-----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, QR0QIAvxmxQfPBpTaFUT5sIjd/fpoTH2ffnlUGfIi10nNW1PBFvLeogK7LBnwSSe M/ID8U943+MOTDJz32w8bA== 0000894405-96-000012.txt : 19961115 0000894405-96-000012.hdr.sgml : 19961115 ACCESSION NUMBER: 0000894405-96-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19969 FILM NUMBER: 96660778 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-Q 1 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 September 30, 1996 ------------------ [ ] 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) 3801 Old Greenwood Road Fort Smith, Arkansas 72903 (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 November 1, 1996 --------------------------------- -------------------------------- Common Stock, $.01 par value 19,504,473 shares ARKANSAS BEST CORPORATION INDEX Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets -- September 30, 1996 and December 31, 1995 3 Consolidated Statements of Operations -- For the Three and Nine Months Ended September 30, 1996 and 1995 5 Consolidated Statements of Cash Flows -- For the Nine Months Ended September 30, 1996 and 1995 7 Notes to Consolidated Financial Statements -- September 30, 1996 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings 27 Item 2. Changes in Securities 27 Item 3. Defaults Upon Senior Securities 27 Item 4. Submission of Matters to a Vote of Security Holders 27 Item 5. Other Information 27 Item 6. Exhibits and Reports on Form 8-K 27 SIGNATURES 28 EXHIBITS 29 Exhibit 11. Statement Re: Computation of Earnings Per Share PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ARKANSAS BEST CORPORATION CONSOLIDATED BALANCE SHEETS
September 30 December 31 1996 1995 (unaudited) (note) ($ thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 91 $ 16,945 Trade receivables, less allowances for doubtful accounts (1996 -- $7,583,000; 1995 -- $19,403,000) 203,928 205,196 Inventories -- Note C 32,611 36,850 Prepaid expenses 17,360 13,927 Federal and state income taxes 16,749 17,489 Deferred federal income taxes 31,956 32,080 --------- --------- TOTAL CURRENT ASSETS 302,695 322,487 PROPERTY, PLANT AND EQUIPMENT Land and structures 232,100 228,706 Revenue equipment 271,699 285,045 Manufacturing equipment 16,312 8,289 Service, office and other equipment 65,834 65,474 Leasehold improvements 9,333 10,631 Construction in progress - 44 Non-operating property 16,278 15,869 --------- --------- 611,556 614,058 Less allowances for depreciation and amortization (216,812) (190,906) --------- --------- 394,744 423,152 OTHER ASSETS 55,365 54,783 NET ASSETS HELD FOR SALE 14,697 39,937 GOODWILL, less amortization (1996 -- $27,220,000; 1995 -- $24,027,000) 156,313 145,478 --------- --------- $ 923,814 $ 985,837 ========= ========= ARKANSAS BEST CORPORATION CONSOLIDATED BALANCE SHEETS September 30 December 31 1996 1995 (unaudited) (note) ($ thousands) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Bank overdraft $ 1,600 $ - Bank drafts payable 3,478 12,999 Trade accounts payable 78,184 74,998 Accrued expenses 199,142 188,708 Current portion of long-term debt 45,138 26,634 --------- --------- TOTAL CURRENT LIABILITIES 327,542 303,339 LONG-TERM DEBT, less current portion 358,141 399,144 OTHER LIABILITIES 19,689 18,665 DEFERRED FEDERAL INCOME TAXES 36,066 48,560 MINORITY INTEREST 34,843 38,265 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 1996: 19,508,620 shares; 1995: 19,519,061 195 195 Additional paid-in capital 207,726 207,807 Predecessor basis adjustment (15,371) (15,371) Accumulated deficit (45,032) (14,782) --------- --------- TOTAL SHAREHOLDERS' EQUITY 147,533 177,864 CONTINGENCIES -- Note F --------- --------- $ 923,814 $ 985,837 ========= ========= Note: The balance sheet at December 31, 1995 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 OPERATIONS
Three Months Ended Nine Months Ended September 30 September 30 1996 1995 1996 1995 (unaudited) ($ thousands, except per share data) OPERATING REVENUES LTL motor carrier operations $ 305,926 $ 299,317 $ 899,735 $ 783,836 Forwarding operations 47,552 38,189 134,319 96,615 Truckload motor carrier operations 19,171 10,162 55,926 10,162 Logistics operations 14,007 9,866 41,482 18,105 Tire operations 39,488 40,065 106,606 110,693 Service and other 2,369 952 6,281 2,442 --------- --------- --------- --------- 428,513 398,551 1,244,349 1,021,853 --------- --------- --------- --------- OPERATING EXPENSES AND COSTS -Note E LTL motor carrier operations 307,932 317,827 917,471 786,059 Forwarding operations 48,370 36,337 132,477 93,307 Truckload motor carrier operations 18,138 8,967 52,015 8,967 Logistics operations 15,078 10,298 43,376 19,331 Tire operations 40,184 38,460 110,249 105,476 Service and other 2,530 802 7,305 2,295 --------- --------- --------- --------- 432,232 412,691 1,262,893 1,015,435 --------- --------- --------- --------- OPERATING INCOME (LOSS) (3,719) (14,140) (18,544) 6,418 OTHER INCOME (EXPENSE) Gain on asset sales 1,141 1,079 4,436 2,904 Interest (7,906) (5,569) (23,310) (10,218) Minority interest in subsidiary (82) (449) 1,045 (1,523) Other, net (1,988) (1,692) (5,180) (4,310) --------- --------- --------- --------- (8,835) (6,631) (23,009) (13,147) --------- --------- --------- --------- LOSS BEFORE INCOME TAXES (12,554) (20,771) (41,553) (6,729) ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Continued) Three Months Ended Nine Months Ended September 30 September 30 1996 1995 1996 1995 (unaudited) ($ thousands, except per share data) FEDERAL AND STATE INCOME TAXES (CREDIT) -Note D Current (5,067) (11,335) (9,909) (1,193) Deferred 999 3,692 (4,813) 768 --------- --------- --------- --------- (4,068) (7,643) (14,722) (425) --------- --------- --------- --------- NET LOSS $ (8,486) $ (13,128) $ (26,831) $ (6,304) ========= ========= ========= ========= LOSS PER COMMON SHARE: NET LOSS $ (0.49) $ (0.73) $ (1.54) $ (0.49) ========= ========= ======== ========= AVERAGE COMMON SHARES OUTSTANDING: 19,508,620 19,526,200 19,512,509 19,517,872 ========== ========== ========== ========== CASH DIVIDENDS PAID PER COMMON SHARE $ - $ 0.01 $ 0.01 $ 0.03 ========== ========== ========== ========== See notes to consolidated financial statements.
ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30 1996 1995 (unaudited) ($ thousands) OPERATING ACTIVITIES Net loss $ (26,831) $ (6,304) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 43,253 30,239 Amortization of intangibles 3,464 3,554 Other amortization 2,691 553 Provision for losses on accounts receivable 6,820 2,136 Provision (credit) for deferred income taxes (4,813) 768 Gain on asset sales (4,436) (2,904) Gain on issuance of subsidiary stock - (20) Minority interest in subsidiary (1,295) 1,523 Changes in operating assets and liabilities: Accounts receivable (1,653) (43,289) Inventories and prepaid expenses 618 2,095 Other assets (2,509) (6,109) Accounts payable, bank drafts payable, taxes payable, accrued expenses and other liabilities (16,165) (20,327) --------- --------- NET CASH USED BY OPERATING ACTIVITIES (856) (38,085) INVESTING ACTIVITIES Purchases of property, plant and equipment, less capitalized leases (22,540) (34,318) Proceeds from asset sales 49,220 11,412 Adjustment to the acquisition of the Clipper Group - (84) Acquisition of WorldWay Corporation - (69,701) --------- --------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 26,680 (92,691) ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Nine Months Ended September 30 1996 1995 ($ thousands) FINANCING ACTIVITIES Deferred financing costs and expenses incurred in borrowing activities $ (3,512) $ (4,559) Proceeds from the issuance of common stock - 171 Proceeds from term loan - 75,000 Borrowings under revolving credit facilities 203,060 159,975 Principal payments under term loan facilities (11,566) (1,500) Payments under revolving credit facilities (214,060) (21,975) Payments under commercial paper agreements - (40,000) Principal payments on other long-term debt (13,918) (26,217) Dividends paid to minority shareholders of subsidiary (308) (330) Dividends paid (3,419) (3,809) Retirement of subsidiary preferred stock (371) - Net increase (decrease) in cash overdrafts 1,416 (9,275) --------- --------- NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (42,678) 127,481 --------- --------- NET DECREASE IN CASH AND CASH EQUIVALENTS (16,854) (3,295) Cash and cash equivalents at beginning of period 16,945 3,458 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 91 $ 163 ========= ========= See notes to consolidated financial statements.
ARKANSAS BEST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) SEPTEMBER 30, 1996 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 and freight forwarding operations and truck tire retreading and sales. 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 C). The principal subsidiaries of WorldWay included Carolina Freight Carriers Corp. ("Carolina Freight") , 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"). Carolina Freight was merged into ABF on September 25, 1995. 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 and nine months ended September 30, 1996, are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. 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, 1995. NOTE C - INVENTORIES
September 30 December 31 1996 1995 ($ thousands) Finished goods $ 23,179 $ 25,579 Materials 5,899 7,621 Repair parts, supplies and other 3,533 3,650 -------- -------- $ 32,611 $ 36,850 ======== ========
NOTE D - FEDERAL AND STATE INCOME TAXES
Three Months Ended Nine Months Ended September 30 September 30 1996 1995 1996 1995 ($ thousands) Income tax (credit) at regular rates $(4,394) $(7,270) $(14,544) $(2,355) Percent (35.0)% (35.0)% (35.0)% (35.0)% State taxes less federal benefits (773) (1,336) (1,013) (205) Percent (6.2)% (6.4)% (2.4)% (3.1)% Amortization of nondeductible goodwill 250 271 753 809 Percent 2.0 % 1.3 % 1.8 % 12.0 % Minority interest 28 153 (366) 533 Percent 0.2 % 0.7 % (1.0)% 7.9 % Other items 821 539 448 793 Percent 6.6 % 2.6 % 1.2 % 11.9 % ------- ------- -------- ------- Income tax benefit $(4,068) $(7,643) $(14,722) $ (425) Percent (32.4)% (36.8)% (35.4)% (6.3)% ======= ======= ======== =======
NOTE E - OPERATING EXPENSES AND COSTS
Three Months Ended Nine Months Ended September 30 September 30 1996 1995 1996 1995 ($ thousands) LTL Motor Carrier Operations: Salaries and wages $210,756 $218,180 $ 629,053 $ 550,106 Supplies and expenses 31,502 32,644 96,724 84,908 Operating taxes and licenses 11,729 12,237 36,831 32,263 Insurance 8,018 9,574 21,169 19,655 Communications and utilities 7,292 7,001 22,533 18,601 Depreciation and amortization 9,569 11,461 32,329 24,664 Rents and purchased transportation 25,190 22,835 69,138 49,946 Other 3,876 3,895 9,694 5,916 -------- -------- -------- -------- 307,932 317,827 917,471 786,059 -------- -------- -------- -------- Forwarding Operations: Cost of services 41,255 31,597 111,894 81,184 Selling, administrative and general 7,115 4,740 20,583 12,123 -------- -------- -------- -------- 48,370 36,337 132,477 93,307 -------- -------- -------- -------- Truckload Motor Carrier Operations: Salaries and wages 6,974 3,619 19,962 3,619 Supplies and expenses 3,440 1,712 9,673 1,712 Operating taxes and licenses 1,822 918 5,392 918 Insurance 771 368 2,089 368 Communications and utilities 275 156 742 156 Depreciation and amortization 902 464 2,663 464 Rents and purchased transportation 3,833 1,700 11,184 1,700 Other 121 30 310 30 -------- -------- -------- -------- 18,138 8,967 52,015 8,967 -------- -------- -------- -------- Logistics Operations: Cost of services 12,824 9,183 38,155 17,214 Selling, administrative and general 2,254 1,115 5,221 2,117 -------- -------- -------- -------- 15,078 10,298 43,376 19,331 -------- -------- -------- -------- Tire Operations: Cost of sales 24,496 30,334 77,110 82,880 Selling, administrative and general 15,688 8,126 33,139 22,596 -------- -------- -------- -------- 40,184 38,460 110,249 105,476 -------- -------- -------- -------- Service and Other 2,530 802 7,305 2,295 -------- -------- -------- -------- $432,232 $412,691 $1,262,893 $1,015,435 ======== ======== ========== ==========
NOTE F - 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 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 sought approximately $4 million in actual damages and $10 million in punitive damages. On April 15, 1996, the Court partially granted the Company's motion for Summary Judgment by dismissing Riverside's claims for punitive damages, ERISA violations and common law breach of contract and fraud claims. The Court did not dismiss Riverside's claim of violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 of that Act. 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. ABF and Daily reached a settlement of this litigation on terms that are not financially material to the Company. 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. The Company's subsidiaries store some fuel for its tractors and trucks in approximately 159 underground tanks located in 34 states. Maintenance of such tanks is regulated at the federal and, in some cases, state levels. The Company believes that it is in substantial compliance with all such regulations. The Company 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 the Company to upgrade its underground tank systems by December 1998. The Company 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 September 30, 1996, the Company has accrued approximately $2.9 million 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. On October 30, 1995, Treadco filed a lawsuit in Arkansas State Court alleging that Bandag Incorporated ("Bandag") and certain of its officers and employees have violated Arkansas statutory and common law in attempting to solicit Treadco's employees to work for Bandag or its competing franchisees and attempting to divert customers from Treadco. At Treadco's request, the Court entered a Temporary Restraining Order barring Bandag, Treadco's former officers J.J. Seiter, Ronald W. Toothaker, and Ronald W. Hawks and Bandag officers Martin G. Carver and William Sweatman from soliciting or hiring Treadco's employees to work for Bandag or any of its franchisees, from diverting or soliciting Treadco's customers to buy from Bandag franchisees other than Treadco, and from disclosing or using any of Treadco's confidential information. On November 8, 1995, Bandag and the other named defendants asked the State Court to stop its proceedings pending a decision by the United States District Court, Western District of Arkansas, on a Complaint to Compel Arbitration filed by Bandag in the Federal District Court on November 8, 1995. The Federal District Court has ruled that under terms of Treadco's franchise agreements with Bandag, all of the issues involved in Treadco's lawsuit against Bandag are to be decided by arbitration. Treadco and Bandag are conducting discovery in preparation for the arbitration hearing. A date for the arbitration hearing has not yet been set. NOTE G - ACCOUNTING PRONOUNCEMENTS Effective January 1, 1996, the Company adopted 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". 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 are based on the excess of the carrying amount of the asset over the asset's fair value. Assets held for disposal are carried at the lower of carrying amount or fair value less cost to sell. The adoption of this statement had no impact on the Company's results of operations or financial position. ITEM 2. 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 Clipper Exxpress Company ("Clipper"). Effective August 12, 1995, pursuant to its acquisition of WorldWay Corporation ("WorldWay"), the Company acquired 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"). 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. 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 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. Also, the segment information for prior periods has been restated to reflect allocation of a $2.6 million gain on the sale of terminal properties from the Service and Other segment to Other non-operating expenses in the LTL Motor Carrier Operations segment.
Three Months Ended Nine Months Ended September 30 September 30 1996 1995 1996 1995 ($ thousands) OPERATING REVENUES LTL motor carrier operations $305,926 $299,317 $ 899,735 $ 783,836 Forwarding operations 47,552 38,189 134,319 96,615 Truckload motor carrier operations 19,171 10,162 55,926 10,162 Logistics operations 14,007 9,867 41,482 18,105 Tire operations 39,488 40,065 106,606 110,693 Other 2,369 951 6,281 2,442 -------- -------- ---------- ---------- $428,513 $398,551 $1,244,349 $1,021,853 ======== ======== ========== ========== OPERATING EXPENSE AND COSTS LTL MOTOR CARRIER OPERATIONS Salaries and wages $210,756 $218,180 $ 629,053 $ 550,106 Supplies and expenses 31,502 32,644 96,724 84,908 Operating taxes and licenses 11,729 12,237 36,831 32,263 Insurance 8,018 9,574 21,169 19,655 Communications and utilities 7,292 7,001 22,533 18,601 Depreciation and amortization 9,569 11,461 32,329 24,664 Rents and purchased transportation 25,190 22,835 69,138 49,946 Other 3,876 3,895 9,694 5,916 Other non-operating (net) 36 (150) (1,822) (510) -------- -------- -------- -------- 307,968 317,677 915,649 785,549 FORWARDING OPERATIONS Cost of services 41,255 31,597 111,894 81,184 Selling, administrative and general 7,115 4,740 20,583 12,123 Other non-operating (net) 480 423 1,284 1,283 -------- -------- -------- -------- 48,850 36,760 133,761 94,590 TRUCKLOAD MOTOR CARRIER OPERATIONS Salaries and wages 6,974 3,619 19,962 3,619 Supplies and expenses 3,440 1,712 9,673 1,712 Operating taxes and licenses 1,822 918 5,392 918 Insurance 771 368 2,089 368 Communications and utilities 275 156 742 156 Depreciation and amortization 902 464 2,663 464 Rents and purchased transportation 3,833 1,700 11,184 1,700 Other 121 30 310 30 Other non-operating (net) 1 1 3 1 -------- -------- -------- -------- 18,139 8,968 52,018 8,968 LOGISTICS OPERATIONS Cost of services 12,824 9,183 38,155 17,214 Selling, administrative and general 2,254 1,115 5,221 2,117 Other non-operating (net) (5) 3 (57) (20) -------- -------- -------- -------- 15,073 10,301 43,319 19,311 TIRE OPERATIONS Cost of sales 30,568 30,334 83,182 82,880 Selling, administrative and general 9,616 8,126 27,067 22,596 Other non-operating (net) (924) 135 (781) 255 -------- -------- -------- -------- 39,260 38,595 109,468 105,731 SERVICE AND OTHER 3,789 1,003 9,422 2,692 -------- -------- -------- -------- $433,079 $413,304 $1,263,637 $1,016,841 ======== ======== ========== ========== OPERATING PROFIT (LOSS) LTL motor carrier operations $ (2,042) $(18,360) $ (15,914) $ (1,713) Forwarding operations (1,298) 1,429 558 2,025 Truckload motor carrier operations 1,032 1,194 3,908 1,194 Logistics operations (1,066) (434) (1,837) (1,206) Tire operations 228 1,470 (2,862) 4,962 Other (1,420) (52) (3,141) (250) -------- -------- -------- -------- TOTAL OPERATING PROFIT (LOSS) (4,566) (14,753) (19,288) 5,012 MINORITY INTEREST (82) (449) 1,045 (1,523) INTEREST EXPENSE (7,906) (5,569) (23,310) (10,218) -------- -------- ---------- ---------- LOSS BEFORE INCOME TAXES $(12,554) $(20,771) $ (41,553) $ (6,729) ======== ======== ========== ==========
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 U.S. Department of Transportation.
Three Months Ended Nine Months Ended September 30 September 30 1996 1995 1996 1995 LTL MOTOR CARRIER OPERATIONS Salaries and wages 68.9% 72.9% 69.9% 70.2% Supplies and expenses 10.3 10.9 10.8 10.8 Operating taxes and licenses 3.8 4.1 4.1 4.1 Insurance 2.6 3.2 2.4 2.5 Communications and utilities 2.4 2.3 2.5 2.4 Depreciation and amortization 3.1 3.8 3.6 3.1 Rents and purchased transportation 8.2 7.6 7.7 6.4 Other 1.3 1.3 1.1 0.8 Other non-operating (net) 0.1 - (0.3) (0.1) ----- ----- ----- ----- 100.7% 106.1% 101.8% 100.2% ===== ===== ===== ===== FORWARDING OPERATIONS Cost of services 86.7% 82.7% 83.3% 84.0% Selling, administrative and general 15.0 12.3 15.3 12.5 Other non-operating (net) 1.0 1.3 1.0 1.4 ----- ----- ----- ----- 102.7% 96.3% 99.6% 97.9% ===== ===== ===== ===== TRUCKLOAD MOTOR CARRIER OPERATIONS Salaries and wages 36.4% 35.6% 35.7% 35.6% Supplies and expenses 17.9 16.4 17.3 16.4 Operating taxes and licenses 9.5 9.0 9.6 9.0 Insurance 4.0 3.6 3.7 3.6 Communications and utilities 1.4 1.5 1.3 1.5 Depreciation and amortization 4.7 4.6 4.8 4.6 Rents and purchased transportation 20.0 16.7 20.0 16.7 Other 0.6 0.3 0.6 0.3 Other non-operating (net) 0.1 0.6 - 0.6 ----- ----- ----- ----- 94.6% 88.3% 93.0% 88.3% ===== ===== ===== ===== LOGISTICS OPERATIONS Cost of services 91.6% 93.1% 92.0% 95.1% Selling, administrative and general 16.1 11.3 12.6 11.7 Other non-operating (net) (0.1) - (0.2) (0.1) ----- ----- ----- ----- 107.6% 104.4% 104.4% 106.7% ===== ===== ===== ===== TIRE OPERATIONS Cost of sales 77.4% 75.7% 78.0% 74.9% Selling, administrative and general 24.4 20.3 25.4 20.4 Other non-operating (net) (2.4) 0.3 (0.7) 0.2 ----- ----- ----- ----- 99.4% 96.3% 102.7% 95.5% ===== ===== ===== =====
Results of Operations Three Months Ended September 30, 1996 as Compared to the Three Months Ended September 30, 1995 Consolidated revenues of the Company for the three months ended September 30, 1996 were $429 million compared to $399 million for the three months ended September 30, 1995. The Company had an operating loss of $4.6 million for the three months ended September 30, 1996 compared to an operating loss of $14.8 million for the three months ended September 30, 1995. For the three months ended September 30, 1996, the Company had a net loss of $8.5 million, or a loss of $.49 per common share, compared to a net loss of $13.1 million, or $.73 per common share for the three months ended September 30, 1995. Earnings per common share for the three months ended September 30, 1996 and 1995 give consideration to preferred stock dividends of $1.1 million. Average common shares outstanding for both periods were 19.5 million. Outstanding shares for each period 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. Revenues from the LTL motor carrier operations segment for the three months ended September 30, 1996 were $306 million, with an operating loss of $2.0 million. For the three months ended September 30, 1996, ABF accounted for 92% of LTL segment revenues. So far, ABF has been more successful in retaining its January 1, 1996 freight rate increase of 5.8% than it has in previous years which is part of the reason revenue increased 15.1% on a tonnage increase of 10.0%. ABF's 10.0% increase in total tonnage consisted of a 12.3% increase in LTL tonnage and a 2.3% increase in truckload tonnage. Following the acquisition of WorldWay, the operations of Carolina Freight Carriers ("Carolina Freight") and Red Arrow Freight Lines ("Red Arrow") were merged into ABF on September 24, 1995. 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 discontinued the use of the regional distribution centers and has completed its terminal network reconfiguration, returning ABF to its normal terminal system configuration. This allows ABF to concentrate on handling freight flowing through the system in the most efficient method. These changes are reflected in the improvement in ABF's operating ratio. ABF's operating ratio as reported to the Department of Transportation was 99.7% for the third quarter of 1996 compared to 102.2% and 101.9% for the first and second quarters of 1996, respectively. Salaries and wages as a percent of revenue decreased primarily as a result of increased productivity due to ABF's terminal reconfiguration and G.I. Trucking's improved labor costs as they continue to replace revenue lost during the merger of Carolina Freight into ABF. ABF's increased productivity offset a 3.8% annual increase in salaries, wages and benefits which was effective April 1, 1996, pursuant to ABF's collective bargaining agreement. Rents and purchased transportation expense as a percent of revenue increased due to the utilization of alternate modes of outside transportation. The total LTL segment expenses as a percent of revenue were 100.7% for the third quarter, 1996 compared to 102.4% for the second quarter, 1996 and 106.1% for the third quarter of 1995. Forwarding Operations Segment. The Company's forwarding operations are conducted primarily through Clipper and, effective August 12, 1995, CaroTrans. Comparisons for the three months ended September 30, 1996 were affected by the acquisition of WorldWay in August 1995. Therefore, comparisons of the results of operations for the forwarding operations segment are not meaningful and are not presented. For the three months ended September 30, 1996, the forwarding operations segment had revenues of $47.6 million with an operating loss of $1.3 million. Forwarding operations were affected during the three months ended September 30, 1996 by poorer than expected results at CaroTrans. CaroTrans has expanded into some higher cost markets and has seen a shift in their market mix to more full container load freight. Also, ocean container costs have increased which negatively impacts operating results. The total expenses as a percent of revenue were 102.7% for the third quarter, 1996 compared to 97.4% for the second quarter, 1996. 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. For the three months ended September 30, 1996, Cardinal had revenues of $19.2 million with an operating profit of $1.0 million. The total expenses as a percent of revenue were 94.6% for the third quarter, 1996 compared to 92.3% for the second quarter, 1996 resulting primarily from higher maintenance expenses. Logistics Operations Segment. Effective August 12, 1995, with the acquisition of WorldWay, the Company began reporting a new business segment, logistics operations. The Company's logistics operations are conducted through Integrated Distribution, Inc. and, effective August 12, 1995, through Complete Logistics and Innovative Logistics, Inc. Subsequent to September 30, 1996, the operations of Innovative Logistics were merged with and into Complete Logistics and the Clipper Group. Innovative's non-asset intensive customer accounts and operations were merged into the Clipper Group with the remaining accounts absorbed by Complete Logistics. For the three months ended September 30, 1996, the logistics operations segment had operating revenues of $14.0 million with an operating loss of $1.1 million. The total expenses as a percent of revenue were 107.6% for the third quarter, 1996 compared to 101.7% for the second quarter, 1996. The increase resulted primarily from higher bad debt expense and increased insurance expense. Tire Operations Segment. Treadco's revenues for the three months ended September 30, 1996 decreased 1.4% to $39.5 million from $40.1 million for the three months ended September 30, 1995. For the third quarter of 1996, "same store" sales decreased 7.8% which was offset in part by a 6.4% increase in "new store" sales. Same store sales include both production locations and sales locations that have been in existence for the entire periods presented. Treadco has seen increased competition as Bandag Incorporated ("Bandag") has granted additional franchises in some locations currently being served by Treadco. The new competition has led to increased pricing pressures in the marketplace. As anticipated, Bandag continues to target Treadco's accounts which has caused difficulty in retaining the national account business and in some cases the business retained is at lower profit margins. Revenues from retreading for three months ended September 30, 1996 decreased 11.1% to $18.6 million from $20.9 million for three months ended September 30, 1995. Revenues from new tire sales increased 9.1% to $20.9 million for three months ended September 30, 1996 compared to $19.2 million for three months ended September 30, 1995. Tire operations segment operating expenses as a percent of revenues were 99.4% for three months ended September 30, 1996 compared to 96.3% for three months ended September 30, 1995. Cost of sales for the tire operations segment as a percent of revenues increased to 77.4% for three months ended September 30, 1996 from 75.7% for three months ended September 30, 1995. The increase resulted primarily from expenses incurred during the conversion and because tire margins are less as a result of increased pricing pressures. Selling, administrative and general expenses for the tire operations segment increased to 24.4% for three months ended September 30, 1996 from 20.3% for three months ended September 30, 1995. The increase resulted from several factors including costs associated with the conversion from Bandag, higher insurance costs, expenses associated with employee medical benefits and legal costs. Also, the coverage of fixed costs at new locations hasn't reached levels comparable to Treadco's other locations. Other non-operating expenses during the three months ended September 30, 1996 included a $1.1 million gain on the sale of assets related to the conversion from Bandag to Oliver Rubber Company ("Oliver"). During the third quarter, Treadco completed the conversion of its production facilities that were under Bandag retread franchises to Oliver licensed facilities by converting its ten remaining Bandag franchises. Treadco converted seven of its production facilities during the first quarter of 1996 and nine facilities in the second quarter. The conversion has resulted in up to two lost production days during each conversion, some short-term operational inefficiencies and time lost as production employees have familiarized themselves with the new equipment. Also, management has been required to spend time with the conversion at the expense of the normal daily operations. Service and Other Segment. The increased operating loss for the other operations segment resulted primarily from amortization of deferred financing costs related to the Company's Credit Agreement and losses on the sale of assets. Interest. Interest expense was $7.9 million for three months ended September 30, 1996 compared to $5.6 million for three months ended September 30, 1995 primarily due to a higher level of outstanding debt. The increase in long-term debt consisted primarily of debt incurred or assumed in the acquisition of WorldWay and debt incurred for working capital requirements. Income Taxes. The difference between the effective tax rate for 1996 and the federal statutory rate resulted primarily from state income taxes, amortization of goodwill, minority interest, and other nondeductible expenses (see Note D to the consolidated financial statements). Nine Months Ended September 30, 1996 as Compared to the Nine Months Ended September 30, 1995 Consolidated revenues of the Company for the nine months ended September 30, 1996 were $1.2 billion compared to $1.0 billion for the nine months ended September 30, 1995. The Company had an operating loss of $19.3 million for the nine months ended September 30, 1996 compared to an operating profit of $5.0 million for the nine months ended September 30, 1995. For the nine months ended September 30, 1996, the Company had a net loss of $26.8 million, or $1.54 per common share, compared to a net loss of $6.3 million, or $.49 per common share for the nine months ended September 30, 1995. Revenues for the nine months ended September 30, 1996 increased due to the acquisition of WorldWay. Earnings per common share for the nine months ended September 30, 1996 and 1995 give consideration to preferred stock dividends of $3.2 million. Average common shares outstanding for both periods were 19.5 million. Outstanding shares for each period 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. Revenues from the LTL motor carrier operations segment for the nine months ended September 30, 1996 were $900 million, with an operating loss of $15.9 million. For the nine months ended September 30, 1996, ABF accounted for 92% of LTL revenue. So far, ABF has been more successful in retaining its January 1, 1996 freight rate increase of 5.8% than it has in previous years which is part of the reason revenue increased 15.1% on a tonnage increase of 9.4%. ABF's 9.4% increase in total tonnage consisted of an 11.4% increase in LTL tonnage and a 2.3% increase in truckload tonnage. Following the acquisition of WorldWay, the operations of Carolina Freight Carriers ("Carolina Freight") and Red Arrow Freight Lines ("Red Arrow") were merged into ABF on September 24, 1995. 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. During 1996, ABF discontinued twelve of the inherited regional distribution terminal operations. These closings have completed ABF's network reconfiguration, returning ABF to its normal terminal system configuration. This allows ABF to concentrate on handling freight flowing through the system in the most efficient method. Salaries, wages and benefits increased 3.8% annually effective April 1, 1996, pursuant to ABF's collective bargaining agreement with its Teamsters employees. Forwarding Operations Segment. The Company's forwarding operations are conducted primarily through Clipper and effective August 12, 1995, CaroTrans. Comparisons for the nine months ended September 30, 1996 were affected by the acquisition of WorldWay in August 1995. Therefore, comparisons of the results of operations for the forwarding operations segment are not meaningful and are not presented. For the nine months ended September 30, 1996, the forwarding operations segment had revenues of $134.3 million with an operating profit of $558,000. Forwarding operations were affected during the nine months ended September 30, 1996 by soft economic conditions and weaker than expected results at CaroTrans during the third quarter. CaroTrans has expanded into some higher cost markets and has seen a shift in their market mix to more full container load freight. Also, ocean container costs have increased which negatively impacts operating results. 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. For the nine months ended September 30, 1996, Cardinal had revenues of $55.9 million with an operating profit of $3.9 million. Logistics Operations Segment. Effective August 12, 1995, with the acquisition of WorldWay, the Company began reporting a new business segment, logistics operations. The Company's logistics operations are conducted through Integrated Distribution, Inc. and effective August 12, 1995, through Complete Logistics and Innovative Logistics, Inc. Subsequent to September 30, 1996, the operations of Innovative Logistics were merged with and into Complete Logistics and the Clipper Group. Innovative's non-asset intensive customer accounts and operations were merged into the Clipper Group with the remaining accounts absorbed by Complete Logistics. For the nine months ended September 30, 1996, the logistics operations segment had operating revenues of $41.5 million with an operating loss of $1.8 million. Tire Operations Segment. Treadco's revenues for the nine months ended September 30, 1996 decreased 3.7% to $106.6 million from $110.7 million for the nine months ended September 30, 1995. For the nine months ended September 30, 1996, "same store" sales decreased 8.8% which was offset in part by a 5.0% increase in "new store" sales. Same store sales include both production locations and sales locations that have been in existence for the entire periods presented. Treadco has seen increased competition as Bandag has granted additional franchises in some locations currently being served by Treadco. The new competition has led to increased pricing pressures in the marketplace. As anticipated, Bandag continues to target Treadco's accounts which has caused difficulty in retaining the national account business and in some cases the business retained is at lower profit margins. Revenues from retreading for nine months ended September 30, 1996 decreased 9.3% to $52.9 million from $58.4 million for nine months ended September 30, 1995. Revenues from new tire sales increased 2.6% to $53.7 million for nine months ended September 30, 1996 compared to $52.3 million for nine months ended September 30, 1995. Tire operations segment operating expenses as a percent of revenues were 102.7% for nine months ended September 30, 1996 compared to 95.5% for nine months ended September 30, 1995. Cost of sales for the tire operations segment as a percent of revenues increased to 78.0% for nine months ended September 30, 1996 from 74.9% for nine months ended September 30, 1995. The increase resulted primarily from expenses incurred during the conversion and because tire margins are less as a result of increased pricing pressures (see above). Selling, administrative and general expenses for the tire operations segment increased to 25.4% for nine months ended September 30, 1996 from 20.4% for nine months ended September 30, 1995. The increase resulted from several factors including costs associated with the conversion from Bandag, higher insurance costs, expenses associated with employee medical benefits and legal costs. Also, the coverage of fixed costs at new locations hasn't reached levels comparable to Treadco's other locations. Other non-operating expenses during the nine months ended September 30, 1996 included a $1.1 million gain on the sale of assets related to the conversion from Bandag to Oliver. During the third quarter, Treadco completed the conversion of its production facilities that were under Bandag retread franchises to Oliver licensed facilities by converting its ten remaining Bandag franchises. Treadco converted seven of its production facilities during the first quarter of 1996 and nine facilities in the second quarter. The conversion has resulted in up to two lost production days during each conversion, some short-term operational inefficiencies and time lost as production employees have familiarized themselves with the new equipment. Also, management has been required to spend time with the conversion at the expense of the normal daily operations. Service and Other Segment. The difference in operating income for the other operations segment relates primarily to amortization of deferred financing costs. Interest. Interest expense was $23.3 million for nine months ended September 30, 1996 compared to $10.2 million for nine months ended September 30, 1995 due to a higher level of outstanding debt. The increase in long-term debt consisted primarily of debt incurred or assumed in the acquisition of WorldWay and debt incurred for working capital requirements. Income Taxes. The difference between the effective tax rate for 1996 and the federal statutory rate resulted primarily from state income taxes, amortization of goodwill, minority interest, and other nondeductible expenses (see Note D to the consolidated financial statements). Liquidity and Capital Resources The ratio of current assets to current liabilities was .92:1 at September 30, 1996 compared to 1.06:1 at December 31, 1995. Net cash used by operating activities for the nine months ended September 30, 1996 was $856,000 compared to net cash used of $38.1 million for the nine months ended September 30, 1995. The decrease in net cash used is due primarily to an increase in depreciation expense and a reduction in accounts receivables, offset in part by a larger net loss from operations. The Company is in the process of selling excess real estate which resulted from the merger of Carolina Freight and Red Arrow into ABF. So far in 1996, the Company has received net proceeds from the sale of real estate of $30 million and has approximately $7.5 million in pending sales which are projected to close before the end of 1996. 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 September 30, 1996, the average interest rate on the Credit Agreement was 8%. 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 $196 million of Revolver Advances, $65 million of Term Advances and approximately $74 million of letters of credit outstanding at September 30, 1996. Outstanding revolving credit advances may not exceed a borrowing base calculated using the Company's revenue equipment, real property and other equipment, the Treadco common stock owned by the Company and the Company's eligible receivables. The Term Advances are payable in varying installments commencing in November 1996. 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 September 30, 1996, these covenants have been met. Based on available information, management believes that the Company may not satisfy certain of the financial covenants under the Credit Agreement for periods subsequent to September 30, 1996. Management has advised the Agent Banks under the Credit Agreement of this possibility and has initiated discussions for the purpose of obtaining waivers or amendments of applicable financial covenants for periods subsequent to September 30, 1996. Management doesn't expect any difficulties in obtaining waivers or amendments from its lenders should they be needed. On February 21, 1996, the Company obtained an amendment to the Credit Agreement which revised the agreement so that the Company was 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 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 case 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. There were no borrowings under this agreement at September 30, 1996. 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 100%. 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. 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 September 30, 1996, the weighted average interest rate was 6.4%. At September 30, 1996, Treadco had $6.8 million outstanding under the Treadco 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. Under the Treadco Credit Agreement, Treadco's assets are subject to pledge and, therefore, are available for use only by that subsidiary. 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 nine months of the calendar year generally having the highest levels of sales. Forward-Looking Statements The Management's Discussion and Analysis Section of this report contains forward-looking statements that are based on current expectations and are subject to a number of risks and uncertainties. Actual results could differ materially from current expectations due to a number of factors, including general economic conditions; competitive initiatives and pricing pressures; union relations; availability and cost of capital; shifts in market demand; weather conditions; the performance and needs of industries served by Arkansas Best's businesses; actual future costs of operating expenses such as fuel and related taxes; self-insurance claims and employee wages and benefits; actual costs of continuing investments in technology; and the timing and amount of capital expenditures. Accounting Pronouncements Effective January 1, 1996, the Company adopted 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". 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 are based on the excess of the carrying amount of the asset over the asset's fair value. Assets held for disposal are carried at the lower of carrying amount or fair value less cost to sell. The adoption of this statement had no impact on the Company's results of operations or financial position. 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 in excess of retention levels 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: November 13, 1996 /s/Donald L. Neal ----------------- ------------------------------------ Donald L. Neal - Senior Vice President - Chief Financial Officer, and Principal Accounting Officer EXHIBIT INDEX ARKANSAS BEST CORPORATION The following exhibits are filed with this report. Exhibit No. 11 Statement Re: Computation of Earnings per Share EX-11 2 EXHIBIT 11 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE ARKANSAS BEST CORPORATION
Three Months Ended Nine Months Ended September 30 September 30 1996 1995 1996 1995 ($ thousands, except per share data) Primary: Average shares outstanding 19,508,620 19,526,200 19,512,509 19,517,872 Net effect of dilutive stock options -- Based on the treasury stock method using average market price - - - - --------- --------- --------- --------- Average common shares outstanding 19,508,620 19,526,200 19,512,509 19,517,872 ========== ========== ========== ========== Net income (loss) $ (8,486) $ (13,128) $ (26,831) $ (6,304) Less: Preferred stock dividend 1,075 1,075 3,224 3,224 ---------- ---------- ---------- ---------- Net income (loss) available for common $ (9,561) $ (14,203) $ (30,055) $ (9,528) ========== ========== ========== ========== Per common and common equivalent share: Net income (loss) per common share $ (0.49) $ (0.73) $ (1.54) $ (0.49) ========== ========== ========== ========== Fully diluted earnings per common share are not presented, as such calculations would be anti-dilutive.
EX-27 3
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ARKANSAS BEST CORPORATION QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000894405 ARKANSAS BEST CORPORATION 1,000 9-MOS DEC-31-1996 SEP-30-1996 91 0 203,928 7,583 32,611 302,695 611,556 216,812 923,814 327,542 358,141 0 15 195 147,533 923,814 106,606 1,244,349 77,110 1,262,893 0 6,820 23,310 (41,553) (14,722) (26,831) 0 0 0 (26,831) (1.54) (1.54)
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