##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005oro
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the transition period from
 Commission File Number: 0-22276 ALLIED HOLDINGS, INC. (Exact name of registrant as specified in its charter)
 GEORGIA
    
    58-0360550(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification
Number)
 Suite 200, 160 Clairemont Avenue, Decatur, Georgia 30030  (Address of principal executive offices)
 (404) 373-4285  (Registrants telephone number, including area code)
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ Yes o No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act of 1934). o Yes þ No Outstanding common stock, no par value at May 9, 2005..................... 8,980,329




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES TABLE OF CONTENTS PAGEPART I - FINANCIAL INFORMATIONITEM 1 - Financial StatementsConsolidated Balance Sheets -March 31, 2005 (unaudited) and December 31, 2004
    
    
    1Consolidated Statements of Operations -Three Months Ended March 31, 2005 and 2004 (unaudited)
    
    
    2Consolidated Statements of Cash Flows -Three Months Ended March 31, 2005 and 2004 (unaudited)
    
    
    3Notes to the Consolidated Financial Statements
    
    
    4ITEM 2 - Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    23ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk
    
    
    32ITEM 4 - Controls and Procedures
    
    
    32PART II - OTHER INFORMATIONITEM 1 - Legal Proceedings
    
    
    33ITEM 6 - Exhibits
    
    
    34Signature Page
    
    
    35EX-31.1 SECTION 302, CERTIFICATION OF THE CEOEX-31.2 SECTION 302, CERTIFICATION OF THE CFOEX-32.1 SECTION 906, CERTIFICATION OF THE CEOEX-32.2 SECTION 906, CERTIFICATION OF THE CFO




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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 31,2005
    
    
    2004(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    3,922
    
    
    $
    2,516Restricted cash and cash equivalents
    
    
    30,799
    
    
    
    27,378Receivables, net of allowances of $2,338 and $2,156
as of March 31, 2005
and December 31, 2004, respectively
    
    
    56,255
    
    
    
    57,309Inventories
    
    
    4,797
    
    
    
    4,649Deferred income taxes
    
    
    4,775
    
    
    
    4,632Prepayments and other current assets
    
    
    24,175
    
    
    
    12,414Total current assets
    
    
    124,723
    
    
    
    108,898Property and equipment, net of accumulated depreciation
    
    
    131,697
    
    
    
    135,635Goodwill, net
    
    
    83,680
    
    
    
    83,977Other assets:Restricted cash and cash equivalents
    
    
    62,434
    
    
    
    55,502Other noncurrent assets
    
    
    36,515
    
    
    
    37,520Total other assets
    
    
    98,949
    
    
    
    93,022Total assets
    
    $
    439,049
    
    
    $
    421,532LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Current maturities of long-term debt
    
    $
    13,500
    
    
    $
    13,500Borrowings under revolving credit facilities
    
    
    16,815
    
    
    
    2,972Accounts and notes payable
    
    
    38,778
    
    
    
    34,690Accrued liabilities
    
    
    99,254
    
    
    
    85,463Total current liabilities
    
    
    168,347
    
    
    
    136,625Long-term debt, less current maturities
    
    
    230,601
    
    
    
    234,766Postretirement benefits other than pensions
    
    
    4,868
    
    
    
    5,082Deferred income taxes
    
    
    16,214
    
    
    
    16,164Other long-term liabilities
    
    
    70,888
    
    
    
    70,444Commitments and contingencies
    
    
    
    
    
    
    Stockholders deficit:Preferred stock, no par value. Authorized 5,000
shares; none outstanding
    
    
    
    
    
    
    Common stock, no par value. Authorized 20,000 shares;
8,940 and 8,919 outstanding at March 31, 2005 and December 31,
2004, respectively
    
    
    
    
    
    
    Additional paid-in capital
    
    
    48,464
    
    
    
    48,421Treasury stock, 139 shares at cost
    
    
    (707
    )
    
    
    (707
    )Accumulated deficit
    
    
    (98,965
    )
    
    
    (88,907
    )Accumulated other comprehensive loss, net of tax
    
    
    (661
    )
    
    
    (356
    )Total stockholders deficit
    
    
    (51,869
    )
    
    
    (41,549
    )Total liabilities and stockholders deficit
    
    $
    439,049
    
    
    $
    421,532
 See accompanying notes to consolidated financial statements. 1




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
 (Unaudited)
 Three Months Ended March 31,2005
    
    
    2004Revenues
    
    $
    220,950
    
    
    $
    212,244Operating expenses:Salaries, wages, and fringe benefits
    
    
    121,228
    
    
    
    119,947Operating supplies and expenses
    
    
    41,509
    
    
    
    37,046Purchased transportation
    
    
    28,861
    
    
    
    25,906Insurance and claims
    
    
    8,883
    
    
    
    9,163Operating taxes and licenses
    
    
    7,774
    
    
    
    6,559Depreciation and amortization
    
    
    8,192
    
    
    
    10,386Rents
    
    
    1,849
    
    
    
    1,716Communications and utilities
    
    
    1,911
    
    
    
    1,954Other operating expenses
    
    
    2,580
    
    
    
    2,186Loss (gain) on disposal of operating assets, net
    
    
    44
    
    
    
    (1,137
    )Total operating expenses
    
    
    222,831
    
    
    
    213,726Operating loss
    
    
    (1,881
    )
    
    
    (1,482
    )Other income (expense):Interest expense
    
    
    (8,212
    )
    
    
    (7,368
    )Investment income
    
    
    438
    
    
    
    57Foreign exchange loss, net
    
    
    (199
    )
    
    
    (155
    )Other, net
    
    
    
    
    
    
    (100
    )(7,973
    )
    
    
    (7,566
    )Loss before income taxes
    
    
    (9,854
    )
    
    
    (9,048
    )Income tax expense
    
    
    (204
    )
    
    
    Net loss
    
    $
    (10,058
    )
    
    $
    (9,048
    )Basic and diluted loss per common share:Net loss:Basic and diluted
    
    $
    (1.13
    )
    
    $
    (1.03
    )Weighted average common shares outstanding:Basic and diluted
    
    
    8,940
    
    
    
    8,789
 See accompanying notes to consolidated financial statements. 2




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
 (Unaudited)
 Three Months Ended March 31,2005
    
    
    2004Cash flows from operating activities:Net loss
    
    $
    (10,058
    )
    
    $
    (9,048
    )Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Amortization of deferred financing costs
    
    
    747
    
    
    
    704Depreciation and amortization
    
    
    8,192
    
    
    
    10,386Loss (gain) on disposal of assets and other, net
    
    
    44
    
    
    
    (1,137
    )Foreign exchange loss, net
    
    
    199
    
    
    
    155Deferred income taxes
    
    
    (104
    )
    
    
    Compensation expense related to stock options and grants
    
    
    
    
    
    
    195Change in operating assets and liabilities:Receivables, net of allowance for doubtful accounts
    
    
    959
    
    
    
    (4,422
    )Inventories
    
    
    (159
    )
    
    
    (74
    )Prepayments and other assets
    
    
    (5,895
    )
    
    
    (8,106
    )Accounts and notes payable
    
    
    (1,298
    )
    
    
    (7,481
    )Accrued liabilities
    
    
    14,124
    
    
    
    7,646Net cash provided by (used in) operating activities
    
    
    6,751
    
    
    
    (11,182
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (4,825
    )
    
    
    (4,847
    )Proceeds from sales of property and equipment
    
    
    252
    
    
    
    1,826Increase in restricted cash and cash equivalents
    
    
    (10,353
    )
    
    
    (8,234
    )Funds deposited with insurance carriers
    
    
    (7,357
    )
    
    
    (32,024
    )Funds returned from insurance carriers
    
    
    1,609
    
    
    
    27,516Net cash used in investing activities
    
    
    (20,674
    )
    
    
    (15,763
    )Cash flows from financing activities:Additions to revolving credit facilities, net
    
    
    13,843
    
    
    
    16,870Repayment of long-term debt
    
    
    (4,165
    )
    
    
    (5,167
    )Proceeds from insurance financing arrangements
    
    
    8,031
    
    
    
    28,141Repayments of insurance financing arrangements
    
    
    (2,601
    )
    
    
    (7,041
    )Proceeds from issuance of common stock
    
    
    43
    
    
    
    303Net cash provided by financing activities
    
    
    15,151
    
    
    
    33,106Effect of exchange rate changes on cash and cash equivalents
    
    
    178
    
    
    
    132Net change in cash and cash equivalents
    
    
    1,406
    
    
    
    6,293Cash and cash equivalents at beginning of period
    
    
    2,516
    
    
    
    2,148Cash and cash equivalents at end of period
    
    $
    3,922
    
    
    $
    8,441Supplemental cash flow information:Cash paid during the period for:Interest
    
    $
    4,401
    
    
    $
    3,712Income taxes, net of refunds
    
    $
    80
    
    
    $
    134
 See accompanying notes to consolidated financial statements. 3




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Throughout this Quarterly Report on Form 10-Q, we will use the terms we, our, us and
Allied to refer to Allied Holdings, Inc. and its subsidiaries). (1) Basis of Presentation The accompanying unaudited consolidated financial statements included herein have been prepared in
accordance with accounting principles generally accepted in the United States for interim financial
statements and are based on the instructions to Form 10-Q and Regulation S-X. They do not include
all of the information and notes required by generally accepted accounting principles (GAAP) for
complete financial statements. However, except as disclosed in this report, there have been no
material changes in the information that we disclosed in the notes to the consolidated financial
statements included in our Annual Report on Form 10-K for the year ended December 31, 2004. The
accompanying unaudited consolidated financial statements reflect all adjustments (including normal
recurring accruals), which are, in managements opinion, necessary to present fairly the financial
condition, results of operations and cash flows for the periods presented. Our revenues are seasonal, with the second and fourth quarters generally experiencing higher
revenues than the first and third quarters. The volume of vehicles shipped during the second and
fourth quarters is generally higher due to the introduction of new models which are shipped to
dealers during those periods as well as to the higher spring and early summer sales of automobiles,
light trucks and SUVs. As a result of these and other factors, our operating results for the
three months ended March 31, 2005 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2005. These interim financial statements should be read in conjunction with the financial statements and
related notes included in our Annual Report on Form 10-K for the year ended December 31, 2004. (2) Use of Estimates The preparation of the consolidated financial statements in accordance with GAAP requires that
management 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 estimates and assumptions include the carrying amounts of property and
equipment and goodwill; valuation allowances for receivables and deferred income tax assets;
self-insurance reserves, and assets and obligations related to employee benefits. Actual results
could differ from those estimates. (3) Recent Accounting Pronouncements In March 2005, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 47
(FIN 47), Accounting for Conditional Asset Retirement Obligationswhich clarifies that the term
conditional asset retirement obligation as used in Statement of Financial Accounting Standards
(SFAS) No. 143, Accounting for Asset Retirement Obligations,refers to a legal obligation to
perform an asset retirement activity in which the timing and (or) method of settlement are
conditional on a future event that may or may not be within the control of the entity. The
obligation to perform the asset retirement activity is unconditional even though uncertainty exists
about the timing and (or) method of settlement. Accordingly, an entity is required to recognize a
liability for the fair value of a conditional asset retirement obligation if the fair value of the
liability can be reasonably estimated. Uncertainty about the timing and (or) method of settlement
of a conditional asset retirement obligation should be factored into the measurement of the
liability when sufficient information exists. FIN 47 also clarifies when an entity would have
sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN
47 is effective no later than the end of fiscal years ending after December 15, 2005, with early
adoption encouraged. Retrospective application of interim financial information is permitted but is
not required. We are currently assessing the impact FIN 47 may have on our financial statements. In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment(SFAS No. 123R),
which replaces SFAS No. 123, Accounting for Stock-Based
Compensation,supersedes Accounting Principles Board
(APB) Opinion No.
25, Accounting 4




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) for Stock Issued to Employeesand amends SFAS No. 95, Statement of Cash Flows.SFAS No.
123R requires all share-based payments to employees, including grants of employee stock options, to
be recognized in the financial statements based on their fair values. The pro forma disclosures
previously permitted under SFAS No. 123 no longer will be an alternative to financial statement
recognition. SFAS No. 123R also requires the benefits of tax deductions in excess of recognized
compensation expense to be reported as a financing cash flow, rather than as an operating cash flow
as required under current literature. In March 2005, the Securities and Exchange Commission
(SEC) issued Staff Accounting Bulletin No.107, which provides interpretive guidance regarding the
interaction of SFAS No. 123R and certain SEC rules and regulations related to share-based payment
transactions with nonemployees, valuation methods, classification of compensation expense, non-GAAP
measures, accounting for income tax effects, modification of employee share options prior to
adoption and disclosures in Managements Discussion and Analysis. SFAS No. 123R was to be adopted
no later than the first interim or annual period after June 15, 2005, with early adoption
encouraged. In April 2005, the SEC issued a rule that allows companies to implement SFAS No. 123R
as of the beginning of the fiscal year beginning after June 15, 2005. We plan to adopt SFAS No.
123R effective January 1, 2006. Under SFAS No. 123R, we must determine the appropriate fair value model to be used for valuing
share-based payments, the method to be used for amortizing the resulting compensation cost and the
transition method to be used at the date of adoption. The transition methods include the modified
prospective and the modified retrospective adoption methods. The modified prospective method requires
that compensation expense be recognized beginning with the effective date based on the requirements
of SFAS 123R for all awards granted to employees after the effective date of SFAS 123R and based on
the requirements of SFAS 123 for all awards granted to employees prior to the effective date of
SFAS No. 123R that remain unvested on the effective date. The modified retrospective method includes
the requirements of the modified prospective methods described above, but also permits companies to
restate prior periods based on the amounts previously reported under SFAS No. 123 for purposes of
pro forma disclosures. We are currently evaluating the requirements of SFAS No. 123R and expect
that the adoption of this standard will result in reported operating results that are similar to
our current pro forma disclosures under SFAS No. 123. In addition, the adoption would reduce net
operating cash flows and increase net financing cash flows in periods after adoption to the extent
that benefits of tax deductions exceed previously recognized compensation cost. These amounts have
not been significant to our prior financial statement disclosures. In May 2004, the FASB issued FASB Staff Position (FSP) No. FAS 109-2, Accounting and Disclosure
Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of
2004, which provides guidance under SFAS No. 109, Accounting for Income Taxes,with respect to
recording the potential impact of the repatriation provisions of the American Jobs Creation Act of
2004 (the Jobs Act) on enterprises income tax expense and deferred tax liability. The Jobs Act was
enacted on October 22, 2004. FSP 109-2 allows an enterprise time beyond the financial reporting
period of enactment to evaluate the effect of the Jobs Act on its plan for reinvestment or
repatriation of foreign earnings for purposes of applying SFAS No. 109. We expect to complete our
evaluation of the impact of the repatriation provisions by the second quarter of 2005. Accordingly,
as provided for in FSP 109-2, we have not adjusted our tax expense or deferred tax liability to
reflect the repatriation provisions of the Jobs Act. However, we do not expect the impact on our
financial statements to be significant. (4) Reclassifications We have reclassified certain items in the statement of cash
flows for the period ended March 31,
2004 to conform to the current period presentation. These items are related to the financing of
certain insurance costs. During 2004, we determined that the borrowings and repayments in
connection with our insurance financing arrangements should be reclassified from operating
activities to financing activities in our consolidated statement of cash flows. Additionally, we
concluded that funds deposited with and returned from our insurance carriers related to our
insurance financing arrangements should be disclosed as cash flows from investing activities rather
than cash flows from operating activities. A summary
of the effects of these reclassifications on our consolidated statement of cash flows for the three
months ended March 31, 2004 is presented below (in thousands): 5




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) Three Months EndedMarch 31, 2004As Previously
    
    
    AsReported
    
    
    ReclassifiedChange in operating assets and liabilities:Receivables, net of allowance for doubtful accounts
    
    $
    (8,541
    )
    
    $
    (4,422
    )Prepayments and other assets
    
    
    (7,117
    )
    
    
    (8,106
    )Accounts and notes payable
    
    
    (8,680
    )
    
    
    (7,481
    )Accrued liabilities
    
    
    7,637
    
    
    
    7,646Net cash used in operating activities
    
    
    (15,520
    )
    
    
    (11,182
    )Cash flows from investing activities:Funds deposited with insurance carriers
    
    
    
    
    
    
    (32,024
    )Funds returned from insurance carriers
    
    
    
    
    
    
    27,516Net cash used in investing activities
    
    
    (11,255
    )
    
    
    (15,763
    )Cash flows from financing activities:Proceeds from insurance financing arrangements
    
    
    26,124
    
    
    
    28,141Repayments of insurance financing arrangements
    
    
    (5,194
    )
    
    
    (7,041
    )Net cash provided by financing activities
    
    
    32,936
    
    
    
    33,106
 (5) Prepayments and Other Current Assets Prepayments and other current assets
as of March 31, 2005 and December 31, 2004 are presented
below (in
thousands): March 31,
    
    
    December 31,2005
    
    
    2004Tires on tractors and trailers
    
    $
    2,334
    
    
    $
    2,231Prepaid insurance
    
    
    12,848
    
    
    
    4,058Prepaid licenses
    
    
    5,058
    
    
    
    1,570Other
    
    
    3,935
    
    
    
    4,555$
    24,175
    
    
    $
    12,414
 (6) Property and Equipment Property and equipment and the related accumulated depreciation and amortization are presented
below as of March 31, 2005 and December 31, 2004 (in thousands): March 31,
    
    
    December 31,2005
    
    
    2004Cost
    
    $
    540,900
    
    
    $
    555,713Accumulated depreciation and
amortization
    
    
    (409,203
    )
    
    
    (420,078
    )$
    131,697
    
    
    $
    135,635
 (7) Goodwill In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, we review our goodwill
annually for impairment or on an interim basis if an event occurs or circumstances change that
would potentially reduce the fair
value of our goodwill below its carrying value. Our reporting units are the Allied Automotive Group
and the Axis Group. In the table below, we provide a summary of the change in the carrying value of
our goodwill, by reporting unit, for the three months ended March 31, 2005 (in thousands): 6




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) AlliedAutomotive
    
    
    AxisGroup
    
    
    Group
    
    
    TotalBalance as of December 31, 2004
    
    $
    80,041
    
    
    $
    3,936
    
    
    $
    83,977Decrease in carrying amount due to changes in currency rates
    
    
    (295
    )
    
    
    (2
    )
    
    
    (297
    )Balance as of March 31, 2005
    
    $
    79,746
    
    
    $
    3,934
    
    
    $
    83,680
 (8) Other Noncurrent Assets Other noncurrent assets
as of March 31, 2005 and December 31, 2004 were as follows (in thousands): March 31,
    
    
    December 31,2005
    
    
    2004Cash surrender value of life insurance
    
    $
    6,227
    
    
    $
    6,227Deferred financing costs
    
    
    6,649
    
    
    
    7,396Prepaid pension cost
    
    
    18,057
    
    
    
    18,114Deposits and other
    
    
    5,582
    
    
    
    5,783$
    36,515
    
    
    $
    37,520
 The deferred financing costs and the related accumulated amortization are presented below as of
March 31, 2005 and December 31, 2004 (in thousands): March 31,
    
    
    December 31,2005
    
    
    2004Cost
    
    $
    15,235
    
    
    $
    15,235Accumulated amortization
    
    
    (8,586
    )
    
    
    (7,839
    )$
    6,649
    
    
    $
    7,396
 The amortization of deferred financing costs is included in interest expense and was $747,000 and
$704,000 for the three months ended March 31, 2005 and 2004, respectively. (9) Accounts and Notes Payable and Accrued Liabilities Included in accounts and notes payable in the consolidated balance sheets are notes payable with
third parties for insurance financing arrangements of $7.3 million and $1.8 million as of March 31,
2005 and December 31, 2004, respectively. These amounts are due in monthly installments, generally
over a period of one year. Accrued liabilities as of March 31, 2005 and December 31, 2004 were as follows (in thousands): March 31,
    
    
    December 31,2005
    
    
    2004Wages and benefits
    
    $
    39,289
    
    
    $
    31,059Claims and insurance reserves
    
    
    35,870
    
    
    
    36,764Accrued interest
    
    
    7,819
    
    
    
    4,756Accrued taxes
    
    
    7,828
    
    
    
    5,320Purchased transportation
    
    
    3,824
    
    
    
    1,942Other
    
    
    4,624
    
    
    
    5,622$
    99,254
    
    
    $
    85,463
 7




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) During the first quarter of
2005, we recorded $1.4 million of revenue ($0.16 per share) as a
result of the final resolution of fees previously paid by a customer that had been deferred and were
included in accrued liabilities. 10) Claims and Insurance Reserves We retain losses within certain limits through high deductibles or self-insured retentions. For
certain risks, coverage for losses is provided by unrelated primary and reinsurance companies.
Haul Insurance Limited, one of our subsidiaries, provides reinsurance coverage to certain of our
licensed insurance carriers for certain types of losses within our insurance program, primarily
insured workers compensation, automobile and general liability risks. We currently utilize an inner-aggregate, which is a deductible subject to an annual limit, in
certain insurance programs. We use the inner-aggregate only for our initial layer of excess
insurance whereby losses in the excess layer that are within the inner-aggregate amount are
retained by us up to an amount equal to the inner-aggregates annual limit. Once the annual limit
is met, the deductible is no longer in effect. We retain liability for automobile liability claims of $1 million or less in the U.S. with no
aggregate limit and have a $7 million inner-aggregate deductible for claims that exceed $1 million
but are less than $5 million per occurrence. Claims in excess of $5 million are covered by excess
insurance. In Canada, we retain liability up to CDN $500,000 for each claim for personal injury
and property damage, and a CDN $500,000 inner-aggregate limit for losses from CDN $500,000 to CDN
$1 million. Additionally, we retain liability of up to $250,000 for each cargo damage claim in the
U.S. and up to CDN $250,000 for each cargo damage claim in Canada. These retentions and
deductibles were effective January 1, 2004 and remain in effect for the insurance year ending
December 31, 2005. Claims and insurance reserves reflect the estimated cost of claims for workers compensation, cargo
loss and damage, automobile and general liability, and products liability losses that are not
covered by insurance. Amounts that we estimate will be paid within the next year have been
classified as current in accrued liabilities in the consolidated balance sheet while the noncurrent
portion is included in other long-term liabilities. Costs related to these reserves are included in
the statement of operations in insurance and claims expense, except for workers compensation,
which is included in salaries, wages, and fringe benefits. We utilize a third-party claims processor, who works under our direction, and third-party actuarial
valuations to assist in the determination of the majority of our claims and insurance reserves. The
third-party claims administrator sets claims reserves on a case-by-case basis. The third-party
actuary utilizes the aggregate data from these reserves, along with historical paid and incurred
amounts, to determine, by loss year, the projected ultimate cost of all claims reported and not yet
reported, including potential adverse developments. Our product liability claims reserves are set
on a case-by-case basis by our claims administrators in conjunction with legal counsel handling the
claims, and include an estimate for claims incurred but not yet reported. We track cargo claims and
record reserve amounts on a case-by-case basis. The reserve for cargo claims includes an estimate
for incurred but not yet reported claims. These claims and insurance reserves are adjusted
periodically, as claims develop, to reflect changes in actuarial estimates based on actual
experience. Workers compensation losses in Canada are covered by government insurance programs to which we
make premium payments. In one province, we are also subject to retrospective premium adjustments
based on actual claims losses compared to expected losses. Our reserves include an estimate of
retrospective adjustments based on the most recently available actual claims data provided by the
government. Unfavorable claims development related to claims from prior years resulted in a change
in the estimated reserve of $0.5 million, or $0.06 per share, for the three months ended March 31,
2005. Prior to the fourth quarter of 2004, our estimates of workers compensation, automobile and general
liability and product liability losses were discounted to their present values using our estimate
of weighted-average risk-free interest rates for each claim year. The discount rate for the first
quarter of 2004 was 3.0%. During the fourth quarter 8




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) of 2004, we determined that the continuing adverse development of aged claims was such that we
could no longer reliably determine our self-insurance reserves on a discounted basis. Included below is a summary of our insurance and claims reserves as of March 31, 2005 and December
31, 2004 (in thousands): March 31,
    
    
    December 31,2005
    
    
    2004Accrued
liabilities - current
    
    $
    35,870
    
    
    $
    36,764Other
long-term liabilities - noncurrent
    
    
    68,474
    
    
    
    67,621$
    104,344
    
    
    $
    104,385
 We believe that adequate provision has been made for all incurred claims including those not
reported. Favorable or unfavorable developments subsequent to the date of our estimates could have
a material impact on the consolidated financial statements. (11) Employee Benefit Plans The following table sets forth the components of our net periodic benefit cost for the pension and
postretirement benefit plans for the three months ended March 31, 2005 and 2004 (in thousands): Defined Benefit
    
    
    Postretirement BenefitPension Plans
    
    
    PlansThree Months Ended March 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Service cost
    
    $
    21
    
    
    $
    22
    
    
    $
    13
    
    
    $
    12Interest cost
    
    
    743
    
    
    
    676
    
    
    
    177
    
    
    
    144Expected return on plan assets
    
    
    (1,062
    )
    
    
    (783
    )
    
    
    
    
    
    
    Amortization of:Unrecognized net actuarial loss
    
    
    482
    
    
    
    355
    
    
    
    161
    
    
    
    Prior service cost
    
    
    12
    
    
    
    12
    
    
    
    (82
    )
    
    
    (16
    )Transition asset
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    Recognized actuarial loss
    
    
    
    
    
    
    54
    
    
    
    
    
    
    
    16Net period benefit cost
    
    $
    196
    
    
    $
    331
    
    
    $
    269
    
    
    $
    156
 For the three months ended March 31, 2005, we made no contribution to our defined benefit pension
plans but contributed approximately $0.3 million to our postretirement plans. In May 2005, we
contributed approximately $0.6 million to the defined benefit pension plans and we do not expect to
make any additional contributions to the defined benefit pension plans during 2005. We expect that
we will contribute an additional $1.0 million to the postretirement benefit plans during the
remainder of 2005. (12) Long-Term Debt and Borrowings Under the Revolving Credit Facility Long-term debt at March 31, 2005 and December 31, 2004 were as follows (in thousands): March 31,
    
    
    December 31,2005
    
    
    2004Term Loan A
    
    $
    74,101
    
    
    $
    78,266Term Loan B
    
    
    20,000
    
    
    
    20,000Senior notes
    
    
    150,000
    
    
    
    150,000244,101
    
    
    
    248,266Less current maturities of long-term debt
    
    
    (13,500
    )
    
    
    (13,500
    )$
    230,601
    
    
    $
    234,766
 9




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) Credit Facilities Our credit facility, as amended in April 2005, (the credit facility and all amendments thereto are
collectively referred to as the Credit Facility), provides us with a $90 million revolving credit
facility (the Revolver), a $100 million term loan (Term Loan A), a $20 million term loan (Term
Loan B) and a $25 million term loan (Term Loan C). Term loan A is payable in quarterly
installments of principal and interest and Term Loans B and C are payable in full at maturity with
monthly payments of interest. Although the Credit Facility, including the Revolver, has a maturity
date of September 4, 2007, we have classified the Revolver as current based on the requirement of
Emerging Issues Task Force (EITF) Issue No. 95-22, Balance Sheet Classification of Borrowings
Outstanding under Revolving Credit Agreements that include both a Subjective Acceleration Clause
and a Lock-Box Arrangement. On April 13, 2005, the Credit Facility was amended to add Term Loan C and to change the financial
covenant related to the required minimum earnings before interest, taxes, depreciation and
amortization, as defined in the Credit Facility, applicable to the twelve month period ended
December 31, 2004 and the respective twelve month periods ending each month thereafter through
April 30, 2005. This amendment also increased the debt incurrence ratio, as set forth in the
Credit Facility, for the months of April and May 2005. Interest rates under the Credit Facility are as follows:  
    The Revolver  prime rate plus 1.5%, or LIBOR plus 4.5%, at managements discretion,
with a minimum interest rate of 6.5%. We also pay commitment fees on the undrawn portion of
the Revolver;
    Term Loan A - a rate which falls between 8.5% and 11.5% based solely on our leverage as
defined in the Credit Facility;
    Term Loans B and C - a rate equal to the greater of (i) the prime rate plus 8.5% or (ii)
13.25%. In the event that our consolidated earnings before interest, taxes, depreciation
and amortization, as defined in the Credit Facility, for the year ending December 31, 2005
exceeds $70 million, Term Loan B will bear interest on the principal amount outstanding on
such date at the interest rate applicable to Term Loan A, effective February 14, 2006; At March 31, 2005, the interest rates on the Revolver, Term Loan A and Term Loan B were 7.25%,
11.5% and 14.25%, respectively. The interest rate on Term Loan C was 14.50% as of May 14, 2005. The amount available under the $90 million Revolver may be reduced based on a calculation of
Revolver collateral and may be limited by a debt incurrence ratio as set forth in the Credit
Facility. As of March 31, 2005, $81.4 million of Revolver collateral was available. As of March 31,
2005, approximately $42.6 million of the Revolver was committed under letters of credit primarily
related to the settlement of insurance claims and $16.3 million in loans was outstanding under the
Revolver. Accordingly, we had approximately $22.5 million available under the Revolver as of March
31, 2005. As of May 14, 2005, we had approximately $21.3 million available under the Revolver.
However, we anticipate that this amount may be further limited by the debt incurrence ratio
included in the covenants of our Credit Facility. The agreement governing the Credit Facility also sets forth a number of affirmative, negative, and
financial covenants binding on our company and contains a subjective acceleration clause which
permits our lenders to accelerate the maturity date of the Credit Facility if an event or
development occurs that could reasonably be
expected to have a material adverse effect on our company, as defined in the agreement. The
negative covenants limit our ability to, among other things, incur debt, incur liens, make
investments, sell assets, or declare or pay any dividends on our capital stock. The financial
covenants also require us to maintain a minimum consolidated earnings before interest, taxes,
depreciation and amortization, as defined in the Credit Facility, and also include a maximum 10




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) leverage ratio. As a result of the amendment in April 2005, we were in compliance with the
covenants set forth in the Credit Facility at March 31, 2005. In addition, we obtained the consent
of our lenders to deliver our financial statements for the three months ended March 31, 2005 on or
before May 23, 2005 and we delivered these financial statements on May 23, 2005. As a result of
this consent, we were in compliance with the requirements of our Credit Facility relating to the
delivery of our financial statements at March 31, 2005. Though we were in compliance with the
various covenants set forth in the Credit Facility, as amended in April 2005, at March 31, 2005, we
can provide no assurance that we will be able to comply with these or other debt covenants or that,
if we fail to do so, we will be able to obtain amendments to or waivers of such covenants. Borrowings under our Credit Facility are secured by a
 first priority security interest on
substantially all of our assets, including a pledge of stock of certain subsidiaries, excluding
restricted cash, cash equivalents and investments. If we were unable to repay any borrowings under
the Credit Facility when due, our lenders would have the right to proceed against the collateral
granted to them to secure the debt. If we fail to comply with the covenants contained in our debt
instruments and those covenants are not waived, or if we do not adequately service our debt
obligations, our lenders could declare a default under the debt instruments. If a default occurs
under any of our debt instruments, our lenders could elect to declare all borrowings outstanding,
together with interest and other fees, to be immediately due and payable. Any default under the
debt instruments, particularly any default that resulted in acceleration of indebtedness or
foreclosure on collateral, would have a material and adverse affect on us. Senior Notes The 8 5/8% senior notes (the Senior Notes), which are registered with the
SEC are payable in quarterly installments of interest only and
mature on October 1, 2007. The Senior Notes are general unsecured obligations of Allied Holdings,
Inc. but are guaranteed by substantially all of our subsidiaries (the Guarantor Subsidiaries).
The guarantees by these subsidiaries are full and unconditional and there are no restrictions on
the ability of the Guarantor Subsidiaries to make distributions to our company. Allied Holdings,
Inc. owns 100% of the Guarantor Subsidiaries. The following companies (the Nonguarantor
Subsidiaries) do not guarantee our obligations under the Senior Notes:  
    Haul Insurance Ltd.;
    Arrendadora de Equipo Para el Transporte de Automoviles, S. de R.L. de C.V.;
    Axis Logistica, S. de R.L. de C.V. The combined balance sheet information, combined statement of operations information and combined
statement of cash flows information for the Guarantor Subsidiaries and the Nonguarantor
Subsidiaries are presented in Note 19. The agreement governing the Senior Notes sets forth a number of negative covenants which are
binding on us. These covenants limit our ability to, among other things, purchase or redeem stock,
make dividend or other distributions, make investments, and incur or repay debt (with the exception
of payment of interest and principal at stated maturity). One such covenant limits our ability to
incur additional indebtedness beyond the indebtedness that existed at the date on which the Senior
Notes were issued. The amendments to our Credit Facility in November
2004 and April 2005 whereby we borrowed an aggregate additional
$45 million have substantially reduced the amount of additional
indebtedness we may incur. Under the indenture agreement governing
our Senior Notes, we may not incur more than $230 million of
indebtedness beyond the $150 million of indebtedness incurred
under our Senior Notes. Our aggregate indebtedness was
$322.7 million as of May 14, 2005 and the amount of
additional indebtedness that we may incur as of May 14, 2005,
under the indenture agreement governing our Senior Notes and beyond
the maximum amount available and outstanding under the Credit
Facility, was $24.3 million. Other Liquidity Matters At March 31, 2005, our current liabilities exceeded our current assets by $43.6 million. However,
we do not believe that we are financially impaired as a result of our negative working capital
since we generate positive cash flows from operations and have availability under our Revolver to
cover seasonal working capital needs. We obtained Term Loan C in April 2005 because we believed
that the availability under the Revolver in our Credit Facility could
prove to be inadequate to satisfy our working capital needs during certain periods in the first and
second quarters of 2005. Our two largest customers have lowered their production forecasts for the
second quarter of 2005. As a result, we anticipate that we will deliver fewer vehicles and generate
less revenue in the second quarter of 2005 compared to the second quarter of 2004. We expect that
this will result in additional pressure related to our liquidity in
2005. 11




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) Further, we believe that we
may not comply with certain of our financial covenants in the second
quarter of 2005 or thereafter. There can be no assurance that we will be able to obtain relief from our lenders or, if necessary,
amend our Credit Facility to address covenant issues or otherwise obtain additional financing.
However, as a result of the additional liquidity provided by the amendment in April 2005, we have
been able to, and with appropriate consideration given to the matters mentioned above, expect to
continue to, generate sufficient cash flows from operations to meet our liquidity needs through at
least the next twelve months, provided that we are able to comply
with, or obtain a waiver or amendment of the financial covenants in
our Credit Facility so that we can use the Credit Facility to cover seasonal working
capital needs and provided that the total of our borrowings does not exceed the cap included in our
indenture agreement governing our Senior Notes. (13) Income Taxes For the three months ended March 31, 2005 and 2004, the income tax expense differed from the
amounts computed by applying federal statutory rates to the reported loss before income taxes since
we did not meet the more likely than not criteria to recognize the tax benefits of losses in most of our jurisdictions. The loss
before income taxes generated deferred tax assets for which we increased the valuation allowance.
In addition, during the three months ended March 31, 2005, we recognized income tax expense related
to those jurisdictions with taxable income without offsetting tax
benefits. (14) Commitments and Contingencies (a) Letters of Credit At March 31, 2005, we had issued $135.8 million of letters of credit to third parties, related
primarily to the settlement of insurance claims and reserves and support for a line of credit at
one of our foreign subsidiaries. Of the $135.8 million, $42.6 million of these letters of credit
are secured by available borrowings on the Revolver and $93.2 million were issued by our wholly
owned captive insurance subsidiary, Haul Insurance Limited, and are collateralized by $93.2 million
of restricted cash and cash equivalents held by this subsidiary. We renew these letters of credit
annually. The amount of letters of credit that we may issue under the Revolver may not exceed $50
million. Since we had utilized $42.6 million of this availability
at March 31, 2005 the remaining
letter of credit availability under the Revolver as of March 31, 2005
was $7.4
million. As of May 14, 2005, we had issued $141.1 million of letters
of credit to third parties, $43.6 million of which are secured by available borrowings under the Revolver.
The remaining letter of credit
availability under the Revolver as of May 14, 2005 was $6.4 million. (b) Litigation, Claims, Assessments We are 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 our
opinion, the ultimate disposition of these matters will not have a material adverse effect on our
financial position and results of operations. As part of the previously disclosed settlement agreement with Ryder System, Inc. (Ryder), we
issued a letter of credit in favor of Ryder and agreed to certain scheduled increases. At March
31, 2005, this letter of credit totaled $8.5 million and is included in the $42.6 million of
outstanding letters of credit noted in (a) above. We have since increased the letter of credit by
$1.0 million to bring the total to $9.5 million. Ryder may only draw on the letter of credit if we
fail to pay the workers compensation and liability claims that we assumed as part of the Ryder
Automotive Carrier Group acquisition. We have provided the letter of credit in favor of Ryder
because Ryder issued a letter of credit to its insurance carrier relating to the workers
compensation and liability claims that we assumed. Under the agreement with Ryder, effective March
31, 2005 and periodically thereafter, an actuarial valuation will be performed to determine the
remaining amount outstanding of the workers compensation and liability claims that we assumed.
Based on the results of the actuarial valuation, the letter of credit will be adjusted, as
appropriate. We are in the process of selecting a mutually agreeable actuary to perform this
valuation. (c) Purchase and Service Contract Commitments In April 2001, we entered into a five-year agreement with IBM whereby IBM would provide our
mainframe computer processing services. In December 2003, we negotiated an amendment to the
agreement with IBM. The 12




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) amended agreement is a ten-year commitment, which commenced in February
2004 and provides for additional services to be performed by IBM. These additional services
include the management of applications relating to our electronic data interchange, network
services, technical services as well as the provision of applications development and support
services. The purchase commitment for the remaining life of the agreement was approximately $95.9
million and $98.5 million as of March 31, 2005 and December 31, 2004, respectively. (d) Leases We lease operating equipment (Rigs), office space, computer equipment, and certain terminal
facilities under noncancelable operating lease agreements. Included in these noncancelable leases
are operating lease commitments for approximately 453 Rigs. Lease terms range between five and
seven years, expire between 2005 and 2010, and contain residual guarantees of up to 25% of the
original cost of the Rigs. We included these residual value guarantees in the calculations that we
performed in determining the proper classification of these leases. No accruals for these
guarantees were considered necessary at March 31, 2005. (e) Collective Bargaining Agreements On October 31, 2005, the contract between Allied Systems (Canada) Company and the Teamsters Union
in Eastern Canada expires. This contract covers the drivers, mechanics, and yard personnel
represented by the Teamsters Union in the provinces of Ontario and Quebec, which is approximately
70% of our Canadian bargaining employees. In addition, the U.S. International Brotherhood of
Teamsters Union (Teamsters) represents approximately 80% of our U.S. bargaining employees. The collective
bargaining agreement covering those employees represented by the Teamsters will expire on May 31,
2008. (15) Earnings (Loss) Per Common Share SFAS No. 128, Earnings Per Share,requires the presentation of basic and diluted earnings per
share. Basic earnings (loss) per share is computed by dividing net income or loss available to
common stockholders by the weighted-average number of common shares outstanding for the periods
presented. Diluted earnings per share reflects the potential dilution that could occur if
securities and other contracts to issue common stock were exercised or converted into common stock
or resulted in the issuance of common stock that would then share in the earnings of the entity. The net loss and the weighted-average number of common shares outstanding used to calculate basic
and diluted loss per common share for the three months ended March 31, 2005 and 2004 is as follows
(in thousands, except per share data): Three Months EndedMarch 31,2005
    
    
    2004Basic and Diluted Loss Per Share:Net loss
    
    $
    (10,058
    )
    
    $
    (9,048
    )Weighted-average number of common shares outstanding:Basic and diluted
    
    
    8,940
    
    
    
    8,789Net loss per common share:Basic and diluted
    
    $
    (1.13
    )
    
    $
    (1.03
    )
 We excluded common stock equivalents of approximately 58,000 and 788,000 shares outstanding for the
three months ended March 31, 2005 and 2004, respectively, from the calculation of diluted loss per
share, as the impact
would have been antidilutive, which means that the resulting loss per share would have been more
favorable had we included these shares in the calculation. (16) Stock-Based Compensation 13




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) We apply the intrinsic-value-based method of accounting prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees,and related interpretations to
account for our fixed-plan stock options. Under this method, we record compensation expense on the
date of grant only if the market price of the underlying stock, on the date of grant, exceeds the
exercise price of the stock option. SFAS No. 123, Accounting for Stock-Based Compensation,
established accounting and disclosure requirements using a fair value-based method of accounting
for stock-based employee compensation plans. As allowed by SFAS No. 123, we elected to continue to
apply the intrinsic value-based method of accounting described above, and adopted only the
disclosure requirements of SFAS No. 123 and the amended disclosure requirements of SFAS No. 148,
Accounting for Stock-Based Compensation  Transition and Disclosure, an amendment of FASB Statement
No. 123. If we had applied the fair value method prescribed by SFAS No. 123, net loss and loss per common
share would have been changed to the pro forma amounts indicated below for the three months ended
March 31, 2005 and 2004 (in thousands, except per share data): Three Months EndedMarch 31,2005
    
    
    2004Reported net loss
    
    $
    (10,058
    )
    
    $
    (9,048
    )Plus: stock-based employee compensation included in reported net loss
    
    
    
    
    
    
    195Less: stock-based employee compensation determined using the fair value method
    
    
    (147
    )
    
    
    (370
    )Pro forma net loss
    
    $
    (10,205
    )
    
    $
    (9,223
    )Loss per share:As reported:Basic and Diluted
    
    $
    (1.13
    )
    
    $
    (1.03
    )Pro forma:Basic and Diluted
    
    $
    (1.14
    )
    
    $
    (1.05
    )
 SFAS No. 123 was revised in December 2004 as SFAS 123R. The provisions of SFAS No. 123R are
summarized in Note 3. We will adopt this Standard effective Jan 1, 2006. (17) Other Comprehensive Loss Total comprehensive loss for the three months ended March 31, 2005 and 2004 was
 as follows (in
thousands): Three Months EndedMarch 31,2005
    
    
    2004Net loss
    
    $
    (10,058
    )
    
    $
    (9,048
    )Foreign currency translation adjustments
    
    
    (305
    )
    
    
    (403
    )$
    (10,363
    )
    
    $
    (9,451
    )
 The foreign currency translation adjustment is net of income taxes of $195,000 and $0 for the three
months ended March 31, 2005 and March 31, 2004, respectively. Accumulated other
comprehensive loss, net of income taxes of $1.8 million and
$1.6 million as of March
31, 2005 and December 31, 2004, respectively, consisted of the following (in thousands): March 31,
    
    
    December 31,2005
    
    
    2004Cumulative foreign currency translation adjustments
    
    $
    1,087
    
    
    $
    1,392Cumulative minimum pension liability adjustments
    
    
    (1,748
    )
    
    
    (1,748
    )$
    (661
    )
    
    $
    (356
    )
 14




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) (18) Industry Segment and Geographic Information In accordance with the requirements of SFAS No. 131, Disclosure About Segments of an Enterprise and
Related Information, we have identified two reportable industry segments through which we conduct
our operating activities, Allied Automotive Group and the Axis Group. These two segments reflect
the internal reporting that we use 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. The Axis Group is engaged in the business of securing and managing
vehicle distribution services, automobile inspections, auction and yard management services,
intra-modal transport, vehicle tracking, vehicle accessorization, and dealer preparatory services
for the automotive industry. Set forth below is certain financial information related to these two segments and corporate/other
for the three months ended March 31, 2005 and 2004 (in thousands): Three Months Ended March 31,2005
    
    
    2004Revenues - unaffiliated customers:Allied Automotive Group
    
    $
    214,615
    
    
    $
    205,667Axis Group
    
    
    6,335
    
    
    
    6,577Total
    
    $
    220,950
    
    
    $
    212,244Operating income (loss):Allied Automotive Group
    
    $
    (525
    )
    
    $
    486Axis Group
    
    
    422
    
    
    
    656Corporate/other
    
    
    (1,778
    )
    
    
    (2,624
    )Total
    
    
    (1,881
    )
    
    
    (1,482
    )Reconciling items:Interest expense
    
    
    (8,212
    )
    
    
    (7,368
    )Investment income
    
    
    438
    
    
    
    57Foreign
exchange loss, net
    
    
    (199
    )
    
    
    (155
    )Other, net
    
    
    
    
    
    
    (100
    )Loss before income taxes
    
    $
    (9,854
    )
    
    $
    (9,048
    )
 Total assets of these two segments and corporate/other
as of March 31, 2005 and December 31, 2004 is as follows (in thousands): March 31,
    
    
    December 31,2005
    
    
    2004Total Assets:Allied Automotive Group
    
    $
    288,319
    
    
    $
    274,228Axis Group
    
    
    19,029
    
    
    
    19,690Corporate/other
    
    
    131,701
    
    
    
    127,614Total
    
    $
    439,049
    
    
    $
    421,532
 Revenues by country, which
are attributed to the respective countries based on the terminal that
provides the service, for the three months ended March 31, 2005
and 2004 were as follows (in
thousands): 15




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) Three Months Ended March 31,2005
    
    
    2004United States
    
    $
    180,569
    
    
    $
    175,219Canada
    
    
    40,381
    
    
    
    37,025Total
    
    $
    220,950
    
    
    $
    212,244
 Our Automotive Groups three largest customers are General Motors, Ford and DaimlerChrysler.
During the three months ended March 31, 2005, these customers accounted for 34%, 25% and 13% of our
Automotive Groups revenues. A significant reduction in production levels, plant closings, changes
in distribution strategies by our customers or the imposition of vendor price reductions by these
manufacturers, the loss of any or all of these customers, or a significant reduction in the
services provided to any of these customers by our Automotive Group would have a material adverse
effect on our operations. (19) Supplemental Guarantor Information Substantially all of our subsidiaries, the Guarantor Subsidiaries, guarantee our obligations under
the Senior Notes. The guarantees are full and unconditional. The Guarantors are jointly and
severally liable for our obligations under the Senior Notes and there are no restrictions on the
ability of the Guarantors to make distributions to the parent company, Allied Holdings, Inc. who
owns 100% of the Guarantor Subsidiaries. See Note 12 for a description of the Senior Notes and a
listing of the Nonguarantor Subsidiaries. The following consolidating balance sheet information, statement of operations information, and
statement of cash flows information present the financial statement information of our parent
company and the combined financial statement information of the Guarantor Subsidiaries and
Nonguarantor Subsidiaries: 16




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) SUPPLEMENTAL CONSOLIDATING BALANCE SHEET INFORMATION
March 31, 2005
(In thousands) Allied
    
    
    Guarantor
    
    
    NonguarantorHoldings
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    546
    
    
    $
    3,376
    
    
    $
    
    
    
    $
    3,922Restricted cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    30,799
    
    
    
    
    
    
    
    30,799Receivables,
net of allowances
    
    
    11
    
    
    
    54,525
    
    
    
    1,719
    
    
    
    
    
    
    
    56,255Inventories
    
    
    
    
    
    
    4,797
    
    
    
    
    
    
    
    
    
    
    
    4,797Deferred income taxes
    
    
    20,914
    
    
    
    (16,086
    )
    
    
    (53
    )
    
    
    
    
    
    
    4,775Prepayments and other
current assets
    
    
    1,474
    
    
    
    28,570
    
    
    
    6,129
    
    
    
    (11,998
    )
    
    
    24,175Total current assets
    
    
    22,399
    
    
    
    72,352
    
    
    
    41,970
    
    
    
    (11,998
    )
    
    
    124,723Property and equipment, net
    
    
    4,375
    
    
    
    124,061
    
    
    
    3,261
    
    
    
    
    
    
    
    131,697Goodwill, net
    
    
    1,515
    
    
    
    82,165
    
    
    
    
    
    
    
    
    
    
    
    83,680Other assets:Restricted cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    62,434
    
    
    
    
    
    
    
    62,434Other noncurrent assets
    
    
    31,196
    
    
    
    4,738
    
    
    
    581
    
    
    
    
    
    
    
    36,515Intercompany receivables (payables)
    
    
    74,634
    
    
    
    (67,591
    )
    
    
    (7,043
    )
    
    
    
    
    
    
    Investment in subsidiaries
    
    
    (16,673
    )
    
    
    6,265
    
    
    
    
    
    
    
    10,408
    
    
    
    Total other assets
    
    
    89,157
    
    
    
    (56,588
    )
    
    
    55,972
    
    
    
    10,408
    
    
    
    98,949Total assets
    
    $
    117,446
    
    
    $
    221,990
    
    
    $
    101,203
    
    
    $
    (1,590
    )
    
    $
    439,049Current liabilities:Current maturities of long-term debt
    
    $
    
    
    
    $
    13,500
    
    
    $
    
    
    
    $
    
    
    
    $
    13,500Borrowings under revolving credit facilities
    
    
    
    
    
    
    16,815
    
    
    
    
    
    
    
    
    
    
    
    16,815Accounts and notes payable
    
    
    2,715
    
    
    
    35,877
    
    
    
    12,184
    
    
    
    (11,998
    )
    
    
    38,778Intercompany payables (receivables)
    
    
    5,654
    
    
    
    (5,654
    )
    
    
    
    
    
    
    
    
    
    
    Accrued liabilities
    
    
    10,438
    
    
    
    66,399
    
    
    
    22,417
    
    
    
    
    
    
    
    99,254Total current liabilities
    
    
    18,807
    
    
    
    126,937
    
    
    
    34,601
    
    
    
    (11,998
    )
    
    
    168,347Long-term debt, less current maturities
    
    
    150,000
    
    
    
    80,601
    
    
    
    
    
    
    
    
    
    
    
    230,601Postretirement benefits other
than pensions
    
    
    
    
    
    
    4,868
    
    
    
    
    
    
    
    
    
    
    
    4,868Deferred income taxes
    
    
    
    
    
    
    16,214
    
    
    
    
    
    
    
    
    
    
    
    16,214Other long-term liabilities
    
    
    508
    
    
    
    25,190
    
    
    
    45,190
    
    
    
    
    
    
    
    70,888Commitments and contingencies
    
    


    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stockholders deficit:Common stock, no par value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    48,464
    
    
    
    166,130
    
    
    
    2,488
    
    
    
    (168,618
    )
    
    
    48,464Treasury stock
    
    
    (707
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (707
    )(Accumulated deficit) retained earnings
    
    
    (98,965
    )
    
    
    (186,500
    )
    
    
    18,924
    
    
    
    167,576
    
    
    
    (98,965
    )Accumulated other comprehensive loss,
net of tax
    
    
    (661
    )
    
    
    (11,450
    )
    
    
    
    
    
    
    11,450
    
    
    
    (661
    )Total stockholders (deficit) equity
    
    
    (51,869
    )
    
    
    (31,820
    )
    
    
    21,412
    
    
    
    10,408
    
    
    
    (51,869
    )Total liabilities and stockholders  (deficit) equity
    
    $
    117,446
    
    
    $
    221,990
    
    
    $
    101,203
    
    
    $
    (1,590
    )
    
    $
    439,049
 17




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) SUPPLEMENTAL CONSOLIDATING BALANCE SHEET INFORMATION
December 31, 2004
(In thousands) Allied
    
    
    Guarantor
    
    
    NonguarantorHoldings
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    533
    
    
    $
    1,983
    
    
    $
    
    
    
    
    2,516Restricted cash and cash equivalents
    
    
    
    
    
    
    (1
    )
    
    
    27,379
    
    
    
    
    
    
    
    27,378Receivables, net of allowances
    
    
    
    
    
    
    55,407
    
    
    
    1,902
    
    
    
    
    
    
    
    57,309Inventories
    
    
    
    
    
    
    4,649
    
    
    
    
    
    
    
    
    
    
    
    4,649Deferred income taxes
    
    
    2,927
    
    
    
    1,705
    
    
    
    
    
    
    
    
    
    
    
    4,632Prepayments and other
current assets
    
    
    1,699
    
    
    
    10,465
    
    
    
    250
    
    
    
    
    
    
    
    12,414Total current assets
    
    
    4,626
    
    
    
    72,758
    
    
    
    31,514
    
    
    
    
    
    
    
    108,898Property and equipment, net
    
    
    4,744
    
    
    
    127,676
    
    
    
    3,215
    
    
    
    
    
    
    
    135,635Goodwill, net
    
    
    1,515
    
    
    
    82,462
    
    
    
    
    
    
    
    
    
    
    
    83,977Other assets:Restricted cash and cash equivalents
    
    
    
    
    
    
    1
    
    
    
    55,501
    
    
    
    
    
    
    
    55,502Other noncurrent assets
    
    
    31,995
    
    
    
    4,907
    
    
    
    618
    
    
    
    
    
    
    
    37,520Deferred income taxes
    
    
    17,843
    
    
    
    
    
    
    
    
    
    
    
    (17,843
    )
    
    
    Intercompany receivables (payables)
    
    
    75,147
    
    
    
    (72,978
    )
    
    
    (2,169
    )
    
    
    
    
    
    
    Investment in subsidiaries
    
    
    (9,070
    )
    
    
    6,170
    
    
    
    
    
    
    
    2,900
    
    
    
    Total other assets
    
    
    115,915
    
    
    
    (61,900
    )
    
    
    53,950
    
    
    
    (14,943
    )
    
    
    93,022Total assets
    
    $
    126,800
    
    
    $
    220,996
    
    
    $
    88,679
    
    
    $
    (14,943
    )
    
    $
    421,532Current liabilities:Current maturities of long-term debt
    
    $
    
    
    
    $
    13,500
    
    
    $
    
    
    
    $
    
    
    
    $
    13,500Borrowings under revolving credit facility
    
    
    
    
    
    
    2,972
    
    
    
    
    
    
    
    
    
    
    
    2,972Accounts and notes payable
    
    
    3,818
    
    
    
    30,696
    
    
    
    176
    
    
    
    
    
    
    
    34,690Intercompany payables (receivables)
    
    
    6,956
    
    
    
    (6,956
    )
    
    
    
    
    
    
    
    
    
    
    Accrued liabilities
    
    
    7,067
    
    
    
    47,923
    
    
    
    30,473
    
    
    
    
    
    
    
    85,463Total current liabilities
    
    
    17,841
    
    
    
    88,135
    
    
    
    30,649
    
    
    
    
    
    
    
    136,625Long-term debt, less current maturities
    
    
    150,000
    
    
    
    84,766
    
    
    
    
    
    
    
    
    
    
    
    234,766Postretirement benefits other
than pensions
    
    
    
    
    
    
    5,082
    
    
    
    
    
    
    
    
    
    
    
    5,082Deferred income taxes
    
    
    
    
    
    
    33,990
    
    
    
    17
    
    
    
    (17,843
    )
    
    
    16,164Other long-term liabilities
    
    
    508
    
    
    
    33,595
    
    
    
    36,341
    
    
    
    
    
    
    
    70,444Commitments and contingencies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stockholders deficit:Common stock, no par value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    48,421
    
    
    
    166,130
    
    
    
    2,488
    
    
    
    (168,618
    )
    
    
    48,421Treasury stock
    
    
    (707
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (707
    )(Accumulated deficit) retained earnings
    
    
    (88,907
    )
    
    
    (179,239
    )
    
    
    19,184
    
    
    
    160,055
    
    
    
    (88,907
    )Accumulated other comprehensive (loss)
income, net of tax
    
    
    (356
    )
    
    
    (11,463
    )
    
    
    
    
    
    
    11,463
    
    
    
    (356
    )Total stockholders (deficit) equity
    
    
    (41,549
    )
    
    
    (24,572
    )
    
    
    21,672
    
    
    
    2,900
    
    
    
    (41,549
    )Total liabilities and stockholders
 (deficit) equity
    
    $
    126,800
    
    
    $
    220,996
    
    
    $
    88,679
    
    
    $
    (14,943
    )
    
    $
    421,532
 18




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Unaudited) SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
Three Months Ended March 31, 2005
(In thousands) Allied
    
    
    Guarantor
    
    
    NonguarantorHoldings
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    6,679
    
    
    $
    220,601
    
    
    $
    9,880
    
    
    $
    (16,210
    )
    
    $
    220,950Operating expenses:Salaries, wages and fringe benefits
    
    
    1,665
    
    
    
    119,563
    
    
    
    
    
    
    
    
    
    
    
    121,228Operating supplies and expenses
    
    
    3,332
    
    
    
    38,107
    
    
    
    70
    
    
    
    
    
    
    
    41,509Purchased transportation
    
    
    
    
    
    
    28,861
    
    
    
    
    
    
    
    
    
    
    
    28,861Insurance and claims
    
    
    
    
    
    
    8,305
    
    
    
    10,109
    
    
    
    (9,531
    )
    
    
    8,883Operating taxes and licenses
    
    
    47
    
    
    
    7,727
    
    
    
    
    
    
    
    
    
    
    
    7,774Depreciation and amortization
    
    
    398
    
    
    
    7,662
    
    
    
    132
    
    
    
    
    
    
    
    8,192Rents
    
    
    365
    
    
    
    1,482
    
    
    
    2
    
    
    
    
    
    
    
    1,849Communications and utilities
    
    
    981
    
    
    
    927
    
    
    
    3
    
    
    
    
    
    
    
    1,911Other operating expenses
    
    
    1,634
    
    
    
    7,582
    
    
    
    43
    
    
    
    (6,679
    )
    
    
    2,580Gain (loss) on disposal of operating assets, net
    
    
    (2
    )
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    44Total operating expenses
    
    
    8,420
    
    
    
    220,262
    
    
    
    10,359
    
    
    
    (16,210
    )
    
    
    222,831Operating (loss) income
    
    
    (1,741
    )
    
    
    339
    
    
    
    (479
    )
    
    
    
    
    
    
    (1,881
    )Other income (expense):Interest expense
    
    
    (683
    )
    
    
    (7,472
    )
    
    
    (57
    )
    
    
    
    
    
    
    (8,212
    )Investment income
    
    
    
    
    
    
    10
    
    
    
    428
    
    
    
    
    
    
    
    438Foreign
exchange (loss) gain, net
    
    
    
    
    
    
    (231
    )
    
    
    32
    
    
    
    
    
    
    
    (199
    )Equity in (losses) earnings of subsidiaries
    
    
    (7,616
    )
    
    
    95
    
    
    
    
    
    
    
    7,521
    
    
    
    (8,299
    )
    
    
    (7,598
    )
    
    
    403
    
    
    
    7,521
    
    
    
    (7,973
    )Loss before income taxes
    
    
    (10,040
    )
    
    
    (7,259
    )
    
    
    (76
    )
    
    
    7,521
    
    
    
    (9,854
    )Income tax expense
    
    
    (18
    )
    
    
    (2
    )
    
    
    (184
    )
    
    
    
    
    
    
    (204
    )Net loss
    
    $
    (10,058
    )
    
    $
    (7,261
    )
    
    $
    (260
    )
    
    $
    7,521
    
    
    $
    (10,058
    )
 19




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Unaudited) SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS 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
    )
    
    
    2,186Loss 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
    )Investment 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
    )
 20




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Unaudited) SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
Three Months Ended March 31, 2005
(In thousands) Allied
    
    
    Guarantor
    
    
    NonguarantorHoldings
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net loss
    
    $
    (10,058
    )
    
    $
    (7,261
    )
    
    $
    (260
    )
    
    $
    7,521
    
    
    $
    (10,058
    )Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:Amortization of deferred financing costs
    
    
    747
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    747Depreciation and amortization
    
    
    398
    
    
    
    7,662
    
    
    
    132
    
    
    
    
    
    
    
    8,192Loss on disposal of assets and other, net
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    44Foreign exchange loss, net
    
    
    
    
    
    
    199
    
    
    
    
    
    
    
    
    
    
    
    199Deferred income taxes
    
    
    51
    
    
    
    (191
    )
    
    
    36
    
    
    
    
    
    
    
    (104
    )Equity in
losses (earnings) of subsidiaries
    
    
    7,616
    
    
    
    (95
    )
    
    
    
    
    
    
    (7,521
    )
    
    
    Change in operating assets and liabilities:Receivables, net of allowance for doubtful accounts
    
    
    (11
    )
    
    
    787
    
    
    
    183
    
    
    
    
    
    
    
    959Inventories
    
    
    
    
    
    
    (159
    )
    
    
    
    
    
    
    
    
    
    
    (159
    )Prepayments and other assets
    
    
    249
    
    
    
    (302
    )
    
    
    (5,842
    )
    
    
    
    
    
    
    (5,895
    )Accounts and notes payable
    
    
    (1,103
    )
    
    
    (12,203
    )
    
    
    12,008
    
    
    
    
    
    
    
    (1,298
    )Intercompany payables
    
    
    (1,303
    )
    
    
    (3,571
    )
    
    
    4,874
    
    
    
    
    
    
    
    Accrued liabilities
    
    
    3,371
    
    
    
    9,960
    
    
    
    793
    
    
    
    
    
    
    
    14,124Net cash (used in) provided by operating activities
    
    
    (43
    )
    
    
    (5,130
    )
    
    
    11,924
    
    
    
    
    
    
    
    6,751Cash flows from investing activities:Purchases of property and equipment
    
    
    
    
    
    
    (4,647
    )
    
    
    (178
    )
    
    
    
    
    
    
    (4,825
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    252
    
    
    
    
    
    
    
    
    
    
    
    252Increase in restricted cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (10,353
    )
    
    
    
    
    
    
    (10,353
    )Funds deposited with insurance carriers
    
    
    
    
    
    
    (7,357
    )
    
    
    
    
    
    
    
    
    
    
    (7,357
    )Funds returned from insurance carriers
    
    
    
    
    
    
    1,609
    
    
    
    
    
    
    
    
    
    
    
    1,609Net cash used in investing activities
    
    
    
    
    
    
    (10,143
    )
    
    
    (10,531
    )
    
    
    
    
    
    
    (20,674
    )Cash flows from financing activities:Additions to revolving credit facilities, net
    
    
    
    
    
    
    13,843
    
    
    
    
    
    
    
    
    
    
    
    13,843Repayment of long-term debt
    
    
    
    
    
    
    (4,165
    )
    
    
    
    
    
    
    
    
    
    
    (4,165
    )Proceeds from insurance financing arrangements
    
    
    
    
    
    
    8,031
    
    
    
    
    
    
    
    
    
    
    
    8,031Repayments of insurance financing arrangements
    
    
    
    
    
    
    (2,601
    )
    
    
    
    
    
    
    
    
    
    
    (2,601
    )Proceeds from issuance of common stock
    
    
    43
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43Net cash provided by financing activities
    
    
    43
    
    
    
    15,108
    
    
    
    
    
    
    
    
    
    
    
    15,151Effect of exchange rate changes on cash and
cash equivalents
    
    
    
    
    
    
    178
    
    
    
    
    
    
    
    
    
    
    
    178Net change in cash and cash equivalents
    
    
    
    
    
    
    13
    
    
    
    1,393
    
    
    
    
    
    
    
    1,406Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    533
    
    
    
    1,983
    
    
    
    
    
    
    
    2,516Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    546
    
    
    $
    3,376
    
    
    $
    
    
    
    $
    3,922
 21




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) SUPPLEMENTAL 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 (used in) provided by operating activities: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 loss, 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
    )
    
    
    Change in operating assets and liabilities:Receivables, net of allowance for doubtful accounts
    
    
    
    
    
    
    48
    
    
    
    (4,470
    )
    
    
    
    
    
    
    (4,422
    )Inventories
    
    
    
    
    
    
    (74
    )
    
    
    
    
    
    
    
    
    
    
    (74
    )Prepayments and other assets
    
    
    362
    
    
    
    (8,372
    )
    
    
    (96
    )
    
    
    
    
    
    
    (8,106
    )Accounts and notes payable
    
    
    (350
    )
    
    
    (9,885
    )
    
    
    2,754
    
    
    
    
    
    
    
    (7,481
    )Intercompany payables
    
    
    1,321
    
    
    
    (15,979
    )
    
    
    14,658
    
    
    
    
    
    
    
    Accrued liabilities
    
    
    590
    
    
    
    4,723
    
    
    
    2,333
    
    
    
    
    
    
    
    7,646Net cash (used in) provided by operating activities
    
    
    (852
    )
    
    
    (25,700
    )
    
    
    15,370
    
    
    
    
    
    
    
    (11,182
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    
    
    
    
    (4,844
    )
    
    
    (3
    )
    
    
    
    
    
    
    (4,847
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    1,826
    
    
    
    
    
    
    
    
    
    
    
    1,826Increase in restricted cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (8,234
    )
    
    
    
    
    
    
    (8,234
    )Funds deposited with insurance carriers
    
    
    
    
    
    
    (32,024
    )
    
    
    
    
    
    
    
    
    
    
    (32,024
    )Funds returned from insurance carriers
    
    
    
    
    
    
    27,516
    
    
    
    
    
    
    
    
    
    
    
    27,516Net cash used in investing activities
    
    
    
    
    
    
    (7,526
    )
    
    
    (8,237
    )
    
    
    
    
    
    
    (15,763
    )Cash flows from financing activities:Additions to revolving credit facilities, net
    
    
    
    
    
    
    16,870
    
    
    
    
    
    
    
    
    
    
    
    16,870Repayment of long-term debt
    
    
    
    
    
    
    (5,167
    )
    
    
    
    
    
    
    
    
    
    
    (5,167
    )Proceeds from insurance financing arrangements
    
    
    
    
    
    
    28,141
    
    
    
    
    
    
    
    
    
    
    
    28,141Repayments of insurance financing arrangements
    
    
    
    
    
    
    (7,041
    )
    
    
    
    
    
    
    
    
    
    
    (7,041
    )Proceeds from issuance of common stock
    
    
    303
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    303Net cash provided by financing activities
    
    
    303
    
    
    
    32,803
    
    
    
    
    
    
    
    
    
    
    
    33,106Effect of exchange rate changes on cash and
cash equivalents
    
    
    
    
    
    
    132
    
    
    
    
    
    
    
    
    
    
    
    132Net change 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
 22




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations You should read the discussion and analysis in this section in conjunction with the consolidated
financial statements and accompanying notes included in Item 1. Financial Statements in this
Quarterly Report on Form 10-Q and the consolidated financial statements, related notes and other
financial information included in our Annual Report on Form 10-K for the year ended December 31,
2004. In addition, we use forward-looking statements in the discussion that follows.
Forward-looking statements by nature involve risks and uncertainties and hence our actual results
could differ materially from our expectations as a result of various factors, some of which we
discuss below in Cautionary Notice Regarding Forward-Looking Statements and in our 2004 Annual
Report on Form 10-K filed with the SEC. Executive Overview Through our subsidiaries, we generate revenues by providing services to the automotive industry.
We offer a range of automotive delivery services to dealers including the transportation of new,
pre-owned and off-lease vehicles from plants, rail ramps, ports and auctions, while also providing
vehicle rail-car loading and unloading services. Our principal operating subsidiaries are the
Automotive Group and the Axis Group. The Automotive Group is our largest subsidiary comprising 97%
of our 2004 revenues. During the first and second quarters of 2005, we took various steps to preserve our liquidity,
including rescheduling and deferring capital expenditures. We redeployed to existing operations
approximately 159 Rigs that were previously deployed at locations that we closed during the fourth
quarter of 2004. As a result, we were able to utilize these Rigs to support existing business and
our initiative to reschedule and defer capital expenditures. However, these Rigs were not
available in all cases to support new business opportunities. Additionally, we delayed one payroll
for certain salaried, non-bargaining employees for two weeks and also negotiated more favorable
payment terms with certain of our vendors and service providers for a limited period of time
during the first quarter of 2005. On April 13, 2005, we amended our Credit Facility to provide us with an additional $25 million Term
Loan C and to change the financial covenant related to the required minimum earnings before
interest, taxes, depreciation and amortization, as defined in the Credit Facility, applicable to
the twelve month period ended December 31, 2004 and the respective twelve month periods ending each
month thereafter through April 30, 2005. This amendment also increased the debt incurrence ratio,
as set forth in the Credit Facility, for the months of April and May 2005. Term Loan C is payable
in full at maturity on September 4, 2007 with monthly payments of interest. In
May 2005, we announced that the Chairman and the President and
Chief Executive Officer each will
be required to take a four week unpaid furlough and the Executive Vice President and General Counsel and the
Executive Vice President and Chief Financial Officer each will be
required to take a two week unpaid furlough. In all cases, the unpaid leave related to the
furlough will be effected in June and/or July of 2005. On May 13, 2005, the Automotive Group completed the previously agreed-upon sale to General Motors
of real property located in Janesville, Wisconsin, under the terms and conditions provided by the
contract with General Motors. Our
two largest customers have lowered their production forecast for the
second quarter of 2005. As a result, we anticipate that we will
deliver fewer vehicles and generate loss revenue in the second
quarter of 2005 compared to the second quarter of 2004. We expect
that this will result in additional pressure related to our liquidity
in 2005. Further, we believe that we may not comply with certain of
our financial covenants in the second quarter of 2005 or thereafter.
There can be no assurance that we will be able to obtain relief from
our lenders or, if necessary, amend our Credit Facility to address
covenant issues or otherwise obtain additional financing. However, as
a result of the additional liquidity provided by the amendment in
April 2005, we have been able to, and with appropriate
consideration given to the matters mentioned above, expect to
continue to, generate sufficient cash flows from operations to meet
our liquidity needs through at least the next twelve months,
provided that we are able to comply with, or obtain a waiver or
amendment of the financial covenants in our Credit Facility so that
we can use the Credit Facility to cover seasonal working capital
needs and provided that the total of our borrowings does not exceed
the cap included in our indenture governing our Senior Notes. In this section, we discuss the following:  
    Results of Operations;
    Liquidity and Capital Resources;
    Off-Balance Sheet Arrangements; 23




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##### Table of Contents




    Disclosures About Market Risks;
    Critical Accounting Policies and Estimates;
    Recent Accounting Pronouncements;
    Factors Which May Affect Future Results; and
    Cautionary Notice Regarding Forward-looking Statements. Results of Operations The
following table sets forth the percentage relationship of expense
items and other income to revenues for the
periods indicated: As a % of revenuesThree Months Ended March 31,2005
    
    
    2004Revenues
    
    
    100.0
    %
    
    
    100.0
    %Operating expenses:Salaries, wages, and fringe benefits
    
    
    54.9
    %
    
    
    56.5
    %Operating supplies and expenses
    
    
    18.8
    %
    
    
    17.5
    %Purchased transportation
    
    
    13.1
    %
    
    
    12.2
    %Insurance and claims
    
    
    4.0
    %
    
    
    4.3
    %Operating taxes and licenses
    
    
    3.5
    %
    
    
    3.1
    %Depreciation and amortization
    
    
    3.7
    %
    
    
    4.9
    %Rents
    
    
    0.8
    %
    
    
    0.8
    %Communications and utilities
    
    
    0.9
    %
    
    
    0.9
    %Other operating expenses
    
    
    1.2
    %
    
    
    1.0
    %Loss (gain) on disposal of operating assets, net
    
    
    
    
    
    
    (0.5
    )%Total operating expenses
    
    
    100.9
    %
    
    
    100.7
    %Operating loss
    
    
    (0.9
    )%
    
    
    (0.7
    )%Other income (expense):Interest expense
    
    
    (3.7
    )%
    
    
    (3.5
    )%Investment income
    
    
    0.2
    %
    
    
    Foreign exchange loss
    
    
    (0.1
    )%
    
    
    (0.1
    )%Other, net
    
    
    0.0
    %
    
    
    (3.6
    )%
    
    
    (3.6
    )%Loss before income taxes
    
    
    (4.5
    )%
    
    
    (4.3
    )%Income tax expense
    
    
    (0.1
    )%
    
    
    Net loss
    
    
    (4.6
    )%
    
    
    (4.3
    )%
 Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004 Revenues Revenues were $221.0 million in the first quarter of 2005 versus revenues of $212.2 million in the
first quarter of 2004, an increase of 4.1% or $8.8 million. This increase was due primarily to an
increase in revenue per vehicle delivered. Our revenue per vehicle delivered increased while the
number of vehicles delivered decreased. The volume of vehicles that we delivered decreased by 2.7%
during the three months ended March 31, 2005 versus the three months ended March 31, 2004.
However, this reduction was less than the 4.6% decline in OEM production for the comparable
periods. During the first quarter of 2005, revenue per vehicle delivered increased by $6.88 or
7.3% over the first quarter of 2004. The increase in revenue per unit is primarily the result of
an increase per unit of $2.56 due to the increase in fuel surcharges, an increase of $1.32 per unit
due to the strengthening of the Canadian dollar and an increase of $1.30 per unit due to certain
rate increases. In the first quarter of 2005, revenues from fuel surcharges represented 3.6% of our Automotive
Groups revenues, whereas, in the first quarter of 2004, revenues earned from surcharges
represented only 1.2% of our Automotive 24




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##### Table of Contents



Groups revenues. In the first quarter of 2004, fuel surcharges were in place with customers who
comprised only 59% of our Automotive Groups revenues whereas in the first quarter of 2005, fuel
surcharges were in place for customers comprising substantially all of our Automotive Groups
revenues. The fuel surcharge allows us to mitigate rising fuel costs by passing on at least a
portion of the increase in costs to these customers. However, the majority of our fuel surcharges
reset at the beginning of the quarter based on fuel prices in the previous quarter, which causes a
one-quarter lag between the time when fuel prices change and when the fuel surcharge is adjusted.
Future revenues derived from fuel surcharges could be impacted if any of our customers terminate
their fuel surcharge agreement with us. The fuel surcharge relating to one customer who comprised
approximately 35% of our Automotive Groups 2004 revenues may be terminated at the sole discretion
of this customer. The Canadian dollar strengthened relative to the U.S. dollar in the first quarter of 2005. Since
we earn a portion of our revenues from our Canadian subsidiary, our revenues are positively
impacted when the Canadian dollar strengthens against its U.S. counterpart. During the first
quarter of 2005, the Canadian dollar averaged the equivalent of U.S. $0.8164 versus U.S. $0.7594
during the first quarter of 2004. This currency fluctuation resulted in an estimated increase in
revenues of $2.8 million or $1.32 per unit. Additionally, revenues were increased by $1.4 million, or $0.16 per share, in the first quarter of
2005 as a result of the final resolution of fees previously paid by a customer that had been
deferred and included in accrued liabilities. Revenue per unit was increased by $0.66 as a result. Salaries, wages, and fringe benefits Salaries, wages and fringe benefits decreased from 56.5% of revenues in the first quarter of 2004
to 54.9% of revenues in the first quarter of 2005 primarily due to a reduction in the number of
non-bargaining employees and a decrease in driver pay. Wage and benefit expense related to our
non-bargaining employees decreased from 6.8% of our revenues in the first quarter of 2004 to 5.9%
of our revenues in the first quarter of 2005. The average number of non-bargaining full time
employees decreased by approximately 10.2% for the first quarter of 2005 compared to the first
quarter of 2004. This decrease is due in part to the outsourcing of our remaining information
technology services with IBM during the first quarter of 2004, which accounts for approximately 34%
of the total non-bargaining wage and benefit expense decrease. Expenses related to the IBM
outsourcing agreement are included in operating supplies and expenses in our statement of
operations. Benefits related to our bargaining employees increased due to the provisions of the Master
Agreement with the International Brotherhood of Teamsters that went into effect during the second
quarter of 2004. We estimate that this increased our expenses by approximately $1.5 million in the
first quarter of 2005 compared to the first quarter of 2004. In addition, workers compensation expense increased approximately $0.7 million during the first
quarter of 2005 compared to the first quarter of 2004 due primarily to a change in our estimate
related to retrospective adjustments to workers compensation claims in Canada. Workers
compensation losses in Canada are covered by government insurance programs to which we make premium
payments. However, in one province, we are subject to retrospective premium adjustments based on
actual claims losses compared to expected claims losses. Unfavorable claims development related to
claims incurred in prior years resulted in an additional charge of $0.5 million to expense during
the first quarter of 2005. Operating supplies and expenses Operating supplies and expenses increased from 17.5% of revenues in the first quarter of 2004 to
18.8% of revenues in the first quarter of 2005. This increase is due primarily to an increase in
fuel expense. Fuel expense increased from 5.7% of revenues in the first quarter of 2004 to 7.4% of
revenues in the first quarter of 2005. The increase is due primarily to an increase in fuel
prices. The average price of fuel was approximately 30% higher in the first quarter of 2005 than
the first quarter of 2004 for our U.S. operations. We estimate that the increase in the cost of
fuel resulted in additional expense of approximately $4.6 million. However, because we had fuel
surcharge agreements with substantially all of our customers during the first quarter of 2005, the
corresponding effect of fuel surcharges, which are included in revenues, was approximately $4.6
million, mitigating any unfavorable impact on our operating income for the first quarter of 2005
compared to the first quarter of 2004. 25




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##### Table of Contents



Purchased transportation Purchased transportation increased from 12.2% of revenues in the first quarter of 2004 to 13.1% of
revenues in the first quarter of 2005. Purchased transportation primarily represents the cost of
utilizing Teamster owner-operators of Rigs by our Automotive Group, who receive a percentage of the
revenue generated from transporting vehicles on our behalf. Purchased transportation increased in
the first quarter of 2005 over the first quarter of 2004 primarily as a result of an increase in
the average length of haul for vehicle deliveries by owner-operators. During the first quarter of
2005, the average length of haul driven by owner-operators increased by 4.2% over the first quarter
of 2004. Purchased transportation was also affected by the increase in fuel surcharge revenue
discussed above since fuel surcharge revenue derived from deliveries by owner-operators is
reimbursed to the owner-operator and recorded in purchased transportation. Insurance and claims Insurance and claims expense decreased from 4.3% of revenues in the first quarter of 2004 to 4.0%
of revenues in the first quarter of 2005. Auto and general liability expense was approximately
$0.5 million lower in the first quarter of 2005 due to lower projected annual losses and premiums.
The decrease was partially offset by higher products liability expense of approximately $0.3
million due to the unfavorable development of existing cases as well as the addition of a new case.
The ratio of expense to revenue was also impacted by the increase in revenues, which was not
related to volume. Operating taxes and licenses Operating taxes and licenses increased from 3.1% of revenues in the first quarter of 2004 to 3.5%
of revenues in the first quarter of 2005. The increase is due primarily to a change in estimate
during the first quarter of 2004 related to a liability established in 2001 for licensing fees.
During the first quarter
of 2004, we determined that payment of these fees was no longer probable. Based on this
determination, we reversed the accrual resulting in a decrease to operating taxes and licenses of
$1.1 million. Depreciation and amortization Depreciation and amortization decreased from 4.9% of revenues in the first quarter of 2004 to 3.7%
of revenues in the first quarter of 2005. The decrease was due primarily to a decrease in the
depreciable asset base that has been reduced due to certain aged equipment reaching the depreciable
limits and our decision to upgrade and extend our fleet through our remanufacturing program. The
implementation of the fleet remanufacturing program has reduced our capital spending and resulted
in a higher percentage of remanufactured Rigs in our fleet with lower depreciation expense compared
to new Rigs. Depreciation expense in the first quarter of 2005 was also lower as a result of the
removal of 710 tractors and 834 trailers from the depreciable base during the fourth quarter of
2004 when we performed an analysis of our fleet of Rigs and determined that these tractors and
trailers were not viable candidates for remanufacture and would be sold for scrap value. Pursuant
to this determination, we changed the estimated remaining useful lives of these assets and
accordingly recorded no depreciation expense for these tractors and trailers during the first
quarter of 2005. Gain (loss) on disposal of operating assets In the first quarter of 2004, we sold excess land in Canada and recorded a gain of approximately
$1.1 million. There were no significant asset sales in the first quarter of 2005. Interest expense Interest expense increased from $7.4 million in the first quarter of 2004 to $8.2 million in the
first quarter of 2005. The increase is due primarily to an increase in the effective interest rate
on Term Loan A, the addition of the $20 million Term Loan B to our Credit Facility during the
fourth quarter of 2004, and waiver fees incurred as a result of the delayed delivery of our
financial statements for the period ended September 30, 2004, which were delivered to our lenders
on January 7, 2005. Income taxes For the three months ended March 31, 2005 and 2004, the income tax expense differed from the
amounts computed by applying federal statutory rates to the reported loss before income taxes since
we did not meet the more likely than not criteria to recognize the 26




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tax benefits of losses in most of our jurisdictions. The loss before income taxes generated
deferred tax assets for which we increased the valuation allowance. In addition, during the three
months ended March 31, 2005, we recognized income tax expense related to those jurisdictions with
taxable income without offsetting tax benefits. Liquidity and Capital Resources Working Capital Our primary sources of liquidity are funds provided by operations and borrowings under our Credit
Facility with a syndicate of lenders. We use our cash primarily for the remanufacture and
maintenance of our Rigs and terminal facilities, the payment of operating expenses, the payment of
interest and principal associated with our debt, and other capital expenditures. We use restricted cash and cash equivalents and restricted investments to collateralize letters of
credit required by third-party insurance companies for the settlement of insurance claims. These
collateral assets are not available for our operations. We include borrowings under our $90 million Revolver in current liabilities pursuant to Emerging
Issues Task Force (EITF) Issue No. 95-22, Balance Sheet Classification of Borrowings Outstanding
under Revolving Credit Agreements that include both a Subjective Acceleration Clause and a Lock-Box
Arrangement,even though the Revolver has a maturity date of September 2007 under the terms of the
Credit Facility. At March 31, 2005, borrowings under the Revolver totaled $16.3 million. At March 31, 2005, our current liabilities exceeded our current assets by $43.6 million. However,
we do not believe that we are financially impaired as a result of our negative working capital
since we generate positive cash flows from operations and have availability under our Revolver to
cover seasonal working capital needs. We obtained Term Loan C in April 2005 because we believed
that the availability under the Revolver in our Credit Facility could prove to be inadequate to
satisfy our working capital needs during certain periods in the first and second quarters of 2005. Our two largest customers have lowered their production forecasts for the second quarter of 2005.
As a result, we anticipate that we will deliver fewer vehicles and generate less revenue in the
second quarter of 2005 compared to the second quarter of 2004. We expect that this will result in
additional pressure related to our liquidity in 2005. Further, we believe that we may
not comply with certain of our financial covenants in the second
quarter of 2005 or thereafter. There can be no assurance that we
will be able to obtain relief from lenders or, if necessary, amend our Credit Facility to address
covenant issues or otherwise obtain additional financing. However, as a result of the additional liquidity
provided by the amendment in April 2005, we have been able to, and with appropriate consideration
given to the matters mentioned above, expect to continue to, generate sufficient cash flows from
operations to meet our liquidity needs through at least the next twelve months, provided that we
are able to comply with, or obtain a waiver or amendment of the
financial covenants in our Credit Facility so that we can use the Credit Facility to cover seasonal working capital needs and
provided that the total of our
borrowings does not exceed the cap included in our indenture agreement governing our Senior Notes. Operating Activities We use the indirect method to prepare our statement of cash flows. Accordingly we compute net
cash provided by operating activities by adjusting the net loss for all items included in the net
loss that do not currently affect operating cash receipts and payments. In the first quarter of 2005, we generated $6.8 million from operating activities while in the
first quarter of 2004 we utilized $11.2 million, an increase of $18.0 million. The primary reason
for this increase was the net change in operating assets and liabilities, primarily working capital
items. For the first quarter of 2005, operating assets and liabilities increased $7.7 million
whereas in the first quarter of 2004, operating assets and liabilities decreased by $12.4 million,
a net increase of $20.1 million. The positive impact from the change in working capital was
partially offset by an increase in our net loss of $1.0 million. We discuss the factors that
impacted our net loss in Results of Operations above. Investing Activities 27




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In the first quarter of 2005, we used $20.7 million in investing activities while in the first
quarter of 2004 we used $15.8 million. This change in investing activities was due primarily to an
increase in restricted cash related to an increase in collateral requirements at our captive
insurance company for our self insurance reserves and a reduction in cash proceeds from asset
sales. Cash received from the sale of assets decreased due to cash generated from the sale of
excess land in Canada in the first quarter of 2004, whereas we had no significant asset sales in
the first quarter of 2005. We are continuing our fleet remanufacturing program to upgrade and expand our fleet. In the first
quarter of 2005, we remanufactured 35 tractors, 36 trailers and replaced (overhauled) approximately
105 engines. In the first quarter of 2004, we remanufactured 45 tractors and trailers and replaced
(overhauled) approximately 69 engines. During 2005, we plan to spend approximately $30 million in
capital expenditures, $25 million of which we believe will be spent on our fleet of Rigs. Of this
amount, we anticipate that our Automotive Group will spend approximately $10 million on the
replacement of an estimated 470 engines, which represents almost twice as many engines as we
replaced during 2004. This planned increase is due to our expectation that the useful lives of
these engines will expire during 2005. The capital expenditures planned for 2005 also include the
planned purchase by our Automotive Group of an estimated 100 currently leased Rigs for $3 million
and $12 million for Rig remanufacture and engine replacements (overhauls). Capital spending by our
Axis Group is estimated at $5 million. Financing activities Financing activities provided net cash of $15.2 million in the three months ended March 31, 2005
whereas in the three months ended March 31, 2004, these activities generated net cash of $33.1
million, a decrease of $17.9 million. The decrease in cash provided by financing activities is due
to our inability to finance certain 2005 insurance costs. In 2004, we entered into notes payable
of approximately $31.3 million with third parties to finance substantially all of our insurance
premiums and self-insured losses for 2004. In January 2005, we were only able to finance through
notes payable with third parties approximately $8.0 million of our insurance premiums and
self-insured losses for 2005 and utilized approximately $10.0 million of availability under our
Revolver for these items, thereby reducing our Revolver availability by approximately $10.0 million
in January 2005. Debt, Contractual Obligations and Letters of Credit The amendments to our Credit Facility in November 2004 and April 2005 whereby we borrowed an
aggregate additional $45 million have substantially reduced the amount of additional indebtedness
we may incur. Under the indenture agreement governing our Senior Notes, we may not incur more than $230
million of indebtedness beyond the $150 million of indebtedness incurred under our Senior Notes.
Our aggregate indebtedness was $355.7 million as of May 14, 2005 and the amount of additional
indebtedness that we may incur as of May 14, 2005, under the
indenture agreement governing our Senior Notes and beyond the maximum amount available and
outstanding under the Credit Facility was $24.3 million. At March 31, 2005, we had issued $135.8 million of letters of credit to third parties, related
primarily to the settlement of insurance claims and reserves and support for a line of credit at
one of our foreign subsidiaries. Of the $135.8 million, $42.6 million of these letters of credit
are secured by available borrowings on the Revolver and $93.2 million were issued by our wholly
owned captive insurance subsidiary Haul Insurance Limited and are collateralized by $93.2 million
of restricted cash and cash equivalents held by this subsidiary. We renew these letters of credit
annually. The amount of letters of credit that we may issue under the Revolver may not exceed $50
million. Since we had utilized $42.6 million of this availability at March 31, 2005, the remaining
letter of credit availability under the Revolver as of March 31, 2005 was $7.4 million. As of May
14, 2005, we had issued $141.1 million of letters of credit to third parties, $43.6 million of
which are secured by available borrowings under the Revolver. The remaining letter of credit
availability under the Revolver as of May 14, 2005 was $6.4 million. The amount available under the $90 million Revolver may be reduced based on a calculation of
Revolver collateral and may be limited by a debt incurrence ratio as set forth in the Credit
Facility. As of March 31, 2005, $81.4 million of Revolver collateral was available. As discussed
above, we utilized approximately $10.0 million of availability under our Revolver to finance
additional premiums and self-insured loss payments in January 2005 and as of March 31, 2005, had
committed approximately $42.6 million of the Revolver under letters of credit primarily related to
the settlement of insurance claims. As of March 31, 2005, $16.3 million was outstanding under the
Revolver. Accordingly, we had approximately $22.5 million available under the Revolver as of March
31, 2005. As of May 14, 2005, we had approximately $21.3 million available under the Revolver.
However, we anticipate that this amount may be further limited by the debt incurrence ratio
included in the covenants of our Credit Facility. 28




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See Managements Discussion and Analysis of Financial Condition and Results of Operations in our
2004 Annual Report on Form 10-K and the notes to our unaudited consolidated financial statements
included in Item 1. Financial Statements of this report for more information on our debt,
contractual obligations and letters of credit including the following:  
    Our existing debt along with a summary of recent amendments; and
    Encumbrances on our assets. Off-Balance Sheet Arrangements Between January 1, 2005 and May 14, 2005, we entered into no off-balance sheet arrangements. See
our 2004 Annual Report on Form 10-K for a discussion of our off-balance sheet arrangements as of
December 31, 2004. Disclosures About Market Risks We face several risks, some of which we discuss in Item 1. Business under the heading Factors
Which May Affect Future Results in our 2004 Annual Report on Form 10-K. The primary market risks
inherent in our market risk sensitive instruments and positions are the potential loss arising from
adverse changes in fuel prices, interest rates, risk management retention and foreign currency
exchange rates. Fuel Prices Allied Automotive Group is dependent on diesel fuel to operate its fleet of Rigs. Diesel fuel
prices are subject to fluctuations due to unpredictable factors such as the weather, government
policies, and changes in global demand and global production. To reduce the price risk caused by
market fluctuations, our Automotive Group periodically purchases fuel in advance of consumption. A
10% increase in diesel fuel prices would increase costs by $8.6 million over the next twelve months
assuming levels of fuel consumption in the next twelve months are consistent with the first quarter
of 2005. This increase in costs would be partially offset by our fuel surcharge agreements with our
customers. Currently, we have in place fuel surcharges with substantially all of our customers.
However, the fuel surcharges in regard to a single customer, who comprised approximately 35% of our
2004 revenues, may be terminated at any time at the sole discretion of this customer. Interest Rates We primarily issue long-term debt obligations to support general corporate purposes including
capital expenditures and working capital needs. The majority of our long-term debt obligations bear
a fixed rate of interest. The portion of the long-term debt obligations that does not bear a fixed
rate of interest has an interest rate that varies based on LIBOR or the prime rate or may fluctuate
within a three percentage point range based on our leverage, as defined in our Credit Facility. At
March 31, 2005, approximately $110.9 million of our debt was subject to variable rates of interest.
The impact of a three-percentage point increase in interest rates would result in an increase in
annual interest expense of approximately $3.3 million. Risk Management Retention Because we retain liability for a significant portion of our risks, an increase in the number or
severity of accidents, on the job injuries, other loss events over those anticipated, or adverse
development of existing claims including wage and medical cost inflation could have a material
adverse effect on our profitability. While we currently have insurance coverage for claims above
our retention levels, there can be no assurance that we will be able to obtain insurance coverage
in the future. We currently utilize an inner-aggregate, which is a deductible subject to an annual limit, in
certain insurance programs. We currently use the inner-aggregate only for our initial layer of
excess insurance whereby losses in the excess layer that are within the inner-aggregate amount are
retained by us up to an amount equal to the inner-aggregates annual limit. Once the annual limit
is met, the deductible is no longer in effect. We retain up to $1 million liability for automobile liability claims in the U.S. with no aggregate
limit and have a $7 million inner-aggregate deductible for claims that exceed $1 million, but are
less than $5 million per occurrence.  Claims in excess of $5 million are covered by excess insurance. In 29




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Canada, we retain liability up to CDN $500,000 for each
claim for personal injury and property damage, and have a
CDN $500,000 inner-aggregate limit for losses from CDN $500,000 to CDN $1 million. Additionally, we
retain liability of up to $250,000 for each cargo damage claim in the U.S. and up to CDN $250,000
for each cargo damage claim in Canada. These retentions and deductibles were effective January 1,
2004 and remain in effect for the insurance year ending December 31, 2005. Foreign Currency Exchange Rates Though we operate primarily in the U.S., we own foreign subsidiaries, the most significant being
Allied Systems (Canada). The net investment in our foreign subsidiaries translated into U.S.
dollars using the rate of exchange in effect at March 31, 2005, was $108.9 million. The potential
impact on other comprehensive income resulting from a hypothetical 10% change in quoted foreign
currency exchange rates approximates $10.9 million. At March 31, 2005, we had an intercompany payable balance of $33.7 million denominated in U.S.
dollars recorded on our Canadian subsidiarys balance sheet. The potential impact from a
hypothetical 10% change in quoted foreign currency exchange rates related to this balance would be
a $3.4 million charge or credit to the income statement. We do not use derivative financial
instruments to hedge our exposure to changes in foreign currency exchange rates. Inflation While we may have been subject to some measure of inflation, we do not believe that this has
impacted our results significantly. In addition, it would be difficult to isolate such effects on
our operations. Critical Accounting Policies and Estimates The preparation of financial statements in conformity with accounting principles generally accepted
in the U.S. requires us to make decisions based upon estimates, assumptions, and factors we
consider relevant to the circumstances. Such decisions include the selection of applicable
accounting principles and the use of judgment in their application, the results of which impact
reported amounts and disclosures. Changes in future economic conditions or other business
circumstances may affect the outcomes of our estimates and assumptions. Accordingly, actual results
could differ from those anticipated. A summary of the significant accounting policies which we follow in the preparation of our
financial statements as well as footnotes describing various elements of the financial statements
and the assumptions on which specific amounts were determined are included in our consolidated
financial statements included in our 2004 Annual Report on Form 10-K. In addition, our critical
accounting policies and estimates are discussed in our 2004 Annual Report  on Form 10-K and we believe that no
changes have occurred. Recent Accounting Pronouncements In March 2005, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 47
(FIN 47), Accounting for Conditional Asset Retirement Obligationswhich clarifies that the term
conditional asset retirement obligation as used in Statement of Financial Accounting Standards
(SFAS) No. 143, Accounting for Asset Retirement Obligations,refers to a legal obligation to
perform an asset retirement activity in which the timing and (or) method of settlement are
conditional on a future event that may or may not be within the control of the entity. The
obligation to perform the asset retirement activity is unconditional even though uncertainty exists
about the timing and (or) method of settlement. Accordingly, an entity is required to recognize a
liability for the fair value of a conditional asset retirement obligation if the fair value of the
liability can be reasonably estimated. Uncertainty about the timing and (or) method of settlement
of a conditional asset retirement obligation should be factored into the measurement of the
liability when sufficient information exists. FIN 47 also clarifies when an entity would have
sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN
47 is effective no later than the end of fiscal years ending after December 15, 2005, with early
adoption encouraged. Retrospective application of interim financial information is permitted but is
not required. We are currently assessing the impact FIN 47 may have on our financial statements. In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment(SFAS No. 123R),
which replaces SFAS No. 123, Accounting for Stock-Based Compensation,supersedes APB Opinion No.
25, Accounting for Stock Issued to Employeesand amends SFAS No. 95, Statement of Cash Flows.SFAS
No. 123R requires all 30




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share-based payments to employees, including grants of employee stock
options, to be recognized in the financial
statements based on their fair values. The pro forma disclosures previously permitted under SFAS
No. 123 no longer will be an alternative to financial statement recognition. SFAS No. 123R also
requires the benefits of tax deductions in excess of recognized compensation expense to be reported
as a financing cash flow, rather than as an operating cash flow as required under current
literature. In March 2005, the Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin No.107, which provides interpretive guidance regarding the interaction of SFAS No. 123R
and certain SEC rules and regulations related to share-based payment transactions with
nonemployees, valuation methods, classification of compensation expense, non-GAAP measures,
accounting for income tax effects, modification of employee share options prior to adoption and
disclosures in Managements Discussion and Analysis. SFAS No. 123R was to be adopted no later than
the first interim or annual period after June 15, 2005, with early adoption encouraged. In April
2005, the SEC issued a rule that allows companies to implement SFAS No. 123R as of the beginning of
the fiscal year beginning after June 15, 2005. We plan to adopt SFAS No. 123R effective January 1,
2006. Under SFAS No. 123R, we must determine the appropriate fair value model to be used for valuing
share-based payments, the method to be used for amortizing the resulting compensation cost and the
transition method to be used at the date of adoption. The transition methods include the modified
prospective and the modified retrospective adoption methods. The modified prospective method requires
that compensation expense be recognized beginning with the effective date based on the requirements
of SFAS 123R for all awards granted to employees after the effective date of SFAS 123R and based on
the requirements of SFAS 123 for all awards granted to employees prior to the effective date of
SFAS No. 123R that remain unvested on the effective date. The modified retrospective method includes
the requirements of the modified prospective methods described above, but also permits companies to
restate prior periods based on the amounts previously reported under SFAS No. 123 for purposes of
pro forma disclosures. We are currently evaluating the requirements of SFAS No. 123R and expect
that the adoption of this standard will result in reported operating results that are similar to
our current pro forma disclosures under SFAS No. 123. In addition, the adoption would reduce net
operating cash flows and increase net financing cash flows in periods after adoption to the extent
that benefits of tax deductions exceed previously recognized compensation cost. These amounts have
not been significant to our prior financial statement disclosures. In May 2004, the FASB issued FASB Staff Position (FSP) No. FAS 109-2, Accounting and Disclosure
Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of
2004, which provides guidance under SFAS No. 109, Accounting for Income Taxes,with respect to
recording the potential impact of the repatriation provisions of the American Jobs Creation Act of
2004 (the Jobs Act) on enterprises income tax expense and deferred tax liability. The Jobs Act was
enacted on October 22, 2004. FSP 109-2 allows an enterprise time beyond the financial reporting
period of enactment to evaluate the effect of the Jobs Act on its plan for reinvestment or
repatriation of foreign earnings for purposes of applying SFAS No. 109. We expect to complete our
evaluation of the impact of the repatriation provisions by the second quarter of 2005. Accordingly,
as provided for in FSP 109-2, we have not adjusted our tax expense or deferred tax liability to
reflect the repatriation provisions of the Jobs Act. However, we do not expect the impact on our
financial statements to be significant. Factors Which May Affect Future Results The risks and uncertainties, which could either individually or together, affect our future
financial condition and results of operations include those set forth in this Quarterly Report on
Form 10-Q and those set forth in Item 1. Business  Factors Which May Affect Future Results in
our 2004 Annual Report on Form 10-K. Cautionary Notice Regarding Forward-Looking Statements We make forward-looking statements in this Quarterly Report on Form 10-Q under the headings, Item
2. Managements Discussion and Analysis of Financial Condition and Results of Operations, and in
other reports we file with the SEC, including statements regarding:  
    our strategy, intentions and expectations;
    general industry trends, competitive conditions and customer preferences;
    our management information systems;
    our remanufacturing program;
    our efforts to reduce costs;
    the adequacy of cash to finance our current and future operations; and 31




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
    resolution of litigation without a material adverse effect on our financial
condition and results of operations. This notice is intended to take advantage of the safe harbor provided by the Private Securities
Litigation Reform Act of 1995 with respect to forward-looking statements. The words believe,
anticipate, seek, expect, estimate, intend, plan, project and similar expressions
often accompany such forward-looking statements, however this report also contains forward-looking
statements that may not be so identified. These forward-looking statements involve a number of
risks and uncertainties including risks and uncertainties relating to the following:  
    our ability to comply with the terms of our current debt agreements and customer contracts;
    economic recessions or downturns in new vehicle production or sales;
    war in the Middle East;
    increases in the cost and availability of fuel;
    the highly competitive nature of the automotive distribution industry;
    dependence on the automotive industry and ongoing initiatives of customers to reduce costs;
    loss or reduction of revenues generated by our major customers or the loss of
any such customers;
    the variability of OEM production and seasonality of the automotive distribution industry;
    our highly leveraged financial position;
    our ability to obtain financing in the future;
    labor disputes involving us or our significant customers;
    dependence on our key personnel;
    the availability of strategic acquisitions or joint venture partners;
    increased frequency and severity of employee related accidents and workers
compensation claims;
    availability of appropriate insurance coverages in all categories;
    changes in the regulatory requirements which are applicable to our business;
    changes in vehicle sizes, configurations and weights which may adversely impact
vehicle deliveries per load;
    risks associated with doing business in foreign countries;
    the availability of qualified drivers;
    dependence on legacy information systems;
    dependence on IBM for mainframe and system support;
    increased frequency and severity of cargo claims;
    increased frequency and severity of traffic accidents;
    excess manufacturer production capacity;
    efforts to improve network efficiency; and
    other risk factors set forth from time to time in our SEC reports, including
but not limited to, our 2004 Annual Report on Form 
10-K and this Quarterly Report
on Form 10-Q. Many of these factors could cause our actual results to differ materially from those suggested by
the forward-looking statements. Also, many of these factors are beyond our ability to control or
predict, and we caution our readers not to place undue reliance on the forward-looking statements
that we make. We also disclaim any obligation to update or review forward-looking statements
contained in this Quarterly Report on Form 10-Q or in any statement referencing the risk factors
and other cautionary statements set forth in this Quarterly Report on Form 10-Q, except as may be
required by law. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk The information required under this item is provided under the caption Disclosures about Market
Risks under Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations. 
 Item 4. Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures.As of the end of the period covered by this
quarterly report, Allied, under the supervision and with the participation of Allieds management,
including the Chief Executive Officer and the Chief Financial Officer, has evaluated the
effectiveness of Allieds disclosure controls and 32




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procedures (as defined in Sections 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934).
Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that,
except as set forth below under the heading Changes in Internal Control over Financial Reporting,
Allieds disclosure controls and procedures were effective in alerting them in a timely manner of
material information required to be included in Allieds periodic Securities and Exchange
Commission filings. (b) Changes in Internal Control Over Financial Reporting. During 2004, KPMG advised the Audit
Committee and management that KPMG had identified deficiencies in our analysis, evaluation and
review process for financial reporting. KPMG has informed the Audit Committee and management that
it believes such deficiencies are a material weakness in our internal control over financial
reporting, with respect to our analysis, evaluation and review of financial information included in
our financial reports. In response to the material weakness, we undertook a rigorous review and, where necessary, we
revised our accounting policies and procedures to ensure that all reasonable steps had been taken
to address and correct the material weakness identified by KPMG. As part of this process, we hired
an external consultant to assist us in reviewing and revising our policies and procedures, hired a
new Chief Financial Officer, replaced our Corporate Controller in January 2005, staffed a new role
of Vice President, Finance and Accounting and added several other accounting professionals in
February and March 2005. We believe that these and other steps have established the appropriate
foundation upon which to remediate this material weakness as processes, including regular
evaluation and management reviews, are strengthened and are put in place operationally over a
reasonable period of time. In connection with the audit of our consolidated financial statements
for the year ended December 31, 2004, KPMG advised the Audit Committee and management that they
have observed that we have added significant resources to improve processes and controls over the
analysis, evaluation and review of financial information included in the financial reporting
process. However, KPMG indicated that the material weakness still existed as of December 31, 2004
and the effectiveness of these controls can only be evaluated after they have been in place and
operating for a significant period of time. KPMG has subsequently
advised the Audit Committee and management that the material weakness
still existed at March 31, 2005. We can provide no assurances that additional material weaknesses or significant deficiencies in our
internal control over financial reporting will not be discovered in the future. If we fail to
remediate the material weakness identified by our independent auditors, or if we have difficulties
in implementing or fail to implement new or improved controls that are required as a result of the
material weakness, our operating results or customer relationships could be adversely affected or
we may fail to meet our SEC reporting requirements or our financial statements may contain a
material misstatement. Internal control over financial reporting cannot provide absolute assurance of achieving financial
reporting objectives or of preventing fraud due to its inherent limitations, regardless of how well
designed or implemented. Internal control over financial reporting is a process that involves human
diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human
failures. Because of these limitations, there is a risk that material misstatements or instances
of fraud may not be prevented or detected on a timely basis by our internal control over financial
reporting. Other than the items identified above, there were no other changes in our internal control over
financial reporting that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting. Since we are not an accelerated filer (as defined in Exchange Act Rule 12b-2), we will conduct the
initial assessment of our internal control over financial reporting mandated by Section 404 of the
Sarbanes-Oxley Act of 2002 and will report on that annual assessment in our Annual Report on Form
10-K for the year ending December 31, 2006. That process, which is in its initial stages, could
identify significant deficiencies or material weaknesses not previously reported. 
 PART II  OTHER INFORMATION 
 Item 1. Legal Proceedings We are involved in various litigation and environmental matters relating to workers compensation,
products liability, auto liability, employment practices, and other matters arising from operations
in the ordinary course of business. We believe that the ultimate disposition of these matters will
not have a material adverse effect on our financial position or results of operations. 33




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See also Note 17 (c) of the Notes to our consolidated financial statements included in our 2004
Annual Report on Form 10-K. 
 Item 6. Exhibits and Reports on Form 8-K: (a) Exhibit Index Exhibit No.
    
    Description31.1
    
    Rule 13a-14(a)/15d-14(a) Certification by Hugh E. Sawyer.31.2
    
    Rule 13a-14(a)/15d-14(a) Certification by Thomas H. King.32.1
    
    Section 1350 Certification by Hugh E. Sawyer.32.2
    
    Section 1350 Certification by Thomas H. King.
 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 23, 2005
    By:
    /s/ Hugh E. SawyerHugh E. Sawyer,President and Chief Executive Officer Date: May 23, 2005 By:
    /s/ Thomas H. KingThomas H. King,Executive Vice President and Chief Financial
Officer (Principal Financial and Accounting Officer) 35




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EXHIBIT INDEX Exhibit No.
    
    Description31.1
    
    Rule 13a-14(a)/15d-14(a) Certification by Hugh E. Sawyer.31.2
    
    Rule 13a-14(a)/15d-14(a) Certification by Thomas H. King.32.1
    
    Section 1350 Certification by Hugh E. Sawyer.32.2
    
    Section 1350 Certification by Thomas H. King.
 36