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, 1995
---------------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
------------- -------------
Commission file number 0-19969
--------
ARKANSAS BEST CORPORATION
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 6711 71-0673405
- ------------------------- ------------------------- ----------------------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code No.)
organization)
3801 Old Greenwood Road
Fort Smith, Arkansas 72903
(501) 785-6000
- -----------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code, of
the registrant's principal executive offices)
Not Applicable
- -----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of The Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 1, 1995
--------------------------------- --------------------------------
Common Stock, $.01 par value 19,513,708 shares
ARKANSAS BEST CORPORATION
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -- September 30, 1995
and December 31, 1994 3
Consolidated Statements of Operations -- For the
Three and Nine Months Ended September 30, 1995
and 1994 5
Consolidated Statements of Cash Flows --
For the Nine Months Ended
September 30, 1995 and 1994 7
Notes to Consolidated Financial Statements --
September 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 27
Item 2. Changes in Securities 27
Item 3. Defaults Upon Senior Securities 27
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 5. Other Information 27
Item 6. Exhibits and Reports on Form 8-K 27
SIGNATURES 28
EXHIBITS 29
Exhibit 11. Statement Re: Computation of Earnings Per Share -
Exhibit 99. $350,000,000 Credit Agreement Dated August 10, 1995 -
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30 December 31
1995 1994
(unaudited) (note)
($ thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 163 $ 3,458
Trade receivables, less allowances for
doubtful accounts (1995 -- $8,919,000;
1994 -- $2,825,000) 242,427 136,144
Inventories -- Note F 35,901 32,463
Prepaid expenses 18,602 13,734
Federal and state income taxes 14,519 -
Deferred income taxes 13,841 -
--------- ---------
TOTAL CURRENT ASSETS 325,453 185,799
PROPERTY, PLANT AND EQUIPMENT
Land and structures 220,109 110,424
Revenue equipment 300,137 200,250
Manufacturing equipment 8,252 7,467
Service, office and other equipment 63,769 40,516
Leasehold improvements 10,429 9,421
Construction in progress 15 13,939
Properties held for lease 21,322 -
--------- ---------
624,033 382,017
Less allowances for depreciation
and amortization (187,108) (166,436)
--------- ---------
436,925 215,581
OTHER ASSETS 34,460 15,705
NET ASSETS HELD FOR SALE 18,867 -
GOODWILL, less amortization (1995 --
$23,348,000; 1994 -- $19,794,000) 148,490 151,960
--------- ---------
$ 964,195 $ 569,045
========= =========
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30 December 31
1995 1994
(unaudited) (note)
($ thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ 855 $ 5,989
Bank drafts payable 16,505 10,779
Trade accounts payable 91,387 49,368
Accrued expenses 186,517 82,157
Federal and state income taxes - 5,786
Deferred federal income taxes - 4,159
Current portion of long-term debt 23,429 65,161
--------- ---------
TOTAL CURRENT LIABILITIES 318,693 223,399
LONG-TERM DEBT, less current portion 335,987 59,295
OTHER LIABILITIES 24,492 5,915
DEFERRED FEDERAL INCOME TAXES 39,987 28,842
MINORITY INTEREST 38,373 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 207,807 207,636
Predecessor basis adjustment (15,371) (15,371)
Retained earnings 14,017 24,130
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 206,663 216,605
CONTINGENCIES -- Note I
--------- ---------
$ 964,195 $ 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 Nine Months Ended
September 30 September 30
1995 1994 1995 1994
(unaudited)
($ thousands, except per share data)
OPERATING REVENUES
LTL operations $299,317 $254,019 $ 783,836 $ 662,150
Forwarding operations 38,189 - 96,615 -
Truckload operations 10,162 - 10,162 -
Logistics operations 9,866 548 18,105 2,117
Tire operations 40,065 39,149 110,693 104,163
Service and other 952 535 2,441 1,562
--------- --------- ---------- ---------
398,551 294,251 1,021,852 769,992
--------- --------- ---------- ---------
OPERATING EXPENSES AND
COSTS -Note H
LTL operations 317,827 237,509 786,059 638,783
Forwarding operations 36,337 - 93,307 -
Truckload operations 8,967 - 8,967 -
Logistics operations 10,298 995 19,331 3,154
Tire operations 38,460 35,740 105,476 96,017
Service and other 802 509 2,294 1,493
--------- --------- --------- ---------
412,691 274,753 1,015,434 739,447
--------- --------- --------- ---------
OPERATING INCOME (LOSS) (14,140) 19,498 6,418 30,545
OTHER INCOME
Gain on asset sales 1,079 787 2,904 1,955
Other 223 191 499 719
--------- --------- --------- ---------
1,302 978 3,403 2,674
OTHER EXPENSES
Interest 5,568 1,592 10,218 4,721
Other 1,916 1,074 4,809 3,099
Minority interest in
subsidiary 449 1,079 1,523 2,486
--------- --------- --------- ---------
7,933 3,745 16,550 10,306
--------- --------- --------- ---------
INCOME (LOSS) BEFORE
INCOME TAXES (20,771) 16,731 (6,729) 22,913
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS -- Continued
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
(unaudited)
($ thousands, except per share data)
FEDERAL AND STATE INCOME
TAXES (CREDIT) - Note G
Current (11,335) 6,123 (1,193) 11,498
Deferred 3,692 1,407 768 47
--------- --------- --------- ---------
(7,643) 7,530 (425) 11,545
--------- --------- --------- ---------
NET INCOME (LOSS) $ (13,128) $ 9,201 $ (6,304) $ 11,368
========= ========= ========= =========
EARNINGS (LOSS) PER
COMMON SHARE:
PRIMARY:
NET INCOME (LOSS) $ (0.73) $ 0.42 $ (0.49) $ 0.42
========= ========= ========= =========
FULLY-DILUTED:
NET INCOME (LOSS) $ (0.73) $ 0.40 $ (0.49) $ 0.42
========= ========= ========= =========
AVERAGE COMMON SHARES
OUTSTANDING:
Primary 19,549 19,306 19,544 19,305
========= ========= ========= =========
Fully-diluted 19,549 23,138 19,544 19,305
========= ========= ========= =========
CASH DIVIDENDS PAID
PER COMMON SHARE $ 0.01 $ 0.01 $ 0.03 $ 0.03
========= ========= ========= =========
<FN>
See notes to consolidated financial statements.
</FN>
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30
1995 1994
(unaudited)
($ thousands)
OPERATING ACTIVITIES
Net income (loss) $ (6,304) $ 11,368
Adjustments to reconcile net income
(loss) to net cash provided
by operating activities:
Depreciation and amortization 30,239 20,332
Amortization of intangibles 3,554 2,337
Other amortization 553 341
Provision for losses on
accounts receivable 2,136 2,636
Provision for deferred
income taxes 768 47
Gain on asset sales (2,904) (1,955)
Write-off of intrastate
operating rights - 42
Gain on issuance of
subsidiary stock (20) (45)
Minority interest in
subsidiary 1,523 2,486
Changes in operating
assets and liabilities:
Accounts receivable (43,289) (20,762)
Inventories and
prepaid expenses 2,095 (601)
Other assets (6,109) (562)
Accounts payable, bank
drafts payable, taxes
payable, accrued expenses
and other liabilities (20,327) 25,554
--------- ---------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES (38,085) 41,218
INVESTING ACTIVITIES
Purchases of property,
plant and equipment,
less capitalized leases (34,318) (38,899)
Proceeds from asset sales 11,412 7,578
Adjustment to the acquisition
of the Clipper Group (84) (49,514)
Acquisition of WorldWay Corporation -
Notes C, D & E (69,701) -
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (92,691) (80,835)
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Nine Months Ended
September 30
1995 1994
(unaudited)
($ thousands)
FINANCING ACTIVITIES
Deferred financing costs
and expenses incurred in
borrowing activities $ (4,559) $ (147)
Proceeds from issuance of
common stock 171 37
Proceeds from commercial paper
agreement - 56,000
Proceeds from term loan facility 75,000 20,000
Borrowings under revolving
credit facilities 159,975 30,000
Principal payments under
term loan facilities (1,500) -
Payments under revolving
credit facilities (21,975) (34,000)
Payments under commercial paper
agreement (40,000) -
Principal payments on
other long-term debt (26,217) (14,578)
Dividends paid to minority
shareholders of subsidiary (330) (329)
Dividends paid (3,809) (3,800)
Net decrease in cash overdrafts (9,275) -
--------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 127,481 53,183
--------- ---------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (3,295) 13,566
Cash and cash equivalents
at beginning of period 3,458 6,962
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 163 $ 20,528
========= =========
<FN>
See notes to consolidated financial statements.
</FN>
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 1995
NOTE A -- ORGANIZATION
Arkansas Best Corporation (the "Company") is a diversified holding company
engaged through its subsidiaries primarily in less-than-truckload ("LTL") and
truckload motor carrier operations, logistics and freight forwarding
operations and truck tire retreading and new tire sales. Principal
subsidiaries owned are ABF Freight System, Inc. ("ABF"), Treadco, Inc.
("Treadco"), and, effective September 30, 1994 Clipper Exxpress Company
("Clipper"). Also, effective August 12, 1995, the Company acquired
Carolina Freight Carriers, Corp., Cardinal Freight Carriers, Inc.
("Cardinal"), G.I. Trucking Company ("G.I. Trucking"), CaroTrans
International, Inc. ("CaroTrans"), The Complete Logistics Company
("Complete Logistics") and Innovative Logistics Incorporated ("Innovative
Logistics"). (See Note C.)
NOTE B -- FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three and nine months ended September 30, 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 -- ACQUISITION OF WORLDWAY CORPORATION
On July 14, 1995, ABC Acquisition Corporation (the "Purchaser"), a wholly
owned subsidiary of the Company, commenced a tender offer (the "Offer") to
purchase all outstanding shares of common stock of WorldWay Corporation
("WorldWay"), at a purchase price of $11.00 per share (the "Acquisition").
The Offer expired at 12:00 midnight New York City time on August 10, 1995.
There were validly tendered approximately 5,953,000 shares pursuant to the
Offer representing approximately 91% of the shares outstanding. Pursuant to
the Offer, on August 11, 1995, the Purchaser accepted for payment these
shares validly tendered according to the terms of the Offer and commenced
payment on August 14, 1995. On October 12, 1995, the Purchaser was merged
with and into WorldWay and the remaining shares of WorldWay's common stock
were converted into the right to receive $11 per share in cash. The
untendered shares' right to receive cash totaled approximately $6.7 million
and are classified as current liabilities in the September 30, 1995
consolidated balance sheet.
For financial statement purposes, the acquisition has been accounted for
under the purchase method effective August 12, 1995. Consequently, the
accompanying financial statements include the results of operations for
WorldWay from August 12, 1995 through September 30, 1995. The allocation of
the purchase cost in the accompanying financial statements is preliminary
and subject to change. Final values may differ from those set forth in
these financial statements.
The preliminary allocations of the purchase cost of the historical assets
and liabilities of WorldWay are as follows:
(in thousands)
Net assets at historical amounts $ 93,727
Prepaid expenses (12,383) (a)
Property, plant and equipment 6,909 (b)
Other assets 2,409 (c)
Accounts payable (2,757) (d)
Accrued expenses (15,316) (e)
Debt 3,663 (f)
Other liabilities (2,993) (g)
Deferred taxes 7,298 (h)
Minority interest (2,211) (i)
Other (1,952)
-----------
Total Purchase Price $ 76,394
===========
(a) Represents write-off of prepaid tires to conform to the accounting
policies used by the Company, whereby tires on revenue equipment are included
in the cost of revenue equipment.
(b) Reflects preliminary write-up of property, plant and equipment of
$19,360,000 to estimated fair value. Fair values are based on preliminary
estimates of the fair value of acquired assets. Finalization of the
valuation may result in a final allocation amount which is different from
that shown.
Also, reflects a proportionate reduction of property, plant and equipment by
$12,451,000 representing the excess of the fair value of assets acquired less
liabilities assumed and costs incurred over the purchase price (negative
goodwill).
(c) Represents adjustment of the net pension liability based on the
difference between plan assets of the WorldWay defined benefit pension plans
and the estimated projected benefit obligation. Also, represents write-off
of debt discount associated with 6.25% WorldWay Convertible Subordinated
Debentures.
(d) Represents accruals of various liabilities including accruals for
payments due under employment contracts and Director Fee continuation
agreements.
(e) Represents accruals of payments of severance pay to terminated WorldWay
employeese and adjustments of insurance claims reserves to reflect the
undiscounted liability to conform to the accounting policy used by
the Company.
(f) Represents adjustments of debt to fair values based on current rates;
current portion increases $2,496,000 while non-current decreases $6,159,000.
(g) Represents accrued liability for abandoned leases on Carolina Freight
Carriers Corp.
(h) Reflects adjustment of deferred income tax liabilities based on the
difference between the tax basis and purchase accounting basis of assets and
liabilities.
(i) Represents reclassification of WorldWay's preferred stock minority
interest.
NOTE D - FINANCING OF THE ACQUISITION
The purchase price and related fees were financed through borrowings under a
credit agreement among the Company and certain banks. On August 14, 1995,
the Company commenced payment at $11 per common share ($65.4 million) for
approximately 5,953,000 validly tendered shares (approximately 91% of common
shares outstanding). The remaining untendered common shares' rights to
receive cash totaled approximately $6.7 million and are classified as current
liabilities in the September 30, 1995 consolidated balance sheet.
On August 10, 1995 the Company entered into a $350 million credit agreement
(the "Credit Agreement") with Societe Generale, Southwest Agency as Managing
and Administrative Agent and NationsBank of Texas, N.A., as Documentation
Agent and certain other banks. The Credit Agreement includes a $75 million
term loan and provides for up to $275 million of revolving credit loans
(including letters of credit).
Term Loan and Revolving Credit advances bear interest at one of the following
rates per annum, at the Company's option: (a) Prime Rate advance or (b)
Eurodollar Rate advance. A Prime Rate advance shall bear an interest rate
per annum equal to the lesser of (i) the Adjusted Prime Rate plus the
Applicable Margin and (ii) the maximum nonusurious interest rate under
applicable law. The Adjusted Prime Rate is equal to the greater of the
prime rate offered by Societe Generale and the Federal Funds Rate plus 1/2%.
The Applicable Margin is determined as a function of the ratio of the
Company's consolidated indebtedness to its consolidated EBITDA.
Eurodollar Rate advances shall bear an interest rate per annum equal to the
lesser of (i) the Eurodollar Rate offered by Societe Generale plus the
Applicable Margin and (ii) the maximum nonusurious interest rate under
applicable law. The Company has paid and will continue to pay certain
customary fees for such commitments and advances. At September 30, 1995,
the average interest rate on the Credit Agreement was 7.6%.
The Credit Agreement contains various covenants which limit, among other
things, indebtedness, distributions, asset sales, restricted payments,
investments, loans and advances, as well as requiring the Company to meet
certain financial tests which were met as of September 30, 1995.
Based on available information, management believes that the Company may not
satisfy certain of the financial covenants under the Credit Agreement for
periods subsequent to September 30, 1995. Management has advised the Agent
Banks under the Credit Agreement of this possibility and has initiated
discussions for the purpose of obtaining waivers or amendments of applicable
financial covenants for periods subsequent to September 30, 1995.
Based on discussions with the Agent Banks management expects waivers
or amendments to be obtained prior to December 31, 1995.
There was $141 million of Revolver Advances, $75 million of Term Advances
and approximately $61.4 million of letters of credit outstanding at
September 30, 1995. The Revolver Advances are payable on August 10, 1998.
Outstanding revolving credit advances may not exceed a borrowing base
calculated using the Company's revenue equipment, the Treadco common stock
owned by the Company, and eligible receivables.
The Term Advances are payable in 16 quarterly graduated installments
commencing in November 1996. The installment payments are $2.5 million,
$5.0 million and $6.25 million for the first four, second eight and last
four payments, respectively.
NOTE E - PRO FORMA INFORMATION
Pro forma information (as if the acquisition and related transactions were
completed at the beginning of their respective periods) for the nine months
ended September 30, 1995 and 1994 is as follows:
Nine Months Ended
September 30
1995 1994
($ thousands, except
per share data)
Operating revenues $ 1,506,071 $ 1,539,798
Operating expenses 1,548,193 1,478,504
----------- -----------
(42,122) 61,294
Interest expense 18,472 15,374
Minority interest in subsidiary 1,523 2,486
Other expense, net 4,076 6,590
Provision for income taxes (credit) (22,132) 17,680
----------- -----------
Income (loss) before cumulative effect
of change in accounting principle $ (44,061) $ 19,164
=========== ===========
Income (loss) per common share $ (2.36) $ 0.87
=========== ===========
Average common shares outstanding 19,544 19,615
=========== ===========
The above amounts are based upon certain assumptions and estimates which the
Company believes are reasonable and do not reflect any benefit from economies
which might be achieved from combined operations. The pro forma results do
not necessarily represent results which would have occurred if the
Acquisition had taken place on the basis assumed above, not are they
indicative of the results of future combined operations.
NOTE F -- INVENTORIES
September 30 December 31
1995 1994
($ thousands)
Finished goods $ 25,170 $ 22,764
Materials 6,889 7,487
Repair parts, supplies and other 3,842 2,212
-------- --------
$ 35,901 $ 32,463
======== ========
NOTE G -- FEDERAL AND STATE INCOME TAXES
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
($ thousands)
Income tax at regular rates $(7,270) $ 5,856 $(2,355) $ 8,020
Percent (35.0)% 35.0% (35.0)% 35.0%
State taxes less federal benefits (1,336) 555 (205) 1,097
Percent (6.4)% 3.3% (3.1)% 4.8%
Amortization of
nondeductible goodwill 271 246 809 777
Percent 1.3% 1.5% 12.0% 3.4%
Minority interest 153 367 533 846
Percent 0.7% 2.2% 7.9% 3.7%
Other items 539 506 793 805
Percent 2.6% 3.0% 11.9% 3.5%
------- ------- ------- -------
Income tax expense $(7,643) $ 7,530 $ (425) $11,545
Percent (36.8)% 45.0% (6.3)% 50.4%
======= ======= ======= =======
NOTE H -- OPERATING EXPENSES AND COSTS
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
($ thousands)
LTL Operations:
Salaries and wages $218,180 $166,829 $ 550,106 $444,722
Supplies and expenses 32,644 25,888 84,908 68,081
Operating taxes and licenses 12,237 9,059 32,263 26,017
Insurance 9,574 5,233 19,655 13,199
Communications and utilities 7,001 5,679 18,601 16,617
Depreciation and amortization 11,461 6,364 24,664 17,913
Rents and purchased
transportation 22,835 17,554 49,946 48,895
Other 3,895 903 5,916 3,339
-------- -------- ---------- --------
317,827 237,509 786,059 638,783
-------- -------- ---------- --------
Forwarding Operations:
Cost of services 31,597 - 81,184 -
Selling, administrative and
general 4,740 - 12,123 -
-------- -------- ---------- --------
36,337 - 93,307 -
-------- -------- ---------- --------
Truckload Operations:
Salaries and wages 3,619 - 3,619 -
Supplies and expenses 1,712 - 1,712 -
Operating taxes and licenses 918 - 918 -
Insurance 368 - 368 -
Communications and utilities 156 - 156 -
Depreciation and amortization 464 - 464 -
Rents and purchased
transportation 1,700 - 1,700 -
Other 30 - 30 -
-------- -------- ---------- --------
8,967 - 8,967 -
-------- -------- ---------- --------
Logistics Operations:
Cost of services 9,183 721 17,214 2,385
Selling, administrative
and general 1,115 274 2,117 769
-------- -------- ---------- --------
10,298 995 19,331 3,154
-------- -------- ---------- --------
Tire Operations:
Cost of sales 30,334 28,816 82,880 76,509
Selling, administrative
and general 8,126 6,924 22,596 19,508
-------- -------- ---------- --------
38,460 35,740 105,476 96,017
-------- -------- ---------- --------
Service and Other 802 509 2,294 1,493
-------- -------- ---------- --------
$412,691 $274,753 $1,015,434 $739,447
======== ======== ========== ========
NOTE I -- 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 and the Company's other motor carrier subsidiaries store some fuel for
their tractors and trucks in 230 underground tanks located in 33 states.
Maintenance of such tanks is regulated at the federal and, in some cases,
state levels. The Company believes that it is in substantial compliance with
all such regulations. The Company is not aware of any leaks from such tanks
that could reasonably be expected to have a material adverse effect on the
Company. Environmental regulations have been adopted by the United States
Environmental Protection Agency ("EPA") that will require the Company to
upgrade its underground tank systems by December 1998. The Company currently
estimates that such upgrades, which are currently in process, will not have a
material adverse effect on the Company.
The Company has received notices from the EPA and others that it has been
identified as a potentially responsible party 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, or believes its obligations with respect to such
sites would involve immaterial monetary liability, although there can be no
assurances in this regard. Estimated liabilities are provided for in the
period in which a liability is identified.
Treadco has filed a lawsuit in Arkansas State Court alleging that Bandag,
Incorporated ("Bandag") and certain of its officers violated Arkansas
statutory and common law in attempting to solicit Treadco's employees to
work for Bandag or its competing franchises and attempting to divert
customers from Treadco.
Subsequently, Bandag and the other named defendants asked the State Court to
stop proceedings pending a decision by the United States District Court,
Western District of Arkansas, on a Complaint to Compel Arbitration filed by
Bandag in the Federal District Court. Treadco intends to oppose both the
State Court and Federal District Court filings by Bandag.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Introduction
Arkansas Best Corporation (the "Company") is a diversified holding company
engaged through its subsidiaries primarily in less-than-truckload ("LTL")
and truckload motor carrier operations, logistics and freight forwarding
operations and truck tire retreading and new tire sales. Principal
subsidiaries owned are ABF Freight System, Inc. ("ABF"), Treadco, Inc.
("Treadco"), and, effective September 30, 1994 Clipper Exxpress Company
("Clipper"). Also, effective August 12, 1995, the Company owns Cardinal
Freight Carriers, Inc. ("Cardinal"), G.I. Trucking Company ("G.I.
Trucking"), CaroTrans International, Inc. ("CaroTrans"), The Complete
Logistics Company ("Complete Logistics") and Innovative Logistics
Incorporated ("Innovative Logistics"). (See Note C.)
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.
Acquisition
On July 14, 1995, ABC Acquisition Corporation (the "Purchaser"), a wholly
owned subsidiary of the Company, commenced a tender offer (the "Offer") to
purchase all outstanding shares of common stock of WorldWay Corporation
("WorldWay"), at a purchase price of $11.00 per share (the "Acquisition").
The Offer expired at 12:00 midnight New York City time on August 10, 1995.
There were validly tendered approximately 5,964,000 shares pursuant to the
Offer representing approximately 91% of the shares outstanding. Pursuant to
the Offer, on August 11, 1995, the Purchaser accepted for payment these
shares validly tendered according to the terms of the Offer and commenced
payment on August 14, 1995. On October 12, 1995, the Purchaser was merged
with and into WorldWay and the remaining shares of WorldWay's common stock
were converted into the right to receive $11 per share in cash.
Segment Data
The following tables reflect information prepared on a business segment
basis, which includes reclassification of certain expenses and costs between
the Company and its subsidiaries and elimination of the effects of
intercompany transactions. Operating profit on a business segment basis
differs from operating income as reported in the Company's Consolidated
Financial Statements. Other income and other expenses (which include
amortization expense), except for interest expense and minority interest,
which appear below the operating income line in the Company's Statement of
Operations, have been allocated to individual segments for the purpose of
calculating operating profit on a segment basis.
The segment information for prior periods has been restated to reflect the
Company's current reported business segments. In the current and future
periods, information that was previously reported in the service and other
business segment will be reported in the logistics operations segment.
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
($ thousands)
OPERATING REVENUES
LTL operations $299,317 $254,019 $ 783,836 $662,150
Forwarding operations 38,189 - 96,615 -
Truckload operations 10,162 - 10,162 -
Logistics operations 9,866 548 18,105 2,117
Tire operations 40,065 39,149 110,693 104,163
Other 952 535 2,441 1,562
-------- -------- ---------- --------
$398,551 $294,251 $1,021,852 $769,992
======== ======== ========== ========
OPERATING EXPENSE AND COSTS
LTL OPERATIONS
Salaries and wages $218,180 $166,829 $ 550,106 $444,722
Supplies and expenses 32,644 25,888 84,908 68,081
Operating taxes and licenses 12,237 9,059 32,263 26,017
Insurance 9,574 5,233 19,655 13,199
Communications and utilities 7,001 5,679 18,601 16,617
Depreciation and amortization 11,461 6,364 24,664 17,913
Rents and purchased
transportation 22,835 17,554 49,946 48,895
Other 3,895 903 5,916 3,339
Other non-operating (net) (150) 81 (510) 264
-------- -------- ---------- --------
Total LTL Operations 317,677 237,590 785,549 639,047
FORWARDING OPERATIONS
Cost of services 31,597 - 81,184 -
Selling, administrative
and general 4,704 - 12,087 -
Other non-operating (net) 459 - 1,319 -
-------- -------- ---------- --------
Total Forwarding Operations 36,760 - 94,590 -
TRUCKLOAD OPERATIONS
Salaries and wages $ 3,619 $ - $ 3,619 $ -
Supplies and expenses 1,667 - 1,667 -
Operating taxes and licenses 918 - 918 -
Insurance 368 - 368 -
Communications and utilities 156 - 156 -
Depreciation and amortization 464 - 464 -
Rents and purchased
transportation 1,700 - 1,700 -
Other 29 - 29 -
Other non-operating (net) 47 - 47 -
-------- -------- ---------- --------
Total Truckload Operations 8,968 - 8,968 -
LOGISTICS OPERATIONS
Cost of services 9,183 721 17,214 2,385
Selling, administrative
and general 1,115 273 2,117 769
Other non-operating (net) 3 103 (20) 102
-------- -------- ---------- --------
Total Logistics Operations 10,301 1,097 19,311 3,256
TIRE OPERATIONS
Cost of sales 30,334 28,816 82,880 76,509
Selling, administrative
and general 8,126 6,924 22,596 19,508
Other non-operating (net) 135 80 255 334
-------- -------- ---------- --------
Total Tire Operations 38,595 35,820 105,731 96,351
SERVICE AND OTHER 1,003 342 2,691 1,218
-------- -------- ---------- --------
$413,304 $274,849 $1,016,840 $739,872
======== ======== ========== ========
OPERATING PROFIT (LOSS)
LTL operations $(18,360) $ 16,429 $ (1,713) $ 23,103
Forwarding operations 1,429 - 2,025 -
Truckload operations 1,194 - 1,194 -
Logistics operations (435) (549) (1,206) (1,139)
Tire operations 1,470 3,329 4,962 7,812
Other (51) 193 (250) 344
-------- -------- --------- --------
TOTAL OPERATING PROFIT (LOSS) (14,753) 19,402 5,012 30,120
MINORITY INTEREST 449 1,079 1,523 2,486
INTEREST EXPENSE 5,569 1,592 10,218 4,721
-------- -------- --------- --------
INCOME (LOSS) BEFORE
INCOME TAXES $(20,771) $ 16,731 $ (6,729) $ 22,913
======== ======== ========= ========
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 Nine Months Ended
September 30 September 30
1995 1994 1995 1994
LTL OPERATIONS
Salaries and wages 72.9% 65.7% 70.2% 67.2%
Supplies and expenses 10.9 10.2 10.8 10.3
Operating taxes and licenses 4.1 3.6 4.1 3.9
Insurance 3.2 2.1 2.5 2.0
Communications and utilities 2.3 2.2 2.4 2.5
Depreciation and amortization 3.8 2.5 3.1 2.7
Rents and purchased
transportation 7.6 6.9 6.4 7.4
Other 1.3 0.4 0.8 0.5
Other non-operating (net) - (0.1) (0.1) -
-------- -------- -------- --------
Total LTL Operations 106.1% 93.5% 100.2% 96.5%
======== ======== ======== ========
FORWARDING OPERATIONS
Cost of services 82.7% - 84.0% -
Selling, administrative
and general 12.3 - 12.5 -
Other non-operating (net) 1.3 - 1.4 -
-------- -------- -------- --------
Total Forwarding Operations 96.3% - 97.9% -
======== ======== ======== ========
TRUCKLOAD OPERATIONS
Salaries and wages 35.6% - 35.6% -
Supplies and expenses 16.4 - 16.4 -
Operating taxes and licenses 9.0 - 9.0 -
Insurance 3.6 - 3.6 -
Communications and utilities 1.5 - 1.5 -
Depreciation and amortization 4.6 - 4.6 -
Rents and purchased
transportation 16.7 - 16.7 -
Other 0.3 - 0.3 -
Other non-operating (net) 0.6 - 0.6 -
-------- -------- -------- --------
Total Truckload Operations 88.3% - 88.3% -
======== ======== ======== ========
LOGISTICS OPERATIONS
Cost of sales 93.1% 131.6% 95.1% 112.7%
Selling, administrative
and general 11.3 49.8 11.7 36.3
Other non-operating (net) - 18.8 (0.1) 4.8
-------- -------- -------- --------
Total Logistics Operations 104.4% 200.2% 106.7% 153.8%
======== ======== ======== ========
TIRE OPERATIONS
Cost of sales 75.7% 73.6% 74.9% 73.5%
Selling, administrative
and general 20.3 17.7 20.4 18.7
Other non-operating (net) 0.3 0.2 0.2 0.3
-------- -------- -------- --------
Total Tire Operations 96.3% 91.5% 95.5% 92.5%
======== ======== ======== ========
Results of Operations
Three Months Ended September 30, 1995 as Compared with Three Months Ended
September 30, 1994
Consolidated revenues of the Company for the three months ended September 30,
1995 were $398.6 million compared to $294.3 million for the three months
ended September 30, 1994. The Company had an operating loss of $(14.8)
million for the three months ended September 30, 1995 compared to operating
profit of $19.4 million for the three months ended September 30, 1994. For
the three months ended September 30, 1995, the Company had a net loss of
$(13.1) million, or $(.73) per common share, compared to net income of $9.2
million, or $.40 per common share for the corresponding three months of 1994.
Revenues for the three months increased due to the acquisition of WorldWay
and the acquisition adversely impacted operating results for the same period.
For the period from August 12 to September 30, 1995, WorldWay incurred a
consolidated net loss of approximately $(13.6) million and an operating loss
of $(20.4) million. The WorldWay loss is attributable primarily to the
operations of Carolina Freight Carriers Corp. ("CFCC") and Red Arrow Freight
Lines, Inc. ("Red Arrow") which merged into ABF Freight System, Inc. ("ABF")
on September 24, 1995. Earnings per common share for the three months ended
September 30, 1995 give consideration to preferred stock dividends of $1.1
million and assume conversion of preferred shares to common for the three
months ended September 30, 1994. Average common shares outstanding for the
three months ended September 30, 1995 were 19.5 million shares compared to
19.3 million shares and 23.1 million on a fully-diluted basis for the three
months ended September 30, 1994. Per share earnings reflect full dilution
including conversion of preferred shares to common, if dilutive.
LTL Operations Segment.
As a result of the Acquisition, the Less-than-Truckload ("LTL") operations
segment includes the results of CFCC and Red Arrow for the period from August
12, 1995 to their merger into ABF on September 24, 1995. Also, included from
August 12, 1995 through the end of the quarter are the operations of G.I.
Trucking Company ("G.I. Trucking"). All LTL operations comparisons are
impacted by the Acquisition.
Revenues from the LTL operations segment for the three months ended
September 30, 1995 were $299.3 million, with an operating loss of $(18.4)
million. Prior to merging into ABF on September 24, CFCC and Red Arrow
continued to operate on their own and incurred a loss of $(22.2) million.
For the period from August 12, 1995 to September 30, 1995, G.I. Trucking had
an operating loss of $(1.5) million due to reduction in revenue. Prior to
the merging of CFCC and Red Arrow into ABF, G.I. Trucking had received
approximately 60% of their freight from CFCC and Red Arrow. With CFCC and
Red Arrow's freight remaining in the ABF system, G.I. Trucking's revenue was
reduced. In September 1995, G.I. Trucking signed a partnership agreement
with Estes Express Lines which will is expected to increase revenue of G.I.
Trucking although the amount of the increase and it relative profitability is
unknown at this time.
Earnings at ABF continue to be negatively affected by a slowing economy and
increased pricing pressure which have resulted in a decrease in tonnage for
the three months ended September 30, 1995. The following operating
statistics for ABF do not include the operations of CFCC or Red Arrow prior
to their merger into ABF on September 24, 1995. ABF had an ICC operating
ratio of 98.1% for the three months ended September 30, 1995 compared to
93.8% for the three months ended September 30, 1994. For the three months
ended September 30, 1995, ABF's total tonnage decreased 8.2%, consisting of a
7.9% decrease in LTL tonnage and a 9.1% decrease in truckload tonnage
compared to 1994.
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 with the Acquisition on August 12,
1995, the forwarding operations segment includes the results of CaroTrans
International, Inc., a subsidiary of WorldWay. The Company previously
entered the freight forwarding market on September 30, 1994 with the
acquisition of the Clipper Group, a non-asset based intermodal marketing and
freight forwarding company.
For the three months ended September 30, 1995, the Company's forwarding
operations had revenues of $38.2 million with segment operating profit of
$1.4 million. The Company's consolidated financial statements for the three
months ended September 30, 1995 include only current year financial
information for the forwarding operations segment and therefore, comparisons
of results of operations are not presented.
Truckload Operations Segment. On August 12, 1995, the Company entered into
the truckload business with the acquisition of Cardinal Freight Carriers,
Inc. ("Cardinal"), a WorldWay subsidiary. For the period from August 12,
1995 to September 30, 1995, Cardinal had revenues of $10.2 million and
segment operating profit of $1.2 million. Comparisons of the results of
operations for the truckload operations segment are not meaningful and
therefore, not presented.
Logistics Operations Segment. With the acquisition of two WorldWay
subsidiaries, Complete Logistics Company and Innovative Logistics
Incorporated, the company began reporting the results of its logistics
subsidiaries in a separate business segment. Also, included in the logistics
segment are the results of Integrated Distribution, Inc., which was
previously reported in the service and other segment.
For the three months ended September 30, 1995, the logistics segment had
revenues of $9.9 million with a segment operating loss of $435,000.
Comparisons of the results of operations for the logistics operations segment
are not meaningful and therefore, are not presented.
Tire Operations Segment. Treadco's revenues for the three months ended
September 30, 1995 increased 2.3% to $40.1 million from $39.1 million for the
three months ended September 30, 1994. Treadco sold approximately 171,000
retreaded truck tires during both the three months ended September 30, 1995
and 1994, and new tires sold during the three months ended September 30, 1995
decreased 0.6% to approximately 108,000 tires. For the three months ended
September 30, 1995, "same store" sales decreased 1.2% and "new store" sales
accounted for 3.8% of the increase from the three months ended September 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 September 30, 1995 and 1994. The soft economy continued to slow demand
for both new replacement and retreaded truck tires during the quarter. Also,
Treadco has seen increased competition as Bandag Incorporated ("Bandag") has
granted additional franchises in some locations currently being served by
Treadco. Revenues from retreading for the three months ended September 30,
1995 increased 1.2% to $20.9 million from $20.7 million for the three months
ended September 30, 1994. Revenues from new tire sales increased 3.6% to
$19.2 million for the three months ended September 30, 1995 from $18.5
million for the three months ended September 30, 1994.
Tire operations segment operating expenses as a percent of revenues were
96.3% for the three months ended September 30, 1995 compared to 91.5% for the
three months ended September 30, 1994. Cost of sales for the tire operations
segment as a percent of revenues increased to 75.7% for the three months
ended September 30, 1995 from 73.6% for the three months ended September 30,
1994 resulting primarily from the increased cost of materials from Bandag.
Selling, administrative and general expenses for the tire operations segment
increased to 20.3% for the three months ended September 30, 1995 from 17.7%
for the three months ended September 30, 1994. The increase resulted
primarily from an increase in bad debt expense and increased costs associated
with installation of a production and inventory control system.
On August 23, 1995, Treadco announced that it had been advised by Bandag that
eight of its Bandag franchises which expire in the summer of 1996 would not
be renewed. Subsequently, Treadco entered into an agreement with Oliver
Rubber Company to supply equipment and related materials for the eight
production facilities whose Bandag franchises expire in 1996 and any other
Treadco facilities which cease being a Bandag franchised location.
On October 9, 1995, Treadco sent Bandag notice of termination of three
franchise agreements. Two of these franchises are part of the eight
scheduled to expire in 1996. Due to Bandag's announcement that it would not
renew eight of Treadco's franchises and Bandag's adverse activities described
in the lawsuit filed by Treadco on October 30, 1995, it may become necessary
for Treadco to terminate some or all of its remaining Bandag franchises prior
to their expiration dates.
Treadco has filed a lawsuit in Arkansas state court alleging that Bandag and
certain of its officers violated Arkansas statutory and common law in
attempting to solicit Treadco's employees to work for Bandag or its competing
franchises and attempting to divert customers from Treadco.
Treadco is unable to determine the impact of the above events on operations,
however; Treadco has taken and will continue to take whatever actions are
appropriate to protect and enhance Treadco's established business.
Interest. Interest expense was $5.6 million for the three months ended
September 30, 1995 compared to $1.6 million for the three months ended
September 30, 1994 primarily due to a higher level of debt outstanding. The
increase in long-term debt consisted primarily of debt incurred and assumed
in the acquisition of WorldWay on August 12, 1995 and 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 September 30, 1995 and the federal statutory rate resulted
primarily from state income taxes, amortization of goodwill, minority
interest, and other nondeductible expenses (see Note G to the consolidated
financial statements).
Nine Months Ended September 30, 1995 as Compared with Nine Months Ended
September 30, 1994
Consolidated revenues of the Company for the nine months ended September 30,
1995 were $1.0 billion compared to $770.0 million for the nine months ended
September 30, 1994. The Company had an operating profit of $5.0 million for
the nine months ended September 30, 1995 compared to operating profit of
$30.1 million for the nine months ended September 30, 1994. For the nine
months ended September 30, 1995, the Company had a net loss of $(6.3)
million, or $(.49) per common share, compared to net income of $11.4 million,
or $.42 per common share for the corresponding nine months of 1994. The
acquisition of WorldWay on August 12, 1995 adversely impacted operating
results for the nine months ended September 30, 1995. For the period from
August 12 to September 30, 1995, WorldWay incurred a consolidated net loss of
approximately $(13.6) million and an operating loss of approximately $(20.4)
million. The WorldWay loss is attributable to CFCC and Red Arrow which
ceased to exist as of September 24, 1995 when they were merged into ABF.
Consolidated revenues and income for the nine months ended September 30, 1994
were adversely affected by the 24-day labor strike by the Teamsters' union
employees of ABF in April 1994. Earnings per common share for the nine
months ended September 30, 1995 and 1994 give consideration to preferred
stock dividends of $3.2 million. Average common shares outstanding for the
nine months ended September 30, 1995 were 19.5 million shares compared to
19.3 million shares for the nine months ended September 30, 1994.
Outstanding shares for the nine months ended September 30, 1995 and 1994 do
not assume conversion of preferred stock to common shares, because conversion
would be anti-dilutive for these periods.
LTL Operations Segment. Comparisons for the nine months were affected by
Acquisition of WorldWay in August 1995 and by the ABF Teamsters' employees
strike in April 1994 (see discussion above). Therefore, comparisons of the
results of operations for the LTL operations segment are not meaningful and
are not presented.
Revenues from the LTL operations segment for the nine months ended
September 30, 1995 were $783.8 million, with an operating loss of $(1.7)
million. Prior to merging into ABF on September 24, CFCC and Red Arrow
continued to operate on their own and incurred a loss of $(22.2) million for
the period from August 12, to the merger date.
Earnings at ABF continue to be negatively affected by a slowing economy and
increased pricing pressure which have resulted in a decrease in tonnage for
the nine months ended September 30, 1995. The following operating statistics
for ABF do not include the operations of CFCC or Red Arrow prior to their
merger into ABF on September 24, 1995. ABF had an ICC operating ratio of
97.2% for the nine months ended September 30, 1995 compared to 96.7% for the
nine months ended September 30, 1994. For the nine months ended September
30, 1995, ABF's total tonnage increased 6.1%, consisting of a 6.8% increase
in LTL tonnage and a 4.0% increase in truckload tonnage compared to 1994.
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 nine months ended September 30, 1995 include only current
year financial information for the forwarding operations segment and
therefore, comparisons of results of operations are not presented.
For the nine months ended September 30, 1995, the Company reported revenues
from forwarding operations of $96.6 million with segment operating profit of
$2.0 million.
Tire Operations Segment. Treadco's revenues for the nine months ended
September 30, 1995 increased 6.3% to $110.7 million from $104.2 million for
the nine months ended September 30, 1994. During the nine months ended
September 30, 1995, Treadco sold approximately 477,000 retreaded truck tires,
an increase of 3.8% from the nine months ended September 30, 1994 and new
tires sold increased 3.7% to approximately 294,000 tires. For the nine
months ended September 30, 1995, "same store" sales increased 4.4% and "new
store" sales accounted for 2.3% of the increase from the nine months ended
September 30, 1994. Same store sales include both production locations and
satellite sales locations that have been in existence for the entire nine
month periods ended September 30, 1995 and 1994. Although a softer economy
during the nine months slowed demand for both new replacement and retreaded
truck tires, same store sales increased primarily as a result of an increase
in market share in the areas served. Also, Treadco has seen increased
competition as Bandag has granted additional franchises in some locations
currently being served by Treadco. Revenues from retreading for the nine
months ended September 30, 1995 increased 3.0% to $58.4 million from $56.7
million for the nine months ended September 30, 1994. Revenues from new tire
sales increased 10.2% to $52.3 million for the nine months ended
September 30, 1995 from $47.5 million for the nine months ended September 30,
1994.
Tire operations segment operating expenses as a percent of revenues were
95.5% for the nine months ended September 30, 1995 compared to 92.5% for the
nine months ended September 30, 1994. Cost of sales for the tire operations
segment as a percent of revenues increased to 74.9% for the nine months ended
September 30, 1995 from 73.5% for the nine months ended September 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 its customers. Selling,
administrative and general expenses for the tire operations segment increased
to 20.4% for the nine months ended September 30, 1995 from 18.7% for the nine
months ended September 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 $10.2 million for the nine months ended
September 30, 1995 compared to $4.7 million for the nine months ended
September 30, 1994 primarily due to a higher level of outstanding debt. The
increase in long-term debt consisted primarily of debt incurred and assumed
in the acquisition of WorldWay in August 1995, the acquisition of the Clipper
Group in September 1994 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 nine
months ended September 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
On August 10, 1995 the Company entered into a $350 million credit agreement
(the "Credit Agreement") with Societe Generale, Southwest Agency as Managing
and Administrative Agent and NationsBank of Texas, N.A., as Documentation
Agent and certain other banks. The Credit Agreement consists of a $75
million term and provides for up to $275 million of revolving credit loans
(including letters of credit).
Term Loan and Revolving Credit advances bear interest at one of the
following rates per annum, at the Company's option: (a) Prime Rate advance
or (b) Eurodollar Rate advance. A Prime Rate advance shall bear an interest
rate per annum equal to the lesser of (i) the Adjusted Prime Rate plus the
Applicable Margin and (ii) the maximum nonusurious interest rate under
applicable law. The Adjusted Prime Rate is equal to the greater of the
prime rate offered by Societe Generale and the Federal Funds Rate plus 1/2%.
The Applicable Margin is determined as a function of the ratio of the
Company's consolidated indebtedness to its consolidated EBITDA. An
Eurodollar Rate advance shall bear an interest rate per annum equal to the
lesser of (i) the Eurodollar Rate offered by Societe Generale plus the
Applicable Margin and (ii) the maximum nonusurious interest rate under
applicable law. The Company has paid and will continue to pay certain
customary fees for such commitments and advances. At September 30, 1995,
the average interest rate on the Credit Agreement was 7.6%.
The Credit Agreement contains various covenants which limit, among other
things, indebtedness, distributions, asset sales, restricted payments,
investments, loans and advances, as well as requiring the Company to meet
certain financial tests, which were met as of September 30, 1995.
Based on available information, management believes that the Company may not
satisfy certain of the financial covenants under the Credit Agreement for
periods subsequent to September 30, 1995. Management has advised the Agent
Banks under the Credit Agreement of this possibility and has initiated
discussions for the purpose of obtaining waivers or amendments of
applicable financial covenants for periods subsequent to September 30,
1995. Based on discussions with the Agent Banks, management expects
waivers or amendments to be obtained prior to December 31, 1995.
There was $141 million of Revolver Advances, $75 million of Term Advances
and approximately $61.4 million of letters of credit outstanding at
September 30, 1995. The Revolver Advances are payable on August 10, 1998.
Outstanding revolving credit advances may not exceed a borrowing base
calculated using the Company's revenue equipment, the Treadco common stock
owned by the Company, and eligible receivables.
The Term Advances are payable in 16 quarterly graduated installments
commencing in November 1996. The installment payments are $2.5 million,
$5.0 million and $6.25 million for the first four, second eight and last
four payments, respectively.
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.
Treadco is a party to a revolving credit facility with Societe Generale (the
"Treadco Credit Agreement") providing for borrowings of up to the lesser of
$20 million or the applicable borrowing base. At September 30, 1995, the
borrowing base was $30.1 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 September 30, 1995, the average
interest rate was 7.2%. At September 30, 1995, Treadco had $8 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 July 14, 1995, ABC Acquisition Corporation, a wholly owned subsidiary of
the Company, commenced a tender offer (the "Offer") to purchase all
outstanding shares of common stock of WorldWay, at a purchase price of $11.00
per share. The Offer expired at 12:00 midnight New York City time on August
10, 1995. There were validly tendered approximately 5,964,000 shares
pursuant to the Offer representing approximately 91% of the shares
outstanding. Pursuant to the Offer, on August 11, 1995, the Purchaser
accepted for payment these shares validly tendered according to the terms of
the Offer and commenced payment on August 14, 1995. On October 12, 1995, the
Purchaser was merged with and into WorldWay and the remaining shares of
WorldWay's common stock were converted into the right to receive $11 per
share in cash.
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 LTL and truckload motor carrier segments 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. Forwarding
operations are similar to the LTL and truckload motor carrier segments with
revenues being weaker in the first quarter and stronger during the months of
September and October. Treadco's operations are somewhat seasonal with the
last six months of the calendar year generally having the highest levels of
sales.
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the
assets' carrying amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company will
adopt Statement 121 in the first quarter of 1996 and, based on current
circumstances, does not believe the effect of adoption will be material.
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 I 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 99 - $350,000,000 Credit Agreement dated as of August 10,
1995 among Arkansas Best Corporation as the Borrower,
Societe General, Southwest Agency as Managing agent and
administrative agent, Nations bank of Texas, N.A. as
documentation agent
(b) Reports on Form 8-K.
Form 8-K dated August 17, 1995
Item 2. Acquisition of Disposition of Assets -- Acquisition of
WorldWay Corporation.
Item 7. Financial Statements and Exhibits --Financial
statements of WorldWay Corporation and pro forma
financial information to be filed under cover of form
8-K/A on October 16, 1995. Agreement and Plan of
Merger, dated as of July 8, 1995 among WorldWay
Corporation, ABC Acquisition Corporation and Arkansas
Best Corporation.
Form 8-K/A No. 1 dated October 13, 1995
Item 7. Financial Statements and Exhibits --Financial
statements of WorldWay Corporation and pro forma
financial information to be filed under cover of form
8-K/A on October 25, 1995.
Form 8-K/A No. 2 dated October 25, 1995
Item 7. Financial Statements and Exhibits --Audited financial
statements of WorldWay Corporation for the years then
ended December 31, 1994 and 1993. Unaudited financial
statements of WorldWay Corporation for the twenty-four
weeks ended June 17, 1995 and June 18, 1994. Pro
forma condensed consolidated statements of operations
for the year ended December 31, 1994 and the six
months ended June 30, 1995 and the pro forma condensed
consolidated balance sheet as of June 30, 1995.
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 14, 1995 s/Donald L. Neal
----------------- ------------------------------------
Donald L. Neal - Senior Vice
President - Chief Financial Officer,
and Principal Accounting Officer
EXHIBIT INDEX
ARKANSAS BEST CORPORATION
The following exhibits are filed with this report.
Exhibit
No. Page
11 Statement Re: Computation of Earnings per Share
27 Financial Data Schedule
99 $350,000,000 Credit Agreement dated as of August 10, 1995
among Arkansas Best Corporation as the Borrower, Societe
Generale, Southwest Agency as Managing Agent and
Administrative Agent, and NationsBank of Texas, N.A. as
Documentation Agent.