UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934 For the Quarter Ended September 30, 1995 --------------------- [ ] 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 (Primary Standard (I.R.S. Employer jurisdiction of Industrial Classification Identification No.) incorporation or Code No.) organization) 3801 Old Greenwood Road Fort Smith, Arkansas 72903 (501) 785-6000 - ----------------------------------------------------------------------------- (Address, including zip code, and telephone number, including area code, of the registrant's principal executive offices) Not Applicable - ----------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of The Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at November 1, 1995 --------------------------------- -------------------------------- Common Stock, $.01 par value 19,513,708 shares
ARKANSAS BEST CORPORATION INDEX Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets -- September 30, 1995 and December 31, 1994 3 Consolidated Statements of Operations -- For the Three and Nine Months Ended September 30, 1995 and 1994 5 Consolidated Statements of Cash Flows -- For the Nine Months Ended September 30, 1995 and 1994 7 Notes to Consolidated Financial Statements -- September 30, 1995 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings 27 Item 2. Changes in Securities 27 Item 3. Defaults Upon Senior Securities 27 Item 4. Submission of Matters to a Vote of Security Holders 27 Item 5. Other Information 27 Item 6. Exhibits and Reports on Form 8-K 27 SIGNATURES 28 EXHIBITS 29 Exhibit 11. Statement Re: Computation of Earnings Per Share - Exhibit 99. $350,000,000 Credit Agreement Dated August 10, 1995 -
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS <TABLE> ARKANSAS BEST CORPORATION CONSOLIDATED BALANCE SHEETS <CAPTION> September 30 December 31 1995 1994 (unaudited) (note) ($ thousands) <S> <C> <C> ASSETS CURRENT ASSETS Cash and cash equivalents $ 163 $ 3,458 Trade receivables, less allowances for doubtful accounts (1995 -- $8,919,000; 1994 -- $2,825,000) 242,427 136,144 Inventories -- Note F 35,901 32,463 Prepaid expenses 18,602 13,734 Federal and state income taxes 14,519 - Deferred income taxes 13,841 - --------- --------- TOTAL CURRENT ASSETS 325,453 185,799 PROPERTY, PLANT AND EQUIPMENT Land and structures 220,109 110,424 Revenue equipment 300,137 200,250 Manufacturing equipment 8,252 7,467 Service, office and other equipment 63,769 40,516 Leasehold improvements 10,429 9,421 Construction in progress 15 13,939 Properties held for lease 21,322 - --------- --------- 624,033 382,017 Less allowances for depreciation and amortization (187,108) (166,436) --------- --------- 436,925 215,581 OTHER ASSETS 34,460 15,705 NET ASSETS HELD FOR SALE 18,867 - GOODWILL, less amortization (1995 -- $23,348,000; 1994 -- $19,794,000) 148,490 151,960 --------- --------- $ 964,195 $ 569,045 ========= ========= </TABLE>
<TABLE> ARKANSAS BEST CORPORATION CONSOLIDATED BALANCE SHEETS <CAPTION> September 30 December 31 1995 1994 (unaudited) (note) ($ thousands) <S> <C> <C> LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Bank overdraft $ 855 $ 5,989 Bank drafts payable 16,505 10,779 Trade accounts payable 91,387 49,368 Accrued expenses 186,517 82,157 Federal and state income taxes - 5,786 Deferred federal income taxes - 4,159 Current portion of long-term debt 23,429 65,161 --------- --------- TOTAL CURRENT LIABILITIES 318,693 223,399 LONG-TERM DEBT, less current portion 335,987 59,295 OTHER LIABILITIES 24,492 5,915 DEFERRED FEDERAL INCOME TAXES 39,987 28,842 MINORITY INTEREST 38,373 34,989 SHAREHOLDERS' EQUITY Preferred stock, $.01 par value, authorized 10,000,000 shares; issued 1,495,000 shares 15 15 Common stock, $.01 par value, authorized 70,000,000 shares; issued and outstanding 19,513,708 shares 195 195 Additional paid-in capital 207,807 207,636 Predecessor basis adjustment (15,371) (15,371) Retained earnings 14,017 24,130 --------- --------- TOTAL SHAREHOLDERS' EQUITY 206,663 216,605 CONTINGENCIES -- Note I --------- --------- $ 964,195 $ 569,045 ========= ========= <FN> <F1> Note: The balance sheet at December 31, 1994 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. <F2> See notes to consolidated financial statements. </FN> </TABLE>
<TABLE> ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS <CAPTION> Three Months Ended Nine Months Ended September 30 September 30 1995 1994 1995 1994 (unaudited) ($ thousands, except per share data) <S> <C> <C> <C> <C> OPERATING REVENUES LTL operations $299,317 $254,019 $ 783,836 $ 662,150 Forwarding operations 38,189 - 96,615 - Truckload operations 10,162 - 10,162 - Logistics operations 9,866 548 18,105 2,117 Tire operations 40,065 39,149 110,693 104,163 Service and other 952 535 2,441 1,562 --------- --------- ---------- --------- 398,551 294,251 1,021,852 769,992 --------- --------- ---------- --------- OPERATING EXPENSES AND COSTS -Note H LTL operations 317,827 237,509 786,059 638,783 Forwarding operations 36,337 - 93,307 - Truckload operations 8,967 - 8,967 - Logistics operations 10,298 995 19,331 3,154 Tire operations 38,460 35,740 105,476 96,017 Service and other 802 509 2,294 1,493 --------- --------- --------- --------- 412,691 274,753 1,015,434 739,447 --------- --------- --------- --------- OPERATING INCOME (LOSS) (14,140) 19,498 6,418 30,545 OTHER INCOME Gain on asset sales 1,079 787 2,904 1,955 Other 223 191 499 719 --------- --------- --------- --------- 1,302 978 3,403 2,674 OTHER EXPENSES Interest 5,568 1,592 10,218 4,721 Other 1,916 1,074 4,809 3,099 Minority interest in subsidiary 449 1,079 1,523 2,486 --------- --------- --------- --------- 7,933 3,745 16,550 10,306 --------- --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES (20,771) 16,731 (6,729) 22,913
<CAPTION> ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS -- Continued Three Months Ended Nine Months Ended September 30 September 30 1995 1994 1995 1994 (unaudited) ($ thousands, except per share data) <S> <C> <C> <C> <C> FEDERAL AND STATE INCOME TAXES (CREDIT) - Note G Current (11,335) 6,123 (1,193) 11,498 Deferred 3,692 1,407 768 47 --------- --------- --------- --------- (7,643) 7,530 (425) 11,545 --------- --------- --------- --------- NET INCOME (LOSS) $ (13,128) $ 9,201 $ (6,304) $ 11,368 ========= ========= ========= ========= EARNINGS (LOSS) PER COMMON SHARE: PRIMARY: NET INCOME (LOSS) $ (0.73) $ 0.42 $ (0.49) $ 0.42 ========= ========= ========= ========= FULLY-DILUTED: NET INCOME (LOSS) $ (0.73) $ 0.40 $ (0.49) $ 0.42 ========= ========= ========= ========= AVERAGE COMMON SHARES OUTSTANDING: Primary 19,549 19,306 19,544 19,305 ========= ========= ========= ========= Fully-diluted 19,549 23,138 19,544 19,305 ========= ========= ========= ========= CASH DIVIDENDS PAID PER COMMON SHARE $ 0.01 $ 0.01 $ 0.03 $ 0.03 ========= ========= ========= ========= <FN> See notes to consolidated financial statements. </FN> </TABLE>
<TABLE> ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS <CAPTION> Nine Months Ended September 30 1995 1994 (unaudited) ($ thousands) <S> <C> <C> OPERATING ACTIVITIES Net income (loss) $ (6,304) $ 11,368 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 30,239 20,332 Amortization of intangibles 3,554 2,337 Other amortization 553 341 Provision for losses on accounts receivable 2,136 2,636 Provision for deferred income taxes 768 47 Gain on asset sales (2,904) (1,955) Write-off of intrastate operating rights - 42 Gain on issuance of subsidiary stock (20) (45) Minority interest in subsidiary 1,523 2,486 Changes in operating assets and liabilities: Accounts receivable (43,289) (20,762) Inventories and prepaid expenses 2,095 (601) Other assets (6,109) (562) Accounts payable, bank drafts payable, taxes payable, accrued expenses and other liabilities (20,327) 25,554 --------- --------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (38,085) 41,218 INVESTING ACTIVITIES Purchases of property, plant and equipment, less capitalized leases (34,318) (38,899) Proceeds from asset sales 11,412 7,578 Adjustment to the acquisition of the Clipper Group (84) (49,514) Acquisition of WorldWay Corporation - Notes C, D & E (69,701) - --------- --------- NET CASH USED BY INVESTING ACTIVITIES (92,691) (80,835)
<CAPTION> ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Nine Months Ended September 30 1995 1994 (unaudited) ($ thousands) <S> <C> <C> FINANCING ACTIVITIES Deferred financing costs and expenses incurred in borrowing activities $ (4,559) $ (147) Proceeds from issuance of common stock 171 37 Proceeds from commercial paper agreement - 56,000 Proceeds from term loan facility 75,000 20,000 Borrowings under revolving credit facilities 159,975 30,000 Principal payments under term loan facilities (1,500) - Payments under revolving credit facilities (21,975) (34,000) Payments under commercial paper agreement (40,000) - Principal payments on other long-term debt (26,217) (14,578) Dividends paid to minority shareholders of subsidiary (330) (329) Dividends paid (3,809) (3,800) Net decrease in cash overdrafts (9,275) - --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 127,481 53,183 --------- --------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,295) 13,566 Cash and cash equivalents at beginning of period 3,458 6,962 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 163 $ 20,528 ========= ========= <FN> See notes to consolidated financial statements. </FN> </TABLE>
ARKANSAS BEST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) September 30, 1995 NOTE A -- ORGANIZATION Arkansas Best Corporation (the "Company") is a diversified holding company engaged through its subsidiaries primarily in less-than-truckload ("LTL") and truckload motor carrier operations, logistics and freight forwarding operations and truck tire retreading and new tire sales. Principal subsidiaries owned are ABF Freight System, Inc. ("ABF"), Treadco, Inc. ("Treadco"), and, effective September 30, 1994 Clipper Exxpress Company ("Clipper"). Also, effective August 12, 1995, the Company acquired Carolina Freight Carriers, Corp., Cardinal Freight Carriers, Inc. ("Cardinal"), G.I. Trucking Company ("G.I. Trucking"), CaroTrans International, Inc. ("CaroTrans"), The Complete Logistics Company ("Complete Logistics") and Innovative Logistics Incorporated ("Innovative Logistics"). (See Note C.) NOTE B -- FINANCIAL STATEMENT PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 1995, are not necessarily indicative of the results that may be expected for the year ending December 31, 1995. 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, 1994. NOTE C -- ACQUISITION OF WORLDWAY CORPORATION On July 14, 1995, ABC Acquisition Corporation (the "Purchaser"), a wholly owned subsidiary of the Company, commenced a tender offer (the "Offer") to purchase all outstanding shares of common stock of WorldWay Corporation ("WorldWay"), at a purchase price of $11.00 per share (the "Acquisition"). The Offer expired at 12:00 midnight New York City time on August 10, 1995. There were validly tendered approximately 5,953,000 shares pursuant to the Offer representing approximately 91% of the shares outstanding. Pursuant to the Offer, on August 11, 1995, the Purchaser accepted for payment these shares validly tendered according to the terms of the Offer and commenced payment on August 14, 1995. On October 12, 1995, the Purchaser was merged with and into WorldWay and the remaining shares of WorldWay's common stock were converted into the right to receive $11 per share in cash. The untendered shares' right to receive cash totaled approximately $6.7 million and are classified as current liabilities in the September 30, 1995 consolidated balance sheet. For financial statement purposes, the acquisition has been accounted for under the purchase method effective August 12, 1995. Consequently, the accompanying financial statements include the results of operations for WorldWay from August 12, 1995 through September 30, 1995. The allocation of the purchase cost in the accompanying financial statements is preliminary
and subject to change. Final values may differ from those set forth in these financial statements. The preliminary allocations of the purchase cost of the historical assets and liabilities of WorldWay are as follows: (in thousands) Net assets at historical amounts $ 93,727 Prepaid expenses (12,383) (a) Property, plant and equipment 6,909 (b) Other assets 2,409 (c) Accounts payable (2,757) (d) Accrued expenses (15,316) (e) Debt 3,663 (f) Other liabilities (2,993) (g) Deferred taxes 7,298 (h) Minority interest (2,211) (i) Other (1,952) ----------- Total Purchase Price $ 76,394 =========== (a) Represents write-off of prepaid tires to conform to the accounting policies used by the Company, whereby tires on revenue equipment are included in the cost of revenue equipment. (b) Reflects preliminary write-up of property, plant and equipment of $19,360,000 to estimated fair value. Fair values are based on preliminary estimates of the fair value of acquired assets. Finalization of the valuation may result in a final allocation amount which is different from that shown. Also, reflects a proportionate reduction of property, plant and equipment by $12,451,000 representing the excess of the fair value of assets acquired less liabilities assumed and costs incurred over the purchase price (negative goodwill). (c) Represents adjustment of the net pension liability based on the difference between plan assets of the WorldWay defined benefit pension plans and the estimated projected benefit obligation. Also, represents write-off of debt discount associated with 6.25% WorldWay Convertible Subordinated Debentures. (d) Represents accruals of various liabilities including accruals for payments due under employment contracts and Director Fee continuation agreements. (e) Represents accruals of payments of severance pay to terminated WorldWay employeese and adjustments of insurance claims reserves to reflect the undiscounted liability to conform to the accounting policy used by the Company. (f) Represents adjustments of debt to fair values based on current rates; current portion increases $2,496,000 while non-current decreases $6,159,000.
(g) Represents accrued liability for abandoned leases on Carolina Freight Carriers Corp. (h) Reflects adjustment of deferred income tax liabilities based on the difference between the tax basis and purchase accounting basis of assets and liabilities. (i) Represents reclassification of WorldWay's preferred stock minority interest. NOTE D - FINANCING OF THE ACQUISITION The purchase price and related fees were financed through borrowings under a credit agreement among the Company and certain banks. On August 14, 1995, the Company commenced payment at $11 per common share ($65.4 million) for approximately 5,953,000 validly tendered shares (approximately 91% of common shares outstanding). The remaining untendered common shares' rights to receive cash totaled approximately $6.7 million and are classified as current liabilities in the September 30, 1995 consolidated balance sheet. On August 10, 1995 the Company entered into a $350 million credit agreement (the "Credit Agreement") with Societe Generale, Southwest Agency as Managing and Administrative Agent and NationsBank of Texas, N.A., as Documentation Agent and certain other banks. The Credit Agreement includes a $75 million term loan and provides for up to $275 million of revolving credit loans (including letters of credit). Term Loan and Revolving Credit advances bear interest at one of the following rates per annum, at the Company's option: (a) Prime Rate advance or (b) Eurodollar Rate advance. A Prime Rate advance shall bear an interest rate per annum equal to the lesser of (i) the Adjusted Prime Rate plus the Applicable Margin and (ii) the maximum nonusurious interest rate under applicable law. The Adjusted Prime Rate is equal to the greater of the prime rate offered by Societe Generale and the Federal Funds Rate plus 1/2%. The Applicable Margin is determined as a function of the ratio of the Company's consolidated indebtedness to its consolidated EBITDA. Eurodollar Rate advances shall bear an interest rate per annum equal to the lesser of (i) the Eurodollar Rate offered by Societe Generale plus the Applicable Margin and (ii) the maximum nonusurious interest rate under applicable law. The Company has paid and will continue to pay certain customary fees for such commitments and advances. At September 30, 1995, the average interest rate on the Credit Agreement was 7.6%. The Credit Agreement contains various covenants which limit, among other things, indebtedness, distributions, asset sales, restricted payments, investments, loans and advances, as well as requiring the Company to meet certain financial tests which were met as of September 30, 1995. Based on available information, management believes that the Company may not satisfy certain of the financial covenants under the Credit Agreement for periods subsequent to September 30, 1995. Management has advised the Agent Banks under the Credit Agreement of this possibility and has initiated discussions for the purpose of obtaining waivers or amendments of applicable financial covenants for periods subsequent to September 30, 1995. Based on discussions with the Agent Banks management expects waivers or amendments to be obtained prior to December 31, 1995.
There was $141 million of Revolver Advances, $75 million of Term Advances and approximately $61.4 million of letters of credit outstanding at September 30, 1995. The Revolver Advances are payable on August 10, 1998. Outstanding revolving credit advances may not exceed a borrowing base calculated using the Company's revenue equipment, the Treadco common stock owned by the Company, and eligible receivables. The Term Advances are payable in 16 quarterly graduated installments commencing in November 1996. The installment payments are $2.5 million, $5.0 million and $6.25 million for the first four, second eight and last four payments, respectively. NOTE E - PRO FORMA INFORMATION Pro forma information (as if the acquisition and related transactions were completed at the beginning of their respective periods) for the nine months ended September 30, 1995 and 1994 is as follows: <TABLE> <CAPTION> Nine Months Ended September 30 1995 1994 ($ thousands, except per share data) <S> <C> <C> Operating revenues $ 1,506,071 $ 1,539,798 Operating expenses 1,548,193 1,478,504 ----------- ----------- (42,122) 61,294 Interest expense 18,472 15,374 Minority interest in subsidiary 1,523 2,486 Other expense, net 4,076 6,590 Provision for income taxes (credit) (22,132) 17,680 ----------- ----------- Income (loss) before cumulative effect of change in accounting principle $ (44,061) $ 19,164 =========== =========== Income (loss) per common share $ (2.36) $ 0.87 =========== =========== Average common shares outstanding 19,544 19,615 =========== =========== </TABLE> The above amounts are based upon certain assumptions and estimates which the Company believes are reasonable and do not reflect any benefit from economies which might be achieved from combined operations. The pro forma results do not necessarily represent results which would have occurred if the Acquisition had taken place on the basis assumed above, not are they indicative of the results of future combined operations.
NOTE F -- INVENTORIES <TABLE> <CAPTION> September 30 December 31 1995 1994 ($ thousands) <S> <C> <C> Finished goods $ 25,170 $ 22,764 Materials 6,889 7,487 Repair parts, supplies and other 3,842 2,212 -------- -------- $ 35,901 $ 32,463 ======== ======== </TABLE> NOTE G -- FEDERAL AND STATE INCOME TAXES <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30 September 30 1995 1994 1995 1994 ($ thousands) <S> <C> <C> <C> <C> Income tax at regular rates $(7,270) $ 5,856 $(2,355) $ 8,020 Percent (35.0)% 35.0% (35.0)% 35.0% State taxes less federal benefits (1,336) 555 (205) 1,097 Percent (6.4)% 3.3% (3.1)% 4.8% Amortization of nondeductible goodwill 271 246 809 777 Percent 1.3% 1.5% 12.0% 3.4% Minority interest 153 367 533 846 Percent 0.7% 2.2% 7.9% 3.7% Other items 539 506 793 805 Percent 2.6% 3.0% 11.9% 3.5% ------- ------- ------- ------- Income tax expense $(7,643) $ 7,530 $ (425) $11,545 Percent (36.8)% 45.0% (6.3)% 50.4% ======= ======= ======= ======= </TABLE>
NOTE H -- OPERATING EXPENSES AND COSTS <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30 September 30 1995 1994 1995 1994 ($ thousands) <S> <C> <C> <C> <C> LTL Operations: Salaries and wages $218,180 $166,829 $ 550,106 $444,722 Supplies and expenses 32,644 25,888 84,908 68,081 Operating taxes and licenses 12,237 9,059 32,263 26,017 Insurance 9,574 5,233 19,655 13,199 Communications and utilities 7,001 5,679 18,601 16,617 Depreciation and amortization 11,461 6,364 24,664 17,913 Rents and purchased transportation 22,835 17,554 49,946 48,895 Other 3,895 903 5,916 3,339 -------- -------- ---------- -------- 317,827 237,509 786,059 638,783 -------- -------- ---------- -------- Forwarding Operations: Cost of services 31,597 - 81,184 - Selling, administrative and general 4,740 - 12,123 - -------- -------- ---------- -------- 36,337 - 93,307 - -------- -------- ---------- -------- Truckload Operations: Salaries and wages 3,619 - 3,619 - Supplies and expenses 1,712 - 1,712 - Operating taxes and licenses 918 - 918 - Insurance 368 - 368 - Communications and utilities 156 - 156 - Depreciation and amortization 464 - 464 - Rents and purchased transportation 1,700 - 1,700 - Other 30 - 30 - -------- -------- ---------- -------- 8,967 - 8,967 - -------- -------- ---------- -------- Logistics Operations: Cost of services 9,183 721 17,214 2,385 Selling, administrative and general 1,115 274 2,117 769 -------- -------- ---------- -------- 10,298 995 19,331 3,154 -------- -------- ---------- --------
Tire Operations: Cost of sales 30,334 28,816 82,880 76,509 Selling, administrative and general 8,126 6,924 22,596 19,508 -------- -------- ---------- -------- 38,460 35,740 105,476 96,017 -------- -------- ---------- -------- Service and Other 802 509 2,294 1,493 -------- -------- ---------- -------- $412,691 $274,753 $1,015,434 $739,447 ======== ======== ========== ======== </TABLE> NOTE I -- LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS Various legal actions, the majority of which arise in the normal course of business, are pending. None of these other legal actions is expected to have a material adverse effect on the Company's financial condition. The Company maintains liability insurance against risks arising out of the normal course of its business, subject to certain self-insured retention limits. ABF and the Company's other motor carrier subsidiaries store some fuel for their tractors and trucks in 230 underground tanks located in 33 states. Maintenance of such tanks is regulated at the federal and, in some cases, state levels. The Company believes that it is in substantial compliance with all such regulations. The Company is not aware of any leaks from such tanks that could reasonably be expected to have a material adverse effect on the Company. Environmental regulations have been adopted by the United States Environmental Protection Agency ("EPA") that will require the Company to upgrade its underground tank systems by December 1998. The Company currently estimates that such upgrades, which are currently in process, will not have a material adverse effect on the Company. The Company has received notices from the EPA and others that it has been identified as a potentially responsible party 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, or believes its obligations with respect to such sites would involve immaterial monetary liability, although there can be no assurances in this regard. Estimated liabilities are provided for in the period in which a liability is identified. Treadco has filed a lawsuit in Arkansas State Court alleging that Bandag, Incorporated ("Bandag") and certain of its officers violated Arkansas statutory and common law in attempting to solicit Treadco's employees to work for Bandag or its competing franchises and attempting to divert customers from Treadco. Subsequently, Bandag and the other named defendants asked the State Court to stop proceedings pending a decision by the United States District Court, Western District of Arkansas, on a Complaint to Compel Arbitration filed by Bandag in the Federal District Court. Treadco intends to oppose both the State Court and Federal District Court filings by Bandag.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Introduction Arkansas Best Corporation (the "Company") is a diversified holding company engaged through its subsidiaries primarily in less-than-truckload ("LTL") and truckload motor carrier operations, logistics and freight forwarding operations and truck tire retreading and new tire sales. Principal subsidiaries owned are ABF Freight System, Inc. ("ABF"), Treadco, Inc. ("Treadco"), and, effective September 30, 1994 Clipper Exxpress Company ("Clipper"). Also, effective August 12, 1995, the Company owns Cardinal Freight Carriers, Inc. ("Cardinal"), G.I. Trucking Company ("G.I. Trucking"), CaroTrans International, Inc. ("CaroTrans"), The Complete Logistics Company ("Complete Logistics") and Innovative Logistics Incorporated ("Innovative Logistics"). (See Note C.) The Company owns approximately 46% of Treadco, whose shares are traded on the Nasdaq Stock Exchange. Treadco is consolidated with the Company for financial reporting purposes as a result of its control of Treadco by reason of its stock ownership, board representation and provision of management services. The ownership interests of the other stockholders are reflected as minority interest. On September 30, 1994, the Company purchased all the outstanding stock of Clipper Exxpress Company ("Clipper") and two affiliated companies (collectively the "Clipper Group"). Beginning October 1, 1994, the operations of the Clipper Group are presented in the forwarding operations segment. Acquisition On July 14, 1995, ABC Acquisition Corporation (the "Purchaser"), a wholly owned subsidiary of the Company, commenced a tender offer (the "Offer") to purchase all outstanding shares of common stock of WorldWay Corporation ("WorldWay"), at a purchase price of $11.00 per share (the "Acquisition"). The Offer expired at 12:00 midnight New York City time on August 10, 1995. There were validly tendered approximately 5,964,000 shares pursuant to the Offer representing approximately 91% of the shares outstanding. Pursuant to the Offer, on August 11, 1995, the Purchaser accepted for payment these shares validly tendered according to the terms of the Offer and commenced payment on August 14, 1995. On October 12, 1995, the Purchaser was merged with and into WorldWay and the remaining shares of WorldWay's common stock were converted into the right to receive $11 per share in cash. Segment Data The following tables reflect information prepared on a business segment basis, which includes reclassification of certain expenses and costs between the Company and its subsidiaries and elimination of the effects of intercompany transactions. Operating profit on a business segment basis differs from operating income as reported in the Company's Consolidated Financial Statements. Other income and other expenses (which include amortization expense), except for interest expense and minority interest, which appear below the operating income line in the Company's Statement of Operations, have been allocated to individual segments for the purpose of calculating operating profit on a segment basis.
The segment information for prior periods has been restated to reflect the Company's current reported business segments. In the current and future periods, information that was previously reported in the service and other business segment will be reported in the logistics operations segment. <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30 September 30 1995 1994 1995 1994 ($ thousands) <S> <C> <C> <C> <C> OPERATING REVENUES LTL operations $299,317 $254,019 $ 783,836 $662,150 Forwarding operations 38,189 - 96,615 - Truckload operations 10,162 - 10,162 - Logistics operations 9,866 548 18,105 2,117 Tire operations 40,065 39,149 110,693 104,163 Other 952 535 2,441 1,562 -------- -------- ---------- -------- $398,551 $294,251 $1,021,852 $769,992 ======== ======== ========== ======== OPERATING EXPENSE AND COSTS LTL OPERATIONS Salaries and wages $218,180 $166,829 $ 550,106 $444,722 Supplies and expenses 32,644 25,888 84,908 68,081 Operating taxes and licenses 12,237 9,059 32,263 26,017 Insurance 9,574 5,233 19,655 13,199 Communications and utilities 7,001 5,679 18,601 16,617 Depreciation and amortization 11,461 6,364 24,664 17,913 Rents and purchased transportation 22,835 17,554 49,946 48,895 Other 3,895 903 5,916 3,339 Other non-operating (net) (150) 81 (510) 264 -------- -------- ---------- -------- Total LTL Operations 317,677 237,590 785,549 639,047 FORWARDING OPERATIONS Cost of services 31,597 - 81,184 - Selling, administrative and general 4,704 - 12,087 - Other non-operating (net) 459 - 1,319 - -------- -------- ---------- -------- Total Forwarding Operations 36,760 - 94,590 -
TRUCKLOAD OPERATIONS Salaries and wages $ 3,619 $ - $ 3,619 $ - Supplies and expenses 1,667 - 1,667 - Operating taxes and licenses 918 - 918 - Insurance 368 - 368 - Communications and utilities 156 - 156 - Depreciation and amortization 464 - 464 - Rents and purchased transportation 1,700 - 1,700 - Other 29 - 29 - Other non-operating (net) 47 - 47 - -------- -------- ---------- -------- Total Truckload Operations 8,968 - 8,968 - LOGISTICS OPERATIONS Cost of services 9,183 721 17,214 2,385 Selling, administrative and general 1,115 273 2,117 769 Other non-operating (net) 3 103 (20) 102 -------- -------- ---------- -------- Total Logistics Operations 10,301 1,097 19,311 3,256 TIRE OPERATIONS Cost of sales 30,334 28,816 82,880 76,509 Selling, administrative and general 8,126 6,924 22,596 19,508 Other non-operating (net) 135 80 255 334 -------- -------- ---------- -------- Total Tire Operations 38,595 35,820 105,731 96,351 SERVICE AND OTHER 1,003 342 2,691 1,218 -------- -------- ---------- -------- $413,304 $274,849 $1,016,840 $739,872 ======== ======== ========== ======== OPERATING PROFIT (LOSS) LTL operations $(18,360) $ 16,429 $ (1,713) $ 23,103 Forwarding operations 1,429 - 2,025 - Truckload operations 1,194 - 1,194 - Logistics operations (435) (549) (1,206) (1,139) Tire operations 1,470 3,329 4,962 7,812 Other (51) 193 (250) 344 -------- -------- --------- -------- TOTAL OPERATING PROFIT (LOSS) (14,753) 19,402 5,012 30,120 MINORITY INTEREST 449 1,079 1,523 2,486 INTEREST EXPENSE 5,569 1,592 10,218 4,721 -------- -------- --------- -------- INCOME (LOSS) BEFORE INCOME TAXES $(20,771) $ 16,731 $ (6,729) $ 22,913 ======== ======== ========= ======== </TABLE> The following table sets forth for the periods indicated a summary of the Company's operations as a percentage of revenues presented on a business segment basis as shown in the preceding table. The basis of presentation for business segment data differs from the basis of presentation for data the Company provides to the Interstate Commerce Commission.
<TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30 September 30 1995 1994 1995 1994 <S> <C> <C> <C> <C> LTL OPERATIONS Salaries and wages 72.9% 65.7% 70.2% 67.2% Supplies and expenses 10.9 10.2 10.8 10.3 Operating taxes and licenses 4.1 3.6 4.1 3.9 Insurance 3.2 2.1 2.5 2.0 Communications and utilities 2.3 2.2 2.4 2.5 Depreciation and amortization 3.8 2.5 3.1 2.7 Rents and purchased transportation 7.6 6.9 6.4 7.4 Other 1.3 0.4 0.8 0.5 Other non-operating (net) - (0.1) (0.1) - -------- -------- -------- -------- Total LTL Operations 106.1% 93.5% 100.2% 96.5% ======== ======== ======== ======== FORWARDING OPERATIONS Cost of services 82.7% - 84.0% - Selling, administrative and general 12.3 - 12.5 - Other non-operating (net) 1.3 - 1.4 - -------- -------- -------- -------- Total Forwarding Operations 96.3% - 97.9% - ======== ======== ======== ======== TRUCKLOAD OPERATIONS Salaries and wages 35.6% - 35.6% - Supplies and expenses 16.4 - 16.4 - Operating taxes and licenses 9.0 - 9.0 - Insurance 3.6 - 3.6 - Communications and utilities 1.5 - 1.5 - Depreciation and amortization 4.6 - 4.6 - Rents and purchased transportation 16.7 - 16.7 - Other 0.3 - 0.3 - Other non-operating (net) 0.6 - 0.6 - -------- -------- -------- -------- Total Truckload Operations 88.3% - 88.3% - ======== ======== ======== ======== LOGISTICS OPERATIONS Cost of sales 93.1% 131.6% 95.1% 112.7% Selling, administrative and general 11.3 49.8 11.7 36.3 Other non-operating (net) - 18.8 (0.1) 4.8 -------- -------- -------- -------- Total Logistics Operations 104.4% 200.2% 106.7% 153.8% ======== ======== ======== ========
TIRE OPERATIONS Cost of sales 75.7% 73.6% 74.9% 73.5% Selling, administrative and general 20.3 17.7 20.4 18.7 Other non-operating (net) 0.3 0.2 0.2 0.3 -------- -------- -------- -------- Total Tire Operations 96.3% 91.5% 95.5% 92.5% ======== ======== ======== ======== </TABLE> Results of Operations Three Months Ended September 30, 1995 as Compared with Three Months Ended September 30, 1994 Consolidated revenues of the Company for the three months ended September 30, 1995 were $398.6 million compared to $294.3 million for the three months ended September 30, 1994. The Company had an operating loss of $(14.8) million for the three months ended September 30, 1995 compared to operating profit of $19.4 million for the three months ended September 30, 1994. For the three months ended September 30, 1995, the Company had a net loss of $(13.1) million, or $(.73) per common share, compared to net income of $9.2 million, or $.40 per common share for the corresponding three months of 1994. Revenues for the three months increased due to the acquisition of WorldWay and the acquisition adversely impacted operating results for the same period. For the period from August 12 to September 30, 1995, WorldWay incurred a consolidated net loss of approximately $(13.6) million and an operating loss of $(20.4) million. The WorldWay loss is attributable primarily to the operations of Carolina Freight Carriers Corp. ("CFCC") and Red Arrow Freight Lines, Inc. ("Red Arrow") which merged into ABF Freight System, Inc. ("ABF") on September 24, 1995. Earnings per common share for the three months ended September 30, 1995 give consideration to preferred stock dividends of $1.1 million and assume conversion of preferred shares to common for the three months ended September 30, 1994. Average common shares outstanding for the three months ended September 30, 1995 were 19.5 million shares compared to 19.3 million shares and 23.1 million on a fully-diluted basis for the three months ended September 30, 1994. Per share earnings reflect full dilution including conversion of preferred shares to common, if dilutive. LTL Operations Segment. As a result of the Acquisition, the Less-than-Truckload ("LTL") operations segment includes the results of CFCC and Red Arrow for the period from August 12, 1995 to their merger into ABF on September 24, 1995. Also, included from August 12, 1995 through the end of the quarter are the operations of G.I. Trucking Company ("G.I. Trucking"). All LTL operations comparisons are impacted by the Acquisition. Revenues from the LTL operations segment for the three months ended September 30, 1995 were $299.3 million, with an operating loss of $(18.4) million. Prior to merging into ABF on September 24, CFCC and Red Arrow continued to operate on their own and incurred a loss of $(22.2) million. For the period from August 12, 1995 to September 30, 1995, G.I. Trucking had an operating loss of $(1.5) million due to reduction in revenue. Prior to the merging of CFCC and Red Arrow into ABF, G.I. Trucking had received approximately 60% of their freight from CFCC and Red Arrow. With CFCC and Red Arrow's freight remaining in the ABF system, G.I. Trucking's revenue was reduced. In September 1995, G.I. Trucking signed a partnership agreement
with Estes Express Lines which will is expected to increase revenue of G.I. Trucking although the amount of the increase and it relative profitability is unknown at this time. Earnings at ABF continue to be negatively affected by a slowing economy and increased pricing pressure which have resulted in a decrease in tonnage for the three months ended September 30, 1995. The following operating statistics for ABF do not include the operations of CFCC or Red Arrow prior to their merger into ABF on September 24, 1995. ABF had an ICC operating ratio of 98.1% for the three months ended September 30, 1995 compared to 93.8% for the three months ended September 30, 1994. For the three months ended September 30, 1995, ABF's total tonnage decreased 8.2%, consisting of a 7.9% decrease in LTL tonnage and a 9.1% decrease in truckload tonnage compared to 1994. Salaries, wages and benefits increased 3.3% annually effective April 1, 1995, pursuant to ABF's collective bargaining agreement with its Teamsters' employees. Forwarding Operations Segment. Effective with the Acquisition on August 12, 1995, the forwarding operations segment includes the results of CaroTrans International, Inc., a subsidiary of WorldWay. The Company previously entered the freight forwarding market on September 30, 1994 with the acquisition of the Clipper Group, a non-asset based intermodal marketing and freight forwarding company. For the three months ended September 30, 1995, the Company's forwarding operations had revenues of $38.2 million with segment operating profit of $1.4 million. The Company's consolidated financial statements for the three months ended September 30, 1995 include only current year financial information for the forwarding operations segment and therefore, comparisons of results of operations are not presented. Truckload Operations Segment. On August 12, 1995, the Company entered into the truckload business with the acquisition of Cardinal Freight Carriers, Inc. ("Cardinal"), a WorldWay subsidiary. For the period from August 12, 1995 to September 30, 1995, Cardinal had revenues of $10.2 million and segment operating profit of $1.2 million. Comparisons of the results of operations for the truckload operations segment are not meaningful and therefore, not presented. Logistics Operations Segment. With the acquisition of two WorldWay subsidiaries, Complete Logistics Company and Innovative Logistics Incorporated, the company began reporting the results of its logistics subsidiaries in a separate business segment. Also, included in the logistics segment are the results of Integrated Distribution, Inc., which was previously reported in the service and other segment. For the three months ended September 30, 1995, the logistics segment had revenues of $9.9 million with a segment operating loss of $435,000. Comparisons of the results of operations for the logistics operations segment are not meaningful and therefore, are not presented. Tire Operations Segment. Treadco's revenues for the three months ended September 30, 1995 increased 2.3% to $40.1 million from $39.1 million for the three months ended September 30, 1994. Treadco sold approximately 171,000 retreaded truck tires during both the three months ended September 30, 1995 and 1994, and new tires sold during the three months ended September 30, 1995 decreased 0.6% to approximately 108,000 tires. For the three months ended
September 30, 1995, "same store" sales decreased 1.2% and "new store" sales accounted for 3.8% of the increase from the three months ended September 30, 1994. Same store sales include both production locations and satellite sales locations that have been in existence for the entire three month periods ended September 30, 1995 and 1994. The soft economy continued to slow demand for both new replacement and retreaded truck tires during the quarter. Also, Treadco has seen increased competition as Bandag Incorporated ("Bandag") has granted additional franchises in some locations currently being served by Treadco. Revenues from retreading for the three months ended September 30, 1995 increased 1.2% to $20.9 million from $20.7 million for the three months ended September 30, 1994. Revenues from new tire sales increased 3.6% to $19.2 million for the three months ended September 30, 1995 from $18.5 million for the three months ended September 30, 1994. Tire operations segment operating expenses as a percent of revenues were 96.3% for the three months ended September 30, 1995 compared to 91.5% for the three months ended September 30, 1994. Cost of sales for the tire operations segment as a percent of revenues increased to 75.7% for the three months ended September 30, 1995 from 73.6% for the three months ended September 30, 1994 resulting primarily from the increased cost of materials from Bandag. Selling, administrative and general expenses for the tire operations segment increased to 20.3% for the three months ended September 30, 1995 from 17.7% for the three months ended September 30, 1994. The increase resulted primarily from an increase in bad debt expense and increased costs associated with installation of a production and inventory control system. On August 23, 1995, Treadco announced that it had been advised by Bandag that eight of its Bandag franchises which expire in the summer of 1996 would not be renewed. Subsequently, Treadco entered into an agreement with Oliver Rubber Company to supply equipment and related materials for the eight production facilities whose Bandag franchises expire in 1996 and any other Treadco facilities which cease being a Bandag franchised location. On October 9, 1995, Treadco sent Bandag notice of termination of three franchise agreements. Two of these franchises are part of the eight scheduled to expire in 1996. Due to Bandag's announcement that it would not renew eight of Treadco's franchises and Bandag's adverse activities described in the lawsuit filed by Treadco on October 30, 1995, it may become necessary for Treadco to terminate some or all of its remaining Bandag franchises prior to their expiration dates. Treadco has filed a lawsuit in Arkansas state court alleging that Bandag and certain of its officers violated Arkansas statutory and common law in attempting to solicit Treadco's employees to work for Bandag or its competing franchises and attempting to divert customers from Treadco. Treadco is unable to determine the impact of the above events on operations, however; Treadco has taken and will continue to take whatever actions are appropriate to protect and enhance Treadco's established business. Interest. Interest expense was $5.6 million for the three months ended September 30, 1995 compared to $1.6 million for the three months ended September 30, 1994 primarily due to a higher level of debt outstanding. The increase in long-term debt consisted primarily of debt incurred and assumed in the acquisition of WorldWay on August 12, 1995 and debt incurred in the acquisition of the Clipper Group on September 30, 1994. Income Taxes. The difference between the effective tax rate for the three months ended September 30, 1995 and the federal statutory rate resulted
primarily from state income taxes, amortization of goodwill, minority interest, and other nondeductible expenses (see Note G to the consolidated financial statements). Nine Months Ended September 30, 1995 as Compared with Nine Months Ended September 30, 1994 Consolidated revenues of the Company for the nine months ended September 30, 1995 were $1.0 billion compared to $770.0 million for the nine months ended September 30, 1994. The Company had an operating profit of $5.0 million for the nine months ended September 30, 1995 compared to operating profit of $30.1 million for the nine months ended September 30, 1994. For the nine months ended September 30, 1995, the Company had a net loss of $(6.3) million, or $(.49) per common share, compared to net income of $11.4 million, or $.42 per common share for the corresponding nine months of 1994. The acquisition of WorldWay on August 12, 1995 adversely impacted operating results for the nine months ended September 30, 1995. For the period from August 12 to September 30, 1995, WorldWay incurred a consolidated net loss of approximately $(13.6) million and an operating loss of approximately $(20.4) million. The WorldWay loss is attributable to CFCC and Red Arrow which ceased to exist as of September 24, 1995 when they were merged into ABF. Consolidated revenues and income for the nine months ended September 30, 1994 were adversely affected by the 24-day labor strike by the Teamsters' union employees of ABF in April 1994. Earnings per common share for the nine months ended September 30, 1995 and 1994 give consideration to preferred stock dividends of $3.2 million. Average common shares outstanding for the nine months ended September 30, 1995 were 19.5 million shares compared to 19.3 million shares for the nine months ended September 30, 1994. Outstanding shares for the nine months ended September 30, 1995 and 1994 do not assume conversion of preferred stock to common shares, because conversion would be anti-dilutive for these periods. LTL Operations Segment. Comparisons for the nine months were affected by Acquisition of WorldWay in August 1995 and by the ABF Teamsters' employees strike in April 1994 (see discussion above). Therefore, comparisons of the results of operations for the LTL operations segment are not meaningful and are not presented. Revenues from the LTL operations segment for the nine months ended September 30, 1995 were $783.8 million, with an operating loss of $(1.7) million. Prior to merging into ABF on September 24, CFCC and Red Arrow continued to operate on their own and incurred a loss of $(22.2) million for the period from August 12, to the merger date. Earnings at ABF continue to be negatively affected by a slowing economy and increased pricing pressure which have resulted in a decrease in tonnage for the nine months ended September 30, 1995. The following operating statistics for ABF do not include the operations of CFCC or Red Arrow prior to their merger into ABF on September 24, 1995. ABF had an ICC operating ratio of 97.2% for the nine months ended September 30, 1995 compared to 96.7% for the nine months ended September 30, 1994. For the nine months ended September 30, 1995, ABF's total tonnage increased 6.1%, consisting of a 6.8% increase in LTL tonnage and a 4.0% increase in truckload tonnage compared to 1994. Salaries, wages and benefits increased 3.3% annually effective April 1, 1995, pursuant to ABF's collective bargaining agreement with its Teamsters' employees.
Forwarding Operations Segment. Effective September 30,1994, with the purchase of the Clipper Group, the Company began reporting a new business segment, forwarding operations. The Company's consolidated financial statements for the nine months ended September 30, 1995 include only current year financial information for the forwarding operations segment and therefore, comparisons of results of operations are not presented. For the nine months ended September 30, 1995, the Company reported revenues from forwarding operations of $96.6 million with segment operating profit of $2.0 million. Tire Operations Segment. Treadco's revenues for the nine months ended September 30, 1995 increased 6.3% to $110.7 million from $104.2 million for the nine months ended September 30, 1994. During the nine months ended September 30, 1995, Treadco sold approximately 477,000 retreaded truck tires, an increase of 3.8% from the nine months ended September 30, 1994 and new tires sold increased 3.7% to approximately 294,000 tires. For the nine months ended September 30, 1995, "same store" sales increased 4.4% and "new store" sales accounted for 2.3% of the increase from the nine months ended September 30, 1994. Same store sales include both production locations and satellite sales locations that have been in existence for the entire nine month periods ended September 30, 1995 and 1994. Although a softer economy during the nine months slowed demand for both new replacement and retreaded truck tires, same store sales increased primarily as a result of an increase in market share in the areas served. Also, Treadco has seen increased competition as Bandag has granted additional franchises in some locations currently being served by Treadco. Revenues from retreading for the nine months ended September 30, 1995 increased 3.0% to $58.4 million from $56.7 million for the nine months ended September 30, 1994. Revenues from new tire sales increased 10.2% to $52.3 million for the nine months ended September 30, 1995 from $47.5 million for the nine months ended September 30, 1994. Tire operations segment operating expenses as a percent of revenues were 95.5% for the nine months ended September 30, 1995 compared to 92.5% for the nine months ended September 30, 1994. Cost of sales for the tire operations segment as a percent of revenues increased to 74.9% for the nine months ended September 30, 1995 from 73.5% for the nine months ended September 30, 1994. Bandag Inc., Treadco's tread rubber supplier, has implemented three price increases, totaling 9.6%, since the first quarter of 1994, which Treadco has been unsuccessful, so far, in fully passing along to its customers. Selling, administrative and general expenses for the tire operations segment increased to 20.4% for the nine months ended September 30, 1995 from 18.7% for the nine months ended September 30, 1994. The increase resulted primarily from an increase in bad debt expense and increased costs associated with employee medical benefits. Interest. Interest expense was $10.2 million for the nine months ended September 30, 1995 compared to $4.7 million for the nine months ended September 30, 1994 primarily due to a higher level of outstanding debt. The increase in long-term debt consisted primarily of debt incurred and assumed in the acquisition of WorldWay in August 1995, the acquisition of the Clipper Group in September 1994 and a term loan used to finance construction of the Company's corporate office building which was completed in 1995. Income Taxes. The difference between the effective tax rate for the nine months ended September 30, 1995 and the federal statutory rate resulted primarily from state income taxes, amortization of goodwill, minority
interest, and other nondeductible expenses (see Note D to the consolidated financial statements). Liquidity and Capital Resources On August 10, 1995 the Company entered into a $350 million credit agreement (the "Credit Agreement") with Societe Generale, Southwest Agency as Managing and Administrative Agent and NationsBank of Texas, N.A., as Documentation Agent and certain other banks. The Credit Agreement consists of a $75 million term and provides for up to $275 million of revolving credit loans (including letters of credit). Term Loan and Revolving Credit advances bear interest at one of the following rates per annum, at the Company's option: (a) Prime Rate advance or (b) Eurodollar Rate advance. A Prime Rate advance shall bear an interest rate per annum equal to the lesser of (i) the Adjusted Prime Rate plus the Applicable Margin and (ii) the maximum nonusurious interest rate under applicable law. The Adjusted Prime Rate is equal to the greater of the prime rate offered by Societe Generale and the Federal Funds Rate plus 1/2%. The Applicable Margin is determined as a function of the ratio of the Company's consolidated indebtedness to its consolidated EBITDA. An Eurodollar Rate advance shall bear an interest rate per annum equal to the lesser of (i) the Eurodollar Rate offered by Societe Generale plus the Applicable Margin and (ii) the maximum nonusurious interest rate under applicable law. The Company has paid and will continue to pay certain customary fees for such commitments and advances. At September 30, 1995, the average interest rate on the Credit Agreement was 7.6%. The Credit Agreement contains various covenants which limit, among other things, indebtedness, distributions, asset sales, restricted payments, investments, loans and advances, as well as requiring the Company to meet certain financial tests, which were met as of September 30, 1995. Based on available information, management believes that the Company may not satisfy certain of the financial covenants under the Credit Agreement for periods subsequent to September 30, 1995. Management has advised the Agent Banks under the Credit Agreement of this possibility and has initiated discussions for the purpose of obtaining waivers or amendments of applicable financial covenants for periods subsequent to September 30, 1995. Based on discussions with the Agent Banks, management expects waivers or amendments to be obtained prior to December 31, 1995. There was $141 million of Revolver Advances, $75 million of Term Advances and approximately $61.4 million of letters of credit outstanding at September 30, 1995. The Revolver Advances are payable on August 10, 1998. Outstanding revolving credit advances may not exceed a borrowing base calculated using the Company's revenue equipment, the Treadco common stock owned by the Company, and eligible receivables. The Term Advances are payable in 16 quarterly graduated installments commencing in November 1996. The installment payments are $2.5 million, $5.0 million and $6.25 million for the first four, second eight and last four payments, respectively. The Company has outstanding 1,495,000 shares of Preferred Stock which is convertible at the option of the holder into Common Stock at the rate of 2.5397 shares of Common Stock for each share of Preferred Stock. Annual dividends are $2.875 and are cumulative. The Preferred Stock is redeemable at the Company's option on or after February 15, 1996 at $52.0125 per share
plus accumulated unpaid dividends, and is exchangeable at the option of the Company for the Company's 5 3/4% Convertible Subordinated Debentures due February 15, 2018 at a rate of $50 principal amount of debentures for each share of Preferred Stock. The holders of the Preferred Stock have no voting rights unless dividends are in arrears six quarters or more, at which time the holders have the right to elect two directors of the Company until all dividends have been paid. Treadco is a party to a revolving credit facility with Societe Generale (the "Treadco Credit Agreement") providing for borrowings of up to the lesser of $20 million or the applicable borrowing base. At September 30, 1995, the borrowing base was $30.1 million. Borrowings under the Treadco Credit Agreement are collateralized by accounts receivable and inventory. Borrowings under the agreement bear interest, at Treadco's option, at 1% above the bank's LIBOR rate, or at the higher of the bank's prime rate or the "federal funds rate" plus 1/2%. At September 30, 1995, the average interest rate was 7.2%. At September 30, 1995, Treadco had $8 million outstanding under the Treadco Credit Agreement. Treadco pays a commitment fee of 3/8% on the unused amount under the Treadco Credit Agreement. The Treadco Credit Agreement contains various covenants which limit, among other things, dividends, disposition of receivables, indebtedness and investments, as well as requiring Treadco to meet certain financial tests which have been met. Under the Treadco Credit Agreement, Treadco's assets are subject to pledge and, therefore, are available for use only by that subsidiary. On July 14, 1995, ABC Acquisition Corporation, a wholly owned subsidiary of the Company, commenced a tender offer (the "Offer") to purchase all outstanding shares of common stock of WorldWay, at a purchase price of $11.00 per share. The Offer expired at 12:00 midnight New York City time on August 10, 1995. There were validly tendered approximately 5,964,000 shares pursuant to the Offer representing approximately 91% of the shares outstanding. Pursuant to the Offer, on August 11, 1995, the Purchaser accepted for payment these shares validly tendered according to the terms of the Offer and commenced payment on August 14, 1995. On October 12, 1995, the Purchaser was merged with and into WorldWay and the remaining shares of WorldWay's common stock were converted into the right to receive $11 per share in cash. Management believes, based upon the Company's current levels of operations and anticipated growth, the Company's cash, capital resources, borrowings available under the Credit Agreement and cash flow from operations will be sufficient to finance current and future operations and meet all present and future debt service requirements. Seasonality The LTL and truckload motor carrier segments 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. Forwarding operations are similar to the LTL and truckload motor carrier segments with revenues being weaker in the first quarter and stronger during the months of September and October. Treadco's operations are somewhat seasonal with the last six months of the calendar year generally having the highest levels of sales.
New Accounting Pronouncements In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company will adopt Statement 121 in the first quarter of 1996 and, based on current circumstances, does not believe the effect of adoption will be material.
PART II. OTHER INFORMATION ARKANSAS BEST CORPORATION ITEM 1. LEGAL PROCEEDINGS. From time to time, the Company is named as a defendant in legal actions, the majority of which arise out of the normal course of its business. The Company is not a party to any pending legal proceeding which the Company's management believes to be material to the financial condition of the Company. The Company maintains liability insurance against risks arising out of the normal course of its business (see Note I to the Company's Unaudited Consolidated Financial Statements). ITEM 2. CHANGES IN SECURITIES. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. Exhibit 11 - Statement Re: Computation of Earnings Per Share. Exhibit 99 - $350,000,000 Credit Agreement dated as of August 10, 1995 among Arkansas Best Corporation as the Borrower, Societe General, Southwest Agency as Managing agent and administrative agent, Nations bank of Texas, N.A. as documentation agent (b) Reports on Form 8-K. Form 8-K dated August 17, 1995 Item 2. Acquisition of Disposition of Assets -- Acquisition of WorldWay Corporation. Item 7. Financial Statements and Exhibits --Financial statements of WorldWay Corporation and pro forma financial information to be filed under cover of form 8-K/A on October 16, 1995. Agreement and Plan of Merger, dated as of July 8, 1995 among WorldWay Corporation, ABC Acquisition Corporation and Arkansas Best Corporation.
Form 8-K/A No. 1 dated October 13, 1995 Item 7. Financial Statements and Exhibits --Financial statements of WorldWay Corporation and pro forma financial information to be filed under cover of form 8-K/A on October 25, 1995. Form 8-K/A No. 2 dated October 25, 1995 Item 7. Financial Statements and Exhibits --Audited financial statements of WorldWay Corporation for the years then ended December 31, 1994 and 1993. Unaudited financial statements of WorldWay Corporation for the twenty-four weeks ended June 17, 1995 and June 18, 1994. Pro forma condensed consolidated statements of operations for the year ended December 31, 1994 and the six months ended June 30, 1995 and the pro forma condensed consolidated balance sheet as of June 30, 1995.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. ARKANSAS BEST CORPORATION (Registrant) Date: November 14, 1995 s/Donald L. Neal ----------------- ------------------------------------ Donald L. Neal - Senior Vice President - Chief Financial Officer, and Principal Accounting Officer
EXHIBIT INDEX ARKANSAS BEST CORPORATION The following exhibits are filed with this report. Exhibit No. Page 11 Statement Re: Computation of Earnings per Share 27 Financial Data Schedule 99 $350,000,000 Credit Agreement dated as of August 10, 1995 among Arkansas Best Corporation as the Borrower, Societe Generale, Southwest Agency as Managing Agent and Administrative Agent, and NationsBank of Texas, N.A. as Documentation Agent.