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, 1996
------------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission file number 0-19969
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ARKANSAS BEST CORPORATION
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 6711 71-0673405
- ------------------------- ------------------------- ----------------------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code No.)
organization)
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, 1996
--------------------------------- --------------------------------
Common Stock, $.01 par value 19,504,473 shares
ARKANSAS BEST CORPORATION
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets --
September 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations --
For the Three and Nine Months
Ended September 30, 1996 and 1995 5
Consolidated Statements of Cash Flows --
For the Nine Months Ended September 30, 1996 and 1995 7
Notes to Consolidated Financial Statements --
September 30, 1996 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 2. Changes in Securities 27
Item 3. Defaults Upon Senior Securities 27
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 5. Other Information 27
Item 6. Exhibits and Reports on Form 8-K 27
SIGNATURES 28
EXHIBITS 29
Exhibit 11. Statement Re: Computation of Earnings Per Share
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30 December 31
1996 1995
(unaudited) (note)
($ thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 91 $ 16,945
Trade receivables, less allowances for
doubtful accounts (1996 -- $7,583,000;
1995 -- $19,403,000) 203,928 205,196
Inventories -- Note C 32,611 36,850
Prepaid expenses 17,360 13,927
Federal and state income taxes 16,749 17,489
Deferred federal income taxes 31,956 32,080
--------- ---------
TOTAL CURRENT ASSETS 302,695 322,487
PROPERTY, PLANT AND EQUIPMENT
Land and structures 232,100 228,706
Revenue equipment 271,699 285,045
Manufacturing equipment 16,312 8,289
Service, office and other equipment 65,834 65,474
Leasehold improvements 9,333 10,631
Construction in progress - 44
Non-operating property 16,278 15,869
--------- ---------
611,556 614,058
Less allowances for depreciation
and amortization (216,812) (190,906)
--------- ---------
394,744 423,152
OTHER ASSETS 55,365 54,783
NET ASSETS HELD FOR SALE 14,697 39,937
GOODWILL, less amortization (1996 --
$27,220,000; 1995 -- $24,027,000) 156,313 145,478
--------- ---------
$ 923,814 $ 985,837
========= =========
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30 December 31
1996 1995
(unaudited) (note)
($ thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ 1,600 $ -
Bank drafts payable 3,478 12,999
Trade accounts payable 78,184 74,998
Accrued expenses 199,142 188,708
Current portion of long-term debt 45,138 26,634
--------- ---------
TOTAL CURRENT LIABILITIES 327,542 303,339
LONG-TERM DEBT, less current portion 358,141 399,144
OTHER LIABILITIES 19,689 18,665
DEFERRED FEDERAL INCOME TAXES 36,066 48,560
MINORITY INTEREST 34,843 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: 19,508,620 shares; 1995: 19,519,061 195 195
Additional paid-in capital 207,726 207,807
Predecessor basis adjustment (15,371) (15,371)
Accumulated deficit (45,032) (14,782)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 147,533 177,864
CONTINGENCIES -- Note F
--------- ---------
$ 923,814 $ 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 Nine Months Ended
September 30 September 30
1996 1995 1996 1995
(unaudited)
($ thousands, except per share data)
OPERATING REVENUES
LTL motor
carrier operations $ 305,926 $ 299,317 $ 899,735 $ 783,836
Forwarding operations 47,552 38,189 134,319 96,615
Truckload motor
carrier operations 19,171 10,162 55,926 10,162
Logistics operations 14,007 9,866 41,482 18,105
Tire operations 39,488 40,065 106,606 110,693
Service and other 2,369 952 6,281 2,442
--------- --------- --------- ---------
428,513 398,551 1,244,349 1,021,853
--------- --------- --------- ---------
OPERATING EXPENSES AND
COSTS -Note E
LTL motor
carrier operations 307,932 317,827 917,471 786,059
Forwarding operations 48,370 36,337 132,477 93,307
Truckload motor
carrier operations 18,138 8,967 52,015 8,967
Logistics operations 15,078 10,298 43,376 19,331
Tire operations 40,184 38,460 110,249 105,476
Service and other 2,530 802 7,305 2,295
--------- --------- --------- ---------
432,232 412,691 1,262,893 1,015,435
--------- --------- --------- ---------
OPERATING INCOME (LOSS) (3,719) (14,140) (18,544) 6,418
OTHER INCOME (EXPENSE)
Gain on asset sales 1,141 1,079 4,436 2,904
Interest (7,906) (5,569) (23,310) (10,218)
Minority interest
in subsidiary (82) (449) 1,045 (1,523)
Other, net (1,988) (1,692) (5,180) (4,310)
--------- --------- --------- ---------
(8,835) (6,631) (23,009) (13,147)
--------- --------- --------- ---------
LOSS BEFORE INCOME TAXES (12,554) (20,771) (41,553) (6,729)
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
(unaudited)
($ thousands, except per share data)
FEDERAL AND STATE INCOME
TAXES (CREDIT) -Note D
Current (5,067) (11,335) (9,909) (1,193)
Deferred 999 3,692 (4,813) 768
--------- --------- --------- ---------
(4,068) (7,643) (14,722) (425)
--------- --------- --------- ---------
NET LOSS $ (8,486) $ (13,128) $ (26,831) $ (6,304)
========= ========= ========= =========
LOSS PER COMMON SHARE:
NET LOSS $ (0.49) $ (0.73) $ (1.54) $ (0.49)
========= ========= ======== =========
AVERAGE COMMON
SHARES OUTSTANDING: 19,508,620 19,526,200 19,512,509 19,517,872
========== ========== ========== ==========
CASH DIVIDENDS PAID
PER COMMON SHARE $ - $ 0.01 $ 0.01 $ 0.03
========== ========== ========== ==========
<FN>
See notes to consolidated financial statements.
</FN>
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30
1996 1995
(unaudited)
($ thousands)
OPERATING ACTIVITIES
Net loss $ (26,831) $ (6,304)
Adjustments to reconcile net
loss to net cash used
by operating activities:
Depreciation and amortization 43,253 30,239
Amortization of intangibles 3,464 3,554
Other amortization 2,691 553
Provision for losses on
accounts receivable 6,820 2,136
Provision (credit) for deferred
income taxes (4,813) 768
Gain on asset sales (4,436) (2,904)
Gain on issuance of
subsidiary stock - (20)
Minority interest in
subsidiary (1,295) 1,523
Changes in operating
assets and liabilities:
Accounts receivable (1,653) (43,289)
Inventories and
prepaid expenses 618 2,095
Other assets (2,509) (6,109)
Accounts payable, bank
drafts payable, taxes
payable, accrued expenses
and other liabilities (16,165) (20,327)
--------- ---------
NET CASH USED BY OPERATING ACTIVITIES (856) (38,085)
INVESTING ACTIVITIES
Purchases of property,
plant and equipment,
less capitalized leases (22,540) (34,318)
Proceeds from asset sales 49,220 11,412
Adjustment to the acquisition
of the Clipper Group - (84)
Acquisition of WorldWay
Corporation - (69,701)
--------- ---------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES 26,680 (92,691)
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Nine Months Ended
September 30
1996 1995
($ thousands)
FINANCING ACTIVITIES
Deferred financing costs and expenses
incurred in borrowing activities $ (3,512) $ (4,559)
Proceeds from the issuance
of common stock - 171
Proceeds from term loan - 75,000
Borrowings under revolving
credit facilities 203,060 159,975
Principal payments under
term loan facilities (11,566) (1,500)
Payments under revolving
credit facilities (214,060) (21,975)
Payments under commercial
paper agreements - (40,000)
Principal payments on
other long-term debt (13,918) (26,217)
Dividends paid to minority
shareholders of subsidiary (308) (330)
Dividends paid (3,419) (3,809)
Retirement of subsidiary preferred stock (371) -
Net increase (decrease)
in cash overdrafts 1,416 (9,275)
--------- ---------
NET CASH (USED) PROVIDED BY
FINANCING ACTIVITIES (42,678) 127,481
--------- ---------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (16,854) (3,295)
Cash and cash equivalents
at beginning of period 16,945 3,458
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 91 $ 163
========= =========
<FN>
See notes to consolidated financial statements.
</FN>
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 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. ("Carolina Freight") , 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").
Carolina Freight was merged into ABF on September 25, 1995.
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, 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 - INVENTORIES
September 30 December 31
1996 1995
($ thousands)
Finished goods $ 23,179 $ 25,579
Materials 5,899 7,621
Repair parts, supplies and other 3,533 3,650
-------- --------
$ 32,611 $ 36,850
======== ========
NOTE D - FEDERAL AND STATE INCOME TAXES
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
($ thousands)
Income tax (credit) at regular rates $(4,394) $(7,270) $(14,544) $(2,355)
Percent (35.0)% (35.0)% (35.0)% (35.0)%
State taxes less federal benefits (773) (1,336) (1,013) (205)
Percent (6.2)% (6.4)% (2.4)% (3.1)%
Amortization of
nondeductible goodwill 250 271 753 809
Percent 2.0 % 1.3 % 1.8 % 12.0 %
Minority interest 28 153 (366) 533
Percent 0.2 % 0.7 % (1.0)% 7.9 %
Other items 821 539 448 793
Percent 6.6 % 2.6 % 1.2 % 11.9 %
------- ------- -------- -------
Income tax benefit $(4,068) $(7,643) $(14,722) $ (425)
Percent (32.4)% (36.8)% (35.4)% (6.3)%
======= ======= ======== =======
NOTE E - OPERATING EXPENSES AND COSTS
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
($ thousands)
LTL Motor Carrier Operations:
Salaries and wages $210,756 $218,180 $ 629,053 $ 550,106
Supplies and expenses 31,502 32,644 96,724 84,908
Operating taxes and licenses 11,729 12,237 36,831 32,263
Insurance 8,018 9,574 21,169 19,655
Communications and utilities 7,292 7,001 22,533 18,601
Depreciation and
amortization 9,569 11,461 32,329 24,664
Rents and purchased
transportation 25,190 22,835 69,138 49,946
Other 3,876 3,895 9,694 5,916
-------- -------- -------- --------
307,932 317,827 917,471 786,059
-------- -------- -------- --------
Forwarding Operations:
Cost of services 41,255 31,597 111,894 81,184
Selling, administrative and
general 7,115 4,740 20,583 12,123
-------- -------- -------- --------
48,370 36,337 132,477 93,307
-------- -------- -------- --------
Truckload Motor Carrier
Operations:
Salaries and wages 6,974 3,619 19,962 3,619
Supplies and expenses 3,440 1,712 9,673 1,712
Operating taxes and licenses 1,822 918 5,392 918
Insurance 771 368 2,089 368
Communications and utilities 275 156 742 156
Depreciation and amortization 902 464 2,663 464
Rents and purchased
transportation 3,833 1,700 11,184 1,700
Other 121 30 310 30
-------- -------- -------- --------
18,138 8,967 52,015 8,967
-------- -------- -------- --------
Logistics Operations:
Cost of services 12,824 9,183 38,155 17,214
Selling, administrative
and general 2,254 1,115 5,221 2,117
-------- -------- -------- --------
15,078 10,298 43,376 19,331
-------- -------- -------- --------
Tire Operations:
Cost of sales 24,496 30,334 77,110 82,880
Selling, administrative
and general 15,688 8,126 33,139 22,596
-------- -------- -------- --------
40,184 38,460 110,249 105,476
-------- -------- -------- --------
Service and Other 2,530 802 7,305 2,295
-------- -------- -------- --------
$432,232 $412,691 $1,262,893 $1,015,435
======== ======== ========== ==========
NOTE F - 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 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. ABF and Daily reached a
settlement of this litigation on terms that are not financially material to
the Company.
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 159 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 September 30, 1996, the Company has accrued approximately $2.9 million
to provide for environmental-related liabilities. The Company's environmental
accrual is based on management's best estimate of the actual liability. The
Company's estimate is founded on management's experience in dealing with
similar environmental matters and on actual testing performed at some sites.
Management believes that the accrual is adequate to cover environmental
liabilities based on the present environmental regulations.
On October 30, 1995, Treadco filed a lawsuit in Arkansas State Court alleging
that Bandag Incorporated ("Bandag") and certain of its officers and employees
have violated Arkansas statutory and common law in attempting to solicit
Treadco's employees to work for Bandag or its competing franchisees and
attempting to divert customers from Treadco. At Treadco's request, the Court
entered a Temporary Restraining Order barring Bandag, Treadco's former
officers J.J. Seiter, Ronald W. Toothaker, and Ronald W. Hawks and Bandag
officers Martin G. Carver and William Sweatman from soliciting or hiring
Treadco's employees to work for Bandag or any of its franchisees, from
diverting or soliciting Treadco's customers to buy from Bandag franchisees
other than Treadco, and from disclosing or using any of Treadco's
confidential information.
On November 8, 1995, Bandag and the other named defendants asked the State
Court to stop its 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 on November 8,
1995.
The Federal District Court has ruled that under terms of Treadco's franchise
agreements with Bandag, all of the issues involved in Treadco's lawsuit
against Bandag are to be decided by arbitration. Treadco and Bandag are
conducting discovery in preparation for the arbitration hearing. A date for
the arbitration hearing has not yet been set.
NOTE G - ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of". Under
SFAS No. 121, impairment losses are recognized when information indicates the
carrying amount of long-lived assets, identifiable intangibles and goodwill
related to those assets will not be recovered through future operations or
sale. Impairment losses for assets to be held or used in operations are
based on the excess of the carrying amount of the asset over the asset's fair
value. Assets held for disposal are carried at the lower of carrying amount
or fair value less cost to sell. The adoption of this statement had no
impact on the Company's results of operations or financial position.
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").
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 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. Also,
the segment information for prior periods has been restated to reflect
allocation of a $2.6 million gain on the sale of terminal properties from the
Service and Other segment to Other non-operating expenses in the LTL Motor
Carrier Operations segment.
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
($ thousands)
OPERATING REVENUES
LTL motor carrier operations $305,926 $299,317 $ 899,735 $ 783,836
Forwarding operations 47,552 38,189 134,319 96,615
Truckload motor carrier
operations 19,171 10,162 55,926 10,162
Logistics operations 14,007 9,867 41,482 18,105
Tire operations 39,488 40,065 106,606 110,693
Other 2,369 951 6,281 2,442
-------- -------- ---------- ----------
$428,513 $398,551 $1,244,349 $1,021,853
======== ======== ========== ==========
OPERATING EXPENSE AND COSTS
LTL MOTOR CARRIER OPERATIONS
Salaries and wages $210,756 $218,180 $ 629,053 $ 550,106
Supplies and expenses 31,502 32,644 96,724 84,908
Operating taxes and licenses 11,729 12,237 36,831 32,263
Insurance 8,018 9,574 21,169 19,655
Communications and utilities 7,292 7,001 22,533 18,601
Depreciation and amortization 9,569 11,461 32,329 24,664
Rents and purchased
transportation 25,190 22,835 69,138 49,946
Other 3,876 3,895 9,694 5,916
Other non-operating (net) 36 (150) (1,822) (510)
-------- -------- -------- --------
307,968 317,677 915,649 785,549
FORWARDING OPERATIONS
Cost of services 41,255 31,597 111,894 81,184
Selling, administrative
and general 7,115 4,740 20,583 12,123
Other non-operating (net) 480 423 1,284 1,283
-------- -------- -------- --------
48,850 36,760 133,761 94,590
TRUCKLOAD MOTOR CARRIER
OPERATIONS
Salaries and wages 6,974 3,619 19,962 3,619
Supplies and expenses 3,440 1,712 9,673 1,712
Operating taxes and licenses 1,822 918 5,392 918
Insurance 771 368 2,089 368
Communications and utilities 275 156 742 156
Depreciation and amortization 902 464 2,663 464
Rents and purchased
transportation 3,833 1,700 11,184 1,700
Other 121 30 310 30
Other non-operating (net) 1 1 3 1
-------- -------- -------- --------
18,139 8,968 52,018 8,968
LOGISTICS OPERATIONS
Cost of services 12,824 9,183 38,155 17,214
Selling, administrative
and general 2,254 1,115 5,221 2,117
Other non-operating (net) (5) 3 (57) (20)
-------- -------- -------- --------
15,073 10,301 43,319 19,311
TIRE OPERATIONS
Cost of sales 30,568 30,334 83,182 82,880
Selling, administrative
and general 9,616 8,126 27,067 22,596
Other non-operating (net) (924) 135 (781) 255
-------- -------- -------- --------
39,260 38,595 109,468 105,731
SERVICE AND OTHER 3,789 1,003 9,422 2,692
-------- -------- -------- --------
$433,079 $413,304 $1,263,637 $1,016,841
======== ======== ========== ==========
OPERATING PROFIT (LOSS)
LTL motor carrier operations $ (2,042) $(18,360) $ (15,914) $ (1,713)
Forwarding operations (1,298) 1,429 558 2,025
Truckload motor carrier
operations 1,032 1,194 3,908 1,194
Logistics operations (1,066) (434) (1,837) (1,206)
Tire operations 228 1,470 (2,862) 4,962
Other (1,420) (52) (3,141) (250)
-------- -------- -------- --------
TOTAL OPERATING PROFIT (LOSS) (4,566) (14,753) (19,288) 5,012
MINORITY INTEREST (82) (449) 1,045 (1,523)
INTEREST EXPENSE (7,906) (5,569) (23,310) (10,218)
-------- -------- ---------- ----------
LOSS BEFORE INCOME TAXES $(12,554) $(20,771) $ (41,553) $ (6,729)
======== ======== ========== ==========
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 Nine Months Ended
September 30 September 30
1996 1995 1996 1995
LTL MOTOR CARRIER OPERATIONS
Salaries and wages 68.9% 72.9% 69.9% 70.2%
Supplies and expenses 10.3 10.9 10.8 10.8
Operating taxes and licenses 3.8 4.1 4.1 4.1
Insurance 2.6 3.2 2.4 2.5
Communications and utilities 2.4 2.3 2.5 2.4
Depreciation and amortization 3.1 3.8 3.6 3.1
Rents and purchased transportation 8.2 7.6 7.7 6.4
Other 1.3 1.3 1.1 0.8
Other non-operating (net) 0.1 - (0.3) (0.1)
----- ----- ----- -----
100.7% 106.1% 101.8% 100.2%
===== ===== ===== =====
FORWARDING OPERATIONS
Cost of services 86.7% 82.7% 83.3% 84.0%
Selling, administrative
and general 15.0 12.3 15.3 12.5
Other non-operating (net) 1.0 1.3 1.0 1.4
----- ----- ----- -----
102.7% 96.3% 99.6% 97.9%
===== ===== ===== =====
TRUCKLOAD MOTOR CARRIER OPERATIONS
Salaries and wages 36.4% 35.6% 35.7% 35.6%
Supplies and expenses 17.9 16.4 17.3 16.4
Operating taxes and licenses 9.5 9.0 9.6 9.0
Insurance 4.0 3.6 3.7 3.6
Communications and utilities 1.4 1.5 1.3 1.5
Depreciation and amortization 4.7 4.6 4.8 4.6
Rents and purchased transportation 20.0 16.7 20.0 16.7
Other 0.6 0.3 0.6 0.3
Other non-operating (net) 0.1 0.6 - 0.6
----- ----- ----- -----
94.6% 88.3% 93.0% 88.3%
===== ===== ===== =====
LOGISTICS OPERATIONS
Cost of services 91.6% 93.1% 92.0% 95.1%
Selling, administrative and
general 16.1 11.3 12.6 11.7
Other non-operating (net) (0.1) - (0.2) (0.1)
----- ----- ----- -----
107.6% 104.4% 104.4% 106.7%
===== ===== ===== =====
TIRE OPERATIONS
Cost of sales 77.4% 75.7% 78.0% 74.9%
Selling, administrative
and general 24.4 20.3 25.4 20.4
Other non-operating (net) (2.4) 0.3 (0.7) 0.2
----- ----- ----- -----
99.4% 96.3% 102.7% 95.5%
===== ===== ===== =====
Results of Operations
Three Months Ended September 30, 1996 as Compared to the Three Months Ended
September 30, 1995
Consolidated revenues of the Company for the three months ended September 30,
1996 were $429 million compared to $399 million for the three months ended
September 30, 1995. The Company had an operating loss of $4.6 million for the
three months ended September 30, 1996 compared to an operating loss of $14.8
million for the three months ended September 30, 1995. For the three months
ended September 30, 1996, the Company had a net loss of $8.5 million, or a
loss of $.49 per common share, compared to a net loss of $13.1 million, or
$.73 per common share for the three months ended September 30, 1995.
Earnings per common share for the three months ended September 30, 1996 and
1995 give consideration to preferred stock dividends of $1.1 million. Average
common shares outstanding for both periods were 19.5 million. 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 September 30, 1996 were $306 million, with an operating loss of $2.0
million. For the three months ended September 30, 1996, ABF accounted for 92%
of LTL segment revenues. 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 15.1% on a tonnage
increase of 10.0%. ABF's 10.0% increase in total tonnage consisted of a 12.3%
increase in LTL tonnage and a 2.3% increase in truckload tonnage.
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.
ABF has discontinued the use of the regional distribution centers and has
completed its terminal network reconfiguration, returning ABF to its normal
terminal system configuration. This allows ABF to concentrate on handling
freight flowing through the system in the most efficient method. These
changes are reflected in the improvement in ABF's operating ratio. ABF's
operating ratio as reported to the Department of Transportation was 99.7%
for the third quarter of 1996 compared to 102.2% and 101.9% for the first
and second quarters of 1996, respectively.
Salaries and wages as a percent of revenue decreased primarily as a result of
increased productivity due to ABF's terminal reconfiguration and G.I.
Trucking's improved labor costs as they continue to replace revenue lost
during the merger of Carolina Freight into ABF. ABF's increased productivity
offset a 3.8% annual increase in salaries, wages and benefits which was
effective April 1, 1996, pursuant to ABF's collective bargaining agreement.
Rents and purchased transportation expense as a percent of revenue increased
due to the utilization of alternate modes of outside transportation.
The total LTL segment expenses as a percent of revenue were 100.7% for the
third quarter, 1996 compared to 102.4% for the second quarter, 1996 and
106.1% for the third quarter of 1995.
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 September 30, 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 September 30, 1996, the forwarding operations
segment had revenues of $47.6 million with an operating loss of $1.3 million.
Forwarding operations were affected during the three months ended
September 30, 1996 by poorer than expected results at CaroTrans. CaroTrans
has expanded into some higher cost markets and has seen a shift in their
market mix to more full container load freight. Also, ocean container costs
have increased which negatively impacts operating results.
The total expenses as a percent of revenue were 102.7% for the third quarter,
1996 compared to 97.4% for the second quarter, 1996.
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 September 30, 1996, Cardinal had revenues of $19.2
million with an operating profit of $1.0 million. The total expenses as a
percent of revenue were 94.6% for the third quarter, 1996 compared to 92.3%
for the second quarter, 1996 resulting primarily from higher maintenance
expenses.
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 Innovative Logistics, Inc.
Subsequent to September 30, 1996, the operations of Innovative Logistics were
merged with and into Complete Logistics and the Clipper Group. Innovative's
non-asset intensive customer accounts and operations were merged into the
Clipper Group with the remaining accounts absorbed by Complete Logistics.
For the three months ended September 30, 1996, the logistics operations
segment had operating revenues of $14.0 million with an operating loss of
$1.1 million.
The total expenses as a percent of revenue were 107.6% for the third quarter,
1996 compared to 101.7% for the second quarter, 1996. The increase resulted
primarily from higher bad debt expense and increased insurance expense.
Tire Operations Segment. Treadco's revenues for the three months ended
September 30, 1996 decreased 1.4% to $39.5 million from $40.1 million for the
three months ended September 30, 1995. For the third quarter of 1996, "same
store" sales decreased 7.8% which was offset in part by a 6.4% 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.
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 September 30, 1996 decreased
11.1% to $18.6 million from $20.9 million for three months ended
September 30, 1995. Revenues from new tire sales increased 9.1% to $20.9
million for three months ended September 30, 1996 compared to $19.2 million
for three months ended September 30, 1995.
Tire operations segment operating expenses as a percent of revenues were
99.4% for three months ended September 30, 1996 compared to 96.3% for three
months ended September 30, 1995. Cost of sales for the tire operations
segment as a percent of revenues increased to 77.4% for three months ended
September 30, 1996 from 75.7% for three months ended September 30, 1995. The
increase resulted primarily from expenses incurred during the conversion and
because tire margins are less as a result of increased pricing pressures.
Selling, administrative and general expenses for the tire operations segment
increased to 24.4% for three months ended September 30, 1996 from 20.3% for
three months ended September 30, 1995. The increase resulted from several
factors including costs associated with the conversion from Bandag, higher
insurance costs, expenses associated with employee medical benefits and legal
costs. Also, the coverage of fixed costs at new locations hasn't reached
levels comparable to Treadco's other locations. Other non-operating expenses
during the three months ended September 30, 1996 included a $1.1 million gain
on the sale of assets related to the conversion from Bandag to Oliver Rubber
Company ("Oliver").
During the third quarter, Treadco completed the conversion of its production
facilities that were under Bandag retread franchises to Oliver licensed
facilities by converting its ten remaining Bandag franchises. Treadco
converted seven of its production facilities during the first quarter of 1996
and nine facilities in the second 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. The increased operating loss for the other
operations segment resulted primarily from amortization of deferred financing
costs related to the Company's Credit Agreement and losses on the sale of
assets.
Interest. Interest expense was $7.9 million for three months ended
September 30, 1996 compared to $5.6 million for three months ended
September 30, 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 1996 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).
Nine Months Ended September 30, 1996 as Compared to the Nine Months Ended
September 30, 1995
Consolidated revenues of the Company for the nine months ended September 30,
1996 were $1.2 billion compared to $1.0 billion for the nine months ended
September 30, 1995. The Company had an operating loss of $19.3 million for
the nine months ended September 30, 1996 compared to an operating profit of
$5.0 million for the nine months ended September 30, 1995. For the nine
months ended September 30, 1996, the Company had a net loss of $26.8 million,
or $1.54 per common share, compared to a net loss of $6.3 million, or $.49
per common share for the nine months ended September 30, 1995. Revenues for
the nine months ended September 30, 1996 increased due to the acquisition of
WorldWay.
Earnings per common share for the nine months ended September 30, 1996 and
1995 give consideration to preferred stock dividends of $3.2 million. Average
common shares outstanding for both periods were 19.5 million. 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 nine months
ended September 30, 1996 were $900 million, with an operating loss of $15.9
million. For the nine months ended September 30, 1996, ABF accounted for 92%
of LTL revenue. 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 15.1% on a tonnage increase of
9.4%. ABF's 9.4% increase in total tonnage consisted of an 11.4% increase in
LTL tonnage and a 2.3% increase in truckload tonnage.
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.
During 1996, ABF discontinued twelve of the inherited regional distribution
terminal operations. These closings have completed ABF's network
reconfiguration, returning ABF to its normal terminal system configuration.
This allows ABF to concentrate on handling freight flowing through the system
in the most efficient method.
Salaries, wages and benefits increased 3.8% annually effective April 1, 1996,
pursuant to ABF's collective bargaining agreement with its Teamsters
employees.
Forwarding Operations Segment. The Company's forwarding operations are
conducted primarily through Clipper and effective August 12, 1995, CaroTrans.
Comparisons for the nine months ended September 30, 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 nine months ended September 30, 1996, the forwarding operations
segment had revenues of $134.3 million with an operating profit of $558,000.
Forwarding operations were affected during the nine months ended
September 30, 1996 by soft economic conditions and weaker than expected
results at CaroTrans during the third quarter. CaroTrans has expanded into
some higher cost markets and has seen a shift in their market mix to more
full container load freight. Also, ocean container costs have increased
which negatively impacts operating results.
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 nine months ended September 30, 1996, Cardinal had revenues of $55.9
million with an operating profit of $3.9 million.
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 Innovative Logistics, Inc.
Subsequent to September 30, 1996, the operations of Innovative Logistics were
merged with and into Complete Logistics and the Clipper Group. Innovative's
non-asset intensive customer accounts and operations were merged into the
Clipper Group with the remaining accounts absorbed by Complete Logistics.
For the nine months ended September 30, 1996, the logistics operations
segment had operating revenues of $41.5 million with an operating loss of
$1.8 million.
Tire Operations Segment. Treadco's revenues for the nine months ended
September 30, 1996 decreased 3.7% to $106.6 million from $110.7 million for
the nine months ended September 30, 1995. For the nine months ended
September 30, 1996, "same store" sales decreased 8.8% which was offset in
part by a 5.0% 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.
Treadco has seen increased competition as 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 nine months ended September 30, 1996 decreased
9.3% to $52.9 million from $58.4 million for nine months ended September 30,
1995. Revenues from new tire sales increased 2.6% to $53.7 million for nine
months ended September 30, 1996 compared to $52.3 million for nine months
ended September 30, 1995.
Tire operations segment operating expenses as a percent of revenues were
102.7% for nine months ended September 30, 1996 compared to 95.5% for nine
months ended September 30, 1995. Cost of sales for the tire operations
segment as a percent of revenues increased to 78.0% for nine months ended
September 30, 1996 from 74.9% for nine months ended September 30, 1995. The
increase resulted primarily from expenses incurred during the conversion and
because tire margins are less as a result of increased pricing pressures (see
above). Selling, administrative and general expenses for the tire operations
segment increased to 25.4% for nine months ended September 30, 1996 from
20.4% for nine months ended September 30, 1995. The increase resulted from
several factors including costs associated with the conversion from Bandag,
higher insurance costs, expenses associated with employee medical benefits
and legal costs. Also, the coverage of fixed costs at new locations hasn't
reached levels comparable to Treadco's other locations. Other non-operating
expenses during the nine months ended September 30, 1996 included a $1.1
million gain on the sale of assets related to the conversion from Bandag to
Oliver.
During the third quarter, Treadco completed the conversion of its production
facilities that were under Bandag retread franchises to Oliver licensed
facilities by converting its ten remaining Bandag franchises. Treadco
converted seven of its production facilities during the first quarter of 1996
and nine facilities in the second 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. The difference in operating income for the other
operations segment relates primarily to amortization of deferred financing
costs.
Interest. Interest expense was $23.3 million for nine months ended
September 30, 1996 compared to $10.2 million for nine months ended
September 30, 1995 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 1996 and the
federal statutory rate resulted primarily from state income taxes,
amortization of goodwill, minority interest, and other nondeductible expenses
(see Note D to the consolidated financial statements).
Liquidity and Capital Resources
The ratio of current assets to current liabilities was .92:1 at September 30,
1996 compared to 1.06:1 at December 31, 1995. Net cash used by operating
activities for the nine months ended September 30, 1996 was $856,000 compared
to net cash used of $38.1 million for the nine months ended September 30,
1995. The decrease in net cash used is due primarily to an increase in
depreciation expense and a reduction in accounts receivables, offset in part
by a larger net loss from operations.
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 $30
million and has approximately $7.5 million in pending sales which are
projected to close before the end 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 September 30, 1996, the
average interest rate on the Credit Agreement was 8%. 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 $196 million of Revolver Advances, $65 million of Term Advances
and approximately $74 million of letters of credit outstanding at
September 30, 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 September 30, 1996, these covenants have been
met.
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, 1996. 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, 1996. Management
doesn't expect any difficulties in obtaining waivers or amendments from its
lenders should they be needed.
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
case 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. There were
no borrowings under this agreement at September 30, 1996.
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 100%. 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 September 30, 1996, the weighted average
interest rate was 6.4%. At September 30, 1996, Treadco had $6.8 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. Under the Treadco Credit Agreement, Treadco's assets
are subject to pledge and, therefore, are available for use only by that
subsidiary.
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 nine
months of the calendar year generally having the highest levels of sales.
Forward-Looking Statements
The Management's Discussion and Analysis Section of this report contains
forward-looking statements that are based on current expectations and are
subject to a number of risks and uncertainties. Actual results could differ
materially from current expectations due to a number of factors, including
general economic conditions; competitive initiatives and pricing pressures;
union relations; availability and cost of capital; shifts in market demand;
weather conditions; the performance and needs of industries served by
Arkansas Best's businesses; actual future costs of operating expenses such
as fuel and related taxes; self-insurance claims and employee wages and
benefits; actual costs of continuing investments in technology; and the
timing and amount of capital expenditures.
Accounting Pronouncements
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of". Under SFAS No. 121, impairment losses are recognized when information
indicates the carrying amount of long-lived assets, identifiable intangibles
and goodwill related to those assets will not be recovered through future
operations or sale. Impairment losses for assets to be held or used in
operations are based on the excess of the carrying amount of the asset over
the asset's fair value. Assets held for disposal are carried at the lower
of carrying amount or fair value less cost to sell. The adoption of this
statement had no impact on the Company's results of operations or financial
position.
PART II.
OTHER INFORMATION
ARKANSAS BEST CORPORATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, the Company is named as a defendant in legal actions,
the majority of which arise out of the normal course of its business. The
Company is not a party to any pending legal proceeding which the Company's
management believes to be material to the financial condition of the Company.
The Company maintains liability insurance against risks in excess of
retention levels arising out of the normal course of its business (see Note F
to the Company's Unaudited Consolidated Financial Statements).
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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.
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ARKANSAS BEST CORPORATION
(Registrant)
Date: November 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