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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549




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Form 10-K

|  |  |                                                                                             
|- |  | --------------------------------------------------------------------------------------------
|þ |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
| 
|  |  | For the year ended December 31,
    2002.                                                   
| 
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13
    or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-22276



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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
    ID Number)

160 Clairemont Avenue, Suite 200,
Decatur, Georgia 30030

(Address of principal executive
office)


Registrants telephone number, including
area code (404) 373-4285

Securities registered pursuant to
Section 12(b) of the Act:

|                          |  |                                           
|------------------------- |  | ------------------------------------------
|No par value Common Stock |  | American Stock Exchange                   
|(Title of Class)          |  | (Name of Exchange on which
    Registered)

Securities registered pursuant to
Section 12(g) of the Act:

None

(Title of Class)


Indicate by check mark whether the Registrant
(1) has filed all reports required to be filed by
Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for the
past
90 days.     Yes þ          No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of
Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.     o

Indicate by check mark whether the Registrant is
an accelerated filer (as defined in Exchange Act
Rule 12b-2).     Yes o          No þ

As of March 3, 2003 Registrant had
outstanding 8,443,961 shares of common stock. The aggregate
market value of the common stock held by nonaffiliates of the
Registrant, based upon the closing sales price of the common
stock on March 3, 2003 as reported on the American Stock
Exchange, was approximately $20.1 million.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for
Registrants 2003 Annual Meeting of Shareholders to be held
June 19, 2003 are incorporated by reference in Part III.



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TABLE OF CONTENTS



|                                                  |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|TABLE OF CONTENTS                                
|PART I                                           
|                                                  | Item 1. Business                                                                             
|                                                  | Item 2. Properties                                                                           
|                                                  | Item 3. Legal Proceedings                                                                    
|                                                  | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II                                          
|                                                  | Item 5. Market for the Registrants Common Equity and Related Stockholder Matters            
|                                                  | Item 6. Selected Consolidated Financial Data                                                 
|                                                  | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                  | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|                                                  | Item 8. Financial Statements and Supplementary Data                                          
|                                                  | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III                                         
|                                                  | Item 10. Directors and Executive Officers of the Registrant                                  
|                                                  | Item 11. Executive Compensation                                                              
|                                                  | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                                  | Item 13. Certain Relationships and Related Transactions                                      
|                                                  | Item 14. Controls and Procedures                                                             
|PART IV                                          
|                                                  | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|EX-4.3(A) FIRST AMENDMENT TO FINANCING AGREEMENT 
|EX-10.9 EMPLOYMENT AGREEMENT                     
|EX-10.12(A) AMENDMENT TO AGREEMENT               
|EX-21 SUBSIDIARIES OF ALLIED HOLDINGS, INC.      
|EX-23.1 CONSENT OF KPMG LLP                      
|EX-23.2 NOTICE RE: CONSENT OF ARTHUR ANDERSEN LLP



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ALLIED HOLDINGS, INC.






TABLE OF CONTENTS


|           |  |                                                                                           |  |        |    | 
|---------- |  | ----------------------------------------------------------------------------------------- |  | ------ | -- | 
|           |  |                                                                                           |  | Page  
|           |  | Caption                                                                                   |  | Number
|           |  |                                                                                           |  |       
|PART I     |  |                                                                                           |  |       
|Item 1.    |  | Business                                                                                  |  |        | 2  | 
|Item 2.    |  | Properties                                                                                |  |        | 11 | 
|Item 3.    |  | Legal Proceedings                                                                         |  |        | 12 | 
|Item 4.    |  | Submission of Matters to a Vote of Security
    Holders                                   |  |        | 13 | 
|          
|PART II    |  |                                                                                           |  |       
|Item 5.    |  | Market for the Registrants Common Equity
    and Related Stockholder Matters             |  |        | 14 | 
|Item 6.    |  | Selected Consolidated Financial Data                                                      |  |        | 15 | 
|Item 7.    |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |  |        | 17 | 
|Item 7A.   |  | Quantitative and Qualitative Disclosures about
    Market Risk                            |  |        | 28 | 
|Item 8.    |  | Financial Statements and Supplementary Data                                               |  |        | 28 | 
|Item 9. 28 |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure  |  |        |    | 
|PART III   |  |                                                                                           |  |       
|Item 10.   |  | Directors and Executive Officers of the Registrant                                        |  |        | 28 | 
|Item 11.   |  | Executive Compensation                                                                    |  |        | 29 | 
|Item 12.   |  | Security Ownership of Certain Beneficial Owners
    and Management                        |  |        | 29 | 
|Item 13.   |  | Certain Relationships and Related Transactions                                            |  |        | 29 | 
|Item 14.   |  | Controls and Procedures                                                                   |  |        | 29 | 
|          
|PART IV    |  |                                                                                           |  |       
|Item 15.   |  | Exhibits, Financial Statement Schedules, and
    Reports on Form 8-K                      |  |        | 29 | 

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PART I






|        |         
|------- | --------
|Item 1. | Business

1.     General

Allied Holdings, Inc. (the Company or
Allied), founded in 1934, is a holding company which
operates through its wholly owned subsidiaries. The
Companys principal operating subsidiaries are Allied
Automotive Group, Inc. (collectively with its subsidiaries
referred to as the Allied Automotive Group or
Automotive Group) and Axis Group, Inc.
(Axis or the Axis Group). Allied
Automotive Group is the largest motor carrier in North America
specializing in the transportation of new and pre-owned
automobiles, sport utility vehicles (SUVs),
and light trucks utilizing specialized tractor trailers
(Rigs or Rig) and serves and supports all of the
major domestic and foreign automotive manufacturers. The Axis
Group provides distribution services to the used and new
finished vehicle distribution market and other segments of the
automotive industry that complement the Automotive Groups
services.

Allied Automotive Group offers a full range of
automotive delivery services including transporting new, used
and off-lease vehicles to dealers from plants, rail ramps, ports
and auctions, and providing vehicle rail-car loading and
unloading services. Allied Automotive Group represented
approximately 97% of the Companys consolidated 2002
revenues. Allied Automotive Group operates primarily in the
short-haul segment of the automotive transportation industry
with an average length of haul of less than 200 miles. General
Motors, Ford, DaimlerChrysler, Toyota and Honda represent the
Companys largest customers, accounting for in total
approximately 87% of 2002 revenues. Allied Automotive Group also
provides services to all other major foreign manufacturers,
including Mazda, Nissan, Isuzu, Volkswagen and Mitsubishi. All
of Allied Automotive Groups major car hauling competitors
are privately held and there is minimal public information
available with respect to such companies, but Allied Automotive
Group believes that its 2002 revenues were substantially greater
than those of its closest competitor.

The Company provides distribution and
transportation support services to the pre-owned and new vehicle
market and other segments of the automotive industry through the
Axis Group that complement Allied Automotive Groups new
vehicle distribution services operations. Axis provides carrier
management services for various automotive clients, leases
equipment for containerized international shipment of vehicles,
and provides vehicle processing services at ports and inland
distribution centers. Axis, through its subsidiary CT Group,
Inc., provides a variety of related support services to the
pre-owned vehicle market, including marshalling and yard
management services. In addition, Axis provides logistics and
distribution services in Mexico, as well as vehicle tracking for
more than 1.5 million Toyota vehicles annually. Axis sold
its interest in a joint venture in Brazil for $3.0 million
in April 2002.

2.     Services

Allied Automotive Group is the largest motor
carrier in North America specializing in the transportation of
new automobiles, SUVs and light trucks for all the major
domestic and foreign automotive manufacturers. Allied Automotive
Group also believes it can increase the number of secondary
market vehicles (used automobiles) it delivers by utilizing its
large fleet and expansive terminal network to deliver secondary
market vehicles on a backhaul basis.

The Company provides corresponding services to
its customers through its Axis Group subsidiary. Axis Group is
aggressively pursuing opportunities to provide distribution and
support services to customers in the automotive industry and
seeks to leverage its proprietary information systems in order
to efficiently provide such services. These services include
identifying new and innovative distribution methods for
customers, providing solutions to improve the management of
inventory of new and used vehicles, and providing reconditioning
services to the used and remarketed vehicle market. Axis Group
has also targeted growth in the secondary markets through
expansion of its carrier management services.

Information regarding revenues, operating profit
and total assets of each operating segment of the Company for
the fiscal years 2000 through 2002, and information regarding
revenues and long-lived assets of

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the Company attributed to the geographic areas in
which the Company conducted business during those fiscal years,
is set forth in note 17 of the Companys consolidated
financial statements included in this Annual Report on
Form 10-K.


3.     Customer
Relationships

Allied Automotive Group has written multi-year
contracts with substantially all of its customers. Allied
Automotive Groups contracts with its customers establish
rates for the transportation of vehicles and generally are based
upon a fixed rate per vehicle transported and a variable rate
for each mile a vehicle is transported including an
administrative processing fee. The contracts provide that the
rate per vehicle may vary depending on the size and weight of
the vehicle and can be terminated by either party upon specified
days notice. The contracts between Allied Automotive Group
and its customers covering approximately 64% of the
Companys 2002 revenues, permit Allied Automotive Group to
recover for increases in fuel prices. None of Allied Automotive
Groups contracts with its customers allow it to recover
increases in fuel taxes or labor costs unless it is mutually
agreed to by Allied Automotive Group and its customers.

Allied Automotive Group operates under a
36 month contract as to ramp locations and a 39 month
contract as to plant locations for Ford vehicles which provides
that the Allied Automotive Group is the primary carrier for 22
locations in the United States and 10 Canadian locations. This
contract was entered into in September 2002. Each party to the
contract has the right to terminate the agreement by location on
75 days notice.

Allied Automotive Group is the primary carrier
for 16 locations in the United States and 13 in Canada for
DaimlerChrysler under a contract that expires on
January 31, 2005. This contract may be terminated by
location on 150 days notice by either party. Allied
Automotive Group has a contract with General Motors which
expires in March 2004 and provides that Allied Automotive Group
is the primary carrier for 36 locations in the United States and
Canada. General Motors does not have the right to re-source
business under the terms of the contract. Allied Automotive
Group operates under a two-year agreement with Toyota that
expires in September 2003. This contract may be terminated by
Toyota, by location, on 60 days notice.

4.     Proprietary
Management Information Systems

The Company, through its subsidiaries, has made a
long-term commitment to utilize technology to serve its
customers. Allied Automotive Groups advanced management
information system is a unique centralized, fully integrated
information system utilizing a mainframe computer together with
client servers. The system is based on a company-wide
information database, which allows Allied Automotive Group to
quickly respond to customer information requests without having
to combine data files from several sources. Updates with respect
to vehicle load, dispatch and delivery are immediately available
for reporting to customers and for better control and tracking
of customer vehicle inventories. Through electronic data
interchange (EDI), Allied Automotive Group communicates directly
with manufacturers in the process of delivering vehicles and
electronically bills and collects from manufacturers. Allied
Automotive Group also utilizes EDI to communicate with
inspection companies, railroads, port processors, and other
carriers.

Subsidiaries of Allied Automotive Group also
utilize the information system to allow them to operate their
businesses more efficiently. For example, the information
systems of Allied Automotive Group automatically design an
optimal load for each Rig, taking into account factors such as
the capacity of the Rig, the size of the vehicles, the route,
the drop points, applicable weight and height restrictions and
the formula for paying drivers. The system also determines the
most economical and efficient load sequence and drop sequence
for the vehicles to be transported. Axis has developed and
utilizes a yard management system and a vehicle track and trace
system that includes an estimated time of arrival engine to
identify product delivery dates to final dealer destinations.

5.     Management
Strategy

The Company has adopted a performance management
strategy which it believes contributes to driver productivity,
cargo claim prevention, enhanced efficiency, safety, and the
stability of its operations. The

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Companys management strategy and culture is
results-driven and designed to enhance employee performance
through high standards, accountability, precise metrics, careful
selection, and continuous training of new employees, with
individual performance goals established for each employee and
performance measured regularly through the Companys
management information system. During 2002, the Company made
significant changes and additions to its management team which
the Company believes has increased the quality and leadership
ability of this group.


More specifically, David Rawden joined Allied
Holdings as Senior Vice President in March 2002. Mr. Rawden
heads the Companys newly formed Business Process
Engineering Department. Mr. Rawdens department is
devoted to re-engineering core processes throughout the
organization to maximize speed and efficiency. Mr. Rawden
is also responsible for the Companys risk management
activities, including cargo claims, workers compensation and
traffic accidents.

The Company adopted an Employee Stock Purchase
Plan in December 1998 to provide all employees the opportunity
to purchase shares of the Companys common stock, which is
intended to provide a strong incentive for employees to achieve
the Companys goals and align the interests of the
employees with those of the Companys shareholders.

6.     Risk
Management and Insurance

Each of the Companys operating subsidiaries
is responsible for defining risks and securing appropriate
insurance programs and coverages at cost effective rates for the
Company. Allied Automotive Group utilizes third party
administrators to administer workers compensation, auto
and general liability claims. Allied Automotive Group is
self-insured for workers compensation claims in Alabama,
Delaware, Florida, Georgia, Kentucky, Maryland, Massachusetts,
Michigan, Missouri, New Jersey, New York, North Carolina, Ohio,
South Carolina, Tennessee and Virginia. Liability and
workers compensation claims are subject to periodic audits
by Allied Automotive Groups commercial insurance carriers.
In the United States, Allied Automotive Group currently retains
up to $650,000 of liability for each claim for workers
compensation and up to $500,000 of liability for automobile and
general liability, including personal injury and property damage
claims. In addition to the $500,000 per occurrence deductible
for automobile liability, there is a $1,500,000 aggregate
deductible for those claims which exceed the $500,000 per
occurrence deductible subject to a $1,000,000 per claim limit.
Allied Automotive Group has also applied a $1,000,000
interaggregate limit to the layer from $1,000,000 to $2,000,000.
This additional exposure is limited to $1,000,000 in the
aggregate, for losses between $1,000,000 and $2,000,000. Allied
Automotive Group also retains up to $250,000 of liability for
each cargo damage claim and physical damage claim to its owned
and leased automobiles and tractor trailer units. In Canada,
Allied Automotive Group retains up to CDN $500,000 of
liability for each claim for personal injury, property damage or
cargo damage. Also, in Canada, there is a CDN $500,000
aggregate limit for losses above CDN $500,000 and losses in
excess of CDN $500,000 are limited to CDN $500,000.

The Company records the estimated cost of the
uninsured portion of the claims. The amount recorded is based on
managements evaluation of the nature and severity of
claims and estimates of future claim development based on
historical trends.

If Allied Automotive Group were to experience a
material increase in the frequency or severity of accidents or
workers compensation claims or unfavorable developments in
existing claims, the Companys operating results could be
adversely affected. The Company formed Haul Insurance Limited in
December 1995 as a captive insurance subsidiary to provide
reinsurance coverage to its licensed insurance carriers for
certain types of losses within the retentions indicated,
primarily non-self insured workers compensation,
automobile liability and general liability, as indicated above.
Other coverages are provided by nonrelated primary and
reinsurance companies.

7.     Equipment,
Maintenance and Fuel

Allied Automotive Group has historically invested
heavily in both new equipment and equipment remanufacture, which
have served to increase efficiency and extend the useful life of
Rigs. Currently, new 75-foot Rigs cost approximately $150,000
and have a useful life of approximately 15 years when
properly

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maintained and remanufactured. Allied Automotive
Group operates approximately 3,800 company-owned Rigs with an
average age of 6.8 years based on the original purchase
date or the remanufacturing date if the Rig has been
remanufactured. The average remaining life of the company-owned
Rigs, assuming a total useful life of 15 years, is
6 years.


During 2002, Allied Automotive Group spent
approximately $12.8 million on a fleet remanufacturing
program, remanufacturing 10.0% of its owned active fleet.
Remanufacturing costs approximately $35,000 per Rig compared to
a cost per new Rig of approximately $150,000. In addition, in
accordance with the fleet remanufacturing program, Allied
replaced engines in approximately 350 Rigs during 2002 at an
additional cost of $5.9 million. Allied Automotive Group
expects this program to enable the Company to remanufacture
approximately 15.0% of its existing active fleet each year.

All of Allied Automotive Groups terminals
have access to a central parts warehouse through the management
information system. The system calculates maximum and minimum
parts inventory quantities based upon usage and automatically
reorders parts. Minor modifications of equipment are performed
at terminal locations. Major modifications involving change in
length, configuration or load capacity are performed by the
trailer manufacturers.

In order to reduce fuel costs, Allied Automotive
Group purchased approximately 38% of its fuel in bulk in 2002.
Also, fuel is purchased by drivers on the road from a few major
suppliers that offer competitive discounts and central billing.

8.     Competition

After the acquisition of certain subsidiaries of
Ryder System, Inc. (Ryder) in 1997, Allied Automotive Group
became the largest transporter of new vehicles in the United
States and Canada. In the years 1997 through 2001 after the
Ryder acquisition, Allied Automotive Group lost market share
primarily due to increased non-unionized competition. In 2001,
Allied Automotive Groups market share was also impacted by
the decision to close four unprofitable terminal locations. In
2002, Allied Automotive Groups market share was further
affected by its decision to exit substantially all business with
Nissan in the United States. In recent months, the Company has
implemented customer service measures intended to increase
customer retention and has implemented an organic growth
strategy to capitalize on changes taking place in the automotive
distribution industry.

Automotive manufacturers are making fundamental
changes to their vehicle distribution systems in an effort to
increase the speed of delivery of finished vehicles to dealers
with a goal of reducing inventory and improving the reliability
of delivery, including the use of fourth party logistics
companies by automotive manufacturers. An example is the
relationship between Ford and Autogistics, Inc., a subsidiary of
UPS Logistics, whereby Ford has engaged Autogistics to oversee
its delivery network. All Ford vehicles in North America are
shipped under the direction of Autogistics. In addition, General
Motors has formed Vector SCM, a joint venture with CNF, Inc.,
which is General Motors global lead logistics service
provider, and DaimlerChrysler has formed Insight, a joint
venture with the Union Pacific Railroad. Management of Allied
Automotive Group believes that the formation of these joint
ventures will provide it with an opportunity to collaborate more
directly with logistics professionals. The Companys
aspiration is to increase market share on the basis of superior
customer value propositions, and by differentiating itself from
its competitors on the basis of its experienced drivers,
effective management, productive and service-driven operations,
extensive and flexible distribution network, and superior
management of risk, particularly in cargo claims, worker
injuries and traffic accidents. The Company also desires to
differentiate its service based on the speed and reliability of
its execution. However, there can be no assurance that the use
of fourth party logistics companies by the automotive
manufacturer will not have a negative impact on the Allied
Automotive Group.

Major motor carriers specializing in the delivery
of new vehicles that are competitors of the Allied Automotive
Group include Leaseway, Jack Cooper, Cassens, Hadley and E &
L, all of which utilize union labor, and Swift, Wagoneer and
Fleet Car, all of which utilize non-union labor. These companies
may be able to provide similar services to those provided by
Allied Automotive Group at lower costs. The number of motor
carriers, as well as the market share represented by motor
carriers, utilizing non-union labor has increased, and

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as a result, these non-union carriers may be able
to provide delivery services at a cost to customers that is less
than the cost of Allieds services.


9.     Employees and
Owner Operators

Subsidiaries of the Company have approximately
6,600 employees, including approximately 4,300 drivers, which
are employees of Allied Automotive Group. All employee drivers
and shop and yard personnel of Allied Automotive Group are
currently represented by various labor unions. The majority of
the employees of the operating subsidiaries of Allied Automotive
Group are covered by the Master Agreement with the International
Brotherhood of Teamsters (IBT) which expires on
May 31, 2003. The Master Agreement was entered into in June
1999 and provided for an increase of approximately 3% per year
in wage and benefits in excess of the prior contract with the
IBT.

The Master Agreement was entered into by the IBT
and various companies, including certain operating subsidiaries
of Allied Automotive Group and approximately 13 other unionized
car-haul companies as members of the National Automobile
Transporters Labor Division (the NATLD). Certain operating
subsidiaries of Allied Automotive Group and the 13 other
car-haul companies were members of the NATLD at the time of
execution of the Master Agreement and authorized the NATLD to
negotiate and execute the Master Agreement covering all of the
respective terminals and operations of the participants in this
multi-employer, multi-union bargaining unit. In December 2001,
Allied Automotive Group provided notice of its withdrawal from
the NATLD, which took effect on March 22, 2002 in order to
establish an opportunity to negotiate on a more direct basis
with the IBT. Certain operating subsidiaries of Allied
Automotive Group remain subject to the terms of the Master
Agreement but are not members of the NATLD.

Direct negotiations with the IBT for a new
agreement officially began on March 3, 2003. The NATLD is
also in the process of renegotiating its contract with the IBT.
Certain operating subsidiaries of Allied Automotive Group seek
in the negotiation to continue their relationship with the IBT
on terms that are agreeable to union members and provide the
companies with the ability to continue to successfully compete
in an industry which has recently had an increase in the amount
of business handled by non-union car haul companies. Failure to
negotiate a new Master Agreement on such terms could have a
material adverse impact on the Company.

The compensation and benefits paid by Allied
Automotive Group to union employees are established by union
contracts. There can be no assurance that negotiation of new
union contracts as the current contracts expire will not result
in increased labor costs to the Company or work stoppages, which
could have a material adverse effect on the Company.
Subsidiaries of Allied Automotive Group also utilize
approximately 600 owner-operators, with approximately 150 of
these owner-operators driving exclusively from terminals in
Canada for Allied Systems (Canada) Company, a subsidiary of
Allied Automotive Group, and approximately 450 driving
exclusively from terminals in the United States. The
owner-operators are either paid a percentage of the revenues
they generate or receive normal driver pay plus a truck
allowance.

10.     Regulation

Certain subsidiaries of the Company are regulated
in the United States by the United States Department of
Transportation (DOT) and various state agencies, and in
Canada by the National Transportation Agency of Canada and
various provincial transport boards. Truck and trailer length,
height, width, maximum weight capacity and other specifications
are regulated federally in the United States, as well as by
individual states and provinces. In recent years, the automotive
manufacturers have increased the percentage of vehicles that are
light trucks and SUVs as well as increased the size and
weight of many vehicles, as a result, and because of the
regulations on truck and trailer length, height, width, and
maximum weight capacity, the number of vehicles Allied
Automotive Group delivers per load has decreased. Allied
Automotive Group successfully negotiated rate increases on most
of its SUV and light truck business in 1999 to account for this
reduction in the number of deliveries per load. Interstate motor
carrier operations are subject to safety requirements prescribed
by the DOT. The DOT also regulates certain safety features
incorporated in the design of Rigs. The motor carrier
transportation industry is also subject to regulatory and
legislative changes which can affect the

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economics of the industry by requiring changes in
operating policies or influencing the demand for, and the cost
of providing, services to shippers. While the Company believes
it is in material compliance with these various regulatory
requirements, any failure to so comply, as well as any changes
in the regulation of the industry through legislative, judicial,
administrative or other action, could have a material adverse
effect on the Company.


In addition, Allied Automotive Groups
terminal operations are subject to environmental laws and
regulations enforced by federal, state, provincial, and local
agencies, including those related to the treatment, storage and
disposal of wastes, and those related to the storage and
handling of lubricants. Allied Automotive Group maintains
regular ongoing testing programs for those underground storage
tanks (USTs) located at its terminals for compliance with
environmental laws and regulations.

11.     Revenue
Variability

The Companys revenues are variable and can
be impacted by sudden unexpected changes in original equipment
manufacturer (OEM), production levels or
unanticipated changes in product type or configuration. In
addition, the Companys revenues are seasonal, with the
second and fourth quarters generally experiencing higher
revenues than the first and third quarters. The volume of
vehicles shipped during the second and fourth quarters is
generally higher due to the introduction of new models which are
shipped to dealers during those periods, and the higher spring
and early summer sales of automobiles, light trucks and
SUVs. During the first and third quarters, vehicle
shipments typically decline due to lower sales volume during
those periods and scheduled plant shutdowns.

12.     Risk
Factors

The Companys future financial condition and
results of operations are subject to a number of risks and
uncertainties, including those set forth below and in other
sections of this Annual Report on Form 10-K.

Substantial
Leverage

The Company has consolidated indebtedness which
is substantial in relation to its stockholders equity. As
of December 31, 2002, the Company had total long-term debt
of approximately $248.5 million (excluding approximately
$129.5 million of trade payables and other accrued liabilities)
and stockholders equity of approximately
$10.3 million. In addition, the Company has additional
borrowings available under its revolving credit facility which
is discussed in the notes to the Companys consolidated
financial statements included in this Annual Report on
Form 10-K. The Companys leveraged financial position
exposes it to the risk of increased interest rates, may impede
its ability to obtain financing in the future for working
capital, capital expenditures and general corporate purposes,
and may make the Company more vulnerable to economic downturns
and limit its ability to withstand competitive pressures.

The Companys debt instruments contain a
number of affirmative, negative, and financial covenants, which
limit the ability of the Company to, among other things, incur
debt, incur liens, make investments, make dividend or other
distributions or enter into a merger or consolidation
transaction. As of December 31, 2002, the Company was in
compliance with the terms of its various long-term debt
covenants. There can be no assurance, however, that the Company
will be able to comply with its debt covenants in the future or
that, if it fails to do so, it will be able to obtain amendments
to or waivers of such covenants on commercially reasonable
terms, if at all.

The Company will need to use a large portion of
its future earnings to pay principal and interest on its
substantial debt obligations, which will reduce the amount of
money available for use in its operations, capital reinvestment,
or for responding to potential business opportunities as they
arise. The ability of the Company to generate the cash necessary
to service its debt is subject to a number of external factors
beyond its control, and there can be no assurance that the
Company will be able to generate sufficient cash through its
operations to enable it to meet its obligations. If the Company
does not generate enough cash to enable it to meet its debt
obligations, it may be required to take actions such as reducing
or delaying capital expenditures, selling assets, restructuring
or financing its debt or seeking additional equity capital.
There can be no assurance that any of

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these actions could be effected on commercially
reasonable terms, if at all, and the terms of existing or future
indebtedness may restrict the Company from adopting any of these
alternatives.


Any failure of the Company to comply with the
covenants contained in its debt instruments, if not waived, or
to adequately service its debt obligations, could result in a
default under its debt instruments. If a default occurs under
any of the Companys debt instruments, the lenders
thereunder may elect to declare all borrowings outstanding,
together with interest and other fees, to be immediately due and
payable. Borrowings under the Companys credit facility are
collateralized with the assets of the Company and certain of its
subsidiaries. If the Company were unable to repay any borrowing
under its credit facility when due, the lenders thereunder would
have the right to proceed against the collateral granted to them
to secure the debt. Any default under the Companys debt
instruments, particularly any default that resulted in
acceleration of indebtedness or foreclosure on collateral, would
have a material adverse effect on the Company.

Labor
Matters

Certain subsidiaries of the Company, along with
certain competitors of the Company, which utilize union labor
and are engaged in the car-haul business, are parties to the
Master Agreement with the IBT. As a result of being a party to
the Master Agreement along with these other entities, the
Company may not have exclusive control over issues relating to
bargaining with the IBT upon expiration of the Master Agreement.
The Master Agreement expires May 31, 2003. Negotiation of a
new contract with the IBT has begun and Allied is attempting to
negotiate a contract between the Company and the IBT, exclusive
of any other car-haul companies utilizing union labor. There can
be no assurance that negotiation of a new contract upon
expiration of the current Master Agreement will not result in
increased labor costs to the Company, or that such contracts can
be negotiated without work stoppages, either of which could have
a material adverse effect on the Company.

Increases in
Fuel Prices

Fuel is a major expense incident to the
transportation of automotive vehicles, and the cost and
availability of fuel are subject to economic and political
factors and events, which the Company can neither control nor
accurately predict. The current unrest in Venezuela, for
example, has significantly increased the Companys fuel
costs. Similarly, the involvement by the United States in an
armed conflict in the Middle East may increase fuel prices,
which could have a material adverse effect on the Company. The
Company attempts to minimize the effect of fuel price
fluctuations by periodically purchasing fuel in advance, but
there can be no assurance that such activity will effectively
manage the Companys exposure. In addition, the Company has
negotiated fuel surcharges with customers representing
approximately 64% of the Companys customers, which enables
it to pass on fuel costs to such customers. Nevertheless, the
Companys remaining customers are not subject to a specific
fuel surcharge, and there can be no assurance that the Company
will be able to continue to impose fuel surcharges on its
customers. In addition, the customer fuel surcharges typically
reset at the beginning of each quarter based on the fuel prices
from the previous quarter. Therefore, there is a one-quarter lag
between the time fuel prices change and the adjustment to the
fuel surcharge. Higher fuel prices resulting from fuel shortages
or other factors could materially and adversely affect the
Company if the Company is unable to pass on the full amount of
fuel price increases to its customers through fuel surcharges or
higher rates. In addition, higher fuel prices, even if passed on
to customers, or a shortage of supply, could have a detrimental
effect on the automotive transportation industry and the
business of the Company in general.

Dependence on
Automotive Industry

The automotive transportation industry is
dependent upon the volume of new automobiles and light trucks
manufactured, imported and sold. The automotive industry is
highly cyclical, and the demand for new automobiles and light
trucks is directly affected by such external factors as general
economic conditions in the United States, unemployment, consumer
confidence, federal policies, the possibility of war, terrorist
activities, and the availability of affordable new car
financing. As a result, the Companys results of operations
are adversely affected by cyclical downturns in the general
economy or in the automotive industry and by

8



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##### Table of Contents



consumer preferences in purchasing new
automobiles, SUVs, and light trucks. Inventories of new
vehicles in the first quarter of 2003 are currently
significantly higher than the 2002 levels and sales of new
vehicles in the first quarter of 2003 are lower than the 2002
levels. As a result, automotive manufacturers have recently
announced reductions in new vehicle production in the second
quarter of 2003 compared to the second quarter of 2002. A
significant decline in the volume of automobiles, SUVs,
and light trucks manufactured as well as sold in North America
could similarly have a material adverse effect on the Company.


Self Insurance
Claims

An increase in the number or severity of
accidents, stolen equipment, or other loss events over those
anticipated could have a materially adverse effect on the
Companys profitability as the Company is self-insured for
a significant portion of its risks. In addition, the insurance
market is contracting and it is becoming increasingly more
difficult to obtain insurance coverage. While the Company
currently has insurance coverage, there can be no more assurance
that the Company will be able to obtain insurance coverage in
the future or obtain coverage at competitive premium rates.

Dependence on
Major Customers

Allied Automotive Groups business is highly
dependent upon General Motors, Ford, DaimlerChrysler, Toyota and
Honda, its largest customers. The Company operates under written
contracts with General Motors, UPS Autogistics, Inc. on behalf
of Ford, DaimlerChrysler, Toyota and Honda. The contracts with
UPS Autogistics, DaimlerChrysler and Toyota can be terminated by
location for any reason or no reason based on 60 to
150 days notice. Although Allied Automotive Group
believes that its relationships with these customers is mutually
satisfactory, there can be no assurance that these relationships
will not be terminated in whole or in part in the future.
Furthermore, automotive manufacturers are relying increasingly
on fourth party logistics companies and re-engineering vehicle
delivery practices, which could result in a reduction of
services provided by the Company for some or all of its major
customers. A significant reduction in the production by these
manufacturers or the loss of General Motors, UPS Autogistics,
DaimlerChrysler, Toyota or Honda as a customer, or a significant
reduction in the services provided for any of these customers by
Allied Automotive Group would have a material adverse effect
upon the Company.

Competition

The automotive transportation industry is highly
competitive, as Allied Automotive Group currently competes with
other motor carriers of varying sizes, as well as with
railroads. Allied Automotive Group also competes with non-union
motor carriers that may be able to provide services at lower
cost. The development of new methods for hauling vehicles could
also lead to increased competition.

Foreign
Operations

Although the majority of the Companys
operations are in the United States, the Company derives a
portion of its revenues and earnings from operations in foreign
countries, primarily Canada. The risks of doing business in
foreign countries include potential adverse changes in the
political policies of foreign governments and diplomatic
relations of foreign countries with the United States, hostility
from local populations, adverse effects of currency exchange
controls, deterioration of foreign economic conditions, currency
fluctuations, foreign exchange restrictions and changes in
taxation structure. Due to the foregoing risks, any of which, if
realized, could have a material adverse effect on the Company,
the Company believes that its business activities outside of the
United States involve a higher degree of risk than its domestic
activities.

Dependence
on Key Personnel

The success of the Company is dependent upon its
senior management team, as well as its ability to attract and
retain qualified personnel. The Companys credit facility
provides that the facility may be terminated in the event Hugh
E. Sawyer ceases to be involved in the day to day operation of
the Company, unless a successor reasonably acceptable to the
lenders is appointed within 90 days of his cessation of

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##### Table of Contents



involvement with the Company. There is no
assurance that the Company will be able to retain its existing
senior management or to attract additional qualified personnel.


13.     Industry
Overview

The following table summarizes historic new
vehicle production and sales in the United States and Canada,
the primary sources of the Companys revenues:

|                                                            |            |       |  |      |      |        |  |      |      |        |  |       |      |    |  |      |      |  |  |       |       |   
|----------------------------------------------------------- | ---------- | ----- |  | ---- | ---- | ------ |  | ---- | ---- | ------ |  | ----- | ---- | -- |  | ---- | ---- |  |  | ----- | ----- | --
|                                                            |            |       |  |      |      | 2002   |  |      |      | 2001  
|                                                            |            |       |  |      |      | vs.    |  |      |      | vs.   
|                                                            |            |       |  |      |      | 2001   |  |      |      | 2000  
|                                                            |            | 2002  |  | 2001 |      | Change |  | 2000 |      | Change
|                                                            |            |       |  |      |      |        |  |      |      |       
|New Vehicle Production (in millions of units)               |            |       |  |      |      |        |  |      |      |        |  |       |      |    |  |      |      |  |  |      
|United States:                                              |            |       |  |      |      |        |  |      |      |        |  |       |      |    |  |      |      |  |  |      
|                                                            | Big Three* |       |  | 9.3  |      |        |  | 8.7  |      |        |  | 6.9   | %    |    |  | 9.9  |      |  |  | (12.1 | )%   
|                                                            | Other      |       |  | 2.7  |      |        |  | 2.5  |      |        |  | 8.0   | %    |    |  | 2.5  |      |  |  | 0.0   | %    
|                                                            |            |       |  |      |      |        |  |      |      |        |  |       |      |    |  |      |      |  |  |      
|                                                            |            | Total |  |      | 12.0 |        |  |      | 11.2 |        |  |       | 7.1  | %  |  |      | 12.4 |  |  |       | (9.7  | )%
|                                                            |            |       |  |      |      |        |  |      |      |        |  |       |      |    |  |      |      |  |  |      
|Canada:                                                     |            |       |  |      |      |        |  |      |      |        |  |       |      |    |  |      |      |  |  |      
|                                                            | Big Three* |       |  | 2.0  |      |        |  | 1.9  |      |        |  | 5.3   | %    |    |  | 2.3  |      |  |  | (17.4 | )%   
|                                                            | Other      |       |  | 0.6  |      |        |  | 0.6  |      |        |  | 0.0   | %    |    |  | 0.6  |      |  |  | 0.0   | %    
|                                                            |            |       |  |      |      |        |  |      |      |        |  |       |      |    |  |      |      |  |  |      
|                                                            |            | Total |  |      | 2.6  |        |  |      | 2.5  |        |  |       | 4.0  | %  |  |      | 2.9  |  |  |       | (13.8 | )%
|                                                            |            |       |  |      |      |        |  |      |      |        |  |       |      |    |  |      |      |  |  |      
|New Vehicle Sales (in millions of units) United
    States: |            |       |  |      |      |        |  |      |      |        |  |       |      |    |  |      |      |  |  |      
|                                                            | Big Three* |       |  | 11.1 |      |        |  | 11.6 |      |        |  | (4.3  | )%   |    |  | 12.1 |      |  |  | (4.1  | )%   
|                                                            | Import     |       |  | 2.7  |      |        |  | 2.5  |      |        |  | 8.0   | %    |    |  | 2.3  |      |  |  | 8.7   | %    
|                                                            | Transplant |       |  | 3.0  |      |        |  | 3.0  |      |        |  | 0.0   | %    |    |  | 2.9  |      |  |  | 3.4   | %    
|                                                            |            |       |  |      |      |        |  |      |      |        |  |       |      |    |  |      |      |  |  |      
|                                                            |            | Total |  |      | 16.8 |        |  |      | 17.1 |        |  |       | (1.8 | )% |  |      | 17.3 |  |  |       | (1.2  | )%
|                                                            |            |       |  |      |      |        |  |      |      |        |  |       |      |    |  |      |      |  |  |      
|Canada:                                                     |            |       |  |      |      |        |  |      |      |        |  |       |      |    |  |      |      |  |  |      
|                                                            | Big Three* |       |  | 1.3  |      |        |  | 1.1  |      |        |  | 18.2  | %    |    |  | 1.1  |      |  |  | 0.0   | %    
|                                                            | Other      |       |  | 0.4  |      |        |  | 0.5  |      |        |  | (20.0 | )%   |    |  | 0.4  |      |  |  | 25.0  | %    
|                                                            |            |       |  |      |      |        |  |      |      |        |  |       |      |    |  |      |      |  |  |      
|                                                            |            | Total |  |      | 1.7  |        |  |      | 1.6  |        |  |       | 6.25 | %  |  |      | 1.5  |  |  |       | 6.7   | % 
|                                                            |            |       |  |      |      |        |  |      |      |        |  |       |      |    |  |      |      |  |  |      



---



|  |                                                                                               
|- | ----------------------------------------------------------------------------------------------
|* | Represents General Motors Corporation, Ford Motor
    Company and DaimlerChrysler Corporation.

Source:DRI-WEFA

Domestic automotive manufacturing plants are
typically dedicated to manufacturing a particular model or
models. Vehicles destined for dealers within a radius of
approximately 250 miles from the plant are usually shipped by
Rigs. The remaining vehicles are shipped by rail to rail ramps
throughout the United States and Canada where trucking companies
handle final delivery to dealers. The rail or truck carrier is
responsible for loading the vehicles on railcars or trailers and
for any damages incurred while the vehicles are in the
carriers custody. Automobiles manufactured in Europe and
Asia are shipped into the United States and Canada and usually
are delivered directly to dealers from seaports by truck or
shipped by rail to rail ramps and delivered by trucks to
dealers. Vehicles transported by ship are normally prepared for
delivery in port processing centers, which involves cleaning and
may involve installing accessories. The port processor releases
the vehicles to the carrier which loads the vehicles and
delivers them to a rail ramp or directly to dealers.

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING
STATEMENTS

This Annual Report on Form 10-K contains,
and from time to time the Company and its officers, directors,
or employees may make other forward-looking statements,
including statements regarding, among

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other items, (i) the Companys
strategy, intentions or expectations, (ii) general industry
trends, competitive conditions and customer preferences,
(iii) the Companys management information systems,
(iv) the Companys remanufacturing program, (v) the
Companys efforts to reduce costs, (vi) the adequacy
of the Companys sources of cash to finance its current and
future operations and (vii) resolution of litigation without
material adverse effect on the Company. This notice is intended
to take advantage of the safe harbor provided by the
Private Securities Litigation Reform Act of 1995 with respect to
such forward-looking statements. Without limiting the generality
of the foregoing, the words believe,
anticipate, seek, expect,
estimate, intend, plan, and
similar expressions are intended to identify such
forward-looking statements. These forward-looking statements
involve a number of risks and uncertainties. Among others,
factors that could cause actual results to differ materially
from historical results or results expressed or implied by such
forward-looking statements are the following: 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;
the impact of recent price increases implemented by the Company
on the Companys market share; loss or reduction of
revenues generated by the Companys major customers or the
loss of any such customers; the variability of OEM production
and seasonality of the automotive distribution industry; the
Companys highly leveraged financial position; the ability
of the Company to negotiate its IBT contract on terms favorable
to the Company; labor disputes involving the Company or its
significant customers; the dependence on key personnel who have
been hired or retained by the Company; the availability of
strategic acquisitions or joint venture partners; increased
frequency and severity of work related accidents and
workers compensation claims; availability of appropriate
insurance coverages; increased expenses due to layoffs of
employees; changes in regulatory requirements which are
applicable to the Companys business; changes in vehicle
sizes and weights which may adversely impact vehicle deliveries
per load; risks associated with doing business in foreign
countries; and other risk factors set forth from time to time in
the Companys Securities and Exchange Commission reports,
including but not limited to, this Annual Report on
Form 10-K. Many of these factors are beyond the
Companys ability to control or predict, and readers are
cautioned not to put undue reliance on such forward-looking
statements. The Company disclaims any obligation to update or
review any forward-looking statements contained in this Annual
Report or in any statement referencing the risk factors and
other cautionary statements set forth in this Annual Report.





Item 2.     Properties

The Companys executive offices are located
in Decatur, Georgia, a suburb of Atlanta. The Company leases
approximately 92,000 square feet of space for its executive
offices, which the Company believes is sufficient to permit the
Company to conduct its operations. The Company operates from 88
terminals throughout the United States and Canada, which are
located at or near manufacturing plants, ports, and railway
terminals. The Company currently owns 21 of its terminals and
leases the remainder of its facilities. Most of the leased
facilities are leased on a year to year basis from railroads at
rents that are not individually material to the Company.

During the 1990s, changes in governmental
regulations have gradually permitted the lengthening of Rigs
from 55 to 75 feet. Allied Automotive Group has worked closely
with manufacturers to develop specialized equipment to meet the
specific needs of manufacturers. Allied Automotive Groups
Rigs are substantially maintained at 43 Allied garages located
throughout the United States and Canada by approximately 575
Allied maintenance personnel, including supervisors. These shops
are located in 21 facilities owned by Allied Automotive Group
and 22 facilities leased by Allied Automotive Group. Rigs are
scheduled for regular preventive maintenance inspections. Each
shop is equipped to handle repairs resulting from inspection or
driver write up, including repairs to electrical systems, air
conditioners, suspension, hydraulic systems, cooling systems,
and minor engine repairs. Major engine overhaul and engine
replacement are performed by outside vendors. The trend has been
to use engine suppliers outlets for engine repairs due to
the long-term warranties obtained by Allied Automotive Group.

11



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##### Table of Contents






Item 3.     Legal
Proceedings

The Company is involved in various litigation and
environmental matters relating to employment practices, damages,
and other matters arising from operations in the ordinary course
of business. In the opinion of management, the ultimate
disposition of these matters, other than those discussed below,
will not have a material adverse effect on the Companys
financial position or results of operations.

Gateway Development & Manufacturing, Inc.
v. Commercial Carriers, Inc., et al.,Index No. 1997/8920 (the
Gateway Case) and Commercial Carriers, Inc. v.
Gateway Development & Manufacturing, Inc., et al. (the
CCI Case), Index No. I 2000/8184. The
claims at issue in both the Gateway Case and the CCI Case center
around the contention that the Company breached legal duties
with respect to a failed business transaction involving Gateway
Development & Manufacturing, Inc., Ryder Truck Rental, Inc.
and Ryder System, Inc. In the Gateway Case, the Company sought
and received summary judgment in its favor on the sole claim
(for tortious interference with contract) asserted against it by
Gateway Development & Manufacturing, Inc., but that ruling
was reversed on appeal. While the appellate court held that
summary judgment in favor of the Company was premature, the
Company will be permitted to raise at trial and/or further
dispositive motions the substantive arguments upon which its
initial summary judgment motion was based. Subsequent to its
summary judgment ruling, the trial court permitted the filing
and service of cross-claims against the Company by the other
defendants in that action. In the CCI Case, the Company has
accepted service of a separate complaint asserting claims
against the Company by the other defendants in the Gateway Case.
It is anticipated that the claims asserted in both the Gateway
Case and the CCI Case will be resolved in a unified proceeding.
With respect to the entirety of this litigation, the Company
intends to continue its vigorous defense against the claims
asserted against it, as management believes all of those claims
are without merit. While the ultimate results of this litigation
cannot be predicted, if this litigation is resolved in a manner
that is adverse to the Company, it could have a material adverse
effect on the Companys consolidated financial position or
results of operations.

Ryder Systems, Inc. v. Allied Holdings, Inc.,
AH Acquisition Corp. and Allied Automotive Group, Inc.,Case No. 01-3553-CIV-MARRA in the
United States District Court for the Southern District of
Florida, relates to the Companys August 1997 stock
acquisition of certain businesses formerly owned by Ryder, and
the respective responsibilities of Ryder and Allied for certain
third-party injury claims associated with the acquired
businesses. Ryders original complaint was filed on
August 16, 2001. In response, the Company moved to dismiss,
and the court granted that motion with leave for Ryder to amend
its complaint. On December 26, 2001, Ryder timely filed its
amended complaint. Following the dismissal with prejudice of one
of the counts asserted by Ryder in its amended complaint, Ryder
filed, on or about August 1, 2002, a Second Amended
Complaint. Ryders five-count Second Amended Complaint
alleges, in Count one, that the Company breached its agreement
with Ryder by failing to undertake certain actions (including
posting letters of credit and bonds) to substitute the Company
for Ryder under an insurance policy covering third-party claims
and with various state agencies that regulate matters such as
self-insured workers compensation. In Counts two and
three, the Second Amended Complaint alleges that if these
obligations are not required by contract, the legal doctrines of
promissory estoppel and negligent misrepresentation created
them. In Count four, the Second Amended Complaint seeks a
declaration that the Company is required to undertake these
actions. In Count five, Ryder seeks a declaration that the
Company is obligated to take certain steps to transfer from
Ryder to the Company the ownership and administrative
responsibility for two pension plans. The Company has filed a
motion for summary judgment on all counts, which motion is
currently pending. The Company intends to continue its vigorous
defense against the claims asserted against it, and management
believes all of those claims are without merit. The Company has
also raised several counterclaims. The ultimate results of this
litigation cannot be predicted. However, if Ryder prevails on
its claims and the court orders the Company to substitute itself
for Ryder by, among other things, posting substantial letters of
credit, it could have a material adverse effect on the
Companys consolidated financial position or results of
operations.

12



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##### Table of Contents






Item 4.     Submission
of Matters to a Vote of Security Holders

None

Executive Officers of the Registrant

The following table sets forth certain
information regarding the executive officers of the Company and
certain of its subsidiaries:

|                   |  |     |    |       |  |                                                                                
|------------------ |  | --- | -- | ----- |  | -------------------------------------------------------------------------------
|Name               |  | Age |    | Title
|                   |  |     |    |      
|Robert J. Rutland  |  |     | 61 |       |  | Chairman and Director                                                          
|Hugh E. Sawyer     |  |     | 49 |       |  | President, Chief Executive Officer, and Director                               
|Guy W. Rutland, IV |  |     | 39 |       |  | Senior Vice President of Chaplaincy and
    Performance Management and Director
|Daniel H. Popky    |  |     | 38 |       |  | Senior Vice President and Chief Financial Officer                              
|Thomas M. Duffy    |  |     | 42 |       |  | Senior Vice President, General Counsel and
    Secretary                       
|David A. Rawden    |  |     | 45 |       |  | Senior Vice President, Business Process
    Engineering                        

Mr. Rutland has been Chairman of the Company
since 1995, and served as Chairman and Chief Executive Officer
of the Company from February 2001 to June 2001. Mr. Rutland
served as Chairman from December 1995 to December 1999. Mr.
Rutland was the President and Chief Executive Officer of the
Company from 1986 to December 1995. Prior to October 1993,
Mr. Rutland was Chief Executive Officer of each of the
Companys subsidiaries.

Mr. Sawyer has been President and Chief
Executive Officer of the Company since June 2001.
Mr. Sawyer served as President and Chief Executive Officer
of Aegis Communications Corp. from April 2000 to June 2001.
Mr. Sawyer served briefly as President of Allied Automotive
Group, Inc., a subsidiary of the Company, from January 2000 to
April 2000. Mr. Sawyer was President and Chief Executive
Officer of National Linen Service, a subsidiary of National
Service Industries, Inc. from 1996 to 2000, and President of
Wells Fargo Armored Service Corp., a subsidiary of Borg-Warner
Corp., from 1988 to 1995.

Guy W. Rutland IV has been Senior Vice President
of Chaplaincy and Performance Management since July 2001.
Mr. Rutland was Executive Vice President and Chief
Operating Officer of Allied Automotive Group from February 2001
to July 2001. Mr. Rutland was Senior Vice President 
Operations of Allied Automotive Group from November 1997 to
February 2001. Mr. Rutland was Vice President 
Reengineering Core Team of Allied Automotive Group from November
1996 to November 1997. From January 1996 to November 1996,
Mr. Rutland was Assistant Vice President of the Central and
Southeast Region of Operations for Allied Systems, Ltd. From
March 1995 to January 1996, Mr. Rutland was Assistant Vice
President of the Central Division of Operations for Allied
Systems, Ltd. From June 1994 to March 1995, Mr. Rutland was
Assistant Vice President of the Eastern Division of Operations
for Allied Systems, Ltd. From 1993 to June 1994 Mr. Rutland
was assigned to special projects with an assignment in
Industrial Relations/Labor Department and from 1988 to 1993,
Mr. Rutland was Director of Performance Management.

Mr. Popky has been Senior Vice President and
Chief Financial Officer of the Company since November 1998. He
was appointed President of Allied Industries, Inc. in December
1997 and served in such capacity until Allied Industries was
merged with Allied Automotive Group in September 2000.
Mr. Popky was Senior Vice President, Finance of the Company
from December 1997 to November 1998. From December 1995 to
December 1997, Mr. Popky was Vice President, Finance of the
Company. From January 1995 to December 1995 Mr. Popky was
Vice President and Controller and from October 1994 to January
1995 he was Assistant Vice President and Controller for the
Company. Prior to joining the Company, Mr. Popky held
various positions with Arthur Andersen LLP for 9 years.

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Mr. Duffy has been Senior Vice President,
General Counsel and Secretary of the Company since November 2000
and was Vice President, General Counsel and Secretary from June
1998 until November 2000. From May 1997 to June 1998, Mr. Duffy
was a partner with the law firm of Troutman Sanders LLP. Prior
to May 1997, Mr. Duffy was a partner with the law firm of
Peterson Dillard Young Asselin & Powell LLP.

Mr. Rawden has been Senior Vice President,
Business Process Engineering of the Company since March 2002.
Mr. Rawden previously served as a Principal with Jay Alix
& Associates in their Turnaround and Crisis Management
business unit from November 1990 to March 2002. Mr. Rawden
has over eleven years experience in successful turnarounds in a
wide variety of industries.




PART II




Item 5.     Market
for the Registrants Common Equity and Related Stockholder
Matters

The Company began trading its common stock on the
American Stock Exchange (AMEX) under the symbol AHI,
effective April 8, 2002. The Companys common stock
was listed on the New York Stock Exchange (NYSE)
from March 3, 1998 until the change to the AMEX. The common
stock began trading on September 29, 1993 on the Nasdaq
Stock Market until March 3, 1998. Prior to
September 29, 1993, there had been no established public
trading market for the common stock.

As previously announced, the Company no longer
met the NYSEs requirements for continued listing and had
been operating under a plan that was approved by the NYSE in
August 2001. The plan was to bring the Companys total
market capitalization and shareholders equity above
NYSEs continued listing requirement of $50 million by
November 29, 2002. The Company believes, however, that the
change to AMEX better allows for management of the business
without the uncertainty and distractions associated with meeting
NYSE standards. Management does not expect a significant change
in shareholder liquidity as a result of the move to the AMEX.

The following table sets forth the high and low
per share sales price of the Companys common stock for the
periods indicated, as reported by the NYSE until April 7,
2002, and as reported by the AMEX from April 8, 2002.

|               |  |                         |      |      |  |      |      |     |  |   |      |  |  |   |      | 
|-------------- |  | ----------------------- | ---- | ---- |  | ---- | ---- | --- |  | - | ---- |  |  | - | ---- | 
|               |  |                        
|               |  | Year Ended December 31,
|               |  |                        
|               |  |                         |      |     
|               |  | 2002                    |      | 2001
|               |  |                         |      |     
|Period:        |  | High                    |      | Low  |  | High |      | Low
|               |  |                         |      |      |  |      |      |    
|First Quarter  |  | $                       | 5.20 |      |  | $    | 2.10 |     |  | $ | 4.50 |  |  | $ | 2.70 | 
|Second Quarter |  | $                       | 5.78 |      |  | $    | 4.55 |     |  | $ | 2.94 |  |  | $ | 2.21 | 
|Third Quarter  |  | $                       | 4.85 |      |  | $    | 2.50 |     |  | $ | 2.60 |  |  | $ | 1.18 | 
|Fourth Quarter |  | $                       | 3.70 |      |  | $    | 2.46 |     |  | $ | 2.70 |  |  | $ | 1.00 | 

As of March 3, 2003, there were
approximately 2,500 holders of record of the Companys
common stock. The Company has paid no cash dividends in the last
two years.

The Company is a party to a credit facility with
a syndicate of lenders, as well as certain 8 5/8% Senior
Notes maturing in 2007, each of which contains covenants
restricting the payment of dividends on the Companys
common stock. See Item 7 
Managements Discussions and Analysis of Financial
Condition and Results of Operations  Liquidity and
Capital Resources.

14



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##### Table of Contents



Equity Compensation Plan Information:

|                                                               |  |                            |           |                     |  |                                |      |  |  |  |         |    
|-------------------------------------------------------------- |  | -------------------------- | --------- | ------------------- |  | ------------------------------ | ---- |  |  |  | ------- | ---
|                                                               |  |                            |           |                     |  | Number of Securities          
|                                                               |  | Number of Securities       |           | Weighted-Average    |  | Remaining Available for Future
|                                                               |  | to be Issued Upon Exercise |           | Exercise Price of   |  | Issuance Under Equity         
|Plan Category                                                  |  | of Outstanding Options     |           | Outstanding Options |  | Compensation Plans            
|                                                              
|                                                              
|Equity compensation plans approved by security
    holders(1)  |  |                            | 1,612,300 |                     |  | $                              | 3.45 |  |  |  | 401,526 | (2)
|Equity compensation plans not approved by
    security holders |  |                            | 0         |                     |  |                                | 0    |  |  |  | 0       |    
|                                                               |  |                            |           |                     |  |                                |      |  |  |  |         |    
|Total                                                          |  |                            | 1,612,300 |                     |  | $                              | 3.45 |  |  |  | 401,526 |    
|                                                               |  |                            |           |                     |  |                                |      |  |  |  |         |    



---



|    |                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Consists of the Companys 1993 Long-Term
    Incentive Plan as adopted in 1993, amended in 2000 and amended
    and restated in 2001. For a description of the Companys
    equity compensation plan, see note 18 of the Companys
    consolidated financial statements included in this Annual Report
    on Form 10-K.
|   
|(2) | Includes the Companys Employee Stock
    Purchase Plan, which has 144,768 shares available for future
    issuance.                                                                                                                                                                                                      






|        |                                         
|------- | ----------------------------------------
|Item 6. | Selected Consolidated Financial
    Data

The selected consolidated financial data
presented below for each of the five years in the period ended
December 31, 2002 are derived from the Companys
Consolidated Financial Statements. The Consolidated Financial
Statements for each of the four years in the period ended
December 31, 2001 have been audited by Arthur Andersen LLP,
independent public accountants. The Consolidated Financial
Statements for the year ended December 31, 2002 have been
audited by KPMG LLP. The selected consolidated financial data
should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and
notes thereto.

|                              |                                         |                                         |         |         |         |      |         |         |         |      |           |         |           |   |           |         |           |   |           |         |         | 
|----------------------------- | --------------------------------------- | --------------------------------------- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | ---- | --------- | ------- | --------- | - | --------- | ------- | --------- | - | --------- | ------- | ------- | 
|                              |                                         |                                        
|                              |                                         | Year Ended December 31,                
|                              |                                         | (In thousands except per share amounts)
|                              |                                         |                                        
|                              |                                         | 2002                                    |         | 2001    |         | 2000 |         | 1999    |         | 1998
|                              |                                         |                                         |         |         |         |      |         |         |         |     
|Statement of Operations Data: |                                         |                                         |         |         |         |      |         |         |         |      |           |         |           |   |           |         |           |   |           |        
|Revenues                      |                                         | $                                       | 898,060 |         |         | $    | 896,767 |         |         | $    | 1,069,154 |         |           | $ | 1,081,309 |         |           | $ | 1,026,799 |        
|                              |                                         |                                         |         |         |         |      |         |         |         |      |           |         |           |   |           |         |           |   |           |        
|Operating expenses:           |                                         |                                         |         |         |         |      |         |         |         |      |           |         |           |   |           |         |           |   |           |        
|                              | Salaries, wages and fringe benefits     |                                         |         | 483,545 |         |      |         | 515,916 |         |      |           | 584,527 |           |   |           | 585,380 |           |   |           | 547,780 |        
|                              | Operating supplies and expenses         |                                         |         | 138,542 |         |      |         | 149,111 |         |      |           | 189,136 |           |   |           | 185,541 |           |   |           | 169,498 |        
|                              | Purchased transportation                |                                         |         | 99,109  |         |      |         | 97,756  |         |      |           | 104,545 |           |   |           | 103,967 |           |   |           | 109,884 |        
|                              | Insurance and claims                    |                                         |         | 43,500  |         |      |         | 50,837  |         |      |           | 47,736  |           |   |           | 48,252  |           |   |           | 40,339  |        
|                              | Operating taxes and licenses            |                                         |         | 33,583  |         |      |         | 33,262  |         |      |           | 39,389  |           |   |           | 41,288  |           |   |           | 40,779  |        
|                              | Depreciation and amortization           |                                         |         | 54,880  |         |      |         | 60,358  |         |      |           | 60,884  |           |   |           | 58,019  |           |   |           | 53,295  |        
|                              | Rents                                   |                                         |         | 6,342   |         |      |         | 6,813   |         |      |           | 8,570   |           |   |           | 8,974   |           |   |           | 10,072  |        
|                              | Communications and utilities            |                                         |         | 6,419   |         |      |         | 7,022   |         |      |           | 7,333   |           |   |           | 9,060   |           |   |           | 9,341   |        
|                              | Other operating expenses                |                                         |         | 10,384  |         |      |         | 16,126  |         |      |           | 13,826  |           |   |           | 10,317  |           |   |           | 8,711   |        
|                              | Loss (gain) on sale of operating assets |                                         |         | 748     |         |      |         | (2,725  | )       |      |           | 1,340   |           |   |           | 628     |           |   |           | (1,250  | )      
|                              |                                         |                                         |         |         |         |      |         |         |         |      |           |         |           |   |           |         |           |   |           |        
|                              |                                         | Total operating expenses                |         |         | 877,052 |      |         |         | 934,476 |      |           |         | 1,057,286 |   |           |         | 1,051,426 |   |           |         | 988,449 | 
|                              |                                         |                                         |         |         |         |      |         |         |         |      |           |         |           |   |           |         |           |   |           |        
|Operating income (loss)       |                                         |                                         | 21,008  |         |         |      | (37,709 | )       |         |      | 11,868    |         |           |   | 29,883    |         |           |   | 38,350    |        
|                              |                                         |                                         |         |         |         |      |         |         |         |      |           |         |           |   |           |         |           |   |           |        

15



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##### Table of Contents



|                                                            |                                                                                               |                                         |         |         |   |      |         |         |   |      |         |         |   |   |         |         |   |   |         |         |  
|----------------------------------------------------------- | --------------------------------------------------------------------------------------------- | --------------------------------------- | ------- | ------- | - | ---- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                                            |                                                                                               |                                        
|                                                            |                                                                                               | Year Ended December 31,                
|                                                            |                                                                                               | (In thousands except per share amounts)
|                                                            |                                                                                               |                                        
|                                                            |                                                                                               | 2002                                    |         | 2001    |   | 2000 |         | 1999    |   | 1998
|                                                            |                                                                                               |                                         |         |         |   |      |         |         |   |     
|Other income (expense):                                     |                                                                                               |                                         |         |         |   |      |         |         |   |      |         |         |   |   |         |         |   |   |         |        
|                                                            | Equity in earnings (loss) of joint ventures,
    net of tax                                   |                                         |         | 0       |   |      |         | 4,072   |   |      |         | 5,066   |   |   |         | 1,733   |   |   |         | (470    | )
|                                                            | Gain on sale of joint ventures                                                                |                                         |         | 0       |   |      |         | 16,230  |   |      |         | 0       |   |   |         | 0       |   |   |         | 0       |  
|                                                            | Writedown of joint venture                                                                    |                                         |         | 0       |   |      |         | (10,042 | ) |      |         | 0       |   |   |         | 0       |   |   |         | 0       |  
|                                                            | Interest expense                                                                              |                                         |         | (30,627 | ) |      |         | (37,574 | ) |      |         | (33,813 | ) |   |         | (32,001 | ) |   |         | (26,146 | )
|                                                            | Interest income                                                                               |                                         |         | 2,463   |   |      |         | 3,874   |   |      |         | 5,509   |   |   |         | 2,112   |   |   |         | 3,270   |  
|                                                            | Gain on early extinguishment of debt                                                          |                                         |         | 2,750   |   |      |         | 0       |   |      |         | 0       |   |   |         | 0       |   |   |         | 0       |  
|                                                            | Other, net                                                                                    |                                         |         | 157     |   |      |         | 360     |   |      |         | 0       |   |   |         | 0       |   |   |         | 0       |  
|                                                            |                                                                                               |                                         |         |         |   |      |         |         |   |      |         |         |   |   |         |         |   |   |         |        
|                                                            |                                                                                               |                                         | (25,571 | )       |   |      | (23,080 | )       |   |      | (23,238 | )       |   |   | (28,156 | )       |   |   | (23,346 | )      
|                                                            |                                                                                               |                                         |         |         |   |      |         |         |   |      |         |         |   |   |         |         |   |   |         |        
|                                                            | (Loss) income before income taxes and cumulative
    effect of change in accounting principle |                                         |         | (4,563  | ) |      |         | (60,789 | ) |      |         | (11,370 | ) |   |         | 1,727   |   |   |         | 15,004  |  
|                                                            | Income tax benefit (provision)                                                                |                                         |         | 1,129   |   |      |         | 21,293  |   |      |         | 5,069   |   |   |         | (178    | ) |   |         | (6,527  | )
|                                                            |                                                                                               |                                         |         |         |   |      |         |         |   |      |         |         |   |   |         |         |   |   |         |        
|                                                            | (Loss) income before cumulative effect of change
    in accounting principle                  |                                         |         | (3,434  | ) |      |         | (39,496 | ) |      |         | (6,301  | ) |   |         | 1,549   |   |   |         | 8,477   |  
|                                                            | Cumulative effect of change in accounting
    principle, net of tax                           |                                         |         | (4,092  | ) |      |         | 0       |   |      |         | 0       |   |   |         | 0       |   |   |         | 0       |  
|                                                            |                                                                                               |                                         |         |         |   |      |         |         |   |      |         |         |   |   |         |         |   |   |         |        
|                                                            | Net (loss) income                                                                             |                                         | $       | (7,526  | ) |      | $       | (39,496 | ) |      | $       | (6,301  | ) |   | $       | 1,549   |   |   | $       | 8,477   |  
|                                                            |                                                                                               |                                         |         |         |   |      |         |         |   |      |         |         |   |   |         |         |   |   |         |        
|                                                            | Net (loss) income per share  basic                                                           |                                         | $       | (0.91   | ) |      | $       | (4.86   | ) |      | $       | (0.79   | ) |   | $       | 0.20    |   |   | $       | 1.09    |  
|                                                            | Net (loss) income per share 
    diluted                                                     |                                         | $       | (0.91   | ) |      | $       | (4.86   | ) |      | $       | (0.79   | ) |   | $       | 0.20    |   |   | $       | 1.08    |  
|                                                            | Weighted average common shares
    outstanding  basic                                        |                                         |         | 8,301   |   |      |         | 8,128   |   |      |         | 7,946   |   |   |         | 7,810   |   |   |         | 7,747   |  
|                                                            | Weighted average common shares
    outstanding  diluted                                      |                                         |         | 8,301   |   |      |         | 8,128   |   |      |         | 7,946   |   |   |         | 7,851   |   |   |         | 7,846   |  
|Balance Sheet Data:                                         |                                                                                               |                                         |         |         |   |      |         |         |   |      |         |         |   |   |         |         |   |   |         |        
|                                                            | Current assets                                                                                |                                         | $       | 203,079 |   |      | $       | 208,014 |   |      | $       | 213,492 |   |   | $       | 225,617 |   |   | $       | 195,759 |  
|                                                            | Current liabilities                                                                           |                                         |         | 140,251 |   |      |         | 129,532 |   |      |         | 125,571 |   |   |         | 128,771 |   |   |         | 145,730 |  
|                                                            | Total assets                                                                                  |                                         |         | 485,508 |   |      |         | 537,104 |   |      |         | 610,539 |   |   |         | 649,920 |   |   |         | 621,627 |  
|                                                            | Long-term debt & capital lease obligations,
    less current portion                          |                                         |         | 237,690 |   |      |         | 286,533 |   |      |         | 324,876 |   |   |         | 330,101 |   |   |         | 291,096 |  
|                                                            | Stockholders equity                                                                          |                                         |         | 10,314  |   |      |         | 17,997  |   |      |         | 59,141  |   |   |         | 66,914  |   |   |         | 62,853  |  
|Reconciliation of Operating Income to Adjusted
    EBITDA*: |                                                                                               |                                         |         |         |   |      |         |         |   |      |         |         |   |   |         |         |   |   |         |        
|                                                            | Operating income (loss)                                                                       |                                         | $       | 21,008  |   |      | $       | (37,709 | ) |      | $       | 11,868  |   |   | $       | 29,883  |   |   | $       | 38,350  |  
|                                                            | Loss (gain) on disposal of operating assets                                                   |                                         |         | 748     |   |      |         | (2,725  | ) |      |         | 1,340   |   |   |         | 628     |   |   |         | (1,250  | )
|                                                            | Depreciation and amortization                                                                 |                                         |         | 54,880  |   |      |         | 60,358  |   |      |         | 60,884  |   |   |         | 58,019  |   |   |         | 53,295  |  
|                                                            |                                                                                               |                                         |         |         |   |      |         |         |   |      |         |         |   |   |         |         |   |   |         |        
|Adjusted EBITDA                                             |                                                                                               | $                                       | 76,636  |         |   | $    | 19,924  |         |   | $    | 74,092  |         |   | $ | 88,530  |         |   | $ | 90,395  |        
|                                                            |                                                                                               |                                         |         |         |   |      |         |         |   |      |         |         |   |   |         |         |   |   |         |        






|  |                                                                                                                                           
|- | ------------------------------------------------------------------------------------------------------------------------------------------
|* | Adjusted EBITDAincludes earnings before interest,
    taxes, depreciation and amortization and gains and losses on
    disposal of assets.

16



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

Results of Operations

The Company, through its subsidiaries, generates
revenues providing services to the automotive industry. Allied
Automotive Group is the largest motor carrier in North America
specializing in the transportation of new automobiles, light
trucks and SUVs for all of the major domestic and foreign
automotive manufacturers. Revenues increased $1.3 million
in 2002 to $898.1 million from $896.8 million in 2001, and
the net loss was reduced to $7.5 million in 2002 from $39.5
million in 2001. The significant reduction in the net loss was
due to the execution of the Companys turnaround
initiatives related to increased pricing, improved revenue
quality, productivity and the continued elimination of
non-contributing expenses and assets.

The following table sets forth the percentage
relationship of expense items to revenues for the periods
indicated:

|                    |                                                                                      |                                                  |                          |      |      |      |       |      |      |       |       |      |      |      | 
|------------------- | ------------------------------------------------------------------------------------ | ------------------------------------------------ | ------------------------ | ---- | ---- | ---- | ----- | ---- | ---- | ----- | ----- | ---- | ---- | ---- | 
|                    |                                                                                      |                                                 
|                    |                                                                                      | Year Ended December 31,                         
|                    |                                                                                      |                                                 
|                    |                                                                                      | 2002                                             |                          | 2001 |      | 2000
|                    |                                                                                      |                                                  |                          |      |      |     
|Revenues            |                                                                                      |                                                  | 100.0                    | %    |      |      | 100.0 | %    |      |       | 100.0 | %   
|                    |                                                                                      |                                                  |                          |      |      |      |       |      |      |       |       |     
|Operating expenses: |                                                                                      |                                                  |                          |      |      |      |       |      |      |       |       |     
|                    | Salaries, wages, and fringe benefits                                                 |                                                  |                          | 53.9 |      |      |       | 57.5 |      |       |       | 54.7 |     
|                    | Operating supplies and expenses                                                      |                                                  |                          | 15.5 |      |      |       | 16.6 |      |       |       | 17.7 |     
|                    | Purchased transportation                                                             |                                                  |                          | 11.0 |      |      |       | 10.9 |      |       |       | 9.8  |     
|                    | Insurance and claims                                                                 |                                                  |                          | 4.9  |      |      |       | 5.7  |      |       |       | 4.5  |     
|                    | Operating taxes and licenses                                                         |                                                  |                          | 3.7  |      |      |       | 3.7  |      |       |       | 3.7  |     
|                    | Depreciation and amortization                                                        |                                                  |                          | 6.1  |      |      |       | 6.7  |      |       |       | 5.7  |     
|                    | Rents                                                                                |                                                  |                          | 0.7  |      |      |       | 0.8  |      |       |       | 0.8  |     
|                    | Communications and utilities                                                         |                                                  |                          | 0.7  |      |      |       | 0.8  |      |       |       | 0.7  |     
|                    | Other operating expenses                                                             |                                                  |                          | 1.1  |      |      |       | 1.8  |      |       |       | 1.2  |     
|                    | Loss (gain) on sale of operating assets                                              |                                                  |                          | 0.1  |      |      |       | (0.3 | )    |       |       | 0.1  |     
|                    |                                                                                      |                                                  |                          |      |      |      |       |      |      |       |       |     
|                    |                                                                                      |                                                  | Total operating expenses |      |      | 97.7 |       |      |      | 104.2 |       |      |      | 98.9 | 
|                    |                                                                                      |                                                  |                          |      |      |      |       |      |      |       |       |     
|                    | Operating (loss) income                                                              |                                                  |                          | 2.3  |      |      |       | (4.2 | )    |       |       | 1.1  |     
|                    |                                                                                      |                                                  |                          |      |      |      |       |      |      |       |       |     
|                    | Other income (expense):                                                              |                                                  |                          |      |      |      |       |      |      |       |       |      |     
|                    |                                                                                      | Equity in earnings of joint ventures, net of tax |                          |      | 0.0  |      |       |      | 0.5  |       |       |      | 0.5  |     
|                    |                                                                                      | Gain on sale of joint ventures                   |                          |      | 0.0  |      |       |      | 1.8  |       |       |      | 0    |     
|                    |                                                                                      | Writedown of joint venture                       |                          |      | 0.0  |      |       |      | (1.1 | )     |       |      | 0    |     
|                    |                                                                                      | Interest expense                                 |                          |      | (3.4 | )    |       |      | (4.2 | )     |       |      | (3.2 | )   
|                    |                                                                                      | Interest income                                  |                          |      | 0.3  |      |       |      | 0.4  |       |       |      | 0.5  |     
|                    |                                                                                      | Gain on early extinguishment of debt             |                          |      | 0.3  |      |       |      | 0.0  |       |       |      | 0.0  |     
|                    |                                                                                      | Other, net                                       |                          |      | (0.0 | )    |       |      | 0.0  |       |       |      | 0.0  |     
|                    |                                                                                      |                                                  |                          |      |      |      |       |      |      |       |       |     
|                    |                                                                                      |                                                  | (2.8                     | )    |      |      | (2.6  | )    |      |       | (2.2  | )   
|                    |                                                                                      |                                                  |                          |      |      |      |       |      |      |       |       |     
|                    | Loss before income taxes and cumulative effect of
    change in accounting principle |                                                  |                          | (0.5 | )    |      |       | (6.8 | )    |       |       | (1.1 | )   
|                    |                                                                                      |                                                  |                          |      |      |      |       |      |      |       |       |     
|                    | Income tax benefit (provision)                                                       |                                                  |                          | 0.1  |      |      |       | 2.4  |      |       |       | 0.5  |     
|                    |                                                                                      |                                                  |                          |      |      |      |       |      |      |       |       |     
|                    | Loss before cumulative effect of change in
    accounting principle                  |                                                  |                          | (0.4 | )    |      |       | (4.4 | )    |       |       | (0.6 | )   
|                    | Cumulative effect of change in accounting
    principle, net of tax                  |                                                  |                          | (0.4 | )    |      |       | 0.0  |      |       |       | 0.0  |     
|                    |                                                                                      |                                                  |                          |      |      |      |       |      |      |       |       |     
|                    | Net (loss) income                                                                    |                                                  |                          | 0.8  | %    |      |       | (4.4 | )%   |       |       | (0.6 | )%  
|                    |                                                                                      |                                                  |                          |      |      |      |       |      |      |       |       |     

17



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##### Table of Contents



2002 Compared
to 2001

Revenues were $898.1 million in 2002 versus
revenues of $896.8 in 2001, an increase of $1.3 million, or
0.1%. The Company recorded a net loss of $7.5 million in 2002
compared to a net loss of $39.5 million in 2001, an
improvement of $32.0 million, or 81.0%. Basic and diluted
loss per share for 2002 was $0.91, versus basic and diluted loss
per share of $4.86 in 2001.

The increase in revenues was primarily the result
of the price increase implemented in the fall of 2001, which was
partially offset by a decline in the number of vehicles
delivered. Revenue per vehicle delivered increased from $90.14
in 2001 to $92.41 in 2002, a 2.5% increase. Total vehicle
deliveries declined by 2.5% in 2002 versus 2001 while new
vehicle production in the United States and Canada increased
6.6%. Allied Automotive Group vehicle deliveries declined versus
an increase in production primarily due to the closing of
unprofitable terminal locations by the Company in 2001 and in
2002, combined with a drop in market share. During the fourth
quarter of 2002, Allied Automotive Group reached a strategic
decision to exit substantially all business with Nissan in the
United States. Allied Automotive Groups Nissan business in
the United States generated approximately $25.0 million in
revenues during 2002. Allied Automotive Group confirmed that
Nissan would have required rate reductions in 2003 and Allied
Automotive Group was not prepared to grant price concessions.
These declines were offset by organic growth within the Allied
Automotive Group as a result of aggressively pursuing profitable
business in those locations considered to optimize its network
of terminals and fleet operations.

During the first quarter of 2003, the Company
amended its Credit Facility agreement to adjust two financial
covenants: the minimum consolidated EBITDA covenant as defined
in the Credit Facility, (Covenant EBITDA), and the
maximum fixed charges coverage ratio. These financial covenants
were amended by the Company and its lenders due to the potential
adverse financial impact from external factors in 2003
including, but not limited to, general economic conditions in
the United States, consumer confidence and the war with Iraq.
See additional discussion of the terms and conditions of the
amendment to the Credit Facility under the caption
Financial Condition, Liquidity and Capital Resources
of this section.

The net loss for 2002 included a
$1.7 million after-tax gain on the early extinguishment of
the Companys subordinated notes and a $4.1 million
after-tax charge related to the impairment of goodwill at the
Companys Axis Group subsidiary. The impairment charge
resulted from the Companys adoption of SFAS 142 as
described below.

For 2002, adjusted EBITDA was $76.6 million
versus $19.9 million for 2001. The significant improvement
in adjusted EBITDA was due primarily to the ongoing execution of
the Companys turnaround initiatives related to improved
revenue quality, driver productivity, workforce reductions, the
elimination of non-contributory expenses and assets, reductions
in traffic accidents, and improvement in workers compensation
claims and cargo claims expenses.

The following is a discussion of the changes in
the Companys major expense categories:

Salaries, wages and fringe benefits decreased
from 57.5% of revenues in 2001 to 53.9% of revenues in 2002. The
decrease was due primarily to continued productivity and
efficiency improvements implemented as part of the
Companys turnaround initiatives. These productivity and
efficiency improvements included a better day-to-day management
of the Companys labor needs for drivers. The Master
Agreement with the IBT allows for temporary layoffs of the
driver workforce based on driver requirements. Failure to
negotiate a new Master Agreement with the IBT upon the
May 31, 2003 expiration of the current agreement without a
work stoppage or without material increases in labor costs could
have a material adverse effect on the Company. In addition, the
Company incurred $9.2 million of workforce reduction
expenses in 2001 compared to $2.3 million of such expenses in
2002. The workforce reduction expense was part of the
Companys turnaround initiatives.

In connection with the driver workforce, on
March 24, 2003 the Company successfully negotiated the
renewal of its contract with its employees represented by the
Teamsters Union in Eastern Canada. Allied Systems (Canada)
Company and the Teamsters Union in Eastern Canada have been
operating under a contract that expired on October 31,
2002. The new contract, which was ratified by the Teamsters in
Eastern

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Canada on March 23, 2003, will expire on
October 31, 2005. The contract covers the drivers,
mechanics and yard personnel represented by the Teamsters Union
in the provinces of Ontario and Quebec, and represents
approximately 70% of the Companys employees in Canada.


Economic provisions of the new agreement include
a wage freeze for the first two years of the agreement and a
freeze on the current health and welfare contributions of Allied
Systems (Canada) Company during the three-year term of the
agreement. Allied Systems (Canada) Company has also agreed to
increase pension contributions in each year of the agreement and
to increase wages two percent effective November 1, 2004
and an additional one percent effective May 1, 2005. The
additional pension contributions will increase costs
approximately $100,000 or 0.2 percent in year one of the
agreement, and approximately $280,000 or 0.6 percent in
year two of the agreement. The wage and pension increases in
year three of the agreement will increase costs approximately
$1.6 million or 3.2 percent of costs. As noted
previously, the Companys Master Agreement with the IBT in
the United States expires on May 31, 2003. In the event
that the IBT and the Company negotiate a new agreement and agree
to wage increases in the first two years of a new contract, the
Companys new agreement in Canada also provides that the
wages in each of the first two years will be increased by an
amount equivalent to the negotiated percentage increases in the
United States.

Operating supplies and expenses decreased from
16.6% of revenues in 2001 to 15.5% of revenues in 2002. The
decrease was due primarily to a reduction in the maintenance
costs of Rigs in service. The decreased maintenance costs are a
result of the Company operating approximately 8.0% fewer Rigs in
2002 as well as improved efficiency in its field operations,
including 46 dedicated garage operations managed by the Company.
These efforts are consistent with the Companys turnaround
initiatives.

Purchased transportation increased from 10.9% of
revenues in 2001 to 11.0% of revenues in 2002. The increase in
2002 over 2001 was due primarily to a shift in the mix of
owner-operators versus company drivers and an increase in
business at locations where owner-operators are utilized for
vehicle deliveries. All costs for owner operators are included
in purchased transportation expense.

Insurance and claims expense decreased from 5.7%
of revenues in 2001 to 4.9% of revenues in 2002. The decrease
was primarily a result of lower cargo claims experienced on
shipping vehicles as well as a reduction in auto liability
claims costs. The number of vehicles damaged in transit declined
approximately 15% in 2002 versus 2001 and the number of traffic
accidents per million miles driven declined approximately 30.1%
in 2002 versus 2001. The Company is aggressively managing these
costs as part of its on-going turnaround initiatives.

Depreciation and amortization expense decreased
from 6.7% of revenues in 2001 to 6.1% of revenues in 2002. The
decrease is due primarily to the sale of non-performing assets
during 2001 and lower capital spending in 2001 and 2002 compared
to depreciation expense. The Company has instituted a Rig
manufacturing program to remanufacture existing owned Rigs
rather than purchasing new Rigs. Remanufacturing existing Rigs
requires less capital spending than purchasing new Rigs. The
first phase of the program began in 2002 and is expected to
continue through 2004 at an approximate total capital investment
of $75 to $85 million for the remanufacturing of
approximately 1,500 Rigs over the three-year period. As of
December 31, 2002 approximately 350 Rigs were
remanufactured and approximately 350 engines were replaced in
tractors. The remaining decrease is due to the reduction of
amortization expense resulting from the Companys adoption
of SFAS No. 142, Goodwill and Other Intangibles,
which became effective January 1, 2002. During 2001, the
Company recorded $3.5 million of amortization expense
related to goodwill. The overall decrease in depreciation and
amortization was offset by a charge of $2.1 million to
accelerate the depreciation on Rigs that were recently idled.

Other operating expenses decreased from 1.8% of
revenues in 2001 to 1.1% of revenues in 2002. The decrease was
due primarily to lower professional fees for consultants. During
2001, the Company engaged outside consultants, including Jay
Alix & Associates, to aid in the planning and analysis of
its turnaround initiatives and the refinancing of its revolving
credit facility and subordinated debt, which was completed in
2002.

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Gain/loss on disposition of assets decreased from
a gain of $2.7 million in 2001 to a loss of $748,000 in
2002. As part of the Companys turnaround initiatives, the
Company has disposed of non-performing assets. The asset sales
in 2001 generated $11.8 million of cash proceeds versus
proceeds of $4.7 million in 2002.

Equity in earnings of joint ventures, net of tax,
decreased from $4.1 million in 2001 to $0 in 2002. The decrease
is due to the sale of the Companys joint venture interest
in the United Kingdom in the fourth quarter of 2001 and the sale
of its joint venture interest in Brazil in the second quarter of
2002. There were no equity in earnings or losses from the
Brazilian joint venture in 2002.

Interest expense decreased from 4.3% of revenues
in 2001 to 3.4% of revenues in 2002. The decrease was due to
higher debt levels and effective interest rates in 2001 versus
2002, as well as the incurrence in 2001 of additional costs
related to the amendment of the Companys revolving credit
facility and its senior subordinated notes.

The income tax benefit decreased from
$21.3 million in 2001 to $1.1 million in 2002. The decrease
was due primarily to a decrease in the pre-tax loss from
$60.8 million in 2001 to $4.6 million in 2002.

The adoption of SFAS No. 142 is a required
change in accounting principles, and the cumulative effect of
adopting this standard as of January 1, 2002 resulted in a
non-cash, after-tax decrease to net income of $4.1 million for
the Company. Pursuant to the adoption of SFAS No. 142, the
Company ceased amortizing goodwill and annually tests goodwill
for impairment. In 2001, the Company recorded $3.5 million
of amortization expense related to goodwill.

The adoption of SFAS No. 145 required that
the after-tax gain of $1.7 million on the early
extinguishment of debt the Company recorded during the first
quarter of 2002 to be reclassified from an extraordinary item,
net of tax, to other income of $2.8 million, before tax.

As part of the Companys turnaround efforts
in the first quarter of 2002, the Allied Holdings Inc. Defined
Benefit Pension Plan, (Plan), was amended in
February 2002 to freeze the Plan. The amendment resulted in a
curtailment of the Plan effective April 30, 2002, under
which employees do not accumulate any new benefits and new
employees are not added to the Plan. The Companys net
pension expense for 2001 was $2.6 million. As a result of
freezing the Plan, the Companys net pension expense was
$390,000 for 2002.

2001 Compared
to 2000

Revenues were $896.8 million in 2001
compared to $1.07 billion in 2000, a decrease of
$172 million, or 16%. The Company posted a net loss in 2001
of $39.5 million compared to net loss of $6.3 million
in 2000. Basic and diluted loss per share for 2001 was $4.86,
versus basic and diluted loss per share of $0.79 in 2000. The
operating ratio (operating expenses as a percentage of revenues)
for 2001 was 104.5% compared to 98.8% in 2000.

The decrease in revenues was primarily the result
of a decline in the number of vehicles delivered due to a
decrease in new vehicle production and sales by the auto
manufacturers. Total vehicle deliveries dropped 17% in 2001
versus 2000 while new vehicle production in the United States
and Canada declined 11%. Allied Automotive Groups vehicle
deliveries declined more than the production drop primarily due
to the closing of unprofitable terminal locations together with
a drop in market share primarily from increased nonunionized
competition. Offsetting the revenue decline from lower delivery
volumes was an increase in the revenue generated per vehicle
delivered from $92.06 in 2000 to $93.12 in 2001, a 1.2%
increase. This increase is primarily the result of the
implementation by the Company of a new administrative processing
fee. Included in the results for 2001 are $9.2 million of
workforce reduction expenses related to the elimination of
positions at the Companys corporate office as well as at
unprofitable terminal locations.

During the fourth quarter of 2001, the Company
posted significantly improved results with net loss decreasing
from $7.5 million in the fourth quarter of 2000 to a net
loss of $2.3 million in the fourth quarter of 2001. During
the fourth quarter of 2001, the Company benefited from the
execution of turnaround initiatives that raised prices,
eliminated noncontributory expenses and assets, closed
nonperforming locations, and better managed cash. Results during
the fourth quarter of 2001 included unusual charges of
$4.5 million related to

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these initiatives. In addition, during the fourth
quarter of 2001, the Company reduced its total debt by
$59.3 million. Results for the fourth quarter of 2000
include a $1.5 million charge related to workforce
reduction expense.


The following is a discussion of the changes in
the Companys major expense categories:

Salaries, wages and fringe benefits increased
from 54.7% of revenues in 2000 to 57.5% of revenues in 2001. The
increase was primarily due to inefficiencies resulting from the
volume decline, which was offset by continued productivity and
subsequent efficiency improvements implemented by the
Companys turnaround initiatives. In addition, the Company
incurred $9.2 million of workforce reduction expenses in 2001
compared to $2.5 million in 2000.

Operating supplies and expenses decreased from
17.7% of revenues in 2000 to 16.6% of revenues in 2001. The
decrease was due primarily to a decrease in fuel costs
experienced during 2001. In addition, Allied Automotive Group
experienced a full year of negotiated fuel surcharges designed
to offset higher fuel prices than anticipated when contracts
were negotiated. The surcharges were only in place for the last
three-quarters of 2000 and Allied Automotive Group estimated
that higher fuel costs, net of the surcharges, reduced 2000
first quarter earnings by approximately $1.6 million.

Purchased transportation increased from 9.8% of
revenues in 2000 to 10.9% of revenues in 2001. The increase was
due primarily to the increase in the mix of loads hauled by
owner-operators versus company drivers. All costs for
owner-operators are included in purchased transportation
expense. Owner-operators generally have more seniority than
company drivers so as volumes decline, a greater percentage of
company trucks are idled as lay-offs are based on seniority.

Insurance and claims increased from 4.5% of
revenues in 2000 to 5.7% of revenues in 2001. The increase was
due to higher than expected cargo claims on shipped vehicles.
Allied Automotive Group is aggressively managing its cargo
claims as a result of its turnaround plan.

Depreciation and amortization increased from 5.7%
of revenues in 2000 to 6.7% of revenues in 2001. The increase
was primarily due to the reduction in revenues as a result of
the volume decline experienced in 2001. Depreciation and
amortization was $60.4 million in 2001, slightly less than
the $60.9 million of depreciation and amortization in 2000.

Other operating expenses increased from 1.2% of
revenues in 2000 to 1.8% of revenues in 2001. The increase was
primarily the result of higher legal and professional fees
related to the Companys turnaround efforts. The Company
engaged the services of a specialized turnaround consulting
firm, Jay Alix & Associates from June 2001 until March 2002.

Equity in earnings of joint ventures, net of tax,
decreased by $1.0 million in 2001, from $5.1 million in
2000 to $4.1 million in 2001. The decrease was due to lower
earnings from Axis Groups joint ventures in the United
Kingdom which were sold during the fourth quarter of 2001.

Axis Group completed the sale of its joint
ventures in the United Kingdom during December 2001 to AutoLogic
Holdings, plc for approximately $20.5 million in cash. As a
result of the sale the Company recorded a gain on the sale of
the joint ventures of $16.2 million.

In addition, the Company recorded an impairment
charge of $10.0 million on Axis Groups interest in
the Brazilian joint venture. Axis Group sold its investment in
the joint venture in Brazil for $3.0 million during the
second quarter of 2002.

Interest expense increased from
$33.8 million, or 3.2% of revenues, in 2000 to
$37.6 million, or 4.2% of revenues, in 2001. The increase
was primarily due to higher interest rates on the Companys
revolving credit facility and subordinated notes and additional
fees incurred as a result of amendments to the Companys
revolving credit facility in April 2001.

Interest income decreased from 0.5% of revenues
in 2000 to 0.4% of revenues in 2001, or from $5.5 million
in 2000, to $3.9 million in 2001. The decrease was due to
lower investment income from the Companys captive
insurance subsidiary Haul Insurance Limited.

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During 2001, Allied Automotive Group closed
certain terminal locations as a part of its turnaround
initiative plan. As a result, the Company disposed of certain
properties associated with the closings together with other
surplus real estate and recorded $3.9 million of gains on
the sale of these properties. During 2000, Allied Automotive
Group disposed of some of its older Rigs, which resulted in
write-downs of approximately $1.3 million. These items are
included in other expense, net in the Companys financial
statements.

Financial Condition, Liquidity and Capital
Resources

The Companys sources of liquidity are funds
provided by operations and borrowings under its revolving credit
facility with a syndicate of lenders. The Companys primary
liquidity needs are for the remanufacturing and maintenance of
Rigs and terminal facilities, the payment of operating expenses
and the payment of interest and principal associated with
long-term debt.

Net cash provided by operating activities totaled
$58.5 million for 2002, versus $28.0 million for 2001.
The increase was due primarily to improved results from
operations that decreased the loss before income taxes and
cumulative change in accounting principle of $39.5 million
for 2001 to $3.4 million for 2002. In addition, short-term
investments held by the Companys captive insurance company
increased by $4.9 million in 2001, but decreased by
$4.0 million in 2002. During 2002, the Companys
captive insurance company maintained a larger percentage of its
assets in cash and cash equivalents versus short-term
investments.

Net cash used in investing activities totaled
$11.4 million in 2002, versus net cash provided by
investing activities of $19.4 million for 2001. The change
is due primarily to the receipt of $20.6 million for the
sale of the Companys joint venture in the United Kingdom
in 2001 and cash received prior to the sale of
$8.6 million. Cash received from the sale of property and
equipment decreased from $11.8 million in 2001 to
$4.7 million in 2002, which is due primarily to the sale of
excess real estate and non-performing assets in 2001.

Net cash used in financing activities totaled
$47.5 million in 2002, versus $39.9 million in 2001.
During 2002 long-term debt was reduced by $40.7 million,
compared to $35.8 million in 2001. The repayment of debt
was due primarily to a reduction in the net loss experienced by
the Company and lower working capital requirements. Contributing
to the increase in cash provided by operations were the proceeds
from the sale of the investment in the joint venture in the
United Kingdom and Brazil as well as cash received from the
conversion of certain insurance policies. The Company also paid
$9.2 million in deferred financing costs related to the
refinancing of its revolving credit facility and the repurchase
of its senior subordinated notes in 2002, versus
$3.6 million paid in 2001.

On February 25, 2002, the Company refinanced
its revolving credit facility and $40 million senior
subordinated notes with a new credit facility including certain
term loans (the Term Loans) (collectively the Credit Facility).
Proceeds from the term loans were used to repurchase the
$40 million of senior subordinated notes for
$37.25 million. The Credit Facility includes a revolving
credit facility (the Revolver) that allows the Company to borrow
under a revolving line of credit up to the lesser of
$120 million or a borrowing base amount as defined in the
Credit Facility agreement. The interest rate for the Revolver is
based upon the prime rate plus 1.5% or LIBOR plus 4.5% with a
minimum interest rate of 6.5%. Annual commitment fees are due on
the undrawn portion of the commitment. At December 31,
2002, $24.6 million was outstanding under the Revolver, and
approximately $19 million was committed under letters of
credit. As of December 31, 2002, the Company had
approximately $48.4 million available under the Revolver.
The Revolver matures on February 25, 2005.

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The Credit Facility contains four loans with the
following terms:

|                |  |                               |  |                              |  |                          |  |                  
|--------------- |  | ----------------------------- |  | ---------------------------- |  | ------------------------ |  | -----------------
|                |  | Term Loan A                   |  | Term Loan B                  |  | Term Loan C              |  | Term Loan D      
|                |  |                               |  |                              |  |                          |  |                  
|Date of note    |  | February 25, 2002             |  | February 25, 2002            |  | February 25, 2002        |  | February 25, 2002
|Maturity date   |  | February 25, 2005             |  | February 25, 2005            |  | February 25, 2005        |  | February 28, 2005
|Original amount |  | $17,500,000                   |  | $25,000,000                  |  | $11,000,000              |  | $29,250,000      
|Unpaid balance  |  | $7,474,000                    |  | $25,684,000                  |  | $11,432,000              |  | $29,250,000      
|Interest rate   |  | Prime + 2.75% or Min of 7.75% |  | Prime + 6.5% or Min of 11.5% |  | Prime + 9% or Min of 14% |  | Prime + 3.5%     

Term Loan A is repayable in installments over
three years, with interest payable monthly based upon the prime
rate plus 2.75% with a minimum interest rate of 7.75%. Term Loan
B is repayable in installments over three years, with interest
payable monthly based upon the prime rate plus 6.50%. The
interest rate on Term Loan B includes interest paid in kind of
3.50% that will be payable upon maturity. The minimum interest
for Term Loan B is 11.50%. Term Loan C is payable in full at
maturity with interest payable monthly based upon the prime rate
plus 9.00%. The interest rate on Term Loan C also includes
interest paid in kind of 5.00% that will be payable upon
maturity. The minimum interest for Term Loan C is 14.00%. Term
Loan D is payable in full at maturity with interest payable
quarterly based upon the prime rate plus 3.50%. In addition, the
Company currently has outstanding indebtedness of
$150 million under a series of 8 5/8% Senior Notes
maturing in 2007.

Giving effect to the scheduled maturities under
the Credit Facility and the Senior Notes, future maturities of
long-term debt for the Company as of December 31, 2002 are
as follows (in thousands):

|     |  |   |         | 
|---- |  | - | ------- | 
|2003 |  | $ | 10,785  | 
|2004 |  |   | 12,623  | 
|2005 |  |   | 75,067  | 
|2006 |  |   | 0       | 
|2007 |  |   | 150,000 | 
|     |  |   |         | 
|     |  | $ | 248,475 | 
|     |  |   |         | 

The Credit Facility agreement sets forth a number
of affirmative, negative and financial covenants binding on the
Company. The negative covenants limit the ability of the Company
to, among other things, incur debt, incur liens, make
investments, sell assets, or declare or pay any dividends on its
capital stock. The financial covenants require the Company to
maintain minimum consolidated earnings before interest, taxes,
depreciation and amortization and also includes leverage and
fixed charge coverage ratios. During the first quarter of 2003,
the Company amended its Credit Facility agreement to adjust two
financial covenants: the minimum consolidated Covenant EBITDA
and the maximum fixed charges coverage ratio. Prior to the
amendment, the minimum consolidated Covenant EBITDA increased
from $60 million at December 31, 2002 to
$70 million at December 31, 2003. The minimum
consolidated Covenant EBITDA is tested monthly and the increases
were at varying amounts each month. The amendment reduced the
increases and the minimum consolidated Covenant EBITDA from
$70 million to $65 million. Therefore, the minimum
consolidated Covenant EBITDA will now increase from
$60 million at December 31, 2002 to $65 million
at December 31, 2003. In addition, the fixed charges
coverage ratio covenant was amended based on the reduction in
the Covenant EBITDA. The financial covenants were amended by the
Company and its lenders due to the potential adverse financial
impact from external factors in 2003 including, but not limited
to, the war with Iraq and higher fuel prices.

There can be no assurance that the Company will
be able to comply with these or its other debt covenants or
that, if it fails to do so, it will be able to obtain amendments
to or waivers of such covenants. Failure of the Company to
comply with covenants contained in its debt instruments, if not
waived, or to adequately service debt obligations, could result
in a default under the Credit Facility. Any default under the
Companys debt instruments, particularly any default that
results in an acceleration of indebtedness or foreclosure on
collateral could have a material adverse effect on the Company.

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Borrowings under the Credit Facility are secured
by a first priority security interest on assets of the Company
and certain of its subsidiaries, including a pledge of stock of
certain subsidiaries. In addition, certain subsidiaries of the
Company jointly and severally guarantee the obligations of the
Company under the Credit Facility.

Management anticipates that the Company will
provide sufficient resources to fund operations, including
capital expenditure requirements and debt service through at
least 2003. Also, as described further in Part II of this
report, the Company is currently negotiating a new Master
Agreement with the IBT regarding its union employees in the
United States and is involved in various litigation matters,
including the Gateway Development & Manufacturing case and
the Commercial Carriers, Inc. case. While it is not possible to
predict the outcome of the negotiations with the IBT or the
litigation against the Company and while the Company believes
that these claims are without merit, if the negotiations with
the IBT or the litigation is resolved in a manner that is
adverse to the Company, it could have a material adverse effect
on the Companys consolidated financial position and
significantly increase the Companys need for additional
liquidity.

In addition to its debt obligations, the Company
leases equipment, office space, computer equipment, and certain
terminal facilities under noncancelable operating lease
agreements, which expire in various years through 2007, and
leases certain terminal facilities under month-to-month leases.
The Companys minimal rental commitments, net of sub-lease
income, for 2003 totals approximately $10.3 million.

Disclosures
About Market Risks

The market risk inherent in the Companys
market risk sensitive instruments and positions are the
potential loss arising from adverse changes in investment
prices, interest rates, fuel prices, and foreign currency
exchange rates.

Investments

The Company does not use derivative financial
instruments in its investment portfolio. The Company places its
investments in instruments that meet high credit quality
standards, as specified in the Companys investment policy
guidelines. The policy also limits the amount of credit exposure
to any one issue, issuer, and type of instrument. Short-term
investments at December 31, 2002, which are recorded at
fair value of $60.7 million, have exposure to price risk.
This risk is estimated as the potential loss in fair value
resulting from a hypothetical 10% adverse change in quoted
prices and amounts to $6.1 million.

Interest
Rates

The Company primarily issues long-term debt
obligations to support general corporate purposes including
capital expenditures and working capital needs. The majority of
the Companys long-term debt obligations bear a fixed rate
of interest. A one-percentage point increase in interest rates
affecting the Companys floating rate long-term debt would
reduce pre-tax income by $984,000 over the next fiscal year. A
one-percentage point change in interest rates would not have a
material effect on the fair value of the Companys fixed
rate long-term debt.

Fuel
Prices

Allied Automotive Group is dependent on diesel
fuel to operate its fleet of Rigs. Diesel fuel prices are
subject to fluctuations due to unpredictable factors such as
weather, government policies, and changes in global demand and
global production. To reduce price risk caused by market
fluctuations, Allied Automotive Group periodically purchases
fuel in advance of consumption. A 10% increase in diesel fuel
prices would reduce pre-tax income by $3.9 million over the
next fiscal year assuming 2002 levels of fuel consumption. Fuel
prices in the first quarter of 2003 are approximately 20% higher
than fuel prices in the fourth quarter of 2002.

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Self
Insurance Claims

An increase in the number or severity of
accidents, stolen equipment, or other loss events over those
anticipated could have a materially adverse effect on the
Companys profitability as the Company is self-insured for
a significant portion of its risks. In addition, the insurance
market is contracting and it is becoming increasingly more
difficult to obtain insurance coverage. While the Company
currently has insurance coverage, there can be no more assurance
that the Company will be able to obtain insurance coverage in
the future.

Foreign
Currency Exchange Rates

Although the majority of the Companys
operations are in the United States, the Company does have
foreign subsidiaries (primarily Canada). The net investments in
foreign subsidiaries translated into dollars using year-end
exchange rates at December 31, 2002, is $65.4 million.
The potential loss in fair value impacting other comprehensive
income resulting from a hypothetical 10% change in quoted
foreign currency exchange rates amounts to $6.5 million. At
December 31, 2002 a payable balance of $11.7 million
related to intercompany transactions was recorded on the
Companys Canadian subsidiary. The potential loss from a
hypothetical 10% change in quoted foreign currency exchange
rates related to this balance amounts to $1.2 million as of
December 31, 2002. The Company does not use derivative
financial instruments to hedge its exposure to changes in
foreign currency exchange rates.

Revenue
Variability

The Companys revenues are variable and can
be impacted by sudden unexpected changes in OEM production
levels. In addition, the Companys revenues are seasonal,
with the second and fourth quarters generally experiencing
higher revenues than the first and third quarters. The volume of
vehicles shipped during the second and fourth quarters is
generally higher due to the introduction of new models which are
shipped to dealers during those periods and the higher spring
and early summer sales of automobiles and light trucks. During
the first and third quarters, vehicle shipments typically
decline due to lower sales volume during those periods and
scheduled plant shut downs. Except for the impact of rising fuel
costs discussed herein, inflation has not significantly affected
the Companys results of operations.

Contractual
Obligations

Long-term contractual obligations, other than
long-term debt obligations, are not recorded in the
Companys consolidated balance sheet. The table below sets
forth the Companys contractual obligations (in thousands):

|                            |  |       |         |                      |  |           |        |           |  |         |         |  |  |   |         |  |  |   |   | 
|--------------------------- |  | ----- | ------- | -------------------- |  | --------- | ------ | --------- |  | ------- | ------- |  |  | - | ------- |  |  | - | - | 
|                            |  |       |         |                     
|                            |  |       |         | Payments Due by Year
|                            |  |       |         |                     
|                            |  |       |         | Less Than            |  |           |        | More Than
|Contractual Obligations     |  | Total |         | 1 Year               |  | 1-3 Years |        | 3-5 Years |  | 5 Years
|                            |  |       |         |                      |  |           |        |           |  |        
|Long-Term Obligations       |  | $     | 248,475 |                      |  | $         | 10,785 |           |  | $       | 87,690  |  |  | $ | 150,000 |  |  | $ | 0 | 
|Operating Lease Obligations |  |       | 41,904  |                      |  |           | 10,273 |           |  |         | 27,027  |  |  |   | 4,604   |  |  |   | 0 | 
|Purchase Obligations*       |  |       | 15,639  |                      |  |           | 4,812  |           |  |         | 10,827  |  |  |   | 0       |  |  |   | 0 | 
|                            |  |       |         |                      |  |           |        |           |  |         |         |  |  |   |         |  |  |   |   | 
|                            |  | $     | 306,018 |                      |  | $         | 25,870 |           |  | $       | 125,544 |  |  | $ | 154,604 |  |  | $ | 0 | 
|                            |  |       |         |                      |  |           |        |           |  |         |         |  |  |   |         |  |  |   |   | 



---



|  |                                                                                                                                                                                                                                   
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | In April 2001, the Company entered into a
    five-year commitment with IBM to provide its mainframe computer
    processing services. The agreement includes outsourcing at
    determinable prices defined within the agreement.

Critical
Accounting Policies

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make decisions
based upon estimates, assumptions, and factors it considers as
relevant to the circumstances. Such decisions include the
selection of applicable

25



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##### Table of Contents



accounting principles and the use of judgment in
their application, the results of which impact reported amounts
and disclosures. Changes in future economic conditions or other
business circumstances may affect the outcomes of
managements estimates and assumptions. Accordingly, actual
results could differ from those anticipated.


A summary of the significant accounting policies
followed in preparation of the financial statements is contained
in Note 2 of the financial statements attached hereto. Other
footnotes describe various elements of the financial statements
and the assumptions on which specific amounts were determined.

The Companys critical accounting policies
include the following:

CLAIMS AND INSURANCE RESERVES 
Reserves for self-insured workers compensation,
automobile, and general liability losses are subject to
actuarial estimates based on historical claims experience
adjusted for current industry trends. The Company receives
third-party actuarial valuations to assist in the determination
of its claims and insurance reserves. The actuarial estimates
for self-insured workers compensation and automobile liability
are discounted using managements estimate of weighted risk
free interest rates for each claim year to their present values.
The claims and insurance reserves are adjusted periodically as
such claims mature to reflect changes in actuarial estimates
based on actual experience.

ACCOUNTS RECEIVABLE VALUATION
RESERVES  Substantially all revenue is derived from
transporting new automobiles and light trucks from manufacturing
plants, ports, auctions, and railway distribution points to
automobile dealerships. Revenue is recorded when the vehicles
are delivered to the dealerships. The Company makes significant
estimates to determine the collectibility of its accounts
receivable on the balance sheet. Estimates include assessments
of the potential for customer billing adjustments based on the
timing of delivery, the accuracy of pricing, as well as
evaluation of the historical aging of customer accounts. In
addition, estimates include periodic evaluations of the credit
worthiness of customers including the impact of market and
economic conditions on their viability to satisfy amounts owed
to the Company.

ACCOUNTING FOR INCOME TAXES  As part
of the process of preparing the Companys consolidated
financial statements the Company is required to estimate income
taxes in each of the jurisdictions in which the Company
operates. This process involves estimating actual current tax
exposure, together with assessing temporary differences
resulting from differing treatment of items, such as
depreciation expense, for tax and accounting purposes. These
differences result in deferred tax assets and liabilities, which
are included within the Companys consolidated balance
sheet. The Company must then assess the likelihood that the
deferred tax assets will be recovered from future taxable income
and to the extent the Company believes that recovery is not
likely, the Company must establish a valuation allowance. To the
extent the Company establishes a valuation allowance or
increases this allowance in a period, the Company must include
an expense within the tax provision in the statements of
operations.

Significant management judgment is required in
determining the Companys provision for income taxes,
deferred tax assets and liabilities and any valuation allowance
recorded against the net deferred tax assets. The Company has
recorded a valuation allowance of $7.1 million as of
December 31, 2002 due to uncertainties related to the
Companys ability to utilize some of the deferred tax
assets, primarily consisting of certain capital losses carried
forward and foreign tax credits, before they expire. The
valuation allowance is based on managements estimate of
taxable income by jurisdiction in which the Company operates and
the period over which the deferred tax assets will be
recoverable. In the event that actual results differ from these
estimates or the Company adjusts these estimates in future
periods, the Company may need to establish an additional
valuation allowance, which could materially impact the financial
position and results of operations.

The net deferred tax asset as of
December 31, 2002 was $12.1 million, net of a
valuation allowance of $7.1 million.

PROPERTY AND EQUIPMENT  The Company
operates approximately 3,800 company-owned Rigs, revenue
equipment, in connection with its business. Property and
equipment, including revenue equipment, are stated at cost and
depreciated using the straight-line method over the estimated
useful life down to estimated salvage value. The actual life, if
different than estimated, could have an impact on depreciation
expense in the Companys consolidated statements of
operations.

26



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##### Table of Contents



GOODWILL  The Company adopted SFAS 142
as of January 1, 2002. Pursuant to adoption, goodwill is no
longer amortized but is evaluated annually for impairment, or on
an interim basis if an event occurs or circumstances change that
would reduce the fair value of goodwill below its carrying
value. The fair value of goodwill is derived by using a
discounted cash flow analysis. This analysis involves estimates
and assumptions by management regarding future revenue streams
and expenses. Changes to these assumptions and estimates could
have a material effect on the carrying value of goodwill and
result in an impairment charge in the Companys
consolidated statements of operations.

Recent
Accounting Pronouncements

In June 2001, FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations. SFAS
No. 143 requires the Company to record the fair value of an
asset retirement obligation as a liability in the period in
which it incurs a legal obligation associated with the
retirement of tangible long-lived assets that result from the
acquisition, construction, development, and/or normal use of the
assets. The Company also records a corresponding asset that is
depreciated over the life of the asset. Subsequent to the
initial measurement of the asset retirement obligation, the
obligation will be adjusted at the end of each period to reflect
the passage of time and changes in the estimated future cash
flows underlying the obligation. The Company is required to
adopt SFAS No. 143 on January 1, 2003. The adoption of
SFAS No. 143 is not expected to have a material effect on
the financial position or results of operations of the Company
as of the date of adoption.

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections.
The Statement updates, clarifies and simplifies existing
accounting pronouncements. The Statement requires that in
certain circumstances previous items classified as extraordinary
that do not meet the criteria in Opinion 30 must be
reclassified. The Statement is effective for fiscal years
beginning after May 15, 2002. The Company elected early
adoption of the standard. Accordingly, the after-tax gain on
early extinguishment of debt that was reported as an
extraordinary item in the first quarter of 2002 has been
reclassified and is currently reported as other income.

In July 2002, the FASB issued SFAS No. 146,
Accounting for Cost Associated with Exit or Disposal
Activities. The Statement addresses financial accounting and
reporting for costs associated with exit or disposal activities
and nullifies EITF Issue No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (including Certain Costs Incurred in a
Restructuring). This Statement requires recognition of a
liability for a cost associated with an exit or disposal
activity when the liability is incurred, as opposed to when the
entity commits to an exit plan under EITF No. 94-3. The
Statement is effective prospectively for exit or disposal
activities initiated after December 31, 2002. Management
does not anticipate that the Statement will have a material
effect on the financial position or results of operations of the
Company as of the date of adoption.

In November 2002, the FASB issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements
No. 5, 57 and 107 and a rescission of FASB Interpretation
No. 34. This Interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is
required to recognize, at inception of a guarantee, a liability
for the fair value of the obligation undertaken. The initial
recognition and measurement provisions of the Interpretation are
applicable to guarantees issued or modified after
December 31, 2002 and are not expected to have a material
effect on the financial position or results of operations of the
Company. The disclosure requirements, which are effective for
financial statements of annual periods ending after December 15,
2002 have been implemented and had no impact on these financial
statements

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, an amendment
of FASB Statement No. 123. This Statement amends FASB
Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition
for a voluntary change to the fair value method of accounting
for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of Statement
No. 123 to require prominent

27



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##### Table of Contents



disclosures in both annual and interim financial
statements. Certain of the disclosure modifications are required
for fiscal years ending after December 15, 2002 and are
included in the notes to these consolidated financial statements.







|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risk

The information required under this item is
provided under the caption Disclosures about Market
Risks under Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations.






|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

Financial statements and supplementary data are
set forth beginning on page F-1 of this Report.






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

During the first quarter of 2002, the Company
solicited and received formal proposals for accounting and tax
services from several accounting firms. Effective April 4,
2002 the Company (a) engaged KPMG LLP as independent
accountants and (b) dismissed Arthur Andersen LLP
(Andersen LLP) as independent accountants. The
decision to change accountants was approved by the
Companys Board of Directors and Audit Committee.

The reports of Andersen LLP for the past two
fiscal years contained no adverse opinion, disclaimer of
opinion, or opinion that was qualified or modified as to
uncertainty, audit scope, or accounting principles.

During the Companys two most recent fiscal
years preceding the effective date of the change in accountants
there were no:



| |                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. disagreements between the Company and
    Andersen LLP on any matter of accounting principles or
    practices, financial statement disclosure, or auditing scope or
    procedure, which disagreements, if not resolved to the
    satisfaction of Andersen LLP, would have caused them to make
    reference to the subject matter of the disagreements in their
    reports;
|
| | 2. reportable events involving Andersen LLP
    that would have required disclosure under Item 304(a)(1)(v)
    of Regulation S-K;                                                                                                                                                                                                                                                
|
| | 3. consultations between the Company and
    KPMG LLP regarding any of the matters or events set forth in
    Item 304(a)(2)(i) and (ii) of Regulation S-K.                                                                                                                                                                                                                       




PART III

Certain information required by Part III is
omitted from this report in that the Registrant will file a
definitive Proxy Statement pursuant to Regulation 14A (the
Proxy Statement) not later than 120 days after the end of
the fiscal year covered by this report, and certain information
included therein is incorporated herein by reference. Only those
sections of the Proxy Statement which specifically address the
items set forth herein are incorporated by reference. Such
information does not include the Compensation Committee Report,
the Performance Graph or the Audit Committee Report included in
the Proxy Statement.






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

The information concerning the Companys
directors required by this Item is incorporated by reference to
the Companys Proxy Statement. The information concerning
the Companys executive officers required by this Item is
incorporated by reference to the section in Part I, entitled
Executive Officers of the Registrant.

The information regarding compliance with
Section 16 of the Securities Exchange Act of 1934, as
amended, is to be set forth in the Proxy Statement and is hereby
incorporated by reference.

28



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##### Table of Contents








|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

The information required by this Item is
incorporated by reference to the Companys Proxy Statement.






|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management

The information required by this Item is
incorporated by reference to the Companys Proxy Statement.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

The information required by this Item is
incorporated by reference to the Companys Proxy Statement.






|         |                        
|-------- | -----------------------
|Item 14. | Controls and Procedures

(a) Evaluation of Disclosure Controls and
Procedures. The Company maintains a system of
disclosure controls and procedures (as defined in
Rules 13a  14(c) and 15d  14(c) under the
Securities Exchange Act of 1934) designed to provide reasonable
assurance as to the reliability of the financial statements and
other disclosures included in this report, as well as to
safeguard assets from unauthorized use or disposition. The
Companys Chief Executive Officer and Chief Financial
Officer evaluated the effectiveness of the Companys
disclosure controls within 90 days prior to the filing date
of this report. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures are effective
in alerting them in a timely manner of material information
required to be included in the Companys periodic
Securities and Exchange Commission filings.

(b) Changes in Internal Controls.
Since the evaluation date, no significant changes were made to
the Companys internal controls or other factors that could
significantly affect these controls.




PART IV






|         |                                                                     
|-------- | --------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules,
    and Reports on Form 8-K

(a) The following documents are filed as
part of this report:



| |                          
| | -------------------------
| | (1) Financial Statements:

INDEX TO FINANCIAL STATEMENTS

|                                                                                                                         |  |      |     | 
|------------------------------------------------------------------------------------------------------------------------ |  | ---- | --- | 
|                                                                                                                         |  | Page
|                                                                                                                         |  |     
|Independent Auditors Report                                                                                             |  |      | F-1 | 
|Report of Independent Public Accountants                                                                                 |  |      | F-2 | 
|Consolidated Balance Sheets at December 31,
    2002 and 2001                                                            |  |      | F-3 | 
|Consolidated Statements of Operations for the
    Years Ended December 31, 2002, 2001, and 2000                          |  |      | F-4 | 
|Consolidated Statements of Changes in
    Stockholders Equity for the Years Ended December 31,
    2002, 2001, and 2000 |  |      | F-5 | 
|Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2002, 2001 and 2000                           |  |      | F-6 | 
|Notes to Consolidated Financial Statements                                                                               |  |      | F-7 | 

29



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##### Table of Contents





| |                                   
| | ----------------------------------
| | (2) Financial Statement Schedules:

INDEX TO FINANCIAL STATEMENT
SCHEDULES

|                                                                                                              |  |      |     | 
|------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                              |  | Page
|                                                                                                              |  |     
|Report of Independent Public Accountants                                                                      |  |      | S-1 | 
|Schedule II  Valuation and
    Qualifying Accounts for the Years Ended December 31, 2002,
    2001, and 2000 |  |      | S-2 | 



| |                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | All other schedules are omitted as the required
    information is inapplicable or the information is presented in
    the financial statements or related notes.



| |                                                                                                   
| | --------------------------------------------------------------------------------------------------
| | (3) Exhibits: The list of exhibits required
    by this item is set forth in (C) Exhibits below.

(b) Reports on Form 8-K.



| |      
| | -----
| | None.

(c) Exhibits.

Exhibit Index filed as part of this report

|        |         |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | ------- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |            
|No.     |         | Description
|        |         |            
|        | 3.1     |             |  | Amended and Restated Articles of Incorporation of
    the Company (incorporated by reference from Registration
    Statement on Form S-1 (File Number 33-66620) filed with the
    Commission on July 28, 1993, as amended on
    September 2, 1993 and September 17, 1993 and deemed
    effective on September 29, 1993).                                                                                                                                                                                                                                                                                                                       
|        | 3.2     |             |  | Amended and Restated Bylaws of the Company
    (incorporated by reference from the Companys Annual Report
    on Form 10-K for the year ended December 31, 2000,
    filed with the Commission on April 16, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 4.1     |             |  | Form of certificate representing shares of the
    Companys common stock (incorporated by reference from
    Registration Statement on Form S-1 (File Number 33-66620)
    filed with the Commission on July 28, 1993, as amended on
    September 2, 1993 and September 17, 1993 and deemed
    effective on September 29, 1993).                                                                                                                                                                                                                                                                                                               
|        | 4.2     |             |  | Indenture by and among the Company, the
    Guarantors listed therein, and The First National Bank of
    Chicago, as Trustee, dated September 30, 1997 (incorporated
    by reference from Registration Statement on Form S-4 (File
    Number 333-37113) filed with the Commission on October 3,
    1997).                                                                                                                                                                                                                                                                                                                                     
|        | 4.3     |             |  | Financing Agreement, dated as of
    February 25, 2002, by and among Allied Holdings, Inc.,
    Allied Systems, Ltd. (L.P.), each subsidiary of Allied Holdings,
    Inc. listed as a Guarantor on the signature pages
    thereto, each of the lenders from time to time party thereto as
    a Senior Lender, each of the lenders from time to time party
    thereto as a Subordinated Term Loan D Lender, Ableco Finance
    LLC, as collateral agent, and Foothill Capital Corporation, as
    administrative agent (incorporated by reference from the Current
    Report on Form 8-K filed with the Commission on
    February 27, 2002).
|        | 4.3(a)* |             |  | First Amendment to Financing Agreement, dated as
    of March 4, 2003, by and among Allied Holdings, Inc.,
    Allied Systems, Ltd. (L.P.), each subsidiary of Allied Holdings,
    Inc. listed as a Guarantor on the signature pages
    thereto, each of the lenders from time to time party thereto as
    a Senior Lender, each of the lenders from time to time party
    thereto as a Subordinated Term Loan D Lender, Ableco Finance
    LLC, as collateral agent, and Foothill Capital Corporation, as
    administrative agent.                                                                                                        
|        | 10.1   |             |  | Amended and Restated Long Term Incentive Plan of
    Allied Holdings, Inc. (incorporated by reference from the
    Companys Annual Report on Form 10-K for the year
    ended December 31, 2000, filed with the Commission on
    April 16, 2001).                                                                                                                                                                                                                                                                                                                                                                                               

30



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##### Table of Contents



|        |            |             |  |                                                                                                                                                                                                                                               
|------- | ---------- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |            |            
|No.     |            | Description
|        |            |            
|        | 10.2      |             |  | Allied Holdings, Inc. 401(k) Retirement Plan and
    Defined Benefit Pension Plan and Trust (incorporated by
    reference from Registration Statement on Form S-8
    (File Number 33-76108) filed with the Commission on
    March 4, 1994).
|        | 10.3      |             |  | Allied Holdings, Inc. Deferred Compensation Plan
    (incorporated by reference from Registration Statement on
    Form S-8 (File Number 333-51102) filed with the Commission
    on December 1, 2000).                                       
|        | 10.4      |             |  | Allied Holdings, Inc. Amended and Restated 1999
    Employee Stock Purchase Plan (incorporated by reference from
    Registration Statement on Form S-8
    (File Number 333-62440) filed with the Commission on
    June 6, 2001).           
|        | 10.5      |             |  | Employment Agreement between Allied Holdings,
    Inc. and Hugh E. Sawyer (incorporated by reference from the
    Quarterly Report on Form 10-Q filed with the Commission on
    August 14, 2001).                                            
|        | 10.5(a)   |             |  | First Amendment to Employment Agreement between
    Allied Holdings, Inc. and Hugh E. Sawyer (incorporated by
    reference from the Quarterly Report on Form 10-Q filed with
    the Commission on May 15, 2002).                            
|        | 10.6      |             |  | Employment Agreement between Allied Holdings,
    Inc. and Daniel Popky (incorporated by reference from the
    Quarterly Report on Form 10-Q filed with the Commission on
    May 15, 2002).                                                 
|        | 10.6(a)   |             |  | First Amendment to Employment Agreement between
    Allied Holdings, Inc. and Daniel Popky (incorporated by
    reference from the Quarterly Report on Form 10-Q filed with
    the Commission on May 15, 2002).                              
|        | 10.7      |             |  | Employment Agreement between Allied Holdings,
    Inc. and Thomas Duffy (incorporated by reference from the
    Quarterly Report on Form 10-Q filed with the Commission on
    May 15, 2002).                                                 
|        | 10.7(a)   |             |  | First Amendment to Employment Agreement between
    Allied Holdings, Inc. and Thomas Duffy (incorporated by
    reference from the Quarterly Report on Form 10-Q filed with
    the Commission on May 15, 2002).                              
|        | 10.8      |             |  | Employment Agreement between Allied Holdings,
    Inc. and Robert J. Rutland (incorporated by reference from the
    Quarterly Report on Form 10-Q filed with the Commission on
    May 15, 2002).                                            
|        | 10.9*     |             |  | Employment Agreement between Allied Holdings,
    Inc. and David Rawden, as amended.                                                                                                                                                          
|        | 10.10     |             |  | Employment Agreement among Allied Holdings, Inc.,
    Axis Group, Inc. and Jack Gross (incorporated by reference from
    the Quarterly Report on Form 10-Q filed with the Commission
    on May 15, 2002).                                   
|        | 10.11**    |             |  | Agreement between Allied Automotive Group, Inc.
    and UPS Autogistics, Inc., as amended (incorporated by reference
    from the Quarterly Report on Form 10-Q filed with the
    Commission on November 13, 2001).                          
|        | 10.11(a)** |             |  | Amendment No. 2 to Agreement between Allied
    Automotive Group, Inc. and UPS Autogistics, Inc. (incorporated
    by reference from the Quarterly Report on Form 10-Q filed
    with the Commission on November 14, 2002).                   
|        | 10.12**    |             |  | Agreement between the Company and DaimlerChrysler
    Corporation (incorporated by reference from the Companys
    Annual Report on Form 10-K for the year ended
    December 31, 2000, filed with the Commission on
    April 16, 2001).    
|        | 10.12(a)** |             |  | Amendment to Agreement between the Company and
    DaimlerChrysler Corporation.                                                                                                                                                               
|        | 10.13**    |             |  | Agreement between the Company and General Motors
    Corporation (incorporated by reference from the Companys
    Annual Report on Form 10-K for the year ended
    December 31, 2000, filed with the Commission on
    April 16, 2001).     
|        | 10.13(a)** |             |  | Amendment to Agreement between the Company and
    General Motors Corporation (incorporated by reference from the
    Quarterly Report on Form 10-Q filed with the Commission on
    November 13, 2001).                                      

31



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##### Table of Contents



|        |         |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------- | ------- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |            
|No.     |         | Description
|        |         |            
|        | 10.14** |             |  | Acquisition Agreement among Allied Holdings,
    Inc., AH Acquisition Corp., Canadian Acquisition Corp., Axis
    International Incorporated and Ryder System, Inc., dated
    August 20, 1997 (incorporated by reference from Current
    Report on Form 8-K filed with the Commission on
    August 29, 1997).                                                                                                                                                    
|        | 10.15   |             |  | Sale and Purchase Agreement between Allied
    Holdings, Inc. and AutoLogic Holdings plc, dated
    November 19, 2001, regarding the sale of the remaining
    issued share capital of ANSA Logistics Limited, Autocar
    Logistics Limited and up to an additional 32% of the issued
    share capital of Vehicle Logistics Corporation BV (incorporated
    by reference from the Current Report on Form 8-K filed with
    the Commission on December 20, 2001).
|        | 10.16   |             |  | IBM Global Services National Agreement between
    Allied Holdings, Inc. and International Business Machines
    Corporation, dated April 1, 2001 (incorporated by reference
    from the Annual Report on Form 10-K for the year ended
    December 31, 2001, filed with the Commission on
    March 27, 2002).                                                                                                                                                    
|        | 21.1*   |             |  | Subsidiaries of Allied Holdings, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 23.1*   |             |  | Consent of KPMG LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 23.2*   |             |  | Notice regarding consent of Arthur Andersen LLP                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 24.1*   |             |  | Powers of Attorney (included within the signature
    page of this Report).                                                                                                                                                                                                                                                                                                                                                                                         



---



| |   |               
| | - | --------------
| | * | Filed herewith



|   |                                                                                                       
|-- | ------------------------------------------------------------------------------------------------------
|** | Confidential treatment has been requested and/or
    granted with respect to portions of this exhibit.



| |   |                                                           
| | - | ----------------------------------------------------------
| |  | Management contract, compensatory plan or
    arrangement.

(d) Financial Statement Schedules. The list
of exhibits required by this item is set forth above.

32



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##### Table of Contents



SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

|                     |  |                                                                                                                                              
|-------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|                     |  | ALLIED HOLDINGS, INC.                                                                                                                        
|                    
|Date: March 27, 2003 |  | By: /s/ HUGH E. SAWYERHugh E. Sawyer,President and
    Chief Executive Officer                                                               
|                    
|Date: March 27, 2003 |  | By: /s/ DANIEL H. POPKYDaniel H. Popky,Senior Vice President and
    Chief Financial Officer
    (Principal Financial and Accounting Officer)

33



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##### Table of Contents



POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints
Robert J. Rutland and Hugh E. Sawyer, jointly and severally, his
attorneys-in-fact, each with the power of substitution, for him
in any and all capacities to sign any amendments to this Report
on Form 10-K, and to file the same, with exhibits thereto,
and other documents in connection therewith, with the Securities
and Exchange Commission, hereby ratifying and confirming all
that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.

|                                               |  |                                                 |  |                |  | 
|---------------------------------------------- |  | ----------------------------------------------- |  | -------------- |  | 
|                                               |  |                                                 |  |               
|Signature                                      |  | Title                                           |  | Date          
|                                               |  |                                                 |  |               
|/s/ ROBERT J. RUTLANDRobert J. Rutland         |  | Chairman and Director                           |  | March 27, 2003
|                                              
|/s/ GUY W. RUTLAND, IIIGuy W. Rutland, III     |  | Chairman Emeritus and Director                  |  | March 27, 2003
|                                              
|/s/ HUGH E. SAWYERHugh E. Sawyer               |  | President, Chief Executive Officer and Director |  | March 27, 2003
|                                              
|/s/ DAVID G. BANNISTERDavid G. Bannister       |  | Director                                        |  | March 27, 2003
|                                              
|/s/ WILLIAM P. BENTONWilliam P. Benton         |  | Director                                        |  | March 27, 2003
|                                              
|/s/ THOMAS E. BOLANDThomas E. Boland           |  | Director                                        |  | March 27, 2003
|                                              
|/s/ GUY W. RUTLAND, IVGuy W. Rutland, IV       |  | Executive Vice President and Director           |  | March 27, 2003
|                                              
|/s/ J. LELAND STRANGEJ. Leland Strange         |  | Director                                        |  | March 27, 2003
|                                              
|/s/ BERNER F. WILSON, JR.Berner F. Wilson, Jr. |  | Director                                        |  | March 27, 2003
|                                              
|/s/ ROBERT R. WOODSONRobert R. Woodson         |  | Director                                        |  | March 27, 2003

34



---



##### Table of Contents



CERTIFICATIONS

I, Daniel H. Popky, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this annual report on
    Form 10-K of Allied Holdings, Inc;                                                                                                                                                                                                                                                                
|
| | 2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|
| | 4. | The registrants other certifying officers
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                          



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |    |                                                                                                                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | The registrants other certifying officers
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



| |    |                                                                                                                                                                                                                                                                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officers
    and I have indicated in this annual report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

|                     |  |                                                                                                                                                 
|-------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------
|Date: March 27, 2003 |  | /s/ DANIEL H. POPKYDaniel H. PopkySenior Vice President
    Finance and Chief Financial Officer
    (Principal Financial and Accounting Officer)

35



---



##### Table of Contents



CERTIFICATIONS

I, Hugh E. Sawyer, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this annual report on
    Form 10-K of Allied Holdings, Inc;                                                                                                                                                                                                                                                                
|
| | 2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|
| | 4. | The registrants other certifying officers
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                          



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |    |                                                                                                                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | The registrants other certifying officers
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



| |    |                                                                                                                                                                                                                                                                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officers
    and I have indicated in this annual report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

|                     |  |                                                                      
|-------------------- |  | ---------------------------------------------------------------------
|Date: March 27, 2003 |  | /s/ HUGH E. SAWYERHugh E. SawyerPresident and Chief Executive Officer

36



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

The Board of Directors

Allied Holdings, Inc.:


We have audited the 2002 consolidated financial
statements of Allied Holdings, Inc. and subsidiaries as listed
in the accompanying index. In connection with our audit of the
2002 consolidated financial statements, we also have audited the
2002 consolidated financial statement schedule as listed in the
accompanying index. These consolidated financial statements and
the financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements and the
financial statement schedule based on our audit. The 2001 and
2000 consolidated financial statements and the financial
statement schedule of Allied Holdings, Inc. and subsidiaries as
listed in the accompanying index were audited by other auditors
who have ceased operations. Those auditors report, dated
February 27, 2002 on those financial statements and
financial statement schedule was unqualified, before the
revision described in Note 7 to the consolidated financial
statements, and included an explanatory paragraph that described
the fact that the financial statements of Ansa Logistics
Limited, an investment recorded using the equity method of
accounting was audited by other auditors; the equity investment
represented less than 1% of total assets at December 31,
2001 and the equity in net income for the years ended
December 31, 2001 and 2000 was $2,100,000 and $2,197,000,
respectively, of the total Companys net loss of
$(39,496,000) and $(6,301,000); respectively, the amounts
included for Ansa Logistics Limited were based solely on the
report of the other auditors.

We conducted our audit in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the 2002 consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Holdings, Inc. and
subsidiaries as of December 31, 2002, and the results of
their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the related 2002
financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set
forth therein.

As discussed in Note 7 to the consolidated
financial statements, effective January 1, 2002, the
Company adopted the provisions of Statement of Financial
Accounting Standards No. 142, Goodwill and Other
Intangible Assets.

As discussed above, the 2001 and 2000
consolidated financial statements of Allied Holdings, Inc. and
subsidiaries, as listed in the accompanying index, were audited
by other auditors who have ceased operations. As described in
note 7, these financial statements have been revised to
include the transitional disclosures required by Statement of
Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets, which was adopted by the Company as
of January 1, 2002.In our opinion, the disclosures
for 2001 and 2000 in note 7 are appropriate. However, we
were not engaged to audit, review, or apply any procedures to
the 2001 and 2000 financial statements of Allied Holdings, Inc.
other than with respect to such disclosures and, accordingly, we
do not express an opinion or any other form of assurance on the
2001 and 2000 consolidated financial statements taken as a whole.



| |             
| | ------------
| | /s/ KPMG LLP

Atlanta, Georgia

February 17, 2003


F-1



---



##### Table of Contents





|      |                                                                                                                                                                                                                                                                                      
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note: | The following report of independent
    accountants is a copy of the report previously issued in
    connection with the Companys 2001 Annual Report on
    Form 10-K and has not been reissued by Arthur
    Andersen LLP, the Companys former independent public
    accountants.

REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

To Allied Holdings, Inc.:

We have audited the accompanying consolidated
balance sheets of ALLIED HOLDINGS, INC. (a Georgia corporation)
AND SUBSIDIARIES as of December 31, 2001 and 2000 and the
related consolidated statements of operations, changes in
stockholders equity, and cash flows for each of the three
years ended December 31, 2001. These financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits and
the reports of other auditors provide a reasonable basis for our
opinion.

We did not audit the financial statements of Ansa
Logistics Limited, the investment in which is reflected in the
accompanying financial statements using the equity method of
accounting. The investment in Ansa Logistics Limited represents
less than 1% of total assets at December 31, 2001 and 2000
and the equity in its net income for the years ended
December 31, 2001 and 2000 is $2,100,000 and $2,197,000,
respectively, of the total Companys net loss of
$(39,496,000) and $(6,301,000), respectively. The statements of
Ansa Logistics Limited were audited by other auditors whose
reports have been furnished to us and our opinion, insofar as it
relates to the amounts included for Ansa Logistics Limited, is
based solely on the report of the other auditors.

In our opinion, based on our audits and the
reports of other auditors, the financial statements referred to
above present fairly, in all material respects, the financial
position of Allied Holdings, Inc. and subsidiaries as of
December 31, 2001 and 2000 and the results of their
operations and their cash flows for the three years ended
December 31, 2001 in conformity with accounting principles
generally accepted in the United States.



| |                         
| | ------------------------
| | /s/ Arthur Andersen, LLP

Atlanta, Georgia


February 25, 2002


(except with respect to the


matter discussed in the


fourth paragraph of Note 4,


as to which the date


is March 27, 2002)


F-2



---



##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2002 and 2001


(In thousands)


|                                            |                                                                                                                                                    |                                            |         |         |         |  |         |         |         | 
|------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------- | ------- |  | ------- | ------- | ------- | 
|                                            |                                                                                                                                                    | 2002                                       |         | 2001   
|                                            |                                                                                                                                                    |                                            |         |        
|ASSETS                                     
|Current assets:                             |                                                                                                                                                    |                                            |         |         |         |  |         |        
|                                            | Cash and cash equivalents                                                                                                                          |                                            | $       | 10,253  |         |  | $       | 10,543  |        
|                                            | Short-term investments                                                                                                                             |                                            |         | 60,732  |         |  |         | 64,794  |        
|                                            | Receivables, net of allowance for doubtful
    accounts of $5,587 and $11,058 in 2002 and 2001, respectively                                       |                                            |         | 58,512  |         |  |         | 72,292  |        
|                                            | Inventories                                                                                                                                        |                                            |         | 5,071   |         |  |         | 5,349   |        
|                                            | Deferred tax assets                                                                                                                                |                                            |         | 39,826  |         |  |         | 32,403  |        
|                                            | Prepayments and other current assets                                                                                                               |                                            |         | 28,685  |         |  |         | 22,633  |        
|                                            |                                                                                                                                                    |                                            |         |         |         |  |         |        
|                                            |                                                                                                                                                    | Total current assets                       |         |         | 203,079 |  |         |         | 208,014 | 
|Property and equipment, net                 |                                                                                                                                                    |                                            | 176,663 |         |         |  | 214,641 |        
|Goodwill, net                               |                                                                                                                                                    |                                            | 85,241  |         |         |  | 90,230  |        
|Other non-current assets                    |                                                                                                                                                    |                                            | 20,525  |         |         |  | 24,219  |        
|                                            |                                                                                                                                                    |                                            |         |         |         |  |         |        
|                                            |                                                                                                                                                    | Total assets                               |         | $       | 485,508 |  |         | $       | 537,104 | 
|                                            |                                                                                                                                                    |                                            |         |         |         |  |         |        
|LIABILITIES AND STOCKHOLDERS
    EQUITY   
|Current liabilities:                        |                                                                                                                                                    |                                            |         |         |         |  |         |        
|                                            | Current maturities of long-term debt                                                                                                               |                                            | $       | 10,785  |         |  | $       | 2,625   |        
|                                            | Trade accounts payable                                                                                                                             |                                            |         | 36,585  |         |  |         | 40,232  |        
|                                            | Accrued liabilities                                                                                                                                |                                            |         | 92,881  |         |  |         | 86,675  |        
|                                            |                                                                                                                                                    |                                            |         |         |         |  |         |        
|                                            |                                                                                                                                                    | Total current liabilities                  |         |         | 140,251 |  |         |         | 129,532 | 
|                                            |                                                                                                                                                    |                                            |         |         |         |  |         |        
|Long-term debt, less current maturities     |                                                                                                                                                    |                                            | 237,690 |         |         |  | 286,533 |        
|Postretirement benefits other than pensions |                                                                                                                                                    |                                            | 7,467   |         |         |  | 9,363   |        
|Deferred income taxes                       |                                                                                                                                                    |                                            | 27,746  |         |         |  | 21,383  |        
|Other long-term liabilities                 |                                                                                                                                                    |                                            | 62,040  |         |         |  | 72,296  |        
|Commitments and contingencies               |                                                                                                                                                    |                                            |         |         |         |  |         |        
|Stockholders equity:                       |                                                                                                                                                    |                                            |         |         |         |  |         |        
|                                            | Preferred stock, no par value. Authorized 5,000
    shares; none outstanding                                                                       |                                            |         | 0       |         |  |         | 0       |        
|                                            | Common stock, no par value. Authorized 20,000
    shares; 8,421 and 8,274 outstanding at December 31, 2002
    and December 31, 2001, respectively |                                            |         | 0       |         |  |         | 0       |        
|                                            | Additional paid-in capital                                                                                                                         |                                            |         | 46,801  |         |  |         | 46,520  |        
|                                            | Treasury stock, 139 shares at cost at
    December 31, 2002 and 2001                                                                               |                                            |         | (707    | )       |  |         | (707    | )      
|                                            | Accumulated deficit                                                                                                                                |                                            |         | (26,420 | )       |  |         | (18,894 | )      
|                                            | Accumulated other comprehensive loss, net of tax                                                                                                   |                                            |         | (9,360  | )       |  |         | (8,922  | )      
|                                            |                                                                                                                                                    |                                            |         |         |         |  |         |        
|                                            |                                                                                                                                                    | Total stockholders equity                 |         |         | 10,314  |  |         |         | 17,997  | 
|                                            |                                                                                                                                                    |                                            |         |         |         |  |         |        
|                                            |                                                                                                                                                    | Total liabilities and stockholders equity |         | $       | 485,508 |  |         | $       | 537,104 | 
|                                            |                                                                                                                                                    |                                            |         |         |         |  |         |        

See accompanying notes to consolidated financial
statements.

F-3



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

Years Ended December 31, 2002, 2001, and
2000


(In thousands, except per share
data)


|                                                                                     |                                                      |                          |         |         |         |      |         |         |         |   |           |         |           |  
|------------------------------------------------------------------------------------ | ---------------------------------------------------- | ------------------------ | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | --------- | ------- | --------- | -
|                                                                                     |                                                      | 2002                     |         | 2001    |         | 2000
|                                                                                     |                                                      |                          |         |         |         |     
|Revenues                                                                             |                                                      | $                        | 898,060 |         |         | $    | 896,767 |         |         | $ | 1,069,154 |        
|                                                                                     |                                                      |                          |         |         |         |      |         |         |         |   |           |        
|Operating expenses:                                                                  |                                                      |                          |         |         |         |      |         |         |         |   |           |        
|                                                                                     | Salaries, wages, and fringe benefits                 |                          |         | 483,545 |         |      |         | 515,916 |         |   |           | 584,527 |          
|                                                                                     | Operating supplies and expenses                      |                          |         | 138,542 |         |      |         | 149,111 |         |   |           | 189,136 |          
|                                                                                     | Purchased transportation                             |                          |         | 99,109  |         |      |         | 97,756  |         |   |           | 104,545 |          
|                                                                                     | Insurance and claims                                 |                          |         | 43,500  |         |      |         | 50,837  |         |   |           | 47,736  |          
|                                                                                     | Operating taxes and licenses                         |                          |         | 33,583  |         |      |         | 33,262  |         |   |           | 39,389  |          
|                                                                                     | Depreciation and amortization                        |                          |         | 54,880  |         |      |         | 60,358  |         |   |           | 60,884  |          
|                                                                                     | Rents                                                |                          |         | 6,342   |         |      |         | 6,813   |         |   |           | 8,570   |          
|                                                                                     | Communications and utilities                         |                          |         | 6,419   |         |      |         | 7,022   |         |   |           | 7,333   |          
|                                                                                     | Other operating expenses                             |                          |         | 10,384  |         |      |         | 16,126  |         |   |           | 13,826  |          
|                                                                                     | Loss (gain) on disposal of operating assets,
    net |                          |         | 748     |         |      |         | (2,725  | )       |   |           | 1,340   |          
|                                                                                     |                                                      |                          |         |         |         |      |         |         |         |   |           |        
|                                                                                     |                                                      | Total operating expenses |         |         | 877,052 |      |         |         | 934,476 |   |           |         | 1,057,286 |  
|                                                                                     |                                                      |                          |         |         |         |      |         |         |         |   |           |        
|                                                                                     |                                                      | Operating income (loss)  |         |         | 21,008  |      |         |         | (37,709 | ) |           |         | 11,868    |  
|                                                                                     |                                                      |                          |         |         |         |      |         |         |         |   |           |        
|Other income (expense):                                                              |                                                      |                          |         |         |         |      |         |         |         |   |           |        
|                                                                                     | Equity in earnings of joint ventures, net of tax     |                          |         | 0       |         |      |         | 4,072   |         |   |           | 5,066   |          
|                                                                                     | Gain on sale of joint venture                        |                          |         | 0       |         |      |         | 16,230  |         |   |           | 0       |          
|                                                                                     | Write down of joint venture                          |                          |         | 0       |         |      |         | (10,042 | )       |   |           | 0       |          
|                                                                                     | Interest expense                                     |                          |         | (30,627 | )       |      |         | (37,574 | )       |   |           | (33,813 | )        
|                                                                                     | Interest income                                      |                          |         | 2,463   |         |      |         | 3,874   |         |   |           | 5,509   |          
|                                                                                     | Gain on early extinguishment of debt                 |                          |         | 2,750   |         |      |         | 0       |         |   |           | 0       |          
|                                                                                     | Other, net                                           |                          |         | (157    | )       |      |         | 360     |         |   |           | 0       |          
|                                                                                     |                                                      |                          |         |         |         |      |         |         |         |   |           |        
|                                                                                     |                                                      |                          | (25,571 | )       |         |      | (23,080 | )       |         |   | (23,238   | )      
|                                                                                     |                                                      |                          |         |         |         |      |         |         |         |   |           |        
|Loss before income taxes and cumulative effect of
    change in accounting principle |                                                      |                          | (4,563  | )       |         |      | (60,789 | )       |         |   | (11,370   | )      
|Income tax benefit                                                                   |                                                      |                          | 1,129   |         |         |      | 21,293  |         |         |   | 5,069     |        
|                                                                                     |                                                      |                          |         |         |         |      |         |         |         |   |           |        
|Loss before cumulative effect of change in
    accounting principle                  |                                                      |                          | (3,434  | )       |         |      | (39,496 | )       |         |   | (6,301    | )      
|Cumulative effect of change in accounting
    principle, net of tax                  |                                                      |                          | (4,092  | )       |         |      | 0       |         |         |   | 0         |        
|                                                                                     |                                                      |                          |         |         |         |      |         |         |         |   |           |        
|                                                                                     |                                                      | Net loss                 |         | $       | (7,526  | )    |         | $       | (39,496 | ) |           | $       | (6,301    | )
|                                                                                     |                                                      |                          |         |         |         |      |         |         |         |   |           |        
|Basic and diluted loss per common share:                                             |                                                      |                          |         |         |         |      |         |         |         |   |           |        
|Loss before cumulative effect of change in
    accounting principle:                 |                                                      |                          |         |         |         |      |         |         |         |   |           |        
|                                                                                     | Basic and Diluted                                    |                          | $       | (0.41   | )       |      | $       | (4.86   | )       |   | $         | (0.79   | )        
|Cumulative effect of change in accounting
    principle, net of tax:                 |                                                      |                          |         |         |         |      |         |         |         |   |           |        
|                                                                                     | Basic and Diluted                                    |                          | $       | (0.50   | )       |      | $       | 0       |         |   | $         | 0       |          
|Net loss:                                                                            |                                                      |                          |         |         |         |      |         |         |         |   |           |        
|                                                                                     | Basic and Diluted                                    |                          | $       | (0.91   | )       |      | $       | (4.86   | )       |   | $         | (0.79   | )        
|                                                                                     |                                                      |                          |         |         |         |      |         |         |         |   |           |        
|Weighted average common shares outstanding:                                          |                                                      |                          |         |         |         |      |         |         |         |   |           |        
|                                                                                     | Basic and Diluted                                    |                          |         | 8,301   |         |      |         | 8,128   |         |   |           | 7,946   |          
|                                                                                     |                                                      |                          |         |         |         |      |         |         |         |   |           |        

See accompanying notes to consolidated financial
statements.

F-4



---



##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY

Years Ended December 31, 2002, 2001, and
2000


|                           |                                                  |                                                                            |   |              |        |            |       |          |   |          |   |               |   |               |        |       |   |   |      |      |   |   |         |         |   |   |        |   |        |   |        |         |        |  
|-------------------------- | ------------------------------------------------ | -------------------------------------------------------------------------- | - | ------------ | ------ | ---------- | ----- | -------- | - | -------- | - | ------------- | - | ------------- | ------ | ----- | - | - | ---- | ---- | - | - | ------- | ------- | - | - | ------ | - | ------ | - | ------ | ------- | ------ | -
|                           |                                                  |                                                                            |   |              |        |            |       |          |   |          |   | Accumulated   |   |              
|                           |                                                  | Comprehensive                                                              |   | Common Stock |        | Additional |       |          |   |          |   | Other         |   |              
|                           |                                                  | Income                                                                     |   |              |        | Paid-in    |       | Treasury |   | Retained |   | Comprehensive |   |              
|                           |                                                  | (Loss)                                                                     |   | Shares       |        | Amount     |       | Capital  |   | Stock    |   | Earnings      |   | Income (Loss) |        | Total
|                           |                                                  |                                                                            |   |              |        |            |       |          |   |          |   |               |   |               |        |      
|Balance, December 31, 1999 |                                                  |                                                                            |   |              |        |            | 7,997 |          |   | $        | 0 |               |   | $             | 44,437 |       |   | $ | (186 | )    |   | $ | 26,903  |         |   | $ | (4,240 | ) |        | $ | 66,914 |        
|                           | Net loss                                         |                                                                            | $ | (6,301       | )      |            |       | 0        |   |          |   | 0             |   |               |        | 0     |   |   |      | 0    |   |   |         | (6,301  | ) |   |        | 0 |        |   |        | (6,301  | )     
|                           | Other comprehensive loss:                        |                                                                            |   |              |        |            |       |          |   |          |   |               |   |               |        |       |   |   |      |      |   |   |         |         |   |   |        |   |        |   |        |         |       
|                           |                                                  | Foreign currency translation adjustment, net of
    income taxes of $1,601 |   |              | (2,504 | )          |       |          | 0 |          |   |               | 0 |               |        |       | 0 |   |      |      | 0 |   |         |         | 0 |   |        |   | (2,504 | ) |        |         | (2,504 | )
|                           |                                                  |                                                                            |   |              |        |            |       |          |   |          |   |               |   |               |        |       |   |   |      |      |   |   |         |         |   |   |        |   |        |   |        |        
|                           | Comprehensive loss                               |                                                                            | $ | (8,805       | )      |            |       |          |   |          |   |               |   |               |        |       |   |   |      |      |   |   |         |         |   |   |        |   |        |   |        |         |       
|                           |                                                  |                                                                            |   |              |        |            |       |          |   |          |   |               |   |               |        |       |   |   |      |      |   |   |         |         |   |   |        |   |        |   |        |        
|                           | Issuance of common stock                         |                                                                            |   |              |        |            |       | 146      |   |          |   | 0             |   |               |        | 750   |   |   |      | 0    |   |   |         | 0       |   |   |        | 0 |        |   |        | 750     |       
|                           | Repurchases of common stock                      |                                                                            |   |              |        |            |       | (110     | ) |          |   | 0             |   |               |        | 0     |   |   |      | (521 | ) |   |         | 0       |   |   |        | 0 |        |   |        | (521    | )     
|                           | Issuance of restricted stock, net of forfeitures |                                                                            |   |              |        |            |       | 154      |   |          |   | 0             |   |               |        | 803   |   |   |      | 0    |   |   |         | 0       |   |   |        | 0 |        |   |        | 803     |       
|                           |                                                  |                                                                            |   |              |        |            |       |          |   |          |   |               |   |               |        |       |   |   |      |      |   |   |         |         |   |   |        |   |        |   |        |        
|Balance, December 31, 2000 |                                                  |                                                                            |   |              |        |            | 8,187 |          |   |          | 0 |               |   |               | 45,990 |       |   |   | (707 | )    |   |   | 20,602  |         |   |   | (6,744 | ) |        |   | 59,141 |        
|                           | Net loss                                         |                                                                            | $ | (39,496      | )      |            |       | 0        |   |          |   | 0             |   |               |        | 0     |   |   |      | 0    |   |   |         | (39,496 | ) |   |        | 0 |        |   |        | (39,496 | )     
|                           | Other comprehensive loss:                        |                                                                            |   |              |        |            |       |          |   |          |   |               |   |               |        |       |   |   |      |      |   |   |         |         |   |   |        |   |        |   |        |         |       
|                           |                                                  | Foreign currency translation adjustment, net of
    income taxes of $956   |   |              | (1,373 | )          |       |          | 0 |          |   |               | 0 |               |        |       | 0 |   |      |      | 0 |   |         |         | 0 |   |        |   | (1,373 | ) |        |         | (1,373 | )
|                           |                                                  | Minimum pension liability, net of income taxes of
    $504                 |   |              | (805   | )          |       |          | 0 |          |   |               | 0 |               |        |       | 0 |   |      |      | 0 |   |         |         | 0 |   |        |   | (805   | ) |        |         | (805   | )
|                           |                                                  |                                                                            |   |              |        |            |       |          |   |          |   |               |   |               |        |       |   |   |      |      |   |   |         |         |   |   |        |   |        |   |        |        
|                           | Comprehensive loss                               |                                                                            | $ | (41,674      | )      |            |       |          |   |          |   |               |   |               |        |       |   |   |      |      |   |   |         |         |   |   |        |   |        |   |        |         |       
|                           |                                                  |                                                                            |   |              |        |            |       |          |   |          |   |               |   |               |        |       |   |   |      |      |   |   |         |         |   |   |        |   |        |   |        |        
|                           | Issuance of common stock                         |                                                                            |   |              |        |            |       | 179      |   |          |   | 0             |   |               |        | 349   |   |   |      | 0    |   |   |         | 0       |   |   |        | 0 |        |   |        | 349     |       
|                           | Issuance of restricted stock, net of forfeitures |                                                                            |   |              |        |            |       | (92      | ) |          |   | 0             |   |               |        | 181   |   |   |      | 0    |   |   |         | 0       |   |   |        | 0 |        |   |        | 181     |       
|                           |                                                  |                                                                            |   |              |        |            |       |          |   |          |   |               |   |               |        |       |   |   |      |      |   |   |         |         |   |   |        |   |        |   |        |        
|Balance, December 31, 2001 |                                                  |                                                                            |   |              |        |            | 8,274 |          |   |          | 0 |               |   |               | 46,520 |       |   |   | (707 | )    |   |   | (18,894 | )       |   |   | (8,922 | ) |        |   | 17,997 |        
|                           | Net loss                                         |                                                                            | $ | (7,526       | )      |            |       | 0        |   |          |   | 0             |   |               |        | 0     |   |   |      | 0    |   |   |         | (7,526  | ) |   |        | 0 |        |   |        | (7,526  | )     
|                           | Other comprehensive loss:                        |                                                                            |   |              |        |            |       |          |   |          |   |               |   |               |        |       |   |   |      |      |   |   |         |         |   |   |        |   |        |   |        |         |       
|                           |                                                  | Foreign currency translation adjustment, net of
    income taxes of $(316) |   |              | 376    |            |       |          | 0 |          |   |               | 0 |               |        |       | 0 |   |      |      | 0 |   |         |         | 0 |   |        |   | 376    |   |        |         | 376    |  
|                           |                                                  | Minimum pension liability, net of income taxes of
    $509                 |   |              | (814   | )          |       |          | 0 |          |   |               | 0 |               |        |       | 0 |   |      |      | 0 |   |         |         | 0 |   |        |   | (814   | ) |        |         | (814   | )
|                           |                                                  |                                                                            |   |              |        |            |       |          |   |          |   |               |   |               |        |       |   |   |      |      |   |   |         |         |   |   |        |   |        |   |        |        
|                           | Comprehensive loss                               |                                                                            | $ | (7,964       | )      |            |       |          |   |          |   |               |   |               |        |       |   |   |      |      |   |   |         |         |   |   |        |   |        |   |        |         |       
|                           |                                                  |                                                                            |   |              |        |            |       |          |   |          |   |               |   |               |        |       |   |   |      |      |   |   |         |         |   |   |        |   |        |   |        |        
|                           | Issuance of common stock                         |                                                                            |   |              |        |            |       | 159      |   |          |   | 0             |   |               |        | 338   |   |   |      | 0    |   |   |         | 0       |   |   |        | 0 |        |   |        | 338     |       
|                           | Issuance of restricted stock, net of forfeitures |                                                                            |   |              |        |            |       | (12      | ) |          |   | 0             |   |               |        | (57   | ) |   |      | 0    |   |   |         | 0       |   |   |        | 0 |        |   |        | (57     | )     
|                           |                                                  |                                                                            |   |              |        |            |       |          |   |          |   |               |   |               |        |       |   |   |      |      |   |   |         |         |   |   |        |   |        |   |        |        
|Balance, December 31, 2002 |                                                  |                                                                            |   |              |        |            | 8,421 |          |   | $        | 0 |               |   | $             | 46,801 |       |   | $ | (707 | )    |   | $ | (26,420 | )       |   | $ | (9,360 | ) |        | $ | 10,314 |        
|                           |                                                  |                                                                            |   |              |        |            |       |          |   |          |   |               |   |               |        |       |   |   |      |      |   |   |         |         |   |   |        |   |        |   |        |        

See accompanying notes to consolidated financial
statements.

F-5



---



##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

Years Ended December 31, 2002, 2001, and
2000


(In thousands)


|                                                                 |                                                                                     |                                                              |                                                         |                                                         |        |        |         |         |         |        |         |         |        |         |         |  
|---------------------------------------------------------------- | ----------------------------------------------------------------------------------- | ------------------------------------------------------------ | ------------------------------------------------------- | ------------------------------------------------------- | ------ | ------ | ------- | ------- | ------- | ------ | ------- | ------- | ------ | ------- | ------- | -
|                                                                 |                                                                                     | 2002                                                         |                                                         | 2001                                                    |        | 2000  
|                                                                 |                                                                                     |                                                              |                                                         |                                                         |        |       
|Cash flows from operating activities:                            |                                                                                     |                                                              |                                                         |                                                         |        |        |         |         |         |        |         |        
|                                                                 | Net loss                                                                            |                                                              | $                                                       | (7,526                                                  | )      |        | $       | (39,496 | )       |        | $       | (6,301  | )     
|                                                                 |                                                                                     |                                                              |                                                         |                                                         |        |        |         |         |         |        |         |        
|                                                                 | Adjustments to reconcile net loss to net cash
    provided by operating activities: |                                                              |                                                         |                                                         |        |        |         |         |         |        |         |         |       
|                                                                 |                                                                                     | Gain on early extinguishment of debt                         |                                                         |                                                         | (2,750 | )      |         |         | 0       |        |         |         | 0      |        
|                                                                 |                                                                                     | Interest expense paid in kind                                |                                                         |                                                         | 1,115  |        |         |         | 248     |        |         |         | 0      |        
|                                                                 |                                                                                     | Amortization of deferred financing costs                     |                                                         |                                                         | 4,004  |        |         |         | 4,795   |        |         |         | 1,616  |        
|                                                                 |                                                                                     | Depreciation and amortization                                |                                                         |                                                         | 54,880 |        |         |         | 60,358  |        |         |         | 60,884 |        
|                                                                 |                                                                                     | Gain on disposal of assets and other, net                    |                                                         |                                                         | 905    |        |         |         | (3,890  | )      |         |         | 1,340  |        
|                                                                 |                                                                                     | Gain on sale of joint ventures                               |                                                         |                                                         | 0      |        |         |         | (16,230 | )      |         |         | 0      |        
|                                                                 |                                                                                     | Write down of joint ventures                                 |                                                         |                                                         | 0      |        |         |         | 10,042  |        |         |         | 0      |        
|                                                                 |                                                                                     | Cumulative effect of change in accounting
    principle      |                                                         |                                                         | 4,092  |        |         |         | 0       |        |         |         | 0      |        
|                                                                 |                                                                                     | Deferred income taxes                                        |                                                         |                                                         | (1,632 | )      |         |         | (21,703 | )      |         |         | (8,419 | )      
|                                                                 |                                                                                     | Compensation expense related to stock options and
    grants |                                                         |                                                         | (57    | )      |         |         | 181     |        |         |         | 803    |        
|                                                                 |                                                                                     | Equity in earnings of joint ventures                         |                                                         |                                                         | 0      |        |         |         | (4,072  | )      |         |         | (5,066 | )      
|                                                                 |                                                                                     | Amortization of Teamsters Union contract costs               |                                                         |                                                         | 2,400  |        |         |         | 2,403   |        |         |         | 2,490  |        
|                                                                 |                                                                                     | Change in operating assets and liabilities:                  |                                                         |                                                         |        |        |         |         |         |        |         |         |        |        
|                                                                 |                                                                                     |                                                              | Receivables, net of allowance for doubtful
    accounts |                                                         |        | 13,667 |         |         |         | 40,679 |         |         |        | 8,196   |        
|                                                                 |                                                                                     |                                                              | Inventories                                             |                                                         |        | 270    |         |         |         | 1,980  |         |         |        | 497     |        
|                                                                 |                                                                                     |                                                              | Prepayments and other current assets                    |                                                         |        | (9,786 | )       |         |         | 293    |         |         |        | 2,716   |        
|                                                                 |                                                                                     |                                                              | Short-term investments                                  |                                                         |        | 4,062  |         |         |         | (4,902 | )       |         |        | (15,567 | )      
|                                                                 |                                                                                     |                                                              | Trade accounts payable                                  |                                                         |        | (3,603 | )       |         |         | (5,430 | )       |         |        | 2,056   |        
|                                                                 |                                                                                     |                                                              | Accrued liabilities                                     |                                                         |        | (1,556 | )       |         |         | 2,776  |         |         |        | (12,658 | )      
|                                                                 |                                                                                     |                                                              |                                                         |                                                         |        |        |         |         |         |        |         |        
|                                                                 |                                                                                     |                                                              |                                                         | Net cash provided by operating activities               |        |        | 58,485  |         |         |        | 28,032  |         |        |         | 32,587  |  
|                                                                 |                                                                                     |                                                              |                                                         |                                                         |        |        |         |         |         |        |         |        
|Cash flows from investing activities:                            |                                                                                     |                                                              |                                                         |                                                         |        |        |         |         |         |        |         |        
|                                                                 | Purchases of property and equipment                                                 |                                                              |                                                         | (21,786                                                 | )      |        |         | (21,463 | )       |        |         | (32,275 | )     
|                                                                 | Purchase of business, net of cash acquired                                          |                                                              |                                                         | 0                                                       |        |        |         | 0       |         |        |         | (8,352  | )     
|                                                                 | Proceeds from sale of property and equipment                                        |                                                              |                                                         | 4,725                                                   |        |        |         | 11,762  |         |        |         | 977     |       
|                                                                 | Investment in joint ventures                                                        |                                                              |                                                         | 0                                                       |        |        |         | (464    | )       |        |         | (616    | )     
|                                                                 | Cash received from joint ventures                                                   |                                                              |                                                         | 0                                                       |        |        |         | 8,624   |         |        |         | 1,509   |       
|                                                                 | Proceeds from sale of equity investment in joint
    venture                        |                                                              |                                                         | 3,000                                                   |        |        |         | 20,560  |         |        |         | 0       |       
|                                                                 | Decrease (increase) in the cash surrender
    value of life insurance               |                                                              |                                                         | 2,641                                                   |        |        |         | 420     |         |        |         | (541    | )     
|                                                                 |                                                                                     |                                                              |                                                         |                                                         |        |        |         |         |         |        |         |        
|                                                                 |                                                                                     |                                                              |                                                         | Net cash (used in) provided by investing
    activities |        |        | (11,420 | )       |         |        | 19,439  |         |        |         | (39,298 | )
|                                                                 |                                                                                     |                                                              |                                                         |                                                         |        |        |         |         |         |        |         |        
|Cash flows from financing activities:                            |                                                                                     |                                                              |                                                         |                                                         |        |        |         |         |         |        |         |        
|                                                                 | Repayments to revolving credit facility, net                                        |                                                              |                                                         | (74,263                                                 | )      |        |         | (35,966 | )       |        |         | (5,173  | )     
|                                                                 | Additions to long-term debt                                                         |                                                              |                                                         | 82,750                                                  |        |        |         | 0       |         |        |         | 0       |       
|                                                                 | Repayment of long-term debt                                                         |                                                              |                                                         | (47,535                                                 | )      |        |         | (109    | )       |        |         | (128    | )     
|                                                                 | Payment of deferred financing costs                                                 |                                                              |                                                         | (9,262                                                  | )      |        |         | (3,574  | )       |        |         | (421    | )     
|                                                                 | Proceeds from issuance of common stock                                              |                                                              |                                                         | 338                                                     |        |        |         | 349     |         |        |         | 750     |       
|                                                                 | Repurchase of common stock                                                          |                                                              |                                                         | 0                                                       |        |        |         | 0       |         |        |         | (521    | )     
|                                                                 | Other, net                                                                          |                                                              |                                                         | 434                                                     |        |        |         | (612    | )       |        |         | 1,282   |       
|                                                                 |                                                                                     |                                                              |                                                         |                                                         |        |        |         |         |         |        |         |        
|                                                                 |                                                                                     |                                                              |                                                         | Net cash used in financing activities                   |        |        | (47,538 | )       |         |        | (39,912 | )       |        |         | (4,211  | )
|                                                                 |                                                                                     |                                                              |                                                         |                                                         |        |        |         |         |         |        |         |        
|Effect of exchange rate changes on cash and cash
    equivalents |                                                                                     |                                                              | 183                                                     |                                                         |        |        | 611     |         |         |        | (689    | )      
|                                                                 |                                                                                     |                                                              |                                                         |                                                         |        |        |         |         |         |        |         |        
|                                                                 |                                                                                     |                                                              |                                                         | Net change in cash and cash equivalents                 |        |        | (290    | )       |         |        | 8,170   |         |        |         | (11,611 | )
|Cash and cash equivalents at beginning of year                   |                                                                                     |                                                              | 10,543                                                  |                                                         |        |        | 2,373   |         |         |        | 13,984  |        
|                                                                 |                                                                                     |                                                              |                                                         |                                                         |        |        |         |         |         |        |         |        
|Cash and cash equivalents at end of year                         |                                                                                     | $                                                            | 10,253                                                  |                                                         |        | $      | 10,543  |         |         | $      | 2,373   |        
|                                                                 |                                                                                     |                                                              |                                                         |                                                         |        |        |         |         |         |        |         |        

See accompanying notes to consolidated financial
statements.

F-6



---



##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002, 2001, and
2000




|    |                            
|--- | ---------------------------
|(1) | Organization and Operations

Allied Holdings, Inc. (the Company), a Georgia
corporation, is a holding company which operates through its
wholly owned subsidiaries. The principal operating divisions of
the Company are Allied Automotive Group, Inc. (Allied Automotive
Group) and Axis Group, Inc. (Axis Group). Allied Automotive
Group, through its subsidiaries, is engaged in the business of
transporting automobiles and light trucks from manufacturing
plants, ports, auctions, and railway distribution points to
automobile dealerships. Axis Group, through its subsidiaries, is
engaged in the business of securing and managing vehicle
distribution services, automobile inspections, auction and yard
management services, intra-modal transport, vehicle
accessorization, and dealer preparatory services for the
automotive industry.



|    |                                               
|--- | ----------------------------------------------
|(2) | Summary of Significant Accounting
    Policies

(a) Principles
of Consolidation

The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant
intercompany transactions and accounts have been eliminated.

(b) Foreign
Currency Translation

The assets and liabilities of the Companys
foreign subsidiaries are translated into U.S. dollars using
current exchange rates in effect at the balance sheet date, and
revenues and expenses are translated at average monthly exchange
rates. The resulting translation adjustments are recorded as
accumulated other comprehensive income in the accompanying
consolidated statements of changes in stockholders equity,
net of related income taxes.

(c) Revenue
Recognition

Substantially all revenue is derived from
transporting new automobiles and light trucks from manufacturing
plants, ports, auctions, and railway distribution points to
automobile dealerships, providing vehicle rail-car loading and
unloading services, yard management services, and other
distribution and transportation support services to the
pre-owned and new vehicle market. Revenue is recorded by the
Company when the vehicles are delivered to the dealerships or
when services are performed.

(d) Cash
and Cash Equivalents

The Company considers all highly liquid
investments with an original maturity of three months or less to
be cash equivalents.

(e) Inventories

Inventories consist primarily of tires, parts,
materials, and supplies for servicing the Companys
tractors and trailers. Inventories are recorded at the lower of
cost (on a first-in, first-out basis) or market.

(f) Tires
on Tractors and Trailers

New tires on tractors and trailers are
capitalized and amortized to operating supplies and expenses on
a cents per mile basis.

(g) Property
and Equipment

Property and equipment are stated at cost. Major
property additions, replacements, and betterments are
capitalized, while maintenance and repairs which do not extend
the useful lives of these assets are expensed

F-7



---



##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

currently. Depreciation is provided using the
straight-line method for financial reporting and accelerated
methods for income tax purposes. The estimated useful lives of
property and equipment are: 4 to 10 years for tractors and
trailers, 6 years for costs capitalized for the
remanufacturing program, 5 to 30 years for buildings,
facilities and leasehold improvements, and 3 to 10 years
for equipment, furniture and service cars.

The company evaluates impairment losses on
long-lived assets used in operation in accordance with
statements. FASB 144, Accounting for Impairment or
Disposal of Long-Lived Assets.

(h) Impairment
of Long-Lived Assets

SFAS No. 144 provides a single accounting
model for long-lived assets to be disposed of. SFAS No. 144
also changes the criteria for classifying an asset as held for
sale; and broadens the scope of businesses to be disposed of
that qualify for reporting as discontinued operations and
changes the timing of recognizing losses on such operations. The
Company adopted SFAS No. 144 on January 1, 2002.

In accordance with SFAS No. 144, long-lived
assets, such as property, plant, and equipment, and purchased
intangibles subject to amortization, are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized by the
amount by which the carrying amount of the asset exceeds the
fair value of the asset. Assets to be disposed of would be
separately presented in the balance sheet and reported at the
lower of the carrying amount or fair value less costs to sell,
and are no longer depreciated. The assets and liabilities of a
disposed group classified as held for sale would be presented
separately in the appropriate asset and liability sections of
the balance sheet.

Goodwill and intangible assets not subject to
amortization are tested annually for impairment, and are tested
for impairment more frequently if events and circumstances
indicate that the asset might be impaired. An impairment loss is
recognized to the extent that the carrying amount exceeds the
assets fair value.

Prior to the adoption of SFAS No. 144, the
Company accounted for long-lived assets in accordance with SFAS
No. 121, Accounting for Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of.

(i) Equity
Investments

The Company accounted for its investments under
the equity method of accounting with its share of the
ventures earnings or loss reflected as equity in earnings
of joint venture, net of tax in the consolidated statements of
operations. During 2002, there were no earnings or losses from
equity investments. In addition, at December 31, 2002, the
Company had no investments accounted for under the equity method.

(j) Cash
Surrender Value of Life Insurance

The Company maintains life insurance policies for
certain employees of the Company. Under the terms of the
policies, the Company will receive, upon the death of the
insured, the lesser of aggregate premiums paid or the cash
surrender value amount of the policy. Any excess proceeds over
the companys interest in the policies are retained by the
employees beneficiary. The Company records the increase or
decrease in cash surrender value each year as a reduction or
increase of premium expense.

(k) Goodwill
and Other Intangible Assets

Goodwill represents the excess of costs over fair
value of assets of businesses acquired. The Company adopted the
provisions of SFAS No. 142, Goodwill and Other Intangible
Assets,as of January 1, 2002.

F-8



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Goodwill and intangible assets acquired in a
purchase business combination and determined to have an
indefinite useful life are not amortized, but instead tested for
impairment at least annually in accordance with the provisions
of SFAS No. 142. SFAS No. 142 also requires that
intangible assets with estimable useful lives be amortized over
their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with
SFAS No. 144, Accounting for Impairment or Disposal of
Long-Lived Assets.

In connection with SFAS No. 142s
transitional goodwill impairment evaluation, the Statement
required the Company to perform an assessment of whether there
was an indication that goodwill is impaired as of the date of
adoption. To accomplish this, the Company was required to
identify its reporting units and determine the carrying value of
each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those
reporting units as of January 1, 2002.

The Company was required to determine the fair
value of each reporting unit and compare it to the carrying
amount of the reporting unit within six months of
January 1, 2002. To the extent the carrying amount of a
reporting unit exceeded the fair value of the reporting unit,
the Company would be required to perform the second step of the
transitional impairment test, as this is an indication that the
reporting unit goodwill may be impaired. The second step was
required for one reporting unit. In this step, the Company
compared the implied fair value of the reporting unit goodwill
with the carrying amount of the reporting unit goodwill, both of
which were measured as of the date of adoption.

The implied fair value of goodwill was determined
by allocating the fair value of the reporting unit to all of the
assets (recognized and unrecognized) and liabilities of the
reporting unit in a manner similar to a purchase price
allocation, in accordance with SFAS No. 141, Business
Combinations. The residual fair value after this allocation
was the implied fair value of the reporting unit goodwill. The
carrying amount exceeded the implied fair value for the Axis
reporting unit, which resulted in recognition of a
$4.1 million impairment loss, net of related taxes. Prior
to the adoption of SFAS No. 142, goodwill was amortized on
a straight-line basis over the expected periods to be benefited,
generally 40 years, and assessed for recoverability by
determining whether the amortization of the goodwill balance
over its remaining life could be recovered through undiscounted
future operating cash flows of the acquired operation. All other
intangible assets were amortized on a straight-line basis for
10 years. The amount of goodwill and other intangible asset
impairment, if any, was measured based on projected discounted
future operating cash flows using a discount rate reflecting the
Companys average cost of funds.

(l) Reclassification

Certain amounts in the financial statements have
been reclassified to conform to the current year presentation.

(m) Fair
Value of Financial Instruments

SFAS No. 107, Disclosures About Fair
Value of Financial Instruments, requires disclosure of the
following information about the fair value of certain financial
instruments for which it is practicable to estimate that value.
For purposes of the following disclosure, the fair value of a
financial instrument is the amount at which the instrument could
be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation.

The amounts disclosed represent managements
best estimates of fair value. In accordance with SFAS
No. 107, the Company has excluded certain financial
instruments and all other assets and liabilities from its
disclosure. Accordingly, the aggregate fair value amounts
presented are not intended to, and do not, represent the
underlying fair value of the Company.

F-9



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The methods and assumptions used to estimate fair
value are as follows:

Cash and Cash Equivalents

The carrying amount approximates fair value due
to the relatively short period to maturity of these instruments.

Short-Term Investments

The Companys short-term investments are
comprised of debt and equity securities, all classified as
trading securities, which are carried at their fair value based
on the quoted market prices of those investments. Accordingly,
net realized and unrealized gains and losses on trading
securities are included in net earnings.

Other Non-Current Assets

Other non-current assets primarily include the
cash surrender value of life insurance, deferred financing
costs, deposits, as well as a trademark owned by a subsidiary of
the Axis Group. The carrying amount of these assets, excluding
the trademark, approximates fair value due to the nature of the
assets. The fair value of the trademark is based on an analysis
performed by an independent appraisal firm.

Long-Term Debt

The carrying amount of the Credit Facility
approximates fair value based on the borrowing rates currently
available to the Company for borrowings with similar terms and
average maturities. The fair value of the Senior Notes is based
on the year-end quoted market price.

The financial instruments are generally executed
with major financial institutions which expose the Company to
acceptable levels of market and credit risks and may at times be
concentrated with certain counterparties or groups of
counterparties. The creditworthiness of counterparties is
subject to continuing review and full performance is anticipated.

The asset and (liability) amounts recorded
in the balance sheet and the estimated fair values of financial
instruments at December 31, 2002 consisted of the following
(in thousands):

|                          |  |          |          |            |  |   |          |  
|------------------------- |  | -------- | -------- | ---------- |  | - | -------- | -
|                          |  | Carrying |          |           
|                          |  | Amount   |          | Fair Value
|                          |  |          |          |           
|Cash and cash equivalents |  | $        | 10,253   |            |  | $ | 10,253   |  
|Short-term investments    |  |          | 60,732   |            |  |   | 60,732   |  
|Other non-current assets  |  |          | 20,525   |            |  |   | 20,416   |  
|Long-term debt            |  |          | (248,475 | )          |  |   | (202,785 | )

(n) Claims
and Insurance Reserves

In the United States, the Company retains
liability up to $650,000 for each workers compensation
claim and $500,000 for each claim for automobile and general
liability, including personal injury and property damage claims.
In addition to the $500,000 per occurrence deductible for
automobile liability, there is a $1,500,000 aggregate deductible
for those claims which exceed the $500,000 per occurrence
deductible, subject to a $1,000,000 per claim limit. Allied has
also applied a $1,000,000 interaggregate limit to the layer from
$1,000,000 to $2,000,000. This additional exposure is limited to
$1,000,000 in the aggregate for losses between $1,000,000 and
$2,000,000. Furthermore, the Company retains liability up to
$250,000 for each cargo damage claim. In Canada, the Company
retains liability up to CDN $500,000 for each claim for personal
injury, property damage, and cargo damage. Also, in Canada,
there is a CDN $500,000 aggregate limit for losses above CDN
$500,000 and losses in excess of CDN $500,000 are limited to CDN
$500,000.

F-10



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Reserves for self-insured workers
compensation, automobile, and general liability losses are based
on actuarial estimates that are based on the Companys
historical claims experience adjusted for current industry
trends, and discounted using managements estimate of
weighted average risk free interest rates for each claim year to
their present values. The undiscounted amount of these reserves
at December 31, 2002 and 2001 was approximately $109,558,000 and
$108,614,000, respectively. These claims and insurance reserves
are adjusted periodically as such claims mature to reflect
changes in actuarial estimates based on actual experience.

The Company provides reserves primarily on an
actuarially determined basis for the estimated cargo, auto,
general and workers compensation liability for both
reported and claims incurred but not reported. The estimated
costs of all known and estimated losses are accrued by the
Company. In the opinion of management, adequate provision has
been made for all incurred claims.

(o) Stock
Option Plan

The Company applies the intrinsic-value-based
method of accounting prescribed by Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to
Employees,and related interpretations including FASB
Interpretation No. 44, Accounting for Certain
Transactions involving Stock Compensation, an interpretation of
APB Opinion No. 25,issued in March 2000, to account
for its fixed-plan stock options. Under this method,
compensation expense is recorded on the date of grant only if
the current market price of the underlying stock exceeded the
exercise price. SFAS No. 123, Accounting for Stock-Based
Compensation,established accounting and disclosure
requirements using a fair-value-based method of accounting for
stock-based employee compensation plans. As allowed by SFAS No.
123, the Company has elected to continue to apply the intrinsic
value based method of accounting described above, and has
adopted only the disclosure requirements SFAS No. 123. If
the Company had elected to recognize compensation cost for the
long-term incentive plan based on the fair value at the grant
dates for awards under the plan, consistent with the method
prescribed by SFAS No. 123, net income and earnings per
share would have been changed to the pro forma amounts indicated
below at December 31, 2002, 2001, and 2000 (in thousands,
except per share data):

|                |              |                   |   |        |       |      |   |         |       |   |   |        |       |  
|--------------- | ------------ | ----------------- | - | ------ | ----- | ---- | - | ------- | ----- | - | - | ------ | ----- | -
|                |              | 2002              |   | 2001   |       | 2000
|                |              |                   |   |        |       |     
|Net loss:       |              |                   |   |        |       |      |   |         |       |   |   |       
|                | As reported  |                   | $ | (7,526 | )     |      | $ | (39,496 | )     |   | $ | (6,301 | )    
|                | Pro forma    |                   | $ | (8,238 | )     |      | $ | (40,024 | )     |   | $ | (6,602 | )    
|Loss per share: |              |                   |   |        |       |      |   |         |       |   |   |       
|                | As reported: |                   |   |        |       |      |   |         |       |   |   |        |      
|                |              | Basic and diluted |   | $      | (0.91 | )    |   | $       | (4.86 | ) |   | $      | (0.79 | )
|                | Pro forma:   |                   |   |        |       |      |   |         |       |   |   |        |      
|                |              | Basic and diluted |   | $      | (0.99 | )    |   | $       | (4.92 | ) |   | $      | (0.83 | )

The fair value of the Companys stock
options used to compute pro forma net income and earnings per
share disclosures is the estimated present value at grant date
using the Black-Scholes option pricing model with the following
weighted average assumptions for 2002, 2001, and 2000: dividend
yield of 0%, expected volatility of 72%, 85%, and 65%,
respectively, a risk-free interest rate of 3.19%, 4.30%, and
5.65%, respectively, and an expected holding period of five
years.

The Black-Scholes option-pricing model was
developed for use in estimating the fair value of traded options
that have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly
subjective assumptions, including expected stock price
volatility. Because the Companys employee stock options
have characteristics significantly different from those of
traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in
managements

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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its
employee stock options.

(p) Income
Taxes

Income taxes are accounted for under the asset
and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforward. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date.

(q) Pension
and Other Postretirement Plans

The Company has a defined benefit pension plan
for management and office personnel in the United States. The
benefits are based on years of service and the employees
compensation during the five years before retirement. The cost
of this program is being funded currently.

The Company also sponsors a defined benefit
health care plan for substantially all retirees and employees.
The Company measures the costs of its obligation based on its
best estimate. The net periodic costs are recognized as
employees render the services necessary to earn the
postretirement benefits.

(r) Earnings
Per Share

SFAS No. 128, Earnings Per Share,
requires presentation of basic and diluted earnings per share.
Basic earnings per share are calculated by dividing net income
available to common stockholders by the weighted average number
of common shares outstanding for the years presented. Diluted
earnings per share reflect the potential dilution that could
occur if securities and other contracts to issue common stock
were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the
entity. Options for approximately 345,326, 581,684, and 288,848
shares outstanding at December 31, 2002, 2001, and 2000,
respectively, were excluded from the calculation of diluted
earnings per share as the impact would have been antidilutive.
The number of weighted average shares used in calculating basic
and diluted earnings per share for the years ended
December 31, 2002, 2001, and 2000, was 8,301,000,
8,128,000, and 7,946,000, respectively.

(s) Commitments
and Contingencies

Liabilities for loss contingencies arising from
claims, assessments, litigation, fines, and penalties and other
sources are recorded when it is probable that a liability has
been incurred and the amount of the assessment can be reasonably
estimated.

(t) Derivatives
and Hedging Activities

SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended, establishes
accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivatives fair
value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying
hedges allows a derivatives gains and losses to offset
related results on the hedged item in the income statement and
requires that a company must formally document, designate, and
assess the effectiveness of transactions that receive hedge
accounting.

F-12



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

From time to time, the Company enters into
futures contracts to manage the risk associated with changes in
fuel prices. Gains and losses from fuel hedging contracts are
recognized as part of fuel expense when the Company uses the
underlying fuel being hedged. The Company does not enter into
fuel hedging contracts for speculative purposes. During 2002,
2001, and 2000, the Company did not have any fuel hedging
contracts or other derivative instruments that fall under the
provisions of SFAS No. 133, as amended by SFAS
No. 138, Accounting for Certain Derivative Instruments
and Certain Hedging Activities.

(u) Use of
Estimates

The preparation of the consolidated financial
statements requires management of the Company to make a number
of estimates and assumptions relating to the reported amount of
assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses
during the period. Significant items subject to such estimates
and assumptions include the carrying amount of property, plant
and equipment; valuation allowances for receivables, inventories
and deferred income tax assets; self-insurance reserves; and
assets and obligations related to employee benefits. Actual
results could differ from those estimates.

(3)     Recent
Accounting Pronouncements

In June 2001, FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations.SFAS
No. 143 requires the Company to record the fair value of an
asset retirement obligation as a liability in the period in
which it incurs a legal obligation associated with the
retirement of tangible long-lived assets that result from the
acquisition, construction, development, and/or normal use of the
assets. The Company also records a corresponding asset that is
depreciated over the life of the asset. Subsequent to the
initial measurement of the asset retirement obligation, the
obligation will be adjusted at the end of each period to reflect
the passage of time and changes in the estimated future cash
flows underlying the obligation. The Company is required to
adopt SFAS No. 143 on January 1, 2003. The adoption of
SFAS No. 143 is not expected to have a material effect on
the financial position or results of operations of the Company
as of the date of adoption.

In July 2002, the FASB issued SFAS No. 146,
Accounting for Cost Associated with Exit or Disposal
Activities. The Statement addresses financial accounting and
reporting for costs associated with exit or disposal activities
and nullifies EITF Issue No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (including Certain Costs Incurred in a
Restructuring). This Statement requires recognition of a
liability for a cost associated with an exit or disposal
activity when the liability is incurred, as opposed to when the
entity commits to an exit plan under EITF No. 94-3. The
Statement is effective prospectively for exit or disposal
activities initiated after December 31, 2002. Management
does not anticipate that the Statement will have a material
effect on the financial position or results of operations of the
Company as of the date of adoption.

In November 2002, the FASB issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements
No. 5, 57 and 107 and a rescission of FASB Interpretation
No. 34. This Interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is
required to recognize, at inception of a guarantee, a liability
for the fair value of the obligation undertaken. The initial
recognition and measurement provisions of the Interpretation are
applicable to guarantees issued or modified after
December 31, 2002 and are not expected to have a material
effect on the financial position or results of operations of the
Company. The disclosure requirements, which are effective for
financial statements of annual periods ending after
December 15, 2002 have been implemented and had no impact
on these financial statements.

F-13



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, an amendment
of FASB Statement No. 123. This Statement amends FASB
Statement No. 123, Accounting for Stock-Based
Compensation,to provide alternative methods of transition
for a voluntary change to the fair value method of accounting
for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of Statement
No. 123 to require prominent disclosures in both annual and
interim financial statements. Certain of the disclosure
modifications are required for fiscal years ending after
December 15, 2002 and are included in the notes to these
consolidated financial statements. The Company is currently
evaluating SFAS No. 148 to determine if it will adopt
SFAS 123 to account for employee stock options using the
fair value method, and if so, when it will begin the transition
to this method.

(4)     Investments

The Companys investments consist of
federal, state, and municipal government obligations, corporate
securities, and equity securities. All of the Companys
investments are held for settlement of insurance claims and are
not available to the Company for operations. In addition, the
Company had $7,700,000 and $7,800,000 in cash and cash
equivalents at December 31, 2002 and 2001, respectively,
which are also for settlement of insurance claims. At
December 31, 2002, all of the investments were classified
as trading securities as defined in SFAS No. 115,
Accounting for Certain Investments in Debt and Equity
Securities.

F-14



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

A summary of investments at December 31,
2002 and 2001 is as follows (in thousands):

|                  |                                                                              |                            |   |                    |        |        |   |            |       |  |   |        |        |   |   |        |        | 
|----------------- | ---------------------------------------------------------------------------- | -------------------------- | - | ------------------ | ------ | ------ | - | ---------- | ----- |  | - | ------ | ------ | - | - | ------ | ------ | 
|                  |                                                                              |                           
|                  |                                                                              | 2002                      
|                  |                                                                              |                           
|                  |                                                                              |                            |   |                    |        |       
|                  |                                                                              |                            |   | Unrealized Amounts |        |       
|                  |                                                                              | Amortized                  |   |                    |        |       
|                  |                                                                              | Cost                       |   | Gains              |        | Losses |   | Fair Value
|                  |                                                                              |                            |   |                    |        |        |   |           
|Fixed maturities: |                                                                              |                            |   |                    |        |        |   |            |       |  |   |        |        |   |   |       
|                  | United States government and United States
    government sponsored agencies |                            | $ | 20,136             |        |        | $ | 857        |       |  | $ | (5     | )      |   | $ | 20,988 |       
|                  | Asset and mortgage-backed securities                                         |                            |   | 3,868              |        |        |   | 147        |       |  |   | (73    | )      |   |   | 3,942  |       
|                  | Corporate and other                                                          |                            |   | 23,030             |        |        |   | 1,342      |       |  |   | (2     | )      |   |   | 24,370 |       
|                  | Foreign government and foreign government
    sponsored debt securities      |                            |   | 398                |        |        |   | 17         |       |  |   | 0      |        |   |   | 415    |       
|                  | Equity securities                                                            |                            |   | 11,982             |        |        |   | 790        |       |  |   | (1,755 | )      |   |   | 11,017 |       
|                  |                                                                              |                            |   |                    |        |        |   |            |       |  |   |        |        |   |   |       
|                  |                                                                              | Investments carrying value |   | $                  | 59,414 |        |   | $          | 3,153 |  |   | $      | (1,835 | ) |   | $      | 60,732 | 
|                  |                                                                              |                            |   |                    |        |        |   |            |       |  |   |        |        |   |   |       

|                  |                                                                              |                            |   |                    |        |        |   |            |       |  |   |        |        |   |   |        |        | 
|----------------- | ---------------------------------------------------------------------------- | -------------------------- | - | ------------------ | ------ | ------ | - | ---------- | ----- |  | - | ------ | ------ | - | - | ------ | ------ | 
|                  |                                                                              |                           
|                  |                                                                              | 2001                      
|                  |                                                                              |                           
|                  |                                                                              |                            |   |                    |        |       
|                  |                                                                              |                            |   | Unrealized Amounts |        |       
|                  |                                                                              | Amortized                  |   |                    |        |       
|                  |                                                                              | Cost                       |   | Gains              |        | Losses |   | Fair Value
|                  |                                                                              |                            |   |                    |        |        |   |           
|Fixed maturities: |                                                                              |                            |   |                    |        |        |   |            |       |  |   |        |        |   |   |       
|                  | United States government and United States
    government sponsored agencies |                            | $ | 21,964             |        |        | $ | 378        |       |  | $ | (141   | )      |   | $ | 22,201 |       
|                  | Asset and mortgage-backed securities                                         |                            |   | 4,036              |        |        |   | 88         |       |  |   | (47    | )      |   |   | 4,077  |       
|                  | Corporate and other                                                          |                            |   | 20,679             |        |        |   | 587        |       |  |   | (100   | )      |   |   | 21,166 |       
|                  | Foreign government and foreign government
    sponsored debt securities      |                            |   | 3,665              |        |        |   | 173        |       |  |   | 0      |        |   |   | 3,838  |       
|                  | Equity securities                                                            |                            |   | 15,451             |        |        |   | 846        |       |  |   | (2,785 | )      |   |   | 13,512 |       
|                  |                                                                              |                            |   |                    |        |        |   |            |       |  |   |        |        |   |   |       
|                  |                                                                              | Investments carrying value |   | $                  | 65,795 |        |   | $          | 2,072 |  |   | $      | (3,073 | ) |   | $      | 64,794 | 
|                  |                                                                              |                            |   |                    |        |        |   |            |       |  |   |        |        |   |   |       

The fair value of investment securities is
generally based on quoted market prices.

Scheduled maturities of investments in debt
securities at December 31, 2002 were as follows (in
thousands):

|                                       |       |                |        |            |  |   |        |        | 
|-------------------------------------- | ----- | -------------- | ------ | ---------- |  | - | ------ | ------ | 
|                                       |       | Amortized Cost |        | Fair Value
|                                       |       |                |        |           
|Due in one year or less                |       | $              | 1,878  |            |  | $ | 1,894  |       
|Due after one year through five years  |       |                | 22,861 |            |  |   | 24,038 |       
|Due after five years through ten years |       |                | 12,604 |            |  |   | 13,354 |       
|Due after ten years                    |       |                | 10,089 |            |  |   | 10,429 |       
|                                       |       |                |        |            |  |   |        |       
|                                       | Total |                | $      | 47,432     |  |   | $      | 49,715 | 
|                                       |       |                |        |            |  |   |        |       

Expected and scheduled maturities may differ
because the issuers of certain securities may have the right to
call, prepay, or otherwise redeem such obligations without
penalty.

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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The cost of securities sold is based on the
specific identification method. Sales of securities for the
years ended December 31, 2002, 2001, and 2000 are
summarized below (in thousands):

|                   |                       |      |   |        |   |      |   |         |   |  |   |        |  
|------------------ | --------------------- | ---- | - | ------ | - | ---- | - | ------- | - |  | - | ------ | -
|                   |                       | 2002 |   | 2001   |   | 2000
|                   |                       |      |   |        |   |     
|Fixed maturities:  |                       |      |   |        |   |      |   |         |   |  |   |       
|                   | Cash proceeds         |      | $ | 29,925 |   |      | $ | 117,564 |   |  | $ | 29,416 |  
|                   | Gross realized gains  |      |   | 758    |   |      |   | 1,407   |   |  |   | 403    |  
|                   | Gross realized losses |      |   | (170   | ) |      |   | (136    | ) |  |   | (227   | )
|Equity securities: |                       |      |   |        |   |      |   |         |   |  |   |       
|                   | Cash proceeds         |      |   | 5,889  |   |      |   | 4,920   |   |  |   | 4,167  |  
|                   | Gross realized gains  |      |   | 340    |   |      |   | 493     |   |  |   | 482    |  
|                   | Gross realized losses |      |   | (4,057 | ) |      |   | (265    | ) |  |   | (88    | )



|    |                                     
|--- | ------------------------------------
|(5) | Prepayments and Other Current Assets

Prepayments and other current assets consist of
the following at December 31, 2002 and 2001 (in thousands):

|                               |  |      |        |      |  |   |        | 
|------------------------------ |  | ---- | ------ | ---- |  | - | ------ | 
|                               |  | 2002 |        | 2001
|                               |  |      |        |     
|Tires on tractors and trailers |  | $    | 7,082  |      |  | $ | 12,095 | 
|Prepaid insurance              |  |      | 1,773  |      |  |   | 1,960  | 
|Prepaid pension cost           |  |      | 14,968 |      |  |   | 3,712  | 
|Other                          |  |      | 4,862  |      |  |   | 4,866  | 
|                               |  |      |        |      |  |   |        | 
|                               |  | $    | 28,685 |      |  | $ | 22,633 | 
|                               |  |      |        |      |  |   |        | 

(6)     Property and
Equipment

The detail of property and equipment at
December 31, 2002 and 2001 is as follows (in thousands):

|                                                                |  |      |         |      |  |              |         |  |  |  |               | 
|--------------------------------------------------------------- |  | ---- | ------- | ---- |  | ------------ | ------- |  |  |  | ------------- | 
|                                                                |  | 2002 |         | 2001 |  | Useful Lives
|                                                                |  |      |         |      |  |             
|Tractors and trailers                                           |  | $    | 421,615 |      |  | $            | 416,510 |  |  |  | 4 to 10 years | 
|Buildings and facilities (including leasehold
    improvements) |  |      | 44,925  |      |  |              | 49,403  |  |  |  | 5 to 30 years | 
|Land                                                            |  |      | 11,958  |      |  |              | 13,563  |  |  |  |               | 
|Furniture, fixtures, and equipment                              |  |      | 41,819  |      |  |              | 39,820  |  |  |  | 3 to 10 years | 
|Service cars and equipment                                      |  |      | 3,111   |      |  |              | 2,860   |  |  |  | 3 to 10 years | 
|                                                                |  |      |         |      |  |              |         |  |  |  |               | 
|                                                                |  |      | 523,428 |      |  |              | 522,156 |  |  |  |               | 
|Less accumulated depreciation and amortization                  |  |      | 346,765 |      |  |              | 307,515 |  |  |  |               | 
|                                                                |  |      |         |      |  |              |         |  |  |  |               | 
|                                                                |  | $    | 176,663 |      |  | $            | 214,641 |  |  |  |               | 
|                                                                |  |      |         |      |  |              |         |  |  |  |               | 

Depreciation expense amounted to $54,670,000,
$56,298,000, and $57,179,000 for the years ended
December 31, 2002, 2001, and 2000, respectively.

The Company initiated an extensive
remanufacturing program in 2002 in an effort to upgrade the
existing fleet. The remanufacturing program includes structural
improvements to tractors and trailers as well as engine
replacements. The remanufacturing is expected to increase the
useful life of a Rig to an average of 15 years. These
remanufactured assets are depreciated over an estimated useful
life of 6 years, using the straight-line

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ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

method of depreciation. Total capital
expenditures related to the remanufacturing program, including
engine replacements, were approximately $19.0 million.

During 2002, the Company performed an analysis of
certain fleet equipment that was recently idled. The assets were
evaluated in order to determine if they were candidates for the
fleet remanufacturing and engine replacement program.
Approximately 1,000 tractors or trailers were not considered
viable candidates for the program and a decision was made that
they would not be placed back into operations. As a result,
depreciation was accelerated to the reduced useful life
resulting in an additional charge of $2.1 million to
depreciation expense in 2002.

(7)     Goodwill

In accordance with SFAS No. 142, effective
January 1, 2002, the Company no longer amortizes goodwill
but reviews it annually for impairment, or on an interim basis
if an event occurs or circumstances change that would reduce the
fair value of goodwill below its carrying value. Goodwill
amortization for the years ended December 31, 2001 and 2000
was $3,537,000 and $3,531,000 respectively.

Pursuant to the adoption of SFAS No. 142,
the Company evaluated its reporting units within the guidance of
SFAS No. 142 and SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. The
Companys reporting units are the Allied Automotive Group
and the Axis Group. The adoption of SFAS No. 142 required
the Company to perform a transitional impairment assessment on
all goodwill and indefinite lived intangible assets as of
January 1, 2002. The Company compared the fair value of
goodwill to current carrying value. Fair values were derived
using discounted cash flow analyses using a discount rate
comparable to market rate of return on assets. The assumptions
used in these discounted cash flow analyses were also consistent
with the Companys internal planning and represents the
Companys best estimates. The cumulative effect of this
change in accounting principle was a $5.2 million decrease
to the Axis Group goodwill due to less than expected performance
by one of the business units. The deferred income tax benefit
related to this change was approximately $1.1 million. The
$4.1 million cumulative effect of this change in accounting
principle, net of income taxes, is included in the accompanying
statements of operations for the year ended December 31,
2002. The Company completed its annual review of goodwill during
the fourth quarter of 2002. No impairment was indicated.

The following table sets forth the carrying value
of goodwill by reporting unit as of December 31, 2002 and
2001 (in thousands):

|                                                                  |  |            |        |            |  |       |        |   |  |   |        |  
|----------------------------------------------------------------- |  | ---------- | ------ | ---------- |  | ----- | ------ | - |  | - | ------ | -
|                                                                  |  | Allied     |        |            |  |      
|                                                                  |  | Automotive |        |            |  |      
|                                                                  |  | Group      |        | Axis Group |  | Total
|                                                                  |  |            |        |            |  |      
|Balance as of December 31, 2001                                   |  | $          | 72,839 |            |  | $     | 17,391 |   |  | $ | 90,230 |  
|Increase in carrying amount due to a change in
    currency rates |  |            | 204    |            |  |       | 1      |   |  |   | 205    |  
|Impairment loss                                                   |  |            | 0      |            |  |       | (5,194 | ) |  |   | (5,194 | )
|                                                                  |  |            |        |            |  |       |        |   |  |   |        |  
|Balance as of December 31, 2002                                   |  | $          | 73,043 |            |  | $     | 12,198 |   |  | $ | 85,241 |  
|                                                                  |  |            |        |            |  |       |        |   |  |   |        |  

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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes and reconciles net
loss before the cumulative effect of the accounting change for
the years ended December 31, 2002, 2001, and 2000, adjusted
to exclude amortization expense recognized in such periods
related to goodwill (in thousands, except per share data):

|                                                                    |                       |                   |        |      |       |      |         |       |       |   |        |       |       |  
|------------------------------------------------------------------- | --------------------- | ----------------- | ------ | ---- | ----- | ---- | ------- | ----- | ----- | - | ------ | ----- | ----- | -
|                                                                    |                       | 2002              |        | 2001 |       | 2000
|                                                                    |                       |                   |        |      |       |     
|Reported net loss before cumulative effect of
    accounting change |                       | $                 | (3,434 | )    |       | $    | (39,496 | )     |       | $ | (6,301 | )    
|Add back after-tax amounts:                                         |                       |                   |        |      |       |      |         |       |       |   |        |      
|                                                                    | Goodwill amortization |                   |        | 0    |       |      |         | 2,375 |       |   |        | 2,442 |      
|                                                                    |                       |                   |        |      |       |      |         |       |       |   |        |      
|Adjusted net loss before cumulative effect of
    accounting change |                       | $                 | (3,434 | )    |       | $    | (39,496 | )     |       | $ | (3,859 | )    
|                                                                    |                       |                   |        |      |       |      |         |       |       |   |        |      
|Loss per share before accounting change:                            |                       |                   |        |      |       |      |         |       |       |   |        |      
|                                                                    |                       | Basic and diluted |        | $    | (0.41 | )    |         | $     | (4.86 | ) |        | $     | (0.79 | )
|Goodwill amortization:                                              |                       |                   |        |      |       |      |         |       |       |   |        |      
|                                                                    |                       | Basic and diluted |        |      | 0     |      |         |       | 0.29  |   |        |       | 0.31  |  
|                                                                    |                       |                   |        |      |       |      |         |       |       |   |        |      
|Adjusted loss per share before accounting change:                   |                       |                   |        |      |       |      |         |       |       |   |        |      
|                                                                    |                       | Basic and diluted |        | $    | (0.41 | )    |         | $     | (4.57 | ) |        | $     | (0.48 | )
|                                                                    |                       |                   |        |      |       |      |         |       |       |   |        |      

(8)     Other
Non-Current Assets

Other non-current assets consist of the following
at December 31, 2002 and 2001 (in thousands):

|                                       |  |      |        |      |  |   |        | 
|-------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                       |  | 2002 |        | 2001
|                                       |  |      |        |     
|Cash surrender value of life insurance |  | $    | 6,203  |      |  | $ | 8,844  | 
|Deferred financing costs               |  |      | 10,377 |      |  |   | 5,120  | 
|Deposits and other                     |  |      | 3,945  |      |  |   | 7,255  | 
|Investment in Brazil joint venture     |  |      | 0      |      |  |   | 3,000  | 
|                                       |  |      |        |      |  |   |        | 
|                                       |  | $    | 20,525 |      |  | $ | 24,219 | 
|                                       |  |      |        |      |  |   |        | 

(9)     Equity
Investments

During 2001, Axis Group had interests in four
joint ventures for the purpose of managing the distribution of
vehicles in the United Kingdom and Brazil. Axis Group initially
invested $10,395,000 in the ventures.

On December 10, 2001, Axis Group completed
the sale of its interest in joint ventures held by the
Companys subsidiary, Axis International, Inc., for
approximately $20.5 million in cash. The Company sold the
following equity interests held by Axis Group: (i) 50%
interest in Autocar Logistics Limited, a company registered in
England and Wales, (ii) 50% interest in Ansa Logistics
Limited, a company registered in England and Wales, and
(iii) 32% interest in Vehicle Logistics Corporation BV, a
company registered in the Netherlands. The gain on the sale of
the Companys interest in the joint ventures was $16.2
million.

During 2001, Axis Group recorded an impairment
charge of $10.0 million on its equity interest in the
Brazilian joint venture. The Company sold its investment in
Brazil for $3.0 million in the second quarter of 2002,
which approximated the net book value. There was no equity in
earnings or losses from this joint venture in 2002.

The Company accounts for the investments under
the equity method of accounting with its share of the
ventures net of tax earnings or loss reflected as equity
in earnings of joint ventures, net of tax, in the consolidated
statements of operations. The related equity investments are
included in other assets in the

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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

accompanying consolidated balance sheets. Income
taxes related to the joint ventures for the years ended
December 31, 2001, and 2000 were $2,500,000, and
$2,100,000, respectively.

The Company did not have any equity in earnings
of or losses from joint ventures in 2002 and the majority of the
Companys equity in earnings of joint ventures in 2001 was
derived from its joint venture in the United Kingdom, Ansa
Logistics Limited. In addition, at December 31, 2002, the
Company had no investments accounted for under the equity
method. Summarized financial information of Ansa Logistics
Limited for the year ended December 31, 2001 is as follows
(in thousands):

|                                  |              |      |        |        | 
|--------------------------------- | ------------ | ---- | ------ | ------ | 
|                                  |              | 2001
|                                  |              |     
|Current assets                    |              | $    | 29,509 |       
|Other assets                      |              |      | 4,895  |       
|                                  |              |      |        |       
|                                  | Total assets |      | $      | 34,404 | 
|                                  |              |      |        |       
|Current liabilities               |              | $    | 30,875 |       
|                                  |              |      |        |       
|Revenues                          |              | $    | 99,702 |       
|                                  |              |      |        |       
|Operating income                  |              | $    | 5,974  |       
|                                  |              |      |        |       
|Income from continuing operations |              | $    | 6,207  |       
|                                  |              |      |        |       
|Net income                        |              | $    | 4,199  |       
|                                  |              |      |        |       

The summarized financial information was derived
from financial statements of Ansa Logistics Limited, which were
audited by other auditors whose report thereon is dated
March 27, 2002.

(10)     Accrued and
Other Long-Term Liabilities

Accrued and other long-term liabilities consists
of the following at December 31, 2002 and 2001 (in
thousands):

|                              |  |      |        |      |  |   |        | 
|----------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                              |  | 2002 |        | 2001
|                              |  |      |        |     
|Wages and benefits            |  | $    | 41,903 |      |  | $ | 34,992 | 
|Claims and insurance reserves |  |      | 35,487 |      |  |   | 33,721 | 
|Other                         |  |      | 15,491 |      |  |   | 14,250 | 
|                              |  |      |        |      |  |   |        | 
|                              |  | $    | 92,881 |      |  | $ | 82,963 | 
|                              |  |      |        |      |  |   |        | 

As part of its turnaround initiatives, the
Company implemented a program to achieve a significant reduction
in corporate overhead expenses and to upgrade certain personnel.
Targeted in the plan were workforce reductions as well as
additional efforts to decrease discretionary spending and
eliminate fixed costs. During 2002 the Company has continued to
incur severance expense as part of its ongoing initiative to
improve personnel quality and productivity. Accordingly, the
Company terminated approximately 135 and 190 corporate and field
employees during 2002 and 2001, respectively. The following
table summarizes the activity in the accrual for termination
benefits for the years ended December 31, 2002 and 2001,
(in thousands):

|                                                                         |  |      |        |      |  |   |        |  
|------------------------------------------------------------------------ |  | ---- | ------ | ---- |  | - | ------ | -
|                                                                         |  | 2002 |        | 2001
|                                                                         |  |      |        |     
|Beginning balance                                                        |  | $    | 3,741  |      |  | $ | 1,600  |  
|Additions to reserve charged to salaries, wages,
    and fringe benefits |  |      | 2,321  |      |  |   | 9,210  |  
|Cash payments                                                            |  |      | (4,986 | )    |  |   | (7,069 | )
|                                                                         |  |      |        |      |  |   |        |  
|Ending balance                                                           |  | $    | 1,076  |      |  | $ | 3,741  |  
|                                                                         |  |      |        |      |  |   |        |  

F-19



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The accrual for termination benefits of
$1.1 million and $3.7 million at December 31,
2002 and 2001, respectively, is included in accrued
liabilities  wages and benefits above, and as such,
the Company expects to pay the accrued benefits within the next
twelve months. The long-term portion of claims and insurance
reserves is included in the balance sheets as other long-term
liabilities and amounts to approximately $60,995,000 and
$68,625,000 at December 31, 2002 and 2001, respectively.

(11)     Lease
Commitments

The Company leases equipment, office space,
computer equipment, and certain terminal facilities under
noncancelable operating lease agreements that expire in various
years through 2007. Rental expenses under these leases amounted
to approximately $11,413,000, $11,327,000, and $10,918,000 for
the years ended December 31, 2002, 2001, and 2000,
respectively.

The Company also leases certain terminal
facilities under cancelable leases (i.e., month-to-month terms).
The total rental expenses under these leases were approximately
$3,508,000, $4,051,000, and $4,037,000 for the years ended
December 31, 2002, 2001, and 2000, respectively.

The Company has operating lease commitments for
approximately 425 Rigs. The terms of the leases are seven years
and expire between 2003 and 2007. The lease agreements contain
residual guarantees of up to 20.0% of the original costs of the
Rigs.

During 1999, the Company entered into a sublease
agreement with a third party for a leased building under which
the Companys commitment expires in 2007. This sublease
agreement with the third party expires in 2004. In 2002, the
Company entered into additional sublease agreements with third
parties for a leased building under which the Companys
commitment expires in 2009. These sublease agreements with third
parties expire in 2007. Total sublease income earned during
2002, 2001, and 2000 was approximately $1,016,000, $964,000, and
$1,016,000.

Future minimum rental commitments and related
sublease income under all noncancelable operating lease
agreements, excluding lease agreements that expire within one
year, are as follows as of December 31, 2002 (in thousands):

|           |       |             |        |          |  |   |       |       | 
|---------- | ----- | ----------- | ------ | -------- |  | - | ----- | ----- | 
|           |       |             |        | Sublease
|           |       | Commitments |        | Income  
|           |       |             |        |         
|2003       |       | $           | 11,388 |          |  | $ | 1,115 |      
|2004       |       |             | 10,969 |          |  |   | 499   |      
|2005       |       |             | 10,273 |          |  |   | 141   |      
|2006       |       |             | 6,571  |          |  |   | 146   |      
|2007       |       |             | 4,248  |          |  |   | 148   |      
|Thereafter |       |             | 504    |          |  |   | 0     |      
|           |       |             |        |          |  |   |       |      
|           | Total |             | $      | 43,953   |  |   | $     | 2,049 | 
|           |       |             |        |          |  |   |       |      

F-20



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(12)     Long-Term
Debt

Long-term debt consisted of the following at
December 31, 2002 and 2001 (in thousands):

|                                          |  |      |         |      |  |   |         |  
|----------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                                          |  | 2002 |         | 2001
|                                          |  |      |         |     
|Revolving credit facility                 |  | $    | 24,635  |      |  | $ | 98,900  |  
|Term Loan A                               |  |      | 7,474   |      |  |   | 0       |  
|Term Loan B                               |  |      | 25,684  |      |  |   | 0       |  
|Term Loan C                               |  |      | 11,432  |      |  |   | 0       |  
|Term Loan D                               |  |      | 29,250  |      |  |   | 0       |  
|Senior notes                              |  |      | 150,000 |      |  |   | 150,000 |  
|Senior subordinated notes and other       |  |      | 0       |      |  |   | 40,258  |  
|                                          |  |      |         |      |  |   |         |  
|                                          |  |      | 248,475 |      |  |   | 289,158 |  
|Less current maturities of long-term debt |  |      | (10,785 | )    |  |   | (2,625  | )
|                                          |  |      |         |      |  |   |         |  
|                                          |  | $    | 237,690 |      |  | $ | 286,533 |  
|                                          |  |      |         |      |  |   |         |  

On September 30, 1997, the Company issued
$150 million of 8 5/8% senior notes (the
Notes) through a private placement. Subsequently,
the Notes were registered with the Securities and Exchange
Commission. The net proceeds from the Notes were used to fund
the acquisition of Ryder Automotive Carrier Services, Inc. and
RC Management Corp., pay related fees and expenses, and reduce
outstanding indebtedness. The Notes mature on October 1,
2007.

Borrowings under the Notes are general unsecured
obligations of the Company. The Companys obligations under
the Notes are guaranteed by substantially all of the
subsidiaries of the Company (the Guarantor
Subsidiaries). Haul Insurance Ltd., Arrendadora de Equipo
Para el Transporte de Automoviles, S. de R.L. de C.V. and Axis
Logistica, S. de R.L. de C.V. do not guarantee the
Companys obligations under the Notes (the
Nonguarantor Subsidiaries). There are no
restrictions on the ability of Guarantors to make distributions
to the Company.

The Notes set forth a number of negative
covenants, which are binding on the Company. The covenants limit
the Companys ability to, among other things, purchase or
redeem stock, make dividend or other distributions, make
investments, and incur or repay debt (with the exception of
payment of interest or principal at stated maturity).

Concurrent with the issuance of the Notes, the
Company closed on a revolving credit facility (the
Revolving Credit Facility). The Company also
previously issued $40.0 million of senior subordinated
notes (the Senior Subordinated Notes) through a
private placement.

On February 25, 2002, the Company refinanced
the Revolving Credit Facility and Senior Subordinated Notes with
a new credit facility including certain term loans (the
Term Loans) (the new credit facility and the term
loans, collectively, the Credit Facility). Proceeds
from the Term Loans were used to repurchase the
$40.0 million of Senior Subordinated Notes for
$37.25 million. In conjunction with the extinguishment of
this debt, the Company recognized a pre-tax gain of
$2.75 million, during the first quarter of 2002. The Credit
Facility includes a revolving credit facility (the
Revolver) that allows the Company to borrow under a
revolving line of credit up to the lesser of $120 million
or a borrowing base amount as defined in the Credit Facility.
The interest rate for the Revolver is based upon the prime rate
plus 1.5% or LIBOR plus 4.5% at managements discretion
with a minimum interest rate of 6.5%. Annual commitment fees are
due on the undrawn portion of the commitment. At
December 31, 2002, $24.6 million was outstanding under
the Revolver, and approximately $19.0 million was committed
under letters of credit. As of December 31, 2002

F-21



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the Company had approximately $48.4 million
available under the Revolver. The Revolver matures on
February 25, 2005.

Borrowings under the Companys Credit
Facility are collateralized with the assets of the Company and
certain of its subsidiaries. If the Company were unable to repay
any borrowing under its Credit Facility when due, the lenders
thereunder would have the right to proceed against the
collateral granted to them to secure the debt. Any default under
the Companys debt instruments, particularly any default
that resulted in acceleration of indebtedness or foreclosure on
collateral, would have a material adverse effect on the Company.

The Credit Facility includes four Term Loans.
Term Loan A is repayable in installments over three years, with
interest payable monthly. Term Loan B is repayable in
installments over three years, with interest payable monthly.
The interest rate on Term Loan B includes PIK interest of
3.5% that will be payable upon maturity. Term Loan C is
payable in full at maturity with interest payable monthly. The
interest rate on Term Loan C also includes PIK interest of
5.0% that will be payable upon maturity. Term Loan D is
payable in full at maturity with interest payable quarterly.

The following table summarizes the terms of the
loans in the Credit Facility:

|                |  |             |                   |             |  |             |                   |             |  |  |                   |  |  |  |                   | 
|--------------- |  | ----------- | ----------------- | ----------- |  | ----------- | ----------------- | ----------- |  |  | ----------------- |  |  |  | ----------------- | 
|                |  | Term Loan A |                   | Term Loan B |  | Term Loan C |                   | Term Loan D
|                |  |             |                   |             |  |             |                   |            
|Date of note    |  |             | February 25, 2002 |             |  |             | February 25, 2002 |             |  |  | February 25, 2002 |  |  |  | February 25, 2002 | 
|Maturity date   |  |             | February 25, 2005 |             |  |             | February 25, 2005 |             |  |  | February 25, 2005 |  |  |  | February 28, 2005 | 
|Original amount |  |             | $17,500,000       |             |  |             | $25,000,000       |             |  |  | $11,000,000       |  |  |  | $29,250,000       | 
|Unpaid balance  |  |             | $7,474,000        |             |  |             | $25,684,000       |             |  |  | $11,432,000       |  |  |  | $29,250,000       | 
|Interest rate   |  |             | Prime + 2.75% or  |             |  |             | Prime + 6.5% or   |             |  |  | Prime + 9% or     |  |  |  | Prime + 3.5%      | 
|                |  |             | Min of 7.75%      |             |  |             | Min of 11.5%      |             |  |  | Min of 14%        |  |  |  |                   | 

The Credit Facility agreement sets forth a number
of affirmative, negative, and financial covenants binding on the
Company. The negative covenants limit the ability of the Company
to, among other things, incur debt, incur liens, make
investments, sell assets, or declare or pay any dividends on its
capital stock. The financial covenants require the Company to
maintain a minimum consolidated earnings before interest, taxes,
depreciation and amortization amount and include maximum
leverage and minimum fixed charges coverage ratios. The Company
did not have any violations in 2002.

There can be no assurance that the Company will
be able to comply with these covenants or its other debt
covenants or that if it fails to do so, it will be able to
obtain amendments to or waivers of such covenants. Failure of
the Company to comply with covenants contained in its debt
instruments, if not waived, or to adequately service debt
obligations, could result in default under the Credit Facility.
Any default under the Companys debt instruments,
particularly any default that results in an acceleration of
indebtedness or foreclosure on collateral could have a material
adverse effect on the Company.

Future maturities of long-term debt are as
follows at December 31, 2002 (in thousands):

|     |  |   |         | 
|---- |  | - | ------- | 
|2003 |  | $ | 10,785  | 
|2004 |  |   | 12,623  | 
|2005 |  |   | 75,067  | 
|2006 |  |   | 0       | 
|2007 |  |   | 150,000 | 
|     |  |   |         | 
|     |  | $ | 248,475 | 
|     |  |   |         | 

F-22



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(13)     Employee
Benefits

(a) Pension
and Postretirement Benefit Plans

The Company maintains the Allied Defined Benefit
Pension Plan, a trusteed noncontributory defined benefit pension
plan for management and office personnel in the United States,
under which, benefits are paid to eligible employees upon
retirement based primarily on years of service and compensation
levels at retirement. Contributions to the Plans reflect
benefits attributed to employees services to date and
services expected to be rendered in the future. The
Companys funding policy is to contribute annually at a
rate that is intended to fund future service benefits at a level
percentage of pay and past service benefits over a 30-year
period. The Company froze employee participation in the Allied
Defined Benefit Pension Plan in April 2002.

The Company also provides certain health care and
life insurance benefits for eligible employees who retired prior
to July 1, 1993 and their dependents, and for certain
employees participating in the 1999 voluntary early retirement
plan. Generally, the health care plan pays a stated percentage
of most medical expenses reduced for any deductibles and
payments by government programs or other group coverage. The
life insurance plan pays a lump-sum death benefit based on the
employees salary at retirement. These plans are unfunded.
Employees retiring after July 1, 1993 are not participants
in the 1999 voluntary early retirement plan and are not entitled
to any postretirement medical or life insurance benefits, under
this plan.

In 1997, the Company assumed the obligations of a
postretirement benefit plan to provide retired employees with
certain health care and life insurance benefits. Substantially
all employees employed at the time of the acquisition and not
covered by union-administered medical plans and who had retired
as of September 30, 1997 were eligible for these benefits.
Benefits were generally provided to qualified retirees under
age 65 and eligible dependents. Employees retiring after
September 30, 1997 are not entitled to any postretirement
medical or life insurance benefits. Furthermore, the Company
took over two defined pension plans for a certain terminal,
which are currently active. One of the plans benefits
provides a monthly benefit based on years of service upon
retirement. The other plan provides benefits to eligible
employees upon retirement based primarily on years of service
and compensation levels at retirement, under this plan.

All disclosures related to the Companys
pension and postretirement benefit plans have been prepared in
accordance with SFAS No. 132.

The change in the projected benefit obligation of
the defined benefit pension plans and the postretirement benefit
plans consisted of the following during fiscal years 2002 and
2001 (in thousands):

|                              |                                                |                                      |   |                        |        |      |   |        |        |   |   |       |        |   |   |       |        |  
|----------------------------- | ---------------------------------------------- | ------------------------------------ | - | ---------------------- | ------ | ---- | - | ------ | ------ | - | - | ----- | ------ | - | - | ----- | ------ | -
|                              |                                                |                                      |   |                       
|                              |                                                | Defined Benefit                      |   | Postretirement Benefit
|                              |                                                | Pension Plans                        |   | Plans                 
|                              |                                                |                                      |   |                       
|                              |                                                | 2002                                 |   | 2001                   |        | 2002 |   | 2001  
|                              |                                                |                                      |   |                        |        |      |   |       
|Change in benefit obligation: |                                                |                                      |   |                        |        |      |   |        |        |   |   |       |        |   |   |      
|                              | Benefit obligation at beginning of fiscal year |                                      | $ | 37,306                 |        |      | $ | 44,103 |        |   | $ | 9,626 |        |   | $ | 7,819 |       
|                              |                                                | Service cost                         |   |                        | 91     |      |   |        | 2,194  |   |   |       | 0      |   |   |       | 0      |  
|                              |                                                | Interest cost                        |   |                        | 2,738  |      |   |        | 2,757  |   |   |       | 636    |   |   |       | 571    |  
|                              |                                                | Foreign currency translation         |   |                        | 0      |      |   |        | (27    | ) |   |       | 0      |   |   |       | 0      |  
|                              |                                                | Plan amendments and other            |   |                        | 0      |      |   |        | 148    |   |   |       | (4     | ) |   |       | 0      |  
|                              |                                                | Actuarial loss (gain)                |   |                        | 3,192  |      |   |        | (2,530 | ) |   |       | 1,099  |   |   |       | 2,474  |  
|                              |                                                | Canada Plan vested benefits transfer |   |                        | (20    | )    |   |        | (6,533 | ) |   |       | 0      |   |   |       | 0      |  
|                              |                                                | Benefits paid                        |   |                        | (3,137 | )    |   |        | (2,806 | ) |   |       | (1,446 | ) |   |       | (1,238 | )
|                              |                                                |                                      |   |                        |        |      |   |        |        |   |   |       |        |   |   |      
|                              | Benefit obligation at end of fiscal year       |                                      | $ | 40,170                 |        |      | $ | 37,306 |        |   | $ | 9,911 |        |   | $ | 9,626 |       
|                              |                                                |                                      |   |                        |        |      |   |        |        |   |   |       |        |   |   |      

F-23



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The change in plan assets and funded status of
the defined benefit pension plans and the postretirement benefit
plans consisted of the following during fiscal years 2002 and
2001 (in thousands):

|                                                                      |                                                |                                                |        |                        |        |      |        |        |        |   |        |   |        |   |        |   |        |  
|--------------------------------------------------------------------- | ---------------------------------------------- | ---------------------------------------------- | ------ | ---------------------- | ------ | ---- | ------ | ------ | ------ | - | ------ | - | ------ | - | ------ | - | ------ | -
|                                                                      |                                                |                                                |        |                       
|                                                                      |                                                | Defined Benefit                                |        | Postretirement Benefit
|                                                                      |                                                | Pension Plans                                  |        | Plans                 
|                                                                      |                                                |                                                |        |                       
|                                                                      |                                                | 2002                                           |        | 2001                   |        | 2002 |        | 2001  
|                                                                      |                                                |                                                |        |                        |        |      |        |       
|Change in plan assets:                                                |                                                |                                                |        |                        |        |      |        |        |        |   |        |   |        |   |        |  
|                                                                      | Fair value of plan assets at beginning of year |                                                | $      | 33,310                 |        |      | $      | 32,960 |        |   | $      | 0 |        |   | $      | 0 |       
|                                                                      |                                                | Actual return on plan assets                   |        |                        | (3,749 | )    |        |        | (2,585 | ) |        |   | 0      |   |        |   | 0      |  
|                                                                      |                                                | Employer contributions                         |        |                        | 11,685 |      |        |        | 12,274 |   |        |   | 1,446  |   |        |   | 1,238  |  
|                                                                      |                                                | Canada Plan vested benefits transfer           |        |                        | (20    | )    |        |        | (6,533 | ) |        |   | 0      |   |        |   | 0      |  
|                                                                      |                                                | Benefits paid                                  |        |                        | (3,137 | )    |        |        | (2,806 | ) |        |   | 1,446  |   |        |   | (1,238 | )
|                                                                      |                                                |                                                |        |                        |        |      |        |        |        |   |        |   |        |   |        |  
|                                                                      | Fair value of plan assets at end of year       |                                                | $      | 38,089                 |        |      | $      | 33,310 |        |   | $      | 0 |        |   | $      | 0 |       
|Funded status                                                         |                                                |                                                | (2,080 | )                      |        |      | (3,996 | )      |        |   | (9,911 | ) |        |   | (9,626 | )
|Unrecognized actuarial loss                                           |                                                |                                                | 17,580 |                        |        |      | 7,996  |        |        |   | 1,846  |   |        |   | 108    |  
|Unrecognized prior service cost                                       |                                                |                                                | 231    |                        |        |      | 545    |        |        |   | (700   | ) |        |   | (185   | )
|Unrecognized transition asset                                         |                                                |                                                | (20    | )                      |        |      | (70    | )      |        |   | 0      |   |        |   | 0      |  
|Additional minimum liability                                          |                                                |                                                | (3,323 | )                      |        |      | (2,150 | )      |        |   | 0      |   |        |   | 0      |  
|                                                                      |                                                |                                                |        |                        |        |      |        |        |        |   |        |   |        |   |        |  
|Accrued benefit cost                                                  |                                                | $                                              | 12,389 |                        |        | $    | 2,325  |        |        | $ | (8,767 | ) |        | $ | (9,703 | )
|                                                                      |                                                |                                                |        |                        |        |      |        |        |        |   |        |   |        |   |        |  
|Amounts recognized in the consolidated balance
    sheets consist of: |                                                |                                                |        |                        |        |      |        |        |        |   |        |   |        |   |        |  
|                                                                      |                                                | Pension asset                                  |        | $                      | 14,968 |      |        | $      | 3,712  |   |        | $ | 0      |   |        | $ | 0      |  
|                                                                      |                                                | Pension and postretirement benefit obligations |        |                        | (2,579 | )    |        |        | (1,387 | ) |        |   | (8,767 | ) |        |   | (9,703 | )
|                                                                      |                                                |                                                |        |                        |        |      |        |        |        |   |        |   |        |   |        |  
|                                                                      |                                                | $                                              | 12,389 |                        |        | $    | 2,325  |        |        | $ | (8,767 | ) |        | $ | (9,703 | )
|                                                                      |                                                |                                                |        |                        |        |      |        |        |        |   |        |   |        |   |        |  

The Company recognizes a minimum pension
liability for under funded plans. The minimum liability is equal
to the excess of the accumulated benefit obligation over plan
assets. A corresponding amount is recognized as either an
intangible asset, to the extent of previously unrecognized prior
service cost or a reduction of shareholders equity. The
Company had recorded additional liabilities of $3,323,000 and
$2,150,000 as of December 31, 2002 and 2001, respectively.
An intangible asset of $691,000 and $841,000 was recorded as of
December 31, 2002 and 2001, respectively.

The following assumptions were used in
determining the actuarial present value of the projected pension
benefit obligation and postretirement benefit obligation at
December 31, 2002 and 2001:

|                                                                 |  |               |      |                |  |      |      |      |  |  |      |   |  |  |      |  
|---------------------------------------------------------------- |  | ------------- | ---- | -------------- |  | ---- | ---- | ---- |  |  | ---- | - |  |  | ---- | -
|                                                                 |  |               |      |                |  |     
|                                                                 |  | Defined       |      |               
|                                                                 |  | Benefit       |      | Postretirement
|                                                                 |  | Pension Plans |      | Benefit Plans 
|                                                                 |  |               |      |               
|                                                                 |  | 2002          |      | 2001           |  | 2002 |      | 2001
|                                                                 |  |               |      |                |  |      |      |     
|Weighted average discount rate                                   |  |               | 6.75 | %              |  |      | 7.50 | %    |  |  | 6.75 | % |  |  | 7.50 | %
|Weighted average expected long-term rate of
    return on assets |  |               | 8.50 | %              |  |      | 9.75 | %    |  |  | N/A  |   |  |  | N/A  |  
|Weighted average rate of compensation increase                   |  |               | N/A  |                |  |      | 2.68 | %    |  |  | N/A  |   |  |  | N/A  |  

F-24



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The net periodic benefit cost recognized for the
defined benefit pension plans and the postretirement benefit
plans includes the following components at December 31,
2002 and 2001 (in thousands):

|                                         |                                                            |                           |   |                |     |      |   |        |       |  |   |     |     |  |   |      |     | 
|---------------------------------------- | ---------------------------------------------------------- | ------------------------- | - | -------------- | --- | ---- | - | ------ | ----- |  | - | --- | --- |  | - | ---- | --- | 
|                                         |                                                            |                           |   |               
|                                         |                                                            | Defined Benefit           |   | Postretirement
|                                         |                                                            | Pension Plans             |   | Benefit Plans 
|                                         |                                                            |                           |   |               
|                                         |                                                            | 2002                      |   | 2001           |     | 2002 |   | 2001  
|                                         |                                                            |                           |   |                |     |      |   |       
|Components of net periodic benefit cost: |                                                            |                           |   |                |     |      |   |        |       |  |   |     |     |  |   |     
|                                         | Service cost                                               |                           | $ | 91             |     |      | $ | 2,194  |       |  | $ | 0   |     |  | $ | 0    |    
|                                         | Interest cost                                              |                           |   | 2,738          |     |      |   | 2,757  |       |  |   | 636 |     |  |   | 571  |    
|                                         | Expected return on plan assets                             |                           |   | (2,754         | )   |      |   | (2,639 | )     |  |   | 0   |     |  |   | 0    |    
|                                         | Amortization of unrecognized net actuarial loss
    (gain) |                           |   | 499            |     |      |   | 139    |       |  |   | (17 | )   |  |   | (115 | )  
|                                         | Amortization of prior service cost                         |                           |   | 89             |     |      |   | 229    |       |  |   | (35 | )   |  |   | (34  | )  
|                                         | Amortization of transition asset                           |                           |   | (50            | )   |      |   | (50    | )     |  |   | 0   |     |  |   | 0    |    
|                                         | Recognized actuarial loss (gain)                           |                           |   | 38             |     |      |   | (27    | )     |  |   | 0   |     |  |   | 0    |    
|                                         |                                                            |                           |   |                |     |      |   |        |       |  |   |     |     |  |   |     
|                                         |                                                            | Net periodic benefit cost |   | $              | 651 |      |   | $      | 2,603 |  |   | $   | 584 |  |   | $    | 422 | 
|                                         |                                                            |                           |   |                |     |      |   |        |       |  |   |     |     |  |   |     

The weighted average annual assumed rate of
increase in the per capital cost of covered benefits (i.e.,
health care trend rate) for the health plans is 9.0% and 11% for
participants prior to age 65 and after age 65,
respectively for 2002 grading to 5.5% over 6 years and
9 years, respectively. The weighted average annual assumed
rate of increase in the per capital cost of covered benefits
(i.e. health care trend rate) for the health plans is 6.9% for
2001, grading to 5.0% over five years for participants prior to
and after age 65. The effect of a 1% increase in the
assumed trend rate would have increased the accumulated
postretirement benefit obligation as of December 31, 2002
by approximately $775,000. The effect of this change on the
periodic postretirement benefit cost for 2002 would be
approximately $40,000.

At December 31, 2002, plan assets consisted
primarily of U.S. and international corporate bonds and stocks,
convertible equity securities, and U.S. and Canadian government
securities.

A substantial number of the Companys
employees are covered by union-sponsored, collectively
bargained, multiemployer pension plans. The Company contributed
and charged to expense approximately $39,972,000, $41,466,000,
and $46,192,000 for the years ended December 31, 2002, 2001, and
2000, respectively, for such plans. These contributions are
determined in accordance with the provisions of negotiated labor
contracts and are generally based on the number of man-hours
worked. In the event the Company withdraws from participating in
these plans, the Company could incur a withdrawal liability. If
withdrawal were to occur, the liability would be actuarially
determined based on factors at the time of withdrawal and as
such, the liability is not readily determinable as of
December 31, 2002. In the opinion of management, the
Company has no intention to withdraw from the plans.

Also, a substantial number of the Companys
employees are covered by union-sponsored, collectively
bargained, multiemployer health and welfare benefit plans. The
Company contributed and charged to expense approximately
$41,080,000, $40,491,000, and $47,040,000 in 2002, 2001, and
2000, respectively, in connection with these plans. These
required contributions are determined in accordance with the
provisions of negotiated labor contracts.

(b) 401(k)
Plan

The Company has a 401(k) plan covering all of its
employees in the United States. The Company eliminated its
401(k) employer contribution in 2001 and re-instated the
employer contribution in 2002 for employees below the level of
Vice President. The Company contributes the lesser of 3% of
participant wages or $1,000 per year for each nonbargaining unit
participant in the plan, excluding employees at the Vice

F-25



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

President level and above. The Company
contributed approximately $406,000, $0, and $682,000, to the
plan during the years ended December 31, 2002, 2001, and
2000, respectively. The Company did not pay administrative
expenses for the 401(k) plan in fiscal years 2002 or 2001. The
Companys administrative expenses for the 401(k) plan were
$101,000 in fiscal year 2000.

(c) Employee
Stock Purchase Plan

During December 1998, the Company approved an
Employee Stock Purchase Plan (the ESPP). The ESPP allows
eligible employees, as defined, the right to purchase common
stock of the Company on a quarterly basis at 85% of the lower of
the fair market value on the first business day of the calendar
quarter or on the last business day of the calendar quarter.
There are 700,000 shares of the Companys common stock
reserved under the ESPP, of which 160,000 and 179,000 shares
were issued to employees during 2002 and 2001, respectively. At
December 31, 2002, the remaining shares available under the ESPP
are 145,000.

(d) Long-term
Incentive Plan

The Company has a long-term incentive plan which
allows the issuance of grants or awards of incentive stock
options, restricted stock, stock appreciation rights,
performance units and performance shares to employees and
directors of the Company.

(14)     Income
Taxes

The loss before income taxes and cumulative
effect of change in accounting principle consisted of the
following (in thousands):

|        |                                                                                   |      |        |        |   |      |         |         |   |   |         |         |  
|------- | --------------------------------------------------------------------------------- | ---- | ------ | ------ | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|        |                                                                                   | 2002 |        | 2001   |   | 2000
|        |                                                                                   |      |        |        |   |     
|U.S     |                                                                                   | $    | (7,224 | )      |   | $    | (62,872 | )       |   | $ | (37,197 | )      
|Foreign |                                                                                   |      | 2,661  |        |   |      | 2,083   |         |   |   | 25,827  |        
|        |                                                                                   |      |        |        |   |      |         |         |   |   |         |        
|        | Total loss before tax and cumulative effect of
    change in accounting principle |      | $      | (4,563 | ) |      | $       | (60,789 | ) |   | $       | (11,370 | )
|        |                                                                                   |      |        |        |   |      |         |         |   |   |         |        

The following summarizes the components of the
income tax benefit (in thousands):

|          |                                                                                           |                          |   |         |        |      |   |         |         |   |   |        |        |  
|--------- | ----------------------------------------------------------------------------------------- | ------------------------ | - | ------- | ------ | ---- | - | ------- | ------- | - | - | ------ | ------ | -
|          |                                                                                           | 2002                     |   | 2001    |        | 2000
|          |                                                                                           |                          |   |         |        |     
|Current:  |                                                                                           |                          |   |         |        |      |   |         |         |   |   |       
|          | Federal                                                                                   |                          | $ | 616     |        |      | $ | 0       |         |   | $ | (10    | )     
|          | State                                                                                     |                          |   | 342     |        |      |   | (38     | )       |   |   | 249    |       
|          | Foreign                                                                                   |                          |   | (455    | )      |      |   | 448     |         |   |   | 3,111  |       
|Deferred: |                                                                                           |                          |   |         |        |      |   |         |         |   |   |       
|          | Federal                                                                                   |                          |   | (13,679 | )      |      |   | (15,739 | )       |   |   | 362    |       
|          | State                                                                                     |                          |   | (1,487  | )      |      |   | (1,723  | )       |   |   | (1,762 | )     
|          | Foreign                                                                                   |                          |   | 1,009   |        |      |   | 21      |         |   |   | 691    |       
|          | Tax (expense) benefit of federal, state, and
    foreign operating loss carryforwards     |                          |   | 7,260   |        |      |   | (6,898  | )       |   |   | (2,944 | )     
|          | Tax expense (benefit) of foreign tax credit
    carryforwards, net of valuation allowance |                          |   | 5,265   |        |      |   | 2,636   |         |   |   | (4,766 | )     
|          |                                                                                           |                          |   |         |        |      |   |         |         |   |   |       
|          |                                                                                           | Total income tax benefit |   | $       | (1,129 | )    |   | $       | (21,293 | ) |   | $      | (5,069 | )
|          |                                                                                           |                          |   |         |        |      |   |         |         |   |   |       

F-26



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The provision for income taxes differs from the
amounts computed by applying federal statutory rates due to the
following (in thousands):

|                                                                                            |                          |      |        |        |   |      |         |         |   |   |        |        |  
|------------------------------------------------------------------------------------------- | ------------------------ | ---- | ------ | ------ | - | ---- | ------- | ------- | - | - | ------ | ------ | -
|                                                                                            |                          | 2002 |        | 2001   |   | 2000
|                                                                                            |                          |      |        |        |   |     
|Benefit computed at the federal statutory rate                                              |                          | $    | (1,551 | )      |   | $    | (20,668 | )       |   | $ | (3,866 | )     
|State income taxes, net of federal income tax
    effects                                   |                          |      | (909   | )      |   |      | (2,130  | )       |   |   | (1,360 | )     
|Tax benefit associated with sale of joint ventures                                          |                          |      | 0      |        |   |      | (1,151  | )       |   |   | 0      |       
|Amortization of goodwill                                                                    |                          |      | 0      |        |   |      | 524     |         |   |   | 505    |       
|Nondeductible expenses                                                                      |                          |      | 623    |        |   |      | 909     |         |   |   | 346    |       
|Earnings in jurisdictions taxed at rates
    different from the statutory U.S. federal rate |                          |      | 0      |        |   |      | 0       |         |   |   | 880    |       
|Equity income in affiliates, reflected net of tax                                           |                          |      | 0      |        |   |      | (964    | )       |   |   | (1,729 | )     
|Reversal of previously accrued taxes                                                        |                          |      | 0      |        |   |      | (2,221  | )       |   |   | 0      |       
|Valuation allowance                                                                         |                          |      | 410    |        |   |      | 4,717   |         |   |   | 0      |       
|Other, net                                                                                  |                          |      | 298    |        |   |      | (309    | )       |   |   | 155    |       
|                                                                                            |                          |      |        |        |   |      |         |         |   |   |        |       
|                                                                                            | Total income tax benefit |      | $      | (1,129 | ) |      | $       | (21,293 | ) |   | $      | (5,069 | )
|                                                                                            |                          |      |        |        |   |      |         |         |   |   |        |       

The tax effect of significant temporary
differences representing deferred tax assets and liabilities at
December 31, 2002 and 2001 is as follows (in thousands):

|                          |                                            |                                       |        |         |         |   |        |         |         |  
|------------------------- | ------------------------------------------ | ------------------------------------- | ------ | ------- | ------- | - | ------ | ------- | ------- | -
|                          |                                            | 2002                                  |        | 2001   
|                          |                                            |                                       |        |        
|Deferred tax assets:      |                                            |                                       |        |         |         |   |        |        
|                          | Claims and insurance expense               |                                       | $      | 60,326  |         |   | $      | 23,982  |        
|                          | Accrued compensation expense               |                                       |        | 9,991   |         |   |        | 4,492   |        
|                          | Postretirement benefits                    |                                       |        | 5,918   |         |   |        | 3,862   |        
|                          | Other liabilities not currently deductible |                                       |        | 6,331   |         |   |        | 3,461   |        
|                          | Bad debt allowances                        |                                       |        | 3,725   |         |   |        | 4,455   |        
|                          | Tax carryforwards                          |                                       |        | 18,825  |         |   |        | 31,161  |        
|                          | Cumulative other comprehensive income      |                                       |        | 5,032   |         |   |        | 5,224   |        
|                          | Other, net                                 |                                       |        | 1,082   |         |   |        | 4,271   |        
|                          |                                            |                                       |        |         |         |   |        |        
|                          |                                            | Total deferred tax assets             |        |         | 111,230 |   |        |         | 80,908  |  
|                          |                                            |                                       |        |         |         |   |        |        
|Valuation allowance       |                                            |                                       | (7,115 | )       |         |   | (4,717 | )      
|                          |                                            |                                       |        |         |         |   |        |        
|Deferred tax liabilities: |                                            |                                       |        |         |         |   |        |        
|                          | Prepaids currently deductible              |                                       |        | (6,076  | )       |   |        | (6,822  | )      
|                          | Depreciation and amortization              |                                       |        | (74,974 | )       |   |        | (54,384 | )      
|                          | Other, net                                 |                                       |        | (10,985 | )       |   |        | (3,965  | )      
|                          |                                            |                                       |        |         |         |   |        |        
|                          |                                            | Total deferred tax liabilities        |        |         | (92,035 | ) |        |         | (65,171 | )
|                          |                                            |                                       |        |         |         |   |        |        
|                          |                                            | Net deferred tax assets (liabilities) |        | $       | 12,080  |   |        | $       | 11,020  |  
|                          |                                            |                                       |        |         |         |   |        |        

The Company has certain tax carryforwards
available to offset future income taxes consisting of net
operating losses that expire in 2021, foreign tax credits that
expire from 2004 to 2007, capital losses that expire in 2007,
and alternative minimum tax credits that have no expiration
dates.

The net change in the total valuation allowance
for the year ended December 31, 2002 was an increase of
$2,398,000 relating to certain foreign tax credits and capital
losses that are not expected to be realized.

F-27



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Management believes, based on the Companys
earnings history, the actions the Company has taken and are in
process to improve its financial performance, expectations of
future taxable income, and other relevant considerations that it
is more likely than not that the future taxable income will be
sufficient to utilize the remaining net deferred tax assets
which exist at December 31, 2002.

In March 2001, the Internal Revenue Service
closed its examination of the Companys tax returns for
years up to and including 1997. The examination did not result
in any additional tax liabilities. As a result of completing the
audits, the Company reversed a portion of the previously accrued
taxes, increasing the tax benefit for the year ended
December 31, 2001 by $2,221,000.



|     |                                                      
|---- | -----------------------------------------------------
|(15) | Supplemental Disclosures of Cash Flow
    Information

|                                                                |  |      |        |      |  |      |        |  |  |   |        | 
|--------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                                                |  | 2002 |        | 2001 |  | 2000
|                                                                |  |      |        |      |  |     
|Cash paid during the year for interest                          |  | $    | 26,607 |      |  | $    | 37,726 |  |  | $ | 33,263 | 
|Cash paid during the year for income taxes, net
    of refunds  |  |      | 876    |      |  |      | 1,520  |  |  |   | 955    | 
|Liabilities assumed in connection with businesses
    acquired* |  |      | 0      |      |  |      | 0      |  |  |   | 865    | 



---



|  |                                                                                                                      
|- | ---------------------------------------------------------------------------------------------------------------------
|* | Includes trade accounts payable, accrued
    liabilities, deferred income taxes, and other long-term
    liabilities.



|     |                              
|---- | -----------------------------
|(16) | Commitments and Contingencies

(a) Customer
Contracts

The Company negotiates fixed rates with its
customers for the delivery of vehicles. The delivery rates are
based on contract agreements that expire at various dates
through January 2005. During 2001, the Company renegotiated
rates for all of its customers to include an administrative
processing fee for services provided.

(b) Litigation,
Claims, and Assessments

The Company is involved in various litigation and
environmental matters relating to employment practices, damages,
and other matters arising from operations in the ordinary course
of business. In the opinion of management, the ultimate
disposition of these matters, other than those discussed below,
will not have a material adverse effect on the Companys
financial position or results of operations.

Gateway Development & Manufacturing, Inc.
v. Commercial Carriers, Inc., et al., (the Gateway
Case) and Commercial Carriers, Inc. v. Gateway
Development & Manufacturing, Inc., et al. (the CCI
Case), The claims at issue in
both the Gateway Case and the CCI Case center around the
contention that the Company breached legal duties with respect
to a failed business transaction involving Gateway Development
& Manufacturing, Inc., Ryder Truck Rental, Inc. and Ryder
System, Inc. In the Gateway Case, the Company sought and
received summary judgment in its favor on the sole claim (for
tortious interference with contract) asserted against it by
Gateway Development & Manufacturing, Inc., but that ruling
was reversed on appeal. While the appellate court held that
summary judgment in favor of the Company was premature, the
Company will be permitted to raise at trial and/or further
dispositive motions the substantive arguments upon which its
initial summary judgment motion was based. Subsequent to its
summary judgment ruling, the trial court permitted the filing
and service of cross-claims against the Company by the other
defendants in that action. In the CCI Case, the Company has
accepted service of a separate complaint asserting claims
against the Company by the other defendants in the Gateway Case.
It is anticipated that the claims asserted in both the Gateway
Case and the CCI Case will be resolved in a unified proceeding.
With respect to the entirety of this litigation, the Company
intends to continue its vigorous defense against the claims
asserted against it, as management believes all of those claims
are without merit. While the ultimate results of this litigation
cannot be predicted, if this litigation is resolved in a manner
that is adverse to the

F-28



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Company, it could have a material adverse effect
on the Companys consolidated financial position or results
of operations.

Ryder Systems, Inc. v. Allied Holdings,
Inc., AH Acquisition Corp. and Allied Automotive Group, Inc.,relates to the Companys August
1997 stock acquisition of certain businesses formerly owned by
Ryder, and the respective responsibilities of Ryder and Allied
for certain third-party injury claims associated with the
acquired businesses. Ryders original complaint was filed
on August 16, 2001. In response, the Company moved to
dismiss, and the court granted that motion with leave for Ryder
to amend its complaint. On December 26, 2001, Ryder timely filed
its amended complaint. Following the dismissal with prejudice of
one of the counts asserted by Ryder in its amended complaint,
Ryder filed, on or about August 1, 2002, a Second Amended
Complaint. Ryders five-count Second Amended Complaint
alleges, in Count one, that the Company breached its agreement
with Ryder by failing to undertake certain actions (including
posting letters of credit and bonds) to substitute the Company
for Ryder under an insurance policy covering third-party claims
and with various state agencies that regulate matters such as
self-insured workers compensation. In Counts two and
three, the Second Amended Complaint alleges that if these
obligations are not required by contract, the legal doctrines of
promissory estoppel and negligent misrepresentation created
them. In Count four, the Second Amended Complaint seeks a
declaration that the Company is required to undertake these
actions. In Count five, Ryder seeks a declaration that the
Company is obligated to take certain steps to transfer from
Ryder to the Company the ownership and administrative
responsibility for two pension plans. The Company has filed a
motion for summary judgment on all counts, which motion is
currently pending. The Company intends to continue its vigorous
defense against the claims asserted against it, and management
believes all of those claims are without merit. The Company has
also raised several counterclaims. The ultimate results of this
litigation cannot be predicted. However, if Ryder prevails on
its claims and the court orders the Company to substitute itself
for Ryder by, among other things, posting substantial letters of
credit, it could have a material adverse effect on the
Companys consolidated financial position or results of
operations.

(c) Employment
Agreements

The Company has entered into employment
agreements with certain executive officers of the Company. The
agreements provide for compensation to the officers in the form
of annual base salaries and bonuses based on earnings. The
employment agreements also provide for severance benefits upon
the occurrence of certain events, including a change in control,
as defined.

(d) Purchase
and Service Contract Commitments

In April 2001, the Company entered into a
five-year commitment with IBM to provide its mainframe computer
processing services. The agreement includes outsourcing at
determinable prices defined within the agreement.

(e) Collective
Bargaining Agreements

Approximately 86% of the Companys total
labor force is covered by collective bargaining agreements.
Collective bargaining agreements representing the majority of
the total workforce were renewed during 1999 and expire in 2003.

(17)     Industry
Segment and Geographic Information

In accordance with the requirements of SFAS
No. 131, Disclosure About Segments of an Enterprise and
Related Information,the Company has identified two
reportable industry segments through which it conducts its
operating activities: Allied Automotive Group and Axis Group.
These two segments reflect the organization used by management
for internal reporting. Allied Automotive Group is engaged in
the business of

F-29



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

transporting automobiles and light trucks from
manufacturing plants, ports, auctions, and railway distribution
points to automobile dealerships. Axis Group, through its
subsidiaries, is engaged in the business of securing and
managing vehicle distribution services, automobile inspections,
auction and yard management services, intra-modal transport,
vehicle accessorization, and dealer preparatory services for the
automotive industry.

|                                   |                                                         |                                                                                      |   |         |         |      |   |         |         |   |   |           |           |  
|---------------------------------- | ------------------------------------------------------- | ------------------------------------------------------------------------------------ | - | ------- | ------- | ---- | - | ------- | ------- | - | - | --------- | --------- | -
|                                   |                                                         | 2002                                                                                 |   | 2001    |         | 2000
|                                   |                                                         |                                                                                      |   |         |         |     
|                                   |                                                         |                                                                                     
|                                   |                                                         | (in thousands)                                                                      
|Revenues  unaffiliated customers: |                                                         |                                                                                      |   |         |         |      |   |         |         |   |   |          
|                                   | Allied Automotive Group                                 |                                                                                      | $ | 868,041 |         |      | $ | 868,222 |         |   | $ | 1,040,644 |          
|                                   | Axis Group                                              |                                                                                      |   | 30,019  |         |      |   | 28,545  |         |   |   | 28,439    |          
|                                   | Corporate/other                                         |                                                                                      |   | 0       |         |      |   | 0       |         |   |   | 71        |          
|                                   |                                                         |                                                                                      |   |         |         |      |   |         |         |   |   |          
|                                   |                                                         | Total                                                                                |   | $       | 898,060 |      |   | $       | 896,767 |   |   | $         | 1,069,154 |  
|                                   |                                                         |                                                                                      |   |         |         |      |   |         |         |   |   |          
|Depreciation and amortization:     |                                                         |                                                                                      |   |         |         |      |   |         |         |   |   |          
|                                   | Allied Automotive Group                                 |                                                                                      | $ | 48,984  |         |      | $ | 53,187  |         |   | $ | 52,683    |          
|                                   | Axis Group                                              |                                                                                      |   | 2,956   |         |      |   | 3,813   |         |   |   | 3,075     |          
|                                   | Corporate/other                                         |                                                                                      |   | 2,940   |         |      |   | 3,358   |         |   |   | 5,126     |          
|                                   |                                                         |                                                                                      |   |         |         |      |   |         |         |   |   |          
|                                   |                                                         | Total                                                                                |   | $       | 54,880  |      |   | $       | 60,358  |   |   | $         | 60,884    |  
|                                   |                                                         |                                                                                      |   |         |         |      |   |         |         |   |   |          
|Operating profit (loss):           |                                                         |                                                                                      |   |         |         |      |   |         |         |   |   |          
|                                   | Allied Automotive Group                                 |                                                                                      | $ | 9,021   |         |      | $ | (46,458 | )       |   | $ | 13,721    |          
|                                   | Axis Group                                              |                                                                                      |   | 4,312   |         |      |   | 1,869   |         |   |   | 738       |          
|                                   | Corporate/other                                         |                                                                                      |   | 7,675   |         |      |   | 8,880   |         |   |   | (2,591    | )        
|                                   |                                                         |                                                                                      |   |         |         |      |   |         |         |   |   |          
|                                   |                                                         | Total                                                                                |   |         | 21,008  |      |   |         | (37,709 | ) |   |           | 11,868    |  
|Reconciling items:                 |                                                         |                                                                                      |   |         |         |      |   |         |         |   |   |          
|                                   | Equity income in joint ventures                         |                                                                                      |   | 0       |         |      |   | 4,072   |         |   |   | 5,066     |          
|                                   | Gain on sale of equity investment in joint
    ventures |                                                                                      |   | 0       |         |      |   | 16,230  |         |   |   | 0         |          
|                                   | Write down of equity investment in joint venture        |                                                                                      |   | 0       |         |      |   | (10,042 | )       |   |   | 0         |          
|                                   | Interest expense                                        |                                                                                      |   | (30,627 | )       |      |   | (37,574 | )       |   |   | (33,813   | )        
|                                   | Interest income                                         |                                                                                      |   | 2,463   |         |      |   | 3,874   |         |   |   | 5,509     |          
|                                   | Other, net                                              |                                                                                      |   | 2,593   |         |      |   | 360     |         |   |   | 0         |          
|                                   |                                                         |                                                                                      |   |         |         |      |   |         |         |   |   |          
|                                   |                                                         | Loss before income taxes and cumulative effect of
    change in accounting principle |   | $       | (4,563  | )    |   | $       | (60,789 | ) |   | $         | (11,370   | )
|                                   |                                                         |                                                                                      |   |         |         |      |   |         |         |   |   |          
|Total Assets:                      |                                                         |                                                                                      |   |         |         |      |   |         |         |   |   |          
|                                   | Allied Automotive Group                                 |                                                                                      | $ | 296,935 |         |      | $ | 353,558 |         |   | $ | 437,945   |          
|                                   | Axis Group                                              |                                                                                      |   | 35,663  |         |      |   | 43,881  |         |   |   | 64,869    |          
|                                   | Corporate/other                                         |                                                                                      |   | 152,910 |         |      |   | 135,953 |         |   |   | 107,725   |          
|                                   |                                                         |                                                                                      |   |         |         |      |   |         |         |   |   |          
|                                   |                                                         | Total                                                                                |   | $       | 485,508 |      |   | $       | 533,392 |   |   | $         | 610,539   |  
|                                   |                                                         |                                                                                      |   |         |         |      |   |         |         |   |   |          
|Capital expenditures:              |                                                         |                                                                                      |   |         |         |      |   |         |         |   |   |          
|                                   | Allied Automotive Group                                 |                                                                                      | $ | 21,416  |         |      | $ | 19,198  |         |   | $ | 23,657    |          
|                                   | Axis Group                                              |                                                                                      |   | 217     |         |      |   | 2,198   |         |   |   | 2,671     |          
|                                   | Corporate/other                                         |                                                                                      |   | 153     |         |      |   | 67      |         |   |   | 5,947     |          
|                                   |                                                         |                                                                                      |   |         |         |      |   |         |         |   |   |          
|                                   |                                                         | Total                                                                                |   | $       | 21,786  |      |   | $       | 21,463  |   |   | $         | 32,275    |  
|                                   |                                                         |                                                                                      |   |         |         |      |   |         |         |   |   |          

F-30



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Geographic financial information for 2002, 2001,
and 2000 is as follows (in thousands):

|                   |               |      |         |         |  |      |         |         |  |   |           |         | 
|------------------ | ------------- | ---- | ------- | ------- |  | ---- | ------- | ------- |  | - | --------- | ------- | 
|                   |               | 2002 |         | 2001    |  | 2000
|                   |               |      |         |         |  |     
|Revenues:          |               |      |         |         |  |      |         |         |  |   |           |        
|                   | United States |      | $       | 746,777 |  |      | $       | 747,018 |  |   | $         | 882,009 | 
|                   | Canada        |      |         | 151,283 |  |      |         | 149,749 |  |   |           | 187,145 | 
|                   |               |      |         |         |  |      |         |         |  |   |           |        
|                   |               | $    | 898,060 |         |  | $    | 896,767 |         |  | $ | 1,069,154 |        
|                   |               |      |         |         |  |      |         |         |  |   |           |        
|Long-lived assets: |               |      |         |         |  |      |         |         |  |   |           |        
|                   | United States |      | $       | 224,119 |  |      | $       | 269,509 |  |   | $         | 326,793 | 
|                   | Canada        |      |         | 58,310  |  |      |         | 59,581  |  |   |           | 70,254  | 
|                   |               |      |         |         |  |      |         |         |  |   |           |        
|                   |               | $    | 282,429 |         |  | $    | 329,090 |         |  | $ | 397,047   |        
|                   |               |      |         |         |  |      |         |         |  |   |           |        

Revenues are attributed to the respective
countries based on the location of the origination terminal.

Substantially all of the Companys revenues
and receivables are realized through the automotive industry in
the Allied Automotive Group.

In 2002, 2001, and 2000, approximately 73%, 68%,
and 73%, respectively, of the Allied Automotive Groups
revenues were derived from the three largest domestic automobile
manufacturers. In 2002, 2001, and 2000, General Motors
Corporation accounted for approximately 36%, 28%, and 31%,
respectively, of revenues; Ford Motor Company accounted for
approximately 24%, 25%, and 27%, respectively, of revenues; and
DaimlerChrysler Corporation accounted for 13%, 15%, and 15%,
respectively, of revenues. As of December 31, 2002 and
2001, General Motors Corporation accounted for approximately 26%
and 21%, respectively, of receivables; Ford Motor Company
accounted for approximately 32% and 29%, respectively, of
receivables; and DaimlerChrysler Corporation accounted for 9%
and 12%, respectively, of receivables.

(18)     Stockholders
Equity

The Company has authorized 5,000,000 shares of
preferred stock with no par value. No shares have been issued,
and therefore, there were no shares outstanding at
December 31, 2002 and 2001. The board of directors has the
authority to issue these shares and to fix dividends, voting and
conversion rights, redemption provisions, liquidation
preferences, and other rights and restrictions.

The Company has a long-term incentive plan which
allows the issuance of grants or awards of incentive stock
options, restricted stock, stock appreciation rights,
performance units, and performance shares to employees and
directors of the Company to acquire up to 2,000,000 shares of
the Companys common stock.

During 2000, the Company granted 168,398 shares
of restricted stock to certain employees of the Company. No
restricted stock was granted during 2001 or 2002. During 2002,
2001, and 2000, 12,478, 92,094, and 14,188 shares, respectively,
of restricted stock were canceled. Compensation expense is
recorded net of forfeitures over five years, the vesting period
of the restricted stock. In connection with the awards of the
restricted stock, the Company recorded compensation (benefit)
expense of ($57,000), $181,000, and $803,000, in 2002, 2001 and
2000, respectively. As of December 31, 2002, 2001, and 2000
restricted stock shares outstanding were 172,534, 202,985, and
356,341, respectively.

F-31



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In addition, the Company has granted nonqualified
and incentive stock options under the long-term incentive plan.
Options granted become exercisable after one year in 20%,
33 1/3%, or 50% increments per year and expire ten years
from the date of the grant.

|                                    |          |        |           |              |   |                |              |              |  |   |      |      | 
|----------------------------------- | -------- | ------ | --------- | ------------ | - | -------------- | ------------ | ------------ |  | - | ---- | ---- | 
|                                    |          |        |           |              |   | Weighted      
|                                    |          |        |           | Option Price |   | Average       
|                                    |          | Shares |           | (Per Share)  |   | Exercise Price
|                                    |          |        |           |              |   |               
|Outstanding as of December 31, 1999 |          |        | 284,550   |              |   | $              | 7.06  17.13 |              |  | $ | 8.37 |     
|                                    | Granted  |        |           | 75,000       |   |                | $            | 6.12   8.63 |  |   | $    | 6.46 | 
|                                    | Canceled |        |           | (69,250      | ) |                | $            | 6.13  11.75 |  |   | $    | 6.32 | 
|Outstanding as of December 31, 2000 |          |        | 290,300   |              |   | $              | 7.06  17.13 |              |  | $ | 8.37 |     
|                                    | Granted  |        |           | 850,000      |   |                | $            | 1.80   2.77 |  |   | $    | 2.56 | 
|                                    | Canceled |        |           | (120,000     | ) |                | $            | 7.06  17.13 |  |   | $    | 8.03 | 
|                                    |          |        |           |              |   |                |              |              |  |   |      |     
|Outstanding as of December 31, 2001 |          |        | 1,020,300 |              |   | $              | 1.80  11.75 |              |  | $ | 3.56 |     
|                                    | Granted  |        |           | 648,000      |   |                | $            | 2.60   5.15 |  |   | $    | 4.01 | 
|                                    | Canceled |        |           | (56,000      | ) |                | $            | 2.35  11.75 |  |   | $    | 5.58 | 
|                                    |          |        |           |              |   |                |              |              |  |   |      |     
|Outstanding as of December 31, 2002 |          |        | 1,612,300 |              |   | $              | 1.80  11.75 |              |  | $ | 3.45 |     
|                                    |          |        |           |              |   |                |              |              |  |   |      |     

|                                                                             |  |      |         |      |  |      |         |  |  |   |         | 
|---------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                                                             |  | 2002 |         | 2001 |  | 2000
|                                                                             |  |      |         |      |  |     
|Options exercisable at year-end                                              |  |      | 531,631 |      |  |      | 146,964 |  |  |   | 155,300 | 
|Weighted average exercise price of options
    exercisable at year-end       |  | $    | 4.31    |      |  | $    | 8.85    |  |  | $ | 9.15    | 
|Per share weighted average fair value of options
    granted during the year |  | $    | 4.01    |      |  | $    | 2.57    |  |  | $ | 4.18    | 

The following table sets forth the exercise price
range, number of shares, weighted average exercise price, and
remaining contractual lives by groups of similar price and grant
date:

|                         |               |                        |  |          |           |                        |  |           |      |          |  |  |      |  |  |  |         |  |  |   |      | 
|------------------------ | ------------- | ---------------------- |  | -------- | --------- | ---------------------- |  | --------- | ---- | -------- |  |  | ---- |  |  |  | ------- |  |  | - | ---- | 
|                         |               |                        |  |          |           |                       
|                         |               | Options Outstanding at |  |          |           | Options Exercisable at
|                         |               | December 31, 2002      |  |          |           | December 31, 2002     
|                         |               |                        |  | Weighted |           |                       
|                         |               |                        |  | Weighted |           | Average                |  |           |      | Weighted
|                         |               |                        |  | Average  |           | Remaining              |  |           |      | Average 
|                         |               | Number of              |  | Exercise |           | Contractual            |  | Number of |      | Exercise
|Range of Exercise Prices |               | Shares                 |  | Price    |           | Life                   |  | Shares    |      | Price   
|                         |               |                        |  |          |           |                        |  |           |      |         
|                         |               |                        |  |          |           | (Years)                |  |           |      |         
|                         | $1.80   3.70 |                        |  |          | 1,150,000 |                        |  | $         | 2.71 |          |  |  | 8.86 |  |  |  | 378,331 |  |  | $ | 2.60 | 
|                         | $4.30   7.06 |                        |  |          | 379,000   |                        |  | $         | 5.31 |          |  |  | 8.89 |  |  |  | 70,000  |  |  | $ | 7.06 | 
|                         | $9.50  11.75 |                        |  |          | 83,300    |                        |  | $         | 9.72 |          |  |  | 3.40 |  |  |  | 83,300  |  |  | $ | 9.72 | 
|                         |               |                        |  |          |           |                        |  |           |      |          |  |  |      |  |  |  |         |  |  |   |      | 
|                         |               |                        |  |          | 1,612,300 |                        |  |           |      |          |  |  | 8.20 |  |  |  | 561,631 |  |  |   |      | 
|                         |               |                        |  |          |           |                        |  |           |      |          |  |  |      |  |  |  |         |  |  |   |      | 

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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(19)     Quarterly
Financial Data (Unaudited)

|                               |         |                                          |         |        |   |       |         |        |  |   |         |       |   |   |         |       |  
|------------------------------ | ------- | ---------------------------------------- | ------- | ------ | - | ----- | ------- | ------ |  | - | ------- | ----- | - | - | ------- | ----- | -
|                               |         |                                         
|                               |         | 2002                                    
|                               |         |                                         
|                               |         | First                                    |         | Second |   | Third |         | Fourth
|                               |         |                                          |         |        |   |       |         |       
|                               |         |                                         
|                               |         | (In thousands, except per share amounts)
|Revenues                       |         | $                                        | 213,259 |        |   | $     | 238,984 |        |  | $ | 212,985 |       |   | $ | 232,832 |      
|Operating income (loss)        |         |                                          | 3,765   |        |   |       | 9,897   |        |  |   | (1,400  | )     |   |   | 8,746   |      
|Net (loss) income              |         |                                          | (5,248  | )      |   |       | 2,109   |        |  |   | (6,482  | )     |   |   | 2,095   |      
|Net (loss) earnings per share: |         |                                          |         |        |   |       |         |        |  |   |         |       |   |   |         |      
|                               | Basic   |                                          | $       | (0.64  | ) |       | $       | 0.25   |  |   | $       | (0.78 | ) |   | $       | (0.25 | )
|                               | Diluted |                                          |         | (0.64  | ) |       |         | 0.24   |  |   |         | (0.78 | ) |   |         | (0.24 | )
|Average shares outstanding:    |         |                                          |         |        |   |       |         |        |  |   |         |       |   |   |         |      
|                               | Basic   |                                          |         | 8,252  |   |       |         | 8,300  |  |   |         | 8,324 |   |   |         | 8,360 |  
|                               | Diluted |                                          |         | 8,252  |   |       |         | 8,781  |  |   |         | 8,324 |   |   |         | 8,646 |  

|                                     |                   |                                          |         |        |  |       |         |        |  |   |         |       |  |   |         |       | 
|------------------------------------ | ----------------- | ---------------------------------------- | ------- | ------ |  | ----- | ------- | ------ |  | - | ------- | ----- |  | - | ------- | ----- | 
|                                     |                   |                                         
|                                     |                   | 2001                                    
|                                     |                   |                                         
|                                     |                   | First                                    |         | Second |  | Third |         | Fourth
|                                     |                   |                                          |         |        |  |       |         |       
|                                     |                   |                                         
|                                     |                   | (In thousands, except per share amounts)
|Revenues                             |                   | $                                        | 218,179 |        |  | $     | 250,195 |        |  | $ | 204,010 |       |  | $ | 224,383 |      
|Operating loss                       |                   |                                          | (23,179 | )      |  |       | (1,031  | )      |  |   | (11,571 | )     |  |   | (1,928  | )    
|Net loss                             |                   |                                          | (18,862 | )      |  |       | (5,716  | )      |  |   | (12,646 | )     |  |   | (2,272  | )    
|Basic and diluted net loss per share |                   | $                                        | (2.35   | )      |  | $     | (0.71   | )      |  | $ | (1.56   | )     |  | $ | (0.28   | )    
|Average shares outstanding:          |                   |                                          |         |        |  |       |         |        |  |   |         |       |  |   |         |      
|                                     | Basic and diluted |                                          |         | 8,020  |  |       |         | 8,086  |  |   |         | 8,114 |  |   |         | 8,167 | 

Earnings per share are computed independently for
each of the quarters presented. Therefore, the sum of the
quarterly earnings per share in 2002 and 2001 does not equal the
total computed for the year.

(20)     Supplemental
Guarantor Information

The following consolidating balance sheet
information, statements of operations information, and
statements of cash flows information present the financial
statement information of the parent company and the combined
financial statements information of the Guarantor subsidiaries
and Nonguarantor Subsidiaries. The Guarantors are jointly and
severally liable for the Companys obligations under the
Notes and there are no restrictions on the ability of the
Guarantors to make distributions to the Company. See note 12 for
a description of the Notes and a listing of the Nonguarantor
subsidiaries.

The supplemental consolidating balance sheet
information as of December 31, 2002 is as follows (in
thousands):

|                |                                                         |          |   |              |  |              |   |              |  |              |   |        |  |  |   |   |  |  |   |        | 
|--------------- | ------------------------------------------------------- | -------- | - | ------------ |  | ------------ | - | ------------ |  | ------------ | - | ------ |  |  | - | - |  |  | - | ------ | 
|                |                                                         | Allied   |   | Guarantor    |  | Nonguarantor |   |              |  |             
|                |                                                         | Holdings |   | Subsidiaries |  | Subsidiaries |   | Eliminations |  | Consolidated
|                |                                                         |          |   |              |  |              |   |              |  |             
|Current assets: |                                                         |          |   |              |  |              |   |              |  |              |   |        |  |  |   |   |  |  |   |       
|                | Cash and cash equivalents                               |          | $ | 7            |  |              | $ | 1,936        |  |              | $ | 8,310  |  |  | $ | 0 |  |  | $ | 10,253 | 
|                | Short-term investments                                  |          |   | 0            |  |              |   | 0            |  |              |   | 60,732 |  |  |   | 0 |  |  |   | 60,732 | 
|                | Receivables, net of allowance for doubtful
    accounts |          |   | 0            |  |              |   | 56,003       |  |              |   | 2,509  |  |  |   | 0 |  |  |   | 58,512 | 

F-33



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                            |                                                 |                                            |         |              |         |              |         |              |         |              |        |        |        |  |        |          |         |   |         |         |         | 
|------------------------------------------- | ----------------------------------------------- | ------------------------------------------ | ------- | ------------ | ------- | ------------ | ------- | ------------ | ------- | ------------ | ------ | ------ | ------ |  | ------ | -------- | ------- | - | ------- | ------- | ------- | 
|                                            |                                                 | Allied                                     |         | Guarantor    |         | Nonguarantor |         |              |         |             
|                                            |                                                 | Holdings                                   |         | Subsidiaries |         | Subsidiaries |         | Eliminations |         | Consolidated
|                                            |                                                 |                                            |         |              |         |              |         |              |         |             
|                                            | Inventories                                     |                                            |         | 0            |         |              |         | 5,071        |         |              |        | 0      |        |  |        | 0        |         |   |         | 5,071   |        
|                                            | Deferred tax asset  current                    |                                            |         | 37,615       |         |              |         | 2,211        |         |              |        | 0      |        |  |        | 0        |         |   |         | 39,826  |        
|                                            | Prepayments and other current assets            |                                            |         | 17,645       |         |              |         | 10,826       |         |              |        | 214    |        |  |        | 0        |         |   |         | 28,685  |        
|                                            |                                                 |                                            |         |              |         |              |         |              |         |              |        |        |        |  |        |          |         |   |         |        
|                                            |                                                 | Total current assets                       |         |              | 55,267  |              |         |              | 76,047  |              |        |        | 71,765 |  |        |          | 0       |   |         |         | 203,079 | 
|                                            |                                                 |                                            |         |              |         |              |         |              |         |              |        |        |        |  |        |          |         |   |         |        
|Property and equipment, net                 |                                                 |                                            | 8,957   |              |         |              | 164,501 |              |         |              | 3,205  |        |        |  | 0      |          |         |   | 176,663 |        
|Other assets:                               |                                                 |                                            |         |              |         |              |         |              |         |              |        |        |        |  |        |          |         |   |         |        
|                                            | Goodwill, net                                   |                                            |         | 1,515        |         |              |         | 83,726       |         |              |        | 0      |        |  |        | 0        |         |   |         | 85,241  |        
|                                            | Other                                           |                                            |         | 16,860       |         |              |         | 2,743        |         |              |        | 922    |        |  |        | 0        |         |   |         | 20,525  |        
|                                            | Deferred tax asset  noncurrent                 |                                            |         | 7,445        |         |              |         | 0            |         |              |        | 0      |        |  |        | (7,445   | )       |   |         | 0       |        
|                                            | Intercompany receivables                        |                                            |         | 55,952       |         |              |         | 0            |         |              |        | 91     |        |  |        | (56,043  | )       |   |         | 0       |        
|                                            | Investment in subsidiaries                      |                                            |         | 28,466       |         |              |         | 5,111        |         |              |        | 0      |        |  |        | (33,577  | )       |   |         | 0       |        
|                                            |                                                 |                                            |         |              |         |              |         |              |         |              |        |        |        |  |        |          |         |   |         |        
|                                            |                                                 | Total other assets                         |         |              | 110,238 |              |         |              | 91,580  |              |        |        | 1,013  |  |        |          | (97,065 | ) |         |         | 105,766 | 
|                                            |                                                 |                                            |         |              |         |              |         |              |         |              |        |        |        |  |        |          |         |   |         |        
|                                            |                                                 | Total assets                               |         | $            | 174,462 |              |         | $            | 332,128 |              |        | $      | 75,983 |  |        | $        | (97,065 | ) |         | $       | 485,508 | 
|                                            |                                                 |                                            |         |              |         |              |         |              |         |              |        |        |        |  |        |          |         |   |         |        
|Current liabilities:                        |                                                 |                                            |         |              |         |              |         |              |         |              |        |        |        |  |        |          |         |   |         |        
|                                            | Current maturities of long-term debt            |                                            | $       | 0            |         |              | $       | 10,785       |         |              | $      | 0      |        |  | $      | 0        |         |   | $       | 10,785  |        
|                                            | Trade accounts payable                          |                                            |         | 3,362        |         |              |         | 32,930       |         |              |        | 293    |        |  |        | 0        |         |   |         | 36,585  |        
|                                            | Intercompany payables                           |                                            |         | 0            |         |              |         | 56,043       |         |              |        | 0      |        |  |        | (56,043  | )       |   |         |         |        
|                                            | Accrued liabilities                             |                                            |         | 9,755        |         |              |         | 63,835       |         |              |        | 19,291 |        |  |        | 0        |         |   |         | 92,881  |        
|                                            |                                                 |                                            |         |              |         |              |         |              |         |              |        |        |        |  |        |          |         |   |         |        
|                                            |                                                 | Total current liabilities                  |         |              | 13,117  |              |         |              | 163,593 |              |        |        | 19,584 |  |        |          | (56,043 | ) |         |         | 140,251 | 
|                                            |                                                 |                                            |         |              |         |              |         |              |         |              |        |        |        |  |        |          |         |   |         |        
|Long-term debt, less current maturities     |                                                 |                                            | 150,000 |              |         |              | 87,690  |              |         |              | 0      |        |        |  | 0      |          |         |   | 237,690 |        
|Postretirement benefits other than pensions |                                                 |                                            | 0       |              |         |              | 7,467   |              |         |              | 0      |        |        |  | 0      |          |         |   | 7,467   |        
|Deferred income taxes                       |                                                 |                                            | 0       |              |         |              | 34,743  |              |         |              | 448    |        |        |  | (7,445 | )        |         |   | 27,746  |        
|Other long-term liabilities                 |                                                 |                                            | 1,031   |              |         |              | 31,572  |              |         |              | 29,437 |        |        |  | 0      |          |         |   | 62,040  |        
|Stockholders equity:                       |                                                 |                                            |         |              |         |              |         |              |         |              |        |        |        |  |        |          |         |   |         |        
|                                            | Common stock, no par value                      |                                            |         | 0            |         |              |         | 0            |         |              |        | 0      |        |  |        | 0        |         |   |         | 0       |        
|                                            | Additional paid-in capital                      |                                            |         | 46,801       |         |              |         | 166,130      |         |              |        | 2,488  |        |  |        | (168,618 | )       |   |         | 46,801  |        
|                                            | Treasury Stock                                  |                                            |         | (707         | )       |              |         | 0            |         |              |        | 0      |        |  |        | 0        |         |   |         | (707    | )      
|                                            | Retained (deficit) earnings                     |                                            |         | (26,420      | )       |              |         | (146,278     | )       |              |        | 24,026 |        |  |        | 122,252  |         |   |         | (26,420 | )      
|                                            | Cumulative other comprehensive loss, net of tax |                                            |         | (9,360       | )       |              |         | (12,789      | )       |              |        | 0      |        |  |        | 12,789   |         |   |         | (9,360  | )      
|                                            |                                                 |                                            |         |              |         |              |         |              |         |              |        |        |        |  |        |          |         |   |         |        
|                                            |                                                 | Total stockholders equity                 |         |              | 10,314  |              |         |              | 7,063   |              |        |        | 26,514 |  |        |          | (33,577 | ) |         |         | 10,314  | 
|                                            |                                                 |                                            |         |              |         |              |         |              |         |              |        |        |        |  |        |          |         |   |         |        
|                                            |                                                 | Total liabilities and stockholders equity |         | $            | 174,462 |              |         | $            | 332,128 |              |        | $      | 75,983 |  |        | $        | (97,065 | ) |         | $       | 485,508 | 
|                                            |                                                 |                                            |         |              |         |              |         |              |         |              |        |        |        |  |        |          |         |   |         |        

F-34



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The supplemental consolidating balance sheet
information as of December 31, 2001 is as follows (in
thousands):

|                                            |                                                         |                           |         |              |         |              |         |              |         |              |        |        |        |  |         |          |          |   |         |        |         | 
|------------------------------------------- | ------------------------------------------------------- | ------------------------- | ------- | ------------ | ------- | ------------ | ------- | ------------ | ------- | ------------ | ------ | ------ | ------ |  | ------- | -------- | -------- | - | ------- | ------ | ------- | 
|                                            |                                                         | Allied                    |         | Guarantor    |         | Nonguarantor |         |              |         |             
|                                            |                                                         | Holdings                  |         | Subsidiaries |         | Subsidiaries |         | Eliminations |         | Consolidated
|                                            |                                                         |                           |         |              |         |              |         |              |         |             
|Current assets:                             |                                                         |                           |         |              |         |              |         |              |         |              |        |        |        |  |         |          |          |   |         |       
|                                            | Cash and cash equivalents                               |                           | $       | 209          |         |              | $       | 1,063        |         |              | $      | 9,271  |        |  | $       | 0        |          |   | $       | 10,543 |        
|                                            | Short-term investments                                  |                           |         | 0            |         |              |         | 0            |         |              |        | 64,794 |        |  |         | 0        |          |   |         | 64,794 |        
|                                            | Receivables, net of allowance for doubtful
    accounts |                           |         | 24           |         |              |         | 69,112       |         |              |        | 3,156  |        |  |         | 0        |          |   |         | 72,292 |        
|                                            | Inventories                                             |                           |         | 0            |         |              |         | 5,344        |         |              |        | 5      |        |  |         | 0        |          |   |         | 5,349  |        
|                                            | Deferred tax asset  current                            |                           |         | 31,658       |         |              |         | 493          |         |              |        | 252    |        |  |         | 0        |          |   |         | 32,403 |        
|                                            | Prepayments and other current assets                    |                           |         | 1,161        |         |              |         | 17,645       |         |              |        | 115    |        |  |         | 0        |          |   |         | 18,921 |        
|                                            |                                                         |                           |         |              |         |              |         |              |         |              |        |        |        |  |         |          |          |   |         |       
|                                            |                                                         | Total current assets      |         |              | 33,052  |              |         |              | 93,657  |              |        |        | 77,593 |  |         |          | 0        |   |         |        | 204,302 | 
|                                            |                                                         |                           |         |              |         |              |         |              |         |              |        |        |        |  |         |          |          |   |         |       
|Property and equipment, net                 |                                                         |                           | 11,743  |              |         |              | 199,378 |              |         |              | 3,520  |        |        |  | 0       |          |          |   | 214,641 |       
|Other assets:                               |                                                         |                           |         |              |         |              |         |              |         |              |        |        |        |  |         |          |          |   |         |       
|                                            | Goodwill, net                                           |                           |         | 1,515        |         |              |         | 88,715       |         |              |        | 0      |        |  |         | 0        |          |   |         | 90,230 |        
|                                            | Other                                                   |                           |         | 14,404       |         |              |         | 5,742        |         |              |        | 4,073  |        |  |         | 0        |          |   |         | 24,219 |        
|                                            | Deferred tax asset  noncurrent                         |                           |         | 14,362       |         |              |         | 0            |         |              |        | 0      |        |  |         | (14,362  | )        |   |         | 0      |        
|                                            | Intercompany receivables                                |                           |         | 233,827      |         |              |         | 0            |         |              |        | 0      |        |  |         | (233,827 | )        |   |         | 0      |        
|                                            | Investment in subsidiaries                              |                           |         | 11,697       |         |              |         | 8,757        |         |              |        | 0      |        |  |         | (20,454  | )        |   |         | 0      |        
|                                            |                                                         |                           |         |              |         |              |         |              |         |              |        |        |        |  |         |          |          |   |         |       
|                                            |                                                         | Total other assets        |         |              | 275,805 |              |         |              | 103,214 |              |        |        | 4,073  |  |         |          | (268,643 | ) |         |        | 114,449 | 
|                                            |                                                         |                           |         |              |         |              |         |              |         |              |        |        |        |  |         |          |          |   |         |       
|                                            |                                                         | Total assets              |         | $            | 320,600 |              |         | $            | 396,249 |              |        | $      | 85,186 |  |         | $        | (268,643 | ) |         | $      | 533,392 | 
|                                            |                                                         |                           |         |              |         |              |         |              |         |              |        |        |        |  |         |          |          |   |         |       
|Current liabilities:                        |                                                         |                           |         |              |         |              |         |              |         |              |        |        |        |  |         |          |          |   |         |       
|                                            | Current maturities of long-term debt                    |                           | $       | 2,625        |         |              | $       | 0            |         |              | $      | 0      |        |  | $       | 0        |          |   | $       | 2,625  |        
|                                            | Trade accounts payable                                  |                           |         | 2,753        |         |              |         | 37,326       |         |              |        | 153    |        |  |         | 0        |          |   |         | 40,232 |        
|                                            | Intercompany payables                                   |                           |         | 0            |         |              |         | 230,040      |         |              |        | 3,787  |        |  |         | (233,827 | )        |   |         | 0      |        
|                                            | Accrued liabilities                                     |                           |         | 7,157        |         |              |         | 61,460       |         |              |        | 14,346 |        |  |         | 0        |          |   |         | 82,963 |        
|                                            |                                                         |                           |         |              |         |              |         |              |         |              |        |        |        |  |         |          |          |   |         |       
|                                            |                                                         | Total current liabilities |         |              | 12,535  |              |         |              | 328,826 |              |        |        | 18,286 |  |         |          | (233,827 | ) |         |        | 125,820 | 
|                                            |                                                         |                           |         |              |         |              |         |              |         |              |        |        |        |  |         |          |          |   |         |       
|Long-term debt, less current maturities     |                                                         |                           | 286,523 |              |         |              | 10      |              |         |              | 0      |        |        |  | 0       |          |          |   | 286,533 |       
|Postretirement benefits other than pensions |                                                         |                           | 0       |              |         |              | 9,363   |              |         |              | 0      |        |        |  | 0       |          |          |   | 9,363   |       
|Deferred income taxes                       |                                                         |                           | 0       |              |         |              | 35,745  |              |         |              | 0      |        |        |  | (14,362 | )        |          |   | 21,383  |       
|Other long-term liabilities                 |                                                         |                           | 3,545   |              |         |              | 34,906  |              |         |              | 33,845 |        |        |  | 0       |          |          |   | 72,296  |       

F-35



---



##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                      |                                                 |                                            |  |              |         |              |  |              |         |              |  |        |        |  |  |          |          |   |  |         |         | 
|--------------------- | ----------------------------------------------- | ------------------------------------------ |  | ------------ | ------- | ------------ |  | ------------ | ------- | ------------ |  | ------ | ------ |  |  | -------- | -------- | - |  | ------- | ------- | 
|                      |                                                 | Allied                                     |  | Guarantor    |         | Nonguarantor |  |              |         |             
|                      |                                                 | Holdings                                   |  | Subsidiaries |         | Subsidiaries |  | Eliminations |         | Consolidated
|                      |                                                 |                                            |  |              |         |              |  |              |         |             
|Stockholders equity: |                                                 |                                            |  |              |         |              |  |              |         |              |  |        |        |  |  |          |          |   |  |        
|                      | Common stock, no par value                      |                                            |  | 0            |         |              |  | 0            |         |              |  | 0      |        |  |  | 0        |          |   |  | 0       |        
|                      | Additional paid-in capital                      |                                            |  | 46,520       |         |              |  | 90,061       |         |              |  | 13,849 |        |  |  | (103,910 | )        |   |  | 46,520  |        
|                      | Retained (deficit) earnings                     |                                            |  | (18,894      | )       |              |  | (90,171      | )       |              |  | 20,649 |        |  |  | 69,522   |          |   |  | (18,894 | )      
|                      | Cumulative other comprehensive loss, net of tax |                                            |  | (8,922       | )       |              |  | (12,491      | )       |              |  | (1,443 | )      |  |  | 13,934   |          |   |  | (8,922  | )      
|                      | Treasury stock                                  |                                            |  | (707         | )       |              |  | 0            |         |              |  | 0      |        |  |  | 0        |          |   |  | (707    | )      
|                      |                                                 |                                            |  |              |         |              |  |              |         |              |  |        |        |  |  |          |          |   |  |        
|                      |                                                 | Total stockholders equity                 |  |              | 17,997  |              |  |              | (12,601 | )            |  |        | 33,055 |  |  |          | (20,454  | ) |  |         | 17,997  | 
|                      |                                                 |                                            |  |              |         |              |  |              |         |              |  |        |        |  |  |          |          |   |  |        
|                      |                                                 | Total liabilities and stockholders equity |  | $            | 320,600 |              |  | $            | 396,249 |              |  | $      | 85,186 |  |  | $        | (268,643 | ) |  | $       | 533,392 | 
|                      |                                                 |                                            |  |              |         |              |  |              |         |              |  |        |        |  |  |          |          |   |  |        

The supplemental consolidated income statement
information for the year ended December 31, 2002 is as
follows (in thousands):

|                        |                                           |                          |        |              |        |              |         |              |         |              |        |        |        |   |         |         |         |   |         |         |         | 
|----------------------- | ----------------------------------------- | ------------------------ | ------ | ------------ | ------ | ------------ | ------- | ------------ | ------- | ------------ | ------ | ------ | ------ | - | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                        |                                           | Allied                   |        | Guarantor    |        | Nonguarantor |         |              |         |             
|                        |                                           | Holdings                 |        | Subsidiaries |        | Subsidiaries |         | Eliminations |         | Consolidated
|                        |                                           |                          |        |              |        |              |         |              |         |             
|Revenues                |                                           | $                        | 26,466 |              |        | $            | 896,574 |              |         | $            | 38,005 |        |        | $ | (62,985 | )       |         | $ | 898,060 |        
|                        |                                           |                          |        |              |        |              |         |              |         |              |        |        |        |   |         |         |         |   |         |        
|Operating expenses:     |                                           |                          |        |              |        |              |         |              |         |              |        |        |        |   |         |         |         |   |         |        
|                        | Salaries, wages, and fringe benefits      |                          |        | 9,162        |        |              |         | 474,383      |         |              |        | 0      |        |   |         | 0       |         |   |         | 483,545 |        
|                        | Operating supplies and expenses           |                          |        | 4,613        |        |              |         | 133,725      |         |              |        | 204    |        |   |         | 0       |         |   |         | 138,542 |        
|                        | Purchased transportation                  |                          |        | 0            |        |              |         | 99,109       |         |              |        | 0      |        |   |         | 0       |         |   |         | 99,109  |        
|                        | Insurance and claims                      |                          |        | 57           |        |              |         | 49,104       |         |              |        | 30,858 |        |   |         | (36,519 | )       |   |         | 43,500  |        
|                        | Operating taxes and licenses              |                          |        | 226          |        |              |         | 33,357       |         |              |        | 0      |        |   |         | 0       |         |   |         | 33,583  |        
|                        | Depreciation and amortization             |                          |        | 2,940        |        |              |         | 51,469       |         |              |        | 471    |        |   |         | 0       |         |   |         | 54,880  |        
|                        | Rents                                     |                          |        | 1,846        |        |              |         | 4,489        |         |              |        | 7      |        |   |         | 0       |         |   |         | 6,342   |        
|                        | Communications and utilities              |                          |        | 1,401        |        |              |         | 5,007        |         |              |        | 11     |        |   |         | 0       |         |   |         | 6,419   |        
|                        | Other operating expenses                  |                          |        | 3,841        |        |              |         | 32,620       |         |              |        | 389    |        |   |         | (26,466 | )       |   |         | 10,384  |        
|                        | Loss on disposal of operating assets, net |                          |        | 0            |        |              |         | 541          |         |              |        | 207    |        |   |         | 0       |         |   |         | 748     |        
|                        |                                           |                          |        |              |        |              |         |              |         |              |        |        |        |   |         |         |         |   |         |        
|                        |                                           | Total operating expenses |        |              | 24,086 |              |         |              | 883,804 |              |        |        | 32,147 |   |         |         | (62,985 | ) |         |         | 877,052 | 
|                        |                                           |                          |        |              |        |              |         |              |         |              |        |        |        |   |         |         |         |   |         |        
|                        |                                           | Operating income         |        |              | 2,380  |              |         |              | 12,770  |              |        |        | 5,858  |   |         |         | 0       |   |         |         | 21,008  | 
|                        |                                           |                          |        |              |        |              |         |              |         |              |        |        |        |   |         |         |         |   |         |        
|Other income (expense): |                                           |                          |        |              |        |              |         |              |         |              |        |        |        |   |         |         |         |   |         |        
|                        | Interest expense                          |                          |        | (8,116       | )      |              |         | (22,482      | )       |              |        | (210   | )      |   |         | 181     |         |   |         | (30,627 | )      
|                        | Interest income                           |                          |        | 1            |        |              |         | 60           |         |              |        | 2,583  |        |   |         | (181    | )       |   |         | 2,463   |        
|                        | Gain on early extinguishment of debt      |                          |        | 2,750        |        |              |         | 0            |         |              |        | 0      |        |   |         | 0       |         |   |         | 2,750   |        
|                        | Other, net                                |                          |        | (8           | )      |              |         | (69          | )       |              |        | (80    | )      |   |         | 0       |         |   |         | (157    | )      

F-36



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                                              |                                             |          |         |              |        |              |         |              |         |              |         |   |        |   |        |        |        |  |         |   |        |  
|--------------------------------------------------------------------------------------------- | ------------------------------------------- | -------- | ------- | ------------ | ------ | ------------ | ------- | ------------ | ------- | ------------ | ------- | - | ------ | - | ------ | ------ | ------ |  | ------- | - | ------ | -
|                                                                                              |                                             | Allied   |         | Guarantor    |        | Nonguarantor |         |              |         |             
|                                                                                              |                                             | Holdings |         | Subsidiaries |        | Subsidiaries |         | Eliminations |         | Consolidated
|                                                                                              |                                             |          |         |              |        |              |         |              |         |             
|                                                                                              | Intercompany dividends                      |          |         | 1,144        |        |              |         | (1,144       | )       |              |         | 0 |        |   |        | 0      |        |  |         | 0 |       
|                                                                                              | Equity in net (loss) income of subsidiaries |          |         | (16,675      | )      |              |         | 415          |         |              |         | 0 |        |   |        | 16,260 |        |  |         | 0 |       
|                                                                                              |                                             |          |         |              |        |              |         |              |         |              |         |   |        |   |        |        |        |  |         |  
|                                                                                              |                                             |          | (20,904 | )            |        |              | (23,220 | )            |         |              | 2,293   |   |        |   | 16,260 |        |        |  | (25,571 | )
|                                                                                              |                                             |          |         |              |        |              |         |              |         |              |         |   |        |   |        |        |        |  |         |  
|(Loss) income before income taxes and cumulative
    effect of change in accounting principle |                                             |          | (18,524 | )            |        |              | (10,450 | )            |         |              | 8,151   |   |        |   | 16,260 |        |        |  | (4,563  | )
|Income tax benefit (provision)                                                                |                                             |          | 10,998  |              |        |              | 704     |              |         |              | (10,573 | ) |        |   | 0      |        |        |  | 1,129   |  
|                                                                                              |                                             |          |         |              |        |              |         |              |         |              |         |   |        |   |        |        |        |  |         |  
|Loss before cumulative effect of change in
    accounting principle                           |                                             |          | (7,526  | )            |        |              | (9,746  | )            |         |              | (2,422  | ) |        |   | 16,260 |        |        |  | (3,434  | )
|Cumulative effect of change in accounting
    principle, net of tax                           |                                             |          | 0       |              |        |              | (4,092  | )            |         |              | 0       |   |        |   | 0      |        |        |  | (4,092  | )
|                                                                                              |                                             |          |         |              |        |              |         |              |         |              |         |   |        |   |        |        |        |  |         |  
|                                                                                              |                                             | Net loss |         | $            | (7,526 | )            |         | $            | (13,838 | )            |         | $ | (2,422 | ) |        | $      | 16,260 |  |         | $ | (7,526 | )
|                                                                                              |                                             |          |         |              |        |              |         |              |         |              |         |   |        |   |        |        |        |  |         |  

The supplemental consolidated income statement
information for the year ended December 31, 2001 is as
follows (in thousands):

|                    |                                           |                          |        |              |        |              |         |              |         |              |        |        |        |   |         |         |         |   |         |         |         |  
|------------------- | ----------------------------------------- | ------------------------ | ------ | ------------ | ------ | ------------ | ------- | ------------ | ------- | ------------ | ------ | ------ | ------ | - | ------- | ------- | ------- | - | ------- | ------- | ------- | -
|                    |                                           | Allied                   |        | Guarantor    |        | Nonguarantor |         |              |         |             
|                    |                                           | Holdings                 |        | Subsidiaries |        | Subsidiaries |         | Eliminations |         | Consolidated
|                    |                                           |                          |        |              |        |              |         |              |         |             
|Revenues            |                                           | $                        | 30,291 |              |        | $            | 895,147 |              |         | $            | 37,989 |        |        | $ | (66,660 | )       |         | $ | 896,767 |        
|                    |                                           |                          |        |              |        |              |         |              |         |              |        |        |        |   |         |         |         |   |         |        
|Operating expenses: |                                           |                          |        |              |        |              |         |              |         |              |        |        |        |   |         |         |         |   |         |        
|                    | Salaries, wages, and fringe benefits      |                          |        | 11,776       |        |              |         | 504,140      |         |              |        | 0      |        |   |         | 0       |         |   |         | 515,916 |        
|                    | Operating supplies and expenses           |                          |        | 1,698        |        |              |         | 147,287      |         |              |        | 126    |        |   |         | 0       |         |   |         | 149,111 |        
|                    | Purchased transportation                  |                          |        | 0            |        |              |         | 97,756       |         |              |        | 0      |        |   |         | 0       |         |   |         | 97,756  |        
|                    | Insurance and claims                      |                          |        | 53           |        |              |         | 57,394       |         |              |        | 29,759 |        |   |         | (36,369 | )       |   |         | 50,837  |        
|                    | Operating taxes and licenses              |                          |        | 119          |        |              |         | 33,143       |         |              |        | 0      |        |   |         | 0       |         |   |         | 33,262  |        
|                    | Depreciation and amortization             |                          |        | 3,358        |        |              |         | 56,255       |         |              |        | 745    |        |   |         | 0       |         |   |         | 60,358  |        
|                    | Rents                                     |                          |        | 2,034        |        |              |         | 4,773        |         |              |        | 6      |        |   |         | 0       |         |   |         | 6,813   |        
|                    | Communications and utilities              |                          |        | 365          |        |              |         | 6,645        |         |              |        | 12     |        |   |         | 0       |         |   |         | 7,022   |        
|                    | Other operating expenses                  |                          |        | 8,134        |        |              |         | 37,991       |         |              |        | 292    |        |   |         | (30,291 | )       |   |         | 16,126  |        
|                    | Gain on disposal of operating assets, net |                          |        | 0            |        |              |         | (2,725       | )       |              |        | 0      |        |   |         | 0       |         |   |         | (2,725  | )      
|                    |                                           |                          |        |              |        |              |         |              |         |              |        |        |        |   |         |         |         |   |         |        
|                    |                                           | Total operating expenses |        |              | 27,537 |              |         |              | 942,659 |              |        |        | 30,940 |   |         |         | (66,660 | ) |         |         | 934,476 |  
|                    |                                           |                          |        |              |        |              |         |              |         |              |        |        |        |   |         |         |         |   |         |        
|                    |                                           | Operating income (loss)  |        |              | 2,754  |              |         |              | (47,512 | )            |        |        | 7,049  |   |         |         | 0       |   |         |         | (37,709 | )
|                    |                                           |                          |        |              |        |              |         |              |         |              |        |        |        |   |         |         |         |   |         |        

F-37



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                  |                                                |          |         |              |         |              |         |              |         |              |        |        |        |   |        |        |        |  |         |         |         |  
|--------------------------------- | ---------------------------------------------- | -------- | ------- | ------------ | ------- | ------------ | ------- | ------------ | ------- | ------------ | ------ | ------ | ------ | - | ------ | ------ | ------ |  | ------- | ------- | ------- | -
|                                  |                                                | Allied   |         | Guarantor    |         | Nonguarantor |         |              |         |             
|                                  |                                                | Holdings |         | Subsidiaries |         | Subsidiaries |         | Eliminations |         | Consolidated
|                                  |                                                |          |         |              |         |              |         |              |         |             
|Other income (expense):           |                                                |          |         |              |         |              |         |              |         |              |        |        |        |   |        |        |        |  |         |        
|                                  | Equity in income of joint ventures, net of tax |          |         | 0            |         |              |         | 3,897        |         |              |        | 175    |        |   |        | 0      |        |  |         | 4,072   |        
|                                  | Gain on sale of joint venture                  |          |         | 0            |         |              |         | 16,230       |         |              |        | 0      |        |   |        | 0      |        |  |         | 16,230  |        
|                                  | Write down of joint venture                    |          |         | 0            |         |              |         | (1,518       | )       |              |        | (8,524 | )      |   |        | 0      |        |  |         | (10,042 | )      
|                                  | Interest expense                               |          |         | (4,982       | )       |              |         | (32,425      | )       |              |        | (219   | )      |   |        | 52     |        |  |         | (37,574 | )      
|                                  | Interest income                                |          |         | 91           |         |              |         | 183          |         |              |        | 3,652  |        |   |        | (52    | )      |  |         | 3,874   |        
|                                  | Other, net                                     |          |         | 0            |         |              |         | 360          |         |              |        | 0      |        |   |        | 0      |        |  |         | 360     |        
|                                  | Intercompany dividends                         |          |         | 6,215        |         |              |         | (6,215       | )       |              |        | 0      |        |   |        | 0      |        |  |         | 0       |        
|                                  | Equity in net loss of subsidiaries             |          |         | (65,769      | )       |              |         | 0            |         |              |        | 0      |        |   |        | 65,769 |        |  |         | 0       |        
|                                  |                                                |          |         |              |         |              |         |              |         |              |        |        |        |   |        |        |        |  |         |        
|                                  |                                                |          | (64,445 | )            |         |              | (19,488 | )            |         |              | (4,916 | )      |        |   | 65,769 |        |        |  | (23,080 | )      
|                                  |                                                |          |         |              |         |              |         |              |         |              |        |        |        |   |        |        |        |  |         |        
|(Loss) income before income taxes |                                                |          | (61,691 | )            |         |              | (67,000 | )            |         |              | 2,133  |        |        |   | 65,769 |        |        |  | (60,789 | )      
|Income tax benefit (provision)    |                                                |          | 22,195  |              |         |              | 2,674   |              |         |              | (3,576 | )      |        |   | 0      |        |        |  | 21,293  |        
|                                  |                                                |          |         |              |         |              |         |              |         |              |        |        |        |   |        |        |        |  |         |        
|                                  |                                                | Net loss |         | $            | (39,496 | )            |         | $            | (64,326 | )            |        | $      | (1,443 | ) |        | $      | 65,769 |  |         | $       | (39,496 | )
|                                  |                                                |          |         |              |         |              |         |              |         |              |        |        |        |   |        |        |        |  |         |        

The supplemental consolidated income statement
information for the year ended December 31, 2000 is as
follows (in thousands):

|                    |                                      |          |       |              |  |              |           |              |  |              |        |        |  |   |         |         |   |   |           |         | 
|------------------- | ------------------------------------ | -------- | ----- | ------------ |  | ------------ | --------- | ------------ |  | ------------ | ------ | ------ |  | - | ------- | ------- | - | - | --------- | ------- | 
|                    |                                      | Allied   |       | Guarantor    |  | Nonguarantor |           |              |  |             
|                    |                                      | Holdings |       | Subsidiaries |  | Subsidiaries |           | Eliminations |  | Consolidated
|                    |                                      |          |       |              |  |              |           |              |  |             
|Revenues            |                                      | $        | 8,213 |              |  | $            | 1,067,742 |              |  | $            | 33,679 |        |  | $ | (40,480 | )       |   | $ | 1,069,154 |        
|                    |                                      |          |       |              |  |              |           |              |  |              |        |        |  |   |         |         |   |   |           |        
|Operating expenses: |                                      |          |       |              |  |              |           |              |  |              |        |        |  |   |         |         |   |   |           |        
|                    | Salaries, wages, and fringe benefits |          |       | 5,802        |  |              |           | 578,725      |  |              |        | 0      |  |   |         | 0       |   |   |           | 584,527 | 
|                    | Operating supplies and expenses      |          |       | 1,209        |  |              |           | 187,899      |  |              |        | 28     |  |   |         | 0       |   |   |           | 189,136 | 
|                    | Purchased transportation             |          |       | 0            |  |              |           | 104,545      |  |              |        | 0      |  |   |         | 0       |   |   |           | 104,545 | 
|                    | Insurance and claims                 |          |       | 80           |  |              |           | 51,026       |  |              |        | 28,897 |  |   |         | (32,267 | ) |   |           | 47,736  | 
|                    | Operating taxes and licenses         |          |       | 16           |  |              |           | 39,373       |  |              |        | 0      |  |   |         | 0       |   |   |           | 39,389  | 
|                    | Depreciation and amortization        |          |       | 1,208        |  |              |           | 59,307       |  |              |        | 369    |  |   |         | 0       |   |   |           | 60,884  | 
|                    | Rents                                |          |       | 535          |  |              |           | 8,035        |  |              |        | 0      |  |   |         | 0       |   |   |           | 8,570   | 
|                    | Communications and utilities         |          |       | 19           |  |              |           | 7,314        |  |              |        | 0      |  |   |         | 0       |   |   |           | 7,333   | 

F-38



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                  |                                                             |                          |         |              |        |              |         |              |           |              |        |        |        |  |       |        |         |   |         |         |           |  
|--------------------------------- | ----------------------------------------------------------- | ------------------------ | ------- | ------------ | ------ | ------------ | ------- | ------------ | --------- | ------------ | ------ | ------ | ------ |  | ----- | ------ | ------- | - | ------- | ------- | --------- | -
|                                  |                                                             | Allied                   |         | Guarantor    |        | Nonguarantor |         |              |           |             
|                                  |                                                             | Holdings                 |         | Subsidiaries |        | Subsidiaries |         | Eliminations |           | Consolidated
|                                  |                                                             |                          |         |              |        |              |         |              |           |             
|                                  | Other operating expenses                                    |                          |         | 2,794        |        |              |         | 18,898       |           |              |        | 347    |        |  |       | (8,213 | )       |   |         | 13,826  |          
|                                  | Loss on disposal of operating assets, net                   |                          |         | 0            |        |              |         | 1,340        |           |              |        | 0      |        |  |       | 0      |         |   |         | 1,340   |          
|                                  |                                                             |                          |         |              |        |              |         |              |           |              |        |        |        |  |       |        |         |   |         |        
|                                  |                                                             | Total operating expenses |         |              | 11,663 |              |         |              | 1,056,462 |              |        |        | 29,641 |  |       |        | (40,480 | ) |         |         | 1,057,286 |  
|                                  |                                                             |                          |         |              |        |              |         |              |           |              |        |        |        |  |       |        |         |   |         |        
|                                  |                                                             | Operating (loss) income  |         |              | (3,450 | )            |         |              | 11,280    |              |        |        | 4,038  |  |       |        | 0       |   |         |         | 11,868    |  
|                                  |                                                             |                          |         |              |        |              |         |              |           |              |        |        |        |  |       |        |         |   |         |        
|Other income (expense):           |                                                             |                          |         |              |        |              |         |              |           |              |        |        |        |  |       |        |         |   |         |        
|                                  | Equity in earnings (loss) of joint ventures,
    net of tax |                          |         | 0            |        |              |         | 5,173        |           |              |        | (107   | )      |  |       | 0      |         |   |         | 5,066   |          
|                                  | Interest expense                                            |                          |         | 779          |        |              |         | (34,500      | )         |              |        | (166   | )      |  |       | 74     |         |   |         | (33,813 | )        
|                                  | Interest income                                             |                          |         | 58           |        |              |         | 362          |           |              |        | 5,163  |        |  |       | (74    | )       |   |         | 5,509   |          
|                                  | Intercompany dividends                                      |                          |         | 1,000        |        |              |         | 0            |           |              |        | (1,000 | )      |  |       | 0      |         |   |         | 0       |          
|                                  | Equity in net loss of subsidiaries                          |                          |         | (9,986       | )      |              |         | 0            |           |              |        | 0      |        |  |       | 9,986  |         |   |         | 0       |          
|                                  |                                                             |                          |         |              |        |              |         |              |           |              |        |        |        |  |       |        |         |   |         |        
|                                  |                                                             |                          | (8,149  | )            |        |              | (28,965 | )            |           |              | 3,890  |        |        |  | 9,986 |        |         |   | (23,238 | )      
|                                  |                                                             |                          |         |              |        |              |         |              |           |              |        |        |        |  |       |        |         |   |         |        
|(Loss) income before income taxes |                                                             |                          | (11,599 | )            |        |              | (17,685 | )            |           |              | 7,928  |        |        |  | 9,986 |        |         |   | (11,370 | )      
|Income tax benefit (provision)    |                                                             |                          | 5,298   |              |        |              | 2,299   |              |           |              | (2,528 | )      |        |  | 0     |        |         |   | 5,069   |        
|                                  |                                                             |                          |         |              |        |              |         |              |           |              |        |        |        |  |       |        |         |   |         |        
|                                  |                                                             | Net (loss) income        |         | $            | (6,301 | )            |         | $            | (15,386   | )            |        | $      | 5,400  |  |       | $      | 9,986   |   |         | $       | (6,301    | )
|                                  |                                                             |                          |         |              |        |              |         |              |           |              |        |        |        |  |       |        |         |   |         |        

F-39



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The supplemental consolidating statement of cash
flows information for the year ended December 31, 2002 (in
thousands):

|                                      |                                                                                               |                                                              |                                                         |                                                         |        |              |         |              |        |              |          |        |     |        |        |        |         |   |   |        |        |        |        | 
|------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ------------------------------------------------------- | ------------------------------------------------------- | ------ | ------------ | ------- | ------------ | ------ | ------------ | -------- | ------ | --- | ------ | ------ | ------ | ------- | - | - | ------ | ------ | ------ | ------ | 
|                                      |                                                                                               | Allied                                                       |                                                         | Guarantor                                               |        | Nonguarantor |         |              |        |             
|                                      |                                                                                               | Holdings                                                     |                                                         | Subsidiaries                                            |        | Subsidiaries |         | Eliminations |        | Consolidated
|                                      |                                                                                               |                                                              |                                                         |                                                         |        |              |         |              |        |             
|Cash flows from operating activities: |                                                                                               |                                                              |                                                         |                                                         |        |              |         |              |        |              |          |        |     |        |        |        |         |   |   |       
|                                      | Net loss                                                                                      |                                                              | $                                                       | (7,526                                                  | )      |              | $       | (13,838      | )      |              | $        | (2,422 | )   |        | $      | 16,260 |         |   | $ | (7,526 | )     
|                                      |                                                                                               |                                                              |                                                         |                                                         |        |              |         |              |        |              |          |        |     |        |        |        |         |   |   |       
|                                      | Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities: |                                                              |                                                         |                                                         |        |              |         |              |        |              |          |        |     |        |        |        |         |   |   |        |       
|                                      |                                                                                               | Gain on early extinguishment of debt                         |                                                         |                                                         | (2,750 | )            |         |              | 0      |              |          |        | 0   |        |        |        | 0       |   |   |        | (2,750 | )     
|                                      |                                                                                               | Interest expense paid in kind                                |                                                         |                                                         | 0      |              |         |              | 1,115  |              |          |        | 0   |        |        |        | 0       |   |   |        | 1,115  |       
|                                      |                                                                                               | Amortization of deferred financing costs                     |                                                         |                                                         | 4,004  |              |         |              | 0      |              |          |        | 0   |        |        |        | 0       |   |   |        | 4,004  |       
|                                      |                                                                                               | Depreciation and amortization                                |                                                         |                                                         | 2,940  |              |         |              | 51,469 |              |          |        | 471 |        |        |        | 0       |   |   |        | 54,880 |       
|                                      |                                                                                               | Gain on disposal of assets and other, net                    |                                                         |                                                         | 0      |              |         |              | 698    |              |          |        | 207 |        |        |        | 0       |   |   |        | 905    |       
|                                      |                                                                                               | Cumulative effect of change in accounting
    principle      |                                                         |                                                         | 0      |              |         |              | 4,092  |              |          |        | 0   |        |        |        | 0       |   |   |        | 4,092  |       
|                                      |                                                                                               | Deferred income taxes                                        |                                                         |                                                         | 454    |              |         |              | (2,786 | )            |          |        | 700 |        |        |        | 0       |   |   |        | (1,632 | )     
|                                      |                                                                                               | Compensation expense related to stock options and
    grants |                                                         |                                                         | (57    | )            |         |              | 0      |              |          |        | 0   |        |        |        | 0       |   |   |        | (57    | )     
|                                      |                                                                                               | Amortization of Teamsters Union contract costs               |                                                         |                                                         | 0      |              |         |              | 2,400  |              |          |        | 0   |        |        |        | 0       |   |   |        | 2,400  |       
|                                      |                                                                                               | Equity in net loss (income) of subsidiaries                  |                                                         |                                                         | 16,675 |              |         |              | (415   | )            |          |        | 0   |        |        |        | (16,260 | ) |   |        | 0      |       
|                                      |                                                                                               | Change in operating assets and liabilities:                  |                                                         |                                                         |        |              |         |              |        |              |          |        |     |        |        |        |         |   |   |        |        |       
|                                      |                                                                                               |                                                              | Receivables, net of allowance for doubtful
    accounts |                                                         |        | 24           |         |              |        | 13,296       |          |        |     | 347    |        |        |         | 0 |   |        |        | 13,667 |       
|                                      |                                                                                               |                                                              | Inventories                                             |                                                         |        | 0            |         |              |        | 265          |          |        |     | 5      |        |        |         | 0 |   |        |        | 270    |       
|                                      |                                                                                               |                                                              | Prepayments and other current assets                    |                                                         |        | (16,484      | )       |              |        | 6,797        |          |        |     | (99    | )      |        |         | 0 |   |        |        | (9,786 | )     
|                                      |                                                                                               |                                                              | Short-term investments                                  |                                                         |        | 0            |         |              |        | 0            |          |        |     | 4,062  |        |        |         | 0 |   |        |        | 4,062  |       
|                                      |                                                                                               |                                                              | Trade accounts payable                                  |                                                         |        | 609          |         |              |        | (4,385       | )        |        |     | 173    |        |        |         | 0 |   |        |        | (3,603 | )     
|                                      |                                                                                               |                                                              | Intercompany receivables (payables), net                |                                                         |        | 176,797      |         |              |        | (170,385     | )        |        |     | (6,412 | )      |        |         | 0 |   |        |        | 0      |       
|                                      |                                                                                               |                                                              | Accrued liabilities                                     |                                                         |        | 84           |         |              |        | (1,971       | )        |        |     | 331    |        |        |         | 0 |   |        |        | (1,556 | )     
|                                      |                                                                                               |                                                              |                                                         |                                                         |        |              |         |              |        |              |          |        |     |        |        |        |         |   |   |       
|                                      |                                                                                               |                                                              |                                                         | Net cash provided by (used in) operating
    activities |        |              | 174,770 |              |        |              | (113,648 | )      |     |        | (2,637 | )      |         |   | 0 |        |        |        | 58,485 | 
|                                      |                                                                                               |                                                              |                                                         |                                                         |        |              |         |              |        |              |          |        |     |        |        |        |         |   |   |       

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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                 |                                                             |                                                          |     |              |          |              |       |              |        |              |       |        |       |   |   |   |   |   |        |         |         |  
|---------------------------------------------------------------- | ----------------------------------------------------------- | -------------------------------------------------------- | --- | ------------ | -------- | ------------ | ----- | ------------ | ------ | ------------ | ----- | ------ | ----- | - | - | - | - | - | ------ | ------- | ------- | -
|                                                                 |                                                             | Allied                                                   |     | Guarantor    |          | Nonguarantor |       |              |        |             
|                                                                 |                                                             | Holdings                                                 |     | Subsidiaries |          | Subsidiaries |       | Eliminations |        | Consolidated
|                                                                 |                                                             |                                                          |     |              |          |              |       |              |        |             
|Cash flows from investing activities:                            |                                                             |                                                          |     |              |          |              |       |              |        |              |       |        |       |   |   |   |   |   |        |        
|                                                                 | Purchases of property and equipment                         |                                                          |     | (152         | )        |              |       | (21,629      | )      |              |       | (5     | )     |   |   | 0 |   |   |        | (21,786 | )      
|                                                                 | Intercompany sale of property and equipment                 |                                                          |     | (2           | )        |              |       | 2            |        |              |       | 0      |       |   |   | 0 |   |   |        | 0       |        
|                                                                 | Proceeds from sale of property and equipment                |                                                          |     | 0            |          |              |       | 4,725        |        |              |       | 0      |       |   |   | 0 |   |   |        | 4,725   |        
|                                                                 | Proceeds from sale of joint venture                         |                                                          |     | 0            |          |              |       | 0            |        |              |       | 3,000  |       |   |   | 0 |   |   |        | 3,000   |        
|                                                                 | Capital contribution                                        |                                                          |     | (73,178      | )        |              |       | 73,100       |        |              |       | 78     |       |   |   | 0 |   |   |        | 0       |        
|                                                                 | Return of capital                                           |                                                          |     | 40,881       |          |              |       | (39,484      | )      |              |       | (1,397 | )     |   |   | 0 |   |   |        | 0       |        
|                                                                 | Decrease in cash surrender value of life insurance          |                                                          |     | 2,641        |          |              |       | 0            |        |              |       | 0      |       |   |   | 0 |   |   |        | 2,641   |        
|                                                                 |                                                             |                                                          |     |              |          |              |       |              |        |              |       |        |       |   |   |   |   |   |        |        
|                                                                 |                                                             | Net cash (used in) provided by investing
    activities  |     |              | (29,810  | )            |       |              | 16,714 |              |       |        | 1,676 |   |   |   | 0 |   |        |         | (11,420 | )
|                                                                 |                                                             |                                                          |     |              |          |              |       |              |        |              |       |        |       |   |   |   |   |   |        |        
|Cash flows from financing activities:                            |                                                             |                                                          |     |              |          |              |       |              |        |              |       |        |       |   |   |   |   |   |        |        
|                                                                 | (Repayment) additions to revolving credit
    facility, net |                                                          | $   | (98,900      | )        |              | $     | 24,637       |        |              | $     | 0      |       |   | $ | 0 |   |   | $      | (74,263 | )      
|                                                                 | Additions to long-term debt                                 |                                                          |     | 0            |          |              |       | 82,750       |        |              |       | 0      |       |   |   | 0 |   |   |        | 82,750  |        
|                                                                 | Repayment of long-term debt                                 |                                                          |     | (37,498      | )        |              |       | (10,037      | )      |              |       | 0      |       |   |   | 0 |   |   |        | (47,535 | )      
|                                                                 | Payment of deferred financing costs                         |                                                          |     | (9,262       | )        |              |       | 0            |        |              |       | 0      |       |   |   | 0 |   |   |        | (9,262  | )      
|                                                                 | Proceeds from issuance of common stock                      |                                                          |     | 338          |          |              |       | 0            |        |              |       | 0      |       |   |   | 0 |   |   |        | 338     |        
|                                                                 | Other, net                                                  |                                                          |     | 160          |          |              |       | 274          |        |              |       | 0      |       |   |   | 0 |   |   |        | 434     |        
|                                                                 |                                                             |                                                          |     |              |          |              |       |              |        |              |       |        |       |   |   |   |   |   |        |        
|                                                                 |                                                             | Net cash (used in) provided by financing
    activities  |     |              | (145,162 | )            |       |              | 97,624 |              |       |        | 0     |   |   |   | 0 |   |        |         | (47,538 | )
|                                                                 |                                                             |                                                          |     |              |          |              |       |              |        |              |       |        |       |   |   |   |   |   |        |        
|Effect of exchange rate changes on cash and cash
    equivalents |                                                             |                                                          | 0   |              |          |              | 183   |              |        |              | 0     |        |       |   | 0 |   |   |   | 183    |        
|                                                                 |                                                             |                                                          |     |              |          |              |       |              |        |              |       |        |       |   |   |   |   |   |        |        
|                                                                 |                                                             | Net increase (decrease) in cash and cash
    equivalents |     |              | (202     | )            |       |              | 873    |              |       |        | (961  | ) |   |   | 0 |   |        |         | (290    | )
|Cash and cash equivalents at beginning of year                   |                                                             |                                                          | 209 |              |          |              | 1,063 |              |        |              | 9,271 |        |       |   | 0 |   |   |   | 10,543 |        
|                                                                 |                                                             |                                                          |     |              |          |              |       |              |        |              |       |        |       |   |   |   |   |   |        |        
|Cash and cash equivalents at end of year                         |                                                             | $                                                        | 7   |              |          | $            | 1,936 |              |        | $            | 8,310 |        |       | $ | 0 |   |   | $ | 10,253 |        
|                                                                 |                                                             |                                                          |     |              |          |              |       |              |        |              |       |        |       |   |   |   |   |   |        |        

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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The supplemental consolidating statement of cash
flows information for the year ended December 31, 2001 (in
thousands):

|                                            |                                                                                               |                                                              |                                                         |                                                         |         |              |        |              |         |              |         |        |       |        |       |        |         |   |   |         |         |        |        | 
|------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ------------------------------------------------------- | ------------------------------------------------------- | ------- | ------------ | ------ | ------------ | ------- | ------------ | ------- | ------ | ----- | ------ | ----- | ------ | ------- | - | - | ------- | ------- | ------ | ------ | 
|                                            |                                                                                               | Allied                                                       |                                                         | Guarantor                                               |         | Nonguarantor |        |              |         |             
|                                            |                                                                                               | Holdings                                                     |                                                         | Subsidiaries                                            |         | Subsidiaries |        | Eliminations |         | Consolidated
|                                            |                                                                                               |                                                              |                                                         |                                                         |         |              |        |              |         |             
|Cash flows from operating activities:       |                                                                                               |                                                              |                                                         |                                                         |         |              |        |              |         |              |         |        |       |        |       |        |         |   |   |        
|                                            | Net income                                                                                    |                                                              | $                                                       | (39,496                                                 | )       |              | $      | (64,326      | )       |              | $       | (1,443 | )     |        | $     | 65,769 |         |   | $ | (39,496 | )      
|                                            |                                                                                               |                                                              |                                                         |                                                         |         |              |        |              |         |              |         |        |       |        |       |        |         |   |   |        
|                                            | Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities: |                                                              |                                                         |                                                         |         |              |        |              |         |              |         |        |       |        |       |        |         |   |   |         |        
|                                            |                                                                                               | Interest expense paid in kind                                |                                                         |                                                         | 248     |              |        |              | 0       |              |         |        | 0     |        |       |        | 0       |   |   |         | 248     |       
|                                            |                                                                                               | Amortization of deferred financing costs                     |                                                         |                                                         | 4,795   |              |        |              | 0       |              |         |        | 0     |        |       |        | 0       |   |   |         | 4,795   |       
|                                            |                                                                                               | Depreciation and amortization                                |                                                         |                                                         | 3,358   |              |        |              | 56,255  |              |         |        | 745   |        |       |        | 0       |   |   |         | 60,358  |       
|                                            |                                                                                               | Gain on disposal of assets and other, net                    |                                                         |                                                         | 0       |              |        |              | (3,890  | )            |         |        | 0     |        |       |        | 0       |   |   |         | (3,890  | )     
|                                            |                                                                                               | Gain on sale of joint ventures                               |                                                         |                                                         | 0       |              |        |              | (16,230 | )            |         |        | 0     |        |       |        | 0       |   |   |         | (16,230 | )     
|                                            |                                                                                               | Write down of joint venture                                  |                                                         |                                                         | 0       |              |        |              | 1,518   |              |         |        | 8,524 |        |       |        | 0       |   |   |         | 10,042  |       
|                                            |                                                                                               | Deferred income taxes                                        |                                                         |                                                         | (19,471 | )            |        |              | (2,562  | )            |         |        | 330   |        |       |        | 0       |   |   |         | (21,703 | )     
|                                            |                                                                                               | Compensation expense related to stock options and
    grants |                                                         |                                                         | 181     |              |        |              | 0       |              |         |        | 0     |        |       |        | 0       |   |   |         | 181     |       
|                                            |                                                                                               | Equity in loss of joint venture                              |                                                         |                                                         | 0       |              |        |              | (3,897  | )            |         |        | (175  | )      |       |        | 0       |   |   |         | (4,072  | )     
|                                            |                                                                                               | Amortization of Teamsters Union contract costs               |                                                         |                                                         | 0       |              |        |              | 2,403   |              |         |        | 0     |        |       |        | 0       |   |   |         | 2,403   |       
|                                            |                                                                                               | Equity in net loss of subsidiaries                           |                                                         |                                                         | 65,769  |              |        |              | 0       |              |         |        | 0     |        |       |        | (65,769 | ) |   |         | 0       |       
|Change in operating assets and liabilities: |                                                                                               |                                                              |                                                         |                                                         |         |              |        |              |         |              |         |        |       |        |       |        |         |   |   |        
|                                            |                                                                                               |                                                              | Receivables, net of allowance for doubtful
    accounts |                                                         | $       | 781          |        |              | $       | 42,469       |         |        | $     | (2,571 | )     |        | $       | 0 |   |         | $       | 40,679 |       
|                                            |                                                                                               |                                                              | Inventories                                             |                                                         |         | 0            |        |              |         | 1,985        |         |        |       | (5     | )     |        |         | 0 |   |         |         | 1,980  |       
|                                            |                                                                                               |                                                              | Prepayments and other current assets                    |                                                         |         | 813          |        |              |         | (2,779       | )       |        |       | 2,259  |       |        |         | 0 |   |         |         | 293    |       
|                                            |                                                                                               |                                                              | Short-term investments                                  |                                                         |         | 0            |        |              |         | 0            |         |        |       | (4,902 | )     |        |         | 0 |   |         |         | (4,902 | )     
|                                            |                                                                                               |                                                              | Trade accounts payable                                  |                                                         |         | 1,163        |        |              |         | (5,836       | )       |        |       | (757   | )     |        |         | 0 |   |         |         | (5,430 | )     
|                                            |                                                                                               |                                                              | Intercompany receivables (payables), net                |                                                         |         | 27,023       |        |              |         | (29,228      | )       |        |       | 2,205  |       |        |         | 0 |   |         |         | 0      |       
|                                            |                                                                                               |                                                              | Accrued liabilities                                     |                                                         |         | (6,695       | )      |              |         | 5,425        |         |        |       | 4,046  |       |        |         | 0 |   |         |         | 2,776  |       
|                                            |                                                                                               |                                                              |                                                         |                                                         |         |              |        |              |         |              |         |        |       |        |       |        |         |   |   |        
|                                            |                                                                                               |                                                              |                                                         | Net cash provided by (used in) operating
    activities |         |              | 38,469 |              |         |              | (18,693 | )      |       |        | 8,256 |        |         |   | 0 |         |         |        | 28,032 | 
|                                            |                                                                                               |                                                              |                                                         |                                                         |         |              |        |              |         |              |         |        |       |        |       |        |         |   |   |        
|Cash flows from investing activities:       |                                                                                               |                                                              |                                                         |                                                         |         |              |        |              |         |              |         |        |       |        | 0     |        |         |   |   |        
|                                            | Purchases of property and equipment                                                           |                                                              |                                                         | (67                                                     | )       |              |        | (20,741      | )       |              |         | (655   | )     |        |       | 0      |         |   |   | (21,463 | )      
|                                            | Intercompany sale of property and equipment                                                   |                                                              |                                                         | 1,423                                                   |         |              |        | (1,423       | )       |              |         | 0      |       |        |       | 0      |         |   |   | 0       |        

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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                 |                                                             |                                                          |        |              |         |              |       |              |        |              |       |      |        |   |   |   |   |   |        |         |         |  
|---------------------------------------------------------------- | ----------------------------------------------------------- | -------------------------------------------------------- | ------ | ------------ | ------- | ------------ | ----- | ------------ | ------ | ------------ | ----- | ---- | ------ | - | - | - | - | - | ------ | ------- | ------- | -
|                                                                 |                                                             | Allied                                                   |        | Guarantor    |         | Nonguarantor |       |              |        |             
|                                                                 |                                                             | Holdings                                                 |        | Subsidiaries |         | Subsidiaries |       | Eliminations |        | Consolidated
|                                                                 |                                                             |                                                          |        |              |         |              |       |              |        |             
|                                                                 | Proceeds from sale of property and equipment                |                                                          |        | 0            |         |              |       | 11,762       |        |              |       | 0    |        |   |   | 0 |   |   |        | 11,762  |        
|                                                                 | Investment in joint venture                                 |                                                          |        | 0            |         |              |       | 0            |        |              |       | (464 | )      |   |   | 0 |   |   |        | (464    | )      
|                                                                 | Cash received from joint venture                            |                                                          |        | 0            |         |              |       | 8,624        |        |              |       | 0    |        |   |   | 0 |   |   |        | 8,624   |        
|                                                                 | Proceeds from sale of joint venture                         |                                                          |        | 0            |         |              |       | 20,560       |        |              |       | 0    |        |   |   | 0 |   |   |        | 20,560  |        
|                                                                 | Decrease in cash surrender value of life insurance          |                                                          |        | 420          |         |              |       | 0            |        |              |       | 0    |        |   |   | 0 |   |   |        | 420     |        
|                                                                 |                                                             |                                                          |        |              |         |              |       |              |        |              |       |      |        |   |   |   |   |   |        |        
|                                                                 |                                                             | Net cash provided by (used in) investing
    activities  |        |              | 1,776   |              |       |              | 18,782 |              |       |      | (1,119 | ) |   |   | 0 |   |        |         | 19,439  |  
|                                                                 |                                                             |                                                          |        |              |         |              |       |              |        |              |       |      |        |   |   |   |   |   |        |        
|Cash flows from financing activities:                            |                                                             |                                                          |        |              |         |              |       |              |        |              |       |      |        |   |   |   |   |   |        |        
|                                                                 | (Repayment) additions to revolving credit
    facility, net |                                                          |        | (35,528      | )       |              |       | (438         | )      |              |       | 0    |        |   |   | 0 |   |   |        | (35,966 | )      
|                                                                 | Repayment of long-term debt                                 |                                                          |        | 0            |         |              |       | (109         | )      |              |       | 0    |        |   |   | 0 |   |   |        | (109    | )      
|                                                                 | Payment of deferred financing costs                         |                                                          |        | (3,574       | )       |              |       | 0            |        |              |       | 0    |        |   |   | 0 |   |   |        | (3,574  | )      
|                                                                 | Proceeds from exercise of stock options                     |                                                          |        | 349          |         |              |       | 0            |        |              |       | 0    |        |   |   | 0 |   |   |        | 349     |        
|                                                                 | Other, net                                                  |                                                          |        | (70          | )       |              |       | (1,153       | )      |              |       | 611  |        |   |   | 0 |   |   |        | (612    | )      
|                                                                 |                                                             |                                                          |        |              |         |              |       |              |        |              |       |      |        |   |   |   |   |   |        |        
|                                                                 |                                                             | Net cash (used in) provided by financing
    activities  |        |              | (38,823 | )            |       |              | (1,700 | )            |       |      | 611    |   |   |   | 0 |   |        |         | (39,664 | )
|                                                                 |                                                             |                                                          |        |              |         |              |       |              |        |              |       |      |        |   |   |   |   |   |        |        
|Effect of exchange rate changes on cash and cash
    equivalents |                                                             |                                                          | 0      |              |         |              | 611   |              |        |              | 0     |      |        |   | 0 |   |   |   | 611    |        
|                                                                 |                                                             |                                                          |        |              |         |              |       |              |        |              |       |      |        |   |   |   |   |   |        |        
|                                                                 |                                                             | Net increase (decrease) in cash and cash
    equivalents |        |              | 1,422   |              |       |              | (1,000 | )            |       |      | 7,748  |   |   |   | 0 |   |        |         | 8,170   |  
|Cash and cash equivalents at beginning of year                   |                                                             |                                                          | (1,213 | )            |         |              | 2,063 |              |        |              | 1,523 |      |        |   | 0 |   |   |   | 2,373  |        
|                                                                 |                                                             |                                                          |        |              |         |              |       |              |        |              |       |      |        |   |   |   |   |   |        |        
|Cash and cash equivalents at end of year                         |                                                             | $                                                        | 209    |              |         | $            | 1,063 |              |        | $            | 9,271 |      |        | $ | 0 |   |   | $ | 10,543 |        
|                                                                 |                                                             |                                                          |        |              |         |              |       |              |        |              |       |      |        |   |   |   |   |   |        |        

F-43



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The supplemental consolidating statement of cash
flows information for the year ended December 31, 2000 (in
thousands):

|                                      |                                                                                              |                                                              |                                                         |                                                         |        |              |        |              |         |              |        |         |       |        |        |       |        |   |   |         |         |       |        | 
|------------------------------------- | -------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ------------------------------------------------------- | ------------------------------------------------------- | ------ | ------------ | ------ | ------------ | ------- | ------------ | ------ | ------- | ----- | ------ | ------ | ----- | ------ | - | - | ------- | ------- | ----- | ------ | 
|                                      |                                                                                              | Allied                                                       |                                                         | Guarantor                                               |        | Nonguarantor |        |              |         |             
|                                      |                                                                                              | Holdings                                                     |                                                         | Subsidiaries                                            |        | Subsidiaries |        | Eliminations |         | Consolidated
|                                      |                                                                                              |                                                              |                                                         |                                                         |        |              |        |              |         |             
|Cash flows from operating activities: |                                                                                              |                                                              |                                                         |                                                         |        |              |        |              |         |              |        |         |       |        |        |       |        |   |   |        
|                                      | Net (loss) income                                                                            |                                                              | $                                                       | (6,301                                                  | )      |              | $      | (15,386      | )       |              | $      | 5,400   |       |        |        | 9,986 |        |   | $ | (6,301  | )      
|                                      |                                                                                              |                                                              |                                                         |                                                         |        |              |        |              |         |              |        |         |       |        |        |       |        |   |   |        
|                                      | Adjustments to reconcile net (loss) income
    to net cash provided by operating activities: |                                                              |                                                         |                                                         |        |              |        |              |         |              |        |         |       |        |        |       |        |   |   |         |        
|                                      |                                                                                              | Depreciation and amortization                                |                                                         |                                                         | 1,208  |              |        |              | 59,307  |              |        |         | 369   |        |        |       | 0      |   |   |         | 60,884  |      
|                                      |                                                                                              | Amortization of deferred financing costs                     |                                                         |                                                         | 1,616  |              |        |              | 0       |              |        |         | 0     |        |        |       | 0      |   |   |         | 1,616   |      
|                                      |                                                                                              | Loss on disposal of assets and other, net                    |                                                         |                                                         | 0      |              |        |              | 1,340   |              |        |         | 0     |        |        |       | 0      |   |   |         | 1,340   |      
|                                      |                                                                                              | Amortization of Teamsters Union contract costs               |                                                         |                                                         | 0      |              |        |              | 2,490   |              |        |         | 0     |        |        |       | 0      |   |   |         | 2,490   |      
|                                      |                                                                                              | Equity in (earnings) loss of joint venture                   |                                                         |                                                         | 0      |              |        |              | (5,173  | )            |        |         | 107   |        |        |       | 0      |   |   |         | (5,066  | )    
|                                      |                                                                                              | Compensation expense related to stock options and
    grants |                                                         |                                                         | 803    |              |        |              | 0       |              |        |         | 0     |        |        |       | 0      |   |   |         | 803     |      
|                                      |                                                                                              | Deferred income taxes                                        |                                                         |                                                         | (5,463 | )            |        |              | (2,374  | )            |        |         | (582  | )      |        |       | 0      |   |   |         | (8,419  | )    
|                                      |                                                                                              | Equity in net loss of subsidiaries                           |                                                         |                                                         | 9,986  |              |        |              | 0       |              |        |         | 0     |        |        |       | (9,986 | ) |   |         | 0       |      
|                                      |                                                                                              | Change in operating assets and liabilities:                  |                                                         |                                                         |        |              |        |              |         |              |        |         |       |        |        |       |        |   |   |         |         |      
|                                      |                                                                                              |                                                              | Receivables, net of allowance for doubtful
    accounts |                                                         |        | (791         | )      |              |         | 8,506        |        |         |       | 481    |        |       |        | 0 |   |         |         | 8,196 |       
|                                      |                                                                                              |                                                              | Inventories                                             |                                                         |        | 0            |        |              |         | 497          |        |         |       | 0      |        |       |        | 0 |   |         |         | 497   |       
|                                      |                                                                                              |                                                              | Prepayments and other current assets                    |                                                         |        | (363         | )      |              |         | 5,139        |        |         |       | (2,060 | )      |       |        | 0 |   |         |         | 2,716 |       
|                                      | Short-term investments                                                                       |                                                              |                                                         | 0                                                       |        |              |        | 0            |         |              |        | (15,567 | )     |        |        | 0     |        |   |   | (15,567 | )      
|                                      |                                                                                              | Trade accounts payable                                       |                                                         |                                                         | 1,245  |              |        |              | 398     |              |        |         | 413   |        |        |       | 0      |   |   |         | 2,056   |      
|                                      |                                                                                              | Intercompany receivables (payables), net                     |                                                         |                                                         | 1,511  |              |        |              | (1,709  | )            |        |         | 198   |        |        |       | 0      |   |   |         | 0       |      
|                                      |                                                                                              | Accrued liabilities                                          |                                                         |                                                         | 7,187  |              |        |              | (24,575 | )            |        |         | 4,730 |        |        |       | 0      |   |   |         | (12,658 | )    
|                                      |                                                                                              |                                                              |                                                         |                                                         |        |              |        |              |         |              |        |         |       |        |        |       |        |   |   |        
|                                      |                                                                                              |                                                              |                                                         | Net cash provided by (used in) operating
    activities |        |              | 10,638 |              |         |              | 28,460 |         |       |        | (6,511 | )     |        |   | 0 |         |         |       | 32,587 | 
|                                      |                                                                                              |                                                              |                                                         |                                                         |        |              |        |              |         |              |        |         |       |        |        |       |        |   |   |        
|Cash flows from investing activities: |                                                                                              |                                                              |                                                         |                                                         |        |              |        |              |         |              |        |         |       |        |        |       |        |   |   |        
|                                      | Purchases of property and equipment                                                          |                                                              |                                                         | (2,037                                                  | )      |              |        | (28,865      | )       |              |        | (1,373  | )     |        |        | 0     |        |   |   | (32,275 | )      
|                                      | Intercompany sale of property and equipment                                                  |                                                              |                                                         | (15,372                                                 | )      |              |        | 15,372       |         |              |        | 0       |       |        |        | 0     |        |   |   | 0       |        
|                                      | Proceeds from sale of property and equipment                                                 |                                                              |                                                         | 0                                                       |        |              |        | 977          |         |              |        | 0       |       |        |        | 0     |        |   |   | 977     |        
|                                      | Purchase of business, net of cash acquired                                                   |                                                              |                                                         | 0                                                       |        |              |        | (8,352       | )       |              |        | 0       |       |        |        | 0     |        |   |   | (8,352  | )      

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ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                 |                                                             |                                                         |        |              |        |              |       |              |         |              |       |     |        |   |   |   |   |   |        |        |         |  
|---------------------------------------------------------------- | ----------------------------------------------------------- | ------------------------------------------------------- | ------ | ------------ | ------ | ------------ | ----- | ------------ | ------- | ------------ | ----- | --- | ------ | - | - | - | - | - | ------ | ------ | ------- | -
|                                                                 |                                                             | Allied                                                  |        | Guarantor    |        | Nonguarantor |       |              |         |             
|                                                                 |                                                             | Holdings                                                |        | Subsidiaries |        | Subsidiaries |       | Eliminations |         | Consolidated
|                                                                 |                                                             |                                                         |        |              |        |              |       |              |         |             
|                                                                 | Investment in joint ventures                                |                                                         |        | 0            |        |              |       | (616         | )       |              |       | 0   |        |   |   | 0 |   |   |        | (616   | )      
|                                                                 | Cash received from joint ventures                           |                                                         |        | 0            |        |              |       | 1,509        |         |              |       | 0   |        |   |   | 0 |   |   |        | 1,509  |        
|                                                                 | Return of capital                                           |                                                         |        | 11,999       |        |              |       | (11,999      | )       |              |       | 0   |        |   |   | 0 |   |   |        | 0      |        
|                                                                 | Intercompany dividend received (paid)                       |                                                         |        | 6,585        |        |              |       | (6,585       | )       |              |       | 0   |        |   |   | 0 |   |   |        | 0      |        
|                                                                 | Increase in cash surrender value of life insurance          |                                                         |        | (9,264       | )      |              |       | 8,723        |         |              |       | 0   |        |   |   | 0 |   |   |        | (541   | )      
|                                                                 |                                                             |                                                         |        |              |        |              |       |              |         |              |       |     |        |   |   |   |   |   |        |       
|                                                                 |                                                             | Net cash used in investing activities                   |        |              | (8,089 | )            |       |              | (29,836 | )            |       |     | (1,373 | ) |   |   | 0 |   |        |        | (39,298 | )
|                                                                 |                                                             |                                                         |        |              |        |              |       |              |         |              |       |     |        |   |   |   |   |   |        |       
|Cash flows from financing activities:                            |                                                             |                                                         |        |              |        |              |       |              |         |              |       |     |        |   |   |   |   |   |        |       
|                                                                 | (Repayment) additions to revolving credit
    facility, net |                                                         |        | (5,572       | )      |              |       | 399          |         |              |       | 0   |        |   |   | 0 |   |   |        | (5,173 | )      
|                                                                 | Additions to long-term debt                                 |                                                         |        | 0            |        |              |       | 0            |         |              |       | 0   |        |   |   | 0 |   |   |        | 0      |        
|                                                                 | Repayment of long-term debt                                 |                                                         |        | 0            |        |              |       | (128         | )       |              |       | 0   |        |   |   | 0 |   |   |        | (128   | )      
|                                                                 | Payment of deferred financing costs                         |                                                         |        | (421         | )      |              |       | 0            |         |              |       | 0   |        |   |   | 0 |   |   |        | (421   | )      
|                                                                 | Proceeds from issuance of common stock                      |                                                         |        | 750          |        |              |       | 0            |         |              |       | 0   |        |   |   | 0 |   |   |        | 750    |        
|                                                                 | Repurchase of common stock                                  |                                                         |        | (521         | )      |              |       | 0            |         |              |       | 0   |        |   |   | 0 |   |   |        | (521   | )      
|                                                                 | Other, net                                                  |                                                         |        | 150          |        |              |       | 166          |         |              |       | 966 |        |   |   | 0 |   |   |        | 1,282  |        
|                                                                 |                                                             |                                                         |        |              |        |              |       |              |         |              |       |     |        |   |   |   |   |   |        |       
|                                                                 |                                                             | Net cash (used in) provided by financing
    activities |        |              | (5,614 | )            |       |              | 437     |              |       |     | 966    |   |   |   | 0 |   |        |        | (4,211  | )
|                                                                 |                                                             |                                                         |        |              |        |              |       |              |         |              |       |     |        |   |   |   |   |   |        |       
|Effect of exchange rate changes on cash and cash
    equivalents |                                                             |                                                         | 0      |              |        |              | (177  | )            |         |              | (512  | )   |        |   | 0 |   |   |   | (689   | )     
|                                                                 |                                                             |                                                         |        |              |        |              |       |              |         |              |       |     |        |   |   |   |   |   |        |       
|                                                                 |                                                             | Net decrease in cash and cash equivalents               |        |              | (3,065 | )            |       |              | (1,116  | )            |       |     | (7,430 | ) |   |   | 0 |   |        |        | (11,611 | )
|                                                                 |                                                             |                                                         |        |              |        |              |       |              |         |              |       |     |        |   |   |   |   |   |        |       
|Cash and cash equivalents at beginning of year                   |                                                             |                                                         | 1,852  |              |        |              | 3,179 |              |         |              | 8,953 |     |        |   | 0 |   |   |   | 13,984 |       
|                                                                 |                                                             |                                                         |        |              |        |              |       |              |         |              |       |     |        |   |   |   |   |   |        |       
|Cash and cash equivalents at end of year                         |                                                             | $                                                       | (1,213 | )            |        | $            | 2,063 |              |         | $            | 1,523 |     |        | $ | 0 |   |   | $ | 2,373  |       
|                                                                 |                                                             |                                                         |        |              |        |              |       |              |         |              |       |     |        |   |   |   |   |   |        |       

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##### Table of Contents



This is a copy of the report previously issued
in connection with the Companys 2001 Annual Report and has
not been reissued by Arthur Andersen LLP.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO
SCHEDULE

To Allied Holdings, Inc.:

We have audited in accordance with auditing
standards generally accepted in the United States, the
consolidated financial statements included in Allied Holdings,
Inc.s 2001 annual report to stockholders and this
Form 10-K, and have issued our report thereon dated
February 25, 2002, except with respect to the matter
discussed in the fourth paragraph of Note 4, as to which
the date is March 27, 2002. Our audit was made for the
purpose of forming an opinion on those financial statements
taken as a whole. The schedule listed in Item 14 of this
Form 10-K is the responsibility of the Companys
management, is presented for purposes of complying with the
Securities and Exchange Commissions rules, and is not part
of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to
be set forth therein in relation to the basic financial
statements taken as a whole.



| |                         
| | ------------------------
| | /s/ Arthur Andersen, LLP

Atlanta, Georgia

February 25, 2002


(except with respect to the


matter discussed in the


fourth paragraph of Note 4


of the financial


statements referred to


above, as to which the date is


March 27, 2002)


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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

Years Ended December 31, 2002, 2001, and
2000


|                                 |                              |                |   |              |  |               |   |             |  |  |   |        |   |  |   |        | 
|-------------------------------- | ---------------------------- | -------------- | - | ------------ |  | ------------- | - | ----------- |  |  | - | ------ | - |  | - | ------ | 
|                                 |                              |                |   | Additions(a) |  |               |   |            
|                                 |                              | Balance at     |   | Charged to   |  |               |   |            
|                                 |                              | Beginning of   |   | Costs and    |  |               |   | Balance at 
|Classification                   |                              | Period         |   | Expense      |  | Deductions(b) |   | End of Year
|                                 |                              |                |   |              |  |               |   |            
|                                 |                              |               
|                                 |                              | (In thousands)
|Allowance for doubtful accounts: |                              |                |   |              |  |               |   |             |  |  |   |        |   |  |   |       
|                                 | Year ended December 31, 2002 |                | $ | 11,058       |  |               | $ | 1,517       |  |  | $ | (6,988 | ) |  | $ | 5,587  | 
|                                 | Year ended December 31, 2001 |                |   | 4,071        |  |               |   | 7,250       |  |  |   | (263   | ) |  |   | 11,058 | 
|                                 | Year ended December 31, 2000 |                |   | 1,508        |  |               |   | 2,768       |  |  |   | (205   | ) |  |   | 4,071  | 



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|    |  |                                                                                                    
|--- |  | ---------------------------------------------------------------------------------------------------
|(a) |  | Additions are recorded as reduction of revenue as
    they primarily represent billing adjustments.
|   
|(b) |  | Write-off of uncollectible accounts.                                                               

S-2