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, 1994
----------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission file number 0-19969
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ARKANSAS BEST CORPORATION
- - -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 6711 71-0673405
- - ------------------------- ------------------------- ----------------------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code No.)
organization)
1000 South 21st Street
Fort Smith, Arkansas 72901
(501) 785-6000
- - -----------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code, of
the registrant's principal executive offices)
Not Applicable
- - -----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of The Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 29, 1994
--------------------------------- --------------------------------
Common Stock, $.01 par value 19,200,077 shares
ARKANSAS BEST CORPORATION
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -- June 30, 1994
and December 31, 1993 3
Consolidated Statements of Operations -- For the
Three and Six Months Ended June 30, 1994 and 1993 5
Consolidated Statements of Cash Flows --
For the Six Months Ended
June 30, 1994 and 1993 7
Notes to Consolidated Financial Statements --
June 30, 1994 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30 December 31
1994 1993
(unaudited) (note)
($ thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 17,610 $ 6,962
Trade receivables, less allowances for
doubtful accounts (1994 -- $2,551,000;
1993 -- $2,220,000) 109,821 104,598
Inventories -- Note C 28,318 29,086
Prepaid expenses 9,487 9,916
--------- ---------
TOTAL CURRENT ASSETS 165,236 150,562
PROPERTY, PLANT AND EQUIPMENT
Land and structures 108,939 108,422
Revenue equipment 180,376 169,573
Manufacturing equipment 6,179 5,997
Service, office and other equipment 35,927 33,913
Leasehold improvements 8,592 8,096
Construction in progress 5,461 -
--------- ---------
345,474 326,001
Less allowances for depreciation
and amortization (152,398) (147,799)
--------- ---------
193,076 178,202
OTHER ASSETS 12,111 12,839
GOODWILL, less amortization (1994 --
$17,825,000; 1993 -- $16,267,000) 104,593 106,130
--------- ---------
$ 475,016 $ 447,733
========= =========
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30 December 31
1994 1993
(unaudited) (note)
($ thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank drafts payable $ 6,449 $ 7,661
Trade accounts payable 42,361 36,143
Accrued expenses 83,600 71,278
Federal and state income taxes 6,205 6,398
Deferred federal income taxes 3,503 3,503
Current portion of long-term debt 12,438 15,239
--------- ---------
TOTAL CURRENT LIABILITIES 154,556 140,222
LONG-TERM DEBT, less current portion 57,024 43,731
OTHER LIABILITIES 4,173 3,933
DEFERRED FEDERAL INCOME TAXES 24,798 26,158
MINORITY INTEREST 32,842 31,699
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value,
authorized 10,000,000 shares; issued
1,495,000 shares 15 15
Common stock, $.01 par value, authorized
70,000,000 shares; issued and outstanding
1994: 19,200,077 shares; 1993:
19,185,325 shares 192 192
Additional paid-in capital 206,661 206,457
Stock payable to employee benefit plans - 205
Predecessor basis adjustment (15,371) (15,371)
Retained earnings 10,126 10,492
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 201,623 201,990
CONTINGENCIES -- Note F
--------- ---------
$ 475,016 $ 447,733
========= =========
<FN>
<F1>
Note: The balance sheet at December 31, 1993 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
<F2>
See notes to consolidated financial statements.
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
(unaudited)
($ thousands, except per share data)
OPERATING REVENUES
Carrier operations $ 173,805 $ 217,212 $ 408,131 $ 424,265
Tire operations 35,609 26,178 65,014 47,145
Service and other 1,346 1,232 2,596 2,422
--------- --------- --------- ---------
210,760 244,622 475,741 473,832
OPERATING EXPENSES AND
COSTS -Note E
Carrier operations 178,011 208,962 401,274 409,596
Tire operations 32,696 23,932 60,277 43,338
Service and other 1,624 1,349 3,143 2,724
--------- --------- --------- ---------
212,331 234,243 464,694 455,658
--------- --------- --------- ---------
OPERATING INCOME (LOSS) (1,571) 10,379 11,047 18,174
OTHER INCOME
Gain on asset sales 850 1,127 1,168 1,379
Other 380 129 528 243
--------- --------- --------- ---------
1,230 1,256 1,696 1,622
OTHER EXPENSES
Interest 1,785 1,718 3,129 4,051
Other 1,011 906 2,025 1,804
Minority interest in
subsidiary 917 701 1,407 1,170
--------- --------- --------- ---------
3,713 3,325 6,561 7,025
--------- --------- --------- ---------
INCOME (LOSS) BEFORE
INCOME TAXES AND
EXTRAORDINARY ITEM (4,054) 8,310 6,182 12,771
FEDERAL AND STATE INCOME
TAXES (CREDIT) - Note D
Current (468) 4,409 5,375 8,236
Deferred (178) (530) (1,360) (2,058)
--------- --------- --------- ---------
(646) 3,879 4,015 6,178
--------- --------- --------- ---------
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
(unaudited)
($ thousands, except per share data)
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM $ (3,408) $ 4,431 $ 2,167 $ 6,593
EXTRAORDINARY ITEM:
Loss on extinguishments
of debt - (162) - (329)
--------- --------- --------- ---------
NET INCOME (LOSS) $ (3,408) $ 4,269 $ 2,167 $ 6,264
========= ========= ========= =========
EARNINGS (LOSS) PER
COMMON SHARE:
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM $ (0.23) $ 0.18 $ - $ 0.25
EXTRAORDINARY ITEM:
Loss on extinguishments
of debt - (0.01) - (0.01)
--------- --------- --------- ---------
NET INCOME (LOSS) $ (0.23) $ 0.17 $ - $ 0.24
========= ========= ========= =========
CASH DIVIDENDS PAID PER
COMMON SHARE $ 0.01 $ 0.01 $ 0.02 $ 0.02
========= ========= ========= =========
AVERAGE COMMON SHARES
OUTSTANDING 19,200,077 19,127,064 19,304,649 19,160,830
========== ========== ========== ==========
<FN>
See notes to consolidated financial statements.
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30
1994 1993
(unaudited)
($ thousands)
OPERATING ACTIVITIES
Net income $ 2,167 $ 6,264
Adjustments to reconcile net income
to net cash provided (used)
by operating activities:
Loss on extinguishments of debt - 329
Depreciation and amortization 13,113 14,777
Amortization of intangibles 1,558 1,520
Amortization of other expenses 226 123
Contribution of common stock to
employee benefit plans - 210
Provision for losses on
accounts receivable 1,902 1,210
Provision for deferred
income taxes (1,360) (2,058)
Gain on asset sales (1,168) (1,379)
Gain on issuance of
subsidiary stock (45) (22)
Minority interest in
subsidiary 1,407 1,170
Changes in operating
assets and liabilities:
Accounts receivable (7,125) (6,360)
Inventories and
prepaid expenses 1,197 (2,297)
Other assets 647 972
Accounts payable, bank
drafts payable, taxes
payable, accrued expenses
and other liabilities 17,374 6,223
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 29,893 20,682
INVESTING ACTIVITIES
Purchases of property,
plant and equipment,
less capitalized leases (27,040) (7,829)
Proceeds from asset sales 5,421 7,026
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (21,619) (803)
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Six Months Ended
June 30
1994 1993
(unaudited)
($ thousands)
FINANCING ACTIVITIES
Deferred financing costs
and expenses incurred in
borrowing activities $ (144) $ (47)
Net proceeds from the
issuance of preferred stock - 71,893
Proceeds from term loan facility 20,000 -
Proceeds from commercial paper
agreement 1,000 -
Borrowings under revolving
credit facilities 27,000 15,000
Principal payments under
term loan facility - (50,000)
Payments under revolving
credit facilities (31,000) (30,000)
Principal payments on
other long-term debt (11,730) (15,862)
Payments to retire 14% senior
subordinated notes - (2,175)
Dividends paid to minority
shareholders of subsidiary (219) (215)
Dividends paid (2,533) (382)
--------- ---------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 2,374 (11,788)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 10,648 8,091
Cash and cash equivalents
at beginning of period 6,962 5,644
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17,610 $ 13,735
========= =========
<FN>
See notes to consolidated financial statements.
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1994
NOTE A -- ORGANIZATION
Arkansas Best Corporation (the "Company") is a diversified holding company
engaged through its subsidiaries primarily in motor carrier operations and
truck tire retreading and sales. Principal subsidiaries owned are ABF
Freight System, Inc., ("ABF"), Treadco, Inc. ("TREADCO"), and ABC Treadco,
Inc. ("ABC Treadco").
In February 1993, the Company completed its public offering of 1,495,000
shares of $2.875 Series A Cumulative Convertible Exchangeable Preferred Stock
at $50 per share.
NOTE B -- FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three and six months ended June 30, 1994, are not necessarily indicative
of the results that may be expected for the year ending December 31, 1994.
For further information, refer to the Company's financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1993.
NOTE C -- INVENTORIES
June 30 December 31
1994 1993
($ thousands)
Finished goods $ 20,554 $ 20,240
Materials 5,786 6,784
Repair parts, supplies and other 1,978 2,062
-------- --------
$ 28,318 $ 29,086
======== ========
NOTE D -- FEDERAL AND STATE INCOME TAXES
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
($ thousands)
Income tax at regular rates $(1,419) $ 2,825 $ 2,164 $ 4,342
Percent (35.0)% 34.0% 35.0% 34.0%
State taxes less federal benefits (54) 482 542 863
Percent (1.3)% 5.8% 8.8% 6.8%
Amortization of goodwill 266 251 531 502
Percent 6.6% 3.0% 8.6% 3.9%
Minority interest 312 238 479 397
Percent 7.7% 2.9% 7.8% 3.1%
Other items 249 83 299 74
Percent 6.1% 1.0% 4.7% 0.6%
------- ------- ------- -------
Income tax expense $ (646) $ 3,879 $ 4,015 $ 6,178
Percent (15.9)% 46.7% 64.9% 48.4%
======= ======= ======= =======
NOTE E -- OPERATING EXPENSES AND COSTS
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
(unaudited)
($ thousands)
Carrier Operations:
Salaries and wages $122,451 $146,664 $277,893 $287,784
Supplies and expenses 17,691 24,963 42,193 48,349
Operating taxes and licenses 7,720 8,435 16,958 16,551
Insurance 3,598 4,186 7,966 8,217
Communications and utilities 5,212 6,111 10,938 12,110
Depreciation and
amortization 5,660 6,572 11,549 13,623
Rents 14,579 11,375 31,341 21,182
Other 1,100 656 2,436 1,780
-------- -------- -------- --------
178,011 208,962 401,274 409,596
-------- -------- -------- --------
Tire Operations:
Cost of sales 26,145 18,911 47,693 33,853
Selling, administrative and
general 6,551 5,021 12,584 9,485
-------- -------- -------- --------
32,696 23,932 60,277 43,338
-------- -------- -------- --------
Service and Other 1,624 1,349 3,143 2,724
-------- -------- -------- --------
$212,331 $234,243 $464,694 $455,658
======== ======== ======== ========
NOTE F -- LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS
Various legal actions, the majority of which arise in the normal course of
business, are pending. None of these other legal actions is expected to have
a material adverse effect on the Company's financial condition. The Company
maintains liability insurance against risks arising out of the normal course
of its business.
ABF stores some fuel for its tractors and trucks in 102 underground tanks
located in 27 states. Maintenance of such tanks is regulated at the federal
and, in some cases, state levels. ABF believes that it is in substantial
compliance with all such regulations. ABF is not aware of any leaks from such
tanks that could reasonably be expected to have a material adverse effect on
the Company. Environmental regulations have been adopted by the United States
Environmental Protection Agency ("EPA") that will require ABF to upgrade its
underground tank systems by December 1998. ABF currently estimates that such
upgrades, which are currently in process, will not have a material adverse
effect on the Company.
The Company has received notices from the EPA and others that it has been
identified as a potentially responsible party under the Comprehensive
Environmental Response Compensation and Liability Act or other federal or
state environmental statutes at several hazardous waste sites. After
investigating the Company's or its subsidiaries' involvement in waste
disposal or waste generation at such sites, the Company has either agreed to
de minimis settlements (aggregating approximately $223,000 since 1989), or
believes its obligations with respect to such sites would involve immaterial
monetary liability, although there can be no assurances in this regard.
NOTE G -- TEAMSTERS LABOR STRIKE
ABF's labor agreement with the International Brotherhood of Teamsters ("IBT")
expired on March 31, 1994. On April 6, 1994, when the terms of a new
agreement had not been agreed to between the industry's bargaining group,
Trucking Management, Inc. ("TMI"), and the IBT, the Teamsters employees of
ABF and 20 other carriers went on strike. On April 29, 1994, TMI and the IBT
reached a tentative agreement on a new four-year contract. ABF Teamsters
employees began returning to work at 12:01 a.m. on April 30, 1994. The
contract has since been voted on and ratified by the IBT membership.
NOTE H -- LONG-TERM DEBT
The Company entered into a $20 million term credit agreement, dated as of
April 25, 1994, with Nationsbank of Texas, N.A., as agent, and Societe
Generale Southwest Agency. The proceeds from the agreement will be used in
financing the construction of the Company's corporate office which is
expected to be completed by January 1995. Amounts advanced and unpaid shall
bear interest of 8.07% per annum. The Company shall repay the outstanding
principal amount in 40 equal installments, each in the amount of $500,000,
due and payable on the fifteenth day of each January, April, July, and
October hereafter commencing on July 15, 1994. At June 30, 1994, there was
$20 million outstanding.
On March 2, 1994, ABF, Renaissance Asset Funding Corp. ("Renaissance") and
Societe Generale entered into a receivables purchase agreement. The
agreement allows ABF to sell to Renaissance an interest in up to $55 million
in a pool of receivables. At June 30, 1994, ABF had no receivables financed
through this facility. ABF expects to use this facility from time to time
throughout the year for various corporate needs, including working capital.
On July 1, 1994, the Company amended its Credit Agreement with Societe
Generale, as Agent, and NationsBank of Texas as Co-Agent. Among other things,
the amendment extended the maturity date of the revolving credit facility to
June 30, 1997 and changed one of the Company's interest rate options from
LIBOR plus 1 1/2% to LIBOR plus 3/4%.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Arkansas Best Corporation (the "Company") is primarily engaged, through its
motor carrier subsidiaries, in less-than-truckload ("LTL") shipments of
general commodities. The Company is also engaged through its approximately
46%-owned consolidated subsidiary, Treadco, Inc. ("TREADCO"), in truck tire
retreading and new tire sales.
The Company in 1991 reduced its ownership in TREADCO, through an initial
public offering of TREADCO common stock, to approximately 46%, while
retaining control of TREADCO by reason of its stock ownership, board
representation and agreement to provide management services. As a result,
TREADCO is consolidated with the Company for financial reporting purposes,
with the ownership interests of the other stockholders reflected as minority
interest.
Segment Data
The following tables reflect information prepared on a business segment
basis, which includes reclassification of certain expenses and costs between
the Company and its subsidiaries and elimination of the effects of
intercompany transactions. Operating profit on a business segment basis
differs from operating income as reported in the Company's Consolidated
Financial Statements. Other income and other expenses (which include
amortization expense), except for interest expense and minority interest in
subsidiary, which appears below the operating income line in the Company's
Statement of Operations, have been allocated to individual segments for the
purpose of calculating operating profit on a segment basis.
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
($ thousands)
OPERATING REVENUES
Carrier operations $173,805 $217,212 $408,131 $424,265
Tire operations 35,609 26,178 65,014 47,145
Other 1,346 1,232 2,596 2,422
-------- -------- -------- --------
$210,760 $244,622 $475,741 $473,832
======== ======== ======== ========
OPERATING EXPENSES AND COSTS
CARRIER OPERATIONS
Salaries and wages $122,451 $146,664 $277,893 $287,784
Supplies and expenses 17,691 24,963 42,193 48,349
Operating taxes and licenses 7,720 8,435 16,958 16,551
Insurance 3,598 4,186 7,966 8,217
Communications and utilities 5,212 6,111 10,938 12,110
Depreciation and amortization 5,660 6,572 11,549 13,623
Rents 14,579 11,375 31,341 21,182
Other 1,100 656 2,436 1,780
Other non-operating (net) 4 (413) 183 (41)
-------- -------- -------- --------
178,015 208,549 401,457 409,555
TIRE OPERATIONS
Cost of sales 26,145 18,911 47,693 33,853
Selling, administrative
and general 6,551 5,021 12,584 9,485
Other non-operating (net) 57 (26) 254 3
-------- -------- -------- --------
32,753 23,906 60,531 43,341
SERVICE AND OTHER 1,344 1,438 3,035 2,944
-------- -------- -------- --------
$212,112 $233,893 $465,023 $455,840
======== ======== ======== ========
OPERATING PROFIT (LOSS)
Carrier operations $ (4,210) $ 8,663 $ 6,674 $ 14,710
Tire operations 2,856 2,272 4,483 3,804
Other 2 (206) (439) (522)
-------- -------- -------- --------
TOTAL OPERATING PROFIT (LOSS) (1,352) 10,729 10,718 17,992
MINORITY INTEREST 917 701 1,407 1,170
INTEREST EXPENSE 1,785 1,718 3,129 4,051
-------- -------- -------- --------
INCOME (LOSS) BEFORE
INCOME TAXES AND
EXTRAORDINARY ITEM $ (4,054) $ 8,310 $ 6,182 $ 12,771
======== ======== ======== ========
The following table sets forth for the periods indicated a summary of the
Company's operations as a percentage of revenues presented on a business
segment basis as shown in the table on the preceding page. The basis of
presentation for business segment data differs from the basis of presentation
for data the Company provides to the ICC.
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
CARRIER OPERATIONS
Salaries and wages 70.5% 67.5% 68.1% 67.8%
Supplies and expenses 10.2 11.5 10.3 11.4
Operating taxes and licenses 4.4 3.9 4.2 3.9
Insurance 2.1 1.9 2.0 1.9
Communications and utilities 3.0 2.8 2.7 2.9
Depreciation and amortization 3.3 3.0 2.8 3.2
Rents 8.4 5.2 7.7 5.0
Other 0.6 0.3 0.6 0.4
Other non-operating (net) (0.1) (0.1) 0.0 0.0
----- ---- ---- ----
Total Carrier Operations 102.4% 96.0% 98.4% 96.5%
===== ==== ==== ====
TIRE OPERATIONS
Cost of sales 73.4% 72.2% 73.4% 71.8%
Selling, administrative
and general 18.4 19.2 19.4 20.1
Other non-operating (net) 0.2 (0.1) 0.3 0.0
---- ---- ---- ----
Total Tire Operations 92.0% 91.3% 93.1% 91.9%
==== ==== ==== ====
Results of Operations
Three Months Ended June 30, 1994 As Compared With Three Months Ended
June 30, 1993
After losing an estimated $.68 per common share for the month of April 1994,
the Company reported a $.23 loss per common share for the three months ended
June 30, 1994. The April loss was due to the labor strike by the Teamsters
union employees of ABF Freight System, Inc. ("ABF"), the Company's largest
subsidiary.
Consolidated revenues of the Company for the three months ended June 30, 1994
were $210.8 million compared to $244.6 million for the three months ended
June 30, 1993. The Company had a operating loss of $1.4 million for the
three months ended June 30, 1994 compared to operating profit of $10.7
million for the three months ended June 30, 1993. The net loss for the three
months ended June 30, 1994 was $3.4 million, or $.23 per common share,
compared to net income of $4.3 million, or $.17 per common share for the
three months ended June 30, 1993. The net loss of $3.4 million, or $.23 per
common share, also compares to income before extraordinary item of $4.4
million, or $.18 per common share for the three months ended June 30, 1993.
During the three months ended June 30, 1993, the Company recorded an
extraordinary loss of $162,000 (net of income tax benefit of $99,000), or
$.01 per common share for the net loss on extinguishment of debt. Earnings
per common share for the three months ended June 30, 1994 and 1993 give
consideration to preferred stock dividends of $1.1 million. Average common
shares outstanding for the three months ended June 30, 1994 were 19.2 million
shares compared to 19.1 million shares for the three months ended
June 30, 1993.
Motor Carrier Operations Segment. ABF's labor agreement with the
International Brotherhood of Teamsters ("IBT") expired on March 31, 1994. On
April 6, 1994, when the terms of a new agreement had not been agreed to
between the industry's bargaining group, Trucking Management, Inc. ("TMI"),
and the IBT, the Teamsters employees of ABF and 20 other carriers went on
strike. On April 29, 1994, TMI and the IBT reached a tentative agreement on
a new four-year contract. ABF Teamsters employees began returning to work at
12:01 a.m. on April 30, 1994. The contract has since been voted on and
ratified by the IBT membership. During the strike, the non-union employees
of the Company were given an across-the-board pay reduction instead of having
lay-offs. The 40% reduction in pay for the non-union employees during the
strike amounted to approximately $3.3 million. Revenue and income
comparisons for the three months have been negatively affected by the strike.
Although ABF lost accounts to non-union carriers as a result of the strike,
post-strike business has substantially returned to pre-strike levels. ABF's
revenues for May and June of 1994 increased 12.8% over May and June of 1993.
The Company attributes the return to pre-strike levels primarily to a firm
economy and the Company's efforts to maintain employee morale and customer
service during the strike. The ICC operating ratio for May and June of 1994
was 90.4% compared to 96.3% for the same two months of 1993. Operating
results for May and June of 1994 are not necessarily indicative of the
results that may be expected for the remainder of the year.
Under the new labor contract which was effective retroactive to
April 6, 1994, salaries, wages and benefits for full-time employees will
increase 2.7% annually during the first year of the contract. The increase
will be offset in part by the option to use casual workers on the dock after
40 hours of work is provided to all regular employees, a freeze on some
casual workers' pay for the life of the contract and a reduction in new hire
step rates. The new contract allows ABF to use intermodal or rail service for
up to 28% of the line-haul operations. An increased use of rail will result
in higher rent expense and may reduce over-the-road and labor costs.
During the previous three years, ABF has financed its road tractor
replacement program with operating leases instead of capital leases, which
decreased both interest and depreciation expense and increased rent expense.
In 1994, ABF purchased, with borrowings under its Credit Agreement, road
tractors under its replacement program, which will increase depreciation and
interest expense and decrease rent expense.
Tire Operations Segment Treadco's revenues for the three months ended
June 30, 1994 increased 36.0% to $35.6 million from $26.2 million for the
three months ended June 30, 1993. For the three months ended June 30, 1994,
"same store" sales increased 13.9% and "new store" sales accounted for 21.1%
of the total increase from the three months ended June 30, 1993. "Same
store" sales include both production locations and satellite sales locations
that have been in existence for the entire three-month periods of 1994 and
1993. Same store sales increased primarily as a result of a higher demand
for both new replacement and retreaded truck tires during the period. New
store sales resulted primarily from the August 1993 acquisition of Trans-
World Tire Corporation ("Trans-World") in Florida. Revenues from retreading
for the three months ended June 30, 1994 increased 32.1% to $19.4 million
from $14.7 million for the three months ended June 30, 1993. Revenues from
new tire sales increased 41.0% to $16.2 million for the three months ended
June 30, 1994 from $11.5 million for the three months ended June 30, 1993.
Tire operations segment operating expenses as a percent of revenues were
92.0% for the three months ended June 30, 1994 compared to 91.3% for the
three months ended June 30, 1993. Cost of sales for the tire operations
segment as a percent of revenues increased to 73.4% for the three months
ended June 30, 1994 from 72.2% for the three months ended June 30, 1993
resulting primarily from integrating the August 1993 acquisition of five
Florida facilities into TREADCO. Although the integration is progressing as
planned, the costs of sales as a percent of revenues are higher at the
Florida locations. Selling, administrative and general expenses for the tire
operations segment decreased to 18.4% for the three months ended June 30,
1994 from 19.2% for the three months ended June 30, 1993. The decrease
resulted primarily from the increase in sales and the fact that a portion of
selling, administrative and general expenses are fixed costs.
Interest. Interest expense was $1.8 million for the three months ended
June 30, 1994 compared to $1.7 million during the three months ended June 30,
1993. An increase in long-term debt outstanding offset in part by lower
average interest rates under the Company's borrowing arrangements and the
utilization of operating leases resulted in the increase in interest expense.
The increase in long-term debt consisted primarily of drawing funds on a term
loan under the existing Credit Agreement and maintaining a higher average
balance outstanding under the revolving credit facilities. The additional
funds were used to meet operational needs resulting from the labor strike.
Income Taxes. The difference between the effective tax rate for the three
months ended June 30, 1994 and the federal statutory rate resulted primarily
from state income taxes, amortization of goodwill, minority interest,
undistributed earnings of Treadco and other nondeductible expenses (see Note
D to the consolidated financial statements).
Six Months Ended June 30, 1994 As Compared With Six Months Ended
June 30, 1993
The Company overcame a loss of an estimated $.68 per common share for the
month of April 1994 to break even for the six months ended June 30, 1994.
Consolidated revenues of the Company for the six months ended June 30, 1994
were $475.7 million compared to $473.8 million for the six months ended
June 30, 1993. The Company had operating profit of $10.7 million for the six
months ended June 30, 1994 compared to operating profit of $18.0 million for
the six months ended June 30, 1993. Net income for the six months ended
June 30, 1994 was $2.2 million, or $.00 per common share (after giving
consideration to preferred stock dividends of $2.1 million), compared to net
income of $6.3 million, or $.24 per common share for the six months ended
June 30, 1993. The net income of $2.2 million, or $.00 per common share,
also compares to income before extraordinary item of $6.6 million, or $.25
per common share for the six months ended June 30, 1993. During the six
months ended June 30, 1993, the Company recorded an extraordinary loss of
$329,000 (net of income tax benefit of $201,000), or $.01 per common share
for the net loss on extinguishment of debt. Earnings per common share for the
six months ended June 30, 1994 and June 30, 1993 give consideration to
preferred stock dividends of $2.1 million and $1.8 million, respectively.
Average common shares outstanding for the six months ended June 30, 1994 were
19.3 million shares compared to 19.2 million shares for the six months ended
June 30, 1993.
Motor Carrier Operations Segment. Revenue and income comparisons for the
six months have been negatively affected by the strike. Under the new labor
contract which was effective retroactive to April 6, 1994, salaries,
wages and benefits for full-time employees will increase 2.7% annually during
the first year of the contract. The increase will be offset in part by the
option to use casual workers on the dock after 40 hours of work is provided
to all regular employees, a freeze on some casual workers' pay for the life
of the contract and a reduction in new hire step rates. The new contract
allows ABF to use intermodal or rail service for up to 28% of the line-haul
operations. An increased use of rail will result in higher rent expense and
may reduce over-the-road and labor costs.
During the previous three years, ABF has financed its road tractor
replacement program with operating leases instead of capital leases, which
decreased both interest and depreciation expense and increased rent expense.
In 1994, ABF purchased, with borrowings under its Credit Agreement, road
tractors under its replacement program, which will increase depreciation and
interest expense and decrease rent expense.
Tire Operations Segment Treadco's revenues for the six months ended June 30,
1994 increased 37.9% to $65.0 million from $47.1 million for the six months
ended June 30, 1993. For the six months ended June 30, 1994, "same store"
sales increased 13.4% and "new store" sales accounted for 23.9% of the total
increase from the six months ended June 30, 1993. "Same store" sales include
both production locations and satellite sales locations that have been in
existence for the entire six-month periods of 1994 and 1993. Same store
sales increased primarily as a result of a higher demand for both new
replacement and retreaded truck tires during the period. New store sales
resulted primarily from the August 1993 acquisition of Trans-World. Revenues
from retreading for the six months ended June 30, 1994 increased 34.0% to
$36.0 million from $26.9 million for the six months ended June 30, 1993.
Revenues from new tire sales increased 43.1% to $29.0 million for the six
months ended June 30, 1994 from $20.2 million for the six months ended
June 30, 1993.
Tire operations segment operating expenses as a percent of revenues were
93.1% for the six months ended June 30, 1994 compared to 91.9% for the six
months ended June 30, 1993. Cost of sales for the tire operations segment as
a percent of revenues increased to 73.4% for the six months ended June 30,
1994 from 71.8% for the six months ended June 30, 1993 resulting primarily
from integrating the August 1993 acquisition of five Florida facilities into
TREADCO. Although the integration is progressing as planned, the costs of
sales as a percent of revenues are higher at the Florida locations. Selling,
administrative and general expenses for the tire operations segment decreased
to 19.4% for the six months ended June 30, 1994 from 20.1% for the six months
ended June 30, 1993. The decrease resulted primarily from the increase in
sales and the fact that a portion of selling, administrative and general
expenses are fixed costs.
Interest. Interest expense was $3.1 million for the six months ended
June 30, 1994 compared to $4.1 million during the six months ended June 30,
1993. A decrease in long-term debt outstanding, lower average interest rates
under the Company's borrowing arrangements and the utilization of operating
leases resulted in the decrease in interest expense. The decrease in long-
term debt consisted primarily of retiring $50 million in principal of a term
loan under its existing Credit Agreement and financing a portion of its
revenue equipment with operating leases.
Income Taxes. The difference between the effective tax rate for the six
months ended June 30, 1994 and the federal statutory rate resulted primarily
from state income taxes, amortization of goodwill, minority interest,
undistributed earnings of Treadco and other nondeductible expenses (see Note
D to the consolidated financial statements).
Liquidity and Capital Resources
The ratio of current assets to current liabilities was 1.07:1 at June 30,
1994 and December 31, 1993. Net cash provided by operating activities for the
six months ended June 30, 1994 was $29.9 million compared to $20.7 million
for the six months ended June 30, 1993. The increase is due primarily to an
increase in accounts payable and accrued expenses offset in part by a
reduction in net income.
The Company and certain banks are parties to a Credit Agreement with Societe
Generale, as Agent and NationsBank of Texas a Co-Agent (the "Credit
Agreement") which provides funds available under a three-year Revolving
Credit Facility of $100 million, including $40 million for letters of credit.
There are no borrowings outstanding under the Revolving Credit Facility and
approximately $36.3 million of letters of credit outstanding at June 30,
1994. The Revolving Credit Facility is payable on June 30, 1997.
Outstanding revolving credit advances may not exceed a borrowing base
calculated using the Company's revenue equipment, real property and the
Treadco common stock owned by the Company. At June 30, 1994, the borrowing
base was $103.7 million. The Company has paid and will continue to pay
certain customary fees for such commitments and loans. Amounts advanced
under the revolving credit facility bear interest, at the Company's option,
at a rate per annum of either: (i) the greater of (a) the agent bank's prime
rate and (b) the Federal Funds Rate plus 1/2%; or (ii) LIBOR plus 3/4%.
The Credit Agreement contains various covenants which limit, among other
things, dividends, indebtedness, capital expenditures, loans and investments,
as well as requiring the Company to meet certain financial tests. As of
June 30, 1994, these covenants have been met. If there is an event of
default which is not remedied or waived within 10 days, the Credit Agreement
will become secured to the extent of amounts then outstanding of all of the
Company's revenue equipment, real property and common stock included in the
borrowing base (subject to certain exceptions).
The Company entered into a $20 million term credit agreement, dated as of
April 25, 1994, with Nationsbank of Texas, N.A., as agent, and Societe
Generale Southwest Agency. The proceeds from the agreement will be used in
financing the construction of the Company's corporate office which is
expected to be completed by January 1995. Amounts advanced and unpaid shall
bear interest of 8.07% per annum. The Company shall repay the outstanding
principal amount in 40 equal installments, each in the amount of $500,000,
due and payable on the fifteenth day of each January, April, July, and
October hereafter commencing on July 15, 1994. At June 30, 1994, there was
$20 million outstanding.
On March 2, 1994, ABF, Renaissance Asset Funding Corp. ("Renaissance") and
Societe Generale entered into a receivables purchase agreement. The
agreement allows ABF to sell to Renaissance an interest in up to $55 million
in a pool of receivables. At June 30, 1994, ABF had no receivables financed
through this facility. ABF expects to use this facility from time to time
throughout the year for various corporate needs, including working capital.
Management believes, based upon the Company's current levels of operations
and anticipated growth, the Company's cash, capital resources, borrowings
available under the Credit Agreement and cash flow from operations will be
sufficient to finance current and future operations and meet all present and
future debt service requirements.
Seasonality
The motor carrier segment is affected by seasonal fluctuations, which affect
tonnage to be transported. Freight shipments, operating costs and earnings
are also affected adversely by inclement weather conditions. The third
calendar quarter of each year usually has the highest tonnage levels while
the first quarter has the lowest. TREADCO's operations are somewhat seasonal
with the last six months of the calendar year generally having the highest
levels of sales.
PART II.
OTHER INFORMATION
ARKANSAS BEST CORPORATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, the Company is named as a defendant in legal actions,
the majority of which arise out of the normal course of its business. The
Company is not a party to any pending legal proceeding which the Company's
management believes to be material to the financial condition of the Company.
The Company maintains liability insurance against risks arising out of the
normal course of its business (see Note F to the Company's Unaudited
Consolidated Financial Statements).
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's Annual Meeting of Stockholders was held on May 10, 1994. The
first proposal considered at the Annual Meeting was to elect two persons to
serve as directors of the Company. The results of the vote on this proposal
are as follows:
Directors Votes For Votes Withheld
Arthur J. Fritz, Jr. 16,070,582 29,139
John H. Morris 16,070,682 29,039
The second proposal was to amend the Company's 1992 Stock Option Plan. This
proposal received 15,099,450 votes for adoption, 523,292 votes against
adoption, 194,668 abstentions and 282,311 broker non-votes.
The third proposal was to ratify the appointment of Ernst & Young as
independent auditors for fiscal year 1994. This proposal received 16,085,131
votes for adoption, 4,142 votes against adoption, 10,448 abstentions and -0-
broker non-votes.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 11 - Statement Re: Computation of Earnings Per Share.
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
ARKANSAS BEST CORPORATION
(Registrant)
Date: August 8, 1994 s/Donald L. Neal
----------------- ------------------------------------
Donald L. Neal - Senior Vice
President - Chief Financial Officer,
and Principal Accounting Officer