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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year December 31, 1993
[ ] 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 71-0673405
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 South 21st Street, Fort Smith, Arkansas 72901
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 501-785-6000
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Securities registered pursuant to Section 12(b) of the Act:
None
----------------
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $.01 Par Value Nasdaq Stock Market/NMS
$2.875 Series A Cumulative Convertible
Exchangeable Preferred Stock,
$.01 Par Value Nasdaq Stock Market/NMS
Indicate by check mark whether the registrant (1) has 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 shorter period that the
Registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X].
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 1, 1994, was $228,832,409.
The number of shares of Common Stock, $.01 par value, outstanding as of
March 1, 1994, was 19,200,077.
Documents incorporated by reference:
Portions of the proxy statement for the Arkansas Best Corporation annual
shareholders' meeting to be held May 10, 1994 are incorporated by reference
into Part III.
PART I.
ITEM 1. BUSINESS
(a) General Development of Business
Corporate Profile
Arkansas Best Corporation (the "Company") is primarily engaged, through its
motor carrier subsidiaries, in less-than-truckload ("LTL") shipments of
general commodities. The Company is also engaged through its 46%-owned
subsidiary, Treadco, Inc. ("Treadco"), in truck tire retreading and new truck
tire sales.
ABF Freight System, Inc. ("ABF"), founded in 1935, is the largest motor
carrier subsidiary of the Company, accounting for approximately 87% of the
Company's consolidated revenues. ABF has grown to become the fifth largest
LTL motor carrier in the United States from the forty-eighth largest in 1965,
based on revenues for 1993 as reported to the Interstate Commerce Commission
(the "ICC").
Treadco, which accounted for approximately 11% of the Company's consolidated
revenues, is the nation's largest independent tire retreader for the trucking
industry and the second largest commercial truck tire dealer.
Historical BackgroundIn July 1988, the Company was acquired in a leveraged
buyout by a corporation organized by Kelso & Company, L.P., the predecessor
of Kelso & Company, Inc.
In May 1992, the Company completed a recapitalization, which included (i) an
initial public offering of Common Stock par value $.01 (the "Common Stock")
by the Company, the net proceeds of which were used to repurchase
approximately $114 million in principal amount of its 14% Senior Subordinated
Notes due 1998 (the "Notes") pursuant to a tender offer and related consent
solicitation and to pay related fees and expenses, and (ii) the refinancing
of the Company's existing bank indebtedness.
On November 13, 1992, the Company repurchased approximately 4,439,000 shares
of Common Stock beneficially owned by Kelso Best Partners, L.P. for
approximately $55.5 million in the aggregate, or $12.50 per share (a discount
of $1.50 per share to the then quoted NASDAQ/NMS sale price). Prior to the
Repurchase, Kelso Partners was the Company's largest stockholder, with
beneficial ownership of approximately 21.7% of the total outstanding shares
of the Company's Common Stock. Kelso Partners distributed its remaining
650,000 shares to certain of its individual partners, thus ending Kelso
Partners' investment in the Company. To pay for the repurchase of such
shares, the Company borrowed $50 million under a new five-year term loan
credit facility (the "Term Loan") provided by its existing bank group through
an amendment and restatement of its existing credit agreement and used $5.5
million in available cash. See "Management's Discussion and Analysis --
Liquidity and Capital Resources."
On February 3, 1993, the Company completed a public offering of 1,495,000
shares of preferred stock ("Preferred Stock"). The Company used the net
proceeds of $72.3 million to repay the $50 million Term Loan and for general
corporate purposes. See "Management's Discussion and Analysis -- Liquidity
and Capital Resources."
(b) Financial Information about Industry Segments
The response to this portion of Item 1 is included in "Note M - Business
Segment Data" of the notes to the Company's consolidated financial statements
for the year ended December 31, 1993, which is submitted as a separate
section of this report.
(c) Narrative Description of Business
Motor Carrier Operations
General
The Company's motor carrier operations are conducted through ABF, ABF Freight
System (B.C.), Ltd. ("ABF-BC"), ABF Freight System Canada, Ltd. ("ABF-
Canada"), ABF Cartage, Inc. ("Cartage"), and Land-Marine Cargo, Inc. ("Land-
Marine"). ABF, which concentrates on long-haul transportation of general
commodities freight, involving primarily LTL shipments, is the Company's
largest motor carrier subsidiary, accounting for approximately 98% of the
Company's motor carrier revenues for 1993. ABF-BC and ABF Canada operate out
of eleven terminals in Canada. Cartage focuses on shipments in and out of
Hawaii and Land-Marine currently concentrates on shipments in and out of
Puerto Rico.
ABF Freight System, Inc.
ABF is the largest subsidiary of the Company, accounting for approximately
87% of the Company's consolidated revenues. ABF has grown to become the fifth
largest LTL motor carrier in the United States from the forty-eighth largest
in 1965, based on revenues for 1993 as reported to the ICC. ABF, which
concentrates on long-haul LTL shipments, provides direct service to 939 of
the 952 cities in the United States having a population of 25,000 or more.
ABF and the Company's other motor carrier subsidiaries have 339 terminals and
operate in all 50 states, Canada and Puerto Rico. Through an alliance and
relationships with trucking companies in Mexico, ABF provides motor carrier
services to customers in that country as well. ABF has more than 50,000
customers, including approximately 335 national accounts. ABF was
incorporated in Delaware in 1982 as a successor to Arkansas Motor Freight, a
business originally organized in 1935.
ABF concentrates on long-haul transportation of general commodities freight,
involving primarily LTL shipments. General commodities include all freight
except hazardous waste, dangerous explosives, commodities of exceptionally
high value, commodities in bulk and those requiring special equipment. ABF's
general commodities shipments differ from shipments of bulk raw materials
which are commonly transported by railroad, pipeline and water carrier.
General commodities transported by ABF include, among other things, food,
textiles, apparel, furniture, appliances, chemicals, non-bulk petroleum
products, rubber, plastics, metal and metal products, wood, glass, automotive
parts, machinery and miscellaneous manufactured products. During the year
ended December 31, 1993, no single customer accounted for more than 4% of
ABF's revenues, and the ten largest customers accounted for less than 11% of
ABF's revenues.
LTL Operations
LTL carriers differ substantially from full truckload carriers by offering
service to shippers which is tailored to the need to transport a wide variety
of large and small shipments to geographically dispersed destinations.
Generally, full truckload companies operate from the shipper's dock to the
receiver's facility and require very little fixed investment beyond the cost
of the trucks. LTL carriers pick up small shipments throughout the vicinity
of a local terminal with local trucks and consolidate them at each terminal
according to destination for transportation by intercity units to their
destination cities or to breakbulk (rehandling) terminals, where shipments
from various locations can be reconsolidated for transportation to distant
destinations, other breakbulk terminals or local terminals. In most cases, a
single driver's trip will consist of a day's run to the terminal or relay
point which is appropriately located on the route, where the trailer
containing the shipments will be transferred to continue towards its
destination. Once delivered to a local terminal, a shipment is delivered to
the customer by local trucks operating from such terminal. In some cases,
when a sufficient number of different shipments at one origin terminal are
going to a common destination, they can be combined to make a full
trailerload. A trailer then is dispatched to that destination without having
to rehandle the freight.
In order to improve efficiency, reduce labor costs and enhance customer
service, ABF seeks to minimize the number of times it handles freight. ABF
estimates that at its breakbulk terminals it handles its LTL shipments, on
average, approximately one and a quarter times. ABF's low average handling
per shipment tends to result in fewer damage claims and reduced transit time.
ABF has concentrated on increasing the LTL segment of its business, which has
grown from 52.6% of its revenues in 1978 to 88.3% of its revenues in 1993.
The Company believes that the opportunity to achieve economies of scale in
LTL operations and the service-sensitive nature of the LTL freight business
make this an attractive market. In addition, this market has been less
affected by increased competition from new entrants because transportation of
LTL freight requires significant capital assets, including terminal
facilities and complex computer and communications systems, a skilled work
force and a large sales organization.
Expansion Program
In anticipation of deregulation of the trucking industry, in the mid-1970's
ABF determined it would be necessary to embark on a program of expansion
designed to extend its services geographically and transform itself from a
regional into a national carrier. The acquisition of Navajo Freight Lines,
Inc. in 1978 extended ABF's routes and services into the Western and
Southwestern United States and the acquisition of East Texas Motor Freight in
1982 added to ABF's existing services in the Midwestern and Southern United
States and extended coverage into the Northwestern United States. Upon
completion of these two acquisitions, ABF had a framework of routes and
terminals that substantially covered all regions of the continental United
States. Over the period of these acquisitions ABF increased its number of
terminals from 67 in 1978 to 160 in 1982, with ABF and the Company's other
motor carrier subsidiaries now having 339 terminals. ABF-Canada and ABF-BC
operate out of eleven terminals in Canada. Although the Company does not
maintain terminals in Mexico, through an alliance and relationships with
trucking companies in Mexico, ABF provides motor carrier services to
customers in that country as well. Although the Company expects to continue
adding terminals and relocating existing terminals when and where
strategically important, it does not expect to continue the rapid rate of
growth experienced during the eighties.
In April 1992, ABF announced that it had entered into an intermodal strategic
alliance with Votainer International B.V. ("Votainer"). The alliance provides
ABF and Votainer customers with world-wide intermodal transportation services
to and from points in the United States. Such services feature through-rates
based on a single factor, a through-bill-of-lading, and electronic shipment
tracing from origin to destination. Although the Company believes that the
alliance is unique in the international trade industry, the Company does not
expect the strategic alliance to have a material effect on the Company's
revenues or operating results in the near term.
In January 1993, ABF announced the formation of an alliance with Servicio
Libre a Bordo ("LAB") giving ABF single-bill service to major points in
Mexico. The alliance gives ABF's customers a unique opportunity to move their
freight in and out of Mexico. LAB is an LTL specialist in the Mexico market
while most other Mexican carriers have truckload as their core business. The
alliance features proportional through rates, single-carrier responsibility
of limited cargo liability, single freight bill including all freight
charges, the option for freight charges to be prepaid origin to destination,
collect origin to destination or a combination of prepaid and collect,
electronic tracing from origin to destination, and consistent transit times.
In August 1993, ABF announced an alliance with Burnham Service Corporation
("Burnham") which provides specialized delivery and setup services. The
alliance serves all points served by the ABF system, to any point in the 48
contiguous states. Utilizing the hookup of electronic services of both
companies, it gives customers seamless service between ABF and Burnham.
Primary product features include through-rates, single freight bill
containing freight and setup charges, single-carrier liability, instant
electronic shipment tracing from origin to destination, and consistent
transit times.
Statistical Information
The following table sets forth certain statistical information regarding
ABF's operations (including inter-Company operations) for the five years
ended December 31, 1993.
Year Ended December 31
1993 1992 1991 1990 1989
(Unaudited)
Operating ratio 95.8% 94.9% 96.3% 95.1% 96.9%
Average length of haul (miles) 1,198 1,201 1,192 1,175 1,173
Employees (1) 10,719 10,545 10,184 10,159 8,848
Miles per gallon 6.12 5.87 5.65 5.62 5.56
Fuel cost per mile (2) $.094 $.110 $.116 $.132 $.105
Terminals (at end of period) 323 317 320 319 312
Tractors
Road Tractors 1,385 1,385 1,385 1,338 1,288
City Tractors 2,469 2,474 2,368 2,188 2,133
Trailers
Road Trailers -- doubles 12,263 11,718 11,405 10,679 10,178
Road Trailers -- long 231 251 274 274 305
City Trailers 1,395 1,365 1,187 1,219 1,183
Less-than-Truckload (3)
Revenue (000's) $772,872 $748,470 $697,602 $661,611 $548,950
Percent of total revenue 88.3% 88.8% 89.1% 88.2% 87.2%
Tonnage (000's) 2,620 2,542 2,384 2,326 1,956
Percentage of total tonnage 76.5% 77.2% 78.5% 76.9% 74.7%
Shipments (000's) 4,948 4,899 4,793 4,779 4,054
Revenue per hundredweight $14.75 $14.72 $14.63 $14.22 $14.03
Average weight per shipment
(pounds) 1,059 1,038 995 973 965
Truckload
Revenue (000's) $102,635 $ 94,242 $ 85,013 $ 88,917 $ 80,867
Tonnage (000's) 807 752 654 700 662
Shipments (000's) 96 89 78 82 75
Revenue per hundredweight $6.36 $6.27 $6.50 $6.36 $6.11
Average weight per shipment
(pounds) 16,776 16,858 16,707 17,034 17,541
(1) At end of period for salaried employees and mid-December for hourly
employees.
(2) Excludes fuel tax per mile of $.057, $.059, $.069, $.067 and $.071 for 1989
through 1993, respectively.
(3) Defined by the ICC as shipments weighing less than 10,000 pounds.
Marketing
Prior to the partial deregulation of the trucking industry beginning in 1980,
rates were extensively regulated by the ICC and were not a significant
competitive factor, but now marketing, cost and rate of return have become an
integral part of carrier operations. By expanding ABF's transcontinental
system through the addition of terminals, ABF has increased its ability to
service a greater number of customers directly. Maintaining ABF's competitive
position requires operational and sales support that is customer oriented. To
achieve this objective, ABF has sales representation in all cities in which
it has terminals and also has ten separate national account sales offices.
To improve service, ABF makes information readily accessible to its customers
through various electronic pricing, billing and tracing services, referred to
by ABF as the "Q-Family" of services. The ABF Q-Family offers a complete
package of computer-supported information services. Q-Stat is the newest
member of the Q-Family. It provides a monthly statistical report of a
customer's shipping activity with ABF. Q-Bill offers most of the functions
of a traffic department in a PC software package. Q-Bill provides for bill-
of-lading preparation, automatic rating with an ABF tariff or competitor
tariff, case label production and summary manifesting. Q-EDI is ABF's
computer-to-computer electronic data interchange (EDI) system. The following
standard transaction sets are presently supported:(i) shipment status
information for shipment tracking and performance monitoring; (ii) freight
bills for payment and auditing, and (iii) bill-of-lading information for
carrier billing and rating. Q-Info is a PC-based shipment status information
system designed to aid ABF customers in the performance of their daily
traffic-related functions. Q-Info provides customized shipment status
reports, up-to-the-minute tracing information and freight bill copies. Q-Line
is a nationwide hotline which can be reached 24-hours a day, seven days a
week, from any touch-tone telephone. It is a voice response system which
allows "conversation" with the ABF computer for tracing, rates, loss and
damage claims, and transit time information. Q-Rate III is ABF's third
generation rating program. ABF originated diskette rating and, in
management's opinion, continues to set the industry standard. Q-Rate III
provides nationwide rating on two diskettes. In addition to supporting the
ABF tariffs, information regarding coverage, transit times, and mileage is
provided.
Quality Improvement Process
In 1984, ABF began implementing a Quality Improvement Process to focus on the
specific requirements of customers and to develop measurement systems that
determine the degree of success or failure in conforming to those
requirements. Non-conforming results trigger a structured approach to problem
solving, error identification and classification. The Quality Improvement
Process requires that all levels of employees be educated in the process
itself and trained in their respective job responsibilities so that the focus
on customer requirements drives job performance. In that vein, ABF maintains
permanent educational facilities in strategic locations to teach the Quality
Improvement Process to sales personnel, branch managers and operations
personnel in classroom environments. ABF believes that the Quality
Improvement Process has enhanced performance in a number of areas. As an
example, ABF has been able to reduce the incidence of inaccurate freight
bills by over 70% in the last five years.
Revenue Equipment and Truck Terminals
In anticipation of the partial deregulation of the trucking industry, ABF
began in 1978 to expand carrier services and geographic coverage. ABF and the
Company's other motor carrier subsidiaries have increased their market
coverage by expanding the number of terminals from 67 in early 1978 to 339
currently. A rapid period of terminal expansion from 1978 gave ABF
substantially complete national geographic coverage and has not continued at
the same pace since 1988. ABF owns 26 of its terminal facilities, leases 82
terminals from its affiliate, ABC Treadco, Inc. ("ABC Treadco") and leases
the remaining terminals from independent third parties.
ABF's equipment replacement policy generally provides for replacing intercity
tractors every three years, intracity tractors every five to seven years, and
trailers (which have a depreciable life of seven years) on an as needed basis
(generally seven years or more), resulting in a relatively new and efficient
tractor fleet and minimizing maintenance expenses. ABF presently intends to
continue its tractor and trailer replacement policy.
ABF has a comprehensive preventive maintenance program for its tractors and
trailers to minimize equipment downtime and prolong equipment life. Repairs
and maintenance are performed regularly at ABF's facilities and at
independent contract maintenance facilities.
In late 1993, ABF initiated a new computerized maintenance program which
tracks equipment activity and provides automatic notification of the
maintenance needs of each tractor, trailer and converter gear. The program
keeps records of preventive maintenance schedules and governmental inspection
requirements for each piece of equipment and routes the unit to the nearest
ABF maintenance facility where the service can be performed.
As of December 31, 1993, ABF owned or operated the following revenue
equipment, which, excluding operating leases, had an aggregate net book value
of approximately $78.5 million:
Total No. Approximate Age in Years
of Units 1 2 3 4 5 6 7 Over 7
Intercity Tractors (1) 1,385 500 500 225 160
Intercity Trailers (2) 231 100 131
Intercity Trailers-Doubles (3) 12,263 820 600 749 500 410 599 2,146 6,439
Intracity Tractors 2,469 395 280 300 264 125 174 484 447
Intracity Trailers 1,395 1,395
Pickup/Delivery Trucks 90 17 20 36 17
Converters (used to connect
two 28-foot trailers) (4) 2,538 50 615 1,873
(1) Includes 1,225 tractors being leased under operating leases.
(2) Includes 100 trailers being leased under capitalized leases.
(3) Includes 7,706 trailers being leased under capitalized leases and 924
trailers being leased under
operating leases.
(4) Includes 665 converters being leased under capitalized leases.
In 1993, under its equipment replacement program, ABF acquired 500 intercity
tractors, 350 intracity tractors and 820 trailers. Internally generated
funds, borrowings under the credit agreement and leases have been sufficient
to finance these additions.
Data Processing
The Company, through its wholly owned service bureau subsidiary, is able to
provide timely information, such as the status of all shipments in the system
at any given point in time, that aids the marketing efforts of ABF as well as
assisting its operating personnel. During 1993, ABF implemented a new on-
line city manifest computer program which further enhances shipment tracing.
The program also provides additional information which will improve
operations. The service bureau is staffed with 182 data processing
specialists. The Company believes that its allocation of resources to data
processing has assisted ABF in providing the type of quality services
required by a sophisticated shipping public.
Employees
At December 31, 1993, ABF employed 10,719 persons. Employee compensation and
related costs are the largest components of carrier operating expenses. In
1993, such costs amounted to 67.6% of ABF's general commodities revenues.
ABF is a signatory with the Teamsters to the National Master Freight
Agreement (the "National Agreement") which became effective April 1, 1991,
and expires March 31, 1994. Terms of the new agreement, which is currently
under negotiation, are unknown at this time. Under the National Agreement,
employee wages increased an average of 3.2% annually during 1991 and an
average of 2.7% annually from April 1, 1992 through March 31, 1994. Health,
welfare and pension costs increased 10.6% annually during 1991 and an average
of 6.7% annually from April 1, 1992 through March 31, 1994. Under the terms
of the National Agreement, ABF is required to contribute to various
multiemployer pension plans maintained for the benefit of its employees who
are members of the Teamsters. Amendments to the Employee Retirement Income
Security Act of 1974 ("ERISA") pursuant to the Multiemployer Pension Plan
Amendments Act of 1980 (the "MPPA Act") substantially expanded the potential
liabilities of employers who participate in such plans. Under ERISA, as
amended by the MPPA Act, an employer who contributes to a multiemployer
pension plan and the members of such employer's controlled group are jointly
and severally liable for their proportionate share of the plan's unfunded
liabilities in the event the employer ceases to have an obligation to
contribute to the plan or substantially reduces its contributions to the plan
(i.e., in the event of plan termination or withdrawal by the Company from the
multiemployer plans). Although the Company has no current information
regarding its potential liability under ERISA in the event it wholly or
partially ceases to have an obligation to contribute or substantially reduces
its contributions to the multiemployer plans to which it currently
contributes, management believes that such liability would be material. The
Company has no intention of ceasing to contribute or of substantially
reducing its contributions to such multiemployer plans. ABF is also a party
to several smaller union contracts. Approximately 80% of ABF's employees are
unionized, of whom approximately 1% are members of unions other than the
Teamsters.
Five of the six largest LTL carriers are unionized and generally pay
comparable wages. Non-union companies typically pay employees less than
union companies. Over the past ten years, ABF's operations have not been
significantly affected by any work stoppages and management believes that it
enjoys good labor relations with both union and non-union employees. There
can be no assurance, however, that labor problems will not arise in the
future that would adversely affect the operations and profitability of the
motor carrier industry in general and ABF in particular.
Since December 1989, the Department of Transportation ("DOT") has required
ABF and other domestic motor carriers to implement drug testing programs for
their truck drivers to deter drug use. In December 1991, ABF implemented a
random testing program to cover its entire driver work force. ABF has since
April 1992 been testing as required by the federal government at an average
rate of 50% of its driver work force. Statistics for 1993 indicate that ABF
has administered 4,409 random, biennial re-certification and post-accident
tests to its employees, with a pass rate of 99.2%.
Due to its national reputation and its high pay scale, the Company has not
historically experienced any significant difficulty in attracting or
retaining qualified drivers.
Insurance and Safety
Generally, claims exposure in the motor carrier industry consists of cargo
loss and damage, auto liability, property damage and bodily injury and
workers' compensation. The Company is generally self-insured for the first
$100,000 of each cargo loss, $300,000 of each workers' compensation loss and
$200,000 of each general and auto liability loss, plus an aggregate of
$750,000 of auto liability losses between $200,000 and $500,000. The Company
maintains insurance contracts covering the excess of such losses in amounts
it believes are adequate. While insurance for motor carriers has become
increasingly more expensive and more difficult to obtain, it remains
essential to the continuing operations of a motor carrier. Although such
insurance has become more difficult to obtain, the Company has been able to
obtain adequate coverage and is not aware of problems in the foreseeable
future which would significantly impair its ability to obtain adequate
coverage at comparable rates.
The Company also believes that it has one of the best safety records in the
trucking industry, based in part on having received first, second or third
place safety awards from the American Trucking Associations ("ATA") every
year for the past 21 years. In 1993, ABF was awarded the ATA's President's
Trophy for the company with the most outstanding safety program. ABF had
previously won the President's Trophy in 1989 and 1984. ABF's tractors are
equipped with governors which prevent drivers from driving at speeds in
excess of 57 mph, thereby maximizing safety and fuel economy. Of the ABF
general commodities shipments handled during the year ended December 31,
1993, more than 99% were free of any cargo claim, and of those having cargo
claims, 89% were settled within 30 days of the claim date. The following
table shows accidents and claims results for the last five years:
Year Ended December 31
1993 1992 1991 1990 1989
Linehaul miles (000) per DOT
linehaul accident (1) 1,868 1,962 1,816 1,543 1,730
Selected categories of insurance
expense as a percent of revenue:
Cargo loss and damage claims 1.00% 0.94% 1.03% 1.03% 0.94%
Public liability 0.86 1.08 0.98 0.69 0.82
Workers' Compensation 1.79 1.83 2.00 1.61 1.53
----- ----- ----- ----- -----
Total 3.65% 3.85% 4.01% 3.33% 3.29%
===== ===== ===== ===== =====
(1) An accident, as defined by the DOT, involves personal injury with treatment
sought immediately away from the scene of the accident or disabling damage
that requires a vehicle to be towed from the scene of the accident.
Fuel
The motor carrier industry is dependent upon the availability of diesel fuel.
Material adverse effects on the operations and profitability of the industry,
as well as ABF, could occur as a result of significant increases in fuel
costs, fuel taxes or shortages of fuel. Management, however, believes that
the Company would be impacted to a lesser extent than truckload carriers if
prices increased dramatically because fuel costs are a smaller percentage of
costs for LTL carriers. Further, management believes that the Company's
operations and financial condition are no more susceptible to fuel price
increases or fuel shortages than its competitors.
On October 1, 1993, the new Federal Diesel Fuel Regulations went into effect.
The new regulations require the use of low sulfur highway diesel in all on-
road diesel powered motor vehicles. The Company is in compliance with the
new regulations. The low sulfur requirement initially increased the price
per gallon, but the overall price per gallon decreased late in 1993. At
present, the price per gallon of diesel fuel, excluding taxes, is at its
lowest level since 1990.
Competition, Pricing and Industry Factors
The trucking industry is highly competitive. ABF actively competes for
freight business with other national, regional and local motor carriers and,
to a lesser extent, with private carriage, freight forwarders, railroads and
airlines. Competition is based primarily on personal relationships, price
and service. In general, ABF and most of the other principal motor carriers
use similar tariffs to rate interstate shipments. Intense competition for
freight revenue, however, has resulted in discounting which effectively
reduce prices paid by shippers. In an effort to maintain and improve its
market share, ABF offers and negotiates various discounts. See "Business --
Motor Carrier Operations -- Regulation."
Deregulation of the trucking industry has resulted in easier entry into the
industry and increased competition, although there has also been
consolidation in the industry, as a number of companies have since gone out
of business. See "Business -- Motor Carrier Operations -- Regulation." New
entrants (some of which have grown rapidly in regional markets) include some
non-union carriers which have lower labor costs.
ABF conducts the ABF Profit Improvement Program, which is designed to improve
the overall profitability of ABF by working with those accounts which do not
have an acceptable profit margin. Action to improve profitability may
include changing the packaging and price renegotiation.
The trucking industry, including the Company, is affected directly by the
state of the overall economy. In addition, seasonal fluctuations also affect
tonnage to be transported. Freight shipments, operating costs and earnings
also are affected adversely by inclement weather conditions.
Regulation
ABF's operations in interstate commerce are regulated by the ICC which has
power to authorize motor carrier operations; approve rates, charges and
accounting systems; require periodic financial reporting; and approve certain
mergers, consolidations and acquisitions. Certain of the intrastate motor
carrier operations of ABF are subject to the licensing requirements, rate
regulations and financial reporting requirements of state public utility
commissions and similar authorities.
The Company, like other interstate motor carriers, is subject to certain
safety requirements governing interstate operations prescribed by the DOT.
ABF has earned a "satisfactory" rating (the highest of three grading
categories) from the DOT. In addition, vehicle weight and dimensions remain
subject to both federal and state regulations. More restrictive limitations
on vehicle weight and size or on trailer length or configuration could
adversely affect the profitability of the Company.
The Motor Carrier Act of 1980 (the "MCA") was the start of an effort to
increase competition among motor carriers and reduce the level of regulation
in the industry. The MCA enables applicants to obtain ICC operating
authority easily and allows interstate motor carriers, such as ABF, to change
their rates by a certain percentage per year without ICC approval and to
provide discounts to shippers. The MCA also resulted in the removal of route
and commodity restrictions on the transportation of freight, making it easier
for interstate motor carriers to obtain nationwide authority to carry general
commodities throughout the continental United States.
Management believes that the Company is in compliance in all material
respects with applicable regulatory requirements relating to its operations.
The failure of the Company to comply with the regulations of ICC, DOT or
state agencies could result in substantial fines or revocation of the
Company's operating authorities.
Specialized Motor Carriers
In addition to ABF, the Company has four other motor carrier subsidiaries:
ABF-BC, ABF-Canada, Land-Marine and Cartage. ABF-BC and ABF-Canada
concentrate on shipments of general commodities freight primarily in Canada.
Land-Marine currently concentrates on shipments of general commodities
freight in and out of Puerto Rico and has ICC common carrier authority to
operate in the continental United States. Cartage focuses on shipments in
and out of Hawaii. In 1993, ABF-BC, ABF-Canada, Land-Marine and Cartage
collectively provided approximately 2% of the Company's motor carrier
revenues.
Best Logistics, Inc.
Best Logistics, Inc., a wholly-owned subsidiary of Arkansas Best Corporation,
("Best") is engaged in third-party logistics management. Best offers
logistics planning and management services to companies desiring to outsource
these activities. Customers choosing to outsource logistics management do so
to reduce logistics costs, to concentrate on their core business or to
improve customer service. Logistics focuses on the management of inventory
and information through the supply chain from vendor to consumer. Best's
role is to design the logistics network, contract with the necessary
suppliers, to implement and then manage the design.
Although, third-party logistics is a relatively new industry, a large number
of participants exist in the market. Many are related to transportation or
warehousing companies.
Tire Operations
Treadco, Inc.
Treadco is the nation's largest independent tire retreader for the trucking
industry and the second largest commercial truck tire dealer. Treadco's
revenues accounted for approximately 11% of the Company's consolidated
revenues in 1993, and are divided approximately 56% and 44% between retread
sales and new tire sales, respectively. In 1993, Treadco sold approximately
535,000 retreaded truck tires, which were manufactured at its production
facilities in Arizona, Arkansas, Florida, Georgia, Louisiana, Missouri, Ohio,
Oklahoma and Texas, and sold approximately 268,000 new tires.
In August 1993, Treadco acquired substantially all the assets and liabilities
of Trans-World Tire Corporation. As a result of the acquisition, Treadco
added four production facilities which retread tires under Bandag
Incorporated ("Bandag") franchise agreements and one satellite sales outlet.
Retreaded truck tires are significantly less expensive than new truck tires
(about one-third of the cost) and generally last as long as new tires used in
similar applications. Moreover, most tire casings can be retreaded one or
two times. The retail selling price of Treadco's retread tires ranges from
about $75 to $110 with an average retail selling price of $82, compared to
$260 to $325 for a new tire. Treadco also sells retreads including casings
not supplied by the customer for $150 to $180, averaging about $161 per tire.
Since tire expenses are a significant operating cost for the trucking
industry, many truck fleet operators develop comprehensive periodic tire
replacement and retread management programs. On its weekly sales routes,
Treadco picks up a fleet's casings and returns them the following week, thus
providing a continuous supply of both retreads and new tires as needed. In
order to fully service its customers, Treadco also sells new truck tires
manufactured by Bridgestone, Michelin, General, Dunlop, Sumitomo, Kumho, Toyo
and other manufacturers. According to Bridgestone, Treadco is its largest
domestic truck tire dealer, and according to Michelin, Treadco is one of its
largest domestic truck tire dealers.
Treadco was organized in June 1991 as the successor to the tire business
conducted and developed by ABC Treadco, a wholly owned subsidiary of the
Company. ABC Treadco transferred the tire business-related assets, including
the Bandag Incorporated ("Bandag") franchise agreements, to Treadco in
exchange for all the outstanding capital stock of Treadco. At the same time,
Treadco assumed substantially all of the liabilities relating to the tire
business, including bank debt which, prior to the asset transfer, has been
outstanding under a credit agreement, and indebtedness owed to the Company.
Treadco's assets were pledged to secure repayment of the bank debt under the
credit agreement. In connection with the assumption of the bank debt,
Treadco became the primary obligor with respect to such debt. In October
1991, Treadco completed an initial public offering of 2,679,300 shares
(including 179,300 shares sold by ABC Treadco pursuant to an over-allotment
option) of its common stock at $16.00 per share (the "Treadco Offering").
The net proceeds of the Treadco Offering were used to repay all of the
outstanding bank debt and to repay the affiliate indebtedness owed to the
Company. Upon prepayment of the bank debt, Treadco's obligations under the
credit agreement were terminated and the pledge against the assets was
released. In December 1993, ABC Treadco's investment in Treadco was
transferred to the Company. As of December 31, 1993, the Company's
percentage ownership of Treadco is 46%, while retaining control of Treadco by
reason of its stock ownership, board representation and provision of
management services. As a result, Treadco is consolidated with the Company
for financial reporting purposes, with the ownership interest of the other
stockholders reflected as a minority interest.
The Bandag Relationship
Treadco retreads truck tires pursuant to multi-year franchise agreements with
Bandag. Bandag's proprietary, high quality retreading processes have enabled
it to achieve the largest market presence in the retreading industry. Each
of Treadco's production facilities is covered by a separate Bandag franchise
agreement that grants Treadco the non-exclusive right to retread truck tires
at the facility using Bandag's retreading process, materials and equipment
and to sell such retread tires, using the "Bandag" trademark, without any
territorial restrictions. In return, each of Treadco's production facilities
covered by a Bandag franchise agreement must purchase its rubber requirements
from Bandag at prices established by Bandag. The franchises also provide
Treadco with a number of support programs, including training for technical
and sales personnel, field-service engineering back-up, marketing programs
and ongoing research and development. Bandag has informed Treadco that
Treadco, with its 26 separate franchise locations, is Bandag's largest
domestic franchisee in terms of the number of Bandag franchises and rubber
purchases from Bandag.
In 1991, Treadco renewed and amended its existing franchise agreements with
Bandag, for terms ranging from five to seven years each. Each Bandag
franchise agreement grants Treadco the non-exclusive right to make, use and
sell tires retreaded by the Bandag method, including improvements developed
by Bandag, during the term of the agreement. Treadco has the right to sell
Bandag retreads whenever, to whomever and at any price Treadco may choose,
but Treadco may manufacture retreaded tires using the Bandag method only at
the authorized location referred to in each agreement. The new franchise
agreements do not provide Treadco with an exclusive production or sales
territory, nor do they prohibit Treadco (or any other Bandag franchisees)
from opening sales offices in other desired locations.
Sales and Marketing
Treadco's sales and marketing strategy is based on its service strengths,
network of production and sales facilities and strong regional reputation. In
addition to excellent service, Treadco offers broad geographical coverage
across the South and the lower Midwest. This coverage is important for
customers because they are able to establish uniform pricing, utilize
national account billing processes of the major new tire suppliers, and
generally reduce the risk of price fluctuations when service is needed.
None of Treadco's customers for retreads and new tires, including the Company
and ABF, represented more than 4% of Treadco's revenues for 1993. ABF
accounted for approximately $1.7 million of Treadco's revenues in 1993
(1.5%), and has not accounted for more than 10% of Treadco's revenues in the
last ten years. Treadco's customers are primarily mid-sized companies that
maintain their own in-house trucking operations and rely on Treadco's
expertise in servicing their tire management programs. Treadco markets its
products through sales personnel located at each of its 26 production
facilities and, in addition, through 19 "satellite" sales locations
maintained in Arizona, Arkansas, Florida, Georgia, Louisiana, Mississippi,
Missouri, Ohio and Texas. These satellite sales locations are supplied with
retreads by nearby Treadco production facilities. Treadco locates its
production facilities and sales locations in close proximity to interstate
highways and operates approximately 80 mobile service trucks to provide ready
accessibility and convenience to its customers, particularly fleet owners.
Employees
At December 31, 1993, Treadco employed 652 full-time employees. Thirteen
employees at one Treadco facility are represented by a union. Treadco's
management believes it enjoys a good relationship with its employees.
Environmental and Other Government Regulations
The Company is subject to federal, state and local environmental laws and
regulations relating to, among other things, contingency planning for spills
of petroleum products, and its disposal of waste oil. Additionally, the
Company is subject to significant regulations dealing with underground fuel
storage tanks. ABF stores some of its fuel for its trucks and tractors in
approximately 103 underground tanks located in 27 states. The Company
believes that it is in substantial compliance with all such environmental
laws and regulations and is not aware of any leaks from such tanks that could
reasonably be expected to have a material adverse effect on the Company's
competitive position, operations or financial condition.
The Company has in place policies and methods designed to conform with these
regulations. The Company estimates that capital expenditures for upgrading
underground tank systems and costs associated with cleaning activities for
1994 will not be material.
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 $210,000 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.
The Company remains responsible for certain environmental claims that arose
with respect to its ownership of Riverside Furniture Corporation
("Riverside") prior to its sale in 1989. Riverside was notified in 1988 that
it has been identified as a PRP for hazardous wastes shipped to two separate
sites in Arkansas. To date, the Company, as a part of a PRP group, has paid
approximately $50,000 on Riverside's behalf related to one site, with
additional assessments expected related to that site. Riverside was
dismissed as a PRP from the second site in March 1993. Management currently
believes that resolution of its remaining site is unlikely to have a material
adverse effect on the Company, although there can be no assurance in this
regard.
Treadco is affected by a number of governmental regulations relating to the
development, production and sale of retreaded and new tires, the raw
materials used to manufacture such products (including petroleum, styrene and
butaliene), and to environmental, tax and safety matters. In addition, the
retreading process creates rubber particulate, or "dust," which requires
gathering and disposal, and Treadco disposes of used and nonretreadable tire
casings, both of which require compliance with environmental and disposal
laws. In some situations, Treadco could be liable for disposal problems,
even if the situation resulted from previous conduct of Treadco that was
lawful at the time or from improper conduct of, or conditions caused by,
persons engaged by Treadco to dispose of particulate and discarded casings.
Such cleanup costs or costs associated with compliance with environmental
laws applicable to the tire retreading process could be substantial and have
a material adverse effect on Treadco's financial condition. Treadco believes
that it is in substantial compliance with all laws applicable to such
operations, however, and is not aware of any situation or condition that
could reasonably be expected to have a material adverse effect on Treadco's
financial condition.
ITEM 2. PROPERTIES
Directly or indirectly through its subsidiaries, the Company owns its
executive offices in Fort Smith, Arkansas, and owns or leases approximately
390 other operating facilities, approximately 339 and 45 of which relate to
its motor carrier operations, and tire retreading and sales operations,
respectively. In addition to its executive offices, the Company's principal
motor carrier facilities are as follows:
Location
---------
North Little Rock, Arkansas
Los Angeles, California
Sacramento, California
Denver, Colorado
Ellenwood, Georgia
Springfield, Illinois
Albuquerque, New Mexico
Asheville, North Carolina
Dayton, Ohio
Portland, Oregon
Harrisburg/Camp Hill, Pennsylvania
Dallas, Texas
Salt Lake City, Utah
The properties listed above are leased by ABF from ABC Treadco, with the
exception of the facilities in Asheville, North Carolina and Sacramento,
California, which are owned by ABF, and the facilities in Portland, Oregon
and Salt Lake City, Utah, which are leased from outside third parties. There
are three facilities at the Harrisburg/Camp Hill, Pennsylvania location. The
Camp Hill and one of the Harrisburg facilities are leased from outside third
parties.
ITEM 3. LEGAL PROCEEDINGS
In August 1990, a lawsuit was filed in the United States District Court for
the Southern District of New York, by Riverside Holdings, Inc., Riverside
Furniture Corporation and MR Realty Associates, L.P. ("Plaintiffs") against
the Company and ABC Treadco ("Defendants"). Plaintiffs have asserted state
law, ERISA and securities claims against Defendants in conjunction with
Defendants' sale of Riverside Furniture Corporation in April 1989.
Plaintiffs are seeking approximately $4 million in actual damages and $10
million in punitive damages. The Company is contesting the lawsuit
vigorously. After consultation with legal counsel, the Company has concluded
that resolution of the foregoing lawsuit is not expected to have a material
adverse effect on the Company's financial condition.
Various other 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of stockholders during the fourth quarter
ended December 31, 1993.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market and Dividend Information
The Company's Common Stock trades on The Nasdaq Stock Market under the symbol
"ABFS". The following table sets forth the high and low recorded last sale
prices of the Common Stock during the periods indicated as reported by Nasdaq
and the cash dividends declared:
Cash
High Low Dividend
1993
First quarter $16.750 $12.125 $.01
Second quarter 13.000 8.375 .01
Third quarter 11.500 8.500 .01
Fourth quarter 15.625 11.125 .01
1992
Second quarter (since May 13, 1992) $14.875 $ 9.375 $ -
Third quarter 12.000 10.375 .01
Fourth quarter 17.000 10.500 .01
On December 31, 1993, there were 786 shareholders of record.
The declaration and payment of, and the timing, amount and form of future
dividends on the Common Stock will be determined by the Company's results of
operations, financial condition, cash requirements, certain corporate law
requirements and other factors deemed relevant by the board of directors.
The Company's credit agreement limits the total amount of "restricted
payments" that the Company may make, including dividends on its capital
stock, to $10 million in any one calendar year. The annual dividend
requirements on the Company's preferred stock issued February 3, 1993
(approximately $4.3 million) and dividends paid on the Common Stock at the
quarterly rate of $.01 per share (approximately $0.8 million based on the
current number of issued and outstanding shares) would aggregate dividends of
approximately $5.1 million on an annual basis.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data - Five-Year Summary
The Company
Year Ended December 31
1993 1992 1991 1990 1989
($ in thousands except per share amounts)
Statement of Operations Data:
Operating revenues $1,009,918 $959,949 $884,498 $848,737 $713,669
Operating income 51,369 57,255 43,123 47,671 26,375
Gain on sale of subsidiary stock - - 14,141 - -
Minority interest in subsidiary 3,140 2,825 690 - -
Other income and (expenses), net (731) (1,496) (6,638) (4,533) (3,050)
Interest expense 7,248 17,285 34,421 39,257 40,280
Income (loss) before income taxes,
extraordinary item and
cumulative effect of
accounting change 40,250 35,649 15,515 3,881 (16,955)
Provisions for income taxes (credit) 19,278 16,894 7,763 3,415 (4,227)
Income (loss) before extraordinary
item and cumulative effect
of accounting change 20,972 18,755 7,752 466 (12,728)
Extraordinary item (1) (661) (15,975) (515) - -
Cumulative effect on prior
years of change in revenue
recognition method (2) - (3,363) - - -
Net income (loss) 20,311 (583) 7,237 466 (12,728)
Income (loss) per common share
before extraordinary item and
cumulative effect of
accounting change .89 .99 .61 .04 (1.01)
Net income (loss) per common share .85 (.03) .57 .04 (1.01)
Cash dividends paid per common share (3) .04 .02 - - -
Pro Forma Data (4):
Income before extraordinary item $ 20,972 $ 18,755 $ 8,253 $ (1,124) $(12,667)
Earnings per common share .89 .99 .65 (.09) (1.01)
Net income (loss) 20,311 2,780 7,738 (1,124) (12,667)
Earnings (loss) per common share .85 .15 .61 (.09) (1.01)
Selected Financial Data - Five-Year Summary (Continued)
The Company
Year Ended December 31
1993 1992 1991 1990 1989
($ in thousands except per share amounts)
Balance Sheet Data
(as of the end of the period):
Total assets $447,733 $428,345 $447,098 $475,487 $477,700
Current portion of long-term debt 15,239 28,348 34,995 39,957 35,272
Long-term debt
(including capital
leases and excluding
current portion) 43,731 107,075 210,987 270,193 291,161
Other Data
Capital expenditures (5) $ 33,160 $ 26,596 $ 19,369 $ 31,336 $ 36,692
Depreciation and amortization 28,266 34,473 39,755 40,002 39,451
Goodwill amortization 3,064 3,034 3,024 3,024 2,909
Other amortization 319 755 2,290 3,103 3,229
(1) For 1993, represents an extraordinary charge of $661,000 (net of tax of
$413,000) from the loss on extinguishment of debt. For 1992, represents
an extraordinary charge of $15,975,000 (net of tax of $9,700,000) from
the loss on extinguishment of debt relating to the Recapitalization in
May 1992. For 1991, represents an extraordinary charge of $515,000 (net
of tax of $320,000) from the loss on extinguishment of debt relating to
the Treadco Offering in September 1991.
(2) Represents a charge of $3,363,000 (net of tax of $2,100,000) to reflect
the cumulative effect on prior years of the change in method of
accounting for the recognition of revenue as required under the
Financial Accounting Standards Board's Emerging Issues Task Force Ruling
91-9 ("EITF 91-9").
(3) No cash dividends were paid by the Company from 1989 until the third
quarter of 1992.
(4) Assumes the change in accounting method for recognition of revenue as
required under EITF 91-9 occurred January 1, 1989.
(5) Net of equipment trade-ins. Does not include revenue equipment placed in
service under operating leases, which amounted to $24.8 million in 1993,
$25.5 million in 1992, $15 million in 1991, and $5 million in 1990.
There were no operating leases for revenue equipment entered into for
1989. See "Management's Discussion and Analysis-Liquidity and Capital
Resources."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company is primarily engaged, through its motor carrier subsidiaries, in
LTL shipments of general commodities. The Company is also engaged through
its 46%-owned consolidated subsidiary, Treadco, in truck tire retreading and
sales.
The Company in 1991 reduced its ownership in Treadco, through an initial
public offering of Treadco common stock, to approximately 46%, while
retaining control of Treadco by reason of its stock ownership, board
representation and provision of management services. As a result, Treadco
is consolidated with the Company for financial reporting purposes, with the
ownership interests of the other stockholders reflected as minority
interest.
Segment Data
The following tables reflect information prepared on a business segment
basis, which includes reclassification of certain expenses and costs between
the Company and its subsidiaries and elimination of the effects of
intercompany transactions. Operating profit on a business segment basis
differs from operating income as reported in the Company's Consolidated
Financial Statements. Other income and other expenses (which include
amortization expense), except for interest expense, minority interest, and
gain on sale of subsidiary stock, which appear below the operating income
line in the Company's Statement of Operations, have been allocated to
individual segments for the purpose of calculating operating profit on a
segment basis.
Year Ended December 31
1993 1992 1991
($ thousands)
OPERATING REVENUES
Carrier operations $ 893,504 $858,755 $797,405
Tire operations 111,585 96,254 83,193
Other 4,829 4,940 3,900
---------- -------- --------
$1,009,918 $959,949 $884,498
========== ======== ========
OPERATING EXPENSES AND COSTS
CARRIER OPERATIONS
Salaries and wages $ 594,213 $560,460 $517,597
Supplies and expenses 99,146 99,613 95,220
Operating taxes and licenses 35,152 32,697 31,863
Insurance 16,835 17,567 16,263
Communications and utilities 23,680 23,782 23,573
Depreciation and amortization 25,714 32,370 37,667
Rents 53,192 39,561 35,752
Other 3,779 4,324 4,481
Other non-operating (net) 148 1,656 5,044
---------- -------- --------
851,859 812,030 767,460
TIRE OPERATIONS
Cost of sales 79,718 69,070 59,367
Selling, administrative and general 21,522 18,412 15,687
Other non-operating (net) 159 5 965
---------- -------- --------
101,399 87,487 76,019
SERVICE AND OTHER 6,022 4,673 4,534
---------- -------- --------
$ 959,280 $904,190 $848,013
========== ======== ========
OPERATING PROFIT (LOSS)
Carrier operations $ 41,645 $ 46,725 $ 29,945
Tire operations 10,186 8,767 7,174
Other (1,193) 267 (634)
---------- -------- --------
TOTAL OPERATING PROFIT 50,638 55,759 36,485
GAIN ON SALE OF SUBSIDIARY STOCK - - 14,141
INTEREST EXPENSE 7,248 17,285 34,421
MINORITY INTEREST 3,140 2,825 690
---------- -------- --------
INCOME BEFORE INCOME TAXES,
EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE $ 40,250 $ 35,649 $ 15,515
========== ======== ========
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 table on the preceding page. The basis of
presentation for business segment data differs from the basis of
presentation for data the Company provides to the ICC.
Year Ended December 31
1993 1992 1991
CARRIER OPERATIONS
Salaries and wages 66.5% 65.3% 64.9%
Supplies and expenses 11.1 11.6 11.9
Operating taxes and licenses 3.9 3.8 4.0
Insurance 1.9 2.0 2.0
Communications and utilities 2.7 2.8 3.0
Depreciation and amortization 2.9 3.8 4.7
Rents 5.9 4.6 4.5
Other 0.4 0.5 0.6
Other non-operating (net) - 0.2 0.6
---- ---- ----
Total Carrier Operations 95.3% 94.6% 96.2%
==== ==== ====
TIRE OPERATIONS
Cost of sales 71.5% 71.8% 71.4%
Selling, administrative and general 19.3 19.1 18.9
Other non-operating (net) 0.1 - 1.1
---- ---- ----
Total Tire Operations 90.9% 90.9% 91.4%
==== ==== ====
OPERATING PROFIT
Carrier operations 4.7% 5.4% 3.8%
Tire operations 9.l 9.1 8.6
Results of Operations
1993 as Compared to 1992
Consolidated revenues of the Company for 1993 were $1.0 billion compared to
$959.9 million for 1992. Operating profit for the Company was $50.6 million
in 1993 compared to $55.8 million during 1992. Net income for 1993 was
$20.3 million, or $.85 per common share, compared to a net loss of
$(583,000), or $(.03) per common share in 1992. Income before extraordinary
item was $21.0 million, or $.89 per common share for 1993, compared to
income before extraordinary item and cumulative effect of accounting change
of $18.8 million, or $.99 per common share for 1992. During 1993, the
Company recorded an extraordinary loss of $(661,000) (net of income tax
benefit of $413,000), or $(.04) per common share, for the net loss on
extinguishments of debt. During 1992, the Company recorded an extraordinary
loss of $(16.0) million (net of income tax benefit of $9.8 million), or
$(.84) per common share, for the net loss on extinguishments of debt. Also,
during 1992, the Company recorded a charge for the cumulative effect on
prior years of an accounting change in the recognition of revenue of $(3.4)
million (net of income tax benefit of $2.1 million), or $(.18) per common
share. Earnings per common share for 1993 give consideration to preferred
stock dividends of $3.9 million. Average common shares outstanding for 1993
were 19.2 million shares compared to 19.0 million shares for 1992.
As reported in the third quarter, net income for 1993 was reduced by
$828,000, or $.04 per common share, to reflect the effect on current and
deferred taxes of the retroactive corporate tax rate increase which became
law in the third quarter of 1993.
Motor Carrier Operations Segment. Revenues for the motor carrier operations
segment increased 4.0% to $893.5 million in 1993 from $858.8 million in
1992, reflecting primarily 4.0% increase in total tonnage. The increase in
total tonnage consisted of a 3.1% increase LTL tonnage and a 7.3% increase
in truckload tonnage. The 4.6% rate increase effective January 1, 1993 was
aggressively discounted by rate competition during the first six months of
1993. The discounting stabilized in the last half of the year and for the
fourth quarter of 1993, ABF's LTL revenue per hundredweight reflected a 1.0%
increase over the fourth quarter of 1992. For 1993, ABF's LTL revenue per
hundredweight was up .2% compared to the average for 1992. Discounting and
a relatively slow economy during the first half of the year also affected
tonnage growth for 1993. Effective January 1, 1994, ABF implemented a
general freight rate increase of 4.5% which is expected to result in a 3 to
3.25% initial impact on revenues. The diminished effect is the result of
pricing that is on a contract basis which can only be increased when the
contract is renewed.
Motor carrier segment operating expenses as a percent of revenues was 95.3%
for 1993 compared to 94.6% for 1992. Salaries and wages for motor carrier
operations as a percent of revenues increased to 66.5% in 1993 from 65.3% in
1992, resulting primarily from contractual wage increases (averaging 2.7%
annually for 1993) which went into effect in April 1993 under the current
collective bargaining agreement. The current agreement expires March 31,
1994. The new agreement is currently under negotiation and terms are
unknown at this time. Supplies and expenses for motor carrier operations as
a percent of revenues decreased to 11.1% in 1993 from 11.6% in 1992
resulting primarily from the covering of the fixed portion of supplies and
expenses by increased revenues.
Depreciation and amortization expense for motor carrier operations as a
percent of revenues decreased to 2.9% in 1993 from 3.8% in 1992. During the
last three years, ABF financed its road tractor replacement program with
operating leases instead of capital leases, which decreased both interest
and depreciation expense and increased rent expense. Rent expense for motor
carrier operations as a percent of revenues increased to 5.9% in 1993 from
4.6% in 1992. The additional rent expense was incurred primarily as a
result of the operating leases discussed above and the utilization of
alternate modes of outside transportation.
Tire Operations Segment. Treadco's revenues for 1993 increased 15.9% to
$111.6 million from $96.3 million in 1992. The increase resulted primarily
from internal growth and the addition of four production facilities and one
sales facility through the August 30, 1993 acquisition of Trans-World Tire
Corporation in Florida. Revenues from retreading in 1993 increased 17.6% to
$61.9 million from $52.6 million in 1992. Revenues from new tire sales
increased 13.9% to $49.7 million in 1993 from $43.7 million in 1992.
Tire operations segment operating expenses as a percent of revenues were
90.9% for each of 1993 and 1992. Cost of sales for the tire operations
segment as a percent of revenues decreased to 71.5% in 1993 from 71.8% in
1992. Selling, administrative and general expenses for the tire operations
segment increased to 19.3% in 1993 from 19.1% in 1992.
Interest. Interest expense decreased 58.1% to $7.2 million in 1993 from
$17.3 million during 1992. A reduction in long-term debt outstanding using
proceeds from the Company's stock offerings, lower interest rates and
utilization of operating leases resulted in the decrease in interest
expense. The reduction in long-term debt consisted primarily of retiring
its 14% Senior Subordinated Notes due 1998, maintaining a lesser average
balance outstanding under the revolving credit facilities, and financing a
portion of its revenue equipment with operating leases.
Income Taxes. The difference between the effective tax rate in 1993 and the
federal statutory rate resulted primarily from state income taxes,
amortization of goodwill, minority interest, undistributed earnings of
Treadco and other nondeductible expenses (see Note G to the consolidated
financial statements).
In August 1993, the Revenue Reconciliation Act of 1993 was enacted, which
required a retroactive increase in the corporate federal tax rate. This
resulted in an increase in the tax expense and a corresponding decrease in
net income of $828,000. The increase in the corporate federal tax rate was
accounted for in accordance with Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("FAS 109").
1992 As Compared With 1991
Consolidated revenues of the Company for 1992 increased 8.5% to $959.9
million from $884.5 million in 1991. Operating profit of the Company
increased 52.8% to $55.8 million from $36.5 million in 1991. For 1992, the
Company had income before an extraordinary item and the cumulative effect of
an accounting change of $18.8 million, or $.99 per share, compared to $7.8
million, or $.61 per share, for 1991. In 1992, the Company recorded an
extraordinary loss of $(16.0) million (net of income taxes of $9.8 million),
or $(.84) per share, for the net loss on extinguishments of debt, following
its public offering in May 1992. Pursuant to a pronouncement by the
Emerging Issues Task Force of the Financial Accounting Standards Board,
effective January 1, 1992, the Company changed its accounting method whereby
revenue is recognized based on relative transit time in each reporting
period with expenses continuing to be recognized as incurred. This change
in accounting method resulted in a charge to earnings for 1992 having a
cumulative effect of $(3.4) million (net of income taxes of $2.1 million),
or $(.18) per share. After giving effect to the extraordinary item and the
cumulative effect of the accounting change, the Company had a net loss for
1992 of $(583,000), or $(.03) per share, compared to net income of $7.2
million, or $.57 per share, for 1991. Net income for 1991 included a gain
on the sale of subsidiary stock of $8.8 million (net of income taxes of $5.3
million), or $.69 per share. Average shares outstanding for 1992 increased
to 19.0 million shares from 12.7 million shares in 1991.
Motor Carrier Operations Segment. Revenues for the motor carrier operations
segment increased 7.7% to $858.8 million in 1992 from $797.4 million in
1991, reflecting primarily an 8.4% increase in total tonnage offset in part
by a 0.7% decrease in revenue per hundredweight. The decrease in revenue
per hundredweight is due to some shift in the mix of shipment sizes,
continued price competition and competitive pressure from truckload carriers
on the larger shipments. The increase in total tonnage consisted of a 6.6%
increase in LTL tonnage and a 15.0% increase in truckload tonnage.
Effective January 1, 1993, ABF implemented a general freight rate increase
of 4.6% which is expected to result in a 2.5 - 3% initial impact on
revenues. The diminished effect is the result of pricing that is on a
contract basis which can only be increased when the contract is renewed.
Motor carrier segment operating expenses as a percent of revenues improved
to 94.6% in 1992 from 96.2% in 1991. Salaries and wages for motor carrier
operations as a percent of revenues increased to 65.3% in 1992 from 64.9% in
1991, resulting primarily from contractual wage increases (averaging 2.8%
annually for 1992) which went into effect in April 1992 under the current
collective bargaining agreement. Under the agreement, contractual wage
increases are expected to increase approximately 2.7%, for 1993. Supplies
and expenses for motor carrier operations as a percent of revenues decreased
to 11.6% in 1992 from 11.9% in 1991. The decrease resulted primarily from
the covering of the fixed portion of supplies and expenses by increased
revenues. Operating taxes and licenses for motor carrier operations as a
percent of revenues decreased to 3.8% during 1992 from 4.0% in 1991. The
decrease resulted primarily from the higher level of revenues.
Depreciation and amortization expense for motor carrier operations as a
percent of revenues decreased to 3.8% in 1992 from 4.7% in 1991. In 1992
and 1991, ABF financed its road tractor replacement program with operating
leases instead of capital leases, which decreased both interest and
depreciation expense and increased rents. Rent expense for motor carrier
operations as a percent of revenues increased to 4.6% in 1992 from 4.5% in
1991. The additional rent expense incurred as a result of the operating
leases discussed above was partially offset by the covering of other rents
by increased revenues. Other motor carrier operating expense decreased to
0.5% during 1992 from 0.6% in 1991. Other non-operating expenses decreased
to 0.2% in 1992 from 0.6% in 1991. The decrease resulted primarily from
gains on asset sales of $1.4 million for 1992 compared to a $1.2 million
loss during 1991. Also, amortization of deferred financing costs decreased
to $60,000 in 1992 from $1.4 million in 1991. Deferred financing costs
associated with the Notes retired were written off and therefore reduced
amortization expense.
Tire Operations Segment. Treadco's revenues for 1992 increased 15.7% to
$96.3 million from $83.2 million during 1991, reflecting primarily the
addition of two production facilities in August 1991 and April 1992, three
sales locations in 1991 and two sales locations in 1992. Revenues from
retreading for 1992 increased 18.0% to $52.6 million from $44.6 million in
1991. Revenues from new tire sales for 1992 increased 13.0% to $43.7
million from $38.6 million in 1991.
Tire operations segment operating expenses as a percent of revenues improved
to 90.9% in 1992 from 91.4% in 1991, reflecting primarily a decrease in
other non-operating expenses. Other non-operating expenses as a percent of
revenues were negligible for 1992 compared to 1.1% for 1991. Included in
other non-operating expenses is the amortization of deferred financing costs
which was $18,500 for 1992 compared to $881,000 in 1991. Deferred financing
costs associated with the debt retired as a result of the Treadco Offering
were written off and therefore reduced amortization expense. Cost of sales
as a percent of revenues increased to 71.8% in 1992 from 71.4% in 1991. The
increase is due primarily to costs relating to a Bandag price increase for
tread rubber, which were not fully passed on to customers. Management does
not know to what extent future price increases can be passed on to
customers. Selling, administrative and general expenses increased to 19.1%
in 1992 from 18.9% for 1991, reflecting costs associated with being public
and an increase in insurance reserves to cover expected losses.
Interest. Interest expense decreased 49.8% to $17.3 million during 1992 from
$34.4 million in 1991. A reduction in long-term debt outstanding, lower
interest rates and utilization of operating leases resulted in the decrease
in interest expense. The reduction in long-term debt consisted primarily of
the tender for $113.8 million of the Notes with the proceeds from the
Company's Common Stock offering and the repayment of $36.6 million of
outstanding bank debt in connection with the Treadco Offering.
Income Taxes. The difference between the effective tax rate for 1992 and the
federal statutory rate resulted primarily from state income taxes,
amortization of goodwill, minority interest, undistributed earnings of
Treadco and other nondeductible expenses (see Note G to the consolidated
financial statements).
Liquidity and Capital Resources
The Company and certain banks are parties to a Credit Agreement with Societe
Generale, as Agent and NationsBank of Texas as Co-Agent (the "Credit
Agreement") which provides funds available under a three-year Revolving
Credit Facility of $100 million, including $40 million for letters of
credit. There are no borrowings outstanding under the Revolving Credit
Facility and approximately $39 million of letters of credit outstanding at
December 31, 1993. The Revolving Credit Facility is payable on June 30,
1996. Outstanding revolving credit advances may not exceed a borrowing base
calculated using the Company's revenue equipment, real property and the
Treadco common stock owned by the Company. At December 31, 1993, the
borrowing base was $93.9 million. The Company has paid and will continue to
pay certain customary fees for such commitments and loans. Amounts advanced
under the revolving credit facility bear interest, at the Company's option,
at a rate per annum of either:(i) the greater of (a) the agent bank's prime
rate and (b) the Federal Funds Rate plus 1/2%; or (ii) LIBOR plus 1 1/2%.
The Credit Agreement contains various covenants which limit, among other
things, dividends, indebtedness, capital expenditures, loans and
investments, as well as requiring the Company to meet certain financial
tests. As of December 31, 1993, these covenants have been met. If there is
an event of default which is not remedied or waived within 10 days, the
Credit Agreement will become secured to the extent of amounts then
outstanding of all of the Company's revenue equipment, real property and
common stock included in the borrowing base (subject to certain exceptions).
The Credit Agreement also, at December 1992, included a $50 million Term
Loan Facility. In February 1993, the Company completed its public offering
of 1,495,000 shares of Preferred Stock. The Company used the net proceeds of
approximately $71.9 million to repay the Term Loan and for general corporate
purposes. The Preferred Stock is convertible at the option of the holder
into Common Stock at the rate of 2.54 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 $52.01 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
$12 million or the applicable borrowing base. At December 31, 1993, the
borrowing base was $22.7 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 December 31, 1993, the interest rate
was 5%. At December 31, 1993, Treadco had $7 million outstanding under the
Treadco Credit Agreement. Treadco pays a commitment fee of 3/8% on the
unused amount under the Treadco Credit Agreement.
The Treadco Credit Agreement contains various convenants which limit, among
other things, dividends, disposition of receivables, indebtedness and
investments, as well as requiring Treadco to meet certain financial tests
which have been met. Under the Treadco Credit Agreement, Treadco's assets
are subject to pledge and, therefore, are available for use only by that
subsidiary.
The following table sets forth the Company's historical capital expenditures
(net of equipment trade-ins) for the periods indicated below:
Year Ended December 31
1993 1992 1991
($ millions)
Carrier operations $ 48.6 $ 47.7 $ 32.2
Tire operations 6.1 2.2 2.1
Service and other 3.3 2.2 0.1
------ ------ ------
58.0 52.1 34.4
Less: Operating leases (24.8) (25.5) (15.0)
------ ------ ------
Total $ 33.2 $ 26.6 $ 19.4
====== ====== ======
The amounts presented in the table under operating leases reflect the
estimated purchase price of the equipment had the Company purchased the
equipment versus financing through operating lease transactions.
In 1994, the Company anticipates spending approximately $70.9 million in
total capital expenditures net of proceeds from equipment sales. It is
expected that approximately $20 million of the expenditures for facilities
will be financed through a term loan facility, $16.4 million of equipment
expenditures will be financed by capital leases and the remaining $34.5
million will be financed through internally generated funds and borrowings
under the Credit Agreement and Treadco Credit Agreement.
Capital Expenditures Program for 1994
Net of Equipment Trade-Ins
Facilities Equipment Miscellaneous Total
($ millions)
Carrier operations $12.3 $28.4 $2.6 $43.3
Tire operations 0.8 2.2 0.3 3.3
Service and other 18.1 0.2 6.0 24.3
----- ----- ---- -----
$31.2 $30.8 $8.9 $70.9
===== ===== ==== =====
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.
The Company is a signatory with the Teamsters to the National Master Freight
Agreement which expires March 31, 1994. Terms of the new agreement, which
is currently under negotiation, are unknown at this time. There has not
been a strike under this agreement since 1979; however, in the event of a
strike, the Company's liquidity could be adversely impacted.
The motor carrier segment is affected by seasonal fluctuations, which affect
tonnage to be transported. Freight shipments, operating costs and earnings
are also affected adversely by inclement weather conditions. The third
calendar quarter of each year usually has the highest tonnage levels while
the first quarter has the lowest. Treadco's operations are somewhat seasonal
with the last six months of the calendar year generally having the highest
levels of sales.
Subsequent Event
On March 2, 1994, ABF, Renaissance Asset Funding Corp. ("Renaissance") and
Societe Generale entered into a receivables purchase agreement. The
agreement allows ABF to sell to Renaissance interests of up to $55 million
in a pool of receivables. ABF does not have any receivables sold at this
time, but expects to use this facility from time to time throughout the year
for various corporate needs, including working capital.
New Accounting Standards
In November 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("FAS 112"), requiring accrual accounting for non-
accumulating postemployment benefits, such as disability and death benefits
instead of recognizing an expense for those benefits when paid. The Company
will comply with the new rules beginning January 1, 1994, using the
cumulative effect method. The Company is accumulating the necessary data to
adopt the standard and does not anticipate that adoption of this statement
will materially impact net income in 1994.
Environmental Matters
ABF stores some fuel for its tractors and trucks in approximately 103
underground tanks located in 27 states. Maintenance of such tanks is
regulated at the federal and, in some cases, state levels. ABF believes
that it is in substantial compliance with all such regulations. ABF 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 ABF to upgrade its underground tank systems by December
1998. ABF currently estimates that such upgrades, which are currently in
process, will not have a material adverse effect on the Company.
The Company has received notices from the EPA and others that it has been
identified as a potentially responsible party ("PRP") under the
Comprehensive Environmental Response Compensation and Liability Act or other
federal or state environmental statutes at several hazardous waste sites.
After investigating the Company's or its subsidiaries' involvement in waste
disposal or waste generation at such sites, the Company has either agreed to
de minimis settlements (aggregating approximately $210,000 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.
The Company remains responsible for certain environmental claims that arose
with respect to its ownership of Riverside prior to its sale in 1989.
Riverside was notified in 1988 that it had been identified as a PRP for
hazardous wastes shipped to two separate sites in Arkansas. To date, the
Company, as a part of a PRP group, has paid approximately $50,000 on
Riverside's behalf related to one site, with additional assessments expected
related to that site. Riverside was dismissed as a PRP from the second site
in March 1993. Management currently believes that resolution of its
remaining site is unlikely to have a material adverse effect on the Company,
although there can be no assurance in this regard.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response of this item is submitted in a separate section of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III.
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The sections entitled "Election of Directors," "Directors of the Company,"
"Board of Directors and Committees," "Executive Officers of the Company" and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the
Company's proxy statement for the annual meeting of stockholders to be held
on May 10, 1994, set forth certain information with respect to the directors,
nominees for election as directors and executive officers of the Company and
are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The sections entitled "Executive Compensation," "Option/SAR Exercises and
Holdings," "Executive Compensation and Development and Stock Option
Committees Interlocks and Insider Participation," "Retirement and Savings
Plan," "Termination of Employment Agreements" and the paragraph concerning
directors compensation in the section entitled "Board of Directors and
Committees" in the Company's proxy statement for the annual meeting of
stockholders to be held on May 10, 1994, set forth certain information with
respect to compensation of management of the Company and are incorporated
herein by reference, provided however, the information contained in the
sections entitled "Report on Executive Compensation by Committees" and "Stock
Performance Graph" are not incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Principal Shareholders and Management Ownership" in the
Company's proxy statement for the annual meeting of stockholders to be held
on May 10, 1994, set forth certain information with respect to the ownership
of the Company's voting securities and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Certain Transactions and Relationships" in the
Company's proxy statement for the annual meeting of stockholders to be held
on May 10, 1994, set forth certain information with respect to relations of
and transactions by management of the Company and is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
The response to this portion of Item 14 is submitted as a
separate section of this report.
(a)(2) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a
separate section of this report.
(a)(3) Exhibits
Exhibit 10 - Receivables Purchase Agreement dated as of
March 2, 1994, by and between ABF Freight System, Inc.,
Renaissance Asset Funding Corp. and Societe Generale.
Exhibit 11 - Statement Re: Computation of Per Share
Earnings (Loss)
Exhibit 22 - List of Subsidiary Corporations
Exhibit 23 - Consent of Independent Auditors
(b) Reports of Form 8-K
There were no reports filed on Form 8-K during the last
quarter of 1993.
(c) Exhibits
See Item 14(a)(3) above.
(d) Financial Statements Schedules
The response to this portion of Item 14 is submitted as a
separate section of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the underesigned, thereunto duly authorized.
ARKANSAS BEST CORPORATION
By: s/Donald L. Neal
--------------------------------
Donald L. Neal
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
s/William A. Marquard Chairman of the Board, Director 3/7/94
- ---------------------------- -------
William A. Marquard
s/Robert A. Young, III Director, Chief Executive Officer 3/9/94
- ---------------------------- and President (Principal --------
Robert A. Young, III Executive Officer)
s/Donald L. Neal Senior Vice President - Chief 3/9/94
- ---------------------------- Financial Officer (Principal --------
Donald L. Neal Financial and Accounting Officer)
s/Frank Edelstein Director 3/7/94
- ---------------------------- --------
Frank Edelstein
s/Arthur J. Fritz Director 3/4/94
- ---------------------------- --------
Arthur J. Fritz
s/John H. Morris Director 3/7/94
- ---------------------------- --------
John H. Morris
s/Alan J. Zakon Director 3/3/94
- ---------------------------- --------
Alan J. Zakon
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) and (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1993
ARKANSAS BEST CORPORATION
FORT SMITH, ARKANSAS
FORM 10-K -- ITEM 14(a)(1) and (2)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
ARKANSAS BEST CORPORATION
The following consolidated financial statements of Arkansas Best Corporation
are included in Item 8:
Consolidated Balance Sheets -- December 31, 1993 and 1992
Consolidated Statements of Operations -- Years ended December 31, 1993,
1992 and 1991
Consolidated Statements of Shareholders' Equity -- Years ended
December 31, 1993, 1992 and 1991
Consolidated Statements of Cash Flows -- Years ended December 31, 1993,
1992 and 1991
The following consolidated financial statement schedules of Arkansas Best
Corporation are included in Item 14(d):
Schedule V -- Property, Plant and Equipment
Schedule VI -- Accumulated Depreciation, Depletion and Amortization
of Property, Plant and Equipment
Schedule VIII -- Valuation and Qualifying Accounts
Schedule X -- Supplementary Income Statement Information
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and, therefore, have been
omitted.
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Arkansas Best Corporation
We have audited the accompanying consolidated balance sheets of Arkansas Best
Corporation and subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1993. Our
audits also included the financial statement schedules listed in the Index at
Item 14(a). These financial statements and schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Arkansas Best Corporation and subsidiaries at December 31, 1993 and 1992,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1993, in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedules, when considered in relation to the
basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
As discussed in Note C to the consolidated financial statements, in 1992 the
Company changed its revenue recognition method.
ERNST & YOUNG
Little Rock, Arkansas
January 28, 1994
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31
1993 1992
($ thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,962 $ 5,644
Trade receivables, less allowances for
doubtful accounts (1993 -- $2,200,000;
1992 -- $1,850,000) 104,598 89,057
Inventories -- Notes D and E 29,086 21,383
Prepaid expenses 9,916 8,367
--------- ---------
TOTAL CURRENT ASSETS 150,562 124,451
PROPERTY, PLANT AND EQUIPMENT --
(Notes C, E and I)
Land and structures 108,422 104,080
Revenue equipment 169,573 177,689
Manufacturing equipment 5,997 4,349
Service, office and other equipment 33,913 28,486
Leasehold improvements 8,096 6,648
--------- ---------
326,001 321,252
Less allowances for depreciation
and amortization (147,799) (139,559)
--------- ---------
178,202 181,693
OTHER ASSETS 12,839 14,111
GOODWILL, less amortization (1993 --
$16,267,000; 1992 -- $13,203,000) --
Note C 106,130 108,090
--------- ---------
$ 447,733 $ 428,345
========= =========
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31
1993 1992
($ thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank drafts payable $ 7,661 $ 6,729
Trade accounts payable 36,143 32,672
Accrued expenses -- Note F 71,278 69,693
Federal and state income taxes -- Note G 6,398 8,095
Deferred income taxes - Note G 3,503 5,503
Current portion of long-term debt -- Note E 15,239 28,348
--------- ---------
TOTAL CURRENT LIABILITIES 140,222 151,040
LONG-TERM DEBT, less current portion -- Note E 43,731 107,075
OTHER LIABILITIES 3,933 1,842
DEFERRED INCOME TAXES -- Note G 26,158 26,266
MINORITY INTEREST -- Note B 31,699 28,471
SHAREHOLDERS' EQUITY -- Notes A, H and P
Preferred stock, $.01 par value,
authorized 10,000,000 shares; issued
and outstanding 1993: 1,495,000 shares 15 -
Common stock, $.01 par value, authorized
70,000,000 shares; issued and outstanding
1993: 19,185,325 shares; 1992:
19,058,472 shares 192 191
Additional paid-in capital 206,457 133,279
Stock payable to employee benefit plans --
Note K 205 701
Predecessor basis adjustment -- Note A (15,371) (15,371)
Retained earnings (deficit) 10,492 (5,149)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 201,990 113,651
COMMITMENTS AND CONTINGENCIES
(Notes I, J, K and P)
--------- ---------
$ 447,733 $ 428,345
========= =========
See notes to consolidated financial statements.
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31
1993 1992 1991
($ thousands, except per share data)
OPERATING REVENUES
Carrier operations $ 893,504 $ 858,755 $ 797,405
Tire operations 111,585 96,254 83,193
Service and other 4,829 4,940 3,900
----------- ----------- -----------
1,009,918 959,949 884,498
OPERATING EXPENSES AND
COSTS -- Note L
Carrier operations 851,711 810,374 762,416
Tire operations 101,240 87,482 75,054
Service and other 5,598 4,838 3,905
----------- ----------- -----------
958,549 902,694 841,375
----------- ----------- -----------
OPERATING INCOME 51,369 57,255 43,123
OTHER INCOME
Gains (loss) on asset sales 2,509 2,127 (1,028)
Gain on sale of subsidiary
stock -- Note B - - 14,141
Other 465 533 626
----------- ----------- -----------
2,974 2,660 13,739
OTHER EXPENSES
Interest 7,248 17,285 34,421
Other 3,705 4,156 6,236
Minority interest in
subsidiary -- Note B 3,140 2,825 690
----------- ----------- -----------
14,093 24,266 41,347
----------- ----------- -----------
INCOME BEFORE INCOME TAXES,
EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 40,250 35,649 15,515
FEDERAL AND STATE INCOME
TAXES (CREDIT) --
Note G
Current 21,386 15,682 7,651
Deferred (2,108) 1,212 112
----------- ----------- -----------
19,278 16,894 7,763
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
Year Ended December
1993 1992 1991
($ thousands, except per share data)
INCOME BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $ 20,972 $ 18,755 $ 7,752
EXTRAORDINARY ITEM
Loss on extinguishments
of debt -- Notes A
and B (661) (15,975) (515)
CUMULATIVE EFFECT ON PRIOR
YEARS OF ACCOUNTING
CHANGE IN RECOGNITION OF
REVENUE (Note C) - (3,363) -
----------- ----------- -----------
NET INCOME (LOSS) $ 20,311 $ (583) $ 7,237
=========== =========== ===========
PER COMMON SHARE -- Notes C and H
Income before extraordinary
item and cumulative
effect of accounting
change $ .89 $ .99 $ .61
Extraordinary item:
Loss on extinguishments
of debt (.04) (.84) (.04)
Cumulative effect on prior
years of accounting
change in recognition of
revenue - (.18) -
----------- ----------- -----------
Net income (loss) $ .85 $ (.03) $ .57
=========== =========== ===========
CASH DIVIDENDS PAID PER
COMMON SHARE $ .04 $ .02 $ -
=========== =========== ===========
AVERAGE COMMON SHARES
OUTSTANDING --Note C 19,193,582 19,040,103 12,731,141
=========== =========== ===========
See notes to consolidated financial statements.
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
($ thousands)
Additional Stock Payable Predecessor Retained
Common Preferred Paid-In to Employee Basis Earnings Treasury
Stock Stock Capital Benefit Plans Adjustment (Deficit) Stock
Balances at January 1, 1991 $ 126 $ - $ 45,651 $ 2,636 $(15,371) $(11,333) $ -
Net income - - - - - 7,237 -
Issuance of common stock
to employee benefit
plans -- Note K 2 - 2,634 (2,636) - - -
Purchase of treasury
stock - - - - - - (43)
Stock payable to employee
benefit plans - Note K - - - 744 - - -
----- ---- -------- ------- -------- -------- ----
Balances at December 31, 1991 128 - 48,285 744 (15,371) (4,096) (43)
Net loss - - - - - (583) -
Issuance of common stock -
Note A 106 - 140,760 - - - -
Purchase of common stock
for employee benefit
plan - Note K - - - (744) - - -
Retirement of common stock (43) - (55,766) - - - 43
Stock payable to employee
benefit plans -- Note K - - - 701 - - -
Dividends paid - - - - - (470) -
----- ---- -------- ------- -------- -------- ----
Balances at December 31, 1992 191 - 133,279 701 (15,371) (5,149) -
Net income - - - - - 20,311 -
Issuance of common stock
to employee benefit
plans - Note K 1 - 1,299 (701) - - -
Stock payable to employee
benefit plans -- Note K - - - 205 - - -
Issuance of preferred
stock - Note H - 15 71,879 - - - -
Dividends paid - - - - - (4,670) -
----- ---- -------- ------- -------- -------- ----
Balances at December 31, 1993 $ 192 $ 15 $206,457 $ 205 $(15,371) $ 10,492 $ -
===== ==== ======== ======= ======== ======== ====
See notes to consolidated financial statements.
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
1993 1992 1991
($ thousands)
OPERATING ACTIVITIES
Net income (loss) $ 20,311 $ (583) $ 7,237
Adjustments to reconcile
net income (loss) to net
cash provided by operating
activities:
Loss on extinguishment
of debt 661 15,975 515
Cumulative effect of
accounting change in
method of revenue
recognition - 3,363 -
Depreciation and
amortization 28,266 34,473 39,755
Amortization of intangibles 3,064 3,034 3,024
Other amortization 319 755 2,290
Contribution of stock to
employee benefit plans 804 (43) 744
Provision for losses on
accounts receivable 1,902 2,343 2,945
Provision for deferred
income taxes (2,108) 1,212 112
(Gain) loss on asset sales (2,509) (2,127) 1,028
Gain on sale or issuance
of subsidiary stock (37) - (14,141)
Minority interest in
subsidiary 3,390 3,076 690
Changes in operating
assets and liabilities,
net of acquisition:
Accounts receivable (14,152) (12,172) (1,387)
Inventories and
prepaid expenses (5,985) (3,377) (797)
Other assets 1,859 (2,266) (3,881)
Accounts payable, bank
drafts payable, taxes
payable, accrued expenses
and other liabilities (193) 15,775 2,225
--------- --------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 35,592 59,438 40,359
INVESTING ACTIVITIES
Purchases of property,
plant and equipment,
less capitalized leases (13,692) (21,105) (7,528)
Proceeds from asset sales 10,839 10,417 3,461
Acquisition of Trans-World
Tire Corp. (2,500) - -
--------- --------- ---------
NET CASH USED BY
INVESTING ACTIVITIES (5,353) (10,688) (4,067)
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Year Ended December 31
1993 1992 1991
($ thousands)
FINANCING ACTIVITIES
Deferred financing costs
and expenses incurred in
borrowing activities $ (47) $ (721) $ (421)
Borrowings under revolving
credit facilities 35,000 40,000 40,000
Borrowings under term loan
facilities - 50,000 -
Principal payments under
term loan facility (50,000) - (37,158)
Payments under revolving
credit facilities (48,000) (53,000) (51,000)
Payments to retire 14%
senior subordinated notes (8,437) (135,507) -
Net proceeds from the
issuance of common stock - 140,868 -
Net proceeds from the
issuance of preferred stock 71,894 - -
Net proceeds from sale of
subsidiary stock - - 39,275
Principal payments on
other long-term debt (24,766) (35,613) (27,851)
Dividends paid to minority
shareholders of subsidiary (432) (429) -
Dividends paid (4,133) (470) -
Purchase of treasury stock - - (43)
Repurchase of common
stock -- Note H - (55,768) -
--------- --------- ---------
NET CASH USED BY
FINANCING ACTIVITIES (28,921) (50,640) (37,198)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,318 (1,890) (906)
Cash and cash equivalents
at beginning of year 5,644 7,534 8,440
--------- --------- ---------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 6,962 $ 5,644 $ 7,534
========= ========= =========
See notes to consolidated financial statements.
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993
NOTE A - ORGANIZATION, PUBLIC OFFERINGS AND DESCRIPTION OF BUSINESS
Arkansas Best Corporation (the "Company") is a diversified holding company
engaged through its subsidiaries primarily in motor carrier operations and
truck tire retreading and sales. The Company acquired its subsidiaries
pursuant to a cash tender offer on July 26, 1988. For financial statement
purposes, the acquisition was accounted for under the purchase method
effective July 26, 1988. Principal subsidiaries owned are ABF Freight
System, Inc., ("ABF"), Treadco, Inc. ("TREADCO"), and ABC Treadco, Inc. ("ABC
Treadco").
Due to the extent of management shareholders of the predecessor company
continuing their ownership interest in the Company subsequent to the 1988
acquisition, the equity interest of these management shareholders was valued
at the predecessor basis rather than at fair market value. Accordingly, the
new basis of reporting for the Company's net assets using fair market values
at the date of the acquisition was reduced by $15,371,000 to reflect the
carryover basis of the management shareholders.
In February 1993, the Company completed a public offering of 1,495,000 shares
of $2.875 Series A Cumulative Convertible Exchangeable Preferred Stock at $50
per share. The total net proceeds to the Company were approximately $71.9
million and were used to repay the $50 million term loan with Societe
Generale. This transaction resulted in a loss on extinguishment of debt of
$167,000 (net of income tax benefit of $103,000), which is reported as an
extraordinary item in the accompanying consolidated financial statements.
The Company completed an initial public offering of 15.7 million shares of
common stock at $14 per share (the "Offering") on May 13, 1992. The Company
sold 10.7 million shares with the remaining shares being sold by a
shareholder. The total net proceeds to the Company as a result of the
Offering were approximately $140.9 million and were used to repurchase $113.9
million of the Company's outstanding 14% Senior Subordinated Notes due 1998
(the "Notes") and to make premium and consent payments and pay certain other
related expenses. This transaction resulted in a loss on extinguishment of
debt of $15.9 million (net of income tax benefit of $9.7 million) which is
reported as an extraordinary item in the accompanying consolidated financial
statements.
Assuming the public offering had occurred on January 1, 1992, with the Notes
repurchased at that time, pro forma income before extraordinary items and
cumulative effect of accounting change would have been approximately
$22,902,000, or $.97 per share, for the year ended December 31, 1992. The
average shares outstanding used in this computation was 23,531,434, which
does not give consideration to the repurchase of 4,439,000 shares of Common
Stock in November 1992 (see Note H).
NOTE B - SALE OF SUBSIDIARY STOCK
In June 1991, TREADCO was organized as the successor to the tire business
previously conducted by ABC Treadco, a wholly owned subsidiary of the
Company. In 1991, TREADCO completed an initial public offering of 2,679,300
of its common shares for $16 per share. The Company recognized an $8.8
million gain (net of tax of $5.3 million) on the transaction. The net
proceeds of the offering were $39.3 million and were used to prepay
outstanding bank and intercompany debt. TREADCO incurred a loss on
extinguishment of debt of $.5 million (net of tax benefit of $.3 million) due
to the write-off of deferred financing costs, which is reported as an
extraordinary item in the accompanying consolidated financial statements. In
December 1993, ABC Treadco's investment in TREADCO was transferred to the
Company. As of December 31, 1993, the Company's percentage ownership of
TREADCO is 46%. The Company's consolidated financial statements continue to
consolidate the accounts of TREADCO, with the ownership interests of the
other stockholders reflected as minority interest, because the Company
continues to control TREADCO through stock ownership, board representation
and agreement to provide management services under a transition services
agreement.
Summarized condensed financial information for TREADCO is as follows:
December 31
1993 1992
($ thousands)
Current assets $50,950 $41,959
Property, plant and equipment, net 14,320 10,387
Other assets 16,162 14,175
------- -------
Total assets $81,432 $66,521
======= =======
Current liabilities $15,338 $12,463
Long-term debt and other 7,606 1,154
Stockholders' equity 58,488 52,904
------- -------
Total liabilities and stockholders' equity $81,432 $66,521
======= =======
1993 1992 1991
($ thousands)
Sales $113,277 $98,833 $84,740
Operating expenses and costs 103,671 90,417 77,044
Interest expense 195 51 2,810
Other (income) expense (252) (377) 594
Income taxes 3,832 3,471 1,780
Extraordinary loss - - 515
-------- ------- -------
Net income $ 5,831 $ 5,271 $ 1,997
======== ======= =======
On August 29, 1993, TREADCO purchased substantially all of the assets and
liabilities of Trans-World Tire Corporation Inc., a new and retread truck
tire operation. Assets of approximately $8.2 million and liabilities of
approximately $6.4 million were acquired for a purchase price of $2.9
million. A total of $1.1 million of goodwill was recognized in connection
with the purchase.
NOTE C - ACCOUNTING POLICIES
Consolidation: The consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation.
Cash and Cash Equivalents: Short term investments which have a maturity of
ninety days or less when purchased are considered cash equivalents.
Concentration of Credit Risk: The Company's services are provided primarily
to customers throughout the United States and Canada. The Company performs
ongoing credit evaluations of its customers and generally does not require
collateral. Historically, credit losses have not been significant.
Inventories: Inventories are stated at the lower of cost (first-in, first-
out basis) or market.
Property, Plant and Equipment: As of July 26, 1988, property, plant and
equipment was recorded at its estimated fair market value in connection with
the purchase described in Note A. Purchases of property, plant and equipment
subsequent to July 26, 1988 are recorded at cost. For financial reporting
purposes, such property is depreciated principally by the straight-line
method. For tax reporting purposes, accelerated depreciation or cost
recovery methods are used, with the assets' predecessor tax basis being used.
Gains and losses on asset sales are reflected in the year of disposal. Trade-
in allowances in excess of the book value of revenue equipment traded are
accounted for by adjusting the cost of assets acquired. Tires and tubes
purchased with revenue equipment are capitalized as a part of the cost of
such equipment, with replacement tires and tubes being expensed when placed
in service.
Goodwill: Excess cost over fair value of net assets acquired (goodwill) is
amortized on a straight-line basis over 15 to 40 years. The carrying value of
goodwill will be reviewed if the facts and circumstances suggest that it may
be impaired. If this review indicates that goodwill will not be recoverable,
as determined based on the undiscounted cash flows over the remaining
amortization period, the Company's carrying value of the goodwill would be
reduced by the estimated shortfall of cash flows. No reduction was required
for 1991 through 1993.
Income Taxes: Effective January 1, 1993, the Company adopted Financial
Accounting Standards Board Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("FAS 109"). As permitted under the new
rules, prior years' financial statements have not been restated. The Company
previously used the liability method required by FAS 96. The adoption of FAS
109 as of January 1, 1993, had no impact on income.
Under FAS 109, the liability method is used in accounting for income taxes.
Under this method, deferred income taxes relate principally to asset and
liability basis differences arising from the 1988 purchase transaction, to
the timing of the depreciation and cost recovery deductions previously
described and to temporary differences in the recognition of certain revenues
and expenses of carrier operations.
Revenue Recognition: Prior to 1992, carrier operating revenues were
recognized on the date the shipments were picked up from the customer, with
expenses recognized as incurred. In January 1992, the Emerging Issues Task
Force of the Financial Accounting Standards Board reached a consensus that
recognition of revenue for freight when picked up from the customer is no
longer an acceptable accounting method. As a result, the Company adopted a
new revenue recognition method effective January 1, 1992 whereby revenue is
recognized based on relative transit time in each reporting period with
expenses continuing to be recognized as incurred. This change in accounting
method resulted in a charge to earnings in the first quarter of 1992 having a
cumulative effect of approximately $3,400,000 (net of income taxes of
$2,000,000). Unaudited pro forma results of operations as though the Company
had adopted the change in accounting method as of January 1, 1991 and actual
information for comparison purposes are as follows:
1992 1991
($ thousands,
except per share amounts)
As reported in the
consolidated statements
of operations:
Income before
extraordinary item $18,755 $7,752
Earnings per common
share $ .99 $ .61
Net income (loss) $ (583) $7,237
Earnings (loss) per
common share $ (.03) $ .57
Pro forma amounts as though
the new revenue recognition
policy had been applied
retroactively:
Income (loss) before
extraordinary item $18,755 $8,253
Earnings (loss) per
common share $ .99 $ .65
Net income (loss) $ 2,780 $7,738
Earnings (loss) per
common share $ .15 $ .61
Earnings (Loss) Per Share: The calculation of earnings (loss) per share is
based on the weighted average number of common and common equivalent shares
outstanding during the applicable period and retroactively adjusted for the
effect of a March 1992 2.797 for 1 stock split in the form of a stock
dividend. (See Note H.) The calculation reduces income available to common
shareholders by preferred stock dividends paid or accrued during the period.
Accounting for Sales of Stock by Subsidiaries: It is the Company's policy to
recognize gains and losses on sales of subsidiary stock when incurred.
Claims Liabilities: The Company is self-insured up to certain limits for
workers' compensation, cargo loss and damage and certain property damage and
liability claims. Provision has been made for the estimated liabilities for
such claims as incurred.
Recently Issued Financial Accounting Standards: In November 1993, the
Financial Accounting Standards Board issued FAS 112, requiring accrual
accounting for non-accumulating postemployment benefits, such as disability
and death benefits instead of recognizing an expense for those benefits when
paid. The Company will be required to comply with the new rules beginning
January 1, 1994, using the cumulative effect method. The Company is
accumulating the necessary data to adopt the standard and does not anticipate
that adoption of this standard will materially impact net income in 1994.
NOTE D - INVENTORIES
December 31
1993 1992
($ thousands)
Finished goods $ 20,240 $ 14,626
Materials 6,784 4,528
Repair parts, supplies and other 2,062 2,229
-------- --------
$ 29,086 $ 21,383
======== ========
NOTE E - LONG-TERM DEBT AND CREDIT AGREEMENTS
December 31
1993 1992
($ thousands)
Term Loan Facility (1) $ - $ 50,000
Revolving Credit Facility (1) - 20,000
Treadco Credit Agreement (2) 7,000 -
Senior subordinated notes (3) - 7,950
Capitalized lease obligations (4) 49,419 55,894
Other 2,551 1,579
-------- --------
58,970 135,423
Less current portion 15,239 28,348
-------- --------
$ 43,731 $107,075
======== ========
(1) Term Loan and Revolving Credit Facilities: The Company and certain
banks are parties to a Credit Agreement with Societe Generale, as Agent and
NationsBank of Texas as Co-Agent (the "Credit Agreement") which provides
funds available under a three-year Revolving Credit Facility of $100 million,
including $40 million for letters of credit. There are no borrowings
outstanding under the Revolving Credit Facility and approximately $39 million
of letters of credit outstanding at December 31, 1993. The Revolving Credit
Facility is payable on June 30, 1996. The Credit Agreement also requires
mandatory prepayments to be made under certain circumstances, including the
sales of certain assets and net cash proceeds from the issuance of certain
equity or debt securities.
The Credit Agreement also, at December 1992, included a $50 million Term Loan
Facility. This facility was repaid with proceeds from the issuance of
preferred stock in February 1993 (see Note A).
The Company pays a commitment fee of 3/8% on the unused amount under the
Revolving Credit Facility.
Loans under the Credit Agreement bear interest at the Company's option, at a
rate per annum of either: (i) the greater of (a) the agent bank's prime rate
and (b) the Federal Funds Rate plus 1/2%; or (ii) LIBOR plus 1 1/2%.
The Credit Agreement contains various covenants which limit, among other
things, dividends, indebtedness, capital expenditures, loans and investments,
as well as requiring the Company to meet certain financial tests. As of
December 31, 1993, these covenants have been met. If there is an event of
default which is not remedied or waived within 10 days, the Credit Agreement
will become secured to the extent of amounts then outstanding of all of the
Company's receivables, revenue equipment, real property and TREADCO common
stock included in the borrowing base (subject to certain exceptions).
(2) 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 $12 million or the applicable borrowing base. Borrowings under the
TREADCO Credit Agreement are collateralized by accounts receivable and
inventory.
Borrowings under the agreement bear interest, at TREADCO's option, at 1%
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 December 31, 1993, the interest rate was
5%. At December 31, 1993, TREADCO had $7 million outstanding under the
Revolving 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.
(3) The Notes were redeemed during the year at a premium of 8.75% and 5.25%.
The balance of deferred financing costs were expensed. The total
extraordinary loss recognized with the repurchase was $494,000 (net of income
tax benefit of $310,000).
(4) Includes approximately $46,823,000 relative to leases of carrier revenue
equipment with an aggregate net book value of approximately $47,388,000 at
December 31, 1993. These leases have a weighted average interest rate of
approximately 8.3%. Also includes approximately $2,596,000 relative to
leases of various terminals and a data processing building expansion,
financed by Industrial Revenue Bond Issues, with a weighted average interest
rate of approximately 7.4%. The net book value of the related assets was
approximately $4,857,000 at December 31, 1993.
Annual maturities on long-term debt, excluding capitalized lease obligations
(see Note I), in 1994 through 1998 aggregate approximately $1,537,000;
$187,000; $7,125,000; $109,000 and $120,000, respectively.
Interest paid was $7,226,000 in 1993, $22,174,000 in 1992, and $36,385,000 in
1991.
NOTE F - ACCRUED EXPENSES
December 31
1993 1992
($ thousands)
Accrued salaries, wages and incentive plans $11,969 $15,521
Accrued vacation pay 21,074 19,284
Accrued interest 1,053 1,030
Taxes other than income 4,736 5,971
Loss, injury, damage and workers'
compensation claims reserves 29,229 25,588
Pension costs 989 763
Other 2,228 1,536
------- -------
$71,278 $69,693
======= =======
NOTE G - FEDERAL AND STATE INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets as of
December 31, 1993, are as follows (in thousands).
Deferred tax liabilities:
Depreciation and basis differences
for property, plant and equipment $19,277
Revenue recognition 4,182
Basis difference on asset and stock sale 3,037
Prepaid expenses 3,818
Equity in earnings of Treadco 1,064
-------
Total deferred tax liabilities 31,378
Deferred tax assets:
Accrued expenses 1,452
Uniform capitalization of inventories 154
Postretirement benefits other than pensions 111
-------
Total deferred tax assets 1,717
-------
Net deferred tax liabilities $29,661
=======
Significant components of the provision for income taxes are as follows:
Current:
Federal $18,263
State 3,123
-------
Total current 21,386
Deferred (credit):
Federal (1,786)
State (322)
-------
Total deferred (credit) (2,108)
-------
Total income tax expense $19,278
=======
Components of the provision for deferred income taxes are as follows:
Year Ended December 31
1992 1991
($ thousands)
Depreciation, capital leases
and gains on asset sales $ (603) $(1,661)
Sale of subsidiary stock - 3,791
Accrued expenses 762 (1,307)
Revenue recognition 522 (1,560)
Prepaid expenses 58 45
Revenue equipment tires 221 275
Deferred charges (545) 539
Equity in earnings of TREADCO 788 -
Other 9 (10)
------- -------
Deferred income tax expense $ 1,212 $ 112
======= =======
Deferred income taxes include deferred state income taxes, net of federal
benefits of $126,000 for 1992 and $12,000 for 1991.
A reconciliation between the effective income tax rate, as computed on income
before extraordinary items and the cumulative effect of an accounting change,
and the statutory federal income tax rate is presented in the following
table:
Year Ended December 31
1993 1992 1991
($ thousands)
Income tax at the statutory
federal rate of 35% for 1993
and 34% for 1992 and 1991 $14,088 $12,121 $ 5,275
Federal income tax effects of:
State income taxes (981) (812) (415)
Amortization of goodwill 1,058 1,003 1,028
Other nondeductible expenses 490 476 442
Minority interest 1,099 961 235
Undistributed earnings
of TREADCO 189 705 -
Rate difference for TREADCO (98) - -
Retroactive tax rate change
effect on deferred taxes 677 - -
Other (45) 53 (22)
------- ------- -------
Federal income taxes 16,477 14,507 6,543
State income taxes 2,801 2,387 1,220
------- ------- -------
$19,278 $16,894 $ 7,763
======= ======= =======
Effective tax rate 47.9% 47.4% 50.0%
======= ======= =======
Income taxes paid were $20,740,000 in 1993, $6,302,000 in 1992, and
$5,285,000 in 1991.
In August 1993, the Revenue Reconciliation Act of 1993 was enacted, which
required a retroactive increase in the corporate federal tax rate. This
resulted in an increase in the tax expense and a corresponding decrease in
net income of $828,000. The increase in the corporate federal tax rate was
accounted for in accordance with FAS 109.
The Company has a foreign tax credit carryover of approximately $100,000. If
unused, the foreign tax credit carryover expires in 1998.
Tax benefits of $320,000 for the 1991 extraordinary item are not included in
the amounts disclosed above.
NOTE H - SHAREHOLDERS' EQUITY
Preferred Stock. On February 19, 1993, the Company completed a public
offering of 1,495,000 shares of Preferred Stock at $50 per share. The
preferred stock 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 exchangeable, in whole or in part, at the option of the Company on any
dividend payment date beginning February 15, 1995, 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
Preferred Stock is redeemable at any time on or after February 15, 1996, in
whole or in part, at the Company's option, initially at a redemption price of
$52.0125 per share and thereafter at redemption prices declining to $50 per
share on or after February 15, 2003, plus unpaid dividends to the redemption
date. Holders of Preferred Stock have no voting rights unless dividends are
in arrears six quarters or more, at which time they have the right to elect
two directors of the Company until all dividends have been paid. Total
dividends paid during 1993 were $3,904,000.
Stock Split. On March 13, 1992, the Company's Board of Directors voted to
amend its Certificate of Incorporation to increase the Company's authorized
Common Stock, $.01 par value, from 9,000,000 to 70,000,000 shares. In
addition, the Company declared a 2.797 for 1 stock split of the Common Stock,
$.01 par value (effected in the form of a stock dividend of 1.797 shares on
each outstanding share). All references to share and per share data in the
accompanying consolidated financial statements have been retroactively
restated to give effect to the stock split.
Repurchase of Common Stock. On November 13, 1992, 4,439,000 shares of Common
Stock were repurchased from Kelso Best Partners, L.P. ("Kelso"), the
Company's largest shareholder. These were purchased at a cost of $12.50 per
share (a discount of $1.50 per share to the then quoted NASDAQ NMS sale
price). These shares were subsequently retired by the Company.
Stock Options. On March 13, 1992, the Company adopted a stock option plan
which provides 1,000,000 shares of Common Stock for the granting of options
to directors and key employees of the Company.
On May 1993, the Company adopted a disinterested directors stockholder plan,
which provides 225,000 shares of common stock for the granting of options to
directors who administer the Company's stock option plan and are not
permitted to receive stock option grants under such plan. These options are
exercisable at the date they are granted.
Option transactions are summarized as follows:
1993 1992
Options outstanding at the beginning
of the year 551,600 -
Options granted 37,500 551,600
Options cancelled - -
Options exercised - -
------- -------
Options outstanding as of December 31 589,100 551,600
======= =======
Option price range as of December 31 $9.50 to $10.87 $10.87
=============== ======
Options exercisable at December 31, 1993 132,820
=======
Shareholders' Rights Plan. Each issued and outstanding share of Common Stock
has associated with it one Common Stock purchase right to purchase a share of
Common Stock from the Company at a price of $60.00. Such rights are not
exerciseable until certain events occur as detailed in the rights agreement.
NOTE I - LEASES AND COMMITMENTS
Rental expense amounted to approximately $58,369,000 in 1993, $45,875,000 in
1992, and $42,130,000 in 1991.
The future minimum rental commitments, net of future minimum rentals to be
received under noncancelable subleases, as of December 31, 1993 for all
noncancellable operating leases are as follows ($ thousands):
Terminals Equipment
and Recap and
Period Total Plants Other
1994 $27,876 $ 8,630 $19,246
1995 19,496 6,474 13,022
1996 7,721 3,905 3,816
1997 3,189 1,950 1,239
1998 1,414 1,156 258
Thereafter 6,615 6,595 20
------- ------- -------
$66,311 $28,710 $37,601
======= ======= =======
Certain of the leases are renewable for substantially the same rentals for
varying periods. Future minimum rentals to be received under noncancellable
subleases totaled approximately $2,870,000 at December 31, 1993.
The future minimum payments under capitalized leases at December 31, 1993,
consisted of the following ($ thousands):
1994 $17,073
1995 15,403
1996 8,493
1997 4,718
1998 6,430
Thereafter 6,709
-------
Total minimum lease payments 58,826
Amounts representing interest 9,407
-------
Present value of net minimum lease
included in long-term debt - Note E $49,419
========
Assets held under capitalized leases are included in property, plant and
equipment as follows:
December 31
1993 1992
($ thousands)
Revenue equipment $ 84,882 $111,492
Land and structures 7,498 8,624
-------- --------
92,380 120,116
Less accumulated amortization 40,134 58,859
-------- --------
$ 52,246 $ 61,257
======== ========
The revenue equipment leases extend from two to seven years and contain
renewal or fixed price purchase options. The lease agreements require the
lessee to pay property taxes, maintenance and operating expenses. Lease
amortization is included in depreciation expense.
Capital lease obligations of $17,885,000, $5,491,000 and $11,841,000 were
incurred for the years ended December 31, 1993, 1992 and 1991, respectively.
Commitments for purchase of revenue equipment aggregated approximately
$31,327,000 at December 31, 1993.
Commitments for capital expenditures aggregate approximately $13,685,000 at
December 31, 1993, for construction of a new corporate office building.
The Company incurred annual fees of $300,000 in 1992, and $400,000 in 1991
for services rendered by Kelso. In 1992, an additional $1,000,000 was paid
to Kelso as an advisory fee in connection with the repurchase of the Notes.
The service agreement with Kelso was terminated effective December 31, 1992.
NOTE J - LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS
In August 1990, a lawsuit was filed in the United States District Court for
the Southern District of New York, by Riverside Holdings, Inc., Riverside
Furniture Corporation ("Riverside") and MR Realty Associates, L.P.
("Plaintiffs") against the Company and Treadco. Plaintiffs have asserted
state law, Employee Retirement Income Security Act of 1974 and securities
claims against the Company in conjunction with the Company's sale of
Riverside in April 1989. Plaintiffs are seeking approximately $4 million in
actual damages and $10 million in punitive damages. The Company is
vigorously contesting the lawsuit. After consultation with legal counsel,
the Company has concluded that resolution of the foregoing lawsuit is not
expected to have a material adverse effect on the Company's financial
condition.
Various other 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.
ABF stores some fuel for its tractors and trucks in approximately 103
underground tanks located in 27 states. Maintenance of such tanks is
regulated at the federal and, in some cases, state levels. ABF believes that
it is in substantial compliance with all such regulations. ABF 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 State Environmental Protection Agency ("EPA") that will
require ABF to upgrade its underground tank systems by December 1998. ABF
currently estimates that such upgrades, which are currently in process, will
not have a material adverse effect on the Company.
The Company has received notices from the EPA and others that it has been
identified as a potentially responsible party ("PRP") under the Comprehensive
Environmental Response Compensation and Liability Act or other federal or
state environmental statutes at several hazardous waste sites. After
investigating the Company's or its subsidiaries' involvement in waste
disposal or waste generation at such sites, the Company has either agreed to
de minimis settlements (aggregating approximately $210,000 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.
The Company remains responsible for certain environmental claims that arose
with respect to its ownership of Riverside prior to its sale in 1989.
Riverside was notified in 1988 that it has been identified as a PRP for
hazardous wastes shipped to two separate sites in Arkansas. To date, the
Company, as a part of a PRP group, has paid approximately $50,000 on
Riverside's behalf related to one site, with additional assessments expected
related to that site. Riverside was dismissed as a PRP from the second site
in March 1993. Management currently believes that resolution of its
remaining site is unlikely to have a material adverse effect on the Company,
although there can be no assurance in this regard.
NOTE K - EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries have noncontributory defined benefit pension
plans covering substantially all noncontractual employees. Benefits are
based on years of service and employee compensation. Contributions are made
based upon at least the minimum amounts required to be funded under
provisions of the Employee Retirement Income Security Act of 1974, with the
maximum amounts not to exceed the maximum amount deductible under the
Internal Revenue Code. The plans' assets are held in a common bank-
administered trust fund and are primarily invested in governmental and equity
securities. Additionally, the Company participates in several multiemployer
plans, which provide defined benefits to the Company's union employees. In
the event of insolvency or reorganization, plan terminations or withdrawal by
the Company from the multiemployer plans, the Company may be liable for a
portion of the plan's unfunded vested benefits, the amount of which, if any,
has not been determined.
A summary of the components of net periodic pension costs for the defined
benefit plans for the periods indicated and the total contributions charged
to pension expense for the multiemployer plans follows:
Year Ended December 31
1993 1992 1991
($ thousands)
Defined Benefit Plans
Service cost - benefits
earned during the year $ 4,225 $ 3,683 $ 2,891
Interest cost on projected
benefit obligations 5,675 5,162 4,580
Actual return on plan assets (6,656) (3,601) (8,137)
Net amortization and deferral 1,542 (1,851) 3,482
------- ------- -------
Net pension cost of defined
benefit plans 4,786 3,393 2,816
Multiemployer Plans 37,846 36,066 32,126
------- ------- -------
Total pension expense $42,632 $39,459 $34,952
======= ======= =======
Assumptions used in determining net periodic pension cost for the defined
benefit plans were:
Year Ended December 31
1993 1992 1991
Weighted average discount rate 8.49% 8.90% 9.84%
Annual compensation increases 5.00% 5.00% 5.00%
Expected long-term rates of
return on assets 9.25% 9.75% 9.75%
The following sets forth the funded status and amounts recognized in the
consolidated balance sheets for the Company's defined benefit pension plans
at December 31:
1993 1992
($ thousands)
Actuarial present value of benefit obligations:
Vested benefit obligation $(56,798) $(43,182)
======== ========
Accumulated benefit obligation $(65,303) $(50,414)
======== ========
Projected benefit obligation $(79,195) $(66,875)
Plan assets at fair value 68,515 61,724
-------- --------
Projected benefit obligation in excess
of plan assets (10,680) (5,151)
Unrecognized net loss 15,095 10,377
Prior service benefit not yet recognized
in net periodic pension cost 218 230
Unrecognized net asset at January 1, 1987,
net of amortization (73) (76)
-------- --------
Net pension asset $ 4,560 $ 5,380
======== ========
At December 31, 1993, the net pension asset is reflected in the accompanying
financial statements as an accrued expense of $989,000 and a noncurrent asset
of $5,549,000 included in other assets. At December 31, 1992, the net
pension asset is reflected in the accompanying financial statements as an
accrued expense of $763,000 and a noncurrent asset of $6,143,000 included in
other assets.
The following assumptions were used in determining the pension obligation:
December 31
1993 1992
Weighted average discount rate 7.24% 8.49%
Annual compensation increases 3.00% 5.00%
Expected long-term rates of return on assets 9.25% 9.75%
The Company has deferred compensation agreements with certain executives for
which liabilities aggregating $975,000 and $1,118,000 as of December 31, 1993
and 1992, respectively, have been accrued.
The Company has a supplemental benefit plan for the purpose of supplementing
benefits under the Company's retirement plans. The plan will pay sums in
addition to amounts payable under the retirement plans to eligible
participants. Participation in the plan is limited to employees of the
Company who are participants in the Company's retirement plans and who are
also either participants in the Company's executive incentive plan or are
designated as participants in the plan by the Company's Board of Directors.
As of December 31, 1993, the Company has a liability of $1,677,000 for future
costs under this plan with $934,000 reflected in the accompanying
consolidated financial statements as an accrued expense and $743,000 included
in other liabilities.
In July 1993, the Employee Stock Ownership Plan (the "ESOP") was merged with
the employees investment plan to create a new plan known as the Arkansas Best
Corporation Employees' Investment Plan (the "Investment Plan"). Participant
account balances were transferred from the ESOP to the Investment Plan. The
Investment Plan covers substantially all full-time, noncontractual employees
of the Company and its subsidiaries. The Investment Plan permits
participants to defer up to 15% of their salary by salary reduction as
provided in Section 401(k) of the Internal Revenue Code. The percentage of
Company match is set annually. In 1993, 1992 and 1991, up to 4% of a
participant's compensation contributed to the Investment Plan was matched by
a Company deposit of 25% of such contribution. The Company's matching
contribution can be made in cash or common stock of the Company. The
matching contributions charged to operations under the investment plans
totaled approximately $875,000 for 1993, $805,000 for 1992, and $784,000 for
1991. At December 31, 1993 and 1992, the contribution payable was reflected
as a component of shareholders' equity. In 1993, 67,813 shares were issued
in settlement of the 1992 contributions payable. The number of shares to be
issued in settlement of the 1993 contribution payable will be determined
based upon the market value of the shares at the date of settlement. Shares
were issued on a quarterly basis during 1993 for settlement of the 1993
liability. Total shares issued were 59,040.
In 1991, TREADCO established an employee stock ownership plan (the "TREADCO
ESOP") and a related trust (the "TREADCO Trust") covering substantially all
employees of TREADCO. The cost of the TREADCO ESOP is borne by TREADCO
through annual contributions to the TREADCO Trust in amounts determined by
TREADCO's Board of Directors. Contributions may be paid in cash or in shares
of TREADCO Common Stock. Participants become 100% vested after five years of
service from January 1, 1990. Distribution of balances normally would be
made in TREADCO's Common Stock. Charges to operations for contributions to
the TREADCO ESOP totaled $250,000 for 1993 and $250,000 for 1992. No
contributions were made to the TREADCO ESOP for 1991. The stock contributions
to the ESOP and investment plans do not have a material effect on earnings
per share.
The Company sponsors plans that provide postretirement medical benefits, life
insurance and accident and vision care to full-time officers of the Company.
The plan is noncontributory, with the Company paying up to 80% of covered
charges incurred by participants of the plan.
In 1993, the Company adopted FAS 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions." The effect of adopting the new
rules increased net periodic postretirement benefit cost by $275,000 and
decreased 1993 net income by $179,000. These costs are based on a 20-year
amortization of the transition obligation. Postretirement benefit costs for
prior years, which was recorded on a cash basis, have not been restated.
The following table represents the amounts recognized in the Company's
consolidated balance sheets:
December 31
1993 1992
Accumulated postretirement benefit obligation:
Retirees $ (1,354) $ (1,360)
Fully eligible active plan participants (489) (299)
Other active plan participants (1,159) (1,032)
-------- --------
(3,002) (2,691)
Unrecognized net loss 171 -
Unrecognized transition obligation 2,556 2,691
-------- --------
Accrued postretirement benefit cost $ (275) $ -
======== ========
Net periodic postretirement benefit cost includes the following components:
1993 1992
Service cost $ 53
Interest cost 223
Amortization of transition obligation
over 20 years 134
-------- --------
Net periodic postretirement benefit cost $ 410 $ 72
======== ========
The weighted-average annual assumed rate of increase in the per capita cost
of covered benefits (in health care cost trend) is 10.5% for 1994 (11.5% for
1993) and is assumed to decrease gradually to 4.5% in years 2006 and later.
The health care cost trend rate assumption has a significant effect on the
amounts reported. For example, increasing the assumed health care cost trend
rates by 1% in each year would increase the accumulated postretirement
benefit obligation as of December 31, 1993, by $444,000 and the aggregate of
the service and interest cost components of net periodic postretirement
benefit cost for 1993 by $41,000.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.24% at December 31, 1993.
Additionally, the Company's union employees are provided postretirement
health care benefits through multiemployer plans. The cost of such benefits
cannot be readily separated between retirees and active employees. The
aggregate contribution to the multiemployer health and welfare benefit plans
totaled approximately $45,400,000 for the year ended December 31, 1993.
NOTE L - OPERATING EXPENSES AND COSTS
Year Ended December 31
1993 1992 1991
($ thousands)
CARRIER OPERATIONS
Salaries and wages $594,213 $560,460 $517,597
Supplies and expenses 99,146 99,613 95,220
Operating taxes and licenses 35,152 32,697 31,863
Insurance 16,835 17,567 16,263
Communications and utilities 23,680 23,782 23,573
Depreciation and amortization 25,714 32,370 37,667
Rents 53,192 39,561 35,752
Other 3,779 4,324 4,481
-------- -------- --------
851,711 810,374 762,416
TIRE OPERATIONS
Cost of sales 79,718 69,070 59,367
Selling, administrative
and general 21,522 18,412 15,687
-------- -------- --------
101,240 87,482 75,054
SERVICE AND OTHER 5,598 4,838 3,905
-------- -------- --------
$958,549 $902,694 $841,375
======== ======== ========
NOTE M - BUSINESS SEGMENT DATA
The Company operates principally in two industries: carrier operations and
tire operations. Carrier operations include freight transportation services
as a common carrier of general commodities and import/export container cargo
between ports and inland points. These services are provided to a wide
range of customers in various industries. Tire operations include the cold-
cap retreading of truck tires and the sale of new tires primarily for
trucks.
Intersegment sales are not significant. Operating profit is total revenue
less operating expenses, excluding interest. Identifiable assets by
business segment include both assets directly identified with those
operations and an allocable share of jointly used assets. General corporate
assets consist primarily of cash and other investments.
The following information reflects selected business segment data
(information relative to revenues is reflected in the consolidated
statements of operations):
Year Ended December 31
1993 1992 1991
($ thousands)
OPERATING PROFIT (LOSS)
Carrier operations $ 41,645 $ 46,725 $ 29,945
Tire operations 10,186 8,767 6,484
Other (1,193) 267 (634)
-------- -------- --------
TOTAL OPERATING PROFIT 50,638 55,759 35,795
Gain on sale of subsidiary
stock - - 14,141
Interest expense 7,248 17,285 34,421
Minority interest 3,140 2,825 -
-------- -------- --------
INCOME BEFORE INCOME TAXES,
EXTRAORDINARY ITEMS AND
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE $ 40,250 $ 35,649 $ 15,515
======== ======== ========
IDENTIFIABLE ASSETS
Carrier operations $331,507 $332,604 $359,792
Tire operations 80,377 65,480 56,562
Other 10,008 8,139 10,746
-------- -------- --------
421,892 406,223 427,100
General corporate assets 25,841 22,122 19,998
-------- -------- --------
TOTAL ASSETS $447,733 $428,345 $447,098
======== ======== ========
DEPRECIATION AND AMORTIZATION
EXPENSE
Carrier operations $ 28,043 $ 35,284 $ 41,400
Tire operations 2,614 2,221 3,027
Other 992 757 642
-------- -------- --------
$ 31,649 $ 38,262 $ 45,069
======== ======== ========
CAPITAL EXPENDITURES
Carrier operations $ 26,530 $ 24,001 $ 17,103
Tire operations 6,137 2,339 2,129
Other 492 256 137
-------- -------- --------
$ 33,159 $ 26,596 $ 19,369
======== ======== ========
NOTE N - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and Cash Equivalents. The carrying amount reported in the balance sheet
for cash and cash equivalents approximates its fair value.
Long- and Short-term Debt. The carrying amounts of the Company's borrowings
under its revolving credit agreements approximate their fair values, since
the interest rate under these agreements is variable. Also, the carrying
amount of long-term debt was estimated to approximate their fair values.
The carrying amounts and fair value of the Company's financial instruments at
December 31, 1993 are as follows:
Carrying Fair
Amount Value
($ thousands)
Cash and cash equivalents $ 6,962 $ 6,962
Short-term debt 1,542 1,542
Long-term debt 8,009 8,009
NOTE O - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The tables below present unaudited quarterly financial information for 1993
and 1992:
1993
Three Months Ended
March 31 June 30 September 30 December 31
($ thousands, except per share amount)
Operating revenues $229,210 $244,622 $267,106 $268,980
Operating expenses
and costs 221,415 234,243 247,718 255,173
-------- -------- -------- --------
Operating income 7,795 10,379 19,388 13,807
Other expense - net 3,334 2,069 2,504 3,212
Income taxes 2,299 3,879 8,130 4,970
-------- -------- -------- --------
Income before extra-
ordinary item 2,162 4,431 8,754 5,625
Loss on extinguishment
of debt (167) (162) - (332)
-------- -------- -------- --------
Net income $ 1,995 $ 4,269 $ 8,754 $ 5,293
======== ======== ======== ========
Income per common share
before extraordinary
item $ .08 $ .18 $ .38 $ .24
Loss on extinguishment
of debt per common share (.01) (.01) - (.02)
-------- -------- -------- --------
Net income per common
share $ .07 $ .17 $ .38 $ .22
======== ======== ======== ========
Average common shares
outstanding 19,194,595 19,127,064 22,971,916 19,288,988
========== ========== ========== ==========
1992
Three Months Ended
March 31 June 30 September 30December 31
($ thousands, except per share amount)
Operating revenues $229,109 $241,690 $248,573 $240,577
Operating expenses
and costs 213,141 227,705 232,593 229,255
-------- -------- -------- --------
Operating income 15,968 13,985 15,980 11,322
Other expense - net 8,676 5,811 3,300 3,819
Income taxes 3,471 3,891 5,724 3,808
-------- -------- -------- --------
Income before extra-
ordinary item and
cumulative effect
of accounting change 3,821 4,283 6,956 3,695
Loss on extinguishment
of debt - (15,853) - (122)
Cumulative effect of
change in recognition
of revenue (3,363) - - -
-------- -------- -------- --------
Net income (loss) $ 458 $(11,570) $ 6,956 $ 3,573
======== ======== ======== ========
Income per share before
extraordinary item
and cumulative effect
of accounting change $ .30 $ .23 $ .30 $ .17
Loss on extinguishment
of debt per share - (.85) - -
Cumulative effect of
change in recognition
of revenue per share (26) - - -
-------- -------- -------- --------
Net income (loss)
per share $ .04 $ (.62) $ .30 $ .17
======== ======== ======== ========
Average shares out-
standing - Note H 12,800,000 18,549,906 23,514,918 21,298,471
========== ========== ========== ==========
PSCHEDULE V
PROPERTY, PLANT AND EQUIPMENT
ARKANSAS BEST CORPORATION
Column A Column B Column C Column D Column E Column F
Balance at Other changes -
beginning Additions add (deduct) - Balance at
Description of period at cost Retirements describe end of period
Year Ended December 31, 1993:
Land and structures
Land $ 38,204,261 $ 1,557,404 $ 32,936 $ (53,897)(D) $ 39,674,832
Structures 65,875,433 2,871,545 - - 68,746,978
------------ ------------ ------------ ------------ ------------
104,079,694 4,428,949 32,936 (53,897) 108,421,810
Revenue equipment 177,688,664 18,438,230(A) 26,553,976 - 169,572,918
Manufacturing equipment 4,348,835 1,634,635 735 14,500 (C) 5,997,235
Service, office and
other equipment 28,485,873 7,210,727(B) 1,768,346 (15,555)(C) 33,912,699
Leasehold improvements 6,648,063 1,447,512 - - 8,095,575
------------ ------------ ------------ ------------ ------------
$321,251,129 $ 33,160,053 $ 28,355,993 $ (54,952) $326,000,237
============ ============ ============ ============ ============
Year Ended December 31, 1992:
Land and structures
Land $ 36,359,413 $ 2,378,789 $ 533,941 $ - $ 38,204,261
Structures 63,923,462 2,061,509 487,587 378,049 (C) 65,875,433
------------ ------------ ------------ ------------ ------------
100,282,875 4,440,298 1,021,528 378,049 104,079,694
Revenue equipment 184,644,048 16,158,888(A) 23,114,272 - 177,688,664
Manufacturing equipment 3,755,071 642,970 49,206 - 4,348,835
Service, office and
other equipment 25,417,395 4,350,847(B) 1,282,369 - 28,485,873
Leasehold improvements 6,037,543 1,002,975 14,406 (378,049)(C) 6,648,063
------------ ------------ ------------ ------------ ------------
$320,136,932 $ 26,595,978 $ 25,481,781 $ - $321,251,129
============ ============ ============ ============ ============
Year Ended December 31, 1991:
Land and structures
Land $ 36,049,731 $ 309,682 $ - $ - $ 36,359,413
Structures 62,933,793 989,669 - - 63,923,462
------------ ------------ ------------ ------------ ------------
98,983,524 1,299,351 - - 100,282,875
Revenue equipment 179,179,721 12,912,815(A) 7,448,488 - 184,644,048
Manufacturing equipment 3,260,399 494,672 - - 3,755,071
Service, office and
other equipment 22,649,343 4,293,670(B) 1,525,618 - 25,417,395
Leasehold improvements 5,711,368 368,897 42,722 - 6,037,543
------------ ------------ ------------ ------------ ------------
$309,784,355 $ 19,369,405 $ 9,016,828 $ - $320,136,932
============ ============ ============ ============ ============
Note A - Primarily relates to revenue equipment replacement program.
Note B - Composed principally of the purchase of forklifts and other terminal
equipment by ABF Freight System, Inc., and the purchase of computer
equipment and office furniture and fixtures by all subsidiaries.
Note C - Transfers between accounts.
Note D - Transfer to other assets
Note E - The annual provisions for depreciation and amortization have been
computed principally using the following ranges of lives:
structures - 15 to 20 years; revenue equipment - 3 to 7 years;
manufacturing equipment - 5 to 8 years; service, office and other
equipment - 3 to 10 years; and leasehold improvements - 4 to 10 years.
SCHEDULE VI
ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
ARKANSAS BEST CORPORATION
Column A Column B Column C Column D Column E Column F
Additions
Balance at charged to Other changes -
beginning costs and add (deduct) - Balance at
Description of period expenses Retirements describe end of period
Year Ended December 31, 1993:
Structures $ 23,427,860 $ 4,627,625 $ - $ - $ 28,055,485
Revenue equipment 92,422,267 17,036,245 18,579,133 - 90,879,379
Manufacturing equipment 2,026,476 667,026 735 2,742 (A) 2,695,509
Service, office and
other equipment 17,318,262 5,037,586 1,445,201 (3,796)(A) 20,906,851
Leasehold improvements 4,364,421 897,827 - - 5,262,248
------------ ------------ ------------ ------------ ------------
$139,559,286 $ 28,266,309 $ 20,025,069 $ (1,054) $147,799,472
============ ============ ============ ============ ============
Year Ended December 31, 1992:
Structures $ 19,066,028 $ 4,611,334 $ 327,437 $ 77,935 (A) $ 23,427,860
Revenue equipment 84,129,754 24,087,149 15,794,636 - 92,422,267
Manufacturing equipment 1,523,344 524,366 21,234 - 2,026,476
Service, office and
other equipment 13,949,920 4,402,132 1,033,790 - 17,318,262
Leasehold improvements 3,608,549 848,213 14,406 (77,935)(A) 4,364,421
------------ ------------ ------------ ------------ ------------
$122,277,595 $ 34,473,194 $ 17,191,503 $ - $139,559,286
============ ============ ============ ============ ============
Year Ended December 31, 1991:
Structures $ 13,842,814 $ 5,223,214 $ - $ - $ 19,066,028
Revenue equipment 59,150,248 28,612,614 3,633,108 - 84,129,754
Manufacturing equipment 1,040,739 482,605 - - 1,523,344
Service, office and
other equipment 10,343,146 4,474,250 867,476 - 13,949,920
Leasehold improvements 2,672,671 962,534 26,656 - 3,608,549
------------ ------------ ------------ ------------ ------------
$ 87,049,618 $ 39,755,217 $ 4,527,240 $ - $122,277,595
============ ============ ============ ============ ============
Note A - Reclassification
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ARKANSAS BEST CORPORATION
Column A Column B Column C Column D Column E Column F
Additions
(1) (2)
Balance at Charged to Charged to
beginning costs and other accounts Deductions - Balance at
Description of period expenses describe describe end of period
Year Ended December 31, 1993:
Deducted from asset accounts:
Allowance for doubtful
accounts receivable $ 1,850,000 $ 1,901,958 $ 909,223(A) $ 2,461,181(B) $ 2,200,000
============ ============ ============ ============ ============
Year Ended December 31, 1992:
Deducted from asset accounts:
Allowance for doubtful
accounts receivable $ 1,460,924 $ 2,343,419 $ 1,167,842(A) $ 3,122,185(B) $ 1,850,000
============ ============ ============ ============ ============
Year Ended December 31, 1991:
Deducted from asset accounts:
Allowance for doubtful
accounts receivable $ 1,355,000 $ 2,944,786 $ 982,011(A) $ 3,820,873(B) $ 1,460,924
============ ============ ============ ============ ============
Note A - Recoveries of amounts previously written off.
Note B - Uncollectible accounts written off.
SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
ARKANSAS BEST CORPORATION
Column A Column B
Charged to costs
Item and expenses
Year Ended December 31
1993 1992 1991
Maintenance and repairs $44,011,699 $42,407,208 $40,382,430
Amortization of intangible
assets:
Amortization of goodwill (A) (A) (A)
Amortization of deferred
financing costs (A) (A) (A)
Taxes, other than payroll
and income taxes:
Fuel taxes 22,019,446 20,038,743 19,266,245
Property taxes (A) (A) (A)
Other (A) (A) (A)
Royalties None None None
Advertising costs (A) (A) (A)
Note A - Amount not presented, as such amounts are less than one percent of
total sales and revenues.
FORM 10-K -- ITEM 14(c)
LIST OF EXHIBITS
ARKANSAS BEST CORPORATION
The following exhibits are filed with this report.
Exhibit
No. Page
10 Receivables Purchase Agreement dated as of March 2, 1994,
by and between ABF Freight System, Inc., Renaissance
Asset Funding Corp. and Societe Generale. 73
11 Statement Re: Computation of Earnings per Share 175
22 List of Subsidiary Corporations 177
23 Consent of Independent Auditors 179