UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~March 31,~~June 30, 2007


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: 001-13867

ALLIED SYSTEMS HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


DELAWARE		58-0360550

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

Suite 200, 160 Clairemont Avenue, Decatur, Georgia 30030
(Address of principal executive offices)

(404) 373-4285

(Registrant’s telephone number, including area code)

~~Allied Holdings, Inc.~~

~~(Former name, former address and former fiscal year, if changed since last report)~~

www.alliedholdings.com
(Web Page)

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.

oþ Yesþo 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 Filero Accelerated Filero Non-Accelerated Filerþ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yesþ No

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.oþ Yesþo No

Outstanding common stock, no$0.01 par value at ~~September 28,~~October 31, 2007 ~~........ 7,035,101~~7,153,070

PART I — FINANCIAL INFORMATION

~~ITEM~~Item 1 —Financial Statements

ALLIED SYSTEMS HOLDINGS, INC. AND SUBSIDIARIES
~~(Debtor-in-Possession since July 31, 2005)~~

CONSOLIDATED BALANCE SHEETS

(In ~~thousands)~~
thousands, except share data)

(Unaudited)


	March 31,			December 31,			Successor			Predecessor
	2007			2006			June 30, 2007			December 31, 2006
ASSETS

Current assets:
Cash and cash equivalents	$	28,172		$	2,314		$	24,258		$	2,314
Restricted cash, cash equivalents and other time deposits		32,278			32,436			29,508			32,436
Receivables, net of allowances of $1,460 and $1,701 as of March 31, 2007 and December 31, 2006, respectively		49,041			52,427
Receivables, net of allowances of $1,425 and $1,701 as of June 30, 2007 and December 31, 2006, respectively								47,369			52,427
Inventories		4,766			4,916			4,878			4,916
Deferred income taxes		2,982			1,907			8,742			1,907
Prepayments and other current assets		19,665			21,463			12,429			21,463

Total current assets		136,904			115,463			127,184			115,463

Property and equipment, net of accumulated depreciation		134,787			129,231			190,581			129,231
Goodwill, net		3,545			3,545
Goodwill								85,912			3,545
Other intangible assets, net								27,260			—
Other assets:
Restricted cash, cash equivalents and other time deposits		65,534			65,857			68,851			65,857
Other noncurrent assets		33,119			24,672			25,109			24,672

Total other assets		98,653			90,529			93,960			90,529

Total assets	$	373,889		$	338,768		$	524,897		$	338,768


LIABILITIES AND STOCKHOLDERS’ DEFICIT
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current liabilities not subject to compromise:
Current maturities of long-term debt							$	1,800		$	—
Debtor-in-possession credit facility	$	—		$	161,357			—			161,357
Canadian revolving credit facility		372			—
Accounts and notes payable		30,090			26,364			34,257			26,364
Accrued liabilities		75,950			74,439			65,391			74,439
Deferred income taxes		106			106			134			106


Total current liabilities		106,518			262,266			101,582			262,266

Long-term liabilities not subject to compromise:
Debtor-in-possession credit facility		205,000			—
Long-term debt, less current maturities								227,708			—
Postretirement benefits other than pensions		14,202			14,227			13,205			14,227
Deferred income taxes		3,003			1,926			29,351			1,926
Other long-term liabilities		63,552			65,269
Other long-term liabilities, principally insurance and claims								54,781			65,269

Total long-term liabilities		285,757			81,422			325,045			81,422

Liabilities subject to compromise		199,351			199,212			—			199,212
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 March 31, 2007 and December 31, 2006		—			—
Stockholders’ equity (deficit):
Predecessor preferred stock, no par value. Authorized 5,000,000 shares; none outstanding at December 31, 2006								—			—
Predecessor common stock, no par value. Authorized 20,000,000 shares; 8,980,000 shares outstanding at December 31, 2006								—			—
Successor preferred stock, $0.01 par value. Authorized 10,000,000 shares; none issued and outstanding at June 30, 2007								—			—
Successor common stock, $0.01 par value. Authorized 100,000,000 shares; 10,000,000 shares outstanding at June 30, 2007 (including 2,964,899 withheld for future issuance)								100			—
Additional paid-in capital		49,138			49,081			97,900			49,081
Treasury stock, 139 shares at cost		(707	)		(707	)
Accumulated deficit		(242,193	)		(228,432	)
Treasury stock, 139,000 shares at cost								—			(707	)
Retained earnings (accumulated deficit)								343			(228,432	)
Accumulated other comprehensive loss, net of tax		(23,975	)		(24,074	)		(73	)		(24,074	)

Total stockholders’ deficit		(217,737	)		(204,132	)
Total stockholders’ equity (deficit)								98,270			(204,132	)

Total liabilities and stockholders’ deficit	$	373,889		$	338,768
Total liabilities and stockholders’ equity (deficit)							$	524,897		$	338,768

ALLIED SYSTEMS HOLDINGS, INC. AND SUBSIDIARIES
~~(Debtor-in-Possession since July 31, 2005)~~

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


	Three Months Ended March 31,						Successor			Predecessor
	2007			2006			One Month Ended			Two Months Ended			Three Months Ended
							June 30, 2007			May 31, 2007			June 30, 2006
Revenues	$	193,121		$	240,828		$	73,347		$	149,121		$	245,382

Operating expenses:
Salaries, wages and fringe benefits		100,535			125,613			34,362			74,991			114,863
Operating supplies and expenses		43,113			48,662			16,383			31,521			50,341
Purchased transportation		22,907			30,908			9,199			17,319			32,670
Insurance and claims		8,905			10,933			3,224			7,273			10,235
Operating taxes and licenses		6,696			7,698			2,268			4,706			7,355
Depreciation and amortization		7,779			7,216			3,852			5,490			7,283
Rents		1,896			1,753			542			1,432			1,739
Communications and utilities		1,841			1,937			508			978			1,501
Other operating expenses		2,105			2,065			1,416			1,887			1,983
Loss (gain) on disposal of operating assets, net		30			(54	)		—			31			(201	)

Total operating expenses		195,807			236,731			71,754			145,628			227,769

Operating (loss) income		(2,686	)		4,097
Operating income								1,593			3,493			17,613

Other income (expense):
Interest expense (excludes contractual interest of $3,234 in 2007 and 2006)		(7,592	)		(9,541	)
Interest expense (excludes contractual interest of $2,156 in the two months ended May 31, 2007 and $3,234 in the three months ended June 30, 2006)								(2,498	)		(13,597	)		(9,525	)
Investment income		1,202			1,036			522			965			1,212
Foreign exchange gains (losses), net		343			(170	)
Foreign exchange gains, net								772			3,683			1,755

Total other income (expense)		(6,047	)		(8,675	)		(1,204	)		(8,949	)		(6,558	)

Loss before reorganization items and income taxes		(8,733	)		(4,578	)
Income (loss) before reorganization items and income taxes								389			(5,456	)		11,055
Reorganization items		(3,668	)		(3,583	)		—			236,734			(4,707	)

Loss before income taxes		(12,401	)		(8,161	)
Income before income taxes								389			231,278			6,348
Income tax expense		(195	)		(127	)		(46	)		(13,360	)		(63	)

Net loss	$	(12,596	)	$	(8,288	)
Net income							$	343		$	217,918		$	6,285

Basic and diluted loss per common share:
Net loss:
Basic and diluted earnings per common share:
Net income:
Basic and diluted	$	(1.40	)	$	(0.92	)	$	0.03		$	24.27		$	0.70

Weighted-average common shares outstanding:
Weighted-average number of common shares outstanding:
Basic and diluted		8,980			8,980			10,000			8,980			8,980

ALLIED SYSTEMS HOLDINGS, INC. AND SUBSIDIARIES
~~(Debtor-in-Possession since July 31, 2005)~~

CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~
OPERATIONS

(In thousands, except per share data)

(Unaudited)

Three Months Ended March 31,
2007 2006

Cash flows from operating activities:
Net loss $ (12,596 ) $ (8,288 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 7,779 7,216
Loss (gain) on disposal of operating assets, net 30 (54 )
Write-off and amortization of deferred financing costs 124 3,631
Interest expense paid in kind 3,444 —
Foreign exchange (gain) losses, net (343 ) 170
Reorganization items 3,668 3,583
Deferred income taxes 2 1
Stock-based compensation expense 57 93
Change in operating assets and liabilities:
Receivables, net of allowances 3,474 2,011
Inventories 161 (19 )
Prepayments and other assets 1,187 3,697
Accounts and notes payable 2,413 (247 )
Accrued liabilities (1,219 ) 4,213

Net cash provided by operating activities before payment of reorganization items 8,181 16,007
Reorganization items paid (2,589 ) (2,936 )

Net cash provided by operating activities 5,592 13,071

Cash flows from investing activities:
Purchases of property and equipment (11,589 ) (6,216 )
Proceeds from sales of property and equipment 152 149
Decrease in restricted cash, cash equivalents and other time deposits 481 9
Funds deposited with insurance carriers (504 ) (574 )
Funds returned from insurance carriers 964 1,908

Net cash used in investing activities (10,496 ) (4,724 )

Cash flows from financing activities:
Net repayments of original debtor-in-possession revolving credit facility (45,005 ) (1,501 )
Net borrowings under Canadian revolving credit facility 372 —
Proceeds from new debtor-in-possession facility term borrowings 205,000 —
Proceeds from original debtor-in-possession facility term borrowings 2,000 —
Repayment of original debtor-in-possession facility term borrowings (121,796 ) —
Payment of financing costs (8,121 ) —
Proceeds from insurance financing arrangements — 178
Repayments of insurance financing arrangements (1,611 ) (8,182 )

Net cash provided by (used in) financing activities 30,839 (9,505 )

Effect of exchange rate changes on cash and cash equivalents (77 ) (77 )

Net change in cash and cash equivalents 25,858 (1,235 )
Cash and cash equivalents at beginning of period 2,314 4,117

Cash and cash equivalents at end of period $ 28,172 $ 2,882

Supplemental cash flow information:
Cash paid during the year for:
Interest $ 4,339 $ 5,223
Income taxes, net 321 150
Supplemental disclosure of noncash financing activity:
Interest paid in kind via addition to term debt $ 3,444 $ —


	Successor			Predecessor
	One Month Ended			Five Months Ended			Six Months Ended
	June 30, 2007			May 31, 2007			June 30, 2006
Revenues	$	73,347		$	342,242		$	486,210

Operating expenses:
Salaries, wages and fringe benefits		34,362			175,526			240,476
Operating supplies and expenses		16,383			74,634			99,003
Purchased transportation		9,199			40,226			63,578
Insurance and claims		3,224			16,178			21,168
Operating taxes and licenses		2,268			11,402			15,053
Depreciation and amortization		3,852			13,269			14,499
Rents		542			3,328			3,492
Communications and utilities		508			2,819			3,438
Other operating expenses		1,416			3,992			4,048
Loss (gain) on disposal of operating assets, net		—			61			(255	)

Total operating expenses		71,754			341,435			464,500

Operating income		1,593			807			21,710

Other income (expense):
Interest expense (excludes contractual interest of $5,391 in the five months ended May 31, 2007 and $6,469 in the six months ended June 30, 2006)		(2,498	)		(21,189	)		(19,066	)
Investment income		522			2,167			2,248
Foreign exchange gains, net		772			4,026			1,585

Total other income (expense)		(1,204	)		(14,996	)		(15,233	)

Income (loss) before reorganization items and income taxes		389			(14,189	)		6,477
Reorganization items		—			233,066			(8,290	)

Income (loss) before income taxes		389			218,877			(1,813	)
Income tax expense		(46	)		(13,555	)		(190	)

Net income (loss)	$	343		$	205,322		$	(2,003	)

Basic and diluted income (loss) per common share:
Net income (loss):
Basic and diluted	$	0.03		$	22.86		$	(0.22	)

Weighted-average number of common shares outstanding:
Basic and diluted		10,000			8,980			8,980

See accompanying notes to these consolidated financial statements.

ALLIED SYSTEMS HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(~~Debtor-in-Possession since July 31, 2005)~~In thousands)

(Unaudited)


	Successor			Predecessor
	One Month Ended			Five Months Ended			Six Months Ended
	June 30, 2007			May 31, 2007			June 30, 2006
Cash flows from operating activities:
Net income (loss)	$	343		$	205,322		$	(2,003	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Reorganization items		—			(233,066	)		8,290
Depreciation and amortization		3,852			13,269			14,499
Loss (gain) on disposal of operating assets, net		—			61			(255	)
Write-off and amortization of deferred financing costs		8			3,082			5,595
Interest expense paid in kind		—			9,769			—
Foreign exchange gains, net		(772	)		(4,026	)		(1,585	)
Deferred income taxes		—			15,691			2
Stock-based compensation expense		—			282			186
Change in operating assets and liabilities:
Receivables, net of allowances		385			5,727			7,610
Inventories		179			(11	)		33
Prepayments and other assets		1,273			4,809			17,700
Accounts and notes payable		1,280			2,062			866
Accrued liabilities		(3,965	)		(8,317	)		(6,432	)

Net cash provided by operating activities before payment of reorganization items		2,583			14,654			44,506
Reorganization items paid		(3,040	)		(13,662	)		(6,549	)

Net cash (used in) provided by operating activities		(457	)		992			37,957

Cash flows from investing activities:
Purchases of property and equipment		(10,464	)		(21,583	)		(12,564	)
Proceeds from sales of property and equipment		—			291			834
(Increase) decrease in restricted cash, cash equivalents and other time deposits		(334	)		268			(265	)
Funds deposited with insurance carriers		(71	)		(601	)		(698	)
Funds returned from insurance carriers		26			1,086			2,935

Net cash used in investing activities		(10,843	)		(20,539	)		(9,758	)

Cash flows from financing activities:
Repayment of original debtor-in-possession revolving credit facility, net		—			(45,005	)		(9,596	)
Additions to Canadian revolving credit facility		—			—			464
Additions to new debtor-in-possession facility term borrowings		—			229,500			—
Additions to original debtor-in-possession facility term borrowings		—			2,000			—
Repayment of original debtor-in-possession facility term borrowings		—			(121,796	)		—
Payment of financing costs		—			(8,640	)		—
Proceeds from insurance financing arrangements		—			—			178
Repayments of insurance financing arrangements		(649	)		(3,277	)		(19,352	)

Net cash (used in) provided by financing activities		(649	)		52,782			(28,306	)

Effect of exchange rate changes on cash and cash equivalents		170			488			(489	)

Net change in cash and cash equivalents		(11,779	)		33,723			(596	)
Cash and cash equivalents at beginning of period		36,037			2,314			4,117

Cash and cash equivalents at end of period	$	24,258		$	36,037		$	3,521

Supplemental cash flow information:
Cash paid during the year for:
Interest	$	2,359		$	6,669		$	11,600
Income taxes, net		122			440			168
Supplemental disclosure of noncash financing activity:
Interest paid in kind via addition to term debt	$	—		$	9,769		$	—

Other noncash investing and financing activities: See Note 5 for the purchase and financing of certain tractors and trailers and Note 3 for noncash activities related to the effects of the Joint Plan and fresh-start reporting.

See accompanying notes to these consolidated financial statements.

ALLIED SYSTEMS HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Throughout this Quarterly Report onForm 10-Q, we will use the terms “we,” “our,” “us” and ~~“Allied”~~“Successor” to refer to ~~Allied Holdings, Inc. (a Georgia corporation) or its successor,~~ Allied Systems Holdings, Inc. (a Delaware ~~Corporation)~~corporation) and its subsidiaries on a consolidated basis and, as the context requires, to i) Allied Holdings, Inc. (a Georgia corporation) the “Predecessor”, and its subsidiaries on a consolidated basis and ii) Allied Holdings, Inc. and its subsidiaries that filed for Chapter 11 ~~protection~~ 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. ~~(collectively with its subsidiaries referred to as “Allied Automotive” or the/our “Automotive~~(“Allied Automotive Group”) and Axis Group, Inc. (“~~Axis” or the “Axis~~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~~Filing and Emergence

On July 31, 2005 ~~(“the Petition~~(the “Petition Date”), Allied Holdings, Inc. and substantially all of its subsidiaries (the “Debtors”) filed voluntary petitions with the U.S. Bankruptcy Court for the Northern District of Georgia (the “Bankruptcy Court”) 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.

On May 18, 2007, the Bankruptcy Court entered an order confirming the Debtors’ Modified Second Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, dated April 6, 2007 (the “Joint Plan”). On May 29, 2007, the effective date of the Joint Plan (the “Effective Date”), the Debtors emerged from Chapter 11.

As of the Effective Date and pursuant to the Joint Plan, all equity interests in Allied Holdings, Inc. were cancelled, and a certificate of merger was filed with the Delaware Secretary of State ~~effecting~~to effect the merger of Allied Holdings, Inc. into its wholly owned subsidiary, Allied Systems Holdings, Inc., a Delaware corporation, with Allied Systems Holdings, Inc. as the surviving corporation. Also as of the Effective Date, the authorized capital stock of Allied Systems Holdings, Inc. became ~~one hundred~~100 million ~~(100,000,000)~~ shares of common stock, par value $0.01 per share, and ~~ten~~10 million ~~(10,000,000)~~ shares of preferred stock, par value $0.01 per share.

We continue to operate in substantially our previous form, and the outstanding claims against and interests in the Debtors are being resolved pursuant to the Joint Plan. As of the Effective Date, our debtor-in-possession credit facilities were converted to senior secured credit facilities that serve as our exit ~~financing facilities (“Secured Credit Facilities”).~~financing. The implementation of the Joint Plan includes, among other things, the consummation of the following transactions:

	i)		Payment in cash, reinstatement, return of collateral or other treatment of ~~other~~ secured claims, as agreed to with the holder of each such claim;

	ii)		Distribution of new common stock of Allied Systems Holdings, Inc. on a pro rata basis to the holders of allowed general unsecured claims;

	iii)		Cancellation of the ~~existing~~ common stock interests in Allied Holdings, Inc. (holders of equity interests ~~receive~~received nothing under the Joint Plan); and

	iv)		Assumption of selected contracts.

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

Proceedings between the Petition Date and the Effective Date will be referred to as the Chapter 11 Proceedings. See Note 3 for other disclosures required ~~by entities in reorganization under~~as a result of the ~~Bankruptcy Code~~filing and emergence from Chapter 11 and Note 11 for ~~additional~~ disclosures regarding our exit financing.

Claims Resolution and Share Distribution

Pursuant to the Joint Plan, 10 million shares of new common stock will be issued for distribution by our disbursing agent. All such shares are being issued without registration under the Securities Act of 1933, as amended, or state laws, as allowed by Section 1145 of the Bankruptcy Code.

Prior to the Effective Date, pre-petition claims were included in liabilities subject to compromise and, for the most part, were included in schedules that we filed with the Bankruptcy Court and proofs of claim filed by our creditors. Claims that were not objected to are considered to be allowed claims. Claims that were objected to are subject to a claims reconciliation process. Many of these claims were disallowed, reduced or reclassified by the Bankruptcy Court including claims that were duplicated, overstated, amended or without merit and many were resolved prior to the Effective Date. The claims reconciliation process will continue until all claims are resolved.

Unsecured claimants– General unsecured creditors are entitled to distribution of new common stock pursuant to the Joint Plan. The number of shares to be received by these claimants is dependent on the ~~New DIP Facility and~~amount of the ~~Secured Credit Facilities.~~

~~(2) Accounting and Reporting Policies~~

~~Basis~~allowed claim. Holders of ~~Presentation~~

disputed claims that are subsequently allowed will receive their pro rata portion of shares under the Joint Plan. The ~~accompanying unaudited consolidated financial statements included herein have been prepared~~complete resolution of these claims is not expected to result in ~~accordance with accounting principles generally accepted~~any material expense in the ~~United States for interim~~Successor’s financial statements.

Administrative and priority claims– Allowed administrative and priority claims were, or will be, paid with cash and to the extent disputed will be paid if or when resolved. Since the claims reconciliation process is incomplete, we have not yet finalized these amounts, but have included an estimate of these amounts as of the Effective Date based on the information available to us. If the actual amounts of these claims differ from our estimates, we will record additional expense in the Successor’s financial statements and ~~are based on~~these additional expenses could be material.

Leases and executory contracts– During the Security and Exchange Commission’s (“SEC”) 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, 2006. 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, 2006. As a result of our Chapter 11 ~~filings,~~Proceedings, we ~~have applied the guidance in the American Institute~~assumed a number of ~~Certified Public Accountants’ Statement of Position 90-7 (“SOP 90-7”),~~~~Financial Reporting by Entities in Reorganization Under the Bankruptcy Code~~.

~~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~~leases and ~~will realize our assets~~contracts and ~~discharge our post-petition liabilities in the ordinary course of business.~~

Oncured all past due amounts owing under these leases and contracts shortly after the Effective Date, weas required by the Bankruptcy Court. Disputes relating to certain cure amounts are pending before the Bankruptcy Court. Obligations relating to the assumed leases and contracts for the period subsequent to the Effective Date will be settled in the normal course of business. Any lease or contract not specifically assumed is deemed to be rejected under the Joint Plan as of the Effective Date and any related pre-petition amounts and any damages caused by the deemed rejection are treated as general unsecured claims.

We have emerged from Chapter 11 with a redesigned capital structure, lower debt, improved customer contracts and improved contract terms with the International Brotherhood of Teamsters (the “Teamsters” or “IBT”) regarding our employees in the U.S. represented by the Teamsters. We believe that the factors that precipitated our need to file for protection under Chapter 11 have been adequately addressed and that we are positioned to improve our operating performance and profitability. 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, our ability to achieve the necessary improvements is dependent upon several factors including the timely and successful implementation of the Joint Plan, the economy, the dynamics of the automotive transportation industry including actions by our major customers, our ability to retain our existing business, our ability to develop

ALLIED SYSTEMS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

and implement successful business strategies, our ability to maintain effective relationships with our employees including those represented by the Teamsters, our ability to maintain effective relationships with our suppliers and customers, the price and availability of fuel and our ability to successfully manage other operational challenges. ~~If we fail~~Failure to improve our performance it could ~~continue to have an adverse effect on~~also adversely affect our financial condition, cash flow, liquidity and business ~~prospects~~prospects.

(2) Accounting and Reporting Policies

Fresh-Start Reporting

Upon our emergence from Chapter 11, we implemented fresh-start reporting pursuant to the provisions of the American Institute of Certified Public Accountants’ Statement of Position 90-7,Financial Reporting By Entities in Reorganization Under the Bankruptcy Code(“SOP 90-7”). We selected May 31, 2007 as the fresh-start reporting date since it was the closest month-end to the Effective Date and the effect of using May 31, 2007, instead of May 29, 2007, was not material to our financial condition or results of operations ~~would~~for the periods presented. SOP 90-7 requires the implementation of fresh-start reporting if the reorganization value of the assets of the entity that emerges from Chapter 11 is less than the sum of the post-petition liabilities and allowed claims and holders of voting shares immediately before confirmation of the plan of reorganization receive less than 50 percent of the voting shares of the emerging entity. Under fresh-start reporting a new reporting entity is deemed created and assets and liabilities are reflected at their fair values. Accordingly, the financial statements prior to the fresh-start reporting date are not ~~likely be profitable in~~considered comparable to the ~~ensuing years.~~financial statements prepared subsequent to the fresh-start reporting date. References to the “Successor” refer to our company subsequent to the fresh-start reporting date and references to the “Predecessor” refer to our company prior to the fresh-start reporting date.

Basis of Presentation

The accompanying unaudited consolidated financial statements included herein have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial statements and are based on the Securities and Exchange Commission’s (“SEC”) Regulation S-X and its instructions to Form 10-Q. They do not include ~~any adjustments relating~~all of the information and notes required by 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 ~~recoverability and classification~~consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2006. In the opinion of ~~assets and liabilities that might be necessary should we be unable to continue as a going concern, nor do they include (1) any~~management, the accompanying unaudited consolidated financial statements reflect all adjustments, ~~to the carrying values~~consisting of ~~assets and liabilities that will be required as a result of the Joint Plan, or (2)~~normal recurring items except for the adjustments required ~~as a result of the implementation of~~under fresh-start reporting, the implications and impact of which ~~adjustments~~ are more fully discussed in Note ~~3. Further, asset~~3, necessary to present fairly the financial condition, results of operations and ~~liability carrying amounts contained~~cash flows for the interim periods presented. These interim financial statements should be read in ~~this Quarterly~~conjunction with the financial statements and related notes included in our Annual Report on Form ~~10-Q do not purport to represent~~10-K for the ~~realizable or settlement values pursuant to the Joint Plan.~~year ended December 31, 2006.

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

ALLIED SYSTEMS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

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 shutdowns 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. However, given the unpredictable nature of consumer sentiment and our customers’ emphasis on more effective use of plant capacity, particularly ~~those of~~at General Motors, ~~Corporation,~~ Ford ~~Motor Company~~ and Chrysler ~~Corporation (the “Big Three”)~~(our Automotive Group’s three largest customers), there can be no assurance that historical revenue patterns or manufacturer production levels will be an accurate indicator of future OEM shipment activity. Delivery activity at the Automotive Group and the Axis Group can also be impacted by the availability of rail cars, rail transportation schedules or changes in customer service demands. As a result of these and other factors, our operating results for the ~~three months~~one-month period ended ~~March~~June 30, 2007 and the five-month period ended May 31, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.

(3) Accounting for the Reorganization and Fresh-Start Reporting

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, during the Chapter 11 Proceedings, we ~~have:~~

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

	•		~~distinguished transactions and events that are~~separated liabilities that were subject to compromise from liabilities that were not subject to compromise, distinguished transactions and events that were directly associated with ~~the reorganization from the ongoing operations of the business; and~~

	•		~~ceased accruing interest on the 8~~⁵/₈~~% senior notes (“Senior Notes”) as of the Petition Date.~~

~~In addition, SOP 90-7 requires the implementation of fresh-start reporting if (1)~~ the reorganization ~~value~~from the ongoing operations of the ~~assets of~~business, ceased accruing interest on the ~~entity that emerges from Chapter 11 is less than the sum of the postpetition liabilities~~8⁵/₈% senior notes (“Senior Notes”) and allowed claims and (2) holders of voting shares immediately before confirmation of the plan of reorganization receive less than 50 percent of the voting shares of the emerging entity. We will implementapplied fresh-start reporting as of ~~May 31, 2007 (the “fresh-start~~the fresh-start reporting date”), pursuant to SOP 90-7 since, based on the Joint Plan, the reorganization value of our assets post-emergence is less than the sum of the postpetition liabilities and allowed claims and holders of voting shares immediately before confirmation of the Joint Plan are entitled to less than 50 percent of our voting shares post-emergence.date.

Liabilities Subject to Compromise

Liabilities subject to compromise ~~include~~included certain known liabilities incurred by the Debtors prior to the Petition ~~Date. Liabilities subject to compromise exclude~~Date and excluded pre-petition claims for which ~~the Debtors~~we 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~~were included at amounts that were expected to be allowed by the Bankruptcy ~~Court and are subject to future adjustments that may~~

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

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.

Court. 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 for the three months ended March~~Liabilities subject to compromise at December 31, 2007 and 2006. As of March 31, 2007, contractual interest not accrued since the Petition Date was approximately $21.6 million, excluding any potential compound or default interest arising from events of default related to the Chapter 11 Proceedings.2006 were as follows (in thousands):


	December 31,
	2006
Accounts payable	$	25,156
Senior Notes		150,000
Accrued interest on Senior Notes		4,313
Multiemployer pension withdrawal liabilities		15,847
Accrued claims and insurance reserves		3,000
Other accrued liabilities		896

	$	199,212

Liabilities subject to compromise ~~were~~are entitled to settlement as ~~follows at March 31, 2007 and December 31, 2006 (in thousands):~~

March 31, December 31,
2007 2006
Accounts payable $ 25,326 $ 25,156
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 2,969 3,000
Other accrued liabilities 896 896

$ 199,351 $ 199,212

~~Reorganization Items~~

~~Reorganization items are presented separately in~~of the ~~accompanying unaudited consolidated statements of operations and represent expenses that we have identified as directly relating~~Effective Date pursuant to the ~~Chapter 11 Proceedings. These items for the three months ended March 31, 2007 and 2006 are summarized as follows (in thousands):~~

Three Months Ended March 31,
2007 2006

Legal and professional fees $ 3,204 $ 2,678
Employee retention plan 360 817
Other reorganization items 104 88

$ 3,668 $ 3,583

~~Condensed Financial Statement Information~~terms of the ~~Debtors and Non-debtors~~Joint Plan (see Note 1 above).

Fresh-Start Reporting

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~~previously discussed and pursuant to SOP 90-7, we implemented fresh-start reporting as of the ~~Debtors and the Non-debtors:~~

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

~~Condensed Consolidating Balance Sheet Information~~
~~March 31, 2007~~
~~(In thousands)~~

Debtors Non-Debtors Eliminations Consolidated
Current assets $ 100,936 $ 36,704 $ (736 ) $ 136,904
Intercompany receivables (payables) 19,808 (19,808 ) — —
Property and equipment, net 128,933 5,854 — 134,787
Goodwill, net 3,545 — — 3,545
Investment in subsidiaries 20,059 6,220 (26,279 ) —
Other assets 32,883 65,770 — 98,653

Total assets $ 306,164 $ 94,740 $ (27,015 ) $ 373,889

Liabilities not subject to compromise:
Current liabilities $ 84,794 $ 24,525 $ (2,801 ) $ 106,518
Other noncurrent liabilities 238,815 46,942 — 285,757
Liabilities subject to compromise 199,351 — — 199,351
Stockholders’ (deficit) equity (216,796 ) 23,273 (24,214 ) (217,737 )

Total liabilities and stockholders’ (deficit) equity $ 306,164 $ 94,740 $ (27,015 ) $ 373,889

~~Condensed Consolidating Balance Sheet Information~~
~~December 31, 2006~~
~~(In thousands)~~

Debtors Non-Debtors Eliminations Consolidated
Current assets $ 78,646 $ 36,796 $ 21 $ 115,463
Intercompany receivables (payables) 16,953 (16,953 ) — —
Property and equipment, net 125,236 3,995 — 129,231
Goodwill, net 3,545 — — 3,545
Investment in subsidiaries 18,931 6,220 (25,151 ) —
Other assets 24,402 66,127 — 90,529

Total assets $ 267,713 $ 96,185 $ (25,130 ) $ 338,768

Liabilities not subject to compromise:
Current liabilities $ 237,603 $ 26,273 $ (1,610 ) $ 262,266
Other noncurrent liabilities 34,092 47,330 — 81,422
Liabilities subject to compromise 199,212 — — 199,212
Stockholders’ (deficit) equity (203,194 ) 22,582 (23,520 ) (204,132 )

Total liabilities and stockholders’ (deficit) equity $ 267,713 $ 96,185 $ (25,130 ) $ 338,768

fresh-start reporting date.

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

~~Condensed Consolidating Statement of Operations Information~~
~~For the Three Months Ended March 31, 2007~~
~~(In thousands)~~

Debtors Non-Debtors Eliminations Consolidated
Revenues $ 191,574 $ 1,836 $ (289 ) $ 193,121
Operating expenses 194,478 1,618 (289 ) 195,807

Operating (loss) income (2,904 ) 218 — (2,686 )
Other (expense) income, net (5,944 ) 1,232 (1,335 ) (6,047 )

(Loss) income before reorganization items and income taxes (8,848 ) 1,450 (1,335 ) (8,733 )
Reorganization items (3,668 ) — — (3,668 )

(Loss) income before income taxes (12,516 ) 1,450 (1,335 ) (12,401 )
Income tax expense (80 ) (549 ) 434 (195 )

Net (loss) income $ (12,596 ) $ 901 $ (901 ) $ (12,596 )

~~Condensed Consolidating Statement of Operations Information~~
~~For the Three Months Ended March 31, 2006~~
~~(In thousands)~~

Debtors Non-Debtors Eliminations Consolidated
Revenues $ 239,770 $ 1,398 $ (340 ) $ 240,828
Operating expenses 236,007 1,064 (340 ) 236,731

Operating income 3,763 334 — 4,097
Other (expense) income, net (8,449 ) 960 (1,186 ) (8,675 )

(Loss) income before reorganization items and income taxes (4,686 ) 1,294 (1,186 ) (4,578 )
Reorganization items (3,583 ) — — (3,583 )

(Loss) income before income taxes (8,269 ) 1,294 (1,186 ) (8,161 )
Income tax expense (19 ) (342 ) 234 (127 )

Net (loss) income $ (8,288 ) $ 952 $ (952 ) $ (8,288 )

~~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 Three Months Ended March 31, 2007~~
~~(In thousands)~~

Debtors Non-Debtors Eliminations Consolidated
Net cash provided by (used in):
Operating activities $ 4,020 $ 1,572 $ — $ 5,592
Investing activities (8,627 ) (1,869 ) — (10,496 )
Financing activities 30,839 — — 30,839
Effect of exchange rate changes on cash and cash equivalents (143 ) 66 — (77 )

Net change in cash and cash equivalents 26,089 (231 ) — 25,858
Cash and cash equivalents at beginning of period 189 2,125 — 2,314

Cash and cash equivalents at end of period $ 26,278 $ 1,894 $ — $ 28,172

~~Condensed Consolidating Statement of Cash Flows Information~~
~~For the Three Months Ended March 31, 2006~~
~~(In thousands)~~

Debtors Non-Debtors Eliminations Consolidated
Net cash provided by (used in):
Operating activities $ 13,895 $ (824 ) $ — $ 13,071
Investing activities (4,710 ) (14 ) — (4,724 )
Financing activities (9,505 ) — — (9,505 )
Effect of exchange rate changes on cash and cash equivalents (77 ) — — (77 )

Net change in cash and cash equivalents (397 ) (838 ) — (1,235 )
Cash and cash equivalents at beginning of period 730 3,387 — 4,117

Cash and cash equivalents at end of period $ 333 $ 2,549 $ — $ 2,882

~~Pro Forma Fresh-Start Balance Sheet~~

As noted above, in connection with our emergence from Chapter 11, we will adopt fresh-start reporting pursuant to SOP 90-7. Upon emergence, a new reporting entity (the “Successor Company”) was created and the recorded amounts of assets and liabilities will be adjusted to reflect estimated fair values. The financial statements of the Successor Company will not be comparable, in various material respects, to any of our previously issued financial statements.

Fresh-start reporting ~~will reflect~~requires resetting the value of the Successor Company as determined in the confirmed Joint Plan. Presented below is a pro forma fresh-start balance sheet reflecting the estimated effects of the Joint Plan, including settlement of liabilities subject to compromise, cancellation of existing stock of Allied Holdings, Inc. and issuance of new common stock of Allied Systems Holdings, Inc. Also included are the estimated fresh-start adjustments, such as the restatementhistorical carrying amounts of assets and liabilities to fair ~~values. The pro forma balance sheet was prepared as if the adoption of fresh-start reporting had occurred as of March 31, 2007.~~

~~Appraisals of our tangible and intangible assets have not been completed and various data to determine the fair~~ value ~~of liabilities are still being compiled. Therefore the pro forma balance sheet does not reflect the final allocation of the~~by allocating an entity’s reorganization value to ~~individual~~its assets and ~~liabilities. Accordingly, the amounts shown are subject~~liabilities pursuant to ~~changes and revisions.~~

In addition, in accordance with SOP 90-7, upon implementation of fresh-start reporting we will be required to adopt any changes in accounting principles that would otherwise be required within twelve months of the fresh-start

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

reporting date. We have not yet completed our assessment of the impact of adopting such new pronouncements and the following condensed consolidated pro forma balance sheet does not include the impact, if any, of such new pronouncements.

March 31, 2007 Plan Fresh Start March 31, 2007
As Reported Effects Adjustments Pro forma
(In thousands)
Current assets $ 136,904 $ (987 )(f) $ (1,793 )(i) $ 134,124
Property and equipment, net 134,787 14,699 (h) 31,407 (i) 180,893
Goodwill, net 3,545 — (3,545 )(e) —
Intangibles — — 22,500 (k) 22,500
Unallocated reorganization value — — 63,989 (g) 63,989
Other assets 98,653 — (7,573 )(a),(i) 91,080

Total assets $ 373,889 $ 13,712 $ 104,985 $ 492,586

Liabilities not subject to compromise:
Current $ 106,518 $ 3,729 (c),(f) $ (147 )(j) $ 110,100
Long-term 285,757 — (1,271 )(j) 284,486
Liabilities subject to compromise 199,351 (199,351 )(c),(f) — —
Stockholders’ (deficit) equity (217,737 ) 209,334 (b) 106,403 (d) 98,000

Total liabilities and stockholders’ (deficit) equity $ 373,889 $ 13,712 $ 104,985 $ 492,586


~~(a)~~		Reflects the estimated pro forma elimination of the deferred financing costs related to the New DIP Facility and the estimated pro forma fair value adjustments related to royalties and the defined benefit pension plan assets.

~~(b)~~		Reflects the pro forma issuance of Allied Systems Holdings, Inc. common stock to certain pre-petition creditors, the pro forma cancellation of Allied Holdings, Inc. common and treasury stock, the estimated pro forma gain on the settlement of liabilities subject to compromise and the estimated pro forma effect of the conversion of the Rig Financing to Allied Systems Holdings, Inc. common stock (see Note 11).

~~(c)~~		Reflects the estimated pro forma discharge of Allied’s pre-petition liabilities in accordance with the Joint Plan. Discharge of Allied’s pre-petition liabilities is estimated to include $198.1 million to be exchanged for Allied Systems Holdings, Inc. common stock and $1.3 million to be paid in cash.

~~(d)~~		Reflects the elimination of historical accumulated deficit and other equity accounts and an adjustment to stockholders’ equity to result in the estimated reorganized equity value in accordance with SOP 90-7.

~~(e)~~		~~Reflects the pro forma elimination of the carrying amount of pre-confirmation goodwill.~~

~~(f)~~		Reflects the estimated pro forma accrual of contract cure costs of assumed contracts and leases, professional fees related to the consummation of the Joint Plan and the estimated pro forma effects resulting from the replacement of directors’ and officers’ insurance policies effected upon our emergence from Chapter 11.

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


~~(g)~~		~~Reflects the estimated pro forma unallocated reorganization value.~~

~~(h)~~		Reflects the pro forma effect of capital expenditures financed through the Rig Financing, which was converted to Allied Systems Holdings, Inc. common stock upon our emergence from Chapter 11 (see Note 11).

~~(i)~~		~~Reflects the estimated pro forma fair value adjustments relating to property and equipment.~~

~~(j)~~		~~Reflects the estimated pro forma fair value adjustments related to the defined benefit pension and other postretirement benefit plans.~~

~~(k)~~		~~Reflects the estimated pro forma fair value adjustments relating to customer relationships, developed technology, trademarks and trade names.~~

~~(4) Recent Accounting Pronouncements~~

~~In September 2006, the Financial Accounting Standards Board (“FASB”) issued~~ Statement of Financial Accounting Standards (“SFAS”) No. 141,Business Combinations.The excess reorganization value over the fair value of tangible and identifiable intangible assets is recorded as goodwill on our consolidated balance sheet. Deferred taxes are determined in conformity with SFAS No. 109,Accounting for Income Taxes.

SOP 90-7 also required that we adopt, on the fresh-start reporting date, all changes in accounting principles that would be required to be implemented within twelve months of the fresh-start reporting date. As a result, at the fresh-start reporting date, we adopted SFAS No. 157,Fair Value Measurements.; the measurement date provisions of 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);and SFAS No. 159,The Fair Value Option For Financial Assets and Financial Liabilities, including an Amendment of SFAS No. 115.

SFAS No. 157 was issued by the Financial Accounting Standards Board (“FASB”) in September 2006. 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~~an asset or transfer ~~the~~a 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 would otherwise be effective~~The fair values of our assets and liabilities for ~~our financial statements for the year ending December 31, 2008, and interim periods within 2008. However, we expect to implement SFAS No. 157 at the~~ fresh-start reporting ~~date, pursuant to SOP 90-7. The provisions of this Statement should be applied prospectively, except for limited exceptions,~~were determined in ~~which case, it should be applied retrospectively. We have not determined whether~~accordance with the provisions of SFAS No. ~~157 will require any changes to our fair-value measurements after the effective date of the Statement. However, expanded disclosures of fair value will be required.~~157.

Effective December 31, 2006, we adopted the recognition and disclosure provisions of 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)~~,which required, as of December 31, 2006, the initial recognition of the funded status of our defined benefit pension and other postretirement benefit plans and also certain additional disclosures. SFAS No. 158 also requires the measurement of defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end balance sheet ~~for~~beginning with the year ending December 31, 2008. However, as required by SOP 90-7, we ~~expect to implement~~implemented this provision as of the fresh-start reporting date ~~pursuant~~by measuring the assets and liabilities as of the fresh-start reporting date. Prior to ~~SOP 90-7. We utilize~~the adoption, we utilized a measurement date of December 31 for the postretirement benefit plans and for the Allied Defined Benefit Pension ~~Plan. With respect to~~Plan and for the other two defined benefit pension plans, we ~~utilize~~utilized a measurement date of September 30. All these measurement dates will now be December 31. The effect of the change in measurement dates, which was not material, was reflected in reorganization items in the statement of operations as a fresh-start reporting adjustment.

~~In February 2007, the~~The FASB issued SFAS No. 159~~The Fair Value Option For Financial Assets and Financial Liabilities, including an Amendment of SFAS No. 115~~. in February 2007. SFAS No. 159 permits entities to choose, at specified election dates, to measure eligible items at fair value (the “fair value option”). A business entity is required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent

ALLIED SYSTEMS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

Previously, new or replacement tires on tractors and trailers were charged to operating supplies and expenses based on expected usage. We estimated the average useful life of a tire to be approximately two years. Tires with estimated remaining useful lives of one year or less were classified as current within prepayments and other current assets. Tires with estimated remaining useful lives in excess of one year were classified within other noncurrent assets. Tires purchased with tractors and trailers are now capitalized as part of the cost of tractors and trailers with depreciation expense recognized over the life of the tractor or trailer; subsequent replacement tires are charged to operating expense at the time those tires are placed into service, similar to repairs and maintenance. No retrospective application was required since as of the fresh-start reporting date, a new entity is deemed to be formed and all assets and liabilities were reported at the fair values. We believe that this method is preferable since it provides a less subjective and more precise method for recognizing expenses related to tires. The method is also more commonly used in the industry. At the fresh-start reporting date, the fair value of tractors and trailers included the value of the tires. Prepayments and other current assets and other noncurrent assets no longer include amounts relating to tires.

A reorganization value of $303 million was assigned to the Successor. This value was determined by the Bankruptcy Court with assistance from various financial advisers who applied various valuation methods. This reorganization value reflects financial market conditions existing at the time and the inherent uncertainty related to the achievement of our financial objectives. The valuation also included a number of assumptions, including a successful reorganization of the Debtors’ businesses and finances in a timely manner, assumptions regarding the amount of available cash, market conditions, and the Joint Plan becoming effective in accordance with its terms on a basis consistent with the estimates and other assumptions.

The determination of reorganization value also included reviews of certain of our historical financial information for recent years and interim periods, certain internal financial and operating data, such as financial projections relating to our business and prospects, publicly available financial data and market values of public companies deemed generally comparable to us. Consideration was also given to the value of publicly available transactions that occurred in industries deemed comparable to the industry in which we operate as well as certain economic and industry information relevant to our business.

The determination of reorganization value also included the use of discounted cash flow analyses, comparable public companies trading multiples and comparable transaction multiples methodologies. The valuation techniques utilized reflect both the market’s then view of our strategic initiatives and operations, as well as a longer-term focus on the intrinsic value of the financial projections associated with our strategic alternatives. The valuation multiples used to arrive at the going concern reorganization value were based on the public market valuation of selected public companies and public transactions deemed generally comparable to our operating businesses and the industry in which we operate as well as general capital market conditions. Factors considered in selecting comparable companies and transactions included factors such as comparable companies’ businesses, assets and capital structures, as well as such companies’ operating performance relative to ours and the turnaround required for us to perform as projected.

An estimate of reorganization value is not entirely mathematical, but rather, involves complex considerations and judgments concerning various factors that could affect the value of an operating business. Moreover, the value of an operating business is subject to uncertainties and contingencies that are difficult to predict and will fluctuate with changes in factors affecting the financial conditions and prospects of such a business. As a result, the projections utilized in the determination of reorganization value are not necessarily indicative of actual outcomes and may be significantly more or less favorable.

SOP 90-7 requires the allocation of reorganization value to individual assets and liabilities in accordance with the guidance contained in SFAS No. 141. As outlined below, the carrying amount of assets increased $131.5 million and liabilities decreased $0.4 million, as a result of the application of fresh-start reporting. Assets were adjusted to estimated fair values; liabilities were stated at the present values of estimated amounts to be paid at appropriate current interest rates, where appropriate, less original issue discount; defined benefit pension and other postretirement plan assets and obligations were stated at estimated fair value based on actuarial valuations; and deferred taxes were determined in accordance with SFAS No. 109. In connection with the allocation of reorganization value to individual assets and liabilities, we recorded certain previously unrecorded intangible assets relating to customer relationships, developed technology, trademarks and trade names. The sum of the individual amounts allocated to assets and liabilities exceeded the reorganization value by $85.9 million, which we reported as goodwill.

ALLIED SYSTEMS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

Adjustments to reflect the revaluation of assets and liabilities resulted in a net gain of $131.9 million and the discharge of pre-petition debt resulted in a gain of $120.8 million. Both of these gains are included in reorganization items in the Predecessor’s statement of operations.

For each major category of assets and liabilities measured at fair value on a nonrecurring basis, for the period subsequent to adoption, SFAS No. 157 requires the following disclosure about the fair values:

Fair value at May 31, 2007
Based on Quoted Prices Based on Based on
in Active Markets for Significant Other Significant
Identical Assets Observable Unobservable Total
(Liabilities) Inputs Inputs Gains
Total (Level 1) (Level 2) (Level 3) (Losses)
(In thouusands)
Property and equipment $ 180,976 $ — $ — $ 180,976 $ 21,207
Goodwill 85,912 — — 85,912 82,367
Other intangible assets 27,400 — — 27,400 27,184
Self-insurance liabilities (77,501 ) — — (77,501 ) 6,173
Compensated absences (7,351 ) — — (7,351 ) 4,028
Deferred income taxes (20,743 ) — — (20,743 ) (6,523 )
Secured credit facilities (229,500 ) — (229,500 ) (6,625 )
Defined benefit pension and other postretirement plans:
Plan assets 59,427 59,427 — —
Benefit obligation (67,826 ) — — (67,826 )

Funded status (8,399 ) 59,427 — (67,826 ) 4,441

Other — — (339 )

$ 131,913

The carrying amounts of certain assets and liabilities already approximated fair value at the fresh-start reporting date. As a result, there were no fair value adjustments relating to these items, and they are not included in the table above. Fair values for such assets and liabilities were assessed, at the fresh-start reporting date, using significant unobservable inputs (i.e., Level 3 inputs), except for cash, cash equivalents and other time deposits, which were assessed using quoted prices (i.e., Level 1 inputs).

We determined the fair values of property and equipment and other intangible assets using the value in continued use premise as of May 31, 2007. This premise of value differs from the value in exchange premise, which is the price at which an asset would sell on a piecemeal basis. Value in use is the worth of an asset used in an operating business and reflects the extent to which the underlying asset contributes to the profitability of the business enterprise. Adopting one or the other of these value premises can have a marked effect on the valuation of an asset. Assets that are special-purpose in nature may have little value if marketed piecemeal, yet they may provide a substantial contribution to the business. For this analysis, value in use was considered to be the proper basis for estimating the fair value of our assets since we intend to continue operating the assets in a continuous business operation, which we assume to be the highest and best use of the assets with market participants.

We considered the income, market and cost approaches in our analyses, as appropriate. The income approach measures the value of an asset by the present value of its future economic benefits. Value indications are developed in this technique by discounting expected cash flows to their present value at a rate of return that incorporates the risk-free rate for the use of funds, the expected rate of inflation and risks associated ~~impact if~~with the asset. The discount rate selected is generally based on rates of return available from alternative investments of similar type and risk as of the valuation date. Applying the income approach is difficult in the case of assets such as property and equipment since it is difficult to segregate specific revenue and cost streams for each piece of equipment. The market approach measures the value of an asset through an analysis of recent sales or offerings of comparable property. Sales and offering prices are adjusted for differences in location, time of sale, utility and the terms and conditions of sale between the asset being appraised and the comparable properties. The cost approach considers the concept of replacement as an indicator of value. We selected the most appropriate approach for each tangible and intangible asset based upon the quantity and quality of available information, nature, and characteristics of the subject.

Pursuant to SOP 90-7, at the fresh-start reporting date, liabilities are to be stated at the present values of amounts to be paid at appropriate current interest rates. Our accounting policy is to report our liability for claims and self-

ALLIED SYSTEMS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

insurance liabilities on an undiscounted basis. However, the fair value requirements of fresh-start reporting require discounting of liabilities that are expected to be paid over a period of greater than one year to reflect the liabilities at the present value of amounts to be paid in determining fair value. Therefore, as of the fresh-start reporting date, we ~~make~~discounted the estimated future payment stream for claims and self insurance liabilities using appropriate risk-free rates, ranging from 4.88% to 5.21%, for the projected payout periods, while at the same time increasing the future payment stream for such claims and liabilities for a risk premium based on the uncertainty inherent in the estimation of the liability of the portfolio. The risk premium was estimated using the cost of capital method, with the required capital percentage varying by the type of risk category.

We account for compensated absences in accordance with SFAS No. 43,Accounting for Compensated Absences, and in accordance with Accounting Principles Board Opinion No. 28,Interim Financial Reporting. Such costs are allocated among interim periods based on an estimate of time expired, benefit received or activity associated with the periods. At the fresh-start reporting date, a fair value adjustment resulted from the process of adjusting the interim period liabilities to the liabilities determined by applying the criteria of SFAS No. 43 to the interim date. In addition, the fair value adjustment of $4.0 million includes the effect of adjusting the liability for compensated absences for sick pay that had previously been accrued but is not required to be accrued per SFAS No. 43.

The interest rates payable on our senior secured credit facilities were established based on our credit profile. Since the rates were established so close to the fresh-start reporting date, in an open market, the interest rates of our senior secured credit facilities approximate the market interest rates at the fresh-start reporting date. Accordingly, the fair value of the senior secured credit facilities is considered to be the face amount less the original issue discount associated with the senior secured credit facilities. Unamortized debt issue costs associated with the New DIP Facility were eliminated as a result of the fair value adjustment.

We also performed a revaluation of the defined benefit pension and other postretirement assets and obligations as of the fresh-start reporting date, resulting in a net reorganization gain of $4.4 million. The weighted-average discount rate used in the actuarial valuation at the fresh-start reporting date was 6.0%, as compared to the weighted-average discount rate of 5.75% as of our last measurement date, December 31, 2006. In connection with this ~~election.~~revaluation as required by SOP 90-7, we also early-adopted the requirements under SFAS No. 158, to measure the funded status of our plans as of the date of the remeasurement, eliminating the previous difference in the measurement dates.

All estimates, assumptions, valuations and financial projections, including the fair value adjustments, the financial projections, the reorganization and equity value projections, are inherently subject to significant uncertainties and the resolution of contingencies beyond our control. Accordingly, we can provide no assurance that the estimates, assumptions, valuations and financial projections will be realized, and actual results could vary materially.

The following table presents the effects on the consolidated balance sheet of transactions outlined in the Joint Plan and the effects of applying fresh-start reporting as of the fresh-start reporting date. The table represents the settlement of liabilities subject to compromise, cancellation of previous common stock, issuance of new stock as well as fresh-start adjustments including the revaluation of assets and liabilities to fair values and the recording of goodwill and other intangibles assets. The allocation of reorganization value to individual assets and liabilities is subject to adjustment as additional or improved information becomes available. Accordingly, the fresh-start valuation adjustments recorded below may be revised. We expect to finalize this allocation within one year of the Effective Date.

ALLIED SYSTEMS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

Fresh-start
Predecessor Effects of Reporting Successor
May 31, 2007 Joint Plan Adjustments May 31, 2007
(In thousands)
ASSETS

Current assets:
Cash and cash equivalents $ 36,037 $ — $ — $ 36,037
Restricted cash, cash equivalents and other time deposits 30,388 — — 30,388
Receivables, net 47,602 — — 47,602
Inventories 5,038 — — 5,038
Deferred income taxes 3,658 717 a) 4,367 a) 8,742
Prepayments and other current assets 14,304 719 b) (2,641 ) l) 12,382

Total current assets 137,027 1,436 1,726 140,189
Property and equipment, net of accumulated depreciation 154,109 — 26,867 m) 180,976
Goodwill 3,545 — 82,367 t) 85,912
Other intangible assets — — 27,400 n) 27,400
Other assets:
Restricted cash, cash equivalents and other time deposits 67,637 — — 67,637
Other noncurrent assets 33,004 (255 ) c) (6,837 ) o) 25,912

Total other assets 100,641 (255 ) (6,837 ) 93,549

Total assets $ 395,322 $ 1,181 $ 131,523 $ 528,026

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current liabilities not subject to compromise:
Current maturities of long-term debt $ 1,800 $ — $ — $ 1,800
Accounts and notes payable 43,692 (9,818 ) d) — 33,874
Accrued liabilities 74,588 (87 ) e) (5,889 ) p) 68,612
Deferred income taxes 134 — — 134

Total current liabilities 120,214 (9,905 ) (5,889 ) 104,420

Long-term liabilities not subject to compromise:
Long-term debt, less current maturities 227,700 — — 227,700
Postretirement benefits other than pensions 14,244 — (1,069 ) q) 13,175
Deferred income taxes 3,679 14,782 a) 10,891 a) 29,352
Other long-term liabilities 61,018 (1,316 ) f) (4,323 ) r) 55,379

Total long-term liabilities 306,641 13,466 5,499 325,606

Liabilities subject to compromise 198,763 (198,763 ) g) — —
Stockholders’ equity (deficit):
Predecessor preferred stock — — — —
Predecessor common stock — — — —
Successor preferred stock — — — —
Successor common stock — 100 h) — 100
Additional paid-in capital 49,363 97,193 i) (48,656 ) s) 97,900
Treasury stock (707 ) 707 j) — —
Accumulated deficit (254,471 ) 98,383 k) 156,088 s) —
Accumulated other comprehensive loss, net of tax (24,481 ) — 24,481 s) —

Total stockholders’ equity (deficit) (230,296 ) 196,383 131,913 98,000

Total liabilities and stockholders’ equity (deficit) $ 395,322 $ 1,181 $ 131,523 $ 528,026


a)		Reflects the effects of the Joint Plan and the fresh-start reporting adjustments on deferred income taxes.

b)		Reflects prepayments relating to directors’ and officers’ insurance of the Successor, offset by the elimination of prepayments relating to directors and officers’ insurance of the Predecessor.

c)		Reflects the elimination of deferred financing costs associated with the conversion of the Rig Financing to Successor equity. See Note 11.

d)		Is comprised of:

Conversion of Rig Financing to Successor equity $ (15,000 )
Pre-petition claims to be settled with cash (previously included in liabilities subject to compromise) 1,368
Advisory fees due upon emergence 2,440
Premiums payable as of the Effective Date relating to directors’ and officers’ insurance of the Successor 1,374

$ (9,818 )

ALLIED SYSTEMS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

e)		Reflects the conversion, to Successor equity, of accrued interest relating to the Rig Financing.

f)		Reflects the elimination of tax liabilities, including related interest and penalties, associated with certain uncertain tax positions.

g)		Reflects the disposition of liabilities subject to compromise, pursuant to the Joint Plan, as follows:

To be settled with cash $ 1,368
To be settled by conversion to Successor equity at estimated equity value 76,553
Gain on debt discharge 120,842

$ 198,763

h)		Reflects 10 million shares of Successor common stock at its par value of $0.01

i)		Represents Successor equity over par, and elimination of treasury stock:

General unsecured creditors $ 76,553
In settlement of Rig Financing plus interest 21,447

Reorganization equity value 98,000
Less par value of Successor common stock (100 )

97,900
Elimination of Predecessor treasury stock (707 )

$ 97,193

j)		Reflects the elimination of Predecessor treasury stock.

k)		Represents reorganization items and interest expense recorded pursuant to the Joint Plan comprised as follows:

Gain on debt discharge $ 120,842
Advisory fees due upon emergence (2,440 )
Elimination of prepaid insurance related to directors and officers’ insurance of Predecessor (655 )
Elimination of deferred financing costs of Predecessor (255 )
Interest expense related to the conversion of the Rig Financing to Successor equity (6,325 )
Income tax expense for effects of the Joint Plan (13,350 )
Reversal of interest and penalties associated with the adjustment to the liability for uncertain tax positions. 566

$ 98,383

l)		Reflects the impact, on the current portion of tires on tractors and trailers, of the change in accounting policy.

m)		Reflects the revaluation adjustment required for property and equipment to be stated at estimated fair value.

n)		Reflects the estimated fair value of customer relationships, developed technology, trademarks and trade names.

o)		Represents the impact of the following:

Write-off of deferred financing costs of Predecessor $ (6,500 )
Impact, on the noncurrent portion of tires on tractors and trailers, of the change in accounting policy (3,144 )
Write-off of royalties, which are now accounted for in “other intangible assets” above (216 )
Fair value adjustments related to defined benefit pension plans 3,023

$(6,837 )

p)		Reflects the effect on current liabilities of discounting insurance liabilities and the fair value adjustments to accruals for compensated absences.

q)		Reflects the fair value adjustments related to postretirement benefit plans.

r)		Reflects the effect on noncurrent liabilities of discounting insurance liabilities for fresh-start reporting.

s)		Represents the elimination of historical accumulated deficit and other equity accounts and the gain resulting from the application of fresh-start reporting.

t)		Reflects the elimination of historical goodwill and the recording of goodwill for the amount of reorganization value in excess of the amount allocable to specifically identifiable assets and liabilities.

Reorganization items

Reorganization items were incurred by the Predecessor during the Chapter 11 Proceedings. These items are presented separately in the accompanying unaudited consolidated statements of operations and represent items that we have identified as directly relating to the Chapter 11 Proceedings. A summary of these items follows (in thousands):

ALLIED SYSTEMS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

Predecessor
Two Months Ended Three Months Ended Five Months Ended Six Months Ended
May 31, 2007 June 30, 2006 May 31, 2007 June 30, 2006
Gain on debt discharge $ 120,842 $ — $ 120,842 $ —
Fair value adjustments 131,913 — 131,913 —
Substantial contribution fee due to Yucaipa upon emergence (6,606 ) — (6,606 ) —
Other advisory fees due upon emergence (2,440 ) — (2,440 ) —
Legal and professional fees (4,636 ) (3,849 ) (7,840 ) (6,528 )
Employee retention plan (1,386 ) (773 ) (1,746 ) (1,589 )
Other reorganization items (953 ) (85 ) (1,057 ) (173 )

$ 236,734 $ (4,707 ) $ 233,066 $ (8,290 )

We continue to incur expenses related to the Chapter 11 Proceedings, primarily professional fees that were classified as reorganization items by the Predecessor. Subsequent to emergence, these expenses are being classified in other line items in our statement of operations, primarily in other operating expenses. For the one-month period ended June 30, 2007, the amount of such expenses was approximately $620,000.

~~(5)~~(4) Prepayments and Other Current Assets

Prepayments and other current assets as of ~~March 31,~~June 30, 2007 and December 31, 2006 are presented below (in thousands):


					Successor		Predecessor
	March 31,		December 31,		June 30,		December 31,
	2007		2006		2007		2006
Prepaid insurance	$	10,547	$	14,689	$	7,688	$	14,689
Tires on tractors and trailers		2,325		2,360		—		2,360
Prepaid licenses		3,773		1,285		2,815		1,285
Other		3,020		3,129		1,926		3,129

	$	19,665	$	21,463	$	12,429	$	21,463

ALLIED SYSTEMS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

Property and equipment purchased after the fresh-start reporting date may have estimated useful lives outside of these ranges.

The cost approach was utilized for the valuation of the buildings and land improvements, considering the appropriate quantitative and qualitative property characteristics of the properties under consideration. The cost approach is based upon the current cost to develop the particular asset, less an allowance for depreciation. To establish the replacement cost new less depreciation of the buildings and land improvements, we analyzed relevant documents, such as surveys/site plans, prior appraisals and asset lists. Where applicable, we applied multipliers for property location and current costs. We also determined an allowance for physical depreciation and obsolescence for the buildings and land improvements based upon an age-life analysis with adjustments made for the condition of the assets, both positive and negative.

The sales comparison approach was used to value the land. It was also used to estimate the fair value of the overall properties, on a comparative basis to sales or listings of similar facilities. This approach measures the value of an asset through an analysis of recent sales or offerings of comparable property. Sales and listing prices are adjusted for various financial and physical differences in comparison to the asset being appraised. The sales comparison approach was used in estimating the fair value of the land as if vacant and available for development, as well as for the combined site and current existing building and land improvements, as improved. The sales comparison approach is an appraisal technique in which a market value estimate is based upon prices paid in actual market transactions for properties that are comparable to the subject. It is a process of analyzing recently sold or listed properties that are similar to the subject properties. The reliability of this technique depends upon (a) the degree of comparability of the property appraised with each sale; (b) the length of time since the sale; (c) the accuracy of the sales data; and (d) the absence of unusual conditions affecting the sale. The steps included in the sales comparison approach included researching the market to obtain information on sales transactions, listings, and offerings for properties similar to the subject; verifying that the information obtained was factually accurate and that the transactions reflected arms-length market considerations to the best extent possible; analyzing the comparable sale properties to the subject using an appropriate unit of measure (e.g., sale price per acre or per square foot) and adjusting the sale price of each comparable property accordingly; and reconciling the various value indications produced from the analysis of comparable sales into a single value indication or a range of values. Market research was conducted to obtain applicable data.

In valuing the tractors and trailers (or together “Rigs”) we relied on the cost approach to value. To determine replacement cost new, we utilized the direct cost method. The direct cost method applied actual purchase prices for tractors and trailers recently purchased. Next, physical deterioration was applied to the assets. Depreciation from physical deterioration was estimated for the tractors and trailers based upon expected useful life and depreciation curves established by analyzing market data. Over the life of these assets, we typically remanufacture the tractors and trailers and rebuild the engines of the tractors to extend their useful lives. After approximately eight years, the engines are rebuilt. We have accounted for the remanufacturing of the assets and the engine rebuilds in our analysis. We analyzed historical data to better understand the life cycle of the Rigs and the magnitude of time and materials spent to remanufacture and rebuild these assets. We obtained information about the timing of these maintenance items and factored them into our analysis for the individual tractors and trailers. The depreciation factor for these items was based upon a straight-line method over eight years, which is consistent with the history of these assets. We utilized the indirect cost method to compare the values concluded upon from the direct cost method. The indirect cost method produced values consistent with those of the direct cost method.

In valuing the remaining personal property, we gave consideration to the cost, market, and income approaches to value and concluded that the best approaches were the cost and market approaches to value. To determine the replacement cost new, we utilized the indirect cost method and applied published price inflation index figures. Based upon observations, conversations, and inspections and analyses, we adjusted the “percent good” factor for personal property assets to account for the condition of the assets and other factors that influence effective age. The percent good factor represents the remaining value of the asset as a percent of its replacement cost, thus implying an estimate of physical deterioration. We assessed whether there was any functional or economic obsolescence (i.e., loss in value of the property caused by the inability of the property to adequately perform the function for which it is

ALLIED SYSTEMS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

utilized or loss in value from impairment of desirability or useful life arising from economic forces) and determined that there was none. We also developed indications of value based on market based research sources in which we identified comparable assets to certain computer equipment, machinery and equipment, plant vehicle, and vehicle assets and gathered information concerning used, resale and wholesale prices and the costs to deliver and install the property. To arrive at a fair value, we analyzed the overall validity of each approach based on the resources used.

As more fully discussed in Note 11, induring the ~~second quarter of~~two-month period ended May 31, 2007, we entered into an agreement with Yucaipa pursuant to which Yucaipa ~~would purchase~~purchased certain specialized tractors and car-haul trailers ~~(“Rigs”)~~ from the bankruptcy auction of Blue Thunder Auto Transport, Inc. (the “Blue Thunder Rigs”). The Blue Thunder Rigs ~~would~~were then be sold to us at cost. We financed these Rigs with purchase money financing provided to us by Yucaipa. See Note 11 for a discussion of this financing arrangement. Pursuant to this agreement, we purchased 170 Rigs from Yucaipa during the ~~second quarter of~~two-month period ended May 31, 2007 at a cost of $13.5 million. The Blue Thunder Rigs ~~range between~~ranged from three to five years in age.

(6) Goodwill and Other Intangible Assets

As discussed in Note 3, in connection with the allocation of reorganization value to individual assets and liabilities, we recorded certain previously unrecorded intangible assets relating to customer relationships, developed technology, trademarks and trade names and allocated the excess of reorganization value over the sum of the individual assets and liabilities to goodwill.

In accordance with SFAS No. 142,Goodwill and Other Intangible Assets,the excess of reorganization value over individual assets and liabilities, recognized by entities that adopt fresh-start reporting in accordance with SOP 90-7 shall be reported as goodwill and accounted for in the same manner as goodwill. Pursuant to SFAS No. 142, goodwill and other intangible assets determined to have indefinite useful lives are not amortized, but instead are evaluated for impairment annually, and between annual tests if an event occurs or circumstances change which indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value.

In accordance with SFAS No. 142, intangible assets, other than those determined to have an indefinite life, are amortized to their estimated residual values on a straight-line basis over their estimated useful lives. These intangible assets are reviewed for impairment in accordance with SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets.

Customer Relationships

According to SFAS No. 141, in order for a customer relationship intangible asset to exist, the following conditions must be met:

	•		There must be an established relationship between the vendor and customer such that both parties are aware of the identity and history of one another;

	•		Data must be available that documents the relationship and transactions between the vendor and customer; and

	•		There should be an identifiable income stream that is generated by the customer relationship.

In valuing the customer relationships, we utilized a variation of the income approach known as the residual income method. The income approach measures the future economic income that can be attributed to the existing customer relationships based on their expected remaining lives and requires an analysis of the following two key inputs:

	•		The remaining useful lives of the customer relationships, considering their current terms and the renewal probability based on a customer historical attrition analysis; and

	•		The debt-free net cash flow expected to be generated by the customer relationships over their remaining estimated useful lives.

ALLIED SYSTEMS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

Key assumptions and inputs used to develop the debt-free cash flow for the customer relationships were projected revenue growth, the average estimated remaining life of customer relationships, estimated customer relationship attrition, projected earnings before interest, taxes and depreciation, an estimated income tax rate, required return for the use of other contributory assets, an appropriate discount rate and the incremental value of the tax savings generated by the amortization of the intangible asset.

Developed Technology

A proprietary technology intangible asset can be defined as proprietary knowledge or processes that have been developed or purchased and are recognized as providing or having the potential to provide significant competitive advantages or product differentiation. A proprietary technology intangible asset can be identified as the end product, such as in high-tech companies, or can be an internally developed system or software package that enhances the process of producing other products, delivering a service or facilitates general business management. There are several approaches commonly used to value a technology intangible asset including the income, cost, and market approaches. Reconciling the value indications of different approaches requires an analysis of the qualitative factors that contribute to the value of the technology intangible asset, including age, life cycle, growth potential, profitability, required research and development expense, market opportunity and competition.

The developed technology that we identified as having value consists of proprietary internal use applications related primarily to operations and logistics. Since our proprietary technology is used internally and cannot be mapped directly to a product revenue stream, we utilized the cost approach to develop an indication of the value of the developed technology. The cost approach quantifies value by examining either the historical cost to create it or the estimated current cost to reproduce it at a given level of functionality. If the historical cost approach is used, an obsolescence factor is considered to adjust for the economic and functional obsolescence created by the passage of time. The valuation of our developed technology included reviews of cost detail including the estimated cost per hour to develop each application and the associated overhead costs, reviews of the time detail for the developed technology including estimated number of programs per application and estimated development hours per program, calculation of estimated cost to recreate each application, and in turn, the total cost of each system and use of obsolescence factors.

Trade Names and Trademarks

We relied upon the Relief from Royalty (“RFR”) method under the income approach to estimate the value of the trade name. The RFR method provides an estimate of the value of a trade name based on the present value of the projected cost savings attributable to the ownership of the trade name. This method is based on the theory that the owner of a trade name is relieved of paying a royalty or license fee for the use of the trade name. The method is a function of: (a) projected sales from products or services attributable to the trade name, (b) a reasonable market royalty rate that would otherwise be charged by a licensor of the trade name to a licensee of the trade name, and (c) an appropriate discount rate to reflect the risk of achieving the projected royalty savings attributable to the trade name. In implementing the RFR method to value our trade names and trademarks, we utilized revenue projections, royalty rates, tax rates, intangible discount rates and an amortization period for certain tax benefits.

The following tables present information on our intangible assets, including goodwill at June 30, 2007 and December 31, 2006 (in thousands):

Intangible assets not subject to amortization:

ALLIED SYSTEMS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
(Unaudited)

(9) Insurance and Claims

We retain losses for specified risks subject to limits through high deductibles or self-insured retentions. For specified 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 selected losses and years within our insurance program, primarily insured workers’ compensation, automobile and general liability risks. In states where we are insured for workers’ compensation claims, the majority of our risk in 2006 and 2007 is covered by a fully insured program with no deductible.

Claims and insurance liabilities are adjusted periodically, as claims develop, to reflect changes in actuarial estimates based on actual experience. During the ~~quarter~~one-month period ended ~~March~~June 30, 2007 and the two-month period ended May 31, 2007, there were no changes in the estimated ultimate amount of claims from prior years. During the five-month period ended May 31, 2007, the estimated ultimate amount of claims from prior years decreased approximately $1.4 million or $0.16 per share.

Our accounting policy is to report our liability for claims and self-insurance liabilities on an undiscounted basis. We have determined that the historical unfavorable development of aged claims was such that we cannot reliably determine such liabilities on a discounted basis. However, the fair value reporting requirements under fresh-start accounting require discounting of liabilities that are expected to be paid over a period of greater than one year to reflect the liabilities at the present value of amounts to be paid in determining fair value. Therefore, as of the fresh-start reporting date, we discounted the estimated future payment stream for self-insurance liabilities using appropriate risk-free rates, ranging from 4.88% to 5.21%, for the projected payout periods, while at the same time increasing the future payment stream for these liabilities for a risk premium based on the uncertainty inherent in the estimation of the liability of the portfolio. The risk premium was estimated using the cost of capital method, with the required capital percentage varying by the type of risk category. Subsequent to fresh-start reporting, the liabilities will continue to be reported on an undiscounted basis. The fair value adjustment made at the fresh-start reporting date will be amortized into expense over the period of projected payouts.

The amounts recognized in the accompanying unaudited consolidated balance sheets as of ~~March 31,~~June 30, 2007 and December 31, 2006 represent the undiscounted estimated ultimate amount of ~~claims.~~claims, reduced by the remaining fair-value adjustment as of June 30, 2007 of $6.2 million. These amounts 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)~~

Successor Predecessor
June 30, December 31,
2007 2006
Accrued liabilities — current $ 30,877 $ 38,786
Other long-term liabilities — noncurrent 53,418 64,307

84,295 103,093
Liabilities subject to compromise — 3,000

Total liability included in the consolidated balance sheets $ 84,295 $ 106,093

March 31, December 31,
2007 2006
Accrued liabilities — current $ 37,095 $ 38,786
Other long-term liabilities — noncurrent 60,571 64,307

97,666 103,093
Liabilities subject to compromise 2,969 3,000

Total liability included in the consolidated balance sheets $ 100,635 $ 106,093

~~The~~During the Chapter 11 Proceedings, the majority of our pre-petition liabilities related to insurance and claims ~~are~~were not classified as liabilities subject to compromise since we ~~have~~had received the Bankruptcy Court’s approval to maintain our existing insurance programs. Pre-petition liabilities that were previously classified as subject to compromise ~~represent~~represented liabilities 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

ALLIED SYSTEMS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
(Unaudited)

respectively, and are included in “other accrued liabilities” in the accompanying unaudited consolidated balance sheets. We paid $1.0 million of the retention amount in May 2007 in connection with the Bankruptcy Court’s confirmation of the Joint Plan and the final retention payment of $1.0 million was made in July 2007, 60 days after the Effective Date.

~~On April 30, 2007,~~ The only expense recognized for the severance portion of the employee retention plan was severance of $1.1 million related to the termination of our previous Chief Executive Officer who was notified by the Board of Directors ~~notified our Chief Executive Officer~~on April 30, 2007 that his employment would be terminated on or about May 31, 2007. ~~In connection therewith, we paid $1.1 million~~Expenses related to ~~him, the severance amount due to him under~~ the employee retention ~~plan. This amount will be recognized as an expense during~~plan for the ~~three months ending~~one-month period ended June 30, 2007 onwere $88,000 and are reported in salaries, wages and fringe benefits in the Successor’s statement of operations.

(c) 401(k) Plan

In November 2007, our Board of Directors authorized company contributions for 2008 for our 401(k) plan, which covers all of our nonbargaining employees in the U.S. We will match 100% of employee contributions up to 1% of salary and 50% of additional employee contributions up to 6% of salary. Our contributions will be made each pay period and will vest immediately for employees with two or ~~prior to~~more years of service and for others, upon the ~~fresh-start reporting date.~~second anniversary of employment.

(11) Debt

Our debt at ~~March 31,~~June 30, 2007 and December 31, 2006 consisted of the following (in thousands):


					Successor			Predecessor
	March 31,		December 31,		June 30,			December 31,
	2007		2006		2007			2006
Current liabilities not subject to compromise:
Original DIP Revolver	$	—	$	45,005	$	—		$	45,005
Original DIP Facility — Term Loan A		—		20,000
Original DIP Facility — Term Loan B		—		85,709
Original DIP Facility — Term Loan C		—		10,643
Canadian revolving credit facility		372		—
Original DIP Facility - Term Loan A						—			20,000
Original DIP Facility - Term Loan B						—			85,709
Original DIP Facility - Term Loan C						—			10,643

	$	372	$	161,357	$	—		$	161,357

Noncurrent liabilities not subject to compromise:
New DIP Facility	$	205,000	$	—
Senior secured credit facilities:
– First Lien Term Facility					$	180,000		$	—
– Second Lien Facility						50,000			—
– Unamortized Debt Discount						(492	)		—

						229,508			—
Less current maturities						(1,800	)		—

					$	227,708		$	—

Liabilities subject to compromise:
Senior Notes	$	150,000	$	150,000	$	—		$	150,000

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

Original DIP Facility Term Loan C bore 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 Fifth Amendment provided us with additional availability by allowing the payment of interest in kind on Original DIP Facility Term Loan B by addition to principal on a monthly basis. Accordingly, subsequent to the Fifth Amendment, the Original DIP Facility provided for ~~debtor-in-possession~~debtor in possession financing of up to $260 million plus interest paid in kind. Further, the Fifth Amendment reduced the interest rate on Original DIP Facility Term Loan B from LIBOR plus 9.5% to LIBOR plus 8.5%. The interest rate on Original DIP Facility Term Loan A remained unchanged at an annual rate of LIBOR plus 5.5%. During the ~~first~~ quarter ofended March 31, 2007, we paid interest in kind by addition to principal of approximately $3.4 million. During the year ended December 31, 2006, we paid interest in kind by addition to principal of approximately $6.3 million. The deferred financing fees relating to the Original DIP Facility were expensed during the ~~first~~ quarter ofended March 31, 2007 as part of the extinguishment of the debt.

New DIP Facility

The New DIP Facility, which was arranged by an affiliate of Goldman Sachs & Co., was entered into on March 30, 2007 and amended in April 2007, provided financing of up to $315 million, and replaced the Original DIP Facility. Subject to the satisfaction of certain conditions, the New DIP Facility provided us with the option to convert to ~~exit financing~~a senior secured credit facility upon our emergence from Chapter 11, which we exercised, as described below under ~~“Secured~~“Senior Secured Credit Facilities”. The New DIP Facility included a $230 million secured term loan facility, a $50 million synthetic senior letter of credit facility and a $35 million senior secured revolving credit facility (“New DIP Revolver”), which included a swing-line credit commitment of $10 million. Proceeds from the New DIP Facility of $205 million at March 30, 2007 were used to repay all amounts outstanding under the Original DIP Facility and associated fees, and to provide additional liquidity for working capital needs. Excess cash received in connection with the funding of the New DIP Facility was invested in overnight repurchase agreements (“REPOs”). In connection with the repayment of the Original DIP Facility and the funding of the New DIP Facility, we paid fees of approximately $9.4 million, $1.3 million of which related to the early repayment of the Original DIP Facility and $8.1 million of which related to the New DIP Facility. The fees related to the early repayment of the Original DIP Facility are ~~included~~reported in interest expense ~~for the quarter ended March 31, 2007~~ and include a prepayment penalty of $1.1 million.

The interest rates on the term loans in the New DIP Facility were based on either the Base Rate plus 2.50%, or Adjusted Eurodollar Rate plus 3.50%. The interest rate on the New DIP Revolver was based on either the Base Rate plus 1% or Adjusted Eurodollar Rate plus 2%. The swing line loans bore interest at the Base Rate plus 2.5%. Base Rate means, for any day, a rate per annum equal to the greater of (i) the Prime Rate in effect on such day and (ii) the Federal Funds Effective Rate in effect on such day plus¹/2 of 1%. The Adjusted Eurodollar Rate is generally LIBOR, but the rate could be affected if the Board of Governors of the Federal Reserve System regulated a reserve requirement. In addition, we were charged a participation fee pursuant to the letter of credit facility equal to approximately 3.80% per annum of the amount of the synthetic letter of credit facility plus a fronting fee of 0.55% of the average daily maximum amount available to be drawn under letters of credit issued under the synthetic letter of credit facility. We were also obligated to pay a commitment fee equal to 0.375% per annum times the daily average undrawn portion of the New DIP Revolver and a commitment fee of 1.75% per annum times the daily average undrawn portion of the term loan facility. AsOn May 11, 2007, an additional $25 million was drawn under the term loans. Accordingly, as of ~~March 31,~~May 11, 2007, ~~$205~~$230 million was outstanding under the term loans and at that date, we had not drawn on the New DIP Revolver. ~~On May 11, 2007, the remaining $25 million was drawn under the term loans and the~~The resulting excess cash was invested in REPOs.

On May 15, 2007, we restructured the New DIP Facility resulting in (1) an amended and restated $265 million first lien credit facility (the “First Lien Facility”) with Goldman Sachs Credit Partners L.P., as lead Arranger and Syndication Agent, and The CIT Group/Business Credit, Inc., as Administrative Agent and Collateral Agent and (2) a $50 million second lien term loan facility with Goldman Sachs Credit Partners L.P., as lead Arranger, Syndication Agent, Administrative Agent and Collateral Agent (the “Second Lien Facility”). As amended and restated, the First Lien Facility provided for aggregate financing of $265 million comprised of a $180 million secured term loan facility (the “First Lien Term Facility”), a $50 million synthetic letter of credit facility (the “Letter of Credit Facility”) and a $35 million senior secured revolving credit facility (the “First Lien Revolver”), which included a swing-line credit commitment of $10 million. The Second Lien Facility provided for a $50 million secured term ~~loan.~~loan (the “Second Lien Term Facility”). The interest rate on the First Lien Term Facility was based on

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

6.5%, or the Adjusted Eurodollar Rate plus 7.5%. The interest rate on the New DIP Revolver was based on the Base Rate plus 1% or the Adjusted Eurodollar Rate plus 2%. The swing line loans in the New DIP Revolver bore interest at the Base Rate plus 1%.

The REPOs discussed above are readily convertible to known amounts of cash and are so near to maturity that they present insignificant risk of changes in value because of changes in interest rates. In addition, the REPOs have original maturities of three months or less. Accordingly, these securities qualify to be treated as cash and cash equivalents.

Senior Secured Credit Facilities

As a condition precedent to our emergence from Chapter 11, on May 29, 2007, the First Lien Facility and the Second Lien Facility were converted to ~~Secured Credit Facilities.~~senior secured credit facilities. As a result of the conversion, the First Lien Facility will mature five years after the Effective Date and the Second Lien Facility will mature five and a half years after the Effective Date.

Amounts outstanding under the ~~Secured Credit Facilities~~senior secured credit facilities will bear interest at the following annual rates:

•

First Lien Term Loan Facility —�� At our option, either the Base Rate (which is equal to the greater of the prime rate as published from time to time inThe Wall Street Journalor the federal funds rate plus one-half of 1%) plus 3.0%, or the Adjusted Eurodollar Rate plus 4.0%;

Second Lien Term Loan Facility — At our option, either the Base Rate plus 6.5%, or the Adjusted Eurodollar Rate plus 7.5%; and

First Lien Revolver — At our option, either the Base Rate plus 1.0%, or the Adjusted Eurodollar Rate plus 2.0%.

As of June 30, 2007, the weighted-average interest rate on the First Lien Term Loan Facility and the Second Lien Term Loan Facility was 10.1%.

To mitigate the risk of rising interest rates, in August 2007, we entered into floating-to-fixed interest rate swap agreements with an aggregate notional value of $180 million. These interest rate swap agreements have three-year terms and fix the LIBOR component to a weighted-average fixed rate of 5.13% during the terms. Our ~~Secured Credit Facilities~~senior secured credit facilities require us to hedge a minimum of 50% of the aggregate principal amount of the total indebtedness under those facilities atas of the date of the conversion, beginning no later than 90 days after the date of the conversion. Future results of operations could be impacted by unrealized gains or losses related to these interest rate swap agreements.

In addition, ~~the following are~~ among the fees we will be charged under the ~~Secured Credit Facilities:~~senior secured credit facilities are the following: (A) a credit fee pursuant to the Letter of Credit Facility equal to the Adjusted Eurodollar Rate plus 4.15% per annum times the average daily amount deposited by the lenders under the Letter of Credit Facility; (B) a commitment fee of 1.75% per annum times the daily average undrawn portion of the First Lien Term Loan Facility; (C) a commitment fee of 0.375% per annum times the daily average undrawn portion of the First Lien Revolver; and (D) a fronting fee under the Letter of Credit Facility of 0.55% of the average daily maximum amount available to be drawn under letters of credit issued under the Letter of Credit Facility.

The ~~Secured Credit Facilities~~senior secured credit facilities include customary affirmative, negative, and financial covenants binding on us, including delivery of financial statements and other reports and maintenance of corporate existence. 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 capital stock. The financial covenants included in the ~~Secured Credit Facilities~~senior secured credit facilities limit the amount of annual capital expenditures and set forth a maximum total leverage ratio and minimum interest coverage ratio. In addition, the ~~Secured Credit Facilities~~senior secured credit facilities require mandatory prepayment with the net cash proceeds from certain asset sales, equity offerings, and any insurance proceeds that we receive. As of September 30, 2007, we were in compliance with the covenants of the senior secured credit facility but can provide no assurance that we will be able to comply with these covenants or, if we fail to do so, that we will be able to obtain amendments or waivers of such covenants.

The ~~Secured Credit Facilities~~senior secured credit facilities include customary events of default including events of default related to (i) failure to make payments when due under the ~~Secured Credit Facilities,~~senior secured credit facilities, (ii) failure to comply with the financial covenants set forth in the ~~Secured Credit Facilities,~~senior secured credit facilities, (iii) defaults under other agreements or instruments of indebtedness, (iv) the granting of certain other super-priority administrative expense claims or ~~non-permitted~~non-

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

~~assets~~ company with a book value in excess of $1 million that would have a material adverse effect on usour company or (vii) a change in control of our company, except as is contemplated by the Joint Plan.

Obligations under the First Lien Facility are secured by a first priority lien on 100% of the capital stock of our domestic and Canadian subsidiaries, 65% of the capital stock of our direct foreign subsidiaries, all of our current and after-acquired personal and real property and all intercompany debt. Obligations under the Second Lien Facility are secured by a second priority lien on 100% of the capital stock of our domestic and Canadian subsidiaries, 65% of the capital stock of our direct foreign subsidiaries, all of our current and after-acquired personal and real property and all intercompany debt. The liens securing the Second Lien Facility have been subordinated to the liens securing the First Lien Facility.

As of ~~September 28,~~June 30, 2007, we had not drawn on the First Lien Revolver. As of November 9, 2007, we had drawn $3$4 million on the First Lien Revolver and as a result, ~~$32~~$31 million was available as of that date.

~~Debt Classification~~Aggregate minimum payments due on the senior secured credit facilities at June 30, 2007, are as follows (in thousands):

If the New DIP Facility had not been converted to the Secured Credit Facilities, it would have matured no later than September 30, 2007. We intended to refinance the short-term obligation on a long-term basis, and we subsequently converted it to the long-term Secured Credit Facilities. We believe that it is not probable that we will be in noncompliance with the provisions of the Secured Credit Facilities within one-year from the balance sheet date. Therefore, we have excluded the New DIP Facility from current liabilities and have classified it as noncurrent, pursuant to SFAS No. 6,~~Classification of Short-Term Obligations Expected To Be Refinanced~~.

Six months ending December 31, 2007 $ 900
2008 1,800
2009 1,800
2010 1,800
2011 1,800
2012 221,900

$ 230,000

Canadian Revolving Credit Facility

~~The Canadian revolving credit facility represents the amount drawn down by our subsidiary, Allied Systems (Canada) Company, from~~We also have a $2.5 million revolving credit facility with a bank in Canada (the “Canadian Revolver”). 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 ~~$40.0~~$40.9 million of outstanding letters of credit discussed in Note 13(b). At June 30, 2007, nothing was drawn on this facility.

Rig Financing

As discussed in Note 65 above, induring the ~~second quarter of~~two months ended May 31, 2007, we entered into an agreement with Yucaipa pursuant to which Yucaipa would purchase the Blue Thunder Rigs, which would then be sold to us at cost. We financed the purchase of these Rigs with purchase money financing provided to us by Yucaipa (the “Rig Financing”), which Rig Financing was approved by the Bankruptcy Court on April 6, 2007. The Rig Financing of $15 million was completed prior to the Effective Date and included funds to retrofit and make any necessary repairs to the Blue Thunder Rigs, and to pay certain costs and expenses associated with the purchase, such as registration expenses. The notes under the Rig Financing bore interest at the three-month LIBOR rate plus 4%, payable in-kind quarterly by addition to principal. Pursuant to this agreement, upon our emergence from Chapter 11, the $15.1 million related to the Rig Financing was converted to equity of Allied Systems Holdings, Inc. Of the $15.1 million, $13.5 million ~~represents~~represented the purchase cost of the Rigs, $0.3 million was used to pay certain costs associated with the purchase, $0.1 million ~~represents~~represented interest, and the reminder was received by us to retrofit and make any necessary repairs to the Blue Thunder Rigs. As stipulated in the Rig Financing agreement, upon conversion, Yucaipa was entitled to receive a percentage of the new equity of Allied Systems Holdings, Inc., with the numerator equal to the amount owed under the Rig Financing, including interest, and the denominator equal to $285 million minus debt, exclusive of the Rig Financing, plus cash on the Effective Date, after giving effect to the Joint Plan. Such percentage was estimated to be approximately 22%, of which Yucaipa’s portion was approximately 18% and the other participants in the Rig Financing were to receive the remaining 4%. The conversion ~~will be~~was effected as of the ~~fresh-start reporting date.~~Effective

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

Senior Notes

On September 30, 1997, we issued the $150 million 8⁵/8% Senior Notes through a private placement. The Senior Notes were subsequently registered with the SEC. As holders of allowed general unsecured claims, holders of the Senior Notes ~~received~~were entitled to receive new common stock of Allied Systems Holdings, Inc. on a pro rata basis in exchange for the cancellation of the debt pursuant to the Joint ~~Plan.~~Plan as of the Effective Date.

(12) Income Taxes

~~For the three months ended March 31, 2007 and 2006, the~~As a result of our emergence from Chapter 11, income from discharge of indebtedness, for income tax ~~(expense) benefit~~purposes, of approximately $100 million will reduce the amount of our net operating loss carryforwards and other tax attributes. We estimate that we will have remaining net operating loss carryforwards of approximately $40 million after the effects of the Joint Plan. We have not finalized our assessment of the tax effect of our emergence from Chapter 11 and this estimate, as well as the overall effect on all tax attributes, is subject to revision, which could be significant. As a result of the issuance of new common stock upon emergence, we realized a change in ownership under the provisions of Section 382 of the Internal Revenue Code. As a result, the amount of our net operating loss carryforwards that we can utilize each year will be limited.

The valuation allowance decreased approximately $45 million during 2007 due primarily to the reduction of our net operating loss carryforwards, as a result of the discharge of indebtedness, and the effect of the fresh-start reporting adjustments. Management concluded that at June 30, 2007, we continue to require a valuation allowance against all deferred tax assets since we have concluded, after considering all sources of taxable income, that it is more likely than not that the deferred tax assets will not be realized. In accordance with SOP 90-7, if we utilize pre-emergence net operating loss carryforwards or other tax attributes, or release associated valuation allowances, we will sequentially reduce the carrying amount of goodwill followed by other indefinite-lived assets until the net carrying amount of these assets is eliminated.

The income tax expense in the accompanying statements of operations differed from the amounts computed by applying statutory rates to the reported income (loss) before income taxes for all periods presented. For periods with income before taxes, the expected tax expense is offset by the reversal of associated valuation allowances in most cases. For all periods presented, we recognized tax expenses related to foreign jurisdictions where no valuation allowance is recorded. In addition, we recognized tax expense during the two months ended May 31, 2007 since the effects of the Joint Plan created deferred tax liabilities for which the timing of the reversal is indefinite. The reversal of those items is not available to offset against deferred tax assets. As a result, an additional valuation allowance was required. For the three months ended June 30, 2006, no expense was recognized related to the income before income taxes, except for the amount related to foreign jurisdictions, since we reported a year-to-date loss before income taxes and no benefit was recognized for the loss before income taxes in the first quarter of 2006. For periods with a loss before income taxes, no benefit was recognized 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 both periods presented, we recognized tax expenses related to foreign jurisdictions where no valuation allowance is recorded.~~

~~In June 2006, the 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 a 50 percent likelihood 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.

We adopted the provisions of FIN 48 on January 1, 2007. The cumulative-effect of applying the provisions of this Interpretation of ~~$1.2~~$1.8 million was reported as an adjustment to the January 1, 2007, balance of accumulated deficit. The total amount of unrecognized tax benefits as of January 1, 2007 after applying the provisions of FIN 48 were $7.0 million. Included in the total unrecognized benefits at January 1, 2007, are $1.4 million of tax benefits that, if recognized, would favorably affect the effective income tax rates in future periods. At January 1, 2007, we had $643,000 of accrued interest and $233,000 of accrued penalties. It is our policy to classify interest and penalties recognized on the potential underpayment of income taxes as interest expense and other operating expenses, respectively, in the unaudited consolidated statement of operations.

The amount of unrecognized tax benefits did not materially change from January 1, 2007 to March 31, 2007. For certain uncertain tax positions it is reasonably possible that the total amounts of unrecognized tax benefits will change significantly within the next twelve months as a result of the effects ofUpon our emergence from Chapter 11, orwe reduced the FIN 48 liability by approximately $1.3 million related to uncertain tax positions in periods prior to the Petition Date since the claims settlement ~~of audits that may be initiated.~~process limits certain jurisdictions from assessing additional tax liabilities in those periods. The ~~range~~effects of the change ~~that is reasonably possible is not currently determinable.~~

~~We file~~on the FIN 48 liability are reflected as a reduction in income tax ~~returns~~expense of $0.7 million, and reorganization income of $0.6 million for the reduction of related interest and penalties in the U.S. federal jurisdiction, Canada, Mexico and in various state and provincial jurisdictions. Tax years 2001 through 2006 remain subject to examination for federal, state and provincial jurisdictions. We have recently been notified thatPredecessor’s statement of operations as part of the ~~Canada Revenue Agency intends to audit~~effects of the ~~Canadian federal income tax returns for the years 2005 and 2006 for activity after the Petition Date.~~Joint Plan.

(13) Commitments and Contingencies

~~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~~were 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.

On May 18, 2007, the Bankruptcy Court entered an order confirming the Joint Plan and on the Effective Date, the Debtors emerged from Chapter 11.

As debtors-in-possession, we were authorized under Chapter 11 to continue to operate as an ongoing business, but could 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 were stayed, and absent further order of the Bankruptcy Court, no party, subject to certain exceptions, could take any action, again subject to certain exceptions, to recover pre-petition claims against us. One exception to this stay of litigation was 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 applied could 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 the Joint Plan.

(b) Letters of Credit

At ~~March 31,~~June 30, 2007, we had issued ~~$139.8~~$139.3 million of outstanding letters of credit to third parties related primarily to the settlement of claims and insurance liabilities and support for a line of credit at one of our foreign subsidiaries. Of the ~~$139.8~~$139.3 million, ~~outstanding at March 31, 2007, $42.0~~$40.9 million of these letters of credit were secured by availability under the ~~New DIP~~First Lien Revolver and ~~$97.8~~$98.4 million were issued by our wholly owned captive insurance subsidiary, Haul Insurance Limited, and were collateralized by ~~$97.8~~$98.4 million of restricted cash, cash equivalents and other time deposits held by this subsidiary. We renew these letters of credit annually. See Note 11 for a discussion of the current letter of credit facilities under the ~~Secured Credit Facilities~~senior secured credit facilities.

(c) Litigation, Claims, Assessments

We are involved in various litigation and environmental matters relating to employment practices, ~~damages,~~automobile liability, general liability, 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 ~~March 31,~~June 30, 2007, the letter of credit totaled $7.5 million and is included in the ~~$42.0~~$40.9 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. The letter of credit totals $7.5 million as of ~~September 28,~~November 9, 2007.

We are defending against an appeal in the U.S. Eleventh Circuit Court of Appeals concerning the confirmation of our Joint Plan. The appeal was filed by certain Predecessor stockholders. The appeal was dismissed by the District Court for the Northern District of Georgia as, inter alia, moot due to the substantial consummation of the Joint Plan. The stockholders have appealed the dismissal. We do not believe that the appeal has merit, and thus, we do not believe that this matter will have a material adverse effect on our financial position or results of operations.

(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~~We continued to utilize IBM’s services and made the scheduled payments during the Chapter 11 ~~filing has not affected~~Proceedings and upon

~~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 ~~315~~187 Rigs. Original lease terms range between five and seven years. However, during 2006 and 2005, we amended certain of these lease agreements to extend them for an additional year. These operating leases expire between 2007 and 2010 and contain residual guarantees of up to 25% of the original cost of the Rigs. We included these residual value guarantees in the calculations that we performed in determining the proper classification of these leases. No accruals for these guarantees were considered necessary at ~~March~~June 30, 2007.

Also included in the noncancelable operating leases disclosed in our Annual Report on Form 10-K for the year ended December 31, 2006 was a lease for corporate office space in Decatur, Georgia. This lease is scheduled to expire on December 31, 2007. We will not be renewing this lease and have advised the landlord of our intention to vacate the premises effective December 31, 2007. A new lease agreement for corporate office space in Atlanta, Georgia has been signed.

(f) Collective Bargaining Agreements

Employees of our subsidiary, Allied Systems Ltd., which represents approximately 80% of our U.S. employees, are covered by the National Master Automobile Transporters Agreement (“Master Agreement’) with the Teamsters in the U.S. The Master Agreement with these employees commenced on June 1, 2003 and iswas scheduled to expire on May 31, ~~2008.~~

2008 but was subsequently modified. The Joint Plan incorporates the modifications to the Master Agreement with the ~~Teamsters.~~Teamsters in the U.S. The ~~modifications were~~amendment, which was subsequently ratified by the affected employees, ~~and~~ took effect upon the Effective ~~Date. These modifications~~Date and will ~~remain in effect through~~expire on May 28, ~~2010 as a part of any new collective bargaining agreement that we enter into with the Teamsters in the U.S.~~2010. Significant ~~provisions~~terms of the ~~modifications~~agreement include:

	•		Total U.S. wage concessions of 15%, limited to $35 million per year during the three-year duration of the agreement;

	•		The elimination of future Teamster wage ~~increases;~~increases contained in the Master Agreement;

	•		A wage freeze relating to the salaries of management and other nonbargaining employees during the three-year duration of the agreement, subject to certain exceptions;

	•		The right of the Teamsters in the U.S. to receive a portion of earnings before interest, taxes, depreciation and amortization (“EBITDA”) in excess of the projections included in the Disclosure Statement for the Joint Plan;

	•		A requirement that a new Chief Executive Officer be appointed by the Effective Date; ~~and~~and.

	•		A requirement that within ninety days of the Effective Date, Allied and the IBT reach an agreement regarding the potential to have the employees of the Axis Group who perform carhaul work be represented by the IBT and have all carhaul work controlled by the Axis Group assigned by right of first refusal to our Automotive Group or another carhaul company subject to the Master Agreement. Allied and the IBT have ~~extended~~agreed to an extension of the ~~date to October 26, 2007~~period to reach an agreement on this ~~matter.~~matter through December 27, 2007. If Allied and the IBT can not reach a mutual agreement on this matter ~~by October 26, 2007,~~within the extended period, we will have four months to sell those operations within the Axis Group.

Our collective bargaining agreement with the Teamsters Union in Eastern Canada was to expire on October 31, 2006. The negotiations regarding a new agreement were postponed during the Chapter 11 Proceedings and further negotiations subsequent to our emergence from Chapter 11 resulted in an extension of the expiration date through June 28, 2007. On June 24, 2007, our Teamster-represented employees in Eastern Canada ratified a new, three-year agreement that provides for certain wage and benefit increases retroactive to November 1, 2006, with an additional ~~increases~~wage and benefit increase that was effective November 1, 2007 and an additional increase scheduled to occur on ~~November 1, 2007 and~~ November 1, 2008. The effect of the retroactive payments of approximately $1.2 million ~~will be~~are reflected in the ~~statement~~statements of operations for the ~~three-month~~one-month period ~~ending~~ended June 30, 2007. This agreement covers those drivers, mechanics and yard personnel that are represented by the Teamsters Union in the provinces of Ontario and Quebec, which represent approximately 70% of our Canadian bargaining employees.

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

management costs, which could in turn materially and adversely affect our financial condition, results of operations or customer relationships.

(g) Employee Agreements with Certain Executive Officers

As of the Effective Date, we entered into amended and restated employment agreements with certain executive officers of our company. The agreements provide for compensation to the officers in the form of annual base salaries and are for one-year terms ~~which~~that renew automatically unless either party gives the required notice before the end of the current term. In addition, we entered into an employment agreement with our new President and Chief Executive Officer ~~which~~(“CEO”) that became effective on June 1, 2007. This agreement includes provisions for a sign-on bonus, annual base salary, a performance-based bonus, options to acquire 300,000 shares of Successor common stock at an exercise price of $18.30 and reimbursement of relocation expenses, among other provisions. Each of the employment agreements provide for severance benefits based upon the occurrence of certain events as defined in the agreement. These employment agreements supersede any severance that would otherwise be payable under the employee retention plan.

During July 2007, the employment agreement with one of the above executive officers was terminated, and we paid $225,000 in severance as required by the terms of that agreement. This amount will be recognized as an expense during the ~~three months~~three-month period ending September 30, 2007.

As disclosed in note 10 above, our former Chief Executive Officer was terminated on or about May 31, 2007 and in connection therewith, we paid him $1.1 million, ~~to him,~~ the severance amount due ~~to him~~ under the employee retention plan. Also, in May 2007, we rejected the employment agreement dated February 23, 2000, as amended on January 21, 2005, with ~~our~~the then Chairman of ~~the~~our Board of Directors. As allowed by the provisions of the Bankruptcy Code, he is entitled to a claim for damages, based on the termination provisions of the employment agreement. The claim for approximately $429,000 ~~will be allowed as a~~is being settled along with other general unsecured ~~claim. These amounts will be recognized as an expense during the quarter ended June 30, 2007, on or prior to the fresh-start reporting date.~~claims.

(14) Earnings (Loss) Per Common Share

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~~Due to their antidilutive effect, we excluded 1.1 million and 1.6 million options to acquire Predecessor common stock for the ~~three months~~two and five-month periods ended ~~March~~May 31, 2007 and the three and six month periods ended June 30, 2006, we excluded options to acquire approximately 1,532,000 and 1,573,000 shares of common stock, respectively, from the calculation of diluted earnings (loss) per share as the impact would have been antidilutive.respectively. Pursuant to the Joint Plan, new common stock ~~of Allied Systems Holdings, Inc.~~ was issued by the Successor as of the Effective Date and all interests in ~~Allied Holdings, Inc.~~ common stock prior to the Effective Date, including options to acquire the Predecessor common stock, were cancelled.

Upon our emergence from Chapter 11 and the adoption of fresh-start reporting, the Successor adopted a new capital structure. In connection therewith, 10 million shares of common stock became issuable to unsecured creditors. As of ~~August 1,~~June 30, 2007, ~~we had~~7,035,101 of the 10 million shares were issued ~~7,035,101 shares of Allied Systems Holdings, Inc. common stock. However, we~~and 2,964,899 were reserved for future issuance. We are still reviewing creditor claims of pre-petition liabilities and certain of those claims are not yet liquidated. Upon resolution of these matters, the additional shares will be issued. In addition, the number of shares issued to new shareholders may be revised based upon resolution of the final claims. ~~Therefore, upon resolution~~Pursuant to SFAS No. 128, we have included the full 10 million shares as outstanding in the computation of ~~these matters we could issue additional~~the weighted-average number of shares ~~which we currently estimate would result in no more than 10,000,000~~used to compute the earnings (loss) per share for the one-month period ended June 30, 2007 since all conditions of distribution were met as of the fresh-start reporting date.

At June 30, 2007, outstanding options to acquire 300,000 shares ~~in total.~~of Successor common stock were excluded from the computation of diluted earnings per share due to their antidilutive effect.

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

to stock options that were unvested at the date of adoption of SFAS No. 123 (revised 2004),Share-Based Payment(“SFAS No. 123(R)”). No new stock options were granted during the ~~three months~~two-month period ended ~~March~~May 31, 2007, or the ~~three months~~five-month period ended ~~March~~May 31, 2007, nor the three- and six-month periods ended June 30, 2006. ~~The stock-based~~Stock-based compensation expense, ~~recorded during~~to the ~~three months ended March 31, 2007 and 2006~~extent recorded, is included in salaries, wages and fringe benefits in the accompanying unaudited consolidated statements of operations. The expense for the two and five month periods ended May 31, 2007 included the accelerated recognition of $187,000 of share-based compensation due to the cancellation of the Predecessor’s share-based awards.

The stockholders of the Successor have not approved a new long-term incentive plan. However, on June 1, 2007, we granted our new CEO options to acquire 300,000 shares of Successor common stock at an exercise price of $18.30. This award vests over five years, 20% per year on the anniversary of the grant date, and will expire after ten years. The fair value of these stock options was determined at the grant date using the Black-Scholes-Merton formula, which requires us to make certain assumptions. The risk-free rate of 4.92% was based on the U.S. Treasury yield curve in effect for the expected term of the options at the time of grant. The dividend yield on our common stock is assumed to be zero since we do not pay dividends and have no current plans to do so. Expected volatility was determined based on our historical volatility data, prior to our Chapter 11 filing, of 77%. The expected term of the options was estimated as 6.5 years based on the “simplified method” allowed by the SEC’s Staff Accounting Bulletin No. 107. Under the simplified method, the expected term is calculated as the sum of the vesting term plus the contractual term divided by two. Since this option has a graded vesting schedule, 20% per year, the vesting term for the simplified method is the average of the respective vesting terms. During the one-month period ended June 30, 2007, we recognized compensation expense related to this award of $30,000, based on a grant date fair value of $6.09 per option. None of the options were exercisable as of June 30, 2007. At ~~March 31,~~June 30, 2007, unrecognized compensation expense associated with unvested stock options was approximately ~~$225,000, all of~~$1,797,000, which will be recognized as compensation expense ~~during~~on a straight-line basis over the ~~second quarter~~requisite service period of five years for the entire award.

In July 2007, ~~due~~we also granted options to acquire 500,000 shares of Successor common stock in ~~part~~aggregate to four other executive officers under the ~~cancellation of these~~same terms as the options ~~on the Effective Date.~~granted to our CEO.

(16) Other Comprehensive Income (Loss)

Total comprehensive ~~loss for the three months ended March 31, 2007 and 2006~~income (loss) are presented below (in thousands):


	Three Months Ended						Successor			Predecessor			Predecessor
	March 31,						One Month Ended			Two Months Ended			Three Months Ended
	2007			2006			June 30, 2007			May 31, 2007			June 30, 2006
Net loss	$	(12,596	)	$	(8,288	)
Net income							$	343		$	217,918		$	6,285
Reclassification adjustment of amounts recognized as components of net periodic benefit cost, net of taxes of $0		444			—			—			296			—
Foreign currency translation adjustments, net of taxes of $0		(345	)		56			(73	)		(702	)		(455	)

	$	(12,497	)	$	(8,232	)	$	270		$	217,512		$	5,830

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

Our Automotive Group’s three largest customers are General Motors, Ford and Chrysler. ~~During the three months ended March 31, 2007, these customers accounted for 36%, 21% and 14%, respectively, of~~Presented below are certain percentage contributions to our Automotive Group’s ~~revenues.~~ revenues made by these customers:

Successor Predecessor
One Month Ended Two Months Ended Five Months Ended
June 30, 2007 May 31, 2007 May 31, 2007
General Motors 38 % 36 % 36 %
Ford 22 % 23 % 22 %
Chrysler 13 % 15 % 14 %

73 % 74 % 72 %

A significant reduction in production, changes in product mix, plant closings, changes in production schedules, changes in our Automotive Group’s ~~customers’~~customer distribution strategies or the imposition of vendor price reductions by these manufacturers, the loss of General Motors, Ford, Chrysler or our two next largest customers, Toyota or Honda as a customer, or a significant reduction in the services provided to any of these customers by the Automotive Group would have a material adverse effect on our operations. General Motors, Ford and Chrysler, in particular, have each publicly announced plans to significantly reduce vendor costs including those associated with transportation services. In addition, ~~our two largest customers,~~ General Motors ~~Corporation~~ and Ford ~~Motor Company,~~ have recently announced plans regarding their intent to close certain production facilities, some of which we serve. A loss of volume would negatively impact our financial results.

~~(18) Supplemental Guarantor Information~~

As more fully discussed in our Annual Report on Form 10-K for the year ended December 31, 2006, substantially all of our subsidiaries, the Guarantor Subsidiaries, guarantee our obligations under the Senior Notes. The guarantees are full and unconditional. The Guarantors are jointly and severally liable for our obligations under the Senior Notes and there are no restrictions on the ability of the Guarantors to make distributions to the parent company, Allied Holdings, Inc. who owns 100% of the Guarantor Subsidiaries.

The following consolidating balance sheet information, statement of operations information, and statement of cash flows information present the financial statement information of our parent company and the combined financial statement information of the Guarantor Subsidiaries and the subsidiaries that do not guarantee the obligations under the Senior Notes (the “Nonguarantor Subsidiaries”):

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

~~SUPPLEMENTAL CONSOLIDATING BALANCE SHEET INFORMATION~~
~~March 31, 2007~~
~~(In thousands)~~

Allied Guarantor Nonguarantor
Holdings Subsidiaries Subsidiaries Eliminations Consolidated
Current assets:
Cash and cash equivalents $ 25,821 $ 457 $ 1,894 $ — $ 28,172
Restricted cash, cash equivalents and other time deposits — — 32,278 — 32,278
Receivables, net of allowances — 46,914 2,127 49,041
Inventories — 4,766 — — 4,766
Deferred income taxes 2,982 — (27 ) 27 2,982
Prepayments and other current assets 1,128 18,867 433 (763 ) 19,665

Total current assets 29,931 71,004 36,705 (736 ) 136,904

Property and equipment, net of accumulated depreciation 3,079 125,854 5,854 — 134,787
Goodwill, net — 3,545 — — 3,545
Other assets:
Restricted cash, cash equivalents and other time deposits — — 65,534 — 65,534
Other noncurrent assets 16,671 16,211 237 — 33,119
Intercompany receivables (payables) 77,326 (77,326 ) — — —
Investment in subsidiaries (107,001 ) 5,910 — 101,091 —

Total other assets (13,004 ) (55,205 ) 65,771 101,091 98,653

Total assets $ 20,006 $ 145,198 $ 108,330 $ 100,355 $ 373,889

Current liabilities not subject to compromise:
Canadian revolving credit facility $ — $ 372 $ — $ — $ 372
Accounts and notes payable 4,677 25,279 897 (763 ) 30,090
Intercompany (receivables) payables (138,287 ) 117,419 20,868 — —
Accrued liabilities 5,372 49,105 23,511 (2,038 ) 75,950
Deferred income taxes — — 106 — 106

Total current liabilities (128,238 ) 192,175 45,382 (2,801 ) 106,518

Long-term liabilities not subject to compromise:
Debtor-in-possession credit facility 205,000 — — — 205,000
Postretirement benefits other than pensions — 14,202 — — 14,202
Deferred income taxes 3,003 — — — 3,003
Other long-term liabilities 296 16,313 46,943 — 63,552

Total long-term liabilities 208,299 30,515 46,943 — 285,757

Liabilities subject to compromise 157,682 41,669 — — 199,351
Commitments and contingencies — — — — —
Stockholders’ (deficit) equity :
Preferred stock, no par value — — — — —
Common stock, no par value — — — — —
Additional paid-in capital 49,138 166,130 2,488 (168,618 ) 49,138
Treasury stock (707 ) — — — (707 )
(Accumulated deficit) retained earnings (242,193 ) (262,173 ) 13,940 248,233 (242,193 )
Accumulated other comprehensive loss, net of tax (23,975 ) (23,118 ) (423 ) 23,541 (23,975 )

Total stockholders’ (deficit) equity (217,737 ) (119,161 ) 16,005 103,156 (217,737 )

Total liabilities and stockholders’ (deficit) equity $ 20,006 $ 145,198 $ 108,330 $ 100,355 $ 373,889

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

~~SUPPLEMENTAL CONSOLIDATING BALANCE SHEET INFORMATION~~
~~December 31, 2006~~
~~(In thousands)~~

Allied Guarantor Nonguarantor
Holdings Subsidiaries Subsidiaries Eliminations Consolidated
Current assets:
Cash and cash equivalents $ — $ 189 $ 2,125 $ — $ 2,314
Restricted cash, cash equivalents and other time deposits — — 32,436 — 32,436
Receivables, net of allowances — 51,035 1,392 52,427
Inventories — 4,916 — — 4,916
Deferred income taxes 1,907 — (21 ) 21 1,907
Prepayments and other current assets 867 19,731 865 21,463

Total current assets 2,774 75,871 36,797 21 115,463

Property and equipment, net of accumulated depreciation 3,140 122,096 3,995 — 129,231
Goodwill, net — 3,545 — — 3,545
Other assets:
Restricted cash, cash equivalents and other time deposits — — 65,857 — 65,857
Other noncurrent assets 8,279 16,125 268 — 24,672
Intercompany receivables (payables) 76,868 (76,868 ) — — —
Investment in subsidiaries (98,564 ) 5,954 — 92,610 —

Total other assets (13,417 ) (54,789 ) 66,125 92,610 90,529

Total assets $ (7,503 ) $ 146,723 $ 106,917 $ 92,631 $ 338,768

Current liabilities not subject to compromise:
Debtor-in-possession credit facility $ 161,357 $ — $ — $ — $ 161,357
Accounts and notes payable 3,269 23,039 56 — 26,364
Intercompany (receivables) payables (133,318 ) 115,309 18,009 — —
Accrued liabilities 5,825 44,120 26,104 (1,610 ) 74,439
Deferred income taxes — — 106 106

Total current liabilities 37,133 182,468 44,275 (1,610 ) 262,266

Long-term liabilities not subject to compromise:
Postretirement benefits other than pensions — 14,227 — — 14,227
Deferred income taxes 1,926 — — — 1,926
Other long-term liabilities 60 17,879 47,330 — 65,269

Total long-term liabilities 1,986 32,106 47,330 — 81,422

Liabilities subject to compromise 157,510 41,702 — — 199,212
Commitments and contingencies — — — — —
Stockholders’ (deficit) equity :
Preferred stock, no par value — — — — —
Common stock, no par value — — — — —
Additional paid-in capital 49,081 166,130 2,488 (168,618 ) 49,081
Treasury stock (707 ) — — — (707 )
(Accumulated deficit) retained earnings (228,432 ) (253,206 ) 13,039 240,167 (228,432 )
Accumulated other comprehensive loss, net of tax (24,074 ) (22,477 ) (215 ) 22,692 (24,074 )

Total stockholders’ (deficit) equity (204,132 ) (109,553 ) 15,312 94,241 (204,132 )

Total liabilities and stockholders’ (deficit) equity $ (7,503 ) $ 146,723 $ 106,917 $ 92,631 $ 338,768

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

~~SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION~~
~~Three Months Ended March 31, 2007~~
~~(In thousands)~~

Allied Guarantor Nonguarantor
Holdings Subsidiaries Subsidiaries Eliminations Consolidated
Revenues $ 6,431 $ 191,574 $ 1,836 $ (6,720 ) $ 193,121

Operating expenses:
Salaries, wages and fringe benefits 1,066 98,995 474 — 100,535
Operating supplies and expenses 3,673 39,086 354 — 43,113
Purchased transportation — 22,881 26 — 22,907
Insurance and claims — 8,898 296 (289 ) 8,905
Operating taxes and licenses 67 6,543 86 — 6,696
Depreciation and amortization 194 7,308 277 — 7,779
Rents 363 1,524 9 — 1,896
Communications and utilities 829 990 22 — 1,841
Other operating expenses 1,416 7,046 74 (6,431 ) 2,105
Loss on disposal of operating assets, net — 30 — — 30

Total operating expenses 7,608 193,301 1,618 (6,720 ) 195,807

Operating (loss) income (1,177 ) (1,727 ) 218 — (2,686 )

Other income (expense):
Interest expense (1,197 ) (6,337 ) (58 ) — (7,592 )
Investment income — 10 1,192 — 1,202
Foreign exchange gains, net — 245 98 — 343
Equity in (losses) earnings of subsidiaries (6,677 ) 165 — 6,512 —

Total other income (expense) (7,874 ) (5,917 ) 1,232 6,512 (6,047 )

(Loss) income before reorganization items and income taxes (9,051 ) (7,644 ) 1,450 6,512 (8,733 )
Reorganization items (3,526 ) (141 ) (1 ) — (3,668 )

(Loss) income before income taxes (12,577 ) (7,785 ) 1,449 6,512 (12,401 )
Income tax expense (19 ) (62 ) (548 ) 434 (195 )

Net (loss) income $ (12,596 ) $ (7,847 ) $ 901 $ 6,946 $ (12,596 )

~~SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION~~
~~Three Months Ended March 31, 2006~~
~~(In thousands)~~

Allied Guarantor Nonguarantor
Holdings Subsidiaries Subsidiaries Eliminations Consolidated
Revenues $ 6,512 $ 239,770 $ 1,398 $ (6,852 ) $ 240,828

Operating expenses:
Salaries, wages and fringe benefits 1,211 124,136 266 — 125,613
Operating supplies and expenses 3,419 45,111 132 — 48,662
Purchased transportation — 30,888 20 — 30,908
Insurance and claims — 10,930 343 (340 ) 10,933
Operating taxes and licenses 60 7,638 — — 7,698
Depreciation and amortization 204 6,851 161 — 7,216
Rents 361 1,388 4 — 1,753
Communications and utilities 868 1,057 12 — 1,937
Other operating expenses 1,277 7,172 128 (6,512 ) 2,065
Gain on disposal of operating assets, net — (54 ) — — (54 )

Total operating expenses 7,400 235,117 1,066 (6,852 ) 236,731

Operating (loss) income (888 ) 4,653 332 — 4,097

Other income (expense):
Interest expense (2,427 ) (7,051 ) (63 ) — (9,541 )
Investment income — 9 1,027 — 1,036
Foreign exchange losses, net — (167 ) (3 ) — (170 )
Equity in (losses) earnings of subsidiaries (1,460 ) 264 — 1,196 —

Total other income (expense) (3,887 ) (6,945 ) 961 1,196 (8,675 )

(Loss) income before reorganization items and income taxes (4,775 ) (2,292 ) 1,293 1,196 (4,578 )
Reorganization items (3,495 ) (88 ) — — (3,583 )

(Loss) income before income taxes (8,270 ) (2,380 ) 1,293 1,196 (8,161 )
Income tax (expense) benefit (18 ) (2 ) (341 ) 234 (127 )

Net (loss) income $ (8,288 ) $ (2,382 ) $ 952 $ 1,430 $ (8,288 )

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

~~SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION~~
~~Three Months Ended March 31, 2007~~
~~(In thousands)~~

Allied Guarantor Nonguarantor
Holdings Subsidiaries Subsidiaries Eliminations Consolidated
Cash flows from operating activities:
Net (loss) income $ (12,596 ) $ (7,847 ) $ 901 $ 6,946 $ (12,596 )
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization 194 7,308 277 — 7,779
Gain on disposal of operating assets, net — 30 — — 30
Write-off and amortization of deferred financing costs 124 — — — 124
Interest expense paid in kind 3,444 — — — 3,444
Foreign exchange gains — (245 ) (98 ) — (343 )
Reorganization items 3,526 141 1 — 3,668
Deferred income taxes 2 (6 ) 6 — 2
Stock-based compensation expense 57 — — — 57
Equity in (earnings) losses of subsidiaries 6,677 (165 ) — (6,512 ) —
Change in operating assets and liabilities: —
Receivables, net of allowances — 4,209 (735 ) — 3,474
Inventories — 161 — — 161
Prepayments and other assets (376 ) 1,060 503 — 1,187
Accounts and notes payable 447 1,125 841 — 2,413
Intercompany payables/receivables (4,969 ) 2,110 2,859 — —
Accrued liabilities (168 ) 2,365 (2,982 ) (434 ) (1,219 )

Net cash (used in) provided by operating activities before payment of reorganization items (3,638 ) 10,246 1,573 — 8,181
Reorganization items paid (2,486 ) (102 ) (1 ) — (2,589 )

Net cash (used in) provided by operating activities (6,124 ) 10,144 1,572 — 5,592

Cash flows from investing activities:
Purchases of property and equipment (133 ) (9,106 ) (2,350 ) — (11,589 )
Proceeds from sales of property and equipment — 152 — — 152
Decrease in restricted cash, cash equivalents and other time deposits — — 481 — 481
Funds deposited with insurance carriers — (504 ) — — (504 )
Funds returned from insurance carriers — 964 — — 964

Net cash used in investing activities (133 ) (8,494 ) (1,869 ) — (10,496 )

Cash flows from financing activities:
Net repayments of original debtor-in-possession revolving credit facility (45,005 ) — — — (45,005 )
Net borrowings under Canadian revolving credit facility — 372 — — 372
Proceeds from new debtor-in-possession facility term borrowings 205,000 — — — 205,000
Proceeds from original debtor-in-possession facility term borrowings 2,000 — — — 2,000
Repayment of original debtor-in-possession facility term borrowings (121,796 ) — — — (121,796 )
Payment of deferred financing costs (8,121 ) — — — (8,121 )
Repayments of insurance financing arrangements — (1,611 ) — — (1,611 )

Net cash provided by (used in) financing activities 32,078 (1,239 ) — — 30,839

Effect of exchange rate changes on cash and cash equivalents — (143 ) 66 — (77 )

Net change in cash and cash equivalents 25,821 268 (231 ) — 25,858
Cash and cash equivalents at beginning of period — 189 2,125 — 2,314

Cash and cash equivalents at end of period $ 25,821 $ 457 $ 1,894 $ — $ 28,172

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

~~SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION~~
~~Three Months Ended March 31, 2006~~
~~(In thousands)~~

Allied Guarantor Nonguarantor
Holdings Subsidiaries Subsidiaries Eliminations Consolidated
Cash flows from operating activities:
Net (loss) income $ (8,288 ) $ (2,382 ) $ 952 $ 1,430 $ (8,288 )
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization 204 6,851 161 — 7,216
Gain on disposal of assets and other, net — (54 ) — — (54 )
Amortization of deferred financing costs 3,631 — — — 3,631
Foreign exchange losses — 170 — — 170
Reorganization items 3,495 88 — — 3,583
Deferred income taxes 24 — 13 (36 ) 1
Stock-based compensation expense 93 — — — 93
Equity in losses (earnings) of subsidiaries 1,460 (264 ) — (1,196 ) —
Change in operating assets and liabilities:
Receivables, net of allowances — 2,234 (223 ) — 2,011
Inventories — (19 ) — — (19 )
Prepayments and other assets (3 ) 2,404 1,296 — 3,697
Accounts and notes payable 1,298 (1,863 ) 318 — (247 )
Intercompany payables/receivables 2,014 (2,303 ) 289 — —
Accrued liabilities 504 7,497 (3,590 ) (198 ) 4,213

Net cash provided by (used in) operating activities before payment of reorganization items 4,432 12,359 (784 ) — 16,007
Reorganization items paid (2,931 ) (5 ) — — (2,936 )

Net cash provided by (used in) operating activities 1,501 12,354 (784 ) — 13,071

Cash flows from investing activities:
Purchases of property and equipment — (6,190 ) (26 ) — (6,216 )
Proceeds from sales of property and equipment — 149 — — 149
Decrease in restricted cash, cash equivalents and other time deposits — — 9 — 9
Funds deposited with insurance carriers — (574 ) — — (574 )
Funds returned from insurance carriers — 1,908 — — 1,908

Net cash provided by (used in) investing activities — (4,707 ) (17 ) — (4,724 )

Cash flows from financing activities:
Net repayments of original debtor-in-possession revolving credit facility (1,501 ) — — — (1,501 )
Proceeds from insurance financing arrangements — 178 — — 178
Repayments of insurance financing arrangements — (8,182 ) — — (8,182 )

Net cash used in financing activities (1,501 ) (8,004 ) — — (9,505 )

Effect of exchange rate changes on cash and cash equivalents — (77 ) — — (77 )

Net change in cash and cash equivalents — (434 ) (801 ) — (1,235 )
Cash and cash equivalents at beginning of period — 730 3,387 — 4,117

Cash and cash equivalents at end of period $ — $ 296 $ 2,586 $ — $ 2,882

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the discussion and analysis in this section in conjunction with the consolidated financial statements and accompanying notes included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q and the consolidated financial statements, related notes and other financial information included in our Annual Report on Form 10-K for the year ended December 31, 2006. In addition, we use forward-looking statements in the discussion that follows. Forward-looking statements by nature involve risks and uncertainties and hence our actual results could differ materially from our expectations as a result of various factors, some of which we discuss in Part II, “Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q.

As more fully discussed in Note 2 to the unaudited consolidated financial statements included in “Item 1. Financial Statements,” on our emergence from Chapter 11 and on the application of fresh-start reporting, a new reporting entity was deemed to be formed and as a result, the financial statements of the Successor are not comparable to the financial statements of the Predecessor.

However, the discussion of results of operations in this section compares the three months ended June 30, 2007 with the three months ended June 30, 2006 and the six months ended June 30, 2007 with the six months ended June 30, 2006. Our discussion of operating, investing and financing activities compares the six months ended June 30, 2007 with the six months ended June 30, 2006. We believe that for purposes of management’s discussion and analysis in this Quarterly Report on Form 10-Q, this presentation provides management and investors with a better perspective of trends and of our ongoing financial and operational performance. In addition, the application of fresh-start reporting does not significantly impact factors such as seasonality of revenues. Further, though having a significant noncash impact on our current and future results of operations, fresh-start reporting will have no impact on underlying cash flows.

Executive Overview

As more fully discussed in Note 1 to the unaudited consolidated financial statements included in “Item 1. Financial Statements,” from July 31, 2005 through May 29, 2007, the Effective Date, Allied Holdings, Inc. and substantially all of its subsidiaries operated under Chapter 11 of the Bankruptcy Code. On the Effective Date, the Debtors emerged from Chapter 11 and Allied Holdings, Inc. merged into its wholly owned subsidiary, Allied Systems Holdings, Inc., a Delaware corporation, with Allied Systems Holdings, Inc. as the surviving ~~corporation. The~~corporation with authorized capital stock of ~~Allied Systems Holdings, Inc. as of the Effective Date consisted of one hundred~~100 million ~~(100,000,000)~~ shares of common stock, par value $0.01 per share, and ~~ten~~10 million ~~(10,000,000)~~ shares of preferred stock, par value $0.01 per share.

We continue to operate in substantially our previous form, and the outstanding claims against and interests in the Debtors are being resolved pursuant to the Joint Plan. As of the Effective Date, our debtor-in-possession financing was converted to ~~Secured Credit Facilities~~senior secured credit facilities that serve as our exit financing. The implementation of the Joint Plan includes, among other things, the consummation of the following transactions:

	i)		Payment in cash, reinstatement, return of collateral or other treatment of ~~other~~ secured claims, as agreed with the holder of each such claim;

	ii)		Distribution of new common stock of Allied Systems Holdings, ~~Inc.~~Inc on a pro rata basis to the holders of allowed general unsecured claims;

	iii)		Cancellation of the existing common stock interests in Allied Holdings, Inc. (holders of equity interests ~~receive~~received nothing under the Joint Plan); and

	iv)		Assumption of selected contracts.

We will adopt fresh-start reporting as of the Effective Date, pursuant to SOP 90-7, which is more fully discussed in Note 3 to the unaudited consolidated financial statements included in “Item 1. Financial Statements.” Upon adoption, assets and liabilities will be adjusted to reflect their estimated fair values and the effects of the Joint Plan will be recorded. As a result, subsequent financial statements of Allied Systems Holdings, Inc. will not be comparable, in various material respects, to any of our previously issued financial statements.

~~In addition, the Joint Plan requires that we work with the IBT to determine whether we can reach an agreement regarding the potential to~~ have the employees of our Axis Group who perform carhaul work be represented by the IBT, and if so, on what terms and conditions, and to have carhaul work that is controlled by the Axis Group assigned by right of first refusal to our Automotive Group or another carhaul company subject to the Master Agreement. We were to reach an agreement with the IBT on this issue within ninety days of the Effective Date. Allied and the IBT have agreed to extend the date to October 26, 2007 to reach an agreement on this matter. If an agreement acceptable to both Allied and the IBT is not reached by October 26, 2007, we will have four months to sell those operations within the Axis Group. We are continuing to work with the IBT in an effort to bring this matter to a conclusion within the sixty-day extension.

~~On the Effective Date, we~~ emerged from Chapter 11 with a redesigned capital structure, lower debt, improved customer contracts and improved contract terms with the IBT regarding our employees in the U.S. represented by the Teamsters. We believe that the factors that precipitated our need to file for protection under Chapter 11 have been adequately addressed and that we are positioned to improve our operating performance and profitability. However, our ability to achieve the necessary improvements is dependent upon several factors including the timely and successful implementation of the Joint Plan, the economy, the dynamics of the automotive transportation industry including actions by our major customers, our ability to retain our existing business, our ability to develop and implement successful business strategies, our ability to maintain effective relationships with our employees including those

The number of vehicles delivered by our Automotive Group in each of the quarters during 2005 and 2006 and the first ~~quarter~~two quarters of 2007 has been consistently less than the number of vehicles delivered during the comparable period in the prior year. Furthermore, the level of decline on a year-over-year basis has been increasing. We have been able to offset at least a portion of the unfavorable impact on revenue caused by the reduction in the number of vehicles delivered with customer rate increases. We have reached an agreement in principle with Chrysler Corporation to renew our current contract for a two year term expiring September 30, 2009. The agreement in principle provides for us to retain substantially all the business our Automotive Group currently transports for Chrysler in North America. The agreement in principle provides for increases in the rates on the business served by our Automotive Group effective October 1, 2007 and October 1, 2008. The agreement in principle remains subject to the execution of a definitive agreement.

Allied Automotive’s business is highly dependent on its largest customers, General Motors, Ford and Chrysler, who each reduced production levels during 2006 and 2007, including selected plant closures in the U.S. General Motors and Ford have publicly announced additional plans to reduce production levels and eliminate excess manufacturing capacity including plans to eliminate jobs and reduce costs for certain employees. The efforts underway by our customers to improve their overall financial condition could result in numerous changes that are beyond our control including additional unannounced customer plant closings, changes in products or distribution patterns, further volume reductions, labor disruptions, changes or disruptions in our accounts receivable, mandatory reductions in our pricing, terms or service conditions or market share losses. We cannot accurately anticipate some of the risks associated with the financial condition of our largest customers and the trend of lower vehicle deliveries in comparison to prior years could continue.

In this section, we will discuss the following:

	•		Results of Operations;

	•		Liquidity and Capital Resources;

	•		Off-Balance Sheet Arrangements;

	•		Disclosures About Market Risks;

	•		Critical Accounting Policies and Estimates;

	•		Recent Accounting Pronouncements;

	•		Factors Which May Affect Future Results; and

	•		Cautionary Notice Regarding Forward-looking Statements.

Results of Operations

Three Months Ended ~~March 31,~~June 30, 2007 Compared to Three Months Ended ~~March 31,~~June 30, 2006

For the ~~first~~second quarter of 2007, our revenues decreased ~~19.8%~~9.3% over the ~~first~~second quarter of 2006. The number of vehicles delivered in the ~~first~~second quarter of 2007 was ~~18%~~10% lower than the number delivered in the ~~first~~second quarter of 2006. Revenue per vehicle delivered ~~decreased $3.27 or 2.9%.~~was relatively flat quarter over quarter. Our operating ~~results~~income for the ~~first~~second quarter of 2007 ~~were $6.8~~decreased $12.5 million ~~lower than~~from the ~~first~~second quarter of 2006 and our net ~~loss~~income increased ~~$4.3~~$212 million. Our operating results were affected by the lower number of vehicles delivered quarter over quarter. The primary factors contributing to the increase in our net income were the gain on debt discharge realized on the settlement of liabilities subject to compromise and the fair value adjustments recorded for fresh-start reporting. To a lesser extent, the increase in net ~~loss~~income was also due to certain customer rate increases. These increases were partially offset by the lower volume of vehicles delivered ~~which were partially offset by customer rate increases, a reduction~~and the shorter distances driven to deliver vehicles, and an increase in interest expense and ~~lower workers’ compensation expense related primarily to~~reorganization costs, excluding the effect of ~~lower premiums for 2007 coverage.~~favorable gains noted above. The following table sets forth the percentage relationship of expense items to revenues:

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part, the rising cost of fuel by allowing us to pass on at least a portion of the increase to those customers who participate in the programs. Fuel surcharges received from customers vary primarily as a result of the changes in the average price of fuel and reset at varying intervals, which do not exceed one quarter, based on fuel prices in the applicable preceding time period. This results in a lag between the time period when fuel prices change and the time period when the fuel surcharge is adjusted. ~~Though~~Generally, fuel prices in the ~~first~~second quarter of 2007 were ~~higher than fuel prices in the first quarter of 2006, fuel prices in the fourth quarter of 2006 were approximately 6.5% and 11%~~ lower than fuel prices in the ~~fourth~~second quarter of ~~2005 for our U.S. and Canadian operations, respectively.~~2006. However, due to the lag discussed above, fuel surcharge revenue would also be impacted by prices in previous quarters. Future revenues derived from fuel surcharges would be impacted if any customer terminated its fuel surcharge agreement with us.

During the Chapter 11 Proceedings, we renewed contracts with rate increases with certain of our major customers and estimate that our revenues increased by approximately $2.4 million, or $1.42, per unit in the first quarter of 2007 over the first quarter of 2006 as a result of changes in customer pricing.

Our revenues are variable and can be impacted by changes in OEM production levels, especially sudden unexpected or unanticipated changes in production schedules, changes in distribution patterns, product type, product mix, product design or the weight or configuration of vehicles transported by our Automotive Group. As an example, our revenues were adversely affected by recent decisions announced by General Motors and Ford to close certain manufacturing plants in the future and the recent decisions by General Motors, Ford and Chrysler to ~~further~~ reduce production at several of ~~their~~its manufacturing plants.

In addition, 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 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. However, given the unpredictable nature of consumer sentiment and our customers’ emphasis on more effective use of plant capacity, particularly at General Motors, Ford and Chrysler (our Automotive Group’s three largest customers), there can be no assurance that historical revenue patterns or manufacturer production levels will be an accurate indicator of future OEM shipment activity. Delivery activity at the Automotive Group and the Axis Group can also be impacted by the availability of rail cars, rail transportation schedules or changes in customer service demands. As a result of these and other factors, our operating results for the ~~three months ended March 31,~~first and second quarters of 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.

Salaries, wages and fringe benefits

Salaries, wages and fringe benefits decreased ~~$25.1~~$5.5 million, or ~~20.0%~~4.8%, in the ~~first~~second quarter of 2007 compared to the ~~first~~second quarter of 2006 primarily as a result of the following:

•		The decrease in the number of vehicles delivered in the first quarter of 2007 compared to the first quarter of 2006, which resulted in a decrease in bargaining wages and benefits of approximately $18.4 million. Driver pay is based primarily on the number of miles driven to deliver vehicles and is affected by changes in revenue related to changes in volume.

•		Lower workers’ compensation expense of $5.8 million due primarily to the effect of lower premiums for 2007 coverage and to a lesser extent, favorable development of claims from prior years of $1.0 million; and

•		A reduction in non-bargaining salaries and benefits of $1.3 million due primarily to a 5.9% reduction in the average number of employees and lower costs for employee medical claims in the first quarter of 2007 compared to the first quarter of 2006.

The decrease in the number of vehicles delivered in the second quarter of 2007 compared to the second quarter of 2006, which resulted in a decrease in bargaining wages and benefits of approximately $8.9 million. Driver pay is based primarily on the number of miles driven to deliver vehicles and is affected by changes in revenue related to changes in volume.

Lower workers’ compensation expense of $3.4 million due to the effect of lower premiums for 2007 coverage.

As a percentage of revenues, salaries, wages and fringe benefits ~~decreased~~increased from ~~52.2%~~46.8% of revenues in the ~~first~~second quarter of 2006 to ~~52.1%~~49.2% of revenues in the ~~first~~second quarter of 2007, primarily as a result of ~~the decrease~~an increase in ~~workers’ compensation expense,~~labor costs for employees covered by bargaining agreements and an increase in non-bargaining salaries. These increases were partially offset by ~~certain fixed~~the lower workers’ compensation expense.

3538

was due primarily to the wage and cost of living increases that took effect on July 1, 2006, the effect of the retroactive payments for our Teamster-represented employees in Eastern Canada of approximately $1.2 million recorded in June 2007, as well as a 10% reduction in wages earned by bargaining employees in May and June 2006 that was approved by the Bankruptcy Court to address a short-term liquidity shortfall in those months.

Salaries related to our non-bargaining employees increased from 4.5% of revenues to 5.3% of revenues primarily as a result of the unpaid furloughs that took effect in May and June 2006. As disclosed in our 2006 Annual Report on Form 10-K, those employees with annual salaries of less than $80,000 were required to accept a five-day unpaid furlough during the month of June 2006 and those with annual salaries of $80,000 or more were required to accept ten days of unpaid furlough by June 2006. Non-bargaining salaries and benefits increased approximately $0.7 million in the second quarter of 2007 compared to the second quarter of 2006 and the unpaid furloughs affected non-bargaining labor costs in the second quarter of 2006 by approximately $1.0 million. The impact of the furloughs was partially offset by a 4.6% reduction in headcount.

Operating supplies and expenses

Operating supplies and expenses increased from ~~20.2%~~20.5% of revenues in the ~~first~~second quarter of 2006 to ~~22.3%~~21.5% of revenues in the ~~first~~second quarter of 2007. This increase was due primarily to certain fixed costs included in operating supplies and expenses, such as outsourcing costs related to the maintenance of our computer equipment and certain other maintenance costs related to our terminal operations, which are not directly affected by fluctuations in revenue.

Fuel expense increased from ~~8.6%~~9.5% of our Automotive Group’s revenues in the ~~first~~second quarter of 2006 to ~~9.2%~~9.8% of our Automotive Group’s revenues in the ~~first~~second quarter of ~~2007. For our U.S. operations~~2007 due to a 0.7% increase in the average price of fuel ~~was approximately 1.8% higher~~to us in the ~~first~~second quarter of 2007 ~~than~~compared to the ~~first~~second quarter of ~~2006, and for our Canadian operations the average price of fuel was flat quarter over quarter.~~2006. The fuel surcharge agreements that we have in place with substantially all of our customers mitigate, in part, the unfavorable impact on our operating income resulting from increases in fuel prices. However, due to the lag between when fuel prices change and the time period when the fuel surcharge is adjusted, there was a net unfavorable impact, net of broker participation, quarter over quarter of approximately ~~$1.1~~$1.3 million on our operating ~~loss.~~income. The difference between the increase in fuel expense resulting from higher fuel prices and the amount of fuel surcharge received from customers during any quarter is due to the timing difference described above in the revenue section.

Overall, operating supplies and expenses decreased ~~$5.5~~$2.4 million, or ~~11.4%~~4.8%, in the ~~first~~second quarter of 2007 compared to the ~~first~~second quarter of 2006 primarily as a result of:

•		~~A decrease of $3.0~~ A decrease of $1.7 million in fuel expense due primarily to the lower number of vehicles delivered, partially offset by an increase in the average price of fuel. We estimate that the lower number of vehicles delivered resulted in a reduction in fuel expense of approximately $3.7 million which was partially offset by approximately $0.7 million due to the increase in the price of fuel; and

•		~~A decrease of $2.8 million in repairs and maintenance primarily as a result of the lower number of miles driven to deliver vehicles.~~

~~These decreases were~~ partially offset by an increase in ~~various other general operating supplies~~the average price of fuel to us. We estimate that the lower number of vehicles delivered resulted in a reduction in fuel expense of $1.9 million which was partially offset by approximately $0.2 million due to the increase in the price of fuel to us. Though fuel prices in the second quarter of 2007 were generally lower than fuel prices in the second quarter of 2006, the cost of fuel to us was higher due to factors such as the volume purchased prior to the reduction in prices as well as the location of purchase.

due primarily to a ~~12.6%~~6.5% reduction in the number of vehicles delivered by owner-operators on our behalf, as well as a decrease of approximately ~~11.9%~~9.4% in the average length of haul for those vehicle deliveries. While the Automotive Group’s average length of haul decreased only ~~2.8%~~1.6% in the ~~first~~second quarter of 2007 ~~over~~compared to the ~~first~~second quarter of 2006, deliveries over the shorter distance were primarily made by our owner-operators with our employee drivers making the deliveries over the longer distance. Purchased transportation as a percentage of revenues may fluctuate based on changes in the distribution patterns of our customers and how the vehicle deliveries are dispatched from our terminal locations.

Insurance and claims

Insurance and claims expense increased from ~~4.5%~~4.2% of revenues in the ~~first~~second quarter of 2006 to ~~4.6%~~4.7% of revenues in the ~~first~~second quarter of 2007. The actual expense ~~decreased $2.0 million primarily as a result of the lower expense associated with the lower number of~~was relatively flat quarter over quarter. Though fewer miles were driven in the ~~first~~second quarter of 2007 compared to the ~~first~~second quarter of ~~2006.~~2006, the impact of the reduced miles was offset by higher insurance premiums and higher loss rates. As a percentage of revenues, insurance and claims expense increased due in part to the ~~decrease in revenues associated with the decrease in revenue per unit, which does not cause~~higher insurance premiums and ~~claims expense to vary.~~

~~Operating taxes and licenses~~

Operating taxes and licenses primarily represent taxes on fuel purchased for our tractors and trailers and include license renewal fees. The taxes vary based on fuel purchases while the license renewal fees are primarily fixed. The actual operating taxes and license expense decreased $1.0 million, primarily as a result of the lower fuel consumption in the first quarter of 2007 compared to the first quarter of 2006. However, as a percentage of revenues, operating taxes and licenses increased from 3.2% to 3.5% due to the fixed cost components that do not fluctuate with revenue.higher loss rates.

Depreciation and amortization

Depreciation and amortization increased ~~$0.6~~$2.0 million from 3.0% of revenues in the ~~first~~second quarter of 2006 to ~~4.0%~~4.2% of revenues in the ~~first~~second quarter of 2007 due to increases in capital spending related to our fleet of Rigs and an increase in ~~2006~~the carrying amount of property and equipment of the ~~first quarter~~Successor due to revaluation adjustments recorded pursuant to SOP 90-7 on the application of ~~2007.~~fresh-start reporting as of the fresh-start reporting date. During 2006, capital expenditures were approximately ~~$35.8~~$35.6 million, an increase of $16.4 million over the amount invested in ~~2005. For~~2005 and for the ~~first quarter of~~six months June 30, 2007, capital expenditures were ~~$11.6~~$32.0 million. The majority of our capital expenditures are related to our fleet of Rigs.

Other operating expenses

Other operating expenses increased from 0.8% of revenues in the second quarter of 2006 to 1.5% of revenues in the second quarter of 2007. The actual expense increased $1.3 million primarily as a result of an increase in professional services related to auditing and tax as well as certain post-emergence expenses related to the Chapter 11 Proceedings. Though we emerged from Chapter 11 effective May 29, 2007, we continue to incur certain expenses related to the bankruptcy filing. All such expenses incurred subsequent to the emergence date are included in operations. Those expenses prior to the emergence date are included in reorganization items. For the one-month period ended June 30, 2007, the amount of such expenses included in other operating expenses was approximately $620,000.

Interest expense

Interest expense ~~decreased~~increased from $9.5 million in the ~~first~~second quarter of 2006 to ~~$7.6~~$16.1 million in the ~~first~~second quarter of 2007. ~~This reduction was primarily a result of~~Factors causing the expense to be higher include the following:

	•		~~Lower~~The equity value received by Yucaipa and the other participants in the Rig Financing exceeded the carrying amount of the Rig Financing by $6.3 million, which was recognized as interest expense;

	•		Higher amortization of deferred financing costs inof $0.9 million, principally the ~~first quarter of 2007 compared to the first quarter of 2006. Primarily as a~~ result of ~~the first quarter 2006 accelerated~~a shorter amortization of deferred financing costs related to the Original DIP Facility, deferred financing costs in the first quarter of 2007 were $3.5 million lower than the first quarter of 2006. In March 2006, the amortization period (six months) for the deferred financing costs related to the ~~Original~~New DIP Facility which was ~~revised~~entered into at the end of March 2007 and which was scheduled to ~~end on the extended date of the forbearance period, May 18, 2006. Previously, the~~mature in September 2007, as well as higher deferred financing costs ~~were being amortized through the original maturity date, February 2, 2007.~~

•		~~Lower interest of $0.5 million~~ related to ~~insurance financing arrangements as a result of lower insurance borrowings in 2007~~the New DIP Facility compared to ~~2006.~~

~~The reductions above were offset by the following:~~

•		~~A prepayment penalty of $1.1 million, incurred during~~ the ~~first quarter of 2007, in respect of the Original DIP Facility;~~

•		~~Lender fees of approximately $0.6 million incurred during the first quarter of 2007,~~deferred financing costs related to the Original DIP Facility; and

	•		An increase in the average outstanding debt in the second quarter of 2007 compared to the second quarter of 2006. The average outstanding debt increased by $70.3 million in the second quarter of 2007 compared to the second quarter of 2006, which resulted in an increase in interest expense of approximately $1.7 million.

The effect of the factors above were partially offset by the following:

	•		A decrease in the effective interest rate. Average interest rates were approximately ~~0.95 percentage points higher~~3.9% lower in the ~~first~~second quarter of 2007 ~~compared to~~versus the ~~first~~second quarter of 2006 resulting in ~~additional~~a decrease in interest expense of approximately ~~$0.4 million.~~$1.5 million; and

	•		Lender fees of approximately $0.8 million incurred in the second quarter of 2006 related to forbearance agreements negotiated in that quarter in relation to the Original DIP Facility.

Investment income

Investment income increased from ~~$1.0~~$1.2 million in the ~~first~~second quarter of 2006 to ~~$1.2~~$1.5 million in the ~~first~~second quarter of 2007 due primarily to an increase in interest rates on time ~~deposits. The weighted-average~~deposits as well as interest ~~rate~~earned on repurchase agreements in 2007. Average interest rates on time deposits ~~was~~were approximately ~~4.9%~~5.0% during the ~~first~~second quarter of 2007 compared to ~~4.0%~~4.7% during the ~~first~~second quarter of 2006. ~~The effect~~Interest earned on repurchase agreements, entered into during the second quarter of 2007, was ~~partially offset by~~$0.3 million. We had no repurchase agreements during the ~~effect~~second quarter of ~~a decrease of approximately~~2006.

Foreign exchange gains, net

Foreign exchange gains, net were $4.5 million in the ~~average balance~~second quarter of ~~restricted cash, cash equivalents and other time deposits~~2007 compared to $1.8 million in the second quarter of 2006. This fluctuation was due primarily to the ~~reduced amount required~~effect of changes in the U.S. and Canadian currency exchange rates on the intercompany payable balance denominated in U.S dollars recorded on one of our Canadian subsidiary’s balance sheet. The Canadian dollar was stronger relative to ~~collateralize letters~~the U.S. dollar at the end of ~~credit related~~both the second quarter of 2007 and the second quarter of 2006 than at the beginning of the respective quarters, thereby causing gains on the intercompany payable in both quarters. However, the exchange rate increase in the second quarter of 2007, 9.1%, was more than the rate of increase in the second quarter of 2006, 4.2%, thereby causing a higher gain in the second quarter of 2007 compared to ~~insurance liabilities.~~the gain recorded in the second quarter of 2006.

Reorganization items

~~Reorganization~~We reported a gain on reorganization items ~~represent costs related to~~of $236.7 million in the ~~Chapter 11 Proceedings. These costs, which were flat~~second quarter ~~over~~of 2007 and reorganization expenses of $4.7 million in the second quarter ~~represent primarily legal and professional services rendered in connection with our Chapter 11 filing. These costs are summarized~~of 2006. As more fully discussed in Note 3 to the unaudited consolidated financial statements included in “Item 1. Financial ~~Statements.~~Statements,” the gain on reorganization items for the second quarter of 2007 primarily represents the gain on debt discharge of $120.8 million, and $131.9 million related to fair value adjustments for fresh-start reporting, which were partially offset by $16.5 million of other costs related to the Chapter 11 Proceedings, primarily legal and professional fees. Reorganization items for the second quarter of 2006 primarily represents legal and professional fees related to the Chapter 11 Proceedings. The component of reorganization items related to professional fees increased in the second quarter of 2007 compared to the second quarter of 2006 due to the following:

	•		Bankruptcy court-approved fees of approximately $6.6 million incurred in May 2007 to Yucaipa for their substantial contribution to the development of the Joint Plan;

	•		Higher fees for legal and reorganization consulting services incurred to comply with the Joint Plan; and

	•		Severance of $1.1 million paid to the Company’s former CEO.

Income taxes

In the ~~first~~second quarter of 2007 and 2006, we recognized income tax ~~expenses~~expense of ~~$195,000~~$13.4 million and ~~$127,000,~~$63,000, respectively. The income tax expense in both quarters differed from the amount computed by applying statutory rates to the reported income before income taxes. The expected tax expense is offset by the reversal of associated valuation allowances in most cases. For both periods, we recognized tax expenses related to foreign jurisdictions where a valuation allowance is not required. In addition, we recognized tax expense during the two months ended May 31, 2007 since the effects of the Joint Plan created deferred tax liabilities for which the timing of the reversal is indefinite. The reversal of those items is not available to offset against deferred tax assets. As a result, an additional valuation allowance was required. For the three months ended June 30, 2006, no expense was recognized related to the income before income taxes, except for the amount related to foreign jurisdictions, since we reported a year-to-date loss before income taxes ~~since~~and no benefit was recognized for the loss before income taxes in the first quarter of 2006.

Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006

For the six months ended June 30, 2007, our revenues decreased 14.5% over the six months ended June 30, 2006. The number of vehicles delivered in the six months ended June 30, 2007 was 14% lower than the number delivered in the six months ended June 30, 2006 and revenue per vehicle delivered was relatively flat. Our operating income for the six months ended June 30, 2007 was $19.3 million lower than the six months ended June 30, 2006 and our net income increased $207.7 million for the same period. Our operating results were affected by the lower number of vehicles delivered. The primary factors contributing to the increase in our net income were the gain on debt discharge realized on the settlement of liabilities subject to compromise and the fair value adjustments recorded for fresh-start reporting. To a lesser extent, the increase in net income was also due to certain customer rate increases. These increases were partially offset by the lower volume of vehicles delivered and the shorter distances driven to deliver vehicles, and an increase in interest expense and reorganization costs, excluding the effect of favorable gains noted above. The following table sets forth the percentage relationship of expense items to revenues:

As a % of revenues
Six Months ended June 30,
2007 2006
Revenues 100.0 % 100.0 %

Operating expenses:
Salaries, wages, and fringe benefits 50.5 % 49.5 %
Operating supplies and expenses 21.9 % 20.4 %
Purchased transportation 11.9 % 13.1 %
Insurance and claims 4.7 % 4.4 %
Operating taxes and licenses 3.3 % 3.1 %
Depreciation and amortization 4.1 % 3.0 %
Rents 0.9 % 0.7 %
Communications and utilities 0.8 % 0.7 %
Other operating expenses 1.3 % 0.8 %
Loss (gain) on disposal of operating assets, net 0.0 % (0.1 )%

Total operating expenses 99.4 % 95.6 %

Operating income 0.6 % 4.4 %
Other income (expense):
Interest expense (5.7 )% (3.9 )%
Investment income 0.6 % 0.5 %
Foreign exchange gains, net 1.2 % 0.3 %

Total other income (expense): (3.9 )% (3.1 )%

(Loss) income before reorganization items and income taxes (3.3 )% 1.3 %
Reorganization items 56.1 % (1.7 )%

Income (loss) before income taxes 52.8 % (0.4 )%
Income tax expense (3.3 )% (0.0 )%

Net income (loss) 49.5 % (0.4 )%

Revenues

Revenues were $415.6 million in the six months ended June 30, 2007 compared to revenues of $486.2 million in the six months ended June 30, 2006, a decrease of 14.5%, or $70.6 million. The decrease in revenues was due primarily to a decline in the number of vehicles delivered by our Automotive Group.

The number of vehicles that we ~~did~~delivered declined by approximately 14% from 4,152,000 units in the six months ended June 30, 2006 to 3,573,000 units in the six months ended June 30, 2007. This reduction was due primarily to a 9% decline in vehicle production by our three largest customers and, to a lesser extent, to the closure of certain terminal locations, fewer vehicles hauled for Toyota and Honda as a result of contract revisions and certain changes in customer and vehicle mix.

Also contributing to the decline in revenues in the six months ended June 30, 2007 compared to the six months ended June 30, 2006 was a $1.57 decrease, or 1.4% decrease, in revenue per vehicle delivered by the Automotive Group. Though revenue per vehicle delivered increased $1.43 as a result of certain customer rate increases and $0.10 due to the strengthening of the Canadian dollar, these increases were offset by a 2.2% decrease in the average

length of haul that caused a decrease in revenue per vehicle delivered of $2.48 period over period, a reduction in fuel surcharge revenue of $0.38 per vehicle delivered and a reduction of $0.24 due to changes such as customer mix.

During the six months ended June 30, 2007, the Canadian dollar averaged the equivalent of U.S. $0.8820 compared to U.S. $0.8786 during the six months ended June 30, 2006, which resulted in an increase in revenues of approximately $0.4 million. However, the effect on operating income was partially offset by a corresponding increase in expenses for our Canadian subsidiary related to the currency fluctuation.

Salaries, wages and fringe benefits

Salaries, wages and fringe benefits decreased $30.6 million, or 12.7%, in the six months ended June 30, 2007 compared to the six months ended June 30, 2006 primarily as a result of the following:

	•		The decrease in the number of vehicles delivered in the six months ended June 30, 2007 compared to the six months ended June 30, 2006, which resulted in a decrease in bargaining wages and benefits of approximately $26.9 million.

	•		Lower workers’ compensation expense of $9.1 million due to the effect of lower premiums for 2007 coverage; and

	•		A reduction in non-bargaining salaries and benefits of $0.6 million due primarily to a 5.2% reduction in the average head count for the six months ended June 30, 2007 versus the six months ended June 30, 2006 and lower costs for employee medical claims, partially offset by the unpaid furloughs discussed in the quarter over quarter comparison.

As a percentage of revenues, salaries, wages and fringe benefits increased from 49.5% of revenues in the six months ended June 30, 2006 to 50.5% of revenues in the six months ended June 30, 2007, primarily as a result of increased labor costs for employees covered by bargaining agreements and an increase in non-bargaining salaries. These increases were partially offset by the lower workers’ compensation expense.

Though labor costs for employees covered by bargaining agreements decreased primarily as a result of the lower volume, labor costs for employees covered by bargaining agreements increased from 39.7% of revenues to 41.5% of revenues primarily as a result of a 3.7% increase in labor cost per vehicle delivered or $6.2 million. This increase was due primarily to the wage and cost of living increases that took effect on July 1, 2006, the effect of the retroactive payments for our Teamster-represented employees in Eastern Canada of approximately $1.2 million recorded in June 2007, as well as a 10% reduction in wages earned by bargaining employees in May and June 2006 that was approved by the Bankruptcy Court to address a short-term liquidity shortfall in those months.

Salaries related to our non-bargaining employees increased from 4.8% of revenues to 5.5% of revenues primarily as a result of the unpaid furloughs that took effect in May and June 2006 and the decrease in revenues.

Operating supplies and expenses

Operating supplies and expenses increased from 20.4% of revenues in the six months ended June 30, 2006 to 21.9% of revenues in the six months ended June 30, 2007. This increase was due primarily to certain fixed costs included in operating supplies and expenses, such as outsourcing costs related to the maintenance of our computer equipment and certain other maintenance costs related to our terminal operations, which are not ~~meet~~directly affected by fluctuations in revenue.

Fuel expense increased from 9.2% of our Automotive Group’s revenues in the six months ended June 30, 2006 to 9.7% of our Automotive Group’s revenues in the six months ended June 30, 2007 due to a 3.6% increase in the average price of fuel to us in the six months ended June 30, 2007 compared to the six months ended June 30, 2006. The fuel surcharge agreements that we have in place with substantially all of our customers mitigate, in part, the unfavorable impact on our operating income resulting from increases in fuel prices. However, due to the lag between when fuel prices change and the time period when the fuel surcharge is adjusted, there was a net unfavorable impact, net of broker participation, period over period of approximately $2.5 million on our operating income. The difference between the increase in fuel expense resulting from higher fuel prices and the amount of fuel surcharge received from customers during any quarter is due to the timing difference described above in the revenue section.

Overall, operating supplies and expenses decreased $8.0 million, or 8.1%, in the six months ended June 30, 2007 compared to the six months ended June 30, 2006 primarily as a result of:

	•		A decrease of $4.8 million in fuel expense due primarily to the lower number of vehicles delivered, partially offset by an increase in the average price of fuel to us. We estimate that the lower number of vehicles delivered resulted in a reduction in fuel expense of $6.1 million which was partially offset by approximately $1.3 million due to the increase in the price of fuel to us. Though fuel prices in the six months ended June 30, 2007 were lower than fuel prices in the six months ended June 30, 2006 for both our U.S and Canadian operations, the cost of fuel to us was higher due to factors such as the volume purchased prior to the reduction in prices as well as the location of purchase.

	•		A decrease of $3.4 million in repairs and maintenance primarily as a result of the lower number of miles driven to deliver vehicles.

	•		A decrease of $1.0 million in the costs of tolls, travel and meals as a result of the decrease in the number of miles driven and vehicles delivered.

The above decreases were partially offset by other increases of approximately $1.3 million due to the accrual for additional claims arising out of the claims reconciliation process and other general expenses.

Purchased transportation

Purchased transportation as a percentage of revenues decreased from 13.1% of revenues in the six months ended June 30, 2006 to 11.9% of revenues in the six months ended June 30, 2007 and purchased transportation expense decreased by $14.2 million, or 22.3%, period over period. The decrease in purchased transportation expense was due primarily to a 9.5% reduction in the number of vehicles delivered by owner-operators on our behalf, as well as a decrease of approximately 10.6% in the average length of haul for those vehicle deliveries. While the Automotive Group’s average length of haul decreased only 2.2% in the six months ended June 30, 2007 over the six months ended June 30, 2006, deliveries over the shorter distance were primarily made by our owner-operators with our employee drivers making the deliveries over the longer distance.

Insurance and claims

Insurance and claims expense increased from 4.4% of revenues in the six months ended June 30, 2006 to 4.7% of revenues in the six months ended June 30, 2007. The actual expense decreased $1.8 million as a result of the lower number of miles driven to deliver vehicles in the six months ended June 30, 2007 compared to the six months ended June 30, 2006, partially offset by higher insurance premiums and higher loss rates. As a percentage of revenues, insurance and claims expense increased due in part to the higher insurance premiums and higher loss rates.

Depreciation and amortization

Depreciation and amortization increased $2.6 million from 3.0% of revenues in the six months ended June 30, 2006 to 4.1% of revenues in the six months ended June 30, 2007. The factors contributing to this increase are discussed in the quarter over quarter comparison above.

Other operating expenses

Other operating expenses increased from 0.8% of revenues in the six months ended June 30, 2006 to 1.3% of revenues in the six months ended June 30, 2007. The actual expense increased $1.4 million. The factors contributing to this increase are discussed in the quarter over quarter comparison above.

Interest expense

Interest expense increased from $19.1 million in the six months ended June 30, 2006 to $23.7 million in the six months ended June 30, 2007.

The increase was due primarily to the following:

	•		The equity value received by Yucaipa and the other participants in the Rig Financing exceeded the carrying amount of the Rig Financing by $6.3 million, which was recognized as interest expense;

	•		An increase in the average outstanding debt during the six months ended June 30, 2007 compared to the six months ended June 30, 2006. The average outstanding debt increased by $36.4 million in the six months ended June 30, 2007 compared to the six months ended June 30, 2006, which resulted in additional interest expense of approximately $2.0 million;

	•		A prepayment penalty of $1.1 million, incurred during the six months ended June 30, 2007, related to the Original DIP Facility; and

	•		Legal and other fees of approximately $0.6 million incurred during the six months ended June 30, 2007 related to the repayment of the Original DIP Facility and entering into the New DIP Facility.

However, the factors above were partially offset by the following:

	•		A decrease in the effective interest rate — average interest rates were approximately 1.7% lower in the six months ended June 30, 2007 versus the six months ended June 30, 2006 resulting in a decrease in interest expense of approximately $1.3 million;

	•		Lender fees of $0.8 million incurred in the six months ended June 30, 2006 related to forbearance agreements negotiated in that period in relation to the Original DIP Facility;

	•		Lower interest of $0.8 million related to insurance financing arrangements as a result of lower insurance borrowings in 2007 compared to 2006; and

	•		Lower amortization of deferred financing costs of $2.6 million in the six months ended June 30, 2007 compared to the six months ended June 30, 2006. This was due to the revision in March 2006 of the end of the amortization period of the deferred financing costs related to the Original DIP Facility from February 2, 2007, the original maturity date, to May 18, 2006, the end of the forbearance period for certain covenant violations that had occurred. The effect of this revision on interest expense, period over period was partially offset by the effect of the shorter amortization period used to amortize the deferred financing costs related to the New DIP Facility in the six months ended June 30, 2007.

Investment income

Investment income increased from $2.2 million in the six months ended June 30, 2006 to $2.7 million in the six months ended June 30, 2007 due primarily to an increase in interest rates on time deposits as well as interest earned on repurchase agreements. Average interest rates on time deposits were approximately 5.0% during the six months ended June 30, 2007 compared to 4.4% during the six months ended June 30, 2006. Interest earned on repurchase agreements, entered into during the six months ended June 30, 2007 was $0.3 million. We had no repurchase agreements during the six months ended June 30, 2006.

Foreign exchange gains, net

Foreign exchange gains, net were $4.8 million in the six months ended June 30, 2007 compared to $1.6 million in the six months ended June 30, 2006. This fluctuation was due primarily to the effect of changes in the US and Canadian currency exchange rates on the intercompany payable balance denominated in U.S dollars recorded on one of our Canadian subsidiary’s balance sheet. The Canadian dollar was stronger relative to the U.S. dollar at the end of the six months ended June 30, 2007 and also at the six months ended June 30, 2006 than at the beginning of these respective periods thereby causing gains on the intercompany payable for both periods. However, the exchange rate increase of 10.0% in the six months ended June 30, 2007 was more ~~likely~~ than ~~not criteria~~the rate of increase of 4.1% in the six months ended June 30, 2006, thereby causing a higher gain in the six months ended June 30, 2007 compared to ~~recognize~~ the gain recorded in the six months ended June 30, 2006.

Reorganization items

We reported a gain on reorganization items of $233.1 million for the six months ended June 30, 2007 and reorganization expenses of $8.3 million for the six months ended June 30, 2006. The factors affecting reorganization items are discussed in the quarter over quarter comparison above.

Income taxes

For the six months ended June 30, 2007 and 2006, we recognized income tax ~~benefits~~expense of ~~losses~~$13.6 million and $190,000, respectively. The income tax expense in both periods differed from the amount computed by applying statutory rates to the reported income (loss) before income taxes. The expected tax expense in 2007 is offset by the reversal of associated valuation allowances in most ~~of our jurisdictions.~~cases. The loss before income taxes in 2006 generated deferred tax assets for which we increased the valuation allowance. For both periods, we recognized tax expenses related to foreign jurisdictions where ~~the~~a valuation allowance is not required. In addition, we recognized tax expense during the two months ended May 31, 2007 since the effects of the Joint Plan created deferred tax liabilities for which the timing of the reversal is indefinite. The reversal of those items is not available to offset against deferred tax assets. As a result, an additional valuation allowance was required.

Liquidity and Capital Resources

Our primary sources of liquidity are funds provided by operations and borrowings from our lenders. We also periodically borrow under insurance financing arrangements to fund our insurance programs. We use our cash primarily for the purchase, remanufacture and maintenance of our Rigs and terminal facilities, the payment of operating expenses, the servicing of our debt, the funding of other capital purchases, and during the Chapter 11 Proceedings, to pay legal and professional fees ~~related to~~of the ~~Chapter 11 Proceedings.~~Predecessor. We use restricted cash, cash equivalents and other time deposits to collateralize letters of credit required by third-party insurance carriers. These collateral assets are not available for our general use in operations. During the Chapter 11 Proceedings, we obtained debtor-in-possession financing which allowed us to continue to operate in the normal course of business during the Chapter 11 Proceedings. Funds were available to help satisfy our working capital obligations, including payment under normal terms for goods and services provided after the Petition Date, payment of wages and benefits to active employees and retirees and other items approved by the Bankruptcy Court. As more fully discussed in Note 11 to the unaudited consolidated financial statements included in “Item 1. Financial Statements,” the debtor-in-possession financing was converted to senior secured credit facilities that served as our exit financing upon our emergence from Chapter 11. We believe that funds from operations and borrowings available under the senior secured credit facilities will be sufficient to meet our working capital needs within the next twelve months.

Operating Activities

We use the indirect method to prepare our statement of cash flows. Accordingly, we compute net cash provided by operating activities by adjusting ~~the~~ net ~~loss~~income (loss) for all items included in ~~the~~ net ~~loss~~income (loss) that do not currently affect operating cash receipts and payments. Cash provided by operating activities was ~~$5.6~~$0.5 million for the ~~first quarter of~~six months ended June 30, 2007 compared to ~~$13.1~~$38.0 million for the ~~first quarter of~~six months ended June 30, 2006, a decrease in operating cash flows of ~~$7.5~~$37.5 million. This decrease in cash from operating activities was primarily due to the unfavorable operating performance compared to the prior ~~quarter. Less~~period. Also, less cash was collected from our customers and payments for reorganization items and insurance were also higher. These items were partially offset by lower payments for interest and certain operating expenditures.

Investing Activities

During the ~~first quarter of~~six months ended June 30, 2007, we used ~~$10.5~~$31.4 million in investing activities compared to ~~$4.7~~$9.8 million during the ~~first quarter of~~six months ended June 30, 2006. This increase was primarily a result of an increase in capital spending on our fleet. Capital expenditures for the ~~first quarter of~~six months ended June 30, 2007 were ~~$11.6~~$32.0 million compared to ~~$6.2~~$12.6 million in the ~~first quarter of~~six months ended June 30, 2006, most of which was spent on our fleet of Rigs. During the ~~first quarter of~~six months ended June 30, 2007, we purchased 5576 new tractors and 545 new trailers. We also remanufactured 3856 tractors and 5392 trailers and replaced approximately 78198 engines. During the ~~first quarter of~~six months ended June 30, 2006, we purchased no6 new tractors ~~or trailers but~~and one trailer and remanufactured 45102 tractors and 70120 trailers and replaced approximately ~~105~~171 engines.

~~$13.5~~ $13.5 million and upon our emergence from Chapter 11, ~~the $15.1 million related to~~Yucaipa converted the Rig Financing ~~was converted to~~of $15.1 million into new equity of ~~Allied Systems Holdings, Inc.~~our company. Of the $15.1 million, $0.1 million represented interest, $13.5 million represented the purchase cost of the Rigs, $0.3 million was used to pay certain costs associated with the purchase ~~$0.1 million represented interest, and~~while the reminder was received by us to retrofit and make any necessary repairs to the ~~Blue Thunder~~ Rigs. As stipulated in the Rig Financing agreement, Yucaipa received a percentage of the ~~new~~ equity of Allied, ~~Systems Holdings, Inc.,~~ with the numerator equal to the amount owed under the Rig Financing, including interest, and the denominator equal to $285 million minus debt, exclusive of the Rig Financing, plus cash on the Effective Date, after giving effect to the Joint Plan.

Financing Activities

Financing activities provided us with ~~$30.8~~$52.1 million during the ~~first quarter of~~six months ended June 30, 2007 while we used ~~$9.5~~$28.3 million in financing activities during the ~~first quarter of~~six months ended June 30, 2006. This increase in net cash flow provided by financing activities was due primarily to the following factors:

	•		Net borrowings under our credit facilities were approximately ~~$40.6~~$64.7 million in the ~~first quarter of~~six months ended June 30, 2007. In the ~~first quarter of~~six months ended June 30, 2006, we had net repayments of ~~$1.5~~$9.1 million under the then revolving credit facility;

	•		During the ~~first quarter of~~six months ended June 30, 2007, the repayments under insurance financing arrangements were ~~$6.6~~$15.4 million lower than the repayments during the ~~first quarter of~~six months ended June 30, 2006 since more premiums were financed for the 2006 coverage; and

	•		In the ~~first quarter of~~six months ended June 30, 2007, we paid financing costs of ~~$8.1~~$8.6 million related to the New DIP Facility, partially offsetting the other increases.

Debt and Letters of Credit

As more fully discussed in Note 11 to the unaudited consolidated financial statements included in “Item 1. Financial Statements,” in connection with our emergence from Chapter 11, effective May 29, 2007, our ~~New DIP Facility~~debtor-in-possession financing was converted to ~~the Secured Credit Facilities~~senior secured credit facilities that serve as our exit financing. The First Lien Facility will mature five years after the Effective Date and the Second Lien Facility will mature five and a half years after the Effective Date.

Amounts outstanding under the ~~Secured Credit Facilities~~senior secured credit facilities will bear interest at the following annual rates:

	•	First Lien Term Loan Facility — At our option, either the Base Rate (which is equal to the greater of the prime rate as published from time to time inThe Wall Street Journalor the federal funds rate plus one-half of 1%) plus 3.0%, or the Adjusted Eurodollar Rate plus 4.0%;

	•	~~Second Lien Term Loan Facility — At our option, either the Base Rate plus 6.5%, or the Adjusted Eurodollar Rate plus 7.5%; and~~

	•	~~First Lien Revolver — At our option, either the Base Rate plus 1.0%, or the Adjusted Eurodollar Rate plus 2.0%.~~

To mitigate the risk of rising interest rates, in August 2007 we entered into floating-to-fixed interest rate swap agreements with an aggregate notional value of $180 million. These interest rate swap agreements have three-year terms and fix the LIBOR component to a weighted-average fixed rate of 5.13% during the terms. Our Secured Credit Facilities require us to hedge a minimum of 50% of the aggregate principal amount of the total indebtedness under those facilities at the date of the conversion. Future results of operations could be impacted by unrealized gains or losses related to these interest rate swap agreements.

Second Lien Term Loan Facility — At our option, either the Base Rate plus 6.5%, or the Adjusted Eurodollar Rate plus 7.5%; and

First Lien Revolver — At our option, either the Base Rate plus 1.0%, or the Adjusted Eurodollar Rate plus 2.0%.

As of June 30, 2007, the weighted-average interest rate on the First Lien Term Loan Facility and the Second Lien Term Loan Facility was 10.1%.

To mitigate the risk of rising interest rates, in August 2007, we entered into floating-to-fixed interest rate swap agreements with an aggregate notional value of $180 million. These interest rate swap agreements have three-year terms and fix the LIBOR component to a weighted-average fixed rate of 5.13% during the terms. Our senior secured credit facilities require us to hedge a minimum of 50% of the aggregate principal amount of the total indebtedness under those facilities as of the date of the conversion beginning no later than 90 days after the date of conversion. Future results of operations could be impacted by unrealized gains or losses related to these interest rate swap agreements.

As of ~~March 31,~~September 30, 2007, we were in compliance with the ~~financial~~ covenants of the ~~Secured Credit Facilities~~senior secured credit facility but can provide no assurance that we will be able to comply with these covenants or, if we fail to do so, that we will be able to obtain amendments or waivers of such covenants.

We also have a Canadian Revolver, which 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 ~~$49.8~~$40.9 million of outstanding letters of credit discussed below. As of ~~March 31,~~June 30, 2007, ~~$0.4 million~~nothing was outstanding on the Canadian Revolver. ~~However, as of September 28, 2007, there were no borrowings on the Canadian Revolver.~~

As holders of allowed general unsecured claims, holders of the Senior Notes received new common stock of Allied Systems Holdings, Inc. on a pro rata basis in exchange for the cancellation of the debt pursuant to the Joint Plan as of the Effective Date.

We renew our letters of credit annually. At ~~March 31,~~June 30, 2007, we had issued ~~$139.8~~$139.3 million of outstanding letters of credit to third parties related primarily to the settlement of insurance ~~liabilities~~claims and reserves and support for a line of credit at one of our foreign subsidiaries. Of the ~~$139.8~~$139.3 million, ~~outstanding at March 31, 2007, $42.0~~$40.9 million of these letters of credit were secured by availability under the New DIP Revolver and ~~$97.8~~$98.4 million were issued by our wholly owned captive insurance subsidiary, Haul Insurance Limited, and were collateralized by ~~$97.8~~$98.4 million of restricted cash, cash equivalents and other time deposits held by this subsidiary.

The amount of letters of credit that we may issue under the First Lien Revolver included in the ~~Secured Credit Facilities~~senior secured credit facilities may not exceed $50 million. As of ~~September 28,~~November 9, 2007, we had utilized ~~$40.0~~$42.4 million of this availability and had ~~$10.0~~$7.6 million available. See Note 11 for a discussion of the current letter of credit facilities under the ~~Secured Credit Facilities.~~senior secured credit facilities.

Contractual Obligations

The following significant changes to the contractual obligations disclosed in our 2006 Annual Report on Form 10-K have occurred:

	•		The Original DIP Facility was replaced by the New DIP Facility, which was later restructured and converted to senior secured credit facilities upon our emergence from Chapter 11. See Note 11 for further discussion of these facilities.

	•		As holders of allowed general unsecured claims, holders of the Senior Notes are entitled to receive new common stock of Allied Systems Holdings, Inc. on a pro rata basis in exchange for the cancellation of the debt pursuant to the Joint Plan as of the Effective Date.

Off-Balance Sheet Arrangements

Between January 1, 2007 and ~~September 28,~~November 9, 2007, we entered into no new significant off-balance sheet arrangements. See our 2006 Annual Report on Form 10-K for a discussion of our off-balance sheet arrangements as of December 31, 2006.

Disclosures About Market Risks

We face several risks, some of which we discuss in Part II, “Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q. The primary market risks inherent in our market risk sensitive instruments and positions are the potential loss arising from adverse changes in fuel prices, interest rates, losses related to retained risks and foreign currency exchange rates.

Fuel Prices

Our Automotive Group is dependent on diesel fuel to operate its fleet of Rigs. Diesel fuel prices are subject to fluctuations due to unpredictable factors such as the weather, government policies and changes in global demand and global production. To reduce the price risk caused by market fluctuations, our Automotive Group periodically purchases fuel in advance of consumption. A 10% increase in diesel fuel prices over the average price of ~~diesel~~ fuel for the 12 months ended ~~March 31,~~June 30, 2007 would increase costs by ~~$9.4~~$9.2 million over the next 12 months assuming levels of fuel consumption in the next 12 months are consistent with levels of fuel consumed during the 12 months ended ~~March 31,~~June 30, 2007. At least a portion of this increase in costs could be recovered by our fuel surcharge arrangements with our customers. Currently, we have in place fuel surcharge agreements with substantially all of our customers. In periods of rising fuel prices and declining vehicle deliveries, we may not recover all of the fuel price increase through our fuel surcharge programs since fuel surcharges reset at varying intervals, which do not exceed one quarter, based on fuel prices in the applicable preceding time period.

Interest Rates

We enter into debt obligations to support general corporate purposes including capital expenditures and working capital needs. As of ~~March 31,~~June 30, 2007, we had ~~$205.0~~$230 million outstanding under the ~~New DIP Facility~~senior secured credit facilities subject to variable rates of interest. ~~As discussed previously, the New DIP Facility was subsequently restructured and converted to exit financing.~~ See “Debt and Letters of Credit” above for a discussion of the ~~Secured Credit Facilities’~~

senior secured credit facilities’ interest rates, which ~~remain~~are variable. Based on the outstanding balance of the ~~New DIP Facility~~senior secured credit facilities as of ~~March 31,~~June 30, 2007, the impact of a three-percentage point increase in interest rates would result in an increase in our annual interest expense of approximately ~~$6.2~~$6.9 million.

To mitigate the risk of rising interest rates, in August 2007, we entered into floating-to-fixed interest rate swap agreements with an aggregate notional value of $180 million. These interest rate swap agreements have three-year terms and fix the LIBOR component to a weighted-average fixed rate of 5.13% during the terms. Our ~~Secured Credit Facilities~~senior secured credit facilities require us to hedge a minimum of 50% of the aggregate principal amount of the total indebtedness under those facilities atas of the date of the conversion beginning no later than 90 days after the date of conversion. Future results of operations could be impacted by unrealized gains or losses related to these interest rate swap agreements.

Risk Management Retention

As more fully discussed in our 2006 Annual Report on Form 10-K, 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 ~~unrelated~~ primary and reinsurance companies unrelated to our company (“third-party insurance carriers”). Our coverage is based on the date that a claim is incurred. Haul Insurance Limited, our captive insurance subsidiary, provides reinsurance coverage to certain of our third-party insurance carriers for certain types of losses for certain years within our insurance program, primarily insured workers’ compensation, automobile and general liability risks. In states where we are insured for workers’ compensation claims, the majority of our risk in 2007 and 2006 is covered by a fully insured program with no deductible.

We are also required to provide collateral to our third-party insurance carriers and various states for losses in respect of worker injuries, accident, theft, and other loss claims. For this purpose, we utilize cash and/or letters of credit. To reduce our risks in these areas as well as the letter of credit or underlying collateral requirements, we have implemented various risk management programs. However, we can provide no assurance that the current letter of credit requirements will be reduced nor can we provide assurance that these letter of credit requirements will not increase.

Because we retain liability for a significant portion of our risks, an increase in the number or severity of accidents, on the job injuries, other loss events over those anticipated, or adverse development of existing claims including wage and medical cost inflation could have a material adverse effect on our profitability. While we currently have insurance coverage for claims above our retention levels, we can provide no assurance that we will be able to obtain insurance coverage in the future.

Foreign Currency Exchange Rates

Though we operate primarily in the U.S., we own foreign subsidiaries, the most significant being Allied Systems (Canada) Company. The net investment in our foreign subsidiaries translated into U.S. dollars using the rate of exchange in effect at ~~March 31,~~June 30, 2007, was ~~$40.7~~$58.2 million. The potential impact on other comprehensive income resulting from a hypothetical 10% change in quoted foreign currency exchange rates approximates ~~$4.1~~$5.8 million.

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

A summary of the significant accounting policies that we follow in the preparation of our financial statements as well as footnotes describing various elements of the financial statements and the assumptions on which specific amounts were determined, are included in our consolidated financial statements included in our 2006 Annual Report on Form 10-K. In addition, our critical accounting policies and estimates are discussed in our 2006 Annual Report on Form ~~10-K,~~10-K. As of the fresh-start reporting date, we added the accounting policy related to Goodwill and Other Intangible Assets to the list of those that we consider to be critical accounting policies. The adoption of fresh-start reporting also impacted our accounting policy related to property and equipment. The critical accounting policies and critical accounting estimates, related to property and equipment and Goodwill and other Intangible Assets are discussed in Notes 6 and 7, respectively, to the unaudited consolidated financial statements included in “Item 1. Financial Statements.”

Other critical accounting estimates made at the fresh-start reporting date are discussed in Note 3 to the unaudited consolidated financial statements included in “Item 1. Financial Statements.”

Except as referred to above, we believe that no material changes have occurred ~~with respect~~ to our critical accounting policies and ~~estimate~~estimates since the filing of ~~that report, except for accounting for uncertainty in income taxes.~~

~~Accounting for Uncertainty in Income Taxes —~~~~We adopted the provisions of FIN 48~~our 2006 Annual Report on January 1, 2007. FIN 48 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. We undertook a comprehensive review of our tax positions, and the cumulative effect of adopting the provisions of FIN 48 to all tax positions resulted in a cumulative effect adjustment to accumulated deficit of $1.2 million as of January 1, 2007. As of the date of adoption, the total amount of unrecognized tax benefits was $7.0 million, and interest and penalties were $0.9 million. Included in the total unrecognized benefits at January 1, 2007, are $1.4 million of tax benefits that, if recognized, would favorably affect the effective income tax rates in future periods. For certain uncertain tax positions it is reasonably possible that the total amounts of unrecognized tax benefits will change significantly within the next twelve months as a result of the effects of our emergence from Chapter 11 or the settlement of audits that may be initiated.

The determination as to whether a tax position meets the recognition threshold requires significant judgment as it relates to whether, based on the technical merits, the position would be sustained upon examination. Additional judgment is required to determine, for those tax positions that meet the recognition threshold, the amount of tax benefit that can be recognized, which is specified in FIN 48 as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. To make those determinations, we consider the facts, circumstances and information available at the reporting date.

For certain uncertain tax positions it is reasonably possible that the total amounts of unrecognized tax benefits will change significantly within the next twelve months as a result of the effects of our emergence from Chapter 11 or the settlement of audits that may be initiated.Form 10-K.

Recent Accounting Pronouncements

See Note 43 to the unaudited consolidated financial statements included in “Item 1. Financial Statements.”

Factors Which May Affect Future Results

Our business is subject to certain risks, including the risks set forth in Part II, “Item 1A. Risk Factors.” Readers of this Quarterly Report onForm 10-Q should take such risks into account in evaluating any investment decision involving our securities. More detailed information concerning these and other risks is contained in other sections of this Quarterly Report onForm 10-Q and our other reports filed with the Securities and Exchange Commission (“SEC”).

Cautionary Notice Regarding Forward-Looking Statements

We make forward-looking statements in this Quarterly Report on Form 10-Q and in other materials we file with the SEC or otherwise make public. This Quarterly Report on Form 10-Q, including “Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations,” contains forward-looking statements. In addition, our senior management might make forward-looking statements orally to analysts, investors, the media and others. Statements concerning our future operations, prospects, strategies, financial condition, future economic performance and demand for our services, and other statements of our plans, beliefs, or expectations are forward-looking

~~“estimate,~~ “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” or similar expressions. You are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. These factors include, among others, those set forth in Part II, “Item 1A. Risk Factors” and in the other documents that we file with the SEC. There also are other factors that we may not describe, generally because we currently do not perceive them to be material, which could cause actual results to differ materially from our expectations.

We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The information required under this item is provided under the caption “Disclosures about Market Risks” under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures.As of the end of the period covered by this quarterly report, Allied, under the supervision and with the participation of Allied’s management, including the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of Allied’s disclosure controls and procedures (as defined in Sections 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that Allied’s disclosure controls and procedures were effective in alerting them in a timely manner of material information required to be included in Allied’s periodic SEC filings.

(b) Changes in Internal Control Over Financial Reporting.

During the ~~three~~second quarter of 2007, upon our emergence from Chapter 11, we established controls over the application of fresh-start reporting. Except for such application of fresh-start reporting, during the six months ended ~~March 31,~~June 30, 2007, there were no significant changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II —– OTHER INFORMATION

Item 1. Legal Proceedings

We are involved in various litigation and environmental matters relating to workers’ compensation, products liability, auto liability, employment practices, and other matters arising from operations in the ordinary course of business. We believe that the ultimate disposition of these matters will not have a material adverse effect on our financial position but could have a material effect on our results of operations in future periods.

See also Note 13 (c) of the notes to our unaudited consolidated financial statements included in Part 1, “Item 1. Financial Statements.”

Item 1A. Risk Factors

Our business is subject to certain risks, including the risks described below. This Item 1A does not describe all risks applicable to our business and is intended only as a summary of certain material factors that affect our operations and the car-haul industry in which we operate. More detailed information concerning these and other risks is contained in other sections of this Quarterly Report on Form 10-Q and our other reports filed with the SEC. The risks described below, as well as the other risks that are generally set forth in this Quarterly Report on Form 10-Q, could materially and adversely affect our business, results of operations and financial condition. Readers of this Quarterly Report on
Form 10-Q should take such risks into account in evaluating any investment decision involving our common stock or debt securities.

4351

Our actual financial results and financial condition could significantly vary from the projections provided to the Bankruptcy Court and investors are cautioned not to place undue reliance on this information.

In connection with the filing of the Joint Plan, we filed four-year income statement projections as exhibits to the plan documents as well as other projected financial information filed with the Bankruptcy Court. The four-year income statement projections were based on information available to us as of March 23, 2007. Our actual results and financial condition could vary materially from the income statement and other projections filed with the Bankruptcy Court. The four-year income statement projections and other projected information filed with the Bankruptcy Court are not included in this Quarterly Report on Form 10-Q nor are they incorporated by reference. Investors should not place undue reliance on those projections.

Our net operating loss carry forwards may be limited

At the fresh-start reporting date, our net operating loss carryforwards for federal income tax purposes were estimated at $40 million and are estimated to expire between 2021 and 2026. As a result of the issuance of new common stock upon emergence, we realized a change in ownership under the provisions of Section 382 of the Internal Revenue Code. As a result, the amount of our net operating loss carryforwards that we can utilize each year will be limited.

We have a significant amount of debt and substantially all our assets are pledged as collateral for debt obligations, which could limit our operational flexibility and customer relationships or otherwise adversely affect our financial condition.

As of ~~March 31,~~June 30, 2007, we had consolidated term debt and borrowings under the ~~New DIP Facility~~senior secured credit facilities of approximately ~~$205.0~~$230 million. ~~Upon emergence we had $230 million outstanding under the Senior Secured Credit Facilities.~~ We are exposed to the risks normally associated with substantial amounts of debt such as:

	•		We may not be able to repay, refinance or extend our debt as it matures.

	•		If we are not able to refinance or extend our debt when it matures, we may not be able to repay the debt;

	•		Substantially all our assets are pledged as collateral for our debt and as a result we are limited in our ability to sell assets to generate additional cash;

	•		Our flexibility in responding to changes in the business and industry may be reduced;

	•		We may be more vulnerable to economic downturns;

	•		We may be unable to invest in our fleet of Rigs;

	•		We may be unable to meet customer demands; and

	•		We may be limited in our ability to withstand competitive pressures.

The terms of the ~~Secured Credit Facilities~~senior secured credit facilities place restrictions on us, which create risks of default and limits our flexibility.

The new ~~Secured Credit Facilities contain~~senior secured credit facilities contains a number of affirmative, negative, and financial covenants, which limit our ability to, among other things, incur or repay debt (with the exception of payment of interest or principal at stated maturity), incur liens, make investments, purchase or redeem stock, make dividend or other distributions or enter into a merger or consolidation transaction.

If we fail to comply with the covenants contained in the ~~Secured Credit Facilities,~~senior secured credit facilities, and these are not waived, or we do not adequately service this debt, our lenders could declare a default under the ~~Secured Credit Facilities.~~senior secured credit facilities. If a default occurs under the ~~Secured Credit Facilities,~~senior secured credit facilities, our lenders may elect to declare all borrowings outstanding, together with interest and other fees, to be immediately due and payable. Borrowings under the ~~Secured Credit Facilities~~senior secured credit facilities are collateralized with substantially all of our assets. If we were unable to repay any borrowings under the ~~Secured Credit Facilities~~senior secured credit facilities when due, our lenders would have the right to proceed against the collateral granted to them to secure the debt. Any default under the ~~Secured Credit Facilities,~~senior secured credit facilities, particularly

any default that results in acceleration of indebtedness or foreclosure on collateral, would have a material and adverse affect on us.

We will be required to make significant capital expenditures on our Rigs in the coming years and we may not be able to maintain our current level of terminal operations or customer relationships.

In recent years, as a result of our financial condition, we have operated under a reduced capital expenditure plan with respect to our fleet of Rigs. As a result, we have been unable to replace or remanufacture the number of Rigs or engines we normally would have if we had not been forced to significantly reduce our capital expenditures. We believe that approximately 67% of our active fleet of Rigs will reach the end of their useful lives and must be replaced in 2007 through 2010, which will require a significant increase in our capital spending, from approximately $35.8 million in 2006 to approximately $66.8 million in 2007 (excluding the Blue Thunder Rigs) and $70 million in each of the years 2008, 2009 and 2010. No assurances can be provided that we will have the necessary capital from our operations or that we will be able to obtain financing on terms acceptable to us, or at all, to support this necessary increase in capital investment.

Even if we are able to invest the amounts indicated above each year, we will be operating a substantial number of Rigs beyond their scheduled replacement or remanufacturing due dates. Accordingly, Rigs may have to be taken out of service sooner than planned as a result of equipment failures or the Rigs otherwise reaching the end of their useful

lives. We presently have no excess Rigs to service our existing business or to seek additional business. A large number of Rig failures could result in our inability to meet our service requirements under existing customer contracts, which could result in the termination of such agreements by our customers and would likely have a material adverse effect on our operations and financial results. Additionally, we may be forced to increase repair and maintenance spending in an effort to maintain the number of Rigs in service. If we are unable to make planned reinvestments in the fleet because of liquidity or other constraints, or if there is inadequate manufacturing or remanufacturing capacity when we require it, repairs and maintenance expense will be adversely impacted.

If we are not able to renegotiate our union contracts on terms favorable to us as they expire, or if work stoppages or other labor disruptions occur during such negotiations, it could have a material adverse effect on our operations.

The Joint Plan incorporates modifications to our collective bargaining agreement with the Teamsters in the U.S. The amendment took effect upon the Effective Date and is renewable three years from that date. We can provide no assurance that we will be able 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.

Rising interest rates could adversely affect our cash flow and interest expense.

A portion of our indebtedness is subject to variable rates of interest. In addition, we may also incur additional debt obligations attracting interest at variable rates and/or may refinance our current debt at higher interest rates.

Therefore, our interest expense could increase which in turn would reduce the amounts available for servicing our debt, funding our operations and capital expenditure program, meeting customer demands and pursuing new business opportunities.

A shortage of fuel or higher fuel prices resulting from fuel shortages or other factors could have a detrimental effect on the automotive industry or the automotive transportation industry and could materially and adversely affect our operations.

Higher fuel prices or a shortage of fuel could impact the sale of SUVs or light trucks at our major customers which could impair our revenues and negatively impact our earnings. Further, fuel is a major expense in the transportation of automobiles, and the cost and availability of fuel are subject to economic and political factors and events, which we can neither control nor accurately predict. We ~~have the option~~attempt to minimize the effect of fuel price fluctuations by periodically purchasing a portion of our fuel in advance, but ~~even if we utilize this option,~~ we can provide no assurance that such activity will effectively mitigate our exposure. In addition, we have negotiated fuel surcharges with substantially all of our

customers, which now enables us to pass on a portion of any increase in fuel costs to these customers. Customer fuel surcharges reset at varying intervals which do not exceed one quarter, based on the fuel prices from the applicable previous period. Therefore, there is a lag between the time fuel prices change and the time that the fuel surcharge is adjusted. Nevertheless, we can provide no assurance that we will be able to continue to obtain fuel surcharges from these customers. Furthermore, in periods of rising fuel prices and declining vehicle deliveries, we may not recover all of the fuel price increase through our fuel surcharge programs since fuel surcharge rates in any quarter reset at the beginning of the quarter based on fuel prices in the preceding quarter and are also influenced by our customers’ production levels.

Higher fuel prices resulting from fuel shortages or other factors could materially and adversely affect us if we are unable to pass on the full amount of fuel price increases to our customers through fuel surcharges or higher shipment rates. In addition, higher fuel prices, even if passed on to customers, or a shortage of fuel supply, or the timing of fuel surcharge recoveries could have an adverse effect on the automotive transportation industry and our business in general.

A further decline in the automotive industry could have a material adverse effect on our operations.

The automotive transportation industry in which we operate is dependent upon the volume of new automobiles, SUVs, and light trucks manufactured, imported and sold in North America. The automotive industry is highly cyclical, and the demand for new automobiles, SUVs, and light trucks is directly affected by such external factors as

general economic conditions in the U.S and Canada, unemployment, consumer confidence, fuel prices, government policies, continuing activities of war, terrorist activities, and the availability of affordable new car financing. As a result, our results of operations could be adversely affected by downturns in the general economy and in the automotive industry and by consumer preferences in purchasing new automobiles, SUVs, and light trucks or the overall financial condition of our major customers. A significant decline in the volume of automobiles, SUVs, and light trucks manufactured, distributed, and sold in North America could have a material adverse effect on our operations.

The internal strategies of our largest customers could have a material effect on our performance.

Our Automotive Group’s business is highly dependent on its largest customers, General Motors, Ford, Chrysler, Toyota and Honda. General Motors and Ford have publicly announced plans to reduce production levels and eliminate excess manufacturing capacity including plans to eliminate jobs and reduce costs for certain employees. The efforts underway by our customers to improve their overall financial condition could result in numerous changes that are beyond our control including additional unannounced customer plant closings, changes in products or distribution patterns, further volume reductions, labor disruptions, changes or disruptions in our accounts receivable, mandatory reductions in our pricing, terms or service conditions or market share losses. We cannot accurately anticipate some of the risks associated with the financial condition of our largest customers.

Losses may exceed our insurance coverage or ~~liabilities recorded.~~reserves.

Because we retain liability for a significant portion of our risks, an increase in the number or severity of accidents, on the job injuries, other loss events over those anticipated, or adverse developments in existing claims including wage and medical cost inflation could have a material adverse effect on our profitability. While we currently have insurance coverage for claims above our retention levels, there can be no assurance that we will be able to obtain insurance coverage in the future.

We establish liabilities for our self-insured obligations based on actuarial valuations, our historical claims experience and management’s evaluation of the nature and severity of claims made against us. If the cost of these claims exceeds our estimates, as could occur if there were unfavorable developments in existing claims, we would be required to record additional expenses in subsequent years.

We are also required to provide collateral to our third-party insurance carriers and various states for losses in respect of worker injuries, accident, theft, and other loss claims. For this purpose, we utilize cash ~~cash equivalents and other time deposits~~ and/or letters of credit. We can provide no assurance that the current letter of credit requirements will be reduced nor can we provide assurance that these letter of credit requirements will not increase.

We have a history of losses and may not be able to improve our performance to achieve profitability.

We reported net losses of ~~$12.6 million,~~ $12.3 million, $125.7 million, $53.9 million, $8.6 million and $7.5 million for the ~~first quarter of 2007 and the~~ years ended December 31, 2006, 2005, 2004, 2003 and 2002, respectively. ~~In addition, our accumulated deficit at March~~Though we reported net income of $205 million for the five months ended May 31, 2007, this was ~~$217.7 million.~~primarily a result of one-time adjustments related to the effects of the Joint Plan and fresh-start reporting. Our ability to improve our performance and profitability is dependent upon several factors including the timely and successful implementation of the Joint Plan, the economy, the dynamics of the automotive transportation industry including actions by our major customers, our ability to develop and implement successful business strategies, our ability to maintain effective relationships with our employees including those represented by the Teamsters, our ability to maintain effective relationships with our suppliers, the price and availability of fuel and our ability to successfully manage other operational challenges. If we fail to improve our performance, it could continue to have an adverse effect on our financial condition, cash flow, liquidity and business prospects and our operations would not likely be profitable in the ensuing years.

Our restricted cash, cash equivalents and other time deposits are not available for use in our operations even if they were needed to fund our operations.

As of ~~March 31,~~June 30, 2007, our restricted cash, cash equivalents and other time deposits were approximately ~~$97.8~~$98.4 million. ~~The amount of restricted cash has not changed significantly through July 31, 2007.~~ We use these restricted cash and investments to collateralize letters of credit required by third-party insurance carriers. These assets are not available for use in our operations even if needed for our continued operations or to service our debt obligations.

If we do not maintain our relationships with major customers or these relationships are terminated, reduced or redesigned, our operations could be materially and adversely affected.

Our Automotive Group’s business is highly dependent on its largest customers, General Motors, Ford, Chrysler, Toyota and Honda. Approximately 88% of our Automotive Group’s 2006 revenues were generated through the services provided to these customers. We can provide no assurance that we will be able to successfully renew these contracts on or prior to their expiration on terms satisfactory to us or that we will be able to continue to serve these customers without service interruption. In addition, the Automotive Group faces the risk of losing market share in connection with its negotiations to renew its customer contracts. For instance, in 2004, the Automotive Group renewed its agreement with Chrysler and though the agreement resulted in increased billing rates, the Automotive Group lost Chrysler’s business at six locations in connection with the contract renewal. Also, in 2005, in connection with the renewal of its contract with Toyota, the Automotive Group lost business at locations that generated approximately 32% of the 2005 revenues associated with the Toyota account. The Automotive Group recently reached an agreement in principle with Ford, which would give Ford the right to ~~use other carriers~~resource certain of our business at ~~certain~~ locations mutually acceptable to Allied and Ford. A continued loss in market share without an increase in revenues or pricing or an adequate reduction in costs would likely have an adverse effect on our operations.

A significant reduction in vehicle production levels, plant closings, or the imposition of vendor price reductions by these manufacturers, or the loss of General Motors, Ford, Chrysler, Toyota or Honda as customers, or a significant reduction or a change in the design, definition, frequency or terms of the services provided for any of these customers by our Automotive Group would have a material adverse effect on our operations. General Motors, Chrysler, and Ford, in particular, have publicly announced plans to significantly reduce vendor costs including those costs associated with logistics services.

Competition in the automotive transportation industry could result in a loss of our market share or a reduction in our rates, which could have a material adverse effect on our operations.

The automotive transportation industry is highly competitive. Our Automotive Group currently competes with other motor carriers of varying sizes, as well as with railroads and independent owner-operators. Allied Automotive also competes with non-union motor carriers that may be able to provide services to their customers at lower prices and in a more flexible manner than we can. The development of new methods for hauling vehicles could also lead to increased competition. For example, some customers occasionally utilize local drive-away services to facilitate local delivery of products. There has also been an increase in the number of vehicle-hauling companies that utilize non-union labor, and we believe that the market share and Rig capacity represented by such companies is increasing. Vehicle-hauling companies that utilize non-union labor operate at a significant cost advantage as compared to our Automotive Group and other unionized vehicle-hauling companies. Non-union vehicle-hauling competitors also operate without restrictive work rules that apply to our Automotive Group and other unionized companies.

Railroads, which specialize in long-haul transportation, may be able to provide delivery services at costs to customers that are less than the long-haul delivery cost of Allied Automotive’s services. Further, the railroads could form alliances for local delivery of customer products. If we lose market share to these competitors or have to reduce our rates in order to retain our market share, our financial condition and results of operations could be materially and adversely affected. We hope to prevent further deterioration to our market share on the basis of reliability through our experienced drivers, effective management, productive and service-driven operations, extensive and flexible distribution network, and management of risk, particularly with respect to cargo claims, worker injuries and traffic accidents. However, we can provide no assurance that we will be able to prevent further loss of our market share through these initiatives.

Our common stock is not currently listed on a national securities exchange, ~~and is subject to restrictions on transfer~~ which could make it more difficult for investors to liquidate their shares, result in a decline in the stock price and make it difficult for us to raise additional capital.

On the Effective Date, our pre-Chapter 11 common stock was cancelled and new common stock was issued. These securities are not currently listed on a national securities exchange, ~~and are subject to restrictions on transfer~~ which could make it more difficult for investors to liquidate their shares, result in a decline in the stock price and make it difficult for us to raise additional capital. We ~~can provide no assurance that we will be able~~do not currently intend to re-list our common stock on a national securities exchange.

We ~~may~~intend to terminate our SEC reporting obligations, which could make an investment in our common stock less liquid.

The transfer restrictions included in our certificate of incorporation are designed, in part, to limit our number of shareholders of record so that we can deregister from our reporting obligations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and we currently anticipate that we will terminate our reporting obligations with the SEC ~~prior~~subsequent to ~~December 2007. If~~the filing of this Quarterly Report on Form 10-Q. When we terminate our reporting obligations under the Exchange Act, it ~~would~~will likely further reduce any market for our common stock. In addition, although we will be required to continue to provide certain information to our shareholders, such information will not be as detailed as that required under the Exchange Act.

Adverse changes in the foreign business climate, primarily in Canada, could adversely affect our operations.

Although the majority of our operational activity takes place in the U.S., we derive a portion of our revenues and earnings from operations in foreign countries, primarily Canada. The risks of doing business in foreign countries include the potential for adverse changes in the local political climate, adverse changes in diplomatic relations between foreign countries and the U.S., hostility from local populations, terrorist activity, the potential adverse effects of currency exchange controls, increased security at U.S. border crossings which could slow the movement of freight and increase our operating costs, deterioration of foreign economic conditions, currency rate fluctuations, foreign exchange restrictions and potential changes in local taxation policies. Due to the foregoing risks, any of which, if realized, could have a material adverse effect on our operations, we believe that our business activities outside of the U.S. involve a higher degree of risk than our domestic activities.

Major changes in key personnel on whom we depend could adversely affect our operations.

Our success is dependent upon our senior management team, as well as our ability to attract and retain qualified personnel. Effective June 1, 2007, we hired a new President and Chief Executive Officer. If our management team is unable to develop successful strategies, achieve company objectives or maintain satisfactory relationships with our customers, employees, suppliers and creditors, our ability to grow our business and meet business challenges could be impaired. We can provide no assurance that we will be able to retain our existing senior management team or that we will be able to attract qualified replacement personnel.

The loss of our Teamster drivers and mechanics could adversely affect our operations.

Our ability to perform daily operations on behalf of our customers is dependent upon our ability to attract and retain qualified drivers and mechanics to staff our Automotive Group’s terminals and garages. Should we experience higher than historical Teamster employee retirements or resignations which could occur as a result of our efforts to seek interim wage relief and modifications to the Master Agreement, our ability to grow our business, maintain our current business levels and meet customer service requirements could be adversely impacted. We can provide no

assurance that we will be able to retain existing Teamster personnel at existing staffing levels or attract new Teamster employees to replenish our work force, when necessary.

We have previously had material weaknesses in our internal control over financial reporting, and any unidentified material weaknesses could cause us to fail to meet our SEC and other reporting requirements.

In connection with its audits of our consolidated financial statements for the years ended December 31, 2005, 2004 and 2003, including reviews of the quarterly periods for those years, KPMG LLP (“KPMG”) advised the Audit Committee and management that KPMG had identified deficiencies in our analysis, evaluation and review process for financial reporting. KPMG informed the Audit Committee and management that it believed such deficiencies were a “material weakness” in our internal control over financial reporting, with respect to our analysis, evaluation and review of financial information included in our financial reporting.

In connection with the audit of our consolidated financial statements for the year ended December 31, 2006, KPMG indicated that they did not identify a material weakness as of December 31, 2006. Since we are not an accelerated filer (as defined in Exchange Act Rule 12b-2), we have not conducted the initial assessment of our internal control over financial reporting mandated by Section 404 of the Sarbanes-Oxley Act of 2002 nor has KPMG audited the effectiveness of our internal control over financial reporting. We will report on our annual assessment in our Annual Report on Form 10-K, when required, which will be no earlier than for the year ending December 31, 2007. That process could identify significant deficiencies or material weaknesses not previously reported.

We can provide no assurances that additional material weaknesses or significant deficiencies in our internal control over financial reporting will not be discovered in the future. If we fail to remediate any such material weakness, our operating results or customer relationships could be adversely affected or we may fail to meet our SEC reporting requirements or our financial statements may contain a material misstatement.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives or of preventing fraud due to its inherent limitations, regardless of how well designed or implemented. Internal control over financial reporting is a process that involves human diligence and compliance and as a result is subject to lapses in judgment and breakdowns resulting from human failures. Because of these and other limitations, there is a risk that material misstatements or instances of fraud may not be prevented or detected on a timely basis by our internal control over financial reporting.

Item ~~5. Other Information~~2. Unregistered Sales of Equity Securities and Use of Proceeds

~~On July~~Pursuant to the Joint Plan, 10 ~~2007,~~million shares of new common stock were issued for distribution by our disbursing agent. All such shares were issued without registration under the employment agreement with Mr. Joseph Marinelli, a named executive officer, was terminated. In connection with the termination, we entered into a Severance Agreement and Full Release (the “Severance Agreement”) with Mr. Marinelli. Under the termsSecurities Act of 1933, as amended, or state laws, as allowed by Section 1145 of the ~~Severance Agreement, we paid Mr. Marinelli a lump-sum severance payment~~Bankruptcy Code. See Note 3 to the unaudited consolidated financial statements included in the amount of $225,000, as required under his employment agreement. As consideration for the severance payment, Mr. Marinelli agreed to waive any claims he may have against us and agreed to restrictions on his ability to solicit our customers and employees for a period of one year.

Mr. Marinelli also agreed to make himself available for consultation as required and deemed necessary by the President and Chief Executive Officer or the Senior Vice-President of Terminal Operations, to provide information, explanations, review or support, or to serve us in any other consulting capacity. In consideration for making himself readily available to us during such 30 day period, we agreed to pay him a consulting fee in an amount equal to $10,000, subject to ordinary and lawful deductions, $5,000 of which was payable 15 days after execution of the Severance Agreement and $5,000 of which was payable on the 30^th ~~day following execution of the Severance Agreement.~~“Part 1. Item 1. Financial Statements.”

Item 6. Exhibits

(a) Exhibit Index


Exhibit No.		Description

~~10.20(b) £~~		~~Contract Carriage Agreement dated April 1, 2007, by and between TOYOTA MOTOR SALES, U.S.A., INC., and ALLIED SYSTEMS, LTD. (L.P.)~~

~~10.22(a) £~~		~~SECOND AMENDMENT~~~~to Motor Transportation Contract dated 11th day of June, 2007, by and between~~~~AMERICAN HONDA MOTOR CO., INC~~~~. and~~~~ALLIED SYSTEMS, LTD~~.

~~10.25~~		~~AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated July 2007, by and between KEITH RENTZEL and ALLIED AUTOMOTIVE GROUP, INC.~~

~~10.26~~		~~AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated July 2007, by and between ROBERT FERRELL and ALLIED AUTOMOTIVE GROUP, INC.~~

~~10.27~~		~~SEVERANCE AGREEMENT between JOE MARINELLI and ALLIED AUTOMOTIVE GROUP, INC.~~

~~31.1~~		~~Rule 13a-14(a)/15d-14(a) Certification by Mark J. Gendregske.~~

~~31.2~~		~~Rule 13a-14(a)/15d-14(a) Certification by Thomas H. King.~~

~~32.1~~		~~Section 1350 Certification by Mark J. Gendregske.~~

~~32.2~~		~~Section 1350 Certification by Thomas H. King.~~


£		~~Confidential treatment has been requested with respect to portions of this exhibit.~~


	PAGE
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements
Consolidated Balance Sheets- ~~March 31,~~
June 30, 2007 (Successor) and December 31, 2006 ~~(unaudited)~~(Predecessor) — unaudited		1
Consolidated Statements of Operations- ~~Three Months Ended March 31, 2007 and 2006 (unaudited)~~
One Month Ended June 30, 2007 (Successor), Two Months Ended May 31, 2007 (Predecessor) and Three Months Ended June 30, 2006 (Predecessor) — unaudited		2
One Month Ended June 30, 2007 (Successor), Five Months Ended May 31, 2007 (Predecessor) and Six Months Ended June 30, 2006 (Predecessor) — unaudited		3
Consolidated Statements of Cash Flows- ~~Three Months Ended March 31, 2007 and 2006 (unaudited)~~ —		3
One Month Ended June 30, 2007 (Successor), Five Months Ended May 31, 2007 (Predecessor) and Six Months Ended June 30, 2006 (Predecessor) — unaudited		4

Notes to the Consolidated Financial Statements (unaudited)		45

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		3234
Item 3. Quantitative and Qualitative Disclosures About Market Risk		4351
Item 4. Controls and Procedures		4351

PART II — OTHER INFORMATION
Item 1. Legal Proceedings		4351
Item 1A. Risk Factors		4351
Item ~~5. Other Information~~2. Unregistered Sales of Equity Securities and Use of Proceeds		4857
Item 6. Exhibits		4957

SIGNATURES		5059
~~EX-10.20(B) CONTRACT CARRIAGE AGREEMENT DATED APRIL 1, 2007~~
~~EX-10.22(A) SECOND AMENDMENT TO MOTOR TRANSPORTATION CONTRACT~~
~~EX-10.25 AMENDED AND RESTATED EMPLOYMENT AGREEMENT / KEITH RENTZEL~~
~~EX-10.26 AMENDED AND RESTATED EMPLOYMENT AGREEMENT / ROBERT FERRELL~~
~~EX-10.27 SEVERANCE AGREEMENT / JOE MARINELLI~~
EX-31.1 ~~SECTION 302~~ CERTIFICATION OF ~~THE CEO~~MARK J. GENDREGSKE
EX-31.2 ~~SECTION 302~~ CERTIFICATION OF ~~THE CFO~~THOMAS H. KING
EX-32.1 SECTION ~~906~~SECTION 1350 CERTIFICATION ~~OF THE CEO~~BY MARK J. GENDREGSKE
EX-32.2 SECTION ~~906~~1350 CERTIFICATION ~~OF THE CFO~~BY MARK J. GENDREGSKE


	Successor			Predecessor
	June 30,			December 31,
	2007			2006
Tractors and trailers	$	143,496		$	423,899
Buildings and facilities (including leasehold improvements)		25,749			45,360
Furniture, fixtures and equipment		4,666			44,286
Land		18,373			9,786
Service cars and equipment		2,011			4,513

		194,295			527,844
Less accumulated depreciation		(3,714	)		(398,613	)

	$	190,581		$	129,231


	Debtors			Non-Debtors			Eliminations			Consolidated
Current assets	$	100,936		$	36,704		$	(736	)	$	136,904
Intercompany receivables (payables)		19,808			(19,808	)		—			—
Property and equipment, net		128,933			5,854			—			134,787
Goodwill, net		3,545			—			—			3,545
Investment in subsidiaries		20,059			6,220			(26,279	)		—
Other assets		32,883			65,770			—			98,653

Total assets	$	306,164		$	94,740		$	(27,015	)	$	373,889


Liabilities not subject to compromise:
Current liabilities	$	84,794		$	24,525		$	(2,801	)	$	106,518
Other noncurrent liabilities		238,815			46,942			—			285,757
Liabilities subject to compromise		199,351			—			—			199,351
Stockholders’ (deficit) equity		(216,796	)		23,273			(24,214	)		(217,737	)

Total liabilities and stockholders’ (deficit) equity	$	306,164		$	94,740		$	(27,015	)	$	373,889


	March 31, 2007			Plan			Fresh Start			March 31, 2007
	As Reported			Effects			Adjustments			Pro forma
				(In thousands)
Current assets	$	136,904		$	(987	)(f)	$	(1,793	)(i)	$	134,124
Property and equipment, net		134,787			14,699	(h)		31,407	(i)		180,893
Goodwill, net		3,545			—			(3,545	)(e)		—
Intangibles		—			—			22,500	(k)		22,500
Unallocated reorganization value		—			—			63,989	(g)		63,989
Other assets		98,653			—			(7,573	)(a),(i)		91,080

Total assets	$	373,889		$	13,712		$	104,985		$	492,586


Liabilities not subject to compromise:
Current	$	106,518		$	3,729	(c),(f)	$	(147	)(j)	$	110,100
Long-term		285,757			—			(1,271	)(j)		284,486
Liabilities subject to compromise		199,351			(199,351	)(c),(f)		—			—
Stockholders’ (deficit) equity		(217,737	)		209,334	(b)		106,403	(d)		98,000

Total liabilities and stockholders’ (deficit) equity	$	373,889		$	13,712		$	104,985		$	492,586


	Fair value at May 31, 2007
				Based on Quoted Prices		Based on			Based on
				in Active Markets for		Significant Other			Significant
				Identical Assets		Observable			Unobservable			Total
				(Liabilities)		Inputs			Inputs			Gains
	Total			(Level 1)		(Level 2)			(Level 3)			(Losses)
	(In thouusands)
Property and equipment	$	180,976		$	—	$	—		$	180,976		$	21,207
Goodwill		85,912			—		—			85,912			82,367
Other intangible assets		27,400			—		—			27,400			27,184
Self-insurance liabilities		(77,501	)		—		—			(77,501	)		6,173
Compensated absences		(7,351	)		—		—			(7,351	)		4,028
Deferred income taxes		(20,743	)		—		—			(20,743	)		(6,523	)
Secured credit facilities		(229,500	)		—		(229,500	)					(6,625	)
Defined benefit pension and other postretirement plans:
Plan assets		59,427			59,427		—			—
Benefit obligation		(67,826	)		—		—			(67,826	)

Funded status		(8,399	)		59,427		—			(67,826	)		4,441

Other					—					—			(339	)

												$	131,913


							Fresh-start
	Predecessor			Effects of			Reporting			Successor
	May 31, 2007			Joint Plan			Adjustments			May 31, 2007
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	36,037		$	—		$	—		$	36,037
Restricted cash, cash equivalents and other time deposits		30,388			—			—			30,388
Receivables, net		47,602			—			—			47,602
Inventories		5,038			—			—			5,038
Deferred income taxes		3,658			717	a)		4,367	a)		8,742
Prepayments and other current assets		14,304			719	b)		(2,641	) l)		12,382

Total current assets		137,027			1,436			1,726			140,189
Property and equipment, net of accumulated depreciation		154,109			—			26,867	m)		180,976
Goodwill		3,545			—			82,367	t)		85,912
Other intangible assets		—			—			27,400	n)		27,400
Other assets:
Restricted cash, cash equivalents and other time deposits		67,637			—			—			67,637
Other noncurrent assets		33,004			(255	) c)		(6,837	) o)		25,912

Total other assets		100,641			(255	)		(6,837	)		93,549

Total assets	$	395,322		$	1,181		$	131,523		$	528,026


LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current liabilities not subject to compromise:
Current maturities of long-term debt	$	1,800		$	—		$	—		$	1,800
Accounts and notes payable		43,692			(9,818	) d)		—			33,874
Accrued liabilities		74,588			(87	) e)		(5,889	) p)		68,612
Deferred income taxes		134			—			—			134

Total current liabilities		120,214			(9,905	)		(5,889	)		104,420

Long-term liabilities not subject to compromise:
Long-term debt, less current maturities		227,700			—			—			227,700
Postretirement benefits other than pensions		14,244			—			(1,069	) q)		13,175
Deferred income taxes		3,679			14,782	a)		10,891	a)		29,352
Other long-term liabilities		61,018			(1,316	) f)		(4,323	) r)		55,379

Total long-term liabilities		306,641			13,466			5,499			325,606

Liabilities subject to compromise		198,763			(198,763	) g)		—			—
Stockholders’ equity (deficit):
Predecessor preferred stock		—			—			—			—
Predecessor common stock		—			—			—			—
Successor preferred stock		—			—			—			—
Successor common stock		—			100	h)		—			100
Additional paid-in capital		49,363			97,193	i)		(48,656	) s)		97,900
Treasury stock		(707	)		707	j)		—			—
Accumulated deficit		(254,471	)		98,383	k)		156,088	s)		—
Accumulated other comprehensive loss, net of tax		(24,481	)		—			24,481	s)		—

Total stockholders’ equity (deficit)		(230,296	)		196,383			131,913			98,000

Total liabilities and stockholders’ equity (deficit)	$	395,322		$	1,181		$	131,523		$	528,026


Conversion of Rig Financing to Successor equity	$	(15,000	)
Pre-petition claims to be settled with cash (previously included in liabilities subject to compromise)		1,368
Advisory fees due upon emergence		2,440
Premiums payable as of the Effective Date relating to directors’ and officers’ insurance of the Successor		1,374

	$	(9,818	)


To be settled with cash	$	1,368
To be settled by conversion to Successor equity at estimated equity value		76,553
Gain on debt discharge		120,842

	$	198,763


General unsecured creditors	$	76,553
In settlement of Rig Financing plus interest		21,447

Reorganization equity value		98,000
Less par value of Successor common stock		(100	)

		97,900
Elimination of Predecessor treasury stock		(707	)

	$	97,193


Write-off of deferred financing costs of Predecessor	$	(6,500	)
Impact, on the noncurrent portion of tires on tractors and trailers, of the change in accounting policy		(3,144	)
Write-off of royalties, which are now accounted for in “other intangible assets” above		(216	)
Fair value adjustments related to defined benefit pension plans		3,023

		$(6,837	)

	•		2 to 8 years for tractors and trailers;

	•		2 to 35 years for buildings and facilities;

	•		2 to 14 years for furniture, fixtures, service cars and equipment; and

	•		over the shorter of the estimated useful life or the term of the lease for leasehold improvements.


	Successor
	June 30, 2007
		Gross				Net
	Estimated	Carrying		Accumulated		Carrying
	Life	Amount		Amortization		Amount
Customer relationships:
Allied Automotive Group	15 years	$	2,000	$	10	$	1,990
Axis Group	10 years		5,700		48		5,652

		$	7,700	$	58	$	7,642

Developed technology:
Allied Automotive Group	5 years	$	2,700	$	45	$	2,655
Axis Group	7 years		3,100		37		3,063

		$	5,800	$	82	$	5,718


Total		$	13,500	$	140	$	13,360


Six months ending December 31, 2007	$	843
2008		1,686
2009		1,686
2010		1,686
2011		1,686
2012		1,371


													Defined Benefit									Postretirement Benefit
	Defined Benefit						Postretirement Benefit						Pension Plans									Plans
	Pension Plans						Plans						Successor			Predecessor						Successor		Predecessor
	Three Months Ended March 31,												One Month Ended			Two Months Ended			Three Months Ended			One Month Ended		Two Months Ended			Three Months Ended
	2007			2006			2007			2006			June 30, 2007			May 31, 2007			June 30, 2006			June 30, 2007		May 31, 2007			June 30, 2006
Service cost	$	18		$	23		$	17		$	14		$	5		$	12		$	23		$	5	$	12		$	14
Interest cost		773			762			185			164			264			515			762			66		124			164
Expected return on plan assets		(1,112	)		(1,014	)		—			—			(392	)		(741	)		(1,014	)		—		—			—
Amortization of:
Unrecognized net actuarial loss		325			524			184			169			—			217			524			—		122			169
Prior service cost (credits)		12			12			(76	)		(82	)		—			8			12			—		(51	)		(82	)

Net periodic benefit cost	$	16		$	307		$	310		$	265		$	(123	)	$	11		$	307		$	71	$	207		$	265


	Allied			Guarantor			Nonguarantor
	Holdings			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Current assets:
Cash and cash equivalents	$	25,821		$	457		$	1,894		$	—		$	28,172
Restricted cash, cash equivalents and other time deposits		—			—			32,278			—			32,278
Receivables, net of allowances		—			46,914			2,127						49,041
Inventories		—			4,766			—			—			4,766
Deferred income taxes		2,982			—			(27	)		27			2,982
Prepayments and other current assets		1,128			18,867			433			(763	)		19,665

Total current assets		29,931			71,004			36,705			(736	)		136,904

Property and equipment, net of accumulated depreciation		3,079			125,854			5,854			—			134,787
Goodwill, net		—			3,545			—			—			3,545
Other assets:
Restricted cash, cash equivalents and other time deposits		—			—			65,534			—			65,534
Other noncurrent assets		16,671			16,211			237			—			33,119
Intercompany receivables (payables)		77,326			(77,326	)		—			—			—
Investment in subsidiaries		(107,001	)		5,910			—			101,091			—

Total other assets		(13,004	)		(55,205	)		65,771			101,091			98,653

Total assets	$	20,006		$	145,198		$	108,330		$	100,355		$	373,889


Current liabilities not subject to compromise:
Canadian revolving credit facility	$	—		$	372		$	—		$	—		$	372
Accounts and notes payable		4,677			25,279			897			(763	)		30,090
Intercompany (receivables) payables		(138,287	)		117,419			20,868			—			—
Accrued liabilities		5,372			49,105			23,511			(2,038	)		75,950
Deferred income taxes		—			—			106			—			106

Total current liabilities		(128,238	)		192,175			45,382			(2,801	)		106,518


Long-term liabilities not subject to compromise:
Debtor-in-possession credit facility		205,000			—			—			—			205,000
Postretirement benefits other than pensions		—			14,202			—			—			14,202
Deferred income taxes		3,003			—			—			—			3,003
Other long-term liabilities		296			16,313			46,943			—			63,552

Total long-term liabilities		208,299			30,515			46,943			—			285,757

Liabilities subject to compromise		157,682			41,669			—			—			199,351
Commitments and contingencies		—			—			—			—			—
Stockholders’ (deficit) equity :
Preferred stock, no par value		—			—			—			—			—
Common stock, no par value		—			—			—			—			—
Additional paid-in capital		49,138			166,130			2,488			(168,618	)		49,138
Treasury stock		(707	)		—			—			—			(707	)
(Accumulated deficit) retained earnings		(242,193	)		(262,173	)		13,940			248,233			(242,193	)
Accumulated other comprehensive loss, net of tax		(23,975	)		(23,118	)		(423	)		23,541			(23,975	)

Total stockholders’ (deficit) equity		(217,737	)		(119,161	)		16,005			103,156			(217,737	)

Total liabilities and stockholders’ (deficit) equity	$	20,006		$	145,198		$	108,330		$	100,355		$	373,889


	As a % of revenues
	Three Months ended March 31,						As a % of revenues
	2007			2006			Three Months ended June 30,
			%			%	2007			2006
Revenues		100.0	%		100.0	%		100.0	%		100.0	%

Operating expenses:
Salaries, wages, and fringe benefits		52.1	%		52.2	%		49.2	%		46.8	%
Operating supplies and expenses		22.3	%		20.2	%		21.5	%		20.5	%
Purchased transportation		11.9	%		12.8	%		11.9	%		13.3	%
Insurance and claims		4.6	%		4.5	%		4.7	%		4.2	%
Operating taxes and licenses		3.5	%		3.2	%		3.1	%		3.0	%
Depreciation and amortization		4.0	%		3.0	%		4.2	%		3.0	%
Rents		1.0	%		0.7	%		0.9	%		0.7	%
Communications and utilities		1.0	%		0.8	%		0.7	%		0.6	%
Other operating expenses		1.1	%		0.9	%		1.5	%		0.8	%
Loss (gain) on disposal of operating assets, net		0.0	%		(0.0	)%		0.0	%		(0.1	)%

Total operating expenses		101.5	%		98.3	%		97.7	%		92.8	%

Operating (loss) income		(1.5	)%		1.7	%
Operating income								2.3	%		7.2	%
Other income (expense):
Interest expense		(3.9	)%		(4.0	)%		(7.2	)%		(3.9	)%
Investment income		0.6	%		0.4	%		0.7	%		0.5	%
Foreign exchange gains (losses), net		0.2	%		(0.1	)%
Foreign exchange gains, net								2.0	%		0.7	%

Total other income (expense):		(3.1	)%		(3.7	)%		(4.5	)%		(2.7	)%

Loss before reorganization items and income taxes		(4.6	)%		(2.0	)%
(Loss) income before reorganization items and income taxes								(2.2	)%		4.5	%
Reorganization items		(1.9	)%		(1.5	)%		106.4	%		(1.9	)%

Loss before income taxes		(6.5	)%		(3.5	)%
Income before income taxes								104.2	%		2.6	%
Income tax expense		(0.1	)%		(0.1	)%		(6.0	)%		(0.0	)%

Net loss		(6.6	)%		(3.6	)%
Net income (loss)								98.2	%		2.6	%


	As a % of revenues
	Six Months ended June 30,
	2007			2006
Revenues		100.0	%		100.0	%

Operating expenses:
Salaries, wages, and fringe benefits		50.5	%		49.5	%
Operating supplies and expenses		21.9	%		20.4	%
Purchased transportation		11.9	%		13.1	%
Insurance and claims		4.7	%		4.4	%
Operating taxes and licenses		3.3	%		3.1	%
Depreciation and amortization		4.1	%		3.0	%
Rents		0.9	%		0.7	%
Communications and utilities		0.8	%		0.7	%
Other operating expenses		1.3	%		0.8	%
Loss (gain) on disposal of operating assets, net		0.0	%		(0.1	)%

Total operating expenses		99.4	%		95.6	%

Operating income		0.6	%		4.4	%
Other income (expense):
Interest expense		(5.7	)%		(3.9	)%
Investment income		0.6	%		0.5	%
Foreign exchange gains, net		1.2	%		0.3	%

Total other income (expense):		(3.9	)%		(3.1	)%

(Loss) income before reorganization items and income taxes		(3.3	)%		1.3	%
Reorganization items		56.1	%		(1.7	)%

Income (loss) before income taxes		52.8	%		(0.4	)%
Income tax expense		(3.3	)%		(0.0	)%

Net income (loss)		49.5	%		(0.4	)%


	~~ALLIED HOLDINGS, INC.~~
~~Date: October 11, 2007~~	~~By:~~	~~/s/ Mark J. Gendregske~~
		~~Mark J. Gendregske,~~
		~~President and Chief Executive Officer~~


~~Date: October 11, 2007~~	~~By:~~	~~/s/ Thomas H. King~~
		~~Thomas H. King,~~
		~~Executive Vice President and Chief Financial~~ ~~Officer (Principal Financial and Accounting~~ ~~Officer)~~


~~Exhibit No.~~		~~Description~~

~~10.20(b) £~~		~~Contract Carriage Agreement dated April 1, 2007, by and between TOYOTA MOTOR SALES, U.S.A., INC., and ALLIED SYSTEMS, LTD. (L.P.)~~

~~10.22(a) £~~		~~SECOND AMENDMENT~~~~to Motor Transportation Contract dated 11th day of June, 2007, by and between~~~~AMERICAN HONDA MOTOR CO., INC~~~~. and~~~~ALLIED SYSTEMS, LTD~~.

~~10.25~~		~~AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated July 2007, by and between KEITH RENTZEL and ALLIED AUTOMOTIVE GROUP, INC.~~

~~10.26~~		~~AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated July 2007, by and between ROBERT FERRELL and ALLIED AUTOMOTIVE GROUP, INC.~~

~~10.27~~		~~SEVERANCE AGREEMENT between JOE MARINELLI and ALLIED AUTOMOTIVE GROUP, INC.~~

31.1		Rule 13a-14(a)/15d-14(a) Certification by Mark J. Gendregske.

31.2		Rule 13a-14(a)/15d-14(a) Certification by Thomas H. King.

32.1		Section 1350 Certification by Mark J. Gendregske.

32.2		Section 1350 Certification by Thomas H. King.


	ALLIED	SYSTEMS HOLDINGS, INC.

Date: November 14, 2007	By:	/s/ Mark J. Gendregske
		Mark J. Gendregske,
		President and Chief Executive Officer

Date: November 14, 2007

	By:	/s/ Thomas H. King

		Thomas H. King,
		Executive Vice President and Chief Financial
		Officer (Principal Financial and Accounting
		Officer)