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, 1995
----------------
[ ] 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
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(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
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(Address, including zip code, and telephone number, including area code, of
the registrant's principal executive offices)
Not Applicable
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(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 August 1, 1995
--------------------------------- --------------------------------
Common Stock, $.01 par value 19,529,408 shares
ARKANSAS BEST CORPORATION
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -- June 30, 1995
and December 31, 1994 3
Consolidated Statements of Operations -- For the
Three and Six Months Ended June 30, 1995 and 1994 5
Consolidated Statements of Cash Flows --
For the Six Months Ended
June 30, 1995 and 1994 7
Notes to Consolidated Financial Statements --
June 30, 1995 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 24
EXHIBITS 25
Exhibit 11. Statement Re: Computation of Earnings Per Share -
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30 December 31
1995 1994
(unaudited) (note)
($ thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,414 $ 3,458
Trade receivables, less allowances for
doubtful accounts (1995 -- $2,810,000;
1994 -- $2,825,000) 132,496 136,144
Inventories -- Note C 37,150 32,463
Prepaid expenses 11,316 13,734
--------- ---------
TOTAL CURRENT ASSETS 186,376 185,799
PROPERTY, PLANT AND EQUIPMENT
Land and structures 130,417 110,424
Revenue equipment 215,753 200,250
Manufacturing equipment 8,231 7,467
Service, office and other equipment 47,368 40,516
Leasehold improvements 9,070 9,421
Construction in progress 188 13,939
--------- ---------
411,027 382,017
Less allowances for depreciation
and amortization (174,726) (166,436)
--------- ---------
236,301 215,581
OTHER ASSETS 14,657 15,705
GOODWILL, less amortization (1995 --
$22,161,000; 1994 -- $19,794,000) 149,677 151,960
--------- ---------
$ 587,011 $ 569,045
========= =========
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30 December 31
1995 1994
(unaudited) (note)
($ thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ - $ 5,989
Bank drafts payable 10,586 10,779
Trade accounts payable 51,197 49,368
Accrued expenses 89,888 82,157
Federal and state income taxes 3,004 5,786
Deferred federal income taxes 4,159 4,159
Current portion of long-term debt 59,463 65,161
--------- ---------
TOTAL CURRENT LIABILITIES 218,297 223,399
LONG-TERM DEBT, less current portion 79,741 59,295
OTHER LIABILITIES 6,342 5,915
DEFERRED FEDERAL INCOME TAXES 25,919 28,842
MINORITY INTEREST 35,822 34,989
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
19,513,708 shares 195 195
Additional paid-in capital 207,636 207,636
Predecessor basis adjustment (15,371) (15,371)
Retained earnings 28,415 24,130
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 220,890 216,605
COMMITMENTS AND CONTINGENCIES
-- Notes F and G
--------- ---------
$ 587,011 $ 569,045
========= =========
<FN>
<F1>
Note: The balance sheet at December 31, 1994 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.
</FN>
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
(unaudited)
($ thousands, except per share data)
OPERATING REVENUES
Carrier operations $ 240,042 $ 173,805 $ 484,519 $ 408,131
Forwarding operations 29,658 - 58,426 -
Tire operations 37,414 35,609 70,628 65,014
Service and other 4,980 1,346 9,728 2,596
--------- --------- --------- ---------
312,094 210,760 623,301 475,741
OPERATING EXPENSES AND
COSTS -Note E
Carrier operations 235,109 178,011 468,232 401,274
Forwarding operations 28,827 - 56,970 -
Tire operations 35,519 32,696 67,016 60,277
Service and other 5,435 1,624 10,525 3,143
--------- --------- --------- ---------
304,890 212,331 602,743 464,694
--------- --------- --------- ---------
OPERATING INCOME (LOSS) 7,204 (1,571) 20,558 11,047
OTHER INCOME
Gain on asset sales 1,512 850 1,825 1,168
Other 119 380 276 528
--------- --------- --------- ---------
1,631 1,230 2,101 1,696
OTHER EXPENSES
Interest 2,521 1,785 4,649 3,129
Other 1,444 1,011 2,893 2,025
Minority interest in
subsidiary 585 917 1,074 1,407
--------- --------- --------- ---------
4,550 3,713 8,616 6,561
--------- --------- --------- ---------
INCOME (LOSS) BEFORE
INCOME TAXES 4,285 (4,054) 14,043 6,182
FEDERAL AND STATE INCOME
TAXES (CREDIT) - Note D
Current 2,642 (468) 10,142 5,375
Deferred (40) (178) (2,924) (1,360)
--------- --------- --------- ---------
2,602 (646) 7,218 4,015
--------- --------- --------- ---------
NET INCOME (LOSS) $ 1,683 $ (3,408) $ 6,825 $ 2,167
========= ========= ========= =========
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
Three Months Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
(unaudited)
($ thousands, except per share data)
NET INCOME (LOSS)
PER COMMON SHARE $ 0.03 $ (0.23) $ 0.24 $ -
========= ========= ========= =========
AVERAGE COMMON SHARES
OUTSTANDING 19,515,132 19,200,077 19,540,768 19,304,649
========== ========== ========== ==========
CASH DIVIDENDS PAID
PER COMMON SHARE $ 0.01 $ 0.01 $ 0.02 $ 0.02
========= ========= ========= =========
<FN>
<F1>
See notes to consolidated financial statements.
</FN>
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30
1995 1994
(unaudited)
($ thousands)
OPERATING ACTIVITIES
Net income $ 6,825 $ 2,167
Adjustments to reconcile net income
to net cash provided
by operating activities:
Depreciation and amortization 16,189 13,113
Amortization of intangibles 2,367 1,558
Other amortization 308 226
Provision for losses on
accounts receivable 1,486 1,902
Provision for deferred
income taxes (2,924) (1,360)
Gain on asset sales (1,825) (1,168)
Gain on issuance of
subsidiary stock (20) (45)
Minority interest in
subsidiary 1,074 1,407
Changes in operating
assets and liabilities:
Accounts receivable 2,162 (7,125)
Inventories and
prepaid expenses (2,269) 1,197
Other assets 738 647
Accounts payable, bank
drafts payable, taxes
payable, accrued expenses
and other liabilities 6,711 17,374
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 30,822 29,893
INVESTING ACTIVITIES
Purchases of property,
plant and equipment,
less capitalized leases (25,459) (27,040)
Proceeds from asset sales 8,660 5,421
Adjustment to the acquisition
of the Clipper Group (84) -
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (16,883) (21,619)
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Six Months Ended
June 30
1995 1994
(unaudited)
($ thousands)
FINANCING ACTIVITIES
Deferred financing costs
and expenses incurred in
borrowing activities $ - $ (144)
Proceeds from commercial paper
agreement - 1,000
Proceeds from term loan facility - 20,000
Borrowings under revolving
credit facilities 17,000 27,000
Principal payments under
term loan facilities (1,000) -
Payments under revolving
credit facilities (6,000) (31,000)
Principal payments on
other long-term debt (13,235) (11,730)
Dividends paid to minority
shareholders of subsidiary (220) (219)
Dividends paid (2,539) (2,533)
Net decrease in cash overdrafts (5,989) -
--------- ---------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (11,983) 2,374
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,956 10,648
Cash and cash equivalents
at beginning of period 3,458 6,962
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,414 $ 17,610
========= =========
<FN>
<F1>
See notes to consolidated financial statements.
</FN>
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 1995
NOTE A -- ORGANIZATION
Arkansas Best Corporation (the "Company") is a diversified holding company
engaged through its subsidiaries primarily in motor carrier and freight
forwarding operations and truck tire retreading and sales. Principal
subsidiaries owned are ABF Freight System, Inc., ("ABF"), Treadco, Inc.
("TREADCO"), ABC Treadco, Inc. ("ABC Treadco"), and, effective September 30,
1994, Clipper Exxpress Company ("Clipper"). See Note G.
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, 1995, are not necessarily indicative
of the results that may be expected for the year ending December 31, 1995.
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, 1994.
NOTE C -- INVENTORIES
June 30 December 31
1995 1994
($ thousands)
Finished goods $ 28,118 $ 22,764
Materials 6,757 7,487
Repair parts, supplies and other 2,275 2,212
-------- --------
$ 37,150 $ 32,463
======== ========
NOTE D -- FEDERAL AND STATE INCOME TAXES
Three Months Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
($ thousands)
Income tax at regular rates $ 1,500 $ (1,419) $ 4,915 $ 2,164
Percent 35.0% (35.0)% 35.0% 35.0%
State taxes less federal benefits 446 (54) 1,130 542
Percent 10.4% (1.3)% 8.1% 8.8%
Amortization of
nondeductible goodwill 266 266 532 531
Percent 6.2% 6.6% 3.8% 8.6%
Minority interest 205 312 376 479
Percent 4.8% 7.7% 2.7% 7.8%
Other items 185 249 265 299
Percent 4.3% 6.1% 1.8% 4.7%
------- ------- ------- -------
Income tax expense $ 2,602 $ (646) $ 7,218 $ 4,015
Percent 60.7% (15.9)% 51.4% 64.9%
======= ======= ======= =======
NOTE E -- OPERATING EXPENSES AND COSTS
Three Months Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
($ thousands)
Carrier Operations:
Salaries and wages $166,751 $122,451 $331,926 $277,893
Supplies and expenses 25,892 17,691 52,264 42,193
Operating taxes and licenses 9,691 7,720 20,026 16,958
Insurance 5,596 3,598 10,081 7,966
Communications and utilities 5,798 5,212 11,600 10,938
Depreciation and
amortization 6,810 5,660 13,203 11,549
Rents and purchased
transportation 13,496 14,579 27,111 31,341
Other 1,075 1,100 2,021 2,436
-------- -------- -------- --------
235,109 178,011 468,232 401,274
-------- -------- -------- --------
Forwarding Operations:
Cost of services 25,099 - 49,587 -
Selling, administrative and
general 3,728 - 7,383 -
-------- -------- -------- --------
28,827 - 56,970 -
-------- -------- -------- --------
NOTE E -- OPERATING EXPENSES AND COSTS (Cont'd)
Three Months Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
($ thousands)
Tire Operations:
Cost of sales $ 27,765 $ 26,145 $ 52,546 $ 47,693
Selling, administrative and
general 7,754 6,551 14,470 12,584
-------- -------- -------- --------
35,519 32,696 67,016 60,277
-------- -------- -------- --------
Service and Other 5,435 1,624 10,525 3,143
-------- -------- -------- --------
$304,890 $212,331 $602,743 $464,694
======== ======== ======== ========
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, subject to certain self-insured retention limits.
ABF stores some fuel for its tractors and trucks in 93 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 over the last five
years), or believes its obligations with respect to such sites would involve
immaterial monetary liability, although there can be no assurances in this
regard.
NOTE G -- WORLDWAY CORPORATION MERGER AGREEMENT
On July 10, 1995, the Company announced the signing of a definitive agreement
providing for the merger of a subsidiary of the Company with WorldWay
Corporation ("WorldWay"), pursuant to which WorldWay will become a wholly
owned subsidiary of the Company.
On July 14, 1995, the Company commenced a cash tender offer for all
outstanding shares of WorldWay at $11.00 per share net. WorldWay currently
has approximately 6,561,672 common shares outstanding and approximately $70
million of debt.
The Company anticipates entering into a new financing agreement to
finance the tender offer and refinance some existing debt. The Company
has received a commitment letter for such financing.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Company is engaged, through its motor carrier subsidiaries, in LTL
shipments of general commodities. The Company is also engaged through its
46%-owned subsidiary, Treadco, Inc., in truck tire retreading and new truck
tire sales and, through its freight forwarding subsidiaries, in intermodal
marketing and freight logistics services.
The Company owns approximately 46% of Treadco, whose shares are traded on
the Nasdaq Stock Exchange. Treadco is consolidated with the Company for
financial reporting purposes as a result of its control of Treadco by reason
of its stock ownership, board representation and provision of management
services. The ownership interests of the other stockholders are reflected as
minority interest.
On September 30, 1994, the Company purchased all the outstanding stock of
Clipper Exxpress Company ("Clipper") and two affiliated companies
collectively (the "Clipper Group"). Beginning October 1, 1994, the
operations of the Clipper Group are presented in the forwarding operations
segment.
On October 12, 1994, the Company issued 310,191 shares of common stock for
all the outstanding stock of Traveller Enterprises and subsidiaries and
Commercial Warehouse Company, collectively (the "Traveller Group").
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,
which appear below the operating income line in the Company's Statement of
Operations, have been allocated to individual segments for the purpose of
calculating operating profit on a segment basis.
Three Months Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
($ thousands)
OPERATING REVENUES
Carrier operations $240,042 $173,805 $484,519 $408,131
Forwarding operations 29,658 - 58,426 -
Tire operations 37,414 35,609 70,628 65,014
Other 4,980 1,346 9,728 2,596
-------- -------- -------- --------
$312,094 $210,760 $623,301 $475,741
======== ======== ======== ========
OPERATING EXPENSE AND COSTS
CARRIER OPERATIONS
Salaries and wages $166,751 $122,451 $331,926 $277,893
Supplies and expenses 25,892 17,691 52,264 42,193
Operating taxes and licenses 9,691 7,720 20,026 16,958
Insurance 5,596 3,598 10,081 7,966
Communications and utilities 5,798 5,212 11,600 10,938
Depreciation and amortization 6,810 5,660 13,203 11,549
Rents and purchased
transportation 13,496 14,579 27,111 31,341
Other 1,075 1,100 2,021 2,436
Other non-operating (net) (679) 4 (360) 183
-------- -------- -------- --------
Total carrier operations 234,430 178,015 467,872 401,457
FORWARDING OPERATIONS
Cost of services 25,099 - 49,587 -
Selling, administrative
and general 3,728 - 7,383 -
Other non-operating (net) 434 - 860 -
-------- -------- -------- --------
Total forwarding operations 29,261 - 57,830 -
TIRE OPERATIONS
Cost of sales 27,765 26,145 52,546 47,693
Selling, administrative
and general 7,754 6,551 14,470 12,584
Other non-operating (net) (5) 57 120 254
-------- -------- -------- --------
Total tire operations 35,514 32,753 67,136 60,531
SERVICE AND OTHER 5,498 1,344 10,697 3,035
-------- -------- -------- --------
$304,703 $212,112 $603,535 $465,023
======== ======== ======== ========
Three Months Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
($ thousands)
OPERATING PROFIT (LOSS)
Carrier operations $ 5,612 $ (4,210) $ 16,647 $ 6,674
Forwarding operations 397 - 596 -
Tire operations 1,900 2,856 3,492 4,483
Other (518) 2 (969) (439)
-------- -------- -------- --------
TOTAL OPERATING PROFIT 7,391 (1,352) 19,766 10,718
MINORITY INTEREST 585 917 1,074 1,407
INTEREST EXPENSE 2,521 1,785 4,649 3,129
-------- -------- -------- --------
INCOME (LOSS) BEFORE
INCOME TAXES $ 4,285 $ (4,054) $ 14,043 $ 6,182
======== ======== ======== ========
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 preceding table. The basis of presentation for
business segment data differs from the basis of presentation for data the
Company provides to the Interstate Commerce Commission.
Three Months Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
CARRIER OPERATIONS
Salaries and wages 69.5% 70.5% 68.5% 68.1%
Supplies and expenses 10.8 10.2 10.8 10.3
Operating taxes and licenses 4.0 4.4 4.1 4.2
Insurance 2.3 2.1 2.1 2.0
Communications and utilities 2.4 3.0 2.4 2.7
Depreciation and amortization 2.8 3.3 2.7 2.8
Rents and purchased transportation 5.6 8.4 5.6 7.7
Other 0.4 0.6 0.4 0.6
Other non-operating (net) (0.1) (0.1) (0.0) 0.0
---- ----- ---- ----
Total Carrier Operations 97.7% 102.4% 96.6% 98.4%
==== ===== ==== ====
FORWARDING OPERATIONS
Cost of services 84.6% - 84.9% -
Selling, administrative
and general 12.6 - 12.6 -
Other non-operating (net) 1.5 - 1.5 -
----- ----- ---- ----
Total Forwarding Operations 98.7% - 99.0% -
==== ===== ==== ====
Three Months Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
TIRE OPERATIONS
Cost of sales 74.2% 73.4% 74.4% 73.4%
Selling, administrative
and general 20.7 18.4 20.5 19.4
Other non-operating (net) 0.0 0.2 0.2 0.3
---- ---- ---- ----
Total Tire Operations 94.9 92.0% 95.1% 93.1%
==== ==== ==== ====
Results of Operations
Three Months Ended June 30, 1995 as Compared with Three Months Ended June 30,
1994
Consolidated revenues of the Company for the three months ended June 30, 1995
were $312.1 million compared to $210.8 million for the three months ended
June 30, 1994. Operating profit for the Company was $7.4 million for the
three months ended June 30, 1995 compared to an operating loss of $(1.4)
million for the three months ended June 30, 1994. Net income for the three
months ended June 30, 1995 was $1.7 million, or $.03 per common share,
compared to a net loss of $(3.4) million, or $(.23) per common share for the
corresponding three months of 1994. Consolidated revenues and income for the
three months ended June 30, 1994 were adversely affected by the 24-day labor
strike by the Teamsters' union employees of ABF Freight System, Inc. ("ABF")
in April 1994. Earnings per common share for the three months ended June 30,
1995 and 1994 give consideration to preferred stock dividends of $1.1
million. Average common shares outstanding for the three months ended
June 30, 1995 were 19.5 million shares compared to 19.2 million shares for
the three months ended June 30, 1994. Outstanding shares for the three
months ended June 30, 1995 and 1994 do not assume conversion of preferred
stock to common shares, because conversion would be anti-dilutive for these
periods.
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 ABF Teamsters' employees 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. During the strike, the non-union employees of
the Company were given an across-the-board 40% pay reduction instead of lay-
offs. Comparisons for the three months have been affected significantly by
the 1994 strike.
Revenues from the carrier operations segment for the three months ended
June 30, 1995 were $240.0 million, with operating profit of $5.6 million.
Earnings at ABF continue to be negatively affected by a slowing economy and
increased pricing pressure which have resulted in tonnage levels below
Company expectations.
Salaries, wages and benefits increased 3.3% annually effective April 1, 1995,
pursuant to ABF's collective bargaining agreement with its Teamsters'
employees.
Forwarding Operations Segment. Effective September 30,1994, with the
purchase of the Clipper Group, the Company began reporting a new business
segment, forwarding operations. The Company's consolidated financial
statements for the three months ended June 30, 1995 include only current year
financial information for the forwarding operations segment and therefore,
comparisons of results of operations are not presented.
Tire Operations Segment. Treadco's revenues for the three months ended
June 30, 1995 increased 5.1% to $37.4 million from $35.6 million for the
three months ended June 30, 1994. For the three months ended June 30, 1995,
"same store" sales increased 3.6% and "new store" sales accounted for 2.3% of
the increase from the three months ended June 30, 1994. Same store sales
include both production locations and satellite sales locations that have
been in existence for the entire three month periods ended June 30, 1995 and
1994. Although a softer economy during the quarter slowed demand for both new
replacement and retreaded truck tires, same store sales were higher primarily
as a result of an increase in market share in the areas served. Revenues from
retreading for the three months ended June 30, 1995 increased 1.5% to $19.7
million from $19.4 million for the three months ended June 30, 1994.
Revenues from new tire sales increased 9.3% to $17.7 million for the three
months ended June 30, 1995 from $16.2 million for the three months ended
June 30, 1994.
Of Treadco's 26 Bandag franchise agreements, seven expire in June 1996, one
in August 1996, eight in the summer of 1997 and the remaining ten in the
summer of 1998. In the event the first group of franchises are not renewed,
Treadco believes that while short-term operating inefficiencies might occur,
it would be able to meet its production needs. However, if the franchises
are not renewed, Treadco believes there could be a disruption in its
relationship with some customers because of Bandag's national marketing
presence. Treadco's margins continue to be squeezed primarily as a result of
Bandag's three tread rubber price increases which total 9.6% since the first
quarter of 1994. So far Treadco has been unsuccessful in fully passing along
these increased costs. Also, during the same period, Treadco has seen
increased competition as Bandag has granted additional franchises in some
locations currently served by Treadco. Although Treadco believes Bandag is
displeased with Treadco's recent efforts to explore alternative retreading
processes, Treadco believes it is in compliance with the terms of each
franchise agreement.
Tire operations segment operating expenses as a percent of revenues were
94.9% for the three months ended June 30, 1995 compared to 92.0% for the
three months ended June 30, 1994. Cost of sales for the tire operations
segment as a percent of revenues increased to 74.2% for the three months
ended June 30, 1995 from 73.4% for the three months ended June 30, 1994
resulting primarily from the increased cost of materials from Bandag Inc.
(see discussion above). Selling, administrative and general expenses for the
tire operations segment increased to 20.7% for the three months ended
June 30, 1995 from 18.4% for the three months ended June 30, 1994. The
increase resulted primarily from an increase in bad debt expense and
increased costs associated with employee medical benefits.
Interest. Interest expense was $2.5 million for the three months ended
June 30, 1995 compared to $1.8 million for the three months ended June 30,
1994 primarily due to a higher level of debt outstanding. The increase in
long-term debt consisted primarily of debt incurred in the acquisition of the
Clipper Group on September 30, 1994.
Income Taxes. The difference between the effective tax rate for the three
months ended June 30, 1995 and the federal statutory rate resulted primarily
from state income taxes, amortization of goodwill, minority interest, and
other nondeductible expenses (see Note D to the consolidated financial
statements).
Six Months Ended June 30, 1995 as Compared with Six Months Ended
June 30, 1994
Consolidated revenues of the Company for the six months ended June 30, 1995
were $623.3 million compared to $475.7 million for the six months ended
June 30, 1994. Operating profit for the Company was $19.8 million for the
six months ended June 30, 1995 compared to operating profit of $10.7 million
for the six months ended June 30, 1994. Net income for the six months ended
June 30, 1995 was $6.8 million, or $.24 per common share, compared to net
income of $2.2 million, or $.00 per common share for the corresponding six
months of 1994. Consolidated revenues and income for the six months ended
June 30, 1994 were adversely affected by the 24-day labor strike by the
Teamsters' union employees of ABF Freight System, Inc. ("ABF") in April 1994.
Earnings per common share for the six months ended June 30, 1995 and 1994
give consideration to preferred stock dividends of $2.1 million. Average
common shares outstanding for the six months ended June 30, 1995 were 19.5
million shares compared to 19.3 million shares for the six months ended
June 30, 1994. Outstanding shares for the six months ended June 30, 1995 and
1994 do not assume conversion of preferred stock to common shares, because
conversion would be anti-dilutive for these periods.
Motor Carrier Operations Segment. Comparisons for the six months were
affected by the ABF Teamsters' employees strike in April 1994 (see discussion
above).
Revenues from the carrier operations segment for the six months ended
June 30, 1995 were $484.5 million, with operating profit of $16.6 million.
Earnings at ABF continue to be negatively affected by a slowing economy and
increased pricing pressure which have resulted in tonnage levels below
Company expectations.
Salaries, wages and benefits increased 3.3% annually effective April 1, 1995,
pursuant to ABF's collective bargaining agreement with its Teamsters'
employees.
Forwarding Operations Segment. Effective September 30,1994, with the
purchase of the Clipper Group, the Company began reporting a new business
segment, forwarding operations. The Company's consolidated financial
statements for the six months ended June 30, 1995 include only current year
financial information for the forwarding operations segment and therefore,
comparisons of results of operations are not presented.
Tire Operations Segment. Treadco's revenues for the six months ended
June 30, 1995 increased 8.6% to $70.6 million from $65.0 million for the six
months ended June 30, 1994. For the six months ended June 30, 1995, "same
store" sales increased 7.8% and "new store" sales accounted for 1.3% of the
increase from the six months ended June 30, 1994. Same store sales include
both production locations and satellite sales locations that have been in
existence for the entire six month periods ended June 30, 1995 and 1994.
Although a softer economy during the quarter slowed demand for both new
replacement and retreaded truck tires, same store sales were higher primarily
as a result of an increase in market share in the areas served. Revenues from
retreading for the six months ended June 30, 1995 increased 4.0% to $37.4
million from $36.0 million for the six months ended June 30, 1994. Revenues
from new tire sales increased 14.4% to $33.2 million for the six months ended
June 30, 1995 from $29.0 million for the six months ended June 30, 1994.
Tire operations segment operating expenses as a percent of revenues were
95.1% for the six months ended June 30, 1995 compared to 93.1% for the six
months ended June 30, 1994. Cost of sales for the tire operations segment as
a percent of revenues increased to 74.4% for the six months ended June 30,
1995 from 73.4% for the six months ended June 30, 1994. Bandag Inc.,
Treadco's tread rubber supplier, has implemented three price increases,
totaling 9.6%, since the first quarter of 1994, which Treadco has been
unsuccessful, so far, in fully passing along to our customers (see discussion
above). Selling, administrative and general expenses for the tire operations
segment increased to 20.5% for the six months ended June 30, 1995 from 19.4%
for the six months ended June 30, 1994. The increase resulted primarily from
an increase in bad debt expense and increased costs associated with employee
medical benefits.
Interest. Interest expense was $4.6 million for the six months ended
June 30, 1995 compared to $3.1 million for the six months ended June 30, 1994
primarily due to a higher level of outstanding debt. The increase in long-
term debt consisted primarily of debt incurred in the acquisition of the
Clipper Group and a term loan used to finance construction of the Company's
corporate office building which was completed in 1995.
Income Taxes. The difference between the effective tax rate for the six
months ended June 30, 1995 and the federal statutory rate resulted primarily
from state income taxes, amortization of goodwill, minority interest, and
other nondeductible expenses (see Note D to the consolidated financial
statements).
Liquidity and Capital Resources
The Company and certain banks are parties to a Credit Agreement with Societe
Generale, as Agent and NationsBank of Texas as Co-Agent (the "Credit
Agreement") which provides funds available under a three-year Revolving
Credit Facility of $150 million, including $40 million for letters of
credit. There was $5 million outstanding under the Revolving Credit
Facility and approximately $32.3 million of letters of credit outstanding at
June 30, 1995. The Revolving Credit Facility is payable on June 30, 1998.
Outstanding revolving credit advances may not exceed a borrowing base
calculated using the Company's revenue equipment, real property, the Treadco
common stock owned by the Company, eligible receivables and other eligible
assets. At June 30, 1995, the borrowing base was $126.9 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, 1995, 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 receivables (excluding receivables sold under the
receivables purchase agreement), revenue equipment, real property and common
stock included in the borrowing base (subject to certain exceptions).
The Company has outstanding 1,495,000 shares of Preferred Stock which is
convertible at the option of the holder into Common Stock at the rate of
2.5397 shares of Common Stock for each share of Preferred Stock. Annual
dividends are $2.875 and are cumulative. The Preferred Stock is redeemable
at the Company's option on or after February 15, 1996 at $52.0125 per share
plus accumulated unpaid dividends, and is exchangeable at the option of the
Company for the Company's 5 3/4% Convertible Subordinated Debentures due
February 15, 2018 at a rate of $50 principal amount of debentures for each
share of Preferred Stock. The holders of the Preferred Stock have no voting
rights unless dividends are in arrears six quarters or more, at which time
the holders have the right to elect two directors of the Company until all
dividends have been paid.
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, 1995, ABF had $40 million of
receivables financed through this facility. Effective July 31, 1995 this
agreement was terminated and refinanced with borrowings under the Credit
Agreement.
Treadco is a party to a revolving credit facility with Societe Generale (the
"Treadco Credit Agreement") providing for borrowings of up to the lesser of
$12 million or the applicable borrowing base. At June 30, 1995, the
borrowing base was $29.8 million. Borrowings under the Treadco Credit
Agreement are collateralized by accounts receivable and inventory.
Borrowings under the agreement bear interest, at Treadco's option, at 1%
above the bank's LIBOR rate, or at the higher of the bank's prime rate or
the "federal funds rate" plus 1/2%. At June 30, 1995, the interest rate was
9%. At June 30, 1995, Treadco had $9 million outstanding under the Treadco
Credit Agreement. Treadco pays a commitment fee of 3/8% on the unused
amount under the Treadco Credit Agreement.
The Treadco Credit Agreement contains various covenants which limit, among
other things, dividends, disposition of receivables, indebtedness and
investments, as well as requiring Treadco to meet certain financial tests
which have been met. Under the Treadco Credit Agreement, Treadco's assets
are subject to pledge and, therefore, are available for use only by that
subsidiary.
On September 30, 1994, the Company paid an initial payment of $54 million to
the Clipper Group shareholders from cash on hand and funds provided under its
existing lines of credit. In May 1995, the Company paid the final $6 million
payment to the Clipper Group shareholders.
On October 12, 1994, the Company issued 310,191 shares of common stock for
all of the outstanding stock of the Traveller Group. The final number of
shares that will be issued in conjunction with this transaction are subject
to certain closing audit adjustments.
On July 10, 1995, the Company announced the signing of a definitive agreement
providing for the merger of a subsidiary of the Company with WorldWay
Corporation ("WorldWay"), pursuant to which WorldWay will become a wholly
owned subsidiary of the Company. On July 14, 1995 the Company commenced a
cash tender offer for all outstanding shares of WorldWay at $11.00 per share
net. The offer is scheduled to expire at 12:00 Midnight, New York City time,
on Thursday, August 10, 1995, unless extended. WorldWay currently has
approximately 6,561,672 common shares outstanding and approximately $70
million of debt. The Company plans to obtain funds for the acquisition
pursuant to a financing for which it has received a commitment letter dated
July 7, 1995 from Societe Generale, Southwest Agency and NationsBank of
Texas, N.A.
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. Forwarding operations are similar to the
motor carrier segment 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 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 Shareholders was held on May 9, 1995.
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
Frank Edelstein 17,068,002 47,593
Robert A. Young III 17,073,511 42,084
The second proposal was to approve an amendment to the Arkansas Best
Corporation 1992 Stock Option Plan. This proposal received 14,226,884 votes
for adoption, 1,676,840 votes against adoption, 67,314 abstentions and
1,144,557 broker non-votes.
The third proposal was to ratify the appointment of Ernst & Young LLP as
independent auditors for fiscal year 1995. This proposal received 16,903,666
votes for adoption, 191,440 votes against adoption, 20,489 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 9, 1995 s/Donald L. Neal
----------------- ------------------------------------
Donald L. Neal - Senior Vice
President - Chief Financial Officer,
and Principal Accounting Officer
LIST OF EXHIBITS
ARKANSAS BEST CORPORATION
The following exhibits are filed with this report.
Exhibit
No. Page
11 Statement Re: Computation of Earnings per Share -
27 Financial Data Schedule -