<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarter Ended March 31, 1999
----------------
[ ] 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 0-19390
---------
TREADCO, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
Delaware 7534 and 5531 71-0706271
- ------------------------------- ---------------------------- -------------------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
</TABLE>
1000 South 21st Street
Fort Smith, Arkansas 72901
(501) 788-6400
-----------------------------------------
(Address, including zip code, and
telephone number, including area code, of
registrant's principal executive offices)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of The Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 26, 1999
- ---------------------------- -----------------------------
Common Stock, $.01 par value 5,072,255 shares
<PAGE> 2
TREADCO, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Balance Sheets --
March 31, 1999 and December 31, 1998................................................. 3
Statements of Operations --
For the Three Months Ended March 31, 1999 and 1998................................... 5
Statements of Cash Flows --
For the Three Months Ended March 31, 1999 and 1998................................... 6
Notes to Financial Statements -- March 31, 1999 ..................................... 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................................. 10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings ................................................................... 16
ITEM 2. Changes in Securities ............................................................... 16
ITEM 3. Defaults Upon Senior Securities ..................................................... 16
ITEM 4. Submission of Matters to a Vote of Security Holders ................................. 16
ITEM 5. Other Information ................................................................... 16
ITEM 6. Exhibits and Reports on Form 8-K .................................................... 16
SIGNATURES ..................................................................................... 17
EXHIBIT INDEX ..................................................................................... 18
</TABLE>
2
<PAGE> 3
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TREADCO, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1999 1998
-------------- --------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Accounts receivable:
Trade receivables, less allowance for
doubtful accounts (1999 -- $1,210,588;
1998 -- $1,326,226 ) $ 20,340,940 $ 21,084,591
Other (primarily national accounts
and volume rebates) 3,861,504 6,085,814
Due from affiliates 83,220 104,000
Inventories 30,452,891 30,670,287
Prepaid expenses 259,003 260,808
Deferred income taxes 1,437,665 1,360,417
-------------- --------------
TOTAL CURRENT ASSETS 56,435,223 59,565,917
PROPERTY, PLANT AND EQUIPMENT
Land 4,708,599 5,084,410
Structures 15,243,824 16,369,622
Retreading and other equipment 38,874,728 35,197,911
-------------- --------------
58,827,151 56,651,943
Less allowances for depreciation (22,767,423) (22,338,592)
-------------- --------------
36,059,728 34,313,351
OTHER ASSETS
Goodwill, less amortization
(1999 -- $4,486,292; 1998 -- $4,370,795) 12,116,667 12,232,164
Deferred income taxes 160,956 145,526
Other 1,400,219 1,113,431
-------------- --------------
13,677,842 13,491,121
-------------- --------------
$ 106,172,793 $ 107,370,389
============== ==============
</TABLE>
3
<PAGE> 4
TREADCO, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1999 1998
-------------- --------------
(UNAUDITED) (NOTE)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ 563,688 $ 3,036,732
Trade accounts payable 16,798,194 17,905,325
Due to affiliate 876,387 809,683
Accrued salaries, wages and other expenses 8,794,594 8,562,858
Federal and state income taxes 146,303 3,033,597
Current portion of long-term debt 2,422,985 2,544,645
-------------- --------------
TOTAL CURRENT LIABILITIES 29,602,151 35,892,840
LONG-TERM DEBT, less current portion 11,733,229 6,159,351
OTHER LIABILITIES 104,057 102,398
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share --
authorized 2,000,000 shares; none issued -- --
Common stock, par value $.01 per share --
authorized 18,000,000 shares; issued and
outstanding 5,072,255 shares 50,723 50,723
Additional paid-in capital 45,623,346 45,623,346
Retained earnings 19,059,287 19,541,731
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 64,733,356 65,215,800
COMMITMENTS AND CONTINGENCIES
$ 106,172,793 $ 107,370,389
============== ==============
</TABLE>
Note: The balance sheet at December 31, 1998 has been derived from audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
TREADCO, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1999 1998
-------------------------------------
(UNAUDITED)
<S> <C> <C>
SALES
Non-affiliates $ 40,460,114 $ 36,554,973
Affiliates 484,280 949,975
-------------- --------------
40,944,394 37,504,948
COSTS AND EXPENSES
Materials and cost of new tires 26,551,866 24,676,323
Salaries and wages 7,994,496 7,010,541
Depreciation and amortization 1,659,701 1,487,801
Administrative and general 4,993,745 4,906,777
-------------- --------------
41,199,808 38,081,442
-------------- --------------
OPERATING LOSS (255,414) (576,494)
OTHER INCOME
Interest income 10,700 11,121
Gain on asset sales 311,188 22,725
Other -- 51,139
-------------- --------------
321,888 84,985
OTHER EXPENSES
Tender offer response costs 310,000 --
Interest 176,098 299,010
Amortization of goodwill 115,497 115,497
Amortization of noncompete agreements -- 65,312
Other 516 --
-------------- --------------
602,111 479,819
-------------- --------------
LOSS BEFORE INCOME TAXES (535,637) (971,328)
FEDERAL AND STATE INCOME TAXES (CREDIT)
Current 39,485 (295,965)
Deferred (92,678) (47,897)
-------------- --------------
(53,193) (343,862)
-------------- --------------
NET LOSS $ (482,444) $ (627,466)
============== ==============
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.10) $ (0.12)
============== ==============
CASH DIVIDENDS PAID PER COMMON SHARE $ .00 $ .00
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
TREADCO, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1999 1998
-------------------------------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (482,444) $ (627,466)
Adjustments to reconcile net loss to
net cash provided (used) by operating activities:
Depreciation and amortization 1,659,701 1,487,801
Amortization of goodwill 115,497 115,497
Amortization of noncompete agreements -- 65,312
Provision for losses on accounts receivable 192,782 385,844
Provision (credit) for deferred income taxes (92,678) (47,897)
Gain on asset sales (311,188) (22,725)
Changes in operating assets and liabilities:
Receivables 2,775,179 2,210,919
Inventories and prepaid expenses 219,201 (1,159,327)
Federal and state income taxes refundable -- (279,462)
Other assets (286,788) 38,355
Trade accounts payable, accrued expenses (4,152,923) 195,777
Due to/from affiliates 87,484 (119,274)
Other liabilities 1,659 5,346
-------------- --------------
NET CASH (USED) PROVIDED BY
OPERATING ACTIVITIES (274,518) 2,248,700
INVESTING ACTIVITIES
Purchases of plant facilities and other property
and equipment, less notes payable (4,835,841) (821,181)
Construction in progress -- (641,671)
Proceeds from asset sales 2,131,185 22,725
-------------- --------------
NET CASH USED BY INVESTING ACTIVITIES (2,704,656) (1,440,127)
FINANCING ACTIVITIES
Borrowings under revolving credit facility 19,600,000 14,400,000
Payments under revolving credit facility (13,550,000) (15,400,000)
Principal payments on other long-term debt
and capitalized lease obligations (597,782) (584,636)
Net (decrease) increase in cash overdrafts (2,473,044) 776,063
-------------- --------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 2,979,174 (808,573)
-------------- --------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS -- --
Cash and cash equivalents at beginning of period -- --
-------------- --------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ -- $ --
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
TREADCO, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
- --------------------------------------------------------------------------------
NOTE A -- ORGANIZATION
Treadco, Inc. (the "Company") was organized in June 1991 as the successor to the
truck tire retreading and new truck tire sales business previously conducted and
developed by a wholly owned subsidiary of Arkansas Best Corporation ("ABC"). In
September 1991, the Company completed an initial public offering. At March 31,
1999, ABC owned approximately 49% of the Company's outstanding shares. See Note
H.
NOTE B -- FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial statements
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1999, are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999. For further information, refer to the Company's financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
NOTE C -- INVENTORIES
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1999 1998
-------------- --------------
<S> <C> <C>
New tires and finished retreaded tires $ 25,469,982 $ 25,523,111
Materials and supplies 4,982,909 5,147,176
-------------- --------------
$ 30,452,891 $ 30,670,287
============== ==============
</TABLE>
NOTE D - COMPREHENSIVE INCOME
During the quarter, the Company had no items of comprehensive income therefore,
total comprehensive income is equivalent to net income (loss).
7
<PAGE> 8
TREADCO, INC.
NOTES TO FINANCIAL STATEMENTS -- Continued
NOTE E - NET LOSS PER COMMON SHARE
The following table sets forth the computation of basic and diluted loss per
share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1999 1998
--------------------------------------
(UNAUDITED)
<S> <C> <C>
NUMERATOR:
Numerator for basic and diluted earnings
per share - loss available for
common stockholders $ (482,444) $ (627,466)
============== ==============
DENOMINATOR:
Denominator for basic earnings per share -
Weighted-average shares 5,072,225 5,072,255
Effect of dilutive securities:
Employee stock options -- --
-------------- --------------
Dilutive potential common shares -- --
Denominator for diluted earnings per share -
adjusted weighted-average shares
and assumed conversions 5,072,255 5,072,255
============== ==============
Basic and diluted loss per common share $ (0.10) $ (0.12)
============== ==============
</TABLE>
NOTE F -- LITIGATION
The Company is not a party to any pending legal proceedings which management
believes to be material to the results of operations, cash flows or the
financial condition of the Company.
NOTE G -- LONG-TERM DEBT
The Company is a party to a revolving credit facility with Societe Generale,
Southwest Agency (the "Credit Agreement") providing for borrowings of up to the
lesser of $20 million or the applicable borrowing base. The Company's borrowing
base under the Credit Agreement is equal to 80% of its eligible accounts
receivable and 50% of its tire casings, new tires and finished retreads
inventories. At March 31, 1999, the borrowing base was $29.4 million. The Credit
Agreement expires in September 2001 unless renewed or extended. At March 31,
1999, the weighted average interest rate on advances under the Credit Agreement
was 6.5%. The Company pays a commitment fee on the unused portion of the Credit
Agreement at variable rates determined under the Credit Agreement. At March 31,
1999, the commitment fee was 0.25%. The Credit Agreement contains various
covenants which limit, among other things, dividends, disposition of
receivables, indebtedness and investments, as well as requiring the Company to
meet certain financial tests. The Company was in compliance with the covenants
at March 31, 1999.
8
<PAGE> 9
TREADCO, INC.
NOTES TO FINANCIAL STATEMENTS -- Continued
NOTE H - RECENT ACCOUNTING STANDARDS
Accounting for Costs of Computer Software: In March 1998, the Accounting
Standards Executive Committee of the American Institute of CPA's ("AcSEC")
issued Statement of Position ("SOP") 98-1, Accounting for Costs of Computer
Software Developed For or Obtained For Internal Use. Under the SOP, qualifying
computer costs incurred during the "application development stage" are required
to be capitalized and amortized to income over the software's estimated useful
life. The Company adopted Statement of Position 98-1 on January 1, 1999. During
the three months ended March 31, 1999, the Company capitalized $51,000 of
software development costs.
Accounting for the Costs of Start-Up Activities: In April 1998, the AcSEC issued
Statement of Position 98-5, Reporting on the Costs of Start-Up Activities. Under
the SOP, certain costs associated with start-up activities are required to be
expensed as incurred. The Company adopted Statement of Position 98-5 on January
1, 1999. This statement had no impact on the Company's financial statements
since the Company has historically expensed start-up costs.
Derivative Instruments and Hedging Activities: In June 1998, the FASB issued
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities.
The Statement addresses the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, and hedging
activities. The Statement will require the Company to recognize all derivatives
on the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If a derivative is a hedge, depending on
the nature of the hedge, changes in the fair value of the derivative will either
be offset against the change in fair value of the hedged asset, liability, or
firm commitment through earnings, or recognized in other comprehensive income
until the hedged item is recognized in earnings. The Statement is effective for
the Company in 2000. The Company is evaluating the impact the Statement will
have on its financial statements and related disclosures.
NOTE I - SIGNIFICANT EVENT
On January 22, 1999, ABC announced that it had submitted a formal proposal to
the Company's Board of Directors in which the outstanding shares of the
Company's common stock not owned by ABC would be acquired for $9.00 per share in
cash. The announcement stated that the proposal had the support of Shapiro
Capital Management Company, Inc., the Company's largest independent stockholder,
which beneficially owned 1,132,775 shares (or approximately 22%) of the common
stock of the Company on March 31, 1999. On March 15, 1999, ABC and the Company
signed a definitive merger agreement for the acquisition of all shares of the
Company's stock not owned by ABC for $9.00 per share in cash via a tender offer.
The tender offer commenced on March 23, 1999 and closed on April 20, 1999. A
total of approximately 2,457,000 shares were tendered to ABC. Including the
tendered shares, ABC owned approximately 98% of the Company at the closing of
the tender. Subject to terms of the merger agreement, shares of common stock not
tendered will be converted into the right to receive $9.00 per share. Pursuant
to a second-step merger the Company will become a wholly owned subsidiary of
ABC. The merger is anticipated to be completed by early June 1999.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company is affected by seasonal fluctuations, which influence the demand for
retreads and new tires. The Company generally experiences reduced demand for
retreads and new tires in the first quarter due to more difficult driving and
tire maintenance conditions resulting from inclement weather. The Company is
also subject to cyclical national and regional economic conditions.
The following table sets forth for the periods indicated a summary of sales
by category:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1999 1998 INCREASE
----------- ----------- --------
<S> <C> <C> <C>
SALES
Retread $16,125,552 $15,503,889 4.0%
New Tires 20,255,206 18,289,075 10.8%
Service 4,563,636 3,711,984 22.9%
----------- ----------- ----
$40,944,394 $37,504,948 9.2%
=========== =========== ====
</TABLE>
The following table sets forth for the periods indicated a summary of the
Company's operating costs and expenses as a percentage of sales.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1999 1998
-----------------------
<S> <C> <C>
COSTS AND EXPENSES
Materials and cost of new tires 64.8% 65.8%
Salaries and wages 19.5 18.7
Depreciation and amortization 4.1 4.0
Administrative and general 12.2 13.0
----- -----
100.6% 101.5%
===== =====
</TABLE>
Three Months Ended March 31, 1999 as Compared to Three Months Ended March 31,
1998
Sales (including sales to affiliates) for the three months ended March 31, 1999
increased 9.2% to $40.9 million from $37.5 million for the three months ended
March 31, 1998. Retread sales for the 1999 first quarter were higher primarily
due to a 2% increase in units sold and approximately a 2% increase in the sales
price per unit. New tire sales for the 1999 first quarter were higher due to
increased unit sales. Service revenues increased due to the Company's continued
emphasis on its service operations. During the three months ended March 31,
1999, the Company sold approximately 157,000 retread truck tires, an increase of
2.0% from the three months ended March 31, 1998 and new tires sold increased
10.8% to 114,000 tires.
For the three months ended March 31, 1999, "same store" sales increased 7.9% and
"new
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Continued
store" sales accounted for 1.3% of the increase from the 1998 first quarter.
"Same store" sales include both production locations and sales locations that
have been in existence for the entire periods presented. "New store" sales
resulted from one new sales location.
Operating costs and expenses were $41.2 million for the three months ended March
31, 1999 compared to $38.1 million during the three months ended March 31, 1998.
For the three months ended March 31, 1999 the Company had an operating loss of
$255,000 compared to an operating loss of $576,000 during the three months ended
March 31, 1998. The Company had a net loss of $482,000, or a $0.10 loss per
share (basic and diluted), for the 1999 first quarter, which included
non-recurring charges of approximately $310,000 or $0.06 per common share (basic
and diluted). Without these non-recurring charges, the Company's loss was
approximately $172,000, or $0.04 per common share (basic and diluted). This
compares to a net loss of $627,000 or a $0.12 loss per share during the three
months of March 31, 1998.
Operating costs and expenses as a percent of sales were 100.6% for the three
months ended March 31, 1999 compared to 101.5% for the three months ended March
31, 1998. Materials and cost of new tires as a percent of sales decreased
primarily from lower new tire costs and improved production efficiency. Salaries
and wages as a percent of sales increased due to increased service and inventory
control personnel. Administrative and general costs as a percent of sales
decreased as a result of several factors. Expenses related to legal services
decreased $68,000 due to the settlement of the litigation with Bandag,
Incorporated during the fourth quarter of 1998. Bad debt expense was $193,000
lower due to improved aging and collection of accounts receivable. Also,
coverage of fixed costs improved with the higher sales volumes.
Interest expense for the three months ended March 31, 1999 was $176,000 compared
to $299,000 for the three months ended March 31, 1998. The decrease resulted
primarily from a reduction in debt outstanding and interest of $26,000
capitalized in 1999 for construction projects.
The $310,000 of non-recurring tender offer response costs were for investment
banking and legal expenses related to the evaluation and fairness opinion
provided to the special committee of independent directors of the Company in
connection with the $9.00 per share tender offer by ABC.
The difference between the effective tax rate for the three months ended March
31, 1999 and the federal statutory rate resulted from the nondeductibility of
the tender offer response costs, state income taxes and amortization of
nondeductible goodwill.
LIQUIDITY AND CAPITAL RESOURCES
The ratio of current assets to current liabilities was 1.91:1 at March 31, 1999
and 1.66:1 at December 31, 1998. Net cash used by operating activities was
$275,000 for the three months ended March 31, 1999, compared to net cash
provided of $2.2 million for the three months ended March 31, 1998. The decrease
is due primarily to the payment of federal income taxes
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Continued
on proceeds from the Bandag settlement. Proceeds from assets sales of $2.1
million and borrowings were used to purchase trucks and equipment in the amount
of $4.8 million during the three months ended March 31, 1999.
The Company is a party to a revolving credit facility with Societe Generale,
Southwest Agency (the "Credit Agreement") providing for borrowings of up to the
lesser of $20 million or the applicable borrowing base. At March 31, 1999, the
amount borrowed under the Credit Agreement was $7.3 million.
Management believes that, based upon the Company's current levels of operations,
capital resources, borrowings available under the Credit Agreement and cash flow
from operations will be sufficient to finance current and future operations,
including the capital expenditure program, and meet all scheduled debt service
requirements.
YEAR 2000
The Year 2000 issue derives from computer programs being written using two
digits rather than four to determine the applicable year. The Company recognizes
that the approach of the Year 2000 brings a unique challenge to the ability of
computer systems to recognize the date change from December 31, 1999, to January
1, 2000. As a result, the arrival of the Year 2000 could result in system
failures or miscalculations, causing disruption of operations, including, among
other things, a temporary inability to process transactions or to conduct other
normal business activity.
Management of the Company began addressing the impact of the Year 2000 on its
business operations and cash flows during 1996. The Company concluded that the
Year 2000 would impact its internal information technology ("IT") and
non-information technology systems. In addition, the Company believes that the
Year 2000 will impact its supplier chain environment. Beginning in 1996, and
continuing since that time, the Company has designated a group of personnel, who
work primarily for the Company's computer information services affiliate,
Data-Tronics Corp. to manage the conversion process for its own internal
systems, including purchased software, and to coordinate the conversion process
for supplier chain environment systems and effects. A discussion of the status
of each of these areas follows:
Internal IT and Non-IT Systems
Year 2000 conversions within the mainframe environment have been completed and
are Year 2000 ready and operational at the present time. Mainframe environment
conversions which are Year 2000 ready include the hardware and operating
systems, customized applications, and purchased software. The Company has
retained certain purchased software systems and replaced certain purchased
software systems. Installation of Year 2000 ready versions of retained and
purchased software systems has been completed. The carrying value of software
systems replaced for Year 2000 compliance was nominal.
Year 2000 conversions of the Company's desk-top environment, which includes
network
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Continued
hardware and operating systems software, as well as the networked PC hardware,
operating systems and applications, have been completed for appropriate desk-top
environments.
The Company's embedded systems are those that are automated with embedded
computerized microprocessor chips. The Company's evaluation of embedded systems
has revealed that all affected systems are Year 2000 ready.
External IT and Non-IT Systems
The Company is continuing to obtain an inventory of critical exposure arising
from the Company's suppliers. The Company's list of suppliers includes financial
institutions, telecommunications providers, utility companies and insurance
providers, as well as basic suppliers critical to the operations of the Company,
such as new tire manufacturers and the Company's supplier of retread rubber. The
Company has sent and is continuing to send questionnaires to suppliers
considered to be significant to operations to determine their status with
respect to Year 2000 issues. The Company is continually updating its list of
critical exposures.
The Company has completed an inventory of Year 2000 exposure with respect to
data communication business partners. The Company has an agreement with a
supplier to eliminate Year 2000 exposure prior to the end of this year.
The Company does not have any single customer that would be material to the
Company as a whole. However, the Company has some customers which, in the
aggregate, are significant to the Company's operations and financial results.
Year 2000 Costs
Personnel employed by the Company's computer information services affiliate,
Data-Tronics Corp., have performed Year 2000 conversions and evaluations of
third-party systems. Since the beginning of the process, the Company estimates
its expenditures at approximately $40,000. For the period of time since 1996,
Year 2000 costs have been absorbed in the Company's normal operating expenses
which are funded with internally-generated funds and the Company's revolving
credit facility. The Company's cash flows have not been adversely impacted to a
material degree by Year 2000 costs. Costs incurred through the current date for
Year 2000 conversion represent less than 2% of the total 1999 forecasted data
processing and programming costs.
Management of the Company estimates that it has incurred substantially all of
its Year 2000 conversion costs. Any additional costs are expected to be nominal
and, if expended, will be funded by internally-generated funds or the Company's
revolving credit facility.
It is management's conclusion that there have been no significant information
systems projects deferred as a result of Year 2000 efforts.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Continued
Contingency Planning
Management of the Company has assessed its most reasonably likely worst case
scenario using current information regarding the status of the Company's
internal and external IT systems and non-IT systems. As noted above, the
Company's computer information services affiliate has completed Year 2000
conversions within the Company's mainframe environment, certain purchased
software systems and its desk-top environment. The risk that the Company faces
is with its third-party suppliers and vendors not becoming Year 2000 compliant.
The Company is still in the process of receiving and in some cases sending
follow-up questionnaires to its critical suppliers, including some of its new
tire vendors. The Company has experienced a good response rate with respect to
its questionnaires. However, if the Company assumes that new tire inventory
suppliers which have not responded to its questionnaires will not be Year 2000
compliant and that their tire manufacturing process will be adversely affected,
the Company's ability to obtain sufficient new tires to meet ongoing customer
needs would be adversely impacted. Such an event would likely result in lost
revenues and, possibly, in a decline in margins if wholesale new tire prices
rise as a result of a shortage. Lost revenues and margins resulting from new
tire shortages cannot reasonably be estimated at this time.
The Company could also be materially, adversely impacted by disruptions in the
economy generally resulting from Year 2000 issues. The Company could be the
subject of litigation for computer systems failures such as, for example,
equipment shutdown or failure to properly date business records. The amount of
potential liability or lost revenue that might occur as a result of such events
cannot be reasonably estimated at this time.
The Company's most reasonably likely worst case scenario will continually be
updated and, also, it will be used to develop the Company's contingency plan
which it is presently expecting to be completed by June 30, 1999. As part of
this process, the Company plans to increase the level of follow-up on critical
suppliers' progress in completing Year 2000 conversions and testing.
Like virtually all other public and private companies, the Company's day-to-day
business is dependent on telecommunications services, banking services and
utility services provided by a large number of entities. At this time, the
Company is not aware of any of these entities or of any significant supplier
that has disclosed that it will not be Year 2000 compliant by January 1, 2000.
However, many of these entities are still involved in the process of attempting
to become Year 2000 compliant. The Company plans to attempt to obtain written
assurance of Year 2000 compliance from all entities which management considers
critical to operations of the Company. However, it is likely that some critical
suppliers will not give written assurance as to Year 2000 compliance because of
concerns as to legal liability.
Even where written assurance is provided by critical suppliers and a contingency
plan is developed by the Company to deal with possible non-compliance by other
critical suppliers, the Year 2000 conversion process will continue to create
risk to the Company which is outside the control of the Company. There can be no
assurance that a major Year 2000 disruption will not occur in a critical
supplier which will have an impact on the Company that could be material.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Continued
FORWARD LOOKING STATEMENTS
The foregoing management discussion contains forward-looking statements that are
based on current expectations and are subject to a number of risks and
uncertainties. Actual results could differ materially from current expectations
due to a number of factors, including general economic conditions; competitive
initiatives and pricing pressures; availability and cost of capital; shifts in
market demand; weather conditions; government regulations; the performance and
needs of industries served by Treadco; actual future costs of operating expenses
such as the price of oil; self-insurance claims and employee wages and benefits;
the timing and amount of capital expenditures; and the accuracy of assessments
and estimates relating to Year 2000 issues.
ITEM 2A. MARKET RISK
Since December 31, 1998, there have been no significant changes in the Company's
market risks as reported in the Company's Form 10-K Annual Report.
15
<PAGE> 16
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings which management
believes to be material to the results of operations, cash flows or the
financial condition of the Company.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
Exhibit 27 -- Financial Data Schedule
(b) REPORTS ON FORM 8-K
The Company filed a Form 8-K on February 2, 1999 and reported under
Item 5 Other Events the following:
On January 22, 1999, the Company announced that Arkansas Best
Corporation had submitted a formal proposal to the Company's Board of
Directors in which the outstanding shares of the Company's common
stock not owned by Arkansas Best would be acquired for $9.00 per share
in cash. The proposal has the support of Shapiro Capital Management
Company, Inc., the Company's largest independent stockholder, which
beneficially owns 1,132,775 shares (or approximately 22%) of the
common stock of the Company. Arkansas Best owned approximately 49% of
the Company on January 22, 1999.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TREADCO, INC.
(Registrant)
Date: May 13, 1999 /s/ David E. Loeffler
---------------------------------------------
David E. Loeffler
Vice President-Treasurer, Chief Financial Officer
and Principal Accounting Officer
17
<PAGE> 18
EXHIBIT INDEX
ARKANSAS BEST CORPORATION
The following exhibits are filed with this report.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TREADCO,
INC. ANNUAL REPORT ON FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000876948
<NAME> TREADCO, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 22,551,528
<ALLOWANCES> 1,210,588
<INVENTORY> 30,452,891
<CURRENT-ASSETS> 56,435,223
<PP&E> 58,827,151
<DEPRECIATION> 22,767,423
<TOTAL-ASSETS> 106,172,793
<CURRENT-LIABILITIES> 29,602,151
<BONDS> 11,733,229
0
0
<COMMON> 50,723
<OTHER-SE> 64,682,633
<TOTAL-LIABILITY-AND-EQUITY> 106,172,793
<SALES> 40,944,394
<TOTAL-REVENUES> 40,944,394
<CGS> 41,199,808
<TOTAL-COSTS> 41,199,808
<OTHER-EXPENSES> 280,223
<LOSS-PROVISION> 192,782
<INTEREST-EXPENSE> 176,098
<INCOME-PRETAX> (535,637)
<INCOME-TAX> (53,193)
<INCOME-CONTINUING> (482,444)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (482,444)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
