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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, 1997.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from _______ to _______.
Commission file number 0-19969
ARKANSAS BEST CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 71-0673405
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3801 Old Greenwood Road, Fort Smith, 72903
Arkansas ------------------
- --------------------------------------- (Zip Code)
(Address of principal executive offices)
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
- -------------------------- ------------------------
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 February 27, 1998, was $189,718,875.
The number of shares of Common Stock, $.01 par value, outstanding as of February
27, 1998, was 19,607,213.
Documents incorporated by reference into the Form 10-K
1) The following sections of the 1997 Annual Report to Stockholders:
- Market and Dividend Information
- Selected Financial Data
- Management's Discussion and Analysis of Financial Condition and Results
of Operations
- Consolidated Financial Statements
2) Proxy Statement for the Annual Stockholder's meeting to be held May 7, 1998
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ARKANSAS BEST CORPORATION
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
NUMBER NUMBER
PART I
<S> <C> <C>
Item 1. Business ........................................................................... 3
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 ............................................................ 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ......................................................... 13
Item 8. Financial Statements and Supplementary Data ........................................ 13
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ............................................... 13
PART III
Item 10. Directors and Executive Officers of the Registrant ................................. 14
Item 11. Executive Compensation ............................................................. 14
Item 12. Security Ownership of Certain Beneficial Owners and Management ..................... 14
Item 13. Certain Relationships and Related Transactions ..................................... 14
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K .................... 15
</TABLE>
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PART I
Except for historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties.
Arkansas Best Corporation's (the "Company") actual results could differ
materially from those discussed here. Factors that could cause or contribute to
such differences include, but are not limited to, those discussed in Item 1,
"Business."
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
CORPORATE PROFILE
The Company is a diversified holding company located in Fort Smith, Arkansas.
Through its motor carrier subsidiaries, Arkansas Best provides national and
regional transportation of general commodities. The Company's intermodal
subsidiaries offer domestic and international freight services, utilizing a
variety of transportation modes including over-the-road, rail, ocean and air. A
46%-owned subsidiary provides truck tire retreading and new truck tire sales.
The Company's principal subsidiaries are ABF Freight System, Inc. ("ABF");
Treadco, Inc. ("Treadco"); Clipper Exxpress Company, CaroTrans International,
Inc. ("Clipper Worldwide") and related companies (collectively "Clipper Group");
G. I. Trucking Company ("G.I. Trucking"); Fleetnet America, Inc. (formerly
Carolina Breakdown Service, Inc.); and, until July 15, 1997, Cardinal Freight
Carriers, Inc. ("Cardinal").
HISTORICAL BACKGROUND
The Company was publicly owned from 1969 until 1988, when it 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"). 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 P - Business Segment
Data" appearing on page 37 of the registrant's Annual Report to Stockholders for
the year ended December 31, 1997, and is incorporated herein by reference under
Item 14.
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ITEM 1. BUSINESS -- Continued
(c) NARRATIVE DESCRIPTION OF BUSINESS
GENERAL
The Company operates in three defined business segments: 1) Motor carrier, which
includes primarily less-than-truckload (LTL) operations conducted by ABF and
G.I. Trucking, and truckload operations which were conducted primarily by
Cardinal, which was sold in July, 1997; 2) Intermodal operations, which includes
the Clipper Group, including CaroTrans; and 3) Tire operations which includes
the operations of Treadco.
ACQUISITION
In August, 1995, pursuant to a tender offer, a wholly owned subsidiary of the
Company purchased all of the outstanding shares of common stock of WorldWay
Corporation ("WorldWay"), at a price of $11 per share (the "Acquisition"). The
total purchase price of Worldway amounted to approximately $76 million. WorldWay
was a publicly-held transportation Company with LTL, truckload and logistics
operations.
DISCONTINUED OPERATIONS
As of June 30, 1997 and prior periods since 1995, the Company was engaged in
providing logistics services, including warehousing and distribution, through
two wholly owned subsidiaries, The Complete Logistics Company ("CLC") and
Integrated Distribution, Inc. ("IDI"). CLC was sold on August 8, 1997. In
September, 1997, the Company completed a formal plan to exit the logistics
segment by disposing of IDI. The Company closed the sale of IDI on October 31,
1997.
EMPLOYEES
At December 31, 1997, the Company and its subsidiaries had a total of 14,757
employees of which approximately 67% are members of a labor union.
MOTOR CARRIER OPERATIONS
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 ("G.I.
Trucking").
LTL carriers offer services to shippers transporting 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 and consolidate them
at the terminal. Shipments are consolidated by destination for transportation by
intercity units to their destination cities or to distribution centers.
Shipments from various
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ITEM 1. BUSINESS -- Continued
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
the 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 is then 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 directly affected by the state of the overall economy. The trucking industry
faces rising costs including government regulations on safety, maintenance and
fuel 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.
Headquartered in Fort Smith, Arkansas, ABF is the largest subsidiary of the
Company. ABF currently accounts for approximately 69% of the Company's
consolidated revenues and 91% of LTL operations revenue. ABF is the fourth
largest LTL motor carrier in the United States, based on revenues for 1997 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 39,000 points through 311 terminals in all 50
states, Canada and Puerto Rico. Through an alliance and relationships with
trucking companies in Mexico, ABF provides motor carrier services to customers
in that country as well. ABF was incorporated in Delaware in 1982 and is the
successor to Arkansas Motor Freight, a business originally organized in 1935.
ABF concentrates on long-haul transportation of general commodities freight,
involving primarily LTL shipments. General commodities include all freight
except hazardous waste, dangerous explosives, commodities of exceptionally high
value, commodities in bulk and those requiring special equipment. ABF's general
commodities shipments differ from shipments of bulk raw materials which are
commonly transported by railroad, pipeline and water carrier.
General commodities transported by ABF include, among other things, food,
textiles, apparel, furniture, appliances, chemicals, non-bulk petroleum
products, rubber, plastics, metal and metal products, wood, glass, automotive
parts, machinery and miscellaneous manufactured products. During the year ended
December 31, 1997, no single customer accounted for more than 3% of ABF's
revenues, and the ten largest customers accounted for less than 9% of ABF's
revenues.
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ITEM 1. BUSINESS -- Continued
Employees
At December 31, 1997, ABF employed 11,877 persons. Employee compensation and
related costs are the largest components of LTL motor carrier operating
expenses. In 1997, such costs amounted to 61.1% of LTL operations revenues.
Approximately 80% of ABF's employees are covered under a collective bargaining
agreement with the International Brotherhood of Teamsters ("IBT"), which expires
March 31, 1998. On February 9, 1998, a tentative settlement on a new five-year
collective bargaining agreement was reached with the IBT. The tentative
settlement is subject to ratification by the IBT membership. Under the National
Agreement, employee wages and benefits have increased an average of 3.3%, 3.8%
and 3.9% annually during 1995, 1996 and 1997, respectively. The increases in
wages and benefits associated with the 1998 agreement are expected to have a
somewhat lesser impact on the annual cost for salaries, wages and benefits in
1998 and the remaining term on the contract, than the previous agreement had on
an annual basis. 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 IBT. 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.
Four of the five largest LTL carriers are unionized and generally pay comparable
amounts for wages and benefits. 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.
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 adequate to cover losses in excess of
such amounts. 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 for its motor carrier
industry segment.
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ITEM 1. BUSINESS -- Continued
G.I. TRUCKING COMPANY
Headquartered in LaMirada, California, G. I. Trucking is a non-union regional
LTL motor carrier. G.I. Trucking offers one to three-day regional service
through 73 service centers in 15 western states including Hawaii and Alaska.
G.I. Trucking accounted for approximately 6% of the Company's consolidated
revenues and 8% of LTL operations revenue.
Transcontinental service is provided through a partnership with three other
regional carriers through six major hub terminals located throughout the
Midwest and the East Coast. Customer service is enhanced through EDI
communications between the partners.
G.I. Trucking's linehaul structure utilizes company solo drivers, company
sleeper teams, contract carriers and one-way carriers, providing flexibility
in maintaining customer service and lane balance. G.I. Trucking's family of
electronic services include EDI information, customer FAX capabilities,
tracing, rating and reporting interface.
TRUCKLOAD MOTOR CARRIER OPERATIONS
The Company's truckload motor carrier operations were conducted primarily
through Cardinal. On July 15, 1997, the Company closed the sale of Cardinal.
INTERMODAL OPERATIONS
GENERAL
The Company's intermodal operations are conducted through Clipper Group,
headquartered in Lemont, Illinois. The Clipper Group's 1997 revenues accounted
for approximately 12% of the Company's consolidated revenues for 1997. The
Clipper Group operates in three business units: Clipper LTL, Clipper Freight
Management ("CFM") and Clipper Worldwide. Clipper Group offers domestic and
international freight services, utilizing a variety of transportation modes
including over-the-road, rail, ocean and air. Clipper Group links a domestic
rail intermodal network with a strong ocean intermodal network.
COMPETITION, PRICING AND INDUSTRY FACTORS
The Clipper Group operates in a highly competitive environment. Competition is
based on the most consistent transit times, freight rates, damage-free
shipments and on-time delivery of freight. The Company's intermodal operations
compete with other intermodal operations, freight forwarders, railroads and
airlines, as well as with other national and regional LTL and truckload motor
carrier operations.
Intermodal operations are akin to motor carrier operations in terms of market
conditions, with revenues being weaker in the first quarter and stronger in the
months of September and October. Freight shipments, operating costs and
earnings are also affected by inclement weather. The reliability of rail
services, a critical component of Clipper's ability to provide service to its
customers, has recently become a significant problem. The result for Clipper
has been lost revenue as well as higher operating costs.
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ITEM 1. BUSINESS -- Continued
CLIPPER LTL
Clipper LTL operates primarily through Clipper Exxpress Company ("Clipper
Exxpress"). which is the Company's largest intermodal operations subsidiary,
accounting for approximately 57% of the Company's intermodal operations revenues
during 1997. Clipper Exxpress is one of the largest consolidators and forwarders
of LTL shipments in the United States.
Clipper LTL's collection and distribution network consists of 38 geographically
dispersed locations throughout the United States. Clipper LTL's 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 LTL 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.
CFM
CFM provides services through Agricultural Express of America, Inc. (d/b/a/
Clipper Controlled Logistics), Agile Freight System, Inc. (d/b/a Clipper Highway
Services), and partially through Clipper Exxpress Company.
CFM provides an extensive list of transportation services such as intermodal and
truck brokerage, warehousing, consolidation, transloading, repacking, and other
ancillary services. As an intermodal marketing operation, CFM 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. CFM's role in this process is to select the most cost-effective means to
provide quality service, and to expedite movement of the loads at various
interface points to ensure seamless door-to-door transportation.
Clipper Controlled Logistics 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. At December 31, 1997, Clipper Controlled Logistics owns
or leases 470 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, Clipper
Controlled Logistics 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.
Clipper Highway Services is a non-asset intensive, premium service, long-haul
truckload carrier that primarily utilizes two-person driver teams provided by
owner-operators. Clipper Highway Services provides "near airfreight" truckload
service in tightly focused long-haul lanes that originate or terminate near a
Clipper LTL market. Clipper Highway Services moves full truckloads of
consolidated LTL shipments for Clipper LTL, as well as other shippers.
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ITEM 1. BUSINESS -- Continued
CLIPPER WORLDWIDE
Clipper Worldwide offers services through CaroTrans International, Inc.
("CaroTrans") and partially through Clipper Exxpress Company. 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. CaroTrans is one of the largest NVOCC's in the world,
offering more destinations by a "master loader" than any other NVOCC.
Overseas, Clipper Worldwide is recognized as a leader in international
transportation between North America and many worldwide destinations. Clipper
Worldwide 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.
TIRE OPERATIONS
GENERAL
The Company's tire operations are conducted by Treadco, Inc. a 46% owned
subsidiary. Treadco is the nation's largest independent tire retreader for the
trucking industry and the fourth largest commercial truck tire dealer. Treadco's
revenues currently account for approximately 10% of the Company's consolidated
revenues.
COMPETITION, PRICING AND INDUSTRY FACTORS
The trucking industry faces rising costs including government regulations on
safety, maintenance and fuel economy. As a result, trucking companies
continually seek ways to obtain more mileage from new tires and less expensive
ways to replace old tires. Retreading tires is significantly less expensive than
buying new tires. The retread tire market is highly competitive. Historically,
Treadco was a Bandag Incorporated ("Bandag") franchisee and competed primarily
against smaller independent dealers in a highly fragmented market. Following the
termination of the Bandag franchise agreements in 1996, Treadco has seen
increased competition as Bandag has granted additional franchises in some
locations currently being served by Treadco. This new competition has led to
increased pricing pressures in the marketplace. Bandag also continues to target
Treadco's customers which has caused the loss of a substantial amount of
national account business. Treadco's ability to offer excellent service to its
niche market customers, competitive pricing, central administration and
purchasing for its production facilities appeal to fleet customers and enables
Treadco to compete effectively against these dealers.
The new truck tire business is also highly competitive and includes various
manufacturers, dealers and retailers. Generally, demand for new truck tires is
closely related to the strength of regional and, ultimately national economies.
Treadco experiences reduced demand for retreads and new truck tires in the
winter months due to more difficult driving and tire maintenance conditions
resulting from the inclement weather. Treadco's operations are somewhat
seasonal, with the last six months of the calendar year generally having the
highest sales.
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ITEM 1. BUSINESS -- Continued
TREADCO, INC.
Treadco, Inc. uses the precure process to retread tires at the vast majority of
its locations. The precure process uses a specific tread design measured from
strips of tread rubber, cut and applied to the casing. A flexible rubber
envelope then seals each tire which is placed in a bonding chamber. Air pressure
in the chamber creates uniform force, applying pressure on all points of the
tire. The tread is bonded to the casing by using a combination of heat and air
pressure to cure the encased tire in the bonding chamber.
The principal raw material in manufacturing retreaded truck tires is synthetic
rubber, which is comprised of styrene and butadiene, both petroleum derivatives.
Thus, the commodity price of oil directly affects the price of the Company's
principal raw materials. However, because retreading uses roughly one-third of
the amount of oil that the manufacture of new tires requires, retreads maintain
a competitive price advantage in comparison to new tires, particularly when oil
prices increase.
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.
On February 1, 1996, Treadco gained Bridgestone certification to produce and
sell ONCOR remanufactured tires at its St. Louis (MO) production facility, which
is a mold cure process 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.
Treadco's sales and marketing strategy is based on its service strengths,
network of production and sales facilities and strong regional reputation. None
of Treadco's customers for retreads and new tires, including ABF or other
affiliates, represent more than 3% of Treadco's revenues for 1997.
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. In addition, the Company is
subject to significant regulations dealing with underground fuel storage tanks.
The Company's subsidiaries store some fuel for trucks and tractors in 114
underground tanks located in 30 states. The Company believes that it is in
substantial compliance with applicable 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.
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ITEM 1. BUSINESS -- Continued
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 1998
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.
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 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 operations or financial condition.
As of December 31, 1997, 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 and has
not been reduced by any future recoveries from insurance or other sources unless
such recovery is assured. 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 311 terminal facilities of which it owns
78, leases 53 from an affiliate and leases the remainder from non-affiliates.
ABF's principal terminal facilities are as follows:
<TABLE>
<CAPTION>
No. of Doors Square Footage
------------ --------------
Owned:
<S> <C> <C>
Dayton, Ohio 315 218,000
Ellenwood, Georgia 228 109,845
South Chicago, Illinois 228 109,650
Carlisle, Pennsylvania (two structures) 241 82,960
Dallas, Texas 108 72,500
Leased from affiliate, Transport Realty:
North Little Rock, Arkansas 195 82,050
Winston-Salem, North Carolina 150 95,700
Pico Rivera, California 94 22,500
</TABLE>
G.I. Trucking currently operates out of 72 terminal facilities of which 30 are
company operated and 42 are agent terminals. G. I. Trucking owns 10 facilities,
leases two facilities from an affiliate and the remainder of the service centers
are leased from non-affiliates.
INTERMODAL OPERATIONS SEGMENT
Clipper Group operates from 38 locations, geographically dispersed throughout
the United States and from five international locations. Clipper Group leases
all of its facilities.
TIRE OPERATIONS SEGMENT
Treadco currently operates from 55 locations. Treadco owns 16 production and 6
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 stockholders during the fourth quarter
ended December 31, 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information set forth under the Caption "Market and Dividend Information" on
page 5 of the registrant's Annual Report to Stockholders for the year ended
December 31, 1997, is incorporated by reference under Item 14 herein.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Selected Financial Data" on page 4
of the registrant's Annual Report to Stockholders for the year ended December
31, 1997, is incorporated by reference under Item 14 herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," appearing on pages 6 through 15 of the registrant's Annual Report
to Stockholders for the year ended December 31, 1997, is incorporated by
reference under Item 14 herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors, consolidated financial statements and
supplementary information, appearing on pages 17 through 40 of the registrant's
Annual Report to Stockholders for the year ended December 31, 1997, are
incorporated by reference under Item 14 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
13
<PAGE> 14
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 filed by the Company with
the Securities and Exchange Commission ("Definitive Proxy Statement"), 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 Definitive
Proxy Statement, 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 Stockholders and Management Ownership" in the
Company's Definitive Proxy Statement 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
Definitive Proxy Statement for the annual meeting of stockholders to be held on
May 7, 1998, sets forth certain information with respect to relations of and
transactions by management of the Company and is incorporated herein by
reference.
14
<PAGE> 15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) FINANCIAL STATEMENTS
The following information appearing in the 1997 Annual Report to Stockholders is
incorporated by reference in this Form 10-K Annual Report as Exhibit (13):
<TABLE>
<CAPTION>
Page
<S> <C>
Selected Financial Data 4
Market and Dividend Information 5
Financial Condition and Results of Operations 6 - 15
Consolidated Financial Statements 17 - 40
Report of Independent Auditors 17
Quarterly Financial Information 40
</TABLE>
With the exception of the aforementioned information, the 1997 Annual Report to
Stockholders is not deemed filed as part of this report. Financial statements
other than those listed are omitted for the reason that they are not required or
are not applicable. The following additional financial data should be read in
conjunction with the consolidated financial statements in such 1997 Annual
Report to Stockholders.
(a)(2) FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page
<S> <C>
For the years ended December 31, 1997, 1996 and 1995:
Schedule II - Valuation and Qualifying Accounts 18
</TABLE>
Schedules other than those listed are omitted for the reason that they are not
required or are not applicable, or the required information is shown in the
financial statements or notes thereto.
(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.
15
<PAGE> 16
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K --
Continued
(b) REPORTS ON FORM 8-K
None
(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.
16
<PAGE> 17
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/ David E. Loeffler
------------------------------------
David E. Loeffler
Vice President - Chief Financial
Officer and Treasurer
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/William A. Marquard Chairman of the Board, Director 3/23/98
- --------------------------------- ------------------------
William A. Marquard
/s/Robert A. Young, III Director, Chief Executive Officer 3/24/98
- --------------------------------- and President (Principal ------------------------
Robert A. Young, III Executive Officer)
/s/David E. Loeffler Vice President - Chief Financial Officer 3/24/98
- --------------------------------- and Treasurer ------------------------
David E. Loeffler
/s/Frank Edelstein Director 3/19/98
- --------------------------------- ------------------------
Frank Edelstein
/s/Arthur J. Fritz Director 3/19/98
- --------------------------------- ------------------------
Arthur J. Fritz
/s/John H. Morris Director 3/23/98
- --------------------------------- ------------------------
John H. Morris
/s/Alan J. Zakon Director 3/20/98
- --------------------------------- ------------------------
Alan J. Zakon
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ARKANSAS BEST CORPORATION
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ----------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
---------
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, 1997:
Deducted from asset accounts:
Allowance for doubtful $ 7,926(B)
accounts receivable.............. $ 5,077 $ 7,245 $ 3,270(A) 63(E) $ 7,603
==================================================================================================================================
Year Ended December 31, 1996:
Deducted from asset accounts:
Allowance for doubtful $ l7,755(B)
accounts receivable.............. $ 19,166 $ 8,408 $ 3,932(A) 8,674(D) $ 5,077
==================================================================================================================================
Year Ended December 31, 1995:
Deducted from asset accounts:
Allowance for doubtful $ 1,414(A)
accounts receivable ............. $ 2,818 $ 4,139 20,606(C) $ 9,811(B) $ 19,166
==================================================================================================================================
</TABLE>
Note A - Recoveries of amounts previously written off.
Note B - Uncollectible accounts written off.
Note C - The allowance for doubtful accounts of WorldWay as of date of
acquisition.
Note D - Adjustment to WorldWay balance at date of acquisition.
Note E - The allowance for doubtful accounts for Cardinal Freight Carriers as of
the date of sale.
NOTE: ALL INFORMATION REFLECTED IN THE ABOVE TABLE HAS BEEN RESTATED TO
EXCLUDE VALUATION ALLOWANCES OF DISCONTINUED OPERATIONS.
18
<PAGE> 19
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.
<TABLE>
<CAPTION>
EXHIBIT
NO.
<S> <C>
3.1* Restated Certificate of Incorporation of the Company (previously
filed as Exhibit 3.1 to the Company's Registration Statement on Form
S-1 under the Securities Act of 1933 filed with the Commission on
March 17, 1992, Commission File No. 33-46483, and incorporated
herein by reference).
3.2* Amended and Restated Bylaws of the Company (previously filed as
Exhibit 3.2 to the Company's Registration Statement on Form S-1
under the Securities Act of 1933 filed with the Commission on March
17, 1992, Commission File No. 33-46483, and incorporated herein by
reference).
4.1* Form of Indenture, between the Company and Harris Trust and Savings
Bank, with respect to $2.875 Series A Cumulative Convertible
Exchangeable Preferred Stock (previously filed as Exhibit 4.4 to
Amendment No. 2 to the Company's Registration Statement on Form S-1
under the Securities Act of 1933 filed with the Commission on
January 26, 1993, Commission File No. 33-56184, and incorporated
herein by reference).
4.2* Indenture between Carolina Freight Corporation and First Union
National Bank, Trustee with respect to 6 1/4% Convertible
Subordinated Debentures Due 2011 (previously filed as Exhibit 4-A to
the Carolina Freight Corporation's Registration Statement on Form
S-3 filed with the Commission on April 11, 1986, Commission File No.
33-4742, and incorporated herein by reference).
10.1*# Stock Option Plan (previously filed as Exhibit 10.3 to the Company's
Registration Statement on Form S-1 under the Securities Act of 1933
filed with the Commission on March 17, 1992, Commission File No.
33-46483, and incorporated herein by reference).
10.2*# The Company's Supplemental Benefit Plan (previously filed as Exhibit
10.6 to the Company's Registration Statement on Form S-1 under the
Securities Act of 1933 filed with the Commission on March 17, 1992,
Commission File No. 33-46483, and incorporated herein by reference).
10.3* $346,971,321 Amended and Restated Credit Agreement dated as of
February 21, 1996 among the Company as the Borrower, Societe
Generale, Southwest Agency as Managing Agent and Administrative
Agent, NationsBank of Texas, N.A. as Documentation Agent and the
Banks named herein as the Banks (previously filed as Exhibit 99.1 to
the Company's Current Report on Form 8-K, filed with the Commission
on February 28, 1996, Commission File No. 0-19969, and incorporated
herein by reference).
10.4* 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 the Company as 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).
</TABLE>
19
<PAGE> 20
FORM 10-K -- ITEM 14(c)
EXHIBIT INDEX
ARKANSAS BEST CORPORATION
(Continued)
<TABLE>
<CAPTION>
EXHIBIT
NO.
<S> <C>
10.5* $30,000,000 Credit Agreement dated as of February 21, 1996 among the
Company as 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 the Company as
Borrower, Societe Generale, Southwest Agency as Agent, and the Banks
named herein as the Banks (previously filed as Exhibit 10.3 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).
10.9* Second Amendment, dated July 15, 1997, to the $346,971,312 Amended
and Restated Credit Agreement among the Company as 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 10.3 to
the Company's current Report on Form 8-K, filed with the Commission
on August 1, 1997, Commission File No. 0-19969, and incorporated
herein by reference).
13 1997 Annual Report to Stockholders
21 List of Subsidiary Corporations
23 Consent of Ernst & Young LLP, Independent Auditors
27.1 Financial Data Schedule
27.2 Restated 3/31/97
27.3 Restated 6/30/97
27.4 Restated 9/30/97
27.5 Restated 3/31/96
27.6 Restated 6/30/96
27.7 Restated 9/30/96
27.8 Restated 12/31/96
27.9 Restated 12/31/95
- ------------------------
</TABLE>
* Previously filed with the Securities and Exchange Commission and
incorporated herein by reference.
# Designates a compensation plan for Directors or Executive Officers.
20
<PAGE> 1
EXHIBIT 13
Market and Dividend Information
Selected Financial Data
Management's Discussion and Analysis
Consolidated Financial Statements
<PAGE> 2
MARKET & DIVIDEND INFORMATION
The Company's Common Stock trades on The Nasdaq Stock Market(SM) 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:
<TABLE>
<CAPTION>
CASH
HIGH LOW DIVIDEND
- ---------------------------------------------------------------------------------------------------------------
1997
<S> <C> <C> <C>
First quarter ........................................ $5.500 $4.125 $ -
Second quarter........................................ 9.250 4.625 -
Third quarter......................................... 12.625 8.875 -
Fourth quarter........................................ 12.500 8.938 -
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 -
</TABLE>
At February 27, 1998, there were 19,607,213 shares of the Company's stock
outstanding which were held by 813 shareholders of record. 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 $4.3 million.
<PAGE> 3
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
1997 (5) 1996 (4) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
($ in thousands except per share data)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Operating revenues........................... $ 1,643,678 $ 1,604,335 $ 1,405,580 $ 1,090,908 $ 1,007,028
Operating income (loss)...................... 62,908 (18,008) (17,921) 50,970 54,536
Minority interest in subsidiary.............. (1,359) (1,768) 1,297 3,523 3,140
Other expenses, net.......................... 8,916 5,906 8,165 2,855 3,063
Gain on sale of
Cardinal Freight Carriers, Inc............. 8,985 - - - -
Interest expense............................. 23,978 30,843 16,352 6,681 7,077
Income (loss) from continuing
operations before income taxes
and extraordinary item.................... 40,358 (52,989) (43,735) 37,911 41,256
Provision (credit) for income taxes.......... 19,389 (18,782) (12,925) 18,445 19,613
Income (loss) from continuing operations
before extraordinary item.................. 20,969 (34,207) (30,810) 19,466 21,643
Extraordinary item (1)....................... - - - - (661)
Loss from discontinued
operations, net of tax..................... (5,622) (2,396) (1,982) (759) (671)
Net income (loss)............................ 15,347 (36,603) (32,792) 18,707 20,311
Income (loss) per common share
from continuing operations before
extraordinary item (diluted)............... 0.84 (1.98) (1.80) 0.78 0.92
Net income (loss) per common
share (diluted)............................ 0.56 (2.10) (1.90) 0.74 0.85
Cash dividends paid per common share (2)..... - 0.01 0.04 0.04 0.04
Balance Sheet Data:
Total assets................................. 698,339 828,181 962,176 559,564 444,418
Current portion of long-term debt............ 16,484 37,197 25,018 64,092 15,239
Long-term debt (including capital leases
and excluding current portion)............. 202,604 317,874 391,475 53,637 40,571
Other Data:
Capital expenditures (3)..................... 14,136 41,599 74,808 64,098 33,160
Depreciation and amortization................ 44,316 56,389 46,627 28,087 28,266
Goodwill amortization........................ 4,629 4,609 5,135 3,527 3,064
Other amortization........................... 4,139 3,740 1,044 501 319
</TABLE>
(1) For 1993, represents an extraordinary charge of $661,000 (net of tax of
$413,000) from the loss on extinguishment of debt.
(2) Cash dividends on the Company's Common Stock were indefinitely suspended by
the Company as of the second quarter of 1996.
(3) Net of equipment trade-ins. Does not include revenue equipment placed in
service under operating leases, which amounted to $21.9 million in 1997,
$24.6 million in 1995, and $24.8 million in 1993. There were no operating
leases for revenue equipment entered into for 1996 and 1994. (See
"Management's Discussion and Analysis-Liquidity and Capital Resources.")
(4) 1995 selected financial data is not comparable to the prior years'
information due to the WorldWay acquisition on 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.
(5) Selected financial data is not comparable to the prior years' information
due to the sale of Cardinal on July 15, 1997. (See Note E to the
Consolidated Financial Statements.)
<PAGE> 4
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 motor carrier transportation
operations, intermodal transportation operations, and truck tire retreading and
new tire sales. Principal subsidiaries are ABF Freight System, Inc. ("ABF");
Treadco, Inc. ("Treadco"); Clipper Exxpress Company, CaroTrans International,
Inc. ("Clipper Worldwide") and related companies (collectively "Clipper Group");
G.I. Trucking Company ("G.I. Trucking"); FleetNet America, Inc. (formerly
Carolina Breakdown Service, Inc.); and, until July 15, 1997, Cardinal Freight
Carriers, Inc. ("Cardinal").
See Note A to the Consolidated Financial Statements regarding the consolidation
of Treadco in the Company's consolidated financial statements. See Note C
regarding acquisitions by the Company. See Note D regarding the Company's
discontinuation of its logistics segment. See Note E regarding the sale of
Cardinal.
YEAR 2000
Management of the Company has considered the impact of the Year 2000 on its
business operations. All computer systems which are affected by the rollover to
the Year 2000 have been identified, including the general office operations,
general office environment equipment, and transportation systems. The Company's
vulnerability to third-party systems (i.e., for vendors and major customers) has
been evaluated and is expected to be minimal. The majority of the Company's
systems are developed and maintained in-house. The Company has addressed its
exposure to third-party systems by contacting them for Year 2000 compliant
upgrades for systems the Company expects to retain.
The Company plans to modify its in-house systems for the rollover to the Year
2000 using internal resources. The Company may see some reduction in internal
research and development projects because of the resources devoted to the Year
2000 rollover, but with the current plan to distribute the Year 2000 rollover
work load among several personnel, the impact on research and development
projects is expected to be minimal.
The Company undertook the Year 2000 conversion in 1996 and is at various stages
of completion. The most significant project is the revision of the mainframe
system. This project has completed the renovation phase and will be tested
during 1998, with a planned completion date of December 31, 1998.
Because the Year 2000 project is being performed with existing staff, during the
normal course of maintenance on the Company's systems, the funds associated with
Year 2000 rollover will be paid partially in 1998 and continually each year,
until the Year 2000. The impact on the Company's financial condition and cash
flows is expected to be immaterial for all years. The Company has not identified
any significant risks or uncertainties associated with the Year 2000 rollover.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, Earnings Per Share. Under the new requirements for computing
basic earnings per share, the dilutive effect of stock options is excluded. The
dilutive effect of common stock equivalents is included in the calculation of
diluted earnings per share under SFAS No. 128. The new statement has been
applied retroactively. The effect of adoption is not material.
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income.
The Statement requires the classification components of other comprehensive
income by their nature in a financial statement and display of the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid in capital in the consolidated financial statements. The
Statement is effective for the Company in 1998. The Company does not anticipate
that adoption of this Statement will have a material impact on the current
presentation of its financial statements.
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments of
an Enterprise and Related Information. The Statement changes the way public
companies report segment information in annual financial statements and also
requires those companies to report selected segment information in interim
financial reports to shareholders. The proposal superseded FASB Statement No. 14
on segments.
The Statement is effective for the Company in 1998. The Company is currently
evaluating the impact that the Statement will have on its business segment
reporting.
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, except for interest expense and minority
interest, which appear below the operating income line in the Company's
Statement of Operations, have been allocated to individual segments for the
purpose of calculating operating profit on a segment basis.
The Company operates in three defined business segments: 1) Motor carrier which
includes LTL operations conducted by ABF and G.I. Trucking, and truckload
operations which were handled primarily by Cardinal until its sale in July,
1997; 2) Intermodal operations which includes the Clipper Group (including
Clipper Worldwide); and 3) Tire operations which consists of the operations of
Treadco. The segment information for 1996 and 1995 has been restated to reflect
the Company's current reported business segments.
Prior to 1996, the Intermodal Operations Segment was referred to as the
Forwarding Operations Segment.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING REVENUES
<S> <C> <C> <C>
LTL motor carrier operations ........................... $ 1,253,691 $ 1,199,437 $ 1,088,416
Truckload motor carrier operations ..................... 39,366 74,623 27,992
- ---------------------------------------------------------------------------------------------------------------------------
Total motor carrier operations ......................... 1,293,057 1,274,060 1,116,408
Intermodal operations .................................. 181,929 180,619 140,691
Tire operations ........................................ 158,912 141,613 145,127
Service and other ...................................... 9,780 8,043 3,354
- ---------------------------------------------------------------------------------------------------------------------------
$ 1,643,678 $ 1,604,335 $ 1,405,580
===========================================================================================================================
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES AND COSTS
MOTOR CARRIER OPERATIONS:
LTL MOTOR CARRIER OPERATIONS
<S> <C> <C> <C>
Salaries and wages...................................... $ 820,299 $ 832,474 $ 779,453
Supplies and expenses................................... 124,591 130,330 120,439
Operating taxes and licenses............................ 42,045 47,552 45,906
Insurance .............................................. 24,237 28,393 24,122
Communications and utilities............................ 28,457 29,897 26,776
Depreciation and amortization........................... 32,274 41,755 37,822
Rents and purchased transportation ..................... 113,374 95,169 76,823
Other................................................... 8,380 12,296 8,219
(Gain) on sale of revenue equipment .................... (2,279) (1,468) (2,938)
Other non-operating (net) .............................. 6,045 1,199 4,709
- ---------------------------------------------------------------------------------------------------------------------------
$ 1,197,423 $ 1,217,597 $ 1,121,331
- ---------------------------------------------------------------------------------------------------------------------------
TRUCKLOAD MOTOR CARRIER OPERATIONS
Salaries and wages...................................... $ 14,319 $ 27,483 $ 9,746
Supplies and expenses................................... 7,257 13,552 4,530
Operating taxes and licenses............................ 3,543 7,060 2,571
Insurance .............................................. 1,677 2,208 980
Communications and utilities............................ 589 1,038 420
Depreciation and amortization .......................... 1,911 3,580 1,249
Rents and purchased transportation ..................... 7,741 14,880 5,348
Other................................................... 275 434 108
Loss on sale of revenue equipment ...................... 2 13 -
Other non-operating (net)............................... 2 4 9
- ---------------------------------------------------------------------------------------------------------------------------
$ 37,316 $ 70,252 $ 24,961
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL MOTOR CARRIER OPERATIONS ........................... $ 1,234,739 $ 1,287,849 $ 1,146,292
===========================================================================================================================
INTERMODAL OPERATIONS
Cost of services ....................................... $ 152,061 $ 151,799 $ 117,455
Selling, administrative and general .................... 27,892 27,658 18,711
(Gain) on sale of revenue equipment .................... - (21) -
Other non-operating (net)............................... 1,851 1,729 1,705
- ---------------------------------------------------------------------------------------------------------------------------
$ 181,804 $ 181,165 $ 137,871
===========================================================================================================================
TIRE OPERATIONS
Cost of sales........................................... $ 117,373 $ 109,673 $ 108,686
Selling, administrative and general .................... 44,423 37,491 31,642
Other non-operating (net) .............................. 112 (730) 375
- ---------------------------------------------------------------------------------------------------------------------------
$ 161,908 $ 146,434 $ 140,703
===========================================================================================================================
SERVICE AND OTHER ........................................ $ 11,235 $ 12,800 $ 6,800
- ---------------------------------------------------------------------------------------------------------------------------
$ 1,589,686 $ 1,628,248 $ 1,431,666
===========================================================================================================================
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES AND COSTS -- Continued
OPERATING PROFIT (LOSS)
<S> <C> <C> <C>
LTL motor carrier operations............................ $ 56,268 $ (18,160) $ (32,915)
Truckload motor carrier operations...................... 2,050 4,371 3,031
- ---------------------------------------------------------------------------------------------------------------------------
Total motor carrier operations.......................... 58,318 (13,789) (29,884)
Intermodal operations .................................. 125 (546) 2,820
Tire operations......................................... (2,996) (4,821) 4,424
Service and other....................................... (1,455) (4,757) (3,446)
- ---------------------------------------------------------------------------------------------------------------------------
53,992 (23,913) (26,086)
GAIN ON SALE OF CARDINAL
FREIGHT CARRIERS, INC. ................................ 8,985 - -
INTEREST EXPENSE ......................................... 23,978 30,844 16,352
MINORITY INTEREST ........................................ (1,359) (1,768) 1,297
- ---------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES ........................ $ 40,358 $ (52,989) $ (43,735)
===========================================================================================================================
</TABLE>
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
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
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
MOTOR CARRIER OPERATIONS:
LTL MOTOR CARRIER OPERATIONS
<S> <C> <C> <C>
Salaries and wages ...................................... 65.4% 69.4% 71.6%
Supplies and expenses.................................... 9.9 10.9 11.1
Operating taxes and licenses............................. 3.4 4.0 4.2
Insurance................................................ 1.9 2.4 2.2
Communications and utilities............................. 2.3 2.5 2.5
Depreciation and amortization............................ 2.6 3.5 3.5
Rents and purchased transportation....................... 9.0 7.9 7.1
Other.................................................... 0.7 1.0 0.8
(Gain) on sale of revenue equipment ..................... (0.2) (0.1) (0.3)
Other non-operating (net)................................ 0.5 - 0.3
- ---------------------------------------------------------------------------------------------------------------------------
Total LTL Motor Carrier Operations.................. 95.5% 101.5% 103.0%
- ---------------------------------------------------------------------------------------------------------------------------
TRUCKLOAD MOTOR CARRIER OPERATIONS
Salaries and wages....................................... 36.4% 36.8% 34.8%
Supplies and expenses.................................... 18.4 18.2 16.2
Operating taxes and licenses............................. 9.0 9.5 9.2
Insurance................................................ 4.3 3.0 3.5
Communications and utilities............................. 1.5 1.4 1.5
Depreciation and amortization............................ 4.9 4.8 4.5
Rents and purchased transportation....................... 19.7 19.9 19.1
Other.................................................... 0.6 0.6 0.4
Other non-operating (net) ............................... - (0.1) -
- ---------------------------------------------------------------------------------------------------------------------------
Total Truckload Operations.......................... 94.8% 94.1% 89.2%
===========================================================================================================================
TOTAL MOTOR CARRIER OPERATIONS ............................ 95.5% 101.1% 102.7%
===========================================================================================================================
INTERMODAL OPERATIONS
Cost of services......................................... 83.6% 84.0% 83.5%
Selling, administrative and general...................... 15.3 15.3 13.3
Other non-operating (net)................................ 1.0 1.0 1.2
- ---------------------------------------------------------------------------------------------------------------------------
Total Intermodal Operations......................... 99.9% 100.3% 98.0%
===========================================================================================================================
TIRE OPERATIONS
Cost of sales............................................ 73.9% 77.4% 74.9%
Selling, administrative and general...................... 28.0 26.5 21.8
Other non-operating (net)................................ - (0.5) 0.3
- ---------------------------------------------------------------------------------------------------------------------------
Total Tire Operations............................... 101.9% 103.4% 97.0%
===========================================================================================================================
OPERATING PROFIT
LTL operations........................................... 4.5% (1.5)% (3.0)%
Truckload operations..................................... 5.2 5.9 10.8
Total motor carrier operations........................... 4.5 (1.1) (2.7)
Intermodal operations.................................... 0.1 (0.3) 2.0
Tire operations.......................................... (1.9) (3.4) 3.0
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
Consolidated revenues from continuing operations of the Company for 1997 were
$1,644 million compared to $1,604 million for 1996, representing an increase of
2.5%. The Company had an operating profit from continuing operations of $54.0
million for 1997 compared to an operating loss of $(23.9) million for 1996.
Income from continuing operations for 1997 was $21.0 million, or $0.84 per share
(diluted), $0.85 per share (basic), compared to losses from continuing
operations for 1996 of $(34.2) million, or a loss of $(1.98) per share (basic
and diluted). Earnings per common share for 1997 and 1996 give consideration to
preferred stock dividends of $4.3 million. Outstanding shares for 1997 and 1996
do not assume conversion of preferred stock to common shares, because the
conversion would be anti-dilutive.
MOTOR CARRIER OPERATIONS SEGMENT.
Less-Than-Truckload Motor Carrier Operations. The Company's LTL motor carrier
operations are conducted through ABF and G.I. Trucking.
Revenues from the LTL motor carrier operations for 1997 were $1,254 million,
with an operating profit of $56.3 million compared to 1996 revenues of $1,199
million, with an operating loss of $(18.2) million.
In 1997, ABF accounted for 91% of the LTL revenues. ABF's revenue increased 3.1%
from 1996 to 1997. ABF's revenue per hundredweight increased to $17.37 for 1997,
a 7.1% increase from 1996. Revenue increases reflect ABF's overall rate increase
of 5.5% on January 1, 1997. The increase in revenue per hundredweight was offset
by a decrease in tonnage resulting from ABF's emphasis on account profitability.
ABF's total tonnage per day decreased 3.7% from 1996 to 1997.
On January 1, 1998, ABF implemented an overall rate increase of 5.3%.
LTL revenues also increased due to G.I. Trucking's operations for 1997. G.I.
Trucking's revenues increased 27.5% from 1996 to 1997. G.I. Trucking continued
to replace revenues lost as a result of the ABF/Carolina Freight Carriers
("Carolina") merger in September, 1995. G.I. Trucking's revenue per
hundredweight increased to $10.45, a 3.5% increase from 1996. G.I. Trucking's
tonnage increased 23.2% from 1996 to 1997. G.I. Trucking's operating ratio, as
reported to the D.O.T., was 99.4% for 1997 as compared to 109.4% for 1996.
During 1996, ABF discontinued twelve of the regional distribution terminal
operations acquired in September 1995 in the Carolina merger. These closings,
which occurred during the first two quarters of 1996, returned ABF to its
historical terminal system configuration. This reconfiguration allowed ABF to
gradually improve its direct labor costs, improve its weight per trailer and
reduce its empty miles, beginning in 1996 and continuing through 1997. ABF's
operating ratio as reported to the D.O.T. was 94.5% in 1997 compared to 100.8%
in 1996.
Approximately 80% of ABF's employees are covered under a collective bargaining
agreement with the International Brotherhood of Teamsters ("IBT"), which expires
on March 31, 1998. A tentative settlement on a new five-year collective
bargaining agreement was reached on February 9, 1998, which is subject to
ratification by the IBT.
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
The decrease in salaries, wages and benefits of 4.0%, as a percentage of
revenue, from 1996 to 1997 was the result of productivity improvements by both
ABF and G.I. Trucking. ABF's salaries, wages and benefits for unionized
employees increased by approximately 3.9% annually effective April 1, 1997,
pursuant to ABF's collective bargaining agreement with the IBT employees. The
increase in wages and the changes associated with the 1998 agreement are
expected to have a somewhat lesser impact on the annual cost for salaries, wages
and benefits in 1998, and the remaining term of the contract, than the previous
agreement had on an annual basis.
Operating supplies and expenses decreased 1% of revenue from 1996 to 1997.
Decreases in fuel expenses represent .8% of this decrease. Fuel expenses were
lower in 1997 than in 1996 because of lower fuel prices, better fuel economy
fleet-wide and 1.9% fewer traveled miles.
A decrease in depreciation and amortization of .9% of revenue also resulted from
ABF's reconfiguration of its terminal system, which allowed for improved asset
utilization and sales of excess assets. ABF also increased its use of leased
revenue equipment and outside alternate modes of transportation as reflected in
the 1.1% increase in rents and purchased transportation as a percentage of
revenue.
The cost of insurance, which includes provisions for self insurance of workers'
compensation, bodily injury and property damage claims, decreased .5% in 1997
due to fewer and less severe claims, as well as favorable experience in claim
settlements compared to 1996.
Truckload Motor Carrier Operations. The Company's truckload motor carrier
operations were conducted primarily through Cardinal.
On July 15, 1997, the Company closed the sale of Cardinal. See Note E to the
Consolidated Financial Statements.
INTERMODAL OPERATIONS SEGMENT. The Company's intermodal operations are conducted
primarily through the Clipper Group (including Clipper Worldwide).
Revenues for the intermodal operations segment were $182 million for 1997
compared to $181 million in 1996, an increase of .8%. Through nine months of
1997, greater increases in revenues for the Clipper Group's domestic operation
were reported. However, fourth quarter 1997 revenues for the domestic division
decreased 9% when compared to the fourth quarter of 1996. The Clipper Group's
domestic operations were adversely affected by the much-publicized problems with
the U.S. rail system. These problems resulted in lower revenue for Clipper's
domestic operations because of customer concerns regarding the reliability of
rail service, which is Clipper's principal method of transporting freight. Rail
service problems have continued into 1998. It is not possible for Clipper
management to determine when rail service problems will be resolved, and it is
likely that Clipper will continue to suffer some loss of revenues until these
problems are resolved and customers and potential customers return to historical
transportation practices.
Throughout 1996, the domestic operation of the Clipper Group experienced an
increase in its weight per shipment. However, a decline in revenue per
hundredweight without a proportionate reduction in cost produced lower margins
on higher revenue. In 1997, the Clipper Group's domestic operation improved
yields and decreased costs per shipment, when compared to 1996, by focusing on
smaller shipment sizes to improve margins. Effective January 1, 1997, the
Clipper Group's domestic division implemented a 5.9%
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
rate increase. In the fourth quarter of 1997, Clipper's costs were affected
negatively by diversion of some freight from rail to trucks, due to previously
described rail service issues. For the fourth quarter of 1997, the Clipper
Group's domestic operation had a 100.4% operating ratio compared to 99.3% for
the fourth quarter of 1996. This trend will continue until the rail service
problems are resolved.
On January 1, 1998, the Clipper Group's domestic operations implemented a 5.5%
rate increase, with an effective rate of 4.3% on LTL revenues.
Clipper Worldwide's revenue declined 6.6% from 1996 to 1997. The decline in
revenue for Clipper Worldwide was expected due to actions taken in late 1996 and
early 1997 to enhance profitability. During 1996, Clipper Worldwide expanded
into some higher cost markets and experienced a shift in market mix to more full
container-load freight. Ocean container transportation costs also increased.
Clipper Worldwide recorded a charge of $400,000 in 1997 relating to the
consolidation of administrative offices and some sales locations with the other
Clipper Group members. Each of these factors negatively impacted operating
results in the applicable periods. However, other cost reductions, including
lower costs for ocean transport in certain lanes, offset these costs, resulting
in a lower operating ratio for 1997 of 103.0% compared to 104.3% for 1996. The
consolidation of administrative offices and some sales locations is expected to
continue to improve the efficiency of Clipper Worldwide in 1998.
TIRE OPERATIONS SEGMENT. Revenues for 1997 increased 12.2% to $158.9 million
from $141.6 million for 1996. Both "same store" sales and "new store" sales
increased approximately 6.0% from 1996 to 1997. "Same store" sales include both
production locations and satellite sales locations that have been in existence
for all of 1997 and 1996. In 1997, "new store" sales resulted from one new sales
location and one new production facility. In 1996, "new store" sales resulted
from five new sales locations. Revenues from retreading for 1997 were $65.3
million, a 9.3% increase from $59.8 million in 1996. Revenues from new tires for
1997 were $81.0 million, an 11.9% increase from $72.4 million during 1996.
Cost of sales decreased 3.5% from 1996 to 1997. This decrease resulted primarily
from lower tread rubber costs and new tire costs of approximately 4.0%. Selling,
administrative and general expenses increased 1.5% from 1996 to 1997, resulting
primarily from a cost-of-living increase in salaries and wages expense of 1.0%.
Treadco's ability to return to historical profitability levels is substantially
dependent upon replacement of retread volume, which declined beginning in 1996
primarily due to national account business which was lost to competitors. Also,
new business frequently has lower margins than established accounts due to
increased competition in Treadco's markets.
INTEREST. Interest expense was $24.0 million for 1997 compared to $30.8 million
for 1996, primarily due to reductions of outstanding debt, although lower
interest rates also impacted interest costs. The average interest rate on the
Company's revolving credit agreement was 8.2% on January 1, 1997 and 7.2% on
December 31, 1997.
INCOME TAXES. The difference between the effective tax rate for 1997 and the
federal statutory rate resulted from state income taxes, amortization of
goodwill, minority interest, and other nondeductible expenses. In addition,
income tax expense for 1997 exceeds the expected amount because of $3.5 million
in taxes attributable to a lower tax basis than accounting basis in Cardinal.
The basis difference resulted
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
from goodwill of approximately $9.5 million allocated to Cardinal as a result of
purchase accounting for the 1995 WorldWay acquisition, which included Cardinal
(see Note H to the consolidated financial statements).
At December 31, 1997, the Company had deferred tax assets of $28.5 million, net
of a valuation allowance of $2.6 million, and deferred tax liabilities of $47.4
million. The Company believes that the benefits of the deferred tax assets of
$28.5 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 $47.4 million and the presence of significant taxable income in
1997 and the unlimited carryforward period for alternative minimum tax credits
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 and other limitations.
Management intends to evaluate the realizability of deferred tax assets on a
quarterly basis by assessing the need for any additional valuation allowance.
1996 COMPARED TO 1995
Consolidated revenues from continuing operations of the Company for 1996 were
$1,604 million compared to $1,406 million for 1995, representing an increase of
14.0%, primarily due to the subsidiaries acquired in the WorldWay acquisition
being included for all of 1996, compared to four and one-half months of 1995.
The Company had an operating loss from continuing operations of $(23.9) million
(segment basis) for 1996 compared to an operating loss of $(26.1) million for
1995. The loss from continuing operations for 1996 was $(34.2) million, or a
loss of $(1.98) per share (basic and diluted), compared to a loss from
continuing operations for 1995 of $(30.8) million, or a loss of $(1.80) per
share (basic and diluted). 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.
MOTOR CARRIER OPERATIONS SEGMENT.
Less-Than-Truckload Motor Carrier Operations. The Company's LTL motor carrier
operations are conducted through ABF and G.I. Trucking.
Revenues from LTL motor carrier operations were $1,199 million for 1996, with an
operating loss of $(18.2) million, compared to $1,088 million for 1995, with an
operating loss of $(32.9) million.
In 1996, ABF accounted for 92% of the LTL segment revenues. Revenues from LTL
motor carrier operations for 1996 increased 10.2% over 1995. The increase in
revenues was due in part to the fact that 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 and Red Arrow Freight Lines ("Red
Arrow") into ABF in September 1995.
LTL 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. Trucking had served
Carolina customers with deliveries to western states where Carolina did not have
terminal operations. ABF serves its customers coast-to-coast. Fourth quarter
1996 revenues for G.I.
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
Trucking were 44% higher than the fourth quarter of 1995, which reflected the
substantial decrease in G.I. Trucking's revenue caused by the merger.
Effective with the ABF/Carolina merger, ABF inherited Carolina'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 regional distribution terminal
operations acquired in September, 1995 in the Carolina merger. 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.
The decrease in salaries, wages and benefits of 2.2% as a percentage of revenue
from 1995 to 1996 was the result of ABF's productivity improvements. Salaries,
wages and benefits increased 3.8% annually effective April 1, 1996, pursuant to
ABF's collective bargaining agreement with its Teamsters employees.
Truckload Motor Carrier Operations. The Company's truckload motor carrier
operations were conducted primarily through Cardinal.
Cardinal's revenues increased 166.5% 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.
Supplies and expenses were affected negatively in 1996 because higher fuel
prices per gallon resulted in higher-than-expected fuel costs which were only
partially recovered by fuel surcharges, as well as higher-than-normal
maintenance costs due to aging of revenue equipment.
INTERMODAL OPERATIONS SEGMENT. The Company's intermodal operations are conducted
primarily through the Clipper Group (including Clipper Worldwide).
Comparisons for 1996 were affected by the WorldWay acquisition in August 1995.
Revenues for the intermodal operations segment were $181 million for 1996,
compared to $141 million in 1995, representing an increase of 28.4%. The
increase in revenue results primarily from the inclusion of Clipper Worldwide
for the full year and a 6% increase in revenues for the Clipper Group's domestic
operations.
Throughout 1996, the domestic operation of the Clipper Group experienced an
increase in its weight per shipment. However, a decline in revenue per
hundredweight without a proportionate reduction in cost produced lower margins
on higher revenue.
Clipper Worldwide 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.
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
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.
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 Treadco that unless
Treadco used the Bandag process exclusively, Bandag would not renew any of
Treadco's franchise agreements when they expired. Treadco'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 as much
as 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 was required to spend time with the
conversion at the expense of normal daily operations.
Treadco has experienced 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
2.5% primarily due to expenses incurred during the conversion.
Selling, administrative and general expenses as a percent of revenue increased
4.7%. This increase resulted from several factors, including costs associated
with the conversion from Bandag, representing 2.4% of the increase and increases
in administrative and general expenses of 2.3%, including self-insurance costs,
expenses associated with employee medical benefits and service-related expenses.
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 for the Company 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 H to
the consolidated financial statements).
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for 1997 was $76.2 million compared to
net cash provided by operations of $30.2 million in 1996. The increase is due
primarily to the improvement in operating results from 1996 to 1997. In addition
to cash provided by operations, 1997 sales of excess property and equipment
provided cash of $37.3 million and the sales of Cardinal, The Complete Logistics
Company and Integrated Distribution, Inc. provided cash of $39.0 million.
The Company has a 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 11 other participating banks.
The Credit Agreement originally included a $72 million term loan and provides
for up to $275 million of revolving credit loans (including letters of credit).
Revolving credit advances bear interest at variable rates determined under the
Credit Agreement. At December 31, 1997, the average interest rate on the Credit
Agreement was 7.2%.
At December 31, 1997, there were $111 million of Revolver Advances and
approximately $19.8 million of outstanding letters of credit. The Credit
Agreement, which had an expiration date of August, 1998, was extended during
1997 and expires in August, 1999. At December 31, 1997, the Company had
approximately $144 million of availability under the Credit Agreement.
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 Treadco accounts receivable and inventory.
Borrowings under the agreement bear interest at variable rates. At December 31,
1997, Treadco had $4.0 million outstanding under the Revolving Credit Agreement.
The average interest rate during 1997 was 7.9%. The Treadco Credit Agreement was
amended and restated on September 30, 1997, primarily to extend the termination
date until September 30, 2001, and to revise certain financial covenants and
Treadco's interest rate on advances. As of December 31, 1997, Treadco was in
compliance with the covenants.
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 $20 million as of December 31, 1997 to $2.5 million as of
October 1999. As of December 31, 1997, 1996 and 1995, the LIBOR rate was 5.8%,
5.5% and 5.5%, 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 (using the accrual accounting method). Fees totaling $385,000
were paid in 1994 to enter into this arrangement. These fees are included in
other assets and are being amortized to interest expense over the life of the
contract. The interest rate cap arrangement had no fair value at December 31,
1997.
In February 1998, the Company entered into an interest rate swap effective April
1, 1998, on a notional amount of $110 million. The purpose of the swap was to
limit the Company's exposure to increases in interest rates from current levels
on $110 million of bank borrowings over the seven-year term of the swap. The
interest rate under the swap will be 5.845% plus the Credit Agreement margin
(currently 1%).
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
The following table sets forth the Company's historical capital expenditures
(net of equipment trade-ins) for the periods indicated below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
($ millions)
<S> <C> <C> <C>
LTL motor carrier operations.................................. $ 25.8 $ 13.0 $ 75.0
Truckload motor carrier operations............................ 0.7 0.8 2.1
- ---------------------------------------------------------------------------------------------------------------------------
Total motor carrier operations................................ 26.5 13.8 77.1
Intermodal operations ........................................ 4.1 0.4 0.4
Tire operations............................................... 4.4 23.0 4.5
Service and other............................................. 1.1 4.4 17.4
- ---------------------------------------------------------------------------------------------------------------------------
36.1 41.6 99.4
Less: Operating leases..................................... (21.9) - (24.6)
- ---------------------------------------------------------------------------------------------------------------------------
Total......................................................... $ 14.2 $ 41.6 $ 74.8
===========================================================================================================================
</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 1998, the Company forecasts total spending of approximately $68 million for
capital expenditures net of proceeds from equipment sales. Of the $68 million,
ABF is budgeted for approximately $43.6 million to be used primarily for revenue
equipment and facilities. Treadco is budgeted for $9.2 million of expenditures
for retreading and service equipment and facilities, Clipper Group is budgeted
for approximately $2.6 million to be used primarily for revenue equipment and G.
I. Trucking is budgeted for $10.8 million of expenditures to be used primarily
for revenue equipment.
Cash from operations and the sale of assets and subsidiaries resulted in
reduction of debt of approximately $146.9 million in 1997.
Management believes, based upon the Company's current levels of operations, 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
Motor carrier operations 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 motor carrier
operations 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> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
ENVIRONMENTAL MATTERS
The Company's subsidiaries store some fuel for their tractors and trucks in
approximately 114 underground tanks located in 30 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, 1997, 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 and has
not been reduced by any future recoveries from insurance or other sources unless
such recovery is assured. 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.
<PAGE> 18
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, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Little Rock, Arkansas
January 28, 1998
<PAGE> 19
<TABLE>
<CAPTION>
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31
1997 1996
---------------------------------------
($ thousands)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents.................................................... $ 7,203 $ 2,427
Trade receivables less allowances
(1997--$7,603,000; 1996--$5,077,000)...................................... 175,693 178,766
Inventories.................................................................. 30,685 33,811
Prepaid expenses ............................................................ 14,456 12,869
Deferred income taxes ....................................................... 5,584 16,490
Federal and state income taxes refundable ................................... - 7,320
Other ....................................................................... 3,275 -
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS ..................................................... 236,896 251,683
PROPERTY, PLANT AND EQUIPMENT
Land and structures ......................................................... 212,847 228,051
Revenue equipment ........................................................... 207,471 253,009
Manufacturing equipment ..................................................... 18,891 18,815
Service, office and other equipment ......................................... 64,598 61,987
Leasehold improvements ...................................................... 7,281 8,899
- ---------------------------------------------------------------------------------------------------------------------------
511,088 570,761
Less allowances for depreciation and amortization ........................... (225,733) (214,195)
- ---------------------------------------------------------------------------------------------------------------------------
285,355 356,566
OTHER ASSETS ................................................................... 41,999 60,630
ASSETS HELD FOR SALE ........................................................... 3,342 9,148
GOODWILL, less amortization (1997 -- $31,867,000;
1996 -- $28,006,000)............................................................ 130,747 150,154
- ---------------------------------------------------------------------------------------------------------------------------
$ 698,339 $ 828,181
===========================================================================================================================
</TABLE>
<PAGE> 20
<TABLE>
<CAPTION>
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31
1997 1996
---------------------------------------
($ thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Bank overdraft .............................................................. $ 13,801 $ -
Bank drafts payable ......................................................... 1,172 502
Trade accounts payable ...................................................... 77,403 77,338
Accrued expenses............................................................. 157,622 179,918
Federal and state income taxes............................................... 1,222 -
Current portion of long-term debt ........................................... 16,484 37,197
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES ................................................ 267,704 294,955
LONG-TERM DEBT, less current portion ........................................... 202,604 317,874
OTHER LIABILITIES .............................................................. 21,921 21,423
DEFERRED INCOME TAXES .......................................................... 24,448 22,479
MINORITY INTEREST .............................................................. 32,600 34,020
SHAREHOLDERS' EQUITY
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 1997: 19,596,213 shares;
1996: 19,504,473 shares ................................................. 196 195
Additional paid-in capital .................................................. 192,910 192,328
Retained earnings (deficit) ................................................. (44,059) (55,108)
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY ............................................... 149,062 137,430
COMMITMENTS AND CONTINGENCIES ..................................................
- ---------------------------------------------------------------------------------------------------------------------------
$ 698,339 $ 828,181
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 21
<TABLE>
<CAPTION>
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
1997 1996 1995
------------------------------------------------------
($ thousands, except per share data)
OPERATING REVENUES
<S> <C> <C> <C>
LTL motor carrier operations ................................. $ 1,253,691 $ 1,199,437 $ 1,088,416
Truckload motor carrier operations ........................... 39,366 74,623 27,992
Intermodal operations ........................................ 181,929 180,619 140,691
Tire operations .............................................. 158,912 141,613 145,127
Service and other ............................................ 9,780 8,043 3,354
- ---------------------------------------------------------------------------------------------------------------------------
1,643,678 1,604,335 1,405,580
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES AND COSTS
LTL motor carrier operations .................................. 1,191,378 1,216,398 1,116,622
Truckload motor carrier operations ............................ 37,313 70,248 24,952
Intermodal operations ......................................... 179,953 179,436 136,166
Tire operations ............................................... 161,796 147,164 140,328
Service and other ............................................. 10,330 9,097 5,433
- ---------------------------------------------------------------------------------------------------------------------------
1,580,770 1,622,343 1,423,501
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS)........................................... 62,908 (18,008) (17,921)
OTHER INCOME (EXPENSE)
Net gains (losses) on sale of property
and non-revenue equipment .................................. (3,536) 1,856 237
Gain on sale of Cardinal Freight Carriers ..................... 8,985 - -
Interest expense .............................................. (23,978) (30,843) (16,352)
Minority interest in subsidiary ............................... 1,359 1,768 (1,297)
Other, net .................................................... (5,380) (7,762) (8,402)
- ---------------------------------------------------------------------------------------------------------------------------
(22,550) (34,981) (25,814)
- ---------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES.............................. 40,358 (52,989) (43,735)
FEDERAL AND STATE INCOME TAXES (CREDIT)
Current ....................................................... 3,079 (15,016) (4,011)
Deferred ...................................................... 16,310 (3,766) (8,914)
- ---------------------------------------------------------------------------------------------------------------------------
19,389 (18,782) (12,925)
- ---------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS ......................... 20,969 (34,207) (30,810)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 22
<TABLE>
<CAPTION>
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS -- Continued
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
($ thousands, except per share data)
DISCONTINUED OPERATIONS:
<S> <C> <C> <C>
Loss from discontinued operations (net of tax benefits of $1,476,
$1,353 and $1,270 for the years ended December 31, 1997,
1996 and 1995, respectively) .................................. $ (2,529) $ (2,396) $ (1,982)
Loss on disposal of discontinued operations
(net of tax benefits of $605).................................. (3,093) - -
- ---------------------------------------------------------------------------------------------------------------------------
LOSS FROM DISCONTINUED OPERATIONS ................................ (5,622) (2,396) (1,982)
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) ................................................ 15,347 (36,603) (32,792)
Preferred stock dividends ..................................... 4,298 4,298 4,298
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS)
FOR COMMON SHAREHOLDERS ...................................... $ 11,049 $ (40,901) $ (37,090)
===========================================================================================================================
EARNINGS (LOSS) PER COMMON SHARE
BASIC:
Continuing operations ......................................... $ 0.85 $ (1.98) $ (1.80)
Discontinued operations ....................................... (0.29) (0.12) (0.10)
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE ...................................... $ 0.56 $ (2.10) $ (1.90)
- ---------------------------------------------------------------------------------------------------------------------------
DILUTED:
Continuing operations ......................................... $ 0.84 $ (1.98) $ (1.80)
Discontinued operations ....................................... (0.28) (0.12) (0.10)
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE ...................................... $ 0.56 $ (2.10) $ (1.90)
- ---------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS PAID PER COMMON SHARE ............................. $ - $ .01 $ .04
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 23
<TABLE>
<CAPTION>
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL RETAINED
PREFERRED COMMON PAID-IN EARNINGS
STOCK STOCK CAPITAL (DEFICIT)
- ------------------------------------------------------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1995 ........................ $ 15 $ 195 $ 192,265 $ 24,130
Net loss ....................................... - - - (32,792)
Issuance of common stock ....................... - - 171 -
Adjustment to minimum pension liability ........ - - - (1,041)
Dividends paid ................................. - - - (5,079)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1995....................... 15 195 192,436 (14,782)
Net loss........................................ - - - (36,603)
Retirement of common stock ..................... - - (108) -
Adjustment to minimum pension liability ....... - - - 770
Dividends paid.................................. - - - (4,493)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1996....................... 15 195 192,328 (55,108)
Net income ..................................... - - - 15,347
Issuance of common stock ...................... - 1 582 -
Dividends paid.................................. - - - (4,298)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1997....................... $ 15 $ 196 $ 192,910 $ (44,059)
===================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 24
<TABLE>
<CAPTION>
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
($ thousands)
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) ................................................... $ 15,347 $ (36,603) $ (32,792)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization .................................... 44,316 56,389 46,627
Amortization of intangibles ...................................... 4,629 4,609 5,135
Other amortization ............................................... 4,139 3,740 1,044
Provision for losses on accounts receivable ...................... 2,956 9,489 4,185
Provision (credit) for deferred income taxes ..................... 16,310 (3,735) (8,995)
Net gain on sales of assets and subsidiaries ..................... (4,560) (3,334) (3,194)
Minority interest in subsidiary .................................. (1,359) (1,768) 1,297
Changes in operating assets and liabilities, net of acquisition:
Receivables ................................................... (7,646) 13,540 (23,795)
Inventories and prepaid expenses .............................. 28 3,165 3,529
Other assets .................................................. (8,826) 9,203 (11,751)
Accounts payable, bank drafts payable, taxes payable,
accrued expenses and other liabilities ...................... 10,865 (24,499) (47,514)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities ..................... 76,199 30,196 (66,224)
INVESTING ACTIVITIES
Purchases of property, plant and equipment
excluding capital leases .......................................... (11,645) (27,747) (49,690)
Proceeds from sales of subsidiaries.................................. 39,031 - -
Proceeds from asset sales ........................................... 37,340 65,313 15,748
Acquisition of WorldWay.............................................. - - (81,566)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES ....................... 64,726 37,566 (115,508)
FINANCING ACTIVITIES
Deferred financing costs and expenses ............................... (1,165) (3,512) (4,578)
Borrowings under revolving credit facilities ........................ 463,135 272,585 238,275
Borrowings under term loan facilities ............................... - - 75,000
Payments under revolving credit facilities .......................... (545,635) (288,285) (30,275)
Payments on long-term debt .......................................... (16,652) (24,704) (31,844)
Payment under term loan facilities .................................. (42,948) (34,052) -
Payments under receivables purchase agreement ....................... - - (40,000)
Dividends paid to minority shareholders of subsidiary ............... (330) (440) (462)
Dividends paid ...................................................... (4,298) (4,493) (5,079)
Net increase (decrease) in bank overdraft ........................... 13,801 - (5,989)
Other ............................................................... (2,057) 621 171
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES ....................... (136,149) (82,280) 195,219
- ---------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS .................................................... 4,776 (14,518) 13,487
Cash and cash equivalents at beginning of year ...................... 2,427 16,945 3,458
===========================================================================================================================
CASH AND CASH EQUIVALENTS AT END OF YEAR ............................... $ 7,203 $ 2,427 $ 16,945
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 25
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
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 transportation
operations, intermodal transportation operations, and truck tire retreading and
new tire sales (see Note P). Principal subsidiaries are ABF Freight System, Inc.
("ABF"); Treadco, Inc. ("Treadco"); Clipper Exxpress Company, CaroTrans
International, Inc. ("Clipper Worldwide") and related companies (collectively
"Clipper Group"); G.I. Trucking Company ("G.I. Trucking"); FleetNet America,
Inc. (formerly Carolina Breakdown Service, Inc.); and, until July 15, 1997,
Cardinal Freight Carriers, Inc. ("Cardinal").
Approximately 80% of ABF's employees are covered under a collective bargaining
agreement with the International Brotherhood of Teamsters ("IBT"), which expires
on March 31, 1998. On February 9, 1998, a tentative settlement on a new
five-year collective bargaining agreement was reached with the IBT. The
tentative settlement is subject to ratification by the IBT membership.
At December 31, 1997, 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>
<CAPTION>
TREADCO, INC.
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C>
Current assets ..................................................................... $ 55,644 $ 57,829
Property, plant and equipment, net ................................................. 31,329 33,186
Other assets ....................................................................... 13,485 14,401
- ---------------------------------------------------------------------------------------------------------------------------
Total assets................................................................... $ 100,458 $ 105,416
===========================================================================================================================
Current liabilities ................................................................ $ 28,372 $ 23,786
Long-term debt and other ........................................................... 13,251 19,682
Stockholders' equity ............................................................... 58,835 61,948
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity..................................... $ 100,458 $ 105,416
===========================================================================================================================
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
($ thousands)
Sales ........................................................... $ 161,276 $ 144,154 $ 147,906
Operating expenses and costs .................................... 163,785 149,337 142,920
Interest expense ................................................ 1,256 900 510
Other (income) expense ......................................... 112 (731) 374
Income taxes (credit) ........................................... (1,373) (2,093) 1,711
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) .......................................... $ (2,504) $ (3,259) $ 2,391
===========================================================================================================================
</TABLE>
<PAGE> 26
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
NOTE B - 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 Clipper Worldwide. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
Historically, credit losses have been within management's expectations.
INVENTORIES: Inventories, which consist primarily of new tires and retread tires
and supplies used in Treadco's business, are stated at the lower of cost
(first-in, first-out basis) or market.
PROPERTY, PLANT AND EQUIPMENT: Purchases of property, plant and equipment are
recorded at cost. For financial reporting purposes, such property is depreciated
principally by the straight-line method, using the following lives: structures
- -- 15 to 30 years; revenue equipment -- 3 to 7 years; manufacturing equipment --
5 to 12 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 C), 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 have been replaced by WorldWay
facilities. The Company recorded writedowns of $1.6 million in 1997, $1.5
million in 1996 and $2.1 million in 1995 to net realizable value for company
properties reclassified to assets held for sale. Writedowns are included in
gains or losses on sales of property.
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.
Total assets held for sale at December 31, 1996 were $9.1 million. In 1997,
additional assets of $6.1 million were identified and reclassified to assets
held for sale. During 1997, $10.3 million were sold, resulting in a loss of $1.9
million.
<PAGE> 27
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
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 will 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.
EARNINGS (LOSS) PER SHARE: The calculation of earnings (loss) per share is based
on the weighted average number of common (basic earnings per share) or common
equivalent shares outstanding (diluted earnings per share) 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, 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 M)
DERIVATIVE FINANCIAL INSTRUMENTS: The Company has, from time to time, entered
into interest-rate swap agreements and interest-rate cap agreements 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
<PAGE> 28
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
accounting method). Any related amount payable to or receivable from
counterparties is included in accrued liabilities or other receivables.
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.
RECLASSIFICATIONS: Certain reclassifications have been made to the prior year
financial statements to conform to the current year's presentation.
NOTE C - ACQUISITION
In August 1995, pursuant to a tender offer, a wholly owned subsidiary of the
Company purchased the outstanding shares of common stock of WorldWay Corporation
("WorldWay"), at a price of $11 per share (the "Acquisition"). WorldWay was a
publicly-held company engaged through subsidiaries in motor carrier operations.
The total purchase price of WorldWay amounted to approximately $76 million.
The WorldWay acquisition was accounted for under the purchase method. The
accompanying financial statements include the results of operations for WorldWay
and its subsidiaries from August 12, 1995. Assets with a fair value of
approximately $313 million were acquired and liabilities with a fair value of
approximately $252 million were assumed. Final purchase price allocations for
the WorldWay acquisition resulted in approximately $15 million of goodwill.
During 1997, this goodwill was eliminated as a result of the sale of Cardinal,
which had been assigned approximately $9 million of goodwill, and reductions in
deferred tax liabilities related to WorldWay.
NOTE D - DISCONTINUED OPERATIONS
As of June 30, 1997 and prior periods since 1995, the Company was engaged in
providing logistics services, including warehousing and distribution, through
two wholly owned subsidiaries, The Complete Logistics Company ("CLC") and
Integrated Distribution, Inc. ("IDI"). On August 8, 1997, the Company completed
the sale of all of the outstanding shares of CLC for approximately $2.5 million
in cash. The sale of CLC resulted in a pre-tax loss of $1.3 million. In
September 1997, the Company completed a formal plan to exit the logistics
segment by disposing of IDI. As of September 30, 1997, the Company recorded a
loss for the disposal of IDI of $2.2 million, net of tax benefits of $100,000.
On October 31, 1997, the Company closed the sale of IDI for proceeds of
approximately $600,000, subject to purchase price adjustments.
<PAGE> 29
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
Results of operations of the logistics segment have been reported as
discontinued operations for the year ended December 31, 1997 and the statements
of operations for all prior periods have been restated to remove the revenue and
expenses of the logistics segment. Results of the logistics operations segment
included in discontinued operations are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C> <C>
Revenues ........................................................ $ 29,812 $ 54,849 $ 31,699
Operating loss................................................... (3,516) (2,835) (2,599)
Pre-tax loss .................................................... (4,005) (3,749) (3,252)
</TABLE>
The balance sheet at December 31, 1996, has been reclassified to include net
assets of discontinued operations of approximately $3.5 million in other
noncurrent assets.
NOTE E - SALE OF CARDINAL FREIGHT CARRIERS, INC.
On July 15, 1997, the Company sold Cardinal for approximately $38 million in
cash. The sale resulted in a pre-tax gain of approximately $9 million. The net
proceeds from the sale were used to pay down bank debt. Results of operations
for Cardinal included in the statements of operations are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C> <C>
Revenues ........................................................ $ 39,366 $ 74,623 $ 27,992
Operating income ............................................... 2,087 4,388 3,040
Pre-tax income ................................................. 1,710 3,585 2,614
</TABLE>
NOTE F - RECENT ACCOUNTING PRONOUNCEMENTS
In December 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, Earnings Per Share. Under the new requirements for computing
basic earnings per share, the dilutive effect of stock options is excluded. The
dilutive effect of common stock equivalents is included in the calculation of
diluted earnings per share under SFAS No. 128. The new statement has been
applied retroactively. The effect of adoption is not material.
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income.
The Statement requires the classification components of other comprehensive
income by their nature in a financial statement and display of the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid in capital in the consolidated financial statements. The
Statement is effective for the Company in 1998. The Company does not anticipate
that adoption of this Statement will have a material impact on the current
presentation of its financial statements.
<PAGE> 30
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments of
an Enterprise and Related Information. The Statement changes the way public
companies report segment information in annual financial statements and also
requires those companies to report selected segment information in interim
financial reports to shareholders. The proposal superseded FASB Statement No. 14
on segments.
The Statement is effective for the Company in 1998. The Company is currently
evaluating the impact that the Statement will have on its business segment
reporting.
NOTE G - INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C>
Finished goods...................................................................... $ 22,392 $ 24,029
Materials........................................................................... 4,934 6,267
Repair parts, supplies and other.................................................... 3,359 3,515
- ---------------------------------------------------------------------------------------------------------------------------
$ 30,685 $ 33,811
===========================================================================================================================
</TABLE>
NOTE H - 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
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C>
Deferred tax liabilities:
Depreciation and basis differences
for property, plant and equipment............................................. $ 32,208 $ 44,058
Revenue recognition.............................................................. 3,360 1,405
Basis difference on asset and stock sale......................................... 3,313 3,281
Prepaid expenses................................................................. 5,173 4,135
Other ........................................................................... 3,351 1,330
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities............................................... 47,405 54,209
Deferred tax assets:
Accrued expenses................................................................. 18,586 19,946
Postretirement benefits other than pensions...................................... 1,216 1,663
Net operating loss carryovers.................................................... 9,204 21,597
Alternative minimum tax credit carryovers........................................ 1,825 5,629
Other............................................................................ 310 558
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets.................................................... 31,141 49,393
Valuation allowance for deferred tax assets...................................... (2,600) (1,173)
- ---------------------------------------------------------------------------------------------------------------------------
Net deferred tax assets...................................................... 28,541 48,220
- ---------------------------------------------------------------------------------------------------------------------------
Net deferred tax liabilities........................................................ $ 18,864 $ 5,989
===========================================================================================================================
</TABLE>
<PAGE> 31
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
($ thousands)
Current (credit):
<S> <C> <C> <C>
Federal.................................................... $ 1,913 $ (15,016) $ (4,011)
State...................................................... 1,166 - -
- ---------------------------------------------------------------------------------------------------------------------------
Total current (credit).................................. 3,079 (15,016) (4,011)
Deferred (credit):
Federal.................................................... 14,793 (1,149) (6,863)
State...................................................... 1,517 (2,617) (2,051)
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred (credit)................................. 16,310 (3,766) (8,914)
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax expense (credit)............................. $ 19,389 $ (18,782) $ (12,925)
===========================================================================================================================
</TABLE>
A reconciliation between the effective income tax rate, as computed on income
from continuing operations, and the statutory federal income tax rate is
presented in the following table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
($ thousands)
Income tax (benefit) at the
<S> <C> <C> <C> <C>
statutory federal rate of 35%............................. $ 14,125 $ (18,546) $ (15,307)
Federal income tax effects of:
State income taxes ..................................... (941) 913 720
Nondeductible goodwill ................................ 1,262 2,548 1,680
Other nondeductible expenses............................ 555 1,389 1,398
Minority interest ...................................... (476) (619) 454
Undistributed earnings or losses of Treadco ............ (80) (99) 77
Nondeductible goodwill included
in assets of Cardinal ................................ 3,078 - -
Resolution of tax contingencies......................... - (1,573) -
Other................................................... (817) (178) 104
- ---------------------------------------------------------------------------------------------------------------------------
Federal income taxes (benefit)............................. 16,706 (16,165) (10,874)
State income taxes (benefit)............................... 2,683 (2,617) (2,051)
- ---------------------------------------------------------------------------------------------------------------------------
$ 19,389 $ (18,782) $ (12,925)
===========================================================================================================================
Effective tax rate......................................... 48.0% (35.5)% (29.6)%
===========================================================================================================================
</TABLE>
Income taxes of $2,400,000 were paid in 1997. No income taxes were paid in 1996,
and $9,900,000 was paid in 1995. Income tax refunds amounted to $8,500,000 in
1997 and $28,825,000 in 1996.
As of December 31, 1997, the Company had state net operating loss carryovers of
$87,000,000. State net operating loss carryovers expire generally in five to ten
years. The Company had alternative minimum tax credits of approximately
$1,825,000 at December 31, 1997 which carry over indefinitely.
<PAGE> 32
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
For financial reporting purposes, a valuation allowance of approximately
$2,600,000 has been established for certain state net operating loss carryovers
for which realization is uncertain. During 1997, the Company evaluated its
previous estimates of state net operating losses. As a result of this process,
available state net operating losses were determined by the Company to be
greater than previously estimated by $25,000,000. Because substantially all of
these additional state net operating losses are in subsidiaries in which
realization of the benefits of carryovers is uncertain, the Company increased
its valuation allowance by $1,487,000.
NOTE I - LONG-TERM DEBT AND CREDIT AGREEMENTS
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C>
Revolving Credit and Term Loan Facility (1).......................................... $ 110,800 $ 227,948
Subordinated Debentures (2).......................................................... 42,657 44,855
Corporate Facility Credit Agreement (3).............................................. 13,000 15,000
Treadco Credit Agreement (4)......................................................... 4,000 10,300
Capitalized Lease Obligations (5).................................................... 41,809 52,511
Other ............................................................................... 6,822 4,457
- ---------------------------------------------------------------------------------------------------------------------------
219,088 355,071
Less current portion................................................................. 16,484 37,197
- ---------------------------------------------------------------------------------------------------------------------------
$ 202,604 $ 317,874
===========================================================================================================================
</TABLE>
(1) The Company is party to a 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 11 other
participating banks. The Credit Agreement provides for up to $275 million
of revolving credit loans (including letters of credit). Revolving Credit
advances bear interest at variable rates determined under the Credit
Agreement. At December 31, 1997, the average interest rate on the Credit
Agreement was 7.2%.
At December 31, 1997, there were $111 million of Revolver Advances and
approximately $19.8 million of outstanding 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 in outstanding letters of
credit. Term advances were paid in 1997. 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 borrowing base amounted to $275 million at
December 31, 1997. The Company has pledged substantially all accounts
receivable, revenue equipment, real property and other assets not already
pledged under other debt obligations. The Credit Agreement, which was
originally scheduled to terminate in 1998, was extended during 1997 to
August, 1999.
<PAGE> 33
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
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, 1997, the
Company was in compliance with all covenants.
(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 $44,883,000 at December 31, 1997. The debentures are payable
April 15, 2011. The Company may redeem all outstanding debentures at 100%
of par at any time and is required to redeem through a mandatory sinking
fund 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.
In November, 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.
In November and December, 1997, the Company purchased debentures with a
par value of $300,000 and $2,181,000, respectively, at purchase prices of
$232,500 and $1,798,500, respectively plus accrued interest. These
debentures were transferred to the Trustee to satisfy the mandatory
sinking fund payment due by April 15, 1998.
(3) The Company entered into a ten-year, $20 million corporate facility credit
agreement dated 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%, with quarterly 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 Treadco accounts
receivable and inventory. Borrowings under the agreement bear interest at
a variable rate based on the terms of the Treadco Credit Agreement. At
December 31, 1997, Treadco had $4.0 million outstanding under the
Revolving Credit Agreement. The average interest rate during 1997 was
7.9%. The Treadco Credit Agreement was amended and restated on September
30, 1997, primarily to extend the termination date until September 30,
2001, to revise certain financial covenants and to revise Treadco's
interest rate on advances. As of December 31, 1997, Treadco was in
compliance with the covenants.
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.
<PAGE> 34
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
(5) Includes approximately $34,538,000 relative to leases of carrier revenue
equipment with an aggregate net book value of approximately $35,179,000 at
December 31, 1997. These leases have a weighted average interest rate of
approximately 6.7%. Also includes approximately $7,271,000 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 6.8%. The net book value
of the related assets was approximately $15,067,000 at December 31, 1997.
Annual maturities on long-term debt, excluding capitalized lease obligations
(see Note L), in 1998 through 2002 aggregate approximately $3,523,000;
$116,691,000; $5,973,000; $9,702,000 and $4,786,000, respectively.
Interest paid, net of interest capitalized, was $24,564,000 in 1997, $32,174,000
in 1996, and $21,986,000 in 1995. Interest capitalized totaled $487,000 and
$230,000 in 1996 and 1995, respectively.
The Company is a party to an interest rate cap arrangement to reduce the impact
of increases in interest rates on its variable-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 $20 million as of December 31, 1997 to $2.5 million as of
October 1999. As of December 31, 1997, 1996 and 1995, the LIBOR rates were 5.8%,
5.5% and 5.5%, 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.
In February 1998, the Company entered into an interest rate swap effective April
1, 1998, on a notional amount of $110 million. The purpose of the swap was to
limit the Company's exposure to increases in interest rates from current levels
on $110 million of bank borrowings over the seven-year term of the swap. The
interest rate under the swap will be 5.845% plus the Credit Agreement margin
(currently 1%).
<TABLE>
<CAPTION>
NOTE J - ACCRUED EXPENSES
DECEMBER 31
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C>
Accrued salaries, wages and incentive plans ........................................ $ 19,726 $ 16,519
Accrued vacation pay ............................................................... 31,241 31,449
Accrued interest ................................................................... 2,568 3,154
Taxes other than income ............................................................ 8,017 8,541
Loss, injury, damage and workers' compensation claims reserves ..................... 83,272 101,453
Pension costs ...................................................................... 502 5,851
Other .............................................................................. 12,296 12,951
- ---------------------------------------------------------------------------------------------------------------------------
$ 157,622 $ 179,918
===========================================================================================================================
</TABLE>
<PAGE> 35
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
NOTE K - 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 1997, 1996 and 1995.
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 the 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 option 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.
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 1997, 1996 and 1995, respectively: risk-free interest rates of
6.7%, 5.8% and 7.3%; dividend yields of .01%, .01% and .01%; volatility factors
of the expected market price of the Company's Common Stock of .45, .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 employee stock options.
<PAGE> 36
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
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>
DECEMBER 31
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss) - as reported .................................................. $ 15,347 $ (36,603)
===========================================================================================================================
Net income (loss) - pro forma .................................................... $ 14,693 $ (37,379)
===========================================================================================================================
Net income (loss) per share - as reported (basic) ................................ $ .56 $ (2.10)
===========================================================================================================================
Net income (loss) per share - as reported (diluted) .............................. $ .56 $ (2.10)
===========================================================================================================================
Net income (loss) per share - pro forma (basic) .................................. $ .53 $ (2.14)
===========================================================================================================================
Net income (loss) per share - pro forma (diluted) ................................ $ .52 $ (2.14)
===========================================================================================================================
</TABLE>
A summary of the Company's stock option activity and related information for the
years ended December 31 follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
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 .......... 1,790,200 $ 8.21 688,700 $ 11.05 628,900 $ 10.95
Granted .................................. 312,000 5.44 1,101,500 6.44 75,500 11.84
Exercised ............................... (91,740) 6.38 - - (15,700) 10.88
Forfeited ................................ (170,980) 6.38 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding - end of year................ 1,839,480 $ 8.01 1,790,200 $ 8.21 688,700 $ 11.05
====================================================================================================================================
Exercisable at end of year............... 781,776 $ 9.99 476,280 $ 10.92 338,540 $ 10.87
====================================================================================================================================
Estimated weighted-average
fair value per share of options
granted to employees during the year... $ 3.65 $ 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>
$4 - $6 288,000 9.2 $ 5.08 - $ -
$6 - $8 816,280 8.1 $ 6.41 163,256 $ 6.41
$8 - $10 80,500 6.6 $ 9.18 42,700 $ 9.40
$10 - $12 545,000 4.8 $ 10.88 521,000 $ 10.88
$12 - $14 109,700 6.6 $ 12.64 54,820 $ 12.65
- ---------------------------------------------------------------------------------------------------------------------------
1,839,480 781,776
===========================================================================================================================
</TABLE>
<PAGE> 37
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
SHAREHOLDERS' RIGHTS PLAN. Each issued and outstanding share of Common Stock has
associated with it one Common Stock right to purchase a share of Common Stock
from the Company at a price of $60.00. The rights are not exercisable, but could
become exercisable if certain events occur relating to the acquisition of 15% or
more of the outstanding Common Stock of the Company. Upon distribution, the
rights will entitle holders, other than an acquirer in a non-permitted
transaction, to receive Common Stock with a market value of two times the
exercise price of the right. The rights will expire in 2002 unless extended.
NOTE L - LEASES AND COMMITMENTS
Rental expense amounted to approximately $122,542,000 in 1997, $114,600,000 in
1996 and $84,751,000 in 1995. Those amounts included purchased transportation
and amounts for month-to-month rentals of revenue equipment.
The future minimum rental commitments, net of future minimum rentals to be
received under noncancellable subleases, as of December 31, 1997 for all
noncancellable operating leases are as follows:
<TABLE>
<CAPTION>
TERMINALS EQUIPMENT
AND RETREAD AND
PERIOD TOTAL PLANTS OTHER
- ---------------------------------------------------------------------------------------------------------------------------
($ THOUSANDS)
<S> <C> <C> <C>
1998 .................................................. $ 26,594 $ 10,092 $ 16,502
1999 .................................................. 14,066 7,000 7,066
2000 .................................................. 8,460 5,052 3,408
2001 .................................................. 4,938 3,967 971
2002 ................................................... 3,366 3,072 294
Thereafter ............................................. 7,350 7,326 24
- ---------------------------------------------------------------------------------------------------------------------------
$ 64,774 $ 36,509 $ 28,265
===========================================================================================================================
</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 $2,097,000 at December 31, 1997.
The future minimum payments under capitalized leases at December 31, 1997,
consisted of the following ($ thousands):
<TABLE>
<S> <C>
1998 ......................................................................... $ 15,447
1999 ......................................................................... 13,320
2000 ......................................................................... 9,344
2001 ......................................................................... 4,953
2002 ......................................................................... 2,677
Thereafter .................................................................... 1,905
- -------------------------------------------------------------------------------------------------------------
Total minimum lease payments .................................................. 47,646
Amounts representing interest ................................................. 5,837
- -------------------------------------------------------------------------------------------------------------
Present value of net minimum lease
included in long-term debt - Note I .......................................... $ 41,809
=============================================================================================================
</TABLE>
<PAGE> 38
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
Assets held under capitalized leases are included in property, plant and
equipment as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C>
Revenue equipment ............................................................... $ 68,854 $ 70,747
Land and structures ............................................................. 12,754 13,723
- ---------------------------------------------------------------------------------------------------------------------------
81,608 84,470
Less accumulated amortization ................................................... 31,362 26,155
- ---------------------------------------------------------------------------------------------------------------------------
$ 50,246 $ 58,315
===========================================================================================================================
</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 $ 2,584,000, $6,470,000, and $25,118,000 were
incurred for the years ended December 31, 1997, 1996 and 1995, respectively.
NOTE M - LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS AND OTHER EVENTS
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, cash flows or
results of operations. The Company maintains liability insurance against risks
arising out of the normal course of its business, subject to certain
self-insured retention limits.
The Company's subsidiaries store some fuel for their tractors and trucks in
approximately 114 underground tanks located in 30 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, 1997, 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
<PAGE> 39
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
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
had 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. The arbitration hearing is expected to be held in 1998.
NOTE N - 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, but which would be material.
<PAGE> 40
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
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
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
($ thousands)
Defined Benefit Plans
<S> <C> <C> <C>
Service cost - benefits earned during the year................. $ 7,761 $ 8,025 $ 5,075
Interest cost on projected benefit obligations................. 10,483 11,028 8,095
Actual return on plan assets (gain) loss....................... (33,418) (17,324) (25,632)
Net amortization and deferral.................................. 19,787 4,765 17,906
- ---------------------------------------------------------------------------------------------------------------------------
Net pension cost of defined benefit plans................... 4,613 6,494 5,444
Multiemployer Plans............................................... 65,237 60,930 51,951
- ---------------------------------------------------------------------------------------------------------------------------
Total pension expense.......................................... $ 69,850 $ 67,424 $ 57,395
===========================================================================================================================
</TABLE>
Assumptions used in determining net periodic pension cost for the defined
benefit plans were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average discount rate.................................... 7.50% 7.10% 7.80% to 8.73%
Annual compensation increases..................................... 3.00% TO 4.00% 3.00% 3.00%
Expected long-term rates of return on assets...................... 9.00% TO 9.40% 8.00% to 9.00% 8.00% to 9.00%
</TABLE>
The following sets forth the funded status and amounts recognized in the
consolidated balance sheets for the Company's defined benefit pension plans at
December 31:
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
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)
Actuarial present value of benefit obligations:
<S> <C> <C> <C> <C>
Vested benefit obligation..................... $ (121,867) $ (2,444) $ (95,853) $ (22,891)
===================================================================================================================================
Accumulated benefit obligation................ $ (133,157) $ (3,100) $ (104,475) $ (24,282)
===================================================================================================================================
Projected benefit obligation ..................... $ (151,952) $ (3,685) $ (121,132) $ (24,941)
Plan assets at fair value ........................ 171,413 3,589 137,093 21,399
- -----------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation (in excess of)
or less than plan assets ...................... 19,461 (96) 15,961 (3,542)
Unrecognized net loss ............................ 84 306 7,460 933
Prior service benefit not yet recognized
in net periodic pension cost .................. 1,149 31 757 524
Unrecognized net asset at January 1, 1987,
net of amortization ............................ (55) (2) (59) (3)
Adjustment required to recognize
minimum liability .............................. - (40) - (796)
- -----------------------------------------------------------------------------------------------------------------------------------
Net pension asset (liability) .................... $ 20,639 $ 199 $ 24,119 $ (2,884)
===================================================================================================================================
</TABLE>
<PAGE> 41
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
On December 31, 1997, the net pension asset is reflected in the accompanying
financial statements as an accrued liability of $502,000 and a noncurrent asset
of $21,340,000 included in other assets.
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.
The following assumptions were used in determining the pension obligation:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Weighted average discount rate ........................................................ 7.03% 7.50%
Annual compensation increases.......................................................... 3.00% TO 4.00% 3.00%
</TABLE>
The Company has deferred compensation agreements with certain executives for
which liabilities aggregating $1,991,000 and $1,565,000 as of December 31, 1997
and 1996, 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,
1997 and 1996, the Company has a liability of $2,553,000 and $2,692,000,
respectively, for future costs under this plan reflected in the accompanying
consolidated financial statements in other liabilities.
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 $6,278,000 and $6,641,000 as of December 31, 1997 and
1996, respectively, for future costs under this plan reflected as other
liabilities in the accompanying consolidated financial statements. The Company
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. 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 1997. 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 $1,253,000 for 1997,
$1,431,000 for 1996 and $1,412,000 for 1995.
The Company sponsors plans that provide supplemental postretirement medical
benefits, life insurance and accident and vision care to full-time officers of
the Company. The plans are noncontributory, with the Company paying up to 80% of
covered charges incurred by participants of the plan.
<PAGE> 42
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
The following table represents the amounts recognized in the Company's
consolidated balance sheets:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
($ thousands)
Accumulated postretirement benefit obligation:
<S> <C> <C>
Retirees.......................................................................... $ (2,497) $ (2,606)
Fully eligible active plan participants........................................... (2,227) (1,301)
Other active plan participants.................................................... (1,810) (1,626)
- ---------------------------------------------------------------------------------------------------------------------------
(6,534) (5,533)
Unrecognized net (gain) loss ........................................................ 1,023 (68)
Unrecognized prior service cost ..................................................... 951 1,082
Unrecognized transition obligation................................................... 2,018 2,153
- ---------------------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit cost.................................................. $ (2,542) $ (2,366)
===========================================================================================================================
</TABLE>
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C> <C>
Service cost ...................................................... $ 142 $ 68 $ 51
Interest cost ...................................................... 361 321 282
Amortization of transition obligation over 20 years................. 135 135 135
Amortization of net gain ........................................... (69) (35) -
Amortization of prior service cost ................................. 131 - -
- ---------------------------------------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost............................ $ 700 $ 489 $ 468
===========================================================================================================================
</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 1998 and 1997 and
is assumed to decrease gradually to 4.5% to 5.0% 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, 1997, by $993,000 and the aggregate of the service
and interest cost components of net periodic postretirement benefit cost for
1997 by $81,000.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.03% at December 31, 1997 and 7.5% at
December 31, 1996.
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 $67,031,000, $72,397,000 and $63,500,000 for the years
ended December 31, 1997, 1996, and 1995, respectively.
In October 1995, the Company adopted a performance award program. Upon award,
the units will be valued equal to the closing price per share of the Company's
common stock on the date awarded. The vesting provisions and the return on
equity target will be set upon award. No awards have been granted under this
program.
<PAGE> 43
<TABLE>
<CAPTION>
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- ---------------------------------------------------------------------------------------------------------------------------
NOTE O - OPERATING EXPENSES AND COSTS
YEAR ENDED DECEMBER 31
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
($ thousands)
LESS-THAN-TRUCKLOAD
MOTOR CARRIER OPERATIONS
<S> <C> <C> <C>
Salaries and wages............................................ $ 820,299 $ 832,474 $ 779,453
Supplies and expenses......................................... 124,591 130,330 120,439
Operating taxes and licenses ................................. 42,045 47,552 45,906
Insurance .................................................... 24,237 28,393 24,122
Communications and utilities ................................. 28,457 29,897 26,776
Depreciation and amortization ................................ 32,274 41,755 37,822
Rents and purchased transportation ........................... 113,374 95,169 76,823
Other......................................................... 8,379 12,296 8,219
(Gain) on sale of carrier operating property.................. (2,278) (1,468) (2,938)
- ---------------------------------------------------------------------------------------------------------------------------
1,191,378 1,216,398 1,116,622
TRUCKLOAD MOTOR CARRIER OPERATIONS
Salaries and wages ........................................... 14,319 27,483 9,746
Supplies and expenses......................................... 7,257 13,552 4,530
Operating taxes and licenses ................................. 3,543 7,060 2,571
Insurance .................................................... 1,677 2,208 980
Communications and utilities ................................. 589 1,038 420
Depreciation and amortization ................................ 1,911 3,580 1,249
Rents and purchased transportation ........................... 7,741 14,880 5,348
Other ........................................................ 274 434 108
Loss on sale of carrier operating property ................... 2 13 -
- ---------------------------------------------------------------------------------------------------------------------------
37,313 70,248 24,952
INTERMODAL OPERATIONS
Cost of services ............................................. 152,061 151,799 117,455
Selling, administrative and general .......................... 27,892 27,658 18,711
(Gain) on sale of carrier operating property ................. - (21) -
- ---------------------------------------------------------------------------------------------------------------------------
179,953 179,436 136,166
TIRE OPERATIONS
Cost of sales ................................................ 117,373 109,673 108,686
Selling, administrative and general .......................... 44,423 37,491 31,642
- ---------------------------------------------------------------------------------------------------------------------------
161,796 147,164 140,328
SERVICE AND OTHER ............................................... 10,330 9,097 5,433
- ---------------------------------------------------------------------------------------------------------------------------
$ 1,580,770 $ 1,622,343 $ 1,423,501
===========================================================================================================================
</TABLE>
<PAGE> 44
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
NOTE P - BUSINESS SEGMENT DATA
The Company operates in three defined business segments: 1) Motor carrier, which
includes LTL operations conducted by ABF and G.I. Trucking, and truckload
operations which were conducted primarily by Cardinal, which was sold in July
1997; 2) Intermodal operations, which includes the Clipper Group including
CaroTrans; 3) Tire operations which includes the operation of Treadco. The
segment information for 1996 and 1995 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 reflects selected business segment information:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
($ thousands)
OPERATING REVENUES
<S> <C> <C> <C>
LTL motor carrier operations ..................................... $ 1,253,691 $ 1,199,437 $ 1,088,416
Truckload motor carrier operations ............................... 39,366 74,623 27,992
- ---------------------------------------------------------------------------------------------------------------------------
Total for motor carrier operations ............................... 1,293,057 1,274,060 1,116,408
Intermodal operations ............................................ 181,929 180,619 140,691
Tire operations .................................................. 158,912 141,613 145,127
Service and other ................................................ 9,780 8,043 3,354
- ---------------------------------------------------------------------------------------------------------------------------
$ 1,643,678 $ 1,604,335 $ 1,405,580
===========================================================================================================================
OPERATING PROFIT (LOSS)
LTL motor carrier operations...................................... $ 56,268 $ (18,160) $ (32,915)
Truckload motor carrier operations................................ 2,050 4,371 3,031
- ---------------------------------------------------------------------------------------------------------------------------
Total motor carrier operations.................................... 58,318 (13,789) (29,884)
Intermodal operations ............................................ 125 (546) 2,820
Tire operations................................................... (2,996) (4,821) 4,424
Service and other................................................. (1,455) (4,757) (3,446)
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING PROFIT (LOSS) ....................................... 53,992 (23,913) (26,086)
GAIN ON SALE OF CARDINAL FREIGHT CARRIERS, INC. ..................... 8,985 - -
INTEREST EXPENSE..................................................... 23,978 30,844 16,352
MINORITY INTEREST.................................................... (1,359) (1,768) 1,297
- ---------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES.................................... $ 40,358 $ (52,989) $ (43,735)
===========================================================================================================================
IDENTIFIABLE ASSETS
LTL motor carrier operations...................................... $ 470,387 $ 520,644 $ 675,412
Truckload motor carrier operations................................ - 37,566 31,365
- ---------------------------------------------------------------------------------------------------------------------------
Total motor carrier operations ................................... 470,387 558,210 706,777
Intermodal operations............................................. 72,758 74,549 75,754
Tire operations................................................... 101,806 108,058 94,658
Other ............................................................ 19,148 42,596 37,416
- ---------------------------------------------------------------------------------------------------------------------------
664,099 783,413 914,605
- ---------------------------------------------------------------------------------------------------------------------------
General corporate assets.......................................... 34,240 44,768 47,572
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS......................................................... $ 698,339 $ 828,181 $ 962,177
===========================================================================================================================
</TABLE>
<PAGE> 45
<TABLE>
<CAPTION>
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
($ THOUSANDS)
DEPRECIATION AND AMORTIZATION EXPENSE
<S> <C> <C> <C>
LTL motor carrier operations................................ $ 34,779 $ 44,640 $ 40,045
Truckload motor carrier..................................... 1,911 3,574 1,249
- ---------------------------------------------------------------------------------------------------------------------------
Total motor carrier operations ............................. 36,690 48,214 41,294
Intermodal operations....................................... 2,963 3,079 2,779
Tire operations............................................. 6,266 5,315 4,082
Other....................................................... 7,165 8,130 4,651
- ---------------------------------------------------------------------------------------------------------------------------
$ 53,084 $ 64,738 $ 52,806
===========================================================================================================================
CAPITAL EXPENDITURES
LTL motor carrier operations................................ $ 7,830 $ 14,105 $ 61,250
Truckload motor carrier operations.......................... 652 838 2,127
- ---------------------------------------------------------------------------------------------------------------------------
Total motor carrier operations ............................. 8,482 14,943 63,377
Intermodal operations....................................... 186 374 426
Tire operations............................................. 4,409 23,082 5,429
Other....................................................... 1,059 3,200 5,576
- ---------------------------------------------------------------------------------------------------------------------------
$ 14,136 $ 41,599 $ 74,808
===========================================================================================================================
</TABLE>
NOTE Q - 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 corporate facility credit agreement which are estimated using current market
rates.
The carrying amounts and fair value of the Company's financial instruments at
December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents.............................. $ 7,203 $ 7,203 $ 2,427 $ 2,427
Short-term debt........................................ $ 3,431 $ 2,794 $ 25,778 $ 25,731
Long-term debt......................................... $ 173,847 $ 165,889 $ 281,318 $ 276,811
</TABLE>
<PAGE> 46
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
NOTE R - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
NUMERATOR:
Numerator for basic earnings per share --
<S> <C> <C> <C>
Net income (loss) .................................... $ 15,347 $ (36,603) $ (32,792)
Preferred stock dividends ............................ (4,298) (4,298) (4,298)
- ---------------------------------------------------------------------------------------------------------------------------
Numerator for basic earnings per share --
net income (loss) available to
common shareholders .................................. 11,049 (40,901) (37,090)
Effect of dilutive securities ........................... - - -
- ---------------------------------------------------------------------------------------------------------------------------
Numerator for diluted earnings per share --
net income (loss) available to
common shareholders .................................. $ 11,049 $ (40,901) $ (37,090)
===========================================================================================================================
DENOMINATOR:
Denominator for basic earnings per
share -- weighted-average shares ...................... 19,540,118 19,510,589 19,520,756
Effect of dilutive securities:
Employee stock options ................................ 260,849 - -
- ---------------------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per
share -- adjusted weighted-average
shares and assumed conversions........................ 19,800,967 19,510,589 19,520,756
===========================================================================================================================
EARNINGS (LOSS) PER COMMON SHARE
BASIC:
Continuing operations .................................. $ 0.85 $ (1.98) $ (1.80)
Discontinued operations ................................. (0.29) (0.12) (0.10)
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE ................................ $ 0.56 $ (2.10) $ (1.90)
- ---------------------------------------------------------------------------------------------------------------------------
AVERAGE COMMON SHARES
OUTSTANDING (BASIC) ................................... 19,540,118 19,510,589 19,520,756
===========================================================================================================================
DILUTED:
Continuing operations .................................. $ 0.84 $ (1.98) $ (1.80)
Discontinued operations.................................. (0.28) (0.12) (0.10)
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE ................................ $ 0.56 $ (2.10) $ (1.90)
- ---------------------------------------------------------------------------------------------------------------------------
AVERAGE COMMON SHARES
OUTSTANDING (DILUTED): .................................. 19,800,967 19,510,589 19,520,756
===========================================================================================================================
CASH DIVIDENDS PAID PER COMMON SHARE ....................... $ - $ .01 $ .04
===========================================================================================================================
</TABLE>
<PAGE> 47
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
NOTE S - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The tables below present unaudited quarterly financial information for 1997 and
1996:
<TABLE>
<CAPTION>
1997
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ----------------------------------------------------------------------------------------------------------------------------------
($ thousands, except per share data)
<S> <C> <C> <C> <C>
Operating revenues ................................. $ 394,613 $ 423,680 $ 425,289 $ 400,096
Operating expenses and costs ....................... 385,663 403,286 403,641 388,180
- ---------------------------------------------------------------------- -----------------------------------------------------------
Operating income .................................. 8,950 20,394 21,648 11,916
Other expense - net ................................ (8,514) (9,188) (991) (3,857)
Income taxes (credit) .............................. (144) 4,930 11,399 3,204
- ---------------------------------------------------------------------- -----------------------------------------------------------
Income from continuing operations ................. 580 6,276 9,258 4,855
Loss from discontinued operations .................. (898) (1,268) (3,456) -
- ---------------------------------------------------------------------- -----------------------------------------------------------
Net income (loss) .................................. $ (318) $ 5,008 $ 5,802 $ 4,855
====================================================================== ===========================================================
Earnings (loss) per common share, basic: (1)
Continuing operations .......................... (.03) .27 .42 .19
Discontinued operations ........................ (.04) (.07) (.18) -
- ---------------------------------------------------------------------- -----------------------------------------------------------
Net income per share ............................... $ (.07) $ .20 $ .24 $ .19
- ----------------------------------------------------------------------------------------------------------------------------------
Average shares outstanding ......................... 19,504,473 19,504,473 19,556,633 19,594,880
====================================================================== ===========================================================
Earnings (loss) per common share, diluted: (2)
Continuing operations .......................... (.03) .26 .39 .19
Discontinued operations ........................ (.04) (.06) (.15) -
- ---------------------------------------------------------------------- -----------------------------------------------------------
Net income per share ............................... $ (.07) $ .20 $ .24 $ .19
- --------------------------------------------------------------------------------
Average shares outstanding ......................... 19,506,821 19,570,220 23,824,477 20,099,304
====================================================================== ===========================================================
</TABLE>
<TABLE>
<CAPTION>
1996
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ---------------------------------------------------------------------- -----------------------------------------------------------
($ thousands, except per share data)
<S> <C> <C> <C> <C>
Operating revenues ................................. $ 388,144 $ 400,218 $ 414,506 $ 401,467
Operating expenses and costs ....................... 396,129 405,675 416,747 403,792
- ---------------------------------------------------------------------- -----------------------------------------------------------
Operating loss ..................................... (7,985) (5,457) (2,241) (2,325)
Other expense - net ............................... (6,020) (8,248) (9,004) (11,709)
Income taxes (credit) .............................. (4,982) (5,222) (3,589) (4,989)
- ---------------------------------------------------------------------- -----------------------------------------------------------
Loss from continuing operations .................... (9,023) (8,483) (7,656) (9,045)
Loss from discontinued operations .................. (537) (302) (830) (727)
- ---------------------------------------------------------------------- -----------------------------------------------------------
Net loss ........................................... $ (9,560) $ (8,785) $ (8,486) $ (9,772)
====================================================================== ===========================================================
Loss per common share: basic and diluted: (1)
Continuing operations .......................... (0.52) (0.49) (0.45) (0.52)
Discontinued operations ........................ (0.02) (0.02) (0.04) (0.04)
- ---------------------------------------------------------------------- -----------------------------------------------------------
Net loss per share ................................. $ (0.54) $ (0.51) $ (0.49) $ (0.56)
- ----------------------------------------------------------------------------------------------------------------------------------
Average shares outstanding.......................... 19,516,539 19,512,367 19,508,620 19,504,830
====================================================================== ===========================================================
</TABLE>
(1) Gives consideration to preferred stock dividends of $1.1 million per
quarter.
(2) In the first, second and fourth quarters, consideration is given to
preferred stock dividends of $1.1 million per quarter. In the third
quarter, conversion of preferred shares into common is assumed. Conversion
would be anti-dilutive for all other periods presented.
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARY CORPORATIONS
ARKANSAS BEST CORPORATION
The Registrant owns and controls the following subsidiary corporations:
<TABLE>
<CAPTION>
JURISDICTION OF % OF VOTING
NAME INCORPORATION SECURITIES OWNED
- -------------------------------------------------------------------------------------------------------------
SUBSIDIARIES OF ARKANSAS BEST CORPORATION:
<S> <C> <C>
ABF Freight System, Inc. Delaware 100
Treadco, Inc. Delaware 45.7
Transport Realty, Inc. Arkansas 100
Data-Tronics Corp. Arkansas 100
ABF Cartage, Inc. Delaware 100
Land-Marine Cargo, Inc. Puerto Rico 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
G.I. Trucking Company California 100
CaroTrans International, Inc. North Carolina 100
Motor Carrier Insurance, Ltd. Bermuda 100
FleetNet America, Inc. North Carolina 100
Subsidiary of ABF Freight System, Inc.:
ABF Freight System (B.C.), Ltd. British Columbia 100
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Arkansas Best Corporation of our report dated January 28, 1998, included in
the 1997 Annual Report to Stockholders.
Our audit also included the financial statement schedule of Arkansas Best
Corporation listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-31475) pertaining to the Arkansas Best Corporation Stock
Option Plan, the Registration Statement (Form S-8 No. 33-66694), pertaining to
the Arkansas Best Corporation Disinterested Director Stockholder Plan and the
Registration Statement (Form S-8, No. 33-52877), pertaining to the Arkansas Best
Corporation Employees' Investment Plan, with respect to the consolidated
financial statements incorporated herein by reference, and our report included
in the preceding paragraph with respect to the financial statement schedule
included in this Annual Report (Form 10-K) of Arkansas Best Corporation for the
year ended December 31, 1997.
Ernst & Young LLP
Little Rock, Arkansas
March 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the Arkansas
Best Corporation Annual Report on Form 10-K for the year ended December 31, 1997
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-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 7,203
<SECURITIES> 0
<RECEIVABLES> 175,693
<ALLOWANCES> 7,603
<INVENTORY> 30,685
<CURRENT-ASSETS> 236,896
<PP&E> 511,088
<DEPRECIATION> 225,733
<TOTAL-ASSETS> 698,339
<CURRENT-LIABILITIES> 267,704
<BONDS> 202,604
0
15
<COMMON> 196
<OTHER-SE> 148,851
<TOTAL-LIABILITY-AND-EQUITY> 698,339
<SALES> 158,912
<TOTAL-REVENUES> 1,643,678
<CGS> 117,373
<TOTAL-COSTS> 1,580,770
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,956
<INTEREST-EXPENSE> 23,978
<INCOME-PRETAX> 40,358
<INCOME-TAX> 19,389
<INCOME-CONTINUING> 20,969
<DISCONTINUED> (5,622)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,347
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the Arkansas
Best Corporation Quarterly Report on Form 10-Q for the quarter ended March 31,
1997 as restated for discontinued operations and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<RESTATED>
<CIK> 0000894405
<NAME> ARKANSAS BEST CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,266
<SECURITIES> 0
<RECEIVABLES> 179,088
<ALLOWANCES> 5,173
<INVENTORY> 32,607
<CURRENT-ASSETS> 253,772
<PP&E> 556,292
<DEPRECIATION> 218,620
<TOTAL-ASSETS> 807,713
<CURRENT-LIABILITIES> 298,323
<BONDS> 295,691
0
15
<COMMON> 195
<OTHER-SE> 135,829
<TOTAL-LIABILITY-AND-EQUITY> 807,713
<SALES> 32,094
<TOTAL-REVENUES> 394,613
<CGS> 24,475
<TOTAL-COSTS> 385,663
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,114
<INTEREST-EXPENSE> 7,085
<INCOME-PRETAX> 436
<INCOME-TAX> (144)
<INCOME-CONTINUING> 580
<DISCONTINUED> (898)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (318)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the Arkansas
Best Corporation Quarterly Report on Form 10-Q for the quarter ended June 30,
1997 as restated for discontinued operations and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<RESTATED>
<CIK> 0000894405
<NAME> ARKANSAS BEST CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 133
<SECURITIES> 0
<RECEIVABLES> 186,930
<ALLOWANCES> 4,440
<INVENTORY> 32,855
<CURRENT-ASSETS> 260,216
<PP&E> 542,412
<DEPRECIATION> 221,149
<TOTAL-ASSETS> 785,859
<CURRENT-LIABILITIES> 286,973
<BONDS> 274,903
0
15
<COMMON> 195
<OTHER-SE> 139,762
<TOTAL-LIABILITY-AND-EQUITY> 785,859
<SALES> 73,108
<TOTAL-REVENUES> 818,293
<CGS> 54,526
<TOTAL-COSTS> 788,949
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,036
<INTEREST-EXPENSE> 13,840
<INCOME-PRETAX> 11,642
<INCOME-TAX> 4,786
<INCOME-CONTINUING> 6,856
<DISCONTINUED> (2,166)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,690
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the Arkansas
Best Corporation Quarterly Report on Form 10-Q for the quarter ended September
30, 1997, as restated to retroactively apply FAS 128 to EPS data and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<CIK> 0000894405
<NAME> ARKANSAS BEST CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 195,640
<ALLOWANCES> 5,481
<INVENTORY> 31,531
<CURRENT-ASSETS> 263,863
<PP&E> 510,871
<DEPRECIATION> 218,207
<TOTAL-ASSETS> 744,232
<CURRENT-LIABILITIES> 283,236
<BONDS> 223,859
0
15
<COMMON> 196
<OTHER-SE> 145,025
<TOTAL-LIABILITY-AND-EQUITY> 744,232
<SALES> 119,277
<TOTAL-REVENUES> 1,243,582
<CGS> 87,908
<TOTAL-COSTS> 1,192,591
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 833
<INTEREST-EXPENSE> 19,100
<INCOME-PRETAX> 32,300
<INCOME-TAX> 16,185
<INCOME-CONTINUING> 16,115
<DISCONTINUED> (5,622)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,493
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the Arkansas
Best Corporation Quarterly Report on Form 10-Q for the quarter ended March
31, 1996 as restated for discontinued operations and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<CIK> 0000894405
<NAME> ARKANSAS BEST CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,360
<SECURITIES> 0
<RECEIVABLES> 191,174
<ALLOWANCES> 17,396
<INVENTORY> 35,356
<CURRENT-ASSETS> 286,009
<PP&E> 594,528
<DEPRECIATION> 197,340
<TOTAL-ASSETS> 916,439
<CURRENT-LIABILITIES> 280,375
<BONDS> 364,010
0
15
<COMMON> 195
<OTHER-SE> 166,798
<TOTAL-LIABILITY-AND-EQUITY> 916,439
<SALES> 31,613
<TOTAL-REVENUES> 388,144
<CGS> 24,915
<TOTAL-COSTS> 396,129
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,094
<INTEREST-EXPENSE> 7,455
<INCOME-PRETAX> (14,005)
<INCOME-TAX> (4,982)
<INCOME-CONTINUING> (9,023)
<DISCONTINUED> (537)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,560)
<EPS-PRIMARY> (.54)
<EPS-DILUTED> (.54)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the Arkansas
Best Corporation Quarterly Report on Form 10-Q for the quarter ended June 30,
1996 as restated for discontinued operations and gain (loss) on sale of revenue
equipment and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<RESTATED>
<CIK> 0000894405
<NAME> ARKANSAS BEST CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,567
<SECURITIES> 0
<RECEIVABLES> 192,409
<ALLOWANCES> 12,015
<INVENTORY> 33,600
<CURRENT-ASSETS> 286,693
<PP&E> 599,780
<DEPRECIATION> 206,020
<TOTAL-ASSETS> 901,343
<CURRENT-LIABILITIES> 297,209
<BONDS> 349,671
0
15
<COMMON> 195
<OTHER-SE> 156,911
<TOTAL-LIABILITY-AND-EQUITY> 901,343
<SALES> 67,118
<TOTAL-REVENUES> 788,362
<CGS> 56,398
<TOTAL-COSTS> 801,804
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,114
<INTEREST-EXPENSE> 14,840
<INCOME-PRETAX> (27,710)
<INCOME-TAX> (10,204)
<INCOME-CONTINUING> (17,506)
<DISCONTINUED> (839)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,345)
<EPS-PRIMARY> (1.05)
<EPS-DILUTED> (1.05)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the Arkansas
Best Corporation Quarterly Report on Form 10-Q for the quarter ended September
30, 1996 as restated for discontinued operations and gain (loss) on sale of
revenue equipment and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<RESTATED>
<CIK> 0000894405
<NAME> ARKANSAS BEST CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 816
<SECURITIES> 0
<RECEIVABLES> 195,629
<ALLOWANCES> 6,756
<INVENTORY> 32,607
<CURRENT-ASSETS> 294,532
<PP&E> 591,936
<DEPRECIATION> 209,241
<TOTAL-ASSETS> 907,815
<CURRENT-LIABILITIES> 321,590
<BONDS> 348,563
0
15
<COMMON> 195
<OTHER-SE> 147,323
<TOTAL-LIABILITY-AND-EQUITY> 907,815
<SALES> 106,606
<TOTAL-REVENUES> 1,202,868
<CGS> 83,182
<TOTAL-COSTS> 1,218,551
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6,820
<INTEREST-EXPENSE> 22,496
<INCOME-PRETAX> (38,955)
<INCOME-TAX> (13,793)
<INCOME-CONTINUING> (25,162)
<DISCONTINUED> (1,669)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,831)
<EPS-PRIMARY> (1.54)
<EPS-DILUTED> (1.54)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the Arkansas
Best Corporation Annual Report on Form 10-K for the year ended December 31, 1996
as restated for discontinued operations and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<RESTATED>
<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> 2,427
<SECURITIES> 0
<RECEIVABLES> 178,766
<ALLOWANCES> 5,077
<INVENTORY> 33,811
<CURRENT-ASSETS> 251,683
<PP&E> 570,761
<DEPRECIATION> 214,195
<TOTAL-ASSETS> 828,181
<CURRENT-LIABILITIES> 294,955
<BONDS> 317,874
0
15
<COMMON> 195
<OTHER-SE> 137,220
<TOTAL-LIABILITY-AND-EQUITY> 828,181
<SALES> 141,613
<TOTAL-REVENUES> 1,604,335
<CGS> 109,673
<TOTAL-COSTS> 1,622,343
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9,489
<INTEREST-EXPENSE> 30,843
<INCOME-PRETAX> (52,989)
<INCOME-TAX> (18,782)
<INCOME-CONTINUING> (34,207)
<DISCONTINUED> (2,396)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (36,603)
<EPS-PRIMARY> (2.10)
<EPS-DILUTED> (2.10)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the Arkansas
Best Corporation Annual Report on Form 10-K for the year ended December 31, 1995
as restated for discontinued operations and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<RESTATED>
<CIK> 0000894405
<NAME> ARKANSAS BEST CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 17,334
<SECURITIES> 0
<RECEIVABLES> 195,650
<ALLOWANCES> 19,166
<INVENTORY> 36,758
<CURRENT-ASSETS> 312,692
<PP&E> 577,668
<DEPRECIATION> 185,629
<TOTAL-ASSETS> 962,176
<CURRENT-LIABILITIES> 288,427
<BONDS> 391,475
0
15
<COMMON> 195
<OTHER-SE> 177,654
<TOTAL-LIABILITY-AND-EQUITY> 962,176
<SALES> 145,127
<TOTAL-REVENUES> 1,405,580
<CGS> 108,686
<TOTAL-COSTS> 1,423,501
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,185
<INTEREST-EXPENSE> 16,352
<INCOME-PRETAX> (43,735)
<INCOME-TAX> (12,925)
<INCOME-CONTINUING> (30,810)
<DISCONTINUED> (1,982)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (32,792)
<EPS-PRIMARY> (1.90)
<EPS-DILUTED> (1.90)
</TABLE>
