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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year December 31, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ---------- to ----------.
Commission file number 0-19969
ARKANSAS BEST CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 71-0673405
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3801 Old Greenwood Road, Fort Smith, Arkansas 72903
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 501-785-6000
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Securities registered pursuant to Section 12(b) of the Act:
None
----------------
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $.01 Par Value Nasdaq Stock Market/NMS
$2.875 Series A Cumulative Convertible
Exchangeable Preferred Stock,
$.01 Par Value Nasdaq Stock Market/NMS
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of The Securities Exchange Act
of 1934 during the preceding 12 months (or for shorter period that the
Registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ X].
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 10, 1997, was $88,818,440.
The number of shares of Common Stock, $.01 par value, outstanding as of
March 10, 1997, was 19,504,473.
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DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the proxy statement for the Arkansas Best Corporation annual
shareholders' meeting to be held May 8, 1997 are incorporated by reference
into Part III.
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ARKANSAS BEST CORPORATION
FORM 10-K
TABLE OF CONTENTS
ITEM PAGE
NUMBER NUMBER
PART I
Item 1. Business 2
Item 2. Properties 12
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 13
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations 15
Item 8. Financial Statements and Supplementary Data 31
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 31
PART III
Item 10. Directors and Executive Officers of the Registrant 32
Item 11. Executive Compensation 32
Item 12. Security Ownership of Certain Beneficial
Owners and Management 32
Item 13. Certain Relationships and Related Transactions 32
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 33
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PART I
ITEM 1. BUSINESS
(a) General Development of Business
Corporate Profile
Arkansas Best Corporation (the "Company") is a diversified holding company
located in Fort Smith, Arkansas. The Company is engaged through its motor
carrier subsidiaries in less-than-truckload ("LTL") and truckload shipments
of general commodities, through its intermodal and logistics subsidiaries in
intermodal marketing and freight logistics services and through its 46%-owned
subsidiary, Treadco, Inc. ("Treadco") in truck tire retreading and new truck
tire sales.
Historical Background
In 1988, the Company was acquired in a leveraged buyout
by a corporation organized by Kelso & Company, L.P. ("Kelso").
In 1992, the Company completed an initial public offering of Common Stock par
value $.01 (the "Common Stock") by the Company. The Company also repurchased
substantially all the remaining shares of Common Stock beneficially owned by
Kelso, thus ending Kelso's investment in the Company.
In 1993, the Company completed a public offering of 1,495,000 shares of
preferred stock ("Preferred Stock").
(b) Financial Information about Industry Segments
The response to this portion of Item 1 is included in "Note M - Business
Segment Data" of the notes to the Company's consolidated financial statements
for the year ended December 31, 1996, which is submitted as a separate
section of this report.
(c) Narrative Description of Business
The Company
Acquisition
On July 14, 1995, ABC Acquisition Corporation (the "Purchaser"), a wholly
owned subsidiary of the Company, commenced a tender offer (the "Offer") to
purchase all outstanding shares of common stock of WorldWay Corporation
("WorldWay"), at a purchase price of $11 per share (the "Acquisition").
Pursuant to the Offer, on August 11, 1995, the Purchaser accepted for payment
shares of WorldWay validly tendered, representing approximately 91% of the
shares outstanding. On October 12, 1995, the remaining shares of WorldWay's
common stock were converted into the right to receive $11 per share in cash.
Principal subsidiaries of WorldWay included Carolina Freight Carriers Corp.
("Carolina Freight") and Red Arrow Freight Lines, Inc. ("Red Arrow"), which
were merged into the Company's subsidiary, ABF Freight System, Inc. ("ABF")
on September 24, 1995, Cardinal Freight Carriers, Inc. ("Cardinal"), G.I.
Trucking Company ("G.I. Trucking"), CaroTrans International, Inc.
("CaroTrans"), The Complete Logistics Company ("Complete Logistics"), Motor
Carrier Insurance, Ltd., and Carolina Breakdown Service, Inc. ("Carolina
Breakdown").
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Employees
At December 31, 1996, the Company had a total of 16,328 employees of which
67% are members of a labor union.
Less-Than-Truckload Motor Carrier Operations
General
The Company's LTL 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")(collectively the "ABF Group") and G.I. Trucking Company.
LTL carriers offer services to shippers which are tailored to the need to
transport a wide variety of large and small shipments to geographically
dispersed destinations. 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 distribution centers, where shipments from
various locations can be reconsolidated for transportation to distant
destinations, other distribution centers or local terminals. 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 the freight having to be rehandled.
Competition, Pricing and Industry Factors
The trucking industry is highly competitive. The Company's LTL motor carrier
subsidiaries actively compete for freight business with other national,
regional and local motor carriers and, to a lesser extent, with private
carriage, freight forwarders, railroads and airlines. Competition is based
primarily on personal relationships, price and service. In general, most of
the principal motor carriers use similar tariffs to rate interstate
shipments. Competition for freight revenue, however, has resulted in
discounting which effectively reduces prices paid by shippers. In an effort
to maintain and improve its market share, the Company's LTL motor carrier
subsidiaries offer and negotiate various discounts.
The trucking industry, including the Company's LTL motor carrier
subsidiaries, is affected directly by the state of the overall economy. In
addition, seasonal fluctuations also affect tonnage to be transported.
Freight shipments, operating costs and earnings also are affected adversely
by inclement weather conditions.
ABF Freight System, Inc.
The largest subsidiary of the Company, ABF currently accounts for
approximately 65% of the Company's consolidated revenues and 92% of LTL
operations revenue. ABF is the fourth largest LTL motor carrier in the United
States, based on revenues for 1996 as reported to the U.S. Department of
Transportation ("D.O.T."). ABF provides direct service to over 98.5% of the
cities in the United States having a population of 25,000 or more. The ABF
Group provides interstate and intrastate direct service to more than 40,000
points through 317 terminals in all 50 states, Canada and Puerto Rico.
Through an alliance and relationships with trucking companies in Mexico, ABF
provides motor carrier services to customers in that country as well. ABF was
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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, 1996, no single customer accounted for more than 3% of
ABF's revenues, and the ten largest customers accounted for less than 8% of
ABF's revenues.
Employees
At December 31, 1996, ABF employed 12,362 persons. Employee compensation and
related costs are the largest components of LTL motor carrier operating
expenses. In 1996, such costs amounted to 69.4% of LTL operations revenues.
ABF is a signatory with the International Brotherhood of Teamsters
("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%, 3.3% and 3.8% annually during 1994, 1995 and 1996,
respectively, and will increase an average of 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 88% of ABF's employees are
unionized, of whom approximately 1% are members of unions other than the
Teamsters.
Four of the five largest LTL carriers are unionized and generally pay
comparable wages. Non-union companies typically pay employees less than union
companies. Due to its national reputation and its high pay scale, ABF has not
historically experienced any significant difficulty in attracting or
retaining qualified drivers.
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Insurance and Safety
Generally, claims exposure in the motor carrier industry consists of cargo
loss and damage, auto liability, property damage and bodily injury and
workers' compensation. The Company's motor carrier subsidiaries are
effectively self-insured for the first $100,000 of each cargo loss, $300,000
of each workers' compensation loss and $200,000 of each general and auto
liability loss, plus an aggregate of $750,000 of auto liability losses
between $200,000 and $500,000. The Company maintains insurance contracts
covering the excess of such losses in amounts it believes are adequate. While
insurance for motor carriers has become increasingly more expensive and more
difficult to obtain, it remains essential to the continuing operations of a
motor carrier. The Company has been able to obtain adequate coverage and is
not aware of problems in the foreseeable future which would significantly
impair its ability to obtain adequate coverage at comparable rates.
G.I. Trucking Company
Headquartered in La Mirada, California, G.I. Trucking is a non-union regional
LTL motor carrier. G.I. Trucking provides transportation services and
coverage throughout 13 Western states and the Western Canadian provinces of
Alberta and British Columbia, as well as service to Hawaii and Alaska. One-
to three-day regional service is provided through 70 service centers.
Transcontinental service is facilitated through a partnership with three
other regional carriers providing service through six major hub terminals
located throughout the Midwest and East Coast. Customer service is enhanced
through EDI communications between partners, allowing for single pro tracing,
invoicing and a full range of other EDI and information management services.
G.I. Trucking's Hawaiian container operation, located in La Mirada, provides
excellent transit times to the Islands. Service to points in Alaska and
Western Canada is provided through the company's service center in Seattle,
Washington.
G.I. Trucking's linehaul structure utilizes company solo drivers, company
sleeper teams, contract power and one-way carriers, providing total
flexibility in maintaining superior service and lane balance.
Truckload Operations
Cardinal Freight Carriers, Inc.
Cardinal is an irregular route carrier providing dry van and flatbed service
throughout the eastern two-thirds of the United States and Canada.
Headquartered in Concord, North Carolina, Cardinal operates via a central
dispatch system utilizing a state-of-the-art computer system. Cardinal has
grown from 14 company-owned power units in 1981 to more than 400 tractors in
the van division and over 100 tractors in the flatbed division. The trailer
fleet consists of 1,307 vans and 150 aluminum flatbeds.
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Cardinal's services, both van and flatbed, can be labeled as interregional.
Cardinal's system averages 530 miles per trip, providing next day, on-time
service that patterns today's manufacturing and distribution system of closer
proximity to their customer base. With the flexibility for both longhaul and
shorthaul, Cardinal offers one-thousand-mile plus service, along with
regional length of haul, including intrastate service, in 11 states. Cardinal
has a facility network consisting of 6 locations to perform timely preventive
maintenance to better ensure safety in the community and equipment
reliability.
Cardinal operates in a competitive and highly service-sensitive market and,
therefore, is committed to providing its customers with premier quality
service. Cardinal's customers have defined a premier quality service as on-
time, claim-free pickups and deliveries, accurately invoiced, and thorough
communications, along with information support technology.
During 1996, Cardinal's largest customer accounted for 10% of Cardinal's
revenue and the ten largest customers accounted for 41% of Cardinal's
revenue.
Intermodal Operations
Clipper WorldWide
During 1996, CaroTrans joined the Clipper Group to form Clipper WorldWide, a
new business unit which will focus on worldwide logistics, transportation and
trade facilitation. The Clipper Group consists of Clipper Exxpress Company
("Clipper"), Agricultural Express of America, Inc. ("AXXA"), and Agile
Freight System, Inc. ("Agile").
Clipper WorldWide will link the Clipper Group's domestic rail intermodal
network with CaroTrans' strong ocean intermodal network.
Clipper Exxpress Company
Clipper, the largest of the three Clipper Group companies, accounted for
approximately 60% of the Company's intermodal operations revenues during
1996. Clipper is a non-asset, non-labor intensive, knowledge-based provider
of contract freight management and LTL intermodal services to its customers.
Clipper is the largest consolidator and forwarder of LTL shipments and one of
the largest intermodal marketing companies ("IMC") in the United States.
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.
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Clipper's LTL collection and distribution network consists of 38
geographically dispersed locations throughout the United States. Selection of
markets depends on size (lane density), availability of quality rail service
and truck line-haul service, length of haul and competitor profile. Traffic
moving between its ten most significant market pairs generates approximately
34% of Clipper's LTL revenue. Virtually all of Clipper's LTL revenue is
derived from long-haul, metro area-to-metro area transportation.
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.
Agricultural Express of America, Inc. (D/B/A Clipper Controlled Logistics)
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. AXXA owns 425 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 and Clipper are closely integrated, with Clipper relying on AXXA
equipment to move its westbound freight, particularly during the winter
months.
Agile Freight System, Inc. (D/B/A Clipper Highway Services)
Agile is a non-asset intensive, premium service, long-haul truckload carrier
that utilizes two-person driver teams provided primarily by owner-operators.
Agile provides "near airfreight" truckload service in tightly focused long-
haul lanes that originate or terminate near a Clipper market. Much of Agile's
value to the Clipper Group is that it can be relied upon if other carriers
are not available to move full truckloads of consolidated LTL shipments by
Clipper. During 1996, Agile began a local drayage operation.
CaroTrans International, Inc.
CaroTrans is a neutral, non-vessel operating common carrier ("NVOCC"),
providing import and export, door-to-door and door-to-port service to more
than 140 countries with 225 ports of discharge. Headquartered in Cherryville,
North Carolina, CaroTrans is one of the largest NVOCC's in the world,
offering more destinations by a "master loader" than any other NVOCC.
Overseas, CaroTrans is recognized as a leader in international shipping
between North America and many worldwide destinations. CaroTrans maintains
offices in Rotterdam, Holland; London and Liverpool, United Kingdom;
Singapore and San Juan. These strategically located offices direct the
operations and sales activities of the carefully selected agents within its
geographic region.
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Logistics Operations
The Complete Logistics Company
The Complete Logistics Company is a logistics organization dedicated to
providing supply chain management to its customers, including such services
as equipment leasing, logistics modeling, communications networks, warehouse
management, consolidation and cross-dock facilities, computerized routing,
and experienced drivers, dock workers, supervisors, and clerical staff. All
services are controlled through an integrated computer system which allows
Complete Logistics to administer all services provided in a seamless manner.
As an asset-based, third-party, single-source logistics company, Complete
Logistics has the capability to manage and coordinate a customer's logistics
resources to meet their competitive requirements. Complete Logistics listens
carefully to a customer's needs and then offers a range of customized options
designed to give the customer control over their costs and performance.
Ongoing success is ensured by maintaining constant communication and a close
working partnership with the customer.
Integrated Distribution, Inc.
Integrated Distribution is a logistics company that manages the flow of goods
and related information. Integrated Distribution's services include truckload
and large LTL transportation, customized handling, freight consolidation,
contract and public warehousing, and logistics. Transportation services are
aimed at pickup and delivery of truckload and large LTL shipments.
Integrated's trucks are equipped with satellite tracking and communications
so that a customer always knows the location of their product. An in-house
licensed brokerage service supplements the carrier operations.
Through its customized handling of a customer's product, Integrated
Distribution adds value by cross-docking, building store-ready displays,
making final assemblies, applying bar code and price labels, and packaging.
Integrated Distribution offers freight consolidation for membership clubs,
grocery chains and distributors, and mass merchandisers. Integrated's program
offers scheduled deliveries of LTL shipments with the economy of truckload
rates. Logistics services include development and implementation of the
optimal solution for a customer's distribution requirements, using owned or
subcontracted assets.
Tire Operations
Treadco, Inc.
Treadco is the nation's largest independent tire retreader for the trucking
industry and the third largest commercial truck tire dealer. Treadco's
revenues currently account for approximately 9% of the Company's consolidated
revenues and are divided approximately 41%, 51% and 8% between retread sales,
new tire sales and service revenues, respectively. In 1996, Treadco sold
approximately 568,000 retreaded truck tires and approximately 399,000 new
tires.
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Treadco has a total of 54 locations positioned across the South, Southwest,
lower Midwest and West. Treadco retreads and sells truck tires at 26
production facilities located in Arizona, Arkansas, California, Florida,
Georgia, Louisiana, Missouri, Nevada, Ohio, Oklahoma and Texas. The remaining
28 locations are sales facilities located in the states listed above, as well
as Kansas, Kentucky, Mississippi and Tennessee.
Precure Retread Process
In August 1995, Bandag, Inc. ("Bandag"), Treadco's tread rubber supplier and
franchiser of the retreading process used by substantially all of Treadco's
locations, advised Treadco that certain franchise agreements would not be
renewed upon expiration in 1996. Bandag subsequently advised Treadco that
unless Treadco used the Bandag process exclusively, Bandag would not renew
any of Treadco's franchise agreements when they expired.
In October 1995, Treadco reached an agreement with Oliver Rubber Company
("Oliver") to be a supplier of equipment and related materials for Treadco's
truck tire precure retreading business. Oliver agreed to supply Treadco with
retreading equipment and related materials for all production facilities
which ceased being Bandag franchised locations. During the first three
quarters of 1996, Treadco converted its production facilities that were under
Bandag retread franchises to Oliver licensed facilities.
Under the Oliver license agreements, Treadco purchases from Oliver precured
tread rubber and bonding cushion gum and PNEUFLEX tread rubber (collectively
"Rubber Products"). Treadco's obligation to purchase Rubber Products from
Oliver is subject to (i) Oliver's continuing to produce Rubber Products of no
less quality and durability than it presently produces, and (ii) Oliver's
overall pricing program for Treadco.
Mold Cure Retread Process
On February 1, 1996, Treadco gained Bridgestone certification to produce and
sell ONCOR remanu-factured tires at its St. Louis (MO) production facility.
This is the first plant in the United States using Bridgestone's "ONCOR Tread
Renewal System." However, the Bridgestone mold cure process has been used for
many years outside the United States, predominately in Japan.
Sales and Marketing
Treadco's sales and marketing strategy is based on its service strengths,
network of production and sales facilities and strong regional reputation. In
addition to excellent service, Treadco offers broad geographical coverage
across the South, Southwest, lower Midwest and West. This coverage is
important for customers because they are able to establish uniform pricing,
utilize national account billing processes similar to those used by major new
tire suppliers, and generally reduce the risk of price fluctuations when
service is needed.
None of Treadco's customers for retreads and new tires, including ABF or
other affiliates, represented more than 2% of Treadco's revenues for 1996.
ABF accounted for approximately $2.5 million of Treadco's revenues in 1996
(1.8%), and has not accounted for more than 3% of Treadco's revenues in any
of the last ten years. Treadco's customers are primarily mid-sized companies
that maintain 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 54 locations. The sales
locations are supplied with retreads from nearby Treadco production
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facilities. Treadco locates its facilities in close proximity to interstate
highways and operates mobile service trucks to provide ready accessibility
and convenience to its customers, particularly fleet owners.
Ownership
As of December 31, 1996, the Company's percentage ownership of Treadco was
45.7%. Treadco is consolidated with the Company for financial reporting
purposes, with the ownership interest of the other stockholders reflected as
a minority interest.
Carolina Breakdown Service, Inc.
Carolina Breakdown Service, Inc., ("CBS") is a third-party vehicle
maintenance logistics company operating from a Cherryville, North Carolina
base, with service capabilities in the 48 contiguous states, and Central and
Eastern Canada. The CBS nationwide operation provides any and all necessary
scheduled and unscheduled vehicle repairs and driver assistance to all
classes and types of trucks, trailers, and combination units 24 hours a day,
7 days a week. In-house maintenance expertise and regimentation also allows
for additional business as a technical assistance provider to the original
equipment manufacturer community, and through the use of strategic
outsourcing via a qualified vendor network of over 53,000 vendors nationwide,
CBS handles over 100 service and technical calls a day from its client base
of approximately 700 trucking and OEM accounts compared to 492 at the end of
1995. Carolina Breakdown Service, Inc., was incorporated in 1993 but derives
its professional training from over four decades of experience, having
serviced equipment for Carolina Freight.
Environmental and Other Government Regulations
The Company is subject to federal, state and local environmental laws and
regulations relating to, among other things, contingency planning for spills
of petroleum products, and its disposal of waste oil. Additionally, the
Company is subject to significant regulations dealing with underground fuel
storage tanks. The Company's subsidiaries store some of its fuel for its
trucks and tractors in approximately 148 underground tanks located in 33
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
1997 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 had 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.
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Treadco is affected by a number of governmental regulations relating to the
development, production and sale of retreaded and new tires, the raw
materials used to manufacture such products (including petroleum, styrene and
butadiene), and to environmental, tax and safety matters. In addition, the
retreading process creates rubber particulate, or "dust," which requires
gathering and disposal, and Treadco disposes of used and nonretreadable tire
casings, both of which require compliance with environmental and disposal
laws. In some situations, Treadco could be liable for disposal problems, even
if the situation resulted from previous conduct of Treadco that was lawful at
the time or from improper conduct of, or conditions caused by, persons
engaged by Treadco to dispose of particulate and discarded casings. Such
cleanup costs or costs associated with compliance with environmental laws
applicable to the tire retreading process could be substantial and have a
material adverse effect on Treadco's financial condition. Treadco believes
that it is in substantial compliance with all laws applicable to such
operations, however, and is not aware of any situation or condition that
could reasonably be expected to have a material adverse effect on Treadco's
financial condition.
As of December 31, 1996, the Company has accrued approximately $3.1 million
to provide for environmental-related liabilities. The Company's environmental
accrual is based on management's best estimate of the actual liability. The
Company's estimate is founded on management's experience in dealing with
similar environmental matters and on actual testing performed at some sites.
Management believes that the accrual is adequate to cover environmental
liabilities based on the present environmental regulations.
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ITEM 2. PROPERTIES
The Company owns its executive offices in Fort Smith, Arkansas.
LTL Motor Carrier Operations Segment
The ABF Group currently operates out of 317 terminal facilities of which it
owns 82, leases 59 from an affiliate and leases the remainder from non-
affiliates. ABF's principal terminal facilities are as follows:
No. of Doors Square Footage
Owned:
Dayton, Ohio 315 218,000
Ellenwood, Georgia 228 109,845
South Chicago, Illinois 228 109,650
Winston-Salem,
North Carolina 150 95,700
Carlisle, Pennsylvania
(two structures) 241 82,960
Dallas, Texas 108 72,500
Leased from affiliate,
Transport Realty:
North Little Rock,
Arkansas 195 82,050
Pico Rivera, California 94 22,500
G.I. Trucking currently operates out of 70 service centers of which it owns
10 facilities, leases two facilities from an affiliate and leases the
remainder from agents or non-affiliates.
Tire Operations Segment
Treadco currently operates from 54 locations. Treadco owns 13 production and
4 sales facilities and leases the remainder from non-affiliates.
ITEM 3. LEGAL PROCEEDINGS
Various legal actions, the majority of which arise in the normal course of
business, are pending. None of these legal actions is expected to have a
material adverse effect on the Company's financial condition or results of
operations. 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 shareholders during the fourth quarter
ended December 31, 1996.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market and Dividend Information
The Company's Common Stock trades on The Nasdaq Stock Market under the symbol
"ABFS." The following table sets forth the high and low recorded last sale
prices of the Common Stock during the periods indicated as reported by Nasdaq
and the cash dividends declared:
Cash
High Low Dividend
1996
First quarter $9.375 $5.000 $.01
Second quarter 9.250 6.875 -
Third quarter 7.688 5.125 -
Fourth quarter 7.375 4.125 -
1995
First quarter $13.000 $10.500 $.01
Second quarter 11.500 7.938 .01
Third quarter 13.875 8.500 .01
Fourth quarter 11.875 6.625 .01
At March 10, 1997, there were 19,504,473 shares of the Company's stock
outstanding which were held by 959 shareholders of record and through
approximately 7,000 nominee or street name accounts with brokers.
The Company's Board of Directors suspended payment of dividends on the
Company's Common Stock during the second quarter of 1996. The declaration and
payment of, and the timing, amount and form of future dividends on the Common
Stock will be determined based on the Company's results of operations,
financial condition, cash requirements, certain corporate law requirements
and other factors deemed relevant by the Board of Directors.
The Company's credit agreement limits the total amount of "restricted
payments" that the Company may make, including dividends on its capital
stock, to $6.5 million in any one calendar year. The annual dividend
requirements on the Company's preferred stock totals approximately $4.3
million.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
Selected Financial Data - Five-Year Summary
Arkansas Best Corporation
<CAPTION>
Year Ended December 31
1996 1995 (6) 1994 1993 1992
($ in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Operating revenues $1,659,184 $1,437,279 $1,098,421 $1,009,918 $ 959,949
Operating income (loss) (22,328) (23,459) 48,115 51,369 57,255
Minority interest in subsidiary (1,768) 1,297 3,523 3,140 2,825
Other expenses, net 4,309 5,185 968 731 1,496
Interest expense 31,869 17,046 6,985 7,248 17,285
Income (loss) before income taxes,
extraordinary item and cumulative
effect of accounting change (56,738) (46,987) 36,639 40,250 35,649
Provisions (credit) for income taxes (20,135) (14,195) 17,932 19,278 16,894
Income (loss) before extraordinary
item and cumulative effect
of accounting change (36,603) (32,792) 18,707 20,972 18,755
Extraordinary item (1) - - - - (661) (15,975)
Cumulative effect on prior years of
change in revenue recognition method (2) - - - - (3,363)
Net income (loss) (36,603) (32,792) 18,707 20,311 (583)
Income (loss) per common share
before extraordinary item
and cumulativeeffect
of accounting change (2.10) (1.90) .74 .89 .99
Net income (loss) per common share (2.10) (1.90) .74 .85 (.03)
Cash dividends paid per common share (3) .01 .04 .04 .04 .02
Pro Forma Data (4):
Income (loss) before extraordinary item $ (36,603) $ (32,792) $ 18,707 $ 20,972 $ 18,755
Income (loss) before extraordinary
item per common share (2.10) (1.90) .74 .89 .99
Net income (loss) (36,603) (32,792) 18,707 20,311 2,780
Net income (loss) per common share (2.10) (1.90) .74 .85 .15
Balance Sheet Data
(as of the end of the period):
Total assets $ 843,200 $ 985,837 $ 569,045 $ 447,733 $ 428,345
Current portion of long-term debt 39,082 26,634 65,161 15,239 28,348
Long-term debt (including capital leases
and excluding current portion) 326,950 399,144 59,295 43,731 107,075
Other Data
Capital expenditures (5) $ 41,599 $ 74,808 $ 64,098 $ 33,160 $ 26,596
Depreciation and amortization 56,389 46,627 28,087 28,266 34,473
Goodwill amortization 4,609 5,135 3,527 3,064 3,034
Other amortization 3,740 1,044 501 319 755
<FN>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA -- Continued
<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 in May 1992.
<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)Cash dividends on the Company's Common Stock were indefinitely suspended
by the Company as of the second quarter of 1996. No cash dividends were
paid by the Company during the first three quarter of 1992.
<F4>
(4)Assumes the change in accounting method for recognition of revenue as
required under EITF 91-9 occurred January 1, 1992.
<F5>
(5)Net of equipment trade-ins. Does not include revenue equipment placed in
service under operating leases, which amounted to $24.6 million in 1995,
$24.8 million in 1993 and $25.5 million in 1992. There were no operating
leases for revenue equipment entered into for 1996 and 1994. See
"Management's Discussion and Analysis-Liquidity and Capital Resources."
<F6>
(6)1995 selected financial data is not comparative to the prior years'
information due to the WorldWay acquisition effective August 12, 1995. In
conjunction with the WorldWay acquisition, assets with a fair value of
$313 million were acquired and liabilities of approximately $252 million
were assumed. Approximately $134 million in revenues for the period from
August 12, 1995 to December 31, 1995, are included in the 1995
consolidated statement of operations generated by subsidiaries acquired
as part of the WorldWay acquisition.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Arkansas Best Corporation (the "Company") is a diversified holding company
engaged through its subsidiaries primarily in less-than-truckload ("LTL")
and truckload motor carrier operations, logistics and freight intermodal
operations and truck tire retreading and new tire sales. Principal
subsidiaries owned are ABF Freight System, Inc. ("ABF"), Treadco, Inc.
("Treadco"), and, effective September 30, 1994, Clipper Exxpress Company
("Clipper"). Also, effective August 12, 1995, pursuant to its acquisition of
WorldWay Corporation ("WorldWay"), the Company owns Cardinal Freight
Carriers, Inc. ("Cardinal"), G.I. Trucking Company ("G.I. Trucking"),
CaroTrans International, Inc. ("CaroTrans"), and The Complete Logistics
Company ("Complete Logistics"). (See discussion below.)
The Company in 1991 reduced its ownership in Treadco, through an initial
public offering of Treadco common stock, to approximately 46%, while
retaining control of Treadco by reason of its stock ownership, board
representation and provision of management services. As a result, Treadco is
consolidated with the Company for financial reporting purposes, with the
ownership interests of the other stockholders reflected as minority
interest.
<PAGE>
On September 30, 1994, the Company consummated the purchase of all
outstanding stock of the Clipper Group. Assets of approximately $26.2 million
were acquired and liabilities of approximately $14.7 million were assumed.
The Company's total purchase price was $60.9 million.
The Clipper acquisition was accounted for under the purchase method,
effective September 30, 1994. The purchase price was allocated to assets and
liabilities based on their estimated fair values as of the date of
acquisition. Approximately $49.4 million of goodwill was recorded as a result
of the purchase allocation and is being amortized over a 30-year period.
On July 14, 1995, ABC Acquisition Corporation (the "Purchaser"), a wholly
owned subsidiary of the Company, commenced a tender offer (the "Offer") to
purchase all outstanding shares of common stock of WorldWay Corporation at a
purchase price of $11 per share. Pursuant to the Offer, on August 11, 1995,
the Purchaser accepted for payment shares of WorldWay validly tendered,
representing approximately 91% of the shares outstanding. On October 12,
1995, the remaining shares of WorldWay's common stock were converted into the
right to receive $11 per share in cash.
For financial statement purposes, the WorldWay acquisition has been accounted
for under the purchase method effective August 12, 1995. Consequently, the
accompanying financial statements include the results of operations for
WorldWay and its subsidiaries since August 12, 1995. During 1996, the Company
finalized the allocation of the purchase cost which resulted in an increase
in goodwill of $13 million from the preliminary allocation. Assets with a
fair value of approximately $313 million were acquired and liabilities with a
fair value of approximately $252 million were assumed. The Company's total
purchase price was $76 million. Approximately $15 million of goodwill was
recorded as a result of the purchase allocation and is being amortized over a
30-year period.
Segment Data
The following tables reflect information prepared on a business segment
basis, which includes reclassification of certain expenses and costs between
the Company and its subsidiaries and elimination of the effects of
intercompany transactions. Operating profit on a business segment basis
differs from operating income as reported in the Company's Consolidated
Financial Statements. Other income and other expenses (which include
amortization expense), except for interest expense and minority interest,
which appear below the operating income line in the Company's Statement of
Operations, have been allocated to individual segments for the purpose of
calculating operating profit on a segment basis.
During 1996, the Company changed the name of its Forwarding Operations
Segment to the Intermodal Operations Segment.
The segment information for 1994 has been restated to reflect the Company's
current reported business segments. For 1995 and subsequent periods,
information that was previously reported in the service and other business
segment will be reported in the logistics operations segment.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
($ thousands)
<S> <C> <C> <C>
OPERATING REVENUES
LTL motor carrier
operations $ 1,199,437 $1,088,416 $ 918,663
Intermodal operations 180,619 140,691 31,468
Truckload motor carrier
operations 74,623 27,992 -
Logistics operations 54,849 31,699 7,514
Tire operations 141,613 145,127 138,665
Other 8,043 3,354 2,111
----------- ---------- ----------
$ 1,659,184 $1,437,279 $1,098,421
=========== ========== ==========
OPERATING EXPENSES AND COSTS
LTL MOTOR CARRIER OPERATIONS
Salaries and wages $ 832,474 $ 779,453 $ 613,187
Supplies and expenses 130,330 120,439 96,210
Operating taxes and
licenses 47,552 45,906 35,928
Insurance 28,393 24,122 18,237
Communications and
utilities 29,897 26,776 22,639
Depreciation and
amortization 41,755 37,822 24,302
Rents and purchased
transportation 95,169 76,823 67,550
Other 12,296 8,219 4,298
Other non-operating (net) (269) 1,771 690
----------- ---------- ----------
1,217,597 1,121,331 883,041
INTERMODAL OPERATIONS
Cost of services 151,799 117,455 26,817
Selling, administrative
and general 27,658 18,711 3,542
Other non-operating (net) 1,708 1,705 414
---------- ---------- ----------
181,165 137,871 30,773
<PAGE>
<CAPTION>
Year Ended December 31
1996 1995 1994
($ thousands)
<S> <C> <C> <C>
TRUCKLOAD MOTOR
CARRIER OPERATIONS
Salaries and wages $ 27,483 $ 9,746 $ -
Supplies and expenses 13,552 4,530 -
Operating taxes and
licenses 7,060 2,571 -
Insurance 2,208 980 -
Communications and
utilities 1,038 420 -
Depreciation and
amortization 3,580 1,249 -
Rents and purchased
transportation 14,880 5,348 -
Other 434 108 -
Other non-operating (net) 17 9 -
---------- ---------- ----------
70,252 24,961 -
LOGISTICS OPERATIONS
Cost of services 50,612 30,588 7,100
Selling, administrative
and general 7,081 3,711 1,388
Other non-operating (net) (62) 11 (6)
---------- ---------- ----------
57,631 34,310 8,482
TIRE OPERATIONS
Cost of sales 109,673 108,686 100,909
Selling, administrative
and general 37,491 31,642 26,206
Other non-operating (net) (730) 375 471
---------- ---------- ----------
146,434 140,703 127,586
SERVICE AND OTHER 12,742 6,747 1,392
---------- ---------- ----------
$1,685,821 $1,465,923 $1,051,274
========== ========== ==========
OPERATING PROFIT (LOSS)
LTL motor carrier
operations $ (18,160) $ (32,915) $ 35,622
Intermodal operations (546) 2,820 695
Truckload motor carrier
operations 4,371 3,031 -
Logistics operations (2,782) (2,611) (968)
Tire operations (4,821) 4,424 11,079
Other (4,699) (3,393) 719
---------- ---------- ----------
TOTAL OPERATING PROFIT
(LOSS) (26,637) (28,644) 47,147
INTEREST EXPENSE 31,869 17,046 6,985
MINORITY INTEREST (1,768) 1,297 3,523
---------- ---------- ----------
INCOME (LOSS) BEFORE
INCOME TAXES $ (56,738) $ (46,987) $ 36,639
========== ========== ==========
</TABLE>
<PAGE>
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 Department of
Transportation ("D.O.T.").
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
<S> <C> <C> <C>
LTL MOTOR CARRIER OPERATIONS
Salaries and wages 69.4% 71.6% 66.7%
Supplies and expenses 10.9 11.1 10.5
Operating taxes
and licenses 4.0 4.2 3.9
Insurance 2.4 2.2 2.0
Communications
and utilities 2.5 2.5 2.5
Depreciation and
amortization 3.5 3.5 2.6
Rents and purchased
transportation 7.9 7.1 7.4
Other 1.0 0.7 0.4
Other non-operating (net) (0.1) 0.1 0.1
------ ------ ------
Total LTL Motor
Carrier Operations 101.5% 103.0% 96.1%
====== ====== ======
INTERMODAL OPERATIONS
Cost of services 84.0% 83.5% 85.2%
Selling, administrative
and general 15.3 13.3 11.3
Other non-operating (net) 1.0 1.2 1.3
------ ------ ------
Total Intermodal Operations 100.3% 98.0% 97.8%
====== ====== ======
TRUCKLOAD MOTOR CARRIER OPERATIONS
Salaries and wages 36.8% 34.8% -
Supplies and expenses 18.2 16.2 -
Operating taxes
and licenses 9.5 9.2 -
Insurance 3.0 3.5 -
Communications and
utilities 1.4 1.5 -
Depreciation and
amortization 4.8 4.5 -
Rents and purchased
transportation 19.9 19.1 -
Other 0.6 0.4 -
Other non-operating (net) (0.1) - -
------ ------ ------
Total Truckload Motor
Carrier Operations 94.1% 89.2% -
====== ====== ======
<PAGE>
<CAPTION>
Year Ended December 31
1996 1995 1994
<S> <C> <C> <C>
LOGISTICS OPERATIONS
Cost of sales 92.3% 96.5% 94.5%
Selling, administrative
and general 12.9 11.7 18.5
Other non-operating (net) (0.1) - (0.1)
------ ------ ------
Total Logistics Operations 105.1% 108.2% 112.9%
====== ====== ======
TIRE OPERATIONS
Cost of sales 77.4% 74.9% 72.8%
Selling, administrative
and general 26.5 21.8 18.9
Other non-operating (net) (0.5) 0.3 0.3
------ ------ ------
Total Tire Operations 103.4% 97.0% 92.0%
====== ====== ======
OPERATING PROFIT
LTL motor carrier
operations (1.5)% (3.0)% 3.9%
Intermodal operations (0.3) 2.0 2.2
Truckload motor
carrier operations 5.9 10.8 -
Logistics operations (5.1) (8.2) (12.9)
Tire operations (3.4) 3.0 8.0
</TABLE>
Results of Operations
1996 as Compared to 1995
Consolidated revenues for 1996 increased 15.4% due to the subsidiaries
acquired in the WorldWay acquisition being included for all of 1996 versus 4
1/2 months of 1995.
Earnings per common share for 1996 and 1995 give consideration to preferred
stock dividends of $4.3 million. Outstanding shares for 1996 and 1995 do not
assume conversion of preferred stock to common shares, because conversion
would be anti-dilutive for these periods.
The Company had an operating loss of $26.6 million in 1996 compared to an
operating loss of $28.6 million for 1995.
Less-Than-Truckload Motor Carrier Operations Segment. The Company's LTL motor
carrier operations are conducted primarily through ABF and effective August
12, 1995, through G.I. Trucking.
<PAGE>
Revenues from the LTL motor carrier operations segment for 1996 increased
10.2% over 1995. In 1996, ABF accounted for 92% of the LTL segment revenues.
The increase in revenues was due in part because ABF was more successful in
retaining its January 1, 1996 rate increase of 5.8% than it had been in
recent years. ABF's total tonnage increased 4.3% which consisted of a 5.9%
increase in LTL tonnage offset in part by a 1.5% decrease in truckload
tonnage. ABF's tonnage increased primarily as a result of including a full
year of business retained from the merger of the operations of Carolina
Freight Carriers ("Carolina Freight") and Red Arrow Freight Lines ("Red
Arrow") into ABF in September 1995.
On January 1, 1997, ABF implemented an overall rate increase of 5.9%.
The LTL segment revenues also increased as a result of including a full year
of G.I. Trucking's operations for 1996. During 1996, G.I. Trucking continued
to replace revenues lost as a result of the ABF/Carolina merger. G.I. had
served Carolina Freight customers with deliveries to western states where
Carolina Freight did not have terminal operations. ABF serves ABF and former
Carolina Freight customers coast-to-coast. Fourth quarter 1996 revenues were
44% higher than the fourth quarter of 1995, which reflected the substantial
decrease in revenue caused by the merger.
Effective with the ABF/Carolina merger, ABF inherited Carolina Freight's
regional distribution terminal operations which reconfigured the way freight
flowed through ABF's terminal system. This reconfiguration created
many operating inefficiencies in ABF's system. Labor dollars as a
percent of revenue increased, empty miles increased and weight per trailer
decreased, which all had an adverse impact on expenses.
During 1996, ABF discontinued twelve of the inherited regional distribution
terminal operations. These closings, which occurred during the first two
quarters, returned ABF to its normal terminal system configuration. This
reconfiguration allowed ABF to gradually improve its direct labor costs,
improve its weight per trailer and reduce its empty miles. ABF's operating
ratio as reported to the D.O.T. was 99.3% in the fourth quarter of 1996
compared to 109.3% in the fourth quarter of 1995.
Salaries, wages and benefits increased 3.8% annually effective April 1, 1996,
pursuant to ABF's collective bargaining agreement with its Teamsters
employees. Effective April 1, 1997, for the final year of the Teamsters'
agreement, ABF's salaries, wages and benefits will increase 3.9%.
Intermodal Operations Segment. The Company's intermodal operations are
conducted primarily through the Clipper Group and effective August 12, 1995,
CaroTrans.
Comparisons for 1996 were affected by the WorldWay acquisition in August
1995. Therefore, certain comparisons of the results of operations for the
intermodal operations segment are not meaningful and are not presented.
Revenues for the intermodal operations segment increased 28.4% in 1996,
resulting primarily from the inclusion of CaroTrans for the full year and a
6% increase in revenues for the Clipper Group. Effective January 1, 1997,
Clipper implemented a 5.9% rate increase, with an effective rate of 4% on LTL
revenues.
<PAGE>
During 1996, Clipper experienced an increase in the weight per shipment,
resulting in a decline in revenue per hundredweight without a proportionate
reduction in cost per hundredweight with a resulting decline in margins on
the higher revenue.
CaroTrans expanded into some higher cost markets during 1996 and also
experienced a shift in market mix to more full container-load freight. Also,
ocean container costs increased. Both of these factors negatively impacted
operating results.
Truckload Motor Carrier Operations Segment. Effective August 12, 1995, with
the WorldWay acquisition, the Company began reporting a new business segment,
truckload motor carrier operations.The Company's truckload motor carrier
operations are conducted through Cardinal.
Cardinal's revenues increased over 1995 primarily from the inclusion of a
full year of operations in 1996. However, revenues were lower than expected
in 1996 due to the continuing driver shortage in the truckload transportation
industry.
Higher fuel prices per gallon resulted in higher-than-expected fuel costs
which were only partially recovered by fuel surcharges.
Cardinal also experienced higher-than-normal maintenance costs due to aging
of revenue equipment. Cardinal anticipates replacing some of its older
equipment in 1997.
Logistics Operations Segment. Effective August 12, 1995, with the WorldWay
acquisition, the Company began reporting a new business segment, logistics
operations. The Company's logistics operations are conducted through
Integrated Distribution, Inc. and effective August 12, 1995, through Complete
Logistics and Innovative Logistics.
During the 1996 fourth quarter, the operations of Innovative Logistics were
merged with and into Complete Logistics and the Clipper Group. Innovative's
non-asset intensive customer accounts and operations were merged into the
Clipper Group with the remaining accounts absorbed by Complete Logistics.
Comparisons for 1996 were affected by the WorldWay acquisition in August
1995. Therefore, comparisons of the results of operations for the intermodal
operations segment are not meaningful and are not presented.
The increase in logistics operations revenues in 1996 resulted primarily from
the inclusion of Complete Logistics and Innovative Logistics for the full
year and a 14% increase in revenues at Integrated Distribution.
Tire Operations Segment. Treadco's revenues for 1996 decreased 2.4% to $141.6
million from $145.1 million for 1995. For 1996, "same store" sales decreased
9.2%, offset in part by a 6.7% increase in "new store" sales. "Same store"
sales include both production locations and satellite sales locations that
have been in existence for all of 1996 and 1995. Revenues from retreading for
1996 decreased 9.4% to $69.2 million from $76.4 million for 1995. Revenues
from new tire sales increased 5.3% to $72.4 million for 1996 from $68.7
million for 1995.
<PAGE>
As previously disclosed in 1995, Treadco's longtime tread rubber supplier,
Bandag Incorporated ("Bandag"), advised Treadco that certain franchises
expiring in 1996 would not be renewed. Bandag subsequently advised the
Company that unless the Company used the Bandag process exclusively, Bandag
would not renew any of the Company's franchise agreements when they expired.
The Company's remaining Bandag franchise agreements had expiration dates in
1997 and 1998. Subsequently, Treadco management made the decision to convert
all of its Bandag franchise locations to Oliver Rubber Company ("Oliver")
licensed facilities.
During September 1996, Treadco completed the conversion of its production
facilities to Oliver licensed facilities. The conversion was completed in
phases throughout the first three quarters of 1996 with approximately one-
third of its production facilities converted each quarter.
The conversion resulted in up to two lost production days during each
conversion, some short-term operational inefficiencies and time lost as
production employees familiarized themselves with the new equipment. Also,
management has been required to spend time with the conversion at the expense
of normal daily operations.
Treadco has seen increased competition as Bandag has granted additional
franchises in some locations currently being served by Treadco. The new
competition has led to increased pricing pressures in the marketplace. As
anticipated, Bandag continues to target Treadco's customers which has caused
the loss of a substantial amount of national account business. In addition,
in many cases, the business retained is at lower profit margins.
Costs of sales for the tire operations segment as a percent of revenue
increased primarily due to expenses incurred during the conversion and
because tire margins are less as a result of increased pricing pressures.
Selling, administrative and general expenses as a percent of revenue
increased as a result of several factors including costs associated with the
conversion from Bandag, higher self-insurance costs, expenses associated with
employee medical benefits and legal costs.
Other non-operating items for 1996 include a $1 million gain on the sale of
assets related to the conversion from Bandag to Oliver.
Interest. Interest expense was $31.9 million for 1996 compared to $17.0
million for 1995, primarily due to a higher level of outstanding debt. The
increase in long-term debt consisted primarily of debt incurred in the
WorldWay acquisition and debt incurred for working capital requirements
during the fourth quarter of 1995.
Income Taxes. The difference between the effective tax rate for 1996 and the
federal statutory rate resulted primarily from state income taxes,
amortization of goodwill, minority interest, and other nondeductible expenses
(see Note G to the consolidated financial statements).
At December 31, 1996, the Company had deferred tax assets of $48.2 million,
net of a valuation allowance of $1.2 million, and deferred tax liabilities of
$54.2 million. The Company believes that the benefits of the deferred tax
assets of $48.2 million will be realized through the reduction of future
taxable income. Management has considered appropriate factors in assessing
the probability of realizing these deferred tax assets. These factors include
the deferred tax liabilities of $54.2 million and the presence of significant
taxable income in 1994 and the extended carryforward period for net operating
<PAGE>
losses included in deferred tax assets. The valuation allowance has been
provided for the benefit of net operating loss carryovers in certain states
with relatively short carryover periods.
Management intends to evaluate the realizability of deferred tax assets on a
quarterly basis by assessing the need for any additional valuation allowance.
1995 as Compared to 1994
Consolidated revenues of the Company for 1995 were $1.4 billion compared to
$1.1 billion for 1994. The Company had an operating loss of $28.6 million for
1995 compared to operating profit of $47.1 million for 1994. For 1995, the
Company had a net loss of $32.8 million, or a loss of $1.90 per common share,
compared to net income of $18.7 million, or $.74 per common share for 1994.
Revenues for 1995 increased due to the acquisition of WorldWay and the
acquisition adversely impacted operating results for the same period. For the
period from August 12 to September 30, 1995, WorldWay incurred a consolidated
after-tax net loss of $13.6 million and a pre-tax loss from operations of
$20.4 million. The WorldWay loss is attributable to Carolina Freight and Red
Arrow which as of September 24, 1995 were merged into ABF. Consolidated
revenues and income for 1994 were adversely affected by the 24-day labor
strike by the Teamsters' union employees of ABF in April 1994.
Earnings per common share for 1995 and 1994 give consideration to preferred
stock dividends of $4.3 million. Average common shares outstanding for 1995
were 19.5 million shares compared to 19.4 million shares for 1994.
Outstanding shares for 1995 and 1994 do not assume conversion of preferred
stock to common shares, because conversion would be anti-dilutive for these
periods.
Less-Than-Truckload Motor Carrier Operations Segment. The Company's LTL motor
carrier operations are conducted primarily through ABF and effective August
12, 1995, through G.I. Trucking.
Comparisons for 1995 were affected by the acquisition of WorldWay in August
1995 and by the ABF Teamsters' employees strike in April 1994 (see discussion
above). Therefore, comparisons of the results of operations for the LTL motor
carrier operations segment are not meaningful and are not presented. As a
result of the acquisition of WorldWay, LTL motor carrier operations segment
includes the results of Carolina Freight and Red Arrow for the period from
August 12, 1995 to their merger into ABF on September 24, 1995.
Revenues from the LTL motor carrier operations segment for 1995 were $1.1
billion, with an operating loss of $32.9 million. Earnings at ABF were
negatively affected by a slowing economy and increased pricing pressure which
resulted in tonnage levels below Company expectations for 1995.
ABF retained less revenue from the merger of Carolina Freight and Red Arrow
than was originally estimated, resulting in over-staffing and excess
equipment. This shortfall in revenue was compounded by weakened shipper
demand and continued price competition during the fourth quarter. The over-
staffing resulted in increased salaries and wages expense while depreciation
expense was higher because of the excess revenue equipment.
<PAGE>
Effective with the merger, ABF inherited Carolina Freight's regional
distribution terminal operations, which reconfigured the way freight flowed
through ABF's terminal system. This reconfiguration created many operating
inefficiencies in ABF's system. Labor dollars as a percent of revenue
increased, empty miles increased and weight per trailer decreased, all of
which had an adverse impact on expenses.
ABF has implemented a combination of cost-cutting and revenue-raising
measures to stem its operating losses. ABF has closed a number of regional
distribution terminal operations which it inherited when Carolina Freight and
Red Arrow were merged into ABF. These closings will realign ABF to its normal
terminal system configuration. ABF implemented a 5.8% freight rate increase
on January 1, 1996 and is in the process of selling excess real estate and
revenue equipment resulting from the Carolina Freight and Red Arrow merger.
Salaries, wages and benefits increased 3.3% annually effective April 1, 1995,
pursuant to ABF's collective bargaining agreement with its Teamsters'
employees and will increase 3.8% annually effective April 1, 1996.
Intermodal Operations Segment. Effective September 30, 1994, with the
purchase of the Clipper Group, the Company began reporting a new business
segment, intermodal operations. The Company's intermodal operations are
conducted primarily through the Clipper Group, effective September 30, 1994,
and CaroTrans, effective August 12, 1995.
Comparisons for 1995 were affected by the WorldWay acquisition in August 1995
and by the acquisition of the Clipper Group in September 1994. Therefore,
comparisons of the results of operations for the intermodal operations
segment are not meaningful and are not presented.
For 1995, the intermodal operations segment had revenues of $140.7 million
with an operating profit of $2.8 million. Intermodal operations were
adversely affected during 1995 by soft economic conditions.
Truckload Motor Carrier Operations Segment. Effective August 12, 1995, with
the WorldWay acquisition, the Company began reporting a new business segment,
truckload motor carrier operations. The Company's truckload motor carrier
operations are conducted through Cardinal.
From August 12, 1995 to December 31, 1995, Cardinal had revenues of $28.0
million with an operating profit of $3.0 million. Cardinal's operations were
adversely affected during 1995 by soft economic conditions.
Logistics Operations Segment. Effective August 12, 1995, with the acquisition
of WorldWay, the Company began reporting a new business segment, logistics
operations. The Company's logistics operations are conducted through
Integrated Distribution, Inc. and effective August 12, 1995, through Complete
Logistics and Innovative Logistics.
For 1995, the logistics operations segment had operating revenues of $31.7
million with an operating loss of $2.6 million.
<PAGE>
Tire Operations Segment. Treadco's revenues for 1995 increased 4.7% to $145.1
million from $138.7 million for 1994. For 1995, "same store" sales increased
2.4% and "new store" sales accounted for 2.7% of the increase from 1994.
"Same store" sales include both production locations and satellite sales
locations that have been in existence for all of 1995 and 1994. Although a
softer economy during the quarter slowed demand for both new replacement and
retreaded truck tires, "same store" sales were higher primarily as a result
of an increase in market share in the areas served. Treadco has seen
increased competition as Bandag Incorporated ("Bandag") has granted
additional franchises in some locations currently being served by Treadco.
Revenues from retreading for 1995 increased 1.6% to $76.4 million from $75.2
million for 1994. Revenues from new tire sales increased 8.3% to $68.7
million for 1995 from $63.5 million for 1994.
Tire operations segment operating expenses as a percent of revenues were
97.0% for 1995 compared to 92.0% for 1994. Cost of sales for the tire
operations segment as a percent of revenues increased to 74.9% for 1995 from
72.8% for 1994. Bandag, Treadco's tread rubber supplier, implemented three
price increases, totaling 9.6%, during 1994 and the beginning of 1995 which
Treadco was unsuccessful in fully passing along to customers. Selling,
administrative and general expenses for the tire operations segment increased
to 21.8% for 1995 from 18.9% for 1994. The increase resulted primarily from
costs resulting from Bandag's termination of the Company's franchises, an
increase in bad debt expense, costs associated with employee medical benefits
and data processing costs associated with the installation of a production
and inventory control system.
In August 1995, Bandag, Treadco's tread rubber supplier and franchiser of the
retreading process used by substantially all of Treadco's locations,
announced that certain franchise agreements would not be renewed
upon expiration in 1996. Bandag subsequently advised Treadco that unless
Treadco used the Bandag process exclusively, Bandag would not renew any of
Treadco's franchise agreements when they expired.
In October 1995, Treadco announced it had reached an agreement for the Oliver
Rubber Company ("Oliver") to be a supplier of equipment and related materials
for Treadco's truck tire precure retreading business. The agreement provides
that Oliver will supply Treadco with retreading equipment and related
materials for any Treadco facilities which ceased being a Bandag franchised
location.
Interest. Interest expense was $17.0 million for 1995 compared to $7.0
million for 1994, primarily due to a higher level of outstanding debt. The
increase in long-term debt consisted primarily of debt incurred in the
acquisition of WorldWay and debt incurred for working capital requirements
during the fourth quarter of 1995. Also, the Company incurred additional debt
in the latter part of 1994 in the acquisition of the Clipper Group and a term
loan used to finance construction of the Company's corporate office building
which was completed in 1995.
Income Taxes. The difference between the effective tax rate for 1995 and the
federal statutory rate resulted primarily from state income taxes,
amortization of goodwill, minority interest, and other nondeductible expenses
(see Note G to the consolidated financial statements).
<PAGE>
At December 31, 1995, the Company had deferred tax assets of $45.6 million,
net of a valuation allowance of $1.2 million, and deferred tax liabilities of
$62.0 million. The Company believes that the benefits of the deferred tax
assets of $45.6 million will be realized through the reduction of future
taxable income. Management considered appropriate factors in assessing the
probability of realizing these deferred tax assets. These factors include the
deferred tax liabilities of $62.0 million and the presence of significant
taxable income in 1993 and 1994 and the extended carryforward period for net
operating losses included in deferred tax assets. The valuation allowance has
been provided for the benefits of net operating loss carryovers in certain
states where operations were affected by the merger of Carolina Freight into
ABF.
Liquidity and Capital Resources
The ratio of current assets to current liabilities was .86:1 at December 31,
1996 compared to 1.06:1 at December 31, 1995. Net cash provided by operating
activities for 1996 was $30.2 million compared to net cash used of $66.2
million in 1995. The increase is due primarily to the reductions in
receivables, other assets and income tax refunds on loss carrybacks.
The Company is a party to a $347 million credit agreement (the "Credit
Agreement") with Societe Generale, Southwest Agency as Managing and
Administrative Agent and NationsBank of Texas, N.A., as Documentation Agent,
and with 14 other participating banks. The Credit Agreement included a $72
million term loan and provides for up to $275 million of revolving credit
loans (including letters of credit).
At December 31, 1996, there were $187 million of Revolver Advances, $40.9
million of Term Advances and approximately $71.9 million of letters of
credit outstanding. The Revolver Advances are payable on August 11, 1998.
The Term Loan is payable in installments through August 1998. The Credit
Agreement requires that net proceeds received from certain asset sales be
applied against the Term Loan balance. Outstanding revolving credit advances
may not exceed a borrowing base calculated using the Company's equipment and
real estate, the Treadco common stock owned by the Company, and eligible
receivables. The Company has pledged on the Credit Agreement substantially
all revenue equipment and real property not already pledged under other debt
obligations.
The Credit Agreement contains various covenants which limit, among other
things, indebtedness, distributions, capital expenditures, asset sales,
restricted payments, investments, loans and advances, as well as requiring
the Company to meet certain financial tests. As of December 31, 1996, the
Company was not in compliance with certain covenants relating to financial
tests, and the Company obtained a waiver through January 31, 1997. On January
31, 1997, the Company obtained an amendment to the Credit Agreement which
included revised financial covenants with which the Company is in compliance.
The Credit Agreement had previously been amended in February, 1996, including
a revision of term and financial covenants.
As a part of the February, 1996 amendment, the Company obtained an additional
credit agreement which provides for borrowings of up to $30 million.
Borrowings under this agreement bear interest at either an adjusted prime
rate plus 2% or a maximum rate as defined in the agreement, or the Eurodollar
rate plus 3% or a maximum rate as defined in the agreement. The maturity date
of this agreement is March 31, 1997. In connection with the January, 1997
amendment, the available borrowings were reduced to $15 million, and by March
31, 1997, the Company may, at its option, extend the maturity date to
<PAGE>
September 30, 1997. As of December 31, 1996, and during the year then ended,
there were no borrowings under this additional credit agreement. This
agreement contains covenants that are substantially the same as the covenants
contained in the primary Credit Agreement.
The Company assumed the Subordinated Debentures of WorldWay which were issued
in April 1986. The debentures bear interest at 6.25% per annum, payable semi-
annually, on a par value of $50,000,000. The debentures are payable April 15,
2011. The Company may redeem the debentures at a price of 100%. The Company
is required to redeem through a mandatory sinking fund commencing before
April 15, in each of the years from 1997 to 2010, an amount in cash
sufficient to redeem $2,500,000 annually of the aggregate principal amount of
the debentures issued.
Treadco is a party to a revolving credit facility with Societe Generale (the
"Treadco Credit Agreement"), providing for borrowings of up to the lesser of
$20 million or the applicable borrowing base. Borrowings under the Treadco
Credit Agreement are collateralized by accounts receivable and inventory.
Borrowings under the agreement bear interest, at Treadco's option, at 3/4%
above the bank's LIBOR rate, or at the higher of the bank's prime rate or the
"federal funds rate" plus 1/2%. At December 31, 1995, the interest rate was
7.1%. At December 31, 1995, Treadco had $10 million outstanding under the
Revolving Credit Agreement. The Treadco Credit Agreement is payable in
September 1998. Treadco pays a commitment fee of 3/8% on the unused amount
under the Treadco Credit Agreement.
The Treadco Credit Agreement contains various covenants which limit, among
other things, dividends, disposition of receivables, indebtedness and
investments, as well as requiring Treadco to meet certain financial tests.
The Treadco Credit Agreement was amended in June 1996, restating certain
financial test requirements through December 31, 1996.
The Company is a party to an interest rate cap arrangement to reduce the
impact of increases in interest rates on its floating-rate long-term debt.
The Company will be reimbursed for the difference in interest rates if the
LIBOR rate exceeds a fixed rate of 9 3/4% applied to notional amounts, as
defined in the contract, ranging from $40 million as of December 31, 1995 to
$2.5 million as of October 1999. As of December 31, 1995 and 1994, the LIBOR
rate was 5.5% and 6.5%, respectively; therefore, no amounts were due to the
Company under this arrangement. In the event that amounts are due under this
agreement in the future, the payments to be received would be recognized as a
reduction of interest expense (the accrual accounting method). Fees totaling
$385,000 were paid in 1994 to enter into this arrangement. These fees are
included in other assets and are being amortized to interest expense over the
life of the contract.
<PAGE>
The following table sets forth the Company's historical capital expenditures
(net of equipment trade-ins) for the periods indicated below:
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
($ millions)
<S> <C> <C> <C>
LTL motor carrier operations $ 13.0 $ 75.0 $ 44.2
Intermodal operations 0.4 0.4 -
Truckload motor carrier operations 0.8 2.1 -
Logistics operations 3.1 5.3 -
Tire operations 23.0 4.5 4.3
Service and other 1.3 12.1 15.6
41.6 99.4 64.1
Less: Operating leases - (24.6) -
-------- -------- --------
Total $ 41.6 $ 74.8 $ 64.1
======== ======== ========
</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 1997, the Company anticipates spending approximately $49 million in total
capital expenditures net of proceeds from equipment sales. Of the $49
million, ABF is budgeted for approximately $24.5 million to be used
primarily for revenue equipment. Treadco is budgeted for $7.1 million of
expenditures for retreading and service equipment and facilities, and
Cardinal has $7.3 million budgeted for revenue equipment purchases.
Cash from operations and the sale of assets resulted in reduction of debt of
approximately $70 million in 1996.
At December 31, 1996, the Company had approximately $16 million of
availability under the Credit Agreement as well as $15 million under the
additional credit agreement.
Management believes, based upon the Company's current levels of operations
and anticipated growth, the Company's cash, capital resources, borrowings
available under the Credit Agreement and cash flow from operations will be
sufficient to finance current and future operations and meet all present and
future debt service requirements.
Seasonality
The LTL and truckload motor carrier segments are affected by seasonal
fluctuations, which affect tonnage to be transported. Freight shipments,
operating costs and earnings are also affected adversely by inclement
weather conditions. The third calendar quarter of each year usually has the
highest tonnage levels while the first quarter has the lowest. Intermodal
operations are similar to the LTL and truckload segments with revenues being
weaker in the first quarter and stronger during the months of September and
October. Treadco's operations are somewhat seasonal with the last six months
of the calendar year generally having the highest levels of sales.
<PAGE>
Environmental Matters
The Company's subsidiaries store some fuel for its tractors and trucks in
approximately 148 underground tanks located in 33 states. Maintenance of such
tanks is regulated at the federal and, in some cases, state levels. The
Company believes that it is in substantial compliance with all such
regulations. The Company is not aware of any leaks from such tanks that could
reasonably be expected to have a material adverse effect on the Company.
Environmental regulations have been adopted by the United States
Environmental Protection Agency ("EPA") that will require the Company to
upgrade its underground tank systems by December 1998. The Company currently
estimates that such upgrades, which are currently in process, will not have a
material adverse effect on the Company.
The Company has received notices from the EPA and others that it has been
identified as a potentially responsible party ("PRP") under the Comprehensive
Environmental Response Compensation and Liability Act or other federal or
state environmental statutes at several hazardous waste sites. After
investigating the Company's or its subsidiaries' involvement in waste
disposal or waste generation at such sites, the Company has either agreed to
de minimis settlements (aggregating approximately $250,000 over the last five
years), or believes its obligations with respect to such sites would involve
immaterial monetary liability, although there can be no assurances in this
regard.
As of December 31, 1996, the Company has accrued approximately $3,100,000 to
provide for environmental-related liabilities. The Company's environmental
accrual is based on management's best estimate of the actual liability. The
Company's estimate is founded on management's experience in dealing with
similar environmental matters and on actual testing performed at some sites.
Management believes that the accrual is adequate to cover environmental
liabilities based on the present environmental regulations.
Forward-Looking Statements
The Management's Discussion and Analysis Section of this report contains
forward-looking statements that are based on current expectations and are
subject to a number of risks and uncertainties. Actual results could differ
materially from current expectations due to a number of factors, including
general economic conditions; competitive initiatives and pricing pressures;
union relations; availability and cost of capital; shifts in market demand;
weather conditions; the performance and needs of industries served by the
Company's businesses; actual future costs of operating expenses such as fuel
and related taxes; self-insurance claims and employee wages and benefits;
actual costs of continuing investments in technology; and the timing and
amount of capital expenditures.
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 EXECUTIVE 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
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's
proxy statement for the annual meeting of stockholders to be held on May 8,
1997, set forth certain information with respect to the directors, nominees
for election as directors and executive officers of the Company and are
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The sections entitled "Executive Compensation," "Aggregated Options/SAR
Exercises in Last Fiscal Year and Fiscal Year-End Options/SAR Values,"
"Options/SAR Grants Table," "Executive Compensation and Development Committee
Interlocks and Insider Participation," "Retirement and Savings Plan,"
"Employment Contracts and Termination of Employment and Change in Control
Arrangements" 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 8, 1997,
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 8, 1997, 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 8, 1997, 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
The exhibits filed with this report are listed in the Exhibit
Index which is submitted as a separate section of this report.
(b) Reports on Form 8-K
Form 8-K dated February 27, 1997
Item 5. On January 31, 1997, Arkansas Best Corporation's (the
"Company") existing $346,971,312 Amended and Restated Credit
Agreement with Societe Generale, Southwest Agency as Managing
Agent and Administrative Agent, NationsBank of Texas, N.A., as
Documentation Agent, and certain other banks was amended. Also,
on January 31, 1997, the Company's existing $30,000,000 Credit
Agreement with Societe Generale, Southwest Agency as Agent and
certain other banks was amended.
(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 3/18/97
- ------------------------ -------
William A. Marquard
/s/Robert A. Young, III Director, Chief Executive Officer 3/19/97
- ------------------------ -------
Robert A. Young, III and President (Principal
Executive Officer)
/s/Donald L. Neal Senior Vice President - Chief 3/19/97
- ------------------------ Financial Officer (Principal -------
Donald L. Neal Financial and Accounting Officer)
/s/Frank Edelstein Director 3/19/97
- ------------------------ -------
Frank Edelstein
/s/Arthur J. Fritz Director 3/18/97
- ------------------------ -------
Arthur J. Fritz
/s/John H. Morris Director 3/19/97
- ------------------------ -------
John H. Morris
/s/Alan J. Zakon Director 3/17/97
- ------------------------ -------
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, 1996
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, 1996 and 1995
Consolidated Statements of Operations -- Years ended December 31, 1996,
1995 and 1994
Consolidated Statements of Shareholders' Equity -- Years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows -- Years ended December 31, 1996,
1995 and 1994
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, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
Little Rock, Arkansas
January 31, 1997
<PAGE>
<TABLE>
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31
1996 1995
($ thousands)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents -- Note N $ 1,806 $ 16,945
Receivables -- Note E
Trade, less allowances for
doubtful accounts (1996 -- $6,118,000;
1995 -- $19,403,000) 186,065 205,196
Inventories -- Notes D and E 33,831 36,850
Prepaid expenses 13,593 13,927
Deferred income taxes -- Note G 16,490 32,080
Federal and state income taxes
refundable -- Note G 7,320 17,489
-------- --------
TOTAL CURRENT ASSETS 259,105 322,487
PROPERTY, PLANT AND EQUIPMENT -- Note E
Land and structures 228,051 228,706
Revenue equipment 268,270 285,045
Manufacturing equipment 18,815 8,289
Service, office and other equipment 65,532 65,458
Leasehold improvements 9,273 10,675
-------- --------
589,941 598,173
Less allowances for depreciation
and amortization (222,308) (190,690)
-------- --------
367,633 407,483
OTHER ASSETS 57,160 70,452
NET ASSETS HELD FOR SALE -- Note C 9,148 39,937
GOODWILL, less amortization
(1996 -- $28,006,000; 1995 --
$24,027,000) -- Notes B and C 150,154 145,478
-------- --------
$843,200 $985,837
======== ========
<PAGE>
<CAPTION>
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31
1996 1995
($ thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Bank drafts payable $ 646 $ 12,999
Trade accounts payable 79,140 74,998
Accrued expenses -- Note F 182,011 188,708
Current portion of long-term debt -- Note E 39,082 26,634
-------- --------
TOTAL CURRENT LIABILITIES 300,879 303,339
LONG-TERM DEBT, less current portion --
Notes E and N 326,950 399,144
OTHER LIABILITIES 21,416 18,665
DEFERRED INCOME TAXES -- Note G 22,505 48,560
MINORITY INTEREST -- Note A 34,020 38,265
SHAREHOLDERS' EQUITY -- Notes A and H
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
1996: 19,504,473 shares;
1995: 19,519,061 shares 195 195
Additional paid-in capital -- Note H 192,328 192,436
Retained earnings (deficit) (55,108) (14,782)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 137,430 177,864
COMMITMENTS AND CONTINGENCIES --
Notes I, J and K
-------- --------
$843,200 $985,837
======== ========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Year Ended December 31
1996 1995 1994
($ thousands, except share
and per share data)
<S> <C> <C> <C>
OPERATING REVENUES -- Note B
Less than truckload motor
carrier operations $1,199,437 $1,088,416 $ 918,663
Truckload motor carrier
operations 74,623 27,992 -
Intermodal operations 180,619 140,691 31,468
Logistics operations 54,849 31,699 7,514
Tire operations 141,613 145,127 138,665
Service and other 8,043 3,354 2,111
--------- --------- ---------
1,659,184 1,437,279 1,098,421
OPERATING EXPENSES AND COSTS --
Notes B and L
Less than truckload motor
carrier operations 1,217,866 1,119,560 882,351
Truckload motor carrier
operations 70,235 24,952 -
Intermodal operations 179,457 136,166 30,359
Logistics operations 57,693 34,299 8,488
Tire operations 147,164 140,328 127,115
Service and other 9,097 5,433 1,993
--------- --------- ---------
1,681,512 1,460,738 1,050,306
--------- --------- ---------
OPERATING INCOME (LOSS) (22,328) (23,459) 48,115
OTHER INCOME (EXPENSE)
Gains on asset sales 3,334 3,194 2,168
Interest (31,869) (17,046) (6,985)
Minority interest in
subsidiary -- Note A 1,768 (1,297) (3,523)
Other, net (7,643) (8,379) (3,136)
--------- --------- ---------
(34,410) (23,528) (11,476)
--------- --------- ---------
INCOME (LOSS) BEFORE
INCOME TAXES (56,738) (46,987) 36,639
FEDERAL AND STATE INCOME
TAXES (CREDIT) -- Note G
Current (16,400) (5,200) 14,743
Deferred (3,735) (8,995) 3,189
--------- --------- ---------
(20,135) (14,195) 17,932
--------- --------- ---------
NET INCOME (LOSS) $ (36,603) $ (32,792) $ 18,707
========= ========= =========
<PAGE>
<CAPTION>
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
Year Ended December 31
1996 1995 1994
($ thousands, except share
and per share data)
<S> <C> <C> <C>
INCOME (LOSS) PER
COMMON SHARE --
Notes C and H
NET INCOME (LOSS) $ (2.10) $ (1.90) $ 0.74
========= ========= =========
CASH DIVIDENDS PAID PER
COMMON SHARE $ 0.01 $ 0.04 $ 0.04
========= ========= =========
AVERAGE COMMON SHARES
OUTSTANDING -- Note C 19,510,589 19,520,756 19,351,796
========== ========== ==========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
Additional
Paid-In Stock Payable Retained
Preferred Common Capital -- to Employee Earnings
Stock Stock Note H Benefit Plans (Deficit)
($ thousands)
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1994 $15 $ 192 $ 191,086 $ 205 $ 10,492
Net income - - - - 18,707
Issuance of common stock to
employee benefit plans - - 205 (205)
Stock options exercised - - 36 -
Acquisition of Traveller
Group -- Note B - 3 938 -
Dividends paid (5,069)
--- ---- -------- ------ --------
Balances at December 31, 1994 15 195 192,265 - 24,130
Net loss - - - - (32,792)
Stock options exercised - - 171 - -
Dividends paid - - - - (5,079)
Adjustment to recognize minimum
pension liability -- Note K - - - - (1,041)
--- ---- -------- ------ --------
Balances at December 31, 1995 15 195 192,436 - (14,782)
Net loss - - - - (36,603)
Dividends paid - - - - (4,493)
Adjustment to recognize minimum
pension liability -- Note K - - - - 770
Retirement of common stock - - (108) - -
--- ---- -------- ------ --------
Balances at December 31, 1996 $15 $ 195 $ 192,328 $ - $ (55,108)
=== ==== ======== ====== ========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31
1996 1995 1994
($ thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(36,603) $(32,792) $ 18,707
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization 56,389 46,627 28,087
Amortization of intangibles 4,609 5,135 3,527
Other amortization 3,740 1,044 501
Provision for losses on
accounts receivable 9,489 4,185 2,070
Provision (credit) for
deferred income taxes (3,735) (8,995) 3,189
Gains on asset sales (3,334) (3,194) (2,168)
Minority interest in subsidiary (1,768) 1,297 3,773
Changes in operating assets
and liabilities, net of
acquisitions:
Receivables 13,540 (23,795) (15,312)
Inventories and prepaid
expenses 3,165 3,529 (6,428)
Other assets 9,203 (11,751) (1,566)
Accounts payable, bank
drafts payable, taxes
payable, accrued expenses
and other liabilities (24,499) (47,514) 14,373
-------- -------- --------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 30,196 (66,224) 48,753
INVESTING ACTIVITIES
Purchases of property, plant
and equipment, less
capitalized leases (27,747) (49,690) (47,298)
Proceeds from asset sales 65,313 15,748 7,841
Acquisition of the Clipper Group,
net of cash acquired -- Note B - (84) (49,556)
Acquisition of WorldWay
Corporation, net of cash
acquired -- Note B - (81,482) -
-------- -------- --------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES 37,566 (115,508) (89,013)
<PAGE>
<CAPTION>
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Year Ended December 31
1996 1995 1994
($ thousands)
<S> <C> <C> <C>
FINANCING ACTIVITIES
Deferred financing costs and
expenses incurred in borrowing
activities $ (3,512) $ (4,578) $ (147)
Proceeds from receivables
purchase agreement - - 56,000
Payments under receivables
purchase agreement - (40,000) (16,000)
Borrowings under revolving
credit facilities 272,585 238,275 34,000
Borrowings under term loan
facilities - 75,000 20,000
Principal payments under
revolving credit facilities (288,285) (30,275) (39,000)
Principal payments under term
loan facility (34,052) - -
Net proceeds from the issuance
of common stock - 171 37
Principal payments on other
long-term debt and capital
leases (24,704) (31,844) (18,616)
Dividends paid to minority
shareholders of subsidiary (440) (462) (438)
Dividends paid (4,493) (5,079) (5,069)
Net increase (decrease) in
bank overdraft - (5,989) 5,989
-------- -------- --------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (82,901) 195,219 36,756
-------- -------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (15,139) 13,487 (3,504)
Cash and cash equivalents at
beginning of year 16,945 3,458 6,962
-------- -------- --------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 1,806 $ 16,945 $ 3,458
======== ======== ========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS
Arkansas Best Corporation (the "Company") is a diversified holding company
engaged through its subsidiaries primarily in motor carrier, intermodal
operations and truck tire retreading and sales (see Note M). Principal
subsidiaries are ABF Freight System, Inc., ("ABF"), Treadco, Inc.
("Treadco"), and Clipper Exxpress Company and related companies (the "Clipper
Group") and, effective August 12, 1995, WorldWay Corporation ("WorldWay")
(see Note B). The principal subsidiaries of WorldWay included Carolina
Freight Carriers Corp., which was merged into ABF on September 24, 1995,
Cardinal Freight Carriers, Inc. ("Cardinal"), G.I. Trucking Company ("G.I.
Trucking"), CaroTrans International, Inc. ("CaroTrans"), and The Complete
Logistics Company ("Complete Logistics").
As of December 31, 1996, the Company's percentage ownership of Treadco was
46%. The Company's consolidated financial statements reflect full
consolidation of the accounts of Treadco, with the ownership interests of the
other stockholders reflected as minority interest, because the Company
controls Treadco through stock ownership, board representation and management
services provided under a transition services agreement.
Summarized condensed financial information for Treadco is as follows:
<TABLE>
TREADCO, INC.
<CAPTION>
December 31
1996 1995
($ thousands)
<S> <C> <C>
Current assets $ 57,829 $ 61,615
Property, plant and equipment, net 33,186 16,339
Other assets 14,401 15,081
-------- --------
Total assets $ 105,416 $ 93,035
======== ========
Current liabilities $ 23,786 $ 16,737
Long-term debt and other 19,682 10,280
Stockholders' equity 61,948 66,018
-------- --------
Total liabilities and stockholders' equity $ 105,416 $ 93,035
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
($ thousands)
<S> <C> <C> <C>
Sales $ 144,154 $ 147,906 $ 140,678
Operating expenses and costs 149,799 143,382 129,625
Interest expense 899 510 270
Other (income) expense (1,192) (88) 9
Income taxes (2,093) 1,711 4,265
-------- -------- --------
Net income (loss) $ (3,259) $ 2,391 $ 6,509
======== ======== ========
</TABLE>
NOTE B - ACQUISITIONS
On July 14, 1995, ABC Acquisition Corporation (the "Purchaser"), a wholly
owned subsidiary of the Company, commenced a tender offer (the "Offer") to
purchase all outstanding shares of common stock of WorldWay Corporation
("WorldWay"), at a purchase price of $11 per share (the "Acquisition").
Pursuant to the Offer, on August 11, 1995, the Purchaser accepted for
payment shares of WorldWay validly tendered, representing approximately 91%
of the shares outstanding. On October 12, 1995, the remaining shares of
WorldWay's common stock were converted into the right to receive $11 per
share in cash.
For financial statement purposes, the WorldWay acquisition has been
accounted for under the purchase method effective August 12, 1995. The
accompanying financial statements include the results of operations for
WorldWay and its subsidiaries since August 12, 1995. Because of the
decentralized accounting functions of WorldWay's subsidiaries, the purchase
allocation was finalized in 1996 after completing the comprehensive
determination of WorldWay's asset values and liabilities. The Company's
allocation of the purchase cost resulted in an increase in goodwill of $13
million from the preliminary allocation. Assets with a fair value of
approximately $313 million were acquired and liabilities with a fair value
of approximately $252 million were assumed. The Company's total purchase
price was $76 million. Approximately $15 million of goodwill was recorded as
a result of the purchase allocation and is being amortized over a 30-year
period.
On September 30, 1994, the Company consummated the purchase of all
outstanding stock of the Clipper Group pursuant to a stock purchase agreement
entered into on August 18, 1994. Assets of approximately $26.2 million were
acquired and liabilities of approximately $14.7 million were assumed. The
Company's total purchase price was $60.9 million.
The Clipper acquisition has been accounted for under the purchase method,
effective September 30, 1994. The accompanying financial statements include
the results of operations of Clipper since September 30, 1994. The purchase
price has been allocated to assets and liabilities based on their estimated
fair values as of the date of acquisition. Approximately $49.4 million of
goodwill was recorded as a result of the purchase allocation and is being
amortized over a 30-year period.
<PAGE>
On October 12, 1994, the Company issued 310,191 shares of common stock for
all of the outstanding stock of Traveller Enterprises and subsidiaries and
Commercial Warehouse Company, collectively (the "Traveller Group"). The
acquisition of the Traveller Group has been accounted for as a pooling of
interests. The Traveller Group's operations are not material to the Company's
consolidated financial statements for any period; therefore, financial
statements for periods prior to the merger have not been restated, and the
financial statements include operations of the Traveller Group from the date
of the combination.
Operating results for 1996 and pro forma unaudited information (as if the
Clipper Group, Traveller Group and the WorldWay acquisitions were completed
at the beginning of 1994) for 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands, except per share data)
<S> <C> <C> <C>
Operating revenues $1,659,184 $1,921,432 $2,144,994
Operating expenses 1,681,512 2,007,421 2,059,351
---------- ---------- ---------
(22,328) (85,989) 85,643
Interest expense, net 31,869 24,769 21,451
Minority interest in subsidiary (1,768) 1,297 3,523
Other expense, net 4,309 24,069 8,687
Provision for income taxes
(credit) (20,135) (46,879) 24,960
----------- ---------- ----------
Net Income (loss) $ (36,603) $ (89,245) $ 27,022
=========== ========== ==========
Earnings (loss) per common share $ (2.10) $ (4.79) $ 1.16
=========== ========== ==========
Average common shares outstanding 19,511 19,544 19,662
=========== ========== ==========
<FN>
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.
</FN>
</TABLE>
NOTE C - ACCOUNTING POLICIES
Consolidation: The consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation.
Cash and Cash Equivalents: Short term investments which have a maturity of
ninety days or less when purchased are considered cash equivalents.
Concentration of Credit Risk: The Company's services are provided primarily
to customers throughout the United States and Canada, with additional
customers in foreign countries served by CaroTrans International, Inc. The
Company performs ongoing credit evaluations of its customers and generally
does not require collateral. Historically, credit losses have been within
management's expectations.
<PAGE>
Inventories: Inventories, which consist primarily of new tires and retread
tires and supplies used in Treadco's business, are stated at the lower of
cost (first-in, first-out basis) or market.
Property, Plant and Equipment: Purchases of property, plant and equipment are
recorded at cost. For financial reporting purposes, such property is
depreciated principally by the straight-line method, using the following
lives: structures -- 15 to 30 years; revenue equipment -- 3 to 7 years;
manufacturing equipment -- 5 to 8 years; other equipment -- 3 to 10 years;
and leasehold improvements -- 4 to 10 years. For tax reporting purposes,
accelerated depreciation or cost recovery methods are used. Gains and losses
on asset sales are reflected in the year of disposal. Trade-in allowances in
excess of the book value of revenue equipment traded are accounted for by
adjusting the cost of assets acquired. Tires purchased with revenue equipment
are capitalized as a part of the cost of such equipment, with replacement
tires being expensed when placed in service.
Assets Held for Sale: Assets held for sale represents primarily non-operating
freight terminals and other properties, a portion of which were acquired as a
result of the WorldWay acquisition (Note B), which are carried at the lower
of net book value or estimated net realizable value. Also included in assets
held for sale are properties of the Company which are being replaced by
WorldWay facilities. The Company recorded writedowns of $1.5 million in 1996
and $2.1 million in 1995 to net realizable value for the Company properties
being replaced. The writedown is included with gains on assets sales. Assets
held for sale at December 31, 1996 includes $2.0 million in goodwill that was
specifically identifiable to certain properties being sold.
Total assets held for sale at December 31, 1995 amounted to $39.9 million of
which $36.9 million were sold in 1996, resulting in net gains on sales of
$3.1 million. Also, in 1996, additional excess assets amounting to $6.8
million were identified and reclassified to assets held for sale. Of the 1996
additions, $3.2 million were sold, resulting in net losses on sales of
$300,000. Management estimates that remaining assets held for sale will be
sold prior to December 31, 1997.
Goodwill: Excess cost over fair value of net assets acquired (goodwill) is
amortized on a straight-line basis over 15 to 40 years. The carrying value of
goodwill will be reviewed if the facts and circumstances suggest that it may
be impaired. If this review indicates that goodwill will not be recoverable,
as determined based on the undiscounted cash flows over the remaining
amortization period, the Company's carrying value of the goodwill would be
reduced.
Income Taxes: Deferred income taxes are accounted for under the liability
method. Deferred income taxes relate principally to asset and liability basis
differences arising from a 1988 purchase transaction and from the WorldWay
acquisition, as well as the timing of the depreciation and cost recovery
deductions previously described and to temporary differences in the
recognition of certain revenues and expenses of carrier operations.
Revenue Recognition: Motor carrier revenue is recognized based on relative
transit time in each reporting period with expenses recognized as incurred.
Revenue for other segments is recognized generally at the point when goods or
services are provided to the customers.
<PAGE>
Earnings (Loss) Per Share: The calculation of earnings (loss) per share is
based on the weighted average number of common and common equivalent shares
outstanding during the applicable period. The calculation reduces income
available to common shareholders by preferred stock dividends paid or accrued
during the period.
Compensation to Employees: Stock-based compensation to employees is accounted
for based on the intrinsic value method under Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25").
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 based on historical trends, claims frequency, severity and other
factors.
Environmental Matters: The Company expenses environmental expenditures
related to existing conditions resulting from past or current operations and
from which no current or future benefit is discernible. Expenditures which
extend the life of the related property or mitigate or prevent future
environmental contamination are capitalized. The Company determines its
liability on a site-by-site basis with actual testing at some sites, and
records a liability at the time when it is probable and can be reasonably
estimated. The estimated liability of the Company is not discounted or
reduced for possible recoveries from insurance carriers. (See Note J)
Derivative Financial Instruments: The Company enters into interest-rate swap
agreements and interest-rate cap agreements that are designed to modify the
interest characteristic of outstanding debt or limit exposure to increasing
interest rates. The differential to be paid or received as interest rates
change is accrued and recognized as an adjustment of interest expense related
to the debt (the accrual accounting method). The related amount payable to or
receivable from counterparties is included in accrued liabilities or other
receivables.
Reclassifications: Certain reclassifications have been made to the prior year
financial statements to conform to the current year's presentation.
Recent Accounting Pronouncement: The Company adopted Statement of Financial
Accounting Standards No. 121 (SFAS No. 121), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," effective
January 1, 1996. Under SFAS No. 121, impairment losses are recognized when
information indicates the carrying amount of long-lived assets, identifiable
intangibles and goodwill related to those assets will not be recovered
through future operations or sale. Impairment losses for assets to be held or
used in operations are based on the excess of the carrying amount of the
asset over the asset's fair value. Assets held for disposal are carried at
the lower of carrying amount or fair value less cost to sell. SFAS No. 121
has been applied prospectively from the date of adoption and the effect of
adoption was not material.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
<PAGE>
NOTE D - INVENTORIES
<TABLE>
<CAPTION>
December 31
1996 1995
($ thousands)
<S> <C> <C>
Finished goods $ 24,029 $ 25,579
Materials 6,267 7,621
Repair parts, supplies and other 3,535 3,650
-------- --------
$ 33,831 $ 36,850
======== ========
</TABLE>
NOTE E - LONG-TERM DEBT AND CREDIT AGREEMENTS
<TABLE>
<CAPTION>
December 31
1996 1995
($ thousands)
<S> <C> <C>
Revolving Credit and Term Loan Facility (1) $ 227,948 $ 278,000
Subordinated Debentures (2) 44,855 47,016
General Office Agreement (3) 15,000 17,000
Treadco Credit Agreement (4) 10,300 10,000
Capitalized lease obligations (5) 57,962 68,303
Other 9,967 5,459
-------- --------
366,032 425,778
Less current portion 39,082 26,634
-------- --------
$ 326,950 $ 399,144
======== ========
</TABLE>
(1)The Company is party to a $347 million credit agreement (the "Credit
Agreement") with Societe Generale, Southwest Agency as Managing and
Administrative Agent and NationsBank of Texas, N.A., as Documentation
Agent, and with 14 other participating banks. The Credit Agreement
included a $72 million term loan and provides for up to $275 million of
revolving credit loans (including letters of credit).
Term Loan and Revolving Credit advances bear interest at one of the
following rates, at the Company's option: (a) Prime Rate advance or (b)
Eurodollar Rate advance. A Prime Rate advance bears an interest rate
equal to the lesser of (i) the Adjusted Prime Rate plus the Applicable
Margin and (ii) the maximum nonusurious interest rate under applicable
law. The Adjusted Prime Rate is equal to the greater of the prime rate
offered by Societe Generale or the Federal Funds Rate plus 1/2%. The
Applicable Margin is determined as a function of the ratio of the
Company's consolidated indebtedness to its consolidated earnings before
interest, taxes, depreciation and amortization. Eurodollar Rate advances
shall bear an interest rate per annum equal to the lesser of (i) the
Eurodollar Rate offered by Societe Generale plus the Applicable Margin
and (ii) the maximum nonusurious interest rate under applicable law. The
<PAGE>
Company has paid and will continue to pay certain customary fees for such
commitments and advances. At December 31, 1996, the average interest rate
on the Credit Agreement was 8.2%.
There were $187 million of Revolver Advances, $40.9 million of Term
Advances and approximately $71.9 million of letters of credit outstanding
at December 31, 1996. The Revolver Advances are payable on August 11,
1998. The Term Loan is payable in installments through August 1998. The
Credit Agreement requires that net proceeds received from certain asset
sales be applied against the Term Loan balance. Outstanding revolving
credit advances may not exceed a borrowing base calculated using the
Company's equipment and real estate, the Treadco common stock owned by
the Company, and eligible receivables. The Company has pledged
substantially all revenue equipment and real property not already pledged
under other debt obligations.
The Credit Agreement contains various covenants which limit, among other
things, indebtedness, distributions, capital expenditures, asset sales,
restricted payments, investments, loans and advances, as well as
requiring the Company to meet certain financial tests. As of December 31,
1996, the Company was not in compliance with certain covenants relating
to financial tests, and the Company obtained a waiver through January 31,
1997. On January 31, 1997, the Company obtained an amendment to the
Credit Agreement which included revised financial covenants with which
the Company is in compliance. The Credit Agreement had previously been
amended in February 1996, including a revision of terms and financial
covenants.
In February 1996, the Company obtained an additional credit agreement
which provided for borrowings of up to $30 million. Borrowings under this
agreement bear interest at either an adjusted prime rate plus 2% or a
maximum rate as defined in the agreement or the Eurodollar rate plus 3%
or a maximum rate as defined in the agreement. The maturity date of this
agreement is March 31, 1997. In connection with the January, 1997
amendment, the available borrowings were reduced to $15 million and the
Company obtained an option through March 31, 1997 to extend the maturity
date to September 30, 1997. As of December 31, 1996, and during the year
then ended, there were no borrowings outstanding under the additional
credit agreement. This agreement contains covenants that are
substantially the same as the covenants contained in the Credit
Agreement.
(2)The Subordinated Debentures were issued in April 1986 by WorldWay. The
debentures bear interest at 6.25% per annum, payable semi-annually, on a
par value of $47,364,000 at December 31, 1996. The debentures are payable
April 15, 2011. The Company may redeem the debentures at 100%. The
Company is required to redeem through a mandatory sinking fund commencing
before April 15, in each of the years from 1997 to 2010, an amount in
cash sufficient to redeem $2,500,000 of the aggregate principal amount of
the debentures issued.
On November 21, 1996, the Company purchased debentures with a par value
of $2,630,000 at a price of $1,735,800, plus accrued interest. These
debentures were transferred to the Trustee to satisfy the mandatory
sinking fund payment due by April 15, 1997.
<PAGE>
(3)The Company entered into a ten-year, $20 million general office term loan
agreement dated as of April 25, 1994 with NationsBank of Texas, N.A., as
agent, and Societe Generale, Southwest Agency. The proceeds from the
agreement were used to finance the construction of the Company's
corporate office building which was completed in February 1995. Amounts
borrowed under the agreement bear interest at 8.07% quarterly, with
installments of $500,000 plus interest due through July 2004. The
agreement contains covenants similar to those in the latest amendment to
the Credit Agreement.
(4)Treadco is a party to a revolving credit facility with Societe Generale
(the "Treadco Credit Agreement"), providing for borrowings of up to the
lesser of $20 million or the applicable borrowing base. Borrowings under
the Treadco Credit Agreement are collateralized by accounts receivable
and inventory. Borrowings under the agreement bear interest, at Treadco's
option, at 3/4% above the bank's LIBOR rate, or at the higher of the
bank's prime rate or the "federal funds rate" plus 1/2%. At December 31,
1996, the interest rate was 6.5%. At December 31, 1996, Treadco had $10.3
million outstanding under the Revolving Credit Agreement. The Treadco
Credit Agreement is payable in September 1998. Treadco pays a commitment
fee of 3/8% on the unused amount under the Treadco Credit Agreement.
The Treadco Credit Agreement contains various covenants which limit,
among other things, dividends, disposition of receivables, indebtedness
and investments, as well as requiring Treadco to meet certain financial
tests. The Treadco Credit Agreement was amended in June 1996 restating
certain financial test requirements through December 31, 1996.
(5)Includes approximately $47,626,000 relative to leases of carrier revenue
equipment with an aggregate net book value of approximately $47,459,000
at December 31, 1996. These leases have a weighted average interest rate
of approximately 6.7%. Also includes approximately $10,335,000 relative
to leases of computer equipment, various terminals financed by Industrial
Revenue Bond Issues, and Treadco delivery and service trucks, with a
weighted average interest rate of approximately 6.7%. The net book value
of the related assets was approximately $10,856,000 at December 31, 1996.
Annual maturities on long-term debt, excluding capitalized lease obligations
(see Note I), in 1997 through 2001 aggregate approximately $25,892,000;
$222,586,000; $5,943,000; $6,023,000; and $5,762,000, respectively.
Interest paid, net of interest capitalized, was $32,174,000 in 1996,
$21,986,000 in 1995, and $6,656,000 in 1994. Interest capitalized totaled
$487,000, $230,000 and $582,000 in 1996, 1995 and 1994, respectively.
The Company is a party to an interest rate cap arrangement to reduce the
impact of increases in interest rates on its floating-rate long-term debt.
The Company will be reimbursed for the difference in interest rates if the
LIBOR rate exceeds a fixed rate of 9% applied to notional amounts, as defined
in the contract, ranging from $30 million as of December 31, 1996 to $2.5
million as of October 1999. As of December 31, 1996 and 1995, the LIBOR rate
was 5.5%; therefore, no amounts were due to the Company under this
arrangement. In the event that amounts are due under this agreement in the
future, the payments to be received would be recognized as a reduction of
interest expense (the accrual accounting method). Fees totaling $385,000 were
paid in 1994 to enter into this arrangement. These fees are included in other
assets and are being amortized to interest expense over the life of the
contract.
<PAGE>
NOTE F - ACCRUED EXPENSES
<TABLE>
<CAPTION>
December 31
1996 1995
($ thousands)
<S> <C> <C>
Accrued salaries, wages and incentive plans $ 17,560 $ 17,232
Accrued vacation pay 31,490 32,905
Accrued interest 3,154 2,972
Taxes other than income 8,679 10,475
Loss, injury, damage and workers'
compensation claims reserves 102,822 101,917
Pension costs 5,851 11,628
Other 12,455 11,579
-------- --------
$ 182,011 $ 188,708
======== ========
</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:
<TABLE>
<CAPTION>
December 31
1996 1995
($ thousands)
<S> <C> <C>
Deferred tax liabilities:
Depreciation and basis differences
for property, plant and equipment $ 44,058 $ 52,834
Revenue recognition 1,405 837
Basis difference on asset and stock sale 3,281 3,190
Prepaid expenses 4,135 3,050
Other 1,356 2,087
-------- --------
Total deferred tax liabilities 54,235 61,998
Deferred tax assets:
Accrued expenses 19,946 25,619
Uniform capitalization of inventories 188 204
Postretirement benefits other than pensions 1,663 1,151
Net operating loss carryovers 21,597 13,985
Alternative minimum tax credit carryovers 5,629 4,900
Other 370 832
-------- --------
Total deferred tax assets 49,393 46,691
Valuation allowance for deferred tax assets (1,173) (1,173)
-------- --------
Net deferred tax assets 48,220 45,518
-------- --------
Net deferred tax liabilities $ 6,015 $ 16,480
======== ========
</TABLE>
<PAGE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
December 31
1996 1995 1994
($ thousands)
<S> <C> <C> <C>
Current (credit):
Federal $ (16,400) $ (5,200) $ 12,595
State - - 2,148
-------- -------- --------
Total current (credit) (16,400) (5,200) 14,743
Deferred (credit):
Federal (897) (6,751) 2,670
State (2,838) (2,244) 519
-------- -------- --------
Total deferred (credit) (3,735) (8,995) 3,189
-------- -------- --------
Total income tax expense (credit) $ (20,135) $ (14,195) $ 17,932
======== ======== ========
</TABLE>
A reconciliation between the effective income tax rate, as computed on income
before extraordinary item, and the statutory federal income tax rate is
presented in the following table:
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
($ thousands)
<S> <C> <C> <C>
Income tax (benefit) at the
statutory federal rate of 35% $ (19,858) $ (16,445) $ 12,824
Federal income tax effects of:
State income taxes 990 788 (933)
Nondeductible goodwill 2,548 1,680 1,031
Other nondeductible expenses 1,409 1,407 969
Minority interest (619) 454 1,233
Undistributed earnings of
Treadco (99) 77 210
Rate difference for Treadco 53 (41) (108)
Resolution of tax contingencies (1,573) - -
Other (148) 130 39
-------- -------- --------
Federal income taxes (benefit) (17,297) (11,950) 15,265
State income taxes (benefit) (2,838) (2,245) 2,667
-------- -------- --------
$ (20,135) $ (14,195) $ 17,932
======== ======== ========
Effective tax rate (35.5)% (30.2)% 48.9%
======== ======== ========
</TABLE>
No income taxes were paid in 1996, approximately $9,900,000 were paid in
1995, and $12,368,000 were paid in 1994. Income tax refunds amounted to
$28,825,000 in 1996.
<PAGE>
As of December 31, 1996, the Company has federal net operating loss and state
operating loss carryovers of approximately $40,870,000 and $140,000,000,
respectively. The federal net operating loss carryovers expire beginning in
2010. State net operating loss carryovers expire generally in five to seven
years. The Company has alternative minimum tax credits of approximately
$5,629,000 at December 31, 1996 which carry over indefinitely.
For financial reporting purposes, a valuation allowance of approximately
$1,173,000 has been established for certain state net operating loss
carryovers for which realization is uncertain.
NOTE H - SHAREHOLDERS' EQUITY
Preferred Stock. In February, 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, in whole or in part, at the Company's option,
initially at a redemption price of $52.0125 per share and thereafter at
redemption prices declining to $50 per share on or after February 15, 2003,
plus unpaid dividends to the redemption date. Holders of Preferred Stock have
no voting rights unless dividends are in arrears six quarters or more, at
which time they have the right to elect two directors of the Company until
all dividends have been paid. Dividends of $4,298,000 were paid during 1996,
1995 and 1994.
Stock Options. The Company has elected to follow APB 25 and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
FASB Statement No. 123, "Accounting for Stock-Based Compensation" ("Statement
123"), requires use of option valuation models that were not developed for
use in valuing employee stock options. Under APB 25, because exercise price
of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
The Company has a stock option plan which provides 2,000,000 shares of Common
Stock for the granting of options to directors and key employees of the
Company. All options granted are exercisable starting 12 months after the
grant date, with 20% of the shares covered thereby becoming exercisable at
that time and with an additional 20% of the options shares becoming
exercisable on each successive anniversary date, with full vesting occurring
on the fifth anniversary date. The options were granted for a term of 10
years.
The Company also had a disinterested directors stockholder plan, which
provided 225,000 shares of Common Stock for the granting of options to
directors who administer the Company's stock option plan and were not
permitted to receive stock option grants under such plan. This plan was
terminated in May 1994. The options previously granted under this plan will
continue in effect according to their terms.
<PAGE>
Pro forma information regarding net income and earnings per share is required
by Statement 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that Statement. The
fair value for these options was estimated at the date of grant, using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995, respectively: risk-free interest rates of 5.8%
and 7.3%; dividend yields of .01% and .01%; volatility factors of the
expected market price of the Company's Common Stock of .41 and .37; and a
weighted-average expected life of the option of 9.5 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands except for earnings per
share information):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net loss - as reported $(36,603) $(32,792)
======== ========
Net loss - pro forma $(37,379) $(32,836)
======== ========
Loss per share - as reported $ (2.10) $ (1.90)
======== ========
Loss per share - pro forma $ (2.14) $ (1.90)
======== ========
</TABLE>
<PAGE>
A summary of the Company's stock option activity, and related information for
the years ended December 31 follows:
<TABLE>
<CAPTION>
1996 1995 1994
Weighted- Weighted- Weighted-
Average Average Average
Options Exercise Price Options Exercise Price Options Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding -
beginning of year 688,700 $ 11.05 628,900 $ 10.95 589,100 $ 10.79
Granted 1,101,500 6.44 75,500 11.84 54,700 12.68
Exercised - - (15,700) 10.88 (3,440) 10.88
Forfeited - - - - (11,460) 10.88
--------- -------- ------- -------- ------- --------
Outstanding -
end of year 1,790,200 $ 8.21 688,700 $ 11.05 628,900 $ 10.95
========= ======== ======= ======== ======= ========
Exercisable at
end of year 476,280 $ 10.92 338,540 $ 10.87 222,180 $ 10.83
========= ======== ======= ======== ======= ========
Estimated weighted-
average fair value
per share of options
granted to employees
during the year $ 3.87 $ 6.88
======== ========
</TABLE>
The following table summarizes information concerning currently outstanding and
exercisable options:
<TABLE>
<CAPTION>
Weighted
Average Weighted- Weighted-
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
<S> <C> <C> <C> <C> <C>
$6 - $8 1,079,000 9.1 $ 6.40 - $ -
$8 - $10 80,500 7.6 9.18 26,600 9.54
$10 - $12 521,000 5.6 10.88 416,800 10.88
$12 - $14 109,700 7.6 12.64 32,880 12.65
--------- ---- -------- ------- -------
1,790,200 476,280
========= =======
</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.
<PAGE>
Due to the extent of management shareholders of a predecessor company
continuing their ownership interest in the Company subsequent to a 1988
leveraged buyout of the Company, 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 leveraged buyout was reduced by
$15,371,000 to reflect the carryover basis of the management shareholders.
This amount has been offset against additional paid-in capital in the
accompanying financial statements.
NOTE I - LEASES AND COMMITMENTS
Rental expense amounted to approximately $102,733,000 in 1996, $84,751,000 in
1995, and $72,802,000 in 1994. These amounts include $25,227,000,
$27,297,000, and $31,686,000, respectively, for month-to-month rentals of
revenue equipment.
The future minimum rental commitments, net of future minimum rentals to be
received under noncancellable subleases, as of December 31, 1996 for all
noncancellable operating leases are as follows:
<TABLE>
<CAPTION>
Terminals Equipment
and Retread and
Period Total Plants Other
($ thousands)
<C> <C> <C> <C>
1997 $ 36,578 $ 11,712 $ 24,866
1998 22,008 8,082 13,926
1999 8,299 5,511 2,788
2000 3,212 3,065 147
2001 2,442 2,355 87
Thereafter 7,259 7,187 72
-------- -------- --------
$ 79,798 $ 37,912 $ 41,886
======== ======== ========
</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 $2,337,000 at December 31, 1996.
The future minimum payments under capitalized leases at December 31, 1996,
consisted of the following ($ thousands):
1997 $ 16,692
1998 16,618
1999 14,257
2000 8,870
2001 5,366
Thereafter 6,268
--------
Total minimum lease payments 68,071
Amounts representing interest 10,109
--------
Present value of net minimum lease
included in long-term debt - Note E $ 57,962
========
<PAGE>
Assets held under capitalized leases are included in property, plant and
equipment as follows:
<TABLE>
<CAPTION>
December 31
1996 1995
($ thousands)
<S> <C> <C>
Revenue equipment $ 70,747 $ 80,232
Land and structures 13,723 30,138
-------- --------
84,470 110,370
Less accumulated amortization 26,155 25,147
-------- --------
$ 58,315 $ 85,223
======== ========
</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 $6,470,000, $25,118,000, and $15,793,000 were
incurred for the years ended December 31, 1996, 1995 and 1994, respectively.
NOTE J - LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS AND OTHER EVENTS
In August 1990, a lawsuit was filed in the United States District Court for
the Southern District of New York, by Riverside Holdings, Inc., Riverside
Furniture Corporation ("Riverside") and MR Realty Associates, L.P.
("Plaintiffs") against the Company and a subsidiary. Plaintiffs 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 sought approximately $4 million in actual damages
and $10 million in punitive damages. On November 20, 1996, the Company and
Riverside executed a settlement agreement with terms that are not financially
material to the Company's financial position or results of operations.
In November 1995, Daily Transport Canada, Inc. ("Daily"), a Toronto-based LTL
carrier, and related companies served a Request for Arbitration against ABF,
as successor to Carolina Freight Carriers Corporation ("CFCC"), for its lost
profits claimed to be in the amount of $15,000,000 resulting from the alleged
breach of a contract between CFCC and Daily. On August 14, 1996, ABF and
Daily reached a settlement of this litigation on terms that are not
financially material to the Company's financial position or results of
operations.
Various other legal actions, the majority of which arise in the normal course
of business, are pending. None of these other legal actions is expected to
have a material adverse effect on the Company's financial condition. The
Company maintains liability insurance against risks arising out of the normal
course of its business, subject to certain self-insured retention limits.
<PAGE>
The Company's subsidiaries store some fuel for its tractors and trucks in
approximately 148 underground tanks located in 33 states. Maintenance of such
tanks is regulated at the federal and, in some cases, state levels. The
Company believes that it is in substantial compliance with all such
regulations. The Company is not aware of any leaks from such tanks that could
reasonably be expected to have a material adverse effect on the Company.
Environmental regulations have been adopted by the United States
Environmental Protection Agency ("EPA") that will require the Company to
upgrade its underground tank systems by December 1998. The Company currently
estimates that such upgrades, which are currently in process, will not have a
material adverse effect on the Company.
The Company has received notices from the EPA and others that it has been
identified as a potentially responsible party ("PRP") under the Comprehensive
Environmental Response Compensation and Liability Act or other federal or
state environmental statutes at several hazardous waste sites. After
investigating the Company's or its subsidiaries' involvement in waste
disposal or waste generation at such sites, the Company has either agreed to
de minimis settlements (aggregating approximately $250,000 over the last five
years), or believes its obligations with respect to such sites would involve
immaterial monetary liability, although there can be no assurances in this
regard.
As of December 31, 1996, the Company has accrued approximately $3.1 million
to provide for environmental-related liabilities. The Company's environmental
accrual is based on management's best estimate of the actual liability. The
Company's estimate is founded on management's experience in dealing with
similar environmental matters and on actual testing performed at some sites.
Management believes that the accrual is adequate to cover environmental
liabilities based on the present environmental regulations.
On October 30, 1995, Treadco filed a lawsuit in Arkansas State Court,
alleging that Bandag Incorporated ("Bandag") and certain of its officers and
employees have violated Arkansas statutory and common law in attempting to
solicit Treadco's employees to work for Bandag or its competing franchisees
and attempting to divert customers from Treadco. At Treadco's request, the
Court entered a Temporary Restraining Order barring Bandag, Treadco's former
officers J.J. Seiter, Ronald W. Toothaker, and Ronald W. Hawks and Bandag
officers Martin G. Carver and William Sweatman from soliciting or hiring
Treadco's employees to work for Bandag or any of its franchisees, from
diverting or soliciting Treadco's customers to buy from Bandag franchisees
other than Treadco, and from disclosing or using any of Treadco's
confidential information.
On November 8, 1995, Bandag and the other named defendants asked the State
Court to stop its proceedings, pending a decision by the United States
District Court, Western District of Arkansas, on a Complaint to Compel
Arbitration filed by Bandag in the Federal District Court on November 8,
1995.
The Federal District Court has ruled that under terms of Treadco's franchise
agreements with Bandag, all of the issues involved in Treadco's lawsuit
against Bandag are to be decided by arbitration. Treadco and Bandag are
conducting discovery in preparation for the arbitration hearing. A date for
the arbitration hearing has been set for the latter part of 1997.
<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 bank-administered trust funds and are primarily
invested in equity and government securities. Additionally, the Company
participates in several multiemployer plans, which provide defined benefits
to the Company's union employees. In the event of insolvency or
reorganization, plan terminations or withdrawal by the Company from the
multiemployer plans, the Company may be liable for a portion of the plan's
unfunded vested benefits, the amount of which, if any, has not been
determined. The merger of Carolina Freight into ABF was not considered a
withdrawal.
A summary of the components of net periodic pension costs for the defined
benefit plans for the periods indicated and the total contributions charged
to pension expense for the multiemployer plans follows:
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
($ thousands)
<S> <C> <C> <C>
Defined Benefit Plans
Service cost - benefits
earned during the year $ 8,025 $ 5,075 $ 4,492
Interest cost on projected
benefit obligations 11,028 8,095 5,249
Actual return on plan assets
(gain) loss (17,324) (25,632) 220
Net amortization and deferral 4,765 17,906 (5,379)
-------- -------- --------
Net pension cost of defined
benefit plans 6,494 5,444 4,582
Multiemployer Plans 60,930 51,951 40,833
-------- -------- --------
Total pension expense $ 67,424 $ 57,395 $ 45,415
======== ======== ========
</TABLE>
Assumptions used in determining net periodic pension cost for the defined
benefit plans were:
Year Ended December 31
1996 1995 1994
Weighted average discount rate 7.10% 7.80% to 8.73% 7.24%
Annual compensation increases 3.00% 3.00% 3.00%
Expected long-term rates of
return on assets 8.00% to 9.00% 8.00% to 9.00% 9.00%
<PAGE>
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:
<TABLE>
<CAPTION>
1996 1995
Plans for Which Plans for Which Plans for Which Plans For Which
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
Benefits Exceed Assets Benefits Exceed Assets
($ thousands)
<S> <C> <C> <C> <C>
Actuarial present value
of benefit obligations:
Vested benefit obligation $ (95,853) $ (22,891) $ (104,914) $ (21,058)
========== ========== ========== ==========
Accumulated benefit
obligation $ (104,475) $ (24,282) $ (113,604) $ (22,211)
========== ========== ======== ==========
Projected benefit obligation $ (121,132) $ (24,941) $ (138,787) $ (23,091)
Plan assets at fair value 137,093 21,399 150,182 17,107
---------- ---------- ---------- ----------
Projected benefit obligation
(in excess of) or less than
plan assets 15,961 (3,542) 11,395 (5,984)
Unrecognized net loss 7,460 933 13,852 2,911
Prior service benefit not
yet recognized in net
periodic pension cost 757 524 672 37
Unrecognized net asset at
January 1, 1987, net of
amortization (59) (3) (63) (1)
Adjustment required to
recognize minimum liability - (796) - (2,067)
---------- ---------- ---------- ----------
Net pension asset (liability) $ 24,119 $ (2,884) $ 25,856 $ (5,104)
========== ========== ========== ==========
</TABLE>
At December 31, 1996, the net pension asset is reflected in the accompanying
financial statements as an accrued expense of $5,851,000 and a noncurrent
asset of $27,086,000 included in other assets.
At December 31, 1995, the net pension asset is reflected in the accompanying
financial statements as an accrued expense of $11,628,000 and a noncurrent
asset of $32,380,000 included in other assets. The net pension asset recorded
as of December 31, 1995 reflects the impact of a curtailment gain of
approximately $15 million which was recorded as part of the purchase
allocation in conjunction with the WorldWay acquisition.
In 1995, the Company recognized an additional minimum liability of $1,041,000
as a charge to equity due to one plan's accumulated benefit obligation
exceeding the fair value of plan assets. In 1996, the Company recognized a
reduction to the additional minimum liability and an increase to equity of
$770,000 due to the reduction of that plan's accumulated benefit obligation
in excess of the fair value of plan assets.
<PAGE>
The following assumptions were used in determining the pension obligation:
December 31
1996 1995
Weighted average discount rate 7.50% 7.10%
Annual compensation increases 3.00% 3.00%
The Company has deferred compensation agreements with certain executives for
which liabilities aggregating $1,565,000 and $1,479,000 as of December 31,
1996 and 1995, respectively, have been recorded.
The Company also has a supplemental benefit plan for the purpose of
supplementing benefits under the Company's retirement plans. The plan will
pay sums in addition to amounts payable under the retirement plans to
eligible participants. Participation in the plan is limited to employees of
the Company who are participants in the Company's retirement plans and who
are also either participants in the Company's executive incentive plans or
are designated as participants in the plan by the Company's Board of
Directors. As of December 31, 1996, the Company has a liability of $2,692,000
for future costs under this plan reflected in the accompanying consolidated
financial statements in other liabilities. At December 31, 1995, the Company
had a liability of $2,349,000 for future costs under this plan.
An additional benefit plan provides certain death and retirement benefits for
certain officers and directors of WorldWay and its former subsidiaries. The
Company has a liability of $6,641,000 and $3,686,000 as of December 31, 1996
and 1995, respectively, for future costs under this plan reflected as other
liabilities in the accompanying consolidated financial statements. WorldWay
has insurance policies on the participants in amounts which are sufficient to
fund a substantial portion of the benefits under the plan.
The Company has various defined contribution plans which cover substantially
all of its employees. Prior to October, 1995, participation was limited to
those employees not covered by a collective bargaining agreement. In October,
1995, the Company amended its plans to allow participation by collective
bargaining employees. The plans permit participants to defer a portion of
their salary up to a maximum ranging by plan from 8% to 15% as provided in
Section 401(k) of the Internal Revenue Code. The Company matches the
participant contributions up to a specified limit ranging from 1% to 4% in
1996. The matching contributions may be made in cash or Company stock. The
plans also allow for discretionary Company contributions determined annually.
The Company's expense for the defined contribution plans totaled $1,431,000
for 1996, $1,412,000 for 1995 and $955,000 for 1994.
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. Charges to operations for contributions to the Treadco ESOP
totaled $250,000 for 1995, and 1994. No contribution was approved for 1996.
The Company sponsors plans that provide supplemental postretirement medical
benefits, life insurance and accident and vision care to full-time officers
of the Company. The plans are noncontributory, with the Company paying up to
80% of covered charges incurred by participants of the plan. There are no
separate funds established by the Company relating to these plans.
The following table represents the amounts recognized in the Company's
consolidated balance sheets:
<PAGE>
<TABLE>
<CAPTION>
December 31
1996 1995
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ (2,606) $ (2,926)
Fully eligible active plan participants (1,301) (417)
Other active plan participants (1,626) (1,419)
-------- --------
(5,533) (4,762)
Unrecognized net (gain) loss (68) (83)
Unrecognized prior service cost 1,082 -
Unrecognized transition obligation 2,153 2,287
-------- --------
Accrued postretirement benefit cost $ (2,366) $ (2,558)
======== ========
</TABLE>
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Service cost $ 68 $ 51 $ 59
Interest cost 321 282 212
Amortization of transition
obligation over 20 years 135 135 135
Amortization of net gain (35) - -
-------- -------- --------
Net periodic postretirement
benefit cost $ 489 $ 468 $ 406
======== ======== ========
</TABLE>
The weighted-average annual assumed rate of increase in the per capita cost
of covered benefits (in health care cost trend) is 9% to 10% for 1997 (9.5%
to 11% for 1996) and is assumed to decrease gradually to 4.5% in years 2008
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, 1996, by $833,000 and the aggregate of
the service and interest cost components of net periodic postretirement
benefit cost for 1996 by $52,000.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% at December 31, 1996 and 7.10% at
December 31, 1995.
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 $72,397,000, $63,500,000 and $48,300,000
for the years ended December 31, 1996, 1995, and 1994, respectively.
In October 1995, the Company adopted a performance award program. Upon award,
the units will be valued equal to the closing price per share of the
Company's common stock on the date awarded. The vesting provisions and the
<PAGE>
return on equity target will be set upon award. No awards were granted in
1996.
NOTE L - OPERATING EXPENSES AND COSTS
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
($ thousands)
<S> <C> <C> <C>
LESS-THAN-TRUCKLOAD
MOTOR CARRIER OPERATIONS
Salaries and wages $ 832,474 $ 779,453 $ 613,187
Supplies and expenses 130,330 120,439 96,210
Operating taxes and licenses 47,552 45,906 35,928
Insurance 28,393 24,122 18,237
Communications and utilities 29,897 26,776 22,639
Depreciation and amortization 41,755 37,822 24,302
Rents and purchased
transportation 95,169 76,823 67,550
Other 12,296 8,219 4,298
---------- ---------- ----------
1,217,866 1,119,560 882,351
TRUCKLOAD MOTOR CARRIER
OPERATIONS
Salaries and wages 27,483 9,746 -
Supplies and expenses 13,552 4,530 -
Operating taxes and licenses 7,060 2,571 -
Insurance 2,208 980 -
Communications and utilities 1,038 420 -
Depreciation and amortization 3,580 1,249 -
Rents and purchased
transportation 14,880 5,348 -
Other 434 108 -
---------- ---------- ----------
70,235 24,952 -
INTERMODAL OPERATIONS
Cost of services 151,799 117,455 26,817
Selling, administrative
and general 27,658 18,711 3,542
---------- ---------- ----------
179,457 136,166 30,359
LOGISTICS OPERATIONS
Cost of services 50,612 30,588 7,100
Selling, administrative,
and general 7,081 3,711 1,388
---------- ---------- ----------
57,693 34,299 8,488
TIRE OPERATIONS
Cost of sales 109,673 108,686 100,909
Selling, administrative
and general 37,491 31,642 26,206
---------- ---------- ----------
147,164 140,328 127,115
SERVICE AND OTHER 9,097 5,433 1,993
---------- ---------- ----------
$1,681,512 $1,460,738 $1,050,306
========== ========== ==========
</TABLE>
<PAGE>
NOTE M - BUSINESS SEGMENT DATA
The Company operates in five defined business segments: 1) LTL operations,
which includes ABF and G.I. Trucking; 2) Intermodal operations, including
the Clipper Group and CaroTrans; 3) Truckload operations, which includes
Cardinal; 4) Logistics, which includes the Company's three logistics
subsidiaries, and 5) Tire operations, which includes the operation of
Treadco. The segment information for 1994 has been restated to reflect the
Company's current reported business segments.
Intersegment sales are not significant. Operating profit is total revenue
less operating expenses, excluding interest. Identifiable assets by business
segment include both assets directly identified with those operations and an
allocable share of jointly used assets. General corporate assets consist
primarily of cash and other investments.
The following information reflects selected business segment data
(information relative to revenues is reflected in the consolidated statements
of operations):
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
($ thousands)
<S> <C> <C> <C>
OPERATING PROFIT (LOSS)
Less than truckload motor
carrier operations $ (18,160) $ (32,915) $ 35,622
Truckload motor carrier
operations 4,371 3,031 -
Intermodal operations (546) 2,821 695
Logistics operations (2,782) (2,611) (968)
Tire operations (4,821) 4,424 11,079
Other (4,699) (3,393) 719
---------- ---------- ----------
TOTAL OPERATING PROFIT (LOSS) (26,637) (28,644) 47,147
Interest expense 31,869 17,046 6,985
Minority interest (1,768) 1,297 3,523
---------- ---------- ----------
INCOME (LOSS) BEFORE
INCOME TAXES $ (56,738) $ (46,987) $ 36,639
========== ========== ==========
IDENTIFIABLE ASSETS
Less than truckload motor
carrier operations $ 520,644 $ 675,412 $ 374,128
Truckload motor carrier
operations 37,566 31,365 -
Intermodal operations 74,549 75,754 73,816
Logistics operations 23,166 25,062 7,120
Tire operations 108,058 94,658 89,231
Other 34,449 36,014 5,487
---------- ---------- ----------
798,432 938,265 549,782
General corporate assets 44,768 47,572 19,263
---------- ---------- ----------
TOTAL ASSETS $ 843,200 $ 985,837 $ 569,045
========== ========== ==========
<PAGE>
<CAPTION>
Year Ended December 31
1996 1995 1994
($ thousands)
<S> <C> <C> <C>
DEPRECIATION AND AMORTIZATION
EXPENSE
Less than truckload motor
carrier operations $ 44,640 $ 40,045 $ 26,630
Truckload motor carrier 3,574 1,249 -
Intermodal operations 3,079 2,779 609
Logistics operations 3,847 2,598 501
Tire operations 5,315 4,082 3,444
Other 4,283 2,053 931
---------- ---------- ----------
$ 64,738 $ 52,806 $ 32,115
========== ========== ==========
CAPITAL EXPENDITURES
Less than truckload motor
carrier operations $ 14,105 $ 61,250 $ 58,110
Truckload motor carrier
operations 838 2,127 -
Intermodal operations 374 426 19
Logistics operations 3,080 5,532 116
Tire operations 23,082 5,429 5,684
Other 120 44 169
---------- ---------- ----------
$ 41,599 $ 74,808 $ 64,098
========== ========== ==========
</TABLE>
NOTE N - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and Cash Equivalents. The carrying amount reported in the balance sheet
for cash and cash equivalents approximates its fair value.
Long- and Short-term Debt. The carrying amounts of the Company's borrowings
under its revolving credit agreements approximate their fair values, since
the interest rate under these agreements is variable. Also, the carrying
amount of long-term debt was estimated to approximate their fair values, with
the exception of the WorldWay Subordinated Debentures, Treadco equipment debt
and the general office term loan agreement which are estimated using current
market rates.
The carrying amounts and fair value of the Company's financial instruments at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
($ thousands)
<S> <C> <C>
Cash and cash equivalents $ 1,806 $ 1,806
Short-term debt 25,892 25,844
Long-term debt 282,178 277,671
</TABLE>
<PAGE>
NOTE O - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The tables below present unaudited quarterly financial information for 1996
and 1995:
<TABLE>
<CAPTION>
1996
Three Months Ended
March 31 June 30 September 30 December 31
($ thousands, except share and per share amount)
<S> <C> <C> <C> <C>
Operating revenues $401,374 $414,462 $428,513 $414,835
Operating expenses
and costs 410,216 420,445 432,232 418,619
-------- -------- --------- --------
Operating loss (8,842) (5,983) (3,719) (3,784)
Other expense - net 5,995 8,179 8,835 11,401
Income taxes (credit) (5,278) (5,376) (4,068) (5,413)
-------- -------- --------- --------
Net loss $ (9,559) $ (8,786) $ (8,486) $ (9,772)
======== ======== ======== ========
Net loss per share $ (0.54) $ (0.51) $ (0.49) $ (0.56)
======== ======== ======== ========
Average shares
outstanding - Note H 19,516,539 19,512,367 19,508,620 19,504,830
========== ========== ========== ==========
<CAPTION>
1995
Three Months Ended
March 31 June 30 September 30 December 31
($ thousands, except share and per share amount)
<S> <C> <C> <C> <C>
Operating revenues $311,207 $312,094 $398,551 $415,427
Operating expenses
and costs 297,853 304,890 412,691 445,304
-------- -------- --------- --------
Operating income (loss) 13,354 7,204 (14,140) (29,877)
Other expense - net 3,596 2,919 6,632 10,381
Income taxes (credit) 4,616 2,602 (7,643) (13,770)
-------- -------- --------- --------
Net income (loss) $ 5,142 $ 1,683 $ (13,129) $(26,488)
======== ======== ========= ========
Net income (loss)
per share $ 0.21 $ 0.03 $ (0.73) $ (1.41)
======== ======== ======== ========
Average shares
outstanding - Note H 19,566,404 19,515,132 19,549,160 19,529,408
========== ========== ========== ==========
</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, 1996:
Deducted from asset accounts:
Allowance for doubtful $ l8,302(B)
accounts receivable $ 19,403 $ 9,489 $ 3,935(A) 8,407(D) $ 6,118
============ ============ =========== ============= ===========
Year Ended December 31, 1995:
Deducted from asset accounts:
Allowance for doubtful $ 1,414(A)
accounts receivable $ 2,825 $ 4,185 20,817(C) $ 9,838(B) $ 19,403
============ ============ =========== ============= ===========
Year Ended December 31, 1994:
Deducted from asset accounts:
Allowance for doubtful
accounts receivable $ 2,200 $ 2,935 $ 962(A) $ 3,272(B) $ 2,825
============ ============ =========== ============= ===========
<FN>
<F1>
Note A - Recoveries of amounts previously written off.
<F2>
Note B - Uncollectible accounts written off.
<F3>
Note C - The allowance for doubtful accounts of WorldWay as of date of
acquisition.
<F4>
Note D - Adjustment to WorldWay balance at date of acquisition.
</FN>
</TABLE>
<PAGE>
FORM 10-K -- ITEM 14(c)
EXHIBIT INDEX
ARKANSAS BEST CORPORATION
The following exhibits are filed with this report or are incorporated by
reference to previously filed material.
Exhibit
No.
3.1* Restated Certificate of Incorporation of the Company (previously
filed as Exhibit 3.1 to the Company's Registration Statement on
Form S-1 under the Securities Act of 1933 filed with the Commission
on March 17, 1992, Commission File No. 33-46483, and incorporated
herein by reference).
3.2* Amended and Restated Bylaws of the Company (previously filed as
Exhibit 3.2 to the Company's Registration Statement on Form S-1
under the Securities Act of 1933 filed with the Commission on March
17, 1992, Commission File No. 33-46483, and incorporated herein by
reference).
4.1* Form of Indenture, between the Company and Harris Trust and Savings
Bank, with respect to $2.875 Series A Cumulative Convertible
Exchangeable Preferred Stock (previously filed as Exhibit 4.4 to
Amendment No. 2 to the Company's Registration Statement on Form S-1
under the Securities Act of 1933 filed with the Commission on
January 26, 1993, Commission File No. 33-56184, and incorporated
herein by reference).
4.2* Indenture between Carolina Freight Corporation and First Union
National Bank, Trustee with respect to 6 1/4% Convertible
Subordinated Debentures Due 2011 (previously filed as Exhibit 4-A
to the Carolina Freight Corporation's Registration Statement on
Form S-3 filed with the Commission on April 11, 1986, Commission
File No. 33-4742, and incorporated herein by reference).
10.1*# Stock Option Plan (previously filed as Exhibit 10.3 to the
Company's Registration Statement on Form S-1 under the Securities
Act of 1933 filed with the Commission on March 17, 1992, Commission
File No. 33-46483, and incorporated herein by reference).
10.2*# The Company's Supplemental Benefit Plan (previously filed as
Exhibit 10.6 to the Company's Registration Statement on Form S-1
under the Securities Act of 1933 filed with the Commission on March
17, 1992, Commission File No. 33-46483, and incorporated herein by
reference).
10.3* $346,971,321 Amended and Restated Credit Agreement dated as of
February 21, 1996 among the Company as the Borrower, Societe
Generale, Southwest Agency as Managing Agent and Administrative
Agent, NationsBank of Texas, N.A. as Documentation Agent and the
Banks named herein as the Banks (previously filed as Exhibit 99.1
to the Company's Current Report on Form 8-K, filed with the
Commission on February 28, 1996, Commission File No. 0-19969, and
incorporated herein by reference).
<PAGE>
10.4* First Amendment dated as of January 31, 1997 to the $346,971,321
Amended and Restated Credit Agreement dated as of February 21,
1996, among Arkansas Best corporation as the Borrower, Societe
Generale, Southwest Agency as Managing Agent and Administrative
Agent, NationsBank of Texas, N.A. as Documentation Agent and the
Banks named herein as the Banks (previously filed as Exhibit 10.1
to the Company's Current Report on Form 8-K, filed with the
Commission on February 27, 1997, Commission File No. 0-19969,
and incorporated herein by reference).
10.5* $30,000,000 Credit Agreement dated as of February 21, 1996 among
Arkansas Best Corporation as the Borrower, Societe Generale,
Southwest Agency as Agent, and the Banks named herein as the Banks
(previously filed as Exhibit 99.2 to the Company's Current Report
on Form 8-K, filed with the Commission on February 28, 1996,
Commission File No. 0-19969, and incorporated herein by reference).
10.6* First Amendment dated as of January 31, 1997 to the $30,000,000
Credit Agreement dated as of February 21, 1996 among Arkansas Best
Corporation as the Borrower, Societe Generale, Southwest Agency as
Agent, and the Banks named herein as the Banks (previously filed as
Exhibit 10.2 to the Company's Current Report on Form 8-K, filed
with the Commission on February 27, 1997, Commission File No. 0-
19969, and incorporated herein by reference).
10.7* National Master Freight Agreement with the International
Brotherhood of Teamsters dated as of April 1, 1994 (previously
filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995, Commission File No. 0-
19969, and incorporated herein by reference).
10.8*# Arkansas Best Corporation Performance Award Unit Program effective
January 1, 1996 (previously filed as Exhibit 10.6 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995, Commission File No. 0-19969, and incorporated herein by
reference).
11 Statement Re: Computation of Earnings per Share
21 List of Subsidiary Corporations
23 Consent of Ernst & Young LLP
27 Financial Data Schedule
- --------------------
* Previously filed with the Securities and Exchange Commission and
incorporated herein by reference.
# Designates a compensation plan for Directors or Executive Officers.
<PAGE>
EXHIBIT 11
<PAGE>
EXHIBIT 11
<TABLE>
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
ARKANSAS BEST CORPORATION
<CAPTION>
Year Ended December 31
1996 1995 1994
($ thousands, except
per share data)
<S> <C> <C> <C>
PRIMARY:
Average shares outstanding 19,510,589 19,520,756 19,249,209
Net effect of dilutive stock
options -- Based on the
treasury stock method using
average market price - - 102,587
---------- ---------- ----------
Average common shares outstanding 19,510,589 19,520,756 19,351,796
========== ========== ==========
Income before extraordinary item
and cumulative effect of
accounting change $ (36,603) $ (32,792) $ 18,707
Less: preferred stock dividend 4,298 4,298 4,298
---------- ---------- ----------
Net income (loss) available for
common shareholders $ (40,901) $ (37,090) $ 14,409
========== ========== ==========
Net income (loss) per common share $ (2.10) $ (1.90) $ .74
========== ========== ==========
<FN>
Fully diluted earnings per common share are not presented, as such
calculations would be anti-dilutive
</FN>
</TABLE>
<PAGE>
EXHIBIT 21
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARY CORPORATIONS
ARKANSAS BEST CORPORATION
The Registrant owns and controls the following subsidiary corporations:
Jurisdiction of % of Voting
Name Incorporation Securities Owned
Subsidiaries of Arkansas Best Corporation:
ABF Freight System, Inc. Delaware 100
Treadco, Inc. Delaware 45.7
Transport Realty, Inc. Arkansas 100
Data-Tronics Corp. Arkansas 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
Agile Freight System, Inc. Delaware 100
Agricultural Express of America, Inc. Delaware 100
Clipper Exxpress Company Delaware 100
WorldWay Corporation North Carolina 100
Subsidiary of ABF Freight System, Inc.:
ABF Freight System (B.C.), Ltd. British Columbia 100
Subsidiaries of WorldWay Corporation
G.I. Trucking Company California 100
Cardinal Freight Carriers, Inc. Virginia 100
CaroTrans International, Inc. North Carolina 100
The Complete Logistics Company California 100
Motor Carrier Insurance, Ltd. Bermuda 100
Carrier Computer Services, Inc. North Carolina 100
Carolina Breakdown Service, Inc. North Carolina 100
Hawaiian Pacific Freight Forwarding California 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, the Registration Statement (Form S-8, No. 33-52877), pertaining to the
Arkansas Best Corporation Employees' Investment Plan, and the Registration
Statement (Form S-8, No. 33-63587), pertaining to (1) the Carolina Freight
Corporation Employee Savings and Protection Plan, (2) Complete Leasing
Concepts, Inc. Employee Savings & Profit Sharing Plan, and (3) IDI 401(k)
Savings Plan, of our report dated January 31, 1997, with respect to the
consolidated financial statements and schedule of Arkansas Best Corporation
included in the Annual Report (Form 10-K) for the year ended December 31,
1996.
ERNST & YOUNG LLP
Little Rock, Arkansas
March 21, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ARKANSAS
BEST CORPORATION ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER
31, 1996 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-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,806
<SECURITIES> 0
<RECEIVABLES> 186,065
<ALLOWANCES> 6,118
<INVENTORY> 33,831
<CURRENT-ASSETS> 259,105
<PP&E> 589,941
<DEPRECIATION> 222,308
<TOTAL-ASSETS> 843,200
<CURRENT-LIABILITIES> 300,879
<BONDS> 326,950
195
0
<COMMON> 15
<OTHER-SE> 137,220
<TOTAL-LIABILITY-AND-EQUITY> 843,200
<SALES> 141,613
<TOTAL-REVENUES> 1,659,184
<CGS> 109,673
<TOTAL-COSTS> 1,681,512
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9,489
<INTEREST-EXPENSE> 31,869
<INCOME-PRETAX> (56,738)
<INCOME-TAX> (20,135)
<INCOME-CONTINUING> (36,603)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (36,603)
<EPS-PRIMARY> (2.10)
<EPS-DILUTED> (2.10)
<PAGE>
</TABLE>
