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, 1998
------------------
[ ] 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
- --------------------------------------------------------------------------------
(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, 1998
- --------------------------------------------------- ---------------------------------------------------
Common Stock, $.01 par value 19,610,213 shares
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ARKANSAS BEST CORPORATION
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets --
March 31, 1998 and December 31, 1997 .................................................. 3
Consolidated Statements of Operations --
For the Three Months Ended March 31, 1998 and 1997 ..................................... 5
Consolidated Statements of Shareholders' Equity
For the Three Months Ended March 31, 1998 ............................................. 7
Condensed Consolidated Statements of Cash Flows --
For the Three Months Ended March 31, 1998 and 1997 ..................................... 8
Notes to Consolidated Financial Statements - March 31, 1998 .............................. 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................................................... 15
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
EXHIBITS
10.1 Schedule and Confirmation Pertaining to the Interest-Rate Swap Agreement
Dated February 23, 1998. ................................................................. 24
3
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
MARCH 31 DECEMBER 31
1998 1997
--------------- ---------------
(UNAUDITED) NOTE
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................................... $ (4,018) $ 7,203
Trade receivables less allowances
1998 -- $7,568,000; 1997--$7,603,000)..................................... 167,509 175,693
Inventories.................................................................. 31,195 30,685
Prepaid expenses ............................................................ 14,505 14,456
Deferred income taxes ....................................................... 5,590 5,584
Other ....................................................................... 3,346 3,275
- --------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS ..................................................... 218,127 236,896
PROPERTY, PLANT AND EQUIPMENT
Land and structures ......................................................... 213,025 212,847
Revenue equipment ........................................................... 218,657 207,471
Manufacturing equipment ..................................................... 17,119 18,891
Service, office and other equipment ......................................... 66,217 64,598
Leasehold improvements ...................................................... 7,240 7,281
- --------------------------------------------------------------------------------------------------------------------------
522,258 511,088
Less allowances for depreciation and amortization ........................... (231,491) (225,733)
- --------------------------------------------------------------------------------------------------------------------------
290,767 285,355
OTHER ASSETS ................................................................... 42,007 41,999
ASSETS HELD FOR SALE ........................................................... 2,623 3,342
GOODWILL, less amortization (1998 -- $ 32,975,000
1997 -- $31,867,000) ..................................................... 129,639 130,747
- --------------------------------------------------------------------------------------------------------------------------
$ 683,163 $ 698,339
==========================================================================================================================
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ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
MARCH 31 DECEMBER 31
1998 1997
--------------- ---------------
(UNAUDITED) NOTE
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft .............................................................. $ - $ 13,801
Bank drafts payable ......................................................... 1,415 1,172
Trade accounts payable ...................................................... 76,896 77,403
Accrued expenses............................................................. 155,796 157,622
Federal and state income taxes............................................... 1,671 1,222
Current portion of long-term debt ........................................... 16,106 16,484
- --------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES ................................................ 251,884 267,704
LONG-TERM DEBT, less current portion ........................................... 200,424 202,604
OTHER LIABILITIES .............................................................. 21,605 21,921
DEFERRED INCOME TAXES .......................................................... 25,448 24,448
MINORITY INTEREST .............................................................. 31,990 32,600
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, authorized 10,000,000 shares;
issued and outstanding 1,495,000 shares .................................. 15 15
Common stock, $.01 par value, authorized 70,000,000 shares;
issued and outstanding 1998: 19,610,213 shares;
1997: 19,596,213 shares ................................................. 196 196
Additional paid-in capital .................................................. 193,117 192,910
Retained earnings (deficit) ................................................. (41,516) (44,059)
- --------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY ............................................... 151,812 149,062
COMMITMENTS AND CONTINGENCIES ..................................................
- --------------------------------------------------------------------------------------------------------------------------
$ 683,163 $ 698,339
==========================================================================================================================
NOTE: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
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
MARCH 31
1998 1997
-------------- -------------
(UNAUDITED)
($ thousands, except per share data)
OPERATING REVENUES
LTL motor carrier operations .................................................. $ 308,754 $ 296,535
Truckload motor carrier operations ............................................ - 19,021
Intermodal operations ......................................................... 39,059 44,789
Tire operations ............................................................... 37,067 32,094
Service and other ............................................................. 3,027 2,174
- --------------------------------------------------------------------------------------------------------------------------
387,907 394,613
- --------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES AND COSTS
LTL motor carrier operations .................................................. 296,079 285,086
Truckload motor carrier operations ............................................ - 18,490
Intermodal operations ......................................................... 39,600 45,223
Tire operations ............................................................... 37,679 34,638
Service and other ............................................................. 3,313 2,226
- --------------------------------------------------------------------------------------------------------------------------
376,671 385,663
- --------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME ................................................................. 11,236 8,950
OTHER INCOME (EXPENSE)
Net gains (losses) on sales of property
and non-revenue equipment .................................................. 592 (694)
Interest expense .............................................................. (4,468) (7,085)
Minority interest in Treadco, Inc. ............................................ 341 1,025
Other, net .................................................................... (1,463) (1,759)
- --------------------------------------------------------------------------------------------------------------------------
(4,998) (8,513)
- --------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES ............................................. 6,238 437
FEDERAL AND STATE INCOME TAXES (CREDIT)
Current ....................................................................... 3,871 (360)
Deferred ...................................................................... (1,251) 217
- --------------------------------------------------------------------------------------------------------------------------
2,620 (143)
- --------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS ................................................ 3,618 580
- --------------------------------------------------------------------------------------------------------------------------
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ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS -- Continued
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31
1998 1997
------------- -------------
(UNAUDITED)
($ thousands, except per share data)
DISCONTINUED OPERATIONS:
Loss from discontinued operations (net of tax benefits of $506
for the three months ended March 31, 1997) ................................. $ - $ (898)
- --------------------------------------------------------------------------------------------------------------------------
LOSS FROM DISCONTINUED OPERATIONS ................................................ - (898)
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) ................................................................ 3,618 (318)
Preferred stock dividends ..................................................... 1,075 1,075
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS)
FOR COMMON SHAREHOLDERS ...................................................... $ 2,543 $ (1,393)
==========================================================================================================================
EARNINGS (LOSS) PER COMMON SHARE
BASIC AND DILUTED:
Continuing operations (1)...................................................... $ 0.13 $ (0.03)
Discontinued operations ....................................................... - (0.04)
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE (1) .................................................. $ 0.13 $ (0.07)
- --------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS PAID PER COMMON SHARE ............................................. $ - $ -
==========================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
(1) Gives consideration to preferred stock dividends of $1.1 million per
quarter.
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ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
ACCUMULATED
ADDITIONAL RETAINED OTHER
PREFERRED COMMON PAID-IN EARNINGS COMPREHENSIVE
STOCK STOCK CAPITAL (DEFICIT) INCOME (NOTE)
- --------------------------------------------------------------------------------------------------------------------------
($ thousands)
Balances at January 1, 1998 ..................... $ 15 $ 196 $ 192,910 $(43,788) $ (271)
Net income ...................................... - - - 3,618 -
Common stock issued on exercise
of stock options.............................. - - 89 - -
Dividends paid .................................. - - - (1,075) -
Tax effect of stock options exercised ........... - - 118 - -
- --------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 1998 ...................... $ 15 $ 196 $ 193,117 $(41,245) $ (271)
==========================================================================================================================
NOTE: Included in retained earnings in the accompanying consolidated balance
sheet.
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ARKANSAS BEST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31
1998 1997
-------------- -------------
($ thousands)
OPERATING ACTIVITIES
Net cash provided by operating activities ................................... $ 19,519 $ 17,588
INVESTING ACTIVITIES
Purchase of property, plant and equipment,
less capitalized leases ................................................... (16,253) (1,556)
Proceeds from asset sales ................................................... 1,642 10,272
- --------------------------------------------------------------------------------------------------------------------------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES ................................. (14,611) 8,716
FINANCING ACTIVITIES
Borrowings under revolving credit facilities ................................ 143,400 77,875
Payments under revolving credit facilities................................... (141,400) (92,675)
Payments on long-term debt................................................... (2,844) (3,576)
Payments under term loan facilities ......................................... (500) (6,984)
Dividends paid to minority shareholders of Treadco, Inc. .................... - (110)
Dividends paid on preferred stock............................................ (1,075) (1,075)
Decrease in outstanding checks .............................................. (13,801) -
Deferred financing costs and expenses ....................................... - (898)
Other, net .................................................................. 91 -
- --------------------------------------------------------------------------------------------------------------------------
NET CASH USED BY FINANCING ACTIVITIES ............................................ (16,129) (27,443)
NET DECREASE IN CASH AND CASH EQUIVALENTS ........................................ (11,221) (1,139)
Cash and cash equivalents at beginning of period ............................ 7,203 1,806
- --------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ....................................... $ (4,018) $ 667
==========================================================================================================================
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ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1997
- --------------------------------------------------------------------------------
NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS
Arkansas Best Corporation (the "Company") is a diversified holding company
engaged through its subsidiaries primarily in motor carrier transportation
operations, intermodal transportation operations and truck tire retreading and
new tire sales. Principal subsidiaries are ABF Freight System, Inc., ("ABF");
Treadco, Inc. ("Treadco"); and Clipper Exxpress Company, CaroTrans
International, Inc. ("Clipper Worldwide"), and related companies (collectively
"Clipper Group"); G.I. Trucking Company ("G.I. Trucking"); and FleetNet America,
Inc.; and, until July 15, 1997, Cardinal Freight Carriers, Inc. ("Cardinal").
Approximately 80% of ABF's employees are covered under a new five-year
collective bargaining agreement beginning April 1, 1998 with the International
Brotherhood of Teamsters ("IBT"). The agreement was reached February 9, 1998 and
approved by vote of IBT members on April 9, 1998.
NOTE B - FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial 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, 1998, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. 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, 1997.
The differences between the effective tax rate for the three months ended March
31, 1998, and the federal statutory rate resulted from state income taxes,
amortization of goodwill, minority interest, and other nondeductible expenses.
NOTE C - DISCONTINUED OPERATIONS
As of June 30, 1997 and prior periods since 1995, the Company was engaged in
providing logistics services, including warehousing and distribution, through
two wholly owned subsidiaries, The Complete Logistics Company ("CLC") and
Integrated Distribution Inc. ("IDI"). CLC was sold on August 8, 1997. In
September 1997, the Company completed a formal plan to exit the logistics
segment by disposing of IDI. The Company closed the sale of IDI on October 31,
1997.
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ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
Results of operations of the logistics segment have been reported as
discontinued operations as of September 30, 1997 and the statements of
operations for all prior periods have been restated to remove revenue and
expenses of the logistics segment. Results of the logistics operations segment
included in discontinued operations are summarized as follows:
THREE MONTHS ENDED
MARCH 31
1998 1997
------------ -------------
Revenues ........................................................................... $ - $ 12,134
Operating loss ..................................................................... - (1,184)
Pre-tax loss ....................................................................... - (1,404)
NOTE D - INVENTORIES
MARCH 31 DECEMBER 31
1998 1997
------------ -------------
($ thousands)
Finished goods ..................................................................... $ 23,190 $ 22,392
Materials .......................................................................... 5,005 4,934
Repair parts, supplies and other ................................................... 3,000 3,359
- --------------------------------------------------------------------------------------------------------------------------
$ 31,195 $ 30,685
==========================================================================================================================
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ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
NOTE E - OPERATING EXPENSES AND COSTS
THREE MONTHS ENDED
MARCH 31
1998 1997
------------ ------------
(UNAUDITED)
($ thousands)
LTL Motor Carrier Operations:
Salaries and wages .............................................................. $ 204,341 $ 197,979
Supplies and expenses ........................................................... 29,150 29,753
Operating taxes and licenses .................................................... 10,395 10,397
Insurance ....................................................................... 6,059 6,610
Communications and utilities .................................................... 6,954 6,713
Depreciation and amortization ................................................... 7,556 9,118
Rents and purchased transportation .............................................. 29,322 23,517
Other ........................................................................... 2,425 1,840
(Gain) on sale of revenue equipment ............................................. (123) (841)
- --------------------------------------------------------------------------------------------------------------------------
296,079 285,086
Truckload Motor Carrier Operations:
Salaries and wages .............................................................. - 6,920
Supplies and expenses ........................................................... - 3,687
Operating taxes and licenses .................................................... - 1,755
Insurance ....................................................................... - 913
Communications and utilities .................................................... - 283
Depreciation and amortization ................................................... - 957
Rents and purchased transportation .............................................. - 3,766
Other ........................................................................... - 207
Loss on sale of revenue equipment ............................................... - 2
- --------------------------------------------------------------------------------------------------------------------------
- 18,490
Intermodal Operations:
Cost of services ................................................................ 32,728 38,172
Selling, administrative and general ................................................ 6,892 7,051
(Gain) on sale of revenue equipment.............................................. (20) -
- --------------------------------------------------------------------------------------------------------------------------
39,600 45,223
Tire Operations:
Cost of sales ................................................................... 26,666 24,475
Selling, administrative and general ............................................. 11,013 10,163
- --------------------------------------------------------------------------------------------------------------------------
37,769 34,638
Service and other: ................................................................. 3,313 2,226
- --------------------------------------------------------------------------------------------------------------------------
$ 376,671 $ 385,663
==========================================================================================================================
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ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
NOTE F - 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 its tractors and trucks in
approximately 108 underground tanks located in 30 states. Maintenance of such
tanks is regulated at the federal and, in some cases, state levels. The Company
believes that it is in substantial compliance with all such regulations. The
Company is not aware of any leaks from such tanks that could reasonably be
expected to have a material adverse effect on the Company. Environmental
regulations have been adopted by the United States Environmental Protection
Agency ("EPA") that will require the Company to upgrade its underground tank
systems by December 1998. The Company currently estimates that such upgrades,
which are currently in progress, will not have a material adverse effect on the
Company.
The Company has received notices from the EPA and others that it has been
identified as a potentially responsible party ("PRP") under the Comprehensive
Environmental Response Compensation and Liability Act or other federal or state
environmental statutes at several hazardous waste sites. After investigating the
Company's or its subsidiaries' involvement in waste disposal or waste generation
at such sites, the Company has either agreed to de minimis settlements
(aggregating approximately $250,000 over the last five years), or believes its
obligations with respect to such sites would involve immaterial monetary
liability, although there can be no assurances in this regard.
As of March 31, 1998, the Company has accrued approximately $3.2 million to
provide for environmental-related liabilities. The Company's environmental
accrual is based on management's best estimate of the actual liability. The
Company's estimate is founded on management's experience in dealing with similar
environmental matters and on actual testing performed at some sites. Management
believes that the accrual is adequate to cover environmental liabilities based
on the present environmental regulations.
NOTE G - INTEREST RATE SWAP
In February 1998, the Company entered into an interest-rate swap effective April
1, 1998, on a notional amount of $110 million. The swap agreement has a term of
seven years with an interest rate of 5.845% plus the Credit Agreement margin
(currently 1%). The Company entered into the interest-rate swap agreement to fix
the interest rate on a portion of its outstanding credit agreement debt. The
interest-rate swap agreement has been designated with all or a portion of the
outstanding balance and expected term of revolving credit debt. The agreement
involves the exchange of amounts based on a fixed interest rate for amounts
based on variable interest rates over the life of the agreement without an
exchange of the notional amount upon which the payments are based. 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
accounting method). The related amount payable to or receivable from
counterparties is included in other liabilities or assets. The fair value of the
swap agreements and changes in the fair value as a result of changes in market
interest rates are not recognized in the financial statements.
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ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
Under the Company's accounting policy, gains and losses on terminations of
interest-rate swap agreements are deferred as an adjustment to the carrying
amount of the outstanding debt and amortized as an adjustment to interest
expense related to the debt over the remaining term of the original contract
life of the terminated swap agreement. In the event of the early extinguishment
of a designated debt obligation, any realized or unrealized gain or loss from
the swap would be recognized in income coincident with the extinguishment gain
or loss.
Any swap agreements or portions thereof, that are not designated with
outstanding debt or notional amounts (or durations) of interest-rate swap
agreements in excess of the principal amounts (or expected maturities) of the
underlying debt obligations will be recorded as an asset or liability at fair
value, with changes in fair value recorded in other income or expense (the fair
value method).
NOTE H - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments of
an Enterprise and Related Information. The Statement changes the way public
companies report segment information in annual financial statements and also
requires those companies to report selected segment information in interim
financial reports to shareholders. The proposal superseded FASB Statement No. 14
on segments. The Statement is effective for the Company in 1999. The Company is
currently evaluating the impact that the Statement will have on its segment of
business reporting.
In March 1998, the Accounting Standards Executive Committee of The American
Institute of CPA's ("AcSEC") issued Statement of Position ("SOP") 98-1,
Accounting for Costs of Computer Software Developed For or Obtained For Internal
Use. Under the SOP, qualifying computer software costs incurred during the
"application development stage" are required to be capitalized and amortized
over the software's estimated useful life. The SOP will be effective for the
Company on January 1, 1999. The SOP will result in capitalization of costs
related to internal computer software development. All such costs are currently
expensed. The amount of costs capitalized within any period will be dependent on
the nature of software development activities and projects in that period.
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income.
The Statement requires the classification components of other comprehensive
income by their nature in a financial statement and display of the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid in capital in the consolidated financial statements. The Company
adopted FASB Statement No. 130 on January 1, 1998. Comprehensive income was the
same as net income for the periods ended March 31, 1997 and 1998.
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ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
NOTE I - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share.
THREE MONTHS ENDED
MARCH 31
1998 1997
--------------- -------------
($ thousands, except per share data)
NUMERATOR:
Numerator for basic earnings per share --
Net income (loss) ............................................................ $ 3,618 $ (318)
Preferred stock dividends .................................................... (1,075) (1,075)
- --------------------------------------------------------------------------------------------------------------------------
Numerator for basic earnings per share --
Net income (loss) available to common shareholders ........................... 2,543 (1,393)
Effect of dilutive securities ................................................... - -
- --------------------------------------------------------------------------------------------------------------------------
Numerator for diluted earnings per share --
Net income (loss) available to common shareholders ........................... $ 2,543 $ (1,393)
==========================================================================================================================
DENOMINATOR:
Denominator for basic earnings per share -- weighted average shares ............. 19,605,213 19,504,473
Effect of dilutive securities:
Employee stock options ....................................................... 469,868 -
- --------------------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share -- adjusted weighted-average
shares and assumed conversions ............................................... 20,075,081 19,504,473
==========================================================================================================================
EARNINGS (LOSS) PER COMMON SHARE
BASIC:
Continuing operations ........................................................... $ 0.13 $ (0.03)
Discontinued operations ......................................................... - (0.04)
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE ........................................................ $ 0.13 $ (0.07)
==========================================================================================================================
AVERAGE COMMON SHARES OUTSTANDING (BASIC): ......................................... 19,605,213 19,504,473
DILUTED:
Continuing operations ........................................................... $ 0.13 $ (0.03)
Discontinued operations ......................................................... - (0.04)
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE ........................................................ $ 0.13 $ (0.07)
==========================================================================================================================
AVERAGE COMMON SHARES OUTSTANDING (DILUTED): ....................................... 20,075,081 19,504,473
==========================================================================================================================
CASH DIVIDENDS PAID PER COMMON SHARE ............................................... $ - $ -
==========================================================================================================================
14
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Arkansas Best Corporation (the "Company") is a diversified holding company
engaged through its subsidiaries primarily in three defined business segments:
1) Motor carrier which includes less-than-truckload ("LTL") conducted by ABF and
G.I. Trucking, and truckload operations which were handled primarily by Cardinal
until its sale in July, 1997; 2) Intermodal operations which includes the
domestic and international operations of Clipper Group (including Clipper
Worldwide); and 3) Tire operations which consists of the operations of Treadco.
At March 31, 1998, the Company's percentage ownership of Treadco was 46%. The
Company's consolidated financial statements reflect full consolidation of the
accounts of Treadco, with the ownership interests of the other stockholders
reflected as minority interest, because the Company controls Treadco through
stock ownership, board representation and management services provided under a
transition services agreement.
OPERATING RESULTS
The discussion and analysis of results of operations reflects information
regarding the operating units within the Company before intercompany
eliminations.
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16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31
1998 1997
---------- ---------
ABF FREIGHT SYSTEM, INC.
Salaries and wages .................................................................. 68.1% 68.0%
Supplies and expenses ............................................................... 10.9 11.4
Operating taxes and licenses ........................................................ 3.4 3.6
Insurance ........................................................................... 1.8 2.1
Communications and utilities ........................................................ 1.2 1.3
Depreciation and amortization ....................................................... 2.1 2.6
Rents and purchased transportation................................................... 7.9 6.8
Other ............................................................................... 0.4 0.2
(Gain) on sale of revenue equipment ................................................. 0.0 (0.3)
- --------------------------------------------------------------------------------------------------------------------------
95.8% 95.7%
==========================================================================================================================
G.I. TRUCKING COMPANY
Salaries and wages .................................................................. 47.4% 50.0%
Supplies and expenses ............................................................... 9.3 9.3
Operating taxes and licenses ........................................................ 2.3 1.8
Insurance ........................................................................... 3.6 3.8
Communications and utilities ........................................................ 1.3 1.4
Depreciation and amortization ....................................................... 2.4 4.0
Rents and purchased transportation................................................... 30.1 27.8
Other ............................................................................... 2.6 3.2
(Gain) on sale of revenue equipment ................................................. 0.0 0.0
- --------------------------------------------------------------------------------------------------------------------------
99.0% 101.3%
==========================================================================================================================
CLIPPER DOMESTIC
Cost of services..................................................................... 87.8% 87.9%
Selling, Administrative & General ................................................... 13.7 11.8
(Gain) on sale of revenue equipment ................................................. (0.1) 0.0
- --------------------------------------------------------------------------------------------------------------------------
101.4% 99.7%
==========================================================================================================================
CLIPPER INTERNATIONAL
Cost of services..................................................................... 75.7% 80.1%
Selling, Administrative & General ................................................... 25.0 24.0
(Gain) on sale of revenue equipment ................................................. 0.0 0.0
- --------------------------------------------------------------------------------------------------------------------------
100.7% 104.1%
==========================================================================================================================
TREADCO, INC.
Cost of sales........................................................................ 72.0% 76.4%
Selling, Administrative & General ................................................... 29.5 31.2
(Gain) on sale of revenue equipment ................................................. 0.0 0.0
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101.5% 107.6%
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
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RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1997
Consolidated revenues from continuing operations of the Company for the three
months ended March 31, 1998 were $387.9 million compared to $394.6 million for
the three months ended March 31, 1997. The Company had operating income from
continuing operations of $11.2 million for the three months ended March 31, 1998
compared to operating income from continuing operations of $8.9 million for the
three months ended March 31, 1997. The Company had income from continuing
operations of $3.6 million, or $0.13 per common share (basic and diluted), for
the first quarter of 1998 compared to income from continuing operations of
$580,000, or a loss of ($0.03) per common share (basic and diluted), for the
first quarter of 1997. The Company had net income of $3.6 million, or $0.13 per
common share (basic and diluted), compared to a net loss of $(318,000), or
($0.07) per common share (basic and diluted), for the first quarter of 1997.
Earnings per common share from continuing operations for the first quarter of
1998 and 1997 give consideration to preferred stock dividends of $1.1 million.
Outstanding shares for the first quarter ended 1998 and 1997 do not assume
conversion of preferred stock to common shares because conversion would be
anti-dilutive.
MOTOR CARRIER OPERATIONS.
The Company's LTL motor carrier operations are conducted by ABF (including the
U.S., Canadian and Puerto Rican affiliates of ABF) and G.I. Trucking.
ABF. Effective January 1, 1997 and January 1, 1998, ABF implemented overall rate
increases of 5.5% and 5.3%, respectively. Revenues for the three months ended
March 31, 1998 were $280.3 million, with operating income of $11.8 million
compared to revenues of $274.0 million and operating income of $11.8 million for
the three months ended March 31, 1997.
For the three months ended March 31, 1998, ABF accounted for 91% of LTL
revenues. ABF's revenues increased 2.3% for the three months March 31, 1998
compared to the same period in 1997. ABF's revenue per hundredweight increased
to $18.22 for the three months ended March 31, 1998, a 4.5% increase from the
first quarter of 1997, reflecting a continuing favorable pricing environment.
This increase was offset by a slight decrease in tonnage resulting from some
freight diversions caused by customer concerns regarding labor contract
negotiations. ABF's first quarter 1998 tonnage per day decreased 1.8% from the
first quarter of 1997. The IBT voted for approval of the labor contract on April
9, 1998. The contract is for a five-year term and provides for average annual
wage and benefit increases of approximately 2.1% including a lump-sum payment
for all active employees who are IBT members of $750 for the first contract
year. The lump sum payment will be amortized over 12 months.
ABF's operating ratio ("O.R.") remained steady with an O.R. of 95.8% in the
first quarter of 1998 compared to 95.7% in the first quarter of 1997.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
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The decrease in operating supplies and expenses of 0.5% of revenue from the
first quarter of 1997 to the first quarter of 1998 reflects lower fuel prices,
which were below first quarter 1997 levels by approximately 27.0%.
Insurance expense declined 0.3% as a percentage of revenue from first quarter of
1997 to first quarter of 1998. The decline is attributable to better claims
experience for self-insured worker's compensation claims and bodily injury and
property damage claims.
ABF's fleet of road tractors increased 2.7% when the first quarter of 1998 is
compared to the same period in 1997. Depreciation and amortization decreased
0.5% of revenue when the first quarter of 1998 is compared to the first quarter
of 1997. Decreases in depreciation resulted from a reduced number of owned road
tractors relative to the total fleet of road tractors. An increase in the number
of road tractors on operating lease relative to the total fleet of road
tractors, as well as an increase in the use of rail transportation resulted in a
1.1% increase in rents and purchased transportation costs. ABF's rail usage
increased to 13.5% of total miles as compared to 10.8% for the first quarter of
1997.
G.I. Trucking. Revenues increased 26.2% to $28.6 million for the first quarter
of 1998 compared to $22.7 million for the three months ended March 31, 1997.
G.I. Trucking has continued to expand its operations, opening new terminal
locations in Oklahoma City, OK, Tulsa, OK, Albuquerque, NM, and El Paso, TX
since January 1, 1998. G.I. Trucking's tonnage increased 23.8% for the three
months ended March 31, 1998 from the same period in 1997.
G.I. Trucking's operating ratio improved to 99.0% for the first quarter of 1998
compared to 101.3% for the first quarter of 1997. Operating expense improvements
relate to salaries and wages, insurance and depreciation and amortization.
Offsetting these improvements were increases in rents and purchase
transportation and operating taxes and licenses.
Salaries and wages expense declined 2.6% as a percent of revenue due to lower
pension costs and the fact a portion of salaries and wages expense is generally
fixed in nature and declines as a percentage of revenue with increases in
revenue levels. Insurance expense declined 0.2% of revenue reflecting better
claims experience for self-insured worker's compensation claims.
Operating taxes and licenses increased 0.5% of revenue, as a result of a
one-time weight-distance tax credit received in the first quarter of 1997.
G.I. Trucking is in the process of replacing its older fleet of revenue
equipment. Declines in depreciation and amortization of 1.6% of revenues from
first quarter of 1997 result from revenue equipment that incurred depreciation
in the first quarter of 1997, but which was fully depreciated by the first
quarter of 1998. A portion of this equipment was replaced with new equipment
late in the first quarter of 1998 or will be replaced later in 1998.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
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A 2.3% increase in rents and purchased transportation reflects higher purchased
transportation costs associated with G.I. Trucking's revenue increases.
INTERMODAL OPERATIONS. The Company's intermodal operations are conducted
primarily by Clipper Group (including Clipper Worldwide).
Clipper Domestic. Revenues from the domestic operation of Clipper Group were
$30.2 million for the three months ended March 31, 1998, a decrease of 10.5%
from the three months March 31, 1997, which had revenues of $33.7 million.
Beginning in the fourth quarter of 1997, Clipper Group's domestic operations
were adversely affected by the service problems with the U.S. rail system. This
trend continued into the first quarter of 1998, causing decreases in the number
of LTL shipments by 6.6% and the number of intermodal shipments by 29.7% when
first quarter 1998 is compared to first quarter 1997. Improvements in rail
service are expected to be gradual.
Clipper Domestic's operating ratio increased to 101.4% in the first quarter of
1998 when compared to the first quarter of 1997. This increase reflects an
increase in selling, administrative and general costs of 1.9% as a percentage of
revenue when the first quarter of 1998 is compared to the first quarter of 1997.
Selling, administrative and general costs are primarily fixed in nature and
increase as a percentage of revenue with a decline in revenue levels.
Clipper International. Clipper International's revenue declined 14.5% when first
quarter of 1998 is compared to first quarter 1997. Declines in revenues in the
first quarter of 1998 when compared to the first quarter of 1997 result from a
focus on account profitability as well as tightening of pricing. Clipper
International improved its costs of services category of expense by 4.4% when
the quarter ended March 31, 1998 is compared to the quarter ended March 31,
1997. This decline also results from Clipper International's focus on account
profitability and from lower costs of ocean transportation in some lanes.
Clipper International reported an improved operating ratio of 100.7% for the
first quarter of 1998 compared to 104.1% for the first quarter of 1997.
TIRE OPERATIONS.
Treadco, Inc. Revenues for the three months ended March 31, 1998 increased 12.9%
to $37.5 million from $33.2 million for the three months ended March 31, 1997.
For the first quarter of 1998, "same store" sales increased 12.7% and "new
store" sales increased 0.2%. "Same store" sales include both production
locations and sales locations that have been in existence for the entire periods
presented. "New store" sales resulted from one new sales location. Revenues from
retreading for the three months ended March 31, 1998 increased 13.2% when
compared to the same period in 1997. Retread revenue increases resulted
primarily from a 12.1% increase in the number of units sold when the 1998 first
quarter is compared to 1997's first quarter. Revenues from new tire sales
increased 11.2% for the first quarter 1998 when compared to the same period in
1997, due to an increase of 12.0% in the number of new tire units sold which was
offset by a slight decrease in the price per unit of new tires. Service revenues
for the 1998 first quarter increased approximately 20.4%.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
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Treadco's operating ratio improved from 107.6% for the first quarter of 1997
compared to 101.5% for the first quarter of 1998. This improvement results from
an improvement in both cost of sales and selling, general and administrative
costs. The decrease in cost of sales of 4.4% of revenue resulted primarily from
lower new-tire costs and production efficiencies resulting from higher sales
levels which allowed higher production volume. The decrease in selling,
administrative, and general expenses of 1.7% resulted from lower expenses
related to employee insurance costs and bad debt expenses.
INTEREST. Interest expense was $4.5 million for three months ended March 31,
1998 compared to $7.1 million for three months ended March 31, 1997 primarily
due to a reduction of outstanding debt, although lower interest rates also
impacted interest cost.
INCOME TAXES. The difference between the effective tax rate for 1998 and the
federal statutory rate resulted from state income taxes, amortization of
nondeductible goodwill, minority interest, and other nondeductible expenses.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the three months ended March 31,
1998 was $19.5 million compared to net cash provided by operations of $17.6
million for the three months ended March 31, 1997. The increase is due primarily
to the improvement in operating results and net income for the first quarter of
1998 compared to the first quarter of 1997. Cash was used to purchase revenue
equipment and other assets in the amount of $14.6 million, net of proceeds from
asset sales of $1.6 million in the first quarter of 1998. Cash was provided by
the sale of assets was $8.7 million and asset purchases were $1.6 million in the
first quarter of 1997.
The Company is party to a $347 million credit agreement (the "Credit Agreement")
with Societe Generale, Southwest Agency, as Managing and Administrative Agent
and NationsBank of Texas, N.A., as Documentation Agent, and with 11 other
participating banks. The Credit Agreement provides for up to $275 million of
revolving credit loans (including letters of credit).
At March 31, 1998, there were $113.8 million of Revolver Advances and
approximately $44.8 million of letters of credit outstanding.
At March 31, 1998, the Company had approximately $116.4 million of borrowing
availability under the Credit Agreement. Concurrent with the closing of the sale
of Cardinal on July 15, 1997, the Company and its banks agreed to a second
amendment to the Credit Agreement, the primary effect of which was to extend the
maturity from August 1998 to August 1999.
In February, 1998, the Company entered into an interest rate swap effective
April 1, 1998, on a notional amount of $110 million. The purpose of the swap was
to limit the Company's exposure to increases in interest rates from current
levels on $110 million of bank borrowings over the seven-year term of the swap.
The interest rate under the swap will be 5.845% plus the Credit Agreement margin
(currently 1%).
Treadco is a party to a revolving credit facility with Societe Generale (the
"Treadco Credit Agreement"), providing for borrowings up to $20 million. The
Treadco Credit Agreement contains various covenants
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
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which limit, among other things, dividends, disposition of receivables,
indebtedness and investments, as well as requiring Treadco to meet certain
financial tests. The Treadco Credit Agreement was amended and restated on
September 30, 1997, primarily to extend the termination date, to revise certain
financial covenants and to revise Treadco's interest rate on advances.
Management believes, based upon the Company's current levels of operations and
anticipated growth, the Company's cash, capital resources, borrowings available
under the Credit Agreement and cash flow from operations will be sufficient to
finance current and future operations and meet all scheduled debt service
requirements.
YEAR 2000
Management of the Company has considered the impact of the Year 2000 on its
business operations. The Company undertook the Year 2000 conversion in 1996 and
is at various stages of completion. The most significant project is the revision
of the mainframe system. This project has completed the renovation phase and
will be tested during 1998, with a planned completion date of December 31, 1998.
The impact on the Company's financial condition and cash flows is expected to
immaterial for all years. The Company has not identified any significant risks
or uncertainties associated with the Year 2000 rollover.
SEASONALITY
Motor carrier operations 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. Intermodal 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
The Management's Discussion and Analysis Section of this report contains
forward-looking statements that are based on current expectations and are
subject to a number of risks and uncertainties. Actual results could differ
materially from current expectations due to a number of factors, including
general economic conditions; competitive initiatives and pricing pressures;
union relations; availability and cost of capital; shifts in market demand;
weather conditions; the performance and needs of industries served by the
Company's businesses; actual future costs of operating expenses such as fuel and
related taxes; self-insurance claims and employee wages and benefits; actual
costs of continuing investments in technology; and the timing and amount of
capital expenditures.
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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 F to
the Company's Unaudited Consolidated Financial Statements).
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
In February 1998, the Company entered into an Interest-Rate Swap
Agreement effective April 1, 1998 on a notional amount of $110 million
with Societe Generale, Southwest Agency.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
10.1 Schedule and confirmation pertaining to the Interest-Rate
Swap Agreement.
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
None.
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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: May 8, 1998 /s/ David E. Loeffler
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David E. Loeffler
Vice President-Treasurer, Chief
Financial Officer and Principal
Accounting Officer
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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10.1 Schedule and confirmation pertaining to the Interest-Rate
Swap Agreement.
27.1 Financial Data Schedule