Consolidated revenues for 1996 increased 15.4% due
to the subsidiaries acquired in the WorldWay acquisition being included for all of 1996 versus 4 1/2 months of 1995.

Earnings per common share for 1996 and 1995 give consideration to preferred stock dividends of $4.3  million. Outstanding shares for 1996 and 1995 do not assume conversion of preferred stock to common shares, because conversion would be anti-dilutive for these periods.

The Company had an operating loss of $26.6 million in 1996 compared to an operating loss of $28.6 million for 1995.

Less-Than-Truckload Motor Carrier Operations Segment. The Company’s LTL motor carrier operations are conducted primarily through ABF and effective August 12, 1995, through G.I. Trucking.

Revenues from the LTL motor carrier operations segment for 1996 increased 10.2% over 1995. In 1996, ABF accounted for 92% of the LTL segment revenues. The increase in revenues was due in part because ABF was more successful in retaining its January 1, 1996 rate increase of 5.8% than it had been in recent years. ABF’s total tonnage increased 4.3% which consisted of a 5.9% increase in LTL tonnage offset in part by a 1.5% decrease in truckload tonnage. ABF’s tonnage increased primarily as a result of including a full year of business retained from the merger of the operations of Carolina Freight Carriers ("Carolina Freight") and Red Arrow Freight Lines ("Red Arrow") into ABF in September 1995.

On January 1, 1997, ABF implemented an overall rate increase of 5.9%.

The LTL segment revenues also increased as a result of including a full year of G.I. Trucking’s operations for 1996. During 1996, G.I. Trucking continued to replace revenues lost as a result of the ABF/Carolina merger. G.I. had served Carolina Freight customers with deliveries to western states where Carolina Freight did not have terminal operations. ABF serves ABF and former Carolina Freight customers coast-to-coast. Fourth quarter 1996 revenues were 44% higher than the fourth quarter of 1995, which reflected the substantial decrease in revenue caused by the merger.

Effective with the ABF/Carolina merger, ABF inherited Carolina Freight’s regional distribution terminal operations which reconfigured the way freight flowed through ABF’s terminal system. This reconfiguration created many operating inefficiencies in ABF’s system. Labor dollars as a percent of revenue increased, empty miles increased and weight per trailer decreased, which all had an adverse impact on expenses.

During 1996, ABF discontinued twelve of the inherited regional distribution terminal operations. These closings, which occurred during the first two quarters, returned ABF to its normal terminal system configuration. This reconfiguration allowed ABF to gradually improve its direct labor costs, improve its weight per trailer and reduce its empty miles. ABF’s operating ratio as reported to the D.O.T. was 99.3% in the fourth quarter of 1996 compared to 109.3% in the fourth quarter of 1995.

Salaries, wages and benefits increased 3.8% annually effective April 1, 1996, pursuant to ABF’s collective bargaining agreement with its Teamsters employees. Effective April 1, 1997, for the final year of the Teamsters’ agreement, ABF’s salaries, wages and benefits will increase 3.9%.

Intermodal Operations Segment. The Company’s intermodal operations are conducted primarily through the Clipper Group and effective August 12, 1995, CaroTrans.

Comparisons for 1996 were affected by the WorldWay acquisition in August 1995. Therefore, certain comparisons of the results of operations for the intermodal operations segment are not meaningful and are not presented.

Revenues for the intermodal operations segment increased 28.4% in 1996, resulting primarily from the inclusion of CaroTrans for the full year and a 6% increase in revenues for the Clipper Group. Effective January 1, 1997, Clipper implemented a 5.9% rate increase, with an effective rate of 4% on LTL revenues.

During 1996, Clipper experienced an increase in the weight per shipment, resulting in a decline in revenue per hundredweight without a proportionate reduction in cost per hundredweight with a resulting decline in margins on the higher revenue.

CaroTrans expanded into some higher cost markets during 1996 and also experienced a shift in market mix to more full container-load freight. Also, ocean container costs increased. Both of these factors negatively impacted operating results.

Truckload Motor Carrier Operations Segment. Effective August 12, 1995, with the WorldWay acquisition, the Company began reporting a new business segment, truckload motor carrier operations.The Company’s truckload motor carrier operations are conducted through Cardinal.

Cardinal’s revenues increased over 1995 primarily from the inclusion of a full year of operations in 1996. However, revenues were lower than expected in 1996 due to the continuing driver shortage in the truckload transportation industry.

Higher fuel prices per gallon resulted in higher-than-expected fuel costs which were only partially recovered by fuel surcharges.

Cardinal also experienced higher-than-normal maintenance costs due to aging of revenue equipment. Cardinal anticipates replacing some of its older equipment in 1997.

Logistics Operations Segment. Effective August 12, 1995, with the WorldWay acquisition, the Company began reporting a new business segment, logistics operations. The Company’s logistics operations are conducted through Integrated Distribution, Inc. and effective August 12, 1995, through Complete Logistics and Innovative Logistics.

During the 1996 fourth quarter, the operations of Innovative Logistics were merged with and into Complete Logistics and the Clipper Group. Innovative’s non-asset intensive customer accounts and operations were merged into the Clipper Group with the remaining accounts absorbed by Complete Logistics.

Comparisons for 1996 were affected by the WorldWay acquisition in August 1995. Therefore, comparisons of the results of operations for the intermodal operations segment are not meaningful and are not presented.

The increase in logistics operations revenues in 1996 resulted primarily from the inclusion of Complete Logistics and Innovative Logistics for the full year and a 14% increase in revenues at Integrated Distribution.

Tire Operations Segment. Treadco’s revenues for 1996 decreased 2.4% to $141.6 million from $145.1 million for 1995. For 1996, "same store" sales decreased 9.2%, offset in part by a 6.7% increase in "new store" sales. "Same store" sales include both production locations and satellite sales locations that have been in existence for all of 1996 and 1995. Revenues from retreading for 1996 decreased 9.4% to $69.2 million from $76.4 million for 1995. Revenues from new tire sales increased 5.3% to $72.4 million for 1996 from $68.7 million for 1995.

As previously disclosed in 1995, Treadco’s longtime tread rubber supplier, Bandag Incorporated ("Bandag"), advised Treadco that certain franchises expiring in 1996 would not be renewed. Bandag subsequently advised the Company that unless the Company used the Bandag process exclusively, Bandag would not renew any of the Company’s franchise agreements when they expired. The Company’s remaining Bandag franchise agreements had expiration dates in 1997 and 1998. Subsequently, Treadco management made the decision to convert all of its Bandag franchise locations to Oliver Rubber Company ("Oliver") licensed facilities.

During September 1996, Treadco completed the conversion of its production facilities to Oliver licensed facilities. The conversion was completed in phases throughout the first three quarters of 1996 with approximately one-third of its production facilities converted each quarter.

The conversion resulted in up to two lost production days during each conversion, some short-term operational inefficiencies and time lost as production employees familiarized themselves with the new equipment. Also, management has been required to spend time with the conversion at the expense of normal daily operations.

Treadco has seen increased competition as Bandag has granted additional franchises in some locations currently being served by Treadco. The new competition has led to increased pricing pressures in the marketplace. As anticipated, Bandag continues to target Treadco’s customers which has caused the loss of a substantial amount of national account business. In addition, in many cases, the business retained is at lower profit margins.

Costs of sales for the tire operations segment as a percent of revenue increased primarily due to expenses incurred during the conversion and because tire margins are less as a result of increased pricing pressures.

Selling, administrative and general expenses as a percent of revenue increased as a result of several factors including costs associated with the conversion from Bandag, higher self-insurance costs, expenses associated with employee medical benefits and legal costs.

Other non-operating items for 1996 include a $1 million gain on the sale of assets related to the conversion from Bandag to Oliver.

Interest. Interest expense was $31.9 million for 1996 compared to $17.0 million for 1995, primarily due to a higher level of outstanding debt. The increase in long-term debt consisted primarily of debt incurred in the WorldWay acquisition and debt incurred for working capital requirements during the fourth quarter of 1995.

Income Taxes. The difference between the effective tax rate for 1996 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).

At December 31, 1996, the Company had deferred tax assets of $48.2 million, net of a valuation allowance of $1.2 million, and deferred tax liabilities of $54.2 million. The Company believes that the benefits of the deferred tax assets of $48.2 million will be realized through the reduction of future taxable income. Management has considered appropriate factors in assessing the probability of realizing these deferred tax assets. These factors include the deferred tax liabilities of $54.2 million and the presence of significant taxable income in 1994 and the extended carryforward period for net operating losses included in deferred tax assets. The valuation allowance has been provided for the benefit of net operating loss carryovers in certain states with relatively short carryover periods.

Management intends to evaluate the realizability of deferred tax assets on a quarterly basis by assessing the need for any additional valuation allowance.

1995 as Compared to 1994

Consolidated revenues of the Company for 1995 were $1.4 billion compared to $1.1 billion for 1994. The Company had an operating loss of $28.6 million for 1995 compared to operating profit of $47.1 million for 1994. For 1995, the Company had a net loss of $32.8 million, or a loss of $1.90 per common share, compared to net income of $18.7 million, or $.74 per common share for 1994. Revenues for 1995 increased due to the acquisition of WorldWay and the acquisition adversely impacted operating results for the same period. For the period from August 12 to September 30, 1995, WorldWay incurred a consolidated after-tax net loss of $13.6 million and a pre-tax loss from operations of $20.4 million. The WorldWay loss is attributable to Carolina Freight and Red Arrow which as of September 24, 1995 were merged into ABF. Consolidated revenues and income for 1994 were adversely affected by the 24-day labor strike by the Teamsters’ union employees of ABF in April 1994.

Earnings per common share for 1995 and 1994 give consideration to preferred stock dividends of $4.3 million. Average common shares outstanding for 1995 were 19.5 million shares compared to 19.4 million shares for 1994. Outstanding shares for 1995 and 1994 do not assume conversion of preferred stock to common shares, because conversion would be anti-dilutive for these periods.

Less-Than-Truckload Motor Carrier Operations Segment. The Company’s LTL motor carrier operations are conducted primarily through ABF and effective August 12, 1995, through G.I. Trucking.

Comparisons for 1995 were affected by the acquisition of WorldWay in August 1995 and by the ABF Teamsters’ employees strike in April 1994 (see discussion above). Therefore, comparisons of the results of operations for the LTL motor carrier operations segment are not meaningful and are not presented. As a result of the acquisition of WorldWay, LTL motor carrier operations segment includes the results of Carolina Freight and Red Arrow for the period from August 12, 1995 to their merger into ABF on September 24, 1995.

Revenues from the LTL motor carrier operations segment for 1995 were $1.1 billion, with an operating loss of $32.9 million. Earnings at ABF were negatively affected by a slowing economy and increased pricing pressure which resulted in tonnage levels below Company expectations for 1995.

ABF retained less revenue from the merger of Carolina Freight and Red Arrow than was originally estimated, resulting in over-staffing and excess equipment. This shortfall in revenue was compounded by weakened shipper demand and continued price competition during the fourth quarter. The over-staffing resulted in increased salaries and wages expense while depreciation expense was higher because of the excess revenue equipment.

Effective with the merger, ABF inherited Carolina Freight’s regional distribution terminal operations, which reconfigured the way freight flowed through ABF’s terminal system. This reconfiguration created many operating inefficiencies in ABF’s system. Labor dollars as a percent of revenue increased, empty miles increased and weight per trailer decreased, all of which had an adverse impact on expenses.

ABF has implemented a combination of cost-cutting and revenue-raising measures to stem its operating losses. ABF has closed a number of regional distribution terminal operations which it inherited when Carolina Freight and Red Arrow were merged into ABF. These closings will realign ABF to its normal terminal system configuration. ABF implemented a 5.8% freight rate increase on January 1, 1996 and is in the process of selling excess real estate and revenue equipment resulting from the Carolina Freight and Red Arrow merger.

Salaries, wages and benefits increased 3.3% annually effective April 1, 1995, pursuant to ABF’s collective bargaining agreement with its Teamsters’ employees and will increase 3.8% annually effective April 1, 1996.

Intermodal Operations Segment. Effective September 30, 1994, with the purchase of the Clipper Group, the Company began reporting a new business segment, intermodal operations. The Company’s intermodal operations are conducted primarily through the Clipper Group, effective September 30, 1994, and CaroTrans, effective August 12, 1995.

Comparisons for 1995 were affected by the WorldWay acquisition in August 1995 and by the acquisition of the Clipper Group in September 1994. Therefore, comparisons of the results of operations for the intermodal operations segment are not meaningful and are not presented.

For 1995, the intermodal operations segment had revenues of $140.7 million with an operating profit of $2.8 million. Intermodal operations were adversely affected during 1995 by soft economic conditions.

Truckload Motor Carrier Operations Segment. Effective August 12, 1995, with the WorldWay acquisition, the Company began reporting a new business segment, truckload motor carrier operations. The Company’s truckload motor carrier operations are conducted through Cardinal.

From August 12, 1995 to December 31, 1995, Cardinal had revenues of $28.0 million with an operating profit of $3.0 million. Cardinal’s operations were adversely affected during 1995 by soft economic conditions.

Logistics Operations Segment. Effective August 12, 1995, with the acquisition of WorldWay, the Company began reporting a new business segment, logistics operations. The Company’s logistics operations are conducted through Integrated Distribution, Inc. and effective August 12, 1995, through Complete Logistics and Innovative Logistics.

For 1995, the logistics operations segment had operating revenues of $31 .7 million with an operating loss of $2.6 million.

Tire Operations Segment. Treadco’s revenues for 1995 increased 4.7% to $145.1 million from $138.7 million for 1994. For 1995, "same store" sales increased 2.4% and "new store" sales accounted for 2.7% of the increase from 1994. "Same store" sales include both production locations and satellite sales locations that have been in existence for all of 1995 and 1994. Although a softer economy during the quarter slowed demand for both new replacement and retreaded truck tires, "same store" sales were higher primarily as a result of an increase in market share in the areas served. Treadco has seen increased competition as Bandag Incorporated ("Bandag") has granted additional franchises in some locations currently being served by Treadco. Revenues from retreading for 1995 increased 1.6% to $76.4 million from $75.2 million for 1994. Revenues from new tire sales increased 8.3% to $68.7 million for 1995 from $63.5 million for 1994.

Tire operations segment operating expenses as a percent of revenues were 97.0% for 1995 compared to 92.0% for 1994. Cost of sales for the tire operations segment as a percent of revenues increased to 74.9% for 1995 from 72.8% for 1994. Bandag, Treadco’s tread rubber supplier, implemented three price increases, totaling 9.6%, during 1994 and the beginning of 1995 which Treadco was unsuccessful in fully passing along to customers. Selling, administrative and general expenses for the tire operations segment increased to 21.8% for 1995 from 18.9% for 1994. The increase resulted primarily from costs resulting from Bandag’s termination of the Company’s franchises, an increase in bad debt expense, costs associated with employee medical benefits and data processing costs associated with the installation of a production and inventory control system.

In August 1995, Bandag, Treadco’s tread rubber supplier and franchiser of the retreading process used by substantially all of Treadco’s locations, announced that certain franchise agreements would not be renewed upon expiration in 1996. Bandag subsequently advised Treadco that unless Treadco used the Bandag process exclusively, Bandag would not renew any of Treadco’s franchise agreements when they expired.

In October 1995, Treadco announced it had reached an agreement for the Oliver Rubber Company ("Oliver") to be a supplier of equipment and related materials for Treadco’s truck tire precure retreading business. The agreement provides that Oliver will supply Treadco with retreading equipment and related materials for any Treadco facilities which ceased being a Bandag franchised location.

Interest. Interest expense was $17.0 million for 1995 compared to $7.0 million for 1994, primarily due to a higher level of outstanding debt. The increase in long-term debt consisted primarily of debt incurred in the acquisition of WorldWay and debt incurred for working capital requirements during the fourth quarter of 1995. Also, the Company incurred additional debt in the latter part of 1994 in the acquisition of the Clipper Group and a term loan used to finance construction of the Company’s corporate office building which was completed in 1995.

Income Taxes. The difference between the effective tax rate for 1995 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).

At December 31, 1995, the Company had deferred tax assets of $45.6 million, net of a valuation allowance of $1.2 million, and deferred tax liabilities of $62.0 million. The Company believes that the benefits of the deferred tax assets of $45.6 million will be realized through the reduction of future taxable income. Management considered appropriate factors in assessing the probability of realizing these deferred tax assets. These factors include the deferred tax liabilities of $62.0 million and the presence of significant taxable income in 1993 and 1994 and the extended carryforward period for net operating losses included in deferred tax assets. The valuation allowance has been provided for the benefits of net operating loss carryovers in certain states where operations were affected by the merger of Carolina Freight into ABF.