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| 1994 was an eventful year for Arkansas Best Corporation. The most unfortunate event occurred in April when ABF Freight System, Inc. (our largest subsidiary) suffered a 24-day strike by the International Brotherhood of Teamsters Union that resulted in substantial losses by ABF and all its employees. The April strike was the first extended walkout by ABF’s Teamsters employees in recent memory and was an unnecessary work stoppage that could have been avoided. Teamsters members approved the new contract by approximately 80%. ABF recovered quickly from the strike and had a strong second half of the year. Carrier segment operating income for the fourth quarter of 1994 improved by 23% from 1993 which had previously been the best fourth quarter ever for carrier operations. Except for the strike in April, it was a good year for ABF. The new four-year Teamsters contract provides for several improvements in flexibility and cost. The additional use of casual (part-time) employees will help carry the workload during peak periods and reduce the need for time and a half and double-time pay for regular employees working overtime hours. Additional use of rail (up to 28% of total miles) allowed under the new contract will allow expanded intermodal freight movements where it makes economic sense, with appropriate safeguards to protect our road drivers’ jobs and income. Another new provision of the contract provides for arbitration to settle deadlocked grievances. Previously, deadlocked grievances could result in strikes or lockouts unless one party gave in. In January of 1995, David Stubblefield, formerly Senior Vice President-Marketing, was promoted to President and Chief Executive Officer of ABF. Recent and expected growth in Arkansas Best Corporation’s other subsidiaries has begun to take more and more management time on my part and, frankly, ABF deserves a full-time CEO. David Stubblefield is certainly qualified and deserving of this additional responsibility. Treadco, Inc., the company’s 46%-owned truck tire subsidiary, had an excellent year. The late 1993 acquisition of Trans-World Tire, with four retread shops and one sales outlet in Florida, was successfully integrated into Treadco's systems, procedures and philosophy during 1994. Internal growth of 10% and the addition of the Florida locations resulted in 24% revenue growth in 1994 over the prior year. Growth for Treadco in 1994 was fairly evenly split between new truck tire sales and retread sales. Integrated Distribution, Inc., our wholly owned subsidiary, is engaged in logistical services that include storage, consolidation, packaging, and distribution. Integrated Distribution's strategy is to add value to merchandise in ways other than just warehousing. An example of adding value would be transporting truckload or containerload shipments of consumer goods to a warehouse, then packaging the goods into retail-size containers, applying labels and bar codes, and distributing them in the desired mix to retail outlets. Integrated Distribution currently has warehouses and offices in Little Rock, Dallas, Atlanta, and Dayton. An acquisition by Integrated Distribution in October 1994 provided additional momentum and capabilities in the logistics area. Jerry Yarbrough, formerly Senior Vice President-Operations for ABF and a 27-year veteran of the transportation industry, was named Chairman and Chief Executive Officer of Integrated Distribution as of January 1, 1995, with the mandate to build this company into the premier logistics company in the industry. I have a lot of respect for Jerry’s past contributions to the Company and feel that he is the right person to lead Integrated Distribution during this exciting time in what is essentially a new and rapidly expanding industry. The purchase of the Clipper Exxpress Group of companies in September of last year gave Arkansas Best Corporation a strong entry into the rail intermodal business. The Company’s Board of Directors decided early in 1994 that a strategic acquisition in this area of transportation would help round out our logistics thrust and strategy for the next several years. Clipper is engaged primarily in moving freight in rail containers and trailers via piggyback and double stack trains. Clipper uses agents to pick up and deliver the freight from the railroad and is known as a non-asset based, non-labor intensive, knowledge-based logistics provider or an intermodal marketing company. Approximately 65% of Clipper’s revenues comes from full container loads and the balance from the consolidation and movement of less-than-truckload shipments. Ocean and air forwarding would be a natural extension of Clipper’s business. Arkansas Best Corporation’s strategy for the next decade is to build upon the strong base of our existing subsidiaries in long-haul LTL trucking (ABF), intermodal marketing (Clipper Exxpress), logistical services (Integrated Distribution), truck tire sales and retreading (Treadco) and businesses closely related to these four subsidiaries. ABF’s importance to our total corporate strategy is obvious. ABF has in place an excellent nationwide distribution network. Our goal here is to continue strong profitable internal growth combined with continuous improvement in serving our customers. Clipper’s growth will likely include both internal growth in our existing business and acquisitions to speed our growth into air and ocean forwarding. Integrated Distribution will continue to pursue its warehousing, packaging, truckload operations and logistics consulting service, both through internal growth and acquisitions in specialty areas. We look forward to the continued growth and prosperity that we see on the horizon for well-managed transportation/logistics companies for the rest of this decade. Our focus will be on excellence in serving our customers, attracting and keeping the very best people, and improving the return on our shareholders’ investment. We think these go hand in hand.
Robert A. Young III |
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