-----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, D0JfcjMwzJHP2FAOingXrinIZGWYt1aDhej2V/NsQpDEGfdKdVaSWQV7nLh9nJIv 35tFKfK9vIhU5Aaf4XM6Mg== 0000950134-97-008298.txt : 19971114 0000950134-97-008298.hdr.sgml : 19971114 ACCESSION NUMBER: 0000950134-97-008298 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 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: SEC FILE NUMBER: 000-19969 FILM NUMBER: 97713853 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 FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1997 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, 1997 [ ] 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. Outstanding at October 31, Class 1997 ---------------------------- --------------------------- Common Stock, $.01 par value 19,592,613 shares 2 ARKANSAS BEST CORPORATION INDEX
PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets -- September 30, 1997 and December 31, 1996 ............................... 3 Consolidated Statements of Operations -- For the Three and Nine Months Ended September 30, 1997 and 1996 ........ 5 Condensed Consolidated Statements of Cash Flows -- For the Nine Months Ended September 30, 1997 and 1996 .................. 7 Notes to Consolidated Financial Statements - September 30, 1997 ........... 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .................................... 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings ......................................................... 24 Item 2. Changes in Securities ..................................................... 24 Item 3. Defaults Upon Senior Securities ........................................... 24 Item 4. Submission of Matters to a Vote of Security Holders ....................... 24 Item 5. Other Information ......................................................... 24 Item 6. Exhibits and Reports on Form 8-K .......................................... 24 SIGNATURES ........................................................................... 25 EXHIBITS Exhibit 11. Statement Re: Computation of Earnings Per Share
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ARKANSAS BEST CORPORATION CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------
SEPTEMBER 30 DECEMBER 31 1997 1996 ------------ ----------- (UNAUDITED) (NOTE) ($ THOUSANDS) ASSETS CURRENT ASSETS Cash and cash equivalents .................................. $ -- $ 2,427 Trade receivables, less allowances for doubtful accounts (1997 -- $5,481,000; 1996 -- $6,118,000) ................ 195,640 178,766 Inventories -- Note E ...................................... 31,531 33,811 Prepaid expenses ........................................... 14,266 12,869 Federal and state income taxes refundable .................. 5,500 7,320 Deferred federal income taxes .............................. 13,891 16,490 Other ...................................................... 3,035 -- --------- --------- TOTAL CURRENT ASSETS ................................... 263,863 251,683 PROPERTY, PLANT AND EQUIPMENT Land and structures ........................................ 212,358 228,051 Revenue equipment .......................................... 208,127 253,009 Manufacturing equipment .................................... 18,793 18,815 Service, office and other equipment ........................ 64,221 61,987 Leasehold improvements ..................................... 7,372 8,899 --------- --------- 510,871 570,761 Less allowances for depreciation and amortization .......... (218,207) (214,195) --------- --------- 292,664 356,566 OTHER ASSETS .................................................... 42,743 60,630 ASSETS HELD FOR SALE ............................................ 7,818 9,148 GOODWILL, less amortization (1997 -- $30,824,000; 1996 -- $28,006,000) ................. 137,144 150,154 --------- --------- $ 744,232 $ 828,181 ========= =========
3 4 ARKANSAS BEST CORPORATION CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------
SEPTEMBER 30 DECEMBER 31 1997 1996 ------------ ----------- (UNAUDITED) (NOTE) ($ THOUSANDS) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Bank overdraft .............................................. $ 4,279 $ -- Bank drafts payable ......................................... 7,090 502 Trade accounts payable ...................................... 85,468 77,338 Accrued expenses ............................................ 166,793 179,918 Current portion of long-term debt ........................... 19,606 37,197 --------- --------- TOTAL CURRENT LIABILITIES ............................... 283,236 294,955 LONG-TERM DEBT, less current portion ............................. 223,859 317,874 OTHER LIABILITIES ................................................ 22,922 21,423 DEFERRED FEDERAL INCOME TAXES .................................... 36,115 22,479 MINORITY INTEREST ................................................ 32,864 34,020 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 1997: 19,589,013 shares; 1996: 19,512,250 shares ........ 196 195 Additional paid-in capital .................................. 192,864 192,328 Retained earnings (deficit) ................................. (47,839) (55,108) --------- --------- TOTAL SHAREHOLDERS' EQUITY .............................. 145,236 137,430 CONTINGENCIES -- Note G --------- --------- $ 744,232 $ 828,181 ========= =========
Note: The balance sheet at December 31, 1996 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. 4 5 ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - --------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 1997 1996 1997 1996 ----------- ----------- ----------- ----------- CONTINUING OPERATIONS: ($ THOUSANDS, EXCEPT PER SHARE DATA) OPERATING REVENUES LTL motor carrier operations .......................... $ 328,767 $ 305,926 $ 936,791 $ 899,735 Truckload motor carrier operations (Note D) ........... -- 19,171 39,366 55,926 Intermodal operations ................................. 47,585 47,552 141,003 134,319 Tire operations ....................................... 46,169 39,488 119,277 106,606 Service and other ..................................... 2,768 2,369 7,145 6,281 ----------- ----------- ----------- ----------- 425,289 414,506 1,243,582 1,202,867 ----------- ----------- ----------- ----------- OPERATING EXPENSES AND COSTS LTL motor carrier operations .......................... $ 309,033 $ 307,527 $ 888,298 $ 916,521 Truckload motor carrier operations (Note D) ........... -- 18,139 37,304 52,015 Intermodal operations ................................. 46,420 48,366 138,869 132,461 Tire operations ....................................... 45,423 40,184 120,862 110,249 Service and other ..................................... 2,766 2,529 7,258 7,305 ----------- ----------- ----------- ----------- 403,642 416,745 1,192,591 1,218,551 ----------- ----------- ----------- ----------- OPERATING INCOME (LOSS) .................................. 21,647 (2,239) 50,991 (15,684) ----------- ----------- ----------- ----------- OTHER INCOME (EXPENSE) Gain (loss) on sale of property and non-revenue equipment ............................... (2,333) 737 (4,147) 3,458 Gain on sale of Cardinal Freight Carriers (Note D) .... 8,985 -- 8,985 -- Interest expense ...................................... (5,260) (7,656) (19,100) (22,495) Minority interest in subsidiary ....................... (228) (82) 826 1,045 Other, net ............................................ (2,155) (2,004) (5,255) (5,279) ----------- ----------- ----------- ----------- (991) (9,005) (18,691) (23,271) ----------- ----------- ----------- ----------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES ......................... 20,656 (11,244) 32,300 (38,955) FEDERAL AND STATE INCOME TAXES (CREDIT) Current ............................................... 3,035 (4,916) 4,500 (9,396) Deferred .............................................. 8,363 1,327 11,685 (4,397) ----------- ----------- ----------- ----------- 11,398 (3,589) 16,185 (13,793) ----------- ----------- ----------- ----------- INCOME (LOSS) FROM CONTINUING OPERATIONS ................. 9,258 (7,655) 16,115 (25,162) ----------- ----------- ----------- -----------
5 6 ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) -- Continued - --------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 1997 1996 1997 1996 ------------ -------------- ------------ -------------- ($ THOUSANDS, EXCEPT PER SHARE DATA) DISCONTINUED OPERATIONS (Note C): (Loss) from discontinued operations (net of tax benefits of $208 and $478 for the three months ended September 30, 1997 and 1996, respectively, and $1,476 and $928 for the nine months ended September 30, 1997 and 1996, respectively) ............. $ (363) $ (831) $ (2,529) $ (1,669) (Loss) on disposal of discontinued operations (net of tax benefits of $605 for the three and nine months ended September 30, 1997) .............................. (3,093) -- (3,093) -- ------------ -------------- ------------ -------------- LOSS) FROM DISCONTINUED OPERATIONS ........................ (3,456) (831) (5,622) (1,669) ------------ -------------- ------------ -------------- NET INCOME (LOSS) ......................................... 5,802 (8,486) 10,493 (26,831) Preferred stock dividends ................................. 1,075 1,074 3,224 3,224 ------------ -------------- ------------ -------------- NET INCOME (LOSS) FOR COMMON SHAREHOLDERS ................................. $ 4,727 $ (9,560) $ 7,269 $ (30,055) ============ ============== ============ ============== EARNINGS (LOSS) PER COMMON SHARE PRIMARY: Continuing operations (1) .............................. $ 0.41 $ (0.45) $ 0.65 $ (1.45) Discontinued operations ................................ (0.17) (0.04) (0.29) (0.09) ------------ -------------- ------------ -------------- NET INCOME (LOSS) (1) ..................................... $ 0.24 $ (0.49) $ 0.36 $ (1.54) ------------ -------------- ------------ -------------- AVERAGE COMMON SHARES OUTSTANDING (PRIMARY): ................................. 20,048,212 19,508,620 19,708,418 19,512,509 ============ ============== ============ ============== FULLY DILUTED: Continuing operations .................................. $ 0.39 $ (0.45) $ 0.65 $ (1.45) Discontinued operations ................................ (0.14) (0.04) (0.29) (0.09) ------------ -------------- ------------ -------------- NET INCOME (LOSS) ......................................... $ 0.25 $ (0.49) $ 0.36 $ (1.54) AVERAGE COMMON SHARES OUTSTANDING (FULLY DILUTED) (2) ..................................... 23,953,837 19,508,620 19,708,418 19,512,509 ============ ============== ============ ============== CASH DIVIDENDS PAID PER COMMON SHARE ...................... $ 0.00 $ 0.00 $ 0.00 $ 0.01 ============ ============== ============ ==============
(1) Gives consideration to preferred stock dividends of $1.1 million per quarter (2) Assumes conversion of preferred shares into common for three months ended September 30, 1997. Conversion would be anti-dilutive for all other periods presented. 6 7 ARKANSAS BEST CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - --------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30 1997 1996 --------- --------- ($ THOUSANDS) OPERATING ACTIVITIES Net cash provided (used) by operating activities ................ $ 60,946 $ (1,504) INVESTING ACTIVITIES Purchase of property, plant and equipment, less capitalized leases ....................................... (9,448) (22,472) Proceeds from asset sales ....................................... 31,781 49,886 Net proceeds from the sale of Cardinal Freight Carriers, Inc. ... 36,467 -- Net proceeds from the sale of The Complete Logistics Company .... 2,403 -- --------- --------- NET CASH PROVIDED BY INVESTING ACTIVITIES ............................ 61,203 27,414 FINANCING ACTIVITIES Deferred financing costs and expenses ........................... (1,164) (3,512) Borrowings under revolving credit facilities .................... 328,185 203,060 Payments under revolving credit facilities ...................... (392,985) (214,060) Payments on long-term debt ...................................... (12,525) (14,216) Payments under term loan facilities ............................. (42,448) (11,566) Dividends paid .................................................. (3,224) (3,419) Other, net ...................................................... 206 (651) --------- --------- NET CASH USED BY FINANCING ACTIVITIES ................................ (123,955) (44,364) NET DECREASE IN CASH AND CASH EQUIVALENTS ............................ (1,806) (18,454) Cash and cash equivalents at beginning of period ................ 1,806 16,945 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................... $ -- $ (1,509) ========= =========
7 8 ARKANSAS BEST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 1997 - -------------------------------------------------------------------------------- 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 operations, intermodal operations and truck tire retreading and sales. Principal subsidiaries are ABF Freight System, Inc., ("ABF"), Treadco, Inc. ("Treadco"), and Clipper Exxpress Company, CaroTrans International, Inc. ("CaroTrans"), and related companies ("Clipper Worldwide"), G.I. Trucking Company ("G.I. Trucking") and FleetNet America, Inc. (formerly Carolina Breakdown Service, Inc.) and, until July 15, 1997, Cardinal Freight Carriers, Inc. ("Cardinal"). Approximately 81% of ABF's employees are covered under a collective bargaining agreement with the International Brotherhood of Teamsters which expires on March 31, 1998. 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 months and nine months ended September 30, 1997, are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. 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, 1996. Motor carrier revenue equipment gains and losses are reported as operating expenses and costs in 1997. The 1996 Statement of Operations has been reclassified to conform to the 1997 presentation. (See Note F.) The differences between the effective tax rates for the three and nine months ended September 30, 1997, and the federal statutory rate resulted from state income taxes, amortization of goodwill, minority interest, and other nondeductible expenses. In addition, income tax expense for the same periods exceeds the expected amounts because of $3.5 million of taxes attributable to a lower tax basis than accounting basis in Cardinal. The basis difference resulted from goodwill of approximately $9.5 million allocated to Cardinal as a result of purchase accounting for the 1995 WorldWay acquisition, which included Cardinal. NOTE C - DISCONTINUED OPERATIONS As of June 30, 1997 and prior periods since 1995, the Company was engaged in providing logistics services, including warehousing and distribution, through two wholly owned subsidiaries, The Complete Logistics Company ("CLC") and Integrated Distribution Inc. ("IDI"). On August 8, 1997, the Company completed the sale of all of the outstanding shares of CLC for $2.5 million in cash, subject to purchase price adjustments. The sale of CLC resulted in a pre-tax loss of $1.3 million. During September 1997, the Company completed its plan to exit the logistics segment by disposing of IDI. As of September 30, 1997, the Company recorded a loss for the disposal of IDI of $2,200,000, net of tax benefits of $100,000. On October 31, 1997, the Company closed the sale of IDI for proceeds of approximately $600,000, subject to purchase price adjustments. As of September 30, 1997, the net assets of IDI of approximately $255,000 were included in other assets. 8 9 ARKANSAS BEST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued - -------------------------------------------------------------------------------- Results of operations of the logistics segment have been reported as discontinued operations for the quarter ended September 30, 1997 and the statements of operations for all prior periods have been restated to remove revenue and expenses of the logistics segment. Results of the logistics operations segment included in discontinued operations are summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 1997 1996 1997 1996 ------- -------- -------- -------- Revenues ................... $ 5,587 $ 14,007 $ 29,812 $ 41,482 Operating income (loss) .... (476) (1,077) (3,516) (1,882) Pre-tax income (loss) ...... (571) (1,309) (4,005) (2,597)
NOTE D - SALE OF CARDINAL FREIGHT CARRIERS, INC. On July 15, 1997, the Company sold Cardinal for approximately $38 million in cash. The sale resulted in a pre-tax gain of approximately $9 million, subject to adjustments in the purchase price under the terms of the definitive agreement. The net proceeds from the sale of Cardinal were used to pay down bank debt. Results of operations for Cardinal are summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 1997 1996 1997 1996 ---- ------- ------- ------- Revenue .............. $ -- $19,171 $39,366 $55,926 Operating income ..... -- 1,028 2,087 3,900 Net income ........... -- 507 1,027 1,989
NOTE E - INVENTORIES
SEPTEMBER 30 DECEMBER 31 1997 1996 ------- ------- ($ THOUSANDS) Finished goods ...................... $22,650 $24,029 Materials ........................... 5,913 6,267 Repair parts, supplies and other .... 2,968 3,535 ------- ------- $31,531 $33,831 ======= =======
9 10 ARKANSAS BEST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued - -------------------------------------------------------------------------------- NOTE F - OPERATING EXPENSES AND COSTS
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 1997 1996 1997 1996 --------- ----------- ----------- ----------- (UNAUDITED) ($ THOUSANDS) LTL Motor Carrier Operations: Salaries and wages ............................ $ 213,122 $ 210,756 $ 615,339 $ 629,053 Supplies and expenses ......................... 30,714 31,502 90,870 96,724 Operating taxes and licenses .................. 10,781 11,729 31,767 36,831 Insurance ..................................... 6,023 8,018 18,847 21,169 Communications and utilities .................. 7,385 7,292 21,075 22,533 Depreciation and amortization ................. 7,632 9,569 25,098 32,329 Rents and purchased transportation ............ 31,518 25,190 81,252 69,138 Other ......................................... 2,350 3,876 6,147 9,694 Gain on sale of revenue equipment ............. (492) (405) (2,097) (950) --------- ----------- ----------- ----------- 309,033 307,527 888,298 916,521 Truckload Motor Carrier Operations: Salaries and wages ............................ -- 6,975 14,310 19,962 Supplies and expenses ......................... -- 3,440 7,257 9,673 Operating taxes and licenses .................. -- 1,822 3,543 5,392 Insurance ..................................... -- 771 1,677 2,089 Communications and utilities .................. -- 275 589 742 Depreciation and amortization ................. -- 902 1,910 2,663 Rents and purchased transportation ............ -- 3,833 7,741 11,184 Other ......................................... -- 121 275 310 Loss on sale of revenue equipment ............. -- -- 2 -- --------- ----------- ----------- ----------- -- 18,139 37,304 52,015 Intermodal Operations: Cost of services .............................. 39,421 41,254 117,894 111,894 Selling, administrative and general ........... 6,999 7,116 20,975 20,583 Gain on sale of revenue equipment ............. -- (4) -- (16) --------- ----------- ----------- ----------- 46,420 48,366 138,869 132,461 Tire Operations: Cost of sales ................................. 33,383 26,784 87,908 83,182 Selling, administrative and general ........... 12,040 13,400 32,954 27,067 --------- ----------- ----------- ----------- 45,423 40,184 120,862 110,249 Service and other: ............................... 2,766 2,529 7,258 7,305 --------- ----------- ----------- ----------- $ 403,642 $ 416,745 $ 1,192,591 $ 1,218,551 ========= =========== =========== ===========
NOTE G - 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. The Company maintains liability insurance against risks arising out of the normal course of its business, subject to certain self-insured retention limits. 10 11 ARKANSAS BEST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued - -------------------------------------------------------------------------------- The Company's subsidiaries store some fuel for its tractors and trucks in approximately 118 underground tanks located in 30 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 progress, 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 $200,000 over the last six 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, 1997, 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. NOTE H - RECENT ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share, which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for computing primary earnings per share, the dilutive effect of stock options will be excluded. The impact of Statement No. 128 on the calculation of primary earnings per share and fully diluted earnings per share is not expected to be material. In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income. The Statement establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. The Statement is effective for the Company in 1998. The Company does not anticipate that adoption of this Statement will have a material impact on the current presentation of its financial statements. 11 12 ARKANSAS BEST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued - -------------------------------------------------------------------------------- In June 1997, the FASB issued Statement No. 131, Disclosures about Segments of an Enterprise and Related Information. The Statement changes the way public companies report segment information in annual financial statements and also requires those companies to report selected segment information in interim financial reports to shareholders. The proposal superseded FASB Statement No. 14 on segments. The Statement is effective for the Company in 1998. The Company is currently evaluating the impact that the Statement will have on its segment of business reporting. 12 13 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, freight intermodal operations, truck tire retreading and new tire sales. Principal subsidiaries owned are ABF Freight System, Inc. ("ABF"), Treadco, Inc. ("Treadco"), and Clipper Exxpress Company and affiliates ("Clipper Group") and including CaroTrans International, Inc. ("CaroTrans"), ("Clipper Worldwide"), and G.I. Trucking Company ("G.I. Trucking") and FleetNet America, Inc., formerly Carolina Breakdown Service, Inc. and, until July 15, 1997, Cardinal Freight Carriers, Inc. ("Cardinal"). 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. OPERATING RESULTS The discussion and analysis of results of operations reflects information generally prepared on a business segment basis with motor carrier operations further separated between LTL and truckload, based on the primary business of the subsidiary. LTL subsidiaries also handle some truckload freight. Operating expenses include the 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, have been allocated to individual segments for the purpose of calculating operating profit on a segment basis. 13 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued - -------------------------------------------------------------------------------- During 1996, the Company changed the name of its forwarding operations segment to the intermodal operations segment.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 1997 1996 1997 1996 --------- --------- ----------- ----------- OPERATING REVENUES LTL motor carrier operations .......... $ 328,767 $ 305,926 $ 936,791 $ 899,735 Truckload motor carrier operations .... -- 19,171 39,366 55,926 Intermodal operations ................. 47,585 47,552 141,003 134,319 Tire operations ....................... 46,169 39,488 119,277 106,606 Service and other ..................... 2,768 2,369 7,145 6,281 --------- --------- ----------- ----------- $ 425,289 414,506 $ 1,243,582 $ 1,202,867 --------- --------- ----------- ----------- OPERATING PROFIT (LOSS) LTL motor carrier operations .......... $ 16,594 $ 538 $ 42,070 $ (15,914) Truckload motor carrier operations .... -- 1,031 2,060 3,908 Intermodal operations ................. 627 (1,298) 720 558 Tire operations ....................... 853 228 (1,693) (2,862) Service and other ..................... (915) (4,005) (1,568) (3,195) --------- --------- ----------- ----------- TOTAL OPERATING PROFIT (LOSS) ............ 17,159 (3,506) 41,589 (17,505) GAIN ON SALE OF CARDINAL FREIGHT CARRIERS, INC ......................... 8,985 -- 8,985 -- INTEREST EXPENSE ......................... (5,260) (7,656) (19,100) (22,495) MINORITY INTEREST ........................ (228) (82) 826 1,045 --------- --------- ----------- ----------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES ........ $ 20,656 $ (11,244) $ 32,300 $ (38,955) ========= ========= =========== ===========
The following table sets forth for the periods indicated a summary of the Company's operations as a percentage of revenues with other income and expenses allocated on a business segment basis. 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 ("D.O.T."). 14 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued - --------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 1997 1996 1997 1996 ---- ---- ---- ---- LTL MOTOR CARRIER OPERATIONS Salaries and wages ..................... 64.8% 68.9% 65.7% 69.9% Supplies and expenses .................. 9.3 10.3 9.7 10.8 Operating taxes and licenses ........... 3.3 3.8 3.4 4.1 Insurance .............................. 1.8 2.6 2.0 2.4 Communications and utilities ........... 2.2 2.4 2.2 2.5 Depreciation and amortization .......... 2.3 3.1 2.7 3.6 Rents and purchased transportation ..... 9.6 8.2 8.7 7.7 Other .................................. 0.7 1.3 0.7 1.1 Gain on sale of revenue equipment ...... (0.1) (0.1) (0.2) (0.1) Other non-operating (net) .............. 1.0 (0.7) 0.7 (0.1) ---- ----- ----- ----- 94.9% 99.8% 95.6% 101.9% ==== ===== ===== ===== TRUCKLOAD MOTOR CARRIER OPERATIONS Salaries and wages ..................... -- 36.4% 36.4% 35.7% Supplies and expenses .................. -- 17.9 18.4 17.3 Operating taxes and licenses ........... -- 9.5 9.0 9.6 Insurance .............................. -- 4.0 4.3 3.7 Communications and utilities ........... -- 1.4 1.5 1.3 Depreciation and amortization .......... -- 4.7 4.9 4.8 Rents and purchased transportation ..... -- 20.0 19.7 20.0 Other .................................. -- 0.6 0.7 0.6 ---- ----- ----- ----- -- 94.5% 94.9% 93.0% ==== ===== ===== ===== INTERMODAL OPERATIONS Cost of services ....................... 82.8% 86.8% 83.6% 83.3% Selling, administrative and general .... 14.7 15.0 14.9 15.3 Gain on sale of revenue equipment ...... -- -- -- -- Other non-operating (net) .............. 1.1 1.0 1.0 1.0 ---- ----- ----- ----- 98.6% 102.8% 99.5% 99.6% ==== ===== ===== ===== TIRE OPERATIONS Cost of sales .......................... 72.3% 67.8% 73.7% 78.0% Selling, administrative and general .... 26.1 33.9 27.6 25.4 Other non-operating (net) .............. (0.2) (2.3) 0.1 (0.7) ---- ----- ----- ----- 98.2% 99.4% 101.4% 102.7% ==== ===== ===== =====
RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1996 Consolidated revenues from continuing operations of the Company for the three months ended September 30, 1997 were $425 million compared to $415 million for the three months ended September 30, 1996. The Company had an operating profit (segment basis) from continuing operations 15 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued - -------------------------------------------------------------------------------- of $26.1 million for the three months ended September 30, 1997 compared to an operating loss from continuing operations of $3.5 million for the three months ended September 30, 1996. The Company had income from continuing operations of $9.3 million, or $0.41 per share ($0.39 fully diluted), for the third quarter of 1997 compared to a loss from continuing operations of $7.7 million, or $0.45 cents per share, for the third quarter of 1996. The Company had net income of $5.8 million, or $.24 per common share, compared to a net loss of $8.5 million, or a loss of $.49 per common share, for the three months ended September 30, 1996. Earnings per common share from continuing operations for the three months ended September 30, 1997 assumes conversion of preferred stock to common shares for earnings per share. Average common shares outstanding for the three months ended September 30, 1997 were 20.0 million (24.0 million fully diluted) compared to 19.5 million for the three months ended September 30, 1996. Outstanding shares for the third quarter of 1996 do not assume conversion of preferred stock to common shares because conversion would be anti-dilutive. MOTOR CARRIER OPERATIONS. Less-Than-Truckload Motor Carrier Operations. The Company's LTL motor carrier operations are conducted by ABF and G.I. Trucking. Revenues from LTL motor carrier operations for the three months ended September 30, 1997 were $329 million, with an operating profit of $16.6 million compared to revenues of $306 million and an operating profit of $0.5 million for the three months ended September 30, 1996. For the three months ended September 30, 1997, ABF accounted for 91% of LTL revenues. ABF's revenue increased 6.3% for the three months ended September 30, 1997 compared to the same period in 1996, reflecting a 2% increase in revenue from the UPS work stoppage and a continuing favorable pricing environment. ABF's revenue per hundredweight increased to $17.51 for the three months ended September 30, 1997, a 7.7% increase from the third quarter of 1996. This increase was offset by a slight decrease in tonnage resulting from ABF's emphasis on account profitability. ABF's 1997 third quarter tonnage per day decreased 1.5% from the 1996 third quarter. The LTL revenue increase for the three months ended September 30, 1997 can also be attributed to G.I. Trucking's revenue increasing 25.3% over the three months ended September 30, 1996. G.I. Trucking has continued to replace revenues lost as a result of the ABF/Carolina Freight Carriers merger in September 1995. The UPS stoppage accounted for 8% of G.I. Trucking's increased revenue. G.I.Trucking's revenue per hundredweight increased to $10.54 for the third quarter 1997, a 5% increase from the third quarter of 1996. G.I. Trucking's tonnage increased 19.2% for the three months ended September 30, 1997 from the same period in 1996. G.I.'s Trucking's operating ratio as reported to the D.O.T. was 96.9% for the third quarter of 1997 compared to 107.3% for the third quarter of 1996. During 1996, ABF discontinued 12 of the regional distribution terminal operations that it had acquired through the ABF/Carolina merger. These closings, which occurred during the first two quarters of 1996, returned ABF to its historical terminal system configuration. This reconfiguration allowed ABF to gradually reduce its direct labor costs, improve its weight per trailer and reduce its empty miles. ABF's operating 16 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued - -------------------------------------------------------------------------------- ratio as reported to the D.O.T. was 93.2% in the third quarter of 1997 compared to 99.7% in the third quarter of 1996. The decrease in salaries and wages as a percent of revenue was the result of productivity improvements by both ABF and G.I. Trucking. ABF's salaries, wages and benefits increased 3.8% annually effective April 1, 1996, pursuant to a collective bargaining agreement with its Teamsters employees. Effective April 1, 1997, for the final year of the Teamsters' agreement, ABF's salaries, wages and benefits increased 3.9%. The decrease in operating supplies and expenses as a percent of revenue from the third quarter of 1996 to the third quarter of 1997 results from reduced fuel prices and savings from fuel economy, fleetwide. In addition, the disposal of revenue equipment to balance equipment needs to revenue levels throughout 1996 also resulted in decreased operating supplies and expenses, decreased operating taxes and licenses and decreased depreciation and amortization. A decrease in depreciation and amortization also resulted from ABF's reconfiguration of its terminal system which allowed for improved asset utilization. Also, ABF increased its use of leased revenue equipment and outside alternate modes of transportation as reflected in the increase in rents and purchased transportation as a percent of revenue. Insurance expense for ABF decreased as a percentage of revenue for the third quarter of 1997 as compared to the third quarter of 1996, reflecting better loss experience for loss and damage claims as well as better loss experience for bodily injury and property damage claims. Truckload Motor Carrier Operations. The Company's truckload motor carrier operations are conducted through Cardinal. On July 15, 1997, the Company announced the completion of the sale of Cardinal. See Note D to the unaudited consolidated financial statements. INTERMODAL OPERATIONS. The Company's intermodal operations are conducted primarily by Clipper Worldwide. Revenues from the intermodal operations for the three months ended September 30, 1997 totalled $47.6 million, an increase of 0.07% over the three months ended September 30, 1996, resulting from a 4.2% increase in revenues for the Clipper Group and a 10.0% decrease in revenues for CaroTrans. Throughout 1996, the Clipper Group experienced an increase in average weight per shipment, resulting in a decline in revenue per hundredweight without a proportionate reduction in cost per hundredweight, resulting in a decline in margins on higher revenues. During 1997, the Clipper Group has focused on smaller shipment sizes to improve margins. Average weight per shipment for the third quarter of 1997 was down 11.9% from the third quarter of 1996. During the quarter, the Clipper Group improved yields and decreased costs per shipment. Effective January 1, 1997, the Clipper Group implemented a 5.9% rate increase to help offset the reduction in revenue per hundredweight. 17 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued - -------------------------------------------------------------------------------- CaroTrans expanded into some higher cost markets during 1996 and also experienced a shift in market mix to more full-container-load freight. Also, ocean container costs increased. CaroTrans recorded a charge in the third quarter of 1997 for $400,000 for the estimated cost of the consolidation of administrative offices and some sales locations with the Clipper Group. Each of these factors negatively impacted operating results for the quarter. The consolidation of administrative office and sales locations should increase the efficiency of Clipper Worldwide in the future. The decline in CaroTrans revenue was expected due to actions taken in late 1996 and early 1997 to enhance profitability. TIRE OPERATIONS. Treadco's revenues for the three months ended September 30, 1997 increased 16.9% to $46.1 million from $39.5 million for the three months ended September 30, 1996. For the third quarter of 1997, "same store" sales increased 11.9% and "new store" sales increased 4.7%. "Same store" sales include both production locations and sales locations that have been in existence for the entire periods presented. "New store" sales resulted from one new production facility and three new sales locations. Revenues from retreading for the three months ended September 30, 1997 increased 17.0% when compared to the same period in 1996. Revenues from new tire sales increased 13.9% for the third quarter 1997 when compared to the same period in 1996. Service revenues for the 1997 third quarter increased 30.8%. During September 1996, Treadco completed the conversion of its production facilities that were under Bandag retread franchises to Oliver Rubber Company ("Oliver") licensed facilities. The conversion was completed in phases throughout the first three quarters of 1996, with approximately one-third of its production facilities converted each quarter. Treadco faces increased competition as Bandag, Inc. has granted additional franchises in some locations currently being served by Treadco. This has led to increased pricing pressures in the marketplace. As anticipated, Bandag continues to target Treadco's customers, which has caused the loss of a substantial amount of national account business, and in many cases, the business retained is at lower margins. The decrease in cost of sales as a percent of revenue resulted primarily from lower tread rubber costs with Oliver and lower new-tire costs. The increase in selling, administrative, and general expenses resulted from several factors, including expenses related to employee insurance costs and bad debt expenses. INTEREST. Interest expense was $5.2 million for three months ended September 30, 1997 compared to $7.7 million for three months ended September 30, 1996 primarily due to a reduction of outstanding debt, although lower interest rates also impacted interest cost. INCOME TAXES. The difference between the effective tax rate for 1997 and the federal statutory rate resulted from state income taxes, amortization of goodwill, minority interest, and other nondeductible expenses. In addition, income tax expense for the third quarter of 1997 exceeds the expected amount because of $3.5 million of taxes attributable to a lower tax basis than accounting basis in Cardinal. The basis difference resulted from goodwill of approximately $9.5 million allocated to Cardinal as a result of purchase accounting for the 1995 WorldWay acquisition, which included Cardinal. 18 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued - -------------------------------------------------------------------------------- NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 Consolidated revenues from continuing operations of the Company for the nine months ended September 30, 1997 were $1,244 million compared to $1,203 million for the nine months ended September 30, 1996. The Company had an operating profit from continuing operations of $50.6 million (segment basis) for the nine months ended September 30, 1997 compared to an operating loss from continuing operations of $17.5 million for the nine months ended September 30, 1996. For the nine months ended September 30, 1997, the Company had income from continuing operations of $16.1 million or $0.65 per share, compared to a loss from continuing operations of $25.2 million, or $1.45 per share for the nine months ended September 30, 1996. The Company had net income of $10.5 million, or $.36 per common share, compared to a net loss of $26.8 million, or a loss of $1.54 per common share, for the nine months ended September 30, 1996. Earnings per common share for the nine months ended September 30, 1997 and 1996 give consideration to preferred stock dividends of $3.3 million. Average common shares outstanding for the nine months ended September 30, 1997 and September 30, 1996 were 19.7 and 19.5 million, respectively. Outstanding shares for each period do not assume conversion of preferred stock to common shares, because conversion would be anti-dilutive for these periods. MOTOR CARRIER OPERATIONS. Less-Than-Truckload Motor Carrier Operations. The Company's LTL motor carrier operations are conducted by ABF and G.I. Trucking. Revenues from the LTL motor carrier operations segment for the nine months ended September 30, 1997 were $937 million, with an operating profit (segment basis) of $42.1 million compared to $900 million of revenue and an operating loss of $15.9 million for the nine months ended September 30, 1996. For the nine months ended September 30, 1997, ABF accounted for 91% of LTL revenues. ABF's revenue increased 2.4% for the nine months ended September 30, 1997 compared to the same period in 1996. ABF's revenue per hundredweight increased to $17.28 for the nine months ended September 30, 1997, a 7.3% increase from the first nine months of 1996. This increase was offset by a decrease in tonnage resulting from ABF's emphasis on account profitability. ABF's 1997 tonnage per day for the nine months ended September 30, 1997 decreased 5.0% from the same period in 1996. The LTL revenue increase for the nine months ended September 30, 1997 can also be attributed to G.I. Trucking's revenue increasing 30.2% over the nine months ended September 30, 1996. G.I. Trucking has continued to replace revenues lost as a result of the ABF/Carolina Freight Carriers merger in September 1995. The UPS stoppage accounted for an estimated 2.5% of G.I.Trucking's increased revenues. G.I.Trucking's revenue per hundredweight increased to $10.41, a 2.4% increase from the nine months of 1996. G.I.Trucking's tonnage increased 27.1% for the nine months ended September 30, 1997 from the same period in 1996. G.I. Trucking's operating ratio as reported to the D.O.T. was 99.1% for the nine months ended September 30, 1997 compared to 109.6% for the nine months ended September 30, 1996. 19 20 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued - -------------------------------------------------------------------------------- During 1996, ABF discontinued 12 of the regional distribution terminal operations that it had acquired through the ABF/Carolina merger. These closings, which occurred during the first two quarters of 1996, returned ABF to its historical terminal system configuration. This reconfiguration allowed ABF to gradually reduce its direct labor costs, improve its weight per trailer and reduce its empty miles. ABF's operating ratio as reported to the D.O.T. was 94.3% for the nine months ended September 30, 1997 compared to 101.3% for the same period in 1996. The decrease in salaries and wages as a percent of revenue was the result of productivity improvements by both ABF and G.I. Trucking. ABF's salaries, wages and benefits increased 3.8% annually effective April 1, 1996, pursuant to a collective bargaining agreement with its Teamsters employees. Effective April 1, 1997, for the final year of the Teamsters' agreement, ABF's salaries, wages and benefits increased 3.9%. The decrease in operating supplies and expenses as a percent of revenue from the third quarter of 1996 to the third quarter of 1997 was due in part to fewer miles traveled by company-owned revenue equipment which resulted in decreased maintenance and fuel expenses. Decreases in fuel prices and better fuel economy fleetwide also decreased operating supplies and expenses. In addition, the disposal of revenue equipment to balance equipment needs to revenue levels throughout 1996 also resulted in decreased operating supplies and expenses, decreased operating taxes and licenses and decreased depreciation and amortization. A decrease in depreciation and amortization also resulted from ABF's reconfiguration of its terminal system which allowed for improved asset utilization. Also, ABF increased its use of leased revenue equipment and outside alternate modes of transportation as reflected in the increase in rents and purchased transportation as a percent of revenue. Truckload Motor Carrier Operations. The Company's truckload motor carrier operations are conducted through Cardinal. On July 15, 1997 the Company announced the completion of the sale of Cardinal. See Note D of the unaudited consolidated financial statements. INTERMODAL OPERATIONS. The Company's intermodal operations are conducted primarily through Clipper Worldwide. Revenues from the intermodal operations segment for the nine months ended September 30, 1997 increased 4.9% over the nine months ended September 30, 1996, resulting from an 8.5% increase in revenues for the Clipper Group and a 3.7% decrease in revenues for CaroTrans. Throughout 1996, the Clipper Group experienced an increase in average weight per shipment, resulting in a decline in revenue per hundredweight without a proportionate reduction in cost per hundredweight, resulting in a decline in margins on higher revenues. The Clipper Group has focused on smaller shipment sizes to improve the margins. During the nine months of 1997, the Clipper Group improved yields and decreased costs per shipment when compared to the nine months of 1996. Effective January 1, 1997, the Clipper Group implemented a 5.9% rate increase to help offset the reduction in revenue per hundredweight. 20 21 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued - -------------------------------------------------------------------------------- CaroTrans expanded into some higher cost markets during 1996 and also experienced a shift in market mix to more full-container-load freight. Also, ocean container costs increased. CaroTrans recorded a charge of $400,000 in 1997 relating to the consolidation of administrative offices and some sales locations with the Clipper Group. Each of these factors negatively impacted operating results. The consolidation of administrative office and some sales locations should increase the efficiency of Clipper Worldwide in the future. The decline in revenue for CaroTrans was expected due to actions taken in late 1996 and early 1997 to enhance profitability. TIRE OPERATIONS. Treadco's revenues for the nine months ended September 30, 1997 increased 11.9% to $119.2 million from $106.6 million for the nine months ended September 30, 1996. For the first nine months of 1997, "same store" sales increased 5.0% and "new store" sales increased 6.8%. "Same store" sales include both production locations and sales locations that have been in existence for the entire periods presented. "New store" sales resulted from one new production facility and three new sales locations. Revenues from retreading for the nine months ended September 30, 1997 increased 7.2% when compared to the same period in 1996. Revenues from new tire sales increased 13.4% for the nine months ended September 30, 1997 when compared to the nine months ended September 30, 1996. Service revenues for the first nine months of 1997 increased 25.3%. During September 1996, Treadco completed the conversion of its production facilities that were under Bandag retread franchises to Oliver Rubber Company ("Oliver") licensed facilities. The conversion was completed in phases throughout the first three quarters of 1996, with approximately one-third of its production facilities converted each quarter. Treadco faces increased competition as Bandag, Inc. has granted additional franchises in some locations currently being served by Treadco. This has led to increased pricing pressures in the marketplace. As anticipated, Bandag continues to target Treadco's customers, which has caused the loss of a substantial amount of national account business, and in many cases, the business retained is at lower margins. The decrease in cost of sales as a percent of revenue resulted primarily from lower tread rubber costs with Oliver. The increase in selling, administrative, and general expenses resulted from several factors, including salaries and wage expense increases for employees added for new locations, cost-of-living raises, and employee insurance costs and bad debt expense. INTEREST. Interest expense was $19.1 million for nine months ended September 30, 1997 compared to $22.5 million for nine months ended September 30, 1996 primarily due to a reduction of outstanding debt. INCOME TAXES. The difference between the effective tax rate for 1997 and the federal statutory rate resulted from state income taxes, amortization of goodwill, minority interest, and other nondeductible expenses. In addition, income tax expense for the third quarter of 1997 exceeds the expected amount because of $3.5 million of taxes attributable to a lower tax basis than accounting basis in Cardinal. The basis difference resulted from goodwill of approximately $9.5 million allocated to Cardinal as a result of purchase accounting for the 1995 WorldWay acquisition, which included Cardinal. 21 22 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued - -------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities for the nine months ended September 30, 1997 was $60.9 million compared to net cash used of $1.5 million for the nine months ended September 30, 1996. The increase is due primarily to the improvement in operating results and net income for 1997. In addition to cash provided by operations, sale of excess property and equipment provided cash of $31.7 million and the sale of Cardinal Freight and Complete Logistics provided cash of $38.9 million for the nine months ended September 30, 1997. The Company is party to a $347 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 14 other participating banks. The Credit Agreement originally included a $72 million term loan and provides for up to $275 million of revolving credit loans (including letters of credit). At September 30, 1997, there were $128.1 million of Revolver Advances and approximately $46.0 million of letters of credit outstanding. Net proceeds from the Cardinal sale of approximately $35 million were used to pay the term loan in full on July 15, 1997, with the remaining proceeds paid on the Revolver Advances. Net proceeds of $2.5 million from the Complete Logistics sale were used to pay on the Revolver Advances on August 8, 1997. The Credit Agreement contains various covenants which limit, among other things, indebtedness, distributions, capital expenditures, asset sales, restricted payments, investments, loans and advances, as well as requiring the Company to meet certain financial tests. On January 31, 1997, the Company obtained a first amendment to the Credit Agreement which included revised financial covenants with which the Company was in compliance. The Credit Agreement had previously been amended in February 1996, including a revision of financial covenants. As a part of the February 1996 amendment, the Company obtained an additional credit agreement which provided for borrowings of up to $30 million. In connection with the January 1997 amendment, the available borrowings were reduced to $15 million. The additional credit agreement was terminated by the Company on June 30, 1997. At September 30, 1997, the Company had approximately $101 million of availability under the Credit Agreement. Concurrent with the closing of the sale of Cardinal on July 15, 1997, the Company and its banks agreed to a second amendment to the Credit Agreement, the primary effect of which was to extend the maturity from August 1998 to August 1999. Treadco is a party to a revolving credit facility with Societe Generale (the "Treadco Credit Agreement"), providing for borrowings up to $20 million. 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. The Treadco Credit Agreement was amended and restated on September 30, 1997, primarily to extend the termination date, to revise certain financial covenants and to revise Treadco's interest rate on advances. 22 23 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued - -------------------------------------------------------------------------------- Management believes, based upon the Company's current levels of operations and anticipated growth, the Company's cash, capital resources, borrowings available under the Credit Agreement and cash flow from operations will be sufficient to finance current and future operations and meet all scheduled debt service requirements. SEASONALITY Motor carrier operations 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. Intermodal 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 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 the Company'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. 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 against risks in excess of retention levels arising out of the normal course of its business (see Note G 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. Exhibit 27 - Financial Data Schedule. (b) REPORTS ON FORM 8-K. Form 8-K dated August 1, 1997 Item 5. On July 15, 1997, Arkansas Best Corporation's (the "Company's") existing $346,971,312 Amended and Restated Credit Agreement with Societe Generale, Southwest Agency as Managing Agent and Administrative Agent, NationsBank of Texas, N.A., as Documentation Agent, and certain other banks was amended. 24 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. ARKANSAS BEST CORPORATION (Registrant) Date: November 8, 1997 s/ David E. Loeffler -------------------------------- David E. Loeffler Vice President-Treasurer, Chief Financial Officer and Principal Accounting Officer 25 26 EXHIBIT INDEX ARKANSAS BEST CORPORATION The following exhibits are filed with this report. EXHIBIT NO. 11 Statement Re: Computation of Earnings per Share 27 Financial Data Schedule EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE ARKANSAS BEST CORPORATION
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 1997 1996 1997 1996 ------------ ------------ ------------ ------------ ($ THOUSANDS, EXCEPT PER SHARE DATA) PRIMARY: Average shares outstanding ..................... 19,556,633 19,508,620 19,521,860 19,512,509 Net effect of dilutive stock options - Based on the treasury stock method using average market price ................. 491,579 -- 186,558 -- ------------ ------------ ------------ ------------ Average common shares outstanding .............. 20,048,212 19,508,620 19,708,418 19,512,509 ============ ============ ============ ============ Income (loss) from continuing operations ....... 9,258 (7,655) 16,115 (25,162) Discontinued operations (loss) ................. (3,456) (831) (5,622) (1,669) ------------ ------------ ------------ ------------ Net income (loss) .............................. $ 5,802 $ (8,486) $ 10,493 $ (26,831) Less: Preferred stock dividends ................ 1,075 1,074 3,224 3,224 ------------ ------------ ------------ ------------ Net income (loss) applicable to common shareholders ....................... $ 4,727 $ (9,560) $ 7,269 $ (30,055) ============ ============ ============ ============ Per common and common equivalent share: Income (loss) from continuing operations Per common share .......................... $ .41 $ (.45) $ .65 $ (1.45) Discontinued operations (loss) per common Share ..................................... (.17) (.04) (.29) (.09) ------------ ------------ ------------ ------------ Net income (loss) per common share ........... $ . 24 $ (0.49) $ .36 $ (1.54) ============ ============ ============ ============ FULLY DILUTED: Average shares outstanding ..................... 19,556,633 19,508,620 19,521,860 19,514,453 Net effect of dilutive stock options - Based on the treasury stock method using closing market price ................. 600,352 -- 600,352 -- Conversion of preferred stock (1) .............. 3,796,852 ------------ ------------ ------------ ------------ Average common shares outstanding .............. 23,953,837 19,508,620 19,708,418 19,512,509 ============ ============ ============ ============ Income (loss) from continuing operations ....... 9,258 (7,655) 16,115 (25,162) Discontinued operations (loss) ................. (3,456) (831) (5,622) (1,669) Net income (loss) .............................. $ 5,802 $ (8,486) $ 10,493 $ (26,831) Less: Preferred stock dividends ................ -- 1,074 3,224 3,224 ------------ ------------ ------------ ------------ Net income (loss) applicable to common shareholders (1) ................... $ 5,802 $ (9,560) $ 7,269 $ (30,055) ============ ============ ============ ============ Per common and common equivalent share: Income (loss) from continuing operations Per common share .......................... $ .39 $ (.45) $ .65 $ (1.45) Discontinued operations (loss) per common Share ..................................... (.14) (.04) (.29) (.09) ------------ ------------ ------------ ------------ Per common and common equivalent share: Net income (loss) per common share ........... $ .25 $ (0.49) $ .36 $ (1.54) ============ ============ ============ ============
(1) Net income applicable to common shareholders for the third quarter of 1997 in the fully diluted calculation includes preferred dividends due to the assumed conversion. Conversion of outstanding preferred stock into common would be anti-dilutive for all other periods presented. EX-27 3 FINANCIAL DATA SCHEDULE
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, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1997 SEP-30-1997 0 0 195,640 5,481 31,531 263,863 510,871 218,207 744,232 283,236 223,859 0 15 196 145,025 744,232 119,277 1,243,582 87,908 1,192,591 0 833 19,100 32,300 16,185 16,115 (5,622) 0 0 10,493 .36 .36
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