##### Table of Contents



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, 2004
 or [ ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from
 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
    
    (I.R.S. Employer Identificationincorporation or organization)
    
    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     [  ] No Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act of 1934). [  ] Yes      
[X] No Outstanding common stock, no par value at October 15, 2004...................................................8,919,905




---



ALLIED HOLDINGS, INC. AND SUBSIDIARIES INDEX PAGEPART
I
FINANCIAL INFORMATIONITEM 1 Financial StatementsConsolidated Balance Sheets as of June 30, 2004
and December 31, 2003
    
    
    3Consolidated Statements of Operations for the
Three and Six-Month Periods Ended June 30, 2004 and 2003
    
    
    4Consolidated Statements of Cash Flows for the
Six-Month Periods Ended June 30, 2004 and 2003
    
    
    5Notes to Consolidated Financial Statements
    
    
    6ITEM 2 Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    21ITEM 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    30ITEM 4 Controls and Procedures
    
    
    30PART II
OTHER INFORMATIONITEM 1 Legal Proceedings
    
    
    31ITEM 4 Submission of Matters to a Vote of Security Holders
    
    
    31ITEM 6 Exhibits and Reports on Form 8-K
    
    
    32Signature Page
    
    
    33EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO
  2




---



##### Table of Contents



PART 1 - FINANCIAL INFORMATION 
 ITEM 1 - FINANCIAL STATEMENTS ALLIED HOLDINGS, INC. AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
(In Thousands) June 30,
    
    December 31,2004
    
    2003(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    5,301
    
    
    $
    2,148Restricted cash and cash equivalents
    
    
    26,763
    
    
    
    26,267Restricted investments
    
    
    3,235
    
    
    
    Receivables, net of allowance for doubtful accounts of
$2,173 and $3,575 respectively
    
    
    56,251
    
    
    
    55,110Inventories
    
    
    4,549
    
    
    
    4,983Deferred income taxes
    
    
    16,608
    
    
    
    20,213Prepayments and other current assets
    
    
    24,872
    
    
    
    12,644Total current assets
    
    
    137,579
    
    
    
    121,365PROPERTY AND EQUIPMENT, NET
    
    
    146,295
    
    
    
    155,573GOODWILL, NET
    
    
    89,173
    
    
    
    90,203OTHER ASSETS:Restricted cash and cash equivalents
    
    
    
    
    
    
    55,817Restricted investments
    
    
    63,746
    
    
    
    Other non-current assets
    
    
    32,546
    
    
    
    32,777Total other assets
    
    
    96,292
    
    
    
    88,594Total assets
    
    $
    469,339
    
    
    $
    455,735LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Current maturities of long-term debt
    
    $
    13,500
    
    
    $
    16,374Borrowings under revolving credit facility
    
    
    29,555
    
    
    
    Accounts and notes payable
    
    
    42,921
    
    
    
    34,272Accrued liabilities
    
    
    83,998
    
    
    
    80,937Total current liabilities
    
    
    169,974
    
    
    
    131,583LONG-TERM DEBT, less current maturities
    
    
    221,583
    
    
    
    230,126POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
    
    
    5,106
    
    
    
    5,302DEFERRED INCOME TAXES
    
    
    16,608
    
    
    
    20,213OTHER LONG-TERM LIABILITIES
    
    
    60,762
    
    
    
    59,697STOCKHOLDERS EQUITY (DEFICIT):Preferred stock, no par value; 5,000 shares authorized, none
outstanding
    
    
    
    
    
    
    Common stock, no par value; 20,000 shares authorized, 8,869
and 8,764 shares outstanding at June 30, 2004
and December 31, 2003, respectively
    
    
    
    
    
    
    Additional paid-in capital
    
    
    48,324
    
    
    
    47,511Treasury stock at cost, 139 shares at June 30, 2004
and December 31, 2003
    
    
    (707
    )
    
    
    (707
    )Accumulated deficit
    
    
    (47,825
    )
    
    
    (35,024
    )Accumulated other comprehensive loss, net of tax
    
    
    (4,486
    )
    
    
    (2,966
    )Total stockholders equity (deficit)
    
    
    (4,694
    )
    
    
    8,814Total liabilities and stockholders equity (deficit)
    
    $
    469,339
    
    
    $
    455,735
 The accompanying notes are an integral part of these consolidated balance sheets. 3




---



##### Table of Contents



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 EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003REVENUES
    
    $
    236,616
    
    
    $
    230,078
    
    
    $
    448,860
    
    
    $
    443,670OPERATING EXPENSES:Salaries, wages and fringe benefits
    
    
    127,918
    
    
    
    123,502
    
    
    
    247,865
    
    
    
    241,077Operating supplies and expenses
    
    
    41,513
    
    
    
    35,968
    
    
    
    78,559
    
    
    
    73,148Purchased transportation
    
    
    28,588
    
    
    
    25,837
    
    
    
    54,494
    
    
    
    50,550Insurance and claims
    
    
    9,641
    
    
    
    11,477
    
    
    
    18,804
    
    
    
    20,834Operating taxes and licenses
    
    
    8,096
    
    
    
    8,159
    
    
    
    14,655
    
    
    
    15,997Depreciation and amortization
    
    
    9,929
    
    
    
    11,653
    
    
    
    20,315
    
    
    
    23,677Rents
    
    
    2,029
    
    
    
    1,620
    
    
    
    3,745
    
    
    
    3,240Communications and utilities
    
    
    1,351
    
    
    
    1,580
    
    
    
    3,305
    
    
    
    3,468Other operating expenses
    
    
    2,765
    
    
    
    2,535
    
    
    
    4,951
    
    
    
    5,384Loss (gain) on disposal of operating assets, net
    
    
    127
    
    
    
    195
    
    
    
    (1,010
    )
    
    
    459Total operating expenses
    
    
    231,957
    
    
    
    222,526
    
    
    
    445,683
    
    
    
    437,834Operating income
    
    
    4,659
    
    
    
    7,552
    
    
    
    3,177
    
    
    
    5,836OTHER INCOME (EXPENSE):Interest expense
    
    
    (7,577
    )
    
    
    (7,373
    )
    
    
    (14,945
    )
    
    
    (14,754
    )Investment income
    
    
    131
    
    
    
    3,007
    
    
    
    188
    
    
    
    3,333Foreign exchange (loss) gain, net
    
    
    (966
    )
    
    
    1,430
    
    
    
    (1,121
    )
    
    
    2,448Other, net
    
    
    
    
    
    
    
    
    
    
    (100
    )
    
    
    (8,412
    )
    
    
    (2,936
    )
    
    
    (15,978
    )
    
    
    (8,973
    )(LOSS) INCOME BEFORE INCOME TAXES
    
    
    (3,753
    )
    
    
    4,616
    
    
    
    (12,801
    )
    
    
    (3,137
    )INCOME TAX (EXPENSE) BENEFIT
    
    
    
    
    
    
    (1,244
    )
    
    
    
    
    
    
    845NET (LOSS) INCOME
    
    $
    (3,753
    )
    
    $
    3,372
    
    
    $
    (12,801
    )
    
    $
    (2,292
    )(LOSS) EARNINGS PER COMMON SHARE:BASIC
    
    $
    (0.43
    )
    
    $
    0.40
    
    
    $
    (1.48
    )
    
    $
    (0.27
    )DILUTED
    
    $
    (0.43
    )
    
    $
    0.39
    
    
    $
    (1.48
    )
    
    $
    (0.27
    )WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:BASIC
    
    
    8,704
    
    
    
    8,462
    
    
    
    8,663
    
    
    
    8,436DILUTED
    
    
    8,704
    
    
    
    8,700
    
    
    
    8,663
    
    
    
    8,436
 The accompanying notes are an integral part of these consolidated statements. 4




---



##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited) For the Six Months EndedJune 30,2004
    
    2003(Restated)CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (12,801
    )
    
    $
    (2,292
    )Reconciliation of net loss to net cash (used in) provided
by operating activities:Interest expense paid in kind
    
    
    
    
    
    
    725Amortization of deferred financing costs
    
    
    1,402
    
    
    
    2,054Depreciation and amortization
    
    
    20,315
    
    
    
    23,677(Gain) loss on disposal of assets and other, net
    
    
    (1,010
    )
    
    
    459Foreign exchange (gain) loss, net
    
    
    1,121
    
    
    
    (2,448
    )Deferred income taxes
    
    
    
    
    
    
    (671
    )Compensation expense related to stock options and grants
    
    
    390
    
    
    
    120Amortization of Teamsters Union contract costs
    
    
    
    
    
    
    1,000Change in operating assets and liabilities:Receivables, net of allowance for doubtful accounts
    
    
    (4,557
    )
    
    
    9,597Inventories
    
    
    394
    
    
    
    (299
    )Prepayments and other assets
    
    
    (5,754
    )
    
    
    (2,461
    )Accounts and notes payable
    
    
    (6,136
    )
    
    
    (7,194
    )Accrued liabilities
    
    
    3,760
    
    
    
    (5,525
    )Net cash (used in) provided by operating activities
    
    
    (2,876
    )
    
    
    16,742CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (13,281
    )
    
    
    (8,417
    )Proceeds from sale of property and equipment
    
    
    2,038
    
    
    
    31Decrease (increase) in restricted cash and cash equivalents
    
    
    55,321
    
    
    
    (4,221
    )Increase in restricted investments
    
    
    (66,981
    )
    
    
    (7,077
    )Funds
deposited with insurance carriers
    
    
    (32,024
    )
    
    
    (22,680
    )Funds
returned from insurance carriers
    
    
    30,730
    
    
    
    11,203Decrease in the cash surrender value of life insurance
    
    
    147
    
    
    
    2Net cash used in investing activities
    
    
    (24,050
    )
    
    
    (31,159
    )CASH FLOWS FROM FINANCING ACTIVITIES:Additions to revolving credit facilities, net
    
    
    29,555
    
    
    
    10,084Repayment of long-term debt
    
    
    (11,417
    )
    
    
    (8,019
    )Payment of deferred financing costs
    
    
    
    
    
    
    (414
    )Proceeds
from insurance financing arrangements
    
    
    28,608
    
    
    
    15,228Repayments
of insurance financing arrangements
    
    
    (16,890
    )
    
    
    (10,222
    )Proceeds from issuance of common stock
    
    
    423
    
    
    
    191Other, net
    
    
    
    
    
    
    26Net cash provided by financing activities
    
    
    30,279
    
    
    
    6,874EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS
    
    
    (200
    )
    
    
    642NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    3,153
    
    
    
    (6,901
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    2,148
    
    
    
    9,448CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    5,301
    
    
    $
    2,547
 The accompanying notes are an integral part of these consolidated statements. 5




---



##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) June 30, 2004 and 2003 (1) Basis of Presentation The accompanying unaudited Condensed Consolidated Financial Statements included
herein have been prepared in accordance with generally accepted accounting
principles in the United States for interim financial information and with the
instructions to Form 10-Q of Regulation S-X. They do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. However, except as disclosed herein, there has
been no material change in the information disclosed in the notes to the
consolidated financial statements included in the Annual Report on Form 10-K
for the year ended December 31, 2003. The statements contained herein reflect
all adjustments (including normal recurring accruals), 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, 2004 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2004. 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 2003 Annual
Report on Form 10-K. (2) Use of Estimates The preparation of the interim 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 and goodwill; 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 January 2003, the Financial Accounting Standards Board, or FASB, issued FASB
Interpretation No. 46 Consolidation of Variable Interest Entities and
Interpretation of ARB No. 51,or FIN 46, as revised in December 2003, which
addresses the consolidation by business enterprises of variable interest
entities. FIN 46 is immediately effective for all variable interest entities
created after January 31, 2003. For variable interest entities created prior to
this date, the provisions of FIN 46 must be applied no later than the first
interim period ending after March 15, 2004; however, all public companies were
required to apply the unmodified provisions of FIN 46 to entities considered
special purpose entities by the end of the first reporting period ending
after December 15, 2003. The adoption of FIN 46 did not have any impact on the
Companys financial statements. (4) Restatements and Reclassifications During 2003, and as discussed in the Companys 2003 Annual Report on Form 10-K,
the Company evaluated the classification of its cash and investments which were
pledged to collateralize letters of credit required by third-party insurance
companies for the settlement of insurance claims. The Company concluded that
because of the restriction on certain of its cash and investments, such cash
and investments should have been designated as restricted in the
statement of cash flows. Accordingly, the Company has
restated its previously issued financial statements as of June 30, 2003 to
exclude restricted cash of $5.0 million from the cash and cash equivalents
totals in the consolidated statement of cash flows for the six months ended
June 30, 2003. The Company enters into notes
payable with third parties to finance certain insurance arrangements. During the quarter ended March 31, 2004,
the Company evaluated its insurance financing arrangements and determined that
borrowings and repayments in connection with these insurance financing
arrangements should be reclassified from operating activities to financing activities in
the consolidated statement of cash flows for the three-month period ended March 31, 2003. As a result of
the analysis, the amounts previously presented for the three-month period ended March 31, 2003
were restated for this change when the amounts were presented in the Companys Quarterly
Report on Form 10-Q for the three-month period ended March 31, 2004. 6




---



##### Table of Contents



Subsequent to the filing of the
Form 10-Q for the three-month period ended
March 31, 2004, the Company determined that certain additional
adjustments were required in the consolidated statements of cash flows for the
three-month periods ended March 31, 2004 and 2003 related
to the Companys insurance financing arrangements. These
adjustments resulted in changes to the proceeds from and repayments of
insurance financing arrangements included in cash flows from
financing activities previously reported for the three months ended
March 31, 2004 and 2003. The Company also concluded that certain
additional insurance financing arrangements should be presented in the balance sheets on a
gross basis, as assets and obligations, rather than on a net basis.
Additionally, the Company concluded that funds deposited with and
returned from the Companys insurance carriers related to
its insurance arrangements should be disclosed as cash flows from
investing activities rather than cash flows from operating
activities. 7




---



##### Table of Contents



The effects of these additional reclassifications on the
Companys consolidated statement of cash flows for the
three-month period ended March 31, 2004 include
a decrease in net cash used in operating activities of
$4.3 million, an increase in net cash used in investing activities of
$4.5 million and an increase in cash provided by financing
activities of $0.2 million. The effects of the reclassifications
on the Companys consolidated statement of cash flows for the
three-month period ended March 31, 2003 include a decrease in
net cash used in operating activities of $10.9 million,
an increase in net cash used in investing activities of
$12.9 million and an increase in cash provided by financing
activities of $2.0 million. These revised amounts for the
three-month periods ended March 31, 2004 and 2003 are
reflected in the six-month periods ended
June 30, 2004 and 2003 that have been presented in this
Form 10-Q. A summary of the effects of these restatements and reclassifications on the
Companys consolidated statement of cash flows for the six months ended June
30, 2003 includes (in thousands): June 30, 2003As PreviouslyReported
    
    As RestatedChange in operating assets and liabilities:Accounts receivable
    
    $
    3,933
    
    
    $
    9,597Prepayments and other assets
    
    $
    (3,480
    )
    
    $
    (2,461
    )Short-term investments
    
    $
    (7,077
    )
    
    $
    0Accrued liabilities
    
    $
    (5,313
    )
    
    $
    (5,525
    )Net cash provided by operating activities
    
    $
    3,194
    
    
    $
    16,742Cash flows from investing activities:Increase in restricted cash and cash equivalents
    
    $
    0
    
    
    $
    (4,221
    )Increase in restricted investments
    
    $
    0
    
    
    $
    (7,077
    )Funds
deposited with insurance carriers
    
    $
    0
    
    
    $
    (22,680
    )Funds
returned from insurance carriers
    
    $
    0
    
    
    $
    11,203Net cash
used in investing activities
    
    $
    (8,384
    )
    
    $
    (31,159
    )Cash flows from financing activities:Proceeds
from insurance financing arrangements
    
    $
    0
    
    
    $
    15,228Repayments
of insurance financing arrangements
    
    $
    0
    
    
    $
    (10,222
    )Net cash provided by financing activities
    
    $
    1,868
    
    
    $
    6,874Cash and cash equivalents at the beginning of the period
    
    $
    10,253
    
    
    $
    9,448Cash and cash equivalents at the end of the period
    
    $
    7,573
    
    
    $
    2,547
  (5)
    
    Prepayments and Other Current Assets Prepayments and other current assets consist of the following at June 30, 2004
and December 31, 2003 (in thousands): June 30,
    
    December 31,2004
    
    2003Tires on tractors and trailers
    
    $
    6,719
    
    
    $
    6,779Prepaid
insurance and deposits
    
    
    10,874
    
    
    
    2,067Prepaid licenses
    
    
    3,394
    
    
    
    1,471Other
    
    
    3,885
    
    
    
    2,327$
    24,872
    
    
    $
    12,644
 8




---



##### Table of Contents



(6)
    
    Goodwill In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, the
Company does not amortize goodwill but reviews it annually for impairment or on
an interim basis if an event occurs or circumstances change that would reduce
the fair value of goodwill below its carrying value. 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, 2004
and December 31, 2003 (in thousands): AlliedAutomotive
    
    AxisGroup
    
    Group
    
    TotalBalance as of December 31, 2003
    
    $
    77,983
    
    
    $
    12,220
    
    
    $
    90,203Decrease in carrying amount due to a
change in currency rates
    
    
    (1,025
    )
    
    
    (5
    )
    
    
    (1,030
    )Balance as of June 30, 2004
    
    $
    76,958
    
    
    $
    12,215
    
    
    $
    89,173
  (7)
    
    Other Non-Current Assets Other non-current assets consist of the following at June 30, 2004 and December
31, 2003 (in thousands): June 30,
    
    December 31,2004
    
    2003Cash surrender value of life insurance
    
    $
    6,052
    
    
    $
    6,201Deferred financing costs
    
    
    8,318
    
    
    
    9,718Prepaid pension cost
    
    
    13,781
    
    
    
    14,166Deposits and other
    
    
    4,395
    
    
    
    2,692$
    32,546
    
    
    $
    32,777
  (8)
    
    Accounts and Notes Payable and Accrued Liabilities The Company enters into notes payable
with third parties for insurance financing arrangements. The Company has outstanding notes payable of
$15.0 and $3.2 million for insurance financing arrangements as of June 30, 2004 and December 31, 2003, respectively,
due in monthly installments, generally within one year. Accrued liabilities consists of the following at June 30, 2004 and December 31,
2003 (in thousands): June 30,
    
    December 31,2004
    
    2003Wages and benefits
    
    $
    33,752
    
    
    $
    35,180Claims and insurance reserves
    
    
    34,021
    
    
    
    31,425Other
    
    
    16,225
    
    
    
    14,332$
    83,998
    
    
    $
    80,937
  (9)
    
    Employee Benefit Plans Information regarding net periodic benefit cost for the pension and
postretirement benefit plans is as follows for the three and six months ended
June 30, 2004 and 2003 (in thousands): Three Months Ended June 30,PostretirementPension Benefits
    
    Medical Benefits2004
    
    2003
    
    2004
    
    2003Service cost
    
    $
    22
    
    
    $
    13
    
    
    $
    17
    
    
    $
    13Interest cost
    
    
    676
    
    
    
    393
    
    
    
    197
    
    
    
    148Expected return on assets
    
    
    (783
    )
    
    
    (455
    )
    
    
    0
    
    
    
    0Amortization of:Unrecognized net actuarial loss
    
    
    356
    
    
    
    206
    
    
    
    0
    
    
    
    0Prior service cost
    
    
    12
    
    
    
    7
    
    
    
    (23
    )
    
    
    (17
    )Transition asset
    
    
    (5
    )
    
    
    (3
    )
    
    
    0
    
    
    
    0Recognized actuarial loss
    
    
    54
    
    
    
    31
    
    
    
    23
    
    
    
    17Net periodic benefit cost
    
    $
    332
    
    
    $
    192
    
    
    $
    214
    
    
    $
    161
 9




---



##### Table of Contents



Six Months Ended June 30,PostretirementPension Benefits
    
    Medical Benefits2004
    
    2003
    
    2004
    
    2003Service cost
    
    $
    45
    
    
    $
    26
    
    
    $
    30
    
    
    $
    25Interest cost
    
    
    1,352
    
    
    
    785
    
    
    
    350
    
    
    
    298Expected return on assets
    
    
    (1,567
    )
    
    
    (910
    )
    
    
    0
    
    
    
    0Amortization of:Unrecognized net actuarial loss
    
    
    711
    
    
    
    413
    
    
    
    0
    
    
    
    0Prior service cost
    
    
    24
    
    
    
    14
    
    
    
    (40
    )
    
    
    (34
    )Transition asset
    
    
    (10
    )
    
    
    (6
    )
    
    
    0
    
    
    
    0Recognized actuarial loss
    
    
    108
    
    
    
    63
    
    
    
    40
    
    
    
    35Net periodic benefit cost
    
    $
    663
    
    
    $
    385
    
    
    $
    380
    
    
    $
    324
  (10)
    
    Long-Term Debt Long-term debt consists of the following at June 30, 2004 and December 31, 2003
(in thousands): June 30,
    
    December 31,2004
    
    2003Term loan
    
    $
    85,083
    
    
    $
    96,500Senior notes
    
    
    150,000
    
    
    
    150,000235,083
    
    
    
    246,500Less current maturities of long-term debt
    
    
    (13,500
    )
    
    
    (16,374
    )$
    221,583
    
    
    $
    230,126
 The Companys credit facility as amended in September 2003 (the Credit
Facility) provides the Company with a $90 million revolving credit facility
(the Revolver) and a $100 million term loan (the Term Loan). The Term Loan
is payable in quarterly installments of principal and interest. Although the
Credit Facility has a maturity date of September 2007, the Company has
classified the Revolver as current based on the requirement of EITF Issue No.
95-22, Balance Sheet Classification of Borrowings Outstanding under Revolving
Credit Agreements that include both a Subjective Acceleration Clause and a
Lock-Box Arrangement. The 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%. The Credit Facility provides that the Term Loan bears interest between
8.5% and 11.5% to be determined solely on the Companys leverage as defined in
the agreement. At June 30, 2004, the interest rates on the Revolver and the
Term Loan were 6.5% and 10.0%, respectively. Annual commitment fees are due on
the undrawn portion of the commitment. The amount available under the Revolver may be reduced based on a calculation
of Revolver collateral. At June 30, 2004, $84.5 million Revolver collateral was
available. Approximately $35.4 million of the Revolver was committed under
letters of credit primarily related to the settlement of insurance claims. At
June 30, 2004, $29.6 million was outstanding under the Revolver. Accordingly,
the Company had approximately $19.5 million available under the Revolver as of
June 30, 2004. Borrowings under the Companys 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 and excluding restricted
cash, cash equivalents and investments. 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 sets forth a number of affirmative, negative, and financial
covenants binding on the Company. The Credit Facility contains a subjective
acceleration clause which permits the lenders to accelerate the maturity date
of the Credit Facility if an event or development occurs which could reasonably
be expected to have a material adverse effect on the Company, as defined in
the Credit Facility. 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 also include a maximum leverage ratio.
The Company obtained the consent of 10




---



##### Table of Contents



its lenders
under the Credit Facility to deliver its
financial statements, as required by the Credit Facility, for
the three and six months ended June 30, 2004 on or before
September 24, 2004 and the Company delivered such financial statements on
September 23, 2004. As a result, the Company was in compliance with the various covenants set
forth in the Credit Facility at June 30, 2004. Borrowings under the $150.0 million 8 5/8% senior notes (the Notes) are
general unsecured obligations of the Company, are payable in quarterly
installments of interest only, and mature on October 1, 2007. The Companys
obligations under the Notes are guaranteed by substantially all of the
subsidiaries of the Company (the Guarantor Subsidiaries). Haul Insurance
Ltd., Arrendadora de Equipo Para el Transporte de Automoviles, S. de R.L. de
C.V. and Axis Logistica, S. de R.L. de C.V. do not guarantee the Companys
obligations under the Notes (the Nonguarantor Subsidiaries). There are no
restrictions on the ability of Guarantor Subsidiaries to make distributions to
the Company. The Notes include 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). The Company has consolidated indebtedness, which is substantial in relation to
its stockholders deficit. As of June 30, 2004, the Company had total debt
including borrowings under revolving credit facilities and notes payable under insurance financing agreements of approximately $279.6
million (excluding approximately $111.9 million of trade payables and other
accrued liabilities) and stockholders deficit of approximately $4.7 million.
In addition, the Company has additional capacity for borrowings available under
its revolving credit facility. 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 will need to use a significant amount of its future cash flows 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 refinancing 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.  (11)
    
    Commitments and Contingencies(a) Letters of Credit At June 30, 2004, the Company had agreements with third parties that provide
for $125.7 million of letters of credit primarily relating to settlements of
insurance claims and reserves and support for a line of credit at one of the
Companys foreign subsidiaries. Of the total, $35.4 million of these letters
of credit are issued by the Company and are secured by available borrowings on
the Revolver and $90.3 million are issued by the Companys wholly owned captive
insurance subsidiary, Haul Insurance Limited, and are collateralized by $93.7
million of restricted investments and restricted cash and cash equivalents held
by the captive. The Company renews these letters of credit annually.  (b)
    
    Litigation, Claims, Assessments The Company is involved in various litigation and environmental matters
relating to employment practices, damages, and other matters arising from
operations in the ordinary course of business. In the opinion of management,
the ultimate disposition of these matters will not have a material adverse
effect on the Companys financial position or results of operations. As part of the previously disclosed settlement agreement with Ryder System Inc.
(Ryder), the Company has a letter of credit in favor of Ryder for $5.5
million, which is included in the $35.4 million noted in (a) above, and had
agreed to increase the letter of credit by $1.0 million each quarter through
the third quarter of 2005. Pursuant to mutual agreement, the parties have
amended the 11




---



##### Table of Contents



settlement to provide that the $1.0 million increase scheduled for the second
quarter of 2004 was to be made in the third quarter of 2004 and such increase
has subsequently been made in the third quarter as well as the $1.0 million
increase required for the third quarter of 2004. Thereafter, the Company will
increase the letter of credit by $1 million each quarter through the first
quarter of 2005. Ryder may only draw the letter of credit if the Company fails
to pay workers compensation and liability claims assumed by the Company in the
Ryder Automotive Carrier Group acquisition. The Company has provided the letter
of credit in favor of Ryder because Ryder has issued a letter of credit to its
insurance carrier relating to the workers compensation and liability claims
assumed by the Company. By March 31, 2005, and periodically thereafter, an
actuarial valuation will be made to determine the remaining outstanding amount
of workers compensation and liability claims assumed by the Company, and the
letter of credit issued by the Company in favor of Ryder will be adjusted
accordingly.  (c)
    
    Purchase and Service Contract Commitments In April 2001, the Company entered into a five-year commitment with IBM to
provide its mainframe computer processing services. In December 2003, the
Company amended the agreement. The amended agreement is a ten-year commitment,
commencing February 2004, for IBM to provide additional services to manage
applications for EDI, network services, technical services, and applications
development and support. The agreement includes outsourcing at determinable
prices defined within the agreement. The purchase commitment over the term of
the agreement totals $108.6 million.  (d)
    
    Leases The Company leases operating equipment (Rigs), office space, computer
equipment, and certain terminal facilities under noncancelable operating lease
agreements. During the second quarter of 2004 the Company entered into two new
operating leases for 30 Rigs. The commitment over the term of the leases, 5.5
years, is $4.4 million.  (12)
    
    Earnings 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 periods 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 would then share in the
earnings of the entity. A reconciliation of net (loss) income and the weighted average number of common
shares outstanding used to calculate basic and diluted (loss) earnings per
common share for the three and six months ended June 30, 2004 and 2003 is as
follows: Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Basic and Diluted Earnings Per Share:Net (loss) income
    
    $
    (3,753
    )
    
    $
    3,372
    
    
    $
    (12,801
    )
    
    $
    (2,292
    )Weighted average number of common shares outstanding:Basic
    
    
    8,704
    
    
    
    8,462
    
    
    
    8,663
    
    
    
    8,436Diluted
    
    
    8,704
    
    
    
    8,700
    
    
    
    8,663
    
    
    
    8,436Net (loss) income per common share:Basic
    
    $
    (0.43
    )
    
    $
    0.40
    
    
    $
    (1.48
    )
    
    $
    (0.27
    )Diluted
    
    $
    (0.43
    )
    
    $
    0.39
    
    
    $
    (1.48
    )
    
    $
    (0.27
    )
 Common stock equivalents for
approximately 729,000 and 282,000 shares outstanding for the six months ended June 30, 2004 and 2003, respectively, 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 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 exceeds 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 and the amended disclosure
requirements of SFAS No. 148, Accounting for Stock-Based Compensation -
Transition and Disclosure, an amendment of FASB Statement No. 123. 12




---



##### Table of Contents



If the Company applied the fair value method prescribed by SFAS No. 123, net
(loss) income and (loss) income per common share would have been changed to the
pro forma amounts indicated below for the three and six months ended June 30,
2004 and 2003 (in thousands, except per share data): Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Reported net (loss) income
    
    $
    (3,753
    )
    
    $
    3,372
    
    
    $
    (12,801
    )
    
    $
    (2,292
    )Plus: stock-based employee
compensation included in
reported net (loss)
income, net of related
taxes, when applicable
    
    
    195
    
    
    
    28
    
    
    
    390
    
    
    
    88Less: stock-based employee
compensation determined
using the fair value
method, net of related
taxes, when applicable
    
    
    (385
    )
    
    
    (160
    )
    
    
    (755
    )
    
    
    (344
    )Pro forma net (loss) income
    
    $
    (3,943
    )
    
    $
    3,240
    
    
    $
    (13,166
    )
    
    $
    (2,548
    )(Loss) earnings per share:As reported:Basic
    
    $
    (0.43
    )
    
    $
    0.40
    
    
    $
    (1.48
    )
    
    $
    (0.27
    )Diluted
    
    $
    (0.43
    )
    
    $
    0.39
    
    
    $
    (1.48
    )
    
    $
    (0.27
    )Pro forma:Basic
    
    $
    (0.45
    )
    
    $
    0.38
    
    
    $
    (1.52
    )
    
    $
    (0.30
    )Diluted
    
    $
    (0.45
    )
    
    $
    0.37
    
    
    $
    (1.52
    )
    
    $
    (0.30
    )
  (14)
    
    Other Comprehensive (Loss) Income Total comprehensive (loss) income consisted of the following (in thousands): Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net (loss) income
    
    $
    (3,753
    )
    
    $
    3,372
    
    
    $
    (12,801
    )
    
    $
    (2,292
    )Foreign currency translation adjustments
    
    
    (1,117
    )
    
    
    2,897
    
    
    
    (1,520
    )
    
    
    4,906Total comprehensive (loss) income
    
    $
    (4,870
    )
    
    $
    6,269
    
    
    $
    (14,321
    )
    
    $
    2,614
 Accumulated other comprehensive (loss), net of income taxes of $1.9 million at
June 30, 2004 and December 31, 2003, consists of the following (in thousands): June 30,
    
    December 31,2004
    
    2003Cumulative foreign currency translation adjustments
    
    $
    (3,069
    )
    
    $
    (1,549
    )Cumulative minimum pension liability adjustments
    
    $
    (1,417
    )
    
    $
    (1,417
    )Total accumulated other comprehensive income
    
    $
    (4,486
    )
    
    $
    (2,966
    )
  (15)
    
    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 internal reporting used by management to assess performance and allocate
resources. Allied Automotive Group is engaged in the business of transporting
automobiles, light trucks and SUVs from manufacturing plants, ports, auctions,
and railway distribution points to automobile dealerships throughout North
America. 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. 13




---



##### Table of Contents



Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Revenues  unaffiliated customers:Allied Automotive Group
    
    $
    230,005
    
    
    $
    223,098
    
    
    $
    435,672
    
    
    $
    429,300Axis Group
    
    
    6,611
    
    
    
    6,980
    
    
    
    13,188
    
    
    
    14,370Corporate/Other
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    $
    236,616
    
    
    $
    230,078
    
    
    $
    448,860
    
    
    $
    443,670Operating income:Allied Automotive Group
    
    $
    6,407
    
    
    $
    7,696
    
    
    $
    6,893
    
    
    $
    6,619Axis Group
    
    
    637
    
    
    
    991
    
    
    
    1,293
    
    
    
    1,662Corporate/Other
    
    
    (2,385
    )
    
    
    (1,135
    )
    
    
    (5,009
    )
    
    
    (2,445
    )Total
    
    $
    4,659
    
    
    $
    7,552
    
    
    $
    3,177
    
    
    $
    5,836Reconciling items:Interest expense
    
    $
    (7,577
    )
    
    $
    (7,373
    )
    
    $
    (14,945
    )
    
    $
    (14,754
    )Investment income
    
    
    131
    
    
    
    3,007
    
    
    
    188
    
    
    
    3,333Foreign exchange (loss) gain, net
    
    
    (966
    )
    
    
    1,430
    
    
    
    (1,121
    )
    
    
    2,448Other, net
    
    
    0
    
    
    
    0
    
    
    
    (100
    )
    
    
    0(Loss) income before income taxes
    
    $
    (3,753
    )
    
    $
    4,616
    
    
    $
    (12,801
    )
    
    $
    (3,137
    )
 June 30,
    
    December 31,2004
    
    2003Total Assets:Allied Automotive Group
    
    $
    286,677
    
    
    $
    279,208Axis Group
    
    
    28,247
    
    
    
    31,993Corporate/other
    
    
    154,415
    
    
    
    144,534Total
    
    $
    469,339
    
    
    $
    455,735
 Geographical information for the three and six months ended June 30, 2004 and
2003 is as follows (in thousands): Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Revenues:United States
    
    $
    186,859
    
    
    $
    182,552
    
    
    $
    362,078
    
    
    $
    358,757Canada
    
    
    49,757
    
    
    
    47,526
    
    
    
    86,782
    
    
    
    84,913Total
    
    $
    236,616
    
    
    $
    230,078
    
    
    $
    448,860
    
    
    $
    443,670
 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 generated from
the automotive industry.  (16)
    
    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 Guarantor Subsidiaries are jointly and severally liable for
the Companys obligations under the Notes and there are no restrictions on the
ability of the Guarantor Subsidiaries to make distributions to the Company. 14




---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
JUNE 30, 2004
(In Thousands) ALLIED
    
    GUARANTOR
    
    NONGUARANTORHOLDINGS
    
    SUBSIDIARIES
    
    SUBSIDIARIES
    
    ELIMINATIONS
    
    CONSOLIDATEDCURRENT ASSETS:Cash and cash equivalents
    
    $
    
    
    
    $
    1,190
    
    
    $
    4,111
    
    
    $
    
    
    
    $
    5,301Restricted cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    26,763
    
    
    
    
    
    
    
    26,763Restricted investments
    
    
    
    
    
    
    
    
    
    
    3,235
    
    
    
    
    
    
    
    3,235Receivables, net of allowance for doubtful accounts
    
    
    
    
    
    
    54,298
    
    
    
    1,953
    
    
    
    
    
    
    
    56,251Inventories
    
    
    
    
    
    
    4,549
    
    
    
    
    
    
    
    
    
    
    
    4,549Deferred income taxes
    
    
    13,829
    
    
    
    2,688
    
    
    
    91
    
    
    
    
    
    
    
    16,608Prepayments and other current assets
    
    
    1,648
    
    
    
    18,629
    
    
    
    4,595
    
    
    
    
    
    
    
    24,872Total current assets
    
    
    15,477
    
    
    
    81,354
    
    
    
    40,748
    
    
    
    
    
    
    
    137,579PROPERTY AND EQUIPMENT, NET
    
    
    5,666
    
    
    
    137,825
    
    
    
    2,804
    
    
    
    
    
    
    
    146,295GOODWILL, NET
    
    
    1,515
    
    
    
    87,658
    
    
    
    
    
    
    
    
    
    
    
    89,173OTHER ASSETS:Restricted cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted investments
    
    
    
    
    
    
    
    
    
    
    63,746
    
    
    
    
    
    
    
    63,746Other non-current assets
    
    
    28,385
    
    
    
    3,466
    
    
    
    695
    
    
    
    
    
    
    
    32,546Intercompany receivables
    
    
    56,417
    
    
    
    
    
    
    
    
    
    
    
    (56,417
    )
    
    
    Investment in subsidiaries
    
    
    28,036
    
    
    
    5,923
    
    
    
    
    
    
    
    (33,959
    )
    
    
    Total other assets
    
    
    112,838
    
    
    
    9,389
    
    
    
    64,441
    
    
    
    (90,376
    )
    
    
    96,292Total assets
    
    $
    135,496
    
    
    $
    316,226
    
    
    $
    107,993
    
    
    $
    (90,376
    )
    
    $
    469,339CURRENT LIABILITIES:Current maturities of long-term debt
    
    $
    
    
    
    $
    13,500
    
    
    $
    
    
    
    $
    
    $
    
    
    13,500Borrowings under revolving credit facility
    
    
    
    
    
    
    29,555
    
    
    
    
    
    
    
    
    
    
    
    29,555Accounts and notes payable
    
    
    2,700
    
    
    
    40,238
    
    
    
    (17
    )
    
    
    
    
    
    
    42,921Intercompany payables
    
    
    
    
    
    
    48,930
    
    
    
    7,487
    
    
    
    (56,417
    )
    
    
    Accrued liabilities
    
    
    6,019
    
    
    
    42,983
    
    
    
    34,996
    
    
    
    
    
    
    
    83,998Total current liabilities
    
    
    8,719
    
    
    
    175,206
    
    
    
    42,466
    
    
    
    (56,417
    )
    
    
    169,974LONG-TERM DEBT, less current maturities
    
    
    150,000
    
    
    
    71,583
    
    
    
    
    
    
    
    
    
    
    
    221,583POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
    
    
    
    
    
    
    5,106
    
    
    
    
    
    
    
    
    
    
    
    5,106DEFERRED INCOME TAXES
    
    
    (18,529
    )
    
    
    35,137
    
    
    
    
    
    
    
    
    
    
    
    16,608OTHER LONG-TERM LIABILITIES
    
    
    
    
    
    
    27,344
    
    
    
    33,418
    
    
    
    
    
    
    
    60,762STOCKHOLDERS EQUITY (DEFICIT):Preferred stock, no par value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock, no par value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    48,324
    
    
    
    166,130
    
    
    
    2,488
    
    
    
    (168,618
    )
    
    
    48,324Treasury stock at cost
    
    
    (707
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (707
    )Retained (deficit) earnings
    
    
    (47,825
    )
    
    
    (153,611
    )
    
    
    29,621
    
    
    
    123,990
    
    
    
    (47,825
    )Accumulated other comprehensive loss, net of tax
    
    
    (4,486
    )
    
    
    (10,669
    )
    
    
    
    
    
    
    10,669
    
    
    
    (4,486
    )Total stockholders  (deficit) equity
    
    
    (4,694
    )
    
    
    1,850
    
    
    
    32,109
    
    
    
    (33,959
    )
    
    
    (4,694
    )Total liabilities and stockholders (deficit) equity
    
    $
    135,496
    
    
    $
    316,226
    
    
    $
    107,993
    
    
    $
    (90,376
    )
    
    $
    469,339
 15




---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
DECEMBER 31, 2003
(In Thousands) ALLIED
    
    GUARANTOR
    
    NONGUARANTORHOLDINGS
    
    SUBSIDIARIES
    
    SUBSIDIARIES
    
    ELIMINATIONS
    
    CONSOLIDATEDCURRENT ASSETS:Cash and cash equivalents
    
    $
    549
    
    
    $
    1,166
    
    
    $
    433
    
    
    $
    
    
    
    $
    2,148Restricted cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    26,267
    
    
    
    
    
    
    
    26,267Receivables, net of allowance for doubtful accounts
    
    
    
    
    
    
    50,842
    
    
    
    4,268
    
    
    
    
    
    
    
    55,110Inventories
    
    
    
    
    
    
    4,983
    
    
    
    
    
    
    
    
    
    
    
    4,983Deferred income taxes
    
    
    17,518
    
    
    
    2,695
    
    
    
    
    
    
    
    
    
    
    
    20,213Prepayments and other current assets
    
    
    1,750
    
    
    
    10,860
    
    
    
    34
    
    
    
    
    
    
    
    12,644Total current assets
    
    
    19,817
    
    
    
    70,546
    
    
    
    31,002
    
    
    
    
    
    
    
    121,365PROPERTY AND EQUIPMENT, NET
    
    
    6,695
    
    
    
    145,912
    
    
    
    2,966
    
    
    
    
    
    
    
    155,573GOODWILL, NET
    
    
    1,515
    
    
    
    88,688
    
    
    
    
    
    
    
    
    
    
    
    90,203OTHER ASSETS:Restricted cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    55,817
    
    
    
    
    
    
    
    55,817Other non-current assets
    
    
    30,327
    
    
    
    1,679
    
    
    
    771
    
    
    
    
    
    
    
    32,777Deferred income taxes
    
    
    14,875
    
    
    
    
    
    
    
    
    
    
    
    (14,875
    )
    
    
    Intercompany receivables
    
    
    63,954
    
    
    
    
    
    
    
    (10,677
    )
    
    
    (53,277
    )
    
    
    Investment in subsidiaries
    
    
    32,631
    
    
    
    5,626
    
    
    
    
    
    
    
    (38,257
    )
    
    
    Total other assets
    
    
    141,787
    
    
    
    7,305
    
    
    
    45,911
    
    
    
    (106,409
    )
    
    
    88,594Total assets
    
    $
    169,814
    
    
    $
    312,451
    
    
    $
    79,879
    
    
    $
    (106,409
    )
    
    $
    455,735CURRENT LIABILITIES:Current maturities of long-term debt
    
    $
    
    
    
    $
    16,374
    
    
    $
    
    
    
    $
    
    
    
    $
    16,374Accounts and notes payable
    
    
    2,175
    
    
    
    32,025
    
    
    
    72
    
    
    
    
    
    
    
    34,272Intercompany payables
    
    
    
    
    
    
    53,277
    
    
    
    
    
    
    
    (53,277
    )
    
    
    Accrued liabilities
    
    
    8,825
    
    
    
    56,614
    
    
    
    15,498
    
    
    
    
    
    
    
    80,937Total current liabilities
    
    
    11,000
    
    
    
    158,290
    
    
    
    15,570
    
    
    
    (53,277
    )
    
    
    131,583LONG-TERM DEBT, less current maturities
    
    
    150,000
    
    
    
    80,126
    
    
    
    
    
    
    
    
    
    
    
    230,126POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
    
    
    
    
    
    
    5,302
    
    
    
    
    
    
    
    
    
    
    
    5,302DEFERRED INCOME TAXES
    
    
    
    
    
    
    35,088
    
    
    
    
    
    
    
    (14,875
    )
    
    
    20,213OTHER LONG-TERM LIABILITIES
    
    
    
    
    
    
    27,011
    
    
    
    32,686
    
    
    
    
    
    
    
    59,697STOCKHOLDERS EQUITY (DEFICIT):Preferred stock, no par value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock, no par value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    47,511
    
    
    
    166,130
    
    
    
    2,488
    
    
    
    (168,618
    )
    
    
    47,511Treasury stock at cost
    
    
    (707
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (707
    )Retained (deficit) earnings
    
    
    (35,024
    )
    
    
    (148,516
    )
    
    
    29,135
    
    
    
    119,381
    
    
    
    (35,024
    )Accumulated other comprehensive loss, net of tax
    
    
    (2,966
    )
    
    
    (10,980
    )
    
    
    
    
    
    
    10,980
    
    
    
    (2,966
    )Total stockholders
(deficit) equity
    
    
    8,814
    
    
    
    6,634
    
    
    
    31,623
    
    
    
    (38,257
    )
    
    
    8,814Total
liabilities and stockholders (deficit) equity
    
    $
    169,814
    
    
    $
    312,451
    
    
    $
    79,879
    
    
    $
    (106,409
    )
    
    $
    455,735
 16




---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATED INCOME STATEMENT INFORMATION
THREE MONTHS ENDED JUNE 30, 2004
(In Thousands) ALLIED
    
    GUARANTOR
    
    NONGUARANTORHOLDINGS
    
    SUBSIDIARIES
    
    SUBSIDIARIES
    
    ELIMINATIONS
    
    CONSOLIDATEDREVENUES
    
    $
    6,680
    
    
    $
    236,181
    
    
    $
    10,317
    
    
    $
    (16,562
    )
    
    $
    236,616OPERATING EXPENSES:Salaries, wages and fringe benefits
    
    
    1,680
    
    
    
    126,238
    
    
    
    
    
    
    
    
    
    
    
    127,918Operating supplies and expenses
    
    
    3,613
    
    
    
    37,834
    
    
    
    66
    
    
    
    
    
    
    
    41,513Purchased transportation
    
    
    
    
    
    
    28,588
    
    
    
    
    
    
    
    
    
    
    
    28,588Insurance and claims
    
    
    
    
    
    
    9,639
    
    
    
    9,884
    
    
    
    (9,882
    )
    
    
    9,641Operating taxes and licenses
    
    
    44
    
    
    
    8,052
    
    
    
    
    
    
    
    
    
    
    
    8,096Depreciation and amortization
    
    
    648
    
    
    
    9,162
    
    
    
    119
    
    
    
    
    
    
    
    9,929Rents
    
    
    475
    
    
    
    1,553
    
    
    
    1
    
    
    
    
    
    
    
    2,029Communications and utilities
    
    
    742
    
    
    
    602
    
    
    
    7
    
    
    
    
    
    
    
    1,351Other operating expenses
    
    
    1,781
    
    
    
    7,576
    
    
    
    88
    
    
    
    (6,680
    )
    
    
    2,765Loss on disposal of operating assets, net
    
    
    
    
    
    
    127
    
    
    
    
    
    
    
    
    
    
    
    127Total operating expenses
    
    
    8,983
    
    
    
    229,371
    
    
    
    10,165
    
    
    
    (16,562
    )
    
    
    231,957Operating (loss) income
    
    
    (2,303
    )
    
    
    6,810
    
    
    
    152
    
    
    
    
    
    
    
    4,659OTHER INCOME (EXPENSE):Interest expense
    
    
    (1,306
    )
    
    
    (6,199
    )
    
    
    (72
    )
    
    
    
    
    
    
    (7,577
    )Investment income
    
    
    
    
    
    
    10
    
    
    
    121
    
    
    
    
    
    
    
    131Foreign exchange losses, net
    
    
    
    
    
    
    (842
    )
    
    
    (124
    )
    
    
    
    
    
    
    (966
    )Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity in (losses) earnings of subsidiaries
    
    
    (144
    )
    
    
    149
    
    
    
    
    
    
    
    (5
    )
    
    
    (1,450
    )
    
    
    (6,882
    )
    
    
    (75
    )
    
    
    (5
    )
    
    
    (8,412
    )(LOSS) INCOME BEFORE INCOME TAXES
    
    
    (3,753
    )
    
    
    (72
    )
    
    
    77
    
    
    
    (5
    )
    
    
    (3,753
    )INCOME TAX (EXPENSE) BENEFIT
    
    
    
    
    
    
    (337
    )
    
    
    337
    
    
    
    
    
    
    
    NET (LOSS) INCOME
    
    $
    (3,753
    )
    
    $
    (409
    )
    
    $
    414
    
    
    $
    (5
    )
    
    $
    (3,753
    )
 SUPPLEMENTAL CONDENSED CONSOLIDATED INCOME STATEMENT INFORMATION
THREE MONTHS ENDED JUNE 30, 2003
(In Thousands) ALLIED
    
    GUARANTOR
    
    NONGUARANTORHOLDINGS
    
    SUBSIDIARIES
    
    SUBSIDIARIES
    
    ELIMINATIONS
    
    CONSOLIDATEDREVENUES
    
    $
    7,298
    
    
    $
    229,736
    
    
    $
    9,236
    
    
    $
    (16,192
    )
    
    $
    230,078OPERATING EXPENSES:Salaries, wages and fringe benefits
    
    
    2,555
    
    
    
    120,947
    
    
    
    
    
    
    
    
    
    
    
    123,502Operating supplies and expenses
    
    
    2,310
    
    
    
    33,632
    
    
    
    26
    
    
    
    
    
    
    
    35,968Purchased transportation
    
    
    
    
    
    
    25,837
    
    
    
    
    
    
    
    
    
    
    
    25,837Insurance and claims
    
    
    
    
    
    
    11,476
    
    
    
    8,895
    
    
    
    (8,894
    )
    
    
    11,477Operating taxes and licenses
    
    
    58
    
    
    
    8,101
    
    
    
    
    
    
    
    
    
    
    
    8,159Depreciation and amortization
    
    
    849
    
    
    
    10,692
    
    
    
    112
    
    
    
    
    
    
    
    11,653Rents
    
    
    510
    
    
    
    1,109
    
    
    
    1
    
    
    
    
    
    
    
    1,620Communications and utilities
    
    
    915
    
    
    
    662
    
    
    
    3
    
    
    
    
    
    
    
    1,580Other operating expenses
    
    
    1,164
    
    
    
    8,574
    
    
    
    95
    
    
    
    (7,298
    )
    
    
    2,535Loss on disposal of operating assets, net
    
    
    
    
    
    
    195
    
    
    
    
    
    
    
    
    
    
    
    195Total operating expenses
    
    
    8,361
    
    
    
    221,225
    
    
    
    9,132
    
    
    
    (16,192
    )
    
    
    222,526Operating (loss) income
    
    
    (1,063
    )
    
    
    8,511
    
    
    
    104
    
    
    
    
    
    
    
    7,552OTHER INCOME (EXPENSE):Interest expense
    
    
    (1,748
    )
    
    
    (5,573
    )
    
    
    (52
    )
    
    
    
    
    
    
    (7,373
    )Interest income
    
    
    
    
    
    
    21
    
    
    
    2,986
    
    
    
    
    
    
    
    3,007Foreign exchange gains, net
    
    
    
    
    
    
    1,332
    
    
    
    98
    
    
    
    
    
    
    
    1,430Equity in earnings of subsidiaries
    
    
    6,263
    
    
    
    227
    
    
    
    
    
    
    
    (6,490
    )
    
    
    4,515
    
    
    
    (3,993
    )
    
    
    3,032
    
    
    
    (6,490
    )
    
    
    (2,936
    )INCOME BEFORE INCOME TAXES
    
    
    3,452
    
    
    
    4,518
    
    
    
    3,136
    
    
    
    (6,490
    )
    
    
    4,616INCOME TAX EXPENSE
    
    
    (80
    )
    
    
    (42
    )
    
    
    (1,122
    )
    
    
    
    
    
    
    (1,244
    )NET INCOME
    
    $
    3,372
    
    
    $
    4,476
    
    
    $
    2,014
    
    
    $
    (6,490
    )
    
    $
    3,372
 17




---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATED INCOME STATEMENT INFORMATION
SIX MONTHS ENDED JUNE 30, 2004
(In Thousands) ALLIED
    
    GUARANTOR
    
    NONGUARANTORHOLDINGS
    
    SUBSIDIARIES
    
    SUBSIDIARIES
    
    ELIMINATIONS
    
    CONSOLIDATEDREVENUES
    
    $
    13,366
    
    
    $
    448,046
    
    
    $
    20,579
    
    
    $
    (33,131
    )
    
    $
    448,860OPERATING EXPENSES:Salaries, wages and fringe benefits
    
    
    4,379
    
    
    
    243,486
    
    
    
    
    
    
    
    
    
    
    
    247,865Operating supplies and expenses
    
    
    6,835
    
    
    
    71,594
    
    
    
    130
    
    
    
    
    
    
    
    78,559Purchased transportation
    
    
    
    
    
    
    54,494
    
    
    
    
    
    
    
    
    
    
    
    54,494Insurance and claims
    
    
    
    
    
    
    18,800
    
    
    
    19,769
    
    
    
    (19,765
    )
    
    
    18,804Operating taxes and licenses
    
    
    78
    
    
    
    14,577
    
    
    
    
    
    
    
    
    
    
    
    14,655Depreciation and amortization
    
    
    1,330
    
    
    
    18,747
    
    
    
    238
    
    
    
    
    
    
    
    20,315Rents
    
    
    945
    
    
    
    2,797
    
    
    
    3
    
    
    
    
    
    
    
    3,745Communications and utilities
    
    
    1,749
    
    
    
    1,543
    
    
    
    13
    
    
    
    
    
    
    
    3,305Other operating expenses
    
    
    2,946
    
    
    
    15,246
    
    
    
    125
    
    
    
    (13,366
    )
    
    
    4,951Gain on disposal of operating assets, net
    
    
    
    
    
    
    (1,010
    )
    
    
    
    
    
    
    
    
    
    
    (1,010
    )Total operating expenses
    
    
    18,262
    
    
    
    440,274
    
    
    
    20,278
    
    
    
    (33,131
    )
    
    
    445,683Operating (loss) income
    
    
    (4,896
    )
    
    
    7,772
    
    
    
    301
    
    
    
    
    
    
    
    3,177OTHER INCOME (EXPENSE):Interest expense
    
    
    (3,054
    )
    
    
    (11,722
    )
    
    
    (169
    )
    
    
    
    
    
    
    (14,945
    )Investment income
    
    
    
    
    
    
    18
    
    
    
    170
    
    
    
    
    
    
    
    188Foreign exchange losses, net
    
    
    
    
    
    
    (1,007
    )
    
    
    (114
    )
    
    
    
    
    
    
    (1,121
    )Other, net
    
    
    
    
    
    
    (100
    )
    
    
    
    
    
    
    
    
    
    
    (100
    )Equity in (losses) earnings of subsidiaries
    
    
    (4,851
    )
    
    
    270
    
    
    
    
    
    
    
    4,581
    
    
    
    (7,905
    )
    
    
    (12,541
    )
    
    
    (113
    )
    
    
    4,581
    
    
    
    (15,978
    )(LOSS) INCOME BEFORE INCOME TAXES
    
    
    (12,801
    )
    
    
    (4,769
    )
    
    
    188
    
    
    
    4,581
    
    
    
    (12,801
    )INCOME TAX (EXPENSE) BENEFIT
    
    
    
    
    
    
    (298
    )
    
    
    298
    
    
    
    
    
    
    
    NET (LOSS) INCOME
    
    $
    (12,801
    )
    
    $
    (5,067
    )
    
    $
    486
    
    
    $
    4,581
    
    
    $
    (12,801
    )
 SUPPLEMENTAL CONDENSED CONSOLIDATED INCOME STATEMENT INFORMATION
SIX MONTHS ENDED JUNE 30, 2003
(In Thousands) ALLIED
    
    GUARANTOR
    
    NONGUARANTORHOLDINGS
    
    SUBSIDIARIES
    
    SUBSIDIARIES
    
    ELIMINATIONS
    
    CONSOLIDATEDREVENUES
    
    $
    14,104
    
    
    $
    442,986
    
    
    $
    18,258
    
    
    $
    (31,678
    )
    
    $
    443,670OPERATING EXPENSES:Salaries, wages and fringe benefits
    
    
    5,165
    
    
    
    235,912
    
    
    
    
    
    
    
    
    
    
    
    241,077Operating supplies and expenses
    
    
    4,543
    
    
    
    68,527
    
    
    
    78
    
    
    
    
    
    
    
    73,148Purchased transportation
    
    
    
    
    
    
    50,550
    
    
    
    
    
    
    
    
    
    
    
    50,550Insurance and claims
    
    
    
    
    
    
    20,987
    
    
    
    17,421
    
    
    
    (17,574
    )
    
    
    20,834Operating taxes and licenses
    
    
    123
    
    
    
    15,874
    
    
    
    
    
    
    
    
    
    
    
    15,997Depreciation and amortization
    
    
    1,727
    
    
    
    21,718
    
    
    
    232
    
    
    
    
    
    
    
    23,677Rents
    
    
    988
    
    
    
    2,249
    
    
    
    3
    
    
    
    
    
    
    
    3,240Communications and utilities
    
    
    1,850
    
    
    
    1,612
    
    
    
    6
    
    
    
    
    
    
    
    3,468Other operating expenses
    
    
    2,143
    
    
    
    17,150
    
    
    
    195
    
    
    
    (14,104
    )
    
    
    5,384Loss on disposal of operating assets, net
    
    
    
    
    
    
    459
    
    
    
    
    
    
    
    
    
    
    
    459Total operating expenses
    
    
    16,539
    
    
    
    435,038
    
    
    
    17,935
    
    
    
    (31,678
    )
    
    
    437,834Operating (loss) income
    
    
    (2,435
    )
    
    
    7,948
    
    
    
    323
    
    
    
    
    
    
    
    5,836OTHER INCOME (EXPENSE):Interest expense
    
    
    (3,974
    )
    
    
    (10,680
    )
    
    
    (100
    )
    
    
    
    
    
    
    (14,754
    )Investment income
    
    
    
    
    
    
    42
    
    
    
    3,291
    
    
    
    
    
    
    
    3,333Foreign exchange gains, net
    
    
    
    
    
    
    2,421
    
    
    
    27
    
    
    
    
    
    
    
    2,448Equity 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
    )
    
    
    
    
    
    
    845NET (LOSS) INCOME
    
    $
    (2,292
    )
    
    $
    401
    
    
    $
    2,237
    
    
    $
    (2,638
    )
    
    $
    (2,292
    )
 18




---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
SIX MONTHS ENDED JUNE 30, 2004
(In Thousands) ALLIED
    
    GUARANTOR
    
    NONGUARANTORHOLDINGS
    
    SUBSIDIARIES
    
    SUBSIDIARIES
    
    ELIMINATIONS
    
    CONSOLIDATEDCASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income
    
    $
    (12,801
    )
    
    $
    (5,067
    )
    
    $
    486
    
    
    $
    4,581
    
    
    $
    (12,801
    )Adjustments
to reconcile net (loss) income to net cash (used in) provided by operating activities:Amortization of deferred financing costs
    
    
    1,402
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,402Depreciation and amortization
    
    
    1,330
    
    
    
    18,747
    
    
    
    238
    
    
    
    
    
    
    
    20,315Gain on disposal of assets and other, net
    
    
    
    
    
    
    (1,010
    )
    
    
    
    
    
    
    
    
    
    
    (1,010
    )Foreign exchange losses, net
    
    
    
    
    
    
    1,121
    
    
    
    
    
    
    
    
    
    
    
    1,121Deferred income taxes
    
    
    
    
    
    
    91
    
    
    
    (91
    )
    
    
    
    
    
    
    Compensation expense related to stock options and grants
    
    
    390
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    390Equity in losses (earnings) of subsidiaries
    
    
    4,851
    
    
    
    (270
    )
    
    
    
    
    
    
    (4,581
    )
    
    
    Change in operating assets and liabilities:Receivables, net of allowance for doubtful accounts
    
    
    
    
    
    
    (6,872
    )
    
    
    2,315
    
    
    
    
    
    
    
    (4,557
    )Inventories
    
    
    
    
    
    
    394
    
    
    
    
    
    
    
    
    
    
    
    394Prepayments and other assets
    
    
    290
    
    
    
    (1,559
    )
    
    
    (4,485
    )
    
    
    
    
    
    
    (5,754
    )Accounts and notes payable
    
    
    525
    
    
    
    24,158
    
    
    
    (30,819
    )
    
    
    
    
    
    
    (6,136
    )Intercompany payables
    
    
    5,760
    
    
    
    (2,570
    )
    
    
    (3,190
    )
    
    
    
    
    
    
    Accrued liabilities
    
    
    (2,771
    )
    
    
    (13,699
    )
    
    
    20,230
    
    
    
    
    
    
    
    3,760Net cash (used in) provided by operating activities
    
    
    (1,024
    )
    
    
    13,464
    
    
    
    (15,316
    )
    
    
    
    
    
    
    (2,876
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (95
    )
    
    
    (13,110
    )
    
    
    (76
    )
    
    
    
    
    
    
    (13,281
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    2,038
    
    
    
    
    
    
    
    
    
    
    
    2,038Decrease in restricted cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    55,321
    
    
    
    
    
    
    
    55,321Increase in restricted investments
    
    
    
    
    
    
    
    
    
    
    (66,981
    )
    
    
    
    
    
    
    (66,981
    )Funds
deposited with insurance carriers
    
    
    
    
    
    
    (32,024
    )
    
    
    
    
    
    
    
    
    
    
    (32,024
    )Funds
returned from insurance carriers
    
    
    
    
    
    
    
    
    
    
    30,730
    
    
    
    
    
    
    
    30,730Decrease in cash surrender value of life insurance
    
    
    147
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    147Net cash provided by (used in) investing activities
    
    
    52
    
    
    
    (43,096
    )
    
    
    18,994
    
    
    
    
    
    
    
    (24,050
    )CASH FLOWS FROM FINANCING ACTIVITIES:Additions to revolving credit facilities, net
    
    
    
    
    
    
    29,555
    
    
    
    
    
    
    
    
    
    
    
    29,555Repayment of long-term debt
    
    
    
    
    
    
    (11,417
    )
    
    
    
    
    
    
    
    
    
    
    (11,417
    )Proceeds
from insurance financing arrangements
    
    
    
    
    
    
    28,608
    
    
    
    
    
    
    
    
    
    
    
    28,608Repayments
of insurance financing arrangements
    
    
    
    
    
    
    (16,890
    )
    
    
    
    
    
    
    
    
    
    
    (16,890
    )Proceeds from issuance of common stock
    
    
    423
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    423Net cash provided by financing activities
    
    
    423
    
    
    
    29,856
    
    
    
    
    
    
    
    
    
    
    
    30,279EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS
    
    
    
    
    
    
    (200
    )
    
    
    
    
    
    
    
    
    
    
    (200
    )NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (549
    )
    
    
    24
    
    
    
    3,678
    
    
    
    
    
    
    
    3,153CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    549
    
    
    
    1,166
    
    
    
    433
    
    
    
    
    
    
    
    2,148CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    
    
    
    $
    1,190
    
    
    $
    4,111
    
    
    $
    
    
    
    $
    5,301
 19




---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
SIX MONTHS ENDED JUNE 30, 2003
(Restated - See Note 4)
(In Thousands) ALLIED
    
    GUARANTOR
    
    NONGUARANTORHOLDINGS
    
    SUBSIDIARIES
    
    SUBSIDIARIES
    
    ELIMINATIONS
    
    CONSOLIDATEDCASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income
    
    $
    (2,292
    )
    
    $
    401
    
    
    $
    2,237
    
    
    $
    (2,638
    )
    
    $
    (2,292
    )Adjustments
to reconcile net (loss) income to net cash provided by (used in) operating activities:Interest expense paid in kind
    
    
    
    
    
    
    725
    
    
    
    
    
    
    
    
    
    
    
    725Amortization of deferred financing costs
    
    
    2,054
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,054Depreciation and amortization
    
    
    1,727
    
    
    
    21,718
    
    
    
    232
    
    
    
    
    
    
    
    23,677Loss on disposal of assets and other, net
    
    
    
    
    
    
    459
    
    
    
    
    
    
    
    
    
    
    
    459Foreign exchange gains, net
    
    
    
    
    
    
    (2,448
    )
    
    
    
    
    
    
    
    
    
    
    (2,448
    )Deferred income taxes
    
    
    (671
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (671
    )Compensation expense related to stock options and grants
    
    
    120
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120Equity in earnings of subsidiaries
    
    
    (2,291
    )
    
    
    (347
    )
    
    
    
    
    
    
    2,638
    
    
    
    Amortization of Teamsters Union contract costs
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    1,000Change in operating assets and liabilities:Receivables, net of allowance for doubtful accounts
    
    
    
    
    
    
    18,359
    
    
    
    (8,762
    )
    
    
    
    
    
    
    9,597Inventories
    
    
    
    
    
    
    (299
    )
    
    
    
    
    
    
    
    
    
    
    (299
    )Prepayments and other assets
    
    
    1,362
    
    
    
    (7,841
    )
    
    
    4,018
    
    
    
    
    
    
    
    (2,461
    )Accounts and notes payable
    
    
    (148
    )
    
    
    (6,946
    )
    
    
    (100
    )
    
    
    
    
    
    
    (7,194
    )Intercompany payables
    
    
    3,334
    
    
    
    (3,326
    )
    
    
    (8
    )
    
    
    
    
    
    
    Accrued liabilities
    
    
    (2,419
    )
    
    
    (10,778
    )
    
    
    7,672
    
    
    
    
    
    
    
    (5,525
    )Net cash provided by (used in) operating activities
    
    
    776
    
    
    
    10,677
    
    
    
    5,289
    
    
    
    
    
    
    
    16,742CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (194
    )
    
    
    (8,157
    )
    
    
    (66
    )
    
    
    
    
    
    
    (8,417
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    31Increase in restricted cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (4,221
    )
    
    
    
    
    
    
    (4,221
    )Increase in restricted investments
    
    
    
    
    
    
    
    
    
    
    (7,077
    )
    
    
    
    
    
    
    (7,077
    )Funds
deposited with insurance carriers
    
    
    
    
    
    
    (22,680
    )
    
    
    
    
    
    
    
    
    
    
    (22,680
    )Funds
returned from insurance carriers
    
    
    
    
    
    
    
    
    
    
    11,203
    
    
    
    
    
    
    
    11,203Decrease in cash surrender value of life insurance
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Net cash used in investing activities
    
    
    (192
    )
    
    
    (30,806
    )
    
    
    (161
    )
    
    
    
    
    
    
    (31,159
    )CASH FLOWS FROM FINANCING ACTIVITIES:Additions to revolving credit facilities, net
    
    
    
    
    
    
    10,084
    
    
    
    
    
    
    
    
    
    
    
    10,084Repayment of long-term debt
    
    
    
    
    
    
    (8,019
    )
    
    
    
    
    
    
    
    
    
    
    (8,019
    )Payment of deferred financing costs
    
    
    (414
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (414
    )Proceeds from
insurance financing arrangements
    
    
    
    
    
    
    
    
    
    
    15,228
    
    
    
    
    
    
    
    15,228Repayments
of insurance financing arrangements
    
    
    
    
    
    
    (10,222
    )
    
    
    
    
    
    
    
    
    
    
    (10,222
    )Proceeds from issuance of common stock
    
    
    191
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    191Other, net
    
    
    (368
    )
    
    
    394
    
    
    
    
    
    
    
    
    
    
    
    26Net cash (used in) provided by financing activities
    
    
    (591
    )
    
    
    (7,763
    )
    
    
    15,228
    
    
    
    
    
    
    
    6,874EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS
    
    
    
    
    
    
    642
    
    
    
    
    
    
    
    
    
    
    
    642NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (7
    )
    
    
    (27,250
    )
    
    
    20,356
    
    
    
    
    
    
    
    (6,901
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    7
    
    
    
    1,936
    
    
    
    7,505
    
    
    
    
    
    
    
    9,448CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    
    
    
    $
    (25,314
    )
    
    $
    27,861
    
    
    $
    
    
    
    $
    2,547
 20




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations Executive Summary The Company, through its subsidiaries, generates revenues by providing services
to the automotive industry. Allied Automotive Group is the largest motor
carrier in North America specializing in the transportation of new automobiles,
light trucks and SUVs, for the major domestic and foreign automotive
manufacturers. In the second quarter of 2004, the Company recorded additional expense to
increase its self-insurance reserves, which was due primarily to higher than
expected costs in the Companys reserves for aged workers compensation claims.
The impact was an increase in total self-insurance reserves during the second
quarter of $3.6 million, or 3.9% of the Companys self-insurance reserves as of
June 30, 2004. Allied Automotive Group has agreed to retain its General Motors yard management
services operations in consideration for a negotiated price increase with
General Motors, which Allied Automotive Group believes will restore the
profitability of these yard management services in the second half of 2004.
Pursuant to the renewal of the vehicle delivery agreement with General Motors
during the first quarter of 2004, Allied Automotive Group had previously
disclosed that it would discontinue these yard services. Allied Automotive Groups contract with DaimlerChrysler Corporation
(DaimlerChrysler) expires on January 1, 2005. Allied Automotive Group has
initiated preliminary negotiations with DaimlerChrysler in regard to the
renewal of this agreement, and Allied Automotive Group is attempting to
increase its pricing in regard to this account. Allied Automotive Group
believes that it will be exposed to market share risk as a result of its
attempt to increase pricing in these negotiations. Results of Operations The following table sets forth the percentage relationship of expense items to
revenues for the periods indicated: Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Revenues
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Operating expenses:Salaries, wages and fringe benefits
    
    
    54.0
    
    
    
    53.7
    
    
    
    55.2
    
    
    
    54.3Operating supplies and expenses
    
    
    17.5
    
    
    
    15.6
    
    
    
    17.5
    
    
    
    16.4Purchased transportation
    
    
    12.1
    
    
    
    11.2
    
    
    
    12.1
    
    
    
    11.4Insurance and claims
    
    
    4.1
    
    
    
    5.0
    
    
    
    4.2
    
    
    
    4.7Operating taxes and licenses
    
    
    3.4
    
    
    
    3.5
    
    
    
    3.3
    
    
    
    3.6Depreciation and amortization
    
    
    4.2
    
    
    
    5.1
    
    
    
    4.5
    
    
    
    5.3Rents
    
    
    0.9
    
    
    
    0.7
    
    
    
    0.8
    
    
    
    0.7Communications and utilities
    
    
    0.6
    
    
    
    0.7
    
    
    
    0.7
    
    
    
    0.8Other operating expenses
    
    
    1.1
    
    
    
    1.1
    
    
    
    1.1
    
    
    
    1.2Gain (loss) on disposal of
operating assets, net
    
    
    0.0
    
    
    
    0.1
    
    
    
    (0.2
    )
    
    
    0.1Total operating expenses
    
    
    (98.0
    )
    
    
    (96.7
    )
    
    
    (99.2
    )
    
    
    (98.7
    )Operating income
    
    
    2.0
    
    
    
    3.3
    
    
    
    0.8
    
    
    
    1.3Other income (expense):Interest expense
    
    
    (3.2
    )
    
    
    (3.2
    )
    
    
    (3.3
    )
    
    
    (3.3
    )Investment income
    
    
    0.0
    
    
    
    1.3
    
    
    
    0.0
    
    
    
    0.7Foreign exchange (loss) gain, net
    
    
    (0.4
    )
    
    
    0.6
    
    
    
    (0.3
    )
    
    
    0.6Other, net
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0(Loss) income before income taxes
    
    
    (1.6
    )
    
    
    2.0
    
    
    
    (2.8
    )
    
    
    (0.7
    )Income tax (expense) benefit
    
    
    0.0
    
    
    
    (0.5
    )
    
    
    0.0
    
    
    
    0.2Net (loss) income
    
    
    (1.6
    %)
    
    
    1.5
    %
    
    
    (2.8
    %)
    
    
    (0.5
    %)
 Three and Six Months Ended June 30, 2004 Compared to Three and Six Months Ended
June 30, 2003 Revenues were $236.6 million in the second quarter of 2004 compared to revenues
of $230.1 million in the second quarter of 2003, an increase of $6.5 million,
or 2.8%. The increase is due primarily to an increase in total vehicle
deliveries of 0.6% and an increase in the revenue per unit of $2.30. For the
six-month period ended June 30, 2004, revenues were $448.9 million, versus
revenues of $443.7 million for the six-month period ended June 30, 2003, an
increase of $5.2 million, or 1.1%, with an increase 21




---



##### Table of Contents



in revenue per unit of $1.82. Revenue per unit increased due to higher priced
rail diversion traffic, longer length of haul, and improved traffic selection. The Company recorded a net loss of $3.8 million in the second quarter of 2004
versus net income of $3.4 million in the second quarter of 2003. In the second
quarter of 2004, the Company recorded an increase of $3.6 million in its
total self-insurance reserves, primarily caused by higher than expected costs in the Companys reserves for aged workers compensation claims. The
Company increased its reserves for aged workers compensation claims during the
second quarter by $5.9 million. The impact of this increase in reserves was
partially offset by progress in the general liability area. The net impact
from these two items was an increase in total self-insurance reserves during the
second quarter of $3.6 million, or 3.9% of the Companys self-insurance
reserves as of June 30, 2004. The second quarter results also include foreign
exchange losses of $1.0 million compared to foreign exchange gains of $1.4
million in the second quarter of 2003, and a reduction in investment income on
collateral held by the Companys captive insurance company of $2.9 million in
the second quarter of 2004 as compared to the second quarter of 2003.
Increased costs in the second quarter of 2004 were partially offset by
increased revenues and revenue per unit, improved line haul and driver
productivity, and a reduction in cargo claims expense. Basic and diluted loss
per share in the second quarter of 2004 was $0.43 versus basic earnings per
share of $0.40 and diluted earnings per share of $0.39 in the second quarter
of 2003. For the six-month period ended June 30, 2004 the Company recorded a net loss of
$12.8 million versus a net loss of $2.3 for the six-month period ended June 30,
2003. Results for the first six months of 2004 were adversely impacted by
lower OEM shipment levels in January 2004, dramatically higher fuel prices
during the second quarter, the financial impact of the terms of the previously
disclosed General Motors contract renewal, higher benefits costs related to
employees covered by the Companys collective bargaining agreement with the
International Brotherhood of Teamsters (Teamsters), and the increase to the
Companys self-insurance reserves during the second quarter of 2004. Basic and
diluted loss per share for the six-month period ended June 30, 2004 was $1.48
versus basic and diluted loss per share of $0.27 for the six-month period ended
June 30, 2003. The following is a discussion of the changes in the Companys major expense
categories: Salaries, wages and fringe benefits increased from 53.7% of revenues in the
second quarter of 2003 to 54.0% of revenues in the second quarter of 2004, and
increased from 54.3% of revenues for the six-month period ended June 30, 2003
to 55.2% of revenues for the six-month period ended June 30, 2004. Workers
compensation expense increased by $4.8 million in the second quarter of 2004 as
compared to the second quarter of 2003, and increased by $6.9 million for the
first six months of 2004 as compared to the same period in 2003. The increase
in salaries and wages expense for the second quarter of 2004 is due primarily
to an increase in workers compensation expense and an increase
in benefit costs related to the Companys employees represented by the
Teamsters for the first six months of 2004 versus 2003. The additional
workers compensation expense was to increase in the Companys self-insurance
reserves to provide for the deterioration in workers compensation claims
incurred in prior years. The increased costs were due primarily to continued wage and
medical cost inflation, costs from changes to the Companys claims
administration process, including investigating claim validity, and health
care provider network as well as accelerating the closure of claims. In 2004, the Company has experienced positive
trends in its workers compensation metrics. Lost time days decreased by
approximately 6% and 14% for the three and six-month periods ended June 30,
2004, respectively, versus the three and six-month periods ended June 30, 2003.
The increase in salaries and wages expense for the second quarter of 2004 was partially
offset by cost savings related to improved driver and line-haul productivity. Operating supplies and expenses increased from 15.6% of revenues in the second
quarter of 2003 to 17.5% of revenues in the second quarter of 2004, and
increased from 16.4% of revenues for the six-month period ended June 30, 2003
to 17.5% of revenues for the six-month period ended June 30, 2004. The
increase was due primarily to an increase in fuel costs, repairs and
maintenance costs associated with a small number of US and Canadian terminal
operations, and the outsourcing of the Companys remaining information and
technology services during the first quarter of 2004. Fuel prices for the
second quarter of 2004 were approximately 17% higher than the second quarter of
2003, resulting in additional expense of $2.5 million. The Company receives
fuel surcharges, which are recorded as a component of revenues, under contracts
with customers who represent approximately 59% of 2003 revenues. This allows
the Company to mitigate rising fuel costs by passing on the additional costs to
such customers. However, the customer fuel surcharges typically reset at the
beginning of the quarter based on fuel prices in the previous quarter, which
causes a quarter lag between when fuel cost increases are incurred and the
benefit of the fuel surcharge begins. Purchased transportation increased from 11.2% of revenues in the second quarter
of 2003 to 12.1% of revenues in the second quarter of 2004, and increased from
11.4% of revenues for the six-month period ended June 30, 2003 to 12.1% of
revenues for the six-month period June 30, 2004. The increase was due
primarily to an increase in the length of haul for vehicles delivered by
owner-operators. The length of haul increased as a result of increased
production at locations that utilize brokers and handle traffic with a longer
length of haul. All costs for owner-operators are included in purchased
transportation. Insurance and claims expense decreased from 5.0% of revenues in the second
quarter of 2003 to 4.1% of revenues in the second quarter of 2004, and
decreased from 4.7% of revenues for the six-month period ended June 30, 2003 to
4.2% of revenues for the 22




---



##### Table of Contents



six-month period ended June 30, 2004. The decrease was due primarily to lower
general liability claims and cargo claims expense on shipped vehicles. As a
result of the Companys effort to increase driver safety, the number of general
liability accidents decreased by 13% during the second quarter of 2004 as
compared to the second quarter of 2003 and decreased by 15% for the first six
months of 2004 versus the first six months of 2003. General liability expense
decreased by $1.1 million and $0.4 million for the three and six-month periods
ended June 30, 2004, respectively, versus the three and six-month periods ended
June 30, 2003. Cargo claims expense decreased by approximately $1.0 million in
the second of quarter of 2004 versus the second quarter of 2003 while vehicle
deliveries increased for the same period. Cargo claims expense decreased by
$2.0 million for the six-month period ended June 30, 2004 versus the six-month
period ended June 30, 2003. The decrease in cargo claims is a result of the
Companys ongoing initiatives to improve quality and damage-free deliveries, as
well as improved claims investigation procedures to reduce the payment of
claims not caused by the Company. Damage free deliveries improved from 99.70%
for the three and six-month periods ended June 30, 2003 to 99.75% for the three
and six-month periods ended June 30, 2004. Depreciation and amortization decreased from 5.1% of revenues in the second
quarter of 2003 to 4.2% of revenues in the second quarter of 2004 and decreased
from 5.3% of revenues for the six-month period ended June 30, 2003 to 4.5% of
revenues for the six-month period ended June 30, 2004. The decrease for the
three and six-month periods ended June 30, 2004 versus the three and six-month
periods ended June 30, 2003 was due primarily to the overall reduction in
capital spending in years 2002 and 2003 resulting in a decrease in depreciation
expense as assets become fully depreciated. As previously disclosed, the
Company has instituted a Rig remanufacturing program to remanufacture existing
owned Rigs rather than purchase new Rigs. Remanufacturing existing Rigs
requires less capital spending than purchasing new Rigs. During the second
quarter of 2004, the Company remanufactured approximately 40 Rigs and replaced
or overhauled approximately 100 engines in its tractor fleet. The gain on the disposal of assets increased from a loss of $459,000 for the
six-month period ended June 30, 2003 to a gain of $1.0 million for the
six-month period ended June 30, 2004. The increase is due to a gain from the
sale of excess land located in Canada during the first quarter of 2004. Investment income decreased from $3.0 million in the second quarter of 2003 to
$0.1 million in the second quarter of 2004 and decreased from $3.3 million for
the six-month period ended June 30, 2003 to $0.2 million for the six-month
period ended June 30, 2004. The reduction in investment income during the
second quarter of 2004 and for the first six months of 2004 was due to the
Companys subsidiary Haul Insurance Ltd. holding collateral assets primarily in
cash in 2004 versus a portfolio of cash, fixed income securities and equity
securities during 2003, which yielded more investment income. Foreign exchange gains, net decreased from a $1.4 million gain in the second
quarter of 2003 to a loss of $1.0 million in the second quarter of 2004 and
decreased from a $2.4 million gain for the six-month period ended June 30, 2003
to a loss of $1.1 million for the six-month period ended June 30, 2004. The
decrease for the quarter and the first six months of 2004 as compared to the
same periods in 2003 was primarily related to the decline in the strength of
the Canadian dollar as compared to the US dollar, which affected the Companys
operating subsidiary in Canada. The weakening of the Canadian dollar generated
unfavorable exchange rate changes. During the second quarter of 2004 the
Canadian dollar declined by approximately 2.7% while it made favorable gains of
approximately 9.3% during the second quarter of 2003. For the first six months
of 2004 the Canadian dollar declined by approximately 3.7% as compared to
favorable gains of approximately 17.1% for the first six months 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 remanufacturing and maintenance of Rigs and terminal facilities, and the
payment of interest and principal associated with debt. Net
cash used in operating activities totaled $2.9 million for the six-month
period ended June 30, 2004 versus net cash provided by operating activities of
$16.7 million for the six-month period ended June 30, 2003. The decrease in
cash provided by operations is a result of the increase in the Companys net
loss and an increase in working capital requirements. Net
cash used in investing activities totaled $24.1 million for the six-month
period ended June 30, 2004 versus $31.2 million for the six-month period ended
June 30, 2003. The decrease in cash used in investing activities
is due primarily to the timing of funds deposited with and returned
from insurance carriers related to the Companys insurance
arrangements. Net cash outflows to the Companys insurance carriers were
$1.3 million for the six-month period ended June 30, 2004
versus $11.5 million for the six-month period ended June 30,
2003. In 2004, the majority of
funds on deposit related to insurance arrangements were reimbursed to the Company
by the insurance carriers in the first quarter of 2004. During 2003, the Companys insurance carriers reimbursed
cash on deposit related to insurance arrangements throughout the year.
Offsetting this decrease, cash paid to purchase capital items, which are related mainly to
the fleet remanufacturing program, increased by $4.9 million in
2004 while cash
proceeds from the sale of assets increased by $2.0 million. Cash proceeds in
2004 were related to the sale of excess land in Canada during the first
quarter. The Company did not sell any significant assets in the first six
months of 2003. The Company will continue to evaluate the progression of the
remanufacturing program throughout 2004. The Company expects to remanufacture
approximately 135 Rigs during 2004. Capital expenditures for fiscal year 2004
are expected to be in the range of $24 million to $28 million related mainly to
the fleet remanufacturing program. These estimates are down from previously
disclosed estimates of $25 million to $35 million. The Company has lowered its
estimate of capital expenditure requirements for fiscal year 2004 due to a
decrease in the original 2004 estimates for North American vehicle production,
as well as the Companys ability to lease certain of its new
Rigs. 23




---



##### Table of Contents



Net
cash provided by financing activities totaled $30.3 million for the
six-month period ended June 30, 2004 versus $6.9 million for the six-month
period ended June 30, 2003. Cash provided by financing activities increased due
to borrowings needed to fund operations, increased capital spending and an
increase in funding required at the Companys captive insurance company. The
increase in funding was due to requirements to prefund during the first quarter
of 2004 substantially all of the Companys estimated self-insurance losses for
2004. During 2003, the Company prefunded only a portion of its estimated
losses. In addition, the Company financed approximately $28.6 of insurance
obligations and repaid approximately $16.9 during the first six months of 2004,
and financed approximately $15.2 of insurance obligations and repaid
approximately $10.2 during the first six months of 2003. Subsequent
to the filing of the Form 10-Q for the three-month period ended
March 31, 2004, the Company determined that certain additional
adjustments were required in the consolidated
statements of cash flows for the three-month periods ended
March 31, 2004 and 2003 related to the Companys insurance financing
arrangements. These adjustments resulted in changes
to the proceeds from and repayments of insurance financing arrangements
included in cash flows from financing activities previously reported
for the three months ended March 31, 2004 and 2003. The Company
also concluded that certain additional insurance financing
arrangements should be presented in the balance sheets on a gross
basis, as assets and obligations, rather than on a net basis.
Additionally, the Company concluded that funds deposited with and
returned from the Companys insurance carriers related to its
insurance arrangements should be disclosed as cash flows from
investing activities rather than cash flows from operating activities. The
effects of these additional reclassifications on the Companys consolidated
statement of cash flows for the three-month period ended
March 31, 2004 include a decrease in net cash used in operating
activities of $4.3 million, an increase in net
cash used in investing activities of $4.5 million and an increase in cash provided by financing activities of
$0.2 million. The effects of the reclassifications on the
Companys consolidated statement of cash flows for the
three-month period ended March 31, 2003 include a decrease in
net cash used in operating activities of $10.9 million, an
increase in net cash used in investing activities of
$12.9 million and an increase in cash provided by financing
activities of $2.0 million. These revised amounts for the
three-month periods ended March 31, 2004 and 2003 are
reflected in the six-month periods ended
June 30, 2004 and 2003 that have been presented in this Form 10-Q. At June 30, 2004, $29.6 million was outstanding under the Revolver, and
approximately $35.4 million of the Revolver was committed under letters of
credit. The Company had approximately $19.5 million available under the
Revolver as of June 30, 2004. As part of the previously disclosed settlement
agreement with Ryder System Inc. (Ryder), the Company has a letter of credit
in favor of Ryder for $5.5 million, which is included in the $35.4 million
letters of credit under the Revolver. The Company had agreed to increase the letter of credit by
$1.0 million each quarter through the third quarter of 2005. Pursuant to mutual
agreement, the parties have amended the settlement to provide that the $1.0
million increase scheduled for the second quarter of 2004 was to be made in the
third quarter of 2004 and such increase has subsequently been made in the third
quarter as well as the $1.0 million increase required for the third quarter of
2004. Thereafter, the Company will increase the letter of credit by $1 million
each quarter through the first quarter of 2005. Ryder may only draw the letter
of credit if the Company fails to pay workers compensation and liability
claims assumed by the Company in the Ryder Automotive Carrier Group
acquisition. The Company has provided the letter of credit in favor of Ryder
because Ryder has issued a letter of credit to its insurance carrier relating
to the workers compensation and liability claims assumed by the Company. By
March 31, 2005, and periodically thereafter, an actuarial valuation will be
made to determine the remaining outstanding amount of workers compensation and
liability claims assumed by the Company, and the letter of credit issued by the
Company in favor of Ryder will be adjusted accordingly. Borrowings under the Companys 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 and excluding restricted
cash, cash equivalents and investments. 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 sets forth a number of affirmative, negative, and financial
covenants binding on the Company. The Credit Facility contains a subjective
acceleration clause which permits the lenders to accelerate the maturity date
of the Credit Facility if an event or development occurs which could reasonably
be expected to have a material adverse effect on the Company, as defined in
the Credit Facility. 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 also include a maximum leverage ratio.
The Company obtained the consent of its lenders under the Credit Facility to
deliver its financial statements, as required by the Credit Facility, for the three and six months ended June 30,
2004 on or before September 24, 2004 and the Company delivered such financial statements on
September 23, 2004. As a result, the Company was in
compliance with the various covenants set forth in the Credit Facility at June
30, 2004. 24




---



##### Table of Contents



Borrowings under the $150.0 million 8 5/8% senior notes (the Notes) are
general unsecured obligations of the Company, are payable in quarterly
installments of interest only, and mature on October 1, 2007. The Companys
obligations under the Notes are guaranteed by substantially all of the
subsidiaries of the Company (the Guarantor Subsidiaries). Haul Insurance
Ltd., Arrendadora de Equipo Para el Transporte de Automoviles, S. de R.L. de
C.V. and Axis Logistica, S. de R.L. de C.V. do not guarantee the Companys
obligations under the Notes (the Nonguarantor Subsidiaries). There are no
restrictions on the ability of Guarantor Subsidiaries to make distributions to
the Company. The Notes include 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). The Company
also arranges financing through operating leases.
During the second quarter of 2004, the Company entered into two new operating
lease agreements with a total obligation of $4.4 million over the next 5.5
years to obtain an additional 30 Rigs. 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 are the potential loss arising from adverse changes in investment
prices, interest rates, fuel prices, and foreign currency exchange rates. Investments The Company does not use derivative financial instruments in its investment
portfolio. The Company places its investments in instruments that meet high
credit quality standards, as specified in the Companys investment policy
guidelines. The policy also limits the amount of credit exposure to any one
issue, issuer, and type of instrument. At June 30, 2004, the Company had $67.0
million in investments, all of which were restricted. 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. The portion of the long-term debt obligation that does not bear a
fixed rate of interest has an interest rate that may fluctuate within a three
percentage point range based on the Companys leverage, as defined in the
agreement. A 3% increase in the interest rate of such debt would increase the
Companys interest expense by $2.6 million over the next fiscal year. Stockholders Deficit Losses for the first six months of 2004 resulted in negative stockholders
equity at June 30, 2004. As a result of the Companys stockholders deficit and
covenants under its lending agreements, the Company is restricted from making
any repurchases of its common stock and paying of dividends. In addition,
continued stockholders deficit could cause the Company to become delisted from
the American Stock Exchange. Substantial Leverage The Company has consolidated indebtedness, which is substantial in relation to
its stockholders deficit. As of June 30, 2004, the Company had total debt
including borrowings under revolving credit facilities and notes
payable under
insurance financing agreements of approximately $279.6 million (excluding
approximately $111.9 million of trade payables and other accrued liabilities)
and stockholders deficit of approximately $4.7 million. In addition, the
Company has additional capacity for borrowings available under its revolving
credit facility, which is discussed above in Financial Condition, Liquidity and
Capital Resources. 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 Credit Facility sets forth a number of affirmative, negative, and financial
covenants binding on the Company. The Credit Facility contains a subjective
acceleration clause which permits the lenders to accelerate the maturity date
of the Credit Facility if an event or development occurs which could reasonably
be expected to have a material adverse effect on the Company, as defined in
the Credit Facility. 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 also include a maximum leverage ratio.
The Company obtained the consent of 25




---



##### Table of Contents



its lenders
under the Credit Facility to deliver its financial statements, as
required by the Credit Facility, for
the three and six months ended June 30, 2004 on or before
September 24, 2004 and the Company delivered such financial statements on
September 23, 2004.
As a result, the Company was in compliance with the various covenants set
forth in the Credit Facility at June 30, 2004. The Company will need to use a significant amount of its future cash flows 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 refinancing 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 There can be no assurance that the Company will be able to negotiate new union
contracts as the current contracts expire or that such contracts will be on
terms acceptable to the Company or will not result in increased labor costs to
the Company or work stoppages, which 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 earnings by $7.6 million over the
next twelve months assuming levels of fuel consumption and pricing in the next
twelve months are consistent with the second quarter of 2004. These increases
would be partially offset by the Companys fuel surcharge agreements with
certain customers. Fuel prices in the second quarter of 2004 were approximately
17% higher than fuel prices in the second quarter of 2003. 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 and broker operations that sub-contract carhaul transportation
services to low-cost independent owner-operators. The development of new
methods of hauling vehicles could also lead to increased competition. The carhaul business is labor intensive for union carhaul companies. Wages and
benefits represented approximately $127.9 million and $247.9 million of the
Companys consolidated operating expenses for the quarter and the six months
ended June 30, 2004 respectively. 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. Railroads, which specialize in long-haul transportation, may be able
to provide delivery services at a cost to customers that are less than the
long-haul delivery cost of Allied Automotive Groups services. Allied
Automotive Group could benefit from the temporary transportation of new
vehicles due to potential rail car shortages throughout North America. This
phenomenon occasionally occurs in the carhaul industry and generally speaking
the trucking sector is sometimes called upon to provide supplemental capacity
during these periods. 26




---



##### Table of Contents



Self- Insurance Claims An increase in the number or severity of accidents, stolen equipment, or other
loss events over those anticipated, or adverse development of existing claims
including wage and medical cost inflation 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 at reasonable rates. 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. Prior
to January 1, 2004, the Company had a $1.0 million inner-aggregate limit for
losses from $1.0 to $2.0 million, and an additional $4.0 million aggregate
limit for losses from $2.0 to $5.0 million. Effective January 1, 2004, the
Company retains up to $1.0 million liability for automotive claims with no
aggregate and a $7.0 million aggregate deductible for claims that exceed $1.0
million, but are less than $5.0 million per occurrence. Restrictions on Cash and Investments The Company uses restricted cash and restricted investments to collateralize
letters of credit required by third-party insurance companies for the
settlement of insurance claims. These assets are not available for the
operations of the Company. Dependence on Major Customers Allied Automotive Groups business is highly dependent upon General Motors,
Ford Motor Company (managed by UPS Autogistics, Inc.), DaimlerChrysler, Toyota
and Honda, its largest customers. The Company operates under written contracts
with each of these companies. The contract with General Motors expires in
March 2006, the Ford contract expires in September 2005 for ramp locations and
in December 2005 for plant locations, the contract with DaimlerChrysler expires
in January 2005, the contract with Toyota expires in November 2004, and the
contract with Honda expires in March 2005. The contracts with Ford,
DaimlerChrysler and Toyota can be terminated by location for any reason or no
reason based on 60 to 150 days notice. The contract with General Motors can be
terminated by location for failure to comply with service and quality standards
set forth in the contract. The Company has 30 days to cure any such
noncompliance by location and General Motors may terminate by location on 60
days notice following a failure to cure. Allied Automotive Groups contract with DaimlerChrysler expires on January 1,
2005. Allied Automotive Group has initiated preliminary negotiations with
DaimlerChrysler in regard to the renewal of this agreement, and Allied
Automotive Group is attempting to increase its pricing in regard to this
account. Allied Automotive Group believes that it will be exposed to market
share risk as a result of its attempt to increase pricing in these
negotiations. Although Allied Automotive Group believes that its relationships with these
customers are 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, Ford, 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. General Motors, DaimlerChrysler, and Ford, in particular, have
publicly announced plans to significantly reduce vendor costs including those
costs associated with logistics services. The contract with General Motors that was effective March 2004 includes
reductions in the Companys rates for transportation services. General Motors
has agreed to award certain new business to the Company and has further agreed
to include the Company in any fuel surcharge program implemented by General
Motors for any outbound vehicle transportation providers during the term of the
new agreement. However, there can be no assurance that General Motors will
fulfill its commitments under the contract or that it will award new business
to the Company under terms and conditions acceptable to the Company. Since the renewal of the General Motors
contract during the first quarter of 2004, Allied Automotive Group has agreed
to retain its General Motors yard management services operation in
consideration for a negotiated price increase with General Motors, which Allied
Automotive Group believes will restore the profitability of these yard
management services in the second half of 2004. Allied Automotive Group had
previously disclosed that it would discontinue these yard services pursuant to
the renewal of the vehicle delivery agreement with General Motors during the
first quarter of 2004. Foreign Currency Exchange Rates Although the majority of the Companys operations are in the United States, the
Company does have foreign subsidiaries (primarily in Canada). The net
investment in foreign subsidiaries translated into dollars using month-end
exchange rates at June 27




---



##### Table of Contents



30, 2004 was $85.3 million. The potential impact on other comprehensive income
resulting from a hypothetical 10% change in quoted foreign currency exchange
rates amounts to $8.5 million. At June 30, 2004 a payable balance of $29.3
million related to intercompany transactions was outstanding 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 $2.9
million as of June 30, 2004. 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, OEM quality holds or OEM plant closings. 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, SUVs, 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. Dependence on Automotive Industry The automotive transportation industry is dependent upon the volume of new
automobiles, SUVs, and light trucks manufactured, imported and sold. The
automotive industry is highly cyclical, and the demand for new automobiles,
SUVs, and light trucks is directly affected by such external factors as general
economic conditions in the United States, unemployment, consumer confidence,
federal policies, continuing activities 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, SUVs, and light trucks. A significant decline in
the volume of automobiles, SUVs, and light trucks manufactured as well as sold
in North America could have a material adverse effect on the Company. Contractual Obligations The Company has certain long-term contractual obligations, including operating
lease obligations that include leases for Rigs and purchase and service
contract commitments that are not required to be recorded in the Companys
consolidated balance sheet. During the second quarter of 2004 the Company entered into
two new operating leases for 30 Rigs. The commitment over the term of the
leases, 5.5 years, is $4.4 million. The Company has no other material changes to this
disclosure as made in its Annual Report on Form 10-K for the year ended
December 31, 2003. 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 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
managements evaluation of the nature and severity of claims, litigation risks,
and actuarial estimates based on historical claims experience adjusted for
current industry trends. The Company utilizes a third-party claims processor
and 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 estimates made by its third party
claims processors actuarial estimates 28




---



##### Table of Contents



based on actual experience. If management uses different assumptions or if
different conditions occur in the future periods, future operating results or
liquidity could be materially impacted. ACCOUNTS RECEIVABLE VALUATION RESERVES  Substantially all of the
Companys revenues are derived from transporting new automobiles, SUVs, 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. If significant billing
adjustments or the financial condition of a major customer was to deteriorate,
additional allowances may be required. ACCOUNTING FOR INCOME TAXES  As part of the process of preparing the
Companys consolidated financial statements the Company is required to
determine 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 more likely than not, 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 deferred tax assets. 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. The Company has recorded a valuation allowance against its
net deferred tax assets due to net losses in 2003 and prior years, based on
managements conclusion that it is not more likely than not that the deferred
tax assets will be recovered. Tax assessments may arise several years after tax returns have been filed.
Predicting the outcome of such tax assessments involves uncertainty; however,
the Company believes that recorded tax liabilities adequately account for its
analysis of probable outcomes. PROPERTY AND EQUIPMENT  The Company operates approximately 3,700
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 Company also evaluates the carrying value of
long-lived assets for impairment by analyzing the operating performance and
future cash flows for those assets, whenever events or changes in circumstances
indicate that the carrying amounts of such assets may not be recoverable,
including the need to adjust the carrying value of the underlying assets if the
sum of the expected cash flows is less than the carrying value. Impairment can
be impacted by our projection of future cash flows, the level of actual cash
flows and salvage values, the methods of estimation used for determining fair
values and the impact of guaranteed residuals. Any changes in managements
judgments could result in greater or lesser annual depreciation expense or
additional impairment charges in the future. GOODWILL  The Company adopted SFAS 142 as of January 1, 2002. Pursuant to
adoption, goodwill is no longer amortized but is evaluated annually for
impairment, or on an interim basis if an event occurs or circumstances change
that would indicate there may be a reduction of the fair value of goodwill
below its carrying value. The fair value of goodwill is derived by using a
discounted cash flow analysis. This analysis involves estimates and assumptions
by management regarding future revenue streams and expenses. Changes to these
assumptions and estimates could have a material effect on the carrying value of
goodwill and result in an impairment charge in the Companys consolidated
statements of operations. CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report
on Form 10-Q contains, and from time to time the Company and its officers,
directors, or employees may make other forward-looking statements, including
statements regarding, among other items, (i) the Companys 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 and anticipated capital expenditures, (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 and (vii)
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. 29




---



##### Table of Contents



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: the ability of the Company to comply with the
terms of its current debt agreements and customer contracts; economic
recessions or downturns in new vehicle production or sales; war in the Middle
East; increases in the cost and availability of fuel; the Companys ability to
receive fuel surcharges; the highly competitive nature of the automotive
distribution industry; dependence on the automotive industry and recent
initiatives of customers to reduce vendor costs; 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; the Companys highly leveraged financial position; the
ability of the Company to obtain financing in the future; 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 and costs of work related accidents and workers compensation claims;
availability of appropriate insurance coverages; 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; the
Companys ability to successfully implement internal controls
and procedures that remediate the material weakness and ensure
timely, effective and accurate financial reporting; 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, 2003.
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
Quantitative and Qualitative Disclosures about Market Risks under Item 2.
Managements Discussion and Analysis of Financial Condition and Results of
Operations. 
 Item 4. Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures.As of the end of the
period covered by this quarterly report, the Company, under the supervision and
with the participation of the Companys management, including the Chief
Executive Officer and the Chief Financial Officer, has evaluated the
effectiveness of the Companys disclosure controls and procedures (as defined
in Sections 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934).
Based upon the 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 to material information required
to be included in the Companys periodic Securities and Exchange Commission
filings. (b) Changes in Internal Control Over Financial Reporting. In connection with
the completion of its audit of, and the issuance of an unqualified report on,
the Companys consolidated financial statements for the year ended December 31,
2003, KPMG LLP advised the Audit Committee and management of certain
deficiencies in the Companys internal control over financial reporting that
KPMG considered to be a reportable condition under the standards established
by the American Institute of Certified Public Accountants. The reportable
condition related to the analysis, evaluation and review of financial
information included in the Companys financial reporting. As a result, certain
financial information and disclosures were not presented appropriately and
required restatement. Certain of these matters relate to the Companys
classification of (1) cash and cash equivalents and short-term investments, (2)
its revolving credit facility, (3) certain other items related to its pension
assets and obligations, and (4) deferred income taxes. KPMG and management discussed the reportable condition with the Audit
Committee. The Company reclassified certain items and restated its
consolidated balance sheet as of December 31, 2002, and its consolidated
statements of cash flows for the years ended December 31, 2002 and 2001
disclosed in its Form 10-K for the year ended December 31, 2003. The Company
also reclassified certain items and restated its consolidated statements of
cash flows for the first quarter of 2003 in order to more clearly present its
financial position and comply with generally accepted accounting principles. In connection
with the preparation of the Quarterly Report on Form 10-Q for the
three months ended March 31, 2004, management, in consultation with KPMG,
determined that certain items in the Companys consolidated statements of cash
flows relating to the Companys borrowings and repayments in connection with
certain insurance financing arrangements should be classified as cash flows
from financing activities. Previously, in the Companys filings, the Company
had shown such items as cash flows from operating activities. Subsequent to this reclassification, in connection with the preparation of this
Quarterly Report on Form 10-Q, management determined, after further evaluating
the Companys insurance financing arrangements, that certain
additional adjustments were required. These adjustments resulted in
changes to the proceeds from
and repayments of insurance financing arrangements included in cash flows from
financing activities previously reported for the
three months ended March 31, 2003. Management also concluded
that certain additional insurance financing arrangements should be presented in
the balance sheet on a gross basis, as assets and obligations, rather
than on a net basis. Additionally, management
concluded that funds deposited with and returned from the
Companys insurance carriers related to its insurance
arrangements should be disclosed as cash flows from investing activities
rather than cash flows from operating activities. The statements of cash flows for the six months ended June 30,
2004 and 2003 reflect these adjustments and reclassifications. These
adjustments do not require a restatement of the Companys consolidated
statements of cash flows included in the Annual Report on Form 10-K 30




---



##### Table of Contents



for the year ended December 31, 2003. The Company delayed the filing of this
Quarterly Report on Form 10-Q to complete the analysis necessary to make these
adjustments. In connection with its review of this Quarterly Report on Form 10-Q, KPMG
advised the Audit Committee and management that KPMG considered the Companys
policies and procedures for accounting for insurance arrangements to be
additional deficiencies in the Companys analysis, evaluation and review
process for financial reporting. KPMG has informed the Audit Committee and
management that it believes such deficiencies are a material weakness in the
Companys internal controls with respect to its analysis, evaluation and review
of financial information included in the Companys financial reporting.
Management is in the process of reviewing and, as necessary, revising its
policies and procedures with respect to its insurance accounting to ensure that
all reasonable steps have been taken to address and correct this material
weakness. As part of this process, management has hired an external consultant
to assist management in reviewing and, to the extent necessary, revising the
Companys policies and procedures. The Company plans to continue to monitor
the effectiveness of its internal controls over financial reporting on an
ongoing basis and will take further action, if appropriate, to address its
financial reporting process. Other than the items identified above, there were no other changes in the
Companys internal control over financial reporting that have materially
affected, or are 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 will not have a material adverse
effect on the Companys financial position or results of operations. 
 Item 4. Submission of Matters to a Vote of Security Holders On May 19, 2004 the Annual Meeting of Shareholders was held. The following
directors were elected for terms that will expire on the date of the annual
meeting in the year indicated below. The number of shares voted for, against
and abstentions are also indicated. Proposal I (Election of Directors) FOR
    
    WITHHELD
    
    TERMGuy W. Rutland, IV
    
    
    5,950,757
    
    
    
    174,174
    
    
    
    2007Berner F. Wilson, Jr.
    
    
    5,952,653
    
    
    
    172,278
    
    
    
    2007Thomas E. Boland
    
    
    6,089,307
    
    
    
    35,624
    
    
    
    2007
 The following Directors terms will continue as indicated. Guy W. Rutland III
    
    
    2005Robert R. Woodson
    
    
    2005J. Leland Strange
    
    
    2005Robert J. Rutland
    
    
    2006Hugh E. Sawyer
    
    
    2006William P. Benton
    
    
    2006David G. Bannister
    
    
    2006
 Proposal II (Proposal to amend the Companys Amended and Restated Long-Term
Incentive Plan including an amendment to increase the number of authorized
shares which may be issued under the plan by an additional 150,000 shares.) FOR
    
    AGAINST
    
    ABSTAIN5,892,634
    
    227,856
    
    4,441
 31




---



##### Table of Contents



Item 6. Exhibits and Reports on Form 8-K: (a) Exhibit Index Exhibit No.
    
    Description31.1
    
    Rule 13a-14(a)/15d-14(a) Certification by Hugh E. Sawyer.31.2
    
    Rule 13a-14(a)/15d-14(a) Certification by David A. Rawden.32.1
    
    Section 1350 Certification by Hugh E. Sawyer.32.2
    
    Section 1350 Certification by David A. Rawden.
 (b) Reports on Form 8-K The Company filed/furnished the following Current Reports on Form 8-K during
the quarter ended June 30, 2004: (i) a Form 8-K was furnished to the
Commission on May 4, 2004 attaching the Companys earnings release for the
quarter ended March 31, 2004; (ii) a Form 8-K was furnished to the Commission
on May 4, 2004 to provide the script for the Companys conference call to
discuss first quarter financial results held on May 4, 2004. 32




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized. ALLIED HOLDINGS, INC.Date: October 21, 2004
    By:
    /s/  Hugh E. SawyerHugh E. Sawyer,President and Chief Executive Officer Date: October 21, 2004 By:
    /s/  David A. RawdenDavid A. Rawden,Executive Vice President and Chief
Financial Officer

(Principal Financial and Accounting
Officer) 33




---



##### Table of Contents



EXHIBIT INDEX Exhibit No.
    
    Description31.1
    
    Rule 13a-14(a)/15d-14(a) Certification by Hugh E. Sawyer.31.2
    
    Rule 13a-14(a)/15d-14(a) Certification by David A. Rawden.32.1
    
    Section 1350 Certification by Hugh E. Sawyer.32.2
    
    Section 1350 Certification by David A. Rawden.
 34