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UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 Form 10-K þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the year ended December 31, 2004 oro
    
    TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number 0-22276  Allied Holdings, Inc. (Exact name of registrant as specified in its charter)
 Georgia(State or other jurisdiction of
incorporation or organization)
    
    58-0360550(I.R.S. Employer
ID Number)
 160 Clairemont Avenue, Suite 200, Decatur, Georgia 30030(Address of principal executive office) Registrants telephone number, including area code: (404) 373-4285 Securities registered pursuant to Section 12(b) of the Act: No par value Common Stock
    
    American Stock Exchange(Title of Class)
    
    (Name of Exchange on which Registered)
 Securities registered pursuant to Section 12(g) of the Act: None  (Title of Class)
 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 The number of shares outstanding of the Registrants common stock as of March 31, 2005 was
8,940,167. The aggregate market value of the common stock held by non-affiliates of the Registrant, based
upon the closing stock price of the common stock as of June 30, 2004 as reported on the American
Stock Exchange, was approximately $26.2 million. Shares of the Registrants common stock owned by
its directors and executive officers were excluded from this aggregate market value calculation;
however, shares owned by the Registrants institutional shareholders were included. DOCUMENTS INCORPORATED BY REFERENCE Portions of the proxy statement for Registrants 2005 Annual Meeting of Shareholders to be
held May 24, 2005 are incorporated by reference in Part III.




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ALLIED HOLDINGS, INC. TABLE OF CONTENTS  
 PageCaption
    
    NumberPART IItem 1. Business
    
    3Item 2. Properties
    
    20Item 3. Legal Proceedings
    
    20Item 4. Submission of Matters to a Vote of Security Holders
    
    21PART IIItem 5. Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    22Item 6. Selected Consolidated Financial Data
    
    23Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation
    
    23Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    45Item 8. Financial Statements and Supplementary Data
    
    45Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    45Item 9A. Controls and Procedures
    
    45Item 9B. Other Information
    
    47PART IIIItem 10. Directors and Executive Officers of the Registrant
    
    47Item 11. Executive Compensation
    
    47Item 12. Security Ownership of Certain Beneficial Owners and Management
    
    47Item 13. Certain Relationships and Related Transactions
    
    47Item 14. Principal Accountant Fees and Services
    
    47PART IVItem 15. Exhibits and Financial Statement Schedules
    
    47EX-4.3.(B) SECOND AMENDMENT, DATED APRIL 13,2005EX-10.12 EMPLOYMENT AGREEMENT / GUY RUTLAND IVEX-10.18 AMENDMENT TO AGREEMENT DATED MARCH 18, 2005EX-10.19 AMENDMENT TO AGREEMENT DATED APRIL 6, 2005EX-10.20 AGREEMENT BETWEEN THE COMPANY AND TOYOTAEX-10.21 AMENDMENT TO AGREEMENT / TOYOTAEX-10.22 AGREEMENT BETWEEN THE COMPANY AND HONDAEX-23.1 CONSENT OF KPMG LLPEX-31.1 CERTIFICATION BY HUGH E. SAWYEREX-31.2 CERTIFICATION BY THOMAS H. KINGEX-32.1 SECTION 1350 CERTIFICATION BY HUGH E. SAWYEREX-32.2 SECTION 1350 CERTIFICATION BY THOMAS H. KING
  2




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PART I 
 Item 1.Business When we use the terms Allied, we,  us, and  our, we mean Allied Holdings, Inc. and its
subsidiaries. Our Company We are an automobile-hauling company providing a range of logistics and other support services to
the automotive industry. Our principal operating subsidiaries are Allied Automotive Group, Inc.
(collectively with its subsidiaries referred to as Allied Automotive or the/our Automotive
Group) and Axis Group, Inc. (Axis or the Axis Group). Allied Automotive is our largest
subsidiary comprising 97% of our 2004 revenues. Allied Automotive Group With its specialized tractors and trailers, called Rigs, the Automotive Group serves and supports
all of the major domestic and foreign automotive manufacturers offering a range of automotive
delivery services, including the transportation of new, pre-owned and off-lease vehicles to dealers
from plants, rail ramps, inland distribution centers, ports and auctions, while also providing yard
management services including vehicle rail-car loading and unloading services. Though there is
limited public information available about our competitors, most of whom are privately-owned
companies, we believe that our Automotive Group is the largest
transporter of new automobiles, sport-utility vehicles
(SUVs)
and light trucks via specialized Rigs in North America based on the number of vehicles it delivers
annually versus total vehicles produced and based on revenues generated from vehicle deliveries.
Allied Automotives largest customers are General Motors, Ford, DaimlerChrysler, Toyota and Honda.
During 2004, these customers accounted for approximately 88% of the Automotive Groups revenues.
Other customers include the other major foreign manufacturers, namely Mazda, Nissan, Isuzu,
Volkswagen, Hyundai, and KIA. Allied Automotive operates primarily in the short-haul segment of
the automotive transportation industry. When we use the term short-haul, we mean average hauled
distances of less than 200 miles from the point of origin. Axis Group The Axis Group complements the services provided by our Automotive Group, providing vehicle
distribution and transportation support services to both the pre-owned and new vehicle markets as
well as to other segments of the automotive and car rental industries. It also leases
patented-designed equipment for containerized shipment of vehicles. Axis provides the following
services:  
    carrier management and brokerage services for various automotive clients;
    a variety of related support services to the pre-owned and off-lease vehicle markets,
including vehicle inspections, title storage, marshalling and rail yard management
(offered through its subsidiaries CT Services, Inc. and Axis Canada);
    a computerized vehicle tracking service for Toyota;
    vehicle processing services at ports and inland distribution centers; and
    logistics and distribution services to the Mexican automobile industry (offered through
its subsidiary, Axis Logistica). Information regarding our revenues, operating income (loss) and total assets for each of our
operating segments and the revenues and total assets for each major geographic area for 2004, 2003 and 2002 is included in Note 18 of our Consolidated Financial
Statements included in this Annual Report on Form 10-K. Our Operations Our operations team is responsible for the management of our terminals in the U.S. and Canada. Our
Automotive Group operates a total of 81 terminals while our Axis Group operates 52. Our day-to-day
operations are directed from these terminals. Our Automotive Groups terminals rely upon one
customer service center in Decatur, Georgia 3




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to design optimal loads for each Rig. Our Axis Groups carrier management services relies upon a
separate customer dispatch center in Decatur, Georgia to coordinate pickup and delivery of customer
vehicles. Terminal staffing varies based on a number of factors including complexity, size,
delivery profile and number of customers served but may include a terminal manager, an assistant
terminal manager, an operations manager, a shop manager, mechanics, a quality or safety manager
(these two positions are sometimes combined), yard supervisors, mechanics, dispatchers, an office
supervisor and administrative associates. Our corporate office is located in Decatur, Georgia.
Some centralized management services for our Automotive Group and our Axis Group are provided by
our corporate office and include logistics and load planning, information technology, sales and
marketing, purchasing, finance and accounting, human resources, legal services, planning, insurance
and risk management. As of December 31, 2004, our Automotive Group owned approximately 3,700 Rigs, which are
substantially maintained at our 42 garages. Our Automotive Group has determined that it will
dispose of approximately 700 Rigs during 2005, leaving us with approximately 3,000 of these
company-owned Rigs at the end of December 31, 2005. Our Automotive Group also leases approximately
453 Rigs. In addition, the Automotive Group utilizes 690 Rigs owned by Teamster-represented
owner-operators. Corporate History We were founded as Motor Convoy in 1934. Following industry deregulation in the early 1980s, we
expanded geographically through acquisitions. In 1986, Motor Convoy and Auto Convoy, a carhaul
company based in Dallas, Texas, formed a joint venture, which allowed us to enter new markets in
Texas, Missouri, Louisiana, and Kentucky. The two firms merged in 1988 to create Allied Systems.
In 1993, we went public as Allied Holdings, Inc., a company incorporated under the laws of the
state of Georgia. In 1994, we obtained approximately 90% of the Canadian motor carrier market when we acquired Auto
Haulaway. In 1997, we became the major auto transporter in North America by acquiring certain
subsidiaries of Ryder System, Inc. known as Ryder Automotive Group, a move that expanded our
operations in the western section of the U.S. and substantially increased the volume of our
business with certain customers, particularly General Motors. As part of a move to expand internationally, in 1988, through our Axis Group, we formed a Brazilian
joint venture to provide logistics services to the auto transport market in the Mercosur region of
South America. We sold our interest in this joint venture in 2001. A year later, we set up an
Axis business unit in Mexico. In 1999, the Axis Group created a joint venture with AutoLogic
Holdings (a logistics firm serving the car industry in Belgium, France, the Netherlands, and the
UK) to manage Fords distribution of vehicles in the United Kingdom. We sold our interest in this
joint venture in 2001. In 2000, our Axis Group purchased CT Group, Inc., a provider of vehicle inspection services to the
pre-owned and off-lease vehicle market. In 2001, the Axis Group established a deal with Toyota
Motor Sales to provide vehicle tracking of more than 1.5 million units per year. Customer Relationships Allied Automotive has one-year or multi-year contracts in place with substantially all of its
customers. However, most of these contracts can be terminated by either party upon a specified
period of notice. These contracts establish rates for the transportation of vehicles and are
generally based upon a fixed rate per vehicle transported, a variable rate for each mile that a
vehicle is transported plus an administrative processing fee. Certain contracts provide for rate
variation per vehicle depending on the size and weight of the vehicle. During 2004, substantially
all of our customers paid us a fuel surcharge that will allow us to recover at least a portion of
the fuel price increases that occurred during the year. However, the agreement with one of our
significant customers did not go into effect until August 2004. Except in cases where we are able
to obtain the customers agreement, these contracts do not permit the recovery of increases in fuel
taxes or labor costs. Our Automotive Group has developed and maintained long-term relationships with its significant
customers and has historically been successful in negotiating the renewal of contracts with these
customers on or prior to their expiration. Major customer contracts include the following: 4




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
    a contract with Autogistics, a joint venture between Ford Motor Company and UPS
Logistics, for Ford vehicles which grants the Automotive Group primary carrier rights
for 22 locations in the U.S. and 10 in Canada. This contract expires in September 2005
for ramp locations and December 2005 for plant locations. Each party to the contract has
the right to terminate the agreement by location on 75 days notice;
    a contract with DaimlerChrysler that expires on September 30, 2005 and which grants
the Automotive Group primary carrier rights for 24 locations in the U.S. and 13 in
Canada. The contract may be terminated by location on 150 days notice by either party.
This contract was renewed effective October 1, 2004 and provided for an increase in
underlying base rates as of the effective date and a reduction in the number of U.S.
locations served from 30 to 24. The six locations removed from the new contract
generated revenues of approximately $12.3 million between the period January 1, 2004 and
November 30, 2004;
    a contract with General Motors which expires in March 2006 and which grants the
Automotive Group primary carrier rights for 36 locations in the U.S. and Canada. General
Motors does not have the right to resource business at a location under the terms of the
contract unless the Automotive Group fails to comply with service or quality standards
at such location. Should an event of non-compliance occur, the Automotive Group has 30
days in which to cure. If Allied Automotive does not cure, General Motors may give 60
days notice of termination with respect to the applicable location;
    an agreement with Toyota that expires on December 20, 2005. This contract may be
terminated by either party by giving 60 days notice. This contract was renewed on
January 3, 2005 and provided for an increase in base rates effective December 20, 2004;
and
    a contract with Honda that expires on March 31, 2006. Either party may terminate
this contract by giving notice 60 days prior to the expiration date. As long as neither
party provides such termination notice, the contract automatically extends for
successive periods of one year. Under written contracts, the Automotive Group has served Ford since 1934, DaimlerChrysler since
1979 and General Motors since 1997. The contract with DaimlerChrysler was renewed effective October
1, 2004, approximately four months prior to the stated contract expiration date. The contract with
General Motors was renewed on January 1, 2004, approximately two months prior to its expiration,
and we recently renewed the contract with Toyota through December 20, 2005. We anticipate that the
Automotive Group will be able to continue these relationships with its customers without
interruption of service but can provide no assurance that we will be able to successfully renew
these contracts on terms satisfactory to us on or prior to their expiration dates or without a loss
of market share or that we will be able to continue to serve these customers without service
interruption. Proprietary Management Information Systems We are committed to using our technology to serve our customers. Our Automotive Groups advanced
management information system is a centralized, fully integrated information system that serves as
a company-wide database, which allows the 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 our
customers and with our information system, we are able to control and track customer vehicle
inventories. Through electronic data interchange (EDI), our Automotive Group communicates directly
with manufacturers in the process of delivering vehicles and electronically bills and collects from
these manufacturers. Allied Automotive Group also utilizes EDI to communicate with inspection
companies, railroads, port processors, and other carriers. The information system of Allied Automotive is used to design optimal loads for each Rig and takes
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. Load sequence is defined as the order or arrangement of vehicles (each of which
may vary in weight) on a trailer, whereas the drop sequence is defined as the order in which
vehicles will be delivered. Additionally, Axis has developed both a yard management system, which
maintains the vehicle inventory in a storage facility, as well as a vehicle tracking system, which
estimates the dates 5




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and times of vehicle arrivals at the dealerships. Axis operates the vehicle tracking system for
Toyota whereby they manage dealer delivery data on behalf of Toyota, for all of their vehicles sold
in the U.S. Management Strategy and Employee Incentives We utilize a performance management strategy, which we believe contributes to driver productivity,
customer cargo claim prevention, enhanced efficiency, safety, and consistency of operations. This
management strategy and culture is results-driven and is designed to enhance employee performance
through high standards, accountability, precise measurement matrices, careful employee selection,
and continuous training. Under this performance strategy, individual performance goals are
established for each employee (both unionized and non-unionized) and performance is measured
regularly using our management information system. In 2003 and continuing into 2005, we made significant changes and additions to our field management
teams, which we believe has improved the quality of response that we offer to our customers and has
provided us with a strong leadership base. On January 25, 2005, we appointed Mr. Thomas King to the position of Executive Vice President and
Chief Financial Officer. Between August 2004 and January 2005, Mr. King worked with us as a
full-time finance and accounting consultant primarily in the role of special assistant to our CFO,
with an emphasis on financial reporting. Mr. King has a diverse management background and has
served in various senior executive roles in accounting and finance. Most recently, Mr. King worked
as a partner with Tatum Partners, a group providing clients with a full range of financial support
services. During his career, he has held several CFO positions, worked as a controller and has had
extensive exposure to reporting under Securities and Exchange Commission (SEC) rules and the
compliance requirements of the Sarbanes-Oxley Act of 2002. Mr. King is a Certified Public
Accountant (CPA). He acquired his transportation industry experience at the Union Pacific
Railroad and during his career has worked for two public accounting firms. On January 21, 2005, Mr. Donald Burke was appointed Vice President and Corporate Controller. Mr.
Burke joined our company in September 2004 as Vice President and has served in various senior
accounting and finance roles in the Atlanta area, including as Corporate Controller. In October 2004, we appointed John Harrington to the position of President of the Axis Group. Mr.
Harrington was previously the Senior Vice President of Client Relationships and Senior Vice
President of the Client Services Center for our Automotive Group where he resigned his position to
serve in a new role at Axis. Mr. Harrington has served in various other capacities since he joined
our company in 1994. In April 2004, we appointed Joe Marinelli to the position of Senior Vice President, Administration
and in October 2004, he became Senior Vice President, Field Operations. In addition to strategies directly focused on our management and supervisory teams, we have an
Employee Stock Purchase Plan in place that provides our employees with the opportunity to purchase
our common stock directly from our company at a price equal to 85% of the stocks market price.
This Plan is intended to provide a strong incentive for our employees to work together with us
towards the achievement of our goals and those of our shareholders. Also, in August 2003, we awarded 250 shares of common stock to each of our full time nonbargaining
U.S. employees, excluding those at the level of Senior Vice President and above. In addition, in
August 2003, we agreed to award 250 shares of common stock to each full time nonbargaining employee
in Canada as of August 1, 2003, excluding those at the level of Senior Vice President and above.
The shares awarded to the U.S. and Canadian employees vested in August 2004 and totaled 147,250
shares, net of reductions for employee terminations. Risk Management and Insurance As part of our risk management strategy, we identify the potential risks that we face and secure
appropriate insurance coverages. We maintain the following types of insurance coverage:  
    general liability;
    property insurance; 6




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
    workers compensation;
    cargo damage claim;
    directors and officers liability;
    fiduciary liability;
    business automobile insurance;
    fuel storage tank liability;
    employment practices liability;
    fidelity insurance;
    chaplains professional liability insurance;
    environmental liability; and
    business disruption insurance. We retain losses within certain limits through high deductibles or self-insured retentions. For
certain risks, coverage for losses is provided by primary and reinsurance companies unrelated to
our company. Haul Insurance Limited, one of our subsidiaries, provides reinsurance coverage to
certain of our licensed insurance carriers for certain types of losses within our insurance
program, primarily insured workers compensation, automobile and general liability risks. We currently utilize an inner-aggregate, which is a deductible subject to an annual fixed limit, in
certain insurance programs. We use the inner-aggregate only for our initial layer of excess
insurance whereby losses in the excess layer that are within the inner-aggregate amount are
retained by us up to an amount equal to the inner-aggregates annual fixed limit. Once the annual
fixed limit is met, the deductible is no longer in effect. We retain liability for automobile liability claims of $1 million or less in the U.S. with no
aggregate limit and have a $7 million inner-aggregate deductible for claims that exceed $1
million, but are less than $5 million per occurrence. Claims in excess of $5 million are covered
by excess insurance. In Canada, we retain liability up to CDN $500,000 for each claim for personal
injury and property damage and have a CDN $500,000 inner-aggregate limit for losses from CDN
$500,000 to CDN $1 million. Additionally, we retain liability of up to $250,000 for each cargo
damage claim in the U.S. and up to CDN $250,000 for each cargo damage claim in Canada. These
retentions and deductibles were effective January 1, 2004 and remain in effect for the insurance
year commencing January 1, 2005. Prior to January 1, 2004, for automobile liability claims in the U.S., we retained the first
$500,000 of every claim with no aggregate limit and retained losses from $500,000 to $1 million
subject to a $1.5 million inner-aggregate deductible. We also had a $1 million inner-aggregate
deductible for losses from $1 million to $2 million, with an additional $4 million aggregate limit
for losses from $2 million to $5 million. The chart below provides a summarized illustration of the retentions detailed above for automobile
liability claims in the U.S. which were effective January 1, 2004 and which remain in effect for
the insurance year commencing January 1, 2005: 7




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Losses Covered by Excess Liability InsuranceAll Claims over $5 million (limited to $150 million)Claims between $1 million and $5 million which in the aggregate exceed $7 millionClaims greater than $1 million but less than $5 millionWe retain the losses for these claims until we have paid, in the aggregate, $7 million.Claims $1 million or less.We retain the losses for all of these claims.There is no annual aggregate or cap.
 We are required to provide letters of credit to our insurance companies and various states in
order to facilitate the payment of worker injuries, accident, theft, and other loss claims and are
required to collateralize these letters of credit. We have implemented various risk management
programs aimed at reducing our risks in these areas but can provide no assurance that the current
letter of credit requirements will not increase or that we will be able to reduce the current
letters of credit or underlying collateral requirements. Equipment, Maintenance and Fuel Our Automotive Group owned approximately 3,700 of its specialized tractor-trailers, called Rigs,
which it utilizes along with 453 leased Rigs and 690 Rigs owned and operated by
Teamster-represented individuals to serve and support all of the major domestic and foreign
automotive manufacturers. We have determined that we will dispose of approximately 700 of the
company-owned Rigs during 2005 because we determined that these Rigs are not candidates for our
remanufacturing program, which will leave us with approximately 3,000 of these company-owned Rigs
at the end of 2005. Included in our fleet of Rigs are some that we have remanufactured.
Remanufacturing improves the equipments efficiency and extends its useful life. A new 75-foot Rig
costs approximately $165,000 and has an approximate useful life of 15 years, if properly maintained
and remanufactured. At December 31, 2004, the average age of the Rigs owned by us was 7.7 years and
the average remaining useful life was 4.5 years. The average age is calculated based on the
original purchase dates or the remanufacturing date. The remaining useful life calculation is
based on a total useful life of fifteen years calculated on the original purchase date. Certain equipment
in our fleet is kept in service past the fifteen-year life based on equipment configuration, usage,
climatic conditions and various weight requirements. During 2004, we spent approximately $18.7 million in capital on our fleet of Rigs, which includes
$7.0 million on the purchase of 44 new Rigs and 37 additional trailers, $6.5 million on the
remanufacture of 114 Rigs, along with 14 additional trailers, and
$5.2 million on the replacement of 256 Rig engines. Remanufacture of a Rig
typically involves structural improvement primarily of the trailer but does not include engine
replacement. These structural improvements to the tractor and trailer vary depending on the nature
of the work to be performed, and, excluding the cost of a remanufactured engine, these structural
improvements generally cost an estimated $60,000 per Rig. If we performed both structural
improvements and engine replacements, a remanufactured Rig would cost an estimated $80,000. As
previously discussed, a new Rig costs approximately $165,000. In addition, during 2004, we entered
into three new operating leases for 51 Rigs in order to expand our fleet while maintaining our
liquidity. We manufacture our Rigs primarily through one remanufacturing company. If necessary, we could
select another company to remanufacture our Rigs in 2005 and expect that this provider would have
the capability and capacity to remanufacture our Rigs in accordance with our plans for 2005
relating to the remanufacture of our Rigs. 8




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We expect to spend
approximately $30 million of capital in 2005, $25 million of which we believe
will be spent on our fleet of Rigs during 2005. Of this amount, we believe that our Automotive
Group will spend approximately $10 million to replace approximately 470 engines in 2005. We will
need to replace almost twice as many engines in 2005 than we replaced in 2004 because the expected
useful life of approximately 470 engines will expire in 2005. In addition, our Automotive Group
expects to spend approximately $3 million of capital in 2005 to purchase approximately 100 Rigs
that we currently lease, and approximately $12 million on the remanufacture of Rigs, and our Axis
Group expects to spend approximately $5 million of capital in 2005. We manage equipment parts through a centralized parts vendor. All of our Automotive Groups
terminals have access to this warehouse through our management information system. Based upon
usage, this management information system calculates maximum and minimum inventory quantities and
automatically generates an order for parts, as supplies are needed. Minor modifications of
equipment are performed at our terminal locations while major modifications involving changes in
length, configuration and load capacity are performed by the trailer manufacturers. In order to reduce fuel costs, our Automotive Group makes use of bulk fuel purchasing. In
addition, its drivers, while on delivery routes, will purchase fuel from several suppliers with
whom we have negotiated competitive discounts and central billing arrangements. During 2004,
Allied Automotive purchased approximately 37% of its fuel in bulk. Competition and Market Share In 1997, after we acquired Ryder Automotive Group, our Automotive Group became the largest
transporter of new vehicles in the U.S. and Canada. However, between 1997 and 2001, our Automotive
Group lost market share primarily as a result of decisions by our Automotive Group to close certain
unprofitable terminals, return certain unprofitable business to our customers and customers
decisions to remove certain business from our portfolio. In addition, during 2002, we decided to
terminate our services to substantially all Nissan customers located in the U.S. We were able to partially offset this lost revenue in 2003 and 2004 by growing organically through
new business with our customers primarily in the United States. Our Automotive Group continues to
be the largest motor carrier in North America specializing in the transportation of new
automobiles, SUVs and light trucks via specialized Rigs for all the
major domestic and foreign automotive manufacturers. In recent years, the use of fourth party logistics companies by automotive manufacturers has
increased, particularly among the Big Three. When we use the term Big Three, we mean Ford, General
Motors and Daimler Chrysler. The following are examples of the use of such companies:  
    Ford has engaged Autogistics, Inc., originally a joint venture between Ford and UPS,
which we now understand to be a service relationship, to oversee its vehicle delivery
network. All Ford vehicles in North America are shipped under the operating direction
of Autogistics;
    General Motors utilizes Vector SCM, a division of CF Corporation which acts as the
global lead logistics service provider for General Motors; and
    DaimlerChrysler has formed Insight, a joint venture with the Union Pacific Railroad. We believe that the formation of these logistic providers will potentially provide us with an
opportunity to collaborate more directly with logistics professionals. We hope to increase market
share on the basis of superior customer value propositions, by differentiating ourselves from our
competitors on the basis of reliability through our experienced drivers, effective management,
productive and service-driven operations, extensive and flexible distribution network, and
management of risk, particularly with respect to cargo claims, worker injuries and traffic
accidents. We hope to differentiate our service based on our extensive capacity, the flexibility of
our distribution network and reliability of execution. However, we can provide no assurance that
the increased use of these fourth party logistic companies by the automotive manufacturers will not
have a negative impact on our operations. Further, General Motors, DaimlerChrysler, and Ford, in
particular, have publicly announced plans to significantly reduce vendor costs including those
costs associated with logistics services. 9




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Our Automotive Groups major competitor is Performance Transportation Services, Inc. (PTS), which
is the parent company for E & L Transport Company, Hadley Auto Transport and Leaseway Auto Carrier.
PTS is the second largest automobile-hauling company in North America. Allied Automotives other
competitors include:  
    Jack Cooper Transport Co., Inc. (Jack Cooper);
    Cassens Transport Company (Cassens);
    Active Transportation (Active);
    Swift Transportation Company, Inc (Swift);
    The Waggoners Trucking (Waggoners); and
    Fleet Car-lease, Inc. (Fleet). However, we believe the Rig capacity represented by the non-union sector is materially less than
the capacity of the union companies. The labor force of E & L Transport Company, Hadley Auto
Transport, Leaseway Auto Carrier, Jack Cooper, Cassens and Active are unionized while those of
Swift, Waggoner and Fleet are non-unionized. These companies provide services similar to those we
provide and some, particularly those that are non-unionized, may be able to provide these services
at lower prices or in a more flexible manner. The number of motor carriers and the market share
represented by those carriers who utilize non-union labor has been increasing. Employees and Owner Operators At December 31, 2004, we had approximately 6,400 employees, including approximately 3,900 drivers
employed by our Automotive Group. These drivers, along with shop and yard personnel employed by our
Automotive Group, are primarily represented by the International Brotherhood of Teamsters (IBT or
Teamsters). The Master Agreement with the Teamsters covering employees in the U.S. expires on
May 31, 2008. This Master Agreement was negotiated and executed by subsidiaries of our Automotive
Group and is identical to the agreement that the National Automobile Transporters Labor Division
(the NATLD) negotiated with the IBT. The NATLD is a voluntary labor association of union
companies, which are involved in the transportation of new vehicles. The Master Agreement covers
all of our terminal operations in the U.S. and provides for wage and benefit increases in each of
the remaining years of the contract. The agreement with the Teamsters Union in Eastern Canada was negotiated on March 24, 2003 and
expires on October 31, 2005. This contract covers those drivers,
mechanics and yard personnel that are
represented by the Teamsters Union in the provinces of Ontario and Quebec, which represents
approximately 70% of our Canadian bargaining employees. We can provide no assurance that the
contract with the Teamsters in Eastern Canada or other new union contracts negotiated as current
contracts expire will not result in increased labor costs and/or work stoppages, which could in
turn materially and adversely affect our financial condition, results of operations or customer
relationships. The negotiation of the contract currently in effect in Eastern Canada resulted in
an incremental increase in benefits in each of the three years covered by the contract and an
increase in wages in year three of the contract. In addition to utilizing our drivers for automotive deliveries, subsidiaries of our Automotive
Group also utilize an estimated 690 owner-operators. These owner-operators utilize their Rigs to
deliver vehicles for us and are either paid a percentage of the revenues that they generate or are
paid a set fee plus a truck allowance. Of the estimated 690 owner-operators that we utilize,
approximately 150 drive exclusively from terminals in Canada for our subsidiary Allied Systems
(Canada) Company while approximately 540 drive exclusively from terminals in the U.S. for our
subsidiary Allied Systems. There can be no assurance that subsidiaries of our Automotive Group
will continue to utilize owner-operators under the terms or scale our company has historically
experienced. Regulation Certain of our subsidiaries domiciled in the U.S. are regulated by the U.S. Department of
Transportation (DOT) along with various state agencies. Our Canadian subsidiary is regulated by
the National Transportation Agency of Canada along with various provincial transport boards.
Regulations by these agencies include restrictions on truck and trailer length, height, width,
maximum weight capacity and other specifications. With the percentage increase in the production of
light trucks and SUVs and the associated increases in the size and weight of the average vehicle,
the average number of vehicles delivered, per load, has decreased. To offset the impact of this
reduction, we negotiated rate increases in 1999 on most of our SUV and light truck business. 10




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In addition, our interstate motor carrier operations are subject to safety requirements prescribed
by the DOT. These regulations were amended effective January 1, 2004 to require shorter hours of
service for drivers of commercial motor vehicles. Because some of our business consists of
relatively short hauls, not all of our drivers were affected by the new regulations. We estimate
that approximately 60% of our drivers were affected by the new regulations, which served to
increase or decrease their flexibility and hours of service. The reduced flexibility and hours of
service had no material impact on our operating costs due to Allieds relatively short length of
haul. Other regulations include safety regulations by the DOT in the design of our Rigs as well as
environmental laws and regulations enforced by federal, state, provincial, and local agencies.
Environmental laws and regulations affect the regulatory environment in which our Automotive
Groups terminals operate. Areas regulated include the treatment, storage and disposal of waste,
and the storage and handling of lubricants. To ensure compliance with environmental laws and
regulations, our Automotive Group maintains regular ongoing testing programs for those underground
storage tanks located at its terminals. Future regulatory and legislative changes within the motor carrier transportation industry can
affect the economics of the automobile-hauling industry by requiring changes in operating policies
or by influencing the demand for, and the cost of providing services to shippers. While we believe
that we are in compliance, in all material respects, with the various regulations, any failure to
so comply, as well as any changes in the regulation of the industry through legislative, judicial,
administrative or other action, could materially and adversely affect us. Revenue Variability Our revenues are variable and can be impacted by changes in original equipment manufacture (OEM)
production levels, especially sudden unexpected or unanticipated changes in production schedules,
product type or the weight or configuration of vehicles. In addition, our 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 as well as
to the higher spring and early summer sales of automobiles, light trucks and SUVs. During the first
and third quarters, vehicle shipments typically decline due to lower sales volume during those
periods and scheduled OEM plant shutdowns, which occur in the third quarter. However, given the
unpredictable nature of consumer sentiment and our customers emphasis on more effective use of
plant capacity, particularly at the Big Three, there can be no assurance that historical revenue
patterns or manufacturer production levels will be an accurate indicator of future OEM shipment
activity. Industry Overview The following table summarizes historic new vehicle production and sales in the U.S. and Canada,
the primary source of our revenues: 11




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2004
    
    
    
    
    
    
    2003vs.
    
    
    
    
    
    
    vs.2003
    
    
    
    
    
    
    20022004
    
    
    2003
    
    
    Change
    
    
    2002
    
    
    ChangeNew Vehicle Production (in millions of units)United States:Big Three*
    
    
    8.4
    
    
    
    8.9
    
    
    
    (5.6
    )%
    
    
    9.3
    
    
    
    (4.3
    )%Other
    
    
    3.2
    
    
    
    2.9
    
    
    
    10.3
    %
    
    
    2.7
    
    
    
    7.4
    %Total
    
    
    11.6
    
    
    
    11.8
    
    
    
    (1.7
    )%
    
    
    12.0
    
    
    
    (1.7
    )%Canada:Big Three*
    
    
    1.9
    
    
    
    1.8
    
    
    
    5.6
    %
    
    
    2.0
    
    
    
    (10.0
    )%Other
    
    
    0.8
    
    
    
    0.7
    
    
    
    14.3
    %
    
    
    0.6
    
    
    
    16.7
    %Total
    
    
    2.7
    
    
    
    2.5
    
    
    
    8.0
    %
    
    
    2.6
    
    
    
    (3.8
    )%New Vehicle Sales (in millions of units)United States:Big Three*
    
    
    10.6
    
    
    
    10.8
    
    
    
    (1.9
    )%
    
    
    11.1
    
    
    
    (2.7
    )%Import
    
    
    2.7
    
    
    
    2.7
    
    
    
    0.0
    %
    
    
    2.7
    
    
    
    0.0
    %Transplant
    
    
    3.4
    
    
    
    3.2
    
    
    
    6.2
    %
    
    
    3.0
    
    
    
    6.7
    %Total
    
    
    16.7
    
    
    
    16.7
    
    
    
    0.0
    %
    
    
    16.8
    
    
    
    (0.6
    )%Canada:Big Three*
    
    
    0.9
    
    
    
    1.0
    
    
    
    (10.0
    )%
    
    
    1.3
    
    
    
    (23.1
    )%Other
    
    
    0.6
    
    
    
    0.6
    
    
    
    0.0
    %
    
    
    0.4
    
    
    
    50.0
    %Total
    
    
    1.5
    
    
    
    1.6
    
    
    
    (6.3
    )%
    
    
    1.7
    
    
    
    (5.9
    )%
   *
    
    Represents General Motors Corporation, Ford Motor Company and DaimlerChrysler Corporation. Source:December 2004 Edition of North American Light Vehicle Industry Forecast Report (a
production of Global Insight Automotive  formerly DRI Automotive). 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 transported via specialized tractor-trailers. The remaining vehicles are shipped
by rail to various rail-ramps located throughout the U.S. and Canada where trucking companies
handle final delivery to dealers utilizing specialized rigs. 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 carriers custody. Automobiles manufactured in Europe and Asia are shipped into
the U.S. and Canada and are usually delivered directly to dealers from seaports by truck or shipped
by rail to the rail-ramps and then delivered by trucks to dealers. Vehicles transported by ship are
normally prepared for final dealer delivery at
port processing centers, where cleaning and sometimes accessory installation takes place. The port
processor then releases the vehicles to the carrier who is responsible for loading and delivery to
a rail ramp or directly to the dealers. Cautionary Notice Regarding Forward-looking Statements We make forward-looking statements in this Annual Report on Form 10-K under the headings Item 1.
Business, Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations, and in other reports we file with the SEC, including statements regarding:  
    our strategy, intentions and expectations;
    general industry trends, competitive conditions and customer preferences;
    our management information systems;
    our remanufacturing program;
    our efforts to reduce costs;
    the adequacy of cash to finance our current and future operations; and
    resolution of litigation without a material adverse effect on our financial
condition and results of operations. This notice is intended to take advantage of the safe harbor provided by the Private Securities
Litigation Reform Act of 1995 with respect to forward-looking statements. The words believe,
anticipate, seek, expect, 12




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estimate, intend, plan, project and similar expressions
often accompany such forward-looking statements, however this report also contains forward-looking
statements that may not be so identified. These forward-looking statements involve a number of
risks and uncertainties including risks and uncertainties relating to the following:  
    our ability to comply with the terms of our current debt agreements and customer contracts;
    economic recessions or downturns in new vehicle production or sales;
    war in the Middle East;
    increases in the cost and availability of fuel;
    the highly competitive nature of the automotive distribution industry;
    dependence on the automotive industry and ongoing initiatives of customers to reduce costs;
    loss or reduction of revenues generated by our major customers or the loss of
any such customers;
    the variability of OEM production and seasonality of the automotive distribution industry;
    our highly leveraged financial position;
    our ability to obtain financing in the future;
    labor disputes involving us or our significant customers;
    dependence on our key personnel;
    the availability of strategic acquisitions or joint venture partners;
    increased frequency and severity of employee related accidents and workers
compensation claims;
    availability of appropriate insurance coverages in all categories;
    changes in the regulatory requirements which are applicable to our business;
    changes in vehicle sizes, configurations and weights which may adversely impact
vehicle deliveries per load;
    risks associated with doing business in foreign countries;
    the availability of qualified drivers;
    dependence on legacy information systems;
    dependence on IBM for mainframe and system support;
    increased frequency and severity of cargo claims;
    increased frequency and severity of traffic accidents;
    excess manufacturer production capacity;
    efforts to improve network efficiency; and
    other risk factors set forth from time to time in our SEC reports, including
but not limited to, this Annual Report on Form 10-K. Many of these factors could cause our actual results to differ materially from those suggested by
the forward-looking statements. Also, many of these factors are beyond our ability to control or
predict, and we caution our readers not to place undue reliance on the forward-looking statements
that we make. We also disclaim any obligation to update or review forward-looking statements
contained in this Annual Report on Form 10-K or in any statement referencing the risk factors and
other cautionary statements set forth in this Annual Report on Form 10-K, except as may be required
by law. Factors Which May Affect Future Results The risks and uncertainties, which could either individually or together, materially and adversely
affect our future financial condition and results of operations include those set forth below and
in other sections of this Annual Report on Form 10-K. We have a significant amount of debt and substantially all our assets are pledged as collateral for
long-term obligations, which could limit our operational flexibility and customer relationships or
otherwise adversely affect our financial condition. As of December 31, 2004, we had consolidated long-term debt (including current portion of such
debt) and borrowings under our revolving credit facility of
approximately $251.2 million. In
addition, as more fully discussed in Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations  Liquidity and Capital Resources, additional borrowings are
available under our credit facility. We are exposed to the risks normally associated with
substantial amounts of debt such as: 13




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
    We may not be able to repay, refinance or extend our debt as it matures. All of our
long-term debt (including the revolving credit facility) matures in September 2007;
    If we are not able to refinance or extend our debt when it matures, we may not be able
to repay the debt;
    Substantially all our assets are pledged as collateral for our debt and as a result we
are limited in our ability to sell assets to generate additional cash;
    Our ability to obtain additional financing for funding working capital needs, capital
expenditures and for general corporate purposes may be limited and we can incur
approximately $20.9 million of additional debt beyond the
current amount available and outstanding under the credit facility as
of April 13, 2005 as a result of negative covenants contained in the Indenture of our
85/8% Senior Notes;
    We may be required to devote substantial amounts of our cash flow to fund debt service
payments thereby reducing the cash which we have available to fund working capital needs,
make capital expenditures and for respond to potential business opportunities as they
arise. This could place us at a competitive disadvantage to our competitors who may carry
less debt;
    Our flexibility in responding to changes in the business and industry may be reduced;
    We may be more vulnerable to economic downturns;
    We may be unable to meet customer demands;
    We may be limited in our ability to withstand competitive pressures; and
    We may be unable to pay dividends to our stockholders. The terms of our debt instruments place restrictions on us, which create risks of default and
reduce our flexibility. Our debt instruments contain a number of affirmative, negative, and financial covenants, which
limit our ability to, among other things, incur or repay debt (with the exception of payment of
interest or principal at stated maturity), incur liens, make investments, purchase or redeem stock,
make dividend or other distributions or enter into a merger or consolidation transaction. In April
2005, we amended the credit facility in order to reduce the required minimum consolidated earnings
before interest, taxes, depreciation and amortization as defined in
the credit facility applicable to the twelve month period ended December 31,
2004 and the respective twelve month periods ended each month thereafter through April 30, 2005.
As a result of this amendment, we were in compliance with this covenant as of December 31, 2004 but
can provide no assurance that we will be able to comply with these debt covenants in the future or
that, if we fail to do so, that we will be able to obtain amendments to or waivers of such
covenants on commercially reasonable terms, if at all. This amendment
also increased our debt incurrence ratio as set forth in the credit
facility for the months of April and May 2005. In addition, we obtained
the consent of our lenders to deliver our financial statements for the year ended December 31,
2004 on or before April 20, 2005 and we delivered these
financial statements on April 18, 2005. As
a result of this consent, we were in compliance with the requirements of the credit facility
relating to the delivery of our financial statements at December 31, 2004. If we fail to comply with the covenants contained in our debt instruments, and these are not
waived, or we do not adequately service our debt obligations, our lender could declare a default
under the debt instruments. If a default occurs under any of our debt instruments, our lenders may
elect to declare all borrowings outstanding, together with interest and other fees, to be
immediately due and payable. Borrowings under our credit facility are collateralized with
substantially all of our assets. If we were unable to repay any borrowings under our credit
facility when due, our lenders would have the right to proceed against the collateral granted to
them to secure the debt. Any default under our debt instruments, particularly any default that
resulted in acceleration of indebtedness or foreclosure on collateral, would have a material and
adverse affect on us. Rising interest rates could adversely affect our cash flow and interest expense. A portion of our indebtedness is subject to variable rates of interest. In addition, we may also
incur additional debt obligations attracting interest at variable rates and/or may refinance our
current debt at higher interest rates. 14




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##### Table of Contents



Therefore, our interest expense could increase which in
turn would reduce the amounts available for servicing our debt, funding our operations and capital
expenditure program, meeting customer demands and pursuing new business opportunities. To service our debt requires a significant amount of cash. Our ability to generate cash depends,
in part, on factors that are outside of our control. Our ability to generate the cash necessary to service our debt is subject to a number of external
factors which are beyond our control including:  
    any downturns in new vehicle production or sales;
    increases in the cost and availability of fuel;
    competition from other automobile-haulers including the railroads;
    initiatives by customers to reduce costs or alter patterns or frequency of product distribution;
    the variability of manufacturer production and distribution and the seasonality
of the automotive distribution industry;
    labor disputes involving us or our significant customers or competitors;
    increased frequency and severity of worker related accidents and workers
compensation claims;
    availability of appropriate insurance coverage;
    changes in the regulatory requirements that are applicable to our business;
    changes in vehicle sizes, configurations and weights which may adversely impact
vehicle deliveries per load; and
    risks associated with doing business in foreign countries. We can provide no assurance that we will be able to generate sufficient cash through our operations
to enable us to meet our debt obligations. If we do not generate enough cash to enable us to meet
our debt obligations, we may be required to take actions such as reducing or delaying capital
expenditures, selling assets, restructuring or refinancing our debt or seeking additional equity
capital. We can provide no assurance that any of these actions could be effected on commercially
reasonable terms, if at all, or that such actions would not affect the results of our operations,
and, furthermore, the terms of existing or future indebtedness may restrict us from adopting any of
these alternatives. Higher fuel prices resulting from fuel shortages or other factors could materially and adversely
affect us or a shortage of fuel supply could have a detrimental effect on the automotive
transportation industry and our business in general. Fuel is a major expense in the transportation of automotive vehicles, and the cost and availability
of fuel are subject to economic and political factors and events, which we can neither control nor
accurately predict. We attempt to minimize the effect of fuel price fluctuations by periodically
purchasing fuel in advance, but we can provide no assurance that such activity will effectively
mitigate our exposure. In addition, we have negotiated fuel surcharges with substantially all of
our customers, which now enable us to pass on a portion of any increase in fuel costs to these
customers. 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 time that the fuel surcharge is adjusted. Nevertheless, we can provide no
assurance that we will be able to continue to obtain fuel surcharges from these customers. The fuel surcharge agreement with a customer who comprised 35% of our Automotive Groups 2004
revenues can be terminated at any time at the sole discretion of this customer. In 2004, the fuel
surcharge agreement with this customer included a maximum amount of recovery for any calendar year.
While we did not reach the maximum amount of recovery in 2004, at current fuel prices we would
have exceeded that maximum recovery by the second quarter of 2005. However, during March 2005,
this customer agreed to waive the maximum amount of recovery during the year ending December 31,
2005 as long as this customer agrees to provide a fuel surcharge to the carhaul industry. Higher
fuel prices resulting from fuel shortages or other factors could materially and adversely affect us
if we are unable to pass on the full amount of fuel price increases to our customers through fuel
surcharges or higher rates. In addition, higher fuel prices, even if passed on to customers, or a
shortage of fuel supply, or the timing of fuel surcharge recoveries could have a detrimental effect
on the automotive transportation industry and our business in general. 15




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If we are not able to negotiate new union contracts on terms favorable to us, as current contracts
expire, we could experience an increase in labor costs in excess of increases set forth in our
current union contracts and work stoppages could occur. At December 31, 2004, we had approximately 3,900 drivers employed by our Automotive Group. These
drivers along with shop and yard personnel employed by our Automotive Group are represented
primarily by the Teamsters. The Master Agreement with the Teamsters, covering all drivers and
mechanics in the U.S., expires on May 31, 2008. The agreement with the Teamsters Union in Eastern Canada was negotiated on March 24, 2003 and
expires on October 31, 2005. This contract covers those drivers, mechanics and yard personnel who
are represented by the Teamsters Union in the provinces of Ontario and Quebec, which covers
approximately 70% of our Canadian bargaining employees. We may not have exclusive control over
issues relating to bargaining with the Teamsters in Canada upon expiration of the agreement.
Negotiation of a new contract with the Teamsters in Canada, has not yet begun, but Allied has
historically been able to negotiate a contract with the Teamsters in Canada, exclusive of any other
automobile-hauling companies utilizing union labor. However, we can provide no assurance that we
will be able to negotiate new union contracts as the current contracts expire, including the
contract in Eastern Canada, or that such contracts will be on terms acceptable to us or that these
contracts will not result in increased labor costs or work stoppages, or lost customer market share
which could in turn, have a material adverse effect on our operations. A significant decline in the automotive industry could have a material adverse effect on our
operations. The automotive transportation industry in which we operate is dependent upon the volume of new
automobiles, SUVs, and light trucks manufactured, imported and sold. The automotive industry is
highly cyclical, and the demand for new automobiles, SUVs, and light trucks is directly affected by
such external factors as general economic conditions in the U.S., unemployment, consumer
confidence, government policies, continuing activities of war, terrorist activities, and the
availability of affordable new car financing. As a result, our results of operations could be
adversely affected by cyclical downturns in the general economy and in the automotive industry and
by consumer preferences in purchasing new automobiles, SUVs, and light trucks. A significant
decline in the volume of automobiles, SUVs, and light trucks manufactured, distributed, and sold in
North America could have a material adverse effect on our operations. Losses may exceed our insurance coverage or reserves. Because we retain liability for a significant portion of our risks, an increase in the number or
severity of accidents, on the job injuries, other loss events over those anticipated, or adverse
developments in existing claims including wage and medical cost inflation could have a material
adverse effect on our profitability. While we currently have insurance coverage for claims above
our retention levels, there can be no assurance that we will be able to obtain insurance coverage
in the future. We establish liabilities for our self-insured obligations based on actuarial valuations, our
historical claims experience and managements evaluation of the nature and severity of claims made
against us. If the cost of these claims exceeds our estimates, as could occur if there were
unfavorable developments in existing claims, we would be required to record additional expenses in
subsequent years. We currently utilize an inner-aggregate, which is a deductible subject to an annual limit, in
certain insurance programs. We use the inner-aggregate only for our initial layer of excess
insurance whereby losses in the excess layer that are within the inner-aggregate amount are
retained by us up to an amount equal to the inner-aggregates annual limit. Once the annual limit
is met, the deductible is no longer in effect. Our restricted cash and investments are not available for use in our operations even if they were
needed to fund our operations. As of December 31, 2004, our restricted cash and investments were approximately $82.9 million. We
use these restricted cash and investments to collateralize letters of credit required by
third-party insurance companies for the settlement of insurance claims. These assets are not
available for use in our operations. 16




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##### Table of Contents



If we do not maintain our relationships with major customers or these relationships are terminated,
reduced or redesigned, our operations could be materially and adversely affected. Allied Automotives business is highly dependent on its
largest customers, General Motors, Ford,
DaimlerChrysler, Toyota and Honda. Approximately 88% of our Automotive Groups 2004 revenues were
generated through the services provided to these customers. Allied Automotive has developed and
maintained long-term relationships with its significant customers and has historically been
successful in negotiating the renewal of its contracts with each of its major customers prior to
the expiration of such contracts. Allied Automotive anticipates that it will continue to renew its
contracts with its significant customers on or before expiration of the existing contracts or will
serve its customers without interruption under the terms of current contracts, which may expire.
However, we can provide no assurance that we will be able to successfully renew these contracts on
or prior to their expiration or that we will be able to continue to serve these customers without
service interruption. We operate under written contracts with General Motors, Autogistics (a joint venture
between Ford Motor Company and UPS Logistics), DaimlerChrysler, Toyota and Honda.
The contract with General Motors expires in March 2006, the Ford contract expires in September 2005
for ramp locations and December 2005 for plant locations, the DaimlerChrysler contract expires on
September 30, 2005, the Toyota contract expires December 2005, and the Honda contract expires in
March 2006. The contract with Toyota may be terminated by either party by giving 60 days notice.
The contracts with Ford, DaimlerChrysler and Toyota can be terminated by location for any reason or
by giving 60 to 150 days notice. The contract with General Motors can be terminated by location for
failure to comply with the service and quality standards set forth in the contract and the
Automotive Group is not currently in compliance with the service and quality standards set forth in
the contract. We have 30 days to cure any such non-compliance by location. If we fail to cure,
General Motors can terminate the agreement by location on 60 days notice. Although our Automotive Group believes that its relationships with these customers are mutually
satisfactory, we can provide 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 us or an increase in the Automotive Groups cost of delivery for
some or all of our major customers. A significant reduction in vehicle production levels, plant
closings, or the imposition of vendor price reductions by these manufacturers, or the loss of
General Motors, Ford, DaimlerChrysler, Toyota or Honda as customers, or a significant reduction or
a change in the design, definition, or frequency of the services provided for any of these
customers by our Automotive Group would have a material adverse effect upon our operations. General
Motors, DaimlerChrysler, and Ford, in particular, have publicly announced plans to significantly
reduce vendor costs including those costs associated with logistics services. The Automotive Group faces the risk of losing market share in connection with its negotiations to
renew its contracts with Ford and DaimlerChrysler, both of which expire in 2005. For instance, in
2004, the Automotive Group renewed its agreement with DaimlerChrysler and though the agreement
resulted in increased billing rates, the Automotive Group lost DaimlerChryslers business at six
locations in connection with the contract renewal. The six locations removed from the new contract
generated revenues of approximately $12.3 million between the period January 1, 2004 and November
30, 2004. Competition in the automotive transportation industry could have a material adverse effect on us. The automotive transportation industry is highly competitive. Our Automotive Group currently
competes with other motor carriers of varying sizes, as well as with railroads and owner-operators.
Allied Automotive also competes with non-union motor carriers that may be able to provide services
to their customers at lower prices than us. The development of new methods for hauling vehicles
could also lead to increased competition. For example, some customers occasionally utilize local
driver-away services to facilitate local delivery of products. There has also been an increase in
the number of automobile-hauling companies that utilize non-union labor, and the market share
represented by such companies has increased. Automobile-hauling companies that utilize non-union
labor operate at a significant cost advantage as compared to our Automotive Group and other
unionized automobile-hauling companies. We believe these companies are exposed to higher levels of
employee turnover. However, there remains a cost advantage primarily as a result of lower benefit
and pension costs. Non-union competitors also operate without restrictive work rules that apply to
our Automotive Group and other unionized companies. Railroads, which specialize in long-haul
transportation, may be able to provide delivery services at costs to customers that are less than
the long-haul delivery cost of Allied Automotives services. Further, the railroads could form
alliances for 17




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local delivery of customer product. If we lose market share to these competitors or
have to reduce our rates in order to retain our market share, our financial condition and results
of operations could be materially and adversely affected. In March 2004, PTS which already owned two competitors of Allied Automotive, namely E & L Transport
Company and Hadley Auto Transport, acquired Leaseway Auto Carrier Group, another competitor of our
Automotive Group. PTS is now the second largest provider of vehicle transport services in North
America with annual estimated revenues of approximately $350 million. Adverse changes in the foreign business climate, primarily in Canada, could adversely affect our
operations. Although the majority of our operational activity takes place in the U.S., we derive a portion of
our revenues and earnings from operations in foreign countries, primarily Canada. The risks of
doing business in foreign countries include the potential for adverse changes in the local
political climate, adverse changes in diplomatic relations between foreign countries and the U.S.,
hostility from local populations, the potential adverse effects of currency exchange controls,
increased security at U.S. border crossings which could slow the movement of freight and increase
our operating costs, deterioration of foreign economic conditions, currency rate fluctuations,
foreign exchange restrictions and potential changes in local taxation policies. Due to the
foregoing risks, any of which, if realized, could have a material adverse effect on our operations,
we believe that our business activities outside of the U.S. involve a higher degree of risk than
our domestic activities. Major changes in key personnel on whom we depend could adversely affect us. Our success is dependent upon our senior management team, as well as our ability to attract and
retain qualified personnel. Our credit facility provides that the facility may be terminated in the
event that Hugh E. Sawyer ceases to be involved in our day-to-day operations, unless a successor
reasonably acceptable to the lenders is appointed within 150 days of Mr. Sawyer ceasing to be
involved with our company. In addition, there have been a number of senior management changes within the last year, including
the following:  
    January 25, 2005  we appointed Mr. Thomas King to the position of Executive Vice
President and Chief Financial Officer;
    January 21, 2005  we appointed Mr. Donald Burke to the position of Vice President and
Corporate Controller;
    February 28, 2005  we appointed Mr. David Sheffield to a new position of Vice
President, Finance and Accounting; and
    October 2004  we appointed Mr. John Harrington to the position of President of the Axis
Group.
    April 2004  we appointed Joe Marinelli to the position of Senior Vice President,
Administration and in October 2004 he became Senior Vice President, Field Operations. If our new management team is unable to develop successful strategies, achieve company objectives
or maintain satisfactory relationships with our employees, customers, suppliers and creditors, our
ability to grow our business and meet business challenges could be impaired. We can provide no
assurance that we will be able to retain our existing senior management team or that we will be
able to attract additional qualified personnel. Our common stock could be delisted from the American Stock Exchange. On November 26, 2004, the American Stock Exchange (AMEX) notified us that it would suspend
trading of our common stock due to the delay in the filing of our Quarterly Report on Form 10-Q for
the third quarter of 2004. As a result of the suspension, our common stock did not trade between
the period November 29, 2004 and January 13, 2005. We filed our Quarterly Report on Form 10-Q for
the third quarter of 2004 with the SEC on January 7, 2005 and trading resumed on January 13, 2005. On November 26, 2004, we received notice from the AMEX that we were not in compliance with its
continuing listing requirements because our shareholders equity had fallen below the $4 million
threshold. On December 4, 2004, we submitted to the AMEX a plan advising of actions that we
intended to take in order to bring us into compliance with the shareholders equity requirements no
later than May 26, 2006. On December 15, 2004, the AMEX notified us that it had accepted our plan
to regain compliance with its requirements based on its 18




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determination that our plan represented a
reasonable demonstration of our ability to regain compliance with its continuing listing
requirements by May 26, 2006. Allieds listing on the AMEX is being continued in accordance with an extension as a result of the
staffs acceptance of the plan. The continued listing of our stock is subject to our company
gaining compliance with the continuing listing requirements by May 26, 2006 and providing the AMEX
staff with updates in conjunction with the initiatives of the plan no later than at the end of each
calendar quarter. The AMEX staff will review our company periodically for compliance with the
plan, and if we do not show progress consistent with the plan, the AMEX staff may immediately
commence delisting proceedings. At May 26, 2006, we must be in compliance with all the continuing
listing requirements, and if we fail to regain compliance by this date, our common stock will
likely be delisted from the AMEX. And there can be no assurance that our company will identify
another site to trade its stock without disruption in trading activity. Due to the further reduction in our shareholders equity as reported in this Annual Report on Form
10-K, there can be no assurance that we will regain compliance with the liquidity requirements of
the AMEX, and the AMEX could conclude that we have not shown progress consistent with our plan, in
which case, the AMEX could commence delisting proceedings. If we fail to file our SEC periodic reports on a timely basis, trading of our common stock may be
halted or our common stock may be delisted from the American Stock Exchange. During 2004, we failed to file our Annual Report on Form 10-K for the year ended December 31, 2003
and our Quarterly Reports on Form 10-Q for our second and third fiscal quarters of 2004 by the due
dates prescribed by the SEC. These delays were due to our reclassification of certain items
included in our financial statements and our failure to complete the preparation and review of our
financial statements in a timely fashion. As a result of our failure to timely file our Quarterly
Report on Form 10-Q for the third quarter of 2004, the AMEX halted trading of our common stock from
November 29, 2004 through January 13, 2005. The continued listing of our common stock on the AMEX
requires that we timely file our SEC periodic reports. Failure to file our future SEC periodic
reports by the due dates prescribed by the SEC could result in additional trading halts being
imposed on our common stock or the delisting of our common stock from the AMEX, which in turn could
adversely affect the market liquidity of our common stock. If we fail to remediate the material weakness in our internal control over financial reporting,
identified by our auditors, we may fail to meet our SEC and other reporting requirements. In connection with the completion of its audit of, and the issuance of an unqualified report on,
our Consolidated Financial Statements for the year ended December 31, 2003, KPMG LLP, our
independent auditor, advised our Audit Committee and management of certain deficiencies in our
internal control over financial reporting that it considered to be a reportable condition under
the standards established by the American Institute of Certified Public Accountants. The reportable
condition related to the analysis, evaluation and review of financial information included in our
consolidated financial statements. As a result, we restated certain financial information and
disclosures that were not appropriately presented. Subsequently, in connection with its reviews of
our Quarterly Reports on Form 10-Q for the quarters ended June 30, 2004, and September 30, 2004,
KPMG advised our Audit Committee and management that we continued to have deficiencies in our
analysis, evaluation and review process over financial reporting and as a result, it believed that
these deficiencies constituted a material weakness in our internal control over financial
reporting. In response to the material weakness, we undertook a rigorous review and, where necessary, we
revised our accounting policies and procedures to ensure that all reasonable steps had been taken
to address and correct the material weakness identified by KPMG. As part of this process, we hired
an external consultant to assist us in reviewing and revising our policies and procedures, hired a
new Chief Financial Officer, replaced our Corporate Controller in January 2005, staffed a new role
of Vice President, Finance and Accounting and added several other accounting professionals in
February and March 2005. We believe that these and other steps have established the appropriate
foundation upon which to remediate this material weakness as processes, including regular
evaluation and management reviews, are strengthened and are put in place operationally over a
reasonable period of time. In connection with the audit of our
Consolidated Financial Statements for the year ended
December 31, 2004, KPMG acknowledged to the Audit Committee and
management that they have observed that we have added significant
resources to improve processes and controls over the analysis,
evaluation and review of financial information included in the
financial reporting process. However, KPMG indicated that the
material weakness still exists as of December 31, 2004 and the
effectiveness of these controls can only be evaluated after they have
been in place and operating for a significant period of time. We can provide no assurances that additional material weaknesses or significant deficiencies in our
internal control over financial reporting will not be discovered in the future. If we fail to
remediate the material weakness identified by our independent auditors, or if we have 19




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difficulties
in implementing or fail to implement new or improved controls that are required as a result of the
material weakness, our operating results or customer relationships could be adversely affected or
we may fail to meet our SEC reporting requirements or our financial statements may contain a
material misstatement. Internal control over financial reporting cannot provide absolute assurance of achieving financial
reporting objectives or of preventing fraud due to its inherent limitations, regardless of how well
designed or implemented. Internal control over financial reporting is a process that involves
human diligence and compliance and is subject to unintended human errors, lapses in judgment and
breakdowns resulting from human failures. Because of these limitations, there is a risk that
material misstatements or instances of fraud may not be prevented or detected on a timely basis by
audit processes, accounting personnel or by our internal control over financial reporting. SEC Filings This Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K
and any amendments to these reports are available free of charge on our website
(www.alliedholdings.com) as soon as practicable after they are available on the SEC website. You may read and copy any of the materials, which we file with the SEC at the SECs Public
Reference Room located at 450 Fifth Street, NW, Washington, DC 20549. You may also obtain
information about the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the
SEC maintains an Internet website (http://www.sec.gov) that contains our filings, proxy and other
information about us. 
 Item 2.Properties Our executive offices are located in Decatur, Georgia, a suburb of Atlanta. We lease approximately
100,000 square feet of space for our executive offices, which we believe is sufficient to permit us
to conduct our corporate business. We have subleased approximately 14,000 square feet of this space
for varying terms. Our Automotive Group also operates from 81 terminals throughout the U.S. and
Canada, which are located at or close to manufacturing plants, ports, and railway terminals. Allied
Automotive currently owns 22 of these terminals and leases the remainder. Most of the leased
facilities are leased on a year-to-year basis from railroads at rentals that are not individually
material to us. In addition, the Axis Group operates from 52 terminals. As more fully disclosed in Note 12 of the Notes to our Consolidated Financial Statements included
in this Annual Report on Form 10-K, borrowings under our credit facility are secured by a first
priority security interest on certain of our assets. If we were unable to repay any borrowings
under our credit facility as they fall due, our lenders would have the right to proceed against the
collateral. Changes in governmental regulations, particularly in the 1990s, have over time permitted the
lengthening of Rigs from 55 to 75 feet. Our Automotive Group has worked closely with automobile
manufacturers to develop specialized equipment to meet their specific needs. Our Automotive
Groups Rigs are substantially maintained at 42 garages (also referred to as shops) located
throughout the U.S. and Canada. Approximately 530 maintenance personnel, including managers and
supervisors, staff these garages. Of the 42 shops, our Automotive Group owns 14 and leases the
remaining 28. We schedule our Rigs for regular preventative maintenance inspections. Each shop is
equipped to handle repairs resulting from scheduled or unscheduled inspections or from issues
documented by our drivers or supervisors, including repairs to electrical systems, air conditioning
systems, suspension, hydraulic systems, cooling systems, and minor engine repairs. Major engine
overhaul and engine replacement and services relating to our remanufacturing program are performed
by outside vendors. 
 Item 3.Legal Proceedings We are involved in various litigation and environmental matters relating to workers compensation,
products liability, auto liability, employment practices, and other matters arising from operations
in the ordinary course of business. We believe that the ultimate disposition of these matters will
not have a material adverse effect on our financial position or results of operations. 20




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See also Note 17 (c) of the Notes to our Consolidated Financial Statements included in this Annual
Report on Form 10-K. 
 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 our executive officers: Name
    
    Age
    
    TitleRobert J. Rutland.
    
    
    63
    
    
    Chairman and DirectorHugh E. Sawyer.
    
    
    50
    
    
    President, Chief Executive Officer, and DirectorGuy W. Rutland, IV.
    
    
    41
    
    
    Senior Vice President and DirectorThomas M. Duffy.
    
    
    44
    
    
    Executive Vice President, General Counsel and SecretaryThomas H. King.
    
    
    50
    
    
    Executive Vice President and Chief Financial Officer
 Mr. Robert Rutland has been our Chairman since 1995. He served as Chairman and Chief Executive
Officer between February 2001 and June 2001, as Chairman between December 1995 and December 1999
and as President and Chief Executive Officer between 1986 and December 1995. Prior to October 1993,
Mr. Rutland served as Chief Executive Officer of each of our subsidiaries. Mr. Sawyer has been our President and Chief Executive Officer since June 2001. Between April 2000
and June 2001, he served as President and Chief Executive Officer of Aegis Communications Corp. Mr.
Sawyer also served briefly as President of our Automotive Group between January 2000 and April
2000, as President and Chief Executive Officer of National Linen Service (a subsidiary of National
Service Industries, Inc.) between 1996 and 2000 and as President of Wells Fargo Armored Service
Corp. (a subsidiary of Borg-Warner Corp.) between 1988 and 1995. Mr. Sawyer is a member of the
Board of Directors of Spiegel, Inc. Guy W. Rutland IV has been a Senior Vice President since July 2001. Mr. Rutland was Executive Vice
President and Chief Operating Officer of our Automotive Group between February 2001 and July 2001,
Senior Vice President  Operations of our Automotive Group between November 1997 and February 2001
and Vice President  Reengineering Core Team of our Automotive Group between November 1996 and
November 1997. Between January 1996 and November 1996, Mr. Rutland was Assistant Vice President of
the Central and Southeast Operations of Allied Systems, Ltd, one of our subsidiaries. Between March
1995 and January 1996, Mr. Rutland was Assistant Vice President of Operations for the Central
Division of Allied Systems, Ltd and Assistant Vice President of its Eastern Division between June
1994 and March 1995. Between 1993 and June 1994, Mr. Rutland was assigned to the special projects
department during which time he performed an assignment in the Industrial Relations/Labor
Department. Between 1988 and 1993, Mr. Rutland served as our Director of Performance Management. Mr. Duffy has been our Executive Vice President, General Counsel and Secretary since February 2004,
was Senior Vice President, General Counsel and Secretary between November 2000 and February 2004,
and was Vice President, General Counsel and Secretary from June 1998 to November 2000. Between May
1997 and 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. King was appointed Executive Vice President and Chief Financial Officer on January 25, 2005,
prior to which he served us as a full-time accounting consultant. Prior to August 2004 when he
joined us as a full-time accounting consultant, Mr. King was with Tatum Partners, a consulting
group, which he joined in 2000 that provides clients with a full range of chief financial officer
services. While at Tatum Partners, Mr. King served as interim CFO and financial vice-president for
a number of public and private companies. Prior to joining Tatum Partners, Mr. King served as
Chief Financial Officer of John Galt Holdings, Ltd. & Affiliates. Mr. King is a certified public
accountant and has worked at the accounting firms of Deloitte and Touche LLP and
PricewaterhouseCoopers. 21




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##### Table of Contents



PART II 
 Item 5.Market for the Registrants Common Equity and Related Stockholder Matters Our common stock began trading on the AMEX under the symbol AHI on April 8, 2002. Between March 3,
1998 and the date the stock began trading on the AMEX, it was listed on the New York Stock Exchange
and between September 29, 1993 and March 3, 1998 on the NASDAQ Stock Market. Prior to this, there
was no established public trading of our common stock. On November 26, 2004, the AMEX notified us that it would suspend trading of our common stock due to
the delay in the filing of our Quarterly Report on Form 10-Q for the third quarter of 2004. As a
result of the suspension, our common stock did not trade between the period November 29, 2004 and
January 13, 2005. We filed our Quarterly Report on Form 10-Q for the third quarter of 2004 with
the SEC on January 7, 2005 and trading of our common stock resumed on January 13, 2005. In addition, on November 26, 2004, we received notice from the AMEX that we were not in compliance
with its continuing listing requirements as our shareholders equity had fallen below the required
$4 million threshold. We have since submitted, and the AMEX has accepted, our plan to regain
compliance with the shareholders equity standard by May 26, 2006. Our common stock is currently
listed on the AMEX under an extension from the AMEX due to their acceptance of our plan to regain
compliance. Due to the further reduction in our shareholders equity as reported in this Annual Report on Form
10-K, there can be no assurance that we will regain compliance with the liquidity requirements of
the AMEX, and the AMEX could conclude that we have not shown progress consistent with our plan, in
which case, the AMEX could commence delisting proceedings. The following table sets forth the high and low per share closing sales price of our common stock
for the periods indicated, as reported on the AMEX: Year Ended December 31,2004
    
    
    2003Period:
    
    High
    
    
    Low
    
    
    High
    
    
    LowFirst Quarter
    
    $
    7.89
    
    
    $
    4.86
    
    
    $
    3.75
    
    
    $
    3.12Second Quarter
    
    $
    6.21
    
    
    $
    3.85
    
    
    $
    3.50
    
    
    $
    3.00Third Quarter
    
    $
    4.26
    
    
    $
    2.18
    
    
    $
    3.73
    
    
    $
    3.27Fourth Quarter
(1)
    
    $
    3.34
    
    
    $
    1.97
    
    
    $
    5.00
    
    
    $
    3.50
   (1)
    
    The data for the fourth quarter of 2004 was affected by the suspension of trading of
our stock between the period November 29, 2004 and December 31, 2004. Trading of our stock resumed
on January 13, 2005. As of March 23, 2005, common stock holders of record totaled approximately 2,200 in number. We have paid no cash dividends since our stock became publicly traded in 1993. Furthermore, we are
party to a credit facility with a syndicate of lenders as well as the
indenture governing our 85⁄8% Senior Notes maturing in 2007. These credit agreements each contain covenants restricting our
ability to pay dividends on our common stock. See also Item 7.  Managements Discussion and
Analysis of Financial Condition and Results of Operations  Liquidity and Capital Resources and
Note 12 in the Notes to our Consolidated Financial Statements included elsewhere in this Annual
Report on Form 10-K. Equity Compensation Plan Information: 22




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##### Table of Contents



Number of Securities to be
    
    
    
    
    
    
    Number of SecuritiesIssued Upon Exercise of
    
    
    Weighted-Average
    
    
    Remaining Available for FutureOutstanding Options,
    
    
    Exercise Price of
    
    
    Issuance Under EquityPlan Category
    
    Warrants and Rights
    
    
    Outstanding Options
    
    
    Compensation PlansEquity compensation
plans approved by
security
holders(1)
    
    
    1,588,667
    
    
    $
    3.68
    
    
    
    565,186
    (2)Equity compensation
plans not approved
by security
holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,588,667
    
    
    $
    3.68
    
    
    
    565,186
   (1)
    
    Consists of our 1993 Long-Term Incentive Plan as adopted in 1993, amended in 2000,
amended and restated in 2001, amended in 2002, and amended and restated in 2004. For a
description of our equity compensation plan, see Note 19 of our Consolidated Financial
Statements included in this Annual Report on Form 10-K.(2)
    
    Includes our Employee Stock Purchase Plan, which has 260,445 shares available for
future issuance. 
 Item 6.Selected Consolidated Financial Data You should read the following selected consolidated financial data in conjunction with Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations and the
Consolidated Financial Statements and notes thereto, which are included elsewhere in this Annual
Report on Form 10-K. Year Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(In thousands except per share amounts)Selected Statement of Operations Data:Revenues
    
    $
    895,213
    
    
    $
    865,463
    
    
    $
    898,060
    
    
    $
    896,767
    
    
    $
    1,069,154Loss before income taxes
and cumulative effect of change
in accounting principle
    
    
    (41,522
    )
    
    
    (2,338
    )
    
    
    (4,563
    )
    
    
    (60,789
    )
    
    
    (11,370
    )Income tax (expense) benefit
    
    
    (12,361
    )
    
    
    (6,266
    )
    
    
    1,129
    
    
    
    21,293
    
    
    
    5,069Loss before cumulative
effect of change in accounting
principle
    
    
    (53,883
    )
    
    
    (8,604
    )
    
    
    (3,434
    )
    
    
    (39,496
    )
    
    
    (6,301
    )Cumulative effect of change in
accounting principle, net of
tax
    
    
    
    
    
    
    
    
    
    
    (4,092
    )
    
    
    
    
    
    
    Net loss
    
    $
    (53,883
    )
    
    $
    (8,604
    )
    
    $
    (7,526
    )
    
    $
    (39,496
    )
    
    $
    (6,301
    )Net loss per
share  basic and diluted
    
    $
    (6.15
    )
    
    $
    (1.02
    )
    
    $
    (0.91
    )
    
    $
    (4.86
    )
    
    $
    (0.79
    )Weighted average common shares
outstanding  basic and diluted
    
    
    8,757
    
    
    
    8,475
    
    
    
    8,301
    
    
    
    8,128
    
    
    
    7,946Selected Balance Sheet Data:Total assets
    
    $
    421,532
    
    
    $
    460,063
    
    
    $
    468,387
    
    
    $
    537,104
    
    
    $
    610,539Long-term debt, including current portion of long-term debt and revolving credit facility
    
    
    251,238
    
    
    
    246,500
    
    
    
    248,475
    
    
    
    289,158
    
    
    
    324,985Other long-term liabilities
    
    
    70,444
    
    
    
    59,697
    
    
    
    64,792
    
    
    
    72,296
    
    
    
    69,594Stockholders (deficit) equity
    
    
    (41,549
    )
    
    
    8,814
    
    
    
    10,314
    
    
    
    17,997
    
    
    
    59,141
 
 Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations You should read the discussion and analysis in this section in conjunction with the consolidated
financial statements and accompanying notes included in Item 15 of this Annual Report on Form 10-K.
In addition, we use forward-looking statements in the discussion that follows. Forward-looking
statements by nature involve risks and uncertainties and hence our actual results could differ
materially from our expectations as a result of various factors, some of which we discuss in Item
1. Business  Factors Which May Affect Future Results. Executive Overview We are an automobile-hauling company with annual revenues in excess of $890 million. We offer a
range of automotive delivery services to dealers including the transportation of new, pre-owned and
off-lease vehicles from plants, rail ramps, ports and auctions, while also providing vehicle
rail-car loading and unloading services. Our 23




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principal operating subsidiaries are the Automotive Group and the Axis Group. The Automotive Group
is our largest subsidiary comprising 97% of our 2004 revenues. Our Automotive Group owns approximately 3,700 specialized tractor-trailers, also referred to as
Rigs, leases 453 additional Rigs, and utilizes approximately 690 owner-operator Rigs. Our
Automotive Group has determined that it will dispose of approximately 700 Rigs during 2005, leaving
us with approximately 3000 of these company-owned Rigs at the end of 2005. Using our Rigs, we
serve and support all the major domestic and foreign automotive manufacturers. Though there is
limited public information available about our competitors, most of whom are privately-owned
companies, we believe that our Automotive Group is by far the largest motor carrier in North
America, based on the number of vehicles it delivers annually versus total vehicles produced as
well as revenues generated from vehicle deliveries. Allied Automotives largest customers are
General Motors, Ford, DaimlerChrysler, Toyota and Honda. During 2004, these customers accounted
for approximately 88% of the Automotive Groups revenues. Other North American customers include
the major foreign manufacturers, namely Mazda, Nissan, Isuzu, Volkswagen, Hyundai, and KIA. Allied
Automotive operates primarily in the short-haul segment of the automotive transportation
industry. When we use the term short-haul, we mean average hauled distances of less than 200
miles. Our Axis Group complements the services provided by our Automotive Group, providing vehicle
distribution and transportation support services to both the pre-owned and new vehicle markets as
well as to other segments of the automotive industry. Other services provided by Axis to the
automotive industry include automobile inspections, auction and yard management services,
intra-modal transport, vehicle tracking, vehicle accessorization, and dealer preparatory services. In this section, we discuss the following:  
    Summary of Events;
    Our Customers;
    Our Competitors;
    Collective Bargaining Agreements and Regulations Which Impact Us;
    Results of Operations;
    Liquidity and Capital Resources;
    Off-Balance Sheet Arrangements;
    Disclosures About Market Risks;
    Critical Accounting Policies and Estimates;
    Factors Which May Affect Future Results; and
    Recent Accounting Pronouncements. Summary of Events We recorded net losses of $53.9 million, $8.6 million and $7.5 million in 2004, 2003 and 2002,
respectively. Factors affecting the results for these years included the following:  
    2004  - increased expenses related to our self-insurance
programs including a non-cash charge related to our
conclusion that we can not reliably determine insurance reserves on a
discounted basis due to the increase in reserves for
claims incurred in prior years that developed adversely during 2004,
as well as higher than expected costs for insurance premiums, a non-cash impairment related to goodwill
at the Axis Group, increased audit and accounting costs,
increased depreciation expense on some of our Rigs due to a revision of their estimated
useful lives, a non-cash charge to record an additional valuation allowance against our
deferred tax assets, increased
maintenance costs, the adverse impact of
excess costs associated with lower than expected shipment levels in January 2004 and
dramatically higher fuel prices beginning in the second quarter and continuing
throughout the year.
    2003 - the adverse impact of the decline in new vehicle production and a non-cash
charge to record a valuation allowance against our deferred tax assets. The adverse
effects to our net loss were partially offset by a pre-tax gain from the settlement of
litigation with Ryder System, the strengthening of the Canadian dollar against the U.S.
dollar, reduced depreciation as a result of the removal of fully 24




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depreciated assets from our depreciable base and the elimination of certain
non-performing businesses that operated at a loss.
    2002 - an impairment loss related to goodwill at the Axis
Group, partially
offset by a pre-tax gain on the early extinguishment of our subordinated notes. During 2004, we renewed contracts with rate increases with three major customers, established
higher pricing in yard operations with a major customer and negotiated fuel surcharges with a major
customer. Further, we retain high levels of self-insured risks and continue to be impacted by the
high costs of insurance. During 2004, we increased our self-insurance reserves while also
implementing programs aimed at reducing worker injuries, cargo claims and traffic accidents. During
2005, we will continue to focus on our risk management program as we consider this to be an area
that can significantly impact our results. We will also continue to renew our fleet of Rigs
through our Rig remanufacturing program and the purchase of new or used equipment. We remain
cautious concerning any further increases in fuel prices, which could adversely affect the costs of
running our business, and we continue to seek ways to rationalize our overhead while not
compromising our commitment to safety, service and quality. During 2004, we amended our credit facility to include an additional $20 million term loan and
increase the maximum amount of letters of credit that we may issue under our revolver from $40
million to $50 million. In April 2005, we amended our credit facility again to provide an
additional $25 million term loan and to change the financial
covenant relating to our consolidated earnings before interest,
taxes, depreciation and amortization, as defined in the credit
facility, for the twelve consecutive months ending on the last day of each month from and including
December 31, 2004 through April 30, 2005. On November 26, 2004, the AMEX notified us of its intention to suspend trading of our common stock
due to the delay in the filing of our Quarterly Report on Form 10-Q for the third quarter of 2004.
As a result of the suspension, our common stock did not trade between the period November 29, 2004
and January 13, 2005. We filed our Quarterly Report on Form 10-Q for the third quarter of 2004
with the SEC on January 7, 2005, and trading of our common stock resumed on January 13, 2005. On November 26, 2004, we received notice from the AMEX that we were not in compliance with its
continuing listing requirements as our shareholders equity had fallen below the required $4
million threshold. We have since submitted, and the AMEX has accepted, our plan to regain
compliance with the shareholders equity standard by May 26, 2006. The continued listing of our
common stock on the AMEX is subject to our company regaining compliance with the continuing listing
requirements by May 26, 2006 and providing the AMEX staff with updates in conjunction with the
initiatives of the plan no later than at the end of each calendar quarter. The AMEX staff will
review our company periodically for compliance with the plan, and if we do not show progress
consistent with the plan, the AMEX staff could commence delisting proceedings. On May 26, 2006, we
must be in compliance with the continuing listing requirements. Failure to regain compliance by
this date will likely result in the AMEX staff initiating delisting proceedings. Due to the further reduction in our shareholders equity as reported in this Annual Report on Form
10-K, there can be no assurance that we will regain compliance with the liquidity requirements of
the AMEX, and the AMEX could conclude that we have not shown progress consistent with our plan, in
which case, the AMEX could commence delisting proceedings. Our Customers Allied Automotives business is highly dependent on its largest customers, General Motors, Ford,
DaimlerChrysler, Toyota and Honda. Approximately 88% of our Automotive Groups 2004 revenues were
generated from the services provided to these customers. A significant reduction in production
levels, plant closings, changes in our customers distribution strategies or the imposition of
vendor price reductions by these manufacturers, or the loss of General Motors, Ford,
DaimlerChrysler, Toyota or Honda as a customer, or a significant reduction in the services provided
to any of these customers by our Automotive Group would have a material adverse effect on our
operations. General Motors, DaimlerChrysler, and Ford, in particular, have publicly announced plans
to significantly reduce vendor costs including those costs associated with logistics services. The Automotive Group faces the risk of losing market share in connection with its negotiations to
renew its contracts with Ford and DaimlerChrysler in 2005. For instance, in 2004, the Automotive
Group renewed its agreement with DaimlerChrysler, and, though billing rates increased, the
Automotive Group lost DaimlerChryslers 25




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business at six locations in connection with the contract renewal. Revenues from these six
locations accounted for approximately $12.3 million of our Automotive Groups revenues for the
period January 1, 2004 through November 30, 2004. Allied Automotive has contracts in place with substantially all of its
customers with terms up to March 2006. However, most of these contracts can be terminated by either party upon a specified
period of notice. These contracts establish rates for the transportation of vehicles. Generally,
rates are based on a fixed rate per vehicle transported and a variable rate for each mile that a
vehicle is transported, as well as an administrative processing fee. Certain contracts provide for
rate variation per vehicle depending on the size and weight of the vehicle. During 2004,
substantially all of our customers agreed to the payment of a fuel surcharge that allows us to
recover at least a portion of fuel price increases. Except in cases where we are able to obtain the
customers agreement, these contracts do not permit the recovery of increases in fuel taxes or
labor costs. As of December 31, 2004, there was a maximum amount of fuel surcharge increase that
we were allowed to pass on to a customer who comprised 35% of our Automotive Groups 2004 revenues
in any calendar year. While we did not reach the maximum amount of this surcharge during 2004, at
current fuel prices we would have exceeded that maximum by the second quarter of 2005. However,
during March 2005, this customer agreed to waive the maximum recovery amount for the year ending
December 31, 2005, which will allow us to continue to pass on the agreed amounts of fuel surcharge
increases to this customer as long as this customer agrees to provide a fuel surcharge. Our Automotive Group has developed and maintained long-term relationships with its significant
customers and has historically been successful in negotiating the renewal of contracts with these
customers on or prior to their expiration. For example, Allied Automotive has served Ford since
1934, DaimlerChrysler since 1979, and General Motors since 1997 under written contracts with these
customers. Allied Automotive renewed its contract with DaimlerChrysler effective October 1, 2004,
approximately four months prior to the stated expiration date of the contract, and renewed its
contract with General Motors on January 1, 2004, approximately two months prior to its expiration.
In addition, we recently renewed the contract with Toyota through December 20, 2005 and the
contract with Honda through March 31, 2006. Allied Automotive anticipates that it will be able
continue these relationships with its customers without service interruption. However, there can
be no assurance that it will be able to successfully renew contracts with its major customers on
terms satisfactory to Allied Automotive prior to the expiration of these contracts, or that it will
continue to serve its customers without interruption or without a loss of market share under the
terms of the current contracts as they expire. Current customer contracts include the following:  
    a contract with Autogistics, formerly a joint venture between Ford Motor Company and
UPS Logistics and currently a service relationship as to the distribution of Ford
vehicles, which grants the Automotive Group primary carrier rights for 22 locations in
the U.S. and 10 in Canada. This contract expires in September 2005 for ramp locations
and December 2005 for plant locations. Each party to the contract has the right to
terminate the agreement by location on 75 days notice;
    a contract with DaimlerChrysler, which expires on September 30, 2005, and which
grants the Automotive Group primary carrier rights for 24 locations in the U.S. and 13
in Canada. The contract may be terminated by location on 150 days notice by either
party. This contract was renewed effective October 1, 2004 and provided for an increase
in underlying base rates as of the effective date and a reduction in the number of U.S.
locations served from 30 to 24. The six locations removed from the new contract
generated revenues of $12.3 million between the period January 1, 2004 and November 30,
2004;
    a contract with General Motors which expires in March 2006 and which grants the
Automotive Group primary carrier rights for 36 locations in the U.S. and Canada. General
Motors does not have the right to resource business at a location under the terms of the
contract unless the Automotive Group fails to comply with service or quality standards
at such location. Should an event of non-compliance occur, the Automotive Group has 30
days in which to cure. If Allied Automotive does not cure, General Motors may give 60
days notice of termination with respect to the applicable location;
    an agreement with Toyota, which expires on December 20, 2005. This contract may be
terminated by either party by giving 60 days notice. This contract was renewed on
January 3, 2005 and provided for an increase in base rates effective December 20, 2004;
and 26




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
    a contract with Honda, which expires on March 31, 2006, which includes an increase in
underlying base rates. Either party may terminate this contract by giving notice 60
days prior to the expiration date. So long as neither party provides such termination
notice, the contract automatically extends for successive periods of one year. Our Competitors Automotive manufacturers have increased their use of fourth party logistics companies. We believe
that the formation of these logistic providers will provide us with an opportunity to collaborate
more directly with logistics professionals and we hope to increase market share on the basis of
superior customer value propositions by differentiating ourselves from our competitors on the basis
of our experienced drivers, effective management, productive and service-driven operations,
extensive and flexible distribution network, and superior management of risk, particularly with
respect to cargo claims, worker injuries and traffic accidents. We also hope to differentiate our
service based on our speed and reliability of execution. In addition, the number of motor carriers and the market share represented by those carriers who
utilize non-union labor has been increasing. Non-unionized companies may be able to provide the
services that we offer at lower prices than us. Our Automotive Groups major competitor is PTS. In March 2004, PTS acquired Leaseway Auto Carrier,
thereby making PTS the second largest automobile-hauling company in North America. Collective Bargaining Agreements and Regulations Which Impact Us At December 31, 2004, we had approximately 3,900 drivers employed by our Automotive Group. These
drivers, along with shop and yard personnel employed by our Automotive Group, are represented by
various labor unions, but the majority are represented by the Teamsters. The Master Agreement with
the Teamsters, covering all drivers and mechanics in the U.S., expires on May 31, 2008. The
agreement with the Teamsters in the U.S. covers approximately 80% of our U.S. employees. Economic
provisions of the agreement include a wage freeze for the first two years of the agreement (June
2003 through May 2005) and wage increases of approximately 2.0% on June 1, 2005, 2.0% on June 1,
2006, and an additional 2.5% on June 1, 2007. The agreement also provides for increases in health,
welfare and pension contributions during each year of the agreement. The economic provisions of the
contract are anticipated to increase our U.S. Teamster labor costs in each year of the agreement.
For the year ending May 31, 2005 (year two of the agreement) the U.S. Teamsters labor costs are
expected to increase 1.3% over the year ended May 31, 2004 (year one), 2.5% in year three, 2.5% in
year four, and 3.0% in year five of the agreement. The agreement with the Teamsters Union in Eastern Canada was negotiated on March 24, 2003 and
expires on October 31, 2005. This contract covers those drivers, mechanics and yard personnel who
are represented by the Teamsters Union in the provinces of Ontario and Quebec, which is
approximately 70% of our Canadian bargaining employees. We may not have exclusive control over
issues relating to bargaining with the Teamsters in Canada upon expiration of the agreement.
Negotiation of a new contract with the Teamsters in Canada has not yet begun but Allied has
historically been able to negotiate a contract with the Teamsters in Canada, exclusive of any other
automobile-hauling companies utilizing union labor. However, we can provide no assurance that we
will be able to negotiate new union contracts as the current contracts expire, including the
contract in Eastern Canada, or that such contracts will be on terms acceptable to us or that these
contracts will not result in increased labor costs or work stoppages, which could in turn, have a
material adverse effect on our operations. Certain of our subsidiaries domiciled in the U.S. are regulated by the DOT along with various state
agencies. Our Canadian subsidiary is regulated by the National Transportation Agency of Canada
along with various provincial transport boards. Regulations by these agencies include restrictions
on truck and trailer length, height, width, maximum weight capacity and other specifications. With
the percentage increase in the production of light trucks and SUVs and the associated increases in
the size and weight of the average vehicle, our Automotive Group has had to decrease the number of
vehicles it delivers, per load, in order to comply with the various national and state regulations.
To offset the impact of this reduction on our revenues, in 1999, we negotiated rate increases on
most of our SUV and light truck business. 27




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In addition, our interstate motor carrier operations are subject to safety requirements
prescribed by the DOT. These regulations were amended effective January 1, 2004, to require shorter
hours of service for drivers of commercial motor vehicles. Because some of our business consists of
relatively short hauls, not all of our drivers were affected by the new regulations. We estimate
that approximately 60% of our drivers were affected by the new regulations which served to increase
or decrease their flexibility and hours of service. The reduced flexibility and hours of service
had no impact on our operating costs. Results of Operations The following table sets forth the percentage relationship of expense items to revenues for the
years ended December 31, 2004, 2003 and 2002: As a % of revenues2004
    
    
    2003
    
    
    2002Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Operating expenses:Salaries, wages, and fringe benefits
    
    
    54.6
    %
    
    
    54.3
    %
    
    
    53.9
    %Operating supplies and expenses
    
    
    18.1
    %
    
    
    16.0
    %
    
    
    15.5
    %Purchased transportation
    
    
    12.4
    %
    
    
    11.5
    %
    
    
    11.0
    %Insurance and claims
    
    
    4.6
    %
    
    
    4.4
    %
    
    
    4.9
    %Operating taxes and licenses
    
    
    3.3
    %
    
    
    3.5
    %
    
    
    3.7
    %Depreciation and amortization
    
    
    4.8
    %
    
    
    5.3
    %
    
    
    6.1
    %Rents
    
    
    1.0
    %
    
    
    0.7
    %
    
    
    0.7
    %Communications and utilities
    
    
    0.7
    %
    
    
    0.8
    %
    
    
    0.7
    %Other operating expenses
    
    
    1.1
    %
    
    
    1.2
    %
    
    
    1.1
    %Impairment of goodwill
    
    
    0.9
    %
    
    
    0.0
    %
    
    
    0.0
    %Loss (gain) on disposal of operating assets
    
    
    (0.1
    )%
    
    
    0.2
    %
    
    
    0.1
    %Total operating expenses
    
    
    101.4
    %
    
    
    97.9
    %
    
    
    97.7
    %Operating (loss) income
    
    
    (1.4
    )%
    
    
    2.1
    %
    
    
    2.3
    %Other income (expense):Interest expense
    
    
    (3.5
    )%
    
    
    (3.4
    )%
    
    
    (3.4
    )%Investment income
    
    
    0.1
    %
    
    
    0.4
    %
    
    
    0.3
    %Foreign exchange gain (loss)
    
    
    0.2
    %
    
    
    0.4
    %
    
    
    0.0
    %Gain on early extinguishment of debt
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.3
    %Other, net
    
    
    (0.0
    )%
    
    
    0.2
    %
    
    
    0.0
    %(3.2
    )%
    
    
    (2.4
    )%
    
    
    (2.8
    )%Loss before income taxes and cumulative effect of change
in accounting principle
    
    
    (4.6
    )%
    
    
    (0.3
    )%
    
    
    (0.5
    )%Income tax benefit (expense)
    
    
    (1.4
    )%
    
    
    (0.7
    )%
    
    
    0.1
    %Loss before cumulative effect of change in accounting
principle
    
    
    (6.0
    )%
    
    
    (1.0
    )%
    
    
    (0.4
    )%Cumulative effect of change in accounting principle, net
of tax
    
    
    
    
    
    
    
    
    
    
    (0.4

    )%Net loss
    
    
    (6.0
    )%
    
    
    (1.0
    )%
    
    
    (0.8
    )%
 Year Ended December 31, 2004 Compared to Year Ended December 31, 2003 Revenues Our revenues were $895.2 million in 2004 versus revenues of $865.5 million in 2003, an increase of
3.4% or $29.7 million. This increase was due primarily to an increase in revenue per vehicle
delivered. Our revenue per vehicle delivered increased while the number of vehicles delivered
decreased. During 2004, revenue per vehicle delivered
increased by $4.13 or 4.4% over 2003 primarily as a result of the increase in fuel surcharges,
certain price increases and the strengthening of the Canadian dollar. 28




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During 2004, revenues from fuel surcharges represented 2.2% of our Automotive Groups revenues,
whereas, in 2003, revenues earned from surcharges represented only 1.3% of our Automotive Groups
revenues. Fuel surcharges were in place with customers who comprised 59% of our Automotive Groups
revenues from January through August 2004 and for customers comprising substantially all of the
Automotive Groups revenues from September through December 2004. The fuel surcharges allow us to
mitigate rising fuel costs by passing on at least a portion of the increase in costs to these
customers. However, the majority of our fuel surcharges reset at the beginning of the quarter
based on fuel prices in the previous quarter, which causes a one-quarter lag between when fuel
prices change and when the fuel surcharge is adjusted. Future revenues derived from surcharges
could be impacted if any of our customers terminated their agreement with us. In particular, the
fuel surcharge relating to a single customer who comprised approximately 35% of our Automotive
Groups 2004 revenues may be terminated at the sole discretion of this customer. As of December 31,
2004, the fuel surcharge agreement with this customer included a maximum amount of recovery for any
calendar year. The fuel surcharge recovery from this customer did not reach the maximum recovery
amount in 2004 but at current fuel prices we would have exceeded the maximum amount of recovery by
the second quarter of 2005. However, during March 2005, this customer agreed to waive the maximum
recovery amount during the year ending December 31, 2005 as long as this customer agrees to provide
a fuel surcharge to the carhaul industry. During 2004, the Canadian dollar strengthened relative to the U.S. dollar. Since we earn part of
our revenues from our Canadian subsidiary, our revenues are positively impacted when the Canadian
dollar strengthens against its U.S. counterpart. During 2004, the Canadian dollar averaged the
equivalent of U.S.$0.7701 dollars versus U.S.$0.7163 dollars in 2003. This currency fluctuation
resulted in an estimated increase in revenue per unit of $1.28. The volume of vehicles that we delivered decreased by 0.4% in 2004 versus 2003. This reduction was
due primarily to a 0.8% reduction in OEM production, but we were also impacted by the reduced
volume in our business with DaimlerChrysler. Effective October 1, 2004, and pursuant to the
renewed contract, we ceased performing all or a portion of delivery services for DaimlerChrysler at
six locations in North America. While the new contract provides for rate increases on existing
business with DaimlerChrysler, we do not expect that the rate increases will fully offset the
impact of the reduction in revenues. Though we experienced a net reduction in vehicles delivered,
we also benefited from increases gained through organic growth of business, primarily with Toyota
and Ford. Our revenues are variable and can be impacted by changes in OEM production levels, especially those
that are sudden and unexpected. Our revenues are also 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, SUVs, and light trucks. During the first and third quarters, vehicle
shipments typically decline due to lower sales volume during those periods and scheduled OEM plant
shut downs. Our revenues can also be impacted by changes in our customers distribution
strategies, shipping patterns or efforts by our customers to manage dealer inventory levels.
Shipment activity at our Automotive Group and the Axis Carrier Management Group can also be
impacted by the availability of rail cars. Salaries, wages, and fringe benefits Salaries, wages and fringe
benefits increased from 54.3% of revenues in 2003 to 54.6% of revenues
in 2004. Workers compensation
expense increased by $18.1 million due primarily to a non-cash
charge of $10.0 million
relating to our self-insurance reserves in
2004. Prior to the fourth quarter of 2004, the estimates for
workers compensation claims in the U.S.
were discounted. However, in the fourth quarter of 2004, we
determined that the continuing adverse development of our aged claims was such
that we could no longer reliably determine our self-insurance reserves on
a discounted basis. In addition, workers compensation expense increased
primarily due to claims incurred in prior years that developed adversely during 2004. Despite the
adverse development of these aged claims, we experienced positive trends during 2004 in our
operational metrics that affect workers compensation costs. For example, during 2004, lost time
days decreased by approximately 19.9% as compared to the number of lost time days in 2003. In
order to more effectively manage these risk management costs in future periods, we continue to
implement initiatives to improve our prevention of employee injuries, the claims management process
and the expeditious settlement of outstanding historical claims. Benefits for our employees covered by the collective bargaining agreement with the Teamsters
increased by $5.2 million primarily as a result of the annual benefit increases required under the
terms of the agreement. The agreement with the Teamsters in the U.S. covers approximately 80% of
our U.S. employees. Economic provisions of 29




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the agreement include a wage freeze for the first two
years of the agreement and wage increases of approximately 2.0% on June 1, 2005, 2.0% on June 1,
2006, and an additional 2.5% on June 1, 2007. The agreement also provides for increases in health,
welfare and pension contributions during each year of the agreement. The economic provisions of the
contract are anticipated to increase our U.S. Teamster labor costs in each year of the agreement.
For the contract year ending May 31, 2005 (year two of the agreement) the U.S. Teamsters labor
costs are expected to increase 1.3% over the year ended May 31, 2004 (year one). Additional
increases of 2.5% in year three, 2.5% in year four, and 3.0% in year five of the agreement are
expected. Offsetting the above increases, was a decrease in wages and benefits received by our non-bargaining
employees as a result of reduced headcounts combined with reduced wages and benefits for these
employees of approximately $1.7 million. Additionally, and as previously discussed, during the
first quarter of 2004, we outsourced our remaining information technology services with IBM. This
resulted in a decrease to wages and benefits of $4.5 million. Expenses related to the IBM
outsourcing agreement are included in Operating supplies and expenses in our statement of
operations. Operating supplies and expenses Operating supplies and expenses increased from 16.0% of revenues in 2003 to 18.1% of revenues in
2004. This increase is due primarily to increases in fuel, parts and repairs, and information
technology services. Fuel expense increased from 5.2% of revenues in 2003 to 6.2% of revenues in 2004. The increase is
due primarily to an increase in fuel prices. The average price of fuel was approximately
20% higher in 2004 than 2003 for our U.S. operations. We estimate that the increase in the cost
of fuel resulted in additional expenses of approximately $10.6 million, and the corresponding
effect of fuel surcharges included in revenues was approximately $8.2 million, resulting in a net
unfavorable impact on our operating income of $2.4 million. Parts and repairs expense in 2004 increased from 4.1% of revenues in 2003 to 4.4% of revenues in
2004. During the fourth quarter of 2004, we performed an analysis of our fleet of Rigs and
determined that a total of 710 tractors and 834 trailers were not viable candidates for
remanufacture and would be abandoned during 2004. Pursuant to this determination, we expensed the
tire component of these assets, resulting in an increase in operating supplies and expenses of
$1.2 million. Other parts and maintenance increased by approximately $4.0 million due, in part, to
the increase in the average age of our fleet. Information technology costs increased in 2004 compared to 2003 as a result of our decision to
outsource our remaining information technology services. In April 2001, we entered into a
five-year commitment with IBM to provide our mainframe computer processing services. In December
2003, we amended the agreement, effective February 2004, for IBM to provide additional services
over a period of 10 years. Under the amended agreement, IBM manages our Electronic Data Interchange
(EDI) applications and provides network services, technical services, applications development and
support services. The agreement includes outsourcing at determinable prices defined within the
agreement. Costs related to the IBM outsourcing were $11.1 million in 2004 and $5.9 million in
2003. Purchased transportation Purchased transportation increased from 11.5% of revenues in 2003 to 12.4% of revenues in 2004.
Purchased transportation primarily represents the cost of utilizing Teamster owner-operators of
Rigs by our Automotive Group, who receive a percentage of the revenue generated from transporting
vehicles on our behalf. Purchased transportation increased in 2004 over 2003 primarily due to an
increase in vehicle deliveries at locations where we utilize more owner-operators and handle
traffic with longer lengths of haul. During 2004, the average length of haul driven by
owner-operators increased by 7.7%. Also, purchased transportation was affected by the increase in
fuel surcharge revenue. Fuel surcharge revenue derived from deliveries by owner-operators is
reimbursed to the owner-operator and recorded in purchased transportation. Also included in
purchased transportation is the expense related to the leasing of Rigs. During 2004, we entered
into three new operating leases, each with a term of 5.5 years, relating to 51 Rigs in aggregate.
As a result, lease expense related to our Rigs increased by $0.7 million. Insurance and claims Insurance and claims expense for 2004 increased over 2003 as a result of an increase in auto and
general liability expense which was partially offset by a reduction in cargo claims. Auto and
general liability expense was $18.4 million in 2004 compared to $14.3 million in 2003. This
increase is due primarily to the severity of a single 30




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claim incurred during 2004 and an increase in
premiums and other fees related to our insurance programs. In addition, expense was higher in 2004
due to a non-cash charge of $0.6 million in 2004 relating to our self-insurance reserves. Prior to the
fourth quarter of 2004, the estimates for auto and general
liability claims were discounted. However, in the fourth quarter of
2004, we determined that the continuing adverse development of our aged claims was such
that we could no longer reliably determine our self-insurance reserves on
a discounted basis. Cargo claims expense decreased by $1.0
million for 2004 versus 2003 primarily as a result of our ongoing initiatives to improve quality
and deliver damage-free vehicles. Damage-free vehicle deliveries improved from 99.70% for 2003 to
99.76% for 2004, an improvement of 4,695 damage-free units. We are aggressively managing cargo
claims costs as part of our on-going turnaround initiatives, and, as such, we have continued to
emphasize cargo claims prevention to our drivers, re-engineered the claims review process so that
we can more quickly identify damage that we did not cause and deny claims that are not in
compliance with our documented guidelines. We adjust our claims and
insurance reserves periodically, as claims develop, to reflect changes in
actuarial estimates based on actual experience. Operating taxes and licenses Operating taxes and licenses decreased from 3.5% of revenues in 2003 to 3.3% of revenues in 2004.
The decrease is due primarily to a change in estimate relating to a liability established in 2001
for license fees. During 2001, these fees were properly calculated and recorded. However, during
the first quarter of 2004, we determined that payment of these fees was no longer probable. Based
on this determination we reversed the accrual resulting in a decrease to operating taxes and
licenses of $1.2 million. Partially offsetting this decrease was an increase in fuel taxes, due to
an increase in fuel purchased during 2004 compared to 2003. Depreciation and amortization Depreciation and amortization was $42.9 million in 2004 versus $45.6 million in 2003, a reduction
of $2.7 million due primarily to an overall reduction in capital spending in fiscal years 2001
through 2004 resulting in a decrease in the depreciable asset base. The depreciable asset base has
also been reduced since certain aged equipment reached the depreciable limits and because of our
decision to upgrade and extend our fleet through our remanufacturing program. The implementation
of the fleet remanufacturing program has reduced our capital spending and resulted in a higher
percentage of remanufactured Rigs in our fleet with lower depreciation expense as compared to new
Rigs. The average cost to remanufacture a Rig and replace an engine is approximately $80,000
compared to $165,000 for the purchase of a new Rig. During 2004, we remanufactured 114 Rigs and
replaced (overhauled) approximately 256 engines. As of December 31, 2004, we had remanufactured
684 Rigs (tractor and trailer) and replaced 886 engines since the start of our remanufacturing
program in 2002. Also, in 2004, we decided to lease 51 Rigs which did not result in an increase to
our depreciation and amortization expense. During 2003, we leased only seven Rigs. As these leases
are deemed to be operating leases, the related expenses are included
in purchased transportation
in our statement of operations. The reduction in depreciation as a result of the factors discussed above was partially offset by an
increase in depreciation expense related to 710 tractors and 834 trailers. During the fourth
quarter of 2004, we performed an analysis of our fleet of Rigs and determined that these tractors
and trailers, which had been temporarily idled, were not viable candidates for remanufacture.
Pursuant to this determination, we changed the estimated remaining useful life of these assets and
recorded additional depreciation expense of $4.2 million during
the fourth quarter of 2004, such that these assets are valued at
estimated scrap value at December 31, 2004. Rents Rent expense increased from 0.7% of revenues in 2003 to 1.0% of revenues in 2004. During 2004, our
Axis Group entered into a lease for a new facility for vehicle inspections, processing and other
services that increased rent expense by approximately $0.8 million. We also had additional rent
expense in 2004 of $1.0 million related to a lease we assumed in the 1997 acquisition of the Ryder
Automotive Group. The facility, which we exited subsequent to the acquisition, was fully subleased
until April 2004. During 2004, the lease cost in excess of sublease rentals was recognized as rent
expense. During 2004 we also determined that it was no longer probable that we would
sublease the remaining portion of the facility through the expiration of the lease in April 2006
and recognized a liability for the estimated lease costs in excess of the estimated sublease
rentals. 31




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Impairment of goodwill During the fourth quarter of 2004, we recorded goodwill impairment of $8.3 million at our Axis
Group. This impairment represented the excess of the carrying value of goodwill for this reporting
unit over its estimated fair value. Fair value was derived using a discounted cash flow analysis,
which involved estimates and assumptions by management regarding future sales volume, prices,
inflation, expenses, capital spending, discount rates, exchange rates, tax rates and other factors.
These assumptions were consistent with those used by the reporting unit for internal purposes.
The fair value of goodwill at our Axis Group was affected by a decrease in projected operating
income for this reporting unit that was impacted by a decline in the reporting units 2004
performance as well as managements analysis of trends in operational metrics. Gain (loss) on disposal of operating assets During 2004, we recorded a gain on disposal of operating assets of $0.8 million versus a loss of
$1.3 million in 2003. The gain in 2004 is primarily due to the sale of excess land located in
Canada during the first quarter of 2004. During 2003, we disposed of obsolete equipment with a net
book value of approximately $1.3 million that resulted in a loss. Interest expense Interest expense increased primarily as a result of an increase in the effective interest rate on
Term Loan A of our credit facility, increased borrowings to satisfy collateral requirements
relating to the financing of our insurance obligations of $11.9 million and interest related to a
proposed settlement with the Canadian taxing authority. Also contributing to the increase is the
amortization of deferred financing costs related to the amendment of our credit facility in 2003.
The 2003 amendment occurred at the end of the third quarter of 2003, resulting in an additional
eight months of amortization in 2004 versus 2003. Other non-operating expenses The decrease in investment income is due primarily to the holding of our collateral assets mainly
in cash in 2004 versus a mixed portfolio of cash, fixed income, debt and equity securities during
2003. The mixed portfolio in 2003 yielded higher investment returns. At December 31, 2004 and
2003, the collateral at our captive insurance company was held in cash. The reduction in Other, net is due to the recording of income of $2.0 million in 2003 related to
settlement of litigation with Ryder System, Inc. The expense of $0.2 million in 2004 relates to
the write off of the equity of our last remaining joint venture based on managements assessment
that our investment in this joint venture was not recoverable. The foreign exchange gain is related primarily to the currency fluctuation on an intercompany
payable denominated in U.S. dollars that is included in the balance sheet of one of our Canadian
subsidiaries. The reduction in foreign exchange gains of $1.2 million was due to the fluctuation
in the currency rates between the Canadian dollar relative to the U.S. dollar. During 2004, the
Canadian dollar gained value of approximately 7.45% compared to 22.0% during 2003. Income taxes In 2004 and 2003, we recorded income tax expenses of $12.4 million and $6.3 million, respectively. The income tax expense for 2004 and 2003 differs from the benefit obtained by applying the
statutory rates primarily as a result of increases in the valuation allowance in both years. The
net changes in the valuation allowance for 2004 and 2003 were increases of $27.1 million and $7.8
million, respectively. Included in the change in the valuation allowance for the year ended
December 31, 2004 is a non-cash charge of $26.4 million.
The net loss recorded in 2004 generated
additional deferred tax assets of approximately $15.1 million, for which we increased the valuation
allowance during the year. Due to the continuing losses during the year and a worsening trend in
the fourth quarter of 2004, we concluded that it was more likely than not that additional
deferred tax assets would not
be recovered and recorded an additional valuation allowance of $11.3 million at December 31, 2004.
In our evaluation of the valuation allowance, we considered all sources of taxable income,
including tax-planning strategies. Included in the change in the valuation allowance for
2003 increase is a $6.8 million non-cash charge. 32




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Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 Revenues Revenues were $865.5 million in 2003 versus $898.1 million in 2002, a decrease of $32.6 million or
3.6% due primarily to a decline in the number of vehicles delivered. Total vehicle deliveries
declined by 6.3% in 2003 versus 2002 and new vehicle production by the automotive manufacturers in
the U.S. and Canada declined 2.1%. The delivery decrease was greater than the production decline
due to our decision to exit under-performing business. In the fourth quarter of 2002, we stopped
hauling vehicles for Nissan in the U.S. In 2003, we ceased delivering all of the General Motors
traffic at Jessup, Maryland and certain General Motors traffic at Spring Hill, Tennessee, each of
which had historically generated losses. Historically, annual revenue for the two locations was
$16.6 million. The decrease in volume was partially offset by an increase in revenue per vehicle
delivered. Revenue per vehicle delivered increased from $91.75 in 2002 to $94.37 in 2003, a 2.9%
increase. In the U.S., the increase in revenue per vehicle delivered is primarily due to ancillary
revenue related to model changeovers and new product launches which causes an increase in revenue
without a corresponding increase in the number of vehicles delivered. In addition, our rates
increased during 2003. In Canada, revenue per vehicle delivered increased primarily due to the
higher Canadian dollar exchange rates. Salaries, wages and fringe benefits Salaries, wages and fringe benefits increased from 53.9% of revenues in 2002 to 54.3% of revenues
in 2003 due primarily to wage, health, welfare and pension cost increases in the prior Teamster
agreements, which expired during 2003 and health, welfare and pension cost increases in the new
Teamster agreements signed in 2003. The increase was partially offset by our internal initiatives
to improve driver productivity and reduce worker injuries. During the second quarter of 2003, we began operating under a new five-year agreement with the
Teamsters in the United States. The agreement was effective on June 1, 2003 and expires May 31,
2008. The new agreement with the Teamsters in the United States covers approximately 80% of our
U.S. employees. Economic provisions of the new agreement include a wage freeze for the first two
years of the agreement and wage increases of approximately 2.0% on June 1, 2005, 2.0% on June 1,
2006, and an additional 2.5% on June 1, 2007. The agreement provides for increases in health,
welfare and pension contributions by us during each year of the agreement. The economic provisions
of the contract are anticipated to increase our U.S. Teamster labor costs approximately 1.1% in
year one of the agreement, 1.3% in year two, 2.5% in year three, 2.5% in year four, and 3.0% in
year five of the agreement. In March 2003, we renegotiated a contract that expired October 31, 2002 with the Teamsters Union in
Eastern Canada. The employees governed by this contract, which expires October 31, 2005, represent
approximately 70% of our total bargaining unit employees in Canada. The employees in Eastern Canada
agreed to a three-year contract with a wage freeze in the first two years and a 2.5% increase in
the third year. Health and welfare costs were frozen for the entire three-year agreement and there
were pension increases each year of the new contract. The additional pension contributions will
increase our Canadian Teamster labor costs approximately 0.2% in year one of the agreement and
approximately 0.6% in year two of the agreement. The wage and pension increases in year three of
the agreement will increase costs approximately 3.2%. Operating supplies and expenses Operating supplies and expenses increased from 15.5% of revenues in 2002 to 16.0% of revenues in
2003 due primarily to higher fuel prices in 2003. Fuel costs were $5.7 million higher in 2003 than
in 2002. Though fuel surcharges were negotiated with customers who comprised approximately 59% of
our 2003 revenues, there can be up to a quarters lag between the time that fuel prices change and
the adjustment to the fuel surcharge. Purchased transportation Purchased transportation increased from 11.0% of revenues in 2002 to 11.5% of revenues in 2003 due
primarily to a continued shift in the mix of owner-operators versus company drivers as well as 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. 33




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Insurance and claims Insurance and claims expense decreased from 4.9% of revenues in 2002 to 4.4% of revenues in 2003.
The decrease was primarily a result of lower cargo claims experienced on shipped vehicles,
resulting from our initiative to reduce claims and a decrease in auto liability claims costs. Auto
liability claims costs decreased primarily due to our ongoing assessment of outstanding prior year
claims, during which we determined that the projected ultimate amounts had improved and the related
reserves could be reduced. The number of vehicles delivered damage free increased from 99.56% in
2002 to 99.70% in 2003, which reduced cargo claims expense. We are aggressively managing these
costs as part of our on-going turnaround initiatives. In addition, the claims review process was
re-engineered to review cargo claims reported and deny claims that are not in compliance with our
documentation guidelines. Operating taxes and licenses Operating taxes and licenses decreased from 3.7% of revenues in 2002 to 3.5% of revenues in 2003
primarily as a result of a reduction in the number of Rigs in service and the number of miles
driven both of which serve to reduce fuel taxes and costs related to licensing and registration.
Real estate and personal property taxes also decreased due to the disposal of under-performing
assets in 2002. Depreciation and amortization Depreciation and amortization expense decreased from 6.1% of revenues in 2002 to 5.3% of revenues
in 2003 primarily due to a lower depreciable base in 2003 as a result of certain assets becoming
fully depreciated. This reduction was partially offset by depreciation related to 2003 capital
expenditures. However, our capital spending was lower in 2003 than 2002 since we instituted a Rig
remanufacturing program whereby we remanufactured a higher percentage of Rigs and reduced our
spending on the purchase of new Rigs. Remanufacture of existing Rigs requires less capital spending
than purchasing new Rigs. The first phase of the program began in 2002 and continued in 2003. As of
December 31, 2003, approximately 570 Rigs had been remanufactured and approximately 630
tractor-engines had been replaced. Also, during 2002, we recorded a
depreciation of $2.1 million on certain temporarily idled
equipment that we determined would not be viable candidates for the remanufacturing program.
Accordingly, we revised our estimate of the remaining useful life of these assets. Interest expense Interest expense decreased from $30.6 million in 2002 to $29.1 million in 2003 due to a reduction
in overall interest rates effective with the amendment of the credit facility in September 2003 and
a reduction in total borrowings. As more fully discussed below under the caption Liquidity and
Capital Resources, during 2003, we amended our credit facility which resulted in an extension of
the maturity date, an increase in our liquidity, and amendments of certain financial covenants. Foreign exchange gain Foreign exchange gains increased from $0.1 million in 2002 to $3.2 million in 2003 due to the
favorable exchange rate changes related to our Canadian subsidiary. In 2003, the Canadian dollar
increased by 22% compared to the U.S. dollar. Gain on early extinguishment of debt The gain on early extinguishment of debt for 2002 represented a $2.8 million pre-tax gain on the
early extinguishment of our subordinated notes. Other income (expenses) The increase in Other, net from a loss of $0.3 million in 2002 to a gain of $2.0 million in 2003
was due to the recording of income of $2.0 million in 2003 which was related to the settlement of
litigation with Ryder System, Inc. 34




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Income taxes We recorded income tax expenses of $6.3 million in 2003. This recorded expense differed from the
benefit computed by applying the statutory rate primarily as a result of an increase in the
valuation allowance. Included in the 2003 expense was a $6.8 million non-cash charge recorded to
provide for a valuation allowance against our deferred tax assets due to managements conclusion
that it was more likely than not that a portion of the deferred tax asset would not be recovered.
The tax benefit for the year ended December 31, 2002 was $1.1 million. Cumulative effect of change in accounting principle, net of tax Effective January 1, 2002, we adopted the provisions of Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other Intangible Assets, and recorded a $4.1 million non-cash
after-tax charge ($5.2 million pre-tax) related to the impairment of goodwill of the Axis Group.
In accordance with SFAS No. 142, the charge was presented as a cumulative effect of change in
accounting principle. Liquidity and Capital Resources Recent Developments In 2004, and in the first quarter of 2005, various events adversely impacted our liquidity and
reduced the amount of additional indebtedness that we may borrow. Certain factors, which adversely
affected liquidity, include the following:  
    We generated significantly less funds from operations in 2004 than in 2003;
    In 2004 and 2003, we were able to finance substantially all of our insurance premiums
and self-insurance losses and were not required to utilize funds under our revolving credit
facility for this purpose. We were unable to finance a significant amount of our insurance
premiums and self-insured losses for the year ending December 31, 2005. As a result, we
were required to borrow under our revolving credit facility in January 2005 to finance
these expenses, thereby adversely affecting our liquidity. In addition to the factors listed above
which adversely affected our liquidity, the
amendments to our primary credit facility in November 2004 and April 2005 whereby we borrowed an
aggregate additional $45 million have substantially reduced the amount of additional indebtedness
we may incur. Under the indenture governing our 85/8% senior notes (the
Senior Notes), we may not incur more than $230 million of indebtedness beyond the $150 million of
indebtedness incurred under our Senior Notes. Our aggregate
indebtedness was $314.4 million, and the amount of
additional indebtedness that we may incur as of April 13, 2005,
beyond the current amount available and
outstanding under the credit facility, was $20.9 million. We took various steps to preserve liquidity, including rescheduling and deferring capital
expenditures in the fourth quarter of 2004 and the first quarter of 2005. In addition, in the
first quarter of 2005, we redeployed to existing operations
approximately 159 Rigs that were
previously deployed at locations that we closed in the fourth quarter of 2004. As a result, we
were able to utilize these Rigs to support existing business and our initiative to reschedule and
defer capital expenditures. As a result, these Rigs were not available in all cases to support new
business opportunities. Further, we delayed one payroll for certain salaried, non-bargaining
employees for two weeks and also negotiated more favorable payment terms with certain of our
vendors and outsource providers for a limited period of time in the first quarter of 2005. In April 2005, our Automotive Group entered into an amendment to its Contract for Motor
Transportation with General Motors. The amendment modifies the terms of the agreement pursuant to
which General Motors pays the Automotive Group for its services. The Automotive Group and General
Motors entered into the amendment as a result of General Motors decision to discontinue, as of
July 2005, the Automotive Groups participation in General Motors trade payable program. Under
the trade payable program, the Automotive Group is paid for services provided to General Motors
approximately five days from the date an invoice is delivered to General Motors for services
rendered by the Automotive Group rather than the 25th day of the following month after
such services are
rendered, as provided for in our agreement with General Motors. Under the trade payable program,
the amount paid by General Motors is discounted due to the payment being made prior to the date
required under the agreement. 35




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The Automotive Group determined that payments by General Motors pursuant to the terms of the
agreement, which would begin upon the discontinuation of the Automotive Group from the trade
payable program, would materially affect our liquidity. As a result, the Automotive Group and
General Motors entered into the amendment to provide that, either (i) the Automotive Group will
remain in the current trade payable program with General Motors or a similar program under the
current programs existing terms and conditions or (ii) in the alternative, General Motors will pay
the Automotive Group (A) by the 25th day of the month for invoices received by General
Motors on or prior to the 15th day of such month or (B) by the tenth day of the
following month for all of the Automotive Groups invoices received by General Motors after the
15th day of any given month, and in either case, the amount paid by General Motors will
be discounted to reflect that payment is being made prior to the date previously required under the
agreement. These new payment terms will apply through the expiration of the agreement in March
2006, unless the Automotive Group is in breach under the amendment. Under these revised payment
terms, the Automotive Group expects that its liquidity in 2005 could be adversely impacted as
compared to 2004 in the event the Automotive Group is discontinued from General Motors trade
payable program and is paid under the terms set forth above, though we do not believe the impact to
liquidity will be material. The Automotive Group has also agreed that it will complete the previously-agreed-to sale to General
Motors of real property located in Janesville, WI by May 15, 2005, under the terms and conditions
provided for by the agreement, and it will not seek any additional accommodations from General
Motors through the term of the agreement. Any request for additional accommodations under the
agreement by the Automotive Group or the failure to sell General Motors the real property in
Janesville, WI by May 15, 2005 will constitute a breach of the amendment by the Automotive Group. Prior to the execution of the amendment, General Motors had agreed to waive the applicable cap
under the Agreement on fuel surcharges payable to the Automotive Group for the period January 2,
2005 through January 1, 2006. Because the waiver was obtained prior to the amendment, it does not
constitute a request for additional accommodations by the Automotive Group and is therefore not a
breach of the amendment by the Automotive Group. Working Capital Our primary sources of liquidity are funds provided by operations and borrowings under our
revolving credit facility with a syndicate of lenders. We use our cash primarily for the
remanufacture and maintenance of our Rigs and terminal facilities, the payment of operating
expenses, the payment of interest and principal associated with our debt, and other capital
expenditures. We use restricted cash and cash equivalents and restricted investments to collateralize letters of
credit required by third-party insurance companies for the settlement of insurance claims. These
collateral assets are not available for our operations. We include borrowings under our $90 million revolving credit facility in current liabilities
pursuant to Emerging Issues Task Force (EITF) Issue No. 95-22, Balance Sheet Classification of
Borrowings Outstanding under Revolving Credit Agreements that include both a Subjective
Acceleration Clause and a Lock-Box Arrangement,even though the revolver has a maturity date of
September 2007 under the terms of the credit facility. At December 31, 2004, borrowings under the
revolver totaled $3.0 million. There were no outstanding borrowings under the revolver at December
31, 2003. At December 31, 2004, we had approximately $39.0 million available for borrowings under
the revolver. Our current liabilities exceeded our current assets by $27.7 million as of December 31, 2004.
However, we do not believe that we are financially impaired as a result of the negative working
capital since we generate positive cash flows from operations and have availability under our
Revolver to cover seasonal working capital needs. In addition, as more fully discussed below, we
amended our credit facility in November 2004 to increase liquidity by providing us with an
additional $20 million term loan, the proceeds of which were used to repay amounts due under the
revolving portion of our credit facility. The credit facility was amended again in April 2005 to
provide for an additional $25 million term loan. We obtained this additional term loan because we
believed that our availability under the revolver in our credit facility could prove inadequate to
satisfy our working capital needs during certain periods in the second and third quarters of 2005.
As a result of the additional liquidity provided by this amendment
to the credit facility, we have been able to, and expect to continue to, generate sufficient cash
flows from operations to meet our liquidity needs through at least
the next twelve months, provided that we use our credit facility to cover
seasonal working capital needs and that the total of our borrowings does not exceed the cap
included in our indenture governing the Senior Notes. 36




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Operating Activities We use the indirect method to prepare our statement of cash flows. Accordingly we compute net
cash provided by operating activities by adjusting the net loss for all items included in the net
loss that do not currently affect operating cash receipts and payments. Three non-cash items that
have a significant impact on this calculation are depreciation and amortization, changes in
deferred income taxes and non-cash special charges. The net loss is also adjusted for changes in
operating assets and liabilities between years. During 2004, we generated $13.5 million from operating activities while in 2003 we generated $36.8
million, a decrease of $23.3 million. The primary driver of this decrease was the increase in our
net loss of $45.3 million. The increase in the net loss did include an increase in non-cash
charges of $6.2 million. We discuss the factors that impacted
our net loss, including
non-cash charges, under Results of Operations above. Changes in operating assets and liabilities,
primarily working capital items, positively impacted our operating
cash flows by $15.7 million. The
primary contributor of the favorable impact was a total of the changes between years in accrued
liabilities of $30.0 million, including a net increase in our self-insurance reserves of $15.6
million in 2004, whereas these reserves were reduced by $7.7 million during 2003. Accounts
receivable, net of allowance increased $4.7 million in 2004 compared to a decrease of $8.4 million
in 2003, partially offsetting the change in accrued liabilities. This change is due primarily to
increased revenues in December 2004 and 2002 that resulted in a higher accounts receivable balance
in those years as compared to 2003. Investing Activities We used $17.4 million in investing activities in 2004 while in 2003 we used $41.5 million. This
change in investing activities between 2004 and 2003 was due primarily to a change in insurance
carriers in 2003. As a result of this change in insurance carriers, we were required to increase
the collateral requirements for our insurance financing arrangements, which resulted in an increase
in restricted cash, cash equivalents and investments of $20.5 million in 2003. Additionally, funds
returned from our insurance carriers in 2004, net of funds deposited with them was $2.9 million
whereas during 2003, we deposited $3.1 million with these carriers net of funds returned by them. During 2004, we increased our capital spending by $4.0 million and had an increase in proceeds from
sales of assets of $2.4 million. During the first quarter of 2004, we sold excess land in Canada,
which accounts for substantially all of the proceeds received during 2004. There were no similar
significant asset sales during 2003. During 2004 and 2003, we spent approximately $11.7 million
and $14.8 million, respectively, on our fleet remanufacturing program. We also spent $7.0 million
on the acquisition of new Rigs in 2004 whereas in 2003, we spent $1.8 million. During 2005, we
plan to spend approximately $30.0 million on our fleet of Rigs. Of this amount, we believe that
our Automotive Group will spend approximately $10 million on the replacement of an estimated 470
engines, which represents almost twice as many engines as we replaced during 2004. This planned
increase is due to our expectation that the useful lives of these engines will expire during 2005.
The capital expenditure planned for 2005 also includes the planned purchase, by our Automotive
Group, of an estimated 100 currently leased Rigs for $3 million, $12 million for Rig remanufacture
and capital spending by our Axis Group of an estimated $5 million. We manufacture our Rigs primarily through one remanufacturing company and are currently uncertain
about this entitys business plans. If necessary, we will select another company to remanufacture
our Rigs in 2005 and expect that this provider will have the capability and capacity to
remanufacture our Rigs in accordance with our plans for 2005 relating to the remanufacture of our
Rigs. 37




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Financing activities Financing activities provided net cash of $3.5 million in 2004 whereas in 2003, these activities
utilized net cash of $3.9 million, an increase of $7.4 million. Our financing activities were
impacted by the amendments to our credit facility in 2004 and 2003. Proceeds received from our
credit facility, net of repayments, were $4.7 million in 2004 whereas in 2003, repayments of the
credit facility, net of proceeds, were $3.0 million, an increase of $7.7 million. The increase in
cash provided by financing activities was also due to the payment of lower financing costs in
conjunction with the 2004 amendments versus the 2003 amendments. Financing fees paid in connection
with the 2004 amendment were $2.6 million lower than the financing fees paid in connection with the
2003 amendment. These positive cash flows to our company were partially offset by an increase in
net outflows relating to our insurance financing arrangements. Though the proceeds from the
insurance financing arrangements increased by $11.9 million in 2004, repayments of these
obligations were $15.0 million higher in 2004 than 2003 resulting in net outflows of $3.1 million. Credit Facility Our credit facility (the credit facility and amendments thereto are collectively referred to as the
Credit Facility) was amended and restated in September 2003 to provide us with a $90 million
revolving credit facility (the Revolver) and a $100 million term loan (Term Loan A). As part of
this amendment, the maturity date of the Credit Facility was extended from February 2005 to
September 2007. On November 23, 2004, the Credit Facility was amended to provide us with an additional $20 million
term loan (Term Loan B) and an increase in the letters of credit that we may issue under our
Revolver from $40 million to $50 million. Under the terms of the Credit Facility, Term Loan A
remains payable in quarterly installments of principal and monthly payments of interest and Term
Loan B is payable in full at maturity with monthly payments of interest. The interest rate for the
Revolver is based upon the prime rate plus 1.5%, or LIBOR plus 4.5%, at managements discretion,
with a minimum interest rate of 6.5%. We pay commitment fees on the undrawn portion of the
Revolver. The Credit Facility provides that Term Loan A shall bear interest at a rate which falls
between 8.5% and 11.5% to be determined solely on Allieds leverage as defined in the Credit
Facility. The Credit Facility provides that Term Loan B bears interest at a rate equal to the
greater of (i) the prime rate plus 8.5% or (ii) 13.25%. In the event that our consolidated earnings
before interest, taxes, depreciation and amortization, as defined in
the Credit Facility for the year ending December 31, 2005 exceeds $70 million, Term Loan B shall bear
interest on the principal amount outstanding on such date at the interest rate applicable to Term
Loan A effective February 14, 2006. The maturity date of the Credit Facility remains at September
4, 2007. At December 31, 2004, the interest rates on the Revolver, Term Loan A and Term Loan B
were 6.75%, 10.0% and 13.75%, respectively. In April 2005, we amended our Credit Facility to provide an additional $25 million term loan (Term
Loan C). The terms and conditions relating to Term Loan C are identical to the terms and
conditions, including the rate of interest payable on Term Loan B, which we obtained in November
2004. Our Credit Facility was also amended in April 2005 in
order to reduce the consolidated earnings before interest, taxes,
depreciation and amortization, as defined in the Credit Facility, applicable to the twelve month period ended December 31, 2004 and the respective twelve month
periods ended each month thereafter through April 30, 2005. As a result of this amendment, we were
in compliance with this covenant as of December 31, 2004 but can provide no assurance that we will
be able to comply with these debt covenants in the future or that, if we fail to do so, that we
will be able to obtain amendments to or waivers of such covenants on commercially reasonable terms,
if at all. This amendment also increased our debt incurrence ratio
as set forth in the Credit Facility for the months of April and May
of 2005. In addition, we obtained the consent of our lenders to file our
financial statements for the year ended December 31, 2004 on or
before April 20, 2005 and we
delivered these financial statements on April 18, 2005. As a result of this consent, we were in
compliance with the requirements of our Credit Facility relating to the delivery of our financial
statements at December 31, 2004. The amount available under the $90 million Revolver may be reduced based on a calculation of
Revolver collateral and may be limited by a debt incurrence ratio as
set forth in the Credit Facility. At December 31, 2004, $80.1 million of Revolver collateral was available.
Approximately $38.1 million of the Revolver was committed under letters of credit primarily related
to the settlement of insurance claims. At December
31, 2004, $3.0 million was outstanding under the Revolver. Accordingly, we had approximately $39.0
million available under the Revolver as of December 31, 2004 and
$36.0 million available as of April 13, 2005. 38




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In 2004, we entered into notes payable of approximately $31.3 million with third parties to finance
substantially all of our insurance premiums and self-insured losses for 2004. In January 2005, we
financed through notes payable with third parties approximately $8.0 million of our insurance
premiums and self-insured losses for 2005 and utilized approximately $10.0 million of availability
under our Revolver to finance additional premiums and self-insured loss payments. As a result,
availability under the Revolver was reduced by approximately $10.0 million in January 2005 for
insurance and claims expenses. In 2004, we were not required to utilize availability under the
Revolver for this purpose. The Credit Facility agreement sets forth a number of affirmative, negative and financial covenants
that are binding on us. The negative covenants limit our ability to, among other things, incur
debt, incur liens, make investments, sell assets, or declare or pay any dividends on our capital
stock. The financial covenants require us to maintain a minimum consolidated earnings threshold and
also include leverage and fixed charge coverage ratios. Though we were in compliance with the various covenants set forth in the Credit Facility (as
amended in April 2005) at December 31, 2004, there can be no assurance that we will be able to
comply with these or other debt covenants or that, if we fail to do so, we will be able to obtain
amendments to or waivers of such covenants. Failure to comply with covenants contained in our debt
instruments, if not waived, or failure to adequately service our debt obligations, could result in
a default under the Credit Facility. Any default under the debt instruments, particularly any
default that results in an acceleration of indebtedness or foreclosure on collateral, could have a
material adverse effect on us. Borrowings under the Credit Facility are secured by a first priority security interest on our
assets, including a pledge of stock of certain subsidiaries. In addition, certain of our
subsidiaries jointly and severally guarantee the obligations under the Credit Facility. Senior Notes On September 30, 1997,
we issued $150 million of 85⁄8% senior notes (the Notes) through a
private placement. Subsequently, the Notes were registered with the Securities and Exchange
Commission. The net proceeds from the Notes were used to fund the acquisition of Ryder Automotive
Carrier Services, Inc. and RC Management Corp., pay related fees and expenses, and reduce
outstanding indebtedness. The Notes are payable in quarterly installments of interest only, and
mature on October 1, 2007. Borrowings under the Notes are general unsecured obligations of Allied Holdings, Inc. The
obligations under the Notes are guaranteed by substantially all of our subsidiaries (the Guarantor
Subsidiaries). The guarantees are full and unconditional and there are no restrictions on the
ability of the Guarantor Subsidiaries to make distributions to our company. Allied Holdings, Inc.
owns 100% of the Guarantor Subsidiaries. The following companies (the Nonguarantor Subsidiaries)
do not guarantee our obligations under the Notes:  
    Haul Insurance Ltd.;
    Arrendadora de Equipo Para el Transporte de Automoviles, S. de R.L. de C.V.;
    Axis Logistica, S. de R.L. de C.V. The combined balance sheet information, combined statement of operations information and combined
statement of cash flows information for the Guarantor Subsidiaries and the Nonguarantor
Subsidiaries are presented in Note 21 of the consolidated financial statements. The Notes set forth a number of negative covenants, which are binding on us. The covenants limit
our ability to, among other things, purchase or redeem stock, make dividend or other distributions,
make investments, and incur or repay debt (with the exception of payment of interest or principal
at stated maturity). A negative covenant in the Notes limits our ability to incur additional
indebtedness beyond the indebtedness which existed as of the date the Notes were issued pursuant to
our primary credit facility as of such date and any amendments, restatements, modifications,
renewals, replacements or refinancing of such credit facility. As of December 31, 2004, we had the ability to incur an additional $41.7 million of indebtedness
through obtaining additional term loans, revolver availability or otherwise increasing our
indebtedness. As of April 13, 2005, after giving effect to Term Loan C, the Company had the
ability to incur $20.9 million of additional indebtedness. 39




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Future maturities of long-term debt, excluding the Revolver, which is classified as current, are as
follows at December 31, 2004 (in thousands): 2005
    
    $
    13,5002006
    
    
    13,5002007
    
    
    221,266$
    248,266
 Contractual Obligations and Letters of Credit We set forth in the table below our minimum contractual obligations as of December 31, 2004 (in
thousands). Other than the long-term debt obligations, these obligations are not recorded in our
consolidated balance sheet. Payments Due InContractual Obligations
    
    Total
    
    
    2005
    
    
    2006-2007
    
    
    2008-2009
    
    
    ThereafterLong-Term Debt Obligations (1)
    
    $
    251,238
    
    
    $
    16,472
    
    
    $
    234,766
    
    
    $
    
    
    
    $
    Operating Lease Obligations
    
    
    36,614
    
    
    
    12,539
    
    
    
    17,921
    
    
    
    5,850
    
    
    
    304Purchase Obligations (2)
    
    
    98,513
    
    
    
    10,329
    
    
    
    21,043
    
    
    
    21,538
    
    
    
    45,603$
    386,365
    
    
    $
    39,340
    
    
    $
    273,730
    
    
    $
    27,388
    
    
    $
    45,907
   (1)
    
    Long-term debt obligations in the table above exclude interest payable. Also,
the amounts due in 2005 include the Revolver. Though the Revolver matures in September 2007,
it is classified as current in the consolidated balance sheet.(2)
    
    This obligation relates to the previously mentioned IBM agreement. In April 2001, we
entered into a five-year commitment with IBM whereby IBM would provide our mainframe computer
processing services. In December 2003, we amended this agreement. The amended agreement is a
ten-year commitment, commencing February 2004, for IBM to provide additional services to
manage applications for EDI, network services, technical services, and applications
development and support. The agreement includes outsourcing at prices defined within the
agreement. At December 31, 2004, we had agreements with third parties to whom we have issued $121.0 million of
letters of credit primarily relating to settlements of insurance claims and reserves and support
for a line of credit at one of the Companys foreign subsidiaries. Of the $121.0 million, $38.1
million of these letters of credit are issued by us and are secured
by available borrowings on the Credit Facility and $82.9 million are issued by our wholly owned captive insurance
subsidiary, Haul Insurance Limited and are collateralized by $82.9 million of restricted cash and
cash equivalents held by this subsidiary. We renew these letters of credit annually. The amount of
letters of credit that we may issue under our Credit Facility may not exceed $50 million. Since we
had utilized $38.1 million of this availability at December 31, 2004, the remaining letter of
credit availability under our Credit Facility as of December 31, 2004 was $11.9 million. As part of the previously disclosed settlement agreement with Ryder System Inc. (Ryder), we have
a letter of credit in favor of Ryder for $8.5 million, which is included in the $38.1 million
letters of credit under the Revolver. As previously agreed, we increased the letter of credit by $1
million for the first quarter of 2005 to bring the total to $9.5 million. Ryder may only draw the
letter of credit if we fail to pay workers compensation and liability claims assumed by us in the
Ryder Automotive Group acquisition. We have provided the letter of credit in favor of Ryder because
Ryder has issued a letter of credit to its insurance carrier relating to the workers compensation
and liability claims assumed by us. Under the agreement, an actuarial valuation is to be made to
determine the remaining outstanding amount as of March 31, 2005 and periodically thereafter, of
workers compensation and liability claims
assumed by us and the letter of credit issued by us in favor of Ryder will be adjusted accordingly.
The parties are in the process of selecting a mutually agreeable actuary to perform this
valuation. Off-Balance Sheet Arrangements 40




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The amounts for operating leases reflected in the table above under Contractual Obligations
and Letter of Credit, represent future minimum lease payments of $36.6 million under noncancelable
operating leases at December 31, 2004. See Note 11, Lease Commitments, in the Notes to
Consolidated Financial Statements included in this Annual Report on
Form 10-K. Disclosures About Market Risks We face several risks, some of which we discuss in Item 1. Business under the heading Factors
Which May Affect Future Results. The market risks inherent in our market risk sensitive
instruments and positions is the potential loss arising from adverse changes in interest rates,
fuel prices, self-insured claims and foreign currency exchange rates. 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 the weather, government
policies, and changes in global demand and global production. To reduce the price risk caused by
market fluctuations, Allied Automotive Group periodically purchases fuel in advance of consumption.
A 10% increase in diesel fuel prices would increase costs by $5.7 million over the next twelve
months assuming levels of fuel consumption in the next twelve months are consistent with the third
quarter of 2004. This increase in costs would be partially offset by our fuel surcharge
arrangements with our customers. Currently, we have in place fuel surcharges with substantially all
of our customers. However, the fuel surcharges in regard to a single customer who comprised
approximately 35% of the Companys 2004 revenues may be terminated at any time at the sole
discretion of this customer. Interest Rates We primarily issue long-term debt obligations to support general corporate purposes including
capital expenditures and working capital needs. The majority of our long-term debt obligations bear
a fixed rate of interest. The portion of the long-term debt obligations that does not bear a fixed
rate of interest has an interest rate that varies based on LIBOR or the prime rate or may fluctuate
within a three percentage point range based on our leverage, as defined in the agreement. At
December 31, 2004, approximately $101.2 million of our debt was subject to variable rates of
interest. The impact of a three-percentage point increase in interest rates would be an increase
in annual interest expense of approximately $3.0 million. Risk Management Retention Because we retain liability for a significant portion of our risks, an increase in the number or
severity of accidents, on the job injuries, other loss events over those anticipated, or adverse
development of existing claims including wage and medical cost inflation could have a material
adverse effect on our profitability. While we currently have insurance coverage for claims above
our retention levels, there can be no assurance that we will be able to obtain insurance coverage
in the future. We currently utilize an inner-aggregate, which is a deductible subject to an annual limit, in
certain insurance programs. We currently use the inner-aggregate only for our initial layer of
excess insurance whereby losses in the excess layer that are within the inner-aggregate amount are
retained by us up to an amount equal to the inner-aggregates annual limit. Once the annual limit
is met, the deductible is no longer in effect. We
retain up to $1 million liability for automobile liability claims in
the U.S. with no aggregate
limit and have a $7 million inner-aggregate deductible for claims that exceed $1 million, but are less than $5
million per occurrence. In Canada, we retain liability up to CDN $500,000 for each claim for
personal injury and property damage and have a CDN $500,000 inner-aggregate limit for losses from CDN
$500,000 to CDN $1 million. Additionally, we retain liability of up to $250,000 for each cargo
damage claim in the U.S. and up to CDN $250,000 for each cargo damage
claim in Canada. These
retentions and deductibles were effective January 1, 2004 and remain in effect for the insurance
year commencing January 1, 2005. Foreign Currency Exchange Rates 41




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Though we operate primarily in the U.S., we do own foreign subsidiaries, the most significant being
Allied Systems (Canada). The net investments in our foreign subsidiaries translated into U.S.
dollars using the rate of exchange in effect at December 31, 2004, was $97.7 million. The potential
impact on other comprehensive income resulting from a hypothetical 10% change in quoted foreign
currency exchange rates approximates $9.8 million. At December 31, 2004, we had an intercompany payable balance of $28.3 million denominated in U.S.
dollars recorded on our Canadian subsidiarys balance sheet. The potential impact from a
hypothetical 10% change in quoted foreign currency exchange rates related to this balance would be
a $2.8 million charge or credit to the income statement. We do not use derivative financial
instruments to hedge our exposure to changes in foreign currency exchange rates. Inflation While we may have been subject to some measure of inflation, we do not believe that this has
impacted our results significantly. In addition, it would be difficult to isolate such effects on
our operations. Critical Accounting Policies and Estimates The preparation of financial statements in conformity with accounting principles generally accepted
in the U.S. requires us to make decisions based upon estimates, assumptions, and factors we
consider relevant to the circumstances. Such decisions include the selection of applicable
accounting principles and the use of judgment in their application, the results of which impact
reported amounts and disclosures. Changes in future economic conditions or other business
circumstances may affect the outcomes of our estimates and assumptions. Accordingly, actual results
could differ from those anticipated. A summary of the significant accounting policies followed in preparation of the financial
statements is contained in Note 2 of the Consolidated Financial Statements included elsewhere in
this Annual Report on Form 10-K. Other footnotes describe various elements of the financial
statements and the assumptions on which specific amounts were determined. We consider the following to be our critical accounting policies and estimates: Claims
and insurance reserves As detailed above in Disclosures About Market Risks  Risk
Management Retention, we retain liability for a significant portion of our risks through
self-insured retentions and/or deductibles. Claims and insurance reserves reflect the estimated
cost of claims for workers compensation, cargo loss and damage, automobile and general liability,
and products liability losses that are not covered by insurance. Amounts that we estimate will be
paid within the next year have been classified as current in accrued liabilities in our
consolidated balance sheet while the long-term portion is included in other long-term
liabilities. Costs related to these reserves are included in the statement of operations in
insurance and claims expense, except for workers compensation, which is included in salaries,
wages, and fringe benefits. We utilize a third-party claims processor, who works under our direction, and third-party actuarial
valuations to assist in the determination of the majority of our claims and insurance reserves. The
third-party claims administrator sets claims reserves on a case-by-case basis. The third-party
actuary utilizes the aggregate data from those reserves, along with historical paid and incurred
amounts, to determine, by loss year, the projected ultimate cost of all claims, reported and not
yet reported, including possible adverse developments. Our product liability claims reserves are
set on a case-by-case basis by our claims administrators in conjunction with legal counsel handling
the claims, and include an estimate for claims incurred but not yet reported. We track cargo
claims and record reserve amounts on a case-by-case basis. The reserve for cargo
claims includes an estimate of incurred but not reported claims. The process of determining reserves for all losses is subject to our evaluation of accident
frequency, the nature and severity of claims, litigation risks and historical claims experience
adjusted for current industry trends. The claims and insurance reserves are adjusted periodically
as such claims develop to reflect changes in estimates made by our third-party claims processors and
changes in actuarial estimates by our third-party actuary based on actual experience. Changes in
the estimate of these accruals are charged or credited to expense in the period determined. If we
were to use different assumptions or if different conditions occur in future periods, future
operating results or 42




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liquidity
could be materially impacted. Prior to the fourth quarter of 2004, the estimates for
workers compensation, automobile and
general liability and product liability losses were discounted to their present value using our
estimate of weighted-average risk free interest rates for each claim
year. However, in the fourth quarter of 2004 we determined that the
continuing adverse development of our aged claims was such that we could no
longer reliably determine our self-insurance reserves on a discounted
basis. This change in estimate resulted in a charge of $11.0 million
in the fourth quarter of 2004. Based on self-insurance accruals at December 31, 2004, if our estimate of unpaid claims were
increased by 5%, the accrual and operating loss would have increased
by approximately $5.2 million. Accounts receivable valuation reserves Substantially all our revenue is derived from transporting
new automobiles, SUVs, and light trucks from manufacturing plants, ports, auctions, and railway
distribution points to automobile dealerships. We record revenues when vehicles are delivered to
the dealerships. We make significant estimates to determine the collectibility of our 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
evaluations 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 ability to honor their obligations to us. If significant billing adjustments or
the financial condition of a major customer were to deteriorate, additional allowances may be
required. Accounts receivable balances at December 31, 2004 and 2003 were $57.3 million and $52.0
million, respectively, net of allowances for doubtful accounts of $2.2 million and $3.6 million, of
December 31, 2004 and 2003, respectively. Accounting for income taxes As part of the process of preparing our consolidated financial
statements, we are required to determine income taxes related to each of the jurisdictions in which
we operate. This process involves estimating current tax exposure, together with assessing
temporary differences resulting from differing treatments of items for tax versus financial
reporting purposes. These differences result in deferred tax assets and liabilities in our
consolidated balance sheet. We must then assess the likelihood that the deferred tax assets will be
recovered from future taxable income and to the extent we believe that recovery is not likely, we
must establish a valuation allowance. In determining the required level of valuation allowance,
we consider whether it is more likely than not that all or some portion of the deferred tax assets
will not be realized. This assessment is based on managements expectations as to whether
sufficient taxable income of an appropriate character will be realized within tax carryback and
carryforward periods. Our assessment involves estimates and assumptions about matters that are
inherently uncertain, and unanticipated events or circumstances could cause actual results to
differ from these estimates. Should we change our estimate of the amount of deferred tax assets
that we would be able to realize, an adjustment to the valuation allowance would result in an
increase or decrease to the provision for income taxes in the period in which such change in
estimate was made. At December 31, 2004, we had federal net operating loss carryforwards of $41.9 million that expire
between 2021 and 2024. We had federal capital loss carryforwards of $3.6 million that expire in
2007. In addition, $5.9 million of tax credit carryforwards are available to reduce future income
taxes. Of the tax credit carryforwards, $5.2 million consists of foreign tax credits that expire
from 2011 to 2014, and $0.7 million consists of alternative minimum tax credits that have no
expiration. In the normal course of business, we are subject to audits from the federal, state, Canadian
provincial and other tax authorities regarding various tax liabilities. We record refunds from
audits when receipt is assured and record assessments when a loss is probable and estimable. These
audits may alter the timing or amounts of taxable income or deductions or the allocation of income
among tax jurisdictions. The amount ultimately paid upon resolution of issues raised may differ
from the amounts accrued. The Canadian taxing authorities are in the process of closing their examination of our Canadian
income tax returns for the years 1998 through 2000. The examination resulted in additional tax
assessments that are included in our current income tax expense for 2004. The related interest is
included in interest expense. Pension and postretirement benefits Our pension and other postretirement benefit costs are
calculated using various actuarial assumptions and methodologies as prescribed by SFAS No. 87,
Employers Accounting for Pensionsand SFAS No. 106, Employers Accounting for Postretirement
Benefits Other than Pensions.These assumptions include discount rates, healthcare cost trend
rates, inflation, rate of compensation increases, expected return on plan assets, mortality rates,
and other factors. Actual results that differ from our assumptions are accumulated and amortized
over future periods and, therefore, generally affect the expense we recognize and obligation we
record in such future periods. We believe that the assumptions utilized in recording the
obligations 43




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under our plans are reasonable based on input from our third-party actuaries and other
advisors and information as to
historical experience and performance. Differences in actual experience or changes in assumptions
may affect our pension and other postretirement obligations and future expense. Disclosure of the
significant assumptions used in calculating the 2004 net pension expense is presented in Note 14,
Employee Benefit Plans, in the Notes to Consolidated Financial Statements. We have estimated that
an increase or decrease of 0.25% in the discount factor or rate of return on assets used in the
calculation of the projected 2005 net periodic pension expense would not have a significant
effect. Property and equipment We operate approximately 3,700 company-owned Rigs. These Rigs are our
revenue-earning equipment that we use to transport motor vehicles for our customers. Property and
equipment, including these Rigs, are stated at cost less accumulated depreciation and any
impairment charges. We compute depreciation by taking the cost of these assets less the residual
value and dividing the result by the estimated useful lives of these assets. This method of
depreciation is referred to as the straight-line method. We also evaluate the carrying value of
these long-lived assets for impairment by analyzing the operating performance and future cash flows
of these assets, whenever events or changes in circumstances indicate that their carrying amounts
may not be recoverable, including the need to adjust the carrying value of the underlying assets if
the sum of the expected cash flows is less than the carrying value. Our evaluation of the carrying
values can be impacted by our projection of future cash flows, the level of actual cash flows, the
salvage values, the methods of estimation used for determining fair values and the impact of
guaranteed residuals. Any changes in our judgments could impact our estimates of annual
depreciation expense and impairment charges. Goodwill We adopted SFAS No. 142 as of January 1, 2002. In accordance with SFAS No. 142, we do
not amortize goodwill but instead we evaluate it annually for impairment and will evaluate it
between annual tests if an event occurs or circumstances change which indicate that the carrying
value of reporting unit goodwill might be impaired. We complete our annual impairment tests in the
fourth quarter of each year and generally recognize an impairment loss when the carrying value of
reporting unit goodwill exceeds the units estimated fair 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 sales volume, prices, inflation, expenses and capital spending,
appropriate discount rates, exchange rates, tax rates and other factors. We believe that the
estimates and assumptions are reasonable, and that they are consistent with the assumptions, which
the reporting units use for internal planning purposes. However, significant judgment is involved
in estimating these factors and they include inherent uncertainties. If we had used other
estimates and assumptions, the analysis could have resulted in different conclusions regarding the
amount of goodwill impairment, if any. Furthermore, additional future impairment losses could
result if actual results differ from those estimates. Factors Which May Affect Future Results The risks and uncertainties, which could either individually or together, affect our future
financial condition and results of operations include those set forth in this Annual Report on Form
10-K in Item 1. Business  Factors Which May Affect Future Results. Recent Accounting Pronouncements In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (revised
2004), Share-Based Payment(SFAS No. 123R), which replaces SFAS No. 123, Accounting for Stock-Based
Compensationand supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees.SFAS No. 123R requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the financial statements based on their fair
values beginning with the first interim or annual period after June 15, 2005, with early adoption
encouraged. The pro forma disclosures previously permitted under SFAS No. 123 no longer will be an
alternative to financial statement recognition. In April 2005, the
SEC issued a rule that allows companies to implement SFAS
No. 123R as of the beginning of fiscal years beginning after
June 15, 2005. Under SFAS No. 123R, we must determine the
appropriate fair value model to be used for valuing share-based payments, the amortization method
for compensation cost and the transition method to be used at date of adoption. The transition
methods include prospective and retroactive adoption options. The prospective method requires that
compensation expense be recorded for all unvested stock options and restricted stock at the
beginning of the first quarter of adoption of this standard, while the retroactive method would
record compensation expense for all unvested stock options and restricted stock beginning with the
first period restated. We are currently evaluating the requirements of SFAS No. 123R and expect the
adoption of this standard will result in amounts that are similar to our current pro forma
disclosures under SFAS No. 123 and will adopt this standard in 2006. 44




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In May 2004, the FASB issued FASB Staff Position (FSP) No. FAS 109-2, Accounting and Disclosure
Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of
2004, which provides guidance under SFAS No. 109, Accounting for Income Taxes,with respect to
recording the potential impact of the repatriation provisions of the American Jobs Creation Act of
2004 (the Jobs Act) on enterprises income tax expense and deferred tax liability. The Jobs Act was
enacted on October 22, 2004. FSP 109-2 allows an enterprise time beyond the financial reporting
period of enactment to evaluate the effect of the Jobs Act on its plan for reinvestment or
repatriation of foreign earnings for purposes of applying SFAS No. 109. We expect to complete our
evaluation of the impact of the repatriation provisions by the second quarter of 2005. Accordingly,
as provided for in FSP 109-2, we have not adjusted our tax expense or deferred tax liability to
reflect the repatriation provisions of the Jobs Act. However, we do not expect the impact to be
significant. In May 2004, the FASB issued FSP No. FAS 106-2, Accounting and Disclosure Requirements Related to
the Medicare Prescription Drug, Improvement and Modernization Act of 2003, (the Act) in response to
a new law regarding prescription drug benefits under Medicare (Medicare Part D) and a Federal
subsidy to sponsors of retiree healthcare benefit plans that provide a benefit that is at least
actuarially equivalent to Medicare Part D. Currently, SFAS No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions,requires that changes in relevant law be considered in
measurement of postretirement benefit costs. We have determined that the enactment of the Act was
not a significant event with respect to our plans, and, accordingly, as required by FSP 106-2, the
effects of the Act are incorporated into our December 31, 2004 measurement of the plans benefit
obligations. 
 Item 7A.Quantitative and Qualitative Disclosures About Market Risk 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. 
 Item 8.Financial Statements and Supplementary Data Financial statements and supplementary data are set forth beginning on page F-1 of this Report. 
 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 
 Item 9A.Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures.As of the end of the period covered by this
annual report, Allied, under the supervision and with the participation of Allieds management,
including the Chief Executive Officer and the Chief Financial Officer, has evaluated the
effectiveness of Allieds disclosure controls and procedures (as defined in Sections 13a -15(e) and
15d-15(e) of the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that Allieds disclosure controls and procedures were
effective as of December 31, 2004, in alerting them in a timely manner of material information
required to be included in Allieds periodic Securities and Exchange Commission filings. (b) Changes in Internal Control over Financial Reporting:In connection with the completion of its
audit of, and the issuance of an unqualified report on, our consolidated financial statements for
the year ended December 31, 2003, KPMG LLP advised the Audit Committee and management of certain
deficiencies in our internal control over financial reporting that KPMG considered to be a
reportable condition under the standards established by the American Institute of Certified
Public Accountants. The reportable condition related to the analysis, evaluation and review of
financial information included in our financial statements. As a result, certain financial
information and disclosures were not presented appropriately and required restatement. Certain of
these matters related to our classification of (1) cash and cash equivalents and short-term
investments, (2) our revolving credit facility, (3) certain other items related to our pension
assets and obligations, and (4) deferred income taxes. KPMG and management discussed the reportable condition with the Audit Committee. We reclassified
certain items and restated the consolidated balance sheet as of December 31, 2002, and the
consolidated statements of cash flows for the years ended December 31, 2002 and 2001 disclosed in
our Form 10-K for the year ended December 31, 2003. We also reclassified certain items and restated
the consolidated statements of cash flows for the first quarter of 45




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2003 in order to more clearly present our financial position and comply with generally accepted
accounting principles. In connection with the preparation of the Quarterly Report on Form 10-Q for the three months ended
March 31, 2004, management, in consultation with KPMG, determined that certain items in our
consolidated statements of cash flows relating to our borrowings and repayments in connection with
certain insurance financing arrangements should be classified as cash flows from financing
activities. In previous filings, we had shown such items as cash flows from operating activities. Subsequent to this reclassification, in connection with the preparation of the Quarterly Report on
Form 10-Q for the quarter ended June 30, 2004, we determined, after further evaluating our
insurance financing arrangements, that certain additional adjustments were required. These
adjustments resulted in changes to the proceeds from and repayments of insurance financing
arrangements included in cash flows from financing activities previously reported for the three
months ended March 31, 2004 and 2003. We also concluded that certain additional insurance
financing arrangements should be presented in the balance sheet on a gross basis, as assets and
liabilities, rather than on a net basis. Additionally, we concluded that funds deposited with and
funds returned from our insurance carriers related to our insurance arrangements should be
disclosed as cash flows from investing activities rather than cash flows from operating activities. In connection with the preparation of the Quarterly Report on Form 10-Q for the quarter ended
September 30, 2004 we, in consultation with KPMG, identified certain adjustments related to prior
quarters of 2004 and to prior years. Upon identification, we adjusted these items during the third
quarter of 2004. The investigation and analyses of these adjustments contributed to the delay in
the filing of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2004. We
believe that these adjustments were not material to the consolidated financial statements of any
prior period and were not material to the consolidated financial statements for quarter ended
September 30, 2004. In connection with the review of the Quarterly Report on Form 10-Q for the quarters ended June 30,
2004, and September 30, 2004, KPMG advised the Audit Committee and management that KPMG had
identified deficiencies in our analysis, evaluation and review process for financial reporting.
KPMG has informed the Audit Committee and management that it believes such deficiencies are a
material weakness in our internal control over financial reporting, with respect to our analysis,
evaluation and review of financial information included in our financial reporting. In response to the material weakness, we undertook a rigorous review and, where necessary, we
revised our accounting policies and procedures to ensure that all reasonable steps had been taken
to address and correct the material weakness identified by KPMG. As part of this process, we hired
an external consultant to assist us in reviewing and revising our policies and procedures, hired a
new Chief Financial Officer, replaced our Corporate Controller in January 2005, staffed a new role
of Vice President, Finance and Accounting and added several other accounting professionals in
February and March 2005. We believe that these and other steps have established the appropriate
foundation upon which to remediate this material weakness as processes, including regular
evaluation and management reviews, are strengthened and are put in place operationally over a
reasonable period of time. In
connection with the audit of our Consolidated Financial Statements
for the year ended December 31, 2004, KPMG acknowledged to the Audit
Committee and management that they have observed that we have added
significant resources to improve processes and controls over the
analysis, evaluation and review of financial information included in
the financial reporting process. However, KPMG indicated that the
material weakness still exists as of December 31, 2004 and the
effectiveness of these controls can only be evaluated after they have
been in place and operating for a significant period of time. We can provide no assurances that additional material weaknesses or significant deficiencies in our
internal control over financial reporting will not be discovered in the future. If we fail to
remediate the material weakness identified by our independent auditors, or if we have difficulties
in implementing or fail to implement new or improved controls that are required as a result of the
material weakness, our operating results or customer relationships could be adversely affected or
we may fail to meet our SEC reporting requirements or our financial statements may contain a
material misstatement. Internal control over financial reporting cannot provide absolute assurance of achieving financial
reporting objectives or of preventing fraud due to its inherent limitations, regardless of how well
designed or implemented. Internal control over financial reporting is a process that involves human
diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human
failures. Because of these limitations, there is a risk that material misstatements or instances
of fraud may not be prevented or detected on a timely basis by our internal control over financial
reporting. 46




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Other than the items identified above, there were no other changes in our internal control over
financial reporting that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting. Since we are not an accelerated filer (as defined in Exchange Act Rule 12b-2), we will conduct the
initial assessment of our internal control over financial reporting mandated by Section 404 of the
Sarbanes-Oxley Act of 2002 and will report on that annual assessment in our Annual Report on Form
10-K for the year ending December 31, 2006. That process, which is in its initial stages, could
identify significant deficiencies or material weaknesses not previously reported. 
 Item 9B.Other Information None 
 PART III Certain information required by Part III is omitted from this report since we will file with the
Securities and Exchange Commission a definitive Proxy Statement pursuant to Regulation 14A (the
Proxy Statement) not later than 120 days after the end of the fiscal year covered by this Annual
Report, and certain information included therein is incorporated herein by reference. Only those
sections of the Proxy Statement which specifically address the items set forth herein are
incorporated by reference. Such information does not include the Compensation Committee Report, the
Performance Graph or the Audit Committee Report included in the Proxy Statement. 
 Item 10.Directors and Executive Officers of the Registrant The information concerning our directors required by this Item is incorporated herein by reference
to our Proxy Statement in the section entitled Proposal 1. Election of Directors and Information
Regarding Directors. The information concerning our executive officers required by this Item is
incorporated herein by reference to Part I  Executive Officers of the Registrant of this Annual
Report on Form 10-K. The information regarding compliance with Section 16 of the Securities Exchange Act of 1934, as
amended, is incorporated herein by reference to our Proxy Statement in the section entitled
Section 16(a) Beneficial Ownership Reporting Compliance. 
 Item 11.Executive Compensation The information required by this Item is incorporated herein by reference to our Proxy Statement in
the section entitled Executive Compensation, provided, however that the sub-sections entitled
Compensation  Nominating Report on Executive Compensation and Performance Graph are
specifically excluded and are not incorporated herein. 
 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this Item is incorporated herein by reference to our Proxy Statement in
the section entitled Common Stock Ownership by Management and Certain Beneficial Owners. 
 Item 13.Certain Relationships and Related Transactions Not applicable. 
 Item 14.Principal Accountant Fees and Services The information required by this Item is incorporated herein by reference to our Proxy Statement in
the section entitled Independent Public Accountants. 
 PART IV 
 Item 15.Exhibits and Financial Statement Schedules 47




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(a) The following documents are filed as part of this report: (1) Financial Statements: 
 INDEX TO FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting Firm
    
    F-1Consolidated Balance Sheets at December 31, 2004 and 2003
    
    F-2Consolidated Statements of Operations for the Years Ended December 31, 2004, 2003, and 2002
    
    F-3Consolidated Statements of Changes in Stockholders (Deficit) Equity for the Years Ended December 31, 2004, 2003, and 2002
    
    F-4Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003, and 2002
    
    F-5Notes to Consolidated Financial Statements
    
    F-6
 (2) Financial Statement Schedules: INDEX TO FINANCIAL STATEMENT SCHEDULES PageSchedule II  Valuation and Qualifying Accounts for the Years Ended December 31, 2004, 2003, and 2002
    
    S-1
 All other schedules are omitted as the required information is inapplicable or the information is
presented in the financial statements or related notes. (3) Exhibits: The list of exhibits required by this item is set forth in (c) Exhibits
below. (b) Exhibits. Exhibit Index filed as part of this report ExhibitNo.
    
    Description3.1
    
    Amended and Restated Articles of Incorporation of the
Company (incorporated by reference from Registration
Statement on Form S-1 (File Number 33-66620) filed with the
Commission on July 28, 1993, as amended on September 2, 1993
and September 17, 1993 and deemed effective on September 29,
1993).3.2
    
    Amended and Restated Bylaws of the Company (incorporated by
reference from the Companys Annual Report on Form 10-K for
the year ended December 31, 2000, filed with the Commission
on April 16, 2001).4.1
    
    Form of certificate representing shares of the Companys
common stock (incorporated by reference from Registration
Statement on Form S-1 (File Number 33-66620) filed with the
Commission on July 28, 1993, as amended on September 2, 1993
and September 17, 1993 and deemed effective on September 29,
1993).4.2
    
    Indenture by and among the Company, the Guarantors listed
therein, and The First National Bank of Chicago, as Trustee,
dated September 30, 1997 (incorporated by reference from
Registration Statement on Form S-4 (File Number 333-37113)
filed with the Commission on October 3, 1997).
 48




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ExhibitNo.
    
    Description4.3
    
    Amended and Restated Financing Agreement, dated as of
September 4, 2003, by and among Allied Holdings, Inc.,
Allied Systems, Ltd. (L.P.), each subsidiary of Allied
Holdings, Inc. listed as a Guarantor on the signature
pages thereto, each of the lenders from time to time party
thereto as a Lender, Ableco Finance LLC, as collateral
agent, and Wells Fargo Foothill, Inc., as administrative
agent (incorporated by reference from the Current Report on
Form 8-K filed with the Commission on September 5, 2003).4.3(a)
    
    First Amendment, dated November 23, 2004 to the Amended and
Restated Financing Agreement, dated as of September 4, 2003,
by and among Allied Holdings, Inc., Allied Systems, Ltd.
(L.P.), each subsidiary of Allied Holdings, Inc. listed as a
Guarantor on the signature pages thereto, each of the
lenders from time to time party thereto as a Lender, Ableco
Finance LLC, as collateral agent, and Wells Fargo Foothill,
Inc., as administrative agent (incorporated by reference from
the Current Report on Form 8-K filed with the Commission on
November 29, 2004).4.3(b)*
    
    Second Amendment, dated
April 13, 2005 to the Amended and Restated Financing Agreement,
dated as of September 4, 2003, by and among Allied Holdings,
Inc., Allied Systems, Ltd, (L.P.), each subsidiary of Allied
Holdings, Inc. listed as a Guarantor on the signature pages
thereto, each of the lenders from time to time party thereto as a
Lender, Ableco Finance LLC, as collateral agent, and Wells Fargo
Foothill, Inc., as administrative agent.10.1
    
    Amended and Restated Long Term Incentive Plan of Allied
Holdings, Inc. (incorporated by reference from the Companys
Annual Report on Form 10-K for the year ended December 31,
2000, filed with the Commission on April 16, 2001).10.2
    
    Allied Holdings, Inc. 401(k) Retirement Plan and Defined
Benefit Pension Plan and Trust (incorporated by reference
from Registration Statement on Form S-8 (File Number
33-76108) filed with the Commission on March 4, 1994).10.3
    
    Allied Holdings, Inc. Deferred Compensation Plan
(incorporated by reference from Registration Statement on
Form S-8 (File Number 333-51102) filed with the Commission
on December 1, 2000).10.4
    
    Allied Holdings, Inc. Amended and Restated 1999 Employee
Stock Purchase Plan, as amended through June 19, 2003
(incorporated by reference from the Quarterly Report on Form
10-Q filed with the Commission on August 12, 2003).10.5
    
    Intentionally Omitted.10.6
    
    Intentionally Omitted.10.7
    
    Intentionally Omitted.10.8
    
    Employment Agreement between Allied Holdings, Inc. and Hugh
E. Sawyer (incorporated by reference from the Quarterly
Report on Form 10-Q filed with the Commission on August 14,
2001).10.8(a)
    
    First Amendment to Employment Agreement between Allied
Holdings, Inc. and Hugh E. Sawyer (incorporated by reference
from the Quarterly Report on Form 10-Q filed with the
Commission on May 15, 2002).10.8(b) 
    
    Second Amendment to Employment Agreement between Allied
Holdings, Inc. and Hugh E. Sawyer (incorporated by reference
from the Quarterly Report on Form 10-Q filed with the
Commission on May 17, 2004).10.9
    
    Employment Agreement between Allied Holdings, Inc. and Thomas
King (incorporated by reference from the Current Report on
Form 8-K filed with the Commission on January 27, 2005).10.10
    
    Amended and Restated Employment Agreement between Allied
Holdings, Inc. and Thomas Duffy (incorporated by reference
from the Current Report on Form 8-K filed with the Commission
on January 27, 2005).10.11
    
    Employment Agreement between Allied Holdings, Inc. and
Robert J. Rutland (incorporated by reference from the
Quarterly Report on Form 10-Q filed with the Commission on
May 15, 2002).10.11(a) 
    
    First Amendment to Employment Agreement between Allied
Holdings, Inc. and Robert J. Rutland (incorporated by
reference from the Current Report on Form 8-K filed with the
Commission on January 27, 2005).
 49




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##### Table of Contents



ExhibitNo.
    
    Description10.12*
    
    Employment Agreement between Allied Holdings, Inc. and Guy
Rutland IV.10.13
    
    Intentionally Omitted.10.14
    
    Summary of Financial Terms of Collective Bargaining
Agreement with the International Brotherhood of Teamsters in
the United States, effective June 1, 2003 (incorporated by
reference from the Quarterly Report on Form 10-Q filed with
the Commission on August 12, 2003).10.15**
    
    Agreement between Allied Automotive Group, Inc. and UPS
Autogistics, Inc., as amended (incorporated by reference
from the Quarterly Report on Form 10-Q filed with the
Commission on November 13, 2001).10.15(a)**
    
    Amendment No. 2 to Agreement between Allied Automotive
Group, Inc. and UPS Autogistics, Inc. (incorporated by
reference from the Quarterly Report on Form 10-Q filed with
the Commission on November 14, 2002).10.16**
    
    Agreement between the Company and DaimlerChrysler
Corporation (incorporated by reference from the Companys
Annual Report on Form 10-K for the year ended December 31,
2000, filed with the Commission on April 16, 2001).10.16(a)**
    
    Amendment to Agreement between the Company and
DaimlerChrysler Corporation (incorporated by reference from
the Annual Report on Form 10-K filed with the Commission on
March 27, 2003).10.16(b)**
    
    Amendment dated October 29, 2004 to the Agreement between the
Company and DaimlerChrysler Corporation (incorporated by
reference from the Companys Current Report on Form 8-K filed
with the Commission on November 3, 2004).10.17**
    
    Agreement between the Company and General Motors
Corporation (incorporated by reference from the Companys
Annual Report on Form 10-K filed with the Commission on April
13, 2004).10.18**
    
    Amendment to Agreement between the Company and General Motors
dated March 18, 2005.10.19**
    
    Amendment to Agreement between the Company and General Motors
dated April 6, 2005.10.20*
    
    Agreement between the Company and
Toyota.10.21**
    
    Amendment to Agreement between the Company and Toyota.10.22**
    
    Agreement between the Company and Honda.10.23
    
    IBM Global Services National Agreement between Allied
Holdings, Inc. and International Business Machines
Corporation, dated April 1, 2001 (incorporated by reference
from the Annual Report on Form 10-K for the year ended
December 31, 2001, filed with the Commission on March 27,
2002).10.23(a)
    
    Amendment No. 4 to the IBM Global Services National
Agreement between Allied Holdings, Inc. and International
Business Machines Corporation, effective February 1, 2004 (incorporated
by reference from the Annual Report on Form 10-K for the year ended
December 31, 2003, filed with the Commission on April 13,
2004).21.1

    
    Subsidiaries of Allied Holdings,
Inc. (incorporated
by reference from the Annual Report on Form 10-K for the year ended
December 31, 2003, filed with the Commission on April 13,
2004).23.1*
    
    Consent of KPMG LLP.24.1*
    
    Powers of Attorney (included within the signature page of
this Report).31.1*
    
    Rule 13a-14(a)/15d-14(a) Certification by Hugh E. Sawyer.31.2*
    
    Rule 13a-14(a)/15d-14(a) Certification by Thomas H. King.32.1*
    
    Section 1350 Certification by Hugh E. Sawyer.32.2*
    
    Section 1350 Certification by Thomas H. King.99.1
    
    Charter of the Audit Committee of the Board of Directors
(incorporated by reference from the Companys Annual Report on
Form 10-K filed with the Commission on April 13, 2004).99.2
    
    Charter of the Compensation and Nominating Committee of the
Board of Directors (incorporated by reference from the
Companys
 50




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##### Table of Contents



ExhibitNo.
    
    DescriptionAnnual Report on Form 10-K filed with the Commission
on April 13, 2004).99.3
    
    Allied Holdings, Inc. Code of Conduct (incorporated by
reference from the Companys Annual Report on Form 10-K filed
with the Commission on April 13, 2004).
   *
    
    Filed herewith.**
    
    Confidential treatment has been requested and/or granted with respect to portions of this exhibit.
    
    Management contract, compensatory plan or arrangement.(c)
    
    Financial Statement Schedules. The list of exhibits required by this item is set forth above. 51




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized. ALLIED HOLDINGS, INC. Date: April 15, 2005By:
    
    /s/ HUGH E. SAWYERHugh E. Sawyer,President andChief Executive OfficerDate: April 15, 2005By:
    
    /s/ THOMAS H. KINGThomas H. King,Executive Vice President andChief Financial Officer(Principal Financial and Accounting Officer)
 52




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##### Table of Contents



POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Robert J. Rutland and Hugh E. Sawyer, jointly and severally, his attorneys-in-fact, each
with the power of substitution, for him in any and all capacities to sign any amendments to this
Report on Form 10-K, and to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by
virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated. Signature
    
    Title
    
    Date/s/ ROBERT J. RUTLAND
    
    Chairman and Director
    
    April 15, 2005Robert J. Rutland/s/ GUY W. RUTLAND, III
    
    Chairman Emeritus and Director
    
    April 15, 2005Guy W. Rutland, III/s/ HUGH E. SAWYER
    
    President, Chief Executive
Officer
and Director
    
    April 15, 2005Hugh E. Sawyer/s/ DAVID G. BANNISTER
    
    Director
    
    April 15, 2005David G. Bannister/s/ WILLIAM P. BENTON
    
    Director
    
    April 15, 2005William P. Benton/s/ THOMAS E. BOLAND
    
    Director
    
    April 15, 2005Thomas E. Boland/s/ GUY W. RUTLAND, IV
    
    Senior Vice President and
Director
    
    April 15, 2005Guy W. Rutland, IV/s/ J. LELAND STRANGE
    
    Director
    
    April 15, 2005J. Leland Strange/s/ BERNER F. WILSON, JR.
    
    Director
    
    April 15, 2005Berner F. Wilson, Jr./s/ ROBERT R. WOODSON
    
    Director
    
    April 15, 2005Robert R. Woodson
 53




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##### Table of Contents



Report of Independent Registered Public Accounting Firm The Board of Directors
Allied Holdings, Inc.: We have audited the accompanying consolidated balance sheets of Allied Holdings, Inc. and
subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of
operations, changes in stockholders (deficit) equity and cash flows for each of the years in the
three-year period ended December 31, 2004. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement schedule as listed in Item
15(a)(i) of the accompanying index. These consolidated financial statements and the financial
statement schedule are the responsibility of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements and the financial statement schedule
based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Allied Holdings, Inc. and subsidiaries as
of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2004, in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth therein. As discussed in Note 7 to the consolidated financial statements, effective January 1, 2002, the
Company adopted the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets. /s/   KPMG LLP
Atlanta, Georgia
April 15, 2005 F-1




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
December 31, 2004 and 2003
(In thousands) 2004
    
    
    2003ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,516
    
    
    $
    2,148Restricted cash and cash equivalents
    
    
    27,378
    
    
    
    26,267Receivables, net of allowances of $2,156 and $3,575 in 2004
and 2003, respectively
    
    
    57,309
    
    
    
    51,990Inventories
    
    
    4,649
    
    
    
    4,983Deferred income taxes
    
    
    4,632
    
    
    
    21,014Prepayments and other current assets
    
    
    12,414
    
    
    
    15,645Total current assets
    
    
    108,898
    
    
    
    122,047Property and equipment, net
    
    
    135,635
    
    
    
    155,573Goodwill, net
    
    
    83,977
    
    
    
    90,203Other assets:Restricted cash and cash equivalents
    
    
    55,502
    
    
    
    55,817Other noncurrent assets
    
    
    37,520
    
    
    
    36,423Total other assets
    
    
    93,022
    
    
    
    92,240Total assets
    
    $
    421,532
    
    
    $
    460,063LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    13,500
    
    
    $
    16,374Borrowings under revolving credit facility
    
    
    2,972
    
    
    
    Accounts and notes payable
    
    
    34,690
    
    
    
    37,499Accrued liabilities
    
    
    85,463
    
    
    
    81,237Total current liabilities
    
    
    136,625
    
    
    
    135,110Long-term debt, less current maturities
    
    
    234,766
    
    
    
    230,126Postretirement benefits other than pensions
    
    
    5,082
    
    
    
    5,302Deferred income taxes
    
    
    16,164
    
    
    
    21,014Other long-term liabilities
    
    
    70,444
    
    
    
    59,697Commitments and contingenciesStockholders (deficit) equity:Preferred stock, no par value. Authorized 5,000 shares;
none outstanding
    
    
    
    
    
    
    Common stock, no par value. Authorized 20,000 shares; 8,919
and 8,764 shares
outstanding at December 31, 2004 and December 31, 2003,
respectively
    
    
    
    
    
    
    Additional paid-in capital
    
    
    48,421
    
    
    
    47,511Treasury stock, 139 shares at cost at December 31, 2004 and
2003
    
    
    (707
    )
    
    
    (707
    )Accumulated deficit
    
    
    (88,907
    )
    
    
    (35,024
    )Accumulated other comprehensive loss, net of tax
    
    
    (356
    )
    
    
    (2,966
    )Total stockholders (deficit) equity
    
    
    (41,549
    )
    
    
    8,814Total liabilities and stockholders (deficit) equity
    
    $
    421,532
    
    
    $
    460,063
 See accompanying notes to consolidated financial statements. F-2




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 2004, 2003 and 2002
 (In thousands, except per share data)
 2004
    
    
    2003
    
    
    2002Revenues
    
    $
    895,213
    
    
    $
    865,463
    
    
    $
    898,060Operating expenses:Salaries, wages, and fringe benefits
    
    
    488,728
    
    
    
    469,540
    
    
    
    483,545Operating supplies and expenses
    
    
    162,266
    
    
    
    138,512
    
    
    
    138,542Purchased transportation
    
    
    111,214
    
    
    
    99,604
    
    
    
    99,109Insurance and claims
    
    
    40,821
    
    
    
    38,168
    
    
    
    43,500Operating taxes and licenses
    
    
    29,804
    
    
    
    30,376
    
    
    
    33,583Depreciation and amortization
    
    
    42,943
    
    
    
    45,556
    
    
    
    54,880Rents
    
    
    8,556
    
    
    
    6,090
    
    
    
    6,342Communications and utilities
    
    
    6,342
    
    
    
    7,138
    
    
    
    6,419Other operating expenses
    
    
    10,124
    
    
    
    10,671
    
    
    
    10,384Impairment of goodwill
    
    
    8,295
    
    
    
    
    
    
    
    (Gain) loss on disposal of operating assets, net
    
    
    (839
    )
    
    
    1,325
    
    
    
    748Total operating expenses
    
    
    908,254
    
    
    
    846,980
    
    
    
    877,052Operating (loss) income
    
    
    (13,041
    )
    
    
    18,483
    
    
    
    21,008Other income (expense):Interest expense
    
    
    (31,355
    )
    
    
    (29,138
    )
    
    
    (30,627
    )Investment income
    
    
    1,136
    
    
    
    3,172
    
    
    
    2,463Foreign exchange gains, net
    
    
    1,929
    
    
    
    3,169
    
    
    
    108Gain on early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    2,750Other, net
    
    
    (191
    )
    
    
    1,976
    
    
    
    (265
    )(28,481
    )
    
    
    (20,821
    )
    
    
    (25,571
    )Loss before income taxes and cumulative effect of change in
accounting principle
    
    
    (41,522
    )
    
    
    (2,338
    )
    
    
    (4,563
    )Income tax (expense) benefit
    
    
    (12,361
    )
    
    
    (6,266
    )
    
    
    1,129Loss before cumulative effect of change in accounting principle
    
    
    (53,883
    )
    
    
    (8,604
    )
    
    
    (3,434
    )Cumulative effect of change in accounting principle, net of tax
    
    
    
    
    
    
    
    
    
    
    (4,092
    )Net loss
    
    $
    (53,883
    )
    
    $
    (8,604
    )
    
    $
    (7,526
    )Basic and diluted loss per common share:Loss before cumulative effect of change in accounting
principle:Basic and diluted
    
    $
    (6.15
    )
    
    $
    (1.02
    )
    
    $
    (0.41
    )Cumulative effect of change in accounting principle, net of tax:Basic and diluted
    
    
    
    
    
    
    
    
    
    
    (0.50
    )Net loss:Basic and diluted
    
    $
    (6.15
    )
    
    $
    (1.02
    )
    
    $
    (0.91
    )Weighted average common shares outstanding:Basic and diluted
    
    
    8,757
    
    
    
    8,475
    
    
    
    8,301
 See accompanying notes to consolidated financial statements. F-3




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS (DEFICIT) EQUITY
Years Ended December 31, 2004, 2003, and 2002
(In thousands) AccumulatedComprehensive
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    Retained
    
    
    OtherIncome
    
    
    Common Stock
    
    
    Paid-in
    
    
    Treasury
    
    
    Earnings
    
    
    Comprehensive(Loss)
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Stock
    
    
    (Deficit)
    
    
    Income (Loss)
    
    
    TotalBalance, December
31, 2001
    
    
    
    
    
    
    8,274
    
    
    $
    
    
    
    $
    46,520
    
    
    $
    (707
    )
    
    $
    (18,894
    )
    
    $
    (8,922
    )
    
    $
    17,997Net loss
    
    $
    (7,526
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,526
    )
    
    
    
    
    
    
    (7,526
    )Other
comprehensive
loss:Foreign currency
translation
adjustment,
net of income
taxes of $
(316)
    
    
    376
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    376
    
    
    
    376Minimum pension
liability, net
of income
taxes of $509
    
    
    (814
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (814
    )
    
    
    (814
    )Comprehensive loss
    
    $
    (7,964
    )Issuance of common
stock
    
    
    
    
    
    
    159
    
    
    
    
    
    
    
    338
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    338Compensation
expense for
restricted
stock, net of
forfeitures
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    (57
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57
    )Balance, December
31, 2002
    
    
    
    
    
    
    8,421
    
    
    
    
    
    
    
    46,801
    
    
    
    (707
    )
    
    
    (26,420
    )
    
    
    (9,360
    )
    
    
    10,314Net loss
    
    $
    (8,604
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,604
    )
    
    
    
    
    
    
    (8,604
    )Other
comprehensive
loss:Foreign currency
translation
adjustment,
net of income
taxes of $
(3,974)
    
    
    6,192
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,192
    
    
    
    6,192Minimum pension
liability, net
of income
taxes of $
(126)
    
    
    202
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    202
    
    
    
    202Comprehensive loss
    
    $
    (2,210
    )Issuance of common
stock
    
    
    
    
    
    
    161
    
    
    
    
    
    
    
    450
    
    
    

    
    
    
    
    
    
    
    
    
    
    
    
    450Compensation
expense for
restricted
stock, net of
forfeitures
    
    
    
    
    
    
    182
    
    
    
    
    
    
    
    260
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260Balance, December
31, 2003
    
    
    
    
    
    
    8,764
    
    
    
    
    
    
    
    47,511
    
    
    
    (707
    )
    
    
    (35,024
    )
    
    
    (2,966
    )
    
    
    8,814Net loss
    
    $
    (53,883
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53,883
    )
    
    
    
    
    
    
    (53,883
    )Other
comprehensive
loss:Foreign currency
translation
adjustment,
net of income
taxes of $(256)
    
    
    2,941
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,941
    
    
    
    2,941Minimum pension
liability,
net of income
taxes of $0
    
    
    (331
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (331
    )
    
    
    (331
    )Comprehensive loss
    
    $
    (51,273
    )Issuance of common
stock
    
    
    
    
    
    
    196
    
    
    
    
    
    
    
    589
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    589Compensation
expense for
restricted
stock, net of
forfeitures
    
    
    
    
    
    
    (41
    )
    
    
    
    
    
    
    321
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    321Balance, December
31, 2004
    
    
    
    
    
    
    8,919
    
    
    $
    
    
    
    $
    48,421
    
    
    $
    (707
    )
    
    $
    (88,907
    )
    
    $
    (356
    )
    
    $
    (41,549
    )
 See accompanying notes to consolidated financial statements. F-4




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2004, 2003, and 2002
(In thousands) 2004
    
    
    2003
    
    
    2002Cash flows from operating activities:Net loss
    
    $
    (53,883
    )
    
    $
    (8,604
    )
    
    $
    (7,526
    )Adjustments to reconcile net loss to net cash provided by operating activities:Gain on early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (2,750
    )Interest
expense paid-in-kind
    
    
    
    
    
    
    1,065
    
    
    
    1,115Amortization of deferred financing costs
    
    
    2,797
    
    
    
    3,697
    
    
    
    4,004Depreciation and amortization
    
    
    42,943
    
    
    
    45,556
    
    
    
    54,880Impairment of goodwill
    
    
    8,295
    
    
    
    
    
    
    
    (Gain) loss on disposal of assets and other, net
    
    
    (839
    )
    
    
    1,325
    
    
    
    1,013Foreign exchange gain, net
    
    
    (1,929
    )
    
    
    (3,169
    )
    
    
    (108
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    4,092Deferred income taxes
    
    
    11,275
    
    
    
    6,914
    
    
    
    (1,632
    )Compensation expense related to stock options and grants
    
    
    321
    
    
    
    260
    
    
    
    (57
    )Amortization of Teamsters Union contract costs
    
    
    
    
    
    
    1,000
    
    
    
    2,400Change in operating assets and liabilities:Receivables, net of allowance for doubtful accounts
    
    
    (4,727
    )
    
    
    8,378
    
    
    
    13,667Inventories
    
    
    414
    
    
    
    272
    
    
    
    270Prepayments and other assets
    
    
    (3,272
    )
    
    
    (158
    )
    
    
    (7,623
    )Accounts and notes payable
    
    
    (1,747
    )
    
    
    (3,512
    )
    
    
    (166
    )Accrued liabilities
    
    
    13,860
    
    
    
    (16,186
    )
    
    
    (5,268
    )Net cash provided by operating activities
    
    
    13,508
    
    
    
    36,838
    
    
    
    56,311Cash flows from investing activities:Purchases of property and equipment
    
    
    (22,542
    )
    
    
    (18,555
    )
    
    
    (21,786
    )Proceeds from sales of property and equipment
    
    
    3,040
    
    
    
    685
    
    
    
    4,725(Increase) decrease in restricted cash and cash equivalents
    
    
    (796
    )
    
    
    (81,279
    )
    
    
    5,289Decrease in restricted investments
    
    
    
    
    
    
    60,732
    
    
    
    4,062Funds deposited with insurance carriers
    
    
    (32,072
    )
    
    
    (22,680
    )
    
    
    (6,000
    )Funds returned from insurance carriers
    
    
    34,995
    
    
    
    19,560
    
    
    
    6,000Proceeds from sale of equity investment in joint venture
    
    
    
    
    
    
    
    
    
    
    3,000(Increase) decrease in the cash surrender value of life insurance
    
    
    (27
    )
    
    
    2
    
    
    
    2,641Net cash used in investing activities
    
    
    (17,402
    )
    
    
    (41,535
    )
    
    
    (2,069
    )Cash flows from financing activities:Additions to (repayments of) revolving credit facility, net
    
    
    2,972
    
    
    
    (24,635
    )
    
    
    (74,263
    )Additions to long-term debt
    
    
    20,000
    
    
    
    99,875
    
    
    
    82,750Repayment of long-term debt
    
    
    (18,234
    )
    
    
    (78,280
    )
    
    
    (47,535
    )Payment of deferred financing costs
    
    
    (475
    )
    
    
    (3,038
    )
    
    
    (9,262
    )Proceeds from insurance financing arrangements
    
    
    31,252
    
    
    
    19,313
    
    
    
    6,328Repayments of insurance financing arrangements
    
    
    (32,634
    )
    
    
    (17,634
    )
    
    
    (8,216
    )Proceeds from issuance of common stock
    
    
    589
    
    
    
    450
    
    
    
    338Other, net
    
    
    
    
    
    
    
    
    
    
    434Net cash provided by (used in) financing activities
    
    
    3,470
    
    
    
    (3,949
    )
    
    
    (49,426
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    792
    
    
    
    1,346
    
    
    
    183Net change in cash and cash equivalents
    
    
    368
    
    
    
    (7,300
    )
    
    
    4,999Cash and cash equivalents at beginning of year
    
    
    2,148
    
    
    
    9,448
    
    
    
    4,449Cash and cash equivalents at end of year
    
    $
    2,516
    
    
    $
    2,148
    
    
    $
    9,448
 See accompanying notes to consolidated financial statements. F-5




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003, and 2002 (1) Organization and Operations Allied Holdings, Inc. (the Company or Allied), a Georgia corporation, is a holding company which
operates through its wholly owned subsidiaries. The principal operating divisions of the Company
are Allied Automotive Group, Inc. (Allied Automotive Group) and Axis Group, Inc. (Axis Group).
Allied Automotive Group, through its subsidiaries, is engaged in the business of transporting
automobiles, light trucks, and sport utility vehicles (SUVs) from manufacturing plants, ports,
auctions, and railway distribution points to automobile dealerships. Axis Group, through its
subsidiaries, is engaged in the business of securing and managing vehicle distribution services,
automobile inspections, auction and yard management services, intra-modal transport, vehicle
tracking, vehicle accessorization, and dealer preparatory services for the automotive industry. (2) Summary of Significant Accounting Policies (a) Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. All
significant intercompany transactions and accounts have been eliminated. (b) Foreign Currency Translation The Companys functional currency is the local currency for each of its subsidiaries. The assets
and liabilities of the Companys foreign subsidiaries are translated into U.S. dollars using
current exchange rates in effect at the balance sheet date. Revenues and expenses are translated
using average monthly exchange rates. The resulting translation adjustments are recorded as
accumulated other comprehensive income (loss) in the accompanying consolidated statements of
changes in stockholders (deficit) equity, net of related income taxes. (c) Revenue Recognition and Related Allowances Substantially all revenue is derived from transporting automobiles, light trucks, and SUVs from
manufacturing plants, ports, auctions, and railway distribution points to automobile dealerships,
providing vehicle rail-car loading and unloading services, providing yard management services, and
other distribution and transportation support services to the pre-owned and new vehicle market.
Revenue is recorded by the Company when the vehicles are delivered to the dealerships or when
services are performed. The Company records an allowance for estimated customer billing adjustments
based on the timing of delivery, the accuracy of pricing, as well as an allowance for doubtful
accounts based on an evaluation of the historical aging of customer accounts. Included in
receivables, net of allowances, are $3.6 million and $3.9 million of amounts due from other than
trade customers as of December 31, 2004 and 2003, respectively. (d) Cash and Cash Equivalents Excluding restricted cash and cash equivalents, the Company considers all highly liquid investments
with an original maturity of three months or less from the date of purchase to be cash equivalents. (e) Restricted Cash, Cash Equivalents and Investments F-6




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Restricted cash and cash equivalents consist of highly liquid investments with an original maturity
of three months or less when purchased. Restricted investments are classified as trading securities
and are carried at their fair values based on the quoted market prices of those investments. Net
realized and unrealized gains and losses on trading securities are included in net loss.
Amounts are contractually restricted to secure outstanding letters of credit. See Note 4. (f) Inventories Inventories consist primarily of
parts and supplies for servicing the Companys
tractors and trailers and are recorded at the lower of cost (on a first-in, first-out basis) or
market. Inventories consisted of the following as of
December 31, 2004 and 2003 (in thousands): 2004
    
    
    2003Parts
    
    $
    3,576
    
    
    $
    3,575Shop supplies
    
    
    388
    
    
    
    677Bulk fuel
    
    
    475
    
    
    
    430Other
    
    
    210
    
    
    
    301$
    4,649
    
    
    $
    4,983
 (g) Tires on Tractors and Trailers New or replacement tires on tractors
and trailers are charged to operating supplies and expenses
based on expected usage. The Company estimates the average useful life of a tire to
be approximately two years. Tires with estimated remaining useful lives of one year or less are
classified as current within prepayments and other current assets. Tires with estimated remaining
useful lives in excess of one year are classified within other noncurrent
assets. (h) Property and Equipment Property and equipment are stated at depreciated cost. Major property additions, replacements, and
betterments are capitalized, while maintenance and repairs that do not extend the useful lives of
these assets are expensed. Depreciation is provided using the straight-line method over the
estimated useful lives of the assets which are as follows:  
    4 to 10 years for tractors and trailers;
    6 years for costs capitalized as part of the remanufacturing program;
    5 to 30 years for buildings, facilities and leasehold improvements; and
    3 to 10 years for equipment, furniture and service cars. (i) Impairment of Long-Lived Assets In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, long-lived assets, such as property and equipment, and
purchased intangibles subject to amortization, are reviewed for impairment whenever events or
changes in circumstances indicate that their carrying amounts may not be recoverable.
Recoverability of assets to be held and used is measured by comparing their carrying amounts to the
estimated undiscounted future cash flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for
the amount by which the carrying amount of the asset exceeds its fair value. Assets to be disposed
of would be separately presented in the balance sheet and reported at the lower of the carrying
amount or fair value less costs to sell, and would no longer be depreciated. No charges for impairment of
long-lived assets were recorded during the years ended December 31, 2004, 2003 or 2002. F-7




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (j) Deferred Costs Deferred financing costs related to the revolving credit facility and the Companys Senior Notes
are amortized using the straight-line method of amortization over the term of the related debt.
The effective interest rate method is used to amortize the deferred financing costs related to the
term loans (See Note 12). Deferred financing costs are included in other noncurrent assets net of accumulated amortization. These deferred costs and the related accumulated amortization are shown below as of December 31,
2004 and 2003 (in thousands): 2004
    
    
    2003Cost
    
    $
    15,235
    
    
    $
    14,760Accumulated amortization
    
    
    (7,839
    )
    
    
    (5,042
    )Net
    
    $
    7,396
    
    
    $
    9,718
 Charges relating to the amortization of deferred financing costs were $2.8 million, $3.7 million
and $4.0 million for the years ended December 31, 2004, 2003 and 2002, respectively. These charges
are included in interest expense. Pursuant to a collective bargaining agreement entered into in June 1999 between a subsidiary of the
Company and the International Brotherhood of Teamsters (IBT), the Company paid its employees a
lump sum payment as an inducement to enter into the agreement and to provide for lower base wage
rates than the Company would otherwise have been required to pay in future years. The Company
capitalized the lump sum payment and amortized it on a straight-line basis over the four-year life
of the contract. These costs were fully amortized in May 2003. No inducement payments were made
pursuant to the collective bargaining agreement that went into effect on June 1, 2003. Hence,
there are no deferred costs relating to the Companys collective bargaining agreement with the IBT
as of December 31, 2004 and 2003. Charges relating to the amortization of the Teamsters union
contract costs were $0, $1.0 million and $2.4 million for the years ended December 31, 2004, 2003
and 2002, respectively. (k) Equity Investments The Company accounts for its investments under the equity method of accounting with its share of
the ventures earnings or loss reflected in the
consolidated statements of operations. (l) Cash Surrender Value of Life Insurance The Company maintains life insurance policies for certain current and former employees, directors
and officers of the Company and records as a noncurrent asset the lesser of its interest in the
policy (equal to net cash outlay for premiums less certain adjustments) as defined in the contractual
arrangements or the cash surrender value of the policy. The Company receives its interest in cash
upon the earlier of the death of the insured or the termination of the contractual arrangement.
The insureds beneficiary retains any proceeds in excess of the Companys interest in the policies,
net of any outstanding policy loans. The Company records the increase or decrease
in its interest each year as a reduction or increase to premium expense. During the year ended
December 31, 2002, the Company discontinued making premium payments on the policies for current
directors and officers due to the enactment of the Sarbanes-Oxley Act of 2002; however, the
contractual arrangements between the Company and the owners of the
policies remain in effect and the Company continues to retain its interest in the policies. As
permitted by the trustees representing the beneficiaries of the policies, current premiums due on
these policies are being paid by increasing loans against the available cash surrender value. (m) Goodwill and Other Intangible Assets Goodwill represents the excess of the purchase price and related costs over the value assigned to
the net tangible and identifiable intangible assets of businesses acquired. In accordance with SFAS
No. 142, Goodwill and Other F-8




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Intangible Assets, goodwill and intangible assets acquired in a
business combination and determined to have indefinite useful lives are not amortized, but instead
are evaluated for impairment annually, and between annual tests if an event occurs or circumstances
change which indicate that the asset might be impaired. An impairment loss is recognized to the
extent that the carrying amount exceeds the assets fair value. The fair value of goodwill is
derived using a discounted cash flow analysis. This analysis involves estimates and assumptions by
management regarding future sales volume, prices, inflation, expenses and capital spending,
appropriate discount rates, exchange rates, tax rates and other factors. See Note 7. In accordance with SFAS No. 142, intangible assets, other than those determined to have an
indefinite life, are amortized to their estimated residual values on a straight-line basis over
their estimated useful lives. These intangible assets are reviewed for impairment in accordance
with SFAS No. 144. (n) Fair Value of Financial Instruments SFAS No. 107, Disclosures About Fair Values of Financial Instruments,requires disclosure of the
information below about the fair value of certain financial instruments for which it is practicable
to estimate that value. For purposes of the following disclosure, the fair value of a financial
instrument is the amount at which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced sale or liquidation. The amounts disclosed represent managements best estimates of fair value. In accordance with SFAS
No. 107, the Company has excluded certain financial instruments and other assets and liabilities
from its disclosure. Accordingly, the aggregate fair value amounts presented are not intended to,
and do not, represent the underlying fair value of the Company. The methods and assumptions used to estimate fair value are as follows:  
    The carrying amount of cash and cash equivalents and restricted cash and cash
equivalents approximates fair value due to the relatively short period to maturity of these
instruments.
    The carrying amount of the Credit Facility approximates fair value based on the
borrowing rates currently available to the Company for borrowings with similar terms and
average maturities. The fair value of the Senior Notes is based on the year-end quoted
market price. The asset and (liability) amounts recorded on the balance sheets and the estimated fair values of
financial instruments as of December 31, 2004 and 2003 consisted of the following (in thousands): Carrying Amount
    
    
    Fair Value2004
    
    
    2003
    
    
    2004
    
    
    2003Cash and cash equivalents (including
restricted amounts)
    
    $
    85,396
    
    
    $
    84,232
    
    
    $
    85,396
    
    
    $
    84,232Long-term debt (including current
maturities and the revolving credit facility)
    
    
    (251,238
    )
    
    
    (246,500
    )
    
    
    (221,238
    )
    
    
    (240,500
    )
 (o) Claims and Insurance Reserves The Company retains losses within certain limits through high deductibles or self-insured
retentions. For certain risks, coverage for losses is provided by unrelated primary and
reinsurance companies. Haul Insurance Limited, a subsidiary of the Company, provides reinsurance
coverage to certain of the Companys licensed insurance carriers for certain types of losses within
its insurance program, primarily insured workers compensation,
automobile and general liability risks. We currently utilize an inner-aggregate, which is a deductible subject to an annual limit, in
certain insurance programs. We use the inner-aggregate only for our initial layer of excess
insurance whereby losses in the excess layer that are within the inner-aggregate amount are
retained by us up to an amount equal to the inner-aggregates annual limit. Once the annual limit
is met, the deductible is no longer in effect. F-9




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) The Company retains liability for automobile liability claims of $1 million or less in the U.S.
with no aggregate limit and has a $7 million inner-aggregate deductible for claims that exceed $1
million, but are less than $5 million per occurrence. Claims in excess of $5 million are covered
by excess insurance. In Canada, the Company retains liability up to CDN $500,000 for each claim
for personal injury and property damage, and a CDN $500,000 inner-aggregate limit for losses from
CDN $500,000 to CDN $1 million. Additionally, the Company retains liability of up to $250,000 for
each cargo damage claim in the U.S. and up to CDN $250,000 for each cargo damage claim in
Canada. These retentions and deductibles were effective January 1, 2004 and remain in effect for
the insurance year commencing January 1, 2005. Prior to January 1, 2004, for automobile liability claims in the U.S., the Company retained the
first $500,000 of every claim with no aggregate limit and retained losses from $500,000 to $1
million subject to a $1.5 million inner-aggregate deductible. The Company also had a $1 million
inner-aggregate deductible for losses from $1 to $2 million, with an additional $4 million
aggregate limit for losses from $2 to $5 million. Claims and insurance reserves reflect the estimated cost of claims for workers compensation, cargo
loss and damage, automobile and general liability, and products liability losses that are not
covered by insurance. Amounts that the Company estimates will be paid within the next year have
been classified as current in accrued liabilities in the consolidated balance sheet while the
noncurrent portion is included in other long-term liabilities. Costs related to these reserves
are included in the statement of operations in insurance and claims expense, except for workers
compensation, which is included in salaries, wages, and fringe benefits. The Company utilizes a third-party claims processor, who works under managements direction, and
third-party actuarial valuations to assist in the determination of the majority of its claims and
insurance reserves. The third-party claims administrator sets claims reserves on a case-by-case
basis. The third-party actuary utilizes the aggregate data from these reserves, along with
historical paid and incurred amounts, to determine, by loss year, the projected ultimate cost of
all claims reported and not yet reported, including potential adverse developments. The Companys
product liability claims reserves are set on a case-by-case basis by its claims administrators in
conjunction with legal counsel handling the claims, and include an estimate for claims incurred but
not yet reported. The Company tracks cargo claims and records reserve amounts on a case-by-case basis. The reserve for cargo claims includes an estimate of incurred but not
reported claims. These claims and insurance reserves are adjusted periodically, as claims develop, to reflect
changes in actuarial estimates based on actual experience. During 2004, the
estimated ultimate amount of claims from prior years increased approximately $5.4 million. Prior to the fourth quarter of 2004, the estimates for workers compensation, automobile and general liability and product
liability claims were discounted to their present value using the Companys estimate of
weighted-average risk-free interest rates for each claim year. The discount rates for claims
incurred during the years ended December 31, 2003, and 2002 were 2.5% and 3.5%, respectively.
 The discount rate for the first three quarters of 2004 was 3.0%. However, in the fourth quarter of 2004, the Company determined
that the continuing adverse development of aged claims was such
that it could no longer reliably determine its self-insurance reserves on
a discounted basis.
The Company has recorded a change in estimate,
which resulted in approximately $11.0 million
being charged to expense in the fourth quarter of 2004. This
adjustment was allocated as a $10.0 million increase
in salaries, wages and
fringe benefits and a $1.0 million increase in insurance
and claims expense based upon the discount amounts previously
recorded. Included below is a reconciliation
of the undiscounted estimated ultimate amount of claims to the
amounts recognized in the consolidated balance sheets as of December 31, 2004 and 2003 (in
thousands): F-10




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) 2004
    
    
    2003Aggregate
amount of claims not discounted
    
    $
    104,385
    
    
    $
    4,411Aggregate
amount of claims discounted
    
    
    
    
    
    
    100,861Less: discount
    
    
    
    
    
    
    (16,444
    )Liability in consolidated balance sheets
    
    $
    104,385
    
    
    $
    88,828Included in the consolidated balance sheets as follows:Accrued
liabilities - current
    
    $
    36,764
    
    
    $
    31,425Other
long-term liabilities - noncurrent
    
    
    67,621
    
    
    
    57,403Total liability included in the consolidated balance sheets
    
    $
    104,385
    
    
    $
    88,828
 Expected payouts of the aggregate amount of claims, excluding certain types of claims for which the
timing of expected payouts cannot be estimated, are as follows at December 31, 2004 (in thousands): 2005
    
    $
    34,8982006
    
    
    16,7762007
    
    
    13,2402008
    
    
    8,4432009
    
    
    5,8492010 and thereafter
    
    
    19,61398,819Liabilities excluded
    
    
    5,566$
    104,385
 Management believes adequate
provision has been made for all incurred claims, including those not
reported. Favorable
or unfavorable developments subsequent to December 31, 2004 could have a material impact on the
consolidated financial statements. (p) Stock-Based Compensation The Company applies the intrinsic-value-based method of accounting prescribed by Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees,and related
interpretations to account for its fixed-plan stock options. Under this method, compensation
expense is recorded on the date of grant only if the market price of the underlying stock, on the
date of grant, exceeds the exercise price of the stock option. SFAS No. 123, Accounting for
Stock-Based Compensation,established accounting and disclosure requirements using a fair
value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS
No. 123, the Company elected to continue to apply the intrinsic value-based method of accounting
described above, and adopted only the disclosure requirements of SFAS No. 123 and the amended
disclosure requirements of SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure, an amendment of FASB Statement No. 123. If the Company had applied the fair value method prescribed by SFAS No. 123, net loss and loss per
common share would have been changed to the pro forma amounts indicated below for the years ended
December 31, 2004, 2003, and 2002 (in thousands, except per share data): 2004
    
    
    2003
    
    
    2002Reported net loss
    
    $
    (53,883
    )
    
    $
    (8,604
    )
    
    $
    (7,526
    )Less: stock-based employee compensation included in
reported net loss, net of related taxes (1)
    
    
    321
    
    
    
    390
    
    
    
    (43
    )Plus: stock-based employee compensation determined
under the fair value method, net of related
taxes (1)
    
    
    (1,119
    )
    
    
    (1,180
    )
    
    
    (669
    )Pro forma net loss
    
    $
    (54,681
    )
    
    $
    (9,394
    )
    
    $
    (8,238
    )Loss per share:
 F-11




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) 2004
    
    
    2003
    
    
    2002As reported:Basic and diluted
    
    $
    (6.15
    )
    
    $
    (1.02
    )
    
    $
    (0.91
    )Pro forma:Basic and diluted
    
    $
    (6.24
    )
    
    $
    (1.11
    )
    
    $
    (0.99
    )
   (1)
     These amounts are shown net of taxes for the year ended December 31, 2002. There
is no applicable tax effect for the years ended December 31, 2004 and 2003 since during the fourth
quarter of 2003, the Company discontinued the recording of tax benefits on losses and began
recording valuation allowances against its deferred tax assets. The amounts do not include the pro
forma effects that might have been required to record a valuation allowance against the pro forma
deferred tax assets that existed at that time related to stock-based compensation. The fair value of the Companys stock options used to compute pro forma net loss and loss per
common share disclosures is estimated at the grant date, using the Black-Scholes option pricing
model, with the following weighted-average assumptions for the years ended December 31, 2004, 2003
and 2002: 2004
    
    
    2003
    
    
    2002Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    72
    %
    
    
    71
    %
    
    
    72
    %Risk-free interest rate
    

    3.56% and 4.39%
    
    
    2.71
    %
    
    
    3.19
    %Expected holding period
    
    7.85 years
    
    
    7 years
    
    
    
    7 years
 The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded
options that have no vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including expected stock price
volatility. SFAS No. 123 was revised in December 2004 (SFAS 123R). The provisions of SFAS 123R are
summarized in Note 3 and are anticipated to be adopted by the Company
when required. (q) Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date. The Company assesses the recoverability of deferred tax assets based on estimates of future taxable
income and establishes a valuation allowance against its deferred tax assets if it believes that it
is more likely than not that the deferred tax asset will not be recoverable. (r) Pension and Other Benefit Plans The Company has a defined benefit pension plan for management and office personnel in the U.S. The
benefits are based on years of service and the employees compensation during the five years before
retirement. The cost of this program is being funded currently. However, during 2002, the Company
froze employee participation in the plan. The Company also has two defined pension plans that are
currently active for a specific terminals employees. The cost of these plans is being funded currently. The Company sponsors a self-insured healthcare plan for substantially all employees. The amount of
the Companys obligation under this plan is measured based on the Companys best estimate of claims
incurred and claims incurred but not reported which is recorded in salaries, wages and fringe
benefits in the statement of operations. F-12




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) The Company also sponsors postretirement plans for certain of its retired employees. The cost of
these programs is being funded currently. (s) Earnings Per Share SFAS No. 128, Earnings Per Share,requires presentation of basic and diluted earnings or loss per
share. Basic earnings or loss per share is calculated by dividing net income or loss available to
common stockholders by the weighted-average number of common shares outstanding for the years
presented. Diluted earnings or loss per share reflects the potential dilution that could occur if
securities and other contracts to issue common stock were exercised or converted into common stock
or if they resulted in the issuance of common stock that would then share in the earnings of the
Company. The following were excluded from the calculation of diluted earnings per share as the
impact would have been antidilutive:  
    For the years ended December 31, 2004, 2003 and 2002, options to acquire 1,588,667,
1,709,967 and 1,612,300 shares of common stock, respectively; and
    For the years ended December 31, 2004, 2003 and 2002, 118,122, 170,993 and 172,534
shares of unvested restricted stock, respectively. (t) Commitments and Contingencies Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties,
and other sources are recorded when it is probable that a liability has been incurred and the
amount of the assessment can be reasonably estimated. (u) Guarantees and Indemnifications Guarantees The Company leases office space, certain terminal facilities, computer equipment and other
equipment under non-cancelable and cancelable operating lease agreements, some of which provide
guarantees to third parties. The Company assesses the fair value of its obligation to stand ready
to perform under these guarantees by considering the likelihood of the occurrence of the specified
triggering events or conditions requiring performance as well as other assumptions and factors.
During the year ended December 31, 2004, the Company entered into no guarantees of significance. No
accruals for guarantees were recorded at December 31, 2004 and 2003. Indemnifications The Company enters into agreements containing indemnification provisions with certain of its
customers, suppliers, service providers, and business partners in the ordinary course of business.
Under the indemnification provisions, subject to various limitations and qualifications, the
Company generally indemnifies and holds harmless the indemnified party for losses suffered or
incurred by the indemnified party as a result of the Companys activities. The potential losses
primarily relate to obligations that are insured under the Companys insurance programs. These
indemnification provisions generally survive termination of the underlying agreement. The maximum
potential amount of future payments that the Company could be required to make under these
indemnification provisions is unlimited. The Company has not incurred material costs to defend
lawsuits or settle claims related to these indemnification provisions and does not expect to incur
any such costs at this time. The fair value of the obligations related to these indemnification
provisions is estimated to be minimal. Therefore, no accruals for these indemnification provisions
were considered necessary at December 31, 2004 and 2003. In addition, the Company is obligated to indemnify its directors and officers who are, or were,
serving at the Companys request in such capacities, subject to the Companys By-laws. The maximum
potential amount of future F-13




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued) payments that the Company could be required to make under the
indemnification provisions of its By-laws is unlimited; however, the Company has Director and
Officer insurance policies that, in most cases, would enable it to recover a portion of any future
amounts paid. Historically, the Company has not incurred any costs to settle claims related to
these indemnifications, and there were no claims outstanding at December 31, 2004. Accordingly, no
liabilities for indemnifications have been recorded at
December 31, 2004 and 2003. (v) Derivatives and Hedging Activities SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,as amended, establishes
accounting and reporting standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded on the balance sheet as either an
asset or a liability measured at its fair value. SFAS No. 133 requires that changes in the
derivatives fair value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a derivatives gains and losses
to offset related results on the hedged item in the statement of operations and requires a company
to formally document, designate, and assess the effectiveness of transactions that receive hedge
accounting. From time to time, the Company enters into futures contracts to manage the risk associated with
changes in fuel prices. Gains and losses from fuel hedging contracts are recognized as part of fuel
expense when the Company uses the underlying fuel being hedged. The Company does not enter into
fuel hedging contracts for speculative purposes. During the years ended December 31, 2004, 2003,
and 2002, the Company did not have any fuel hedging contracts or other derivative instruments that
fall under the provisions of SFAS No. 133, as amended. (w) Use of Estimates The preparation of the consolidated financial statements requires management to make a number of
estimates and assumptions relating to the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the period. Significant items
subject to such estimates and assumptions include the carrying amount of property and equipment and
goodwill; valuation allowances for receivables and deferred income tax assets; self-insurance
reserves; and assets and obligations related to employee benefits. Actual results could differ from
those estimates. (x) Other Comprehensive Loss Accumulated other comprehensive income (loss), net of income taxes of $1.6 million and $1.9 million
as of December 31, 2004 and 2003, respectively, consists of the following (in thousands): 2004
    
    
    2003Foreign currency translation adjustment
    
    $
    1,392
    
    
    $
    (1,549
    )Minimum pension liability adjustment
    
    
    (1,748
    )
    
    
    (1,417
    )Accumulated other comprehensive loss
    
    $
    (356
    )
    
    $
    (2,966
    )
 The income tax amount includes
$990,000 of credits related to the reversal of the valuation
allowance during
the year ended December 31, 2004. (y) Reclassifications The Company has made certain changes in classifications of its previously issued financial
statements in order to conform to the current year presentation. As discussed in the Companys
Quarterly Report on Form 10-Q for the F-14




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued) period ended June 30, 2004, the Company enters into notes payable with third parties to finance
certain insurance arrangements. During 2004, the Company determined that borrowings and repayments
in connection with these insurance financing arrangements should be reclassified from operating
activities to financing activities in the consolidated statements of cash flows. The Company also
concluded that certain additional insurance financing arrangements should be presented in the
balance sheets on a gross basis, as assets and liabilities, rather than on a net basis.
Additionally, the Company concluded that funds deposited with and returned from the Companys
insurance carriers related to its insurance financing arrangements should be disclosed as cash
flows from investing activities rather than cash flows from operating activities in the
consolidated statements of cash flows. During the fourth quarter of
2004, the Company revised its presentation of tires on tractors and
trailers to reflect the expected usage within an operating cycle and
has reclassified tires with remaining useful lives in excess of one
year to other noncurrent assets. A summary of the effects of these reclassifications on the
Companys balance sheet as of December 31, 2003 includes (in thousands): As Previously
    
    
    AsReported
    
    
    ReclassifiedReceivables, net of allowance for doubtful accounts
    
    $
    55,110
    
    
    $
    51,990Prepayments and other current assets
    
    
    12,644
    
    
    
    15,645Deferred
income taxes - net current asset
    
    
    20,213
    
    
    
    21,014Total current assets
    
    
    121,365
    
    
    
    122,047Other noncurrent assets
    
    
    32,777
    
    
    
    36,423Total assets
    
    
    455,735
    
    
    
    460,063Accounts and notes payable
    
    
    34,272
    
    
    
    37,499Accrued liabilities
    
    
    80,937
    
    
    
    81,237Total current liabilities
    
    
    131,583
    
    
    
    135,110Deferred
income tax  - net noncurrent liability
    
    
    20,213
    
    
    
    21,014Total liabilities and stockholders equity
    
    
    455,735
    
    
    
    460,063
 A summary of the effects of these reclassifications on the Companys consolidated statements of
cash flows for the years ended December 31, 2003 and 2002
includes (in thousands): 2003
    
    
    2002As Previously
    
    
    As
    
    
    As Previously
    
    
    AsReported
    
    
    Reclassified
    
    
    Reported
    
    
    ReclassifiedCash flows
from operating activities:Change in operating assets and liabilities:Receivables, net of allowance for doubtful
accounts
    
    $
    5,258
    
    
    $
    8,378
    
    
    $
    13,667
    
    
    $
    13,667Prepayments and other assets
    
    
    1,821
    
    
    
    (158
    )
    
    
    (6,074
    )
    
    
    (7,623
    )Accounts and notes payable
    
    
    (3,512
    )
    
    
    (3,512
    )
    
    
    (3,603
    )
    
    
    (166
    )Accrued liabilities
    
    
    (16,486
    )
    
    
    (16,186
    )
    
    
    (5,268
    )
    
    
    (5,268
    )Net cash provided by operating activities
    
    
    35,397
    
    
    
    36,838
    
    
    
    54,423
    
    
    
    56,311Cash flows from investing activities:Funds deposited with insurance carriers
    
    
    
    
    
    
    (22,680
    )
    
    
    
    
    
    
    (6,000
    )Funds returned from insurance carriers
    
    
    
    
    
    
    19,560
    
    
    
    
    
    
    
    6,000Net cash used in investing activities
    
    
    (38,415
    )
    
    
    (41,535
    )
    
    
    (2,069
    )
    
    
    (2,069
    )Cash flows from financing activities:Proceeds from insurance financing arrangements
    
    
    
    
    
    
    19,313
    
    
    
    
    
    
    
    6,328Repayments of insurance financing arrangements
    
    
    
    
    
    
    (17,634
    )
    
    
    
    
    
    
    (8,216
    )Net cash provided by financing activities
    
    
    (5,628
    )
    
    
    (3,949
    )
    
    
    (47,538
    )
    
    
    (49,426
    )
 (3) Recent Accounting Pronouncements F-15




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued) In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (revised
2004), Share-Based Payment(SFAS No. 123R), which replaces SFAS No. 123, Accounting for Stock-Based
Compensationand supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees.SFAS No.
123R requires all share-based payments to employees, including grants of employee stock options, to
be recognized in the financial statements based on their fair values beginning with the first
interim or annual period after June 15, 2005, with early adoption encouraged. The pro forma
disclosures previously permitted under SFAS No. 123 no longer will be an alternative to financial
statement recognition. In April 2005 the Securities and Exchange
Commission issued a rule that allows companies to implement SFAS
No. 123R as of the beginning of fiscal years beginning after
June 15, 2005. Under SFAS No. 123R, companies must determine the appropriate fair value
model to be used for valuing share-based payments, the amortization method for compensation cost
and the transition method to be used at date of adoption. The transition methods include
prospective and retroactive adoption alternatives. The prospective method requires that
compensation expense be recorded for all unvested stock options and restricted stock at the
beginning of the first quarter of adoption of this standard, while the retroactive method would
record compensation expense for all unvested stock options and restricted stock beginning with the
first period restated. The Company is currently evaluating the
requirements of SFAS No. 123R and will adopt this Standard in 2006. In May 2004, the FASB issued FASB Staff Position (FSP) No. FAS 109-2, Accounting and Disclosure
Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of
2004, which provides guidance under SFAS No. 109, Accounting for Income Taxes,with respect to
recording the potential impact of the repatriation provisions of the American Jobs Creation Act of
2004 (the Jobs Act) on enterprises income tax expense and deferred tax liability. The Jobs Act was
enacted on October 22, 2004. FSP 109-2 allows an enterprise time beyond the financial reporting
period of enactment to evaluate the effect of the Jobs Act on its plan for reinvestment or
repatriation of foreign earnings for purposes of applying SFAS No. 109. The Company expects to
complete its evaluation of the impact of the repatriation provisions by the second quarter of 2005.
Accordingly, as provided for in FSP 109-2, the Company has not adjusted its tax expense or deferred
tax liability to reflect the repatriation provisions of the Jobs Act. However, the Company does
not expect the impact to be significant. In May 2004, the FASB issued FSP No. FAS 106-2, Accounting and Disclosure Requirements Related to
the Medicare Prescription Drug, Improvement and Modernization Act of 2003, (the Act) in response to
a new law regarding prescription drug benefits under Medicare (Medicare Part D) and a Federal
subsidy to sponsors of retiree healthcare benefit plans that provide a benefit that is at least
actuarially equivalent to Medicare Part D. Currently, SFAS No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensionsrequires that changes in relevant law be considered in
measurement of postretirement benefit costs. The Company has determined that the enactment of the
Act was not a significant event with respect to its plans, and accordingly, as required by FSP
106-2, the effects of the Act are incorporated into its December 31, 2004 measurement of the plans
benefit obligations. (4) Restricted Cash, Cash Equivalents and Investments The Company had $82.9 million and $82.1 million in restricted cash and cash equivalents at December
31, 2004 and 2003, respectively, pledged to collateralize $82.9 million and $82.1 million of
letters of credit at December 31, 2004 and 2003, respectively, for the settlement of insurance
claims. The restricted cash and cash equivalents are not available to the Company for use in its
operations. During 2003, all of the Companys investments, which consisted of federal, state, and municipal
government obligations, corporate securities, and equity securities, were converted to cash and
cash equivalents. The cost of securities sold is based on the specific identification method. Sales
of securities for the years ended December 31, 2004, 2003, and 2002 are summarized below (in
thousands): 2004
    
    
    2003
    
    
    2002Fixed maturities:Cash proceeds
    
    $
    122,950
    
    
    $
    78,360
    
    
    $
    29,925Gross realized gains
    
    
    120
    
    
    
    2,206
    
    
    
    766Gross realized losses
    
    
    (299
    )
    
    
    (616
    )
    
    
    (170
    )Equity securities:Cash proceeds
    
    
    
    
    
    
    13,506
    
    
    
    5,889Gross realized gains
    
    
    
    
    
    
    2,072
    
    
    
    340Gross realized losses
    
    
    
    
    
    
    (1,217
    )
    
    
    (4,057
    )
 F-16




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued) Investment income (loss) consists of the following for the years ended December 31, 2004, 2003, and
2002 (in thousands): 2004
    
    
    2003
    
    
    2002Interest and dividend income
    
    $
    1,315
    
    
    $
    2,045
    
    
    $
    3,266Realized gains (losses)
    
    
    (179
    )
    
    
    2,445
    
    
    
    (3,121
    )Unrealized gains (losses)
    
    
    
    
    
    
    (1,318
    )
    
    
    2,318$
    1,136
    
    
    $
    3,172
    
    
    $
    2,463
 (5) Prepayments and Other Current Assets Prepayments and other current assets consist of the following at December 31, 2004 and 2003 (in
thousands): 2004
    
    
    2003Tires on tractors and trailers
    
    $
    2,231
    
    
    $
    3,133Prepaid insurance
    
    
    4,058
    
    
    
    8,714Prepaid licenses
    
    
    1,570
    
    
    
    1,471Other
    
    
    4,555
    
    
    
    2,327$
    12,414
    
    
    $
    15,645
 As discussed in Note 6 below, during the fourth quarter of 2004, the Company performed an analysis
of the fleet of tractors and trailers owned by its Automotive Group and determined that a total of
710 tractors and 834 trailers, which had been temporarily idled, were not viable candidates for remanufacture
and would be sold for scrap value. As a result of this determination, the
Company expensed $1.1 million related to the
tires on this equipment. (6) Property and Equipment Property and equipment at December 31, 2004 and 2003 is as follows (in thousands): 2004
    
    
    2003Tractors and trailers
    
    $
    450,111
    
    
    $
    433,627Buildings and facilities (including leasehold
improvements)
    
    
    46,482
    
    
    
    46,596Furniture, fixtures, and equipment
    
    
    43,464
    
    
    
    42,910Land
    
    
    11,505
    
    
    
    12,344Service cars and equipment
    
    
    4,151
    
    
    
    3,731555,713
    
    
    
    539,208Less accumulated depreciation and amortization
    
    
    (420,078
    )
    
    
    (383,635
    )$
    135,635
    
    
    $
    155,573
 Depreciation expense was $42.7 million, $45.4 million and $54.7 million for the years ended
December 31, 2004, 2003, and 2002, respectively. The Company is continuing its Rig remanufacturing program that began in 2002. Remanufacturing
involves structural improvements and/or engine replacements to the tractors and trailers (together
called Rigs) and is expected to increase the useful life of a Rig to approximately 15 years.
These newly remanufactured assets are depreciated over an estimated useful life of 6 years, using
the straight-line method of depreciation. Total capital expenditures related to the remanufacturing
program, including engine replacements, were approximately $11.7 million and $14.8 million for the
years ended December 31, 2004 and 2003, respectively. During the fourth quarter of 2004,
the Company determined that 710 tractors and 834 trailers, which had
been temporarily idled, were not viable
candidates for the Company's remanufacturing program. There was no
impairment of these tractors and trailers and as a result the Company
revised  the estimated remaining useful life of these assets and
recorded depreciation expense of $4.2 million, such that these
assets are recorded at estimated scrap value at December 31, 2004. F-17




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued) The Company had taken
similar action during 2002 regarding 978 Rigs and recorded additional
depreciation expense of $2.1 million in the fourth quarter of 2002. (7) Goodwill and Other Intangible Assets The adoption of SFAS No. 142, Goodwill and Other Intangible Assets,effective January 1, 2002,
required the Company to perform a transitional impairment assessment on all goodwill and indefinite
lived intangible assets as of January 1, 2002. The Company compared the fair value of goodwill to
its carrying value for each reporting unit. Fair values were derived using discounted cash flow
analyses using an appropriate discount rate. The assumptions used in these discounted cash flow
analyses were consistent with the Companys internal planning and represented the Companys best
estimates. The cumulative effect of this change in accounting principle was a decrease to the Axis
Group goodwill due to less than expected performance. The non-cash,
after-tax adjustment to net loss of $4.1 million is included in the accompanying statement of
operations for the year ended December 31, 2002 as the cumulative effect of a change in accounting
principle. The Company completed its annual review of goodwill during the fourth quarters of 2004, 2003 and
2002. No additional impairment was identified in 2003 or 2002. For the year ended December 31,
2004, no impairment was identified with respect to Allied Automotive Group. However, the analysis
resulted in an impairment of $8.3 million related to the Axis Group. This impairment is
reflected as impairment of goodwill in the accompanying statement of operations for the year
ended December 31, 2004. The fair value of goodwill, which was used to measure the amount of the
impairment to be recognized, was derived using a discounted cash flow analysis. This analysis
involved estimates and assumptions by management regarding future sales volume, prices, inflation,
expenses and capital spending, discount rates, exchange rates, tax rates and other factors. The
assumptions used in these discounted cash flow analyses were consistent with
the assumptions that are used for internal planning. During the year ended December 31, 2004, Axis
experienced a decline in operating performance compared to prior years.
 As a result of this
decline and managements analysis of trends in operational metrics the Company lowered the
projected future operating cash flows for the Axis Group. This was the primary contributing factor
that resulted in the non-cash impairment of $8.3 million for the year ended December 31, 2004. The following table summarizes the activity in the carrying value of goodwill by reporting unit as
of December 31, 2004 and 2003 (in thousands): AlliedAutomotiveGroup
    
    
    Axis Group
    
    
    TotalBalance as of December 31, 2002
    
    $
    73,043
    
    
    $
    12,198
    
    
    $
    85,241Increase in carrying amount due to
a change in currency rates
    
    
    4,940
    
    
    
    22
    
    
    
    4,962Balance as of December 31, 2003
    
    
    77,983
    
    
    
    12,220
    
    
    
    90,203Increase in carrying amount due to
a change in currency rates
    
    
    2,058
    
    
    
    11
    
    
    
    2,069Impairment of goodwill
    
    
    
    
    
    
    (8,295
    )
    
    
    (8,295
    )Balance as of December 31, 2004
    
    $
    80,041
    
    
    $
    3,936
    
    
    $
    83,977
 The table below provides a summary of the carrying values and unamortized amounts relating to
the Companys other intangible assets as of December 31, 2004 and 2003 (in thousands): 2004
    
    
    2003Gross carrying value
    
    $
    1,504
    
    
    $
    1,504Accumulated amortization
    
    
    (890
    )
    
    
    (739
    )Unamortized balances
    
    $
    614
    
    
    $
    765
 F-18




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued) The intangibles are being amortized over the estimated useful life of ten years. Amortization
expense for the other intangible assets was approximately $200,000 for each of the years ended
December 31, 2004, 2003 and 2002. Further, the Company expects its amortization expense to be
approximately $150,000 for each of the years ending December 31, 2005 through December 31, 2008. (8) Other Noncurrent Assets Other noncurrent assets consist of the following at December 31, 2004 and 2003 (in thousands): 2004
    
    
    2003Cash surrender value of life insurance
    
    $
    6,227
    
    
    $
    6,201Deferred financing costs
    
    
    7,396
    
    
    
    9,718Prepaid pension cost
    
    
    18,114
    
    
    
    14,166Deposits and other
    
    
    5,783
    
    
    
    6,338$
    37,520
    
    
    $
    36,423
 (9) Equity Investments During the second quarter of 2002, the Company sold its equity interest in a Brazilian joint
venture for $3.0 million which approximated the carrying value.
Included in other, net in the
statement of operations for the year ended December 31, 2004 is $191,000 related to the write down
of the equity of the Companys only remaining joint venture to $0. Accordingly, there were no equity
investments in joint ventures included in the consolidated balance sheet as of December 31, 2004.
There was no equity in earnings from joint ventures included in the
Companys statements of
operations for the years ended December 31, 2004, 2003 and 2002. (10) Accounts and Notes Payable and Accrued Liabilities The Company enters into notes payable with third parties for insurance financing arrangements.
Outstanding notes payable for insurance financing arrangements as of December 31, 2004 and 2003
were $1.8 million and $3.2 million, respectively and are included in accounts and notes payable in
the consolidated balance sheets. These amounts are due in monthly installments, generally over a
period of one year. Accrued liabilities consists of the following at December 31, 2004 and 2003 (in thousands): 2004
    
    
    2003Wages and benefits
    
    $
    31,059
    
    
    $
    35,180Claims and insurance reserves
    
    
    36,764
    
    
    
    31,425Accrued interest
    
    
    4,756
    
    
    
    4,540Accrued taxes
    
    
    5,320
    
    
    
    3,303Purchased transportation
    
    
    1,942
    
    
    
    2,752Other
    
    
    5,622
    
    
    
    4,037$
    85,463
    
    
    $
    81,237
 As part of its turnaround initiatives, the Company has adopted strategies to achieve significant
reductions in corporate overhead, improvements in personnel quality and increases in productivity.
Targeted in these strategies are workforce reductions as well as additional efforts to decrease
discretionary spending and eliminate certain fixed costs. As part of the initiative for a reduction
in the workforce, during the years ended December 31, 2004, 2003 and 2002, severance was paid to
approximately 94, 86 and 135 terminated corporate and field employees. The following table
summarizes the activity in the accrual for termination benefits for the years ended December 31,
2004 and 2003, (in thousands): 2004
    
    
    2003Beginning balance
    
    $
    808
    
    
    $
    1,076Additions to reserve charged to salaries, wages, and fringe
benefits
    
    
    1,670
    
    
    
    1,043Cash payments
    
    
    (2,044
    )
    
    
    (1,311
    )Ending balance
    
    $
    434
    
    
    $
    808
 F-19




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued) The accrual for termination
benefits is included in accrued liabilities - wages and benefits above
since the Company expects to pay substantially all of these liabilities within the next twelve
months. (11) Lease Commitments The Company leases office space, certain terminal facilities, computer equipment and other
equipment under noncancelable operating lease agreements that expire in various years through
2010. Rental expense under these leases was approximately $14.3 million, $12.3 million and $11.4
million for the years ended December 31, 2004, 2003, and 2002, respectively. Included in the noncancelable leases discussed above are operating lease commitments for
approximately 453 Rigs. Lease terms range between five and seven years, expire between 2005 and
2010, and contain residual guarantees of up to 25% of the original cost of the Rigs. These
residual value guarantees were included in the Companys calculations to determine the proper
classification of the leases. No accruals for these guarantees were considered
necessary at December 31, 2004. The Company also leases certain terminal facilities under cancelable leases. The total rental
expense under these leases was approximately $2.9 million, $2.4 million and $3.5 million for the
years ended December 31, 2004, 2003, and 2002, respectively. In addition, the Company has sublease agreements with third parties for two leased buildings. The
subleases expire between 2005 and 2011. Total sublease income earned during the years ended
December 31, 2004, 2003, and 2002 was approximately $0.8 million, $1.1 million and $1.0 million,
respectively. Future minimum rental commitments and related sublease income under all noncancelable operating
lease agreements, excluding lease agreements that expire within one year, are as follows as of
December 31, 2004 (in thousands): SubleaseCommitments
    
    
    Income2005
    
    $
    12,539
    
    
    $
    6672006
    
    
    10,141
    
    
    
    3472007
    
    
    7,780
    
    
    
    2272008
    
    
    3,559
    
    
    
    2009
    
    
    2,291
    
    
    
    Thereafter
    
    
    304
    
    
    
    Total
    
    $
    36,614
    
    
    $
    1,241
 (12) Long-Term Debt and Borrowings Under the Revolving Credit Facility Long-term debt consisted of the following at December 31, 2004 and 2003 (in thousands): 2004
    
    
    2003Term Loan A
    
    $
    78,266
    
    
    $
    96,500Term Loan B
    
    
    20,000
    
    
    
    Senior notes
    
    
    150,000
    
    
    
    150,000248,266
    
    
    
    246,500Less current maturities of long-term debt
    
    
    (13,500
    )
    
    
    (16,374
    )$
    234,766
    
    
    $
    230,126
 Senior Notes F-20




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued) On September 30, 1997,
the Company issued $150 million of 85⁄8% senior notes (the Senior Notes)
through a private placement. The Senior Notes were subsequently registered with the Securities and
Exchange Commission. The net proceeds from the Senior Notes were used to fund the acquisition of
Ryder Automotive Carrier Services, Inc. and RC Management Corp., pay related fees and expenses, and
reduce outstanding indebtedness. The Senior Notes are payable in quarterly installments of interest
only and mature on October 1, 2007. Borrowings under the Senior Notes are general unsecured obligations of Allied Holdings, Inc. The
Companys obligations under the Senior Notes are guaranteed by substantially all of the
subsidiaries of the Company (the Guarantor Subsidiaries). The guarantees are full and
unconditional. There are no restrictions on the ability of the Guarantor Subsidiaries to make
distributions to the Company. The Company owns 100% of the Guarantor Subsidiaries. The following
companies (the Nonguarantor Subsidiaries) do not guarantee the Companys obligations under the
Senior Notes:  
    Haul Insurance Ltd.;
    Arrendadora de Equipo Para el Transporte de Automoviles, S. de R.L. de C.V.;
    Axis Logistica, S. de R.L. de C.V. See Note 21 for combined balance sheet information, combined statement of operations information
and combined statement of cash flows information for the Guarantor Subsidiaries and the
Nonguarantor Subsidiaries. The agreement governing the Senior Notes sets forth a number of negative covenants, which are
binding on the Company. The covenants limit the Companys ability to, among other things, purchase
or redeem stock, make dividend or other distributions, make investments, and incur or repay debt
(with the exception of payment of interest or principal at stated maturity). Credit Facilities On February 25, 2002, the Company entered into a credit facility that included four term loans (the
Term Loans) totaling $82.75 million and a $120 million revolving credit facility. Proceeds from
the Term Loans were used to repurchase $40 million of senior subordinated notes for $37.25 million.
In conjunction with the extinguishment of these senior subordinated notes, the Company recognized a
pre-tax gain of $2.75 million during 2002. In connection with the facility, the Company paid
interest in-kind of $1.1 million in each of the years ended December 31, 2003 and 2002. The credit
facility and amendments thereto are collectively referred to as the Credit Facility. Subsequent
amendments to the Credit Facility are as follows:  
    September 2003  to consolidate four outstanding term loans and the $120 million Credit
Facility to a $90 million revolving credit facility (the Revolver) and a new $100 million
term loan (Term Loan A). Term Loan A is payable in quarterly installments of principal
and interest. As part of this amendment, the maturity date of the Credit Facility was
extended from February 2005 to September 2007;
    November 2004  to provide an additional $20 million term loan (Term Loan B) and
increase the maximum amount of letters of credit that may be issued by the Company under
its Revolver from $40 million to $50 million. Interest on Term Loan B is payable monthly
and the principal is payable in full at maturity on September 4, 2007;
    April 2005  to provide an additional $25 million term loan (Term Loan C) and to amend
the financial covenant regarding the required minimum earnings before interest, taxes,
depreciation and amortization, as defined in the Credit Facility, applicable to the twelve month period ended December 31, 2004 and
the respective twelve month periods ending each month thereafter
through April 30, 2005 and increase the debt incurrence ratio as
set forth in the Credit Facility. Interest rates under the Credit Facility are as follows: F-21




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)  
    The Revolver  the prime rate plus 1.5%, or LIBOR plus 4.5%, at managements discretion,
with a minimum interest rate of 6.5%. The Company also pays commitment fees on the undrawn
portion of the Revolver;
    Term Loan A - a rate which falls between 8.5% and 11.5% based solely on the Companys
leverage as defined in the Credit Facility;
    Term Loan B - a rate equal to the greater of (i) the prime rate plus 8.5% or (ii)
13.25%. In the event that the consolidated earnings before interest,
taxes, depreciation and amortization, as defined in the Credit
Facility, for the year ending December 31, 2005
exceeds $70 million, Term Loan B shall bear interest on the principal amount outstanding
on such date at the interest rate applicable to Term Loan A, effective February 14, 2006;
    Term Loan C - a rate equal to the greater of (i) the prime rate plus 8.5% or (ii)
13.25%. In the event that the consolidated earnings before interest,
taxes, depreciation and amortization, as defined in the Credit
Facility, for the year ending December 31, 2005
exceeds $70 million, Term Loan C shall bear interest on the principal amount outstanding
on such date at the interest rate applicable to Term Loan A, effective February 14, 2006. At December 31, 2004, the interest rates on the Revolver, Term Loan A and Term Loan B were 6.75%,
10.0% and 13.75%, respectively. Prior to the amendment of the Credit Facility in September 2003,
the interest rate on the term loans was based solely on a spread over the prime rate. Although the Credit Facility, including the Revolver, has a maturity date of September 2007, the
Company has classified the Revolver as current based on the requirement of Emerging Issues Task
Force (EITF) Issue No. 95-22, Balance Sheet Classification of Borrowings Outstanding under
Revolving Credit Agreements that include both a Subjective Acceleration Clause and a Lock-Box
Arrangement. The amount available under the $90 million Revolver may be reduced based on a calculation of
Revolver collateral and may be limited by a debt incurrence ratio as
set forth in the Credit Facility. At December 31, 2004,
$80.1 million of Revolver collateral was available.
Approximately $38.1 million of the Revolver was committed under letters of credit primarily related
to the settlement of insurance claims. At December 31, 2004, $3.0 million in loans was outstanding
under the Revolver. Accordingly, the Company had approximately $39.0 million available under the
Revolver as of December 31, 2004. The agreement governing the Credit Facility also sets forth a number of affirmative, negative, and
financial covenants binding on the Company and contains a subjective acceleration clause which
permits the lenders to accelerate the maturity date of the Credit Facility if an event or
development occurs that could reasonably be expected to have a material adverse effect on the
Company, as defined in the agreement. 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 also require the Company to maintain a
minimum earnings threshold and also include a maximum leverage ratio. As a result of the amendment
in April 2005, the Company was in compliance with these covenants set forth in the Credit Facility
at December 31, 2004. In addition, the Company obtained the consent of its
lenders to deliver its financial statements for the year ended December 31, 2004 on or before April
20, 2005 and the Company delivered these financial statements on
April 18, 2005. As a result of this consent, the Company was in compliance with the
requirements of its Credit Facility relating to the delivery of its financial statements at
December 31, 2004. Though we were in compliance with the various covenants set forth in the Credit Facility (as
amended in April 2005) at December 31, 2004, there can be no assurance that we will be able to
comply with these or other debt covenants or that, if we fail to do so, we will be able to obtain
amendments to or waivers of such covenants. Borrowings under the Companys Credit Facility are secured by a first priority security interest on
substantially all of the assets of the Company and certain of its subsidiaries, including a pledge
of stock of certain subsidiaries and excluding restricted cash, cash equivalents and investments.
If the Company were unable to repay any borrowings under the Credit Facility when due, its lenders
would have the right to proceed against the collateral granted to them to secure the debt. If the
Company fails to comply with the covenants contained in its debt instruments and those covenants
are not waived, or if the Company does not adequately service its debt obligations, its lenders
could declare a default under the debt instruments. If a default occurs under any of the debt
instruments, the Companys lenders may elect to declare all borrowings outstanding, together with
interest and other fees, to be immediately due and payable. Any default under the debt instruments,
particularly any default that resulted in acceleration of indebtedness or foreclosure on
collateral, would have a material and adverse affect on the Company. F-22




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued) At December 31, 2004, the
Companys current liabilities exceeded its current assets by
$21.1 million. However, management does not believe that the Company
is financially impaired as a result of its negative working capital
since the Company generates positive cash flows from operations and
has availability under its Revolver to cover seasonal working capital
needs. The Company obtained the additional borrowing of $25 million
in April 2005 because it believed that the availability under the
Revolver in its Credit Facility could prove to be inadequate to
satisfy its working capital needs during certain periods in the first
and second quarters of 2005. As a result of the additional liquidity
provided by the amendment in April 2005, the Company has been able
to, and expects to continue to, generate sufficient cash flows from
operations to meet its liquidity needs through at least the next
twelve months, provided that it uses the Credit Facility to cover
seasonal working capital needs. Future maturities of long-term debt, excluding the Revolver, which is classified as current, are as
follows at December 31, 2004 (in thousands): 2005
    
    $
    13,5002006
    
    
    13,5002007
    
    
    221,266$
    248,266
 (13) Other Long-term Liabilities Other long-term liabilities consists of the following at December 31, 2004 and 2003 (in thousands): 2004
    
    
    2003Claims and insurance reserves
    
    $
    67,621
    
    
    $
    57,403Other
    
    
    2,823
    
    
    
    2,294$
    70,444
    
    
    $
    59,697
 (14) Employee Benefits (a) Pension and Postretirement Benefit Plans The Company maintains the Allied Defined Benefit Pension Plan, a trusteed noncontributory defined
benefit pension plan for management and office personnel in the U.S., under which benefits are paid
to eligible employees upon retirement based primarily on years of service and compensation levels
at retirement. Effective April 30, 2002, the Company froze employee years of service and
compensation levels in the Allied Defined Benefit Pension Plan. Contributions to the Plan reflect
benefits attributed to employees services. The Companys funding policy is to contribute annually
at a rate that is intended to fund past service benefits over a 30-year period. The Company also provides certain healthcare and life insurance benefits for eligible employees who
retired prior to July 1, 1993 and their dependents, and for certain employees participating in the
1999 voluntary early retirement plan. Generally, the healthcare plan pays a stated percentage of
most medical expenses reduced for any deductibles and payments by government programs or other
group coverage. During 2004 the Company began requiring participants to contribute to the monthly
healthcare premiums. The life insurance plan pays a lump-sum death benefit based on the employees
salary at retirement. These plans are unfunded. Employees retiring after July 1, 1993 are not
participants in the 1999 voluntary early retirement plan and are not entitled to any postretirement
medical or life insurance benefits under this plan. In 1997, in connection with the Ryder acquisition, the Company assumed the obligations of a
postretirement benefit plan to provide retired employees with certain healthcare and life insurance
benefits. Substantially all employees employed at the time of the acquisition and not covered by
union-administered medical plans and who had retired as of September 30, 1997 were eligible for
these benefits. Benefits were generally provided to qualified retirees under age 65 and eligible dependents. Employees retiring after September 30, 1997 are not entitled to any
postretirement medical or life insurance benefits under this plan. Furthermore, the Company took
over two defined pension plans for a certain terminal. Both plans are currently active. One of the
plans benefits provides a monthly benefit based on years of service upon retirement. The other
plan provides benefits to eligible employees upon retirement based primarily on years of service
and compensation levels at retirement. The Company uses a measurement date of December 31 for the two postretirement benefit plans and for
one of the defined benefit pension plans. With respect to the other two defined benefit pension
plans, the Company uses a measurement date of September 30. The change in the projected benefit obligation of the defined benefit pension plans and the
postretirement benefit plans consisted of the following as of December 31, 2004, 2003 and 2002 (in
thousands): F-23




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued) Defined Benefit
    
    
    Postretirement BenefitPension Plans
    
    
    Plans2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Benefit obligation at beginning of year
    
    $
    43,647
    
    
    $
    40,170
    
    
    $
    37,306
    
    
    $
    8,610
    
    
    $
    9,911
    
    
    $
    9,626Service cost
    
    
    94
    
    
    
    89
    
    
    
    91
    
    
    
    58
    
    
    
    52
    
    
    
    Interest cost
    
    
    2,674
    
    
    
    2,691
    
    
    
    2,738
    
    
    
    396
    
    
    
    616
    
    
    
    636Plan amendments and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,807
    )
    
    
    
    
    
    
    (4
    )Actuarial loss
    
    
    9,216
    
    
    
    3,512
    
    
    
    3,192
    
    
    
    11,920
    
    
    
    164
    
    
    
    1,099Canada Plan vested benefits transfer
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    Benefits paid
    
    
    (2,689
    )
    
    
    (2,815
    )
    
    
    (3,137
    )
    
    
    (1,303
    )
    
    
    (2,133
    )
    
    
    (1,446
    )Benefit obligation at end of year
    
    $
    52,942
    
    
    $
    43,647
    
    
    $
    40,170
    
    
    $
    15,874
    
    
    $
    8,610
    
    
    $
    9,911
 The change in plan assets and funded status of the defined benefit pension plans and the
postretirement benefit plans consisted of the following as of December 31, 2004, 2003 and 2002 (in
thousands): Defined Benefit
    
    
    Postretirement BenefitPension Plans
    
    
    Plans2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Change in plan assets:Fair value of plan assets at beginning of year
    
    $
    44,836
    
    
    $
    38,089
    
    
    $
    33,310
    
    
    $
    
    
    
    $
    
    
    
    $
    Actual return on plan assets
    
    
    4,324
    
    
    
    8,815
    
    
    
    (3,749
    )
    
    
    
    
    
    
    
    
    
    
    Employer contributions
    
    
    4,453
    
    
    
    747
    
    
    
    11,685
    
    
    
    1,303
    
    
    
    2,133
    
    
    
    1,446Canada Plan vested benefits transfer
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    Benefits paid
    
    
    (2,689
    )
    
    
    (2,815
    )
    
    
    (3,137
    )
    
    
    (1,303
    )
    
    
    (2,133
    )
    
    
    (1,446
    )Fair value of plan assets at end of year
    
    $
    50,924
    
    
    $
    44,836
    
    
    $
    38,089
    
    
    $
    
    
    
    $
    
    
    
    $
    Reconciliation of funded status:Funded status excess (deficiency)
    
    $
    (2,018
    )
    
    $
    1,189
    
    
    $
    (2,080
    )
    
    $
    (15,874
    )
    
    $
    (8,610
    )
    
    $
    (9,911
    )Unrecognized actuarial loss
    
    
    20,797
    
    
    
    13,256
    
    
    
    17,408
    
    
    
    13,603
    
    
    
    1,938
    
    
    
    1,844Unrecognized prior service cost
    
    
    135
    
    
    
    183
    
    
    
    231
    
    
    
    (4,111
    )
    
    
    (630
    )
    
    
    (700
    )Unrecognized transition asset
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    Additional minimum liability
    
    
    (3,112
    )
    
    
    (2,886
    )
    
    
    (3,323
    )
    
    
    
    
    
    
    
    
    
    
    Net asset (liability) recognized
    
    $
    15,802
    
    
    $
    11,742
    
    
    $
    12,216
    
    
    $
    (6,382
    )
    
    $
    (7,302
    )
    
    $
    (8,767
    )Amounts recognized in the consolidated
balance sheets consist of:Pension asset (included in other non-current assets)
    
    $
    18,114
    
    
    $
    14,166
    
    
    $
    14,968
    
    
    $
    
    
    
    $
    
    
    
    $
    Pension and postretirement benefit obligations
(included in other long-term liabilities)
    
    
    (2,312
    )
    
    
    (2,424
    )
    
    
    (2,752
    )
    
    
    (6,382
    )
    
    
    (7,302
    )
    
    
    (8,767
    )$
    15,802
    
    
    $
    11,742
    
    
    $
    12,216
    
    
    $
    (6,382
    )
    
    $
    (7,302
    )
    
    $
    (8,767
    )
 The accumulated benefit obligation for the defined benefit pension plans was the same as the
projected benefit obligation at December 31, 2004, 2003 and 2002. Pension and postretirement benefits expected to be paid for the next five years and the aggregate
amounts due for the five fiscal years thereafter are as follows (in thousands): F-24




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued) Defined Benefit
    
    
    PostretirementPension Plans
    
    
    Benefit Plans2005
    
    $
    1,301
    
    
    $
    1,2442006
    
    
    1,563
    
    
    
    1,1792007
    
    
    1,731
    
    
    
    1,1162008
    
    
    1,904
    
    
    
    1,1102009
    
    
    2,060
    
    
    
    1,0762010 - 2014
    
    
    12,578
    
    
    
    5,126
 The Company recognizes a minimum pension liability for its under-funded pension plans. This
liability represents the amount by which the accumulated benefit obligation exceeds the sum of the
fair market value of plan assets and accrued amounts previously recorded. The additional liability
may be offset by an intangible asset, to the extent of previously unrecognized prior service cost,
or a reduction of stockholders equity. An intangible asset of approximately $500,000, $600,000 and
$700,000 was recorded as of December 31, 2004, 2003 and 2002, respectively, which is included in
other noncurrent assets. The Company has one defined benefit plan in which the fair value of plan assets exceeds the benefit
obligation. The value of the assets and obligation was $44.8 million and $44.5 million,
respectively at December 31, 2004 and $39.5 million and $35.9 million, respectively, at December
31, 2003. The Company has two defined benefit plans in which the fair values of the plan assets are
less than the benefit obligation. The aggregate values of the assets and obligations were $6.2
million and $8.5 million, respectively, at December 31, 2004 and $5.4 million and $7.8 million,
respectively, at December 31, 2003. The following assumptions were used in determining the actuarial present value of the projected
pension benefit obligation and postretirement benefit obligation at December 31, 2004 and 2003: Defined Benefit
    
    
    PostretirementPension Plans
    
    
    Benefit Plans2004
    
    
    2003
    
    
    2004
    
    
    2003Weighted-average discount rate
    
    
    5.75
    %
    
    6.25% and 6.00%
    
    
    5.75
    %
    
    
    6.25
    %Weighted-average rate of
compensation increase
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
 The following assumptions were used in determining the net periodic benefit cost for the years
ended December 31, 2004, 2003 and 2002: Defined Benefit
    
    
    Postretirement BenefitPension Plans
    
    
    Plans2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Weighted-average discount rate
    
    6.25% and 6.00%
    
    
    6.75
    %
    
    
    7.50
    %
    
    
    6.25
    %
    
    
    6.75
    %
    
    
    7.75
    %Weighted-average expected long-term rate of
return on assets
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AWeighted-average rate of compensation increase
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
 To develop the expected long-term rate of return on assets, the Company considered the historical
returns and the future expectations for returns for each asset class, as well as the target asset
allocation of the pension portfolio. The net periodic benefit cost recognized for the defined benefit pension plans and the
postretirement benefit plans includes the following components for the years ended December 31,
2004, 2003 and 2002 (in thousands): F-25




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Defined Benefit
    
    
    Postretirement BenefitPension Plans
    
    
    Plans2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Components of net periodic benefit cost:Service cost
    
    $
    94
    
    
    $
    89
    
    
    $
    91
    
    
    $
    58
    
    
    $
    52
    
    
    $
    Interest cost
    
    
    2,674
    
    
    
    2,691
    
    
    
    2,738
    
    
    
    395
    
    
    
    616
    
    
    
    636Expected return on plan assets
    
    
    (3,719
    )
    
    
    (3,119
    )
    
    
    (2,754
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of unrecognized net actuarial loss
(gain)
    
    
    893
    
    
    
    1,415
    
    
    
    499
    
    
    
    256
    
    
    
    71
    
    
    
    (17
    )Amortization of prior service cost
    
    
    48
    
    
    
    48
    
    
    
    89
    
    
    
    (326
    )
    
    
    (70
    )
    
    
    (35
    )Amortization of transition asset
    
    
    
    
    
    
    (20
    )
    
    
    (50
    )
    
    
    
    
    
    
    
    
    
    
    Recognized actuarial loss
    
    
    177
    
    
    
    216
    
    
    
    38
    
    
    
    
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    167
    
    
    $
    1,320
    
    
    $
    651
    
    
    $
    383
    
    
    $
    669
    
    
    $
    584
 The weighted-average annual assumed rate of increase in the per capita cost of covered benefits
(i.e., healthcare trend rate) for the health plans is 7.67% and 9.67% for participants prior to age
65 and after age 65, respectively, for 2004 grading to 5.5% over 4 years and 7 years, respectively.
The weighted-average annual assumed rate of increase in the per capita cost of covered benefits for
the health plans is 8.33% and 10.33% for participants prior to age 65 and after age 65,
respectively, for 2003 grading to 5.5% over 5 years and 8 years, respectively. A 1% change in the
assumed trend rate would have the following effect at December 31, 2004 (in thousands): 1% Increase
    
    
    1% DecreaseAccumulated postretirement benefit obligation
    
    $
    1,923
    
    
    $
    (1,632
    )Total of service and interest cost
    
    
    128
    
    
    
    (107
    )
 The weighted-average asset allocation of the pension plans is as follows at December 31, 2004 and
2003: Asset Category
    
    2004
    
    
    2003Cash
    
    
    8.7
    %
    
    
    0.9
    %Fixed income
    
    
    25.5
    %
    
    
    25.0
    %Core equity
    
    
    34.9
    %
    
    
    34.3
    %Real estate investment trust
    
    
    7.5
    %
    
    
    9.9
    %Small cap
    
    
    13.3
    %
    
    
    15.9
    %International equity
    
    
    10.1
    %
    
    
    14.0
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
 The Companys investment strategy for the plans is to maximize the long-term rate of return on plan
assets within an acceptable level of risk in order to secure its obligation to pay benefits to
qualifying employees while minimizing and stabilizing expense and contributions. The asset
allocation for each plan is reviewed periodically for balancing of the asset mix within
predetermined ranges by asset category. Risk is managed for each plan through these predetermined
ranges by asset category, diversification of asset classes, periodic review of the investment
policies, and monitoring of fund managers for compliance with policies and performance as compared
to a benchmark portfolio. During 2005, the Company expects to contribute $0.6 million to its defined benefit pension plans
and $1.3 million to its postretirement benefit plans. A substantial number of the Companys employees are covered by union-sponsored, collectively
bargained, multiemployer pension plans. The Company contributed and charged to expense
approximately $40.8 million, $39.1 million and $40.0 million for the years ended December 31, 2004,
2003, and 2002, respectively, for such plans. These contributions are determined in accordance with
the provisions of negotiated labor contracts and are generally based on the number of man-hours
worked. In the event the Company withdraws its participation in these plans, it could incur a
withdrawal liability. If withdrawal were to occur, the liability would be actuarially determined
based on factors at the time of withdrawal and as such, the liability is not readily determinable as of
December 31, 2004. Currently, the Company has no intention of withdrawing its participation in
these plans. Also, a substantial number of the Companys employees are covered by union-sponsored, collectively
bargained, multiemployer health and welfare benefit plans. The Company contributed and charged to
expense approximately F-26




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) $46.5 million, $44.3 million and $41.1 million during the years ended
December 31, 2004, 2003, and 2002, respectively, in connection with these plans. These required
contributions are determined in accordance with the provisions of negotiated labor contracts. (b) 401(k) Plan The Company has a 401(k) plan covering all of its employees in the U.S. During 2004 and 2003, the
Company made no contributions to the 401(k) plan but contributed approximately $400,000 for the
year ended December 31, 2002. The Companys discretionary contribution is based on the lower of 3%
of each participants wage or $1,000 for the year for each nonbargaining participant in the plan.
Administrative expenses for the 401(k) plan for the years ended December 31, 2004, 2003 and 2002
were paid by the plan. (c) Employee Stock Purchase Plan The Companys Employee Stock Purchase Plan (the ESPP) allows eligible employees, as defined, the
right to purchase its common stock on a quarterly basis at 85% of the lower of the fair market
value on the first business day of the calendar quarter or on the last business day of the calendar
quarter. The Company reserved 700,000 shares in 1998 and 350,000 shares in 2003 (total 1,050,000)
for issuance under the ESPP. Of the amount reserved for issuance, 789,555 shares were issued as of
December 31, 2004 of which 102,681, 131,356 and 160,000 shares were issued to employees during the
years ended December 31, 2004, 2003 and 2002, respectively. At December 31, 2004, 260,445 shares
remained available for issuance under the ESPP. (d) Long-term Incentive Plan The Company has a long-term incentive plan which allows the issuance of grants or awards of
incentive stock options, restricted stock, stock appreciation rights, performance units and
performance shares to employees and directors of the Company to acquire up to 2,150,000 shares of
the Companys common stock. See additional disclosure at Note 19. (15) Income Taxes The loss before income taxes and cumulative effect of change in accounting principle consisted of
the following (in thousands): 2004
    
    
    2003
    
    
    2002U.S.
    
    $
    (16,188
    )
    
    $
    104
    
    
    $
    (7,224
    )Foreign
    
    
    (25,334
    )
    
    
    (2,442
    )
    
    
    2,661Total loss before income taxes and cumulative
effect of change in accounting principle
    
    $
    (41,522
    )
    
    $
    (2,338
    )
    
    $
    (4,563
    )
 The following summarizes the components of the income tax expense (benefit) for the years ended
December 31, 2004, 2003 and 2002 (in thousands): 2004
    
    
    2003
    
    
    2002Current:Federal
    
    $
    
    
    
    $
    5
    
    
    $
    616State
    
    
    (29
    )
    
    
    (60
    )
    
    
    342Foreign
    
    
    1,115
    
    
    
    (593
    )
    
    
    (455
    )Deferred:Federal
    
    
    10,216
    
    
    
    6,335
    
    
    
    (137
    )State
    
    
    1,059
    
    
    
    364
    
    
    
    (1,720
    )Foreign
    
    
    
    
    
    
    215
    
    
    
    225Total income tax expense (benefit)
    
    $
    12,361
    
    
    $
    6,266
    
    
    $
    (1,129
    )
 F-27




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) The income tax expense (benefit) differs from the amounts computed by applying federal statutory
rates (35% in 2004 and 34% in 2003 and 2002) to the reported loss before income taxes and
cumulative effect of change in accounting principle due to the following (in thousands): 2004
    
    
    2003
    
    
    2002Benefit computed at the federal statutory rate
    
    $
    (14,533
    )
    
    $
    (795
    )
    
    $
    (1,551
    )Effects of:State income taxes, net of federal income tax effects
    
    
    (1,072
    )
    
    
    200
    
    
    
    (909
    )Impairment of goodwill  tax basis differential
    
    
    962
    
    
    
    
    
    
    
    Nondeductible expenses
    
    
    209
    
    
    
    415
    
    
    
    623Valuation allowance
    
    
    26,401
    
    
    
    6,830
    
    
    
    410Other, net
    
    
    394
    
    
    
    (384
    )
    
    
    298Total income tax expense (benefit)
    
    $
    12,361
    
    
    $
    6,266
    
    
    $
    (1,129
    )
 The tax effect of significant temporary differences representing deferred tax assets and
liabilities as of December 31, 2004 and 2003 is as follows (in thousands): 2004
    
    
    2003Deferred tax assets:Tax carryforwards
    
    $
    25,691
    
    
    $
    18,271Claims and insurance expense
    
    
    36,497
    
    
    
    32,866Accrued compensation expense
    
    
    3,432
    
    
    
    4,545Postretirement benefits
    
    
    2,379
    
    
    
    2,722Other liabilities not currently deductible
    
    
    1,974
    
    
    
    5,199Bad debt allowances
    
    
    724
    
    
    
    1,269Other, net
    
    
    1,495
    
    
    
    552Total deferred tax assets
    
    
    72,192
    
    
    
    65,424Valuation allowance
    
    
    (42,020
    )
    
    
    (14,918
    )Deferred tax liabilities:Depreciation and amortization
    
    
    (30,993
    )
    
    
    (38,276
    )Assets currently deductible
    
    
    (10,098
    )
    
    
    (8,493
    )Other, net
    
    
    (613
    )
    
    
    (3,737
    )Total deferred tax liabilities
    
    
    (41,704
    )
    
    
    (50,506
    )Net deferred tax liabilities
    
    $
    (11,532
    )
    
    $
    
 The net changes in the valuation allowance for the years ended December 31, 2004 and 2003 were
increases of $27.1 million and $7.8 million, respectively. The increase in the valuation allowance for the year ended December 31, 2004 included a charge of
$26.4 million to provide for additional valuation allowances against the Companys deferred tax
assets. The net loss recorded for the year ended December 31, 2004 generated additional deferred
tax assets of approximately $15.1 million, for which the Company increased the valuation allowance
during the year. Due to the continuing losses during the year and a worsening trend in the fourth
quarter of 2004, management concluded that it was more likely than not that additional deferred tax assets would not be recovered and recorded an additional valuation
allowance of $11.3 million at December 31, 2004. In its evaluation of the need for a valuation
allowance, the Company considered all sources of taxable income, including currently available
tax-planning strategies. The increase in the valuation allowance for the year ended December 31, 2003 included a $6.8
million charge to record a partial valuation allowance against the Companys deferred tax assets
based on managements conclusion at December 31, 2003 that it was more likely than not that some
portion of the deferred tax assets would not be fully recovered. F-28




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) At December 31, 2004, the Company had federal net operating loss carryforwards of $41.9 million
that expire between 2021 and 2024. The Company had federal capital loss carryforwards of $3.6
million that expire in 2007. In addition, $5.9 million of tax credit carryforwards are available to
reduce future income taxes. Of the tax credit carryforwards, $5.2 million consists of foreign tax
credits that expire between 2011 and 2014 and $0.7 million consists of alternative minimum tax
credits that have no expiration. In the normal course of business, the Company is subject to audits from the federal, state,
Canadian provincial and other tax authorities regarding various tax liabilities. The Company
records refunds from audits when receipt is assured and records assessments when a loss is probable
and estimable. These audits may alter the timing or amounts of taxable income or deductions, or
the allocation of income among tax jurisdictions. The amount ultimately paid upon resolution of
issues raised may differ from the amounts accrued. The Canadian taxing authorities are in the process of closing their examination of the Companys
Canadian income tax returns for the years 1998 through 2000. The examination resulted in
additional assessments that are included in income tax expense for the year ended December 31,
2004. The related interest is included in interest expense. (16) Supplemental Disclosures of Cash Flow Information Cash paid during the years ended December 31, 2004, 2003 and 2002 for interest and income taxes,
net of refunds, were as follows (in thousands): 2004
    
    
    2003
    
    
    2002Interest
    
    $
    27,136
    
    
    $
    24,562
    
    
    $
    26,607Income taxes
    
    
    489
    
    
    
    (739
    )
    
    
    876
 (17) Commitments and Contingencies (a) Customer Contracts The Company has contracts in place with substantially all
of its customers with terms up to March 2006.
However, most of these contracts can be terminated by either party upon a specified period of
notice. These contracts establish rates for the transportation of vehicles and are generally based
upon a fixed rate per vehicle transported, a variable rate for each mile that a vehicle is
transported plus an administrative processing fee. Certain contracts provide for rate variation per
vehicle depending on the size and weight of the vehicle. The contracts with Autogistics (in regard to Ford business), DaimlerChrysler and Toyota can be
terminated by location for any reason or no reason based on 60 to 150 days notice. The contract
with General Motors can be terminated by location for failure to comply with service and quality
standards set forth in the contract. The Company has 30 days to cure any such noncompliance by
location and General Motors may terminate by location on 30 days notice following a failure to
cure. The contract with Honda may be terminated by either party upon 60 days notice prior to the
expiration of the current term. (b) Letters of Credit At December 31, 2004, the Company had agreements with third parties to whom it has issued $121.0
million of letters of credit primarily relating to settlements of insurance claims and reserves and
support for a line of credit at one of the Companys foreign subsidiaries. Of the $121.0 million,
$38.1 million of these letters of credit are issued by the Company and are secured by available
borrowings on the Revolver and $82.9 million are issued by the Companys wholly owned captive
insurance subsidiary Haul Insurance Limited and are collateralized by $82.9 million of restricted
cash and cash equivalents held by this subsidiary. The Company renews these letters of credit
annually. The amount of letters of credit that the Company may issue under its Revolver may not
exceed $50 million. Since the Company had utilized $38.1 million of this availability at December 31, 2004,
the remaining letter of credit availability under its Revolver as of December 31, 2004 was $11.9
million. (c) Litigation, Claims, and Assessments F-29




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) 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 will not have a material
adverse effect on the Companys financial position and results of operations. During 2003, the Company settled all outstanding litigation with Ryder System, Inc. (Ryder).
Under the terms of the settlement agreement, Ryder paid the Company approximately $1.4 million, and
Ryders insurance carrier paid the Company approximately $1.6 million. The Company had previously
recorded a receivable of $1.0 million from Ryder and its insurance carrier, and recorded the
remaining $2.0 million of the amount received as income in the statement of operations for the year
ended December 31, 2003. This gain of $2.0 million is included in Other, net, which is a
subcategory of Other income (expense) on the Companys statement of operations. Substantially
all of Other, net relates to this gain of $2.0 million. The payment from Ryder represents the
settlement of various claims and disputes that arose subsequent to the 1997 acquisition. The
payment from Ryders insurance carrier represents a reimbursement for amounts paid by the Company
in excess of the self-insured retention for workers compensation and automobile liability claims
assumed in the acquisition of Ryders Automotive Carrier Group. As part of the settlement, the
Company and Ryder agreed to dismiss all litigation which each party had brought against the other
thereby resulting in the complete dismissal of the Ryder actions. Except with respect to expenses
already incurred, Ryder has agreed to indemnify Allied for all costs, including legal fees and any
potential judgment against Allied, arising out of the Gateway/CCI Actions. The Gateway/CCI Actions
had centered around the contention that the Company breached legal duties with respect to a failed
business transaction involving Gateway Development, Ryder Truck Rental, Inc. and Ryder System.
Although the Gateway/CCI Actions remain pending, the settlement provides Allied with
indemnification from Ryder as to exposure to future legal fees or any potential judgment against
the Company. As part of the settlement agreement with Ryder, the Company has issued a letter of credit in favor
of Ryder. At December 31, 2004, the letter of credit totaled $8.5 million, which is included in
the $38.1 million of the outstanding letters of credit noted in (b) above. As previously agreed,
the Company increased the letter of credit by $1 million for the first quarter of 2005 to bring the
total to $9.5 million. Ryder may only draw on the letter of credit if the Company fails to pay
workers compensation and liability claims assumed by the Company in the Ryder Automotive Carrier
Group acquisition. The Company has provided the letter of credit in favor of Ryder because Ryder
has issued a letter of credit to its insurance carrier relating to the workers compensation and
liability claims assumed by the Company. Under the agreement, an actuarial valuation is to be made
to determine the remaining outstanding amount as of March 31, 2005 and periodically thereafter, of
workers compensation and liability claims assumed by the Company and the letter of credit will be
adjusted accordingly. The parties are in the process of selecting a mutually agreeable actuary to
perform this valuation. (d)Employment Agreements The Company has entered into employment agreements with certain executive officers of the Company.
The agreements provide for compensation to the officers in the form of annual base salaries and
bonuses based on performance criteria. The employment agreements also provide for severance
benefits upon the occurrence of certain events, including a change in control, as defined in such
agreements. (e)Purchase and Service Contract Commitments In April 2001, the Company entered into a five-year commitment with IBM whereby IBM would provide
the Companys mainframe computer processing services. In December 2003, the Company and IBM amended
the agreement. The amended agreement is a ten-year commitment which commenced in February 2004 for
IBM to provide additional services to manage applications for the Companys electronic data
interchange, network services, technical services, and applications development and support.
Payments under this contract, prior to its amendment, amounted to approximately $5.9 million and $5.3 million for the years ended December 31, 2003 and
2002, respectively. Payments for 2004 were $10.6 million which included $0.5 million of payments
made prior to the contract amendment. The agreement includes outsourcing at prices defined within
the agreement. The purchase commitment over the remaining life of the agreement totals $98.5
million as follows (in thousands): F-30




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued) 2005
    
    $
    10,3292006
    
    
    10,3852007
    
    
    10,6582008
    
    
    10,6892009
    
    
    10,8492010 - 2014
    
    
    45,603$
    98,513
 (f)Collective Bargaining Agreements On March 24, 2003, the Company 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 had been operating under a contract that expired on October 31,
2002. The new contract will expire on October 31, 2005. The contract covers the drivers, mechanics,
and yard personnel represented by the Teamsters Union in the provinces of Ontario and Quebec, and
represents approximately 70% of the Companys total bargaining unit employees in Canada. Employees of the Companys subsidiary, Allied Systems, which represents approximately 80% of the
Companys U.S. employees, are represented by the International Brotherhood of Teamsters Union in
the U.S. A collective bargaining agreement, which covers the Companys employees represented by the
Teamsters, commenced on June 1, 2003 and will expire on May 31, 2008. (18) Industry Segment and Geographic Information In accordance with the requirements of SFAS No. 131, Disclosure About Segments of an Enterprise and
Related Information,the Company has identified two reportable segments through which it conducts
its operating activities: Allied Automotive Group and the Axis Group. These two segments reflect
the internal reporting used by management to assess performance and allocate resources. Allied
Automotive Group is engaged in the business of transporting automobiles, light trucks, and SUVs
from manufacturing plants, ports, auctions, and railway distribution points to automobile
dealerships. The Axis Group is engaged in the business of securing and managing vehicle
distribution services, automobile inspections, auction and yard management services, intra-modal
transport services, vehicle tracking, vehicle accessorization, and dealer preparatory services for
the automotive industry. The accounting policies for each segment are the same as those described
in Note 2, Significant Accounting Policies. Except for the allocation of certain corporate
overhead, the costs of operating each segment as well as the assets owned are primarily maintained
and recorded directly within the respective segment. Set forth below is certain financial information related to these two segments and corporate/other
for 2004, 2003 and 2002 (in thousands): Years Ended December 31,2004
    
    
    2003
    
    
    2002Revenues  unaffiliated customers:Allied Automotive Group
    
    $
    869,507
    
    
    $
    836,835
    
    
    $
    868,041Axis Group
    
    
    25,706
    
    
    
    28,628
    
    
    
    30,019Total
    
    $
    895,213
    
    
    $
    865,463
    
    
    $
    898,060Depreciation and amortization:Allied Automotive Group
    
    $
    38,596
    
    
    $
    39,427
    
    
    $
    48,984Axis Group
    
    
    1,938
    
    
    
    2,887
    
    
    
    2,956Corporate/other
    
    
    2,409
    
    
    
    3,242
    
    
    
    2,940Total
    
    $
    42,943
    
    
    $
    45,556
    
    
    $
    54,880
 F-31




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued) Years Ended December 31,2004
    
    
    2003
    
    
    2002Operating income (loss):Allied Automotive Group
    
    $
    2,249
    
    
    $
    11,655
    
    
    $
    9,021Axis Group
    
    
    (5,410
    )
    
    
    4,476
    
    
    
    4,312Corporate/other
    
    
    (9,880
    )
    
    
    2,352
    
    
    
    7,675Total
    
    
    (13,041
    )
    
    
    18,483
    
    
    
    21,008Reconciling items:Interest expense
    
    
    (31,355
    )
    
    
    (29,138
    )
    
    
    (30,627
    )Investment income
    
    
    1,136
    
    
    
    3,172
    
    
    
    2,463Foreign exchange gain
    
    
    1,929
    
    
    
    3,169
    
    
    
    108Other, net
    
    
    (191
    )
    
    
    1,976
    
    
    
    2,485Loss before income taxes and cumulative
effect of change in accounting
principle
    
    $
    (41,522
    )
    
    $
    (2,338
    )
    
    $
    (4,563
    )
 December 31,2004
    
    
    2003
    
    
    2002Total assets:Allied Automotive Group
    
    $
    274,228
    
    
    $
    282,735
    
    
    $
    300,888Axis Group
    
    
    19,690
    
    
    
    31,993
    
    
    
    35,663Corporate/other
    
    
    127,614
    
    

    
    145,335
    
    
    
    133,385Total
    
    $
    421,532
    
    
    $
    460,063
    
    
    $
    469,936Capital expenditures:Allied Automotive Group
    
    $
    21,309
    
    
    $
    17,959
    
    
    $
    21,416Axis Group
    
    
    1,097
    
    
    
    299
    
    
    
    217Corporate/other
    
    
    136
    
    
    
    297
    
    
    
    153Total
    
    $
    22,542
    
    
    $
    18,555
    
    
    $
    21,786
 During 2004 the Allied Automotive
Group recorded a non-cash charge of $3.9 million related to
the conclusion that self-insurance reserves could no longer be
discounted, wrote off $1.1 million of tires
and revised estimated useful lives of property and equipment and
recorded depreciation expense of $4.2 million. Also, goodwill on the Axis Group
was reduced by $8.3 million for an impairment charge. A non-cash
charge of $7.1 million related to no longer discounting
insurance reserves was recorded in Corporate/other. Geographic financial information for 2004, 2003, and 2002 is as follows (in thousands): Years Ended December 31,2004
    
    
    2003
    
    
    2002Revenues:United States
    
    $
    734,247
    
    
    $
    707,068
    
    
    $
    746,777Canada
    
    
    160,966
    
    
    
    158,395
    
    
    
    151,283$
    895,213
    
    
    $
    865,463
    
    
    $
    898,060
 December 31,2004
    
    
    2003
    
    
    2002Long-lived assets:United States
    
    $
    97,621
    
    
    $
    116,810
    
    
    $
    140,917Canada
    
    
    38,014
    
    
    
    38,763
    
    
    
    35,746$
    135,635
    
    
    $
    155,573
    
    
    $
    176,663
 Revenues are attributed to the respective countries based on the terminal that provides the service
and long-lived assets consist of property and equipment. Substantially all of the Companys revenues and receivables are generated from the automotive
industry. Set forth below is certain percentage data on Allied Automotive Groups three largest
customers: F-32




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued) Years ended December 31,2004
    
    
    2003
    
    
    2002Revenues earned from Allied Automotive Groups three largest customers:General Motors Corporation
    
    
    35
    %
    
    
    36
    %
    
    
    36
    %Ford Motor Company
    
    
    24
    %
    
    
    23
    %
    
    
    24
    %DaimlerChrysler Corporation
    
    
    14
    %
    
    
    13
    %
    
    
    13
    %73
    %
    
    
    72
    %
    
    
    73
    %
 December 31,2004
    
    
    2003Accounts receivable due from Allied Automotive Groups three largest customers:General Motors Corporation
    
    
    36
    %
    
    
    20
    %Ford Motor Company
    
    
    18
    %
    
    
    29
    %DaimlerChrysler Corporation
    
    
    17
    %
    
    
    10
    %71
    %
    
    
    59
    %
 Revenue percentages are based on Allied Automotive Groups revenues; the accounts receivable
percentages are based on Allied Automotive Groups accounts receivable balances. (19) Stockholders Equity The Company has authorized 5,000,000 shares of preferred stock with no par value. None of these
shares have been issued. The Board of Directors has the authority to issue these shares, fix
dividends, determine voting rights, conversion rights, redemption provisions, liquidation
preferences and other rights and restrictions. The agreements governing the Companys Credit Facility and its Senior Notes each contain covenants
restricting the Companys ability to pay dividends on its common stock (See Note 12). No cash
dividends were paid during the years ended December 31, 2004, 2003 and 2002. During 2003, the Company reserved 225,000 shares of common stock under its 2003 Stock Issuance Plan
pursuant to which, in August 2003, it awarded 250 shares of common stock to each of its full time
nonbargaining U.S. employees, excluding those at the level of Senior Vice President and above. In
addition, in August 2003, the Company agreed to award 250 shares of common stock to each full time
nonbargaining employee in Canada as of August 1, 2003, excluding those at the level of Senior Vice
President and above. The shares awarded to the U.S. and Canadian employees vested in August 2004
and totaled 147,250 shares, net of reductions for employee terminations. In connection with the
shares granted, the Company recorded compensation expense of approximately $300,000 in each of the
years ended December 31, 2004 and 2003. The Company also has a long-term incentive plan that allows for the issuance of grants or awards of
nonqualified and incentive stock options, restricted stock, stock appreciation rights, performance
units, and performance shares to employees and directors of the Company to acquire up to 2,150,000
shares of its common stock. Prior to 2000, the Company granted restricted stock to certain of its employees. None of this
restricted stock was granted during the years ended December 31, 2004, 2003, or 2002. During the
years ended December 31, 2004, 2003, and 2002, restricted shares totaling 4,195, 3,590 and 12,478,
respectively, were canceled. Compensation expense is recorded net of forfeitures over the five-year
vesting period of the restricted stock. In connection with the vesting of awards of restricted
stock, the Company recorded compensation expense of approximately $100,000 for each of the years ended December 31, 2004 and 2003 and a benefit of approximately $100,000 for the
year ended December 31, 2002. As of December 31, 2004, 2003, and 2002, restricted stock outstanding
totaled 118,121, 170,993 and 172,534, respectively. The Company has also awarded nonqualified and incentive stock options under its long-term incentive
plan. The vesting period for each award varies from a minimum of two years to a maximum of five
years and each award vests ratably by year over the vesting period. All options expire ten years
from the date of the grant. F-33




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued) The following table provides a summary of stock options plan activity for the years shown: WeightedOption Price
    
    
    AverageShares
    
    
    (Per Share)
    
    
    Exercise PriceOutstanding as of December 31, 2001
    
    
    1,020,300
    
    
    $
    1.80-11.75
    
    
    $
    3.56Granted
    
    
    648,000
    
    
    $
    2.60-5.15
    
    
    $
    4.01Canceled
    
    
    (56,000
    )
    
    $
    2.35-11.75
    
    
    $
    5.58Outstanding as of December 31, 2002
    
    
    1,612,300
    
    
    $
    1.80-11.75
    
    
    $
    3.45Granted
    
    
    138,000
    
    
    $
    3.15-3.51
    
    
    $
    3.36Canceled
    
    
    (10,333
    )
    
    $
    2.60-5.15
    
    
    $
    4.58Exercised
    
    
    (30,000
    )
    
    $
    3.70
    
    
    $
    3.70Outstanding as of December 31, 2003
    
    
    1,709,967
    
    
    $
    1.80-11.75
    
    
    $
    3.65Granted
    
    
    163,500
    
    
    $
    5.50-6.65
    
    
    $
    6.37Canceled
    
    
    (191,467
    )
    
    $
    2.35-11.75
    
    
    $
    6.16Exercised
    
    
    (93,333
    )
    
    $
    2.35-5.00
    
    
    $
    2.79Outstanding as of December 31, 2004
    
    
    1,588,667
    
    
    $
    1.80-10.37
    
    
    $
    3.68
 2004
    
    
    2003
    
    
    2002Options exercisable at year-end
    
    
    1,258,823
    
    
    
    1,122,319
    
    
    
    531,631Weighted-average exercise price of options
exercisable at year-end
    
    $
    3.33
    
    
    $
    3.67
    
    
    $
    4.31Per share weighted-average fair value of options
granted during the year
    
    $
    4.65
    
    
    $
    3.36
    
    
    $
    4.01
 The following table sets forth the exercise price range, number of shares, weighted-average
exercise price, remaining contractual lives and options exercisable by groups of similar price and
grant date: Options Outstanding at
    
    
    Options Exercisable atDecember 31, 2004
    
    
    December 31, 2004WeightedAverageWeighted
    
    
    Remaining
    
    
    
    
    
    
    WeightedAverage
    
    
    Contractual
    
    
    
    
    
    
    AverageNumber of
    
    
    Exercise
    
    
    Life
    
    
    Number of
    
    
    ExerciseRange of Exercise Prices
    
    Shares
    
    
    Price
    
    
    (Years)
    
    
    Shares
    
    
    Price$1.80  3.70
    
    
    1,121,667
    
    
    $
    2.78
    
    
    
    7.05
    
    
    
    1,025,663
    
    
    $
    2.77$4.30  7.06
    
    
    444,500
    
    
    $
    5.63
    
    
    
    7.75
    
    
    
    210,660
    
    
    $
    5.34$9.50  11.75
    
    
    22,500
    
    
    $
    10.08
    
    
    
    2.76
    
    
    
    22,500
    
    
    $
    10.081,588,667
    
    
    
    
    
    
    
    7.18
    
    
    
    1,258,823
    
    
    $
    3.33
 (20) Quarterly Financial Data (Unaudited) 2004First
    
    
    Second
    
    
    Third
    
    
    Fourth(In thousands, except per share amounts)Revenues
    
    $
    212,244
    
    
    $
    236,616
    
    
    $
    207,599
    
    
    $
    238,754Operating (loss) income
    
    
    (1,482
    )
    
    
    4,659
    
    
    
    (781
    )
    
    
    (15,437
    )Net loss
    
    
    (9,048
    )
    
    
    (3,753
    )
    
    
    (7,634
    )
    
    
    (33,448
    )Net loss per share:Basic and diluted
    
    $
    (1.03
    )
    
    $
    (0.43
    )
    
    $
    (0.87
    )
    
    $
    (3.75
    )Average shares outstanding:Basic and diluted
    
    
    8,789
    
    
    
    8,704
    
    
    
    8,791
    
    
    
    8,910
 During the fourth quarter of
2004, the Company recorded a non-cash charge of $11.0 million
related to the conclusion that self-insurance reserves could no
longer be discounted, wrote-off
$1.1 million of tires and revised estimated useful lives of
property and equipment and recorded depreciation
expense of $4.2 million. In addition, the Company recorded a non-cash charge of
$8.3 million related to the impairment of goodwill and increased
the valuation allowance against its deferred tax assets by $11.3
million. F-34




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued) 2003First
    
    
    Second
    
    
    Third
    
    
    Fourth(In thousands, except per share amounts)Revenues
    
    $
    213,592
    
    
    $
    230,078
    
    
    $
    197,089
    
    
    $
    224,704Operating (loss) income
    
    
    (1,716
    )
    
    
    7,552
    
    
    
    3,147
    
    
    
    9,500Net (loss) income
    
    
    (5,664
    )
    
    
    3,372
    
    
    
    (1,975
    )
    
    
    (4,337
    )Net (loss) earnings per share:Basic
    
    $
    (0.67
    )
    
    $
    0.40
    
    
    $
    (0.23
    )
    
    $
    (0.51
    )Diluted
    
    
    (0.67
    )
    
    
    0.39
    
    
    
    (0.23
    )
    
    
    (0.51
    )Average shares outstanding:Basic
    
    
    8,409
    
    
    
    8,462
    
    
    
    8,507
    
    
    
    8,533Diluted
    
    
    8,409
    
    
    
    8,700
    
    
    
    8,507
    
    
    
    8,533
 Earnings per share are computed independently for each of the quarters presented. Therefore, the
sum of the quarterly earnings per share will not necessarily equal the total computed for the year. (21) Supplemental Guarantor Information Substantially all of the subsidiaries of the Company, the Guarantor Subsidiaries, guarantee the
Companys obligations under the Senior Notes. The guarantees are full and unconditional. The
Guarantors are jointly and severally liable for the Companys obligations under the Senior Notes
and there are no restrictions on the ability of the Guarantors to make distributions to the
Company. The Company owns 100% of the Guarantor Subsidiaries. See Note 12 for a description of the
Senior Notes and a listing of the Nonguarantor Subsidiaries. The following consolidating balance sheet information, statement of operations information, and
statement of cash flows information present the financial statement information of the parent
company and the combined financial statement information of the Guarantor Subsidiaries and
Nonguarantor Subsidiaries. The supplemental consolidating balance sheet information as of December 31, 2004 is as follows (in
thousands): F-35




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Allied
    
    
    Guarantor
    
    
    NonguarantorHoldings
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    533
    
    
    $
    1,983
    
    
    $
    
    
    
    $
    2,516Restricted cash and cash equivalents
    
    
    
    
    
    
    (1
    )
    
    
    27,379
    
    
    
    
    
    
    
    27,378Receivables, net of allowance
    
    
    
    
    
    
    55,407
    
    
    
    1,902
    
    
    
    
    
    
    
    57,309Inventories
    
    
    
    
    
    
    4,649
    
    
    
    
    
    
    
    
    
    
    
    4,649Deferred income taxes
    
    
    2,927
    
    
    
    1,705
    
    
    
    
    
    
    
    
    
    
    
    4,632Prepayments and other
current assets
    
    
    1,699
    
    
    
    10,465
    
    
    
    250
    
    
    
    
    
    
    
    12,414Total current assets
    
    
    4,626
    
    
    
    72,758
    
    
    
    31,514
    
    
    
    
    
    
    
    108,898Property and equipment, net
    
    
    4,744
    
    
    
    127,676
    
    
    
    3,215
    
    
    
    
    
    
    
    135,635Goodwill, net
    
    
    1,515
    
    
    
    82,462
    
    
    
    
    
    
    
    
    
    
    
    83,977Other assets:Restricted cash and cash equivalents
    
    
    
    
    
    
    1
    
    
    
    55,501
    
    
    
    
    
    
    
    55,502Other noncurrent assets
    
    
    31,995
    
    
    
    4,907
    
    
    
    618
    
    
    
    
    
    
    
    37,520Deferred
income taxes
    
    
    17,843
    
    
    
    
    
    
    
    
    
    
    
    (17,843
    )
    
    
    Intercompany receivables (payables)
    
    
    75,147
    
    
    
    (72,978
    )
    
    
    (2,169
    )
    
    
    
    
    
    
    Investment in subsidiaries
    
    
    (9,070
    )
    
    
    6,170
    
    
    
    
    
    
    
    2,900
    
    
    
    Total other assets
    
    
    115,915
    
    
    
    (61,900
    )
    
    
    53,950
    
    
    
    (14,943
    )
    
    
    93,022Total assets
    
    $
    126,800
    
    
    $
    220,996
    
    
    $
    88,679
    
    
    $
    (14,943
    )
    
    $
    421,532Current liabilities:Current maturities of long-term debt
    
    $
    
    
    
    $
    13,500
    
    
    $
    
    
    
    $
    
    
    
    $
    13,500Borrowings under revolving credit facility
    
    
    
    
    
    
    2,972
    
    
    
    
    
    
    
    
    
    
    
    2,972Accounts and notes payable
    
    
    3,818
    
    
    
    30,696
    
    
    
    176
    
    
    
    
    
    
    
    34,690Intercompany payables (receivables)
    
    
    6,956
    
    
    
    (6,956
    )
    
    
    
    
    
    
    
    
    
    
    Accrued liabilities
    
    
    7,067
    
    
    
    47,923
    
    
    
    30,473
    
    
    
    
    
    
    
    85,463Total current liabilities
    
    
    17,841
    
    
    
    88,135
    
    
    
    30,649
    
    
    
    
    
    
    
    136,625Long-term debt, less current maturities
    
    
    150,000
    
    
    
    84,766
    
    
    
    
    
    
    
    
    
    
    
    234,766Postretirement benefits other
than pensions
    
    
    
    
    
    
    5,082
    
    
    
    
    
    
    
    
    
    
    
    5,082Deferred income taxes
    
    
    
    
    
    
    33,990
    
    
    
    17
    
    
    
    (17,843
    )
    
    
    16,164Other long-term liabilities
    
    
    508
    
    
    
    33,595
    
    
    
    36,341
    
    
    
    
    
    
    
    70,444Stockholders equity:Common stock, no par value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    48,421
    
    
    
    166,130
    
    
    
    2,488
    
    
    
    (168,618
    )
    
    
    48,421Treasury stock
    
    
    (707
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (707
    )(Accumulated deficit) retained earnings
    
    
    (88,907
    )
    
    
    (179,239
    )
    
    
    19,184
    
    
    
    160,055
    
    
    
    (88,907
    )Accumulated other comprehensive (loss)
income, net of tax
    
    
    (356
    )
    
    
    (11,463
    )
    
    
    
    
    
    
    11,463
    
    
    
    (356
    )Total stockholders (deficit) equity
    
    
    (41,549
    )
    
    
    (24,572
    )
    
    
    21,672
    
    
    
    2,900
    
    
    
    (41,549
    )Total liabilities and stockholders
equity (deficit)
    
    $
    126,800
    
    
    $
    220,996
    
    
    $
    88,679
    
    
    $
    (14,943
    )
    
    $
    421,532
 The supplemental consolidating balance sheet information as of December 31, 2003 is as follows (in
thousands): F-36




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Allied
    
    
    Guarantor
    
    
    NonguarantorHoldings
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCurrent assets:Cash and cash equivalents
    
    $
    549
    
    
    $
    1,166
    
    
    $
    433
    
    
    $
    
    
    
    $
    2,148Restricted cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    26,267
    
    
    
    
    
    
    
    26,267Receivables, net of allowance
    
    
    
    
    
    
    50,842
    
    
    
    1,148
    
    
    
    
    
    
    
    51,990Inventories
    
    
    
    
    
    
    4,983
    
    
    
    
    
    
    
    
    
    
    
    4,983Deferred income taxes
    
    
    17,518
    
    
    
    3,496
    
    
    
    
    
    
    
    
    
    
    
    21,014Prepayments and other
current assets
    
    
    1,750
    
    
    
    10,741
    
    
    
    3,154
    
    
    
    
    
    
    
    15,645Total current assets
    
    
    19,817
    
    
    
    71,228
    
    
    
    31,002
    
    
    
    
    
    
    
    122,047Property and equipment, net
    
    
    6,695
    
    
    
    145,912
    
    
    
    2,966
    
    
    
    
    
    
    
    155,573Goodwill, net
    
    
    1,515
    
    
    
    88,688
    
    
    
    
    
    
    
    
    
    
    
    90,203Other assets:Restricted cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    55,817
    
    
    
    
    
    
    
    55,817Other noncurrent assets
    
    
    30,327
    
    
    
    5,325
    
    
    
    771
    
    
    
    
    
    
    
    36,423Deferred
income taxes
    
    
    14,875
    
    
    
    
    
    
    
    
    
    
    
    (14,875
    )
    
    
    Intercompany receivables (payables)
    
    
    71,582
    
    
    
    (71,582
    )
    
    
    
    
    
    
    
    
    
    
    Investment in subsidiaries
    
    
    32,631
    
    
    
    5,626
    
    
    
    
    
    
    
    (38,257
    )
    
    
    Total other assets
    
    
    149,415
    
    
    
    (60,631
    )
    
    
    56,588
    
    
    
    (53,132
    )
    
    
    92,240Total assets
    
    $
    177,442
    
    
    $
    245,197
    
    
    $
    90,556
    
    
    $
    (53,132
    )
    
    $
    460,063Current liabilities:Current maturities of long-term debt
    
    $
    
    
    
    $
    16,374
    
    
    $
    
    
    
    $
    
    
    
    $
    16,374Accounts and notes payable
    
    
    2,175
    
    
    
    35,252
    
    
    
    72
    
    
    
    
    
    
    
    37,499Intercompany payables (receivables)
    
    
    7,628
    
    
    
    (18,305
    )
    
    
    10,677
    
    
    
    
    
    
    
    Accrued liabilities
    
    
    8,825
    
    
    
    56,914
    
    
    
    15,498
    
    
    
    
    
    
    
    81,237Total current liabilities
    
    
    18,628
    
    
    
    90,235
    
    
    
    26,247
    
    
    
    
    
    
    
    135,110Long-term debt, less current maturities
    
    
    150,000
    
    
    
    80,126
    
    
    
    
    
    
    
    
    
    
    
    230,126Postretirement benefits other
than pensions
    
    
    
    
    
    
    5,302
    
    
    
    
    
    
    
    
    
    
    
    5,302Deferred income taxes
    
    
    
    
    
    
    35,889
    
    
    
    
    
    
    
    (14,875
    )
    
    
    21,014Other long-term liabilities
    
    
    
    
    
    
    27,011
    
    
    
    32,686
    
    
    
    
    
    
    
    59,697Stockholders equity:Common stock, no par value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    47,511
    
    
    
    166,130
    
    
    
    2,488
    
    
    
    (168,618
    )
    
    
    47,511Treasury stock
    
    
    (707
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (707
    )(Accumulated deficit) retained earnings
    
    
    (35,024
    )
    
    
    (148,516
    )
    
    
    29,135
    
    
    
    119,381
    
    
    
    (35,024
    )Accumulated other comprehensive
income (loss) net of tax
    
    
    (2,966
    )
    
    
    (10,980
    )
    
    
    
    
    
    
    10,980
    
    
    
    (2,966
    )Total stockholders equity (deficit)
    
    
    8,814
    
    
    
    6,634
    
    
    
    31,623
    
    
    
    (38,257
    )
    
    
    8,814Total liabilities and stockholders
equity (deficit)
    
    $
    177,442
    
    
    $
    245,197
    
    
    $
    90,556
    
    
    $
    (53,132
    )
    
    $
    460,063
 The supplemental consolidating statement of operations information for the year ended December 31,
2004 is as
follows (in thousands): F-37




---



##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Allied
    
    
    Guarantor
    
    
    NonguarantorHoldings
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    36,209
    
    
    $
    893,620
    
    
    $
    41,126
    
    
    $
    (75,742
    )
    
    $
    895,213Operating expenses:Salaries, wages and fringe benefits
    
    
    6,211
    
    
    
    470,171
    
    
    
    22,094
    
    
    
    (9,748
    )
    
    
    488,728Operating supplies and expenses
    
    
    13,527
    
    
    
    148,459
    
    
    
    280
    
    
    
    
    
    
    
    162,266Purchased transportation
    
    
    
    
    
    
    111,214
    
    
    
    
    
    
    
    
    
    
    
    111,214Insurance and claims
    
    
    
    
    
    
    42,343
    
    
    
    28,263
    
    
    
    (29,785
    )
    
    
    40,821Operating taxes and licenses
    
    
    173
    
    
    
    29,631
    
    
    
    
    
    
    
    
    
    
    
    29,804Depreciation and amortization
    
    
    2,409
    
    
    
    40,055
    
    
    
    479
    
    
    
    
    
    
    
    42,943Rents
    
    
    2,691
    
    
    
    5,860
    
    
    
    5
    
    
    
    
    
    
    
    8,556Communications and utilities
    
    
    3,623
    
    
    
    2,697
    
    
    
    22
    
    
    
    
    
    
    
    6,342Other operating expenses
    
    
    6,446
    
    
    
    39,680
    
    
    
    207
    
    
    
    (36,209
    )
    
    
    10,124Impairment of goodwill
    
    
    
    

    
    
    8,295
    
    
    
    
    
    
    
    
    
    
    
    8,295Gain on disposal of operating assets, net
    
    
    
    
    
    
    (839
    )
    
    
    
    
    
    
    
    
    
    
    (839
    )Total operating expenses
    
    
    35,080
    
    
    
    897,566
    
    
    
    51,350
    
    
    
    (75,742
    )
    
    
    908,254Operating (loss) income
    
    
    1,129
    
    
    
    (3,946
    )
    
    
    (10,224
    )
    
    
    
    
    
    
    (13,041
    )Other income (expense):Interest expense
    
    
    (2,226
    )
    
    
    (28,821
    )
    
    
    (308
    )
    
    
    
    
    
    
    (31,355
    )Investment income
    
    
    
    
    
    
    40
    
    
    
    1,096
    
    
    
    
    
    
    
    1,136Foreign exchange gain (loss)
    
    
    
    
    
    
    1,938
    
    
    
    (9
    )
    
    
    
    
    
    
    1,929Other, net
    
    
    
    
    
    
    (191
    )
    
    
    
    
    
    
    
    
    
    
    (191
    )Equity in (losses) earnings of
subsidiaries
    
    
    (41,217
    )
    
    
    517
    
    
    
    
    
    
    
    40,700
    
    
    
    (43,443
    )
    
    
    (26,517
    )
    
    
    779
    
    
    
    40,700
    
    
    
    (28,481
    )Loss before income taxes
    
    
    (42,314
    )
    
    
    (30,463
    )
    
    
    (9,445
    )
    
    
    40,700
    
    
    
    (41,522
    )Income tax benefit (expense)
    
    
    (11,569
    )
    
    
    (286
    )
    
    
    (506
    )
    
    
    
    
    
    
    (12,361
    )Net (loss) income
    
    $
    (53,883
    )
    
    $
    (30,749
    )
    
    $
    (9,951
    )
    
    $
    40,700
    
    
    $
    (53,883
    )
 The supplemental consolidating statement of operations information for the year ended December 31,
2003 is as follows (in thousands): Allied
    
    
    Guarantor
    
    
    NonguarantorHoldings
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    36,519
    
    
    $
    864,045
    
    
    $
    36,706
    
    
    $
    (71,807
    )
    
    $
    865,463Operating expenses:Salaries, wages, and fringe benefits
    
    
    13,174
    
    
    
    456,366
    
    
    
    
    
    
    
    
    
    
    
    469,540Operating supplies and expenses
    
    
    9,226
    
    
    
    129,091
    
    
    
    195
    
    
    
    
    
    
    
    138,512Purchased transportation
    
    
    
    
    
    
    99,604
    
    
    
    
    
    
    
    
    
    
    
    99,604Insurance and claims
    
    
    
    
    
    
    41,162
    
    
    
    32,294
    
    
    
    (35,288
    )
    
    
    38,168Operating taxes and licenses
    
    
    244
    
    
    
    30,132
    
    
    
    
    
    
    
    
    
    
    
    30,376Depreciation and amortization
    
    
    3,242
    
    
    
    41,843
    
    
    
    471
    
    
    
    
    
    
    
    45,556Rents
    
    
    1,523
    
    
    
    4,561
    
    
    
    6
    
    
    
    
    
    
    
    6,090Communications and utilities
    
    
    4,451
    
    
    
    2,673
    
    
    
    14
    
    
    
    
    
    
    
    7,138Other operating expenses
    
    
    5,066
    
    
    
    41,848
    
    
    
    276
    
    
    
    (36,519
    )
    
    
    10,671Loss on disposal of operating assets, net
    
    
    
    
    
    
    1,325
    
    
    
    
    
    
    
    
    
    
    
    1,325Total operating expenses
    
    
    36,926
    
    
    
    848,605
    
    
    
    33,256
    
    
    
    (71,807
    )
    
    
    846,980Operating income (loss)
    
    
    (407
    )
    
    
    15,440
    
    
    
    3,450
    
    
    
    
    
    
    
    18,483Other income (expense):Interest expense
    
    
    (7,109
    )
    
    
    (21,780
    )
    
    
    (249
    )
    
    
    
    
    
    
    (29,138
    )Investment income
    
    
    
    
    
    
    68
    
    
    
    3,104
    
    
    
    
    
    
    
    3,172Foreign exchange gain (loss)
    
    
    
    
    
    
    3,203
    
    
    
    (34
    )
    
    
    
    
    
    
    3,169Other, net
    
    
    1,976
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,976Equity in earnings of subsidiaries
    
    
    2,355
    
    
    
    515
    
    
    
    
    
    
    
    (2,870
    )
    
    
    (2,778
    )
    
    
    (17,994
    )
    
    
    2,821
    
    
    
    (2,870
    )
    
    
    (20,821
    )(Loss) income before income taxes
    
    
    (3,185
    )
    
    
    (2,554
    )
    
    
    6,271
    
    
    
    (2,870
    )
    
    
    (2,338
    )Income tax benefit (expense)
    
    
    (5,419
    )
    
    
    315
    
    
    
    (1,162
    )
    
    
    
    
    
    
    (6,266
    )Net (loss) income
    
    $
    (8,604
    )
    
    $
    (2,239
    )
    
    $
    5,109
    
    
    $
    (2,870
    )
    
    $
    (8,604
    )
 F-38




---



##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) The supplemental consolidating statement of operations information for the year ended December 31,
2002 is as follows (in thousands): Allied
    
    
    Guarantor
    
    
    NonguarantorHoldings
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    26,466
    
    
    $
    896,574
    
    
    $
    38,005
    
    
    $
    (62,985
    )
    
    $
    898,060Operating expenses:Salaries, wages, and fringe benefits
    
    
    9,162
    
    
    
    474,383
    
    
    
    
    
    
    
    
    
    
    
    483,545Operating supplies and expenses
    
    
    4,613
    
    
    
    133,725
    
    
    
    204
    
    
    
    
    
    
    
    138,542Purchased transportation
    
    
    
    
    
    
    99,109
    
    
    
    
    
    
    
    
    
    
    
    99,109Insurance and claims
    
    
    57
    
    
    
    49,104
    
    
    
    30,858
    
    
    
    (36,519
    )
    
    
    43,500Operating taxes and licenses
    
    
    226
    
    
    
    33,357
    
    
    
    
    
    
    
    
    
    
    
    33,583Depreciation and amortization
    
    
    2,940
    
    
    
    51,469
    
    
    
    471
    
    
    
    
    
    
    
    54,880Rents
    
    
    1,846
    
    
    
    4,489
    
    
    
    7
    
    
    
    
    
    
    
    6,342Communications and utilities
    
    
    1,401
    
    
    
    5,007
    
    
    
    11
    
    
    
    
    
    
    
    6,419Other operating expenses
    
    
    3,841
    
    
    
    32,620
    
    
    
    389
    
    
    
    (26,466
    )
    
    
    10,384Loss on disposal of operating assets, net
    
    
    
    
    
    
    541
    
    
    
    207
    
    
    
    
    
    
    
    748Total operating expenses
    
    
    24,086
    
    
    
    883,804
    
    
    
    32,147
    
    
    
    (62,985
    )
    
    
    877,052Operating income
    
    
    2,380
    
    
    
    12,770
    
    
    
    5,858
    
    
    
    
    
    
    
    21,008Other income (expense):Interest expense
    
    
    (8,116
    )
    
    
    (22,482
    )
    
    
    (210
    )
    
    
    181
    
    
    
    (30,627
    )Investment income
    
    
    1
    
    
    
    60
    
    
    
    2,583
    
    
    
    (181
    )
    
    
    2,463Foreign exchange gain (loss)
    
    
    (8
    )
    
    
    196
    
    
    
    (80
    )
    
    
    
    
    
    
    108Gain on early extinguishment of debt
    
    
    2,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,750Other, net
    
    
    
    
    
    
    (265
    )
    
    
    
    
    
    
    
    
    
    
    (265
    )Intercompany dividends
    
    
    1,144
    
    
    
    (1,144
    )
    
    
    
    
    
    
    
    
    
    
    Equity in (losses) earnings of subsidiaries
    
    
    (16,675
    )
    
    
    415
    
    
    
    
    
    
    
    16,260
    
    
    
    (20,904
    )
    
    
    (23,220
    )
    
    
    2,293
    
    
    
    16,260
    
    
    
    (25,571
    )(Loss) income before income taxes and cumulative
effect of change in accounting principle
    
    
    (18,524
    )
    
    
    (10,450
    )
    
    
    8,151
    
    
    
    16,260
    
    
    
    (4,563
    )Income tax benefit (expense)
    
    
    10,998
    
    
    
    704
    
    
    
    (10,573
    )
    
    
    
    
    
    
    1,129Loss before cumulative effect of change in accounting
principle
    
    
    (7,526
    )
    
    
    (9,746
    )
    
    
    (2,422
    )
    
    
    16,260
    
    
    
    (3,434
    )Cumulative effect of change in accounting principle
net of tax
    
    
    
    
    
    
    (4,092
    )
    
    
    
    
    
    
    
    
    
    
    (4,092
    )Net loss
    
    $
    (7,526
    )
    
    $
    (13,838
    )
    
    $
    (2,422
    )
    
    $
    16,260
    
    
    $
    (7,526
    )
 F-39




---



##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) The supplemental consolidating statement of cash flows information for the year ended December 31,
2004 is as follows (in thousands): Allied
    
    
    Guarantor
    
    
    NonguarantorHoldings
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net (loss) income
    
    $
    (53,883
    )
    
    $
    (30,749
    )
    
    $
    (9,951
    )
    
    $
    40,700
    
    
    $
    (53,883
    )Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:Amortization of deferred financing costs
    
    
    2,797
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,797Depreciation and amortization
    
    
    2,409
    
    
    
    40,055
    
    
    
    479
    
    
    
    
    
    
    
    42,943Impairment of goodwill
    
    
    
    
    
    
    8,295
    
    
    
    
    
    
    
    
    
    
    
    8,295Gain on disposal of assets and other, net
    
    
    
    
    
    
    (839
    )
    
    
    
    
    
    
    
    
    
    
    (839
    )Foreign exchange gain, net
    
    
    
    
    
    
    (1,929
    )
    
    
    
    
    
    
    
    
    
    
    (1,929
    )Deferred income taxes
    
    
    11,623
    
    
    
    (365
    )
    
    
    17
    
    
    
    
    
    
    
    11,275Compensation expense related to stock options and grants
    
    
    321
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    321Equity in losses (earnings) of subsidiaries
    
    
    41,217
    
    
    
    (517
    )
    
    
    
    
    
    
    (40,700
    )
    
    
    Change in operating assets and liabilities:Receivables, net of allowance for doubtful accounts
    
    
    
    
    
    
    (3,973
    )
    
    
    (754
    )
    
    
    
    
    
    
    (4,727
    )Inventories
    
    
    
    
    
    
    414
    
    
    
    
    
    
    
    
    
    
    
    414Prepayments and other assets
    
    
    (4,707
    )
    
    
    (1,622
    )
    
    
    3,057
    
    
    
    
    
    
    
    (3,272
    )Accounts and notes payable
    
    
    1,643
    
    
    
    (3,494
    )
    
    
    104
    
    
    
    
    
    
    
    (1,747
    )Intercompany payables
    
    
    (1,144
    )
    
    
    9,652
    
    
    
    (8,508
    )
    
    
    
    
    
    
    Accrued liabilities
    
    
    (1,250
    )
    
    
    (3,520
    )
    
    
    18,630
    
    
    
    
    
    
    
    13,860Net cash (used in) provided by operating activities
    
    
    (974
    )
    
    
    11,408
    
    
    
    3,074
    
    
    
    
    
    
    
    13,508Cash flows from investing activities:Purchases of property and equipment
    
    
    (137
    )
    
    
    (21,677
    )
    
    
    (728
    )
    
    
    
    
    
    
    (22,542
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    3,040
    
    
    
    
    
    
    
    
    
    
    
    3,040(Increase) decrease in restricted cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (796
    )
    
    
    
    
    
    
    (796
    )Funds deposited with insurance carriers
    
    
    
    
    
    
    (32,072
    )
    
    
    
    
    
    
    
    
    
    
    (32,072
    )Funds returned from insurance carriers
    
    
    
    
    
    
    34,995
    
    
    
    
    
    
    
    
    
    
    
    34,995(Increase) decrease in cash surrender value of life insurance
    
    
    (27
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27
    )Net cash provided by (used in) investing activities
    
    
    (164
    )
    
    
    (15,714
    )
    
    
    (1,524
    )
    
    
    
    
    
    
    (17,402
    )Cash flows from financing activities:Additions to revolving credit facility, net
    
    
    
    
    
    
    2,972
    
    
    
    
    
    
    
    
    
    
    
    2,972Additions to long-term debt
    
    
    
    
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    20,000Repayment of long-term debt
    
    
    
    
    
    
    (18,234
    )
    
    
    
    
    
    
    
    
    
    
    (18,234
    )Payment of deferred financing costs
    
    
    
    
    
    
    (475
    )
    
    
    
    
    
    
    
    
    
    
    (475
    )Proceeds from insurance financing arrangements
    
    
    
    
    
    
    31,252
    
    
    
    
    
    
    
    
    
    
    
    31,252Repayments of insurance financing arrangements
    
    
    
    
    
    
    (32,634
    )
    
    
    
    
    
    
    
    
    
    
    (32,634
    )Proceeds from issuance of common stock
    
    
    589
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    589Net cash provided by (used in) financing activities
    
    
    589
    
    
    
    2,881
    
    
    
    
    
    
    
    
    
    
    
    3,470Effect of exchange rate changes on cash and
cash equivalents
    
    
    
    
    
    
    792
    
    
    
    
    
    
    
    
    
    
    
    792Net change in cash and cash equivalents
    
    
    (549
    )
    
    
    (633
    )
    
    
    1,550
    
    
    
    
    
    
    
    368Cash and cash equivalents at beginning of year
    
    
    549
    
    
    
    1,166
    
    
    
    433
    
    
    
    
    
    
    
    2,148Cash and cash equivalents at end of year
    
    $
    
    
    
    $
    533
    
    
    $
    1,983
    
    
    $
    
    
    
    $
    2,516
 F-40




---



##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) The supplemental consolidating statement of cash flows information for the year ended December 31,
2003 is as follows (in thousands): Allied
    
    
    Guarantor
    
    
    NonguarantorHoldings
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net (loss) income
    
    $
    (8,604
    )
    
    $
    (2,239
    )
    
    $
    5,109
    
    
    $
    (2,870
    )
    
    $
    (8,604
    )Adjustments to reconcile net loss (income) to net
cash provided by operating activities:Interest expense paid in kind
    
    
    
    
    
    
    1,065
    
    
    
    
    
    
    
    
    
    
    
    1,065Amortization of deferred financing costs
    
    
    3,697
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,697Depreciation and amortization
    
    
    3,242
    
    
    
    41,843
    
    
    
    471
    
    
    
    
    
    
    
    45,556Loss on disposal of assets and other, net
    
    
    
    
    
    
    1,325
    
    
    
    
    
    
    
    
    
    
    
    1,325Foreign exchange gain (loss), net
    
    
    
    
    
    
    (3,203
    )
    
    
    34
    
    
    
    
    
    
    
    (3,169
    )Deferred income taxes
    
    
    17,250
    
    
    
    (9,888
    )
    
    
    (448
    )
    
    
    
    
    
    
    6,914Compensation expense related to stock options and grants
    
    
    260
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260Equity in earnings of subsidiaries
    
    
    (2,355
    )
    
    
    (515
    )
    
    
    
    
    
    
    2,870
    
    
    
    Amortization of Teamsters Union contract costs
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    1,000Change in operating assets and liabilities:Receivables, net of allowance for doubtful accounts
    
    
    
    
    
    
    7,017
    
    
    
    1,361
    
    
    
    
    
    
    
    8,378Inventories
    
    
    
    
    
    
    272
    
    
    
    
    
    
    
    
    
    
    
    272Prepayments and other assets
    
    
    1,767
    
    
    
    1,015
    
    
    
    (2,940
    )
    
    
    
    
    
    
    (158
    )Accounts and notes payable
    
    
    (1,187
    )
    
    
    (2,104
    )
    
    
    (221
    )
    
    
    
    
    
    
    (3,512
    )Intercompany receivables (payables), net
    
    
    (8,002
    )
    
    
    (2,766
    )
    
    
    10,768
    
    
    
    
    
    
    
    Accrued liabilities
    
    
    (1,961
    )
    
    
    (13,681
    )
    
    
    (544
    )
    
    
    
    
    
    
    (16,186
    )Net cash provided by operating activities
    
    
    4,107
    
    
    
    19,141
    
    
    
    13,590
    
    
    
    
    
    
    
    36,838Cash flows from investing activities:Purchases of property and equipment
    
    
    (297
    )
    
    
    (18,143
    )
    
    
    (115
    )
    
    
    
    
    
    
    (18,555
    )Intercompany sale of property and equipment
    
    
    (682
    )
    
    
    682
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from sale of property and equipment
    
    
    
    
    
    
    685
    
    
    
    
    
    
    
    
    
    
    
    685(Increase) decrease in restricted cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (81,279
    )
    
    
    
    
    
    
    (81,279
    )(Increase) decrease in restricted investments
    
    
    
    
    
    
    
    
    
    
    60,732
    
    
    
    
    
    
    
    60,732Funds deposited with insurance carriers
    
    
    
    
    
    
    (22,680
    )
    
    
    
    
    
    
    
    
    
    
    (22,680
    )Funds returned from insurance carriers
    
    
    
    
    
    
    19,560
    
    
    
    
    
    
    
    
    
    
    
    19,560Decrease in cash surrender value of life insurance
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Net cash used in investing activities
    
    
    (977
    )
    
    
    (19,896
    )
    
    
    (20,662
    )
    
    
    
    
    
    
    (41,535
    )Cash flows from financing activities:(Repayments) additions to revolving credit facilities, net
    
    
    
    
    
    
    (24,635
    )
    
    
    
    
    
    
    
    
    
    
    (24,635
    )Additions to long-term debt
    
    
    
    
    
    
    99,875
    
    
    
    
    
    
    
    
    
    
    
    99,875Repayment of long-term debt
    
    
    
    
    
    
    (78,280
    )
    
    
    
    
    
    
    
    
    
    
    (78,280
    )Payment of deferred financing costs
    
    
    (3,038
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,038
    )Proceeds from insurance financing arrangements
    
    
    
    
    
    
    19,313
    
    
    
    
    
    
    
    
    
    
    
    19,313Repayments of insurance financing arrangements
    
    
    
    
    
    
    (17,634
    )
    
    
    
    
    
    
    
    
    
    
    (17,634
    )Proceeds from issuance of common stock
    
    
    450
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    450Net cash used in financing activities
    
    
    (2,588
    )
    
    
    (1,361
    )
    
    
    
    
    
    
    
    
    
    
    (3,949
    )Effect of exchange rate changes on cash and
cash equivalents
    
    
    
    
    
    
    1,346
    
    
    
    
    
    
    
    
    
    
    
    1,346Net change in cash and cash equivalents
    
    
    542
    
    
    
    (770
    )
    
    
    (7,072
    )
    
    
    
    
    
    
    (7,300
    )Cash and cash equivalents at beginning of year
    
    
    7
    
    
    
    1,936
    
    
    
    7,505
    
    
    
    
    
    
    
    9,448Cash and cash equivalents at end of year
    
    $
    549
    
    
    $
    1,166
    
    
    $
    433
    
    
    $
    
    
    
    $
    2,148
 F-41




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) The supplemental consolidating statement of cash flows information for the year ended December 31,
2002 is as follows (in thousands): Allied
    
    
    Guarantor
    
    
    NonguarantorHoldings
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net loss
    
    $
    (7,526
    )
    
    $
    (13,838
    )
    
    $
    (2,422
    )
    
    $
    16,260
    
    
    $
    (7,526
    )Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:Gain on early extinguishment of debt
    
    
    (2,750
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,750
    )Interest expense paid in kind
    
    
    
    
    
    
    1,115
    
    
    
    
    
    
    
    
    
    
    
    1,115Amortization of deferred financing costs
    
    
    4,004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,004Depreciation and amortization
    
    
    2,940
    
    
    
    51,469
    
    
    
    471
    
    
    
    
    
    
    
    54,880Loss on disposal of assets and other, net
    
    
    
    
    
    
    806
    
    
    
    207
    
    
    
    
    
    
    
    1,013Foreign exchange loss (gain), net
    
    
    
    
    
    
    (108
    )
    
    
    
    
    
    
    
    
    
    
    (108
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    4,092
    
    
    
    
    
    
    
    
    
    
    
    4,092Deferred income taxes
    
    
    454
    
    
    
    (2,786
    )
    
    
    700
    
    
    
    
    
    
    
    (1,632
    )Compensation expense related to stock options and grants
    
    
    (57
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57
    )Amortization of Teamsters Union contract costs
    
    
    
    
    
    
    2,400
    
    
    
    
    
    
    
    
    
    
    
    2,400Equity in net loss (income) of subsidiaries
    
    
    16,675
    
    
    
    (415
    )
    
    
    
    
    
    
    (16,260
    )
    
    
    Change in operating assets and liabilities:Receivables, net of allowance for doubtful accounts
    
    
    24
    
    
    
    13,296
    
    
    
    347
    
    
    
    
    
    
    
    13,667Inventories
    
    
    
    
    
    
    265
    
    
    
    5
    
    
    
    
    
    
    
    270Prepayments and other assets
    
    
    (12,772
    )
    
    
    5,248
    
    
    
    (99
    )
    
    
    
    
    
    
    (7,623
    )Accounts and notes payable
    
    
    609
    
    
    
    5,052
    
    
    
    (5,827
    )
    
    
    
    
    
    
    (166
    )Intercompany receivables (payables), net
    
    
    176,797
    
    
    
    (170,385
    )
    
    
    (6,412
    )
    
    
    
    
    
    
    Accrued liabilities
    
    
    (3,628
    )
    
    
    (1,971
    )
    
    
    331
    
    
    
    
    
    
    
    (5,268
    )Net cash provided by (used in) operating activities
    
    
    174,770
    
    
    
    (105,760
    )
    
    
    (12,699
    )
    
    
    
    
    
    
    56,311Cash flows from investing activities:Purchases of property and equipment
    
    
    (152
    )
    
    
    (21,629
    )
    
    
    (5
    )
    
    
    
    
    
    
    (21,786
    )Intercompany sale of property and equipment
    
    
    (2
    )
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from sale of property and equipment
    
    
    
    
    
    
    4,725
    
    
    
    
    
    
    
    
    
    
    
    4,725(Increase) decrease in restricted cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    5,289
    
    
    
    
    
    
    
    5,289(Increase) decrease in restricted investments
    
    
    
    
    
    
    
    
    
    
    4,062
    
    
    
    
    
    
    
    4,062Capital contribution
    
    
    (73,178
    )
    
    
    73,100
    
    
    
    78
    
    
    
    
    
    
    
    Return of capital
    
    
    40,881
    
    
    
    (39,484
    )
    
    
    (1,397
    )
    
    
    
    
    
    
    Funds deposited with insurance carriers
    
    
    
    
    
    
    (6,000
    )
    
    
    
    
    
    
    
    
    
    
    (6,000
    )Funds returned from insurance carriers
    
    
    
    
    
    
    
    
    
    
    6,000
    
    
    
    
    
    
    
    6,000Proceeds from sale of equity investment in joint ventures
    
    
    
    
    
    
    
    
    
    
    3,000
    
    
    
    
    
    
    
    3,000Decrease in cash surrender value of life insurance
    
    
    2,641
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,641Net cash (used in) provided by investing activities
    
    
    (29,810
    )
    
    
    10,714
    
    
    
    17,027
    
    
    
    
    
    
    
    (2,069
    )Cash flows from financing activities:(Repayment) additions to revolving credit facility, net
    
    
    (98,900
    )
    
    
    24,637
    
    
    
    
    
    
    
    
    
    
    
    (74,263
    )Additions to long-term debt
    
    
    
    
    
    
    82,750
    
    
    
    
    
    
    
    
    
    
    
    82,750Repayment of long-term debt
    
    
    (37,498
    )
    
    
    (10,037
    )
    
    
    
    
    
    
    
    
    
    
    (47,535
    )Payment of deferred financing costs
    
    
    (9,262
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,262
    )Proceeds from insurance financing arrangements
    
    
    
    
    
    
    6,328
    
    
    
    
    
    
    
    
    
    
    
    6,328Repayments of insurance financing arrangements
    
    
    
    
    
    
    (8,216
    )
    
    
    
    
    
    
    
    
    
    
    (8,216
    )Proceeds from issuance of common stock
    
    
    338
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    338Other, net
    
    
    160
    
    
    
    274
    
    
    
    
    
    
    
    
    
    
    
    434Net cash (used in) provided by financing activities
    
    
    (145,162
    )
    
    
    95,736
    
    
    
    
    
    
    
    
    
    
    
    (49,426
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    183
    
    
    
    
    
    
    
    
    
    
    
    183Net change in cash and cash equivalents
    
    
    (202
    )
    
    
    873
    
    
    
    4,328
    
    
    
    
    
    
    
    4,999Cash and cash equivalents at beginning of year
    
    
    209
    
    
    
    1,063
    
    
    
    3,177
    
    
    
    
    
    
    
    4,449Cash and cash equivalents at end of year
    
    $
    7
    
    
    $
    1,936
    
    
    $
    7,505
    
    
    $
    
    
    
    
    9,448
 F-42




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES 
 VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 2004, 2003 and 2002
 Balance at
    
    
    
    
    
    
    
    
    
    
    Balance atBeginning of
    
    
    
    
    
    
    
    
    
    
    End ofClassification
    
    Year
    
    
    Additions(a)
    
    
    Deductions(b)
    
    
    Period(In thousands)Allowance for billing adjustments and doubtful accounts:Year ended December 31, 2004
    
    $
    3,575
    
    
    $
    491
    
    
    $
    (1,910
    )
    
    $
    2,156Year ended December 31, 2003
    
    
    5,587
    
    
    
    2,024
    
    
    
    (4,036
    )
    
    
    3,575Year ended December 31, 2002
    
    
    11,058
    
    
    
    1,517
    
    
    
    (6,988
    )
    
    
    5,587
   (a)
    
    Additions are recorded as reductions of revenue as they primarily
 represent billing adjustments.(b)
    
    Billing adjustments and write-off of uncollectible accounts. S-1