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 September 30, 2006

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 —

For the transition period from                      to                     

Commission File Number: 0-22276

ALLIED HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

GEORGIA		58-0360550
(State or other jurisdiction of		(I.R.S. Employer Identification
incorporation or organization)		Number)

(Address of principal executive offices)

(Registrant’s telephone number, including area code)

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

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act of 1934).

Large Accelerated Filer o     Accelerated Filer o      Non-Accelerated Filer þ

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes       þ No

Outstanding common stock, no par value at November 4, 2006  8,980,329

 

 

ALLIED HOLDINGS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		PAGE
PART I — FINANCIAL INFORMATION
ITEM 1 — Financial Statements
Consolidated Balance Sheets — September 30, 2006 and December 31, 2005 (unaudited)			1
Consolidated Statements of Operations — Three and Nine Month Periods Ended September 30, 2006 and 2005 (unaudited)			2
Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2006 and 2005 (unaudited)			3
Notes to the Consolidated Financial Statements (unaudited)			4
ITEM 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations			32
ITEM 3 — Quantitative and Qualitative Disclosures About Market Risk			48
ITEM 4 — Controls and Procedures			48
PART II — OTHER INFORMATION
ITEM 1 — Legal Proceedings			49
ITEM 1A — Risk Factors			49
ITEM 6 — Exhibits			55
Signatures			56
EX-31.1 SECTION 302 CERTIFICATION OF CEO
EX-31.2 SECTION 302 CERTIFICATION OF CFO
EX-32.1 SECTION 906 CERTIFICATION OF CEO
EX-32.2 SECTION 906 CERTIFICATION OF CFO

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)

		September 30,				December 31,
		2006				2005
ASSETS
Current assets:
Cash and cash equivalents		$	5,862			$	4,117
Restricted cash, cash equivalents and other time deposits			32,537				32,830
Receivables, net of allowances of $1,970 and $2,218 as of September 30, 2006 and December 31, 2005, respectively			50,139				61,427
Inventories			5,181				5,132
Deferred income taxes			—				128
Prepayments and other current assets			20,683				59,434
Total current assets			114,402				163,068
Property and equipment, net of accumulated depreciation			128,940				123,904
Goodwill, net			3,545				3,545
Other assets:
Restricted cash, cash equivalents and other time deposits			66,059				69,764
Deferred income taxes			127				—
Other noncurrent assets			24,083				22,835
Total other assets			90,269				92,599
Total assets		$	337,156			$	383,116
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities not subject to compromise:
Debtor-in-possession credit facility		$	156,172			$	151,997
Accounts and notes payable			29,097				57,196
Accrued liabilities			74,645				83,317
Deferred income taxes			145				—
Total current liabilities			260,059				292,510
Long-term liabilities not subject to compromise:
Postretirement benefits other than pensions			4,314				4,412
Deferred income taxes			—				143
Other long-term liabilities			70,361				74,096
Total long-term liabilities			74,675				78,651
Liabilities subject to compromise			199,199				199,322
Commitments 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 September 30, 2006 and December 31, 2005			—				—
Additional paid-in capital			48,825				48,545
Treasury stock, 139 shares at cost			(707	)			(707	)
Accumulated deficit			(223,832	)			(214,631	)
Accumulated other comprehensive loss, net of tax			(21,063	)			(20,574	)
Total stockholders’ deficit			(196,777	)			(187,367	)
Total liabilities and stockholders’ deficit		$	337,156			$	383,116

See accompanying notes to these consolidated financial statements.

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								Nine Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
Revenues		$	202,151			$	203,090			$	688,361			$	656,594
Operating expenses:
Salaries, wages and fringe benefits			104,897				110,285				345,373				349,618
Operating supplies and expenses			43,221				41,781				142,224				127,405
Purchased transportation			26,111				28,586				89,689				88,829
Insurance and claims			10,006				8,587				31,174				27,165
Operating taxes and licenses			6,616				6,785				21,669				22,196
Depreciation and amortization			6,927				6,698				21,426				21,940
Rents			1,842				1,810				5,334				5,608
Communications and utilities			1,438				1,185				4,876				4,575
Other operating expenses			2,064				2,655				6,112				9,714
Impairment of goodwill			—				—				—				79,172
Gain on disposal of operating assets, net			(5	)			(85	)			(260	)			(462	)
Total operating expenses			203,117				208,287				667,617				735,760
Operating (loss) income			(966	)			(5,197	)			20,744				(79,166	)
Other income (expense):
Interest expense (excludes contractual interest of $3,234 and $9,703 for the three and nine months ended September 30, 2006, respectively and $2,156 for the three and nine months ended September 30, 2005)			(5,537	)			(9,571	)			(24,603	)			(32,522	)
Investment income			1,252				847				3,500				1,863
Foreign exchange gains, net			257				1,893				1,842				1,282
Total other income (expense)			(4,028	)			(6,831	)			(19,261	)			(29,377	)
(Loss) income before reorganization items and income taxes			(4,994	)			(12,028	)			1,483				(108,543	)
Reorganization items			(2,082	)			(3,929	)			(10,372	)			(3,929	)
Loss before income taxes			(7,076	)			(15,957	)			(8,889	)			(112,472	)
Income tax (expense) benefit			(122	)			(39	)			(312	)			11,368
Net loss		$	(7,198	)		$	(15,996	)		$	(9,201	)		$	(101,104	)
Basic and diluted loss per common share:
Net loss:
Basic and diluted		$	(0.80	)		$	(1.78	)		$	(1.02	)		$	(11.26	)
Weighted-average number of common shares outstanding:
Basic and diluted			8,980				8,980				8,980				8,980

See accompanying notes to these consolidated financial statements.

ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

		Nine Months Ended
		September 30,
		2006				2005
Cash flows from operating activities:
Net loss		$	(9,201	)		$	(101,104	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization			21,426				21,940
Impairment of goodwill			—				79,172
Gain on disposal of assets			(260	)			(462	)
Write-off and amortization of deferred financing costs			5,706				7,368
Interest expense paid in kind			3,045				—
Foreign exchange gains			(1,842	)			(1,282	)
Reorganization items			10,372				3,929
Deferred income taxes			3				(11,261	)
Stock-based compensation expense			280				—
Change in operating assets and liabilities:
Receivables, net of allowances			11,765				2,729
Inventories			9				(547	)
Prepayments and other assets			29,986				(3,009	)
Accounts and notes payable			2,054				7,593
Accrued liabilities			(14,084	)			(292	)
Net cash provided by operating activities before payment of reorganization items			59,259				4,774
Reorganization items paid			(9,629	)			(712	)
Net cash provided by operating activities			49,630				4,062
Cash flows from investing activities:
Purchases of property and equipment			(25,668	)			(12,574	)
Proceeds from sales of property and equipment			927				2,851
Decrease (increase) in restricted cash, cash equivalents and other time deposits			3,998				(19,686	)
Funds deposited with insurance carriers			(1,008	)			(8,182	)
Funds returned from insurance carriers			3,395				4,131
Net cash used in investing activities			(18,356	)			(33,460	)
Cash flows from financing activities:
(Repayment of) addition to debtor-in-possession revolving credit facility, net			(8,870	)			41,517
Repayment of pre-petition revolving credit facilities, net			—				(2,972	)
Additions to debtor-in-possession term debt			10,000				100,000
Additions to pre-petition term debt			—				25,000
Repayment of pre-petition term debt			—				(123,266	)
Payment of deferred financing costs			(345	)			(8,079	)
Proceeds from insurance financing arrangements			178				8,470
Repayments of insurance financing arrangements			(29,964	)			(10,122	)
Proceeds from issuance of common stock			—				124
Net cash (used in) provided by financing activities			(29,001	)			30,672
Effect of exchange rate changes on cash and cash equivalents			(528	)			106
Net change in cash and cash equivalents			1,745				1,380
Cash and cash equivalents at beginning of period			4,117				2,516
Cash and cash equivalents at end of period		$	5,862			$	3,896
Supplemental cash flow information:
Cash paid (refunds received) during the period for:
Interest		$	17,807			$	22,737
Income taxes, net			234				(492	)
Supplemental disclosure of noncash financing activity:
Interest paid in kind via addition to term debt		$	3,045			$	—
.

See accompanying notes to these consolidated financial statements.

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

We are a vehicle-hauling company providing a range of logistics and other support services to the automotive industry. Our principal operating divisions 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 sports-utility vehicles (“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, vehicle tracking, vehicle accessorization, and dealer preparatory services for the automotive industry.

Chapter 11 Overview

On July 31, 2005 (“the Petition Date”), Allied Holdings, Inc. and substantially all of its subsidiaries (the “Debtors”) filed voluntary petitions seeking protection under Chapter 11 of the U.S. Bankruptcy Code (“Chapter 11”). Our captive insurance subsidiary, Haul Insurance Limited, as well as our subsidiaries in Mexico and Bermuda (the “Non-debtors”) were not included in the Chapter 11 filings. Our Canadian subsidiaries obtained approval for creditor protection under the Companies Creditors’ Arrangement Act in Canada and are included among the subsidiaries that filed voluntary petitions seeking bankruptcy protection. Like Chapter 11, the Companies Creditors Arrangement Act in Canada allows for reorganization under the protection of the court system.

The Debtors are currently operating their business as debtors-in-possession under the jurisdiction of the U.S. Bankruptcy Court for the Northern District of Georgia (“Bankruptcy Court”) and cannot engage in transactions considered to be outside of the ordinary course of business without obtaining Bankruptcy Court approval. We currently have the exclusive right to file a plan of reorganization until January 17, 2007 and to solicit acceptance of the plan through March 21, 2007. The exclusivity period can be extended at our request, if approved by the Bankruptcy Court. However, we can provide no assurance that any request to extend the exclusivity period, to the extent necessary, will be approved. Proceedings between the Petition Date and the date that the plan of reorganization is consummated will be referred to as the Chapter 11 Proceedings. See Note 3 for other disclosures required by entities in reorganization under the Bankruptcy Code.

(2) Accounting and Reporting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and are based on the Security and Exchange Commission’s Regulation S-X and its instructions to Form 10-Q. They do not include all of the information and notes required by generally accepted accounting principles (“GAAP”) for complete financial statements. However, except as disclosed in this report, management believes that there have been no material changes in the information that we disclosed in the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2005. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring items, necessary to present fairly the financial condition, results of operations and cash flows for the interim periods presented. These interim financial statements should be read in conjunction with the financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2005. As a result of our Chapter 11 filings, we have applied the guidance in the American Institute of Certified Public Accountants’ Statement of Position 90-7 (“SOP 90-7”), Financial Reporting by Entities in Reorganization Under the Bankruptcy Code.

ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

The accompanying unaudited consolidated financial statements have been prepared on the going concern basis, which assumes that we will continue in operation for the foreseeable future and will realize our assets and discharge our post-petition liabilities in the ordinary course of business. However, continuation as a going concern is predicated upon, among other things, the confirmation of a plan of reorganization, compliance with the provisions of the debtor-in-possession facility, our ability to obtain an extension of the maturity date of the revolving credit facility portion of the debtor-in-possession facility, our ability to reach an agreement with the International Brotherhood of Teamsters (“IBT” or “Teamsters”) on a new collective bargaining agreement, our ability to generate sufficient cash from operations, our ability to obtain financing sufficient to satisfy our future obligations and our ability to comply with the terms of the ultimate plan of reorganization.

The term loans under our debtor-in-possession facility have maturity dates of June 30, 2007. However, the revolving credit facility portion of the facility has a maturity date of February 2, 2007. We have requested an extension of this maturity date to June 30, 2007, but can provide no assurance that the extension will be granted.

We can provide no assurance that we will be able to reach an agreement with the Teamsters in the U.S. on a new collective bargaining agreement as necessary to allow us to emerge from Chapter 11, or that such contract will be on terms acceptable to us or that such contract will not result in increased labor costs, labor disruptions, increased employee turnover, higher risk management costs, work stoppages, or lost customer market share, which could, in turn, have a material adverse effect on our financial condition, results of operations or customer relationships.

The accompanying unaudited consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and liabilities that might be necessary should we be unable to continue as a going concern, nor do they include any adjustments to the carrying values of assets and liabilities that might be required as a result of the plan of reorganization. A plan of reorganization could substantially change the amounts currently recorded in the accompanying unaudited consolidated financial statements. Asset and liability carrying amounts do not purport to represent the realizable or settlement values that will be reflected in the plan of reorganization and it is not possible to estimate the impact of the Chapter 11 Proceedings on our financial statements. As a result of the Chapter 11 Proceedings, we may take, or be required to take, actions that may cause assets to be realized or liabilities to be settled for amounts other than those reflected in these financial statements.

Certain reclassifications have been made to the prior period financial statements in order to conform to the current period presentation.

Use of Estimates and Seasonality

The preparation of financial statements in accordance with GAAP requires that management make a number of estimates and assumptions relating to the reported amount of assets and liabilities and disclosures about contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the period. Significant items subject to estimates and assumptions include the carrying amounts of property and equipment and goodwill; valuation allowances for receivables and deferred income tax assets; self-insurance reserves; assets and obligations related to employee benefits; liabilities subject to compromise; and reorganization items. Actual results could differ from those estimates.

Our revenues are seasonal, with the second and fourth quarters generally experiencing higher revenues than the first and third quarters as a result of the higher volume of vehicles shipped. The volume of vehicles shipped is generally higher during the second quarter as North American light vehicle production has historically been at its highest level during this quarter due to higher consumer sales of automobiles, light trucks and SUVs in the spring and early summer. The introduction of new models in the fall of each year, combined with the manufacturers’ motivation to ship vehicles before calendar year end, increase shipments to dealers through the fourth quarter. During the first and third quarters, vehicle shipments typically decline due to lower production volume during those periods. The third quarter volume does benefit from the introduction of new models, but the net volume for the quarter is typically lower than the second and fourth quarters due to the scheduled original-equipment manufacturer (“OEM”) plant shutdowns, which generally occur early in the third quarter. The first quarter volume is negatively impacted by the holiday shutdown in December of each year and the relatively low inventory of vehicles to ship as a result of maximizing shipments at the end of the year. As a result of these and other factors, our operating results for the three and nine months ended September 30, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006.

(3) Accounting for Reorganization

As a result of our Chapter 11 filings, we have applied the guidance in SOP 90-7 in the preparation of the accompanying unaudited consolidated financial statements. SOP 90-7 does not change the application of GAAP in the preparation of financial statements. However, SOP 90-7 does require that financial statements, for periods including and subsequent to the filing of a Chapter 11 petition, distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business and also that liabilities subject to compromise be segregated from those not subject to compromise. In accordance with SOP 90-7 we have:

•

separated liabilities that are subject to compromise from liabilities that are not subject to compromise;

ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

	•		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”).

Liabilities Subject to Compromise

Liabilities subject to compromise include certain known liabilities incurred by the Debtors prior to the Petition Date. Liabilities subject to compromise exclude pre-petition claims for which the Debtors have received the Bankruptcy Court’s approval to pay, such as claims related to active employees and retirees, maintenance of insurance programs, cargo damage claims and claims related to certain critical service vendors. Liabilities subject to compromise are included at amounts expected to be allowed by the Bankruptcy Court and are subject to future adjustments that may result from negotiations, actions by the Bankruptcy Court, developments with respect to disputed claims or matters arising out of the proof of claims process whereby a creditor may prove that the amount of a claim differs from the amount that we have recorded.

The bar date set by the Bankruptcy Court for the submission of claims by creditors was February 17, 2006. A number of proofs of claim were filed against the Debtors by various creditors and security holders and we have not reconciled these claims to our records. As part of the claims reconciliation process, the Debtors will review these claims for validity. As claims are reconciled, the Debtors may need to record additional liabilities subject to compromise. Adjustments arising out of the claims reconciliation process could have a material effect on our financial statements.

We ceased the recording of interest on liabilities subject to compromise, primarily the Senior Notes, as of the Petition Date. Contractual interest on the Senior Notes in excess of reported interest was approximately $3.2 million and $9.7 million for the three and nine months ended September 30, 2006, respectively. As of September 30, 2006, contractual interest not accrued since the Petition Date was approximately $15.1 million, excluding any potential compound or default interest arising from events of default related to the Chapter 11 Proceedings.

Liabilities subject to compromise are as follows at September 30, 2006 and December 31, 2005 (in thousands):

		September 30,				December 31,
		2006				2005
Accounts payable		$	24,905			$	24,922
Senior Notes			150,000				150,000
Accrued interest on Senior Notes			4,313				4,313
Multiemployer pension withdrawal liabilities			15,847				15,847
Accrued claims and insurance reserves			3,003				3,109
Other accrued liabilities			1,131				1,131
		$	199,199			$	199,322

Reorganization Items

Reorganization items are presented separately in the accompanying unaudited consolidated statements of operations and represent expenses that we have identified as directly relating to the Chapter 11 Proceedings. These items for the three and nine months ended September 30, 2006 and 2005 are summarized as follows (in thousands):

ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
Legal and professional fees		$	1,382			$	2,203			$	7,909			$	2,203
Write-off of deferred financing costs			—				1,442				—				1,442
Employee retention plan			618				—				2,208				—
Other reorganization items			82				284				255				284
		$	2,082			$	3,929			$	10,372			$	3,929

Condensed Financial Statement Information of the Debtors and Non-debtors

As disclosed above, the Non-debtors were not among the subsidiaries that filed for Chapter 11. Presented below are unaudited condensed consolidating financial statement information of the Debtors and the Non-debtors:

Condensed Consolidating Balance Sheet Information
September 30, 2006
(In thousands)

		Debtors				Non-Debtors				Eliminations				Consolidated
Current assets		$	73,255			$	41,121			$	26			$	114,402
Intercompany receivables (payables)			19,036				(19,036	)			—				—
Property and equipment, net			125,559				3,381				—				128,940
Goodwill, net			3,545				—				—				3,545
Investment in subsidiaries			25,271				6,223				(31,494	)			—
Other assets			22,969				67,300				—				90,269
Total assets		$	269,635			$	98,989			$	(31,468	)		$	337,156
Liabilities not subject to compromise:
Current liabilities		$	238,557			$	22,805			$	(1,303	)		$	260,059
Other noncurrent liabilities			27,718				46,957				—				74,675
Liabilities subject to compromise			199,199				—				—				199,199
Stockholders’ (deficit) equity			(195,839	)			29,227				(30,165	)			(196,777	)
Total liabilities and stockholders’ (deficit) equity		$	269,635			$	98,989			$	(31,468	)		$	337,156

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
December 31, 2005
(In thousands)

		Debtors				Non-Debtors				Eliminations				Consolidated
Current assets		$	121,807			$	41,261			$	—			$	163,068
Intercompany receivables (payables)			14,744				(14,744	)			—				—
Property and equipment, net			120,212				3,692				—				123,904
Goodwill, net			3,545				—				—				3,545
Investment in subsidiaries			21,169				6,223				(27,392	)			—
Other assets			22,366				70,233				—				92,599
Total assets		$	303,843			$	106,665			$	(27,392	)		$	383,116
Liabilities not subject to compromise:
Current liabilities		$	264,265			$	28,245			$	—			$	292,510
Other noncurrent liabilities			26,684				51,967				—				78,651
Liabilities subject to compromise			199,322				—				—				199,322
Stockholders’ (deficit) equity			(186,428	)			26,453				(27,392	)			(187,367	)
Total liabilities and stockholders’ (deficit) equity		$	303,843			$	106,665			$	(27,392	)		$	383,116

Condensed Consolidating Statement of Operations Information
For the Three Months Ended September 30, 2006
(In thousands)

		Debtors				Non-Debtors				Eliminations				Consolidated
Revenues		$	201,085			$	1,406			$	(340	)		$	202,151
Operating expenses			202,336				1,121				(340	)			203,117
Operating (expense) income			(1,251	)			285				—				(966	)
Other (expense) income, net			(3,838	)			1,255				(1,445	)			(4,028	)
(Loss) income before reorganization items and income taxes			(5,089	)			1,540				(1,445	)			(4,994	)
Reorganization items			(2,082	)			—				—				(2,082	)
(Loss) income before income taxes			(7,171	)			1,540				(1,445	)			(7,076	)
Income tax expense			(27	)			(786	)			691				(122	)
Net (loss) income		$	(7,198	)		$	754			$	(754	)		$	(7,198	)

ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

Unaudited Condensed Consolidating Statement of Operations Information
For the Three Months Ended September 30, 2005
(In thousands)

		Debtors				Non-Debtors				Eliminations				Consolidated
Revenues		$	202,450			$	10,171			$	(9,531	)		$	203,090
Operating expenses			207,670				10,148				(9,531	)			208,287
Operating (loss) income			(5,220	)			23				—				(5,197	)
Other (expenses) income, net			(7,295	)			961				(497	)			(6,831	)
(Loss) income before reorganization items and income taxes			(12,515	)			984				(497	)			(12,028	)
Reorganization items			(3,929	)			—				—				(3,929	)
(Loss) income before income taxes			(16,444	)			984				(497	)			(15,957	)
Income tax expense			(21	)			(18	)			—				(39	)
Net (loss) income		$	(16,465	)		$	966			$	(497	)		$	(15,996	)

Condensed Consolidating Statement of Operations Information
For the Nine Months Ended September 30, 2006
(In thousands)

		Debtors				Non-Debtors				Eliminations				Consolidated
Revenues		$	685,445			$	3,937			$	(1,021	)		$	688,361
Operating expenses			665,524				3,114				(1,021	)			667,617
Operating income			19,921				823				—				20,744
Other (expense) income, net			(18,682	)			3,524				(4,103	)			(19,261	)
Income before reorganization items and income taxes			1,239				4,347				(4,103	)			1,483
Reorganization items			(10,372	)			—				—				(10,372	)
(Loss) income before income taxes			(9,133	)			4,347				(4,103	)			(8,889	)
Income tax expense			(68	)			(1,573	)			1,329				(312	)
Net (loss) income		$	(9,201	)		$	2,774			$	(2,774	)		$	(9,201	)

Unaudited Condensed Consolidating Statement of Operations Information
For the Nine Months Ended September 30, 2005
(In thousands)

		Debtors				Non-Debtors				Eliminations				Consolidated
Revenues		$	654,284			$	30,902			$	(28,592	)		$	656,594
Operating expenses			733,727				30,625				(28,592	)			735,760
Operating (loss) income			(79,443	)			277				—				(79,166	)
Other (expense) income, net			(29,868	)			1,806				(1,315	)			(29,377	)
(Loss) income before reorganization items and income taxes			(109,311	)			2,083				(1,315	)			(108,543	)
Reorganization items			(3,929	)			—				—				(3,929	)
(Loss) income before income taxes			(113,240	)			2,083				(1,315	)			(112,472	)
Income tax benefit (expense)			11,497				(129	)			—				11,368
Net (loss) income		$	(101,743	)		$	1,954			$	(1,315	)		$	(101,104	)

ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

Condensed Consolidating Statement of Cash Flows Information
For the Nine Months Ended September 30, 2006
(In thousands)

		Debtors				Non-Debtors				Eliminations				Consolidated
Net cash provided by (used in):
Operating activities		$	51,735			$	(2,105	)		$	—			$	49,630
Investing activities			(22,299	)			3,943				—				(18,356	)
Financing activities			(29,001	)			—				—				(29,001	)
Effect of exchange rate changes on cash and cash equivalents			(750	)			222				—				(528	)
Net change in cash and cash equivalents			(315	)			2,060				—				1,745
Cash and cash equivalents at beginning of period			730				3,387				—				4,117
Cash and cash equivalents at end of period		$	415			$	5,447			$	—			$	5,862

Unaudited Condensed Consolidating Statement of Cash Flows Information
For the Nine Months Ended September 30, 2005
(In thousands)

		Debtors				Non-Debtors				Eliminations				Consolidated
Net cash (used in) provided by:
Operating activities		$	(16,173	)		$	20,235			$	—			$	4,062
Investing activities			(13,475	)			(19,985	)			—				(33,460	)
Financing activities			30,672				—				—				30,672
Effect of exchange rate changes on cash and cash equivalents			5				101				—				106
Net change in cash and cash equivalents			1,029				351				—				1,380
Cash and cash equivalents at beginning of period			203				2,313				—				2,516
Cash and cash equivalents at end of period		$	1,232			$	2,664			$	—			$	3,896

(4) Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes,” and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The evaluation of a tax position in accordance with FIN 48 is a two-step process. The first step is recognition: The enterprise determines whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. The second step is measurement: A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of the benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized. FIN 48 requires the evaluation of tax positions to be completed prior to assessing the need for a valuation allowance for deferred tax assets. Additional disclosure requirements of the Interpretation include a rollforward of unrecognized tax benefits, information regarding the uncertainty of unrecognized tax benefits, a description of all open tax years by jurisdiction and the accounting policy on the income statement classification of interest and penalties and amounts of each recognized in the financial statements. FIN 48 is effective for fiscal years beginning after December 15, 2006, which would be effective for us on January 1, 2007. The cumulative effect, if any, of applying the provisions of this Interpretation will be reported as an adjustment to the opening balance of accumulated deficit in the period of transition. We have not determined the effect on our financial position or results of operations of adopting FIN 48.

ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

In September 2006, the FASB ratified the consensus reached by the Emerging Issues Task Force (“EITF”) on EITF Issue No. 06-05, Accounting for Purchases of Life Insurance – Determining the Amount that Could be Realized in Accordance with FASB Technical Bulletin No 85-4, Accounting for Purchases of Life Insurance. This consensus provides guidance regarding the accounting for life insurance policies purchased by entities. Based on the consensus, a policyholder should consider any additional amounts included in the contractual terms of the policy in determining the amount that could be realized under the insurance contract. Contractual limitations should be considered when determining the realizable amounts. Those amounts that are recoverable by the policyholder at the discretion of the insurance company should be excluded from the amount that could be realized. Fixed amounts that are recoverable by the policyholder in future periods in excess of one year from the surrender of the policy should be recognized at their present value. Any amount that is ultimately realized by the policyholder upon the assumed surrender of the final policy (or final certificate in a group policy) shall be included in the amount that could be realized under the insurance contract. We are uncertain of the impact, if any, on our financial statements of this EITF which is to be applied through either (a) a change in accounting principle through a cumulative effect adjustment to retained earnings or to other components of equity or net assets in the balance sheet as of the beginning of the year of adoption or (b) a change in accounting principle through retrospective application to all prior periods. This consensus is effective for fiscal years beginning after December 15, 2006.

In September 2006, the Securities and Exchange Commission (the “SEC”) issued Staff Accounting Bulletin (“SAB”) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB No. 108 requires registrants to quantify misstatements using both the balance-sheet and the income-statement approaches and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. When the effect of initial adoption is determined to be material, SAB No. 108 allows registrants to record that effect as a cumulative-effect adjustment to beginning-of-year retained earnings. The new guidance applies when uncorrected misstatements in a previous year affect the current year, either because misstatements carry over or reverse. The requirements of SAB No. 108 are effective for our financial statements for the year ending December 31, 2006. We are currently evaluating the requirements and determining the impact, if any, of adopting this SAB.

In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements. SFAS No. 157 establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and requires expanded disclosures about fair-value measurements. SFAS No. 157 applies only to fair-value measurements that are already required or permitted by other accounting standards and is expected to increase the consistency of those measurements. SFAS No. 157 clarifies the definition of fair value. Specifically, this Statement clarifies that the exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability in the market in which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous market for the asset or liability. This Statement also emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair-value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. SFAS No. 157 expands disclosures about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. The disclosures focus on the inputs used to measure fair value and, for recurring fair-value measurements using significant unobservable inputs, the effect of the measurements on earnings for the period. This Statement encourages entities to combine the fair value information disclosed under this Statement with the fair value information disclosed under other accounting pronouncements, including SFAS No. 107, Disclosures about Fair Value of Financial Instruments, where practicable. SFAS No. 157 will be effective for our financial statements for the year ending December 31, 2008, and interim periods within 2008. The provisions of this Statement should be applied prospectively as of the beginning of 2008, except for limited exceptions, which should be applied retrospectively. We have not determined whether the provisions of SFAS No. 157 will require any changes to our fair-value measurements in 2008. It will, however, require expanded disclosures of fair value in 2008.

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS No. 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a

ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

multiemployer plan) as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. This Statement also requires an employer to measure the funded status of a plan as of the date of its year-end balance sheet. The existing requirements allow a measurement date within three months of the year-end date. SFAS No. 158 requires an employer that sponsors one or more single-employer defined benefit plans to:

a. Recognize the funded status of a benefit plan—measured as the difference between plan assets at fair value and the benefit obligation—in its balance sheet. For a pension plan, the benefit obligation is the projected benefit obligation; for any other postretirement benefit plan, such as a retiree health care plan, the benefit obligation is the accumulated postretirement benefit obligation.

b. Recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost pursuant to SFAS No. 87, Employers’ Accounting for Pensions, or SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions. Amounts recognized in accumulated other comprehensive income, including the gains or losses, prior service costs or credits, and the transition asset or obligation remaining from the initial application of Statements 87 and 106, are adjusted as they are subsequently recognized as components of net periodic benefit cost pursuant to the recognition and amortization provisions of those Statements.

c. Measure defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end balance sheet.

d. Disclose in the notes to financial statements additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation.

We are required to initially recognize the funded status of our pension and postretirement benefit plans and provide the required disclosures as of December 31, 2006. The requirement to measure plan assets and benefit obligations as of the date of the year-end balance sheet is effective for the year ending December 31, 2008. Earlier application of the recognition or measurement date provisions is encouraged; however, early application must be for all of an employer’s benefit plans. Retrospective application of this Statement is not permitted. We have not yet determined the effect on our financial position or comprehensive income (loss) of adopting SFAS No. 158. However, the amount, if any, by which our pension and postretirement benefit plans’ underfunded status, calculated by our actuaries as of December 31, 2006, exceeds the liability already recognized on our balance sheet will be reflected as an additional liability with a charge to other comprehensive income. At December 31, 2005, the date of our most recent actuarial valuation, the underfunded status of our postretirement benefit plans exceeded the net liability recognized on the balance sheet by approximately $6.5 million. The net liability recognized for our pension plans approximated the underfunded status of those plans at December 31, 2005.

In October 2006, the FASB issued FASB Staff Position FAS 123(R)-5, an amendment of FAS 123(R)-1 and FASB Staff Position FAS 123(R)-6, Technical Corrections of FASB Statement No. 123(R). These FASB Staff Positions will be effective for our financial statements beginning in the fourth quarter of 2006 and we do not expect them to have a material impact on our financial statements.

(5) Prepayments and Other Current Assets

Prepayments and other current assets as of September 30, 2006 and December 31, 2005 are presented below (in thousands):

		September 30,				December 31,
		2006				2005
Prepaid insurance		$	12,598			$	50,185
Prepaid licenses			2,520				1,532
Tires on tractors and trailers			2,318				2,245
Short-term deposits with pre-petition lenders			118				2,679
Prepaid taxes			1,414				1,163
Other			1,715				1,630
		$	20,683			$	59,434

ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

(6) Property and Equipment

Property and equipment and the related accumulated depreciation and amortization are presented below as of September 30, 2006 and December 31, 2005 (in thousands):

		September 30,				December 31,
		2006				2005
Cost		$	532,114			$	528,206
Accumulated depreciation and amortization			(403,174	)			(404,302	)
		$	128,940			$	123,904

We utilize primarily one company to remanufacture and supply certain parts needed to maintain a significant portion of our fleet of specialized tractors and trailers (together called “Rigs”), which we include in property and equipment. While we believe that a limited number of other companies could provide comparable remanufacturing services and parts, a change in this service provider could cause a delay in and increase the cost of the remanufacturing process and the maintenance of our Rigs. Such delays and additional costs could adversely affect our operating results as well as our Rig remanufacturing and maintenance programs and customer relationships. In addition, we purchase our tractors primarily through one manufacturing company. We have not yet determined whether another manufacturer could provide us with the number of specialized tractors that we need to operate our fleet of Rigs and if so, we have not determined the cost.

In June 2006, we entered into a sale agreement to sell a portion of the property we own in Ontario, Canada. Pursuant to the rules of the U.S. Bankruptcy Code, we solicited higher and better offers for the property and in November 2006, engaged in the bidding and auction process. At the conclusion of the auction, we obtained and accepted the prevailing bid of Cdn$4.3 million and also obtained a backup bid for Cdn$4.25 million. The prevailing bidder has placed a nonrefundable deposit of Cdn$100,000 in escrow and the U.S. Bankruptcy Court has issued an order authorizing the sale. The sale of this property is now contingent upon recognition of the order by the court system in Canada and performance by the prevailing bidder. We expect the sale to be completed by December 31, 2006 and to result in a gain of approximately $3.0 million. We can provide no assurance that the sale of this property will be consummated on the terms of the prevailing bid, if at all.

(7) Other Noncurrent Assets

Other noncurrent assets as of September 30, 2006 and December 31, 2005 are presented below (in thousands):

		September 30,				December 31,
		2006				2005
Deposits with insurance companies		$	11,092			$	5,100
Interest in split-dollar life insurance policies			6,139				6,181
Other deposits			3,189				2,599
Deferred financing costs			234				5,595
Other			3,429				3,360
		$	24,083			$	22,835

The deferred financing costs and the related accumulated amortization as of September 30, 2006 and December 31, 2005 are presented below (in thousands):

ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

		September 30,				December 31,
		2006				2005
Cost		$	345			$	7,646
Accumulated amortization			(111	)			(2,051	)
		$	234			$	5,595

The deferred financing costs at September 30, 2006 and December 31, 2005 represent costs related to the debtor-in-possession financing discussed in Note 11. The deferred financing costs at September 30, 2006 relate to the fifth amendment to the debtor-in-possession financing. Deferred financing costs at December 31, 2005 were fully amortized as interest expense as of May 18, 2006. As previously disclosed, during the first quarter of 2006 we obtained forbearance from our lenders as a remedy to certain covenant violations. The forbearance period ended on May 18, 2006. Accordingly, we reduced the amortization period of the deferred financing costs so that the amortization period ended on May 18, 2006 resulting in the full amortization of these costs at that time. The write-off and amortization of deferred financing costs totaled $111,000 and $5.7 million for the three and nine months ended September 30, 2006, respectively.

The Chapter 11 filing on July 31, 2005 constituted an event of default under the Senior Notes. Accordingly, during the third quarter of 2005 we wrote off to reorganization items the related deferred financing costs of $1.4 million. Further, based on the financial reports delivered to our lenders under the Pre-petition Facility on July 29, 2005, we were in violation of one of the financial covenants in our pre-petition facility at June 30, 2005. As a result, during the second quarter of 2005 we wrote off the related deferred financing costs of $4.9 million, which are included in interest expense. The amortization of deferred financing costs was $876,000 and $2.4 million for the three and nine months ended September 30, 2005, respectively.

(8) Accounts and Notes Payable and Accrued Liabilities

We enter into notes payable with third parties for insurance financing arrangements. Outstanding notes payable for insurance financing arrangements as of September 30, 2006 and December 31, 2005 were $3.7 million and $33.4 million, respectively, and are included in accounts and notes payable in the accompanying unaudited consolidated balance sheets. These amounts bear interest at rates ranging between 5.75% and 7.96% and are due in monthly installments, generally over a period of less than a year. The weighted-average interest rate on amounts outstanding at September 30, 2006 was 7.59%. Additionally, in October 2006, we entered into other notes payable with third parties for insurance financing arrangements of approximately $4.0 million. These notes bear interest at the rate of 7.99%.

Accrued liabilities as of September 30, 2006 and December 31, 2005 are presented below (in thousands):

		September 30,				December 31,
		2006				2005
Claims and insurance reserves		$	37,115			$	39,602
Wages and benefits			28,614				30,748
Accrued taxes			3,605				4,017
Accrued interest			593				3,761
Purchased transportation			3,559				3,563
Other			1,159				1,626
		$	74,645			$	83,317

(9) Claims and Insurance Reserves

We retain losses for certain risks within certain limits through high deductibles or self-insured retentions. For certain risks, coverage for losses is provided by primary and reinsurance companies unrelated to our company. Haul Insurance Limited, our captive insurance subsidiary, provides reinsurance coverage to certain of our licensed insurance carriers for certain types of losses for certain years within our insurance program, primarily insured workers’ compensation, automobile and general liability risks. Haul Insurance Limited was not included in the companies that filed for Chapter 11. In states where we are insured for workers’ compensation claims, the majority of our risk in 2006 is covered by a fully insured program with no deductible.

ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

Claims and insurance reserves are adjusted periodically, as claims develop, to reflect changes in actuarial estimates based on actual experience. During the three and nine months ended September 30, 2006, the estimated ultimate amount of claims from prior years increased approximately $2.5 million or $0.28 per share. During the three and nine months ended September 30, 2005, the estimated ultimate amount of claims from prior years increased approximately $4.0 million and $5.3 million, respectively, or $0.45 and $0.59 per share, respectively.

The amounts recognized in the accompanying unaudited consolidated balance sheets as of September 30, 2006 and December 31, 2005 represent the undiscounted estimated ultimate amount of claims. These amounts are presented below (in thousands):

		September 30,				December 31,
		2006				2005
Accrued liabilities — current		$	37,115			$	39,602
Other long-term liabilities — noncurrent			65,828				70,040
			102,943				109,642
Liabilities subject to compromise			3,003				3,109
Total liability included in the consolidated balance sheets		$	105,946			$	112,751

The majority of our pre-petition liabilities related to insurance and claims are not classified as liabilities subject to compromise since we have received the Bankruptcy Court’s approval to maintain our existing insurance programs. Pre-petition liabilities classified as subject to compromise represent reserves for product liability claims.

We believe that adequate provision has been made for all incurred claims including those not reported. However, favorable or unfavorable developments subsequent to the date of our estimates could have a material impact on our consolidated financial statements.

(10) Employee Benefit Plans

(a) Pension and Postretirement Benefit Plans

The following tables present the components of our net periodic benefit cost for the pension and postretirement benefit plans for the three and nine months ended September 30, 2006 and 2005 (in thousands):

		Defined Benefit								Postretirement Benefit
		Pension Plans								Plans
		Three Months Ended September 30,
		2006				2005				2006				2005
Service cost		$	23			$	30			$	14			$	15
Interest cost			762				1,088				164				205
Expected return on plan assets			(1,014	)			(1,511	)			—				—
Amortization of:
Unrecognized net actuarial loss			524				639				169				187
Prior service cost			12				17				(82	)			(95	)
Net periodic benefit cost		$	307			$	263			$	265			$	312

ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

		Defined Benefit								Postretirement Benefit
		Pension Plans								Plans
		Nine Months Ended September 30,
		2006				2005				2006				2005
Service cost		$	69			$	63			$	42			$	39
Interest cost			2,286				2,262				492				528
Expected return on plan assets			(3,042	)			(3,190	)			—				—
Amortization of:
Unrecognized net actuarial loss			1,572				1,401				507				481
Prior service cost			36				36				(246	)			(243	)
Net periodic benefit cost		$	921			$	572			$	795			$	805

A substantial number of our employees are covered by union-sponsored, collectively bargained, multiemployer pension plans. In the event we withdraw our participation in any of these plans, we could incur a withdrawal liability for a portion of the unfunded benefit obligation of the plan, if any. If a withdrawal were to occur, the liability would be actuarially determined based on factors at the time of withdrawal.

A number of proofs of claim related to pre-petition liabilities under the multiemployer pension plans to which we contribute were filed on or before the bar date established by the Bankruptcy Court. The majority of the claims were filed on a contingent basis, which means that no plan withdrawal liability was asserted, but should a withdrawal occur, we would have an obligation related to the withdrawal. Currently, we have no intention of withdrawing our participation in these plans.

Two such claims, totaling $15.8 million, assert general unsecured claims for withdrawal liability on a noncontingent basis. While we have not validated these claims, we have determined that it is probable that a withdrawal had occurred in each case prior to the Petition Date and that the claim amounts asserted are reasonable estimates of the withdrawal liability. Accordingly, the amount of $15.8 million is included in liabilities subject to compromise as of September 30, 2006 and December 31, 2005.

The Allied Holdings, Inc. Amended Severance Pay and Retention and Emergence Bonus Plan for Key Employees was approved by the Bankruptcy Court on January 6, 2006. The employee retention plan includes three components: a severance component, a stay bonus component and a discretionary bonus component. During the three and nine months ended September 30, 2006, we recognized reorganization expenses of $618,000 and $2,208,000, respectively related to the stay and discretionary bonus components. No expense was recognized during the three and nine months ended September 30, 2006 related to the severance portion of the employee retention plan. The liabilities related to the employee retention plan were $1,303,000 and $173,000 at September 30, 2006 and December 31, 2005, respectively, and are included in “other accrued liabilities” in the accompanying unaudited consolidated balance sheets.

(11) Debt

Our debt at September 30, 2006 and December 31, 2005 consisted of the following (in thousands):

		September 30,				December 31,
		2006				2005
Current liabilities not subject to compromise:
DIP Facility — Revolver		$	43,127			$	51,997
DIP Facility — Term Loan A			20,000				20,000
DIP Facility — Term Loan B			82,790				80,000
DIP Facility — Term Loan C			10,255				—
		$	156,172			$	151,997
Liabilities subject to compromise:
Senior Notes		$	150,000			$	150,000

ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

In connection with the Chapter 11 Proceedings, on August 1, 2005, we entered into a financing agreement (the “DIP Facility”) for debtor-in-possession financing of up to $230 million. General Electric Capital Corporation and Morgan Stanley Senior Funding, Inc. currently serve as agents for the lenders. The DIP Facility originally provided for aggregate financing of up to $230 million comprised of (i) a $130 million revolving credit facility (“Revolver”), which includes a swing-line credit commitment of $10 million and up to $75 million in letters of credit, (ii) a $20 million term loan (“DIP Facility Term Loan A”) and (iii) an $80 million term loan (“DIP Facility Term Loan B”). The Revolver bears interest at an annual rate, at our option, of either an annual index rate (based on the greater of the base rate on corporate loans as published from time to time in The Wall Street Journal or the federal funds rate plus 0.50%) plus 2.00%, or LIBOR plus 3.00%. In addition, we are charged a letter of credit fee under the Revolver payable monthly at a rate per annum equal to 2.75% times the amount of all outstanding letters of credit under the Revolver. There is also a fee of 0.5% on the unused portion of the Revolver.

During 2006, we have continued to be impacted by liquidity constraints and violated various covenants included in the DIP Facility. As previously disclosed, these violations required us to enter into certain forbearance agreements and amendments to the DIP Facility. On June 30, 2006, we entered into a fifth amendment (the “Fifth Amendment”) to the DIP Facility to provide us with $30 million of additional availability through a new term loan (“DIP Facility Term Loan C”). DIP Facility Term Loan C bears interest at an annual rate of LIBOR plus 9.5%, payable at our option in cash each month or in kind by addition to principal on a monthly basis, with interest compounded on a monthly basis. The maturity date for DIP Facility Term Loan C is June 30, 2007. The Fifth Amendment provides us with additional availability by allowing us to pay interest in kind on DIP Facility Term Loan B by addition to principal on a monthly basis. As a result, the DIP Facility now provides for debtor-in-possession financing of up to $260 million plus interest paid in kind. During the third quarter of 2006, we paid interest in kind by addition to principal of approximately $3.0 million. Of the $3.0 million interest paid in kind, $2.8 million was added to DIP Facility Term Loan B and $0.2 million was added to DIP Facility Term Loan C. Further, the Fifth Amendment reduces the interest rate on DIP Facility Term Loan B from LIBOR plus 9.5% to LIBOR plus 8.5%. The interest rate on DIP Facility Term Loan A remained unchanged at an annual rate of LIBOR plus 5.5%. As of September 30, 2006, the interest rates on the Revolver, DIP Facility Term Loan A, DIP Facility Term Loan B and DIP Facility Term Loan C were 9.09%, 10.85%, 13.85% and 14.84%, respectively.

The Fifth Amendment extended the maturity date of DIP Facility Term Loan B and DIP Facility Term Loan A from February 2, 2007 to June 30, 2007. The Fifth Amendment, which has been approved by the Bankruptcy Court, revises the existing financial covenants set forth in the DIP Facility and waives all defaults under the DIP Facility that we disclosed in our Annual Report on Form 10-K for the year ended December 31, 2005. We believe that the additional availability obtained by the Fifth Amendment should provide us with the cash required to prevent the previously projected liquidity shortfalls and enable us to meet our working capital needs during the expected term of the Chapter 11 Proceedings. However, the Revolver portion of the DIP Facility currently has a maturity date of February 2, 2007. We have requested an extension of this maturity date to June 30, 2007 but can provide no assurance that the extension will be granted.

We will be obligated to repay the DIP Facility prior to maturity if the plan of reorganization is confirmed by the Bankruptcy Court and becomes effective prior to the expiration of the DIP Facility. The agreement covering the DIP Facility also requires mandatory prepayment from the net cash proceeds of any asset sales, extraordinary receipts, or any insurance proceeds that we receive. The DIP Facility, as amended, also includes customary affirmative, negative, and financial covenants binding on our company, including maintaining a cash management system as set forth in the DIP Facility. The negative covenants limit our ability to, among other things, incur debt, incur liens, make investments, sell assets, or declare or pay any dividends on our capital stock. The financial covenants included in the DIP Facility also limit the amount of our capital expenditures, set forth a minimum fixed charge coverage ratio and a maximum leverage ratio, and require that we maintain minimum consolidated earnings before interest, taxes, depreciation and amortization as set forth in the DIP Facility.

As of September 30, 2006, we were in compliance with the covenants of our DIP Facility but can provide no assurance that we will be able to continue to comply with the covenants of our DIP Facility or, if we fail to do so, that we will be able to obtain amendments to or waivers of such covenants.

ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

In addition, the DIP Facility includes customary events of default including events of default related to (i) the failure to comply with the financial covenants set forth in the DIP Facility, (ii) the failure to maintain the cash management system set forth in the DIP Facility, (iii) the conversion of the Chapter 11 Proceedings to a Chapter 7 case or the appointment of a Chapter 11 trustee with enlarged powers, (iv) the granting of certain other super-priority administrative expense claims or non-permitted liens or the invalidity of liens securing the DIP Facility, (v) the stay, amendment or reversal of the Bankruptcy Court orders approving the DIP Facility, (vi) the confirmation of a plan of reorganization or entry of an order by the court dismissing the Chapter 11 case if such plan or order does not provide for payment in full of the DIP Facility or (vii) the granting of relief from the automatic stay to holders of security interests in our assets that would have a material adverse effect on our company.

Obligations under the DIP Facility are secured by 100% of the capital stock of our domestic and Canadian subsidiaries, 66% of the capital stock of our direct foreign subsidiaries other than those domiciled in Canada, and all of our current and after-acquired U.S. and Canadian personal and real property. The DIP Facility entitles the lenders to super-priority administrative expense claim status under the Bankruptcy Code and will generally permit the ordinary course payment of professionals and administrative expenses prior to the occurrence of an event of default under the DIP Facility or a default under the Bankruptcy Court orders approving the DIP Facility.

The amount available under the $130 million Revolver may be reduced based on the calculation of eligible Revolver collateral. As of September 30, 2006, $109.6 million of eligible Revolver collateral was available. As of September 30, 2006, approximately $38.5 million of the Revolver was committed under letters of credit primarily related to the settlement of insurance claims and $43.1 million in loans were outstanding under the Revolver. We had approximately $19.9 million and $23.6 million available under the Revolver as of September 30, 2006 and November 4, 2006, respectively and had $20 million available under DIP Facility Term Loan C as of September 30, 2006 and November 4, 2006.

Canadian Revolving Credit Facility

Our subsidiary, Allied Systems (Canada) Company, also has a $2.5 million revolving credit facility with a bank in Canada (the “Canadian Revolver”) for use in our Canadian operations. The Canadian Revolver bears interest at the bank’s prime lending rate plus 0.5% and is secured by a letter of credit of $2.6 million, which is included in the $38.5 million of outstanding letters of credit discussed in Note 14(b).

Senior Notes

On September 30, 1997, we issued the $150 million 8^5/₈% Senior Notes through a private placement. The Senior Notes were subsequently registered with the SEC, are payable in semi-annual installments of interest only and mature on October 1, 2007.

Borrowings under the Senior Notes are general unsecured obligations of Allied Holdings, Inc. and are guaranteed by substantially all of our subsidiaries (the “Guarantor Subsidiaries”). The guarantees are full and unconditional and there are no restrictions on the ability of the Guarantor Subsidiaries to make distributions to our company. We own 100% of the Guarantor Subsidiaries. The following companies (the “Nonguarantor Subsidiaries”) do not guarantee the obligations under the Senior Notes:

	•		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; and
	•		Ace Operations, LLC.

See Note 19 for combined balance sheet information, combined statement of operations information and combined statement of cash flows information for the Guarantor Subsidiaries and the Nonguarantor Subsidiaries.

The agreement governing the Senior Notes sets forth a number of negative covenants, which would limit our ability to, among other things, purchase or redeem stock, make dividend or other distributions, make investments, and incur or repay debt (with the exception of payment of interest or principal at stated maturity). One such covenant would

ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

limit our ability to incur more than $230 million of additional indebtedness beyond the $150 million that existed on the date that the Senior Notes were issued. Although we are not presently in compliance with some of these covenants as a result of the filing for protection under Chapter 11 of the Bankruptcy Code, any action to be taken by the holders of the Senior Notes as a result of these violations has been stayed by the Bankruptcy Court.

The filings for protection under Chapter 11 on July 31, 2005 constituted an event of default under the Senior Notes. The indenture agreement governing the Senior Notes provides that as a result of this event of default, the outstanding amount of the Senior Notes became immediately due and payable without further action by any holder of the Senior Notes or the trustee under the indenture. However, payment of the Senior Notes, including the semi-annual interest payments, is automatically stayed as of the Petition Date, absent further order of the Bankruptcy Court. As a result of the Chapter 11 Proceedings, and pursuant to SOP 90-7, we have reclassified the outstanding balance on the Senior Notes along with the related interest accrued as of the Petition Date to liabilities subject to compromise.

(12) Impairment of Goodwill

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, we review our goodwill annually for impairment or on an interim basis if an event occurs or circumstances change that would potentially reduce the fair value of our goodwill below its carrying amount. SFAS No. 142 requires that if the fair value of a reporting unit is less than its carrying amount, including goodwill (Step I), further analysis (Step II) is required to measure the amount of the impairment loss, if any. The amount by which the reporting unit’s carrying amount of goodwill exceeds the implied fair value of the reporting unit’s goodwill, determined in Step II, is to be recognized as an impairment loss. Our reporting units are the Allied Automotive Group and the Axis Group.

As a result of circumstances affecting Allied Automotive Group that culminated at the end of the second quarter of 2005, we reassessed its goodwill for impairment as of June 30, 2005. Allied Automotive Group was adversely affected by the actual and forecasted reduction of OEM production of automobiles in 2005. Accordingly, we revised our forecasts downward in the second quarter of 2005 from those used to perform our annual impairment test as of October 1, 2004. Our deteriorating financial performance combined with our lenders’ reaction to our revised forecasts resulted in the need to execute amendments to our Pre-petition Facility on a weekly basis to address our borrowing capacity and various covenant violations during the second quarter of 2005. The assessment resulted in an impairment loss of $79.2 million and represented the entire carrying value of goodwill for this reporting unit, since the estimated fair value of this reporting unit’s goodwill was determined to be zero. To determine the fair value of the reporting unit, management considered available information including market values of securities, appraisals of the Automotive Group’s long-term tangible assets and discounted cash flows from our revised forecasts. The discounted cash flow analysis involved estimates and assumptions by management regarding future sales volume, prices, inflation, expenses and capital spending, discount rates, exchange rates, tax rates and other factors. The assumptions used were consistent with the assumptions used for internal planning. The impairment loss is reflected as “Impairment of goodwill” in the accompanying unaudited consolidated statement of operations.

(13) Income Taxes

For the three and nine months ended September 30, 2006 and 2005, the income tax (expense) benefit differed from the amounts computed by applying statutory rates to the reported loss before income taxes since we did not meet the more likely than not criteria to recognize the tax benefits of losses in most of our jurisdictions. The loss before income taxes generated deferred tax assets for which we increased the valuation allowance. For all periods presented, we recognized tax expenses related to foreign jurisdictions where the valuation allowance is not required. For the nine months ended September 30, 2005, we also recognized a tax benefit related to the impairment of goodwill to the extent that related deferred tax liabilities existed.

(14) Commitments and Contingencies

(a) Effect of Chapter 11 Filings

ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

As discussed in Note 1, on July 31, 2005 Allied Holdings, Inc. and substantially all of its subsidiaries filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code. Our Canadian subsidiaries are included among the subsidiaries that filed voluntary petitions seeking bankruptcy protection in the Bankruptcy Court, and they also filed applications for creditor protection under the Companies Creditors’ Arrangement Act in Canada, which, like Chapter 11, allows for reorganization under the protection of the court system. Our captive insurance company, Haul Insurance Limited, as well as our subsidiaries in Mexico and Bermuda were not included in the Chapter 11 filings.

As debtors-in-possession, we are authorized under Chapter 11 to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. As of the Petition Date, most pending litigation and pre-petition liabilities are stayed, and absent further order of the Bankruptcy Court, no party, subject to certain exceptions, may take any action, again subject to certain exceptions, to recover pre-petition claims against us. One exception to this stay of litigation is any action or proceeding by a governmental agency to enforce its police or regulatory power. The claims asserted in litigation and proceedings to which the stay applies may be fully and finally resolved in connection with the administration of the Chapter 11 Proceedings and, to the extent not resolved, will need to be addressed in the context of any plan of reorganization. At this time, it is not possible to predict the outcome of the Chapter 11 Proceedings or its effect on our business or on outstanding legal proceedings.

(b) Letters of Credit

At September 30, 2006, we had issued $137.1 million of outstanding letters of credit to third parties related primarily to the settlement of insurance claims and reserves and support for a line of credit at one of our foreign subsidiaries. Of the $137.1 million, $38.5 million of these letters of credit were secured by availability under the Revolver in the DIP Facility and $98.6 million were issued by our wholly owned captive insurance subsidiary, Haul Insurance Limited, and are collateralized by $98.6 million of restricted cash, cash equivalents and other time deposits held by this subsidiary. We renew these letters of credit annually.

The amount of letters of credit that we may issue under the Revolver may not exceed $75 million and may be less than this amount based on existing availability under the DIP Facility. We utilized $38.5 million of this availability at September 30, 2006 and the remaining letter of credit availability under the DIP Facility as of September 30, 2006 was $19.9 million.

(c) Litigation, Claims, Assessments

We are involved in various litigation and environmental matters relating to employment practices, damages, and other matters arising from operations in the ordinary course of business. In our opinion, the ultimate disposition of these matters will not have a material adverse effect on our financial position but could have a material adverse effect on our results of operations in a future period.

As part of the previously disclosed settlement agreement with Ryder System, Inc. (“Ryder”), we issued a letter of credit in favor of Ryder and agreed to certain scheduled increases in the amount of the letter of credit. At September 30, 2006, the letter of credit totaled $7.5 million and is included in the $38.5 million of outstanding letters of credit noted in (b) above. Ryder may only draw on the letter of credit if we fail to pay workers’ compensation and liability claims assumed by us in the Ryder Automotive Carrier Group acquisition. We have provided the letter of credit in favor of Ryder because Ryder has issued a letter of credit to its insurance carrier relating to the workers’ compensation and liability claims assumed by us. Under the agreement with Ryder, an actuarial valuation will be performed periodically to determine the remaining amount outstanding of the workers’ compensation and liability claims that we assumed. Based on the results of the actuarial valuation, the letter of credit will be adjusted, as appropriate. As a result of the valuation completed on January 11, 2006, the letter of credit was reduced by $2.0 million on January 20, 2006. The letter of credit totals $7.5 million as of November 4, 2006.

(d) Purchase and Service Contract Commitments

We have a ten-year agreement with IBM, which commenced in February 2004, whereby IBM provides our mainframe computer processing services, manages those applications relating to our electronic data interchange, network services and technical services and provides us with applications development and support services. Our Chapter 11 filing has not affected the services pursuant to this contract. The purchase commitment for the remaining life of the agreement was approximately $80.1 million as of September 30, 2006.

ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

(e) Leases

We lease Rigs, office space, computer equipment, and certain terminal facilities under noncancelable operating lease agreements. Included in these noncancelable leases are operating lease commitments for approximately 340 Rigs. Lease terms range between five and seven years, expire between 2006 and 2010, and contain residual guarantees of up to 25% of the original cost of the Rigs. We included these residual value guarantees in the calculations that we performed in determining the proper classification of these leases. No accruals for these guarantees were considered necessary at September 30, 2006.

(f) Collective Bargaining Agreements

Employees of our subsidiary, Allied Systems Ltd., which represents approximately 80% of our U.S. employees, are represented by the Teamsters. A collective bargaining agreement with these employees commenced on June 1, 2003 and is scheduled to expire on May 31, 2008.

On March 8, 2006, certain of our subsidiaries, including Allied Systems, Ltd., made a proposal to the IBT for a new collective bargaining agreement regarding our employees in the U.S. represented by the Teamsters, by modifying the current collective bargaining agreement, which expires on May 31, 2008. This agreement covers approximately 3,700 drivers and yard and shop personnel employed by our Automotive Group. The proposal seeks to eliminate future increases to wage, health, welfare benefits and pension contributions as contemplated by the Master Agreement, seeks to reduce current wages and contribution levels regarding wages, health, welfare benefits and pension contributions and seeks to modify certain operational procedures. We believe that our proposal would reduce our costs by approximately $65 million per year for as long as the proposed terms remain in effect. If we are unable to successfully modify the terms of the Master Agreement, we may not be able to emerge from Chapter 11 and may have to cease operations and liquidate our assets.

On April 13, 2006, we filed a motion with the Bankruptcy Court requesting a 10% reduction in wages earned under the Master Agreement during the months of May and June 2006. The Bankruptcy Court granted this motion on May 1, 2006. The order granted by the Bankruptcy Court also allowed us to avoid paying wage and cost of living increases for the month of June 2006 that were previously scheduled under the Master Agreement to go into effect on June 1, 2006. The order reduced our labor costs for employees covered by the collective bargaining agreement in the U.S. in May and June 2006. The IBT has appealed the order granted by the Bankruptcy Court and the appeal is pending. Now that the order has expired, we have returned wages for these employees to the level required by the Master Agreement, including implementing, effective July 1, 2006, the wage and cost of living increases previously scheduled to go into effect on June 1, 2006.

Our collective bargaining agreement that covers our employees that are represented by the Teamsters union in the Provinces of Ontario and Quebec, which represent approximately 70% of our Canadian bargaining employees, expired on October 31, 2006. Negotiations have recently begun with the Teamsters union in Canada regarding a renewal of this contract. No assurance can be provided that we will be able to negotiate a new union contract with the Teamsters union regarding our employees in the Provinces of Ontario and Quebec, or that such contract, if negotiated, will be on terms acceptable to us or that the contract will not result in increased labor costs or work stoppages, or lost customer market share which could, in turn, have a material adverse effect on our operations. No work stoppage may be commenced in regard to this contract in Eastern Canada until a minimum of 60 days after the parties have bargained to impasse.

We can provide no assurance that we will be able to modify our Master Agreement in the U.S. or our agreement in Eastern Canada as necessary to allow us to emerge from Chapter 11 or to negotiate new union contracts as the current contracts expire, or that such contracts will be on terms acceptable to us or that these contracts will not result in increased labor costs, labor disruptions, increased employee turnover, higher risk management costs, work stoppages, or lost customer market share, which could, in turn, have a material adverse effect on our financial condition, results of operations, or customer relationships.

(15) Earnings (Loss) Per Common Share

ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

SFAS No. 128, Earnings Per Share, requires the presentation of basic and diluted earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net income or loss available to common stockholders by the weighted-average number of common shares outstanding for the periods presented. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities and other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the earnings (loss) of the entity. For the three months ended September 30, 2006 and 2005, we excluded options to acquire approximately 1,562,000 and 1,583,000 shares of common stock, respectively, from the calculation of diluted earnings (loss) per share as the impact would have been antidilutive. Similarly, for the nine months ended September 30, 2006 and 2005, we excluded options to acquire approximately 1,564,000 and 1,585,000 shares of common stock, respectively, from the calculation of diluted earnings (loss) per share as the impact would have been antidilutive. Any plan of reorganization could require the issuance of new or additional common stock or share-based awards, which could dilute current equity interests.

(16) Stock-Based Compensation

We have a long-term incentive plan that allows for the issuance of grants or awards of nonqualified and incentive stock options, restricted stock, stock appreciation rights, performance units, and performance shares to our employees and directors to acquire up to 2,150,000 shares of our common stock.

We have awarded nonqualified and incentive stock options under our long-term incentive plan that has been approved by our stockholders. The vesting period for each award varies from a minimum of two years to a maximum of five years and each award vests ratably by year over the vesting period. All options expire ten years from the date of the grant if not previously exercised or forfeited. Under our incentive plan, we are authorized to issue nonqualified and incentive stock options to employees and non-employee directors to purchase a limited number of shares of our common stock, when the options vest, at a price not less than the fair market value on the date of grant. As of September 30, 2006, approximately 538,000 shares remain available for issuance out of our long-term incentive plan. Upon the issuance of stock options, shares are reserved under our long-term incentive plan, and upon stock option exercise, we increase our outstanding shares and record an increase to additional paid-in-capital. Upon the consummation of a plan of reorganization, the rights and values of the stock options issued could be modified significantly. As a result, the options could lose value, be rendered null and void, be replaced by new options or be otherwise impacted.

Prior to January 1, 2006, SFAS No. 123, “Accounting for Stock-Based Compensation,” required the adoption of either the fair-value-based method or the intrinsic-value-based method with pro forma disclosures of the impact of the fair-value-based method. We elected to apply the intrinsic-value-based method of accounting prescribed by APB Opinion No. 25 and related interpretations. Under this method, we recorded no compensation expense on the date we granted stock-based awards if the market price of the underlying stock on the date of grant was equal to the exercise price of the stock option, and recognized compensation expense for restricted stock ratably over the associated service period.

Effective January 1, 2006, we adopted SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123(R)”) using the modified prospective transition method under which compensation expense is recognized for any new stock options granted and for the unvested portion of outstanding stock options at the date of adoption of SFAS No. 123(R). We recognize compensation expense on a straight-line basis over the vesting period. In accordance with the provisions of the modified prospective method, the financial statements of prior periods have not been restated.

During the three and nine months ended September 30, 2006, we recorded stock-based compensation expense of approximately $93,000 and $279,000, respectively, which increased our loss before income taxes by $93,000 and $279,000, respectively. The impact on our basic and diluted loss per share for the three months ended September 30, 2006 and nine months ended September 30, 2006 were increases of $0.01 and $0.03, respectively. The expense recorded represented compensation expense related to stock options that were unvested at the date of adoption of SFAS No. 123(R). The method used to determine the fair value of those stock options and the related weighted-average assumptions are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2005. No new stock options were granted during the nine months ended September 30 2006, and we do not expect to grant any stock options during the Chapter 11 Proceedings. The stock-based compensation expense recorded during the

ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

three and nine months ended September 30, 2006 are included in salaries, wages and fringe benefits in the accompanying unaudited consolidated statements of operations.

At September 30, 2006, unrecognized compensation expense associated with unvested stock options was approximately $315,000 which, subject to any modifications that may occur in future periods, will be recognized at $93,000, $197,000 and $25,000 during the three months ending December 31, 2006 and the years ending December 31, 2007 and 2008, respectively. This amount of unrecognized compensation cost, the period of amortization and other parameters could be impacted by the plan of reorganization.

If we had applied the fair-value-based method prescribed by SFAS No. 123 prior to January 1, 2006, net loss and loss per common share would have been changed to the pro forma amounts presented below for the three and nine months ended September 30, 2005 (in thousands, except per share data):

		Three Months Ended				Nine Months Ended
		September 30, 2005				September 30, 2005
Reported net loss		$	(15,996	)		$	(101,104	)
Less: stock-based employee compensation determined using the fair-value-based method (no applicable income tax effect)			(149	)			(476	)
Pro forma net loss		$	(16,145	)		$	(101,580	)
Loss per share:
As reported:
Basic and Diluted		$	(1.78	)		$	(11.26	)
Pro forma:
Basic and Diluted		$	(1.80	)		$	(11.31	)

During the three and nine months ended September 30, 2006, options to acquire approximately 13,000 shares and 18,000 shares of our common stock, respectively, were forfeited and no stock options were granted, expired or exercised. During the nine months ended September 30, 2005, we granted incentive stock options to acquire approximately 210,000 shares of our common stock. The weighted-average grant-date fair value of those options was $3.07 per share. The fair values of the options granted during the nine months ended September 30, 2005 were estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions: dividend yield – 0%, expected volatility – 74%, risk-free interest rate – 4.2% and expected holding period – 7.85 years. No options were exercised during the three and nine months ended September 30, 2005. The total fair value of options that vested during the three months ended September 30, 2006 and 2005 was approximately $23,000 and $102,000, respectively. The total fair value of options that vested during the nine months ended September 30, 2006 and 2005 was approximately $466,000 and $713,000, respectively. Information regarding stock options as of September 30, 2006 is summarized below:

										Weighted-
						Weighted-				Average
		Number of				Average				Remaining				Aggregate
		Options				Exercise				Contractual				Intrinsic Value
		(in thousands)				Price				Life				(in thousands)
Outstanding as of December 31, 2005			1,573			$	3.67
Forfeited			(18	)		$	4.32
Outstanding as of September 30, 2006			1,555			$	3.66			5.8 years					—
Exercisable at September 30, 2006			1,371			$	3.53			5.4 years					—
Vested and expected to vest at September 30, 2006			1,496			$	3.63			5.7 years					—

The options had no intrinsic value at September 30, 2006 since the respective exercise prices of all options exceeded the market value of a share of our common stock at September 30, 2006.

(17) Other Comprehensive Income (Loss)

ALLIED HOLDINGS, INC. AND SUBSIDIARIES
(Debtor-in-Possession since July 31, 2005)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

Total comprehensive loss for the three and nine months ended September 30, 2006 and 2005 are presented below (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
Net loss		$	(7,198	)		$	(15,996	)		$	(9,201	)		$	(101,104	)
Foreign currency translation adjustments			(90	)			(83	)			(489	)			(992	)
		$	(7,288	)		$	(16,079	)		$	(9,690	)		$	(102,096	)

The foreign currency translation adjustment for the nine months ended September 30, 2005 is net of income taxes of $256,000. No such tax adjustments were recorded during the three months ended September 30, 2006 and 2005 nor during the nine months ended September 30, 2006.

Accumulated other comprehensive loss, net of income tax benefits of $1.9 million as of September 30, 2006 and December 31, 2005, consisted of the following (in thousands):

		September 30,				December 31,
		2006				2005
Cumulative foreign currency translation adjustments		$	(172	)		$	317
Cumulative minimum pension liability adjustments			(20,891	)			(20,891	)
		$	(21,063	)		$	(20,574	)

(18) Industry Segment and Geographic Information

In accordance with the requirements of SFAS No. 131, Disclosure About Segments of an Enterprise and Related Information, we have identified two reportable industry segments through which we conduct our operating activities, Allied Automotive Group and the Axis Group. These two segments reflect the internal reporting that we use to assess performance and allocate resources. Allied Automotive Group is engaged in the business of transporting automobiles, light trucks and SUVs from manufacturing plants, ports, auctions, and railway distribution points to automobile dealerships. The Axis Group is engaged in the business of securing and managing vehicle distribution services, automobile inspections, auction and yard management services, vehicle tracking, vehicle accessorization, and dealer preparatory services for the automotive industry.

Presented below is certain financial information related to these two segments and corporate/other for the three and nine months ended September 30, 2006 and 2005 (in thousands):

		Three Months Ended September 30,								Nine Months Ended September 30,
		2006				2005				2006				2005
Revenues — unaffiliated customers:
Allied Automotive Group		$	194,836			$	196,440			$	666,669			$	636,943
Axis Group			7,315				6,650				21,692				19,651
Total		$	202,151			$	203,090			$	688,361			$	656,594
Operating income (loss):
Allied Automotive Group		$	(2,334	)		$	(5,153	)		$	17,667			$	(73,986	)
Axis Group			1,742				800				5,073				1,792
Corporate/other			(374	)			(844	)			(1,996	)			(6,972	)
Total			(966	)			(5,197	)			20,744				(79,166	)
Reconciling items:
Interest expense			(5,537	)			(9,571	)			(24,603	)			(32,522	)
Investment income			1,252				847				3,500				1,863
Foreign exchange gains, net			257				1,893				1,842				1,282
(Loss) income before reorganization items and income taxes			(4,994	)			(12,028	)			1,483				(108,543	)
Reorganization items			(2,082	)			(3,929	)			(10,372	)			(3,929	)
Loss before income taxes		$	(7,076	)		$	(15,957	)		$	(8,889	)		$	(112,472	)