##### Table of Contents









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,
    2003.                                                   
| 
|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

The number of shares outstanding of the
Registrants common stock as of March 19, 2004 was
8,854,173.

The aggregate market value of the common stock
held by nonaffiliates of the Registrant, based upon the closing
sales price of the common stock as of June 30, 2003 as
reported on the American Stock Exchange, was approximately
$18.8 million. Shares of the Registrants common stock
owned by its directors and executive officers were excluded from
this aggregate market value calculation; however, shares owned
by the Registrants institutional shareholders were
included.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for
Registrants 2004 Annual Meeting of Shareholders to be held
May 19, 2004 are incorporated by reference in Part III.



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ALLIED HOLDINGS, INC.

TABLE OF CONTENTS

|                                                   |  |                                                                                                        |  |        |    | 
|-------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------ |  | ------ | -- | 
|                                                   |  |                                                                                                        |  | Page  
|                                                   |  | Caption                                                                                                |  | Number
|                                                   |  |                                                                                                        |  |       
|PART I                                             |  |                                                                                                        |  |        |    | 
|Item 1.                                            |  | Business                                                                                               |  |        | 2  | 
|Item 2.                                            |  | Properties                                                                                             |  |        | 12 | 
|Item 3.                                            |  | Legal Proceedings                                                                                      |  |        | 13 | 
|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                                                               |  |        | 16 | 
|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.                                            |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure               |  |        | 28 | 
|Item 9A.                                           |  | Controls and Procedures                                                                                |  |        | 29 | 
|                                                  
|PART III                                           |  |                                                                                                        |  |        |    | 
|Item 10.                                           |  | Directors and Executive
    Officers of the Registrant                                                 |  |        | 29 | 
|Item 11.                                           |  | Executive Compensation                                                                                 |  |        | 30 | 
|Item 12.                                           |  | Security Ownership of
    Certain Beneficial Owners and Management and Related Stockholder
    Matters |  |        | 30 | 
|Item 13.                                           |  | Certain Relationships and
    Related Transactions                                                     |  |        | 30 | 
|Item 14.                                           |  | Principal Accountant Fees
    and Services                                                             |  |        | 30 | 
|                                                  
|PART IV                                            |  |                                                                                                        |  |        |    | 
|Item 15.                                           |  | Exhibits, Financial
    Statement Schedules, and Reports on Form 8-K                                   |  |        | 30 | 
|EX-10.13 EMPLOYMENT AGREEMENT                     
|EX-10.17 AGREEMENT BETWEEN COMPANY & GENERAL MOTOR
|EX-10.20(A) AMENDMENT NO. 4 TO THE IBM GLOBAL     
|EX-21.1 SUBSIDIARIES OF ALLIED HOLDINGS, INC.     
|EX-23.1 CONSENT OF KPMG LLP.                      
|EX-23.2 NOTICE RE: CONSENT OF ARTHUR ANDERSEN LLP 
|EX-31.1 CERTIFICATION BY HUGH E. SAWYER           
|EX-31.2 CERTIFICATION BY DAVID A. RAWDEN          
|EX-32.1 SECTION 1350 CERTIFICATION BY HUGH SAWYER 
|EX-32.2 SECTION 1350 CERTIFICATION BY DAVID RAWDEN
|EX-99.1 CHARTER OF AUDIT COMMITTEE                
|EX-99.2 CHARTER OF THE COMPENSATION AND NOMINATING
|EX-99.3 ALLIED HOLDINGS, INC. CODE OF CONDUCT     



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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 that 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 (SUVs), 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 2003
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 86% of 2003 revenues. Allied Automotive
Group also provides services to all other major foreign
manufacturers, including Mazda, Nissan, Isuzu, Volkswagen,
Hyundai, and KIA. 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 2003 revenues were
substantially greater than those of its closest competitor.

The Company provides vehicle distribution and
transportation support services to the pre-owned and new vehicle
markets through the Axis Group. These services complement Allied
Automotive Groups new vehicle distribution services
operations. Axis provides carrier management services for
various automotive clients, leases patented-designed equipment
for containerized shipment of vehicles, operates a computerized
vehicle tracking system for Toyota, and provides vehicle
processing services at ports and inland distribution centers.
Axis, through its subsidiaries CT Services, Inc. and Axis
Canada, provides a variety of related support services to the
pre-owned vehicle market, including vehicle inspections, title
storage, marshalling and rail yard management. In addition, Axis
provides similar logistics and distribution services in Mexico
through its subsidiary, Axis Logistica.



|   |         
|-- | --------
|2. | Services

Allied Automotive Group is the largest motor
carrier in North America specializing in the transportation of
new automobiles, SUVs 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 2001 through 2003, 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 who comprise approximately 59% of the
Companys 2003 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 contract
with Autogistics for Ford vehicles (with a term of
36 months as to ramp locations and 39 months as to
plant locations) which provides that the Allied Automotive Group
is the primary carrier for 22 locations in the United States and
10 Canadian locations. This contract expires in September
2005 for ramp locations and December 2005 for plant locations.
Each party to the contract has the right to terminate the
agreement by location on 75 days notice. Allied
Automotive Group has a contract with DaimlerChrysler that
expires on January 31, 2005, under which it is the primary
carrier for 16 locations in the United States and 13 in Canada.
This contract may be terminated by location on
150 days notice by either party. Allied Automotive
Group has a contract with General Motors that expires in March
2006 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 resource business
under the terms of the contract unless Allied Automotive Group
fails to comply with service or quality standards, by location,
provided the Company has 30 days to cure noncompliance. In
the event the Company does not cure noncompliance, General
Motors must give 60 days notice to terminate at a
specific location. Allied Automotive Group operates under an
agreement with Toyota that expires in November 2004. This
contract may be terminated by either party 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.

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|   |                    
|-- | -------------------
|5. | Management Strategy

The Company has adopted a performance management
strategy that it believes contributes to driver productivity,
cargo claim prevention, enhanced efficiency, safety, and the
stability of its operations. The 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 2003, the
Company continued to make significant changes and additions to
its management team which the Company believes has increased the
quality and leadership ability of this group.

Specifically, David Rawden, who joined Allied
Holdings as Senior Vice President in March 2002, was appointed
Executive Vice President and Chief Financial Officer in February
2004. Mr. Rawden heads the Companys corporate finance
operations. From March 2002 until February 2004, Mr. Rawden
was Senior Vice President of the Companys Business Process
Engineering Department, which is responsible for re-engineering
core processes throughout the organization to maximize speed and
efficiency. Mr. Rawden was also responsible for the
Companys risk management activities, including cargo
claims, workers compensation and traffic accidents, as well as
information technology. In October 2003, Robert Chambers was
appointed President of Axis Group, Inc. From February 2000
until October 2003, Mr. Chambers was President of certain
subsidiaries of Axis. Mr. Chambers was the owner of CT
Group, Inc., CT Services, Inc. and Cordin
Transportation, Inc. prior to the acquisition of such
companies by Axis in February 2000.

In addition to strategies directly focused on the
Companys management team, Allied Holdings has an Employee
Stock Purchase Plan that provides all employees the opportunity
to purchase shares of the Companys common stock. This Plan
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.

In August 2003, the Company awarded
250 shares of common stock to each full time nonbargaining
U.S. employee other than those at the level of Senior Vice
President or above. The shares vest one year from the date of
issuance. In addition, the Company agreed to award
250 shares of common stock in August 2004 to each full time
nonbargaining unit employee in Canada as of August 1, 2003
other than those at the level of Senior Vice President or above.



|   |                              
|-- | -----------------------------
|6. | Risk Management and Insurance

The Company defines its risks and secures
appropriate insurance programs and coverages at cost effective
rates. 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 Florida,
Georgia, Kentucky, Missouri, and Ohio. Liability and
workers compensation claims are subject to periodic audits
by Allied Automotive Groups commercial insurance carriers.
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 $1.5 million aggregate deductible for those
claims that exceed the $500,000 per occurrence deductible,
subject to a $1.0 million per claim limit. Prior to
January 1, 2004, Allied had a $1.0 million
inneraggregate limit for losses from $1.0 to $2.0 million,
and an additional $4.0 million aggregate limit for losses
from $2.0 to $5.0 million. Effective January 1, 2004,
Allied retains up to $1.0 million liability for automobile
claims with no aggregate and a $7.0 million aggregate
deductible for claims that exceed $1.0 million, but are
less than $5.0 million per occurrence. 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 and property damage.
Also, in Canada, there is a CDN $500,000 inner aggregate limit
for losses from CDN $500,000 to 1.0 million. For cargo
damage in Canada, the Company has a CDN $100,000 deductible.

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.

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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.

The Company is required to provide letters of
credit to its insurance companies and various states in order to
facilitate the payment of injury, accident, theft, and other
loss claims. The Company is required to collateralize these
letters of credit. There can be no assurance that the Company
will be able to reduce the amount of the letters of credit or
underlying collateral.



|   |                                
|-- | -------------------------------
|7. | Equipment, Maintenance and Fuel

Allied Automotive Group has historically invested
in both new equipment and remanufacturing of existing equipment,
which have served to increase efficiency and extend the useful
life of Rigs. Currently, new 75-foot Rigs cost approximately
$170,000 and have a useful life of approximately 15 years
when properly maintained and remanufactured. Allied Automotive
Group operates approximately 3,700 company-owned Rigs with
an average age of 7.3 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
5 years.

During 2003, Allied Automotive Group spent
approximately $9.4 million on a fleet remanufacturing
program, remanufacturing approximately 220 of its owned active
Rigs. Remanufacturing a Rig costs approximately $43,000 per
Rig compared to a cost per new Rig of approximately $170,000. In
addition, in accordance with the fleet remanufacturing program,
Allied replaced engines in approximately 280 Rigs during 2003 at
an additional cost of $5.4 million. In 2004, Allied
Automotive Group expects to spend approximately
$25-35 million on its fleet.

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 37% of its fuel in bulk in 2003.
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 2003, the Companys
revenues from business gains with existing customers exceeded
revenues from business losses, exclusive of revenues lost as a
result of the Companys decisions to return certain
business to its customers. Allied Automotive Group continues as
the largest motor carrier in North America specializing in the
transportation of new automobiles, SUVs and light trucks for all
the major domestic and foreign automotive manufacturers.

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

5



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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. In
February 2004, the principal shareholder of Hadley and
E & L announced a tentative agreement to acquire
Leaseway. The combined entity would be the second largest car
haul company in North America. The Companys competitors
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, 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
6,200 employees, including approximately 4,000 drivers, who 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 a Master Agreement with the International
Brotherhood of Teamsters (IBT or Teamsters) in the United
States that expires on May 31, 2008. The Master Agreement
was negotiated and executed by subsidiaries of Allied Automotive
Group and is identical to the agreement with the National
Automobile Transporters Labor Division (the NATLD) and the IBT.
The Agreement covers all of the terminals and operations of the
participants in the United States in this multi-employer,
multi-union bargaining unit and provides for increases of 1.1%
to 3.0% per year in wages and benefits in excess of the
prior contract with the IBT.

On March 24, 2003 the Company successfully
negotiated the renewal of its contract with its employees
represented by the Teamsters Union in Eastern Canada. The
Company had been operating under a contract that expired on
October 31, 2002. The new contract 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 total bargaining unit
employees in Canada.

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 630 owner-operators, with approximately
120 of these owner-operators driving exclusively from terminals
in Canada for Allied Systems (Canada) Company, a subsidiary of
Allied Automotive Group, and approximately 510 driving
exclusively from terminals in the United States for Allied
Systems, Inc. The owner-operators are either paid a percentage
of the revenues they generate or receive normal driver pay plus
a truck allowance.

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|    |           
|--- | ----------
|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, in Canada, by provinces. In recent years,
the automotive manufacturers have increased the percentage of
vehicles that are light trucks and SUVs as well as increased the
size and weight of many vehicles. As a result of these increases
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. Effective
January 1, 2004, the DOT changed the regulations regarding
hours of service for drivers of commercial motor vehicles.
Because of the relatively short length of the Companys
average haul, the Company expects that approximately 40% of its
drivers will be unaffected by the new regulations. For the
remaining drivers, the new regulations will increase or decrease
the flexibility and hours of service. Where flexibility and
hours of service are reduced, the Company may face additional
operating costs to maintain current service levels. The Company
does not expect the affect of the new regulations to be material
to the Companys results of operations. The DOT also
regulates certain safety features incorporated in the design of
Rigs. The motor carrier transportation industry is subject to
regulatory and legislative changes which can affect the
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 SUVs.
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, 2003, the Company had total long-term debt
of approximately $246.5 million, approximately
$115.2 million of trade payables and other accrued
liabilities, and stockholders equity of approximately
$8.8 million. In addition, the Company has additional
borrowings available under its revolving

7



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##### Table of Contents



credit facility which is discussed in
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations 
Financial Condition, Liquidity and Capital Resources. The
Companys leveraged financial position exposes it to the
risk of increased interest rates, may impede its ability to
obtain financing in the future for working capital, capital
expenditures and general corporate purposes, and may make the
Company more vulnerable to economic downturns and 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, 2003, 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. On March 30, 2004, the Company obtained
the consent of its lenders under the Credit Facility to deliver
its financial statements for the year ended December 31,
2003 on or before April 15, 2004.

The Company 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 refinancing its debt or seeking additional equity capital.
There can be no assurance that any of these actions could be
effected on commercially reasonable terms, if at all, and the
terms of existing or future indebtedness may restrict the
Company from adopting any of these alternatives.

Any failure of the Company to comply with the
covenants contained in its debt instruments, if not waived, or
to adequately service its debt obligations, could result in a
default under its debt instruments. If a default occurs under
any of the Companys debt instruments, the lenders
thereunder may elect to declare all borrowings outstanding,
together with interest and other fees, to be immediately due and
payable. Borrowings under the Companys credit facility are
collateralized with substantially all of 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.



| |                         
| | ------------------------
| | 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 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 who
comprise approximately 59% of the Companys 2003 revenues,
which enables it to pass on fuel costs to such customers.
Nevertheless, the Companys remaining revenues are
generated from customers which are not contractually required to
provide Allied a fuel surcharge, and there can be no assurance
that the Company will be able to continue to impose fuel
surcharges on these or any of 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 typically 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.

8



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##### Table of Contents





| |              
| | -------------
| | Labor Matters

There can be no assurance that the Company will
be able to negotiate new union contracts as the current
contracts expire or that such contracts will be on terms
acceptable to the Company or result in increased labor costs to
the Company or work stoppages, which could have a material
adverse effect on the Company.



| |                                  
| | ---------------------------------
| | Dependence on Automotive Industry

The automotive transportation industry is
dependent upon the volume of new automobiles, SUVs, and light
trucks manufactured, imported and sold. The automotive industry
is highly cyclical, and the demand for new automobiles, SUVs,
and light trucks is directly affected by such external factors
as general economic conditions in the United States,
unemployment, consumer confidence, federal policies, continuing
activities of war, terrorist activities, and the availability of
affordable new car financing. As a result, the Companys
results of operations are adversely affected by cyclical
downturns in the general economy or in the automotive industry
and by consumer preferences in purchasing new automobiles, SUVs,
and light trucks. A significant decline in the volume of
automobiles, SUVs, and light trucks manufactured as well as sold
in North America could have a material adverse effect on the
Company.



| |                      
| | ---------------------
| | Self Insurance Claims

An increase in the number or severity of
accidents, stolen equipment, worker injuries or other loss
events over those anticipated could have a materially adverse
effect on the Companys profitability and liquidity 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.

Prior to January 1, 2004, Allied had a
$1.0 million inneraggregate limit for losses from $1.0 to
$2.0 million, and an additional $4.0 million aggregate
limit for losses from $2.0 to $5.0 million. Effective
January 1, 2004, Allied retains up to $1.0 million
liability for automobile claims with no aggregate and a
$7.0 million aggregate deductible for claims that exceed
$1.0 million, but are less than $5.0 million per
occurrence.



| |                                     
| | ------------------------------------
| | Restrictions on Cash and Investments

The Company uses restricted cash and investments
to collateralize letters of credit required by third-party
insurance companies for the settlement of insurance claims.
These assets are not available for the operations of the Company.



| |                              
| | -----------------------------
| | Dependence on Major Customers

Allied Automotive Groups business is highly
dependent upon General Motors, Ford, DaimlerChrysler, Toyota and
Honda, its largest customers. The Company operates under written
contracts with General Motors, UPS Autogistics, Inc. on
behalf of Ford, DaimlerChrysler, Toyota and Honda. The contract
with General Motors expires in March 2006, Ford expires in
September 2005 for ramp locations and December 2005 for plant
locations, DaimlerChrysler expires January 2005, Toyota expires
November 2004, and Honda expires March 2005. 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. The contract with General Motors can
be terminated by location for failure to comply with service and
quality standards set forth in the contract. The Company has
30 days to cure any such noncompliance by location and
General Motors may terminate by location on 60 days notice
following a failure to cure.

Although Allied Automotive Group believes that
its relationships with these customers is mutually satisfactory,
there can be no assurance that these relationships will not be
terminated in whole or in part in the future. Furthermore,
automotive manufacturers are relying increasingly on fourth
party logistics companies and re-engineering vehicle delivery
practices, which could result in a reduction of services
provided by the

9



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##### Table of Contents



Company for some or all of its major customers. A
significant reduction in the production levels, plant closings,
or the imposition of vendor price reductions by these
manufacturers, or the loss of General Motors, 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. General Motors, DaimlerChrysler, and Ford, in
particular, have publicly announced plans to significantly
reduce vendor costs including those costs associated with
logistics services. The contract with General Motors that was
effective March 2004, includes reductions in the Companys
rates for transportation services.




| |            
| | -----------
| | 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.

Performance Logistics Group, Inc., which
owns two competitors of Allied Automotive Group, Inc.,
E & L Transport Company and Hadley Auto Transport,
recently announced it has agreed to acquire Leaseway Auto
Carrier Group, another competitor of Allied Automotive Group.
Performance Logistics Group, Inc. has indicated that upon
consummation of the acquisition, the combined entities will be
the second largest provider of vehicle transport services in
North America with annual revenues of approximately
$350 million. The parties also announced that the
acquisition is subject to regulatory approvals and satisfactory
or customary closing conditions.

There has been an increase in the number of
carhaul companies that utilize non-union labor, and the market
share represented by such companies has increased. Carhaul
companies that utilize non-union labor operate at a significant
cost advantage as compared to Allied Automotive Group and other
union carhaul companies. The cost advantage is primarily a
result of lower benefit and pension costs. Non-union competitors
also operate without work rules that apply to Allied Automotive
Group and other union companies. Non-union companies may be able
to provide delivery services at a cost to customers that are
less than the cost of Allied Automotive Groups services.
Railroads, which specialize in long-haul transportation, may be
able to provide delivery services at a cost to customers that is
less than the long-haul delivery cost of Allied Automotive
Groups services.



| |                   
| | ------------------
| | 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
rate 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
involvement with the Company. The Company recently announced
that David A. Rawden was appointed Executive Vice President and
Chief Financial Officer, replacing Daniel H. Popky.
Mr. Popky served as Chief Financial Officer since November
1998. There is no assurance that the Company will be able to
retain its existing senior management or to attract additional
qualified personnel.

10



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##### Table of Contents





|    |                  
|--- | -----------------
|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:

|                                              |            |       |       |      |      |        |  |      |      |        |  |       |      |      |    |      |      |      |  |       |      |     |  
|--------------------------------------------- | ---------- | ----- | ----- | ---- | ---- | ------ |  | ---- | ---- | ------ |  | ----- | ---- | ---- | -- | ---- | ---- | ---- |  | ----- | ---- | --- | -
|                                              |            |       |       |      |      | 2003   |  |      |      | 2002  
|                                              |            |       |       |      |      | vs.    |  |      |      | vs.   
|                                              |            |       |       |      |      | 2002   |  |      |      | 2001  
|                                              |            | 2003  |       | 2002 |      | Change |  | 2001 |      | Change
|                                              |            |       |       |      |      |        |  |      |      |       
|New Vehicle Production (in millions of units) |            |       |       |      |      |        |  |      |      |        |  |       |      |      |    |      |      |      |  |      
|United States:                                |            |       |       |      |      |        |  |      |      |        |  |       |      |      |    |      |      |      |  |      
|                                              | Big Three* |       |       | 8.9  |      |        |  | 9.3  |      |        |  | (4.3  | )%   |      |    | 8.7  |      |      |  | 6.9   | %   
|                                              | Other      |       |       | 2.9  |      |        |  | 2.7  |      |        |  | 7.4   | %    |      |    | 2.5  |      |      |  | 8.0   | %   
|                                              |            |       |       |      |      |        |  |      |      |        |  |       |      |      |    |      |      |      |  |      
|                                              |            |       | Total |      |      | 11.8   |  |      |      | 12.0   |  |       |      | (1.7 | )% |      |      | 11.2 |  |       |      | 7.1 | %
|                                              |            |       |       |      |      |        |  |      |      |        |  |       |      |      |    |      |      |      |  |      
|Canada:                                       |            |       |       |      |      |        |  |      |      |        |  |       |      |      |    |      |      |      |  |      
|                                              | Big Three* |       |       | 1.8  |      |        |  | 2.0  |      |        |  | (10.0 | )%   |      |    | 1.9  |      |      |  | 5.3   | %   
|                                              | Other      |       |       | 0.7  |      |        |  | 0.6  |      |        |  | 16.7  | %    |      |    | 0.6  |      |      |  | 0.0   | %   
|                                              |            |       |       |      |      |        |  |      |      |        |  |       |      |      |    |      |      |      |  |      
|                                              |            |       | Total |      |      | 2.5    |  |      |      | 2.6    |  |       |      | (3.8 | )% |      |      | 2.5  |  |       |      | 4.0 | %
|                                              |            |       |       |      |      |        |  |      |      |        |  |       |      |      |    |      |      |      |  |      
|New Vehicle Sales (in millions of units)      |            |       |       |      |      |        |  |      |      |        |  |       |      |      |    |      |      |      |  |      
|United States:                                |            |       |       |      |      |        |  |      |      |        |  |       |      |      |    |      |      |      |  |      
|                                              | Big Three* |       |       | 10.8 |      |        |  | 11.1 |      |        |  | (2.7  | )%   |      |    | 11.6 |      |      |  | (4.3  | )%  
|                                              | Import     |       |       | 2.7  |      |        |  | 2.7  |      |        |  | 0.0   | %    |      |    | 2.5  |      |      |  | 8.0   | %   
|                                              | Transplant |       |       | 3.2  |      |        |  | 3.0  |      |        |  | 6.7   | %    |      |    | 3.0  |      |      |  | 0.0   | %   
|                                              |            |       |       |      |      |        |  |      |      |        |  |       |      |      |    |      |      |      |  |      
|                                              |            | Total |       |      | 16.7 |        |  |      | 16.8 |        |  |       | (0.6 | )%   |    |      | 17.1 |      |  |       | (1.8 | )% 
|                                              |            |       |       |      |      |        |  |      |      |        |  |       |      |      |    |      |      |      |  |      
|Canada:                                       |            |       |       |      |      |        |  |      |      |        |  |       |      |      |    |      |      |      |  |      
|                                              | Big Three* |       |       | 1.0  |      |        |  | 1.3  |      |        |  | (23.1 | )%   |      |    | 1.1  |      |      |  | 18.2  | %   
|                                              | Other      |       |       | 0.6  |      |        |  | 0.4  |      |        |  | 50.0  | %    |      |    | 0.5  |      |      |  | (20.0 | )%  
|                                              |            |       |       |      |      |        |  |      |      |        |  |       |      |      |    |      |      |      |  |      
|                                              |            | Total |       |      | 1.6  |        |  |      | 1.7  |        |  |       | (5.9 | )%   |    |      | 1.6  |      |  |       | 6.25 | %  
|                                              |            |       |       |      |      |        |  |      |      |        |  |       |      |      |    |      |      |      |  |      



---



|  |                                                                                               
|- | ----------------------------------------------------------------------------------------------
|* | 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 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

11



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##### Table of Contents



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: the ability of the Company to comply with the terms
of its current debt agreements and customer contracts; economic
recessions or downturns in new vehicle production or sales; war
in the Middle East; increases in the cost and availability of
fuel; the highly competitive nature of the automotive
distribution industry; dependence on the automotive industry and
recent initiatives of customers to reduce vendor costs; loss or
reduction of revenues generated by the Companys major
customers or the loss of any such customers; the variability of
OEM production and seasonality of the automotive distribution
industry; the Companys highly leveraged financial
position; the ability of the Company to obtain financing in the
future; labor disputes involving the Company or its significant
customers; the dependence on key personnel who have been hired
or retained by the Company; the availability of strategic
acquisitions or joint venture partners; increased frequency and
severity of work related accidents and workers
compensation claims; availability of appropriate insurance
coverages; changes in regulatory requirements which are
applicable to the Companys business; changes in vehicle
sizes and weights which may adversely impact vehicle deliveries
per load; risks associated with doing business in foreign
countries; and other risk factors set forth from time to time in
the Companys Securities and Exchange Commission reports,
including but not limited to, this 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 has subleased
approximately 7,700 square feet of this space for varying
terms. Allied Automotive Group operates from 83 terminals
throughout the United States and Canada, which are located at or
near manufacturing plants, ports, and railway terminals. Allied
Automotive Group 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. In addition, Axis
Group, Inc. operates from 40 terminals.

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 its customers. Allied Automotive
Groups Rigs are substantially maintained at 43 Allied
garages located throughout the United States and Canada by
approximately 520 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.

12



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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 will not have a material adverse
effect on the Companys financial position or results of
operations.

Since its last annual filing, Allied has settled
all outstanding litigation with Ryder System, Inc., which
litigation and settlement was previously disclosed in the
Companys Form 10-Q for the quarter ended
September 30, 2003. See Note (17)(b) of the
Companys consolidated financial statements included in
this Annual Report on Form 10-K.






|        |                                                        
|------- | -------------------------------------------------------
|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  |  |     | 62 |       |  | Chairman and Director                                      
|Hugh E. Sawyer     |  |     | 50 |       |  | President, Chief Executive Officer, and Director           
|Guy W. Rutland, IV |  |     | 40 |       |  | Senior Vice President and Director                         
|Thomas M. Duffy    |  |     | 43 |       |  | Executive Vice President, General Counsel and
    Secretary
|David A. Rawden    |  |     | 46 |       |  | Executive Vice President and Chief Financial
    Officer   
|Robert Chambers    |  |     | 56 |       |  | President of Axis Group, Inc.                              

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 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.

13



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##### Table of Contents



Mr. Duffy has been Executive Vice President,
General Counsel and Secretary of the Company since February
2004, was Senior Vice President, General Counsel and Secretary
of the Company from November 2000 until February 2004, 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 Executive Vice President
and Chief Financial Officer since February 2004 and was Senior
Vice President, Business Process Engineering of the Company from
March 2002 until February 2004. 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.

Mr. Chambers has been President of Axis
Group, Inc. since October 2003 and was President of certain
subsidiaries of Axis Group from February 2000 until October
2003. Mr. Chambers was the owner of CT Group, Inc., CT
Services, Inc. and Cordin Transportation, Inc. prior
to the acquisition of such companies by Axis Group in February
2000.




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.

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,
|               |  |                        
|               |  |                         |      |     
|               |  | 2003                    |      | 2002
|               |  |                         |      |     
|Period:        |  | High                    |      | Low  |  | High |      | Low
|               |  |                         |      |      |  |      |      |    
|First Quarter  |  | $                       | 3.75 |      |  | $    | 3.12 |     |  | $ | 5.20 |  |  | $ | 2.10 | 
|Second Quarter |  | $                       | 3.50 |      |  | $    | 3.00 |     |  | $ | 5.78 |  |  | $ | 4.55 | 
|Third Quarter  |  | $                       | 3.73 |      |  | $    | 3.27 |     |  | $ | 4.85 |  |  | $ | 2.50 | 
|Fourth Quarter |  | $                       | 5.00 |      |  | $    | 3.50 |     |  | $ | 3.70 |  |  | $ | 2.46 | 

As of March 19, 2004, 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 Discussion and Analysis of Financial Condition
and Results of Operations  Financial Condition,
Liquidity and Capital Resources.

14



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##### Table of Contents



Equity Compensation Plan Information:

|                                                                  |  |                            |           |                     |  |                                |      |  |  |  |         |    
|----------------------------------------------------------------- |  | -------------------------- | --------- | ------------------- |  | ------------------------------ | ---- |  |  |  | ------- | ---
|                                                                  |  | Number of Securities to be |           |                     |  | Number of Securities          
|                                                                  |  | Issued Upon Exercise of    |           | Weighted-Average    |  | Remaining Available for Future
|                                                                  |  | Outstanding Options,       |           | Exercise Price of   |  | Issuance Under Equity         
|Plan Category                                                     |  | Warrants and Rights        |           | Outstanding Options |  | Compensation Plans            
|                                                                 
|                                                                 
|Equity compensation plans approved by security
    holders(1)     |  |                            | 1,709,967 |                     |  | $                              | 3.65 |  |  |  | 486,705 | (2)
|Equity compensation plans not approved by
    security holders(3) |  |                            |          |                     |  |                                |     |  |  |  | 25,250  |    
|                                                                  |  |                            |           |                     |  |                                |      |  |  |  |         |    
|Total                                                             |  |                            | 1,709,967 |                     |  | $                              | 3.65 |  |  |  | 511,955 |    
|                                                                  |  |                            |           |                     |  |                                |      |  |  |  |         |    



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Consists of the Companys 1993 Long-Term
    Incentive Plan as adopted in 1993, amended in 2000, amended and
    restated in 2001, amended in 2002, and amended and restated in
    2004. 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 363,126 shares available for
    future issuance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(3) | Consists of the Companys 2003 Stock
    Issuance Plan, which was implemented in connection with certain
    mandated unpaid furloughs to be taken by employees in 2003. The
    Company granted to each of its full time salaried employees in
    the United States, and agreed to grant to each of its full time
    salaried employees in Canada, who were employed as of
    June 30, 2003 (other than employees at the level of Senior
    Vice President or above or employees subject to a collective
    bargaining agreement or otherwise represented by any labor
    union), 250 shares of Common Stock of the Company. The
    shares granted to the U.S. employees vest one year from the
    date of grant and may not be sold or otherwise transferred prior
    to such date. Canadian participants have the right to receive
    the shares one year from the date of a stock agreement that
    provide for the terms and conditions related to the issuance of
    the shares. A total of 225,000 shares of Common Stock
    (subject to adjustment under certain circumstances) are
    available for issuance under the Plan. If a Change in
    Control occurs as determined under the Plan prior to the
    termination of employment of the participant with the Company,
    (i) all restrictions on the shares of restricted stock
    immediately lapse and all such shares immediately vest in the
    U.S. participant, and (ii) all rights under the 2003
    Stock Agreement shall automatically be exchanged for shares of
    Common Stock, and such shares shall be immediately issuable to
    the Canadian participant. The Plan terminates immediately upon
    the issuance of restricted shares of Company Common Stock to
    each U.S. participant and issuance of shares of Company
    Common Stock to each Canadian participant, and in any event no
    later than December 31, 2004.

15



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##### Table of Contents








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

The following 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)
|                                           |                                                                                               |                                        
|                                           |                                                                                               | 2003                                    |         | 2002    |         | 2001 |         | 2000    |         | 1999
|                                           |                                                                                               |                                         |         |         |         |      |         |         |         |     
|Selected Statement of Operations
    Data: |                                                                                               |                                         |         |         |         |      |         |         |         |      |         |         |         |   |           |         |           |   |           |        
|Revenues                                   |                                                                                               | $                                       | 865,463 |         |         | $    | 898,060 |         |         | $    | 896,767 |         |         | $ | 1,069,154 |         |           | $ | 1,081,309 |        
|                                           |                                                                                               |                                         |         |         |         |      |         |         |         |      |         |         |         |   |           |         |           |   |           |        
|Operating expenses:                        |                                                                                               |                                         |         |         |         |      |         |         |         |      |         |         |         |   |           |         |           |   |           |        
|                                           | Salaries, wages and fringe benefits                                                           |                                         |         | 469,540 |         |      |         | 483,545 |         |      |         | 515,916 |         |   |           | 584,527 |           |   |           | 585,380 |          
|                                           | Operating supplies and expenses                                                               |                                         |         | 138,512 |         |      |         | 138,542 |         |      |         | 149,111 |         |   |           | 189,136 |           |   |           | 185,541 |          
|                                           | Purchased transportation                                                                      |                                         |         | 99,604  |         |      |         | 99,109  |         |      |         | 97,756  |         |   |           | 104,545 |           |   |           | 103,967 |          
|                                           | Insurance and claims                                                                          |                                         |         | 38,168  |         |      |         | 43,500  |         |      |         | 50,837  |         |   |           | 47,736  |           |   |           | 48,252  |          
|                                           | Operating taxes and licenses                                                                  |                                         |         | 30,376  |         |      |         | 33,583  |         |      |         | 33,262  |         |   |           | 39,389  |           |   |           | 41,288  |          
|                                           | Depreciation and amortization                                                                 |                                         |         | 45,556  |         |      |         | 54,880  |         |      |         | 60,358  |         |   |           | 60,884  |           |   |           | 58,019  |          
|                                           | Rents                                                                                         |                                         |         | 6,090   |         |      |         | 6,342   |         |      |         | 6,813   |         |   |           | 8,570   |           |   |           | 8,974   |          
|                                           | Communications and utilities                                                                  |                                         |         | 7,138   |         |      |         | 6,419   |         |      |         | 7,022   |         |   |           | 7,333   |           |   |           | 9,060   |          
|                                           | Other operating expenses                                                                      |                                         |         | 10,671  |         |      |         | 10,384  |         |      |         | 16,126  |         |   |           | 13,636  |           |   |           | 10,321  |          
|                                           | Loss (gain) on sale of operating assets                                                       |                                         |         | 1,325   |         |      |         | 748     |         |      |         | (2,725  | )       |   |           | 1,340   |           |   |           | 628     |          
|                                           |                                                                                               |                                         |         |         |         |      |         |         |         |      |         |         |         |   |           |         |           |   |           |        
|                                           |                                                                                               | Total operating expenses                |         |         | 846,980 |      |         |         | 877,052 |      |         |         | 934,476 |   |           |         | 1,057,096 |   |           |         | 1,051,430 | 
|                                           |                                                                                               |                                         |         |         |         |      |         |         |         |      |         |         |         |   |           |         |           |   |           |        
|Operating income (loss)                    |                                                                                               |                                         | 18,483  |         |         |      | 21,008  |         |         |      | (37,709 | )       |         |   | 12,058    |         |           |   | 29,879    |        
|                                           |                                                                                               |                                         |         |         |         |      |         |         |         |      |         |         |         |   |           |         |           |   |           |        
|Other income (expense):                    |                                                                                               |                                         |         |         |         |      |         |         |         |      |         |         |         |   |           |         |           |   |           |        
|                                           | Equity in earnings (loss) of joint ventures, net
    of tax                                   |                                         |         | 0       |         |      |         | 0       |         |      |         | 4,072   |         |   |           | 5,066   |           |   |           | 1,733   |          
|                                           | Gain on sale of joint ventures                                                                |                                         |         | 0       |         |      |         | 0       |         |      |         | 16,230  |         |   |           | 0       |           |   |           | 0       |          
|                                           | Writedown of joint venture                                                                    |                                         |         | 0       |         |      |         | 0       |         |      |         | (10,042 | )       |   |           | 0       |           |   |           | 0       |          
|                                           | Interest expense                                                                              |                                         |         | (29,138 | )       |      |         | (30,627 | )       |      |         | (37,574 | )       |   |           | (33,813 | )         |   |           | (32,001 | )        
|                                           | Investment income                                                                             |                                         |         | 3,172   |         |      |         | 2,463   |         |      |         | 3,874   |         |   |           | 5,509   |           |   |           | 2,112   |          
|                                           | Foreign exchange gain (loss)                                                                  |                                         |         | 3,169   |         |      |         | 108     |         |      |         | (829    | )       |   |           | (190    | )         |   |           | 4       |          
|                                           | Gain on early extinguishment of debt                                                          |                                         |         | 0       |         |      |         | 2,750   |         |      |         | 0       |         |   |           | 0       |           |   |           | 0       |          
|                                           | Other, net                                                                                    |                                         |         | 1,976   |         |      |         | (265    | )       |      |         | 1,189   |         |   |           | 0       |           |   |           | 0       |          
|                                           |                                                                                               |                                         |         |         |         |      |         |         |         |      |         |         |         |   |           |         |           |   |           |        
|                                           |                                                                                               |                                         | (20,821 | )       |         |      | (25,571 | )       |         |      | (23,080 | )       |         |   | (23,428   | )       |           |   | (28,152   | )      
|                                           |                                                                                               |                                         |         |         |         |      |         |         |         |      |         |         |         |   |           |         |           |   |           |        
|                                           | (Loss) income before income taxes and cumulative
    effect of change in accounting principle |                                         |         | (2,338  | )       |      |         | (4,563  | )       |      |         | (60,789 | )       |   |           | (11,370 | )         |   |           | 1,727   |          
|                                           | Income tax benefit (provision)                                                                |                                         |         | (6,266  | )       |      |         | 1,129   |         |      |         | 21,293  |         |   |           | 5,069   |           |   |           | (178    | )        
|                                           |                                                                                               |                                         |         |         |         |      |         |         |         |      |         |         |         |   |           |         |           |   |           |        
|                                           | (Loss) income before cumulative effect of change
    in accounting principle                  |                                         |         | (8,604  | )       |      |         | (3,434  | )       |      |         | (39,496 | )       |   |           | (6,301  | )         |   |           | 1,549   |          
|                                           | Cumulative effect of change in accounting
    principle, net of tax                           |                                         |         | 0       |         |      |         | (4,092  | )       |      |         | 0       |         |   |           | 0       |           |   |           | 0       |          
|                                           |                                                                                               |                                         |         |         |         |      |         |         |         |      |         |         |         |   |           |         |           |   |           |        
|                                           | Net (loss) income                                                                             |                                         | $       | (8,604  | )       |      | $       | (7,526  | )       |      | $       | (39,496 | )       |   | $         | (6,301  | )         |   | $         | 1,549   |          
|                                           |                                                                                               |                                         |         |         |         |      |         |         |         |      |         |         |         |   |           |         |           |   |           |        
|                                           | Net (loss) income per share  basic                                                           |                                         | $       | (1.02   | )       |      | $       | (0.91   | )       |      | $       | (4.86   | )       |   | $         | (0.79   | )         |   | $         | 0.20    |          
|                                           | Net (loss) income per share  diluted                                                         |                                         | $       | (1.02   | )       |      | $       | (0.91   | )       |      | $       | (4.86   | )       |   | $         | (0.79   | )         |   | $         | 0.20    |          

16



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##### Table of Contents



|                             |                                                                                             |                                         |  |         |  |      |  |         |  |      |  |         |  |  |  |         |  |  |  |         | 
|---------------------------- | ------------------------------------------------------------------------------------------- | --------------------------------------- |  | ------- |  | ---- |  | ------- |  | ---- |  | ------- |  |  |  | ------- |  |  |  | ------- | 
|                             |                                                                                             |                                        
|                             |                                                                                             | Year Ended December 31,                
|                             |                                                                                             | (In thousands except per share amounts)
|                             |                                                                                             |                                        
|                             |                                                                                             | 2003                                    |  | 2002    |  | 2001 |  | 2000    |  | 1999
|                             |                                                                                             |                                         |  |         |  |      |  |         |  |     
|                             | Weighted average common shares
    outstanding  basic                                      |                                         |  | 8,475   |  |      |  | 8,301   |  |      |  | 8,128   |  |  |  | 7,946   |  |  |  | 7,810   | 
|                             | Weighted average common shares
    outstanding  diluted                                    |                                         |  | 8,475   |  |      |  | 8,301   |  |      |  | 8,128   |  |  |  | 7,946   |  |  |  | 7,851   | 
|Selected Balance Sheet Data: |                                                                                             |                                         |  |         |  |      |  |         |  |      |  |         |  |  |  |         |  |  |  |        
|                             | Total assets(1)                                                                             |                                         |  | 455,735 |  |      |  | 465,983 |  |      |  | 537,104 |  |  |  | 610,539 |  |  |  | 649,920 | 
|                             | Long-term debt & capital lease
    obligations, including current portion of long-term debt |                                         |  | 246,500 |  |      |  | 223,840 |  |      |  | 289,158 |  |  |  | 324,985 |  |  |  | 330,286 | 
|                             | Stockholders equity                                                                        |                                         |  | 8,814   |  |      |  | 10,314  |  |      |  | 17,997  |  |  |  | 59,141  |  |  |  | 66,914  | 



---



|    |                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------
|(1) | The 2002 and 2001 amounts have been restated, see
    Note (3) in the Consolidated Financial Statements.






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

Executive Summary

The Company, through its subsidiaries, generates
revenues by providing services to the automotive industry.
Allied Automotive Group is the largest motor carrier in North
America specializing in the transportation of new and pre-owned
automobiles, light trucks and SUVs for all of the major domestic
and foreign automotive manufacturers. During 2003, the Company
has faced challenges from lower automobile production levels and
higher fuel prices; however, the Company has continued to reduce
its loss before income taxes and cumulative effect of change in
accounting principle by executing internal initiatives related
to driver productivity, reduced costs, and risk management
performance. In addition, the Company has reduced significant
risk factors by amending its senior secured credit facility,
renewing contracts with four major customers, and renegotiating
agreements with the Teamsters in the United States and Canada.

Results of Operations

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

|                    |                                             |                          |       |      |      |      |       |      |      |  |       |      |       | 
|------------------- | ------------------------------------------- | ------------------------ | ----- | ---- | ---- | ---- | ----- | ---- | ---- |  | ----- | ---- | ----- | 
|                    |                                             |                         
|                    |                                             | Year Ended December 31, 
|                    |                                             |                         
|                    |                                             | 2003                     |       | 2002 |      | 2001
|                    |                                             |                          |       |      |      |     
|Revenues            |                                             |                          | 100.0 | %    |      |      | 100.0 | %    |      |  | 100.0 | %   
|                    |                                             |                          |       |      |      |      |       |      |      |  |       |     
|Operating expenses: |                                             |                          |       |      |      |      |       |      |      |  |       |     
|                    | Salaries, wages, and fringe benefits        |                          |       | 54.3 |      |      |       | 53.9 |      |  |       | 57.5 |      
|                    | Operating supplies and expenses             |                          |       | 16.0 |      |      |       | 15.5 |      |  |       | 16.6 |      
|                    | Purchased transportation                    |                          |       | 11.5 |      |      |       | 11.0 |      |  |       | 10.9 |      
|                    | Insurance and claims                        |                          |       | 4.4  |      |      |       | 4.9  |      |  |       | 5.7  |      
|                    | Operating taxes and licenses                |                          |       | 3.5  |      |      |       | 3.7  |      |  |       | 3.7  |      
|                    | Depreciation and amortization               |                          |       | 5.3  |      |      |       | 6.1  |      |  |       | 6.7  |      
|                    | Rents                                       |                          |       | 0.7  |      |      |       | 0.7  |      |  |       | 0.8  |      
|                    | Communications and utilities                |                          |       | 0.8  |      |      |       | 0.7  |      |  |       | 0.8  |      
|                    | Other operating expenses                    |                          |       | 1.2  |      |      |       | 1.1  |      |  |       | 1.8  |      
|                    | Loss (gain) on disposal of operating assets |                          |       | 0.2  |      |      |       | 0.1  |      |  |       | (0.3 | )    
|                    |                                             |                          |       |      |      |      |       |      |      |  |       |     
|                    |                                             | Total operating expenses |       |      | 97.9 |      |       |      | 97.7 |  |       |      | 104.2 | 
|                    |                                             |                          |       |      |      |      |       |      |      |  |       |     
|                    | Operating (loss) income                     |                          |       | 2.1  |      |      |       | 2.3  |      |  |       | (4.2 | )    
|                    |                                             |                          |       |      |      |      |       |      |      |  |       |     

17



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##### Table of Contents



|                                                                                     |                                                  |                         |      |      |   |      |      |      |   |  |      |      |  
|------------------------------------------------------------------------------------ | ------------------------------------------------ | ----------------------- | ---- | ---- | - | ---- | ---- | ---- | - |  | ---- | ---- | -
|                                                                                     |                                                  |                        
|                                                                                     |                                                  | Year Ended December 31,
|                                                                                     |                                                  |                        
|                                                                                     |                                                  | 2003                    |      | 2002 |   | 2001
|                                                                                     |                                                  |                         |      |      |   |     
|Other income (expense):                                                              |                                                  |                         |      |      |   |      |      |      |   |  |      |     
|                                                                                     | Equity in earnings of joint ventures, net of tax |                         |      | 0.0  |   |      |      | 0.0  |   |  |      | 0.5  |  
|                                                                                     | Gain on sale of joint ventures                   |                         |      | 0.0  |   |      |      | 0.0  |   |  |      | 1.8  |  
|                                                                                     | Writedown of joint venture                       |                         |      | 0.0  |   |      |      | 0.0  |   |  |      | (1.1 | )
|                                                                                     | Interest expense                                 |                         |      | (3.4 | ) |      |      | (3.4 | ) |  |      | (4.2 | )
|                                                                                     | Investment income                                |                         |      | 0.4  |   |      |      | 0.3  |   |  |      | 0.4  |  
|                                                                                     | Foreign exchange gain (loss)                     |                         |      | 0.4  |   |      |      | 0.0  |   |  |      | 0.0  |  
|                                                                                     | Gain on early extinguishment of debt             |                         |      | 0.0  |   |      |      | 0.3  |   |  |      | 0.0  |  
|                                                                                     | Other, net                                       |                         |      | 0.2  |   |      |      | (0.0 | ) |  |      | 0.0  |  
|                                                                                     |                                                  |                         |      |      |   |      |      |      |   |  |      |     
|                                                                                     |                                                  |                         | (2.4 | )    |   |      | (2.8 | )    |   |  | (2.6 | )   
|                                                                                     |                                                  |                         |      |      |   |      |      |      |   |  |      |     
|Loss before income taxes and cumulative effect of
    change in accounting principle |                                                  |                         | (0.3 | )    |   |      | (0.5 | )    |   |  | (6.8 | )   
|                                                                                     |                                                  |                         |      |      |   |      |      |      |   |  |      |     
|Income tax benefit (provision)                                                       |                                                  |                         | (0.7 | )    |   |      | 0.1  |      |   |  | 2.4  |     
|                                                                                     |                                                  |                         |      |      |   |      |      |      |   |  |      |     
|Loss before cumulative effect of change in
    accounting principle                  |                                                  |                         | (1.0 | )    |   |      | (0.4 | )    |   |  | (4.4 | )   
|Cumulative effect of change in accounting
    principle, net of tax                  |                                                  |                         | 0.0  |      |   |      | (0.4 | )    |   |  | 0.0  |     
|                                                                                     |                                                  |                         |      |      |   |      |      |      |   |  |      |     
|Net (loss) income                                                                    |                                                  |                         | (1.0 | )%   |   |      | (0.8 | )%   |   |  | (4.4 | )%  
|                                                                                     |                                                  |                         |      |      |   |      |      |      |   |  |      |     



| |                      
| | ---------------------
| | 2003 Compared to 2002

Revenues were $865.5 million in 2003 versus
revenues of $898.1 million in 2002, a decrease of
$32.6 million or 3.6%. The Company recorded a net loss of
$8.6 million in 2003 compared to a net loss of
$7.5 million in 2002. Basic and diluted loss per share for
2003 was $1.02, versus basic and diluted loss per share of $0.91
in 2002.

The decrease in revenues was due primarily to a
decline in the number of vehicles delivered. Total vehicle
deliveries declined by 6.3% in 2003 versus 2002 and new vehicle
production by the automotive manufacturers in the United States
and Canada declined 2.1%. The delivery decrease was greater than
the production decline due to the Companys decision to
exit non-performing business. In the fourth quarter of 2002, the
Company stopped hauling vehicles for Nissan in the United
States. In 2003, the Company ceased delivering all of its
General Motors traffic at Jessup, Maryland and certain of its
General Motors traffic at Spring Hill, Tennessee, each of which
had historically generated losses. Historically, annual revenue
for the two locations was $16.6 million. The decrease in
volume was partially offset by an increase in revenue per
vehicle delivered. Revenue per vehicle delivered increased from
$91.75 in 2002 to $94.37 in 2003, a 2.9% increase. In the United
States, the increase in revenue per vehicle delivered is
primarily due to ancillary revenue related to model changeovers
and new product launches which causes an increase in revenue
without a corresponding increase in the number of vehicles
delivered. In addition, the Company obtained rate increases
during 2003. In Canada, revenue per vehicle delivered increased
primarily due to the higher Canadian dollar exchange rates.

The net loss for 2003 included a
$6.8 million non-cash charge to record a valuation
allowance against its net deferred tax assets due to net losses
in 2003 and prior years based on managements conclusion
that it is not more likely than not that the
deferred tax assets will be recovered and a $2.0 million
pre-tax gain from the settlement of litigation with Ryder
System. The net loss for 2002 included a $2.8 million
pre-tax gain on the early extinguishment of the Companys
subordinated notes and a $4.1 million after-tax charge
($5.2 million pre-tax) related to the impairment of
goodwill at the Companys Axis Group subsidiary.

During 2003, the Company amended its Senior
Credit Facility to extend the maturity, increase liquidity, and
adjust financial covenants. See an additional discussion of the
terms and conditions of the amendment to the Senior Credit
Facility under the caption Financial Condition, Liquidity
and Capital Resources of this section.

18



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

Salaries, wages, and fringe benefits increased
from 53.9% of revenues in 2002 to 54.3% of revenues in 2003.
This increase is primarily due to wage, health, welfare, and
pension cost increases in the prior Teamster agreements which
expired during 2003 and health, welfare, and pension cost
increases in the new Teamster agreements signed in 2003. The
increase is partially offset by the Companys internal
initiatives to improve driver productivity and reduce worker
injuries.

During the second quarter of 2003, the Company
began operating under a new five-year agreement with the
Teamsters in the United States. The agreement was effective on
June 1, 2003 and expires May 31, 2008. The new
agreement with the Teamsters in the United States covers
approximately 80% of the Companys U.S. employees.
Economic provisions of the new agreement include a wage freeze
for the first two years of the agreement and wage increases of
approximately 2.0% on June 1, 2005, 2.0% on June 1,
2006, and an additional 2.5% on June 1, 2007. The agreement
provides for increases in health, welfare and pension
contributions by the Company during each year of the agreement.
The economic provisions of the contract are anticipated to
increase the Companys U.S. Teamster labor costs
approximately 1.1% in year one of the agreement, 1.3% in year
two, 2.5% in year three, 2.5% in year four, and 3.0% in year
five of the agreement.

During March 2003, the Company renegotiated a
contract that expired October 31, 2002 with the Teamsters
Union in Eastern Canada. The employees governed by this
contract, which expires October 31, 2005, represent
approximately 70% of the Companys total bargaining unit
employees in Canada. The employees in Eastern Canada agreed to a
three-year contract with a wage freeze in the first two years
and a 2.5% increase in the third year. Health and welfare costs
were frozen for the entire three-year agreement and there were
pension increases each year of the new contract. The additional
pension contributions will increase the Companys Canadian
Teamster labor costs approximately 0.2% in year one of the
agreement and approximately 0.6% in year two of the agreement.
The wage and pension increases in year three of the agreement
will increase costs approximately 3.2%.

Operating supplies and expenses increased from
15.5% of revenues in 2002 to 16.0% of revenues in 2003. The
increase is primarily due to higher fuel prices in 2003. Fuel
costs were $5.7 million higher in 2003 than in 2002. The
Company has negotiated fuel surcharges with customers who
comprise approximately 59% of the Companys 2003 revenues.
The surcharges allow the Company to pass fuel price increases to
the customers; however, there can be up to a one quarter lag
between the time that fuel prices change and the adjustment to
the fuel surcharge.

Purchased transportation increased from 11.0% of
revenues in 2002 to 11.5% of revenues in 2003. The increase in
2003 over 2002 was due primarily to a continued 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 4.9%
of revenues in 2002 to 4.4% of revenues in 2003. The decrease
was primarily a result of lower cargo claims experienced on
shipped vehicles, resulting from the Companys initiative
to reduce claims partially offset by an increase in auto
liability claims costs. The number of vehicles delivered damage
free increased from 99.56% in 2002 to 99.70% in 2003. The
Company is aggressively managing these costs as part of its
on-going turnaround initiatives. In addition, the claims review
process was re-engineered to review cargo claims reported and
deny claims that are not in compliance with the Companys
documentation guidelines.

Operating taxes and licenses expense decreased
from 3.7% of revenues in 2002 to 3.5% of revenues in 2003. The
decrease is primarily due to a reduction in the number of Rigs
in service and the miles driven which decreased license,
registration, and fuel tax costs. Real estate and personal
property taxes decreased due to the disposal of non-performing
assets in 2002.

Depreciation and amortization expense decreased
from 6.1% of revenues in 2002 to 5.3% of revenues in 2003. The
decrease is primarily due to lower capital spending in 2002 and
2003 resulting in depreciation runoff as assets become fully
depreciated. The Company has instituted a Rig manufacturing
program to remanufacture existing owned Rigs rather than
purchasing new Rigs. Remanufacturing existing Rigs requires less
capital

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spending than purchasing new Rigs. The first
phase of the program began in 2002 and is expected to continue
through 2004. As of December 31, 2003 approximately
570 Rigs have been remanufactured and approximately
630 engines have been replaced in tractors. During 2002,
the Company recorded a charge of $2.1 million to accelerate
the depreciation on Rigs that were not considered viable
candidates for remanufacture and were idled for disposal.


Interest expense decreased from
$30.6 million in 2002 to $29.1 million in 2003 due to
a reduction in overall interest rates effective with the
amendment of the Credit Facility in September 2003 and a
reduction in total borrowings.

Foreign exchange gain increased from
$0.1 million in 2002 to $3.2 million in 2003. The
increase was due to favorable exchange rate changes related to
the Companys Canadian subsidiary. In 2002, the Canadian
dollar increased by 22% compared to the U.S. dollar.

Other income (loss) increased from a loss of
$0.3 million in 2002 to a gain of $2.0 million in
2003. In 2003, the Company recorded $2.0 million in income
related to a settlement agreement with Ryder System, Inc.



| |                      
| | ---------------------
| | 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 $91.75 in 2002, a 1.8% 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 $20.0 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.

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.

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. The Company
incurred $9.2 million of workforce reduction expenses in
2001 compared to $2.3 million of such expenses in 2002. In
addition, the impact of the Companys turnaround initiative
related to workforce reductions decreased in 2002 as compared to
2001.

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

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##### Table of Contents



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. 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.

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 4.2% 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.

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The adoption of SFAS No. 145 required
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.

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.

The Company uses restricted cash and cash
equivalents and restricted investments to collateralize letters
of credit required by third-party insurance companies for the
settlement of insurance claims. These collateral assets are not
available for the operations of the Company. The Company has
reclassified certain items and restated its consolidated balance
sheet for the year ended December 31, 2002, and its
consolidated statements of cash flows for the years ended
December 31, 2002 and 2001 and will reclassify and restate
its statements of cash flows for the first three quarters of
2003 in order to more clearly present its financial position and
comply with generally accepted accounting principles.

The Company reclassified cash and cash
equivalents and investments held to collateralize letters of
credit required by third party insurance companies for insurance
claims. The Company reclassified these assets as restricted cash
and cash equivalents and restricted investments and designated a
portion as long term as of December 31, 2002. The Company
previously disclosed in the footnotes to its financial
statements that these cash and cash equivalents and investments
are not available for operations of the Company. In addition,
the Company reclassified its revolving line of credit at
December 31, 2003 from long-term debt to current
liabilities as well as reclassified certain pension assets and
obligations from current to long-term. At December 31,
2003, the Company also reduced both deferred tax assets and
liabilities to be consistent with current year presentation.
During 2003, certain reclassifications were also made to the
Companys consolidated cash flow statements for the years
ended December 31, 2002 and 2001. These restatements had no
impact on the Companys results of operations or loss per
share for the years ended December 31, 2003, 2002 or 2001.
In addition, these reclassifications did not affect the
Companys availability under its revolving line of credit
or compliance with the financial covenant provisions of its loan
facilities during 2003, 2002 or 2001, the Companys
earnings trends over the past two years, or managements
compensation. See Note (3) in Notes to Consolidated
Financial Statements.

Net cash provided by operating activities totaled
$35.4 million for 2003, versus $54.4 million for 2002,
a decrease of $19.0 million. This change is primarily due
to a decrease in cash flows generated from operating assets and
liabilities of $12.2 million resulting from additions to
working capital including reductions in insurance and claims
liabilities of $7.6 million. In addition, the decrease was
partially attributable to the decrease in operating income of
$2.5 million in 2003 compared to 2002.

The Company entered into a new contract with
General Motors, effective March 2004, that includes reductions
in the Companys rates for transportation services. Allied
estimates that the impact to operating income in 2004 as a
result of the terms and conditions of the new agreement will be
a potential reduction in a range of $3 million to
$4 million.

Net cash used in investing activities totaled
$38.4 million in 2003, versus net cash used in investing
activities of $2.1 million for 2002. The change is due
primarily to a net increase of $20.6 million in restricted
cash and cash equivalents and investments, primarily resulting
from a change in primary insurance carriers which resulted in
increased collateral requirements. In addition, the Company
received $3.0 million for the

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sale of the Companys joint venture in
Brazil in 2002 and receipts of $2.6 million in 2002 related
to the termination of certain split dollar life insurance
arrangements between the Company and certain of its former
executives, officers, and directors. Cash received from the sale
of property and equipment decreased from $4.7 million in
2002 to $0.7 million in 2003, which is due primarily to the
sale of excess real estate and non-performing assets in 2002.


Net cash used in financing activities totaled
$5.6 million in 2003, versus $48.0 million in 2002.
During 2003 long-term debt was reduced by $3.0 million,
compared to $39.0 million in 2002. The decrease in debt
reduction in 2003 was due to reduced operating cash flows,
increased working capital requirements, lower cash proceeds from
asset sales, and an increase in funding requirements of the
Companys captive insurance company.

On February 25, 2002, the Company entered
into a new credit facility which included four term loans (the
Term Loans) totaling $82.75 million and a
$120 million revolving credit facility. Proceeds from the
Term Loans were used to repurchase $40 million of senior
subordinated notes for $37.25 million. In conjunction with
the extinguishment of these senior subordinated notes, the
Company recognized a pre-tax gain of $2.75 million during
2002.

The Company amended the facility in September
2003 (the Credit Facility and amendments thereto are
collectively referred to as the Credit Facility).
The Credit Facility as amended in September 2003 provides the
Company with a $90.0 million revolving credit facility (the
Revolver) and a $100 million term loan (the
New Term Loan). As part of the amendment, the
maturity date of the Credit Facility was extended to September
2007.

The interest rate for the Revolver is based upon
the prime rate plus 1.5%, or LIBOR plus 4.5%, at
managements discretion, with a minimum interest rate of
6.5%. The Credit Facility, as amended, provides that the New
Term Loan bear interest between 8.5% and 11.5% to be determined
solely on the Companys leverage as defined in the
agreement. At December 31, 2003, the interest rates on the
Revolver and the New Term Loan were 6.5% and 8.5%, respectively.
Prior to the amendment, the interest rate on the Term Loans was
based solely on a spread over the prime rate. Annual commitment
fees are due on the undrawn portion of the commitment.

The amount available under the $90 million
Revolver may be reduced based on a calculation of Revolver
collateral. At December 31, 2003, $80.8 million
Revolver collateral, which includes portions of the
Companys trade receivables and eligible fleet, was
available. Approximately $29.3 million of the Revolver was
committed under letters of credit primarily related to the
settlement of insurance claims. At December 31, 2003 $0
loans were outstanding. Accordingly, the Company had
approximately $51.5 million available under the Revolver as
of December 31, 2003.

Future maturities of long-term debt are as
follows at December 31, 2003 (in thousands):

|     |  |   |         | 
|---- |  | - | ------- | 
|2004 |  | $ | 16,374  | 
|2005 |  |   | 13,500  | 
|2006 |  |   | 13,500  | 
|2007 |  |   | 203,126 | 
|     |  |   |         | 
|     |  | $ | 246,500 | 
|     |  |   |         | 

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. On March 30, 2004, the
Company obtained the consent of its lenders under the Credit
Facility to deliver its financial statements for the year ended
December 31, 2003 on or before April 15, 2004.

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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.

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.

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 are included in a
table under the Contractual Obligationssection below.



| |                               
| | ------------------------------
| | Disclosures About Market Risks

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



| |            
| | -----------
| | Investments

The Company does not use derivative financial
instruments in its investment portfolio. The Company places its
investments in instruments that meet high credit quality
standards, as specified in the Companys investment policy
guidelines. The policy also limits the amount of credit exposure
to any one issue, issuer, and type of instrument. As of
December 31, 2003 the Company did not have any investments.



| |               
| | --------------
| | Interest Rates

The Company primarily issues long-term debt
obligations to support general corporate purposes including
capital expenditures and working capital needs. The majority of
the Companys long-term debt obligations bear a fixed rate
of interest. The portion of the long-term debt obligation that
does not bear a fixed rate of interest, has an interest rate
that may fluctuate within a three percentage point range based
on the Companys leverage, as defined in the agreement. The
impact to the Company of a 3% increase to such debt would
increase interest expense by $2.6 million over the next
fiscal year.



| |            
| | -----------
| | Fuel Prices

Allied Automotive Group is dependent on diesel
fuel to operate its fleet of Rigs. Diesel fuel prices are
subject to fluctuations due to unpredictable factors such as
weather, government policies, and changes in global demand and
global production. To reduce price risk caused by market
fluctuations, Allied Automotive Group periodically purchases
fuel in advance of consumption. A 10% increase in diesel fuel
prices would reduce pre-tax income by $6.4 million over the
next fiscal year assuming 2003 levels of fuel consumption. These
increases would be partially offset by the Companys fuel
surcharge agreements with customers. Fuel prices in the first
quarter of 2004 are expected to be 7% higher than fuel prices in
the fourth quarter of 2003.



| |                      
| | ---------------------
| | Self Insurance Claims

An increase in the number or severity of
accidents, stolen equipment, or other loss events over those
anticipated, or adverse development of existing claims could
have a materially adverse effect on the Companys
profitability as the Company is self-insured for a significant
portion of its risks. In addition, the insurance market is
contracting and it is becoming increasingly more difficult to
obtain insurance coverage.

24



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##### Table of Contents



While the Company currently has insurance
coverage, there can be no assurance that the Company will be
able to obtain insurance coverage in the future.


Prior to January 1, 2004, Allied had a
$1.0 million inneraggregate limit for losses from $1.0 to
$2.0 million, and an additional $4.0 million aggregate
limit for losses from $2.0 to $5.0 million. Effective
January 1, 2004, Allied retains up to $1.0 million
liability for automobile claims with no aggregate and a
$7.0 million aggregate deductible for claims that exceed
$1.0 million, but are less than $5.0 million per
occurrence.



| |                                
| | -------------------------------
| | 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, 2003, is $73.1 million.
The potential impact on other comprehensive income resulting
from a hypothetical 10% change in quoted foreign currency
exchange rates amounts to $7.3 million. At
December 31, 2003 a payable balance of $22.5 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 a $2.3 million
charge to profit and loss as of December 31, 2003. 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, SUVs, and light trucks.
During the first and third quarters, vehicle shipments typically
decline due to lower sales volume during those periods and
scheduled plant shut downs. Except for the impact of rising fuel
costs discussed herein, inflation has not significantly affected
the Companys results of operations.



| |                                                  
| | -------------------------------------------------
| | Contractual Obligations and Letters of
    Credit

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 |        | 4-5 Years |  | 5 Years
|                            |  |       |         |                      |  |           |        |           |  |        
|Long-Term Debt Obligations  |  | $     | 246,500 |                      |  | $         | 16,374 |           |  | $       | 230,126 |  |  | $ | 0      |  |  | $ | 0      | 
|Operating Lease Obligations |  |       | 34,657  |                      |  |           | 11,374 |           |  |         | 17,730  |  |  |   | 5,078  |  |  |   | 475    | 
|Purchase Obligations*       |  |       | 108,558 |                      |  |           | 10,045 |           |  |         | 20,714  |  |  |   | 21,347 |  |  |   | 56,452 | 
|                            |  |       |         |                      |  |           |        |           |  |         |         |  |  |   |        |  |  |   |        | 
|                            |  | $     | 389,715 |                      |  | $         | 37,793 |           |  | $       | 268,570 |  |  | $ | 26,425 |  |  | $ | 56,927 | 
|                            |  |       |         |                      |  |           |        |           |  |         |         |  |  |   |        |  |  |   |        | 



---



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | In April 2001, the Company entered into a
    five-year commitment with IBM to provide its mainframe computer
    processing services. In December 2003, the Company amended the
    agreement. The amended agreement is a ten-year commitment,
    commencing February 2004, for IBM to provide additional services
    to manage applications for EDI, network services, technical
    services, and applications development and support. The
    agreement includes outsourcing at determinable prices defined
    within the agreement.

At December 31, 2003, the Company has
agreements with third parties that provide for
$111.4 million of letters of credit primarily relating to
settlements of insurance claims and reserves and support for a
line of credit at one of the Companys foreign
subsidiaries. $29.3 million of these letters of credit are
issued by the

25



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##### Table of Contents



Company and are secured by available borrowings
on the revolving credit agreement and $82.1 million are
issued by the Companys wholly owned captive insurance
subsidiary Haul Insurance Limited and are collateralized by
$82.1 million of restricted cash and cash equivalents held
by the captive. These letters of credit are renewed by the
Company annually.




| |                             
| | ----------------------------
| | Critical Accounting Policies

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make decisions
based upon estimates, assumptions, and factors it considers as
relevant to the circumstances. Such decisions include the
selection of applicable accounting principles and the use of
judgment in their application, the results of which impact
reported amounts and disclosures. Changes in future economic
conditions or other business circumstances may affect the
outcomes of managements estimates and assumptions.
Accordingly, actual results could differ from those anticipated.

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
managements evaluation of the nature and severity of
claims and 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. If
management uses different assumptions or if different conditions
occur in the future periods, future operating results or
liquidity could be materially impacted.

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

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

Significant management judgment is required in
determining the Companys provision for income taxes,
deferred tax assets and liabilities and any valuation allowance
recorded against the deferred tax assets. The valuation
allowance is based on managements estimate of taxable
income by jurisdiction in which the

26



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##### Table of Contents



Company operates and the period over which the
deferred tax assets will be recoverable. At December 31,
2003, the Company has recorded a valuation allowance against its
net deferred tax assets due to net losses in 2003 and prior
years, based on managements conclusion that it is not
more likely than not that the deferred tax assets
will be recovered.


Tax assessments may arise several years after tax
returns have been filed. Predicting the outcome of such tax
assessments involves uncertainty; however, the Company believes
that recorded tax liabilities adequately account for its
analysis of probable outcomes.

PROPERTY AND EQUIPMENT  The Company
operates approximately 3,700 company-owned Rigs,
revenue equipment, in connection with its business.
Property and equipment, including revenue equipment, are stated
at cost and depreciated using the straight-line method over the
estimated useful life down to estimated salvage value. The
Company also evaluates the carrying value of long-lived assets
for impairment by analyzing the operating performance and future
cash flows for those assets, whenever events or changes in
circumstances indicate that the carrying amounts of such assets
may not be recoverable, including the need to adjust the
carrying value of the underlying assets if the sum of the
expected cash flows is less than the carrying value. Impairment
can be impacted by our projection of future cash flows, the
level of actual cash flows and salvage values, the methods of
estimation used for determining fair values and the impact of
guaranteed residuals. Any changes in managements judgments
could result in greater or lesser annual depreciation expense or
additional impairment charges in the future.

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



| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards
Board (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 adopted the provisions of
SFAS No. 143 effective January 1, 2003. The
Statement did not have a material effect on the financial
position or results of operations of the Company.

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 Company early adopted this standard in
2002. Accordingly, the after-tax gain on early extinguishment of
debt was not reported as an extraordinary item.

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 Company adopted the
provisions of SFAS No. 146 effective January 1,
2003. The adoption of SFAS No. 146 did not have a
material effect on the financial position or results of
operations of the Company.

27



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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. The Company adopted the recognition and
measurement provisions of the Interpretation effective
January 1, 2003 for guarantees issued or modified after
December 31, 2002. The adoption of this Interpretation did
not have a material impact on the financial position or results
of operations of the Company.

In January 2003, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation
(FIN) No. 46, Consolidation of Variable
Interest Entities. FIN 46 requires companies to
evaluate variable interest entities for specific characteristics
to determine whether additional consolidation and disclosure
requirements apply. FIN 46 is immediately applicable for
variable interest entities created after January 31, 2003,
and applies to the first fiscal year or interim period beginning
after June 15, 2003 for variable interest entities acquired
prior to February 1, 2003. The adoption of FIN 46 did
not have a material impact on the financial position or results
of operations of the Company. In December 2003, the FASB revised
FIN 46 to exempt certain entities from its requirements and
to clarify certain issues arising during the implementation of
FIN 46. The adoption of this revised interpretation in the
first quarter of 2004 is not expected to have a material impact
on the Companys financial statements.

In April 2003, the FASB issued
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This
Statement clarifies under which circumstances a contract with an
initial net investment meets the characteristics of a derivative
and clarifies when a derivative contains a financing component
that warrants special reporting in the statement of cash flows.
SFAS 149 amends certain other existing pronouncements.
SFAS No. 149 is generally effective for contracts
entered into or modified after June 30, 2003 and should be
applied prospectively. The adoption of SFAS No. 149
did not have a material impact on the financial position,
results of operations or cash flows of the Company.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity. SFAS No. 150 establishes standards for the
classification and measurement of certain financial instruments
with characteristics of both liabilities and equity.
SFAS No. 150 also includes required disclosures for
financial instruments within its scope. SFAS No. 150
was effective for instruments entered into or modified after
May 31, 2003 and otherwise was effective as of the
beginning of the first interim period beginning after
June 15, 2003. The adoption of SFAS No. 150 did
not have a material impact on the financial position or results
of operations of the Company.

Effective July 1, 2003, the Company
prospectively adopted Emerging Issues Task Force
(EITF) No. 00-21, Accounting for Revenue
Arrangements with Multiple Deliverables. The adoption of
EITF No. 00-21 did not have a material effect on the
financial position or results of operations of the Company.






|         |                                                               
|-------- | --------------------------------------------------------------
|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

Previously reported on Form 8-K filed with
the SEC on April 2, 2002, as amended by Form 8-K/A
filed with the SEC on April 19, 2002.

28



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|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

(a) Evaluation of Disclosure Controls and
Procedures. As of the end of the period covered by this
annual report, the Company, under the supervision and with the
participation of the Companys management, including the
Chief Executive Officer and the Chief Financial Officer, has
evaluated the effectiveness of the Companys disclosure
controls and procedures (as defined in Sections 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934). Based
upon 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 to material information required to be included in
the Companys periodic Securities and Exchange Commission
filings.

(b) Changes in Internal Controls. In
connection with the completion of its audit of, and the issuance
of an unqualified report on, the Companys consolidated
financial statements for the year ended December 31, 2003,
KPMG LLP advised the Audit Committee and management of certain
deficiencies in the Companys internal control over
financial reporting that KPMG considered to be a
reportable condition under the standards established
by the American Institute of Certified Public Accountants. The
reportable condition related to the analysis, evaluation and
review of financial information included in the Companys
financial reporting. As a result, certain financial information
and disclosures were not presented appropriately and required
restatement. Certain of these matters relate to the
Companys classification of (1) cash and cash
equivalents and short-term investments, (2) its revolving
credit facility, (3) certain other items related to its
pension assets and obligations, and (4) deferred income
taxes.

KPMG and management discussed the reportable
condition with the Audit Committee. As a result, the Company has
reclassified certain items and restated its consolidated balance
sheet as of December 31, 2002, and its consolidated
statements of cash flows for the years ended December 31,
2002 and 2001, and will reclassify and restate its statements of
cash flows for the first three quarters of 2003 in order to more
clearly present its financial position and comply with generally
accepted accounting principles. For additional information
regarding the reclassifications made during 2003 to the
Companys consolidated balance sheet as of
December 31, 2002 and consolidated cash flow statements for
the years ended December 31, 2002 and 2001, see
Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations 
Financial Condition, Liquidity and Capital Resources and
Note (3) in Notes to Consolidated Financial Statements.

Management believes that these reclassifications
and restatements address the financial reporting matters raised
by KPMG. The Company plans to continue to monitor the
effectiveness of its internal control over financial reporting
on an ongoing basis and will take further action, as appropriate
to address the reportable condition in its financial reporting
process.

Other than correcting the reportable condition
identified above, there were no other changes in the
Companys internal control over financial reporting that
have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial
reporting.




PART III

Certain information required by Part III is
omitted from this report in that the Company will file with the
Securities and Exchange Commission 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 herein by
reference to the Companys Proxy Statement in the section
entitled Proposal 1. Election of Directors and

29



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##### Table of Contents



Information Regarding Directors. The
information concerning the Companys executive officers
required by this Item is incorporated herein 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 incorporated herein by reference to the
Companys Proxy Statement in the section entitled
Section 16(a) Beneficial Ownership Reporting
Compliance.






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

The information required by this Item is
incorporated herein by reference to the Companys Proxy
Statement in the section entitled Executive
Compensation.






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

The information required by this Item is
incorporated herein by reference to the Companys Proxy
Statement in the section entitled Common Stock Ownership
by Management and Certain Beneficial Owners and in the
Equity Compensation Plan Information subsection of
the section entitled Proposal 2. Approval of Amended
and Restated Long-Term Incentive Plan.






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

Not applicable.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

The information required by this Item is
incorporated herein by reference to the Companys Proxy
Statement in the section entitled Independent Public
Accountants.




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 as to Financial Statements and Schedule                                                 |  |      | F-1 | 
|Report of Independent Public
    Accountants                                                                             |  |      | F-2 | 
|Consolidated Balance Sheets
    at December 31, 2003 and 2002                                                            |  |      | F-3 | 
|Consolidated Statements of
    Operations for the Years Ended December 31, 2003, 2002, and
    2001                      |  |      | F-4 | 
|Consolidated Statements of
    Changes in Stockholders Equity for the Years Ended
    December 31, 2003, 2002, and 2001 |  |      | F-5 | 
|Consolidated Statements of
    Cash Flows for the Years Ended December 31, 2003, 2002, and
    2001                      |  |      | F-6 | 
|Notes to Consolidated
    Financial Statements                                                                           |  |      | F-7 | 

30



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##### Table of Contents



(2) Financial Statement Schedules:

INDEX TO FINANCIAL STATEMENT
SCHEDULES

|                                                                                                              |  |      |     | 
|------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                              |  | Page
|                                                                                                              |  |     
|Report of Independent Public
    Accountants as to Schedule                                                   |  |      | S-1 | 
|Schedule II 
    Valuation and Qualifying Accounts for the Years Ended
    December 31, 2003, 2002, and 2001 |  |      | 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.

During the quarter ended December 31, 2003,
the Company filed a current report on Form 8-K on
October 29, 2003 pursuant to Items 7 and 12. No
financial statements were included in this Form 8-K.

(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          |  | Amended and Restated Financing Agreement, dated
    as of September 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 Lender, Ableco
    Finance LLC, as collateral agent, and Wells Fargo
    Foothill, Inc., as administrative agent (incorporated by
    reference from the Current Report on Form 8-K filed with the
    Commission on September 5, 2003).
|        | 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).                                                                                                                                                                                                                                                                                                             
|        | 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, as amended through
    June 19, 2003 (incorporated by reference from the Quarterly
    Report on Form 10-Q filed with the Commission on August 12,
    2003).                                                                                                                                                                                                                                                                                                                 

31



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                 
|------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|No.     |    | Description
|        |    |            
|        | 10 | .5         |  | Allied Holdings, Inc. 2003 Stock Issuance
    Plan (incorporated by reference from the Companys
    Registration Statement on Form S-8 (File
    No. 333-107456), filed with the Commission on July 30,
    2003).                                                                                             
|        | 10 | .6         |  | Form of Allied Holdings, Inc. 2003
    Restricted Stock Agreement for 2003 Stock Issuance Plan
    (U.S. Employees) (incorporated by reference from the
    Companys Registration Statement on Form S-8 (File
    No. 333-107456), filed with the Commission on July 30,
    2003).                            
|        | 10 | .7         |  | Form of Allied Holdings, Inc. 2003 Stock
    Agreement for 2003 Stock Issuance Plan (Canadian Employees)
    (incorporated by reference from the Companys Registration
    Statement on Form S-8 (File No. 333-107456), filed
    with the Commission on July 30, 2003).                                       
|        | 10 | .8         |  | 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 | .8(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 | .9          |  | Intentionally omitted.                                                                                                                                                                                                                                                                                          
|        | 10 | .10        |  | 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 | .10(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 | .11        |  | 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 | .12        |  | Employment Agreement between Allied
    Holdings, Inc. and David Rawden, as amended (incorporated
    by reference from the Annual Report on Form 10-K filed with the
    Commission on March 27, 2003).                                                                                                        
|        | 10 | .13*       |  | Employment Agreement among Allied
    Holdings, Inc., Axis Group, Inc. and Robert Chambers.                                                                                                                                                                                                                     
|        | 10 | .14         |  | Summary of Financial Terms of Collective
    Bargaining Agreement with the International Brotherhood of
    Teamsters in the United States, effective June 1, 2003
    (incorporated by reference from the Quarterly Report on Form
    10-Q filed with the Commission on August 12, 2003).                     
|        | 10 | .15**       |  | 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 | .15(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 | .16**       |  | 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 | .16(a)**    |  | Amendment to Agreement between the Company and
    DaimlerChrysler Corporation (incorporated by reference from the
    Annual Report on Form 10-K filed with the Commission on
    March 27, 2003).                                                                                                             
|        | 10 | .17***      |  | Agreement between the Company and General Motors
    Corporation.                                                                                                                                                                                                                                               
|        | 10 | .18**       |  | 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).

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|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|No.     |    | Description
|        |    |            
|        | 10 | .19         |  | 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 | .20         |  | 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).                                                                                                                                                    
|        | 10 | .20(a)*     |  | Amendment No. 4 to the IBM Global Services
    National Agreement between Allied Holdings, Inc. and
    International Business Machines Corporation, effective
    February 1, 2004.                                                                                                                                                                                                                                                                                
|        | 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).                                                                                                                                                                                                                                                                                                                                                                                         
|        | 31 | .1*         |  | Rule 13a-14(a)/15d-14(a) Certification by Hugh E.
    Sawyer.                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 31 | .2*         |  | Rule 13a-14(a)/15d-14(a) Certification by David
    A. Rawden.                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 32 | .1*         |  | Section 1350 Certification by Hugh E. Sawyer.                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 32 | .2*         |  | Section 1350 Certification by David A.
    Rawden.                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 99 | .1*         |  | Charter of the Audit Committee of the Board of
    Directors.                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 99 | .2*         |  | Charter of the Compensation and Nominating
    Committee of the Board of Directors.                                                                                                                                                                                                                                                                                                                                                                                 
|        | 99 | .3*         |  | Allied Holdings, Inc. Code of Conduct                                                                                                                                                                                                                                                                                                                                                                                                                               



---



| |   |               
| | - | --------------
| | * | 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.

33



---



##### 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: April 13, 2004

| |     |                   
| | --- | ------------------
| | By: | /s/ HUGH E. SAWYER

| |                        
| | -----------------------
| |                        
| | Hugh E. Sawyer,        
| | President and          
| | Chief Executive Officer

Date: April 13, 2004

| |     |                    
| | --- | -------------------
| | By: | /s/ DAVID A. RAWDEN

| |                                                 
| | ------------------------------------------------
| |                                                 
| | David A. Rawden,                                
| | Executive Vice President and                    
| | Chief Financial Officer                         
| | (Principal Financial and Accounting
    Officer)

34



---



##### 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                           |  | April 13, 2004
|                                              
|/s/ GUY W. RUTLAND, IIIGuy W. Rutland, III     |  | Chairman Emeritus and Director                  |  | April 13, 2004
|                                              
|/s/ HUGH E. SAWYERHugh E. Sawyer               |  | President, Chief Executive Officer and Director |  | April 13, 2004
|                                              
|/s/ DAVID G. BANNISTERDavid G. Bannister       |  | Director                                        |  | April 13, 2004
|                                              
|/s/ WILLIAM P. BENTONWilliam P. Benton         |  | Director                                        |  | April 13, 2004
|                                              
|/s/ THOMAS E. BOLANDThomas E. Boland           |  | Director                                        |  | April 13, 2004
|                                              
|/s/ GUY W. RUTLAND, IVGuy W. Rutland, IV       |  | Senior Vice President and Director              |  | April 13, 2004
|                                              
|/s/ J. LELAND STRANGEJ. Leland Strange         |  | Director                                        |  | April 13, 2004
|                                              
|/s/ BERNER F. WILSON, JR.Berner F. Wilson, Jr. |  | Director                                        |  | April 13, 2004
|                                              
|/s/ ROBERT R. WOODSONRobert R. Woodson         |  | Director                                        |  | April 13, 2004

35



---



##### Table of Contents






INDEPENDENT AUDITORS REPORT

The Board of Directors

Allied Holdings, Inc.:


We have audited the 2003 and 2002 consolidated
financial statements of Allied Holdings, Inc. and
subsidiaries as listed in the accompanying index included at
Item 15(a)(1). In connection with our audits of the 2003
and 2002 consolidated financial statements, we also have audited
the 2003 and 2002 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 audits. The 2001
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 25, 2002 (except with respect to the matter
discussed in Note 10, as to which the date is
March 27, 2002) on those financial statements and financial
statement schedule was unqualified, before the revisions
described in Note 3 and 8 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 year ended
December 31, 2001 was $2,100,000 of the total
Companys net loss of $(39,496,000); the amounts included
for Ansa Logistics Limited were based solely on the report of
the other auditors.

We conducted our audits 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 audits provide a reasonable basis for our
opinion.

In our opinion, the 2003 and 2002 consolidated
financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Allied
Holdings, Inc. and subsidiaries as of December 31,
2003 and 2002, and the results of their operations and their
cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of
America. Also in our opinion, the related 2003 and 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 8 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 in Note 3, the 2002
consolidated financial statements have been restated.

As discussed above, the 2001 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 3, these consolidated financial statements have been
restated. We audited the adjustments described in Note 3
that were applied to restate the 2001 financial statements. In
our opinion, such adjustments in Note 3 are appropriate and
have been properly applied. As described in note 8, these
consolidated 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
in note 8 are appropriate. However, we were not engaged to
audit, review, or apply any procedures to the 2001 financial
statements of Allied Holdings, Inc. other than with respect
to such adjustments and disclosures and, accordingly, we do not
express an opinion or any other form of assurance on the 2001
consolidated financial statements taken as a whole.



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

Atlanta, Georgia

April 7, 2004


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. The
    2001 financial statements have been restated.




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 10,


as to which the date


is March 27, 2002)


F-2



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS


December 31, 2003 and 2002


(In thousands)


|                                            |                                                                                                                                                    |                                            |         |            |         |  |         |         |         | 
|------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ---------- | ------- |  | ------- | ------- | ------- | 
|                                            |                                                                                                                                                    | 2003                                       |         | 2002      
|                                            |                                                                                                                                                    |                                            |         |           
|                                            |                                                                                                                                                    |                                            |         | (Restated)
|ASSETS                                     
|Current assets:                             |                                                                                                                                                    |                                            |         |            |         |  |         |        
|                                            | Cash and cash equivalents                                                                                                                          |                                            | $       | 2,148      |         |  | $       | 9,448   |        
|                                            | Restricted cash and cash equivalents                                                                                                               |                                            |         | 26,267     |         |  |         | 805     |        
|                                            | Restricted investments                                                                                                                             |                                            |         | 0          |         |  |         | 19,502  |        
|                                            | Receivables, net of allowance for doubtful
    accounts of $3,575 and $5,587 in 2003 and 2002, respectively                                        |                                            |         | 55,110     |         |  |         | 58,512  |        
|                                            | Inventories                                                                                                                                        |                                            |         | 4,983      |         |  |         | 5,071   |        
|                                            | Deferred income taxes                                                                                                                              |                                            |         | 20,213     |         |  |         | 22,705  |        
|                                            | Prepayments and other current assets                                                                                                               |                                            |         | 12,644     |         |  |         | 13,717  |        
|                                            |                                                                                                                                                    |                                            |         |            |         |  |         |        
|                                            |                                                                                                                                                    | Total current assets                       |         |            | 121,365 |  |         |         | 129,760 | 
|Property and equipment, net                 |                                                                                                                                                    |                                            | 155,573 |            |         |  | 176,663 |        
|Goodwill, net                               |                                                                                                                                                    |                                            | 90,203  |            |         |  | 85,241  |        
|Other assets:                               |                                                                                                                                                    |                                            |         |            |         |  |         |        
|                                            | Restricted cash and cash equivalents                                                                                                               |                                            |         | 55,817     |         |  |         | 0       |        
|                                            | Restricted investments                                                                                                                             |                                            |         | 0          |         |  |         | 41,230  |        
|                                            | Other non-current assets                                                                                                                           |                                            |         | 32,777     |         |  |         | 35,493  |        
|                                            |                                                                                                                                                    |                                            |         |            |         |  |         |        
|                                            |                                                                                                                                                    | Total other assets                         |         |            | 88,594  |  |         |         | 76,723  | 
|                                            |                                                                                                                                                    |                                            |         |            |         |  |         |        
|                                            |                                                                                                                                                    | Total assets                               |         | $          | 455,735 |  |         | $       | 468,387 | 
|                                            |                                                                                                                                                    |                                            |         |            |         |  |         |        
|LIABILITIES AND STOCKHOLDERS
    EQUITY   
|Current liabilities:                        |                                                                                                                                                    |                                            |         |            |         |  |         |        
|                                            | Current maturities of long-term debt                                                                                                               |                                            | $       | 16,374     |         |  | $       | 10,785  |        
|                                            | Borrowings under revolving credit facility                                                                                                         |                                            |         | 0          |         |  |         | 24,635  |        
|                                            | Trade accounts payable                                                                                                                             |                                            |         | 34,272     |         |  |         | 36,585  |        
|                                            | Accrued liabilities                                                                                                                                |                                            |         | 80,937     |         |  |         | 90,129  |        
|                                            |                                                                                                                                                    |                                            |         |            |         |  |         |        
|                                            |                                                                                                                                                    | Total current liabilities                  |         |            | 131,583 |  |         |         | 162,134 | 
|                                            |                                                                                                                                                    |                                            |         |            |         |  |         |        
|Long-term debt, less current maturities     |                                                                                                                                                    |                                            | 230,126 |            |         |  | 213,055 |        
|Postretirement benefits other than pensions |                                                                                                                                                    |                                            | 5,302   |            |         |  | 7,467   |        
|Deferred income taxes                       |                                                                                                                                                    |                                            | 20,213  |            |         |  | 10,625  |        
|Other long-term liabilities                 |                                                                                                                                                    |                                            | 59,697  |            |         |  | 64,792  |        
|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; 8,764 and 8,421 outstanding at
    December 31, 2003 and December 31, 2002, respectively |                                            |         | 0          |         |  |         | 0       |        
|                                            | Additional paid-in capital                                                                                                                         |                                            |         | 47,511     |         |  |         | 46,801  |        
|                                            | Treasury stock, 139 shares at cost at
    December 31, 2003 and 2002                                                                               |                                            |         | (707       | )       |  |         | (707    | )      
|                                            | Accumulated deficit                                                                                                                                |                                            |         | (35,024    | )       |  |         | (26,420 | )      
|                                            | Accumulated other comprehensive loss, net of tax                                                                                                   |                                            |         | (2,966     | )       |  |         | (9,360  | )      
|                                            |                                                                                                                                                    |                                            |         |            |         |  |         |        
|                                            |                                                                                                                                                    | Total stockholders equity                 |         |            | 8,814   |  |         |         | 10,314  | 
|                                            |                                                                                                                                                    |                                            |         |            |         |  |         |        
|                                            |                                                                                                                                                    | Total liabilities and stockholders equity |         | $          | 455,735 |  |         | $       | 468,387 | 
|                                            |                                                                                                                                                    |                                            |         |            |         |  |         |        

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, 2003, 2002, and
2001


(In thousands, except per share
data)


|                                                                                     |                                                      |                          |         |         |         |      |         |         |         |   |         |         |         |  
|------------------------------------------------------------------------------------ | ---------------------------------------------------- | ------------------------ | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | -
|                                                                                     |                                                      | 2003                     |         | 2002    |         | 2001
|                                                                                     |                                                      |                          |         |         |         |     
|Revenues                                                                             |                                                      | $                        | 865,463 |         |         | $    | 898,060 |         |         | $ | 896,767 |        
|                                                                                     |                                                      |                          |         |         |         |      |         |         |         |   |         |        
|Operating expenses:                                                                  |                                                      |                          |         |         |         |      |         |         |         |   |         |        
|                                                                                     | Salaries, wages, and fringe benefits                 |                          |         | 469,540 |         |      |         | 483,545 |         |   |         | 515,916 |        
|                                                                                     | Operating supplies and expenses                      |                          |         | 138,512 |         |      |         | 138,542 |         |   |         | 149,111 |        
|                                                                                     | Purchased transportation                             |                          |         | 99,604  |         |      |         | 99,109  |         |   |         | 97,756  |        
|                                                                                     | Insurance and claims                                 |                          |         | 38,168  |         |      |         | 43,500  |         |   |         | 50,837  |        
|                                                                                     | Operating taxes and licenses                         |                          |         | 30,376  |         |      |         | 33,583  |         |   |         | 33,262  |        
|                                                                                     | Depreciation and amortization                        |                          |         | 45,556  |         |      |         | 54,880  |         |   |         | 60,358  |        
|                                                                                     | Rents                                                |                          |         | 6,090   |         |      |         | 6,342   |         |   |         | 6,813   |        
|                                                                                     | Communications and utilities                         |                          |         | 7,138   |         |      |         | 6,419   |         |   |         | 7,022   |        
|                                                                                     | Other operating expenses                             |                          |         | 10,671  |         |      |         | 10,384  |         |   |         | 16,126  |        
|                                                                                     | Loss (gain) on disposal of operating assets,
    net |                          |         | 1,325   |         |      |         | 748     |         |   |         | (2,725  | )      
|                                                                                     |                                                      |                          |         |         |         |      |         |         |         |   |         |        
|                                                                                     |                                                      | Total operating expenses |         |         | 846,980 |      |         |         | 877,052 |   |         |         | 934,476 |  
|                                                                                     |                                                      |                          |         |         |         |      |         |         |         |   |         |        
|                                                                                     |                                                      | Operating income (loss)  |         |         | 18,483  |      |         |         | 21,008  |   |         |         | (37,709 | )
|                                                                                     |                                                      |                          |         |         |         |      |         |         |         |   |         |        
|Other income (expense):                                                              |                                                      |                          |         |         |         |      |         |         |         |   |         |        
|                                                                                     | Equity in earnings of joint ventures, net of tax     |                          |         | 0       |         |      |         | 0       |         |   |         | 4,072   |        
|                                                                                     | Gain on sale of joint ventures                       |                          |         | 0       |         |      |         | 0       |         |   |         | 16,230  |        
|                                                                                     | Write down of joint ventures                         |                          |         | 0       |         |      |         | 0       |         |   |         | (10,042 | )      
|                                                                                     | Interest expense                                     |                          |         | (29,138 | )       |      |         | (30,627 | )       |   |         | (37,574 | )      
|                                                                                     | Investment income                                    |                          |         | 3,172   |         |      |         | 2,463   |         |   |         | 3,874   |        
|                                                                                     | Foreign exchange gain (loss)                         |                          |         | 3,169   |         |      |         | 108     |         |   |         | (829    | )      
|                                                                                     | Gain on early extinguishment of debt                 |                          |         | 0       |         |      |         | 2,750   |         |   |         | 0       |        
|                                                                                     | Other, net                                           |                          |         | 1,976   |         |      |         | (265    | )       |   |         | 1,189   |        
|                                                                                     |                                                      |                          |         |         |         |      |         |         |         |   |         |        
|                                                                                     |                                                      |                          | (20,821 | )       |         |      | (25,571 | )       |         |   | (23,080 | )      
|                                                                                     |                                                      |                          |         |         |         |      |         |         |         |   |         |        
|Loss before income taxes and cumulative effect of
    change in accounting principle |                                                      |                          | (2,338  | )       |         |      | (4,563  | )       |         |   | (60,789 | )      
|Income tax benefit (expense)                                                         |                                                      |                          | (6,266  | )       |         |      | 1,129   |         |         |   | 21,293  |        
|                                                                                     |                                                      |                          |         |         |         |      |         |         |         |   |         |        
|Loss before cumulative effect of change in
    accounting principle                  |                                                      |                          | (8,604  | )       |         |      | (3,434  | )       |         |   | (39,496 | )      
|Cumulative effect of change in accounting
    principle, net of tax                  |                                                      |                          | 0       |         |         |      | (4,092  | )       |         |   | 0       |        
|                                                                                     |                                                      |                          |         |         |         |      |         |         |         |   |         |        
|                                                                                     |                                                      | Net loss                 |         | $       | (8,604  | )    |         | $       | (7,526  | ) |         | $       | (39,496 | )
|                                                                                     |                                                      |                          |         |         |         |      |         |         |         |   |         |        
|Basic and diluted loss per common share:                                             |                                                      |                          |         |         |         |      |         |         |         |   |         |        
|Loss before cumulative effect of change in
    accounting principle:                 |                                                      |                          |         |         |         |      |         |         |         |   |         |        
|                                                                                     | Basic and diluted                                    |                          | $       | (1.02   | )       |      | $       | (0.41   | )       |   | $       | (4.86   | )      
|Cumulative effect of change in accounting
    principle, net of tax:                 |                                                      |                          |         |         |         |      |         |         |         |   |         |        
|                                                                                     | Basic and diluted                                    |                          |         | 0       |         |      |         | (0.50   | )       |   |         | 0       |        
|                                                                                     |                                                      |                          |         |         |         |      |         |         |         |   |         |        
|Net loss:                                                                            |                                                      |                          |         |         |         |      |         |         |         |   |         |        
|                                                                                     | Basic and diluted                                    |                          | $       | (1.02   | )       |      | $       | (0.91   | )       |   | $       | (4.86   | )      
|                                                                                     |                                                      |                          |         |         |         |      |         |         |         |   |         |        
|Weighted average common shares outstanding:                                          |                                                      |                          |         |         |         |      |         |         |         |   |         |        
|                                                                                     | Basic and diluted                                    |                          |         | 8,475   |         |      |         | 8,301   |         |   |         | 8,128   |        
|                                                                                     |                                                      |                          |         |         |         |      |         |         |         |   |         |        

See accompanying notes to consolidated financial
statements.

F-4



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY


Years Ended December 31, 2003, 2002, and
2001


|                           |                                                                   |                                                                              |   |              |        |            |       |          |   |          |   |               |   |               |        |       |   |   |      |   |   |   |         |         |   |   |        |   |        |   |        |         |        |  
|-------------------------- | ----------------------------------------------------------------- | ---------------------------------------------------------------------------- | - | ------------ | ------ | ---------- | ----- | -------- | - | -------- | - | ------------- | - | ------------- | ------ | ----- | - | - | ---- | - | - | - | ------- | ------- | - | - | ------ | - | ------ | - | ------ | ------- | ------ | -
|                           |                                                                   |                                                                              |   |              |        |            |       |          |   |          |   | Accumulated   |   |              
|                           |                                                                   | Comprehensive                                                                |   | Common Stock |        | Additional |       |          |   | Retained |   | Other         |   |              
|                           |                                                                   | Income                                                                       |   |              |        | Paid-in    |       | Treasury |   | Earnings |   | Comprehensive |   |              
|                           |                                                                   | (Loss)                                                                       |   | Shares       |        | Amount     |       | Capital  |   | Stock    |   | (Deficit)     |   | Income (Loss) |        | Total
|                           |                                                                   |                                                                              |   |              |        |            |       |          |   |          |   |               |   |               |        |      
|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     |       
|                           | Compensation expense for 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     |       
|                           | Compensation expense for 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 |        
|                           | Net loss                                                          |                                                                              | $ | (8,604       | )      |            |       | 0        |   |          |   | 0             |   |               |        | 0     |   |   |      | 0 |   |   |         | (8,604  | ) |   |        | 0 |        |   |        | (8,604  | )     
|                           | Other comprehensive loss:                                         |                                                                              |   |              |        |            |       |          |   |          |   |               |   |               |        |       |   |   |      |   |   |   |         |         |   |   |        |   |        |   |        |         |       
|                           |                                                                   | Foreign currency translation adjustment, net of
    income taxes of $(3,974) |   |              | 6,192  |            |       |          | 0 |          |   |               | 0 |               |        |       | 0 |   |      |   | 0 |   |         |         | 0 |   |        |   | 6,192  |   |        |         | 6,192  |  
|                           |                                                                   | Minimum pension liability, net of income taxes of
    $(126)                 |   |              | 202    |            |       |          | 0 |          |   |               | 0 |               |        |       | 0 |   |      |   | 0 |   |         |         | 0 |   |        |   | 202    |   |        |         | 202    |  
|                           |                                                                   |                                                                              |   |              |        |            |       |          |   |          |   |               |   |               |        |       |   |   |      |   |   |   |         |         |   |   |        |   |        |   |        |        
|                           | Comprehensive income                                              |                                                                              | $ | (2,210       | )      |            |       |          |   |          |   |               |   |               |        |       |   |   |      |   |   |   |         |         |   |   |        |   |        |   |        |         |       
|                           |                                                                   |                                                                              |   |              |        |            |       |          |   |          |   |               |   |               |        |       |   |   |      |   |   |   |         |         |   |   |        |   |        |   |        |        
|                           | Issuance of common stock                                          |                                                                              |   |              |        |            |       | 161      |   |          |   | 0             |   |               |        | 450   |   |   |      | 0 |   |   |         | 0       |   |   |        | 0 |        |   |        | 450     |       
|                           | Compensation expense for restricted stock, net of
    forfeitures |                                                                              |   |              |        |            |       | 182      |   |          |   | 0             |   |               |        | 260   |   |   |      | 0 |   |   |         | 0       |   |   |        | 0 |        |   |        | 260     |       
|                           |                                                                   |                                                                              |   |              |        |            |       |          |   |          |   |               |   |               |        |       |   |   |      |   |   |   |         |         |   |   |        |   |        |   |        |        
|Balance, December 31, 2003 |                                                                   |                                                                              |   |              |        |            | 8,764 |          |   | $        | 0 |               |   | $             | 47,511 |       |   | $ | (707 | ) |   | $ | (35,024 | )       |   | $ | (2,966 | ) |        | $ | 8,814  |        
|                           |                                                                   |                                                                              |   |              |        |            |       |          |   |          |   |               |   |               |        |       |   |   |      |   |   |   |         |         |   |   |        |   |        |   |        |        

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, 2003, 2002, and
2001


(In thousands)


|                                                                 |                                                                                     |                                                              |                                                         |                                                         |        |            |         |         |        |        |         |         |         |        |         |  
|---------------------------------------------------------------- | ----------------------------------------------------------------------------------- | ------------------------------------------------------------ | ------------------------------------------------------- | ------------------------------------------------------- | ------ | ---------- | ------- | ------- | ------ | ------ | ------- | ------- | ------- | ------ | ------- | -
|                                                                 |                                                                                     | 2003                                                         |                                                         | 2002                                                    |        | 2001      
|                                                                 |                                                                                     |                                                              |                                                         |                                                         |        |           
|                                                                 |                                                                                     |                                                              |                                                         | (Restated)                                              |        | (Restated)
|Cash flows from operating activities:                            |                                                                                     |                                                              |                                                         |                                                         |        |            |         |         |        |        |         |        
|                                                                 | Net loss                                                                            |                                                              | $                                                       | (8,604                                                  | )      |            | $       | (7,526  | )      |        | $       | (39,496 | )      
|                                                                 |                                                                                     |                                                              |                                                         |                                                         |        |            |         |         |        |        |         |        
|                                                                 | Adjustments to reconcile net loss to net cash
    provided by operating activities: |                                                              |                                                         |                                                         |        |            |         |         |        |        |         |         |        
|                                                                 |                                                                                     | Gain on early extinguishment of debt                         |                                                         |                                                         | 0      |            |         |         | (2,750 | )      |         |         | 0       |       
|                                                                 |                                                                                     | Interest expense paid in kind                                |                                                         |                                                         | 1,065  |            |         |         | 1,115  |        |         |         | 248     |       
|                                                                 |                                                                                     | Amortization of deferred financing costs                     |                                                         |                                                         | 3,697  |            |         |         | 4,004  |        |         |         | 4,795   |       
|                                                                 |                                                                                     | Depreciation and amortization                                |                                                         |                                                         | 45,556 |            |         |         | 54,880 |        |         |         | 60,358  |       
|                                                                 |                                                                                     | Loss (gain) on disposal of assets and other,
    net         |                                                         |                                                         | 1,325  |            |         |         | 1,013  |        |         |         | (3,890  | )     
|                                                                 |                                                                                     | Foreign exchange (gain) loss, net                            |                                                         |                                                         | (3,169 | )          |         |         | (108   | )      |         |         | 829     |       
|                                                                 |                                                                                     | Gain on sale of joint ventures                               |                                                         |                                                         | 0      |            |         |         | 0      |        |         |         | (16,230 | )     
|                                                                 |                                                                                     | Write down of joint ventures                                 |                                                         |                                                         | 0      |            |         |         | 0      |        |         |         | 10,042  |       
|                                                                 |                                                                                     | Equity in earnings of joint ventures                         |                                                         |                                                         | 0      |            |         |         | 0      |        |         |         | (4,072  | )     
|                                                                 |                                                                                     | Cumulative effect of change in accounting
    principle      |                                                         |                                                         | 0      |            |         |         | 4,092  |        |         |         | 0       |       
|                                                                 |                                                                                     | Deferred income taxes                                        |                                                         |                                                         | 6,914  |            |         |         | (1,632 | )      |         |         | (21,703 | )     
|                                                                 |                                                                                     | Compensation expense related to stock options and
    grants |                                                         |                                                         | 260    |            |         |         | (57    | )      |         |         | 181     |       
|                                                                 |                                                                                     | Amortization of Teamsters Union contract costs               |                                                         |                                                         | 1,000  |            |         |         | 2,400  |        |         |         | 2,403   |       
|                                                                 |                                                                                     | Change in operating assets and liabilities:                  |                                                         |                                                         |        |            |         |         |        |        |         |         |         |       
|                                                                 |                                                                                     |                                                              | Receivables, net of allowance for doubtful
    accounts |                                                         |        | 5,258      |         |         |        | 13,667 |         |         |         | 40,679 |        
|                                                                 |                                                                                     |                                                              | Inventories                                             |                                                         |        | 272        |         |         |        | 270    |         |         |         | 1,980  |        
|                                                                 |                                                                                     |                                                              | Prepayments, other current assets and other assets      |                                                         |        | 1,821      |         |         |        | (6,074 | )       |         |         | (3,419 | )      
|                                                                 |                                                                                     |                                                              | Short-term investments                                  |                                                         |        | 0          |         |         |        | 0      |         |         |         | 1,770  |        
|                                                                 |                                                                                     |                                                              | Trade accounts payable                                  |                                                         |        | (3,512     | )       |         |        | (3,603 | )       |         |         | (5,430 | )      
|                                                                 |                                                                                     |                                                              | Accrued liabilities and other liabilities               |                                                         |        | (16,486    | )       |         |        | (5,268 | )       |         |         | 5,659  |        
|                                                                 |                                                                                     |                                                              |                                                         |                                                         |        |            |         |         |        |        |         |        
|                                                                 |                                                                                     |                                                              |                                                         | Net cash provided by operating activities               |        |            | 35,397  |         |        |        | 54,423  |         |         |        | 34,704  |  
|                                                                 |                                                                                     |                                                              |                                                         |                                                         |        |            |         |         |        |        |         |        
|Cash flows from investing activities:                            |                                                                                     |                                                              |                                                         |                                                         |        |            |         |         |        |        |         |        
|                                                                 | Purchases of property and equipment                                                 |                                                              |                                                         | (18,555                                                 | )      |            |         | (21,786 | )      |        |         | (21,463 | )      
|                                                                 | Proceeds from sale of property and equipment                                        |                                                              |                                                         | 685                                                     |        |            |         | 4,725   |        |        |         | 11,762  |        
|                                                                 | (Increase) decrease in restricted cash and cash
    equivalents                     |                                                              |                                                         | (81,279                                                 | )      |            |         | 5,289   |        |        |         | (6,094  | )      
|                                                                 | (Increase) decrease in restricted investments                                       |                                                              |                                                         | 60,732                                                  |        |            |         | 4,062   |        |        |         | (6,672  | )      
|                                                                 | Investment in joint ventures                                                        |                                                              |                                                         | 0                                                       |        |            |         | 0       |        |        |         | (464    | )      
|                                                                 | Cash received from joint ventures                                                   |                                                              |                                                         | 0                                                       |        |            |         | 0       |        |        |         | 8,624   |        
|                                                                 | Proceeds from sale of equity investment in joint
    venture                        |                                                              |                                                         | 0                                                       |        |            |         | 3,000   |        |        |         | 20,560  |        
|                                                                 | Decrease in the cash surrender value of life
    insurance                          |                                                              |                                                         | 2                                                       |        |            |         | 2,641   |        |        |         | 420     |        
|                                                                 |                                                                                     |                                                              |                                                         |                                                         |        |            |         |         |        |        |         |        
|                                                                 |                                                                                     |                                                              |                                                         | Net cash (used in) provided by investing
    activities |        |            | (38,415 | )       |        |        | (2,069  | )       |         |        | 6,673   |  
|                                                                 |                                                                                     |                                                              |                                                         |                                                         |        |            |         |         |        |        |         |        
|Cash flows from financing activities:                            |                                                                                     |                                                              |                                                         |                                                         |        |            |         |         |        |        |         |        
|                                                                 | Repayments to revolving credit facility, net                                        |                                                              |                                                         | (24,635                                                 | )      |            |         | (74,263 | )      |        |         | (35,966 | )      
|                                                                 | Additions to long-term debt                                                         |                                                              |                                                         | 99,875                                                  |        |            |         | 82,750  |        |        |         | 0       |        
|                                                                 | Repayment of long-term debt                                                         |                                                              |                                                         | (78,280                                                 | )      |            |         | (47,535 | )      |        |         | (109    | )      
|                                                                 | Payment of deferred financing costs                                                 |                                                              |                                                         | (3,038                                                  | )      |            |         | (9,262  | )      |        |         | (3,574  | )      
|                                                                 | Proceeds from issuance of common stock                                              |                                                              |                                                         | 450                                                     |        |            |         | 338     |        |        |         | 349     |        
|                                                                 | Other, net                                                                          |                                                              |                                                         | 0                                                       |        |            |         | 434     |        |        |         | (612    | )      
|                                                                 |                                                                                     |                                                              |                                                         |                                                         |        |            |         |         |        |        |         |        
|                                                                 |                                                                                     |                                                              |                                                         | Net cash used in financing activities                   |        |            | (5,628  | )       |        |        | (47,538 | )       |         |        | (39,912 | )
|                                                                 |                                                                                     |                                                              |                                                         |                                                         |        |            |         |         |        |        |         |        
|Effect of exchange rate changes on cash and cash
    equivalents |                                                                                     |                                                              | 1,346                                                   |                                                         |        |            | 183     |         |        |        | 611     |        
|                                                                 |                                                                                     |                                                              |                                                         |                                                         |        |            |         |         |        |        |         |        
|                                                                 |                                                                                     |                                                              |                                                         | Net change in cash and cash equivalents                 |        |            | (7,300  | )       |        |        | 4,999   |         |         |        | 2,076   |  
|Cash and cash equivalents at beginning of year                   |                                                                                     |                                                              | 9,448                                                   |                                                         |        |            | 4,449   |         |        |        | 2,373   |        
|                                                                 |                                                                                     |                                                              |                                                         |                                                         |        |            |         |         |        |        |         |        
|Cash and cash equivalents at end of year                         |                                                                                     | $                                                            | 2,148                                                   |                                                         |        | $          | 9,448   |         |        | $      | 4,449   |        
|                                                                 |                                                                                     |                                                              |                                                         |                                                         |        |            |         |         |        |        |         |        

See accompanying notes to consolidated financial
statements.

F-6



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


December 31, 2003, 2002, and
2001




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

Allied Holdings, Inc. (the Company or
Allied), 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, light trucks, and SUVs 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 tracking, 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. The
2001 and 2002 consolidated financial statements have been
restated, see Note (3).



|    |                             
|--- | ----------------------------
|(b) | Foreign Currency Translation

The Companys functional currency is the
local currency for each of its subsidiaries. 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 (loss) 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, light trucks, and SUVs 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. The Company makes estimates to
determine the collectibility of its accounts receivable on the
balance sheet. These 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.



|    |                          
|--- | -------------------------
|(d) | Cash and Cash Equivalents

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



|    |                                                      
|--- | -----------------------------------------------------
|(e) | Restricted Cash, Cash Equivalents and
    Investments

Restricted cash and cash equivalents consist of
highly liquid investments with an original maturity of three
months or less. Restricted investments are classified as trading
securities and are carried at their fair value based on the
quoted market prices of those investments. Net realized and
unrealized gains and losses on trading securities are included
in net earnings. Amounts are contractually restricted to secure
outstanding letters of credit (Note 5).

F-7



---



##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |            
|--- | -----------
|(f) | 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.



|    |                               
|--- | ------------------------------
|(g) | Tires on Tractors and Trailers

New tires on tractors and trailers are
capitalized and amortized to operating supplies and expenses
based on the estimated useful life. The cost of replacement
tires is expensed as incurred.



|    |                       
|--- | ----------------------
|(h) | 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 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 in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets.



|    |                                
|--- | -------------------------------
|(i) | Impairment of Long-Lived Assets

In accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets, 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 for 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 would no longer be 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.



|    |                   
|--- | ------------------
|(j) | 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.



|    |                                           
|--- | ------------------------------------------
|(k) | Cash Surrender Value of Life
    Insurance

The Company maintains life insurance policies for
certain employees, directors and officers of the Company. Under
the terms of the policies, the Company records as an asset the
lesser of aggregate premiums paid or the cash surrender value
amount of the policy, and will receive such amounts upon
repayment from or the death of the insured. 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. During 2002, the
Company discontinued making premium payments on these policies
due to the enactment of the Sarbanes-Oxley Act of 2002 on
June 30, 2002 and the

F-8



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

trustees representing the beneficiaries of the
policies have been utilizing the cash surrender value to pay the
annual premiums due under the policies.



|    |                                     
|--- | ------------------------------------
|(l) | Goodwill and Other Intangible Assets

Goodwill represents the excess of costs over fair
value of assets of businesses acquired. In accordance with
SFAS No. 142, Goodwill and Other Intangible
Assets, goodwill and intangible assets acquired in a
purchase business combination and determined to have an
indefinite useful life are not amortized, but instead tested
annually for impairment, and 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. 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. 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.

Prior to the adoption of SFAS No. 142
on January 1, 2002, 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.



|    |                 
|--- | ----------------
|(m) | Reclassification

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



|    |                                    
|--- | -----------------------------------
|(n) | Fair Value of Financial Instruments

SFAS No. 107, Disclosures About Fair
Value of Financial Instruments,requires disclosure of the
information below 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.

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



| |   |                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The carrying amount of cash and cash equivalents
    and restricted cash and cash equivalents approximates fair value
    due to the relatively short period to maturity of these
    instruments.                                                                                                                                                        
|
| |  | At December 31, 2003, the Company had no
    securities classified as restricted investments. The
    Companys restricted investments as of December 31,
    2002 were comprised of debt and equity securities, all
    classified as trading securities and were carried at their fair
    value based on the quoted market prices of those investments.

F-9



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |   |                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 asset and (liability) amounts recorded
in the balance sheet and the estimated fair values of financial
instruments at December 31, 2003 and 2002 consisted of the
following (in thousands):

|                                                             |  |                 |          |            |  |      |          |      |  |   |          |   |  |   |          |  
|------------------------------------------------------------ |  | --------------- | -------- | ---------- |  | ---- | -------- | ---- |  | - | -------- | - |  | - | -------- | -
|                                                             |  |                 |          |           
|                                                             |  | Carrying Amount |          | Fair Value
|                                                             |  |                 |          |           
|                                                             |  | 2003            |          | 2002       |  | 2003 |          | 2002
|                                                             |  |                 |          |            |  |      |          |     
|Cash and cash equivalents (including restricted
    amounts) |  | $               | 84,232   |            |  | $    | 10,253   |      |  | $ | 84,232   |   |  | $ | 10,253   |  
|Restricted investments                                       |  |                 | 0        |            |  |      | 60,732   |      |  |   | 0        |   |  |   | 60,732   |  
|Long-term debt (including current maturities)                |  |                 | (246,500 | )          |  |      | (248,475 | )    |  |   | (240,500 | ) |  |   | (202,785 | )



|    |                              
|--- | -----------------------------
|(o) | 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 automobile and general liability
claim, including personal injury and property damage claims. In
addition to the $500,000 per occurrence deductible for
automobile liability, there is a $1.5 million
inneraggregate deductible for those claims that exceed the
$500,000 per occurrence deductible, subject to a
$1.0 million per claim limit. Allied has a
$1.0 million inneraggregate limit for losses from $1.0 to
$2.0 million, and an additional $4.0 million
inneraggregate limit for losses from $2.0 to $5.0 million.
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 personal injury and
property damage claim. Also, in Canada, there is a CDN $500,000
inneraggregate limit for losses from CDN $500,000 to
$1.0 million. For cargo damage in Canada, the Company has a
CDN $100,000 deductible.

Reserves for self-insured workers
compensation, automobile, and general liability losses utilize
actuarial estimates that are based on the Companys
historical claims experience adjusted for current industry
trends, and discounted to their present values using
managements estimate of weighted average risk free
interest rates for each claim year. The discount rates for 2003,
2002, and 2001 were 2.5%, 3.5% and 4.0%, respectively. The
undiscounted amount of these reserves at December 31, 2003
and 2002 was approximately $100.9 million and
$109.6 million, respectively. These claims and insurance
reserves are adjusted periodically as 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 automobile,
general liability, and workers compensation for both
reported claims 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. Unfavorable developments
subsequent to December 31, 2003 could have a material
impact on the estimated losses accrued.



|    |                  
|--- | -----------------
|(p) | Stock Option Plan

The Company applies the intrinsic-value-based
method of accounting prescribed by Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued
to Employees,and related interpretations to account for its
fixed-plan stock options. Under this method, compensation
expense is recorded on the date of grant only if the current
market price of the underlying stock exceeds the exercise price.
SFAS No. 123, Accounting for Stock-Based
Compensation,established accounting and disclosure
requirements using a fair-value-based method of accounting for
stock-based employee compensation plans. As allowed by
SFAS No. 123, the Company has elected to continue to
apply the intrinsic-value-based method of accounting described
above, and has adopted only the disclosure requirements of
SFAS No. 123 and the amended

F-10



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

disclosure requirements of
SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, an amendment
of FASB Statement No. 123.

If the Company applied the fair value method
prescribed by SFAS No. 123, net loss and loss per
common share would have been changed to the pro forma amounts
indicated below at December 31, 2003, 2002, and 2001 (in
thousands, except per share data):

|                   |                                                                                                          |                   |        |      |       |      |        |      |       |   |         |      |       |  
|------------------ | -------------------------------------------------------------------------------------------------------- | ----------------- | ------ | ---- | ----- | ---- | ------ | ---- | ----- | - | ------- | ---- | ----- | -
|                   |                                                                                                          | 2003              |        | 2002 |       | 2001
|                   |                                                                                                          |                   |        |      |       |     
|Reported net loss  |                                                                                                          | $                 | (8,604 | )    |       | $    | (7,526 | )    |       | $ | (39,496 | )   
|                   | Less: stock-based employee compensation included
    in reported net loss, net of related taxes          |                   |        | 250  |       |      |        | (43  | )     |   |         | 117  |      
|                   | Plus: stock-based employee compensation
    determined under the fair value method, net of related taxes |                   |        | (755 | )     |      |        | (669 | )     |   |         | (645 | )    
|Pro forma net loss |                                                                                                          | $                 | (9,109 | )    |       | $    | (8,238 | )    |       | $ | (40,024 | )   
|Loss per share:    |                                                                                                          |                   |        |      |       |      |        |      |       |   |         |     
|                   | As reported:                                                                                             |                   |        |      |       |      |        |      |       |   |         |      |      
|                   |                                                                                                          | Basic and diluted |        | $    | (1.02 | )    |        | $    | (0.91 | ) |         | $    | (4.86 | )
|                   | Pro forma:                                                                                               |                   |        |      |       |      |        |      |       |   |         |      |      
|                   |                                                                                                          | Basic and diluted |        | $    | (1.07 | )    |        | $    | (0.99 | ) |         | $    | (4.92 | )

The fair value of the Companys stock
options used to compute pro forma net loss and loss per common
share disclosures is the estimated present value at grant date
using the Black-Scholes option pricing model with the following
weighted average assumptions for 2003, 2002, and 2001: dividend
yield of 0%, expected volatility of 71%, 72%, and 85%,
respectively, a risk-free interest rate of 2.71%, 3.19%, and
4.30%, respectively, and an expected holding period of seven
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 opinion, the existing models do not
necessarily provide a reliable single measure of the fair value
of its employee stock options.



|    |             
|--- | ------------
|(q) | 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.

The Company assesses the recoverability of
deferred tax assets based on estimates of future taxable income
and establishes a valuation allowance against deferred tax
assets to the extent the Company believes that recovery is not
more likely than not.

F-11



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                
|--- | -------------------------------
|(r) | Pension and Other Benefit 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 froze
employee participation in this plan during 2002.

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



|    |                           
|--- | --------------------------
|(s) | Other Postretirement Plans

The Company sponsors postretirement plans for
certain of its retired employees. The cost of these programs is
being funded currently.



|    |                   
|--- | ------------------
|(t) | 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
loss available to common stockholders by the weighted average
number of common shares outstanding for the years presented.
Diluted earnings per share reflect the potential dilution that
could occur if securities and other contracts to issue common
stock were exercised or converted into common stock or resulted
in the issuance of common stock that would then share in the
earnings of the entity. Total options of 1,709,967, 1,612,300,
and 1,020,300 and restricted stock of 170,993, 172,534 and
202,985 shares outstanding at December 31, 2003, 2002,
and 2001, respectively, were excluded from the calculation of
diluted earnings per share as the impact would have been
antidilutive.



|    |                              
|--- | -----------------------------
|(u) | Commitments and Contingencies

Liabilities for loss contingencies arising from
claims, assessments, litigation, fines, 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.



|    |                                
|--- | -------------------------------
|(v) | Guarantees and Indemnifications

Guarantees

The Company leases office space and certain
terminal facilities under noncancelable and cancelable (i.e.
month-to-month) operating lease agreements, some of which
provide guarantees to third parties. The Company assesses the
fair value of its obligation to stand ready to perform under
these guarantees by considering the likelihood of the occurrence
of the specified triggering events or conditions requiring
performance as well as other assumptions and factors. The
Company has not entered into any guarantees of significance
during the year ended December 31, 2003. Accordingly, no
liabilities for guarantees have been recorded at
December 31, 2003.

Indemnifications

The Company enters into indemnification
provisions under its agreements with certain of its customers,
suppliers, service providers, and business partners in the
ordinary course of business. Under these provisions, subject to
various limitations and qualifications, the Company generally
indemnifies and holds harmless the indemnified party for losses
suffered or incurred by the indemnified party as a result of the
Companys activities. The potential losses primarily relate
to obligations that are insured under the Companys
insurance programs. These indemnification provisions generally
survive termination of the underlying agreement. The

F-12



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

maximum potential amount of future payments the
Company could be required to make under these indemnification
provisions is unlimited. The Company has not incurred material
costs to defend lawsuits or settle claims related to these
indemnification agreements and does not expect to at this time.
The fair value of these agreements is estimated to be minimal.
The Company had no liabilities recorded for these agreements at
December 31, 2003.

In addition, the Company is obligated to
indemnify its directors and officers who are, or were, serving
at the Companys request in such capacities, subject to the
Companys By-laws. The maximum potential amount of future
payments that the Company could be required to make under the
By-laws is unlimited; however the Company has Director and
Officer insurance policies that, in most cases, would enable it
to recover a portion of any future amounts paid. Historically,
the Company has not incurred any costs to settle claims related
to these indemnifications, and there were no claims outstanding
at December 31, 2003. Accordingly, no liabilities for
indemnifications have been recorded at December 31, 2003.



|    |                                   
|--- | ----------------------------------
|(w) | 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 a 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 statement of operations and requires that a company must
formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting.

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 2003,
2002, and 2001, the Company did not have any fuel hedging
contracts or other derivative instruments that fall under the
provisions of SFAS No. 133, as amended.



|    |                 
|--- | ----------------
|(x) | 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 and goodwill; valuation allowances for
receivables, inventories and deferred income tax assets;
self-insurance reserves; and assets and obligations related to
employee benefits. Actual results could differ from those
estimates.



|    |                           
|--- | --------------------------
|(y) | Other Comprehensive Income

Accumulated other comprehensive income (loss),
net of income taxes of $1.9 million and $6.0 million
at December 31, 2003 and 2002, respectively, consists of
the following (in thousands):

|                           |  |             |        |            |  |               |        |   |  |   |        |  
|-------------------------- |  | ----------- | ------ | ---------- |  | ------------- | ------ | - |  | - | ------ | -
|                           |  | Foreign     |        | Minimum    |  | Accumulated  
|                           |  | Currency    |        | Pension    |  | Other        
|                           |  | Translation |        | Liability  |  | Comprehensive
|                           |  | Adjustment  |        | Adjustment |  | Income       
|                           |  |             |        |            |  |              
|Balance, December 31, 2002 |  | $           | (7,741 | )          |  | $             | (1,619 | ) |  | $ | (9,360 | )
|Balance, December 31, 2003 |  | $           | (1,549 | )          |  | $             | (1,417 | ) |  | $ | (2,966 | )

F-13



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |             
|--- | ------------
|(3) | Restatements

The Company made certain reclassifications in
2003, resulting in adjustments to restate previously issued
financial statements for 2002 and 2001. These reclassifications
are as follows:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company evaluated the classification of its
    cash and investments held for the settlement of insurance
    claims. As of December 31, 2002, $805,000 of cash and cash
    equivalents and $60.7 million of investments were pledged
    to collateralize $61.5 million of letters of credit
    required by third-party insurance companies for the settlement
    of insurance claims. The Company concluded that the restriction
    on certain of its cash and investments as previously disclosed
    in the footnotes to the Companys financial statements
    should have been designated as restricted in the balance sheet
    as of December 31, 2002 and its statements of cash flows as
    of December 31, 2002 and 2001. In addition, management
    further concluded that because the collateral assets are used to
    secure current and long-term insurance and claims liabilities, a
    portion of these restricted cash and cash equivalents and
    restricted investments should be classified as long-term at
    December 31, 2002. Accordingly, the Company has designated
    all of the above cash and investments as restricted and
    therefore not available for operations, and has reclassified
    $41.2 million of investments from current to long-term
    investments on its consolidated balance sheet as of
    December 31, 2002. Further, the Company has excluded
    restricted cash of $805,000 and $6.1 million from the cash
    and cash equivalents totals in the consolidated statements of
    cash flows for the years ended December 31, 2002 and 2001,
    respectively.
|
| | The Company reclassified its revolving line of
    credit from long-term debt to borrowings under revolving credit
    facility. The Company determined that certain terms of its
    revolving credit agreement, as described in Note (13),
    include a subjective acceleration clause as
    addressed in EITF No. 95-22 Balance Sheet Classification
    of Borrowings Outstanding Under Revolving Credit Agreements That
    Include a Subjective Acceleration Clause and Lock-Box
    Arrangement. Accordingly, the Company has reclassified
    $24.6 million in borrowings against the revolving credit
    agreement from long-term to current debt on its consolidated
    balance sheet as of December 31, 2002, even though the
    existing facility does not expire until September 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | In addition, the Company also reclassified
    certain other items on its consolidated balance sheet at
    December 31, 2002 related to its pension assets and
    obligations. These included a reclassification of a
    $14.9 million prepaid pension asset related to the Allied
    Defined Benefit Pension Plan from current to long-term assets
    and a reclassification of net non-bargaining pension plan
    liabilities of $2.7 million from current to long-term
    liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | At December 31, 2003, the Company also
    reduced both deferred tax assets and liabilities by
    $17.1 million to be consistent with the current year
    presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | During 2003, the Company also made an additional
    reclassification to its consolidated cash flow statements for
    the years ended December 31, 2002 and 2001. These include
    separate detail within cash flows from operating activities of
    $108,000 and ($829,000) for foreign currency gains and (losses)
    incurred during 2002 and 2001, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

Accordingly, the Company has restated its
consolidated balance sheet for the year ended December 31,
2002 and its consolidated statements of cash flows for the years
ended December 31, 2002 and 2001.

F-14



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

A summary of the effects of the restatements on
the Companys consolidated balance sheet as of
December 31, 2002 include (in thousands):

|                                           |                                            |                   |         |             |  |   |         |         | 
|------------------------------------------ | ------------------------------------------ | ----------------- | ------- | ----------- |  | - | ------- | ------- | 
|                                           |                                            |                  
|                                           |                                            | December 31, 2002
|                                           |                                            |                  
|                                           |                                            | As Previously     |         |            
|                                           |                                            | Reported          |         | As Restated
|                                           |                                            |                   |         |            
|Cash and cash equivalents                  |                                            | $                 | 10,253  |             |  | $ | 9,448   |        
|Restricted cash and cash equivalents       |                                            |                   | 0       |             |  |   | 805     |        
|Short-term investments                     |                                            |                   | 60,732  |             |  |   | 0       |        
|Restricted investments                     |                                            |                   | 0       |             |  |   | 19,502  |        
|Deferred income taxes                      |                                            |                   | 39,826  |             |  |   | 22,705  |        
|Prepayments and other current assets       |                                            |                   | 28,685  |             |  |   | 13,717  |        
|                                           | Total current assets                       |                   |         | 203,079     |  |   |         | 129,760 | 
|Non-current restricted investments         |                                            |                   | 0       |             |  |   | 41,230  |        
|Other non-current assets                   |                                            |                   | 20,525  |             |  |   | 35,493  |        
|                                           | Total assets                               |                   |         | 485,508     |  |   |         | 468,387 | 
|Borrowings under revolving credit facility |                                            |                   | 0       |             |  |   | 24,635  |        
|Accrued liabilities                        |                                            |                   | 92,881  |             |  |   | 90,129  |        
|                                           | Total current liabilities                  |                   |         | 140,251     |  |   |         | 162,134 | 
|Long-term debt, less current maturities    |                                            |                   | 237,690 |             |  |   | 213,055 |        
|Deferred income taxes                      |                                            |                   | 27,746  |             |  |   | 10,625  |        
|Other long-term liabilities                |                                            |                   | 62,040  |             |  |   | 64,792  |        
|                                           | Total liabilities and stockholders equity |                   |         | 485,508     |  |   |         | 468,387 | 

A summary of the effects of the restatements on
the Companys consolidated statements of cash flows for the
years ended December 31, 2002 and 2001 include (in
thousands):

|                                                                                    |                                                                 |                                           |   |                   |        |            |   |             |        |  |   |        |        |  |   |        |        | 
|----------------------------------------------------------------------------------- | --------------------------------------------------------------- | ----------------------------------------- | - | ----------------- | ------ | ---------- | - | ----------- | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                                                                    |                                                                 |                                           |   |                  
|                                                                                    |                                                                 | December 31, 2002                         |   | December 31, 2001
|                                                                                    |                                                                 |                                           |   |                  
|                                                                                    |                                                                 | As                                        |   |                   |        | As         |   |            
|                                                                                    |                                                                 | Previously                                |   |                   |        | Previously |   |            
|                                                                                    |                                                                 | Reported                                  |   | As Restated       |        | Reported   |   | As Restated
|                                                                                    |                                                                 |                                           |   |                   |        |            |   |            
|Adjustments to reconcile net loss to net cash
    provided by operating activities: |                                                                 |                                           |   |                   |        |            |   |             |        |  |   |        |        |  |   |       
|                                                                                    | Loss (gain) on disposal of assets and other, net                |                                           |   | 905               |        |            |   | 1,013       |        |  |   | (3,890 | )      |  |   | (3,890 | )     
|                                                                                    | Foreign exchange (gain) loss, net                               |                                           | $ | 0                 |        |            | $ | (108        | )      |  | $ | 0      |        |  | $ | 829    |       
|Change in operating assets and liabilities:                                         |                                                                 |                                           |   |                   |        |            |   |             |        |  |   |        |        |  |   |       
|                                                                                    | Prepayments, other current assets and other assets              |                                           |   | (9,786            | )      |            |   | (6,074      | )      |  |   | 293    |        |  |   | (3,419 | )     
|                                                                                    | Short-term investments                                          |                                           |   | 4,062             |        |            |   | 0           |        |  |   | (4,902 | )      |  |   | 1,770  |       
|                                                                                    | Accrued liabilities and other liabilities                       |                                           |   | (1,556            | )      |            |   | (5,268      | )      |  |   | 2,776  |        |  |   | 5,659  |       
|                                                                                    |                                                                 | Net cash provided by operating activities |   |                   | 58,485 |            |   |             | 54,423 |  |   |        | 28,032 |  |   |        | 34,704 | 
|Cash flows from investing activities:                                               |                                                                 |                                           |   |                   |        |            |   |             |        |  |   |        |        |  |   |       
|                                                                                    | (Increase) decrease in restricted cash and cash
    equivalents |                                           |   | 0                 |        |            |   | 5,289       |        |  |   | 0      |        |  |   | (6,094 | )     
|                                                                                    | (Increase) decrease in restricted investments                   |                                           |   | 0                 |        |            |   | 4,062       |        |  |   | 0      |        |  |   | (6,672 | )     

F-15



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                               |                                           |                                           |        |                   |         |            |       |             |        |   |        |         |        |   |       |         |       | 
|---------------------------------------------- | ----------------------------------------- | ----------------------------------------- | ------ | ----------------- | ------- | ---------- | ----- | ----------- | ------ | - | ------ | ------- | ------ | - | ----- | ------- | ----- | 
|                                               |                                           |                                           |        |                  
|                                               |                                           | December 31, 2002                         |        | December 31, 2001
|                                               |                                           |                                           |        |                  
|                                               |                                           | As                                        |        |                   |         | As         |       |            
|                                               |                                           | Previously                                |        |                   |         | Previously |       |            
|                                               |                                           | Reported                                  |        | As Restated       |         | Reported   |       | As Restated
|                                               |                                           |                                           |        |                   |         |            |       |            
|                                               |                                           | Net cash provided by investing activities |        |                   | (11,420 | )          |       |             | (2,069 | ) |        |         | 19,439 |   |       |         | 6,673 | 
|Cash flows from financing activities:          |                                           |                                           |        |                   |         |            |       |             |        |   |        |         |        |   |       |        
|                                               | Net cash provided by financing activities |                                           |        | (47,538           | )       |            |       | (47,538     | )      |   |        | (39,912 | )      |   |       | (39,912 | )    
|                                               | Net change in cash and cash equivalents   |                                           |        | (290              | )       |            |       | 4,999       |        |   |        | 8,170   |        |   |       | 2,076   |      
|Cash and cash equivalents at beginning of year |                                           |                                           | 10,543 |                   |         |            | 4,449 |             |        |   | 2,373  |         |        |   | 2,373 |        
|Cash and cash equivalents at end of year       |                                           | $                                         | 10,253 |                   |         | $          | 9,448 |             |        | $ | 10,543 |         |        | $ | 4,449 |        



|    |                                 
|--- | --------------------------------
|(4) | Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards
Board (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
is 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 adopted the provisions of
SFAS No. 143 effective January 1, 2003. The
adoption of SFAS No. 143 did not have a material effect on
the financial position or results of operations of the Company.

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 Company early adopted this standard in
2002. Accordingly, the after-tax gain on early extinguishment of
debt was not reported as an extraordinary item.

In July 2002, the FASB issued
SFAS No. 146, Accounting for Costs 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 Company adopted the
provisions of SFAS No. 146 effective January 1,
2003. The adoption of SFAS No. 146 did not have a
material effect on the financial position or results of
operations of the Company.

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

F-16



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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. The
Company adopted the recognition and measurement provisions of
the Interpretation effective January 1, 2003 for guarantees
issued or modified after December 31, 2002. The adoption of
this Interpretation did not have a material impact on the
financial position or results of operations of the Company.

In January 2003, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation
(FIN) No. 46, Consolidation of Variable
Interest Entities. FIN 46 requires companies to
evaluate variable interest entities for specific characteristics
to determine whether additional consolidation and disclosure
requirements apply. FIN 46 is immediately applicable for
variable interest entities created after January 31, 2003,
and applies to the first fiscal year or interim period beginning
after June 15, 2003 for variable interest entities acquired
prior to February 1, 2003. The adoption of FIN 46 did
not have a material impact on the financial position or results
of operations of the Company. In December 2003, the FASB revised
FIN 46 to exempt certain entities from its requirements and
to clarify certain issues arising during the implementation of
FIN 46. The adoption of this revised interpretation in the
first quarter of 2004 is not expected to have a material impact
on the Companys financial statements.

In April 2003, the FASB issued
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This
Statement clarifies under which circumstances a contract with an
initial net investment meets the characteristics of a derivative
and clarifies when a derivative contains a financing component
that warrants special reporting in the statement of cash flows.
SFAS No. 149 amends certain other existing
pronouncements. SFAS No. 149 is generally effective
for contracts entered into or modified after June 30, 2003
and should be applied prospectively. The adoption of
SFAS No. 149 did not have a material impact on the
financial position, results of operations or cash flows of the
Company.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity. SFAS No. 150 establishes standards for the
classification and measurement of certain financial instruments
with characteristics of both liabilities and equity.
SFAS No. 150 also includes required disclosures for
financial instruments within its scope. SFAS No. 150
was effective for instruments entered into or modified after
May 31, 2003 and otherwise was effective as of the
beginning of the first interim period beginning after
June 15, 2003. The adoption of SFAS No. 150 did
not have a material impact on the financial position or results
of operations of the Company.

Effective July 1, 2003, the Company
prospectively adopted Emerging Issues Task Force
(EITF) No. 00-21, Accounting for Revenue
Arrangements with Multiple Deliverables. The adoption of
EITF No. 00-21 did not have a material impact on the
financial position or results of operations of the Company.



|    |                                                      
|--- | -----------------------------------------------------
|(5) | Restricted Cash, Cash Equivalents and
    Investments

The Company had $82.1 million and
$61.5 million in restricted cash and cash equivalents and
investments at December 31, 2003 and 2002, respectively,
pledged to collateralize $82.1 million and
$61.5 million of letters of credit at December 31,
2003 and 2002, respectively, for the settlement of insurance
claims. In 2003, all of the Companys investments, which
consisted of federal, state, and municipal government
obligations, corporate securities, and equity securities, were
converted to cash and cash equivalents. All of the restricted
cash, cash equivalents and investments were not available to the
Company for operations in 2003 and 2002. 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 and
provide collateral for letters of credit required by third-party
insurance companies related to the settlement of insurance
claims.

F-17



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

A summary of restricted investments at
December 31, 2002 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 | 
|                  |                                                                              |                            |   |                    |        |        |   |            |       |  |   |        |        |   |   |       

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

The cost of securities sold is based on the
specific identification method. Sales of securities for the
years ended December 31, 2003, 2002, and 2001 are
summarized below (in thousands):

|                   |                       |      |   |        |   |      |   |        |   |  |   |         |  
|------------------ | --------------------- | ---- | - | ------ | - | ---- | - | ------ | - |  | - | ------- | -
|                   |                       | 2003 |   | 2002   |   | 2001
|                   |                       |      |   |        |   |     
|Fixed maturities:  |                       |      |   |        |   |      |   |        |   |  |   |        
|                   | Cash proceeds         |      | $ | 78,360 |   |      | $ | 29,925 |   |  | $ | 117,564 |  
|                   | Gross realized gains  |      |   | 2,206  |   |      |   | 766    |   |  |   | 1,407   |  
|                   | Gross realized losses |      |   | (616   | ) |      |   | (170   | ) |  |   | (136    | )
|Equity securities: |                       |      |   |        |   |      |   |        |   |  |   |        
|                   | Cash proceeds         |      |   | 13,506 |   |      |   | 5,889  |   |  |   | 4,920   |  
|                   | Gross realized gains  |      |   | 2,072  |   |      |   | 340    |   |  |   | 493     |  
|                   | Gross realized losses |      |   | (1,217 | ) |      |   | (4,057 | ) |  |   | (265    | )

Investment income (loss) consists of the
following for the years ended December 31, 2003, 2002, and
2001 (in thousands):

|                             |  |      |        |      |  |      |        |   |  |   |        |  
|---------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                             |  | 2003 |        | 2002 |  | 2001
|                             |  |      |        |      |  |     
|Interest and dividend income |  | $    | 2,045  |      |  | $    | 3,266  |   |  | $ | 4,019  |  
|Realized gains (losses)      |  |      | 2,445  |      |  |      | (3,121 | ) |  |   | 1,499  |  
|Unrealized gains (losses)    |  |      | (1,318 | )    |  |      | 2,318  |   |  |   | (1,644 | )
|                             |  |      |        |      |  |      |        |   |  |   |        |  
|                             |  | $    | 3,172  |      |  | $    | 2,463  |   |  | $ | 3,874  |  
|                             |  |      |        |      |  |      |        |   |  |   |        |  

F-18



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                     
|--- | ------------------------------------
|(6) | Prepayments and Other Current Assets

Prepayments and other current assets consist of
the following at December 31, 2003 and 2002 (in thousands):

|                               |  |      |        |      |  |   |        | 
|------------------------------ |  | ---- | ------ | ---- |  | - | ------ | 
|                               |  | 2003 |        | 2002
|                               |  |      |        |     
|Tires on tractors and trailers |  | $    | 6,779  |      |  | $ | 7,082  | 
|Prepaid insurance              |  |      | 2,067  |      |  |   | 1,773  | 
|Prepaid licenses               |  |      | 1,471  |      |  |   | 1,438  | 
|Other                          |  |      | 2,327  |      |  |   | 3,424  | 
|                               |  |      |        |      |  |   |        | 
|                               |  | $    | 12,644 |      |  | $ | 13,717 | 
|                               |  |      |        |      |  |   |        | 



|    |                       
|--- | ----------------------
|(7) | Property and Equipment

The detail of property and equipment at
December 31, 2003 and 2002 is as follows (in thousands):

|                                                                |  |      |         |      |  |              |         |  |  |  |                | 
|--------------------------------------------------------------- |  | ---- | ------- | ---- |  | ------------ | ------- |  |  |  | -------------- | 
|                                                                |  | 2003 |         | 2002 |  | Useful Lives
|                                                                |  |      |         |      |  |             
|Tractors and trailers                                           |  | $    | 433,627 |      |  | $            | 421,615 |  |  |  | 4 to 10  years | 
|Buildings and facilities (including leasehold
    improvements) |  |      | 46,596  |      |  |              | 44,925  |  |  |  | 5 to 25  years | 
|Land                                                            |  |      | 12,344  |      |  |              | 11,958  |  |  |  |                | 
|Furniture, fixtures, and equipment                              |  |      | 42,910  |      |  |              | 41,819  |  |  |  | 3 to 10  years | 
|Service cars and equipment                                      |  |      | 3,731   |      |  |              | 3,111   |  |  |  | 3 to 10  years | 
|                                                                |  |      |         |      |  |              |         |  |  |  |                | 
|                                                                |  |      | 539,208 |      |  |              | 523,428 |  |  |  |                | 
|Less accumulated depreciation and amortization                  |  |      | 383,635 |      |  |              | 346,765 |  |  |  |                | 
|                                                                |  |      |         |      |  |              |         |  |  |  |                | 
|                                                                |  | $    | 155,573 |      |  | $            | 176,663 |  |  |  |                | 
|                                                                |  |      |         |      |  |              |         |  |  |  |                | 

Depreciation expense amounted to
$45.4 million, $54.7 million, and $56.3 million
for the years ended December 31, 2003, 2002, and 2001,
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 method of
depreciation. Total capital expenditures related to the
remanufacturing program, including engine replacements, were
approximately $14.8 and $19.0 million in 2003 and 2002,
respectively.

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. A total of
978 tractors and 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. In 2003, disposal was completed
for substantially all of the identified tractors and trailers.



|    |         
|--- | --------
|(8) | Goodwill

In accordance with SFAS No. 142,
Goodwill and Other Intangible Assets, 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 year ended December 31, 2001 was
$3.5 million.

F-19



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 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 represented the
Companys best estimates. The cumulative effect of this
change in accounting principle was a decrease to the Axis Group
goodwill due to less than expected performance by one of the
business units. The non-cash, after-tax adjustment to net loss
of $4.1 million is included in the accompanying statements
of operations for the year ended December 31, 2002. The
Company completed its annual reviews of goodwill during the
fourth quarters of 2002 and 2003. No impairment was indicated.

The Companys reporting units are the Allied
Automotive Group and the Axis Group. The following table sets
forth the carrying value of goodwill by reporting unit as of
December 31, 2003 and 2002 (in thousands):

|                                                                  |  |            |        |            |  |       |        |  |  |   |        | 
|----------------------------------------------------------------- |  | ---------- | ------ | ---------- |  | ----- | ------ |  |  | - | ------ | 
|                                                                  |  | Allied     |        |            |  |      
|                                                                  |  | Automotive |        |            |  |      
|                                                                  |  | Group      |        | Axis Group |  | Total
|                                                                  |  |            |        |            |  |      
|Balance as of December 31, 2002                                   |  | $          | 73,043 |            |  | $     | 12,198 |  |  | $ | 85,241 | 
|Increase in carrying amount due to a change in
    currency rates |  |            | 4,940  |            |  |       | 22     |  |  |   | 4,962  | 
|                                                                  |  |            |        |            |  |       |        |  |  |   |        | 
|Balance as of December 31, 2003                                   |  | $          | 77,983 |            |  | $     | 12,220 |  |  | $ | 90,203 | 
|                                                                  |  |            |        |            |  |       |        |  |  |   |        | 

The following table summarizes and reconciles net
loss before the cumulative effect of the accounting change for
the years ended December 31, 2003, 2002, and 2001, adjusted
to exclude amortization expense recognized in such periods
related to goodwill (in thousands, except per share data):

|                                                                    |                       |                   |        |      |       |      |        |   |       |   |         |       |       |  
|------------------------------------------------------------------- | --------------------- | ----------------- | ------ | ---- | ----- | ---- | ------ | - | ----- | - | ------- | ----- | ----- | -
|                                                                    |                       | 2003              |        | 2002 |       | 2001
|                                                                    |                       |                   |        |      |       |     
|Reported net loss before cumulative effect of
    accounting change |                       | $                 | (8,604 | )    |       | $    | (3,434 | ) |       | $ | (39,496 | )    
|Add back after-tax amounts:                                         |                       |                   |        |      |       |      |        |   |       |   |         |      
|                                                                    | Goodwill amortization |                   |        | 0    |       |      |        | 0 |       |   |         | 2,375 |      
|                                                                    |                       |                   |        |      |       |      |        |   |       |   |         |      
|Adjusted net loss before cumulative effect of
    accounting change |                       | $                 | (8,604 | )    |       | $    | (3,434 | ) |       | $ | (37,121 | )    
|                                                                    |                       |                   |        |      |       |      |        |   |       |   |         |      
|Loss per share before accounting change:                            |                       |                   |        |      |       |      |        |   |       |   |         |      
|                                                                    |                       | Basic and diluted |        | $    | (1.02 | )    |        | $ | (0.41 | ) |         | $     | (4.86 | )
|Goodwill amortization:                                              |                       |                   |        |      |       |      |        |   |       |   |         |      
|                                                                    |                       | Basic and diluted |        |      | 0     |      |        |   | 0     |   |         |       | 0.29  |  
|                                                                    |                       |                   |        |      |       |      |        |   |       |   |         |      
|Adjusted loss per share before accounting change:                   |                       |                   |        |      |       |      |        |   |       |   |         |      
|                                                                    |                       | Basic and diluted |        | $    | (1.02 | )    |        | $ | (0.41 | ) |         | $     | (4.57 | )
|                                                                    |                       |                   |        |      |       |      |        |   |       |   |         |      

F-20



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                         
|--- | ------------------------
|(9) | Other Non-Current Assets

Other non-current assets consist of the following
at December 31, 2003 and 2002 (in thousands):

|                                       |  |      |        |      |  |   |        | 
|-------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                       |  | 2003 |        | 2002
|                                       |  |      |        |     
|Cash surrender value of life insurance |  | $    | 6,201  |      |  | $ | 6,203  | 
|Deferred financing costs               |  |      | 9,718  |      |  |   | 10,377 | 
|Prepaid pension cost                   |  |      | 14,166 |      |  |   | 14,968 | 
|Deposits and other                     |  |      | 2,692  |      |  |   | 3,945  | 
|                                       |  |      |        |      |  |   |        | 
|                                       |  | $    | 32,777 |      |  | $ | 35,493 | 
|                                       |  |      |        |      |  |   |        | 



|     |                   
|---- | ------------------
|(10) | 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 $10.4 million 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.

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

F-21



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 2003 or 2002.



|     |                                                        
|---- | -------------------------------------------------------
|(11) | Accrued Liabilities and Other Long-Term
    Liabilities

Accrued liabilities consists of the following at
December 31, 2003 and 2002 (in thousands):

|                              |  |      |        |      |  |   |        | 
|----------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                              |  | 2003 |        | 2002
|                              |  |      |        |     
|Wages and benefits            |  | $    | 35,180 |      |  | $ | 41,903 | 
|Claims and insurance reserves |  |      | 31,425 |      |  |   | 35,487 | 
|Other                         |  |      | 14,332 |      |  |   | 12,739 | 
|                              |  |      |        |      |  |   |        | 
|                              |  | $    | 80,937 |      |  | $ | 90,129 | 
|                              |  |      |        |      |  |   |        | 

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 2003, the Company has continued to
incur severance costs as part of its ongoing initiative to
improve personnel quality and productivity. Accordingly, the
Company terminated approximately 86 and 135 corporate and field
employees with severance during 2003 and 2002, respectively. The
following table summarizes the activity in the accrual for
termination benefits for the years ended December 31, 2003
and 2002, (in thousands):

|                                                                         |  |      |        |      |  |   |        |  
|------------------------------------------------------------------------ |  | ---- | ------ | ---- |  | - | ------ | -
|                                                                         |  | 2003 |        | 2002
|                                                                         |  |      |        |     
|Beginning balance                                                        |  | $    | 1,076  |      |  | $ | 3,741  |  
|Additions to reserve charged to salaries, wages,
    and fringe benefits |  |      | 1,043  |      |  |   | 2,321  |  
|Cash payments                                                            |  |      | (1,311 | )    |  |   | (4,986 | )
|                                                                         |  |      |        |      |  |   |        |  
|Ending balance                                                           |  | $    | 808    |      |  | $ | 1,076  |  
|                                                                         |  |      |        |      |  |   |        |  

The accrual for termination benefits of
$0.8 million and $1.1 million at December 31,
2003 and 2002, 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 included in the balance sheets as other long-term
liabilities was approximately $57.4 million and
$61.0 million at December 31, 2003 and 2002,
respectively.



|     |                  
|---- | -----------------
|(12) | 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 2010. Rental expenses under these leases were
approximately $12.3 million, $11.4 million, and
$11.3 million for the years ended December 31, 2003,
2002, and 2001, respectively.

Included in the noncancelable leases discussed
above, the Company has operating lease commitments for
approximately 387 Rigs. The term of the leases is seven years
and expire between 2005 and 2010. The lease agreements contain
residual guarantees of up to 20% of the original cost of the
Rigs.

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
$2.4 million, $3.5 million, and $4.1 million for
the years ended December 31, 2003, 2002, and 2001,
respectively.

F-22



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company has sublease agreements with third
parties for two leased buildings. The subleases expire between
2004 and 2007. Total sublease income earned during 2003, 2002,
and 2001 was approximately $1.1 million, $1.0 million,
and $1.0 million, respectively.

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, 2003 (in thousands):

|           |       |             |        |          |  |   |     |       | 
|---------- | ----- | ----------- | ------ | -------- |  | - | --- | ----- | 
|           |       |             |        | Sublease
|           |       | Commitments |        | Income  
|           |       |             |        |         
|2004       |       | $           | 11,374 |          |  | $ | 747 |      
|2005       |       |             | 10,669 |          |  |   | 552 |      
|2006       |       |             | 7,061  |          |  |   | 215 |      
|2007       |       |             | 4,660  |          |  |   | 148 |      
|2008       |       |             | 418    |          |  |   | 0   |      
|Thereafter |       |             | 475    |          |  |   | 0   |      
|           |       |             |        |          |  |   |     |      
|           | Total |             | $      | 34,657   |  |   | $   | 1,662 | 
|           |       |             |        |          |  |   |     |      



|     |                                                                  
|---- | -----------------------------------------------------------------
|(13) | Long-Term Debt and Borrowings Under Revolving
    Credit Facility

Long-term debt consisted of the following at
December 31, 2003 and 2002 (in thousands):

|                                          |  |      |         |      |  |   |         |  
|----------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                                          |  | 2003 |         | 2002
|                                          |  |      |         |     
|Term Loan A                               |  | $    | 0       |      |  | $ | 7,474   |  
|Term Loan B                               |  |      | 0       |      |  |   | 25,684  |  
|Term Loan C                               |  |      | 0       |      |  |   | 11,432  |  
|Term Loan D                               |  |      | 0       |      |  |   | 29,250  |  
|New Term Loan                             |  |      | 96,500  |      |  |   | 0       |  
|Senior notes                              |  |      | 150,000 |      |  |   | 150,000 |  
|                                          |  |      |         |      |  |   |         |  
|                                          |  |      | 246,500 |      |  |   | 223,840 |  
|Less current maturities of long-term debt |  |      | (16,374 | )    |  |   | (10,785 | )
|                                          |  |      |         |      |  |   |         |  
|                                          |  | $    | 230,126 |      |  | $ | 213,055 |  
|                                          |  |      |         |      |  |   |         |  

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 are payable in
quarterly installments of interest only, and 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).

F-23



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

On February 25, 2002, the Company entered
into a new credit facility which included four term loans (the
Term Loans) totaling $82.75 million and a
$120 million revolving credit facility. Proceeds from the
Term Loans were used to repurchase $40 million of senior
subordinated notes for $37.25 million. In conjunction with
the extinguishment of these senior subordinated notes, the
Company recognized a pre-tax gain of $2.75 million during
2002.

The Company amended the facility in September
2003 (the Credit Facility and amendments thereto are
collectively referred to as the Credit Facility).
The Credit Facility as amended in September 2003 provides the
Company with a $90 million revolving credit facility (the
Revolver) and a $100 million term loan (the
New Term Loan) which consolidated amounts
outstanding under Term Loans A, B, C, and D as well as some
of the borrowings under the existing Revolver. The New Term Loan
is payable in quarterly installments of principal and interest.
As part of the amendment, the maturity date of the Credit
Facility was extended to September 2007. Although the Credit
Facility has a maturity date of September 2007, the Company has
classified the Revolver as current based on the requirement of
EITF Issue No. 95-22, Balance Sheet Classification of
Borrowings Outstanding under Revolving Credit Agreements that
include both a Subjective Acceleration Clause and a Lock-Box
Arrangement.

The interest rate for the Revolver is based upon
the prime rate plus 1.5%, or LIBOR plus 4.5%, at
managements discretion, with a minimum interest rate of
6.5%. The Credit Facility, as amended, provides that the New
Term Loan bears interest between 8.5% and 11.5% to be determined
solely on the Companys leverage as defined in the
agreement. At December 31, 2003, the interest rates on the
Revolver and the New Term Loan were 6.5% and 8.5%, respectively.
Prior to the amendment, the interest rate on the Term Loans was
based solely on a spread over the prime rate. Annual commitment
fees are due on the undrawn portion of the commitment.

The amount available under the $90 million
Revolver may be reduced based on a calculation of Revolver
collateral. At December 31, 2003, $80.8 million
Revolver collateral was available. Approximately
$29.3 million of the Revolver was committed under letters
of credit primarily related to the settlement of insurance
claims. At December 31, 2003, $0 loans were
outstanding under the Revolver. Accordingly, the Company had
approximately $51.5 million available under the Revolver as
of December 31, 2003.

Borrowings under the Companys Credit
Facility are secured by a first priority security interest on
assets of the Company and certain of its subsidiaries, including
a pledge of stock of certain subsidiaries and excluding
restricted cash, cash equivalents and investments. If the
Company were unable to repay any borrowing under its Credit
Facility when due, the lenders thereunder would have the right
to proceed against the collateral granted to them to secure the
debt. Any default under the Companys debt instruments,
particularly any default that resulted in acceleration of
indebtedness or foreclosure on collateral, would have a material
adverse effect on the Company.

The Credit Facility agreement sets forth a number
of affirmative, negative, and financial covenants binding on the
Company. The Credit Facility contains a subjective
acceleration clause which permits the lenders to
accelerate the maturity date of the Credit Facility if an event
or development occurs which could reasonably be expected to have
a material adverse effect on the Company, as defined
in the Credit Facility. The negative covenants limit the ability
of the Company to, among other things, incur debt, incur liens,
make investments, sell assets, or declare or pay any dividends
on its capital stock. The financial covenants require the
Company to maintain a minimum consolidated earnings before
interest, taxes, depreciation and amortization, and gains and
losses on disposal of operating assets amount and also include a
maximum leverage ratio. The Company was in compliance with the
various covenants set forth in the Credit Facility at
December 31, 2003. On March 30, 2004, the Company
obtained the consent of its lenders under the Credit Facility to
deliver its financial statements for the year ended
December 31, 2003 on or before April 15, 2004.

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.

F-24



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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, 2003 (in thousands):

|     |  |   |         | 
|---- |  | - | ------- | 
|2004 |  | $ | 16,374  | 
|2005 |  |   | 13,500  | 
|2006 |  |   | 13,500  | 
|2007 |  |   | 203,126 | 
|     |  |   |         | 
|     |  | $ | 246,500 | 
|     |  |   |         | 



|     |                  
|---- | -----------------
|(14) | 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 Plan 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.
Effective April 30, 2002, the Company froze employee years
of service and compensation levels in the Allied Defined Benefit
Pension Plan.

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, in connection with the Ryder
acquisition, 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.

All disclosures related to the Companys
pension and postretirement benefit plans have been prepared in
accordance with SFAS No. 132, Employers
Disclosures about Pensions and Other Postretirement
Benefits, as revised in December 2003.

The Company uses a measurement date of
December 31 for the two postretirement benefit plans and
for one of the defined benefit pension plans. The Company uses a
measurement date of September 30 for the other two defined
benefit pension plans.

F-25



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 2003 and
2002 (in thousands):

|                              |                                                |                                      |   |                        |        |      |   |        |        |   |   |       |        |   |   |       |        |  
|----------------------------- | ---------------------------------------------- | ------------------------------------ | - | ---------------------- | ------ | ---- | - | ------ | ------ | - | - | ----- | ------ | - | - | ----- | ------ | -
|                              |                                                |                                      |   |                       
|                              |                                                | Defined Benefit                      |   | Postretirement Benefit
|                              |                                                | Pension Plans                        |   | Plans                 
|                              |                                                |                                      |   |                       
|                              |                                                | 2003                                 |   | 2002                   |        | 2003 |   | 2002  
|                              |                                                |                                      |   |                        |        |      |   |       
|Change in benefit obligation: |                                                |                                      |   |                        |        |      |   |        |        |   |   |       |        |   |   |      
|                              | Benefit obligation at beginning of fiscal year |                                      | $ | 40,170                 |        |      | $ | 37,306 |        |   | $ | 9,911 |        |   | $ | 9,626 |       
|                              |                                                | Service cost                         |   |                        | 89     |      |   |        | 91     |   |   |       | 52     |   |   |       | 0      |  
|                              |                                                | Interest cost                        |   |                        | 2,691  |      |   |        | 2,738  |   |   |       | 616    |   |   |       | 636    |  
|                              |                                                | Plan amendments and other            |   |                        | 0      |      |   |        | 0      |   |   |       | 0      |   |   |       | (4     | )
|                              |                                                | Actuarial loss (gain)                |   |                        | 3,512  |      |   |        | 3,192  |   |   |       | 164    |   |   |       | 1,099  |  
|                              |                                                | Canada Plan vested benefits transfer |   |                        | 0      |      |   |        | (20    | ) |   |       | 0      |   |   |       | 0      |  
|                              |                                                | Benefits paid                        |   |                        | (2,815 | )    |   |        | (3,137 | ) |   |       | (2,133 | ) |   |       | (1,446 | )
|                              |                                                |                                      |   |                        |        |      |   |        |        |   |   |       |        |   |   |      
|                              | Benefit obligation at end of fiscal year       |                                      | $ | 43,647                 |        |      | $ | 40,170 |        |   | $ | 8,610 |        |   | $ | 9,911 |       
|                              |                                                |                                      |   |                        |        |      |   |        |        |   |   |       |        |   |   |      

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 2003 and
2002 (in thousands):

|                                                                      |                                                |                                                |        |                        |        |      |        |        |        |   |        |        |        |   |        |        |        |  
|--------------------------------------------------------------------- | ---------------------------------------------- | ---------------------------------------------- | ------ | ---------------------- | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | -
|                                                                      |                                                |                                                |        |                       
|                                                                      |                                                | Defined Benefit                                |        | Postretirement Benefit
|                                                                      |                                                | Pension Plans                                  |        | Plans                 
|                                                                      |                                                |                                                |        |                       
|                                                                      |                                                | 2003                                           |        | 2002                   |        | 2003 |        | 2002  
|                                                                      |                                                |                                                |        |                        |        |      |        |       
|Change in plan assets:                                                |                                                |                                                |        |                        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                                      | Fair value of plan assets at beginning of year |                                                | $      | 38,089                 |        |      | $      | 33,310 |        |   | $      | 0      |        |   | $      | 0      |       
|                                                                      |                                                | Actual return on plan assets                   |        |                        | 8,815  |      |        |        | (3,749 | ) |        |        | 0      |   |        |        | 0      |  
|                                                                      |                                                | Employer contributions                         |        |                        | 747    |      |        |        | 11,685 |   |        |        | 2,133  |   |        |        | 1,446  |  
|                                                                      |                                                | Canada Plan vested benefits transfer           |        |                        | 0      |      |        |        | (20    | ) |        |        | 0      |   |        |        | 0      |  
|                                                                      |                                                | Benefits paid                                  |        |                        | (2,815 | )    |        |        | (3,137 | ) |        |        | (2,133 | ) |        |        | (1,446 | )
|                                                                      |                                                |                                                |        |                        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                                      | Fair value of plan assets at end of year       |                                                | $      | 44,836                 |        |      | $      | 38,089 |        |   | $      | 0      |        |   | $      | 0      |       
|                                                                      |                                                |                                                |        |                        |        |      |        |        |        |   |        |        |        |   |        |       
|Reconciliation of funded status:                                      |                                                |                                                |        |                        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                                      | Funded status excess (deficiency)              |                                                |        | 1,189                  |        |      |        | (2,080 | )      |   |        | (8,610 | )      |   |        | (9,911 | )     
|                                                                      | Unrecognized actuarial loss                    |                                                |        | 13,256                 |        |      |        | 17,408 |        |   |        | 1,938  |        |   |        | 1,844  |       
|                                                                      | Unrecognized prior service cost                |                                                |        | 183                    |        |      |        | 231    |        |   |        | (630   | )      |   |        | (700   | )     
|                                                                      | Unrecognized transition asset                  |                                                |        | 0                      |        |      |        | (20    | )      |   |        | 0      |        |   |        | 0      |       
|                                                                      | Additional minimum liability                   |                                                |        | (2,886                 | )      |      |        | (3,323 | )      |   |        | 0      |        |   |        | 0      |       
|                                                                      |                                                |                                                |        |                        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                                      | Net asset (liability) recognized               |                                                | $      | 11,742                 |        |      | $      | 12,216 |        |   | $      | (7,302 | )      |   | $      | (8,767 | )     
|                                                                      |                                                |                                                |        |                        |        |      |        |        |        |   |        |        |        |   |        |       
|Amounts recognized in the consolidated balance
    sheets consist of: |                                                |                                                |        |                        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                                      |                                                | Pension asset                                  |        | $                      | 14,166 |      |        | $      | 14,968 |   |        | $      | 0      |   |        | $      | 0      |  
|                                                                      |                                                | Pension and postretirement benefit obligations |        |                        | (2,424 | )    |        |        | (2,752 | ) |        |        | (7,302 | ) |        |        | (8,767 | )
|                                                                      |                                                |                                                |        |                        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                                      |                                                | $                                              | 11,742 |                        |        | $    | 12,216 |        |        | $ | (7,302 | )      |        | $ | (8,767 | )     
|                                                                      |                                                |                                                |        |                        |        |      |        |        |        |   |        |        |        |   |        |       

The accumulated benefit obligation for the
defined benefit pension plans was the same as the projected
benefit obligation at December 31, 2003 and 2002.

F-26



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company recognizes a minimum pension
liability for under funded pension plans. This liability
represents the amount by which the accumulated benefit
obligation exceeds the sum of the fair market value of plan
assets and accrued amounts previously recorded. The additional
liability may be offset by an intangible asset, to the extent of
previously unrecognized prior service cost, or a reduction of
stockholders equity. The Company recorded an additional
minimum liability of $2.9 million and $3.3 million as
of December 31, 2003 and 2002, respectively. An intangible
asset of $0.6 million and $0.7 million was recorded as
of December 31, 2003 and 2002, respectively.

The Company has one defined benefit plan in which
the fair value of plan assets exceeds the benefit obligation.
The value of the assets and obligation was $39.5 million
and $35.9 million, respectively, at December 31, 2003,
and $33.7 million and $32.9 million at
December 31, 2002. The Company has two defined benefit
plans in which the fair values of the plan assets are less than
the benefit obligation. The aggregate values of the assets and
obligations were $5.4 million and $7.8 million,
respectively, at December 31, 2003, and $4.4 million
and $7.3 million at December 31, 2002.

The following assumptions were used in
determining the actuarial present value of the projected pension
benefit obligation and postretirement benefit obligation at
December 31, 2003 and 2002:

|                                                                 |  |                 |                |                |  |      |      |      |  |  |      |   |  |  |      |  
|---------------------------------------------------------------- |  | --------------- | -------------- | -------------- |  | ---- | ---- | ---- |  |  | ---- | - |  |  | ---- | -
|                                                                 |  |                 |                |               
|                                                                 |  | Defined Benefit |                | Postretirement
|                                                                 |  | Pension Plans   |                | Benefit Plans 
|                                                                 |  |                 |                |               
|                                                                 |  | 2003            |                | 2002           |  | 2003 |      | 2002
|                                                                 |  |                 |                |                |  |      |      |     
|Weighted average discount rate                                   |  |                 | 6.25% and 6.00 | %              |  |      | 6.75 | %    |  |  | 6.25 | % |  |  | 6.75 | %
|Weighted average expected long-term rate of
    return on assets |  |                 | 8.50           | %              |  |      | 8.50 | %    |  |  | N/A  |   |  |  | N/A  |  
|Weighted average rate of compensation increase                   |  |                 | N/A            |                |  |      | N/A  |      |  |  | N/A  |   |  |  | N/A  |  

The following assumptions were used in
determining the net benefit cost at December 31, 2003 and
2002:

|                                                                 |  |                 |       |                |  |      |      |      |  |  |      |   |  |  |      |  
|---------------------------------------------------------------- |  | --------------- | ----- | -------------- |  | ---- | ---- | ---- |  |  | ---- | - |  |  | ---- | -
|                                                                 |  |                 |       |               
|                                                                 |  | Defined Benefit |       | Postretirement
|                                                                 |  | Pension Plans   |       | Benefit Plans 
|                                                                 |  |                 |       |               
|                                                                 |  | 2003            |       | 2002           |  | 2003 |      | 2002
|                                                                 |  |                 |       |                |  |      |      |     
|Weighted average discount rate                                   |  |                 | 6.75% |                |  |      | 7.50 | %    |  |  | 6.75 | % |  |  | 7.75 | %
|Weighted average expected long-term rate of
    return on assets |  |                 | 8.50% |                |  |      | 8.50 | %    |  |  | N/A  |   |  |  | N/A  |  
|Weighted average rate of compensation increase                   |  |                 | N/A   |                |  |      | N/A  |      |  |  | N/A  |   |  |  | N/A  |  

To develop the expected long-term rate of return
on assets assumption, the Company considered the historical
returns and the future expectations for returns for each asset
class, as well as the target asset allocation of the pension
portfolio.

F-27



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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,
2003 and 2002 (in thousands):

|                                         |                                                            |                           |   |                |       |      |   |        |     |  |   |     |     |  |   |     |     | 
|---------------------------------------- | ---------------------------------------------------------- | ------------------------- | - | -------------- | ----- | ---- | - | ------ | --- |  | - | --- | --- |  | - | --- | --- | 
|                                         |                                                            |                           |   |               
|                                         |                                                            | Defined Benefit           |   | Postretirement
|                                         |                                                            | Pension Plans             |   | Benefit Plans 
|                                         |                                                            |                           |   |               
|                                         |                                                            | 2003                      |   | 2002           |       | 2003 |   | 2002  
|                                         |                                                            |                           |   |                |       |      |   |       
|Components of net periodic benefit cost: |                                                            |                           |   |                |       |      |   |        |     |  |   |     |     |  |   |    
|                                         | Service cost                                               |                           | $ | 89             |       |      | $ | 91     |     |  | $ | 52  |     |  | $ | 0   |    
|                                         | Interest cost                                              |                           |   | 2,691          |       |      |   | 2,738  |     |  |   | 616 |     |  |   | 636 |    
|                                         | Expected return on plan assets                             |                           |   | (3,119         | )     |      |   | (2,754 | )   |  |   | 0   |     |  |   | 0   |    
|                                         | Amortization of unrecognized net actuarial loss
    (gain) |                           |   | 1,415          |       |      |   | 499    |     |  |   | 71  |     |  |   | (17 | )  
|                                         | Amortization of prior service cost                         |                           |   | 48             |       |      |   | 89     |     |  |   | (70 | )   |  |   | (35 | )  
|                                         | Amortization of transition asset                           |                           |   | (20            | )     |      |   | (50    | )   |  |   | 0   |     |  |   | 0   |    
|                                         | Recognized actuarial loss                                  |                           |   | 216            |       |      |   | 38     |     |  |   | 0   |     |  |   | 0   |    
|                                         |                                                            |                           |   |                |       |      |   |        |     |  |   |     |     |  |   |    
|                                         |                                                            | Net periodic benefit cost |   | $              | 1,320 |      |   | $      | 651 |  |   | $   | 669 |  |   | $   | 584 | 
|                                         |                                                            |                           |   |                |       |      |   |        |     |  |   |     |     |  |   |    

The weighted average annual assumed rate of
increase in the per capita cost of covered benefits (i.e.,
health care trend rate) for the health plans is 8.33% and 10.33%
for participants prior to age 65 and after age 65,
respectively, for 2003 grading to 5.5% over 5 years and
8 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 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. A 1% change in the assumed trend
rate would have the following effect at December 31, 2003
(in thousands):

|                                              |  |             |       |             |  |   |      |  
|--------------------------------------------- |  | ----------- | ----- | ----------- |  | - | ---- | -
|                                              |  | 1% Increase |       | 1% Decrease
|                                              |  |             |       |            
|Accumulated postretirement benefit obligation |  | $           | 1,035 |             |  | $ | (879 | )
|Total of service and interest cost            |  | $           | 64    |             |  | $ | (54  | )

The weighted average asset allocation of the
pension and postretirement benefit plans is as follows at
December 31, 2003 and 2002:

|                             |       |                 |      |       |   |  |      |       |  
|---------------------------- | ----- | --------------- | ---- | ----- | - |  | ---- | ----- | -
|                             |       |                
|                             |       | Defined Benefit
|                             |       | Pension Plans  
|                             |       |                
|Asset Category               |       | 2003            |      | 2002 
|                             |       |                 |      |      
|Cash                         |       |                 | .9   | %     |   |  | .6   | %    
|Fixed income                 |       |                 | 25.0 | %     |   |  | 22.1 | %    
|Core equity                  |       |                 | 34.3 | %     |   |  | 35.5 | %    
|Real estate investment trust |       |                 | 9.9  | %     |   |  | 10.3 | %    
|Small cap                    |       |                 | 15.9 | %     |   |  | 16.5 | %    
|International equity         |       |                 | 14.0 | %     |   |  | 15.0 | %    
|                             |       |                 |      |       |   |  |      |      
|                             | Total |                 |      | 100.0 | % |  |      | 100.0 | %
|                             |       |                 |      |       |   |  |      |      

The Companys investment strategy for the
plans is to maximize the long-term rate of return on plan assets
within an acceptable level of risk in order to secure its
obligation to pay benefits to qualifying employees while
minimizing and stabilizing expense and contributions. The asset
allocation for each plan is reviewed periodically for balancing
of the asset mix within predetermined ranges by asset category.
Risk is managed for each plan through these predetermined ranges
by asset category, diversification of asset classes, periodic
review of the investment policies, and monitoring of fund
managers for compliance with policies and performance as
compared to a benchmark portfolio.

F-28



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company expects to contribute
$0.7 million to its defined benefit pension plans and
$2.2 million for its postretirement benefit plans in 2004.

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 $39.1 million,
$40.0 million, and $41.5 million for the years ended
December 31, 2003, 2002, and 2001, 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, 2003. In the opinion of
management, the Company has no current intention of withdrawing
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
$44.3 million, $41.1 million, and $40.5 million
in 2003, 2002, and 2001, 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, re-instated the employer
contribution in 2002 for employees below the level of Vice
President, and again eliminated the employer contribution in
2003. 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
President level and above. The Company contributed approximately
$0, $400,000, and $0 to the plan during the years ended
December 31, 2003, 2002, and 2001, respectively. The
Company did not pay administrative expenses for the 401(k) plan
in fiscal years 2003, 2002 or 2001.



|    |                             
|--- | ----------------------------
|(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. In
2003 and 2002, there were 1,050,000 and 700,000 shares,
respectively, of the Companys common stock reserved under
the ESPP, of which 131,000 and 160,000 shares,
respectively, were issued to employees during 2003 and 2002. At
December 31, 2003, the remaining shares available under the
ESPP are 363,000.



|    |                         
|--- | ------------------------
|(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 to acquire up to 2,000,000 shares
of the Companys common stock. See additional disclosure at
Note (19).

F-29



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|     |             
|---- | ------------
|(15) | Income Taxes

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

|        |                                                                                   |      |        |        |   |      |        |        |   |   |         |         |  
|------- | --------------------------------------------------------------------------------- | ---- | ------ | ------ | - | ---- | ------ | ------ | - | - | ------- | ------- | -
|        |                                                                                   | 2003 |        | 2002   |   | 2001
|        |                                                                                   |      |        |        |   |     
|U.S.    |                                                                                   | $    | 104    |        |   | $    | (7,224 | )      |   | $ | (62,872 | )      
|Foreign |                                                                                   |      | (2,442 | )      |   |      | 2,661  |        |   |   | 2,083   |        
|        |                                                                                   |      |        |        |   |      |        |        |   |   |         |        
|        | Total loss before tax and cumulative effect of
    change in accounting principle |      | $      | (2,338 | ) |      | $      | (4,563 | ) |   | $       | (60,789 | )
|        |                                                                                   |      |        |        |   |      |        |        |   |   |         |        

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

|          |         |                                    |   |       |       |      |   |        |        |   |   |         |         |  
|--------- | ------- | ---------------------------------- | - | ----- | ----- | ---- | - | ------ | ------ | - | - | ------- | ------- | -
|          |         | 2003                               |   | 2002  |       | 2001
|          |         |                                    |   |       |       |     
|Current:  |         |                                    |   |       |       |      |   |        |        |   |   |        
|          | Federal |                                    | $ | 5     |       |      | $ | 616    |        |   | $ | 0       |        
|          | State   |                                    |   | (60   | )     |      |   | 342    |        |   |   | (38     | )      
|          | Foreign |                                    |   | (593  | )     |      |   | (455   | )      |   |   | 448     |        
|Deferred: |         |                                    |   |       |       |      |   |        |        |   |   |        
|          | Federal |                                    |   | 6,335 |       |      |   | (137   | )      |   |   | (18,015 | )      
|          | State   |                                    |   | 364   |       |      |   | (1,720 | )      |   |   | (3,190  | )      
|          | Foreign |                                    |   | 215   |       |      |   | 225    |        |   |   | (498    | )      
|          |         |                                    |   |       |       |      |   |        |        |   |   |        
|          |         | Total income tax expense (benefit) |   | $     | 6,266 |      |   | $      | (1,129 | ) |   | $       | (21,293 | )
|          |         |                                    |   |       |       |      |   |        |        |   |   |        

The provision for income taxes differs from the
amounts computed by applying federal statutory rates of 34% due
to the following (in thousands):

|                                                          |                                    |      |       |       |  |      |        |        |   |   |         |         |  
|--------------------------------------------------------- | ---------------------------------- | ---- | ----- | ----- |  | ---- | ------ | ------ | - | - | ------- | ------- | -
|                                                          |                                    | 2003 |       | 2002  |  | 2001
|                                                          |                                    |      |       |       |  |     
|Benefit computed at the federal statutory rate            |                                    | $    | (795  | )     |  | $    | (1,551 | )      |   | $ | (20,668 | )      
|State income taxes, net of federal income tax
    effects |                                    |      | 200   |       |  |      | (909   | )      |   |   | (2,130  | )      
|Tax benefit associated with sale of joint ventures        |                                    |      | 0     |       |  |      | 0      |        |   |   | (1,151  | )      
|Amortization of goodwill                                  |                                    |      | 0     |       |  |      | 0      |        |   |   | 524     |        
|Nondeductible expenses                                    |                                    |      | 415   |       |  |      | 623    |        |   |   | 909     |        
|Equity income in affiliates, reflected net of tax         |                                    |      | 0     |       |  |      | 0      |        |   |   | (964    | )      
|Reversal of previously accrued taxes                      |                                    |      | 0     |       |  |      | 0      |        |   |   | (2,221  | )      
|Valuation allowance                                       |                                    |      | 6,830 |       |  |      | 410    |        |   |   | 4,717   |        
|Other, net                                                |                                    |      | (384  | )     |  |      | 298    |        |   |   | (309    | )      
|                                                          |                                    |      |       |       |  |      |        |        |   |   |         |        
|                                                          | Total income tax expense (benefit) |      | $     | 6,266 |  |      | $      | (1,129 | ) |   | $       | (21,293 | )
|                                                          |                                    |      |       |       |  |      |        |        |   |   |         |        

F-30



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The tax effect of significant temporary
differences representing deferred tax assets and liabilities at
December 31, 2003 and 2002 is as follows (in thousands):

|                          |                                            |                                       |         |         |         |   |        |         |         |  
|------------------------- | ------------------------------------------ | ------------------------------------- | ------- | ------- | ------- | - | ------ | ------- | ------- | -
|                          |                                            | 2003                                  |         | 2002   
|                          |                                            |                                       |         |        
|Deferred tax assets:      |                                            |                                       |         |         |         |   |        |        
|                          | Claims and insurance expense               |                                       | $       | 32,866  |         |   | $      | 34,159  |        
|                          | Accrued compensation expense               |                                       |         | 4,545   |         |   |        | 5,610   |        
|                          | Postretirement benefits                    |                                       |         | 2,722   |         |   |        | 3,353   |        
|                          | Other liabilities not currently deductible |                                       |         | 3,310   |         |   |        | 3,567   |        
|                          | Bad debt allowances                        |                                       |         | 1,269   |         |   |        | 2,078   |        
|                          | Tax carryforwards                          |                                       |         | 18,271  |         |   |        | 17,167  |        
|                          | Cumulative other comprehensive income      |                                       |         | 1,889   |         |   |        | 5,965   |        
|                          | Other, net                                 |                                       |         | 552     |         |   |        | 689     |        
|                          |                                            |                                       |         |         |         |   |        |        
|                          |                                            | Total deferred tax assets             |         |         | 65,424  |   |        |         | 72,588  |  
|                          |                                            |                                       |         |         |         |   |        |        
|Valuation allowance       |                                            |                                       | (14,918 | )       |         |   | (7,115 | )      
|                          |                                            |                                       |         |         |         |   |        |        
|Deferred tax liabilities: |                                            |                                       |         |         |         |   |        |        
|                          | Prepaids currently deductible              |                                       |         | (3,373  | )       |   |        | (3,413  | )      
|                          | Depreciation and amortization              |                                       |         | (38,276 | )       |   |        | (42,288 | )      
|                          | Other, net                                 |                                       |         | (8,857  | )       |   |        | (7,692  | )      
|                          |                                            |                                       |         |         |         |   |        |        
|                          |                                            | Total deferred tax liabilities        |         |         | (50,506 | ) |        |         | (53,393 | )
|                          |                                            |                                       |         |         |         |   |        |        
|                          |                                            | Net deferred tax assets (liabilities) |         | $       | 0       |   |        | $       | 12,080  |  
|                          |                                            |                                       |         |         |         |   |        |        

The net changes in the total valuation allowance
for the years ended December 31, 2003 and 2002 were
increases of $7.8 million and $2.4 million,
respectively. Included in the 2003 increase is a
$6.8 million non-cash charge to record a valuation
allowance against its net deferred tax assets due to net losses
in 2003 and prior years based on managements conclusion
that it is not more likely than not that the
deferred tax assets will be recovered.

At December 31, 2003, the Company had
federal net operating loss carryforwards of $16.8 million.
The federal and state loss carryforwards expire at various dates
up to 2023. The Company had federal capital loss carryforwards
of $6.0 million that expire in 2007. In addition,
$7.0 million of tax credit carryforwards are available to
reduce future income taxes. Of the tax credit carryforwards,
$6.3 million consists of foreign tax credits that expire
from 2004 to 2008 and $0.7 million consists of alternative
minimum tax credits that have no expiration.

In the normal course of business, we are subject
to audits from the federal, state, Canadian provincial and other
tax authorities regarding various tax liabilities. The Canadian
taxing authorities are currently auditing the years 1998 through
2001 for our Canadian entities. 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 $2.2 million.

These audits may alter the timing or amount of
taxable income or deductions, or the allocation of income among
tax jurisdictions. The amount ultimately paid upon resolution of
issues raised may differ from the amount accrued. We believe
that taxes accrued on the consolidated balance sheet fairly
represent the amount of future tax liability due.

F-31



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|     |                                                      
|---- | -----------------------------------------------------
|(16) | Supplemental Disclosures of Cash Flow
    Information

|                                                               |  |      |        |      |  |      |        |  |  |   |        | 
|-------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                                               |  | 2003 |        | 2002 |  | 2001
|                                                               |  |      |        |      |  |     
|Cash paid during the year for interest                         |  | $    | 24,562 |      |  | $    | 26,607 |  |  | $ | 37,726 | 
|Cash paid during the year for income taxes, net
    of refunds |  |      | (739   | )    |  |      | 876    |  |  |   | 1,520  | 



|     |                              
|---- | -----------------------------
|(17) | 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 March 2006. During 2001, the Company renegotiated rates
for all of its customers to include an administrative processing
fee for services provided. In 2004, the Company renewed its
vehicle delivery agreement with General Motors Corporation. The
renewal extended the expiration date to March 2006. The new
contract included certain commitments by both the Company and
General Motors. The Company also renewed its contracts with
Toyota and Honda for expiration in November 2004 and March 2005,
respectively.

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.
The contract with General Motors can be terminated by location
for failure to comply with service and quality standards set
forth in the contract. The Company has 30 days to cure any
such noncompliance by location and General Motors may terminate
by location on 30 days notice following a failure to cure.



|    |                  
|--- | -----------------
|(b) | Letters of Credit

At December 31, 2003, the Company has
agreements with third parties that provide for
$111.4 million of letters of credit primarily relating to
settlements of insurance claims and reserves and support for a
line of credit at one of the Companys foreign
subsidiaries. $29.3 million of these letters of credit are
issued by the Company and are secured by available borrowings on
the revolving credit agreement and $82.1 million are issued
by the Companys wholly owned captive insurance subsidiary
Haul Insurance Limited and are collateralized by
$82.1 million of restricted cash and cash equivalents held
by the captive. These letters of credit are renewed by the
Company annually.



|    |                                        
|--- | ---------------------------------------
|(c) | 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 will not have a material adverse
effect on the Companys financial position or results of
operations.

Since its last annual filing, Allied has settled
all outstanding litigation with Ryder System, Inc. The
litigation was previously disclosed in company filings. The
litigation arose in connection with the acquisition by the
Company of Ryder Automotive Carrier Services, Inc. and RC
Management Corp. from Ryder System, Inc. in September 1997,
and consisted of three actions. In Ryder
Systems, Inc. v. Allied Holdings, Inc., AH
Acquisition Corp. and Allied Automotive Group(the
Ryder Action), Ryder alleged that the Company failed
to substitute itself for Ryder under an insurance policy
covering third-party claims and with various state agencies that
regulate matters such as self-insured workers
compensation. Ryder also alleged that the Company was obligated
to take certain steps to transfer from Ryder to itself the
ownership and administrative responsibility for two pension
plans. The other two actions, Gateway Development &
Manufacturing, Inc. v. Commercial Carriers, Inc.,
et al. and Commercial Carriers, Inc. v.
Gateway Development & Manufacturing, Inc.,
et al. (collectively the Gateway/ CCI
Actions), both centered around the contention

F-32



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

that the Company breached legal duties with
respect to a failed business transaction involving Gateway
Development, Ryder Truck Rental, Inc., and Ryder System.

Under terms of the settlement agreement, Ryder
System has paid the Company approximately $1.4 million, and
Ryders insurance carrier has paid the Company
approximately $1.6 million. The Company had previously
recorded a receivable of $1.0 million from Ryder System,
Inc. and its insurance carrier, and recorded the remaining
$2.0 million of the amount received as income. The payment
from Ryder represents the settlement of various claims and
disputes that have arisen since the 1997 acquisition. The
payment from Ryders insurance carrier represents a
reimbursement for amounts paid by the Company in excess of the
self-insured retention for workers compensation and
automobile liability claims assumed in the acquisition of
Ryders Automotive Carrier Group. The Company and Ryder
System have agreed to dismiss all litigation each party had
brought against the other as part of the settlement, which has
resulted in the complete dismissal of the Ryder Action. Except
with respect to expenses already incurred, Ryder has agreed to
indemnify Allied for all costs, including legal fees and any
potential judgment against Allied, arising out of the
Gateway/CCI Actions. Therefore, although the Gateway/CCI Actions
remain pending, the settlement will provide Allied with
indemnification from Ryder System as to exposure to future legal
fees or any potential judgment against the Company.

As part of the settlement agreement, the Company
has issued a letter of credit for $3.5 million in favor of
Ryder System and has agreed to increase the letter of credit by
$1 million each quarter starting in the fourth quarter 2003
through the third quarter of 2005. The letter of credit may only
be drawn by Ryder System if the Company fails to pay
workers compensation and liability claims assumed by the
Company in the Ryder Automotive Carrier Group acquisition. The
Company has provided the letter of credit in favor of Ryder
System because Ryder has issued a letter of credit to its
insurance carrier relating to the workers compensation and
liability claims assumed by the Company. By September 30,
2005, and periodically thereafter, an actuarial valuation will
be made to determine the remaining outstanding amount of
workers compensation and liability claims assumed by
Allied, and the letter of credit issued by the Company in favor
of Ryder System will be adjusted accordingly. (See (b) of this
Note.)



|    |                      
|--- | ---------------------
|(d) | 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 performance
criteria. The employment agreements also provide for severance
benefits upon the occurrence of certain events, including a
change in control, as defined in such agreements.



|    |                                              
|--- | ---------------------------------------------
|(e) | Purchase and Service Contract
    Commitments

In April 2001, the Company entered into a
five-year commitment with IBM to provide its mainframe computer
processing services. In December 2003, the Company amended the
agreement. The amended agreement is a ten-year commitment,
commencing February 2004, for IBM to provide additional services
to manage applications for EDI, network services, technical
services, and applications development and support. Payments
under this contract, prior to its amendment, amounted to
approximately $5.9 million, $5.3 million, and
$4.9 million for the years ended December 31, 2003,
2002 and 2001, respectively. The agreement includes outsourcing
at determinable prices defined within the agreement. The
purchase commitment over the life of the agreement totals
$108.6 million as follows:

|                        |  |       |         |                      |  |           |        |           |  |         |        |  |  |   |        |  |  |   |        | 
|----------------------- |  | ----- | ------- | -------------------- |  | --------- | ------ | --------- |  | ------- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                        |  |       |         |                     
|                        |  |       |         | Payments Due by Year
|                        |  |       |         |                     
|                        |  |       |         | Less Than            |  |           |        | More Than
|Contractual Obligations |  | Total |         | 1 Year               |  | 1-3 Years |        | 4-5 Years |  | 5 Years
|                        |  |       |         |                      |  |           |        |           |  |        
|Purchase Obligations    |  | $     | 108,558 |                      |  | $         | 10,045 |           |  | $       | 20,714 |  |  | $ | 21,347 |  |  | $ | 56,452 | 

F-33



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                     
|--- | ------------------------------------
|(f) | Collective Bargaining
    Agreements

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 had been operating under a contract that expired on
October 31, 2002. The new contract 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 total bargaining unit
employees in Canada.

Employees of the Companys subsidiary,
Allied Systems, which represents approximately 80% of the
Companys U.S. employees, are represented by the
International Brotherhood of Teamsters Union in the United
States. A new collective bargaining agreement, which covers the
Companys employees represented by the Teamsters, commenced
on June 1, 2003 and will expire on May 31, 2008.



|     |                                                
|---- | -----------------------------------------------
|(18) | 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 segments through which it conducts its
operating activities: Allied Automotive Group and Axis Group.
These two segments reflect the internal reporting used by
management to assess performance and allocate resources. Allied
Automotive Group is engaged in the business of transporting
automobiles, light trucks, and SUVs from manufacturing plants,
ports, auctions, and railway distribution points to automobile
dealerships. Axis Group, through its subsidiaries, is engaged in
the business of securing and managing vehicle distribution
services, automobile inspections, auction and yard management
services, intra-modal transport, vehicle tracking, vehicle
accessorization, and dealer preparatory services for the
automotive industry.

|                                   |                                                         |                |   |         |         |      |   |         |         |  |   |         |         |  
|---------------------------------- | ------------------------------------------------------- | -------------- | - | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | -
|                                   |                                                         | 2003           |   | 2002    |         | 2001
|                                   |                                                         |                |   |         |         |     
|                                   |                                                         |               
|                                   |                                                         | (in thousands)
|Revenues  unaffiliated customers: |                                                         |                |   |         |         |      |   |         |         |  |   |        
|                                   | Allied Automotive Group                                 |                | $ | 836,835 |         |      | $ | 868,041 |         |  | $ | 868,222 |        
|                                   | Axis Group                                              |                |   | 28,628  |         |      |   | 30,019  |         |  |   | 28,545  |        
|                                   | Corporate/other                                         |                |   | 0       |         |      |   | 0       |         |  |   | 0       |        
|                                   |                                                         |                |   |         |         |      |   |         |         |  |   |        
|                                   |                                                         | Total          |   | $       | 865,463 |      |   | $       | 898,060 |  |   | $       | 896,767 |  
|                                   |                                                         |                |   |         |         |      |   |         |         |  |   |        
|Depreciation and amortization:     |                                                         |                |   |         |         |      |   |         |         |  |   |        
|                                   | Allied Automotive Group                                 |                | $ | 39,427  |         |      | $ | 48,984  |         |  | $ | 53,187  |        
|                                   | Axis Group                                              |                |   | 2,887   |         |      |   | 2,956   |         |  |   | 3,813   |        
|                                   | Corporate/other                                         |                |   | 3,242   |         |      |   | 2,940   |         |  |   | 3,358   |        
|                                   |                                                         |                |   |         |         |      |   |         |         |  |   |        
|                                   |                                                         | Total          |   | $       | 45,556  |      |   | $       | 54,880  |  |   | $       | 60,358  |  
|                                   |                                                         |                |   |         |         |      |   |         |         |  |   |        
|Operating profit (loss):           |                                                         |                |   |         |         |      |   |         |         |  |   |        
|                                   | Allied Automotive Group                                 |                | $ | 11,655  |         |      | $ | 9,021   |         |  | $ | (48,459 | )      
|                                   | Axis Group                                              |                |   | 4,476   |         |      |   | 4,312   |         |  |   | 1,870   |        
|                                   | Corporate/other                                         |                |   | 2,352   |         |      |   | 7,675   |         |  |   | 8,880   |        
|                                   |                                                         |                |   |         |         |      |   |         |         |  |   |        
|                                   |                                                         | Total          |   |         | 18,483  |      |   |         | 21,008  |  |   |         | (37,709 | )
|Reconciling items:                 |                                                         |                |   |         |         |      |   |         |         |  |   |        
|                                   | Equity income in joint ventures                         |                |   | 0       |         |      |   | 0       |         |  |   | 4,072   |        
|                                   | Gain on sale of equity investment in joint
    ventures |                |   | 0       |         |      |   | 0       |         |  |   | 16,230  |        
|                                   | Write down of equity investment in joint venture        |                |   | 0       |         |      |   | 0       |         |  |   | (10,042 | )      
|                                   | Interest expense                                        |                |   | (29,138 | )       |      |   | (30,627 | )       |  |   | (37,574 | )      

F-34



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                      |                              |                                                                                      |   |         |         |      |   |         |         |   |   |         |         |  
|--------------------- | ---------------------------- | ------------------------------------------------------------------------------------ | - | ------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                      |                              | 2003                                                                                 |   | 2002    |         | 2001
|                      |                              |                                                                                      |   |         |         |     
|                      |                              |                                                                                     
|                      |                              | (in thousands)                                                                      
|                      | Investment income            |                                                                                      |   | 3,172   |         |      |   | 2,463   |         |   |   | 3,874   |        
|                      | Foreign exchange gain (loss) |                                                                                      |   | 3,169   |         |      |   | 108     |         |   |   | (829    | )      
|                      | Other, net                   |                                                                                      |   | 1,976   |         |      |   | 2,485   |         |   |   | 1,189   |        
|                      |                              |                                                                                      |   |         |         |      |   |         |         |   |   |        
|                      |                              | Loss before income taxes and cumulative effect of
    change in accounting principle |   | $       | (2,338  | )    |   | $       | (4,563  | ) |   | $       | (60,789 | )
|                      |                              |                                                                                      |   |         |         |      |   |         |         |   |   |        
|Total Assets:         |                              |                                                                                      |   |         |         |      |   |         |         |   |   |        
|                      | Allied Automotive Group      |                                                                                      | $ | 279,208 |         |      | $ | 299,339 |         |   | $ | 353,558 |        
|                      | Axis Group                   |                                                                                      |   | 31,993  |         |      |   | 35,663  |         |   |   | 43,881  |        
|                      | Corporate/other              |                                                                                      |   | 144,534 |         |      |   | 133,385 |         |   |   | 135,953 |        
|                      |                              |                                                                                      |   |         |         |      |   |         |         |   |   |        
|                      |                              | Total                                                                                |   | $       | 455,735 |      |   | $       | 468,387 |   |   | $       | 533,392 |  
|                      |                              |                                                                                      |   |         |         |      |   |         |         |   |   |        
|Capital expenditures: |                              |                                                                                      |   |         |         |      |   |         |         |   |   |        
|                      | Allied Automotive Group      |                                                                                      | $ | 17,959  |         |      | $ | 21,416  |         |   | $ | 19,198  |        
|                      | Axis Group                   |                                                                                      |   | 299     |         |      |   | 217     |         |   |   | 2,198   |        
|                      | Corporate/other              |                                                                                      |   | 297     |         |      |   | 153     |         |   |   | 67      |        
|                      |                              |                                                                                      |   |         |         |      |   |         |         |   |   |        
|                      |                              | Total                                                                                |   | $       | 18,555  |      |   | $       | 21,786  |   |   | $       | 21,463  |  
|                      |                              |                                                                                      |   |         |         |      |   |         |         |   |   |        

Geographic financial information for 2003, 2002,
and 2001 is as follows (in thousands):

|                   |               |      |         |         |  |      |         |         |  |   |         |         | 
|------------------ | ------------- | ---- | ------- | ------- |  | ---- | ------- | ------- |  | - | ------- | ------- | 
|                   |               | 2003 |         | 2002    |  | 2001
|                   |               |      |         |         |  |     
|Revenues:          |               |      |         |         |  |      |         |         |  |   |         |        
|                   | United States |      | $       | 707,068 |  |      | $       | 746,777 |  |   | $       | 747,018 | 
|                   | Canada        |      |         | 158,395 |  |      |         | 151,283 |  |   |         | 149,749 | 
|                   |               |      |         |         |  |      |         |         |  |   |         |        
|                   |               | $    | 865,463 |         |  | $    | 898,060 |         |  | $ | 896,767 |        
|                   |               |      |         |         |  |      |         |         |  |   |         |        
|Long-lived assets: |               |      |         |         |  |      |         |         |  |   |         |        
|                   | United States |      | $       | 212,242 |  |      | $       | 239,087 |  |   | $       | 269,509 | 
|                   | Canada        |      |         | 66,311  |  |      |         | 58,310  |  |   |         | 59,581  | 
|                   |               |      |         |         |  |      |         |         |  |   |         |        
|                   |               | $    | 278,553 |         |  | $    | 297,397 |         |  | $ | 329,090 |        
|                   |               |      |         |         |  |      |         |         |  |   |         |        

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

Substantially all of the Companys revenues
and receivables are generated from the automotive industry.

In 2003, 2002, and 2001, approximately 72%, 73%,
and 68%, respectively, of the Allied Automotive Groups
revenues were derived from the three largest domestic automobile
manufacturers. In 2003, 2002, and 2001, General Motors
Corporation accounted for approximately 36%, 36%, and 28%,
respectively, of revenues; Ford Motor Company accounted for
approximately 23%, 24%, and 25%, respectively, of revenues; and
DaimlerChrysler Corporation accounted for approximately 13%,
13%, and 15%, respectively, of revenues. As of December 31,
2003 and 2002, General Motors Corporation accounted for
approximately 20% and 26%, respectively, of receivables; Ford
Motor Company accounted for approximately 29% and 32%,
respectively, of receivables; and DaimlerChrysler Corporation
accounted for approximately 10% and 9%, respectively, of
receivables.

F-35



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|     |                     
|---- | --------------------
|(19) | 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, 2003 and 2002. 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.

In 2003, the Company reserved 225,000 shares
of common stock under the 2003 Stock Issuance Plan. In August
2003, the Company awarded 250 shares of common stock to
each full time nonbargaining U.S. employee other than those
at the level of Senior Vice President or above. The shares vest
one year from the date of issuance. In addition, the Company
agreed to award 250 shares of common stock in August 2004
to each full time nonbargaining unit employee in Canada as of
August 1, 2003 other than those at the level of Senior Vice
President or above. In connection with the shares granted, the
Company recorded compensation expense of $0.3 million in
2003. Shares granted, net of reductions for employee
terminations, were 185,250 as of December 31, 2003, and the
shares were valued at $3.42 on the date of grant.

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.

No restricted stock was granted during 2003,
2002, or 2001, other than shares granted under the 2003 Stock
Issuance Plan. During 2003, 2002, and 2001, 3,590, 12,478, and
92,094 shares, respectively, of restricted stock were
canceled. Compensation expense is recorded net of forfeitures
over the vesting period of the restricted stock. In connection
with the awards of the restricted stock, the Company recorded
compensation (benefit) expense of $0.1 million,
($0.06 million), and $0.2 million, in 2003, 2002, and
2001, respectively. As of December 31, 2003, 2002, and
2001, restricted stock shares outstanding were 170,993, 172,534,
and 202,985, respectively.

F-36



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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, 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 |     
|                                    | Granted   |        |           | 138,000      |   |                | $            | 3.15   3.51 |  |   | $    | 3.36 | 
|                                    | Canceled  |        |           | (10,333      | ) |                | $            | 2.60   5.15 |  |   | $    | 4.58 | 
|                                    | Exercised |        |           | (30,000      | ) |                |              | $3.70        |  |   | $    | 3.70 | 
|                                    |           |        |           |              |   |                |              |              |  |   |      |     
|Outstanding as of December 31, 2003 |           |        | 1,709,967 |              |   | $              | 1.80  11.75 |              |  | $ | 3.65 |     
|                                    |           |        |           |              |   |                |              |              |  |   |      |     

|                                                                             |  |      |           |      |  |      |         |  |  |   |         | 
|---------------------------------------------------------------------------- |  | ---- | --------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                                                             |  | 2003 |           | 2002 |  | 2001
|                                                                             |  |      |           |      |  |     
|Options exercisable at year-end                                              |  |      | 1,122,319 |      |  |      | 531,631 |  |  |   | 146,964 | 
|Weighted average exercise price of options
    exercisable at year-end       |  | $    | 3.67      |      |  | $    | 4.31    |  |  | $ | 8.85    | 
|Per share weighted average fair value of options
    granted during the year |  | $    | 3.36      |      |  | $    | 4.01    |  |  | $ | 2.57    | 

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, 2003      |  |          |           | December 31, 2003     
|                         |               |                        |  | 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 |                        |  |          | 1,256,000 |                        |  | $         | 2.76 |          |  |  | 8.03 |  |  |  | 867,676   |  |  | $ | 2.67 | 
|                         | $4.30   7.06 |                        |  |          | 370,667   |                        |  | $         | 5.31 |          |  |  | 7.88 |  |  |  | 171,343   |  |  | $ | 5.79 | 
|                         | $9.50  11.75 |                        |  |          | 83,300    |                        |  | $         | 9.72 |          |  |  | 2.39 |  |  |  | 83,300    |  |  | $ | 9.72 | 
|                         |               |                        |  |          |           |                        |  |           |      |          |  |  |      |  |  |  |           |  |  |   |      | 
|                         |               |                        |  |          | 1,709,967 |                        |  |           |      |          |  |  | 7.72 |  |  |  | 1,122,319 |  |  |   |      | 
|                         |               |                        |  |          |           |                        |  |           |      |          |  |  |      |  |  |  |           |  |  |   |      | 

F-37



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|     |                                     
|---- | ------------------------------------
|(20) | Quarterly Financial Data (Unaudited)

|                               |         |                                          |         |        |   |       |         |        |  |   |         |       |   |   |         |       |  
|------------------------------ | ------- | ---------------------------------------- | ------- | ------ | - | ----- | ------- | ------ |  | - | ------- | ----- | - | - | ------- | ----- | -
|                               |         |                                         
|                               |         | 2003                                    
|                               |         |                                         
|                               |         | First                                    |         | Second |   | Third |         | Fourth
|                               |         |                                          |         |        |   |       |         |       
|                               |         |                                         
|                               |         | (In thousands, except per share amounts)
|Revenues                       |         | $                                        | 213,592 |        |   | $     | 230,078 |        |  | $ | 197,089 |       |   | $ | 224,704 |      
|Operating (loss) income        |         |                                          | (1,716  | )      |   |       | 7,552   |        |  |   | 3,147   |       |   |   | 9,500   |      
|Net (loss) income              |         |                                          | (5,664  | )      |   |       | 3,372   |        |  |   | (1,975  | )     |   |   | (4,337  | )    
|Net (loss) earnings per share: |         |                                          |         |        |   |       |         |        |  |   |         |       |   |   |         |      
|                               | Basic   |                                          | $       | (0.67  | ) |       | $       | 0.40   |  |   | $       | (0.23 | ) |   | $       | (0.51 | )
|                               | Diluted |                                          |         | (0.67  | ) |       |         | 0.39   |  |   |         | (0.23 | ) |   |         | (0.51 | )
|Average shares outstanding:    |         |                                          |         |        |   |       |         |        |  |   |         |       |   |   |         |      
|                               | Basic   |                                          |         | 8,409  |   |       |         | 8,462  |  |   |         | 8,507 |   |   |         | 8,533 |  
|                               | Diluted |                                          |         | 8,409  |   |       |         | 8,700  |  |   |         | 8,507 |   |   |         | 8,533 |  

|                               |            |                                          |         |        |   |       |         |        |  |   |         |       |   |   |         |       | 
|------------------------------ | ---------- | ---------------------------------------- | ------- | ------ | - | ----- | ------- | ------ |  | - | ------- | ----- | - | - | ------- | ----- | 
|                               |            |                                         
|                               |            | 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(1)           |            |                                          | (5,248  | )      |   |       | 2,109   |        |  |   | (6,482  | )     |   |   | 2,095   |      
|Net (loss) earnings per share: |            |                                          |         |        |   |       |         |        |  |   |         |       |   |   |         |      
|                               | Basic(1)   |                                          | $       | (0.64  | ) |       | $       | 0.25   |  |   | $       | (0.78 | ) |   | $       | 0.25  | 
|                               | Diluted(1) |                                          |         | (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 | 



---



|    |                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The quarter ended March 31, 2002 includes
    the cumulative effect of a change in accounting principle, net
    of taxes, of $(4,092), or $(.50) per share.

Earnings per share are computed independently for
each of the quarters presented. Therefore, the sum of the
quarterly earnings per share in 2003 and 2002 does not equal the
total computed for the year.



|     |                                   
|---- | ----------------------------------
|(21) | 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.

F-38



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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, 2003 is as follows (in
thousands):

|                                            |                                                         |                                            |         |              |         |              |         |              |         |              |        |         |        |  |         |          |          |   |         |         |         | 
|------------------------------------------- | ------------------------------------------------------- | ------------------------------------------ | ------- | ------------ | ------- | ------------ | ------- | ------------ | ------- | ------------ | ------ | ------- | ------ |  | ------- | -------- | -------- | - | ------- | ------- | ------- | 
|                                            |                                                         | Allied                                     |         | Guarantor    |         | Nonguarantor |         |              |         |             
|                                            |                                                         | Holdings                                   |         | Subsidiaries |         | Subsidiaries |         | Eliminations |         | Consolidated
|                                            |                                                         |                                            |         |              |         |              |         |              |         |             
|Current assets:                             |                                                         |                                            |         |              |         |              |         |              |         |              |        |         |        |  |         |          |          |   |         |        
|                                            | Cash and cash equivalents                               |                                            | $       | 549          |         |              | $       | 1,166        |         |              | $      | 433     |        |  | $       | 0        |          |   | $       | 2,148   |        
|                                            | Restricted cash and cash equivalents                    |                                            |         | 0            |         |              |         | 0            |         |              |        | 26,267  |        |  |         | 0        |          |   |         | 26,267  |        
|                                            | Receivables, net of allowance for doubtful
    accounts |                                            |         | 0            |         |              |         | 50,842       |         |              |        | 4,268   |        |  |         | 0        |          |   |         | 55,110  |        
|                                            | Inventories                                             |                                            |         | 0            |         |              |         | 4,983        |         |              |        | 0       |        |  |         | 0        |          |   |         | 4,983   |        
|                                            | Deferred tax asset  current                            |                                            |         | 17,518       |         |              |         | 2,695        |         |              |        | 0       |        |  |         | 0        |          |   |         | 20,213  |        
|                                            | Prepayments and other current assets                    |                                            |         | 1,750        |         |              |         | 10,860       |         |              |        | 34      |        |  |         | 0        |          |   |         | 12,644  |        
|                                            |                                                         |                                            |         |              |         |              |         |              |         |              |        |         |        |  |         |          |          |   |         |        
|                                            |                                                         | Total current assets                       |         |              | 19,817  |              |         |              | 70,546  |              |        |         | 31,002 |  |         |          | 0        |   |         |         | 121,365 | 
|                                            |                                                         |                                            |         |              |         |              |         |              |         |              |        |         |        |  |         |          |          |   |         |        
|Property and equipment, net                 |                                                         |                                            | 6,695   |              |         |              | 145,912 |              |         |              | 2,966  |         |        |  | 0       |          |          |   | 155,573 |        
|                                            | Goodwill, net                                           |                                            |         | 1,515        |         |              |         | 88,688       |         |              |        | 0       |        |  |         | 0        |          |   |         | 90,203  |        
|Other assets:                               |                                                         |                                            |         |              |         |              |         |              |         |              |        |         |        |  |         |          |          |   |         |        
|                                            | Restricted cash and cash equivalents                    |                                            |         | 0            |         |              |         | 0            |         |              |        | 55,817  |        |  |         | 0        |          |   |         | 55,817  |        
|                                            | Other                                                   |                                            |         | 30,327       |         |              |         | 1,679        |         |              |        | 771     |        |  |         | 0        |          |   |         | 32,777  |        
|                                            | Deferred tax asset  noncurrent                         |                                            |         | 14,875       |         |              |         | 0            |         |              |        | 0       |        |  |         | (14,875  | )        |   |         | 0       |        
|                                            | Intercompany receivables                                |                                            |         | 63,954       |         |              |         | 0            |         |              |        | (10,677 | )      |  |         | (53,277  | )        |   |         | 0       |        
|                                            | Investment in subsidiaries                              |                                            |         | 32,631       |         |              |         | 5,626        |         |              |        | 0       |        |  |         | (38,257  | )        |   |         | 0       |        
|                                            |                                                         |                                            |         |              |         |              |         |              |         |              |        |         |        |  |         |          |          |   |         |        
|                                            |                                                         | Total other assets                         |         |              | 141,787 |              |         |              | 7,305   |              |        |         | 45,911 |  |         |          | (106,409 | ) |         |         | 88,594  | 
|                                            |                                                         |                                            |         |              |         |              |         |              |         |              |        |         |        |  |         |          |          |   |         |        
|                                            |                                                         | Total assets                               |         | $            | 169,814 |              |         | $            | 312,451 |              |        | $       | 79,879 |  |         | $        | (106,409 | ) |         | $       | 455,735 | 
|                                            |                                                         |                                            |         |              |         |              |         |              |         |              |        |         |        |  |         |          |          |   |         |        
|Current liabilities:                        |                                                         |                                            |         |              |         |              |         |              |         |              |        |         |        |  |         |          |          |   |         |        
|                                            | Current maturities of long-term debt                    |                                            | $       | 0            |         |              | $       | 16,374       |         |              | $      | 0       |        |  | $       | 0        |          |   | $       | 16,374  |        
|                                            | Borrowings under revolving credit facility              |                                            |         | 0            |         |              |         | 0            |         |              |        | 0       |        |  |         | 0        |          |   |         | 0       |        
|                                            | Trade accounts payable                                  |                                            |         | 2,175        |         |              |         | 32,025       |         |              |        | 72      |        |  |         | 0        |          |   |         | 34,272  |        
|                                            | Intercompany payables                                   |                                            |         | 0            |         |              |         | 53,277       |         |              |        | 0       |        |  |         | (53,277  | )        |   |         | 0       |        
|                                            | Accrued liabilities                                     |                                            |         | 8,825        |         |              |         | 56,614       |         |              |        | 15,498  |        |  |         | 0        |          |   |         | 80,937  |        
|                                            |                                                         |                                            |         |              |         |              |         |              |         |              |        |         |        |  |         |          |          |   |         |        
|                                            |                                                         | Total current liabilities                  |         |              | 11,000  |              |         |              | 158,290 |              |        |         | 15,570 |  |         |          | (53,277  | ) |         |         | 131,583 | 
|                                            |                                                         |                                            |         |              |         |              |         |              |         |              |        |         |        |  |         |          |          |   |         |        
|Long-term debt, less current maturities     |                                                         |                                            | 150,000 |              |         |              | 80,126  |              |         |              | 0      |         |        |  | 0       |          |          |   | 230,126 |        
|Postretirement benefits other than pensions |                                                         |                                            | 0       |              |         |              | 5,302   |              |         |              | 0      |         |        |  | 0       |          |          |   | 5,302   |        
|Deferred income taxes                       |                                                         |                                            | 0       |              |         |              | 35,088  |              |         |              | 0      |         |        |  | (14,875 | )        |          |   | 20,213  |        
|Other long-term liabilities                 |                                                         |                                            | 0       |              |         |              | 27,011  |              |         |              | 32,686 |         |        |  | 0       |          |          |   | 59,697  |        
|Stockholders equity:                       |                                                         |                                            |         |              |         |              |         |              |         |              |        |         |        |  |         |          |          |   |         |        
|                                            | Common stock, no par value                              |                                            |         | 0            |         |              |         | 0            |         |              |        | 0       |        |  |         | 0        |          |   |         | 0       |        
|                                            | Additional paid-in capital                              |                                            |         | 47,511       |         |              |         | 166,130      |         |              |        | 2,488   |        |  |         | (168,618 | )        |   |         | 47,511  |        
|                                            | Treasury stock                                          |                                            |         | (707         | )       |              |         | 0            |         |              |        | 0       |        |  |         | 0        |          |   |         | (707    | )      
|                                            | Retained (deficit) earnings                             |                                            |         | (35,024      | )       |              |         | (148,516     | )       |              |        | 29,135  |        |  |         | 119,381  |          |   |         | (35,024 | )      
|                                            | Cumulative other comprehensive loss, net of tax         |                                            |         | (2,966       | )       |              |         | (10,980      | )       |              |        | 0       |        |  |         | 10,980   |          |   |         | (2,966  | )      
|                                            |                                                         |                                            |         |              |         |              |         |              |         |              |        |         |        |  |         |          |          |   |         |        
|                                            |                                                         | Total stockholders equity                 |         |              | 8,814   |              |         |              | 6,634   |              |        |         | 31,623 |  |         |          | (38,257  | ) |         |         | 8,814   | 
|                                            |                                                         |                                            |         |              |         |              |         |              |         |              |        |         |        |  |         |          |          |   |         |        
|                                            |                                                         | Total liabilities and stockholders equity |         | $            | 169,814 |              |         | $            | 312,451 |              |        | $       | 79,879 |  |         | $        | (106,409 | ) |         | $       | 455,735 | 
|                                            |                                                         |                                            |         |              |         |              |         |              |         |              |        |         |        |  |         |          |          |   |         |        

F-39



---



##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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        |         |              | $     | 7,505  |        |  | $ | 0       |         |   | $       | 9,448  |        
|                            | Restricted cash and cash equivalents                    |                           |       | 0            |         |              |         | 0            |         |              |       | 805    |        |  |   | 0       |         |   |         | 805    |        
|                            | Restricted short-term investments                       |                           |       | 0            |         |              |         | 0            |         |              |       | 19,502 |        |  |   | 0       |         |   |         | 19,502 |        
|                            | Receivables, net of allowance for doubtful
    accounts |                           |       | 0            |         |              |         | 56,003       |         |              |       | 2,509  |        |  |   | 0       |         |   |         | 58,512 |        
|                            | Inventories                                             |                           |       | 0            |         |              |         | 5,071        |         |              |       | 0      |        |  |   | 0       |         |   |         | 5,071  |        
|                            | Deferred tax asset  current                            |                           |       | 20,494       |         |              |         | 2,211        |         |              |       | 0      |        |  |   | 0       |         |   |         | 22,705 |        
|                            | Prepayments and other current assets                    |                           |       | 2,677        |         |              |         | 10,826       |         |              |       | 214    |        |  |   | 0       |         |   |         | 13,717 |        
|                            |                                                         |                           |       |              |         |              |         |              |         |              |       |        |        |  |   |         |         |   |         |       
|                            |                                                         | Total current assets      |       |              | 23,178  |              |         |              | 76,047  |              |       |        | 30,535 |  |   |         | 0       |   |         |        | 129,760 | 
|                            |                                                         |                           |       |              |         |              |         |              |         |              |       |        |        |  |   |         |         |   |         |       
|Property and equipment, net |                                                         |                           | 8,957 |              |         |              | 164,501 |              |         |              | 3,205 |        |        |  | 0 |         |         |   | 176,663 |       
|                            | Goodwill, net                                           |                           |       | 1,515        |         |              |         | 83,726       |         |              |       | 0      |        |  |   | 0       |         |   |         | 85,241 |        
|Other assets:               |                                                         |                           |       |              |         |              |         |              |         |              |       |        |        |  |   |         |         |   |         |       
|                            | Restricted short-term investments                       |                           |       | 0            |         |              |         | 0            |         |              |       | 41,230 |        |  |   | 0       |         |   |         | 41,230 |        
|                            | Other                                                   |                           |       | 31,828       |         |              |         | 2,743        |         |              |       | 922    |        |  |   | 0       |         |   |         | 35,493 |        
|                            | 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        |       |              | 123,691 |              |         |              | 7,854   |              |       |        | 42,243 |  |   |         | (97,065 | ) |         |        | 76,723  | 
|                            |                                                         |                           |       |              |         |              |         |              |         |              |       |        |        |  |   |         |         |   |         |       
|                            |                                                         | Total assets              |       | $            | 157,341 |              |         | $            | 332,128 |              |       | $      | 75,983 |  |   | $       | (97,065 | ) |         | $      | 468,387 | 
|                            |                                                         |                           |       |              |         |              |         |              |         |              |       |        |        |  |   |         |         |   |         |       
|Current liabilities:        |                                                         |                           |       |              |         |              |         |              |         |              |       |        |        |  |   |         |         |   |         |       
|                            | Current maturities of long-term debt                    |                           | $     | 0            |         |              | $       | 10,785       |         |              | $     | 0      |        |  | $ | 0       |         |   | $       | 10,785 |        
|                            | Borrowings under revolving credit facility              |                           |       | 0            |         |              |         | 24,635       |         |              |       | 0      |        |  |   | 0       |         |   |         | 24,635 |        
|                            | Trade accounts payable                                  |                           |       | 3,362        |         |              |         | 32,930       |         |              |       | 293    |        |  |   | 0       |         |   |         | 36,585 |        
|                            | Intercompany payables                                   |                           |       | 0            |         |              |         | 56,043       |         |              |       | 0      |        |  |   | (56,043 | )       |   |         | 0      |        
|                            | Accrued liabilities                                     |                           |       | 9,755        |         |              |         | 61,083       |         |              |       | 19,291 |        |  |   | 0       |         |   |         | 90,129 |        
|                            |                                                         |                           |       |              |         |              |         |              |         |              |       |        |        |  |   |         |         |   |         |       
|                            |                                                         | Total current liabilities |       |              | 13,117  |              |         |              | 185,476 |              |       |        | 19,584 |  |   |         | (56,043 | ) |         |        | 162,134 | 
|                            |                                                         |                           |       |              |         |              |         |              |         |              |       |        |        |  |   |         |         |   |         |       

F-40



---



##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                            |                                                 |                                            |         |              |         |              |        |              |         |              |        |        |        |  |        |         |         |   |         |         |         | 
|------------------------------------------- | ----------------------------------------------- | ------------------------------------------ | ------- | ------------ | ------- | ------------ | ------ | ------------ | ------- | ------------ | ------ | ------ | ------ |  | ------ | ------- | ------- | - | ------- | ------- | ------- | 
|                                            |                                                 | Allied                                     |         | Guarantor    |         | Nonguarantor |        |              |         |             
|                                            |                                                 | Holdings                                   |         | Subsidiaries |         | Subsidiaries |        | Eliminations |         | Consolidated
|                                            |                                                 |                                            |         |              |         |              |        |              |         |             
|Long-term debt, less current maturities     |                                                 |                                            | 150,000 |              |         |              | 63,055 |              |         |              | 0      |        |        |  | 0      |         |         |   | 213,055 |        
|Postretirement benefits other than pensions |                                                 |                                            | 0       |              |         |              | 7,467  |              |         |              | 0      |        |        |  | 0      |         |         |   | 7,467   |        
|Deferred income taxes                       |                                                 |                                            | (17,121 | )            |         |              | 34,743 |              |         |              | 448    |        |        |  | (7,445 | )       |         |   | 10,625  |        
|Other long-term liabilities                 |                                                 |                                            | 1,031   |              |         |              | 34,324 |              |         |              | 29,437 |        |        |  | 0      |         |         |   | 64,792  |        
|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 |         | $            | 157,341 |              |        | $            | 332,128 |              |        | $      | 75,983 |  |        | $       | (97,065 | ) |         | $       | 468,387 | 
|                                            |                                                 |                                            |         |              |         |              |        |              |         |              |        |        |        |  |        |         |         |   |         |        

The supplemental consolidating statement of
operations information for the year ended December 31, 2003
is as follows (in thousands):

|                    |                                      |          |        |              |  |              |         |              |  |              |        |        |  |   |         |         |   |   |         |         | 
|------------------- | ------------------------------------ | -------- | ------ | ------------ |  | ------------ | ------- | ------------ |  | ------------ | ------ | ------ |  | - | ------- | ------- | - | - | ------- | ------- | 
|                    |                                      | Allied   |        | Guarantor    |  | Nonguarantor |         |              |  |             
|                    |                                      | Holdings |        | Subsidiaries |  | Subsidiaries |         | Eliminations |  | Consolidated
|                    |                                      |          |        |              |  |              |         |              |  |             
|Revenues            |                                      | $        | 36,519 |              |  | $            | 864,045 |              |  | $            | 36,706 |        |  | $ | (71,807 | )       |   | $ | 865,463 |        
|                    |                                      |          |        |              |  |              |         |              |  |              |        |        |  |   |         |         |   |   |         |        
|Operating expenses: |                                      |          |        |              |  |              |         |              |  |              |        |        |  |   |         |         |   |   |         |        
|                    | Salaries, wages, and fringe benefits |          |        | 13,174       |  |              |         | 456,366      |  |              |        | 0      |  |   |         | 0       |   |   |         | 469,540 | 
|                    | Operating supplies and expenses      |          |        | 9,226        |  |              |         | 129,091      |  |              |        | 195    |  |   |         | 0       |   |   |         | 138,512 | 
|                    | Purchased transportation             |          |        | 0            |  |              |         | 99,604       |  |              |        | 0      |  |   |         | 0       |   |   |         | 99,604  | 
|                    | Insurance and claims                 |          |        | 0            |  |              |         | 41,163       |  |              |        | 32,294 |  |   |         | (35,288 | ) |   |         | 38,168  | 
|                    | Operating taxes and licenses         |          |        | 244          |  |              |         | 30,132       |  |              |        | 0      |  |   |         | 0       |   |   |         | 30,376  | 
|                    | Depreciation and amortization        |          |        | 3,242        |  |              |         | 41,843       |  |              |        | 471    |  |   |         | 0       |   |   |         | 45,556  | 
|                    | Rents                                |          |        | 1,523        |  |              |         | 4,561        |  |              |        | 6      |  |   |         | 0       |   |   |         | 6,090   | 
|                    | Communications and utilities         |          |        | 4,451        |  |              |         | 2,673        |  |              |        | 14     |  |   |         | 0       |   |   |         | 7,138   | 

F-41



---



##### 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                  |                          |        | 5,066        |        |              |         | 41,848       |         |              |        | 276   |        |  |        | (36,519 | )       |   |         | 10,671  |        
|                                  | Loss on disposal of operating assets, net |                          |        | 0            |        |              |         | 1,325        |         |              |        | 0     |        |  |        | 0       |         |   |         | 1,325   |        
|                                  |                                           |                          |        |              |        |              |         |              |         |              |        |       |        |  |        |         |         |   |         |        
|                                  |                                           | Total operating expenses |        |              | 36,926 |              |         |              | 848,606 |              |        |       | 33,256 |  |        |         | (71,807 | ) |         |         | 846,980 |  
|                                  |                                           |                          |        |              |        |              |         |              |         |              |        |       |        |  |        |         |         |   |         |        
|                                  |                                           | Operating income (loss)  |        |              | (407   | )            |         |              | 15,440  |              |        |       | 3,450  |  |        |         | 0       |   |         |         | 18,483  |  
|                                  |                                           |                          |        |              |        |              |         |              |         |              |        |       |        |  |        |         |         |   |         |        
|Other income (expense):           |                                           |                          |        |              |        |              |         |              |         |              |        |       |        |  |        |         |         |   |         |        
|                                  | Interest expense                          |                          |        | (7,109       | )      |              |         | (21,780      | )       |              |        | (249  | )      |  |        | 0       |         |   |         | (29,138 | )      
|                                  | Investment income                         |                          |        | 0            |        |              |         | 68           |         |              |        | 3,104 |        |  |        | 0       |         |   |         | 3,172   |        
|                                  | Foreign exchange gain (loss)              |                          |        | 0            |        |              |         | 3,203        |         |              |        | (34   | )      |  |        | 0       |         |   |         | 3,169   |        
|                                  | Other, net                                |                          |        | 1,976        |        |              |         | 0            |         |              |        | 0     |        |  |        | 0       |         |   |         | 1,976   |        
|                                  | Intercompany dividends                    |                          |        | 0            |        |              |         | 0            |         |              |        | 0     |        |  |        | 0       |         |   |         | 0       |        
|                                  | Equity in net income of subsidiaries      |                          |        | 2,355        |        |              |         | 515          |         |              |        | 0     |        |  |        | (2,870  | )       |   |         | 0       |        
|                                  |                                           |                          |        |              |        |              |         |              |         |              |        |       |        |  |        |         |         |   |         |        
|                                  |                                           |                          | (2,778 | )            |        |              | (17,994 | )            |         |              | 2,821  |       |        |  | (2,870 | )       |         |   | (20,821 | )      
|                                  |                                           |                          |        |              |        |              |         |              |         |              |        |       |        |  |        |         |         |   |         |        
|(Loss) income before income taxes |                                           |                          | (3,185 | )            |        |              | (2,554  | )            |         |              | 6,271  |       |        |  | (2,870 | )       |         |   | (2,338  | )      
|Income tax benefit (expense)      |                                           |                          | (5,419 | )            |        |              | 315     |              |         |              | (1,162 | )     |        |  | 0      |         |         |   | (6,266  | )      
|                                  |                                           |                          |        |              |        |              |         |              |         |              |        |       |        |  |        |         |         |   |         |        
|                                  |                                           | Net (loss) income        |        | $            | (8,604 | )            |         | $            | (2,239  | )            |        | $     | 5,109  |  |        | $       | (2,870  | ) |         | $       | (8,604  | )
|                                  |                                           |                          |        |              |        |              |         |              |         |              |        |       |        |  |        |         |         |   |         |        

The supplemental consolidating statement of
operations 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   | 

F-42



---



##### 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                    |                          |         | 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 | )      
|                                                                                              | Investment income                           |                          |         | 1            |        |              |         | 60           |         |              |         | 2,583 |        |   |        | (181    | )       |   |         | 2,463   |        
|                                                                                              | Foreign exchange gain (loss)                |                          |         | (8           | )      |              |         | 196          |         |              |         | (80   | )      |   |        | 0       |         |   |         | 108     |        
|                                                                                              | Gain on early extinguishment of debt        |                          |         | 2,750        |        |              |         | 0            |         |              |         | 0     |        |   |        | 0       |         |   |         | 2,750   |        
|                                                                                              | Other, net                                  |                          |         | 0            |        |              |         | (265         | )       |              |         | 0     |        |   |        | 0       |         |   |         | (265    | )      
|                                                                                              | 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 (expense)                                                                  |                                             |                          | 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  | )
|                                                                                              |                                             |                          |         |              |        |              |         |              |         |              |         |       |        |   |        |         |         |   |         |        

F-43



---



##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The supplemental consolidating statement of
operations 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 | )
|                                  |                                                  |                          |         |              |         |              |         |              |         |              |        |        |        |   |         |         |         |   |         |        
|Other income (expense):           |                                                  |                          |         |              |         |              |         |              |         |              |        |        |        |   |         |         |         |   |         |        
|                                  | Equity in earnings of joint ventures, net of tax |                          |         | 0            |         |              |         | 3,897        |         |              |        | 175    |        |   |         | 0       |         |   |         | 4,072   |        
|                                  | Gain on sale of joint ventures                   |                          |         | 0            |         |              |         | 16,230       |         |              |        | 0      |        |   |         | 0       |         |   |         | 16,230  |        
|                                  | Write down of joint ventures                     |                          |         | 0            |         |              |         | (1,518       | )       |              |        | (8,524 | )      |   |         | 0       |         |   |         | (10,042 | )      
|                                  | Interest expense                                 |                          |         | (4,982       | )       |              |         | (32,425      | )       |              |        | (219   | )      |   |         | 52      |         |   |         | (37,574 | )      
|                                  | Investment income                                |                          |         | 91           |         |              |         | 183          |         |              |        | 3,652  |        |   |         | (52     | )       |   |         | 3,874   |        
|                                  | Foreign exchange gain (loss)                     |                          |         | 0            |         |              |         | (835         | )       |              |        | 6      |        |   |         | 0       |         |   |         | (829    | )      
|                                  | Other, net                                       |                          |         | 0            |         |              |         | 1,195        |         |              |        | (6     | )      |   |         | 0       |         |   |         | 1,189   |        
|                                  | 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 (expense)      |                                                  |                          | 22,195  |              |         |              | 2,674   |              |         |              | (3,576 | )      |        |   | 0       |         |         |   | 21,293  |        
|                                  |                                                  |                          |         |              |         |              |         |              |         |              |        |        |        |   |         |         |         |   |         |        
|                                  |                                                  | Net loss                 |         | $            | (39,496 | )            |         | $            | (64,326 | )            |        | $      | (1,443 | ) |         | $       | 65,769  |   |         | $       | (39,496 | )
|                                  |                                                  |                          |         |              |         |              |         |              |         |              |        |        |        |   |         |         |         |   |         |        

F-44



---



##### 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, 2003 is
as follows (in thousands):

|                                      |                                                                                                        |                                                              |                                                         |                                                         |        |              |       |              |        |              |        |       |      |        |        |        |       |   |   |         |        |         |        | 
|------------------------------------- | ------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------ | ------------------------------------------------------- | ------------------------------------------------------- | ------ | ------------ | ----- | ------------ | ------ | ------------ | ------ | ----- | ---- | ------ | ------ | ------ | ----- | - | - | ------- | ------ | ------- | ------ | 
|                                      |                                                                                                        | Allied                                                       |                                                         | Guarantor                                               |        | Nonguarantor |       |              |        |             
|                                      |                                                                                                        | Holdings                                                     |                                                         | Subsidiaries                                            |        | Subsidiaries |       | Eliminations |        | Consolidated
|                                      |                                                                                                        |                                                              |                                                         |                                                         |        |              |       |              |        |             
|Cash flows from operating activities: |                                                                                                        |                                                              |                                                         |                                                         |        |              |       |              |        |              |        |       |      |        |        |        |       |   |   |        
|                                      | Net (loss) income                                                                                      |                                                              | $                                                       | (8,604                                                  | )      |              | $     | (2,239       | )      |              | $      | 5,109 |      |        | $      | (2,870 | )     |   | $ | (8,604  | )     
|                                      |                                                                                                        |                                                              |                                                         |                                                         |        |              |       |              |        |              |        |       |      |        |        |        |       |   |   |        
|                                      | Adjustments to reconcile net (loss) income to net
    cash provided by (used in) operating activities: |                                                              |                                                         |                                                         |        |              |       |              |        |              |        |       |      |        |        |        |       |   |   |         |       
|                                      |                                                                                                        | Interest expense paid in kind                                |                                                         |                                                         | 0      |              |       |              | 1,065  |              |        |       | 0    |        |        |        | 0     |   |   |         | 1,065  |        
|                                      |                                                                                                        | Amortization of deferred financing costs                     |                                                         |                                                         | 3,697  |              |       |              | 0      |              |        |       | 0    |        |        |        | 0     |   |   |         | 3,697  |        
|                                      |                                                                                                        | Depreciation and amortization                                |                                                         |                                                         | 3,242  |              |       |              | 41,843 |              |        |       | 471  |        |        |        | 0     |   |   |         | 45,556 |        
|                                      |                                                                                                        | Loss on disposal of assets and other, net                    |                                                         |                                                         | 0      |              |       |              | 1,325  |              |        |       | 0    |        |        |        | 0     |   |   |         | 1,325  |        
|                                      |                                                                                                        | Foreign exchange gain (loss), net                            |                                                         |                                                         | 0      |              |       |              | (3,203 | )            |        |       | 34   |        |        |        | 0     |   |   |         | (3,169 | )      
|                                      |                                                                                                        | Deferred income taxes                                        |                                                         |                                                         | 17,250 |              |       |              | (9,888 | )            |        |       | (448 | )      |        |        | 0     |   |   |         | 6,914  |        
|                                      |                                                                                                        | Compensation expense related to stock options and
    grants |                                                         |                                                         | 260    |              |       |              | 0      |              |        |       | 0    |        |        |        | 0     |   |   |         | 260    |        
|                                      |                                                                                                        | Amortization of Teamsters Union contract costs               |                                                         |                                                         | 0      |              |       |              | 1,000  |              |        |       | 0    |        |        |        | 0     |   |   |         | 1,000  |        
|                                      |                                                                                                        | Equity in earnings of subsidiaries                           |                                                         |                                                         | (2,355 | )            |       |              | (515   | )            |        |       | 0    |        |        |        | 2,870 |   |   |         | 0      |        
|                                      |                                                                                                        | Change in operating assets and liabilities:                  |                                                         |                                                         |        |              |       |              |        |              |        |       |      |        |        |        |       |   |   |         |        |        
|                                      |                                                                                                        |                                                              | Receivables, net of allowance for doubtful
    accounts |                                                         |        | 0            |       |              |        | 7,017        |        |       |      | (1,759 | )      |        |       | 0 |   |         |        | 5,258   |       
|                                      |                                                                                                        |                                                              | Inventories                                             |                                                         |        | 0            |       |              |        | 272          |        |       |      | 0      |        |        |       | 0 |   |         |        | 272     |       
|                                      |                                                                                                        |                                                              | Prepayments and other current assets                    |                                                         |        | 1,767        |       |              |        | (126         | )      |       |      | 180    |        |        |       | 0 |   |         |        | 1,821   |       
|                                      |                                                                                                        |                                                              | Trade accounts payable                                  |                                                         |        | (1,187       | )     |              |        | (2,104       | )      |       |      | (221   | )      |        |       | 0 |   |         |        | (3,512  | )     
|                                      |                                                                                                        |                                                              | Intercompany receivables (payables), net                |                                                         |        | (8,002       | )     |              |        | (2,766       | )      |       |      | 10,768 |        |        |       | 0 |   |         |        | 0       |       
|                                      |                                                                                                        |                                                              | Accrued liabilities                                     |                                                         |        | (1,961       | )     |              |        | (13,981      | )      |       |      | (544   | )      |        |       | 0 |   |         |        | (16,486 | )     
|                                      |                                                                                                        |                                                              |                                                         |                                                         |        |              |       |              |        |              |        |       |      |        |        |        |       |   |   |        
|                                      |                                                                                                        |                                                              |                                                         | Net cash provided by (used in) operating
    activities |        |              | 4,107 |              |        |              | 17,700 |       |      |        | 13,590 |        |       |   | 0 |         |        |         | 35,397 | 
|                                      |                                                                                                        |                                                              |                                                         |                                                         |        |              |       |              |        |              |        |       |      |        |        |        |       |   |   |        
|Cash flows from investing activities: |                                                                                                        |                                                              |                                                         |                                                         |        |              |       |              |        |              |        |       |      |        |        |        |       |   |   |        
|                                      | Purchases of property and equipment                                                                    |                                                              |                                                         | (297                                                    | )      |              |       | (18,143      | )      |              |        | (115  | )    |        |        | 0      |       |   |   | (18,555 | )     
|                                      | Intercompany sale of property and equipment                                                            |                                                              |                                                         | (682                                                    | )      |              |       | 682          |        |              |        | 0     |      |        |        | 0      |       |   |   | 0       |       
|                                      | Proceeds from sale of property and equipment                                                           |                                                              |                                                         | 0                                                       |        |              |       | 685          |        |              |        | 0     |      |        |        | 0      |       |   |   | 685     |       

F-45



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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
|                                                                 |                                                                 |                                                          |     |              |        |              |       |              |         |             
|                                                                 | (Increase) Decrease in restricted cash and cash
    equivalents |                                                          |     | 0            |        |              |       | 0            |         |              |       | (81,279 | )       |   |   | 0 |   |   |       | (81,279 | )      
|                                                                 | (Increase) Decrease in restricted investments                   |                                                          |     | 0            |        |              |       | 0            |         |              |       | 60,732  |         |   |   | 0 |   |   |       | 60,732  |        
|                                                                 | Capital contribution                                            |                                                          |     | 0            |        |              |       | 0            |         |              |       | 0       |         |   |   | 0 |   |   |       | 0       |        
|                                                                 | Return of capital                                               |                                                          |     | 0            |        |              |       | 0            |         |              |       | 0       |         |   |   | 0 |   |   |       | 0       |        
|                                                                 | Decrease in cash surrender value of life insurance              |                                                          |     | 2            |        |              |       | 0            |         |              |       | 0       |         |   |   | 0 |   |   |       | 2       |        
|                                                                 |                                                                 |                                                          |     |              |        |              |       |              |         |              |       |         |         |   |   |   |   |   |       |        
|                                                                 |                                                                 | Net cash (used in) provided by investing
    activities  |     |              | (977   | )            |       |              | (16,776 | )            |       |         | (20,662 | ) |   |   | 0 |   |       |         | (38,415 | )
|                                                                 |                                                                 |                                                          |     |              |        |              |       |              |         |              |       |         |         |   |   |   |   |   |       |        
|Cash flows from financing activities:                            |                                                                 |                                                          |     |              |        |              |       |              |         |              |       |         |         |   |   |   |   |   |       |        
|                                                                 | (Repayment) additions to revolving credit
    facility, net     |                                                          | $   | 0            |        |              | $     | (24,635      | )       |              | $     | 0       |         |   | $ | 0 |   |   | $     | (24,635 | )      
|                                                                 | Additions to long-term debt                                     |                                                          |     | 0            |        |              |       | 99,875       |         |              |       | 0       |         |   |   | 0 |   |   |       | 99,875  |        
|                                                                 | Repayment of long-term debt                                     |                                                          |     | 0            |        |              |       | (78,280      | )       |              |       | 0       |         |   |   | 0 |   |   |       | (78,280 | )      
|                                                                 | Payment of deferred financing costs                             |                                                          |     | (3,038       | )      |              |       | 0            |         |              |       | 0       |         |   |   | 0 |   |   |       | (3,038  | )      
|                                                                 | Proceeds from issuance of common stock                          |                                                          |     | 450          |        |              |       | 0            |         |              |       | 0       |         |   |   | 0 |   |   |       | 450     |        
|                                                                 |                                                                 |                                                          |     |              |        |              |       |              |         |              |       |         |         |   |   |   |   |   |       |        
|                                                                 |                                                                 | Net cash used in financing activities                    |     |              | (2,588 | )            |       |              | (3,040  | )            |       |         | 0       |   |   |   | 0 |   |       |         | (5,628  | )
|                                                                 |                                                                 |                                                          |     |              |        |              |       |              |         |              |       |         |         |   |   |   |   |   |       |        
|Effect of exchange rate changes on cash and cash
    equivalents |                                                                 |                                                          | 0   |              |        |              | 1,346 |              |         |              | 0     |         |         |   | 0 |   |   |   | 1,346 |        
|                                                                 |                                                                 |                                                          |     |              |        |              |       |              |         |              |       |         |         |   |   |   |   |   |       |        
|                                                                 |                                                                 | Net (decrease) increase in cash and cash
    equivalents |     |              | 542    |              |       |              | (770    | )            |       |         | (7,072  | ) |   |   | 0 |   |       |         | (7,300  | )
|Cash and cash equivalents at beginning of year                   |                                                                 |                                                          | 7   |              |        |              | 1,936 |              |         |              | 7,505 |         |         |   | 0 |   |   |   | 9,448 |        
|                                                                 |                                                                 |                                                          |     |              |        |              |       |              |         |              |       |         |         |   |   |   |   |   |       |        
|Cash and cash equivalents at end of year                         |                                                                 | $                                                        | 549 |              |        | $            | 1,166 |              |         | $            | 433   |         |         | $ | 0 |   |   | $ | 2,148 |        
|                                                                 |                                                                 |                                                          |     |              |        |              |       |              |         |              |       |         |         |   |   |   |   |   |       |        

The supplemental consolidating statement of cash
flows information for the year ended December 31, 2002 is
as follows (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  |  

F-46



---



##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                      |                                                                 |                                                              |                                                         |                                                         |        |              |         |              |        |              |          |        |     |        |        |   |         |   |   |         |        |        |        | 
|------------------------------------- | --------------------------------------------------------------- | ------------------------------------------------------------ | ------------------------------------------------------- | ------------------------------------------------------- | ------ | ------------ | ------- | ------------ | ------ | ------------ | -------- | ------ | --- | ------ | ------ | - | ------- | - | - | ------- | ------ | ------ | ------ | 
|                                      |                                                                 | Allied                                                       |                                                         | Guarantor                                               |        | Nonguarantor |         |              |        |             
|                                      |                                                                 | Holdings                                                     |                                                         | Subsidiaries                                            |        | Subsidiaries |         | Eliminations |        | Consolidated
|                                      |                                                                 |                                                              |                                                         |                                                         |        |              |         |              |        |             
|                                      |                                                                 | Depreciation and amortization                                |                                                         |                                                         | 2,940  |              |         |              | 51,469 |              |          |        | 471 |        |        |   | 0       |   |   |         | 54,880 |       
|                                      |                                                                 | Loss on disposal of assets and other, net                    |                                                         |                                                         | 0      |              |         |              | 806    |              |          |        | 207 |        |        |   | 0       |   |   |         | 1,013  |       
|                                      |                                                                 | Foreign exchange loss (gain), net                            |                                                         |                                                         | 0      |              |         |              | (108   | )            |          |        | 0   |        |        |   | 0       |   |   |         | (108   | )     
|                                      |                                                                 | 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                    |                                                         |        | (12,772      | )       |              |        | 6,797        |          |        |     | (99    | )      |   |         | 0 |   |         |        | (6,074 | )     
|                                      |                                                                 |                                                              | Trade accounts payable                                  |                                                         |        | 609          |         |              |        | (4,385       | )        |        |     | 173    |        |   |         | 0 |   |         |        | (3,603 | )     
|                                      |                                                                 |                                                              | Intercompany receivables (payables), net                |                                                         |        | 176,797      |         |              |        | (170,385     | )        |        |     | (6,412 | )      |   |         | 0 |   |         |        | 0      |       
|                                      |                                                                 |                                                              | Accrued liabilities                                     |                                                         |        | (3,628       | )       |              |        | (1,971       | )        |        |     | 331    |        |   |         | 0 |   |         |        | (5,268 | )     
|                                      |                                                                 |                                                              |                                                         |                                                         |        |              |         |              |        |              |          |        |     |        |        |   |         |   |   |        
|                                      |                                                                 |                                                              |                                                         | Net cash provided by (used in) operating
    activities |        |              | 174,770 |              |        |              | (113,648 | )      |     |        | (6,699 | ) |         |   | 0 |         |        |        | 54,423 | 
|                                      |                                                                 |                                                              |                                                         |                                                         |        |              |         |              |        |              |          |        |     |        |        |   |         |   |   |        
|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   |       
|                                      | (Increase) Decrease in restricted cash and cash
    equivalents |                                                              |                                                         | 0                                                       |        |              |         | 0            |        |              |          | 5,289  |     |        |        | 0 |         |   |   | 5,289   |       
|                                      | (Increase) Decrease in restricted investments                   |                                                              |                                                         | 0                                                       |        |              |         | 0            |        |              |          | 4,062  |     |        |        | 0 |         |   |   | 4,062   |       
|                                      | Proceeds from sale of joint ventures                            |                                                              |                                                         | 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   |       
|                                      |                                                                 |                                                              |                                                         |                                                         |        |              |         |              |        |              |          |        |     |        |        |   |         |   |   |        

F-47



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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
|                                                                 |                                                             |                                                          |     |              |          |              |       |              |        |             
|                                                                 |                                                             | Net cash (used in) provided by investing
    activities  |     |              | (29,810  | )            |       |              | 16,714 |              |       |   | 11,027 |   |   |   | 0 |   |       |         | (2,069  | )
|                                                                 |                                                             |                                                          |     |              |          |              |       |              |        |              |       |   |        |   |   |   |   |   |       |        
|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    |              |       |   | 4,328  |   |   |   | 0 |   |       |         | 4,999   |  
|Cash and cash equivalents at beginning of year                   |                                                             |                                                          | 209 |              |          |              | 1,063 |              |        |              | 3,177 |   |        |   | 0 |   |   |   | 4,449 |        
|                                                                 |                                                             |                                                          |     |              |          |              |       |              |        |              |       |   |        |   |   |   |   |   |       |        
|Cash and cash equivalents at end of year                         |                                                             | $                                                        | 7   |              |          | $            | 1,936 |              |        | $            | 7,505 |   |        | $ | 0 |   |   | $ | 9,448 |        
|                                                                 |                                                             |                                                          |     |              |          |              |       |              |        |              |       |   |        |   |   |   |   |   |       |        

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

|                                      |                                                                                               |                                                              |   |              |         |              |   |              |         |              |   |        |       |  |   |        |   |  |   |         |         |  
|------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | - | ------------ | ------- | ------------ | - | ------------ | ------- | ------------ | - | ------ | ----- |  | - | ------ | - |  | - | ------- | ------- | -
|                                      |                                                                                               | Allied                                                       |   | Guarantor    |         | Nonguarantor |   |              |         |             
|                                      |                                                                                               | Holdings                                                     |   | Subsidiaries |         | Subsidiaries |   | Eliminations |         | Consolidated
|                                      |                                                                                               |                                                              |   |              |         |              |   |              |         |             
|Cash flows from operating activities: |                                                                                               |                                                              |   |              |         |              |   |              |         |              |   |        |       |  |   |        |   |  |   |        
|                                      | Net loss                                                                                      |                                                              | $ | (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  | )
|                                      |                                                                                               | Foreign exchange (gain) loss, net                            |   |              | 0       |              |   |              | 829     |              |   |        | 0     |  |   |        | 0 |  |   |         | 829     |  
|                                      |                                                                                               | Gain on sale of joint ventures                               |   |              | 0       |              |   |              | (16,230 | )            |   |        | 0     |  |   |        | 0 |  |   |         | (16,230 | )
|                                      |                                                                                               | Write down of joint ventures                                 |   |              | 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     |  

F-48



---



##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                            |                                                                 |                                                |                                                         |                                                         |        |              |        |              |        |              |         |        |      |        |         |   |         |   |   |         |        |        |        | 
|------------------------------------------- | --------------------------------------------------------------- | ---------------------------------------------- | ------------------------------------------------------- | ------------------------------------------------------- | ------ | ------------ | ------ | ------------ | ------ | ------------ | ------- | ------ | ---- | ------ | ------- | - | ------- | - | - | ------- | ------ | ------ | ------ | 
|                                            |                                                                 | Allied                                         |                                                         | Guarantor                                               |        | Nonguarantor |        |              |        |             
|                                            |                                                                 | Holdings                                       |                                                         | Subsidiaries                                            |        | Subsidiaries |        | Eliminations |        | Consolidated
|                                            |                                                                 |                                                |                                                         |                                                         |        |              |        |              |        |             
|                                            |                                                                 | Equity in earnings of joint ventures           |                                                         |                                                         | 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                    |                                                         |        | (2,899       | )      |              |        | (2,779       | )       |        |      | 2,259  |         |   |         | 0 |   |         |        | (3,419 | )     
|                                            |                                                                 |                                                | Short-term investments                                  |                                                         |        | 0            |        |              |        | 0            |         |        |      | 1,770  |         |   |         | 0 |   |         |        | 1,770  |       
|                                            |                                                                 |                                                | 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                                     |                                                         |        | (2,983       | )      |              |        | 4,596        |         |        |      | 4,046  |         |   |         | 0 |   |         |        | 5,659  |       
|                                            |                                                                 |                                                |                                                         |                                                         |        |              |        |              |        |              |         |        |      |        |         |   |         |   |   |        
|                                            |                                                                 |                                                |                                                         | Net cash provided by (used in) operating
    activities |        |              | 38,469 |              |        |              | (18,693 | )      |      |        | 14,928  |   |         |   | 0 |         |        |        | 34,704 | 
|                                            |                                                                 |                                                |                                                         |                                                         |        |              |        |              |        |              |         |        |      |        |         |   |         |   |   |        
|Cash flows from investing activities:       |                                                                 |                                                |                                                         |                                                         |        |              |        |              |        |              |         |        |      |        |         |   |         |   |   |        
|                                            | 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       |       
|                                            | Proceeds from sale of property and equipment                    |                                                |                                                         | 0                                                       |        |              |        | 11,762       |        |              |         | 0      |      |        |         | 0 |         |   |   | 11,762  |       
|                                            | (Increase) Decrease in restricted cash and cash
    equivalents |                                                |                                                         | 0                                                       |        |              |        | 0            |        |              |         | (6,094 | )    |        |         | 0 |         |   |   | (6,094  | )     
|                                            | (Increase) Decrease in restricted investments                   |                                                |                                                         | 0                                                       |        |              |        | 0            |        |              |         | (6,672 | )    |        |         | 0 |         |   |   | (6,672  | )     
|                                            | Investment in joint ventures                                    |                                                |                                                         | 0                                                       |        |              |        | 0            |        |              |         | (464   | )    |        |         | 0 |         |   |   | (464    | )     
|                                            | Cash received from joint ventures                               |                                                |                                                         | 0                                                       |        |              |        | 8,624        |        |              |         | 0      |      |        |         | 0 |         |   |   | 8,624   |       
|                                            | Proceeds from sale of joint ventures                            |                                                |                                                         | 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  |        |      |        | (13,885 | ) |         |   | 0 |         |        |        | 6,673  | 
|                                            |                                                                 |                                                |                                                         |                                                         |        |              |        |              |        |              |         |        |      |        |         |   |         |   |   |        
|Cash flows from financing activities:       |                                                                 |                                                |                                                         |                                                         |        |              |        |              |        |              |         |        |      |        |         |   |         |   |   |        
|                                            | Repayments 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     |       

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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, net |                                                          |        | (70          | )       |              |       | (1,153       | )      |              |       | 611 |       |   |   | 0 |   |   |       | (612 | )      
|                                                                 |            |                                                          |        |              |         |              |       |              |        |              |       |     |       |   |   |   |   |   |       |     
|                                                                 |            | Net cash used in financing activities                    |        |              | (38,823 | )            |       |              | (1,700 | )            |       |     | 611   |   |   |   | 0 |   |       |      | (39,912 | )
|                                                                 |            |                                                          |        |              |         |              |       |              |        |              |       |     |       |   |   |   |   |   |       |     
|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 | )            |       |     | 1,654 |   |   |   | 0 |   |       |      | 2,076   |  
|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 |              |        | $            | 3,177 |     |       | $ | 0 |   |   | $ | 4,449 |     
|                                                                 |            |                                                          |        |              |         |              |       |              |        |              |       |     |       |   |   |   |   |   |       |     

F-50



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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. The 2001 financial
statements have been restated.




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 10, 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 10


of the financial


statements referred to


above, as to which the date is


March 27, 2002)


S-1



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##### Table of Contents



ALLIED HOLDINGS, INC. AND
SUBSIDIARIES



VALUATION AND QUALIFYING ACCOUNTS


Years Ended December 31, 2003, 2002, and
2001


|                                 |                              |                |   |              |  |               |  |             |  |  |  |        |   |  |   |        | 
|-------------------------------- | ---------------------------- | -------------- | - | ------------ |  | ------------- |  | ----------- |  |  |  | ------ | - |  | - | ------ | 
|                                 |                              |                |   | 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, 2003 |                | $ | 5,587        |  |               |  | 2,024       |  |  |  | (4,036 | ) |  | $ | 3,575  | 
|                                 | 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 | 



---



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

S-2