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 March 31, 2001
--------------------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
------------ ------------
Commission file number 0-19969
-------
ARKANSAS BEST CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 6711 71-0673405
------------------------------- ---------------------------- ----------------
(State or other 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
-------------------------------------------------------------
(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 30, 2001
---------------------------- -----------------------------
Common Stock, $.01 par value 20,388,166 shares
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ARKANSAS BEST CORPORATION
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 2001 and December 31, 2000 ................................................... 3
Condensed Consolidated Statements of Income -
For the Three Months Ended March 31, 2001 and 2000...................................... 5
Condensed Consolidated Statements of Stockholders' Equity
For the Three Months Ended March 31, 2001............................................... 6
Condensed Consolidated Statements of Cash Flows -
For the Three Months Ended March 31, 2001 and 2000 ..................................... 7
Notes to Condensed Consolidated Financial Statements - March 31, 2001 .................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................................................... 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................ 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ........................................................................ 22
Item 2. Changes in Securities .................................................................... 22
Item 3. Defaults Upon Senior Securities .......................................................... 22
Item 4. Submission of Matters to a Vote of Security Holders ...................................... 22
Item 5. Other Information ........................................................................ 22
Item 6. Exhibits and Reports on Form 8-K ......................................................... 22
SIGNATURES ..................................................................................... 23
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PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARKANSAS BEST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
MARCH 31 DECEMBER 31
2001 2000
---------- -----------
(UNAUDITED) NOTE
($ thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents ..................................... $ 19,983 $ 36,742
Accounts receivable, less allowances
(2001 -- $4,116; 2000 -- $4,595) ............................ 164,457 173,485
Prepaid expenses .............................................. 10,532 8,325
Deferred income taxes ......................................... 11,442 11,442
Other ......................................................... 3,967 4,459
-------- --------
TOTAL CURRENT ASSETS ....................................... 210,381 234,453
PROPERTY, PLANT AND EQUIPMENT
Land and structures ........................................... 215,744 208,220
Revenue equipment ............................................. 349,764 347,388
Service, office and other equipment ........................... 77,435 74,397
Leasehold improvements ........................................ 13,169 12,693
-------- --------
656,112 642,698
Less allowances for depreciation and amortization ............. 307,393 296,679
-------- --------
348,719 346,019
INVESTMENT IN WINGFOOT ........................................... 59,341 59,341
OTHER ASSETS ..................................................... 54,875 51,893
GOODWILL, less amortization (2001 -- $41,429; 2000 -- $40,416) ... 104,405 105,418
-------- --------
$777,721 $797,124
======== ========
See notes to condensed consolidated financial statements.
Note: The balance sheet at December 31, 2000 has been derived from the audited
financial statements at the date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
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ARKANSAS BEST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED
- --------------------------------------------------------------------------------
MARCH 31 DECEMBER 31
2001 2000
---------- -----------
(UNAUDITED) NOTE
($ thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft and drafts payable ................................. $ 15,366 $ 24,667
Accounts payable .................................................. 61,568 59,999
Accrued expenses .................................................. 149,133 168,625
Federal and state income taxes .................................... 1,133 4,127
Current portion of long-term debt ................................. 18,549 23,948
--------- ---------
TOTAL CURRENT LIABILITIES ...................................... 245,749 281,366
LONG-TERM DEBT, less current portion ................................. 151,810 152,997
OTHER LIABILITIES .................................................... 38,780 31,052
DEFERRED INCOME TAXES ................................................ 39,343 39,519
COMMITMENTS AND CONTINGENCIES ........................................ -- --
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, authorized 10,000,000 shares;
issued and outstanding 2001: 1,390,000 shares;
2000: 1,390,000 shares ........................................ 14 14
Common stock, $.01 par value, authorized 70,000,000 shares;
issued 2001: 20,444,948 shares; 2000: 20,219,137 shares ...... 204 202
Additional paid-in capital ........................................ 197,751 194,211
Retained earnings ................................................. 106,798 98,718
Treasury stock, at cost, 2001 and 2000: 59,782 shares ............ (955) (955)
Accumulated other comprehensive loss .............................. (1,773) --
--------- ---------
TOTAL STOCKHOLDERS' EQUITY ..................................... 302,039 292,190
--------- ---------
$ 777,721 $ 797,124
========= =========
See notes to condensed consolidated financial statements.
Note: The balance sheet at December 31, 2000 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.
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ARKANSAS BEST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31
2001 2000
------------ ------------
(UNAUDITED)
($ thousands, except per share data)
OPERATING REVENUES
Transportation operations ..................... $ 400,576 $ 402,244
Tire operations (3) ........................... -- 40,771
------------ ------------
400,576 443,015
------------ ------------
OPERATING EXPENSES AND COSTS
Transportation operations ..................... 380,512 375,773
Tire operations (3) ........................... -- 40,961
------------ ------------
380,512 416,734
------------ ------------
OPERATING INCOME ................................. 20,064 26,281
OTHER INCOME (EXPENSE)
Net gains on sales of property and other ...... -- 1,317
Interest expense .............................. (3,665) (4,521)
Other, net .................................... (899) (522)
------------ ------------
(4,564) (3,726)
------------ ------------
INCOME BEFORE INCOME TAXES ....................... 15,500 22,555
FEDERAL AND STATE INCOME TAXES
Current ....................................... 5,468 7,757
Deferred ...................................... 953 1,626
------------ ------------
6,421 9,383
------------ ------------
NET INCOME ....................................... 9,079 13,172
Preferred stock dividends ..................... 999 1,074
------------ ------------
NET INCOME FOR COMMON STOCKHOLDERS ............... $ 8,080 $ 12,098
============ ============
NET INCOME PER COMMON SHARE
BASIC:
NET INCOME PER SHARE (1) ......................... $ 0.40 $ 0.61
------------ ------------
AVERAGE COMMON SHARES
OUTSTANDING (BASIC) ............................ 20,349,674 19,763,133
============ ============
DILUTED:
NET INCOME PER SHARE (2) ......................... $ 0.37 $ 0.55
------------ ------------
AVERAGE COMMON SHARES
OUTSTANDING (DILUTED) ......................... 24,693,788 24,088,802
============ ============
CASH DIVIDENDS PAID PER COMMON SHARE ............. $ -- $ --
============ ============
(1) Gives consideration to preferred stock dividends of $1.0 million and $1.1
million per quarter for the three months ended March 31, 2001 and 2000,
respectively.
(2) For the three months ended March 31, 2001 and 2000, conversion of preferred
shares into common is assumed.
(3) Tire operations for the three months ended March 31, 2000 were the
operations of Treadco, Inc. ("Treadco"). Treadco's operations became a part of
Wingfoot Commercial Tire Systems, LLC on November 1, 2000.
See notes to condensed consolidated financial statements.
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ARKANSAS BEST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED OTHER
---------------- --------------- PAID-IN EARNINGS COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) LOSS(a)
------ ------ ------ ------ ---------- ---------- -------------
(UNAUDITED)
($ thousands)
BALANCES AT JANUARY 1, 2001 ...................... 1,390 $ 14 20,219 $ 202 $ 194,211 $ 98,718 $ --
Net income ....................................... -- -- -- -- -- 9,079 --
Change in fair value of interest rate swap,
net of taxes ................................ -- -- -- -- -- -- (1,773)
Comprehensive income ...................
Issuance of common stock ......................... -- -- 226 2 1,976 -- --
Tax effect of stock options exercised
and other ................................... -- -- -- -- 1,564 -- --
Dividends paid on preferred stock ................ -- -- -- -- -- (999) --
----- ---- ------ ----- --------- -------- -------
BALANCES AT MARCH 31, 2001 ....................... 1,390 $ 14 20,445 $ 204 $ 197,751 $106,798 $(1,773)
===== ==== ====== ===== ========= ======== =======
TREASURY TOTAL
STOCK EQUITY
--------- ----------
(UNAUDITED)
($ thousands)
BALANCES AT JANUARY 1, 2001 ...................... $(955) $ 292,190
Net income ....................................... -- 9,079
Change in fair value of interest rate swap,
net of taxes ................................ -- (1,773)
---------
Comprehensive income ................... 7,306
---------
Issuance of common stock ......................... -- 1,978
Tax effect of stock options exercised
and other ................................... -- 1,564
Dividends paid on preferred stock ................ -- (999)
----- ---------
BALANCES AT MARCH 31, 2001 ....................... $(955) $ 302,039
===== =========
(a) Net of tax benefits of $1.1 million.
See notes to condensed consolidated financial statements.
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ARKANSAS BEST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31
2001 2000
-------- --------
(UNAUDITED)
($ thousands)
OPERATING ACTIVITIES
Net cash provided by operating activities .......... $ 13,193 $ 11,992
INVESTING ACTIVITIES
Purchases of property, plant and equipment ......... (14,825) (19,846)
Proceeds from asset sales .......................... 831 3,456
Other .............................................. (866) (547)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES ................. (14,860) (16,937)
-------- --------
FINANCING ACTIVITIES
Borrowings under revolving credit facilities ....... -- 74,600
Payments under revolving credit facilities ......... -- (64,200)
Payments on long-term debt ......................... (6,465) (3,143)
Dividends paid ..................................... (999) (1,074)
Net increase (decrease) in bank overdraft .......... (9,453) 3,346
Retirement of bonds ................................ (153) (4,781)
Other, net ......................................... 1,978 110
-------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES ...... (15,092) 4,858
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS ............. (16,759) (87)
Cash and cash equivalents at beginning of period ... 36,742 4,319
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............ $ 19,983 $ 4,232
======== ========
See notes to condensed consolidated financial statements.
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ARKANSAS BEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2001
- --------------------------------------------------------------------------------
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 and intermodal transportation operations. Principal subsidiaries are
ABF Freight System, Inc. ("ABF"); G.I. Trucking Company ("G.I. Trucking");
Clipper Exxpress Company and related companies ("Clipper"); and FleetNet
America, LLC. The Company's 2000 operations included the truck tire retreading
and new tire sales operations of Treadco, Inc. ("Treadco") until October 31,
2000 (see Note F).
Approximately 78% 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").
The Company utilizes tractors and trailers primarily in its motor carrier
transportation operations. Tractors and trailers are commonly referred to as
"revenue equipment" in the transportation business.
NOTE B - FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed 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. 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, 2001 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2001. 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, 2000.
The difference between the effective tax rate for the three months ended March
31, 2001 and the federal statutory rate resulted from state income taxes,
amortization of nondeductible goodwill and other nondeductible expenses.
NOTE C - 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 certain
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 their tractors and trucks in
approximately 82 underground tanks located in 27 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.
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ARKANSAS BEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
- -------------------------------------------------------------------------------
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 $340,000 over the last 12 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, 2001, the Company has accrued approximately $2.5 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.
NOTE D - DERIVATIVE FINANCIAL INSTRUMENTS
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. In
June 1999, the FASB issued Statement No. 137, which deferred for one year the
implementation date of Statement No. 133. The Company adopted Statement No. 133
on January 1, 2001.
The Company has, from time to time, entered into interest-rate swap agreements
and interest-rate cap agreements designated to modify the interest
characteristic of outstanding debt or limit exposure to increasing interest
rates in accordance with its interest rate risk management policy. The
differential to be paid or received as interest rates change is accrued and
recognized as an adjustment of interest expense related to the debt (the accrual
method of accounting). The related amount payable or receivable from
counter-parties is included in other current liabilities or current assets. In
connection with the Company's adoption of Statement No. 133, the Company is
required to recognize all derivatives on its balance sheet at fair value.
Derivatives that are not hedges will 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. Hedge ineffectiveness associated with interest rate swap agreements
will be reported by the Company in interest expense.
The Company entered into an interest rate swap agreement on February 23, 1998
with an effective date of April 1, 1998 and a termination date of April 1, 2005
on a notional amount of $110.0 million. The Company's interest rate strategy is
to hedge its variable 30-day LIBOR-based interest rate for a fixed interest rate
of 5.845% (plus the current Credit Agreement margin of 0.55%) on $110.0 million
of Credit Agreement borrowings for the term of the interest rate swap to protect
the Company from potential interest rate increases. The Company has designated
its benchmark variable 30-day LIBOR-based interest rate on $110.0 million of
borrowings under the Company's Credit Agreement as a hedged item under a cash
flow hedge. If the Company had terminated the interest rate swap on March 31,
2001, it would have had to pay an estimated $2.9 million. The Company recognized
this liability on its balance sheet in other liabilities in accordance with
Statement No. 133, at March 31, 2001, through other comprehensive income.
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ARKANSAS BEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
- --------------------------------------------------------------------------------
The Company reported no gain or loss during the first quarter of 2001 as a
result of hedge ineffectiveness, other derivative instruments' gain or loss or
the discontinuance of a cash flow hedge. Future changes in the swap arrangement
(including termination of the swap agreement), swap notional amount, hedged
portion or forecasted Credit Agreement borrowings below $110.0 million may
result in a reclassification of any gain or loss reported in other comprehensive
income, into earnings.
NOTE E - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
THREE MONTHS ENDED
MARCH 31
2001 2000
------------ ------------
($ thousands, except per share data)
NUMERATOR:
Numerator for basic earnings per share --
Net income ................................... $ 9,079 $ 13,172
Preferred stock dividends .................... (999) (1,074)
------------ ------------
Numerator for basic earnings per share --
Net income available to
common stockholders ....................... 8,080 12,098
Effect of dilutive securities (1) ............ 999 1,074
------------ ------------
Numerator for diluted earnings per share --
Net income available to
common stockholders ....................... $ 9,079 $ 13,172
============ ============
DENOMINATOR:
Denominator for basic earnings
per share -- weighted-average shares ......... 20,349,674 19,763,133
Effect of dilutive securities:
Conversion of preferred stock (1) ............ 3,530,183 3,796,852
Employee stock options ....................... 813,931 528,817
------------ ------------
Denominator for diluted earnings
per share -- adjusted weighted-average
shares and assumed conversion ................ 24,693,788 24,088,802
============ ============
NET INCOME PER COMMON SHARE
BASIC:
NET INCOME PER SHARE ............................... $ .40 $ 0.61
============ ============
AVERAGE COMMON SHARES
OUTSTANDING (BASIC): ............................ 20,349,674 19,763,133
============ ============
DILUTED:
NET INCOME PER SHARE ............................... $ 0.37 $ 0.55
============ ============
AVERAGE COMMON SHARES
OUTSTANDING (DILUTED): .......................... 24,693,788 24,088,802
============ ============
CASH DIVIDENDS PAID
PER COMMON SHARE ................................ $ -- $ --
============ ============
(1) For the three months ended March 31, 2001 and 2000, conversion of preferred
shares into common is assumed.
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ARKANSAS BEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
- --------------------------------------------------------------------------------
NOTE F - CONTRIBUTION OF TREADCO'S ASSETS AND LIABILITIES TO WINGFOOT
On September 13, 2000, Treadco entered into an agreement with The Goodyear Tire
& Rubber Company ("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 a 19% ownership in Wingfoot. Goodyear 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 81% interest in Wingfoot.
The final ownership percentages for Treadco and Goodyear were based upon the
terms of the agreement. The assets and liabilities contributed by Treadco to
Wingfoot were $86.8 million and $37.9 million, respectively.
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 cash "Put Price" equal
to approximately $74.0 million. Goodyear has the right, at any time after April
30, 2003 until October 31, 2004, to purchase the Company's entire interest, for
cash, at a "Call Price" equal to the "Put Price" plus $5.0 million. The Company
accounts for its investment in Wingfoot under the equity method and the
provisions of the Wingfoot Operating Agreement. As provided in the agreement,
during the term of the "Put," the Company does not share in the profits or
losses of Wingfoot. In the event the Company does not elect to sell its interest
in Wingfoot to Goodyear nor Goodyear elects to purchase the Company's interest,
then the parties' respective rights and obligations relating to Wingfoot will
continue to be governed by the Wingfoot Operating Agreement, including
accounting for Wingfoot profit and loss allocations at the respective 19% and
81% ownership percentages beginning May 1, 2004.
The transaction was accounted for using fair value accounting, as prescribed by
the EITF Issue 00-5, which resulted in 81% of the fair value gain being
recognized in the fourth quarter of 2000. The fair value of 19% of Wingfoot is
$62 million determined by using the discounted "put" price, which represents the
fair value of Treadco's net assets at the October 31, 2000 closing date. The
Company's carrying value of Treadco's net assets at the closing date was $49
million. The gain on the transaction was $13 million of which 81% was recognized
in the fourth quarter of 2000, or $10.5 million. This gain was reduced by costs
of the transaction of $5.5 million, which included investment banking fees,
legal and accounting fees, transaction bonuses and the acceleration of certain
benefits for the former Treadco officers, for a fair value net gain recognized
of $5.0 million. The Company's investment in Wingfoot at December 31, 2000 and
March 31, 2001 was $59.3 million.
NOTE G - OPERATING SEGMENT DATA
The Company used the "management approach" to determine its reportable operating
segments as well as to determine the basis of reporting the operating segment
information. The management approach focuses on financial information that the
Company's management uses to make decisions about operating matters. Management
uses operating revenues, operating expense categories, operating ratios,
operating income and key operating statistics to evaluate performance and
allocate resources to the Company's operating segments.
During the periods being reported on, the Company operated in four defined
reportable operating segments:
(1) ABF; (2) G.I. Trucking; (3) Clipper; and (4) Treadco (which was contributed
to Wingfoot on October 31, 2000) (see Note F).
The Company eliminates intercompany transactions in consolidation. However, the
information used by the Company's management with respect to its reportable
segments is before intersegment eliminations of revenues and expenses.
Intersegment revenues and expenses are not significant.
11
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ARKANSAS BEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
- --------------------------------------------------------------------------------
Further classifications of operations or revenues by geographic location beyond
the descriptions provided above are impractical, and are, therefore, not
provided. The Company's foreign operations are not significant.
No material changes have occurred in the total assets for any reportable
operating segment since December 31, 2000.
The following tables reflect reportable operating segment information for the
Company, as well as a reconciliation of reportable segment information to the
Company's consolidated operating revenues, operating expenses and operating
income.
THREE MONTHS ENDED
MARCH 31
2001 2000
--------- ---------
($ thousands)
OPERATING REVENUES
ABF Freight System, Inc. ..................... $ 325,513 $ 331,836
G.I. Trucking Company ........................ 40,538 37,701
Clipper ...................................... 30,827 29,631
Treadco, Inc. (1) ............................ -- 41,264
Other revenues and eliminations .............. 3,698 2,583
--------- ---------
Total consolidated operating revenues ...... $ 400,576 $ 443,015
========= =========
OPERATING EXPENSES AND COSTS
ABF FREIGHT SYSTEM, INC .........................
Salaries and wages ........................... $ 211,754 $ 208,992
Supplies and expenses ........................ 44,005 43,356
Operating taxes and licenses ................. 10,259 10,266
Insurance .................................... 4,011 4,870
Communications and utilities ................. 4,034 4,021
Depreciation and amortization ................ 9,611 8,235
Rents and purchased transportation ........... 19,278 23,966
Other ........................................ 1,538 940
(Gain) loss on sale of revenue equipment ..... 72 (51)
--------- ---------
304,562 304,595
--------- ---------
G.I. TRUCKING COMPANY
Salaries and wages ........................... 20,849 18,191
Supplies and expenses ........................ 3,743 3,499
Operating taxes and licenses ................. 986 855
Insurance .................................... 1,039 853
Communications and utilities ................. 586 502
Depreciation and amortization ................ 1,366 1,067
Rents and purchased transportation ........... 10,633 11,786
Other ........................................ 1,044 941
(Gain) on sale of revenue equipment .......... (50) (1)
--------- ---------
40,196 37,693
--------- ---------
CLIPPER
Cost of services ............................. 27,090 25,808
Selling, administrative and general .......... 4,078 3,796
(Gain) loss on sale of revenue equipment ..... 9 (3)
--------- ---------
$ 31,177 $ 29,601
--------- ---------
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13
ARKANSAS BEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31
2001 2000
--------- ---------
($ thousands)
TREADCO, INC. (1)
Cost of sales ...................................... $ -- $ 27,904
Selling, administrative and general ................ -- 13,357
--------- ---------
-- 41,261
--------- ---------
Other expenses and eliminations ....................... 4,577 3,584
--------- ---------
Total consolidated operating expenses and costs .... $ 380,512 $ 416,734
========= =========
OPERATING INCOME (LOSS)
ABF Freight System, Inc. .............................. $ 20,951 $ 27,241
G.I. Trucking Company ................................. 342 8
Clipper ............................................... (350) 30
Treadco, Inc. (1) ..................................... -- 3
Other income (loss) and eliminations .................. (879) (1,001)
--------- ---------
Total consolidated operating income (loss) ......... $ 20,064 $ 26,281
========= =========
(1) Tire operations for the three months ended March 31, 2000 were the
operations of Treadco, Inc. ("Treadco"). Treadco's operations became a part
of Wingfoot Commercial Tire Systems, LLC on November 1, 2000.
13
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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
MARCH 31
2001 2000
------- --------
OPERATING EXPENSES AND COSTS
ABF FREIGHT SYSTEM, INC.
Salaries and wages .......................... 65.1% 63.0%
Supplies and expenses ....................... 13.5 13.1
Operating taxes and licenses ................ 3.2 3.1
Insurance ................................... 1.2 1.5
Communications and utilities ................ 1.2 1.2
Depreciation and amortization ............... 3.0 2.5
Rents and purchased transportation .......... 5.9 7.2
Other ....................................... 0.5 0.2
----- -----
93.6% 91.8%
----- -----
G.I. TRUCKING COMPANY
Salaries and wages .......................... 51.4% 48.3%
Supplies and expenses ....................... 9.2 9.3
Operating taxes and licenses ................ 2.4 2.3
Insurance ................................... 2.6 2.3
Communications and utilities ................ 1.4 1.3
Depreciation and amortization ............... 3.4 2.8
Rents and purchased transportation .......... 26.2 31.3
Other ....................................... 2.7 2.4
(Gain) on sale of revenue equipment ......... (.1) --
----- -----
99.2% 100.0%
----- -----
CLIPPER
Cost of services ............................ 87.9% 87.1%
Selling, administrative and general ......... 13.2 12.8
----- -----
101.1% 99.9%
----- -----
TREADCO, INC.(1)
Cost of sales ............................... -- 67.6%
Selling, administrative and general ......... -- 32.4
----- -----
-- 100.0%
----- -----
OPERATING INCOME (LOSS)
ABF Freight System, Inc. ....................... 6.4% 8.2%
G. I. Trucking Company ......................... 0.8 0.0
Clipper ........................................ (1.1) 0.1
Treadco, Inc. (1) .............................. -- 0.0
(1) Tire operations for the three months ended March 31, 2000 were the
operations of Treadco, Inc. Treadco's operations became a part of Wingfoot
Commercial Tire Systems, LLC on November 1, 2000.
14
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) - continued
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
Consolidated revenues for the three months ended March 31, 2001 were $400.6
million compared to $443.0 million for the first quarter 2000, representing a
decrease of 9.6%, due primarily to a decline in revenues for Treadco as a result
of the contribution of substantially all of the Treadco assets and liabilities
to Wingfoot on October 31, 2000 (see Note F). In addition, there were decreases
in revenues for ABF, offset, in part, by increases in revenues for G.I. Trucking
and Clipper. Operating income decreased 23.7% to $20.1 million for the three
months ended March 31, 2001 from $26.3 million in the first quarter 2000. The
decrease in operating income is due primarily to a decline in operating income
for ABF. Net income for the three months ended March 31, 2001 was $9.1 million,
or $0.37 per diluted common share, compared to $13.2 million, or $0.55 per
diluted common share for the first quarter 2000. The decrease in net income
reflects primarily the decrease in operating income.
The Company continued to experience a slowdown in business levels resulting from
a decline in the economy beginning in mid-2000. Tonnage and shipment levels at
all of the Company's operating segments were impacted by the slowing economy. If
business levels continue at this slower pace, the Company's 2001 business
levels, and potentially its results of operations, could continue to be
adversely impacted relative to 2000.
ABF FREIGHT SYSTEM, INC.
Effective August 14, 2000, ABF implemented a general rate increase of 5.7%.
Revenues for the three months ended March 31, 2001 decreased 0.4%, on a per day
basis, to $325.5 million from $331.8 million in the first quarter of 2000. There
were 64 workdays in the first quarter of 2001 and 65 workdays in the first
quarter of 2000. ABF generated operating income of $21.0 million during the
first quarter of 2001, compared to $27.2 million during the same period in 2000.
ABF's decrease in revenue is due primarily to a 6.6% decrease in LTL tonnage per
day, when the first quarter of 2001 is compared to the same period in 2000.
ABF's first quarter 2001 performance was affected by less available freight due
to decreased business levels at customer facilities. The decrease in tonnage was
offset, in part, by a 6.0% increase in LTL revenue per hundredweight to $21.41
during the three months ended March 31, 2001 from $20.20 for the first quarter
2000, reflecting a favorable pricing environment.
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 first quarter 2001 ranged from 3.0 % to 4.5%. The fuel surcharge in
effect during the first quarter 2000 ranged from 2.0% to 4.0%.
ABF's operating ratio increased to 93.6% for the three months ended March 31,
2001 from 91.8% during the same period in 2000, as a result of tonnage declines
and changes in certain operating expense categories as follows:
Salaries and wages expense increased 2.1% as a percent of revenue for the three
months ended March 31, 2001, compared to the same period in 2000. The increase
results primarily from the annual general union wage and benefit rate increase
on April 1, 2000 of approximately 3.0%, as well as an increase in wages and
benefit costs for road drivers, resulting from ABF's decision to utilize
additional road drivers and company-owned equipment to move freight, in certain
poor service rail lanes, rather than rail. These cost increases were offset, in
part, by a
15
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) - continued
- --------------------------------------------------------------------------------
decline in worker's compensation costs, which resulted from favorable claims
experience in the first quarter of 2001 compared to the same period in 2000.
Supplies and expenses increased 0.4% as a percent of revenue for the three
months ended March 31, 2001, compared to the same period in 2000. Equipment
repair costs have increased as a result of transferring used road equipment to
city use, rather than purchasing new city equipment. Fuel costs continue to be
at high levels with an average price-per-gallon, net of fuel taxes, of $0.93 for
the first quarter 2001 compared to $0.89 for the first quarter 2000. The
previously mentioned fuel surcharge on revenue is intended to offset the fuel
cost increases.
Insurance expense decreased 0.3% as a percent of revenue for the three months
ended March 31, 2001, compared to the same period in 2000. This improvement was
due primarily to favorable claims experience for cargo claims and bodily injury
and property damage claims.
Depreciation and amortization expense increased 0.5% as a percent of revenue for
the three months ended March 31, 2001, compared to the same period in 2000, due
primarily to the purchase of 46 road tractors during the first quarter of 2001.
The road tractors purchased were used to increase the fleet size in an effort to
utilize company-owned equipment and road drivers rather than rail for certain
linehaul moves in poor service rail lanes. In addition, tractors were purchased
to replace older tractors in the fleet that have been transferred to city use,
including some that were under operating leases in the first quarter of 2000.
Rents and purchased transportation decreased 1.3% as a percent of revenue for
the three months ended March 31, 2001, compared to the same period in 2000. This
decrease is due primarily to a decline in rail utilization to 13.4% of total
miles for the first quarter of 2001 compared to 16.2% in the first quarter of
2000, as the Company is utilizing more company-owned equipment and road drivers
for certain linehaul moves, as previously discussed. In addition, rents and
purchased transportation costs decreased due to the disposal of some tractors
under operating leases, as previously mentioned.
G.I. TRUCKING COMPANY
Effective September 1, 2000, G.I. Trucking implemented a general rate increase
of 5.9%. G.I. Trucking revenues increased 9.2%, on a per day basis, to $40.5
million for the three months ended March 31, 2001 from $37.7 million during the
same period in 2000. G.I. Trucking generated operating income of $342,000 during
the first quarter of 2001, compared to $8,000 during the same period in 2000.
G.I. Trucking's increase in revenue is due primarily to a 6.8% increase in total
pounds per day over the first quarter 2000. In addition, revenue per
hundredweight increased 2.3% for the three months ended March 31, 2001 from the
same period in 2000. 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, during the last half of the first
quarter of 2000, 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 first quarter 2001 ranged from 3.7% to 5.8%. The fuel surcharge in effect
during the first quarter 2000 ranged from 2.6% to 4.6%.
16
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) - continued
- --------------------------------------------------------------------------------
G.I. Trucking's operating ratio improved to 99.2% for the three months ended
March 31, 2001 compared to 100.0% during the same period in 2000, as a result of
revenue and yield improvements previously described. In addition, the
improvement in the operating ratio results from changes in certain operating
expenses as follows:
Salaries and wages expense increased 3.1% as a percent of revenue for the three
months ended March 31, 2001, compared to the same period in 2000. This increase
is due primarily to increased salaries and benefits related to the addition of
drivers in an effort to utilize company-owned equipment rather than third party
purchased transportation providers for certain linehaul moves and due to the
full quarterly impact in 2001 of the additional sales staff described above. The
increase is also due to unfavorable health care claims experience and increased
pension costs, offset, in part, by favorable workers' compensation experience.
Insurance expense increased 0.3% as a percent of revenue for the three months
ended March 31, 2001, compared to the same period in 2000, due primarily to
unfavorable cargo claims experience.
Depreciation and amortization expense increased 0.6% as a percent of revenue for
the three months ended March 31, 2001, compared to the same period in 2000, due
primarily to the addition of trailers and tractors to G.I. Trucking's fleet
during last nine months of 2000, as a result of revenue growth and an effort to
utilize company-owned equipment rather than purchased transportation for certain
linehaul moves.
Rents and purchased transportation expenses decreased 5.1% as a percent of
revenue for the three months ended March 31, 2001, compared to the same period
in 2000. G.I. Trucking has decreased its purchased transportation costs by
utilizing company-owned equipment and drivers for specific linehaul moves, as
previously discussed, and as a result of enhanced analysis of lane-specific cost
data during the first quarter 2001 compared to first quarter 2000.
CLIPPER
Clipper implemented a general rate increase of 5.9% for LTL shipments as of
August 1, 2000. Revenues for Clipper increased 5.7%, on a per day basis, to
$30.8 million for the three months ended March 31, 2001 from $29.6 million
during the same period in 2000. Intermodal revenue per shipment increased 8.1%
and the number of intermodal shipments increased 18.4% when the first quarter of
2001 is compared to the same period in 2000. Clipper's intermodal division
experienced increases in shipment volumes from existing customers when first
quarter 2001 is compared to first quarter 2000. LTL revenue per shipment
increased 9.8% while LTL shipments declined 22.0% during the first quarter 2001,
compared to the same period in 2000. LTL shipment declines reflect Clipper's
movement away from unprofitable business and lower business levels resulting
from a slow down in the economy. In addition, the LTL division suffered from
changes in the shipping pattern of a large customer, which reduced the LTL
shipments handled by Clipper.
Clipper's operating ratio increased to 101.1% for the three months ended March
31, 2001 from 99.9% during the same period in 2000. Though overall revenue
increased, the slowdown in the U.S. economy made it difficult to profitably
replace revenue that was previously lost by Clipper's LTL division. During the
first quarter of 2001, Clipper added sales personnel to increase revenues in
this competitive environment, which increased salaries and benefits costs. In
addition, Clipper experienced cost increases as a result of investing in new
information technology to improve network communications and to provide
document-imaging applications. Finally, a change in the mix of shipments handled
by the LTL division has contributed to a first quarter decline in rail
utilization. Clipper's rail utilization was 57.1% of total miles for the three
months ended March 31, 2001 compared to 63.5% during the same period in 2000.
For Clipper, rail costs per mile are generally less expensive than over-the-road
costs per mile.
17
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) - continued
- --------------------------------------------------------------------------------
TREADCO, INC.
On September 13, 2000, Treadco entered into an agreement with Goodyear to form a
new limited liability company called Wingfoot Commercial Tire Systems, LLC
("Wingfoot") (see Note F). 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 a 19%
ownership in Wingfoot. Revenue and operating income for Treadco for the three
months ended March 31, 2000 were $41.3 million and $3,000, respectively. (See
Note G - Operating Segment Data).
In the last half of the 1990's changes were occurring in the traditional
relationship between retread equipment and raw materials franchisers and new
tire suppliers in Treadco's truck tire retreading and new tire sales business.
As a result of these changes, in the first quarter of 1998, ABC began evaluating
its then 46% investment in Treadco. This evaluation resulted in ABC's January
1999 proposal to Treadco's Board for ABC to acquire all outstanding Treadco
common stock. ABC believed this would lower costs associated with Treadco being
a small public company, lower state income tax costs and other tax benefits
available to the Company if Treadco were a wholly owned subsidiary, and maximize
its flexibility in managing Treadco in this changing environment. As these
changes continued to evolve throughout 1999 and 2000, ABC concluded that an
alliance of Treadco with one of the major new tire manufacturers, who was
expanding its presence in the retread industry, provided Treadco the best
opportunity at long-term survival and maximized its current value to ABC. In
September 2000, ABC entered into its agreement with The Goodyear Tire & Rubber
Company, which created Wingfoot and gave the Company the right to "put" its
interest to Goodyear for $74.0 million, as described below.
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 cash "Put Price" equal
to approximately $74.0 million. Goodyear has the right, at any time after April
30, 2003 until October 31, 2004, to purchase the Company's entire interest, for
cash, at a "Call Price" equal to the "Put Price" plus $5.0 million. As provided
in the agreement between Goodyear and Treadco, the Company will not share in the
profits or losses of Wingfoot during the term of the "put." If the Company does
not exercise its right to sell its 19% interest in Wingfoot, the Company will
account for its share of Wingfoot's profits or losses beginning May 1, 2004, as
provided in the Wingfoot Operating Agreement. If the Company "puts" its interest
to Goodyear, the Company will record a pre-tax gain in the amount of $14 million
in the quarter its interest is "put." If Goodyear "calls" the Company's interest
in Wingfoot, the Company will record a pre-tax gain of $19.0 million during the
quarter the "call" is made by Goodyear (see Note F).
INCOME TAXES
The difference between the effective tax rate for the three months ended March
31, 2001 and the federal statutory rate resulted from state income taxes,
amortization of nondeductible goodwill and other nondeductible expenses.
In March 1999, the Tenth Circuit Court of Appeals ruled against an appealing
taxpayer regarding the timing of deductibility of contributions to multiemployer
pension plans. The Internal Revenue Service ("IRS") has raised the same issue
with respect to the Company. There are certain factual differences between those
present in the Tenth Circuit case and those relating specifically to the
Company. The Company has been involved in the administrative appeals process
with the IRS regarding those factual differences. Based on the most recent
information available, it is likely that the Company will receive an unfavorable
decision from the IRS on the issues involved. The Company presently intends to
pursue its judicial remedies as necessary. If all the issues involved in the
pension matter were decided adversely to the Company, the amount of tax and
interest due
18
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) - continued
- --------------------------------------------------------------------------------
would be approximately $38.0 million. Because of the complex issues and the fact
that multiple tax years and IRS examinations of the Company and an acquired
company are involved, management believes the resolution of this matter will
occur over an extended future period. However, it is likely that the Company
will pay a substantial part of the tax and interest in 2001, and then file
claims for refunds, in order to pursue judicial remedies with the greatest
chance of success. All related income taxes have been provided for, and, in the
opinion of management, adequate provision has been made for all related interest
liabilities that may arise as a result of the proposed IRS adjustments. In the
opinion of management, any additional liability that may arise will not have a
material adverse effect on the Company's results of operations, and the impact
on the Company's financial position and cash flows should not exceed the amount
described above.
OTHER ASSETS
Other assets increased $3.0 million from December 31, 2000 to March 31, 2001,
due primarily to incentive pay deferrals and matching contributions made to the
Company's Voluntary Savings Plan assets, which are held in a trust account.
ACCRUED EXPENSES
Accrued expenses decreased $19.5 million from December 31, 2000 to March 31,
2001, due primarily to the payment of incentive pay amounts.
OTHER LIABILITIES
Other liabilities increased $7.7 million from December 31, 2000 to March 31,
2001, due to incentive pay deferrals and matching contributions made to the
Company's Voluntary Savings Plan assets, which are held in a trust account, and
due to an increase in liabilities as a result of recording the fair value of the
Company's interest rate swap in the amount of $2.9 million, in accordance with
FASB Statement No. 133 (See Note D).
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations of $13.2 million, proceeds from assets sales of $0.8
million and available cash were used primarily to purchase revenue equipment and
other property and equipment totaling $14.8 million and reduce outstanding debt
during the three months ended March 31, 2001. Cash provided by operations of
$12.0 million, proceeds from asset sales of $3.5 million and borrowings were
used primarily to purchase revenue equipment and other property and equipment in
the amount of $19.8 million during the first quarter of 2000. Revenue equipment
includes tractors and trailers used in the Company's motor carrier
transportation operations.
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 into
2003.
At March 31, 2001, there were $110.0 million of Revolver Advances and
approximately $21.6 million of letters of credit outstanding. At March 31, 2001,
the Company had approximately $118.4 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
requires the Company to meet certain quarterly financial ratio tests. As of
March 31, 2001, the Company was in compliance with the covenants.
19
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) - continued
- --------------------------------------------------------------------------------
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%. The fair value of the Company's
interest rate swap was ($2.9) million and ($0.1) million at March 31, 2001 and
December 31, 2000, respectively. The fair value of the swap is impacted by
changes in rates of similarly termed Treasury instruments.
The Company disclosed in its Annual Report for 2000 that it expected to spend
between $90.0 million and $100.0 million for capital expenditures in 2001.
Because of the economic slowdown and the potential impact on the Company's
business levels and results of operations for 2001, the Company has reduced its
2001 forecasted capital expenditures to be no more than $85.0 million.
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
through 2002, as well as fund its forecasted capital expenditures for 2001 and
to fund the payment of potential tax and interest liabilities (see previous
discussion under Income Taxes heading).
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 operations at ABF
and G.I. Trucking with revenues being weaker in the first quarter and stronger
during the months of September and October.
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," "forecast," "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 risks,
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 Securities and Exchange Commission ("SEC") public filings.
20
21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------------
INTEREST RATE INSTRUMENTS
The Company has historically been subject to market risk on all or a part of its
borrowings under bank credit lines, which have variable interest rates.
In February 1998, the Company entered into an interest rate swap effective
April 1, 1998. The swap agreement is a contract to exchange variable 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 0.55%). This instrument is
recorded on the balance sheet of the Company in other liabilities (see Note D).
Details regarding the swap, as of March 31, 2001, 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) ($2.9) million
Margin (currently 0.55%) Plus Credit Agreement
Margin (currently 0.55%)
(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 paid at March 31, 2001 to terminate the
agreement.
OTHER MARKET RISKS
Since December 31, 2000, there have been no significant changes in the Company's
other market risks, as reported in the Company's Form 10-K Annual Report.
21
22
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 for
certain risks arising out of the normal course of its business (see Note C 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.
None.
(b) REPORTS ON FORM 8-K.
None.
22
23
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 11, 2001 /s/ David E. Loeffler
------------------------------------------
David E. Loeffler
Vice President-Treasurer, Chief Financial
Officer and Principal Accounting Officer
23