<PAGE>
 
                                                                      EXHIBIT 13

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table sets forth, for the years indicated, the percentages of
operating expenses and other items to operating revenue:
<TABLE>
<CAPTION>
 
                                             1995    1994    1993
-----------------------------------------------------------------
<S>                                       <C>      <C>     <C>
Operating revenue                          100.0%  100.0%  100.0%
Operating expenses and costs:
   Salaries, wages and benefits             58.6    53.1    51.4
   Operating supplies and expenses           6.8     6.6     6.7
   Operating taxes and licenses              4.3     4.1     3.8
   Insurance                                 3.8     3.3     2.4
   Communications and utilities              1.9     1.9     2.1
   Depreciation and amortization             6.5     6.0     6.5
   Rents and purchased transportation        8.1     9.8    12.9
   Other                                     4.6     4.5     4.8
-----------------------------------------------------------------
      Total operating expenses              94.6    89.3    90.6
-----------------------------------------------------------------
Operating income                             5.4    10.7     9.4
Interest expense                             1.8     1.5     1.3
Other income, net                            0.1     0.2     0.1
-----------------------------------------------------------------
Income before taxes                          3.7     9.4     8.2
Income taxes                                 1.4     3.6     3.1
-----------------------------------------------------------------
Income before extraordinary item             2.3     5.8     5.1
-----------------------------------------------------------------
</TABLE> 
 
 
[graph appears here]
Average Shares Outstanding (in millions)
Year                               Amount
1984                               10.60
1985                               12.56
1986                               14.79
1987                               15.25
1988                               16.63
1989                               20.91
1990                               22.40
1991                               26.64
1992                               28.13
1993                               28.58
1994                               30.36
1995                               31.33


                                       1
<PAGE>
 
RESULTS OF OPERATIONS

1995 COMPARED TO 1994

Revenue
-------
Operating revenue for 1995 was $572,100,000, up 22.9%, compared to $465,588,000
for 1994.  This increase in operating revenue was due almost entirely to a 22.5%
increase in tonnage handled by the Company.  Revenue per hundred weight was
basically unchanged in 1995 from 1994 despite the Company effecting a rate
increase of approximately 3.5%  on January 1, 1995.  This was primarily due to
aggressive, discounted pricing as a result of excess capacity within the less-
than-truckload industry.  This excess capacity existed largely as a result of
overall economic conditions during 1995.  In order to utilize its excess
capacity and better position the Company for the long-term, the Company elected
to accelerate the pace of expansion of its service territory.  The following
expansions of service territory were initiated by the Company during 1995:

 . On January 1, 1995, the Company expanded its all-points coverage to the states
  of North Carolina and South Carolina with the opening of thirteen new
  terminals.

 . On April 17, 1995, the Company expanded its service territory with the
  addition of terminal locations in: Colorado Springs, Denver, Fort Collins and
  Pueblo, CO; Des Moines, IA; Minneapolis/St. Paul, MN; Omaha, NE; Madison and
  Milwaukee, WI.

 . On July 10, 1995, the Company expanded its all-points coverage to the states
  of Colorado, Iowa, Nebraska and Wisconsin with the opening of twelve new
  terminal locations.

 . On August 14, 1995, the Company provided all-points coverage to the state of
  Florida with the opening of seven new terminal locations and opened one
  additional terminal in the the state of Georgia.

These expansions of service territory from 14 to 21 states during 1995 were the
primary reasons for the increase in tonnage handled by the Company.  In
addition, tonnage was increased by the deregulation of intrastate commerce,
effective January 1, 1995, by the Federal Aviation Administration Authorization
Act of 1994, and by continued market penetration into existing service
territories.
 
[graph appears here]
Book Value per Share (in dollars)
Year                          Amount
1984                          $0.08
1985                          $0.14
1986                          $0.17
1987                          $0.28
1988                          $0.47
1989                          $1.36
1990                          $1.61
1991                          $2.80
1992                          $3.19
1993                          $3.83
1994                          $5.84
1995                          $6.24


                                       2
<PAGE>
 
Management expects that growth in operating revenue is sustainable in the near
term. However, the Company's planned expansions of service territory during 1996
are less aggressive than those initiated during 1995.  Any near-term growth in
operating revenue will primarily be due to increased tonnage handled by the
Company.

OPERATING EXPENSES

Operating expenses as a percentage of operating revenue increased to 94.6% in
1995 from 89.3% in 1994.  This overall increase was primarily attributable to:

 . Salaries, wages and benefits as a percentage of operating revenue increased to
  58.6% in 1995 from 53.1% in 1994.  The increase in salaries, wages and
  benefits as a percentage of operating revenue was primarily a result of three
  factors.  First, the utilization of Company-operated terminals, rather than
  contractor-operated terminals, in expansions of service territory contributed
  to this increase.  Second, the continuation of the Company's philosophy of
  sharing its success with its associates through increased wages and enhanced
  benefit packages contributed to this increase.  On March 6, 1995, the Company
  increased the wages of its drivers, dockmen and clerical associates by
  approximately 5.5%.  The third factor was the accelerated expansion of service
  territory during 1995.  Within the expansion territories, wages and benefits
  were disproportionately high in relation to operating revenues as new
  associates were added to establish an operating base.  Management does not
  expect salaries, wages and benefits as a percentage of operating revenue to
  continue in an upward trend, but expects these expenses as they relate to
  operating revenue to stabilize or gradually improve.

 . Insurance as a percentage of operating revenue increased to 3.8% in 1995 from
  3.3% in 1994.  This increase was primarily a result of the Company's increased
  experience of accidents and cargo claims, particularly in the areas of cargo
  care and liability insurance.  Management does not expect a continuation of
  the upward trend in insurance expenses as they relate to operating revenue but
  expects a stabilization of these expenses near historical levels.


[graph appears here]
Operating Revenue (in millions)
Year                         Amount
1984                         $17.83
1985                         $25.04 
1986                         $34.45
1987                         $47.07 
1988                         $73.08 
1989                         $97.59 
1990                         $142.78
1991                         $198.26
1992                         $262.01
1993                         $328.46
1994                         $465.59
1995                         $572.10

                                       3
<PAGE>
 
 . Depreciation and amortization as a percentage of operating revenue increased
  to 6.5% in 1995 from 6.0% in 1994.  This increase was primarily due to two
  factors.  The first factor was the decreased usage of rented equipment in
  favor of Company-owned equipment.  The second factor was the rapid expansion
  of service territory.  During the initial stages of expansion of service
  territory, depreciation expense is disproportionately high in comparison to
  operating revenue.  Management expects depreciation expense as a percentage of
  operating revenue to stabilize or gradually improve.
 
[graph appears here]
Total Terminals
Year                         Amount
1984                         31
1985                         31
1986                         44
1987                         64
1988                         76
1989                         85
1990                         100
1991                         111
1992                         116
1993                         132
1994                         144
1995                         186

These increases in operating expenses as a percentage of operating revenue were
partially offset by improvements in the following area:

 . Rents and purchased transportation as a percentage of operating revenue
  improved to 8.1% in 1995 from 9.8% in 1994.  This improvement was primarily
  due to the Company's philosophy of utilizing Company-operated terminals rather
  than contractor-operated terminals in expansions of service territory.  In
  addition, this improvement was partially due to the decreased usage of rented
  equipment in favor of Company-owned equipment.  Management expects rents and
  purchased transportation as a percentage of operating revenue to stabilize
  near current levels.

OTHER

Interest expense as a percentage of operating revenue increased to 1.8% in 1995
from 1.5% in 1994.  This increase was primarily attributable to increased
borrowings incurred by the Company to finance the expansion of service territory
and support growth in operating revenue.

The effective tax rate of the Company was 38.6% for 1995, up from 38.0% in 1994.
This increase was primarily due to increased state income taxes.  Net income for
1995 was $13,083,000, down 51.0%, from $26,696,000 for 1994.


                                       4
<PAGE>
 
1994 COMPARED TO 1993

Operating revenue for 1994 was $465,588,000, up 41.7%, compared to $328,464,000
for 1993.  The growth in operating revenue was primarily attributable to a 34.5%
increase in tonnage handled by the Company from new and existing customers.  The
major causes of this increase in tonnage were:

 . On April 5, 1993, the Company opened nine new terminals to extend all-points
  coverage to the state of Kentucky and the southern regions of Indiana and
  Ohio.  The year 1994 included a full year of operation of these terminals.

 . On January 1, 1994, the Company expanded its all-points coverage to the states
  of Indiana and Ohio with the opening of fourteen new terminals.

 . The Company continued to increase its market penetration into service
  territory that existed on January 1, 1994.

 . The one-time increase in tonnage as a result of a strike in April 1994, by the
  International Brotherhood of Teamsters against several companies in the less-
  than-truckload industry.  This one-time, strike-related increase in tonnage
  resulted in extra operating revenue of approximately $12,000,000.

In addition to the increase in tonnage, operating revenue was increased by a
5.5% increase in revenue per hundred weight.  The major factors contributing to
this increase in revenue per hundred weight were:

 . A general rate increase of 2.8% effective January 1, 1994. General rate
  increases initially affect approximately 50% of the Company's customers. The
  remaining customers' rates are determined by contracts and guarantees and are
  negotiated throughout the year. 

 . The Company's average length of haul increased 3.1% in 1994 as a result of the
  Company's expanded service territory.

 . The percentage of the Company's total revenue that was truckload (shipments
  greater than 10,000 pounds) declined to 8.1% in 1994 compared to 8.8% in 1993.
 
[graph appears here]
Shareholder's Equity (in millions)
Year                                  Amount
1984                                  $0.80
1985                                  $1.71
1986                                  $2.50
1987                                  $4.28
1988                                  $7.75
1989                                  $28.30
1990                                  $35.94
1991                                  $74.64
1992                                  $89.71
1993                                  $109.46
1994                                  $177.18
1995                                  $195.43


                                       5
<PAGE>
 
Operating expenses as a percentage of operating revenue improved to 89.3% in
1994 from 90.6% in 1993.  This overall improvement was primarily attributable
to:

 . Rents and purchased transportation as a percentage of operating revenue
  decreased to 9.8% in 1994 from 12.9% in 1993.  This decrease was due to the
  Company's philosophy of utilizing Company-operated terminals in expansions of
  service territory, along with the conversion of four contractor-operated
  terminals to Company-operated terminals during 1994.  At December 31, 1994, of
  the Company's 144 terminals, 10 were contractor-operated.  The increased
  utilization of Company-operated terminals was one of two primary reasons
  salaries, wages and benefits as a percentage of operating revenue increased to
  53.1% in 1994 from 51.4% in 1993.  The other reason for the increase in
  salaries, wages and benefits as a percentage of operating revenue was the
  Company's ongoing philosophy of sharing its success with associates through
  increased wages and enhanced benefit packages.  On March 6, 1994, the Company
  increased the wages of its drivers, dockmen and clerical associates by
  approximately 5.5%.

 . Depreciation and amortization as a percentage of operating revenue decreased
  to 6.0% in 1994 from 6.5% in 1993.  This improvement was primarily due to
  three factors.  The first factor was the increased tonnage handled by the
  existing fixed cost structure of the Company.  The second factor was the one-
  time surge in tonnage related to the Teamster strike in April 1994 (where
  there was not a comparable surge in equipment in use).  The third factor was
  the extension of the useful lives of a portion of the Company's revenue
  equipment by two years, effective July 1, 1994.  Based on the historical
  experience of the Company, management expects the extended lives to better
  match the economic benefits received from the equipment.
 
[graph appears here]
Gross Tonnage Hauled (in thousands)
Year                             Amount
1984                              218
1985                              289
1986                              334
1987                              432
1988                              586
1989                              711
1990                              937
1991                              1,238
1992                              1,615
1993                              2,051
1994                              2,759
1995                              3,380

These improvements in operating expenses as a percentage of operating revenue
were partially offset by increases in the following areas:

 . Insurance as a percentage of operating revenue increased to 3.3% in 1994 from
  2.4% in 1993. This increase was primarily a result of the Company's increased
  experience of accidents and cargo claims, particularly in the areas of cargo
  care and liability 

                                       6
<PAGE>
 
  insurance. Accidents and cargo claims returned to historical levels during
  1994, after being somewhat lower in the prior two years.

 . Operating taxes and licenses as a percentage of operating revenue increased to
  4.1% in 1994 from 3.8% in 1993.  The primary cause for this increase was an
  increase in federal fuel taxes in October 1993.
 
[graph appears here]
Total Number of Tractors
Year                        Amount
1984                         233
1985                         270
1986                         382
1987                         516
1988                         714
1989                         968
1990                         1,195
1991                         1,634
1992                         1,955
1993                         2,453
1994                         3,344
1995                         4,521

LIQUIDITY AND CAPITAL RESOURCES

Significant capital resources were required by the Company during 1995,
primarily due to the expansion of service territory during 1995 and the startup
costs associated with the expansion of service territory initiated on January 1,
1996. Capital resources were also required to support the continued growth in
tonnage handled by the Company in service territory that existed prior to
January 1, 1995.

Capital requirements during 1995 consisted primarily of $136,923,000 of
investing activities. The Company invested $137,952,000 in capital expenditures
during 1995 comprised of $81,062,000 in additional revenue equipment,
$30,072,000 in new terminal facilities or the expansion of existing terminal
facilities and $26,818,000 in other equipment. Planned expansions of service
territory during 1996 are less aggressive than those expansions initiated during
1995. Therefore, management does not expect a similar amount of capital
expenditures will be required in 1996. However, the amount of capital
expenditures required in 1996 will be dependent on the growth rate of the
Company and the timing and size of any future geographical expansions. At
December 31, 1995, the Company had commitments for land, terminals, revenue and
other equipment of approximately $33,462,000. These commitments were for the
completion of projects in process at December 31, 1995, and for the purchase of
additional revenue equipment in anticipation of increased revenue levels during
1996.

The Company provided for its capital resource requirements in 1995 with cash
from operations and financing activities. Cash from operations totaled
$45,676,000 in 1995

                                       7
<PAGE>
 

compared to $65,501,000 in 1994. This decrease was primarily attributable to the
increase in operating expenses, as they relate to operating revenue in 1995
compared to 1994. Financing activities augmented cash flow by $89,890,000 in
1995, utilizing two primary sources of financing: the revolving line of credit
and the Master Shelf facility.

 . The Company experiences periodic cash flow fluctuations common to the
  industry.  Cash outflows are heaviest during the first part of any given year
  while cash inflows are normally weighted towards the last two quarters of the
  year.  To smooth these fluctuations and to provide flexibility to fund future
  growth, the Company utilizes a variable-rate, unsecured revolving line of
  credit provided by NationsBank of Texas, N.A., Texas Commerce Bank, N.A. and
  Wachovia Bank of Georgia, N.A. Effective May 31, 1995, the limit of this line
  of credit facility was increased to $125,000,000 from $75,000,000.  During
  1995, the Company utilized this facility to provide $57,000,000 of net
  financing, bringing outstanding borrowings under the facility to $94,000,000
  and leaving $31,000,000 available for borrowing.  The Company also maintains a
  short-term, unsecured revolving line of credit with NationsBank of Texas, N.A.
  Effective May 9, 1995, the limit of this short-term facility was increased to
  $7,500,000 from $5,000,000.  At December 31, 1995, $7,500,000 was available
  for borrowing.  In addition, the Company maintains a $10,000,000 line of
  credit with NationsBank, N.A. to obtain letters of credit required for its
  self-insurance program.  At December 31, 1995, the Company had obtained
  letters of credit totaling $5,870,000 for this purpose.
 
[graph appears here]
Total Assets (in millions)
Year                            Amount
1984                            $  7.47
1985                            $ 11.66
1986                            $ 15.37
1987                            $ 23.20
1988                            $ 43.47
1989                            $ 68.90
1990                            $ 97.95
1991                            $168.13
1992                            $175.53
1993                            $251.13
1994                            $355.35
1995                            $477.76

 . To assist in financing longer-lived assets, the Company has an uncommitted
  Master Shelf Agreement with the Prudential Insurance Company of America which
  provides for the issuance of up to $90,000,000 in medium to long-term
  unsecured notes at an interest rate calculated at issuance.  During 1995, the
  Company utilized this agreement to issue a $15,000,000 note at 8.85% with a
  ten year maturity and a $20,000,000 note at 6.92% with a ten year maturity.
  The proceeds of these notes were used primarily to repay borrowings from the
  revolving line of credit or to fund capital expenditures.  At December 31,
  1995, $25,000,000 was available under this facility for borrowing.

                                       8
<PAGE>
 

Working capital at December 31, 1995, increased $14,830,000, compared to
December 31, 1994.  This increase was primarily the result of a $14,301,000
increase in trade receivables, less allowance for doubtful accounts, at December
31, 1995, compared to December 31, 1994.

Management expects that the Company's existing working capital and its available
lines of credit are sufficient to meet the Company's commitments as of December
31, 1995, and to fund current operating and capital needs.  However, if
additional financing is required, management believes it will be available.

The Company utilizes off-balance sheet financing in the form of operating
leases, when appropriate and suitable,  to finance computer equipment, terminal
facilities and revenue equipment.  At December 31, 1995, future rental
commitments on operating leases were $54,805,000.

ENVIRONMENTAL

At December 31, 1995, the Company had no outstanding inquiries with any state or
federal environmental agency.

INFLATION

During 1995, the effect of inflation on the operating results of the Company was
minimal.  However, most of the Company's expenses are sensitive to inflation as
increases in inflation generally result in increased costs.
 
[graph appears here]
Average Length of Haul (miles)
Year                               Amount
1984                               264
1985                               290
1986                               289
1987                               274
1988                               300
1989                               360
1990                               395
1991                               454
1992                               525
1993                               550
1994                               567
1995                               588

SEASONALITY

In the trucking industry, results of operations generally show a seasonal
pattern because customers reduce shipments during winter months.  In addition,
the Company's operating expenses as a percentage of operating revenues have
historically been higher during the winter.

                                       9
<PAGE>
 

[graph appears here]
Total Number of Shipments (in thousands)
Year                                        Amount
1984                                           227
1985                                           313
1986                                           437
1987                                           613
1988                                           949
1989                                         1,252
1990                                         1,693
1991                                         2,179
1992                                         2,654
1993                                         3,237
1994                                         4,267
1995                                         5,486

OTHER MATTERS

In October 1995, the Financial Accounting Standards Board issued Statement No.
123, Accounting for Stock-Based Compensation, which will be effective for 1996.
The Company has elected to continue following the existing accounting rules (the
intrinsic value method) and has disclosed such in the 1995 financial statements.

In March 1995, the Financial Accounting Standards Board issued Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of.  Although this Statement will also be applicable for
1996, the Company does not expect it to have a significant impact on the
Company's financial position or results of operations.

RECENT EVENTS

On January 1, 1996, the Company opened twelve new terminals and extended its
all-points coverage to the states of Delaware, Maryland, Virginia and West
Virginia.

On January 1, 1996, the Company effected a general rate increase of
approximately 5.75%.  This rate increase initially affected approximately 44% of
its customers.  Rates for other customers are covered by contracts and
guarantees and are negotiated throughout the year.

Effective January 1, 1996, the Company expanded its coverage to include 92% of
Canada's population through an exclusive partnership with Day & Ross, Inc., one
of Canada's leading less-than-truckload carriers.  Day & Ross, Inc. is part of
the Day & Ross Transportation Group, Canada's largest truck transportation
conglomerate and is a wholly-owned subsidiary of the Canadian-based McCain Food
Company.  Day & Ross, Inc. corporate offices are located in Hartland, New
Brunswick, Canada.

                                      10
<PAGE>
 

[graph appears here]
Total Number of People
Year                      Amount
1984                         288
1985                         340
1986                         385
1987                         745
1988                       1,156
1989                       1,516
1990                       2,209
1991                       3,058
1992                       3,655
1993                       4,964
1994                       6,506
1995                       8,867
 


                                      11
<PAGE>
 
                American Freightways Corporation and Subsidiary

                          Consolidated Balance Sheets

                      (thousands, except per share data)

<TABLE>
<CAPTION>
                                                                   DECEMBER 31
                                                                 1995        1994
                                                           --------------------------
<S>                                                           <C>         <C>
ASSETS
Current assets:
 Cash and cash equivalents (Note 9)                           $   2,642   $   3,999
 Trade receivables, less allowance for doubtful accounts         
  (1995--$845; 1994--$639)                                       54,119      39,818
 Operating supplies and inventories                               2,136       1,519
 Prepaid expenses                                                 5,504       4,247
 Deferred income taxes (Note 4)                                   8,444       4,664
 Income taxes receivable                                          4,368           -
                                                           --------------------------
Total current assets                                             77,213      54,247
 
Property and equipment (Notes 3 and 6):
 Land and structures                                             97,303      83,244
 Revenue equipment                                              322,748     230,732
 Service, office and other equipment                             66,012      49,324
 Leasehold improvements                                           1,650       1,439
 Construction in progress                                        42,876      31,855
 Allowances for depreciation and amortization                  
  (deduction)                                                  (132,887)    (98,701)
                                                           --------------------------
                                                                397,702     297,893
 
Other assets:
 Bond funds (Notes 3 and 9)                                         901         888
 Other                                                            1,946       2,320
                                                           --------------------------
                                                                  2,847       3,208
                                                           --------------------------
                                                              $ 477,762   $ 355,348
                                                           ==========================
</TABLE>

                                                                              12
<PAGE>
 
<TABLE>
<CAPTION>
                                                                   DECEMBER 31
                                                                1995        1994
                                                           --------------------------
<S>                                                           <C>         <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
 Trade accounts payable                                       $  10,532   $  13,358
 Accrued expenses (Note 2)                                       33,590      24,449
 Federal and state income taxes                                       -         233
 Current portion of long-term debt                                8,392       6,338
                                                           --------------------------
Total current liabilities                                        52,514      44,378
 
 
Long-term debt, less current portion (Notes 3 and 9)            189,239     104,843
 
Deferred income taxes (Note 4)                                   40,575      28,947
 
 
Shareholders' equity (Notes 3, 5 and 7):
 Common stock, par value $.01 per share; authorized 
  250,000 shares; issued and outstanding 30,931 shares 
  in 1995 and 30,496 in 1994                                        309         305
 Additional paid-in capital                                      98,514      93,347
 Retained earnings                                               96,611      83,528
                                                           --------------------------
                                                                195,434     177,180
 
Commitments (Note 6)
 
                                                           --------------------------
                                                              $ 477,762   $ 355,348
                                                           ==========================
</TABLE>

See accompanying notes.

                                                                              13
<PAGE>
 
                American Freightways Corporation and Subsidiary

                       Consolidated Statements of Income
                      (thousands, except per share data)

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31      
                                                          1995       1994        1993   
                                                      ----------------------------------
<S>                                                    <C>         <C>         <C>      
Operating revenue                                      $572,100    $465,588    $328,464 
                                                                                        
Operating expenses and costs:                                                           
 Salaries, wages and benefits                           335,167     247,049     168,770 
 Operating supplies and expenses                         38,667      30,710      22,099 
 Operating taxes and licenses                            24,434      19,251      12,340 
 Insurance                                               21,595      15,360       7,891 
 Communications and utilities                            11,040       9,117       6,907 
 Depreciation and amortization                           37,560      27,888      21,519 
 Rents and purchased transportation                      46,405      45,633      42,250 
 Other                                                   26,469      20,880      15,782 
                                                      ----------------------------------
                                                        541,337     415,888     297,558 
                                                      ----------------------------------
Operating income                                         30,763      49,700      30,906 
                                                                                        
Other income (expense):                                                                 
 Interest expense                                       (10,198)     (6,832)     (4,246)
 Interest income                                            146         195         132 
 Gain on disposal of assets                                 329         292           1 
 Other, net                                                 269         247         197 
                                                      ----------------------------------
                                                         (9,454)     (6,098)     (3,916)
                                                      ----------------------------------
Income before income taxes and extraordinary                                            
 charge                                                  21,309      43,602      26,990 
                                                                                        
Federal and state income taxes (Note 4):                                                
 Current (credit)                                          (422)      7,071       4,189 
 Deferred                                                 8,648       9,500       6,049 
                                                      ----------------------------------
                                                          8,226      16,571      10,238 
                                                      ----------------------------------
Income before extraordinary charge                       13,083      27,031      16,752  
Extraordinary charge for early retirement of debt, 
 net of tax benefit of $205 (Note 3)                          -        (335)          - 
                                                      ----------------------------------
Net income                                             $ 13,083    $ 26,696    $ 16,752
                                                      ==================================
Per share (Note 1):                                                                     
 Income before extraordinary charge                      $ 0.42      $ 0.89       $0.59
 Extraordinary charge                                         -       (0.01)          -
                                                      ----------------------------------
 Net income                                              $ 0.42      $ 0.88       $0.59
                                                      ==================================
                                                                                        
Average shares outstanding (Note 1)                      31,334      30,357      28,581
                                                      ================================== 
</TABLE>

See accompanying notes.

                                                                              14
<PAGE>
 
                American Freightways Corporation and Subsidiary

                Consolidated Statements of Shareholders' Equity

<TABLE>
<CAPTION>
                                          COMMON STOCK   
                                        -----------------    ADDITIONAL
                                                     PAR      PAID-IN      RETAINED 
                                          SHARES    VALUE     CAPITAL      EARNINGS      TOTAL
                                        ---------------------------------------------------------
                                                               (thousands)
<S>                                      <C>        <C>       <C>          <C>         <C>
Balances at January 1, 1993               27,694    $ 277     $ 49,352     $ 40,080   $   89,709
 Stock option and purchase plans             329        3        2,996            -        2,999
 Net income                                    -        -            -       16,752       16,752
                                        ---------------------------------------------------------
Balances at December 31, 1993             28,023      280       52,348       56,832      109,460
 Sale of stock (Note 7)                    2,125       21       36,630            -       36,651
 Stock option and purchase plans             348        4        4,369            -        4,373
 Net income                                    -        -            -       26,696       26,696
                                        ---------------------------------------------------------
Balances at December 31, 1994             30,496      305       93,347       83,528      177,180
 Stock option and purchase plans             435        4        5,167            -        5,171
 Net income                                    -        -            -       13,083       13,083
                                        ---------------------------------------------------------
Balances at December 31, 1995             30,931    $ 309     $ 98,514     $ 96,611   $  195,434
                                        =========================================================
</TABLE>

See accompanying notes.

                                                                              15
<PAGE>
 
                American Freightways Corporation and Subsidiary

                     Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31                
                                                       1995        1994        1993         
                                                  -------------------------------------     
                                                               (thousands)                  
<S>                                                 <C>         <C>         <C>             
OPERATING ACTIVITIES                                                                        
Cash received from customers                        $ 557,139   $ 454,308   $ 323,298       
Cash paid to suppliers and employees                 (498,454)   (377,424)   (266,724)      
Interest received                                         146         195         132       
Interest paid                                          (9,907)     (7,152)     (4,157)      
Income taxes paid                                      (3,248)     (4,426)     (5,729)      
                                                  -------------------------------------     
Net cash provided by operating activities              45,676      65,501      46,820       
                                                                                            
INVESTING ACTIVITIES                                                                        
Proceeds from sales of equipment                        1,029         945       1,162       
Capital expenditures                                 (137,952)   (116,272)    (95,085)      
                                                  -------------------------------------     
Net cash used by investing activities                (136,923)   (115,327)    (93,923)      
                                                                                            
FINANCING ACTIVITIES                                                                        
Proceeds from notes payable and long-term                                         
  borrowings                                          117,640      74,500      44,000       
Principal payments on long-term debt                  (31,190)    (60,856)     (1,767)      
Proceeds from issuance of common stock                  3,440      39,938       2,172       
                                                  -------------------------------------     
Net cash provided by financing activities              89,890      53,582      44,405       
                                                  -------------------------------------     
                                                  
Net increase (decrease) in cash and cash                                                    
  equivalents                                          (1,357)      3,756      (2,698)      
Cash and cash equivalents at beginning of year          3,999         243       2,941       
                                                  -------------------------------------      
Cash and cash equivalents at end of year            $   2,642   $   3,999   $     243        
                                                  =====================================
</TABLE>

                                                                              16
<PAGE>
 
                American Freightways Corporation and Subsidiary

               Consolidated Statements of Cash Flows (continued)

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31
                                                       1995        1994       1993
                                                   -----------------------------------
                                                               (thousands)
<S>                                                  <C>        <C>        <C>        
RECONCILIATION OF NET INCOME TO NET CASH                                                  
 PROVIDED BY OPERATING ACTIVITIES:                                               
Net income                                           $  13,083  $  26,696  $  16,752  
Adjustments to reconcile net income to net cash                                               
 provided by operating activities:                                           
  Depreciation and amortization                         37,560     27,888     21,519  
  Provision for losses on accounts receivable              929      1,126        513  
  Current tax effect of exercise of stock                                             
   options                                                 931      1,086        826  
  Gain on sale of equipment                               (329)      (292)        (1) 
  Deferred income taxes                                  8,648      9,500      6,049  
  Changes in operating assets and liabilities:                                        
   Trade accounts receivable                           (15,230)   (11,521)    (5,403) 
   Operating supplies and inventories                     (617)      (664)      (284) 
   Prepaid expenses                                     (1,257)      (986)      (781) 
   Other assets                                            244        100       (262) 
   Trade accounts payable                               (2,826)     3,534      7,779  
   Accrued expenses                                      9,141      7,681      1,653  
   Federal and state income taxes                       (4,601)     1,353     (1,540) 
                                                   -----------------------------------
Total adjustments                                       32,593     38,805     30,068  
                                                   -----------------------------------
Net cash provided by operating activities            $  45,676  $  65,501  $  46,820  
                                                   =================================== 
</TABLE>

See accompanying notes.

                                                                              17
<PAGE>
 
                American Freightways Corporation and Subsidiary

                  Notes to Consolidated Financial Statements

                               December 31, 1995


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION

The consolidated financial statements include the accounts of American
Freightways Corporation and its subsidiary (collectively, the "Company"). All
significant intercompany accounts and transactions have been eliminated.

BUSINESS

The Company primarily operates as an interregional, scheduled, for hire, less-
than-truckload motor carrier, serving all points in 21 contiguous states from a
network of 186 terminals. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. Historically, credit losses
have not been significant.

REVENUE RECOGNITION

The Company recognizes revenue and direct shipment costs upon the delivery of
the related freight.

PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost. For financial reporting purposes,
the cost of such property is depreciated principally by the straight-line method
over the estimated useful lives of 3 to 12 years for revenue and service
equipment, 15 to 40 years for structures and improvements and 3 to 10 years for
furniture and office equipment. For tax reporting purposes, accelerated
depreciation or applicable cost recovery methods are used. Gains and losses are
recognized in the year of disposal.

Effective for periods beginning July 1, 1994, the Company changed the service 
lives and salvage values for certain revenue equipment. These changes in 
estimates were made to more accurately reflect the Company's experience as to 
service lives of the equipment. These changes increased 1994 net income by 
approximately $565,000, or $.02 per common share.

Effective for periods beginning October 1, 1995, the Company changed the service
lives for certain structures and improvements, ancillary and computer equipment
and furniture and fixtures. These changes in estimates were made to more
accurately reflect future service lives of the assets. These changes increased
1995 net income by approximately $453,000, or $.01 per common share.

                                                                              18
<PAGE>
 
                American Freightways Corporation and Subsidiary

            Notes to Consolidated Financial Statements (continued)



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INSURANCE

As of December 31, 1995, the Company was self-insured up to specified limits for
the following types of claims:

     Workers' compensation:
      All states of operation (with the exception of Colorado, 
       Florida, Indiana, Iowa, Minnesota, Nebraska, Ohio, Texas 
       and Wisconsin)                                              $ 500,000 
      State of Wisconsin                                         FULLY INSURED
 
In the states of Colorado, Florida, Indiana, Iowa, Minnesota, Nebraska and
Texas, workers' compensation claims are insured under a $500,000 deductible
plan. In the state of Ohio, workers' compensation claims are insured under the
mandatory State Plan as private plans are not permitted. Wisconsin law does not
allow deductible plans and those claims are fully insured.

All other types of claims are self-insured with a retention limit of $500,000
per occurrence.

INCOME TAXES

Deferred income taxes are accounted for under the liability method. Deferred
income tax assets and liabilities reflect the effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and the amounts used for income tax purposes.

EARNINGS PER SHARE

Earnings per share is computed based on the weighted average number of shares
outstanding during each year, adjusted to include common stock equivalents
attributable to dilutive stock options and retroactively adjusted for the effect
of a 2-for-1 stock split declared April 22, 1993.

CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.

                                                                              19
<PAGE>
 
                American Freightways Corporation and Subsidiary

            Notes to Consolidated Financial Statements (continued)



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.

RECENT ACCOUNTING PRONOUNCEMENTS

In 1995, the Financial Accounting Standards Board issued Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of. This statement will be adopted in the first quarter of 1996. The
Company does not expect Statement No. 121 to have a significant impact on the
Company's financial position or results of operations.

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.

2. ACCRUED EXPENSES

<TABLE> 
<CAPTION> 
                                                     1995        1994       
                                               --------------------------- 
                                                        (thousands)      
                                                                        
<S>                                                <C>         <C>    
Accrued salaries, wages and benefits               $  13,796   $  10,518  
Taxes other than income                                2,363       2,575  
Loss, injury, damage, health and                                          
 workers' compensation claims reserves                16,320      10,536  
Other                                                  1,111         820  
                                               ---------------------------
                                                   $  33,590   $  24,449   
                                               ===========================
</TABLE>

                                                                              20
<PAGE>
 
                American Freightways Corpration and Subsidiary

            Notes to Consolidated Financial Statements (continued)



3. LONG-TERM DEBT

<TABLE> 
<CAPTION> 
                                                 1995        1994    
                                             -------------------------
                                                    (thousands)     

<S>                                            <C>         <C>      
Bonds payable /(1)/                            $   7,310   $   7,580
Revolving credit agreements /(2)/                 94,000      37,000
Mortgage notes /(3)/                               1,107         419
Capitalized lease obligations /(4)/                  214       1,182
Unsecured senior notes /(5)/                      95,000      65,000
                                             -------------------------
                                                 197,631     111,181
Less current portion                              (8,392)     (6,338)
                                             -------------------------
                                               $ 189,239   $ 104,843 
                                             =========================
</TABLE>

(1) Represents the Company's liability under a loan agreement with Arkansas
    Development Finance Authority, issuer of economic development revenue bonds
    to construct terminals and a general office facility. The loan agreement
    provides that the Company will make payments sufficient to pay the principal
    and interest on the bonds. The bonds include a $1,320,000 term bond due in
    1999 and a $5,990,000 term bond due in 2009. The bonds bear interest at
    fixed rates of 8.25% and 8.50%, respectively, and are collateralized by land
    and structures with a net book value of $8,268,000 at December 31, 1995. The
    loan agreement requires that certain bond service funds be maintained. As of
    December 31, 1995, there was $901,000 in a debt service reserve fund.
    Mandatory annual sinking fund redemption payments began in 1995.

(2) The revolving credit agreements at December 31, 1995, include an unsecured
    revolving credit agreement which provides for available borrowings of
    $125,000,000. Borrowings under this revolving credit agreement at December
    31, 1995 totaled $94,000,000. The term of this agreement extends to April 1,
    2000 (unless terminated or renewed). Interest is applied to outstanding
    borrowings at variable interest rates based on the London Interbank rate or
    the prime rate. The weighted average rate on outstanding borrowings at
    December 31, 1995 was 6.5%. The agreement contains covenants which limit,
    among other things, indebtedness, loans, investments and dividend payments,
    as well as require the Company to meet certain financial tests. The Company
    pays an annual commitment fee of .20% of the unused commitment. As of
    December 31, 1995, the amount available for additional borrowing under this
    line of credit was $31,000,000.

                                                                              21
<PAGE>
 
                American Freightways Corpration and Subsidiary

            Notes to Consolidated Financial Statements (continued)



3. LONG-TERM DEBT (CONTINUED)

    The Company also has $7,500,000 of available borrowings at December 31,
    1995, under a separate unsecured revolving credit agreement. The terms of
    this agreement provide for borrowings up to $7,500,000 at the prime rate of
    interest or at a rate of interest agreed upon at the time of any borrowings.
    No borrowings were outstanding at December 31, 1995 under this agreement.
    This agreement matures May 31, 1996, unless terminated or renewed.

    In addition, the Company maintains a $10,000,000 line of credit to fund
    letters of credit. At December 31, 1995, the Company had utilized this line
    of credit to obtain letters of credit totaling $5,870,000.

(3) Mortgage notes are due monthly or quarterly to November 2003 at an average
    interest rate of 8.44%. The notes are collateralized by land and structures
    with a net book value of $1,618,000 at December 31, 1995.

(4) Capitalized lease obligations consist primarily of installment obligations
    for revenue equipment purchases; payable in various monthly installments
    through April 1996, at a weighted average interest rate of 9.33% and
    collateralized by revenue equipment with a net book value of approximately
    $2,417,000 at December 31, 1995.

(5) Includes an unsecured senior note for $30,000,000 payable in equal annual
    installments of $5,000,000 through November 2001. The note bears interest at
    a fixed rate of 8.91% payable semi-annually.

    Also includes five notes totaling $65,000,000; all issued under an unsecured
    and uncommitted $90,000,000 Master Shelf Agreement with the following
    characteristics:

<TABLE>
<CAPTION>
               OUTSTANDING                                  INTEREST   
                PRINCIPAL               MATURITY DATE         RATE        
         -------------------------------------------------------------
                                                                     
              <S>                       <C>                 <C>           
              $ 10,000,000              August 2000           6.25%  
                10,000,000              October 2000          6.00   
                10,000,000              April 2001            7.55   
                15,000,000              January 2005          8.85   
                20,000,000              June 2005             6.92    
</TABLE>

                                                                              22
<PAGE>
 
                American Freightways Corporation and Subsidiary   
                                                                  
             Notes to Consoliated Financial Statements (continued) 



3. LONG-TERM DEBT (CONTINUED)

All notes have fixed interest rates, payable quarterly. These note agreements
contain covenants which limit, among other things, loans, indebtedness,
investments and dividend payments, and require the Company to meet certain
financial tests.

Annual maturities on long-term debt, excluding capitalized lease obligations,
are $8,178,000 in 1996, $11,463,000 in 1997, $11,495,000 in 1998, $11,539,000 in
1999, $106,835,000 in 2000 and $47,907,000 thereafter.

Interest costs of $1,478,000, $1,002,000 and $1,568,000 in 1995, 1994, and 1993,
respectively, were capitalized as part of the acquisition cost of certain
property and equipment.

In 1994, the Company paid a note prior to its maturity date and incurred a
prepayment charge of $540,000 which has been classified as an extraordinary
charge in the 1994 statement of income, net of the related income tax benefit of
$205,000.

4. FEDERAL AND STATE INCOME TAXES

Significant components of the Company's deferred tax liabilities and assets as
of December 31, 1995 and 1994, respectively, are as follows:

<TABLE>
<CAPTION>
                                                            1995       1994    
                                                         ---------------------
                                                             (thousands)     
<S>                                                       <C>        <C> 
Noncurrent deferred tax liabilities:                                         
   Tax over book depreciation                             $49,490    $31,361
Alternative minimum tax credit carryover                   (8,915)    (2,414)
                                                         ---------------------
Net noncurrent deferred tax liabilities                   $40,575    $28,947 
                                                         =====================

Current deferred tax assets:                                                 
   Accrued expenses not deductible until paid             $ 8,802    $ 5,346 
   Allowance for doubtful accounts                            224        154 
   Revenue recognition differences                             88        241
                                                         ---------------------
Total current deferred tax assets                           9,114      5,741 
                                                         

Current deferred tax liabilities:                                            
   Prepaid expenses                                          (670)    (1,077)
                                                         ---------------------
Net current deferred tax assets                           $ 8,444    $ 4,664  
                                                         =====================
</TABLE>

                                                                              23
<PAGE>
 
                American Freightways Corporation and Subsidiary   
                                                                  
             Notes to Consoliated Financial Statements (continued) 



4. FEDERAL AND STATE INCOME TAXES (CONTINUED)

The reconciliation between the effective income tax rate and the statutory
federal income tax rate is presented in the following table:

<TABLE>
<CAPTION>
                                                               1995       1994      1993   
                                                           --------------------------------- 
                                                                      (thousands)          
<S>                                                         <C>        <C>        <C>      
Income tax at the statutory federal rate of 35%             $  7,458   $ 15,261   $  9,446 
Federal income tax effects of:                                                             
   Retroactive tax rate change effect on deferred taxes            -          -        270 
   State income taxes                                           (336)      (613)      (334)
   Nondeductible expenses                                        295        214         90 
   Lower rates on taxable income below $15,000,000              (150)      (100)       (80)
   Other                                                           -         58       (108)
                                                           --------------------------------- 
Federal income taxes                                           7,267     14,820      9,284 
State income taxes                                               959      1,751        954 
                                                           --------------------------------- 
                                                            $  8,226   $ 16,571   $ 10,238 
                                                           ================================= 
Effective income tax rate                                       38.6%      38.0%      37.9%
                                                           ================================= 
</TABLE>

The Company has alternative minimum tax credit carryovers of approximately
$8,915,000 which have reduced the deferred tax liability. These credits carry
over indefinitely.

Tax benefits of stock option and purchase plans recorded as paid-in capital and
which did not reduce income tax expense amounted to $1,731,000, $1,086,000 and
$826,000 in 1995, 1994 and 1993, respectively.

5. EMPLOYEE BENEFIT AND COMPENSATION PLANS

STOCK PURCHASE PLAN

The Company maintains a stock purchase plan covering substantially all employees
of the Company. A total of 320,699 shares of common stock remain reserved for
issuance under this plan at December 31, 1995. An eligible employee can purchase
shares having a fair market value on the date of grant of up to a maximum of the
greater of $1,200 or the fair market value of 200 shares. The price per share is
85% of the lower of the fair market value at the date of grant or the date of
exercise, which is one year from the date of grant.

                                                                              24
<PAGE>
 
                American Freightways Corporation and Subsidiary    
                                                                   
             Notes to Consoliated Financial Statements (continued)  



5. EMPLOYEE BENEFIT AND COMPENSATION PLANS (CONTINUED)

Shares have been issued during 1993, 1994 and 1995 as follows:

<TABLE>
<CAPTION>
                                                NUMBER OF       PER SHARE   
                ISSUE DATE                    SHARES ISSUED   EXERCISE PRICE 
------------------------------------------------------------------------------
 
<S>                                           <C>             <C>        
May 1, 1993                                       53,734          $ 9.56
November 1, 1993                                  63,328            9.46
April 30, 1994                                    91,199           12.75
October 31, 1994                                  55,795           16.58
April 30, 1995                                    59,093           16.15
October 31, 1995                                  74,014           10.84 
</TABLE>

STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

During 1993, the Company adopted the 1993 Stock Option Plan (the "Employee
Plan"), the Chairman Stock Option Plan, and the Nonemployee Director Stock
Option Plan. The Employee Plan is a successor to a nonstatutory stock option
plan adopted in February 1989. The Employee Plan provides for the issuance of
qualified or nonqualified options to purchase common stock of the Company, and
the awarding of stock appreciation rights payable in shares or cash. The stock
appreciation rights issued in 1993 are payable only in cash. No option or right
may be issued for less than the fair market value of the stock on the date of
grant. The options and rights vest over a five year period from the date of
grant and will expire if not exercised after ten years from the date of grant.

Collective activity within the plans is summarized as follows:

<TABLE>
<CAPTION>
                                      STOCK          SHARES  
                                   APPRECIATION      UNDER
                                      RIGHTS         OPTION       PRICE RANGE
                                  ----------------------------------------------
 
<S>                                <C>             <C>           <C>
Outstanding at January 1, 1993              -      1,273,350     $3.00 -$10.75
 Granted                              198,900        705,300     12.81 - 19.88
 Exercised                                  -       (218,320)     3.00 - 10.75
 Canceled                              (3,600)       (50,470)     3.00 - 13.06
                                  ----------------------------------------------
Outstanding at December 31, 1993      195,300      1,709,860      3.00 - 19.88
 Granted                                    -        154,500     17.88 - 22.13
 Exercised                            (10,690)      (201,600)     3.00 - 13.06
 Canceled                              (9,490)       (29,020)     3.00 - 17.88
                                  ----------------------------------------------
Outstanding at December 31, 1994      175,120      1,633,740      3.00 - 22.13
 Granted                                    -        231,950     14.81 - 21.38
 Exercised                            (21,800)      (290,990)     3.00 - 17.88
 Canceled                             (15,030)       (76,920)     3.00 - 21.38
                                  ----------------------------------------------
Outstanding at December 31, 1995      138,290      1,497,780     $3.00 -$22.13
                                  ==============================================
</TABLE>

                                                                              25
<PAGE>
 
                American Freightways Corporation and Subsidiary    
                                                                   
             Notes to Consoliated Financial Statements (continued)  



5. EMPLOYEE BENEFIT AND COMPENSATION PLANS (CONTINUED)

The number of shares of common stock reserved for granting future options under
these plans was 2,017,790, 2,172,820 and 2,644,090, at December 31, 1995, 1994,
and 1993, respectively. At December 31, 1995, options were exercisable to
purchase 551,590 shares.

The Company recorded a benefit related to the change in value of stock 
appreciation rights of $243,000 in 1995 and expense of $256,000 in 1994 and 
$244,000 in 1993.

RETIREMENT PLAN

The Company maintains a profit sharing plan for the benefit of all eligible
employees. The plan qualifies under Section 401(k) of the Internal Revenue Code
thereby allowing eligible employees to make tax deferred contributions to the
plan. The plan permits, at the discretion of the Board of Directors, annual
employer contributions to a maximum (generally) of 6% of the participants'
compensation.

The Company's contributions to the plan totaled $6,436,000, $4,254,000 and
$2,979,000 for 1995, 1994 and 1993, respectively.

6. LEASES AND COMMITMENTS

Rent expense, exclusive of amounts related to purchased transportation, totaled
approximately $22,119,000 for 1995, $18,576,000 for 1994 and $11,296,000 for
1993.

The future minimum rental commitments under noncancelable operating leases
having initial or remaining terms in excess of one year as of December 31, 1995
are as follows:

<TABLE>
<CAPTION>
                                                          REVENUE       OTHER 
                                 TOTAL     STRUCTURES    EQUIPMENT    EQUIPMENT 
                              -------------------------------------------------
                                                  (thousands) 
<S>                             <C>        <C>           <C>          <C>
1996                            $22,319      $3,890       $ 2,380      $16,049
1997                             16,010       1,957         2,597       11,456
1998                              5,723       1,159         2,597        1,967
1999                              3,638         820         2,596          222
2000                              3,005         409         2,596            -
Thereafter                        4,110       1,075         3,035            -
                              -------------------------------------------------
                                $54,805      $9,310       $15,801      $29,694
                              =================================================
</TABLE>

                                                                              26
<PAGE>
 
                American Freightways Corporation and Subsidiary    
                                                                   
             Notes to Consoliated Financial Statements (continued)  



6. LEASES AND COMMITMENTS (CONTINUED)

Certain leases have renewal options for periods from one to five years at the
fair rental value of the related property at renewal.

The future minimum lease payments under capitalized leases consist of the
following at December 31, 1995 (thousands):

<TABLE>
    <S>                                                          <C>       
    1996                                                         $ 217 
    Amount representing interest                                     3 
                                                               ---------
    Present value of minimum lease payments included                   
     in long-term debt (Note 3)                                  $ 214 
                                                               =========
</TABLE> 

Capitalized leases are included in property and equipment as follows:

<TABLE> 
<CAPTION>  
                                                    1995      1994   
                                                 --------------------
                                                    (thousands)      
       <S>                                        <C>       <C>      
       Revenue equipment                          $ 4,136   $ 4,136  
       Service, office and other equipment             23        23  
       Less accumulated amortization               (1,742)   (1,456) 
                                                 --------------------
                                                  $ 2,417   $ 2,703  
                                                 ==================== 
</TABLE>

Lease amortization is included in depreciation expense.

Certain of the lease agreements contain fixed price purchase options. The lease
agreements require the lessee to pay property taxes, maintenance and operating
expenses.

Commitments for land, terminals and revenue equipment (including the cost to
complete construction in progress) aggregated approximately $33,462,000 at
December 31, 1995.

7. COMMON STOCK

In 1994, the Company completed a public offering of 2,125,000 shares (including
over-allotment option) of common stock at $18.25 per share. The net proceeds to
the Company were $36,651,000.

                                                                              27
<PAGE>
 
                American Freightways Corporation and Subsidiary    
                                                                   
             Notes to Consoliated Financial Statements (continued)  



8. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of the quarterly results of operations for the years
ended December 31, 1995 and 1994:

<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED
                                          MARCH 31    JUNE 30   SEPTEMBER 30  DECEMBER 31
                                        --------------------------------------------------
                                          (thousands, except per share data) 
<S>                                      <C>         <C>        <C>           <C>
1995
Operating revenue                        $ 132,533   $ 141,969   $  149,392    $  148,206
Operating expenses and costs               120,277     126,445      142,946       151,669
Net income (loss)                            6,278       8,148        2,444        (3,787)
Net income (loss) per share                   $.20        $.26         $.08         $(.12)
Average shares outstanding                  31,376      31,426       31,398        30,895
                                                                                
1994                                                                            
Operating revenue                         $ 99,272   $ 123,656   $  124,134    $  118,525
Operating expenses and costs                91,677     106,576      110,256       107,378
Income before extraordinary                                                     
 charge                                      3,933       9,486        7,774         5,838
Net income                                   3,933       9,486        7,439         5,838
Income per share before                                            
 extraordinary charge                         $.14        $.32         $.25          $.19
Net income per share                          $.14        $.32         $.24          $.19
Average shares outstanding                  28,881      29,906       31,342        31,302
</TABLE>

9. FAIR VALUES OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the Company in estimating
fair value disclosures for financial instruments:

Cash and cash equivalents - the carrying amount reported in the balance sheet
for cash and cash equivalents approximates fair value.

Bond funds - the Company's debt service reserve fund is invested in money market
funds and the carrying amount reported in the balance sheet for bond funds
approximates fair value.

                                                                              28
<PAGE>
 
                American Freightways Corporation and Subsidiary    
                                                                   
             Notes to Consoliated Financial Statements (continued)  



9. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

Long-term debt - the fair values of the Company's long-term debt are estimated
using discounted cash flow analyses, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.

The carrying amounts and fair values of the Company's financial instruments at
December 31 are as follows (in thousands):

<TABLE>
<CAPTION>
                                   CARRYING AMOUNT  FAIR VALUE  
                                 -------------------------------
      <S>                          <C>              <C>         
      1995                                                      
      Cash and cash equivalents        $  2,642       $  2,642  
      Bond funds                            901            901  
      Long-term debt                    197,631        201,763  
                                                                
      1994                                                      
      Cash and cash equivalents        $  3,999       $  3,999  
      Bond funds                            888            888  
      Long-term debt                    111,181        112,995   
</TABLE>

                                                                              29
<PAGE>
 
               Report of Ernst & Young LLP, Independent Auditors

The Board of Directors and Shareholders
American Freightways Corporation

We have audited the accompanying consolidated balance sheets of American
Freightways Corporation and subsidiary as of December 31, 1995 and 1994, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Freightways Corporation and subsidiary at December 31, 1995 and 1994,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.



Ernst and Young LLP

Little Rock, Arkansas
January 18, 1996

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