per share before accounting change:
		Basic		0.25		(0.71	)		0.12		(3.04	)
		Diluted		0.24		(0.71	)		0.11		(3.04	)
Goodwill amortization
		Basic		—		0.07			—		0.14
		Diluted		—		0.07			—		0.14
Adjusted basic income (loss) per share before accounting change

		Basic	$	0.25	$	(0.64	)	$	0.12	$	(2.90	)

		Diluted	$	0.24	$	(0.64	)	$	0.11	$	(2.90	)

7.		Fleet Refurbishment Program

		As part of the Company’s turnaround plan, the Company is focusing on maintaining the existing fleet through an extensive refurbishment program which is expected to increase the useful life of a rig to an average of 15 years. These refurbishments are depreciated over an estimated useful life of 6 years, using the straight-line method of depreciation. The program began in 2002 and is expected to be completed in 2004 at an approximate total cost of $45 to $55 million for the refurbishment of approximately 1,500 rigs over the three year period. As of June 30, 2002 total capital expenditures related to the refurbishment program were approximately $5 million. The Company estimates it will spend approximately $8 to $12 million on the program in the second half of fiscal year 2002.

8.		Workforce Reduction Expense

		As part of its turnaround initiatives, the Company has implemented a program to achieve a significant reduction in corporate overhead expenses and to upgrade certain personnel. Targeted in the plan are workforce reductions and additional efforts to decrease discretionary spending and eliminate fixed costs. The Company terminated approximately 90 and 85 corporate and field employees during the six months ended June 30, 2002 and the six months ended June 30, 2001 respectively. The accrued benefits related to the terminations are included in accrued liabilities and as such, the Company expects to pay the accrued benefits within the next 12 months. The following table summarizes the activity in the accrual for termination benefits for the three and six months ended June 30, 2002 and 2001, (in thousands):


	Three Months Ended						Six Months Ended
	June 30			June 30			June 30			June 30

	2002			2001			2002			2001

Beginning balance	$	2,100		$	4,700		$	3,700		$	1,600
Additions to reserve charged to salaries, wages, & fringe benefits		500			600			900			5,600
Cash payments		(900	)		(1,300	)		(2,900	)		(3,200	)

Ending balance	$	1,700		$	4,000		$	1,700		$	4,000

9.		Long-Term Debt

		Long-term debt consisted of the following at June 30, 2002 and December 31, 2001 (in thousands):


	June 30,			December 31,
	2002			2001

Revolving credit facility	$	114,983		$	98,900
Senior notes		150,000			150,000
Senior subordinated notes		—			40,258

		264,983			289,158
Less: current maturities of long-term debt		(3,500	)		(2,625	)

	$	261,483		$	286,533

		On September 30, 1997, the Company issued $150 million of 8 5/8% senior notes (the “Notes”) through a private placement. Subsequently, the 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 Notes mature on October 1, 2007.

		Borrowings under the Notes are general unsecured obligations of the Company. 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. and Axis Logistica, S. de R.L. de C.V. do not guarantee the Company’s obligations under the Notes (the “Nonguarantor Subsidiaries”). There are no restrictions on the ability of Guarantors to make distributions to the Company.

		The Notes set forth a number of negative covenants binding on the Company. The covenants limit the Company’s ability to, among other things, purchase or redeem stock, make dividend or other distributions, make investments, and incur or repay debt (with the exception of payment of interest or principal at stated maturity).

		Concurrent with the issuance of the Notes, the Company closed on a revolving credit facility (the “Revolving Credit Facility”). The Company also previously issued $40.0 million of senior subordinated notes (the “Senior Subordinated Notes”) through a private placement.

		On February 25, 2002, the Company refinanced the Revolving Credit Facility and Senior Subordinated Notes with a new credit facility including certain term loans (the “Term Loans”) (collectively, the “Credit Facility”). Proceeds from the Term Loans were used to repurchase the $40.0 million of Senior Subordinated Notes for $37.25 million. In conjunction with the extinguishment of debt, the Company recognized a pre-tax gain of $2.75 million, during the first quarter of 2002. The Credit Facility includes a revolving credit facility (the “Revolver”) that allows the Company to borrow under a revolving line of credit up to the lesser of $120 million or a borrowing base amount as defined in the Credit Facility. The interest rate for the Revolver is based upon the prime rate plus 1.5% or LIBOR plus 4.5% at management’s discretion with a minimum interest rate of 6.5%. Annual commitment fees are due on the undrawn portion of the commitment. At June 30, 2002, $38.2 million was outstanding under the Revolver, and approximately $24.6 million was committed under letters of credit. As of June 30, 2002 the Company had approximately $33.2 million available under the Revolver. The Revolver matures on February 25, 2005.

		The Term Loans are comprised of four loans: $17.5 million Term Loan A, $25.0 million Term Loan B, $11.0 million Term Loan C, and $29.3 million Term Loan D. The Term Loans (except Term Loan D) mature on February 25, 2005. Term Loan D matures on February 26, 2005. Cash proceeds from certain asset sales and other transactions are required to be used to repay the Term Loans, as specified in the Credit Facility. In addition, the paid in kind “PIK” interest on Term Loans B and C to be paid at maturity is included in the loan balances. As of June 30, 2002, the amount outstanding for the Term Loans was $11.2 million for Term Loan A, $25.2 million for Term Loan B, $11.1 million for Term Loan C and $29.3 million for Term Loan D. Borrowings under the Credit Facility are secured by a first priority security interest on assets of the Company and certain of its subsidiaries, including a pledge of stock of certain subsidiaries. In addition, certain subsidiaries of the Company jointly and severally guarantee the obligations of the Company under the Credit Facility.

		Term Loan A is repayable in installments over three years, with interest payable monthly based upon the prime rate plus 2.75% with a minimum interest rate of 7.75%. Term Loan B is repayable in installments over three years, with interest payable monthly based upon the prime rate plus 6.5%. The interest rate on Term Loan B includes PIK interest of 3.5% that will be payable upon maturity. The minimum interest rate for Term Loan B is 11.5%. Term Loan C is payable in full at maturity with interest payable monthly based upon the prime rate plus 9%. The interest rate on Term Loan C also includes PIK interest of 5% that will be payable upon maturity. The minimum interest rate for Term Loan C is 14%. Term Loan D is payable in full at maturity with interest payable quarterly based upon the prime rate plus 3.5%. In addition, the PIK interest on Term Loans B and C to be paid at maturity is included in the loan balances.

		The Credit Facility agreement sets forth a number of affirmative, negative, and financial covenants binding on the Company. The negative covenants limit the ability of the Company to, among other things, incur debt, incur liens, make investments, or sell assets. The financial covenants require the Company to maintain a minimum consolidated earnings before interest, taxes, depreciation and amortization amount and include leverage and fixed charge coverage ratios.

		The Company does not anticipate any covenant violations during 2002. There can be no assurance, however, that the Company will be able to comply with these covenants or its other debt covenants or that, if it fails to do so, it will be able to obtain amendments to or waivers of such covenants. Failure of the Company to comply with covenants contained in its debt instruments, if not waived, or to adequately service debt obligations, could result in default under the Credit Facility. Any default under the Company’s debt instruments, particularly any default that results in an acceleration of indebtedness or foreclosure on collateral could have a material adverse effect on the Company.

10.		Employee Benefits

		As part of the Company’s turnaround efforts in the first quarter, the Allied Holdings Inc. Defined Benefit Pension Plan (the “Plan”) was amended in February 2002 to freeze the Plan. The amendment resulted in a curtailment of the Plan effective April 30, 2002, under which employees do not accumulate any new benefits and new participants are not added to the Plan. The Company’s net pension expense for 2001 was $2.6 million. As a result of freezing the Plan, the Company expects net pension expense to be $304,000 for 2002.

11.		Industry Segment and Geographic Information

		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, yard management, intramodal transport, accessorization and dealer prep for the automotive industry.


	Three Months Ended						Six Months Ended
	June 30,						June 30,

	2002			2001			2002			2001

Revenues—unaffiliated customers:
Allied Automotive Group	$	231,480		$	242,790		$	438,090		$	454,814
Axis Group		7,504			7,405			14,153			13,560

	$	238,984		$	250,195		$	452,243		$	468,374

Depreciation and amortization:
Allied Automotive Group	$	11,808		$	13,506		$	23,998		$	26,789
Axis Group		730			897			1,437			1,791
Corporate/other		744			878			1,510			1,725

	$	13,282		$	15,281		$	26,945		$	30,305

Operating profit (loss):
Allied Automotive Group	$	10,447		$	1,455		$	16,002		$	(14,674	)
Axis Group		1,480			1,049			1,643			597
Corporate/other		(2,030	)		(3,535	)		(3,983	)		(10,133	)

		9,897			(1,031	)		13,662			(24,210	)
Reconciling items:
Equity income in joint ventures		—		$	1,330			—		$	2,539
Interest expense		(7,610	)		(9,387	)		(15,732	)		(17,853	)
Interest income		615			626			887			1,590
Gain on early extinguishment of debt		—			—			2,750			—
Other, net		—			—			(207	)		—

Income (loss) before income taxes	$	2,902		$	(8,462	)	$	1,360		$	(37,934	)

Capital expenditures:
Allied Automotive Group	$	4,778		$	8,072		$	7,386		$	15,060
Axis Group		66			1,291			84			1,815
Corporate/other		—			—			—			67

	$	4,844		$	9,363		$	7,470		$	16,942


	June 30,		December 31,
	2002		2001

Total assets:
Allied Automotive Group	$	327,295	$	353,558
Axis Group		34,554		43,881
Corporate/other		151,341		135,953

	$	513,190	$	533,392

Geographic financial information for 2002 and 2001 is as follows (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,

	2002		2001		2002		2001

Revenues:
United States	$	193,744	$	203,969	$	371,972	$	385,267
Canada		45,240		46,226		80,271		83,107

	$	238,984	$	250,195	$	452,243	$	468,374

12.		Supplemental Guarantor Information

		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.

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 2002
In Thousands
(Unaudited)


					ALLIED			GUARANTOR			NONGUARANTOR
					HOLDINGS			SUBSIDIARIES			SUBSIDIARIES		ELIMINATIONS			CONSOLIDATED

CURRENT ASSETS:
	Cash and cash equivalents					—		$	2,092		$	17,379		—		$	19,471
	Short-term investments					—			—			66,023		—			66,023
	Receivables, net of allowance for doubtful accounts					—			58,987			2,915		—			61,902
	Inventories					—			5,150			—		—			5,150
	Deferred tax asset					30,901			2,666			827		—			34,394
	Prepayments and other current assets					867			17,950			123		—			18,940

				Total current assets		31,768			86,845			87,267		—			205,880


PROPERTY AND EQUIPMENT, NET						10,235			180,832			3,359		—			194,426

OTHER ASSETS:
	Goodwill, net					1,515			84,599			—		—			86,114
	Other					21,568			4,204			998		—			26,770
	Deferred tax asset					11,831			—			—		(11,831	)		—
	Intercompany receivables					48,157			—			—		(48,157	)		—
	Investment in subsidiaries					51,551			7,972			—		(59,523	)		—

				Total other assets		134,622			96,775			998		(119,511	)		112,884

			Total assets		$	176,625		$	364,452		$	91,624		($119,511	)	$	513,190


CURRENT LIABILITIES:
	Current maturities of long-term debt					—		$	3,500			—		—		$	3,500
	Trade accounts payable					1,744			38,722			203		—			40,669
	Deferred tax liability					—			—			—		—			—
	Intercompany payables					—			48,129			28		(48,157	)		—
	Accrued liabilities					4,310			56,955			22,966		—			84,231

				Total current liabilities		6,054			147,306			23,197		(48,157	)		128,400


LONG-TERM DEBT, less current maturities						150,000			111,483			—		—			261,483

POSTRETIREMENT BENEFITS OTHER THAN PENSIONS						—			9,171			—		—			9,171

DEFERRED INCOME TAXES						—			35,680			—		(11,831	)		23,849

OTHER LONG-TERM LIABILITIES						3,545			32,601			37,115		—			73,261

STOCKHOLDERS’ EQUITY:
	Common stock, no par value					—			—			—		—			—
	Additional paid-in capital					46,829			165,779			13,927		(179,706	)		46,829
	Treasury stock					(707	)		—			—		—			(707	)
	Retained (deficit) earnings					(22,033	)		(126,949	)		17,385		109,564			(22,033	)
	Cumulative other comprehensive loss, net of tax					(7,063	)		(10,619	)		—		10,619			(7,063	)

		Total stockholders’ equity				17,026			28,211			31,312		(59,523	)		17,026

				Total liabilities and stockholders’ equity	$	176,625		$	364,452		$	91,624		($119,511	)	$	513,190

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2001
In Thousands
(Unaudited)


					ALLIED			GUARANTOR			NONGUARANTOR
					HOLDINGS			SUBSIDIARIES			SUBSIDIARIES		ELIMINATIONS			CONSOLIDATED

CURRENT ASSETS:
	Cash and cash equivalents				$	209		$	1,063		$	9,271		—		$	10,543
	Short-term investments					—			—			64,794		—			64,794
	Receivables, net of allowance for doubtful accounts					24			69,112			3,156		—			72,292
	Inventories					—			5,344			5		—			5,349
	Deferred tax asset					31,658			493			252		—			32,403
	Prepayments and other current assets					1,161			17,645			115		—			18,921

				Total current assets		33,052			93,657			77,593		—			204,302


PROPERTY AND EQUIPMENT, NET						11,743			199,378			3,520		—			214,641

OTHER ASSETS:
	Goodwill, net					1,515			88,715			—		—			90,230
	Other					14,404			5,742			4,073		—			24,219
	Deferred tax asset					14,362			—			—		(14,362	)		—
	Intercompany receivables					233,827			—			—		(233,827	)		—
	Investment in subsidiaries					11,697			8,814			—		(20,511	)		—

				Total other assets		275,805			103,271			4,073		(268,700	)		114,449

			Total assets		$	320,600		$	396,306		$	85,186		($268,700	)	$	533,392


CURRENT LIABILITIES:
	Current maturities of long-term debt				$	2,625			—			—		—		$	2,625
	Trade accounts payable					2,753			37,326			153		—			40,232
	Intercompany payables					—			230,040			3,787		(233,827	)		—
	Accrued liabilities					7,157			61,460			14,346		—			82,963

			Total current liabilities			12,535			328,826			18,286		(233,827	)		125,820


LONG-TERM DEBT, less current maturities						286,523			10			—		—			286,533

POSTRETIREMENT BENEFITS OTHER THAN PENSIONS						—			9,363			—		—			9,363

DEFERRED INCOME TAXES						—			35,745			—		(14,362	)		21,383

OTHER LONG-TERM LIABILITIES						3,545			34,906			33,845		—			72,296

STOCKHOLDERS’ EQUITY:
	Common stock, no par value					—			—			—		—			—
	Additional paid-in capital					46,520			91,548			13,849		(105,397	)		46,520
	Treasury stock					(707	)		—			—		—			(707	)
	Retained (deficit) earnings					(18,894	)		(90,158	)		19,206		70,952			(18,894	)
	Cumulative other comprehensive loss, net of tax					(8,922	)		(13,934	)				13,934			(8,922	)

		Total stockholders’ equity				17,997			(12,544	)		33,055		(20,511	)		17,997

				Total liabilities and stockholders’ equity	$	320,600		$	396,306		$	85,186		($268,700	)	$	533,392

SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2002
In Thousands
(Unaudited)


			ALLIED			GUARANTOR			NONGUARANTOR
			HOLDINGS			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			CONSOLIDATED

REVENUES			$	2,535		$	238,716		$	9,397			($11,664	)	$	238,984

OPERATING EXPENSES:
	Salaries, wages and fringe benefits			1,959			125,554			—			—			127,513
	Operating supplies and expenses			461			35,399			46			—			35,906
	Purchased transportation			—			25,328			—			—			25,328
	Insurance and claims			—			12,927			9,131			(9,129	)		12,929
	Operating taxes and licenses			54			8,576			—			—			8,630
	Depreciation and amortization			744			12,420			118			—			13,282
	Rents			424			1,431			1			—			1,856
	Communications and utilities			141			1,729			3			—			1,873
	Other operating expenses			691			3,164			135			(2,535	)		1,455
	Loss on disposal of operating assets, net			—			315			—			—			315

		Total operating expenses		4,474			226,843			9,434			(11,664	)		229,087

		Operating (loss) income		(1,939	)		11,873			(37	)		—			9,897

OTHER INCOME (EXPENSE):
	Interest expense			(11,714	)		(2,280	)		(43	)		6,427			(7,610	)
	Interest income			6,379			20			643			(6,427	)		615
	Gain on early extinguishment of debt			—			—			—			—			—
	Intercompany dividends			818			(818	)		—			—			—
	Equity in earnings of subsidiaries			9,498			36			—			(9,534	)		—

				4,981			(3,042	)		600			(9,534	)		(6,995	)

INCOME BEFORE INCOME TAXES				3,042			8,831			563			(9,534	)		2,902
INCOME TAX (EXPENSE) BENEFIT				(933	)		998			(858	)		—			(793	)

NET INCOME (LOSS)			$	2,109		$	9,829			($295	)		($9,534	)	$	2,109

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


			ALLIED			GUARANTOR			NONGUARANTOR
			HOLDINGS			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			CONSOLIDATED

REVENUES			$	2,475		$	249,749		$	9,538			($11,567	)	$	250,195

OPERATING EXPENSES:
	Salaries, wages and fringe benefits			2,325			138,264			—			—			140,589
	Operating supplies and expenses			72			39,773			50			—			39,895
	Purchased transportation			—			28,666			—			—			28,666
	Insurance and claims			—			13,900			8,960			(9,092	)		13,768
	Operating taxes and licenses			46			8,461			—			—			8,507
	Depreciation and amortization			878			14,214			189			—			15,281
	Rents			509			1,080			3			—			1,592
	Communications and utilities			98			1,810			6			—			1,914
	Other operating expenses			1,846			4,125			94			(2,475	)		3,590
	Gain on disposal of operating assets, net			—			(2,576	)		—			—			(2,576	)

		Total operating expenses		5,774			247,717			9,302			(11,567	)		251,226

		Operating (loss) income		(3,299	)		2,032			236			—			(1,031	)

OTHER INCOME (EXPENSE):
	Equity in earnings of joint ventures, net of tax			—			1,218			112			—			1,330
	Interest expense			(9,046	)		(8,073	)		(56	)		7,788			(9,387	)
	Interest income			7,785			49			580			(7,788	)		626
	Intercompany dividends			1,729			(1,729	)		—			—			—
	Equity in (losses) earnings of subsidiaries			(5,238	)		220			—			5,018			—

				(4,770	)		(8,315	)		636			5,018			(7,431	)

(LOSS) INCOME BEFORE INCOME TAXES				(8,069	)		(6,283	)		872			5,018			(8,462	)
INCOME TAX BENEFIT (EXPENSE)				2,353			696			(303	)		—			2,746

NET (LOSS) INCOME				($5,716	)		($5,587	)	$	569		$	5,018			($5,716	)

SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002
In Thousands
(Unaudited)


			ALLIED			GUARANTOR			NONGUARANTOR
			HOLDINGS			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			CONSOLIDATED

REVENUES			$	5,070		$	451,483		$	19,019			($23,329	)	$	452,243

OPERATING EXPENSES:
	Salaries, wages and fringe benefits			3,435			242,614			—			—			246,049
	Operating supplies and expenses			787			65,939			85			—			66,811
	Purchased transportation			—			47,107			—			—			47,107
	Insurance and claims			—			23,498			18,261			(18,259	)		23,500
	Operating taxes and licenses			108			16,985			—			—			17,093
	Depreciation and amortization			1,510			25,198			237			—			26,945
	Rents			847			2,360			3			—			3,210
	Communications and utilities			326			3,533			6			—			3,865
	Other operating expenses			1,856			7,708			221			(5,070	)		4,715
	Gain on disposal of operating assets, net			—			(714	)		—			—			(714	)

		Total operating expenses		8,869			434,228			18,813			(23,329	)		438,581

		Operating (loss) income		(3,799	)		17,255			206			—			13,662

OTHER INCOME (EXPENSE):
	Interest expense			(20,129	)		(8,182	)		(132	)		12,711			(15,732	)
	Interest income			12,614			34			950			(12,711	)		887
	Gain on early extinguishment of debt			2,750			—			—			—			2,750
	Other, net			—			—			(207	)		—			(207	)
	Intercompany dividends			978			(978	)		—			—			—
	Equity in earnings of subsidiaries			4,240			133			—			(4,373	)		—

				453			(8,993	)		611			(4,373	)		(12,302	)

(LOSS) INCOME BEFORE INCOME TAXES & CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE				(3,346	)		8,262			817			(4,373	)		1,360
INCOME TAX BENEFIT (EXPENSE)				207			972			(1,586	)		—			(407	)

(LOSS) INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE				(3,139	)		9,234			(769	)		(4,373	)		953
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAX				—			(4,092	)		—			—			(4,092	)

NET (LOSS) INCOME				($3,139	)	$	5,142			($769	)		($4,373	)		($3,139	)

SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2001
In Thousands
(Unaudited)


			ALLIED			GUARANTOR			NONGUARANTOR
			HOLDINGS			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			CONSOLIDATED

REVENUES			$	4,950		$	467,525		$	19,033			($23,134	)	$	468,374
OPERATING EXPENSES:
	Salaries, wages and fringe benefits			7,446			264,860			—			—			272,306
	Operating supplies and expenses			975			80,309			53			—			81,337
	Purchased transportation			—			51,962			—			—			51,962
	Insurance and claims			—			27,702			17,539			(18,184	)		27,057
	Operating taxes and licenses			93			17,040			—			—			17,133
	Depreciation and amortization			1,725			28,224			356			—			30,305
	Rents			1,041			2,618			3			—			3,662
	Communications and utilities			112			3,834			6			—			3,952
	Other operating expenses			3,606			8,823			134			(4,950	)		7,613
	Gain on disposal of operating assets, net			—			(2,743	)		—			—			(2,743	)

		Total operating expenses		14,998			482,629			18,091			(23,134	)		492,584

		Operating (loss) income		(10,048	)		(15,104	)		942			—			(24,210	)

OTHER INCOME (EXPENSE):
	Equity in earnings of joint ventures, net of tax			—			2,437			102			—			2,539
	Interest expense			(17,069	)		(16,132	)		(96	)		15,444			(17,853	)
	Interest income			15,495			112			1,427			(15,444	)		1,590
	Intercompany dividends			1,980			(1,980	)		—			—			—
	Equity in (losses) earnings of subsidiaries			(28,117	)		416			—			27,701			—

				(27,711	)		(15,147	)		1,433			27,701			(13,724	)

(LOSS) INCOME BEFORE INCOME TAXES				(37,759	)		(30,251	)		2,375			27,701			(37,934	)
INCOME TAX BENEFIT (EXPENSE)				13,181			912			(737	)		—			13,356

NET (LOSS) INCOME				($24,578	)		($29,339	)	$	1,638		$	27,701			($24,578	)

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2002
In Thousands


					ALLIED			GUARANTOR			NONGUARANTOR
					HOLDINGS			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			CONSOLIDATED

CASH FLOWS FROM OPERATING ACTIVITIES
	Net (loss) income					($3,139	)	$	5,142			($769	)		($4,373	)		($3,139	)

	Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
		Gain on early extinguishment of debt				(2,750	)		—									(2,750	)
		Interest expense paid in kind				—			377									377
		Amortization of deferred financing costs				2,028			—									2,028
		Depreciation and amortization				1,510			25,198			237			—			26,945
		Cumulative effect of change in accounting principle				—			5,194			—			—			5,194
		Gain on disposal of assets and other, net				—			(507	)		—			—			(507	)
		Deferred income taxes				1,832			(1,891	)		(575	)		—			(634	)
		Compensation expense related to stock options and grants				148			—			—			—			148
		Equity in earnings of subsidiaries				(4,240	)		(133	)		—			4,373			—
		Amortization of Teamsters Union contract costs				—			1,200			—			—			1,200
		Change in operating assets and liabilities:
			Receivables, net of allowance for doubtful accounts			24			10,692			241			—			10,957
			Inventories			—			233			5			—			238
			Prepayments and other current assets			294			(194	)		(8	)		—			92
			Intercompany receivables and payables			185,670			(181,911	)		(3,759	)		—			—
			Trade accounts payable			(1,009	)		1,176			50			—			217
			Accrued liabilities			(2,847	)		(6,678	)		11,890			—			2,365

				Total adjustments		180,660			(147,244	)		8,081			4,373			45,870

				Net cash provided by (used in) operating activities		177,521			(142,102	)		7,312			—			42,731

CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of property and equipment					—			(7,470	)		—			—			(7,470	)
	Intercompany sale of property and equipment					(2	)		2			—			—			—
	Proceeds from sale of property and equipment					—			2,857			—			—			2,857
	Proceeds from sale of equity investment in joint venture					—			—			2,700			—			2,700
	Capital contribution					(73,178	)		73,100			78			—			—
	Return of capital					40,881			(39,829	)		(1,052	)		—			—
	Increase in short-term investments					—			—			(1,229	)		—			(1,229	)
	Increase in cash surrender value of life insurance					(317	)		—			—			—			(317	)

				Net cash provided by (used in) investing activities		(32,616	)		28,660			497			—			(3,459	)

CASH FLOWS FROM FINANCING ACTIVITIES:
	(Repayments) additions to revolving credit facilities, net					(98,900	)		38,177			—						(60,723	)
	Additions to long-term debt					—			82,751			—						82,751
	Repayment of long-term debt					(37,498	)		(6,332	)		—						(43,830	)
	Payment of deferred financing costs					(8,829	)		—			—			—			(8,829	)
	Proceeds from issuance of common stock					161			—			—			—			161
	Other, net					(48	)		122			299			—			373

				Net cash (used in) provided by financing activities		(145,114	)		114,718			299			—			(30,097	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS						—			(247	)		—			—			(247	)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS						(209	)		1,029			8,108			—			8,928
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR						209			1,063			9,271			—			10,543

CASH AND CASH EQUIVALENTS AT END OF PERIOD						—		$	2,092		$	17,379			—		$	19,471

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2001
In Thousands


					ALLIED			GUARANTOR			NONGUARANTOR
					HOLDINGS			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			CONSOLIDATED

CASH FLOWS FROM OPERATING ACTIVITIES
	Net (loss) income					($24,578	)		($29,339	)	$	1,638		$	27,701			($24,578	)

	Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
		Amortization of deferred financing costs				2,028			(375	)		—			—			1,653
		Depreciation and amortization				1,725			28,224			356			—			30,305
		Gain on sale disposal of assets and other, net				—			(2,743	)		—			—			(2,743	)
		Deferred income taxes				(15,000	)		1,644			—			—			(13,356	)
		Compensation expense related to stock options and grants				138			—			—			—			138
		Equity in earnings of joint ventures				—			(2,437	)		(102	)		—			(2,539	)
		Equity in losses (earnings) of subsidiaries				28,117			(416	)		—			(27,701	)		—
		Amortization of Teamsters Union contract costs				—			1,202			—			—			1,202
		Change in operating assets and liabilities:
			Receivables, net of allowance for doubtful accounts			774			22,897			(2,844	)		—			20,827
			Inventories			—			415			—			—			415
			Prepayments and other current assets			407			(4,151	)		2,109			—			(1,635	)
			Intercompany receivables and payables			(9,071	)		7,667			1,404			—			—
			Trade accounts payable			899			(5,040	)		57			—			(4,084	)
			Accrued liabilities			6,579			(4,648	)		10,689			—			12,620

				Total adjustments		16,596			42,239			11,669			(27,701	)		42,803

				Net cash (used in) provided by operating activities		(7,982	)		12,900			13,307			—			18,225

CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of property and equipment					(67	)		(16,155	)		(720	)		—			(16,942	)
	Intercompany sale of property and equipment					811			(811	)		—			—			—
	Proceeds from sale of property and equipment					—			4,745			—			—			4,745
	Investment in joint ventures					—			—			(464	)		—			(464	)
	Intercompany dividend received (paid)					1,980			(1,980	)		—			—			—
	Increase in short-term investments					—			—			(2,590	)		—			(2,590	)
	Increase in cash surrender value of life insurance					(240	)		—			—			—			(240	)

				Net cash provided by (used in) investing activities		2,484			(14,201	)		(3,774	)		—			(15,491	)

CASH FLOWS FROM FINANCING ACTIVITIES:
	(Repayments) additions to revolving credit facilities, net					10,676			1,193			—			—			11,869
	Additions to long-term debt					—			—			—			—			—
	Repayment of long-term debt					—			(104	)								(104	)
	Payment of deferred financing costs					(2,507	)		—			—			—			(2,507	)
	Proceeds from issuance of common stock					217			—			—			—			217
	Other, net					(2,314	)		1,243			1,352			—			281

				Net cash provided by financing activities		6,072			2,332			1,352			—			9,756

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS						—			(508	)		(921	)		—			(1,429	)
NET INCREASE IN CASH AND CASH EQUIVALENTS						574			523			9,964			—			11,061
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR						(1,213	)		2,063			1,523			—			2,373

CASH AND CASH EQUIVALENTS AT END OF PERIOD						($639	)	$	2,586		$	11,487			—		$	13,434

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

Results of Operations

The following table sets forth the percentage relationship of expense items to revenues for the periods indicated:


			Three Months Ended						Six Months Ended
			June 30						June 30

			2002			2001			2002			2001

Revenues				100.0	%		100.0	%		100.0	%		100.0	%

Operating expenses:
	Salaries, wages and fringe benefits			53.4			56.2			54.4			58.1
	Operating supplies and expenses			15.0			15.9			14.8			17.4
	Purchased transportation			10.6			11.5			10.4			11.1
	Insurance and claims			5.4			5.5			5.2			5.8
	Operating taxes and licenses			3.6			3.4			3.8			3.7
	Depreciation and amortization			5.6			6.1			6.0			6.5
	Rents			0.8			0.6			0.7			0.8
	Communications and utilities			0.8			0.8			0.9			0.8
	Other operating expenses			0.6			1.4			1.0			1.6
	Loss (gain) on sale of operating assets			0.1			(1.0	)		(0.2	)		(0.6	)

		Total operating expenses		(95.9	)		(100.4	)		(97.0	)		105.2

Operating income (loss)				4.1			(0.4	)		3.0			(5.2	)

Other income (expense):
	Equity in earnings of joint ventures, net of tax			0.0			0.5			0.0			0.5
	Interest expense			(3.2	)		(3.8	)		(3.5	)		(3.8	)
	Interest income			0.3			0.3			0.2			0.3
	Gain on early extinguishment of debt			0.0			0.0			0.6			0.0

				(2.9	)		(3.0	)		(2.7	)		(3.0	)

Income (loss) before income taxes and cumulative effect of change in accounting principle				1.2			(3.4	)		0.3			(8.2	)
Income tax (expense) benefit				(0.3	)		1.1			(0.1	)		2.9

Income before cumulative effect of change in accounting principle				0.9			(2.3	)		0.2			(5.3	)
Cumulative effect of change in accounting principle, net of tax				0.0			0.0			(0.9	)		0.0

Net income (loss)				0.9	%		(2.3	)%		(0.7	)%		(5.3	)%

Three and Six Months Ended June 30, 2002 Compared to Three and Six Months Ended June 30, 2001

Revenues were $239.0 million for the second quarter of 2002 versus revenues of $250.2 million for the second quarter of 2001, a decrease of $11.2 million, or 4.5%. For the six-month period ended June 30, 2002, revenues were $452.2 million, versus revenues of $468.4 million for the six-month period ended June 30, 2001, a decrease of $16.2 million, or 3.5%.

The decrease in revenues was due to a decline in vehicle deliveries resulting primarily from the decision to exit non-performing locations in the fourth quarter of 2001 and in 2002. Offsetting the impact on revenues from the volume decline was an increase in the Allied Automotive Group revenue per unit. This increase is primarily the result of the implementation by Allied Automotive Group of a new administrative processing fee in September 2001.

Net income was $2.1 million during the second quarter of 2002 versus a net loss of $5.7 million during the second quarter of 2001. Basic earnings per share in the second quarter of 2002 were $.25 and diluted earnings per share were $0.24 versus basic and diluted loss per share of $0.71 in the second quarter of 2001. For the six-month period ended June 30, 2002, the Company experienced a net loss of $3.1 million versus a net loss of $24.6 million for the six-month period ended June 30, 2001. Basic loss per share was $0.38 and diluted loss per share was $0.36 for the six-month period ended June 30, 2002 versus basic and diluted loss per share of $3.04 for the six-month period ended June 30, 2001. Net income for the six-month period ended June 30, 2002 included a $1.7 million after-tax gain on the early extinguishment of the Company’s subordinated notes and a $4.1 after-tax charge related to the impairment of goodwill at the Company’s Axis Group subsidiary. The impairment charge resulted from the Company’s adoption of SFAS 142 as described below.

Earnings before interest, taxes, depreciation and amortization, and gains and losses on disposal of assets (EBITDA) were $23.5 million during the second quarter of 2002 versus $11.7 million during the second quarter of 2001. For the six-month period ended June 30, 2002 EBITDA was $39.9 million versus $3.4 million for the six-month period ended June 30, 2001. The significant improvement in EBITDA was due to the ongoing execution of the Company’s turnaround initiatives related to improved revenue quality, productivity, workforce reductions and the continued elimination of non-contributory expenses and assets.

The following is a discussion of the changes in the Company’s major expense categories:

Salaries, wages and fringe benefits decreased from 56.2 % of revenues in the second quarter of 2001 to 53.4 % of revenues in the second quarter of 2002, and from 58.1% of revenues for the six-month period ended June 30, 2001 to 54.4 % of revenues for the six-month period ended June 30, 2002. The decrease was primarily due to continued productivity and efficiency improvements implemented by the Company’s turnaround initiatives. In addition, the Company incurred $5.6 million of workforce reduction expenses for the six-month period ended June 30, 2001 compared to $0.9 million of workforce reduction and severance expenses which were related to a reduction in overhead expenses and the upgrade of personnel as part of the turnaround initiatives for the first six months of 2002.

Operating supplies and expenses decreased from 15.9% of revenues in the second quarter of 2001 to 15.0% of revenues in the second quarter of 2002, and decreased from 17.4% of revenues for the six-month period ended June 30, 2001 to 14.8% of revenues for the six-month period ended June 30, 2002. The decrease was due primarily to a decrease in fuel costs experienced in the first and second quarters of 2002 versus 2001, combined with a reduction in the maintenance costs of rigs in service. The decreased maintenance costs are a result of the Company operating approximately 10.1% fewer rigs in the second quarter of 2002 as well as management’s efforts to aggressively reduce overhead costs and unnecessary spending. These efforts are consistent with the Company’s turnaround initiatives.

Purchased transportation decreased from 11.5% of revenues in the second quarter of 2001 to 10.6% of revenues in the second quarter of 2002, and decreased from 11.1% of revenues for the six-month period ended June 30, 2001 to 10.4% of revenues for the six-month period ended June 30, 2002. The decrease was due primarily to a decrease in the number of owner-operators resulting from the closing of unprofitable terminals in the fourth quarter of 2001.

Insurance and claims expense decreased from 5.5% of revenues in the second quarter of 2001 to 5.4% of revenues in the second quarter of 2002, and decreased from 5.8% of revenue for the six-month period ended June 30, 2001 to 5.2% of revenues for the six-month period ended June 30, 2002. The decrease was a result of lower cargo claims experienced on shipped vehicles as well as a reduction in auto liability self-insured claims. Allied Automotive Group is aggressively managing its cargo and auto liability claims costs as part of its turnaround plan.

Depreciation and amortization expense decreased from 6.1% of revenues in the second quarter of 2001 to 5.6% of revenues in the second quarter of 2002, and decreased from 6.5% of revenues for the six-month period ended June 30, 2001 to 6.0% of revenues for the six-month period ended June 30, 2001. The decrease is due primarily to the reduction of amortization expense resulting from the Company’s adoption of SFAS No. 142, “Goodwill and Other Intangibles” which became effective January 1, 2002. During the second quarter of 2001, the Company recorded $0.9 million of amortization expense and $1.8 million for the six-month period ended June 30, 2001 related to goodwill. The remaining decrease is primarily due to the sale of non-performing assets during 2001 and reduced capital expenditures in 2002.

Other operating expenses decreased from 1.4% of revenues in the second quarter of 2001 to 0.6% of revenues in the second quarter of 2002, and decreased from 1.6% of revenues for the six-month period ended June 30, 2001 to 1.0% of revenues for the six-month period ended June 30, 2002. The decrease was due primarily to overall lower professional fees for consultants. During 2001, the Company engaged outside consultants, including Jay Alix and Associates, to aid in the planning and analysis of its turnaround initiatives and the refinancing of its revolving credit facility and subordinated debt.

Gain on disposition of assets decreased from a gain of $2.6 million in the second quarter of 2001 to a loss of $0.3 million in the second quarter of 2002, and decreased from a gain of $2.7 million for the six-month period ended June 30, 2001 to a gain of $0.7 million for the six-month period ended June 30, 2002. As part of the Company’s turnaround initiatives, the Company has disposed of non-performing assets.

Equity in earnings of joint ventures, net of tax, decreased to $0 in the second quarter of 2002 and for the six-month period ended June 30, 2002, from earnings of $1.3 million in the second quarter of 2001 and $2.5 million the six-month period ended June 30, 2001. The decrease is due to the sale of the Company’s joint ventures in the United Kingdom in the fourth quarter of 2001 and the sale of its joint venture interest in Brazil during April 2002.

Interest expense decreased from 3.8% of revenues in the second quarter of 2001 to 3.2% of revenues in the second quarter of 2002, and decreased from 3.8% of revenues for the six-month period ended June 30, 2001 to 3.5% of revenues for the six-month period ended June 30, 2002. The decrease was due to higher debt levels and effective interest rates in 2001 versus 2002, as well as the incurrence in 2001 of additional costs related to the amendment of the Company’s revolving credit facility and its senior subordinated notes.

The adoption of SFAS No. 142 is a required change in accounting principle, and the cumulative effect of adopting this standard as of January 1, 2002 resulted in a non-cash, after-tax decrease to net income of $4.1 million for the Company. Pursuant to the adoption of SFAS No. 142, the Company will annually test goodwill for impairment.

The adoption of SFAS No. 145 required that the gain on the early extinguishment of debt the Company recorded during the first quarter of 2002 be reclassified from an extraordinary item to other income.

As part of the Company’s turnaround efforts in the first quarter of 2002, the Allied Holdings Inc. Defined Benefit Pension Plan was amended in February 2002 to freeze the Plan. The amendment resulted in a curtailment of the Plan effective April 30, 2002, under which employees do not accumulate any new benefits and new participants are not added to the Plan. The Company’s net pension expense for 2001 was $2.6 million. As a result of freezing the Plan, the Company expects net pension expense to be $304,000 for 2002.

Financial Condition, Liquidity and Capital Resources

The Company’s sources of liquidity are funds provided by operations and borrowings under its revolving credit facility with a syndicate of lenders. The Company’s primary liquidity needs are for the refurbishment and maintenance of rigs and terminal facilities, the payment of operating expenses and the payment of interest and principal associated with long-term debt.

Net cash provided by operating activities totaled $42.3 million for the six-month period ended June 30, 2002, versus $18.2 million for the six-month period ended June 30, 2001. The increase was due primarily to an increase in earnings from a net loss of $24.6 million for the first six months of 2001 to $0.9 million for the first six months of 2002 of income before the cumulative effect of a change in accounting principle.

Net cash used in investing activities totaled $3.5 million for the six-month period ended June 30, 2002, versus $15.5 million for the six-month period ended June 30, 2001. Cash paid to purchase capital items decreased from $16.9 million in the first six months of 2001 to $7.5 million in the first six months of 2002. The Company has embarked on a significant fleet refurbishment program that is expected to enable the Company to refurbish approximately 15% of its active fleet in 2002. The fleet refurbishment program is being implemented slowly to ensure quality and therefore capital expenditures will be weighted more towards the second half of the year. The Company anticipates capital expenditures in a range of $25 to $30 million in calendar year 2002, which is driven primarily by the fleet refurbishment program, compared to capital expenditures of $21.5 million in 2001.

Net cash used in financing activities totaled $30.1 million for the six-month period ended June 30, 2002, versus net cash provided by financing activities of $9.8 million for the six-month period ended June 30, 2001. During the first six months of 2002, long-term debt was reduced by $24.2 million, compared to borrowings of long-term debt of $11.9 million in the first six months of 2001. The repayment of debt was primarily due to a reduction in the net loss experienced by the Company and lower working capital requirements as well as cash proceeds from the sale of the investment in the joint venture in Brazil. The Company also paid $8.8 million in deferred financing costs related the refinancing of its revolving credit facility and its senior subordinated notes.

As part of the Company’s Credit Facility, as described in Note 9, the Revolver and Term Loans A, B, and C mature on February 25, 2005. Term Loan D matures on February 26, 2005 and the Notes mature on October 1, 2007. As part of the debt agreements governing these Term Loans, the repayment of Term Loan A includes eleven installment payments with the outstanding balance due at maturity and the repayment of Term Loan B includes 5 installment payments with the outstanding balance due at maturity. Term Loans C and D, as well as the Notes, are to be repaid in full at maturity. For more comprehensive information regarding the outstanding balances at June 30, 2002 and the related interest rates, refer to Note 9.

The Company began trading its common stock on the American Stock Exchange (“AMEX”) under the symbol AHI, effective April 8, 2002. The Company’s common stock was previously listed on the New York Stock Exchange (“NYSE”). As previously announced, the Company had been operating under a plan that was approved by the NYSE in August 2001. The plan was to bring the Company’s total market capitalization and shareholders’ equity above NYSE’s continued listing requirement of $50 million by November 29, 2002. The Company believes, however, that the change to AMEX better allows for management of business without the uncertainty and distractions associated with meeting NYSE standards. Management does not expect a significant change in shareholder liquidity as a result of the move to the AMEX.

Quantitative and Qualitative Disclosures about Market Risk

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 June 30, 2002, which are recorded at fair value of $66.0 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 $6.6 million.

Interest Rates – The Company primarily issues long-term debt obligations to support general corporate purposes including capital expenditures and working capital needs. The Senior Notes of the Company’s long-term debt obligations bear a fixed rate of interest while the rates for the Revolving Credit Facility and Term Loans are variable, based on a fixed percent and the prime rate. A one-percentage point increase in interest rates affecting the Company’s floating rate long-term debt would reduce pre-tax income by $1.1 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 – Allied Automotive Group 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, Allied Automotive Group periodically purchases fuel in advance of consumption. During 2001 Allied Automotive Group entered into a forward purchase commitment to purchase one million gallons of low sulfur diesel fuel per month until August 2002 at determinable prices defined within the agreement. A 10% increase in diesel fuel prices would reduce pre-tax income by $3.6 million over the next fiscal year assuming 2002 levels of fuel consumption.

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 June 30, 2002, are $77.1 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 $7.7 million. The Company does not use derivative financial instruments to hedge its exposure to changes in foreign currency exchange rates.

Revenue Variability – The Company’s revenues are variable and can be impacted by sudden unexpected changes in Original Equipment Manufacturer production levels. In addition, 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 generally 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. Except for the impact of fuel costs fluctuations discussed herein, inflation has not significantly affected the Company’s results of operations.

Critical Accounting Policies

The Company has certain critical accounting policies that are important to the portrayal of financial condition and results of operation. These critical accounting policies require subjective or complex judgments. The Company’s critical accounting policies include claims and insurance reserves, accounts receivable valuation reserves and the income tax valuation reserve.

CLAIMS AND INSURANCE RESERVES — Reserves for self-insured workers’ compensation, automobile, and general liability losses are subject to actuarial estimates based on historical claims experience adjusted for current industry trends. The Company receives third-party actuarial valuations to assist in the determination of its claims and insurance reserves. The actuarial estimates are discounted at 6% to their present value. The claims and insurance reserves are adjusted periodically as such claims mature to reflect changes in actuarial estimates based on actual experience.

ACCOUNTS RECEIVABLE VALUATION RESERVES — Substantially all revenue is derived from transporting new automobiles and light trucks from manufacturing plants, ports, auctions, and railway distribution points to automobile dealerships. Revenue is recorded when the vehicles are delivered to the dealerships. The Company makes significant estimates to determine the collectibility of its accounts receivable on the balance sheet. Estimates include periodic evaluations of the credit worthiness of customers including the impact of market and economic conditions on their viability to satisfy amounts owed to the Company. In addition, estimates include assessments of the potential for customer billing adjustments based on the timing of delivery, the accuracy of pricing, as well as evaluation of the historical aging of customer accounts.

ACCOUNTING FOR INCOME TAXES – As part of the process of preparing the Company’s consolidated financial statements the Company is required to estimate income taxes in each of the jurisdictions in which the Company operates. This process involves estimating actual current tax exposure, together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the Company’s consolidated balance sheet. The Company must then assess the likelihood that the deferred taxes assets will be recovered from future taxable income and to the extent the Company believes that recovery is not likely, the Company must establish a valuation allowance. To the extent the Company establishes a valuation allowance or increases this allowance in a period, the Company must include an expense within the tax provision in the statements of operations.

Significant management judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against the net deferred tax assets. The Company has recorded a valuation allowance of $5.3 million as of June 30, 2002 due to uncertainties related to the Company’s ability to utilize some of the deferred tax assets, primarily consisting of certain net operating losses carried forward and foreign tax credits, before they expire. The valuation allowance is based on management’s estimate of taxable income by jurisdiction in which the Company operates and the period over which the deferred tax assets will be recoverable. In the event that actual results differ from these estimates or the Company adjusts these estimates in future periods, the Company may need to establish an additional valuation allowance, which could materially impact the financial position and results of operations.

The net deferred tax asset as of June 30, 2002 was $10.5 million, net of a valuation allowance of $5.3 million.

GOODWILL – The Company adopted SFAS 142 as of January 1, 2002. Pursuant to adoption, goodwill is no longer amortized but is evaluated annually for impairment, or on an interim basis if an event occurs or circumstances change that would reduce the fair value of goodwill below its carrying value. The fair value of goodwill is derived by using a discounted cash flow analysis. This analysis involves estimates and assumptions by management regarding future revenue streams and expenses. Changes to these assumptions and estimates could have a material effect on the carrying value of goodwill and result in an impairment charge in the Company’s consolidated statements of operations.

Cautionary Notice Regarding Forward-Looking Statements - This Quarterly Report on Form 10-Q contains, and from time to time the Company and its officers, directors or employees may make other 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, (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. Without limiting the generality of the foregoing, the words “believe,” “anticipate,” “seek,” “expect,” “estimate,” “intend,” “plan,” and similar expressions are intended to identify 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 from historical results or results expressed or implied by such forward-looking statements 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; the impact of recent price increases implemented by the Company on the Company’s market share; loss or reduction of revenues generated by the Company’s major customers or the loss of any such customers; ability of the Company to negotiate contracts expiring in the future with customers and Union representatives of its employees on terms favorable to the Company; the variability of quarterly results and seasonality of the automotive distribution industry; the Company’s highly leveraged financial position; 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; increases in fuel prices; increased frequency and severity of work related accidents and workers’ compensation claims; availability of appropriate insurance coverage; increased expenses due to layoffs of employees; changes in regulatory requirements, including environmental regulations, which are applicable to the Company’s business; changes in vehicle sizes and weights which may adversely impact vehicle deliveries per load; risks associated with doing business in foreign countries; and other risk factors set forth from time to time in the Company’s Securities and Exchange Commission reports, including but not limited to, this Quarterly Report on Form 10-Q and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001. Many of these factors are beyond the Company’s ability to control or predict, and readers are cautioned not to put undue reliance on such forward-looking statements. The Company disclaims any obligation to update or review any forward-looking statements contained in this Quarterly Report or in any statement referencing the risk factors and other cautionary statements set forth in this Quarterly Report.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The information required under this item is provided under the caption “Disclosures about Market Risks” under Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

PART II – OTHER INFORMATION
ITEM 1 – LEGAL PROCEEDINGS

The Company is involved in various litigation and environmental matters relating to employment practices, damages, and other matters arising from operations in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters, other than those discussed below, will not have a material adverse effect on the Company’s financial position or results of operations.

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. 12000/8184. 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 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 that ruling was reversed on appeal. While the appellate court held that summary judgment in favor of the Company was premature, the Company will be permitted to raise at trial and/or further dispositive motions the substantive arguments upon which its initial summary judgment motion was based. Subsequent to its summary judgment ruling, the trial court 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 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 against 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.

Ryder Systems, Inc. v. Allied Holdings, Inc., AH Acquisition Corp. and Allied Automotive Group, Inc., Case No. 01-3553-CIV-HUCK in the United States District Court for the Southern District of Florida, relates to the Company’s August 1997 stock acquisition of certain corporations wholly owned by Ryder. Through that acquisition, the Company agreed to assume financial responsibility for certain third-party injury claims arising on or before the August 1997 closing date. Ryder’s original complaint was filed on August 16, 2001. In response, the Company moved to dismiss, and the court granted that motion with leave for Ryder to amend its complaint. On December 26, 2001, Ryder timely filed its amended complaint. Following the dismissal with prejudice of one of the counts asserted by Ryder, Ryder filed, on or about August 1, 2002, a Second Amended Complaint. Ryder’s five-count Second Amended Complaint alleges, in Count one, that the Company breached its agreement with Ryder by failing to undertake certain actions (including posting letters of credit and bonds) to substitute the Company for Ryder under an insurance policy covering third-party claims and with various states’ agencies that regulate matters such as self-insured workers’ compensation. In Counts two and three, the Second Amended Complaint alleges that if these obligations are not required by contract, the legal doctrines of promissory estoppel and negligent misrepresentation created them. In Count four, the Second Amended Complaint seeks a declaration that the Company is required to undertake these actions. In Count Five, Ryder seeks a declaration that the Company is obligated to take certain steps to transfer from Ryder to the Company the ownership and administrative responsibility for two pension plans. The Company intends to continue its vigorous defense against the claims asserted against it, as management believes all of those claims are without merit. The Company has also raised several counterclaims. The ultimate results of this litigation cannot be predicted. However, if Ryder prevails on its claims and the court orders the Company to substitute itself for Ryder by, among other things, posting substantial letters of credit, it could have a material adverse effect on the Company’s consolidated financial position or results of operations.

PART II

OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders

On May 22, 2002 the Annual Meeting of Shareholders was held. The following Directors were elected for terms that will expire on the date of the annual meeting in the year indicated below. The number of shares voted for, against and abstentions are also indicated.

Proposal I (Election of Directors)


	FOR		WITHHELD		TERM

Guy W. Rutland, III		6,368,355		437,352		2005
Robert R. Woodson		5,781,246		1,024,461		2005
J. Leland Strange		6,382,352		423,355		2005

The following Directors’ terms will continue as indicated.


Robert J. Rutland															2003
Hugh E. Sawyer															2003
William P. Benton															2003
David G. Bannister															2003
Guy W. Rutland, IV															2004
Berner F. Wilson, Jr															2004
Thomas E. Boland															2004

Proposal II (Amend the Company’s Amended and Restated Long Term Incentive Plan to increase the number of shares subject to the Plan by 500,000)


FOR	AGAINST		ABSTAIN		NO VOTE

4,648,901		507,679		4,425		1,644,702

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

a) Exhibits: None

b) Reports on Form 8-K:

On April 2, 2002, the Company filed with the Commission a Current Report on Form 8-K regarding the dismissal of its independent public accountants, Arthur Andersen LLP and the engagement of KPMG LLP as its new independent auditors, which Current Report was amended on April 19, 2002.

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.

August 14, 2002 (Date)						/s/ Hugh E. Sawyer Hugh E. Sawyer on behalf of Registrant as President and Chief Executive Officer


August 14, 2002 (Date)						/s/ Daniel H. Popky Daniel H. Popky on behalf of Registrant as Senior Vice President, Finance and Chief Financial Officer

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