It would appear, based on results of January and February 1997, that ABF Freight System, our largest subsidiary, has returned to historical levels of profitability. I knew that the ABF team, with its considerable pride, skill and determination, would get the job done. It is no doubt a great relief to them as they begin to benefit from a lot of hard work in the last twelve months. The prospects for ABF appear to me to be excellent and I look forward to seeing the company grow and prosper over the next several years.

Arkansas Best’s focus can now switch to rationalizing our portfolio of transportation-related subsidiaries and deciding where to place our emphasis in 1997 and beyond.

We now have more than a year’s experience with the former WorldWay subsidiaries and certainly understand their businesses better than we did a year ago. We have made organizational changes and initiated systems improvements designed to get the most out of these companies as we go forward.

Of all the former WorldWay subsidiaries, G.I. Trucking, our west coast regional LTL motor carrier, made the greatest improvement in 1996. Initially faced with a 60% reduction in revenue as a result of the ABF/Carolina Freight merger in September 1995, G.I. made significant reductions in its cost structure while trying to rebuild its revenue base at the same time. Revenues are currently running over 40% higher than at the same time last year. G.I. also entered into a partnership with three other regional carriers to facilitate its transcontinental service and added significant new accounts late in 1996.

Cardinal Freight Carriers, our truckload motor carrier, remained solidly profitable for the year in spite of higher fuel prices and continued driver shortage problems. Cardinal has initiated steps to alleviate the driver shortages that should improve profitability in 1997.

During the year, CaroTrans International joined with Clipper Exxpress under common management to form Clipper WorldWide, a new business unit that will focus on worldwide logistics and intermodal transportation. Clipper WorldWide will link Clipper’s domestic rail intermodal network with CaroTrans’ strong ocean intermodal network.

Although Clipper was profitable for 1996, a change in shipment profile during the last half of the year resulted in a disappointing fourth quarter. Clipper has focused its sales efforts and renegotiated some handling and cartage contracts to address these changes in business.

CaroTrans experienced some significant changes in 1996 as we saw a shift in certain markets from less-than-containerload to more full containerload shipments. Ocean costs also increased due primarily to our expansion into some new market lanes. After analyzing the impact of the changes on profitability, we have implemented several cost reduction measures that should produce benefits this year.

Headquartered in the Los Angeles basin, Complete Logistics’ growth slowed during 1996 as management’s focus was diverted to changing and improving the company’s administrative systems. As revenues increased significantly over the last several years, Complete outgrew its basic accounting and information systems. Therefore, an upgrade of the systems was necessary to prepare Complete for continued growth in the rapidly expanding logistics market. We anticipate that this upgrading will be completed in the first quarter of 1997.

Integrated Distribution did not have a successful year from a profitability standpoint and management changes made during the year did not have time to impact the results for 1996. Integrated’s warehousing and consolidation business made excellent improvement during 1996 and appears to be on the right track, both in terms of customer satisfaction and revenue growth. The company’s truckload operations were not well focused, resulting in too many empty miles and low revenue miles from lack of freight lane balance. The truckload operation has been refocused on those regions where the company can do a better job of lane balance which should allow revenue-per-mile yields to improve and move the truckload segment towards acceptable results.

Carolina Breakdown had an excellent year, both in revenue growth and profitability. The addition of several national-sized fleets during the year coupled with contracts to represent original equipment manufacturers in their warranty programs were the highlights of this small but fast growing subsidiary.

Treadco, our 46 percent-owned truck tire marketer and retreader, had a very eventful 1996. Treadco changed its supplier for tread rubber and retread equipment. The conversion was completed by the end of the third quarter. Treadco lost a considerable amount of business during the transition, and replacing that business will be “job one” for the coming year. Our belief is that Treadco will recover slowly throughout the next twelve months as we replace the business lost during the transition. In other words, it will not be an overnight recovery.

In the meantime, the tread rubber and equipment and the support of our new supplier have met our expectations and given us the tools to build back the revenue levels in retreading. Treadco remains the nation’s largest independent truck tire retreader and we look forward to resuming growth in this marketplace.

I feel that cleaning up our balance sheet with significant reductions in debt must receive a high priority in 1997 and the rest of this decade. During 1996, the Company made all debt payments on time, resulting in a gross reduction in total debt of $74 million. In 1996, we were successful in selling excess real estate and revenue equipment attributable to the WorldWay acquisition and expect that success to continue in 1997 as we sell the remaining excess assets.

With the unpleasantness of 1996 behind us, I look forward to continued progress in 1997. Our goal for 1997 is to return value to our shareholders who have patiently stood by us through tough times. This goal can only be accomplished by a return to acceptable profitability, coupled with significant further reduction in outstanding debt.

Robert A. Young III
President and Chief Executive Officer