1
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, 2000
------------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________
Commission file number 0-19969
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ARKANSAS BEST CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 6711 71-0673405
- ------------------------------- ---------------------------- -------------------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
3801 Old Greenwood Road
Fort Smith, Arkansas 72903
(501) 785-6000
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(Address, including zip code, and telephone number, including
area code, of the registrant's principal executive offices)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of The Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 2000
- ---------------------------- -------------------------------
Common Stock, $.01 par value 19,973,218 shares
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ARKANSAS BEST CORPORATION
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 2000 and December 31, 1999 ............................................... 3
Consolidated Statements of Operations -
For the Three and Nine Months Ended September 30, 2000 and 1999......................... 5
Consolidated Statement of Shareholders' Equity
For the Nine Months Ended September 30, 2000............................................ 7
Condensed Consolidated Statements of Cash Flows -
For the Nine Months Ended September 30, 2000 and 1999 .................................. 8
Notes to Consolidated Financial Statements - September 30, 2000 .......................... 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................................................... 16
Item 2a. Quantitative and Qualitative Disclosures About Market Risk................................ 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ........................................................................ 24
Item 2. Changes in Securities .................................................................... 24
Item 3. Defaults Upon Senior Securities .......................................................... 24
Item 4. Submission of Matters to a Vote of Security Holders ...................................... 24
Item 5. Other Information ........................................................................ 24
Item 6. Exhibits and Reports on Form 8-K ......................................................... 24
SIGNATURES.................................................................................................... 25
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PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
SEPTEMBER 30 DECEMBER 31
2000 1999
------------ -----------
(UNAUDITED) NOTE
($ thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents ............................... $ 6,839 $ 4,319
Trade receivables, less allowances
(2000 -- $5,928; 1999 -- $5,775) ........................ 210,962 187,837
Inventories ............................................. 30,458 33,050
Prepaid expenses ........................................ 8,428 7,428
Deferred income taxes ................................... 7,231 7,231
Other ................................................... 3,261 3,234
-------- --------
TOTAL CURRENT ASSETS ................................ 267,179 243,099
PROPERTY, PLANT AND EQUIPMENT
Land and structures ..................................... 230,283 222,421
Revenue equipment ....................................... 348,766 292,493
Manufacturing equipment ................................. 15,652 15,851
Service, office and other equipment ..................... 91,440 82,508
Leasehold improvements .................................. 12,869 10,520
-------- --------
699,010 623,793
Less allowances for depreciation and amortization ....... 316,375 286,699
-------- --------
382,635 337,094
OTHER ASSETS ............................................... 49,293 42,351
GOODWILL, less amortization (2000 -- $39,403,
1999 -- $36,365) .................................... 106,431 109,385
-------- --------
$805,538 $731,929
======== ========
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ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS - CONTINUED
- --------------------------------------------------------------------------------
SEPTEMBER 30 DECEMBER 31
2000 1999
------------ -----------
(UNAUDITED) NOTE
($ thousands, except share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft and drafts payable ................................. $ 18,352 $ 16,187
Trade accounts payable ............................................ 88,226 76,597
Accrued expenses .................................................. 165,513 160,469
Federal and state income taxes .................................... 9,233 8,434
Current portion of long-term debt ................................. 27,928 20,452
--------- ---------
TOTAL CURRENT LIABILITIES ..................................... 309,252 282,139
LONG-TERM DEBT, less current portion ................................. 157,041 173,702
OTHER LIABILITIES .................................................... 39,803 29,845
DEFERRED INCOME TAXES ................................................ 29,728 25,191
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, authorized 10,000,000 shares;
issued and outstanding 2000: 1,390,000 shares;
1999: 1,495,000 shares ........................................ 14 15
Common stock, $.01 par value, authorized 70,000,000 shares;
issued 2000: 19,940,133 shares;
1999: 19,752,333 shares ....................................... 199 197
Additional paid-in capital ........................................ 191,908 194,155
Retained earnings ................................................. 77,808 26,685
Treasury stock, at cost, 2000: 14,915 shares ...................... (215) --
Accumulated other comprehensive income ............................ -- --
--------- ---------
TOTAL SHAREHOLDERS' EQUITY .................................... 269,714 221,052
COMMITMENTS AND CONTINGENCIES ........................................
--------- ---------
$ 805,538 $ 731,929
========= =========
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at the date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
The accompanying notes are an integral part of the consolidated financial
statements.
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ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
----------- ----------- ----------- -----------
(UNAUDITED)
($ thousands, except per share data)
CONTINUING OPERATIONS:
OPERATING REVENUES
Transportation operations .................................... $ 436,667 $ 399,551 $ 1,263,204 $ 1,126,237
Tire operations .............................................. 51,801 53,299 140,266 139,893
----------- ----------- ----------- -----------
488,468 452,850 1,403,470 1,266,130
----------- ----------- ----------- -----------
OPERATING EXPENSES AND COSTS
Transportation operations .................................... 394,701 369,242 1,160,772 1,052,775
Tire operations .............................................. 49,372 50,754 136,931 137,488
----------- ----------- ----------- -----------
444,073 419,996 1,297,703 1,190,263
----------- ----------- ----------- -----------
OPERATING INCOME ................................................ 44,395 32,854 105,767 75,867
OTHER INCOME (EXPENSE)
Net gains on sales of property and
non-revenue equipment ...................................... 437 507 2,006 971
Interest expense ............................................. (4,144) (4,905) (13,007) (14,232)
Minority interest in Treadco, Inc. ........................... -- -- -- 245
Other, net ................................................... (1,221) (1,047) (2,352) (3,424)
----------- ----------- ----------- -----------
(4,928) (5,445) (13,353) (16,440)
----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES ........................................ 39,467 27,409 92,414 59,427
FEDERAL AND STATE INCOME TAXES
Current ...................................................... 12,934 7,701 33,898 21,532
Deferred ..................................................... 3,208 3,632 4,270 3,244
----------- ----------- ----------- -----------
16,142 11,333 38,168 24,776
----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS ............................... 23,325 16,076 54,246 34,651
DISCONTINUED OPERATIONS:
Loss from discontinued operations (net of tax benefits
of $394 for the nine months ended September 30, 1999) ..... -- -- -- (664)
----------- ----------- ----------- -----------
LOSS FROM DISCONTINUED OPERATIONS ............................... -- -- -- (664)
----------- ----------- ----------- -----------
NET INCOME ...................................................... 23,325 16,076 54,246 33,987
Preferred stock dividends .................................... 999 1,075 3,123 3,224
----------- ----------- ----------- -----------
NET INCOME FOR
COMMON SHAREHOLDERS ........................................... $ 22,326 $ 15,001 $ 51,123 $ 30,763
=========== =========== =========== ===========
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ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
-------------- -------------- -------------- --------------
(UNAUDITED)
($ thousands, except per share data)
NET INCOME (LOSS) PER COMMON SHARE
BASIC:
Continuing operations (1) ................ $ 1.12 $ 0.76 $ 2.58 $ 1.60
Discontinued operations .................. -- -- -- (0.03)
-------------- -------------- -------------- --------------
NET INCOME PER SHARE (1) .................... $ 1.12 $ 0.76 $ 2.58 $ 1.57
-------------- -------------- -------------- --------------
AVERAGE COMMON SHARES
OUTSTANDING (BASIC) ......................... 19,882,056 19,691,666 19,810,063 19,645,951
============== ============== ============== ==============
DILUTED:
Continuing operations (2) ................ $ 0.97 $ 0.67 $ 2.27 $ 1.46
Discontinued operations .................. -- -- -- (0.03)
-------------- -------------- -------------- --------------
NET INCOME PER SHARE (2) ................... $ 0.97 $ 0.67 $ 2.27 $ 1.43
-------------- -------------- -------------- --------------
AVERAGE COMMON SHARES
OUTSTANDING (DILUTED) ....................... 24,081,674 24,102,750 23,901,158 23,821,934
============== ============== ============== ==============
CASH DIVIDENDS PAID PER COMMON SHARE ........ $ -- $ -- $ -- $ --
============== ============== ============== ==============
(1) Gives consideration to preferred stock dividends of approximately $1.0
million and $1.1 million for the three months ended September 30, 2000 and
1999, respectively, and $3.1 million and $3.2 million for the nine months
ended September 30, 2000 and 1999, respectively.
(2) For the three and nine months ended September 30, 2000 and 1999, conversion
of preferred shares into common is assumed.
The accompanying notes are an integral part of the consolidated financial
statements.
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ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
ACCUMULATED
ADDITIONAL OTHER
PREFERRED COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY TOTAL
STOCK STOCK CAPITAL EARNINGS INCOME STOCK EQUITY
--------- --------- ---------- --------- ------------- --------- --------
(UNAUDITED)
($ thousands)
BALANCES AT JANUARY 1, 2000 ............. $ 15 $ 197 $ 194,155 $ 26,685 $ -- $ -- $ 221,052
Net income .............................. -- -- -- 54,246 -- -- 54,246
Issuance of common stock on
stock options exercised ............. -- 2 1,526 -- -- -- 1,528
Tax effect of stock options exercised ... -- -- 150 -- -- -- 150
Purchase of preferred stock ............. (1) -- (3,923) -- -- -- (3,924)
Purchase of treasury stock .............. -- -- -- -- -- (215) (215)
Dividends paid on preferred stock ....... -- -- -- (3,123) -- -- (3,123)
--------- --------- --------- --------- ---------- --------- ---------
BALANCES AT SEPTEMBER 30, 2000 .......... $ 14 $ 199 $ 191,908 $ 77,808 $ -- $ (215) $ 269,714
========= ========= ========= ========= ========== ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
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ARKANSAS BEST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30
2000 1999
--------- ---------
(UNAUDITED)
($ thousands)
OPERATING ACTIVITIES
Net cash provided by operating activities ............... $ 94,792 $ 73,944
INVESTING ACTIVITIES
Purchases of property, plant and equipment,
less capitalized leases ............................... (86,938) (41,756)
Purchase of Treadco, Inc. stock ......................... -- (23,673)
Proceeds from asset sales and other ..................... 6,888 13,130
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES ...................... (80,050) (52,299)
--------- ---------
FINANCING ACTIVITIES
Deferred financing costs and expenses ................... -- (125)
Borrowings under revolving credit facility .............. 106,600 370,750
Payments under revolving credit facility ................ (97,900) (369,000)
Payments on long-term debt .............................. (13,197) (15,531)
Dividends paid on preferred stock ....................... (3,123) (3,224)
Net increase (decrease) in bank overdraft ............... 2,639 (666)
Retirement of bonds ..................................... (4,781) (4,768)
Purchase of preferred stock ............................. (3,924) --
Other, net .............................................. 1,464 750
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES ...................... (12,222) (21,814)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....... 2,520 (169)
Cash and cash equivalents at beginning of period ........ 4,319 4,543
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................. $ 6,839 $ 4,374
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
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ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2000
- --------------------------------------------------------------------------------
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 transportation
operations, intermodal transportation operations and truck tire retreading and
new tire sales. Principal subsidiaries are ABF Freight System, Inc., ("ABF");
Treadco, Inc. ("Treadco"); Clipper Exxpress Company and related companies
("Clipper"); G.I. Trucking Company ("G.I. Trucking"); and FleetNet America, Inc.
Approximately 79% of ABF's employees are covered under a five-year collective
bargaining agreement, which began on April 1, 1998, with the International
Brotherhood of Teamsters ("IBT").
See Note H - Subsequent Event for a discussion of an agreement between Treadco
and The Goodyear Tire and Rubber Company ("Goodyear") which closed on October
31, 2000.
NOTE B - FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial statements 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. All adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim periods presented
have been made. Operating results for the three and nine months ended September
30, 2000 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2000. 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, 1999.
The difference between the effective tax rate for the nine months ended
September 30, 2000 and the federal statutory rate resulted from state income
taxes, amortization of nondeductible goodwill and other nondeductible expenses.
On July 10, 2000, the Company purchased 105,000 shares of outstanding Arkansas
Best Corporation Preferred Stock (ABFSP) for $37.375 per share or approximately
$3.9 million. The shares purchased have been retired.
NOTE C - DISCONTINUED OPERATIONS
At December 31, 1998, the Company was engaged in international ocean freight
services through its subsidiary CaroTrans International, Inc. ("Clipper
International"), a non-vessel operating common carrier (N.V.O.C.C.). On February
28, 1999, the Company completed a formal plan to exit its international ocean
freight N.V.O.C.C. services by disposing of the business and assets of Clipper
International. On April 17, 1999, the Company closed the sale of the business
and certain assets of Clipper International, including the trade name "CaroTrans
International, Inc." Substantially all of the remaining assets have been
liquidated. The aggregate of the selling price of these assets and the estimated
liquidation value of the retained Clipper International assets was approximately
$5.0 million, which was approximately equal to the Company's net investment in
the related assets.
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ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
- --------------------------------------------------------------------------------
Results of operations of Clipper International have been reported as
discontinued operations, and the statements of operations for all periods have
been restated to remove revenue and expenses of this segment. Results of Clipper
International included in discontinued operations are summarized as follows:
NINE MONTHS ENDED
SEPTEMBER 30
2000 1999
----------- -------
($ thousands)
Revenues ........... $ -- $ 6,777
Operating loss ..... -- (1,114)
Pre-tax loss ....... -- (1,058)
NOTE D - INVENTORIES
SEPTEMBER 30 DECEMBER 31
2000 1999
------------ -----------
($ thousands)
Finished goods ......................... $23,442 $26,253
Materials .............................. 4,043 4,042
Repair parts, supplies and other ....... 2,973 2,755
------- -------
$30,458 $33,050
======= =======
NOTE E - LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS
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, cash flows or
results of operations. 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 82 underground tanks located in 26 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.
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 $300,000 over the last ten 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, 2000, the Company has accrued approximately $2.7 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. Accruals for environmental liability
are included in the balance sheet as accrued expenses.
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ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
- --------------------------------------------------------------------------------
NOTE F - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities. The
Statement addresses the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts and hedging activities. The
Statement will require the Company to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to fair
value through income. If a derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of the derivative will either be offset against
the change in fair value of the hedged asset, liability, or firm commitment
through earnings, or recognized in other comprehensive income until the hedged
item is recognized in earnings. In June 1999, the FASB issued Statement No. 137,
which deferred for one year the implementation date of FASB Statement No. 133.
As a result, Statement No. 133 is effective for the Company in 2001.
The Company is party to an interest rate swap on a notional amount of $110.0
million with a fair value of $3.2 million as of September 30, 2000. The swap
agreement is a contract to exchange floating interest rate payments for fixed
rate payments over the life of the instrument. The purpose of the swap is to
limit the Company's exposure to increases in interest rates on the notional
amount of bank borrowings over the term of the swap. The fixed interest rate
under the swap is 5.845% plus the Company's Credit Agreement margin (currently
.55). Once FASB Statement No. 133 becomes effective, the Company plans to record
the swap on its balance sheet at fair value with the adjustment to fair value
for the hedged portion recognized in other comprehensive income. Subsequent
changes in fair value on the hedged portion will be recognized through other
comprehensive income until the hedged item is recognized in earnings. Management
continually evaluates the effectiveness of the swap arrangement based on its
forecasted borrowing levels. If the swap arrangement, hedged portion or notional
amount is changed, the Company will evaluate these factors as they relate to
FASB No. 133 at that time.
On December 3, 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements, which among other guidance clarifies certain conditions to be met in
order to recognize revenue. On June 26, 2000, the SEC issued SAB 101B,
Amendment: Revenue Recognition in Financial Statements, which delayed the
effective date of SAB 101 for registrants with fiscal years beginning between
December 16, 1999 and March 15, 2000. SAB 101 is effective for the Company in
the fourth quarter of 2000. Management has determined that the implementation of
SAB 101 will not have a material effect on the financial position or results of
operations of the Company.
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), Accounting of
Certain Transactions involving Stock Compensation, an interpretation of
Accounting Principles Board Opinion No. 25. FIN 44 clarifies the application of
Opinion 25 for (a) the definition of an employee for purposes of applying
Opinion 25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequence of various modifications to
the terms of a previously fixed stock option or award, and (d) the accounting
for an exchange of stock compensation awards in a business combination. FIN 44
is effective July 1, 2000, but certain conclusions cover specific events that
occur after either December 15, 1998, or January 12, 2000. Management has
determined that FIN 44 will not have a material effect on the financial position
or results of operations of the Company.
In March 2000, the Emerging Issues Task Force ("EITF") issued EITF No. 00-2,
Accounting for Website Development Costs, which addresses how an entity should
account for costs incurred to develop a Web site. EITF No. 00-2 did not change
the Company's accounting practices with respect to Web site development costs.
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ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
- --------------------------------------------------------------------------------
NOTE G - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
------------ ------------ ------------ ------------
($ thousands, except per share data)
NUMERATOR:
Numerator for basic earnings per share --
Net income ................................. $ 23,325 $ 16,076 $ 54,246 $ 33,987
Preferred stock dividends .................... (999) (1,075) (3,123) (3,224)
------------ ------------ ------------ ------------
Numerator for basic earnings per share --
Net income available to
common shareholders ........................ 22,326 15,001 51,123 30,763
Effect of dilutive securities (1) ............ 999 1,075 3,123 3,224
------------ ------------ ------------ ------------
Numerator for diluted earnings per share --
Net income available
to common shareholders ..................... $ 23,325 $ 16,076 $ 54,246 $ 33,987
============ ============ ============ ============
DENOMINATOR:
Denominator for basic earnings
per share -- weighted-average shares ...... 19,882,056 19,691,666 19,810,063 19,645,951
Effect of dilutive securities:
Conversion of preferred stock .............. 3,530,183 3,796,852 3,530,183 3,796,852
Employee stock options ..................... 669,435 614,232 560,912 379,131
------------ ------------ ------------ ------------
Denominator for diluted earnings
per share -- adjusted weighted-average
shares and assumed conversion ............. 24,081,674 24,102,750 23,901,158 23,821,934
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE
BASIC:
Continuing operations ........................ $ 1.12 $ 0.76 $ 2.58 $ 1.60
Discontinued operations ...................... -- -- -- (0.03)
------------ ------------ ------------ ------------
NET INCOME PER SHARE ............................ $ 1.12 $ 0.76 $ 2.58 $ 1.57
============ ============ ============ ============
AVERAGE COMMON SHARES
OUTSTANDING (BASIC): ......................... 19,882,056 19,691,666 19,810,063 19,645,951
============ ============ ============ ============
DILUTED:
Continuing operations ........................ $ 0.97 $ 0.67 $ 2.27 $ 1.46
Discontinued operations ...................... -- -- -- (0.03)
------------ ------------ ------------ ------------
NET INCOME PER SHARE ............................ $ 0.97 $ 0.67 $ 2.27 $ 1.43
============ ============ ============ ============
AVERAGE COMMON SHARES
OUTSTANDING (DILUTED): ....................... 24,081,674 24,102,750 23,901,158 23,821,934
============ ============ ============ ============
CASH DIVIDENDS PAID
PER COMMON SHARE ............................. $ -- $ -- $ -- $ --
============ ============ ============ ============
(1) For the three and nine months ended September 30, 2000 and 1999, conversion
of preferred shares into common is assumed.
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ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
- --------------------------------------------------------------------------------
NOTE H - SUBSEQUENT EVENT
On September 13, 2000, Treadco, Inc., entered into an agreement with Goodyear to
form a new limited liability company called Wingfoot Commercial Tire Systems LLC
("Wingfoot"). The transaction closed on October 31, 2000. Effective October 31,
2000 Treadco contributed substantially all of its assets and liabilities to
Wingfoot in a non-taxable transaction in exchange for an approximate 40%
ownership interest in the new company. Goodyear has contributed substantially
all of the assets and liabilities of its Commercial Tire and Service Centers and
Brad Ragan Tire Centers to Wingfoot in exchange for an approximate 60% interest.
The Company will account for the transaction using fair value accounting as
prescribed by the Emerging Issues Task Force, ("EITF") Issue 00-5 which will
result in a partial net gain being recognized in the fourth quarter of 2000.
After considering approximately $5.0 to $6.0 million of transaction costs and
costs associated with certain employment agreements, the net gain to be
recognized is considered to be immaterial by the Company (or between $1 - $3
million). The Company's approximate 40% interest in Wingfoot will be accounted
for using the equity method in subsequent periods without discontinuing its
previous tire operations.
The Company has the right, at any time after April 30, 2003 and before April 30,
2004, to sell its interest in Wingfoot to Goodyear for a "Put Price" equal to
$72.5 million, as adjusted by a net worth adjustment based on the closing
balance sheet at October 31, 2000. Goodyear has the right, at any time after
April 30, 2003 until October 31, 2004, to purchase Treadco's entire interest,
for cash, at a "Call Price" equal to the "Put Price" plus $5.0 million.
NOTE I - OPERATING SEGMENT DATA
The Company uses the "management approach" to determine its reportable operating
segments as well as to determine the basis of reporting the operating segment
information. The management approach focuses on financial information that the
Company's decision makers use to make decisions about operating matters.
Management uses operating revenues, operating expense categories, operating
ratios, operating income, and key operating statistics to evaluate performance
and allocate resources to the Company's operating segments.
During the periods being reported on, the Company operated in four defined
reportable operating segments: 1) ABF; 2) G.I. Trucking; 3) Clipper; and 4)
Treadco.
Results of operations for Clipper International, previously reflected as a
reportable segment, have been reported as discontinued operations for the nine
months ended September 30, 1999.
See Note H - Subsequent Event for a discussion of the future reporting of tire
operations as a result of the agreement between Treadco and Goodyear.
The Company eliminates intercompany transactions in consolidation. However, the
information used by the Company's management with respect to its reportable
segments is before intersegment eliminations of revenues and expenses.
Intersegment revenues and expenses are not significant.
Further classifications of operations or revenues by geographic location beyond
the descriptions provided above are impractical, and are, therefore, not
provided. The Company's foreign operations are not significant.
No material changes have occurred in the total assets for any reportable
operating segment since December 31, 1999.
13
14
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
- --------------------------------------------------------------------------------
The following tables reflect reportable operating segment information for the
Company, as well as a reconciliation of reportable segment information to the
Company's consolidated operating revenues, operating expenses and operating
income.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
----------- ----------- ----------- -----------
(UNAUDITED)
($ thousands)
OPERATING REVENUES
ABF Freight System, Inc. ...................... $ 357,786 $ 332,302 $ 1,034,294 $ 936,421
G.I. Trucking Company ......................... 41,198 34,904 121,694 101,351
Clipper ....................................... 34,521 29,593 98,279 80,868
Treadco, Inc. ................................. 52,415 53,933 141,971 141,561
Other revenues and eliminations ............... 2,548 2,118 7,232 5,929
----------- ----------- ----------- -----------
Total consolidated operating revenues ....... $ 488,468 $ 452,850 $ 1,403,470 $ 1,266,130
=========== =========== =========== ===========
OPERATING EXPENSES AND COSTS
ABF FREIGHT SYSTEM, INC.
Salaries and wages ............................ $ 218,456 $ 208,972 $ 644,897 $ 607,346
Supplies and expenses ......................... 43,061 37,001 128,354 102,543
Operating taxes and licenses .................. 10,194 9,650 30,938 28,372
Insurance ..................................... 6,655 5,643 17,257 15,470
Communications and utilities .................. 3,728 4,098 11,341 11,641
Depreciation and amortization ................. 9,270 8,029 26,406 22,313
Rents and purchased transportation ............ 24,466 27,535 71,501 73,137
Other ......................................... 1,038 1,250 3,061 3,748
(Gain) on sale of revenue equipment ........... (240) (430) (482) (677)
----------- ----------- ----------- -----------
316,628 301,748 933,273 863,893
----------- ----------- ----------- -----------
G.I. TRUCKING COMPANY
Salaries and wages ............................ 18,881 16,206 56,525 46,927
Supplies and expenses ......................... 3,962 2,842 11,087 8,211
Operating taxes and licenses .................. 840 820 2,470 2,395
Insurance ..................................... 1,081 907 2,866 2,942
Communications and utilities .................. 514 454 1,542 1,309
Depreciation and amortization ................. 1,274 1,054 3,458 2,559
Rents and purchased transportation ............ 12,426 11,518 37,774 32,287
Other ......................................... 874 807 2,782 2,500
(Gain) on sale of revenue equipment ........... (8) (25) (17) (80)
----------- ----------- ----------- -----------
39,844 34,583 118,487 99,050
----------- ----------- ----------- -----------
CLIPPER
Cost of services .............................. 29,383 25,268 83,837 69,691
Selling, administrative and general ........... 4,250 3,547 12,719 10,262
(Gain) on sale of revenue equipment ........... -- -- (3) (33)
----------- ----------- ----------- -----------
33,633 28,815 96,553 79,920
----------- ----------- ----------- -----------
14
15
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
- --------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
----------- ----------- ----------- -----------
(UNAUDITED)
($ thousands)
TREADCO, INC.
Cost of sales ....................................... $ 34,466 $ 36,524 $ 94,629 $ 97,992
Selling, administrative and general ................. 15,212 14,619 43,209 40,542
----------- ----------- ----------- -----------
49,678 51,143 137,838 138,534
----------- ----------- ----------- -----------
Other expenses and eliminations ........................ 4,290 3,707 11,552 8,866
----------- ----------- ----------- -----------
Total consolidated operating expenses and costs ..... $ 444,073 $ 419,996 $ 1,297,703 $ 1,190,263
=========== =========== =========== ===========
OPERATING INCOME (LOSS)
ABF Freight System, Inc. ............................... $ 41,158 $ 30,554 $ 101,021 $ 72,528
G.I. Trucking Company .................................. 1,354 321 3,207 2,301
Clipper ................................................ 888 778 1,726 948
Treadco, Inc. .......................................... 2,737 2,790 4,133 3,027
Other (loss) and eliminations .......................... (1,742) (1,589) (4,320) (2,937)
----------- ----------- ----------- -----------
Total consolidated operating income ................. $ 44,395 $ 32,854 $ 105,767 $ 75,867
=========== =========== =========== ===========
15
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
OPERATING SEGMENT DATA
The following table sets forth, for the periods indicated, a summary of the
Company's operating expenses by segment as a percentage of revenue for the
applicable segment.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
------ ------ ------ ------
(UNAUDITED)
OPERATING EXPENSES AND COSTS
ABF FREIGHT SYSTEM, INC.
Salaries and wages ......................... 61.1% 62.9% 62.4% 64.9%
Supplies and expenses ...................... 12.0 11.1 12.4 11.0
Operating taxes and licenses ............... 2.8 2.9 3.0 3.0
Insurance .................................. 1.9 1.7 1.7 1.7
Communications and utilities ............... 1.0 1.2 1.1 1.2
Depreciation and amortization .............. 2.6 2.4 2.6 2.4
Rents and purchased transportation ......... 6.8 8.3 6.9 7.8
Other ...................................... 0.4 0.4 0.1 0.4
(Gain) on sale of revenue equipment ........ (0.1) (0.1) -- (0.1)
------ ------ ------ ------
88.5% 90.8% 90.2% 92.3%
------ ------ ------ ------
G.I. TRUCKING COMPANY
Salaries and wages ......................... 45.8% 46.4% 46.4% 46.3%
Supplies and expenses ...................... 9.6 8.1 9.1 8.1
Operating taxes and licenses ............... 2.0 2.3 2.0 2.4
Insurance .................................. 2.6 2.6 2.4 2.9
Communications and utilities ............... 1.2 1.3 1.3 1.3
Depreciation and amortization .............. 3.1 3.0 2.8 2.5
Rents and purchased transportation ......... 30.2 33.0 31.0 31.9
Other ...................................... 2.2 2.5 2.4 2.4
(Gain) on sale of revenue equipment ........ -- (0.1) -- (0.1)
------ ------ ------ ------
96.7% 99.1% 97.4% 97.7%
------ ------ ------ ------
CLIPPER
Cost of services ........................... 85.1% 85.4% 85.3% 86.2%
Selling, administrative and general ........ 12.3 12.0 12.9 12.6
------ ------ ------ ------
97.4% 97.4% 98.2% 98.8%
------ ------ ------ ------
TREADCO, INC.
Cost of sales .............................. 65.8% 67.7% 66.7% 69.2%
Selling, administrative and general ........ 29.0 27.1 30.4 28.7
------ ------ ------ ------
94.8% 94.8% 97.1% 97.9%
------ ------ ------ ------
OPERATING INCOME
ABF Freight System, Inc. ...................... 11.5% 9.2% 9.8% 7.7%
G. I. Trucking Company ........................ 3.3 0.9 2.6 2.3
Clipper ....................................... 2.6 2.6 1.8 1.2
Treadco, Inc. ................................. 5.2 5.2 2.9 2.1
16
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) - continued
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000, COMPARED TO THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1999
Consolidated revenues from continuing operations of the Company for the three
and nine months ended September 30, 2000 increased 7.9% and 10.8%, respectively,
compared to the same periods in 1999, due primarily to increases in revenue for
ABF, G.I. Trucking, and Clipper. The Company's operating income from continuing
operations for the three and nine months ended September 30, 2000 increased
35.1% and 39.4%, respectively, compared to the same periods in 1999. Increases
in operating income from continuing operations for the three months ending
September 30, 2000 are attributable to improved operations at ABF and G.I.
Trucking. For the nine months ended September 30, 2000, increases in operating
income from continuing operations are attributable to improved operations at
ABF, G.I. Trucking, Clipper and Treadco. Income from continuing operations for
the three and nine months ended September 30, 2000 increased 45.1% and 56.5%
from the same periods in 1999. The improvements in income from continuing
operations reflect primarily improvements in operating income. Diluted earnings
per share from continuing operations improved 44.8% to $0.97 per share and 55.5%
to $2.27 per share for the three and nine months ended September 30, 2000, when
compared to the same periods in 1999.
ABF FREIGHT SYSTEM, INC.
Effective August 14, 2000, ABF implemented a general rate increase of 5.7%.
Previous overall rate increases effective January 1, 1999 and September 13, 1999
were 5.5% and 5.1%, respectively. Revenues for the three and nine months ended
September 30, 2000 increased on a per day basis 9.4% and 9.9% to totals of
$357.8 million and $1,034.3 million, respectively, from $332.3 million and
$936.4 million for the same periods in 1999. There were 63 workdays in the third
quarter of 2000 and 64 workdays in the third quarter of 1999. There were 192
workdays in the nine-month period ended September 30, 2000 compared to 191
workdays in the same period in 1999. ABF generated operating income for the
three and nine months ended September 30, 2000 of $41.2 million and $101.0
million compared to $30.6 million and $72.5 million for the three and nine
months ended September 30, 1999.
ABF's increase in revenue is due primarily to an increase in LTL revenue per
hundredweight. LTL revenue per hundredweight increased 11.5% and 8.0% to $21.69
and $20.86 when the three and nine months ended September 30, 2000 are compared
to the same periods in 1999, reflecting a continuing favorable pricing
environment. ABF's LTL tonnage per day declined slightly by 0.8% for the third
quarter 2000 and increased per day 2.3% for the nine months ended September 30,
2000. ABF's LTL tonnage declines from the third quarter 1999 reflect declining
density in ABF's freight mix and the fact that customers were shipping more
heavily in the third quarter of 1999 to prepare for the "Year 2000". ABF
implemented a fuel surcharge on July 7, 1999, based on the increase in diesel
fuel prices compared to an index price. The fuel surcharge in effect during the
three months ending September 30, 2000 ranged from 3.5% to 6.0% of revenue, and
the fuel surcharge in effect for the nine months ending September 30, 2000
ranged from 2.0% to 6.0% of revenue. The fuel surcharge in effect during the
three months ended September 30, 1999 ranged from 0.5% to 1.5% of revenue.
ABF's operating ratio improved to 88.5% and 90.2% for the three and nine months
ended September 30, 2000 from 90.8% and 92.3% during the same periods in 1999.
The improvements are the result of the revenue yield improvements previously
described and as a result of changes in certain operating expense categories as
follows:
17
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) - continued
- --------------------------------------------------------------------------------
Salaries and wages expense for the three and nine months ended September 30,
2000 declined 1.8% and 2.5% as a percent of revenue compared to the same periods
in 1999. The decline results primarily from the revenue improvements previously
discussed coupled with favorable claims experience for workers' compensation.
These improvements were offset, in part, by the annual general union wage and
benefit rate increase on April 1, 2000 of approximately 3.0%, and an increase in
incentive pay amounts.
Supplies and expenses increased 0.9% and 1.4% as a percent of revenue for the
three and nine months ended September 30, 2000, compared to the same periods in
1999. This change is due primarily to higher diesel fuel prices, which increased
49.6% and 69.9% on an average price-per-gallon basis when the three and nine
months ended September 30, 2000 are compared to the same periods in 1999. The
previously mentioned fuel surcharge on revenue is intended to offset the fuel
cost increase.
Insurance costs increased 0.2% as a percent of revenue for the three months
ended September 30, 2000 compared to the same period in 1999, due primarily to
increased claims costs for bodily injury and property damage. Insurance costs
for the nine months ended September 30, 2000 and 1999 remained constant as a
percent of revenue.
Communication and utilities expense decreased 0.2% and 0.1% as a percent of
revenue when the three and nine months ended September 30, 2000 are compared to
the same periods in 1999. During the second and third quarters of 1999, the
Company began installing a new communications system network in all terminals,
through a parallel conversion, which was completed in September 1999. As a
result, both the existing and new systems were being used during the second and
third quarters of 1999, which increased costs for those periods. In addition,
ABF negotiated a lower long distance rate which took effect May 19, 2000.
Depreciation and amortization expense increased 0.2% as a percent of revenue for
the three and nine months ended September 30, 2000, compared to the same periods
in 1999, due primarily to the purchase of 608 road tractors during the first
nine months of 2000. The 608 road tractors purchased include approximately 101
additions with the remaining units replacing older tractors in the fleet which
were under operating leases in the same periods of 1999.
Rents and purchased transportation expense decreased 1.5% and 0.9% as a percent
of revenue for the three and nine months ended September 30, 2000, compared to
the same periods in 1999, due to the disposal of tractors under operating
leases, previously mentioned. In addition, total rail costs decreased as a
percent of revenue, as a result of a decline in rail utilization for the three
and nine months ended September 30, 2000. Rail utilization was 16.0% and 15.8%
of total miles, respectively, compared to 19.9% and 17.7% during the same
periods in 1999.
Other expense as a percent of revenue remained flat for the three months ended
September 30, 2000 compared to 1999 and decreased 0.3% as a percent of revenue
for the nine months ended September 30, 2000 due to decreased legal costs
offset, in part, by an increase in bad debt expense.
G.I. TRUCKING COMPANY
Effective September 1, 2000 and October 1, 1999, G.I. Trucking implemented a
general rate increase of 5.9% and 5.5%, respectively. G.I. Trucking revenues for
the three and nine months ended September 30, 2000, increased on a per day basis
19.9% and 19.5%, respectively, to totals of $41.2 million and $121.7 million
from $34.9 million and $101.4 million during the same periods in 1999. The
revenue increase resulted from an increase in G.I. Trucking's tonnage on a per
day basis of 13.0% and 15.3% for the three and nine months ended
18
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) - continued
- --------------------------------------------------------------------------------
September 30, 2000, from the same periods in 1999. In addition, revenue per
hundredweight increased 6.1% and 3.7% for the three and nine months ended
September 30, 2000, compared to the same periods in 1999. During the early part
of first quarter 2000, G.I. Trucking expanded its operational capabilities in
the states of Texas, New Mexico, Oklahoma, Kansas and parts of Missouri, in
preparation for adding new business from an existing carrier partner. In
addition, G.I. Trucking increased its sales management and sales staff
throughout its system by nearly 50% over 1999 levels.
G.I. Trucking implemented a fuel surcharge during the last week of August 1999,
based upon a West Coast average fuel index. The fuel surcharge in effect during
the third quarter of 2000 ranged from 3.6% to 7.0% of revenue, while the fuel
surcharge in effect for the nine months ending September 30, 2000 ranged from
2.6% to 7.0% of revenue.
G.I. Trucking's operating ratio improved to 96.7% and 97.4% for the three and
nine months ended September 30, 2000 from 99.1% and 97.7% during the same
periods in 1999, as a result of the increases in tonnage and revenue yield
improvements previously described. In addition, the change in the operating
ratio results from changes in certain operating expenses as follows:
Salaries and wages expense decreased 0.6% as a percent of revenue during the
three months ended September 30, 2000, compared to the same period in 1999. This
decrease is due primarily to revenue improvements previously discussed, lower
pension costs and favorable health claims experience, offset, in part, by
increased salaries and benefits related to the addition of sales staff described
above and unfavorable workers' compensation claims experience. Salaries and
wages expense remained relatively constant as a percent of revenue for the nine
months ended September 30, 2000, compared to the same period in 1999.
Supplies and expenses increased 1.5% and 1.0% as a percent of revenue for the
three and nine months ended September 30, 2000, compared to the same periods in
1999. The increase is due primarily to higher fuel costs, which increased in
total dollars by 69.4% and 78.4% for the three and nine months ending September
30, 2000 compared to the same periods in 1999. G.I. Trucking's fuel surcharge on
revenue is intended to offset the fuel cost increase.
Operating taxes and licenses expense decreased 0.3% and 0.4% for the three and
nine months ended September 30, 2000, compared to the same periods in 1999 due
primarily to the fact that a portion of such costs are primarily fixed in nature
and decline as a percent of revenue with increases in revenue levels.
Insurance expense decreased 0.5% as a percent of revenue for the nine months
ended September 30, 2000, compared to the same period in 1999. This decrease is
due to favorable claims experience for bodily injury and property damage claims
during the nine months ended September 30, 2000, as compared to the same period
in 1999.
Depreciation and amortization increased 0.1% and 0.3% as a percent of revenue
for the three and nine months ended September 30, 2000, compared to the same
periods in 1999, due primarily to G.I. Trucking's adding approximately 192
trailers and 34 tractors to their fleet during 2000 as a result of revenue
growth and an effort to utilize company-owned equipment rather than purchased
transportation for certain lanes.
Rents and purchased transportation expenses decreased 2.8% and 0.9% as a percent
of revenue for the three and nine months ended September 30, 2000, compared to
the same periods in 1999. G.I. Trucking has decreased its purchased
transportation costs by utilizing company-owned equipment for specific lanes
during the three and nine months ended September 30, 2000, compared to 1999, as
previously discussed.
19
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) - continued
- --------------------------------------------------------------------------------
CLIPPER
Clipper implemented a general rate increase of 5.9% for LTL shipments as of
August 1, 2000. Revenues for Clipper were $34.5 million and $98.3 million for
the three and nine months ended September 30, 2000, representing increases on a
per day basis of 18.5% and 20.9% from same periods in 1999. Clipper has
continued its trend of revenue growth with LTL revenue per shipment increasing
11.3% and 6.1% for the three and nine months ended September 30, 2000, compared
to the same periods in 1999. LTL shipments on a per day basis declined 5.4% for
the third quarter 2000 compared to the same period in 1999. LTL shipments on a
per day basis increased 2.6% for the nine months ended September 30, 2000,
compared to the same period in 1999. Intermodal revenue per shipment increased
30.4% and 21.0% for the three and nine months ended September 30, 2000, compared
to the same periods in 1999. Intermodal shipments on a per day basis remained
relatively unchanged when the three and nine months ended September 30, 2000 are
compared to the same periods in 1999.
Clipper's operating ratio for the third quarter of 2000 remained unchanged from
third quarter 1999's operating ratio of 97.4%. For the nine months ended
September 30, 2000, however, Clipper's operating ratio improved to 98.2% from
98.8% for the same period in 1999. The improvement is primarily the result of
margin improvements on its intermodal and produce shipments. Clipper's margins
improved, in part, as a result of a higher level of rail utilization for the
three and nine months ended September 30, 2000. Clipper's rail utilization was
65.4% and 64.8% of total miles for the three and nine months ended September 30,
2000 compared to 60.9% and 57.9% for the three and nine months ending September
30, 1999. Rail costs per mile for Clipper are less expensive than over-the-road
costs per mile. These improvements were offset, in part, by an increase in
selling, administrative and general costs of 0.3% as a percent of revenue for
the three and nine months ended September 30, 2000. This increase is due
primarily to additional costs incurred for information technology improvements
and an increase in bad debt expense.
TREADCO, INC.
Revenues for Treadco decreased 2.8% to $52.4 million and increased 0.3% to
$142.0 million for the three and nine months ended September 30, 2000,
respectively, compared to the same periods in 1999. "Same store" sales decreased
2.8% for the three months ended September 30, 2000 compared to the same period
in 1999 and remained relatively unchanged for the nine months ended September
30, 2000, compared to the same period in 1999. There were no "new store" sales
for the three months ended September 30, 2000 and "new store" sales were
impacted less than 1% for the nine months ended September 30, 2000 compared to
the prior year. "Same store" sales include locations that have been in existence
for the entire periods presented. "New store" sales resulted from the addition
of a new sales-only location during the second quarter of 1999. Revenues from
retreading for the three and nine months ended September 30, 2000 decreased 1.9%
to $19.2 million and 1.5% to $52.8 million, respectively, compared to the same
periods in 1999. Retread revenues for the three and nine months ended September
30, 2000 were lower due to a decrease in units sold of approximately 5.5% and
4.0%, respectively, from the same periods in 1999. The decreases were offset in
part by increases in the average sales price per unit of approximately 2.9% and
2.8%, respectively, from the same periods in 1999. Declines in retread units
sold resulted from pricing pressures from new tire manufacturer's specials and a
more competitive marketplace. Also, rising fuel costs had a negative impact on
customer retread demand during the periods.
Revenues from new tires decreased 5.5% to $26.4 million and 1.0% to $71.0
million for the three and nine months ended September 30, 2000, respectively,
from the same periods in 1999. The decrease in revenue is primarily due to more
units being sold to national account customers and less units sold to
non-national account
20
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) - continued
- --------------------------------------------------------------------------------
customers. Sales to national account customers are recorded on a commission
basis. Also, sales for the three months ended September 30, 1999 were favorably
impacted by a new tire manufacturer's marketing special.
Service revenues for the three and nine months ended September 30, 2000
increased 6.2% to $6.9 million and 11.5 % to $18.2 million compared to the same
periods in 1999. The increase is primarily due to the addition of service
equipment and personnel and to management's efforts to improve pricing.
Treadco's operating ratio for the three months ended September 30, 2000 remained
unchanged from third quarter 1999's operating ratio of 94.8%. For the nine
months ended September 30, 2000, Treadco's operating ratio improved to 97.1%
from 97.9% during the same period in 1999. Improvements in Treadco's operating
ratio resulted from improvements in new tire and service gross margins
reflecting better pricing for these lines of business for the three and nine
months ended September 30, 2000 when compared to the same periods in 1999.
Treadco's retreading business experienced a deterioration in gross margin for
the third quarter of 2000, but increased gross margin for the nine months ended
September 30, 2000 compared to 1999. Selling, administrative and general
expenses increased primarily as a result of higher salaries and wages due to
increased office, service and inventory control personnel. Also, insurance costs
were higher due to increases in claims costs, and truck expense rose due to
higher fuel costs.
INCOME TAXES
The difference between the effective tax rate for the three and nine months
ended September 30, 2000 and the federal statutory rate resulted from state
income taxes, amortization of nondeductible goodwill and other nondeductible
expenses.
OTHER ASSETS
Other assets increased $6.9 million from December 31, 1999 to September 30,
2000, due primarily to incentive pay deferrals and matching contributions to the
Company's Voluntary Savings Plan assets, which are held in a trust account.
OTHER LIABILITIES
Other liabilities increased $10.0 million from December 31, 1999 to September
30, 2000, due primarily to incentive pay deferrals and matching contributions to
the Company's Voluntary Savings Plan and increases in liabilities for interest
associated with pending income tax issues.
LIQUIDITY AND CAPITAL RESOURCES
Net income plus depreciation and amortization was $96.8 million for the nine
months ended September 30, 2000 compared to $70.7 million for the same period in
1999. Working capital changes for the first nine months of 2000 resulted in a
decrease in cash provided by operations of $2.0 million compared to an increase
of $3.2 million in the first nine months of 1999. Cash provided from operations
and proceeds from assets sales of $9.0 million were used primarily to purchase
revenue equipment and other property and equipment totaling $86.9 million,
reduce outstanding debt, and to purchase preferred stock of $3.9 million during
the nine months ended September 30, 2000. Cash provided by operations and
proceeds from assets sales of $13.9 million were used to purchase revenue
equipment and other property and equipment in the amount of $41.8 million, to
purchase the non-ABC-owned shares of Treadco for $23.7 million and to pay down
outstanding debt during the first nine months of 1999.
21
22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) - continued
- --------------------------------------------------------------------------------
The Company is party to a $250 million credit agreement (the "Credit Agreement")
with Wells Fargo Bank (Texas), N.A., as Administrative Agent and with Bank of
America National Trust and Savings Association and Wells Fargo Bank (Texas),
N.A. as Co-Documentation Agents. The Credit Agreement provides for up to $250
million of revolving credit loans (including letters of credit) and extends
through 2003.
At September 30, 2000, there were $110.0 million of Revolver Advances and
approximately $23.4 million of letters of credit outstanding. At September 30,
2000, the Company had approximately $116.6 million of borrowing availability
under the Credit Agreement. The Credit Agreement contains various covenants,
which limit, among other things, indebtedness, distributions and dispositions of
assets and require the Company to meet certain quarterly financial ratio tests.
As of September 30, 2000, the Company was in compliance with the covenants.
The Company is party to an interest rate swap on a notional amount of $110.0
million. The purpose of the swap is to limit the Company's exposure to increases
in interest rates on $110.0 million of bank borrowings over the seven-year term
of the swap. The interest rate under the swap is fixed at 5.845% plus the Credit
Agreement margin, which is currently 0.55%.
During 1999, the Company entered into $26.1 million in capital lease obligations
for the purchase of revenue equipment. The Company has not entered into any
capital lease obligations in 2000.
Management believes, based upon the Company's current levels of operations, 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
ABF and G.I. Trucking are affected by seasonal fluctuations, which affect
tonnage to be transported. Freight shipments, operating costs and earnings are
also affected adversely by inclement weather conditions. The third calendar
quarter of each year usually has the highest tonnage levels while the first
quarter has the lowest. Clipper's operations are similar to motor carrier
operations 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
Statements contained in the Management's Discussion and Analysis section of this
report that are not based on historical facts are "forward-looking statements."
Terms such as "estimate," "expect," "predict," "plan," "anticipate," "believe,"
"intend," "should," "would," "scheduled," and similar expressions and the
negatives of such terms are intended to identify forward-looking statements.
Such statements are by their nature subject to uncertainties and risk, including
but not limited to union relations; availability and cost of capital; shifts in
market demand; weather conditions; the performance and needs of industries
served by Arkansas Best's subsidiaries; 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, the
timing and amount of capital expenditures; competitive initiatives and pricing
pressures; general economic conditions; and other financial, operational and
legal risks and uncertainties detailed from time to time in the Company's SEC
public filings.
22
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ITEM 2A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------------
INTEREST RATE INSTRUMENTS
The Company is a party to an interest rate swap agreement which was effective
April 1, 1998. The swap agreement is a contract to exchange floating interest
rate payments for fixed rate payments over the life of the instrument. The
notional amount is used to measure interest to be paid or received and does not
represent the exposure to credit loss. The purpose of the swap is to limit the
Company's exposure to increases in interest rates on the notional amount of bank
borrowings over the term of the swap. The fixed interest rate under the swap is
5.845% plus the Credit Agreement margin (currently .55%). This instrument is not
recorded on the balance sheet of the Company. Details regarding the swap, as of
September 30, 2000, are as follows:
Notional Rate Rate Fair
Amount Maturity Paid Received Value(2)
-------- -------- ---- -------- --------
$110.0 million April 1, 2005 5.845% Plus Credit Agreement LIBOR rate(1) $3.2 million
Margin (currently .55%) Plus Credit Agreement
Margin (currently .55%)
(1) LIBOR rate is determined two London Banking Days prior to the first day of
every month and continues up to and including the maturity date.
(2) The fair value is an amount estimated by Societe Generale ("process agent")
that the Company would have received at September 30, 2000 to terminate the
agreement.
OTHER MARKET RISKS
Since December 31, 1999, there have been no significant changes in the Company's
other market risks, as reported in the Company's Form 10-K Annual Report.
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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 in excess of self-retention levels of
certain risks arising out of the normal course of its business (see Note E 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.
10.10 First amendment dated as of February 12, 1999 to the
$250,000,000 Credit Agreement dated as of June 12, 1998
among the Company as Borrower, Societe Generale, Southwest
Agency, as Administrative Agent and Bank of America
National Trust and Savings Association and Wells Fargo Bank
(Texas), N.A., as Co-Documentation Agents.
10.11 Amendment dated March 15, 1999 to Amendment No. 1 dated as
of February 12, 1999 to the $250,000,000 Credit Agreement
dated as of June 12, 1998 among the Company as Borrower,
Societe Generale, Southwest Agency, as Administrative Agent
and Bank of America National Trust and Savings Association
and Wells Fargo Bank (Texas), N.A., as Co-Documentation
Agents.
10.12 Second amendment dated as of August 2, 2000 to the
$250,000,000 Credit Agreement dated as of June 12, 1998
among the Company as Borrower, Wells Fargo Bank (Texas),
N.A., as Administrative Agent and Bank of America National
Trust and Savings Association and Wells Fargo Bank (Texas),
N.A., as Co-Documentation Agents, as amended by Amendment
No. 1 and Consent and Waiver dated as of February 12, 1999
and Amendment to Amendment No. 1 and Consent and Waiver
dated as of March 15, 1999.
10.13 Third Amendment dated as of September 30, 2000 to the
$250,000,000 Credit Agreement dated as of June 12, 1998
among the Company as Borrower, Wells Fargo Bank (Texas),
N.A., as Administrative Agent and Bank of America National
Trust and Savings Association and Wells Fargo Bank (Texas),
N.A., as Co-Documentation Agents, as amended by Amendment
No. 1 and Consent and Waiver dated as of February 12, 1999,
Amendment to Amendment No. 1 and Consent and Waiver dated
as of March 15, 1999 and Amendment No. 2 dated as of August
2, 2000 (as amended, the "Credit Agreement").
10.14 Agreement dated September 13, 2000 by and among The
Goodyear Tire and Rubber Company and Treadco Inc., a
wholly-owned subsidiary of Arkansas Best Corporation.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
The Company filed Form 8-K dated September 22, 2000 for Item No.
5 - Other Events. The filing announced the pending agreement
between Treadco, Inc., an Arkansas Best Corporation subsidiary,
and The Goodyear Tire and Rubber Company. The new venture will be
called Wingfoot Commercial Tire Systems LLC.
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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, 2000 /s/ David E. Loeffler
-------------------------------------------------
David E. Loeffler
Vice President-Treasurer, Chief Financial Officer
and Principal Accounting Officer
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.10 First amendment dated as of February 12, 1999 to the
$250,000,000 Credit Agreement dated as of June 12, 1998
among the Company as Borrower, Societe Generale, Southwest
Agency, as Administrative Agent and Bank of America
National Trust and Savings Association and Wells Fargo Bank
(Texas), N.A., as Co-Documentation Agents.
10.11 Amendment dated March 15, 1999 to Amendment No. 1 dated as
of February 12, 1999 to the $250,000,000 Credit Agreement
dated as of June 12, 1998 among the Company as Borrower,
Societe Generale, Southwest Agency, as Administrative Agent
and Bank of America National Trust and Savings Association
and Wells Fargo Bank (Texas), N.A., as Co-Documentation
Agents.
10.12 Second amendment dated as of August 2, 2000 to the
$250,000,000 Credit Agreement dated as of June 12, 1998
among the Company as Borrower, Wells Fargo Bank (Texas),
N.A., as Administrative Agent and Bank of America National
Trust and Savings Association and Wells Fargo Bank (Texas),
N.A., as Co-Documentation Agents, as amended by Amendment
No. 1 and Consent and Waiver dated as of February 12, 1999
and Amendment to Amendment No. 1 and Consent and Waiver
dated as of March 15, 1999.
10.13 Third Amendment dated as of September 30, 2000 to the
$250,000,000 Credit Agreement dated as of June 12, 1998
among the Company as Borrower, Wells Fargo Bank (Texas),
N.A., as Administrative Agent and Bank of America National
Trust and Savings Association and Wells Fargo Bank (Texas),
N.A., as Co-Documentation Agents, as amended by Amendment
No. 1 and Consent and Waiver dated as of February 12, 1999,
Amendment to Amendment No. 1 and Consent and Waiver dated
as of March 15, 1999 and Amendment No. 2 dated as of August
2, 2000 (as amended, the "Credit Agreement").
10.14 Agreement dated September 13, 2000 by and among The
Goodyear Tire and Rubber Company and Treadco Inc., a
wholly-owned subsidiary of Arkansas Best Corporation.
27 Financial Data Schedule