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 March 31, 1996
---------------------
[ ] 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 May 1, 1996
--------------------------------- --------------------------------
Common Stock, $.01 par value 19,512,250 shares
ARKANSAS BEST CORPORATION
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets --
March 31, 1996 and December 31, 1995 3
Consolidated Statements of Operations --
For the Three Months Ended March 31, 1996 and 1995 5
Consolidated Statements of Cash Flows --
For the Three Months Ended March 31, 1996 and 1995 7
Notes to Consolidated Financial Statements --
March 31, 1996 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities 25
Item 3. Defaults Upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 26
EXHIBITS 27
Exhibit 11. Statement Re: Computation of Earnings Per Share
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, December 31
1996 1995
(unaudited) (note)
($ thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 421 $ 16,945
Trade receivables, less allowances for
doubtful accounts (1996 -- $17,752,000;
1995 -- $19,403,000) 199,473 205,196
Inventories -- Note D 35,440 36,850
Prepaid expenses 17,129 13,927
Federal and state income taxes 9,707 17,489
Deferred federal income taxes 32,080 32,080
--------- ---------
TOTAL CURRENT ASSETS 294,250 322,487
PROPERTY, PLANT AND EQUIPMENT
Land and structures 234,330 228,706
Revenue equipment 283,340 285,045
Manufacturing equipment 8,676 8,289
Service, office and other equipment 64,848 65,474
Leasehold improvements 8,935 10,631
Construction in progress 33 44
Non-operating property 15,641 15,869
--------- ---------
615,803 614,058
Less allowances for depreciation
and amortization (203,219) (190,906)
--------- ---------
412,584 423,152
OTHER ASSETS 59,185 54,783
NET ASSETS HELD FOR SALE 23,994 39,937
GOODWILL, less amortization (1996 --
$25,181,000; 1995 -- $24,027,000) 144,060 145,478
--------- ---------
$ 934,073 $ 985,837
========= =========
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, December 31
1996 1995
(unaudited) (note)
($ thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ 4,276 $ -
Bank drafts payable 5,954 12,999
Trade accounts payable 65,401 74,998
Accrued expenses 185,714 188,708
Current portion of long-term debt 25,533 26,634
--------- ---------
TOTAL CURRENT LIABILITIES 286,878 303,339
LONG-TERM DEBT, less current portion 374,031 399,144
OTHER LIABILITIES 22,011 18,665
DEFERRED FEDERAL INCOME TAXES 46,903 48,560
MINORITY INTEREST 37,242 38,265
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
1996: 19,515,758 shares; 1995: 19,519,061 195 195
Additional paid-in capital 207,780 207,807
Predecessor basis adjustment (15,371) (15,371)
Retained earnings (deficit) (25,611) (14,782)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 167,008 177,864
CONTINGENCIES -- Note G
--------- ---------
$ 934,073 $ 985,837
========= =========
<FN>
<F1>
Note: The balance sheet at December 31, 1995 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
March 31
1996 1995
(unaudited)
($ thousands,
except per share data)
OPERATING REVENUES
LTL operations $ 294,923 $ 244,477
Forwarding operations 41,766 28,768
Truckload operations 17,838 0
Logistics operations 13,230 3,945
Tire operations 31,613 33,214
Service and other 2,004 803
----------- ---------
401,374 311,207
----------- ---------
OPERATING EXPENSES AND
COSTS -Note F
LTL operations 303,752 233,123
Forwarding operations 40,691 28,143
Truckload operations 16,412 0
Logistics operations 13,787 4,332
Tire operations 33,238 31,497
Service and other 2,336 758
----------- ---------
410,216 297,853
----------- ---------
OPERATING INCOME (LOSS) (8,842) 13,354
OTHER INCOME (EXPENSE)
Gain on asset sales 2,438 313
Interest (7,801) (2,128)
Minority interest in subsidiary 641 (489)
Other, net (1,273) (1,292)
----------- ---------
(5,995) (3,596)
----------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (14,837) 9,758
FEDERAL AND STATE INCOME TAXES
(CREDIT) -Note D
Current (3,641) 7,500
Deferred (1,637) (2,884)
----------- ---------
(5,278) 4,616
----------- ---------
NET INCOME (LOSS) $ (9,559) $ 5,142
=========== =========
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
Three Months Ended
March 31
1996 1995
(unaudited)
($ thousands,
except per share data)
EARNINGS PER COMMON SHARE:
NET INCOME $ (0.54) $ $0.21
============ ==========
AVERAGE COMMON SHARES OUTSTANDING: 19,516,539 19,566,404
============ ==========
CASH DIVIDENDS PAID PER COMMON SHARE $ 0.01 $ 0.01
============ ==========
<FN>
See notes to consolidated financial statements.
</FN>
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31
1996 1995
(unaudited)
($ thousands)
OPERATING ACTIVITIES
Net income (loss) $ (9,559) $ 5,142
Adjustments to reconcile net income
(loss) to net cash provided
by operating activities:
Depreciation and amortization 15,514 7,792
Amortization of intangibles 1,154 1,176
Other amortization 674 161
Provision for losses on
accounts receivable 1,094 597
Provision for deferred
income taxes (1,637) (2,884)
Gain on asset sales (2,438) (313)
Gain on issuance of
subsidiary stock - (20)
Minority interest in
subsidiary (891) 489
Changes in operating
assets and liabilities:
Accounts receivable 4,629 7,429
Inventories and
prepaid expenses (1,792) (1,138)
Other assets (2,776) 1,260
Accounts payable, bank
drafts payable, taxes
payable, accrued expenses
and other liabilities (8,507) 6,151
--------- ---------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES (4,535) 25,842
INVESTING ACTIVITIES
Purchases of property,
plant and equipment,
less capitalized leases (8,974) (10,565)
Proceeds from asset sales 25,944 2,112
--------- ---------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES 16,970 (8,453)
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Three Months Ended
March 31
1996 1995
($ thousands)
FINANCING ACTIVITIES
Deferred financing costs and expenses
incurred in borrowing activities $ (3,290) $ -
Borrowings under revolving
credit facilities 7,100 5,000
Principal payments under
term loan facilities (3,529) (500)
Payments under revolving
credit facilities (27,950) (6,000)
Principal payments on
other long-term debt (4,164) (3,182)
Dividends paid to minority
shareholders of subsidiary (132) (110)
Dividends paid (1,270) (1,270)
Net increase (decrease)
in cash overdrafts 4,276 (5,989)
--------- ---------
NET CASH USED BY
FINANCING ACTIVITIES (28,959) (12,051)
--------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (16,524) 5,338
Cash and cash equivalents
at beginning of period 16,945 3,458
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 421 $ 8,796
========= =========
<FN>
See notes to consolidated financial statements.
</FN>
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 1996
NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS
Arkansas Best Corporation (the "Company") is a diversified holding company
engaged through its subsidiaries primarily in motor carrier and freight
forwarding operations and truck tire retreading and sales. Principal
subsidiaries are ABF Freight System, Inc., ("ABF"), Treadco, Inc.
("Treadco"), and Clipper Exxpress Company and related companies (the "Clipper
Group") and, effective August 12, 1995, WorldWay Corporation ("WorldWay")
(see Note C). The principal subsidiaries of WorldWay included Carolina
Freight Carriers Corp., which was merged into ABF on September 25, 1995,
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").
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 months ended March 31, 1996, are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996. 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, 1995.
NOTE C - 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 $11 per share (the "Acquisition").For
financial statement purposes, the Worldway Acquisition has been accounted
for under the purchase method effective August 12, 1995.
NOTE D - INVENTORIES
March 31 December 31
1996 1995
($ thousands)
Finished goods $ 25,267 $ 25,579
Materials 6,734 7,621
Repair parts, supplies and other 3,439 3,650
--------- ---------
$ 35,440 $ 36,850
======== ========
NOTE E - FEDERAL AND STATE INCOME TAXES
Three Months Ended
March 31
1996 1995
($ thousands)
Income tax at regular rates $ (5,193) $ 3,415
Percent (35.0)% 35.0%
State taxes less federal benefits (227) 685
Percent (1.5)% 7.0%
Amortization of goodwill 280 266
Percent 1.9% 2.7%
Minority interest (218) 166
Percent (1.5)% 1.7%
Other items 80 84
Percent 0.5% 0.9%
-------- --------
Income tax expense $ (5,278) $ 4,616
Percent (35.6)% 47.3%
======== ========
NOTE F - OPERATING EXPENSES AND COSTS
Three Months Ended
March 31
1996 1995
(unaudited)
($ thousands)
LTL Operations:
Salaries and wages $ 209,297 $ 165,175
Supplies and expenses 31,549 26,372
Operating taxes and licenses 12,557 10,335
Insurance 6,526 4,485
Communications and utilities 7,835 5,802
Depreciation and amortization 12,056 6,393
Rents and purchased transportation 22,030 13,615
Other 1,902 946
-------- --------
303,752 233,123
Forwarding Operations:
Cost of services 32,243 24,488
Selling, administrative and general 8,448 3,655
-------- --------
40,691 28,143
Truckload Operations:
Salaries and wages 6,098 -
Supplies and expenses 3,058 -
Operating taxes and licenses 1,773 -
Insurance 645 -
Communications and utilities 233 -
Depreciation and amortization 866 -
Rents and purchased transportation 3,638 -
Other 101 -
-------- --------
16,412 -
Logistics Operations:
Cost of services 12,399 3,861
Selling, administrative and general 1,388 471
-------- --------
13,787 4,332
Tire Operations:
Cost of sales 24,915 24,781
Selling, administrative and general 8,323 6,716
-------- --------
33,238 31,497
Service and Other: 2,336 758
--------- ---------
$ 410,216 $ 297,853
========= =========
NOTE G - LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS AND OTHER EVENTS
In August 1990, a lawsuit was filed in the United States District Court for
the Southern District of New York, by Riverside Holdings, Inc., Riverside
Furniture Corporation ("Riverside") and MR Realty Associates, L.P.
("Plaintiffs") against the Company and a subsidiary. Plaintiffs have asserted
state law, Employee Retirement Income Security Act of 1974 and securities
claims against the Company in connection with the Company's sale of Riverside
in April 1989. Plaintiffs sought approximately $4 million in actual damages
and $10 million in punitive damages.
On April 15, 1996, the Court partially granted the Company's motion for
Summary Judgment by dismissing Riverside's claims for punitive damages, ERISA
violations and common law breach of contract and fraud claims. The Court did
not dismiss Riverside's claim of violation of Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 of that Act.
The Company is vigorously contesting the lawsuit. After consultation with
legal counsel, the Company has concluded that resolution of the foregoing
lawsuit is not expected to have a material adverse effect on the Company's
financial condition.
In November, 1995 Daily Transport Canada, Inc. ("Daily"), a Toronto-based LTL
carrier, and related companies served a Request for Arbitration against ABF,
as successor to Carolina Freight Carriers Corporation ("CFCC"), for its lost
profits claimed to be in the amount of $15,000,000 resulting from the alleged
breach of a contract between CFCC and Daily. Daily claims that ABF breached
an agreement for Daily to handle, through the year 2003, all CFCC freight
movements in Ontario and Quebec, Canada. ABF has filed a federal court action
in North Carolina seeking to stay arbitration of the alleged agreement on the
grounds that the agreement is not valid and contesting Daily's calculation of
damages. ABF is vigorously defending the arbitration. Based on information
currently available, the Company does not believe that the outcome of this
matter will have a material adverse effect on the Company's financial
condition or results of operations.
Various other 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.
The Company's subsidiaries store some fuel for its tractors and trucks in
approximately 176 underground tanks located in 34 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 ("PRP") under the Comprehensive
Environmental Response Compensation and Liability Act or other federal or
state environmental statutes at several hazardous waste sites. After
investigating the Company's or its subsidiaries' involvement in waste
disposal or waste generation at such sites, the Company has either agreed to
de minimis settlements (aggregating approximately $250,000 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.
As of March 31, 1996, the Company has accrued approximately $1.9 million to
provide for environmental-related liabilities. The Company's environmental
accrual is based on management's best estimate of the actual liability. The
Company's estimate is founded on management's experience in dealing with
similar environmental matters and on actual testing performed at some sites.
Management believes that the accrual is adequate to cover environmental
liabilities based on the present environmental regulations.
In August 1995, Bandag Incorporated ("Bandag"), Treadco's tread rubber
supplier and franchiser of the retreading process used by substantially all
of Treadco's locations, announced that certain franchise agreements would not
be renewed upon expiration in 1996. Bandag subsequently advised Treadco that
unless Treadco uses the Bandag process exclusively, Bandag will not renew any
of Treadco's franchise agreements when they expire.
In October 1995, Treadco announced it had reached an agreement for Oliver
Rubber Company ("Oliver") to be a supplier of equipment and related materials
for Treadco's truck tire precure retreading business. The agreement provides
that Oliver will supply Treadco with retreading equipment and related
materials for any Treadco facilities which cease being a Bandag franchised
location. Treadco has converted eight of its production facilities that were
under Bandag retread franchises to Oliver licensed facilities. Treadco plans
to complete the conversion of its remaining franchises to the Oliver process
by the end of the third quarter.
Under the franchise agreements, Bandag has the right to purchase retread
equipment supplied to Treadco by Bandag at its fair market value at locations
that cease being a Bandag franchise, and Bandag has exercised this option at
the locations where franchises were terminated. Treadco is installing
equipment provided by Oliver immediately upon the removal of the equipment
supplied by Bandag. Management of Treadco does not believe that the carrying
value of the Bandag-supplied equipment at March 31, 1996 exceeds the fair
market value of the equipment.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Arkansas Best Corporation (the "Company") is a diversified holding company
engaged through its subsidiaries primarily in less-than-truckload ("LTL")
and truckload motor carrier operations, 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 Clipper Exxpress Company ("Clipper"). Effective August 12,
1995, pursuant to its acquisition of WorldWay Corporation ("WorldWay"), the
Company acquired 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 ("ILI"). (See discussion below.)
The Company in 1991 reduced its ownership in Treadco, through an initial
public offering of Treadco common stock, to approximately 46%, while
retaining control of Treadco by reason of its stock ownership, board
representation and provision of management services. As a result, Treadco is
consolidated with the Company for financial reporting purposes, with the
ownership interests of the other stockholders reflected as minority
interest.
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
March 31
1996 1995
($ thousands)
OPERATING REVENUES
LTL operations $ 294,923 $ 244,477
Forwarding operations 41,766 28,768
Truckload operations 17,838 -
Logistics operations 13,230 3,945
Tire operations 31,613 33,214
Service and other 2,004 803
--------- --------
$ 401,374 $ 311,207
========= =========
OPERATING EXPENSES AND COSTS
LTL OPERATIONS
Salaries and wages $ 209,297 $ 165,175
Supplies and expenses 31,549 26,372
Operating taxes and licenses 12,557 10,335
Insurance 6,526 4,485
Communications and utilities 7,835 5,802
Depreciation and amortization 12,056 6,393
Rents and purchased transportation 22,030 13,615
Other 1,902 946
Other non-operating (net) 499 319
--------- --------
304,251 233,442
FORWARDING OPERATIONS
Cost of services 32,243 24,488
Selling, administrative & general 8,448 3,655
Other non-operating (net) 394 426
--------- --------
41,085 28,569
TRUCKLOAD OPERATIONS
Salaries and wages 6,098 -
Supplies and expenses 3,058 -
Operating taxes and licenses 1,773 -
Insurance 645 -
Communications and utilities 233 -
Depreciation and amortization 866 -
Rents and purchased transportation 3,638 -
Other 101 -
Other non-operating (net) 1 -
--------- --------
16,413 -
(Continued) Three Months Ended
March 31
1996 1995
($ thousands)
LOGISTICS OPERATIONS
Cost of services 12,399 3,861
Selling, administrative & general 1,388 471
Other non-operating (net) (31) (9)
--------- ---------
13,756 4,323
TIRE OPERATIONS
Cost of sales 24,915 24,781
Selling, administrative and general 8,323 6,716
Other non-operating (net) 137 125
--------- ---------
33,375 31,622
SERVICE AND OTHER 171 876
--------- ---------
$ 409,051 $ 298,832
========= =========
OPERATING PROFIT (LOSS)
LTL operations $ (9,328) $ 11,035
Forwarding operations 681 199
Truckload operations 1,425 -
Logistics operations (526) (378)
Tire operations (1,762) 1,592
Service and other 1,833 (73)
--------- --------
TOTAL OPERATING PROFIT (LOSS) (7,677) 12,375
MINORITY INTEREST (641) 489
INTEREST EXPENSE 7,801 2,128
--------- --------
INCOME (LOSS) BEFORE INCOME TAXES $ (14,837) $ 9,758
========= =========
The following table sets forth for the periods indicated a summary of the
Company's operations as a percentage of revenues presented on a business
segment basis as shown in the table on the preceding page. The basis of
presentation for business segment data differs from the basis of
presentation for data the Company provides to the U.S. Department of
Transportation.
Three Months Ended
March 31
1996 1995
($ thousands)
LTL OPERATIONS
Salaries and wages 71.0% 67.6%
Supplies and expenses 10.7% 10.8%
Operating taxes and licenses 4.3% 4.2%
Insurance 2.2% 1.8%
Communications and utilities 2.7% 2.4%
Depreciation and amortization 4.1% 2.6%
Rents and purchased transportation 7.5% 5.6%
Other 0.6% 0.4%
Other non-operating (net) 0.1% 0.1%
--------- ---------
Total LTL Operations 103.2% 95.5%
========= =========
FORWARDING OPERATIONS
Cost of services 77.2% 85.1%
Selling, administrative and
general 20.2% 12.7%
Other non-operating (net) 1.0% 1.5%
--------- ---------
Total Forwarding Operations 98.4% 99.3%
========= =========
TRUCKLOAD OPERATIONS
Salaries and wages 34.2% -
Supplies and expenses 17.1% -
Operating taxes and licenses 9.9% -
Insurance 3.6% -
Communications and utilities 1.3% -
Depreciation and amortization 4.9% -
Rents and purchased
transportation 20.4% -
Other 0.6% -
Other non-operating (net) - -
--------- ---------
Total Truckload Operations 92.0% -
========= =========
(Continued) Three Months Ended
March 31
1996 1995
($ thousands)
LOGISTICS OPERATIONS
Cost of sales 93.7% 97.9%
Selling, administrative
and general 10.5% 11.9%
Other non-operating (net) (0.2)% (0.2)%
--------- ---------
Total Logistics Operations 104.0% 109.6%
========= =========
TIRE OPERATIONS
Cost of sales 78.8% 74.6%
Selling, administrative
and general 26.3% 20.2%
Other non-operating (net) 0.5% 0.4%
--------- ---------
Total Tire Operations 105.6% 95.2%
========= =========
Results of Operations
Three Months Ended March 31, 1996 as Compared to the Three Months Ended
March 31, 1995
Consolidated revenues of the Company for the three months ended March 31,
1996 were $401 million compared to $311 million for the three months ended
March 31, 1995. The Company had an operating loss of $7.7 million for the
three months ended March 31, 1996 compared to an operating profit of $12.4
million for the three months ended March 31, 1995. For the three months ended
March 31, 1996, the Company had a net loss of $9.6 million, or a loss of $.54
per common share, compared to net income of $5.1 million, or $.21 per common
share for the three months ended March 31, 1995. Revenues for the first
quarter of 1996 increased due to the Acquisition of WorldWay.
Earnings per common share for the three months ended March 31, 1996 and 1995
give consideration to preferred stock dividends of $1.1 million. Average
common shares outstanding for the three months ended March 31, 1996 were 19.5
million shares compared to 19.6 million shares for the three months ended
March 31, 1995. Outstanding shares for each period do not assume conversion
of preferred stock to common shares, because conversion would be anti-
dilutive for these periods.
Less-Than-Truckload Motor Carrier Operations Segment. The Company's LTL motor
carrier operations are conducted primarily through ABF and effective
August 12, 1995 through G.I. Trucking.
Revenues from the LTL motor carrier operations segment for the three months
ended March 31, 1996 were $295 million, with an operating loss of $9.3
million. Earnings at ABF continue to be negatively affected by a slow
economy. So far, ABF has been more successful in retaining its January 1,
1996 freight rate increase of 5.8% than it has in previous years which is
part of the reason revenue increased 13.7% on a tonnage increase of 6.9%.
Following the Acquisition of WorldWay, the operations of Carolina Freight
Carriers ("Carolina Freight") and Red Arrow Freight Lines ("Red Arrow") were
merged into ABF on September 24, 1995. Effective with the merger, ABF
inherited Carolina Freight's regional distribution terminal operations, which
reconfigured the way freight flowed through ABF's terminal system. This
reconfiguration created many operating inefficiencies in ABF's system. Labor
dollars as a percent of revenue increased, empty miles increased and weight
per trailer decreased, which all had an adverse impact on expenses.
Operating results for the quarter and a slight operating profit for the month
of March indicate that ABF's previously disclosed cost reduction measures are
having the desired effect. During the quarter, ABF discontinued seven of the
inherited regional distribution terminal operations, and five more will be
discontinued by mid-May. These closings will realign ABF to its normal
terminal system configuration.
Salaries, wages and benefits increased 3.3% annually effective April 1, 1995,
pursuant to ABF's collective bargaining agreement with its Teamsters'
employees and will increase 3.8% annually effective April 1, 1996.
Forwarding Operations Segment. The Company's forwarding operations are
conducted primarily through Clipper and effective August 12, 1995, CaroTrans.
Comparisons for the three months ended March 31, 1996 were affected by the
Acquisition of WorldWay in August 1995. Therefore, comparisons of the results
of operations for the forwarding operations segment are not meaningful and
are not presented.
For the three months ended March 31, 1996, the forwarding operations segment
had revenues of $41.8 million with an operating profit of $681,000.
Forwarding operations continued to be affected during the three months ended
March 31, 1996 by soft economic conditions.
Truckload Motor Carrier Operations Segment. Effective August 12, 1995, with
the Acquisition of WorldWay, the Company began reporting a new business
segment, truckload motor carrier operations. The Company's truckload motor
carrier operations are conducted through Cardinal.
For the three months ended March 31, 1996, Cardinal had revenues of $17.8
million with an operating profit of $1.4 million. Cardinal's operations
continued to be affected during the three months ended March 31, 1996 by soft
economic conditions.
Logistics Operations Segment. Effective August 12, 1995, with the Acquisition
of WorldWay, the Company began reporting a new business segment, logistics
operations. The Company's logistics operations are conducted through
Integrated Distribution, Inc. and effective August 12, 1995, through Complete
Logistics and ILI.
For the three months ended March 31, 1996, the logistics operations segment
had operating revenues of $13.2 million with an operating loss of $526,000.
Tire Operations Segment. Treadco's revenues for the three months ended
March 31, 1996 decreased 4.8% to $31.6 million from $33.2 million for the
three months ended March 31, 1995. For the first quarter of 1996, "same
store" sales decreased 9.6% which was offset in part by a 4.5% increase in
"new store" sales. Same store sales include both production locations and
sales locations that have been in existence for the entire periods presented.
Economic conditions continued to weaken demand for both new replacement and
retreaded truck tires during the quarter. Treadco has seen increased
competition as Bandag Incorporated ("Bandag") has granted additional
franchises in some locations currently being served by Treadco. The new
competition has led to increased pricing pressures in the marketplace. As
anticipated, Bandag continues to target Treadco's accounts which has caused
difficulty in retaining the national account business and in some cases the
business retained is at lower profit margins.
Revenues from retreading for three months ended March 31, 1996 decreased 6.4%
to $16.6 million from $17.7 million for three months ended March 31, 1995.
Revenues from new tire sales decreased 3.0% to $15.0 million for three months
ended March 31, 1996 from $15.5 million for three months ended March 31,
1995.
Tire operations segment operating expenses as a percent of revenues were
105.6% for three months ended March 31, 1996 compared to 95.2% for three
months ended March 31, 1995. Cost of sales for the tire operations segment as
a percent of revenues increased to 78.8% for three months ended March 31,
1996 from 74.6% for three months ended March 31, 1995. The increase resulted
primarily from expenses incurred during the conversion and because margins
are less on new tires. Selling, administrative and general expenses for the
tire operations segment increased to 26.3% for three months ended March 31,
1996 from 20.2% for three months ended March 31, 1995. The increase resulted
primarily from higher insurance costs, expenses associated with employee
medical benefits and legal costs. Also, the coverage of fixed costs at six
new locations hasn't reached levels comparable to Treadco's other locations.
Treadco has converted eight of its production facilities that were under
Bandag retread franchises to Oliver Rubber Company ("Oliver") licensed
facilities. The converted locations are Little Rock, West Memphis, Pine
Bluff, Springdale and Fort Smith (AR), Phoenix (AZ), Springfield (MO) and San
Antonio (TX). Treadco plans to complete the conversion of its remaining
Bandag franchises to the Oliver process by the end of the third quarter.
The conversion has resulted in up to two lost production days during each
conversion, some short-term operational inefficiencies and time lost as
production employees have familiarized themselves with the new equipment.
Also, management has been required to spend time with the conversion at the
expense of the normal daily operations.
Service and Other Segment. Operating income for the other operations segment
includes gains of $2.1 million on the sale of real estate. The gains
principally are recognized on the sale of excess terminal properties which
resulted from the ABF/Carolina Freight merger.
Interest. Interest expense was $7.8 million for three months ended March 31,
1996 compared to $2.1 million for three months ended March 31, 1995 primarily
due to a higher level of outstanding debt. The increase in long-term debt
consisted primarily of debt incurred or assumed in the acquisition of
WorldWay and debt incurred for working capital requirements.
Income Taxes. The difference between the effective tax rate for 1995 and the
federal statutory rate resulted primarily from state income taxes,
amortization of goodwill, minority interest, and other nondeductible expenses
(see Note E to the consolidated financial statements).
Liquidity and Capital Resources
The ratio of current assets to current liabilities was 1.031 at March 31,
1996 compared to 1.06:1 at December 31, 1995. Net cash used by operating
activities for the three months ended March 31, 1996 was $4.5 million
compared to net cash provided of $25.8 million for the three months ended
March 31, 1995. The decrease is due primarily to the net loss from operations
and reductions in accounts payable and accrued expenses.
The Company is in the process of selling excess real estate which resulted
from the merger of Carolina Freight and Red Arrow into ABF. So far in 1996,
the Company has received net proceeds from the sale of real estate of $19
million and has $13-14 million in pending sales which are projected to close
before the end of the second quarter of 1996.
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 with 15 other participating 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, at the Company's option: (a) Prime Rate advance or (b) Eurodollar Rate
advance. A Prime Rate advance bears an interest rate 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 or 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 earnings before interest, taxes, depreciation and amortization.
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 March 29, 1996, the
average interest rate on the Credit Agreement was 7.9%. The Company pays a
commitment fee at a rate per annum equal to the Applicable Margin on the
unused amount of the Company's revolving credit commitment.
There were $185 million of Revolver Advances, $72 million of Term Advances
and approximately $65 million of letters of credit outstanding at March 31,
1996. Outstanding revolving credit advances may not exceed a borrowing base
calculated using the Company's revenue equipment, real property and other
equipment, the Treadco common stock owned by the Company and the Company's
eligible receivables.
The Term Advances are payable in varying installments commencing in November
1996.
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. As of March 31, 1996, these covenants have been met.
On February 21, 1996, the Company obtained an amendment to the Credit
Agreement which revised the agreement so that the Company was in compliance
with all covenants. Under the amended Credit Agreement, the Company has
pledged substantially all revenue equipment and real property not already
pledged under other debt obligations or capital leases.
The amendment also revised the maturity schedule of the term loan agreement
to revise the loans to be paid off in graduated principal installments
through August 1998. The amendment also requires that net proceeds received
from certain asset sales be applied against the term loan balance.
Also, on February 21, 1996, the Company obtained an additional credit
agreement which provides for borrowings of up to $30 million. This agreement
bears interest at either an adjusted prime rate plus 2% or a maximum rate as
defined in the agreement in the case of prime rate advances, or the
Eurodollar rate plus 3% or a maximum rate as defined in the agreement in the
care of Eurodollar rate advances. The maturity date of this agreement is
March 31, 1997. This agreement contains covenants that are substantially the
same as the covenants contained in the primary credit agreement.
The Company assumed the Subordinated Debentures of WorldWay which were issued
in April 1986. The debentures bear interest at 6.25% per annum, payable semi-
annually, on a par value of $50,000,000. The debentures are payable April 15,
2011. The Company may redeem the debentures at a price of 101.25% declining
to 100% at April 15, 1996. The Company is required to redeem through a
mandatory sinking fund commencing before April 15, in each of the years from
1997 to 2010, an amount in cash sufficient to redeem $2,500,000 annually of
the aggregate principal amount of the debentures issued.
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. Borrowings under the Treadco
Credit Agreement are collateralized by accounts receivable and inventory.
Borrowings under the agreement bear interest, at Treadco's option, at 3/4%
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 March 31, 1996, the weighted average
interest rate was 6.1%. At March 31, 1996, Treadco had $7 million outstanding
under the Treadco Credit Agreement. The Treadco Credit Agreement is payable
in September 1998. 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.
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 the Treadco 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 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 LTL and truckload 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.
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 G to the Company's Unaudited
Consolidated Financial Statements).
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 11 - Statement Re: Computation of Earnings Per Share.
(b) Reports on Form 8-K.
Form 8-K dated February 28, 1996
Item 5. Other Events. -- $346,971,321 Amended and Restated
Credit Agreement dated February 21, 1996 and $30,000,000
Credit Agreement dated February 21, 1996.
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: May 13, 1996 /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.
11 Statement Re: Computation of Earnings per Share