<PAGE>
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, 1994
[ ] 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
- ---------------------------------------------- ----------------------
(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 [X].
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 1, 1995, was $207,712,691.
The number of shares of Common Stock, $.01 par value, outstanding as of
March 1, 1995, was 19,513,708.
<PAGE>
Documents incorporated by reference:
Portions of the proxy statement for the Arkansas Best Corporation annual
shareholders' meeting to be held May 9, 1995 are incorporated by reference
into Part III.
<PAGE>
ARKANSAS BEST CORPORATION
FORM 10-K
TABLE OF CONTENTS
ITEM PAGE
NUMBER NUMBER
PART I
Item 1. Business 3
Item 2. Properties 22
Item 3. Legal Proceedings 23
Item 4. Submission of Matters to a Vote of Security Holders 23
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 24
Item 6. Selected Financial Data 25
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 27
Item 8. Financial Statements and Supplementary Data 37
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 37
PART III
Item 10. Directors and Executive Officers of the Registrant 38
Item 11. Executive Compensation 38
Item 12. Security Ownership of Certain Beneficial
Owners and Management 38
Item 13. Certain Relationships and Related Transactions 38
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 39
<PAGE>
PART I.
ITEM 1. BUSINESS
(a) General Development of Business
Corporate Profile
Arkansas Best Corporation, (the "Company") is engaged, through its motor
carrier subsidiaries, in less-than-truckload ("LTL") shipments of general
commodities. The Company is also engaged, through its 46%-owned subsidiary,
Treadco, Inc. ("Treadco"), in truck tire retreading and new truck tire sales
and, through its freight forwarding subsidiaries, in intermodal marketing and
freight logistics services.
ABF Freight System, Inc. ("ABF") founded in 1935, is the Company's largest
motor carrier subsidiary and currently accounts for approximately 77% of the
Company's consolidated revenues (revenue percentages of total revenue in this
discussion are based on 1994 amounts adjusted to consider the anticipated
full-year impact of the Clipper acquisition discussed below). Based on
revenues for 1994, as reported to the Interstate Commerce Commission (the
"ICC"), ABF has grown to the 5th largest LTL motor carrier of general
commodities in the United States from the 48th largest in 1965.
Clipper Exxpress Company ("Clipper"), the Company's largest freight
forwarding subsidiary, was acquired in 1994 and currently accounts for
approximately 8% of the Company's consolidated revenues. Clipper is a
knowledge-based intermodal marketing and freight logistics company.
Treadco, which currently accounts for approximately 11% of the Company's
consolidated revenues, is the nation's largest independent tire retreader for
the trucking industry and the second largest commercial truck tire dealer.
Historical BackgroundIn July 1988, the Company was acquired in a leveraged
buyout by a corporation organized by Kelso & Company, L.P., the predecessor
of Kelso & Company, Inc.
In May 1992, the Company completed a recapitalization, which included (i) an
initial public offering of Common Stock par value $.01 (the "Common Stock")
by the Company, the net proceeds of which were used to repurchase
approximately $114 million in principal amount of its 14% Senior Subordinated
Notes due 1998 (the "Notes") pursuant to a tender offer and related consent
solicitation and to pay related fees and expenses, and (ii) the refinancing
of the Company's existing bank indebtedness.
On November 13, 1992, the Company repurchased approximately 4,439,000 shares
of Common Stock beneficially owned by Kelso Best Partners, L.P. for
approximately $55.5 million in the aggregate, or $12.50 per share (a discount
of $1.50 per share to the then quoted NASDAQ/NMS sale price). Prior to the
repurchase, Kelso Partners was the Company's largest stockholder, with
beneficial ownership of approximately 21.7% of the total outstanding shares
of the Company's Common Stock. Kelso Partners distributed its remaining
650,000 shares to certain of its individual partners, thus ending Kelso
Partners' investment in the Company. To pay for the repurchase of such
shares, the Company borrowed $50 million under a new five-year term loan
credit facility (the "Term Loan") provided by its existing bank group through
an amendment and restatement of its existing credit agreement and used $5.5
million in available cash. See "Management's Discussion and Analysis --
Liquidity and Capital Resources."
<PAGE>
On February 3, 1993, the Company completed a public offering of 1,495,000
shares of preferred stock ("Preferred Stock"). The Company used the net
proceeds of $72.3 million to repay the $50 million Term Loan and for general
corporate purposes. See "Management's Discussion and Analysis -- Liquidity
and Capital Resources."
(b) Financial Information about Industry Segments
The response to this portion of Item 1 is included in "Note M - Business
Segment Data" of the notes to the Company's consolidated financial statements
for the year ended December 31, 1994, which is submitted as a separate
section of this report.
(c) Narrative Description of Business
Motor Carrier Operations
General
The Company's motor carrier operations are conducted through ABF, ABF Freight
System (B.C.), Ltd. ("ABF-BC"), ABF Freight System Canada, Ltd. ("ABF-
Canada"), ABF Cartage, Inc. ("Cartage"), and Land-Marine Cargo, Inc. ("Land-
Marine"). ABF, which concentrates on long-haul transportation of general
commodities freight, involving primarily LTL shipments, is the Company's
largest motor carrier subsidiary, accounting for approximately 98% of the
Company's motor carrier revenues for 1994. ABF-BC and ABF Canada operate out
of 14 terminals in Canada. Cartage focuses on shipments in and out of Hawaii
and Land-Marine currently concentrates on shipments in and out of Puerto
Rico.
ABF Freight System, Inc.
ABF is the largest subsidiary of the Company, currently accounting for
approximately 77% of the Company's consolidated revenues. ABF has grown to
become the fifth largest LTL motor carrier in the United States from the
forty-eighth largest in 1965, based on revenues for 1994 as reported to the
ICC. ABF, which concentrates on long-haul LTL shipments, provides direct
service to 939 of the 952 cities in the United States having a population of
25,000 or more. ABF and the Company's other motor carrier subsidiaries have
338 terminals and operate in all 50 states, Canada and Puerto Rico. Through
an alliance and relationships with trucking companies in Mexico, ABF provides
motor carrier services to customers in that country as well. ABF has more
than 50,000 customers, including approximately 335 national accounts. ABF was
incorporated in Delaware in 1982 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, 1994, no single customer accounted for more than 3% of
ABF's revenues, and the ten largest customers accounted for less than 10% of
ABF's revenues.
<PAGE>
LTL Operations
LTL carriers differ substantially from full truckload carriers by offering
service to shippers which is tailored to the need to transport a wide variety
of large and small shipments to geographically dispersed destinations.
Generally, full truckload companies operate from the shipper's dock to the
receiver's facility and require very little fixed investment beyond the cost
of the trucks. LTL carriers pick up small shipments throughout the vicinity
of a local terminal with local trucks and consolidate them at each terminal
according to destination for transportation by intercity units to their
destination cities or to breakbulk (rehandling) terminals, where shipments
from various locations can be reconsolidated for transportation to distant
destinations, other breakbulk terminals or local terminals. In most cases, a
single driver's trip will consist of a day's run to the terminal or relay
point which is appropriately located on the route, where the trailer
containing the shipments will be transferred to continue towards its
destination. Once delivered to a local terminal, a shipment is delivered to
the customer by local trucks operating from such terminal. In some cases,
when a sufficient number of different shipments at one origin terminal are
going to a common destination, they can be combined to make a full
trailerload. A trailer then is dispatched to that destination without having
to rehandle the freight.
In order to improve efficiency, reduce labor costs and enhance customer
service, ABF seeks to minimize the number of times it handles freight. ABF
estimates that at its breakbulk terminals it handles its LTL shipments, on
average, approximately one and a quarter times. ABF's low average handling
per shipment tends to result in fewer damage claims and reduced transit time.
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 Mexico's largest LTL specialist, 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, Monterey and
Guadalajara.
Since entering the worldwide market in 1992, ABF has put together a seamless,
single-bill service to more than 200 ports in 124 countries throughout the
world. The service also allows electronic shipment tracing from origin to
destination.
Specialized Services
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
<PAGE>
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 our 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.
<PAGE>
Statistical Information
<TABLE>
The following table sets forth certain statistical information regarding
ABF's operations (including inter-company operations) for the five years
ended December 31, 1994.
<CAPTION>
Year Ended December 31
1994 1993 1992 1991 1990
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating ratio 96.4% 95.8% 94.9% 96.3% 95.1%
Average length of haul (miles) 1,214 1,198 1,201 1,192 1,175
Employees (1) 11,876 10,719 10,545 10,184 10,159
Miles per gallon 6.32 6.12 5.87 5.65 5.62
Fuel cost per mile (2) $.085 $.094 $.110 $.116 $.132
Terminals (at end of period)(3) 322 323 317 320 319
Tractors
Road Tractors 1,498 1,385 1,385 1,385 1,338
City Tractors 2,483 2,469 2,474 2,368 2,188
Trailers
Road Trailers -- doubles 12,734 12,263 11,718 11,405 10,679
Road Trailers -- long 230 231 251 274 274
City Trailers 1,364 1,395 1,365 1,187 1,219
Less-than-Truckload (4)
Revenue (000's) $797,393 $772,872 $748,470 $697,602 $661,611
Percent of total revenue 88.3% 88.3% 88.8% 89.1% 88.2%
Tonnage (000's) 2,677 2,620 2,542 2,384 2,326
Percentage of total tonnage 76.8% 76.5% 77.2% 78.5% 76.9%
Shipments (000's) 4,935 4,948 4,899 4,793 4,779
Revenue per hundredweight $14.89 $14.75 $14.72 $14.63 $14.22
Average weight per shipment
(pounds) 1,085 1,059 1,038 995 973
Truckload
Revenue (000's) $105,798 $102,635 $ 94,242 $ 85,013 $ 88,917
Tonnage (000's) 809 807 752 654 700
Shipments (000's) 98 96 89 78 82
Revenue per hundredweight $6.54 $6.36 $6.27 $6.50 $6.36
Average weight per shipment
(pounds) 16,502 16,776 16,858 16,707 17,034
<FN>
<F1>
(1) At end of period for salaried employees and mid-December for hourly
employees.
<F2>
(2) Excludes fuel tax per mile of $.059, $.069, $.067, $.071 and $.073 for 1990
through 1994, respectively.
<F3>
(3) Does not include terminals of ABF-BC, ABF Canada, Land Marine and Cartage.
<F4>
(4) Defined by the ICC as shipments weighing less than 10,000 pounds.
</FN>
</TABLE>
<PAGE>
Marketing
Prior to the partial deregulation of the trucking industry beginning in 1980,
rates were extensively regulated by the ICC and were not a significant
competitive factor, but now marketing, cost and rate of return have become an
integral part of carrier operations. By expanding ABF's transcontinental
system through the addition of terminals, ABF has increased its ability to
service a greater number of customers directly. Maintaining ABF's competitive
position requires operational and sales support that is customer oriented. To
achieve this objective, ABF has sales representation in all cities in which
it has terminals and also has ten separate national account sales offices.
To improve service, ABF makes information readily accessible to its customers
through various electronic pricing, billing and tracing services, referred to
by ABF as the "Q-Family" of services. The ABF Q-Family offers a complete
package of computer-supported information services. Q-Stat 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.
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 and Truck Terminals
In anticipation of the partial deregulation of the trucking industry, ABF
began in 1978 to expand carrier services and geographic coverage. ABF and the
Company's other motor carrier subsidiaries have increased their market
coverage by expanding the number of terminals from 67 in early 1978 to 338
currently. A rapid period of terminal expansion from 1978 gave ABF
<PAGE>
substantially complete national geographic coverage and has not continued at
the same pace since 1988. ABF owns 27 of its terminal facilities, leases 81
terminals from its affiliate, ABC Treadco, Inc. ("ABC Treadco") and leases
the remaining terminals from independent third parties.
ABF's equipment replacement policy generally provides for replacing intercity
tractors every three years, intracity tractors every five to seven years, and
trailers (which have a depreciable life of seven years) on an as needed basis
(generally seven years or more), resulting in a relatively new and efficient
tractor fleet and minimizing maintenance expenses. ABF presently intends to
continue its tractor and trailer replacement policy.
ABF has a comprehensive preventive maintenance program for its tractors and
trailers to minimize equipment downtime and prolong equipment life. Repairs
and maintenance are performed regularly at ABF's facilities and at
independent contract maintenance facilities.
In late 1993, ABF initiated a new computerized maintenance program which
tracks equipment activity and provides automatic notification of the
maintenance needs of each tractor, trailer and converter gear. The program
keeps records of preventive maintenance schedules and governmental inspection
requirements for each piece of equipment and routes the unit to the nearest
ABF maintenance facility where the service can be performed.
As of December 31, 1994, ABF owned or operated the following revenue
equipment, which, excluding operating leases, had an aggregate net book value
of approximately $96.2 million:
<TABLE>
<CAPTION>
Total No. Units by ModelYear
of Units `95 `94 `93 `92 `91 `90 `89 Pre-'89
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Intercity Tractors (1) 1,498 10 375 499 499 115
Intercity Trailers (2) 230 230
Intercity Trailers-Doubles (3) 12,734 500 820 600 749 499 410 9,156
Intracity Tractors (4) 2,483 209 217 319 280 300 391 45 722
Intracity Trailers 1,364 1,364
Pickup/Delivery Trucks 85 14 17 54
Converters (used to connect
two 28-foot trailers) (5) 2,785 250 2,535
<FN>
<F1>
(1) Includes 1,008 tractors being leased under operating lease.
<F2>
(2) Includes 100 trailers being leased under capitalized lease.
<F3>
(3) Includes 923 trailers being leased under operating lease and 5,130 trailers
being leased under
capitalized lease.
<F4>
(4) Includes 686 tractors being leased under capitalized lease.
<F5>
(5) Includes 50 converters being leased under capitalized lease.
</FN>
</TABLE>
<PAGE>
In 1994, under its equipment replacement program, ABF acquired 385 intercity
tractors, 350 intracity tractors and 500 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 its operating personnel, as well as aids the
marketing efforts of ABF. ABF continues to develop its on-line Freight
Management System (FMS) aimed at perfecting service to customers and internal
cost controls.
The use of Trailer Profiles was deployed in 1994. A computer program assesses
the transit progress of each shipment and from this produces a profile on
each load of freight moving through the ABF system. This profile then drives
the order in which these loads are unloaded and dispatched through the
breakbulk and linehaul network. This effectively corrects the movement of a
shipment that is running behind schedule without jeopardizing the on-time
delivery of other shipments.
The City Planning System was also completed this year. It provides a more
dynamic way for terminal management to inventory and route shipments for
delivery. Since it resides on the mainframe computer, it is available to all
ABF terminals and offers features usually found only on expensive PC-based
inbound planning systems.
The Origin Terminal Consolidation Analysis was also completed. It provides a
means by which terminal management can collect data pertaining to their
outbound shipments available on a given day and determine the best points to
which those shipments should be consolidated and loaded. This reduces the
cost of handling as well as transit time.
A battery of new programs was completed that will engage executive management
more timely and efficiently into exceptions arising in daily operations.
These programs 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. This
essentially puts ABF controls on auto-pilot. It provides an efficient means
for executive management to stay informed as to what is taking place in daily
operations without taking away from their broader responsibilities. As long
as operations remain normal, executive management can devote time to long-
range planning. Yet when exceptions occur, they are poised to react quickly
and decisively, preventing exceptions from becoming problems without having
to sift through reams of data. Other such programs are planned for 1995.
During 1994, ABF installed a new customer database management system, AIMS
(Account Information Management System). AIMS 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 186 data processing specialists. The
Company believes that its allocation of resources to data processing has
assisted ABF in providing the type of quality services required by a
sophisticated shipping public.
<PAGE>
Employees
At December 31, 1994, ABF employed 11,876 persons. Employee compensation and
related costs are the largest components of carrier operating expenses. In
1994, such costs amounted to 66.7% of carrier 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% annually during 1994 and will increase an
average of 3.3% annually effective April 1, 1995, 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 77% of ABF's employees are unionized, of whom approximately 1%
are members of unions other than the Teamsters.
Five of the six largest LTL carriers are unionized and generally pay
comparable wages. Non-union companies typically pay employees less than
union companies.
Since December 1989, the Department of Transportation ("DOT") has required
ABF and other domestic motor carriers to implement drug testing programs for
their truck drivers to deter drug use. In December 1991, ABF implemented a
random testing program to cover its entire driver work force. ABF has since
April 1992 been testing as required by the federal government at an average
rate of 50% annually of its driver work force. Statistics for 1994 indicate
that ABF has administered 4,658 random, biennial re-certification and post-
accident tests to its employees, with a pass rate of 99.4%.
Due to its national reputation and its high pay scale, ABF has not
historically experienced any significant difficulty in attracting or
retaining qualified drivers.
<PAGE>
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. Although such insurance has become more difficult to
obtain, the Company has been able to obtain adequate coverage and is not
aware of problems in the foreseeable future which would significantly impair
its ability to obtain adequate coverage at comparable rates.
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 22 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. ABF's tractors are equipped with electronic
control modules which prevent speeds in excess of 57 mph, thereby maximizing
safety and fuel economy. Of the ABF general commodities shipments handled
during the year ended December 31, 1994, more than 99% were free of any cargo
claim, and of those having cargo claims, 89% were settled within 30 days of
the claim date. The following table shows accidents and claims results for
the last five years:
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Linehaul miles (000) per DOT
linehaul accident (1) 2,201 1,868 1,962 1,816 1,543
Selected categories of insurance
expense as a percent of revenue:
Cargo loss and damage claims 1.14% 1.00% 0.94% 1.03% 1.03%
Public liability 0.82 0.86 1.08 0.98 0.69
Workers' Compensation 1.87 1.79 1.83 2.00 1.61
----- ----- ----- ----- -----
Total 3.83% 3.65% 3.85% 4.01% 3.33%
===== ===== ===== ===== =====
<FN>
<F1>
(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.
</FN>
</TABLE>
<PAGE>
Fuel
The motor carrier industry is dependent upon the availability of diesel fuel.
Material adverse effects on the operations and profitability of the industry,
as well as ABF, could occur as a result of significant increases in fuel
costs, fuel taxes or shortages of fuel. Management, however, believes that
ABF would be impacted to a lesser extent than truckload carriers if prices
increased dramatically because fuel costs are a smaller percentage of costs
for LTL carriers. Further, management believes that ABF's operations and
financial condition are no more susceptible to fuel price increases or fuel
shortages than its competitors.
On October 1, 1993, the new Federal Diesel Fuel Regulations went into effect.
The new regulations require the use of low sulfur highway diesel in all on-
road diesel powered motor vehicles. ABF is in compliance with the new
regulations.
Competition, Pricing and Industry Factors
The trucking industry is highly competitive. ABF actively competes for
freight business with other national, regional and local motor carriers and,
to a lesser extent, with private carriage, freight forwarders, railroads and
airlines. Competition is based primarily on personal relationships, price
and service. In general, ABF and most of the other principal motor carriers
use similar tariffs to rate interstate shipments. 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, ABF offers and negotiates various discounts. See "Business -- Motor
Carrier Operations -- Regulation."
Deregulation of the trucking industry has resulted in easier entry into the
industry and increased competition, although there has also been
consolidation in the industry, as a number of companies have since gone out
of business. See "Business -- Motor Carrier Operations -- Regulation." New
entrants (some of which have grown rapidly in regional markets) include some
non-union carriers which have lower labor costs.
ABF conducts the ABF Profit Improvement Program, which is designed to improve
the overall profitability of ABF by working with those accounts which do not
have an acceptable profit margin. Action to improve profitability may
include changing the packaging and price renegotiation.
The trucking industry, including ABF, is affected directly by the state of
the overall economy. In addition, seasonal fluctuations also affect tonnage
to be transported. Freight shipments, operating costs and earnings also are
affected adversely by inclement weather conditions.
Regulation
ABF's operations in interstate commerce are regulated by the ICC which has
power to authorize motor carrier operations; require periodic financial
reporting; and approve certain mergers, consolidations and acquisitions. The
Federal Aviation Administration Authority Act of 1994, effective January 1,
1995, preempts the states' regulation of price, route and service in
intrastate freight transportation. However, the states continue to have
authority to regulate insurance and safety areas of intrastate freight
transportation.
ABF, like other interstate motor carriers, is subject to certain safety
requirements governing interstate operations prescribed by the DOT. ABF has
earned a "satisfactory" rating (the highest of three grading categories) from
the DOT. In addition, vehicle weight and dimensions remain subject to both
federal and state regulations. More restrictive limitations on vehicle
<PAGE>
weight and size or on trailer length or configuration could adversely affect
the profitability of ABF.
The Motor Carrier Act of 1980 (the "MCA") was the start of an effort to
increase competition among motor carriers and reduce the level of regulation
in the industry. The MCA enables applicants to obtain ICC operating
authority easily and allows interstate motor carriers, such as ABF, to change
their rates by a certain percentage per year without ICC approval and to
provide discounts to shippers. The MCA also resulted in the removal of route
and commodity restrictions on the transportation of freight, making it easier
for interstate motor carriers to obtain nationwide authority to carry general
commodities throughout the continental United States.
Management believes that ABF is in compliance in all material respects with
applicable regulatory requirements relating to its operations. The failure
of ABF to comply with the regulations of ICC, DOT or state agencies could
result in substantial fines or revocation of ABF's operating authorities.
Specialized Motor Carriers
In addition to ABF, the Company has four other motor carrier subsidiaries:
ABF-BC, ABF-Canada, Land-Marine and Cartage. ABF-BC and ABF-Canada
concentrate on shipments of general commodities freight primarily in Canada.
Land-Marine currently concentrates on shipments of general commodities
freight in and out of Puerto Rico and has ICC common carrier authority to
operate in the continental United States. Cartage focuses on shipments in
and out of Hawaii. In 1994, ABF-BC, ABF-Canada, Land-Marine and Cartage
collectively provided approximately 2% of the Company's motor carrier
revenues.
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 11% of the Company's
consolidated revenues and are divided approximately 55% and 45% between
retread sales and new tire sales, respectively. In 1994, Treadco sold
approximately 612,000 retreaded truck tires, which were manufactured at its
production facilities in Arizona, Arkansas, Florida, Georgia, Louisiana,
Missouri, Ohio, Oklahoma and Texas, and sold approximately 353,000 new tires.
Retreaded truck tires are significantly less expensive than new truck tires
(about one-third of the cost) and generally last as long as new tires used in
similar applications. Moreover, most tire casings can be retreaded one or
two times. The retail selling price of Treadco's retread tires ranges from
about $80 to $110 with an average retail selling price of $85, compared to
$260 to $325 for a new tire. Treadco also sells retreads including casings
not supplied by the customer for $150 to $180, averaging about $169 per tire.
Since tire expenses are a significant operating cost for the trucking
industry, many truck fleet operators develop comprehensive periodic tire
replacement and retread management programs. On its weekly sales routes,
Treadco picks up a fleet's casings and returns them the following week, thus
providing a continuous supply of both retreads and new tires as needed. In
order to fully service its customers, Treadco also sells new truck tires
manufactured by Bridgestone, Michelin, General, Dunlop, Sumitomo, Kumho, 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.
Treadco was organized in June 1991 as the successor to the tire business
conducted and developed by ABC Treadco, a wholly owned subsidiary of the
<PAGE>
Company. ABC Treadco transferred the tire business-related assets, including
the Bandag Incorporated ("Bandag") franchise agreements, to Treadco in
exchange for all the outstanding capital stock of Treadco. In October 1991,
Treadco completed an initial public offering of 2,679,300 shares (including
179,300 shares sold by ABC Treadco pursuant to an over-allotment option) of
its common stock at $16.00 per share (the "Treadco Offering). In December
1993, ABC Treadco's shares in Treadco were transferred to the Company. As of
December 31, 1994, the Company's percentage ownership of Treadco was 45.9%,
while retaining control of Treadco by reason of its stock ownership, board
representation and provision of management services. As a result, Treadco is
consolidated with the Company for financial reporting purposes, with the
ownership interest of the other stockholders reflected as a minority
interest.
The Bandag Relationship
Treadco retreads truck tires in 26 locations pursuant to multi-year franchise
agreements with Bandag. Each of Treadco's production facilities is covered by
a separate Bandag franchise agreement that grants Treadco the non-exclusive
right to retread truck tires at the facility using Bandag's retreading
process, materials and equipment and to sell such retread tires, using the
"Bandag" trademark, without any territorial restrictions. In return, each of
Treadco's production facilities covered by a Bandag franchise agreement must
purchase its rubber requirements from Bandag at prices established by Bandag.
The franchises also provide Treadco with a number of support programs,
including training for technical and sales personnel, field-service
engineering back-up, marketing programs and ongoing research and development.
Bandag has informed Treadco that Treadco, with its 26 separate franchise
locations, is Bandag's largest domestic franchisee in terms of the number of
Bandag franchises and rubber purchases from Bandag.
In 1991, Treadco renewed and amended its existing franchise agreements with
Bandag, for terms ranging from five to seven years each. Each Bandag
franchise agreement grants Treadco the non-exclusive right to make, use and
sell tires retreaded by the Bandag method, within certain defined
geographical areas, during the term of the agreement. Treadco has the right
to sell Bandag retreads wherever, to whomever and at any price Treadco may
choose, but Treadco may manufacture retreaded tires using the Bandag method
only at the authorized location referred to in each agreement. The new
franchise agreements do not provide Treadco with an exclusive production or
sales territory, nor do they prohibit Treadco (or any other Bandag
franchisees) from opening sales offices in other desired locations.
Alternative Retread Processes
Treadco is exploring alternatives in retreading processes in some new
geographical markets. In the second quarter of 1995, Treadco has plans to
open a precure production facility in Las Vegas, Nevada which will initially
purchase its tread rubber from Hercules Tire and Rubber Co. The Company has
the option of purchasing tread rubber and supplies from suppliers other than
Hercules for the Las Vegas facility.
The Company plans to open an additional retreading facility in the second
half of 1995. This production facility will be a mold cure retread facility.
The facility will use tread rubber compounds provided by Bridgestone/
Firestone, Inc. and Bridgestone/Firestone, Inc. will also provide technical
support. The process will produce quality retreads with the Bridgestone-
Treadco name molded into the tread.
<PAGE>
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 4% of Treadco's revenues for 1994.
ABF accounted for approximately $2.0 million of Treadco's revenues in 1994
(1.4%), and has not accounted for more than 6% of Treadco's revenues in the
last ten years. Treadco's customers are primarily mid-sized companies that
maintain their own in-house trucking operations and rely on Treadco's
expertise in servicing their tire management programs. Treadco markets its
products through sales personnel located at each of its 26 production
facilities and, in addition, through 19 "satellite" sales locations
maintained in Arizona, Arkansas, Florida, Georgia, Kansas, Louisiana,
Mississippi, Missouri, Ohio and Texas. These satellite sales locations are
supplied with retreads by nearby Treadco production facilities. Treadco
locates its production facilities and sales locations in close proximity to
interstate highways and operates mobile service trucks to provide ready
accessibility and convenience to its customers, particularly fleet owners.
Employees
At December 31, 1994, Treadco employed 700 full-time employees. Fourteen
employees at one Treadco facility are represented by a union. Treadco's
management believes it enjoys a good relationship with its employees.
The Clipper Group
On September 30, 1994, the Company consummated the purchase of all the
outstanding stock of Clipper Exxpress Company ("Clipper"), Agricultural
Express of America, Inc. ("AXXA"), and Agile Freight System, Inc.
("Agile"),(collectively known as the "Clipper Group") pursuant to a stock
purchase agreement.
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 91% of the Company's
forwarding operations revenues during the fourth quarter of 1994. Clipper
provides contract freight management and LTL freight forwarding services to
its customers.
<PAGE>
Clipper's executive offices are located in Lemont, Illinois ( a suburb of
Chicago) and its 40 branch offices are dispersed throughout the United
States. At December 31, 1994, Clipper employed 191 persons (comprised of 49
sales representatives, 66 administrative personnel and 76 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
40 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 36% 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.
<PAGE>
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, 1994, no single
customer accounted for more than 6% of Clipper's revenues, and the ten
largest customers accounted for less than 15% 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.
AXXA owns 388 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
40-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.
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 longhaul 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.
<PAGE>
Integrated Distribution, Inc.
The Company is continuing to diversify into transportation areas outside its
traditional longhaul LTL service. In October 1994, Integrated Distribution,
Inc., a wholly owned subsidiary of the Company, expanded its current
warehousing operations and added distribution services by the acquisition of
two Little Rock, Arkansas companies.
The business lines of Integrated Distribution are storage, consolidation,
packaging, and distribution. Integrated Distribution's strategy is to add
value to merchandise in various ways rather than just warehousing. An example
of adding value would be transporting truckload or containerload shipments of
consumer goods to a warehouse, then packaging the goods into retail-size
containers, applying labels and bar codes, and distributing in the desired
mix to retail outlets.
Best Logistics, Inc.
Best Logistics, Inc. ("Best"), a wholly owned subsidiary of Arkansas Best
Corporation, engages in third-party logistics management. Best provides
logistics consulting and management services to companies desiring to
outsource these activities.
Companies choosing to outsource logistics management do so to reduce
logistics costs, to concentrate on their core business or to improve customer
service. Logistics focuses on the management of inventory and information
through the supply chain from supplier to consumer. Best's role is to design
the logistics network, contract with the required carriers and warehouses to
implement and then manage the design.
Although third-party logistics is a relatively new industry, a large number
of participants exist in the market. Many are related to transportation or
warehousing companies.
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 98 underground tanks located in 27 states. The Company
believes that it is in substantial compliance with all such environmental
laws and regulations and is not aware of any leaks from such tanks that could
reasonably be expected to have a material adverse effect on the Company's
competitive position, operations or financial condition.
The Company has in place policies and methods designed to conform with these
regulations. The Company estimates that capital expenditures for upgrading
underground tank systems and costs associated with cleaning activities for
1995 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.
<PAGE>
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.
ITEM 2. PROPERTIES
Directly or indirectly through its subsidiaries, the Company owns its
executive offices in Fort Smith, Arkansas, and owns or leases approximately
413 other operating facilities, approximately 398, 24 and 45 of which relate
to its motor carrier operations, forwarding operations, and tire retreading
and sales operations, respectively. In addition to its executive offices,
the Company's principal motor carrier facilities are as follows:
Location
---------
North Little Rock, Arkansas
Los Angeles, California
Sacramento, California
Denver, Colorado
Ellenwood, Georgia
Springfield, Illinois
Albuquerque, New Mexico
Asheville, North Carolina
Dayton, Ohio
Portland, Oregon
Harrisburg/Camp Hill, Pennsylvania
Dallas, Texas
Salt Lake City, Utah
<PAGE>
The properties listed above are leased by ABF from ABC Treadco, with the
exception of the facilities in Asheville, North Carolina and Sacramento,
California, which are owned by ABF, and the facilities in Portland, Oregon
and Salt Lake City, Utah, which are leased from outside third parties. There
are three facilities at the Harrisburg/Camp Hill, Pennsylvania location. The
Camp Hill and one of the Harrisburg facilities are leased from outside third
parties.
ITEM 3. LEGAL PROCEEDINGS
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, 1994.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market and Dividend Information
<TABLE>
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:
<CAPTION>
Cash
High Low Dividend
<S> <C> <C> <C>
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
1993
First quarter $16.750 $12.125 $.01
Second quarter 13.000 8.375 .01
Third quarter 11.500 8.500 .01
Fourth quarter 15.625 11.125 .01
</TABLE>
At February 27, 1995, there were 19,513,708 shares of the Company's stock
outstanding which were held by 798 shareholders of record and through
approximately 5,000 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 by the Company's results of
operations, financial condition, cash requirements, certain corporate law
requirements and other factors deemed relevant by the board of directors.
The Company's credit agreement limits the total amount of "restricted
payments" that the Company may make, including dividends on its capital
stock, to $10 million in any one calendar year. The annual dividend
requirements on the Company's preferred stock issued February 3, 1993
(approximately $4.3 million) and dividends paid on the Common Stock at the
quarterly rate of $.01 per share (approximately $0.8 million based on the
current number of issued and outstanding shares) would aggregate dividends of
approximately $5.1 million on an annual basis.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
Selected Financial Data - Five-Year Summary
<CAPTION>
Arkansas Best Corporation
Year Ended December 31
1994 1993 1992 1991 1990
($ in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Operating revenues $1,098,421 $1,009,918 $959,949 $884,498 $848,737
Operating income 48,115 51,369 57,255 43,123 47,671
Gain on sale of subsidiary stock - - - 14,141 -
Minority interest in subsidiary 3,523 3,140 2,825 690 -
Other expenses, net 968 731 1,496 6,638 4,533
Interest expense 6,985 7,248 17,285 34,421 39,257
Income before income taxes,
extraordinary item and
cumulative effect of
accounting change 36,639 40,250 35,649 15,515 3,881
Provisions for income taxes 17,932 19,278 16,894 7,763 3,415
Income before extraordinary
item and cumulative effect
of accounting change 18,707 20,972 18,755 7,752 466
Extraordinary item (1) - (661) (15,975) (515) -
Cumulative effect on prior
years of change in revenue
recognition method (2) - - (3,363) - -
Net income (loss) 18,707 20,311 (583) 7,237 466
Income per common share
before extraordinary item and
cumulative effect of
accounting change .74 .89 .99 .61 .04
Net income (loss) per common share .74 .85 (.03) .57 .04
Cash dividends paid per common share (3) .04 .04 .02 - -
Pro Forma Data (4):
Income (loss) before extraordinary item $ 18,707 $ 20,972 $ 18,755 $ 8,253 $ (1,124)
Income (loss) before extraordinary
item per common share .74 .89 .99 .65 (.09)
Net income (loss) 18,707 20,311 2,780 7,738 (1,124)
Net income (loss) per common share .74 .85 .15 .61 (.09)
<PAGE>
<CAPTION>
Selected Financial Data - Five-Year Summary (Continued)
Arkansas Best Corporation
Year Ended December 31
1994 1993 1992 1991 1990
($ in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
(as of the end of the period):
Total assets $569,045 $447,733 $428,345 $447,098 $475,487
Current portion of long-term debt 65,161 15,239 28,348 34,995 39,957
Long-term debt
(including capital
leases and excluding
current portion) 59,295 43,731 107,075 210,987 270,193
Other Data
Capital expenditures (5) $ 64,098 $ 33,160 $ 26,596 $ 19,369 $ 31,336
Depreciation and amortization 28,087 28,266 34,473 39,755 40,002
Goodwill amortization 3,527 3,064 3,034 3,024 3,024
Other amortization 501 319 755 2,290 3,103
<FN>
<F1>
(1) For 1993, represents an extraordinary charge of $661,000 (net of tax of
$413,000) from the loss on extinguishment of debt. For 1992, represents
an extraordinary charge of $15,975,000 (net of tax of $9,700,000) from
the loss on extinguishment of debt relating to the Recapitalization in
May 1992. For 1991, represents an extraordinary charge of $515,000 (net
of tax of $320,000) from the loss on extinguishment of debt relating to
the Treadco Offering in September 1991.
<F2>
(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").
<F3>
(3) No cash dividends were paid by the Company from 1990 until the third
quarter of 1992.
<F4>
(4) Assumes the change in accounting method for recognition of revenue as
required under EITF 91-9 occurred January 1, 1990.
<F5>
(5) Net of equipment trade-ins. Does not include revenue equipment placed in
service under operating leases, which amounted to $24.8 million in 1993,
$25.5 million in 1992, $15 million in 1991, and $5 million in 1990.
There were no operating leases for revenue equipment entered into for
1994. See "Management's Discussion and Analysis-Liquidity and Capital
Resources."
</FN>
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company is engaged, through its motor carrier subsidiaries, in LTL
shipments of general commodities. The Company is also engaged through its
46%-owned subsidiary, Treadco, Inc., in truck tire retreading and new truck
tire sales and, through its freight forwarding subsidiaries, in intermodal
marketing and freight logistics services.
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, Arkansas Best Corporation consummated the purchase of
all outstanding stock of Clipper Exxpress Company ("Clipper"), Agricultural
Express of America, Inc. ("AXXA") and Agile Freight System, Inc. ("Agile")
(collectively 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 is $60.8 million in cash, subject to certain
closing audit adjustments. The Company paid an initial payment of $54
million to the Clipper Group shareholders from cash on hand and funds
provided under its receivables purchase agreement. The remaining $6.8
million due is included in the current portion of long-term debt in the
accompanying financial statements. The final payment, which is due on
May 15, 1995, will be funded from cash on hand and/or funds available under
existing credit facilities.
The 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 $49.4 million of goodwill was recorded as a
result of this purchase and is being amortized over a 30-year period. A
final allocation of the purchase price will be completed in 1995 based on
determination of the final purchase price. The final allocation is not
expected to vary materially from amounts previously recorded.
On October 12, 1994, the Company issued 310,191 shares of common stock for
all of the outstanding stock of Traveller Enterprises and subsidiaries and
Commercial Warehouse Company, collectively (the "Traveller Group"). The
acquisition of the Traveller Group has been accounted for as a pooling of
interests. The Traveller Group's operations are not material in relation to
the Company's consolidated financial statements for any period; therefore,
financial statements for periods prior to the merger have not been restated,
and the financial statements include operations of the Traveller Group from
the date of the combination. The final number of shares that will be issued
in conjunction with this transaction are subject to certain audit closing
adjustments.
<PAGE>
Segment Data
The following tables reflect information prepared on a business segment
basis, which includes reclassification of certain expenses and costs between
the Company and its subsidiaries and elimination of the effects of
intercompany transactions. Operating profit on a business segment basis
differs from operating income as reported in the Company's Consolidated
Financial Statements. Other income and other expenses (which include
amortization expense), except for interest expense and minority interest,
which appear below the operating income line in the Company's Statement of
Operations, have been allocated to individual segments for the purpose of
calculating operating profit on a segment basis.
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
($ thousands)
<S> <C> <C> <C>
OPERATING REVENUES
Carrier operations $ 918,663 $ 893,504 $858,755
Forwarding operations 31,468 - -
Tire operations 138,666 111,585 96,254
Other 9,625 4,829 4,940
---------- ---------- --------
$1,098,422 $1,009,918 $959,949
========== ========== ========
OPERATING EXPENSES AND COSTS
CARRIER OPERATIONS
Salaries and wages $ 613,187 $ 594,213 $560,460
Supplies and expenses 96,210 99,146 99,613
Operating taxes and licenses 35,928 35,152 32,697
Insurance 18,237 16,835 17,567
Communications and utilities 22,639 23,680 23,782
Depreciation and amortization 24,302 25,714 32,370
Rents 67,550 53,192 39,561
Other 4,299 3,779 4,324
Other non-operating (net) 689 148 1,656
---------- ---------- --------
883,041 851,859 812,030
FORWARDING OPERATIONS
Cost of services 26,817 - -
Selling, administrative and general 3,542 - -
Other non-operating (net) 414 - -
---------- ---------- --------
30,773 - -
TIRE OPERATIONS
Cost of sales 100,909 79,718 69,070
Selling, administrative and general 26,206 21,522 18,412
Other non-operating (net) 471 159 5
---------- ---------- --------
127,586 101,399 87,487
SERVICE AND OTHER 9,875 6,022 4,673
---------- ---------- --------
$1,051,275 $ 959,280 $904,190
========== ========== ========
<PAGE>
OPERATING PROFIT (LOSS)
Carrier operations $ 35,622 $ 41,645 $ 46,725
Forwarding operations 695 - -
Tire operations 11,080 10,186 8,767
Other (250) (1,193) 267
---------- ---------- --------
TOTAL OPERATING PROFIT 47,147 50,638 55,759
INTEREST EXPENSE 6,985 7,248 17,285
MINORITY INTEREST 3,523 3,140 2,825
---------- ---------- --------
INCOME BEFORE INCOME TAXES,
EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE $ 36,639 $ 40,250 $ 35,649
========== ========== ========
</TABLE>
The following table sets forth for the periods indicated a summary of the
Company's operations as a percentage of revenues presented on a business
segment basis as shown in the table on the preceding page. The basis of
presentation for business segment data differs from the basis of
presentation for data the Company provides to the ICC.
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
<S> <C> <C> <C>
CARRIER OPERATIONS
Salaries and wages 66.7% 66.5% 65.3%
Supplies and expenses 10.5 11.1 11.6
Operating taxes and licenses 3.9 3.9 3.8
Insurance 2.0 1.9 2.0
Communications and utilities 2.5 2.7 2.8
Depreciation and amortization 2.6 2.9 3.8
Rents 7.4 5.9 4.6
Other 0.4 0.4 0.5
Other non-operating (net) 0.1 - 0.2
---- ---- ----
Total Carrier Operations 96.1% 95.3% 94.6%
==== ==== ====
FORWARDING OPERATIONS
Cost of services 85.2% - -
Selling, administrative and general 11.3 - -
Other non-operating (net) 1.3 - -
---- ---- ----
Total Forwarding Operations 97.8% - -
==== ==== ====
TIRE OPERATIONS
Cost of sales 72.8% 71.5% 71.8%
Selling, administrative and general 18.9 19.3 19.1
Other non-operating (net) 0.3 0.1 -
---- ---- ----
Total Tire Operations 92.0% 90.9% 90.9%
==== ==== ====
OPERATING PROFIT
Carrier operations 3.9% 4.7% 5.4%
Forwarding operations 2.2 - -
Tire operations 8.0 9.l 9.1
</TABLE>
<PAGE>
Results of Operations
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, when the terms of a new agreement had not been agreed to
between the industry's bargaining group, Trucking Management, Inc. ("TMI"),
and the IBT, the ABF Teamsters' 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. The contract was voted on and ratified by the
IBT membership. 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.
<PAGE>
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.
During the previous three years, ABF has financed its road tractor
replacement program with operating leases instead of capital leases, which
decreased both interest and depreciation expense and increased rent expense.
In 1994, ABF, utilizing borrowings under its Credit Agreement, purchased road
tractors under its replacement program, which will increase depreciation and
interest expense and decrease rent expense.
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.
Treadco will continue to seek available Bandag franchises that meet Treadco's
requirements. Treadco's ability to continue expanding its business through
the addition of new Bandag franchises, however, is contingent on the
availability and competitiveness of suitable Bandag franchises on favorable
terms and Bandag's approval of Treadco's acquisition of such franchises,
whether directly from Bandag or from other Bandag franchisees. Also, Treadco
is exploring alternatives to the Bandag process in some new geographical
<PAGE>
markets. Treadco has plans to open a precure production facility in Las
Vegas, Nevada, in the second quarter of 1995, which will initially purchase
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 plans to open an additional retreading facility in the
second half of 1995. This production facility will be a mold cure retread
facility. The facility will use tread rubber compounds provided by
Bridgestone/Firestone, Inc. and Bridgestone/Firestone, Inc. will also provide
technical support. The process will produce 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).
1993 as Compared to 1992
Consolidated revenues of the Company for 1993 were $1.0 billion compared to
$959.9 million for 1992. Operating profit for the Company was $50.6 million
in 1993 compared to $55.8 million during 1992. Net income for 1993 was
$20.3 million, or $.85 per common share, compared to a net loss of
$(583,000), or $(.03) per common share in 1992. Income before extraordinary
item was $21.0 million, or $.89 per common share for 1993, compared to
income before extraordinary item and cumulative effect of accounting change
of $18.8 million, or $.99 per common share for 1992. During 1993, the
Company recorded an extraordinary loss of $(661,000) (net of income tax
benefit of $413,000), or $(.04) per common share, for the net loss on
extinguishments of debt. During 1992, the Company recorded an extraordinary
loss of $(16.0) million (net of income tax benefit of $9.7 million), or
$(.84) per common share, for the net loss on extinguishments of debt. Also,
during 1992, the Company recorded a charge for the cumulative effect on
prior years of an accounting change in the recognition of revenue of $(3.4)
million (net of income tax benefit of $2.1 million), or $(.18) per common
share. Earnings per common share for 1993 give consideration to preferred
stock dividends of $3.9 million. Average common shares outstanding for 1993
were 19.2 million shares compared to 19.0 million shares for 1992.
<PAGE>
As reported in the third quarter, net income for 1993 was reduced by
$828,000, or $.04 per common share, to reflect the effect on current and
deferred taxes of the retroactive corporate tax rate increase which became
law in the third quarter of 1993.
Motor Carrier Operations Segment. Revenues for the motor carrier operations
segment increased 4.0% to $893.5 million in 1993 from $858.8 million in
1992, reflecting primarily a 4.0% increase in total tonnage. The increase
in total tonnage consisted of a 3.1% increase LTL tonnage and a 7.3%
increase in truckload tonnage. The 4.6% rate increase effective January 1,
1993 was aggressively discounted by rate competition during the first six
months of 1993. The discounting stabilized in the last half of the year and
for the fourth quarter of 1993, ABF's LTL revenue per hundredweight
reflected a 1.0% increase over the fourth quarter of 1992. For 1993, ABF's
LTL revenue per hundredweight was up .2% compared to the average for 1992.
Discounting and a relatively slow economy during the first half of the year
also affected tonnage growth for 1993. Effective January 1, 1994, ABF
implemented a general freight rate increase of 4.5% which is expected to
result in a 3 to 3.25% initial impact on revenues. The diminished effect is
the result of pricing that is on a contract basis which can only be
increased when the contract is renewed.
Motor carrier segment operating expenses as a percent of revenues was 95.3%
for 1993 compared to 94.6% for 1992. Salaries and wages for motor carrier
operations as a percent of revenues increased to 66.5% in 1993 from 65.3% in
1992, resulting primarily from contractual wage increases (averaging 2.7%
annually for 1993) which went into effect in April 1993 under the current
collective bargaining agreement. Supplies and expenses for motor carrier
operations as a percent of revenues decreased to 11.1% in 1993 from 11.6% in
1992 resulting primarily from the covering of the fixed portion of supplies
and expenses by increased revenues.
Depreciation and amortization expense for motor carrier operations as a
percent of revenues decreased to 2.9% in 1993 from 3.8% in 1992. During the
last three years, ABF financed its road tractor replacement program with
operating leases instead of capital leases, which decreased both interest
and depreciation expense and increased rent expense. Rent expense for motor
carrier operations as a percent of revenues increased to 5.9% in 1993 from
4.6% in 1992. The additional rent expense was incurred primarily as a
result of the operating leases discussed above and the utilization of
alternate modes of outside transportation.
Tire Operations Segment. Treadco's revenues for 1993 increased 15.9% to
$111.6 million from $96.3 million in 1992. The increase resulted primarily
from internal growth and the addition of four production facilities and one
sales facility through the August 30, 1993 acquisition of Trans-World Tire
Corporation in Florida. Revenues from retreading in 1993 increased 17.6% to
$61.9 million from $52.6 million in 1992. Revenues from new tire sales
increased 13.9% to $49.7 million in 1993 from $43.7 million in 1992.
Tire operations segment operating expenses as a percent of revenues were
90.9% for each of 1993 and 1992. Cost of sales for the tire operations
segment as a percent of revenues decreased to 71.5% in 1993 from 71.8% in
1992. Selling, administrative and general expenses for the tire operations
segment increased to 19.3% in 1993 from 19.1% in 1992.
<PAGE>
Interest. Interest expense decreased 58.1% to $7.2 million in 1993 from
$17.3 million during 1992. A reduction in long-term debt outstanding using
proceeds from the Company's stock offerings, lower interest rates and
utilization of operating leases resulted in the decrease in interest
expense. The reduction in long-term debt consisted primarily of retiring
its 14% Senior Subordinated Notes due 1998, maintaining a lesser average
balance outstanding under the revolving credit facilities, and financing a
portion of its revenue equipment with operating leases.
Income Taxes. The difference between the effective tax rate in 1993 and the
federal statutory rate resulted primarily from state income taxes,
amortization of goodwill, minority interest, undistributed earnings of
Treadco and other nondeductible expenses (see Note G to the consolidated
financial statements).
In August 1993, the Revenue Reconciliation Act of 1993 was enacted, which
required a retroactive increase in the corporate federal tax rate. This
resulted in an increase in the tax expense and a corresponding decrease in
net income of $828,000. The increase in the corporate federal tax rate was
accounted for in accordance with Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("FAS 109").
Liquidity and Capital Resources
The Company and certain banks are parties to a Credit Agreement with Societe
Generale, as Agent and NationsBank of Texas as Co-Agent (the "Credit
Agreement") which provides funds available under a three-year Revolving
Credit Facility of $150 million, including $40 million for letters of
credit. There were no borrowings outstanding under the Revolving Credit
Facility and approximately $32.7 million of letters of credit outstanding at
December 31, 1994. The Revolving Credit Facility is payable on June 30,
1998. Outstanding revolving credit advances may not exceed a borrowing base
calculated using the Company's revenue equipment, real property, the Treadco
common stock owned by the Company, eligible receivables and other eligible
assets. At December 31, 1994, the borrowing base was $107.0 million. The
Company has paid and will continue to pay certain customary fees for such
commitments and loans. Amounts advanced under the revolving credit facility
bear interest, at the Company's option, at a rate per annum of either:(i)
the greater of (a) the agent bank's prime rate and (b) the Federal Funds
Rate plus 1/2%; or (ii) LIBOR plus 3/4%.
The Credit Agreement contains various covenants which limit, among other
things, dividends, indebtedness, capital expenditures, loans and
investments, as well as requiring the Company to meet certain financial
tests. As of December 31, 1994, these covenants have been met. If there is
an event of default which is not remedied or waived within 10 days, the
Credit Agreement will become secured to the extent of amounts then
outstanding of all of the Company's receivables (excluding receivables sold
under the receivables purchase agreement), revenue equipment, real property
and common stock included in the borrowing base (subject to certain
exceptions).
The Credit Agreement also, at December 1992, included a $50 million Term
Loan Facility. In February 1993, the Company completed its public offering
of 1,495,000 shares of Preferred Stock. The Company used the net proceeds of
approximately $71.9 million to repay the Term Loan and for general corporate
purposes. The Preferred Stock is convertible at the option of the holder
into Common Stock at the rate of 2.5397 shares of Common Stock for each
share of Preferred Stock. Annual dividends are $2.875 and are cumulative.
The Preferred Stock is redeemable at the Company's option on or after
<PAGE>
February 15, 1996 at $52.0125 per share plus accumulated unpaid dividends,
and is exchangeable at the option of the Company for the Company's 5 3/4%
Convertible Subordinated Debentures due February 15, 2018 at a rate of $50
principal amount of debentures for each share of Preferred Stock. The
holders of the Preferred Stock have no voting rights unless dividends are in
arrears six quarters or more, at which time the holders have the right to
elect two directors of the Company until all dividends have been paid.
The Company entered into a $20 million term credit 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 are being used in
financing the construction of the Company's corporate office which was
completed in March 1995. Amounts advanced and unpaid bear interest of 8.07%
per annum. The Company shall repay the outstanding principal amount in 40
equal installments, each in the amount of $500,000, due and payable on the
fifteenth day of each January, April, July, and October, commencing on
July 15, 1994. At December 31, 1994, there was $19.0 million outstanding.
On March 2, 1994, ABF, Renaissance Asset Funding Corp. ("Renaissance") and
Societe Generale entered into a receivables purchase agreement. The
agreement allows ABF to sell to Renaissance an interest in up to $55 million
in a pool of receivables. At December 31, 1994, ABF had $40 million of
receivables financed through this facility.
Treadco is a party to a revolving credit facility with Societe Generale (the
"Treadco Credit Agreement") providing for borrowings of up to the lesser of
$12 million or the applicable borrowing base. At December 31, 1994, the
borrowing base was $25.6 million. Borrowings under the Treadco Credit
Agreement are collateralized by accounts receivable and inventory.
Borrowings under the agreement bear interest, at Treadco's option, at 1%
above the bank's LIBOR rate, or at the higher of the bank's prime rate or
the "federal funds rate" plus 1/2%. At December 31, 1994, the interest rate
was 7.1%. At December 31, 1994, Treadco had $3 million outstanding under
the Treadco Credit Agreement. Treadco pays a commitment fee of 3/8% on the
unused amount under the Treadco Credit Agreement.
The Treadco Credit Agreement contains various convenants which limit, among
other things, dividends, disposition of receivables, indebtedness and
investments, as well as requiring Treadco to meet certain financial tests
which have been met. Under the Treadco Credit Agreement, Treadco's assets
are subject to pledge and, therefore, are available for use only by that
subsidiary.
On September 30, 1994, the Company paid an initial payment of $54 million to
the Clipper Group shareholders from cash on hand and funds provided under its
existing lines of credit. The final $6 million payment (subject to certain
closing audit and other contractual adjustments) which is due May 15, 1995
will be funded from cash and/or funds provided under its existing lines of
credit.
On October 12, 1994, the Company issued 310,191 shares of common stock for
all of the outstanding stock of the Traveller Group. The final number of
shares that will be issued in conjunction with this transaction are subject
to certain closing audit adjustments.
<PAGE>
<TABLE>
The following table sets forth the Company's historical capital expenditures
(net of equipment trade-ins) for the periods indicated below:
<CAPTION>
Year Ended December 31
1994 1993 1992
($ millions)
<S> <C> <C> <C>
Carrier operations $ 44.2 $ 48.6 $ 47.7
Tire operations 4.3 6.1 2.2
Service and other 15.6 3.3 2.2
------ ------ ------
64.1 58.0 52.1
Less: Operating leases - (24.8) (25.5)
------ ------ ------
Total $ 64.1 $ 33.2 $ 26.6
====== ====== ======
</TABLE>
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 1995, the Company anticipates spending approximately $85.9 million in
total capital expenditures net of proceeds from equipment sales. It is
expected that approximately $26.2 million of equipment expenditures will be
financed by capital leases, $24.6 million will be financed by operating
leases and the remaining $35.1 million will be financed through internally
generated funds and borrowings under the Credit Agreement and Treadco Credit
Agreement.
<TABLE>
<CAPTION>
Capital Expenditures Program for 1995
Net of Equipment Trade-Ins
Facilities Equipment Miscellaneous Total
($ millions)
<S> <C> <C> <C> <C>
Carrier operations $16.5 $37.1 $4.0 $57.6
Forwarding operations 0.0 0.3 0.0 0.3
Tire operations 0.8 5.7 0.5 7.0
Service and other 9.0 7.5 4.5 21.0
----- ----- ---- -----
$26.3 $50.6 $9.0 $85.9
===== ===== ==== =====
</TABLE>
Management believes, based upon the Company's current levels of operations
and anticipated growth, the Company's cash, capital resources, borrowings
available under the Credit Agreement and cash flow from operations will be
sufficient to finance current and future operations and meet all present and
future debt service requirements.
The 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
motor carrier segment 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.
<PAGE>
Environmental Matters
ABF stores some fuel for its tractors and trucks in approximately 98
underground tanks located in 27 states. Maintenance of such tanks is
regulated at the federal and, in some cases, state levels. ABF believes
that it is in substantial compliance with all such regulations. ABF is not
aware of any leaks from such tanks that could reasonably be expected to have
a material adverse effect on the Company. Environmental regulations have
been adopted by the United States Environmental Protection Agency ("EPA")
that will require ABF to upgrade its underground tank systems by December
1998. ABF currently estimates that such upgrades, which are currently in
process, will not have a material adverse effect on the Company.
The Company has received notices from the EPA and others that it has been
identified as a potentially responsible party ("PRP") under the
Comprehensive Environmental Response Compensation and Liability Act or other
federal or state environmental statutes at several hazardous waste sites.
After investigating the Company's or its subsidiaries' involvement in waste
disposal or waste generation at such sites, the Company has either agreed to
de minimis settlements (aggregating approximately $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 prior to its sale in 1989.
Riverside was notified in 1988 that it had been identified as a PRP for
hazardous wastes shipped to two separate sites in Arkansas. To date, the
Company, as a part of a PRP group, has paid approximately $50,000 on
Riverside's behalf related to one site, with additional assessments expected
related to that site. Riverside was dismissed as a PRP from the second site
in March 1993. Management currently believes that resolution of its
remaining site is unlikely to have a material adverse effect on the Company,
although there can be no assurance in this regard.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response of this item is submitted in a separate section of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
<PAGE>
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, 1995, 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
Exercised in Last Fiscal Year and Fiscal Year-End Options/SAR Values,"
"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, 1995,
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, 1995, 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, 1995, sets forth certain information with respect to relations of
and transactions by management of the Company and is incorporated herein by
reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
The response to this portion of Item 14 is submitted as a
separate section of this report.
(a)(2) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a
separate section of this report.
(a)(3) Exhibits
Exhibit 11 - Statement Re: Computation of Per Share
Earnings (Loss)
Exhibit 22 - List of Subsidiary Corporations
Exhibit 23 - Consent of Ernst & Young LLP, Independent
Auditors
(b) Reports on Form 8-K
Form 8-K dated September 30, 1994
Item 2. Acquisition or Disposition of Assets -- Acquisition
of Clipper Exxpress Company, Agricultural Express of
America, Inc. and Agile Freight System, Inc.
Item 7. Financial Statements and Exhibits -- Financial
statements of Clipper Exxpress, Agricultural Express of
America, Inc. and Agile Freight System, Inc. and pro forma
financial information to be filed under cover of Form 8-K/A
as soon as practible. Stock Purchase Agreement dated
August 18, 1994 by and among Arkansas Best Corporation and
the Shareholders of Clipper Exxpress Company, Agile Freight
System, Inc. and Agricultural Express of America, Inc.
Form 8-K/A No. 1 dated September 30, 1994
Item 7. Financial Statements and Exhibits -- Audited
financial statements of Clipper Exxpress Company,
Agricultural Express of America, Inc. and Agile Freight
System, Inc. for the years ended December 31, 1993 and 1992.
Unaudited financial statements of Clipper Exxpress Company,
Agricultural Express of America, Inc. and Agile Freight
System, Inc. for the six months ended June 30, 1994 and
1993. Pro forma condensed consolidated statements of income
for the year ended December 31, 1993 and the six months
ended June 30, 1994 and the pro forma condensed consolidated
balance sheet as of June 30, 1994.
(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.
<PAGE>
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 3/15/95
- ---------------------------- -------
William A. Marquard
s/Robert A. Young, III Director, Chief Executive Officer 3/17/95
- ---------------------------- and President (Principal -------
Robert A. Young, III Executive Officer)
s/Donald L. Neal Senior Vice President - Chief 3/17/95
- ---------------------------- Financial Officer (Principal -------
Donald L. Neal Financial and Accounting Officer)
s/Frank Edelstein Director 3/16/95
- ---------------------------- -------
Frank Edelstein
s/Arthur J. Fritz Director 3/16/95
- ---------------------------- -------
Arthur J. Fritz
s/John H. Morris Director 3/16/95
- ---------------------------- -------
John H. Morris
s/Alan J. Zakon Director 3/16/95
- ---------------------------- -------
Alan J. Zakon
<PAGE>
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, 1994
ARKANSAS BEST CORPORATION
FORT SMITH, ARKANSAS
<PAGE>
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, 1994 and 1993
Consolidated Statements of Operations -- Years ended December 31, 1994,
1993 and 1992
Consolidated Statements of Shareholders' Equity -- Years ended
December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows -- Years ended December 31, 1994,
1993 and 1992
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.
<PAGE>
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 and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1994. 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 and subsidiaries at December 31, 1994 and 1993,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1994, 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.
As discussed in Note C to the consolidated financial statements, in 1992 the
Company changed its revenue recognition method.
ERNST & YOUNG LLP
Little Rock, Arkansas
January 27, 1995
<PAGE>
<TABLE>
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31
1994 1993
($ thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,458 $ 6,962
Trade receivables, less allowances for
doubtful accounts (1994 -- $2,825,000;
1993 -- $2,200,000) 136,144 104,598
Inventories -- Notes D and E 32,463 29,086
Prepaid expenses 13,734 9,916
--------- ---------
TOTAL CURRENT ASSETS 185,799 150,562
PROPERTY, PLANT AND EQUIPMENT --
(Notes C, E and I)
Land and structures 110,424 108,422
Revenue equipment 200,250 169,573
Manufacturing equipment 7,467 5,997
Service, office and other equipment 40,516 33,913
Leasehold improvements 9,421 8,096
Construction in progress -- Note I 13,939 -
--------- ---------
382,017 326,001
Less allowances for depreciation
and amortization (166,436) (147,799)
--------- ---------
215,581 178,202
OTHER ASSETS 15,705 12,839
GOODWILL, less amortization (1994 --
$19,794,000; 1993 --$16,267,000) --
Notes B and C 151,960 106,130
--------- ---------
$ 569,045 $ 447,733
========= =========
</TABLE>
<PAGE>
<TABLE>
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31
1994 1993
($ thousands)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ 5,989 $ -
Bank drafts payable 10,779 7,661
Trade accounts payable 49,368 36,143
Accrued expenses -- Note F 82,157 71,278
Federal and state income taxes -- Note G 5,786 6,398
Deferred income taxes - Note G 4,159 3,503
Current portion of long-term debt -- Note E 65,161 15,239
--------- ---------
TOTAL CURRENT LIABILITIES 223,399 140,222
LONG-TERM DEBT, less current portion -- Note E 59,295 43,731
OTHER LIABILITIES 5,915 3,933
DEFERRED INCOME TAXES -- Note G 28,842 26,158
MINORITY INTEREST -- Note B 34,989 31,699
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
1994: 19,513,708 shares; 1993:
19,185,325 shares 195 192
Additional paid-in capital 207,636 206,457
Stock payable to employee benefit plans --
Note K - 205
Predecessor basis adjustment -- Note A (15,371) (15,371)
Retained earnings 24,130 10,492
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 216,605 201,990
COMMITMENTS AND CONTINGENCIES
(Notes I, J, K and P)
--------- ---------
$ 569,045 $ 447,733
========= =========
<FN>
<F1>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Year Ended December 31
1994 1993 1992
($ thousands, except per share data)
<S> <C> <C> <C>
OPERATING REVENUES
Carrier operations $ 918,663 $ 893,504 $ 858,755
Forwarding operations --
Note B 31,468 - -
Tire operations 138,665 111,585 96,254
Service and other 9,625 4,829 4,940
----------- ----------- -----------
1,098,421 1,009,918 959,949
OPERATING EXPENSES AND
COSTS -- Note L
Carrier operations 882,351 851,711 810,374
Forwarding operations 30,359 - -
Tire operations 127,115 101,240 87,482
Service and other 10,481 5,598 4,838
----------- ----------- -----------
1,050,306 958,549 902,694
----------- ----------- -----------
OPERATING INCOME 48,115 51,369 57,255
OTHER INCOME
Gains on asset sales 2,168 2,509 2,127
Other 1,437 465 533
----------- ----------- -----------
3,605 2,974 2,660
OTHER EXPENSES
Interest 6,985 7,248 17,285
Other 4,573 3,705 4,156
Minority interest in
subsidiary -- Note B 3,523 3,140 2,825
----------- ----------- -----------
15,081 14,093 24,266
----------- ----------- -----------
INCOME BEFORE INCOME TAXES,
EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 36,639 40,250 35,649
FEDERAL AND STATE INCOME
TAXES (CREDIT) --
Note G
Current 14,743 21,386 15,682
Deferred 3,189 (2,108) 1,212
----------- ----------- -----------
17,932 19,278 16,894
<PAGE>
<CAPTION>
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
Year Ended December 31
1994 1993 1992
($ thousands, except per share data)
<S> <C> <C> <C>
INCOME BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $ 18,707 $ 20,972 $ 18,755
EXTRAORDINARY ITEM
Loss on extinguishments
of debt -- Notes A
and B - (661) (15,975)
CUMULATIVE EFFECT ON PRIOR
YEARS OF ACCOUNTING
CHANGE IN RECOGNITION OF
REVENUE --Note C - - (3,363)
----------- ----------- -----------
NET INCOME (LOSS) $ 18,707 $ 20,311 $ (583)
=========== =========== ===========
PER COMMON SHARE --
Notes C and H
Income before extraordinary
item and cumulative
effect of accounting
change $ .74 $ .89 $ .99
Extraordinary item - (.04) (.84)
Cumulative effect on prior
years of accounting change - - (.18)
----------- ----------- -----------
Net income (loss) $ .74 $ .85 $ (.03)
=========== =========== ===========
CASH DIVIDENDS PAID PER
COMMON SHARE $ .04 $ .04 $ .02
=========== =========== ===========
AVERAGE COMMON SHARES
OUTSTANDING --Note C 19,351,796 19,193,582 19,040,103
=========== =========== ===========
<FN>
<F1>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
Additional Stock Payable Predecessor Retained
Preferred Common Paid-In to Employee Basis Earnings Treasury
Stock Stock Capital Benefit Plans Adjustment (Deficit) Stock
($ thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1992 $ - $ 128 $ 48,285 $ 744 $ (15,371) $ (4,096) $(43)
Net loss - - - - - (583) -
Issuance of common stock --
Note A - 106 140,760 - - - -
Purchase of common stock for
employee benefit plan -- Note K - - - (744) - - -
Retirement of common stock --
Note K - (43) (55,766) - - - 43
Stock payable to employee
benefit plans -- Note K - - - 701 - - -
Dividends paid - - - - - (470) -
---- ----- --------- ------- --------- -------- ----
Balances at December 31, 1992 - 191 133,279 701 (15,371) (5,149) -
Net income - - - - - 20,311 -
Issuance of common stock to
employee benefit plans -- Note K - 1 1,299 (701) - - -
Stock payable to employee
benefit plans -- Note K - - - 205 - - -
Issuance of preferred
stock -- Note H 15 - 71,879 - - - -
Dividends paid - - - - - (4,670) -
---- ----- --------- ------- --------- -------- ----
Balances at December 31, 1993 15 192 206,457 205 (15,371) 10,492 -
Net income - - - - - 18,707 -
Issuance of common stock to
employee benefit plans -- Note K - - 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 $ -
==== ===== ========= ======= ========= ======== ====
<FN>
<F1>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31
1994 1993 1992
($ thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 18,707 $ 20,311 $ (583)
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Loss on extinguishments of debt - 661 15,975
Cumulative effect of accounting
change in method of revenue
recognition - - 3,363
Depreciation and amortization 28,087 28,266 34,473
Amortization of intangibles 3,527 3,064 3,034
Other amortization 501 319 755
Contribution of stock to
employee benefit plans - 804 (43)
Provision for losses on
accounts receivable 2,070 1,902 2,343
Provision for deferred
income taxes 3,189 (2,108) 1,212
Gain on asset sales (2,168) (2,509) (2,127)
Gain on sale or issuance
of subsidiary stock (45) (37) -
Minority interest in subsidiary 3,773 3,390 3,076
Changes in operating
assets and liabilities,
net of acquisition:
Accounts receivable (15,312) (14,152) (12,172)
Inventories and
prepaid expenses (6,428) (5,985) (3,377)
Other assets (1,521) 1,859 (2,266)
Accounts payable, bank
drafts payable, taxes
payable, accrued expenses
and other liabilities 14,373 (193) 15,775
--------- --------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 48,753 35,592 59,438
INVESTING ACTIVITIES
Purchases of property,
plant and equipment,
less capitalized leases (47,298) (13,692) (21,105)
Proceeds from asset sales 7,841 10,839 10,417
Acquisition of the Clipper
Group, net of cash acquired --
Note B (49,556) - -
Acquisition of Trans-World
Tire Corp. - (2,500) -
--------- --------- ---------
NET CASH USED BY
INVESTING ACTIVITIES (89,013) (5,353) (10,688)
<PAGE>
<CAPTION>
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Year Ended December 31
1994 1993 1992
($ thousands)
<S> <C> <C> <C>
FINANCING ACTIVITIES
Deferred financing costs
and expenses incurred in
borrowing activities $ (147) $ (47) $ (721)
Proceeds from receivables
purchase agreement 56,000 - -
Payments under receivables
purchase agreement (16,000) - -
Borrowings under revolving
credit and term loan facilities 54,000 35,000 90,000
Principal payments under revolving
credit and term loan facilities (39,000) (98,000) (53,000)
Payments to retire 14%
senior subordinated notes - (8,437) (135,507)
Net proceeds from the
issuance of common stock 37 - 140,868
Net proceeds from the
issuance of preferred stock - 71,894 -
Principal payments on other
long-term debt and capital leases (18,616) (24,766) (35,613)
Dividends paid to minority
shareholders of subsidiary (438) (432) (429)
Dividends paid (5,069) (4,133) (470)
Repurchase of common
stock -- Note H - - (55,768)
Net increase in bank overdraft 5,989 - -
--------- --------- ---------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 36,756 (28,921) (50,640)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (3,504) 1,318 (1,890)
Cash and cash equivalents
at beginning of year 6,962 5,644 7,534
--------- --------- ---------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 3,458 $ 6,962 $ 5,644
========= ========= =========
<FN>
<F1>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
NOTE A - ORGANIZATION, PUBLIC OFFERINGS AND DESCRIPTION OF BUSINESS
Arkansas Best Corporation (the "Company") is a diversified holding company
engaged through its subsidiaries primarily in motor carrier, freight
forwarding operations (see Note M), and truck tire retreading and sales.
Principal subsidiaries owned are ABF Freight System, Inc., ("ABF"),
Treadco, Inc. ("TREADCO"), and, effective September 30, 1994, Clipper
Exxpress Company and related companies (the "Clipper Group") (see Note B).
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.
In February 1993, the Company completed a public offering of 1,495,000
shares of $2.875 Series A Cumulative Convertible Exchangeable Preferred
Stock at $50 per share. The total net proceeds to the Company were
approximately $71.9 million and were used to repay a $50 million term loan.
This transaction resulted in a loss on extinguishment of debt of $167,000
(net of income tax benefit of $103,000), which is reported as an
extraordinary item in the accompanying consolidated financial statements.
The Company completed an initial public offering of 15.7 million shares of
common stock at $14 per share (the "Offering") on May 13, 1992. The
Company sold 10.7 million shares with the remaining shares being sold by a
shareholder. The total net proceeds to the Company as a result of the
Offering were approximately $140.9 million and were used to repurchase
$113.9 million of the Company's outstanding 14% Senior Subordinated Notes
due 1998 (the "Notes") and to make premium and consent payments and pay
certain other related expenses. This transaction resulted in a loss on
extinguishment of debt of $15.9 million (net of income tax benefit of $9.7
million) which is reported as an extraordinary item in the accompanying
consolidated financial statements. In 1993, the remaining notes
outstanding were redeemed at a premium, which resulted in an extraordinary
loss of $494,000 (net of income tax benefit of $310,000).
Treadco was organized in 1991 as the successor to the tire business
previously conducted by another wholly owned subsidiary of the Company.
Also in 1991, Treadco completed an initial public offering of 2,679,300 of
its common shares. As of December 31, 1994, the Company's percentage
ownership of TREADCO was 46%. The Company's consolidated financial
statements reflect full consolidation of the accounts of TREADCO, with the
ownership interests of the other stockholders reflected as minority
interest, because the Company controls TREADCO through stock ownership,
board representation and management services provided under a transition
services agreement.
<PAGE>
<TABLE>
Summarized condensed financial information for TREADCO is as follows:
<CAPTION>
December 31
1994 1993
($ thousands)
<S> <C> <C>
Current assets $58,187 $50,950
Property, plant and equipment, net 15,723 14,320
Other assets 15,673 16,162
------- -------
Total assets $89,583 $81,432
======= =======
Current liabilities $20,822 $15,338
Long-term debt and other 4,323 7,606
Stockholders' equity 64,438 58,488
------- -------
Total liabilities and stockholders' equity $89,583 $81,432
======= =======
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
($ thousands)
<S> <C> <C> <C>
Sales $140,678 $113,277 $ 98,833
Operating expenses and costs 129,625 103,671 90,417
Interest expense 270 195 51
Other (income) expense 9 (252) (377)
Income taxes 4,265 3,832 3,471
-------- -------- --------
Net income $ 6,509 $ 5,831 $ 5,271
======== ======== ========
</TABLE>
NOTE B - ACQUISITIONS
On September 30, 1994, Arkansas Best Corporation 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 is $60.8 million in cash,
subject to certain closing audit adjustments. The Company paid an initial
payment of $54 million to the Clipper Group shareholders from cash on hand
and funds provided under its receivables purchase agreement. The remaining
$6.8 million due is included in the current portion of long-term debt in
the accompanying consolidated financial statements. The final payment,
which is due on May 15, 1995, will be funded from cash on hand and/or funds
available under existing credit facilities.
<PAGE>
The 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 $49.4 million of goodwill was recorded as a
result of the purchase allocation and is being amortized over a 30-year
period. A final allocation of the purchase price will be completed in 1995
based on determination of the final purchase price. The final allocation
is not expected to vary materially from amounts previously recorded.
On October 12, 1994, the Company issued 310,191 shares of common stock for
all of the outstanding stock of Traveller Enterprises and subsidiaries and
Commercial Warehouse Company, collectively (the "Traveller Group"). The
acquisition of the Traveller Group has been accounted for as a pooling of
interests. The Traveller Group's operations are not material in relation
to the Company's consolidated financial statements for any period;
therefore, financial statements for periods prior to the merger have not
been restated, and the financial statements include operations of the
Traveller Group from the date of the combination. The final number of
shares that will be issued in conjunction with this transaction are subject
to certain audit closing adjustments.
<TABLE>
Pro forma unaudited information (as if the Clipper Group and Traveller
Group acquisitions were completed at the beginning of the respective
periods) for 1994 and 1993 is as follows:
<CAPTION>
1994 1993
($ thousands)
<S> <C> <C>
Operating revenues $ 1,209,054 $ 1,149,627
Operating expenses 1,152,858 1,094,340
----------- -----------
56,196 55,287
Interest expense, net 9,715 10,602
Minority interest in subsidiary 3,523 3,140
Other expense, net 2,051 2,331
Provision for income taxes 19,592 18,874
----------- -----------
Income before extraordinary item $ 21,315 $ 20,340
=========== ===========
Earnings per common share before
extraordinary item .87 .84
=========== ===========
Average common shares outstanding 19,662 19,504
=========== ===========
</TABLE>
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.
On August 29, 1993, TREADCO purchased substantially all of the assets and
assumed certain liabilities of Trans-World Tire Corporation Inc., a new and
retread truck tire operation. Assets of approximately $8.2 million were
acquired and liabilities of approximately $6.4 million were assumed. The
purchase price was approximately $2.9 million. A total of $1.1 million of
goodwill was recognized in connection with the purchase. The pro forma
effect of the Trans-World Tire Corporation acquisition is not material to
the Company's operations for any period.
<PAGE>
NOTE C - ACCOUNTING POLICIES
Consolidation: The consolidated financial statements include the accounts
of the Company and its subsidiaries. All significant intercompany accounts
and transactions are eliminated in consolidation.
Cash and Cash Equivalents: Short term investments which have a maturity of
ninety days or less when purchased are considered cash equivalents.
Concentration of Credit Risk: The Company's services are provided
primarily to customers throughout the United States and Canada. The
Company performs ongoing credit evaluations of its customers and generally
does not require collateral. Historically, credit losses have not been
significant.
Inventories: Inventories are stated at the lower of cost (first-in, first-
out basis) or market.
Property, Plant and Equipment: Purchases of property, plant and equipment
are recorded at cost. For financial reporting purposes, such property is
depreciated principally by the straight-line method. For tax reporting
purposes, accelerated depreciation or cost recovery methods are used.
Gains and losses on asset sales are reflected in the year of disposal.
Trade-in allowances in excess of the book value of revenue equipment traded
are accounted for by adjusting the cost of assets acquired. Tires and
tubes purchased with revenue equipment are capitalized as a part of the
cost of such equipment, with replacement tires and tubes being expensed
when placed in service.
Goodwill: Excess cost over fair value of net assets acquired (goodwill) is
amortized on a straight-line basis over 15 to 40 years. The carrying value
of goodwill will be reviewed if the facts and circumstances suggest that it
may be impaired. If this review indicates that goodwill will not be
recoverable, as determined based on the undiscounted cash flows over the
remaining amortization period, the Company's carrying value of the goodwill
would be reduced. No reduction has been required for any period.
Income Taxes: Effective January 1, 1993, the Company adopted Financial
Accounting Standards Board Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("FAS 109"). As permitted under the new
rules, prior years' financial statements have not been restated. The
Company previously used the liability method required by FAS 96. The
adoption of FAS 109 as of January 1, 1993, had no impact on net income.
Under FAS 109, the liability method is used in accounting for income taxes.
Under this method, deferred income taxes relate principally to asset and
liability basis differences arising from the 1988 purchase transaction, to
the timing of the depreciation and cost recovery deductions previously
described and to temporary differences in the recognition of certain
revenues and expenses of carrier operations.
<PAGE>
Revenue Recognition: Prior to 1992, carrier operating revenues were
recognized on the date the shipments were picked up from the customer, with
expenses recognized as incurred. In January 1992, the Emerging Issues Task
Force of the Financial Accounting Standards Board reached a consensus that
recognition of revenue for freight when picked up from the customer was no
longer an acceptable accounting method. As a result, the Company adopted a
new revenue recognition method effective January 1, 1992 whereby revenue is
recognized based on relative transit time in each reporting period with
expenses continuing to be recognized as incurred. This change in
accounting method resulted in a charge to earnings in the first quarter of
1992 having a cumulative effect of approximately $3,400,000 (net of income
taxes of $2,000,000).
Earnings (Loss) Per Share: The calculation of earnings (loss) per share is
based on the weighted average number of common and common equivalent shares
outstanding during the applicable period and retroactively adjusted for the
effect of a March 1992 2.797 for 1 stock split in the form of a stock
dividend. (See Note H.) The calculation reduces income available to
common shareholders by preferred stock dividends paid or accrued during the
period.
Accounting for Sales of Stock by Subsidiaries: It is the Company's policy
to recognize gains and losses on sales of subsidiary stock when incurred.
Claims Liabilities: The Company is self-insured up to certain limits for
workers' compensation, cargo loss and damage and certain property damage
and liability claims. Provision has been made for the estimated
liabilities for such claims as incurred.
NOTE D - INVENTORIES
<TABLE>
<CAPTION>
December 31
1994 1993
($ thousands)
<S> <C> <C>
Finished goods $ 22,764 $ 20,240
Materials 7,487 6,784
Repair parts, supplies and other 2,212 2,062
-------- --------
$ 32,463 $ 29,086
======== ========
</TABLE>
NOTE E - LONG-TERM DEBT AND CREDIT AGREEMENTS
<TABLE>
<CAPTION>
December 31
1994 1993
($ thousands)
<S> <C> <C>
Revolving Credit Facility (1) $ - $ -
Receivables Purchase Agreement (2) 40,000 -
Term Loan Agreement (3) 19,000 -
Payable to Clipper shareholders (Note B) 6,774 -
Treadco Credit Agreement (4) 3,000 7,000
Capitalized lease obligations (5) 51,060 49,419
Other 4,622 2,551
-------- --------
124,456 58,970
Less current portion 65,161 15,239
-------- --------
$ 59,295 $ 43,731
======== ========
</TABLE>
<PAGE>
(1) Revolving Credit Facility: The Company and certain banks are parties
to a Credit Agreement with Societe Generale, as Agent and NationsBank of
Texas as Co-Agent (the "Credit Agreement") which provides funds available
under a three-year Revolving Credit Facility of $150 million, including $40
million for letters of credit. There are no borrowings outstanding under
the Revolving Credit Facility and approximately $32.7 million of letters of
credit outstanding at December 31, 1994. The Revolving Credit Facility is
payable on June 30, 1998. The Credit Agreement also requires mandatory
prepayments to be made under certain circumstances, including the sales of
certain assets and net cash proceeds from the issuance of certain equity or
debt securities.
The Company pays a commitment fee of 3/8% on the unused amount under the
Revolving Credit Facility.
Amounts advanced under the Credit Agreement bear interest, at the Company's
option, at a rate per annum of either:(i) the greater of (a) the agent
bank's prime rate and (b) the Federal Funds Rate plus 1/2%; or (ii) LIBOR
plus 3/4%.
The Credit Agreement contains various covenants which limit, among other
things, dividends, indebtedness, capital expenditures, loans and
investments, as well as requiring the Company to meet certain financial
tests. As of December 31, 1994, these covenants have been met. If there
is an event of default which is not remedied or waived within 10 days, the
Credit Agreement will become secured to the extent of amounts then
outstanding of all of the Company's receivables (excluding receivables sold
under the receivables purchase agreement), revenue equipment, real property
and TREADCO common stock included in the borrowing base (subject to certain
exceptions).
(2) On March 2, 1994, ABF, Renaissance Funding Corp. ("Renaissance") and
Societe Generale entered into a receivables purchase agreement. The
agreement allows ABF to sell to Renaissance an interest in up to $55
million in a pool of receivables. The term can range from 30 to 180 days,
at ABF's option. At the end of the term, ABF is required to repurchase any
uncollected receivables. At December 31, 1994, ABF had $40 million
financed through this facility. The interest rate under this agreement is
variable based on underlying commercial paper rates, which was 5.9% as of
December 31, 1994.
(3) The Company entered into a ten-year, $20 million 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 are
being used to finance the construction of the Company's new corporate
office building which is expected to be completed in February 1995 (Note
I). Amounts borrowed under the agreement bear interest at 8.07%. The
Company shall repay the outstanding amount in 40 equal quarterly
installments of $500,000 plus interest, which began on July 15, 1994.
(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 $12 million or the applicable borrowing base. Borrowings
under the TREADCO Credit Agreement are collateralized by accounts
receivable and inventory. Borrowings under the agreement bear interest, at
TREADCO's option, at 1% above the bank's LIBOR rate, or at the higher of
the bank's prime rate or the "federal funds rate" plus 1/2%. At
December 31, 1994, the interest rate was 7.1%. At December 31, 1994,
TREADCO had $3 million outstanding under the Revolving Credit Agreement.
The TREADCO credit agreement is payable in September 1997. TREADCO pays a
commitment fee of 3/8% on the unused amount under the TREADCO Credit
Agreement.
<PAGE>
The TREADCO Credit Agreement contains various covenants which limit, among
other things, dividends, disposition of receivables, indebtedness and
investments, as well as requiring TREADCO to meet certain financial tests
which have been met. Under the TREADCO Credit Agreement, TREADCO's assets
are subject to pledge and, therefore, are available for use only by that
subsidiary.
(5) Includes approximately $49,100,000 relative to leases of carrier
revenue equipment with an aggregate net book value of approximately
$49,856,000 at December 31, 1994. These leases have a weighted average
interest rate of approximately 7.0%. Also includes approximately
$1,960,000 relative to leases of various terminals and a data processing
building expansion, financed by Industrial Revenue Bond Issues, with a
weighted average interest rate of approximately 7.4%. The net book value
of the related assets was approximately $2,897,000 at December 31, 1994.
Annual maturities on long-term debt, excluding capitalized lease
obligations (see Note I), in 1995 through 1999 aggregate approximately
$50,065,000; $3,113,000; $5,931,000; $2,466,000 and $2,483,000,
respectively.
Interest paid, net of interest capitalized of $582,000, was $6,656,000 in
1994, $7,226,000 in 1993, and $22,174,000 in 1992. Interest capitalized in
1993 and 1992 was not material.
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% applied to notional amounts, as
defined in the contract, ranging from $50 million as of December 31, 1994
to $2.5 million as of October 1999. As of December 31, 1994, the LIBOR
rate was 6.5%; therefore, no amounts were due to the Company under this
arrangement. Fees totaling $385,000 were paid in 1994 to enter into this
arrangement. These fees 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 $3,520,000 as of December 31,
1994, that is used to convert the variable interest rate on bonds to a
fixed rate of interest. The terms of the agreement require the Company to
pay 11.45% interest and receive the Citibank base rate, calculated on the
notional amount. Payments under the agreement are recognized as an
adjustment to interest expense. The agreement expires in January 1996.
<PAGE>
NOTE F - ACCRUED EXPENSES
<TABLE>
<CAPTION>
December 31
1994 1993
($ thousands)
<S> <C> <C>
Accrued salaries, wages and incentive plans $ 12,397 $ 11,969
Accrued vacation pay 22,114 21,074
Accrued interest 1,964 1,053
Taxes other than income 4,946 4,736
Loss, injury, damage and workers'
compensation claims reserves 35,348 29,229
Pension costs 1,312 989
Other 4,076 2,228
--------- ---------
$ 82,157 $ 71,278
========= =========
</TABLE>
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 (in thousands).
<TABLE>
<CAPTION>
December 31
1994 1993
<S> <C> <C>
Deferred tax liabilities:
Depreciation and basis differences
for property, plant and equipment $ 22,332 $ 19,277
Revenue recognition 4,610 4,182
Basis difference on asset and stock sale 3,113 3,037
Prepaid expenses 5,019 3,818
Equity in earnings of TREADCO 1,254 1,064
--------- ---------
Total deferred tax liabilities 36,328 31,378
Deferred tax assets:
Accrued expenses 2,743 1,452
Uniform capitalization of inventories 162 154
Postretirement benefits other than pensions 241 111
Other 181 -
--------- ---------
Total deferred tax assets 3,327 1,717
--------- ---------
Net deferred tax liabilities $ 33,001 $ 29,661
========= =========
</TABLE>
<PAGE>
<TABLE>
Significant components of the provision for income taxes are as follows:
<CAPTION>
December 31
1994 1993
<S> <C> <C>
Current:
Federal $ 12,595 $ 18,263
State 2,148 3,123
--------- ---------
Total current 14,743 21,386
Deferred (credit):
Federal 2,670 (1,786)
State 519 (322)
--------- ---------
Total deferred (credit) 3,189 (2,108)
--------- ---------
Total income tax expense $ 17,932 $ 19,278
========= =========
</TABLE>
<TABLE>
Components of the provision for deferred income taxes for 1992 are as
follows:
<CAPTION>
<S> <C>
Depreciation, capital leases and gains on asset sales $ (603)
Accured expenses 762
Revenue recognition 522
Prepaid expenses 58
Revenue equipment tires 221
Deferred charges (545)
Equity in earnings of TREADCO 788
Other 9
---------
Deferred income tax expense $ 1,212
=========
</TABLE>
<PAGE>
<TABLE>
A reconciliation between the effective income tax rate, as computed on
income before extraordinary items and the cumulative effect of an
accounting change, and the statutory federal income tax rate is presented
in the following table:
<CAPTION>
Year Ended December 31
1994 1993 1992
($ thousands)
<S> <C> <C> <C>
Income tax at the statutory
federal rate of 35% for 1994 and
1993, and 34% for 1992 $ 12,824 $ 14,088 $ 12,121
Federal income tax effects of:
State income taxes (933) (981) (812)
Amortization of nondeductible
goodwill 1,031 1,058 1,003
Other nondeductible expenses 969 490 476
Minority interest 1,233 1,099 961
Undistributed earnings
of TREADCO 210 189 705
Rate difference for TREADCO (108) (98) -
Retroactive tax rate change
effect on deferred taxes - 677 -
Other 39 (45) 53
--------- --------- ---------
Federal income taxes 15,265 16,477 14,507
State income taxes 2,667 2,801 2,387
--------- --------- ---------
$ 17,932 $ 19,278 $ 16,894
========= ========= =========
Effective tax rate 48.9% 47.9% 47.4%
========= ========= =========
</TABLE>
Income taxes paid were $12,368,000 in 1994, $20,740,000 in 1993, and
$6,302,000 in 1992.
In August 1993, the Revenue Reconciliation Act of 1993 was enacted, which
required a retroactive increase in the corporate federal tax rate. This
resulted in an increase in the tax expense and a corresponding decrease in
net income of $828,000. The increase in the corporate federal tax rate was
accounted for in accordance with FAS 109.
<PAGE>
NOTE H - SHAREHOLDERS' EQUITY
Preferred Stock. On February 19, 1993, the Company completed a public
offering of 1,495,000 shares of Preferred Stock at $50 per share. The
preferred stock is convertible at the option of the holder into Common
Stock at the rate of 2.5397 shares of Common Stock for each share of
Preferred Stock. Annual dividends are $2.875 and are cumulative. The
Preferred Stock is exchangeable, in whole or in part, at the option of the
Company on any dividend payment date beginning February 15, 1995, for the
Company's 5 3/4% Convertible Subordinated Debentures due February 15, 2018,
at a rate of $50 principal amount of debentures for each share of Preferred
Stock. The Preferred Stock is redeemable at any time on or after
February 15, 1996, in whole or in part, at the Company's option, initially
at a redemption price of $52.0125 per share and thereafter at redemption
prices declining to $50 per share on or after February 15, 2003, plus
unpaid dividends to the redemption date. Holders of Preferred Stock have
no voting rights unless dividends are in arrears six quarters or more, at
which time they have the right to elect two directors of the Company until
all dividends have been paid. Total dividends paid during 1994 and 1993
were $4,298,000 and $3,904,000, respectively.
Stock Split. On March 13, 1992, the Company's Board of Directors voted to
amend its Certificate of Incorporation to increase the Company's authorized
Common Stock, $.01 par value, from 9,000,000 to 70,000,000 shares. In
addition, the Company declared a 2.797 for 1 stock split of the Common
Stock, $.01 par value (effected in the form of a stock dividend of 1.797
shares on each outstanding share). All references to share and per share
data in the accompanying consolidated financial statements have been
retroactively restated to give effect to the stock split.
Repurchase of Common Stock. On November 13, 1992, 4,439,000 shares of
Common Stock were repurchased from Kelso Best Partners, L.P. ("Kelso"),
which was the Company's largest shareholder at that time. These were
purchased at a cost of $12.50 per share (a discount of $1.50 per share from
the then quoted NASDAQ NMS sale price). These shares were subsequently
retired by the Company.
Stock Options. On March 13, 1992, the Company adopted a stock option plan
which provides 1,000,000 shares of Common Stock for the granting of options
to directors and key employees of the Company.
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.
<PAGE>
<TABLE>
Option transactions are summarized as follows:
<CAPTION>
1994 1993
<S> <C> <C>
Options outstanding at the
beginning of the year 589,100 551,600
Options granted 54,700 37,500
Options cancelled (11,460) -
Options exercised (3,440) -
------- -------
Options outstanding as of December 31 628,900 589,100
======= =======
Option price range as of December 31 $9.50 to $13.88
===============
Options exercisable at December 31, 1994 222,180
=======
</TABLE>
Shareholders' Rights Plan. Each issued and outstanding share of Common
Stock has associated with it one Common Stock purchase right to purchase a
share of Common Stock from the Company at a price of $60.00. Such rights
are not exerciseable until certain events occur as detailed in the rights
agreement.
NOTE I - LEASES AND COMMITMENTS
Rental expense amounted to approximately $72,802,000 in 1994, $58,369,000
in 1993, and $45,875,000 in 1992.
<TABLE>
The future minimum rental commitments, net of future minimum rentals to be
received under noncancelable subleases, as of December 31, 1994 for all
noncancellable operating leases are as follows ($ thousands):
<CAPTION>
Terminals Equipment
and Retread and
Period Total Plants Other
<S> <C> <C> <C>
1995 $ 25,401 $ 10,113 $ 15,288
1996 14,383 7,219 7,164
1997 8,693 4,339 4,354
1998 5,839 2,597 3,242
1999 3,921 1,882 2,039
Thereafter 9,140 8,014 1,126
-------- -------- --------
$ 67,377 $ 34,164 $ 33,213
======== ======== ========
</TABLE>
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 $3,021,000 at December 31,
1994.
<PAGE>
<TABLE>
The future minimum payments under capitalized leases at December 31, 1994,
consisted of the following ($ thousands):
<CAPTION>
<S> <C>
1995 $ 18,361
1996 11,467
1997 7,691
1998 9,403
1999 7,717
Thereafter 5,860
--------
Total minimum lease payments 60,499
Amounts representing interest 9,439
--------
Present value of net minimum lease
included in long-term debt - Note E $ 51,060
========
</TABLE>
<TABLE>
Assets held under capitalized leases are included in property, plant and
equipment as follows:
<CAPTION>
December 31
1994 1993
($ thousands)
<S> <C> <C>
Revenue equipment $ 80,318 $ 84,882
Land and structures 4,726 7,498
--------- ---------
85,044 92,380
Less accumulated amortization 32,291 40,134
--------- ---------
$ 52,753 $ 52,246
========= =========
</TABLE>
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 $15,793,000, $17,885,000 and $5,491,000 were
incurred for the years ended December 31, 1994, 1993 and 1992,
respectively.
Commitments for purchase of revenue equipment aggregated approximately
$47,409,000 at December 31, 1994.
Commitments for capital expenditures aggregate approximately $9.1 million
at December 31, 1994 for construction of a new corporate office building.
The total construction cost of the new building is anticipated to
approximate $23 million, of which $13.9 million is included in construction
in progress as of December 31, 1994.
The Company incurred annual fees of $300,000 in 1992 for services rendered
by a former shareholder. An additional $1,000,000 was paid as an advisory
fee in connection with the repurchase of the Notes (Note A). The service
agreement with this shareholder was terminated effective December 31, 1992.
<PAGE>
NOTE J - LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS
In August 1990, a lawsuit was filed in the United States District Court for
the Southern District of New York, by Riverside Holdings, Inc., Riverside
Furniture Corporation ("Riverside") and MR Realty Associates, L.P.
("Plaintiffs") against the Company and ABC Treadco. 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.
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 98
underground tanks located in 27 states. Maintenance of such tanks is
regulated at the federal and, in some cases, state levels. ABF believes
that it is in substantial compliance with all such regulations. ABF is not
aware of any leaks from such tanks that could reasonably be expected to
have a material adverse effect on the Company. Environmental regulations
have been adopted by the United State Environmental Protection Agency
("EPA") that will require ABF to upgrade its underground tank systems by
December 1998. ABF currently estimates that such upgrades, which are
currently in process, will not have a material adverse effect on the
Company.
The Company has received notices from the EPA and others that it has been
identified as a potentially responsible party ("PRP") under the
Comprehensive Environmental Response Compensation and Liability Act or
other federal or state environmental statutes at several hazardous waste
sites. After investigating the Company's or its subsidiaries' involvement
in waste disposal or waste generation at such sites, the Company has either
agreed to de minimis settlements (aggregating approximately $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 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 $50,000 on
Riverside's behalf related to one site, with additional assessments
expected related to that site. Riverside was dismissed as a PRP from the
second site in March 1993. Management currently believes that resolution
of its remaining site is unlikely to have a material adverse effect on the
Company, although there can be no assurance in this regard.
<PAGE>
NOTE K - EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries have noncontributory defined benefit
pension plans covering substantially all noncontractual employees.
Benefits are based on years of service and employee compensation.
Contributions are made based upon at least the minimum amounts required to
be funded under provisions of the Employee Retirement Income Security Act
of 1974, with the maximum amounts not to exceed the maximum amount
deductible under the Internal Revenue Code. The plans' assets are held in
a common bank-administered trust fund and are primarily invested in
government and equity securities. Additionally, the Company participates
in several multiemployer plans, which provide defined benefits to the
Company's union employees. In the event of insolvency or reorganization,
plan terminations or withdrawal by the Company from the multiemployer
plans, the Company may be liable for a portion of the plan's unfunded
vested benefits, the amount of which, if any, has not been determined.
<TABLE>
A summary of the components of net periodic pension costs for the defined
benefit plans for the periods indicated and the total contributions charged
to pension expense for the multiemployer plans follows:
<CAPTION>
Year Ended December 31
1994 1993 1992
($ thousands)
<S> <C> <C> <C>
Defined Benefit Plans
Service cost - benefits
earned during the year $ 4,492 $ 4,225 $ 3,683
Interest cost on projected
benefit obligations 5,249 5,675 5,162
Actual return on plan assets 220 (6,656) (3,601)
Net amortization and deferral (5,379) 1,542 (1,851)
-------- -------- --------
Net pension cost of defined
benefit plans 4,582 4,786 3,393
Multiemployer Plans 40,833 37,846 36,066
-------- -------- --------
Total pension expense $ 45,415 $ 42,632 $ 39,459
======== ======== ========
</TABLE>
<TABLE>
Assumptions used in determining net periodic pension cost for the defined
benefit plans were:
<CAPTION>
Year Ended December 31
1994 1993 1992
<S> <C> <C> <C>
Weighted average discount rate 7.24% 8.49% 8.90%
Annual compensation increases 3.00% 5.00% 5.00%
Expected long-term rates of
return on assets 9.00% 9.25% 9.75%
</TABLE>
<PAGE>
<TABLE>
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:
<CAPTION>
1994 1993
($ thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ (50,826) $ (56,798)
========= =========
Accumulated benefit obligation $ (57,630) $ (65,303)
========= =========
Projected benefit obligation $ (72,469) $ (79,195)
Plan assets at fair value 67,403 68,515
--------- ---------
Projected benefit obligation in excess
of plan assets (5,066) (10,680)
Unrecognized net loss 9,159 15,095
Prior service benefit not yet recognized
in net periodic pension cost 206 218
Unrecognized net asset at January 1, 1987,
net of amortization (68) (73)
Adjustment required to recognize minimum
liability (212) -
--------- ---------
Net pension asset $ 4,019 $ 4,560
========= =========
</TABLE>
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. At December 31,
1993, the net pension asset is reflected in the accompanying financial
statements as an accrued expense of $989,000 and a noncurrent asset of
$5,549,000 included in other assets.
<TABLE>
The following assumptions were used in determining the pension obligation:
<CAPTION>
December 31
1994 1993
<S> <C> <C>
Weighted average discount rate 8.73% 7.24%
Annual compensation increases 3.00% 3.00%
Expected long-term rates of return on assets 9.00% 9.25%
</TABLE>
The Company has deferred compensation agreements with certain executives
for which liabilities aggregating $1,309,000 and $975,000 as of
December 31, 1994 and 1993, 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 plan
or are designated as participants in the plan by the Company's Board of
Directors. As of December 31, 1994, the Company has a liability of
$2,005,000 for future costs under this plan with $1,234,000 reflected in
the accompanying consolidated financial statements as an accrued expense
and $771,000 included in other liabilities.
<PAGE>
In July 1993, the Employee Stock Ownership Plan (the "ESOP") was merged
with another defined contribution plan to create a new plan known as the
Arkansas Best Corporation Employees' Investment Plan (the "Investment
Plan"). Participant account balances were transferred from the ESOP to the
Investment Plan. The Investment Plan covers substantially all full-time,
noncontractual employees of the Company and its subsidiaries. The
Investment Plan permits participants to defer up to 15% of their salary by
salary reduction as provided in Section 401(k) of the Internal Revenue
Code. The percentage of Company match is set annually. In 1994, 1993 and
1992 up to 4% of a participant's compensation contributed to the Investment
Plan was matched by a Company deposit of 25% of such contribution. The
Company's matching contribution can be made in cash or common stock of the
Company. The matching contributions charged to operations under the
investment plans totaled approximately $846,000 for 1994, $875,000 for
1993, and $805,000 for 1992. At December 31, 1993, the contribution
payable was reflected as a component of shareholders' equity. In 1994,
14,752 shares were issued in settlement of the 1993 contributions payable.
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 1994, $250,000 for 1993 and $250,000 for
1992. The stock contributions to the ESOP and investment plans do not have
a material effect on earnings per share.
Clipper has a Retirement Benefit Plan that covers substantially all full-
time employees. The Plan permits participants to defer up to 8% of their
salary by salary reduction as provided in Section 401(k) of the Internal
Revenue Code, with up to 4% of a participant's compensation matched by the
Company. Also, the Plan has a discretionary profit sharing contribution
determined annually by its Board of Directors (6% of compensation paid to
employees for 1994). For the three months ended December 31, 1994, the
Company's contributions under this Plan totaled $109,000.
The Company sponsors plans that provide postretirement medical benefits,
life insurance and accident and vision care to full-time officers of the
Company. The plan is noncontributory, with the Company paying up to 80% of
covered charges incurred by participants of the plan.
In 1993, the Company adopted FAS 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions." The effect of adopting the
new rules increased net periodic postretirement benefit cost by $275,000
and decreased 1993 net income by $179,000. These costs are based on a 20-
year amortization of the transition obligation. Postretirement benefit
costs for prior years, which was recorded on a cash basis, have not been
restated.
<PAGE>
<TABLE>
The following table represents the amounts recognized in the Company's
consolidated balance sheets:
<CAPTION>
December 31
1994 1993
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ (1,268) $ (1,354)
Fully eligible active plan participants (400) (489)
Other active plan participants (1,036) (1,159)
--------- ---------
(2,704) (3,002)
Unrecognized net (gain) loss (315) 171
Unrecognized transition obligation 2,421 2,556
--------- ---------
Accrued postretirement benefit cost $ (598) $ (275)
========= =========
</TABLE>
<TABLE>
Net periodic postretirement benefit cost includes the following components:
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Service cost $ 59 $ 53
Interest cost 212 223
Amortization of transition
obligation over 20 years 135 134
--------- --------- ---------
Net periodic postretirement
benefit cost $ 406 $ 410 $ 72
========= ========= =========
</TABLE>
The weighted-average annual assumed rate of increase in the per capita cost
of covered benefits (in health care cost trend) is 10.5% for 1995 (10.5%
for 1994) and is assumed to decrease gradually to 4.5% in years 2006 and
later.
The health care cost trend rate assumption has a significant effect on the
amounts reported. For example, increasing the assumed health care cost
trend rates by 1% in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1994, by $363,000 and
the aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1994 by $48,000.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 8.73% at December 31, 1994 and 7.24%
at December 31, 1993.
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 $48,300,000 and $45,400,000 for
the years ended December 31, 1994 and 1993, respectively.
<PAGE>
NOTE L - OPERATING EXPENSES AND COSTS
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
($ thousands)
<S> <C> <C> <C>
CARRIER OPERATIONS
Salaries and wages $ 613,187 $ 594,213 $ 560,460
Supplies and expenses 96,210 99,146 99,613
Operating taxes and licenses 35,928 35,152 32,697
Insurance 18,237 16,835 17,567
Communications and utilities 22,639 23,680 23,782
Depreciation and amortization 24,302 25,714 32,370
Rents 67,550 53,192 39,561
Other 4,298 3,779 4,324
---------- --------- ---------
882,351 851,711 810,374
FORWARDING OPERATIONS
Cost of services 26,817 - -
Selling, administrative,
and general 3,542 - -
---------- --------- ---------
30,359 - -
TIRE OPERATIONS
Cost of sales 100,909 79,718 69,070
Selling, administrative
and general 26,206 21,522 18,412
---------- --------- ---------
127,115 101,240 87,482
SERVICE AND OTHER 10,481 5,598 4,838
---------- --------- ---------
$1,050,306 $ 958,549 $ 902,694
========== ========= =========
</TABLE>
NOTE M - BUSINESS SEGMENT DATA
The Company operates principally in three industries: carrier operations,
tire operations, and, effective October 1, 1994 with the acquisition of
the Clipper Group, freight forwarding operations. Carrier operations
include freight transportation services as a common carrier of general
commodities and import/export container cargo between ports and inland
points. These services are provided to a wide range of customers in
various industries. Forwarding operations consist primarily of intermodal
transportation brokerage services. Tire operations include the cold-cap
retreading of truck tires and the sale of new tires primarily for trucks.
Intersegment sales are not significant. Operating profit is total revenue
less operating expenses, excluding interest. Identifiable assets by
business segment include both assets directly identified with those
operations and an allocable share of jointly used assets. General
corporate assets consist primarily of cash and other investments.
<PAGE>
<TABLE>
The following information reflects selected business segment data
(information relative to revenues is reflected in the consolidated
statements of operations):
<CAPTION>
Year Ended December 31
1994 1993 1992
($ thousands)
<S> <C> <C> <C>
OPERATING PROFIT (LOSS)
Carrier operations $ 35,622 $ 41,645 $ 46,725
Forwarding operations 695 - -
Tire operations 11,079 10,186 8,767
Other (249) (1,193) 267
--------- --------- ---------
TOTAL OPERATING PROFIT 47,147 50,638 55,759
Interest expense 6,985 7,248 17,285
Minority interest 3,523 3,140 2,825
--------- --------- ---------
INCOME BEFORE INCOME TAXES,
EXTRAORDINARY ITEMS AND
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE $ 36,639 $ 40,250 $ 35,649
========= ========= =========
IDENTIFIABLE ASSETS
Carrier operations $ 374,128 $ 331,507 $ 332,604
Tire operations 89,231 80,377 65,480
Forwarding operations 73,816 - -
Other 12,607 10,008 8,139
--------- --------- ---------
549,782 421,892 406,223
General corporate assets 19,263 25,841 22,122
--------- --------- --------
TOTAL ASSETS $ 569,045 $ 447,733 $ 428,345
========= ========= =========
DEPRECIATION AND AMORTIZATION
EXPENSE
Carrier operations $ 26,630 $ 28,043 $ 35,284
Tire operations 3,444 2,614 2,221
Forwarding operations 609 - -
Other 1,432 992 757
--------- --------- ---------
$ 32,115 $ 31,649 $ 38,262
========= ========= =========
CAPITAL EXPENDITURES
Carrier operations $ 58,110 $ 26,530 $ 24,001
Tire operations 5,684 6,137 2,339
Forwarding operations 19 - -
Other 285 492 256
--------- --------- ---------
$ 64,098 $ 33,159 $ 26,596
========= ========= =========
</TABLE>
<PAGE>
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.
<TABLE>
The carrying amounts and fair value of the Company's financial instruments
at December 31, 1994 are as follows:
<CAPTION>
Carrying Fair
Amount Value
($ thousands)
<S> <C> <C>
Cash and cash equivalents $ 3,458 $ 3,458
Short-term debt 50,065 50,082
Long-term debt 23,331 24,773
</TABLE>
NOTE O - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
The tables below present unaudited quarterly financial information for 1994
and 1993:
<CAPTION>
1994
Three Months Ended
March 31 June 30 September 30 December 31
($ thousands, except per share amount)
<S> <C> <C> <C> <C>
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
========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1993
Three Months Ended
March 31 June 30 September 30 December 31
($ thousands, except per share amount)
<S> <C> <C> <C> <C>
Operating revenues $ 229,210 $ 244,622 $ 267,106 $ 268,980
Operating expenses
and costs 221,415 234,243 247,718 255,173
--------- --------- --------- ---------
Operating income 7,795 10,379 19,388 13,807
Other expense - net 3,334 2,069 2,504 3,212
Income taxes 2,299 3,879 8,130 4,970
--------- --------- --------- ---------
Income before extra-
ordinary item 2,162 4,431 8,754 5,625
Loss on extinguishment
of debt (167) (162) - (332)
--------- --------- --------- ---------
Net income $ 1,995 $ 4,269 $ 8,754 $ 5,293
========= ========= ========= =========
Income per common share
before extraordinary
item $ .08 $ .18 $ .38 $ .24
Loss on extinguishment
of debt per common share (.01) (.01) - (.02)
-------- --------- --------- ---------
Net income per common
share $ .07 $ .17 $ .38 $ .22
========= ========= ========= =========
Average common shares
outstanding 19,194,595 19,127,064 22,971,916 19,288,988
========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ARKANSAS BEST CORPORATION
<CAPTION>
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
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1994:
Deducted from asset accounts:
Allowance for doubtful
accounts receivable $ 2,200,000 $ 2,935,228 $ 961,663(A) $ 3,271,956(B) $ 2,824,935
============ ============ ============ ============ ============
Year Ended December 31, 1993:
Deducted from asset accounts:
Allowance for doubtful
accounts receivable $ 1,850,000 $ 1,901,958 $ 909,223(A) $ 2,461,181(B) $ 2,200,000
============ ============ ============ ============ ============
Year Ended December 31, 1992:
Deducted from asset accounts:
Allowance for doubtful
accounts receivable $ 1,460,924 $ 2,343,419 $ 1,167,842(A) $ 3,122,185(B) $ 1,850,000
============ ============ ============ ============ ============
<FN>
<F1>
Note A - Recoveries of amounts previously written off.
<F2>
Note B - Uncollectible accounts written off.
</FN>
</TABLE>
<PAGE>
FORM 10-K -- ITEM 14(c)
LIST OF EXHIBITS
ARKANSAS BEST CORPORATION
The following exhibits are filed with this report.
Exhibit
No. Page
11 Statement Re: Computation of Earnings per Share 75
22 List of Subsidiary Corporations 77
23 Consent of Ernst & Young LLP, Independent Auditors 79
<PAGE>
EXHIBIT 11
<PAGE>
EXHIBIT 11
<TABLE>
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
ARKANSAS BEST CORPORATION
<CAPTION>
Year Ended December 31
1994 1993 1992
($ thousands, except
per share data)
<S> <C> <C> <C>
PRIMARY:
Average shares outstanding 19,249,209 19,132,386 19,005,887
Net effect of dilutive stock
options -- Based on the
treasury stock method using
average market price 102,587 61,196 34,216
---------- ---------- ----------
Average common shares outstanding 19,351,796 19,193,582 19,040,103
========== ========== ==========
Income before extraordinary item
and cumulative effect of
accounting change $ 18,707 $ 20,972 $ 18,755
Less: preferred stock dividend 4,298 3,904 -
---------- ---------- ----------
14,409 17,068 18,755
Extraordinary item:
Loss on extinguishments of debt - (661) (15,975)
Cumulative effect on prior years
of change in recognition of
revenue - - (3,363)
---------- ---------- ----------
Net income (loss) available
for common shareholders $ 14,409 $ 16,407 $ (583)
========== ========== ==========
Per common and common
equivalent share:
Income before extraordinary
item and cumulative effect
of accounting change $ .74 $ .89 $ .99
Extraordinary item:
Loss on extinguishments of debt - (.04) (.84)
Cumulative effect on prior years of
change in recognition of revenue - - (.18)
---------- ---------- ----------
$ .74 $ .85 $ (.03)
========== ========== ==========
</TABLE>
<PAGE>
EXHIBIT 22
<PAGE>
EXHIBIT 22
LIST OF SUBSIDIARY CORPORATIONS
ARKANSAS BEST CORPORATION
The Registrant owns and controls the following subsidiary corporations:
Jurisdiction of % of Voting
Name Incorporation Securities Owned
Subsidiary of Arkansas Best Corporation:
ABF Freight System, Inc. Delaware 100
Treadco, Inc. Delaware 45.9
ABC-Treadco, Inc. Arkansas 100
Data-Tronics Corp. Arkansas 100
Clover Insurance Company, Ltd. Bermuda 100
Arkansas Underwriters Corporation Arkansas 100
Advertising Counselors, Inc. Arkansas 100
ABF Cartage, Inc. Delaware 100
ABF Farms, Inc. Arkansas 100
Land-Marine Cargo, Inc. Puerto Rico 100
Integrated Distribution, Inc. Arkansas 100
ABF Freight System Canada, Ltd. Canada 100
ABF Freight System de Mexico, Inc. Delaware 100
Best Logistics, Inc. Delaware 100
Agile Freight System, Inc. Delaware 100
Agricultural Express of America, Inc. Delaware 100
Clipper Exxpress Company Delaware 100
Subsidiary of ABF Freight System, Inc.:
ABF Freight System (B.C.), Ltd. British Columbia 100
Subsidiary of Treadco, Inc.:
Trans World Casings, Inc. Delaware 100
<PAGE>
EXHIBIT 23
<PAGE>
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-66694) pertaining to the Arkansas Best Corporation Stock
Option Plan and Arkansas Best Corporation Disinterested Director Stockholder
Plan of our report dated January 27, 1995, with respect to the consolidated
financial statements and schedule of Arkansas Best Corporation included in
this Annual Report (Form 10-K) for the year ended December 31, 1994.
ERNST & YOUNG LLP
Little Rock, Arkansas
March 21, 1995
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the Arkansas
Best Corporation Form 10-K for the year ended December 31, 1994 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000894405
<NAME> ARKANSAS BEST CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 3,458
<SECURITIES> 0
<RECEIVABLES> 138,969
<ALLOWANCES> 2,825
<INVENTORY> 32,463
<CURRENT-ASSETS> 185,799
<PP&E> 382,017
<DEPRECIATION> 166,436
<TOTAL-ASSETS> 569,045
<CURRENT-LIABILITIES> 223,399
<BONDS> 59,295
<COMMON> 195
0
15
<OTHER-SE> 216,395
<TOTAL-LIABILITY-AND-EQUITY> 569,045
<SALES> 138,665
<TOTAL-REVENUES> 1,098,421
<CGS> 127,115
<TOTAL-COSTS> 1,050,306
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,070
<INTEREST-EXPENSE> 6,985
<INCOME-PRETAX> 36,639
<INCOME-TAX> 17,932
<INCOME-CONTINUING> 18,707
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,707
<EPS-PRIMARY> .74
<EPS-DILUTED> .74
<PAGE>
</TABLE>
