##### 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 September 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
incorporation or organization)
    
    (I.R.S. Employer Identification
Number)
 Suite 200, 160 Clairemont Avenue, Decatur, Georgia 30030  (Address of principal executive offices)
 (404) 373-4285  (Registrants telephone number, including area code)
 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 December 31, 2004 ...................................................8,919,153




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES INDEX PAGEPART
IFINANCIAL INFORMATIONITEM 1 - Financial StatementsConsolidated Balance Sheets as of September 30, 2004 and December 31, 2003
    
    
    3Consolidated Statements of Operations for the Three and Nine-Month Periods Ended September 30, 2004 and 2003
    
    
    4Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30, 2004 and 2003
    
    
    5Notes to Consolidated Financial Statements
    
    
    6ITEM - 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22ITEM - 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    34ITEM - 4 Controls and Procedures
    
    
    34PART IIOTHER INFORMATIONITEM - 1 Legal Proceedings
    
    
    35ITEM
- 5 Other Information
    
    
    35ITEM - 6 Exhibits
    
    
    35Signature Page
    
    
    36EX-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




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##### Table of Contents



PART 1 - FINANCIAL INFORMATION 
 ITEM 1 - FINANCIAL STATEMENTS
 ALLIED HOLDINGS, INC. AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS (In Thousands)
 September 30,
    
    December 31,2004
    
    2003(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    6,902
    
    
    $
    2,148Restricted cash and cash equivalents
    
    
    26,453
    
    
    
    26,267Receivables, net of allowance for doubtful accounts of
$3,107 and $3,575 respectively
    
    
    52,379
    
    
    
    55,110Inventories
    
    
    5,031
    
    
    
    4,983Deferred income taxes
    
    
    14,960
    
    
    
    20,213Prepayments and other current assets
    
    
    18,726
    
    
    
    12,644Total current assets
    
    
    124,451
    
    
    
    121,365PROPERTY AND EQUIPMENT, NET
    
    
    142,974
    
    
    
    155,573GOODWILL, NET
    
    
    90,739
    
    
    
    90,203OTHER ASSETS:Restricted cash and cash equivalents
    
    
    56,213
    
    
    
    55,817Other non-current assets
    
    
    31,931
    
    
    
    32,777Total other assets
    
    
    88,144
    
    
    
    88,594Total assets
    
    $
    446,308
    
    
    $
    455,735LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Current maturities of long-term debt
    
    $
    13,500
    
    
    $
    16,374Borrowings under revolving credit facility
    
    
    18,226
    
    
    
    Accounts and notes payable
    
    
    33,960
    
    
    
    34,272Accrued liabilities
    
    
    89,730
    
    
    
    80,937Total current liabilities
    
    
    155,416
    
    
    
    131,583LONG-TERM DEBT, less current maturities
    
    
    218,208
    
    
    
    230,126POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
    
    
    4,921
    
    
    
    5,302DEFERRED INCOME TAXES
    
    
    14,960
    
    
    
    20,213OTHER LONG-TERM LIABILITIES
    
    
    62,526
    
    
    
    59,697STOCKHOLDERS (DEFICIT) EQUITY:Preferred stock, no par value; 5,000 shares authorized, none
outstanding
    
    
    
    
    
    
    Common stock, no par value; 20,000 shares authorized, 8,889
and 8,764 shares outstanding at September 30, 2004
and December 31, 2003, respectively
    
    
    
    
    
    
    Additional paid-in capital
    
    
    48,512
    
    
    
    47,511Treasury stock at cost, 139 shares at September 30, 2004
and December 31, 2003
    
    
    (707
    )
    
    
    (707
    )Accumulated deficit
    
    
    (55,459
    )
    
    
    (35,024
    )Accumulated other comprehensive loss, net of tax
    
    
    (2,069
    )
    
    
    (2,966
    )Total stockholders (deficit) equity
    
    
    (9,723
    )
    
    
    8,814Total liabilities and stockholders (deficit) equity
    
    $
    446,308
    
    
    $
    455,735
 The accompanying notes are
an integral part of these consolidated balance sheets. 3




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Data)
 (Unaudited)
 For the Three Months Ended
    
    For the Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003REVENUES
    
    $
    207,599
    
    
    $
    197,089
    
    
    $
    656,459
    
    
    $
    640,759OPERATING EXPENSES:Salaries, wages and fringe benefits
    
    
    111,298
    
    
    
    107,369
    
    
    
    359,163
    
    
    
    348,446Operating supplies and expenses
    
    
    36,371
    
    
    
    29,960
    
    
    
    114,930
    
    
    
    103,108Purchased transportation
    
    
    27,072
    
    
    
    24,082
    
    
    
    81,566
    
    
    
    74,632Insurance and claims
    
    
    11,401
    
    
    
    8,260
    
    
    
    30,205
    
    
    
    29,094Operating taxes and licenses
    
    
    6,848
    
    
    
    6,992
    
    
    
    21,503
    
    
    
    22,989Depreciation and amortization
    
    
    9,517
    
    
    
    11,011
    
    
    
    29,832
    
    
    
    34,688Rents
    
    
    2,008
    
    
    
    1,579
    
    
    
    5,753
    
    
    
    4,819Communications and utilities
    
    
    1,455
    
    
    
    1,745
    
    
    
    4,760
    
    
    
    5,213Other operating expenses
    
    
    2,105
    
    
    
    2,791
    
    
    
    7,056
    
    
    
    8,175Loss (gain) on disposal of operating assets, net
    
    
    305
    
    
    
    153
    
    
    
    (705
    )
    
    
    612Total operating expenses
    
    
    208,380
    
    
    
    193,942
    
    
    
    654,063
    
    
    
    631,776Operating
(loss) income
    
    
    (781)
    
    
    
    3,147
    
    
    
    2,396
    
    
    
    8,983OTHER INCOME (EXPENSE):Interest expense
    
    
    (8,754
    )
    
    
    (7,366
    )
    
    
    (23,699
    )
    
    
    (22,120
    )Investment income (loss)
    
    
    567
    
    
    
    (398
    )
    
    
    755
    
    
    
    2,935Foreign exchange gain (loss), net
    
    
    1,735
    
    
    
    (62
    )
    
    
    614
    
    
    
    2,386Other, net
    
    
    (91
    )
    
    
    1,976
    
    
    
    (191
    )
    
    
    1,976(6,543
    )
    
    
    (5,850
    )
    
    
    (22,521
    )
    
    
    (14,823
    )LOSS BEFORE INCOME TAXES
    
    
    (7,324
    )
    
    
    (2,703
    )
    
    
    (20,125
    )
    
    
    (5,840
    )INCOME TAX (PROVISION) BENEFIT
    
    
    (310
    )
    
    
    728
    
    
    
    (310
    )
    
    
    1,573NET LOSS
    
    ($
    7,634
    )
    
    ($
    1,975
    )
    
    ($
    20,435
    )
    
    ($
    4,267
    )LOSS PER COMMON SHARE:BASIC AND DILUTED
    
    ($
    0.87
    )
    
    ($
    0.23
    )
    
    ($
    2.35
    )
    
    ($
    0.50
    )WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:BASIC AND DILUTED
    
    
    8,791
    
    
    
    8,507
    
    
    
    8,705
    
    
    
    8,459
 The accompanying notes are
an integral part of these consolidated financial statements. 4




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands)
 (Unaudited)
 For the Nine Months EndedSeptember 30,2004
    
    2003(Restated)CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    ($
    20,435
    )
    
    ($
    4,267
    )Reconciliation of net loss to net cash provided
by operating activities:Interest expense paid in kind
    
    
    
    
    
    
    1,065Amortization of deferred financing costs
    
    
    2,094
    
    
    
    3,007Depreciation and amortization
    
    
    29,832
    
    
    
    34,688(Gain) loss
on disposal of operating assets, net
    
    
    (705
    )
    
    
    612Foreign exchange (gain) loss, net
    
    
    (614
    )
    
    
    (2,386
    )Deferred income taxes
    
    
    
    
    
    
    (3,402
    )Compensation expense related to stock options and grants
    
    
    475
    
    
    
    290Amortization of Teamsters Union contract costs
    
    
    
    
    
    
    1,000Change in operating assets and liabilities:Receivables, net of allowance for doubtful accounts
    
    
    (236
    )
    
    
    6,471Inventories
    
    
    (27
    )
    
    
    336Prepayments and other assets
    
    
    (2,597
    )
    
    
    1,968Accounts and notes payable
    
    
    (6,005
    )
    
    
    (9,676
    )Accrued liabilities
    
    
    10,795
    
    
    
    (4,155
    )Net cash provided by operating activities
    
    
    12,577
    
    
    
    25,551CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (18,054
    )
    
    
    (11,547
    )Proceeds from sale of property and equipment, net
    
    
    2,117
    
    
    
    287Increase in restricted cash and cash equivalents
    
    
    (582
    )
    
    
    (81,165
    )Decrease in restricted investments
    
    
    
    
    
    
    60,732Funds deposited with insurance carriers
    
    
    (32,024
    )
    
    
    (22,680
    )Funds returned from insurance carriers
    
    
    33,743
    
    
    
    18,058Decrease in the cash surrender value of life insurance
    
    
    147
    
    
    
    2Net cash used in investing activities
    
    
    (14,653
    )
    
    
    (36,313
    )CASH FLOWS FROM FINANCING ACTIVITIES:Additions to (repayments of) revolving credit facilities, net
    
    
    18,226
    
    
    
    (20,280
    )Additions to long-term debt
    
    
    
    
    
    
    99,875Repayment of long-term debt
    
    
    (14,792
    )
    
    
    (74,905
    )Payment of deferred financing costs
    
    
    
    
    
    
    (3,031
    )Proceeds from insurance financing arrangements
    
    
    28,608
    
    
    
    15,228Repayments of insurance financing arrangements
    
    
    (26,225
    )
    
    
    (15,287
    )Proceeds from issuance of common stock
    
    
    526
    
    
    
    282Other, net
    
    
    
    
    
    
    65Net cash provided by financing activities
    
    
    6,343
    
    
    
    1,947EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS
    
    
    487
    
    
    
    746NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    4,754
    
    
    
    (8,069
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    2,148
    
    
    
    9,448CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    6,902
    
    
    $
    1,379
 The accompanying notes are
an integral part of these consolidated financial statements. 5




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
 September 30, 2004 and 2003 (1) Basis of Presentation The accompanying unaudited Condensed Consolidated Financial Statements included
herein have been prepared in accordance with accounting
principles generally accepted 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 nine-month periods ended September 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 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, (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. In
December 2003, the Financial Accounting Standards Board revised
SFAS No. 132, Employers Disclosures about Pensions and
Other Postretirement Benefits (Statement
No. 132R). Statement No. 132R requires, among other
things, the disclosure
of the components of the net periodic benefit costs recognized during
interim periods such disclosures are included in this Form 10-Q. (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 September 30, 2003 to exclude restricted cash of
$82.0 million from the cash and cash equivalents totals in the consolidated
statement of cash flows for the nine months ended September 30, 2003. As discussed in the Companys Quarterly Report on Form 10-Q for the period
ended June 30, 2004, the Company enters into notes payable with third parties
to finance certain insurance arrangements. During 2004, the Company evaluated
its insurance financing arrangements and determined that borrowings and
repayments in connection with 6




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these insurance financing arrangements should be reclassified from operating
activities to financing activities in the consolidated statement of cash flows.
The Company also concluded that certain additional insurance financing
arrangements should be presented in the balance sheets on a gross basis, as
assets and 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 financing arrangements should be disclosed as
cash flows from investing activities rather than cash flows from operating
activities. A summary of the effects of these restatements and reclassifications on the
Companys consolidated statement of cash flows for the nine months ended
September 30, 2003 includes (in thousands): September 30, 2003As PreviouslyReported
    
    As RestatedChange in operating assets and liabilities:Receivables, net of allowance for doubtful accounts
    
    $
    1,840
    
    
    $
    6,471Prepayments and other assets
    
    
    16,359
    
    
    
    1,968Short-term investments
    
    
    60,732
    
    
    
    Accrued liabilities
    
    
    (18,596
    )
    
    
    (4,155
    )Net cash provided by operating activities
    
    
    81,602
    
    
    
    25,551Cash flows from investing activities:Increase in restricted cash and cash equivalents
    
    
    
    
    
    
    (81,165
    )Increase in restricted investments
    
    
    
    
    
    
    60,732Funds deposited with insurance carriers
    
    
    
    
    
    
    (22,680
    )Funds returned from insurance carriers
    
    
    
    
    
    
    18,058Net cash used in investing activities
    
    
    (11,258
    )
    
    
    (36,313
    )Cash flows from financing activities:Proceeds from insurance financing arrangements
    
    
    
    
    
    
    15,228Repayments of insurance financing arrangements
    
    
    
    
    
    
    (15,287
    )Net cash provided by financing activities
    
    
    2,006
    
    
    
    1,947Cash and cash equivalents at the beginning of the
period
    
    
    10,253
    
    
    
    9,448Cash and cash equivalents at the end of the period
    
    
    83,349
    
    
    
    1,379
 During the
Companys review of the third quarter of 2004, certain adjustments were identified related
to prior quarters of 2004 and prior years. The impact of adjusting these items was a $704,000 increase
in the net loss for the three months ended September 30, 2004 and a $722,000 decrease in the net loss
for the nine months ended September 30, 2004. Basic and diluted loss per share was increased by $0.08
for the three months ended September 30, 2004 and decreased by $0.08
for the nine months ended September 30, 2004 as a result of adjusting these items. The Company believes that
these adjustments were not material to the consolidated financial statements of any prior period and
were not material to the consolidated financial statements for the quarter ended September 30, 2004. (5) Prepayments and Other Current Assets Prepayments and other current assets consist of the following at September 30,
2004 and December 31, 2003 (in thousands): September 30,
    
    December 31,2004
    
    2003Tires on tractors and trailers
    
    $
    6,810
    
    
    $
    6,779Prepaid insurance and deposits
    
    
    4,430
    
    
    
    2,067Prepaid licenses
    
    
    2,608
    
    
    
    1,471Other
    
    
    4,878
    
    
    
    2,327$
    18,726
    
    
    $
    12,644
 7




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(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
potentially 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 September 30, 2004 and December 31, 2003 (in thousands): AlliedAutomotive
    
    AxisGroup
    
    Group
    
    TotalBalance as of December 31, 2003
    
    $
    77,983
    
    
    $
    12,220
    
    
    $
    90,203Increase in carrying amount due to a change in currency rates
    
    
    533
    
    
    
    3
    
    
    
    536Balance as of September 30, 2004
    
    $
    78,516
    
    
    $
    12,223
    
    
    $
    90,739
 (7) Other Non-Current Assets Other non-current assets consist of the following at September 30, 2004 and
December 31, 2003 (in thousands): September 30,
    
    December 31,2004
    
    2003Cash surrender value of life insurance
    
    $
    6,053
    
    
    $
    6,201Deferred financing costs
    
    
    7,625
    
    
    
    9,718Prepaid pension cost
    
    
    14,333
    
    
    
    14,166Deposits and other
    
    
    3,920
    
    
    
    2,692$
    31,931
    
    
    $
    32,777
 The Company amortizes
deferred financing costs related to its 8 5/8% senior notes and
revolving credit facility using the straight-line method. The accumulated
amortization related to these costs was $5.8 million and $4.6 million at
September 30, 2004 and December 31, 2003, respectively. Deferred financing
costs related to its term loan are amortized using the effective interest
rate method. The accumulated amortization for the costs related to
its term loan was $1.3 million and $0.4 million at
September 30, 2004 and December 31, 2003,
respectively. (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 $5.6 and
$3.2 million for insurance financing arrangements as of September 30, 2004 and
December 31, 2003, respectively, due in monthly installments, generally within
one year. Accrued liabilities consists of the following at September 30, 2004 and
December 31, 2003 (in thousands): September 30,
    
    December 31,2004
    
    2003Wages and benefits
    
    $
    36,378
    
    
    $
    35,180Claims and insurance reserves
    
    
    32,866
    
    
    
    31,425Other
    
    
    20,486
    
    
    
    14,332$
    89,730
    
    
    $
    80,937
 8




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(9) Employee Benefit Plans The following table sets forth the components of the Companys net periodic
benefit cost for the pension and postretirement benefit plans for the three and
nine-month periods ended September 30, 2004 and 2003 (in thousands): Three Months EndedSeptember 30,PostretirementPension Benefits
    
    Medical Benefits2004
    
    2003
    
    2004
    
    2003Service cost
    
    $
    22
    
    
    $
    28
    
    
    $
    12
    
    
    $
    12Interest cost
    
    
    677
    
    
    
    832
    
    
    
    144
    
    
    
    138Expected return on assets
    
    
    (1,158
    )
    
    
    (965
    )
    
    
    
    
    
    
    Amortization of:Unrecognized net actuarial loss
    
    
    (36
    )
    
    
    438
    
    
    
    
    
    
    
    Prior service cost
    
    
    12
    
    
    
    15
    
    
    
    (16
    )
    
    
    (16
    )Transition asset
    
    
    8
    
    
    
    (6
    )
    
    
    
    
    
    
    Recognized actuarial loss
    
    
    54
    
    
    
    67
    
    
    
    16
    
    
    
    16Net period benefit cost
    
    $
    (421
    )
    
    $
    409
    
    
    $
    156
    
    
    $
    150
 Nine Months EndedSeptember 30,PostretirementPension Benefits
    
    Medical Benefits2004
    
    2003
    
    2004
    
    2003Service cost
    
    $
    67
    
    
    $
    53
    
    
    $
    36
    
    
    $
    35Interest cost
    
    
    2,028
    
    
    
    1,617
    
    
    
    432
    
    
    
    414Expected return on assets
    
    
    (2,726
    )
    
    
    (1,875
    )
    
    
    
    
    
    
    Amortization of:Unrecognized net actuarial loss
    
    
    675
    
    
    
    851
    
    
    
    
    
    
    
    Prior service cost
    
    
    36
    
    
    
    29
    
    
    
    (49
    )
    
    
    (47
    )Transition asset
    
    
    (2
    )
    
    
    (12
    )
    
    
    
    
    
    
    Recognized actuarial loss
    
    
    163
    
    
    
    130
    
    
    
    50
    
    
    
    48Net period benefit cost
    
    $
    241
    
    
    $
    793
    
    
    $
    469
    
    
    $
    450
 The
Company contributed approximately $700,000 to its defined benefit pension
plans and approximately $980,000 to its postretirement plans during the nine-month period
ended September 30, 2004. Further, the Company contributed $3.8 million to its defined benefit
pension plans and approximately $300,000 to its postretirement plans during the fourth quarter of 2004. (10) Long-Term Debt Long-term debt consists of the following at September 30, 2004 and December 31,
2003 (in thousands): September 30,
    
    December 31,2004
    
    2003Term loan
    
    $
    81,708
    
    
    $
    96,500Senior notes
    
    
    150,000
    
    
    
    150,000231,708
    
    
    
    246,500Less current maturities of long-term debt
    
    
    (13,500
    )
    
    
    (16,374
    )$
    218,208
    
    
    $
    230,126
 9




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##### Table of Contents



The Companys Credit Facility (the Credit Facility and amendments thereto are
collectively referred to as the Credit Facility) as amended in September 2003
provides the Company with a $90 million revolving credit facility (the
Revolver) and a $100 million term loan (Term
Loan A). Subsequently, the Credit Facility was amended on
November 23, 2004 to provide the Company with an
additional $20 million term loan (Term Loan B). The final maturity date on
which all outstanding principal and interest under the Credit Facility shall be
due is September 4, 2007. Although the Credit Facility has a maturity date of
September 4, 2007, the Company has classified the Revolver as current based on
the requirement of Emerging Issues Task Force Issue (EITF) 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. Under the terms of the Credit Facility, Term Loan A is payable in quarterly
installments of principal and monthly payments of interest and Term Loan B is
payable in monthly installments of interest. The interest rate for the
Revolver is based upon the prime rate plus 1.5%, or LIBOR plus 4.5%, at
managements discretion, with a minimum interest rate of 6.5%. The Credit
Facility provides that Term Loan A bears interest between 8.5% and 11.5% to be
determined solely on the Companys leverage as defined in the Credit Facility.
At September 30, 2004, the interest rates on the Revolver and Term Loan A were
6.5% and 10%, respectively. The Company pays commitment fees
on the undrawn portion of the Revolver. The Credit Facility, as amended on
November 23, 2004, provides that Term Loan B bears interest at a rate equal to the greater of (i)
the prime rate plus 8.5% or (ii) 13.25%. As of the date of the
amendment, November 23, 2004, the interest rate on Term Loan B was 13.50%. In the event
that the consolidated earnings before interest, taxes, depreciation
and amortization and gains and losses on the disposal of operating
assets of the Company for the year ending December 31, 2005
exceeds $70 million, Term Loan B shall bear interest on the
principal amount outstanding on such date at the interest rate
applicable to Term Loan A. The amount available under the Revolver may be reduced based on a calculation
of Revolver collateral. At September 30, 2004, $84.7 million Revolver
collateral was available. At September 30, 2004, $18.2 million was outstanding under the
Revolver and the Company had approximately $29.4 million available under the
Revolver after amounts committed under letters of credit as discussed
below. At September 30, 2004, the unpaid balance of Term Loan A was $81.7
million. Approximately $37.1 million of the Revolver was
committed under letters of credit primarily related to the settlement of
insurance claims and the Company had
the availability to issue $2.9 million in letters of credit with a maximum
amount of $40 million at September 30, 2004. The maximum amount of letters of credit
that may be issued by the Company under the Credit Facility as
amended on November 23, 2004 is $50 million. As noted
above, the Credit Facility was amended to include Term
Loan B for $20 million, the entire proceeds of which
were used to pay down the outstanding balance on the Revolver.
Accordingly, the outstanding balance on Term Loan B was
$20 million on November  23, 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 and cash equivalents, and restricted 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 nine-month periods ended September 30, 2004 on or
before January 14,
2005 and the Company delivered such financial statements on
January 7, 2005. As a result, the Company was in compliance with the
requirements of the Credit Facility relating to the delivery of its
financial statements at September 30, 2004. 10




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##### 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 semi-annual
installments of interest only, and mature on October 1, 2007. The Companys
obligations under the Notes are guaranteed fully and unconditionally by
substantially all of the subsidiaries of the Company (the Guarantor
Subsidiaries), of which the Company owns 100 percent. 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 September 30, 2004, the Company had total debt
including borrowings under the Credit Facility and the Notes of approximately
$249.9 million (excluding approximately $123.7 million of trade and notes
payables, which include insurance financing
arrangements, and other current accrued liabilities) and
stockholders deficit of approximately $9.7 million. In
addition, the Company has additional capacity for borrowings available under
its Revolver. Due to negative covenants associated with the Senior
Notes, the Company presently does not have the capacity to incur a
material amount of additional term debt. The Company will have the capacity to incur
additional term debt in the future to the extent future principal
payments are made on the existing term debt. 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, 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 September 30, 2004, the Company had agreements with third parties that
provide for $119.8 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, $37.1 million of
these letters of credit are issued by the Company under the Credit Facility and
are secured by available borrowings on the Revolver, and $82.7 million are
issued by the Companys wholly owned captive insurance subsidiary, Haul
Insurance Limited, and are collateralized by $82.7 million of restricted cash
and cash equivalents held by the captive insurance company. The Company renews
these letters of credit annually and at September 30, 2004 the Company had
availability under the Credit Facility to issue an additional $2.9 million in letters of credit for a
maximum amount of $40 million. The maximum amount of letters of credit that
may be issued by the Company under the Credit Facility was amended on
November 23, 2004 to $50 million. 11




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##### Table of Contents



(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 settlement agreement with Ryder System Inc. (Ryder), the
Company has a letter of credit in favor of Ryder for $7.5 million, which is
included in the $37.1 million of the outstanding letters of
credit noted in (a) above, and has agreed to increase
the letter of credit by $1.0 million each quarter through the
first quarter of 2005. Pursuant to mutual agreement, the parties amended the
settlement on August 13, 2004 to
provide that the $1.0 million increase scheduled for the second quarter of 2004
was made in the third quarter of 2004 in addition to the $1.0 million increase
required for the third quarter of 2004. The Company is required to increase
the letter of credit by $1.0 million in 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. In the normal course of business, the Company is subject to audits from the
federal, state, Canadian provincial and other tax authorities regarding various
tax liabilities. The Canadian taxing authorities are currently auditing the
years 1998 through 2000 for the Companys Canadian entities. The Company has
accrued in these financial statements any taxes, interest, and penalties that
it believes are probable of payment. (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 third quarter of 2004 the Company entered into one new
operating lease for 21 Rigs. The commitment over the term of this lease is $4.1
million. During the nine-month period ended September 30, 2004 the Company
entered into three operating leases for a total of 51 Rigs. The total commitment for
these leases is $8.5 million. All of the leases entered into during 2004 have
a term of 5.5 years. (12) Earnings (Loss) Per Common Share SFAS No. 128, Earnings Per Share,requires presentation of basic and diluted
earnings per share. Basic earnings per share are calculated by dividing net
income available to common stockholders by the weighted average number of
common shares outstanding for the 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 the net loss and the weighted average number of common
shares outstanding used to calculate basic and diluted loss per
common share for the three and nine-month periods ended September 30, 2004 and
2003 is as follows: 12




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##### Table of Contents



Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Basic and
Diluted Loss Per Share:Net loss
    
    $
    (7,634
    )
    
    $
    (1,975
    )
    
    $
    (20,435
    )
    
    $
    (4,267
    )Weighted average number of common
shares outstanding:Basic and diluted
    
    
    8,791
    
    
    
    8,507
    
    
    
    8,705
    
    
    
    8,459Net loss per common share:Basic and diluted
    
    $
    (0.87
    )
    
    $
    (0.23
    )
    
    $
    (2.35
    )
    
    $
    (0.50
    )
 Common
stock equivalents for approximately 192,000 and 291,000 shares
outstanding for the three months ended September 30, 2004 and
2003, respectively, and 550,000 and 285,000 shares
outstanding for the nine months ended September 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. If the Company applied the fair value method prescribed by SFAS No. 123, net
loss and loss per common share would have been changed to the pro forma amounts
indicated below for the three and nine months ended September 30, 2004 and 2003
(in thousands, except per share data): Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Reported net loss
    
    $
    (7,634
    )
    
    $
    (1,975
    )
    
    $
    (20,435
    )
    
    $
    (4,267
    )Plus: stock-based employee compensation
included in reported net loss, net
of related taxes, when applicable
    
    
    85
    
    
    
    124
    
    
    
    475
    
    
    
    212Less: stock-based employee compensation
determined using the fair value method,
net of related taxes, when applicable
    
    
    (300
    )
    
    
    (138
    )
    
    
    (1,055
    )
    
    
    (394
    )Pro forma net loss
    
    $
    (7,849
    )
    
    $
    (1,989
    )
    
    $
    (21,015
    )
    
    $
    (4,449
    )Loss per share:As reported:Basic and Diluted
    
    $
    (0.87
    )
    
    $
    (0.23
    )
    
    $
    (2.35
    )
    
    $
    (0.50
    )Pro forma:Basic and Diluted
    
    $
    (0.89
    )
    
    $
    (0.23
    )
    
    $
    (2.41
    )
    
    $
    (0.53
    )
 (14) Other Comprehensive (Loss) Income Total comprehensive (loss) income consisted of the following (in thousands): 13




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##### Table of Contents



Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Net loss
    
    $
    (7,634
    )
    
    $
    (1,975
    )
    
    $
    (20,435
    )
    
    $
    (4,267
    )Foreign currency translation
adjustments
    
    
    2,417
    
    
    
    (191
    )
    
    
    897
    
    
    
    4,715Total comprehensive (loss) income
    
    $
    (5,217
    )
    
    $
    (2,166
    )
    
    $
    (19,538
    )
    
    $
    448
 Accumulated other comprehensive loss, net of income taxes of $1.9 million at
September 30, 2004 and December 31, 2003, consists of the following (in
thousands): September 30,
    
    December 31,2004
    
    2003Cumulative foreign currency translation adjustments
    
    $
    (652
    )
    
    $
    (1,549
    )Cumulative minimum pension liability adjustments
    
    
    (1,417
    )
    
    
    (1,417
    )Total accumulated other comprehensive loss
    
    $
    (2,069
    )
    
    $
    (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. Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Revenues  Unaffiliated customersAllied Automotive Group
    
    $
    201,846
    
    
    $
    190,532
    
    
    $
    637,518
    
    
    $
    619,832Axis Group
    
    
    5,753
    
    
    
    6,557
    
    
    
    18,941
    
    
    
    20,927Corporate/Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    207,599
    
    
    $
    197,089
    
    
    $
    656,459
    
    
    $
    640,759Operating
(loss) income:Allied Automotive Group
    
    $
    228
    
    
    $
    5,370
    
    
    $
    7,121
    
    
    $
    11,987Axis Group
    
    
    (150
    )
    
    
    886
    
    
    
    1,143
    
    
    
    2,550Corporate/Other
    
    
    (859
    )
    
    
    (3,109
    )
    
    
    (5,868
    )
    
    
    (5,554
    )Total
    
    $
    (781
    )
    
    $
    3,147
    
    
    $
    2,396
    
    
    $
    8,983Reconciling items:Interest expense
    
    $
    (8,754
    )
    
    $
    (7,366
    )
    
    $
    (23,699
    )
    
    $
    (22,120
    )Investment income
    
    
    567
    
    
    
    (398
    )
    
    
    755
    
    
    
    2,935Foreign exchange (loss) gain, net
    
    
    1,735
    
    
    
    (62
    )
    
    
    614
    
    
    
    2,386Other, net
    
    
    (91
    )
    
    
    1,976
    
    
    
    (191
    )
    
    
    1,976Loss before income taxes
    
    $
    (7,324
    )
    
    $
    (2,703
    )
    
    $
    (20,125
    )
    
    $
    (5,840
    )
 14




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##### Table of Contents



September 30,
    
    December 31,2004
    
    2003Total Assets:Allied Automotive Group
    
    $
    279,114
    
    
    $
    279,208Axis Group
    
    
    27,289
    
    
    
    31,993Corporate/other
    
    
    139,905
    
    
    
    144,534Total
    
    $
    446,308
    
    
    $
    455,735
 Geographical information for the three and nine months ended September 30, 2004
and 2003 is as follows (in thousands): Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Revenues:United States
    
    $
    170,151
    
    
    $
    166,678
    
    
    $
    532,229
    
    
    $
    525,435Canada
    
    
    37,448
    
    
    
    30,411
    
    
    
    124,230
    
    
    
    115,324Total
    
    $
    207,599
    
    
    $
    197,089
    
    
    $
    656,459
    
    
    $
    640,759
 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
statement information of the Guarantor Subsidiaries and Nonguarantor
Subsidiaries. The Guarantor Subsidiaries are jointly and severally liable for
the Companys obligations under the Senior Notes and there are no restrictions
on the ability of the Guarantor Subsidiaries to make distributions to the
Company. The guarantees made by the Guarantor subsidiaries are full and
unconditional. The Company owns 100% of the Guarantor and Nonguarantor
subsidiaries. 15




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##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2004
(In Thousands) ALLIED
    
    GUARANTOR
    
    NONGUARANTORHOLDINGS
    
    SUBSIDIARIES
    
    SUBSIDIARIES
    
    ELIMINATIONS
    
    CONSOLIDATEDCURRENT ASSETS:Cash and cash equivalents
    
    $
    
    
    
    $
    272
    
    
    $
    6,630
    
    
    $
    
    
    
    $
    6,902Restricted cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    26,453
    
    
    $
    
    
    
    
    26,453Restricted investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Receivables, net of allowance for doubtful
accounts
    
    
    
    
    
    
    51,075
    
    
    
    1,304
    
    
    
    
    
    
    
    52,379Inventories
    
    
    
    
    
    
    5,031
    
    
    
    
    
    
    
    
    
    
    
    5,031Deferred tax asset
    
    
    12,261
    
    
    
    2,699
    
    
    
    
    
    
    
    
    
    
    
    14,960Prepayments and other current assets
    
    
    1,474
    
    
    
    15,722
    
    
    
    1,530
    
    
    
    
    
    
    
    18,726Total current assets
    
    
    13,735
    
    
    
    74,799
    
    
    
    35,917
    
    
    
    
    
    
    
    124,451PROPERTY AND EQUIPMENT, NET
    
    
    5,199
    
    
    
    134,578
    
    
    
    3,197
    
    
    
    
    
    
    
    142,974GOODWILL, NET
    
    
    1,515
    
    
    
    89,224
    
    
    
    
    
    
    
    
    
    
    
    90,739OTHER ASSETS:Restricted cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    56,213
    
    
    
    
    
    
    
    56,213Restricted investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other non-current assets
    
    
    28,245
    
    
    
    3,030
    
    
    
    656
    
    
    
    
    
    
    
    31,931Deferred tax asset
    
    
    20,104
    
    
    
    
    
    
    
    
    
    
    
    (20,104
    )
    
    
    Intercompany receivables
    
    
    61,560
    
    
    
    
    
    
    
    
    
    
    
    (61,560
    )
    
    
    Investment in subsidiaries
    
    
    22,042
    
    
    
    5,886
    
    
    
    
    
    
    
    (27,928
    )
    
    
    Total other assets
    
    
    131,951
    
    
    
    8,916
    
    
    
    56,869
    
    
    
    (109,592
    )
    
    
    88,144Total assets
    
    $
    152,400
    
    
    $
    307,517
    
    
    $
    95,983
    
    
    $
    (109,592
    )
    
    $
    446,308CURRENT LIABILITIES:Current maturities of long-term debt
    
    $
    
    
    
    $
    13,500
    
    
    $
    
    
    
    $
    
    
    
    $
    13,500Borrowings under revolving credit facility
    
    
    
    
    
    
    18,226
    
    
    
    
    
    
    
    
    
    
    
    18,226Accounts and notes payable
    
    
    2,566
    
    
    
    31,372
    
    
    
    22
    
    
    
    
    
    
    
    33,960Intercompany payables
    
    
    
    
    
    
    51,297
    
    
    
    10,263
    
    
    
    (61,560
    )
    
    
    Accrued liabilities
    
    
    9,557
    
    
    
    60,226
    
    
    
    19,947
    
    
    
    
    
    
    
    89,730Total current liabilities
    
    
    12,123
    
    
    
    174,621
    
    
    
    30,232
    
    
    
    (61,560
    )
    
    
    155,416LONG-TERM DEBT, less current maturities
    
    
    150,000
    
    
    
    68,208
    
    
    
    
    
    
    
    
    
    
    
    218,208POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
    
    
    
    
    
    
    4,921
    
    
    
    
    
    
    
    
    
    
    
    4,921DEFERRED INCOME TAXES
    
    
    
    
    
    
    35,064
    
    
    
    
    
    
    
    (20,104
    )
    
    
    14,960OTHER LONG-TERM LIABILITIES
    
    
    
    
    
    
    28,882
    
    
    
    33,644
    
    
    
    
    
    
    
    62,526STOCKHOLDERS EQUITY (DEFICIT):Common stock, no par value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    48,512
    
    
    
    166,130
    
    
    
    2,488
    
    
    
    (168,618
    )
    
    
    48,512Treasury stock at cost
    
    
    (707
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (707
    )(Deficit) Retained earnings
    
    
    (55,459
    )
    
    
    (159,304
    )
    
    
    29,619
    
    
    
    129,685
    
    
    
    (55,459
    )Accumulated other comprehensive (loss)
income, net of tax
    
    
    (2,069
    )
    
    
    (11,005
    )
    
    
    
    
    
    
    11,005
    
    
    
    (2,069
    )Total stockholders (deficit)
equity
    
    
    (9,723
    )
    
    
    (4,179
    )
    
    
    32,107
    
    
    
    (27,928
    )
    
    
    (9,723
    )Total liabilities and stockholders
equity (deficit)
    
    $
    152,400
    
    
    $
    307,517
    
    
    $
    95,983
    
    
    $
    (109,592
    )
    
    $
    446,308
 16




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##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
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 tax asset
    
    
    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 tax asset
    
    
    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:Common stock, no par value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    47,511
    
    
    
    166,130
    
    
    
    2,488
    
    
    
    (168,618
    )
    
    
    47,511Treasury stock at cost
    
    
    (707
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (707
    )(Deficit) retained earnings
    
    
    (35,024
    )
    
    
    (148,516
    )
    
    
    29,135
    
    
    
    119,381
    
    
    
    (35,024
    )Accumulated other comprehensive (loss)
income, net of tax
    
    
    (2,966
    )
    
    
    (10,980
    )
    
    
    
    
    
    
    10,980
    
    
    
    (2,966
    )Total stockholders equity
    
    
    8,814
    
    
    
    6,634
    
    
    
    31,623
    
    
    
    (38,257
    )
    
    
    8,814Total liabilities and
stockholders equity (deficit)
    
    $
    169,814
    
    
    $
    312,451
    
    
    $
    79,879
    
    
    $
    (106,409
    )
    
    $
    455,735
 17




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##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATED INCOME STATEMENT INFORMATION
THREE MONTHS ENDED SEPTEMBER 30, 2004
(In Thousands) ALLIED
    
    GUARANTOR
    
    NONGUARANTORHOLDINGS
    
    SUBSIDIARIES
    
    SUBSIDIARIES
    
    ELIMINATIONS
    
    CONSOLIDATEDREVENUES
    
    $
    6,681
    
    
    $
    207,345
    
    
    $
    10,139
    
    
    $
    (16,566
    )
    
    $
    207,599OPERATING EXPENSES:Salaries, wages and fringe benefits
    
    
    484
    
    
    
    110,814
    
    
    
    
    
    
    
    
    
    
    
    111,298Operating supplies and expenses
    
    
    3,560
    
    
    
    32,723
    
    
    
    88
    
    
    
    
    
    
    
    36,371Purchased transportation
    
    
    
    
    
    
    27,072
    
    
    
    
    
    
    
    
    
    
    
    27,072Insurance and claims
    
    
    
    
    
    
    11,401
    
    
    
    9,885
    
    
    
    (9,885
    )
    
    
    11,401Operating taxes and licenses
    
    
    44
    
    
    
    6,804
    
    
    
    
    
    
    
    
    
    
    
    6,848Depreciation and amortization
    
    
    575
    
    
    
    8,822
    
    
    
    120
    
    
    
    
    
    
    
    9,517Rents
    
    
    483
    
    
    
    1,524
    
    
    
    1
    
    
    
    
    
    
    
    2,008Communications and utilities
    
    
    969
    
    
    
    481
    
    
    
    5
    
    
    
    
    
    
    
    1,455Other operating expenses
    
    
    1,388
    
    
    
    7,359
    
    
    
    39
    
    
    
    (6,681
    )
    
    
    2,105Loss on disposal of operating
assets, net
    
    
    
    
    
    
    305
    
    
    
    
    
    
    
    
    
    
    
    305Total operating expenses
    
    
    7,503
    
    
    
    207,305
    
    
    
    10,138
    
    
    
    (16,566
    )
    
    
    208,380Operating (loss) income
    
    
    (822
    )
    
    
    40
    
    
    
    1
    
    
    
    
    
    
    
    (781
    )OTHER INCOME (EXPENSE):Interest expense
    
    
    (1,049
    )
    
    
    (7,634
    )
    
    
    (71
    )
    
    
    
    
    
    
    (8,754
    )Investment income
    
    
    
    
    
    
    10
    
    
    
    557
    
    
    
    
    
    
    
    567Foreign
exchange gains, net
    
    
    
    
    
    
    1,681
    
    
    
    54
    
    
    
    
    
    
    
    1,735Other, net
    
    
    
    
    
    
    (91
    )
    
    
    
    
    
    
    
    
    
    
    (91
    )Equity in losses of
subsidiaries
    
    
    (5,711
    )
    
    
    (37
    )
    
    
    
    
    
    
    5,748
    
    
    
    (6,760
    )
    
    
    (6,071
    )
    
    
    540
    
    
    
    5,748
    
    
    
    (6,543
    )(LOSS) INCOME BEFORE INCOME TAXES
    
    
    (7,582
    )
    
    
    (6,031
    )
    
    
    541
    
    
    
    5,748
    
    
    
    (7,324
    )INCOME (EXPENSE) TAX BENEFIT
    
    
    (52
    )
    
    
    285
    
    
    
    (543
    )
    
    
    
    
    
    
    (310
    )NET LOSS
    
    $
    (7,634
    )
    
    $
    (5,746
    )
    
    $

    (2
    )
    
    $
    5,748
    
    
    $
    (7,634
    )
 SUPPLEMENTAL CONDENSED CONSOLIDATED INCOME STATEMENT INFORMATION
THREE MONTHS ENDED SEPTEMBER 30, 2003
(In Thousands) ALLIED
    
    GUARANTOR
    
    NONGUARANTORHOLDINGS
    
    SUBSIDIARIES
    
    SUBSIDIARIES
    
    ELIMINATIONS
    
    CONSOLIDATEDREVENUES
    
    $
    6,805
    
    
    $
    196,733
    
    
    $
    9,251
    
    
    $
    (15,700
    )
    
    $
    197,089OPERATING EXPENSES:Salaries, wages and fringe benefits
    
    
    3,469
    
    
    
    103,900
    
    
    
    
    
    
    
    
    
    
    
    107,369Operating supplies and expenses
    
    
    2,298
    
    
    
    27,609
    
    
    
    53
    
    
    
    
    
    
    
    29,960Purchased transportation
    
    
    
    
    
    
    24,082
    
    
    
    
    
    
    
    
    
    
    
    24,082Insurance and claims
    
    
    
    
    
    
    8,260
    
    
    
    8,895
    
    
    
    (8,895
    )
    
    
    8,260Operating taxes and licenses
    
    
    59
    
    
    
    6,933
    
    
    
    
    
    
    
    
    
    
    
    6,992Depreciation and amortization
    
    
    770
    
    
    
    10,120
    
    
    
    121
    
    
    
    
    
    
    
    11,011Rents
    
    
    473
    
    
    
    1,104
    
    
    
    2
    
    
    
    
    
    
    
    1,579Communications and utilities
    
    
    1,256
    
    
    
    484
    
    
    
    5
    
    
    
    
    
    
    
    1,745Other operating expenses
    
    
    1,550
    
    
    
    8,003
    
    
    
    43
    
    
    
    (6,805
    )
    
    
    2,791Loss on disposal of operating
assets, net
    
    
    
    
    
    
    153
    
    
    
    
    
    
    
    
    
    
    
    153Total operating expenses
    
    
    9,875
    
    
    
    190,648
    
    
    
    9,119
    
    
    
    (15,700
    )
    
    
    193,942Operating (loss) income
    
    
    (3,070
    )
    
    
    6,085
    
    
    
    132
    
    
    
    
    
    
    
    3,147OTHER INCOME (EXPENSE):Interest expense
    
    
    (1,640
    )
    
    
    (5,632
    )
    
    
    (94
    )
    
    
    
    
    
    
    (7,366
    )Investment income
    
    
    
    
    
    
    12
    
    
    
    (410
    )
    
    
    
    
    
    
    (398
    )Foreign exchange loss, net
    
    
    
    
    
    
    (23
    )
    
    
    (39
    )
    
    
    
    
    
    
    (62
    )Other, net
    
    
    1,976
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,976Equity in earnings (losses) of
subsidiaries
    
    
    142
    
    
    
    86
    
    
    
    
    
    
    
    (228
    )
    
    
    478
    
    
    
    (5,557
    )
    
    
    (543
    )
    
    
    (228
    )
    
    
    (5,850
    )(LOSS) INCOME BEFORE INCOME TAXES
    
    
    (2,592
    )
    
    
    528
    
    
    
    (411
    )
    
    
    (228
    )
    
    
    (2,703
    )INCOME TAX BENEFIT
    
    
    617
    
    
    
    
    
    
    
    111
    
    
    
    
    
    
    
    728NET (LOSS) INCOME
    
    $
    (1,975
    )
    
    $
    528
    
    
    $
    (300
    )
    
    $
    (228
    )
    
    $
    (1,975
    )
 18




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##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATED INCOME STATEMENT INFORMATION
NINE MONTHS ENDED SEPTEMBER 30, 2004
(In Thousands) ALLIED
    
    GUARANTOR
    
    NONGUARANTORHOLDINGS
    
    SUBSIDIARIES
    
    SUBSIDIARIES
    
    ELIMINATIONS
    
    CONSOLIDATEDREVENUES
    
    $
    20,047
    
    
    $
    655,391
    
    
    $
    30,718
    
    
    $
    (49,697
    )
    
    $
    656,459OPERATING EXPENSES:Salaries, wages and fringe benefits
    
    
    4,863
    
    
    
    354,300
    
    
    
    
    
    
    
    
    
    
    
    359,163Operating supplies and expenses
    
    
    10,395
    
    
    
    104,317
    
    
    
    218
    
    
    
    
    
    
    
    114,930Purchased transportation
    
    
    
    
    
    
    81,566
    
    
    
    
    
    
    
    
    
    
    
    81,566Insurance and claims
    
    
    
    
    
    
    30,201
    
    
    
    29,654
    
    
    
    (29,650
    )
    
    
    30,205Operating taxes and licenses
    
    
    122
    
    
    
    21,381
    
    
    
    
    
    
    
    
    
    
    
    21,503Depreciation and amortization
    
    
    1,905
    
    
    
    27,569
    
    
    
    358
    
    
    
    
    
    
    
    29,832Rents
    
    
    1,428
    
    
    
    4,321
    
    
    
    4
    
    
    
    
    
    
    
    5,753Communications and utilities
    
    
    2,718
    
    
    
    2,024
    
    
    
    18
    
    
    
    
    
    
    
    4,760Other operating expenses
    
    
    4,334
    
    
    
    22,605
    
    
    
    164
    
    
    
    (20,047
    )
    
    
    7,056Gain on disposal of operating
assets, net
    
    
    
    
    
    
    (705
    )
    
    

    
    
    
    
    
    
    
    
    (705
    )Total operating expenses
    
    
    25,765
    
    
    
    647,579
    
    
    
    30,416
    
    
    
    (49,697
    )
    
    
    654,063Operating (loss) income
    
    
    (5,718
    )
    
    
    7,812
    
    
    
    302
    
    
    
    
    
    
    
    2,396OTHER INCOME (EXPENSE):Interest expense
    
    
    (4,103
    )
    
    
    (19,356
    )
    
    
    (240
    )
    
    
    
    
    
    
    (23,699
    )Investment income
    
    
    
    
    
    
    28
    
    
    
    727
    
    
    
    
    
    
    
    755Foreign exchange losses, net
    
    
    
    
    
    
    674
    
    
    
    (60
    )
    
    
    
    
    
    
    614Other, net
    
    
    
    
    
    
    (191
    )
    
    
    
    
    
    
    
    
    
    
    (191
    )Equity in (losses) earnings of
subsidiaries
    
    
    (10,562
    )
    
    
    233
    
    
    
    
    
    
    
    10,329
    
    
    
    (14,665
    )
    
    
    (18,612
    )
    
    
    427
    
    
    
    10,329
    
    
    
    (22,521
    )(LOSS) INCOME BEFORE INCOME TAXES
    
    
    (20,383
    )
    
    
    (10,800
    )
    
    
    729
    
    
    
    10,329
    
    
    
    (20,125
    )INCOME TAX EXPENSE
    
    
    (52
    )
    
    
    (13
    )
    
    
    (245
    )
    
    
    
    
    
    
    (310
    )NET (LOSS) INCOME
    
    $
    (20,435
    )
    
    $
    (10,813
    )
    
    $
    484
    
    
    $
    10,329
    
    
    $
    (20,435
    )
 SUPPLEMENTAL CONDENSED CONSOLIDATED INCOME STATEMENT INFORMATION
NINE MONTHS ENDED SEPTEMBER 30, 2003
(In Thousands) ALLIED
    
    GUARANTOR
    
    NONGUARANTORHOLDINGS
    
    SUBSIDIARIES
    
    SUBSIDIARIES
    
    ELIMINATIONS
    
    CONSOLIDATEDREVENUES
    
    $
    20,909
    
    
    $
    639,719
    
    
    $
    27,509
    
    
    $
    (47,378
    )
    
    $
    640,759OPERATING EXPENSES:Salaries, wages and fringe benefits
    
    
    8,634
    
    
    
    339,812
    
    
    
    
    
    
    
    
    
    
    
    348,446Operating supplies and expenses
    
    
    6,841
    
    
    
    96,136
    
    
    
    131
    
    
    
    
    
    
    
    103,108Purchased transportation
    
    
    
    
    
    
    74,632
    
    
    
    
    
    
    
    
    
    
    
    74,632Insurance and claims
    
    
    
    
    
    
    29,247
    
    
    
    26,316
    
    
    
    (26,469
    )
    
    
    29,094Operating taxes and licenses
    
    
    182
    
    
    
    22,807
    
    
    
    
    
    
    
    
    
    
    
    22,989Depreciation and amortization
    
    
    2,497
    
    
    
    31,838
    
    
    
    353
    
    
    
    
    
    
    
    34,688Rents
    
    
    1,461
    
    
    
    3,353
    
    
    
    5
    
    
    
    
    
    
    
    4,819Communications and utilities
    
    
    3,106
    
    
    
    2,096
    
    
    
    11
    
    
    
    
    
    
    
    5,213Other operating expenses
    
    
    3,693
    
    
    
    25,153
    
    
    
    238
    
    
    
    (20,909
    )
    
    
    8,175Loss on disposal of operating
assets, net
    
    
    
    
    
    
    612
    
    
    
    
    
    
    
    
    
    
    
    612Total operating expenses
    
    
    26,414
    
    
    
    625,686
    
    
    
    27,054
    
    
    
    (47,378
    )
    
    
    631,776Operating (loss) income
    
    
    (5,505
    )
    
    
    14,033
    
    
    
    455
    
    
    
    
    
    
    
    8,983OTHER INCOME (EXPENSE):Interest expense
    
    
    (5,614
    )
    
    
    (16,312
    )
    
    
    (194
    )
    
    
    
    
    
    
    (22,120
    )Investment income
    
    
    
    
    
    
    54
    
    
    
    2,881
    
    
    
    
    
    
    
    2,935Foreign exchange gain (loss), net
    
    
    
    
    
    
    2,398
    
    
    
    (12
    )
    
    
    
    
    
    
    2,386Other, net
    
    
    1,976
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,976Equity in earnings (losses) of
subsidiaries
    
    
    2,433
    
    
    
    433
    
    
    
    
    
    
    
    (2,866
    )
    
    
    (1,205
    )
    
    
    (13,427
    )
    
    
    2,675
    
    
    
    (2,866
    )
    
    
    (14,823
    )(LOSS) INCOME BEFORE INCOME TAXES
    
    
    (6,710
    )
    
    
    606
    
    
    
    3,130
    
    
    
    (2,866
    )
    
    
    (5,840
    )INCOME TAX BENEFIT (EXPENSE)
    
    
    2,443
    
    
    
    323
    
    
    
    (1,193
    )
    
    
    
    
    
    
    1,573NET (LOSS) INCOME
    
    $
    (4,267
    )
    
    $
    929
    
    
    $
    1,937
    
    
    $
    (2,866
    )
    
    $
    (4,267
    )
 19




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##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
NINE MONTHS ENDED SEPTEMBER 30, 2004
(In Thousands) ALLIED
    
    GUARANTOR
    
    NONGUARANTORHOLDINGS
    
    SUBSIDIARIES
    
    SUBSIDIARIES
    
    ELIMINATIONS
    
    CONSOLIDATEDCASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income
    
    $
    (20,435
    )
    
    $
    (10,813
    )
    
    $
    484
    
    
    $
    10,329
    
    
    $
    (20,435
    )Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:Amortization of deferred financing costs
    
    
    2,094
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,094Depreciation and amortization
    
    
    1,905
    
    
    
    27,569
    
    
    
    358
    
    
    
    
    
    
    
    29,832Gain on
disposal of operating assets, net
    
    
    
    
    
    
    (705
    )
    
    
    
    
    
    
    
    
    
    
    (705
    )Foreign exchange gain, net
    
    
    
    
    
    
    (614
    )
    
    
    
    
    
    
    
    
    
    
    (614
    )Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Compensation expense related to stock options
and grants
    
    
    475
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    475Equity in losses (earnings) of subsidiaries
    
    
    10,562
    
    
    
    (233
    )
    
    
    
    
    
    
    (10,329
    )
    
    
    Change in operating assets and liabilities:Receivables, net of allowance for doubtful
accounts
    
    
    
    
    
    
    (3,200
    )
    
    
    2,964
    
    
    
    
    
    
    
    (236
    )Inventories
    
    
    
    
    
    
    (27
    )
    
    
    
    
    
    
    
    
    
    
    (27
    )Prepayments and other assets
    
    
    (153
    )
    
    
    (949
    )
    
    
    (1,495
    )
    
    
    
    
    
    
    (2,597
    )Accounts and notes payable
    
    
    391
    
    
    
    27,397
    
    
    
    (33,793
    )
    
    
    
    
    
    
    (6,005
    )Intercompany payables
    
    
    3,316
    
    
    
    (2,902
    )
    
    
    (414
    )
    
    
    
    
    
    
    Accrued liabilities
    
    
    760
    
    
    
    4,628
    
    
    
    5,407
    
    
    
    
    
    
    
    10,795Net cash (used in) provided by
operating activities
    
    
    (1,085
    )
    
    
    40,151
    
    
    
    (26,489
    )
    
    
    
    
    
    
    12,577CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (137
    )
    
    
    (17,442
    )
    
    
    (475
    )
    
    
    
    
    
    
    (18,054
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    2,117
    
    
    
    
    
    
    
    
    
    
    
    2,117Decrease in restricted cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (582
    )
    
    
    
    
    
    
    (582
    )Funds deposited with insurance carrier
    
    
    
    
    
    
    (32,024
    )
    
    
    
    
    
    
    
    
    
    
    (32,024
    )Funds returned from insurance carrier
    
    
    
    
    
    
    
    
    
    
    33,743
    
    
    
    
    
    
    
    33,743Decrease in cash surrender value of life insurance
    
    
    147
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    147Net cash provided by (used in)
investing activities
    
    
    10
    
    
    
    (47,349
    )
    
    
    32,686
    
    
    
    
    
    
    
    (14,653
    )CASH FLOWS FROM FINANCING ACTIVITIES:Additions to revolving credit facilities, net
    
    
    
    
    
    
    18,226
    
    
    
    
    
    
    
    
    
    
    
    18,226Repayment of long-term debt
    
    
    
    
    
    
    (14,792
    )
    
    
    
    
    
    
    
    
    
    
    (14,792
    )Proceeds from insurance premium financing
    
    
    
    
    
    
    28,608
    
    
    
    
    
    
    
    
    
    
    
    28,608Repayments of insurance premium financing
    
    
    
    
    
    
    (26,225
    )
    
    
    
    
    
    
    
    
    
    
    (26,225
    )Proceeds from issuance of common stock
    
    
    526
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    526Net cash provided by financing
activities
    
    
    526
    
    
    
    5,817
    
    
    
    
    
    
    
    
    
    
    
    6,343EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS
    
    
    
    
    
    
    487
    
    
    
    
    
    
    
    
    
    
    
    487NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (549
    )
    
    
    (894
    )
    
    
    6,197
    
    
    
    
    
    
    
    4,754CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    549
    
    
    
    1,166
    
    
    
    433
    
    
    
    
    
    
    
    2,148CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    
    
    
    $
    272
    
    
    $
    6,630
    
    
    $
    
    
    
    $
    6,902
 20




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##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
NINE MONTHS ENDED SEPTEMBER 30, 2003
(In Thousands) ALLIED
    
    GUARANTOR
    
    NONGUARANTORHOLDINGS
    
    SUBSIDIARIES
    
    SUBSIDIARIES
    
    ELIMINATIONS
    
    CONSOLIDATEDCASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income
    
    $
    (4,267
    )
    
    $
    929
    
    
    $
    1,937
    
    
    $
    (2,866
    )
    
    $
    (4,267
    )Reconciliation of net (loss) income to net
cash provided by operating activities:Interest expense paid in kind
    
    
    
    
    
    
    1,065
    
    
    
    
    
    
    
    
    
    
    
    1,065Amortization of deferred financing costs
    
    
    3,007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,007Depreciation and amortization
    
    
    2,497
    
    
    
    31,838
    
    
    
    353
    
    
    
    
    
    
    
    34,688Loss on
disposal of operating assets, net
    
    
    
    
    
    
    612
    
    
    
    
    
    
    
    
    
    
    
    612Foreign exchange gains, net
    
    
    
    
    
    
    (2,386
    )
    
    
    
    
    
    
    
    
    
    
    (2,386
    )Deferred income taxes
    
    
    (3,402
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,402
    )Compensation expense related to stock options and grants
    
    
    290
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    290Equity in earnings (losses) of subsidiaries
    
    
    (2,433
    )
    
    
    (433
    )
    
    
    
    
    
    
    2,866
    
    
    
    Amortization of Teamsters Union contract costs
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    1,000Change in operating assets and liabilities:Receivables, net of allowance for doubtful accounts
    
    
    
    
    
    
    9,684
    
    
    
    (3,213
    )
    
    
    
    
    
    
    6,471Inventories
    
    
    
    
    
    
    336
    
    
    
    
    
    
    
    
    
    
    
    336Prepayments and other assets
    
    
    1,902
    
    
    
    (115
    )
    
    
    181
    
    
    
    
    
    
    
    1,968Accounts and notes payable
    
    
    (894
    )
    
    
    9,449
    
    
    
    (18,231
    )
    
    
    
    
    
    
    (9,676
    )Intercompany receivables
    
    
    2,535
    
    
    
    (7,905
    )
    
    
    5,370
    
    
    
    
    
    
    
    Accrued liabilities
    
    
    4,294
    
    
    
    (17,955
    )
    
    
    9,506
    
    
    
    
    
    
    
    (4,155
    )Net cash provided by operating activities
    
    
    3,529
    
    
    
    26,119
    
    
    
    (4,097
    )
    
    
    
    
    
    
    25,551CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (269
    )
    
    
    (11,210
    )
    
    
    (68
    )
    
    
    
    
    
    
    (11,547
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    287
    
    
    
    
    
    
    
    
    
    
    
    287Increase in restricted cash and cash equivalents
    
    
    
    
    
    
    (81,165
    )
    
    
    
    
    
    
    
    
    
    
    (81,165
    )Decrease in restricted investments
    
    
    
    
    
    
    
    
    
    
    60,732
    
    
    
    
    
    
    
    60,732Funds deposited with insurance carriers
    
    
    
    
    
    
    (22,680
    )
    
    
    
    
    
    
    
    
    
    
    (22,680
    )Funds returned from insurance carriers
    
    
    
    
    
    
    
    
    
    
    18,058
    
    
    
    
    
    
    
    18,058Decrease in cash surrender value of life insurance
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Net cash used in investing activities
    
    
    (267
    )
    
    
    (114,768
    )
    
    
    78,722
    
    
    
    
    
    
    
    (36,313
    )CASH FLOWS FROM FINANCING ACTIVITIES:Repayments of revolving credit facilities, net
    
    
    
    
    
    
    (20,280
    )
    
    
    
    
    
    
    
    
    
    
    (20,280
    )Additions to long-term debt
    
    
    
    
    
    
    99,875
    
    
    
    
    
    
    
    
    
    
    
    99,875Repayment of long-term debt
    
    
    
    
    
    
    (74,905
    )
    
    
    
    
    
    
    
    
    
    
    (74,905
    )Payment of deferred financing costs
    
    
    (3,031
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,031
    )Proceeds from insurance premium financing
    
    
    
    
    
    
    15,228
    
    
    
    
    
    
    
    
    
    
    
    15,228Repayments of insurance premium financing
    
    
    
    
    
    
    (15,287
    )
    
    
    
    
    
    
    
    
    
    
    (15,287
    )Proceeds from issuance of common stock
    
    
    282
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    282Other, net
    
    
    (520
    )
    
    
    585
    
    
    
    
    
    
    
    
    
    
    
    65Net cash (used in) provided by financing activities
    
    
    (3,269
    )
    
    
    5,216
    
    
    
    
    
    
    
    
    
    
    
    1,947EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS
    
    
    
    
    
    
    746
    
    
    
    
    
    
    
    
    
    
    
    746NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (7
    )
    
    
    (82,687
    )
    
    
    74,625
    
    
    
    
    
    
    
    (8,069
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    7
    
    
    
    1,131
    
    
    
    8,310
    
    
    
    
    
    
    
    9,448CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    
    
    
    $
    (81,556
    )
    
    $
    82,935
    
    
    $
    
    
    
    $
    1,379
 21




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##### 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. In
October of 2004, Allied Automotive Group renewed its vehicle delivery
agreement with DaimlerChrysler Corporation (DaimlerChrysler). The agreement
with DaimlerChrysler will extend Allied Automotive Groups current contract
through September 30, 2005. The contract renewal includes an increase in the
underlying base rates paid by DaimlerChrysler to Allied for vehicle delivery
services effective October 1, 2004. Under the renewed agreement, Allied will
cease performing all or a portion of its vehicle delivery services for
DaimlerChrysler at six locations in North America. Allied generated
approximately $13.5 million in revenues from these vehicle delivery services in
2003. Allied will continue to serve DaimlerChrysler at 24 locations in North
America, which generated approximately $80.3 million in revenues
in 2003. On January 3, 2005 the Company renewed its
contract with Toyota Motor Sales USA, Inc. (Toyota) to
extend the term through December 20, 2005. The renewal includes an increase in base rates paid by Toyota
to the Company effective as of November 15, 2004. In the third quarter of 2004, the Companys results were adversely affected by
a significant increase in fuel costs that was not fully recovered through fuel
surcharges with customers. Prior to August of 2004, Allied Automotive Group
had fuel surcharges in place with customers who comprised approximately 59% of
the Companys 2003 revenues. Allied Automotive Group currently has in place
fuel surcharges with customers who comprise substantially all of its revenues.
However, the fuel surcharges in regard to a customer who comprised
approximately 36% of the Companys 2003 revenues may be terminated at any time
at the sole discretion of this customer. There is a contractual
maximum amount of fuel surcharge recoveries with this customer for any calendar
year. While the Company does not expect its fuel surcharge recoveries
with this customer to reach
the maximum recovery amount in 2004, at current fuel prices the Company expects
that the fuel surcharge recoveries with this customer will reach the maximum
amount recoverable during the second quarter of 2005. Results of Operations The following table sets forth the percentage relationship of expense items to
revenues for the periods indicated: Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Revenues
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Operating expenses:Salaries, wages and fringe benefits
    
    
    53.6
    
    
    
    54.5
    
    
    
    54.7
    
    
    
    54.4Operating supplies and expenses
    
    
    17.5
    
    
    
    15.2
    
    
    
    17.5
    
    
    
    16.1Purchased transportation
    
    
    13.0
    
    
    
    12.2
    
    
    
    12.4
    
    
    
    11.6Insurance and claims
    
    
    5.5
    
    
    
    4.2
    
    
    
    4.6
    
    
    
    4.5Operating taxes and licenses
    
    
    3.3
    
    
    
    3.5
    
    
    
    3.3
    
    
    
    3.6Depreciation and amortization
    
    
    4.6
    
    
    
    5.6
    
    
    
    4.5
    
    
    
    5.4Rents
    
    
    1.0
    
    
    
    0.8
    
    
    
    0.9
    
    
    
    0.8Communications and utilities
    
    
    0.7
    
    
    
    0.9
    
    
    
    0.7
    
    
    
    0.8Other operating expenses
    
    
    1.0
    
    
    
    1.4
    
    
    
    1.1
    
    
    
    1.3Gain (loss) on disposal of operating
assets, net
    
    
    0.2
    
    
    
    0.1
    
    
    
    (0.1
    )
    
    
    0.1Total operating expenses
    
    
    100.4
    
    
    
    98.4
    
    
    
    99.6
    
    
    
    98.6Operating
(loss) income
    
    
    (0.4
    )
    
    
    1.6
    
    
    
    0.4
    
    
    
    1.4Other income (expense):Interest expense
    
    
    (4.2
    )
    
    
    (3.8
    )
    
    
    (3.6
    )
    
    
    (3.5
    )Investment income
    
    
    0.3
    
    
    
    (0.2
    )
    
    
    0.1
    
    
    
    0.5Foreign exchange gains, net
    
    
    0.8
    
    
    
    0.0
    
    
    
    0.1
    
    
    
    0.4Other, net
    
    
    0.0
    
    
    
    1.0
    
    
    
    0.0
    
    
    
    0.3Loss before income taxes
    
    
    (3.5
    )
    
    
    (1.4
    )
    
    
    (3.0
    )
    
    
    (0.9
    )Income tax (expense) benefit
    
    
    (0.2
    )
    
    
    0.4
    
    
    
    (0.1
    )
    
    
    0.2Net loss
    
    
    (3.7
    )%
    
    
    (1.0
    )%
    
    
    (3.1
    )%
    
    
    (0.7
    %)
 22




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##### Table of Contents



Three and Nine Months Ended September 30, 2004 Compared to Three and Nine
Months Ended September 30, 2003 Revenues
were $207.6 million in the third quarter of 2004 compared to revenues
of $197.1 million in the third quarter of 2003, an increase of
$10.5 million,
or 5.3%. The increase is due primarily to a 2.3% increase in vehicle deliveries
and a $3.45 increase in revenue per unit. For the nine-month period ended
September 30, 2004, revenues were $656.5 million, versus revenues of
$640.8 million for the nine-month period ended September 30, 2003, an increase of
$15.7 million, or 2.5%, with an increase in revenue per unit of
$2.35. Overall, vehicle deliveries in 2004 remained relatively
constant as compared to 2003; however, revenue per unit in 2004 increased
over 2003 primarily due to longer length of haul, an
increase in fuel surcharges that are recorded as a component of revenue, as
well as the strengthening of the Canadian dollar relative to the US dollar
which affected the Companys Canadian operating subsidiary. The
Company recorded a net loss of $7.6 million in the third quarter of 2004
versus a net loss of $2.0 million in the third quarter of 2003. Results for the
third quarter of 2004 were adversely impacted by significantly higher fuel
costs that were only partially offset by fuel surcharges, increased risk
management expense, higher repair and maintenance costs and an
increase in benefits for its unionized workforce. The increased
costs in the third quarter of 2004 were partially offset by increased revenues
and revenue per unit, as well as a reduction in certain fixed overhead costs.
During the Companys review of the third quarter of 2004 certain
adjustments were identified related to prior quarters of 2004 and
prior years. The impact of adjusting these items was a $704,000
increase in the net loss for the three months ended September 30,
2004. Included in the third quarter results for 2004 were foreign exchange gains
of $1.7 million compared to a loss of $62,000 in the third quarter of 2003 and
an increase in investment income on collateral held by the Companys captive
insurance company of $1.0 million as compared to the third quarter of 2003.
Included in the third quarter of 2003 was a pre-tax gain of $2.0 million
related to the settlement of litigation with Ryder Systems. The Company recorded a net
loss of $20.4 million for the nine-month period ended
September 30, 2004 versus a net loss of $4.3 million for the nine-month period ended
September 30, 2003. Results for the first nine months of 2004 were adversely
impacted by excess costs associated with lower than expected OEM shipment levels in January 2004, dramatically higher fuel
prices during the second and third quarters, benefit increases for
the Companys unionized workforce, the financial impact of the terms
of the previously disclosed General Motors contract renewal, and an increase
to the Companys self-insurance reserves during the second
quarter of 2004. As noted above, during the Companys review of
the third quarter of 2004 certain adjustments were identified related
to prior quarters of 2004 and prior years. The impact of adjusting
these items was a $722,000 decrease in the net loss for the nine
months ended September 30, 2004. The following
is a discussion of the material changes in the Companys major
expense categories: Salaries, wages
and fringe benefits decreased from 54.5% of revenues in the
third quarter of 2003 to 53.6% of revenues in the third quarter of 2004, and
increased from 54.4% of revenues for the nine-month period ended September 30,
2003 to 54.7% of revenues for the nine-month period ended September 30, 2004.
The decrease for the third quarter of 2004 as compared to the third quarter of
2003 was due primarily to improved driver and line-haul productivity and a
decrease in wages and benefits provided to the Companys non-bargaining
employees, which more than offset the increase in benefit costs related to the
Companys unionized workforce. For the nine-month period ended September 30, 2004 versus
the nine-month period ended 2003, the decrease in wages and benefits provided
to non-bargaining employees was completely offset by benefit cost
increases for its unionized workforce. Workers compensation
expense increased by $2.0 million in the third
quarter of 2004 as compared to the third quarter of 2003, and
increased by $9.0 million
for the first nine months of 2004 as compared to the same period in
2003. Workers compensation expense for the three and nine-month
periods ended September 30, 2004 increased
over the same periods in 2003 primarily due to increases in the reserve for
workers compensation claims to provide for
the deterioration of claims that were incurred in prior years.
In order to more effectively manage these risk management costs in
future periods, the Company has implemented initiatives to improve claims management and
to settle outstanding claims expeditiously. Despite adverse development for prior years,
the Company has experienced positive trends in its workers compensation
metrics for current year claims. Lost time days have decreased by approximately 33.6% and 16.0% for the
three and nine-month periods ended September 30, 2004, respectively, versus the
three and nine-month periods ended September 30, 2003. Operating supplies and expenses increased from 15.2% of revenues in the third
quarter of 2003 to 17.5% of revenues in the third quarter of 2004, and
increased from 16.1% of revenues for the nine-month period ended September 30,
2003 to 17.5% of revenues for the nine-month period ended September 30, 2004.
The increase was due primarily to an increase in fuel costs, repair and
maintenance costs and the outsourcing of the Companys remaining information

and technology services commencing in the first quarter of 2004. The average
price for fuel was approximately 25% higher during the third quarter of 2004
than the average price for fuel during the third 23




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##### Table of Contents



quarter of 2003,
which resulted in additional expense of approximately $4.0
million. For the nine-month period ended September 30, 2004 the average price
for fuel increased by approximately 12%, which resulted in additional expense
of approximately $5.8 million. Prior to August 2004, the Company had fuel
surcharges, which are recorded as a component of revenue, with customers
comprising only 59% of the Companys 2003 revenues. The Company now receives
fuel surcharges under contracts with substantially all of its customers. The
fuel surcharge 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. In addition, the
fuel surcharge in regard to a single customer who comprised approximately 36%
of the Companys 2003 revenues may be terminated at the sole discretion of this
customer. There is a
contractual maximum amount of fuel surcharge recoveries with this
customer for any calendar year. While the
Company does not expect its fuel surcharge recoveries with this
customer to reach the maximum recovery amount in 2004, at current fuel prices the Company
expects that the fuel surcharge recoveries with this customer will
reach the maximum amount recoverable during the second quarter 2005. Purchased
transportation increased from 12.2% of revenues in the third quarter
of 2003 to 13.0% of revenues in the third quarter of 2004, and increased from
11.6% of revenues for the nine-month period ended September 30, 2003 to 12.4%
of revenues for the nine-month period September 30, 2004. The increase was due
primarily to an increase in vehicle deliveries at locations that utilize brokers and handle traffic with a longer
length of haul. All costs for owner-operators of Rigs are included in purchased
transportation. Insurance and
claims expense increased from 4.2% of revenues in the third
quarter of 2003 to 5.5% of revenues in the third quarter of 2004, and
increased from 4.5% of revenues for the nine-month period ended September 30, 2003 to
4.6% of revenues for the nine-month period ended September 30, 2004.
Auto and general liability expense increased from $3.2 million
in the third quarter of 2003 to $5.6 million in the third quarter
of 2004, and increased from $10.7  million for the nine-month
period ended September 30, 2003 to $12.8 million for the
nine-month period ended September 30, 2004. The increase in auto
and general liability expense in 2004 is due to the adverse
development of certain current year claims, which is primarily a
result of an increase in the severity during the third quarter of
2004 of a previously reported claim. Cargo claims expense increased by approximately $0.9 million in the third of quarter
of 2004 versus the third quarter of 2003 and decreased by $1.1 million for the
nine-month period ended September 30, 2004 versus the nine-month period ended
September 30, 2003. The increase in cargo claims during the third quarter of
2004 as compared to the third quarter of 2003 is due primarily to damage
related to a specific customer product launch. The decrease in cargo claims
expense for the nine-month period ended September 30, 2004 as compared to the
nine-month period ended September 30, 2003 is primarily 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 nine-month periods ended September 30, 2003 to 99.73% and
99.74%, respectively, for the three and nine-month periods ended September 30,
2004. Depreciation and amortization decreased from 5.6% of revenues in the third
quarter of 2003 to 4.6% of revenues in the third quarter of 2004, and decreased
from 5.4% of revenues for the nine-month period ended September 30, 2003 to
4.5% of revenues for the nine-month period ended September 30, 2004. The
decrease for the three and nine-month periods ended September 30, 2004 versus
the three and nine-month periods ended September 30, 2003 was due primarily to
the overall reduction in capital expenditures in fiscal years 2002 and 2003
resulting in a decrease in the asset base and less depreciation expense as
remaining 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. The Company remanufactured 49 owned Rigs and
replaced or overhauled approximately 95 engines in its tractor fleet during the
three months ended September 30, 2004 compared to its
remanufacturing of approximately 38 Rigs and overhauling or
replacing 36 engines during the third quarter of
2003. During the nine-month
period ended September 30, 2004 the Company remanufactured 113
owned Rigs and replaced or overhauled approximately 285 engines compared to
its remanufacturing of 188 Rigs and overhauling or
replacing 186 engines during the nine-month period ended
September 30, 2003. In addition, the Company leased 21 Rigs
during the three months ended September 30, 2004 bringing the
total Rigs leased during 2004 to 51 Rigs. These leases are operating
leases and as such contributed to a decrease in depreciation expense.
The Company did not lease any Rigs during 2003. The gain on the disposal of assets increased from a loss of $0.6 million for
the nine-month period ended September 30, 2003 to a gain of $0.7 million for
the nine-month period ended September 30, 2004. The increase is due primarily
to a gain from the sale of excess land located in Canada during the first
quarter of 2004. Investment income increased from a loss of $0.4 million in the third quarter of
2003 to income of $0.6 million in the third quarter of 2004, and decreased from
income of $2.9 million for the nine-month period ended September 30, 2003 to
$0.8 million for the nine-month period ended September 30, 2004. The increase
in investment income during the third quarter of 2004 as compared to the third
quarter of 2003 was due primarily to losses rewarded in 2003 on the collateral
assets held by the Companys captive insurance company that were invested in
debt securities. The decrease in investment income for the nine-month
period ended September 30, 2004 as compared to the nine-month period ended
September 30, 2003 was due primarily to holding the collateral
assets mainly in cash in 24




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##### Table of Contents



2004 versus a mixed portfolio of cash, fixed income and debt and equity
securities during 2003 that yielded higher investment income. At September 30,
2004 and 2003 the collateral at the Companys captive insurance company was
held in cash. Foreign exchange gains, net increased from a loss of $62,000 in the third
quarter of 2003 to a gain of $1.7 million in the third quarter of 2004 and
decreased from a gain of $2.4 million for the nine-month period ended September
30, 2003 to a gain of $0.6 million for the nine-month period ended September
30, 2004. The increase in the third quarter of 2004 over the third quarter of
2003 was due primarily to an increase in the value of the Canadian dollar as
compared to the US dollar, which affected the Companys operating subsidiary in
Canada. The strengthening of the Canadian dollar generated favorable
exchange rate changes during the third quarter of 2004, when the Canadian
dollar value increased by approximately 5.9% as compared to an unfavorable
decrease of approximately 0.5% during the third quarter of 2003. During the first
nine months of 2004 the Canadian dollar improved by approximately 1.9% as
compared to approximately 16.5% during the first nine months of 2003. Interest expense increased from $7.4 million in the third quarter of 2003 to
$8.8 million in the third quarter of 2004, and increased from $22.1 million for
the nine-month period ended September 30, 2003 to $23.7 million for the
nine-month period ended September 30, 2004. The increase for the three and
nine-month periods is due primarily to an increase in the effective interest
rate on Term Loan A, increased interest expense associated with higher
borrowings related to insurance financing arrangements, and interest accrued on
a proposed settlement with the Canadian taxing authority. Income tax expense increased from a benefit of $728,000 in the third quarter of
2003 to an expense of $310,000 in the third quarter of 2004, and increased from
a benefit of $1.6 million for the nine-month period ended September 30, 2003 to
an expense of $310,000 for the nine-month period ended September 30, 2004. The
increase in income tax expense for the three and nine-month periods ended September 30, 2004 versus
the three and nine-month periods ended September 30, 2003 was due to the
conclusion by management in the fourth quarter of 2003 that it was not more
likely than not that the deferred tax assets would be recovered, resulting in
the need for an additional valuation allowance against the net deferred income tax assets.
For the nine-month period ended September 30, 2003, the Company recognized a
benefit for the future realization of its deferred tax assets at its
estimated annual effective
tax rate. For the nine-month period ended September 30, 2004, a valuation
allowance offsets the benefit related to net deferred tax assets and the
current expense of $310,000 was related to foreign income taxes. Financial Condition, Liquidity and Capital Resources The Companys sources of liquidity are funds provided by operations and
borrowings under its Credit Facility with a syndicate of lenders. The Companys
primary liquidity needs are for the payment of operating expenses, the leasing,
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 $12.6 million for the nine-month
period ended September 30, 2004 versus net cash provided by operating
activities of $25.6 million for the nine-month period ended September 30, 2003.
The decrease in cash provided by operations is a result of the increase in the
Companys net loss, and a decrease in depreciation expense of
$4.9 million and an increase in deferred taxes of
$3.4 million that were offset by an increase in cash generated
from working capital of $6.9 million. Net cash used in investing activities totaled $14.7 million for the nine-month
period ended September 30, 2004 versus $36.3 million for the nine-month period
ended September 30, 2003. The decrease in cash used in investing activities was
due primarily to a net decrease of $19.8 million in restricted cash and
restricted investments, which were a result of increased collateral
requirements in 2003 for the payment of estimated self-insurance claims. The
decrease is also due to the timing of funds deposited with and returned from
insurance carriers related to the Companys insurance financing arrangements.
Net cash received from the Companys insurance carriers was $1.7 million for
the nine-month period ended September 30, 2004 versus a net cash outflow of
$4.6 million for the nine-month period ended September 30,
2003. Insurance carriers reimbursed the majority of cash on deposit to the Company
in the first quarter of 2004, whereas the insurance carriers
reimbursed cash on deposit to the Company throughout the year during
2003. Cash paid to purchase capital items increased by $6.5 million in 2004, while
cash proceeds from the sale of assets increased by $1.8 million. Cash used for
capital items related mainly to the fleet remanufacturing and the purchase 25




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##### Table of Contents



of new and used Rigs. Cash proceeds for the sale of assets in 2004 were
related primarily to the sale of excess land in Canada during the first
quarter. The Company did not sell any significant assets in the first nine
months of 2003. The
Company expects to capitalize the remanufacturing cost of approximately 135
Rigs during 2004 and as of September 30, 2004 had remanufactured
113 owned Rigs.
Capital expenditures for fiscal year 2004 are expected to be in the range of
$21 million to $23 million. This estimate is down from the previously
disclosed estimate of $24 million to $28 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,
the Companys ability to lease certain of its new and remanufactured Rigs, as
well as the Companys decision to reduce capital expenditures to maintain liquidity for the ongoing
operational needs of the Company. Net cash provided by financing activities totaled $6.3 million for the
nine-month period ended September 30, 2004 versus $2.0 million for the
nine-month period ended September 30, 2003. Cash provided by financing
activities increased due to borrowings needed to fund operations and increased
capital spending, as well as requirements from insurance carriers to pre-fund
substantially all of the Companys estimated self-insured losses during the
first quarter of 2004. During 2003, the Company funded only a portion of
its estimated self-insured loss for 2003. The Company anticipates
financing the pre-funding of its estimated self-insured losses for
2005. In the event the Company is unable to finance this pre-funding,
it will be required to use borrowings under its Revolver to pre-fund
the estimated losses. At September 30, 2004, $18.2 million was outstanding under the Revolver, and
approximately $37.1 million of the Revolver was committed under letters of
credit and the Company had approximately $29.4 million available under the
Revolver as of September 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 $7.5 million, which is included in the $37.1
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 first quarter of 2005. Pursuant to mutual agreement, the parties amended the
settlement on August 13, 2004 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
was made in the third quarter in addition to the $1.0 million increase required for
the third quarter of 2004. The Company is required to increase the letter of credit by
$1.0 million in 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 and cash equivalents, and restricted 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 nine-month periods ended September 30, 2004 on or
before January 14, 2005 and the Company delivered such financial statements on
January 7, 2005. As a result, the Company was in compliance with the
requirements of the Credit Facility relating to the delivery of its
financial statements at September 30, 2004. 26




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##### 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 semi-annual
installments of interest only, and mature on October 1, 2007. The Companys
obligations under the Notes are guaranteed fully and unconditionally 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) of which the Company owns 100 percent. 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s current liabilities exceed its current assets by
$31.0 million as of September 30, 2004. Included in the Companys current liabilities as of
September 30, 2004 are
borrowings under the Revolver of $18.2 million, which are
classified as a current liability based on the requirement of
EITF 95-22, although it is not payable until
September 2007 under the terms of the Credit Facility. The Company had
approximately $29.4 million available under the Revolver as of September 30,
2004. The amendment to the Credit Facility on
November 23, 2004 provides additional liquidity of
$20 million through a Term Loan B, the proceeds of which
were used to pay down the outstanding Revolver balance. The Company
contributed approximately $3.8 million to its defined benefit
pension plans in December, 2004, which reduced the Company's
availability under the Revolver by this amount. Due to
negative covenants associated with the Senior Notes, the Company
presently does not have the capacity to incur a material amount of additional term debt.
The Company will have the capacity to incur additional term debt in
the future to the extent future principal payments are made on the
existing term debt. The Company has been
able to, and expects to continue to, generate sufficient cash flows from
operations to meet its liquidity needs, provided that the Company uses the Revolver to cover
seasonal working capital needs. The
Company also utilizes operating leases for its equipment needs. During the third
quarter of 2004 the Company entered into one new operating lease for 21 Rigs.
The commitment over the term of this lease is $4.1 million. During the
nine-month period ended September 30, 2004 the Company entered into three new
operating leases for a total of 51 Rigs. The total commitment for these leases is
$8.5 million. All of the leases entered into during 2004 have a term of 5.5
years. 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 September 30, 2004, the Company did
not have any investments. 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
Credit Facility. A 3% increase in the interest rate of such debt would increase
the Companys interest expense by $2.5 million over the next fiscal year. Stockholders Deficit Losses for the first nine months of 2004 resulted in negative stockholders
equity at September 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 the payment of dividends.
In addition, continued stockholders deficit could cause the Company to become
delisted from the American Stock Exchange. 27




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##### Table of Contents



Substantial Leverage The Company has
consolidated indebtedness, which is substantial in relation to
its stockholders deficit. As of September 30, 2004, the Company had total debt
including borrowings under the Credit Facility and the Notes of approximately
$249.9 million (excluding approximately $123.7 million of trade and notes
payables, which include insurance financing
arrangements, and other current accrued liabilities) and
stockholders deficit of approximately $9.7 million. In
addition, the Company has additional capacity for borrowings available under
its Revolver, which is discussed above in Financial Condition, Liquidity and
Capital Resources. Due to negative covenants associated with the
Senior Notes, the Company presently does not have the capacity to
incur a material amount of additional term debt. The Company will have the capacity to
incur additional term debt in the future to the extent future
principal payments are made on the existing term debt. 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, 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 its lenders under the Credit Facility to
deliver its financial statements as required by the Credit Facility, for the
three and nine-month periods ended September 30, 2004 on or
before January 14, 2005 and the Company delivered such financial statements on
January 7, 2005. As a result, the Company was in compliance with the
requirements of the Credit Facility relating to the delivery of its
financial statements at September 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
affected 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. The
Company received notice from the American Stock Exchange (the
AMEX) that, as a result of its failure to timely file
this Quarterly Report on Form 10-Q, it was not in compliance
with Section 1003(d) of the AMEX Company Guide and was therefore subject to delisting.
The Company submitted a compliance plan to the AMEX and believes that
upon the filing of this Quarterly Report, the Company is now in
compliance with Section 1003(d) of the AMEX Company Guide.
The Company has also received notice from the AMEX that as a
result of its negative shareholders equity, it is not in
compliance with Section 1003(a) of the AMEX Company Guide.
Pursuant to the notice from the AMEX, the Company had until
December 27, 2004 to submit a compliance plan to the AMEX, and
the Company filed this plan on December 21, 2004. The plan
provides how the Company intends to comply with
the shareholders equity requirements of Section 1003(a) of
the AMEX Company Guide. If the AMEX accepts such plan, the Company
will have until May 2006 to comply with the requirements of
Section 1003(a) of the AMEX Company Guide. However, no assurance
can be provided that such compliance plan will be accepted by the
AMEX, or, if accepted, that the Company will be able to meet the
milestones for compliance required to be set forth in the plan. If
the plan is not accepted or the Company is unable to comply with the
terms of the compliance plan submitted to the AMEX, the Company may
be delisted from the AMEX. 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 28




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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 $5.1 million over the
next twelve months assuming levels of fuel consumption and pricing in the next
twelve months are consistent with the third quarter of 2004. This reduction in
earnings would be partially offset by the Companys fuel surcharge arrangements
with its customers. Currently, the Company has in place fuel surcharges with
substantially all of its customers. However, the fuel surcharges in regard to
a single customer who comprised approximately 36% of the Companys 2003
revenues may be terminated at any time at the sole discretion of this customer.
There is a contractual maximum amount of fuel surcharge recoveries
from this customer for any calendar year. While the Company does not
expect its fuel surcharge recoveries from this customer to reach the
maximum recovery amount in 2004, at current fuel prices the Company expects that the fuel surcharge
recoveries from this customer will exceed
the maximum amount recoverable during the second quarter of 2005. Fuel prices in the third
quarter of 2004 were approximately 25% higher than fuel prices in the third
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. Wages and
benefits represented approximately $111.3 million and $359.2 million of the
Companys consolidated operating expenses for the quarter and the nine months
ended September 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 is 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. The
shortage of railroad capacity occasionally occurs in the carhaul industry and
the trucking sector is sometimes called upon to provide supplemental capacity
during these periods. Risk Management Retention Because the Company retains liability
for a significant portion of its risks, an increase
in the number or severity of accidents, on the job injuries,
other loss events over those anticipated, or adverse development of existing
claims including wage and medical cost inflation could have a material
adverse effect on the Companys profitability. While the Company currently has
insurance coverage for claims above its retention levels, there can be no
assurance that the Company will be able to obtain insurance coverage in the
future. The Company
currently utilizes an inner-aggregate, which is a deductible
subject to an annual limit, in certain insurance programs. The Company
currently uses the inner-aggregate only for its initial layer of excess
insurance whereby losses in the excess layer that are within the
inner-aggregate amount are retained by the Company up to an amount equal to the
inner-aggregates annual limit. Once the annual limit is met the deductible is
no longer in effect. Prior to January 1, 2004, for automobile liability claims in the United States,
the Company retained the first $500,000 of every claim with no aggregate and
retained losses from $500,000 to $1.0 million subject to a $1.5 million
inner-aggregate deductible and also had a $1.0 million inner-aggregate
deductible for losses from $1.0 to $2.0 million, with 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 automobile
liability claims in the United States 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. In Canada, the Company retains liability up to
CDN $500,000 for each claim for personal injury and property damage, a CDN
$500,000 inner-aggregate limit for losses from CDN $500,000 to CDN $1.0
million. Additionally, the Company retains liability of up to $250,000 for
each cargo damage claim in the United States and a CDN $100,000 deductible for
cargo damages in Canada. 29




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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. Approximately 86% of the Companys 2003
revenues were generated through the Companys services provided for these
customers. The Company operates under written contracts with each of these
companies. The Company has historically been successful in negotiating the
renewal of its contracts with each of its major customers prior to the
expiration of such contracts. The Company renewed its contract with
DaimlerChrysler effective October 1, 2004, approximately four months prior to
the stated expiration date of such contract. 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 September 2005, the contract with Honda expires in
March 2005 and the contract with
Toyota expired in November 2004. On January 3, 2005 the Company
renewed its contract with Toyota effective as of November 15,
2004 to extend the term through December 20, 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. While the Company intends to continue its practice of
negotiating with its customers in an effort to renew contracts prior to their
expiration date, there can be no assurance that the Company will successfully
renew contracts with its major customers prior to the expiration of such
contracts. 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 includes reductions in the Companys rates for
transportation services. The contract with General Motors requires
General Motors to award
certain new business to the Company. However, there can be no assurance that
General Motors 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- 30




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end
exchange rates at September 30, 2004 was $89.9 million. The potential
impact on other comprehensive income resulting from a hypothetical 10% change
in quoted foreign currency exchange rates amounts to $8.9 million. At September
30, 2004 a payable balance of $29.6 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 September
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. 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 150
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. 31




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The Companys critical accounting policies include the following: CLAIMS AND INSURANCE RESERVES  Claims and insurance reserves, both
current and long-term, reflect the estimated cost of claims for workers
compensation, cargo loss and damage, automobile and general liability, and
products liability losses that are not covered by insurance. Costs related to
these reserves are included in claims and insurance expense except for
workers compensation, which is included in salaries, wages, and fringe
benefits. The Company utilizes a third-party claims processor under the
direction of management and uses third-party actuarial valuations to assist
in the determination of its claims and insurance reserves, excluding products
liability and cargo claims. The Companys third-party claims administrator sets claim reserves
on a case-by-case basis. The Companys third-party actuaries utilize the
aggregate data from those reserves, along with historical paid and incurred
amounts, to determine, by loss year, the projected ultimate cost of all claims,
reported and not yet reported, including adverse developments. The Companys
product liability claims reserves are set on a case-by-case basis by the
Companys claims administrators in conjunction with legal counsel handling the
claims, and include an amount for claims incurred but not yet reported.
Cargo claims are tracked by the Company and reserved on a case-by-case
basis. The reserve for cargo claims includes an estimate of incurred but not reported claims.
The process of determining reserves for all losses is subject to managements
evaluation of accident frequency, the nature and severity of claims, litigation
risks and historical claims experience adjusted for current industry trends. The estimates for workers
compensation, automobile and general liability, and products liability losses are discounted to their present value using
managements estimate of weighted average risk free interest rates for each claim year.
The claims and insurance reserves are adjusted periodically as such claims
mature to reflect changes in estimates made by its third-party claims
processors and changes in actuarial estimates based on actual experience.
Adjustments to previously established reserves are included in operating
results. If management uses different assumptions or if different conditions
occur in 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. PENSION AND OTHER
POSTRETIREMENT BENEFITS  The Companys pension and other
postretirement benefit costs are calculated using various actuarial
assumptions and methodologies as prescribed by Statement of Financial
Accounting Standards No. 87, Employers Accounting
for Pensions and Statement of Financial Accounting Standards
No. 106, Employers Accounting for Postretirement
Benefits Other than Pensions. These assumptions include
discount rates, health care cost trend rates, inflation, rate of
compensation increases, expected return on plan assets, mortality
rates, and other factors. Actual results that differ from the
Companys assumptions are accumulated and amortized over future
periods and, therefore, generally affect the Companys
recognized expense and recorded obligation in such future periods.
The Company believes that the assumptions utilized in recording the
obligations under its plans are reasonable based on input from its
outside actuaries and other advisors and information as to historical
experience and performance. Differences in actual experience or
changes in assumptions may affect the Companys pension and other
postretirement obligations and future expense. 32




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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) the Companys ability to renew
contracts with customers . This notice is intended to take advantage of the
safe harbor provided by the Private Securities Litigation Reform Act of 1995
with respect to such forward-looking statements. Without limiting the
generality of the foregoing, the words believe, anticipate, seek,
expect, estimate, intend, plan, and similar expressions are intended to
identify such forward-looking statements. These forward-looking statements
involve a number of risks and uncertainties. Among others, factors that could cause actual results to differ materially from
historical results or results expressed or implied by such forward-looking
statements are the following: 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 33




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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, except as set forth below under Changes in Internal
Control over Financial Reporting, 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 the
Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, 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 nine months ended September
30, 2004 and 2003 reflect these adjustments and reclassifications. These
adjustments do 34




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not require a restatement of the Companys consolidated statements of cash
flows included in the Annual Report on Form 10-K for the year ended December
31, 2003. In connection with the preparation of this Quarterly
Report on Form 10-Q for the quarter ended September 30,
2004, management, in consultation with KPMG, identified certain
adjustments related to prior quarters of 2004 and prior years.
Analysis of these adjustments contributed to the delay in filing
this Quarterly Report. The Company believes that these adjustments
were not material to the consolidated financial statements of any
prior period and were not material to the consolidated financial
statements for the quarter ended September 30, 2004. In connection with the review of
the Quarterly Report on Form 10-Q for the
quarters ended June 30, 2004, and September 30, 2004, KPMG advised the Audit Committee and management
that KPMG had identified deficiencies in 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 still in the process of reviewing
and, as necessary, revising its policies and procedures with respect to its
 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. 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 5.
Other Information On
January 3, 2005, the Company entered into an Amendment (the
Amendment) to its agreement for transportation services
with Toyota (the Agreement). The Amendment extends the
term of the Agreement, as previously amended, effective as of
November 15, 2004, until December 20, 2005 and, effective
December 20, 2004, increases the rates to be paid by Toyota to
the Company. In addition, the Company has agreed not to make any
additional increases in its base transportation rates charged to
Toyota prior to December 20, 2005. 
 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.
 35




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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: January 7, 2005
    By:
    /s/  Hugh E. SawyerHugh E. Sawyer,President and Chief Executive Officer Date: January 7, 2005 By:
    /s/  David A. RawdenDavid A. Rawden,Executive Vice President and
Chief Financial
Officer (Principal Financial and Accounting Officer) 36




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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.
 37