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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, 1995
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to ______________.
Commission file number 0-19969
ARKANSAS BEST CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 71-0673405
- ---------------------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3801 Old Greenwood Road, Fort Smith, Arkansas 72903
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 501-785-6000
------------
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
- -------------------------------------- -----------------------
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 [ ].
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 21, 1996, was $144,442,000.
The number of shares of Common Stock, $.01 par value, outstanding as of
March 21, 1996, was 19,515,758.
Documents incorporated by reference:
Portions of the proxy statement for the Arkansas Best Corporation annual
shareholders' meeting to be held May 9, 1996 are incorporated by reference
into Part III.
ARKANSAS BEST CORPORATION
FORM 10-K
TABLE OF CONTENTS
ITEM PAGE
NUMBER NUMBER
PART I
Item 1. Business 3
Item 2. Properties 23
Item 3. Legal Proceedings 24
Item 4. Submission of Matters to a Vote of Security Holders 24
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 25
Item 6. Selected Financial Data 26
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 29
Item 8. Financial Statements and Supplementary Data 39
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 39
PART III
Item 10. Directors and Executive Officers of the Registrant 40
Item 11. Executive Compensation 40
Item 12. Security Ownership of Certain Beneficial
Owners and Management 40
Item 13. Certain Relationships and Related Transactions 40
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 41
PART I.
ITEM 1. BUSINESS
(a) General Development of Business
Corporate Profile
Arkansas Best Corporation (the "Company") is a diversified holding company
located in Fort Smith, Arkansas. The Company is engaged through its motor
carrier subsidiaries in less-than-truckload ("LTL") and truckload shipments
of general commodities, through its freight forwarding and logistics
subsidiaries in intermodal marketing and freight logistics services and
through its 46%-owned subsidiary, Treadco, Inc. ("Treadco") in truck tire
retreading and new truck tire sales.
Historical Background
In 1988, the Company was acquired in a leveraged buyout
by a corporation organized by Kelso & Company, L.P. ("Kelso").
In 1992, the Company completed an initial public offering of Common Stock par
value $.01 (the "Common Stock") by the Company. The Company also repurchased
substantially all the remaining shares of Common Stock beneficially owned by
Kelso, thus ending Kelso's investment in the Company.
In 1993, the Company completed a public offering of 1,495,000 shares of
preferred stock ("Preferred Stock").
(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, 1995, which is submitted as a separate
section of this report.
(c) Narrative Description of Business
The Company
Acquisition
On July 14, 1995, ABC Acquisition Corporation (the "Purchaser"), a wholly
owned subsidiary of the Company, commenced a tender offer (the "Offer") to
purchase all outstanding shares of common stock of WorldWay Corporation
("WorldWay"), at a purchase price of $11 per share (the "Acquisition").
Pursuant to the Offer, on August 11, 1995, the Purchaser accepted for payment
shares of WorldWay validly tendered, representing approximately 91% of the
shares outstanding. On October 12, 1995, the remaining shares of WorldWay's
common stock were converted into the right to receive $11 per share in cash.
Principal subsidiaries of WorldWay included Carolina Freight Carriers Corp.
("Carolina Freight") and Red Arrow Freight Lines, Inc. ("Red Arrow"), which
were merged into ABF on September 24, 1995, Cardinal Freight Carriers, Inc.
("Cardinal"), G.I. Trucking Company ("G.I. Trucking"), CaroTrans
International, Inc. ("CaroTrans"), The Complete Logistics Company ("Complete
Logistics"), Innovative Logistics Incorporated ("ILI") and Carolina Breakdown
Service, Inc. ("Carolina Breakdown").
Employees
At December 31, 1995, the Company had a total of 18,459 employees of which
65% are members of a labor union.
Less-Than-Truckload Motor Carrier Operations
General
The Company's LTL motor carrier operations are conducted through ABF Freight
System, Inc. ("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")(collectively the "ABF System") and G.I.
Trucking Company.
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.
Competition, Pricing and Industry Factors
The trucking industry is highly competitive. The Company's LTL motor carrier
subsidiaries actively compete 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, most of
the principal motor carriers use similar tariffs to rate interstate
shipments. Competition for freight revenue, however, has resulted in
discounting which effectively reduces prices paid by shippers. In an effort
to maintain and improve its market share, the Company's LTL motor carrier
subsidiaries offer and negotiate various discounts.
The trucking industry, including the Company's LTL motor carrier
subsidiaries, 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.
ABF Freight System, Inc.
The largest subsidiary of the Company, ABF currently accounts for
approximately 69% of the Company's consolidated revenues and 94% of LTL
operations revenue. ABF has grown to become the fourth largest LTL motor
carrier in the United States from the forty-eighth largest in 1965, based on
revenues for 1995 as reported to the U.S. Department of Transportation
("D.O.T."). ABF provides direct service to over 98.5% of the cities in the
United States having a population of 25,000 or more. The ABF System provides
interstate and intrastate direct service to more than 38,500 points through
343 terminals 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 was incorporated
in Delaware in 1982 and is the 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, 1995, no single customer accounted for more than 3% of
ABF's revenues, and the ten largest customers accounted for less than 8% of
ABF's revenues.
International Markets
ABF-Canada and ABF-BC's Canadian operations are comprised of 14 terminals in
the provinces of Alberta, British Columbia, Manitoba, New Brunswick,
Newfoundland, Nova Scotia, Prince Edward Island, Ontario, and Quebec. In
addition, ABF maintains a national account sales office in Montreal. Also
available is simplified rating to and from Canada, similar to the zip-rating
program which ABF uses in the United States.
Through an alliance with one of Mexico's largest LTL specialists, ABF
provides motor carrier services to that country as well. This service gives
ABF customers a practically seamless operation featuring single-billing
including all freight charges, through-cargo claims liability and tracing,
diskette rating, voice-response rate quotes and shipment status, hazardous
materials service, and payment in either U.S. dollars or in Mexico pesos.
This service is offered to and from all points serviced through ABF tariffs
to and from specified points in Mexico. ABF has expanded its Mexico sales
and customer support staffs and maintains ABF sales offices in Mexico City,
Monterrey and Guadalajara.
Worldwide, ABF's international services offers less-than-containerload
service to 161 countries through 301 ports. In addition, ABF offers full-
containerload service to Europe, the United Kingdom and Ireland, Scandinavia,
the Baltic Region, South Africa, the Far East, Southeast Asia, Australia, New
Zealand, Ecuador, Peru, Chile, Brazil, Argentina, Uruguay and Paraguay.
Specialized Services
ABF has special programs for customers with unique needs. Once ABF agrees to
meet a customer's need, it becomes a requirement. ABF delivers quality by
conforming to requirements.
Through an alliance with Burnham Service Corporation, ABF's TurnKey service
provides customers a seamless, one-source transportation system featuring
door-to-door/through-the-door deliveries plus personalized unpack and set-up
services. ABF picks up the products from the shipper and delivers them to a
Burnham center nearest the consignee's address. From that point, Burnham
contacts the customer and arranges the most suitable delivery time. TurnKey
has one-call access, single-carrier liability, through-rates and one-source
invoicing. It uses the most sophisticated state-of-the-art satellite
communications, bar-coding technology, and computer linkage between ABF and
the customer for on-going up-to-the-minute status checks on shipments. The
service is available from any point served by the ABF system to any point in
the contiguous 48 states.
"TimeKeeper" is another in ABF's line of specialized services. TimeKeeper
provides the customer with a money-back guaranteed, expedited service in
those instances when a shipment absolutely must be delivered by a certain
day. TimeKeeper is a premium service that provides an option to air freight,
at rates that are lower than most air freight rates and other expedited
options.
ABF's "On-the-Date" Program (ON) was developed to meet the needs of its Just
In Time customers. Shipments will be delivered ON the ABF advertised due
date, not prior to the due date or after the due date. Under the "By-the-
Date" Program (BY) shipments will be delivered BY the ABF advertised due
date, not after the due date. ABF's "Between the Date" Program (BE) was
developed to meet the needs of customers who have delivery windows.
Shipments will be delivered between specific dates consistent with ABF
advertised transit times. Participating customers' delivery receipts display
special "ON", "BY" or "BE" flags indicating the delivery requirements.
ABF developed its Special Handling Program to meet the needs of customers
with unusual pickup, delivery or freight-handling requirements. Specific
handling requirements are stored in Q-Net, ABF's online communications
network, and are accessible by all terminals involved in the handling of a
shipment. Participating customers' delivery receipts display a special
"HANDL" flag.
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, 1995.
ABF Freight System, Inc.
Year Ended December 31
1995 1994 1993 1992 1991
(Unaudited)
Operating ratio 100.6% 96.4% 95.8% 94.9% 96.3%
Average length of haul (miles) 1,202 1,214 1,198 1,201 1,192
Employees (1) 14,728 11,876 10,719 10,545 10,184
Miles per gallon 6.32 6.32 6.12 5.87 5.65
Fuel cost per mile (2) $.084 $.085 $.094 $.110 $.116
Terminals (at end of period)(3) 334 322 323 317 320
Tractors
Road Tractors 2,060 1,498 1,385 1,385 1,385
City Tractors 2,928 2,483 2,469 2,474 2,368
Trailers
Road Trailers -- doubles 20,377 12,734 12,263 11,718 11,405
Road Trailers -- long 449 230 231 251 274
City Trailers 2,202 1,364 1,395 1,365 1,187
Less-than-Truckload (4)
Revenue (000's) $894,790 $797,393 $772,872 $748,470 $697,602
Percent of total revenue 89.0% 88.3% 88.3% 88.8% 89.1%
Tonnage (000's) 2,877 2,677 2,620 2,542 2,384
Percentage of total tonnage 77.5% 76.8% 76.5% 77.2% 78.5%
Shipments (000's) 5,465 4,935 4,948 4,899 4,793
Revenue per hundredweight $15.55 $14.89 $14.75 $14.72 $14.63
Average weight per shipment
(pounds) 1,053 1,085 1,059 1,038 995
Truckload
Revenue (000's) $110,530 $105,798 $102,635 $ 94,242 $ 85,013
Tonnage (000's) 836 809 807 752 654
Shipments (000's) 102 98 96 89 78
Revenue per hundredweight $6.61 $6.54 $6.36 $6.27 $6.50
Average weight per shipment
(pounds) 16,393 16,502 16,776 16,858 16,707
(1) At end of period for salaried employees and mid-December for hourly
employees.
(2) Excludes fuel tax per mile of $.069, $.067, $.071, $.073 and $.075 for 1991
through 1995, respectively.
(3) Does not include terminals of ABF-BC, ABF Canada, Land Marine and Cartage.
(4) Defined by the ICC as shipments weighing less than 10,000 pounds.
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.
Revenue Equipment
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. However, due to the
acquisition of WorldWay, ABF will not have to replace any revenue equipment
during 1996. As a result of the acquisition, ABF has excess revenue
equipment which will be sold during 1996.
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.
ABF's computerized maintenance program 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, 1995, ABF owned or operated the following revenue
equipment, which, excluding operating leases, had an aggregate net book value
of approximately $124.9 million:
Total No. Units by Model Year
of Units `96 `95 `94 `93 `92 `91 `90 Pre-'90
Intercity Tractors (1) 2,060 12 1,092 441 498 13 - 2 2
Intercity Trailers 449 - - - - - - 25 424
Intercity Trailers-Doubles (2) 20,377 - 802 500 955 918 1,984 1,119 14,099
Intracity Tractors (3) 2,928 119 478 217 323 335 385 476 595
Intracity Trailers 2,202 - - - - - - 25 2,177
Pickup/Delivery Trucks 92 - - 14 - 17 2 7 52
Converters (used to connect
two 28-foot trailers) 4,843 - 100 273 91 - 303 156 3,920
(1) Includes 1,668 tractors being leased under operating lease.
(2) Includes 921 trailers being leased under operating lease and 3,126 trailers
being leased under capitalized lease.
(3) Includes 1,070 tractors being leased under capitalized lease.
In 1995, under its equipment replacement program, ABF acquired 490 intercity
tractors, 390 intracity tractors and 800 trailers. Internally generated
funds, borrowings under the credit agreement and leases have been sufficient
to finance these additions.
Data Processing
The Company, through a wholly owned subsidiary, is able to provide timely
information, such as the status of all shipments in the system at any given
point in time, that assists operating personnel and aids marketing efforts of
ABF. ABF continues to develop its on-line Freight Management System (FMS)
aimed at perfecting both service to customers and internal cost controls.
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 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 transactions 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. ABF originated diskette
rating and, in management's opinion, continues to set the industry standard.
Q-Rate provides North American rating on diskette. In addition to supporting
the ABF tariffs, information regarding coverage, transit times, and mileage
is provided. ABF Q-Fax is the newest member to the Q-Family. Q-Fax provides
tracking and tracing information to shippers without the computer
sophistication to utilize Q-Info or Q-EDI. Customized reports showing
shipment activity are faxed directly from ABF's mainframe computer to the
customer's facsimile machine.
ABF has in place several programs which continually assess various functions
deemed critical to service and/or costs, and include the Delivery Backlog
Report, Manning Strategy Model, Outbound Backlog Report, Tardy Spots Report,
and Inbound Break Analysis. They are generated only when exceptions are
detected, which gives ABF automatic controls. When exceptions occur, these
controls allow management to react quickly and decisively, preventing
exceptions from becoming problems without having to sift through reams of
data.
ABF's customer database management system, AIMS (Account Information
Management System) provides a centralized management tool for maintaining
customer information. For example, a file of customer receiving requirements
is maintained in AIMS. AIMS can be accessed on-line by all ABF general office
departments and terminals.
The service bureau is staffed with 214 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 shippers.
Employees
At December 31, 1995, ABF employed 14,728 persons. Employee compensation and
related costs are the largest components of LTL motor carrier operating
expenses. In 1995, such costs amounted to 71.6% of LTL operations revenues.
ABF is a signatory with the Teamsters to the National Master Freight
Agreement (the "National Agreement") which became effective April 1, 1994,
and expires March 31, 1998. Under the National Agreement, employee wages and
benefits increased an average of 2.7% and 3.3% annually during 1994 and 1995,
respectively, and will increase an average of 3.8% on April 1, 1996 and 3.9%
on April 1, 1997. 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 81% of ABF's employees are unionized, of whom approximately 1%
are members of unions other than the Teamsters.
Four of the five largest LTL carriers are unionized and generally pay
comparable wages. Non-union companies typically pay employees less than
union companies.
Since December 1989, the D.O.T. has required ABF and other domestic motor
carriers to implement drug testing programs for their truck drivers. In 1991,
ABF implemented a random testing program to cover its entire driver work
force. ABF performs testing as required by the federal government at an
average rate of 50% annually of its driver work force. Statistics for 1995
indicate that ABF has administered 4,520 random, biennial re-certification
and post-accident tests to its employees, with a pass rate of 99.3%
Beginning January 1, 1995, the D.O.T. required the implementation of alcohol
testing in conjunction with the existing drug testing program. As required by
the D.O.T., in 1995 ABF tested its drivers for alcohol use at an average rate
of 25% annually. The ABF drivers' pass rate for random and post-accident
alcohol testing in 1995 was 99.8%.
Due to its national reputation and its high pay scale, ABF 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's motor carrier subsidiaries are
effectively 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. 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.
ABF 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 25 years. ABF was awarded the ATA's President's Trophy in 1993, 1989
and 1984. The President's Trophy is awarded to the company with the most
outstanding safety program. Of the ABF general commodities shipments handled
during the year ended December 31, 1995, more than 99% were free of any cargo
claim, and of those having cargo claims, 88% 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
1995 1994 1993 1992 1991
Linehaul miles (000) per DOT
linehaul accident (1) 1,951 2,201 1,868 1,962 1,816
Selected categories of insurance
expense as a percent of revenue:
Cargo loss and damage claims 1.20% 1.14% 1.00% 0.94% 1.03%
Public liability .79 0.82 0.86 1.08 0.98
Workers' Compensation 1.92 1.87 1.79 1.83 2.00
----- ----- ----- ----- -----
Total 3.91% 3.83% 3.65% 3.85% 4.01%
===== ===== ===== ===== =====
(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.
G.I. Trucking Company
Headquartered in La Mirada, California, G.I. Trucking is a non-union regional
LTL motor carrier. G.I. Trucking provides transportation services and
coverage throughout 13 Western states and the Western Canadian provinces of
Alberta and British Columbia, as well as service to Hawaii and Alaska. One-
to three-day regional service is provided through 52 service centers.
Transcontinental service is facilitated through a partnership with two other
regional carriers providing service through six major hub terminals located
throughout the Midwest and East Coast. Customer service is enhanced through
EDI communications between partners, allowing for single pro tracing,
invoicing and a full range of other EDI and information management services.
G.I. Trucking's Hawaiian container operation, located in La Mirada, provides
excellent transit times to the Islands. Service to points in Alaska and
Western Canada is provided through the company's new facility in Seattle,
Washington.
G.I. Trucking's linehaul structure utilizes company solo drivers, company
sleeper teams, contract power and one-way carriers, providing total
flexibility in maintaining superior service and lane balance.
Employees
At December 31, 1995, G.I. Trucking had a total of 806 employees.
Truckload Operations
Cardinal Freight Carriers, Inc.
Cardinal is an irregular route carrier providing dry van and flatbed service
throughout the eastern two-thirds of the United States and Canada.
Headquartered in Concord, North Carolina, Cardinal operates via a central
dispatch system utilizing a state-of-the-art computer system. Cardinal has
grown from 14 company-owned power units in 1981 to more than 600 tractors in
the van division and over 100 tractors in the flatbed division. The trailer
fleet consists of 1,169 53-foot vans and 117 48-foot and 45-foot aluminum
flatbeds. The fleet is one of the most modern in the industry, averaging
just under two years old.
Cardinal's services, both van and flatbed, can be labeled as interregional.
Cardinal's system averages 530 miles per trip, providing next day, on-time
service that patterns today's manufacturing and distribution system of closer
proximity to their customer base. With the flexibility for both long-haul
and short-haul, Cardinal offers one-thousand-mile plus service, along with
regional length of haul, including intrastate service in 11 states. Cardinal
has a facility network consisting of 6 locations to perform timely preventive
maintenance to better ensure safety in the community and equipment
reliability.
Cardinal operates in a competitive and highly service-sensitive market and
therefore, is committed to providing its customers with premier quality
service. Cardinal's customers have defined a premier quality service as on-
time, claim-free pickups and deliveries, accurately invoiced, and thorough
communications, along with information support technology.
During 1995, Cardinal's largest customer accounted for 14% of Cardinal's
revenues and the ten largest customers accounted for 45% of Cardinal's
revenue.
Forwarding Operations
General
The Company's forwarding operations are conducted through Clipper Exxpress
Company ("Clipper"), Agricultural Express of America, Inc. ("AXXA"), Agile
Freight System, Inc. ("Agile"),(collectively known as the "Clipper Group")
and CaroTrans International, Inc. ("CaroTrans").
The Clipper Group
The Clipper Group is a non-asset, non-labor intensive, knowledge-based
provider of transportation and logistics services. Through the three closely
integrated operating companies, the Clipper Group provides a full range of
transportation services. Clipper is the largest consolidator and forwarder
of LTL shipments and one of the largest intermodal marketing companies
("IMC") in the United States. AXXA provides high quality temperature-
controlled intermodal service to fruit and produce brokers, growers, shippers
and receivers and supermarket chains, primarily from the West to the Midwest,
Canada, and the eastern United States. Agile provides "near air freight"
truckload service in tightly focused lanes and also provides some line-haul
transportation for Clipper's LTL consolidation service.
Clipper Exxpress Company
Clipper, founded in 1938, is the largest of the three Clipper Group
companies. Clipper accounted for approximately 62% of the Company's
forwarding operations revenues during the fourth quarter of 1995. Clipper
provides contract freight management and LTL freight forwarding services to
its customers.
Clipper's executive offices are located in Lemont, Illinois ( a suburb of
Chicago) and its 38 branch offices are dispersed throughout the United
States. At December 31, 1995, Clipper employed 189 persons (comprised of 53
sales representatives, 68 administrative personnel and 68 operations
personnel).
Contract Freight Management. Through its contract freight management
business unit, Clipper provides logistics and transportation services,
including intermodal and truck brokerage, warehousing, consolidation,
transloading, repacking, and other ancillary services.
As an IMC, Clipper arranges for loads to be picked up by a drayage company,
tenders them to a railroad, and then arranges for a drayage company to
deliver the shipment on the other end of the move. Clipper's role in this
process is to select the most cost-effective means to provide quality
service, and to expedite movement of the loads at various interface points to
ensure seamless door-to-door transportation.
Clipper's substantial volume of consistently high margin traffic is extremely
attractive to its railroad partners. As a result, Clipper has been able to
enter into contracts with major railroads and stack train operations that
contain very competitive rates.
LTL Freight Forwarding. Clipper is one of the nation's oldest and largest
LTL freight forwarders. Its collection and distribution network consists of
38 geographically dispersed locations throughout the United States.
Selection of markets depends on size (lane density), availability of quality
rail service and truck line-haul service, length of haul and competitor
profile. Traffic moving between its ten most significant market pairs
generates approximately 37% of Clipper's LTL revenue. Virtually all of
Clipper's LTL revenue is derived from long-haul, metro area to metro area
transportation.
Clipper's specific strategy for the LTL forwarding business is to provide
expedited LTL transportation service only between major markets within the
United States. It has chosen not to serve the regional markets or where
freight volume is limited. In addition, Clipper concentrates its sales and
marketing efforts in the close-in metro areas in the major cities that it
serves. This strategy helps reduce Clipper's pickup and delivery costs and
assures that LTL freight picked up by Clipper's agent is available for
outbound loading on the same day. Additionally, this strategy allows Clipper
to quickly build sufficient lane density to ship directly to destination
terminals. With the effective use of reliable rail service and trucks with
two driver teams, Clipper can provide customers a significant improvement in
transit time.
Rather than hiring its own employees and owning transportation equipment,
Clipper uses independent agents to pick up, sort, and consolidate LTL
shipments into truckload shipments. A truckload carrier or premium service
intermodal train will then linehaul the consolidated truckload to a
destination terminal where another agent will deconsolidate the line-haul
trailer and deliver its contents to the ultimate consignees.
Although pickup and delivery and terminal handling is performed by agents,
Clipper has an operations and customer service staff located at or near the
agent's terminal to monitor service levels and provide an interface between
customers and agents.
Because Clipper enters new markets without a large financial commitment and
with only a few company employees, it is able to constantly explore new ideas
without significant risk and to quickly take advantage of new opportunities.
The Clipper Group serves a diverse base of more than one thousand shippers
with which it strives to establish long-term relationships. These efforts
have had positive results as evidenced by the fact that many of Clipper's
customers have been doing business with Clipper for more than 15 years.
Clipper's customers are a diverse group, with no concentration in any
particular industry. During the year ended December 31, 1995, no single
customer accounted for more than 7% of Clipper's revenues, and the ten
largest customers accounted for less than 18% of Clipper's revenues.
Advanced information systems. Clipper has recently invested significant
resources into its information systems. This new MIS system enables Clipper
to coordinate and track the performance of different phases of each movement.
It will also enable Clipper to provide EDI linkages with its customers and
suppliers in the near future. Clipper was the first IMC to achieve mainframe-
to-mainframe EDI linkage with Conrail.
Agricultural Express of America, Inc. (D/B/A Clipper Controlled Logistics)
AXXA owns 436 temperature-controlled trailers that it deploys in the seasonal
fruit and vegetable markets. These markets are carefully selected in order
to take advantage of various seasonally high rates which peak at different
times of the year. By focusing on the spot market for produce transport,
AXXA is able to generate on average, a higher revenue per load compared to
standard temperature-controlled carriers that pursue more stable year round
temperature-controlled freight.
AXXA has also achieved lower cost than these competitors because it utilizes
railroads for the line-haul segment of the shipment. AXXA and Clipper are
closely integrated, with Clipper relying on AXXA equipment to move its
westbound freight, particularly during the winter months. AXXA counts on
Clipper to reload its equipment promptly to harvest areas, especially during
the peak produce season.
Because a large percentage of produce is usually harvested during certain
short periods of time, dependable equipment availability is one of the most
important factors that shippers consider. In addition, companies in this
niche have difficulty achieving high utilization of their fleets due to the
cyclical nature of the business, the geographical shifting of loading points
as different crops mature and the challenge of finding backhauls to harvest
areas. Consequently, the supply of specialized temperature-controlled
equipment can be rather limited during harvest season, often resulting in
severe equipment shortages. Thus, customers are willing to pay high rates
during the peak months of June and July to secure the necessary equipment.
AXXA has a distinct competitive advantage because it is able to generate a
higher rate of equipment utilization by obtaining backhauls through Clipper's
38-office network.
AXXA's reputation for integrity, combined with its strong financial
condition, has earned it the highest rating from both the Blue Book and the
Red Book, the two primary produce industry rating journals for the produce-
hauling markets. These ratings are compiled from survey feedback given by
the trade to the two rating agencies, and are evidence of the shipper's level
of confidence of AXXA.
Agile Freight System, Inc. (D/B/A Clipper Highways Services)
Agile is a non-asset intensive, premium service, long-haul truckload carrier
that utilizes two-person driver teams provided primarily by owner-operators.
Agile operates in tightly focused long-haul lanes that originate or terminate
near a Clipper market. Much of Agile's value to the Clipper Group is that it
can be relied upon if other carriers are not available to move full
truckloads of consolidated LTL shipments by Clipper.
CaroTrans International, Inc.
CaroTrans is a neutral, non-vessel operating common carrier ("NVOCC")
providing import and export, door-to-door and door-to-port service to more
than 140 countries with 225 ports of discharge. Headquarted in Cherryville,
North Carolina, CaroTrans is considered one of the largest NVOCC's in the
world offering more destinations by a "master loader" than any other NVOCC.
One of CaroTrans' strengths is its North American office and receiving
network. Through sales offices in Los Angeles, Houston, New Orleans,
Atlanta, Erie, Cincinnati, Boston, New York, Baltimore, Norfolk, Charleston,
Charlotte, Jacksonville, Orlando, Miami, Toronto, Mexico City, Guadalajara
and Monterrey, CaroTrans serves thousands of shippers, receivers and freight
forwarders. CaroTrans truly covers the continent with experienced,
knowledgeable international personnel.
CaroTrans offers 23 ocean bills of lading via North American receiving
stations located in San Francisco, Los Angeles, Houston, Mexico City,
Guadalajara, Monterrey, New Orleans, Chicago, St. Louis, Miami, Jacksonville,
Savannah, Atlanta, Charleston, Charlotte, Norfolk, Baltimore, Cleveland,
Philadelphia, New York, Boston, Toronto and Montreal. The ability to offer
such a large number of bills of lading reduces the shipper's cost, since the
inland transport is shorter and closer to the actual point/port where ocean
containers are loaded.
In addition to being one of the largest less-than-containerload carriers in
the world, CaroTrans also offers a full containerload service which is
coordinated, quoted and booked through the Cherryville headquarters.
CaroTrans also provides its customers with E-Sea Sail, a state-of-the-art
software package designed for international shipping. This revolutionary
system allows the customer to obtain quick rate quotations, verify sailing
schedules, obtain a copy of a booking and generate copies of ocean bills of
lading. It is anticipated that in the near future, overseas offices and
agents will have direct access to E-Sea Sail to electronically extract
documents.
Overseas, CaroTrans is recognized as a leader in international shipping
between North America and many worldwide destinations. CaroTrans maintains
offices in Rotterdam, Holland; London and Liverpool, United Kingdom;
Singapore and San Juan. These strategically located offices direct the
operations and sales activities of the carefully selected agents within its
geographic region.
Logistics Operations
The Complete Logistics Company
The Complete Logistics Company is a logistics organization dedicated to
providing supply chain management to its customers, including such services
as equipment leasing, logistics modeling, communications networks, warehouse
management, consolidation and cross-dock facilities, computerized routing,
and experienced drivers, dock workers, supervisors, and clerical staff. All
services are controlled through an integrated computer system which allows
Complete Logistics to administer all services provided in a seamless manner.
As an asset-based, third-party, single-source logistics company, Complete
Logistics has the capability to manage and coordinate a customer's logistics
resources to meet their competitive requirements. Complete Logistics listens
carefully to a customer's needs and then offers a range of customized options
designed to give the customers control over their costs and performance.
Once a customer has selected the services they want, Complete Logistics works
closely with them to guarantee the smoothest possible transition. Ongoing
success is ensured by maintaining constant communication and a close working
partnership with the customer.
Innovative Logistics Incorporated
Innovative Logistics Incorporated is a management-based third party logistics
service provider. ILI offers freight bill audit/payment and reporting,
logistics modeling, inventory warehouse/in-transit control systems, and
dynamic shipment rating and dispatch systems.
In addition, ILI provides transportation management services, EDI/systems
management, and warehouse management services. As a licensed property broker
and non-vessel operating common carrier, Innovative Logistics offers
nationwide truckload and intermodal services and international full container
services to its clients.
ILI supports its clients by performing logistics management services. ILI
will identify and contract with qualified carriers and warehouse providers,
manage their utilization and provide integrated logistics information
systems.
ILI's mission is to (1) provide innovative and value-added services for
clients who wish to outsource their transportation and warehousing
operations, (2) establish long-term partnering relationships with clients to
provide cost-effective and efficient services in a quality manner, and (3)
work seamlessly with clients to the extent Innovative is viewed as another
operating department within the client's organization.
Integrated Distribution, Inc.
Integrated Distribution is a logistics company that manages the flow of goods
and related information. Integrated Distribution's services include
truckload and large LTL transportation, customized handling, freight
consolidation, contract and public warehousing, and logistics.
Transportation services are aimed at pickup and delivery of truckload and
large LTL shipments. Integrated's trucks are equipped with satellite
tracking and communications so that a customer always knows the location of
their product. An in-house licensed brokerage service supplements the
carrier operations.
Through its customized handling of a customer's product, Integrated
Distribution adds value by cross-docking, building store-ready displays,
making final assemblies, applying bar code and price labels, and packaging.
Integrated Distribution offers freight consolidation for membership clubs,
grocery chains and distributors, and mass merchandisers. Integrated's
program offers scheduled deliveries of LTL shipments with the economy of
truckload rates.
Integrated Distribution locates warehouses in major distribution cities and
supports EDI, bar codes, and RFID.
Logistics services include development and implementation of the optimal
solution for a customer's distribution requirements using owned or
subcontracted assets.
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 currently account for approximately 10% of the Company's
consolidated revenues and are divided approximately 54% and 46% between
retread sales and new tire sales, respectively. In 1995, Treadco sold
approximately 633,000 retreaded truck tires and approximately 394,000 new
tires.
After opening sales facilities in Fulton, Kentucky and Ft. Pierce, Florida
during the first quarter of 1996, Treadco has a total of 51 locations
positioned across the South, Southwest, lower Midwest and West. Treadco
retreads truck tires at 28 production facilities located in Arizona,
Arkansas, Florida, Georgia, Louisiana, Missouri, Nevada, Ohio, Oklahoma and
Texas. The remaining 23 locations are sales facilities located in the states
listed above as well as California, Kansas, Kentucky, Mississippi and
Tennessee.
Retreading truck tires is significantly less expensive than buying new truck
tires (about one-third of the cost) and retreaded tires generally last as
long as new tires used in similar applications. Moreover, most tire casings
can be retreaded one or two times. Treadco's average retail charge for
retreading a customer's casing is approximately $85, compared to an average
retail selling price of approximately $235 for a new tire. Treadco also
sells retreads including casings not supplied by the customer for
approximately $167 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,
Kumho, and other manufacturers. According to Bridgestone and Dunlop, Treadco
is their largest domestic truck tire dealer, and according to Michelin,
Treadco is one of its largest domestic truck tire dealers.
Precure Retread Process
In August 1995, Bandag, Treadco's tread rubber supplier and franchiser of the
retreading process used by substantially all of Treadco's locations,
announced that certain franchise agreements would not be renewed upon
expiration in 1996. Bandag subsequently advised Treadco that unless Treadco
uses the Bandag process exclusively, Bandag would not renew any of Treadco's
franchise agreements when they expire.
In October 1995, Treadco announced it had reached an agreement with Oliver
Rubber Company to be a supplier of equipment and related materials for
Treadco's truck tire precure retreading business. The agreement provides
that Oliver will supply Treadco with retreading equipment and related
materials for the eight production facilities whose Bandag franchises expire
in 1996 and any other Treadco facilities which cease being a Bandag
franchise.
Under the Oliver license agreements, Treadco will purchase from Oliver
precured tread rubber and bonding cushion gum and PNEUFLEX tread rubber
(collectively "Rubber Products"). Treadco's obligation to purchase Rubber
Products from Oliver is subject to (i) Oliver's continuing to produce Rubber
Products of no less quality and durability than it presently produces, and
(ii) Oliver's overall pricing program for Treadco.
Treadco converted its Little Rock (AR), Pine Bluff (AR), West Memphis (AR)
and Phoenix (AZ) Bandag franchises to Oliver licensed facilities during the
first quarter, 1996. Based on Treadco's current plans, all remaining Bandag
franchises will convert to the Oliver process by the end of the third
quarter, 1996.
Mold Cure Retread Process
On February 1, 1996, Treadco gained Bridgestone certification to produce and
sell the ONCOR remanufactured tires at its St. Louis (MO) production
facility. This is the first plant in the United States using Bridgestone's
"ONCOR Tread Renewal System". However, the Bridgestone mold cure process has
been used for many years outside the United States, predominately in Japan.
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, Southwest 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 ABF or
other affiliates, represented more than 2% of Treadco's revenues for 1995.
ABF accounted for approximately $2.6 million of Treadco's revenues in 1995
(1.8%), and has not accounted for more than 3% of Treadco's revenues in any
of 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 28 production
facilities and, in addition, through 23 sales locations. These 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 mobile service trucks to
provide ready accessibility and convenience to its customers, particularly
fleet owners.
Ownership
As of December 31, 1995, the Company's percentage ownership of Treadco was
45.7%, 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.
Employees
At December 31, 1995, Treadco employed 746 full-time employees. Eleven
employees at one Treadco facility are represented by a union. Treadco's
management believes it enjoys a good relationship with its employees.
Carolina Breakdown Service, Inc.
Carolina Breakdown Service, Inc., ("CBS") is a third-party vehicle
maintenance logistics company operating from a Cherryville, North Carolina
base, with service capabilities in 48 contiguous states, Central and Eastern
Canada. The CBS nationwide operation provides any and all necessary scheduled
and unscheduled vehicle repairs and driver assistance to all classes and
types of trucks, trailers, and combination units 24 hours a day, 7 days a
week. In-house maintenance expertise and regimentation also allows for the
additional business as a technical assistance provider to the OEM community,
and through the use of strategic outsourcing via a qualified vendor network
of over 53,000 nationwide, the operation handles over 79 service and
technical calls a day from its client base of 492 trucking and OEM accounts.
Carolina Breakdown Service, Inc., was incorporated in 1993 but derives its
professional training from over four decades of experience having serviced
equipment for Carolina Freight.
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 188 underground tanks located in 34 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
1996 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 $250,000 over the last five
years), or believes its obligations with respect to such sites would involve
immaterial monetary liability, although there can be no assurances in this
regard.
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
butadiene), 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.
As of December 31, 1995, the Company has accrued approximately $1,700,000 to
provide for environmental-related liabilities. The Company's environmental
accrual is based on management's best estimate of the actual liability. The
Company's estimate is founded on management's experience in dealing with
similar environmental matters and on actual testing performed at some sites.
Management believes that the accrual is adequate to cover environmental
liabilities based on the present environmental regulations.
ITEM 2. PROPERTIES
The Company owns its executive offices in Fort Smith, Arkansas.
LTL Motor Carrier Operations Segment
The ABF System currently operates out of 343 terminal facilities of which it
owns 95, leases 61 from an affiliate and leases the remainder from non-
affiliates. ABF's principal terminal facilities are as follows:
Owned:
Sacramento, California
Ellenwood, Georgia
South Chicago, Illinois
Asheville, North Carolina
Dayton, Ohio
Carlisle, Pennsylvania
Dallas, Texas
Leased from affiliate, Transport Realty:
North Little Rock, Arkansas
Pico Rivera, California
Denver, Colorado
Springfield, Illinois
Albuquerque, New Mexico
Leased from non-affiliated third party:
Portland, Oregon
Salt Lake City, Utah
G.I. Trucking currently operates out of 52 service centers of which it owns
13 facilities and leases the remainder from agents or non-affiliates.
Tire Operations Segment
Treadco currently operates from 51 locations. Treadco owns 17 production and
4 sales facilities and leases the remainder from non-affiliates.
ITEM 3. LEGAL PROCEEDINGS
Various legal actions, the majority of which arise in the normal course of
business, are pending. None of these legal actions is expected to have a
material adverse effect on the Company's financial condition. The Company
maintains liability insurance against most 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, 1995.
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
1995
First quarter $13.000 $10.500 $.01
Second quarter 11.500 7.938 .01
Third quarter 13.875 8.500 .01
Fourth quarter 11.875 6.625 .01
1994
First quarter $15.750 $12.625 $.01
Second quarter 13.375 10.125 .01
Third quarter 14.375 11.375 .01
Fourth quarter 14.125 10.250 .01
At February 14, 1996, there were 19,515,758 shares of the Company's stock
outstanding which were held by 835 shareholders of record and through
approximately 5,500 nominee or street name accounts with brokers.
The declaration and payment of, and the timing, amount and form of future
dividends on the Common Stock will be determined based on 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 $6.5 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 $5.1 million on an annual basis.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data - Five-Year Summary
Arkansas Best Corporation
Year Ended December 31
1995 1994 1993 1992 1991
($ in thousands except per share amounts)
Statement of Operations Data:
Operating revenues $1,437,279 $1,098,421 $1,009,918 $959,949 $884,498
Operating income (loss) (23,459) 48,115 51,369 57,255 43,123
Gain on sale of subsidiary stock - - - - 14,141
Minority interest in subsidiary 1,297 3,523 3,140 2,825 690
Other expenses, net 5,185 968 731 1,496 6,638
Interest expense 17,046 6,985 7,248 17,285 34,421
Income (loss) before income taxes,
extraordinary item and
cumulative effect of
accounting change (46,987) 36,639 40,250 35,649 15,515
Provisions for income taxes (14,195) 17,932 19,278 16,894 7,763
Income (loss) before extraordinary
item and cumulative effect
of accounting change (32,792) 18,707 20,972 18,755 7,752
Extraordinary item (1) - - (661) (15,975) (515)
Cumulative effect on prior
years of change in revenue
recognition method (2) - - - (3,363) -
Net income (loss) (32,792) 18,707 20,311 (583) 7,237
Income (loss) per common share
before extraordinary item and
cumulative effect of
accounting change (1.90) .74 .89 .99 .61
Net income (loss) per common share (1.90) .74 .85 (.03) .57
Cash dividends paid per common share (3) .04 .04 .04 .02 -
Pro Forma Data (4):
Income (loss) before extraordinary item $ (32,792) $ 18,707 $ 20,972 $ 18,755 $ 8,253
Income (loss) before extraordinary
item per common share (1.90) .74 .89 .99 .65
Net income (loss) (32,792) 18,707 20,311 2,780 7,738
Net income (loss) per common share (1.90) .74 .85 .15 .61
Selected Financial Data - Five-Year Summary (Continued)
Arkansas Best Corporation
Year Ended December 31
1995 1994 1993 1992 1991
($ in thousands except per share amounts)
Balance Sheet Data
(as of the end of the period):
Total assets $985,837 $569,045 $447,733 $428,345 $447,098
Current portion of long-term debt 26,634 65,161 15,239 28,348 34,995
Long-term debt
(including capital
leases and excluding
current portion) 399,144 59,295 43,731 107,075 210,987
Other Data
Capital expenditures (5) $ 74,808 $ 64,098 $ 33,160 $ 26,596 $ 19,369
Depreciation and amortization 46,627 28,087 28,266 34,473 39,755
Goodwill amortization 5,135 3,527 3,064 3,034 3,024
Other amortization 1,044 501 319 755 2,290
(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 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 common stock 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 1991 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, 1991.
(5) Net of equipment trade-ins. Does not include revenue equipment placed in
service under operating leases, which amounted to $24.6 million in 1995,
$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 1994. See "Management's Discussion and
Analysis-Liquidity and Capital Resources."
(6) 1995 selected financial data is not comparative to the prior years'
information due to the WorldWay Acquisition effective August 12, 1995.
In conjunction with the WorldWay Acquisition, assets with a fair value
of $309 million were acquired and liabilities of approximately $235
million were assumed. Approximately $134 million in revenues for the
period from August 12, 1995 to December 31, 1995, are included in the
1995 consolidated statement of operations generated by subsidiaries
acquired as part of the WorldWay Acquisition.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Arkansas Best Corporation (the "Company") is a diversified holding company
engaged through its subsidiaries primarily in less-than-truckload ("LTL")
and truckload motor carrier operations, logistics and freight forwarding
operations and truck tire retreading and new tire sales. Principal
subsidiaries owned are ABF Freight System, Inc. ("ABF"), Treadco, Inc.
("Treadco"), and, effective September 30, 1994 Clipper Exxpress Company
("Clipper"). Also, effective August 12, 1995, pursuant to its acquisition
of WorldWay Corporation ("WorldWay"), the Company owns Cardinal Freight
Carriers, Inc. ("Cardinal"), G.I. Trucking Company ("G.I. Trucking"),
CaroTrans International, Inc. ("CaroTrans"), The Complete Logistics Company
("Complete Logistics") and Innovative Logistics Incorporated ("ILI"). (See
discussion below.)
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.
On September 30, 1994, the Company consummated the purchase of all
outstanding stock of the Clipper Group. Assets of approximately $26.2
million were acquired and liabilities of approximately $14.7 million were
assumed. The Company's total purchase price was $60.9 million.
The Clipper acquisition has been accounted for under the purchase method,
effective September 30, 1994. The purchase price has been allocated to
assets and liabilities based on their estimated fair values as of the date of
acquisition. Approximately $49.4 million of goodwill was recorded as a result
of the purchase allocation and is being amortized over a 30-year period.
On July 14, 1995, ABC Acquisition Corporation (the "Purchaser"), a wholly
owned subsidiary of the Company, commenced a tender offer (the "Offer") to
purchase all outstanding shares of common stock of WorldWay Corporation at a
purchase price of $11 per share (the "Acquisition"). Pursuant to the Offer,
on August 11, 1995, the Purchaser accepted for payment shares of WorldWay
validly tendered, representing approximately 91% of the shares outstanding.
On October 12, 1995, the remaining shares of WorldWay's common stock were
converted into the right to receive $11 per share in cash.
For financial statement purposes, the WorldWay Acquisition has been accounted
for under the purchase method effective August 12, 1995. Consequently, the
accompanying financial statements include the results of operations for
WorldWay and its subsidiaries from August 12, 1995 through December 31, 1995.
The allocation of the purchase cost in the accompanying financial statements
is preliminary and subject to change. Final values may differ from those set
forth in these financial statements, but differences are not expected to be
material. Assets with a fair value of approximately $309 million were
acquired and liabilities with a fair value of approximately $235 million were
assumed. The Company's total purchase price was $76 million. Approximately
$2 million of goodwill was recorded as a result of the purchase allocation
and is being amortized over a 30-year period.
Segment Data
The following tables reflect information prepared on a business segment
basis, which includes reclassification of certain expenses and costs between
the Company and its subsidiaries and elimination of the effects of
intercompany transactions. Operating profit on a business segment basis
differs from operating income as reported in the Company's Consolidated
Financial Statements. Other income and other expenses (which include
amortization expense), except for interest expense and minority interest,
which appear below the operating income line in the Company's Statement of
Operations, have been allocated to individual segments for the purpose of
calculating operating profit on a segment basis.
The segment information for prior periods has been restated to reflect the
Company's current reported business segments. In the current and future
periods, information that was previously reported in the service and other
business segment will be reported in the logistics operations segment.
Year Ended December 31
1995 1994 1993
($ thousands)
OPERATING REVENUES
LTL motor carrier operations $1,088,416 $ 918,663 $ 893,504
Forwarding operations 140,691 31,468 -
Truckload motor carrier
operations 27,992 - -
Logistics operations 31,699 7,514 2,890
Tire operations 145,127 138,665 111,585
Other 3,354 2,111 1,939
---------- ---------- ---------
$1,437,279 $1,098,421 $1,009,918
========== ========== ==========
OPERATING EXPENSES AND COSTS
LTL MOTOR CARRIER OPERATIONS
Salaries and wages $ 779,453 $ 613,187 $ 594,213
Supplies and expenses 120,439 96,210 99,146
Operating taxes and licenses 45,906 35,928 35,152
Insurance 24,122 18,237 16,835
Communications and utilities 26,776 22,639 23,680
Depreciation and amortization 37,822 24,302 25,714
Rents and purchased
transportation 76,823 67,550 53,192
Other 8,219 4,298 3,779
Other non-operating (net) 1,771 690 148
---------- ---------- ---------
1,121,331 883,041 851,859
FORWARDING OPERATIONS
Cost of services 117,455 26,817 -
Selling, administrative
and general 18,711 3,542 -
Other non-operating (net) 1,705 414 -
---------- ---------- ---------
137,871 30,773 -
TRUCKLOAD MOTOR CARRIER OPERATIONS
Salaries and wages 9,746 - -
Supplies and expenses 4,530 - -
Operating taxes and licenses 2,571 - -
Insurance 980 - -
Communications and utilities 420 - -
Depreciation and amortization 1,249 - -
Rents and purchased
transportation 5,348 - -
Other 108 - -
Other non-operating (net) 9 - -
---------- ---------- ----------
24,961 - -
LOGISTICS OPERATIONS
Cost of services 30,588 7,100 2,915
Selling, administrative
and general 3,711 1,388 821
Other non-operating (net) 11 (6) (12)
---------- ---------- ----------
34,310 8,482 3,724
TIRE OPERATIONS
Cost of sales 108,686 100,909 79,718
Selling, administrative
and general 31,642 26,206 21,522
Other non-operating (net) 375 471 159
---------- ---------- ---------
140,703 127,586 101,399
SERVICE AND OTHER 6,747 1,392 2,298
---------- ---------- ---------
$1,465,923 $1,051,274 $ 959,280
========== ========== =========
OPERATING PROFIT (LOSS)
LTL motor carrier operations $ (32,915) $ 35,622 $ 41,645
Forwarding operations 2,820 695 -
Truckload motor carrier
operations 3,031 - -
Logistics operations (2,611) (968) (834)
Tire operations 4,424 11,079 10,186
Other (3,393) 719 (359)
---------- ---------- ----------
TOTAL OPERATING PROFIT (LOSS) (28,644) 47,147 50,638
INTEREST EXPENSE 17,046 6,985 7,248
MINORITY INTEREST 1,297 3,523 3,140
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME
TAXES AND EXTRAORDINARY ITEM $ (46,987) $ 36,639 $ 40,250
========== ========== ==========
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 D.O.T.
Year Ended December 31
1995 1994 1993
LTL MOTOR CARRIER OPERATIONS
Salaries and wages 71.6% 66.7% 66.5%
Supplies and expenses 11.1 10.5 11.1
Operating taxes and licenses 4.2 3.9 3.9
Insurance 2.2 2.0 1.9
Communications and utilities 2.5 2.5 2.7
Depreciation and amortization 3.5 2.6 2.9
Rents and purchased transportation 7.1 7.4 5.9
Other 0.7 0.4 0.4
Other non-operating (net) 0.1 0.1 -
----- ----- -----
Total LTL Motor Carrier Operations 103.0% 96.1% 95.3%
===== ===== =====
FORWARDING OPERATIONS
Cost of services 83.5% 85.2% -
Selling, administrative and general 13.3 11.3 -
Other non-operating (net) 1.2 1.3 -
----- ----- -----
Total Forwarding Operations 98.0% 97.8% -
===== ===== =====
TRUCKLOAD MOTOR CARRIER OPERATIONS
Salaries and wages 34.8% - -
Supplies and expenses 16.2 - -
Operating taxes and licenses 9.2 - -
Insurance 3.5 - -
Communications and utilities 1.5 - -
Depreciation and amortization 4.5 - -
Rents and purchased transportation 19.1 - -
Other 0.4 - -
----- ----- -----
Total Truckload Operations 89.2% - -
===== ===== =====
LOGISTICS OPERATIONS
Cost of sales 96.5% 94.5% 100.9%
Selling, administrative and general 11.7 18.5 28.4
Other non-operating (net) - (0.1) (0.4)
----- ----- -----
Total Logistics Operations 108.2% 112.9% 128.9%
===== ===== =====
TIRE OPERATIONS
Cost of sales 74.9% 72.8% 71.5%
Selling, administrative and general 21.8 18.9 19.3
Other non-operating (net) 0.3 0.3 0.1
----- ----- -----
Total Tire Operations 97.0% 92.0% 90.9%
===== ===== =====
OPERATING PROFIT
LTL motor carrier operations (3.0)% 3.9% 4.7%
Forwarding operations 2.0 2.2 -
Truckload motor carrier operations 10.8 - -
Logistics operations (8.2) (12.9) (28.9)
Tire operations 3.0 8.0 9.1
Results of Operations
1995 as Compared to 1994
Consolidated revenues of the Company for 1995 were $1.4 billion compared to
$1.1 billion for 1994. The Company had an operating loss of $28.6 million
for 1995 compared to operating profit of $47.1 million for 1994. For 1995,
the Company had a net loss of $32.8 million, or a loss of $1.90 per common
share, compared to net income of $18.7 million, or $.74 per common share for
1994. Revenues for 1995 increased due to the Acquisition of WorldWay and the
Acquisition adversely impacted operating results for the same period. For
the period from August 12 to September 30, 1995, WorldWay incurred a
consolidated after-tax net loss of $13.6 million and a pre-tax loss from
operations of $20.4 million. The WorldWay loss is attributable to Carolina
Freight and Red Arrow which as of September 24, 1995 were merged into ABF.
Consolidated revenues and income for 1994 were adversely affected by the 24-
day labor strike by the Teamsters' union employees of ABF in April 1994.
Earnings per common share for 1995 and 1994 give consideration to preferred
stock dividends of $4.3 million. Average common shares outstanding for 1995
were 19.5 million shares compared to 19.4 million shares for 1994.
Outstanding shares for 1995 and 1994 do not assume conversion of preferred
stock to common shares, because conversion would be anti-dilutive for these
periods.
Less-Than-Truckload Motor Carrier Operations Segment. The Company's LTL
motor carrier operations are conducted primarily through ABF and effective
August 12, 1995 through G.I. Trucking.
Comparisons for 1995 were affected by the Acquisition of WorldWay in August
1995 and by the ABF Teamsters' employees strike in April 1994 (see discussion
above). Therefore, comparisons of the results of operations for the LTL
motor carrier operations segment are not meaningful and are not presented. As
a result of the Acquisition of WorldWay, LTL motor carrier operations segment
includes the results of Carolina Freight and Red Arrow for the period from
August 12, 1995 to their merger into ABF on September 24, 1995.
Revenues from the LTL motor carrier operations segment for 1995 were $1.1
billion, with an operating loss of $32.9 million. Earnings at ABF were
negatively affected by a slowing economy and increased pricing pressure which
resulted in tonnage levels below Company expectations for 1995.
ABF retained less revenue from the merger of Carolina Freight and Red Arrow
than was originally estimated, resulting in over-staffing and excess
equipment. This shortfall in revenue was compounded by weakened shipper
demand and continued price competition during the fourth quarter. The over-
staffing resulted in increased salaries and wages expense while depreciation
expense was higher because of the excess revenue equipment.
Effective with the merger, ABF inherited Carolina Freight's regional
distribution terminal operations, which reconfigured the way freight flowed
through ABF's terminal system. This reconfiguration created many operating
inefficiencies in ABF's system. Labor dollars as a percent of revenue
increased, empty miles increased and weight per trailer decreased, which all
had an adverse impact on expenses.
ABF has implemented a combination of cost cutting and revenue raising
measures to stem its operating losses. ABF has closed a number of regional
distribution terminal operations which it inherited when Carolina Freight and
Red Arrow were merged into ABF. These closings will realign ABF to its
normal terminal system configuration. ABF implemented a 5.8% freight rate
increase on January 1, 1996 and is in process of selling excess real estate
and revenue equipment resulting from the Carolina Freight and Red Arrow
merger.
Salaries, wages and benefits increased 3.3% annually effective April 1, 1995,
pursuant to ABF's collective bargaining agreement with its Teamsters'
employees and will increase 3.8% annually effective April 1, 1996.
Forwarding Operations Segment. Effective September 30, 1994, with the
purchase of the Clipper Group, the Company began reporting a new business
segment, forwarding operations. The Company's forwarding operations are
conducted primarily through the Clipper Group, effective September 30, 1994,
and CaroTrans, effective August 12, 1995.
Comparisons for 1995 were affected by the Acquisition of WorldWay in August
1995 and by the acquisition of the Clipper Group in September 1994.
Therefore, comparisons of the results of operations for the forwarding
operations segment are not meaningful and are not presented.
For 1995, the forwarding operations segment had revenues of $140.7 million
with an operating profit of $2.8 million. Forwarding operations were
adversely affected during 1995 by soft economic conditions.
Truckload Motor Carrier Operations Segment. Effective August 12, 1995, with
the Acquisition of WorldWay, the Company began reporting a new business
segment, truckload motor carrier operations. The Company's truckload motor
carrier operations are conducted through Cardinal.
From August 12, 1995 to December 31, 1995, Cardinal had revenues of $28.0
million with an operating profit of $3.0 million. Cardinal's operations were
adversely affected during 1995 by soft economic conditions.
Logistics Operations Segment. Effective August 12, 1995, with the Acquisition
of WorldWay, the Company began reporting a new business segment, logistics
operations. The Company's logistics operations are conducted through
Integrated Distribution, Inc. and effective August 12, 1995, through Complete
Logistics and ILI.
For 1995, the logistics operations segment had operating revenues of $31.7
million with an operating loss of $2.6 million.
Tire Operations Segment. Treadco's revenues for 1995 increased 4.7% to
$145.1 million from $138.7 million for 1994. For 1995, "same store" sales
increased 2.4% and "new store" sales accounted for 2.7% of the increase from
1994. Same store sales include both production locations and satellite sales
locations that have been in existence for the all of 1995 and 1994. Although
a softer economy during the quarter slowed demand for both new replacement
and retreaded truck tires, same store sales were higher primarily as a result
of an increase in market share in the areas served. Treadco has seen
increased competition as Bandag Incorporated ("Bandag") has granted
additional franchises in some locations currently being served by Treadco.
Revenues from retreading for 1995 increased 1.6% to $76.4 million from $75.2
million for 1994. Revenues from new tire sales increased 8.3% to $68.7
million for 1995 from $63.5 million for 1994.
Tire operations segment operating expenses as a percent of revenues were
97.0% for 1995 compared to 92.0% for 1994. Cost of sales for the tire
operations segment as a percent of revenues increased to 74.9% for 1995 from
72.8% for 1994. Bandag, Treadco's tread rubber supplier, implemented three
price increases, totaling 9.6%, during 1994 and the beginning of 1995 which
Treadco has been unsuccessful, so far, in fully passing along to our
customers. Selling, administrative and general expenses for the tire
operations segment increased to 21.8% for 1995 from 18.9% for 1994. The
increase resulted primarily from an increase in bad debt expense, costs
associated with employee medical benefits and data processing costs
associated with the installation of a production and inventory control
system.
In August 1995, Bandag, Treadco's tread rubber supplier and franchiser of the
retreading process used by substantially all of Treadco's locations,
announced that certain franchise agreements would not be renewed upon
expiration in 1996. Bandag subsequently advised Treadco that unless Treadco
uses the Bandag process exclusively, Bandag would not renew any of Treadco's
franchise agreements when they expire.
In October 1995, Treadco announced it had reached an agreement for the Oliver
Rubber Company ("Oliver") to be a supplier of equipment and related materials
for Treadco's truck tire precure retreading business. The agreement provides
that Oliver will supply Treadco with retreading equipment and related
materials for the eight production facilities whose Bandag franchises expire
in 1996 and any other Treadco facilities which cease being a Bandag
franchised location.
Treadco has converted its Little Rock (AR), Pine Bluff (AR), West Memphis
(AR) and Phoenix (AZ) Bandag franchises to Oliver licensed facilities. Based
on Treadco's current plans, all remaining Bandag franchises will convert to
the Oliver process by the end of the third quarter, 1996.
While the equipment removal and replacement is expected to cause temporary
disruptions to Treadco's operations, it is not expected to have a significant
impact on Treadco's ability to meet its customers' needs. However, Treadco's
management believes its national account relationships have been and will
continue to be negatively impacted as a result of Bandag's actions and the
conversion from Bandag to Oliver. Also as a result of the conversion,
Treadco continues to be targeted by other dealers in soliciting customers,
causing margins to be under intense competitive pressure. Although the
conversion will have a negative impact on the results of operations during
the next 12 months, Treadco's management believes the Oliver process produces
retreads of equal or better quality and durability than the Bandag process.
After the transition period, Treadco's management believes Treadco will be in
a better position to control its costs and deliver true value to its
customers, while having unrestricted opportunities to expand into new
markets.
Interest. Interest expense was $17.0 million for 1995 compared to $7.0
million for 1994 primarily due to a higher level of outstanding debt. The
increase in long-term debt consisted primarily of debt incurred in the
acquisition of WorldWay and debt incurred for working capital requirements
during the fourth quarter of 1995. Also, the Company incurred additional debt
in the latter part of 1994 in the acquisition of the Clipper Group and a term
loan used to finance construction of the Company's corporate office building
which was completed in 1995.
Income Taxes. The difference between the effective tax rate for 1995 and the
federal statutory rate resulted primarily from state income taxes,
amortization of goodwill, minority interest, and other nondeductible expenses
(see Note G to the consolidated financial statements).
At December 31, 1995, the Company had deferred tax assets of $45.6 million,
net of a valuation allowance of $1.2 million, and deferred tax liabilities of
$62.0 million. The Company believes that the benefits of the deferred tax
assets of $45.6 million will be realized through the reduction of future
taxable income.
Management has considered appropriate factors in assessing the probability of
realizing these deferred tax assets. These factors include the deferred tax
liabilities of $62.0 million and the presence of significant taxable income
in 1993 and 1994 and the extended carryforward period for net operating
losses included in deferred tax assets. The valuation allowance has been
provided for the benefits of net operating loss carryovers in certain states
where operations were affected by the merger of Carolina Freight into ABF.
Management intends to evaluate the realizability of deferred tax assets on a
quarterly basis by assessing the need for any additional valuation allowance.
1994 as Compared to 1993
Consolidated revenues of the Company for 1994 were $1.1 billion compared to
$1.0 billion for 1993. Operating profit for the Company was $47.1 million
for 1994 compared to operating profit of $50.6 million for 1993. Net income
for 1994 was $18.7 million, or $.74 per common share (after giving
consideration to preferred stock dividends of $4.3 million), compared to net
income of $20.3 million, or $.85 per common share for 1993 (after giving
consideration to preferred stock dividends of $3.9 million). The net income
of $18.7 million, or $.74 per common share, also compares to income before
extraordinary item of $21.0 million, or $.89 per common share for 1993.
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. Net income for 1993 was reduced by $828,000, or $.04
per common share (assuming full dilution), to reflect the retroactive
increase in the corporate federal tax rate under the Revenue Reconciliation
Act of 1993. Average common shares outstanding for 1994 were 19.4 million
shares compared to 19.2 million shares for 1993. Outstanding shares for 1994
and 1993 do not assume conversion of preferred stock to common shares,
because conversion would be anti-dilutive for these periods.
Consolidated revenues and income for 1994 were adversely affected by the 24-
day labor strike by the Teamsters' Union employees of ABF in April. As a
result of the strike, the Company incurred a consolidated net loss of $12.7
million during the month of April 1994, which had the effect of reducing
earnings per common share by $.62 for the year.
Motor Carrier Operations Segment. ABF's labor agreement with the
International Brotherhood of Teamsters ("IBT") expired on March 31, 1994. On
April 6, 1994, ABF's employees and 20 other carriers went on strike. On
April 29, 1994, TMI and the IBT reached a tentative agreement on a new four-
year contract. ABF Teamsters employees began returning to work at 12:01 a.m.
on April 30, 1994. During the strike, the non-union employees of the Company
were given an across-the-board pay reduction instead of having lay-offs. The
40% reduction in pay for the non-union employees during the strike amounted
to approximately $3.3 million.
Revenue and income for 1994 were negatively affected by the strike. Under
the new labor contract which was effective retroactive to April 6, 1994,
salaries, wages and benefits for full-time employees will increase 2.7%
annually during the first year of the contract. The increase will be offset
in part by the option to use casual workers on the dock after 40 hours of
work is provided to all regular employees, a freeze on some casual workers'
pay for the life of the contract and a reduction in new hire step rates. The
new contract allows ABF to use intermodal or rail service for up to 28% of
the line-haul operations. An increased use of rail will result in higher
rent expense and may reduce over-the-road and labor costs.
Even after the negative impact of the strike, revenues from motor carrier
operations still increased 2.8% to $918.7 million in 1994 from $893.5 million
in 1993. Total tonnage increased 1.7%, consisting of a 2.2% increase in LTL
tonnage and a 0.2% increase in truckload tonnage. The 4.5% rate increase
effective January 1, 1994 was partially discounted by rate competition during
1994. For 1994, ABF's revenue per hundredweight reflected a 0.9% increase
compared to the average for 1993. Effective January 1, 1995, ABF implemented
a general freight rate increase of 4% which is expected to result in a 3 to
3.5% 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.
Forwarding Operations Segment.
Effective October 1, 1994, with the purchase of the Clipper Group, the
Company began reporting a new business segment, forwarding operations. The
Company's consolidated financial statements for the year ended December 31,
1994 include only three months of financial information for the forwarding
operations segment and therefore, comparisons of results of operations are
not presented.
Tire Operations Segment. Treadco's revenues for 1994 increased 24.3% to
$138.7 million from $111.6 million for 1993. For 1994, "same store" sales
increased 9.6% and "new store" sales accounted for 14.7% of the total
increase from the nine months ended September 30, 1993. "Same store" sales
include both production locations and satellite sales locations that have
been in existence for all of 1994 and 1993. "Same store" sales increased
primarily as a result of a higher demand for both new replacement and
retreaded truck tires during the period and an increase in market share in
the areas served. "New store" sales resulted primarily from the addition of
four production and one sales facility through the August 1993 acquisition of
Trans-World Tire Corporation in Florida. Revenues from retreading for 1994
increased 21.5% to $75.2 million from $61.9 million for 1993. Revenues from
new tire sales increased 27.7% to $63.5 million for 1994 from $49.7 million
for 1993.
In order to explore alternatives to the Bandag process in some new
geographical markets, Treadco opened a precure production facility in Las
Vegas, Nevada, in the second quarter of 1995, which purchases its tread
rubber from Hercules Tire and Rubber Co. Treadco has the option of purchasing
tread rubber and supplies from other companies for the Las Vegas facility.
The Company opened an additional retreading facility in the second half of
1995. This production facility is a mold cure retread facility. The facility
uses tread rubber compounds provided by Bridgestone/Firestone, Inc. and
Bridgestone/Firestone, Inc. provides technical support. The process produces
quality retreads with the Bridgestone-Treadco name molded into the tread.
Tire operations segment operating expenses as a percent of revenues were
92.0% for 1994 compared to 90.9% for 1993. Cost of sales for the tire
operations segment as a percent of revenues increased to 72.8% for 1994 from
71.5% for 1993, resulting in part from integrating the August 1993
acquisition of five Florida facilities into Treadco. Although the
integration is progressing as planned, the cost of sales as a percent of
revenues are higher at the Florida locations than at other Treadco
facilities. Also, effective October 1, 1994, Bandag, Inc. announced a 4%
price increase on tread rubber, which has been difficult to pass on to
Treadco's customers. Selling, administrative and general expenses for the
tire operations segment decreased to 18.9% for 1994 from 19.3% for 1993. The
decrease resulted primarily from the increase in sales and the fact that a
portion of selling, administrative and general expenses are fixed costs.
Interest. Interest expense was $7.0 million for 1994 compared to $7.2
million during 1993. Lower average interest rates under the Company's
borrowing arrangements and the utilization of operating leases resulted in
the decrease in interest expense offset in part by higher long-term debt
outstanding. The increase in long-term debt consisted primarily of debt
incurred in the acquisition of the Clipper Group and a term loan used to
finance construction of the Company's corporate office building.
Income Taxes. The difference between the effective tax rate for 1994 and the
federal statutory rate resulted primarily from state income taxes,
amortization of goodwill, minority interest, and other nondeductible expenses
(see Note G to the consolidated financial statements).
Liquidity and Capital Resources
The ratio of current assets to current liabilities was 1.06:1 at December 31,
1995 compared to 0.83:1 at December 31, 1994. Net cash used by operating
activities for 1995 was $66.2 million compared to net cash provided of $48.8
million in 1994. The decrease is due primarily to the net loss from
operations, increase in receivables and reductions in assumed WorldWay
accounts payable and accrued expenses.
On August 10, 1995 the Company entered into a $350 million credit agreement
(the "Credit Agreement") with Societe Generale, Southwest Agency as Managing
and Administrative Agent and NationsBank of Texas, N.A., as Documentation
Agent, and with 15 other participating banks. The Credit Agreement includes
a $75 million term loan and provides for up to $275 million of revolving
credit loans (including letters of credit).
Term Loan and Revolving Credit advances bear interest at one of the following
rates, at the Company's option: (a) Prime Rate advance or (b) Eurodollar
Rate advance. A Prime Rate advance bears an interest rate equal to the
lesser of (i) the Adjusted Prime Rate plus the Applicable Margin and (ii) the
maximum nonusurious interest rate under applicable law. The Adjusted Prime
Rate is equal to the greater of the prime rate offered by Societe Generale
or the Federal Funds Rate plus 1/2%. The Applicable Margin is determined as
a function of the ratio of the Company's consolidated indebtedness to its
consolidated earnings before interest, taxes, depreciation and amortization.
Eurodollar Rate advances shall bear an interest rate per annum equal to the
lesser of (i) the Eurodollar Rate offered by Societe Generale plus the
Applicable Margin and (ii) the maximum nonusurious interest rate under
applicable law. The Company has paid and will continue to pay certain
customary fees for such commitments and advances. At December 31, 1995, the
average interest rate on the Credit Agreement was 7.6%. The Company pays a
commitment fee at a rate per annum equal to the Applicable Margin on the
unused amount of the Company's revolving credit commitment.
There were $203 million of Revolver Advances, $75 million of Term Advances
and approximately $64.1 million of letters of credit outstanding at
December 31, 1995. Outstanding revolving credit advances may not exceed a
borrowing base calculated using the Company's revenue equipment, the Treadco
common stock owned by the Company, and eligible receivables.
The Term Advances are payable in varying installments commencing in November
1996.
The Credit Agreement replaced a $150 million credit agreement with Societe
Generale and a receivable purchase agreement with Renaissance Funding Corp.
and Societe Generale which allowed ABF to sell to Renaissance Funding Corp.
an interest in up to $55 million in a pool of receivables.
The Credit Agreement contains various covenants which limit, among other
things, indebtedness, distributions, asset sales, restricted payments,
investments, loans and advances, as well as requiring the Company to meet
certain financial tests. As of December 31, 1995, the Company was not in
compliance with certain covenants relating to financial tests. On
February 21, 1996, the Company obtained an amendment to the credit agreement
which revised the agreement so that the Company is now in compliance with all
covenants. Under the amended credit agreement, the Company has pledged
substantially all revenue equipment and real property not already pledged
under other debt obligations or capital leases.
The amendment also revised the maturity schedule of the term loan agreement
to revise the loans to be paid off in graduated principal installments
through August 1998. The current portion of long-term debt and the five year
maturity schedule reflected in the consolidated financial statements have
been revised to reflect the amended repayment schedule. The amendment also
requires that net proceeds received from certain asset sales be applied
against the term loan balance.
Also, on February 21, 1996, the Company obtained an additional credit
agreement which provides for borrowings of up to $30 million. This agreement
bears interest at either an adjusted prime rate plus 2% or a maximum rate as
defined in the agreement in the case of prime rate advances, or the
Eurodollar rate plus 3% or a maximum rate as defined in the agreement in the
care of Eurodollar rate advances. The maturity date of this agreement is
March 31, 1997. This agreement contains covenants that are substantially the
same as the covenants contained in the primary credit agreement.
The Company assumed the Subordinated Debentures of WorldWay which were issued
in April 1986. The debentures bear interest at 6.25% per annum, payable semi-
annually, on a par value of $50,000,000. The debentures are payable April 15,
2011. The Company may redeem the debentures at a price of 101.25% declining
to 100% at April 15, 1996. The Company is required to redeem through a
mandatory sinking fund commencing before April 15, in each of the years from
1997 to 2010, an amount in cash sufficient to redeem $2,500,000 annually of
the aggregate principal amount of the debentures issued.
The Company entered into a ten-year, $20 million general office term loan
agreement dated as of April 25, 1994 with NationsBank of Texas, N.A., as
agent, and Societe Generale Southwest Agency. The proceeds from the
agreement were used to finance the construction of the Company's new
corporate office building which was completed in February 1995. Amounts
borrowed under the agreement bear interest at 8.07% quarterly, with
installments of $500,000 plus interest due through July 2004.
TREADCO is a party to a revolving credit facility with Societe Generale (the
"TREADCO Credit Agreement") providing for borrowings of up to the lesser of
$20 million or the applicable borrowing base. Borrowings under the TREADCO
Credit Agreement are collateralized by accounts receivable and inventory.
Borrowings under the agreement bear interest, at TREADCO's option, at 3/4%
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, 1995, the interest rate was
7.1%. At December 31, 1995, TREADCO had $10 million outstanding under the
Revolving Credit Agreement. The TREADCO credit agreement is payable in
September 1998. 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.
The Company is a party to an interest rate cap arrangement to reduce the
impact of increases in interest rates on its floating-rate long-term debt.
The Company will be reimbursed for the difference in interest rates if the
LIBOR rate exceeds a fixed rate of 9 3/4% applied to notional amounts, as
defined in the contract, ranging from $40 million as of December 31, 1995 to
$2.5 million as of October 1999. As of December 31, 1995 and 1994, the LIBOR
rate was 5.5% and 6.5%, respectively; therefore, no amounts were due to the
Company under this arrangement. In the event that amounts are due under this
agreement in the future, the payments to be received would be recognized as a
reduction of interest expense (the accrual accounting method). Fees totaling
$385,000 were paid in 1994 to enter into this arrangement. These fees are
included in other assets and are being amortized to interest expense over the
life of the contract.
The following table sets forth the Company's historical capital expenditures
(net of equipment trade-ins) for the periods indicated below:
Year Ended December 31
1995 1994 1993
($ millions)
LTL motor carrier operations $ 75.0 $44.2 $48.6
Forwarding operations 0.4 - -
Truckload motor carrier operations 2.1 - -
Logistics operations 5.3 - -
Tire operations 4.5 4.3 6.1
Service and other 12.1 15.6 3.3
------ ------ ------
99.4 64.1 58.0
Less: Operating leases (24.6) - (24.8)
------ ------ ------
Total $ 74.8 $64.1 $33.2
====== ====== ======
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 1996, the Company anticipates spending approximately $33 million in total
capital expenditures net of proceeds from equipment sales. Of the $33
million, Treadco is budgeted for $13 million of expenditures for retreading
equipment and facilities. ABF is budgeted for approximately $18.3 million
to be used primarily for terminal facilities and Cardinal has $1.7 million
budgeted for revenue equipment purchases.
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 the Treadco Credit Agreement and
cash flow from operations will be sufficient to finance current and future
operations and meet all present and future debt service requirements.
Seasonality
The LTL and truckload motor carrier 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. Forwarding
operations are similar to the LTL and truckload segments with revenues being
weaker in the first quarter and stronger during the months of September and
October. Treadco's operations are somewhat seasonal with the last six months
of the calendar year generally having the highest levels of sales.
Environmental Matters
ABF stores some fuel for its tractors and trucks in approximately 188
underground tanks located in 34 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 $250,000 over the last five
years), or believes its obligations with respect to such sites would involve
immaterial monetary liability, although there can be no assurances in this
regard.
As of December 31, 1995, the Company has accrued approximately $1,700,000 to
provide for environmental-related liabilities. The Company's environmental
accrual is based on management's best estimate of the actual liability. The
Company's estimate is founded on management's experience in dealing with
similar environmental matters and on actual testing performed at some sites.
Management believes that the accrual is adequate to cover environmental
liabilities based on the present environmental regulations.
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the
assets' carrying amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company will adopt
Statement 121 in the first quarter of 1996 and, based on current
circumstances, does not believe the effect of adoption will be material.
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 9, 1996, 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," "Aggregated Options/SAR
Exercises in Last Fiscal Year and Fiscal Year-End Options/SAR Values,"
"Options/SAR Grants Table," "Executive Compensation and Development Committee
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 9, 1996, 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 the Executive Compensation and
Development Committee and Stock Option Committee" 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 9, 1996, sets 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 9, 1996, sets 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
The exhibits filed with this report are listed in the
Exhibit Index which is submitted as a separate section
of this report.
(b) Reports on Form 8-K
Form 8-K/A No. 1 dated October 13, 1995
Item 7. Financial Statements and Exhibits -- Financial
statements of WorldWay Corporation and pro forma financial
information to be filed under cover of Form 8-K/A on
October 25, 1995.
Form 8-K/A No. 1 dated October 25, 1995
Item 7. Financial Statements and Exhibits -- Audited
financial statements of WorldWay Corporation for the years
then ended December 31, 1994 and 1993. Unaudited financial
statements of WorldWay Corporation for the twenty-four weeks
ended June 17, 1995 and June 18, 1994. Pro forma condensed
consolidated statements of operations for the year ended
December 31, 1994 and the six months ended June 30, 1995 and
the pro forma condensed consolidated balance sheet as of
June 30, 1995.
Form 8-K dated February 28, 1996
Item 5. On February 21, 1996, Arkansas Best Corporation's
(the "Company") existing Credit Agreement with Societe
Generale, Southwest Agency as Managing Agent and
Administrative Agent, Nations of Texas, N.A., as
Documentation Agent, and certain other banks was amended and
restated. Also, on February 21, 1996, the Company entered
into a $30,000,000 Credit Agreement with Societe Generale
Southwest Agency as Agent and certain other banks.
(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 undersigned, 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 3/24/96
- ---------------------------- -------
William A. Marquard
/s/Robert A. Young, III Director, Chief Executive Officer 3/28/96
- ---------------------------- and President (Principal -------
Robert A. Young, III Executive Officer)
/s/Donald L. Neal Senior Vice President - Chief 3/28/96
- ---------------------------- Financial Officer (Principal -------
Donald L. Neal Financial and Accounting Officer)
/s/Frank Edelstein Director 3/27/96
- ---------------------------- -------
Frank Edelstein
/s/Arthur J. Fritz Director 3/25/96
- ---------------------------- -------
Arthur J. Fritz
/s/John H. Morris Director 3/25/96
- ---------------------------- -------
John H. Morris
/s/Alan J. Zakon Director 3/27/96
- ---------------------------- -------
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, 1995
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, 1995 and 1994
Consolidated Statements of Operations -- Years ended December 31, 1995,
1994 and 1993
Consolidated Statements of Shareholders' Equity -- Years ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows -- Years ended December 31, 1995,
1994 and 1993
The following consolidated financial statement schedule of Arkansas Best
Corporation is included in Item 14(d):
Schedule II -- Valuation and Qualifying Accounts
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 ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Directors
Arkansas Best Corporation
We have audited the accompanying consolidated balance sheets of Arkansas Best
Corporation as of December 31, 1995 and 1994, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1995. Our audits also included
the financial statement schedule listed in the Index at Item 14(a). These
financial statements and the schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the schedule 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 at December 31, 1995 and 1994, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
Little Rock, Arkansas
February 21, 1996
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31
1995 1994
($ thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 16,945 $ 3,458
Receivables
Trade, less allowances for
doubtful accounts (1995 --$19,403,000;
1994 -- $2,825,000) 186,273 127,206
Other 18,923 8,938
Inventories -- Notes D and E 36,850 32,463
Prepaid expenses 13,927 13,734
Deferred income taxes 32,080 -
Federal and state income taxes 17,489 -
-------- --------
TOTAL CURRENT ASSETS 322,487 185,799
PROPERTY, PLANT AND EQUIPMENT --
(Notes C and E)
Land and structures 228,706 110,424
Revenue equipment 285,045 200,250
Manufacturing equipment 8,289 7,467
Service, office and other equipment 65,474 40,516
Leasehold improvements 10,631 9,421
Construction in progress 44 13,939
-------- --------
598,189 382,017
Less allowances for depreciation
and amortization (190,906) (166,436)
-------- --------
407,283 215,581
OTHER ASSETS
Assets held for sale (Notes B and E) 39,937 -
Nonoperating property (Note E) 17,173 2,026
Pension asset (Note K) 32,380 5,331
Goodwill, less amortization (1995 --
$24,027,000; 1994 -- $19,794,000) --
Notes B and C 145,478 151,960
Other 21,099 8,348
-------- --------
256,067 167,665
-------- --------
$985,837 $ 569,045
======== ========
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31
1995 1994
($ thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ - $ 5,989
Bank drafts payable 12,999 10,779
Trade accounts payable 74,998 49,368
Accrued expenses -- Note F 188,708 82,157
Federal and state income taxes -- Note G - 5,786
Deferred income taxes - Note G - 4,159
Current portion of long-term debt -- Note E 26,634 65,161
-------- --------
TOTAL CURRENT LIABILITIES 303,339 223,399
LONG-TERM DEBT, less current portion -- Note E 399,144 59,295
OTHER LIABILITIES 18,665 5,915
DEFERRED INCOME TAXES -- Note G 48,560 28,842
MINORITY INTEREST -- Note B 38,265 34,989
SHAREHOLDERS' EQUITY -- Notes A, H and P
Preferred stock, $.01 par value,
authorized 10,000,000 shares; issued
and outstanding 1,495,000 shares 15 15
Common stock, $.01 par value, authorized
70,000,000 shares; issued and outstanding
1995: 19,519,061 shares; 1994:
19,513,708 shares 195 195
Additional paid-in capital 207,807 207,636
Predecessor basis adjustment -- Note H (15,371) (15,371)
Retained earnings (deficit) (14,782) 24,130
-------- --------
TOTAL SHAREHOLDERS' EQUITY 177,864 216,605
COMMITMENTS AND CONTINGENCIES --
(Notes I, J, K and P)
-------- --------
$985,837 $569,045
======== ========
See notes to consolidated financial statements.
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31
1995 1994 1993
($ thousands, except per share data)
OPERATING REVENUES -- Note B
Less than truckload motor
carrier operations $1,088,416 $ 918,663 $ 893,504
Truckload motor carrier
operations 27,992 - -
Forwarding operations 140,691 31,468 -
Logistics operations 31,699 7,514 2,890
Tire operations 145,127 138,665 111,585
Service and other 3,354 2,111 1,939
--------- --------- ---------
1,437,279 1,098,421 1,009,918
OPERATING EXPENSES AND
COSTS -- Notes B and L
Less than truckload
carrier operations 1,119,560 882,351 851,711
Truckload motor carrier
operations 24,952 - -
Forwarding operations 136,166 30,359 -
Logistics operations 34,299 8,488 3,736
Tire operations 140,328 127,115 101,240
Service and other 5,433 1,993 1,862
--------- --------- ---------
1,460,738 1,050,306 958,549
--------- --------- ---------
OPERATING INCOME (LOSS) (23,459) 48,115 51,369
OTHER INCOME (EXPENSE)
Gains on asset sales 3,194 2,168 2,509
Interest (17,046) (6,985) (7,248)
Minority interest in
subsidiary -- Note A (1,297) (3,523) (3,140)
Other, net (8,379) (3,136) (3,240)
--------- --------- ---------
(23,528) (11,476) (11,119)
INCOME (LOSS) BEFORE INCOME
TAXES AND EXTRAORDINARY
ITEM (46,987) 36,639 40,250
FEDERAL AND STATE INCOME
TAXES (CREDIT) --
Note G
Current (5,200) 14,743 21,386
Deferred (8,995) 3,189 (2,108)
--------- --------- ---------
(14,195) 17,932 19,278
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
Year Ended December 31
1995 1994 1993
($ thousands, except per share data)
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM $ (32,792) $ 18,707 $ 20,972
EXTRAORDINARY ITEM -- Note H
Loss on extinguishments
of debt - - (661)
--------- --------- ---------
NET INCOME (LOSS) $ (32,792) $ 18,707 $ 20,311
========= ========= =========
PER COMMON SHARE --
Notes C and H
Income before extraordinary
item $ (1.90) $ .74 $ .89
Extraordinary item - - (.04)
--------- --------- ---------
Net income (loss) $ (1.90) $ .74 $ .85
========= ========= =========
CASH DIVIDENDS PAID PER
COMMON SHARE $ .04 $ .04 $ .04
========= ========= =========
AVERAGE COMMON SHARES
OUTSTANDING -- Note C 19,520,756 19,351,796 19,193,582
========== ========== ==========
See notes to consolidated financial statements.
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Additional Stock Payable Predecessor Retained
Preferred Common Paid-In to Employee Basis Earnings
Stock Stock Capital Benefit Plans Adjustment (Deficit)
($ thousands)
Balances at January 1, 1993 $ - $ 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 - - - 205 - -
Issuance of preferred
stock -- Note H 15 - 71,879 - - -
Dividends paid - - - - - (4,670)
--- ---- -------- ------ -------- -------
Balances at December 31, 1993 15 192 206,457 205 (15,371) 10,492
Net income 18,707
Issuance of common stock to
employee benefit plans - - 205 (205) - -
Stock options exercised - - 36 - - -
Acquisition of Traveller
Group -- Note B - 3 938 - - -
Dividends paid - - - - - (5,069)
--- ----- -------- ------ -------- -------
Balances at December 31, 1994 15 195 207,636 - (15,371) 24,130
Net loss (32,792)
Stock options exercised - - 171 - -
Dividends paid - - - - - (5,079)
Adjustment to recognize
minimum pension liability
-- Note K - - - - - (1,041)
--- ----- --------- ------- -------- --------
Balances at December 31, 1995 $15 $ 195 $ 207,807 $ - $(15,371) $(14,782)
=== ===== ======== ======= ======== ========
See notes to consolidated financial statements.
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
1995 1994 1993
($ thousands)
OPERATING ACTIVITIES
Net income (loss) $(32,792) $ 18,707 $ 20,311
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Loss on extinguishments of debt - - 661
Depreciation and amortization 46,627 28,087 28,266
Amortization of intangibles 5,135 3,527 3,064
Other amortization 1,044 501 319
Contribution of stock to
employee benefit plans - - 804
Provision for losses on
accounts receivable 4,185 2,070 1,902
Provision for deferred
income taxes (8,995) 3,189 (2,108)
Gain on asset sales (3,194) (2,168) (2,509)
Loss on write-down of
intangible assets 2,076 - -
Minority interest in subsidiary 1,297 3,773 3,390
Changes in operating
assets and liabilities,
net of acquisitions:
Receivables (23,795) (15,312) (14,152)
Inventories and
prepaid expenses 3,529 (6,428) (5,985)
Other assets (13,827) (1,566) 1,822
Trade accounts payable, bank
drafts payable, taxes
payable, accrued expenses
and other liabilities (47,514) 14,373 (193)
-------- -------- --------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (66,224) 48,753 35,592
INVESTING ACTIVITIES
Purchases of property,
plant and equipment,
less capitalized leases (49,690) (47,298) (13,692)
Proceeds from asset sales 15,748 7,841 10,839
Acquisition of WorldWay
Corporation, net of cash
acquired -- Note B (81,482) - -
Acquisition of the Clipper
Group, net of cash acquired --
Note B (84) (49,556) -
Acquisition of Trans-World
Tire Corp. - - (2,500)
-------- -------- --------
NET CASH USED BY
INVESTING ACTIVITIES (115,508) (89,013) (5,353)
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Year Ended December 31
1995 1994 1993
($ thousands)
FINANCING ACTIVITIES
Deferred financing costs
and expenses incurred in
borrowing activities $ (4,578) $ (147) $ (47)
Proceeds from receivables
purchase agreement - 56,000 -
Payments under receivables
purchase agreement (40,000) (16,000) -
Borrowings under revolving
credit and term loan facilities 313,275 54,000 35,000
Principal payments under revolving
credit and term loan facilities (30,275) (39,000) (98,000)
Net proceeds from the
issuance of common stock 171 37 -
Net proceeds from the
issuance of preferred stock - - 71,894
Principal payments on other
long-term debt and capital leases (31,844) (18,616) (33,203)
Dividends paid to minority
shareholders of subsidiary (462) (438) (432)
Dividends paid (5,079) (5,069) (4,133)
Net increase (decrease) in
bank overdraft (5,989) 5,989 -
-------- -------- --------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 195,219 36,756 (28,921)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 13,487 (3,504) 1,318
Cash and cash equivalents
at beginning of year 3,458 6,962 5,644
-------- -------- --------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 16,945 $ 3,458 $ 6,962
======== ======== ========
See notes to consolidated financial statements.
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS
Arkansas Best Corporation (the "Company") is a diversified holding company
engaged through its subsidiaries primarily in motor carrier, freight
forwarding operations and truck tire retreading and sales (see Note M).
Principal subsidiaries are ABF Freight System, Inc., ("ABF"), Treadco, Inc.
("TREADCO"), and Clipper Exxpress Company and related companies (the "Clipper
Group") and, effective August 12, 1995, WorldWay Corporation ("WorldWay")
(see Note B). The principal subsidiaries of WorldWay include Carolina
Freight Carriers Corp., which was merged into ABF on September 25, 1995,
Cardinal Freight Carriers, Inc. ("Cardinal"), G.I. Trucking Company ("G.I.
Trucking"), CaroTrans International, Inc. ("CaroTrans"), The Complete
Logistics Company ("Complete Logistics") and Innovative Logistics
Incorporated ("Innovative Logistics").
As of December 31, 1995, the Company's percentage ownership of TREADCO was
46%. The Company's consolidated financial statements reflect full
consolidation of the accounts of TREADCO, with the ownership interests of the
other stockholders reflected as minority interest, because the Company
controls TREADCO through stock ownership, board representation and management
services provided under a transition services agreement.
Summarized condensed financial information for TREADCO is as follows:
December 31
1995 1994
($ thousands)
Current assets $ 61,615 $ 58,187
Property, plant and equipment, net 16,339 15,723
Other assets 15,081 15,673
-------- --------
Total assets $ 93,035 $ 89,583
======== ========
Current liabilities $ 16,737 $ 20,822
Long-term debt and other 10,280 4,323
Stockholders' equity 66,018 64,438
-------- --------
Total liabilities and stockholders' equity $ 93,035 $ 89,583
======== ========
1995 1994 1993
($ thousands)
Sales $ 147,906 $ 140,678 $ 113,277
Operating expenses and costs 143,382 129,625 103,671
Interest expense 510 270 195
Other (income) expense (88) 9 (252)
Income taxes 1,711 4,265 3,832
-------- -------- --------
Net income $ 2,391 $ 6,509 $ 5,831
======== ======== ========
NOTE B - ACQUISITIONS
On July 14, 1995, ABC Acquisition Corporation (the "Purchaser"), a wholly
owned subsidiary of the Company, commenced a tender offer (the "Offer") to
purchase all outstanding shares of common stock of WorldWay Corporation
("WorldWay"), at a purchase price of $11 per share (the "Acquisition").
Pursuant to the Offer, on August 11, 1995, the Purchaser accepted for
payment shares of WorldWay validly tendered, representing approximately 91%
of the shares outstanding. On October 12, 1995, the remaining shares of
WorldWay's common stock were converted into the right to receive $11 per
share in cash.
For financial statement purposes, the Worldway Acquisition has been
accounted for under the purchase method effective August 12, 1995.
Consequently, the accompanying financial statements include the results of
operations for WorldWay and its subsidiaries from August 12, 1995 through
December 31, 1995. The allocation of the purchase cost in the accompanying
financial statements is preliminary and subject to change. Final values may
differ from those set forth in these financial statements, but differences
are not expected to be material. Assets with a fair value of approximately
$309 million were acquired and liabilities with a fair value of
approximately $235 million were assumed. The Company's total purchase price
was $76 million. Approximately $2 million of goodwill was recorded as a
result of the purchase allocation and is being amortized over a 30-year
period.
On September 30, 1994, the Company consummated the purchase of all
outstanding stock of the Clipper Group pursuant to a stock purchase agreement
entered into on August 18, 1994. Assets of approximately $26.2 million were
acquired and liabilities of approximately $14.7 million were assumed. The
Company's total purchase price was $60.9 million.
The Clipper acquisition has been accounted for under the purchase method,
effective September 30, 1994, with operations of Clipper included for the
three-month period ended December 31, 1994. The purchase price has been
allocated to assets and liabilities based on their estimated fair values as
of the date of acquisition. Approximately $49.4 million of goodwill was
recorded as a result of the purchase allocation and is being amortized over a
30-year period.
On October 12, 1994, the Company issued 310,191 shares of common stock for
all of the outstanding stock of Traveller Enterprises and subsidiaries and
Commercial Warehouse Company, collectively (the "Traveller Group"). The
acquisition of the Traveller Group has been accounted for as a pooling of
interests. The Traveller Group's operations are not material to the
Company's consolidated financial statements for any period; therefore,
financial statements for periods prior to the merger have not been restated,
and the financial statements include operations of the Traveller Group from
the date of the combination.
Pro forma unaudited information (as if the Clipper Group and Traveller Group
acquisitions were completed at the beginning of 1993 and the WorldWay
acquisition was completed at the beginning of 1994) for 1995, 1994 and 1993
is as follows:
1995 1994 1993
(thousands, except per share data)
Operating revenues $1,921,432 $2,144,994 $1,149,627
Operating expenses 2,007,421 2,059,351 1,094,340
---------- ---------- ----------
(85,989) 85,643 55,287
Interest expense, net 24,769 21,451 10,602
Minority interest
in subsidiary 1,297 3,523 3,140
Other expense, net 24,069 8,687 2,331
Provision for income taxes
(credit) (46,879) 24,960 18,874
----------- ---------- ---------
Income (loss) before
extraordinary item $ (89,245) $ 27,022 $ 20,340
=========== ========= ==========
Earnings (loss) per common share
before extraordinary item $ (4.79) $ 1.16 $ .84
=========== ========== ==========
Average common shares outstanding 19,544 19,662 19,504
=========== ========== ==========
The above pro forma unaudited information does not purport to be indicative
of the results which actually would have occurred had the acquisitions been
made at the beginning of the respective periods.
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, with additional
customers in foreign countries served by CaroTrans International, Inc. The
Company performs ongoing credit evaluations of its customers and generally
does not require collateral. Historically, credit losses have been within
management's expectations.
Inventories: Inventories, which consist primarily of new tires and retread
tires and supplies used in Treadco's business, are stated at the lower of
cost (first-in, first-out basis) or market.
Property, Plant and Equipment: Purchases of property, plant and equipment are
recorded at cost. For financial reporting purposes, such property is
depreciated principally by the straight-line method, using the following
lives: structures -- 15 to 30 years; revenue equipment -- 3 to 7 years,
manufacturing equipment -- 5 to 8 years; other equipment -- 3 to 10 years;
and leasehold improvements -- 4 to 10 years. For tax reporting purposes,
accelerated depreciation or cost recovery methods are 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 purchased with revenue
equipment are capitalized as a part of the cost of such equipment, with
replacement tires being expensed when placed in service.
Assets Held for Sale: Assets held for sale represents primarily non-
operating freight terminals and other properties, a portion of which were
acquired as a result of the WorldWay acquisition (Note B), which are carried
at the lower of net book value or estimated net realizable value. Also
included in assets held for sale are properties of the Company which are
being replaced by WorldWay facilities. The Company recorded a writedown of
$2.1 million to net realizable value for the Company properties being
replaced. Assets held for sale includes $4.9 million in goodwill that was
specifically identifiable to certain properties being sold.
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.
Income Taxes: Deferred income taxes are accounted for under the liability
method. Deferred income taxes relate principally to asset and liability
basis differences arising from a 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: Motor carrier revenue is recognized based on relative
transit time in each reporting period with expenses recognized as incurred.
Revenue for other segments is recognized generally at the point when goods or
services are provided to the customers.
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. The calculation reduces income
available to common shareholders by preferred stock dividends paid or accrued
during the period.
Compensation to Employees: Stock-based compensation to employees is accounted
for based on the intrinsic value method under Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees." The Company plans
to continue to use this method.
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.
Environmental Matters: The Company expenses environmental expenditures
related to existing conditions resulting from past or current operations and
from which no current or future benefit is discernible. Expenditures which
extend the life of the related property or mitigate or prevent future
environmental contamination are capitalized. The Company determines its
liability on a site by site basis with actual testing at some sites, and
records a liability at the time when it is probable and can be reasonably
estimated. The estimated liability of the Company is not discounted or
reduced for possible recoveries from insurance carriers. (See Note J)
Derivative Financial Instruments: The Company enters into interest-rate swap
agreements and interest-rate cap agreements that are designed to modify the
interest characteristic of outstanding debt or limit exposure to increasing
interest rates. The differential to be paid or received as interest rates
change is accrued and recognized as an adjustment of interest expense related
to the debt (the accrual accounting method). The related amount payable to or
receivable from counterparties is included in accrued liabilities or other
receivables.
Reclassifications: Certain reclassifications have been made to the prior
year financial statements to conform to the current year's presentation.
Recent Accounting Pronouncement: The Company plans to adopt Statement of
Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
effective January 1, 1996. Under SFAS No. 121, impairment losses are
recognized when information indicates the carrying amount of long-lived
assets, identifiable intangibles and goodwill related to those assets will
not be recovered through future operations or sale. Impairment losses for
assets to be held or used in operations will be based on the excess of the
carrying amount of the asset over the asset's fair value. Assets held for
disposal will be carried at the lower of carrying amount or fair value less
cost to sell. SFAS No. 121 will be applied prospectively from the date of
adoption and, based on current circumstances, management does not believe the
effect of adoption will be material.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
NOTE D - INVENTORIES
December 31
1995 1994
($ thousands)
Finished goods $ 25,579 $ 22,764
Materials 7,621 7,487
Repair parts, supplies and other 3,650 2,212
-------- --------
$ 36,850 $ 32,463
======== ========
NOTE E - LONG-TERM DEBT AND CREDIT AGREEMENTS
December 31
1995 1994
($ thousands)
Revolving Credit and Term Loan Facility (1) $ 278,000 $ -
Receivables Purchase Agreement (1) - 40,000
Subordinated Debentures (2) 47,016 -
General Office Agreement (3) 17,000 19,000
Treadco Credit Agreement (4) 10,000 3,000
Capitalized lease obligations (5) 68,303 51,060
Other 5,459 11,396
-------- --------
425,778 124,456
Less current portion 26,634 65,161
-------- --------
$ 399,144 $ 59,295
======== ========
(1) On August 10, 1995 the Company entered into a $350 million credit
agreement (the "Credit Agreement") with Societe Generale, Southwest Agency as
Managing and Administrative Agent and NationsBank of Texas, N.A., as
Documentation Agent, and with 15 other participating banks. The Credit
Agreement includes a $75 million term loan and provides for up to $275
million of revolving credit loans (including letters of credit).
Term Loan and Revolving Credit advances bear interest at one of the following
rates, at the Company's option: (a) Prime Rate advance or (b) Eurodollar
Rate advance. A Prime Rate advance bears an interest rate equal to the
lesser of (i) the Adjusted Prime Rate plus the Applicable Margin and (ii) the
maximum nonusurious interest rate under applicable law. The Adjusted Prime
Rate is equal to the greater of the prime rate offered by Societe Generale
or the Federal Funds Rate plus 1/2%. The Applicable Margin is determined as
a function of the ratio of the Company's consolidated indebtedness to its
consolidated earnings before interest, taxes, depreciation and amortization.
Eurodollar Rate advances shall bear an interest rate per annum equal to the
lesser of (i) the Eurodollar Rate offered by Societe Generale plus the
Applicable Margin and (ii) the maximum nonusurious interest rate under
applicable law. The Company has paid and will continue to pay certain
customary fees for such commitments and advances. At December 31, 1995, the
average interest rate on the Credit Agreement was 7.6%.
There were $203 million of Revolver Advances, $75 million of Term Advances
and approximately $64.1 million of letters of credit outstanding at
December 31, 1995. The Revolver Advances are payable on August 11, 1998.
Outstanding revolving credit advances may not exceed a borrowing base
calculated using the Company's revenue equipment, the Treadco common stock
owned by the Company, and eligible receivables.
The Term Advances are payable in varying installments commencing in November
1996.
The Credit Agreement replaced a $150 million credit agreement with Societe
Generale and a receivable purchase agreement with Renaissance Funding Corp.
and Societe Generale which allowed ABF to sell to Renaissance Funding Corp.
an interest in up to $55 million in a pool of receivables.
The Credit Agreement contains various covenants which limit, among other
things, indebtedness, distributions, asset sales, restricted payments,
investments, loans and advances, as well as requiring the Company to meet
certain financial tests. As of December 31, 1995, the Company was not in
compliance with certain covenants relating to financial tests. On
February 21, 1996, the Company obtained an amendment to the credit agreement
which revised the agreement so that the Company is now in compliance with all
covenants. Under the amended credit agreement, the Company has pledged
substantially all revenue equipment and real property not already pledged
under other debt obligations or capital leases.
The amendment also revised the maturity schedule of the term loan agreement
to revise the loans to be paid off in graduated principal installments
through August 1998. The current portion of long-term debt and the five year
maturity schedule reflected in the consolidated financial statements have
been revised to reflect the amended repayment schedule. The amendment also
requires that net proceeds received from certain asset sales be applied
against the term loan balance.
Also, on February 21, 1996, the Company obtained an additional credit
agreement which provides for borrowings of up to $30 million. This agreement
bears interest at either an adjusted prime rate plus 2% or a maximum rate as
defined in the agreement in the case of prime rate advances, or the
Eurodollar rate plus 3% or a maximum rate as defined in the agreement in the
care of Eurodollar rate advances. The maturity date of this agreement is
March 31, 1997. This agreement contains covenants that are substantially the
same as the covenants contained in the primary credit agreement.
(2) The Subordinated Debentures were issued in April 1986 by WorldWay. The
debentures bear interest at 6.25% per annum, payable semi-annually, on a par
value of $50,000,000. The debentures are payable April 15, 2011. The Company
may redeem the debentures at a price of 101.25% declining to 100% at
April 15, 1996. The Company is required to redeem through a mandatory
sinking fund commencing before April 15, in each of the years from 1997 to
2010, an amount in cash sufficient to redeem $2,500,000 of the aggregate
principal amount of the debentures issued.
(3) The Company entered into a ten-year, $20 million general office term
loan agreement dated as of April 25, 1994 with NationsBank of Texas, N.A., as
agent, and Societe Generale Southwest Agency. The proceeds from the
agreement were used to finance the construction of the Company's new
corporate office building which was completed in February 1995. Amounts
borrowed under the agreement bear interest at 8.07% quarterly, with
installments of $500,000 plus interest due through July 2004.
(4) TREADCO is a party to a revolving credit facility with Societe Generale
(the "TREADCO Credit Agreement") providing for borrowings of up to the lesser
of $20 million or the applicable borrowing base. Borrowings under the
TREADCO Credit Agreement are collateralized by accounts receivable and
inventory. Borrowings under the agreement bear interest, at TREADCO's
option, at 3/4% 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, 1995, the
interest rate was 7.1%. At December 31, 1995, TREADCO had $10 million
outstanding under the Revolving Credit Agreement. The TREADCO credit
agreement is payable in September 1998. 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.
(5) Includes approximately $57,730,000 relative to leases of carrier revenue
equipment with an aggregate net book value of approximately $57,451,000 at
December 31, 1995. These leases have a weighted average interest rate of
approximately 6.9%. Also includes approximately $10,573,000 relative to
leases of computer equipment, various terminals, and a data processing
building expansion, financed by Industrial Revenue Bond Issues, with a
weighted average interest rate of approximately 7.6%. The net book value of
the related assets was approximately $27,772,000 at December 31, 1995.
Annual maturities on long-term debt, excluding capitalized lease obligations
(see Note I), in 1996 through 2000 aggregate approximately $9,646,000;
$42,795,000; $250,733,000; $5,035,000; and $5,014,000, respectively.
Interest paid, net of interest capitalized, was $21,986,000 in 1995,
$6,656,000 in 1994, and $7,226,000 in 1993. Interest capitalized totaled
$230,000 and $582,000 in 1995 and 1994, respectively.
The Company is a party to an interest rate cap arrangement to reduce the
impact of increases in interest rates on its floating-rate long-term debt.
The Company will be reimbursed for the difference in interest rates if the
LIBOR rate exceeds a fixed rate of 9 3/4% applied to notional amounts, as
defined in the contract, ranging from $40 million as of December 31, 1995 to
$2.5 million as of October 1999. As of December 31, 1995 and 1994, the LIBOR
rate was 5.5% and 6.5%, respectively; therefore, no amounts were due to the
Company under this arrangement. In the event that amounts are due under this
agreement in the future, the payments to be received would be recognized as a
reduction of interest expense (the accrual accounting method). Fees totaling
$385,000 were paid in 1994 to enter into this arrangement. These fees are
included in other assets and are being amortized to interest expense over the
life of the contract.
A subsidiary of the Company is party to an interest rate exchange agreement
with Citibank, with a notional amount of $3,260,000 as of December 31, 1995,
that is used to convert the variable interest rate on bonds to a fixed rate
of interest. The terms of the agreement require the Company to pay 11.45%
interest and receive the Citibank base rate, calculated on the notional
amount. The differential to be paid or received as interest rates change is
accrued and recognized as an adjustment of interest expense (the accrual
accounting method). The related amount payable to or receivable from
counterparties is included in accrued expenses or other receivables. The fair
values of the swap agreements are not recognized in the financial statements.
The agreement expired in January 1996.
NOTE F - ACCRUED EXPENSES
December 31
1995 1994
($ thousands)
Accrued salaries, wages and incentive plans $ 17,232 $ 12,397
Accrued vacation pay 32,905 22,114
Accrued interest 2,972 1,964
Taxes other than income 10,475 4,946
Loss, injury, damage and workers'
compensation claims reserves 101,917 35,348
Pension costs 11,628 1,312
Other 11,579 4,076
-------- --------
$ 188,708 $ 82,157
======== ========
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 are as
follows:
December 31
1995 1994
($ thousands)
Deferred tax liabilities:
Depreciation and basis differences
for property, plant and equipment $ 52,834 $ 22,332
Revenue recognition 837 4,610
Basis difference on asset and stock sale 3,190 3,113
Prepaid expenses 3,050 5,019
Equity in earnings of TREADCO 2,087 1,254
-------- --------
Total deferred tax liabilities 61,998 36,328
Deferred tax assets:
Accrued expenses 25,619 2,743
Uniform capitalization of inventories 204 162
Postretirement benefits
other than pensions 1,151 241
Net operating loss carryovers 13,985 -
Alternative minimum tax credit carryovers 4,900 -
Other 832 181
-------- --------
Total deferred tax assets 46,691 3,327
Valuation allowance for
deferred tax assets (1,173) -
-------- --------
Net deferred tax assets 45,518 3,327
-------- --------
Net deferred tax liabilities $ 16,480 $ 33,001
======== ========
Significant components of the provision for income taxes are as follows:
December 31
1995 1994 1993
($ thousands)
Current (credit):
Federal $ (5,200) $ 12,595 $ 18,263
State - 2,148 3,123
-------- -------- --------
Total current (credit) (5,200) 14,743 21,386
Deferred (credit):
Federal (6,751) 2,670 (1,786)
State (2,244) 519 (322)
-------- -------- --------
Total deferred (credit) (8,995) 3,189 (2,108)
-------- -------- --------
Total income tax expense
(credit) $ (14,195) $ 17,932 $ 19,278
======== ======== ========
A reconciliation between the effective income tax rate, as computed on income
before extraordinary item, and the statutory federal income tax rate is
presented in the following table:
Year Ended December 31
1995 1994 1993
($ thousands)
Income tax (benefit) at the
statutory federal rate of 35% $ (16,445) $ 12,824 $ 14,088
Federal income tax effects of:
State income taxes 788 (933) (981)
Amortization of nondeductible
goodwill 1,680 1,031 1,058
Other nondeductible expenses 1,407 969 490
Minority interest 454 1,233 1,099
Undistributed earnings
of TREADCO 77 210 189
Rate difference for TREADCO (41) (108) (98)
Retroactive tax rate change
effect on deferred taxes - - 677
Other 130 39 (45)
-------- -------- --------
Federal income taxes (benefit) (11,950) 15,265 16,477
State income taxes (benefit) (2,245) 2,667 2,801
-------- -------- --------
$ (14,195) $ 17,932 $ 19,278
======== ======== ========
Effective tax rate (31.06)% 48.9% 47.9%
======== ======== ========
Income taxes paid were $9,900,000 in 1995, $12,368,000 in 1994, and
$20,740,000 in 1993.
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.
As of December 31, 1995, the Company has federal net operating loss and state
operating loss carryovers of approximately $32,000,000 and $72,000,000,
respectively. The federal net operating loss carryovers expire beginning in
2010. State net operating loss carryovers expire generally in five to seven
years. The Company has alternative minimum tax credits of approximately
$4,900,000 at December 31, 1995 which carry over indefinitely.
For financial reporting purposes, a valuation allowance of approximately
$1,173,000 has been established for certain state net operating loss
carryovers for which realization is uncertain.
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. Dividends of
$4,298,000 were paid during 1995 and 1994.
A portion of the proceeds of the preferred stock offering were used to repay
a $50 million term loan. In connection with the payment of the term loan, a
loss on extinguishment of debt of $167,000 net of income tax benefit of
$103,000 was incurred.
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, which was amended in 1995 to
provide an additional 1,000,000 shares. In January 1996, 1,079,000 options
were granted.
In 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. This plan was terminated in May
1994. The options previously granted under this plan will continue in effect
according to their terms.
Option transactions are summarized as follows:
1995 1994
Options outstanding at the
beginning of the year 628,900 589,100
Options granted 75,500 54,700
Options canceled - (11,460)
Options exercised (15,700) (3,440)
------- -------
Options outstanding as of December 31 688,700 628,900
======= =======
Option price range as of December 31 $9.50 to $13.88
===============
Options exercisable at December 31, 1995 338,540
=======
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.
Due to the extent of management shareholders of a predecessor company
continuing their ownership interest in the Company subsequent to a 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.
NOTE I - LEASES AND COMMITMENTS
Rental expense amounted to approximately $84,751,000 in 1995, $72,802,000 in
1994, and $58,369,000 in 1993. These amounts include $27,297,000, $31,686,000
and $17,843,000, respectively, for month-to-month rentals of revenue
equipment.
The future minimum rental commitments, net of future minimum rentals to be
received under noncancellable subleases, as of December 31, 1995 for all
noncancellable operating leases are as follows:
Terminals Equipment
and Retread and
Period Total Plants Other
($ thousands)
1996 $ 35,959 $ 11,672 $ 24,287
1997 27,851 7,965 19,886
1998 17,190 5,479 11,711
1999 9,634 3,607 6,027
2000 6,202 2,040 4,162
Thereafter 10,430 7,890 2,540
-------- -------- --------
$ 107,266 $ 38,653 $ 68,613
======== ======== ========
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 $3,446,000 at December 31, 1995.
The future minimum payments under capitalized leases at December 31, 1995,
consisted of the following ($ thousands):
1996 $ 21,188
1997 13,509
1998 15,355
1999 12,788
2000 8,903
Thereafter 9,402
--------
Total minimum lease payments 81,145
Amounts representing interest 12,842
--------
Present value of net minimum lease
included in long-term debt - Note E $ 68,303
========
Assets held under capitalized leases are included in property, plant and
equipment as follows:
December 31
1995 1994
($ thousands)
Revenue equipment $ 80,232 $ 80,318
Land and structures 30,138 4,726
-------- --------
110,370 85,044
Less accumulated amortization 25,147 32,291
-------- --------
$ 85,223 $ 52,753
======== ========
The revenue equipment leases have remaining terms from one 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 $25,118,000, $15,793,000, and $17,885,000 were
incurred for the years ended December 31, 1995, 1994 and 1993, respectively.
NOTE J - LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS AND OTHER EVENTS
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 a subsidiary. Plaintiffs have
asserted state law, Employee Retirement Income Security Act of 1974 and
securities claims against the Company in connection 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.
In November, 1995 Daily Transport Canada, Inc. ("Daily"), a Toronto-based LTL
carrier, and related companies served a Request for Arbitration against ABF,
as successor to Carolina Freight Carriers Corporation ("CFCC"), for its lost
profits claimed to be in the amount of $15,000,000 resulting from the alleged
breach of a contract between CFCC and Daily. Daily claims that ABF breached
an agreement for Daily to handle, through the year 2003, all CFCC freight
movements in Ontario and Quebec, Canada. ABF has filed a federal court
action in North Carolina seeking to stay arbitration of the alleged agreement
on the grounds that the agreement is not valid and contesting Daily's
calculation of damages. ABF is vigorously defending the arbitration.
Based on information currently available, the Company does not believe that
the outcome of this matter will have a material adverse effect on the
Company's financial condition or results of operations
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, subject to certain self-insured retention limits.
ABF stores some fuel for its tractors and trucks in approximately 188
underground tanks located in 34 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 $250,000 over the last five
years), or believes its obligations with respect to such sites would involve
immaterial monetary liability, although there can be no assurances in this
regard.
As of December 31, 1995, the Company has accrued approximately $1,700,000 to
provide for environmental-related liabilities. The Company's environmental
accrual is based on management's best estimate of the actual liability. The
Company's estimate is founded on management's experience in dealing with
similar environmental matters and on actual testing performed at some sites.
Management believes that the accrual is adequate to cover environmental
liabilities based on the present environmental regulations.
In August 1995, Bandag Incorporated ("Bandag"), TREADCO's tread rubber
supplier and franchiser of the retreading process used by substantially all
of TREADCO's locations, announced that certain franchise agreements would not
be renewed upon expiration in 1996. Bandag subsequently advised TREADCO that
unless TREADCO uses the Bandag process exclusively, Bandag will not renew any
of TREADCO's franchise agreements when they expire.
In October 1995, TREADCO announced it had reached an agreement for Oliver
Rubber Company ("Oliver") to be a supplier of equipment and related materials
for TREADCO's truck tire precure retreading business. The agreement provides
that Oliver will supply TREADCO with retreading equipment and related
materials for the eight production facilities whose Bandag franchises expire
in 1996 and any other TREADCO facilities which cease being a Bandag
franchised location. Also in October TREADCO sent Bandag notice of
termination of certain of its franchise agreements.
Under the franchise agreements, Bandag has the right to purchase retread
equipment supplied to TREADCO by Bandag at its fair market value at locations
that cease being a Bandag franchise, and Bandag has exercised this option at
the locations where franchises were terminated. TREADCO is installing
equipment provided by Oliver immediately upon the removal of the equipment
supplied by Bandag. The Company plans to have all locations converted to the
Oliver process by the end of the third quarter of 1996. Management of TREADCO
does not believe that the carrying value of the Bandag supplied equipment at
December 31, 1995 exceeds the fair market value of the equipment. Also,
TREADCO has accrued the cost of equipment removed at December 31, 1995,
estimated at $840,000.
NOTE K - EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries have noncontributory defined benefit pension
plans covering substantially all noncontractual employees. Benefits are
based on years of service and employee compensation. Contributions are made
based upon at least the minimum amounts required to be funded under
provisions of the Employee Retirement Income Security Act of 1974, with the
maximum amounts not to exceed the maximum amount deductible under the
Internal Revenue Code. The plans' assets are held in bank-administered trust
funds and are primarily invested in government and equity securities.
Additionally, the Company participates in several multiemployer plans, which
provide defined benefits to the Company's union employees. In the event of
insolvency or reorganization, plan terminations or withdrawal by the Company
from the multiemployer plans, the Company may be liable for a portion of the
plan's unfunded vested benefits, the amount of which, if any, has not been
determined. The merger of Carolina Freight into ABF was not considered a
withdrawal.
A summary of the components of net periodic pension costs for the defined
benefit plans for the periods indicated and the total contributions charged
to pension expense for the multiemployer plans follows:
Year Ended December 31
1995 1994 1993
($ thousands)
Defined Benefit Plans
Service cost - benefits
earned during the year $ 5,075 $ 4,492 $ 4,225
Interest cost on projected
benefit obligations 8,095 5,249 5,675
Actual return on plan assets
(gain) loss (25,632) 220 (6,656)
Net amortization and deferral 17,906 (5,379) 1,542
-------- -------- --------
Net pension cost of defined
benefit plans 5,444 4,582 4,786
Multiemployer Plans 51,951 40,833 37,846
-------- -------- --------
Total pension expense $ 57,395 $ 45,415 $ 42,632
======== ======== ========
Assumptions used in determining net periodic pension cost for the defined
benefit plans were:
Year Ended December 31
1995 1994 1993
Weighted average discount rate 7.80% to 8.73% 7.24% 8.49%
Annual compensation increases 3.00% 3.00% 5.00%
Expected long-term rates of
return on assets 8.00% to 9.00% 9.00% 9.25%
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:
1995 1994
Plans for Which Plans for Which
Assets Exceed Accumulated
Accumulated Benefits
Benefits Exceed Assets
($ thousands)
Actuarial present value
of benefit obligations:
Vested benefit obligation $(104,914) $ (21,058) $(50,826)
========= ========= ========
Accumulated benefit
obligation $(113,604) $ (22,211) $(57,630)
========= ========= ========
Projected benefit obligation $(138,787) $ (23,091) $(72,469)
Plan assets at fair value 150,182 17,107 67,403
--------- --------- --------
Projected benefit obligation
(in excess of) or less than
plan assets 11,395 (5,984) (5,066)
Unrecognized net loss 13,852 2,911 9,159
Prior service benefit not yet
recognized in net periodic
pension cost 672 37 206
Unrecognized net asset at
January 1, 1987, net of
amortization (63) (1) (68)
Adjustment required to
recognize minimum liability - (2,067) (212)
--------- --------- --------
Net pension asset (liability) $ 25,856 $ (5,104) $ 4,019
========= ========= ========
The net pension asset recorded as of December 31, 1995 reflects the impact of
a curtailment gain of approximately $15.0 million which was recorded as part
of the purchase allocation in conjunction with the WorldWay acquisition.
At December 31, 1995, the net pension asset is reflected in the accompanying
financial statements as an accrued expense of $11,628,000 and a noncurrent
asset of $32,380,000 included in other assets. At December 31, 1994, the net
pension asset is reflected in the accompanying financial statements as an
accrued expense of $1,312,000 and a noncurrent asset of $5,331,000 included
in other assets.
The Company recognized an additional minimum liability of $1,041,000 as a
charge to equity due to one plan's accumulated benefit obligation exceeding
the fair value of plan assets.
The following assumptions were used in determining the pension obligation:
December 31
1995 1994
Weighted average discount rate 7.10% 8.73%
Annual compensation increases 3.00% 3.00%
Expected long-term rates of return on assets 7.50% to 9.00% 9.00%
The Company has deferred compensation agreements with certain executives for
which liabilities aggregating $1,479,000 and $1,309,000 as of December 31,
1995 and 1994, respectively, have been recorded.
The Company also 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 plans or
are designated as participants in the plan by the Company's Board of
Directors. As of December 31, 1995, the Company has a liability of
$2,349,000 for future costs under this plan with $1,534,000 reflected in the
accompanying consolidated financial statements as an accrued expense and
$815,000 included in other liabilities. At December 31, 1994, the Company
had a liability of $2,005,000 for future costs under this plan.
An additional benefit plan provides certain death and retirement benefits for
certain officers and directors of WorldWay and its former subsidiaries. The
Company has a liability of $3,711,000 for future costs under this plan
reflected as other liabilities in the accompanying consolidated financial
statements. Worldway has insurance policies on the participant's lives in
amounts which are generally sufficient to fund benefits under the plan.
The Company has various defined contribution plans which cover substantially
all of its employees. Prior to October, 1995, participation was limited to
those employees not covered by a collective bargaining agreement. In October,
1995, the Company amended its plans to allow participation by collective
bargaining employees. The plans permit participants to defer a portion of
their salary up to a maximum ranging by plan from 8% to 15% as provided in
Section 401(k) of the Internal Revenue Code. The Company matches the
participant contributions up to a specified limit ranging from 1% to 4% in
1995. The matching contributions may be made in cash or Company stock. The
plans also allow for discretionary Company contributions determined annually.
The Company's expense for the defined contribution plans totaled $1,412,000
for 1995, $955,000 for 1994, and $875,000 for 1993.
TREADCO has 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 1995, 1994, and 1993. 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 plans are noncontributory, with the Company paying up to 80% of covered
charges incurred by participants of the plan.
The following table represents the amounts recognized in the Company's
consolidated balance sheets:
December 31
1995 1994
Accumulated postretirement benefit obligation:
Retirees $ (2,926) $ (1,268)
Fully eligible active plan participants (417) (400)
Other active plan participants (1,419) (1,036)
-------- --------
(4,762) (2,704)
Unrecognized net gain (83) (315)
Unrecognized transition obligation 2,287 2,421
-------- --------
Accrued postretirement benefit cost $ (2,558) $ (598)
======== ========
Net periodic postretirement benefit cost includes the following components:
1995 1994 1993
Service cost $ 51 $ 59 $ 53
Interest cost 282 212 223
Amortization of transition
obligation over 20 years 135 135 134
-------- -------- --------
Net periodic postretirement
benefit cost $ 468 $ 406 $ 410
======== ======== ========
The weighted-average annual assumed rate of increase in the per capita cost
of covered benefits (in health care cost trend) is 9.5 to 11.0% for 1996
(10.5% for 1995) and is assumed to decrease gradually to 4.5% in years 2007
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, 1995, by $543,000 and the aggregate of
the service and interest cost components of net periodic postretirement
benefit cost for 1995 by $43,000.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.10% at December 31, 1995 and 8.73% at
December 31, 1994.
Additionally, the Company's union employees are provided postretirement
health care benefits through defined benefit 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 $63,500,000, $48,300,000, and
$45,400,000 for the years ended December 31, 1995, 1994, and 1993,
respectively.
In October 1995, the Company adopted a performance award program, subject to
shareholder approval. Upon award, the units will be valued equal to the
closing price per share of the Company's common stock on the date awarded.
The vesting provisions and the return on equity target will be set upon
award.
NOTE L - OPERATING EXPENSES AND COSTS
Year Ended December 31
1995 1994 1993
($ thousands)
LESS-THAN-TRUCKLOAD
MOTOR CARRIER OPERATIONS
Salaries and wages $ 779,453 $ 613,187 $ 594,213
Supplies and expenses 120,439 96,210 99,146
Operating taxes and licenses 45,906 35,928 35,152
Insurance 24,122 18,237 16,835
Communications and utilities 26,776 22,639 23,680
Depreciation and amortization 37,822 24,302 25,714
Rents and purchased
transportation 76,823 67,550 53,192
Other 8,219 4,298 3,779
---------- ---------- ---------
1,119,560 882,351 851,711
TRUCKLOAD MOTOR CARRIER
OPERATIONS
Salaries and wages 9,746 - -
Supplies and expenses 4,530 - -
Operating taxes and licenses 2,571 - -
Insurance 980 - -
Communications and utilities 420 - -
Depreciation and amortization 1,249 - -
Rents and purchased
transportation 5,348 - -
Other 108 - -
---------- --------- ---------
24,952 - -
FORWARDING OPERATIONS
Cost of services 117,455 26,817 -
Selling, administrative
and general 18,711 3,542 -
---------- ---------- ----------
136,166 30,359 -
LOGISTICS OPERATIONS
Cost of services 30,588 7,100 2,915
Selling, administrative,
and general 3,711 1,388 821
---------- ---------- ----------
34,299 8,488 3,736
TIRE OPERATIONS
Cost of sales 108,686 100,909 79,718
Selling, administrative
and general 31,642 26,206 21,522
---------- ---------- ---------
140,328 127,115 101,240
SERVICE AND OTHER 5,433 1,993 1,862
---------- ---------- ---------
$1,460,738 $1,050,306 $ 958,549
========== ========== ==========
NOTE M - BUSINESS SEGMENT DATA
The Company operates in five defined business segments: 1) LTL operations,
which includes ABF and G.I. Trucking; 2) Forwarding operations, including
the Clipper Group and CaroTrans; 3) Truckload operations, which includes
Cardinal; 4) Logistics, which includes the Company's three logistics
subsidiaries, and 5) Tire operations, which includes the operation of
TREADCO. The segment information for prior periods has been restated to
reflect the Company's current reported business segments.
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
1995 1994 1993
($ thousands)
OPERATING PROFIT (LOSS)
Less than truckload motor
carrier operations $ (32,915) $ 35,622 $ 41,645
Truckload motor carrier
operations 3,031 - -
Forwarding operations 2,821 695 -
Logistics operations (2,611) (968) (834)
Tire operations 4,424 11,079 10,186
Other (3,393) 719 (359)
--------- -------- --------
TOTAL OPERATING PROFIT (LOSS) (28,644) 47,147 50,638
Interest expense 17,046 6,985 7,248
Minority interest 1,297 3,523 3,140
-------- -------- --------
INCOME (LOSS)BEFORE
INCOME TAXES AND
EXTRAORDINARY ITEMS $ (46,987) $ 36,639 $ 40,250
======== ======== ========
IDENTIFIABLE ASSETS
Less than truckload motor
carrier operations $ 675,412 $ 374,128 $ 331,507
Truckload motor carrier
operations 31,365 - -
Forwarding operations 75,754 73,816 -
Logistics operations 25,062 7,120 1,313
Tire operations 94,658 89,231 80,377
Other 36,014 5,487 8,695
-------- -------- --------
938,265 549,782 421,892
General corporate assets 47,572 19,263 25,841
-------- -------- --------
TOTAL ASSETS $ 985,837 $ 569,045 $ 447,733
======== ======== ========
DEPRECIATION AND AMORTIZATION
EXPENSE
Less than truckload motor
carrier operations 40,045 $ 26,630 $ 28,043
Truckload motor carrier 1,249 - -
Forwarding operations 2,779 609 -
Logistics operations 2,598 501 195
Tire operations 4,082 3,444 2,614
Other 2,053 931 797
-------- -------- --------
$ 52,806 $ 32,115 $ 31,649
======== ======== ========
CAPITAL EXPENDITURES
Less than truckload motor
carrier operations $ 61,250 $ 58,110 $ 26,530
Truckload motor carrier
operations 2,127 - -
Forwarding operations 426 19 -
Logistics operations 5,532 116 491
Tire operations 5,429 5,684 6,137
Other 44 169 1
-------- -------- --------
$ 74,808 $ 64,098 $ 33,159
======== ======== ========
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 and the receivables purchase agreement
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, 1995 are as follows:
Carrying Fair
Amount Value
($ thousands)
Cash and cash equivalents $ 16,945 $ 16,945
Short-term debt 6,719 6,776
Long-term debt 350,756 348,560
NOTE O - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The tables below present unaudited quarterly financial information for 1995
and 1994:
1995
Three Months Ended
March 31 June 30 September 30 December 31
($ thousands, except per share amount)
Operating revenues $311,207 $ 312,094 $398,551 $ 415,427
Operating expenses
and costs 297,853 304,890 412,691 445,304
-------- -------- --------- --------
Operating income (loss) 13,354 7,204 (14,140) (29,877)
Other expense - net 3,596 2,919 6,632 10,381
Income taxes (credit) 4,616 2,602 (7,643) ( 13,770)
-------- -------- -------- --------
Net income (loss) $ 5,142 $ 1,683 $(13,129) $ (26,488)
======== ======== ========= ========
Net income (loss)
per share $ .21 $ .03 $ (.73) $ (1.41)
======== ======== ========= ========
Average shares out-
standing - Note H 19,566,404 19,515,132 19,549,160 19,529,408
========== ========== ========== ==========
1994
Three Months Ended
March 31 June 30 September 30 December 31
($ thousands, except per share amount)
Operating revenues $264,981 $ 210,760 $294,251 $ 328,429
Operating expenses
and costs 252,363 212,331 274,753 310,859
-------- -------- --------- --------
Operating income (loss) 12,618 (1,571) 19,498 17,570
Other expense - net 2,382 2,483 2,767 3,844
Income taxes (credit) 4,661 (646) 7,530 6,387
-------- -------- -------- --------
Net income (loss) $ 5,575 $ (3,408) $ 9,201 $ 7,339
======== ======== ======== ========
Net income (loss)
per share $ .23 $ (.23) $ .42 $ .32
======== ======== ======== ========
Average shares out-
standing - Note H 19,339,389 19,200,077 19,306,326 19,491,560
========== ========== ========== ==========
SCHEDULE II
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, 1995:
Deducted from asset accounts:
Allowance for doubtful
accounts receivable $ 2,825 $ 4,185 $ 1,414(A) $ 9,838(B) $ 19,403
20,817(C)
============ ============ =========== ============= ===========
Year Ended December 31, 1994:
Deducted from asset accounts:
Allowance for doubtful
accounts receivable $ 2,200 $ 2,935 $ 962(A) $ 3,272(B) $ 2,825
============ ============ =========== ============ ============
Year Ended December 31, 1993:
Deducted from asset accounts:
Allowance for doubtful
accounts receivable $ 1,850 $ 1,902 $ 909(A) $ 2,461(B) $ 2,200
============ ============ =========== ============ ============
Note A - Recoveries of amounts previously written off.
Note B - Uncollectible accounts written off.
Note C - The allowance for doubtful accounts of WorldWay as of date of
acquisition.
FORM 10-K -- ITEM 14(c)
EXHIBIT INDEX
ARKANSAS BEST CORPORATION
The following exhibits are filed with this report or are incorporated by
reference to previously filed material.
Exhibit
No.
3.1 Restated Certificate of Incorporation of the Company (previously
filed as Exhibit 3.1 to the Company's Registration Statement on
Form S-1 under the Securities Act of 1933 filed with the Commission
on March 17, 1992, Commission File No. 33-46483, and incorporated
herein by reference).
3.2 Amended and Restated Bylaws of the Company (previously filed as
Exhibit 3.2 to the Company's Registration Statement on Form S-1
under the Securities Act of 1933 filed with the Commission on
March 17, 1992, Commission File No. 33-46483, and incorporated
herein by reference).
4.1 Form of Indenture, between the Company and Harris Trust and Savings
Bank, with respect to $2.875 Series A Cumulative Convertible
Exchangeable Preferred Stock (previously filed as Exhibit 4.4 to
Amendment No. 2 to the Company's Registration Statement on Form S-1
under the Securities Act of 1933 filed with the Commission on
January 26, 1993, Commission File No. 33-56184, and incorporated
herein by reference).
4.2 Indenture between Carolina Freight Corporation and First Union
National Bank, Trustee with respect to 6 1/4% Convertible
Subordinated Debentures Due 2011 (previously filed as Exhibit 4-A
to the Carolina Freight Corporation's Registration Statement on
Form S-3 filed with the Commission on April 11, 1986, Commission
File No. 33-4742, and incorporated herein by reference).
10.1 Stock Option Plan (previously filed as Exhibit 10.3 to the
Company's Registration Statement on Form S-1 under the Securities
Act of 1933 filed with the Commission on March 17, 1992, Commission
File No. 33-46483, and incorporated herein by reference).
10.2 The Company's Supplemental Benefit Plan (previously filed as
Exhibit 10.6 to the Company's Registration Statement on Form S-1
under the Securities Act of 1933 filed with the Commission on
March 17, 1992, Commission File No. 33-46483, and incorporated
herein by reference).
10.3 $346,971,321 Amended and Restated Credit Agreement dated as of
February 21, 1996 among the Company as the Borrower, Societe
Generale, Southwest Agency as Managing Agent and Administrative
Agent, NationsBank of Texas, N.A. as Documentation Agent and the
Banks named herein as the Banks (previously filed as Exhibit 99.1
to the Company's Current Report on Form 8-K, filed with the
Commission on February 28, 1996, Commission File No. 0-19969, and
incorporated herein by reference).
10.4 $30,000,000 Credit Agreement dated as of February 21, 1996 among
Arkansas Best Corporation as the Borrower, Societe Generale,
Southwest Agency as Agent, and the Banks named herein as the Banks
(previously filed as Exhibit 99.2 to the Company's Current Report
on Form 8-K, filed with the Commission on February 28, 1996,
Commission File No. 0-19969, and incorporated herein by reference).
10.5 National Master Freight Agreement with the International
Brotherhood of Teamsters dated as of April 1, 1994.
10.6 Arkansas Best Corporation Performance Award Unit Program effective
January 1, 1996
11 Statement Re: Computation of Earnings per Share
21 List of Subsidiary Corporations
23 Consent of Independent Auditors
27 Financial Data Schedule