Consolidated revenues of the Company for 1994 were $1.1 billion compared to $1.0 billion for 1993. Operating profit for the Company was $47.1 million for 1994 compared to operating profit of $50.6 million for 1993. Net income for 1994 was $18.7 million, or $.74 per common share (after giving consideration to preferred stock dividends of $4.3 million), compared to net income of $20.3 million, or $.85 per common share for 1993 (after giving consideration to preferred stock dividends of $3.9 million). The net income of $18.7 million, or $.74 per common share, also compares to income before extraordinary item of $21.0 million, or $.89 per common share for 1993. During 1993, the Company recorded an extraordinary loss of $661,000 (net of income tax benefit of $413,000), or $.04 per common share for the net loss on extinguishments of debt. Net income for 1993 was reduced by $828,000, or $.04 per common share (assuming full dilution), to reflect the retroactive increase in the corporate federal tax rate under the Revenue Reconciliation Act of 1993. Average common shares outstanding for 1994 were 19.4 million shares compared to 19.2 million shares for 1993. Outstanding shares for 1994 and 1993 do not assume conversion of preferred stock to common shares, because conversion would be anti-dilutive for these periods.

Consolidated revenues and income for 1994 were adversely affected by the 24-day labor strike by the Teamsters’ Union employees of ABF in April. As a result of the strike, the Company incurred a consolidated net loss of $12.7 million during the month of April 1994, which had the effect of reducing earnings per common share by $.62 for the year.

Motor Carrier Operations Segment. ABF’s labor agreement with the International Brotherhood of Teamsters ("IBT") expired on March 31, 1994. On April 6, 1994, when the terms of a new agreement had not been agreed to between the industry’s bargaining group, Trucking Management, Inc. ("TMI"), and the IBT, the ABF Teamsters’ employees and 20 other carriers went on strike. On April 29, 1994, TMI and the IBT reached a tentative agreement on a new four-year contract. ABF Teamsters employees began returning to work at 12:01 a.m. on April 30, 1994. The contract was voted on and ratified by the IBT membership. During the strike, the non-union employees of the Company were given an across-the-board pay reduction instead of having lay-offs. The 40% reduction in pay for the non-union employees during the strike amounted to approximately $3.3 million.

Revenue and income for 1994 were negatively affected by the strike. Under the new labor contract which was effective retroactive to April 6, 1994, salaries, wages and benefits for full-time employees will increase 2.7% annually during the first year of the contract. The increase will be offset in part by the option to use casual workers on the dock after 40 hours of work is provided to all regular employees, a freeze on some casual workers’ pay for the life of the contract and a reduction in new hire step rates. The new contract allows ABF to use intermodal or rail service for up to 28% of the line-haul operations. An increased use of rail will result in higher rent expense and may reduce over-the-road and labor costs.

Even after the negative impact of the strike, revenues from motor carrier operations still increased 2.8% to $918.7 million in 1994 from $893.5 million in 1993. Total tonnage increased 1.7%, consisting of a 2.2% increase in LTL tonnage and a 0.2% increase in truckload tonnage. The 4.5% rate increase effective January 1, 1994 was partially discounted by rate competition during 1994. For 1994, ABF’s revenue per hundredweight reflected a 0.9% increase compared to the average for 1993. Effective January 1, 1995, ABF implemented a general freight rate increase of 4% which is expected to result in a 3 to 3.5% initial impact on revenues. The diminished effect is the result of pricing that is on a contract basis which can only be increased when the contract is renewed.

During the previous three years, ABF has financed its road tractor replacement program with operating leases instead of capital leases, which decreased both interest and depreciation expense and increased rent expense. In 1994, ABF, utilizing borrowings under its Credit Agreement, purchased road tractors under its replacement program, which will increase depreciation and interest expense and decrease rent expense.

Forwarding Operations Segment. Effective October 1, 1994, with the purchase of the Clipper Group, the Company began reporting a new business segment, forwarding operations. The Company’s consolidated financial statements for the year ended December 31, 1994 include only three months of financial information for the forwarding operations segment and therefore, comparisons of results of operations are not presented.

Tire Operations Segment. Treadco’s revenues for 1994 increased 24.3% to $138.7 million from $111.6 million for 1993. For 1994, "same store" sales increased 9.6% and "new store" sales accounted for 14.7% of the total increase from the nine months ended September 30, 1993. "Same store" sales include both production locations and satellite sales locations that have been in existence for all of 1994 and 1993. "Same store" sales increased primarily as a result of a higher demand for both new replacement and retreaded truck tires during the period and an increase in market share in the areas served. "New store" sales resulted primarily from the addition of four production and one sales facility through the August 1993 acquisition of Trans-World Tire Corporation in Florida. Revenues from retreading for 1994 increased 21.5% to $75.2 million from $61.9 million for 1993. Revenues from new tire sales increased 27.7% to $63.5 million for 1994 from $49.7 million for 1993.

Treadco will continue to seek available Bandag franchises that meet Treadco’s requirements. Treadco’s ability to continue expanding its business through the addition of new Bandag franchises, however, is contingent on the availability and competitiveness of suitable Bandag franchises on favorable terms and Bandag’s approval of Treadco’s acquisition of such franchises, whether directly from Bandag or from other Bandag franchisees. Also, Treadco is exploring alternatives to the Bandag process in some new geographical markets. Treadco has plans to open a precure production facility in Las Vegas, Nevada, in the second quarter of 1995, which will initially purchase its tread rubber from Hercules Tire and Rubber Co. Treadco has the option of purchasing tread rubber and supplies from other companies for the Las Vegas facility. The Company plans to open an additional retreading facility in the second half of 1995. This production facility will be a mold cure retread facility. The facility will use tread rubber compounds provided by Bridgestone/Firestone, Inc. and Bridgestone/Firestone, Inc. will also provide technical support. The process will produce quality retreads with the Bridgestone-Treadco name molded into the tread.

Tire operations segment operating expenses as a percent of revenues were 92.0% for 1994 compared to 90.9% for 1993. Cost of sales for the tire operations segment as a percent of revenues increased to 72.8% for 1994 from 71.5% for 1993, resulting in part from integrating the August 1993 acquisition of five Florida facilities into Treadco. Although the integration is progressing as planned, the cost of sales as a percent of revenues are higher at the Florida locations than at other Treadco facilities. Also, effective October 1, 1994, Bandag, Inc. announced a 4% price increase on tread rubber, which has been difficult to pass on to Treadco’s customers. Selling, administrative and general expenses for the tire operations segment decreased to 18.9% for 1994 from 19.3% for 1993. The decrease resulted primarily from the increase in sales and the fact that a portion of selling, administrative and general expenses are fixed costs.

Interest. Interest expense was $7.0 million for 1994 compared to $7.2 million during 1993. Lower average interest rates under the Company’s borrowing arrangements and the utilization of operating leases resulted in the decrease in interest expense offset in part by higher long-term debt outstanding. The increase in long-term debt consisted primarily of debt incurred in the acquisition of the Clipper Group and a term loan used to finance construction of the Company’s corporate office building.

Income Taxes. The difference between the effective tax rate for 1994 and the federal statutory rate resulted primarily from state income taxes, amortization of goodwill, minority interest, and other nondeductible expenses (see Note G to the consolidated financial statements).

1993 as Compared to 1992

Consolidated revenues of the Company for 1993 were $1.0 billion compared to $959.9 million for 1992. Operating profit for the Company was $50.6 million in 1993 compared to $55.8 million during 1992. Net income for 1993 was $20.3 million, or $.85 per common share, compared to a net loss of $(583,000), or $(.03) per common share in 1992. Income before extraordinary item was $21.0 million, or $.89 per common share for 1993, compared to income before extraordinary item and cumulative effect of accounting change of $18.8 million, or $.99 per common share for 1992. During 1993, the Company recorded an extraordinary loss of $(661,000) (net of income tax benefit of $413,000), or $(.04) per common share, for the net loss on extinguishments of debt. During 1992, the Company recorded an extraordinary loss of $(16.0) million (net of income tax benefit of $9.7 million), or $(.84) per common share, for the net loss on extinguishments of debt. Also, during 1992, the Company recorded a charge for the cumulative effect on prior years of an accounting change in the recognition of revenue of $(3.4) million (net of income tax benefit of $2.1 million), or $(.18) per common share. Earnings per common share for 1993 give consideration to preferred stock dividends of $3.9 million. Average common shares outstanding for 1993 were 19.2 million shares compared to 19.0 million shares for 1992.

As reported in the third quarter, net income for 1993 was reduced by $828,000, or $.04 per common share, to reflect the effect on current and deferred taxes of the retroactive corporate tax rate increase which became law in the third quarter of 1993.

Motor Carrier Operations Segment. Revenues for the motor carrier operations segment increased 4.0% to $893.5 million in 1993 from $858.8 million in 1992, reflecting primarily a 4.0% increase in total tonnage. The increase in total tonnage consisted of a 3.1% increase LTL tonnage and a 7.3% increase in truckload tonnage. The 4.6% rate increase effective January 1, 1993 was aggressively discounted by rate competition during the first six months of 1993. The discounting stabilized in the last half of the year and for the fourth quarter of 1993, ABF’s LTL revenue per hundredweight reflected a 1.0% increase over the fourth quarter of 1992. For 1993, ABF’s LTL revenue per hundredweight was up .2% compared to the average for 1992. Discounting and a relatively slow economy during the first half of the year also affected tonnage growth for 1993. Effective January 1, 1994, ABF implemented a general freight rate increase of 4.5% which is expected to result in a 3 to 3.25% initial impact on revenues. The diminished effect is the result of pricing that is on a contract basis which can only be increased when the contract is renewed.

Motor carrier segment operating expenses as a percent of revenues was 95.3% for 1993 compared to 94.6% for 1992. Salaries and wages for motor carrier operations as a percent of revenues increased to 66.5% in 1993 from 65.3% in 1992, resulting primarily from contractual wage increases (averaging 2.7% annually for 1993) which went into effect in April 1993 under the current collective bargaining agreement. Supplies and expenses for motor carrier operations as a percent of revenues decreased to 11.1% in 1993 from 11.6% in 1992 resulting primarily from the covering of the fixed portion of supplies and expenses by increased revenues.

Depreciation and amortization expense for motor carrier operations as a percent of revenues decreased to 2.9% in 1993 from 3.8% in 1992. During the last three years, ABF financed its road tractor replacement program with operating leases instead of capital leases, which decreased both interest and depreciation expense and increased rent expense. Rent expense for motor carrier operations as a percent of revenues increased to 5.9% in 1993 from 4.6% in 1992. The additional rent expense was incurred primarily as a result of the operating leases discussed above and the utilization of alternate modes of outside transportation.

Tire Operations Segment. Treadco’s revenues for 1993 increased 15.9% to $111.6 million from $96.3 million in 1992. The increase resulted primarily from internal growth and the addition of four production facilities and one sales facility through the August 30, 1993 acquisition of Trans-World Tire Corporation in Florida. Revenues from retreading in 1993 increased 17.6% to $61.9 million from $52.6 million in 1992. Revenues from new tire sales increased 13.9% to $49.7 million in 1993 from $43.7 million in 1992.

Tire operations segment operating expenses as a percent of revenues were 90.9% for each of 1993 and 1992. Cost of sales for the tire operations segment as a percent of revenues decreased to 71.5% in 1993 from 71.8% in 1992. Selling, administrative and general expenses for the tire operations segment increased to 19.3% in 1993 from 19.1% in 1992.

Interest. Interest expense decreased 58.1% to $7.2 million in 1993 from $17.3 million during 1992. A reduction in long-term debt outstanding using proceeds from the Company’s stock offerings, lower interest rates and utilization of operating leases resulted in the decrease in interest expense. The reduction in long-term debt consisted primarily of retiring its 14% Senior Subordinated Notes due 1998, maintaining a lesser average balance outstanding under the revolving credit facilities, and financing a portion of its revenue equipment with operating leases.

Income Taxes. The difference between the effective tax rate in 1993 and the federal statutory rate resulted primarily from state income taxes, amortization of goodwill, minority interest, undistributed earnings of Treadco and other nondeductible expenses (see Note G to the consolidated financial statements).

In August 1993, the Revenue Reconciliation Act of 1993 was enacted, which required a retroactive increase in the corporate federal tax rate. This resulted in an increase in the tax expense and a corresponding decrease in net income of $828,000. The increase in the corporate federal tax rate was accounted for in accordance with Financial Accounting Standards Board Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109").