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SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission File Number 0-22276

Allied Holdings, Inc.

160 Clairemont Avenue, Suite 200, Decatur, Georgia 30030

Registrant’s telephone number, including area code (404) 373-4285

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).     Yes o          No þ

      As of March 3, 2003 Registrant had outstanding 8,443,961 shares of common stock. The aggregate market value of the common stock held by nonaffiliates of the Registrant, based upon the closing sales price of the common stock on March 3, 2003 as reported on the American Stock Exchange, was approximately $20.1 million.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the proxy statement for Registrant’s 2003 Annual Meeting of Shareholders to be held June 19, 2003 are incorporated by reference in Part III.

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ALLIED HOLDINGS, INC.

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PART I

1.     General

      Allied Holdings, Inc. (the “Company” or “Allied”), founded in 1934, is a holding company which operates through its wholly owned subsidiaries. The Company’s principal operating subsidiaries are Allied Automotive Group, Inc. (collectively with its subsidiaries referred to as the “Allied Automotive Group” or “Automotive Group”) and Axis Group, Inc. (“Axis” or the “Axis Group”). Allied Automotive Group is the largest motor carrier in North America specializing in the transportation of new and pre-owned automobiles, sport utility vehicles (“SUV’s”), and light trucks utilizing specialized tractor trailers (“Rigs or Rig”) and serves and supports all of the major domestic and foreign automotive manufacturers. The Axis Group provides distribution services to the used and new finished vehicle distribution market and other segments of the automotive industry that complement the Automotive Group’s services.

      Allied Automotive Group offers a full range of automotive delivery services including transporting new, used and off-lease vehicles to dealers from plants, rail ramps, ports and auctions, and providing vehicle rail-car loading and unloading services. Allied Automotive Group represented approximately 97% of the Company’s consolidated 2002 revenues. Allied Automotive Group operates primarily in the short-haul segment of the automotive transportation industry with an average length of haul of less than 200 miles. General Motors, Ford, DaimlerChrysler, Toyota and Honda represent the Company’s largest customers, accounting for in total approximately 87% of 2002 revenues. Allied Automotive Group also provides services to all other major foreign manufacturers, including Mazda, Nissan, Isuzu, Volkswagen and Mitsubishi. All of Allied Automotive Group’s major car hauling competitors are privately held and there is minimal public information available with respect to such companies, but Allied Automotive Group believes that its 2002 revenues were substantially greater than those of its closest competitor.

      The Company provides distribution and transportation support services to the pre-owned and new vehicle market and other segments of the automotive industry through the Axis Group that complement Allied Automotive Group’s new vehicle distribution services operations. Axis provides carrier management services for various automotive clients, leases equipment for containerized international shipment of vehicles, and provides vehicle processing services at ports and inland distribution centers. Axis, through its subsidiary CT Group, Inc., provides a variety of related support services to the pre-owned vehicle market, including marshalling and yard management services. In addition, Axis provides logistics and distribution services in Mexico, as well as vehicle tracking for more than 1.5 million Toyota vehicles annually. Axis sold its interest in a joint venture in Brazil for $3.0 million in April 2002.

2.     Services

      Allied Automotive Group is the largest motor carrier in North America specializing in the transportation of new automobiles, SUV’s and light trucks for all the major domestic and foreign automotive manufacturers. Allied Automotive Group also believes it can increase the number of secondary market vehicles (used automobiles) it delivers by utilizing its large fleet and expansive terminal network to deliver secondary market vehicles on a backhaul basis.

      The Company provides corresponding services to its customers through its Axis Group subsidiary. Axis Group is aggressively pursuing opportunities to provide distribution and support services to customers in the automotive industry and seeks to leverage its proprietary information systems in order to efficiently provide such services. These services include identifying new and innovative distribution methods for customers, providing solutions to improve the management of inventory of new and used vehicles, and providing reconditioning services to the used and remarketed vehicle market. Axis Group has also targeted growth in the secondary markets through expansion of its carrier management services.

      Information regarding revenues, operating profit and total assets of each operating segment of the Company for the fiscal years 2000 through 2002, and information regarding revenues and long-lived assets of

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3.     Customer Relationships

      Allied Automotive Group has written multi-year contracts with substantially all of its customers. Allied Automotive Group’s contracts with its customers establish rates for the transportation of vehicles and generally are based upon a fixed rate per vehicle transported and a variable rate for each mile a vehicle is transported including an administrative processing fee. The contracts provide that the rate per vehicle may vary depending on the size and weight of the vehicle and can be terminated by either party upon specified days’ notice. The contracts between Allied Automotive Group and its customers covering approximately 64% of the Company’s 2002 revenues, permit Allied Automotive Group to recover for increases in fuel prices. None of Allied Automotive Group’s contracts with its customers allow it to recover increases in fuel taxes or labor costs unless it is mutually agreed to by Allied Automotive Group and its customers.

      Allied Automotive Group operates under a 36 month contract as to ramp locations and a 39 month contract as to plant locations for Ford vehicles which provides that the Allied Automotive Group is the primary carrier for 22 locations in the United States and 10 Canadian locations. This contract was entered into in September 2002. Each party to the contract has the right to terminate the agreement by location on 75 days’ notice.

      Allied Automotive Group is the primary carrier for 16 locations in the United States and 13 in Canada for DaimlerChrysler under a contract that expires on January 31, 2005. This contract may be terminated by location on 150 days’ notice by either party. Allied Automotive Group has a contract with General Motors which expires in March 2004 and provides that Allied Automotive Group is the primary carrier for 36 locations in the United States and Canada. General Motors does not have the right to re-source business under the terms of the contract. Allied Automotive Group operates under a two-year agreement with Toyota that expires in September 2003. This contract may be terminated by Toyota, by location, on 60 days’ notice.

4.     Proprietary Management Information Systems

      The Company, through its subsidiaries, has made a long-term commitment to utilize technology to serve its customers. Allied Automotive Group’s advanced management information system is a unique centralized, fully integrated information system utilizing a mainframe computer together with client servers. The system is based on a company-wide information database, which allows Allied Automotive Group to quickly respond to customer information requests without having to combine data files from several sources. Updates with respect to vehicle load, dispatch and delivery are immediately available for reporting to customers and for better control and tracking of customer vehicle inventories. Through electronic data interchange (EDI), Allied Automotive Group communicates directly with manufacturers in the process of delivering vehicles and electronically bills and collects from manufacturers. Allied Automotive Group also utilizes EDI to communicate with inspection companies, railroads, port processors, and other carriers.

      Subsidiaries of Allied Automotive Group also utilize the information system to allow them to operate their businesses more efficiently. For example, the information systems of Allied Automotive Group automatically design an optimal load for each Rig, taking into account factors such as the capacity of the Rig, the size of the vehicles, the route, the drop points, applicable weight and height restrictions and the formula for paying drivers. The system also determines the most economical and efficient load sequence and drop sequence for the vehicles to be transported. Axis has developed and utilizes a yard management system and a vehicle track and trace system that includes an estimated time of arrival engine to identify product delivery dates to final dealer destinations.

5.     Management Strategy

      The Company has adopted a performance management strategy which it believes contributes to driver productivity, cargo claim prevention, enhanced efficiency, safety, and the stability of its operations. The

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      More specifically, David Rawden joined Allied Holdings as Senior Vice President in March 2002. Mr. Rawden heads the Company’s newly formed Business Process Engineering Department. Mr. Rawden’s department is devoted to re-engineering core processes throughout the organization to maximize speed and efficiency. Mr. Rawden is also responsible for the Company’s risk management activities, including cargo claims, workers compensation and traffic accidents.

      The Company adopted an Employee Stock Purchase Plan in December 1998 to provide all employees the opportunity to purchase shares of the Company’s common stock, which is intended to provide a strong incentive for employees to achieve the Company’s goals and align the interests of the employees with those of the Company’s shareholders.

6.     Risk Management and Insurance

      Each of the Company’s operating subsidiaries is responsible for defining risks and securing appropriate insurance programs and coverages at cost effective rates for the Company. Allied Automotive Group utilizes third party administrators to administer workers’ compensation, auto and general liability claims. Allied Automotive Group is self-insured for workers’ compensation claims in Alabama, Delaware, Florida, Georgia, Kentucky, Maryland, Massachusetts, Michigan, Missouri, New Jersey, New York, North Carolina, Ohio, South Carolina, Tennessee and Virginia. Liability and workers’ compensation claims are subject to periodic audits by Allied Automotive Group’s commercial insurance carriers. In the United States, Allied Automotive Group currently retains up to $650,000 of liability for each claim for workers’ compensation and up to $500,000 of liability for automobile and general liability, including personal injury and property damage claims. In addition to the $500,000 per occurrence deductible for automobile liability, there is a $1,500,000 aggregate deductible for those claims which exceed the $500,000 per occurrence deductible subject to a $1,000,000 per claim limit. Allied Automotive Group has also applied a $1,000,000 interaggregate limit to the layer from $1,000,000 to $2,000,000. This additional exposure is limited to $1,000,000 in the aggregate, for losses between $1,000,000 and $2,000,000. Allied Automotive Group also retains up to $250,000 of liability for each cargo damage claim and physical damage claim to its owned and leased automobiles and tractor trailer units. In Canada, Allied Automotive Group retains up to CDN $500,000 of liability for each claim for personal injury, property damage or cargo damage. Also, in Canada, there is a CDN $500,000 aggregate limit for losses above CDN $500,000 and losses in excess of CDN $500,000 are limited to CDN $500,000.

      The Company records the estimated cost of the uninsured portion of the claims. The amount recorded is based on management’s evaluation of the nature and severity of claims and estimates of future claim development based on historical trends.

      If Allied Automotive Group were to experience a material increase in the frequency or severity of accidents or workers’ compensation claims or unfavorable developments in existing claims, the Company’s operating results could be adversely affected. The Company formed Haul Insurance Limited in December 1995 as a captive insurance subsidiary to provide reinsurance coverage to its licensed insurance carriers for certain types of losses within the retentions indicated, primarily non-self insured workers’ compensation, automobile liability and general liability, as indicated above. Other coverages are provided by nonrelated primary and reinsurance companies.

7.     Equipment, Maintenance and Fuel

      Allied Automotive Group has historically invested heavily in both new equipment and equipment remanufacture, which have served to increase efficiency and extend the useful life of Rigs. Currently, new 75-foot Rigs cost approximately $150,000 and have a useful life of approximately 15 years when properly

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      During 2002, Allied Automotive Group spent approximately $12.8 million on a fleet remanufacturing program, remanufacturing 10.0% of its owned active fleet. Remanufacturing costs approximately $35,000 per Rig compared to a cost per new Rig of approximately $150,000. In addition, in accordance with the fleet remanufacturing program, Allied replaced engines in approximately 350 Rigs during 2002 at an additional cost of $5.9 million. Allied Automotive Group expects this program to enable the Company to remanufacture approximately 15.0% of its existing active fleet each year.

      All of Allied Automotive Group’s terminals have access to a central parts warehouse through the management information system. The system calculates maximum and minimum parts inventory quantities based upon usage and automatically reorders parts. Minor modifications of equipment are performed at terminal locations. Major modifications involving change in length, configuration or load capacity are performed by the trailer manufacturers.

      In order to reduce fuel costs, Allied Automotive Group purchased approximately 38% of its fuel in bulk in 2002. Also, fuel is purchased by drivers on the road from a few major suppliers that offer competitive discounts and central billing.

8.     Competition

      After the acquisition of certain subsidiaries of Ryder System, Inc. (Ryder) in 1997, Allied Automotive Group became the largest transporter of new vehicles in the United States and Canada. In the years 1997 through 2001 after the Ryder acquisition, Allied Automotive Group lost market share primarily due to increased non-unionized competition. In 2001, Allied Automotive Group’s market share was also impacted by the decision to close four unprofitable terminal locations. In 2002, Allied Automotive Group’s market share was further affected by its decision to exit substantially all business with Nissan in the United States. In recent months, the Company has implemented customer service measures intended to increase customer retention and has implemented an organic growth strategy to capitalize on changes taking place in the automotive distribution industry.

      Automotive manufacturers are making fundamental changes to their vehicle distribution systems in an effort to increase the speed of delivery of finished vehicles to dealers with a goal of reducing inventory and improving the reliability of delivery, including the use of fourth party logistics companies by automotive manufacturers. An example is the relationship between Ford and Autogistics, Inc., a subsidiary of UPS Logistics, whereby Ford has engaged Autogistics to oversee its delivery network. All Ford vehicles in North America are shipped under the direction of Autogistics. In addition, General Motors has formed Vector SCM, a joint venture with CNF, Inc., which is General Motors’ global lead logistics service provider, and DaimlerChrysler has formed Insight, a joint venture with the Union Pacific Railroad. Management of Allied Automotive Group believes that the formation of these joint ventures will provide it with an opportunity to collaborate more directly with logistics professionals. The Company’s aspiration is to increase market share on the basis of superior customer value propositions, and by differentiating itself from its competitors on the basis of its experienced drivers, effective management, productive and service-driven operations, extensive and flexible distribution network, and superior management of risk, particularly in cargo claims, worker injuries and traffic accidents. The Company also desires to differentiate its service based on the speed and reliability of its execution. However, there can be no assurance that the use of fourth party logistics companies by the automotive manufacturer will not have a negative impact on the Allied Automotive Group.

      Major motor carriers specializing in the delivery of new vehicles that are competitors of the Allied Automotive Group include Leaseway, Jack Cooper, Cassens, Hadley and E & L, all of which utilize union labor, and Swift, Wagoneer and Fleet Car, all of which utilize non-union labor. These companies may be able to provide similar services to those provided by Allied Automotive Group at lower costs. The number of motor carriers, as well as the market share represented by motor carriers, utilizing non-union labor has increased, and

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9.     Employees and Owner Operators

      Subsidiaries of the Company have approximately 6,600 employees, including approximately 4,300 drivers, which are employees of Allied Automotive Group. All employee drivers and shop and yard personnel of Allied Automotive Group are currently represented by various labor unions. The majority of the employees of the operating subsidiaries of Allied Automotive Group are covered by the Master Agreement with the International Brotherhood of Teamsters (IBT) which expires on May 31, 2003. The Master Agreement was entered into in June 1999 and provided for an increase of approximately 3% per year in wage and benefits in excess of the prior contract with the IBT.

      The Master Agreement was entered into by the IBT and various companies, including certain operating subsidiaries of Allied Automotive Group and approximately 13 other unionized car-haul companies as members of the National Automobile Transporters Labor Division (the NATLD). Certain operating subsidiaries of Allied Automotive Group and the 13 other car-haul companies were members of the NATLD at the time of execution of the Master Agreement and authorized the NATLD to negotiate and execute the Master Agreement covering all of the respective terminals and operations of the participants in this multi-employer, multi-union bargaining unit. In December 2001, Allied Automotive Group provided notice of its withdrawal from the NATLD, which took effect on March 22, 2002 in order to establish an opportunity to negotiate on a more direct basis with the IBT. Certain operating subsidiaries of Allied Automotive Group remain subject to the terms of the Master Agreement but are not members of the NATLD.

      Direct negotiations with the IBT for a new agreement officially began on March 3, 2003. The NATLD is also in the process of renegotiating its contract with the IBT. Certain operating subsidiaries of Allied Automotive Group seek in the negotiation to continue their relationship with the IBT on terms that are agreeable to union members and provide the companies with the ability to continue to successfully compete in an industry which has recently had an increase in the amount of business handled by non-union car haul companies. Failure to negotiate a new Master Agreement on such terms could have a material adverse impact on the Company.

      The compensation and benefits paid by Allied Automotive Group to union employees are established by union contracts. There can be no assurance that negotiation of new union contracts as the current contracts expire will not result in increased labor costs to the Company or work stoppages, which could have a material adverse effect on the Company. Subsidiaries of Allied Automotive Group also utilize approximately 600 owner-operators, with approximately 150 of these owner-operators driving exclusively from terminals in Canada for Allied Systems (Canada) Company, a subsidiary of Allied Automotive Group, and approximately 450 driving exclusively from terminals in the United States. The owner-operators are either paid a percentage of the revenues they generate or receive normal driver pay plus a truck allowance.

10.     Regulation

      Certain subsidiaries of the Company are regulated in the United States by the United States Department of Transportation (DOT) and various state agencies, and in Canada by the National Transportation Agency of Canada and various provincial transport boards. Truck and trailer length, height, width, maximum weight capacity and other specifications are regulated federally in the United States, as well as by individual states and provinces. In recent years, the automotive manufacturers have increased the percentage of vehicles that are light trucks and SUV’s as well as increased the size and weight of many vehicles, as a result, and because of the regulations on truck and trailer length, height, width, and maximum weight capacity, the number of vehicles Allied Automotive Group delivers per load has decreased. Allied Automotive Group successfully negotiated rate increases on most of its SUV and light truck business in 1999 to account for this reduction in the number of deliveries per load. Interstate motor carrier operations are subject to safety requirements prescribed by the DOT. The DOT also regulates certain safety features incorporated in the design of Rigs. The motor carrier transportation industry is also subject to regulatory and legislative changes which can affect the

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      In addition, Allied Automotive Group’s terminal operations are subject to environmental laws and regulations enforced by federal, state, provincial, and local agencies, including those related to the treatment, storage and disposal of wastes, and those related to the storage and handling of lubricants. Allied Automotive Group maintains regular ongoing testing programs for those underground storage tanks (USTs) located at its terminals for compliance with environmental laws and regulations.

11.     Revenue Variability

      The Company’s revenues are variable and can be impacted by sudden unexpected changes in original equipment manufacturer (“OEM”), production levels or unanticipated changes in product type or configuration. 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 higher spring and early summer sales of automobiles, light trucks and SUV’s. During the first and third quarters, vehicle shipments typically decline due to lower sales volume during those periods and scheduled plant shutdowns.

12.     Risk Factors

      The Company’s future financial condition and results of operations are subject to a number of risks and uncertainties, including those set forth below and in other sections of this Annual Report on Form 10-K.

     Substantial Leverage

      The Company has consolidated indebtedness which is substantial in relation to its stockholders’ equity. As of December 31, 2002, the Company had total long-term debt of approximately $248.5 million (excluding approximately $129.5 million of trade payables and other accrued liabilities) and stockholders’ equity of approximately $10.3 million. In addition, the Company has additional borrowings available under its revolving credit facility which is discussed in the notes to the Company’s consolidated financial statements included in this Annual Report on Form 10-K. The Company’s leveraged financial position exposes it to the risk of increased interest rates, may impede its ability to obtain financing in the future for working capital, capital expenditures and general corporate purposes, and may make the Company more vulnerable to economic downturns and limit its ability to withstand competitive pressures.

      The Company’s debt instruments contain a number of affirmative, negative, and financial covenants, which limit the ability of the Company to, among other things, incur debt, incur liens, make investments, make dividend or other distributions or enter into a merger or consolidation transaction. As of December 31, 2002, the Company was in compliance with the terms of its various long-term debt covenants. There can be no assurance, however, that the Company will be able to comply with its debt covenants in the future or that, if it fails to do so, it will be able to obtain amendments to or waivers of such covenants on commercially reasonable terms, if at all.

      The Company will need to use a large portion of its future earnings to pay principal and interest on its substantial debt obligations, which will reduce the amount of money available for use in its operations, capital reinvestment, or for responding to potential business opportunities as they arise. The ability of the Company to generate the cash necessary to service its debt is subject to a number of external factors beyond its control, and there can be no assurance that the Company will be able to generate sufficient cash through its operations to enable it to meet its obligations. If the Company does not generate enough cash to enable it to meet its debt obligations, it may be required to take actions such as reducing or delaying capital expenditures, selling assets, restructuring or financing its debt or seeking additional equity capital. There can be no assurance that any of

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      Any failure of the Company to comply with the covenants contained in its debt instruments, if not waived, or to adequately service its debt obligations, could result in a default under its debt instruments. If a default occurs under any of the Company’s debt instruments, the lenders thereunder may elect to declare all borrowings outstanding, together with interest and other fees, to be immediately due and payable. Borrowings under the Company’s credit facility are collateralized with the assets of the Company and certain of its subsidiaries. If the Company were unable to repay any borrowing under its credit facility when due, the lenders thereunder would have the right to proceed against the collateral granted to them to secure the debt. Any default under the Company’s debt instruments, particularly any default that resulted in acceleration of indebtedness or foreclosure on collateral, would have a material adverse effect on the Company.

     Labor Matters

      Certain subsidiaries of the Company, along with certain competitors of the Company, which utilize union labor and are engaged in the car-haul business, are parties to the Master Agreement with the IBT. As a result of being a party to the Master Agreement along with these other entities, the Company may not have exclusive control over issues relating to bargaining with the IBT upon expiration of the Master Agreement. The Master Agreement expires May 31, 2003. Negotiation of a new contract with the IBT has begun and Allied is attempting to negotiate a contract between the Company and the IBT, exclusive of any other car-haul companies utilizing union labor. There can be no assurance that negotiation of a new contract upon expiration of the current Master Agreement will not result in increased labor costs to the Company, or that such contracts can be negotiated without work stoppages, either of which could have a material adverse effect on the Company.

     Increases in Fuel Prices

      Fuel is a major expense incident to the transportation of automotive vehicles, and the cost and availability of fuel are subject to economic and political factors and events, which the Company can neither control nor accurately predict. The current unrest in Venezuela, for example, has significantly increased the Company’s fuel costs. Similarly, the involvement by the United States in an armed conflict in the Middle East may increase fuel prices, which could have a material adverse effect on the Company. The Company attempts to minimize the effect of fuel price fluctuations by periodically purchasing fuel in advance, but there can be no assurance that such activity will effectively manage the Company’s exposure. In addition, the Company has negotiated fuel surcharges with customers representing approximately 64% of the Company’s customers, which enables it to pass on fuel costs to such customers. Nevertheless, the Company’s remaining customers are not subject to a specific fuel surcharge, and there can be no assurance that the Company will be able to continue to impose fuel surcharges on its customers. In addition, the customer fuel surcharges typically reset at the beginning of each quarter based on the fuel prices from the previous quarter. Therefore, there is a one-quarter lag between the time fuel prices change and the adjustment to the fuel surcharge. Higher fuel prices resulting from fuel shortages or other factors could materially and adversely affect the Company if the Company is unable to pass on the full amount of fuel price increases to its customers through fuel surcharges or higher rates. In addition, higher fuel prices, even if passed on to customers, or a shortage of supply, could have a detrimental effect on the automotive transportation industry and the business of the Company in general.

     Dependence on Automotive Industry

      The automotive transportation industry is dependent upon the volume of new automobiles and light trucks manufactured, imported and sold. The automotive industry is highly cyclical, and the demand for new automobiles and light trucks is directly affected by such external factors as general economic conditions in the United States, unemployment, consumer confidence, federal policies, the possibility of war, terrorist activities, and the availability of affordable new car financing. As a result, the Company’s results of operations are adversely affected by cyclical downturns in the general economy or in the automotive industry and by

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     Self Insurance Claims

      An increase in the number or severity of accidents, stolen equipment, or other loss events over those anticipated could have a materially adverse effect on the Company’s profitability as the Company is self-insured for a significant portion of its risks. In addition, the insurance market is contracting and it is becoming increasingly more difficult to obtain insurance coverage. While the Company currently has insurance coverage, there can be no more assurance that the Company will be able to obtain insurance coverage in the future or obtain coverage at competitive premium rates.

     Dependence on Major Customers

      Allied Automotive Group’s business is highly dependent upon General Motors, Ford, DaimlerChrysler, Toyota and Honda, its largest customers. The Company operates under written contracts with General Motors, UPS Autogistics, Inc. on behalf of Ford, DaimlerChrysler, Toyota and Honda. The contracts with UPS Autogistics, DaimlerChrysler and Toyota can be terminated by location for any reason or no reason based on 60 to 150 days’ notice. Although Allied Automotive Group believes that its relationships with these customers is mutually satisfactory, there can be no assurance that these relationships will not be terminated in whole or in part in the future. Furthermore, automotive manufacturers are relying increasingly on fourth party logistics companies and re-engineering vehicle delivery practices, which could result in a reduction of services provided by the Company for some or all of its major customers. A significant reduction in the production by these manufacturers or the loss of General Motors, UPS Autogistics, DaimlerChrysler, Toyota or Honda as a customer, or a significant reduction in the services provided for any of these customers by Allied Automotive Group would have a material adverse effect upon the Company.

     Competition

      The automotive transportation industry is highly competitive, as Allied Automotive Group currently competes with other motor carriers of varying sizes, as well as with railroads. Allied Automotive Group also competes with non-union motor carriers that may be able to provide services at lower cost. The development of new methods for hauling vehicles could also lead to increased competition.

     Foreign Operations

      Although the majority of the Company’s operations are in the United States, the Company derives a portion of its revenues and earnings from operations in foreign countries, primarily Canada. The risks of doing business in foreign countries include potential adverse changes in the political policies of foreign governments and diplomatic relations of foreign countries with the United States, hostility from local populations, adverse effects of currency exchange controls, deterioration of foreign economic conditions, currency fluctuations, foreign exchange restrictions and changes in taxation structure. Due to the foregoing risks, any of which, if realized, could have a material adverse effect on the Company, the Company believes that its business activities outside of the United States involve a higher degree of risk than its domestic activities.

     Dependence on Key Personnel

      The success of the Company is dependent upon its senior management team, as well as its ability to attract and retain qualified personnel. The Company’s credit facility provides that the facility may be terminated in the event Hugh E. Sawyer ceases to be involved in the day to day operation of the Company, unless a successor reasonably acceptable to the lenders is appointed within 90 days of his cessation of

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13.     Industry Overview

      The following table summarizes historic new vehicle production and sales in the United States and Canada, the primary sources of the Company’s revenues:

*	Represents General Motors Corporation, Ford Motor Company and DaimlerChrysler Corporation.

Source: DRI-WEFA

      Domestic automotive manufacturing plants are typically dedicated to manufacturing a particular model or models. Vehicles destined for dealers within a radius of approximately 250 miles from the plant are usually shipped by Rigs. The remaining vehicles are shipped by rail to rail ramps throughout the United States and Canada where trucking companies handle final delivery to dealers. The rail or truck carrier is responsible for loading the vehicles on railcars or trailers and for any damages incurred while the vehicles are in the carrier’s custody. Automobiles manufactured in Europe and Asia are shipped into the United States and Canada and usually are delivered directly to dealers from seaports by truck or shipped by rail to rail ramps and delivered by trucks to dealers. Vehicles transported by ship are normally prepared for delivery in port processing centers, which involves cleaning and may involve installing accessories. The port processor releases the vehicles to the carrier which loads the vehicles and delivers them to a rail ramp or directly to dealers.

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

      This Annual Report on Form 10-K contains, and from time to time the Company and its officers, directors, or employees may make other forward-looking statements, including statements regarding, among

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Item 2.     Properties

      The Company’s executive offices are located in Decatur, Georgia, a suburb of Atlanta. The Company leases approximately 92,000 square feet of space for its executive offices, which the Company believes is sufficient to permit the Company to conduct its operations. The Company operates from 88 terminals throughout the United States and Canada, which are located at or near manufacturing plants, ports, and railway terminals. The Company currently owns 21 of its terminals and leases the remainder of its facilities. Most of the leased facilities are leased on a year to year basis from railroads at rents that are not individually material to the Company.

      During the 1990’s, changes in governmental regulations have gradually permitted the lengthening of Rigs from 55 to 75 feet. Allied Automotive Group has worked closely with manufacturers to develop specialized equipment to meet the specific needs of manufacturers. Allied Automotive Group’s Rigs are substantially maintained at 43 Allied garages located throughout the United States and Canada by approximately 575 Allied maintenance personnel, including supervisors. These shops are located in 21 facilities owned by Allied Automotive Group and 22 facilities leased by Allied Automotive Group. Rigs are scheduled for regular preventive maintenance inspections. Each shop is equipped to handle repairs resulting from inspection or driver write up, including repairs to electrical systems, air conditioners, suspension, hydraulic systems, cooling systems, and minor engine repairs. Major engine overhaul and engine replacement are performed by outside vendors. The trend has been to use engine suppliers’ outlets for engine repairs due to the long-term warranties obtained by Allied Automotive Group.

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Item 3.     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. I 2000/8184. 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-MARRA in the United States District Court for the Southern District of Florida, relates to the Company’s August 1997 stock acquisition of certain businesses formerly owned by Ryder, and the respective responsibilities of Ryder and Allied for certain third-party injury claims associated with the acquired businesses. 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 in its amended complaint, 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 state 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 has filed a motion for summary judgment on all counts, which motion is currently pending. The Company intends to continue its vigorous defense against the claims asserted against it, and 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.

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

      None

Executive Officers of the Registrant

      The following table sets forth certain information regarding the executive officers of the Company and certain of its subsidiaries:

      Mr. Rutland has been Chairman of the Company since 1995, and served as Chairman and Chief Executive Officer of the Company from February 2001 to June 2001. Mr. Rutland served as Chairman from December 1995 to December 1999. Mr. Rutland was the President and Chief Executive Officer of the Company from 1986 to December 1995. Prior to October 1993, Mr. Rutland was Chief Executive Officer of each of the Company’s subsidiaries.

      Mr. Sawyer has been President and Chief Executive Officer of the Company since June 2001. Mr. Sawyer served as President and Chief Executive Officer of Aegis Communications Corp. from April 2000 to June 2001. Mr. Sawyer served briefly as President of Allied Automotive Group, Inc., a subsidiary of the Company, from January 2000 to April 2000. Mr. Sawyer was President and Chief Executive Officer of National Linen Service, a subsidiary of National Service Industries, Inc. from 1996 to 2000, and President of Wells Fargo Armored Service Corp., a subsidiary of Borg-Warner Corp., from 1988 to 1995.

      Guy W. Rutland IV has been Senior Vice President of Chaplaincy and Performance Management since July 2001. Mr. Rutland was Executive Vice President and Chief Operating Officer of Allied Automotive Group from February 2001 to July 2001. Mr. Rutland was Senior Vice President — Operations of Allied Automotive Group from November 1997 to February 2001. Mr. Rutland was Vice President — Reengineering Core Team of Allied Automotive Group from November 1996 to November 1997. From January 1996 to November 1996, Mr. Rutland was Assistant Vice President of the Central and Southeast Region of Operations for Allied Systems, Ltd. From March 1995 to January 1996, Mr. Rutland was Assistant Vice President of the Central Division of Operations for Allied Systems, Ltd. From June 1994 to March 1995, Mr. Rutland was Assistant Vice President of the Eastern Division of Operations for Allied Systems, Ltd. From 1993 to June 1994 Mr. Rutland was assigned to special projects with an assignment in Industrial Relations/Labor Department and from 1988 to 1993, Mr. Rutland was Director of Performance Management.

      Mr. Popky has been Senior Vice President and Chief Financial Officer of the Company since November 1998. He was appointed President of Allied Industries, Inc. in December 1997 and served in such capacity until Allied Industries was merged with Allied Automotive Group in September 2000. Mr. Popky was Senior Vice President, Finance of the Company from December 1997 to November 1998. From December 1995 to December 1997, Mr. Popky was Vice President, Finance of the Company. From January 1995 to December 1995 Mr. Popky was Vice President and Controller and from October 1994 to January 1995 he was Assistant Vice President and Controller for the Company. Prior to joining the Company, Mr. Popky held various positions with Arthur Andersen LLP for 9 years.

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      Mr. Duffy has been Senior Vice President, General Counsel and Secretary of the Company since November 2000 and was Vice President, General Counsel and Secretary from June 1998 until November 2000. From May 1997 to June 1998, Mr. Duffy was a partner with the law firm of Troutman Sanders LLP. Prior to May 1997, Mr. Duffy was a partner with the law firm of Peterson Dillard Young Asselin & Powell LLP.

      Mr. Rawden has been Senior Vice President, Business Process Engineering of the Company since March 2002. Mr. Rawden previously served as a Principal with Jay Alix & Associates in their Turnaround and Crisis Management business unit from November 1990 to March 2002. Mr. Rawden has over eleven years experience in successful turnarounds in a wide variety of industries.

PART II

Item 5.     Market for the Registrant’s Common Equity and Related Stockholder Matters

      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 listed on the New York Stock Exchange (“NYSE”) from March 3, 1998 until the change to the AMEX. The common stock began trading on September 29, 1993 on the Nasdaq Stock Market until March 3, 1998. Prior to September 29, 1993, there had been no established public trading market for the common stock.

      As previously announced, the Company no longer met the NYSE’s requirements for continued listing and 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 the 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.

      The following table sets forth the high and low per share sales price of the Company’s common stock for the periods indicated, as reported by the NYSE until April 7, 2002, and as reported by the AMEX from April 8, 2002.

      As of March 3, 2003, there were approximately 2,500 holders of record of the Company’s common stock. The Company has paid no cash dividends in the last two years.

      The Company is a party to a credit facility with a syndicate of lenders, as well as certain 8 5/8% Senior Notes maturing in 2007, each of which contains covenants restricting the payment of dividends on the Company’s common stock. See “Item 7 — Management’s Discussions and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

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      Equity Compensation Plan Information:

(1)	Consists of the Company’s 1993 Long-Term Incentive Plan as adopted in 1993, amended in 2000 and amended and restated in 2001. For a description of the Company’s equity compensation plan, see note 18 of the Company’s consolidated financial statements included in this Annual Report on Form 10-K.
(2)	Includes the Company’s Employee Stock Purchase Plan, which has 144,768 shares available for future issuance.

      The selected consolidated financial data presented below for each of the five years in the period ended December 31, 2002 are derived from the Company’s Consolidated Financial Statements. The Consolidated Financial Statements for each of the four years in the period ended December 31, 2001 have been audited by Arthur Andersen LLP, independent public accountants. The Consolidated Financial Statements for the year ended December 31, 2002 have been audited by KPMG LLP. The selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and notes thereto.

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*	Adjusted EBITDA includes earnings before interest, taxes, depreciation and amortization and gains and losses on disposal of assets.

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Results of Operations

      The Company, through its subsidiaries, generates revenues providing services to the automotive industry. Allied Automotive Group is the largest motor carrier in North America specializing in the transportation of new automobiles, light trucks and SUV’s for all of the major domestic and foreign automotive manufacturers. Revenues increased $1.3 million in 2002 to $898.1 million from $896.8 million in 2001, and the net loss was reduced to $7.5 million in 2002 from $39.5 million in 2001. The significant reduction in the net loss was due to the execution of the Company’s turnaround initiatives related to increased pricing, improved revenue quality, productivity and the continued elimination of non-contributing expenses and assets.

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

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     2002 Compared to 2001

      Revenues were $898.1 million in 2002 versus revenues of $896.8 in 2001, an increase of $1.3 million, or 0.1%. The Company recorded a net loss of $7.5 million in 2002 compared to a net loss of $39.5 million in 2001, an improvement of $32.0 million, or 81.0%. Basic and diluted loss per share for 2002 was $0.91, versus basic and diluted loss per share of $4.86 in 2001.

      The increase in revenues was primarily the result of the price increase implemented in the fall of 2001, which was partially offset by a decline in the number of vehicles delivered. Revenue per vehicle delivered increased from $90.14 in 2001 to $92.41 in 2002, a 2.5% increase. Total vehicle deliveries declined by 2.5% in 2002 versus 2001 while new vehicle production in the United States and Canada increased 6.6%. Allied Automotive Group vehicle deliveries declined versus an increase in production primarily due to the closing of unprofitable terminal locations by the Company in 2001 and in 2002, combined with a drop in market share. During the fourth quarter of 2002, Allied Automotive Group reached a strategic decision to exit substantially all business with Nissan in the United States. Allied Automotive Group’s Nissan business in the United States generated approximately $25.0 million in revenues during 2002. Allied Automotive Group confirmed that Nissan would have required rate reductions in 2003 and Allied Automotive Group was not prepared to grant price concessions. These declines were offset by organic growth within the Allied Automotive Group as a result of aggressively pursuing profitable business in those locations considered to optimize its network of terminals and fleet operations.

      During the first quarter of 2003, the Company amended its Credit Facility agreement to adjust two financial covenants: the minimum consolidated EBITDA covenant as defined in the Credit Facility, (“Covenant EBITDA”), and the maximum fixed charges coverage ratio. These financial covenants were amended by the Company and its lenders due to the potential adverse financial impact from external factors in 2003 including, but not limited to, general economic conditions in the United States, consumer confidence and the war with Iraq. See additional discussion of the terms and conditions of the amendment to the Credit Facility under the caption “Financial Condition, Liquidity and Capital Resources” of this section.

      The net loss for 2002 included a $1.7 million after-tax gain on the early extinguishment of the Company’s subordinated notes and a $4.1 million 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.

      For 2002, adjusted EBITDA was $76.6 million versus $19.9 million for 2001. The significant improvement in adjusted EBITDA was due primarily to the ongoing execution of the Company’s turnaround initiatives related to improved revenue quality, driver productivity, workforce reductions, the elimination of non-contributory expenses and assets, reductions in traffic accidents, and improvement in workers compensation claims and cargo claims expenses.

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

      Salaries, wages and fringe benefits decreased from 57.5% of revenues in 2001 to 53.9% of revenues in 2002. The decrease was due primarily to continued productivity and efficiency improvements implemented as part of the Company’s turnaround initiatives. These productivity and efficiency improvements included a better day-to-day management of the Company’s labor needs for drivers. The Master Agreement with the IBT allows for temporary layoffs of the driver workforce based on driver requirements. Failure to negotiate a new Master Agreement with the IBT upon the May 31, 2003 expiration of the current agreement without a work stoppage or without material increases in labor costs could have a material adverse effect on the Company. In addition, the Company incurred $9.2 million of workforce reduction expenses in 2001 compared to $2.3 million of such expenses in 2002. The workforce reduction expense was part of the Company’s turnaround initiatives.

      In connection with the driver workforce, on March 24, 2003 the Company successfully negotiated the renewal of its contract with its employees represented by the Teamsters Union in Eastern Canada. Allied Systems (Canada) Company and the Teamsters Union in Eastern Canada have been operating under a contract that expired on October 31, 2002. The new contract, which was ratified by the Teamsters in Eastern

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      Economic provisions of the new agreement include a wage freeze for the first two years of the agreement and a freeze on the current health and welfare contributions of Allied Systems (Canada) Company during the three-year term of the agreement. Allied Systems (Canada) Company has also agreed to increase pension contributions in each year of the agreement and to increase wages two percent effective November 1, 2004 and an additional one percent effective May 1, 2005. The additional pension contributions will increase costs approximately $100,000 or 0.2 percent in year one of the agreement, and approximately $280,000 or 0.6 percent in year two of the agreement. The wage and pension increases in year three of the agreement will increase costs approximately $1.6 million or 3.2 percent of costs. As noted previously, the Company’s Master Agreement with the IBT in the United States expires on May 31, 2003. In the event that the IBT and the Company negotiate a new agreement and agree to wage increases in the first two years of a new contract, the Company’s new agreement in Canada also provides that the wages in each of the first two years will be increased by an amount equivalent to the negotiated percentage increases in the United States.

      Operating supplies and expenses decreased from 16.6% of revenues in 2001 to 15.5% of revenues in 2002. The decrease was due primarily to a reduction in the maintenance costs of Rigs in service. The decreased maintenance costs are a result of the Company operating approximately 8.0% fewer Rigs in 2002 as well as improved efficiency in its field operations, including 46 dedicated garage operations managed by the Company. These efforts are consistent with the Company’s turnaround initiatives.

      Purchased transportation increased from 10.9% of revenues in 2001 to 11.0% of revenues in 2002. The increase in 2002 over 2001 was due primarily to a shift in the mix of owner-operators versus company drivers and an increase in business at locations where owner-operators are utilized for vehicle deliveries. All costs for owner operators are included in purchased transportation expense.

      Insurance and claims expense decreased from 5.7% of revenues in 2001 to 4.9% of revenues in 2002. The decrease was primarily a result of lower cargo claims experienced on shipping vehicles as well as a reduction in auto liability claims costs. The number of vehicles damaged in transit declined approximately 15% in 2002 versus 2001 and the number of traffic accidents per million miles driven declined approximately 30.1% in 2002 versus 2001. The Company is aggressively managing these costs as part of its on-going turnaround initiatives.

      Depreciation and amortization expense decreased from 6.7% of revenues in 2001 to 6.1% of revenues in 2002. The decrease is due primarily to the sale of non-performing assets during 2001 and lower capital spending in 2001 and 2002 compared to depreciation expense. The Company has instituted a Rig manufacturing program to remanufacture existing owned Rigs rather than purchasing new Rigs. Remanufacturing existing Rigs requires less capital spending than purchasing new Rigs. The first phase of the program began in 2002 and is expected to continue through 2004 at an approximate total capital investment of $75 to $85 million for the remanufacturing of approximately 1,500 Rigs over the three-year period. As of December 31, 2002 approximately 350 Rigs were remanufactured and approximately 350 engines were replaced in tractors. The remaining decrease is due 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 2001, the Company recorded $3.5 million of amortization expense related to goodwill. The overall decrease in depreciation and amortization was offset by a charge of $2.1 million to accelerate the depreciation on Rigs that were recently idled.

      Other operating expenses decreased from 1.8% of revenues in 2001 to 1.1% of revenues in 2002. The decrease was due primarily to lower professional fees for consultants. During 2001, the Company engaged outside consultants, including Jay Alix & Associates, to aid in the planning and analysis of its turnaround initiatives and the refinancing of its revolving credit facility and subordinated debt, which was completed in 2002.

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      Gain/loss on disposition of assets decreased from a gain of $2.7 million in 2001 to a loss of $748,000 in 2002. As part of the Company’s turnaround initiatives, the Company has disposed of non-performing assets. The asset sales in 2001 generated $11.8 million of cash proceeds versus proceeds of $4.7 million in 2002.

      Equity in earnings of joint ventures, net of tax, decreased from $4.1 million in 2001 to $0 in 2002. The decrease is due to the sale of the Company’s joint venture interest in the United Kingdom in the fourth quarter of 2001 and the sale of its joint venture interest in Brazil in the second quarter of 2002. There were no equity in earnings or losses from the Brazilian joint venture in 2002.

      Interest expense decreased from 4.3% of revenues in 2001 to 3.4% of revenues in 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 income tax benefit decreased from $21.3 million in 2001 to $1.1 million in 2002. The decrease was due primarily to a decrease in the pre-tax loss from $60.8 million in 2001 to $4.6 million in 2002.

      The adoption of SFAS No. 142 is a required change in accounting principles, 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 ceased amortizing goodwill and annually tests goodwill for impairment. In 2001, the Company recorded $3.5 million of amortization expense related to goodwill.

      The adoption of SFAS No. 145 required that the after-tax gain of $1.7 million on the early extinguishment of debt the Company recorded during the first quarter of 2002 to be reclassified from an extraordinary item, net of tax, to other income of $2.8 million, before tax.

      As part of the Company’s turnaround efforts in the first quarter of 2002, the Allied Holdings Inc. Defined Benefit Pension Plan, (“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 employees 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’s net pension expense was $390,000 for 2002.

     2001 Compared to 2000

      Revenues were $896.8 million in 2001 compared to $1.07 billion in 2000, a decrease of $172 million, or 16%. The Company posted a net loss in 2001 of $39.5 million compared to net loss of $6.3 million in 2000. Basic and diluted loss per share for 2001 was $4.86, versus basic and diluted loss per share of $0.79 in 2000. The operating ratio (operating expenses as a percentage of revenues) for 2001 was 104.5% compared to 98.8% in 2000.

      The decrease in revenues was primarily the result of a decline in the number of vehicles delivered due to a decrease in new vehicle production and sales by the auto manufacturers. Total vehicle deliveries dropped 17% in 2001 versus 2000 while new vehicle production in the United States and Canada declined 11%. Allied Automotive Group’s vehicle deliveries declined more than the production drop primarily due to the closing of unprofitable terminal locations together with a drop in market share primarily from increased nonunionized competition. Offsetting the revenue decline from lower delivery volumes was an increase in the revenue generated per vehicle delivered from $92.06 in 2000 to $93.12 in 2001, a 1.2% increase. This increase is primarily the result of the implementation by the Company of a new administrative processing fee. Included in the results for 2001 are $9.2 million of workforce reduction expenses related to the elimination of positions at the Company’s corporate office as well as at unprofitable terminal locations.

      During the fourth quarter of 2001, the Company posted significantly improved results with net loss decreasing from $7.5 million in the fourth quarter of 2000 to a net loss of $2.3 million in the fourth quarter of 2001. During the fourth quarter of 2001, the Company benefited from the execution of turnaround initiatives that raised prices, eliminated noncontributory expenses and assets, closed nonperforming locations, and better managed cash. Results during the fourth quarter of 2001 included unusual charges of $4.5 million related to

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

      Salaries, wages and fringe benefits increased from 54.7% of revenues in 2000 to 57.5% of revenues in 2001. The increase was primarily due to inefficiencies resulting from the volume decline, which was offset by continued productivity and subsequent efficiency improvements implemented by the Company’s turnaround initiatives. In addition, the Company incurred $9.2 million of workforce reduction expenses in 2001 compared to $2.5 million in 2000.

      Operating supplies and expenses decreased from 17.7% of revenues in 2000 to 16.6% of revenues in 2001. The decrease was due primarily to a decrease in fuel costs experienced during 2001. In addition, Allied Automotive Group experienced a full year of negotiated fuel surcharges designed to offset higher fuel prices than anticipated when contracts were negotiated. The surcharges were only in place for the last three-quarters of 2000 and Allied Automotive Group estimated that higher fuel costs, net of the surcharges, reduced 2000 first quarter earnings by approximately $1.6 million.

      Purchased transportation increased from 9.8% of revenues in 2000 to 10.9% of revenues in 2001. The increase was due primarily to the increase in the mix of loads hauled by owner-operators versus company drivers. All costs for owner-operators are included in purchased transportation expense. Owner-operators generally have more seniority than company drivers so as volumes decline, a greater percentage of company trucks are idled as lay-offs are based on seniority.

      Insurance and claims increased from 4.5% of revenues in 2000 to 5.7% of revenues in 2001. The increase was due to higher than expected cargo claims on shipped vehicles. Allied Automotive Group is aggressively managing its cargo claims as a result of its turnaround plan.

      Depreciation and amortization increased from 5.7% of revenues in 2000 to 6.7% of revenues in 2001. The increase was primarily due to the reduction in revenues as a result of the volume decline experienced in 2001. Depreciation and amortization was $60.4 million in 2001, slightly less than the $60.9 million of depreciation and amortization in 2000.

      Other operating expenses increased from 1.2% of revenues in 2000 to 1.8% of revenues in 2001. The increase was primarily the result of higher legal and professional fees related to the Company’s turnaround efforts. The Company engaged the services of a specialized turnaround consulting firm, Jay Alix & Associates from June 2001 until March 2002.

      Equity in earnings of joint ventures, net of tax, decreased by $1.0 million in 2001, from $5.1 million in 2000 to $4.1 million in 2001. The decrease was due to lower earnings from Axis Group’s joint ventures in the United Kingdom which were sold during the fourth quarter of 2001.

      Axis Group completed the sale of its joint ventures in the United Kingdom during December 2001 to AutoLogic Holdings, plc for approximately $20.5 million in cash. As a result of the sale the Company recorded a gain on the sale of the joint ventures of $16.2 million.

      In addition, the Company recorded an impairment charge of $10.0 million on Axis Group’s interest in the Brazilian joint venture. Axis Group sold its investment in the joint venture in Brazil for $3.0 million during the second quarter of 2002.

      Interest expense increased from $33.8 million, or 3.2% of revenues, in 2000 to $37.6 million, or 4.2% of revenues, in 2001. The increase was primarily due to higher interest rates on the Company’s revolving credit facility and subordinated notes and additional fees incurred as a result of amendments to the Company’s revolving credit facility in April 2001.

      Interest income decreased from 0.5% of revenues in 2000 to 0.4% of revenues in 2001, or from $5.5 million in 2000, to $3.9 million in 2001. The decrease was due to lower investment income from the Company’s captive insurance subsidiary Haul Insurance Limited.

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      During 2001, Allied Automotive Group closed certain terminal locations as a part of its turnaround initiative plan. As a result, the Company disposed of certain properties associated with the closings together with other surplus real estate and recorded $3.9 million of gains on the sale of these properties. During 2000, Allied Automotive Group disposed of some of its older Rigs, which resulted in write-downs of approximately $1.3 million. These items are included in other expense, net in the Company’s financial statements.

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 remanufacturing 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 $58.5 million for 2002, versus $28.0 million for 2001. The increase was due primarily to improved results from operations that decreased the loss before income taxes and cumulative change in accounting principle of $39.5 million for 2001 to $3.4 million for 2002. In addition, short-term investments held by the Company’s captive insurance company increased by $4.9 million in 2001, but decreased by $4.0 million in 2002. During 2002, the Company’s captive insurance company maintained a larger percentage of its assets in cash and cash equivalents versus short-term investments.

      Net cash used in investing activities totaled $11.4 million in 2002, versus net cash provided by investing activities of $19.4 million for 2001. The change is due primarily to the receipt of $20.6 million for the sale of the Company’s joint venture in the United Kingdom in 2001 and cash received prior to the sale of $8.6 million. Cash received from the sale of property and equipment decreased from $11.8 million in 2001 to $4.7 million in 2002, which is due primarily to the sale of excess real estate and non-performing assets in 2001.

      Net cash used in financing activities totaled $47.5 million in 2002, versus $39.9 million in 2001. During 2002 long-term debt was reduced by $40.7 million, compared to $35.8 million in 2001. The repayment of debt was due primarily to a reduction in the net loss experienced by the Company and lower working capital requirements. Contributing to the increase in cash provided by operations were the proceeds from the sale of the investment in the joint venture in the United Kingdom and Brazil as well as cash received from the conversion of certain insurance policies. The Company also paid $9.2 million in deferred financing costs related to the refinancing of its revolving credit facility and the repurchase of its senior subordinated notes in 2002, versus $3.6 million paid in 2001.

      On February 25, 2002, the Company refinanced its revolving credit facility and $40 million 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 million of senior subordinated notes for $37.25 million. 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 agreement. The interest rate for the Revolver is based upon the prime rate plus 1.5% or LIBOR plus 4.5% with a minimum interest rate of 6.5%. Annual commitment fees are due on the undrawn portion of the commitment. At December 31, 2002, $24.6 million was outstanding under the Revolver, and approximately $19 million was committed under letters of credit. As of December 31, 2002, the Company had approximately $48.4 million available under the Revolver. The Revolver matures on February 25, 2005.

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      The Credit Facility contains four loans with the following terms:

      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 6.50%. The interest rate on Term Loan B includes interest paid in kind of 3.50% that will be payable upon maturity. The minimum interest for Term Loan B is 11.50%. Term Loan C is payable in full at maturity with interest payable monthly based upon the prime rate plus 9.00%. The interest rate on Term Loan C also includes interest paid in kind of 5.00% that will be payable upon maturity. The minimum interest for Term Loan C is 14.00%. Term Loan D is payable in full at maturity with interest payable quarterly based upon the prime rate plus 3.50%. In addition, the Company currently has outstanding indebtedness of $150 million under a series of 8 5/8% Senior Notes maturing in 2007.

      Giving effect to the scheduled maturities under the Credit Facility and the Senior Notes, future maturities of long-term debt for the Company as of December 31, 2002 are as follows (in thousands):

      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, sell assets, or declare or pay any dividends on its capital stock. The financial covenants require the Company to maintain minimum consolidated earnings before interest, taxes, depreciation and amortization and also includes leverage and fixed charge coverage ratios. During the first quarter of 2003, the Company amended its Credit Facility agreement to adjust two financial covenants: the minimum consolidated Covenant EBITDA and the maximum fixed charges coverage ratio. Prior to the amendment, the minimum consolidated Covenant EBITDA increased from $60 million at December 31, 2002 to $70 million at December 31, 2003. The minimum consolidated Covenant EBITDA is tested monthly and the increases were at varying amounts each month. The amendment reduced the increases and the minimum consolidated Covenant EBITDA from $70 million to $65 million. Therefore, the minimum consolidated Covenant EBITDA will now increase from $60 million at December 31, 2002 to $65 million at December 31, 2003. In addition, the fixed charges coverage ratio covenant was amended based on the reduction in the Covenant EBITDA. The financial covenants were amended by the Company and its lenders due to the potential adverse financial impact from external factors in 2003 including, but not limited to, the war with Iraq and higher fuel prices.

      There can be no assurance that the Company will be able to comply with these 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 a 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.

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      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.

      Management anticipates that the Company will provide sufficient resources to fund operations, including capital expenditure requirements and debt service through at least 2003. Also, as described further in Part II of this report, the Company is currently negotiating a new Master Agreement with the IBT regarding its union employees in the United States and is involved in various litigation matters, including the Gateway Development & Manufacturing case and the Commercial Carriers, Inc. case. While it is not possible to predict the outcome of the negotiations with the IBT or the litigation against the Company and while the Company believes that these claims are without merit, if the negotiations with the IBT or the 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 and significantly increase the Company’s need for additional liquidity.

      In addition to its debt obligations, the Company leases equipment, office space, computer equipment, and certain terminal facilities under noncancelable operating lease agreements, which expire in various years through 2007, and leases certain terminal facilities under month-to-month leases. The Company’s minimal rental commitments, net of sub-lease income, for 2003 totals approximately $10.3 million.

     Disclosures About Market Risks

      The market risk inherent in the Company’s market risk sensitive instruments and positions are the potential loss arising from adverse changes in investment prices, interest rates, fuel prices, and foreign currency exchange rates.

     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 December 31, 2002, which are recorded at fair value of $60.7 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 $6.1 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 $984,000 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, and 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. A 10% increase in diesel fuel prices would reduce pre-tax income by $3.9 million over the next fiscal year assuming 2002 levels of fuel consumption. Fuel prices in the first quarter of 2003 are approximately 20% higher than fuel prices in the fourth quarter of 2002.

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     Self Insurance Claims

      An increase in the number or severity of accidents, stolen equipment, or other loss events over those anticipated could have a materially adverse effect on the Company’s profitability as the Company is self-insured for a significant portion of its risks. In addition, the insurance market is contracting and it is becoming increasingly more difficult to obtain insurance coverage. While the Company currently has insurance coverage, there can be no more assurance that the Company will be able to obtain insurance coverage in the future.

     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 year-end exchange rates at December 31, 2002, is $65.4 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 $6.5 million. At December 31, 2002 a payable balance of $11.7 million related to intercompany transactions was recorded on the Company’s Canadian subsidiary. The potential loss from a hypothetical 10% change in quoted foreign currency exchange rates related to this balance amounts to $1.2 million as of December 31, 2002. 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 OEM 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 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 rising fuel costs discussed herein, inflation has not significantly affected the Company’s results of operations.

     Contractual Obligations

      Long-term contractual obligations, other than long-term debt obligations, are not recorded in the Company’s consolidated balance sheet. The table below sets forth the Company’s contractual obligations (in thousands):

*	In April 2001, the Company entered into a five-year commitment with IBM to provide its mainframe computer processing services. The agreement includes outsourcing at determinable prices defined within the agreement.

     Critical Accounting Policies

      The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make decisions based upon estimates, assumptions, and factors it considers as relevant to the circumstances. Such decisions include the selection of applicable

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      A summary of the significant accounting policies followed in preparation of the financial statements is contained in Note 2 of the financial statements attached hereto. Other footnotes describe various elements of the financial statements and the assumptions on which specific amounts were determined.

      The Company’s critical accounting policies include the following:

      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 for self-insured workers compensation and automobile liability are discounted using management’s estimate of weighted risk free interest rates for each claim year to their present values. 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 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. In addition, 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.

      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 depreciation expense, 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 tax 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 $7.1 million as of December 31, 2002 due to uncertainties related to the Company’s ability to utilize some of the deferred tax assets, primarily consisting of certain capital 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 December 31, 2002 was $12.1 million, net of a valuation allowance of $7.1 million.

      PROPERTY AND EQUIPMENT — The Company operates approximately 3,800 company-owned Rigs, “revenue equipment,” in connection with its business. Property and equipment, including revenue equipment, are stated at cost and depreciated using the straight-line method over the estimated useful life down to estimated salvage value. The actual life, if different than estimated, could have an impact on depreciation expense in the Company’s consolidated statements of operations.

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      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.

     Recent Accounting Pronouncements

      In June 2001, FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires the Company to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development, and/or normal use of the assets. The Company also records a corresponding asset that is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation will be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The Company is required to adopt SFAS No. 143 on January 1, 2003. The adoption of SFAS No. 143 is not expected to have a material effect on the financial position or results of operations of the Company as of the date of 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 SFAS No. 146, Accounting for Cost 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 effect on the financial position or results of operations of the Company as of the date of adoption.

      In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34. This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The Interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the Interpretation are applicable to guarantees issued or modified after December 31, 2002 and are not expected to have a material effect on the financial position or results of operations of the Company. The disclosure requirements, which are effective for financial statements of annual periods ending after December 15, 2002 have been implemented and had no impact on these financial statements

      In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement No. 123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement No. 123 to require prominent

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      The information required under this item is provided under the caption “Disclosures about Market Risks” under Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

      Financial statements and supplementary data are set forth beginning on page F-1 of this Report.