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, 1997
-----------------
[ ] 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 Identification No.)
incorporation or Classification 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 April 15, 1997
------------------------------- -------------------------------
Common Stock, $.01 par value 19,504,473 shares
ARKANSAS BEST CORPORATION
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets --
March 31, 1997 and December 31, 1996 3
Consolidated Statements of Operations --
For the Three Months Ended March 31, 1997 and 1996 5
Consolidated Statements of Cash Flows --
For the Three Months Ended March 31, 1997 and 1996 7
Notes to Consolidated Financial Statements -
March 31, 1997 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
EXHIBITS
Exhibit 11. Statement Re: Computation of Earnings Per Share 23
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31 December 31
1997 1996
(unaudited) (note)
($ thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 667 $ 1,806
Trade receivables, less allowances
for doubtful accounts
(1997 -- $6,393,000;
1996 -- $6,118,000) 185,793 186,065
Inventories -- Note C 32,616 33,831
Prepaid expenses 17,075 13,593
Federal and state income taxes 8,370 7,320
Deferred federal income taxes 16,028 16,490
-------- --------
TOTAL CURRENT ASSETS 260,549 259,105
PROPERTY, PLANT AND EQUIPMENT
Land and structures 223,953 228,051
Revenue equipment 258,987 268,270
Manufacturing equipment 18,502 18,815
Service, office and other equipment 65,782 65,532
Leasehold improvements 8,287 9,273
-------- --------
575,511 589,941
Less allowances for depreciation
and amortization (227,567) (222,308)
-------- --------
347,944 367,633
OTHER ASSETS 56,991 57,160
NET ASSETS HELD FOR SALE 7,805 9,148
GOODWILL, less amortization
(1997 -- $29,226,000; 1996 -- $28,006,000) 148,870 150,154
-------- --------
$822,159 $843,200
======== ========
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31 December 31
1997 1996
(unaudited) (note)
($ thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank drafts payable $ 330 $ 646
Trade accounts payable 77,006 79,140
Accrued expenses 190,489 182,011
Current portion of long-term debt 35,943 39,082
-------- --------
TOTAL CURRENT LIABILITIES 303,768 300,879
LONG-TERM DEBT, less current portion 304,728 326,950
OTHER LIABILITIES 21,599 21,416
DEFERRED FEDERAL INCOME TAXES 23,140 22,505
MINORITY INTEREST 32,885 34,020
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
1997 and 1996: 19,504,473 shares 195 195
Additional paid-in capital 192,328 192,328
Retained earnings (deficit) (56,499) (55,108)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 136,039 137,430
CONTINGENCIES -- Note F
-------- --------
$822,159 $843,200
======== ========
<FN>
<F1>
Note: The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
<F2>
See notes to consolidated financial statements.
</FN>
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31
1997 1996
----------------------
(unaudited)
($ thousands,
except per share data)
OPERATING REVENUES
LTL motor carrier operations $ 296,535 $ 294,923
Intermodal operations 44,789 41,766
Truckload motor carrier operations 19,021 17,838
Logistics operations 12,134 13,230
Tire operations 32,094 31,613
Service and other 2,173 2,004
--------- ---------
406,746 401,374
OPERATING EXPENSES AND COSTS - Note E
LTL motor carrier operations 285,085 303,465
Intermodal operations 45,223 40,679
Truckload motor carrier operations 18,490 16,412
Logistics operations 13,319 13,775
Tire operations 34,638 33,238
Service and other 2,226 2,336
--------- ---------
398,981 409,905
--------- ---------
OPERATING INCOME (LOSS) 7,765 (8,531)
--------- ---------
OTHER INCOME (EXPENSE)
Gain (loss) on sales of property
and non-revenue equipment (686) 2,127
Interest (7,265) (7,801)
Minority interest in subsidiary 1,025 641
Other, net (1,806) (1,273)
--------- ---------
(8,732) (6,306)
--------- ---------
LOSS BEFORE INCOME TAXES (967) (14,837)
--------- ---------
FEDERAL AND STATE INCOME TAXES
(CREDIT) - Note D
Current (780) (3,641)
Deferred 130 (1,637)
--------- ---------
(650) (5,278)
--------- ---------
NET LOSS $ (317) $ (9,559)
========= =========
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS -- (Continued)
Three Months Ended
March 31
1997 1996
----------------------
(unaudited)
($ thousands,
except per share data)
LOSS PER COMMON SHARE:
NET LOSS $ (0.07) $ (0.54)
=========== ==========
AVERAGE COMMON SHARES OUTSTANDING 19,504,473 19,516,539
=========== ==========
CASH DIVIDENDS PAID PER COMMON SHARE $ - $ 0.01
=========== ==========
<FN>
See notes to consolidated financial statements.
</FN>
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31
1997 1996
---------------------------
(unaudited)
($ thousands)
OPERATING ACTIVITIES
Net loss $ (317) $ (9,559)
Adjustments to reconcile net
loss to net cash provided (used)
by operating activities:
Depreciation and amortization 12,761 15,514
Amortization of intangibles 1,220 1,154
Other amortization 1,146 674
Provision for losses
on accounts receivable 1,114 1,094
Provision (credit) for deferred
income taxes 130 (1,637)
Gain on property, plant
and equipment sales (153) (2,438)
Minority interest in subsidiary (1,025) (891)
Changes in operating assets
and liabilities:
Accounts receivable (1,922) 4,629
Inventories and prepaid
expenses (2,267) (1,792)
Other assets (307) (2,776)
Accounts payable, bank
drafts payable, taxes
payable, accrued expenses
and other liabilities 7,208 (8,507)
-------- --------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES 17,588 (4,535)
INVESTING ACTIVITIES
Purchases of property,
plant and equipment,
less capitalized leases (1,556) (8,974)
Proceeds from asset sales 10,272 25,944
-------- --------
NET CASH PROVIDED
BY INVESTING ACTIVITIES 8,716 16,970
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (Continued)
Three Months Ended
March 31
1997 1996
---------------------------
(unaudited)
($ thousands)
FINANCING ACTIVITIES
Deferred financing
costs and expenses incurred
in borrowing activities $ (898) $ (3,290)
Borrowings under revolving
credit facilities 77,875 27,050
Principal payments under
term loan facilities (6,984) (3,529)
Principal payments under
revolving credit facilities (92,675) (47,900)
Principal payments on other
long-term debt and capital leases (3,576) (4,164)
Dividends paid to minority
shareholders of subsidiary (110) (132)
Dividends paid (1,075) (1,270)
Net increase in cash overdrafts - 4,276
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (27,443) (28,959)
--------- ---------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (1,139) (16,524)
Cash and cash equivalents
at beginning of period 1,806 16,945
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 667 $ 421
========= =========
<FN>
See notes to consolidated financial statements.
</FN>
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 1997
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, intermodal
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"), Cardinal
Freight Carriers, Inc. ("Cardinal"), G.I. Trucking Company ("G.I. Trucking"),
CaroTrans International, Inc. ("CaroTrans"), The Complete Logistics Company
("Complete Logistics"), Integrated Distribution, Inc., and Carolina Breakdown
Service, Inc.
Approximately 80% of ABF's employees are covered under a collective
bargaining agreement with the International Brotherhood of Teamsters which
expires on March 31, 1998.
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, 1997, are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997. 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, 1996.
Motor carrier revenue equipment gains and losses are reported as operating
expenses and costs in 1997. The 1996 Statement of Operations has been
reclassified to conform to the 1997 presentation. (See Note E.)
NOTE C - INVENTORIES
March 31 December 31
1997 1996
---------------------------
($ thousands)
Finished goods $ 23,645 $ 24,029
Materials 5,666 6,267
Repair parts, supplies and other 3,305 3,535
-------- --------
$ 32,616 $ 33,831
======== ========
NOTE D - FEDERAL AND STATE INCOME TAXES
March 31 December 31
1997 1996
---------------------------
($ thousands)
Income tax (credit) at regular rates $ (338) $ (5,193)
Percent (35.0)% (35.0)%
State taxes less federal benefits 122 (227)
Percent 12.6% (1.5)%
Amortization of goodwill 257 280
Percent 26.6% 1.9%
Minority interest (349) (218)
Percent (36.0)% (1.5)%
Other items (342) 80
Percent (35.4)% 0.5%
--------- ---------
Income tax benefits $ (650) $(5,278)
Percent (67.2)% (35.6)%
========= =========
NOTE E - OPERATING EXPENSES AND COSTS
Three Months Ended
March 31
1997 1996
---------------------------
(unaudited)
($ thousands)
LTL Motor Carrier Operations:
Salaries and wages $197,979 $209,297
Supplies and expenses 29,753 31,549
Operating taxes and licenses 10,397 12,557
Insurance 6,610 6,526
Communications and utilities 6,713 7,835
Depreciation and amortization 9,118 12,056
Rents and purchased transportation 23,517 22,030
Other 1,839 1,902
Gain on sale of revenue equipment (841) (287)
-------- --------
285,085 303,465
Intermodal Operations:
Cost of services 38,172 32,243
Selling, administrative and general 7,051 8,448
Gain on sale of revenue equipment - (12)
-------- --------
45,223 40,679
Truckload Motor Carrier Operations:
Salaries and wages 6,920 6,098
Supplies and expenses 3,687 3,058
Operating taxes and licenses 1,755 1,773
Insurance 913 645
Communications and utilities 283 233
Depreciation and amortization 957 866
Rents and purchased transportation 3,766 3,638
Other 207 101
Loss on sale of revenue equipment 2 -
-------- --------
18,490 16,412
Logistics Operations:
Cost of services 11,736 12,399
Selling, administrative and general 1,583 1,388
Gain on sale of revenue equipment - (12)
-------- --------
13,319 13,775
Tire Operations:
Cost of sales 24,475 24,915
Selling, administrative and general 10,163 8,323
34,638 33,238
Service and Other: 2,226 2,336
-------- --------
$398,981 $409,905
======== ========
NOTE F - LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS AND OTHER EVENTS
Various legal actions, the majority of which arise in the normal course of
business, are pending. None of these legal actions are 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 142 underground tanks located in 33 states. Maintenance of such
tanks is regulated at the federal and, in some cases, state levels. The
Company believes that it is in substantial compliance with all such
regulations. The Company is not aware of any leaks from such tanks that could
reasonably be expected to have a material adverse effect on the Company.
Environmental regulations have been adopted by the United States
Environmental Protection Agency ("EPA") that will require the Company to
upgrade its underground tank systems by December 1998. The Company currently
estimates that such upgrades, which are currently in process, will not have a
material adverse effect on the Company.
The Company has received notices from the EPA and others that it has been
identified as a potentially responsible party ("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 $200,000 over the last six
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, 1997, the Company has accrued approximately $3.1 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.
NOTE G - RECENT ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for computing primary earnings per share,
the dilutive effect of stock options will be excluded. The impact of
Statement 128 on the calculation of primary earnings per share and fully
diluted earnings per share for these quarters is not expected to be material.
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 intermodal
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"), Cardinal Freight
Carriers, Inc. ("Cardinal"), G.I. Trucking Company ("G.I. Trucking"),
CaroTrans International, Inc. ("CaroTrans"), The Complete Logistics Company
("Complete Logistics"), Integrated Distribution, Inc., and Carolina
Breakdown Service, Inc.
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 discussion and analysis of results of operations 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.
During 1996, the Company changed the name of its forwarding operations
segment to the intermodal operations segment.
Three Months Ended
March 31
1997 1996
($ thousands)
OPERATING REVENUES
LTL motor carrier operations $296,535 $294,923
Intermodal operations 44,789 41,766
Truckload motor carrier operations 19,021 17,838
Logistics operations 12,134 13,230
Tire operations 32,094 31,613
Other 2,173 2,004
-------- --------
$406,746 $401,374
======== ========
Three Months Ended
March 31
1997 1996
($ thousands)
OPERATING PROFIT (LOSS)
LTL motor carrier operations $ 9,926 $ (9,328)
Intermodal operations (872) 681
Truckload motor carrier operations 529 1,425
Logistics operations (1,224) (526)
Tire operations (2,685) (1,762)
Other (401) 1,833
-------- --------
TOTAL OPERATING PROFIT (LOSS) 5,273 (7,677)
MINORITY INTEREST (1,025) (641)
INTEREST EXPENSE 7,265 7,801
-------- --------
LOSS BEFORE INCOME TAXES $ (967) $(14,837)
======== ========
The following table sets forth for the periods indicated a summary of the
Company's operations as a percentage of revenues presented on a business
segment basis. The basis of presentation for business segment data differs
from the basis of presentation for data the Company provides to the U.S.
Department of Transportation ("D.O.T.").
Three Months Ended
March 31
1997 1996
($ thousands)
LTL MOTOR CARRIER OPERATIONS
Salaries and wages 66.8 % 71.0 %
Supplies and expenses 10.0 10.7
Operating taxes and licenses 3.5 4.3
Insurance 2.2 2.2
Communications and utilities 2.3 2.7
Depreciation and amortization 3.1 4.1
Rents and purchased transportation 7.9 7.5
Other 0.6 0.6
Gain on sale of revenue equipment (0.3) (0.1)
Other non-operating (net) 0.6 0.2
------ ------
96.7 % 103.2 %
====== ======
INTERMODAL OPERATIONS
Cost of services 85.2 % 77.2 %
Selling, administrative and general 15.7 20.2
Gain on sale of revenue equipment - (0.1)
Other non-operating (net) 1.0 1.1
------ ------
101.9 % 98.4 %
====== ======
Three Months Ended
March 31
1997 1996
($ thousands)
TRUCKLOAD MOTOR CARRIER OPERATIONS
Salaries and wages 36.4 % 34.2 %
Supplies and expenses 19.4 17.1
Operating taxes and licenses 9.2 9.9
Insurance 4.8 3.6
Communications and utilities 1.5 1.3
Depreciation and amortization 5.0 4.9
Rents and purchased transportation 19.8 20.4
Other 1.1 0.6
------ ------
97.2 % 92.0 %
====== ======
LOGISTICS OPERATIONS
Cost of services 96.7 % 93.7 %
Selling, administrative and general 13.0 10.5
Gain on sale of revenue equipment - (0.1)
Other non-operating (net) 0.4 (0.1)
------ ------
110.1 % 104.0 %
====== ======
TIRE OPERATIONS
Cost of sales 76.3 % 78.8 %
Selling, administrative and general 31.7 26.3
Other non-operating (net) 0.4 0.4
------ ------
108.4 % 105.5 %
====== ======
Results of Operations
Three Months Ended March 31, 1997 as Compared to the Three Months Ended
March 31, 1996
Consolidated revenues of the Company for the three months ended March 31,
1997 were $407 million compared to $401 million for the three months ended
March 31, 1996. The Company had an operating profit of $5.3 million for the
three months ended March 31, 1997 compared to an operating loss of $7.7
million for the three months ended March 31, 1996. For the three months ended
March 31, 1997, the Company had a net loss of $317,000 or a loss of $.07 per
common share, compared to a net loss of $9.6 million, or a loss of $.54 per
common share for the three months ended March 31, 1996.
Earnings per common share for the three months ended March 31, 1997 and 1996
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 G.I. Trucking.
Revenues from the LTL motor carrier operations segment for the three months
ended March 31, 1997 were $297 million, with an operating profit of $9.9
million.
For the three months ended March 31, 1997, ABF accounted for 92% of LTL
segment revenues. ABF's revenue decreased 1.6% for the three months ended
March 31, 1997 compared to the same period in 1996 due to lower tonnage
levels offset in part by higher freight rates. ABF implemented an overall
freight rate increase of 5.9% effective January 1, 1997. In the latter half
of 1996, ABF began a program focusing on individual account profitability
which resulted in the lower tonnage levels during the quarter. ABF's total
tonnage per day decreased 7.2%, consisting of a 5.7% decrease in LTL tonnage
and a 12.9% decrease in truckload.
The LTL segment revenue increase for the three months ended March 31, 1997
was the result of G.I. Trucking's revenue increasing 37% over the three
months ended March 31, 1996. G.I. Trucking has continued to replace revenues
lost as a result of the ABF/Carolina Freight Carriers merger in September
1995. Revenues per day have increased at a compounded rate of 5.7% since
December 1996, with number of shipments and tonnage also increasing over the
same time period. G.I. Trucking's tonnage increased 39.8% for the three
months ended March 31, 1997 from the same period in 1996. G.I.'s operating
ratio was 101.3% for the first quarter of 1997 compared to 115.5% for the
first quarter of 1996.
During 1996, ABF discontinued 12 of the regional distribution terminal
operations that it had acquired through the ABF/Carolina merger. These
closings, which occurred during the first two quarters, returned ABF to its
historical terminal system configuration. This reconfiguration allowed ABF to
gradually reduce its direct labor costs, improve its weight per trailer and
reduce its empty miles. ABF's operating ratio as reported to the D.O.T. was
95.7% in the first quarter of 1997 compared to 102.2% in the first quarter of
1996.
The decrease in salaries and wages as a percent of revenue was the result of
productivity improvements by both ABF and G.I. Trucking. ABF's salaries,
wages and benefits increased 3.8% annually effective April 1, 1996, pursuant
to a collective bargaining agreement with its Teamsters employees. Effective
April 1, 1997, for the final year of the Teamsters' agreement, ABF's
salaries, wages and benefits increased 3.9%.
The decrease in depreciation and amortization as a percent of revenue is
primarily the result of ABF's reconfiguration of its terminal system which
allowed for improved asset utilization. Also, ABF increased its use of
outside alternate modes of transportation as reflected in the increase in
rents and purchase transportation as a percent of revenue.
Operating taxes and licenses and depreciation and amortization also decreased
primarily as a result of the disposal of revenue equipment as the Company
balanced equipment needs to revenue levels throughout 1996.
Intermodal Operations Segment. The Company's intermodal operations are
conducted primarily through the Clipper Group and CaroTrans.
Revenues from the intermodal operations segment for the three months ended
March 31, 1997 increased 7.2% over the three months ended March 31, 1996,
resulting from a 9.5% increase in revenues for the Clipper Group and a 2.0%
increase in revenues for CaroTrans. Throughout 1996, Clipper experienced an
increase in average weight per shipment, resulting in a decline in revenue
per hundredweight without a proportionate reduction in cost per
hundredweight, resulting in a decline in margins on higher revenues. Clipper
is focusing on smaller shipment sizes to improve the margins, and effective
January 1, 1997, Clipper implemented a 5.9% rate increase to help offset the
reduction in revenue per hundredweight.
CaroTrans expanded into some higher cost markets during 1996 and also
experienced a shift in market mix to more full container-load freight. Also,
ocean container costs increased. Both of these factors negatively impacted
operating results. Cost reductions and profitability improvement initiatives
enacted in late 1996 began to have an impact late in the first quarter of
1997.
Truckload Motor Carrier Operations Segment. The Company's truckload motor
carrier operations are conducted through Cardinal.
For the three months ended March 31, 1997, Cardinal produced revenues of
$19.0 million, a 6.7% increase over the $17.8 million in revenues for the
first quarter of 1996. Salaries and wages as a percent of revenue increased
primarily as a result of higher fringe benefit costs. Supplies and expenses
as a percent of revenue increased as a result of higher fuel costs and higher
maintenance expenses due to aging of revenue equipment. For the remainder of
the year, fuel costs per mile are expected to be more in line with historical
levels. Cardinal plans to take delivery of new replacement tractors beginning
in the second quarter of 1997, which should reduce maintenance costs. The
increase in insurance expense as a percent of revenue is due primarily to
unfavorable loss experience during the first quarter of 1997.
Logistics Operations Segment. The Company's logistics operations are
conducted through Integrated Distribution, Inc. and Complete Logistics.
Revenues for the logistics operations segment decreased by $1.1 million from
the three months ended March 31, 1997 compared to March 31, 1996. The decline
in revenues was primarily the result of the loss of customers caused by rate
increases and the lack of new business.
Tire Operations Segment. Treadco's revenues for the three months ended March
31, 1997 increased 1.5% to $32.1 million from $31.6 million for the three
months ended March 31, 1996. For the first quarter of 1997, "same store"
sales decreased 4.2% which was offset by a 7.6% 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.
Revenues from retreading for the three months ended March 31, 1997 decreased
10.0% to $12.6 million from $14.0 million for the same period in 1996.
Revenues from new tire sales increased 9.4% to $16.4 million for the first
quarter of 1997 from $15.0 million during the first quarter of 1996. Service
revenues for the 1997 first quarter increased 17.6% to $3.1 million from $2.6
million for the first quarter of 1996.
Treadco faces increased competition as Bandag, Inc. has granted additional
franchises in some locations currently being served by Treadco. This has led
to increased pricing pressures in the marketplace. As anticipated, Bandag
continues to target Treadco's customers, which has caused the loss of a
substantial amount of national account business, and in many cases, the
business retained is at lower margins.
During September 1996, Treadco completed the conversion of its production
facilities that were under Bandag retread franchises to Oliver Rubber Company
("Oliver") licensed facilities. The conversion was completed in phases
throughout the first three quarters of 1996, with approximately one-third of
its production facilities converted each quarter.
The decrease in cost of sales as a percent of revenue resulted primarily from
lower tread rubber costs with Oliver. The increase in selling,
administrative, and general expenses resulted from many factors, including
higher insurance costs and bad debt expenses.
Interest. Interest expense was $7.3 million for three months ended March 31,
1997 compared to $7.8 million for three months ended March 31, 1996 primarily
due to a reduction of outstanding debt offset in part by a higher average
interest rate.
Income Taxes. The difference between the effective tax rate for 1997 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 .86:1 at March 31,
1997 and December 31, 1996. Net cash provided by operating activities for the
three months ended March 31, 1997 was $17.6 million compared to net cash used
of $4.5 million for the three months ended March 31, 1996. The increase is
due primarily to a reduction of the net loss and an increase in accounts
payables offset in part by an increase in receivables.
The Company is party to a $347 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 14 other participating banks. The Credit Agreement included a $72
million term loan and provides for up to $275 million of revolving credit
loans (including letters of credit).
At March 31, 1997, there were $172.5 million of Revolver Advances, $34.5
million of Term Advances and approximately $71.2 million of letters of credit
outstanding. The Revolver Advances are payable on August 11, 1998. The Term
Loan is payable in installments through August 1998.
The Credit Agreement contains various covenants which limit, among other
things, indebtedness, distributions, capital expenditures, asset sales,
restricted payments, investments, loans and advances, as well as requiring
the Company to meet certain financial tests. On January 31, 1997, the Company
obtained an amendment to the Credit Agreement which included revised
financial covenants with which the Company was in compliance. The Credit
Agreement had previously been amended in February, 1996, including a revision
of term and financial covenants.
As a part of the February 1996 amendment, the Company obtained an additional
credit agreement which provides for borrowings of up to $30 million.
Borrowings under this agreement bear interest at either an adjusted prime
rate plus 2% or a maximum rate as defined in the agreement, or the Eurodollar
rate plus 3% or a maximum rate as defined in the agreement. In connection
with the January 1997 amendment, the available borrowings were reduced to $15
million, and the Company was given the right to extend the maturity date of
this agreement to September 30, 1997. As of March 31, 1997 and during the
entire preceding year of 1996, there were no borrowings under this additional
credit agreement. This agreement contains covenants that are substantially
the same as the covenants contained in the primary Credit Agreement.
At March 31, 1997, the Company had approximately $31 million of availability
under the Credit Agreement as well as $15 million under the additional credit
agreement.
Treadco is a party to a revolving credit facility with Societe Generale (the
"Treadco Credit Agreement"), providing for borrowings of up to the lesser of
$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 1 1/4%
above the LIBOR rate, or at the higher of the bank's prime rate or the
"federal funds rate" plus 1/2%. At March 31, 1997, the average interest rate
was 6.2%. At March 31, 1997, Treadco had $10 million outstanding under the
Revolving Credit Agreement. The Treadco Credit Agreement is payable in
September 1998 unless extended. 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.
The Treadco Credit Agreement was amended in March 1997, restating certain
financial test requirements.
Management believes, based upon the Company's current levels of operations
and anticipated growth, the Company's cash, capital resources, borrowings
available under the Credit Agreement and cash flow from operations will be
sufficient to finance current and future operations and meet all present and
future debt service requirements.
Seasonality
The LTL and truckload motor carrier 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. Intermodal
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.
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 the
Company'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.
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.
Form 8-K dated February 27, 1997
Item 5. On January 31, 1997, Arkansas Best Corporation's (the
"Company's") existing $346,971,312 Amended and Restated Credit
Agreement with Societe Generale, Southwest Agency as Managing Agent
and Administrative Agent, NationsBank of Texas, N.A., as
Documentation Agent, and certain other banks was amended. Also, on
January 31, 1997, the Company's existing $30,000,000 Credit
Agreement with Societe Generale, Southwest Agency as Agent, and
certain other banks was amended.
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 14, 1997 s/David E. Loeffler
------------------------------------
David E. Loeffler
Vice President-Treasurer, 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