-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Q9howoaowMCLdZiKSfaX6Nr/PnULROTc+zYqNiZ7uAKJ7iDzWaXYhB8pd3Bzn1Cl W7HvAYqOXWJiuxloUC4MSg== 0000894405-94-000007.txt : 19940516 0000894405-94-000007.hdr.sgml : 19940516 ACCESSION NUMBER: 0000894405-94-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARKANSAS BEST CORP /DE/ CENTRAL INDEX KEY: 0000894405 STANDARD INDUSTRIAL CLASSIFICATION: 4213 IRS NUMBER: 710673405 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19969 FILM NUMBER: 94528174 BUSINESS ADDRESS: STREET 1: 1000 SOUTH 21 ST CITY: FORT SMITH STATE: AR ZIP: 72901 BUSINESS PHONE: 5017856000 MAIL ADDRESS: STREET 1: P O BOX 48 CITY: FORT SMITH STATE: AR ZIP: 72902 10-Q 1 ARKANSAS BEST FORM 10-Q MARCH 31, 1994 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934 For the Quarter Ended March 31, 1994 ---------------- [ ] 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 6711 71-0673405 - ------------------------- ------------------------- ---------------------- (State or other (Primary Standard (I.R.S. Employer jurisdiction of Industrial Classification Identification No.) incorporation or Code No.) organization) 1000 South 21st Street Fort Smith, Arkansas 72901 (501) 785-6000 - ----------------------------------------------------------------------------- (Address, including zip code, and telephone number, including area code, of the registrant's principal executive offices) Not Applicable - ----------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrants (1) have 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 such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at April 30, 1994 --------------------------------- -------------------------------- Common Stock, $.01 par value 19,200,077 shares ARKANSAS BEST CORPORATION INDEX Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets -- March 31, 1994 and December 31, 1993 3 Consolidated Statements of Income -- For the Three Months Ended March 31, 1994 and 1993 5 Consolidated Statements of Cash Flows -- For the Three Months Ended March 31, 1994 and 1993 7 Notes to Consolidated Financial Statements -- March 31, 1994 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings 20 Item 2. Changes in Securities 20 Item 3. Defaults Upon Senior Securities 20 Item 4. Submission of Matters to a Vote of Security Holders 20 Item 5. Other Information 20 Item 6. Exhibits and Reports on Form 8-K 20 SIGNATURES 21 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. ARKANSAS BEST CORPORATION CONSOLIDATED BALANCE SHEETS
March 31 December 31 1994 1993 (unaudited) (note) ($ thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 15,676 $ 6,962 Trade receivables, less allowances for doubtful accounts (1994 -- $2,451,000; 1993 -- $2,220,000) 110,693 104,598 Inventories -- Note C 29,290 29,086 Prepaid expenses 10,699 9,916 --------- --------- TOTAL CURRENT ASSETS 166,358 150,562 PROPERTY, PLANT AND EQUIPMENT Land and structures 107,955 108,422 Revenue equipment 170,591 169,573 Manufacturing equipment 6,078 5,997 Service, office and other equipment 35,466 33,913 Leasehold improvements 8,373 8,096 Construction in progress 2,013 - --------- --------- 330,476 326,001 Less allowances for depreciation and amortization (151,862) (147,799) --------- --------- 178,614 178,202 OTHER ASSETS 12,322 12,839 GOODWILL, less amortization (1994 -- $17,047,000; 1993 -- $16,267,000) -- 105,372 106,130 --------- --------- $ 462,666 $ 447,733 ========= =========
ARKANSAS BEST CORPORATION CONSOLIDATED BALANCE SHEETS
March 31 December 31 1994 1993 (unaudited) (note) ($ thousands) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Bank drafts payable $ 11,738 $ 7,661 Trade accounts payable 39,199 36,143 Accrued expenses 77,503 71,278 Federal and state income taxes 10,155 6,398 Deferred federal income taxes 3,503 3,503 Current portion of long-term debt 11,611 15,239 --------- --------- TOTAL CURRENT LIABILITIES 153,709 140,222 LONG-TERM DEBT, less current portion 41,603 43,731 OTHER LIABILITIES 4,047 3,933 DEFERRED FEDERAL INCOME TAXES 24,975 26,158 MINORITY INTEREST 32,034 31,699 SHAREHOLDERS' EQUITY Preferred stock, $.01 par value, authorized 10,000,000 shares; issued 1,495,000 shares 15 15 Common stock, $.01 par value, authorized 70,000,000 shares; issued and outstanding 1994: 19,200,077 shares; 1993: 19,185,325 shares 192 192 Additional paid-in capital 206,661 206,457 Stock payable to employee benefit plans - 205 Predecessor basis adjustment (15,371) (15,371) Retained earnings 14,801 10,492 --------- --------- TOTAL SHAREHOLDERS' EQUITY 206,298 201,990 CONTINGENCIES -- Note F --------- --------- $ 462,666 $ 447,733 ========= ========= Note: The balance sheet at December 31, 1993 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to consolidated financial statements.
ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31 1994 1993 (unaudited) ($ thousands, except per share data) OPERATING REVENUES Carrier operations $ 234,326 $ 207,053 Tire operations 29,405 20,967 Service and other 1,250 1,190 ----------- ----------- 264,981 229,210 ----------- ----------- OPERATING EXPENSES AND COSTS -- Note E Carrier operations 223,263 200,634 Tire operations 27,581 19,406 Service and other 1,519 1,375 ----------- ----------- 252,363 221,415 ----------- ----------- OPERATING INCOME 12,618 7,795 OTHER INCOME Gains on asset sales 318 252 Other 148 114 ----------- ----------- 466 366 OTHER EXPENSES Interest 1,344 2,333 Other 1,014 898 Minority interest in subsidiary 490 469 ----------- ----------- 2,848 3,700 ----------- ----------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 10,236 4,461 FEDERAL AND STATE INCOME TAXES (CREDIT) -- Note D Current 5,843 3,827 Deferred (1,182) (1,528) ----------- ----------- 4,661 2,299 ----------- ----------- ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Continued) Three Months Ended March 31 1994 1993 (unaudited) ($ thousands, except per share data) INCOME BEFORE EXTRAORDINARY ITEM $ 5,575 $ 2,162 EXTRAORDINARY ITEM Loss on extinguishment of debt - (167) ----------- ----------- NET INCOME $ 5,575 $ 1,995 =========== =========== EARNINGS PER SHARE: INCOME BEFORE EXTRAORDINARY ITEM $ .23 $ .08 EXTRAORDINARY ITEM Loss on extinguishment of debt - (.01) ----------- ----------- NET INCOME $ .23 $ .07 =========== =========== CASH DIVIDENDS PAID PER COMMON SHARE $ .01 $ .01 =========== =========== AVERAGE SHARES OUTSTANDING 19,339,389 19,194,595 =========== =========== See notes to consolidated financial statements.
ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31 1994 1993 (unaudited) ($ thousands) OPERATING ACTIVITIES Net income $ 5,575 $ 1,995 Adjustments to reconcile net income to net cash provided by operating activities: Loss on extinguishments of debt - 167 Depreciation and amortization 6,658 7,626 Amortization of intangibles 779 760 Amortization of other expenses 111 71 Provision for losses on accounts receivable 770 660 Provision for deferred income taxes (1,182) (1,528) Gain on asset sales (318) (252) Gain on issuance of subsidiary stock (45) - Minority interest in subsidiary 490 469 Changes in operating assets and liabilities: Accounts receivable (6,865) (2,176) Inventories and prepaid expenses (987) (1,965) Other assets 404 1,121 Accounts payable, bank drafts payable, taxes payable, accrued expenses and other liabilities 17,229 3,507 --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 22,619 10,455 INVESTING ACTIVITIES Purchases of property, plant and equipment, less capitalized leases (8,387) (2,085) Proceeds from asset sales 1,635 2,520 --------- --------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (6,752) 435 ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Three Months Ended March 31 1994 1993 (unaudited) ($ thousands) FINANCING ACTIVITIES Deferred financing costs and expenses incurred in borrowing activities $ - $ (28) Net proceeds from the issuance of preferred stock - 71,899 Proceeds from commercial paper agreement 1,000 - Borrowings under revolving credit facilities 2,000 10,000 Principal payments under term loan facility - (50,000) Payments under revolving credit facilities (2,000) (25,000) Principal payments on other long-term debt (6,777) (7,842) Dividends paid to minority shareholders of subsidiary (109) (107) Dividends paid (1,267) (190) --------- --------- NET CASH USED BY FINANCING ACTIVITIES (7,153) (1,268) --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS 8,714 9,622 Cash and cash equivalents at beginning of period 6,962 5,644 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 15,676 $ 15,266 ========= ========= See notes to consolidated financial statements.
ARKANSAS BEST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1994 NOTE A -- ORGANIZATION Arkansas Best Corporation (the "Company") is a diversified holding company engaged through its subsidiaries primarily in motor carrier operations and truck tire retreading and sales. Principal subsidiaries owned are ABF Freight System, Inc., ("ABF"), Treadco, Inc. ("TREADCO"), and ABC Treadco, Inc. ("ABC Treadco"). On February 3, 1993, the Company completed its public offering of 1,495,000 shares of $2.875 Series A Cumulative Convertible Exchangeable Preferred Stock at $50 per share. NOTE B -- FINANCIAL STATEMENT PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 1994, are not necessarily indicative of the results that may be expected for the year ending December 31, 1994. For further information, refer to the Company's financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1993. NOTE C -- INVENTORIES
March 31 December 31 1994 1993 ($ thousands) Finished goods $ 22,041 $ 20,240 Materials 5,424 6,784 Repair parts, supplies and other 1,825 2,062 -------- -------- $ 29,290 $ 29,086 ======== ========
NOTE D -- FEDERAL AND STATE INCOME TAXES
Three Months Ended March 31 1994 1993 ($ thousands) Income tax at regular rates $ 3,583 $ 1,517 Percent 35.0% 34.0 % State taxes less federal benefits 596 381 Percent 5.8% 8.5 % Amortization of goodwill 265 251 Percent 2.6% 5.6 % Minority interest 167 159 Percent 1.6% 3.6 % Other items 50 (9) Percent 0.5% (0.2)% --------- --------- Income tax expense $ 4,661 $ 2,299 Percent 45.5% 51.5 % ========= =========
NOTE E -- OPERATING EXPENSES AND COSTS
Three Months Ended March 31 1994 1993 ($ thousands) Carrier Operations: Salaries and wages $155,442 $141,120 Supplies and expenses 24,502 23,386 Operating taxes and licenses 9,238 8,116 Insurance 4,368 4,031 Communications and utilities 5,726 5,999 Depreciation and amortization 5,889 7,051 Rents 16,762 9,807 Other 1,336 1,124 -------- -------- 223,263 200,634 -------- -------- Tire Operations: Cost of sales 21,548 14,942 Selling, administrative and general 6,033 4,464 -------- -------- 27,581 19,406 -------- -------- Service and Other 1,519 1,375 -------- -------- $252,363 $221,415 ======== ========
NOTE F -- LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS Various 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. ABF stores some fuel for its tractors and trucks in 103 underground tanks located in 27 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 States 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 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 $210,000 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. NOTE G -- NEW ACCOUNTING STANDARDS In November 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits." This Statement addresses the accounting for benefits to former or inactive employees after employment but before retirement. The Company's accounting for such benefits was not affected by the Statement. NOTE H -- SUBSEQUENT EVENTS ABF's labor agreement with the International Brotherhood of Teamsters ("IBT") expired on March 31, 1994. On April 6, 1994, when the terms of a new agreement had not been agreed to between the industry's bargaining group, Trucking Management, Inc. ("TMI"), and the IBT, the Teamster employees of ABF 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 Teamster employees began returning to work at 12:01 a.m. on April 30, 1994. Before the new contract is effective, it will have to be voted on and ratified by the IBT membership. The Company experienced a consolidated net loss (unaudited) of $12,688,000 for the month of April, 1994 and expects to have a loss for the second quarter due to the labor strike. The Company has identified accounts where it believes business has been lost to non-union carriers as a result of the strike. However, despite this lost business, management anticipates post-strike business for May and June to be at least equal to last year's business for the same months due to new business secured during the six months prior to the strike and growth in existing accounts due to the economy. NOTE I -- LONG-TERM DEBT The Company entered into a $20 million credit 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 will be used in financing the construction of the Company's corporate office which is expected to be completed by January 1995. Amounts advanced and unpaid shall bear interest of 8.07% per annum. The Company shall repay the outstanding principal amount in 40 equal installments, each in the amount of $500,000, due and payable on the fifteenth day of each January, April, July, and October hereafter commencing on July 15, 1994. On March 2, 1994, ABF, Renaissance Asset Funding Corp. ("Renaissance") and Societe Generale entered into a receivables purchase agreement. The agreement allows ABF to sell to Renaissance interest of up to $55 million in a pool of receivables. At March 31, 1994, ABF had financed $1 million of receivables through this facility. ABF expects to use this facility from time to time throughout the year for various corporate needs, including working capital. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Arkansas Best Corporation (the "Company") is primarily engaged, through its motor carrier subsidiaries, in less-than-truckload ("LTL") shipments of general commodities. The Company is also engaged through its approximately 46%-owned consolidated subsidiary, Treadco, Inc. ("TREADCO"), in truck tire retreading and new tire sales. The Company in 1991 reduced its ownership in TREADCO, through an initial public offering of TREADCO common stock, to approximately 46%, while retaining control of TREADCO by reason of its stock ownership, board representation and agreement to provide management services. As a result, TREADCO is consolidated with the Company for financial reporting purposes, with the ownership interests of the other stockholders reflected as minority interest. Segment Data The following tables reflect information prepared on a business segment basis, which includes reclassification of certain expenses and costs between the Company and its subsidiaries and elimination of the effects of intercompany transactions. Operating profit on a business segment basis differs from operating income as reported in the Company's Consolidated Financial Statements. Other income and other expenses (which include amortization expense), except for interest expense and minority interest in subsidiary, which appears below the operating income line in the Company's Statement of Operations, have been allocated to individual segments for the purpose of calculating operating profit on a segment basis.
Three Months Ended March 31 1994 1993 ($ thousands) OPERATING REVENUES Carrier operations $234,326 $207,053 Tire operations 29,405 20,967 Other 1,250 1,190 -------- -------- $264,981 $229,210 ======== ======== OPERATING EXPENSES AND COSTS CARRIER OPERATIONS Salaries and wages $155,442 $141,120 Supplies and expenses 24,502 23,386 Operating taxes and licenses 9,238 8,116 Insurance 4,368 4,031 Communications and utilities 5,726 5,999 Depreciation and amortization 5,889 7,051 Rents 16,762 9,807 Other 1,336 1,124 Other non-operating (net) 179 372 -------- -------- 223,442 201,006 TIRE OPERATIONS Cost of sales 21,548 14,942 Selling, administrative and general 6,033 4,464 Other non-operating (net) 197 29 -------- -------- 27,778 19,435 SERVICE AND OTHER 1,691 1,506 -------- -------- $252,911 $221,947 ======== ======== OPERATING PROFIT (LOSS) Carrier operations $ 10,884 $ 6,047 Tire operations 1,627 1,532 Other (441) (316) -------- -------- TOTAL OPERATING PROFIT 12,070 7,263 MINORITY INTEREST 490 469 INTEREST EXPENSE 1,344 2,333 -------- -------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM $ 10,236 $ 4,461 ======== ========
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 ICC.
Three Months Ended March 31 1994 1993 CARRIER OPERATIONS Salaries and wages 66.3% 68.2% Supplies and expenses 10.5 11.3 Operating taxes and licenses 3.9 3.9 Insurance 1.9 1.9 Communications and utilities 2.4 2.9 Depreciation and amortization 2.5 3.4 Rents 7.2 4.7 Other 0.6 0.5 Other non-operating (net) 0.1 0.3 ---- ---- Total Carrier Operations 95.4% 97.1% ==== ==== TIRE OPERATIONS Cost of sales 73.3% 71.3% Selling, administrative and general 20.5 21.3 Other non-operating (net) 0.7 0.1 ---- ---- Total Tire Operations 94.5% 92.7% ==== ====
Results of Operations Three Months Ended March 31, 1994 As Compared With Three Months Ended March 31, 1993 Consolidated revenues of the Company for the three months ended March 31, 1994 were $265.0 million compared to $229.2 million for the three months ended March 31, 1993. Operating profit for the Company was $12.1 million for the three months ended March 31, 1994 compared to $7.3 million for the three months ended March 31, 1993. Net income for the three months ended March 31, 1994 was $5.6 million, or $.23 per common share, compared to a net income of $2.0 million, or $.07 per common share for the three months ended March 31, 1993. Income before extraordinary item was $5.6 million, or $.23 per common share for the three months ended March 31, 1994, compared to income before extraordinary item of $2.2 million, or $.08 per common share for the three months ended March 31, 1993. During the first three months of 1993, the Company recorded an extraordinary loss of $(167,000) (net of income tax benefit of $102,000), or $(.01) per common share for the net loss on extinguishment of debt. Earnings per common share for the three months ended March 31, 1994 give consideration to preferred stock dividends of $1.1 million. Average common shares outstanding for the three months ended March 31, 1994 were 19.3 million shares compared to 19.2 million shares for the three months ended March 31, 1993. Motor Carrier Operations Segment. Revenues for the motor carrier operations segment increased 13.2% to $234.3 million for the three months ended March 31, 1994 from $207.1 million for the three months ended March 31, 1993, reflecting primarily an 11.8% increase in total tonnage and a 1.6% increase in revenue per hundredweight. The increase in total tonnage consisted of a 12.2% increase in LTL tonnage and a 10.5% increase in a truckload tonnage. During the first three months of 1994, the economy continued to improve resulting in an increase in available freight. Also during the first three months of 1993, competitive pressure on pricing had a negative impact on tonnage and rates. Effective January 1, 1994, ABF implemented a general freight rate increase of 4.5%. Management believes the rate increase resulted in approximately a 2.6% impact on revenues during the first three months of 1994. The diminished effect was the result of pricing that is on a contract basis which can only be increased when the contract is renewed. Motor carrier segment operating expenses as a percent of revenues was 95.4% for the three months ended March 31, 1994 compared to 97.1% for the three months ended March 31, 1993. Salaries and wages for motor carrier operations as a percent of revenues decreased to 66.3% for the three months ended March 31, 1994 from 68.2% for the three months ended March 31, 1993. The decrease resulted primarily from the covering of the fixed portion of salaries and wages expense by the higher level of revenues and the utilization of alternate modes of outside transportation during periods of peak activity. Supplies and expenses for motor carrier operations as a percent of revenues decreased to 10.5% for the three months ended March 31, 1994 from 11.3% for the three months ended March 31, 1993. The decrease resulted primarily from a 10% decrease in fuel cost per gallon and the covering of the fixed costs by the higher level of revenues. Depreciation and amortization expense for motor carrier operations as a percent of revenues decreased to 2.5% for the three months ended March 31, 1994 from 3.4% for the three months ended March 31, 1993. During the last three years, ABF financed its road tractor replacement program with operating leases instead of capital leases, which decreased both interest and depreciation expense and increased rent expense. Rent expense for motor carrier operations as a percent of revenues increased to 7.2% for the three months ended March 31, 1994 from 4.7% for the three months ended March 31, 1993. The additional rent expense was incurred primarily as a result of the operating leases discussed above and the utilization of alternate modes of outside transportation during periods of peak activity. Tire Operations Segment. TREADCO's revenues for the three months ended March 31, 1994 increased 40.2% to $29.4 million from $21.0 million for the three months ended March 31, 1993. The increase resulted primarily from internal growth and the addition of five facilities through the August 30, 1993 acquisition of Trans-World Tire Corporation in Florida. Revenues from retreading for the three months ended March 31, 1994 increased 36.3% to $16.6 million from $12.2 million for the three months ended March 31, 1993. Revenues from new tire sales increased 45.8% to $12.8 million for the three months ended March 31, 1994 from $8.8 million for the three months ended March 31, 1993. Tire operations segment operating expenses as a percent of revenues were 94.5% for the three months ended March 31, 1994 compared to 92.7% for the three months ended March 31, 1993. Cost of sales for the tire operations segment as a percent of revenues increased to 73.3% for the three months ended March 31, 1994 from 71.3% for the three months ended March 31, 1993 resulting primarily from integrating last fall's acquisition of five Florida facilities into TREADCO. Although the integration is progressing as planned, the costs of sales as a percent of revenues are higher at the Florida locations. Also, late in the fourth quarter of 1992, TREADCO was able to purchase a large quantity of tires at a larger than normal discount which had a positive impact on the cost of new tires sold during the first three months of 1993. Selling, administrative and general expenses for the tire operations segment decreased to 20.5% for the three months ended March 31, 1994 from 21.3% for the three months ended March 31, 1993. The decrease resulted primarily from the covering of the fixed portion of selling, administrative and general expenses by the increase in sales. Interest. Interest expense decreased 42.1% to $1.3 million for the three months ended March 31, 1994 from $2.3 million during the three months ended March 31, 1993. A reduction in long-term debt outstanding, lower interest rates and utilization of operating leases resulted in the decrease in interest expense. The reduction in long-term debt consisted primarily of retiring $50 million in principal of a term loan under its existing Credit Agreement, maintaining a lesser average balance outstanding under the revolving credit facilities, and financing a portion of its revenue equipment with operating leases. Income Taxes. The difference between the effective tax rate for the three months ended March 31, 1994 and the federal statutory rate resulted primarily from state income taxes, amortization of goodwill, minority interest, undistributed earnings of TREADCO and other nondeductible expenses (see Note D to the consolidated financial statements). Liquidity and Capital Resources The ratio of current assets to current liabilities was 1.08:1 at March 31, 1994 compared to 1.07:1 at December 31, 1993. The improvement in the current ratio resulted primarily from an increase in cash and trade receivables and a decrease in the current portion of long-term debt. Net cash provided by operating activities for the three months ended March 31, 1994 was $22.6 million compared to $10.5 million for the three months ended March 31, 1993. The increase is due primarily to higher net income and changes in operating assets and liabilities. The Company and certain banks are parties to a Credit Agreement with Societe Generale, as Agent and NationsBank of Texas a Co-Agent (the "Credit Agreement") which provides funds available under a three-year Revolving Credit Facility of $100 million, including $40 million for letters of credit. There are no borrowings outstanding under the Revolving Credit Facility and approximately $37.4 million of letters of credit outstanding at March 31, 1994. The Revolving Credit Facility is payable on June 30, 1996. Outstanding revolving credit advances may not exceed a borrowing base calculated using the Company's revenue equipment, real property and the Treadco common stock owned by the Company. At March 31, 1994, the borrowing base was $97.8 million. The Company has paid and will continue to pay certain customary fees for such commitments and loans. Amounts advanced under the revolving credit facility bear interest, at the Company's option, at a rate per annum of either: (i) the greater of (a) the agent bank's prime rate and (b) the Federal Funds Rate plus 1/2%; or (ii) LIBOR plus 1 1/2%. The Credit Agreement contains various covenants which limit, among other things, dividends, indebtedness, capital expenditures, loans and investments, as well as requiring the Company to meet certain financial tests. As of March 31, 1994, these covenants have been met. If there is an event of default which is not remedied or waived within 10 days, the Credit Agreement will become secured to the extent of amounts then outstanding of all of the Company's revenue equipment, real property and common stock included in the borrowing base (subject to certain exceptions). The Company entered into a $20 million credit 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 will be used in financing the construction of the Company's corporate office which is expected to be completed by January 1995. Amounts advanced and unpaid shall bear interest of 8.07% per annum. The Company shall repay the outstanding principal amount in 40 equal installments, each in the amount of $500,000, due and payable on the fifteenth day of each January, April, July, and October hereafter commencing on July 15, 1994. On March 2, 1994, ABF, Renaissance Asset Funding Corp. ("Renaissance") and Societe Generale entered into a receivables purchase agreement. The agreement allows ABF to sell to Renaissance interest of up to $55 million in a pool of receivables. At March 31, 1994, ABF had financed $1 million of receivables through this facility. ABF expects to use this facility from time to time throughout the year for various corporate needs, including working capital. 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 cash flow from operations will be sufficient to finance current and future operations and meet all present and future debt service requirements. Seasonality The 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. TREADCO's operations are somewhat seasonal with the last six months of the calendar year generally having the highest levels of sales. New Accounting Standards In November 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits." This Statement addresses the accounting for benefits to former or inactive employees after employment but before retirement. The Company's accounting for such benefits was not affected by the Statement. Subsequent Events ABF's labor agreement with the International Brotherhood of Teamsters ("IBT") expired on March 31, 1994. On April 6, 1994, when the terms of a new agreement had not been agreed to between the industry's bargaining group, Trucking Management, Inc. ("TMI"), and the IBT, the Teamster employees of ABF 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 Teamster employees began returning to work at 12:01 a.m. on April 30, 1994. Before the new contract is effective, it will have to be voted on and ratified by the IBT membership. The Company experienced a consolidated net loss (unaudited) of $12,688,000 for the month of April, 1994 and expects to have a loss for the second quarter due to the labor strike. The Company has identified accounts where it believes business has been lost to non-union carriers as a result of the strike. However, despite this lost business, management anticipates post-strike business for May and June to be at least equal to last year's business for the same months due to new business secured during the six months prior to the strike and growth in existing accounts due to the economy. PART II. OTHER INFORMATION ARKANSAS BEST CORPORATION ITEM 1. LEGAL PROCEEDINGS. From time to time, the Company is named as a defendant in legal actions, the majority of which arise out of the normal course of its business. The Company is not a party to any pending legal proceeding which the Company's management believes to be material to the financial condition of the Company. The Company maintains liability insurance against risks arising out of the normal course of its business (see Note F to the Company's Unaudited Consolidated Financial Statements). ITEM 2. CHANGES IN SECURITIES. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. Exhibit 11 - Statement Re: Computation of Earnings Per Share. (b) Reports on Form 8-K. None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. ARKANSAS BEST CORPORATION (Registrant) Date: May 13 1994 s/Donald L. Neal ----------------- ------------------------------------ Donald L. Neal - Senior Vice President - Chief Financial Officer, and Principal Accounting Officer EX-11 2 EARNINGS PER SHARE EXHIBIT 11 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE ARKANSAS BEST CORPORATION
Three Months Ended March 31 1994 1993 ($ thousands, except per share data) PRIMARY: Average shares outstanding 19,195,794 19,058,472 Net effect of dilutive stock options -- Based on the treasury stock method using average market price 143,595 136,123 ---------- ---------- Average common shares outstanding 19,339,389 19,194,595 ========== ========== Income before extraordinary item $ 5,575 $ 2,162 Less: Preferred stock dividend 1,075 681 ---------- ---------- 4,500 1,481 Extraordinary item: Loss on extinguishments of debt - (167) ---------- ---------- Net income available for common $ 4,500 $ 1,314 ========== ========== Per common and common equivalent share: Income (loss) before extra- ordinary item $ .23 $ .08 Extraordinary item: Loss on extinguishments of debt .00 (.01) ---------- ---------- Net income per common share $ .23 $ .07 ========== ==========
Fully-diluted earnings per share are not presented, as such calculations would be anti-dilutive. -----END PRIVACY-ENHANCED MESSAGE-----