UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

or

Commission File Number: 0-22276

ALLIED HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Suite 200, 160 Clairemont Avenue, Decatur, Georgia 30030

(404) 373-4285

     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.      [X] Yes     [  ] No

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

[  ] Yes       [X] No

Outstanding common stock, no par value at October 15, 2004...................................................8,919,905

ALLIED HOLDINGS, INC. AND SUBSIDIARIES

INDEX

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PART 1 - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

ALLIED HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In Thousands)

The accompanying notes are an integral part of these consolidated balance sheets.

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ALLIED HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)

The accompanying notes are an integral part of these consolidated statements.

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ALLIED HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)

The accompanying notes are an integral part of these consolidated statements.

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ALLIED HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

June 30, 2004 and 2003

(1) Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements included herein have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information and with the instructions to Form 10-Q of Regulation S-X. They do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2003. The statements contained herein reflect all adjustments (including normal recurring accruals), which are, in the opinion of management, necessary to present fairly the financial condition, results of operations and cash flows for the periods presented. Operating results for the three- and six-month periods ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ended December 31, 2004. The interim financial statements should be read in conjunction with the financial statements and notes thereto of Allied Holdings, Inc. and Subsidiaries (the “Company”) included in the Company’s 2003 Annual Report on Form 10-K.

(2) Use of Estimates

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

(3) Recent Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board, or FASB, issued FASB Interpretation No. 46 Consolidation of Variable Interest Entities and Interpretation of ARB No. 51, or FIN 46, as revised in December 2003, which addresses the consolidation by business enterprises of variable interest entities. FIN 46 is immediately effective for all variable interest entities created after January 31, 2003. For variable interest entities created prior to this date, the provisions of FIN 46 must be applied no later than the first interim period ending after March 15, 2004; however, all public companies were required to apply the unmodified provisions of FIN 46 to entities considered “special purpose entities” by the end of the first reporting period ending after December 15, 2003. The adoption of FIN 46 did not have any impact on the Company’s financial statements.

(4) Restatements and Reclassifications

During 2003, and as discussed in the Company’s 2003 Annual Report on Form 10-K, the Company evaluated the classification of its cash and investments which were pledged to collateralize letters of credit required by third-party insurance companies for the settlement of insurance claims. The Company concluded that because of the restriction on certain of its cash and investments, such cash and investments should have been designated as restricted in the statement of cash flows. Accordingly, the Company has restated its previously issued financial statements as of June 30, 2003 to exclude restricted cash of $5.0 million from the cash and cash equivalents totals in the consolidated statement of cash flows for the six months ended June 30, 2003.

The Company enters into notes payable with third parties to finance certain insurance arrangements. During the quarter ended March 31, 2004, the Company evaluated its insurance financing arrangements and determined that borrowings and repayments in connection with these insurance financing arrangements should be reclassified from operating activities to financing activities in the consolidated statement of cash flows for the three-month period ended March 31, 2003. As a result of the analysis, the amounts previously presented for the three-month period ended March 31, 2003 were restated for this change when the amounts were presented in the Company’s Quarterly Report on Form 10-Q for the three-month period ended March 31, 2004.

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Subsequent to the filing of the Form 10-Q for the three-month period ended March 31, 2004, the Company determined that certain additional adjustments were required in the consolidated statements of cash flows for the three-month periods ended March 31, 2004 and 2003 related to the Company’s insurance financing arrangements. These adjustments resulted in changes to the proceeds from and repayments of insurance financing arrangements included in cash flows from financing activities previously reported for the three months ended March 31, 2004 and 2003. The Company also concluded that certain additional insurance financing arrangements should be presented in the balance sheets on a gross basis, as assets and obligations, rather than on a net basis. Additionally, the Company concluded that funds deposited with and returned from the Company’s insurance carriers related to its insurance arrangements should be disclosed as cash flows from investing activities rather than cash flows from operating activities.

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The effects of these additional reclassifications on the Company’s consolidated statement of cash flows for the three-month period ended March 31, 2004 include a decrease in net cash used in operating activities of $4.3 million, an increase in net cash used in investing activities of $4.5 million and an increase in cash provided by financing activities of $0.2 million. The effects of the reclassifications on the Company’s consolidated statement of cash flows for the three-month period ended March 31, 2003 include a decrease in net cash used in operating activities of $10.9 million, an increase in net cash used in investing activities of $12.9 million and an increase in cash provided by financing activities of $2.0 million. These revised amounts for the three-month periods ended March 31, 2004 and 2003 are reflected in the six-month periods ended June 30, 2004 and 2003 that have been presented in this Form 10-Q.

A summary of the effects of these restatements and reclassifications on the Company’s consolidated statement of cash flows for the six months ended June 30, 2003 includes (in thousands):

Prepayments and other current assets consist of the following at June 30, 2004 and December 31, 2003 (in thousands):

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In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, the Company does not amortize goodwill but reviews it annually for impairment or on an interim basis if an event occurs or circumstances change that would reduce the fair value of goodwill below its carrying value. The Company’s reporting units are the Allied Automotive Group and the Axis Group. The following table sets forth the carrying value of goodwill by reporting unit as of June 30, 2004 and December 31, 2003 (in thousands):

Other non-current assets consist of the following at June 30, 2004 and December 31, 2003 (in thousands):

The Company enters into notes payable with third parties for insurance financing arrangements. The Company has outstanding notes payable of $15.0 and $3.2 million for insurance financing arrangements as of June 30, 2004 and December 31, 2003, respectively, due in monthly installments, generally within one year.

Accrued liabilities consists of the following at June 30, 2004 and December 31, 2003 (in thousands):

Information regarding net periodic benefit cost for the pension and postretirement benefit plans is as follows for the three and six months ended June 30, 2004 and 2003 (in thousands):

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Long-term debt consists of the following at June 30, 2004 and December 31, 2003 (in thousands):

The Company’s credit facility as amended in September 2003 (the “Credit Facility”) provides the Company with a $90 million revolving credit facility (the “Revolver”) and a $100 million term loan (the “Term Loan”). The Term Loan is payable in quarterly installments of principal and interest. Although the Credit Facility has a maturity date of September 2007, the Company has classified the Revolver as current based on the requirement of EITF Issue No. 95-22, Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements that include both a Subjective Acceleration Clause and a Lock-Box Arrangement.

The interest rate for the Revolver is based upon the prime rate plus 1.5%, or LIBOR plus 4.5%, at management’s discretion, with a minimum interest rate of 6.5%. The Credit Facility provides that the Term Loan bears interest between 8.5% and 11.5% to be determined solely on the Company’s leverage as defined in the agreement. At June 30, 2004, the interest rates on the Revolver and the Term Loan were 6.5% and 10.0%, respectively. Annual commitment fees are due on the undrawn portion of the commitment.

The amount available under the Revolver may be reduced based on a calculation of Revolver collateral. At June 30, 2004, $84.5 million Revolver collateral was available. Approximately $35.4 million of the Revolver was committed under letters of credit primarily related to the settlement of insurance claims. At June 30, 2004, $29.6 million was outstanding under the Revolver. Accordingly, the Company had approximately $19.5 million available under the Revolver as of June 30, 2004.

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

The Credit Facility sets forth a number of affirmative, negative, and financial covenants binding on the Company. The Credit Facility contains a “subjective acceleration clause” which permits the lenders to accelerate the maturity date of the Credit Facility if an event or development occurs which could reasonably be expected to have a “material adverse effect” on the Company, as defined in the Credit Facility. The negative covenants limit the ability of the Company to, among other things, incur debt, incur liens, make investments, sell assets, or declare or pay any dividends on its capital stock. The financial covenants require the Company to maintain a minimum consolidated earnings before interest, taxes, depreciation and amortization, and gains and losses on disposal of operating assets amount and also include a maximum leverage ratio. The Company obtained the consent of

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its lenders under the Credit Facility to deliver its financial statements, as required by the Credit Facility, for the three and six months ended June 30, 2004 on or before September 24, 2004 and the Company delivered such financial statements on September 23, 2004. As a result, the Company was in compliance with the various covenants set forth in the Credit Facility at June 30, 2004.

Borrowings under the $150.0 million 8 5/8% senior notes (the “Notes”) are general unsecured obligations of the Company, are payable in quarterly installments of interest only, and mature on October 1, 2007. The Company’s obligations under the Notes are guaranteed by substantially all of the subsidiaries of the Company (the “Guarantor Subsidiaries”). Haul Insurance Ltd., Arrendadora de Equipo Para el Transporte de Automoviles, S. de R.L. de C.V. and Axis Logistica, S. de R.L. de C.V. do not guarantee the Company’s obligations under the Notes (the “Nonguarantor Subsidiaries”). There are no restrictions on the ability of Guarantor Subsidiaries to make distributions to the Company.

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

The Company has consolidated indebtedness, which is substantial in relation to its stockholders’ deficit. As of June 30, 2004, the Company had total debt including borrowings under revolving credit facilities and notes payable under insurance financing agreements of approximately $279.6 million (excluding approximately $111.9 million of trade payables and other accrued liabilities) and stockholders’ deficit of approximately $4.7 million. In addition, the Company has additional capacity for borrowings available under its revolving credit facility. The Company’s leveraged financial position exposes it to the risk of increased interest rates, may impede its ability to obtain financing in the future for working capital, capital expenditures and general corporate purposes, and may make the Company more vulnerable to economic downturns and work stoppages, and limit its ability to withstand competitive pressures.

The Company will need to use a significant amount of its future cash flows to pay principal and interest on its substantial debt obligations, which will reduce the amount of money available for use in its operations, capital reinvestment, or for responding to potential business opportunities as they arise. The ability of the Company to generate the cash necessary to service its debt is subject to a number of external factors beyond its control, and there can be no assurance that the Company will be able to generate sufficient cash through its operations to enable it to meet its obligations. If the Company does not generate enough cash to enable it to meet its debt obligations, it may be required to take actions such as reducing or delaying capital expenditures, selling assets, restructuring or refinancing its debt, or seeking additional equity capital. There can be no assurance that any of these actions could be effected on commercially reasonable terms, if at all, and the terms of existing or future indebtedness may restrict the Company from adopting any of these alternatives.

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

At June 30, 2004, the Company had agreements with third parties that provide for $125.7 million of letters of credit primarily relating to settlements of insurance claims and reserves and support for a line of credit at one of the Company’s foreign subsidiaries. Of the total, $35.4 million of these letters of credit are issued by the Company and are secured by available borrowings on the Revolver and $90.3 million are issued by the Company’s wholly owned captive insurance subsidiary, Haul Insurance Limited, and are collateralized by $93.7 million of restricted investments and restricted cash and cash equivalents held by the captive. The Company renews these letters of credit annually.

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

As part of the previously disclosed settlement agreement with Ryder System Inc. (“Ryder”), the Company has a letter of credit in favor of Ryder for $5.5 million, which is included in the $35.4 million noted in (a) above, and had agreed to increase the letter of credit by $1.0 million each quarter through the third quarter of 2005. Pursuant to mutual agreement, the parties have amended the

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settlement to provide that the $1.0 million increase scheduled for the second quarter of 2004 was to be made in the third quarter of 2004 and such increase has subsequently been made in the third quarter as well as the $1.0 million increase required for the third quarter of 2004. Thereafter, the Company will increase the letter of credit by $1 million each quarter through the first quarter of 2005. Ryder may only draw the letter of credit if the Company fails to pay workers’ compensation and liability claims assumed by the Company in the Ryder Automotive Carrier Group acquisition. The Company has provided the letter of credit in favor of Ryder because Ryder has issued a letter of credit to its insurance carrier relating to the workers’ compensation and liability claims assumed by the Company. By March 31, 2005, and periodically thereafter, an actuarial valuation will be made to determine the remaining outstanding amount of workers’ compensation and liability claims assumed by the Company, and the letter of credit issued by the Company in favor of Ryder will be adjusted accordingly.

In April 2001, the Company entered into a five-year commitment with IBM to provide its mainframe computer processing services. In December 2003, the Company amended the agreement. The amended agreement is a ten-year commitment, commencing February 2004, for IBM to provide additional services to manage applications for EDI, network services, technical services, and applications development and support. The agreement includes outsourcing at determinable prices defined within the agreement. The purchase commitment over the term of the agreement totals $108.6 million.

The Company leases operating equipment (“Rigs”), office space, computer equipment, and certain terminal facilities under noncancelable operating lease agreements. During the second quarter of 2004 the Company entered into two new operating leases for 30 Rigs. The commitment over the term of the leases, 5.5 years, is $4.4 million.

SFAS No. 128, Earnings Per Share, requires presentation of basic and diluted earnings per share. Basic earnings per share are calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the periods presented. Diluted earnings per share reflect the potential dilution that could occur if securities and other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the earnings of the entity.

A reconciliation of net (loss) income and the weighted average number of common shares outstanding used to calculate basic and diluted (loss) earnings per common share for the three and six months ended June 30, 2004 and 2003 is as follows:

Common stock equivalents for approximately 729,000 and 282,000 shares outstanding for the six months ended June 30, 2004 and 2003, respectively, were excluded from the calculation of diluted earnings per share, as the impact would have been antidilutive.

The Company applies the intrinsic-value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations to account for its fixed-plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. SFAS No. 123, Accounting for Stock-Based Compensation, established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above, and has adopted only the disclosure requirements of SFAS No. 123 and the amended disclosure requirements of SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB Statement No. 123.

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If the Company applied the fair value method prescribed by SFAS No. 123, net (loss) income and (loss) income per common share would have been changed to the pro forma amounts indicated below for the three and six months ended June 30, 2004 and 2003 (in thousands, except per share data):

Total comprehensive (loss) income consisted of the following (in thousands):

Accumulated other comprehensive (loss), net of income taxes of $1.9 million at June 30, 2004 and December 31, 2003, consists of the following (in thousands):

In accordance with the requirements of SFAS No. 131, Disclosure About Segments of an Enterprise and Related Information, the Company has identified two reportable industry segments through which it conducts its operating activities: Allied Automotive Group and Axis Group. These two segments reflect the internal reporting used by management to assess performance and allocate resources. Allied Automotive Group is engaged in the business of transporting automobiles, light trucks and SUVs from manufacturing plants, ports, auctions, and railway distribution points to automobile dealerships throughout North America. Axis Group, through its subsidiaries, is engaged in the business of securing and managing vehicle distribution services, automobile inspections, auction and yard management services, intra-modal transport, vehicle tracking, vehicle accessorization, and dealer preparatory services for the automotive industry.

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Geographical information for the three and six months ended June 30, 2004 and 2003 is as follows (in thousands):

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

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

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

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SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
JUNE 30, 2004
(In Thousands)

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SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
DECEMBER 31, 2003
(In Thousands)