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 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                     

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

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. þ Yes o No

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

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

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

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. þ Yes o No

Outstanding common stock, $0.01 par value at October 31, 2007    7,153,070

 

 

ALLIED SYSTEMS HOLDINGS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		PAGE
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 2007 (Successor) and December 31, 2006 (Predecessor) — unaudited			1
Consolidated Statements of Operations -
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 —
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)			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			34
Item 3. Quantitative and Qualitative Disclosures About Market Risk			51
Item 4. Controls and Procedures			51
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			51
Item 1A. Risk Factors			51
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			57
Item 6. Exhibits			57
SIGNATURES			59
EX-31.1 CERTIFICATION OF MARK J. GENDREGSKE
EX-31.2 CERTIFICATION OF THOMAS H. KING
EX-32.1 SECTION SECTION 1350 CERTIFICATION BY MARK J. GENDREGSKE
EX-32.2 SECTION 1350 CERTIFICATION BY MARK J. GENDREGSKE

PART I — FINANCIAL INFORMATION

Item 1 — Financial Statements

ALLIED SYSTEMS HOLDINGS, INC. AND SUBSIDIARIES

		Successor					Predecessor
		June 30, 2007					December 31, 2006
ASSETS
Current assets:
Cash and cash equivalents		$	24,258				$	2,314
Restricted cash, cash equivalents and other time deposits			29,508					32,436
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			4,878					4,916
Deferred income taxes			8,742					1,907
Prepayments and other current assets			12,429					21,463
Total current assets			127,184					115,463
Property and equipment, net of accumulated depreciation			190,581					129,231
Goodwill			85,912					3,545
Other intangible assets, net			27,260					—
Other assets:
Restricted cash, cash equivalents and other time deposits			68,851					65,857
Other noncurrent assets			25,109					24,672
Total other assets			93,960					90,529
Total assets		$	524,897				$	338,768
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
Accounts and notes payable			34,257					26,364
Accrued liabilities			65,391					74,439
Deferred income taxes			134					106
Total current liabilities			101,582					262,266
Long-term liabilities not subject to compromise:
Long-term debt, less current maturities			227,708					—
Postretirement benefits other than pensions			13,205					14,227
Deferred income taxes			29,351					1,926
Other long-term liabilities, principally insurance and claims			54,781					65,269
Total long-term liabilities			325,045					81,422
Liabilities subject to compromise			—					199,212
Commitments and contingencies			—					—
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			97,900					49,081
Treasury stock, 139,000 shares at cost			—					(707	)
Retained earnings (accumulated deficit)			343					(228,432	)
Accumulated other comprehensive loss, net of tax			(73	)				(24,074	)
Total stockholders’ equity (deficit)			98,270					(204,132	)
Total liabilities and stockholders’ equity (deficit)		$	524,897				$	338,768

See accompanying notes to these consolidated financial statements.

ALLIED SYSTEMS HOLDINGS, INC. AND SUBSIDIARIES

		Successor					Predecessor
		One Month Ended					Two Months Ended				Three Months Ended
		June 30, 2007					May 31, 2007				June 30, 2006
Revenues		$	73,347				$	149,121			$	245,382
Operating expenses:
Salaries, wages and fringe benefits			34,362					74,991				114,863
Operating supplies and expenses			16,383					31,521				50,341
Purchased transportation			9,199					17,319				32,670
Insurance and claims			3,224					7,273				10,235
Operating taxes and licenses			2,268					4,706				7,355
Depreciation and amortization			3,852					5,490				7,283
Rents			542					1,432				1,739
Communications and utilities			508					978				1,501
Other operating expenses			1,416					1,887				1,983
Loss (gain) on disposal of operating assets, net			—					31				(201	)
Total operating expenses			71,754					145,628				227,769
Operating income			1,593					3,493				17,613
Other income (expense):
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			522					965				1,212
Foreign exchange gains, net			772					3,683				1,755
Total other income (expense)			(1,204	)				(8,949	)			(6,558	)
Income (loss) before reorganization items and income taxes			389					(5,456	)			11,055
Reorganization items			—					236,734				(4,707	)
Income before income taxes			389					231,278				6,348
Income tax expense			(46	)				(13,360	)			(63	)
Net income		$	343				$	217,918			$	6,285
Basic and diluted earnings per common share:
Net income:
Basic and diluted		$	0.03				$	24.27			$	0.70
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

		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.

		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

(Throughout this Quarterly Report on Form 10-Q, we will use the terms “we,” “our,” “us” and “Successor” to refer to Allied Systems Holdings, Inc. (a Delaware 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 pursuant to the U.S. Bankruptcy Code.)

(1) Organization and Operations

Company Overview

We are a vehicle-hauling company providing a range of logistics and other support services to the automotive industry. Our principal operating divisions are Allied Automotive Group, Inc. (“Allied Automotive Group”) and Axis Group, Inc. (“Axis Group”). Allied Automotive Group, through its subsidiaries, is engaged in the business of transporting automobiles, light trucks, and sports-utility vehicles (“SUVs”) from manufacturing plants, ports, auctions, and railway distribution points to automobile dealerships. Axis Group, through its subsidiaries, is engaged in the business of securing and managing vehicle distribution services, automobile inspections, auction and yard management services, vehicle tracking, vehicle accessorization, and dealer preparatory services for the automotive industry.

Chapter 11 Filing and Emergence

On July 31, 2005 (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 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 100 million shares of common stock, par value $0.01 per share, and 10 million 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. 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 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 common stock interests in Allied Holdings, Inc. (holders of equity interests received nothing under the Joint Plan); and
	iv)		Assumption of selected contracts.

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

As of the Effective Date, Yucaipa American Alliance Fund I, LP and Yucaipa American Alliance (Parallel) Fund I, LP became owners of the majority of our common stock. Hereafter, we will refer to Yucaipa American Alliance Fund I, LP and Yucaipa American Alliance (Parallel) Fund I, LP along with their related legal entities as “Yucaipa.” Two of Yucaipa’s employees now serve as members of the new Board of Directors. On our emergence from Chapter 11, the Bankruptcy Court approved fees of approximately $6.6 million payable to Yucaipa for its substantial contribution in the development of the Joint Plan, which fees were paid in May 2007. We have also entered into a management agreement with Yucaipa to provide various services for us for a fee of $1.5 million per year.

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 as a result of the filing and emergence from Chapter 11 and Note 11 for 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 amount of the allowed claim. Holders of disputed claims that are subsequently allowed will receive their pro rata portion of shares under the Joint Plan. The complete resolution of these claims is not expected to result in any material expense in the 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 these additional expenses could be material.

Leases and executory contracts – During the Chapter 11 Proceedings, we assumed a number of leases and contracts and cured all past due amounts owing under these leases and contracts shortly after the Effective Date, as 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. Failure to improve our performance could also adversely affect our financial condition, cash flow, liquidity and business 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 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 considered comparable to the 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 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 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 except for the adjustments required under fresh-start reporting, the implications and impact of which are more fully discussed in Note 3, 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.

Use of Estimates and Seasonality

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

Our revenues are seasonal, with the second and fourth quarters generally experiencing higher revenues than the first and third quarters as a result of the higher volume of vehicles shipped. The volume of vehicles shipped is generally higher during the second quarter as North American light vehicle production has historically been at its highest level during this quarter due to higher consumer sales of automobiles, light trucks and SUVs in the spring and early summer. The introduction of new models in the fall of each year, combined with the manufacturers’ motivation to ship vehicles before calendar year-end, increase shipments to dealers through the fourth quarter. During the first and third quarters, vehicle shipments typically decline due to lower production volume during those periods. The third

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 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 one-month period ended 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 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, ceased accruing interest on the 8⁵/₈% senior notes (“Senior Notes”) and applied fresh-start reporting as of the fresh-start reporting date.

Liabilities Subject to Compromise

Liabilities subject to compromise included certain known liabilities incurred by the Debtors prior to the Petition Date and excluded pre-petition claims for which 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 were included at amounts that were expected to be allowed by the Bankruptcy Court. We ceased the recording of interest on liabilities subject to compromise, primarily the Senior Notes, as of the Petition Date. Liabilities subject to compromise at December 31, 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 are entitled to settlement as of the Effective Date pursuant to the terms of the Joint Plan (see Note 1 above).

Fresh-Start Reporting

As previously discussed and pursuant to SOP 90-7, we implemented fresh-start reporting as of the fresh-start reporting date.

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

Fresh-start reporting requires resetting the historical carrying amounts of assets and liabilities to fair value by allocating an entity’s reorganization value to its assets and liabilities pursuant to 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 an asset or transfer 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. The fair values of our assets and liabilities for fresh-start reporting were determined in accordance with the provisions of SFAS No. 157.

Effective December 31, 2006, we adopted the recognition and disclosure provisions of SFAS No. 158, 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 beginning with the year ending December 31, 2008. However, as required by SOP 90-7, we implemented this provision as of the fresh-start reporting date by measuring the assets and liabilities as of the fresh-start reporting date. Prior to the adoption, we utilized a measurement date of December 31 for the postretirement benefit plans and for the Allied Defined Benefit Pension Plan and for the other two defined benefit pension plans, we 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.

The FASB issued SFAS No. 159 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 reporting date. Upfront costs and fees related to items for which the fair value option is elected are to be recognized in earnings as incurred and not deferred. SFAS No. 159 is effective at the beginning of fiscal years beginning on or after November 15, 2007. We have not elected the fair value option for any of our assets or liabilities.

Except for these new pronouncements and a change in accounting policy relating to tires on tractors and trailers, as discussed below, the significant accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2006, were all adopted by the Successor, though many account balances were adjusted to fair value when we adopted fresh-start reporting.

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 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 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 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

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.

(4) Prepayments and Other Current Assets

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

		Successor					Predecessor
		June 30,					December 31,
		2007					2006
Prepaid insurance		$	7,688				$	14,689
Tires on tractors and trailers			—					2,360
Prepaid licenses			2,815					1,285
Other			1,926					3,129
		$	12,429				$	21,463

(5) Property and Equipment

Property and equipment and the related accumulated depreciation and amortization are presented below (in thousands) as of June 30, 2007 and December 31, 2006:

		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

In accordance with SOP 90-7 and SFAS No. 141, property and equipment were adjusted to fair value as of the fresh-start reporting date and are being depreciated over the estimated remaining useful lives as follows:

	•		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.

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, during the two-month period ended May 31, 2007, we entered into an agreement with Yucaipa pursuant to which Yucaipa purchased certain specialized tractors and car-haul trailers from the bankruptcy auction of Blue Thunder Auto Transport, Inc. (the “Blue Thunder Rigs”). The Blue Thunder Rigs were then 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 two-month period ended May 31, 2007 at a cost of $13.5 million. The Blue Thunder Rigs 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.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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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)

		Successor													Predecessor
		June 30, 2007													December 31, 2006
		Gross carrying amount													Gross carrying amount
		Allied													Allied
		Automotive				Axis									Automotive				Axis
		Group				Group				Total					Group				Group				Total
Goodwill		$	80,722			$	5,190			$	85,912				$	—			$	3,545			$	3,545
Trademarks and Trade Names			13,000				900				13,900					—				—				—
		$	93,722			$	6,090			$	99,812				$	—			$	3,545			$	3,545

Intangible assets subject to amortization:

		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

Amortization for the one-month period ended June 30, 2007 was $140,000.

The following table provides a summary of the expected amortization expense, for the remainder of 2007 and five years from fiscal year-end, for the intangible assets subject to amortization (in thousands):

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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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(7) Other Noncurrent Assets

Other noncurrent assets as of June 30, 2007 and December 31, 2006 are presented below (in thousands):

		Successor					Predecessor
		June 30,					December 31,
		2007					2006
Deposits with insurance companies		$	10,572				$	10,547
Deferred financing costs			—					124
Interest in split-dollar life insurance policies			5,951					5,973
Tires on tractors and trailers			—					2,950
Overfunded pension plans			6,143					2,473
Other deposits			2,443					2,336
Other			—					269
		$	25,109				$	24,672

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

		Predecessor
		December 31,
		2006
Cost		$	345
Accumulated amortization			(221	)
		$	124

During the five-month period ended May 31, 2007, we incurred deferred financing costs of $9.4 million related to the senior secured credit facilities. These costs were amortized until the fresh-start reporting date and the unamortized balance of $6.5 million was eliminated as a reorganization item at the fresh-start reporting date. The deferred financing costs at December 31, 2006 represent costs related to the Original DIP Facility, which were fully amortized during the five-month period ended May 31, 2007. See Note 11 for a discussion of these facilities. The write-off and amortization of deferred financing costs (excluding the portion written off to reorganization items) were, $2.9 million for the two-month period ended May 31, 2007, $3.0 million for the five-month period ended May 31, 2007 and $2.0 million and $5.6 million for the three and six months ended June 30, 2006, respectively.

(8) Accounts and Notes Payable and Accrued Liabilities

We enter into notes payable with third parties for insurance financing arrangements. Outstanding notes payable for insurance financing arrangements as of June 30, 2007 and December 31, 2006 were $1.7 million and $5.4 million, respectively, and are included in accounts and notes payable in the accompanying unaudited consolidated balance sheets. These notes are due in monthly installments, generally over a period of less than a year. The weighted-average interest rate on amounts outstanding at June 30, 2007 was 8.28%.

Accrued liabilities as of June 30, 2007 and December 31, 2006 are presented below (in thousands):

		Successor					Predecessor
		June 30,					December 31,
		2007					2006
Insurance and claims		$	30,877				$	38,786
Wages and benefits			23,765					27,272
Accrued taxes			3,753					3,797
Accrued interest			1,898					738
Purchased transportation			3,657					2,723
Other			1,441					1,123
		$	65,391				$	74,439

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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(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 one-month period ended 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 June 30, 2007 and December 31, 2006 represent the undiscounted estimated ultimate amount of claims, reduced by the remaining fair-value adjustment as of June 30, 2007 of $6.2 million. These amounts are presented below (in thousands):

		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

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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)

The following tables present the components of our net periodic benefit cost for the pension and postretirement benefit plans (in thousands):

		Defined Benefit													Postretirement Benefit
		Pension Plans													Plans
		Successor					Predecessor								Successor					Predecessor
		One Month Ended					Two Months Ended				Three Months Ended				One Month Ended					Two Months Ended				Three Months Ended
		June 30, 2007					May 31, 2007				June 30, 2006				June 30, 2007					May 31, 2007				June 30, 2006
Service cost		$	5				$	12			$	23			$	5				$	12			$	14
Interest cost			264					515				762				66					124				164
Expected return on plan assets			(392	)				(741	)			(1,014	)			—					—				—
Amortization of:
Unrecognized net actuarial loss			—					217				524				—					122				169
Prior service cost (credits)			—					8				12				—					(51	)			(82	)
Net periodic benefit cost		$	(123	)			$	11			$	307			$	71				$	207			$	265