##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

|  |  |                                                                                                                                       
|- |  | --------------------------------------------------------------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934  For the quarterly period ended
June 30, 2003

or

|  |  |                                                                                                                                                                                                               
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934  For the transition period from _______________________
to _____________________Commission File Number:      0-22276

ALLIED HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|GEORGIA                                                        |  | 58-0360550                             
|                                                              
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)

Suite 200, 160 Clairemont Avenue, Decatur, Georgia 30030

(Address of principal executive offices)


(404) 373-4285

(Registrants telephone number, including area code)




---

(Former name, former address and former fiscal year, if changed since last report)


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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act of 1934).   o Yes x No

|                                                         |  |  |           | 
|-------------------------------------------------------- |  |  | --------- | 
|Outstanding common stock, no par value at August 4, 2003 |  |  | 8,528,791 | 





---



##### 



ALLIED HOLDINGS, INC. AND SUBSIDIARIES

INDEX

PART I

FINANCIAL INFORMATION

|       |  |                           |  |                                                                                                        |  |      |    | 
|------ |  | ------------------------- |  | ------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|       |  |                           |  |                                                                                                        |  | PAGE
|ITEM 1 |  | Financial Statements      |  |                                                                                                        |  |     
|       |  |                           |  | Consolidated Balance Sheets as of June 30, 2003 and
December 31, 2002                                  |  |      | 3  | 
|       |  |                           |  | Consolidated Statements of Operations for the Three and
Six-Month Periods Ended June 30, 2003 and 2002 |  |      | 4  | 
|       |  |                           |  | Consolidated Statements of Cash Flows for the Six-Month Periods
Ended June 30, 2003 and 2002           |  |      | 5  | 
|       |  |                           |  | Notes to Consolidated Financial
Statements                                                             |  |      | 6  | 
|ITEM 2 |  |                           |  |                                                                                                        |  |     
|       |  |                           |  | Managements Discussion and Analysis of Financial Condition
and Results of
Operations                  |  |      | 24 | 
|ITEM 3 |  |                           |  |                                                                                                        |  |     
|       |  |                           |  | Quantitative and Qualitative Disclosures About Market Risk                                             |  |      | 36 | 
|ITEM 4 |  |                           |  |                                                                                                        |  |     
|       |  |                           |  | Controls and Procedures                                                                                |  |      | 37 | 
|       |  | PART II OTHER
INFORMATION |  |                                                                                                        |  |     
|ITEM 1 |  |                           |  |                                                                                                        |  |     
|       |  |                           |  | Legal Proceedings                                                                                      |  |      | 37 | 
|ITEM 4 |  |                           |  |                                                                                                        |  |     
|       |  |                           |  | Submission of Matters to a Vote of Security Holders                                                    |  |      | 38 | 
|ITEM 6 |  |                           |  |                                                                                                        |  |     
|       |  |                           |  | Exhibits and Reports on Form 8-K                                                                       |  |      | 39 | 
|       |  |                           |  | Signature Page                                                                                         |  |      | 40 | 
|       |  |                           |  | Certifications                                                                                         |  |      | 42 | 

2



---



##### 



PART 1  FINANCIAL INFORMATION

ITEM 1. Financial Statements

ALLIED HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In Thousands)

|                                            |                                                                                       |                           |                                                                                                                                               |                                            |         |             |         |              |         |         |         | 
|------------------------------------------- | ------------------------------------------------------------------------------------- | ------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ----------- | ------- | ------------ | ------- | ------- | ------- | 
|                                            |                                                                                       |                           |                                                                                                                                               |                                            |         | June 30,    |         | December 31,
|                                            |                                                                                       |                           |                                                                                                                                               |                                            |         | 2003        |         | 2002        
|                                            |                                                                                       |                           |                                                                                                                                               |                                            |         |             |         |             
|                                            |                                                                                       |                           |                                                                                                                                               |                                            |         | (Unaudited) |         |              |         |        
|ASSETS                                      |                                                                                       |                           |                                                                                                                                               |                                            |         |             |         |             
|CURRENT ASSETS:                             |                                                                                       |                           |                                                                                                                                               |                                            |         |             |         |             
|                                            | Cash and cash equivalents                                                             |                           | $                                                                                                                                             | 7,573                                      |         |             | $       | 10,253       |        
|                                            | Short-term investments                                                                |                           |                                                                                                                                               | 67,809                                     |         |             |         | 60,732       |        
|                                            | Receivables, net of allowance for doubtful accounts of
$4,382 and $5,587 respectively |                           |                                                                                                                                               | 56,033                                     |         |             |         | 58,512       |        
|                                            | Inventories                                                                           |                           |                                                                                                                                               | 5,514                                      |         |             |         | 5,071        |        
|                                            | Deferred tax assets                                                                   |                           |                                                                                                                                               | 29,271                                     |         |             |         | 39,826       |        
|                                            | Prepayments and other current assets                                                  |                           |                                                                                                                                               | 32,523                                     |         |             |         | 28,685       |        
|                                            |                                                                                       |                           |                                                                                                                                               |                                            |         |             |         |             
|                                            |                                                                                       | Total current assets      |                                                                                                                                               |                                            | 198,723 |             |         |              | 203,079 |        
|                                            |                                                                                       |                           |                                                                                                                                               |                                            |         |             |         |             
|PROPERTY AND EQUIPMENT, NET                 |                                                                                       |                           | 166,879                                                                                                                                       |                                            |         |             | 176,663 |             
|                                            |                                                                                       |                           |                                                                                                                                               |                                            |         |             |         |             
|GOODWILL, NET                               |                                                                                       |                           | 89,128                                                                                                                                        |                                            |         |             | 85,241  |             
|                                            |                                                                                       |                           |                                                                                                                                               |                                            |         |             |         |             
|OTHER                                       |                                                                                       |                           | 17,780                                                                                                                                        |                                            |         |             | 20,525  |             
|                                            |                                                                                       |                           |                                                                                                                                               |                                            |         |             |         |             
|                                            |                                                                                       | Total assets              |                                                                                                                                               | $                                          | 472,510 |             |         | $            | 485,508 |        
|                                            |                                                                                       |                           |                                                                                                                                               |                                            |         |             |         |             
|LIABILITIES AND STOCKHOLDERS EQUITY        |                                                                                       |                           |                                                                                                                                               |                                            |         |             |         |             
|CURRENT LIABILITIES:                        |                                                                                       |                           |                                                                                                                                               |                                            |         |             |         |             
|                                            | Current maturities of long-term debt                                                  |                           | $                                                                                                                                             | 11,000                                     |         |             | $       | 10,785       |        
|                                            | Trade accounts payable                                                                |                           |                                                                                                                                               | 30,331                                     |         |             |         | 36,585       |        
|                                            | Accrued liabilities                                                                   |                           |                                                                                                                                               | 91,804                                     |         |             |         | 92,881       |        
|                                            |                                                                                       |                           |                                                                                                                                               |                                            |         |             |         |             
|                                            |                                                                                       | Total current liabilities |                                                                                                                                               |                                            | 133,135 |             |         |              | 140,251 |        
|                                            |                                                                                       |                           |                                                                                                                                               |                                            |         |             |         |             
|LONG-TERM DEBT, less current maturities     |                                                                                       |                           | 240,265                                                                                                                                       |                                            |         |             | 237,690 |             
|                                            |                                                                                       |                           |                                                                                                                                               |                                            |         |             |         |             
|POSTRETIREMENT BENEFITS OTHER THAN PENSIONS |                                                                                       |                           | 7,042                                                                                                                                         |                                            |         |             | 7,467   |             
|                                            |                                                                                       |                           |                                                                                                                                               |                                            |         |             |         |             
|DEFERRED INCOME TAXES                       |                                                                                       |                           | 19,451                                                                                                                                        |                                            |         |             | 27,746  |             
|                                            |                                                                                       |                           |                                                                                                                                               |                                            |         |             |         |             
|OTHER LONG-TERM LIABILITIES                 |                                                                                       |                           | 59,378                                                                                                                                        |                                            |         |             | 62,040  |             
|                                            |                                                                                       |                           |                                                                                                                                               |                                            |         |             |         |             
|STOCKHOLDERS EQUITY:                       |                                                                                       |                           |                                                                                                                                               |                                            |         |             |         |             
|                                            |                                                                                       |                           | Preferred stock, no par value; 5,000 shares authorized, none
outstanding                                                                      |                                            |         |            |         |              |         |        |        
|                                            |                                                                                       |                           | Common stock, no par value; 20,000 shares authorized, 8,494
and 8,421 shares outstanding at June 30, 2003
and December 31, 2002, respectively |                                            |         |            |         |              |         |        |        
|                                            |                                                                                       |                           | Additional paid-in capital                                                                                                                    |                                            |         | 47,112      |         |              |         | 46,801  |        
|                                            |                                                                                       |                           | Treasury stock at cost, 139 shares at June 30, 2003
and December 31, 2002                                                                     |                                            |         | (707        | )       |              |         | (707    | )      
|                                            |                                                                                       |                           | Accumulated deficit                                                                                                                           |                                            |         | (28,712     | )       |              |         | (26,420 | )      
|                                            |                                                                                       |                           | Accumulated other comprehensive loss, net of tax                                                                                              |                                            |         | (4,454      | )       |              |         | (9,360  | )      
|                                            |                                                                                       |                           |                                                                                                                                               |                                            |         |             |         |             
|                                            |                                                                                       |                           |                                                                                                                                               | Total stockholders equity                 |         |             | 13,239  |              |         |         | 10,314  | 
|                                            |                                                                                       |                           |                                                                                                                                               |                                            |         |             |         |             
|                                            |                                                                                       |                           |                                                                                                                                               | Total liabilities and stockholders equity |         | $           | 472,510 |              |         | $       | 485,508 | 
|                                            |                                                                                       |                           |                                                                                                                                               |                                            |         |             |         |             

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

3



---



##### 



ALLIED HOLDINGS, INC. AND SUBSIDIARIES

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

|                                                                                          |                                                  |         |                          |         |                            |         |                          |         |       |         |         |         |        |         |         |         |        |         | 
|----------------------------------------------------------------------------------------- | ------------------------------------------------ | ------- | ------------------------ | ------- | -------------------------- | ------- | ------------------------ | ------- | ----- | ------- | ------- | ------- | ------ | ------- | ------- | ------- | ------ | ------- | 
|                                                                                          |                                                  |         |                          |         | For the Three Months Ended |         | For the Six Months Ended
|                                                                                          |                                                  |         |                          |         | June 30,                   |         | June 30,                
|                                                                                          |                                                  |         |                          |         |                            |         |                         
|                                                                                          |                                                  |         |                          |         | 2003                       |         | 2002                     |         | 2003  |         | 2002   
|                                                                                          |                                                  |         |                          |         |                            |         |                          |         |       |         |        
|REVENUES                                                                                  |                                                  | $       | 230,078                  |         |                            | $       | 238,984                  |         |       | $       | 443,670 |         |        | $       | 452,243 |        
|                                                                                          |                                                  |         |                          |         |                            |         |                          |         |       |         |         |         |        |         |         |        
|OPERATING EXPENSES:                                                                       |                                                  |         |                          |         |                            |         |                          |         |       |         |         |         |        |         |         |        
|                                                                                          | Salaries, wages and fringe benefits              |         |                          | 123,502 |                            |         |                          | 127,513 |       |         |         | 241,077 |        |         |         | 246,049 |       
|                                                                                          | Operating supplies and expenses                  |         |                          | 35,968  |                            |         |                          | 35,906  |       |         |         | 73,148  |        |         |         | 66,811  |       
|                                                                                          | Purchased transportation                         |         |                          | 25,837  |                            |         |                          | 25,527  |       |         |         | 50,550  |        |         |         | 47,107  |       
|                                                                                          | Insurance and claims                             |         |                          | 11,477  |                            |         |                          | 12,929  |       |         |         | 20,834  |        |         |         | 23,500  |       
|                                                                                          | Operating taxes and licenses                     |         |                          | 8,159   |                            |         |                          | 8,630   |       |         |         | 15,997  |        |         |         | 17,093  |       
|                                                                                          | Depreciation and amortization                    |         |                          | 11,653  |                            |         |                          | 13,282  |       |         |         | 23,677  |        |         |         | 26,945  |       
|                                                                                          | Rents                                            |         |                          | 1,620   |                            |         |                          | 1,657   |       |         |         | 3,240   |        |         |         | 3,210   |       
|                                                                                          | Communications and utilities                     |         |                          | 1,580   |                            |         |                          | 1,873   |       |         |         | 3,468   |        |         |         | 3,865   |       
|                                                                                          | Other operating expenses                         |         |                          | 2,535   |                            |         |                          | 1,451   |       |         |         | 5,384   |        |         |         | 4,748   |       
|                                                                                          | Loss (gain) on disposal of operating assets, net |         |                          | 195     |                            |         |                          | 315     |       |         |         | 459     |        |         |         | (714    | )     
|                                                                                          |                                                  |         |                          |         |                            |         |                          |         |       |         |         |         |        |         |         |        
|                                                                                          |                                                  |         | Total operating expenses |         |                            | 222,526 |                          |         |       | 229,083 |         |         |        | 437,834 |         |         |        | 438,614 | 
|                                                                                          |                                                  |         |                          |         |                            |         |                          |         |       |         |         |         |        |         |         |        
|                                                                                          |                                                  |         | Operating income         |         |                            | 7,552   |                          |         |       | 9,901   |         |         |        | 5,836   |         |         |        | 13,629  | 
|                                                                                          |                                                  |         |                          |         |                            |         |                          |         |       |         |         |         |        |         |         |        
|OTHER INCOME (EXPENSE):                                                                   |                                                  |         |                          |         |                            |         |                          |         |       |         |         |         |        |         |         |        
|                                                                                          | Interest expense                                 |         |                          | (7,373  | )                          |         |                          | (7,610  | )     |         |         | (14,754 | )      |         |         | (15,732 | )     
|                                                                                          | Investment income                                |         |                          | 3,007   |                            |         |                          | 615     |       |         |         | 3,333   |        |         |         | 887     |       
|                                                                                          | Gain on early extinguishment of debt             |         |                          |        |                            |         |                          |        |       |         |         |        |        |         |         | 2,750   |       
|                                                                                          | Foreign exchange gains (losses), net             |         |                          | 1,430   |                            |         |                          | (4      | )     |         |         | 2,448   |        |         |         | 33      |       
|                                                                                          | Other, net                                       |         |                          |        |                            |         |                          |        |       |         |         |        |        |         |         | (207    | )     
|                                                                                          |                                                  |         |                          |         |                            |         |                          |         |       |         |         |         |        |         |         |        
|                                                                                          |                                                  |         | (2,936                   | )       |                            |         | (6,999                   | )       |       |         | (8,973  | )       |        |         | (12,269 | )      
|                                                                                          |                                                  |         |                          |         |                            |         |                          |         |       |         |         |         |        |         |         |        
|INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE |                                                  |         | 4,616                    |         |                            |         | 2,902                    |         |       |         | (3,137  | )       |        |         | 1,360   |        
|INCOME TAX (EXPENSE) BENEFIT                                                              |                                                  |         | (1,244                   | )       |                            |         | (793                     | )       |       |         | 845     |         |        |         | (407    | )      
|                                                                                          |                                                  |         |                          |         |                            |         |                          |         |       |         |         |         |        |         |         |        
|INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE                  |                                                  |         | 3,372                    |         |                            |         | 2,109                    |         |       |         | (2,292  | )       |        |         | 953     |        
|CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE,
NET OF TAX                           |                                                  |         |                         |         |                            |         |                         |         |       |         |        |         |        |         | (4,092  | )      
|                                                                                          |                                                  |         |                          |         |                            |         |                          |         |       |         |         |         |        |         |         |        
|NET INCOME (LOSS)                                                                         |                                                  | $       | 3,372                    |         |                            | $       | 2,109                    |         |       |         | ($2,292 | )       |        |         | ($3,139 | )      
|                                                                                          |                                                  |         |                          |         |                            |         |                          |         |       |         |         |         |        |         |         |        
|BASIC & DILUTED EARNINGS (LOSS) PER COMMON SHARE:                                         |                                                  |         |                          |         |                            |         |                          |         |       |         |         |         |        |         |         |        
|BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE :                              |                                                  |         |                          |         |                            |         |                          |         |       |         |         |         |        |         |         |        
|                                                                                          |                                                  | BASIC   |                          | $       | 0.40                       |         |                          | $       | 0.25  |         |         |         | ($0.27 | )       |         | $       | 0.12   |        
|                                                                                          |                                                  | DILUTED |                          | $       | 0.39                       |         |                          | $       | 0.24  |         |         |         | ($0.27 | )       |         | $       | 0.11   |        
|CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE, NET OF TAX:                          |                                                  |         |                          |         |                            |         |                          |         |       |         |         |         |        |         |         |        
|                                                                                          |                                                  | BASIC   |                          |         |                           |         |                          |         |      |         |         |         |       |         |         |         | (0.50  | )      
|                                                                                          |                                                  | DILUTED |                          |         |                           |         |                          |         |      |         |         |         |       |         |         |         | (0.47  | )      
|                                                                                          |                                                  |         |                          |         |                            |         |                          |         |       |         |         |         |        |         |         |        
|NET INCOME (LOSS):                                                                        |                                                  |         |                          |         |                            |         |                          |         |       |         |         |         |        |         |         |        
|                                                                                          |                                                  | BASIC   |                          | $       | 0.40                       |         |                          | $       | 0.25  |         |         |         | ($0.27 | )       |         |         | ($0.38 | )      
|                                                                                          |                                                  |         |                          |         |                            |         |                          |         |       |         |         |         |        |         |         |        
|                                                                                          |                                                  | DILUTED |                          | $       | 0.39                       |         |                          | $       | 0.24  |         |         |         | ($0.27 | )       |         |         | ($0.36 | )      
|                                                                                          |                                                  |         |                          |         |                            |         |                          |         |       |         |         |         |        |         |         |        
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:                                               |                                                  |         |                          |         |                            |         |                          |         |       |         |         |         |        |         |         |        
|                                                                                          |                                                  | BASIC   |                          |         | 8,462                      |         |                          |         | 8,300 |         |         |         | 8,436  |         |         |         | 8,259  |        
|                                                                                          |                                                  |         |                          |         |                            |         |                          |         |       |         |         |         |        |         |         |        
|                                                                                          |                                                  | DILUTED |                          |         | 8,700                      |         |                          |         | 8,781 |         |         |         | 8,436  |         |         |         | 8,793  |        
|                                                                                          |                                                  |         |                          |         |                            |         |                          |         |       |         |         |         |        |         |         |        

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

4



---



##### 



ALLIED HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)

|                                                             |                                                                          |                                                          |                                                     |         |                          |        |        |         |        |         |  
|------------------------------------------------------------ | ------------------------------------------------------------------------ | -------------------------------------------------------- | --------------------------------------------------- | ------- | ------------------------ | ------ | ------ | ------- | ------ | ------- | -
|                                                             |                                                                          |                                                          |                                                     |         | For the Six Months Ended
|                                                             |                                                                          |                                                          |                                                     |         | June 30,                
|                                                             |                                                                          |                                                          |                                                     |         |                         
|                                                             |                                                                          |                                                          |                                                     |         | 2003                     |        | 2002  
|                                                             |                                                                          |                                                          |                                                     |         |                          |        |       
|CASH FLOWS FROM OPERATING ACTIVITIES:                        |                                                                          |                                                          |                                                     |         |                          |        |        |        
|                                                             | Net loss                                                                 |                                                          |                                                     | ($2,292 | )                        |        |        | ($3,139 | )     
|                                                             | Reconciliation of net loss to net cash provided
by operating activities: |                                                          |                                                     |         |                          |        |        |         |       
|                                                             |                                                                          | Gain on early extinguishment of debt                     |                                                     |         |                         |        |        |         | (2,750 | )      
|                                                             |                                                                          | Interest expense paid in kind                            |                                                     |         | 725                      |        |        |         | 377    |        
|                                                             |                                                                          | Amortization of deferred financing costs                 |                                                     |         | 2,054                    |        |        |         | 2,028  |        
|                                                             |                                                                          | Depreciation and amortization                            |                                                     |         | 23,677                   |        |        |         | 26,945 |        
|                                                             |                                                                          | Loss (gain) on disposal of assets and other, net         |                                                     |         | 459                      |        |        |         | (507   | )      
|                                                             |                                                                          | Foreign exchange gains, net                              |                                                     |         | (2,448                   | )      |        |         | (33    | )      
|                                                             |                                                                          | Cumulative effect of change in accounting principle      |                                                     |         |                         |        |        |         | 4,092  |        
|                                                             |                                                                          | Deferred income taxes                                    |                                                     |         | (671                     | )      |        |         | 468    |        
|                                                             |                                                                          | Compensation expense related to stock options and grants |                                                     |         | 120                      |        |        |         | 148    |        
|                                                             |                                                                          | Amortization of Teamsters Union contract costs           |                                                     |         | 1,000                    |        |        |         | 1,200  |        
|                                                             |                                                                          | Change in operating assets and liabilities:              |                                                     |         |                          |        |        |         |        |        
|                                                             |                                                                          |                                                          | Receivables, net of allowance for doubtful accounts |         |                          | 3,933  |        |         |        | 10,957  |  
|                                                             |                                                                          |                                                          | Inventories                                         |         |                          | (299   | )      |         |        | 238     |  
|                                                             |                                                                          |                                                          | Prepayments and other current assets                |         |                          | (3,480 | )      |         |        | 92      |  
|                                                             |                                                                          |                                                          | Short-term investments                              |         |                          | (7,077 | )      |         |        | (1,229  | )
|                                                             |                                                                          |                                                          | Trade accounts payable                              |         |                          | (7,194 | )      |         |        | 217     |  
|                                                             |                                                                          |                                                          | Accrued liabilities                                 |         |                          | (5,313 | )      |         |        | 1,993   |  
|                                                             |                                                                          |                                                          |                                                     |         |                          |        |        |        
|                                                             |                                                                          | Net change in operating assets and liabilities           |                                                     |         | (19,430                  | )      |        |         | 12,268 |        
|                                                             |                                                                          |                                                          |                                                     |         |                          |        |        |        
|                                                             |                                                                          |                                                          | Net cash provided by operating activities           |         |                          | 3,194  |        |         |        | 41,097  |  
|                                                             |                                                                          |                                                          |                                                     |         |                          |        |        |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                        |                                                                          |                                                          |                                                     |         |                          |        |        |        
|                                                             | Additions
to property and equipment                                      |                                                          |                                                     | (8,417  | )                        |        |        | (7,470  | )     
|                                                             | Proceeds from sale of property and equipment                             |                                                          |                                                     | 31      |                          |        |        | 2,857   |       
|                                                             | Proceeds from sale of equity investment in joint venture                 |                                                          |                                                     |        |                          |        |        | 2,700   |       
|                                                             | Decrease (increase) in the cash surrender value of life insurance        |                                                          |                                                     | 2       |                          |        |        | (317    | )     
|                                                             |                                                                          |                                                          |                                                     |         |                          |        |        |        
|                                                             |                                                                          |                                                          | Net cash used in investing activities               |         |                          | (8,384 | )      |         |        | (2,230  | )
|                                                             |                                                                          |                                                          |                                                     |         |                          |        |        |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                        |                                                                          |                                                          |                                                     |         |                          |        |        |        
|                                                             | Additions to (repayments of) revolving credit facilities, net            |                                                          |                                                     | 10,084  |                          |        |        | (60,723 | )     
|                                                             | Additions to long-term debt                                              |                                                          |                                                     |        |                          |        |        | 82,751  |       
|                                                             | Repayment of long-term debt                                              |                                                          |                                                     | (8,019  | )                        |        |        | (43,830 | )     
|                                                             | Payment of deferred financing costs                                      |                                                          |                                                     | (414    | )                        |        |        | (8,829  | )     
|                                                             | Proceeds from issuance of common stock                                   |                                                          |                                                     | 191     |                          |        |        | 161     |       
|                                                             | Other, net                                                               |                                                          |                                                     | 26      |                          |        |        | 373     |       
|                                                             |                                                                          |                                                          |                                                     |         |                          |        |        |        
|                                                             |                                                                          |                                                          | Net cash provided by (used in) financing
activities |         |                          | 1,868  |        |         |        | (30,097 | )
|                                                             |                                                                          |                                                          |                                                     |         |                          |        |        |        
|EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS |                                                                          |                                                          | 642                                                 |         |                          |        | 158    |        
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS         |                                                                          |                                                          | (2,680                                              | )       |                          |        | 8,928  |        
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD             |                                                                          |                                                          | 10,253                                              |         |                          |        | 10,543 |        
|                                                             |                                                                          |                                                          |                                                     |         |                          |        |        |        
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                   |                                                                          | $                                                        | 7,573                                               |         |                          | $      | 19,471 |        
|                                                             |                                                                          |                                                          |                                                     |         |                          |        |        |        

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

5



---



##### 



ALLIED HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

June 30, 2003 and 2002



|(1) |  | Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The unaudited consolidated financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in the
United States of America for complete financial statements. The statements
contained herein reflect all adjustments, all of which are of a normal,
recurring nature, which are, in the opinion of management, necessary to
present fairly the financial condition, results of operations and cash flows
for the periods presented. Operating results for the three and six month
periods ended June 30, 2003 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2003. The interim
financial statements should be read in conjunction with the financial
statements and notes thereto of Allied Holdings, Inc. and Subsidiaries, (the
Company) included in the Companys 2002 Annual Report on Form 10-K.
|   
|    |  | Certain amounts in the prior year financial statements have been reclassified
to conform to the current year presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(2) |  | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | The preparation of the consolidated financial statements requires management
of the Company to make a number of estimates and assumptions relating to the
reported amount 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, plant and equipment; valuation allowances for
receivables, inventories and deferred income tax assets; self-insurance
reserves; and assets and obligations related to employee benefits. Actual
results could differ from those estimates.                                                                                                                                                                                                                                                                                                                           
|   
|(3) |  | Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | In June 2001, FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 requires the Company to record the fair value of an
asset retirement obligation as a liability in the period in which it incurs a
legal obligation associated with the retirement of tangible long-lived assets
that result from the acquisition, construction, development, and/or normal
use of the assets. The Company also records a corresponding asset that is
depreciated over the life of the asset. Subsequent to the initial measurement
of the asset retirement obligation, the obligation will be adjusted at the
end of each period to reflect the passage of time and changes in the
estimated future cash flows underlying the obligation. The Company adopted
the provisions of SFAS No. 143 effective January 1, 2003. The Statement did
not have a material impact on the financial position or results of operations
of the Company as of the date of adoption.                                                                            
|   
|    |  | In July 2002, the FASB issued SFAS No. 146, Accounting for Cost Associated
with Exit or Disposal Activities. The Statement addresses financial
accounting and reporting for costs associated with exit or disposal
activities and nullifies EITF Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). This Statement
requires recognition of a liability for a cost associated with an exit or
disposal activity when the liability is incurred, as opposed to when the
entity commits to an exit plan under EITF No. 94-3. The Company adopted the
provisions of SFAS No. 146 effective January 1, 2003. The Statement did not
have a material impact on the financial position or results of operations of
the Company as of the date of adoption.                                                                                                                                                                                      

6



---



##### 





| |  | In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements
No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34.This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under
guarantees issued. The Interpretation also clarifies that a guarantor is
required to recognize, at inception of a guarantee, a liability for the fair
value of the obligation undertaken. The initial recognition and measurement
provisions of the Interpretation are applicable to guarantees issued or
modified after
December 31, 2002. The Company adopted the recognition and measurement
provisions of the Interpretation effective January 1, 2003 for guarantees
issued or modified after December 31, 2002. The adoption of this
Interpretation did not have a material impact on the financial position or
results of operations of the Company as of the date of adoption. See note
11, Guarantees and Indemnifications.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, an amendment of FASB Statement No.
123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements
of Statement No. 123 to require prominent disclosures in both annual and
interim financial statements. Certain of the disclosure modifications are
required for fiscal years and interim periods ending after December 15, 2002
and are included in the notes to these consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation
of Variable Interest Entities, an Interpretation of ARB No. 51. This
Interpretation addresses the consolidation of business enterprises
(variable interest entities) to which the usual condition of consolidation
does not apply. This interpretation focuses on financial interests that
indicate control. It concludes that in the absence of clear control through
voting interests, a companys exposure (variable interest) to the economic
risks and potential rewards from the variable interest entitys assets and
activities are the best evidence of control. Variable interests are rights
and obligations that convey economic gains or losses from changes in the
values of the variable interest entitys assets and liabilities. Variable
interests may arise from financial instruments, service contracts,
nonvoting ownership interests and other arrangements. If an enterprise
holds a majority of the variable interests of an entity, it would be
considered the primary beneficiary. The primary beneficiary would be
required to include assets, liabilities and the results of operations of
the variable interest entity in its financial statements. This
interpretation applies immediately to variable interest entities that are
created after or for which control is obtained after January 31, 2003. For
variable interest entities created prior to February 1, 2003, the
provisions would be applied effective July 1, 2003. The Company did not
have any variable interest entities prior to February 1, 2003 and has not
created any for which control has been maintained since January 31, 2003.
Therefore, this Interpretation is not expected to have a material impact on
the financial position or results of operations of the Company.
|
| |  | In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities.This Statement clarifies
under which circumstances a contract with an initial net investment meets
the characteristics of a derivative and clarifies when a derivative
contains a financing component that warrants special reporting in the
statement of cash flows. SFAS 149 amends certain other existing
pronouncements. SFAS 149 is generally effective for contracts entered into
or modified after June 30, 2003 and should be applied prospectively. The
adoption of SFAS 149 is not expected to have a material impact on the
financial position, results of operations or cash flows of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | In May 2003, the Financial Accounting Standards Board (FASB) issued SFAS
No. 150, Accounting for Certain Instruments with Characteristics of Both
Liabilities and Equity. This Statement requires that certain financial
instruments embodying an obligation to transfer assets or to issue equity
securities be classified as liabilities. It is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective July 1, 2003. The Company did not have, and has not entered into,
any financial instruments that fall within the guidelines of this Statement
as of June 30, 2003. Therefore, this Statement is not expected to have a
material impact on the financial position or results of operations of the
Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

7



---



##### 





|(4) |  | Prepayments and Other Current Assets                                                                                
|--- |  | --------------------------------------------------------------------------------------------------------------------
|   
|    |  | Prepayments and other current assets consist of the following at June 30,
2003 and December 31, 2002 (in thousands):

|                               |  |          |        |              |  |   |        | 
|------------------------------ |  | -------- | ------ | ------------ |  | - | ------ | 
|                               |  | June 30, |        | December 31,
|                               |  | 2003     |        | 2002        
|                               |  |          |        |             
|Tires on tractors and trailers |  | $        | 7,417  |              |  | $ | 7,082  | 
|Prepaid insurance              |  |          | 4,738  |              |  |   | 1,773  | 
|Prepaid pension cost           |  |          | 14,783 |              |  |   | 14,968 | 
|Other                          |  |          | 5,585  |              |  |   | 4,862  | 
|                               |  |          |        |              |  |   |        | 
|                               |  | $        | 32,523 |              |  | $ | 28,685 | 
|                               |  |          |        |              |  |   |        | 



|(5) |  | Property and Equipment                                                                                 
|--- |  | -------------------------------------------------------------------------------------------------------
|   
|    |  | Property and equipment consists of the following at June 30, 2003 and
December 31, 2002 (in thousands):

|                                                            |  |          |          |              |  |   |          |  
|----------------------------------------------------------- |  | -------- | -------- | ------------ |  | - | -------- | -
|                                                            |  | June 30, |          | December 31,
|                                                            |  | 2003     |          | 2002        
|                                                            |  |          |          |             
|Tractors and trailers                                       |  | $        | 439,729  |              |  | $ | 421,615  |  
|Buildings and facilities (including leasehold
improvements) |  |          | 46,183   |              |  |   | 44,925   |  
|Land                                                        |  |          | 12,299   |              |  |   | 11,958   |  
|Furniture, fixtures, and equipment                          |  |          | 42,325   |              |  |   | 41,819   |  
|Service cars and equipment                                  |  |          | 3,482    |              |  |   | 3,111    |  
|                                                            |  |          |          |              |  |   |          |  
|                                                            |  |          | 544,018  |              |  |   | 523,428  |  
|Less accumulated depreciation and amortization              |  |          | (377,139 | )            |  |   | (346,765 | )
|                                                            |  |          |          |              |  |   |          |  
|                                                            |  | $        | 166,879  |              |  | $ | 176,663  |  
|                                                            |  |          |          |              |  |   |          |  



|    |  | Depreciation expense amounted to $11,610,000 and $13,237,000 for the quarter
ended June 30, 2003 and 2002, respectively and $23,587,000 and $26,855,000
for the six months ended June 30, 2003 and 2002, respectively.                                                                                                                                                                                                                                                                                                            
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(6) |  | Goodwill                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, the
Company reviews goodwill annually for impairment, or on an interim basis if
an event occurs or circumstances change that would reduce the fair value of
goodwill below its carrying value. The Company performs its annual analysis
during the fourth calendar quarter of each year. No indicators of impairment
were identified during the first six months of 2003. The Companys reporting
units are the Allied Automotive Group and the Axis Group.
|   
|    |  | The following table sets forth the carrying value of goodwill by reporting
unit as of June 30, 2003 and December 31, 2002 (in thousands):                                                                                                                                                                                                                                                                                                                                                                                         

|                                                              |  |                   |        |       |  |       |        |  |  |   |        | 
|------------------------------------------------------------- |  | ----------------- | ------ | ----- |  | ----- | ------ |  |  | - | ------ | 
|                                                              |  | Allied Automotive |        | Axis  |  |       |        | 
|                                                              |  | Group             |        | Group |  | Total
|                                                              |  |                   |        |       |  |      
|Balance as of December 31,
2002                               |  | $                 | 73,043 |       |  | $     | 12,198 |  |  | $ | 85,241 | 
|Increase in carrying amount
due to a change in currency
rates |  |                   | 3,870  |       |  |       | 17     |  |  |   | 3,887  | 
|                                                              |  |                   |        |       |  |       |        |  |  |   |        | 
|Balance as of June 30, 2003                                   |  | $                 | 76,913 |       |  | $     | 12,215 |  |  | $ | 89,128 | 
|                                                              |  |                   |        |       |  |       |        |  |  |   |        | 

8



---



##### 





|(7) |  | Impairment of Long-Lived Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | In accordance with SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets, long-lived assets, such as property, plant, and
equipment, and purchased intangibles subject to amortization, are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to 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 by the amount by which
the carrying amount of the asset exceeds the fair value of the asset. 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 are no longer depreciated. The assets and liabilities of a
disposed group classified as held for sale would be presented separately in
the appropriate asset and liability sections of the balance sheet.
|   
|    |  | During 2002, the Company performed an analysis of certain fleet equipment
that was idled in that year or a preceding year. The assets were evaluated
in order to determine if they were candidates for the fleet remanufacturing
and engine replacement program. Approximately 1,000 tractors or trailers
were not considered viable candidates for the program and a decision was
made that they would not be placed back into operations. As a result,
depreciation was accelerated to the reduced useful life resulting in an
additional charge of $2.1 million to depreciation expense in the fourth
quarter of 2002. During the third quarter of 2003, the Company began
disposal of these assets and anticipates completion by the end of 2003.                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(8) |  | Accrued Liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | Accrued liabilities consists of the following at June 30, 2003 and December
31, 2002 (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|                              |  |          |        |              |  |   |        | 
|----------------------------- |  | -------- | ------ | ------------ |  | - | ------ | 
|                              |  | June 30, |        | December 31,
|                              |  | 2003     |        | 2002        
|                              |  |          |        |             
|Wages and benefits            |  | $        | 35,188 |              |  | $ | 41,903 | 
|Claims and insurance reserves |  |          | 40,123 |              |  |   | 35,487 | 
|Other                         |  |          | 16,493 |              |  |   | 15,491 | 
|                              |  |          |        |              |  |   |        | 
|                              |  | $        | 91,804 |              |  | $ | 92,881 | 
|                              |  |          |        |              |  |   |        | 



|(9) |  | Long-Term Debt                                                                                  
|--- |  | ------------------------------------------------------------------------------------------------
|   
|    |  | Long-term debt consisted of the following at June 30, 2003 and December 31,
2002 (in thousands):

|                          |                                           |   |          |         |              |   |         |         |  
|------------------------- | ----------------------------------------- | - | -------- | ------- | ------------ | - | ------- | ------- | -
|                          |                                           |   | June 30, |         | December 31,
|                          |                                           |   | 2003     |         | 2002        
|                          |                                           |   |          |         |             
|Revolving credit facility |                                           | $ | 34,720   |         |              | $ | 24,635  |        
|Term Loan A               |                                           |   | 4,373    |         |              |   | 7,474   |        
|Term Loan B               |                                           |   | 21,198   |         |              |   | 25,684  |        
|Term Loan C               |                                           |   | 11,724   |         |              |   | 11,432  |        
|Term Loan D               |                                           |   | 29,250   |         |              |   | 29,250  |        
|Senior notes              |                                           |   | 150,000  |         |              |   | 150,000 |        
|                          |                                           |   |          |         |              |   |         |        
|                          |                                           |   | 251,265  |         |              |   | 248,475 |        
|                          | Less current maturities of long-term debt |   |          | (11,000 | )            |   |         | (10,785 | )
|                          |                                           |   |          |         |              |   |         |        
|                          |                                           | $ | 240,265  |         |              | $ | 237,690 |        
|                          |                                           |   |          |         |              |   |         |        



| |  | On September 30, 1997, the Company issued $150.0 million of 8 5/8% senior
notes (the Notes) through a private placement. Subsequently, the Notes
were registered with the Securities and Exchange Commission. The net
proceeds from the Notes were
used to fund the acquisition of Ryder Automotive Carrier Services, Inc. and
RC
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9



---



##### 





| |  | Management Corp., pay related fees and expenses, and reduce outstanding
indebtedness. The Notes mature on October 1, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Borrowings under the Notes are general unsecured obligations of the Company.
The Companys obligations under the Notes are guaranteed by substantially
all of the subsidiaries of the Company (the Guarantor Subsidiaries). Haul
Insurance Ltd., Arrendadora de Equipo Para el Transporte de Automoviles, S.
de R.L. de C.V. and Axis Logistica, S. de R.L. de C.V. do not guarantee the
Companys obligations under the Notes (the Nonguarantor Subsidiaries).
See Note 17. There are no restrictions on the ability of Guarantors to make
distributions to the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | The Notes set 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).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Concurrent with the issuance of the Notes, the Company closed on a revolving
credit facility (the Revolving Credit Facility). The Company also
previously issued $40.0 million of senior subordinated notes (the Senior
Subordinated Notes) through a private placement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | On February 25, 2002, the Company refinanced the Revolving Credit Facility
and Senior Subordinated Notes with a new credit facility including certain
term loans (the Term Loans) (the new credit facility and the term loans,
collectively, the Credit Facility). Proceeds from the Term Loans were used
to repurchase the $40.0 million of Senior Subordinated Notes for $37.25
million. In conjunction with the extinguishment of this debt, the Company
recognized a pre-tax gain of $2.75 million, during the first quarter of
2002. The Credit Facility includes a revolving credit facility (the
Revolver) that allows the Company to borrow under a revolving line of
credit up to the lesser of $120.0 million or a borrowing base amount as
defined in the Credit Facility. The interest rate for the Revolver is based
upon the prime rate plus 1.5% or LIBOR plus 4.5% at managements discretion
with a minimum interest rate of 6.5%. Annual commitment fees are due on the
undrawn portion of the commitment. At June 30, 2003, $34.7 million was
outstanding under the Revolver, and approximately $20.9 million was
committed under letters of credit. As of June 30, 2003 the Company had
approximately $26.6 million available under the Revolver. The Revolver
matures on February 25, 2005.
|
| |  | Borrowings under the Companys Credit Facility are collateralized with the
assets of the Company and certain of its subsidiaries. If the Company were
unable to repay any borrowing under its Credit Facility when due, the
lenders thereunder would have the right to proceed against the collateral
granted to them to secure the debt. Any default under the Companys debt
instruments, particularly any default that resulted in acceleration of
indebtedness or foreclosure on collateral, would have a material adverse
effect on the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | The Credit Facility includes four Term Loans. Term Loan A is repayable in
installments over three years, with interest payable monthly. Term Loan B is
repayable in installments over three years, with interest payable monthly.
The interest rate on Term Loan B includes PIK interest of 3.5% that will be
payable upon maturity. Term Loan C is payable in full at maturity with
interest payable monthly. The interest rate on Term Loan C also includes PIK
interest of 5.0% that will be payable upon maturity. Term Loan D is payable
in full at maturity with interest payable quarterly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

10



---



##### 





| |  | The following table summarizes the terms of the loans in the Credit Facility
(in thousands):
| |  | --------------------------------------------------------------------------------------------

|                |  |                   |  |                   |  |                   |  |                  
|--------------- |  | ----------------- |  | ----------------- |  | ----------------- |  | -----------------
|                |  | Term Loan A       |  | Term Loan B       |  | Term Loan C       |  | Term Loan D      
|                |  |                   |  |                   |  |                   |  |                  
|Date of note    |  | February 25, 2002 |  | February 25, 2002 |  | February 25, 2002 |  | February 25, 2002
|                |  |                   |  |                   |  |                   |  |                  
|Maturity date   |  | February 25, 2005 |  | February 25, 2005 |  | February 25, 2005 |  | February 28, 2005
|                |  |                   |  |                   |  |                   |  |                  
|Original amount |  | $17,500           |  | $25,000           |  | $11,000           |  | $29,250          
|                |  |                   |  |                   |  |                   |  |                  
|Unpaid balance  |  | $  4,373          |  | $21,198           |  | $11,724           |  | $29,250          
|                |  |                   |  |                   |  |                   |  |                  
|Interest rate   |  | Prime + 2.75% or  |  | Prime + 6.5% or   |  | Prime + 9% or     |  | Prime + 3.5%     
|                |  |                   |  |                   |  |                   |  |                  
|                |  | Min of 7.75%      |  | Min of 11.5%      |  | Min of 14%        |  |                  



|     |  | The Credit Facility agreement sets forth a number of affirmative, negative,
and financial covenants binding on the Company. The negative covenants limit
the ability of the Company to, among other things, incur debt, incur liens,
make investments, sell assets, or declare or pay any dividends on its capital
stock. The financial covenants require the Company to maintain a minimum
consolidated earnings before interest, taxes, depreciation and amortization,
and gains and losses on disposal of operating assets amount and include
maximum leverage and minimum fixed charges coverage ratios. The Company was
in compliance of the various covenants set forth in the Credit Facility at
June 30, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |  | There can be no assurance that the Company will be able to comply with these
covenants or its other debt covenants or that if it fails to do so, it will
be able to obtain amendments to or waivers of such covenants. Failure of the
Company to comply with covenants contained in its debt instruments, if not
waived, or to adequately service debt obligations, could result in a default
under the Credit Facility. Any default under the Companys debt instruments,
particularly any default that results in an acceleration of indebtedness or
foreclosure on collateral could have a material adverse effect on the
Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    
|(10) |  | Commitments and Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|     |  | The Company is involved in various environmental matters and litigation
relating to employment practices, damages, and other matters arising from
operations in the ordinary course of business. In the opinion of management,
the ultimate disposition of these matters, other than those discussed below,
will not have a material adverse effect on the Companys financial position
or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    
|     |  | Gateway Development & Manufacturing, Inc. v. Commercial Carriers, Inc., et
al.,(the Gateway Case) and Commercial Carriers, Inc. v. Gateway
Development & Manufacturing, Inc., et al. (the CCI Case).The claims at
issue in both the Gateway Case and the CCI case center around the contention
that the Company breached legal duties with respect to a failed business
transaction involving Gateway Development & Manufacturing, Inc., Ryder Truck
Rental, Inc. and Ryder System, Inc. In the Gateway Case, the Company sought
and received summary judgment in its favor on the sole claim (for tortious
interference with contract) asserted against it by Gateway Development &
Manufacturing, Inc., but that ruling was reversed on appeal. While the
appellate court held that summary judgment in favor of the Company was
premature, the Company will be permitted to raise at trial and/or further
dispositive motions the substantive arguments upon which its initial summary
judgment motion was based. Subsequent to its summary judgment ruling, the
trial court permitted the filing and service of cross-claims against the
Company by the other defendants in that action. In the CCI Case, the
Company has accepted service of a separate complaint asserting claims
against the Company by the other defendants in the Gateway Case. It is
anticipated that the claims asserted in both the Gateway Case and the CCI
Case will be resolved in a unified proceeding. With respect to the entirety
of this litigation, the Company intends to continue its vigorous defense
against the claims asserted against it, as management believes all of those
claims are without merit. While the ultimate results of this litigation
cannot be predicted, if this litigation is resolved in a manner that is
adverse to the Company, it could have a material adverse effect on the
Companys consolidated financial position or results of operations.

11



---



##### 





|     |  | Ryder System, Inc. v. Allied Holdings, Inc., AH Acquisition Corp. and Allied
Automotive Group, Inc.,in the United States District Court for the Southern
District of Florida, relates to the Companys August 1997 stock acquisition
of certain corporations wholly owned by Ryder. Through that acquisition,
the Company agreed to assume financial responsibility for certain
third-party injury claims arising on or before the August 1997 closing date.
Ryders original complaint was filed on August 16, 2001. In response, the
Company moved to dismiss, and the court granted that motion with leave for
Ryder to amend its complaint. On December 26, 2001, Ryder timely filed its
amended complaint. Following the dismissal with prejudice of one of the
counts asserted by Ryder, Ryder filed, on or about August 1, 2002, a Second
Amended Complaint. Ryders five-count Second Amended Complaint alleges, in
Count one, that the Company breached its agreement with Ryder by failing to
undertake certain actions (including posting letters of credit and bonds) to
substitute the Company for Ryder under an insurance policy covering
third-party claims and with various states agencies that regulate matters
such as self-insured workers compensation. In Counts two and three, the
Second Amended Complaint alleges that if these obligations are not required
by contract, the legal doctrines of promissory estoppel and negligent
misrepresentation created them. In Count four, the Second Amended Complaint
seeks a declaration that the Company is required to undertake these actions.
In Count five, Ryder seeks a declaration that the Company is obligated to
take certain steps to transfer from Ryder to the Company the ownership and
administrative responsibility for two pension plans. The Company intends to
continue its vigorous defense against the claims asserted against it, as
management believes all of those claims are without merit. The Company has
also raised several counterclaims. The ultimate results of this litigation
cannot be predicted. However, if Ryder prevails on its claims and the court
orders the Company to substitute itself for Ryder by, among other things,
posting substantial letters of credit, it could have a material adverse
effect on the Companys consolidated financial position or results of
operations.
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(11) |  | Guarantees and Indemnifications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    
|     |  | Guarantees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    
|     |  | The Company leases office space and certain terminal facilities under
noncancelable and cancelable (i.e. month-to-month) operating lease
agreements, some of which provide guarantees to third parties.
With respect to the guarantees that the Company issued in
the six months ended June 30, 2003, the Company assessed 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. Through internal analysis the Company determined that the fair
value of the guarantees issued in the six months ended June 30,
2003 are minimal to the Companys financial position or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    
|     |  | Indemnifications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    
|     |  | The Company enters into indemnification provisions under its agreements with
certain of its customers, suppliers, service providers, and business
partners in the ordinary course of business. Under these 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 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 agreements. As a result, the estimated fair value of these
agreements is minimal. Accordingly, the Company has no liabilities recorded
for these agreements as of June 30, 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 payments that the Company could be required to make under the
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 never incurred any
costs, and there are no claims outstanding as of June 30, 2003, to settle claims
related to these indemnifications. Accordingly, no
liabilities for indemnifications have been recorded as of June 30, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

12



---



##### 





|(12) |  | Net Income (Loss) Per Common Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |  | SFAS No. 128, Earnings Per Share,requires presentation of basic and diluted
earnings per share. Basic earnings per share are calculated by dividing net
income available to common stockholders by the weighted average number of
common shares outstanding for the years presented. Diluted earnings per
share reflect the potential dilution that could occur if securities and
other contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then shared in
the earnings of the entity
|    
|     |  | A reconciliation of net income (loss) and the weighted average number of
common shares outstanding used to calculate basic and diluted net income
(loss) per common share for the three and six months ended June 30, 2003 and
2002 is as follows:                                                                                                                                                                                                                                                                                                              

|                                                                           |                                                                            |   |                    |      |                  |   |       |      |      |   |        |       |   |   |        |       |  
|-------------------------------------------------------------------------- | -------------------------------------------------------------------------- | - | ------------------ | ---- | ---------------- | - | ----- | ---- | ---- | - | ------ | ----- | - | - | ------ | ----- | -
|                                                                           |                                                                            |   | Three Months Ended |      | Six Months Ended
|                                                                           |                                                                            |   | June 30,           |      | June 30,        
|                                                                           |                                                                            |   |                    |      |                 
|                                                                           |                                                                            |   | 2003               |      | 2002             |   | 2003  |      | 2002
|                                                                           |                                                                            |   |                    |      |                  |   |       |      |     
|Basic Earnings Per Share:                                                  |                                                                            |   |                    |      |                  |   |       |      |      |   |        |       |   |   |        |      
|Weighted average number of common shares
outstanding                       |                                                                            |   | 8,462              |      |                  |   | 8,300 |      |      |   | 8,436  |       |   |   | 8,259  |      
|                                                                           |                                                                            |   |                    |      |                  |   |       |      |      |   |        |       |   |   |        |      
|Income (loss) before cumulative effect of a
change in accounting principle |                                                                            | $ | 3,372              |      |                  | $ | 2,109 |      |      | $ | (2,292 | )     |   | $ | 953    |      
|Cumulative effect of a change in accounting
principle, net of taxes        |                                                                            |   |                   |      |                  |   |      |      |      |   |       |       |   |   | (4,092 | )    
|                                                                           |                                                                            |   |                    |      |                  |   |       |      |      |   |        |       |   |   |        |      
|Net income (loss)                                                          |                                                                            | $ | 3,372              |      |                  | $ | 2,109 |      |      | $ | (2,292 | )     |   | $ | (3,139 | )    
|                                                                           |                                                                            |   |                    |      |                  |   |       |      |      |   |        |       |   |   |        |      
|Net income (loss) per share:                                               |                                                                            |   |                    |      |                  |   |       |      |      |   |        |       |   |   |        |      
|                                                                           | Income (loss) before cumulative effect of a
change in accounting principle |   | $                  | 0.40 |                  |   | $     | 0.25 |      |   | $      | (0.27 | ) |   | $      | 0.12  |  
|                                                                           | Cumulative effect of a change in
accounting principle, net of taxes        |   |                    |     |                  |   |       |     |      |   |        |      |   |   |        | (0.50 | )
|                                                                           |                                                                            |   |                    |      |                  |   |       |      |      |   |        |       |   |   |        |      
|Net income (loss) per common share                                         |                                                                            | $ | 0.40               |      |                  | $ | 0.25  |      |      | $ | (0.27  | )     |   | $ | (0.38  | )    
|                                                                           |                                                                            |   |                    |      |                  |   |       |      |      |   |        |       |   |   |        |      

|                                                                                                                                               |                                                                            |   |                    |      |                  |   |       |      |      |   |        |       |   |   |        |      | 
|---------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | - | ------------------ | ---- | ---------------- | - | ----- | ---- | ---- | - | ------ | ----- | - | - | ------ | ---- | 
|                                                                                                                                               |                                                                            |   | Three Months Ended |      | Six Months Ended
|                                                                                                                                               |                                                                            |   | June 30,           |      | June 30,        
|                                                                                                                                               |                                                                            |   |                    |      |                 
|                                                                                                                                               |                                                                            |   | 2003               |      | 2002             |   | 2003  |      | 2002
|                                                                                                                                               |                                                                            |   |                    |      |                  |   |       |      |     
|Diluted Earnings Per Share:                                                                                                                    |                                                                            |   |                    |      |                  |   |       |      |      |   |        |       |   |   |        |     
|Weighted average number of common shares
outstanding                                                                                           |                                                                            |   | 8,462              |      |                  |   | 8,300 |      |      |   | 8,436  |       |   |   | 8,259  |     
|Shares issued upon assumed exercise of
outstanding common stock equivalents                                                                    |                                                                            |   | 238                |      |                  |   | 481   |      |      |   |       |       |   |   | 534    |     
|                                                                                                                                               |                                                                            |   |                    |      |                  |   |       |      |      |   |        |       |   |   |        |     
|Weighted average number of common and common
stock equivalent shares                                                                           |                                                                            |   | 8,700              |      |                  |   | 8,781 |      |      |   | 8,436  |       |   |   | 8,793  |     
|                                                                                                                                               |                                                                            |   |                    |      |                  |   |       |      |      |   |        |       |   |   |        |     
|Income (loss) before cumulative effect of a
change in
accounting principle
Cumulative effect of a change in accounting
principle, net of taxes |                                                                            | $ | 3,372              |      |                  | $ | 2,109 |      |      | $ | (2,292 | )     |   | $ | 953    |     
|                                                                                                                                               |                                                                            |   |                   |      |                  |   |      |      |      |   |       |       |   |   | (4,092 | )   
|                                                                                                                                               |                                                                            |   |                    |      |                  |   |       |      |      |   |        |       |   |   |        |     
|Net income (loss)                                                                                                                              |                                                                            | $ | 3,372              |      |                  | $ | 2,109 |      |      | $ | (2,292 | )     |   | $ | (3,139 | )   
|                                                                                                                                               |                                                                            |   |                    |      |                  |   |       |      |      |   |        |       |   |   |        |     
|Net income (loss) per share:                                                                                                                   |                                                                            |   |                    |      |                  |   |       |      |      |   |        |       |   |   |        |     
|                                                                                                                                               | Income (loss) before cumulative effect of
a change
in accounting principle |   | $                  | 0.39 |                  |   | $     | 0.24 |      |   | $      | (0.27 | ) |   | $      | 0.11 | 

13



---



##### 



|                                   |                                                                     |   |                    |   |                  |   |      |   |      |   |       |   |  |   |       |       |  
|---------------------------------- | ------------------------------------------------------------------- | - | ------------------ | - | ---------------- | - | ---- | - | ---- | - | ----- | - |  | - | ----- | ----- | -
|                                   |                                                                     |   | Three Months Ended |   | Six Months Ended
|                                   |                                                                     |   | June 30,           |   | June 30,        
|                                   |                                                                     |   |                    |   |                 
|                                   |                                                                     |   | 2003               |   | 2002             |   | 2003 |   | 2002
|                                   |                                                                     |   |                    |   |                  |   |      |   |     
|                                   | Cumulative effect of a change in accounting
principle, net of taxes |   |                    |  |                  |   |      |  |      |   |       |  |  |   |       | (0.47 | )
|                                   |                                                                     |   |                    |   |                  |   |      |   |      |   |       |   |  |   |       |       |  
|Net income (loss) per common share |                                                                     | $ | 0.39               |   |                  | $ | 0.24 |   |      | $ | (0.27 | ) |  | $ | (0.36 | )    
|                                   |                                                                     |   |                    |   |                  |   |      |   |      |   |       |   |  |   |       |       |  



|     |  | Common stock equivalents for approximately 282,000 shares outstanding for
the six months ended June 30, 2003 were excluded from the calculation of
diluted earnings per share, as the impact would have been antidilutive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(13) |  | Stock Option Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    
|     |  | 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 including FASB
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25,issued in March 2000,
to account for its fixed-plan stock options. Under this method, compensation
expense is recorded on the date of grant only if the current market price of
the underlying stock exceeded the exercise price. 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 has
elected to continue to apply the intrinsic value based method of accounting
described above, and has adopted only the disclosure requirements of SFAS
No. 123. The Company did not grant any significant stock options during the
second quarter of 2003. If the Company had elected to recognize
compensation cost for the long-term incentive plan based on the fair value
at the grant dates for awards under the plan, consistent with the method
prescribed by SFAS No. 123, net income and earnings per share, using the
Black-Scholes option pricing valuation model, would have been changed to the
pro forma amounts indicated below for the three- and six-months ended June
30, 2003 and 2002 (in thousands, except per share data):

|                                                                                                     |         |   |                    |      |                  |   |       |      |      |   |        |       |   |   |        |       |  
|---------------------------------------------------------------------------------------------------- | ------- | - | ------------------ | ---- | ---------------- | - | ----- | ---- | ---- | - | ------ | ----- | - | - | ------ | ----- | -
|                                                                                                     |         |   | Three Months Ended |      | Six Months Ended
|                                                                                                     |         |   | June 30,           |      | June 30,        
|                                                                                                     |         |   |                    |      |                 
|                                                                                                     |         |   | 2003               |      | 2002             |   | 2003  |      | 2002
|                                                                                                     |         |   |                    |      |                  |   |       |      |     
|Reported net income (loss)                                                                           |         | $ | 3,372              |      |                  | $ | 2,109 |      |      | $ | (2,292 | )     |   | $ | (3,139 | )    
|Plus: stock-based employee
compensation included in
reported net income
(loss), net of related
taxes |         |   |                   |      |                  |   |      |      |      |   |       |       |   |   |       |      
|Less: stock-based employee
compensation determined
under the fair value
method, net of related
taxes |         |   | (132               | )    |                  |   | (163  | )    |      |   | (256   | )     |   |   | (296   | )    
|                                                                                                     |         |   |                    |      |                  |   |       |      |      |   |        |       |   |   |        |      
|Pro forma net income (loss)                                                                          |         | $ | 3,240              |      |                  | $ | 1,946 |      |      | $ | (2,548 | )     |   | $ | (3,435 | )    
|                                                                                                     |         |   |                    |      |                  |   |       |      |      |   |        |       |   |   |        |      
|Income (loss) per share:                                                                             |         |   |                    |      |                  |   |       |      |      |   |        |       |   |   |        |      
|As reported:                                                                                         |         |   |                    |      |                  |   |       |      |      |   |        |       |   |   |        |      
|                                                                                                     | Basic   |   | $                  | 0.40 |                  |   | $     | 0.25 |      |   | $      | (0.27 | ) |   | $      | (0.38 | )
|                                                                                                     | Diluted |   | $                  | 0.39 |                  |   | $     | 0.24 |      |   | $      | (0.27 | ) |   | $      | (0.36 | )
|Pro forma:                                                                                           |         |   |                    |      |                  |   |       |      |      |   |        |       |   |   |        |      
|                                                                                                     | Basic   |   | $                  | 0.38 |                  |   | $     | 0.23 |      |   | $      | (0.30 | ) |   | $      | (0.42 | )
|                                                                                                     | Diluted |   | $                  | 0.37 |                  |   | $     | 0.22 |      |   | $      | (0.30 | ) |   | $      | (0.39 | )

14



---



##### 





|(14) |  | Comprehensive Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |  | Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, requires companies to report all changes in equity
during a period, except those resulting from investment by owners and
distribution to owners. The Company had comprehensive income of $6.3
million in the second quarter of 2003 versus comprehensive income of $4.1
million in the second quarter of 2002. For the first six months of 2003, the
Company had comprehensive income of $2.6 versus a comprehensive loss of $1.3
million for the first six months of 2002. The difference between
comprehensive income (loss) and net income (loss) is the foreign currency
translation adjustment and minimum pension liability, net of income taxes.
|    
|(15) |  | Investment Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    
|     |  | Investment income consists of the following for the three and six-month
period ended June 30, 2003 and 2002 (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|                             |  |                    |       |                  |  |      |      |      |  |   |       |  |  |   |        |  
|---------------------------- |  | ------------------ | ----- | ---------------- |  | ---- | ---- | ---- |  | - | ----- |  |  | - | ------ | -
|                             |  | Three Months Ended |       | Six Months Ended
|                             |  | June 30,           |       | June 30,        
|                             |  |                    |       |                 
|                             |  | 2003               |       | 2002             |  | 2003 |      | 2002
|                             |  |                    |       |                  |  |      |      |     
|Interest and dividend income |  | $                  | 783   |                  |  | $    | 895  |      |  | $ | 1,529 |  |  | $ | 1,717  |  
|Realized gains               |  |                    | 483   |                  |  |      | 36   |      |  |   | 582   |  |  |   | 194    |  
|Unrealized gains (losses)    |  |                    | 1,741 |                  |  |      | (316 | )    |  |   | 1,222 |  |  |   | (1,024 | )
|                             |  |                    |       |                  |  |      |      |      |  |   |       |  |  |   |        |  
|Total                        |  | $                  | 3,007 |                  |  | $    | 615  |      |  | $ | 3,333 |  |  | $ | 887    |  
|                             |  |                    |       |                  |  |      |      |      |  |   |       |  |  |   |        |  



|(16) |  | Industry Segment and Geographic Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |  | In accordance with the requirements of SFAS No. 131, Disclosure About
Segments of an Enterprise and Related Information, the Company has
identified two reportable industry segments through which it conducts its
operating activities: Allied Automotive Group and Axis Group. These two
segments reflect the organization used by management for internal reporting.
Allied Automotive Group is engaged in the business of transporting
automobiles, light trucks and SUVs 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.

15



---



##### 



|                                 |                                                                                           |   |                    |         |                  |   |         |         |      |   |         |         |   |   |         |         |  
|-------------------------------- | ----------------------------------------------------------------------------------------- | - | ------------------ | ------- | ---------------- | - | ------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                                 |                                                                                           |   | Three Months Ended |         | Six Months Ended
|                                 |                                                                                           |   | June 30,           |         | June 30,        
|                                 |                                                                                           |   |                    |         |                 
|                                 |                                                                                           |   | 2003               |         | 2002             |   | 2003    |         | 2002
|                                 |                                                                                           |   |                    |         |                  |   |         |         |     
|Revenuesunaffiliated customers: |                                                                                           |   |                    |         |                  |   |         |         |      |   |         |         |   |   |         |        
|                                 | Allied Automotive Group                                                                   |   | $                  | 223,098 |                  |   | $       | 231,480 |      |   | $       | 429,300 |   |   | $       | 438,090 |  
|                                 | Axis Group                                                                                |   |                    | 6,980   |                  |   |         | 7,504   |      |   |         | 14,370  |   |   |         | 14,153  |  
|                                 |                                                                                           |   |                    |         |                  |   |         |         |      |   |         |         |   |   |         |         |  
|Total                            |                                                                                           | $ | 230,078            |         |                  | $ | 238,984 |         |      | $ | 443,670 |         |   | $ | 452,243 |        
|                                 |                                                                                           |   |                    |         |                  |   |         |         |      |   |         |         |   |   |         |         |  
|Depreciation and amortization:   |                                                                                           |   |                    |         |                  |   |         |         |      |   |         |         |   |   |         |        
|                                 | Allied Automotive Group                                                                   |   | $                  | 10,076  |                  |   | $       | 11,808  |      |   | $       | 20,487  |   |   | $       | 23,998  |  
|                                 | Axis Group                                                                                |   |                    | 727     |                  |   |         | 730     |      |   |         | 1,463   |   |   |         | 1,437   |  
|                                 | Corporate/Other                                                                           |   |                    | 850     |                  |   |         | 744     |      |   |         | 1,727   |   |   |         | 1,510   |  
|                                 |                                                                                           |   |                    |         |                  |   |         |         |      |   |         |         |   |   |         |         |  
|Total                            |                                                                                           | $ | 11,653             |         |                  | $ | 13,282  |         |      | $ | 23,677  |         |   | $ | 26,945  |        
|                                 |                                                                                           |   |                    |         |                  |   |         |         |      |   |         |         |   |   |         |         |  
|Operating profit (loss):         |                                                                                           |   |                    |         |                  |   |         |         |      |   |         |         |   |   |         |        
|                                 | Allied Automotive Group                                                                   |   | $                  | 7,696   |                  |   | $       | 10,441  |      |   | $       | 6,619   |   |   | $       | 16,010  |  
|                                 | Axis Group                                                                                |   |                    | 991     |                  |   |         | 1,482   |      |   |         | 1,662   |   |   |         | 1,594   |  
|                                 | Corporate/Other                                                                           |   |                    | (1,135  | )                |   |         | (2,022  | )    |   |         | (2,445  | ) |   |         | (3,975  | )
|                                 |                                                                                           |   |                    |         |                  |   |         |         |      |   |         |         |   |   |         |         |  
|Total                            |                                                                                           | $ | 7,552              |         |                  | $ | 9,901   |         |      | $ | 5,836   |         |   | $ | 13,629  |        
|Reconciling items:               |                                                                                           |   |                    |         |                  |   |         |         |      |   |         |         |   |   |         |        
|                                 | Interest expense                                                                          |   |                    | (7,373  | )                |   |         | (7,610  | )    |   |         | (14,754 | ) |   |         | (15,732 | )
|                                 | Investment income                                                                         |   |                    | 3,007   |                  |   |         | 615     |      |   |         | 3,333   |   |   |         | 887     |  
|                                 | Gain on early extinguishment of
debt                                                      |   |                    |        |                  |   |         |        |      |   |         |        |   |   |         | 2,750   |  
|                                 | Foreign exchange gains
(losses), net                                                      |   |                    | 1,430   |                  |   |         | (4      | )    |   |         | 2,448   |   |   |         | 33      |  
|                                 | Other, net                                                                                |   |                    |        |                  |   |         |        |      |   |         |        |   |   |         | (207    | )
|                                 |                                                                                           |   |                    |         |                  |   |         |         |      |   |         |         |   |   |         |         |  
|                                 | Income (loss) before income
taxes
and cumulative effect of
change
in accounting principle |   | $                  | 4,616   |                  |   | $       | 2,902   |      |   | $       | (3,137  | ) |   | $       | 1,360   |  
|                                 |                                                                                           |   |                    |         |                  |   |         |         |      |   |         |         |   |   |         |         |  
|Capital expenditures:            |                                                                                           |   |                    |         |                  |   |         |         |      |   |         |         |   |   |         |        
|                                 | Allied Automotive Group                                                                   |   | $                  | 2,330   |                  |   | $       | 4,778   |      |   | $       | 8,023   |   |   | $       | 7,386   |  
|                                 | Axis Group                                                                                |   |                    | 43      |                  |   |         | 66      |      |   |         | 201     |   |   |         | 84      |  
|                                 | Corporate /Other                                                                          |   |                    | 166     |                  |   |         |        |      |   |         | 193     |   |   |         |        |  
|                                 |                                                                                           |   |                    |         |                  |   |         |         |      |   |         |         |   |   |         |         |  
|                                 |                                                                                           | $ | 2,539              |         |                  | $ | 4,844   |         |      | $ | 8,417   |         |   | $ | 7,470   |        
|                                 |                                                                                           |   |                    |         |                  |   |         |         |      |   |         |         |   |   |         |         |  

16



---



##### 



|                        |  |          |         |              |  |   |         | 
|----------------------- |  | -------- | ------- | ------------ |  | - | ------- | 
|                        |  | June 30, |         | December 31,
|                        |  | 2003     |         | 2002        
|                        |  |          |         |             
|Total assets:           |  |          |         |              |  |   |         | 
|Allied Automotive Group |  | $        | 289,817 |              |  | $ | 296,935 | 
|Axis Group              |  |          | 30,226  |              |  |   | 35,663  | 
|Corporate/Other         |  |          | 152,467 |              |  |   | 152,910 | 
|                        |  |          |         |              |  |   |         | 
|Total                   |  | $        | 472,510 |              |  | $ | 485,508 | 
|                        |  |          |         |              |  |   |         | 



| |  | Geographical information for the three and six months ended June 30, 2003
and 2002 is as follows (in thousands):
| |  | ----------------------------------------------------------------------------------------------------------------

|              |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|------------- |  | ------------------ | ------- | ---------------- |  | ---- | ------- | ---- |  | - | ------- |  |  | - | ------- | 
|              |  | Three Months Ended |         | Six Months Ended
|              |  | June 30,           |         | June 30,        
|              |  |                    |         |                 
|              |  | 2003               |         | 2002             |  | 2003 |         | 2002
|              |  |                    |         |                  |  |      |         |     
|Revenues:     |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|United States |  | $                  | 182,552 |                  |  | $    | 193,744 |      |  | $ | 358,757 |  |  | $ | 371,972 | 
|Canada        |  |                    | 47,526  |                  |  |      | 45,240  |      |  |   | 84,913  |  |  |   | 80,271  | 
|              |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|Total         |  | $                  | 230,078 |                  |  | $    | 238,984 |      |  | $ | 443,670 |  |  | $ | 452,243 | 
|              |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 

|                   |  |          |         |              |  |   |         | 
|------------------ |  | -------- | ------- | ------------ |  | - | ------- | 
|                   |  | June 30, |         | December 31,
|                   |  | 2003     |         | 2002        
|                   |  |          |         |             
|Long-lived assets: |  |          |         |              |  |   |         | 
|United States      |  | $        | 208,423 |              |  | $ | 224,119 | 
|Canada             |  |          | 65,364  |              |  |   | 58,310  | 
|                   |  |          |         |              |  |   |         | 
|Total              |  | $        | 273,787 |              |  | $ | 282,429 | 
|                   |  |          |         |              |  |   |         | 



|     |  | Revenues are attributed to the respective countries based on the location of
the origination terminal. Substantially all of the Companys revenues and
receivables are realized in the automotive industry by the Allied Automotive
Group.                                                                                                                                                                                                                                                                               
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(17) |  | Supplemental Guarantor Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    
|     |  | The following consolidating balance sheet information, statements of
operations information, and statements of cash flows information present the
financial statement information of the parent company and the combined
financial statements information of the Guarantor subsidiaries and
Nonguarantor Subsidiaries. The Guarantors are jointly and severally liable
for the Companys obligations under the Notes and there are no restrictions
on the ability of the Guarantors to make distributions to the Company.

17



---



##### 



SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
JUNE 30, 2003
(In Thousands)

|                                            |                                                     |                            |                           |                      |        |          |         |              |       |              |        |              |        |              |         |          |         |         |          |         |        |         |         | 
|------------------------------------------- | --------------------------------------------------- | -------------------------- | ------------------------- | -------------------- | ------ | -------- | ------- | ------------ | ----- | ------------ | ------ | ------------ | ------ | ------------ | ------- | -------- | ------- | ------- | -------- | ------- | ------ | ------- | ------- | 
|                                            |                                                     |                            |                           |                      |        | ALLIED   |         | GUARANTOR    |       | NONGUARANTOR |        |              |        |              |         |          |         |        
|                                            |                                                     |                            |                           |                      |        | HOLDINGS |         | SUBSIDIARIES |       | SUBSIDIARIES |        | ELIMINATIONS |        | CONSOLIDATED
|                                            |                                                     |                            |                           |                      |        |          |         |              |       |              |        |              |        |             
|CURRENT ASSETS:                             |                                                     |                            |                           |                      |        |          |         |              |       |              |        |              |        |              |         |          |         |         |          |        
|                                            | Cash and cash equivalents                           |                            | $                         |                     |        |          | $       | 1,117        |       |              | $      | 6,456        |        |              | $       |         |         |         | $        | 7,573   |       
|                                            | Short-term investments                              |                            |                           |                     |        |          |         |             |       |              |        | 67,809       |        |              |         |         |         |         |          | 67,809  |       
|                                            | Receivables, net of allowance for doubtful accounts |                            |                           |                     |        |          |         | 48,689       |       |              |        | 7,344        |        |              |         |         |         |         |          | 56,033  |       
|                                            | Inventories                                         |                            |                           |                     |        |          |         | 5,514        |       |              |        |             |        |              |         |         |         |         |          | 5,514   |       
|                                            | Deferred tax asset  current                        |                            |                           | 27,031               |        |          |         | 2,240        |       |              |        |             |        |              |         |         |         |         |          | 29,271  |       
|                                            | Prepayments and other current assets                |                            |                           | 16,283               |        |          |         | 16,117       |       |              |        | 123          |        |              |         |         |         |         |          | 32,523  |       
|                                            |                                                     |                            |                           |                      |        |          |         |              |       |              |        |              |        |              |         |          |         |         |          |        
|                                            |                                                     |                            |                           | Total current assets |        |          | 43,314  |              |       |              | 73,677 |              |        |              | 81,732  |          |         |         |         |         |        |         | 198,723 | 
|                                            |                                                     |                            |                           |                      |        |          |         |              |       |              |        |              |        |              |         |          |         |         |          |        
|PROPERTY AND EQUIPMENT, NET                 |                                                     |                            | 7,771                     |                      |        |          | 155,993 |              |       |              | 3,115  |              |        |              |        |          |         |         | 166,879  |        
|OTHER ASSETS:                               |                                                     |                            |                           |                      |        |          |         |              |       |              |        |              |        |              |         |          |         |         |          |        
|                                            | Goodwill, net                                       |                            |                           | 1,515                |        |          |         | 87,613       |       |              |        |             |        |              |         |         |         |         |          | 89,128  |       
|                                            | Other                                               |                            |                           | 15,239               |        |          |         | 1,695        |       |              |        | 846          |        |              |         |         |         |         |          | 17,780  |       
|                                            | Deferred tax asset  noncurrent                     |                            |                           | 15,563               |        |          |         |             |       |              |        |             |        |              |         | (15,563  | )       |         |          |        |       
|                                            | Intercompany receivables                            |                            |                           | 59,321               |        |          |         |             |       |              |        | 99           |        |              |         | (59,420  | )       |         |          |        |       
|                                            | Investment in subsidiaries                          |                            |                           | 32,097               |        |          |         | 5,458        |       |              |        |             |        |              |         | (37,555  | )       |         |          |        |       
|                                            |                                                     |                            |                           |                      |        |          |         |              |       |              |        |              |        |              |         |          |         |         |          |        
|                                            |                                                     |                            |                           | Total other assets   |        |          | 123,735 |              |       |              | 94,766 |              |        |              | 945     |          |         |         | (112,538 | )       |        |         | 106,908 | 
|                                            |                                                     |                            |                           |                      |        |          |         |              |       |              |        |              |        |              |         |          |         |         |          |        
|                                            | Total assets                                        |                            | $                         | 174,820              |        |          | $       | 324,436      |       |              | $      | 85,792       |        |              | $       | (112,538 | )       |         | $        | 472,510 |       
|                                            |                                                     |                            |                           |                      |        |          |         |              |       |              |        |              |        |              |         |          |         |         |          |        
|CURRENT LIABILITIES:                        |                                                     |                            |                           |                      |        |          |         |              |       |              |        |              |        |              |         |          |         |         |          |        
|                                            | Current maturities of long-term debt                |                            | $                         |                     |        |          | $       | 11,000       |       |              | $      |             |        |              | $       |         |         |         | $        | 11,000  |       
|                                            | Trade accounts payable                              |                            |                           | 3,214                |        |          |         | 26,924       |       |              |        | 193          |        |              |         |         |         |         |          | 30,331  |       
|                                            | Intercompany payables                               |                            |                           |                     |        |          |         | 59,420       |       |              |        |             |        |              |         | (59,420  | )       |         |          |        |       
|                                            | Accrued liabilities                                 |                            |                           | 7,336                |        |          |         | 61,260       |       |              |        | 23,208       |        |              |         |         |         |         |          | 91,804  |       
|                                            |                                                     |                            |                           |                      |        |          |         |              |       |              |        |              |        |              |         |          |         |         |          |        
|                                            |                                                     |                            | Total current liabilities |                      |        | 10,550   |         |              |       | 158,604      |        |              |        | 23,401       |         |          |         | (59,420 | )        |         |        | 133,135 |        
|                                            |                                                     |                            |                           |                      |        |          |         |              |       |              |        |              |        |              |         |          |         |         |          |        
|LONG-TERM DEBT, less current maturities     |                                                     |                            | 150,000                   |                      |        |          | 90,265  |              |       |              |       |              |        |              |        |          |         |         | 240,265  |        
|POSTRETIREMENT BENEFITS OTHER THAN PENSIONS |                                                     |                            |                          |                      |        |          | 7,042   |              |       |              |       |              |        |              |        |          |         |         | 7,042    |        
|DEFERRED INCOME TAXES                       |                                                     |                            |                          |                      |        |          | 34,566  |              |       |              | 448    |              |        |              | (15,563 | )        |         |         | 19,451   |        
|OTHER LONG-TERM LIABILITIES                 |                                                     |                            | 1,031                     |                      |        |          | 25,155  |              |       |              | 33,192 |              |        |              |        |          |         |         | 59,378   |        
|STOCKHOLDERS EQUITY:                       |                                                     |                            |                           |                      |        |          |         |              |       |              |        |              |        |              |         |          |         |         |          |        
|                                            | Common stock, no par value                          |                            |                           |                     |        |          |         |             |       |              |        |             |        |              |         |         |         |         |          |        |       
|                                            | Additional paid-in capital                          |                            |                           | 47,112               |        |          |         | 166,130      |       |              |        | 2,488        |        |              |         | (168,618 | )       |         |          | 47,112  |       
|                                            | Treasury stock                                      |                            |                           | (707                 | )      |          |         |             |       |              |        |             |        |              |         |         |         |         |          | (707    | )     
|                                            | (Accumulated deficit) retained earnings             |                            |                           | (28,712              | )      |          |         | (145,877     | )     |              |        | 26,263       |        |              |         | 119,614  |         |         |          | (28,712 | )     
|                                            | Accumulated other comprehensive loss, net of tax    |                            |                           | (4,454               | )      |          |         | (11,449      | )     |              |        |             |        |              |         | 11,449   |         |         |          | (4,454  | )     
|                                            |                                                     |                            |                           |                      |        |          |         |              |       |              |        |              |        |              |         |          |         |         |          |        
|                                            |                                                     | Total stockholders equity |                           |                      | 13,239 |          |         |              | 8,804 |              |        |              | 28,751 |              |         |          | (37,555 | )       |          |         | 13,239 |        
|                                            |                                                     |                            |                           |                      |        |          |         |              |       |              |        |              |        |              |         |          |         |         |          |        
|                                            | Total liabilities and stockholders equity          |                            | $                         | 174,820              |        |          | $       | 324,436      |       |              | $      | 85,792       |        |              | $       | (112,538 | )       |         | $        | 472,510 |       
|                                            |                                                     |                            |                           |                      |        |          |         |              |       |              |        |              |        |              |         |          |         |         |          |        

18



---



##### 



SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
DECEMBER 31, 2002
(In Thousands)

|                                            |                                                     |                            |                      |                    |        |          |         |              |         |              |        |              |        |              |        |          |         |   |         |         |         |         |         | 
|------------------------------------------- | --------------------------------------------------- | -------------------------- | -------------------- | ------------------ | ------ | -------- | ------- | ------------ | ------- | ------------ | ------ | ------------ | ------ | ------------ | ------ | -------- | ------- | - | ------- | ------- | ------- | ------- | ------- | 
|                                            |                                                     |                            |                      |                    |        | ALLIED   |         | GUARANTOR    |         | NONGUARANTOR |        |              |        |              |        |          |         |  
|                                            |                                                     |                            |                      |                    |        | HOLDINGS |         | SUBSIDIARIES |         | SUBSIDIARIES |        | ELIMINATIONS |        | CONSOLIDATED
|                                            |                                                     |                            |                      |                    |        |          |         |              |         |              |        |              |        |             
|CURRENT ASSETS:                             |                                                     |                            |                      |                    |        |          |         |              |         |              |        |              |        |              |        |          |         |   |         |        
|                                            | Cash and cash equivalents                           |                            | $                    | 7                  |        |          | $       | 1,936        |         |              | $      | 8,310        |        |              | $      |         |         |   | $       | 10,253  |        
|                                            | Short-term investments                              |                            |                      |                   |        |          |         |             |         |              |        | 60,732       |        |              |        |         |         |   |         | 60,732  |        
|                                            | Receivables, net of allowance for doubtful accounts |                            |                      |                   |        |          |         | 56,003       |         |              |        | 2,509        |        |              |        |         |         |   |         | 58,512  |        
|                                            | Inventories                                         |                            |                      |                   |        |          |         | 5,071        |         |              |        |             |        |              |        |         |         |   |         | 5,071   |        
|                                            | Deferred tax assets                                 |                            |                      | 37,615             |        |          |         | 2,211        |         |              |        |             |        |              |        |         |         |   |         | 39,826  |        
|                                            | Prepayments and other current assets                |                            |                      | 17,645             |        |          |         | 10,826       |         |              |        | 214          |        |              |        |         |         |   |         | 28,685  |        
|                                            |                                                     |                            |                      |                    |        |          |         |              |         |              |        |              |        |              |        |          |         |   |         |        
|                                            |                                                     |                            | Total current assets |                    |        | 55,267   |         |              |         | 76,047       |        |              |        | 71,765       |        |          |         |  |         |         |         | 203,079 |        
|                                            |                                                     |                            |                      |                    |        |          |         |              |         |              |        |              |        |              |        |          |         |   |         |        
|PROPERTY AND EQUIPMENT, NET                 |                                                     |                            | 8,957                |                    |        |          | 164,501 |              |         |              | 3,205  |              |        |              |       |          |         |   | 176,663 |        
|OTHER ASSETS:                               |                                                     |                            |                      |                    |        |          |         |              |         |              |        |              |        |              |        |          |         |   |         |        
|                                            | Goodwill, net                                       |                            |                      | 1,515              |        |          |         | 83,726       |         |              |        |             |        |              |        |         |         |   |         | 85,241  |        
|                                            | Other                                               |                            |                      | 16,860             |        |          |         | 2,743        |         |              |        | 922          |        |              |        |         |         |   |         | 20,525  |        
|                                            | Deferred tax asset                                  |                            |                      | 7,445              |        |          |         |             |         |              |        |             |        |              |        | (7,445   | )       |   |         |        |        
|                                            | Intercompany receivables                            |                            |                      | 55,952             |        |          |         |             |         |              |        | 91           |        |              |        | (56,043  | )       |   |         |        |        
|                                            | Investment in subsidiaries                          |                            |                      | 28,466             |        |          |         | 5,111        |         |              |        |             |        |              |        | (33,577  | )       |   |         |        |        
|                                            |                                                     |                            |                      |                    |        |          |         |              |         |              |        |              |        |              |        |          |         |   |         |        
|                                            |                                                     |                            |                      | Total other assets |        |          | 110,238 |              |         |              | 91,580 |              |        |              | 1,013  |          |         |   | (97,065 | )       |         |         | 105,766 | 
|                                            |                                                     |                            |                      |                    |        |          |         |              |         |              |        |              |        |              |        |          |         |   |         |        
|                                            | Total assets                                        |                            | $                    | 174,462            |        |          | $       | 332,128      |         |              | $      | 75,983       |        |              | $      | (97,065  | )       |   | $       | 485,508 |        
|                                            |                                                     |                            |                      |                    |        |          |         |              |         |              |        |              |        |              |        |          |         |   |         |        
|CURRENT LIABILITIES:                        |                                                     |                            |                      |                    |        |          |         |              |         |              |        |              |        |              |        |          |         |   |         |        
|                                            | Current maturities of long-term debt                |                            | $                    |                   |        |          | $       | 10,785       |         |              | $      |             |        |              | $      |         |         |   | $       | 10,785  |        
|                                            | Trade accounts payable                              |                            |                      | 3,362              |        |          |         | 32,930       |         |              |        | 293          |        |              |        |         |         |   |         | 36,585  |        
|                                            | Intercompany payables                               |                            |                      |                   |        |          |         | 56,043       |         |              |        |             |        |              |        | (56,043  | )       |   |         |        |        
|                                            | Accrued liabilities                                 |                            |                      | 9,755              |        |          |         | 63,835       |         |              |        | 19,291       |        |              |        |         |         |   |         | 92,881  |        
|                                            |                                                     |                            |                      |                    |        |          |         |              |         |              |        |              |        |              |        |          |         |   |         |        
|                                            |                                                     | Total current liabilities  |                      |                    | 13,117 |          |         |              | 163,593 |              |        |              | 19,584 |              |        |          | (56,043 | ) |         |         | 140,251 |        
|                                            |                                                     |                            |                      |                    |        |          |         |              |         |              |        |              |        |              |        |          |         |   |         |        
|LONG-TERM DEBT, less current maturities     |                                                     |                            | 150,000              |                    |        |          | 87,690  |              |         |              |       |              |        |              |       |          |         |   | 237,690 |        
|POSTRETIREMENT BENEFITS OTHER THAN PENSIONS |                                                     |                            |                     |                    |        |          | 7,467   |              |         |              |       |              |        |              |       |          |         |   | 7,467   |        
|DEFERRED INCOME TAXES                       |                                                     |                            |                     |                    |        |          | 34,743  |              |         |              | 448    |              |        |              | (7,445 | )        |         |   | 27,746  |        
|OTHER LONG-TERM LIABILITIES                 |                                                     |                            | 1,031                |                    |        |          | 31,572  |              |         |              | 29,437 |              |        |              |       |          |         |   | 62,040  |        
|STOCKHOLDERS EQUITY:                       |                                                     |                            |                      |                    |        |          |         |              |         |              |        |              |        |              |        |          |         |   |         |        
|                                            | Common stock, no par value                          |                            |                      |                   |        |          |         |             |         |              |        |             |        |              |        |         |         |   |         |        |        
|                                            | Additional paid-in capital                          |                            |                      | 46,801             |        |          |         | 166,130      |         |              |        | 2,488        |        |              |        | (168,618 | )       |   |         | 46,801  |        
|                                            | Treasury stock                                      |                            |                      | (707               | )      |          |         |             |         |              |        |             |        |              |        |         |         |   |         | (707    | )      
|                                            | (Accumulated deficit) retained earnings             |                            |                      | (26,420            | )      |          |         | (146,278     | )       |              |        | 24,026       |        |              |        | 122,252  |         |   |         | (26,420 | )      
|                                            | Accumulated other comprehensive loss, net of tax    |                            |                      | (9,360             | )      |          |         | (12,789      | )       |              |        |             |        |              |        | 12,789   |         |   |         | (9,360  | )      
|                                            |                                                     |                            |                      |                    |        |          |         |              |         |              |        |              |        |              |        |          |         |   |         |        
|                                            |                                                     | Total stockholders equity |                      |                    | 10,314 |          |         |              | 7,063   |              |        |              | 26,514 |              |        |          | (33,577 | ) |         |         | 10,314  |        
|                                            |                                                     |                            |                      |                    |        |          |         |              |         |              |        |              |        |              |        |          |         |   |         |        
|                                            | Total liabilities and stockholders equity          |                            | $                    | 174,462            |        |          | $       | 332,128      |         |              | $      | 75,983       |        |              | $      | (97,065  | )       |   | $       | 485,508 |        
|                                            |                                                     |                            |                      |                    |        |          |         |              |         |              |        |              |        |              |        |          |         |   |         |        

19



---



##### 



SUPPLEMENTAL CONDENSED CONSOLIDATED INCOME STATEMENT INFORMATION
THREE MONTHS ENDED JUNE 30, 2003
(In Thousands)

|                                  |                                           |   |          |        |              |   |              |         |              |   |              |       |   |   |         |         |   |   |         |         |   |  |  |  | 
|--------------------------------- | ----------------------------------------- | - | -------- | ------ | ------------ | - | ------------ | ------- | ------------ | - | ------------ | ----- | - | - | ------- | ------- | - | - | ------- | ------- | - |  |  |  | 
|                                  |                                           |   | ALLIED   |        | GUARANTOR    |   | NONGUARANTOR |         |              |   |              |       |   |   |        
|                                  |                                           |   | HOLDINGS |        | SUBSIDIARIES |   | SUBSIDIARIES |         | ELIMINATIONS |   | CONSOLIDATED
|                                  |                                           |   |          |        |              |   |              |         |              |   |             
|REVENUES                          |                                           | $ | 7,298    |        |              | $ | 229,736      |         |              | $ | 9,236        |       |   | $ | (16,192 | )       |   | $ | 230,078 |        
|                                  |                                           |   |          |        |              |   |              |         |              |   |              |       |   |   |         |         |   |   |         |        
|OPERATING EXPENSES:               |                                           |   |          |        |              |   |              |         |              |   |              |       |   |   |         |         |   |   |         |        
|                                  | Salaries, wages and fringe benefits       |   |          | 2,555  |              |   |              | 120,947 |              |   |              |      |   |   |         |        |   |   |         | 123,502 |  
|                                  | Operating supplies and expenses           |   |          | 2,310  |              |   |              | 33,632  |              |   |              | 26    |   |   |         |        |   |   |         | 35,968  |  
|                                  | Purchased transportation                  |   |          |       |              |   |              | 25,837  |              |   |              |      |   |   |         |        |   |   |         | 25,837  |  
|                                  | Insurance and claims                      |   |          |       |              |   |              | 11,476  |              |   |              | 8,895 |   |   |         | (8,894  | ) |   |         | 11,477  |  
|                                  | Operating taxes and licenses              |   |          | 58     |              |   |              | 8,101   |              |   |              |      |   |   |         |        |   |   |         | 8,159   |  
|                                  | Depreciation and amortization             |   |          | 849    |              |   |              | 10,692  |              |   |              | 112   |   |   |         |        |   |   |         | 11,653  |  
|                                  | Rents                                     |   |          | 510    |              |   |              | 1,109   |              |   |              | 1     |   |   |         |        |   |   |         | 1,620   |  
|                                  | Communications and utilities              |   |          | 915    |              |   |              | 662     |              |   |              | 3     |   |   |         |        |   |   |         | 1,580   |  
|                                  | Other operating expenses                  |   |          | 1,164  |              |   |              | 8,574   |              |   |              | 95    |   |   |         | (7,298  | ) |   |         | 2,535   |  
|                                  | Loss on disposal of operating assets, net |   |          |       |              |   |              | 195     |              |   |              |      |   |   |         |        |   |   |         | 195     |  
|                                  |                                           |   |          |        |              |   |              |         |              |   |              |       |   |   |         |         |   |   |         |        
|                                  | Total operating expenses                  |   |          | 8,361  |              |   |              | 221,225 |              |   |              | 9,132 |   |   |         | (16,192 | ) |   |         | 222,526 |  
|                                  |                                           |   |          |        |              |   |              |         |              |   |              |       |   |   |         |         |   |   |         |        
|                                  | Operating (loss) income                   |   |          | (1,063 | )            |   |              | 8,511   |              |   |              | 104   |   |   |         |        |   |   |         | 7,552   |  
|                                  |                                           |   |          |        |              |   |              |         |              |   |              |       |   |   |         |         |   |   |         |        
|OTHER INCOME (EXPENSE):           |                                           |   |          |        |              |   |              |         |              |   |              |       |   |   |         |         |   |   |         |        
|                                  | Interest expense                          |   |          | (1,748 | )            |   |              | (5,573  | )            |   |              | (52   | ) |   |         |        |   |   |         | (7,373  | )
|                                  | Interest income                           |   |          |       |              |   |              | 21      |              |   |              | 2,986 |   |   |         |        |   |   |         | 3,007   |  
|                                  | Foreign exchange gains, net               |   |          |       |              |   |              | 1,332   |              |   |              | 98    |   |   |         |        |   |   |         | 1,430   |  
|                                  | Equity in earnings of subsidiaries        |   |          | 6,263  |              |   |              | 227     |              |   |              |      |   |   |         | (6,490  | ) |   |         |        |  
|                                  |                                           |   |          |        |              |   |              |         |              |   |              |       |   |   |         |         |   |   |         |        
|                                  |                                           |   | 4,515    |        |              |   | (3,993       | )       |              |   | 3,032        |       |   |   | (6,490  | )       |   |   | (2,936  | )      
|                                  |                                           |   |          |        |              |   |              |         |              |   |              |       |   |   |         |         |   |   |         |        
|(LOSS) INCOME BEFORE INCOME TAXES |                                           |   | 3,452    |        |              |   | 4,518        |         |              |   | 3,136        |       |   |   | (6,490  | )       |   |   | 4,616   |        
|INCOME TAX EXPENSE                |                                           |   | (80      | )      |              |   | (42          | )       |              |   | (1,122       | )     |   |   |        |         |   |   | (1,244  | )      
|                                  |                                           |   |          |        |              |   |              |         |              |   |              |       |   |   |         |         |   |   |         |        
|NET INCOME                        |                                           | $ | 3,372    |        |              | $ | 4,476        |         |              | $ | 2,014        |       |   | $ | (6,490  | )       |   | $ | 3,372   |        
|                                  |                                           |   |          |        |              |   |              |         |              |   |              |       |   |   |         |         |   |   |         |        

SUPPLEMENTAL CONDENSED CONSOLIDATED INCOME STATEMENT INFORMATION
THREE MONTHS ENDED JUNE 30, 2002
(In Thousands)

|                                  |                                             |   |          |        |              |   |         |         |   |  |              |   |              |   |              |       |   |   |         |         |   |   |         |         |  
|--------------------------------- | ------------------------------------------- | - | -------- | ------ | ------------ | - | ------- | ------- | - |  | ------------ | - | ------------ | - | ------------ | ----- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                  |                                             |   | ALLIED   |        | GUARANTOR    |   |         |         |   |  | NONGUARANTOR |   |              |   |              |       |   |   |        
|                                  |                                             |   | HOLDINGS |        | SUBSIDIARIES |   |         |         |   |  | SUBSIDIARIES |   | ELIMINATIONS |   | CONSOLIDATED
|                                  |                                             |   |          |        |              |   |         |         |   |  |              |   |              |   |             
|REVENUES                          |                                             | $ | 2,535    |        |              | $ | 238,716 |         |   |  |              |   |              | $ | 9,397        |       |   | $ | (11,664 | )       |   | $ | 238,984 |        
|                                  |                                             |   |          |        |              |   |         |         |   |  |              |   |              |   |              |       |   |   |         |         |   |   |         |        
|OPERATING EXPENSES:               |                                             |   |          |        |              |   |         |         |   |  |              |   |              |   |              |       |   |   |         |         |   |   |         |        
|                                  | Salaries, wages and fringe benefits         |   |          | 1,959  |              |   |         | 125,554 |   |  |              |   |              |   |              |      |   |   |         |        |   |   |         | 127,513 |  
|                                  | Operating supplies and expenses             |   |          | 461    |              |   |         | 35,399  |   |  |              |   |              |   |              | 46    |   |   |         |        |   |   |         | 35,906  |  
|                                  | Purchased transportation                    |   |          |       |              |   |         | 25,527  |   |  |              |   |              |   |              |      |   |   |         |        |   |   |         | 25,527  |  
|                                  | Insurance and claims                        |   |          |       |              |   |         | 12,927  |   |  |              |   |              |   |              | 9,131 |   |   |         | (9,129  | ) |   |         | 12,929  |  
|                                  | Operating taxes and licenses                |   |          | 54     |              |   |         | 8,576   |   |  |              |   |              |   |              |      |   |   |         |        |   |   |         | 8,630   |  
|                                  | Depreciation and amortization               |   |          | 744    |              |   |         | 12,420  |   |  |              |   |              |   |              | 118   |   |   |         |        |   |   |         | 13,282  |  
|                                  | Rents                                       |   |          | 424    |              |   |         | 1,232   |   |  |              |   |              |   |              | 1     |   |   |         |        |   |   |         | 1,657   |  
|                                  | Communications and utilities                |   |          | 141    |              |   |         | 1,729   |   |  |              |   |              |   |              | 3     |   |   |         |        |   |   |         | 1,873   |  
|                                  | Other operating expenses                    |   |          | 683    |              |   |         | 3,168   |   |  |              |   |              |   |              | 135   |   |   |         | (2,535  | ) |   |         | 1,451   |  
|                                  | Loss on disposal of operating assets, net   |   |          |       |              |   |         | 315     |   |  |              |   |              |   |              |      |   |   |         |        |   |   |         | 315     |  
|                                  |                                             |   |          |        |              |   |         |         |   |  |              |   |              |   |              |       |   |   |         |         |   |   |         |        
|                                  | Total operating expenses                    |   |          | 4,466  |              |   |         | 226,847 |   |  |              |   |              |   |              | 9,434 |   |   |         | (11,664 | ) |   |         | 229,083 |  
|                                  |                                             |   |          |        |              |   |         |         |   |  |              |   |              |   |              |       |   |   |         |         |   |   |         |        
|                                  | Operating (loss) income                     |   |          | (1,931 | )            |   |         | 11,869  |   |  |              |   |              |   |              | (37   | ) |   |         |        |   |   |         | 9,901   |  
|                                  |                                             |   |          |        |              |   |         |         |   |  |              |   |              |   |              |       |   |   |         |         |   |   |         |        
|OTHER INCOME (EXPENSE):           |                                             |   |          |        |              |   |         |         |   |  |              |   |              |   |              |       |   |   |         |         |   |   |         |        
|                                  | Interest expense                            |   |          | (5,336 | )            |   |         | (2,321  | ) |  |              |   |              |   |              | (43   | ) |   |         | 90      |   |   |         | (7,610  | )
|                                  | Interest income                             |   |          | 1      |              |   |         | 61      |   |  |              |   |              |   |              | 643   |   |   |         | (90     | ) |   |         | 615     |  
|                                  | Gain on early extinguishment of debt        |   |          |       |              |   |         |        |   |  |              |   |              |   |              |      |   |   |         |        |   |   |         |        |  
|                                  | Intercompany dividends                      |   |          | 818    |              |   |         | (818    | ) |  |              |  |              |   |              |      |   |   |         |        |   |   |         |        |  
|                                  | Foreign exchange gains (losses), net        |   |          | (8     | )            |   |         | 4       |   |  |              |   |              |   |              |      |   |   |         |        |   |   |         | (4      | )
|                                  | Other, net                                  |   |          |       |              |   |         |        |   |  |              |   |              |   |              |      |   |   |         |        |   |   |         |        |  
|                                  | Equity in (losses) earnings of subsidiaries |   |          | 9,498  |              |   |         | 36      |   |  |              |   |              |   |              |      |   |   |         | (9,534  | ) |   |         |        |  
|                                  |                                             |   |          |        |              |   |         |         |   |  |              |   |              |   |              |       |   |   |         |         |   |   |         |        
|                                  |                                             |   | 4,973    |        |              |   | (3,038  | )       |   |  |              |   |              |   | 600          |       |   |   | (9,534  | )       |   |   | (6,999  | )      
|                                  |                                             |   |          |        |              |   |         |         |   |  |              |   |              |   |              |       |   |   |         |         |   |   |         |        
|(LOSS) INCOME BEFORE INCOME TAXES |                                             |   | 3,042    |        |              |   | 8,831   |         |   |  |              |   |              |   | 563          |       |   |   | (9,534  | )       |   |   | 2,902   |        
|INCOME TAX BENEFIT (EXPENSE)      |                                             |   | (933     | )      |              |   | 998     |         |   |  |              |   |              |   | (858         | )     |   |   |        |         |   |   | (793    | )      
|                                  |                                             |   |          |        |              |   |         |         |   |  |              |   |              |   |              |       |   |   |         |         |   |   |         |        
|NET LOSS                          |                                             | $ | 2,109    |        |              | $ | 9,829   |         |   |  |              |   |              | $ | (295         | )     |   | $ | (9,534  | )       |   | $ | 2,109   |        
|                                  |                                             |   |          |        |              |   |         |         |   |  |              |   |              |   |              |       |   |   |         |         |   |   |         |        

20



---



##### 



SUPPLEMENTAL CONDENSED CONSOLIDATED INCOME STATEMENT INFORMATION
SIX MONTHS ENDED JUNE 30, 2003
(In Thousands)

|                                  |                                           |   |          |        |              |   |              |         |              |   |              |        |   |   |         |         |   |   |         |         |  
|--------------------------------- | ----------------------------------------- | - | -------- | ------ | ------------ | - | ------------ | ------- | ------------ | - | ------------ | ------ | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                  |                                           |   | ALLIED   |        | GUARANTOR    |   | NONGUARANTOR |         |              |   |              |        |   |   |        
|                                  |                                           |   | HOLDINGS |        | SUBSIDIARIES |   | SUBSIDIARIES |         | ELIMINATIONS |   | CONSOLIDATED
|                                  |                                           |   |          |        |              |   |              |         |              |   |             
|REVENUES                          |                                           | $ | 14,104   |        |              | $ | 442,986      |         |              | $ | 18,258       |        |   | $ | (31,678 | )       |   | $ | 443,670 |        
|                                  |                                           |   |          |        |              |   |              |         |              |   |              |        |   |   |         |         |   |   |         |        
|OPERATING EXPENSES:               |                                           |   |          |        |              |   |              |         |              |   |              |        |   |   |         |         |   |   |         |        
|                                  | Salaries, wages and fringe benefits       |   |          | 5,165  |              |   |              | 235,912 |              |   |              |       |   |   |         |        |   |   |         | 241,077 |  
|                                  | Operating supplies and expenses           |   |          | 4,543  |              |   |              | 68,527  |              |   |              | 78     |   |   |         |        |   |   |         | 73,148  |  
|                                  | Purchased transportation                  |   |          |       |              |   |              | 50,550  |              |   |              |       |   |   |         |        |   |   |         | 50,550  |  
|                                  | Insurance and claims                      |   |          |       |              |   |              | 20,987  |              |   |              | 17,421 |   |   |         | (17,574 | ) |   |         | 20,834  |  
|                                  | Operating taxes and licenses              |   |          | 123    |              |   |              | 15,874  |              |   |              |       |   |   |         |        |   |   |         | 15,997  |  
|                                  | Depreciation and amortization             |   |          | 1,727  |              |   |              | 21,718  |              |   |              | 232    |   |   |         |        |   |   |         | 23,677  |  
|                                  | Rents                                     |   |          | 988    |              |   |              | 2,249   |              |   |              | 3      |   |   |         |        |   |   |         | 3,240   |  
|                                  | Communications and utilities              |   |          | 1,850  |              |   |              | 1,612   |              |   |              | 6      |   |   |         |        |   |   |         | 3,468   |  
|                                  | Other operating expenses                  |   |          | 2,143  |              |   |              | 17,150  |              |   |              | 195    |   |   |         | (14,104 | ) |   |         | 5,384   |  
|                                  | Loss on disposal of operating assets, net |   |          |       |              |   |              | 459     |              |   |              |       |   |   |         |        |   |   |         | 459     |  
|                                  |                                           |   |          |        |              |   |              |         |              |   |              |        |   |   |         |         |   |   |         |        
|                                  | Total operating expenses                  |   |          | 16,539 |              |   |              | 435,038 |              |   |              | 17,935 |   |   |         | (31,678 | ) |   |         | 437,834 |  
|                                  |                                           |   |          |        |              |   |              |         |              |   |              |        |   |   |         |         |   |   |         |        
|                                  | Operating (loss) income                   |   |          | (2,435 | )            |   |              | 7,948   |              |   |              | 323    |   |   |         |        |   |   |         | 5,836   |  
|                                  |                                           |   |          |        |              |   |              |         |              |   |              |        |   |   |         |         |   |   |         |        
|OTHER INCOME (EXPENSE):           |                                           |   |          |        |              |   |              |         |              |   |              |        |   |   |         |         |   |   |         |        
|                                  | Interest expense                          |   |          | (3,974 | )            |   |              | (10,680 | )            |   |              | (100   | ) |   |         |        |   |   |         | (14,754 | )
|                                  | Interest income                           |   |          |        |              |   |              | 42      |              |   |              | 3,291  |   |   |         |        |   |   |         | 3,333   |  
|                                  | Intercompany dividends                    |   |          |       |              |   |              |        |              |   |              |       |   |   |         |        |   |   |         |        |  
|                                  | Foreign exchange (losses) gains, net      |   |          |       |              |   |              | 2,421   |              |   |              | 27     |   |   |         |        |   |   |         | 2,448   |  
|                                  | Equity in earnings of subsidiaries        |   |          | 2,291  |              |   |              | 347     |              |   |              |       |   |   |         | (2,638  | ) |   |         |        |  
|                                  |                                           |   |          |        |              |   |              |         |              |   |              |        |   |   |         |         |   |   |         |        
|                                  |                                           |   | (1,683   | )      |              |   | (7,870       | )       |              |   | 3,218        |        |   |   | (2,638  | )       |   |   | (8,973  | )      
|                                  |                                           |   |          |        |              |   |              |         |              |   |              |        |   |   |         |         |   |   |         |        
|(LOSS) INCOME BEFORE INCOME TAXES |                                           |   | (4,118   | )      |              |   | 78           |         |              |   | 3,541        |        |   |   | (2,638  | )       |   |   | (3,137  | )      
|INCOME TAX BENEFIT (EXPENSE)      |                                           |   | 1,826    |        |              |   | 323          |         |              |   | (1,304       | )      |   |   |        |         |   |   | 845     |        
|                                  |                                           |   |          |        |              |   |              |         |              |   |              |        |   |   |         |         |   |   |         |        
|NET (LOSS) INCOME                 |                                           | $ | (2,292   | )      |              | $ | 401          |         |              | $ | 2,237        |        |   | $ | (2,638  | )       |   | $ | (2,292  | )      
|                                  |                                           |   |          |        |              |   |              |         |              |   |              |        |   |   |         |         |   |   |         |        

SUPPLEMENTAL CONDENSED CONSOLIDATED INCOME STATEMENT INFORMATION
SIX MONTHS ENDED JUNE 30, 2002
(In Thousands)

|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|

21



---



##### 



SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION
SIX MONTHS ENDED JUNE 30, 2003
(In Thousands)

|                                                             |                                                                                             |                                                          |                                                     |                                                     |        |          |       |              |        |              |        |              |     |              |        |        |       |   |        |         |        |        |        |  
|------------------------------------------------------------ | ------------------------------------------------------------------------------------------- | -------------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- | ------ | -------- | ----- | ------------ | ------ | ------------ | ------ | ------------ | --- | ------------ | ------ | ------ | ----- | - | ------ | ------- | ------ | ------ | ------ | -
|                                                             |                                                                                             |                                                          |                                                     |                                                     |        | ALLIED   |       | GUARANTOR    |        | NONGUARANTOR |        |              |     |              |        |        |       |  
|                                                             |                                                                                             |                                                          |                                                     |                                                     |        | HOLDINGS |       | SUBSIDIARIES |        | SUBSIDIARIES |        | ELIMINATIONS |     | CONSOLIDATED
|                                                             |                                                                                             |                                                          |                                                     |                                                     |        |          |       |              |        |              |        |              |     |             
|CASH FLOWS FROM OPERATING ACTIVITIES:                        |                                                                                             |                                                          |                                                     |                                                     |        |          |       |              |        |              |        |              |     |              |        |        |       |   |        |        
|                                                             | Net (loss) income                                                                           |                                                          | $                                                   | (2,292                                              | )      |          | $     | 401          |        |              | $      | 2,237        |     |              | $      | (2,638 | )     |   | $      | (2,292  | )     
|                                                             |                                                                                             |                                                          |                                                     |                                                     |        |          |       |              |        |              |        |              |     |              |        |        |       |   |        |        
|                                                             | Reconciliation of net (loss) income to net
cash provided by (used in) operating activities: |                                                          |                                                     |                                                     |        |          |       |              |        |              |        |              |     |              |        |        |       |   |        |         |       
|                                                             |                                                                                             | Interest expense paid in kind                            |                                                     |                                                     |       |          |       |              | 725    |              |        |              |    |              |        |        |      |   |        |         | 725    |       
|                                                             |                                                                                             | Amortization of deferred financing costs                 |                                                     |                                                     | 2,054  |          |       |              |       |              |        |              |    |              |        |        |      |   |        |         | 2,054  |       
|                                                             |                                                                                             | Depreciation and amortization                            |                                                     |                                                     | 1,727  |          |       |              | 21,718 |              |        |              | 232 |              |        |        |      |   |        |         | 23,677 |       
|                                                             |                                                                                             | Loss on disposal of assets and other, net                |                                                     |                                                     |       |          |       |              | 459    |              |        |              |    |              |        |        |      |   |        |         | 459    |       
|                                                             |                                                                                             | Foreign exchange (losses) gains, net                     |                                                     |                                                     |       |          |       |              | (2,448 | )            |        |              |    |              |        |        |      |   |        |         | (2,448 | )     
|                                                             |                                                                                             | Deferred income taxes                                    |                                                     |                                                     | (671   | )        |       |              |       |              |        |              |    |              |        |        |      |   |        |         | (671   | )     
|                                                             |                                                                                             | Compensation expense related to stock options and grants |                                                     |                                                     | 120    |          |       |              |       |              |        |              |    |              |        |        |      |   |        |         | 120    |       
|                                                             |                                                                                             | Equity in (earnings) losses of subsidiaries              |                                                     |                                                     | (2,291 | )        |       |              | (347   | )            |        |              |    |              |        |        | 2,638 |   |        |         |       |       
|                                                             |                                                                                             | Amortization of Teamsters Union contract costs           |                                                     |                                                     |       |          |       |              | 1,000  |              |        |              |    |              |        |        |      |   |        |         | 1,000  |       
|                                                             |                                                                                             | Change in operating assets and liabilities:              |                                                     |                                                     |        |          |       |              |        |              |        |              |     |              |        |        |       |   |        |         |        |       
|                                                             |                                                                                             |                                                          | Receivables, net of allowance for doubtful accounts |                                                     |        |         |       |              |        | 8,768        |        |              |     | (4,835       | )      |        |       |  |        |         |        | 3,933  |       
|                                                             |                                                                                             |                                                          | Inventories                                         |                                                     |        |         |       |              |        | (299         | )      |              |     |             |        |        |       |  |        |         |        | (299   | )     
|                                                             |                                                                                             |                                                          | Prepayments and other current assets                |                                                     |        | 1,362    |       |              |        | (4,933       | )      |              |     | 91           |        |        |       |  |        |         |        | (3,480 | )     
|                                                             |                                                                                             |                                                          | Short-term investments                              |                                                     |        |         |       |              |        |             |        |              |     | (7,077       | )      |        |       |  |        |         |        | (7,077 | )     
|                                                             |                                                                                             |                                                          | Trade accounts payable                              |                                                     |        | (148     | )     |              |        | (6,946       | )      |              |     | (100         | )      |        |       |  |        |         |        | (7,194 | )     
|                                                             |                                                                                             |                                                          | Intercompany receivables                            |                                                     |        | 3,334    |       |              |        | (3,326       | )      |              |     | (8           | )      |        |       |  |        |         |        |       |       
|                                                             |                                                                                             |                                                          | Accrued liabilities                                 |                                                     |        | (2,419   | )     |              |        | (10,566      | )      |              |     | 7,672        |        |        |       |  |        |         |        | (5,313 | )     
|                                                             |                                                                                             |                                                          |                                                     |                                                     |        |          |       |              |        |              |        |              |     |              |        |        |       |   |        |        
|                                                             | Net change in operating assets and liabilities                                              |                                                          |                                                     | 2,129                                               |        |          |       | (17,302      | )      |              |        | (4,257       | )   |              |        |       |       |   |        | (19,430 | )     
|                                                             |                                                                                             |                                                          |                                                     |                                                     |        |          |       |              |        |              |        |              |     |              |        |        |       |   |        |        
|                                                             |                                                                                             |                                                          |                                                     | Net cash provided by (used in) operating activities |        |          | 776   |              |        |              | 4,206  |              |     |              | (1,788 | )      |       |   |       |         |        |        | 3,194  |  
|                                                             |                                                                                             |                                                          |                                                     |                                                     |        |          |       |              |        |              |        |              |     |              |        |        |       |   |        |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                        |                                                                                             |                                                          |                                                     |                                                     |        |          |       |              |        |              |        |              |     |              |        |        |       |   |        |        
|                                                             | Purchases of property and equipment                                                         |                                                          |                                                     | (194                                                | )      |          |       | (8,157       | )      |              |        | (66          | )   |              |        |       |       |   |        | (8,417  | )     
|                                                             | Proceeds from sale of property and equipment                                                |                                                          |                                                     |                                                    |        |          |       | 31           |        |              |        |             |     |              |        |       |       |   |        | 31      |       
|                                                             | Decrease in cash surrender value of life insurance                                          |                                                          |                                                     | 2                                                   |        |          |       |             |        |              |        |             |     |              |        |       |       |   |        | 2       |       
|                                                             |                                                                                             |                                                          |                                                     |                                                     |        |          |       |              |        |              |        |              |     |              |        |        |       |   |        |        
|                                                             |                                                                                             |                                                          |                                                     | Net cash used in investing activities               |        |          | (192  | )            |        |              | (8,126 | )            |     |              | (66    | )      |       |   |       |         |        |        | (8,384 | )
|                                                             |                                                                                             |                                                          |                                                     |                                                     |        |          |       |              |        |              |        |              |     |              |        |        |       |   |        |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                        |                                                                                             |                                                          |                                                     |                                                     |        |          |       |              |        |              |        |              |     |              |        |        |       |   |        |        
|                                                             |                                                                                             |                                                          |                                                     | Additions to revolving credit facilities, net       |        |          |      |              |        |              | 10,084 |              |     |              |       |        |       |   |       |         |        |        | 10,084 |  
|                                                             |                                                                                             |                                                          |                                                     | Repayment of long-term debt                         |        |          |      |              |        |              | (8,019 | )            |     |              |       |        |       |   |       |         |        |        | (8,019 | )
|                                                             |                                                                                             |                                                          |                                                     | Payment of deferred financing costs                 |        |          | (414  | )            |        |              |       |              |     |              |       |        |       |   |       |         |        |        | (414   | )
|                                                             |                                                                                             |                                                          |                                                     | Proceeds from issuance of common stock              |        |          | 191   |              |        |              |       |              |     |              |       |        |       |   |       |         |        |        | 191    |  
|                                                             |                                                                                             |                                                          |                                                     | Other, net                                          |        |          | (368  | )            |        |              | 394    |              |     |              |       |        |       |   |       |         |        |        | 26     |  
|                                                             |                                                                                             |                                                          |                                                     |                                                     |        |          |       |              |        |              |        |              |     |              |        |        |       |   |        |        
|                                                             |                                                                                             |                                                          |                                                     | Net cash (used in) provided by financing activities |        |          | (591  | )            |        |              | 2,459  |              |     |              |       |        |       |   |       |         |        |        | 1,868  |  
|                                                             |                                                                                             |                                                          |                                                     |                                                     |        |          |       |              |        |              |        |              |     |              |        |        |       |   |        |        
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS |                                                                                             |                                                          |                                                    |                                                     |        |          | 642   |              |        |              |       |              |     |              |       |        |       |   | 642    |        
|NET DECREASE IN CASH AND CASH EQUIVALENTS                    |                                                                                             |                                                          | (7                                                  | )                                                   |        |          | (819  | )            |        |              | (1,854 | )            |     |              |       |        |       |   | (2,680 | )      
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD             |                                                                                             |                                                          | 7                                                   |                                                     |        |          | 1,936 |              |        |              | 8,310  |              |     |              |       |        |       |   | 10,253 |        
|                                                             |                                                                                             |                                                          |                                                     |                                                     |        |          |       |              |        |              |        |              |     |              |        |        |       |   |        |        
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                   |                                                                                             | $                                                        |                                                    |                                                     |        | $        | 1,117 |              |        | $            | 6,456  |              |     | $            |       |        |       | $ | 7,573  |        
|                                                             |                                                                                             |                                                          |                                                     |                                                     |        |          |       |              |        |              |        |              |     |              |        |        |       |   |        |        

22



---



##### 



SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION
SIX MONTHS ENDED JUNE 30, 2002
(In Thousands)

|                                                             |                                                                                                    |                                                          |                                                     |                                                     |        |          |          |              |        |              |           |              |      |              |         |   |       |   |         |         |        |        |         |  
|------------------------------------------------------------ | -------------------------------------------------------------------------------------------------- | -------------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- | ------ | -------- | -------- | ------------ | ------ | ------------ | --------- | ------------ | ---- | ------------ | ------- | - | ----- | - | ------- | ------- | ------ | ------ | ------- | -
|                                                             |                                                                                                    |                                                          |                                                     |                                                     |        | ALLIED   |          | GUARANTOR    |        | NONGUARANTOR |           |              |      |              |         |   |       |  
|                                                             |                                                                                                    |                                                          |                                                     |                                                     |        | HOLDINGS |          | SUBSIDIARIES |        | SUBSIDIARIES |           | ELIMINATIONS |      | CONSOLIDATED
|                                                             |                                                                                                    |                                                          |                                                     |                                                     |        |          |          |              |        |              |           |              |      |             
|CASH FLOWS FROM OPERATING ACTIVITIES                         |                                                                                                    |                                                          |                                                     |                                                     |        |          |          |              |        |              |           |              |      |              |         |   |       |   |         |        
|Net (loss) income                                            |                                                                                                    |                                                          | ($3,139                                             | )                                                   |        | $        | 5,142    |              |        |              | ($769     | )            |      |              | ($4,373 | ) |       |   | ($3,139 | )      
|                                                             |                                                                                                    |                                                          |                                                     |                                                     |        |          |          |              |        |              |           |              |      |              |         |   |       |   |         |        
|                                                             | Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities: |                                                          |                                                     |                                                     |        |          |          |              |        |              |           |              |      |              |         |   |       |   |         |         |       
|                                                             |                                                                                                    | Gain on early extinguishment of debt                     |                                                     |                                                     | (2,750 | )        |          |              |       |              |           |              |      |              |         |   |       |   |         |         | (2,750 | )     
|                                                             |                                                                                                    | Interest expense paid in kind                            |                                                     |                                                     |       |          |          |              | 377    |              |           |              |      |              |         |   |       |   |         |         | 377    |       
|                                                             |                                                                                                    | Amortization of deferred financing costs                 |                                                     |                                                     | 2,028  |          |          |              |       |              |           |              |      |              |         |   |       |   |         |         | 2,028  |       
|                                                             |                                                                                                    | Depreciation and amortization                            |                                                     |                                                     | 1,510  |          |          |              | 25,198 |              |           |              | 237  |              |         |   |      |   |         |         | 26,945 |       
|                                                             |                                                                                                    | Gain on disposal of assets and other, net                |                                                     |                                                     |       |          |          |              | (507   | )            |           |              |     |              |         |   |      |   |         |         | (507   | )     
|                                                             |                                                                                                    | Foreign exchange gains (losses), net                     |                                                     |                                                     | 8      |          |          |              | (41    | )            |           |              |     |              |         |   |      |   |         |         | (33    | )     
|                                                             |                                                                                                    | Cumulative effect of change in accounting principle      |                                                     |                                                     |       |          |          |              | 4,092  |              |           |              |     |              |         |   |      |   |         |         | 4,092  |       
|                                                             |                                                                                                    | Deferred income taxes                                    |                                                     |                                                     | 1,832  |          |          |              | (789   | )            |           |              | (575 | )            |         |   |      |   |         |         | 468    |       
|                                                             |                                                                                                    | Compensation expense related to stock options and grants |                                                     |                                                     | 148    |          |          |              |       |              |           |              |     |              |         |   |      |   |         |         | 148    |       
|                                                             |                                                                                                    | Equity in earnings of subsidiaries                       |                                                     |                                                     | (4,240 | )        |          |              | (133   | )            |           |              |     |              |         |   | 4,373 |   |         |         |       |       
|                                                             |                                                                                                    | Amortization of Teamsters Union contract costs           |                                                     |                                                     |       |          |          |              | 1,200  |              |           |              |     |              |         |   |      |   |         |         | 1,200  |       
|                                                             |                                                                                                    | Change in operating assets and liabilities:              |                                                     |                                                     |        |          |          |              |        |              |           |              |      |              |         |   |       |   |         |         |        |       
|                                                             |                                                                                                    |                                                          | Receivables, net of allowance for doubtful accounts |                                                     |        | 24       |          |              |        | 10,692       |           |              |      | 241          |         |   |       |  |         |         |        | 10,957 |        
|                                                             |                                                                                                    |                                                          | Inventories                                         |                                                     |        |         |          |              |        | 233          |           |              |      | 5            |         |   |       |  |         |         |        | 238    |        
|                                                             |                                                                                                    |                                                          | Prepayments and other current assets                |                                                     |        | 294      |          |              |        | (194         | )         |              |      | (8           | )       |   |       |  |         |         |        | 92     |        
|                                                             |                                                                                                    |                                                          | Increase in short-term investments                  |                                                     |        |         |          |              |        |             |           |              |      | (1,229       | )       |   |       |  |         |         |        | (1,229 | )      
|                                                             |                                                                                                    |                                                          | Intercompany receivables and payables               |                                                     |        | 185,670  |          |              |        | (181,911     | )         |              |      | (3,759       | )       |   |       |  |         |         |        |       |        
|                                                             |                                                                                                    |                                                          | Trade accounts payable                              |                                                     |        | (1,009   | )        |              |        | 1,176        |           |              |      | 50           |         |   |       |  |         |         |        | 217    |        
|                                                             |                                                                                                    |                                                          | Accrued liabilities                                 |                                                     |        | (2,847   | )        |              |        | (7,050       | )         |              |      | 11,890       |         |   |       |  |         |         |        | 1,993  |        
|                                                             |                                                                                                    |                                                          |                                                     |                                                     |        |          |          |              |        |              |           |              |      |              |         |   |       |   |         |        
|                                                             | Net change in operating assets and liabilities                                                     |                                                          |                                                     | 182,132                                             |        |          |          | (177,054     | )      |              |           | 7,190        |      |              |         |  |       |   |         | 12,268  |       
|                                                             |                                                                                                    |                                                          |                                                     |                                                     |        |          |          |              |        |              |           |              |      |              |         |   |       |   |         |        
|                                                             |                                                                                                    |                                                          |                                                     | Net cash provided by (used in) operating activities |        | $        | 177,529  |              |        |              | ($142,515 | )            |      | $            | 6,083   |   |       | $ | 0       |         |        | $      | 41,097  |  
|                                                             |                                                                                                    |                                                          |                                                     |                                                     |        |          |          |              |        |              |           |              |      |              |         |   |       |   |         |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                        |                                                                                                    |                                                          |                                                     |                                                     |        |          |          |              |        |              |           |              |      |              |         |   |       |   |         |        
|                                                             | Purchases of property and equipment                                                                |                                                          |                                                     |                                                    |        |          |          | (7,470       | )      |              |           |             |      |              |         |  |       |   |         | (7,470  | )     
|                                                             | Intercompany sale of property and equipment                                                        |                                                          |                                                     | (2                                                  | )      |          |          | 2            |        |              |           |             |      |              |         |  |       |   |         |        |       
|                                                             | Proceeds from sale of property and equipment                                                       |                                                          |                                                     |                                                    |        |          |          | 2,857        |        |              |           |             |      |              |         |  |       |   |         | 2,857   |       
|                                                             | Proceeds from sale of equity investment in joint venture                                           |                                                          |                                                     |                                                    |        |          |          |             |        |              |           | 2,700        |      |              |         |  |       |   |         | 2,700   |       
|                                                             | Capital contribution                                                                               |                                                          |                                                     | (73,178                                             | )      |          |          | 73,100       |        |              |           | 78           |      |              |         |  |       |   |         |        |       
|                                                             | Return of capital                                                                                  |                                                          |                                                     | 40,881                                              |        |          |          | (39,829      | )      |              |           | (1,052       | )    |              |         |  |       |   |         |        |       
|                                                             | Increase in cash surrender value of life insurance                                                 |                                                          |                                                     | (317                                                | )      |          |          |             |        |              |           |             |      |              |         |  |       |   |         | (317    | )     
|                                                             |                                                                                                    |                                                          |                                                     |                                                     |        |          |          |              |        |              |           |              |      |              |         |   |       |   |         |        
|                                                             |                                                                                                    |                                                          |                                                     | Net cash provided by (used in) investing activities |        |          | (32,616  | )            |        |              | 28,660    |              |      |              | 1,726   |   |       |   |        |         |        |        | (2,230  | )
|                                                             |                                                                                                    |                                                          |                                                     |                                                     |        |          |          |              |        |              |           |              |      |              |         |   |       |   |         |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                        |                                                                                                    |                                                          |                                                     |                                                     |        |          |          |              |        |              |           |              |      |              |         |   |       |   |         |        
|                                                             | (Repayments) additions to revolving credit facilities, net                                         |                                                          |                                                     | (98,900                                             | )      |          |          | 38,177       |        |              |           |             |      |              |         |   |       |   |         | (60,723 | )     
|                                                             | Additions to long-term debt                                                                        |                                                          |                                                     |                                                    |        |          |          | 82,751       |        |              |           |             |      |              |         |   |       |   |         | 82,751  |       
|                                                             | Repayment of long-term debt                                                                        |                                                          |                                                     | (37,498                                             | )      |          |          | (6,332       | )      |              |           |             |      |              |         |   |       |   |         | (43,830 | )     
|                                                             | Payment of deferred financing costs                                                                |                                                          |                                                     | (8,829                                              | )      |          |          |             |        |              |           |             |      |              |         |  |       |   |         | (8,829  | )     
|                                                             | Proceeds from issuance of common stock                                                             |                                                          |                                                     | 161                                                 |        |          |          |             |        |              |           |             |      |              |         |  |       |   |         | 161     |       
|                                                             | Other, net                                                                                         |                                                          |                                                     | (56                                                 | )      |          |          | 130          |        |              |           | 299          |      |              |         |  |       |   |         | 373     |       
|                                                             |                                                                                                    |                                                          |                                                     |                                                     |        |          |          |              |        |              |           |              |      |              |         |   |       |   |         |        
|                                                             |                                                                                                    |                                                          |                                                     | Net cash (used in) provided by financing activities |        |          | (145,122 | )            |        |              | 114,726   |              |      |              | 299     |   |       |   |        |         |        |        | (30,097 | )
|                                                             |                                                                                                    |                                                          |                                                     |                                                     |        |          |          |              |        |              |           |              |      |              |         |   |       |   |         |        
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS |                                                                                                    |                                                          |                                                    |                                                     |        |          | 158      |              |        |              |          |              |      |              |        |   |       |   | 158     |        
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS         |                                                                                                    |                                                          | (209                                                | )                                                   |        |          | 1,029    |              |        |              | 8,108     |              |      |              |        |   |       |   | 8,928   |        
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR               |                                                                                                    |                                                          | 209                                                 |                                                     |        |          | 1,063    |              |        |              | 9,271     |              |      |              |        |   |       |   | 10,543  |        
|                                                             |                                                                                                    |                                                          |                                                     |                                                     |        |          |          |              |        |              |           |              |      |              |         |   |       |   |         |        
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                   |                                                                                                    |                                                          |                                                    |                                                     |        | $        | 2,092    |              |        | $            | 17,379    |              |      |              |        |   |       | $ | 19,471  |        
|                                                             |                                                                                                    |                                                          |                                                     |                                                     |        |          |          |              |        |              |           |              |      |              |         |   |       |   |         |        

23



---



##### 



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

Results of Operations

The Company, through its subsidiaries, generates revenues providing services to
the automotive industry. Allied Automotive Group, Inc. (AAG) is the largest
motor carrier in North America specializing in the transportation of new
automobiles, light trucks and SUVs, for most of the major domestic and foreign
automotive manufacturers.

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

|                                                                                          |                                         |                          |       |                    |       |                  |       |      |       |      |       |      |       |   |       |      |       |  
|----------------------------------------------------------------------------------------- | --------------------------------------- | ------------------------ | ----- | ------------------ | ----- | ---------------- | ----- | ---- | ----- | ---- | ----- | ---- | ----- | - | ----- | ---- | ----- | -
|                                                                                          |                                         |                          |       | Three Months Ended |       | Six Months Ended
|                                                                                          |                                         |                          |       | June 30            |       | June 30         
|                                                                                          |                                         |                          |       |                    |       |                 
|                                                                                          |                                         |                          |       | 2003               |       | 2002             |       | 2003 |       | 2002
|                                                                                          |                                         |                          |       |                    |       |                  |       |      |       |     
|Revenues                                                                                  |                                         |                          | 100.0 | %                  |       |                  | 100.0 | %    |       |      | 100.0 | %    |       |   | 100.0 | %   
|Operating expenses:                                                                       |                                         |                          |       |                    |       |                  |       |      |       |      |       |      |       |   |       |     
|                                                                                          | Salaries, wages and fringe benefits     |                          |       | 53.7               |       |                  |       | 53.4 |       |      |       | 54.3 |       |   |       | 54.4 |      
|                                                                                          | Operating supplies and expenses         |                          |       | 15.6               |       |                  |       | 15.0 |       |      |       | 16.4 |       |   |       | 14.8 |      
|                                                                                          | Purchased transportation                |                          |       | 11.2               |       |                  |       | 10.7 |       |      |       | 11.4 |       |   |       | 10.4 |      
|                                                                                          | Insurance and claims                    |                          |       | 5.0                |       |                  |       | 5.4  |       |      |       | 4.7  |       |   |       | 5.2  |      
|                                                                                          | Operating taxes and licenses            |                          |       | 3.5                |       |                  |       | 3.6  |       |      |       | 3.6  |       |   |       | 3.8  |      
|                                                                                          | Depreciation and amortization           |                          |       | 5.1                |       |                  |       | 5.6  |       |      |       | 5.3  |       |   |       | 6.0  |      
|                                                                                          | Rents                                   |                          |       | 0.7                |       |                  |       | 0.7  |       |      |       | 0.7  |       |   |       | 0.7  |      
|                                                                                          | Communications and utilities            |                          |       | 0.7                |       |                  |       | 0.8  |       |      |       | 0.8  |       |   |       | 0.9  |      
|                                                                                          | Other operating expenses                |                          |       | 1.1                |       |                  |       | 0.6  |       |      |       | 1.2  |       |   |       | 1.0  |      
|                                                                                          | Loss (gain) on sale of operating assets |                          |       | 0.1                |       |                  |       | 0.1  |       |      |       | 0.1  |       |   |       | (0.2 | )    
|                                                                                          |                                         |                          |       |                    |       |                  |       |      |       |      |       |      |       |   |       |     
|                                                                                          |                                         | Total operating expenses |       |                    | (96.7 | )                |       |      | (95.9 | )    |       |      | (98.7 | ) |       |      | (97.0 | )
|                                                                                          |                                         |                          |       |                    |       |                  |       |      |       |      |       |      |       |   |       |     
|Operating income (loss)                                                                   |                                         |                          | 3.3   |                    |       |                  | 4.1   |      |       |      | 1.3   |      |       |   | 3.0   |     
|Other income (expense):                                                                   |                                         |                          |       |                    |       |                  |       |      |       |      |       |      |       |   |       |     
|                                                                                          | Interest expense                        |                          |       | (3.2               | )     |                  |       | (3.2 | )     |      |       | (3.3 | )     |   |       | (3.5 | )    
|                                                                                          | Interest income                         |                          |       | 1.3                |       |                  |       | 0.3  |       |      |       | 0.7  |       |   |       | 0.2  |      
|                                                                                          | Gain on early extinguishment of debt    |                          |       | 0.0                |       |                  |       | 0.0  |       |      |       | 0.0  |       |   |       | 0.6  |      
|                                                                                          | Foreign exchange gains (losses), net    |                          |       | 0.6                |       |                  |       | 0.0  |       |      |       | 0.6  |       |   |       | 0.0  |      
|                                                                                          |                                         |                          |       |                    |       |                  |       |      |       |      |       |      |       |   |       |     
|                                                                                          |                                         |                          | (1.3  | )                  |       |                  | (2.9  | )    |       |      | (2.0  | )    |       |   | (2.7  | )   
|Income (loss) before income taxes and cumulative
effect of change in accounting principle |                                         |                          | 2.0   |                    |       |                  | 1.2   |      |       |      | (0.7  | )    |       |   | 0.3   |     
|Income tax (expense) benefit                                                              |                                         |                          | (0.5  | )                  |       |                  | (0.3  | )    |       |      | 0.2   |      |       |   | (0.1  | )   
|                                                                                          |                                         |                          |       |                    |       |                  |       |      |       |      |       |      |       |   |       |     
|Income before cumulative effect of change in accounting
principle                         |                                         |                          | 1.5   |                    |       |                  | 0.9   |      |       |      | (0.5  | )    |       |   | 0.2   |     
|Cumulative effect of change in accounting
principle, net of tax                           |                                         |                          | 0.0   |                    |       |                  | 0.0   |      |       |      | 0.0   |      |       |   | (0.9  | )   
|                                                                                          |                                         |                          |       |                    |       |                  |       |      |       |      |       |      |       |   |       |     
|Net income (loss)                                                                         |                                         |                          | 1.5   | %                  |       |                  | 0.9   | %    |       |      | (0.5  | )%   |       |   | (0.7  | )%  
|                                                                                          |                                         |                          |       |                    |       |                  |       |      |       |      |       |      |       |   |       |     

Three and Six Months Ended June 30, 2003 Compared to Three and Six Months Ended
June 30, 2002

Revenues were $230.1 million in the second quarter of 2003 compared to revenues
of $239.0 million in the second quarter of 2002, a decrease of $8.9 million, or
3.7%. For the six-month period ended June 30, 2003, revenues were $443.7
million, versus revenues of $452.2 million for the six-month period ended June
30, 2002, a decrease of $8.5 million, or 1.9%. The decline in revenues in the
second quarter was due primarily to a decline in the number of vehicle
deliveries, resulting from lower production levels by the automotive
manufacturers compared to the same quarter in 2002. Vehicle deliveries declined
by 5.8% during the second quarter of 2003 versus the second quarter of 2002.
The

24



---



##### 



Companys results of operations are also adversely affected by cyclical
downturns in the general economy and in the automotive industry as well as
consumer preferences in purchasing new automobiles, SUVs and light trucks
instead of small passenger vehicles. The Company experienced reduced load
factors on deliveries of SUVs
and light trucks due to their size, which results in less revenue per load of
vehicle delivered. Additionally, manufacturing production downtime, vacations
and model change-overs traditionally take place during the third quarter by the
automotive manufacturers and as a result, the Company typically experiences
lower vehicle deliveries in the third quarter, as compared to other quarters.

The Company recorded net income of $3.4 million in the second quarter of 2003
versus net income of $2.1 million in the second quarter of 2002. Results for
the second quarter of 2003 include foreign exchange gains of $1.4 million
related primarily to the Companys operating subsidiary in Canada and $3.0
million of investment income from marketable securities held by the Companys
captive insurance company. The Company realized approximately $1.3 million of
its total investment income recognized in the second quarter. Basic earnings
per share in the second quarter of 2003 were $0.40 versus $0.25 in the second
quarter of 2002. Diluted earnings per share in the second quarter of 2003 were
$0.39 versus $0.24 in the second quarter of 2002. For the six-month period
ended June 30, 2003, the Company experienced a net loss of $2.3 million versus
a net loss of $3.1 million for the six-month period ended June 30, 2002.
Results for the first six months of 2003 include $3.3 million of investment
income and $2.4 million of foreign exchange gains, compared to $0.9 million of
investment income and nominal gains related to foreign exchange rates in the
first six months of 2002. Basic and diluted loss per share were $0.27 for the
six-month period ended June 30, 2003 versus basic loss per share of $0.38 and
diluted loss per share of $0.36 for the six-month period ended June 30, 2002.

Earnings before interest, taxes, depreciation and amortization, gains and
losses on disposal of assets, gain on the early extinguishment of debt, foreign
exchange gains, net and other losses (Adjusted EBITDA) for the second quarter
of 2003 were $19.4 million compared to $23.5 million of Adjusted EBITDA
reported during the second quarter of 2002. For the six-month period ended
June 30, 2003 Adjusted EBITDA was $30.0 million versus $39.9 million for the
six-month period ended June 30, 2002. Adjusted EBITDA for the second quarter of
2003 was adversely affected by approximately $4.0 million related to decreased
vehicle deliveries arising from lower original equipment manufacturer (OEM)
production levels in 2003 versus 2002, offset somewhat by the
Companys internal initiatives that continued to gain traction.
Specifically, incidents of cargo
damage, worker injuries and traffic accidents declined versus the same period
in 2002. The benefit from improved execution of internal initiatives virtually
eliminated the approximate $2.0 million increase in costs during the second
quarter from increased wages and benefits to the Companys Teamster-represented
employees. In the U.S., the Companys costs for these employees were higher
during April and May of 2003, the final two months of the previous Teamster
contract, versus the same period in the prior year. Starting June 1, 2003, the
Company began operating under a new five-year agreement with the Teamsters in
the U.S. and there was no wage or benefit inflation in June of 2003. Wages
under the new U.S. agreement will remain frozen for the first two years of the
agreement and health, welfare and pension contributions will increase beginning
August 1, 2003. Management believes that this new five year contract stabilizes
the Companys U.S. Teamster labor agreement during a critical phase of the
Companys turnaround and that the successful ratification of the new labor
agreement is an important step in Allieds ongoing revitalization
effort. There was no wage and benefit inflation for employees represented
by the Teamsters in Canada during the second quarter of 2003 as a result of new
labor agreements negotiated in Canada over the past year.

Adjusted EBITDA is presented because management believes it provides useful
information to investors regarding the Companys ability to generate cash flows
that can be used to service debt and provide for capital expenditures.
Adjusted EBITDA is also a component of certain financial covenants in the
Companys debt agreements. A reconciliation of Adjusted EBITDA to Net Income
and Operating Cash Flows is provided below, as they are the closest measures in
the Companys financial statements prepared in accordance with Generally
Accepted Accounting Principles (GAAP), in terms of comparability to Adjusted
EBITDA. Because Adjusted EBITDA is not a measure determined in accordance with
GAAP and is thus susceptible to varying calculation, Adjusted EBITDA as
presented may not be comparable to other similarly titled measures used by
other companies.

25



---



##### 



The following table reconciles Adjusted EBITDA to Net Income and Operating Cash
Flows for the three and six months ended June 30, 2003 and 2002 (in thousands):

|                                                                |                                                  |   |                    |        |                  |   |        |        |      |   |        |        |   |   |        |         |  
|--------------------------------------------------------------- | ------------------------------------------------ | - | ------------------ | ------ | ---------------- | - | ------ | ------ | ---- | - | ------ | ------ | - | - | ------ | ------- | -
|                                                                |                                                  |   | Three Months Ended |        | Six Months Ended
|                                                                |                                                  |   | June 30,           |        | June 30,        
|                                                                |                                                  |   |                    |        |                 
|                                                                |                                                  |   | 2003               |        | 2002             |   | 2003   |        | 2002
|                                                                |                                                  |   |                    |        |                  |   |        |        |     
|Reconciliation of Net Income to Adjusted
EBITDA:                |                                                  |   |                    |        |                  |   |        |        |      |   |        |        |   |   |        |        
|Net income (loss)                                               |                                                  | $ | 3,372              |        |                  | $ | 2,109  |        |      | $ | (2,292 | )      |   | $ | (3,139 | )      
|Income tax expense (benefit)                                    |                                                  |   | 1,244              |        |                  |   | 793    |        |      |   | (845   | )      |   |   | 407    |        
|Interest expense                                                |                                                  |   | 7,373              |        |                  |   | 7,610  |        |      |   | 14,754 |        |   |   | 15,732 |        
|Investment income                                               |                                                  |   | (3,007             | )      |                  |   | (615   | )      |      |   | (3,333 | )      |   |   | (887   | )      
|Gain on early extinguishment of debt                            |                                                  |   |                   |        |                  |   |       |        |      |   |       |        |   |   | (2,750 | )      
|Foreign exchange losses (gains), net                            |                                                  |   | (1,430             | )      |                  |   | 4      |        |      |   | (2,448 | )      |   |   | (33    | )      
|Other, net                                                      |                                                  |   |                   |        |                  |   |       |        |      |   |       |        |   |   | 207    |        
|Cumulative effect of change in accounting
principle, net of tax |                                                  |   |                   |        |                  |   |       |        |      |   |       |        |   |   | 4,092  |        
|Loss (gain) on disposal of operating assets                     |                                                  |   | 195                |        |                  |   | 315    |        |      |   | 459    |        |   |   | (714   | )      
|Depreciation and Amortization                                   |                                                  |   | 11,653             |        |                  |   | 13,282 |        |      |   | 23,677 |        |   |   | 26,945 |        
|                                                                |                                                  |   |                    |        |                  |   |        |        |      |   |        |        |   |   |        |        
|Adjusted EBITDA                                                 |                                                  | $ | 19,400             |        |                  | $ | 23,498 |        |      | $ | 29,972 |        |   | $ | 39,860 |        
|                                                                |                                                  |   |                    |        |                  |   |        |        |      |   |        |        |   |   |        |        
|Reconciliation of operating cash flows to
Adjusted EBITDA:      |                                                  |   |                    |        |                  |   |        |        |      |   |        |        |   |   |        |        
|Cash provided by operations                                     |                                                  | $ | 7,801              |        |                  | $ | 16,726 |        |      | $ | 3,194  |        |   | $ | 41,097 |        
|Adjustments:                                                    |                                                  |   |                    |        |                  |   |        |        |      |   |        |        |   |   |        |        
|                                                                | Interest expense                                 |   |                    | 7,373  |                  |   |        | 7,610  |      |   |        | 14,754 |   |   |        | 15,732  |  
|                                                                | Interest paid in kind                            |   |                    | (356   | )                |   |        | (365   | )    |   |        | (725   | ) |   |        | (377    | )
|                                                                | Investment income                                |   |                    | (3,007 | )                |   |        | (615   | )    |   |        | (3,333 | ) |   |        | (887    | )
|                                                                | Amortization of deferred financing costs         |   |                    | (1,042 | )                |   |        | (983   | )    |   |        | (2,054 | ) |   |        | (2,028  | )
|                                                                | Income tax expense (benefit)                     |   |                    | 1,244  |                  |   |        | 793    |      |   |        | (845   | ) |   |        | 407     |  
|                                                                | Deferred income taxes                            |   |                    | (3,730 | )                |   |        | (2,235 | )    |   |        | 671    |   |   |        | (468    | )
|                                                                | Amortization of Teamster union contract costs    |   |                    | (400   | )                |   |        | (600   | )    |   |        | (1,000 | ) |   |        | (1,200  | )
|                                                                | Compensation expense related to stock options    |   |                    | (60    | )                |   |        | (89    | )    |   |        | (120   | ) |   |        | (148    | )
|                                                                | Total change in operating assets and liabilities |   |                    | 11,577 |                  |   |        | 3,256  |      |   |        | 19,430 |   |   |        | (12,268 | )
|                                                                |                                                  |   |                    |        |                  |   |        |        |      |   |        |        |   |   |        |        
|Adjusted EBITDA                                                 |                                                  | $ | 19,400             |        |                  | $ | 23,498 |        |      | $ | 29,972 |        |   | $ | 39,860 |        
|                                                                |                                                  |   |                    |        |                  |   |        |        |      |   |        |        |   |   |        |        

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

During the second quarter of 2003, the Company began operating under a new
five-year agreement with the International Brotherhood of Teamsters
(Teamsters) in the United States. The agreement was effective beginning June
1, 2003.

26



---



##### 



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

Salaries, wages and fringe benefits increased from 53.4% of revenues in the
second quarter of 2002 to 53.7% of revenues in the second quarter of 2003, and
decreased from 54.4% of revenues for the six-month period ended June 30, 2002
to 54.3% of revenues for the six-month period ended June 30, 2003. On June 1,
2002 Teamster wages and benefits increased based on the provisions of the
Master Agreement in effect at that time. The changes mandated by the Master
Agreement resulted in increased costs of approximately $2.0 million in the
second quarter of 2003 over 2002 and $5.0 million in the first six months of
2003 over 2002. The wage and benefit increases were partially offset by
continued productivity and efficiency improvements implemented by the Company.
These productivity and efficiency improvements included a better day-to-day
management of the Companys labor needs for drivers, as the Master Agreement
allows for temporary layoffs of the driver workforce based on driver
requirements. Wage and benefit increases were also offset by a reduction in
workers compensation expense, which is due to the Companys ongoing initiative
to reduce worker injuries.

The new agreement with the Teamsters in the United States covers approximately
70% of the Company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 the Company during each year of
the agreement. The economic provisions of the contract are anticipated to
increase the Companys 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.

During March 2003, the Company renegotiated a contract that expired October 31,
2002 with the Teamsters Union in Eastern Canada. The employees governed by
this contract represent approximately 70% of the Companys 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 increases 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 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 increased from 15.0% of revenues in the second
quarter of 2002 to 15.6% of revenues in the second quarter of 2003, and
increased from 14.8% of revenues for the six-month period ended June 30, 2002
to 16.4% of revenues for the six-month period ended June 30, 2003. The
increase for the six-month period was due primarily to an increase in fuel
costs experienced in 2003. Fuel costs increased by an average of 25% per
gallon, resulting in higher fuel expense of $1.2 million in the second quarter
of 2003 versus 2002, and $6.2 million in the first six months of 2003 versus
the first six months of 2002. The Company has negotiated fuel surcharges with
customers representing approximately 64.0% of the Companys customers, which
enables it to pass on fuel costs to such customers. However, the customer fuel
surcharges typically reset at the beginning of each quarter based on the fuel
prices from the previous quarter. Therefore, there is a one-quarter lag between
the time fuel prices change and the adjustment to the fuel surcharge. Fuel
surcharges are recorded as a component of revenue.

Purchased transportation increased from 10.7% of revenues in the second quarter
of 2002 to 11.2% of revenues in the second quarter of 2003, and increased from
10.4% of revenues for the six-month period ended June 30, 2002 to 11.4% of
revenues for the six-month period ended June 30, 2003. The increase was due
primarily to a shift in the mix of owner-operators versus company drivers and
an increase in business at locations where owner-operators are utilized for
vehicle deliveries. All costs for owner-operators are included in purchased
transportation expense.

Insurance and claims expense decreased from 5.4% of revenues in the second
quarter of 2002 to 5.0% of revenues in the second quarter of 2003, and
decreased from 5.2% of revenues for the six-month period ended June 30, 2002 to
4.7% of revenues for the six-month period ended June 30, 2003. The decrease was
a result of lower cargo claims experienced

27



---



##### 



on shipped vehicles as well as a
reduction in auto liability accidents. These operating improvements are a
result of the Companys ongoing initiatives to improve quality and safety
measures, as well as claims processing.

Depreciation and amortization decreased from 5.6% of revenues in the second
quarter of 2002 to 5.1% of revenues in the second quarter of 2003, and
decreased from 6.0% of revenues for the six-month period ended June 30, 2002 to
5.3% of revenues for the six-month period ended June 30, 2003. The decrease
is due primarily to the disposal of assets in 2002 with a net book value of
approximately $5.1 million, combined with capital spending that was lower than
depreciation and amortization expense in calendar year 2002 and for the first
six months of 2003.

During 2002, the Company performed an analysis of certain fleet equipment that
was idled in that year or a preceding year. The assets were evaluated in order
to determine if they were candidates for the fleet remanufacturing and engine
replacement
program. Approximately 1,000 tractors or trailers were not considered viable
candidates for the program and a decision was made that they would not be
placed back into operations. As a result, depreciation was accelerated to the
reduced useful life resulting in an additional charge of $2.1 million to
depreciation expense in the fourth quarter of 2002. During the third quarter
of 2003, the Company began disposal of these assets and anticipates completion
by the end of 2003.

The Company continues its tractor and trailer (Rig) remanufacturing program
to remanufacture existing owned Rigs rather than purchasing new Rigs.
Remanufacturing existing Rigs requires less capital spending than purchasing
new Rigs. During the second quarter of 2003, the Company remanufactured
approximately 30 Rigs and replaced approximately 40 engines in its tractors.
The total remanufactured Rigs and replaced engines during the life of the
program are approximately 440 and 500, respectively. Due to the production
cutbacks by the automotive industry in the second quarter of 2003 and the
cyclical decline in the industry typically experienced in the third quarter,
the Company will continue to evaluate the number of vehicles to be
remanufactured during the third quarter of 2003 as visibility into product
shipment levels improve. The Company expects to spend between $15.0 and $20.0
million on capital expenditures during calendar year 2003 related mainly to the
fleet remanufacturing program.

Other operating expenses increased from 0.6% of revenues in the second quarter
of 2002 to 1.1% of revenues in the second quarter of 2003, and increased from
1.0% of revenues for the six-month period ended June 30, 2002 to 1.2% of
revenues for the six-month period ended June 30, 2003. The increase was due
primarily to additional expenses related to the negotiation of the new
agreement with the Teamsters that were incurred mainly during the second
quarter of 2003.

Investment income increased from $615,000 in the second quarter of 2002 to $3.0
million in the second quarter of 2003, and increased from $887,000 for the
six-month period ended June 30, 2002 to $3.3 million for the six-month period
ended June 30, 2003 which included $2.1 million and
$1.2 million realized and unrealized gains, respectively. The
increase was due to an increase in value on marketable
debt and equity securities held by the Companys captive insurance company.

Foreign exchange gains, net increased from $4,000 in the second quarter of 2002
to $1.4 million in the second quarter of 2003, and increased from $33,000 for
the six-month period ended June 30, 2002 to $2.4 million for the six-month
period ended June 30, 2003. The increase was due primarily to favorable
exchange rate changes related to the Companys operating subsidiary in Canada
that resulted from a strengthening of the Canadian dollar in relation to the
U.S. dollar that continued through the second quarter of 2003. The Canadian
dollar increased in value by approximately 17%, as compared to the U.S. dollar
since the beginning of 2003.

Financial Condition, Liquidity and Capital Resources

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

28



---



##### 



Net cash provided by operating activities totaled $3.2 million for the
six-month period ended June 30, 2003 versus $41.1 million for the six-month
period ended June 30, 2002. The decrease in cash provided by operations was due
primarily to reduced Adjusted EBITDA, increased funding of the Companys
captive insurance company, as well as unfavorable changes in working capital.
For the six-month period ended June 30, 2003 working capital changed
unfavorably by $19.4 million, versus a favorable change of $12.3 million for
the six-month period ended June 30, 2002. The unfavorable change in working
capital in 2003 was related to a decrease in cash generated from accounts
receivable of $7.0 million, a change in the investment portfolio mix of the
Companys captive insurance company from cash to short-term investments, as
well as an increase in cash used to settle accounts payable and accrued
liabilities. During 2002, the Company reduced its accounts receivable
outstanding with customers by $13.8 million. As of December 31, 2001 the
average days outstanding in accounts receivable were 31.2, which was reduced to
23.2 and 17.9 at December 31, 2002 and June 30, 2003 respectively. The
increase in short-term investments was due primarily to increased funding of
the Companys captive insurance company resulting from a change in its primary
insurance carrier from Kemper to Ace U.S.A. In the first six months of 2003,
the Company changed primary insurance carriers due to a downgrading of Kemper
by A.M. Best. As a result of the change in carriers, the Company experienced
increased collateral requirements that required increased funding to the
Companys captive insurance company. The Company is aggressively pursuing
alternatives to resolve the collateral requirements. As a result, the
investments held by the captive insurance have been converted into short-term investments that are highly liquid, which will reduce the
amount of assets necessary to secure the lines of credit.

Net cash used in investing activities totaled $8.4 million for the six-month
period ended June 30, 2003 versus $2.2 million for the six-month period ended
June 30, 2002. Cash paid to purchase capital items, which are related mainly
to the fleet remanufacturing program, increased by $0.9 million while cash
proceeds from the sale of assets and joint ventures decreased
by $5.6 million. The Company did not sell any significant assets in the first
six months of 2003. The Company began its fleet remanufacturing program in
2002 and capital expenditures were weighted more in the third and fourth
quarters of 2002. However, during 2003 the Company reduced the number of Rigs
remanufactured during the second quarter primarily due to cutbacks in
production levels by the OEMs. The Company will continue to evaluate the
progression of the remanufacturing program throughout 2003. Capital
expenditures for fiscal year 2003 are expected to be in the range of $15.0
million to $20.0 million related mainly to the fleet remanufacturing program.

Net cash provided by financing activities totaled $1.9 million for the
six-month period ended June 30, 2003 versus net cash used in financing
activities of $30.1 million for the six-month period ended June 30, 2002. Debt
repayments were lower in 2003 due to reduced Adjusted EBITDA, increased working
capital requirements set forth in the Credit Facility, lower cash proceeds from
asset sales, and the increase in funding requirements of the Companys captive
insurance company.

On February 25, 2002, the Company refinanced its revolving credit facility and
$40.0 million Senior Subordinated Notes with a new credit facility including
certain term loans (the Term Loans)(collectively the Credit Facility.)
Proceeds from the Term Loans were used to repurchase the $40.0 million of
Senior Subordinated Notes for $37.25 million. The Credit Facility includes a
revolving credit facility (the Revolver) that allows the Company to borrow
under a revolving line of credit up to the lesser of $120.0 million or a
borrowing base amount as defined in the Credit Facility agreement. The interest
rate for the Revolver is based upon the prime rate plus 1.5% or LIBOR plus 4.5%
with a minimum interest rate of 6.5%. Annual commitment fees are due on the
undrawn portion of the commitment. At June 30, 2003, $34.7 million was
outstanding under the Revolver, and approximately $20.9 million was committed
under letters of credit. As of June 30, 2003, the Company had approximately
$26.6 million available under the Revolver. The Revolver matures on February
25, 2005.

Borrowings under the Credit Facility are secured by a first priority security
interest on assets of the Company and certain of its subsidiaries, including a
pledge of stock of certain subsidiaries. In addition, certain subsidiaries of
the Company jointly and severally guarantee the obligations of the Company
under the Credit Facility.

29



---



##### 



The Credit Facility contains four loans with the following terms (in
thousands):

|                |  |                   |  |                   |  |                   |  |                  
|--------------- |  | ----------------- |  | ----------------- |  | ----------------- |  | -----------------
|                |  | Term Loan A       |  | Term Loan B       |  | Term Loan C       |  | Term Loan D      
|                |  |                   |  |                   |  |                   |  |                  
|Date of note    |  | February 25, 2002 |  | February 25, 2002 |  | February 25, 2002 |  | February 25, 2002
|Maturity date   |  | February 25, 2005 |  | February 25, 2005 |  | February 25, 2005 |  | February 28, 2005
|Original amount |  | $17,500           |  | $25,000           |  | $11,000           |  | $29,250          
|Unpaid balance  |  | $  4,371          |  | $21,198           |  | $11,724           |  | $29,250          
|Interest rate   |  | Prime + 2.75% or  |  | Prime + 6.5% or   |  | Prime + 9% or     |  | Prime + 3.5%     
|                |  | Min of 7.75%      |  | Min of 11.5%      |  | Min of 14%        |  |                  

Term Loan A is repayable in installments over three years, with interest
payable monthly based upon the prime rate plus 2.75% with a minimum interest
rate of 7.75%. Term Loan B is repayable in installments over three years, with
interest payable monthly based upon the prime rate plus 6.50%. The interest
rate on Term Loan B includes interest paid in kind of 3.50% that will be
payable upon maturity. The minimum interest for Term Loan B is 11.50%. Term
Loan C is payable in full at maturity with interest payable monthly based upon
the prime rate plus 9.00%. The interest rate on Term Loan C also includes
interest paid in kind of 5.00% that will be payable upon maturity. The minimum
interest for Term Loan C is 14.00%. Term Loan D is payable in full at maturity
with interest payable quarterly based upon the prime rate plus 3.50%. In
addition, the Company currently has outstanding indebtedness of $150 million
under a series of 8 5/8% Senior Notes maturing in 2007.

Future maturities of long-term debt are as follows at June 30, 2003 (in
thousands):

|                                |  |   |         | 
|------------------------------- |  | - | ------- | 
|July 1, 2003 to June 30, 2004   |  | $ | 11,000  | 
|July 1, 2004 to June 30, 2005   |  |   | 90,265  | 
|July 1, 2005 to June 30, 2006   |  |   | 0       | 
|July 1, 2006 to June 30, 2007   |  |   | 0       | 
|July 1, 2007 to October 1, 2007 |  |   | 150,000 | 
|                                |  |   |         | 
|                                |  | $ | 251,265 | 
|                                |  |   |         | 

The Credit Facility agreement sets forth a number of affirmative, negative and
financial covenants binding on the Company. The negative covenants limit the
ability of the Company to, among other things, incur debt, incur liens, make
investments, sell assets, or declare or pay any dividends on its capital stock.
The financial covenants require the Company to maintain minimum consolidated
earnings before interest, taxes, depreciation and amortization, and gains and
losses on disposal of operating assets, and also includes leverage and fixed
charges coverage ratios. During the first quarter of 2003, the Company amended
its Credit Facility agreement to adjust two financial covenants: the minimum
consolidated Covenant EBITDA and the maximum fixed charges coverage ratio. The
Company incurred a fee of $300,000 related to the completion of the amendment
to the Credit Facility. Prior to the amendment, the minimum consolidated
Covenant EBITDA increased from $60.0 million at December 31, 2002 to $70.0
million at December 31, 2003. The minimum consolidated Covenant EBITDA is
tested monthly and the increases were at varying amounts each month. The
amendment reduced the increases and the minimum consolidated Covenant EBITDA
from $70.0 million to $65.0 million. Therefore, the minimum consolidated
Covenant EBITDA will now increase from $60.0 million at December 31, 2002 to
$65.0 million at December 31, 2003. In addition, the fixed charges coverage
ratio covenant was amended based on the reduction in the Covenant EBITDA. The
financial covenants were amended by the Company and its lenders due to the
potential adverse financial impact from external factors in 2003 including, but
not limited to, the war with Iraq and a drop in new vehicle production, as well
as higher fuel prices. There can be no assurance that the Company will be able
to comply with these or its other debt covenants or that, if it fails to do so,
it will be able to obtain amendments to or waivers of such covenants. Failure
of the Company to comply with covenants contained in its debt instruments, if

30



---



##### 



not waived, or to adequately service debt obligations, could result in a
default under the Credit Facility. Any default under the Companys debt
instruments, particularly any default that results in an acceleration of
indebtedness or foreclosure on collateral, could have a material adverse effect
on the Company.

In addition, the Company is involved in various litigation matters, including
the Gateway Development & Manufacturing case, Commercial Carriers, Inc.
case and the Ryder Systems case. While it is not possible to predict the outcome of the litigation
against the
Company and while the Company believes that these claims are without merit, if
the litigation is resolved in a manner that is adverse to the
Company, it could have a material adverse effect on the
Companys consolidated financial position and
significantly increase the Companys need for additional liquidity.

Quantitative and Qualitative Disclosures about Market Risk

Disclosures About Market Risks

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

Investments

The Company does not use derivative financial instruments in its investment
portfolio. The Company places its investments in instruments that meet high
credit quality standards, as specified in the Companys investment policy
guidelines. The policy also limits the amount of credit exposure to any one
issue, issuer, and type of instrument. Short-term investments at June 30, 2003,
which are recorded at fair value of $67.8 million, have exposure to price risk.
This risk is estimated as the potential loss in fair value resulting from a
hypothetical 10% adverse change in quoted prices and amounts to $6.8 million.

Interest Rates

The Company primarily issues long-term debt obligations to support general
corporate purposes including capital expenditures and working capital needs.
The majority of the Companys long-term debt obligations bear a fixed rate of
interest. A one-percentage point increase in interest rates affecting the
Companys floating rate long-term debt would reduce pre-tax income by $1.0
million over the next fiscal year. A one-percentage point change in interest
rates would not have a material effect on the fair value of the Companys fixed
rate long-term debt.

Substantial Leverage

The Company has consolidated indebtedness, which is substantial in relation to
its stockholders equity. As of June 30, 2003, the Company had total long-term
debt of approximately $251.3 million (excluding approximately $122.1 million of
trade payables and other accrued liabilities) and stockholders equity of
approximately $13.2 million. In addition, the Company has additional borrowings
available under its revolving credit facility, which is discussed in the notes
to the Companys consolidated financial statements included in this Quarterly
Report on Form 10-Q. The Companys leveraged financial position exposes it to
the risk of increased interest rates, may impede its ability to obtain
financing in the future for working capital, capital expenditures and general
corporate purposes, and may make the Company more vulnerable to economic
downturns and work stoppages, and limit its ability to withstand competitive
pressures.

The Companys debt instruments contain a number of affirmative, negative, and
financial covenants, which limit the ability of the Company to, among other
things, incur debt, incur liens, make investments, make capital expenditures,
make dividend or other distributions or enter into a merger or consolidation
transaction. As of June 30, 2003, the Company was in compliance with the terms
of its various long-term debt covenants. There can be no assurance, however,
that the Company will be able to comply with its debt covenants in the future
or that, if it fails

31



---



##### 



to do so, it will be able to obtain amendments to or
waivers of such covenants on commercially reasonable terms, if at all.

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

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

Labor Matters

Employees of the Companys subsidiary, Allied Systems, which represents
approximately 70% of the Companys workforce, are represented by the
International Brotherhood of Teamsters Union in the United States. A new
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.

Economic provisions of the agreement include a wage freeze for the first two
years of the agreement and wage increases of approximately 2% on June 1, 2005,
2% 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 the
Company during each year of the agreement. The economic provisions of the
contract will increase the Companys 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 addition to the
economic provisions, the agreement contains key changes in work-rule provisions
that provide increased flexibility in the Companys operations in order to meet
evolving client expectations and potentially improve the Companys ability to
compete for new business.

The United Auto Workers (UAW) contract with Ford Motor Company, General
Motors Corporation, and DaimlerChrysler Corporation expires in September 2003.
The failure of any of these automobile manufacturers to negotiate a new
agreement with the UAW without a work stoppage, which reduces production
levels could have a material adverse effect on the Company.

Fuel Prices

Allied Automotive Group is dependent on diesel fuel to operate its fleet of
Rigs. Diesel fuel prices are subject to fluctuations due to unpredictable
factors such as weather, government policies, and changes in global demand and
global production. To reduce price risk caused by market fluctuations, Allied
Automotive Group periodically purchases fuel in advance of consumption. A 10%
increase in diesel fuel prices would reduce pre-tax income by $4.9 million over
the next fiscal year assuming levels of fuel consumption and pricing in the
remainder of 2003 is

32



---



##### 



consistent with the first six months of 2003, without
taking into account any positive impact arising from fuel surcharges.

Competition

The automotive transportation industry is highly competitive, as Allied
Automotive Group currently competes with other motor carriers of varying sizes,
as well as with railroads. Allied Automotive Group also competes with non-union
motor carriers. The development of new methods of hauling vehicles could also
lead to competition.

The carhaul business is labor intensive for union carhaul companies. Wages and
benefits represented approximately $123.5 million of the Companys consolidated
operating expenses for the quarter ended June 30, 2003. There has been an
increase in the number of carhaul companies that utilize non-union labor, and
the market share represented by such companies has increased. Carhaul companies
that utilize non-union labor operate at a significant cost advantage as
compared to Allied Automotive Group and other union carhaul companies due to
lower labor costs, primarily as a result of lower benefit and pension costs.
Non-union competitors also operate without work rules which apply to Allied
Automotive Group and other union companies, which provide non-union companies
with a competitive advantage. Non-union companies, which operate at a
significant cost advantage to Allied
Automotive Group, may be able to provide delivery services at a cost to
customers that are less than the cost of Allied Automotive Groups services.

Self Insurance Claims

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

Dependence on Major Customers

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

Foreign Currency Exchange Rates

Although the majority of the Companys operations are in the United States, the
Company does have foreign subsidiaries (primarily Canada). The net investment
in foreign subsidiaries translated into dollars using month-end exchange rates
at June 30, 2003 is $75.7 million. The potential loss in fair value impacting
other comprehensive income resulting from a hypothetical 10% change in quoted
foreign currency exchange rates amounts to $7.6

33



---



##### 



million. At June 30, 2003 a
payable balance of $12.4 million related to intercompany transactions was
recorded on the Companys Canadian subsidiary. The potential loss from a
hypothetical 10% change in quoted foreign currency exchange rates related to
this balance amounts to $1.2 million as of June 30, 2003. The Company does not
use derivative financial instruments to hedge its exposure to changes in
foreign currency exchange rates.

Revenue Variability

The Companys revenues are variable and can be impacted by sudden unexpected
changes in OEM production levels. In addition, the Companys revenues are
seasonal, with the second and fourth quarters generally experiencing higher
revenues than the first and third quarters. The volume of vehicles shipped
during the second and fourth quarters is generally higher due to the
introduction of new models, which are shipped to dealers during those periods
and the higher spring, and early summer sales of automobiles and light trucks.
During the first and third quarters, vehicle shipments typically decline due to
lower sales volume during those periods and scheduled plant shut downs. Except
for the impact of rising fuel costs discussed herein, inflation has not
significantly affected the Companys results of operations. Automobile
manufacturers have made production cutbacks during 2003. As a result, the
Company could potentially experience a decline in vehicle deliveries during the
third quarter.

Dependence on Automotive Industry

The automotive transportation industry is dependent upon the volume of new
automobiles and light trucks manufactured, imported and sold. The automotive
industry is highly cyclical, and the demand for new automobiles and light
trucks is directly affected by such external factors as general economic
conditions in the United States, unemployment, consumer confidence, federal
policies, the possibility of war, terrorist activities, and the availability of
affordable new car financing. As a result, the Companys results of operations
are adversely affected by cyclical downturns in the general economy or in the
automotive industry and by consumer preferences in purchasing new automobiles,
SUVs, and light trucks. Inventories of new vehicles in the second quarter of
2003 were significantly higher than the 2002 levels and sales of new vehicles
in the second quarter of 2003 were lower than the 2002 levels. As a result,
automotive manufacturers have recently announced reductions in new vehicle
production in the third quarter of 2003 compared to the third quarter of 2002.
A significant decline in the volume of automobiles, SUVs, and light trucks
manufactured as well as sold in North America, or a material change in the
overall mix of vehicles manufactured, could similarly have a material adverse
effect on the Company.

Contractual Obligations

The Company has certain long-term contractual
obligations including operating lease obligations and purchase and
service contract commitments that are
not required to be recorded in the Companys consolidated balance sheet. The Company has no
material changes to this disclosure as made in its Annual Report on Form 10-K
for the year ended December 31, 2002.

Dependence on Key Personnel

The success of the Company is dependent upon its senior management team, as
well as its ability to attract and retain qualified personnel. The Companys
credit facility provides that the facility may be terminated in the event Hugh
E. Sawyer ceases to be involved in the day to day operation of the Company,
unless a successor reasonably acceptable to the lenders is appointed within 90
days of his cessation of involvement with the Company. There is no assurance
that the Company will be able to retain its existing senior management or to
attract additional qualified personnel.

Critical Accounting Policies

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

34



---



##### 



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 managements estimates and assumptions. Accordingly,
actual results could differ from those anticipated.

The Companys critical accounting policies include the following:

CLAIMS AND INSURANCE RESERVES  Reserves for self-insured workers
compensation, automobile, and general liability losses are subject to actuarial
estimates based on historical claims experience adjusted for current industry
trends. The Company receives third-party actuarial valuations to assist in the
determination of its claims and insurance reserves. The actuarial estimates for
self-insured workers compensation and automobile liability are discounted using
managements estimate of weighted risk free interest rates for each claim year
to their present values. The claims and insurance reserves are adjusted
periodically as such claims mature to reflect changes in actuarial estimates
based on actual experience.

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

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

Significant management judgment is required in determining the Companys
provision for income taxes, deferred tax assets and liabilities and any
valuation allowance recorded against the net deferred tax assets. The net
deferred tax asset as of June 30, 2003 was $9.0 million net of a valuation
allowance of $7.1 million. The Company has recorded a valuation allowance of
$7.1 million as of June 30, 2003 due to uncertainties related to the Companys
ability to utilize some of the deferred tax assets, primarily consisting of
certain capital losses carried forward and foreign tax credits, before they
expire. The valuation allowance is based on managements estimate of taxable
income by jurisdiction in which the Company operates and the period over which
the deferred tax
assets will be recoverable. In the event that actual results differ from these
estimates or the Company adjusts these estimates in future periods, the Company
may need to establish an additional valuation allowance, which could materially
impact the financial position and results of operations.

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

35



---



##### 



GOODWILL  Pursuant to SFAS 142, goodwill is evaluated annually for impairment,
or on an interim basis if an event occurs or circumstances change that would
reduce the fair value of goodwill below its carrying value. The fair value of
goodwill is derived by using a discounted cash flow analysis. This analysis
involves estimates and assumptions by management regarding future revenue
streams and expenses. Changes to these assumptions and estimates could have a
material effect on the carrying value of goodwill and result in an impairment
charge in the Companys consolidated statements of operations. During 2003 the
Companys goodwill increased by approximately $3.9 million. The increase was
due primarily to favorable exchange rate changes related to the Companys
operating subsidiary in Canada that resulted from a strengthening of the
Canadian dollar in relation to the U.S. dollar that continued during the second
quarter of 2003. The Canadian dollar increased in value by approximately 17%,
as compared to the U.S. dollar since the beginning of 2003.

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report
on Form 10-Q contains, and from time to time the Company and its officers,
directors, or employees may make other forward-looking statements, including
statements regarding, among other items, (i) the Companys strategy, intentions
or expectations, (ii) general industry trends, competitive conditions and
customer preferences, (iii) the Companys management information systems, (iv)
the Companys remanufacturing program, (v) the Companys efforts to reduce
costs, (vi) the adequacy of the Companys sources of cash to finance its
current and future operations, (vii) the effects of the new Teamster agreements
in the U.S. and in Canada, (viii) the capital expenditures of the Company in
2003, (ix) the ability of the Company to comply with the financial covenants
set forth in the Credit Facility, and (x) resolution of litigation without
material adverse effect on the Company. This notice is intended to take
advantage of the safe harbor provided by the Private Securities Litigation
Reform Act of 1995 with respect to such forward-looking statements. Without
limiting the generality of the foregoing, the words believe, anticipate,
seek, expect, estimate, intend, plan, and similar expressions are
intended to identify such forward-looking statements. These forward-looking
statements involve a number of risks and uncertainties. Among others, factors
that could cause actual results to differ materially from historical results or
results expressed or implied by such forward-looking statements are the
following: economic recessions or downturns in new vehicle production or sales;
war in the Middle East; increases in the cost and availability of fuel; the
highly competitive nature of the automotive distribution industry; price
competition with non-union carriers; dependence on the automotive industry;
loss or reduction of revenues generated by the Companys major customers or the
loss of any such customers; the variability of OEM production and seasonality
of the automotive distribution industry; potential plant closings by the OEMs;
the Companys highly leveraged financial position; the ability of Ford Motor
Corporation, General Motors Corporation, and DaimlerChrysler Corporation to
negotiate a contract with the UAW by September 2003 without work stoppages;
labor disputes involving the Company or its significant customers; the
dependence on key personnel who have been hired or retained by the Company; the
availability of strategic acquisitions or joint venture partners; increased
frequency and severity of work related accidents and workers compensation
claims; availability of appropriate insurance coverages; increased expenses due
to layoffs of employees; changes in regulatory requirements which are
applicable to the Companys business; changes in vehicle sizes and weights
which may adversely impact vehicle deliveries per load; risks associated with
doing business in foreign countries; and other risk factors set forth from time
to time in the Companys Securities and Exchange Commission reports, including
but not limited to, this Quarterly Report on Form 10-Q and the Companys Annual
Report on Form 10-K for the year ended December 31, 2002. Many of these factors
are beyond the Companys ability to control or predict, and readers are
cautioned not to put undue reliance on such forward-looking statements. The
Company disclaims any obligation to update or review any forward-looking
statements contained in this Quarterly Report or in any statement referencing
the risk factors and other cautionary statements set forth in this Quarterly
Report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

36



---



##### 



Item 4. Controls and Procedures



| | (a) |  | Evaluation of Disclosure Controls and Procedures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The Company maintains a system of disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934) designed to provide reasonable assurance as to the reliability of
the financial statements and other disclosures included in this report, as
well as to safeguard assets from unauthorized use or disposition. The
Companys Chief Executive Officer and Chief Financial Officer evaluated
the effectiveness of the Companys disclosure controls as of the end of
the period covered by this Form 10-Q. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures are effective in alerting
them in a timely manner of material information required to be included in
the Companys periodic Securities and Exchange Commission filings.
|
| | (b) |  | Changes in Internal Control Over Financial Reporting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |     |  | No changes were made to the Companys internal control over financial
reporting during the Companys most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

PART II  OTHER INFORMATION
Item 1. Legal Proceedings

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

Gateway Development & Manufacturing, Inc. v. Commercial Carriers, Inc., et al.,
(the Gateway Case) and Commercial Carriers, Inc. v. Gateway Development &
Manufacturing, Inc., et al. (the CCI Case). The claims at issue in both the
Gateway Case and the CCI Case center around the contention that the Company
breached legal duties with respect to a failed business transaction involving
Gateway Development & Manufacturing, Inc., Ryder Truck Rental, Inc. and Ryder
System, Inc. In the Gateway Case, the Company sought and received summary
judgment in its favor on the sole claim (for tortious interference with
contract) asserted against it by Gateway Development & Manufacturing, Inc., but
that ruling was reversed on appeal. While the appellate court held that
summary judgment in favor of the Company was premature, the Company will be
permitted to raise at trial and/or further dispositive motions the substantive
arguments upon which its initial summary judgment motion was based. Subsequent
to its summary judgment ruling, the trial court permitted the filing and
service of cross-claims against the Company by the other defendants in that
action. In the CCI Case, the Company has accepted service of a separate
complaint asserting claims against the Company by the other defendants in the
Gateway Case. It is anticipated that the claims asserted in both the Gateway
Case and the CCI Case will be resolved in a unified proceeding. With respect
to the entirety of this litigation, the Company intends to continue its
vigorous defense against the claims asserted against it, as management believes
all of those claims are without merit. While the ultimate results of this
litigation cannot be predicted, if this litigation is resolved in a manner that
is adverse to the Company, it could have a material adverse effect on the
Companys consolidated financial position or results of operations.

Ryder Systems, Inc. v. Allied Holdings, Inc., AH Acquisition Corp. and Allied
Automotive Group, Inc.,in the United States District Court for the Southern
District of Florida, relates to the Companys August 1997 stock acquisition of
certain businesses formerly owned by Ryder, and the respective responsibilities
of Ryder and Allied for certain third-party injury claims associated with the
acquired businesses. Ryders original complaint was filed on August 16, 2001.
In response, the Company moved to dismiss, and the court granted that motion
with leave for

37



---



##### 



Ryder to amend its complaint. On December 26, 2001, Ryder
timely filed its amended complaint. Following the dismissal with prejudice of
one of the counts asserted by Ryder in its amended complaint, Ryder filed, on
or about August 1, 2002, a Second Amended Complaint. Ryders five-count Second
Amended Complaint alleges, in Count one, that the Company breached its
agreement with Ryder by failing to undertake certain actions (including posting
letters of credit and bonds) to substitute the Company for Ryder under an
insurance policy covering third-party claims and with various state agencies
that regulate matters such as self-insured workers compensation. In Counts
two and three, the Second Amended Complaint alleges that if these obligations
are not required by contract, the legal doctrines of promissory estoppel and
negligent misrepresentation created them. In Count four, the Second Amended
Complaint seeks a declaration that the Company is required to undertake these
actions. In Count five, Ryder seeks a
declaration that the Company is obligated to take certain steps to transfer
from Ryder to the Company the ownership and administrative responsibility for
two pension plans. The Company has filed a motion for summary judgment on all
counts, which motion is currently pending. The Company intends to continue its
vigorous defense against the claims asserted against it, and management
believes all of those claims are without merit. The Company has also raised
several counterclaims. The ultimate results of this litigation cannot be
predicted. However, if Ryder prevails on its claims and the court orders the
Company to substitute itself for Ryder by, among other things, posting
substantial letters of credit, it could have a material adverse effect on the
Companys consolidated financial position or results of operations.

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



| |  |  | On June 19, 2003 the Annual Meeting of Shareholders was held. The
following Directors were elected for terms that will expire on the date
of the annual meeting in the year indicated below. The number of shares
voted for, against and abstentions are also indicated.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Proposal I (Election of Directors)

|                   |  |     |           |          |  |          |        |  |  |  |      | 
|------------------ |  | --- | --------- | -------- |  | -------- | ------ |  |  |  | ---- | 
|                   |  |     |           |          |  | AGAINST/ |        |  |  | 
|                   |  | FOR |           | WITHHELD |  | TERM    
|                   |  |     |           |          |  |         
|Robert J. Rutland  |  |     | 7,443,224 |          |  |          | 23,949 |  |  |  | 2006 | 
|Hugh E. Sawyer     |  |     | 7,440,410 |          |  |          | 26,763 |  |  |  | 2006 | 
|William P. Benton  |  |     | 7,429,836 |          |  |          | 37,337 |  |  |  | 2006 | 
|David G. Bannister |  |     | 7,430,062 |          |  |          | 37,111 |  |  |  | 2006 | 



| |  |  | The following Directors terms will continue as indicated.
| |  |  | ----------------------------------------------------------

|                      |  |  |      | 
|--------------------- |  |  | ---- | 
|Guy W. Rutland, IV    |  |  | 2004 | 
|Berner F. Wilson, Jr. |  |  | 2004 | 
|Thomas E. Boland      |  |  | 2004 | 
|Guy W. Rutland, III   |  |  | 2005 | 
|Robert R. Woodson     |  |  | 2005 | 
|J. Leland Strange     |  |  | 2005 | 

Proposal II (Amend the Companys Amended Employee Stock Purchase Plan to
increase the number of shares subject to the Plan by 350,000)

|          |  |         |        |         |  |         |       |  |  |  |   | 
|--------- |  | ------- | ------ | ------- |  | ------- | ----- |  |  |  | - | 
|FOR       |  | AGAINST |        | ABSTAIN |  | NO VOTE
|          |  |         |        |         |  |        
|7,413,076 |  |         | 47,063 |         |  |         | 7,034 |  |  |  | 0 | 

38



---



##### 



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

(a)  Exhibit Index

|            |  |                                                                                                                                                                                                                                                                 
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                 
|10.1        |  | Summary of Financial Terms of Collective Bargaining Agreement with the
International Brotherhood of Teamsters in the United States, effective
June 1, 2003.                                                                                                     
|            |  |                                                                                                                                                                                                                                                                 
|10.2       |  | Allied Holdings, Inc. Amended and Restated 1999 Employee Stock Purchase
Plan, as amended through June 19, 2003.                                                                                                                                                 
|            |  |                                                                                                                                                                                                                                                                 
|10.3       |  | Allied Holdings, Inc. 2003 Stock Issuance Plan (incorporated by reference
from the Companys Registration Statement on Form S-8 (File No.
333-107456), filed with the Commission on July 30, 2003).                                                             
|            |  |                                                                                                                                                                                                                                                                 
|10.4       |  | Form of Allied Holdings, Inc. 2003 Restricted Stock Agreement for 2003
Stock Issuance Plan (U.S. Employees) (incorporated by reference from the
Companys Registration Statement on Form S-8 (File No. 333-107456), filed
with the Commission on July 30, 2003).
|            |  |                                                                                                                                                                                                                                                                 
|10.5       |  | Form of Allied Holdings, Inc. 2003 Stock Agreement for 2003 Stock Issuance
Plan (Canadian Employees) (incorporated by reference from the Companys
Registration Statement on Form S-8 (File No. 333-107456), filed with the
Commission on July 30, 2003).       
|            |  |                                                                                                                                                                                                                                                                 
|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 Daniel H. Popky.                                                                                                                                                                                                      
|            |  |                                                                                                                                                                                                                                                                 
|32.1        |  | Section 1350 Certification by Hugh E. Sawyer.                                                                                                                                                                                                                   
|            |  |                                                                                                                                                                                                                                                                 
|32.2        |  | Section 1350 Certification by Daniel H. Popky.                                                                                                                                                                                                                  



---

| |  |  Management contract, compensatory plan or arrangement.
| |  | --------------------------------------------------------



| | (b) |  | Reports on Form 8-K.                                                                                                                                     
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | On April 29, 2003, Allied Holdings, Inc. filed with the Commission a
Current Report on Form 8-K attaching a press release issued by it on April
29, 2003.

39



---



##### 



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: August 12, 2003 |  | By:                   |  | /s/ HUGH E. SAWYER                                                                                            
|                      |  |                       |  |                                                                                                               
|                      |  |                       |  | Hugh E. Sawyer,President and Chief Executive
Officer                                                          
|                      |  |                       |  |                                                                                                               
|Date: August 12, 2003 |  | By:                   |  | /s/ DANIEL H. POPKY                                                                                           
|                      |  |                       |  |                                                                                                               
|                      |  |                       |  | Daniel H. Popky,Senior Vice President and Chief
Financial Officer
(Principal Financial and Accounting
Officer)

40



---



##### 



EXHIBIT INDEX

|            |  |                                                                                                                                                            
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                
|            |  |                                                                                                                                                            
|10.1        |  | Summary of Financial Terms of Collective Bargaining Agreement with the
International Brotherhood of Teamsters in the United States, effective
June 1, 2003.
|            |  |                                                                                                                                                            
|10.2       |  | Allied Holdings, Inc. Amended and Restated 1999 Employee Stock Purchase
Plan, as amended through June 19, 2003.                                            
|            |  |                                                                                                                                                            
|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 Daniel H. Popky.                                                                                                 
|            |  |                                                                                                                                                            
|32.1        |  | Section 1350 Certification by Hugh E. Sawyer.                                                                                                              
|            |  |                                                                                                                                                            
|32.2        |  | Section 1350 Certification by Daniel H. Popky.                                                                                                             



---

| |  |  Management contract, compensatory plan or arrangement.
| |  | --------------------------------------------------------

41