-----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, ICy0R/xNSS7VLMSCvV7TBggKd7MqEG5tQGCTXiBvJYw9ePOAWGVpqSVKnQ3ej7bl /7LJ/QbguL9UvYISGLDiwQ== /in/edgar/work/20000811/0000950134-00-006691/0000950134-00-006691.txt : 20000921 0000950134-00-006691.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950134-00-006691 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 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: SEC FILE NUMBER: 000-19969 FILM NUMBER: 692041 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 e10-q.txt FORM 10-Q FOR QUARTER ENDED JUNE 30, 2000 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 June 30, 2000 ------------- [ ] 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 jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code No.) Identification No.)
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 July 31, 2000 - ---------------------------- ---------------------------- Common Stock, $.01 par value 19,795,733 shares
2 ARKANSAS BEST CORPORATION INDEX
PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - June 30, 2000 and December 31, 1999 .................................................... 3 Consolidated Statements of Operations - For the Three and Six Months Ended June 30, 2000 and 1999............................... 5 Consolidated Statement of Shareholders' Equity For the Six Months Ended June 30, 2000.................................................. 7 Condensed Consolidated Statements of Cash Flows - For the Six Months Ended June 30, 2000 and 1999 ........................................ 8 Notes to Consolidated Financial Statements - June 30, 2000 ............................... 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .................................................... 16 Item 2a. Quantitative and Qualitative Disclosures About Market Risk................................ 23 PART II. OTHER INFORMATION Item 1. Legal Proceedings ........................................................................ 24 Item 2. Changes in Securities .................................................................... 24 Item 3. Defaults Upon Senior Securities .......................................................... 24 Item 4. Submission of Matters to a Vote of Security Holders ...................................... 24 Item 5. Other Information ........................................................................ 24 Item 6. Exhibits and Reports on Form 8-K ......................................................... 24 SIGNATURES .......................................................................................... 25
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ARKANSAS BEST CORPORATION CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------
JUNE 30 DECEMBER 31 2000 1999 ------------ ------------ (UNAUDITED) NOTE ($ thousands) ASSETS CURRENT ASSETS Cash and cash equivalents ........................... $ 4,473 $ 4,319 Trade receivables, less allowances (2000 -- $5,085,000; 1999 -- $5,775,000) ............ 197,335 187,837 Inventories ......................................... 32,111 33,050 Prepaid expenses .................................... 8,370 7,428 Deferred income taxes ............................... 7,091 7,231 Other ............................................... 3,243 3,234 ------------ ------------ TOTAL CURRENT ASSETS ............................ 252,623 243,099 PROPERTY, PLANT AND EQUIPMENT Land and structures ................................. 226,224 222,421 Revenue equipment ................................... 329,008 292,493 Manufacturing equipment ............................. 15,702 15,851 Service, office and other equipment ................. 87,588 82,508 Leasehold improvements .............................. 11,745 10,520 ------------ ------------ 670,267 623,793 Less allowances for depreciation and amortization ... 307,206 286,699 ------------ ------------ 363,061 337,094 OTHER ASSETS ........................................... 49,686 42,351 GOODWILL, less amortization (2000 -- $38,390,000; 1999 -- $36,365,000) ............................ 107,360 109,385 ------------ ------------ $ 772,730 $ 731,929 ============ ============
3 4 ARKANSAS BEST CORPORATION CONSOLIDATED BALANCE SHEETS - CONTINUED - --------------------------------------------------------------------------------
JUNE 30 DECEMBER 31 2000 1999 ------------ ------------ (UNAUDITED) NOTE ($ thousands) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Bank overdraft and drafts payable ................................. $ 17,471 $ 16,187 Trade accounts payable ............................................ 85,076 76,597 Accrued expenses .................................................. 158,800 160,469 Federal and state income taxes .................................... 8,846 8,434 Current portion of long-term debt ................................. 25,030 20,452 ------------ ------------ TOTAL CURRENT LIABILITIES ..................................... 295,223 282,139 LONG-TERM DEBT, less current portion ................................. 164,224 173,702 OTHER LIABILITIES .................................................... 37,082 29,845 DEFERRED INCOME TAXES ................................................ 26,113 25,191 SHAREHOLDERS' EQUITY Preferred stock, $.01 par value, authorized 10,000,000 shares; issued and outstanding 1,495,000 shares ........................ 15 15 Common stock, $.01 par value, authorized 70,000,000 shares; issued and outstanding 2000: 19,786,933 shares; 1999: 19,752,333 shares ....................................... 198 197 Additional paid-in capital ........................................ 194,418 194,155 Retained earnings ................................................. 55,457 26,685 Accumulated other comprehensive income ............................ -- -- ------------ ------------ TOTAL SHAREHOLDERS' EQUITY .................................... 250,088 221,052 COMMITMENTS AND CONTINGENCIES ........................................ ------------ ------------ $ 772,730 $ 731,929 ============ ============
Note: The balance sheet at December 31, 1999 has been derived from the audited financial statements at the date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying notes are an integral part of the consolidated financial statements. 4 5 ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS - --------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 2000 1999 2000 1999 ---------- ---------- ---------- ---------- (UNAUDITED) ($ thousands, except per share data) CONTINUING OPERATIONS: OPERATING REVENUES Transportation operations ............................... $ 424,293 $ 372,772 $ 826,537 $ 726,687 Tire operations ......................................... 47,694 46,133 88,465 86,593 ---------- ---------- ---------- ---------- 471,987 418,905 915,002 813,280 ---------- ---------- ---------- ---------- OPERATING EXPENSES AND COSTS Transportation operations ............................... 390,298 347,793 766,070 683,533 Tire operations ......................................... 46,598 45,807 87,559 86,734 ---------- ---------- ---------- ---------- 436,896 393,600 853,629 770,267 ---------- ---------- ---------- ---------- OPERATING INCOME ........................................... 35,091 25,305 61,373 43,013 OTHER INCOME (EXPENSE) Net gains (losses) on sales of property and non-revenue equipment ................................. 252 (32) 1,569 464 Interest expense ........................................ (4,342) (4,784) (8,863) (9,327) Minority interest in Treadco, Inc. ...................... -- -- -- 245 Other, net .............................................. (609) (1,356) (1,132) (2,376) ---------- ---------- ---------- ---------- (4,699) (6,172) (8,426) (10,994) ---------- ---------- ---------- ---------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES ................................... 30,392 19,133 52,947 32,019 FEDERAL AND STATE INCOME TAXES (CREDIT) Current ................................................. 13,206 7,144 20,963 13,832 Deferred ................................................ (563) 892 1,063 (388) ---------- ---------- ---------- ---------- 12,643 8,036 22,026 13,444 ---------- ---------- ---------- ---------- INCOME FROM CONTINUING OPERATIONS .......................... 17,749 11,097 30,921 18,575 DISCONTINUED OPERATIONS: Loss from discontinued operations (net of tax benefits of $394 for the six months ended June 30, 1999) ....... -- -- -- (664) ---------- ---------- ---------- ---------- LOSS FROM DISCONTINUED OPERATIONS .......................... -- -- -- (664) ---------- ---------- ---------- ---------- NET INCOME ................................................. 17,749 11,097 30,921 17,911 Preferred stock dividends ............................... 1,074 1,074 2,149 2,149 ---------- ---------- ---------- ---------- NET INCOME FOR COMMON SHAREHOLDERS ...................................... $ 16,675 $ 10,023 $ 28,772 $ 15,762 ========== ========== ========== ==========
5 6 ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED - --------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 2000 1999 2000 1999 -------------- -------------- -------------- -------------- (UNAUDITED) ($ thousands, except per share data) NET INCOME (LOSS) PER COMMON SHARE BASIC: Continuing operations (1) .............. $ 0.84 $ 0.51 $ 1.46 $ 0.83 Discontinued operations ................ -- -- -- (0.03) -------------- -------------- -------------- -------------- NET INCOME PER SHARE (1) ............... $ 0.84 $ 0.51 $ 1.46 $ 0.80 -------------- -------------- -------------- -------------- AVERAGE COMMON SHARES OUTSTANDING (BASIC) .................... 19,785,000 19,632,533 19,774,067 19,623,093 ============== ============== ============== ============== DILUTED: Continuing operations (2) .............. $ 0.74 $ 0.47 $ 1.28 $ 0.79 Discontinued operations ................ -- -- -- (0.03) -------------- -------------- -------------- -------------- NET INCOME PER SHARE (2) .............. $ 0.74 $ 0.47 $ 1.28 $ 0.76 -------------- -------------- -------------- -------------- AVERAGE COMMON SHARES OUTSTANDING (DILUTED) .................. 24,081,375 23,780,913 24,077,569 23,681,525 ============== ============== ============== ============== CASH DIVIDENDS PAID PER COMMON SHARE ... $ -- $ -- $ -- $ -- ============== ============== ============== ==============
(1) Gives consideration to preferred stock dividends of $1.1 million per quarter. (2) For the three and six months ended June 30, 2000 and 1999, conversion of preferred shares into common is assumed. 6 7 ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY - --------------------------------------------------------------------------------
ACCUMULATED ADDITIONAL OTHER PREFERRED COMMON PAID-IN RETAINED COMPREHENSIVE TOTAL STOCK STOCK CAPITAL EARNINGS INCOME EQUITY ---------- ---------- ---------- ---------- ---------- ---------- (UNAUDITED) ($ thousands) BALANCES AT JANUARY 1, 2000 ............ $ 15 $ 197 $ 194,155 $ 26,685 $ -- $ 221,052 Net income ............................. -- -- -- 30,921 -- 30,921 Issuance of common stock ............... -- 1 113 -- -- 114 Tax effect of stock options exercised .. -- -- 150 -- -- 150 Dividends paid on preferred stock ...... -- -- -- (2,149) -- (2,149) ---------- ---------- ---------- ---------- ---------- ---------- BALANCES AT JUNE 30, 2000 .............. $ 15 $ 198 $ 194,418 $ 55,457 $ -- $ 250,088 ========== ========== ========== ========== ========== ==========
7 8 ARKANSAS BEST CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30 2000 1999 ---------- ---------- (UNAUDITED) ($ thousands) OPERATING ACTIVITIES Net cash provided by operating activities .......... $ 53,927 $ 54,004 INVESTING ACTIVITIES Purchases of property, plant and equipment, less capitalized leases .......................... (54,198) (28,048) Purchase of Treadco, Inc. stock .................... -- (23,673) Proceeds from asset sales and other ................ 5,905 8,397 ---------- ---------- NET CASH USED BY INVESTING ACTIVITIES ................. (48,293) (43,324) ---------- ---------- FINANCING ACTIVITIES Deferred financing costs and expenses .............. -- (125) Borrowings under revolving credit facilities ....... 89,800 231,250 Payments under revolving credit facilities ......... (81,100) (222,500) Payments on long-term debt ......................... (8,880) (8,641) Dividends paid ..................................... (2,149) (2,149) Net increase (decrease) in bank overdraft .......... 1,366 (4,018) Retirement of bonds ................................ (4,781) (4,768) Other, net ......................................... 264 164 ---------- ---------- NET CASH USED BY FINANCING ACTIVITIES ................. (5,480) (10,787) ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .. 154 (107) Cash and cash equivalents at beginning of period ... 4,319 4,543 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ............ $ 4,473 $ 4,436 ========== ==========
8 9 ARKANSAS BEST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2000 - -------------------------------------------------------------------------------- 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 transportation operations, intermodal transportation operations and truck tire retreading and new tire sales. Principal subsidiaries are ABF Freight System, Inc., ("ABF"); Treadco, Inc. ("Treadco"); Clipper Exxpress Company and related companies ("Clipper"); G.I. Trucking Company ("G.I. Trucking"); and FleetNet America, Inc. Approximately 79% of ABF's employees are covered under a five-year collective bargaining agreement, which began on April 1, 1998, with the International Brotherhood of Teamsters ("IBT"). NOTE B - FINANCIAL STATEMENT PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements 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 six months ended June 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. 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, 1999. The difference between the effective tax rate for the six months ended June 30, 2000 and the federal statutory rate resulted from state income taxes, amortization of nondeductible goodwill and other nondeductible expenses. NOTE C - DISCONTINUED OPERATIONS At December 31, 1998, the Company was engaged in international ocean freight services through its subsidiary CaroTrans International, Inc. ("Clipper International"), a non-vessel operating common carrier (N.V.O.C.C.). On February 28, 1999, the Company completed a formal plan to exit its international ocean freight N.V.O.C.C. services by disposing of the business and assets of Clipper International. On April 17, 1999, the Company closed the sale of the business and certain assets of Clipper International, including the trade name "CaroTrans International, Inc." Remaining assets are being liquidated. The aggregate of the selling price of these assets and the estimated liquidation value of the retained Clipper International assets aggregated approximately $5.0 million which was approximately equal to the Company's net investment in the related assets. 9 10 ARKANSAS BEST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued - -------------------------------------------------------------------------------- Results of operations of Clipper International have been reported as discontinued operations, and the statements of operations for all periods have been restated to remove revenue and expenses of this segment. Results of Clipper International included in discontinued operations are summarized as follows:
SIX MONTHS ENDED JUNE 30 JUNE 30 2000 1999 ---------- ---------- ($ thousands) Revenues ........................... $ -- $ 6,777 Operating loss ..................... -- (1,114) Pre-tax loss ....................... -- (1,058)
NOTE D - INVENTORIES
JUNE 30 DECEMBER 31 2000 1999 ---------- ---------- ($ thousands) Finished goods ..................... $ 25,410 $ 26,253 Materials .......................... 4,143 4,042 Repair parts, supplies and other ... 2,558 2,755 ---------- ---------- $ 32,111 $ 33,050 ========== ==========
NOTE E - LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS Various legal actions, the majority of which arise in the normal course of business, are pending. None of these legal actions are expected to have a material adverse effect on the Company's financial condition, cash flows or results of operations. 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 82 underground tanks located in 26 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. 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 $300,000 over the last ten 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 June 30, 2000, the Company has accrued approximately $2.5 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. Accruals for environmental liability are included in the balance sheet as accrued expenses. 10 11 ARKANSAS BEST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued - -------------------------------------------------------------------------------- NOTE F - RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The Statement addresses the accounting for derivative instruments, including certain derivative instruments embedded in other contracts and hedging activities. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. In June 1999, the FASB issued Statement No. 137, which deferred for one year the implementation date of FASB Statement No. 133. As a result, Statement No. 133 is effective for the Company in 2001. The Company is evaluating the impact the Statement will have on its financial statements and related disclosures. On December 3, 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial Statements, which among other guidance clarifies certain conditions to be met in order to recognize revenue. On June 26, 2000, the SEC issued SAB 101B, Amendment: Revenue Recognition in Financial Statements, which delayed the effective date of SAB 101 for registrants with fiscal years beginning between December 16, 1999 and March 15, 2000. SAB 101 is effective for the Company in the fourth quarter of 2000. The Company is evaluating SAB 101's impact on its financial statements and related disclosures. In March 2000, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 44 ("FIN 44"), Accounting of Certain Transactions involving Stock Compensation, an interpretation of Accounting Principles Board Opinion No. 25. FIN 44 clarifies the application of Opinion 25 for (a) the definition of an employee for purposes of applying Opinion 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions cover specific events that occur after either December 15, 1998, or January 12, 2000. Management believes that FIN 44 will not have a material effect on the financial position or results of operations of the Company. In March 2000, the Emerging Issues Task Force ("EITF") issued EITF No. 00-2, Accounting for Website Development Costs, which addresses how an entity should account for costs incurred to develop a Web site. EITF No. 00-2 did not change the Company's accounting practices with respect to Web site development costs. 11 12 ARKANSAS BEST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued - -------------------------------------------------------------------------------- NOTE G - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 2000 1999 2000 1999 ------------ ------------ ------------ ------------ ($ thousands, except per share data) NUMERATOR: Numerator for basic earnings per share -- Net income .................................. $ 17,749 $ 11,097 $ 30,921 $ 17,911 Preferred stock dividends ..................... (1,074) (1,074) (2,149) (2,149) ------------ ------------ ------------ ------------ Numerator for basic earnings per share -- Net income available to common shareholders ......................... 16,675 10,023 28,772 15,762 Effect of dilutive securities (1) ............. 1,074 1,074 2,149 2,149 ------------ ------------ ------------ ------------ Numerator for diluted earnings per share -- Net income available to common shareholders ...................... $ 17,749 $ 11,097 $ 30,921 $ 17,911 ============ ============ ============ ============ DENOMINATOR: Denominator for basic earnings per share -- weighted-average shares ....... 19,785,000 19,632,533 19,774,067 19,623,093 Effect of dilutive securities: Conversion of preferred stock ................. 3,796,852 3,796,852 3,796,852 3,796,852 Employee stock options ........................ 499,523 351,528 506,650 261,580 ------------ ------------ ------------ ------------ Denominator for diluted earnings per share -- adjusted weighted-average shares and assumed conversion .............. 24,081,375 23,780,913 24,077,569 23,681,525 ============ ============ ============ ============ NET INCOME (LOSS) PER COMMON SHARE BASIC: Continuing operations ......................... $ 0.84 $ 0.51 $ 1.46 $ 0.83 Discontinued operations ....................... -- -- -- (0.03) ------------ ------------ ------------ ------------ NET INCOME PER SHARE ............................. $ 0.84 $ 0.51 $ 1.46 $ 0.80 ============ ============ ============ ============ AVERAGE COMMON SHARES OUTSTANDING (BASIC): .......................... 19,785,000 19,632,533 19,774,067 19,623,093 ============ ============ ============ ============ DILUTED: Continuing operations ......................... $ 0.74 $ 0.47 $ 1.28 $ 0.79 Discontinued operations ....................... -- -- -- (0.03) ------------ ------------ ------------ ------------ NET INCOME PER SHARE ............................. $ 0.74 $ 0.47 $ 1.28 $ 0.76 ============ ============ ============ ============ AVERAGE COMMON SHARES OUTSTANDING (DILUTED): ........................ 24,081,375 23,780,913 24,077,569 23,681,525 ============ ============ ============ ============ CASH DIVIDENDS PAID PER COMMON SHARE .............................. $ -- $ -- $ -- $ -- ============ ============ ============ ============
(1) For the three and six months ended June 30, 2000 and 1999, conversion of preferred shares into common is assumed. 12 13 ARKANSAS BEST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued - -------------------------------------------------------------------------------- NOTE H - SUBSEQUENT EVENT On July 10, 2000, the Company purchased 105,000 outstanding shares of Arkansas Best Corporation Preferred Stock (ABFSP) for $37.375 per share or total purchase price of approximately $3.9 million. NOTE I - OPERATING SEGMENT DATA The Company used the "management approach" to determine its reportable operating segments as well as to determine the basis of reporting the operating segment information. The management approach focuses on financial information that the Company's decision makers use to make decisions about operating matters. Management uses operating revenues, operating expense categories, operating ratios, operating income, and key operating statistics to evaluate performance and allocate resources to the Company's operating segments. During the periods being reported on, the Company operated in four defined reportable operating segments: 1) ABF; 2) G.I. Trucking; 3) Clipper; and 4) Treadco. Results of operations for Clipper International, previously reflected as a reportable segment, have been reported as discontinued operations for the six months ended June 30, 1999. The Company eliminates intercompany transactions in consolidation. However, the information used by the Company's management with respect to its reportable segments is before intersegment eliminations of revenues and expenses. Intersegment revenues and expenses are not significant. Further classifications of operations or revenues by geographic location beyond the descriptions provided above are impractical, and are, therefore, not provided. The Company's foreign operations are not significant. No material changes have occurred in the total assets for any reportable operating segment since December 31, 1999. 13 14 ARKANSAS BEST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued - -------------------------------------------------------------------------------- The following tables reflect reportable operating segment information for the Company, as well as a reconciliation of reportable segment information to the Company's consolidated operating revenues, operating expenses and operating income.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 2000 1999 2000 1999 ---------- ---------- ---------- ---------- (UNAUDITED) ($ thousands) OPERATING REVENUES ABF Freight System, Inc. .................. $ 344,671 $ 308,667 $ 676,507 $ 604,119 G.I. Trucking Company ..................... 42,795 34,913 80,496 66,447 Clipper ................................... 34,126 26,810 63,757 51,275 Treadco, Inc. ............................. 48,292 46,684 89,556 87,629 Other revenues and eliminations ........... 2,103 1,831 4,686 3,810 ---------- ---------- ---------- ---------- Total consolidated operating revenues ... $ 471,987 $ 418,905 $ 915,002 $ 813,280 ========== ========== ========== ========== OPERATING EXPENSES AND COSTS ABF FREIGHT SYSTEM, INC ...................... Salaries and wages ........................ $ 217,449 $ 201,658 $ 426,441 $ 398,374 Supplies and expenses ..................... 41,936 34,515 85,293 65,542 Operating taxes and licenses .............. 10,478 9,114 20,744 18,722 Insurance ................................. 5,731 4,809 10,601 9,827 Communications and utilities .............. 3,592 3,882 7,613 7,543 Depreciation and amortization ............. 8,900 7,296 17,136 14,284 Rents and purchased transportation ........ 23,070 23,160 47,035 45,602 Other ..................................... 1,083 1,140 2,023 2,499 (Gain) on sale of revenue equipment ....... (190) (207) (242) (248) ---------- ---------- ---------- ---------- 312,049 285,367 616,644 562,145 ---------- ---------- ---------- ---------- G.I. TRUCKING COMPANY Salaries and wages ........................ 19,453 15,938 37,644 30,722 Supplies and expenses ..................... 3,627 2,826 7,125 5,370 Operating taxes and licenses .............. 774 813 1,630 1,574 Insurance ................................. 931 1,004 1,785 2,035 Communications and utilities .............. 526 427 1,028 855 Depreciation and amortization ............. 1,117 763 2,184 1,505 Rents and purchased transportation ........ 13,562 10,979 25,348 20,768 Other ..................................... 968 796 1,909 1,693 (Gain) on sale of revenue equipment ....... (8) (48) (10) (54) ---------- ---------- ---------- ---------- 40,950 33,498 78,643 64,468 ---------- ---------- ---------- ---------- CLIPPER Cost of services .......................... 28,646 22,932 54,454 44,423 Selling, administrative and general ....... 4,671 3,383 8,467 6,715 (Gain) on sale of revenue equipment ....... -- (2) (3) (33) ---------- ---------- ---------- ---------- 33,317 26,313 62,918 51,105 ---------- ---------- ---------- ----------
14 15 ARKANSAS BEST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued - --------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 2000 1999 2000 1999 ---------- ---------- ---------- ---------- (UNAUDITED) ($ thousands) TREADCO, INC. Cost of sales ...................................... $ 32,260 $ 32,562 $ 60,163 $ 61,469 Selling, administrative and general ................ 14,639 13,629 27,996 25,922 ---------- ---------- ---------- ---------- 46,899 46,191 88,159 87,391 ---------- ---------- ---------- ---------- Other expenses and eliminations ....................... 3,681 2,231 7,265 5,158 ---------- ---------- ---------- ---------- Total consolidated operating expenses and costs .... $ 436,896 $ 393,600 $ 853,629 $ 770,267 ========== ========== ========== ========== OPERATING INCOME (LOSS) ABF Freight System, Inc. .............................. $ 32,622 $ 23,300 $ 59,863 $ 41,974 G.I. Trucking Company ................................. 1,845 1,415 1,853 1,979 Clipper ............................................... 809 497 839 170 Treadco, Inc. ......................................... 1,393 493 1,397 238 Other income (loss) and eliminations .................. (1,578) (400) (2,579) (1,348) ---------- ---------- ---------- ---------- Total consolidated operating income ................ $ 35,091 $ 25,305 $ 61,373 $ 43,013 ========== ========== ========== ==========
15 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) - -------------------------------------------------------------------------------- OPERATING SEGMENT DATA The following table sets forth, for the periods indicated, a summary of the Company's operating expenses by segment as a percentage of revenue for the applicable segment.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 2000 1999 2000 1999 -------- -------- -------- -------- (UNAUDITED) OPERATING EXPENSES AND COSTS ABF FREIGHT SYSTEM, INC. Salaries and wages .................... 63.1% 65.3% 63.0% 65.9% Supplies and expenses ................. 12.2 11.2 12.6 10.8 Operating taxes and licenses .......... 3.0 3.0 3.1 3.1 Insurance ............................. 1.7 1.6 1.6 1.6 Communications and utilities .......... 1.0 1.3 1.1 1.2 Depreciation and amortization ......... 2.6 2.4 2.5 2.4 Rents and purchased transportation .... 6.7 7.5 7.0 7.5 Other ................................. 0.3 0.3 0.3 0.6 (Gain) on sale of revenue equipment ... (0.1) (0.1) -- -- -------- -------- -------- -------- 90.5% 92.5% 91.2% 93.1% -------- -------- -------- -------- G.I. TRUCKING COMPANY Salaries and wages .................... 45.5% 45.7% 46.8% 46.2% Supplies and expenses ................. 8.5 8.1 8.9 8.1 Operating taxes and licenses .......... 1.8 2.3 2.0 2.4 Insurance ............................. 2.2 2.9 2.2 3.1 Communications and utilities .......... 1.2 1.2 1.3 1.3 Depreciation and amortization ......... 2.6 2.2 2.7 2.3 Rents and purchased transportation .... 31.7 31.4 31.5 31.3 Other ................................. 2.2 2.2 2.3 2.4 (Gain) on sale of revenue equipment ... -- (0.1) -- (0.1) -------- -------- -------- -------- 95.7% 95.9% 97.7% 97.0% -------- -------- -------- -------- CLIPPER Cost of services ...................... 83.9% 85.5% 85.4% 86.6% Selling, administrative and general ... 13.7 12.6 13.3 13.2 (Gain) on sale of revenue equipment ... -- -- -- (0.1) -------- -------- -------- -------- 97.6% 98.1% 98.7% 99.7% -------- -------- -------- -------- TREADCO, INC. Cost of sales ......................... 66.8% 69.7% 67.1% 70.1% Selling, administrative and general ... 30.3 29.2 31.3 29.6 -------- -------- -------- -------- 97.1% 98.9% 98.4% 99.7% -------- -------- -------- -------- OPERATING INCOME ABF Freight System, Inc. ................. 9.5% 7.5% 8.8% 6.9% G. I. Trucking Company ................... 4.3 4.1 2.3 3.0 Clipper .................................. 2.4 1.9 1.3 0.3 Treadco, Inc. ............................ 2.9 1.1 1.6 0.3
16 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) - continued - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS THREE AND SIX MONTHS ENDED JUNE 30, 2000, COMPARED TO THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 Consolidated revenues from continuing operations of the Company for the three and six months ended June 30, 2000 increased 12.7% and 12.5%, respectively, compared to the same periods in 1999, due to increases in revenues for ABF, G.I. Trucking, Clipper and Treadco. The Company's operating income from continuing operations for the three and six months ended June 30, 2000 increased 38.7% and 42.7%, respectively, compared to the same periods in 1999. Increases in operating income from continuing operations for the three months ending June 30, 2000 are attributable to improved operations at ABF, G.I. Trucking, Clipper and Treadco. Increases in operating income for the six months ended June 30, 2000 are attributable to improved operations at ABF, Clipper and Treadco. Income from continuing operations for the three and six months ended June 30, 2000 increased 59.9% and 69.0% from the same periods in 1999. The improvements in income from continuing operations reflect primarily improvements in operating income. Diluted earnings per share from continuing operations improved 57.4% to $0.74 per share and 62.0% to $1.28 per share for the three and six months ended June 30, 2000, when compared to the same periods in 1999. ABF FREIGHT SYSTEM, INC. ABF announced that it will implement a general rate increase of 5.7%, effective August 14, 2000. Effective January 1, 1999 and September 13, 1999, ABF implemented overall rate increases of 5.5% and 5.1%, respectively. Revenues for the three and six months ended June 30, 2000 increased 11.7% and 12.0% to $344.7 million and $676.5 million, respectively, from $308.7 million and $604.1 million for the same periods in 1999. ABF generated operating income for the three and six months ended June 30, 2000 of $32.6 million and $59.9 million compared to $23.3 million and $42.0 million for the three and six months ended June 30, 1999. ABF's increase in revenue is due to an increase in LTL revenue per hundredweight and an increase in LTL tonnage. LTL revenue per hundredweight increased 7.4% and 6.3% to $20.70 and $20.45 when the three and six months ended June 30, 2000 are compared to the same periods in 1999, reflecting a continuing favorable pricing environment. ABF's LTL tonnage increased 4.4% and 5.6% for the three and six months ended June 30, 2000, compared to the same periods in 1999. ABF implemented a fuel surcharge on July 7, 1999, based on the increase in diesel fuel prices compared to an index price. The fuel surcharge in effect during the three months ending June 30, 2000 ranged from 3.0% to 4.0% of revenue, and the fuel surcharge in effect for the six months ending June 30, 2000 ranged from 2.0% to 4.0% of revenue. There was no fuel surcharge in effect during the six months ended June 30, 1999. ABF's operating ratio improved to 90.5% and 91.2% for the three and six months ended June 30, 2000 from 92.5% and 93.1% during the same periods in 1999. The improvements are the result of the revenue yield, rate and fuel surcharge improvements and increases in tonnage previously described and as a result of changes in certain operating expense categories as follows: Salaries and wages expense for the three and six months ended June 30, 2000 declined 2.2% and 2.9% as a percent of revenue compared to the same periods in 1999. The decline results primarily from the revenue improvements previously discussed, offset, in part, by the annual general Teamster wage and benefit rate increase on April 1, 2000 of approximately 3.0%, an increase in incentive pay amounts and unfavorable claims experience for workers' compensation. 17 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) - continued - -------------------------------------------------------------------------------- Supplies and expenses increased 1.0% and 1.8% as a percent of revenue for the three and six months ended June 30, 2000, compared to the same periods in 1999. This change is due primarily to higher diesel fuel prices, which increased 62.6% and 83.2% on an average price-per-gallon basis when the three and six months ended June 30, 2000 are compared to the same periods in 1999. The previously mentioned fuel surcharge on revenue is intended to offset the fuel cost increase. Communication and utilities expense decreased 0.3% and 0.1% as a percent of revenue when the three and six months ended June 30, 2000 are compared to the same periods in 1999. During the second and third quarters of 1999, the Company began installing a new communications system network in all terminals, through a parallel conversion, which was completed in September 1999. As a result, both the existing and new systems were being used during the second and third quarters of 1999, which increased costs for those periods. Depreciation and amortization expense increased 0.2% and 0.1% as a percent of revenue for the three and six months ended June 30, 2000, compared to the same periods in 1999, due primarily to the purchase of 557 road tractors during the first six months of 2000. The 557 road tractors purchased includes approximately 165 additions with the remaining units replacing older tractors in the fleet under operating leases. Rents and purchased transportation expense decreased 0.8% and 0.5% as a percent of revenue for the three and six months ended June 30, 2000, compared to the same periods in 1999, due to the disposal of tractors under operating leases, previously mentioned. In addition, total rail costs, as a percent of revenue, declined as a result of a decline in rail utilization for the three and six months ended June 30, 2000 to 15.2% and 15.7% of total miles, respectively, from 16.4% during both the three and six months ended June 30, 1999. G.I. TRUCKING COMPANY G.I. Trucking plans to implement a general rate increase of 5.9%, effective September 1, 2000. Effective October 1, 1999, G.I. Trucking implemented a general rate increase of 5.5%. G.I. Trucking revenues for the three and six months increased 22.6% and 21.1% to $42.8 million and $80.5 million from $34.9 million and $66.4 million during the same periods in 1999. The revenue increase resulted from an increase in G.I. Trucking's tonnage of 18.8% and 18.3% for the three and six months ended June 30, 2000, compared to the same periods in 1999. In addition, revenue per hundredweight increased 3.2% and 2.4% for the three and six months ended June 30, 2000 compared to the same periods in 1999. During the early part of first quarter 2000, G.I. Trucking expanded its operational capabilities in the states of Texas, New Mexico, Oklahoma, Kansas and parts of Missouri, in preparation for adding new business from an existing carrier partner. This business began February 1 and steadily grew through the second quarter 2000. In addition, G.I. Trucking increased its sales management and sales staff throughout its system by nearly 50% over 1999 levels. G.I. Trucking implemented a fuel surcharge during the last week of August 1999, based upon a West Coast average fuel index. The fuel surcharge in effect during the second quarter of 2000 ranged from 3.1% to 4.2% of revenue, while the fuel surcharge range for the six months ending June 30, 2000 was 2.6% to 4.6% of revenue. There was no fuel surcharge in effect during the six months ended June 30, 1999. G.I. Trucking's operating ratio improved to 95.7% for the three months ended June 30, 2000 from 95.9% during the same period in 1999, as a result of the increases in tonnage, revenue yield and fuel surcharge improvements previously described. However, during the six months ended June 30, 2000, G.I. Trucking's operating ratio increased to 18 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) - continued - -------------------------------------------------------------------------------- 97.7% from 97.0% during the same period in 1999, due primarily to start-up costs associated with the expansion described above. In addition, the change in the operating ratio results from changes in certain operating expenses as follows: Salaries and wages expense decreased 0.2% as a percent of revenue during the three months ended June 30, 2000, compared to the same period in 1999. This decrease is due primarily to revenue improvements previously discussed, lower pension costs and favorable health claims experience, offset, in part, by increased salaries and benefits related to the addition of sales staff and the expansion described above. However for the six months ended June 30, 2000, salaries and wages expense increased 0.6% as a percent of revenue, compared to the same period in 1999. The increase is due primarily to unfavorable claims experience for workers' compensation and increased salaries and benefits related to the addition of sales staff and the expansion described above, offset, in part, by lower pension costs and favorable health claims experience. Supplies and expenses increased 0.4% and 0.8% as a percent of revenue for the three and six months ended June 30, 2000, compared to the same periods in 1999. The increase is due primarily to higher fuel costs, which increased in total dollars by 53.8% and 84.6% for the three and six months ending June 30, 2000 compared to the same periods in 1999. G.I. Trucking's fuel surcharge on revenue is intended to offset the fuel cost increase. Operating taxes and licenses expense decreased 0.5% and 0.4% for the three and six months ended June 30, 2000, compared to the same periods in 1999 due primarily to the fact that a portion of such costs are primarily fixed in nature and decline as a percent of revenue with increases in revenue levels. Insurance expense decreased 0.7% and 0.9% as a percent of revenue for the three and six months ended June 30, 2000, compared to the same periods in 1999. This decrease is due to favorable claims experience for bodily injury and property damage and cargo claims during the three and six months ended June 30, 2000, as compared to the same period in 1999. Depreciation and amortization increased 0.4% as a percent of revenue for both the three and six months ended June 30, 2000, compared to the same periods in 1999, due primarily to G.I. Trucking's adding approximately 100 trailers to their fleet during the six months ended June 30, 2000. Rents and purchased transportation expenses increased 0.3% and 0.2% as a percent of revenue for the three and six months ended June 30, 2000, as compared to the same periods in 1999. This increase is due primarily to an increase in purchased transportation costs resulting from higher fuel costs passed through from purchased transportation providers and additional linehaul miles run in order to meet customer service needs. The previously mentioned fuel surcharge is intended to offset the fuel increase included in purchased transportation costs. This increase is offset in part by a decline in terminal rent costs as a percent of revenue. This decline resulted from higher revenue levels and the fact that terminal rents are primarily fixed in nature. CLIPPER Clipper implemented a general rate increase of 5.9% for LTL shipments as of August 1, 2000. Revenues for Clipper were $34.1 million and $63.8 million for the three and six months ended June 30, 2000, representing increases of 27.3% and 24.3% from same periods in 1999. Clipper continued its first quarter 2000 trend of revenue growth with LTL shipments increasing 11.6% and 8.3% for the three and six months ended June 30, 2000, compared to the same periods in 1999. Intermodal shipments increased 1.6% and 1.5% for the three and six months ended June 30, 2000 compared to the same periods in 1999. Intermodal revenue per 19 20 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) - continued - -------------------------------------------------------------------------------- shipment for the three and six months ended June 30, 2000 increased 17.0% and 16.1% from the same periods in 1999. Clipper's operating ratio improved to 97.6% and 98.7% for the three and six months ended June 30, 2000 from 98.1% and 99.7% during the same periods in 1999, primarily as a result of volume and margin improvements on its intermodal and produce shipments. Clipper's margins improved, in part, as a result of a higher level of rail utilization for the three and six months ended June 30, 2000. Clipper's rail utilization was 65.9% and 64.5% of total miles for the three and six months ending June 30, 2000 compared to 55.9% and 56.4% for the three and six months ending June 30, 1999. Rail costs per mile for Clipper are less expensive than over-the-road costs per mile. These improvements were offset, in part, by an increase in selling, administrative and general costs of 1.1% and 0.1% as a percent of revenue for the three and six months ended June 30, 2000. This increase is due primarily to additional costs incurred to maintain operations in the northeast following the abandonment of the Jersey City location by the agent. TREADCO, INC. Revenues for Treadco increased 3.4% to $48.3 million and 2.2% to $89.6 million for the three and six months ended June 30, 2000, respectively, compared to the same periods in 1999. For the three and six months ended June 30, 2000, "same store" sales increased 3.1% and 1.8% compared to the same periods in 1999. "New store" sales accounted for 0.3% and 0.4% of the increase from the three and six months ended June 30, 1999, respectively. "Same store" sales include locations that have been in existence for the entire periods presented. "New store" sales resulted from the addition of a new sales-only location during the second quarter of 1999. Revenues from retreading for the three and six months ended June 30, 2000 decreased 1.1% to $17.7 million and 1.2% to $33.6 million, respectively, compared to the same periods in 1999. Retread revenues for the three and six months ended June 30, 2000 were lower due to a decrease in units sold of approximately 3.4% and 2.8%, respectively, from the same periods in 1999. The decreases were offset in part by increases in the average sales price per unit of approximately 2.5% and 2.0%, respectively, from the same periods in 1999. Declines in retread units sold resulted from pricing pressures from new tire manufacturer's specials and a more competitive marketplace. Also, rising fuel costs had a negative impact on customer retread demand during the periods. Revenues from new tires increased 4.2% to $24.4 million and 2.0% to $44.6 million for the three and six months ended June 30, 2000, respectively, from the same periods in 1999. Units sold increased 5.3% and 3.8% from the three and six months ended June 30, 1999, due primarily to an increase in new tires sold on national accounts which are sold on a commission basis. Also contributing to higher new tire revenues was an increase in the average selling price of new tires sold to non-national accounts compared to the same periods in 1999. Service revenues for the three and six months ended June 30, 2000 increased 15.5% to $6.1 million and 15.0% to $11.4 million compared to the same periods in 1999. The increase is primarily due to the addition of service equipment and personnel and to management's efforts to improve pricing. Treadco's operating ratio improved to 97.1% and 98.4% during the three and six months ended June 30, 2000, respectively, from 98.9% and 99.7% for the same periods in 1999. Improvements in Treadco's operating ratio resulted from improvements in retread, new tire and service gross margins reflecting better pricing for all three lines of business for the three and six months ended June 30, 2000 when compared to the same periods in 1999. Selling, administrative and general expenses increased primarily as a result of higher salaries and wages due to increased office, service and inventory control personnel. Also, insurance costs were higher due to increases in claim reserves, and truck expense rose due to higher fuel costs. 20 21 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) - continued - ------------------------------------------------------------------------------- INCOME TAXES The difference between the effective tax rate for the three and six months ended June 30, 2000 and the federal statutory rate resulted from state income taxes, amortization of nondeductible goodwill and other nondeductible expenses. OTHER ASSETS Other assets increased $7.3 million from December 31, 1999 to June 30, 2000, due primarily to incentive pay deferrals and matching contributions to the Company's Voluntary Savings Plan assets, which are held in a trust account. OTHER LIABILITIES Other liabilities increased $7.2 million from December 31, 1999 to June 30, 2000, due primarily to incentive pay deferrals and matching contributions to the Company's Voluntary Savings Plan. LIQUIDITY AND CAPITAL RESOURCES Net income plus depreciation and amortization was $58.7 million for the six months ended June 30, 2000 compared to $41.7 million for the same period in 1999. Working capital changes for the first six months of 2000 resulted in a decrease in cash provided by operations of $4.8 million compared to an increase in cash provided by operations from working capital changes of $12.3 million in the first six months of 1999. Cash provided by working capital changes declined for the six months ended June 30, 2000 from 1999 primarily because of increases in accounts receivable. During the six months ended June 30, 2000, cash provided from operations and proceeds from assets sales of $7.2 million were used primarily to purchase revenue equipment and other property and equipment totaling $54.2 million and to reduce outstanding debt by $4.9 million. During the six months ended June 30, 1999, cash provided by operations and proceeds from assets sales of $9.1 million were used primarily to purchase revenue equipment and other property and equipment in the amount of $28.0 million, to purchase the non-ABC-owned shares of Treadco for $23.7 million and to pay down outstanding debt. The Company is party to a $250 million credit agreement (the "Credit Agreement") with Societe Generale as Administrative Agent and with Bank of America National Trust and Savings Association and Wells Fargo Bank (Texas), N.A., as Co-Documentation Agents. The Credit Agreement provides for up to $250 million of revolving credit loans (including letters of credit) and extends through 2003. At June 30, 2000, there were $110.0 million of Revolver Advances and approximately $23.6 million of letters of credit outstanding. At June 30, 2000, the Company had approximately $116.4 million of borrowing availability under the Credit Agreement. The Credit Agreement contains various covenants, which limit, among other things, indebtedness, distributions and dispositions of assets and require the Company to meet certain quarterly financial ratio tests. As of June 30, 2000, the Company was in compliance with the covenants. The Company is party to an interest rate swap on a notional amount of $110 million. The purpose of the swap is to limit the Company's exposure to increases in interest rates on $110 million of bank borrowings over the seven-year term of the swap. The interest rate under the swap is fixed at 5.845% plus the Credit Agreement margin, which at June 30, 2000 was 0.40%. 21 22 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) - continued - -------------------------------------------------------------------------------- During 1999, the Company entered into $26.1 million in capital lease obligations for the purchase of revenue equipment. The Company has not entered into any capital lease obligations in 2000. In 2000, the Company forecasts total spending of $85.0 to $95.0 million for capital expenditures net of proceeds from equipment sales. Of the $85.0 to $95.0 million, ABF is budgeted for $63.0 to $73.0 million to be used primarily for revenue equipment and facilities. Treadco is budgeted for approximately $4.0 million of expenditures to be used primarily for retreading and service equipment and facilities and G.I. Trucking is budgeted for approximately $10.0 million of expenditures to be used primarily for revenue equipment. Clipper is budgeted for approximately $4.0 million of expenditures to be used primarily for revenue equipment. For the year 2000, the Company forecasts total revenues of approximately $1.9 billion. Included in the $1.9 billion are forecasted revenues for ABF of approximately $1.4 billion, G.I. Trucking of approximately $160.0 million, Clipper of approximately $131.0 million and Treadco of approximately $195.0 million. Management believes, based upon the Company's current levels of operations, 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 ABF and G.I. Trucking are 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. Clipper's operations are similar to motor carrier operations 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 Statements contained in the Management's Discussion and Analysis section of this report that are not based on historical facts are "forward-looking statements." Terms such as "estimate," "expect," "predict," "plan," "anticipate," "believe," "intend," "should," "would," "scheduled," and similar expressions and the negatives of such terms are intended to identify forward-looking statements. Such statements are by their nature subject to uncertainties and risk, including but not limited to union relations; availability and cost of capital; shifts in market demand; weather conditions; the performance and needs of industries served by Arkansas Best's subsidiaries; 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, the timing and amount of capital expenditures; competitive initiatives and pricing pressures; general economic conditions; and other financial, operational and legal risks and uncertainties detailed from time to time in the Company's SEC public filings. 22 23 ITEM 2a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ------------------------------------------------------------------------------- INTEREST RATE INSTRUMENTS The Company is a party to an interest rate swap agreement which was effective April 1, 1998. The swap agreement is a contract to exchange floating interest rate payments for fixed rate payments over the life of the instrument. The notional amount is used to measure interest to be paid or received and does not represent the exposure to credit loss. The purpose of the swap is to limit the Company's exposure to increases in interest rates on the notional amount of bank borrowings over the term of the swap. The fixed interest rate under the swap is 5.845% plus the Credit Agreement margin (currently .40%). This instrument is not recorded on the balance sheet of the Company. Details regarding the swap, as of June 30, 2000, are as follows:
Notional Rate Rate Fair Amount Maturity Paid Received Value(2) ------ -------- ---- -------- -------- $110.0 million April 1, 2005 5.845% Plus Credit Agreement LIBOR rate(1) $5.2 million Margin (currently .40%) Plus Credit Agreement Margin (currently .40%)
(1) LIBOR rate is determined two London Banking Days prior to the first day of every month and continues up to and including the maturity date. (2) The fair value is an amount estimated by Societe Generale ("process agent") that the Company would have received at June 30, 2000 to terminate the agreement. OTHER MARKET RISKS Since December 31, 1999, there have been no significant changes in the Company's other market risks, as reported in the Company's Form 10-K Annual Report. 23 24 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 in excess of self-retention levels of certain risks arising out of the normal course of its business (see Note E 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. The Company's Annual Meeting of Shareholders was held on April 19, 2000. The first proposal considered at the Annual Meeting was to elect two persons to serve as directors of the Company. The results of this proposal are as follows:
Directors Votes For Votes Withheld Arthur J. Fritz Jr. 17,834,118 185,908 John H. Morris 17,835,382 184,644
The second proposal was to ratify the appointment of Ernst & Young LLP as independent auditors for the fiscal year 2000. This proposal received 17,948,513 votes for adoption, 32,997 against adoption, 38,516 abstentions and no broker non-votes. The third proposal was to approve the Executive Officer Annual Incentive Compensation Plan. This proposal received 14,849,389 votes for adoption, 459,275 votes against adoption, 246,436 abstentions and 2,464,926 broker non-votes. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS. Financial Data Schedule (b) REPORTS ON FORM 8-K. None. 24 25 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: August 8, 2000 /s/ David E. Loeffler --------------------- David E. Loeffler Vice President-Treasurer, Chief Financial Officer and Principal Accounting Officer 25 26 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------ ----------- 27 Financial Data Schedule
EX-27 2 ex27.txt FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ARKANSAS BEST CORPORATION QUARTERLY REPORT 10-Q FOR THE QUARTER ENDED JUNE 30, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000894405 ARKANSAS BEST CORPORATION 1,000 6-MOS DEC-31-2000 JUN-30-2000 4,473 0 197,335 5,085 32,111 252,623 670,267 307,206 772,730 295,223 164,224 0 15 198 249,875 772,730 88,465 915,002 60,163 853,629 0 2,268 8,863 52,947 22,026 30,921 0 0 0 30,921 1.46 1.28
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