Strong business levels in the prior year led the transportation industry to expect a robust 1995. It didn’t turn out that way. Business levels were mainly flat to down, which impacted pricing and profitability throughout the industry. Arkansas Best Corporation and subsidiaries were impacted similarly.

ABF Freight System, Inc., experienced less demand for its services and slightly less profitability through the first three quarters, but continued to perform more efficiently than its three largest competitors in the LTL industry and operated at a 97.2% operating ratio through three quarters.

The WorldWay acquisition, which occurred late in the third quarter, changed all that for the worst in the fourth quarter. The largest WorldWay subsidiary, Carolina Freight Carriers Corporation, was merged into ABF during the last week of September and the last quarter results of this combination were terrible. ABF inherited a group of regional distribution centers from Carolina that created a very inefficient network for ABF. After one month of combined operations, we realized that the continuation of this Carolina regional network had been a big mistake. Once the problem was recognized, we began to dismantle the regional distribution centers. We expect the ABF network to be back to a pre-acquisition configuration by the end of April that should return ABF to historical profitability levels.

Treadco has decided on an alternative supplier and will convert all 26 of its Bandag locations to Oliver Rubber equipment and tread rubber by the third quarter of 1996.

Treadco earnings for 1995 were adversely impacted by multiple Bandag price increases for tread rubber that we were unable to pass on to the end user. The officer defections in the fourth quarter no doubt negatively impacted sales and profitability also. The management team has been replaced, the Oliver equipment conversions have begun, and Treadco is starting on a new era. I am optimistic about Treadco’s future.

The WorldWay acquisition, while causing some short-term problems, has also brought us some strong entries into new (to us) segments of the transportation industry. Cardinal Freight Carriers in the truckload business, CaroTrans in the international ocean transportation segment, and two logistics companies (Innovative Logistics and The Complete Logistics Company), along with G. I. Trucking, a western regional LTL trucking company, have given us a strong presence in these growth markets.

Robert A. Young III