##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  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 March 31, 2004
 or [  ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from 
toCommission File Number: 0-22276
 ALLIED HOLDINGS, INC.  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   (404) 373-4285      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 April 30, 2004
    
    
    8,873,390




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES INDEX PAGEPART IFINANCIAL INFORMATIONITEM 1
    
    Financial StatementsConsolidated Balance Sheets as of March 31, 2004 and
December 31, 2003
    
    
    3Consolidated Statements of Operations for the Three Month
Periods Ended March 31, 2004 and 2003
    
    
    4Consolidated Statements of Cash Flows for the Three Month Periods
Ended March 31, 2004 and 2003
    
    
    5Notes to Consolidated Financial Statements
    
    
    6ITEM 2
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    23ITEM 3
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    33ITEM 4
    
    Controls and Procedures.
    
    
    33PART IIOTHER INFORMATIONITEM 1
    
    Legal Proceedings
    
    
    34ITEM 6
    
    Exhibits and Reports on Form 8-K
    
    
    34Signature Page
    
    
    35EX-10.8(B) EMPLOYMENT AGREEMENT/ HUGH SAWYEREX-10.10(B) EMPLOYMENT AGREEMENT/ THOMAS DUFFYEX-10.12(A) EMPLOYMENT AGREEMENT/ DAVID RAWDENEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32.1 SECTION 906 CERTIFICATION OF CEOEX-32.2 SECTION 906 CERTIFICATION OF CFO
  2




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PART 1  FINANCIAL INFORMATION 
 Item 1  FINANCIAL STATEMENTS ALLIED HOLDINGS, INC. AND SUBSIDIARIES  
 CONSOLIDATED BALANCE
SHEETS

(In Thousands)
 March 31,
    
    December 31,2004
    
    2003(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    8,441
    
    
    $
    2,148Restricted cash and cash equivalents
    
    
    28,902
    
    
    
    26,267Receivables, net of allowance for doubtful accounts of
$2,228 and $3,575 respectively
    
    
    63,570
    
    
    
    55,110Inventories
    
    
    5,046
    
    
    
    4,983Deferred income taxes
    
    
    19,460
    
    
    
    20,213Prepayments and other current assets
    
    
    18,284
    
    
    
    12,644Total current assets
    
    
    143,703
    
    
    
    121,365PROPERTY AND EQUIPMENT, NET
    
    
    148,944
    
    
    
    155,573GOODWILL, NET
    
    
    89,922
    
    
    
    90,203OTHER ASSETS:Restricted cash and cash equivalents
    
    
    61,416
    
    
    
    55,817Other non-current assets
    
    
    33,513

    
    
    
    32,777Total other assets
    
    
    94,929
    
    
    
    88,594Total assets
    
    $
    477,498
    
    
    $
    455,735LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Current maturities of long-term debt
    
    $
    16,374
    
    
    $
    16,374Borrowings under revolving credit facility
    
    
    16,870
    
    
    
    Accounts and
notes payable
    
    
    46,478
    
    
    
    34,272Accrued liabilities
    
    
    89,493
    
    
    
    80,937Total current liabilities
    
    
    169,215
    
    
    
    131,583LONG-TERM DEBT, less current maturities
    
    
    224,959
    
    
    
    230,126POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
    
    
    5,232
    
    
    
    5,302DEFERRED INCOME TAXES
    
    
    19,460
    
    
    
    20,213OTHER LONG-TERM LIABILITIES
    
    
    58,771
    
    
    
    59,697STOCKHOLDERS EQUITY (DEFICIT):Preferred stock, no par value; 5,000 shares authorized, none
outstanding
    
    
    
    
    
    
    Common stock, no par value; 20,000 shares authorized, 8,848
and 8,764 shares outstanding at March 31, 2004
and December 31, 2003, respectively
    
    
    
    
    
    
    Additional paid-in capital
    
    
    48,009
    
    
    
    47,511Treasury stock at cost, 139 shares at March 31, 2004
and December 31, 2003, respectively
    
    
    (707
    )
    
    
    (707
    )Accumulated deficit
    
    
    (44,072
    )
    
    
    (35,024
    )Accumulated other comprehensive loss, net of tax
    
    
    (3,369
    )
    
    
    (2,966
    )Total stockholders equity (deficit)
    
    
    (139
    )
    
    
    8,814Total liabilities and stockholders equity (deficit)
    
    $
    477,498
    
    
    $
    455,735
 See accompanying notes to consolidated financial statements 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 EndedMarch 31,2004
    
    2003REVENUES
    
    $
    212,244
    
    
    $
    213,592OPERATING EXPENSES:Salaries, wages and fringe benefits
    
    
    119,947
    
    
    
    117,575Operating supplies and expenses
    
    
    37,046
    
    
    
    37,180Purchased transportation
    
    
    25,906
    
    
    
    24,713Insurance and claims
    
    
    9,163
    
    
    
    9,357Operating taxes and licenses
    
    
    6,559
    
    
    
    7,838Depreciation and amortization
    
    
    10,386
    
    
    
    12,024Rents
    
    
    1,716
    
    
    
    1,620Communications and utilities
    
    
    1,954
    
    
    
    1,888Other operating expenses
    
    
    2,186
    
    
    
    2,849(Gain) loss on disposal of operating assets, net
    
    
    (1,137
    )
    
    
    264Total operating expenses
    
    
    213,726
    
    
    
    215,308Operating loss
    
    
    (1,482
    )
    
    
    (1,716
    )OTHER INCOME (EXPENSE):Interest expense
    
    
    (7,368
    )
    
    
    (7,381
    )Investment income
    
    
    57
    
    
    
    326Foreign exchange (loss) gain, net
    
    
    (155
    )
    
    
    1,018Other, net
    
    
    (100
    )
    
    
    (7,566
    )
    
    
    (6,037
    )LOSS
BEFORE INCOME TAXES
    
    
    (9,048
    )
    
    
    (7,753
    )INCOME TAX BENEFIT
    
    
    
    
    
    
    2,089NET LOSS
    
    
    ($9,048
    )
    
    
    ($5,664
    )BASIC AND DILUTED LOSS PER COMMON SHARE:BASIC
    
    
    ($1.03
    )
    
    
    ($0.67
    )DILUTED
    
    
    ($1.03
    )
    
    
    ($0.67
    )WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:BASIC
    
    
    8,789
    
    
    
    8,409DILUTED
    
    
    8,789
    
    
    
    8,409
 See accompanying notes to consolidated financial statements 4




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES  
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
 For the Three Months EndedMarch 31,2004
    
    2003(Restated)CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    ($
    9,048
    )
    
    ($
    5,664
    )Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:Interest expense paid in kind
    
    
    
    
    
    
    369Amortization of deferred financing costs
    
    
    704
    
    
    
    1,012Depreciation and amortization
    
    
    10,386
    
    
    
    12,024(Gain)/loss on disposal of operating assets, net
    
    
    (1,137
    )
    
    
    264Foreign exchange loss (gain), net
    
    
    155
    
    
    
    (1,018
    )Deferred income taxes
    
    
    
    
    
    
    (4,401
    )Compensation expense related to stock options and grants
    
    
    195
    
    
    
    60Amortization of Teamsters Union contract costs
    
    
    
    
    
    
    600Change in operating assets and liabilities:Receivables, net of allowance for doubtful accounts
    
    
    (8,541
    )
    
    
    2,810Inventories
    
    
    (74
    )
    
    
    (226
    )Prepayments and other current assets
    
    
    (7,117
    )
    
    
    (2,039
    )Accounts and
Notes Payable
    
    
    (8,680
    )
    
    
    (11,149
    )Accrued liabilities
    
    
    7,637
    
    
    
    (2,146
    )Net cash provided by (used in) operating activities
    
    
    (15,520
    )
    
    
    (9,504
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (4,847
    )
    
    
    (5,878
    )Increase in restricted cash and cash equivalents
    
    
    (8,234
    )
    
    
    (2,686
    )Increase in restricted investments
    
    
    
    
    
    
    (2,442
    )Proceeds from sale of property and equipment
    
    
    1,826
    
    
    
    11Decrease in the cash surrender value of life insurance
    
    
    
    
    
    
    1Net cash used in investing activities
    
    
    (11,255
    )
    
    
    (10,994
    )CASH FLOWS FROM FINANCING ACTIVITIES:Additions to revolving credit facilities, net
    
    
    16,870
    
    
    
    8,471Repayment of long-term debt
    
    
    (5,167
    )
    
    
    (2,226
    )Payment of deferred financing costs
    
    
    
    
    
    
    (407
    )Proceeds
from insurance premium financing
    
    
    26,124
    
    
    
    8,193Repayments
of insurance premium financing
    
    
    (5,194
    )
    
    
    (854
    )Proceeds from issuance of common stock
    
    
    303
    
    
    
    57Other, net
    
    
    
    
    
    
    (12
    )Net cash provided by financing activities
    
    
    32,936
    
    
    
    13,222EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS
    
    
    132
    
    
    
    85NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    6,293
    
    
    
    (7,191
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    2,148
    
    
    
    9,448CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    8,441
    
    
    $
    2,257
 See accompanying notes to consolidated financial statements 5




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 March 31, 2004 and 2003  (1)
    
    Basis of Presentation The accompanying unaudited Condensed Consolidated Financial Statements included
herein have been prepared in accordance with generally accepted accounting
principles in the United States for interim financial information and with the
instructions to Form 10-Q of Regulation S-X. They do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. However, except as disclosed herein, there has
been no material change in the information disclosed in the notes to the
consolidated financial statements included in the Annual Report on Form 10-K
for the year ended December 31, 2003. The statements contained herein reflect
all adjustments (including normal recurring accruals), which are, in the
opinion of management, necessary to present fairly the financial condition,
results of operations and cash flows for the periods presented. Operating
results for the three month period ended March 31, 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. As discussed in Note 4, the March 31, 2003 consolidated financial statements
have been restated.  (2)
    
    Use of Estimates The preparation of the interim consolidated financial statements requires
management of the Company to make a number of estimates and assumptions
relating to the reported amount of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the period.
Significant items subject to such estimates and assumptions include the
carrying amount of property, plant and equipment and goodwill; valuation
allowances for receivables, inventories and deferred income tax assets;
self-insurance reserves; and assets and obligations related to employee
benefits. Actual results could differ from those estimates.  (3)
    
    Recent Accounting Pronouncements In January 2003, the
Financial Accounting Standards Board, or FASB, issued FASB
Interpretation No. 46 Consolidation of Variable Interest
Entities and Interpretation of ARB No. 51, or FIN 46,
as revised in December 2003, which addresses the consolidation by
business enterprises of variable interest entities. FIN 46 is
immediately effective for all variable interest entities created
after January 31, 2003. For variable interest entities created
prior to this date, the provisions of FIN 46 must be applied no
later than the first interim period ending after March 15, 2004;
however, all public companies were required to apply the unmodified
provisions of FIN 46 to entities considered special
purpose entities by the end of the first reporting period
ending after December 15, 2003. The adoption of FIN 46 did
not have any impact on our financial statements.  (4)
    
    Restatement During 2003, 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 as previously disclosed in the footnotes to the Companys financial
statements, such cash and investments should have been designated as restricted
in the statement of cash flows as of March 31, 2003. Accordingly, the Company
has restated its previously issued financial statements as of March 31, 2003 to
exclude restricted cash of $3.5 million from the cash and cash equivalents
totals in the consolidated statements of cash flows for the three months ended
March 31, 2003. In addition, the Company
reclassified its revolving line of credit outstanding at
December 31, 2002 from long-term debt to borrowings under
revolving credit facility. The Company determined that certain terms
of its revolving credit agreement include a subjective
acceleration clause as addressed in EITF No. 95-22
Balance Sheet Classification of Borrowings Outstanding Under
Revolving Credit Agreements That Include a Subjective Acceleration
Clause and Lock-Box Arrangement. The Company also reclassified
certain other items on its consolidated balance sheet related to its
pension assets and obligations and adjusted both deferred tax assets
and liabilities to be consistent with the 2003 presentation
at December 31, 2002. The Company also reclassified certain
borrowings and repayments in connection with certain insurance financing arrangements from
operating activities to financing activities in the consolidated
statement of cash flows for the three months ended March 31, 2003. 6




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A summary of the effects of the restatement on the Companys consolidated
statement of cash flows for the three months ended March 31, 2003 includes (in
thousands): March 31, 2003As PreviouslyReported
    
    As RestatedChange in operating assets and liabilities:Short-term investments
    
    $
    (2,442
    )
    
    $
    0Accounts and
notes payable
    
    
    (3,810
    )
    
    
    (11,149
    )Net cash used in operating activities
    
    
    (4,607
    )
    
    
    (9,504
    )Cash flows from investing activities:Increase in restricted cash and equivalents
    
    
    0
    
    
    
    (2,686
    )Increase in restricted investments
    
    
    0
    
    
    
    (2,442
    )Net cash used in investing activities
    
    
    (5,866
    )
    
    
    (10,994
    )Cash flows
from financing activities:Proceeds
from insurance premium financing
    
    
    
    
    
    
    8,193Repayments
of insurance premium financing
    
    
    
    
    
    
    (854
    )Net cash
provided by financing activities
    
    
    5,883
    
    
    
    13,222Cash and cash equivalents at the beginning of the period
    
    
    10,253
    
    
    
    9,448Cash and cash equivalents at the end of the period
    
    $
    5,748
    
    
    $
    2,257
  (5)
    
    Prepayments and Other Current Assets Prepayments and other current assets consist of the following at March 31, 2004
and December 31, 2003 (in thousands): March 31,
    
    December 31,2004
    
    2003Tires on tractors and trailers
    
    $
    6,769
    
    
    $
    6,779Prepaid insurance
    
    
    3,079
    
    
    
    2,067Prepaid licenses
    
    
    4,991
    
    
    
    1,471Other
    
    
    3,445
    
    
    
    2,327$
    18,284
    
    
    $
    12,644
 7




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##### Table of Contents



(6)
    
    Goodwill In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, the
Company does not amortize goodwill but reviews it annually for impairment, or
on an interim basis if an event occurs or circumstances change that would
reduce the fair value of goodwill below its carrying value. The Companys
reporting units are the Allied Automotive Group and the Axis Group. The
following table sets forth the carrying value of goodwill by reporting unit as
of March 31, 2004 and December 31, 2003 (in thousands): AlliedAutomotive
    
    AxisGroup
    
    Group
    
    TotalBalance as of December 31,
2003
    
    $
    77,983
    
    
    $
    12,220
    
    
    $
    90,203Decrease in carrying amount
due to a change in currency
rates
    
    
    (281
    )
    
    
    0
    
    
    
    (281
    )Balance as of March 31, 2004
    
    $
    77,702
    
    
    $
    12,220
    
    
    $
    89,922
  (7)
    
    Other Non-Current Assets Other non-current assets consist of the following at March 31, 2004 and
December 31, 2003 (in thousands): March 31,
    
    December 31,2004
    
    2003Cash surrender value of life insurance
    
    $
    6,200
    
    
    $
    6,201Deferred financing costs
    
    
    9,015
    
    
    
    9,718Prepaid pension cost
    
    
    13,964
    
    
    
    14,166Deposits and other
    
    
    4,334
    
    
    
    2,692$
    33,513
    
    
    $
    32,777
  (8)
    
    Accounts and Notes Payable and Accrued Liabilities Accounts and notes payable
include $20.9 and $7.3 million of insurance premium financing as
of March 31, 2004 and 2003, respectively due in monthly
installments through the end of 2004 and 2003. Accrued liabilities consists
of the following at March 31, 2004 and December 31, 2003 (in thousands): March 31,
    
    December 31,2004
    
    2003Wages and benefits
    
    $
    38,279
    
    
    $
    35,180Claims and insurance reserves
    
    
    30,364
    
    
    
    31,425Other
    
    
    20,850
    
    
    
    14,332$
    89,493
    
    
    $
    80,937
 8




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##### Table of Contents



(9)
    
    Long-Term Debt Long-term debt consists of the following at March 31, 2004 and December 31,
2003 (in thousands): March 31,
    
    December 31,2004
    
    2003Term loan
    
    $
    91,333
    
    
    $
    96,500Senior notes
    
    
    150,000
    
    
    
    150,000241,333
    
    
    
    246,500Less current maturities of long-term debt
    
    
    (16,374
    )
    
    
    (16,374
    )$
    224,959
    
    
    $
    230,126
 The Companys credit facility as amended in September 2003 (the Credit
Facility) provides the Company with a $90 million revolving credit facility
(the Revolver) and a $100 million term loan (the Term Loan). The Term Loan
is payable in quarterly installments of principal and interest. Although the
Credit Facility has a maturity date of September 2007, the Company has
classified the Revolver as current based on the requirement of EITF Issue No.
95-22, Balance Sheet Classification of Borrowings Outstanding under Revolving
Credit Agreements that include both a Subjective Acceleration Clause and a
Lock-Box Arrangement. The interest rate for the Revolver is based upon the prime rate plus 1.5%, or
LIBOR plus 4.5%, at managements discretion, with a minimum interest rate of
6.5%. The Credit Facility, as amended, provides that the Term Loan bears
interest between 8.5% and 11.5% to be determined solely on the Companys
leverage as defined in the agreement. At March 31, 2004, the interest rates on
the Revolver and the Term Loan were 6.5% and 8.5%, respectively. Annual
commitment fees are due on the undrawn portion of the commitment. The amount available under the $90 million Revolver may be reduced based on a
calculation of Revolver collateral. At March 31, 2004, $90.0 million Revolver
collateral was available. Approximately $35.4 million of the Revolver was
committed under letters of credit primarily related to the settlement of
insurance claims. At March 31, 2004, $15.3 million was outstanding under the
Revolver. Accordingly, the Company had approximately $39.3 million available
under the Revolver as of March 31, 2004. The Company also had $1.6 million
outstanding on its Canadian revolving line of credit as of March 31, 2004. Borrowings under the Companys Credit Facility are secured by a first priority
security interest on assets of the Company and certain of its subsidiaries,
including a pledge of stock of certain subsidiaries and excluding restricted
cash, cash equivalents and investments. If the Company were unable to repay any
borrowing under its Credit Facility when due, the lenders thereunder would have
the right to proceed against the collateral granted to them to secure the debt.
Any default under the Companys debt instruments, particularly any default that
resulted in acceleration of indebtedness or foreclosure on collateral, would
have a material adverse effect on the Company. The Credit Facility agreement 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 was in compliance with the various covenants set
forth in the Credit Facility at March 31, 2004. On March 30, 2004, the Company
obtained the consent of its lenders under the Credit Facility to deliver its
financial statements for the year ended December 31, 2003 on or
before April 15, 2004. 9




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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 quarterly
installments of interest only, and mature on October 1, 2007. The Companys
obligations under the Notes are guaranteed by substantially all of the
subsidiaries of the Company (the Guarantor Subsidiaries). Haul Insurance
Ltd., Arrendadora de Equipo Para el Transporte de Automoviles, S. de R.L. de
C.V. and Axis Logistica, S. de R.L. de C.V. do not guarantee the Companys
obligations under the Notes (the Nonguarantor Subsidiaries). There are no
restrictions on the ability of Guarantor Subsidiaries to make distributions to
the Company. The Notes include a number of negative covenants, which are binding on the
Company. The covenants limit the Companys ability to, among other things,
purchase or redeem stock, make dividend or other distributions, make
investments, and incur or repay debt (with the exception of payment of interest
or principal at stated maturity). There can be no assurance that the Company will be able to comply with these
covenants or its other debt covenants or that if it fails to do so, it will be
able to obtain amendments to or waivers of such covenants. Failure of the
Company to comply with covenants contained in its debt instruments, if not
waived, or to adequately service debt obligations, could result in a default
under the Credit Facility. Any default under the Companys debt instruments,
particularly any default that results in an acceleration of indebtedness or
foreclosure on collateral, could have a material adverse effect on the Company.  (10)
    
    Commitments and Contingencies(a)
    
    Letters of Credit At March 31, 2004, the Company has agreements with third parties that provide
for $125.7 million of letters of credit primarily relating to settlements of
insurance claims and reserves and support for a line of credit at one of the
Companys foreign subsidiaries. $35.4 million of these letters of credit are
issued by the Company and are secured by available borrowings on the Revolver
and $90.3 million are issued by the Companys wholly owned captive insurance
subsidiary, Haul Insurance Limited, and are collateralized by $90.3 million of
restricted cash and cash equivalents held by the captive. The Company renews
these letters of credit annually.  (b)
    
    Litigation, Claims, Assessments The Company is involved in various litigation and environmental matters
relating to employment practices, damages, and other matters arising from
operations in the ordinary course of business. In the opinion of management,
the ultimate disposition of these matters will not have a material adverse
effect on the Companys financial position or results of operations. As part of the settlement agreement with Ryder System Inc., which litigation
and settlement was previously disclosed in the Companys filings, the Company
has a letter of credit for $5.5 million in favor of Ryder System and will
continue to increase the letter of credit by $1 million each quarter through
the third quarter of 2005. The letter of credit may only be drawn by Ryder
System 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 System 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
September 30, 2005, and periodically thereafter, an actuarial valuation will be
made to determine the remaining outstanding amount of workers compensation and
liability claims assumed by Allied, and the letter of credit issued by the
Company in favor of Ryder System will be adjusted accordingly. 10




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##### Table of Contents



(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 life of
the agreement totals $108.6 million.  (11)
    
    Net 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 loss available to common stockholders by the weighted average number of
common shares outstanding for the years presented. Diluted earnings per share
reflect the potential dilution that could occur if securities and other
contracts to issue common stock were exercised or converted into common stock
or resulted in the issuance of common stock that would then share in the
earnings of the entity. A reconciliation of net loss and the weighted average number of common shares
outstanding used to calculate basic and diluted net loss per common share for
the three months ended March 31, 2004 and 2003 is as follows: Three Months EndedMarch 31,2004
    
    2003Basic and Diluted Earnings Per Share:Net loss
    
    ($
    9,048
    )
    
    ($
    5,664
    )Weighted average number of common shares
outstanding
    
    
    8,788
    
    
    
    8,409Net loss per common share
    
    ($
    1.03
    )
    
    ($
    0.67
    )
 Common stock equivalents for approximately 788,000 and 326,000 shares
outstanding for the three months ended March 31, 2004 and 2003, respectively,
were excluded from the calculation of diluted earnings per share, as the impact
would have been antidilutive.  (12)
    
    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 at March 31, 2004 and 2003 (in thousands, except per share
data):  11




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##### Table of Contents



Three Months EndedMarch 31,2004
    
    2003Reported net loss
    
    ($
    9,048
    )
    
    ($
    5,664
    )Less: stock-based employee
compensation included in reported
net loss, net of related taxes
    
    
    195
    
    
    
    60Plus: stock-based employee
compensation determined using the
fair value method, net of related
taxes
    
    
    (370
    )
    
    
    (184
    )Pro forma net loss
    
    ($
    9,223
    )
    
    ($
    5,788
    )Loss per share:As reported:Basic and diluted
    
    ($
    1.03
    )
    
    ($
    0.67
    )Pro forma:Basic and diluted
    
    ($
    1.05
    )
    
    ($
    0.69
    )
  (13)
    
    Other Comprehensive Income Accumulated other comprehensive (loss), net of income taxes of $2.2 million and
$1.9 million at March 31, 2004 and December 31, 2003, respectively, consists of
the following (in thousands): Foreign Currency
    
    Minimum Pension
    
    Accumulated OtherTranslation
    
    Liability
    
    ComprehensiveAdjustment
    
    Adjustment
    
    Income (Loss)Balance, December 31, 2003
    
    $
    (1,549
    )
    
    $
    (1,417
    )
    
    $
    (2,966
    )Balance, March 31, 2004
    
    $
    (1,952
    )
    
    $
    (1,417
    )
    
    $
    (3,369
    )
  (14)
    
    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 12




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##### Table of Contents



yard management services, intra-modal transport, vehicle tracking, vehicle
accessorization, and dealer preparatory services for the automotive industry. Three Months EndedMarch 31,2004
    
    2003Revenuesunaffiliated customers:Allied Automotive Group
    
    $
    205,667
    
    
    $
    206,202Axis Group
    
    
    6,577
    
    
    
    7,390Corporate/Other
    
    
    0
    
    
    
    0Total
    
    $
    212,244
    
    
    $
    213,592Operating profit (loss):Allied Automotive Group
    
    $
    486
    
    
    $
    (1,077
    )Axis Group
    
    
    656
    
    
    
    671Corporate/other
    
    
    (2,624
    )
    
    
    (1,310
    )Total
    
    $
    (1,482
    )
    
    $
    (1,716
    )Reconciling items:Interest expense
    
    $
    (7,368
    )
    
    $
    (7,381
    )Investment income
    
    
    57
    
    
    
    326Foreign exchange (loss) gain, net
    
    
    (155
    )
    
    
    1,018Other, net
    
    
    (100
    )
    
    
    0Loss before income taxes
    
    $
    (9,048
    )
    
    $
    (7,753
    )
 March 31,2004
    
    December 31,2003Total Assets:Allied Automotive Group
    
    $
    287,773
    
    
    $
    279,208Axis Group
    
    
    28,616
    
    
    
    31,993Corporate/other
    
    
    161,109
    
    
    
    144,534Total
    
    $
    477,498
    
    
    $
    455,735
 Geographical information for the three months ended March 31, 2004 and 2003 is
as follows (in thousands): 13




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##### Table of Contents



Three Months EndedMarch 31,2004
    
    2003Revenues:United States
    
    $
    175,219
    
    
    $
    176,205Canada
    
    
    37,025
    
    
    
    37,387Total
    
    $
    212,244
    
    
    $
    213,592
 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.  (15)
    
    Supplemental Guarantor Information The following consolidating balance sheet information, statements of operations
information, and statements of cash flows information present the financial
statement information of the parent company and the combined financial
statements information of the Guarantor Subsidiaries and Nonguarantor
Subsidiaries. The Guarantor Subsidiaries are jointly and severally liable for the Companys obligations
under the Notes and there are no restrictions on the ability of the Guarantor
Subsidiaries to make distributions to the Company. 14




---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETMarch 31, 2004(In Thousands) ALLIED
    
    GUARANTOR
    
    NONGUARANTORHOLDINGS
    
    SUBSIDIARIES
    
    SUBSIDIARIES
    
    ELIMINATIONS
    
    CONSOLIDATEDCURRENT ASSETS:Cash and cash equivalents
    
    $
    
    
    
    $
    875
    
    
    $
    7,566
    
    
    $
    
    
    
    $
    8,441Restricted cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    28,902
    
    
    
    
    
    
    
    28,902Short-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted Investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Receivables, net of allowance for doubtful accounts
    
    
    
    
    
    
    54,832
    
    
    
    8,738
    
    
    
    
    
    
    
    63,570Inventories
    
    
    
    
    
    
    5,046
    
    
    
    
    
    
    
    
    
    
    
    5,046Deferred tax assets
    
    
    16,767
    
    
    
    2,693
    
    
    
    
    
    
    
    
    
    
    
    19,460Prepayments and other current assets
    
    
    1,508
    
    
    
    16,646
    
    
    
    130
    
    
    
    
    
    
    
    18,284Total current assets
    
    
    18,275
    
    
    
    80,092
    
    
    
    45,336
    
    
    
    
    
    
    
    143,703PROPERTY AND EQUIPMENT, NET
    
    
    6,101
    
    
    
    139,956
    
    
    
    2,887
    
    
    
    
    
    
    
    148,944Goodwill, net
    
    
    1,515
    
    
    
    88,407
    
    
    
    
    
    
    
    
    
    
    
    89,922OTHER ASSETS:Restricted cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    61,416
    
    
    
    
    
    
    
    61,416Restricted Investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    29,413
    
    
    
    3,367
    
    
    
    733
    
    
    
    
    
    
    
    33,513Deferred Tax Asset
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Intercompany receivables
    
    
    62,144
    
    
    
    
    
    
    
    (4,405
    )
    
    
    (57,739
    )
    
    
    Investment in subsidiaries
    
    
    28,011
    
    
    
    5,774
    
    
    
    
    
    
    
    (33,785
    )
    
    
    Total other assets
    
    
    119,568
    
    
    
    9,141
    
    
    
    57,744
    
    
    
    (91,524
    )
    
    
    94,929Total assets
    
    $
    145,459
    
    
    $
    317,596
    
    
    $
    105,967
    
    
    $
    (91,524
    )
    
    $
    477,498CURRENT LIABILITIES:Current maturities of long-term debt
    
    $
    
    
    
    $
    16,374
    
    
    $
    
    
    
    $
    
    
    
    $
    16,374Borrowings Under Revolving Credit Facility
    
    
    
    
    
    
    16,870
    
    
    
    
    
    
    
    
    
    
    
    16,870Accounts and
notes payable
    
    
    1,825
    
    
    
    41,827
    
    
    
    2,826
    
    
    
    
    
    
    
    46,478Intercompany payables
    
    
    
    
    
    
    36,809
    
    
    
    20,930
    
    
    
    (57,739
    )
    
    
    Accrued liabilities
    
    
    9,414
    
    
    
    62,872
    
    
    
    17,207
    
    
    
    
    
    
    
    89,493Total current liabilities
    
    
    11,239
    
    
    
    174,752
    
    
    
    40,963
    
    
    
    (57,739
    )
    
    
    169,215LONG-TERM DEBT, less current maturities
    
    
    150,000
    
    
    
    74,959
    
    
    
    
    
    
    
    
    
    
    
    224,959POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
    
    
    
    
    
    
    5,232
    
    
    
    
    
    
    
    
    
    
    
    5,232DEFERRED INCOME TAXES
    
    
    (15,641
    )
    
    
    35,101
    
    
    
    
    
    
    
    
    
    
    
    19,460OTHER LONG-TERM LIABILITIES
    
    
    
    
    
    
    25,461
    
    
    
    33,310
    
    
    
    
    
    
    
    58,771STOCKHOLDERS EQUITY (DEFICIT):Common stock, no par value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    48,009
    
    
    
    159,422
    
    
    
    2,488
    
    
    
    (161,910
    )
    
    
    48,009Treasury stock
    
    
    (707
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (707
    )Retained (deficit) earnings
    
    
    (44,072
    )
    
    
    (153,174
    )
    
    
    29,206
    
    
    
    123,968
    
    
    
    (44,072
    )Accumulated other comprehensive loss, net of tax
    
    
    (3,369
    )
    
    
    (4,157
    )
    
    
    
    
    
    
    4,157
    
    
    
    (3,369
    )Total stockholders equity (deficit)
    
    
    (139
    )
    
    
    2,091
    
    
    
    31,694
    
    
    
    (33,785
    )
    
    
    (139
    )Total liabilities and stockholders equity (deficit)
    
    $
    145,459
    
    
    $
    317,596
    
    
    $
    105,967
    
    
    $
    (91,524
    )
    
    $
    477,498
 15




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##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2003In 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
    
    
    
    
    
    
    
    26,267Short-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Receivables, net of allowance for doubtful accounts
    
    
    
    
    
    
    50,842
    
    
    
    4,268
    
    
    
    
    
    
    
    55,110Inventories
    
    
    
    
    
    
    4,983
    
    
    
    
    
    
    
    
    
    
    
    4,983Deferred tax assets
    
    
    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
    
    
    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
    
    
    (707
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (707
    )Retained (deficit) earnings
    
    
    (35,024
    )
    
    
    (148,516
    )
    
    
    29,135
    
    
    
    119,381
    
    
    
    (35,024
    )Accumulated other comprehensive loss, net of tax
    
    
    (2,966
    )
    
    
    (10,980
    )
    
    
    
    
    
    
    10,980
    
    
    
    (2,966
    )Total stockholders equity
    
    
    8,814
    
    
    
    6,634
    
    
    
    31,623
    
    
    
    (38,257
    )
    
    
    8,814Total liabilities and stockholders equity
    
    $
    169,814
    
    
    $
    312,451
    
    
    $
    79,879
    
    
    $
    (106,409
    )
    
    $
    455,735
 16




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##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATED INCOME STATEMENT INFORMATION
THREE MONTHS ENDED MARCH 31, 2004
In Thousands ALLIED
    
    GUARANTOR
    
    NONGUARANTORHOLDINGS
    
    SUBSIDIARIES
    
    SUBSIDIARIES
    
    ELIMINATIONS
    
    CONSOLIDATEDREVENUES
    
    $
    6,686
    
    
    $
    211,865
    
    
    $
    10,262
    
    
    $
    (16,569
    )
    
    $
    212,244OPERATING EXPENSES:Salaries, wages and fringe benefits
    
    
    2,699
    
    
    
    117,248
    
    
    
    
    
    
    
    
    
    
    
    119,947Operating supplies and expenses
    
    
    3,222
    
    
    
    33,760
    
    
    
    64
    
    
    
    
    
    
    
    37,046Purchased transportation
    
    
    
    
    
    
    25,906
    
    
    
    
    
    
    
    
    
    
    
    25,906Insurance and claims
    
    
    
    
    
    
    9,161
    
    
    
    9,885
    
    
    
    (9,883
    )
    
    
    9,163Operating taxes and licenses
    
    
    34
    
    
    
    6,525
    
    
    
    
    
    
    
    
    
    
    
    6,559Depreciation and amortization
    
    
    682
    
    
    
    9,585
    
    
    
    119
    
    
    
    
    
    
    
    10,386Rents
    
    
    470
    
    
    
    1,244
    
    
    
    2
    
    
    
    
    
    
    
    1,716Communications and utilities
    
    
    1,007
    
    
    
    941
    
    
    
    6
    
    
    
    
    
    
    
    1,954Other operating expenses
    
    
    1,165
    
    
    
    7,670
    
    
    
    37
    
    
    
    (6,686
    )
    
    
    2,186(Gain) loss on disposal of operating assets, net
    
    
    
    
    
    
    (1,137
    )
    
    
    
    
    
    
    
    
    
    
    (1,137
    )Total operating expenses
    
    
    9,279
    
    
    
    210,903
    
    
    
    10,113
    
    
    
    (16,569
    )
    
    
    213,726Operating (loss) income
    
    
    (2,593
    )
    
    
    962
    
    
    
    149
    
    
    
    
    
    
    
    (1,482
    )OTHER INCOME (EXPENSE):Interest expense
    
    
    (1,748
    )
    
    
    (5,523
    )
    
    
    (97
    )
    
    
    
    
    
    
    (7,368
    )Interest income
    
    
    
    
    
    
    8
    
    
    
    49
    
    
    
    
    
    
    
    57Foreign exchange (loss) gain, net
    
    
    
    
    
    
    (165
    )
    
    
    10
    
    
    
    
    
    
    
    (155
    )Other, net
    
    
    
    
    
    
    (100
    )
    
    
    
    
    
    
    
    
    
    
    (100
    )Equity in (losses) earnings of subsidiaries
    
    
    (4,707
    )
    
    
    121
    
    
    
    
    
    
    
    4,586
    
    
    
    (6,455
    )
    
    
    (5,659
    )
    
    
    (38
    )
    
    
    4,586
    
    
    
    (7,566
    )(LOSS) INCOME BEFORE INCOME TAXES
    
    
    (9,048
    )
    
    
    (4,697
    )
    
    
    111
    
    
    
    4,586
    
    
    
    (9,048
    )INCOME TAX BENEFIT (EXPENSE)
    
    
    
    
    
    
    39
    
    
    
    (39
    )
    
    
    
    
    
    
    NET (LOSS) INCOME
    
    $
    (9,048
    )
    
    $
    (4,658
    )
    
    $
    72
    
    
    $
    4,586
    
    
    $
    (9,048
    )
 17




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##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATED INCOME STATEMENT INFORMATION
THREE MONTHS ENDED MARCH 31, 2003
In Thousands

ALLIED
    
    GUARANTOR
    
    NONGUARANTORHOLDINGS
    
    SUBSIDIARIES
    
    SUBSIDIARIES
    
    ELIMINATIONS
    
    CONSOLIDATEDREVENUES
    
    $
    6,806
    
    
    $
    213,250
    
    
    $
    9,022
    
    
    $
    (15,486
    )
    
    $
    213,592OPERATING EXPENSES:Salaries, wages and fringe benefits
    
    
    2,610
    
    
    
    114,965
    
    
    
    
    
    
    
    
    
    
    
    117,575Operating supplies and expenses
    
    
    2,233
    
    
    
    34,895
    
    
    
    52
    
    
    
    
    
    
    
    37,180Purchased transportation
    
    
    
    
    
    
    24,713
    
    
    
    
    
    
    
    
    
    
    
    24,713Insurance and claims
    
    
    
    
    
    
    9,511
    
    
    
    8,526
    
    
    
    (8,680
    )
    
    
    9,357Operating taxes and licenses
    
    
    65
    
    
    
    7,773
    
    
    
    
    
    
    
    
    
    
    
    7,838Depreciation and amortization
    
    
    878
    
    
    
    11,026
    
    
    
    120
    
    
    
    
    
    
    
    12,024Rents
    
    
    478
    
    
    
    1,140
    
    
    
    2
    
    
    
    
    
    
    
    1,620Communications and utilities
    
    
    935
    
    
    
    950
    
    
    
    3
    
    
    
    
    
    
    
    1,888Other operating expenses
    
    
    979
    
    
    
    8,576
    
    
    
    100
    
    
    
    (6,806
    )
    
    
    2,849Loss on disposal of operating assets, net
    
    
    
    
    
    
    264
    
    
    
    
    
    
    
    
    
    
    
    264Total operating expenses
    
    
    8,178
    
    
    
    213,813
    
    
    
    8,803
    
    
    
    (15,486
    )
    
    
    215,308Operating (loss) income
    
    
    (1,372
    )
    
    
    (563
    )
    
    
    219
    
    
    
    
    
    
    
    (1,716
    )OTHER INCOME (EXPENSE):Interest expense
    
    
    (3,299
    )
    
    
    (5,107
    )
    
    
    (48
    )
    
    
    1,073
    
    
    
    (7,381
    )Interest income
    
    
    1,073
    
    
    
    21
    
    
    
    305
    
    
    
    (1,073
    )
    
    
    326Intercompany dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Foreign exchange gains, net
    
    
    
    
    
    
    1,089
    
    
    
    (71
    )
    
    
    
    
    
    
    1,018Equity in (losses) earnings of subsidiaries
    
    
    (3,972
    )
    
    
    120
    
    
    
    
    
    
    
    3,852
    
    
    
    (6,198
    )
    
    
    (3,877
    )
    
    
    186
    
    
    
    3,852
    
    
    
    (6,037
    )(LOSS) INCOME BEFORE INCOME TAXES
    
    
    (7,570
    )
    
    
    (4,440
    )
    
    
    405
    
    
    
    3,852
    
    
    
    (7,753
    )INCOME TAX BENEFIT (EXPENSE)
    
    
    1,906
    
    
    
    365
    
    
    
    (182
    )
    
    
    
    
    
    
    2,089NET (LOSS) INCOME
    
    $
    (5,664
    )
    
    $
    (4,075
    )
    
    $
    223
    
    
    $
    3,852
    
    
    $
    (5,664
    )


18



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##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
THREE MONTHS ENDED MARCH 31, 2004
In Thousands ALLIED
    
    GUARANTOR
    
    NONGUARANTORHOLDINGS
    
    SUBSIDIARIES
    
    SUBSIDIARIES
    
    ELIMINATIONS
    
    CONSOLIDATEDCASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income
    
    $
    (9,048
    )
    
    $
    (4,658
    )
    
    $
    72
    
    
    $
    4,586
    
    
    $
    (9,048
    )Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:Interest expense paid in kind
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred financing costs
    
    
    704
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    704Depreciation and amortization
    
    
    682
    
    
    
    9,585
    
    
    
    119
    
    
    
    
    
    
    
    10,386Loss on disposal of assets and other, net
    
    
    
    
    
    
    (1,137
    )
    
    
    
    
    
    
    
    
    
    
    (1,137
    )Foreign exchange gains, net
    
    
    
    
    
    
    155
    
    
    
    
    
    
    
    
    
    
    
    155Deferred income taxes
    
    
    (15
    )
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    Compensation expense related to stock options and grants
    
    
    195
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    195Equity in losses (earnings) of subsidiaries
    
    
    4,707
    
    
    
    (121
    )
    
    
    
    
    
    
    (4,586
    )
    
    
    Amortization of Teamsters Union contract costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in operating assets and liabilities:Receivables, net of allowance for doubtful accounts
    
    
    
    
    
    
    (4,071
    )
    
    
    (4,470
    )
    
    
    
    
    
    
    (8,541
    )Inventories
    
    
    
    
    
    
    (74
    )
    
    
    
    
    
    
    
    
    
    
    (74
    )Prepayments and other current assets
    
    
    362
    
    
    
    (7,383
    )
    
    
    (96
    )
    
    
    
    
    
    
    (7,117
    )Short-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accounts and
Notes Payable
    
    
    (350
    )
    
    
    (11,084
    )
    
    
    2,754
    
    
    
    
    
    
    
    (8,680
    )Intercompany payables
    
    
    1,321
    
    
    
    (15,979
    )
    
    
    14,658
    
    
    
    
    
    
    
    Accrued liabilities
    
    
    589
    
    
    
    4,715
    
    
    
    2,333
    
    
    
    
    
    
    
    7,637Net cash provided by (used in) operating activities
    
    
    (852
    )
    
    
    (30,037
    )
    
    
    15,370
    
    
    
    
    
    
    
    (15,520
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    
    
    
    
    (4,844
    )
    
    
    (3
    )
    
    
    
    
    
    
    (4,847
    )(Increase) Decrease in restricted cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (8,234
    )
    
    
    
    
    
    
    (8,234
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    1,826
    
    
    
    
    
    
    
    
    
    
    
    1,826Decrease in cash surrender value of life insurance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    
    
    
    
    (3,018
    )
    
    
    (8,237
    )
    
    
    
    
    
    
    (11,255
    )CASH FLOWS FROM FINANCING ACTIVITIES:Additions to (repayments of) revolving credit facilities, net
    
    
    
    
    
    
    16,870
    
    
    
    
    
    
    
    
    
    
    
    16,870Repayment of long-term debt
    
    
    
    
    
    
    (5,167
    )
    
    
    
    
    
    
    
    
    
    
    (5,167
    )Payment of deferred financing costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Proceeds
from insurance premium financing
    
    
    
    
    
    
    26,124
    
    
    
    
    
    
    
    
    
    
    
    26,124Repayments
of insurance premium financing
    
    
    
    
    
    
    (5,194
    )
    
    
    
    
    
    
    
    
    
    
    (5,194
    )Proceeds from issuance of common stock
    
    
    303
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    303Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash (used in) provided by financing activities
    
    
    303
    
    
    
    32,633
    
    
    
    
    
    
    
    
    
    
    
    32,936
 19




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##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
THREE MONTHS ENDED MARCH 31, 2004
In Thousands ALLIED
    
    GUARANTOR
    
    NONGUARANTORHOLDINGS
    
    SUBSIDIARIES
    
    SUBSIDIARIES
    
    ELIMINATIONS
    
    CONSOLIDATEDEFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS
    
    
    
    
    
    
    132
    
    
    
    
    
    
    
    
    
    
    
    132NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (549
    )
    
    
    (291
    )
    
    
    7,133
    
    
    
    
    
    
    
    6,293CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    549
    
    
    
    1,166
    
    
    
    433
    
    
    
    
    
    
    
    2,148CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    
    
    
    $
    875
    
    
    $
    7,566
    
    
    $
    
    
    
    $
    8,441
 20




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##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
THREE MONTHS ENDED MARCH 31, 2003
(restated  see note 4)
In Thousands ALLIED
    
    GUARANTOR
    
    NONGUARANTORHOLDINGS
    
    SUBSIDIARIES
    
    SUBSIDIARIES
    
    ELIMINATIONS
    
    CONSOLIDATEDCASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income
    
    $
    (5,664
    )
    
    $
    (4,075
    )
    
    $
    223
    
    
    $
    3,852
    
    
    $
    (5,664
    )Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:Interest expense paid in kind
    
    
    
    
    
    
    369
    
    
    
    
    
    
    
    
    
    
    
    369Amortization of deferred financing costs
    
    
    1,012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,012Depreciation and amortization
    
    
    878
    
    
    
    11,026
    
    
    
    120
    
    
    
    
    
    
    
    12,024Loss on disposal of assets and other, net
    
    
    
    
    
    
    264
    
    
    
    
    
    
    
    
    
    
    
    264Foreign exchange gains, net
    
    
    
    
    
    
    (1,018
    )
    
    
    
    
    
    
    
    
    
    
    (1,018
    )Deferred income taxes
    
    
    (4,401
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,401
    )Compensation expense related to stock options and grants
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60Equity in losses (earnings) of subsidiaries
    
    
    3,972
    
    
    
    (120
    )
    
    
    
    
    
    
    (3,852
    )
    
    
    Amortization of Teamsters Union contract costs
    
    
    
    
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    600Change in operating assets and liabilities:Receivables, net of allowance for doubtful accounts
    
    
    
    
    
    
    2,331
    
    
    
    479
    
    
    
    
    
    
    
    2,810Inventories
    
    
    
    
    
    
    (226
    )
    
    
    
    
    
    
    
    
    
    
    (226
    )Prepayments and other current assets
    
    
    1,472
    
    
    
    (3,477
    )
    
    
    (34
    )
    
    
    
    
    
    
    (2,039
    )Short-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accounts and
notes payable
    
    
    (560
    )
    
    
    (3,281
    )
    
    
    (7,308
    )
    
    
    
    
    
    
    (11,149
    )Intercompany payables
    
    
    2,098
    
    
    
    (9,701
    )
    
    
    7,603
    
    
    
    
    
    
    
    Accrued liabilities
    
    
    1,763
    
    
    
    (1,601
    )
    
    
    (2,308
    )
    
    
    
    
    
    
    (2,146
    )Net cash provided by (used in) operating activities
    
    
    630
    
    
    
    (8,909
    )
    
    
    (1,225
    )
    
    
    
    
    
    
    (9,504
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (27
    )
    
    
    (5,798
    )
    
    
    (53
    )
    
    
    
    
    
    
    (5,878
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    11(Increase) decrease in restricted cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (2,686
    )
    
    
    
    
    
    
    (2,686
    )(Increase) decrease in restricted investments
    
    
    
    
    
    
    
    
    
    
    (2,442
    )
    
    
    
    
    
    
    (2,442
    )Decrease in cash surrender value of life insurance
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Net cash used in investing activities
    
    
    (26
    )
    
    
    (5,787
    )
    
    
    (5,181
    )
    
    
    
    
    
    
    (10,994
    )CASH FLOWS FROM FINANCING ACTIVITIES:Additions to revolving credit facilities, net
    
    
    
    
    
    
    8,471
    
    
    
    
    
    
    
    
    
    
    
    8,471Additions to long-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Repayment of
long term debt
    
    
    
    
    
    
    (2,226
    )
    
    
    
    
    
    
    
    
    
    
    (2,226
    )Payment of deferred financing costs
    
    
    (407
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (407
    )Proceeds
from insurance premium financing
    
    
    
    
    
    
    8,193
    
    
    
    
    
    
    
    
    
    
    
    8,193Repayments
from insurance premium financing
    
    
    
    
    
    
    (854
    )
    
    
    
    
    
    
    
    
    
    
    (854
    )Proceeds from issuance of common stock
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57Other, net
    
    
    (261
    )
    
    
    249
    
    
    
    
    
    
    
    
    
    
    
    (12
    )Net cash (used in) provided by financing activities
    
    
    (611
    )
    
    
    13,833
    
    
    
    
    
    
    
    
    
    
    
    13,222
 21




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##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
THREE MONTHS ENDED MARCH 31, 2003
(restated  see note 4)
In Thousands ALLIED
    
    GUARANTOR
    
    NONGUARANTORHOLDINGS
    
    SUBSIDIARIES
    
    SUBSIDIARIES
    
    ELIMINATIONS
    
    CONSOLIDATEDEFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS
    
    
    
    
    
    
    85
    
    
    
    
    
    
    
    
    
    
    
    85NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (7
    )
    
    
    (778
    )
    
    
    (6,406
    )
    
    
    
    
    
    
    (7,191
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    7
    
    
    
    1,936
    
    
    
    7,505
    
    
    
    
    
    
    
    9,448CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    
    
    
    $
    1,158
    
    
    $
    1,099
    
    
    $
    
    
    
    $
    2,257
 22




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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, for the major domestic and foreign automotive
manufacturers. During the first quarter of 2004, the Company renewed its vehicle delivery
agreement with General Motors Corporation. The renewal extends the expiration
date of the agreement to March 2006. Allied estimates that the impact to
operating income in 2004 as a result of the terms and conditions of the renewal
agreement with General Motors Corporation will be a potential reduction of less
than $3 million, which is less than one percent of the revenues from the GM
business. During the first quarter of 2004, the Company also commenced
services under an amended agreement with IBM to provide additional support.
The amendment extends the expiration of the agreement for 10 years and provides
for additional services to manage applications for EDI, network services,
technical services, and applications development and support. In February 2004, the Company appointed David Rawden, as Executive Vice
President and Chief Financial Officer. Mr. Rawden, who joined the Company as
Senior Vice President in March 2002 heads the Companys corporate finance
operations and replaced the Companys previous Executive Vice President and
Chief Financial Officer, Daniel H. Popky, who served as the Chief Financial
Officer from November 1998 until February 2004. During March 2004, the Company sold excess land located in Canada and recorded
gains on the disposal of property of $1.1 million. Results of Operations The following table sets forth the percentage relationship of expense items to
revenues for the periods indicated: Three Months EndedMarch2004
    
    2003Revenues
    
    
    100.0
    %
    
    
    100.0
    %Operating expenses:Salaries, wages and fringe benefits
    
    
    56.5
    
    
    
    55.0Operating supplies and expenses
    
    
    17.5
    
    
    
    17.4Purchased transportation
    
    
    12.2
    
    
    
    11.6Insurance and claims
    
    
    4.3
    
    
    
    4.4Operating taxes and licenses
    
    
    3.1
    
    
    
    3.7Depreciation and amortization
    
    
    4.9
    
    
    
    5.6Rents
    
    
    0.8
    
    
    
    0.8Communications and utilities
    
    
    0.9
    
    
    
    0.9Other operating expenses
    
    
    1.0
    
    
    
    1.3Gain (loss) on disposal of operating assets, net
    
    
    (0.5
    )
    
    
    0.1Total operating expenses
    
    
    100.7
    
    
    
    100.8Operating loss
    
    
    (0.7
    )
    
    
    (0.8
    )Other income (expense):Interest expense
    
    
    (3.5
    )
    
    
    (3.5
    )Investment income
    
    
    0.0
    
    
    
    0.2Foreign exchange (loss) gain, net
    
    
    (0.1
    )
    
    
    0.5Other, net
    
    
    (0.0
    )
    
    
    0.0(3.6
    )
    
    
    (2.8
    )
 23




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Three Months EndedMarch2004
    
    2003Loss before income taxes
    
    
    (4.3
    )
    
    
    (3.6
    )Income tax benefit
    
    
    0.0
    
    
    
    1.0Net loss
    
    
    (4.3
    )%
    
    
    (2.6
    )%
 Three Months Ended March 31, 2004 Compared to Three Months Ended March 31, 2003 Revenues were $212.2 million in the first quarter of 2004 compared to revenues
of $213.6 million in the first quarter of 2003, a decrease of $1.4 million, or
0.7%. Total vehicle deliveries were down 1.7% in the first quarter of 2004
compared to the first quarter of 2003. Total vehicle deliveries during the
quarter were significantly impacted by the lower OEM shipment levels in the
month of January. The Company experienced a 15.4% decline in vehicle
deliveries in January 2004 versus January 2003 and a 12.3% drop in January
revenues versus the prior year January period. External factors including
unexpectedly soft volumes and sporadic OEM production levels directly impacted
the Companys performance during January 2004. In addition, volumes were also
impacted by the Companys decision in 2003 to exit all of its General Motors
(GM) traffic at Jessup, Maryland and certain of GMs Saturn traffic in Spring
Hill, Tennessee. As disclosed previously, each of these pieces of business had
historically generated losses. These declines in volume were partially offset
by increased shipments during March 2004 versus March 2003. In fact, the
Company experienced 9.1% greater vehicle deliveries in March 2004 than in March
of the previous year. The Company recorded a net loss of $9.0 million in the first quarter of 2004
versus a net loss of $5.7 million in the first quarter of 2003. Basic and
diluted loss per share in the first quarter of 2004 was $1.03 versus $0.67 in
the first quarter of 2003. Results for the first quarter of 2004 include a
gain of $1.1 million related to the sale of excess property. This amount is
included in the statements of operations as gain on the disposal of operating
assets. Results for the first quarter of 2004 also included foreign currency
losses of $0.2 million compared to foreign currency gains recognized in the
first quarter of 2003 of $1.0 million. The following is a discussion of the changes in the Companys major expense
categories: Salaries, wages and fringe benefits increased from 55.0% of revenues in the
first quarter of 2003 to 56.5% of revenues in the first quarter of 2004. The
increase is due to cost increases resulting from additional benefits and
pension contributions related to the 2003 U.S. Teamster contract. In addition,
more severance costs were incurred during the first quarter of 2004 than in the
first quarter prior year resulting from managements ongoing efforts to
eliminate non-value creating positions. The Company also experienced inclement
weather conditions during January, which adversely affected terminal
productivity. During the first quarter of 2004, the Companys risk management
expenses were $2.2 million greater than in the first quarter of 2003 resulting
from costs related to worker injuries. Medical and benefit costs relating to
worker injuries increased $2.2 million in the first quarter of 2004 compared to
first quarter 2003. Purchased transportation increased from 11.6% of revenues in the first quarter
of 2003 to 12.2% of revenues in the first quarter of 2004. The increase was
also due to inclement weather conditions during January that adversely affected
terminal productivity. Insurance and claims expense decreased from 4.4% of revenues in the first
quarter of 2003 to 4.3% of revenues in the first quarter of 2004. The decrease
was due primarily to lower cargo claims experienced on shipped vehicles,
resulting from the Companys ongoing initiatives to improve quality and
damage-free deliveries, as well as improved claims investigation procedures to
reduce payment of claims not caused by the Company. While vehicle deliveries
decreased by 1.7% from the first quarter of 2004 compared to the first quarter
prior year, cargo claims expenses decreased 18.1% during the same period. 24




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Operating taxes and licenses expense decreased from 3.7% of revenues in the
first quarter of 2003 to 3.1% of revenues in the first quarter of 2004. This
decrease was primarily due to lower license expense incurred on the Companys
fleet. Depreciation and amortization decreased from 5.6% of revenues in the first
quarter of 2003 to 4.9% of revenues in the first quarter of 2004. The decrease
was due primarily to the overall reduction in capital spending in years 2002
and 2003 resulting in a decrease in depreciation expense as assets become fully
depreciated. As previously disclosed, the Company has instituted a Rig
remanufacturing program to remanufacture existing owned Rigs rather than
purchase new Rigs. Remanufacturing existing Rigs requires less capital
spending than purchasing new Rigs. During the first quarter of 2004, the
Company remanufactured approximately 75 Rigs and replaced or
overhauled approximately 90 engines in its tractor fleet. Other operating expenses decreased from 1.3% of revenues in the first quarter
of 2003 to 1.0% of revenues in the first quarter of 2004. The decrease was due
to a $0.3 million reduction in professional services costs compared to the
costs incurred during negotiation of the new agreement with the Teamsters in
the first quarter of 2003. Gains on the disposal of assets in the first quarter of 2004 was $1.1 million
resulting from the sale of excess land located in Canada. During the first
quarter of 2003, loss on the disposal of assets was $0.3 million related to the
disposal of non-performing assets. Investment income decreased from $0.3 million in the first quarter of 2003 to
$57,000 in the first quarter of 2004. The reduction in investment income
during the first quarter of 2004 as compared to the first quarter of 2003 was
due to the conversion of restricted investments to restricted cash and cash
equivalents by the Companys subsidiary Haul Insurance Ltd., resulting in lower
investment income. Foreign exchange gains, net decreased from a $1.0 million gain in the first
quarter of 2003 to a loss of $0.2 million in the first quarter of 2004. The
decrease for the quarter was due primarily to favorable exchange rate changes
in the first quarter of 2003 related to the Companys operating subsidiary in
Canada that resulted from a strengthening of the Canadian dollar in relation to
the U.S. dollar. During the first quarter of 2003, the Canadian dollar
increased in value by approximately 7.1%, as compared to the U.S. dollar.
During the first quarter of 2004, the Canadian dollar was more stable as
compared to the U.S. dollar only declining by 1.0%. Financial Condition, Liquidity and Capital Resources The Companys sources of liquidity are funds provided by operations and
borrowings under its revolving credit facility with a syndicate of lenders. The
Companys primary liquidity needs are for the payment of operating expenses,
the remanufacturing and maintenance of Rigs and terminal facilities, and the
payment of interest and principal associated with long-term debt. Net cash used by operating
activities totaled $15.5 million for the
three-month period ended March 31, 2004 versus net cash used in operating
activities of $2.2 million for the three-month period ended March 31, 2003.
Net cash used by operating activities consisted primarily of working capital requirement increases
which included additional driver salaries and
wages incurred at the end of the quarter due to the significant increases in
the volume of vehicles transported during March 2004. Net cash used in investing activities totaled $11.3 million for the three-month
period ended March 31, 2004 versus $11.0 million for the three-month period
ended March 31, 2003. Cash paid to purchase capital items, which are related
mainly to the fleet remanufacturing program, decreased by $1.1 million while
cash proceeds from the sale of assets increased by $1.8 million. The Company
did not sell any significant assets in the first three months of 2003. 25




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The Company will continue to evaluate the progression of the remanufacturing
program throughout 2004. Capital expenditures for fiscal year 2004 are expected to be in the range of $25
million to $35 million related mainly to the fleet remanufacturing program. In
addition, primarily due to increased collateral requirements at its captive
insurance company, the Companys restricted cash and cash equivalents and
restricted investments, net increased by $3.1 million in the first quarter of
2004 as compared to the first quarter of 2003. Net cash provided by financing activities totaled $32.9 million for the
three-month period ended March 31, 2004 versus $5.9 million for the three-month
period ended March 31, 2003. The primary reasons for the increase in
borrowings under the revolving credit facility as compared to the first quarter prior year were, decreased
operating income before (gains) losses on the disposal of operating assets,
lower depreciation and amortization and increased working capital requirements.
These items were partially offset by lower capital spending in 2004 related to
the remanufacturing program and cash proceeds received from the sale of excess
property during 2004. In addition, the Company financed approximately
$20.9 million of insurance premiums net of repayments during the
first quarter of 2004 and 7.3 million during the first quarter of 2003. At March 31, 2004, $16.9 million was outstanding under the Revolver and the
Canadian line of credit, and approximately $35.4 million of the Revolver was
committed under letters of credit. The Company had approximately $39.3 million
available under the Revolver as of March 31, 2004. Borrowings under the Companys Credit Facility are secured by a first priority
security interest on assets of the Company and certain of its subsidiaries,
including a pledge of stock of certain subsidiaries and excluding restricted
cash, cash equivalents and investments. If the Company were unable to repay any
borrowing under its Credit Facility when due, the lenders thereunder would have
the right to proceed against the collateral granted to them to secure the debt.
Any default under the Companys debt instruments, particularly any default that
resulted in acceleration of indebtedness or foreclosure on collateral, would
have a material adverse effect on the Company. The Credit Facility agreement 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 was in compliance with the various covenants set
forth in the Credit Facility at March 31, 2004. On March 30, 2004, the Company
obtained the consent of its lenders under the Credit Facility to deliver its
financial statements for the year ended December 31, 2003 on or
before April 15, 2004. The Company has certain long-term contractual obligations, including operating
lease obligations and purchase and service contract commitments that are not
required to be recorded in the Companys consolidated balance sheet. 
 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. As of March 31, 2004, the Company did
not have any investments. 26




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##### Table of Contents



Interest Rates The Company primarily issues long-term debt obligations to support general
corporate purposes including capital expenditures and working capital needs.
The majority of the Companys long-term debt obligations bear a fixed rate of
interest. The portion of the long-term debt obligation that does not bear a
fixed rate of interest has an interest rate that may fluctuate within a three
percentage point range based on the Companys leverage, as defined in the
agreement. A 3% increase in the interest rate to such debt would increase the
Companys interest expense by $2.7 million over the next fiscal year. Stockholders Deficit Losses this quarter resulted in negative stockholders equity at March 31,
2004. As a result of our stockholders deficit, the Company is restricted from
making any repurchases of its common stock and paying dividends. In addition,
continued stockholders deficit could cause the Company to become delisted from
the American Stock Exchange. Currently, the Company believes that it is still
in compliance with the listing standards of the American Stock Exchange.
However, if the stockholders deficit continues and the Companys market
capitalization of shares held by non-affiliates decreases, the Company could
face delisting from the American Stock Exchange. Substantial Leverage The Company has consolidated indebtedness, which is substantial in relation to
its stockholders equity. As of March 31, 2004, the Company had total long-term
debt including borrowings under revolving credit facilities of approximately
$258.2 million (excluding approximately $135.9 million of trade payables and
other accrued liabilities) and stockholders deficit of approximately $(0.1)
million. In addition, the Company has additional capacity for borrowings
available under its revolving credit facility, which is discussed above in
Financial Condition, Liquidity and Capital Resources. The Companys leveraged
financial position exposes it to the risk of increased interest rates, may
impede its ability to obtain financing in the future for working capital,
capital expenditures and general corporate purposes, and may make the Company
more vulnerable to economic downturns and work stoppages, and limit its ability
to withstand competitive pressures. The Companys debt instruments contain a number of affirmative, negative, and
financial covenants, which limit the ability of the Company to, among other
things, incur debt, incur liens, make investments, make capital expenditures,
make dividend or other distributions or enter into a merger or consolidation
transaction. As of March 31, 2004, the Company was in compliance with the terms
of its various debt covenants. There can be no assurance, however, that the
Company will be able to comply with its debt covenants in the future or that,
if it fails to do so, it will be able to obtain amendments to or waivers of
such covenants on commercially reasonable terms, if at all. The Company will need to use a significant amount of its future earnings to pay
principal and interest on its substantial debt obligations, which will reduce
the amount of money available for use in its operations, capital reinvestment,
or for responding to potential business opportunities as they arise. The
ability of the Company to generate the cash necessary to service its debt is
subject to a number of external factors beyond its control, and there can be no
assurance that the Company will be able to generate sufficient cash through its
operations to enable it to meet its obligations. If the Company does not
generate enough cash to enable it to meet its debt obligations, it may be
required to take actions such as reducing or delaying capital expenditures,
selling assets, restructuring or financing its debt or seeking additional
equity capital. There can be no assurance that any of these actions could be
effected on commercially reasonable terms, if at all, and the terms of existing
or future indebtedness may restrict the Company from adopting any of these
alternatives. Any failure of the Company to comply with the covenants contained in its debt
instruments, if not waived, or to adequately service its debt obligations,
could result in a default under its debt instruments. If a default occurs under
any of the Companys debt instruments, the lenders thereunder may elect to
declare all borrowings outstanding, together with interest and other fees, to
be immediately due and payable. Borrowings under the Companys credit 27




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##### Table of Contents



facility are collateralized with the assets of the Company and certain of its
subsidiaries. If the Company were unable to repay any borrowing under its
credit facility when due, the lenders thereunder would have the right to
proceed against the collateral granted to them to secure the debt. Any default
under the Companys debt instruments, particularly any default that resulted in acceleration of
indebtedness or foreclosure on collateral, would have a material adverse effect
on the Company. Labor Matters There can be no assurance that the Company will be able to negotiate new union
contracts as the current contracts expire or that such contracts will be on
terms acceptable to the Company or result in increased labor costs to the
Company or work stoppages, which could have a material adverse effect on the
Company. Fuel Prices Allied Automotive Group is dependent on diesel fuel to operate its fleet of
Rigs. Diesel fuel prices are subject to fluctuations due to unpredictable
factors such as weather, government policies, and changes in global demand and
global production. To reduce price risk caused by market fluctuations, Allied
Automotive Group periodically purchases fuel in advance of consumption. A 10%
increase in diesel fuel prices would reduce pre-tax income by $6.8 million over
the next fiscal year assuming levels of fuel consumption and pricing in the
remainder of 2004 is consistent with the first quarter. These increases would
be partially offset by the Companys fuel surcharge agreements with certain
customers. Fuel prices in the first quarter of 2004 were approximately 7%
higher than fuel prices in the fourth quarter of 2003. Competition The automotive transportation industry is highly competitive, as Allied
Automotive Group currently competes with other motor carriers of varying sizes,
as well as with railroads. Allied Automotive Group also competes with non-union
motor carriers and broker operations that sub-contract carhaul transportation
services to low-cost independent owner-operators. The development of new
methods of hauling vehicles could also lead to increased competition. The carhaul business is labor intensive for union carhaul companies. Wages and
benefits represented approximately $120 million of the Companys consolidated
operating expenses for the quarter ended March 31, 2004. There has been an
increase in the number of carhaul companies that utilize non-union labor, and
the market share represented by such companies has increased. Carhaul companies
that utilize non-union labor operate at a significant cost advantage as
compared to Allied Automotive Group and other union carhaul companies due to
lower labor costs, primarily as a result of lower benefit and pension costs.
Non-union competitors also operate without work rules which apply to Allied
Automotive Group and other union companies, which provide non-union companies
with a competitive advantage. Non-union companies, which operate at a
significant cost advantage to Allied Automotive Group, may be able to provide
delivery services at a cost to customers that are less than the cost of Allied
Automotive Groups services. Railroads, which specialize in long-haul
transportation, may be able to provide delivery services at a cost to customers
that are less than the long-haul delivery cost of Allied Automotive Groups
services. Allied Automotive Group could benefit from the temporary
transportation of new vehicles due to potential rail car shortages throughout
North America. This phenomenon occasionally occurs in the carhaul industry and
generally speaking the trucking sector is sometimes called upon to provide
supplemental capacity during these periods. Self Insurance Claims An increase in the number or severity of accidents, stolen equipment, or other
loss events over those anticipated, or adverse development of existing claims
could have a materially adverse effect on the Companys profitability as the
Company is self-insured for a significant portion of its risks. In addition,
the insurance market is contracting and it is becoming increasingly more
difficult to obtain insurance coverage at reasonable rates. While the Company
currently has insurance coverage, there can be no assurance that the Company
will be able to obtain insurance coverage in the future. 28




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##### Table of Contents



Prior to January 1, 2004, Allied had $1.0 inneraggregate limit for losses from
$1.0 to $2.0 million, and an additional $4.0 million aggregate limit for losses
from $2.0 to $5.0 million. Effective January 1, 2004, Allied retains up to
$1.0 million liability for automotive claims with no aggregate and a $7.0
million aggregate deductible for claims that exceed $1.0 million, but are less
than $5.0 million per occurrence. Restrictions on Cash and Investments The Company uses restricted cash and restricted investments to collateralize
letters of credit required by third-party insurance companies for the
settlement of insurance claims. These assets are not available for the
operations of the Company. Dependence on Major Customers Allied Automotive Groups business is highly dependent upon General Motors,
Ford, DaimlerChrysler, Toyota and Honda, its largest customers. The Company
operates under written contracts with General Motors, Ford (managed
by UPS Autogistics, Inc.), DaimlerChrysler, Toyota and Honda. The contract with General
Motors expires in March 2006, the Ford Motor Company, contract expires in
September 2005 for ramp locations and in December 2005 for plant locations, the
contract with DaimlerChrysler expires in January 2005, the contract with Toyota
expires in November 2004, and the contract with Honda expires in March 2005.
The contracts with Ford, DaimlerChrysler and Toyota can be
terminated by location for any reason or no reason based on 60 to 150 days
notice. The contract with General Motors can be terminated by location for
failure to comply with service and quality standards set forth in the contract.
The Company has 30 days to cure any such noncompliance by location and General
Motors may terminate by location on 60 days notice following a failure to cure. Although Allied Automotive Group believes that its relationships with these
customers is mutually satisfactory, there can be no assurance that these
relationships will not be terminated in whole or in part in the future.
Furthermore, automotive manufacturers are relying increasingly on fourth party
logistics companies and re-engineering vehicle delivery practices, which could
result in a reduction of services provided by the Company for some or all of
its major customers. A significant reduction in the production levels, plant
closings, or the imposition of vendor price reductions by these manufacturers,
or the loss of General Motors, Ford, DaimlerChrysler, Toyota or
Honda as a customer, or a significant reduction in the services provided for
any of these customers by Allied Automotive Group would have a material adverse
effect upon the Company. General Motors, DaimlerChrysler, and Ford, in
particular, have publicly announced plans to significantly reduce vendor costs
including those costs associated with logistics services. The contract with
General Motors that was effective March 2004, includes reductions in the
Companys rates for transportation services. GM has agreed to award certain new business to Allied and has further agreed to
include Allied in any fuel surcharge program implemented by GM for any outbound
vehicle transportation providers during the term of the new Agreement.
However, there can be no assurance that GM will fulfill its commitments under
the contract or that GM will award new business to Allied under terms and
conditions acceptable to the company. Further, there can be no assurance that
GM will grant fuel surcharge to Allied or the carhaul industry. Foreign Currency Exchange Rates Although the majority of the Companys operations are in the United States, the
Company does have foreign subsidiaries (primarily in Canada). The net
investment in foreign subsidiaries translated into dollars using month-end
exchange rates at March 31, 2004 was $86.0 million. The potential impact on
other comprehensive income resulting from a hypothetical 10% change in quoted
foreign currency exchange rates amounts to $8.6 million. At March 31, 2004 a
payable balance of $27.4 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 29




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##### Table of Contents



exchange rates related to this balance amounts to $2.7 million as of March 31,
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 and purchase and service contract commitments that are not
required to be recorded in the Companys consolidated balance sheet. The
Company has no material changes to this disclosure as made in its Annual Report
on Form 10-K for the year ended December 31, 2003. Dependence on Key Personnel The success of the Company is dependent upon its senior management team, as
well as its ability to attract and retain qualified personnel. The Companys
Credit Facility provides that the facility may be terminated in the event Hugh
E. Sawyer ceases to be involved in the day-to-day operation of the Company,
unless a successor reasonably acceptable to the lenders is appointed within 90
days of his cessation of involvement with the Company. The Company recently
announced that David A. Rawden was appointed Executive Vice President and Chief
Financial Officer, replacing Daniel H. Popky. Mr. Popky served as Chief
Financial Officer since November 1998. 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. 30




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The Companys critical accounting policies include the following: CLAIMS AND INSURANCE RESERVES  Reserves for self-insured workers
compensation, automobile, and general liability losses are subject to
managements evaluation of the nature and severity of claims,
litigation risks, and actuarial estimates based on historical claims experience
adjusted for current industry trends. The Company utilizes a third-party claims
processor and receives third-party actuarial valuations to assist in the
determination of its claims and insurance reserves. The actuarial estimates for
self-insured workers compensation and automobile liability are discounted using
managements estimate of weighted risk free interest rates for each claim year
to their present values. The claims and insurance reserves are adjusted
periodically as such claims mature to reflect changes in estimates made by its
third party claims processors actuarial estimates based on actual experience.
If management uses different assumptions or if different conditions occur in
the future periods, future operating results or liquidity could be materially
impacted. ACCOUNTS RECEIVABLE VALUATION RESERVES  Substantially all of the
Companys revenues are derived from transporting new automobiles, SUVs, and
light trucks from manufacturing plants, ports, auctions, and railway
distribution points to automobile dealerships. Revenue is recorded when the
vehicles are delivered to the dealerships. The Company makes significant
estimates to determine the collectibility of its accounts receivable on the
balance sheet. Estimates include assessments of the potential for customer
billing adjustments based on the timing of delivery, the accuracy of pricing,
as well as evaluation of the historical aging of customer accounts. In
addition, estimates include periodic evaluations of the credit worthiness of
customers including the impact of market and economic conditions on their
viability to satisfy amounts owed to the Company. If significant billing
adjustments or the financial condition of a major customer was to deteriorate,
additional allowances may be required. ACCOUNTING FOR INCOME TAXES  As part of the process of preparing the
Companys consolidated financial statements the Company is required to
determine income taxes in each of the jurisdictions in which the Company
operates. This process involves estimating actual current tax exposure,
together with assessing temporary differences resulting from differing
treatment of items, such as depreciation expense, for tax and accounting
purposes. These differences result in deferred tax assets and liabilities,
which are included within the Companys consolidated balance sheet. The Company
must then assess the likelihood that the deferred tax assets will be recovered
from future taxable income and to the extent the Company believes that recovery
is not more likely than not, the Company must establish a valuation
allowance. To the extent the Company establishes a valuation allowance or
increases this allowance in a period, the Company must include an expense
within the tax provision in the statements of operations. Significant management judgment is required in determining the Companys
provision for income taxes, deferred tax assets and liabilities and any
valuation allowance recorded against the deferred tax assets. The valuation
allowance is based on managements estimate of taxable income by jurisdiction
in which the Company operates and the period over which the deferred tax assets
will be recoverable. At December 31, 2003, the Company has recorded a valuation
allowance against its net deferred tax assets due to net losses in 2003 and
prior years, based on managements conclusion that it is not more likely than
not that the deferred tax assets will be recovered. Tax assessments may arise several years after tax returns have been filed.
Predicting the outcome of such tax assessments involves uncertainty; however,
the Company believes that recorded tax liabilities adequately account for its
analysis of probable outcomes. PROPERTY AND EQUIPMENT  The Company operates approximately 3,700
company-owned Rigs, revenue equipment, in connection with its business.
Property and equipment, including revenue equipment, are stated at cost and
depreciated using the straight-line method over the estimated useful life down
to estimated salvage value. The Company also evaluates the carrying value of
long-lived assets for impairment by analyzing the 31




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operating performance and future cash flows for those assets, whenever
events or changes in circumstances indicate that the carrying amounts of such
assets may not be recoverable, including the need to adjust the carrying value
of the underlying assets if the sum of the expected cash flows is less than the
carrying value. Impairment can be impacted by our projection of future cash
flows, the level of actual cash flows and salvage values, the methods of
estimation used for determining fair values and the impact of guaranteed
residuals. Any changes in managements judgments could result in greater or lesser annual depreciation expense or
additional impairment charges in the future. GOODWILL  The Company adopted SFAS 142 as of January 1, 2002. Pursuant to
adoption, goodwill is no longer amortized but is evaluated annually for
impairment, or on an interim basis if an event occurs or circumstances change
that would indicate there may be a reduction of the fair value of goodwill
below its carrying value. The fair value of goodwill is derived by using a
discounted cash flow analysis. This analysis involves estimates and assumptions
by management regarding future revenue streams and expenses. Changes to these
assumptions and estimates could have a material effect on the carrying value of
goodwill and result in an impairment charge in the Companys consolidated
statements of operations. CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report
on Form 10-Q contains, and from time to time the Company and its officers,
directors, or employees may make other forward-looking statements, including
statements regarding, among other items, (i) the Companys strategy, intentions
or expectations, (ii) general industry trends, competitive conditions and
customer preferences, (iii) the Companys management information systems, (iv)
the Companys remanufacturing program and anticipated capital expenditures, (v)
the Companys efforts to reduce costs, (vi) the adequacy of the Companys
sources of cash to finance its current and future operations and (vii)
resolution of litigation without material adverse effect on the Company. This
notice is intended to take advantage of the safe harbor provided by the
Private Securities Litigation Reform Act of 1995 with respect to such
forward-looking statements. Without limiting the generality of the foregoing,
the words believe, anticipate, seek, expect, estimate, intend,
plan, and similar expressions are intended to identify such forward-looking
statements. These forward-looking statements involve a number of risks and
uncertainties. 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 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;
and other risk factors set forth from time to time in the Companys Securities
and Exchange Commission reports, including but not limited to, this Quarterly
Report on Form 10-Q and the Companys Annual Report on Form 10-K for the year
ended December 31, 2003. Many of these factors are beyond the Companys ability
to control or predict, and readers are cautioned not to put undue reliance on
such forward-looking statements. The Company disclaims any obligation to update
or review any forward-looking statements contained in this Quarterly Report or
in any statement referencing the risk factors and other cautionary statements
set forth in this Quarterly Report. 32




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Item 3. Quantitative and Qualitative Disclosures About Market Risk The information required under this item is provided under the caption
Quantitative and Qualitative Disclosures about Market Risks under Item 2.
Managements Discussion and Analysis of Financial Condition and Results of
Operations. 
 Item 4. Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures.As of the end of
the period covered by this quarterly report, the Company, under the
supervision and with the participation of the Companys management,
including the Chief Executive Officer and the Chief Financial Officer, has
evaluated the effectiveness of the Companys disclosure controls and
procedures (as defined in Sections 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934). Based upon the evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Companys
disclosure controls and procedures are effective in alerting them in a
timely manner to material information required to be included in the
Companys periodic Securities and Exchange Commission filings. (b) Changes in Internal Control Over Financial Reporting. In connection
with the completion of its audit of, and the issuance of an unqualified
report on, the Companys consolidated financial statements for the year
ended December 31, 2003, KPMG LLP advised the Audit Committee and
management of certain deficiencies in the Companys internal control over
financial reporting that KPMG considered to be a reportable condition
under the standards established by the American Institute of Certified
Public Accountants. The reportable condition related to the analysis,
evaluation and review of financial information included in the Companys
financial reporting. As a result, certain financial information and
disclosures were not presented appropriately and required restatement.
Certain of these matters relate to the Companys classification of (1)
cash and cash equivalents and short-term investments, (2) its revolving
credit facility, (3) certain other items related to its pension assets and
obligations, and (4) deferred income taxes. KPMG and management discussed the reportable condition with the Audit
Committee. The Company has 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 has 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. For additional information regarding the
reclassifications made during 2003 to the Companys consolidated balance
sheet of December 31, 2002 and consolidated cash flow statements for years
ended December 31, 2002 and 2001, see Note (3) in the Notes to
Consolidated Financial Statements 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, 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 quarterly filings, the Company had shown such
items as cash flows from operating activities, including in the
Companys earnings release for the quarter ended March 31,
2004 issued on May 4, 2004. The statements of cash flows for the
quarters ended March 31, 2004 and 2003 reflect this adjustment.
This reclassification does not require a restatement of the
Companys consolidated statements of cash flow included in the
Annual Report on Form 10-K for the year ended December 31,
2003. Management believes that these reclassifications and restatements address
the financial reporting matters raised by KPMG. The Company plans to
continue to monitor the effectiveness of its internal control over
financial reporting on an ongoing basis and will take further action, as
appropriate to address its financial reporting
process. Other than
the items identified above, there
were no other changes in the Companys internal control over financial
reporting that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial
reporting. 33




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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 6. Exhibits and Reports on Form 8-K:  (a)
    
    Exhibit Index Exhibit No.
    
    Description10.8 (b)
    
    Second Amendment to Employment Agreement between Allied
Holdings, Inc. and Hugh E. Sawyer10.10 (b)
    
    Second Amendment to Employment Agreement between Allied
Holdings, Inc. and Thomas Duffy10.12 (a)
    
    Second Amendment to Employment Agreement between Allied
Holdings, Inc. and David Rawden31.1
    
    Rule 13a-14(a)/15d-14(a) Certification by Hugh E. Sawyer.31.2
    
    Rule 13a-14(a)/15d-14(a) Certification by David A. Rawden.32.1
    
    Section 1350 Certification by Hugh E. Sawyer.32.2
    
    Section 1350 Certification by David A. Rawden.
  (b)
    
    Reports on Form 8-KOn February 17, 2004, Allied Holdings, Inc. filed with the Commission a
Current Report on Form 8-K pursuant to items 7 and 12, attaching a press
release issued February 17, 2004 relating to its financial results for the
fourth quarter ending December 31, 2003.On March 31, 2004, Allied Holdings, Inc. filed with the Commission a
Current Report on Form 8-K pursuant to items 5 and 7, attaching a press
release issued by it on March 30, 2004 relating to its restatement of its
balance sheet as of December 31, 2002 and the related statements of cash
flow for the years ended December 31, 2001 and 2002. 34




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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: May 17, 2004
    
    By:
    
    /s/ HUGH E. SAWYERHugh E. Sawyer,President and Chief Executive
OfficerDate: May 17, 2004By:
    
    /s/ DAVID A. RAWDENDavid A. Rawden,Executive Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer)
 35




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EXHIBIT INDEX Exhibit No.
    
    Description10.8 (b)
    
    Second Amendment to Employment Agreement between Allied
Holdings, Inc. and Hugh E. Sawyer10.10 (b)
    
    Second Amendment to Employment Agreement between Allied
Holdings, Inc. and Thomas Duffy10.12 (a)
    
    Second Amendment to Employment Agreement between Allied
Holdings, Inc. and David Rawden31.1
    
    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.
 36