Cash and Cash Equivalents: Short-term investments which have a maturity of ninety days or less when purchased are considered cash equivalents.

Concentration of Credit Risk: The Company’s services are provided primarily to customers throughout the United States and Canada, with additional customers in foreign countries served by CaroTrans International, Inc. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. Historically, credit losses have been within management’s expectations.

Inventories: Inventories, which consist primarily of new tires and retread tires and supplies used in Treadco’s business, are stated at the lower of cost (first-in, first-out basis) or market.

Property, Plant and Equipment: Purchases of property, plant and equipment are recorded at cost. For financial reporting purposes, such property is depreciated principally by the straight-line method, using the following lives: structures -- 15 to 30 years; revenue equipment -- 3 to 7 years; manufacturing equipment -- 5 to 8 years; other equipment -- 3 to 10 years; and leasehold improvements -- 4 to 10 years. For tax reporting purposes, accelerated depreciation or cost recovery methods are used. Gains and losses on asset sales are reflected in the year of disposal. Trade-in allowances in excess of the book value of revenue equipment traded are accounted for by adjusting the cost of assets acquired. Tires purchased with revenue equipment are capitalized as a part of the cost of such equipment, with replacement tires being expensed when placed in service.

Assets Held for Sale: Assets held for sale represents primarily non-operating freight terminals and other properties, a portion of which were acquired as a result of the WorldWay acquisition (Note B), which are carried at the lower of net book value or estimated net realizable value. Also included in assets held for sale are properties of the Company which are being replaced by WorldWay facilities. The Company recorded writedowns of $1.5 million in 1996 and $2.1 million in 1995 to net realizable value for the Company properties being replaced. The writedown is included with gains on assets sales. Assets held for sale at December 31, 1996 includes $2.0 million in goodwill that was specifically identifiable to certain properties being sold.

Total assets held for sale at December 31, 1995 amounted to $39.9 million of which $36.9 million were sold in 1996, resulting in net gains on sales of $3.1 million. Also, in 1996, additional excess assets amounting to $6.8 million were identified and reclassified to assets held for sale. Of the 1996 additions, $3.2 million were sold, resulting in net losses on sales of $300,000. Management estimates that remaining assets held for sale will be sold prior to December 31, 1997.

Goodwill: Excess cost over fair value of net assets acquired (goodwill) is amortized on a straight-line basis over 15 to 40 years. The carrying value of goodwill will be reviewed if the facts and circumstances suggest that it may be impaired. If this review indicates that goodwill will not be recoverable, as determined based on the undiscounted cash flows over the remaining amortization period, the Company’s carrying value of the goodwill would be reduced.

Income Taxes: Deferred income taxes are accounted for under the liability method. Deferred income taxes relate principally to asset and liability basis differences arising from a 1988 purchase transaction and from the WorldWay acquisition, as well as the timing of the depreciation and cost recovery deductions previously described and to temporary differences in the recognition of certain revenues and expenses of carrier operations.

Revenue Recognition: Motor carrier revenue is recognized based on relative transit time in each reporting period with expenses recognized as incurred. Revenue for other segments is recognized generally at the point when goods or services are provided to the customers.

Earnings (Loss) Per Share: The calculation of earnings (loss) per share is based on the weighted average number of common and common equivalent shares outstanding during the applicable period. The calculation reduces income available to common shareholders by preferred stock dividends paid or accrued during the period.

Compensation to Employees: Stock-based compensation to employees is accounted for based on the intrinsic value method under Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25").

Accounting for Sales of Stock by Subsidiaries: It is the Company’s policy to recognize gains and losses on sales of subsidiary stock when incurred.

Claims Liabilities: The Company is self-insured up to certain limits for workers’ compensation, cargo loss and damage and certain property damage and liability claims. Provision has been made for the estimated liabilities for such claims based on historical trends, claims frequency, severity and other factors.

Environmental Matters: The Company expenses environmental expenditures related to existing conditions resulting from past or current operations and from which no current or future benefit is discernible. Expenditures which extend the life of the related property or mitigate or prevent future environmental contamination are capitalized. The Company determines its liability on a site-by-site basis with actual testing at some sites, and records a liability at the time when it is probable and can be reasonably estimated. The estimated liability of the Company is not discounted or reduced for possible recoveries from insurance carriers. (See Note J)

Derivative Financial Instruments: The Company enters into interest-rate swap agreements and interest-rate cap agreements that are designed to modify the interest characteristic of outstanding debt or limit exposure to increasing interest rates. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment of interest expense related to the debt (the accrual accounting method). The related amount payable to or receivable from counterparties is included in accrued liabilities or other receivables.

Reclassifications: Certain reclassifications have been made to the prior year financial statements to conform to the current year’s presentation.

Recent Accounting Pronouncement: The Company adopted Statement of Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," effective January 1, 1996. Under SFAS No. 121, impairment losses are recognized when information indicates the carrying amount of long-lived assets, identifiable intangibles and goodwill related to those assets will not be recovered through future operations or sale. Impairment losses for assets to be held or used in operations are based on the excess of the carrying amount of the asset over the asset’s fair value. Assets held for disposal are carried at the lower of carrying amount or fair value less cost to sell. SFAS No. 121 has been applied prospectively from the date of adoption and the effect of adoption was not material.

Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.