10-Q 1 d10q.txt FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (MARK) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED SEPTEMBER 30, 2002 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to ____________ Commission File Number 000-24019 United Road Services, Inc. -------------------------- (Exact name of registrant as specified in its charter) Delaware 94-3278455 --------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 17 Computer Drive West Albany, New York 12205 ---------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (518) 446-0140 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes X No ___ --- As of November 14, 2002, the registrant had 2,086,475 shares of common stock issued and outstanding. ================================================================================ UNITED ROAD SERVICES, INC. AND SUBSIDIARIES Form 10-Q For The Three and Nine Months Ended September 30, 2002 Index Page Part I. - Financial Information Item 1 Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001 3 Condensed Consolidated Statements of Operations For the Three and Nine Months Ended September 30, 2002 and September 30, 2001 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and September 30, 2001 5 Notes to Condensed Consolidated Financial Statements 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3 Quantitative and Qualitative Disclosures about Market Risk 21 Item 4 Controls and Procedures 21 Part II. - Other Information Item 2 Changes in Securities and Use of Proceeds 22 Item 3 Default upon Senior Securities 22 Item 6 Exhibits and Reports on Form 8-K 22 Signatures 23 Page 2 UNITED ROAD SERVICES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts and per share data)

See accompanying notes to condensed consolidated financial statements. Page 3 UNITED ROAD SERVICES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share amounts) (Unaudited)

See accompanying notes to condensed consolidated financial statements. Page 4 UNITED ROAD SERVICES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)

(continued) Page 5 UNITED ROAD SERVICES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued (In thousands) (Unaudited)

See accompanying notes to condensed consolidated financial statements. Page 6 UNITED ROAD SERVICES, INC. Notes to Condensed Consolidated Financial Statements (In thousands, except share and per share data) (Unaudited) (1) Summary of Significant Accounting Policies (a) Interim Financial Statements The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures, normally included in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to those rules and regulations, although United Road Services, Inc. (the "Company") believes that the disclosures made are adequate to make the information presented not misleading. In the opinion of management, all adjustments necessary to fairly present the Company's financial position, results of operations and cash flows have been included. The results of operations for the interim periods are not necessarily indicative of the results for the entire fiscal year. It is suggested that these condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001, as filed with the SEC. (b) Organization and Business The Company operates in two reportable operating segments: (1) transport and (2) towing. The transport segment provides transport services to a broad range of customers in the new and used vehicle markets. Revenue from transport services is derived according to pre-set rates based on mileage or a flat fee. Customers include automobile manufacturers, leasing and insurance companies, automobile auction companies, automobile dealers and individual motorists. The towing segment provides towing, impounding, repossession and storing services, and performs lien sales and auctions of abandoned vehicles. In addition, the towing segment provides recovery and relocation services for heavy-duty commercial vehicles and construction equipment. Revenue from towing services is principally derived from rates based on distance, time or fixed charges, and any related impound and storage fees. Customers of the towing division include automobile dealers, finance companies, repair shops and fleet operators, law enforcement agencies, municipalities and individual motorists. (c) Basis of Presentation The accompanying condensed consolidated financial statements include the accounts of the Company and its subsidiaries. The results of operations of acquired companies have been included in the Company's results of operations from their respective acquisition dates. All significant intercompany transactions have been eliminated in consolidation. (d) Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates. (e) Share and Per Share Amounts Basic earnings per share excludes dilution and is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock (such as stock options Page 7 UNITED ROAD SERVICES, INC. Notes to Condensed Consolidated Financial Statements (In thousands, except share and per share data) (Unaudited) and warrants) were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The effect of options, warrants and convertible preferred stock have been excluded at September 30, 2002 and 2001, as the effect would be antidilutive. Additionally, shares issuable upon conversion of the convertible subordinated Debentures have been excluded at September 30, 2002 and 2001, as the effect would be antidilutive due to the adjustment (decrease in net loss) for interest expense. At September 30, 2002, the Company had outstanding preferred stock convertible into 6,221,190 shares of common stock, stock options exercisable to purchase 290,438 shares of common stock, warrants exercisable to purchase 48,019 shares of common stock and subordinated Debentures convertible into 670,587 shares of common stock. At September 30, 2001, the Company had outstanding preferred stock convertible into 6,221,190 shares of common stock, stock options exercisable to purchase 306,413 shares of common stock, warrants exercisable to purchase 48,008 shares of common stock and subordinated Debentures convertible into 619,520 shares of common stock. (f) Goodwill Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets". Under the provisions of SFAS No. 142, goodwill and intangible assets with indefinite useful lives are no longer amortized. Rather, goodwill and intangible assets with indefinite useful lives are subject to a periodic impairment test. If the carrying value of goodwill or an intangible asset exceeds its fair value, an impairment loss shall be recognized. A discounted cash flow model based upon the Company's weighted average cost of capital was used to determine the fair value of the Company's reporting units for purposes of testing goodwill for impairment. SFAS No. 142 defines a reporting unit as a business for which discrete financial information is available which management regularly reviews and has economic characteristics that differentiate it from other components of the Company. The Company has determined the reporting units within the towing operating segment to be each individual division and within the transport operating segment to be the new vehicle, used vehicle, combined new/used vehicle, and specialty vehicle transport businesses. Upon adoption of SFAS No. 142, the Company recorded an impairment loss of $43,364 ($25,354 relating to the transport operating segment and $18,010 relating to the towing operating segment) as the cumulative effect of a change in accounting principle. This impairment primarily resulted from a change in the criteria for the measurement of impairment from an undiscounted to a discounted cash flow method and the classification on a reporting unit basis. The following table presents reported net loss and loss per share adjusted for the goodwill impairment for the three and nine months ended September 30, 2002 and 2001.

Page 8 UNITED ROAD SERVICES, INC. Notes to Condensed Consolidated Financial Statements (In thousands, except share and per share data) (Unaudited)

(g) Impact of Recently Issued Accounting Standards In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement Obligations", which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) normal use of the asset. Other than vehicles and equipment, the Company does not maintain significant tangible long-lived assets. Therefore, management does not anticipate that the adoption of SFAS No. 143 will have a material financial impact on the Company's consolidated financial statements. The Company will continue to evaluate this conclusion. In July 2002, FASB issued SFAS No. 146, "Accounting for Cost Associated with Exit or Disposal Activities". The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. FASB No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company is evaluating SFAS No. 146 and has not made a determination as to its impact on the Company's consolidated financial statements. (h) Reclassifications Certain reclassifications of the prior year's condensed consolidated financial statements have been made to conform to the current year presentation. (2) Debt In July 2000, the Company and its subsidiaries entered into a senior secured revolving credit facility (the "GE Capital Credit Facility") with a group of banks led by General Electric Capital Corporation ("GE Capital"). The GE Capital Credit Facility has a term of five years. In September 2002, as provided in the GE Capital Credit Facility, the Company exercised the option to reduce the amount of maximum borrowing capacity under the GE Capital Credit Facility from $100,000 to $75,000. The facility includes a letter of credit sub-facility of up to $15,000. The Company's borrowing capacity under the GE Capital Credit Facility is limited to the sum of (i) 85% of the Company's eligible accounts receivable, (ii) 80% of the net orderly liquidation value of the Company's existing vehicles for which GE Capital has received title certificates and other requested documentation, (iii) 85% of the lesser of the actual purchase price or the invoiced purchase Page 9 UNITED ROAD SERVICES, INC. Notes to Condensed Consolidated Financial Statements (In thousands, except share and per share data) (Unaudited) price of new vehicles purchased by the Company for which GE Capital has received title certificates and other requested documentation, and (iv) either 60% of the purchase price or 80% of the net orderly liquidation value of used vehicles purchased by the Company for which GE Capital has received title certificates and other requested documentation, depending upon whether an appraisal of such vehicles has been performed, in each case less reserves. The amount of borrowing capacity based on vehicles amortizes quarterly on a straight line basis over a period of 5 to 7 years. As of September 30, 2002, $34,982 was outstanding under the GE Capital Credit Facility, excluding letters of credit of $13,758, and an additional $6,436 was available for borrowing. The GE Capital Credit Facility requires the Company, among other things, to comply with certain financial covenants, including minimum levels of earnings before interest, taxes, depreciation and amortization ("EBITDA"), minimum ratios of EBITDA to fixed charges and minimum levels of liquidity. In October 2002, the Company notified GE Capital that the Company had failed to meet the minimum level of EBITDA and minimum ratio of EBITDA to fixed charges for the nine months ended September 30, 2002. On November 13, 2002, the Company entered into an amendment to the GE Capital Credit Facility under which the banks waived the financial covenant violations. If the Company fails to comply with these or any other covenants in the GE Capital Credit Facility in the future, the Company will be required to seek additional waivers, which may not be granted by the banks, or to enter into amendments to the GE Capital Credit Facility which may contain more stringent conditions on the Company's borrowing capability or its activities, and may require the Company to pay substantial fees to the banks. If such future waivers were not granted and the banks were to elect to accelerate repayment of outstanding balances under the GE Capital Credit Facility, the Company would be required to refinance its debt or obtain capital from other sources, including sales of additional debt or equity securities or sales of assets, in order to meet its repayment obligations, which may not be possible. If the banks were to accelerate repayment of amounts due under the GE Capital Credit Facility, it would cause a default under the Debentures issued to Charterhouse. In the event of a default under the Debentures, Charterhouse could accelerate repayment of all amounts outstanding under the Debentures, subject to the GE Capital Credit Facility banks' priority. In such event, repayment of the Debentures would be required only if the GE Capital Credit Facility was paid in full or the banks under the credit facility granted their express written consent. As a result of the reduction in maximum borrowing capacity under the GE Capital Credit Facility in September 2002, the Company recorded a write-off of previously recorded deferred financing costs in the amount of $438. This amount was included in interest expense in the condensed consolidated statements of operations for the three and nine months ended September 30, 2002. In June 2002, the Company renewed its property and casualty insurance programs. This renewal was funded through a premium financing arrangement requiring a payment of $1,363 at signing and $3,182 over the next nine months. At September 30, 2002, the Company has recorded prepaid insurance of $3,165 and accrued expenses and other current liabilities of $1,449. On September 30, 2002, the Company issued approximately $1,972 aggregate principal amount of Debentures to Charterhouse, which represented the quarterly payment-in-kind interest payment due with respect to $98,616 aggregate principal amount of Debentures previously issued to Charterhouse. (3) Segment and Related Information The Company's divisions operate under a common management structure that evaluates each division's performance. The Company's divisions have been aggregated into two reportable segments: (1) transport and (2) towing. The reportable segments are considered by management to be strategic business units that offer different services and each of whose respective long-term financial performance is affected by similar economic conditions. Page 10 UNITED ROAD SERVICES, INC. Notes to Condensed Consolidated Financial Statements (In thousands, except share and per share data) (Unaudited) The transport segment provides transport services to a broad range of customers in the new and used vehicle markets. The towing segment provides towing, impounding and storage services for motor vehicles, lien sales and auto auctions of abandoned vehicles. In addition, the towing segment provides recovery and relocation services for heavy-duty commercial vehicles and construction equipment. The accounting policies of each of the segments are the same as those of the Company, as outlined in note 1 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. Certain amounts have been reclassified for consistent presentation. The Company evaluates the performance of its operating segments through an evaluation of the Company's income (loss) from operations. Accordingly, the Company's summarized segment financial information is presented below on the basis of income (loss) from operations for the three and nine month periods ended September 30, 2002 and 2001. Inter-segment revenues and transfers are not significant. Summarized financial information concerning the Company's reportable segments is shown in the following tables: Three months ended September 30, 2002

Three months ended September 30, 2001

The following are reconciliations of the information used by the chief operating decision-maker to the Company's consolidated totals:

Nine months ended September 30, 2002

Page 11 UNITED ROAD SERVICES, INC. Notes to Condensed Consolidated Financial Statements (In thousands, except share and per share data) (Unaudited) Nine months ended September 30, 2001

The following are reconciliations of the information used by the chief operating decision-maker to the Company's consolidated totals:

(4) Commitments and Contingencies The Company is subject to certain claims and lawsuits arising in the normal course of business, most of which involve claims for personal injury and property damage incurred in connection with its operations. The Company maintains various insurance coverages in order to minimize financial risk associated with these claims and accrues for estimated costs related to incurred uninsured losses. In the opinion of management, uninsured losses, if any, resulting from the ultimate resolution of these matters, for which no accruals have been recorded, will not have a material effect on the Company's consolidated financial position or results of operations. Page 12 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following information should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report. Forward-Looking Statements From time to time, in written reports and oral statements, management may discuss its expectations regarding the Company's future performance. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of such plans or strategies or other actions taken or to be taken by the Company, including the impact of such plans, strategies or actions on the Company's results of operations or components thereof, projected or anticipated benefits from operational changes, acquisitions or dispositions made or to be made by the Company, or projections, involving anticipated revenues, costs, earnings or other aspects of the Company's results of operations. The words "expect," "believe," "anticipate," "project," "estimate," "intend" and similar expressions, and their opposites, are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance but rather are based on currently available competitive, financial and economic data and management's operating plans. These forward-looking statements involve risks and uncertainties that could render actual results materially different from management's expectations. Such risks and uncertainties include, without limitation, risks related to the Company's limited operating history and its ability to integrate acquired companies, risks related to the Company's ability to successfully improve the profitability of its acquired businesses, the availability of capital to fund operations, including expenditures for new and replacement equipment, risks related to the adequacy, functionality, sufficiency and cost of the Company's information systems, the loss of significant customers and contracts, changes in applicable regulations, including but not limited to, various federal, state and local laws and regulations regarding equipment, driver certification, training, recordkeeping and workplace safety, potential exposure to environmental and other unknown or contingent liabilities, risks associated with the Company's labor relations, risks related to the adequacy of the Company's insurance, changes in the general level of demand for towing and transport services, price changes in response to competitive factors, risks related to fuel, insurance, labor and other operating costs, risks related to the loss of key personnel and the Company's ability to maintain an adequate skilled labor force, seasonal and other event-driven variations in the demand for towing and transport services, risks resulting from the over-the-counter trading of the Company's common stock, general economic conditions, and other risk factors described from time to time in the Company's reports filed with the Securities and Exchange Commission (the "Risk Factors"). All statements herein that are not statements of historical fact are forward-looking statements. Although management believes that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that those expectations will prove to have been correct. All written forward-looking statements by or attributable to management in this Report are expressly qualified in their entirety by the Risk Factors. Investors must recognize that events could turn out to be significantly different from what management currently expects. Overview The Company operates in two reportable operating segments: (1) transport and (2) towing. Through its transport segment, the Company provides transport services for new and used vehicles to a broad range of customers throughout the United States. Through its towing segment, the Company provides a variety of towing services in its local markets, including towing, impounding and storing motor vehicles, conducting lien sales and auctions of abandoned vehicles, towing heavy equipment and towing heavy-duty commercial and recreational vehicles. The Company's customers include commercial entities, such as automobile manufacturers, automobile leasing companies, insurance companies, automobile auction companies, automobile dealers, repair shops and fleet operators; law enforcement agencies such as police, sheriff and highway patrol departments; and individual motorists. The Company derives revenue from towing and transport services based on distance, time or fixed charges and from related impounding and storage fees. If an impounded vehicle is not claimed within a period prescribed by law (typically between 30 and 90 days), the Company initiates and completes lien proceedings and the vehicle is sold at auction or to a scrap metal facility, depending on the value of the vehicle. Depending on the jurisdiction, the Company may either keep all the proceeds from the vehicle sales, or keep the proceeds up to the amount of the towing and storage fees and pay the Page 13 remainder to the municipality or law enforcement agency. Services are provided in some cases under contracts with towing and transport customers. In other cases, services are provided to towing and transport customers without a long-term contract. The prices charged for towing and storage of impounded vehicles for municipalities or law enforcement agencies are limited by contractual provisions or local regulation. In the case of law enforcement and private impound towing, payment is obtained either from the owner of the impounded vehicle when the owner claims the vehicle or from the proceeds of lien sales, scrap sales or auctions. In the case of the Company's other operations, customers are billed upon completion of services provided, with payment generally due within 30 days. Revenue is recognized as follows: towing revenue is recognized at the completion of each engagement; transport revenue is recognized upon the delivery of the vehicle or equipment to its final destination; revenue from lien sales or auctions is recognized when title to the vehicle has been transferred; and revenue from scrap sales is recognized when the scrap metal is sold. Expenses related to the generation of revenue are recognized as incurred. Cost of revenue consists primarily of the following: salaries and benefits of drivers, dispatchers, supervisors and other employees; fees charged by subcontractors; fuel; depreciation, repairs and maintenance; insurance; parts and supplies; other vehicle expenses; and equipment rentals. Selling, general and administrative expenses consist primarily of the following: compensation and benefits to sales and administrative employees; fees for professional services; computer costs; depreciation of administrative equipment and software; advertising; and other general office expenses. Between May 1998 and May 1999, the Company acquired a total of 56 towing, recovery and transport service businesses. During the third quarter of 1999, the Company made the strategic decision not to pursue its acquisition program in order to allow the Company to focus primarily on integrating and profitably operating its acquired businesses. Prior to the Company's acquisition of Auction Transport, Inc. ("ATI") in January 2002, the Company had not completed any acquisitions since May 5, 1999. The goal of the Company's revised business strategy is to improve the operational efficiency and profitability of its existing businesses in order to build a stable platform for future growth. As part of this business strategy, the Company has closed, consolidated or sold several operating locations. As of September 30, 2002, the Company operated a network of 11 transport divisions and 17 towing divisions located in a total of 26 states. Management's discussion and analysis addresses the Company's historical results of operations as shown in its unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2002 and 2001. In the second quarter of 2001 the Company sold one towing division and closed three transport divisions and allocated certain equipment to other divisions. In the third quarter of 2001 the Company closed one towing division. In the fourth quarter of 2001 the Company sold one towing division. In the third quarter of 2002 the Company closed and consolidated two transport divisions, reallocating vehicles to more profitable locations. The transport closures were designed to combine certain management dispatch and administrative functions, while maintaining existing vehicle fleets. In the first quarter of 2002 the Company acquired ATI, a transport business. The Company's operating results for the nine months ended September 30, 2002 include the operating results of ATI from the date of acquisition and do not include the operating results of the divisions sold or closed in 2001. The results of the divisions sold and closed are included for the three and nine months ended September 30, 2001 and 2002 through the date of sale or closure. The Company's revenue, cost of revenue, and selling, general and administrative expenses were also affected by the sales, closures, reallocations and acquisition described above that occurred during 2001 and 2002, as described more fully below. Critical Accounting Policies and Estimates The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles and related disclosure requires management to make estimates and assumptions that affect: . the amounts reported for assets and liabilities; . the disclosure of contingent assets and liabilities at the date of the financial statements; and . the amounts reported for revenues and expenses during the reporting period. Specifically, management must use estimates in determining the economic useful lives of assets, provisions for uncollectable accounts receivable, exposures under self-insurance plans and various other recorded or disclosed amounts. Therefore, the Company's condensed consolidated financial statements and related disclosure are necessarily affected by Page 14 these estimates. Management evaluates these estimates on an ongoing basis, utilizing historical experience and other methods considered reasonable in the particular circumstances. Nevertheless, actual results may differ from estimates. To the extent that actual outcomes differ from estimates, or additional facts and circumstances cause management to revise estimates, the Company's financial position as reflected in its condensed consolidated financial statements will be affected. Any effects on the Company's business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known. Management believes that the critical accounting policies affected by the estimates and assumptions the Company must make in the preparation of its condensed consolidated financial statements and related disclosures relate to revenue recognition, allowance for doubtful accounts, accrued insurance, income taxes and the valuation of long-lived assets and goodwill. Results of Operations Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001 Net Revenue. Net revenue increased $7.0 million, or 12.5%, from $55.9 million for the three months ended September 30, 2001 to $62.9 million for the three months ended September 30, 2002. Of the net revenue for the three months ended September 30, 2002, 66.0% related to transport services and 34.0% related to towing services. Transport net revenue increased $7.4 million, or 21.7%, from $34.1 million for the three months ended September 30, 2001 to $41.5 million for the three months ended September 30, 2002. The increase in transport net revenue was primarily due to the acquisition of ATI in the first quarter 2002, offset, in part, by the closure of two transport divisions in the third quarter of 2002 and the weak performance of the majority of the Company's used and specialty vehicle transport businesses due to the decreased demand for these vehicle transport services as compared to the prior year. Towing net revenue decreased $414,000, or 1.9%, from $21.9 million for the three months ended September 30, 2001 to $21.4 million for the three months ended September 30, 2002. The decrease in towing net revenue was primarily due to the closure of one towing division and the sale of two other towing divisions during 2001 offset, in part, by the improved performance of several of the Company's towing divisions due to increased demand for towing services as compared to the prior year. Cost of Revenue. Cost of revenue, including depreciation, increased $7.0 million, or 14.6%, from $48.0 million for the three months ended September 30, 2001 to $55.0 million for the three months ended September 30, 2002. Transport cost of revenue increased $8.2 million, or 27.5%, from $29.8 million for the three months ended September 30, 2001 to $38.0 million for the three months ended September 30, 2002. The principal components of the increase in transport cost of revenue consisted of an increase in costs of subcontractors and brokers of $3.0 million, an increase in transport operating labor costs of $1.9 million, an increase in insurance expense of $1.3 million, an increase in equipment rental expense of $668,000, and an increase in fuel cost of $255,000 (each of which was due, in part, to the acquisition of ATI in the first quarter of 2002). Towing cost of revenue decreased $1.1 million, or 6.1%, from $18.1 million for the three months ended September 30, 2001 to $17.0 million for the three months ended September 30, 2002. The principal components of the decrease in towing cost of revenue consisted of a decrease in costs of independent contractors, brokers and subcontractors of $1.4 million, a decrease in vehicle maintenance expense of $252,000, a decrease in depreciation of $116,000, and a decrease in occupancy costs of $99,000 (each of which was due, in part, to the closure of one towing division and the sale of two other towing divisions during 2001), offset, in part, by an increase in labor costs of $325,000 and an increase in scrap car purchases of $282,000. Selling, general and administrative expenses. Selling, general and administrative expenses increased $402,000, or 4.6%, from $8.7 million for the three months ended September 30, 2001 to $9.1 million for the three months ended September 30, 2002. Transport selling, general and administrative expenses increased $620,000, or 19.0%, from $3.3 million for the three months ended September 30, 2001 to $3.9 million for the three months ended September 30, 2002. The principal components of the increase in transport selling, general and administrative expenses consisted of an increase in wages and benefits of $230,000, an increase in advertising expenses of $123,000 and an increase in bad debt expenses of $105,000 (each of which was due, in part, to the acquisition of ATI in the first quarter of 2002). Towing selling, general and administrative expenses decreased $349,000, or 11.3%, from $3.1 million for the three months ended September 30, 2001 to $2.7 million for the three months ended September 30, 2002. The principal components of the decrease in towing selling, general and administrative expenses consisted of a decrease in wages and benefits of $323,000 and a decrease in bad debt expense of $77,000, (each of which was due, in part, to the sale of two towing divisions and the closure of another towing division during 2001) offset, in part, by an increase in professional fees of $63,000. Page 15 Corporate selling, general and administrative expenses increased $121,000, or 5.1%, from $2.4 million for the three months ended September 30, 2001 to $2.5 million for the three months ended September 30, 2002. The increase in corporate selling, general and administrative expenses was primarily due to an increase in wages and benefits expense of $199,000, and an increase in travel and entertainment expense of $41,000, offset, in part, by a decrease in bank service charges of $62,000, and a decrease in professional fees of $58,000. Amortization of Goodwill. Amortization of goodwill decreased $516,000, or 100.0%, from $516,000 for the three months ended September 30, 2001 to $0 for the three months ended September 30, 2002. The decrease is due to the adoption of SFAS No. 142, "Goodwill and Other Intangible Assets" on January 1, 2002. The Company's goodwill is no longer subject to amortization under the provisions of SFAS No. 142. Income (Loss) from Operations. Income from operations increased $69,000, or 15.4%, from a loss of $1.3 million for the three months ended September 30, 2001 to a loss of $1.2 million for the three months ended September 30, 2002. Transport income from operations decreased $1.1 million from income of $708,000 for the three months ended September 30, 2001 to a loss of $381,000 for the three months ended September 30, 2002. The decrease in transport income from operations was primarily due to increases in cost of revenue and selling, general and administrative expenses related to the operation of the transport business segment as described above, offset, in part, by an increase in transport revenue and a decrease in amortization of goodwill. Towing income from operations increased $1.3 million, from $391,000 for the three months ended September 30, 2001 to $1.7 million for the three months ended September 30, 2002. The increase in towing income from operations was primarily due to a decline in cost of revenue, amortization of goodwill and selling, general and administrative expenses, offset, in part, by a decrease in towing revenue. Interest Expense, net. Interest expense increased $582,000, or 21.1%, from $2.8 million for the three months ended September 30, 2001 to $3.3 million for the three months ended September 30, 2002. Interest income decreased $7,000, or 53.9%, from $13,000 for the three months ended September 30, 2001 to $6,000 for the three months ended September 30, 2002. The increase in interest expense, net was primarily related to the write-off of deferred financing costs of $438,000 related to the decline in maximum borrowing capacity and an effective interest rate of approximately 8.3% in the third quarter of 2001 as compared to an effective rate of approximately 8.2% in the third quarter of 2002. Income Tax Expense. Income tax expense increased $1.3 million from a benefit of $1.1 million for the three months ended September 30, 2001 to an expense of $204,000 for the three months ended September 30, 2002. The increase in income tax expense was primarily due to the increase in the valuation allowance relating to the Company's net operating loss carry forwards as a result of the non-amortization of goodwill under SFAS No. 142 and the change in the estimate of net operating loss limitations under Internal Revenue Code Section 382, during the 2001 tax year. Net Loss. Net loss increased $1.7 million from $2.9 million for the three months ended September 30, 2001 to $4.6 million for the three months ended September 30, 2002. The increase in net loss related primarily to the increase in interest and income tax expense. Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30, 2001 Net Revenue. Net revenue increased $15.8 million, or 9.1%, from $172.7 million for the nine months ended September 30, 2001 to $188.5 million for the nine months ended September 30, 2002. Of the net revenue for the nine months ended September 30, 2002, 66.4% related to transport services and 33.6% related to towing services. Transport net revenue increased $19.9 million, or 18.9%, from $105.2 million for the nine months ended September 30, 2001 to $125.1 million for the nine months ended September 30, 2002. The increase in transport net revenue was primarily due to the acquisition of ATI in the first quarter 2002, offset, in part, by the closure of two transport divisions in the third quarter of 2002, closure of three transport divisions in the second quarter of 2001 and the weak performance of the majority of the Company's used and specialty vehicle transport businesses due to the decreased demand for these vehicle transport services as compared to the prior year. Towing net revenue decreased $4.0 million, or 5.9%, from $67.4 million for the nine months ended September 30, 2001 to $63.4 million for the nine months ended September 30, 2002. The decrease in towing net revenue was primarily due to the closure of one towing division and the sale of two other towing divisions during 2001 offset, in part, by the improved performance of several of the Company's towing divisions due to increased demand for towing services as compared to the prior year. Page 16 Cost of Revenue. Cost of revenue, including depreciation, increased $14.7 million, or 10.1%, from $146.3 million for the nine months ended September 30, 2001 to $161.0 million for the nine months ended September 30, 2002. Transport cost of revenue increased $19.8 million, or 21.7%, from $91.3 million for the nine months ended September 30, 2001 to $111.1 million for the nine months ended September 30, 2002. The principal components of the increase in transport cost of revenue consisted of an increase in costs of subcontractors and brokers of $9.3 million, an increase in transport operating labor costs of $5.6 million and an increase in equipment rental of $1.9 million (each of which was due, in part, to the acquisition of ATI in the first quarter of 2002). Towing cost of revenue decreased $5.1 million, or 9.3%, from $55.0 million for the nine months ended September 30, 2001 to $49.9 million for the nine months ended September 30, 2002. The principal components of the decrease in towing cost of revenue consisted of a decrease in costs of independent contractors, brokers and subcontractors of $4.0 million, a decrease in vehicle maintenance expense of $863,000, a decrease in fuel costs of $597,000, and a decrease in occupancy costs of $290,000 (each of which was due, in part, to the sale of two towing divisions and the closure of another towing division during 2001), offset, in part, by an increase in scrap car purchases of $452,000. Selling, general and administrative expenses. Selling, general and administrative expenses decreased $698,000, or 2.5%, from $27.6 million for the nine months ended September 30, 2001 to $26.9 million for the nine months ended September 30, 2002. Transport selling, general and administrative expenses increased $1.2 million, or 11.4%, from $10.5 million for the nine months ended September 30, 2001 to $11.7 million for the nine months ended September 30, 2002. The principal components of the increase in transport selling, general and administrative expenses consisted of an increase in wages and benefits of $552,000, an increase in computer and telecommunication expenses of $347,000, and an increase in travel related expenses of $217,000 (each of which was due, in part, to the acquisition of ATI in the first quarter of 2002). Towing selling, general and administrative expenses decreased $878,000, or 9.7%, from $9.0 million for the nine months ended September 30, 2001 to $8.1 million for the nine months ended September 30, 2002. The principal components of the decrease in towing selling, general and administrative expenses consisted of a decrease in wages and benefits of $869,000 and a decrease in bad debt expense of $190,000 (each of which was due, in part, to the sale of two towing divisions and the closure of another towing division during 2001) offset, in part, by an increase in professional fees of $253,000. Corporate selling, general and administrative expenses decreased $1.2 million, or 14.8%, from $8.1 million for the nine months ended September 30, 2001 to $6.9 million for the nine months ended September 30, 2002. The decrease in corporate selling, general and administrative expenses was primarily due to a decrease in professional fees of $545,000, a decrease in computer and telecommunication expense of $311,000 and a decrease in bank service charges of $182,000. Amortization of Goodwill. Amortization of goodwill decreased $1.5 million, or 100.0%, from $1.5 million for the nine months ended September 30, 2001 to $0 for the nine months ended September 30, 2002. The decrease is due to the adoption of SFAS No. 142, "Goodwill and Other Intangible Assets" on January 1, 2002. The Company's goodwill is no longer subject to amortization under the provisions of SFAS No. 142. Income (Loss) from Operations. Income from operations increased $3.3 million, from a loss of $2.7 million for the nine months ended September 30, 2001 to income of $606,000 for the nine months ended September 30, 2002. Transport income from operations decreased $602,000, or 21.8%, from $2.8 million the nine months ended September 30, 2001 to $2.2 million for the nine months ended September 30, 2002. The decrease in transport income from operations was primarily due to increases in cost of revenue and selling, general and administrative expenses related to the operation of the transport business segment as described above, offset, in part, by an increase in transport revenue and a decrease in amortization of goodwill. Towing income from operations increased $2.7 million, from $2.6 million for the nine months ended September 30, 2001 to $5.3 million for the nine months ended September 30, 2002. The increase in towing income from operations was primarily due to a decrease in cost of revenue, amortization of goodwill and selling, general and administrative expenses, offset, in part, by a decline in towing revenue. Interest Expense, net. Interest expense increased $308,000, or 3.6%, from $8.5 million for the nine months ended September 30, 2001 to $8.8 million for the nine months ended September 30, 2002. Interest income increased $68,000, from $37,000 for the nine months ended September 30, 2001, to $105,000 for the nine months ended September 30, 2002. The increase in interest expense, net was primarily related to the write-off of deferred financing costs of $438,000 related to the decline in maximum borrowing capacity and to an effective interest rate of approximately 8.6% in the first nine months of 2001 as compared to an effective rate of approximately 8.2% in the first nine months of 2002. Income Tax Expense. Income tax expense increased $1.9 million, from a benefit of $810,000 for the nine months ended September 30, 2001 to an expense of $1.1 million for the nine months ended September 30, 2002. The increase in income Page 17 tax expense was primarily due to the increase in the valuation allowance relating to the Company's net operating loss carry forwards as a result of the non-amortization of goodwill under SFAS No. 142 and the change in the estimate of net operating loss limitations under Internal Revenue Code Section 382, during the 2001 tax year. Cumulative Effect of Change in Accounting Principle. The cumulative effect of change in accounting principle related to the impairment of goodwill under SFAS No. 142 was $43.4 million for the nine months ended September 30, 2002. Of the total cumulative effect of change in accounting principle $26.0 million was related to the transport operating segment and $17.4 million was related to the towing operating segment. Net Loss. Net loss increased $41.7 million from $10.5 million for the nine months ended September 30, 2001 to $52.2 million for the nine months ended September 30, 2002. The increase in net loss related to the cumulative effect of change in accounting principle of $43.4 million, offset, in part, by increased income from operations of $3.3 million. Liquidity and Capital Resources As of September 30, 2002, the Company had approximately: . $710,000 of cash and cash equivalents (representing deposits in transit to GE Capital, as agent under the Company's revolving credit facility) and another $6.4 million available for borrowing under the revolving credit facility, . a working capital deficit of approximately $34.6 million (including the $35.0 million outstanding under the Company's revolving credit facility which, due to the factors described in note 2 to the Company's consolidated financial statements included within the 2001 Annual Report on Form 10-K, is reflected as a current liability), and . $100.7 million of outstanding long-term indebtedness, excluding current installments. During the nine months ended September 30, 2002, the Company provided $8.7 million in cash from operations. Cash provided by operating activities consisted primarily of a net loss of $52.2 million (offset by $43.4 million related to the cumulative effect of change in accounting principle and $14.7 million of non-cash depreciation, amortization and interest charges), and an increase in accounts payable of $3.5 million. During the nine months ended September 30, 2002, the Company used $7.3 million of cash in investing activities and $2.5 million of cash in financing activities. Investing activities consisted primarily of $9.2 million of purchases of vehicles and equipment, offset by $750,000 in proceeds from the sale of vehicles and equipment and $500,000 received in connection with the ATI acquisition. Financing activities consisted primarily of net repayments under the GE Capital Credit Facility of $2.5 million. In July 2000, the Company and its subsidiaries entered into a revolving credit facility with a group of banks for which GE Capital acts as agent. The revolving credit facility has a term of five years. In September 2002, as provided in the GE Capital Credit Facility, the Company exercised the option to reduce the amount of maximum borrowing capacity under the GE Capital Credit Facility from $100.0 million to $75.0 million. The facility includes a letter of credit subfacility of up to $15 million. The Company's borrowing capacity under the revolving credit facility is limited to the sum of (i) 85% of the Company's eligible accounts receivable, (ii) 80% of the net orderly liquidation value of the Company's existing vehicles for which GE Capital has received title certificates and other requested documentation, (iii) 85% of the lesser of the actual purchase price and the invoiced purchase price of new vehicles purchased by the Company for which GE Capital has received title certificates and other requested documentation, and (iv) either 60% of the purchase price or 80% of the net orderly liquidation value of used vehicles purchased by the Company for which GE Capital has received title certificates and other requested documentation, depending upon whether an appraisal of such vehicles has been performed, in each case less reserves. The amount of availability based on vehicles amortizes on a straight line basis over a period of five to seven years. Under the revolving credit facility, the banks have the right to conduct an annual appraisal of the Company's vehicles. All cash receipts are forwarded to GE Capital on a daily basis to pay down the revolver balance, and working capital and expenditure needs are funded through daily borrowings. As of September 30, 2002, approximately $35.0 million was outstanding under the revolving credit facility (excluding letters of credit of approximately $13.8 million) and an additional $6.4 million was available for borrowing. Interest accrues on amounts borrowed under the GE Capital Credit Facility, at the Company's option, at either the Index Rate (as defined in the GE Capital Credit Facility) plus an applicable margin or the reserve adjusted LIBOR Rate (as Page 18 defined in the GE Capital Credit Facility) plus an applicable margin. The rate is subject to adjustment based upon the performance of the Company, the occurrence of an event of default or certain other events. The GE Capital Credit Facility provides for payment by the Company of customary fees and expenses. The obligations of the Company and its subsidiaries under the GE Capital Credit Facility are secured by a first priority security interest in the existing and after-acquired real and personal, tangible and intangible assets of the Company and its subsidiaries. The Company currently finances its working capital requirements through cash flow from operations and borrowings under its revolving credit facility. The revolving credit facility requires the Company, among other things, to comply with certain financial covenants, including minimum levels of EBITDA, minimum ratio of EBITDA to fixed charges and minimum levels of liquidity. In October 2002, the Company notified GE Capital that the Company had failed to meet the minimum level of EBITDA and minimum ratio of EBITDA to fixed charges for the nine months ended September 30, 2002. On November 13, 2002, the Company entered into an amendment to the GE Capital Credit Facility under which the banks waived the financial covenant violations. If the Company fails to comply with these or any other covenants in the GE Capital Credit Facility in the future, the Company will be required to seek additional waivers, which may not be granted by the banks, or to enter into amendments to the GE Capital Credit Facility which may contain more stringent conditions on the Company's borrowing capability or its activities, and may require the Company to pay substantial fees to the banks. If such future waivers were not granted and the banks were to elect to accelerate repayment of outstanding balances under the GE Capital Credit Facility, the Company would be required to refinance its debt or obtain capital from other sources, including sales of additional debt or equity securities or sales of assets, in order to meet its repayment obligations, which may not be possible. If the banks were to accelerate repayment of amounts due under the GE Capital Credit Facility, it would cause a default under the Debentures issued to Charterhouse. In the event of a default under the Debentures, Charterhouse could accelerate repayment of all amounts outstanding under the Debentures, subject to the GE Capital Credit Facility banks' priority. In such event, repayment of the Debentures would be required only if the GE Capital Credit Facility was paid in full or the banks under the credit facility granted their express written consent. As a result of the reduction in maximum borrowing capacity under the GE Capital Credit Facility in September 2002, the Company recorded a write-off of previously recorded deferred financing costs in the amount of $438,000. This amount was included in interest expense in the condensed consolidated statements of operations for the three and nine months ended September 30, 2002. In June 2002, the Company renewed its property and casualty insurance programs. This renewal was funded through a premium financing arrangement requiring a payment of $1.4 million at signing and $3.2 million over the next nine months. At September 30, 2002, the Company has recorded prepaid insurance of $3.2 million and accrued expenses and other current liabilities of $1.4 million. The Company finances a portion of its operations through operating leases. These leases relate to transport and towing vehicles, equipment (including information systems) and real property used by the Company to conduct its business. The terms of the Company's operating leases range from one to twenty years and certain lease agreements provide for price escalations. In the normal course of its business, the Company is a party to letters of credit which are not reflected in the Company's consolidated balance sheets. Such letters of credit are valued based on the amount of exposure under the instrument and the likelihood of performance being requested. At September 30, 2002, the Company had letters of credit outstanding in the aggregate amount of $13.8 million. As of September 30, 2002, no claims had been made against such letters of credit, and management does not expect any material losses resulting from these off-balance sheet instruments. The Company spent approximately $8.0 million on purchases of vehicles and equipment during the nine months ended September 30, 2002. These expenditures were primarily for the purchase of transport and towing vehicles. During the nine months ended September 30, 2002, the Company made expenditures of $2.7 million on towing vehicles and $5.3 million on transport vehicles. These expenditures were financed primarily with borrowings under the GE Capital Credit Facility. As of September 30, 2002, the Company was committed to purchase 27 vehicles from a vehicle manufacturer (with a total purchase price of $4.0 million). Page 19 In connection with the Company's July 2000 sale of Series A Convertible Preferred Stock (the "Series A Preferred Stock") to Blue Truck Acquisition, LLC ("Blue Truck"), an affiliate of KPS Special Situations Fund, L.P. ("KPS") (such transaction, the "KPS Transaction"), the Company agreed to pay KPS Management LLC, an affiliate of KPS, an annual management fee of $1.0 million, which may be lowered to $500,000 and then to zero based upon the amount of Series A Preferred Stock held by Blue Truck and its permitted transferees. As of the date of this report, the Company has not paid KPS management the management fees earned during 2001 and the first nine months of 2002. The Company has recorded the unpaid amount of the fee ($1.8 million) as an accrued liability in the accompanying balance sheet. In connection with the KPS Transaction, the Company agreed to pay four of its senior executives an aggregate amount of approximately $430,000 on each of the first and second anniversaries of the KPS Transaction as long as the executives remained employed with the Company on such dates. In July 2001 and 2002, the Company made the required payments. During the past three years, the Company has experienced decreases in its cash flow from operations and is continually exploring opportunities to improve its profitability, including, but not limited to, the closure or divestiture of unprofitable divisions, consolidation of operating locations, reduction of operating costs and the marketing of towing and transport services to new customers in strategic market locations. The Company currently expects to be able to fund its liquidity needs for the next twelve months through cash flow from operations, sale of asssets and borrowings of amounts available under its revolving credit facility. Seasonality The Company may experience significant fluctuations in its quarterly operating results due to seasonal and other variations in the demand for towing and transport services. Specifically, the demand for towing services is generally highest in extreme or inclement weather, such as heat, cold, rain and snow. Although the demand for automobile transport tends to be strongest in the months with the mildest weather, since extreme or inclement weather tends to slow the delivery of vehicles, the demand for automobile transport is also a function of the timing and volume of lease originations, new car model changeovers, dealer inventories and new and used auto sales. Fluctuations in Operating Results and Inflation The Company's future operating results may be adversely affected by (i) the availability of capital to fund operations, including expenditures for new and replacement equipment, (ii) the Company's success in improving its operating efficiency and profitability and in integrating its acquired businesses, (iii) the loss of significant customers or contracts, (iv) the timing of expenditures for new equipment and the disposition of used equipment, (v) changes in applicable regulations, including but not limited to, various federal, state and local laws and regulations regarding equipment, driver certification, training, recordkeeping and workplace safety, (vi) changes in the general level of demand for towing and transport services, (vii) price changes in response to competitive factors, (viii) event-driven variations in the demand for towing and transport services, (ix) fluctuations in fuel, insurance, labor and other operating costs and (x) general economic conditions. As a result, operating results from any one quarter should not be relied upon as an indication or guarantee of performance in future quarters. Although the Company cannot accurately anticipate the effect of inflation on its operations, management believes that inflation has not had, and is not likely in the foreseeable future to have, a material impact on its results of operations. Page 20 ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company believes there have been no material changes in the Company's interest rate risk position since December 31, 2001. Other types of market risk, such as foreign exchange rate risk and commodity price risk, do not arise in the normal course of the Company's business activities. ITEM 4 CONTROLS AND PROCEDURES Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation within 90-days of the filing date of this report, that our disclosure controls and procedures are effective for gathering, analyzing and disclosing the information we are required to disclose in our reports filed under the Securities Exchange Act of 1934 to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. There have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the previously mentioned evaluation. Page 21 PART II OTHER INFORMATION ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS Recent Sales of Unregistered Securities On September 30, 2002, the Company issued approximately $2.0 million aggregate principal amount of Debentures to Charterhouse, which represented the quarterly payment-in-kind interest payment due with respect to $98.6 million aggregate principal amount of the Debentures previously issued to Charterhouse. The issuance of these securities was deemed to be exempt from registration under the Securities Act of 1933, as amended (the "Securities Act") in reliance on Section 4(2) of the Securities Act or Regulation D thereunder as a transaction by an issuer not involving a public offering. The recipient of the securities was an accredited investor and represented its intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were attached to the certificates issued in such transaction. ITEM 3 DEFAULT UPON SENIOR SECURITIES The GE Capital Credit Facility requires the Company, among other things, to comply with certain cash management requirements and financial covenants. These include minimum levels of EBITDA and minimum ratios of EBITDA to fixed charges. In October 2002, the Company notified GE Capital that the Company had failed meet the minimum level of EBITDA and minimum ratio of EBITDA to fixed charges for the nine months ended September 30, 2002. On November 13, 2002, the Company entered into an amendment to the GE Capital Credit Facility under which the banks waived the financial covenant violations. If the Company fails to comply with these or any other covenants in the GE Capital Credit Facility in the future, the Company will be required to seek additional waivers, which may not be granted by the banks, or to enter into amendments to the GE Capital Credit Facility which may contain more stringent conditions on the Company's borrowing capability or its activities, and may require the Company to pay substantial fees to the banks. If such future waivers were not granted and the banks were to elect to accelerate repayment of outstanding balances under the GE Capital Credit Facility, the Company would be required to refinance its debt or obtain capital from other sources, including sales of additional debt or equity securities or sales of assets, in order to meet its repayment obligations, which may not be possible. If the banks were to accelerate repayment of amounts due under the GE Capital Credit Facility, it would cause a default under the Debentures issued to Charterhouse. In the event of a default under the Debentures, Charterhouse could accelerate repayment of all amounts outstanding under the Debentures, subject to the GE Capital Credit Facility banks' priority. In such event, repayment of the Debentures would be required only if the GE Capital Credit Facility was paid in full or the banks under the credit facility granted their express written consent. ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Amendment No. 5, dated as of November 13, 2002, to Credit Agreement dated as of July 30, 2000 by and among the Company, each of its subsidiaries, various financial institutions, General Electric Capital Corporation, as Agent and Fleet Financial Corporation, as Documentation Agent. 99.1 Executive Certification (b) Reports on 8-K None Page 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UNITED ROAD SERVICES, INC. Registrant Date: November 14, 2002 /s/ Gerald R. Riordan --------------------------------- Chief Executive Officer /s/ Patrick J. Fodale --------------------------------- Chief Financial Officer CHIEF EXECUTIVE OFFICER CERTIFICATION I, Gerald R. Riordan, Chief Executive Officer of United Road Services, Inc., (the "Company") certify that: 1) I have reviewed this quarterly report on Form 10-Q of the Company; 2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3) Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects, the financial condition, results of operations and cash flows of the Company as of, and for, the period presented in this quarterly report; 4) The Company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a -14 and 15d - 14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the Company's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5) The Company's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the Company's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls; and Page 23 6) The Company's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ Gerald R. Riordan --------------------------------- Chief Executive Officer CHIEF FINANCIAL OFFICER CERTIFICATION I, Patrick J. Fodale, Senior Vice President and Chief Financial Officer of United Road Services, Inc., (the "Company") certify that: 1) I have reviewed this quarterly report on Form 10-Q of the Company; 2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3) Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects, the financial condition, results of operations and cash flows of the Company as of, and for, the period presented in this quarterly report; 4) The Company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a -14 and 15d - 14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the Company's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5) The Company's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the Company's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls; and 6) The Company's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ Patrick J. Fodale --------------------------------- Chief Financial Officer Page 24

UNITED ROAD SERVICES INC 10-Q