UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

Commission File Number: 0-22276

ALLIED HOLDINGS, INC.

Suite 200, 160 Clairemont Avenue, Decatur, Georgia 30030

(404) 373-4285

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

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

ALLIED HOLDINGS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

PART 1 - FINANCIAL INFORMATION

ITEM 1 - Financial Statements

ALLIED HOLDINGS, INC. AND SUBSIDIARIES

See accompanying notes to consolidated financial statements.

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ALLIED HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to consolidated financial statements.

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ALLIED HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to consolidated financial statements.

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ALLIED HOLDINGS, INC. AND SUBSIDIARIES

(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 Obligations which 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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

for Stock Issued to Employees and 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):

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ALLIED HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

(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):

(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):

(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):

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

(8) Other Noncurrent Assets

Other noncurrent assets as of March 31, 2005 and December 31, 2004 were as follows (in thousands):

The deferred financing costs and the related accumulated amortization are presented below as of March 31, 2005 and December 31, 2004 (in thousands):

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):

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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

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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):

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):

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):

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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

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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.

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(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

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(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):

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

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(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):

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):

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):

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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):

Total assets of these two segments and corporate/other as of March 31, 2005 and December 31, 2004 is as follows (in thousands):

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):

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(Unaudited)

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:

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

SUPPLEMENTAL CONSOLIDATING BALANCE SHEET INFORMATION
March 31, 2005
(In thousands)

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

SUPPLEMENTAL CONSOLIDATING BALANCE SHEET INFORMATION
December 31, 2004
(In thousands)

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
Three Months Ended March 31, 2005
(In thousands)

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
Three Months Ended March 31, 2004
(In thousands)