##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
 For the quarterly period ended March 31, 2006
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
 For the transition period from
 Commission File Number: 0-22276
 
 ALLIED HOLDINGS, INC.
  GEORGIA
    
    58-0360550(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification
Number)
 Suite 200, 160 Clairemont Avenue, Decatur, Georgia 30030
 (404) 373-4285  (Registrants telephone number, including area code)
 www.alliedholdings.com
 þ o
  o o þ
 o þ
 Outstanding common stock, no par value at August 8, 2006
    
    
    8,980,329




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##### 



ALLIED HOLDINGS, INC. AND SUBSIDIARIES
 TABLE OF CONTENTS
  
 PAGEPART I  FINANCIAL INFORMATIONITEM 1  Financial StatementsConsolidated Balance Sheets  March 31, 2006 and December 31, 2005 (unaudited)
    
    
    1Consolidated Statements of Operations  Three Months Ended March 31, 2006 and 2005 (unaudited)
    
    
    2Consolidated Statements of Cash Flows  Three Months Ended March 31, 2006 and 2005 (unaudited)
    
    
    3Notes to the Consolidated Financial Statements (unaudited)
    
    
    4ITEM 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    27ITEM 3  Quantitative and Qualitative Disclosures About Market Risk
    
    
    37ITEM 4  Controls and Procedures
    
    
    37PART II  OTHER INFORMATIONITEM 1  Legal Proceedings
    
    
    38ITEM 1A  Risk Factors
    
    
    38ITEM 6  Exhibits
    
    
    44Signatures
    
    
    45EX-4.3(J) CONSENT AND FIFTH AMENDMENT DATED 6-30-06EX-31.1 CERTIFICATION OF HUGH E. SAWYEREX-31.2 CERTIFICATION OF THOMAS H. KINGEX-32.1 SECTION 1350 CERTIFICATION OF HUGH E. SAWYEREX-32.2 SECTION 1350 CERTIFICATION OF THOMAS H. KING




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands)
 (Unaudited)
 March 31,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,882
    
    
    $
    4,117Restricted cash, cash equivalents and other time deposits
    
    
    32,827
    
    
    
    32,830Receivables, net of allowances of $2,225 and $2,218 as of March 31,
2006
and December 31, 2005, respectively
    
    
    59,402
    
    
    
    61,427Inventories
    
    
    5,149
    
    
    
    5,132Deferred income taxes
    
    
    202
    
    
    
    128Prepayments and other current assets
    
    
    49,027
    
    
    
    59,434Total current assets
    
    
    149,489
    
    
    
    163,068Property and equipment, net of accumulated depreciation
    
    
    122,762
    
    
    
    123,904Goodwill, net
    
    
    3,545
    
    
    
    3,545Other assets:Restricted cash, cash equivalents and other time deposits
    
    
    69,758
    
    
    
    69,764Other noncurrent assets
    
    
    24,533
    
    
    
    22,835Total other assets
    
    
    94,291
    
    
    
    92,599Total assets
    
    $
    370,087
    
    
    $
    383,116LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities not subject to compromise:Debtor-in-possession credit facility
    
    $
    150,496
    
    
    $
    151,997Accounts and notes payable
    
    
    49,763
    
    
    
    57,196Accrued liabilities
    
    
    89,604
    
    
    
    83,317Total current liabilities
    
    
    289,863
    
    
    
    292,510Long-term liabilities not subject to compromise:Postretirement benefits other than pensions
    
    
    4,309
    
    
    
    4,412Deferred income taxes
    
    
    218
    
    
    
    143Other long-term liabilities
    
    
    71,957
    
    
    
    74,096Total long-term liabilities
    
    
    76,484
    
    
    
    78,651Liabilities subject to compromise
    
    
    199,246
    
    
    
    199,322Commitments and contingencies
    
    
    
    
    
    
    Stockholders deficit:Preferred stock, no par value. Authorized 5,000 shares; none outstanding
    
    
    
    
    
    
    Common stock, no par value. Authorized 20,000 shares; 8,980 shares
outstanding at March 31, 2006 and December 31, 2005
    
    
    
    
    
    
    Additional paid-in capital
    
    
    48,638
    
    
    
    48,545Treasury stock, 139 shares at cost
    
    
    (707
    )
    
    
    (707
    )Accumulated deficit
    
    
    (222,919
    )
    
    
    (214,631
    )Accumulated other comprehensive loss, net of tax
    
    
    (20,518
    )
    
    
    (20,574
    )Total stockholders deficit
    
    
    (195,506
    )
    
    
    (187,367
    )Total liabilities and stockholders deficit
    
    $
    370,087
    
    
    $
    383,116
  1




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
 (Unaudited)
 Three Months Ended March 31,2006
    
    
    2005Revenues
    
    $
    240,828
    
    
    $
    220,950Operating expenses:Salaries, wages, and fringe benefits
    
    
    125,613
    
    
    
    121,228Operating supplies and expenses
    
    
    48,662
    
    
    
    41,509Purchased transportation
    
    
    30,908
    
    
    
    28,861Insurance and claims
    
    
    10,933
    
    
    
    8,883Operating taxes and licenses
    
    
    7,698
    
    
    
    7,774Depreciation and amortization
    
    
    7,216
    
    
    
    8,192Rents
    
    
    1,753
    
    
    
    1,849Communications and utilities
    
    
    1,937
    
    
    
    1,911Other operating expenses
    
    
    2,065
    
    
    
    2,580(Gain) loss on disposal of operating assets, net
    
    
    (54
    )
    
    
    44Total operating expenses
    
    
    236,731
    
    
    
    222,831Operating income (loss)
    
    
    4,097
    
    
    
    (1,881
    )Other income (expense):Interest expense (excludes contractual interest
of $3,234 in 2006)
    
    
    (9,541
    )
    
    
    (8,212
    )Investment income
    
    
    1,036
    
    
    
    438Foreign exchange losses, net
    
    
    (170
    )
    
    
    (199
    )Total other income (expense)
    
    
    (8,675
    )
    
    
    (7,973
    )Loss before reorganization items and income taxes
    
    
    (4,578
    )
    
    
    (9,854
    )Reorganization items
    
    
    (3,583
    )
    
    
    Loss before income taxes
    
    
    (8,161
    )
    
    
    (9,854
    )Income tax expense
    
    
    (127
    )
    
    
    (204
    )Net loss
    
    $
    (8,288
    )
    
    $
    (10,058
    )Basic and diluted loss per common share:Net loss:Basic and diluted
    
    $
    (0.92
    )
    
    $
    (1.13
    )Weighted average common shares outstanding:Basic and diluted
    
    
    8,980
    
    
    
    8,940
  2




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Three Months Ended March 31,2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (8,288
    )
    
    $
    (10,058
    )Adjustments to reconcile net loss to net cash provided by operating activities:Amortization of deferred financing costs
    
    
    3,631
    
    
    
    747Depreciation and amortization
    
    
    7,216
    
    
    
    8,192Reorganization items
    
    
    3,583
    
    
    
    (Gain) loss on disposal of assets
    
    
    (54
    )
    
    
    44Foreign exchange losses
    
    
    170
    
    
    
    199Deferred income taxes
    
    
    1
    
    
    
    (104
    )Stock-based compensation expense
    
    
    93
    
    
    
    Change in operating assets and liabilities:Receivables, net of allowances
    
    
    2,011
    
    
    
    959Inventories
    
    
    (19
    )
    
    
    (159
    )Prepayments and other assets
    
    
    3,697
    
    
    
    (5,895
    )Accounts and notes payable
    
    
    (247
    )
    
    
    (1,298
    )Accrued liabilities
    
    
    4,213
    
    
    
    14,124Net cash provided by operating activities before payment of reorganization items
    
    
    16,007
    
    
    
    6,751Reorganization items paid
    
    
    (2,936
    )
    
    
    Net cash provided by operating activities
    
    
    13,071
    
    
    
    6,751Cash flows from investing activities:Purchases of property and equipment
    
    
    (6,216
    )
    
    
    (4,825
    )Proceeds from sales of property and equipment
    
    
    149
    
    
    
    252Decrease (increase) in restricted cash, cash equivalents and other time deposits
    
    
    9
    
    
    
    (10,353
    )Funds deposited with insurance carriers
    
    
    (574
    )
    
    
    (7,357
    )Funds returned from insurance carriers
    
    
    1,908
    
    
    
    1,609Net cash used in investing activities
    
    
    (4,724
    )
    
    
    (20,674
    )Cash flows from financing activities:Repayment of debtor-in-possession revolving credit facility, net
    
    
    (1,501
    )
    
    
    Additions to pre-petition revolving credit facilities, net
    
    
    
    
    
    
    13,843Repayment of pre-petition debt
    
    
    
    
    
    
    (4,165
    )Proceeds from insurance financing arrangements
    
    
    178
    
    
    
    8,031Repayments of insurance financing arrangements
    
    
    (8,182
    )
    
    
    (2,601
    )Proceeds from issuance of common stock
    
    
    
    
    
    
    43Net cash (used in) provided by financing activities
    
    
    (9,505
    )
    
    
    15,151Effect of exchange rate changes on cash and cash equivalents
    
    
    (77
    )
    
    
    178Net change in cash and cash equivalents
    
    
    (1,235
    )
    
    
    1,406Cash and cash equivalents at beginning of period
    
    
    4,117
    
    
    
    2,516Cash and cash equivalents at end of period
    
    $
    2,882
    
    
    $
    3,922Supplemental cash flow information:Cash paid during the period for:Interest
    
    $
    5,223
    
    
    $
    4,401Income taxes, net
    
    
    150
    
    
    
    80
  3




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Throughout this Quarterly Report on Form 10-Q, we will use the terms we, our, us and
Allied to refer to Allied Holdings, Inc. (a Georgia corporation) and its subsidiaries on a
consolidated basis and, as the context requires, to Allied Holdings, Inc. and its subsidiaries that
filed for Chapter 11 pursuant to the U.S Bankruptcy Code.)
 (1) Organization and Operations
 Company Overview
  Chapter 11 Overview
   (2) Accounting and Reporting Policies
 Basis of Presentation
 Financial Reporting by Entities in Reorganization Under the Bankruptcy Code
 4




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Unaudited)
   Use of Estimates and Seasonality
   (3) Accounting for Reorganization
  
    
    separated liabilities that are subject to compromise from liabilities that are not
subject to compromise;
    
    distinguished transactions and events that are directly associated with the
reorganization from the ongoing operations of the business; and
    
    ceased accruing interest on the 85/8 % senior notes (Senior
Notes).
 5




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Unaudited)
 Liabilities Subject to Compromise
     March 31,
    
    
    December 31,2006
    
    
    2005Accounts payable
    
    $
    24,843
    
    
    $
    24,922Senior Notes
    
    
    150,000
    
    
    
    150,000Accrued interest on Senior Notes
    
    
    4,313
    
    
    
    4,313Multiemployer pension withdrawal liabilities
    
    
    15,847
    
    
    
    15,847Accrued claims and insurance reserves
    
    
    3,112
    
    
    
    3,109Other accrued liabilities
    
    
    1,131
    
    
    
    1,131$
    199,246
    
    
    $
    199,322
 Reorganization Items
  Legal and professional fees
    
    $
    2,678Employee retention plan
    
    
    817Other reorganization items
    
    
    88$
    3,583
 Condensed Financial Statement Information of the Debtors and Non-debtors
  6




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Unaudited)
 Condensed Consolidating Balance Sheet Information
March 31, 2006
(In thousands)
 Debtors
    
    
    Non-Debtors
    
    
    Eliminations
    
    
    ConsolidatedCurrent assets
    
    $
    110,082
    
    
    $
    39,371
    
    
    $
    36
    
    
    $
    149,489Intercompany receivables (payables)
    
    
    15,035
    
    
    
    (15,035
    )
    
    
    
    
    
    
    Property and equipment, net
    
    
    119,168
    
    
    
    3,594
    
    
    
    
    
    
    
    122,762Goodwill, net
    
    
    3,545
    
    
    
    
    
    
    
    
    
    
    
    3,545Investment in related party
    
    
    22,355
    
    
    
    6,223
    
    
    
    (28,578
    )
    
    
    Other assets
    
    
    24,103
    
    
    
    70,188
    
    
    
    
    
    
    
    94,291Total assets
    
    $
    294,288
    
    
    $
    104,341
    
    
    $
    (28,542
    )
    
    $
    370,087Liabilities not subject to compromise:Current liabilities
    
    $
    264,638
    
    
    $
    25,423
    
    
    $
    (198
    )
    
    $
    289,863Other noncurrent liabilities
    
    
    24,970
    
    
    
    51,514
    
    
    
    
    
    
    
    76,484Liabilities subject to compromise
    
    
    199,246
    
    
    
    
    
    
    
    
    
    
    
    199,246Stockholders (deficit) equity
    
    
    (194,566
    )
    
    
    27,404
    
    
    
    (28,344
    )
    
    
    (195,506
    )Total liabilities and
stockholders (deficit) equity
    
    $
    294,288
    
    
    $
    104,341
    
    
    $
    (28,542
    )
    
    $
    370,087
 Condensed Consolidating Balance Sheet Information
December 31, 2005
(In thousands)
 Debtors
    
    
    Non-Debtors
    
    
    Eliminations
    
    
    ConsolidatedCurrent assets
    
    $
    121,807
    
    
    $
    41,261
    
    
    $
    
    
    
    $
    163,068Intercompany receivables (payables)
    
    
    14,744
    
    
    
    (14,744
    )
    
    
    
    
    
    
    Property and equipment, net
    
    
    120,212
    
    
    
    3,692
    
    
    
    
    
    
    
    123,904Goodwill, net
    
    
    3,545
    
    
    
    
    
    
    
    
    
    
    
    3,545Investment in related party
    
    
    21,169
    
    
    
    6,223
    
    
    
    (27,392
    )
    
    
    Other assets
    
    
    22,366
    
    
    
    70,233
    
    
    
    
    
    
    
    92,599Total assets
    
    $
    303,843
    
    
    $
    106,665
    
    
    $
    (27,392
    )
    
    $
    383,116Liabilities not subject to compromise:Current liabilities
    
    $
    264,265
    
    
    $
    28,245
    
    
    $
    

    
    
    $
    292,510Other noncurrent liabilities
    
    
    26,684
    
    
    
    51,967
    
    
    
    
    
    
    
    78,651Liabilities subject to compromise
    
    
    199,322
    
    
    
    
    
    
    
    
    
    
    
    199,322Stockholders (deficit) equity
    
    
    (186,428
    )
    
    
    26,453
    
    
    
    (27,392
    )
    
    
    (187,367
    )Total liabilities and
stockholders (deficit) equity
    
    $
    303,843
    
    
    $
    106,665
    
    
    $
    (27,392
    )
    
    $
    383,116
 7




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Unaudited)
 Condensed Consolidating Statement of Operations Information
For the Three Months Ended March 31, 2006
(In thousands)
 Debtors
    
    
    Non-Debtors
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    239,770
    
    
    $
    2,420
    
    
    $
    (1,362
    )
    
    $
    240,828Operating expenses
    
    
    236,007
    
    
    
    2,086
    
    
    
    (1,362
    )
    
    
    236,731Operating income
    
    
    3,763
    
    
    
    334
    
    
    
    
    
    
    
    4,097Other (expense) income, net
    
    
    (8,449
    )
    
    
    960
    
    
    
    (1,186
    )
    
    
    (8,675
    )(Loss) income before reorganization
items and income taxes
    
    
    (4,686
    )
    
    
    1,294
    
    
    
    (1,186
    )
    
    
    (4,578
    )Reorganization items
    
    
    (3,583
    )
    
    
    
    
    
    
    
    
    
    
    (3,583
    )(Loss) income before income taxes
    
    
    (8,269
    )
    
    
    1,294
    
    
    
    (1,186
    )
    
    
    (8,161
    )Income tax (expense) benefit
    
    
    (19
    )
    
    
    (342
    )
    
    
    234
    
    
    
    (127
    )Net (loss) income
    
    $
    (8,288
    )
    
    $
    952
    
    
    $
    (952
    )
    
    $
    (8,288
    )
 Condensed Consolidating Statement of Cash Flows Information
For the Three Months Ended March 31, 2006
(In thousands)
 Debtors
    
    
    Non-Debtors
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by (used in):Operating activities
    
    $
    13,895
    
    
    $
    (824
    )
    
    $
    
    
    
    $
    13,071Investing activities
    
    
    (4,710
    )
    
    
    (14
    )
    
    
    
    
    
    
    (4,724
    )Financing activities
    
    
    (9,505
    )
    
    
    
    
    
    
    
    
    
    
    (9,505
    )Effect of exchange rate changes on
cash and
cash equivalents
    
    
    (77
    )
    
    
    
    
    
    
    
    
    
    
    (77
    )Net change in cash and cash
equivalents
    
    
    (397
    )
    
    
    (838
    )
    
    
    
    
    
    
    (1,235
    )Cash and cash equivalents at
beginning of period
    
    
    730
    
    
    
    3,387
    
    
    
    
    
    
    
    4,117Cash and cash equivalents at end
of period
    
    $
    333
    
    
    $
    2,549
    
    
    $
    
    
    
    $
    2,882
 (4) Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes Accounting for Income Taxes,
 8




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Unaudited)
  Accounting Changes and Error Corrections. Accounting Changes Reporting Changes in Interim
Financial Statements
 Share-Based Payment Accounting for Stock-Based Compensation, Accounting for Stock Issued to Employees Statement of Cash
Flows.
  (5) Prepayments and Other Current Assets
  March 31,
    
    
    December 31,2006
    
    
    2005Prepaid insurance
    
    $
    37,562
    
    
    $
    50,185Prepaid licenses
    
    
    4,286
    
    
    
    1,532Tires on tractors and trailers
    
    
    2,245
    
    
    
    2,245Short-term deposits with pre-petition lenders
    
    
    2,679
    
    
    
    2,679Other
    
    
    2,255
    
    
    
    2,793$
    49,027
    
    
    $
    59,434
 9




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Unaudited)
 (6) Property and Equipment
  March 31,
    
    
    December 31,2006
    
    
    2005Cost
    
    $
    523,243
    
    
    $
    528,206Accumulated depreciation and amortization
    
    
    (400,481
    )
    
    
    (404,302
    )$
    122,762
    
    
    $
    123,904
  (7) Other Noncurrent Assets
  March 31,
    
    
    December 31,2006
    
    
    2005Insurance and bond deposits
    
    $
    10,181
    
    
    $
    4,961Interest in split-dollar life insurance policies
    
    
    6,138
    
    
    
    6,181Deposits
    
    
    2,833
    
    
    
    2,599Deferred financing costs
    
    
    1,964
    
    
    
    5,595Other
    
    
    3,417
    
    
    
    3,499$
    24,533
    
    
    $
    22,835
  March 31,
    
    
    December 31,2006
    
    
    2005Cost
    
    $
    7,646
    
    
    $
    7,646Accumulated amortization
    
    
    (5,682
    )
    
    
    (2,051
    )$
    1,964
    
    
    $
    5,595
  10




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Unaudited)
  (8) Accounts and Notes Payable and Accrued Liabilities
   March 31,
    
    
    December 31,2006
    
    
    2005Claims and insurance reserves
    
    $
    39,224
    
    
    $
    39,602Wages and benefits
    
    
    34,339
    
    
    
    30,748Accrued taxes
    
    
    6,613
    
    
    
    4,017Accrued interest
    
    
    4,447
    
    
    
    3,761Purchased transportation
    
    
    3,745
    
    
    
    3,563Other
    
    
    1,236
    
    
    
    1,626$
    89,604
    
    
    $
    83,317
 (9) Claims and Insurance Reserves
     March 31,
    
    
    December 31,2006
    
    
    2005Accrued liabilities  current
    
    $
    39,224
    
    
    $
    39,602Other long-term liabilities  noncurrent
    
    
    67,903
    
    
    
    70,040107,127
    
    
    
    109,642Liabilities subject to compromise
    
    
    3,112
    
    
    
    3,109Total liability included in the consolidated balance sheets
    
    $
    110,239
    
    
    $
    112,751
 11




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Unaudited)
   (10) Employee Benefit Plans
 (a) Pension and Postretirement Benefit Plans
  Defined Benefit
    
    
    Postretirement BenefitPension Plans
    
    
    PlansThree Months Ended March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    23
    
    
    $
    21
    
    
    $
    14
    
    
    $
    13Interest cost
    
    
    762
    
    
    
    743
    
    
    
    164
    
    
    
    177Expected return on plan assets
    
    
    (1,014
    )
    
    
    (1,062
    )
    
    
    
    
    
    
    Amortization of:Unrecognized net actuarial loss
    
    
    524
    
    
    
    482
    
    
    
    169
    
    
    
    161Prior service cost
    
    
    12
    
    
    
    12
    
    
    
    (82
    )
    
    
    (82
    )Net periodic benefit cost
    
    $
    307
    
    
    $
    196
    
    
    $
    265
    
    
    $
    269
    (b) Employee Retention Plan
  12




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Unaudited)
  (11) Debt
  March 31,
    
    
    December 31,2006
    
    
    2005Current liabilities not subject to compromise:DIP Facility  Revolver
    
    $
    50,496
    
    
    $
    51,997DIP Facility  Term Loan A
    
    
    20,000
    
    
    
    20,000DIP Facility  Term Loan B
    
    
    80,000
    
    
    
    80,000$
    150,496
    
    
    $
    151,997Liabilities subject to compromise:Senior Notes
    
    $
    150,000
    
    
    $
    150,000
 DIP Facility
 The Wall Street
Journal
    13




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Unaudited)
     Senior Notes
 5
  
    
    Haul Insurance Limited;
    
    Arrendadora de Equipo Para el Transporte de Automoviles, S. de R.L. de C.V. ;
    
    Axis Logistica, S. de R.L. de C.V. ;
    
    Axis Operadora Hermosillo;
    
    Ace Operations, LLC.
   14




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Unaudited)
   (12) Income Taxes
  (13) Commitments and Contingencies
 (a) Effect of Chapter 11 Filings
   (b) Letters of Credit
   15




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Unaudited)
  (c) Litigation, Claims, Assessments
   (d) Purchase and Service Contract Commitments
  (e) Leases
  (f) Collective Bargaining Agreements
   16




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Unaudited)
   (14) Earnings (Loss) Per Common Share
 Earnings Per Share,
 (15) Stock-Based Compensation
    17




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Unaudited)
     Reported net loss
    
    $
    (10,058
    )Less: stock-based employee compensation determined
using the fair-value-based-method (no applicable
income tax effect)
    
    
    (147
    )Pro forma net loss
    
    $
    (10,205
    )Loss per share:As reported:Basic and Diluted
    
    $
    (1.13
    )Pro forma:Basic and Diluted
    
    $
    (1.14
    )
  18




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Unaudited)
 Weighted-Weighted-
    
    AverageNumber of
    
    Average
    
    Remaining
    
    AggregateOptions
    
    Exercise
    
    Contractual
    
    Intrinsic Value(in thousands)
    
    Price
    
    Life
    
    (in thousands)Outstanding as of December 31, 2005
    
    
    1,573
    
    
    $
    3.67Outstanding as of March 31, 2006
    
    
    1,573
    
    
    $
    3.67
    
    
    6.3 years
    
    
    Options exercisable at March 31, 2006
    
    
    1,363
    
    
    $
    3.53
    
    
    5.9 years
    
    
    Vested and expected to vest at March 31, 2006
    
    
    1,513
    
    
    $
    3.64
    
    
    6.2 years
    
    
    
  (16) Other Comprehensive Loss
  Three Months EndedMarch 31,2006
    
    
    2005Net loss
    
    $
    (8,288
    )
    
    $
    (10,058
    )Foreign currency translation adjustments
    
    
    56
    
    
    
    (305
    )$
    (8,232
    )
    
    $
    (10,363
    )
   March 31,
    
    
    December 31,2006
    
    
    2005Cumulative foreign currency translation adjustments
    
    $
    373
    
    
    $
    317Cumulative minimum pension liability adjustments
    
    
    (20,891
    )
    
    
    (20,891
    )$
    (20,518
    )
    
    $
    (20,574
    )
 (17) Industry Segment and Geographic Information
 Disclosure About Segments of an Enterprise and
Related Information
  19




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Unaudited)
 Three Months Ended March 31,2006
    
    
    2005Revenues  unaffiliated customers:Allied Automotive Group
    
    $
    233,412
    
    
    $
    214,615Axis Group
    
    
    7,416
    
    
    
    6,335Total
    
    $
    240,828
    
    
    $
    220,950Operating income (loss):Allied Automotive Group
    
    $
    3,454
    
    
    $
    (525
    )Axis Group
    
    
    1,561
    
    
    
    422Corporate/other
    
    
    (918
    )
    
    
    (1,778
    )Total
    
    
    4,097
    
    
    
    (1,881
    )Reconciling items:Interest expense
    
    
    (9,541
    )
    
    
    (8,212
    )Investment income
    
    
    1,036
    
    
    
    438Foreign exchange gains, net
    
    
    (170
    )
    
    
    (199
    )Other, net
    
    
    
    
    
    
    Loss before reorganization items and income taxes
    
    
    (4,578
    )
    
    
    (9,854
    )Reorganization items
    
    
    (3,583
    )
    
    
    Loss before income taxes
    
    $
    (8,161
    )
    
    $
    (9,854
    )
  March 31,
    
    
    December 31,2006
    
    
    2005Total assets:Allied Automotive Group
    
    $
    227,827
    
    
    $
    233,394Axis Group
    
    
    20,163
    
    
    
    22,141Corporate/other
    
    
    122,097
    
    
    
    127,581Total
    
    $
    370,087
    
    
    $
    383,116
  Three Months Ended March 31,2006
    
    
    2005Revenues:United States
    
    $
    192,098
    
    
    $
    180,569Canada
    
    
    48,730
    
    
    
    40,381Total
    
    $
    240,828
    
    
    $
    220,950
 March 31,
    
    
    December 31,2006
    
    
    2005Long-lived assets:United States
    
    $
    90,587
    
    
    $
    90,223Canada
    
    
    32,175
    
    
    
    33,681Total
    
    $
    122,762
    
    
    $
    123,904
 20




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Unaudited)
   (18) Supplemental Guarantor Information
   21




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ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Unaudited)
 SUPPLEMENTAL CONSOLIDATING BALANCE SHEET INFORMATION
March 31, 2006
(In thousands)
 Allied
    
    
    Guarantor
    
    
    NonguarantorHoldings
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    296
    
    
    $
    2,586
    
    
    $
    
    
    
    $
    2,882Restricted cash, cash equivalents and other
time deposits
    
    
    
    
    
    
    
    
    
    
    32,827
    
    
    
    
    
    
    
    32,827Receivables, net of allowances
    
    
    
    
    
    
    57,648
    
    
    
    1,754
    
    
    
    
    
    
    
    59,402Inventories
    
    
    
    
    
    
    5,149
    
    
    
    
    
    
    
    
    
    
    
    5,149Deferred income taxes
    
    
    202
    
    
    
    
    
    
    
    (36
    )
    
    
    36
    
    
    
    202Prepayments and other
current assets
    
    
    3,403
    
    
    
    43,385
    
    
    
    2,239
    
    
    
    
    
    
    
    49,027Total current assets
    
    
    3,605
    
    
    
    106,478
    
    
    
    39,370
    
    
    
    36
    
    
    
    149,489Property and equipment, net of accumulated depreciation
    
    
    3,565
    
    
    
    115,602
    
    
    
    3,595
    
    
    
    
    
    
    
    122,762Goodwill, net
    
    
    
    
    
    
    3,545
    
    
    
    
    
    
    
    
    
    
    
    3,545Other assets:Restricted cash, cash equivalents and other
time deposits
    
    
    
    
    
    
    
    
    
    
    69,758
    
    
    
    
    
    
    
    69,758Other noncurrent assets
    
    
    8,151
    
    
    
    15,950
    
    
    
    432
    
    
    
    
    
    
    
    24,533Intercompany receivables (payables)
    
    
    76,787
    
    
    
    (76,787
    )
    
    
    
    
    
    
    
    
    
    
    Investment in subsidiaries
    
    
    (96,702
    )
    
    
    5,547
    
    
    
    
    
    
    
    91,155
    
    
    
    Total other assets
    
    
    (11,764
    )
    
    
    (55,290
    )
    
    
    70,190
    
    
    
    91,155
    
    
    
    94,291Total assets
    
    $
    (4,594
    )
    
    $
    170,335
    
    
    $
    113,155
    
    
    $
    91,191
    
    
    $
    370,087Current liabilities not subject to compromise:Debtor-in-possession credit facility
    
    $
    150,496
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    150,496Accounts and notes payable
    
    
    5,074
    
    
    
    43,621
    
    
    
    1,068
    
    
    
    
    
    
    
    49,763Intercompany (receivables) payables
    
    
    (130,994
    )
    
    
    114,898
    
    
    
    16,096
    
    
    
    
    
    
    
    Accrued liabilities
    
    
    5,829
    
    
    
    59,630
    
    
    
    24,343
    
    
    
    (198
    )
    
    
    89,604Total current liabilities
    
    
    30,405
    
    
    
    218,149
    
    
    
    41,507
    
    
    
    (198
    )
    
    
    289,863Long-term liabilities not subject to compromise:Postretirement benefits other than pensions
    
    
    
    
    
    
    4,309
    
    
    
    
    
    
    
    
    
    
    
    4,309Deferred income taxes
    
    
    218
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    218Other long-term liabilities
    
    
    2,786
    
    
    
    17,657
    
    
    
    51,514
    
    
    
    
    
    
    
    71,957Total long-term liabilities
    
    
    3,004
    
    
    
    21,966
    
    
    
    51,514
    
    
    
    
    
    
    
    76,484Liabilities subject to compromise
    
    
    157,503
    
    
    
    41,743
    
    
    
    
    
    
    
    
    
    
    
    199,246Commitments and contingencies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stockholders (deficit) equity :Preferred stock, no par value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock, no par value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    48,638
    
    
    
    166,130
    
    
    
    2,488
    
    
    
    (168,618
    )
    
    
    48,638Treasury stock
    
    
    (707
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (707
    )(Accumulated deficit) retained earnings
    
    
    (222,919
    )
    
    
    (263,845
    )
    
    
    17,646
    
    
    
    246,199
    
    
    
    (222,919
    )Accumulated other comprehensive loss,
net of tax
    
    
    (20,518
    )
    
    
    (13,808
    )
    
    
    
    
    
    
    13,808
    
    
    
    (20,518
    )Total stockholders (deficit) equity
    
    
    (195,506
    )
    
    
    (111,523
    )
    
    
    20,134
    
    
    
    91,389
    
    
    
    (195,506
    )Total liabilities and stockholders
(deficit) equity
    
    $
    (4,594
    )
    
    $
    170,335
    
    
    $
    113,155
    
    
    $
    91,191
    
    
    $
    370,087
 22




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Unaudited)
 SUPPLEMENTAL CONSOLIDATING BALANCE SHEET INFORMATION
December 31, 2005
(In thousands)
 Allied
    
    
    Guarantor
    
    
    NonguarantorHoldings
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    730
    
    
    $
    3,387
    
    
    $
    
    
    
    $
    4,117Restricted cash, cash equivalents and other
time deposits
    
    
    
    
    
    
    
    
    
    
    32,830
    
    
    
    
    
    
    
    32,830Receivables, net of allowances
    
    
    
    
    
    
    59,896
    
    
    
    1,531
    
    
    
    
    
    
    
    61,427Inventories
    
    
    
    
    
    
    5,132
    
    
    
    
    
    
    
    
    
    
    
    5,132Deferred income taxes
    
    
    151
    
    
    
    
    
    
    
    (23
    )
    
    
    
    
    
    
    128Prepayments and other
current assets
    
    
    3,364
    
    
    
    52,535
    
    
    
    3,535
    
    
    
    
    
    
    
    59,434Total current assets
    
    
    3,515
    
    
    
    118,293
    
    
    
    41,260
    
    
    
    
    
    
    
    163,068Property and equipment, net of accumulated depreciation
    
    
    3,762
    
    
    
    116,450
    
    
    
    3,692
    
    
    
    
    
    
    
    123,904Goodwill, net
    
    
    
    
    
    
    3,545
    
    
    
    
    
    
    
    
    
    
    
    3,545Other assets:Restricted cash, cash equivalents and other
time deposits
    
    
    
    
    
    
    
    
    
    
    69,764
    
    
    
    
    
    
    
    69,764Other noncurrent assets
    
    
    11,826
    
    
    
    10,541
    
    
    
    468
    
    
    
    
    
    
    
    22,835Intercompany receivables (payables)
    
    
    76,862
    
    
    
    (76,862
    )
    
    
    
    
    
    
    
    
    
    
    Investment in subsidiaries
    
    
    (95,374
    )
    
    
    5,282
    
    
    
    
    
    
    
    90,092
    
    
    
    Total other assets
    
    
    (6,686
    )
    
    
    (61,039
    )
    
    
    70,232
    
    
    
    90,092
    
    
    
    92,599Total assets
    
    $
    591
    
    
    $
    177,249
    
    
    $
    115,184
    
    
    $
    90,092
    
    
    $
    383,116Current liabilities not subject to compromise:Debtor-in-possession credit facility
    
    $
    151,997
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    151,997Accounts and notes payable
    
    
    3,764
    
    
    
    52,682
    
    
    
    750
    
    
    
    
    
    
    
    57,196Intercompany (receivables) payables
    
    
    (133,008
    )
    
    
    117,201
    
    
    
    15,807
    
    
    
    
    
    
    
    Accrued liabilities
    
    
    5,027
    
    
    
    50,812
    
    
    
    27,478
    
    
    
    
    
    
    
    83,317Total current liabilities
    
    
    27,780
    
    
    
    220,695
    
    
    
    44,035
    
    
    
    
    
    
    
    292,510Long-term liabilities not subject to compromise:Postretirement benefits other than pensions
    
    
    
    
    
    
    4,412
    
    
    
    
    
    
    
    
    
    
    
    4,412Deferred income taxes
    
    
    143
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    143Other long-term liabilities
    
    
    2,521
    
    
    
    19,608
    
    
    
    51,967
    
    
    
    
    
    
    
    74,096Total long-term liabilities
    
    
    2,664
    
    
    
    24,020
    
    
    
    51,967
    
    
    
    
    
    
    
    78,651Liabilities subject to compromise
    
    
    157,514
    
    
    
    41,808
    
    
    
    
    
    
    
    
    
    
    
    199,322Commitments and contingencies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stockholders (deficit) equity :Preferred stock, no par value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock, no par value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    48,545
    
    
    
    166,130
    
    
    
    2,488
    
    
    
    (168,618
    )
    
    
    48,545Treasury stock
    
    
    (707
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (707
    )(Accumulated deficit) retained earnings
    
    
    (214,631
    )
    
    
    (261,466
    )
    
    
    16,694
    
    
    
    244,772
    
    
    
    (214,631
    )Accumulated other comprehensive loss,
net of tax
    
    
    (20,574
    )
    
    
    (13,938
    )
    
    
    
    
    
    
    13,938
    
    
    
    (20,574
    )Total stockholders (deficit) equity
    
    
    (187,367
    )
    
    
    (109,274
    )
    
    
    19,182
    
    
    
    90,092
    
    
    
    (187,367
    )Total liabilities and stockholders
(deficit) equity
    
    $
    591
    
    
    $
    177,249
    
    
    $
    115,184
    
    
    $
    90,092
    
    
    $
    383,116
 23




---



##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Unaudited)
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
Three Months Ended March 31, 2006
(In thousands)
 Allied
    
    
    Guarantor
    
    
    NonguarantorHoldings
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    6,512
    
    
    $
    239,770
    
    
    $
    2,420
    
    
    $
    (7,874
    )
    
    $
    240,828Operating expenses:Salaries, wages and fringe benefits
    
    
    1,211
    
    
    
    124,136
    
    
    
    266
    
    
    
    
    
    
    
    125,613Operating supplies and expenses
    
    
    3,419
    
    
    
    45,111
    
    
    
    132
    
    
    
    
    
    
    
    48,662Purchased transportation
    
    
    
    
    
    
    30,888
    
    
    
    20
    
    
    
    
    
    
    
    30,908Insurance and claims
    
    
    
    
    
    
    10,930
    
    
    
    1,365
    
    
    
    (1,362
    )
    
    
    10,933Operating taxes and licenses
    
    
    60
    
    
    
    7,638
    
    
    
    
    
    
    
    
    
    
    
    7,698Depreciation and amortization
    
    
    204
    
    
    
    6,851
    
    
    
    161
    
    
    
    
    
    
    
    7,216Rents
    
    
    361
    
    
    
    1,388
    
    
    
    4
    
    
    
    
    
    
    
    1,753Communications and utilities
    
    
    868
    
    
    
    1,057
    
    
    
    12
    
    
    
    
    
    
    
    1,937Other operating expenses
    
    
    1,277
    
    
    
    7,172
    
    
    
    128
    
    
    
    (6,512
    )
    
    
    2,065Gain on disposal of operating assets, net
    
    
    
    
    
    
    (54
    )
    
    
    
    
    
    
    
    
    
    
    (54
    )Total operating expenses
    
    
    7,400
    
    
    
    235,117
    
    
    
    2,088
    
    
    
    (7,874
    )
    
    
    236,731Operating (loss) income
    
    
    (888
    )
    
    
    4,653
    
    
    
    332
    
    
    
    
    
    
    
    4,097Other income (expense):Interest expense
    
    
    (2,427
    )
    
    
    (7,051
    )
    
    
    (63
    )
    
    
    
    
    
    
    (9,541
    )Investment income
    
    
    
    
    
    
    9
    
    
    
    1,027
    
    
    
    
    
    
    
    1,036Foreign exchange losses, net
    
    
    
    
    
    
    (167
    )
    
    
    (3
    )
    
    
    
    
    
    
    (170
    )Equity in (losses) earnings of subsidiaries
    
    
    (1,460
    )
    
    
    264
    
    
    
    
    
    
    
    1,196
    
    
    
    Total other income (expense)
    
    
    (3,887
    )
    
    
    (6,945
    )
    
    
    961
    
    
    
    1,196
    
    
    
    (8,675
    )(Loss) income before reorganization items and income taxes
    
    
    (4,775
    )
    
    
    (2,292
    )
    
    
    1,293
    
    
    
    1,196
    
    
    
    (4,578
    )Reorganization items
    
    
    (3,495
    )
    
    
    (88
    )
    
    
    
    
    
    
    
    
    
    
    (3,583
    )(Loss) income before income taxes
    
    
    (8,270
    )
    
    
    (2,380
    )
    
    
    1,293
    
    
    
    1,196
    
    
    
    (8,161
    )Income tax (expense) benefit
    
    
    (18
    )
    
    
    (2
    )
    
    
    (341
    )
    
    
    234
    
    
    
    (127
    )Net (loss) income
    
    $
    (8,288
    )
    
    $
    (2,382
    )
    
    $
    952
    
    
    $
    1,430
    
    
    $
    (8,288
    )
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
Three Months Ended March 31, 2005
(In thousands)
 Allied
    
    
    Guarantor
    
    
    NonguarantorHoldings
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    6,679
    
    
    $
    220,601
    
    
    $
    9,880
    
    
    $
    (16,210
    )
    
    $
    220,950Operating expenses:Salaries, wages and fringe benefits
    
    
    1,665
    
    
    
    119,563
    
    
    
    
    
    
    
    
    
    
    
    121,228Operating supplies and expenses
    
    
    3,332
    
    
    
    38,107
    
    
    
    70
    
    
    
    
    
    
    
    41,509Purchased transportation
    
    
    
    
    
    
    28,861
    
    
    
    
    
    
    
    
    
    
    
    28,861Insurance and claims
    
    
    
    
    
    
    8,305
    
    
    
    10,109
    
    
    
    (9,531
    )
    
    
    8,883Operating taxes and licenses
    
    
    47
    
    
    
    7,727
    
    
    
    
    
    
    
    
    
    
    
    7,774Depreciation and amortization
    
    
    398
    
    
    
    7,662
    
    
    
    132
    
    
    
    
    
    
    
    8,192Rents
    
    
    365
    
    
    
    1,482
    
    
    
    2
    
    
    
    
    
    
    
    1,849Communications and utilities
    
    
    981
    
    
    
    927
    
    
    
    3
    
    
    
    
    
    
    
    1,911Other operating expenses
    
    
    1,634
    
    
    
    7,582
    
    
    
    43
    
    
    
    (6,679
    )
    
    
    2,580(Gain) loss on disposal of operating assets, net
    
    
    (2
    )
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    44Total operating expenses
    
    
    8,420
    
    
    
    220,262
    
    
    
    10,359
    
    
    
    (16,210
    )
    
    
    222,831Operating (loss) income
    
    
    (1,741
    )
    
    
    339
    
    
    
    (479
    )
    
    
    
    
    
    
    (1,881
    )Other income (expense):Interest expense
    
    
    (683
    )
    
    
    (7,472
    )
    
    
    (57
    )
    
    
    
    
    
    
    (8,212
    )Investment income
    
    
    
    
    
    
    10
    
    
    
    428
    
    
    
    
    
    
    
    438Foreign exchange (loss) gain, net
    
    
    
    
    
    
    (231
    )
    
    
    32
    
    
    
    
    
    
    
    (199
    )Equity in (losses) earnings of subsidiaries
    
    
    (7,616
    )
    
    
    95
    
    
    
    
    
    
    
    7,521
    
    
    
    (8,299
    )
    
    
    (7,598
    )
    
    
    403
    
    
    
    7,521
    
    
    
    (7,973
    )Loss before income taxes
    
    
    (10,040
    )
    
    
    (7,259
    )
    
    
    (76
    )
    
    
    7,521
    
    
    
    (9,854
    )Income tax expense
    
    
    (18
    )
    
    
    (2
    )
    
    
    (184
    )
    
    
    
    
    
    
    (204
    )Net loss
    
    $
    (10,058
    )
    
    $
    (7,261
    )
    
    $
    (260
    )
    
    $
    7,521
    
    
    $
    (10,058
    )
 24




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Unaudited)
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
Three Months Ended March 31, 2006
(In thousands)
 Allied
    
    
    Guarantor
    
    
    NonguarantorHoldings
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net (loss) income
    
    $
    (8,288
    )
    
    $
    (2,382
    )
    
    $
    952
    
    
    $
    1,430
    
    
    $
    (8,288
    )Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:Amortization of deferred financing costs
    
    
    3,631
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,631Depreciation and amortization
    
    
    204
    
    
    
    6,851
    
    
    
    161
    
    
    
    
    
    
    
    7,216Reorganization items
    
    
    3,495
    
    
    
    88
    
    
    
    
    
    
    
    
    
    
    
    3,583Gain on disposal of assets and other, net
    
    
    
    
    
    
    (54
    )
    
    
    
    
    
    
    
    
    
    
    (54
    )Foreign exchange losses
    
    
    
    
    
    
    170
    
    
    
    
    
    
    
    
    
    
    
    170Deferred income taxes
    
    
    24
    
    
    
    
    
    
    
    13
    
    
    
    (36
    )
    
    
    1Stock-based compensation expense
    
    
    93
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    93Equity in losses (earnings) of subsidiaries
    
    
    1,460
    
    
    
    (264
    )
    
    
    
    
    
    
    (1,196
    )
    
    
    Change in operating assets and liabilities:Receivables, net of allowances
    
    
    
    
    
    
    2,234
    
    
    
    (223
    )
    
    
    
    
    
    
    2,011Inventories
    
    
    
    
    
    
    (19
    )
    
    
    
    
    
    
    
    
    
    
    (19
    )Prepayments and other assets
    
    
    (3
    )
    
    
    2,404
    
    
    
    1,296
    
    
    
    
    
    
    
    3,697Accounts and notes payable
    
    
    1,298
    
    
    
    (1,863
    )
    
    
    318
    
    
    
    
    
    
    
    (247
    )Intercompany payables/receivables
    
    
    2,014
    
    
    
    (2,303
    )
    
    
    289
    
    
    
    
    
    
    
    Accrued liabilities
    
    
    504
    
    
    
    7,497
    
    
    
    (3,590
    )
    
    
    (198
    )
    
    
    4,213Net cash provided by (used in) operating activities
before payment of reorganization items
    
    
    4,432
    
    
    
    12,359
    
    
    
    (784
    )
    
    
    
    
    
    
    16,007Reorganization items paid
    
    
    (2,931
    )
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    (2,936
    )Net cash provided by (used in) operating activities
    
    
    1,501
    
    
    
    12,354
    
    
    
    (784
    )
    
    
    
    
    
    
    13,071Cash flows from investing activities:Purchases of property and equipment
    
    
    
    
    
    
    (6,190
    )
    
    
    (26
    )
    
    
    
    
    
    
    (6,216
    )Proceeds from sales of property and equipment
    
    
    
    
    
    
    149
    
    
    
    
    
    
    
    
    
    
    
    149Decrease in restricted cash, cash equivalents and other time deposits
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    9Funds deposited with insurance carriers
    
    
    
    
    
    
    (574
    )
    
    
    
    
    
    
    
    
    
    
    (574
    )Funds returned from insurance carriers
    
    
    
    
    
    
    1,908
    
    
    
    
    
    
    
    
    
    
    
    1,908Net cash provided by (used in) investing activities
    
    
    
    
    
    
    (4,707
    )
    
    
    (17
    )
    
    
    
    
    
    
    (4,724
    )Cash flows from financing activities:Repayments of debtor-in-possession revolving credit facilities, net
    
    
    (1,501
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,501
    )Proceeds from insurance financing arrangements
    
    
    
    
    
    
    178
    
    
    
    
    
    
    
    
    
    
    
    178Repayments of insurance financing arrangements
    
    
    
    
    
    
    (8,182
    )
    
    
    
    
    
    
    
    
    
    
    (8,182
    )Net cash used in financing activities
    
    
    (1,501
    )
    
    
    (8,004
    )
    
    
    
    
    
    
    
    
    
    
    (9,505
    )Effect of exchange rate changes on cash and
cash equivalents
    
    
    
    
    
    
    (77
    )
    
    
    
    
    
    
    
    
    
    
    (77
    )Net change in cash and cash equivalents
    
    
    
    
    
    
    (434
    )
    
    
    (801
    )
    
    
    
    
    
    
    (1,235
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    730
    
    
    
    3,387
    
    
    
    
    
    
    
    4,117Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    296
    
    
    $
    2,586
    
    
    $
    
    
    
    $
    2,882
 25




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##### Table of Contents



ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Unaudited)
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
Three Months Ended March 31, 2005
(In thousands)
 Allied
    
    
    Guarantor
    
    
    NonguarantorHoldings
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net loss
    
    $
    (10,058
    )
    
    $
    (7,261
    )
    
    $
    (260
    )
    
    $
    7,521
    
    
    $
    (10,058
    )Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:Amortization of deferred financing costs
    
    
    747
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    747Depreciation and amortization
    
    
    398
    
    
    
    7,662
    
    
    
    132
    
    
    
    
    
    
    
    8,192Loss on disposal of assets and other, net
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    44Foreign exchange loss, net
    
    
    
    
    
    
    199
    
    
    
    
    
    
    
    
    
    
    
    199Deferred income taxes
    
    
    51
    
    
    
    (191
    )
    
    
    36
    
    
    
    
    
    
    
    (104
    )Equity in losses (earnings) of subsidiaries
    
    
    7,616
    
    
    
    (95
    )
    
    
    
    
    
    
    (7,521
    )
    
    
    Change in operating assets and liabilities:Receivables, net of allowance for doubtful accounts
    
    
    (11
    )
    
    
    787
    
    
    
    183
    
    
    
    
    
    
    
    959Inventories
    
    
    
    
    
    
    (159
    )
    
    
    
    
    
    
    
    
    
    
    (159
    )Prepayments and other assets
    
    
    249
    
    
    
    (302
    )
    
    
    (5,842
    )
    
    
    
    
    
    
    (5,895
    )Accounts and notes payable
    
    
    (1,103
    )
    
    
    (12,203
    )
    
    
    12,008
    
    
    
    
    
    
    
    (1,298
    )Intercompany payables
    
    
    (1,303
    )
    
    
    (3,571
    )
    
    
    4,874
    
    
    
    
    
    
    
    Accrued liabilities
    
    
    3,371
    
    
    
    9,960
    
    
    
    793
    
    
    
    
    
    
    
    14,124Net cash
(used in) provided by operating activities
    
    
    (43
    )
    
    
    (5,130
    )
    
    
    11,924
    
    
    
    
    
    
    
    6,751Cash flows from investing activities:Purchases of property and equipment
    
    
    
    
    
    
    (4,647
    )
    
    
    (178
    )
    
    
    
    
    
    
    (4,825
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    252
    
    
    
    
    
    
    
    
    
    
    
    252Increase in restricted cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (10,353
    )
    
    
    
    
    
    
    (10,353
    )Funds deposited with insurance carriers
    
    
    
    
    
    
    (7,357
    )
    
    
    
    
    
    
    
    
    
    
    (7,357
    )Funds returned from insurance carriers
    
    
    
    
    
    
    1,609
    
    
    
    
    
    
    
    
    
    
    
    1,609Net cash used in investing activities
    
    
    
    
    
    
    (10,143
    )
    
    
    (10,531
    )
    
    
    
    
    
    
    (20,674
    )Cash flows from financing activities:Additions to revolving credit facilities, net
    
    
    
    
    
    
    13,843
    
    
    
    
    
    
    
    
    
    
    
    13,843Repayment of long-term debt
    
    
    
    
    
    
    (4,165
    )
    
    
    
    
    
    
    
    
    
    
    (4,165
    )Proceeds from insurance financing arrangements
    
    
    
    
    
    
    8,031
    
    
    
    
    
    
    
    
    
    
    
    8,031Repayments of insurance financing arrangements
    
    
    
    
    
    
    (2,601
    )
    
    
    
    
    
    
    
    
    
    
    (2,601
    )Proceeds from issuance of common stock
    
    
    43
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43Net cash provided by financing activities
    
    
    43
    
    
    
    15,108
    
    
    
    
    
    
    
    
    
    
    
    15,151Effect of exchange rate changes on cash and
cash equivalents
    
    
    
    
    
    
    178
    
    
    
    
    
    
    
    
    
    
    
    178Net change in cash and cash equivalents
    
    
    
    
    
    
    13
    
    
    
    1,393
    
    
    
    
    
    
    
    1,406Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    533
    
    
    
    1,983
    
    
    
    
    
    
    
    2,516Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    546
    
    
    $
    3,376
    
    
    $
    
    
    
    $
    3,922
 26




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 You should read the discussion and analysis in this section in conjunction with the consolidated
financial statements and accompanying notes included in Item 1. Financial Statements of this
Quarterly Report on Form 10-Q and the consolidated financial statements, related notes and other
financial information included in our Annual Report on Form10-K for the year ended December 31,
2005. In addition, we use forward-looking statements in the discussion that follows.
Forward-looking statements by nature involve risks and uncertainties and hence our actual results
could differ materially from our expectations as a result of various factors, some of which we
discuss below in Cautionary Notice Regarding Forward-Looking Statements and under Item 1A Risk
Factors in this Quarterly Report on Form 10-Q.
 Executive Overview
      27




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##### Table of Contents



Due to these uncertainties, an investment in our
common stock or debt securities is highly speculative and accordingly, we urge investors to
exercise caution with respect to existing and future investments in our common stock or debt
securities.
  
    
    Results of Operations;
    
    Liquidity and Capital Resources;
    
    Off-Balance Sheet Arrangements;
    
    Disclosures About Market Risks;
    
    Critical Accounting Policies and Estimates;
    
    Recent Accounting Pronouncements;
    
    Factors Which May Affect Future Results; and
    
    Cautionary Notice Regarding Forward-looking Statements.
 Results of Operations
 Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005
  28




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##### Table of Contents



As a % of revenuesThree Months Ended March 31,2006
    
    2005%
    
    %Revenues
    
    
    100.0
    %
    
    
    100.0
    %Operating expenses:Salaries, wages, and fringe benefits
    
    
    52.2
    %
    
    
    54.9
    %Operating supplies and expenses
    
    
    20.2
    %
    
    
    18.8
    %Purchased transportation
    
    
    12.8
    %
    
    
    13.1
    %Insurance and claims
    
    
    4.5
    %
    
    
    4.0
    %Operating taxes and licenses
    
    
    3.2
    %
    
    
    3.5
    %Depreciation and amortization
    
    
    3.0
    %
    
    
    3.7
    %Rents
    
    
    0.7
    %
    
    
    0.8
    %Communications and utilities
    
    
    0.8
    %
    
    
    0.9
    %Other operating expenses
    
    
    0.9
    %
    
    
    1.2
    %(Gain) loss on disposal of operating assets
    
    
    (0.0
    )%
    
    
    0.0
    %Total operating expenses
    
    
    98.3
    %
    
    
    100.9
    %Operating (loss) income
    
    
    1.7
    %
    
    
    (0.9
    )%Other income (expense):Interest expense
    
    
    (4.0
    )%
    
    
    (3.7
    )%Investment income
    
    
    0.4
    %
    
    
    0.2
    %Foreign exchange loss
    
    
    (0.1
    )%
    
    
    (0.1
    )%(3.7
    )%
    
    
    (3.6
    )%Loss before reorganization items and income taxes
    
    
    (2.0
    )%
    
    
    (4.5
    )%Reorganization items
    
    
    (1.5
    )%
    
    
    0.0
    %Loss before income taxes
    
    
    (3.5
    )%
    
    
    (4.5
    )%Income tax expense
    
    
    (0.1
    )%
    
    
    (0.1
    )%Net loss
    
    
    (3.6
    )%
    
    
    (4.6
    )%
 Revenues
     29




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Salaries, wages, and fringe benefits
   30




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Operating supplies and expenses
   Purchased transportation
  Insurance and claims
  Operating taxes and licenses
  31




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Depreciation and amortization
  Other operating expenses
  Interest expense
  Investment income
  Reorganization items
  Income taxes
  32




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Liquidity and Capital Resources
 Working Capital
    
    
    Rescheduling and deferring capital expenditures;
    
    Obtaining the Bankruptcy Courts approval to reduce wages paid to our collective
bargaining employees covered under the Master Agreement with the IBT by 10% for the months
of May and June 2006;
    
    Obtaining the Bankruptcy Courts approval to delay wage and cost of living increases
to our collective bargaining employees that were previously scheduled to go into effect on
June 1, 2006;
    
    Implementing un-paid furloughs for certain non-bargaining employees for certain
periods in May and June of 2006;
    
    Filing a motion with the Bankruptcy Court to terminate certain non-bargaining retiree
benefits; and
    
    Implementing other internal cost-saving initiatives.
   Operating Activities
  33




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Investing Activities
    Financing Activities
  Debt, Contractual Obligations and Letters of Credit
    34




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Off-Balance Sheet Arrangements
  Disclosures About Market Risks
  Fuel Prices
  Interest Rates
 The Wall Street Journal
 Risk Management Retention
   35




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Foreign Currency Exchange Rates
   Inflation
  Critical Accounting Policies and Estimates
   Recent Accounting Pronouncements
  Factors Which May Affect Future Results
  Cautionary Notice Regarding Forward-Looking Statements
  36




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures.
 (b) Changes in Internal Control Over Financial Reporting.
     37




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
 Our business is subject to certain risks, including the risks described below. Readers of this
Quarterly Report on Form 10-Q should take such risks into account in evaluating any investment
decision involving our common stock. This Item 1A does not describe all risks applicable to our
business and is intended only as a summary of certain material factors that af haul industry in which we operate. More detailed information concerning these and other
risks is contained in other sections of this Quarterly Report on Form 10-Q and our other reports
filed with the SEC.
 We may not be able to successfully reorganize under Chapter 11, which would likely terminate
our future business prospects and our ability to continue as a going concern and result in a
liquidation of our assets.
  We have a significant amount of debt and substantially all our assets are pledged as collateral for
long-term obligations, which could limit our operational flexibility and customer relationships or
otherwise adversely affect our financial condition.
  
    
    We may not be able to repay, refinance or extend our debt as it matures. The Revolver
under the DIP Facility matures on February 2, 2007 and the term loans under the DIP
Facility mature on June 30, 2007;
    
    If we are not able to refinance or extend our debt when it matures, we may not be
able to repay the debt;
    
    Substantially all our assets are pledged as collateral for our debt and as a result
we are limited in our ability
 38




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to sell assets to generate additional cash;
    
    Our flexibility in responding to changes in the business and industry may be reduced;
    
    We may be more vulnerable to economic downturns;
    
    We may be unable to invest in our fleet of Rigs;
    
    We may be unable to meet customer demands; and
    
    We may be limited in our ability to withstand competitive pressures.
 The terms of our DIP Facility place restrictions on us, which create risks of default and reduces
our flexibility.
   We will be required to make significant capital expenditures on our Rigs in the coming years or we
may not be able to maintain our current level of terminal operations or customer relationships.
   If we are not able to modify our Master Agreement in the U.S. or renegotiate our other union
contracts on terms favorable to us as they expire, or if work stoppages or other labor disruptions
occur during such negotiations, it could preclude us from emerging from bankruptcy and would have a
material adverse effect on our operations.
 39




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Rising interest rates could adversely affect our cash flow and interest expense.
   A shortage of fuel or higher fuel prices resulting from fuel shortages or other factors could have
a detrimental effect on the automotive industry or the automotive transportation industry and could
materially and adversely affect our operations.
   A further decline in the automotive industry could have a material adverse effect on our
operations.
  40




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The internal strategies of our largest customers could have a material effect on our performance.
  Losses may exceed our insurance coverage or reserves.
   We have a history of losses and may not be able to improve our performance to achieve
profitability.
  Our restricted cash, cash equivalents and other time deposits are not available for use in our
operations even if they were needed to fund our operations.
  If we do not maintain our relationships with major customers or these relationships are terminated,
reduced or redesigned, our operations could be materially and adversely affected.
  41




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Competition in the automotive transportation industry could result in a loss of our market share or
a reduction in our rates, which could have a material adverse effect on our operations.
  Our common stock is not currently listed on a national securities exchange, which could make it
more difficult for investors to liquidate their shares, result in a decline in the stock price and
make it difficult for us to raise additional capital.
  Adverse changes in the foreign business climate, primarily in Canada, could adversely affect our
operations.
  42




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Major changes in key personnel on whom we depend could adversely affect our operations.
  The loss of our Teamster drivers and mechanics could adversely affect our operations.
  We have previously had material weaknesses in our internal control over financial reporting,
and any unidentified material weaknesses could cause us to fail to meet our SEC and other
reporting requirements.
      43




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Item 6. Exhibits
 (a) Exhibit Index
 Exhibit No.
    
    Description4.3(j)
    
    Consent and Fifth Amendment, dated June 30, 2006 to
Senior Secured, Super Priority Debtor-in-Possession
Credit Agreement, dated as of August 1, 2005, by and
among Allied Holdings, Inc., Allied Systems, Ltd.
(L.P.), each subsidiary listed as a credit party
thereto, General Electric Capital Corporation and Morgan
Stanley Senior Funding, Inc., as agents and the lenders
from time to time party thereto.

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 Thomas H. King.32.1
    
    Section 1350 Certification by Hugh E. Sawyer.32.2
    
    Section 1350 Certification by Thomas H. King.
 44




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SIGNATURES
  ALLIED HOLDINGS, INC.Date: August 14, 2006
    By:
    /s/ Hugh E. SawyerHugh E. Sawyer,President and Chief Executive Officer  By:
    /s/ Thomas H. KingThomas H. King,Executive Vice President and Chief Financial
    Officer (Principal Financial and Accounting Officer) 45




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EXHIBIT INDEX
 Exhibit No.
    
    Description4.3(j)
    
    Consent and Fifth Amendment, dated June 30, 2006 to
Senior Secured, Super Priority Debtor-in-Possession
Credit Agreement, dated as of August 1, 2005, by and
among Allied Holdings, Inc., Allied Systems, Ltd. (L.P.),
each subsidiary listed as a credit party thereto, General
Electric Capital Corporation and Morgan Stanley Senior
Funding, Inc., as agents and the lenders from time to
time party thereto.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 Thomas H. King.32.1
    
    Section 1350 Certification by Hugh E. Sawyer.32.2
    
    Section 1350 Certification by Thomas H. King.
 46