-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LWWlfK7aDZROyhHLowY5WAwYyMbULzKC6gmugDH3xNXGR/w26IFEnCJY5mI3jIwI FDZ4b2PUbnm49lV/2lPPRA== 0000894405-96-000004.txt : 19960401 0000894405-96-000004.hdr.sgml : 19960401 ACCESSION NUMBER: 0000894405-96-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARKANSAS BEST CORP /DE/ CENTRAL INDEX KEY: 0000894405 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 710673405 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19969 FILM NUMBER: 96541386 BUSINESS ADDRESS: STREET 1: 3801 OLD GREENWOOD RD CITY: FORT SMITH STATE: AR ZIP: 72903 BUSINESS PHONE: 5017856000 MAIL ADDRESS: STREET 1: P O BOX 48 CITY: FORT SMITH STATE: AR ZIP: 72902 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year December 31, 1995 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____________ to ______________. Commission file number 0-19969 ARKANSAS BEST CORPORATION (Exact name of registrant as specified in its charter) Delaware 71-0673405 - ---------------------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3801 Old Greenwood Road, Fort Smith, Arkansas 72903 - ---------------------------------------------- ---------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 501-785-6000 ------------ Securities registered pursuant to Section 12(b) of the Act: None ---------------- (Title of Class) Securities registered pursuant to Section 12(g) of the Act: Name of each exchange Title of each class on which registered - -------------------------------------- ----------------------- Common Stock, $.01 Par Value Nasdaq Stock Market/NMS $2.875 Series A Cumulative Convertible Exchangeable Preferred Stock, $.01 Par Value Nasdaq Stock Market/NMS Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of The Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]. The aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 21, 1996, was $144,442,000. The number of shares of Common Stock, $.01 par value, outstanding as of March 21, 1996, was 19,515,758. Documents incorporated by reference: Portions of the proxy statement for the Arkansas Best Corporation annual shareholders' meeting to be held May 9, 1996 are incorporated by reference into Part III. ARKANSAS BEST CORPORATION FORM 10-K TABLE OF CONTENTS ITEM PAGE NUMBER NUMBER PART I Item 1. Business 3 Item 2. Properties 23 Item 3. Legal Proceedings 24 Item 4. Submission of Matters to a Vote of Security Holders 24 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 25 Item 6. Selected Financial Data 26 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 29 Item 8. Financial Statements and Supplementary Data 39 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 39 PART III Item 10. Directors and Executive Officers of the Registrant 40 Item 11. Executive Compensation 40 Item 12. Security Ownership of Certain Beneficial Owners and Management 40 Item 13. Certain Relationships and Related Transactions 40 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 41 PART I. ITEM 1. BUSINESS (a) General Development of Business Corporate Profile Arkansas Best Corporation (the "Company") is a diversified holding company located in Fort Smith, Arkansas. The Company is engaged through its motor carrier subsidiaries in less-than-truckload ("LTL") and truckload shipments of general commodities, through its freight forwarding and logistics subsidiaries in intermodal marketing and freight logistics services and through its 46%-owned subsidiary, Treadco, Inc. ("Treadco") in truck tire retreading and new truck tire sales. Historical Background In 1988, the Company was acquired in a leveraged buyout by a corporation organized by Kelso & Company, L.P. ("Kelso"). In 1992, the Company completed an initial public offering of Common Stock par value $.01 (the "Common Stock") by the Company. The Company also repurchased substantially all the remaining shares of Common Stock beneficially owned by Kelso, thus ending Kelso's investment in the Company. In 1993, the Company completed a public offering of 1,495,000 shares of preferred stock ("Preferred Stock"). (b) Financial Information about Industry Segments The response to this portion of Item 1 is included in "Note M - Business Segment Data" of the notes to the Company's consolidated financial statements for the year ended December 31, 1995, which is submitted as a separate section of this report. (c) Narrative Description of Business The Company Acquisition On July 14, 1995, ABC Acquisition Corporation (the "Purchaser"), a wholly owned subsidiary of the Company, commenced a tender offer (the "Offer") to purchase all outstanding shares of common stock of WorldWay Corporation ("WorldWay"), at a purchase price of $11 per share (the "Acquisition"). Pursuant to the Offer, on August 11, 1995, the Purchaser accepted for payment shares of WorldWay validly tendered, representing approximately 91% of the shares outstanding. On October 12, 1995, the remaining shares of WorldWay's common stock were converted into the right to receive $11 per share in cash. Principal subsidiaries of WorldWay included Carolina Freight Carriers Corp. ("Carolina Freight") and Red Arrow Freight Lines, Inc. ("Red Arrow"), which were merged into ABF on September 24, 1995, Cardinal Freight Carriers, Inc. ("Cardinal"), G.I. Trucking Company ("G.I. Trucking"), CaroTrans International, Inc. ("CaroTrans"), The Complete Logistics Company ("Complete Logistics"), Innovative Logistics Incorporated ("ILI") and Carolina Breakdown Service, Inc. ("Carolina Breakdown"). Employees At December 31, 1995, the Company had a total of 18,459 employees of which 65% are members of a labor union. Less-Than-Truckload Motor Carrier Operations General The Company's LTL motor carrier operations are conducted through ABF Freight System, Inc. ("ABF"), ABF Freight System (B.C.), Ltd. ("ABF-BC"), ABF Freight System Canada, Ltd. ("ABF-Canada"), ABF Cartage, Inc. ("Cartage"), and Land- Marine Cargo, Inc. ("Land-Marine")(collectively the "ABF System") and G.I. Trucking Company. LTL carriers differ substantially from full truckload carriers by offering service to shippers which is tailored to the need to transport a wide variety of large and small shipments to geographically dispersed destinations. Generally, full truckload companies operate from the shipper's dock to the receiver's facility and require very little fixed investment beyond the cost of the trucks. LTL carriers pick up small shipments throughout the vicinity of a local terminal with local trucks and consolidate them at each terminal according to destination for transportation by intercity units to their destination cities or to breakbulk (rehandling) terminals, where shipments from various locations can be reconsolidated for transportation to distant destinations, other breakbulk terminals or local terminals. In most cases, a single driver's trip will consist of a day's run to the terminal or relay point which is appropriately located on the route, where the trailer containing the shipments will be transferred to continue towards its destination. Once delivered to a local terminal, a shipment is delivered to the customer by local trucks operating from such terminal. In some cases, when a sufficient number of different shipments at one origin terminal are going to a common destination, they can be combined to make a full trailerload. A trailer then is dispatched to that destination without having to rehandle the freight. Competition, Pricing and Industry Factors The trucking industry is highly competitive. The Company's LTL motor carrier subsidiaries actively compete for freight business with other national, regional and local motor carriers and, to a lesser extent, with private carriage, freight forwarders, railroads and airlines. Competition is based primarily on personal relationships, price and service. In general, most of the principal motor carriers use similar tariffs to rate interstate shipments. Competition for freight revenue, however, has resulted in discounting which effectively reduces prices paid by shippers. In an effort to maintain and improve its market share, the Company's LTL motor carrier subsidiaries offer and negotiate various discounts. The trucking industry, including the Company's LTL motor carrier subsidiaries, is affected directly by the state of the overall economy. In addition, seasonal fluctuations also affect tonnage to be transported. Freight shipments, operating costs and earnings also are affected adversely by inclement weather conditions. ABF Freight System, Inc. The largest subsidiary of the Company, ABF currently accounts for approximately 69% of the Company's consolidated revenues and 94% of LTL operations revenue. ABF has grown to become the fourth largest LTL motor carrier in the United States from the forty-eighth largest in 1965, based on revenues for 1995 as reported to the U.S. Department of Transportation ("D.O.T."). ABF provides direct service to over 98.5% of the cities in the United States having a population of 25,000 or more. The ABF System provides interstate and intrastate direct service to more than 38,500 points through 343 terminals in all 50 states, Canada and Puerto Rico. Through an alliance and relationships with trucking companies in Mexico, ABF provides motor carrier services to customers in that country as well. ABF was incorporated in Delaware in 1982 and is the successor to Arkansas Motor Freight, a business originally organized in 1935. ABF concentrates on long-haul transportation of general commodities freight, involving primarily LTL shipments. General commodities include all freight except hazardous waste, dangerous explosives, commodities of exceptionally high value, commodities in bulk and those requiring special equipment. ABF's general commodities shipments differ from shipments of bulk raw materials which are commonly transported by railroad, pipeline and water carrier. General commodities transported by ABF include, among other things, food, textiles, apparel, furniture, appliances, chemicals, non-bulk petroleum products, rubber, plastics, metal and metal products, wood, glass, automotive parts, machinery and miscellaneous manufactured products. During the year ended December 31, 1995, no single customer accounted for more than 3% of ABF's revenues, and the ten largest customers accounted for less than 8% of ABF's revenues. International Markets ABF-Canada and ABF-BC's Canadian operations are comprised of 14 terminals in the provinces of Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland, Nova Scotia, Prince Edward Island, Ontario, and Quebec. In addition, ABF maintains a national account sales office in Montreal. Also available is simplified rating to and from Canada, similar to the zip-rating program which ABF uses in the United States. Through an alliance with one of Mexico's largest LTL specialists, ABF provides motor carrier services to that country as well. This service gives ABF customers a practically seamless operation featuring single-billing including all freight charges, through-cargo claims liability and tracing, diskette rating, voice-response rate quotes and shipment status, hazardous materials service, and payment in either U.S. dollars or in Mexico pesos. This service is offered to and from all points serviced through ABF tariffs to and from specified points in Mexico. ABF has expanded its Mexico sales and customer support staffs and maintains ABF sales offices in Mexico City, Monterrey and Guadalajara. Worldwide, ABF's international services offers less-than-containerload service to 161 countries through 301 ports. In addition, ABF offers full- containerload service to Europe, the United Kingdom and Ireland, Scandinavia, the Baltic Region, South Africa, the Far East, Southeast Asia, Australia, New Zealand, Ecuador, Peru, Chile, Brazil, Argentina, Uruguay and Paraguay. Specialized Services ABF has special programs for customers with unique needs. Once ABF agrees to meet a customer's need, it becomes a requirement. ABF delivers quality by conforming to requirements. Through an alliance with Burnham Service Corporation, ABF's TurnKey service provides customers a seamless, one-source transportation system featuring door-to-door/through-the-door deliveries plus personalized unpack and set-up services. ABF picks up the products from the shipper and delivers them to a Burnham center nearest the consignee's address. From that point, Burnham contacts the customer and arranges the most suitable delivery time. TurnKey has one-call access, single-carrier liability, through-rates and one-source invoicing. It uses the most sophisticated state-of-the-art satellite communications, bar-coding technology, and computer linkage between ABF and the customer for on-going up-to-the-minute status checks on shipments. The service is available from any point served by the ABF system to any point in the contiguous 48 states. "TimeKeeper" is another in ABF's line of specialized services. TimeKeeper provides the customer with a money-back guaranteed, expedited service in those instances when a shipment absolutely must be delivered by a certain day. TimeKeeper is a premium service that provides an option to air freight, at rates that are lower than most air freight rates and other expedited options. ABF's "On-the-Date" Program (ON) was developed to meet the needs of its Just In Time customers. Shipments will be delivered ON the ABF advertised due date, not prior to the due date or after the due date. Under the "By-the- Date" Program (BY) shipments will be delivered BY the ABF advertised due date, not after the due date. ABF's "Between the Date" Program (BE) was developed to meet the needs of customers who have delivery windows. Shipments will be delivered between specific dates consistent with ABF advertised transit times. Participating customers' delivery receipts display special "ON", "BY" or "BE" flags indicating the delivery requirements. ABF developed its Special Handling Program to meet the needs of customers with unusual pickup, delivery or freight-handling requirements. Specific handling requirements are stored in Q-Net, ABF's online communications network, and are accessible by all terminals involved in the handling of a shipment. Participating customers' delivery receipts display a special "HANDL" flag. Statistical Information The following table sets forth certain statistical information regarding ABF's operations (including inter-company operations) for the five years ended December 31, 1995. ABF Freight System, Inc.
Year Ended December 31 1995 1994 1993 1992 1991 (Unaudited) Operating ratio 100.6% 96.4% 95.8% 94.9% 96.3% Average length of haul (miles) 1,202 1,214 1,198 1,201 1,192 Employees (1) 14,728 11,876 10,719 10,545 10,184 Miles per gallon 6.32 6.32 6.12 5.87 5.65 Fuel cost per mile (2) $.084 $.085 $.094 $.110 $.116 Terminals (at end of period)(3) 334 322 323 317 320 Tractors Road Tractors 2,060 1,498 1,385 1,385 1,385 City Tractors 2,928 2,483 2,469 2,474 2,368 Trailers Road Trailers -- doubles 20,377 12,734 12,263 11,718 11,405 Road Trailers -- long 449 230 231 251 274 City Trailers 2,202 1,364 1,395 1,365 1,187 Less-than-Truckload (4) Revenue (000's) $894,790 $797,393 $772,872 $748,470 $697,602 Percent of total revenue 89.0% 88.3% 88.3% 88.8% 89.1% Tonnage (000's) 2,877 2,677 2,620 2,542 2,384 Percentage of total tonnage 77.5% 76.8% 76.5% 77.2% 78.5% Shipments (000's) 5,465 4,935 4,948 4,899 4,793 Revenue per hundredweight $15.55 $14.89 $14.75 $14.72 $14.63 Average weight per shipment (pounds) 1,053 1,085 1,059 1,038 995 Truckload Revenue (000's) $110,530 $105,798 $102,635 $ 94,242 $ 85,013 Tonnage (000's) 836 809 807 752 654 Shipments (000's) 102 98 96 89 78 Revenue per hundredweight $6.61 $6.54 $6.36 $6.27 $6.50 Average weight per shipment (pounds) 16,393 16,502 16,776 16,858 16,707 (1) At end of period for salaried employees and mid-December for hourly employees. (2) Excludes fuel tax per mile of $.069, $.067, $.071, $.073 and $.075 for 1991 through 1995, respectively. (3) Does not include terminals of ABF-BC, ABF Canada, Land Marine and Cartage. (4) Defined by the ICC as shipments weighing less than 10,000 pounds.
Quality Improvement Process In 1984, ABF began implementing a Quality Improvement Process to focus on the specific requirements of customers and to develop measurement systems that determine the degree of success or failure in conforming to those requirements. Non-conforming results trigger a structured approach to problem solving, error identification and classification. The Quality Improvement Process requires that all levels of employees be educated in the process itself and trained in their respective job responsibilities so that the focus on customer requirements drives job performance. In that vein, ABF maintains permanent educational facilities in strategic locations to teach the Quality Improvement Process to sales personnel, branch managers and operations personnel in classroom environments. ABF believes that the Quality Improvement Process has enhanced performance in a number of areas. Revenue Equipment ABF's equipment replacement policy generally provides for replacing intercity tractors every three years, intracity tractors every five to seven years, and trailers (which have a depreciable life of seven years) on an as needed basis (generally seven years or more), resulting in a relatively new and efficient tractor fleet and minimizing maintenance expenses. ABF presently intends to continue its tractor and trailer replacement policy. However, due to the acquisition of WorldWay, ABF will not have to replace any revenue equipment during 1996. As a result of the acquisition, ABF has excess revenue equipment which will be sold during 1996. ABF has a comprehensive preventive maintenance program for its tractors and trailers to minimize equipment downtime and prolong equipment life. Repairs and maintenance are performed regularly at ABF's facilities and at independent contract maintenance facilities. ABF's computerized maintenance program tracks equipment activity and provides automatic notification of the maintenance needs of each tractor, trailer and converter gear. The program keeps records of preventive maintenance schedules and governmental inspection requirements for each piece of equipment and routes the unit to the nearest ABF maintenance facility where the service can be performed. As of December 31, 1995, ABF owned or operated the following revenue equipment, which, excluding operating leases, had an aggregate net book value of approximately $124.9 million:
Total No. Units by Model Year of Units `96 `95 `94 `93 `92 `91 `90 Pre-'90 Intercity Tractors (1) 2,060 12 1,092 441 498 13 - 2 2 Intercity Trailers 449 - - - - - - 25 424 Intercity Trailers-Doubles (2) 20,377 - 802 500 955 918 1,984 1,119 14,099 Intracity Tractors (3) 2,928 119 478 217 323 335 385 476 595 Intracity Trailers 2,202 - - - - - - 25 2,177 Pickup/Delivery Trucks 92 - - 14 - 17 2 7 52 Converters (used to connect two 28-foot trailers) 4,843 - 100 273 91 - 303 156 3,920 (1) Includes 1,668 tractors being leased under operating lease. (2) Includes 921 trailers being leased under operating lease and 3,126 trailers being leased under capitalized lease. (3) Includes 1,070 tractors being leased under capitalized lease.
In 1995, under its equipment replacement program, ABF acquired 490 intercity tractors, 390 intracity tractors and 800 trailers. Internally generated funds, borrowings under the credit agreement and leases have been sufficient to finance these additions. Data Processing The Company, through a wholly owned subsidiary, is able to provide timely information, such as the status of all shipments in the system at any given point in time, that assists operating personnel and aids marketing efforts of ABF. ABF continues to develop its on-line Freight Management System (FMS) aimed at perfecting both service to customers and internal cost controls. To improve service, ABF makes information readily accessible to its customers through various electronic pricing, billing and tracing services, referred to by ABF as the "Q-Family" of services. The ABF Q-Family offers a complete package of computer-supported information services. Q-Stat provides a monthly statistical report of a customer's shipping activity with ABF. Q- Bill offers most of the functions of a traffic department in a PC software package. Q-Bill provides for bill-of-lading preparation, automatic rating with an ABF tariff or competitor tariff, case label production and summary manifesting. Q-EDI is ABF's computer-to-computer electronic data interchange (EDI) system. The following standard transactions are presently supported:(i) shipment status information for shipment tracking and performance monitoring; (ii) freight bills for payment and auditing, and (iii) bill-of-lading information for carrier billing and rating. Q-Info is a PC-based shipment status information system designed to aid ABF customers in the performance of their daily traffic-related functions. Q-Info provides customized shipment status reports, up-to-the-minute tracing information and freight bill copies. Q-Line is a nationwide hotline which can be reached 24-hours a day, seven days a week, from any touch-tone telephone. It is a voice response system which allows "conversation" with the ABF computer for tracing, rates, loss and damage claims, and transit time information. ABF originated diskette rating and, in management's opinion, continues to set the industry standard. Q-Rate provides North American rating on diskette. In addition to supporting the ABF tariffs, information regarding coverage, transit times, and mileage is provided. ABF Q-Fax is the newest member to the Q-Family. Q-Fax provides tracking and tracing information to shippers without the computer sophistication to utilize Q-Info or Q-EDI. Customized reports showing shipment activity are faxed directly from ABF's mainframe computer to the customer's facsimile machine. ABF has in place several programs which continually assess various functions deemed critical to service and/or costs, and include the Delivery Backlog Report, Manning Strategy Model, Outbound Backlog Report, Tardy Spots Report, and Inbound Break Analysis. They are generated only when exceptions are detected, which gives ABF automatic controls. When exceptions occur, these controls allow management to react quickly and decisively, preventing exceptions from becoming problems without having to sift through reams of data. ABF's customer database management system, AIMS (Account Information Management System) provides a centralized management tool for maintaining customer information. For example, a file of customer receiving requirements is maintained in AIMS. AIMS can be accessed on-line by all ABF general office departments and terminals. The service bureau is staffed with 214 data processing specialists. The Company believes that its allocation of resources to data processing has assisted ABF in providing the type of quality services required by a sophisticated shippers. Employees At December 31, 1995, ABF employed 14,728 persons. Employee compensation and related costs are the largest components of LTL motor carrier operating expenses. In 1995, such costs amounted to 71.6% of LTL operations revenues. ABF is a signatory with the Teamsters to the National Master Freight Agreement (the "National Agreement") which became effective April 1, 1994, and expires March 31, 1998. Under the National Agreement, employee wages and benefits increased an average of 2.7% and 3.3% annually during 1994 and 1995, respectively, and will increase an average of 3.8% on April 1, 1996 and 3.9% on April 1, 1997. Under the terms of the National Agreement, ABF is required to contribute to various multiemployer pension plans maintained for the benefit of its employees who are members of the Teamsters. Amendments to the Employee Retirement Income Security Act of 1974 ("ERISA") pursuant to the Multiemployer Pension Plan Amendments Act of 1980 (the "MPPA Act") substantially expanded the potential liabilities of employers who participate in such plans. Under ERISA, as amended by the MPPA Act, an employer who contributes to a multiemployer pension plan and the members of such employer's controlled group are jointly and severally liable for their proportionate share of the plan's unfunded liabilities in the event the employer ceases to have an obligation to contribute to the plan or substantially reduces its contributions to the plan (i.e., in the event of plan termination or withdrawal by the Company from the multiemployer plans). Although the Company has no current information regarding its potential liability under ERISA in the event it wholly or partially ceases to have an obligation to contribute or substantially reduces its contributions to the multiemployer plans to which it currently contributes, management believes that such liability would be material. The Company has no intention of ceasing to contribute or of substantially reducing its contributions to such multiemployer plans. ABF is also a party to several smaller union contracts. Approximately 81% of ABF's employees are unionized, of whom approximately 1% are members of unions other than the Teamsters. Four of the five largest LTL carriers are unionized and generally pay comparable wages. Non-union companies typically pay employees less than union companies. Since December 1989, the D.O.T. has required ABF and other domestic motor carriers to implement drug testing programs for their truck drivers. In 1991, ABF implemented a random testing program to cover its entire driver work force. ABF performs testing as required by the federal government at an average rate of 50% annually of its driver work force. Statistics for 1995 indicate that ABF has administered 4,520 random, biennial re-certification and post-accident tests to its employees, with a pass rate of 99.3% Beginning January 1, 1995, the D.O.T. required the implementation of alcohol testing in conjunction with the existing drug testing program. As required by the D.O.T., in 1995 ABF tested its drivers for alcohol use at an average rate of 25% annually. The ABF drivers' pass rate for random and post-accident alcohol testing in 1995 was 99.8%. Due to its national reputation and its high pay scale, ABF has not historically experienced any significant difficulty in attracting or retaining qualified drivers. Insurance and Safety Generally, claims exposure in the motor carrier industry consists of cargo loss and damage, auto liability, property damage and bodily injury and workers' compensation. The Company's motor carrier subsidiaries are effectively self-insured for the first $100,000 of each cargo loss, $300,000 of each workers' compensation loss and $200,000 of each general and auto liability loss, plus an aggregate of $750,000 of auto liability losses between $200,000 and $500,000. The Company maintains insurance contracts covering the excess of such losses in amounts it believes are adequate. While insurance for motor carriers has become increasingly more expensive and more difficult to obtain, it remains essential to the continuing operations of a motor carrier. The Company has been able to obtain adequate coverage and is not aware of problems in the foreseeable future which would significantly impair its ability to obtain adequate coverage at comparable rates. ABF also believes that it has one of the best safety records in the trucking industry, based in part on having received first, second or third place safety awards from the American Trucking Associations ("ATA") every year for the past 25 years. ABF was awarded the ATA's President's Trophy in 1993, 1989 and 1984. The President's Trophy is awarded to the company with the most outstanding safety program. Of the ABF general commodities shipments handled during the year ended December 31, 1995, more than 99% were free of any cargo claim, and of those having cargo claims, 88% were settled within 30 days of the claim date. The following table shows accidents and claims results for the last five years:
Year Ended December 31 1995 1994 1993 1992 1991 Linehaul miles (000) per DOT linehaul accident (1) 1,951 2,201 1,868 1,962 1,816 Selected categories of insurance expense as a percent of revenue: Cargo loss and damage claims 1.20% 1.14% 1.00% 0.94% 1.03% Public liability .79 0.82 0.86 1.08 0.98 Workers' Compensation 1.92 1.87 1.79 1.83 2.00 ----- ----- ----- ----- ----- Total 3.91% 3.83% 3.65% 3.85% 4.01% ===== ===== ===== ===== ===== (1) An accident, as defined by the DOT, involves personal injury with treatment sought immediately away from the scene of the accident or disabling damage that requires a vehicle to be towed from the scene of the accident.
G.I. Trucking Company Headquartered in La Mirada, California, G.I. Trucking is a non-union regional LTL motor carrier. G.I. Trucking provides transportation services and coverage throughout 13 Western states and the Western Canadian provinces of Alberta and British Columbia, as well as service to Hawaii and Alaska. One- to three-day regional service is provided through 52 service centers. Transcontinental service is facilitated through a partnership with two other regional carriers providing service through six major hub terminals located throughout the Midwest and East Coast. Customer service is enhanced through EDI communications between partners, allowing for single pro tracing, invoicing and a full range of other EDI and information management services. G.I. Trucking's Hawaiian container operation, located in La Mirada, provides excellent transit times to the Islands. Service to points in Alaska and Western Canada is provided through the company's new facility in Seattle, Washington. G.I. Trucking's linehaul structure utilizes company solo drivers, company sleeper teams, contract power and one-way carriers, providing total flexibility in maintaining superior service and lane balance. Employees At December 31, 1995, G.I. Trucking had a total of 806 employees. Truckload Operations Cardinal Freight Carriers, Inc. Cardinal is an irregular route carrier providing dry van and flatbed service throughout the eastern two-thirds of the United States and Canada. Headquartered in Concord, North Carolina, Cardinal operates via a central dispatch system utilizing a state-of-the-art computer system. Cardinal has grown from 14 company-owned power units in 1981 to more than 600 tractors in the van division and over 100 tractors in the flatbed division. The trailer fleet consists of 1,169 53-foot vans and 117 48-foot and 45-foot aluminum flatbeds. The fleet is one of the most modern in the industry, averaging just under two years old. Cardinal's services, both van and flatbed, can be labeled as interregional. Cardinal's system averages 530 miles per trip, providing next day, on-time service that patterns today's manufacturing and distribution system of closer proximity to their customer base. With the flexibility for both long-haul and short-haul, Cardinal offers one-thousand-mile plus service, along with regional length of haul, including intrastate service in 11 states. Cardinal has a facility network consisting of 6 locations to perform timely preventive maintenance to better ensure safety in the community and equipment reliability. Cardinal operates in a competitive and highly service-sensitive market and therefore, is committed to providing its customers with premier quality service. Cardinal's customers have defined a premier quality service as on- time, claim-free pickups and deliveries, accurately invoiced, and thorough communications, along with information support technology. During 1995, Cardinal's largest customer accounted for 14% of Cardinal's revenues and the ten largest customers accounted for 45% of Cardinal's revenue. Forwarding Operations General The Company's forwarding operations are conducted through Clipper Exxpress Company ("Clipper"), Agricultural Express of America, Inc. ("AXXA"), Agile Freight System, Inc. ("Agile"),(collectively known as the "Clipper Group") and CaroTrans International, Inc. ("CaroTrans"). The Clipper Group The Clipper Group is a non-asset, non-labor intensive, knowledge-based provider of transportation and logistics services. Through the three closely integrated operating companies, the Clipper Group provides a full range of transportation services. Clipper is the largest consolidator and forwarder of LTL shipments and one of the largest intermodal marketing companies ("IMC") in the United States. AXXA provides high quality temperature- controlled intermodal service to fruit and produce brokers, growers, shippers and receivers and supermarket chains, primarily from the West to the Midwest, Canada, and the eastern United States. Agile provides "near air freight" truckload service in tightly focused lanes and also provides some line-haul transportation for Clipper's LTL consolidation service. Clipper Exxpress Company Clipper, founded in 1938, is the largest of the three Clipper Group companies. Clipper accounted for approximately 62% of the Company's forwarding operations revenues during the fourth quarter of 1995. Clipper provides contract freight management and LTL freight forwarding services to its customers. Clipper's executive offices are located in Lemont, Illinois ( a suburb of Chicago) and its 38 branch offices are dispersed throughout the United States. At December 31, 1995, Clipper employed 189 persons (comprised of 53 sales representatives, 68 administrative personnel and 68 operations personnel). Contract Freight Management. Through its contract freight management business unit, Clipper provides logistics and transportation services, including intermodal and truck brokerage, warehousing, consolidation, transloading, repacking, and other ancillary services. As an IMC, Clipper arranges for loads to be picked up by a drayage company, tenders them to a railroad, and then arranges for a drayage company to deliver the shipment on the other end of the move. Clipper's role in this process is to select the most cost-effective means to provide quality service, and to expedite movement of the loads at various interface points to ensure seamless door-to-door transportation. Clipper's substantial volume of consistently high margin traffic is extremely attractive to its railroad partners. As a result, Clipper has been able to enter into contracts with major railroads and stack train operations that contain very competitive rates. LTL Freight Forwarding. Clipper is one of the nation's oldest and largest LTL freight forwarders. Its collection and distribution network consists of 38 geographically dispersed locations throughout the United States. Selection of markets depends on size (lane density), availability of quality rail service and truck line-haul service, length of haul and competitor profile. Traffic moving between its ten most significant market pairs generates approximately 37% of Clipper's LTL revenue. Virtually all of Clipper's LTL revenue is derived from long-haul, metro area to metro area transportation. Clipper's specific strategy for the LTL forwarding business is to provide expedited LTL transportation service only between major markets within the United States. It has chosen not to serve the regional markets or where freight volume is limited. In addition, Clipper concentrates its sales and marketing efforts in the close-in metro areas in the major cities that it serves. This strategy helps reduce Clipper's pickup and delivery costs and assures that LTL freight picked up by Clipper's agent is available for outbound loading on the same day. Additionally, this strategy allows Clipper to quickly build sufficient lane density to ship directly to destination terminals. With the effective use of reliable rail service and trucks with two driver teams, Clipper can provide customers a significant improvement in transit time. Rather than hiring its own employees and owning transportation equipment, Clipper uses independent agents to pick up, sort, and consolidate LTL shipments into truckload shipments. A truckload carrier or premium service intermodal train will then linehaul the consolidated truckload to a destination terminal where another agent will deconsolidate the line-haul trailer and deliver its contents to the ultimate consignees. Although pickup and delivery and terminal handling is performed by agents, Clipper has an operations and customer service staff located at or near the agent's terminal to monitor service levels and provide an interface between customers and agents. Because Clipper enters new markets without a large financial commitment and with only a few company employees, it is able to constantly explore new ideas without significant risk and to quickly take advantage of new opportunities. The Clipper Group serves a diverse base of more than one thousand shippers with which it strives to establish long-term relationships. These efforts have had positive results as evidenced by the fact that many of Clipper's customers have been doing business with Clipper for more than 15 years. Clipper's customers are a diverse group, with no concentration in any particular industry. During the year ended December 31, 1995, no single customer accounted for more than 7% of Clipper's revenues, and the ten largest customers accounted for less than 18% of Clipper's revenues. Advanced information systems. Clipper has recently invested significant resources into its information systems. This new MIS system enables Clipper to coordinate and track the performance of different phases of each movement. It will also enable Clipper to provide EDI linkages with its customers and suppliers in the near future. Clipper was the first IMC to achieve mainframe- to-mainframe EDI linkage with Conrail. Agricultural Express of America, Inc. (D/B/A Clipper Controlled Logistics) AXXA owns 436 temperature-controlled trailers that it deploys in the seasonal fruit and vegetable markets. These markets are carefully selected in order to take advantage of various seasonally high rates which peak at different times of the year. By focusing on the spot market for produce transport, AXXA is able to generate on average, a higher revenue per load compared to standard temperature-controlled carriers that pursue more stable year round temperature-controlled freight. AXXA has also achieved lower cost than these competitors because it utilizes railroads for the line-haul segment of the shipment. AXXA and Clipper are closely integrated, with Clipper relying on AXXA equipment to move its westbound freight, particularly during the winter months. AXXA counts on Clipper to reload its equipment promptly to harvest areas, especially during the peak produce season. Because a large percentage of produce is usually harvested during certain short periods of time, dependable equipment availability is one of the most important factors that shippers consider. In addition, companies in this niche have difficulty achieving high utilization of their fleets due to the cyclical nature of the business, the geographical shifting of loading points as different crops mature and the challenge of finding backhauls to harvest areas. Consequently, the supply of specialized temperature-controlled equipment can be rather limited during harvest season, often resulting in severe equipment shortages. Thus, customers are willing to pay high rates during the peak months of June and July to secure the necessary equipment. AXXA has a distinct competitive advantage because it is able to generate a higher rate of equipment utilization by obtaining backhauls through Clipper's 38-office network. AXXA's reputation for integrity, combined with its strong financial condition, has earned it the highest rating from both the Blue Book and the Red Book, the two primary produce industry rating journals for the produce- hauling markets. These ratings are compiled from survey feedback given by the trade to the two rating agencies, and are evidence of the shipper's level of confidence of AXXA. Agile Freight System, Inc. (D/B/A Clipper Highways Services) Agile is a non-asset intensive, premium service, long-haul truckload carrier that utilizes two-person driver teams provided primarily by owner-operators. Agile operates in tightly focused long-haul lanes that originate or terminate near a Clipper market. Much of Agile's value to the Clipper Group is that it can be relied upon if other carriers are not available to move full truckloads of consolidated LTL shipments by Clipper. CaroTrans International, Inc. CaroTrans is a neutral, non-vessel operating common carrier ("NVOCC") providing import and export, door-to-door and door-to-port service to more than 140 countries with 225 ports of discharge. Headquarted in Cherryville, North Carolina, CaroTrans is considered one of the largest NVOCC's in the world offering more destinations by a "master loader" than any other NVOCC. One of CaroTrans' strengths is its North American office and receiving network. Through sales offices in Los Angeles, Houston, New Orleans, Atlanta, Erie, Cincinnati, Boston, New York, Baltimore, Norfolk, Charleston, Charlotte, Jacksonville, Orlando, Miami, Toronto, Mexico City, Guadalajara and Monterrey, CaroTrans serves thousands of shippers, receivers and freight forwarders. CaroTrans truly covers the continent with experienced, knowledgeable international personnel. CaroTrans offers 23 ocean bills of lading via North American receiving stations located in San Francisco, Los Angeles, Houston, Mexico City, Guadalajara, Monterrey, New Orleans, Chicago, St. Louis, Miami, Jacksonville, Savannah, Atlanta, Charleston, Charlotte, Norfolk, Baltimore, Cleveland, Philadelphia, New York, Boston, Toronto and Montreal. The ability to offer such a large number of bills of lading reduces the shipper's cost, since the inland transport is shorter and closer to the actual point/port where ocean containers are loaded. In addition to being one of the largest less-than-containerload carriers in the world, CaroTrans also offers a full containerload service which is coordinated, quoted and booked through the Cherryville headquarters. CaroTrans also provides its customers with E-Sea Sail, a state-of-the-art software package designed for international shipping. This revolutionary system allows the customer to obtain quick rate quotations, verify sailing schedules, obtain a copy of a booking and generate copies of ocean bills of lading. It is anticipated that in the near future, overseas offices and agents will have direct access to E-Sea Sail to electronically extract documents. Overseas, CaroTrans is recognized as a leader in international shipping between North America and many worldwide destinations. CaroTrans maintains offices in Rotterdam, Holland; London and Liverpool, United Kingdom; Singapore and San Juan. These strategically located offices direct the operations and sales activities of the carefully selected agents within its geographic region. Logistics Operations The Complete Logistics Company The Complete Logistics Company is a logistics organization dedicated to providing supply chain management to its customers, including such services as equipment leasing, logistics modeling, communications networks, warehouse management, consolidation and cross-dock facilities, computerized routing, and experienced drivers, dock workers, supervisors, and clerical staff. All services are controlled through an integrated computer system which allows Complete Logistics to administer all services provided in a seamless manner. As an asset-based, third-party, single-source logistics company, Complete Logistics has the capability to manage and coordinate a customer's logistics resources to meet their competitive requirements. Complete Logistics listens carefully to a customer's needs and then offers a range of customized options designed to give the customers control over their costs and performance. Once a customer has selected the services they want, Complete Logistics works closely with them to guarantee the smoothest possible transition. Ongoing success is ensured by maintaining constant communication and a close working partnership with the customer. Innovative Logistics Incorporated Innovative Logistics Incorporated is a management-based third party logistics service provider. ILI offers freight bill audit/payment and reporting, logistics modeling, inventory warehouse/in-transit control systems, and dynamic shipment rating and dispatch systems. In addition, ILI provides transportation management services, EDI/systems management, and warehouse management services. As a licensed property broker and non-vessel operating common carrier, Innovative Logistics offers nationwide truckload and intermodal services and international full container services to its clients. ILI supports its clients by performing logistics management services. ILI will identify and contract with qualified carriers and warehouse providers, manage their utilization and provide integrated logistics information systems. ILI's mission is to (1) provide innovative and value-added services for clients who wish to outsource their transportation and warehousing operations, (2) establish long-term partnering relationships with clients to provide cost-effective and efficient services in a quality manner, and (3) work seamlessly with clients to the extent Innovative is viewed as another operating department within the client's organization. Integrated Distribution, Inc. Integrated Distribution is a logistics company that manages the flow of goods and related information. Integrated Distribution's services include truckload and large LTL transportation, customized handling, freight consolidation, contract and public warehousing, and logistics. Transportation services are aimed at pickup and delivery of truckload and large LTL shipments. Integrated's trucks are equipped with satellite tracking and communications so that a customer always knows the location of their product. An in-house licensed brokerage service supplements the carrier operations. Through its customized handling of a customer's product, Integrated Distribution adds value by cross-docking, building store-ready displays, making final assemblies, applying bar code and price labels, and packaging. Integrated Distribution offers freight consolidation for membership clubs, grocery chains and distributors, and mass merchandisers. Integrated's program offers scheduled deliveries of LTL shipments with the economy of truckload rates. Integrated Distribution locates warehouses in major distribution cities and supports EDI, bar codes, and RFID. Logistics services include development and implementation of the optimal solution for a customer's distribution requirements using owned or subcontracted assets. Tire Operations Treadco, Inc. Treadco is the nation's largest independent tire retreader for the trucking industry and the second largest commercial truck tire dealer. Treadco's revenues currently account for approximately 10% of the Company's consolidated revenues and are divided approximately 54% and 46% between retread sales and new tire sales, respectively. In 1995, Treadco sold approximately 633,000 retreaded truck tires and approximately 394,000 new tires. After opening sales facilities in Fulton, Kentucky and Ft. Pierce, Florida during the first quarter of 1996, Treadco has a total of 51 locations positioned across the South, Southwest, lower Midwest and West. Treadco retreads truck tires at 28 production facilities located in Arizona, Arkansas, Florida, Georgia, Louisiana, Missouri, Nevada, Ohio, Oklahoma and Texas. The remaining 23 locations are sales facilities located in the states listed above as well as California, Kansas, Kentucky, Mississippi and Tennessee. Retreading truck tires is significantly less expensive than buying new truck tires (about one-third of the cost) and retreaded tires generally last as long as new tires used in similar applications. Moreover, most tire casings can be retreaded one or two times. Treadco's average retail charge for retreading a customer's casing is approximately $85, compared to an average retail selling price of approximately $235 for a new tire. Treadco also sells retreads including casings not supplied by the customer for approximately $167 per tire. Since tire expenses are a significant operating cost for the trucking industry, many truck fleet operators develop comprehensive periodic tire replacement and retread management programs. On its weekly sales routes, Treadco picks up a fleet's casings and returns them the following week, thus providing a continuous supply of both retreads and new tires as needed. In order to fully service its customers, Treadco also sells new truck tires manufactured by Bridgestone, Michelin, General, Dunlop, Kumho, and other manufacturers. According to Bridgestone and Dunlop, Treadco is their largest domestic truck tire dealer, and according to Michelin, Treadco is one of its largest domestic truck tire dealers. Precure Retread Process 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 uses the Bandag process exclusively, Bandag would not renew any of Treadco's franchise agreements when they expire. In October 1995, Treadco announced it had reached an agreement with Oliver Rubber Company 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 the eight production facilities whose Bandag franchises expire in 1996 and any other Treadco facilities which cease being a Bandag franchise. Under the Oliver license agreements, Treadco will purchase from Oliver precured tread rubber and bonding cushion gum and PNEUFLEX tread rubber (collectively "Rubber Products"). Treadco's obligation to purchase Rubber Products from Oliver is subject to (i) Oliver's continuing to produce Rubber Products of no less quality and durability than it presently produces, and (ii) Oliver's overall pricing program for Treadco. Treadco converted its Little Rock (AR), Pine Bluff (AR), West Memphis (AR) and Phoenix (AZ) Bandag franchises to Oliver licensed facilities during the first quarter, 1996. Based on Treadco's current plans, all remaining Bandag franchises will convert to the Oliver process by the end of the third quarter, 1996. Mold Cure Retread Process On February 1, 1996, Treadco gained Bridgestone certification to produce and sell the ONCOR remanufactured tires at its St. Louis (MO) production facility. This is the first plant in the United States using Bridgestone's "ONCOR Tread Renewal System". However, the Bridgestone mold cure process has been used for many years outside the United States, predominately in Japan. Sales and Marketing Treadco's sales and marketing strategy is based on its service strengths, network of production and sales facilities and strong regional reputation. In addition to excellent service, Treadco offers broad geographical coverage across the South, Southwest and the lower Midwest. This coverage is important for customers because they are able to establish uniform pricing, utilize national account billing processes of the major new tire suppliers, and generally reduce the risk of price fluctuations when service is needed. None of Treadco's customers for retreads and new tires, including ABF or other affiliates, represented more than 2% of Treadco's revenues for 1995. ABF accounted for approximately $2.6 million of Treadco's revenues in 1995 (1.8%), and has not accounted for more than 3% of Treadco's revenues in any of the last ten years. Treadco's customers are primarily mid-sized companies that maintain their own in-house trucking operations and rely on Treadco's expertise in servicing their tire management programs. Treadco markets its products through sales personnel located at each of its 28 production facilities and, in addition, through 23 sales locations. These sales locations are supplied with retreads by nearby Treadco production facilities. Treadco locates its production facilities and sales locations in close proximity to interstate highways and operates mobile service trucks to provide ready accessibility and convenience to its customers, particularly fleet owners. Ownership As of December 31, 1995, the Company's percentage ownership of Treadco was 45.7%, while retaining control of Treadco by reason of its stock ownership, board representation and provision of management services. As a result, Treadco is consolidated with the Company for financial reporting purposes, with the ownership interest of the other stockholders reflected as a minority interest. Employees At December 31, 1995, Treadco employed 746 full-time employees. Eleven employees at one Treadco facility are represented by a union. Treadco's management believes it enjoys a good relationship with its employees. Carolina Breakdown Service, Inc. Carolina Breakdown Service, Inc., ("CBS") is a third-party vehicle maintenance logistics company operating from a Cherryville, North Carolina base, with service capabilities in 48 contiguous states, Central and Eastern Canada. The CBS nationwide operation provides any and all necessary scheduled and unscheduled vehicle repairs and driver assistance to all classes and types of trucks, trailers, and combination units 24 hours a day, 7 days a week. In-house maintenance expertise and regimentation also allows for the additional business as a technical assistance provider to the OEM community, and through the use of strategic outsourcing via a qualified vendor network of over 53,000 nationwide, the operation handles over 79 service and technical calls a day from its client base of 492 trucking and OEM accounts. Carolina Breakdown Service, Inc., was incorporated in 1993 but derives its professional training from over four decades of experience having serviced equipment for Carolina Freight. Environmental and Other Government Regulations The Company is subject to federal, state and local environmental laws and regulations relating to, among other things, contingency planning for spills of petroleum products, and its disposal of waste oil. Additionally, the Company is subject to significant regulations dealing with underground fuel storage tanks. ABF stores some of its fuel for its trucks and tractors in approximately 188 underground tanks located in 34 states. The Company believes that it is in substantial compliance with all such environmental laws and regulations and is not aware of any leaks from such tanks that could reasonably be expected to have a material adverse effect on the Company's competitive position, operations or financial condition. The Company has in place policies and methods designed to conform with these regulations. The Company estimates that capital expenditures for upgrading underground tank systems and costs associated with cleaning activities for 1996 will not be material. The Company has received notices from the EPA and others that it has been identified as a potentially responsible party ("PRP") under the Comprehensive Environmental Response Compensation and Liability Act or other federal or state environmental statutes at several hazardous waste sites. After investigating the Company's or its subsidiaries' involvement in waste disposal or waste generation at such sites, the Company has either agreed to de minimis settlements (aggregating approximately $250,000 over the last five years), or believes its obligations with respect to such sites would involve immaterial monetary liability, although there can be no assurances in this regard. The Company remains responsible for certain environmental claims that arose with respect to its ownership of Riverside Furniture Corporation ("Riverside") prior to its sale in 1989. Riverside was notified in 1988 that it has been identified as a PRP for hazardous wastes shipped to two separate sites in Arkansas. To date, the Company, as a part of a PRP group, has paid approximately $50,000 on Riverside's behalf related to one site, with additional assessments expected related to that site. Riverside was dismissed as a PRP from the second site in March 1993. Management currently believes that resolution of its remaining site is unlikely to have a material adverse effect on the Company, although there can be no assurance in this regard. Treadco is affected by a number of governmental regulations relating to the development, production and sale of retreaded and new tires, the raw materials used to manufacture such products (including petroleum, styrene and butadiene), and to environmental, tax and safety matters. In addition, the retreading process creates rubber particulate, or "dust," which requires gathering and disposal, and Treadco disposes of used and nonretreadable tire casings, both of which require compliance with environmental and disposal laws. In some situations, Treadco could be liable for disposal problems, even if the situation resulted from previous conduct of Treadco that was lawful at the time or from improper conduct of, or conditions caused by, persons engaged by Treadco to dispose of particulate and discarded casings. Such cleanup costs or costs associated with compliance with environmental laws applicable to the tire retreading process could be substantial and have a material adverse effect on Treadco's financial condition. Treadco believes that it is in substantial compliance with all laws applicable to such operations, however, and is not aware of any situation or condition that could reasonably be expected to have a material adverse effect on Treadco's financial condition. As of December 31, 1995, the Company has accrued approximately $1,700,000 to provide for environmental-related liabilities. The Company's environmental accrual is based on management's best estimate of the actual liability. The Company's estimate is founded on management's experience in dealing with similar environmental matters and on actual testing performed at some sites. Management believes that the accrual is adequate to cover environmental liabilities based on the present environmental regulations. ITEM 2. PROPERTIES The Company owns its executive offices in Fort Smith, Arkansas. LTL Motor Carrier Operations Segment The ABF System currently operates out of 343 terminal facilities of which it owns 95, leases 61 from an affiliate and leases the remainder from non- affiliates. ABF's principal terminal facilities are as follows: Owned: Sacramento, California Ellenwood, Georgia South Chicago, Illinois Asheville, North Carolina Dayton, Ohio Carlisle, Pennsylvania Dallas, Texas Leased from affiliate, Transport Realty: North Little Rock, Arkansas Pico Rivera, California Denver, Colorado Springfield, Illinois Albuquerque, New Mexico Leased from non-affiliated third party: Portland, Oregon Salt Lake City, Utah G.I. Trucking currently operates out of 52 service centers of which it owns 13 facilities and leases the remainder from agents or non-affiliates. Tire Operations Segment Treadco currently operates from 51 locations. Treadco owns 17 production and 4 sales facilities and leases the remainder from non-affiliates. ITEM 3. LEGAL PROCEEDINGS Various legal actions, the majority of which arise in the normal course of business, are pending. None of these legal actions is expected to have a material adverse effect on the Company's financial condition. The Company maintains liability insurance against most risks arising out of the normal course of its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of stockholders during the fourth quarter ended December 31, 1995. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market and Dividend Information The Company's Common Stock trades on The Nasdaq Stock Market under the symbol "ABFS". The following table sets forth the high and low recorded last sale prices of the Common Stock during the periods indicated as reported by Nasdaq and the cash dividends declared:
Cash High Low Dividend 1995 First quarter $13.000 $10.500 $.01 Second quarter 11.500 7.938 .01 Third quarter 13.875 8.500 .01 Fourth quarter 11.875 6.625 .01 1994 First quarter $15.750 $12.625 $.01 Second quarter 13.375 10.125 .01 Third quarter 14.375 11.375 .01 Fourth quarter 14.125 10.250 .01
At February 14, 1996, there were 19,515,758 shares of the Company's stock outstanding which were held by 835 shareholders of record and through approximately 5,500 nominee or street name accounts with brokers. The declaration and payment of, and the timing, amount and form of future dividends on the Common Stock will be determined based on the Company's results of operations, financial condition, cash requirements, certain corporate law requirements and other factors deemed relevant by the board of directors. The Company's credit agreement limits the total amount of "restricted payments" that the Company may make, including dividends on its capital stock, to $6.5 million in any one calendar year. The annual dividend requirements on the Company's preferred stock issued February 3, 1993 (approximately $4.3 million) and dividends paid on the Common Stock at the quarterly rate of $.01 per share (approximately $0.8 million based on the current number of issued and outstanding shares) would aggregate dividends of approximately $5.1 million on an annual basis. ITEM 6. SELECTED FINANCIAL DATA Selected Financial Data - Five-Year Summary
Arkansas Best Corporation Year Ended December 31 1995 1994 1993 1992 1991 ($ in thousands except per share amounts) Statement of Operations Data: Operating revenues $1,437,279 $1,098,421 $1,009,918 $959,949 $884,498 Operating income (loss) (23,459) 48,115 51,369 57,255 43,123 Gain on sale of subsidiary stock - - - - 14,141 Minority interest in subsidiary 1,297 3,523 3,140 2,825 690 Other expenses, net 5,185 968 731 1,496 6,638 Interest expense 17,046 6,985 7,248 17,285 34,421 Income (loss) before income taxes, extraordinary item and cumulative effect of accounting change (46,987) 36,639 40,250 35,649 15,515 Provisions for income taxes (14,195) 17,932 19,278 16,894 7,763 Income (loss) before extraordinary item and cumulative effect of accounting change (32,792) 18,707 20,972 18,755 7,752 Extraordinary item (1) - - (661) (15,975) (515) Cumulative effect on prior years of change in revenue recognition method (2) - - - (3,363) - Net income (loss) (32,792) 18,707 20,311 (583) 7,237 Income (loss) per common share before extraordinary item and cumulative effect of accounting change (1.90) .74 .89 .99 .61 Net income (loss) per common share (1.90) .74 .85 (.03) .57 Cash dividends paid per common share (3) .04 .04 .04 .02 - Pro Forma Data (4): Income (loss) before extraordinary item $ (32,792) $ 18,707 $ 20,972 $ 18,755 $ 8,253 Income (loss) before extraordinary item per common share (1.90) .74 .89 .99 .65 Net income (loss) (32,792) 18,707 20,311 2,780 7,738 Net income (loss) per common share (1.90) .74 .85 .15 .61 Selected Financial Data - Five-Year Summary (Continued) Arkansas Best Corporation Year Ended December 31 1995 1994 1993 1992 1991 ($ in thousands except per share amounts) Balance Sheet Data (as of the end of the period): Total assets $985,837 $569,045 $447,733 $428,345 $447,098 Current portion of long-term debt 26,634 65,161 15,239 28,348 34,995 Long-term debt (including capital leases and excluding current portion) 399,144 59,295 43,731 107,075 210,987 Other Data Capital expenditures (5) $ 74,808 $ 64,098 $ 33,160 $ 26,596 $ 19,369 Depreciation and amortization 46,627 28,087 28,266 34,473 39,755 Goodwill amortization 5,135 3,527 3,064 3,034 3,024 Other amortization 1,044 501 319 755 2,290 (1) For 1993, represents an extraordinary charge of $661,000 (net of tax of $413,000) from the loss on extinguishment of debt. For 1992, represents an extraordinary charge of $15,975,000 (net of tax of $9,700,000) from the loss on extinguishment of debt in May 1992. For 1991, represents an extraordinary charge of $515,000 (net of tax of $320,000) from the loss on extinguishment of debt relating to the Treadco common stock offering in September 1991. (2) Represents a charge of $3,363,000 (net of tax of $2,100,000) to reflect the cumulative effect on prior years of the change in method of accounting for the recognition of revenue as required under the Financial Accounting Standards Board's Emerging Issues Task Force Ruling 91-9 ("EITF 91-9"). (3) No cash dividends were paid by the Company from 1991 until the third quarter of 1992. (4) Assumes the change in accounting method for recognition of revenue as required under EITF 91-9 occurred January 1, 1991. (5) Net of equipment trade-ins. Does not include revenue equipment placed in service under operating leases, which amounted to $24.6 million in 1995, $24.8 million in 1993, $25.5 million in 1992, $15 million in 1991, and $5 million in 1990. There were no operating leases for revenue equipment entered into for 1994. See "Management's Discussion and Analysis-Liquidity and Capital Resources." (6) 1995 selected financial data is not comparative to the prior years' information due to the WorldWay Acquisition effective August 12, 1995. In conjunction with the WorldWay Acquisition, assets with a fair value of $309 million were acquired and liabilities of approximately $235 million were assumed. Approximately $134 million in revenues for the period from August 12, 1995 to December 31, 1995, are included in the 1995 consolidated statement of operations generated by subsidiaries acquired as part of the WorldWay Acquisition.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Arkansas Best Corporation (the "Company") is a diversified holding company engaged through its subsidiaries primarily in less-than-truckload ("LTL") and truckload motor carrier operations, logistics and freight forwarding operations and truck tire retreading and new tire sales. Principal subsidiaries owned are ABF Freight System, Inc. ("ABF"), Treadco, Inc. ("Treadco"), and, effective September 30, 1994 Clipper Exxpress Company ("Clipper"). Also, effective August 12, 1995, pursuant to its acquisition of WorldWay Corporation ("WorldWay"), the Company owns Cardinal Freight Carriers, Inc. ("Cardinal"), G.I. Trucking Company ("G.I. Trucking"), CaroTrans International, Inc. ("CaroTrans"), The Complete Logistics Company ("Complete Logistics") and Innovative Logistics Incorporated ("ILI"). (See discussion below.) The Company in 1991 reduced its ownership in Treadco, through an initial public offering of Treadco common stock, to approximately 46%, while retaining control of Treadco by reason of its stock ownership, board representation and provision of management services. As a result, Treadco is consolidated with the Company for financial reporting purposes, with the ownership interests of the other stockholders reflected as minority interest. On September 30, 1994, the Company consummated the purchase of all outstanding stock of the Clipper Group. Assets of approximately $26.2 million were acquired and liabilities of approximately $14.7 million were assumed. The Company's total purchase price was $60.9 million. The Clipper acquisition has been accounted for under the purchase method, effective September 30, 1994. The purchase price has been allocated to assets and liabilities based on their estimated fair values as of the date of acquisition. Approximately $49.4 million of goodwill was recorded as a result of the purchase allocation and is being amortized over a 30-year period. On July 14, 1995, ABC Acquisition Corporation (the "Purchaser"), a wholly owned subsidiary of the Company, commenced a tender offer (the "Offer") to purchase all outstanding shares of common stock of WorldWay Corporation at a purchase price of $11 per share (the "Acquisition"). Pursuant to the Offer, on August 11, 1995, the Purchaser accepted for payment shares of WorldWay validly tendered, representing approximately 91% of the shares outstanding. On October 12, 1995, the remaining shares of WorldWay's common stock were converted into the right to receive $11 per share in cash. For financial statement purposes, the WorldWay Acquisition has been accounted for under the purchase method effective August 12, 1995. Consequently, the accompanying financial statements include the results of operations for WorldWay and its subsidiaries from August 12, 1995 through December 31, 1995. The allocation of the purchase cost in the accompanying financial statements is preliminary and subject to change. Final values may differ from those set forth in these financial statements, but differences are not expected to be material. Assets with a fair value of approximately $309 million were acquired and liabilities with a fair value of approximately $235 million were assumed. The Company's total purchase price was $76 million. Approximately $2 million of goodwill was recorded as a result of the purchase allocation and is being amortized over a 30-year period. Segment Data The following tables reflect information prepared on a business segment basis, which includes reclassification of certain expenses and costs between the Company and its subsidiaries and elimination of the effects of intercompany transactions. Operating profit on a business segment basis differs from operating income as reported in the Company's Consolidated Financial Statements. Other income and other expenses (which include amortization expense), except for interest expense and minority interest, which appear below the operating income line in the Company's Statement of Operations, have been allocated to individual segments for the purpose of calculating operating profit on a segment basis. The segment information for prior periods has been restated to reflect the Company's current reported business segments. In the current and future periods, information that was previously reported in the service and other business segment will be reported in the logistics operations segment.
Year Ended December 31 1995 1994 1993 ($ thousands) OPERATING REVENUES LTL motor carrier operations $1,088,416 $ 918,663 $ 893,504 Forwarding operations 140,691 31,468 - Truckload motor carrier operations 27,992 - - Logistics operations 31,699 7,514 2,890 Tire operations 145,127 138,665 111,585 Other 3,354 2,111 1,939 ---------- ---------- --------- $1,437,279 $1,098,421 $1,009,918 ========== ========== ========== OPERATING EXPENSES AND COSTS LTL MOTOR CARRIER OPERATIONS Salaries and wages $ 779,453 $ 613,187 $ 594,213 Supplies and expenses 120,439 96,210 99,146 Operating taxes and licenses 45,906 35,928 35,152 Insurance 24,122 18,237 16,835 Communications and utilities 26,776 22,639 23,680 Depreciation and amortization 37,822 24,302 25,714 Rents and purchased transportation 76,823 67,550 53,192 Other 8,219 4,298 3,779 Other non-operating (net) 1,771 690 148 ---------- ---------- --------- 1,121,331 883,041 851,859 FORWARDING OPERATIONS Cost of services 117,455 26,817 - Selling, administrative and general 18,711 3,542 - Other non-operating (net) 1,705 414 - ---------- ---------- --------- 137,871 30,773 - TRUCKLOAD MOTOR CARRIER OPERATIONS Salaries and wages 9,746 - - Supplies and expenses 4,530 - - Operating taxes and licenses 2,571 - - Insurance 980 - - Communications and utilities 420 - - Depreciation and amortization 1,249 - - Rents and purchased transportation 5,348 - - Other 108 - - Other non-operating (net) 9 - - ---------- ---------- ---------- 24,961 - - LOGISTICS OPERATIONS Cost of services 30,588 7,100 2,915 Selling, administrative and general 3,711 1,388 821 Other non-operating (net) 11 (6) (12) ---------- ---------- ---------- 34,310 8,482 3,724 TIRE OPERATIONS Cost of sales 108,686 100,909 79,718 Selling, administrative and general 31,642 26,206 21,522 Other non-operating (net) 375 471 159 ---------- ---------- --------- 140,703 127,586 101,399 SERVICE AND OTHER 6,747 1,392 2,298 ---------- ---------- --------- $1,465,923 $1,051,274 $ 959,280 ========== ========== ========= OPERATING PROFIT (LOSS) LTL motor carrier operations $ (32,915) $ 35,622 $ 41,645 Forwarding operations 2,820 695 - Truckload motor carrier operations 3,031 - - Logistics operations (2,611) (968) (834) Tire operations 4,424 11,079 10,186 Other (3,393) 719 (359) ---------- ---------- ---------- TOTAL OPERATING PROFIT (LOSS) (28,644) 47,147 50,638 INTEREST EXPENSE 17,046 6,985 7,248 MINORITY INTEREST 1,297 3,523 3,140 ---------- ---------- ---------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM $ (46,987) $ 36,639 $ 40,250 ========== ========== ==========
The following table sets forth for the periods indicated a summary of the Company's operations as a percentage of revenues presented on a business segment basis as shown in the table on the preceding page. The basis of presentation for business segment data differs from the basis of presentation for data the Company provides to the D.O.T.
Year Ended December 31 1995 1994 1993 LTL MOTOR CARRIER OPERATIONS Salaries and wages 71.6% 66.7% 66.5% Supplies and expenses 11.1 10.5 11.1 Operating taxes and licenses 4.2 3.9 3.9 Insurance 2.2 2.0 1.9 Communications and utilities 2.5 2.5 2.7 Depreciation and amortization 3.5 2.6 2.9 Rents and purchased transportation 7.1 7.4 5.9 Other 0.7 0.4 0.4 Other non-operating (net) 0.1 0.1 - ----- ----- ----- Total LTL Motor Carrier Operations 103.0% 96.1% 95.3% ===== ===== ===== FORWARDING OPERATIONS Cost of services 83.5% 85.2% - Selling, administrative and general 13.3 11.3 - Other non-operating (net) 1.2 1.3 - ----- ----- ----- Total Forwarding Operations 98.0% 97.8% - ===== ===== ===== TRUCKLOAD MOTOR CARRIER OPERATIONS Salaries and wages 34.8% - - Supplies and expenses 16.2 - - Operating taxes and licenses 9.2 - - Insurance 3.5 - - Communications and utilities 1.5 - - Depreciation and amortization 4.5 - - Rents and purchased transportation 19.1 - - Other 0.4 - - ----- ----- ----- Total Truckload Operations 89.2% - - ===== ===== ===== LOGISTICS OPERATIONS Cost of sales 96.5% 94.5% 100.9% Selling, administrative and general 11.7 18.5 28.4 Other non-operating (net) - (0.1) (0.4) ----- ----- ----- Total Logistics Operations 108.2% 112.9% 128.9% ===== ===== ===== TIRE OPERATIONS Cost of sales 74.9% 72.8% 71.5% Selling, administrative and general 21.8 18.9 19.3 Other non-operating (net) 0.3 0.3 0.1 ----- ----- ----- Total Tire Operations 97.0% 92.0% 90.9% ===== ===== ===== OPERATING PROFIT LTL motor carrier operations (3.0)% 3.9% 4.7% Forwarding operations 2.0 2.2 - Truckload motor carrier operations 10.8 - - Logistics operations (8.2) (12.9) (28.9) Tire operations 3.0 8.0 9.1
Results of Operations 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, which all 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 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. Forwarding Operations Segment. Effective September 30, 1994, with the purchase of the Clipper Group, the Company began reporting a new business segment, forwarding operations. The Company's forwarding 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 Acquisition of WorldWay in August 1995 and by the acquisition of the Clipper Group in September 1994. Therefore, comparisons of the results of operations for the forwarding operations segment are not meaningful and are not presented. For 1995, the forwarding operations segment had revenues of $140.7 million with an operating profit of $2.8 million. Forwarding operations were adversely affected during 1995 by soft economic conditions. Truckload Motor Carrier Operations Segment. Effective August 12, 1995, with the Acquisition of WorldWay, 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 ILI. 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 the 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 has been unsuccessful, so far, in fully passing along to our 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 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 uses the Bandag process exclusively, Bandag would not renew any of Treadco's franchise agreements when they expire. 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 the eight production facilities whose Bandag franchises expire in 1996 and any other Treadco facilities which cease being a Bandag franchised location. Treadco has converted its Little Rock (AR), Pine Bluff (AR), West Memphis (AR) and Phoenix (AZ) Bandag franchises to Oliver licensed facilities. Based on Treadco's current plans, all remaining Bandag franchises will convert to the Oliver process by the end of the third quarter, 1996. While the equipment removal and replacement is expected to cause temporary disruptions to Treadco's operations, it is not expected to have a significant impact on Treadco's ability to meet its customers' needs. However, Treadco's management believes its national account relationships have been and will continue to be negatively impacted as a result of Bandag's actions and the conversion from Bandag to Oliver. Also as a result of the conversion, Treadco continues to be targeted by other dealers in soliciting customers, causing margins to be under intense competitive pressure. Although the conversion will have a negative impact on the results of operations during the next 12 months, Treadco's management believes the Oliver process produces retreads of equal or better quality and durability than the Bandag process. After the transition period, Treadco's management believes Treadco will be in a better position to control its costs and deliver true value to its customers, while having unrestricted opportunities to expand into new markets. 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 has 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. Management intends to evaluate the realizability of deferred tax assets on a quarterly basis by assessing the need for any additional valuation allowance. 1994 as Compared to 1993 Consolidated revenues of the Company for 1994 were $1.1 billion compared to $1.0 billion for 1993. Operating profit for the Company was $47.1 million for 1994 compared to operating profit of $50.6 million for 1993. Net income for 1994 was $18.7 million, or $.74 per common share (after giving consideration to preferred stock dividends of $4.3 million), compared to net income of $20.3 million, or $.85 per common share for 1993 (after giving consideration to preferred stock dividends of $3.9 million). The net income of $18.7 million, or $.74 per common share, also compares to income before extraordinary item of $21.0 million, or $.89 per common share for 1993. During 1993, the Company recorded an extraordinary loss of $661,000 (net of income tax benefit of $413,000), or $.04 per common share for the net loss on extinguishments of debt. Net income for 1993 was reduced by $828,000, or $.04 per common share (assuming full dilution), to reflect the retroactive increase in the corporate federal tax rate under the Revenue Reconciliation Act of 1993. Average common shares outstanding for 1994 were 19.4 million shares compared to 19.2 million shares for 1993. Outstanding shares for 1994 and 1993 do not assume conversion of preferred stock to common shares, because conversion would be anti-dilutive for these periods. Consolidated revenues and income for 1994 were adversely affected by the 24- day labor strike by the Teamsters' Union employees of ABF in April. As a result of the strike, the Company incurred a consolidated net loss of $12.7 million during the month of April 1994, which had the effect of reducing earnings per common share by $.62 for the year. Motor Carrier Operations Segment. ABF's labor agreement with the International Brotherhood of Teamsters ("IBT") expired on March 31, 1994. On April 6, 1994, ABF's employees and 20 other carriers went on strike. On April 29, 1994, TMI and the IBT reached a tentative agreement on a new four- year contract. ABF Teamsters employees began returning to work at 12:01 a.m. on April 30, 1994. During the strike, the non-union employees of the Company were given an across-the-board pay reduction instead of having lay-offs. The 40% reduction in pay for the non-union employees during the strike amounted to approximately $3.3 million. Revenue and income for 1994 were negatively affected by the strike. Under the new labor contract which was effective retroactive to April 6, 1994, salaries, wages and benefits for full-time employees will increase 2.7% annually during the first year of the contract. The increase will be offset in part by the option to use casual workers on the dock after 40 hours of work is provided to all regular employees, a freeze on some casual workers' pay for the life of the contract and a reduction in new hire step rates. The new contract allows ABF to use intermodal or rail service for up to 28% of the line-haul operations. An increased use of rail will result in higher rent expense and may reduce over-the-road and labor costs. Even after the negative impact of the strike, revenues from motor carrier operations still increased 2.8% to $918.7 million in 1994 from $893.5 million in 1993. Total tonnage increased 1.7%, consisting of a 2.2% increase in LTL tonnage and a 0.2% increase in truckload tonnage. The 4.5% rate increase effective January 1, 1994 was partially discounted by rate competition during 1994. For 1994, ABF's revenue per hundredweight reflected a 0.9% increase compared to the average for 1993. Effective January 1, 1995, ABF implemented a general freight rate increase of 4% which is expected to result in a 3 to 3.5% initial impact on revenues. The diminished effect is the result of pricing that is on a contract basis which can only be increased when the contract is renewed. Forwarding Operations Segment. Effective October 1, 1994, with the purchase of the Clipper Group, the Company began reporting a new business segment, forwarding operations. The Company's consolidated financial statements for the year ended December 31, 1994 include only three months of financial information for the forwarding operations segment and therefore, comparisons of results of operations are not presented. Tire Operations Segment. Treadco's revenues for 1994 increased 24.3% to $138.7 million from $111.6 million for 1993. For 1994, "same store" sales increased 9.6% and "new store" sales accounted for 14.7% of the total increase from the nine months ended September 30, 1993. "Same store" sales include both production locations and satellite sales locations that have been in existence for all of 1994 and 1993. "Same store" sales increased primarily as a result of a higher demand for both new replacement and retreaded truck tires during the period and an increase in market share in the areas served. "New store" sales resulted primarily from the addition of four production and one sales facility through the August 1993 acquisition of Trans-World Tire Corporation in Florida. Revenues from retreading for 1994 increased 21.5% to $75.2 million from $61.9 million for 1993. Revenues from new tire sales increased 27.7% to $63.5 million for 1994 from $49.7 million for 1993. In order to explore alternatives to the Bandag process in some new geographical markets, Treadco opened a precure production facility in Las Vegas, Nevada, in the second quarter of 1995, which purchases its tread rubber from Hercules Tire and Rubber Co. Treadco has the option of purchasing tread rubber and supplies from other companies for the Las Vegas facility. The Company opened an additional retreading facility in the second half of 1995. This production facility is a mold cure retread facility. The facility uses tread rubber compounds provided by Bridgestone/Firestone, Inc. and Bridgestone/Firestone, Inc. provides technical support. The process produces quality retreads with the Bridgestone-Treadco name molded into the tread. Tire operations segment operating expenses as a percent of revenues were 92.0% for 1994 compared to 90.9% for 1993. Cost of sales for the tire operations segment as a percent of revenues increased to 72.8% for 1994 from 71.5% for 1993, resulting in part from integrating the August 1993 acquisition of five Florida facilities into Treadco. Although the integration is progressing as planned, the cost of sales as a percent of revenues are higher at the Florida locations than at other Treadco facilities. Also, effective October 1, 1994, Bandag, Inc. announced a 4% price increase on tread rubber, which has been difficult to pass on to Treadco's customers. Selling, administrative and general expenses for the tire operations segment decreased to 18.9% for 1994 from 19.3% for 1993. The decrease resulted primarily from the increase in sales and the fact that a portion of selling, administrative and general expenses are fixed costs. Interest. Interest expense was $7.0 million for 1994 compared to $7.2 million during 1993. Lower average interest rates under the Company's borrowing arrangements and the utilization of operating leases resulted in the decrease in interest expense offset in part by higher long-term debt outstanding. The increase in long-term debt consisted primarily of debt incurred in the acquisition of the Clipper Group and a term loan used to finance construction of the Company's corporate office building. Income Taxes. The difference between the effective tax rate for 1994 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). Liquidity and Capital Resources The ratio of current assets to current liabilities was 1.06:1 at December 31, 1995 compared to 0.83:1 at December 31, 1994. Net cash used by operating activities for 1995 was $66.2 million compared to net cash provided of $48.8 million in 1994. The decrease is due primarily to the net loss from operations, increase in receivables and reductions in assumed WorldWay accounts payable and accrued expenses. On August 10, 1995 the Company entered into a $350 million credit agreement (the "Credit Agreement") with Societe Generale, Southwest Agency as Managing and Administrative Agent and NationsBank of Texas, N.A., as Documentation Agent, and with 15 other participating banks. The Credit Agreement includes a $75 million term loan and provides for up to $275 million of revolving credit loans (including letters of credit). Term Loan and Revolving Credit advances bear interest at one of the following rates, at the Company's option: (a) Prime Rate advance or (b) Eurodollar Rate advance. A Prime Rate advance bears an interest rate equal to the lesser of (i) the Adjusted Prime Rate plus the Applicable Margin and (ii) the maximum nonusurious interest rate under applicable law. The Adjusted Prime Rate is equal to the greater of the prime rate offered by Societe Generale or the Federal Funds Rate plus 1/2%. The Applicable Margin is determined as a function of the ratio of the Company's consolidated indebtedness to its consolidated earnings before interest, taxes, depreciation and amortization. Eurodollar Rate advances shall bear an interest rate per annum equal to the lesser of (i) the Eurodollar Rate offered by Societe Generale plus the Applicable Margin and (ii) the maximum nonusurious interest rate under applicable law. The Company has paid and will continue to pay certain customary fees for such commitments and advances. At December 31, 1995, the average interest rate on the Credit Agreement was 7.6%. The Company pays a commitment fee at a rate per annum equal to the Applicable Margin on the unused amount of the Company's revolving credit commitment. There were $203 million of Revolver Advances, $75 million of Term Advances and approximately $64.1 million of letters of credit outstanding at December 31, 1995. Outstanding revolving credit advances may not exceed a borrowing base calculated using the Company's revenue equipment, the Treadco common stock owned by the Company, and eligible receivables. The Term Advances are payable in varying installments commencing in November 1996. The Credit Agreement replaced a $150 million credit agreement with Societe Generale and a receivable purchase agreement with Renaissance Funding Corp. and Societe Generale which allowed ABF to sell to Renaissance Funding Corp. an interest in up to $55 million in a pool of receivables. The Credit Agreement contains various covenants which limit, among other things, indebtedness, distributions, asset sales, restricted payments, investments, loans and advances, as well as requiring the Company to meet certain financial tests. As of December 31, 1995, the Company was not in compliance with certain covenants relating to financial tests. On February 21, 1996, the Company obtained an amendment to the credit agreement which revised the agreement so that the Company is now in compliance with all covenants. Under the amended credit agreement, the Company has pledged substantially all revenue equipment and real property not already pledged under other debt obligations or capital leases. The amendment also revised the maturity schedule of the term loan agreement to revise the loans to be paid off in graduated principal installments through August 1998. The current portion of long-term debt and the five year maturity schedule reflected in the consolidated financial statements have been revised to reflect the amended repayment schedule. The amendment also requires that net proceeds received from certain asset sales be applied against the term loan balance. Also, on February 21, 1996, the Company obtained an additional credit agreement which provides for borrowings of up to $30 million. This agreement bears interest at either an adjusted prime rate plus 2% or a maximum rate as defined in the agreement in the case of prime rate advances, or the Eurodollar rate plus 3% or a maximum rate as defined in the agreement in the care of Eurodollar rate advances. The maturity date of this agreement is March 31, 1997. This agreement contains covenants that are substantially the same as the covenants contained in the primary credit agreement. The Company assumed the Subordinated Debentures of WorldWay which were issued in April 1986. The debentures bear interest at 6.25% per annum, payable semi- annually, on a par value of $50,000,000. The debentures are payable April 15, 2011. The Company may redeem the debentures at a price of 101.25% declining to 100% at April 15, 1996. The Company is required to redeem through a mandatory sinking fund commencing before April 15, in each of the years from 1997 to 2010, an amount in cash sufficient to redeem $2,500,000 annually of the aggregate principal amount of the debentures issued. The Company entered into a ten-year, $20 million general office term loan agreement dated as of April 25, 1994 with NationsBank of Texas, N.A., as agent, and Societe Generale Southwest Agency. The proceeds from the agreement were used to finance the construction of the Company's new corporate office building which was completed in February 1995. Amounts borrowed under the agreement bear interest at 8.07% quarterly, with installments of $500,000 plus interest due through July 2004. TREADCO is a party to a revolving credit facility with Societe Generale (the "TREADCO Credit Agreement") providing for borrowings of up to the lesser of $20 million or the applicable borrowing base. Borrowings under the TREADCO Credit Agreement are collateralized by accounts receivable and inventory. Borrowings under the agreement bear interest, at TREADCO's option, at 3/4% above the bank's LIBOR rate, or at the higher of the bank's prime rate or the "federal funds rate" plus 1/2%. At December 31, 1995, the interest rate was 7.1%. At December 31, 1995, TREADCO had $10 million outstanding under the Revolving Credit Agreement. The TREADCO credit agreement is payable in September 1998. TREADCO pays a commitment fee of 3/8% on the unused amount under the TREADCO Credit Agreement. The TREADCO Credit Agreement contains various covenants which limit, among other things, dividends, disposition of receivables, indebtedness and investments, as well as requiring TREADCO to meet certain financial tests which have been met. The Company is a party to an interest rate cap arrangement to reduce the impact of increases in interest rates on its floating-rate long-term debt. The Company will be reimbursed for the difference in interest rates if the LIBOR rate exceeds a fixed rate of 9 3/4% applied to notional amounts, as defined in the contract, ranging from $40 million as of December 31, 1995 to $2.5 million as of October 1999. As of December 31, 1995 and 1994, the LIBOR rate was 5.5% and 6.5%, respectively; therefore, no amounts were due to the Company under this arrangement. In the event that amounts are due under this agreement in the future, the payments to be received would be recognized as a reduction of interest expense (the accrual accounting method). Fees totaling $385,000 were paid in 1994 to enter into this arrangement. These fees are included in other assets and are being amortized to interest expense over the life of the contract. The following table sets forth the Company's historical capital expenditures (net of equipment trade-ins) for the periods indicated below:
Year Ended December 31 1995 1994 1993 ($ millions) LTL motor carrier operations $ 75.0 $44.2 $48.6 Forwarding operations 0.4 - - Truckload motor carrier operations 2.1 - - Logistics operations 5.3 - - Tire operations 4.5 4.3 6.1 Service and other 12.1 15.6 3.3 ------ ------ ------ 99.4 64.1 58.0 Less: Operating leases (24.6) - (24.8) ------ ------ ------ Total $ 74.8 $64.1 $33.2 ====== ====== ======
The amounts presented in the table under operating leases reflect the estimated purchase price of the equipment had the Company purchased the equipment versus financing through operating lease transactions. In 1996, the Company anticipates spending approximately $33 million in total capital expenditures net of proceeds from equipment sales. Of the $33 million, Treadco is budgeted for $13 million of expenditures for retreading equipment and facilities. ABF is budgeted for approximately $18.3 million to be used primarily for terminal facilities and Cardinal has $1.7 million budgeted for revenue equipment purchases. Management believes, based upon the Company's current levels of operations and anticipated growth, the Company's cash, capital resources, borrowings available under the Credit Agreement and the Treadco Credit Agreement and cash flow from operations will be sufficient to finance current and future operations and meet all present and future debt service requirements. Seasonality The LTL and truckload motor carrier segment is affected by seasonal fluctuations, which affect tonnage to be transported. Freight shipments, operating costs and earnings are also affected adversely by inclement weather conditions. The third calendar quarter of each year usually has the highest tonnage levels while the first quarter has the lowest. Forwarding operations are similar to the LTL and truckload segments with revenues being weaker in the first quarter and stronger during the months of September and October. Treadco's operations are somewhat seasonal with the last six months of the calendar year generally having the highest levels of sales. Environmental Matters ABF stores some fuel for its tractors and trucks in approximately 188 underground tanks located in 34 states. Maintenance of such tanks is regulated at the federal and, in some cases, state levels. ABF believes that it is in substantial compliance with all such regulations. ABF is not aware of any leaks from such tanks that could reasonably be expected to have a material adverse effect on the Company. Environmental regulations have been adopted by the United State Environmental Protection Agency ("EPA") that will require ABF to upgrade its underground tank systems by December 1998. ABF currently estimates that such upgrades, which are currently in process, will not have a material adverse effect on the Company. The Company has received notices from the EPA and others that it has been identified as a potentially responsible party ("PRP") under the Comprehensive Environmental Response Compensation and Liability Act or other federal or state environmental statutes at several hazardous waste sites. After investigating the Company's or its subsidiaries' involvement in waste disposal or waste generation at such sites, the Company has either agreed to de minimis settlements (aggregating approximately $250,000 over the last five years), or believes its obligations with respect to such sites would involve immaterial monetary liability, although there can be no assurances in this regard. As of December 31, 1995, the Company has accrued approximately $1,700,000 to provide for environmental-related liabilities. The Company's environmental accrual is based on management's best estimate of the actual liability. The Company's estimate is founded on management's experience in dealing with similar environmental matters and on actual testing performed at some sites. Management believes that the accrual is adequate to cover environmental liabilities based on the present environmental regulations. New Accounting Pronouncements In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company will adopt Statement 121 in the first quarter of 1996 and, based on current circumstances, does not believe the effect of adoption will be material. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response of this item is submitted in a separate section of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III. ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT The sections entitled "Election of Directors," "Directors of the Company," "Board of Directors and Committees," "Executive Officers of the Company" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the Company's proxy statement for the annual meeting of stockholders to be held on May 9, 1996, set forth certain information with respect to the directors, nominees for election as directors and executive officers of the Company and are incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The sections entitled "Executive Compensation," "Aggregated Options/SAR Exercises in Last Fiscal Year and Fiscal Year-End Options/SAR Values," "Options/SAR Grants Table," "Executive Compensation and Development Committee Interlocks and Insider Participation," "Retirement and Savings Plan," "Termination of Employment Agreements" and the paragraph concerning directors compensation in the section entitled "Board of Directors and Committees" in the Company's proxy statement for the annual meeting of stockholders to be held on May 9, 1996, set forth certain information with respect to compensation of management of the Company and are incorporated herein by reference, provided however, the information contained in the sections entitled "Report on Executive Compensation by the Executive Compensation and Development Committee and Stock Option Committee" and "Stock Performance Graph" are not incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The section entitled "Principal Shareholders and Management Ownership" in the Company's proxy statement for the annual meeting of stockholders to be held on May 9, 1996, sets forth certain information with respect to the ownership of the Company's voting securities and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The section entitled "Certain Transactions and Relationships" in the Company's proxy statement for the annual meeting of stockholders to be held on May 9, 1996, sets forth certain information with respect to relations of and transactions by management of the Company and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)(1) Financial Statements The response to this portion of Item 14 is submitted as a separate section of this report. (a)(2) Financial Statement Schedules The response to this portion of Item 14 is submitted as a separate section of this report. (a)(3) Exhibits The exhibits filed with this report are listed in the Exhibit Index which is submitted as a separate section of this report. (b) Reports on Form 8-K Form 8-K/A No. 1 dated October 13, 1995 Item 7. Financial Statements and Exhibits -- Financial statements of WorldWay Corporation and pro forma financial information to be filed under cover of Form 8-K/A on October 25, 1995. Form 8-K/A No. 1 dated October 25, 1995 Item 7. Financial Statements and Exhibits -- Audited financial statements of WorldWay Corporation for the years then ended December 31, 1994 and 1993. Unaudited financial statements of WorldWay Corporation for the twenty-four weeks ended June 17, 1995 and June 18, 1994. Pro forma condensed consolidated statements of operations for the year ended December 31, 1994 and the six months ended June 30, 1995 and the pro forma condensed consolidated balance sheet as of June 30, 1995. Form 8-K dated February 28, 1996 Item 5. On February 21, 1996, Arkansas Best Corporation's (the "Company") existing Credit Agreement with Societe Generale, Southwest Agency as Managing Agent and Administrative Agent, Nations of Texas, N.A., as Documentation Agent, and certain other banks was amended and restated. Also, on February 21, 1996, the Company entered into a $30,000,000 Credit Agreement with Societe Generale Southwest Agency as Agent and certain other banks. (c) Exhibits See Item 14(a)(3) above. (d) Financial Statements Schedules The response to this portion of Item 14 is submitted as a separate section of this report. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ARKANSAS BEST CORPORATION By: /s/Donald L. Neal -------------------------------- Donald L. Neal Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/William A. Marquard Chairman of the Board, Director 3/24/96 - ---------------------------- ------- William A. Marquard /s/Robert A. Young, III Director, Chief Executive Officer 3/28/96 - ---------------------------- and President (Principal ------- Robert A. Young, III Executive Officer) /s/Donald L. Neal Senior Vice President - Chief 3/28/96 - ---------------------------- Financial Officer (Principal ------- Donald L. Neal Financial and Accounting Officer) /s/Frank Edelstein Director 3/27/96 - ---------------------------- ------- Frank Edelstein /s/Arthur J. Fritz Director 3/25/96 - ---------------------------- ------- Arthur J. Fritz /s/John H. Morris Director 3/25/96 - ---------------------------- ------- John H. Morris /s/Alan J. Zakon Director 3/27/96 - ---------------------------- ------- Alan J. Zakon ANNUAL REPORT ON FORM 10-K ITEM 8, ITEM 14(a)(1) and (2), (c) and (d) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA CERTAIN EXHIBITS FINANCIAL STATEMENT SCHEDULES YEAR ENDED DECEMBER 31, 1995 ARKANSAS BEST CORPORATION FORT SMITH, ARKANSAS FORM 10-K -- ITEM 14(a)(1) and (2) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES ARKANSAS BEST CORPORATION The following consolidated financial statements of Arkansas Best Corporation are included in Item 8: Consolidated Balance Sheets -- December 31, 1995 and 1994 Consolidated Statements of Operations -- Years ended December 31, 1995, 1994 and 1993 Consolidated Statements of Shareholders' Equity -- Years ended December 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows -- Years ended December 31, 1995, 1994 and 1993 The following consolidated financial statement schedule of Arkansas Best Corporation is included in Item 14(d): Schedule II -- Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Shareholders and Board of Directors Arkansas Best Corporation We have audited the accompanying consolidated balance sheets of Arkansas Best Corporation as of December 31, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and the schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the schedule 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 Arkansas Best Corporation at December 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Little Rock, Arkansas February 21, 1996 ARKANSAS BEST CORPORATION CONSOLIDATED BALANCE SHEETS
December 31 1995 1994 ($ thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 16,945 $ 3,458 Receivables Trade, less allowances for doubtful accounts (1995 --$19,403,000; 1994 -- $2,825,000) 186,273 127,206 Other 18,923 8,938 Inventories -- Notes D and E 36,850 32,463 Prepaid expenses 13,927 13,734 Deferred income taxes 32,080 - Federal and state income taxes 17,489 - -------- -------- TOTAL CURRENT ASSETS 322,487 185,799 PROPERTY, PLANT AND EQUIPMENT -- (Notes C and E) Land and structures 228,706 110,424 Revenue equipment 285,045 200,250 Manufacturing equipment 8,289 7,467 Service, office and other equipment 65,474 40,516 Leasehold improvements 10,631 9,421 Construction in progress 44 13,939 -------- -------- 598,189 382,017 Less allowances for depreciation and amortization (190,906) (166,436) -------- -------- 407,283 215,581 OTHER ASSETS Assets held for sale (Notes B and E) 39,937 - Nonoperating property (Note E) 17,173 2,026 Pension asset (Note K) 32,380 5,331 Goodwill, less amortization (1995 -- $24,027,000; 1994 -- $19,794,000) -- Notes B and C 145,478 151,960 Other 21,099 8,348 -------- -------- 256,067 167,665 -------- -------- $985,837 $ 569,045 ======== ======== ARKANSAS BEST CORPORATION CONSOLIDATED BALANCE SHEETS December 31 1995 1994 ($ thousands) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Bank overdraft $ - $ 5,989 Bank drafts payable 12,999 10,779 Trade accounts payable 74,998 49,368 Accrued expenses -- Note F 188,708 82,157 Federal and state income taxes -- Note G - 5,786 Deferred income taxes - Note G - 4,159 Current portion of long-term debt -- Note E 26,634 65,161 -------- -------- TOTAL CURRENT LIABILITIES 303,339 223,399 LONG-TERM DEBT, less current portion -- Note E 399,144 59,295 OTHER LIABILITIES 18,665 5,915 DEFERRED INCOME TAXES -- Note G 48,560 28,842 MINORITY INTEREST -- Note B 38,265 34,989 SHAREHOLDERS' EQUITY -- Notes A, H and P Preferred stock, $.01 par value, authorized 10,000,000 shares; issued and outstanding 1,495,000 shares 15 15 Common stock, $.01 par value, authorized 70,000,000 shares; issued and outstanding 1995: 19,519,061 shares; 1994: 19,513,708 shares 195 195 Additional paid-in capital 207,807 207,636 Predecessor basis adjustment -- Note H (15,371) (15,371) Retained earnings (deficit) (14,782) 24,130 -------- -------- TOTAL SHAREHOLDERS' EQUITY 177,864 216,605 COMMITMENTS AND CONTINGENCIES -- (Notes I, J, K and P) -------- -------- $985,837 $569,045 ======== ======== See notes to consolidated financial statements.
ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31 1995 1994 1993 ($ thousands, except per share data) OPERATING REVENUES -- Note B Less than truckload motor carrier operations $1,088,416 $ 918,663 $ 893,504 Truckload motor carrier operations 27,992 - - Forwarding operations 140,691 31,468 - Logistics operations 31,699 7,514 2,890 Tire operations 145,127 138,665 111,585 Service and other 3,354 2,111 1,939 --------- --------- --------- 1,437,279 1,098,421 1,009,918 OPERATING EXPENSES AND COSTS -- Notes B and L Less than truckload carrier operations 1,119,560 882,351 851,711 Truckload motor carrier operations 24,952 - - Forwarding operations 136,166 30,359 - Logistics operations 34,299 8,488 3,736 Tire operations 140,328 127,115 101,240 Service and other 5,433 1,993 1,862 --------- --------- --------- 1,460,738 1,050,306 958,549 --------- --------- --------- OPERATING INCOME (LOSS) (23,459) 48,115 51,369 OTHER INCOME (EXPENSE) Gains on asset sales 3,194 2,168 2,509 Interest (17,046) (6,985) (7,248) Minority interest in subsidiary -- Note A (1,297) (3,523) (3,140) Other, net (8,379) (3,136) (3,240) --------- --------- --------- (23,528) (11,476) (11,119) INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (46,987) 36,639 40,250 FEDERAL AND STATE INCOME TAXES (CREDIT) -- Note G Current (5,200) 14,743 21,386 Deferred (8,995) 3,189 (2,108) --------- --------- --------- (14,195) 17,932 19,278 ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Continued) Year Ended December 31 1995 1994 1993 ($ thousands, except per share data) INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $ (32,792) $ 18,707 $ 20,972 EXTRAORDINARY ITEM -- Note H Loss on extinguishments of debt - - (661) --------- --------- --------- NET INCOME (LOSS) $ (32,792) $ 18,707 $ 20,311 ========= ========= ========= PER COMMON SHARE -- Notes C and H Income before extraordinary item $ (1.90) $ .74 $ .89 Extraordinary item - - (.04) --------- --------- --------- Net income (loss) $ (1.90) $ .74 $ .85 ========= ========= ========= CASH DIVIDENDS PAID PER COMMON SHARE $ .04 $ .04 $ .04 ========= ========= ========= AVERAGE COMMON SHARES OUTSTANDING -- Note C 19,520,756 19,351,796 19,193,582 ========== ========== ========== See notes to consolidated financial statements.
ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Additional Stock Payable Predecessor Retained Preferred Common Paid-In to Employee Basis Earnings Stock Stock Capital Benefit Plans Adjustment (Deficit) ($ thousands) Balances at January 1, 1993 $ - $ 191 $ 133,279 $ 701 $(15,371) $(5,149) Net income - - - - - 20,311 Issuance of common stock to employee benefit plans -- Note K - 1 1,299 (701) - - Stock payable to employee benefit plans - - - 205 - - Issuance of preferred stock -- Note H 15 - 71,879 - - - Dividends paid - - - - - (4,670) --- ---- -------- ------ -------- ------- Balances at December 31, 1993 15 192 206,457 205 (15,371) 10,492 Net income 18,707 Issuance of common stock to employee benefit plans - - 205 (205) - - Stock options exercised - - 36 - - - Acquisition of Traveller Group -- Note B - 3 938 - - - Dividends paid - - - - - (5,069) --- ----- -------- ------ -------- ------- Balances at December 31, 1994 15 195 207,636 - (15,371) 24,130 Net loss (32,792) Stock options exercised - - 171 - - Dividends paid - - - - - (5,079) Adjustment to recognize minimum pension liability -- Note K - - - - - (1,041) --- ----- --------- ------- -------- -------- Balances at December 31, 1995 $15 $ 195 $ 207,807 $ - $(15,371) $(14,782) === ===== ======== ======= ======== ======== See notes to consolidated financial statements.
ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 1995 1994 1993 ($ thousands) OPERATING ACTIVITIES Net income (loss) $(32,792) $ 18,707 $ 20,311 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Loss on extinguishments of debt - - 661 Depreciation and amortization 46,627 28,087 28,266 Amortization of intangibles 5,135 3,527 3,064 Other amortization 1,044 501 319 Contribution of stock to employee benefit plans - - 804 Provision for losses on accounts receivable 4,185 2,070 1,902 Provision for deferred income taxes (8,995) 3,189 (2,108) Gain on asset sales (3,194) (2,168) (2,509) Loss on write-down of intangible assets 2,076 - - Minority interest in subsidiary 1,297 3,773 3,390 Changes in operating assets and liabilities, net of acquisitions: Receivables (23,795) (15,312) (14,152) Inventories and prepaid expenses 3,529 (6,428) (5,985) Other assets (13,827) (1,566) 1,822 Trade accounts payable, bank drafts payable, taxes payable, accrued expenses and other liabilities (47,514) 14,373 (193) -------- -------- -------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (66,224) 48,753 35,592 INVESTING ACTIVITIES Purchases of property, plant and equipment, less capitalized leases (49,690) (47,298) (13,692) Proceeds from asset sales 15,748 7,841 10,839 Acquisition of WorldWay Corporation, net of cash acquired -- Note B (81,482) - - Acquisition of the Clipper Group, net of cash acquired -- Note B (84) (49,556) - Acquisition of Trans-World Tire Corp. - - (2,500) -------- -------- -------- NET CASH USED BY INVESTING ACTIVITIES (115,508) (89,013) (5,353) ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Year Ended December 31 1995 1994 1993 ($ thousands) FINANCING ACTIVITIES Deferred financing costs and expenses incurred in borrowing activities $ (4,578) $ (147) $ (47) Proceeds from receivables purchase agreement - 56,000 - Payments under receivables purchase agreement (40,000) (16,000) - Borrowings under revolving credit and term loan facilities 313,275 54,000 35,000 Principal payments under revolving credit and term loan facilities (30,275) (39,000) (98,000) Net proceeds from the issuance of common stock 171 37 - Net proceeds from the issuance of preferred stock - - 71,894 Principal payments on other long-term debt and capital leases (31,844) (18,616) (33,203) Dividends paid to minority shareholders of subsidiary (462) (438) (432) Dividends paid (5,079) (5,069) (4,133) Net increase (decrease) in bank overdraft (5,989) 5,989 - -------- -------- -------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 195,219 36,756 (28,921) -------- -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 13,487 (3,504) 1,318 Cash and cash equivalents at beginning of year 3,458 6,962 5,644 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 16,945 $ 3,458 $ 6,962 ======== ======== ======== See notes to consolidated financial statements. ARKANSAS BEST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995 NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS Arkansas Best Corporation (the "Company") is a diversified holding company engaged through its subsidiaries primarily in motor carrier, freight forwarding operations and truck tire retreading and sales (see Note M). Principal subsidiaries are ABF Freight System, Inc., ("ABF"), Treadco, Inc. ("TREADCO"), and Clipper Exxpress Company and related companies (the "Clipper Group") and, effective August 12, 1995, WorldWay Corporation ("WorldWay") (see Note B). The principal subsidiaries of WorldWay include Carolina Freight Carriers Corp., which was merged into ABF on September 25, 1995, Cardinal Freight Carriers, Inc. ("Cardinal"), G.I. Trucking Company ("G.I. Trucking"), CaroTrans International, Inc. ("CaroTrans"), The Complete Logistics Company ("Complete Logistics") and Innovative Logistics Incorporated ("Innovative Logistics"). As of December 31, 1995, the Company's percentage ownership of TREADCO was 46%. The Company's consolidated financial statements reflect full consolidation of the accounts of TREADCO, with the ownership interests of the other stockholders reflected as minority interest, because the Company controls TREADCO through stock ownership, board representation and management services provided under a transition services agreement. Summarized condensed financial information for TREADCO is as follows:
December 31 1995 1994 ($ thousands) Current assets $ 61,615 $ 58,187 Property, plant and equipment, net 16,339 15,723 Other assets 15,081 15,673 -------- -------- Total assets $ 93,035 $ 89,583 ======== ======== Current liabilities $ 16,737 $ 20,822 Long-term debt and other 10,280 4,323 Stockholders' equity 66,018 64,438 -------- -------- Total liabilities and stockholders' equity $ 93,035 $ 89,583 ======== ========
1995 1994 1993 ($ thousands) Sales $ 147,906 $ 140,678 $ 113,277 Operating expenses and costs 143,382 129,625 103,671 Interest expense 510 270 195 Other (income) expense (88) 9 (252) Income taxes 1,711 4,265 3,832 -------- -------- -------- Net income $ 2,391 $ 6,509 $ 5,831 ======== ======== ========
NOTE B - ACQUISITIONS On July 14, 1995, ABC Acquisition Corporation (the "Purchaser"), a wholly owned subsidiary of the Company, commenced a tender offer (the "Offer") to purchase all outstanding shares of common stock of WorldWay Corporation ("WorldWay"), at a purchase price of $11 per share (the "Acquisition"). Pursuant to the Offer, on August 11, 1995, the Purchaser accepted for payment shares of WorldWay validly tendered, representing approximately 91% of the shares outstanding. On October 12, 1995, the remaining shares of WorldWay's common stock were converted into the right to receive $11 per share in cash. For financial statement purposes, the Worldway Acquisition has been accounted for under the purchase method effective August 12, 1995. Consequently, the accompanying financial statements include the results of operations for WorldWay and its subsidiaries from August 12, 1995 through December 31, 1995. The allocation of the purchase cost in the accompanying financial statements is preliminary and subject to change. Final values may differ from those set forth in these financial statements, but differences are not expected to be material. Assets with a fair value of approximately $309 million were acquired and liabilities with a fair value of approximately $235 million were assumed. The Company's total purchase price was $76 million. Approximately $2 million of goodwill was recorded as a result of the purchase allocation and is being amortized over a 30-year period. On September 30, 1994, the Company consummated the purchase of all outstanding stock of the Clipper Group pursuant to a stock purchase agreement entered into on August 18, 1994. Assets of approximately $26.2 million were acquired and liabilities of approximately $14.7 million were assumed. The Company's total purchase price was $60.9 million. The Clipper acquisition has been accounted for under the purchase method, effective September 30, 1994, with operations of Clipper included for the three-month period ended December 31, 1994. The purchase price has been allocated to assets and liabilities based on their estimated fair values as of the date of acquisition. Approximately $49.4 million of goodwill was recorded as a result of the purchase allocation and is being amortized over a 30-year period. On October 12, 1994, the Company issued 310,191 shares of common stock for all of the outstanding stock of Traveller Enterprises and subsidiaries and Commercial Warehouse Company, collectively (the "Traveller Group"). The acquisition of the Traveller Group has been accounted for as a pooling of interests. The Traveller Group's operations are not material to the Company's consolidated financial statements for any period; therefore, financial statements for periods prior to the merger have not been restated, and the financial statements include operations of the Traveller Group from the date of the combination. Pro forma unaudited information (as if the Clipper Group and Traveller Group acquisitions were completed at the beginning of 1993 and the WorldWay acquisition was completed at the beginning of 1994) for 1995, 1994 and 1993 is as follows:
1995 1994 1993 (thousands, except per share data) Operating revenues $1,921,432 $2,144,994 $1,149,627 Operating expenses 2,007,421 2,059,351 1,094,340 ---------- ---------- ---------- (85,989) 85,643 55,287 Interest expense, net 24,769 21,451 10,602 Minority interest in subsidiary 1,297 3,523 3,140 Other expense, net 24,069 8,687 2,331 Provision for income taxes (credit) (46,879) 24,960 18,874 ----------- ---------- --------- Income (loss) before extraordinary item $ (89,245) $ 27,022 $ 20,340 =========== ========= ========== Earnings (loss) per common share before extraordinary item $ (4.79) $ 1.16 $ .84 =========== ========== ========== Average common shares outstanding 19,544 19,662 19,504 =========== ========== ==========
The above pro forma unaudited information does not purport to be indicative of the results which actually would have occurred had the acquisitions been made at the beginning of the respective periods. NOTE C - ACCOUNTING POLICIES Consolidation: The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. Cash and Cash Equivalents: Short term investments which have a maturity of ninety days or less when purchased are considered cash equivalents. Concentration of Credit Risk: The Company's services are provided primarily to customers throughout the United States and Canada, with additional customers in foreign countries served by CaroTrans International, Inc. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. Historically, credit losses have been within management's expectations. Inventories: Inventories, which consist primarily of new tires and retread tires and supplies used in Treadco's business, are stated at the lower of cost (first-in, first-out basis) or market. Property, Plant and Equipment: Purchases of property, plant and equipment are recorded at cost. For financial reporting purposes, such property is depreciated principally by the straight-line method, using the following lives: structures -- 15 to 30 years; revenue equipment -- 3 to 7 years, manufacturing equipment -- 5 to 8 years; other equipment -- 3 to 10 years; and leasehold improvements -- 4 to 10 years. For tax reporting purposes, accelerated depreciation or cost recovery methods are used. Gains and losses on asset sales are reflected in the year of disposal. Trade-in allowances in excess of the book value of revenue equipment traded are accounted for by adjusting the cost of assets acquired. Tires purchased with revenue equipment are capitalized as a part of the cost of such equipment, with replacement tires being expensed when placed in service. Assets Held for Sale: Assets held for sale represents primarily non- operating freight terminals and other properties, a portion of which were acquired as a result of the WorldWay acquisition (Note B), which are carried at the lower of net book value or estimated net realizable value. Also included in assets held for sale are properties of the Company which are being replaced by WorldWay facilities. The Company recorded a writedown of $2.1 million to net realizable value for the Company properties being replaced. Assets held for sale includes $4.9 million in goodwill that was specifically identifiable to certain properties being sold. Goodwill: Excess cost over fair value of net assets acquired (goodwill) is amortized on a straight-line basis over 15 to 40 years. The carrying value of goodwill will be reviewed if the facts and circumstances suggest that it may be impaired. If this review indicates that goodwill will not be recoverable, as determined based on the undiscounted cash flows over the remaining amortization period, the Company's carrying value of the goodwill would be reduced. Income Taxes: Deferred income taxes are accounted for under the liability method. Deferred income taxes relate principally to asset and liability basis differences arising from a 1988 purchase transaction, to the timing of the depreciation and cost recovery deductions previously described and to temporary differences in the recognition of certain revenues and expenses of carrier operations. Revenue Recognition: Motor carrier revenue is recognized based on relative transit time in each reporting period with expenses recognized as incurred. Revenue for other segments is recognized generally at the point when goods or services are provided to the customers. Earnings (Loss) Per Share: The calculation of earnings (loss) per share is based on the weighted average number of common and common equivalent shares outstanding during the applicable period. The calculation reduces income available to common shareholders by preferred stock dividends paid or accrued during the period. Compensation to Employees: Stock-based compensation to employees is accounted for based on the intrinsic value method under Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees." The Company plans to continue to use this method. Accounting for Sales of Stock by Subsidiaries: It is the Company's policy to recognize gains and losses on sales of subsidiary stock when incurred. Claims Liabilities: The Company is self-insured up to certain limits for workers' compensation, cargo loss and damage and certain property damage and liability claims. Provision has been made for the estimated liabilities for such claims as incurred. Environmental Matters: The Company expenses environmental expenditures related to existing conditions resulting from past or current operations and from which no current or future benefit is discernible. Expenditures which extend the life of the related property or mitigate or prevent future environmental contamination are capitalized. The Company determines its liability on a site by site basis with actual testing at some sites, and records a liability at the time when it is probable and can be reasonably estimated. The estimated liability of the Company is not discounted or reduced for possible recoveries from insurance carriers. (See Note J) Derivative Financial Instruments: The Company enters into interest-rate swap agreements and interest-rate cap agreements that are designed to modify the interest characteristic of outstanding debt or limit exposure to increasing interest rates. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment of interest expense related to the debt (the accrual accounting method). The related amount payable to or receivable from counterparties is included in accrued liabilities or other receivables. Reclassifications: Certain reclassifications have been made to the prior year financial statements to conform to the current year's presentation. Recent Accounting Pronouncement: The Company plans to adopt Statement of Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", effective January 1, 1996. Under SFAS No. 121, impairment losses are recognized when information indicates the carrying amount of long-lived assets, identifiable intangibles and goodwill related to those assets will not be recovered through future operations or sale. Impairment losses for assets to be held or used in operations will be based on the excess of the carrying amount of the asset over the asset's fair value. Assets held for disposal will be carried at the lower of carrying amount or fair value less cost to sell. SFAS No. 121 will be applied prospectively from the date of adoption and, based on current circumstances, management does not believe the effect of adoption will be material. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. NOTE D - INVENTORIES
December 31 1995 1994 ($ thousands) Finished goods $ 25,579 $ 22,764 Materials 7,621 7,487 Repair parts, supplies and other 3,650 2,212 -------- -------- $ 36,850 $ 32,463 ======== ========
NOTE E - LONG-TERM DEBT AND CREDIT AGREEMENTS
December 31 1995 1994 ($ thousands) Revolving Credit and Term Loan Facility (1) $ 278,000 $ - Receivables Purchase Agreement (1) - 40,000 Subordinated Debentures (2) 47,016 - General Office Agreement (3) 17,000 19,000 Treadco Credit Agreement (4) 10,000 3,000 Capitalized lease obligations (5) 68,303 51,060 Other 5,459 11,396 -------- -------- 425,778 124,456 Less current portion 26,634 65,161 -------- -------- $ 399,144 $ 59,295 ======== ========
(1) On August 10, 1995 the Company entered into a $350 million credit agreement (the "Credit Agreement") with Societe Generale, Southwest Agency as Managing and Administrative Agent and NationsBank of Texas, N.A., as Documentation Agent, and with 15 other participating banks. The Credit Agreement includes a $75 million term loan and provides for up to $275 million of revolving credit loans (including letters of credit). Term Loan and Revolving Credit advances bear interest at one of the following rates, at the Company's option: (a) Prime Rate advance or (b) Eurodollar Rate advance. A Prime Rate advance bears an interest rate equal to the lesser of (i) the Adjusted Prime Rate plus the Applicable Margin and (ii) the maximum nonusurious interest rate under applicable law. The Adjusted Prime Rate is equal to the greater of the prime rate offered by Societe Generale or the Federal Funds Rate plus 1/2%. The Applicable Margin is determined as a function of the ratio of the Company's consolidated indebtedness to its consolidated earnings before interest, taxes, depreciation and amortization. Eurodollar Rate advances shall bear an interest rate per annum equal to the lesser of (i) the Eurodollar Rate offered by Societe Generale plus the Applicable Margin and (ii) the maximum nonusurious interest rate under applicable law. The Company has paid and will continue to pay certain customary fees for such commitments and advances. At December 31, 1995, the average interest rate on the Credit Agreement was 7.6%. There were $203 million of Revolver Advances, $75 million of Term Advances and approximately $64.1 million of letters of credit outstanding at December 31, 1995. The Revolver Advances are payable on August 11, 1998. Outstanding revolving credit advances may not exceed a borrowing base calculated using the Company's revenue equipment, the Treadco common stock owned by the Company, and eligible receivables. The Term Advances are payable in varying installments commencing in November 1996. The Credit Agreement replaced a $150 million credit agreement with Societe Generale and a receivable purchase agreement with Renaissance Funding Corp. and Societe Generale which allowed ABF to sell to Renaissance Funding Corp. an interest in up to $55 million in a pool of receivables. The Credit Agreement contains various covenants which limit, among other things, indebtedness, distributions, asset sales, restricted payments, investments, loans and advances, as well as requiring the Company to meet certain financial tests. As of December 31, 1995, the Company was not in compliance with certain covenants relating to financial tests. On February 21, 1996, the Company obtained an amendment to the credit agreement which revised the agreement so that the Company is now in compliance with all covenants. Under the amended credit agreement, the Company has pledged substantially all revenue equipment and real property not already pledged under other debt obligations or capital leases. The amendment also revised the maturity schedule of the term loan agreement to revise the loans to be paid off in graduated principal installments through August 1998. The current portion of long-term debt and the five year maturity schedule reflected in the consolidated financial statements have been revised to reflect the amended repayment schedule. The amendment also requires that net proceeds received from certain asset sales be applied against the term loan balance. Also, on February 21, 1996, the Company obtained an additional credit agreement which provides for borrowings of up to $30 million. This agreement bears interest at either an adjusted prime rate plus 2% or a maximum rate as defined in the agreement in the case of prime rate advances, or the Eurodollar rate plus 3% or a maximum rate as defined in the agreement in the care of Eurodollar rate advances. The maturity date of this agreement is March 31, 1997. This agreement contains covenants that are substantially the same as the covenants contained in the primary credit agreement. (2) The Subordinated Debentures were issued in April 1986 by WorldWay. The debentures bear interest at 6.25% per annum, payable semi-annually, on a par value of $50,000,000. The debentures are payable April 15, 2011. The Company may redeem the debentures at a price of 101.25% declining to 100% at April 15, 1996. The Company is required to redeem through a mandatory sinking fund commencing before April 15, in each of the years from 1997 to 2010, an amount in cash sufficient to redeem $2,500,000 of the aggregate principal amount of the debentures issued. (3) The Company entered into a ten-year, $20 million general office term loan agreement dated as of April 25, 1994 with NationsBank of Texas, N.A., as agent, and Societe Generale Southwest Agency. The proceeds from the agreement were used to finance the construction of the Company's new corporate office building which was completed in February 1995. Amounts borrowed under the agreement bear interest at 8.07% quarterly, with installments of $500,000 plus interest due through July 2004. (4) TREADCO is a party to a revolving credit facility with Societe Generale (the "TREADCO Credit Agreement") providing for borrowings of up to the lesser of $20 million or the applicable borrowing base. Borrowings under the TREADCO Credit Agreement are collateralized by accounts receivable and inventory. Borrowings under the agreement bear interest, at TREADCO's option, at 3/4% above the bank's LIBOR rate, or at the higher of the bank's prime rate or the "federal funds rate" plus 1/2%. At December 31, 1995, the interest rate was 7.1%. At December 31, 1995, TREADCO had $10 million outstanding under the Revolving Credit Agreement. The TREADCO credit agreement is payable in September 1998. TREADCO pays a commitment fee of 3/8% on the unused amount under the TREADCO Credit Agreement. The TREADCO Credit Agreement contains various covenants which limit, among other things, dividends, disposition of receivables, indebtedness and investments, as well as requiring TREADCO to meet certain financial tests which have been met. (5) Includes approximately $57,730,000 relative to leases of carrier revenue equipment with an aggregate net book value of approximately $57,451,000 at December 31, 1995. These leases have a weighted average interest rate of approximately 6.9%. Also includes approximately $10,573,000 relative to leases of computer equipment, various terminals, and a data processing building expansion, financed by Industrial Revenue Bond Issues, with a weighted average interest rate of approximately 7.6%. The net book value of the related assets was approximately $27,772,000 at December 31, 1995. Annual maturities on long-term debt, excluding capitalized lease obligations (see Note I), in 1996 through 2000 aggregate approximately $9,646,000; $42,795,000; $250,733,000; $5,035,000; and $5,014,000, respectively. Interest paid, net of interest capitalized, was $21,986,000 in 1995, $6,656,000 in 1994, and $7,226,000 in 1993. Interest capitalized totaled $230,000 and $582,000 in 1995 and 1994, respectively. The Company is a party to an interest rate cap arrangement to reduce the impact of increases in interest rates on its floating-rate long-term debt. The Company will be reimbursed for the difference in interest rates if the LIBOR rate exceeds a fixed rate of 9 3/4% applied to notional amounts, as defined in the contract, ranging from $40 million as of December 31, 1995 to $2.5 million as of October 1999. As of December 31, 1995 and 1994, the LIBOR rate was 5.5% and 6.5%, respectively; therefore, no amounts were due to the Company under this arrangement. In the event that amounts are due under this agreement in the future, the payments to be received would be recognized as a reduction of interest expense (the accrual accounting method). Fees totaling $385,000 were paid in 1994 to enter into this arrangement. These fees are included in other assets and are being amortized to interest expense over the life of the contract. A subsidiary of the Company is party to an interest rate exchange agreement with Citibank, with a notional amount of $3,260,000 as of December 31, 1995, that is used to convert the variable interest rate on bonds to a fixed rate of interest. The terms of the agreement require the Company to pay 11.45% interest and receive the Citibank base rate, calculated on the notional amount. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment of interest expense (the accrual accounting method). The related amount payable to or receivable from counterparties is included in accrued expenses or other receivables. The fair values of the swap agreements are not recognized in the financial statements. The agreement expired in January 1996. NOTE F - ACCRUED EXPENSES
December 31 1995 1994 ($ thousands) Accrued salaries, wages and incentive plans $ 17,232 $ 12,397 Accrued vacation pay 32,905 22,114 Accrued interest 2,972 1,964 Taxes other than income 10,475 4,946 Loss, injury, damage and workers' compensation claims reserves 101,917 35,348 Pension costs 11,628 1,312 Other 11,579 4,076 -------- -------- $ 188,708 $ 82,157 ======== ========
NOTE G - FEDERAL AND STATE INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows:
December 31 1995 1994 ($ thousands) Deferred tax liabilities: Depreciation and basis differences for property, plant and equipment $ 52,834 $ 22,332 Revenue recognition 837 4,610 Basis difference on asset and stock sale 3,190 3,113 Prepaid expenses 3,050 5,019 Equity in earnings of TREADCO 2,087 1,254 -------- -------- Total deferred tax liabilities 61,998 36,328 Deferred tax assets: Accrued expenses 25,619 2,743 Uniform capitalization of inventories 204 162 Postretirement benefits other than pensions 1,151 241 Net operating loss carryovers 13,985 - Alternative minimum tax credit carryovers 4,900 - Other 832 181 -------- -------- Total deferred tax assets 46,691 3,327 Valuation allowance for deferred tax assets (1,173) - -------- -------- Net deferred tax assets 45,518 3,327 -------- -------- Net deferred tax liabilities $ 16,480 $ 33,001 ======== ========
Significant components of the provision for income taxes are as follows:
December 31 1995 1994 1993 ($ thousands) Current (credit): Federal $ (5,200) $ 12,595 $ 18,263 State - 2,148 3,123 -------- -------- -------- Total current (credit) (5,200) 14,743 21,386 Deferred (credit): Federal (6,751) 2,670 (1,786) State (2,244) 519 (322) -------- -------- -------- Total deferred (credit) (8,995) 3,189 (2,108) -------- -------- -------- Total income tax expense (credit) $ (14,195) $ 17,932 $ 19,278 ======== ======== ========
A reconciliation between the effective income tax rate, as computed on income before extraordinary item, and the statutory federal income tax rate is presented in the following table:
Year Ended December 31 1995 1994 1993 ($ thousands) Income tax (benefit) at the statutory federal rate of 35% $ (16,445) $ 12,824 $ 14,088 Federal income tax effects of: State income taxes 788 (933) (981) Amortization of nondeductible goodwill 1,680 1,031 1,058 Other nondeductible expenses 1,407 969 490 Minority interest 454 1,233 1,099 Undistributed earnings of TREADCO 77 210 189 Rate difference for TREADCO (41) (108) (98) Retroactive tax rate change effect on deferred taxes - - 677 Other 130 39 (45) -------- -------- -------- Federal income taxes (benefit) (11,950) 15,265 16,477 State income taxes (benefit) (2,245) 2,667 2,801 -------- -------- -------- $ (14,195) $ 17,932 $ 19,278 ======== ======== ======== Effective tax rate (31.06)% 48.9% 47.9% ======== ======== ========
Income taxes paid were $9,900,000 in 1995, $12,368,000 in 1994, and $20,740,000 in 1993. In August 1993, the Revenue Reconciliation Act of 1993 was enacted, which required a retroactive increase in the corporate federal tax rate. This resulted in an increase in the tax expense and a corresponding decrease in net income of $828,000. As of December 31, 1995, the Company has federal net operating loss and state operating loss carryovers of approximately $32,000,000 and $72,000,000, respectively. The federal net operating loss carryovers expire beginning in 2010. State net operating loss carryovers expire generally in five to seven years. The Company has alternative minimum tax credits of approximately $4,900,000 at December 31, 1995 which carry over indefinitely. For financial reporting purposes, a valuation allowance of approximately $1,173,000 has been established for certain state net operating loss carryovers for which realization is uncertain. NOTE H - SHAREHOLDERS' EQUITY Preferred Stock. On February 19, 1993, the Company completed a public offering of 1,495,000 shares of Preferred Stock at $50 per share. The preferred stock is convertible at the option of the holder into Common Stock at the rate of 2.5397 shares of Common Stock for each share of Preferred Stock. Annual dividends are $2.875 and are cumulative. The Preferred Stock is exchangeable, in whole or in part, at the option of the Company on any dividend payment date beginning February 15, 1995, for the Company's 5 3/4% Convertible Subordinated Debentures due February 15, 2018, at a rate of $50 principal amount of debentures for each share of Preferred Stock. The Preferred Stock is redeemable at any time on or after February 15, 1996, in whole or in part, at the Company's option, initially at a redemption price of $52.0125 per share and thereafter at redemption prices declining to $50 per share on or after February 15, 2003, plus unpaid dividends to the redemption date. Holders of Preferred Stock have no voting rights unless dividends are in arrears six quarters or more, at which time they have the right to elect two directors of the Company until all dividends have been paid. Dividends of $4,298,000 were paid during 1995 and 1994. A portion of the proceeds of the preferred stock offering were used to repay a $50 million term loan. In connection with the payment of the term loan, a loss on extinguishment of debt of $167,000 net of income tax benefit of $103,000 was incurred. Stock Options. On March 13, 1992, the Company adopted a stock option plan which provides 1,000,000 shares of Common Stock for the granting of options to directors and key employees of the Company, which was amended in 1995 to provide an additional 1,000,000 shares. In January 1996, 1,079,000 options were granted. In May 1993, the Company adopted a disinterested directors stockholder plan, which provides 225,000 shares of common stock for the granting of options to directors who administer the Company's stock option plan and are not permitted to receive stock option grants under such plan. These options are exercisable at the date they are granted. This plan was terminated in May 1994. The options previously granted under this plan will continue in effect according to their terms. Option transactions are summarized as follows:
1995 1994 Options outstanding at the beginning of the year 628,900 589,100 Options granted 75,500 54,700 Options canceled - (11,460) Options exercised (15,700) (3,440) ------- ------- Options outstanding as of December 31 688,700 628,900 ======= ======= Option price range as of December 31 $9.50 to $13.88 =============== Options exercisable at December 31, 1995 338,540 =======
Shareholders' Rights Plan. Each issued and outstanding share of Common Stock has associated with it one Common Stock purchase right to purchase a share of Common Stock from the Company at a price of $60.00. Such rights are not exerciseable until certain events occur as detailed in the rights agreement. Due to the extent of management shareholders of a predecessor company continuing their ownership interest in the Company subsequent to a 1988 acquisition, the equity interest of these management shareholders was valued at the predecessor basis rather than at fair market value. Accordingly, the new basis of reporting for the Company's net assets using fair market values at the date of the acquisition was reduced by $15,371,000 to reflect the carryover basis of the management shareholders. NOTE I - LEASES AND COMMITMENTS Rental expense amounted to approximately $84,751,000 in 1995, $72,802,000 in 1994, and $58,369,000 in 1993. These amounts include $27,297,000, $31,686,000 and $17,843,000, respectively, for month-to-month rentals of revenue equipment. The future minimum rental commitments, net of future minimum rentals to be received under noncancellable subleases, as of December 31, 1995 for all noncancellable operating leases are as follows:
Terminals Equipment and Retread and Period Total Plants Other ($ thousands) 1996 $ 35,959 $ 11,672 $ 24,287 1997 27,851 7,965 19,886 1998 17,190 5,479 11,711 1999 9,634 3,607 6,027 2000 6,202 2,040 4,162 Thereafter 10,430 7,890 2,540 -------- -------- -------- $ 107,266 $ 38,653 $ 68,613 ======== ======== ========
Certain of the leases are renewable for substantially the same rentals for varying periods. Future minimum rentals to be received under noncancellable subleases totaled approximately $3,446,000 at December 31, 1995. The future minimum payments under capitalized leases at December 31, 1995, consisted of the following ($ thousands): 1996 $ 21,188 1997 13,509 1998 15,355 1999 12,788 2000 8,903 Thereafter 9,402 -------- Total minimum lease payments 81,145 Amounts representing interest 12,842 -------- Present value of net minimum lease included in long-term debt - Note E $ 68,303 ========
Assets held under capitalized leases are included in property, plant and equipment as follows:
December 31 1995 1994 ($ thousands) Revenue equipment $ 80,232 $ 80,318 Land and structures 30,138 4,726 -------- -------- 110,370 85,044 Less accumulated amortization 25,147 32,291 -------- -------- $ 85,223 $ 52,753 ======== ========
The revenue equipment leases have remaining terms from one to seven years and contain renewal or fixed price purchase options. The lease agreements require the lessee to pay property taxes, maintenance and operating expenses. Lease amortization is included in depreciation expense. Capital lease obligations of $25,118,000, $15,793,000, and $17,885,000 were incurred for the years ended December 31, 1995, 1994 and 1993, respectively. NOTE J - LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS AND OTHER EVENTS In August 1990, a lawsuit was filed in the United States District Court for the Southern District of New York, by Riverside Holdings, Inc., Riverside Furniture Corporation ("Riverside") and MR Realty Associates, L.P. ("Plaintiffs") against the Company and a subsidiary. Plaintiffs have asserted state law, Employee Retirement Income Security Act of 1974 and securities claims against the Company in connection with the Company's sale of Riverside in April 1989. Plaintiffs are seeking approximately $4 million in actual damages and $10 million in punitive damages. The Company is vigorously contesting the lawsuit. After consultation with legal counsel, the Company has concluded that resolution of the foregoing lawsuit is not expected to have a material adverse effect on the Company's financial condition. In November, 1995 Daily Transport Canada, Inc. ("Daily"), a Toronto-based LTL carrier, and related companies served a Request for Arbitration against ABF, as successor to Carolina Freight Carriers Corporation ("CFCC"), for its lost profits claimed to be in the amount of $15,000,000 resulting from the alleged breach of a contract between CFCC and Daily. Daily claims that ABF breached an agreement for Daily to handle, through the year 2003, all CFCC freight movements in Ontario and Quebec, Canada. ABF has filed a federal court action in North Carolina seeking to stay arbitration of the alleged agreement on the grounds that the agreement is not valid and contesting Daily's calculation of damages. ABF is vigorously defending the arbitration. Based on information currently available, the Company does not believe that the outcome of this matter will have a material adverse effect on the Company's financial condition or results of operations Various other legal actions, the majority of which arise in the normal course of business, are pending. None of these other legal actions is expected to have a material adverse effect on the Company's financial condition. The Company maintains liability insurance against risks arising out of the normal course of its business, subject to certain self-insured retention limits. ABF stores some fuel for its tractors and trucks in approximately 188 underground tanks located in 34 states. Maintenance of such tanks is regulated at the federal and, in some cases, state levels. ABF believes that it is in substantial compliance with all such regulations. ABF is not aware of any leaks from such tanks that could reasonably be expected to have a material adverse effect on the Company. Environmental regulations have been adopted by the United State Environmental Protection Agency ("EPA") that will require ABF to upgrade its underground tank systems by December 1998. ABF currently estimates that such upgrades, which are currently in process, will not have a material adverse effect on the Company. The Company has received notices from the EPA and others that it has been identified as a potentially responsible party ("PRP") under the Comprehensive Environmental Response Compensation and Liability Act or other federal or state environmental statutes at several hazardous waste sites. After investigating the Company's or its subsidiaries' involvement in waste disposal or waste generation at such sites, the Company has either agreed to de minimis settlements (aggregating approximately $250,000 over the last five years), or believes its obligations with respect to such sites would involve immaterial monetary liability, although there can be no assurances in this regard. As of December 31, 1995, the Company has accrued approximately $1,700,000 to provide for environmental-related liabilities. The Company's environmental accrual is based on management's best estimate of the actual liability. The Company's estimate is founded on management's experience in dealing with similar environmental matters and on actual testing performed at some sites. Management believes that the accrual is adequate to cover environmental liabilities based on the present environmental regulations. In August 1995, Bandag Incorporated ("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 uses the Bandag process exclusively, Bandag will not renew any of TREADCO's franchise agreements when they expire. In October 1995, TREADCO announced it had reached an agreement for 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 the eight production facilities whose Bandag franchises expire in 1996 and any other TREADCO facilities which cease being a Bandag franchised location. Also in October TREADCO sent Bandag notice of termination of certain of its franchise agreements. Under the franchise agreements, Bandag has the right to purchase retread equipment supplied to TREADCO by Bandag at its fair market value at locations that cease being a Bandag franchise, and Bandag has exercised this option at the locations where franchises were terminated. TREADCO is installing equipment provided by Oliver immediately upon the removal of the equipment supplied by Bandag. The Company plans to have all locations converted to the Oliver process by the end of the third quarter of 1996. Management of TREADCO does not believe that the carrying value of the Bandag supplied equipment at December 31, 1995 exceeds the fair market value of the equipment. Also, TREADCO has accrued the cost of equipment removed at December 31, 1995, estimated at $840,000. NOTE K - EMPLOYEE BENEFIT PLANS The Company and its subsidiaries have noncontributory defined benefit pension plans covering substantially all noncontractual employees. Benefits are based on years of service and employee compensation. Contributions are made based upon at least the minimum amounts required to be funded under provisions of the Employee Retirement Income Security Act of 1974, with the maximum amounts not to exceed the maximum amount deductible under the Internal Revenue Code. The plans' assets are held in bank-administered trust funds and are primarily invested in government and equity securities. Additionally, the Company participates in several multiemployer plans, which provide defined benefits to the Company's union employees. In the event of insolvency or reorganization, plan terminations or withdrawal by the Company from the multiemployer plans, the Company may be liable for a portion of the plan's unfunded vested benefits, the amount of which, if any, has not been determined. The merger of Carolina Freight into ABF was not considered a withdrawal. A summary of the components of net periodic pension costs for the defined benefit plans for the periods indicated and the total contributions charged to pension expense for the multiemployer plans follows:
Year Ended December 31 1995 1994 1993 ($ thousands) Defined Benefit Plans Service cost - benefits earned during the year $ 5,075 $ 4,492 $ 4,225 Interest cost on projected benefit obligations 8,095 5,249 5,675 Actual return on plan assets (gain) loss (25,632) 220 (6,656) Net amortization and deferral 17,906 (5,379) 1,542 -------- -------- -------- Net pension cost of defined benefit plans 5,444 4,582 4,786 Multiemployer Plans 51,951 40,833 37,846 -------- -------- -------- Total pension expense $ 57,395 $ 45,415 $ 42,632 ======== ======== ========
Assumptions used in determining net periodic pension cost for the defined benefit plans were:
Year Ended December 31 1995 1994 1993 Weighted average discount rate 7.80% to 8.73% 7.24% 8.49% Annual compensation increases 3.00% 3.00% 5.00% Expected long-term rates of return on assets 8.00% to 9.00% 9.00% 9.25%
The following sets forth the funded status and amounts recognized in the consolidated balance sheets for the Company's defined benefit pension plans at December 31:
1995 1994 Plans for Which Plans for Which Assets Exceed Accumulated Accumulated Benefits Benefits Exceed Assets ($ thousands) Actuarial present value of benefit obligations: Vested benefit obligation $(104,914) $ (21,058) $(50,826) ========= ========= ======== Accumulated benefit obligation $(113,604) $ (22,211) $(57,630) ========= ========= ======== Projected benefit obligation $(138,787) $ (23,091) $(72,469) Plan assets at fair value 150,182 17,107 67,403 --------- --------- -------- Projected benefit obligation (in excess of) or less than plan assets 11,395 (5,984) (5,066) Unrecognized net loss 13,852 2,911 9,159 Prior service benefit not yet recognized in net periodic pension cost 672 37 206 Unrecognized net asset at January 1, 1987, net of amortization (63) (1) (68) Adjustment required to recognize minimum liability - (2,067) (212) --------- --------- -------- Net pension asset (liability) $ 25,856 $ (5,104) $ 4,019 ========= ========= ========
The net pension asset recorded as of December 31, 1995 reflects the impact of a curtailment gain of approximately $15.0 million which was recorded as part of the purchase allocation in conjunction with the WorldWay acquisition. At December 31, 1995, the net pension asset is reflected in the accompanying financial statements as an accrued expense of $11,628,000 and a noncurrent asset of $32,380,000 included in other assets. At December 31, 1994, the net pension asset is reflected in the accompanying financial statements as an accrued expense of $1,312,000 and a noncurrent asset of $5,331,000 included in other assets. The Company recognized an additional minimum liability of $1,041,000 as a charge to equity due to one plan's accumulated benefit obligation exceeding the fair value of plan assets. The following assumptions were used in determining the pension obligation:
December 31 1995 1994 Weighted average discount rate 7.10% 8.73% Annual compensation increases 3.00% 3.00% Expected long-term rates of return on assets 7.50% to 9.00% 9.00%
The Company has deferred compensation agreements with certain executives for which liabilities aggregating $1,479,000 and $1,309,000 as of December 31, 1995 and 1994, respectively, have been recorded. The Company also has a supplemental benefit plan for the purpose of supplementing benefits under the Company's retirement plans. The plan will pay sums in addition to amounts payable under the retirement plans to eligible participants. Participation in the plan is limited to employees of the Company who are participants in the Company's retirement plans and who are also either participants in the Company's executive incentive plans or are designated as participants in the plan by the Company's Board of Directors. As of December 31, 1995, the Company has a liability of $2,349,000 for future costs under this plan with $1,534,000 reflected in the accompanying consolidated financial statements as an accrued expense and $815,000 included in other liabilities. At December 31, 1994, the Company had a liability of $2,005,000 for future costs under this plan. An additional benefit plan provides certain death and retirement benefits for certain officers and directors of WorldWay and its former subsidiaries. The Company has a liability of $3,711,000 for future costs under this plan reflected as other liabilities in the accompanying consolidated financial statements. Worldway has insurance policies on the participant's lives in amounts which are generally sufficient to fund benefits under the plan. The Company has various defined contribution plans which cover substantially all of its employees. Prior to October, 1995, participation was limited to those employees not covered by a collective bargaining agreement. In October, 1995, the Company amended its plans to allow participation by collective bargaining employees. The plans permit participants to defer a portion of their salary up to a maximum ranging by plan from 8% to 15% as provided in Section 401(k) of the Internal Revenue Code. The Company matches the participant contributions up to a specified limit ranging from 1% to 4% in 1995. The matching contributions may be made in cash or Company stock. The plans also allow for discretionary Company contributions determined annually. The Company's expense for the defined contribution plans totaled $1,412,000 for 1995, $955,000 for 1994, and $875,000 for 1993. TREADCO has an employee stock ownership plan (the "TREADCO ESOP") and a related trust (the "TREADCO Trust") covering substantially all employees of TREADCO. The cost of the TREADCO ESOP is borne by TREADCO through annual contributions to the TREADCO Trust in amounts determined by TREADCO's Board of Directors. Contributions may be paid in cash or in shares of TREADCO Common Stock. Participants become 100% vested after five years of service from January 1, 1990. Distribution of balances normally would be made in TREADCO's Common Stock. Charges to operations for contributions to the TREADCO ESOP totaled $250,000 for 1995, 1994, and 1993. The stock contributions to the ESOP and investment plans do not have a material effect on earnings per share. The Company sponsors plans that provide postretirement medical benefits, life insurance and accident and vision care to full-time officers of the Company. The plans are noncontributory, with the Company paying up to 80% of covered charges incurred by participants of the plan. The following table represents the amounts recognized in the Company's consolidated balance sheets:
December 31 1995 1994 Accumulated postretirement benefit obligation: Retirees $ (2,926) $ (1,268) Fully eligible active plan participants (417) (400) Other active plan participants (1,419) (1,036) -------- -------- (4,762) (2,704) Unrecognized net gain (83) (315) Unrecognized transition obligation 2,287 2,421 -------- -------- Accrued postretirement benefit cost $ (2,558) $ (598) ======== ========
Net periodic postretirement benefit cost includes the following components:
1995 1994 1993 Service cost $ 51 $ 59 $ 53 Interest cost 282 212 223 Amortization of transition obligation over 20 years 135 135 134 -------- -------- -------- Net periodic postretirement benefit cost $ 468 $ 406 $ 410 ======== ======== ========
The weighted-average annual assumed rate of increase in the per capita cost of covered benefits (in health care cost trend) is 9.5 to 11.0% for 1996 (10.5% for 1995) and is assumed to decrease gradually to 4.5% in years 2007 and later. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by 1% in each year would increase the accumulated postretirement benefit obligation as of December 31, 1995, by $543,000 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1995 by $43,000. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.10% at December 31, 1995 and 8.73% at December 31, 1994. Additionally, the Company's union employees are provided postretirement health care benefits through defined benefit multiemployer plans. The cost of such benefits cannot be readily separated between retirees and active employees. The aggregate contribution to the multiemployer health and welfare benefit plans totaled approximately $63,500,000, $48,300,000, and $45,400,000 for the years ended December 31, 1995, 1994, and 1993, respectively. In October 1995, the Company adopted a performance award program, subject to shareholder approval. Upon award, the units will be valued equal to the closing price per share of the Company's common stock on the date awarded. The vesting provisions and the return on equity target will be set upon award. NOTE L - OPERATING EXPENSES AND COSTS
Year Ended December 31 1995 1994 1993 ($ thousands) LESS-THAN-TRUCKLOAD MOTOR CARRIER OPERATIONS Salaries and wages $ 779,453 $ 613,187 $ 594,213 Supplies and expenses 120,439 96,210 99,146 Operating taxes and licenses 45,906 35,928 35,152 Insurance 24,122 18,237 16,835 Communications and utilities 26,776 22,639 23,680 Depreciation and amortization 37,822 24,302 25,714 Rents and purchased transportation 76,823 67,550 53,192 Other 8,219 4,298 3,779 ---------- ---------- --------- 1,119,560 882,351 851,711 TRUCKLOAD MOTOR CARRIER OPERATIONS Salaries and wages 9,746 - - Supplies and expenses 4,530 - - Operating taxes and licenses 2,571 - - Insurance 980 - - Communications and utilities 420 - - Depreciation and amortization 1,249 - - Rents and purchased transportation 5,348 - - Other 108 - - ---------- --------- --------- 24,952 - - FORWARDING OPERATIONS Cost of services 117,455 26,817 - Selling, administrative and general 18,711 3,542 - ---------- ---------- ---------- 136,166 30,359 - LOGISTICS OPERATIONS Cost of services 30,588 7,100 2,915 Selling, administrative, and general 3,711 1,388 821 ---------- ---------- ---------- 34,299 8,488 3,736 TIRE OPERATIONS Cost of sales 108,686 100,909 79,718 Selling, administrative and general 31,642 26,206 21,522 ---------- ---------- --------- 140,328 127,115 101,240 SERVICE AND OTHER 5,433 1,993 1,862 ---------- ---------- --------- $1,460,738 $1,050,306 $ 958,549 ========== ========== ==========
NOTE M - BUSINESS SEGMENT DATA The Company operates in five defined business segments: 1) LTL operations, which includes ABF and G.I. Trucking; 2) Forwarding operations, including the Clipper Group and CaroTrans; 3) Truckload operations, which includes Cardinal; 4) Logistics, which includes the Company's three logistics subsidiaries, and 5) Tire operations, which includes the operation of TREADCO. The segment information for prior periods has been restated to reflect the Company's current reported business segments. Intersegment sales are not significant. Operating profit is total revenue less operating expenses, excluding interest. Identifiable assets by business segment include both assets directly identified with those operations and an allocable share of jointly used assets. General corporate assets consist primarily of cash and other investments. The following information reflects selected business segment data (information relative to revenues is reflected in the consolidated statements of operations):
Year Ended December 31 1995 1994 1993 ($ thousands) OPERATING PROFIT (LOSS) Less than truckload motor carrier operations $ (32,915) $ 35,622 $ 41,645 Truckload motor carrier operations 3,031 - - Forwarding operations 2,821 695 - Logistics operations (2,611) (968) (834) Tire operations 4,424 11,079 10,186 Other (3,393) 719 (359) --------- -------- -------- TOTAL OPERATING PROFIT (LOSS) (28,644) 47,147 50,638 Interest expense 17,046 6,985 7,248 Minority interest 1,297 3,523 3,140 -------- -------- -------- INCOME (LOSS)BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS $ (46,987) $ 36,639 $ 40,250 ======== ======== ======== IDENTIFIABLE ASSETS Less than truckload motor carrier operations $ 675,412 $ 374,128 $ 331,507 Truckload motor carrier operations 31,365 - - Forwarding operations 75,754 73,816 - Logistics operations 25,062 7,120 1,313 Tire operations 94,658 89,231 80,377 Other 36,014 5,487 8,695 -------- -------- -------- 938,265 549,782 421,892 General corporate assets 47,572 19,263 25,841 -------- -------- -------- TOTAL ASSETS $ 985,837 $ 569,045 $ 447,733 ======== ======== ======== DEPRECIATION AND AMORTIZATION EXPENSE Less than truckload motor carrier operations 40,045 $ 26,630 $ 28,043 Truckload motor carrier 1,249 - - Forwarding operations 2,779 609 - Logistics operations 2,598 501 195 Tire operations 4,082 3,444 2,614 Other 2,053 931 797 -------- -------- -------- $ 52,806 $ 32,115 $ 31,649 ======== ======== ======== CAPITAL EXPENDITURES Less than truckload motor carrier operations $ 61,250 $ 58,110 $ 26,530 Truckload motor carrier operations 2,127 - - Forwarding operations 426 19 - Logistics operations 5,532 116 491 Tire operations 5,429 5,684 6,137 Other 44 169 1 -------- -------- -------- $ 74,808 $ 64,098 $ 33,159 ======== ======== ========
NOTE N - FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and Cash Equivalents. The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. Long- and Short-term Debt. The carrying amounts of the Company's borrowings under its revolving credit agreements and the receivables purchase agreement approximate their fair values, since the interest rate under these agreements is variable. Also, the carrying amount of long-term debt was estimated to approximate their fair values. The carrying amounts and fair value of the Company's financial instruments at December 31, 1995 are as follows:
Carrying Fair Amount Value ($ thousands) Cash and cash equivalents $ 16,945 $ 16,945 Short-term debt 6,719 6,776 Long-term debt 350,756 348,560
NOTE O - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The tables below present unaudited quarterly financial information for 1995 and 1994:
1995 Three Months Ended March 31 June 30 September 30 December 31 ($ thousands, except per share amount) Operating revenues $311,207 $ 312,094 $398,551 $ 415,427 Operating expenses and costs 297,853 304,890 412,691 445,304 -------- -------- --------- -------- Operating income (loss) 13,354 7,204 (14,140) (29,877) Other expense - net 3,596 2,919 6,632 10,381 Income taxes (credit) 4,616 2,602 (7,643) ( 13,770) -------- -------- -------- -------- Net income (loss) $ 5,142 $ 1,683 $(13,129) $ (26,488) ======== ======== ========= ======== Net income (loss) per share $ .21 $ .03 $ (.73) $ (1.41) ======== ======== ========= ======== Average shares out- standing - Note H 19,566,404 19,515,132 19,549,160 19,529,408 ========== ========== ========== ==========
1994 Three Months Ended March 31 June 30 September 30 December 31 ($ thousands, except per share amount) Operating revenues $264,981 $ 210,760 $294,251 $ 328,429 Operating expenses and costs 252,363 212,331 274,753 310,859 -------- -------- --------- -------- Operating income (loss) 12,618 (1,571) 19,498 17,570 Other expense - net 2,382 2,483 2,767 3,844 Income taxes (credit) 4,661 (646) 7,530 6,387 -------- -------- -------- -------- Net income (loss) $ 5,575 $ (3,408) $ 9,201 $ 7,339 ======== ======== ======== ======== Net income (loss) per share $ .23 $ (.23) $ .42 $ .32 ======== ======== ======== ======== Average shares out- standing - Note H 19,339,389 19,200,077 19,306,326 19,491,560 ========== ========== ========== ==========
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES ARKANSAS BEST CORPORATION Column A Column B Column C Column D Column E Column F Additions (1) (2) Balance at Charged to Charged to beginning costs and other accounts Deductions - Balance at Description of period expenses describe describe end of period Year Ended December 31, 1995: Deducted from asset accounts: Allowance for doubtful accounts receivable $ 2,825 $ 4,185 $ 1,414(A) $ 9,838(B) $ 19,403 20,817(C) ============ ============ =========== ============= =========== Year Ended December 31, 1994: Deducted from asset accounts: Allowance for doubtful accounts receivable $ 2,200 $ 2,935 $ 962(A) $ 3,272(B) $ 2,825 ============ ============ =========== ============ ============ Year Ended December 31, 1993: Deducted from asset accounts: Allowance for doubtful accounts receivable $ 1,850 $ 1,902 $ 909(A) $ 2,461(B) $ 2,200 ============ ============ =========== ============ ============ Note A - Recoveries of amounts previously written off. Note B - Uncollectible accounts written off. Note C - The allowance for doubtful accounts of WorldWay as of date of acquisition.
FORM 10-K -- ITEM 14(c) EXHIBIT INDEX ARKANSAS BEST CORPORATION The following exhibits are filed with this report or are incorporated by reference to previously filed material. Exhibit No. 3.1 Restated Certificate of Incorporation of the Company (previously filed as Exhibit 3.1 to the Company's Registration Statement on Form S-1 under the Securities Act of 1933 filed with the Commission on March 17, 1992, Commission File No. 33-46483, and incorporated herein by reference). 3.2 Amended and Restated Bylaws of the Company (previously filed as Exhibit 3.2 to the Company's Registration Statement on Form S-1 under the Securities Act of 1933 filed with the Commission on March 17, 1992, Commission File No. 33-46483, and incorporated herein by reference). 4.1 Form of Indenture, between the Company and Harris Trust and Savings Bank, with respect to $2.875 Series A Cumulative Convertible Exchangeable Preferred Stock (previously filed as Exhibit 4.4 to Amendment No. 2 to the Company's Registration Statement on Form S-1 under the Securities Act of 1933 filed with the Commission on January 26, 1993, Commission File No. 33-56184, and incorporated herein by reference). 4.2 Indenture between Carolina Freight Corporation and First Union National Bank, Trustee with respect to 6 1/4% Convertible Subordinated Debentures Due 2011 (previously filed as Exhibit 4-A to the Carolina Freight Corporation's Registration Statement on Form S-3 filed with the Commission on April 11, 1986, Commission File No. 33-4742, and incorporated herein by reference). 10.1 Stock Option Plan (previously filed as Exhibit 10.3 to the Company's Registration Statement on Form S-1 under the Securities Act of 1933 filed with the Commission on March 17, 1992, Commission File No. 33-46483, and incorporated herein by reference). 10.2 The Company's Supplemental Benefit Plan (previously filed as Exhibit 10.6 to the Company's Registration Statement on Form S-1 under the Securities Act of 1933 filed with the Commission on March 17, 1992, Commission File No. 33-46483, and incorporated herein by reference). 10.3 $346,971,321 Amended and Restated Credit Agreement dated as of February 21, 1996 among the Company as the Borrower, Societe Generale, Southwest Agency as Managing Agent and Administrative Agent, NationsBank of Texas, N.A. as Documentation Agent and the Banks named herein as the Banks (previously filed as Exhibit 99.1 to the Company's Current Report on Form 8-K, filed with the Commission on February 28, 1996, Commission File No. 0-19969, and incorporated herein by reference). 10.4 $30,000,000 Credit Agreement dated as of February 21, 1996 among Arkansas Best Corporation as the Borrower, Societe Generale, Southwest Agency as Agent, and the Banks named herein as the Banks (previously filed as Exhibit 99.2 to the Company's Current Report on Form 8-K, filed with the Commission on February 28, 1996, Commission File No. 0-19969, and incorporated herein by reference). 10.5 National Master Freight Agreement with the International Brotherhood of Teamsters dated as of April 1, 1994. 10.6 Arkansas Best Corporation Performance Award Unit Program effective January 1, 1996 11 Statement Re: Computation of Earnings per Share 21 List of Subsidiary Corporations 23 Consent of Independent Auditors 27 Financial Data Schedule EX-10 2 NATIONAL MASTER FREIGHT AGREEMENT Covering OVER-THE-ROAD and LOCAL CARTAGE EMPLOYEES OF PRIVATE, COMMON, CONTRACT AND LOCAL CARTAGE CARRIERS For the Period of APRIL 1, 1994 through MARCH 31, 1998 TABLE OF CONTENTS ARTICLE 1. PARTIES TO THE AGREEMENT 2 Section 1. Employers Covered 2 Section 2. Unions Covered 2 Section 3. Transfer of Company Title or Interest 2 ARTICLE 2. SCOPE OF AGREEMENT 4 Section 1. Master Agreement 4 Section 2. Supplements to Master Agreement 4 Section 3. Non-covered Units 5 Card Check 5 Additions to Operations: Over-The-Road and Local Cartage Supplemental Agreements 6 Section 4. Single Bargaining Unit 6 Section 5. Riders 7 ARTICLE 3. RECOGNITION, UNION SHOP AND CHECKOFF 7 Section 1. Recognition 7 Union Shop 8 Hiring 9 State Law 9 Agency Shop 9 Savings Clause 10 Employer Recommendation 10 Future Law 11 No Violation of Law 11 Section 2. Probationary and Casual Employees 11 (a) Probationary Employees 11 (b) Casual Employees 12 Section 3. Checkoff 15 Section 4. Work Assignments 17 Section 5 17 Section 6. Electronic Funds Transfer 17 ARTICLE 4. STEWARDS 17 ARTICLE 5 19 Section 1. Seniority Rights 19 Section 2. Mergers of Companies-General 19 Active Seniority List 20 i Layoff Seniority List 20 Temporary Authority 21 Purchase of Rights 21 Exclusive Cartage Operations 22 Committee Authority 23 Section 3. Intent of Parties 23 Section 4. Equipment Purchases 23 Highest Rates Prevail 23 Cutting Seniority Board 24 Posting Seniority List 24 Section 5. Work Opportunity 24 Section 6. Dock Operations 25 ARTICLE 6 26 Section 1. Maintenance of Standards 26 Local Standards 27 Individual Employer Standards 27 General 28 Section 2. Extra Contract Agreements 28 Section 3. Workweek Reduction 29 Section 4. New Equipment 29 ARTICLE 7. LOCAL AND AREA GRIEVANCE MACHINERY 30 Section 1 30 Section 2. Grievant's Bill of Rights 30 Section 3 32 Section 4 32 ARTICLE 8. NATIONAL GRIEVANCE PROCEDURE 32 Section 1 32 Section 2 34 Section 3 Work Stoppages 36 Section 4 37 Section 5 41 Section 6. Change of Operations 42 Change of Operations Committee 42 Change of Operations Committee Procedure 43 Moving Expenses 44 Change of Operations Seniority 45 Closing, Partial Closing of Terminals-Transfer of Work.. 45 Closing of Terminals-Elimination of Work 47 ii Layoff 48 Opening of Terminals 48 Definition of Terms 49 Qualifications 49 Intent of Parties 49 Section 7 50 ARTICLE 9. PROTECTION OF RIGHTS 50 Section 1. Picket Lines: Sympathetic Action 50 Section 2. Struck Goods 50 Section 3 51 Section 4 51 ARTICLE 10. LOSS OR DAMAGE 52 Section 1 52 Section 2 52 ARTICLE 11. BONDS AND INSURANCE 53 ARTICLE 12. UNIFORMS 53 ARTICLE 13. PASSENGERS 54 ARTICLE 14. COMPENSATION CLAIMS 54 Section 1. Compensation Claims 54 Section 2. Modified Work 55 Section 3 60 ARTICLE 15. MILITARY CLAUSE 60 ARTICLE 16. EQUIPMENT AND SAFETY 61 Preamble 61 Section 1. Safe Equipment 61 Section 2. Dangerous Conditions 62 Section 3. Accident Reports 62 Section 4. Equipment Reports 62 Section 5. Qualifications on Equipment 63 Section 6. Equipment Requirements 63 Section 7. National Safety and Health Committee 69 Section 8. Hazardous Materials Program 69 Section 9. Union Liability 70 Section 10. Government Required Safety & Health Reports 70 iii ARTICLE 17. PAY PERIOD 70 ARTICLE 18. OTHER SERVICES 71 ARTICLE 19. POSTING 71 Section 1. Posting of Agreement 71 Section 2. Union Bulletin Boards 71 ARTICLE 20. UNION AND EMPLOYER COOPERATION 71 Section 1. Fair Days Work for Fair Days Pay 71 Section 2. Joint Industry Development Committee 72 Section 3 73 ARTICLE 21. UNION ACTIVITIES 74 ARTICLE 22. OWNER-OPERATORS 74 ARTICLE 23. SEPARATION OF EMPLOYMENT 84 ARTICLE 24. INSPECTION PRIVILEGES AND EMPLOYER IDENTIFICATION 85 ARTICLE 25. SEPARABILITY AND SAVINGS CLAUSE 85 ARTICLE 26. TIME SHEETS, TIME CLOCKS, AND VIDEO CAMERAS 86 Section 1. Time Sheets and Time Clocks 86 Section 2. Use of Video Cameras for Discipline and Discharge 86 ARTICLE 27. EMERGENCY REOPENING 87 ARTICLE 28. SYMPATHETIC ACTION 87 ARTICLE 29. SUBSTITUTE SERVICE 88 Section 1. Piggyback Operations 88 Section 2. Maintenance of Records 89 Section 3. Intermodal Service 90 Section 4. National Intermodal Committee 93 ARTICLE 30. JURISDICTIONAL DISPUTES 94 ARTICLE 31. MULTI-EMPLOYER, MULTI-UNION UNIT 94 iv ARTICLE 32. SUBCONTRACTING 95 Section 1. Work Preservation 95 Section 2. Diversion of Work - Parent or Subsidiary Companies 95 Section 3. Subcontracting 95 Section 4. Expansion of Operations 96 Section 5 98 Section 6 98 ARTICLE 33. COST-OF-LIVING (COLA) 98 ARTICLE 34. GARNISHMENTS 100 ARTICLE 35 100 Section 1. Employee's Bail 100 Section 2. Suspension or Revocation of License 100 Section 3. Alcohol and Drug Use 101 PREAMBLE 101 NMFA UNIFORM TESTING PROCEDURE 102 Section 4 115 ARTICLE 36. NEW ENTRY (NEW HIRE) RATES 116 Section 1. New Entry Rates 116 Section 2. New Entry Rates (Effective October 1, 1994) 116 ARTICLE 37. NON-DISCRIMINATION 117 ARTICLE 38 117 Section 1. Sick Leave 117 Section 2. Jury Duty 118 Section 3. Family and Medical Leave Act 118 ARTICLE 39. DURATION 120 APPENDIX A - WAGE REDUCTION-JOB SECURITY PLAN GUIDELINES 124 v NATIONAL MASTER FREIGHT AGREEMENT COVERING OVER-THE-ROAD AND LOCAL CARTAGE EMPLOYEES OF PRIVATE, COMMON, CONTRACT AND LOCAL CARTAGE CARRIERS : for the period of April 1, 1994 through March 31, 1998 covering: operations in, between and over all of the states, territories and possessions of the United States, and operations into and out of all contiguous territory. The _____________________________________ (Company or Association) hereinafter referred to as the "EMPLOYER" and the TEAMSTERS NATIONAL FREIGHT INDUSTRY NEGOTIATING COMMITTEE representing Local Unions affiliated with the INTERNATIONAL BROTHERHOOD OF TEAMSTERS, and Local Union No. which Local Union is an affiliate of the INTERNATIONAL BROTHERHOOD OF TEAMSTERS, agree to be bound by the terms and conditions of this Agreement. 1 ARTICLE 1. PARTIES TO THE AGREEMENT Section 1. Employers Covered The Employer consists of Associations, members of Associations who have given authorization to the Associations to represent them in the negotiation and/or execution of this Agreement and Supplemental Agreements, and individual Employers who become signator to this Agreement and Supplemental Agreements as hereinafter set forth. The signator Associations enter into this Agreement and Supplemental Agreements as hereinafter set forth. The signator Associations represent that they are duly authorized to enter into this Agreement and Supplemental Agreements on behalf of their members under and as limited by their authorizations as submitted prior to negotiations. Section 2. Unions Covered The Union consists of any Local Union which may become a party to this Agreement and any Supplemental Agreement as hereinafter set forth. Such Local Unions are hereinafter designated as "Local Union." In addition to such Local Unions, the Teamsters National Freight Industry Negotiating Committee representing Local Unions affiliated with the International Brotherhood of Teamsters, hereinafter referred to as the "National Union Committee," is also a party to this Agreement and the agreements supplemental hereto. Section 3. Transfer of Company Title or Interest The Employer's obligations under this Agreement including Supplements shall be binding upon its successors, administrators, executors and assigns. The Employer agrees that the obligations of this Agreement shall be included in the agreement of sale, transfer or assignment of the business. In the event an entire active or inactive operation, or a portion thereof, or rights only, are sold, leased, transferred or taken over by sale, transfer, lease, assignment, receivership or bankruptcy proceedings, such operation or use of rights shall continue to be subject to the terms and conditions of this Agreement for the life thereof. Transactions covered by this 2 Article 1, Section 3 provision include stock sales or exchanges, mergers, consolidations, spin- offs or any other method by which a business is transferred. It is understood by this Section that the signator Employer shall not sell, lease or transfer such run or runs or rights to a third party to evade this Agreement. In the event the Employer fails to require the purchaser, transferee, or lessee to assume the obligations of this Agreement, as set forth above, the Employer (including partners thereof) shall be liable to the Local Union (s) and to the employees covered for all damages sustained as a result of such failure to require the assumption of the terms of this Agreement until its expiration date, but shall not be liable after the purchaser, the transferee or lessee has agreed to assume the obligations of this Agreement. The obligations set forth above shall not apply in the event of the sale, lease or transfer of a portion of the rights comprising less than all of the signator Employer's rights to a nonsignator company unless the purpose is to evade this Agreement. Corporate reorganizations by a signatory Employer, occurring during the term of this Agreement, shall not relieve the signatory Employer or the re-organized Employer of the obligations of this Agreement during its term. When a signator to this Agreement purchases rights from another signator, the provisions of Article 5 shall apply. The applicable layoff provisions of this Agreement shall apply. The Employer shall give notice of the existence of this Agreement to any purchaser, transferee, lessee, assignee, or other entity involved in the sale, merger, consolidation, acquisition, transfer, spin-off, lease or other transaction by which the operation covered by this Agreement or any part thereof, including rights only, may be transferred. Such notice shall be in writing, with a copy to the Local Union, at the time the seller, transferor or lessor makes the purchase and sale negotiation known to the public or executes a contract or transaction as herein described, whichever first occurs. The Local Union shall also be advised of the exact nature of the transaction, not including financial details. The term rights shall include routes and runs. 3 Article 2, Section 1 ARTICLE 2. SCOPE OF AGREEMENT Section 1. Master Agreement The execution of this National Master Freight Agreement on the part of the Employer shall apply to all operations of the Employer which are covered by this Agreement and shall have application to the work performed within the classifications defined and set forth in the Agreements supplemental hereto. Section 2. Supplements to Master Agreement (a) There are several segments of the trucking industry covered by this Agreement and for this reason Supplemental Agreements are provided for each of the specific types of work performed by the various classifications of employees controlled by this Master Agreement. All such Supplemental Agreements are subject to and controlled by the terms of this Master Agreement and are sometimes referred to herein as "Supplemental Agreements." All such Supplemental Agreements are to be clearly limited to the specific classifications of work as enumerated or described in each individual Supplement. (b) The parties shall establish four (4) Conference Area Iron and Steel and/or Truckload Supplements to the National Master Freight Agreement. The Employer and the Local Union, parties to this Agreement, may enter into an agreement whereby road drivers working under an Over-The-Road Supplemental Agreement have the opportunity to perform work covered by and subject to the above Conference Area Supplements, under conditions agreed upon. Such Supplement shall be submitted to the appropriate Conference Joint Area Committee. (c) The jurisdiction covered by the National Master Freight Agreement and its various Supplements thereto includes, without limitation, stuffing, stripping, loading and discharging of cargo or containers. This does not include loading or discharging of cargo 4 Article 2, Section 2 or containers to or from vessels except in those instances where such work is presently being performed. Existing practices, rules and understandings, between the Employer and the Union, with respect to this work shall continue except to the extent modified by mutual agreement. Section 3. Non-covered Units This Agreement shall not be applicable to those operations of the Employer where the employees are covered by a collective bargaining agreement with a Union not signatory to this Agreement, or to those employees who have not designated a signatory Union as their collective bargaining agent. Card Check (a) When a majority of the eligible employees performing work covered by an Agreement designated by the National Negotiating Committee to be Supplemental to the National Master Freight Agreement execute a card authorizing a signatory Local Union to represent them as their collective bargaining agent at the terminal location, then, such employees shall automatically be covered by this Agreement and the applicable Supplemental Agreements. If an Employer refuses to recognize the Union as above set forth and the matter is submitted to the National Labor Relations Board or any mutually agreed upon process for determination, and such determination results in certification or recognition of the Union, all benefits of this Agreement and applicable Supplements shall be retroactive to the date of demand for recognition. In such cases the parties may by mutual agreement negotiate wages and conditions, subject to Conference Joint Area Committee approval. The parties agree that a constructive bargaining relationship is essential to efficient operations and sound employee relations. The parties recognize that organizational campaigns occur in bargaining relationships and that both parties are free to accurately state their respective positions concerning the organization of certain groups of employees. However, the parties also recognize that campaigns must be waged on the facts only. Accordingly, the parties will not engage in any personal attacks against Union or Company representatives or attacks against the Union or Company as an institution during the course of any such campaign. 5 Article 2, Section 3 Additions to Operations: Over-The-Road and Local Cartage Supplemental Agreements (b) Notwithstanding the foregoing paragraph, the provisions of the National Master Freight Agreement and the applicable Over-The-Road and Local Cartage Supplemental Agreements shall be applied without evidence of union representation of the employees involved, to all subsequent additions to, and extensions of, current operations which adjoin and are controlled and utilized as a part of such current operation, and newly established terminals and consolidations of terminals which are controlled and utilized as a part of such current operation. If an Employer refuses to recognize the Union as above set forth and the matter is submitted to the National Labor Relations Board or any mutually agreed-upon process for determination, and such determination results in certification or recognition of the Union, all benefits of this Agreement and applicable Supplements shall be retroactive to the date of demand for recognition. The provisions of Article 32 - Subcontracting, shall apply to this paragraph. Extensions or additions to current operations, etc., which adjoin and are controlled and utilized as part of such current operation shall be subject to the jurisdiction of the appropriate Change Of Operations Committee for the purpose of determining whether the provisions of Article 8, Section 6 - Change of Operations, apply and, if so, to what extent. Section 4. Single Bargaining Unit The employees, Unions, Employers and Associations covered under this Master Agreement and the various Supplements thereto shall constitute one (1) bargaining unit and contract. It is understood that the printing of this Master Agreement and the aforesaid Supplements in separate Agreements is for convenience only and is not intended to create separate bargaining units. This National Master Freight Agreement applies to city and road operations, and other classifications of employment authorized by the signatory Employers to be represented by Employer Associations or Employers, where applicable, participating in national collective bargaining. The common problems and interest, with respect to basic terms and conditions of employment, have resulted in the cre- 6 Article 2, Section 4 ation of the National Master Freight Agreement and the respective Supplemental Agreements. Accordingly, the Associations and Employers, parties to this Agreement, acknowledge that they constitute a single national multi-employer collective bargaining unit, composed of the Associations named hereinafter and those Employers authorizing such associations to represent then for the purpose of collective bargaining, and solely to the extent of such authorization, and such other individual employers which have, or may, become parties to this Agreement. Section 5. Riders Upon the effective date of this Agreement, all existing or previously adopted Riders which provide less than the wages, hours, and working conditions specifically established by this Agreement and Supplemental Agreements shall become null and void. Thereafter, the specific provisions of this Agreement and applicable Supplemental Agreements shall apply without being subject to variance by Riders. This Section shall not be applied or interpreted to eliminate operational, dispatch, or working rules not specifically set forth in this Agreement and Supplemental Agreements. ARTICLE 3. RECOGNITION, UNION SHOP AND CHECKOFF Section 1. Recognition (a) The Employer recognizes and acknowledges that the Teamsters National Freight Industry Negotiating Committee and Local Unions affiliated with the International Brotherhood of Teamsters are the exclusive representatives of all employees in the classifications of work covered by this National Master Freight Agreement, and those Supplements thereto approved by the Joint National Negotiating Committees for the purpose of collective bargaining as provided by the National Labor Relations Act. Subject to Article 2, Section 3 - Non-covered Units, this provision shall apply to all present and subsequently acquired over-the-road and local cartage operations and terminals of the Employer. 7 Article 3, Section 1 This provision shall not apply to wholly-owned and wholly independently operated subsidiaries which are not under contract with local IBT unions. "Wholly independently operated" means, among other things, that there shall be no interchange of freight, equipment or personnel, or common use, in whole or in part, of equipment, terminals, property, personnel or rights. Union Shop (b) All present employees who are members of the Local Union on the effective date of this subsection or on the date of execution of this Agreement, whichever is the later, shall remain members of the Local Union in good standing as a condition of employment. "Member in good standing" means that an employee has paid his/her union dues and fees. All present employees who are not members of the Local Union and all employees who are hired hereafter shall become and remain members in good standing of the Local Union as a condition of employment on and after the thirty-first (31st) calendar day following the beginning of their employment or on and after the thirty- first (31st) calendar day following the effective date of this subsection or the date of this Agreement, whichever is the later. An employee who has failed to acquire, or thereafter maintain, membership in the Union as herein provided, shall be terminated seventy-two (72) hours after his/her Employer has received written notice from an authorized representative of the Local Union, certifying that membership has been, and is continuing to be, offered to such employee on the same basis as all other members and, further, that the employee has had notice and opportunity to make all dues or initiation fee payments. This provision shall be made and become effective as of such time as it may be made and become effective under the provisions of the National Labor Relations Act, but not retroactively. For purposes of this Article, "present employees" and "employees who are hired hereafter" shall include "casual employees" as defined in Article 3, Section 2 of this Agreement. Such "casual employees" will be required to join the Union prior to their employment on or after the thirty-first (31st) calendar day following their first (1st) day of employment for any Employer signatory to this Agreement. 8 Article 3, Section 1 Hiring (c) When the Employer needs additional employees, it shall give the Local Union equal opportunity with all other sources to provide suitable applicants, but the Employer shall not be required to hire those referred by the Local Union. Violations of this subsection shall be subject to the Grievance Committee. Any employment examination for applicants must test skills or physical abilities necessary for performance of the work in the job classification in which the applicant will be employed. Violations of this subsection shall be subject to the Grievance Committee. State Law (d) No provision of this Article shall apply in any state to the extent that it may be prohibited by state law. If under applicable state law additional requirements must be met before any such provisions may become effective, such additional requirements shall be first met. Agency Shop (e) If any agency shop clause is permissible in any state where the provisions of this Article relating to the Union Shop cannot apply, the following Agency Clause shall prevail: (1) Membership in the Local Union is not compulsory. Employees have the right to join, not join, maintain, or drop their membership in the Local Union, as they see fit. Neither party shall exert any pressure on, or discriminate against, an employee as regards such matters. (2) Membership in the Local Union is separate, apart and distinct from the assumption by one of his/her equal obligation to the extent that he/she receives equal benefits. The Local Union is required under this Agreement to represent all of the employees in the bargaining unit fairly and equally without regard to whether or not an employee is a member of the Local Union. The terms of this Agreement have been made for all employees in the bargaining unit and not only for members in the Local Union, and this Agreement has been executed by the Employer after it has satisfied itself that the Local Union is the choice of a majority of the employees in the 9 Article 3, Section 1 bargaining unit. Accordingly, it is fair that each employee in the bargaining unit pay his/her own way and assume his/her fair share of the obligations along with the grant of equal benefits contained in this Agreement. (3) In accordance with the policy set forth under subparagraphs (1) and (2) of this Section, all employees shall, as a condition of continued employment, pay to the Local Union, the employee's exclusive collective bargaining representative, an amount of money equal to that paid by other employees in the bargaining unit who are members of the Local Union, which shall be limited to an amount of money equal to the Local Union's regular and usual initiation fees, and its regular and usual dues. For present employees, such payments shall commence thirty-one (31) days following the effective date or on the date of execution of this Agreement, whichever is the later, and for new employees, the payment shall start thirty-one (31) days following the date of employment. Savings Clause (f) If any provision of this Article is invalid under the law of any state wherein this Agreement is executed, such provision shall be modified to comply with the requirements of state law or shall be renegotiated for the purpose of adequate replacement. If such negotiations shall not result in mutually satisfactory agreement, either party shall be permitted all legal or economic recourse. Employer Recommendation (g) In those instances where subsection (b) hereof may not be validly applied, the Employer agrees to recommend to all employees that they become members of the Local Union and maintain such membership during the life of this Agreement, to refer new employees to the Local Union representative, and to recommend to delinquent members that they pay their dues since they are receiving the benefits of this Agreement. Business agents shall be permitted to attend new employee orientations in right-to-work states. The sole purpose of the business agent's attendance is to encourage employees to join the Union. 10 Article 3, Section 1 Future Law (h) To the extent such amendment may become permissible under applicable federal and state law during the life of this Agreement as a result of legislative, administrative or judicial determination, all of the provisions of this Article shall be automatically amended to embody the greater Union security provisions contained in the 1947-1949 Central States Area Over-The-Road Motor Freight Agreement, or to apply or become effective in situations not now permitted by law. No Violation of Law (i) Nothing contained in this Section shall be construed so as to require the Employer to violate any applicable law. Section 2. Probationary and Casual Employees (a) Probationary Employees (1) A probationary employee shall work under the provisions of this Agreement, but shall be employed on a trial basis as provided for in each Supplement. (2) During the probationary period, the employee may be terminated without further recourse; provided, however, that the Employer may not terminate the employee for the purpose of evading this Agreement or discriminating against Union members. A probationary employee who is terminated by the Employer during the probationary period and is then worked again at any time during the next full twelve (12) months at any of that Employer's locations within the jurisdiction of the Local Union covering the terminal where he/she first worked, except in those jurisdictions where the Local Union maintains a hiring hall or referral system, shall be added to the regular seniority list with a seniority date as of the date that person is subsequently worked. The rules contained in subsection (a) (2) are subject to provisions in the Supplements to the contrary. (3) Probationary employees shall be paid at the new hire rate of pay during the probationary period; however, if the employee is terminated by the Employer during such period, he/she shall be com- 11 Article 3, Section 2 pensated at the full contract rate of pay for all hours worked retroactive to the first (1st) day worked in such period. (4) The Union and the Employer may agree to extend the probationary period for no more than thirty (30) days, but the probationary employee must agree to such extension in writing- (b) Casual Employees (1) A casual employee is an individual who is not on the regular seniority list and who is not serving a probationary period. A casual may be either a replacement casual or a supplemental casual as hereinafter provided. Casuals shall not have seniority status. Casuals shall not be discriminated against for future employment. (2) a. Replacement casuals may be utilized by an Employer to replace regular employees when such regular employees are off due to illness, vacation or other absence, except when an absence of a regular employee continues beyond three (3) consecutive months, a replacement casual shall not thereafter be used to fill such absence, unless the Employer and the Local Union mutually agree to the continued use of a replacement casual. b. Where the Company is using casuals as vacation replacements for regular employees, and the Area Supplemental Agreement does not provide a method to add regular employees based on the use of casuals to replace vacation absence, the vacation schedules shall be broken into yearly quarters beginning January lst, and subsequent vacation quarters shall begin on April 1st, July 1st, and October lst thereafter. Starting with the quarter beginning April, 1991, and continuing each quarter thereafter, the Employer shall add one (1) additional employee to the regular seniority list for each sixty-five (65) vacation replacement days worked by a casual during each vacation quarter. The application of this formula shall not result in pyramiding. New employees shall be placed on the respective seniority lists on the first (lst) day of the following quarter unless there are employees in layoff status, in which case such new employees shall be placed on the respective seniority list at the time the laid-off employees are recalled from layoff status. 12 Article 3, Section 2 Employees shall first be added to the regular seniority list from the preferential list, if applicable. Thereafter, employees to be added to the regular seniority list shall be determined by the respective Supplement and shall be subject to the probationary provisions of that Supplement. In the application of this formula, employees specifically designated under an appropriate reporting procedure to replace absence other than vacations shall not be included as vacation replacements. It is the intent of the parties, in the application of this formula, to add regular employees to the seniority list to replace employees on vacation where there is regular work opportunity for such additional employees. The implementation of this provision may raise issues particular to a respective Supplemental Agreement. Failure to resolve the issues, such Supplemental Negotiating Committee may agree to waive this provision, or submit the disputed issues to the National Grievance Committee. (3) Supplemental casuals may be used to supplement the regular work force as provided for in each respective Supplement. Once the number of new employees to be added as required in the Supplement is determined, the Employer must initiate the processing of the new probationary employees immediately, and complete such processing as provided for in the Supplements. (4) Unless waived in writing by any Joint Supplemental Negotiating Committee, all Supplements shall provide for a preferential casual hiring list and shall provide the qualifications for placement on such list. Casuals on the preferential hiring list shall be offered available extra work and future regular employment in seniority order by classification as among themselves. A preferential casual employee's seniority date shall be the date he/she becomes a regular employee; and such employee shall not be subject to any probationary period. Casual employees on the preferential hiring list shall have full access to the grievance procedure. The provisions of Article 3, Section 3, shall apply to casual employees on the preferential hiring list who are paid on the regular payroll. Local Unions employing an exclusive hiring hall under the terms of the Supplemental Agreement may petition the respective Joint Area 13 Article 3, Section 2 Supplemental Negotiating Committee for approval to waive this subparagraph (4). (5) Casual road employees, where permitted by Supplemental Agreement, may only be used within the jurisdiction of their respective Conference Area and shall gain preferential status and/or regular seniority status as provided in the respective Supplement. (6) Any casual employee who declines regular employment shall be terminated without recourse and will not be used by the Employer for any further work. (7) The Employer agrees to give first opportunity for work as a casual employee to qualified laid-off employees from other Employers signatory to the NMFA. This provision shall not supersede an established order of call in the Supplemental Agreement. The Local Union will furnish to the Employer a list of the names, addresses, phone numbers and the jobs such employees are qualified to perform. The employee must be able to meet the hiring standards of the Employer. The employee must be able to report in compliance with the Employer's established call time procedure, and be able to furnish proof of such qualification for the work available. Any employment examination for applicants must test skills or physical abilities necessary for performance of the work in the job classification in which the applicant will be employed. Violations of this subsection shall be subject to the Grievance Committee. (8) Fringe benefits will be paid on casuals in accordance with the terms of the Supplemental Agreement. Minimum daily guarantees will be governed by the respective Supplemental Agreement. (9) A monthly list of all casual and/or probationary employees used during that month shall be submitted to the Local Unions by the tenth (10th) day of the following month. Such list shall show: a. the employee's name, address, and social security number; b. the date worked; c. the classification of work per-formed each date, and the hours worked; and, d. the name, if applicable, of the employee replaced. 14 Article 3, Section 2 This list shall be compiled on a daily basis and shall be available for inspection by a Union representative and/or job shop steward. (c) Employment Agency Fees If employees are hired through an employment agency, the Employer is to pay the employment agency fee. However, if the Local Union was given equal opportunity to furnish employees under Article 3, Section (1) (c), and if the employee is retained through the probationary period, the fee need not be paid until the thirty-first (31st) day of employment. Section 3. Checkoff The Employer agrees to deduct from the pay of all employees covered by this Agreement the dues, initiation fees and/or uniform assessments of the Local Union having jurisdiction over such employees and agrees to remit to said Local Union all such deductions. Where laws require written authorization by the employee, the same is to be furnished in the form required. The Local Union shall certify to the Employer in writing each month a list of its members working for the Employer who have furnished to the Employer the required authorization, together with an itemized statement of dues, initiation fees (full or installment), or uniform assessments owed and to be deducted for such month from the pay of such member. The Employer shall deduct such amount within two (2) weeks following receipt of the statement of certification of the member and remit to the Local Union in one (1) lump sum within three (3) weeks following receipt of the statement of certification. The Employer shall add to the list submitted by the Local Union the names and Social Security numbers of all regular new employees hired since the last list was submitted and delete the names of employees who are no longer employed. Checkoff shall be on a monthly or quarterly basis at the option of the Union. The Local Union and Employer may agree to an alternative option to deduct Union dues bimonthly. When an Employer actually makes a deduction for dues, initiation fees and assessments, in accordance with the statement of certification received from an appropriate Local Union, the Employer shall remit same no later than three (3) weeks following receipt of the statement of certification and in the event the Employer fails to do so, the Employer shall be assessed ten percent (10%) liquidated 15 Article 3, Section 3 damages. All monies required to be checked off shall become the property of the entities for which it was intended at the time that such checkoff is required to be made. All monies required to be checked off and paid over to other entities under this Agreement shall become the property of those entities for which it was intended at the time that such payment or checkoff is required to be made. Where an employee who is on checkoff is not on the payroll during the week in which the deduction is to be made, or has no earnings or insufficient earnings during that week, or is on leave of absence, the employee must make arrangements with the Local Union and/or the Employer to pay such dues in advance. The Employer agrees to deduct from the paycheck of all employees covered by this Agreement voluntary contributions to DRIVE. DRIVE shall notify the Employer of the amounts designated by each contributing employee that are to be deducted from his/her paycheck on a weekly basis for all weeks worked. The phrase "weeks worked" excludes any week other than a week in which the employee earned a wage. The Employer shall transmit to DRIVE National Headquarters on a monthly basis, in one (1) check, the total amount deducted along with the name of each employee on whose behalf a deduction is made, the employee's social security number and the amount deducted from that employee's paycheck. The International Brotherhood of Teamsters shall reimburse the Employer annually for the Employer's actual cost for the expenses incurred in administering the weekly payroll deduction plan. The Employer will recognize authorization for deductions from wages, if in compliance with state law, to be transmitted to Local Union or to such other organizations as the Union may request if mutually agreed to. No such authorization shall be recognized if in violation of state or federal law. No deduction shall be made which is prohibited by applicable law. In the event that an Employer has been determined to be in violation of this Article by the decision of an appropriate grievance committee, and if such Employer subsequently is in violation thereof after receipt of seventy-two (72) hours' written notice of specific delinquencies, the Local Union may strike to enforce this Article. However, such strike shall be terminated upon the delivery there- 16 Article 3, Section 3 of. Errors or inadvertent omissions relating to individual employees shall not constitute a violation. Upon written request of an employee, the Employer shall make payroll deductions for the purchasing of U. S. Savings Bonds. Section 4. Work Assignments The Employers agree to respect the jurisdictional rules of the Union and shall not direct or require their employees or persons other than the employees in the bargaining units here involved, to perform work which is recognized as the work of the employees in said units. This is not to interfere with bona fide contracts with bona fide unions. Section 5. The term "Local Union" as used herein refers to the IBT Local Union which represents the employees of the particular Employer for the purpose of collective bargaining at the particular place or places of business to which this Agreement and the Supplements thereto are applicable, unless by agreement of the Local Union involved, or a Change of Operations Committee, or a jurisdictional award under Article 30 herein, jurisdiction over such employees, or any number of them, has been transferred to some other Local Union, in which case the term Local Union as used herein shall refer to such other Local Unions. Nothing herein contained shall be construed to alter the multi-employer, multi-union unit or single contract status of this Agreement. Section 6. Electronic Funds Transfer If the Employer institutes an electronic funds transfer (EFT) system, employees may participate. ARTICLE 4. STEWARDS The Employer recognizes the right of the Local Union to designate job stewards and alternates from the Employer's seniority list. The authority of job stewards and alternates so designated by the Local 17 Article 4 Union shall be limited to, and shall not exceed, the following duties and activities: (a) The investigation and presentation of grievances with his/her Employer or the designated company representative in accordance with the provisions of the collective bargaining agreement; (b) The collection of dues when authorized by appropriate Local Union action; (c) The transmission of such messages and information, which shall originate with and are authorized by the Local Union or its officers, provided such message and information; (1) have been reduced to writing; or, (2) if not reduced to writing, are of a routine nature and do not involve work stoppages, slowdowns, refusal to handle goods, or any other interference with the Employer's business. When requested by the Union or the employee, there shall be a steward present whenever the Employer meets with the employee about grievances or discipline or to conduct investigatory interviews. If a steward is unavailable, the employee may designate a bargaining unit member who is available at the terminal at the time of the meeting to represent him/her. Meetings or interviews shall not begin until the steward or designated bargaining unit member is present. An employee who does not want a Union steward or available bargaining unit member present at any meeting or interview where the employee has a right to Union representation must waive Union representation in writing. If the Union requests a copy of the waiver, the Employer shall promptly furnish it. Job stewards and alternates have no authority to take strike action, or any other action interrupting the Employer's business, except as authorized by official action of the Local Union. The Employer recognizes these limitations upon the authority of job stewards and their alternates, and shall not hold the Local Union liable for any unauthorized acts. The Employer in so recognizing such limitations shall have the authority to impose proper discipline, including discharge, in the event the job steward or his/her designated alternate has taken unauthorized strike action, slowdown or work stoppage in violation of this Agreement. 18 Article 4 The job steward, or his/her designated alternate, shall be permitted reasonable time to investigate, present and process grievances on the company property without loss of time or pay during his/her regular working hours without interruption of the Employer's operation by calling group meetings; and where mutually agreed to by the Local Union and the Employer, off the property or other than during his/her regular schedule without loss of time or pay. Such time spent in handling grievances during the job steward's or his/her designated alternate's regular working hours shall be considered working hours in computing daily and/or weekly overtime if within the regular schedule of the job steward. " The job steward, or his/her designated alternate, shall be permitted reasonable time off without pay to attend Union meetings called by the Local Union. The Employer shall be given twenty-four (24) hours' prior notice by the Local Union. ARTICLE 5. Section 1. Seniority Rights (a) The application of seniority which has been accrued herein shall be established in the Supplemental Agreements. (b) Seniority shall be broken only by discharge, voluntary quit, retirement, or more than a five (5)-year layoff. (c) This Section shall apply to all Supplemental Agreements. Section 2. Mergers of Companies-General (a) In the event the Employer is a party to a merger of lines, seniority of the employees who are affected thereby shall be determined by mutual agreement between the Employer and the Local Unions involved. In the application of this Section, it is immaterial whether the transaction is called a merger, purchase, acquisition, sale, etc. Further, it is also immaterial whether the transaction involves merely the purchase of stock of one (1) corporation by another, with two (2) separate corporations continuing in existence. 19 Article 5, Section 2 (b) If such merger of companies results in the combination of terminals or over-the-road operations, a change of operation shall be submitted to the Co-Chairmen of the National Grievance Committee for assignment to an appropriate Change of Operations Committee established pursuant to Article 8, Section 6. The Change of Operations Committee shall retain jurisdiction for one (1) year after the effective date of the Committee decision and shall have the authority to amend its decision in the event of a substantial change in the amount of work to be performed at the terminals or over-the-road operations which were combined. Combining of Terminals or Operations as a Result of Merger of Companies (c) In the application of this Section, when terminals or operations of two (2) or more companies are combined, as referred to above, the following general rules shall be applied by the Employer and the Local Unions, which general rules are subject to modification pursuant to the provisions of Section 4 of this Article: Active Seniority list (1) The active employee seniority rosters (excluding those employees on letter of layoff) shall be "dovetailed" by appropriate classification (i.e., road or city) in the order of each employee's full continuous classification (road or city) seniority date that the employee is currently exercising. (The term "continuous classification seniority" as used herein is defined as that seniority which the employee is currently exercising and has not been broken in the manner provided in Section 1 of this Article or by voluntary changes in domicile not directed, approved or ordered by a Change of Operations Committee.) The active "dovetailed" seniority roster shall be utilized first and until exhausted to provide employment at such combined terminal or operational location. Active Seniority List (2) In addition, the inactive seniority rosters (employees who are on letter of layoff) shall be similarly "dovetailed" by appropriate classification. If additional employees are required after the active list is exhausted, they shall be recalled from such inactive 20 Article 5, Section 2 seniority roster and after recall such employees shall be "dovetailed" into the active seniority roster with their continuous classification (road or city) seniority dates they are currently exercising which shall then be exercised for all purposes. Seniority rosters previously combining job classifications shall be continued unless otherwise agreed. Temporary Authority (d) Where only temporary authority is granted in connection with any of the transactions described above, then separate seniority lists shall continue only when terminals or operations are not merged, unless otherwise agreed. The Employer which is to survive will assume the obligations of both collective bargaining agreements during the period of the temporary authority. In the event of temporary merger of operations which are contingent upon approval by regulatory agencies or on other stated conditions, the seniority of the involved employees shall continue to accrue with their original Employer during the period of temporary merger, so that if there is no final consummation of the merger, the seniority of such employees shall be continued with their respective employers. However, if, on the failure of final consummation and dissolution of the merger, one of the parties to the proposed merger discontinues the operations which were subject to such merger, the employees of such Employer shall be granted seniority rights for all purposes with the other Employer only for the period of time they were employed in such temporary merged operations. Purchase of Rights (e) If a merger, purchase, acquisition, sale, etc., constitutes merely the acquisition of permits or rights, without the purchase or acquisition of equipment or terminals, and/or without the consolidation of terminals or operations, or in the event of the purchase of rights during bankruptcy proceedings, the following shall apply: Where the purchasing company has a terminal operation at the domicile of the employees of the seller, the employees of the selling company shall be placed on a master seniority list, and the purchasing company or companies shall hire, after recall of the purchasing company's employees from layoff, such employees as needed 21 Article 5, Section 2 for regular employment within the first twelve (12)-calendar months after purchase or acquisition of permits and/or rights, and they shall be dovetailed with full seniority. If an employee refuses a bona fide offer of regular work opportunity with any of the purchasing companies, his/her name shall be removed from the list. No employee hired under this provision shall be required to serve a probationary period. After the expiration of the aforementioned twelve (12)-calendar month period, the purchaser shall have no further obligation to the employees of the seller. However, if the purchasing or acquiring company does not have and/or continue a terminal or operation at the domicile of the employees of the seller, resulting in their layoff, such Employer shall place the laid-off employees on a master seniority list and such Employer shall, if and when additional regular employees are required, within a twelve (12)-calendar month period after purchase or acquisition, and providing its employees on layoff have been recalled, offer employment to such laid-off employees at the terminal locations or operations to which the work has been transferred. Any such laid-off employees accepting transfer shall be dovetailed in accordance with their terminal seniority for work purposes, including layoff, and holding company seniority for all fringes. If an employee refuses a bona fide offer of regular work opportunity with any of the purchasing companies, his/her name shall be removed from the list. No employee hired under this provision shall be required to serve a probationary period. After the expiration date of the aforementioned twelve (12)-calendar month period, the purchaser shall have no further obligation to the employees of the seller. The transferring employee shall be responsible for lodging and moving expenses. Exclusive Cartage Operations (f) If in connection with the transactions described in these rules the successor Employer determines to discontinue the use of a local cartage company, the employees of that local cartage company who have worked exclusively on the pickup and delivery service which is retained by the successor Employer shall be given the opportunity to continue to perform such service as an employee of such successor Employer, and shall have their seniority "dovetailed" as described in the above rules. 22 Article 5, Section 2 Committee Authority (g) Area and/or State Committees created pursuant to Local Supplements which have previously established rules of seniority, not contrary to the provisions of such Supplements, and approved by the Joint Area Committee, may continue to apply such rules if such rules are reduced to writing. Section 3. Intent of Parties (a) The parties acknowledge that the above rules are intended solely as general standards and further that many factual situations will be presented which necessitate different application, modification or amendment. Accordingly, the parties acknowledge that questions of the application of seniority rights may arise which require different treatment and it is anticipated and understood that the Employers and Unions jointly involved and/or the respective grievance committees may mutually agree to such disposition of questions of seniority which in their judgment is appropriate under the circumstances. (b) In all instances, the disposition of questions involving the application of seniority rights made by the parties pursuant to this Section may be presented to the appropriate grievance committees provided herein whose decisions shall be final and binding. Section 4. Equipment Purchases (a) The Employer shall not require as a condition of continued employment, that an employee purchase truck, tractor and/or tractor and trailer or other vehicular equipment, or that any employees purchase or assume any proprietary interest or other obligation in the business, except as referred to in Article 6, Section 2. The requirements of this provision shall be maintained during the renegotiation of this Agreement unless either party has terminated the Agreement in the manner provided. Highest Rates Prevail (b) If the minimum wage, hours and working conditions in the Company absorbed differ from those minimums set forth in this 23 Article 5, Section 4 Agreement and Supplements thereto, the higher of the two shall remain in effect for the employees so absorbed. Cutting Seniority Board (c) The Union reserves the right to cut the road seniority board when the average weekly earnings fall to seven hundred dollars ($700.00) or less. This is not to be construed as imposing a limitation on earnings. After the Union notifies the Employer to cut the board and in the event that Employer refuses, the Union shall immediately submit the matter to the grievance procedure. In determining whether average weekly earnings will fall to seven hundred dollars ($700.00) or less, only the earnings of the lower twenty-five percent (25%) of the drivers on the seniority board, counting from the bottom up, shall be considered. The average shall be calculated for the thirty (30)- day period preceding the Union's original request. After such calculation is made, the average earnings of the drivers for the top seventy-five percent (75%) of the seniority board must also average more than seven hundred dollars ($700.00) per week, or layoff shall be made in accordance with seniority. The above provisions shall also apply to extra board for sleeper drivers exclusively. Posting Seniority list (d) The Employer shall give the Local Union a seniority list at least every six (6) months. The Employer shall also post a seniority list at least once every six (6) months and shall maintain a current seniority roster at the terminal. Protest of any employee's seniority date or position on such list must be made in writing to the Employer within thirty (30) days after such seniority date or position first appears, and if no protests are timely made the dates and positions posted shall be deemed correct. Any such protest which is timely made may be submitted to the grievance procedure. Section 5. Work Opportunity Over-the-road employees, who are on letter of layoff, shall be given an opportunity to transfer to permanent over-the-road employment (prior to the employment of new hires) occurring at other over-the-road domiciles of the Employer located within the Conference area provided they notify the Employer in writing of their interest in a 24 Article 5, Section 5 transfer opportunity. The offer of transfer will be made in the order of continuous over-the-road seniority of the laid-off drivers domiciled within the Conference area. The Employer shall be required to make additional offers of transfer to an employee who has previously rejected a transfer opportunity provided the employee again notifies the Employer in writing of his/her continued interest in additional transfer opportunities. However, the Employer will only be required to make one transfer offer in any six (6) calendar month period. Any employee accepting such offer shall be employed as a "new hire" and shall be placed at the bottom of the seniority board for bidding and layoff purposes, but shall retain company seniority for fringe benefits only. A transferring employee shall pay his/her own moving expenses and shall, upon reporting to such new domicile, be deemed to have relinquished his/her right to return with seniority to the domicile from which he/she transferred. Section 6. Dock Operations The Rule of Forty (40) and Out shall apply to PURE DOCK WORK ONLY for the life of the contract and shall operate as follows: (a) The employer's obligation to each full-time regular employee ("regular employee") is to satisfy the daily and/or weekly guarantee as set forth in a bid under the applicable Supplemental Agreement. It is understood that a weekly guarantee under a supplement may call for four (4) or five (5) punches depending upon whether the daily guarantee is eight (8) or ten (10) hours. (b) A regular employee who is assigned to or elects work on the dock for forty (40) straight-time hours during a work week, other than through a bid, is also subject to the Rule of Forty (40) and Out. (c) No casual may work on the dock unless each regular employee who was on the seniority list as of March 31, 1994, and unless each regular employee added to the seniority list thereafter, has been offered an opportunity to work that day at the straight time rate of pay. (d) The Employer is not obligated to offer any overtime work on the dock to any regular employee whose daily guarantee has been satisfied. If the Employer does offer daily overtime to regular employees, overtime must be offered in seniority order in accordance with the applicable Supplement. 25 Article 5, Section 6 (e) Overtime offered to a regular employee after the guaranteed day shall not count toward the weekly guarantee. Example: An employee has a five (5) day regular workweek. At the close of the fourth (4th) day, the employee has thirty-two (32) hours of regular time and four (4) hours of overtime. The employee is guaranteed his/her fifth (5th) regular punch and at least forty-four (44) hours for the week. Example: An employee has a four (4) day regular workweek. At the close of the third (3rd) day, the employee has thirty (30) hours of regular time and ten (10) hours of overtime. The employee is guaranteed his/her fourth (4th) regular punch and at least fifty (50) hours for the week. (f) The Employer is not obligated to offer a premium day punch for pure dock work to any regular employee after the weekly guarantee has been satisfied. The Employer's obligation, if any, to provide premium day work other than pure dock work is governed by the applicable Supplement. Example: An employee has a five (5) day regular "work-week. At the close of the fifth (5th) day, the employee has earned the weekly guarantee. The Employer is not obligated to offer the employee a sixth (6th) or seventh (7th) day premium punch for pure dock work. (g) If all regular employees on the seniority list have worked at least forty (40) hours in a given work week, and if the Employer offers premium day work on the dock to regular employees, premium day work shall be offered on the basis of seniority as defined in the applicable Supplement. (h) A regular employee who has broken his/her daily or weekly guarantee shall not be entitled to claim any work occurring outside of the employee's regularly scheduled work week, except as may be provided by the applicable Supplement. ARTICLE 6 Section 1. Maintenance of Standards The Employer agrees, subject to the following provisions, that all conditions of employment in his/her individual operation relating to wages, hours of work, overtime differentials and general working conditions shall be maintained at not less than the highest stan- 26 Article 6, Section 1 dards in effect at the time of the signing of this Agreement, and the conditions of employment shall be improved whenever specific provisions for improvement are made elsewhere in this Agreement. Local Standards (a) The Local Unions and the Employer shall, within one hundred eighty (180) days following ratification of this Agreement, identify and reduce to writing, and submit to the appropriate Conference Joint Area Committee, those local standards and conditions practiced under this Article. Those local standards and conditions previously practiced hereunder which are not so submitted shall be deemed to have expired. The appropriate Conference Joint Area Committee shall, not later than ninety (90) days following ratification, adopt a procedure to consider the disposition of the local standards and conditions submitted including the right to appoint a subcommittee to make recommendations. The Conference Joint Area Committee shall provide to the parties the opportunity to present their views. The Conference Joint Area Committee shall have the sole discretion to determine the disposition of the submitted local standards and conditions which determination shall be final and binding. However, if deadlocked, the matter shall be referred to the National Grievance Committee for decision which shall be final and binding. Individual Employer Standards (b) Individual Employers may during the life of this Agreement file with the appropriate Conference Joint Area Committee and request review of those individual standards and conditions claimed or practiced under this Article which exceed the provisions of this Agreement and Supplemental Agreements. The Conference Joint Area Committee shall develop a procedure to review the filing including the right to appoint a subcommittee to make recommendations. The Committee shall make every effort to adjust the matter. If the Committee reaches agreement concerning the disposition of the individual standards or conditions, the decision of the Committee shall be final and binding. However, if deadlocked, the matter shall be referred to the National Grievance Committee for decision which shall be final and binding. 27 Article 6, Section 1 General (c) It is agreed that the provisions of this Article shall not apply to inadvertent or bona fide errors made by the Employer or the Union in applying the terms and conditions of this Agreement. Such bona fide errors may be corrected at any time. No other Employer shall be bound by the voluntary acts of another Employer when he/she may exceed the terms of this Agreement. Any disagreement between the Local Union and the Employer with respect to this matter shall be subject to the grievance procedure. This provision does not give the Employer the right to impose or continue wages, hours and working conditions less than those contained in this Agreement. Section 2. Extra Contract Agreements (a) The Employer agrees not to enter into any agreement or contract with its employees, individually or collectively, which in any way conflicts with the terms and provisions of this Agreement. Any such agreement shall be null and void. (b) Consistent with past interpretations made by the National Grievance Committee, wage reduction-job security plans or other programs which comply with guidelines established by the Teamsters National Freight Industry Negotiating Committee are not violative of this Section. Current wage reduction-job security plans established prior to April 11 1994, shall be subject to a revote of the unit employees as provided in this Section within thirty (30) days of notice of ratification of the NMFA or as soon as is legally permissible after having been approved by TNFINC to conform with the guidelines established under this Section. Such current plans shall remain in effect until the later of expiration of the plan or until a replacement plan is approved by a unit employee vote as provided in this Section. Failure to obtain the required unit employee vote under this Section will result in restoration of full NMFA wages and wage related fringes effective April 6, 1994, or when legally permissible. Wage deduction under any Plan hereinafter adopted shall not exceed fifteen percent (15%) of the applicable wage rates, and such Plan 28 Article 6, Section 2 shall be adopted only if approved by seventy-five percent (75%) of the employees voting by secret ballot (in which case all unit employees shall be covered by such Plan). See Wage Reduction-Job Security Plan Guidelines - Appendix A (c) Every profit-sharing plan, whether or not it alters or amends the economic conditions contained in this Agreement, must be agreed to by TNFINC. Section 3. Workweek Reduction If either the Fair Labor Standards Act or the Hours of Service Regulations are subsequently amended so as to result in substantial penalties to either the employees or the Employer, a written notice shall be sent by either party requesting negotiations to amend those provisions which are affected. Thereafter, the parties shall enter into immediate negotiations for the purpose of arriving at a mutually satisfactory solution. In the event the parties cannot agree on a solution within sixty (60) days, or mutually agreed extensions thereof, after receipt of the stated written notice, either party shall be allowed economic recourse. Section 4. New Equipment Where new types of equipment and/or operations for which rates of pay are not established by this Agreement are put into use after April 1, 1994, within operations covered by this Agreement, rates governing such operations shall be subject to negotiations between the parties. In the event agreement cannot be reached within sixty (60) days after date such equipment is put into use, the matter may be submitted to the National Grievance Committee for final disposition. Rates agreed upon or awarded shall be effective as of the date equipment is put into use. The above provisions shall also apply in the event the law (state or federal) is changed to permit longer combination vehicles or aggregate weight increases of 8,000 pounds or more in the weight limits that are currently provided in the Surface Transportation Assistance Act of 1982. 29 Article 6, Section 4 Employees expected to use computers will be trained to use them and will be paid for all training time. Employees expected to use computers will be given sufficient time to learn to use them. ARTICLE 7. LOCAL AND AREA GRIEVANCE MACHINERY Section 1. Provisions relating to local, state and area grievance machinery are set forth in the applicable Supplements to this Agreement. It is mutually agreed that the procedures for processing complaints concerning matters of highway and equipment safety shall be incorporated in the applicable Supplemental Agreement, in accordance with the guidelines established by the National Master Freight Safety and Health Committee provided for in Article 16. Special Joint Area Committees shall also be created in compliance with the provisions of Article 35, Section 3 - Alcohol and Drug Use. The procedure set forth in the local, state and area grievance machinery and in the national grievance procedure may be invoked only by the authorized Union representative or the Employer representative. Authorized representatives of the Union and/or Employer may file grievances alleging violation of this Agreement, under local grievance procedure, or as provided herein. Time limitations regarding the filing of grievances, if not set forth in the respective Supplemental Agreements, must appear in the Rules of Procedure of the various grievance committees and shall apply equally to Employers and employees. The Rules of Procedure of the various committees established under the Agreement shall be subject to the review and approval of the National Grievance Committee. Section 2. Grievant's Bill of Rights All employees who file grievances under this Agreement and its Supplemental Agreements are entitled to have their cases decided fairly and promptly. In order to satisfy these objectives and pro- 30 Article 7, Section 2 mote confidence in the integrity of the grievance procedures, all employees who file grievances are entitled to the following Rights: 1. Grievants and stewards shall be informed by their Local Union of the time and place of the hearing. 2. Grievants and stewards are permitted to attend, at their own expense, the hearing in cases in which they are involved. 3. The Employer shall provide any information relevant to a grievance within fifteen (15) days of receipt of a written request by the Local Union, steward or grievant. 4. All cases involving a discharge or suspension shall be recorded, except for executive sessions. Transcriptions of these proceedings shall be prepared in response to written requests by the Local Union at the reasonable cost of transcription. No recording devices shall be used in any grievance committee proceeding except as specifically authorized under the Rules of Procedure or by mutual consent of the co-chairpersons. 5. All Employer and Union panel members for each case shall be identified prior to the hearing. No Employer or Union representative who is directly involved in a case may serve as a panel member except at a local level committee where there is only one Local Union subject to the jurisdiction of the committee. 6. A grievant or steward may request Permission to present evidence or argument in support of the case in addition to the evidence or argument presented by the Local Union. 7. All grievance committees shall, upon request, issue a copy of the grievance decision or transcript pages containing the hearing proceedings and the decision to the grievant and/or a Local Union. 8. The Local Union and the Employer may postpone a case once each, and any further postponements must be approved by the co-chairpersons of the grievance committee. In those areas where there are presently local grievance committees, each party shall be entitled to one additional postponement at the local grievance committee level only. 9. Unless mutually agreed by the Local Union and the Company, Local Unions shall file all approved grievances with the appropriate grievance committee or association for decision no later than 31 Article 7, Section 2 thirty (30) days after the date the Local Union receives the grievance. 10. A copy of the grievance committee Rules of Procedure, including the Grievant's Bill of Rights, must be provided, upon request, to the grievant prior to the commencement of the grievance hearing. Section 3. All Local, State and Area Grievance Committees established under Supplemental Agreements shall revise their Rules of Procedure to include the "Grievant's Bill of Rights" set forth in Section 2 above and shall submit their revised Rules of Procedure to the National Grievance Committee for approval no more than ninety (90) days after the effective date of this Agreement. The National Grievance Committee may revise, delete or add to the Rules of Procedure for a Supplemental Grievance Committee in any manner necessary to ensure conformity with the purposes and objectives of the Grievant's Bill of Rights. The decisions of the National Grievance Committee in this regard shall be final and binding. Section 4. Except in cases involving "cardinal" infractions under the applicable Supplemental Agreement, an employee to be discharged or suspended shall be allowed to remain on the job until the discharge or suspension is sustained under the grievance procedure. ARTICLE 8. NATIONAL GRIEVANCE PROCEDURE Section 1. All grievances or questions of interpretations arising under this National Master Freight Agreement or Supplemental Agreements thereto shall be processed as set forth below. If such Supplemental Agreements provide for arbitration of discharges, such procedure shall be continued. (a) All factual grievances or questions of interpretation arising under the provisions of the Supplemental Agreement (or factual 32 Article 8, Section 1 grievances arising under the National Master Freight Agreement), shall be processed in accordance with the grievance procedure of the applicable Supplemental Agreement. If upon the completion of the grievance procedure of the Supplemental Agreement the matter is deadlocked, the case shall be immediately forwarded to both the Employer and Union secretaries of the National Grievance Committee, together with all pertinent files, evidence, records and committee transcripts. Any request for interpretation of the National Master Freight Agreement shall be submitted directly to the Conference Joint Area Committee for the making of a record on the matter, after which it shall be immediately referred to the National Grievance Committee. Such request shall be filed with both the Union and Employer secretaries of the National Grievance Committee with a complete statement of the matter. All grievances arising under the provisions of the Master Agreement (Articles 1-39) shall be filed directly with the appropriate Conference Joint Area Committee. The Conference Joint Area Committee shall have the authority to render a final and binding decision or direct the grievance to the appropriate lower level committee for hearing if the grievance is not properly claimed under the provisions of the Master Agreement. The Conference Joint Area Committee must hear and decide such cases within ninety (90) days of the filing of the grievance. In the event of a deadlock, the case shall be referred to and heard by the National Grievance Committee. Grievances arising under Article 9-Protection of Rights, Article 29- Substitute Service and Article 32-Subcontracting shall be expeditiously processed and maybe heard at either regularly scheduled or specially called hearings. A grievance may be filed by any Area Conference whose members are adversely affected by an alleged violation of Article 32, Section 4 (b) occurring within its jurisdiction. (b) Any matter which has been referred pursuant to Section 1 (a) above, or any question concerning the interpretation of the provisions contained in the National Master Freight Agreement, shall be submitted to a permanent National Grievance Committee which shall be composed of an equal number of employer and union representatives. The National Grievance Committee shall meet on a regular basis, for the disposition of grievances referred to it, or may 33 Article 8, Section 1 meet at more frequent internals, upon call of the chairman of either the Employer or Union representatives on the National Grievance Committee. The National Grievance Committee shall adopt rules of procedure which may include the reference of disputed matters to subcommittees for investigation and report, with the final decision or approval, however, to be made by the National Grievance Committee. If the National Grievance Committee resolves the dispute by a majority vote of those present and voting, such decisions shall be final and binding upon all parties. Cases deadlocked by the National Grievance Committee shall be referred to an arbitration panel, as provided in Section 2(b) below. Procedures relating to such referrals shall be included in the Rules of Procedure of the National Grievance Committee. The Employer may request the co-chairmen of the National Grievance Committee to appoint and convene a joint Employer and Union Committee which shall have the authority to approve uniform dispatch procedures and rules which shall apply to the individual company's over-the-road operations. No Employer signatory to this Agreement shall be permitted to have its own grievance procedure. Section 2. (a) The National Grievance Committee by majority vote may consider and review all questions of interpretation which may arise under the provisions contained in the National Master Freight Agreement which are submitted by either the National Freight Director or the designated employer representative; and shall have the authority to reverse and set aside the majority interpretation of any area, regional, or local grievance committee or arbitration panel established within the Supplemental Agreements if, in its opinion, such interpretation is contrary to the provisions set forth in the National Master Freight Agreement, in which case the decision of the National Grievance Committee shall be final and binding. A failure by the National Grievance Committee to reach a majority decision on a question concerning interpretation or on a review of a decision by a lower level grievance committee or arbitration panel shall not be considered a deadlock and will not be referred to arbitration. In case of a failure to reach a majority decision in review- 34 Article 8, Section 2 ing the decision of a lower level grievance committee or arbitration panel, the decision of the lower level grievance committee or arbitration panel shall stand as final and binding. (b) All grievances deadlocked at the Conference Joint Area Committee and the National Grievance Committee shall be subject to arbitration and processed as set forth below. 1. All grievances involving the provisions of the Supplemental Agreements, including discharges or suspensions, which have been deadlocked by the Conference Joint Area Committee, shall be automatically referred to a Conference Arbitration Panel, whose decision shall be final and binding on all parties. 2. The Conference Arbitration Panel shall consist of the Union and Employer co-chairmen of the Conference Joint Area Committee, or their designees, and an impartial arbitrator selected by the cochairmen. The procedures for the selection of the arbitrator for the Conference Arbitration Panel and the cost of arbitration shall be determined by the Rules of Procedure of the Conference Joint Area Committee. 3. At the arbitration hearing before the Conference Arbitration Panel, the Employer's case will be presented by a full-time employee of the Employer and the Union's case by a full-time employee of the Local Union, and the Rules of Procedure of the Conference Joint Area Committee shall apply. 4. The Conference Arbitration Panel shall issue a "bench decision" at the conclusion of the grievance hearing, unless the Committee's Rules of Procedure provides otherwise in discharge cases. Either party, however, may request a clarification or further explanation of a previous decision rendered by the Conference Arbitration Panel. 5. All grievances involving the Master Agreement (Articles 1-39), which have been deadlocked by the National Grievance Committee, shall be automatically referred to the National Arbitration Panel, whose decision shall be final and binding on all parties. 6. The National Arbitration Panel shall consist of the Union and Employer co-chairmen of the National Grievance Committee, or their designees, and an impartial arbitrator selected by the co-chairmen. The procedures for the selection of the arbitrator for the 35 Article 8, Section 2 National Arbitration Panel and the cost of arbitration shall be determined by the Rules of Procedure of the National Grievance Committee. 7. At the arbitration hearing before the National Arbitration Panel, the Employer's case will be presented by a full-time employee of the Employer and/or Employer representative on the National Grievance Committee and the Union's case by a designee of the National Freight Director and the Rules of Procedure of the National Grievance Committee shall apply. 8. The National Arbitration Panel shall issue a "bench decision" at the conclusion of the grievance hearing. Either party, however, may request a clarification or further explanation of a previous decision rendered by the National Arbitration Panel. 9. No lawyers will be permitted to present cases at any step of the grievance procedure. 10. The decision of any arbitration panel shall be specifically limited to the matters submitted to it and the panel shall have no authority in any manner to amend, alter or change any provision of the Agreement. 11. If the Employer or Union challenges in court a decision issued by any arbitration panel provided for in this Section, the cost of the challenge, including the court costs and attorneys' fees, shall be paid by the losing party. 12. Where Supplements under the 1991-94 NMFA provided for arbitration in discharge cases, the procedures for such arbitration shall be maintained under the 1994-98 Agreement. Section 3. Work Stoppages (a) The parties agree that all grievances and questions of interpretation arising from the provisions of this Agreement shall be submitted to the grievance procedure for determination. Accordingly, no work stoppage, slowdown, walkout or lockout shall be deemed to be permitted or authorized by this Agreement except as provided in Section 3(b) below. A "representation dispute" in circumstances under which the Employer is not required to recognize the Union under this Agreement 36 Article 8, Section 3 is not subject to the grievance procedure herein and the provisions of this Article do not apply to such dispute. (b) In the event an Employer is delinquent in its health & welfare or pension payments in the manner required by the applicable Supplemental Agreement, the Local Union shall have the right to take whatever action it deems necessary until such delinquent payments are made. The Local Union shall give the Employer a seventy-two (72)-hour, (excluding Saturdays, Sundays, and holidays), prior written notice of the Local Union's authorization of strike action which notice shall specify the failure to make health & welfare or pension payments providing the basis for such strike authorization. In no event shall the Union have the right to strike over a dispute concerning the eligibility and/or payment of health & welfare or pension contributions by an Employer on behalf of specific individuals, and such disputes shall be subject to the grievance procedure. Section 4. (a) It is mutually agreed that the Local Union will, within two (2) weeks of the date of the signing of this Agreement, serve upon the Employer a written notice listing the Union's authorized representatives who will deal with the Employer, make commitments for the Local Union generally and, in particular, those individuals having the sole authority to act for the Local Union in calling or instituting strikes or any stoppages of work which are not in violation of this Agreement. The Local Union may from time to time amend its listing of authorized representatives by certified mail. The Local Union shall not authorize any work stoppages, slowdown, walkout, or cessation of work in violation of this Agreement. It is further agreed that in all cases of an unauthorized strike, slowdown, walkout, or any unauthorized cessation of work which is in violation of this Agreement the Union shall not be liable for damages resulting from such unauthorized acts of its members. In the event of a work stoppage, slowdown, walkout or cessation of work, not permitted by the provisions of Article 8, Section 3(a), alleged to be in violation of this Agreement, the Employer shall immediately send a wire to the appropriate Area Conference to determine if such strike, etc., is authorized. 37 Article 8, Section 4 No strike, slowdown, walkout or cessation of work alleged to be in violation of this Agreement shall be deemed to be authorized unless notification thereof by telegram has been received by the Employer and the Local Union from such Area Conference. If no response is received by the Employer within twenty-four (24) hours after request, excluding Saturdays, Sundays, and holidays, such strike, etc., shall be deemed to be unauthorized by the Area Conference for the purpose of this Agreement. In the event of such unauthorized work stoppage or picket line, etc., in violation of this Agreement, the Local Union shall immediately make every effort to persuade the employees to commence the full performance of their duties and shall immediately inform the employees that the work stoppage and/or picket line is unauthorized and in violation of this Agreement. The question of whether employees who refuse to work during such unauthorized work stoppages, in violation of this Agreement, or who fail to cross unauthorized picket lines at their Employer's premises, shall be considered as participating in an unauthorized work stoppage in violation of this Agreement may be submitted to the grievance procedure, but not the amount of suspension herein referred to. It is specifically understood and agreed that the Employer during the first twenty-four (24)-hour period of such unauthorized work stoppage in violation of this Agreement, shall have the sole and complete right of reasonable discipline, including suspension from employment, up to and including thirty (30) days, but short of discharge, and such employees shall not be entitled to or have any recourse to the grievance procedure. In addition, it is agreed between the parties that if any employee repeats any such unauthorized strike, etc., in violation of this Agreement, during the term of this Agreement, the Employer shall have the right to further discipline or discharge such employee without recourse for such repetition. After the first twenty-four (24)-hour period of an unauthorized stoppage in violation of this Agreement, and if such stoppage continues, the Employer shall have the sole and complete right to immediately further discipline or discharge any employee participating in any unauthorized strike, slowdown, walkout, or any other cessation of work in violation of this Agreement, and such employees shall not be entitled to or have any recourse to the grievance procedure. The suspension or discharge herein referred to shall be uniformly applied 38 Article 8, Section 4 to all employees participating in such unauthorized activity. The Employer shall have the sole right to schedule the employee's period of suspension. The International Brotherhood of Teamsters, the Teamsters National Freight Industry Negotiating Committee, Area Conferences, Joint Councils and Local Unions shall make immediate efforts to terminate any strike or stoppage of work as aforesaid which is not authorized by such organizations, without assuming liability therefor. For and in consideration of the agreement of the International Brotherhood of Teamsters, Teamsters National Freight Industry Negotiating Committee, Area Conferences, Joint Councils and Local Unions affiliated with the International Brotherhood of Teamsters to make the aforesaid efforts to require Local Unions and their members to comply with the law or the provisions of this Agreement, including the provisions limiting strikes or work stoppages, as aforesaid, the Associations and Employers who are parties hereto agree that they will not hold the International Brotherhood of Teamsters, the Teamsters National Freight Industry Negotiating Committee, Area Conferences, Joint Councils and Local Unions liable or sue them in any court or before any administrative tribunal for undertaking such efforts to terminate unauthorized strikes or stoppages of work as aforesaid or for undertaking such efforts to require Local Unions and their members to comply with the law or the provisions of this Agreement, or for taking no further steps to require them to do so. It is further agreed that signator Associations and Employers will not hold the International Brotherhood of Teamsters, Teamsters National Freight Industry Negotiating Committee, Area Conferences, Joint Councils or Local Unions liable or sue them in any court or before any administrative tribunal for such unauthorized work stoppages alleging condonation, ratification or assumption of liability for undertaking such efforts to terminate strikes or stoppages of work, or requiring Local Unions and their members to comply with the law or the provisions of this Agreement. The provisions of this Article shall continue to apply during that period of time between the expiration of this Agreement and the conclusion of the negotiations or the effective date of the successor Agreement, whichever occurs later, except as provided in Article 39. It is understood and agreed that failure by the International Brotherhood of Teamsters, Teamsters National Freight Industry 39 Article 8, Section 4 Negotiating Committee, Area Conferences and/or Joint Councils to authorize a strike by a Local Union shall not relieve such Local Union of liability for a strike authorized by it and which is in violation of this Agreement. (b) The question of whether the International Union, Teamsters National Freight Industry Negotiating Committee, an Area Conference, Joint Council or Local Union have met its obligation set forth in the immediately preceding paragraphs, or the question of whether the International Union, Teamsters National Freight Industry Negotiating Committee, an Area Conference, Joint Council or the Local Union, separately or jointly, participated in an unauthorized work stoppage, slowdown, walkout or cessation of work in violation of this Agreement by calling, encouraging, assisting or aiding such work stoppage, etc., in violation of this Agreement, or the question of whether an authorized strike provided by Article 8, Section 3(b) is in violation of this Agreement, or whether an Employer engaged in a lockout in violation of this Agreement, shall be submitted to the grievance procedure at the national level, prior to the institution of any damage suit action. When requested, the co-chairmen of the National Grievance Committee shall immediately appoint a subcommittee to develop a record by collecting evidence and hearing testimony, if any, on the questions of whether the International Union, Teamsters National Freight Industry Negotiating Committee, an Area Conference, Joint Council or Local Union have met its obligations as aforesaid, or of Union participation or Employer lockout in violation of this Agreement. The record shall be immediately forwarded to the National Grievance Committee for decision. If a decision is not rendered within thirty (30) days after the co-chairmen have convened the National Grievance Committee, the matter shall be considered deadlocked. A majority decision of the National Grievance Committee on the questions presented as aforesaid shall be final and binding on all parties. If such majority decision is rendered in favor of one (1) or more of the Union entities, or the Employer, in the case of lockout, no damage suit proceedings on the issues set forth in this Article shall be instituted against such Union entity or such Employer. If, however, the National Grievance Committee is deadlocked on the issues referred to in this subsection 4(b), the issues must be referred to the National Arbitration Panel for resolution prior to either party 40 Article 8, Section 4 instituting damage suit proceedings. If the National Arbitration Panel decides that a strike was unlawful, it shall not have the authority to assess damages. Except as provided in this subsection 4(b), agreement to utilize this procedure shall not thereafter in any way limit or constitute a waiver of the right of the Employer or Union to commence damage suit action. However, the use of evidence in this procedure shall not waive the right of the Employer or Union to use such evidence in any litigation relating to the strike or lockout, etc., in violation of this Agreement. There shall not be any strike, slowdown, walkout, cessation of work or lockout as a result of a deadlock of the National Grievance Committee on the questions referred to under this subsection 4(b) and any such activity shall be considered a violation of this Agreement. (c) In the event that an Employer, party to this Agreement, commences legal proceedings against the Union after the Union's compliance with the provisions of Article 8, Section 3(b), the Employer Associations will cooperate in the presentation to the court of the applicable majority grievance committee decision. (d) Nothing herein shall prevent the Employer or Union from securing remedies granted by law except as specifically set forth in subsection 4(b). Section 5. (a) In the event of strikes, work stoppages, or other activities authorized by Article 8, Section 3(b) of this Agreement, no interpretation of this Agreement or any Supplement thereto relating to the Employer's obligation to make health & welfare and/or pension contributions by any tribunal shall be binding upon the Union or affect the legality or lawfulness of the strikes unless the Union stipulates to be bound by such interpretation, it being the intention of the parties to resolve all questions of interpretation by mutual agreement. (b) It is the intention of the parties to resolve all grievances and requests for interpretation arising under this Agreement through the grievance procedure. However, it is understood and agreed that nothing herein shall prevent the Employer or Union from securing remedies in those circumstances where the application of this Agreement is contrary to law. 41 Article 8, Section 6 Section 6. Change of Operations Change of Operations Committee (a) Present terminals, breaking points or domiciles shall not be transferred, changed or modified without the approval of an appropriate Change of Operations Committee. Such Committee shall be appointed in each of the Conference Areas, equally composed of Employer and Union representatives. The Change of Operations Committee shall have the authority to determine the seniority of the employees affected and such determination shall be final and binding. In the event a proposed change of operations includes the establishment of either a new or satellite terminal as a "combination" facility with a common city driver and dock seniority roster, when such change of operations results in the relocation or movement of city drivers and dock employees from an existing terminal recognizing separate (split) seniority rosters for city drivers and dock employees, the Change of Operations Committee shall have the authority to determine the conditions under which such a combination facility may be established, including but not limited to, the number of city drivers and dock employees who qualify, be allowed to follow the work to the new or satellite combination terminal, the implementation of training programs to qualify dock employees as city drivers and the seniority right of affected employees to either return to the "mother" terminal and/or claim additional driving positions at the satellite terminal within reasonable time periods following the establishment of such combination terminal, as determined by the Committee. Existing terminals that recognize separate city driver and dock seniority rosters (split terminals) shall not be converted to "combination" terminals unless and until such time as a majority of those affected employees agree to such conversion, in which case the Change of Operations Committee shall have the authority to determine the conditions under which such conversion shall be implemented. Such Committee, however, shall observe the Employer's right to designate domiciles and the operational requirements of the business. Where the Union raises the question as to whether or not certain proposed runs of excessive length can be made, the Employer must be prepared to submit objective evidence including DOT certifica- 42 Article 8, Section 6 tion or logs and tapes that such runs have been tested and were made within the DOT hours of service regulations. Individual employees shall not be redomiciled more than once during the term of this Agreement as the result of an approved change of operations unless a merger, purchase, sale, acquisition or consolidation of employers is involved, or unless there is proven economic need as determined by the Change of Operations Committee based on factual evidence presented. Pension and health & welfare contributions paid on behalf of a redomiciled employee shall be paid to the Funds to which the contributions were made prior to the employee's change of domicile, and the decisions of the Change of Operations Committee shall so specify. This Section does not apply to employees who voluntarily transfer to new domiciles, unless such transfer is a result of a Change of Operations Committee decision. Any dispute concerning the appropriate fund for an Employer's contribution on behalf of a redomiciled employee, pursuant to a Change of Operations Committee decision, shall be referred to the National Grievance Committee. The decision of the National Grievance Committee shall to the extent permitted by law, be final and binding on all affected parties, including the Trust Funds. The Change of Operations Committee shall also have jurisdiction for a period of twelve (12) months following the opening of a new terminal to consider the redomicile of employees who are laid off as a direct result of such opening of a terminal. The Committee shall also have jurisdiction over the closing of a terminal in regard to seniority, as well as to determine the conditions under which freight may or may not be interlined into the area of a vacated operations when necessary to retain major customers, including mandating the use of union carriers where available. In no event will the Employer be granted the authority to vacate a facility and interline the freight on a non- union subsidiary of the parent company. The above shall not apply within a twenty-five (25)-mile radius. Change of Operations Committee Procedure (b) The National Grievance Committee shall adopt Rules of Procedure concerning the application and administration of this Article. 43 Article 8, Section 6 The Employer shall notify all affected Local Unions of the proposed change of operations at least twenty (20) calendar days prior to the hearing at the Conference Joint Area Committee, and the Employer and the Local Unions involved shall have a mutual responsibility to inform the employees subject to redomicile prior to such hearing in accordance with the practice and procedures agreed to in the respective Area Committee. Any exception or waiver of the aforesaid twenty (20) day period shall be mutually agreed to between the Employer and the Local Unions involved and approved by the Conference Area Change of Operations Committee. Moving Expenses (c) Where an employee is required to transfer to another domicile in order to follow employment as a result of a change of operations, the Employer shall move the employee and assume the responsibility for proven loss or damage to household goods due to such move, including insurance against loss or damage. Should any employee possess household items of unusual or extraordinary value which will be included in the move, such items shall be declared and an appraised value determined prior to the move. The Employer shall provide packing materials for the employee's household goods when requested or at the employee's request pay all costs and expenses of moving such household goods, including packing. The Employer shall pay reasonable expenses to demount and remount an employee's mobile home, if used as his/her residence and in such instance shall pay normal expenses to move such mobile home, including the use of other modes of transportation where required by law. An employee shall have a maximum of one (1) year to move in accordance with the provisions of an approved change of operations unless, prior to the expiration of such year, he/she requests, in writing, an extension for a reasonable period of time due to an unusual or special problem. The Employer shall provide lodging for the employee at the point of redomicile, not to exceed ninety (90) calendar days, and in addition, shall reimburse the employee twenty-nine cents ($.29) per mile to transport one (1) personal automobile to the new location. 44 Article 8, Section 6 The Employer shall not be responsible for moving expenses if the employee changes his/her residence as a result of voluntary transfer. None of the Employer obligations set forth in this Subsection (c)Moving Expenses shall apply to transfers of domiciles within a fifty (50)-mile radius. Change of Operations Seniority (d) The Change of Operations Committee established herein shall have the sole authority to determine questions of the application of seniority in those situations presented to it and in connection therewith the following general rules shall apply, subject, however, to modification as provided by Section 6(g) below: Closing, Partial Closing of Terminals-Transfer of Work (1)a. When branches, terminals, divisions or operations (hereinafter "terminal(s)") are closed or partially closed and the work of such terminal(s) is transferred, in whole or in part, to another terminal (s) , the active employees (excluding those employees on letter of layoff) at the closed or partially closed terminal(s) shall have the right to bid into a master seniority roster (road or city) comprised of bidders from the active seniority rosters of closed or partially closed terminal(s) in the order of their continuous classification (road or city) seniority. Continuous classification seniority shall be defined as that seniority which the employee is currently exercising and has not been broken in the manner provided by Article 5, Section 1, or by voluntary changes in domicile not directed, approved or ordered by a Change of Operations Committee. Employees shall bid from the combined master seniority roster into openings at the terminal (s) into which work is being transferred. Employees so transferring shall be "dovetailed" into the appropriate active seniority roster at the new terminal(s) in the order of their continuous classification seniority. Such transfers shall be permitted prior to the recall of laid-off employees at such gaining terminal(s). If and when additional employees are required in excess of those who formed the combined active roster at the point of redomicile, employees on letter of layoff at that location shall be 45 Article 8, Section 6 recalled. If recalled, such employees shall be "dovetailed" with their continuous classification seniority. In addition, the inactive seniority rosters (employees who are on letter of layoff) at the terminal (s) from which employees are being redomiciled shall be "dovetailed" into a master "laid off" seniority roster and such employees shall have the same opportunities to transfer to terminal(s) within the area of the Supplemental Agreement which are afforded to employees covered by the provisions of subparagraph 2(b) below. b. The following seniority bidding procedures are to be applied in all change of operations cases that involve master pool bidding: 1. The Change of Operations Committee shall have the authority to establish a date for purposes of determining active and inactive (on letter of layoff or the equivalent thereof) employees at both gaining and losing locations. 2. Affected employees at losing locations shall be allowed to bid onto an active master pool seniority list on a dovetailed seniority basis. 3. At the time of the original bid, an employee on the active master pool seniority list shall be afforded the opportunity to bid any available position for which he/she is qualified at a gaining location in accordance with his/her seniority on the master pool seniority list. In the event the active employees at any given location elect not to bid the number of positions being lost at that particular location, inactive employees at that location, in accordance with their seniority, shall then be afforded the opportunity to bid as an active employee until the number of positions being lost at that particular location are filled. An employee who elects to "hold" as set forth in paragraph 4 below shall not be considered as filling a losing position. A successful bidder shall be dovetailed on the seniority list at the location he/she bids into. The number of successful bidders from any losing location shall not exceed, at the time of the original bid, the number of positions lost at that location as approved by the Change of Operations Committee. 4. An employee on the active master pool seniority list who does not have seniority to bid the location he/she desires in the initial bid may remain at his/her present domicile in such status as his/her 46 Article. 8, Section 6 bidding seniority will allow. Should an opening occur during the window period at the location to which he/she desired to transfer, he/she shall be afforded transfer opportunity in line with his/her bidding seniority. A successful bidder under this provision shall be dovetailed on the applicable seniority list at the location into which he/she bids and his/her moving expenses shall be paid in accordance with other transferring employees. The transfer provisions of this Section shall apply only during the window period. 5. An employee who elects to hold as set forth in Paragraph 4 above may hold for only one (1) location and must designate that location at the time of the original bid and may hold only for a position within the classification the employee has seniority to bid. If an employee refuses to accept an opportunity to claim a position he/she is holding for, the employee shall have no further claim to a position that may become available during the window period. 6. An employee who elects to hold, shall also be entitled to exercise seniority to claim a voluntary move under the provisions of Article 5, Section 5 herein, and in the event the employee accepts such a voluntary move, he/she shall retain his/her hold position at his/her home domicile during the remainder of the window period but shall forfeit any other seniority rights at his/her home domicile. Should a position become available at the location such employee is holding for and which the employee has seniority to successfully claim, moving expenses set forth in Article 8, Section 6(c) shall be computed from the employees original home domicile. 7. There shall not be less than a one hundred and twenty (120) day window period in all change of operations involving master pool bidding; provided, however, the Change of Operations Committee may extend the window period beyond one hundred and twenty (120) days when the circumstances involved justify a longer period of time. Closing of Terminals-Elimination of Work (2) a. When a terminal(s) is closed and the work of such terminal(s) is eliminated, an employee who was formerly employed at another terminal shall have the right to return to such former terminal and exercise his/her continuous classification (road or city) 47 Article 8, Section 6 seniority, provided he/she has not been away from such former terminal for more than a five (5)-year period. Layoff b. When a terminal(s) is closed and the work of such terminal(s) is eliminated, employees who are laid-off thereby shall be given first (1st) opportunity for available regular employment at any other terminal(s) of the Employer within the area of the Supplemental Agreement where such employee was employed. The obligation to offer such employment shall continue for a period of five (5) years from the date of closing. However, the Employer shall not be required to make more than one (1) offer during this period. Any employee accepting such offer shall pay his/her own moving expenses. If hired, he/she shall go to the bottom of the seniority board for bidding and layoff purposes, but shall retain company seniority for fringe benefits only. Opening of Terminals (3) When a new terminal(s) is opened (except as a replacement for existing operations or a new division in a locality where there are existing operations), the Employer shall offer to those employees, if any, affected thereby the opportunity to transfer to regular positions in the new terminal(s) in the order of such employee's continuous classification (road or city) seniority date as defined herein. Upon arrival at such new location, such employees shall be "dovetailed" with their continuous classification (road or city) seniority date together with other employees so transferring. This provision is not intended to cover situations where there is replacement of an existing operation or where a new division is opened in a locality where there is an existing terminal. In these latter situations, those employees laid off at the existing facilities shall have first (lst) opportunity for employment at the new operation in accordance with their continuous classification (road or city) seniority date, and upon arrival shall be similarly "dovetailed" If all regular full-time positions are not filled in this manner, then the provisions of the preceding paragraph shall apply. (4) When a Company which has an established Local Cartage Operation, which has been cleared by system OTR drivers, seeks to 48 Article 8, Section 6 establish a new OTR domicile there , the Company shall first file for a Change of Operations giving transfer opportunity, with regard to the initial complement, to OTR drivers from those system OTR domiciles that previously serviced such Local Cartage Operation with reasonable regularity. Such transfer opportunity shall remain in effect for any additions to the initial complement for a period of not less than 120 calendar days, after which further additions to such complement shall be hired at the locality where such new OTR domicile was established. (5) Any employee redomiciled by an approved change of operations or voluntary transfer to another domicile shall upon reporting to such new domicile be deemed to have relinquished his/her right to return, with seniority, to the domicile from which he/she was transferred, except under another approved change of operations. Employees who avail themselves of the transfer privileges because they are on layoff at their original terminal may exercise their seniority rights if work becomes available at their original terminal during the five (5)-year layoff period allowed them at their original terminal. Definition of Terms (e) The term "continuous classification seniority" as used in this Agreement is defined as that seniority which the employee is currently exercising and has not been broken in the manner provided in Article 5, Section 1, or by voluntary changes in domicile not directed, approved or ordered by a Change of Operations Committee. Qualifications (f) In all transfers referred to in this Section, the employee must be qualified to perform the job by experience in the classification. If a driver test is required, such test shall be given by a qualified driver- supervisor or driver. Intent of Parties (g) The parties acknowledge that the above rules are intended solely as general standards and further that many factual situations will be presented which necessitate different application, modification or amendment. Accordingly, the parties acknowledge that 49 Article 8, Section 6 questions of the application of seniority rights may arise which require different treatment and it is anticipated and understood that the Employers and Unions jointly involved and/or the respective grievance committees may mutually agree to such disposition of questions of seniority which in their judgment is appropriate under the circumstances. The Change of Operations Committees, as provided herein or in the Supplemental Agreements, shall have the authority to determine the application of seniority in those situations presented to them. In all cases, the seniority decisions of the Joint Committees, including the Change of Operations Committees and subcommittees established by the National Master Freight Agreement and the respective Supplemental Agreements, shall be final and binding. Section 7. All local, area and national grievance committees as constituted under this Agreement shall have the jurisdiction and power to decide grievances which arose under the preceding agreements and supplements thereto, applying, however, the contract under the grievance arose. ARTICLE 9. PROTECTION OF RIGHTS Section 1. Picket Lines: Sympathetic Action It shall not be a violation of this Agreement, and it shall not be cause for discharge, disciplinary action or permanent replacement in the event an employee refuses to enter upon any property involved in a primary labor dispute, or refuses to go through or work behind any primary picket line, including the primary picket line of Unions party to this Agreement, and including primary picket lines at the Employer's places of business. Section 2. Struck Goods It shall not be a violation of this Agreement and it shall not be cause for discharge, disciplinary action or permanent replacement if any employee refuses to perform any service which his/her Employer 50 Article 9, Section 2 undertakes to perform as an ally of an Employer or person whose employees are on strike and which service, but for such strikes, would be performed by the employees of the Employer or person on strike. Section 3. Subject to Article 32 - Subcontracting, hereof, the Employer agrees that it will not cease or refrain from handling, using, transporting, or otherwise dealing in any of the products of any other Employer or cease doing business with any other person, or fail in any obligation imposed by the Motor Carriers Act or other applicable law, as a result of individual employees exercising their rights under this Agreement or under law, but the Employer shall, notwithstanding any other provision in this Agreement, when necessary, continue doing such business, including pickup or delivery to or from the Employer's terminal and to or from the premises of a shipper or consignee. Section 4. The layover provision of the applicable Supplemental Agreement shall apply when the Employer knowingly dispatches a road driver to a terminal at which a primary picket line has been posted as a result of the exhaustion of the grievance procedure, or after proper notification of a picket line permitted by the collective bargaining agreement, or economic strikes occurring after the expiration of collective bargaining agreements, or to achieve a collective bargaining agreement. In such event and upon his/her request, a driver shall be provided first class public transportation to his/her home terminal, plus be paid a minimum of eight (8) hours or actual time spent while returning, whichever is greater. The Employer shall determine the mode of transportation to be utilized. 51 ARTICLE 10. LOSS OR DAMAGE Section 1. In the event loss, damage or theft of freight, equipment, materials, or supplies is incurred as a direct result of a willful gross negligent act by an employee in the performance of assigned work, when such act knowingly may result in such loss, damage or theft, the employee may be held responsible for such acts and may be required to assume liability for any such loss, damage or theft, in whole or in part. The term "willful, gross negligent acts" is intended to describe independent actions of any employee who knowingly violates established rules or policies that, when adhered to, clearly prevent loss, damage or theft described herein. Employees shall not be held responsible or required to assume liability for loss or damage or theft unless clear proof of willful, gross negligence is shown. In no event will an employee be held responsible for, or required to assume any liability for any loss, damage or theft when performing assigned work in a manner as specifically instructed by a supervisor. This Article shall not be utilized in any manner to hold an employee liable for any loss or damage of equipment under any conditions or for any damage to cargo as a result of a vehicular accident. Section 2. Prior to an employee being charged with the responsibility and liability for any loss, damage or theft because of willful gross negligent acts on the part of the employee, a hearing shall be held with the Local Union, the employee and the Employer. Employees who are found to be liable and required to make restitution for such liability, shall not then be subject to any further disciplinary action. Any disputes between the parties may be referred to the grievance procedure of the applicable Area Supplemental Agreement and the National Master Freight Agreement. 52 ARTICLE 11. BONDS AND INSURANCE Should the Employer require any employee to give bond, cash bond shall not be compulsory, and any premium involved shall be paid by the Employer. The primary obligation to procure the bonds shall be on the Employer. If the Employer cannot arrange for a bond within ninety (90) days, it must so notify the employee in writing. Failure to so notify shall relieve the employee of the bonding requirement. If proper notice is given, the employee shall be allowed thirty (30) days from the date of such notice to make his/her own bonding requirements, standard premiums only on said bond to be paid by the Employer. A standard premium shall be that premium paid by the Employer for bonds applicable to all other of its employees in similar classifications. Any excess premium is to be paid by the employee. Cancellation of a bond after once issued shall not be cause for discharge unless the bond is cancelled for cause which occurs during working hours, or due to the employee having given a fraudulent statement in obtaining said bond. Every driver must maintain a valid chauffeur's license and be covered by insurance. If an Employer cannot cover a driver under an existing fleet policy, the Employer will promptly apply to the state assigned risk-pool to provide any comparable coverage. During the pendency of the application and until insurance is obtained, the driver will not be terminated, but will be taken out of driving service. When any comparable insurance is obtained, the employee will be responsible for paying any excess over the standard charges. ARTICLE 12. UNIFORMS The Employer agrees that if any employee is required to wear any kind of uniform as a condition of his/her continued employment, such uniform shall be furnished and maintained by the Employer, free of charge, at the standard required by the Employer. Said uniforms shall be made in the United States by union vendors, if possible. The Employer shall replace all clothing, glasses, hearing aids and/or dentures not covered by company insurance or worker's compen- 53 Article 12 sation which are destroyed or damaged in a wreck or fire with company equipment. The Employer has the right to establish and maintain reasonable standards for wearing apparel and personal grooming. ARTICLE 13. PASSENGERS No driver shall allow anyone, other than employees of the Employer who are on duty, to ride on his truck except by written authorization of the Employer, or except in cases of emergency arising out of disabled commercial equipment or an Act of God. No more than two (2) people shall ride in the cab of a tractor unless required by government agencies or the necessity of checking of equipment. This shall not prohibit drivers from picking up other drivers, helpers or others in wrecked or broken down motor equipment and transporting them to the first (1st) available point of communication, repair, lodging or available medical attention. Nor shall this prohibit the transportation of other drivers from the driver's own company at a delivery point or terminal to a restaurant for meals. ARTICLE 14. COMPENSATION CLAIMS Section 1. Compensation Claims (a) The Employer agrees to cooperate toward the prompt disposition of employee on-the-job injury claims. The Employer shall provide worker's compensation protection for all employees even though not required by state law, or the equivalent thereof, if the injury arose out of or in the course of employment. (b) At the time an injury report is turned in, the Employer shall provide the injured employee with an information sheet briefly outlining the procedure for submitting a worker's compensation claim to include the name, address and phone number of the company's worker's compensation representative and other pertinent information relative to claim payment. 54 Article 14, Section 1 (c) An employee who is injured on the job, and is sent home, or to a hospital, or who must obtain medical attention, shall receive pay at the applicable hourly rate for the balance of his/her regular shift on that day. An employee who has returned to his/her regular duties after sustaining a compensable injury who is required by the worker's compensation doctor to receive additional medical treatment during his/her regularly scheduled working hours shall receive his/her regular hourly rate of pay for such time. (d) Road drivers sustaining an injury while being transported in company-provided transportation for Company purposes at a layover terminal shall be considered as having been injured on the job. (e) In the event that an employee sustains an occupational illness or injury while on a run away from his/her home terminal, the Employer shall provide transportation by bus, train, plane, or automobile to his/her home terminal if and when directed by a doctor. (f) The Employer agrees to provide any employee injured locally transportation at the time of injury, from the job to the medical facility and return to the job, or to his/her home if required. (g) In the event of a fatality arising in the course of employment, while away from the home terminal, the Employer shall return the deceased to his/her home at the point of domicile. (h) The Employer may publish reasonable safety rules and procedures and provide the Local Union with a copy Failure to observe such reasonable rules and/or procedures shall subject the employee to disciplinary action in accordance with the disciplinary procedures in the applicable Supplemental Agreement. However, the time limitation relative to prior offenses shall be waived to permit consideration of the employee's entire record of failure to observe reasonable safety rules and/or procedures resulting in lost time personal injuries. This provision does not apply to vehicular accidents. Section 2. Modified Work (a) The Employer may establish a modified work program designed to provide temporary opportunity to those employees who are unable to perform their normal work assignments due to a disabling on-the-job injury. Recognizing that a transitional return-to-work program offering both physical and mental therapeutic benefits will 55 Article 14, Section 2 accelerate the rehabilitative process of an injured employee, modified work programs are intended to enhance worker's compensation benefits and are not to be utilized as a method to take advantage of an employee who has sustained an industrial injury. (b) Implementation of a modified work program shall be at the Employer's option and shall be in strict compliance with applicable federal and state worker's compensation statutes. Acceptance of modified work shall be on a voluntary basis at the option of the injured employee. However, refusal to accept modified work by an employee, otherwise entitled to worker's compensation benefits, may result in a loss or reduction of such benefits as specifically provided by the provisions of applicable federal or state worker's compensation statutes. Employees who accept modified work shall continue to be eligible to receive "temporary partial" worker's compensation benefits as well as all other entitlements as provided by applicable federal or state worker's compensation statutes. c) At facilities where the Employer has a modified work program in place, temporary modified assignments shall be offered in seniority order to those regular full time employees who are temporarily disabled due to a compensable worker's compensation injury and who have received a detailed medical release from the attending physician clearly setting forth the limitations under which the employee may perform such modified assignments. Once a modified work assignment is made and another person is injured, the second person must wait until a modified work opening occurs, regardless of seniority. All modified work assignments must be made in strict compliance with the physical restrictions as outlined by the attending physician. All modified work program candidates must be released for eight (8) hours per day, five (5) days per week. The Employer at its option, may make a modified work offer of less than eight (8) hours per day where such work is expected to accelerate the rehabilitative process and the attending physician recommends that the employee works back to regular status or up to eight (8) hours per day by progressively increasing daily hours. A copy of any release for modified work must be given to the employee before the modified work assignment begins. It is understood and agreed that those employees who, consistent with professional medical evaluations and opinion, may never be 56 Article 14, Section 2 expected to receive an unrestricted medical release, shall not be eligible to participate in a modified work program. In the event of a dispute related to conflicting medical opinion, such dispute shall be resolved pursuant to established worker's compensation law and/or the method of resolving such matters as outlined in the applicable Supplemental Agreement. In the absence of a provision in the Supplemental Agreement, the following shall apply: When there is a dispute between two (2) physicians concerning the release of an employee for modified work, such two (2) physicians shall immediately select a third (3rd) neutral physician within seven (7) days, whose opinion shall be final and binding on the Employer, the Union and the employee. The expense of the third (3rd) physician shall be equally divided between the Employer and the Union. Disputes concerning the selection of the neutral physician or back wages shall be subject to the grievance procedure. For locations where the Employer intends to implement a modified work program or has a modified work program in place, the Local Union shall be provided with a copy of the current form(s) being used for employee evaluation for release and general job descriptions. This information shall be general in nature, not employee specific. When a modified work assignment is made, the employee shall be provided with the hours and days he/she is scheduled to work as well as the nature of the work to be performed in writing. A copy of this notice shall also be submitted to the Local Union. (d) Modified work shall be restricted to the type of work that is not expected to result in a re-injury and which can be performed within the medical limitations set forth by the attending physician. In the event the employee, in his/her judgment, is physically unable to perform the modified work assigned, he/she shall be either reassigned modified work within his/her physical capabilities or returned to full "temporary total" worker's compensation benefits. In the event a third (3rd) party insurance carrier refuses to reinstate such employee to full temporary total disability benefits, the Employer shall be required to pay the difference between the amount of the benefit paid by such third (3rd) party insurer and full total temporary disability benefits. Determination of physical capabilities shall be based on the attend- 57 Article 14, Section 2 ing physician's medical evaluation. Under no conditions will the injured employee be required to perform work at that location subject to the terms and conditions of the National Master Freight Agreement or its Area Supplemental Agreements. Prior to acceptance of modified work, the affected employee shall be furnished a written job description of the type of work to be performed. (e) The modified workday and workweek shall be established by the Employer within the limitations set forth by the attending physician. However, the workday shall not exceed eight (8) hours, inclusive of coffee breaks where applicable and exclusive of a one-half (1/2) hour meal period and the workweek shall not exceed forty (40) hours, Monday through Friday, or Tuesday through Saturday, unless the nature of the modified work assignment requires a scheduled workweek to include Sunday. Whenever possible, the Employer will schedule modified work during daylight hours, Monday through Friday, or during the same general working hours and on the same workweek that the employee enjoyed before he/she became injured. In the case of an employee whose workdays and/or hours routinely varied, the Employer will schedule the employee based on the availability of the modified assignment being offered. Any alleged abuse of the assignment of workdays and workhours shall be subject to the grievance procedure. (f) Modified work time shall be considered as time worked when necessary to satisfy vacation and sick leave eligibility requirements as set forth in the National Master Freight Agreement and/or its applicable Area Supplemental Agreements. In addition to earned vacation pay as set forth in. the applicable Area Supplemental Agreements, employees accepting modified work shall receive prorated vacation pay for modified work performed based on the weekly average modified work pay. The only time modified work is used in prorating vacation is when the employee did not qualify under the applicable Supplemental Agreement. Holiday pay shall first be paid in accordance with the provisions of the applicable Supplemental Agreement as it relates to on-the-job injuries. Once such contractual provisions have been satisfied, holidays will be paid at the modified work fate which is the modified work wage plus the temporary partial disability benefit. Sick leave and funeral leave taken while an employee is performing modified work will be paid at the modified work rate, which is 58 Article 14, Section 2 the modified work wage plus the temporary partial disability benefit. Unused sick leave will be paid at the applicable contract rate where the employee performed modified work and qualified for the sick leave during the contract year. (g) The Employer shall continue to remit contributions to the appropriate health & welfare and pension trusts during the entire time period employees are performing modified work. Continuation of such contributions beyond the period of time specified in the Supplemental Agreement for on-the- job injury shall be required. Provisions of this Section shall not be utilized as a reason to disqualify or remove an employee from the modified work program. (h) Employees accepting modified work shall receive temporary partial benefits as determined by each respective state workers' compensation law, plus a modified work wage when added to such temporary partial benefit, shall equal not less than eighty-five percent (85%) of forty (40) hours' pay he/she would otherwise be entitled to under the provisions of the applicable Area Supplemental Agreement for the first six (6) months from the date the modified work assignment commences. After this initial six (6)-month period, the percentage shall increase to ninety percent (90%) for the duration of each individual modified work assignment. The Employer shall not refuse to assign modified work to employees based solely on such employees reaching the ninety percent (90%) wage level. Such refusal shall be considered an abuse of the program and shall be subject to the grievance procedure. Modified work assignments beginning or ending within a workweek shall be paid on a prorated basis; one (1) day equals one-fifth (1/5th). Where an employee participates in a wage reduction-job security plan as provided in Article 6, Section 2, the eighty-five percent (85%) and ninety percent (90%) as specified herein shall be based on the wage provisions of the applicable Supplemental Agreement and not the wage reduction-job security plan; provided, however, no such employee shall receive a modified work wage in excess of that provided in the applicable wage reduction-job security plan. (i) Employees accepting modified work shall not be subject to disciplinary action provisions of the Supplemental Agreements unless such violation involves an offense for which no prior warning notice is required under the applicable Supplemental Agreement 59 Article 14, Section 2 (Cardinal Sins). Additionally, the provisions of Article 35, Section 3(a), shall apply. (j) Alleged abuses of the modified work program by the Employer and any factual grievance or request for interpretation concerning this Article shall be submitted directly to the Conference Joint Area Committee for the making of a record only, after which it shall be immediately referred to the National Grievance Committee. Proven abuses may result in a determination by the National Grievance Committee that would withdraw the benefits of this Article from that Employer, in whole or in part, in which case affected employees shall immediately revert to full worker's compensation benefits. Section 3. The Union and the Employer agree to abide by the provisions of the Americans with Disabilities Act. The Employer shall negotiate with the Local Union before providing a reasonable accommodation to a qualified bargaining unit employee. ARTICLE 15. MILITARY CLAUSE Employees enlisting or entering the military or naval service of the United States shall be granted all rights and privileges provided by applicable law. The Employer shall pay the health & welfare and pension fund contributions on employees on leave of absence for training in the military reserves or National Guard, but not to exceed fourteen (14) days, providing such absence affects his/her credits or coverage for health & welfare and/or pensions. Effective the date of ratification, the Employer shall continue to pay health & welfare contributions for regular active employees involuntarily called to active duty status from the military reserves or the National Guard during periods of war or military conflict. Such contributions shall only be paid for a maximum period of twelve (12) months. 60 ARTICLE 16. EQUIPMENT AND SAFETY Preamble It is agreed that all parties covered by this Agreement shall comply with all applicable federal, state and local regulations pertaining to subjects covered by Article 16. Failure to do so shall be subject to the grievance procedure, in accordance with Articles 7 and 8 of the NMFA, and any other remedies prescribed by law after the procedures contained in this Agreement are exhausted. Section 1. Safe Equipment The Employer shall not require employees to take out on the streets of highways any vehicle that is not in a safe operating condition, including, but not limited to, equipment which is acknowledged as overweight or not equipped with the safety appliances prescribed by law. It shall not be a violation of this Agreement or basis for discipline where employees refuse to operate such equipment unless such refusal is unjustified. It shall also not be a violation of this Agreement or considered an unjustified refusal where employees refuse to operate a vehicle when such operation constitutes a violation of any federal rules, regulations, standards, or orders applicable to commercial motor vehicle safety or health, or because of the employee's reasonable apprehension of serious injury to himself/herself or the public due to the unsafe condition of such equipment. The unsafe conditions causing the employee's apprehension of injury must be of such nature that a reasonable person, under the circumstances then confronting the employee, would conclude that there is a bona fide danger of an accident, injury, or serious impairment of health, resulting from the unsafe condition. In order to qualify for protection under this provision, the employee must have sought from the Employer, and have been unable to obtain, correction of the unsafe condition. All equipment which is refused because it is not mechanically sound or properly equipped shall be appropriately tagged so that it cannot be used by other employees until the maintenance department has adjusted the complaint. After such equipment is repaired, the 61 Article 16, Section 1 Employer shall place on such equipment an `OK' in a conspicuous place so the employee can see the same. Section 2. Dangerous Conditions Under no circumstances will an employee be required or assigned to engage in any activity involving dangerous conditions of work, or danger to person or property or in violation of any applicable statute or court order, or in violation of a government regulation relating to safety of person or equipment. The term "dangerous conditions of work" does not relate to the type of cargo which is hauled or handled. Section 3. Accident Reports Any employee involved in any accident or cargo spill incident, involving any hazardous or potentially polluting product, shall immediately report said accident or spill incident and any physical injury sustained. When required by his/her Employer, the employee, before starting his/her next shift, shall make out an accident or incident report in writing on forms furnished by the Employer and shall turn in all available names and addresses of witnesses to the accident or incident. The employee shall receive a copy of the accident or incident report that he/she submits to his/her Employer. Failure to comply with this provision shall subject such employee to disciplinary action by the Employer. Section 4. Equipment Reports Employees shall immediately, or at the end of their shift, report all defects of equipment. (a) Such reports shall be made on a suitable form furnished by the Employer and shall be made in multiple copies, one (1) copy to be retained by the employee and one (1) copy to be made available for inspection by the next driver operating the unit. Such copy will remain in the truck. Any alleged violation of the above shall not be cause for refusal of the equipment, but shall be subject to the grievance procedure. The Employer shall not ask or require any employee to take out equipment that has been reported by any other employee as being in an unsafe operating condition until the same 62 Article 16, Section 4 has been repaired or is certified by a mechanical department that no repairs are needed and the unit is safe to drive. (b) When the occasion arises where an employee gives written report on forms in use by the Employer of a vehicle being in an unsafe working or operating condition and receives no consideration from the Employer, he/she shall take the matter up with the officers of the Union who will take the matter up with the Employer. However, in no event shall an employee be required to take out on the streets or highways a vehicle that is not in a safe operating condition or in violation of any federal rules, regulations, standards, or orders applicable to commercial motor vehicle safety as provided in Section I of this Article. Section 5. Qualifications on Equipment If the Employer or government agency requests a regular employee to qualify on equipment requiring a classified or special license, or in the event an employee is required to qualify (recognizing seniority) on such equipment in order to obtain a better job opportunity with his/her Employer, the Employer shall allow such regular employee the use of the equipment so required in order to take the examination on the employee's own time. Costs of such license required by a government agency will be paid for by the employee. An employee unable to successfully pass the new DOT Commercial Driver's License (CDL) examination will be allowed to take a leave of absence for a period not to exceed one (1) year provided the employee makes a bona fide effort to pass the test each time the opportunity presents itself. Section 6. Equipment Requirements (a) All tractors must be equipped as necessary to allow the driver to safely enter and exit the cab, and hook and unhook the air hoses. All equipment used as city peddle trucks, and equipment regularly assigned to peddle runs, must have steps or other similar device to enable drivers to get in and out of the body. All twin trailers used in LTL pick-up and delivery operation with roll up doors purchased after April 1, 1985 shall be equipped with a hand hold and a DOT bumper which may serve as a step. 63 Article 16, Section 6 (b) The Employer shall install heaters and defrosters on all trucks and tractors. (c) There shall be first-line tires on the steering axle of all road and local pick-up and delivery power units. (d) All road equipment regularly assigned to the fleet shall be equipped with an air-ride seat on the driver's side. Such equipment shall be maintained in reasonable operating condition. All new air-ride seats shall oscillate and have an adjustable lumbar support, height, backrest and seat tilt. (e) Tractors added to the road fleet and assigned to road operations on a regular basis, whether newly manufactured or not newly manufactured, shall be air conditioned. Tractors now in service which are not air conditioned shall be retrofitted by July 1, 1985. The Conference Joint Area Committee may, upon application of either the Employer or the Local Union, waive the installation of such air conditioning equipment as a result of climatic conditions or other standards established by the Committee. (f) When the Employer weighs a trailer, the over-the-road driver shall be furnished the resulting weight information along with his/her driver's orders. (g) All company trailers shall be marked for height. (h) No driver shall be required to drive a tractor designed with the cab under the trailer. (i) All road and city equipment shall have a speedometer operating with reasonable accuracy. (j) The following minimum measurements for fuel tank placement shall apply to tractors added to the fleet after March 1, 1981, with the understanding that there shall be no retrofit of equipment currently in use: (1) front of fuel tank to rear of front tire-not less than 4 inches; (2) rear of fuel tank to front of duals-not less than 4 inches; (3) bottom of fuel tank to ground-provide clearance not less than 7.5 inches, measured on a flat surface; and (4) all fuel tank measurements as stated herein include brackets, return lines, etc. in determining clearance. 64 Article 16, Section 6 Any alleged violation of the above requirements shall not be cause for refusal of the equipment, but shall be subject to the grievance procedure as a safety and health issue. (k) The following shall apply to shock absorbers on tractor front axles with the purchase of newly manufactured tractors which are placed in service after March 1, 1981, and with the understanding that there shall be no retrofit of equipment currently in use: Where the manufacturer recommends and provides shock absorbers as standard equipment with the tractor front suspension assembly, properly maintained shocks on such new equipment shall be considered as a necessary and integral part of that assembly. Where the manufacturer does not recommend and provide shock absorbers as standard equipment with the tractor front suspension assembly, shocks shall not be considered as a necessary or integral part of that suspension system. Any alleged violation of the above, including maintenance of existing equipment, shall not be cause for refusal of equipment but shall be subject to the grievance procedure as a safety and health issue. (l)(1) The following shall apply for the minimum interior dimensions of the sleeper berths on newly manufactured over-the-road tractors purchased and placed in service after January 1, 1987. a. Length - 80 inches; b. Width - 34 inches; and, c. Height - 24 inches. It is understood that a "manufacturing tolerance of error" of one inch (1') is permissible, provided the original specifications were in conformity with the above recommended dimensions. It is understood that there shall be no retrofit of equipment currently in service. (2) Interior cab dimensions. Effective January 1, 1988, the Employer, in placing orders for newly manufactured over-the-road tractors, shall request of the manufacturer in writing that there will be compliance with as many of the following October, 1985 SAE recommended practices as possible: J941-E, J1052, Jl521, Jl522, J1517, J1516, and J1100. The carrier, upon request, will furnish proof to the National Safety and Health Committee that a request was made to the manufacturer for compliance with the aforementioned SAE recommended practices. 65 Article 16, Section 6 (m) The Employer and the Union recognize the need for safe and efficient twin-trailer operations. Accordingly, the parties agree to the following: (1) The Employer shall make available to all drivers involved in the twin-trailer operations training in the proper procedures for the safe hooking and unhooking of dollies and jiff-lox. Upon request, the Company will furnish to the Union a copy of their training program. (2) Dollies and jiff-lox shall be counter-balanced or equipped with a crank-down wheel to support the weight of the dolly tongue or jiff-lox. A handle will also be provided on the tongue of the dolly or jiff-lox and shall be maintained. (3) A tractor equipped with a pintle hook will be made available to drivers required to drop and hook twin trailers or triples at closed terminals. The Employer shall make a bona fide attempt to make a telephone available for the driver at closed terminals during the trailer switch. (4) Whenever possible, the Company will hook up the heaviest trailer in front in twin-trailer operations. In those instances where it is not possible because of an intermediate drop of less than one hundred and fifty (150) miles or scaling of the drive axle, the driver after driving the unit at any point on the trip, determines, at his/her sole discretion, the unit does not handle properly, may have the Company switch the unit or authorize the driver to switch the unit and be paid for such time. (n) (1) There will be a moratorium on the purchase of diesel powered forklifts. a. On the effective date of this Agreement, there shall be no diesel forklifts in breakbulk terminals and/or consolidation centers that employ fifty (50) or more regular dock employees. Commencing .April 1, 1992, all diesel forklifts shall be phased out at the rate of twenty percent (20%) per year, systemwide, to be completed by April 17 1997. b. Should the National Institute for Occupational Safety and Health (NIOSH) conclude that diesel is or can be made as safe and healthy as alternative combustible fuels, the Employers reserve the right to resume purchasing diesel powered forklifts. 66 Article 16, Section 6 (2) It shall be standard work practice that every diesel-powered forklift shall be shut off whenever the operator leaves the seat. Under no circumstances shall diesel-powered forklifts be allowed to idle when not attended. (3) Diesel-powered forklifts shall be tuned and maintained in accordance with schedules recommended by their manufacturers. The Employer shall provide copies of such recommendations to the Union upon request. (4) Improperly maintained diesel-powered forklifts may produce visible emissions after start-up. Therefore, any such diesel-powered forklift that is found to be smoking shall be taken out of service as soon as possible until repairs are trade and that condition corrected. (5) The Employer agrees to cooperate with those government and/or mutually agreed private agencies in such surveys or studies designed to analyze the use and operation of diesel-powered forklifts and diesel-powered forklift emissions. (o) As of July 1, 1988, as new equipment is ordered or existing equipment requires brake lining replacement, all brake linings shall be of nonasbestos material where available and certifiable. (p) Slack adjuster equipment (snubbers) used in multiple trailer operations, whether on the trailers or on the converters, shall be maintained in proper working order. However, it shall not be a violation of this provision for the unit to be pulled to the next point of repair if the snubber is inoperative. (q) Converter dollies may be pulled on public roads by bobtail tractors if all of the following conditions are met: (1) Tractors used in this type of operation shall have a pintle hook installed which has the proper weight capacity and is designed for highway use; (2) Neither supply nor control air lines are to be connected to the converter dolly when being pulled by a bobtail tractor, and the tractor protection valve shall be set in the normal bobtail position; (3) After October 1, 1991, tractors used to pull converter dollies bobtail must be equipped with a type of bobtail proportioning valve (BPV) in the tractor braking system; 67 Article 16, Section 6 (4) It is further agreed such configuration must comply with state and federal law. (r) All newly manufactured road tractors regularly assigned to the fleet after July 1, 1991, shall be equipped with heated mirrors. However, it shall not be a violation of this provision for the tractor to be dispatched to the next Company point of repair if the heated mirror is inoperative. (1) All new diesel tractors and new yard equipment shall be equipped with vertical exhaust stacks. (2) All road and city tractors shall be equipped with large spot mirrors (6' minimum) on both sides of the tractor by January 1, 1995. (3) All road tractors and switching equipment shall be equipped with an operable light of sufficient wattage on the back of the cab. (4) All new road and city equipment shall have operable sun visors. (5) Seats on forklifts and sweepers shall be maintained in good repair. (s) All newly manufactured city tractors regularly assigned to the city pickup and delivery operation after July 1, 1991, shall be equipped with power steering and an air-ride seat on the driver's side. (1) All new road and yard equipment shall have power steering. (2) All new forklifts and sweepers shall be equipped with power steering. (t) All hand trucks and pallet jacks shall be maintained in good repair. (u) All portable and mechanical dock plates shall be maintained in good working condition. (v) The parties will maintain a safe and healthy working environment in sleeper operations. The parties agree to establish a committee composed of four (4) members each to review the comfort and/or safety aspects of sleeper berths pertaining to ride. Such committee shall meet by mutual agreement of the Co-chairmen as to time and place. The committee shall confer with appropriate 68 Article 16, Section 6 representatives of equipment manufacturers and/or other experts on this subject as maybe available. The intent of the committee is to identify any problems with the comfort and/or safety aspects of sleeper berths pertaining to ride that may exist, and through its deliberations with the manufacturers and/or other experts, develop ways and means to correct such situations. The committee shall report its findings and make recommendations to the National Grievance Committee by April 1, 1995. If the parties cannot agree on possible recommendations by April 1, 1995, the matter shall be subject to Article 8 - National Grievance Procedure. (1) Sleeper berths shall be equipped with individual heat and air- conditioning controls. (2) Bunk restraint strap/net buckles on sleeper equipment shall be mounted on the entrance side of the sleeper berth by April 1, 1995. (3) New sleeper equipment purchased on or after April 1, 1995, shall be equipped with a power window on the passenger's side of the cab that is operable from the driver's side of the cab. Section 7. National Safety and Health Committee The Employer and the Union shall continue the National Master Freight Safety and Health Committee. Such Committee shall be comprised of qualified representatives to consider safety, health and equipment issues. The Committee shall consult among themselves and/or with appropriate government agencies, state and federal, on matters involving all aspects of trucking operations safety and health and issues related to equipment safety. Such Committee shall convene on a regular basis, with an agenda to be agreed to by the respective chairmen. Any grievance arising under this Article shall be processed through the Conference Joint Area level in accordance with rules and procedures agreed to by the National Master Freight Safety and Health Committee and approved by the National Grievance Committee. Section 8. Hazardous Materials Program The parties have rewritten the "Hazardous Materials' Employee Protection/Training Program'" to be effective April 1, 1994, and is hereby incorporated by reference in this Agreement. The Program 69 Article 16, Section 8 will be printed and distributed to all members/employees in line with regulatory guidelines. The parties further agree that as new federally mandated changes occur, they too will become part of this Agreement. The Guidelines contained in the printed Program are minimums, and are not intended to prevent the Employer from providing additional training or protection which would enhance safety and health to the employees. All regular employees shall be paid for such training at their regular straight time hourly rate. Section 9. Union Liability Nothing in this Agreement or its Supplements relating to health, safety or training rules or standards shall create any liability or responsibility on behalf of the Union for any job-related injury or accident to any employee or any other person. Further, the Employer will not commence legal action against the Union as a result of the Union's negotiation of safety standards contained in this Agreement or failure to properly investigate or follow-up Employer compliance with those safety standards. Section 10. Government Required Safety & Health Reports The Employer shall provide, upon written request by the Local Union, a copy of any occupational incident report that is required to be filed with a federal government agency on safety and health subjects addressed by Article 16 only. Such reports shall be free of charge for one (1) copy. ARTICLE 17. PAY PERIOD The Joint Area Committee or the National Grievance Committee and the Employer may, by mutual agreement, waive the provisions of Local Supplements dealing with pay periods upon a satisfactory showing of necessity by the Employer. 70 ARTICLE 18. OTHER SERVICES In the event an Employer, party to this Agreement, may require the services of employees coming under the jurisdiction of this Agreement in a manner and under conditions not provided for in this Agreement, then and in such instances the Local Union and the Employer concerned may negotiate such matters for such specific purposes, subject to the approval of the Joint Area Committee and then ratified by the affected members. ARTICLE 19. POSTING Section 1. Posting of Agreement A copy of this Agreement shall be posted in a conspicuous place in each garage and terminal. Section 2. Union Bulletin Boards The Employer agrees to provide suitable space for the union bulletin board in each garage, terminal or place of work. Postings by the Union on such boards are to be confined to official business of the Union. ARTICLE 20. UNION AND EMPLOYER COOPERATION Section 1. Fair Day's Work for Fair Day's Pay The parties agree at all times as fully as it may be within their power to cooperate so as to protect the long-range interests of the employees, the Employers signatory to this Agreement, the Union and the general public served by the members of the trucking industry party to this Agreement. The Union and the Employer recognize the principle of a fair day's work for a fair day's pay; that jobs and job security of employees 71 Article 20, Section I working under this Agreement are best protected through efficient and productive operations of the Employer and the trucking industry; and that this principle shall be recognized in the administration of this Agreement and its Supplements and the resolution of all grievances thereunder. Section 2. Joint Industry Development Committee The parties recognize that the unionized LTL industry is losing market share and jobs to competitors. The parties recognize that it is in the interest of the Union and the Employers to return the LTL industry to health and to foster its growth. Only if the industry prospers and grows will the industry's employees, whom the Union represents, achieve true job and economic security. Only if the industry prospers and grows will the industry have access to the resources it needs to capitalize and be competitive. Recognizing that returning the industry to health should be a cooperative, long-term effort, the Teamsters National Freight Industry Negotiating Committee ("TNFINC") and the Employer Association agree to establish a Joint Industry Development Committee to serve as a vehicle for this effort. The purpose of the Committee will be to perform the following tasks: address the principles of an intermodal truckload agreement as a means of capturing new market and creating additional city/P&D jobs; develop data to evaluate and monitor industry and competitor productivity, costs and operations; catalogue, compare and evaluate workrules, practices and procedures among the various NMFA supplements and the Employer Association's companies; make joint recommendations to the parties about any changes in the NMFA and its supplements that the Committee believes should be considered in the next round of negotiations for the new NMFA; solicit grants for joint activities that benefit the industry and its bargaining unit employees, such as driver training schools; and monitor pending legislation and executive action on the national, state and local level that may affect the welfare of the industry and, where appropriate, jointly recommend actions that further the interests of the industry and its bargaining unit employees and jointly present the views of the Joint Committee to legislative and executive bodies. 72 Article 20, Section 2 The Committee shall operate as a labor-management committee within the meaning of Section 302(c) (9) of the LMRA, as amended, established and functioning so as to fulfill one or more of the purposes set forth in Section 6 (c) (2) of the Labor Management Cooperation Act of 1978. The Committee shall have the full support of both the International Brotherhood of Teamsters and the Employer Association in the Committee's efforts to identify problems, formulate plans to solve those problems and, where appropriate, conduct joint activities designed to implement the plans. The Chairman of TNFINC will appoint five (5) Union representatives to the Joint Committee. The Employer Association will appoint five (5) Employer representatives to the Joint Committee. Appointments to the Joint Committee will be made in a manner to assure that there are persons serving who are familiar with the full range of operations undertaken by Employer Association's carriers under all supplemental agreements. The Joint Committee shall meet at least quarterly and may appoint continuing subcommittees to carry out specific tasks. The Union and Employer representatives to the Joint Committee will establish procedures for the operation of this Committee. Section 3. The Union and the Employers will establish a Health Benefits Joint Committee to review the provision of health benefits to employees covered by this Agreement. This Committee is charged with the critical responsibility of ensuring that employee health benefits are made available to employees covered by the terms of the NMFA in a secure and cost-efficient manner. It is anticipated that this Committee shall serve as a source of continuing study regarding the most efficient manner of providing health benefits to covered employees and as a source of continuing guidance, particularly in those instances where an existing Health & Welfare Fund is not capable of maintaining benefits within the contribution level provided under the terms of this Agreement. To the extent covered employees might suffer a reduction in benefits due to the inability of a Health & Welfare Fund to continue to provide existing benefits within the contribution amount provided hereunder, the Joint Committee shall have the responsibility of making recommendations to the affected employees and their Local Unions 73 Article 20, Section 3 concerning alternative methods, if possible, of securing comparable health benefits. The Union and the Employers will establish procedures for the operation of this Committee. The Committee will make periodic reports and recommendations to TNFINC and Employers concerning the payment for health services by the jointly administered Health & Welfare Funds receiving contributions under the terms of this Agreement. ARTICLE 21. UNION ACTIVITIES Any employee, member of the Union, acting in any official capacity whatsoever shall not be discriminated against for his/her acts as such officer of the Union so long as such acts do not interfere with the conduct of the Employer's business, nor shall there be any discrimination against any employee because of Union membership or activities. A Union member elected or appointed to serve as a Union official shall be granted a leave of absence during the period of such employment, without discrimination or loss of seniority rights, and without pay. ARTICLE 22. OWNER-OPERATORS Section 1. This Agreement governs the use of "owner-operators" (as defined below) by all Employers signatory to this Agreement. The parties recognize that there are two (2) distinct types of C4 owner-operators" covered by this Agreement: employee owner-operators and nonemployee owner-operators. Generally, employee owner-operators are drivers who work exclusively for a single Employer on a regular basis and who perform the same type of work as the Employer's regular employee drivers, and it is only that kind of owner- operator that is covered by this Article. Conversely, there are owner- operators who do hauling work on an intermittent basis (e.g., trip leas- 74 Article 22, Section 1 es) for several different Employers. As such, the latter may be utilized only to perform work which may be properly subcontracted under Article 32 (e.g., overflow loads). Section 2. For purposes of this Article, the term "owner-operators" means any employee driver who performs unit work and who operates trucking equipment which he/she owns and leases to an Employer signatory to this Agreement. The certificate and title to the leased equipment of an owner-operator must be in the name of the owner-operator (or the owner-operatives secured creditor) not the Employer Further, it is understood and agreed that whenever the term "owner-operator" is used in this Article, it means employee owner-driver only, and nothing in this Article shall apply to any equipment leased except when the owner is also employed as a driver. However, it is expressly understood that in the case of equipment under permanent lease (with a minimum thirty (30)-day cancellation clause) from a fleet owner, individuals operating such equipment shall operate it as employees of the Employer. Section 3. For purposes of this Article, hired or leased equipment shall be operated by an employee of the Employer. The performance of unit work by owner-operators shall be governed by the provisions of this Agreement and Supplements relating to owner-operators. The Employer expressly reserves the right to control the manner, means and details of, and by which, the owner-operator performs his/her services, as well as the ends to be accomplished, and shall not permit others or delegate to others the authority to do so. All employee owner-operators shall be treated under the provisions of this Agreement and any applicable Supplements to this Agreement, in the same manner as other employee drivers. Accordingly, the wages and working conditions of an employee owner-operator (including pension and health & welfare contributions) shall be in full accordance with those provided to other employee drivers under this Agreement. Employee owner-operators, however, shall have seniority under Article 5 of this Agreement only as drivers. Consistent with their "employee" status, employee owner-operators shall be affiliated by permanent lease with their Employer and shall operate exclusively for that Employer and no other interest. 75 Article 22, Section 4 Section 4. Employers must use their own available equipment, together with all leased equipment under a permanent lease (with a minimum thirty (30) days' cancellation clause) before hiring any extra equipment. The hiring of such extra equipment shall be subject to the provisions of Article 32 Subcontracting. Section 5. Separate checks shall be issued by the Employer for driver's wage and equipment rental, except as provided in Section 6. At no time shall the equipment check be for less than actual miles operated. Separate checks for drivers shall not be deducted from the minimum truck rental revenue. The driver shall turn in time directly to the Employer. All monies due the owner- operator may be held not longer than two (2) weeks, except where the lease of equipment agreement is terminated, and in such case, all monies due the operator may be held no longer than forty-five (45) days from the date of termination of the operation of the equipment. Section 6. Payment for equipment service shall be handled by the issuance of a check for the full mileage operated, tonnage or percentage, less any agreed advances. A statement of any charges by the Employer shall be issued at the same time, but shall not be deducted in advance. Section 7. The owner-operator shall have complete freedom to purchase gasoline, oil, grease, tires, tubes, etc., including repair work, at any place where efficient service and satisfactory products can be obtained at the most favorable prices. Section 8. There shall be no deduction pertaining to equipment operation for any reason whatsoever. Section 9. The Employer hereby agrees to pay road or mile tax, public liabili- 76 Article 22, Section 9 ty and property damage insurance, cargo insurance, bridge tolls, fees for certificates, permits and travel orders, fines and penalties for inadequate certificates, license fees, weight tax and wheel tax, and for loss of driving time due to waiting at state lines. The Employer shall also pay social security tax, unemployment insurance tax and worker's compensation insurance, and any other federal or state (or local) payroll tax regularly paid by Employers for and on behalf of employees in the jurisdiction where operations are conducted, and any additional cost for international registration plan plate (IRP) over the base plate cost. It is expressly understood that the owner-driver shall pay the license fees in the state in which title is registered. All tolls, no matter how computed, must be paid by the Employer, regardless of any agreement to the contrary. All taxes or additional charges imposed by law relating to actual truck operation and use of highways, no matter how computed or named, shall be paid by the Employer, excepting only vehicle licensing, as such, in the state where title is registered. Section 10. There shall be no interest or handling charge on earned money advanced prior to the regular payday. Section 11. (a) All Employers hiring or leasing equipment owned and driven by the owner-operator shall file a true copy of the lease agreement covering the owner-driven equipment with the Conference Joint Area Committees. The terms of the lease shall cover only the equipment owned and driven by the owner- operator and shall be in complete accord with the minimum rates and conditions provided herein, plus the full wage rate and supplementary allowances for drivers as embodied elsewhere in this Agreement. (b) (1) It is recognized by the parties to this Agreement that inordinately low equipment rental fees threaten the wage rates of employee drivers covered by this Agreement. Accordingly, the parties have established and set out below the appropriate minimum rental fees for equipment leased by either employee or non-employee owner-operators, excluding owner-operators covered by the Iron and Steel Supplements. 77 Article 22, Section 11 a. Single Axle Tractor Only-Effective April 1, 1994 0 to 20,000 lbs. 36.2 cents per mile 20,001 to 25,000 lbs. 38.3 cents per mile 25,001 to 30,000 lbs. 40.5 cents per mile 30,001 lbs. and over 43.7 cents per -mile Single axle tractors when utilized to pull double bottoms will be paid under the tandem axle tractor rate schedule. b. Tandem Axle tractor Only-Effective April 1, 1994 0 to 25,000 lbs. 39.7 cents per mile 25,001 to 30,000 lbs. 41.7 cents per mile 30,001 to 35,000 lbs. 44.3 cents per mile 35,001 to 40,000 lbs. 47.3 cents per mile 40,001 to 45,000 lbs. 50.5 cents per mile 45,001 lbs. and over 52.7 cents per mile c. Single Axle Trailers and 40 to 53 Foot Tandem trailer Only. Effective April 1, 1994: 6.25 cents per mile (with $8.00 minimum daily guarantee). d. Tandem Axle, 40 Foot or Over, Trailer Only Effective April 1, 1994: 7.25 cents per mile (With $10.00 minimum daily guarantee). Minimum daily guarantee for trailers does not apply to Saturday, Sunday or holidays. It applies to either the first (lst) day or last day of use, but not both. The above rates also apply to deadheading. (2) Future adjustments in the compensation for owner-operator equipment shall be based on the latest available published ICC rates for diesel fuel prices and shall be adjusted beginning the first (1st) of the month following notice of ratification and the first (lst) of every month thereafter in accordance with the schedule in paragraph 4 of this Section. 78 Article 22, Section 11 In the event the ICC publishes a correction in any diesel fuel price, any changes will be made on a prospective basis only. It is understood that where the Employer provides subsidized fuel purchase plans to owner-operators the minimum lease rates, as determined under paragraph 4 of this Section, will reflect the actual fuel price paid by the owner-operator rather than the ICC diesel fuel price. If the ICC discontinues publishing the diesel fuel price series, the parties will meet and agree upon an alternate index. If the parties cannot agree on a suitable replacement diesel fuel price series, the matter shall go immediately to the National Grievance Committee for the establishment of such a diesel fuel price series. (3) This Article excludes owner-operators covered by the Iron and Steel Supplemental Agreements. The terms and conditions of Article 22, Section 9 shall apply to this Article. Nothing herein this Article shall apply to leased equipment not owned by the driver. The minimum rates set forth above result from the joint determination of the parties that such rates represent only the actual cost of operating such equipment. The parties have not attempted to negotiate a profit for the owner-operator. The determination of an appropriate minimum equipment rental rate is intended only to prevent owner-operators from leasing their equipment at a loss and thus forcing owner-operators to undercut the wage rates in this Agreement. The parties agree that the above rates are established for the use of normal freight industry equipment. In the event specialized equipment is required, the rates will be established by the Committee referred to in Article 22, or by other procedures mutually agreeable to the parties. (4) Following are the minimum lease rates to be paid to owner-operators for various levels of diesel fuel prices. 79 Article 22, Section 11
SCHEDULE A Single Axle Tractor cents/mile Diesel Fuel 0- 20,001- 25,001- 30,001- Price per gallon 20,000 lbs. 25,000 lbs. 30,000 lbs. lbs. and over $1.56-$1.609 37.6 39.8 42.2 45.5 $1.51-$1.559 36.9 39.0 41.4 44.6 $1.46-$1.509 36.2 38.3 40.5 43.7 $1.41-$1.459 35.4 37.5 39.7 42.8 $1.36-$1.409 34.7 36.7 38.9 41.9 $1.31-$1.359 34.0 36.0 38.0 41.0 $1.26-$1.309 33.3 35.2 37.2 40.1 $1.21-$1.259 32.6 34.4 36.4 39.2 $1.16-$1.209 31.9 33.7 35.5 38.3 $1.11-$I.159 31.2 32.9 34.7 37.4 $1.06-$1.109 30.4 32.1 33.9 36.5 $1.01-$I.059 29.7 31.4 33.0 35.6 $0.96-$1.009 29.0 30.6 32.2 34.6 $0.91-$O.959 28.3 29.8 31.4 33.7 $0.86-$O.909 27.6 29.0 30.5 32.8 $0.81-$O.859 26.9 28.3 29.7 31.9 $0.76-$O.809 26.2 27.5 28.9 31.0 $0.71-$O.759 25.4 26.7 28.0 30.1 $0.66-$O.709 24.7 26.0 27.2 29.2 $0.61-$O.659 24.0 25.2 26.4 28.3 $0.56-$O.609 23.3 24.4 25.5 27.4 for any fuel price (+ or - (+ or - (+ or - (+ or - 0.71429) 0.76923) 0.83333) 0.90909) # as reported by the ICC
80 Article 22, Section 11
SCHEDULE B Tandem Axle Tractor cents/mile Diesel Fuel 0- 25,001- 30,001- 35,001- 40,000- 45,001 Price per gallon 25,000 lbs. 30,000 lbs. 35,000 lbs. 40,000 lbs. 45,000 lbs. lbs. and over $1.56-$1.609 41.1 43.1 45.8 48.8 52.2 54.56 $1.51-$1.559 40.4 42.4 45.0 48.0 51.4 53.6 $1.46-$1.509 39.7 41.7 44.3 47.3 50.5 52.7 $1.41-$1.459 38.9 40.9 43.5 46.5 49.7 51.8 $1.36-$1.409 38.2 40.2 42.8 45.7 48.9 50.9 $1.31-$1.359 37.5 39.5 42.0 45.0 48.0 50.0 $1.26-$1.309 36.8 38.8 41.2 44.2 47.2 49.1 $1.21-$1.259 36.1 38.1 40.4 43.4 46.4 48.2 $1.16-$1.209 35.4 37.4 39.7 42.7 45.5 47.3 $1.11-$1.159 34.7 36.7 38.9 41.9 44.7 46.4 $1.06-$1.109 33.9 35.9 38.1 41.1 43.9 45.5 $1.01-$1.059 33.2 35.2 37.4 40.4 43.0 44.6 $0.96-$1.009 32.5 34.5 36.6 39.6 42.2 43.6 $0.91-$O.959 31.8 33.8 35.8 38.8 41.4 42.7 $0.86-$O.909 31.1 33.1 35.0 38.0 40.5 41.8 $0.81-$O.859 30.4 32.4 34.3 37.3 39.7 40.9 $0.76-$O.809 29.7 31.7 33.5 36.5 38.9 40.0 $0.71-$O.759 28.9 30.9 32.7 35.7 38.0 39.1 $0.66-$O.709 28.2 30.2 32.0 35.0 37.2 38.2 $0.61-$O.659 27.5 29.5 31.2 34.2 36.4 37.3 $0.56-$O.609 26.8 28.8 30.4 33.4 35.5 36.4 for any fuel price (+ or - (+ or - (+ or - (+ or - 0.71429) 0.76923) 0.83333) 0.90909) # as reported by the ICC
81 Article 22, Section 11 (c) The Employer shall not, as a condition of continued employment, require an owner-operator who is hired with tractor and trailer to separate his/her equipment and pull Employer owned or other leased trailers. The Employer will not reduce the equipment rental below the contract percentage to accomplish the above purpose. Section 12. Driver-owner mileage scale does not include use of equipment for pick-up or delivery at point of origin terminal or point of destination terminal, but shall be subject to negotiations between the Local Union and the Employer. Such negotiations shall be only for the purpose of protecting the wage rate of the driver only as an employee. Failure to agree shall be submitted to the grievance procedure. Owner-operator operations are to be terminal-to- terminal, except where there are no local employees to make such deliveries or as otherwise agreed to in this Agreement. Section 13. There shall be no reductions where the present basis of payment is higher than the minimums established herein for this type of operation. Where an owner-operator is paid on a percentage or tonnage basis and the operating company reduces its tariff, the percentage or tonnage basis of payment shall be automatically adjusted so that the owner-operator suffers no reduction in equipment rental or wages, or both. Section 14. It is further agreed that the intent of this clause and this entire Agreement is to assure the payment of the scale of wages as provided in this Agreement and to prohibit the making and carrying out of any plan, scheme or device to circumvent or defeat the payment of wage scales provided in this Agreement. This clause is intended to prevent the continuation of or formation of combinations or corporations or so-called lease of fleet arrangements whereby the driver is required to and does periodically pay losses sustained by the corporation or fleet arrangement, or is required to accept less than the actual cost of the running of his/her equipment, thus, in fact, reducing his scale of pay. 82 Article 22, Section 15 Section 15. It is further agreed that if the Employer requires that the owner-operator sell his/her equipment to the Employer, directly or indirectly, the owner- operator shall be paid the fair true value of such equipment. Copies of the instruments of sale shall be filed with the Union and, unless objected to within ten (10) days, shall be deemed satisfactory. If any question is raised by the Union as to such value, the same shall be submitted to grievance, as above set forth, for determination. Section 16. If an employee voluntarily agrees to purchase equipment from the Employer, and if there is a dispute over the value of such equipment, the fair true value of such equipment shall be determined as provided herein. However, no employee may be required to purchase or sell equipment as a condition of employment, nor shall the nature of any operation or business be changed to require such result, unless such change is approved by the Teamsters National Master Committee. No owner-operator lease shall be cancelled for the purpose of depriving employees of employment. Section 17. It shall be considered a violation of this Agreement should any Employer deduct from rental of equipment the increases provided for by the 1994 Amendments, or put into effect any means of evasion to circumvent actual payment of increases agreed upon effective for the period starting April 1, 1994 and ending March 31, 1998. Section 18. All leases, agreements or arrangements between Employers and owner-operators shall contain the following statement: The equipment which is the subject of this lease shall be driven by an employee of the lessee at all times that it is in the service of the lessee. If the lessor is hired as an employee to drive such equipment, he/she shall receive as rental compensation for the use of such equipment no less than the minimum rental rates, allowances and conditions (or the equivalent thereof as approved by the National 83 Article 22, Section 18 Committee referred to in Section 11) established by the then current appropriate Area Supplemental Agreement for this type of equipment and, in addition thereto, the full wage rate and supplementary allowances for drivers (or the equivalent thereof as approved by the National Committee referred to in Section 11). The lessee expressly reserves the right to control the manner, means and details of and by which the driver of such leased equipment performs his/her services, as well as the ends to be accomplished, and shall not permit or delegate to others the authority to do so. The lessor (owner-operator) shall not be required to buy or sell any equipment (or separate his/her trailer if covered by this lease) as a condition of employment. To the extent that any provision of this lease may conflict with the provisions of such appropriate Area Supplemental Agreement as it applies to equipment driven by the owner, such provision of this lease shall be null and void and the provisions of such Agreement shall prevail. The Employer shall make available to the Union, upon request, all documents and reports relating to service by owner-operators which are required to be maintained by law. ARTICLE 23. SEPARATION OF EMPLOYMENT Upon discharge, the Employer shall pay earned wages due to the employee during the first (lst) payroll department working day following the date of discharge. Vacation pay for which the discharged employee is qualified shall be paid no later than the first (lst) day following final determination of the discharge. Upon a permanent terminal closing and/or cessation of operations, the Employer shall pay all money due to the employee during the first (lst) payroll department working day following the date of the terminal closing and/or cessation of operations. Failure to comply shall subject the Employer to pay liquidated damages in the amount of eight (8) hours I pay for each day of delay. Upon quitting, the Employer shall pay all money due to the employee on the next regular payday for the week in which the resignation occurs. 84 ARTICLE 24. INSPECTION PRIVILEGES AND EMPLOYER IDENTIFICATION Authorized agents of the Union shall have access to the Employer's establishment during working hours for the purpose of adjusting disputes, investigating working conditions, collection of dues, and ascertaining that the Agreement is being adhered to; provided, however, there is no interruption of the firm's working schedule. Company representatives, if not known to the employee, shall identify themselves to employees prior to taking disciplinary action. Safety or other company vehicles shall be identified when stopping company equipment. ARTICLE 25. SEPARABILITY AND SAVINGS CLAUSE If any article or section of this Agreement or of any Supplements thereto should be held invalid by operation of law or by any tribunal of competent jurisdiction, or if compliance with or enforcement of any article or section should be restrained by such tribunal pending a final determination as to its validity, the remainder of this Agreement and of any Supplements thereto, or the application of such article or section to persons or circumstances other than those as to which it has been held invalid or as to which compliance with or enforcement of has been restrained, shall not be affected thereby. In the event that any article or section is held invalid or enforcement of or compliance with which has been restrained, as above set forth, the parties affected thereby shall enter into immediate collective bargaining negotiations after receipt of written notice of the desired amendments by either Employer or Union for the purpose of arriving at a mutually satisfactory replacement for such article or section during the period of invalidity or restraint. There shall be no limitation of time for such written notice. If the parties do not agree on a mutually satisfactory replacement within-sixty (60) days after receipt of the stated written notice, either party shall be permitted all legal or economic recourse in support of its demands notwithstanding any provisions of this Agreement to the contrary. 85 ARTICLE 26. TIME SHEET, TIME CLOCKS, AND VIDEO CAMERAS Section 1. Time Sheets and Time Clocks In over-the-road or line operations, the Employer shall provide and require the employee to keep a time sheet or trip card showing the arrival and departure at terminal and intermediate stops and cause and duration of all delays, time spent loading and unloading, and same shall be turned in at the end of each trip. In local cartage operations, a daily time record shall be maintained by the Employer at its place of business. All Employers who employ five (5) or more people at any terminal shall have time clocks at such terminals. Employees shall punch their own time cards. The Employer shall maintain sign-in and sign-out records at terminals. All road drivers must record their arrival, departure, origin and destination. The Employer may substitute updated time recording equipment for time cards and time sheets. However, a paper trail shall be maintained. The Employer may computerize the sign-in and sign-out records. However, at all times, the Union shall have reasonable access to a paper record of the sign-in and sign-out records. Section 2. Use of Video Cameras for Discipline and Discharge The Employer may not use video cameras to discipline or discharge an employee for reasons other than theft of property or dishonesty. If the information on the video tape is to be used to discipline or discharge an employee, the Employer must provide the Local Union, prior to the hearing, an opportunity to review the video tape used by the Employer to support the discipline or discharge. Where a Supplement imposes more restrictive conditions upon use of video cameras for discipline or discharge, such restrictions shall prevail. 86 ARTICLE 27. EMERGENCY REOPENING In the event of war, declaration of emergency, imposition of mandatory economic controls, the adoption of national health care or any congressional or federal agency action which has a significantly adverse effect on the financial structure of the trucking industry or adverse impact on the wages, benefits or job security of the employees, during the life of this Agreement, either party may reopen the same upon sixty (60) days' prior written notice and request renegotiation of the provisions of this Agreement directly affected by such action. Upon the failure of the parties to agree in such negotiations within the subsequent sixty (60)-day period, thereafter, either party shall be permitted all lawful economic recourse to support its request for revisions. If governmental approval of revisions should become necessary, all parties will cooperate to the utmost to attain such approval. The parties agree that the notice provided herein shall be accepted by all parties as compliance with the notice requirements of applicable law, so as to permit economic action at the expiration thereof. ARTICLE 28. SYMPATHETIC ACTION In the event of a labor dispute between any Employer, party to this Agreement, and any International Brotherhood of Teamsters' Union, parties to this or any other International Brotherhood of Teamsters' Agreement, during the course of which dispute such Union engages in lawful economic activities which are not in violation of this or such other Agreement, then any other affiliate of the International Brotherhood of Teamsters, having an agreement with such Employer shall have the right to engage in lawful economic activity against such Employer in support of the above first-mentioned Union notwithstanding anything to the contrary in this Agreement or the International Brotherhood of Teamsters' Agreement between such Employer and such other affiliate, with all of the protection provided in Article 9. 87 ARTICLE 29. SUBSTITUTE SERVICE Section 1. Piggyback Operations (a) An Employer shall not use piggyback over the same route where the Employer has established relay runs or through runs except to move overflow freight or as otherwise provided in Section 3 herein. (b) It is recognized and agreed that there were two distinct and separate types of rail operations in effect on April 1, 1994: (1) the use of rail to move overflow freight; and (2) approved and/or agreed to rail operations. Accordingly, the provisions of this Section 1 shall apply in its entirety to the overflow rail operations. This Section 1 shall only apply to the approved and/or agreed to rail operations to the extent it has been historically applied prior to April 1, 1994. If a driver is available (which includes the two (2) -hour period of time prior to end of his/her rest period) at point of origin when a trailer leaves the yard for the piggyback ramp, such driver's runaround compensation shall start from the time the trailer leaves the yard. Available regular drivers at relay points shall be protected against runarounds if a violation occurred at the point of origin. If the Employer does not have an over-the-road domicile at the point of origin, the Employer shall protect against runaround the available drivers at the first relay point over which the freight would normally move had it not been placed on the rail. Available regular drivers at relay points shall be protected against runaround if a violation occurred at the first relay point. The Employer shall not reduce or fail to increase the road driver complement, including the addition of equipment, at the point of origin for the purpose of creating an overflow of freight to avoid the application of this Section. (c) When an Employer utilizes piggyback operations as a substitute service to deliver overflow loads and such substitute service is matched in both directions (East to West and West to East or North to South and South to North), it is understood and agreed by the parties that the Employer will be required to add a sufficient number of employees and the necessary amount of equipment to 88 Article 29, Section 1 move trailers over the road when the volume of matched loads reaches a level to insure efficient utilization of equipment and regular work opportunity for the added employees. It is the intent of the parties in this Section 1 to maximize the movement of freight over the Employer's established relay runs, thereby minimizing the use of substitute service. The record keeping requirement set out in Section 2 below will provide the Union with the basis of monitoring the use of such piggyback operation. (d) The Employer agrees the non-employee owner-operators, birdy-back, fishy-back and barge operations will not be used over the same routes where the Employer has established relay runs during the term of this Agreement. Section 2. Maintenance of Records (a) Trailers piggybacked as a substitute service as provided in Section 1 are to be signed in and signed out on the regular dispatch sheet in road operations, and where there are no road operations sign-in and sign-out sheets shall be maintained at an appropriate location, including trailers taken to and from the rail yard by city employees. These sheets will be made available, upon request, to the drivers for a period of thirty (30) days. The Employer shall report in writing on a monthly basis to the Local Union at the rail origin point, or in cases where there are no drivers domiciled at the rail origin point to the Local Union at the first driver relay point affected, the number of trailers put on the rail at the rail origin point. The Employer shall also report the origin, destination, trailer/load number, trailer weight and the time the trailer/load leaves the Employer's yard for the rail yard. The time limits set forth in the Supplemental Agreement for filing claims based upon the monthly report shall commence to run upon the receipt of the report by the Local Union. (b) With regard to use of substitute service as provided in Section 1, full and complete records of handling, dispatch and movement of such units system-wide shall be kept by the Employer and a report, which will include the date of all outbound rail movement, all points of origin and destination, all trailer numbers and the name of each railroad/routing, shall be sent on a quarterly basis to the office of the National Freight Director and the affected Area Conference Freight Director. 89 Article 29, Section 2 Where inspection of the records indicates that piggyback is being used as a substitute for road operations, as defined in Section 1 of this Article, over an established relay, rather than handling overflow traffic, the grievance procedure may be invoked at the appropriate Conference Joint Area Committee by the Area Conference Freight Director or the office of the National Freight Director to provide a reasonable remedy for the improper usage of piggyback, including the revocation of the use of substitute service, for repeated violations over such relay. (c) With regard to trailers moved on rail as an approved intermodal operations set forth in Section 3, the Employer shall report in writing on a monthly basis to each Local Union affected, the number of trailers put on the rail at the rail origin points of the approved intermodal operations. The Employer shall also report the origin, destination, trailer/load number, trailer weight and the time the trailer/load leaves the Employer's yard for the rail yard. In addition, the Employer shall, on a quarterly basis, send to the office of the National Freight Director a report containing the total intermodal rail miles as reported on line 6 of the ICC Schedule 600 annual report and the total miles as reported on line 7 of the ICC Schedule 600 annual report. Section 3. Intermodal Service (a) The parties recognize that in 199 1, Congress passed the Intermodal Surface Transportation Efficiency Act of 1991 and declared the policy of the United States to be one of promoting the development of a national intermodal transportation system consisting of all forms of transportation in a unified, interconnected manner. The parties have, therefore, entered into this Agreement to enhance the Employer's opportunities to secure the benefits which flow from this national policy of encouraging intermodal transportation, including long-term stable and secure employment. At the same time, the parties recognize the need to minimize and provide for the impact which intermodal operations may have on certain employees covered by this Agreement. (b) Use of Intermodal Service 1. Subject to the conditions set forth hereinafter, an Employer may establish a new intermodal service over the same route where the Employer has established relay runs or through runs. 90 Article 29, Section 3 Present relay or through operations may not be reduced, modified or changed in any other manner as the result of the implementation of a new intermodal service until such time as the proposed intermodal operation has been approved by the National Intermodal Committee. The Employer shall submit to the National Intermodal Committee an application for approval which shall identify the road operation(s) the intended intermodal service will reduce and/or eliminate; a list identifying the name and seniority date of each driver affected by the intended intermodal service(s); and a list by domicile of each of the road drivers' openings available. In the event the National Intermodal Committee is unable to agree on whether or not the Employer's proposed intermodal operations meet the criteria set forth below, the proposed operation shall not be approved until such time as those issues are resolved. This provision shall not be utilized as a method to delay and/or deny a proposed intermodal operation when the criteria set forth below have been clearly satisfied. (a) There shall be no more than two (2) intermodal changes approved during the term of this Agreement; and (b) No more than ten (10) percent of the Employer's total active road driver seniority list as of April 1, 1994 shall be affected by the intermodal changes approved during the term of this Agreement. In the event a proposed intermodal operation also includes the transfer of work that is subject to the provisions of Article 8, Section 6, the National Intermodal Committee, after approving the intermodal operation, shall refer the transfer of work portion to the appropriate Change of Operations Committee in accordance with the provisions of Article 8, Section 6. 2. An approved intermodal operation that provides service over established relay and/or through operations shall include protection for all bid drivers during each dispatch day and all extra board drivers during each dispatch week at each of the affected domiciles. For purposes of determining the weekly protection for extra board drivers, the affected driver's average weekly earnings during the previous four (4) week period in which the driver had normal earnings shall be considered the weekly protection when violations occur. 91 Article 29, Section 3 3. When transporting any shipment by intermodal service within the Employer's terminal network, the Employer shall utilize its drivers subject to the applicable respective area supplemental agreements to pickup such shipments from the shipper at point of origin and/or the Employer's terminal and deliver them to the applicable intermodal exchange point. The Employer also shall use its drivers to deliver intermodal shipments to the consignee or the Employer's terminal. A driver maybe required to drive through other terminal service areas to the intermodal exchange point to pickup and deliver intermodal shipments without penalty. 4. Total intermodal rail miles included on line 6 of the ICC Schedule 600 annual report shall not exceed 28 percent of the Employer's total miles as reported on line 7 of the ICC Schedule 600 annual report during any calendar year. In the event intermodal rail miles exceed this 28 percent maximum, the Employer shall be required to remove an appropriate amount of freight from the rail and add a corresponding number of drivers at each affected domicile. The National Intermodal Committee shall establish rules and guidelines that will allow the Union the opportunity to verify and audit the Employer's ICC rail reports. In the event the Union establishes through the grievance procedure that an Employer has falsified the ICC reports in order to increase the maximum amount of intermodal rail miles permitted under this Article, the remedy for such a violation shall include a cessation of the Employer's affected intermodal service until such time as the issue has been resolved to the satisfaction of the Union. In the event the ICC rail and/or line haul miles reporting requirements are modified and/or eliminated, the parties will meet to develop a substitute reporting procedure consistent with those of the ICC. (c) Job Protections for Current Road Drivers 1. Rail operations that are subject to the provisions of Section 1 (b) above shall not result in the layoff or involuntary transfer of any driver at any affected road driver domicile. 2. During the term of this Agreement, an Employer shall be permitted no more than two (2) Intermodal Changes whereby the Employer may reduce and/or eliminate existing road operation(s) 92 Article 29, Section 3 through the use of intermodal service. It is specifically agreed that a total of no more than ten (10) percent of the Employer's total active road driver seniority list as of April 1, 1994, shall be affected by the Intermodal Changes during the term of this Agreement. Any road driver who is adversely affected by an approved Intermodal Operation and would thereby be subject to layoff, or who is on layoff at an affected domicile at the time an Intermodal Operation is approved, shall be offered work opportunity at other road driver domiciles within the Employer's system. In the event there is more than one (1) domicile involved, the drivers adversely affected shall be dovetailed on a master seniority list and an opportunity to relocate shall be offered on a seniority basis. The "hold" procedures set forth in Article 8, Section 6 of the NMFA shall be applicable. Drivers who relocate under this provision shall be dovetailed on the applicable seniority list at the domicile they bid into. Health & welfare and pension contributions shall be remitted in accordance with the provisions of Article 8, Section 6(a) and moving and lodging shall be paid in accordance with Article 8, Section 6(c) of the NMFA. It is understood and agreed that the intent of this provision is to provide the maximum job security possible to those drivers affected by the use of intermodal service. Therefore, the number of drivers on the affected seniority lists at rail origin points at the time an intermodal change becomes effective shall not be reduced during the term of this Agreement other than as may be provided in subsequent changes of operations. Drivers on the affected seniority lists at gaining domiciles at the time an intermodal change becomes effective, shall not be permanently laid off during the term of this Agreement. Section 4. National Intermodal Committee The parties shall establish a National Intermodal Committee composed of four (4) Union representatives appointed by the Union Chairman of the National Grievance Committee and four (4) Employer representatives appointed by the Employer Chairman of the National Grievance Committee. The National Intermodal Committee shall establish rules of procedure to govern the manner in which proposed intermodal operations are to be heard, procedures for resolving intermodal issues 93 Article 29, Section 4 and procedures for establishing pre-hearing guidelines. Any grievance concerning the application or interpretation of Article 29, Section 2 or concerning any issues that may arise from an approved intermodal operation provided for in this Section 3, shall be first referred to the National Intermodal Committee. If the National Intermodal Committee is unable to reach a decision on an interpretation or grievance, the issue will be referred to the National Grievance Committee. ARTICLE 30. JURISDICTIONAL DISPUTES In the event that any dispute should arise between any Local Unions, parties to this Agreement or Supplements thereto, or between any Local Union, party to this Agreement or Supplements thereto and any other Union, relating to jurisdiction over employees or operations covered by such Agreements, the Employer and the Local Unions agree to accept and comply with the decision or settlement of the Unions or Union bodies which have the authority to determine such dispute, and such disputes shall not be submitted to arbitration under this Agreement or Supplements thereto or to legal or administrative agency proceedings. Pending such determination, the Employer shall not be precluded from seeking appropriate legal or administrative relief against work stoppages or picketing in furtherance of such dispute. ARTICLE 31. MULTI-EMPLOYER, MULTI-UNION UNIT The parties agree to become a part of the multi-employer, multi-union bargaining unit established by this National Master Freight Agreement, and to be bound by the interpretations and enforcement of this National Master Freight Agreement and Supplements thereto. 94 ARTICLE 32. SUBCONTRACTING Section 1. Work Preservation For the purpose of preserving work and job opportunities for the employees covered by this Agreement, the signatory Employer agrees that no operation, work or services of the kind, nature or type covered by, or presently performed by, or hereafter assigned to, the collective bargaining unit by the signatory Employer will be subcontracted, transferred, leased, diverted, assigned or conveyed in full or in part (hereinafter referred to as `divert' or `subcontract'), by the Employer to any other plant, business, person, or non-unit employees, or to any other mode of operation, unless specifically provided and permitted in this Agreement. In addition, the signatory Employer agrees that it will not, as hereinafter set forth, subcontract or divert the work presently performed by, or hereafter assigned to, its employees to non-employee owner-operators or other business entities owned and/or controlled )y the signatory Employer, or its parent, subsidiaries or affiliates. Section 2. Diversion of Work - Parent or Subsidiary Companies The parties agree that for purposes of this Article it shall be presumed that a diversion of work in violation of this Agreement occurs when work presently and regularly performed by, or hereafter assigned to, employees of the signatory Employer has been lost and the lost work is being performed in the same manner (including transportation by owner-operators and independent contractors) by an entity owned and/or controlled by the signatory Employer, its parent, or a subsidiary within sixty (60) days of the loss of the work. The burden of overcoming such presumption in the grievance procedure shall be upon the Employer. Section 3. Subcontracting The Employer may subcontract work when all of his/her regular employees are working, except that in no event shall road work presently performed or runs established during the life of this 95 Article 32, Section 3 Agreement be farmed out. No dock work shall be farmed out except for existing situations established by agreed-to past practices. Overflow loads may be delivered pursuant to the provisions of Article 29. Loads may also be delivered by other agreed-to methods or as presently agreed to. Other persons performing subcontracted work which is permitted herein shall receive no less than the equivalent of the economic terms and conditions of this Agreement and the applicable Supplement. The signatory Employer shall maintain records identifying persons performing subcontracted work permitted by this Agreement. Said records shall be made available for inspection by the Local Union(s) in the locality affected by such subcontract work. The normal, orderly interlining of freight for peddle on occasional basis, where there are parallel rights, and when not for the purpose of evading this Agreement, may be continued as has been permitted by past practice provided it is not being done to defeat the provisions of this Agreement. Section 4. Expansion of Operations (a) Adjoining Over-The-Road and Local Cartage It is understood and agreed that the provisions of the National Master Freight Agreement shall be applied, without evidence of union representation of the employees involved, to all subsequent additions to, and extensions of, current over-the-road or local cartage operations which adjoin and are controlled and utilized as part of such current operations of the signatory Employer, or any other entity, not operated wholly independently of the signatory Employer within the meaning of Article 3, Section 1(a). In this regard, the parties agree that newly-established terminals and consolidations of terminals which are controlled and utilized as part of a current operation will be covered by the National Master Freight Agreement and applicable Over- the-Road and Local Cartage Supplemental Agreements. 96 Article 32, Section 4 (b) New Pick-Up and Delivery Adjoining Current Operations It shall not, however, be a violation of this Article if, during the term of this Agreement, an Employer commences pick-up and delivery operations which adjoin and are controlled and utilized as part of such current operations with other than its own employees when there is insufficient business to economically justify the establishment of its own employer-operated pick-up and delivery service. However, the above exception shall thereafter terminate when sufficient economic justification develops so as to warrant the establishment and maintenance of the terminal operation by such Employer, in which event, the Employer shall institute a pick-up and delivery operation or continue such operations with companies which maintain wage standards established by this Agreement in the area where the work is conducted. This exception shall not apply in any circumstance where an Employer is presently engaged in pick-up and delivery operations either through his/her own terminal or through companies which maintain such wage standards. (c) Non-Adjoining Pick-Up and Delivery Operations The parties further agree that with respect to all subsequently established over-the-road and local cartage operations and terminals of the signatory Employer which do not adjoin, but are utilized and controlled as part of, current over-the-road and local cartage operations, the provisions of Article 2, Section 3(a) shall govern so that when a majority of the eligible employees of the signatory Employer performing work at that location execute a card authorizing a signatory Local Union to represent them as their collective bargaining agent at the terminal location, then, such employees shall automatically be covered by this Agreement and the applicable Supplemental Agreements. (d) Operations permitted by Article 29, and not in violation of any other provisions of this Agreement, are not to be considered as extensions of current operations within the meaning of Section 4. 97 Article 32, Section 5 Section 5. For the purpose of preserving work and job opportunities, the National Grievance Committee may define the circumstances and adopt procedures by which an Employer and a Local Union, parties to this Agreement, may in compliance therewith enter into a Special Circumstance Agreement which does not meet the standards provided herein. Section 6. Grievances arising under this Article shall be processed on an expedited basis pursuant to the procedures contained in Article 8, Section 1(a). ARTICLE 33. COST-OF-LIVING (COLA) All regular employees, subject to this Agreement, shall be covered by the provisions of a cost-of-living allowance as set forth in this Article. The amount of the cost-of-living allowance shall be determined as provided below on the basis of the "Consumer Price Index for Urban Wage Earners and Clerical Workers, CPI-W, (Revised Series Using 1982-84 Expenditure Patterns), All Items (1982-84=100), published by the Bureau of Labor Statistics, U.S. Department of Labor" and referred to herein as the "Index". Cost-of-living allowances shall be effective on April 1, 1995, April 17 1996 and April 1, 1997. The April 1, 1995, adjustment shall be calculated by the difference between the January, 1994, Index and the January, 1995, Index. The April 1, 1996, adjustment shall be calculated by the difference between the January, 1995, Index and the January, 1996, Index. The April 1, 1997, adjustment shall be calculated by the difference between the January, 1996, Index and the January, 1997, Index. The cost-of-living increases shall be calculated as follows: 98 Article 33 For every .2 increase in the Index, there shall be a one cent ($.01) per hour or .25 mills per mile increase in the wage rates. However, the parties agree, that in no event, will the hourly and mileage cost-of-living increases payable be lower than thirty cents ($.30) per hour or .75 cents per mile on April 1, 1995; thirty-five cents ($.35) per hour or .875 cents per mile on April 1, 1996; forty cents ($.40) per hour or 1.0 cent per mile on April 1, 1997; and the parties further agree that the maximum hourly and mileage cost-of-living increases payable on April 1, 1995, will be thirty cents ($.30) per hour or .75 cents per mile; on April 1, 1996, thirty- five cents ($.35) per hour or .875 cents per mile; and on April 1, 1997, forty cents ($.40) per hour or 1.0 cent per mile. For the duration of this Agreement only, all cost-of-living allowances shall become a fixed part of the base rate for all classifications on the effective date of each cost-of-living allowance. A decline in the Index shall not result in a reduction of classification base rates. In the event the appropriate Index figure is not issued before the effective date of the cost-of-living adjustment, the cost-of-living adjustment that is required will be made at the beginning of the first (lst) pay period after receipt of the Index and will be made retroactive to the effective date. In the event the Bureau of Labor Statistics should revise or correct an applicable Index figure, any adjustment that may be required in the cost-of- living adjustment shall be effective at the beginning of the first (lst) pay period after receipt of the revised or corrected Index figure and no retroactive adjustments will be made. In the event that the Index shall be revised or discontinued and in the event the Bureau of Labor Statistics, U.S. Department of Labor, does not issue information which would enable the Employer and the Union to know what the Index would have been had it not been revised or discontinued, then the Employer and the Union will meet, negotiate, and agree upon an appropriate substitute for the Index. Upon the failure of the parties to agree in such negotiations within sixty (60) days, thereafter, each party shall be permitted all lawful economic recourse to support its request. The parties agree that the notice provision provided herein shall be accepted by all parties as compliance with the notice requirements of applicable law, so as to permit economic action at the expiration thereof. 99 ARTICLE 34. GARNISHMENTS In the event of notice to an Employer of a garnishment or impending garnishment, the Employer may take disciplinary action if the employee fails to satisfy such garnishment within a seventy-two (72)-hour period (limited to working days) after notice to the employee. However, the Employer may not discharge any employee by reason of the fact that his earnings have been subject to garnishment for any one (1) indebtedness. If the Employer is notified of three (3) garnishments irrespective of whether satisfied by the employee within the seventy-two (72)-hour period, the employee maybe subject to discipline, including discharge in extreme cases. However, if the Employer has an established practice of discipline or discharge with a fewer number of garnishments or impending garnishments, if the employee fails to adjust the matter within the seventy-two (72)-hour period, such past practice shall be applicable in those cases. ARTICLE 35. Section 1. Employee's Bail Employees will be bailed out of jail if accused of any offense in connection with the faithful discharge of their duties, and any employee forced to spend time in jail or in courts shall be compensated at his/her regular rate of pay. In addition, he/she shall be entitled to reimbursement for his/her meals, transportation, court costs, etc.; provided, however, that faithful discharge of duties shall in no case include compliance with any order involving commission of a felony. In case an employee shall be subpoenaed as a company witness, he/she shall be reimbursed for all time lost and expenses incurred. Section 2. Suspension or Revocation of License In the event an employee receives a traffic citation for a moving violation which would contribute to a suspension or revocation or suffers a suspension or revocation of his/her right to drive the company's equipment for any reason, he/she must promptly notify his/her Employer in writing. Failure to comply will subject the employee to 100 Article 35, Section 2 disciplinary action up to and including discharge. If such suspension or revocation comes as a result of his/her complying with the Employees instruction, which results in a succession of size and weight penalties or because he/she complied with his/her Employer's instruction to drive company equipment which is in violation of DOT regulations relating to equipment or because the company equipment did not have either a speedometer or a tachometer in proper working order and if the employee has notified the Employer of the citation for such violation as above mentioned, the Employer shall provide employment to such employee at not less than his/her regular earnings at the time of such suspension for the entire period thereof. When an employee in any job classification requiring driving has his/her operating privilege or license suspended or revoked for reasons other than those for which the employee can be discharged by the Employer, a leave of absence, not to exceed three (3) years, shall be granted for such time as the employee's operating privilege or license has been suspended or revoked. Section 3. Alcohol and Drug Use PREAMBLE While abuse of alcohol and drugs among our members/employees is the exception rather than the rule, the Teamsters National Freight Industry Negotiating Committee and the Employers signatory to this Agreement share the concern expressed by many over the growth of substance abuse in American society. The parties have agreed that the Drug and Alcohol Abuse Program will be modified in the event that further federal legislation or Department of Transportation regulations provide for revised testing methodologies or requirements. The parties have incorporated the appropriate changes required by the applicable DOT drug testing rules under 49 CFR Part 40, and agree that if new federally mandated changes are brought about, they too will become part of this Agreement. The drug testing procedure, agreed to by labor and management, incorporates state-of-the-art employee protections during specimen collection and laboratory testing to protect the innocent. In order to eliminate the safety risks which result from alcohol or drugs, the parties have agreed to the following procedures: 101 Article 35, Section 3 NMFA UNIFORM TESTING PROCEDURE (a) Probable Suspicion Testing In cases in which an employee is acting in an abnormal manner and at least one (1) supervisor, two (2) if available, have probable suspicion to believe that the employee is under the influence of controlled substances, the Employer may require the employee (in the presence of a union shop steward, if possible) to go to a medical clinic to provide both urine and blood specimens for laboratory testing. The supervisor(s) must have received training in the signs of drug intoxication in a prescribed training program which is endorsed by the Employer. Probable suspicion means suspicion based on specific personal observations that the Employer representative (s) can describe concerning the appearance, behavior, speech or breath odor of the employee. The supervisor(s) must make a written statement of these observations within twenty-four (24) hours. A copy must be provided to the shop steward or other union official after the employee is discharged. Suspicion is not probable and thus not a basis for testing if it is based solely on third (3rd) party observation and reports. If requested, the employee will sign a consent form authorizing the clinic to withdraw specimens of blood and urine and release the results of the urine laboratory testing to his/her Employer's Medical Review Officer, in the case of DOT covered employees, and the blood testing results to the Employer, but shall not be required to waive any claim or cause of action under the law. For all purposes herein, the parties agree that the terms "probable suspicion" and "reasonable cause" shall be synonymous. An employee may raise an affirmative defense that the positive blood test result was attributable to the proper use of a prescription medication. If the employee raises such a defense to the Company, at the employee's request, the Company shall refer the employee to a qualified physician to discuss the employee's explanation for the positive blood test result. The qualified physician may decide that there is a legitimate explanation and declare the blood drug test to be negative. The employee may be required to provide evidence that a prescription has been lawfully prescribed by a physician. A refusal to provide either specimen will constitute a presumption of intoxication and the employee will be subject to discharge without the receipt of a prior warning letter. In the case of a non-DOT 102 Article 35, Section 3 covered employee who is unable to provide a urine specimen after a reasonable waiting period [not to exceed one (1) hour], the Employer may terminate the procedure and proceed with laboratory testing based upon blood specimens alone. In DOT-covered cases, if the employee is unable to produce 3OmL of urine, he/she shall be given fluids to drink and shall remain at the collection site under observation until able to produce a 3OmL specimen, for up to eight (8) hours at the Employer's option. If still unable to produce a 3OmL specimen, the blood specimen will be forwarded to the lab for analysis, and the employee shall be referred for medical evaluation. Contractual time limits for disciplinary action, as set forth in the appropriate Supplemental Agreement, shall begin on the day on which specimens are drawn. In the event the Employer alleges only that the employee is intoxicated on alcohol and not drugs, previously agreed-to procedures under the appropriate Supplemental Agreement for determining alcohol intoxication shall apply. In the event the Employer is unable to determine whether the abnormal behavior is due to drugs or alcohol, the drug testing procedure contained herein shall be used. If the laboratory results are not known prior to the expiration of the contractual time period for disciplinary action, the cause for disciplinary action shall specify that the basis for such disciplinary action is for "alcohol and/or drug intoxication." (b) DOT Random Testing It is agreed by the parties that random urine drug testing will be implemented only in accordance with the DOT rules under 49 CFR Part 391, Subpart H. It is agreed that the Employer shall discontinue urine drug testing in conjunction with the DOT physical after the Employer has implemented its random urine drug testing program and is testing at the fifty percent (50%) rate. The method of selection for random urine drug testing will be neutral so that all employees subject to testing will have an equal chance to be randomly selected. The term "employees subject to testing" under this agreement is meant to include any employee required to have a DOT physical examination under the Department of Transportation regulations. 103 Article 35, Section 3 Employees out on long term injury or disability for any reason shall be removed from the random pool. The provisions of Article 35, Section 3(f)(3) (Split Sample Procedures), and Article 35, Section 3(j)(1) (One-Time Rehabilitation), shall apply to random urine drug testing. (c) Non-Suspicion-Based Post-Accident Testing Non-suspicion-based post-accident testing is defined as urine drug testing as a result of an accident when the driver is issued a citation for a moving traffic violation arising from an accident. Urine drug testing will be required after accidents meeting the following conditions and drivers are required to present themselves for such testing within thirty-two (32) hours after such accident: "Accident" means an occurrence involving a commercial motor vehicle operating on a public road which results in: (i) A fatality; (ii) bodily injury to a person who, as a result of the injury, immediately receives medical treatment away from the scene of the accident; or (iii) one or more motor vehicles incurring disabling damage as a result of the accident, requiring the vehicle(s) to be transported away from the scene by tow truck or other vehicle. The driver has the responsibility to make himself/herself available for urine drug testing within the thirty-two (32) hour period in accordance with the procedures outlined in this Subsection. The driver is responsible to notify the Employer upon receipt of a citation and to note receipt thereof on the accident report. Failure to so notify the Employer shall subject the driver to disciplinary action. If a driver receives a citation for a moving violation more than thirty-two (32) hours after a reportable accident, he/she shall not be required to submit to post-accident urine drug testing. The Employer shall make available a urine drug testing kit and an appropriate collection site for the driver to provide specimens. The provisions of Article 35, Section 3(f)(3) (Split Sample Procedures), and Article 35, Section 3(j)(1) (One-Time Rehabilitation), shall apply to non- suspicion-based post-accident urine drug testing. 104 Article 35, Section 3 (d) Chain of Custody Procedures Any specimens collected for drug testing shall follow the DHHS/DOT (Department of Health and Human Services/Department of Transportation) specimen collection procedures. At the time specimens are collected for any drug testing, the employee shall be given a copy of the specimen collection procedures. In the presence of the employee, the specimens are to be sealed and labeled. As per DOT regulations, it is the employee's responsibility to initial the specimens, additionally ensuring that the specimens tested by the laboratory are those of the employee. The required procedure follows: (1) For probable suspicion testing, blood shall be drawn first. The blood specimen shall be taken promptly with as little delay as possible. Immediately after the specimens are drawn, the individual test tubes shall, in the presence of the employee, be sealed and labeled and the employee has the responsibility to identify each specimen and initial same. Urine is similarly collected, sealed, labeled and initialed. Following collection, the specimens shall be placed in the transportation container together with the appropriate copies of the chain of custody form. The transportation container shall then be sealed in the employee's presence. The employee has the responsibility to initial the outside of the container. The container shall be sent to the designated testing laboratory on the same day or on the next normal business day, by air courier or other fastest available means. (2) Where urine specimens are to be provided, at least 3OmL of specimen shall be collected and placed in one (1) self-sealing, screw-capped container. Urine specimen in excess of the first (lst) 3OmL shall be placed in a second (2nd) such container. They shall be sealed, labeled and initialed by the employee without the containers leaving the employee's presence. The employee has the responsibility to identify each specimen and initial same. Following collection, the specimens shall be placed in the transportation container together with the appropriate copies of the chain of custody form. The transportation container shall then be sealed in the employee's presence. The employee has the responsibility to initial the outside of the container. The container shall be sent to the designated testing laboratory at the earliest possible time by the fastest available means. 105 Article 35, Section 3 In this urine collection procedure, urine shall be obtained directly in a wide-mouthed single-use specimen container, which shall remain in full view of the employee until transferred to tamper-resistant urine bottles, and sealed and labeled, and the employee has initialed the bottles. At the employee's request, he/she may void directly into the two (2) self-sealing tamper-resistant urine bottles in the kit. It is recognized that the Employer has the right to request the clinic personnel administering a urine drug test to take such steps as checking the color and temperature of the urine specimen(s) to detect tampering or substitution, provided that the employee's right to privacy is guaranteed and in no circumstances may observation take place while the employee is producing the urine specimens, unless required by DOT regulations. If it is established that the employee's specimen has been intentionally tampered with or substituted by the employee, the employee is subject to discipline as if the specimen tested positive. In order to deter adulteration of the urine specimen during the collection process, physiologic determinations such as creatinine, specific gravity and/or chloride measurements may be performed by the laboratory. Any findings by the laboratory outside the "normal" ranges for creatinine, specific gravity and/or chloride shall be immediately reported to the Company's MRO for determination as to whether another specimen should be drawn. The parties recognize that the key to chain of custody integrity is the immediate sealing and labeling of the specimen in the presence of the tested employee. If each container is received undamaged at the laboratory properly sealed, labeled and initialed, consistent with DOT regulations as certified by the laboratory, the Employer may take disciplinary action based upon properly obtained laboratory results. (e) Drug Testing Kits (1) Blood and Urine Sample Kits (Probable Suspicion Kits) The contents of the blood and urine sample kits shall be as follows: 106 Article 35, Section 3 a. Security seals for sealing, initialing and labeling each blood vial. b. Non-alcohol antiseptic swab (providone-iodine 10%). c. Holder for evacuated tube and needle. d. 20 gauge x 1.5" multiple sterile pyrogen-free needle. e. One (1) sterile evacuated GRAY top blood collection tube con- taining 100 mg sodium fluoride and 20 mg potassium oxalate (or in the same proportion), and one (1) sterile evacuated blood collection tube without anticoagulant, preservative - e.g., RED top tube. f. Two (2) screw-capped self-sealing tamper-resistant urine collection bottles of appropriate capacities (for kits manufactured after April, 1994). g. Instructions for specimen collection. The chain of custody form shall be completed by the hospital/clinic personnel during specimen collection and the appropriate copies for the laboratory placed with the blood and urine specimens into the transportation container. The exterior of the container must then be secured (e.g., by placing the tamper-proof Box Seal over the outlined area). If physically capable, the employee has the responsibility to initial the sealed transportation container. (2) Urine Collection Kits The contents of the urine collection kit shall be as follows: a. Two (2) screw-capped self-sealing tamper-resistant urine collection bottles of appropriate capacities, one of which contains a temperature reading device affixed to the outside of the container capable of registering the urine temperature specified in the DOT regulations. b. A uniquely numbered (i.e. Specimen Identification Number) DOT approved chain of custody form with similarly numbered Bottle Custody Seals, and a transportation kit seal (e.g., Box Seal) shall be utilized during the urine collection process and completed by the collection site person. The appropriate laboratory copies are to be placed into the transportation container with the urine specimens. The exterior of the transportation kit shall then be secured, e.g., by placing the tamper-proof Box Seal over the outlined area. 107 Article 35, Section 3 The employee has the responsibility to initial the sealed transportation container. c. Shrink-wrapped or similarly protected kits shall be used in all instances pertaining to (1) and (2) above. (f) Laboratory Requirements (1) Urine Testing In testing urine samples, the testing laboratory shall test specifically for those drugs and classes of drugs and employing the test methodologies and cutoff levels covered in the DOT Regulations 49 CFR, Part 40. (2) Specimen Retention All specimens deemed "positive" by the laboratory, according to the prescribed guidelines, must be retained at the laboratory for a period of one (1) year. (3) Split Sample Procedure There will be an optional split sample procedure available to all employees selected for urine drug testing. When any test kit is received by the laboratory, the "primary" sealed urine specimen bottle shall be immediately removed for testing, and the remaining "split" sealed bottle shall be placed in secured storage. Such specimen shall be placed in refrigerated storage if it is to be tested outside of the DOT mandated period of time. The employee will be given a shrink-wrapped or similarly protected urine collection kit containing two (2) containers for the urine specimen. One (1) container must contain at least 3OmL of urine, and urine in excess of the first (lst) 3OmL shall be placed in the second (2nd) container. Both shall be sealed in the employee's presence, initialed by the employee, then forwarded to an approved laboratory for testing. If the employee is advised by the MRO that the first (1st) urine sample tested positive, in a random or post accident urine drug test, or if the urine portion of a probable suspicion test is positive after the blood tests negative, the employee may, within seventy-two (72) hours of receipt of actual notice, request that the second (2nd) urine specimen be forwarded by the first laboratory to another independent and unrelated approved laborato- 108 Article 35, Section 3 ry of the parties' choice for GC/MS confirmatory testing of the presence of the drug. If the employee chooses to have the second (2nd) sample analyzed, he/she shall at that time execute a special checkoff authorization form to ensure payment by the employee. If the employee chooses the optional split sample procedure, disciplinary action can only take place after the first (lst) laboratory reports a positive finding and the second (2nd) laboratory confirms the presence of the drug. However, the employee may be taken out of service once the first (lst) laboratory reports a positive finding while the second (2nd) test is being performed. If the second (2nd) test is positive, and the employee wishes to use the rehabilitation options of this Section, the employee shall reimburse the Employer for the cost of the second (2nd) sample's analysis before entering the rehabilitation program. If the second (2nd) laboratory report is negative, the employee will be reimbursed for the cost of the second (2nd) test and for all lost time. It is also understood that if an employee opts for the split sample procedure, contractual time limits on disciplinary action in the Supplements are waived. (4) Laboratory Accreditation All laboratories used to perform urine drug testing pursuant to this Agreement must be accredited by the Substance Abuse & Mental Health Services Administration (SAMHSA). Laboratories that have not previously been approved for blood drug testing but which desire to begin such testing, pursuant to this Agreement, must apply to the parties for approval and be added to the approved list before testing. (g) Laboratory Testing Methodology The initial testing shall be by immunoassay which meets the requirements of the Food and Drug Administration for commercial distribution. The initial cutoff levels used when screening urine specimens to determine whether they are negative or positive for various classes of drugs shall be those contained in the Scientific and Technical Guidelines for Federal Drug Testing Programs (subject to revision in accordance with subsequent amendments to the HHS Guidelines) - All specimens identified as positive on the initial test shall be confirmed using gas chromatography/mass spectrometry (GC/MS) tech- 109 Article 35, Section 3 niques. Quantitative GC/MS confirmation procedures to determine whether the test is negative or positive for various classes of drugs shall be those contained in the Scientific and Technical Guidelines for Federal Drug Testing Programs (subject to revision in accordance with subsequent amendments to the HHS Guidelines). All specimens which test negative on either the initial test or the GC/MS confirmation test shall be reported only as negative. Only specimens which test positive on both the initial test and the GC/MS confirmation test shall be reported as positive. When a grievance is filed as a result of a positive drug test, the Employer shall obtain the test results from the laboratory relating to the drug test, and shall provide a copy to the Union. (2) Blood Testing In testing blood specimens, the testing laboratory will analyze blood/serum by using gas chromatography/mass spectrometry as appropriate. In probable suspicion testing, a "positive" finding for cannabinoids will be forensically reported under any of the following results obtained after testing blood specimens by gas chromatography/mass spectrometry: a. The blood/serum contains at least two (2) and up to five (5) nanograms THC/mL and at least ten (10) nanograms THC metabolites/mL. b. The blood/serum contains at least five (5) or more nanograms THC/mL, regardless of the THC metabolite concentration. c. The blood/serum contains twenty (20) or more nanograms THC metabolites/mL, regardless of THC concentration. If none of the above blood marijuana findings results are obtained, a "negative" finding shall be reported. Where other Schedule I and II drugs in blood are detected, the laboratory is to report a positive test based on a forensically acceptable positive quantum of proof. All positive test results must be reviewed by the certifying scientist and certified as accurate. All positive test results must be reviewed by the certifying scientist and certified as accurate. 110 Article 35, Section 3 (3) Prescription and Non-prescription Medications If an employee is taking a prescription or non-prescription medication in the appropriate described manner he/she will not be disciplined. Medications prescribed for another individual, not the employee, shall be considered to be illegally used and subject the employee to discipline. (4) Medical Review Officer (MRO) The Medical Review Officer (MRO) shall be a licensed physician with the knowledge of substance abuse disorders. The MRO shall review and interpret all urine drug test results, as required by the DOT for all employees tested for drugs under this Agreement, from the laboratory and shall examine alternate medical explanations for such positive tests. Prior to the final decision to verify a positive urine drug test result, all employees shall have the opportunity to discuss the results with the MRO. If the employee has not discussed the results of the positive urine drug test with the MRO within five (5) days after being contacted, or refuses the opportunity to do so, the MRO shall proceed with the positive verification. (h) Leave of Absence Prior to Testing (1) An employee shall be permitted to take leave of absence for the purpose of undergoing treatment pursuant to an approved program of alcoholism or drug use. The leave of absence must be requested prior to the commission of any act subject to disciplinary action. (2) Such leave of absence shall be granted on a one (1)-time basis and shall be for a maximum of sixty (60) days unless extended by mutual agreement. While on such leave, the employee shall not receive any of the benefits provided by this Agreement or Supplements thereto except continued accrual of seniority, nor does this provision amend or alter the disciplinary provision. (3) Employees requesting to return to work from a leave of absence for drug use or alcoholism shall be required to submit to testing as provided for in Part (j) of this Section. Failure to do so will subject the employee to discipline including discharge without the receipt of a prior warning letter. 111 Article 35, Section 3 (4) The provisions of this Section shall not apply to probationary employees. (i) Disciplinary Action Based on Positive Test Results Consistent with past practice under this Agreement, and notwithstanding any other language in any Supplement, the Employer may take disciplinary action based on the test results as follows: (1) If a laboratory, following the procedures described in Parts (f) and (g), reports that a urine test is positive, the employee shall be subject to discharge (except as provided in Part (j)) (2) The following actions shall apply in probable suspicion testing based on DOT and contractual mandates. a. If the blood test is positive according to the procedures described in Parts (f) and (g), the employee shall be subject to discharge. b. If the blood test is negative and the urine test is positive, the employee shall be medically unqualified as prescribed by the DOT regulations. c. If the blood test is negative and the urine test is negative, the employee shall be immediately returned to work and made whole for all lost earnings. (3) If test results show a blood alcohol concentration equal to or above the level previously determined by the appropriate Supplemental Agreement for alcohol intoxication, the employee shall be subject to discharge pursuant to the Supplemental Agreement. (j) Return to Employment After a Positive Urine Drug Test (1) Any employee testing positive for drugs in a urine drug test, thereby subjecting the employee to discipline, shall be granted reinstatement on a one (1)-time lifetime basis if the employee successfully completes a program of evaluation and/or rehabilitation which has been approved by the applicable Health & Welfare Fund where such is the practice. Any cost of evaluation and/or rehabilitation, over and above that paid for by the applicable Health & Welfare Fund, must be borne by the employee. 112 Article 35, Section 3 (2) Employees electing the one-time lifetime evaluation and/or rehabilitation must notify the Company within ten (10) days of being notified by the Company of a positive urine drug test. The evaluation process and/or rehabilitation program must take a minimum of ten (10) days. The employee must begin the evaluation process and/or rehabilitation program within fifteen (15) days after notifying the Company. The employee must request reinstatement promptly after successful completion of the evaluation process and/or rehabilitation program. After the minimum ten (10) day period, the employee may request reinstatement, but must first provide a negative urine drug test, to be conducted by a clinic and laboratory of the Employer's choice, before the employee can be reinstated. Any employee choosing to protest the discharge must file a protest under the applicable Supplement. After the discharge is sustained, the employee must notify the Company within ten (10) days of the date of the decision, of the desire to enter the evaluation process and/or rehabilitation program. (3) While undergoing treatment, the employee shall not receive any of the benefits provided by this Agreement or Supplements thereto except continued accrual of seniority. (4) Upon being reinstated, and after providing the negative drug test provided in Subpart (2) of this Subsection, the employee will be subject to three (3) additional tests for drugs without prior notice. Two (2) of these tests will occur within the six (6) months of the employee's reinstatement and the third (3rd) test to occur within the six (6) to twelve (12) month period after the employee's return to employment. A positive test result as set forth in Part (g) of this Section or a refusal to submit to testing shall result in discharge without the receipt of a prior warning letter. (k) Special Grievance Procedure (1) The parties shall together create a Special Conference Joint Area Committee consisting of an equal number of employer and union representatives to hear drug-related discipline disputes. All such disputes arising after the establishment of the Special Conference Joint Area Committee shall be taken up between the Employer and Local Union involved. Failing adjustment by these parties, the dispute shall be heard by the Special Conference Joint Area Committee within ninety (90) days of the Committee's receipt 113 Article 35, Section 3 of the dispute. Where the Special Conference Joint Area Committee, by majority vote, settles a dispute, such decision shall be final and binding on both parties with no further appeal. Where the Special Conference Joint Area Committee is unable to agree on or come to a decision on a dispute, the dispute will be referred to the National Grievance Committee. (2) The procedures set forth herein may be invoked only by the authorized Union Representative or the Employer. (l) Paid-for Time (1) Training Employees undergoing substance abuse training as required by the DOT will be paid for such time and the training will be scheduled in connection with the employee's normal work shift, where possible. (2) Testing Employees subject to testing and selected by the random selection process for urine drug testing shall be compensated at the regular straight time hourly rate of pay in the following manner provided that the test is negative: A. Random Drug Tests 1. for all time at the collection site. 2. (a) for travel time one way if the collection site is reasonably en route between the employee's home and the terminal, and the employee is going to or from work; or (b) for travel time both ways between the terminal and the collection site, only if the collection site is not reasonably en route between the employee's home and the terminal. 3. When an employee is on the clock and a random drug test is taken any time during the employee's shift, and the shift ends after eight (8) hours, the employee is paid time and one-half for all time past the eight (8) hours. 4. The Employer will not require the city employee to go for urine drug testing before the city employee's shift, provided the collec- 114 Article 35, Section 3 tion site is open during or immediately following the employee's shift. 5. During an employee's shift, an employee will not be required to use his/her personal vehicle from the terminal to and from the collection site to take a random drug test. 6. If a road driver is called at home to take a random drug test at a time when the road driver is not en route to or from work, the driver shall be paid, in addition to all time at the collection site, travel time both ways between the driver's home and the collection site with no minimum guarantee. B. Non-Suspicion-Based Post-Accident Testing 1. In the event of a non-suspicion-based post-accident testing situation, where the employee has advised the Employer of the issuance of a citation for a moving violation, but the Employer does not direct the employee to be tested immediately, but sends the employee for testing at some later time [during the thirty-two (32) hour period], the employee shall be paid for all time involved in testing, from the time the employee leaves home until the employee returns home after the test. 2. When the Employer takes a road driver out of service and directs the employee to be tested immediately, the Employer will make arrangements for the road driver to return to his/her home terminal in accordance with the Supplemental Agreement. Section 4. The parties agree that they will negotiate language to be incorporated in this Agreement consistent with the drug and alcohol testing regulations published by the U.S. Department of Transportation and the Federal Highway Administration in the Federal Register of February 15, 1994, to become effective January 1, 1995. These rules amend 49 CFR Parts 40, 391, 392 and 395, and create Part 382 Controlled Substance and Alcohol Use Testing. The parties also agree that such language shall be agreed upon no later than November 1, 1994. 115 ARTICLE 36. NEW ENTRY (NEW HIRE) RATES Section 1. New Entry Rates Effective April 1, 1991, all regular employees hired on or after that date shall receive the following hourly and/or mileage rates of pay: (a) Effective first (1st) day of employment - 85% of the current rate. (b) Effective first (1st) anniversary date of employment - 90% of the current rate. (c) Effective eighteen (18) months from the first (1st) date of employment - 100% of the current rate. The above rates of pay shall not apply to casual employees. The term" current rate" is the applicable hourly and/or mileage rte of pay for the job classification including all wage and guaranteed cost-of-living adjustments payable under this Agreement. Section 2. New Entry Rates (Effective October 1, 1994) Effective October 1, 1994, all regular employees hired on or after that date shall receive the following hourly and/or mileage rates of pay: (a) Effective first (1st) day of employment 75% of the April 6, 1994 rate. (b) Effective first (1st) day of employment plus one year - 80% of the April 6, 1994 rate. (c) Effective first (1st) day of employment plus eighteen (18) months - 90% of the April 6, 1994 rate. (d) Effective first (1st) day of employment plus two (2) years - 100% of the current rate. The above rates of pay shall not apply to casual employees. 116 Article 36, Section 2 The term "current rate" is the applicable hourly and/or mileage rate of pay for the job classification including all cost-of-living adjustments, under this Agreement. ARTICLE 37. NON-DISCRIMINATION The employer and the Union agree not to discriminate against any individual with respect to hiring, compensation, terms or conditions of employment because of such individual's race, color, religion, sex, age, or national origin nor will they limit, segregate or classify employees in any way to deprive any individual employee of employment opportunities because of race, color, religion, sex, age, or national origin or engage in any other discriminatory acts prohibited by law. This Article also covers employees with a qualified disability under the Americans with Disabilities Act. ARTICLE 38 Section 1. Sick Leave Effective April 1, 1980 and thereafter, all Supplemental Agreements shall provide for five (5) days of sick leave per contract year. Sick leave not used by March 31, of any contract year will be paid on March 31 at the applicable hourly rate in existence on that date. Each day of sick leave will be paid for on the basis of eight (8) hours' straight-time pay at the applicable hourly rate. Sick leave will be paid to eligible employees beginning on the third (3rd) working day of absence due to sickness or accident except where the employee is hospitalized prior to that date when it will be paid beginning on the date of hospitalization. The additional sick leave days referred to above shall also be included in those Supplements containing sick leave provisions prior to April 1, 1976. The National Negotiating Committees may develop rules and regulations to apply to sick leave provisions negotiated in the 1976 Agreement and amended in this Agreement uniformly to 117 ARTICLE 38, Section 1 the Supplements. The Committee shall not establish rules and regulations for sick leave programs in existence on March 31, 1976. Section 2. Jury Duty Effective April 1, 1979, al regular employees called for jury duty will receive the difference between eight (8) hours pay at the applicable hourly wage and actual payment received for jury service for each day jury duty to a maximum of ten (10) days pay for each contract year. When such employees report for jury service on a scheduled workday, they will not unreasonably be required to report for work that particular day. Time spent on jury service will be considered time worked for purposes of Employer contributions to health & welfare and pension plans, vacation eligibility and payment, holidays and seniority, in accordance with the applicable provisions of the Supplemental Agreements to a maximum of ten (10) days for each contract year. Section 3. Family and Medical Leave Act All employees who worked for the Employer for a minimum of twelve (12) months and worked at least 1250 hours during the past twelve (12) months are eligible for unpaid leave as set forth in the Family and Medical Leave Act of 1993. Eligible employees are entitled to up to a total of 12 weeks of unpaid leave during any twelve (12) month period for the following reasons: 1. Birth or adoption of a child or the placement of a child for foster care; 2. To care for a spouse, child or parent of the employee due to a serious health condition; 3. A serious health condition of the employee. The employee's seniority rights shall continue as if the employee had not taken leave under this Section, and the Employer will maintain health insurance coverage during the period of the leave. 118 Article 38, Section 3 The Employer may require the employee to substitute accrued paid vacation or other paid leave for part of the twelve (12) week leave period. The employee is required to provide the Employer with at least thirty (30) days advance notice before FMLA leave begins if the need for leave is foreseeable. If the leave is not foreseeable, the employee is required to give notice as soon as practicable. The Employer has the right to require medical certification of a need for leave under this Act. In addition, the Employer has the right to require a second (2nd) opinion at the Employer's expense. If the second opinion conflicts with the initial certification, a third opinion from a health care provider selected by the first and second opinion health care providers, at the Employer's expense may be sought, which shall be final and binding. Failure to provide certification shall cause any leave taken to be treated as an unexcused absence. As a condition of returning to work, an employee who has taken leave due to his/her own serious health condition must be medically qualified to perform the functions of his/her job. In cases where employees fail to return to work the provisions of the applicable Supplemental Agreement will apply. It is specifically understood that an employee will not be required to repay any of the contributions for his/her health insurance during FMLA leave. No employee will be disciplined for requesting or taking FMLA leave under the contract absent fraud, misrepresentation, or dishonesty. Disputes arising under this provision shall be subject to the grievance procedure. The provisions of this Section are in response to the federal FMLA and shall not supersede any state or local law which provides for greater employee rights. 119 ARTICLE 39. DURATION Section 1. This Agreement shall be in full force and effect from April, 1994, to and including March 31, 1998, and shall continue from year to year thereafter unless written notice of desire to cancel or terminate this Agreement is served by either party upon the other at least sixty (60) days prior to date of expiration. When notice of cancellation or termination is given under this Section, the Employer and the union shall continue to observe all terms of this Agreement until impasse is reached in negotiations, or until either the Employer or the Union exercise their rights under Section 3 of this Article. Section 2. Where no such cancellation or termination notice is served and the parties desire to continue said Agreement but also desire to negotiate changes or revisions in this Agreement, either party may serve upon the other a notice at least sixty (60) days prior to March 31, 1998 or March 31st of any subsequent contract year, advising that such party desires to revise or change terms or conditions of such Agreement. Section 3. The Teamsters National Freight Industry Negotiating Committee, as representative of the Local Unions or the signator Employer or the authorizing Employer Associations, shall each have the right to unilaterally determine when to engage in economic recourse (strike or lockout) on or after April 1, 1998, unless agreed to the contrary. Section 4. Revisions agreed upon or ordered shall be effective as of April 1, 1998 or April 1st of any subsequent contract year. 120 Article 39, Section 5 Section 5. In the event of an inadvertent failure by either party to give the notice set forth in Sections 1 and 2 of this Article, such party may give such notice at any time prior to the termination or automatic renewal date of this Agreement. If a notice is given in accordance with the provisions of this Section, the expiration date of this Agreement shall be the sixty-first (61st) day following such notice. Section 6. In those circumstances where the Teamsters National Freight Industry Negotiating Committee, as representative of the Local Union, or the signatory Employer or the authorizing Employer Associations, shall have served a notice of reopening pursuant to this Article and have not been able to arrive at an agreement within six (6) months, then either side shall have the right to sixty (60) days' written notice to terminate this Agreement. 121 IN WITNESS WHEREOF the parties hereto have set their hands and seals this___ day of ____, 1994, to be effective April 1, 1994, except as to those areas where it has been otherwise agreed between the parties. NEGOTIATING COMMITTEES FOR THE LOCAL UNIONS: TEAMSTER NATIONAL FREIGHT INDUSTRY NEGOTIATING COMMITTEE Ron Carey, Chairman Dennis Skelton, Co-Chairman Roland Bell Doug Mims Ray Burkhart Ed Mireles Frank Busalacchi John Neal Jimmy Carrington Richard Nelson Sam Carter Jim Roberts Ray Cash W. C. Smith George Cashman C. Sam Theodus Thomas Griffith Lee Via Harrison Lushbaugh Harold Yates FOR THE EMPLOYERS: TRUCKING MANAGEMENT, INC. Arthur H. Bunte, Jr., Chairman Jack G. Ferrone R. V. Pullima, Sr. Donald E. Hargett C. Kermit Scarborough Gordon L. Kraemer Fred J. Schrank Kenneth F. Leedy REGIONAL CARRIES, INC. Tom Jones, Chairman Woody Young, Co-Chairman Glen Carrol Gene Pikovsky Lee Kundtz Scott Pikovsky Gregg Lundner Skiy Rajnowski Abe Marcus Howard Reinhart Peter Martin 122 REGIONAL CARRIERS, INC. Addendum The Agreement with Regional Carriers, Inc. contains the same wages, benefits and non-monetary provisions as contained herein, with the following exception: Add new Article 2, Section 5(b) to read as follows: The parties have agreed to consider the negotiation of Riders and Addenda to cover certain types of operations, including unionized regional operations. Such Riders and Addenda shall always be subject to approval by the Union designated committee, the Local Unions involved and, thereafter, must be ratified in a secret ballot by a majority of all of the Employer's Teamster represented employers in its nationwide bargaining unit. 123 APPENDIX A WAGE REDUCTION-JOB SECURITY PLAN GUIDELINES Note: Each Plan Must be Approved by TNFINC. _____a _____Corporation, (hereinafter called the "Company:") hereby establishes The ___Wage Reduction - Job Security Plan, (hereinafter the "Plan") for the benefit of all of its employees. These guidelines for establishing this Plan were created for the express purpose of allowing freight companies the ability to compete and provide job security for Teamster bargaining unit employees. This plan has been approved per Article 6, Section 2, of the National Master Freight Agreement. 1. Employee Eligibility. During the period in which the Plan is effective, each full time employee of the Company (Bargaining Unit and/or Non- Bargaining Unit) shall participate in the Plan. For purposes of the Plan, the term "full time employee" means an employee who is on the seniority list and is scheduled to perform work for the Company when called, including probationary employees and regular employees on lay off status but, excluding casual employees. 2. Equal Sacrifice of Non-Bargaining Unit Employees and their Participation. All non-bargaining unit employees will participate equally in the Plan in accordance with its terms. The Company will continue the past and present practice of sharing the burden of sacrifices among all employees. The Company agrees not to increase wages (including bonuses) and benefits of current non-bargaining unit employees as an overall percentage beyond the effective overall percentage increases to be received by the bargaining unit employees. (This would exclude promotions, new hires, and, for example, data processing employees, who may be otherwise impossible to hire or retain). In the event it becomes necessary to exceed this overall percentage increase limit in order to retain employees for the efficient continued operation of the business, the Company would request approval from the TNFINC to do so. 3. Relation to Collective Bargaining Agreement. This Plan will be mandatory for all employees, both bargaining unit and non-bar- 124 gaining unit, since job security is the number one asset we all hope to share equally. This Plan will be effective on the agreed-to date for all those employees in the entire unit. The Plan will be submitted for secret ballot vote of all bargaining unit employees, and shall be put into effect if seventy-five percent (75%) of the bargaining unit employees voting, vote to adopt the plan. 4. Health, Welfare and Pension Contributions. The Company agrees to continue to pay the full Health, Welfare and Pension contributions and other increases set forth in the National Master Freight Agreement and its Supplements and will continue to be signator to the National Master Freight Agreements for the life of the Plan. 5. Dispute Settlement. As part of the Collective Bargaining Agreement, disputes pertaining to the Plan are subject to the grievance procedure contained in the National Master Freight Agreement. However, any grievance filed hereunder, by either party, shall be referred directly to the appropriate Are Conference Grievance Committee for initial hearing and disposition. 6. Participation. An employee begins or continues participation in the Plan, on the date of Plan implementation, or, the first day of the pay period following his/her first day of regular and/or probationary employment subject to the eligibility rules above. 7. New Hire. Newly hired employees subject to New Hire under the National Master Freight Agreement beginning after 10/1/94 will begin participation in the Plan first day of the pay period as a minimum as follows for a 15% Wage Reduction-Job Security Plan: Maximum Wage Reduction Time of Service from New Hire Rate Effective First Day of Employment Receive 70% of NMFA Wages (%) Effective First plus One (1) Year Receive 75% of NMFA Wages (%) Effective First plus 18 Months Receive 80% of NMFA Wages (%) Effective First Day plus Two (2) Years Receive 85% of NMFA Wages (%) 125 Any present employee still subject to New Hire Rates under the National Master Freight Agreement who began prior to 10/1/94 will participate according to his seniority date and subject to the above schedule, except that no one will move backwards in progression. 8. Term of Plan. The term of the Plan or continued Plan shall begin on or after April 1, 1994 and shall continue in effect through March 31, 1998 or until a replacement Collective Bargaining Agreement is reached between the parties, whichever is the later. All Plan years will commence on January 1, and end on December 31. Distribution of net operating profits will be prorated as appropriate for calendar years 1994 and 1998 and correspond with Plan implementation date and Plan termination date as herein provided. 9. Determination and Sharing of Net Operating Profit. For the period from date of Plan implementation through date of Plan termination as herein provided for a 15% (maximum) plan: % of Net Operating % of Net Operating Profit Distributed Overall Expense Profit Retained to Plan Participating Ratio Levels by Company Employees (Profit Pool) 97.0 or Above 100% 0% 96.9 and Below 50% 50% (Note: The percentage of profit retention below 97.0 set forth above may vary in Plans for less than maximum allowable reduction provided in Item #11, pursuant to TNFINC approval.) (a) As set forth above, the Company will retain all Net Operating Profit amounts on the first three points of the Overall Expense Ratio, i.e., from 97.0 or above, irrespective of what the overall expense ratio is. A substantial portion of such net operating profit on the first three points of the Overall Expense Ratio will be reinvested back into the Company's freight operations for the purpose of continuing to provide job security for all Plan participants. The Company will distribute the requisite percentage of the Net Operating Profit in excess of the first three points of the Overall Expense Ratio, i.e., from 96.9 and below, to the participating employees. (b) Each participant's proportionate share of the Company's Net Operating Profit (Profit Pool) for each Plan year for which a deter- 126 mination is being made shall equal the ratio of the individual participant's earnings for such plan year (after applicable wage reduction) divided by the total earnings by all eligible employees for such plan year, (after applicable wage reduction) multiplied by the amounts of the Company's Net Operating Profit (Profit Pool) which is available for distribution under the Plan. For example, the distribution for an employee for the first full Plan year would be: Individual Participant's Eligible Profit Pool-Net Operating Earnings for the period January 1, Profits (for the period through December 31. from January 1 through _________________________ X December 31) available for distribution to Participating Employees Overall Participating Employees' Eligible Earnings (January 1 through December 31.) (c) The term "Earnings" means an employee's wage compensation only as reportable for W-2 purposes for any plan year for which a profit sharing determination is being made, less amounts otherwise includable in wage compensation which are attributable to profit sharing distributions received during such Plan year, but attributable to a preceding Plan year. Earnings attributable to wages shall include vacation, sick pay, holiday pay, funeral leave, jury duty and other paid-for-time not worked. (d) The term "Net Operating Profit" means all operating revenues attributable to the Company's LTL trucking operations minus all operating expenses, including other expenses and debt interest, and any other non- recurring expenses normally incurred by a regulated general freight carrier, excluding any provision for Plan distributions and income taxes, as defined under generally accepted accounting principles. This does not include extraordinary gains or losses as defined under generally accepted accounting principles. (e) The term "Overall Expense Ratio" means all expenses excluding any provision for Plan distributions, income taxes and extraordinary losses divided by total revenues excluding extraordinary gains, as defined under generally accepted accounting principles. 127 (f) The company will provide each employee with an annual report including a basic profit and loss statement, indicating the overall results of the Plan and the individual distribution available to such employee. 10. Distribution of Operating Profit. Distribution of the employees' share of Net Operating Profit as determined under the Plan for each calendar (Plan) year shall be made by the Company within ninety (90) days after the close of the Company's books for such calendar (Plan) year. 11. Wage Reduction. From and after the effective date on which an employee becomes a Participant, each employee will have or will have had his/her gross wages or earnings reduced by %, except for new hires. (See Item 7.) Such wage reduction and/or reduced wages shall include vacation, sick pay, holiday pay, funeral leave, jury duty and other paid for time not worked. Wage or salary increases given during the term of the Plan will be subject to the applicable wage or salary reduction. 12. Income and Employment Tax Withholding. The Company shall withhold all applicable federal, state and local income tax and social security or other tax from employees' wages after the reduction and subsequently from each employee's distribution under the Plan as required by applicable federal, state, or local laws and/or regulations of such greater amount as requested by the employee in writing. 13. Access to Company Financial Records. The Company shall submit an annual operating statement in the format of the ICC report and independent audit to TNFINC, and TNFINC reserves the right on an annual basis to examine the books of the Company or utilize an independent auditor of its choice. In the event an independent auditing firm is utilized by TNFINC, the Company shall pay such independent auditor for such annual audit up to a maximum of five thousand dollars ($5,000). There shall be no inter-company charges initiated under the Plan for the purpose of defeating the Plan. The Company will not change accounting assumptions or practices, except as required to conform to governmental regulation, generally accepted accounting practices or for good business reasons; and in no event will such assumptions or practices be changed to evade or defeat the purposes of this Plan. 128 14. Past Practices/Company Operations. The existence and maintenance of this Plan shall not limit or otherwise affect the Company's ability to continue to exercise its managerial discretion regarding the running of the Company's business, consistent with the provisions of the Collective Bargaining Agreement. A committee consisting of at least three (3), but not more than six (6) bargaining unit employees selected form among themselves shall have the right to meet and confer with top management on a semi-annual basis for purposes of being apprised and informed concerning the overall progress and results of the Company's continuing operations. TNFINC will appoint the Chairman of this committee and will have the right to send a representative to any meeting of the committee convened by the Company. 15. Work Preservation. Where legally permissible, the Company agree not to establish any non-union regular route common carrier dry freight LTL entity. For purposes of this paragraph, the term "Company" includes the holding company. In the event the Company acquires a non-union regular route common carrier dry freight LTL entity whose operations are to be combined with those of the Company, it will negotiate with the Union concerning wages, hours and working conditions for the employees of the acquired entity. If the Company acquires a non-union regular route common carrier dry freight LTL entity which is to be operated separately from the Company, it agrees that it will recognize the Union as the representative of employees of that entity in those jobs comparable to those in the present bargaining unit based on, and after, a check by the Company of union recognition cards if signed by a majority of those employees, and the Company will not oppose or obstruct the Union in its efforts to obtain cards. The company will then negotiate with the Union concerning wages, hours and working conditions for those employees. 16. Company Agrees Not to Terminate Plan before Termination Date Without Approval of the Union. However, if the Plan is terminated at any time, wage levels will revert or snap back to the full National Master Freight Agreement on a prospective basis and participating employees are fully vested in the pro-rated share of the profits for period of wage reduction. 17. Bankruptcy Protection. If the Company files Chapter 7 or 11 petition or is placed in involuntary bankruptcy proceeding, this 129 Plan is automatically terminated and wages reverted to full National Master Freight Agreement on a prospective basis unless the Union agrees to continue the Plan. 18. Voluntary Termination of Operation. If the company voluntarily terminates operations before the expiration of the current Collective Bargaining Agreement, the participating employees are fully vested in the prorated share of the profits for the period of wage reduction. 19. Type of Agreement. NMFA with all applicable supplements and all IBT Agreements, whether or not supplemental to the NMFA. 20. Transfer of Ownership. If for any reason the Company is sold, the participating employees are fully vested in the prorated share of the profits for the period of wage reduction. 21. Resignation, Retirement or Other Termination of Employment. Any employee who resigns, retires or otherwise incurs a termination of employment, whether voluntary or involuntary, during the term of the Plan shall receive a pro rata distribution in accordance with paragraph 9 based upon his/her participation in the Plan through the date of his/her resignation, retirement or other termination of employment. 22. Limitation to Current Ownership. Should the Company, at any time subsequent to approval of this Plan, enter into negotiations for the sale of the company the following is mutually understood: This Plan is limited to the current ownership, unless such current ownership and prospective purchaser obtain approval for continuance of the Plan from TNFINC after a meeting with TNFINC, such current owner and the prospective purchaser prior to the actual sale. During such meeting the feasibility of employee purchase of the Company will be discussed with the employee committee established in #14 above and with TNFINC. (COMPANY NAME) BY: _________________________________ 130 INDEX A Accident Reports 62 Accretion Clause for Expanded Operations 96 Additions to Operations, Coverage of 6 Agency Fees, Employment 15 Agency Shop 9-10 Agreement, Cancellation of 120 Agreement, Posting of 71 Agreement, Reopening of 87 Air-Ride Seats 64 Alcohol and Drug Use 101 Arbitration, Conference Panel 35 Arbitration, National Panel 35-36 B Bail, Employee's 100 Bargaining Unit, Single 6-7 Bonds and Insurance 53 Bulletin Boards, Union 71 Bunk Restraint Strap/Net Buckles (Sleeper Berths) 69 C Cab Dimensions, Interior 65 Cancellation of Agreement 120 Card Check 5 Cargo and Containers 4-5 Casual Employees 12-15 Chain of Custody Procedures 105-106 Change of Operations Committee 42-43 Change of Operations Committee Procedure 43-44 Checkoff 15-17 Closing of Terminals-Elimination of Work 47-48 Closing, Partial Closing of Terminals -Transfer of Work 45-47 Commercial Driver's License (CDL) 63 Committee Authority (Mergers of Companies) 23 Company, Transfer of Title or Interest 2-3 Compensation Claims 54-55 131 Consumer Price Index (CP-W) 98 Cooperation, Union and Employer 71 Cost-of-Living (COLA) 98-99 D Damage or Loss 52 Dangerous Conditions 62 Discharge 84 Disciplinary Action Based on Positive Test Results 112 Diversion of Work - Parent or Subsidiary Companies 95 Dock Operations 25-26 DRIVE Contribution 16 Drug and Alcohol Use 101 Drug Testing, NMFA Standard Procedure 102-115 Duration of Agreement 120-121 E Electronic Funds Transfer (EFT) 17 Elimination of Work 47-48 Emergency Reopening 87 Employee's Bail 100 Employees Bond 53 Employer Recommendation 10 Employers Covered 2 Employment, Separation of 84 Equipment and Safety (Preamble) 61 Equipment Purchases (Seniority) 23 Equipment, Qualifications on 63 Equipment, Rates for New 29 Equipment Reports 62-63 Equipment, Requirements 63-69 Equipment, Safe 61-62 ESOP's (see Wage Reduction-Job Security Plan Guidelines) 124-130 Exclusive Cartage Operations 22 Expansion of Operations 96-97 Extension of Agreement to Additions to Operations 6 Extension of Agreement to Adjoining Operations 96 Extension of Agreement to Non-Adjoining Operations 97 Extra Contract Agreements 28-29 132 F Fair Day's Work for Fair Day's Pay 71-72 Family and Medical Leave Act 118-119 Forklifts, Diesel Powered (Phase Out) 66-67 Forty (40) and Out, Rule of 25-26 G Garnishments 100 Grievance Machinery, Local and Area 30-32 Grievance Procedure, "Innocent Until Proven Guilty" 32 Grievance Procedure, National 32-36 Grievance Procedure, Special (Drug Testing) 113-114 Grievant's Bill of rights 30-32 H Hazardous Materials Program 69-70 Hiring 9 Hot Cargo 50-51 I ICC Schedule 600 90, 92 Individual Employer Standards 27 "Innocent Until Proven Guilty" 32 Inspection Privileges and Employer Identification 85 Intent of Parties 23, 49 Intermodal, Job Protections for Current Road Drivers 92 Intermodal, National Committee 93-94 Intermodal Service 90-93 Intermodal Surface Transportation Efficiency Act of 1991 90 J Joint Industry Development Committee 72-73 Jurisdictional Disputes 94 Jury Duty 118 K Kits, Drug Testing 106-108 Kits, Urine Collection 107-108 133 L Laboratory Accreditation (Drug Testing) 109 Laboratory Requirements (Drug Testing) 108 Law, No Violation of 11 Layoff 48 Leave of Absence Prior to Testing 111-112 License Suspension or Revocation 100 Local Standards 27 Loss or Damage 52 M Maintenance of Records 89-90 Maintenance of Standards 26-27 Master Agreement 4 Master Agreement, Supplements to 4-5 Medical Opinions, Conflicting (Modified Work) 56-57 Medical Review Officer (MRO) 111 Medications, Prescription and Non-Prescription 111 Mergers of Companies-General 19-20 Military Clause 60 Modified Work 55-60 Moving Expenses 44-45 N National Institute for Occupational Safety and Health (NIOSH) 66 National Intermodal Committee 93-94 National Safety and Health Committee 69 New Entry Rates 116 New Entry Rates (Effective October 1, 1994) 116-117 New Equipment, Rates for 29 Non-Covered Unites 5-6 Non-Discrimination 117 O Opening of Terminals 48-49 Other Services 71 Owner-Operators 74-84 134 P Paid-for Time (Drug Testing) 114 Parent or Subsidiary Companies 95 Parties to the Agreement 2-3 Passengers 54 Pay Period 70 Picket Lines: Sympathetic Action 50 Piggyback Operations 88-89 Posting of Agreement 71-72 Probable Suspicion Testing 102-103 Probationary Employees 11-12 Profit Sharing Plans (see Wage Reduction-Job Security Plan Guidelines) 124-130 Purchase of Equipment (Seniority) 23 Purchase of Rights (Seniority) 21-22 Q Qualifications (Transfers) 49 Qualifications on Equipment 63 R Rates, Highest Prevail 23-24 Recognition 7-8 Records, Maintenance of 89-90 Reduction, Workweek 29 Reopening of Agreement 87 Reports, Accident, Equipment 62 Revocation of License, Suspension 100 Riders 7 Rights, Protection of 50-51 Rights, Purchase of 21-22 S Safe Equipment 61-62 Safety & Health Reports, Government Required 70 Savings Clause 10 Seniority, Change of Operations 45 Seniority, Cutting Board 24 Seniority, Continuous Classification 49 135 Seniority, Intent of Parties 23 Seniority, Intent of Parties (Change of Operations) 49-50 Seniority List, Active 20 Seniority List, Layoff 20 Seniority List, Posting 24 Seniority, Purchase of Rights 21-22 Seniority Rights 19 Seniority, Temporary Authority 21 Separability and Savings Clause 85 Separation of Employment 84 Sick Leave 117 Sleeper Berths 69 Sleeper Operations, Safe and Healthy Working Environment in 68 Specimen Retention 108 Split Sample Procedure 108 Standards, Individual Employer 27 Standards, Local 27 Standards, Maintenance of 26-27 State Law 9 Stewards 17 Struck Goods 50 Subcontracting 95 Substitute Service 88 Supplements to Master Agreement 4 Suspension or Revocation of License 100 Sympathetic Action 50, 87 T Temporary Authority 21 Termination of Agreement 121 Test Results, Disciplinary Action Based on Positive 112 Testing, Blood 110 Testing, DOT Random 103 Testing, Drug Kits 106-108 Testing, Employment Examinations (Hiring) 9 Testing, Laboratory Methodology 109 Testing, Leave of Absence Prior to 111-112 Testing, NMFA Uniform Procedure (Drug and Alcohol) 102-115 Testing, Non-Suspicion-Based Post-Accident 104 136 Time Sheets and Time Clocks 86 Transfer of Company Title or Interest 2-3 Transfer of Work 45-47 U Uniforms 53-54 Union Activities 74 Union Bulletin Boards 71 Unions Covered 2 Union Liability (Equipment and Safety) 70 Union Membership, Employer Recommendations to Retain 11 Union Shop 8 Unit, Multi-Employer, Multi-Union 94 Units, Non-Covered 5-6 Unit, Single Bargaining 6-7 Urine Collection Kits 107-108 V Video Cameras for Discipline and Discharge, Use of 86-87 W Wage Reduction-Job Security Plan Guidelines 124-130 Work Assignments 17 Work Opportunity 24-25 Work Preservation (Subcontracting) 95 Work Stoppages 36-37 Workweek Reduction 29 137 EX-10 3 EXHIBIT 10.6 1995 PERFORMANCE AWARD UNIT PROGRAM Article I Purpose Effective this 1st day of January 1996 (the "Effective Date") described herein, Arkansas Best Corporation (the "Company") adopts the Arkansas Best Corporation Performance Award Unit Program (the "Plan") to benefit the Company's stockholders by creating a flexible vehicle to provide incentive compensation opportunities to executive management of the Company. In doing so, the Plan provides an important link between the compensation of executive management and Company performance. The Awards under the Plan will compensate management for the creation of shareholder value. In this way, the Plan is intended to encourage and reward superior performance by individuals whose performance is a key element in achieving the Company's continued financial and operational success. Article II Definitions 2.1 "Award or "Awards" means an award granted pursuant to Article IV. 2.2 "Award Agreement" means a written document containing the terms of an Award made pursuant to this Plan, which evidences the Award. 2.3 "Board" means the Board of Directors of the Company. 2.4 "Code" means the Internal Revenue Code of 1986, as amended. 2.5 "Committee" means the Stock Option Committee of the Board. 2.6 "Company" means Arkansas Best Corporation, a Delaware corporation, or any successor corporation 2.7 "Disability" means a medical condition which precludes the Participant from engaging in substantially gainful employment and is expected to continue indefinitely. The determination of Participant's Disability for purposes of this Plan shall be determined by the Committee. 2.8 "Employee" means any individual who is an employee of the Company or any Participating Affiliate. 2.9 "Participant" means an Employee who has been designated by the Committee to be eligible for an Award pursuant to this Plan. 2.10 "Participating Affiliate" means a subsidiary of the Company, of which the Company beneficially owns, directly or indirectly, more than fifty percent (50%) of the aggregate voting power of all outstanding classes and series of stock, and which has one or more employees designated by the Committee to be eligible for an Award pursuant to this Plan. 2.11 "Performance Award Units" are cash allotments of dollar-denominated units, which may be performance-based compensation as described in section 162(m) of the Code. 2.12 "Retirement" means termination of employment with the Company or a Participating Affiliate upon attainment of normal retirement age of sixty-five (65). Article III Eligibility The Committee shall consider an individual's position, responsibilities, and importance to the Company among other factors in determining which Employees shall be Participants. The types of Awards to be made to Participants and the terms, conditions, and limitations applicable to the Awards are left to the sole discretion of the Committee, subject to the terms of the Plan. The Committee's decision as to eligibility and the nature and timing of Awards under the Plan is final. Article IV Awards 4.1 At the discretion of the Committee, Awards and/or Performance Award Units shall be paid in the form of cash or other property the Committee deems appropriate. 4.2 Performance Award Units may be granted under this Plan from time to time based on the terms and conditions as the Committee deems appropriate; provided, however, that such Awards shall not be inconsistent with the terms and purposes of this Plan. The Committee shall determine the performance measurements and criteria for such Awards. 4.3 In the event of the Retirement, Disability, death or other termination of a Participant's employment with the Company, all Awards granted, but not unpaid and Performance Award Units credited to the Participant's account shall be paid in cash or, as the Committee deems appropriate, other property, to the Participant's designated beneficiary. 4.4 Each Award under this Plan shall be evidenced by an Award Agreement setting forth the terms of the Award. (a) Award Agreements shall include the following terms: (i) a provision that the Awards under the Plan shall not be assigned, pledged, or otherwise transferred, except by will or by the laws of descent and distribution; (ii) a provision describing the treatment of an Award in the event of the Retirement, Disability, death, or other termination of a Participant's employment with the Company, including, but not limited to terms relating to the vesting, forfeiture, or cancellation of an Award in such circumstances; and (iii) a provision describing the withholding of applicable taxes required by law from all amounts paid in satisfaction of an Award. (b) Award Agreements may include the following terms: (i) any provisions requiring holders of Awards to surrender outstanding Awards as a condition precedent to the grant of new Awards under the Plan; (ii) such other terms as are necessary and appropriate to effect an Award to the Participant including, but not limited to the term of the Award, payment provisions, vesting provisions, deferrals, any requirements for continued employment with the Company, limitations regarding the source of the payment for an Award, any other restrictions or conditions (including performance requirements) on the Award and the method by which restrictions or conditions lapse, effect on the Award of a Change of Control, as defined in Article IX, and amount or value of Awards; or (iii) any terms or limitations to comply with the performance-based compensation requirements under section 162(m)(4)(C) of the Code. Article V Administration 5.1 A majority of the members of the Committee shall constitute a quorum. The vote of a majority of a quorum shall constitute action by the Committee. 5.2 The Committee will be responsible for declaring the material terms under which the Performance Award Units are to be paid, including performance goals. 5.3 The Committee shall periodically determine the Participants in the Plan and the nature, amount, and other terms of Awards to be made to such individuals. 5.4 The Committee shall have the power to interpret and administer the Plan. All questions of interpretation with respect to the Plan and its determination shall be final and conclusive upon all parties in interest. In the event of any conflict between an Award Agreement and the Plan, the terms of the Plan shall govern. 5.5 The Committee may delegate to the officers or employees of the Company the authority to execute and deliver such instruments and documents, to do all such acts and things, and to take all such other steps deemed necessary, advisable or convenient for the effective administration of the Plan in accordance with its terms and purpose. 5.6 In the case of Awards that are intended to be Performance Awards as described in section 162(m) of the Code, before any such Performance Award is paid to a "covered employee," as defined in section 162(m) of the Code, the Committee shall disclose to the shareholders and the shareholders must approve: (a) A description of the broad class of employees who are eligible to participate in the Plan. (b) A general description of the performance goals set by the Committee. (c) Either the formula for computing the compensation or the maximum dollar amount that will be paid if the performance goal is satisfied. (d) Such other information as the Committee deems necessary to comply with the requirements under section 162(m) of the Code. Article VI Change of Control 6.1 In the event of a Change of Control, the terms of the Award Agreement shall state the effect, if any, on Awards granted under the Plan. 6.2 For the purposes of this Section, a "Change of Control" shall mean the earliest date on which any of the following events shall occur: (a) there shall be consummated any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which Shares would be converted into cash, securities, or other property, other than a merger of the Company in which the holders of the Shares immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or any lease, exchange, or other transfer (excluding transfer by way of pledge or hypothecation), in one transaction or a series of related transactions, of all, or substantially all, of the assets of the Company; (b) the stockholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company; (c) any "person" (as such term is defined in section 3(a)(9) or section 13(d)(3) under the Exchange Act) or any "group" (as such term is used in Rule 13d-5 promulgated under the Exchange Act), other than the Company or any successor of the Company or any subsidiary of the Company or any employee benefit plan of the Company or any subsidiary (including such plan's trustee), becomes a beneficial owner for purposes of Rule 13d-3 promulgated under the Exchange Act, directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the Company's then outstanding securities having the right to vote in the election of directors; or (d) during any period of two consecutive years, individuals who, at the beginning of such period constituted the entire Board, cease for any reason (other than death) to constitute a majority of the directors, unless the election, or the nomination for election, by the Company's stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. Article VII Rights of Employees 7.1 Status as an eligible Employee shall not be construed as a commitment that any Award will be made under the Plan to such eligible Employee or to eligible Employees generally. 7.2 Nothing contained in the Plan (or in any other documents related to this Plan or to any Award) shall confer upon any Employee or Participant any right to continue in the employ or other service of the Company or constitute any contract or limit in any way the right of the Company to change such person's compensation or other benefits or to terminate the employment of such person with or without cause. Article VIII Amendment and Termination The Board may at any time amend, suspend, or terminate the Plan. The Committee may at any time alter or amend any or all Award Agreements under the Plan to comply with any laws that govern such agreements. Article IX Unfunded Plan The Plan shall be unfunded. Neither the Company, Board of Directors, nor the Committee shall be required to segregate any assets that may at any time be represented by Awards made pursuant to the Plan. Neither the Company, the Committee, nor the Board of Directors shall be deemed to be a trustee of any amounts to be paid under the Plan. Article X Limits of Liability 10.1 Any liability of the Company to any Participant with respect to an Award shall be based solely upon contractual obligations created by the Plan. 10.2 No member of the Board or the Committee, nor any Employee acting on behalf of the Board or the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board and the Committee and each Employee acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination, or interpretation. Article XI Miscellaneous The laws of the State of Delaware shall govern all matters relating to this Plan, except to the extent superseded by the laws of the United States. IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly authorized officer to be effective immediately on the date on which this Plan is adopted by the Board of Directors of the Company. ARKANSAS BEST CORPORATION By: Title: EX-11 4 EXHIBIT 11 EXHIBIT 11 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE ARKANSAS BEST CORPORATION
Year Ended December 31 1995 1994 1993 ($ thousands, except per share data) PRIMARY: Average shares outstanding 19,520,756 19,249,209 19,132,386 Net effect of dilutive stock options -- Based on the treasury stock method using average market price - 102,587 61,196 ---------- ---------- ---------- Average common shares outstanding 19,520,756 19,351,796 19,193,582 ========== ========== ========== Income before extraordinary item and cumulative effect of accounting change $ (32,792) $ 18,707 $ 20,972 Less: preferred stock dividend 4,298 4,298 3,904 ---------- ---------- ---------- (37,090) 14,409 17,068 Extraordinary item: Loss on extinguishments of debt - - (661) ---------- ---------- ---------- Net income (loss) available for common shareholders $ (37,090) $ 14,409 $ 16,407 ========== ========== ========== Per common and common equivalent share: Income before extraordinary item and cumulative effect of accounting change $ (1.90) $ .74 $ .89 Extraordinary item: Loss on extinguishments of debt - - (.04) ---------- ---------- ---------- $ (1.90) $ .74 $ .85 ========== ========== ========== Fully diluted earnings per common share are not presented, as such calculations would be anti-dilutive
EX-21 5 EXHIBIT 21 EXHIBIT 21 LIST OF SUBSIDIARY CORPORATIONS ARKANSAS BEST CORPORATION The Registrant owns and controls the following subsidiary corporations: Jurisdiction of % of Voting Name Incorporation Securities Owned Subsidiary of Arkansas Best Corporation: ABF Freight System, Inc. Delaware 100 Treadco, Inc. Delaware 45.7 Transport Realty, Inc. Arkansas 100 Data-Tronics Corp. Arkansas 100 Clover Insurance Company, Ltd. Bermuda 100 Arkansas Underwriters Corporation Arkansas 100 Advertising Counselors, Inc. Arkansas 100 ABF Cartage, Inc. Delaware 100 ABF Farms, Inc. Arkansas 100 Land-Marine Cargo, Inc. Puerto Rico 100 Integrated Distribution, Inc. Arkansas 100 ABF Freight System Canada, Ltd. Canada 100 ABF Freight System de Mexico, Inc. Delaware 100 Best Logistics, Inc. Delaware 100 Agile Freight System, Inc. Delaware 100 Agricultural Express of America, Inc. Delaware 100 Clipper Exxpress Company Delaware 100 WorldWay Corporation North Carolina 100 Subsidiary of ABF Freight System, Inc.: ABF Freight System (B.C.), Ltd. British Columbia 100 Subsidiary of Treadco, Inc.: Trans World Casings, Inc. Delaware 100 Subsidiary of WorldWay Corporation G.I. Trucking Company California 100 Cardinal Freight Carriers, Inc. Virginia 100 CaroTrans International, Inc. North Carolina 100 The Complete Logistics Company California 100 Innovative Logistics Incorporated South Carolina 100 Motor Carrier Insurance, Ltd. Bermuda 100 Carrier Computer Services, Inc. North Carolina 100 Carolina Breakdown Service, Inc. North Carolina 100 Hawaiian Pacific Freight Forwarding California 100 EX-23 6 EXHIBIT 23 EXHIBIT 23 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-66694) pertaining to the Arkansas Best Corporation Stock Option Plan and Arkansas Best Corporation Disinterested Director Stockholder Plan, the Form S-8 Registration Statement dated March 30, 1994, pertaining to the Arkansas Best Corporation Employees' Investment Plan, and the Form S-8 Registration Statement dated November 30, 1995, pertaining to (1) the Carolina Freight Corporation Employee Savings and Protection Plan, (2) Complete Leasing Concepts, Inc. Employee Savings & Profit Sharing Plan, and (3) IDI 401(k) Savings Plan of our report dated February 21, 1996, with respect to the consolidated financial statements and schedule of Arkansas Best Corporation included in this Annual Report (Form 10-K) for the year ended December 31, 1995. ERNST & YOUNG LLP Little Rock, Arkansas March 28, 1996 EX-27 7
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ARKANSAS BEST CORPORATION ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000894405 ARKANSAS BEST CORPORATION 1,000 YEAR DEC-31-1995 DEC-31-1995 16,945 0 186,273 19,403 36,850 322,487 598,189 190,906 985,837 303,339 399,144 195 0 15 177,654 985,837 145,127 1,437,279 108,686 1,460,738 0 4,185 17,046 (46,987) (14,195) (32,792) 0 0 0 (32,792) (1.90) (1.90)
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