<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarter Ended September 30, 1999
-----------------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________
Commission file number 0-19969
ARKANSAS BEST CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 6711 71-0673405
- -------------------------------------- ----------------------------------- ----------------------------------------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
</TABLE>
3801 Old Greenwood Road
Fort Smith, Arkansas 72903
(501) 785-6000
- --------------------------------------------------------------------------------
(Address, including zip code, and telephone number,
including area code, of the registrant's principal
executive offices)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of The Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 29, 1999
------------------------------ -------------------------------
Common Stock, $.01 par value 19,735,333 shares
<PAGE> 2
ARKANSAS BEST CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets --
September 30, 1999 and December 31, 1998 ............................................... 3
Consolidated Statements of Operations --
For the Three and Nine Months Ended September 30, 1999 and 1998......................... 5
Consolidated Statements of Shareholders' Equity
For the Nine Months Ended September 30, 1999 .......................................... 7
Condensed Consolidated Statements of Cash Flows --
For the Nine Months Ended September 30, 1999 and 1998 .................................. 8
Notes to Consolidated Financial Statements - September 30, 1999 .......................... 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................................................... 16
Item 2a. Quantitative and Qualitative Disclosures about Market Risk................................ 27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ........................................................................ 28
Item 2. Changes in Securities .................................................................... 28
Item 3. Defaults Upon Senior Securities .......................................................... 28
Item 4. Submission of Matters to a Vote of Security Holders ...................................... 28
Item 5. Other Information ........................................................................ 28
Item 6. Exhibits and Reports on Form 8-K ......................................................... 28
SIGNATURES ..................................................................................... 29
</TABLE>
<PAGE> 3
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1999 1998
------------ -----------
(UNAUDITED) NOTE
($ THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents .................................... $ 4,374 $ 4,543
Trade receivables, less allowances
(1999-$5,646,000; 1998-$7,051,000) ........................... 194,049 166,520
Inventories .................................................. 32,161 33,150
Prepaid expenses ............................................. 7,526 12,700
Deferred income taxes ........................................ 830 874
Net assets of discontinued operations ........................ 145 3,546
Other ........................................................ 3,331 5,467
--------- ---------
TOTAL CURRENT ASSETS ...................................... 242,416 226,800
PROPERTY, PLANT AND EQUIPMENT
Land and structures .......................................... 222,694 218,250
Revenue equipment ............................................ 289,150 256,474
Manufacturing equipment ...................................... 15,898 17,506
Service, office and other equipment .......................... 81,189 73,891
Leasehold improvements ....................................... 9,919 9,484
--------- ---------
618,850 575,605
Less allowances for depreciation and amortization ............... (277,701) (255,732)
--------- ---------
341,149 319,873
OTHER ASSETS .................................................... 38,868 35,682
GOODWILL, less amortization (1999-$35,353,000;
1998-$36,740,000) ......................................... 110,397 124,975
--------- ---------
$ 732,830 $ 707,330
========= =========
</TABLE>
NOTE: The balance sheet at December 31, 1998, has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1999 1998
------------ -----------
(UNAUDITED) NOTE
($ THOUSANDS)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft and drafts payable ............................ $ 19,731 $ 19,830
Trade accounts payable ....................................... 77,657 69,983
Accrued expenses ............................................. 160,508 145,432
Federal and state income taxes ............................... 2,606 8,179
Current portion of long-term debt ............................ 18,864 17,504
--------- ---------
TOTAL CURRENT LIABILITIES ................................. 279,366 260,928
LONG-TERM DEBT, less current portion ............................ 202,370 196,079
OTHER LIABILITIES ............................................... 26,761 20,577
DEFERRED INCOME TAXES ........................................... 18,905 22,319
MINORITY INTEREST IN TREADCO, INC ............................... -- 33,512
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 1999: 19,718,133 shares;
1998: 19,610,213 shares .................................. 197 196
Additional paid-in capital ................................... 193,866 193,117
Retained earnings (deficit) .................................. 11,350 (19,413)
Accumulated Other Comprehensive Income ....................... -- --
--------- ---------
TOTAL SHAREHOLDERS' EQUITY ................................ 205,428 173,915
COMMITMENTS AND CONTINGENCIES ...................................
--------- ---------
$ 732,830 $ 707,330
========= =========
</TABLE>
NOTE: The balance sheet at December 31, 1998, has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1999 1998 1999 1998
----------- ----------- ----------- -----------
(UNAUDITED)
($ thousands, except per share data)
<S> <C> <C> <C> <C>
CONTINUING OPERATIONS:
OPERATING REVENUES
Transportation operations ................... $ 399,551 $ 368,896 $ 1,126,237 $ 1,067,907
Tire operations ............................. 53,299 51,521 139,893 135,044
----------- ----------- ----------- -----------
452,850 420,417 1,266,130 1,202,951
----------- ----------- ----------- -----------
OPERATING EXPENSES AND COSTS
Transportation operations ................... 369,242 349,364 1,052,775 1,018,639
Tire operations ............................. 50,754 50,315 137,488 133,242
----------- ----------- ----------- -----------
419,996 399,679 1,190,263 1,151,881
----------- ----------- ----------- -----------
OPERATING INCOME ............................... 32,854 20,738 75,867 51,070
OTHER INCOME (EXPENSE)
Net gains (losses) on sales of property
and non-revenue equipment ................. 507 (195) 971 1,153
Interest expense ............................ (4,905) (4,558) (14,232) (13,389)
Minority interest in Treadco, Inc. .......... -- (341) 245 (471)
Other, net .................................. (1,047) (579) (3,424) (4,023)
----------- ----------- ----------- -----------
(5,445) (5,673) (16,440) (16,730)
----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES ....................... 27,409 15,065 59,427 34,340
FEDERAL AND STATE INCOME TAXES
Current ..................................... 7,701 3,425 21,532 11,741
Deferred .................................... 3,632 2,666 3,244 2,147
----------- ----------- ----------- -----------
11,333 6,091 24,776 13,888
----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS .............. 16,076 8,974 34,651 20,452
----------- ----------- ----------- -----------
DISCONTINUED OPERATIONS:
Loss from discontinued operations (net of tax
benefits of $467 for the three months ended
September 30, 1998, and $394 and $607 for the
nine months ended September 30, 1999 and 1998
respectively) ............................... -- (881) (664) (1,340)
----------- ----------- ----------- -----------
LOSS FROM DISCONTINUED OPERATIONS .............. -- (881) (664) (1,340)
----------- ----------- ----------- -----------
NET INCOME ..................................... 16,076 8,093 33,987 19,112
Preferred stock dividends ................... 1,075 1,075 3,224 3,224
----------- ----------- ----------- -----------
NET INCOME FOR COMMON SHAREHOLDERS ............. $ 15,001 $ 7,018 $ 30,763 $ 15,888
=========== =========== =========== ===========
</TABLE>
5
<PAGE> 6
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS - Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1999 1998 1999 1998
-------------- -------------- -------------- --------------
(UNAUDITED)
($ thousands, except per share data)
<S> <C> <C> <C> <C>
NET INCOME (LOSS) PER COMMON SHARE
BASIC:
Continuing operations (1)........... $ 0.76 $ 0.40 $ 1.60 $ 0.88
Discontinued operations............. -- (0.04) (0.03) (0.07)
-------------- -------------- -------------- --------------
NET INCOME (1)........................ $ 0.76 $ 0.36 $ 1.57 $ 0.81
-------------- -------------- -------------- --------------
AVERAGE COMMON SHARES
OUTSTANDING (BASIC).................... 19,691,666 19,610,213 19,645,951 19,608,546
============== ============== ============== ==============
DILUTED:
Continuing operations (2)........... $ 0.67 $ 0.38 $ 1.46 $ 0.87
Discontinued operations............. -- (0.04) (0.03) (0.07)
-------------- -------------- -------------- --------------
NET INCOME (2)........................ $ 0.67 $ 0.34 $ 1.43 $ 0.80
-------------- -------------- -------------- --------------
AVERAGE COMMON SHARES
OUTSTANDING (DILUTED).................. 24,102,750 23,606,484 23,821,934 19,980,164
============== ============== ============== ==============
CASH DIVIDENDS PAID PER COMMON SHARE... $ -- $ -- $ -- $ --
============== ============== ============== ==============
</TABLE>
(1) Gives consideration to preferred stock dividends of $1.1 million per
quarter.
(2) For the nine months ended September 30, 1998, consideration is given to
preferred dividends of $3.2 million. Conversion of preferred stock into
common would be antidilutive for the nine months ended September 30, 1998.
For the three months ended September 30, 1999 and 1998, and the nine months
ended September 30, 1999, conversion of preferred shares into common is
assumed.
6
<PAGE> 7
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL RETAINED OTHER
PREFERRED COMMON PAID-IN EARNINGS COMPREHENSIVE TOTAL
STOCK STOCK CAPITAL (DEFICIT) INCOME EQUITY
--------- ------ ---------- --------- ------------- ------
(UNAUDITED)
($ thousands)
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1999 ................. $ 15 $ 196 $ 193,117 $ (19,413) $ -- $ 173,915
Net income .................................. -- -- -- 33,987 -- 33,987
Common stock issued on exercise
of stock options .......................... -- 1 742 -- -- 743
Tax effect of stock options exercised ....... -- -- 7 -- -- 7
Dividends on preferred stock ................ -- -- -- (3,224) -- (3,224)
--------- --------- --------- --------- ----- ---------
Balances at September 30, 1999 .............. $ 15 $ 197 $ 193,866 $ 11,350 $ -- $ 205,428
========= ========= ========= ========= ===== =========
</TABLE>
7
<PAGE> 8
ARKANSAS BEST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1999 1998
--------- ---------
(UNAUDITED)
($ thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by operating activities .................... $ 73,944 $ 40,555
INVESTING ACTIVITIES
Purchases of property, plant and equipment
less capitalized leases .................................... (42,481) (48,472)
Purchase of Treadco, Inc. stock .............................. (23,673) (1,132)
Proceeds from asset sales and other .......................... 13,855 14,341
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES ........................... (52,299) (35,263)
--------- ---------
FINANCING ACTIVITIES
Deferred financing costs and expenses ........................ (125) (731)
Borrowings under revolving credit facilities ................. 370,750 424,925
Payments under revolving credit facilities ................... (369,000) (394,625)
Payments on long-term debt ................................... (20,299) (17,598)
Payments under term loan facilities .......................... -- (13,000)
Dividends paid ............................................... (3,224) (3,224)
Other, net ................................................... 84 (3,837)
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES ........................... (21,814) (8,090)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS ....................... (169) (2,798)
Cash and cash equivalents at beginning of period ............. 4,543 7,203
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...................... $ 4,374 $ 4,405
========= =========
</TABLE>
8
<PAGE> 9
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
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 H). Principal subsidiaries are ABF Freight System,
Inc., ("ABF"); Treadco, Inc. ("Treadco"); Clipper Exxpress Company and related
companies ("Clipper"); G.I. Trucking Company ("G.I. Trucking"); and FleetNet
America, LLC.
Approximately 79% of ABF's employees are covered under a five-year collective
bargaining agreement, which began on April 1, 1998, with the International
Brotherhood of Teamsters ("IBT").
NOTE B - FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine months ended September
30, 1999, are not necessarily indicative of the results that may be expected for
the year ending December 31, 1999. For further information, refer to the
Company's financial statements and footnotes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
The difference between the effective tax rate for the three and nine-month
periods ended September 30, 1999 and 1998, and the federal statutory rate
resulted from state income taxes, amortization of nondeductible goodwill,
minority interest, nondeductible tender offer response costs (incurred by
Treadco) and other nondeductible expenses.
NOTE C - DISCONTINUED OPERATIONS
At December 31, 1998, the Company was engaged in international ocean freight
services through its subsidiary, CaroTrans International, Inc. ("Clipper
International"), a non-vessel operating common carrier (N.V.O.C.C.). On February
28, 1999, the Company completed a formal plan to exit its international ocean
freight N.V.O.C.C. services by disposing of the business and assets of Clipper
International. On April 17, 1999, the Company closed the sale of the business
and certain assets of Clipper International, including the trade name "CaroTrans
International, Inc." Remaining assets are being liquidated. The aggregate of the
selling price of the assets sold and the estimated liquidation value of the
retained Clipper International assets aggregated approximately $5.0 million
which was approximately equal to the Company's net investment in the related
assets.
9
<PAGE> 10
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued
- --------------------------------------------------------------------------------
Results of operations of the international ocean freight services segment have
been reported as discontinued operations as of September 30, 1999, and the
statements of operations for all periods have been restated to remove revenue
and expenses of this segment. Results of Clipper International included in
discontinued operations are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1999 1998 1999 1998
--------- ------------ ----------- -----------
($ thousands)
<S> <C> <C> <C> <C>
Revenues ............................................ $ - $ 11,108 $ 6,777 $ 33,339
Operating loss ...................................... - (1,283) (1,114) (1,703)
Pre-tax loss......................................... - (1,348) (1,058) (1,947)
</TABLE>
NOTE D - INVENTORIES
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1999 1998
------------ ------------
($ thousands)
<S> <C> <C>
Finished goods ..................................................................... $ 24,656 $ 25,523
Materials .......................................................................... 4,893 5,147
Repair parts, supplies and other ................................................... 2,612 2,480
---------- ----------
$ 32,161 $ 33,150
========== ==========
</TABLE>
NOTE E - LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS
Various legal actions, the majority of which arise in the normal course of
business, are pending. None of these legal actions are 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 its tractors and trucks in
approximately 78 underground tanks located in 27 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 required the Company to upgrade its underground tank systems
by December 1998. The Company successfully completed the upgrades prior to
December 31, 1998.
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 $300,000 over the last ten years), or believes its
obligations with respect to such sites would involve immaterial monetary
liability, although there can be no assurances in this regard.
10
<PAGE> 11
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued
- --------------------------------------------------------------------------------
As of September 30, 1999, the Company has accrued approximately $3.0 million to
provide for environmental-related liabilities. The Company's environmental
accrual is based on management's best estimate of the actual liability. The
Company's estimate is founded on management's experience in dealing with similar
environmental matters and on actual testing performed at some sites. Management
believes that the accrual is adequate to cover environmental liabilities based
on the present environmental regulations. Accruals for environmental liability
are included in the balance sheet as accrued expenses.
NOTE F - RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee of The American
Institute of CPA's ("AcSEC") issued Statement of Position ("SOP") 98-1,
Accounting for Costs of Computer Software Developed For or Obtained For Internal
Use. Under the SOP, qualifying computer software costs incurred during the
"application development stage" are required to be capitalized and amortized
over the software's estimated useful life. The Company adopted SOP 98-1 January
1, 1999. The SOP results in capitalization of costs related to internal computer
software development. All such costs were previously expensed. The amount of
costs capitalized within any period is dependent on the nature of software
development activities and projects in each period. For the three and nine
months ended September 30, 1999, the Company capitalized internal software
development costs amounting to approximately $.7 million and $1.8 million,
respectively, which increased net income and income from continuing operations
by $.02 per share (diluted) and $.04 per share (diluted) respectively.
In April 1998, the AcSEC issued Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities. Under the SOP, certain costs associated with
start-up activities are required to be expensed as incurred. The Company adopted
SOP 98-5 in 1999. The Company has historically expensed start-up costs and,
therefore, there is no impact of adoption on the Company's financial statements
and related disclosures.
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Statement addresses the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and hedging activities. The Statement will require the Company
to recognize all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income. If a
derivative is a hedge, depending on the nature of the hedge, changes in the fair
value of the derivative will either be offset against the change in fair value
of the hedged asset, liability, or firm commitment through earnings, or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The Statement is effective for the Company in 2001. The Company is
evaluating the impact the Statement will have on its financial statements and
related disclosures.
11
<PAGE> 12
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued
- --------------------------------------------------------------------------------
NOTE G - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1999 1998 1999 1998
-------------- ------------- ------------- -------------
($ thousands, except per share data)
<S> <C> <C> <C> <C>
NUMERATOR:
Numerator for basic earnings per share --
Net income ................................ $ 16,076 $ 8,093 $ 33,987 $ 19,112
Preferred stock dividends ................. (1,075) (1,075) (3,224) (3,224)
-------------- ------------- ------------- -------------
Numerator for basic earnings per share --
Net income available to
common shareholders ....................... 15,001 7,018 30,763 15,888
Effect of dilutive securities (1).......... 1,075 1,075 3,224 --
-------------- ------------- ------------- -------------
Numerator for diluted earnings per share --
Net income available
to common shareholders .................... $ 16,076 $ 8,093 $ 33,987 $ 15,888
============== ============= ============= =============
DENOMINATOR:
Denominator for basic earnings
per share - weighted-average shares ....... 19,691,666 19,610,213 19,645,951 19,608,546
Effect of dilutive securities:
Conversion of preferred stock (1).......... 3,796,852 3,796,852 3,796,852 --
Stock options ............................. 614,232 199,419 379,131 371,618
-------------- ------------- ------------- -------------
Denominator for diluted earnings
per share -- adjusted weighted-average
shares and assumed conversions ............ 24,102,750 23,606,484 23,821,934 19,980,164
============== ============= ============= =============
NET INCOME (LOSS) PER COMMON SHARE
BASIC:
Continuing operations ........................ $ 0.76 $ 0.40 $ 1.60 $ 0.88
Discontinued operations ...................... -- (0.04) (0.03) (0.07)
-------------- ------------- ------------- -------------
NET INCOME PER SHARE ............................ $ 0.76 $ 0.36 $ 1.57 $ 0.81
============== ============= ============= =============
AVERAGE COMMON SHARES
OUTSTANDING (BASIC): ......................... 19,691,666 19,610,213 19,645,951 19,608,546
============== ============= ============= =============
DILUTED:
Continuing operations ........................ $ 0.67 $ 0.38 $ 1.46 $ 0.87
Discontinued operations ...................... -- (0.04) (0.03) (0.07)
-------------- ------------- ------------- -------------
NET INCOME PER SHARE ............................ $ 0.67 $ 0.34 $ 1.43 $ 0.80
============== ============= ============= =============
AVERAGE COMMON SHARES
OUTSTANDING (DILUTED): ....................... 24,102,750 23,606,484 23,821,934 19,980,164
============== ============= ============= =============
CASH DIVIDENDS PAID
PER COMMON SHARE ............................. $ -- $ -- $ -- $ --
============== ============= ============= =============
</TABLE>
(1) For the nine months ended September 30, 1998, consideration is given to
preferred dividends of $3.2 million. Conversion of preferred stock into
common would be antidilutive for the nine months ended September 30, 1998.
For the three months ended September 30, 1999, and 1998, and the nine
months ended September 30, 1999, conversion of preferred shares into
common is assumed.
12
<PAGE> 13
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued
- --------------------------------------------------------------------------------
NOTE H - ACQUISITION OF MINORITY INTEREST IN TREADCO, INC.
On January 22, 1999, the Company announced that it had submitted a formal
proposal to Treadco's Board of Directors under which the outstanding shares of
Treadco's common stock not owned by the Company would be acquired for $9.00 per
share in cash. The announcement stated that the proposal had the support of
Shapiro Capital Management Company, Inc., Treadco's largest independent
stockholder, which beneficially owned 1,132,775 shares (or approximately 22%) of
the common stock of Treadco. On March 15, 1999, the Company and Treadco signed a
definitive merger agreement for the acquisition of all shares of Treadco's stock
not owned by the Company for $9.00 per share in cash via a tender offer. The
tender offer commenced on March 23, 1999, and closed on April 20, 1999. A total
of approximately 2,457,000 shares were tendered to the Company. Including the
tendered shares, the Company owned approximately 98% of Treadco at the closing
of the tender. At a June 10, 1999 special meeting, the shareholders of Treadco,
Inc. approved the merger of Treadco Acquisition Corporation, a wholly owned
subsidiary of the Company, into Treadco, Inc. This transaction resulted in
Treadco, Inc. becoming a wholly owned subsidiary of the Company. Subject to the
terms of the merger agreement, shares of common stock not tendered were
converted into the right to receive $9.00 per share. As a result of the merger,
the Company voluntarily delisted Treadco Inc.'s common stock from trading on The
Nasdaq Stock Market, Inc. on June 10, 1999. The cost of the Treadco shares and
related expenses of $23.7 million was funded with the Company's Revolving Credit
Facility. The acquisition of the Treadco stock was accounted for as a purchase.
The application of purchase accounting to the acquired assets and liabilities of
Treadco resulted in the elimination of Treadco's goodwill of approximately $12.0
million and a reduction of Treadco's fixed assets of approximately $4.0 million.
Pro forma information (as if the acquisition and related transactions were
completed at the beginning of their respective periods) for the nine months
ended September 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
--------------------------------
1999 1998
------------- ------------
<S> <C> <C>
Operating revenues ......................................... $ 1,266,130 $ 1,202,951
Net income.................................................. 33,808 19,729
Net income per share (diluted).............................. 1.42 0.83
</TABLE>
NOTE I - OPERATING SEGMENT DATA
The Company used the "management approach" to determine its reportable operating
segments as well as to determine the basis of reporting the operating segment
information. The management approach focuses on financial information that the
Company's decision-makers use to make decisions about operating matters.
Management uses operating revenues, operating expense categories, operating
ratios, operating income, and key operating statistics to evaluate performance
and allocate resources to the Company's operating segments.
During the periods being reported on, the Company operated in four defined
reportable operating segments: 1) ABF; 2) G.I. Trucking; 3) Clipper; and 4)
Treadco.
13
<PAGE> 14
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued
- --------------------------------------------------------------------------------
Results of operations for Clipper International, previously reflected
as a reportable segment, have been reported as discontinued operations for the
three and nine months ended September 30, 1999, and the statements of operations
for all prior periods have been restated to remove the revenue and expense of
the ocean freight services N.V.O.C.C. segment (see Note C).
The Company eliminates intercompany transactions in consolidation. However, the
information used by the Company's management with respect to its reportable
segments is before intersegment eliminations of revenues and expenses.
Intersegment revenues and expenses are not significant.
Further classifications of operations or revenues by geographic location beyond
the descriptions provided above are impractical, and are, therefore, not
provided. The Company's foreign operations are not significant.
No material changes have occurred in the total assets for any reportable
operating segment since December 31, 1998, except for the impact of purchase
accounting on Treadco's assets as discussed in Note H, and the reclassification
of Clipper International's assets to discontinued operations.
The following tables reflect reportable operating segment information for the
Company, as well as a reconciliation of reportable segment information to the
Company's consolidated operating revenues, operating expenses and operating
income.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1999 1998 1999 1998
--------- --------- ----------- -----------
(UNAUDITED)
($ thousands)
<S> <C> <C> <C> <C>
OPERATING REVENUES
ABF Freight System, Inc.............................. $ 332,302 $ 302,985 $ 936,421 $ 877,084
G.I. Trucking Company................................ 34,904 32,303 101,351 92,717
Clipper.............................................. 29,593 31,585 80,868 93,686
Treadco, Inc......................................... 53,933 52,137 141,561 136,735
Other revenues and eliminations...................... 2,118 1,407 5,929 2,729
--------- --------- ----------- -----------
Total consolidated operating revenues.............. $ 452,850 $ 420,417 $ 1,266,130 $ 1,202,951
========= ========= =========== ===========
</TABLE>
14
<PAGE> 15
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1999 1998 1999 1998
----------- ----------- ----------- -----------
(UNAUDITED)
($ thousands)
<S> <C> <C> <C> <C>
OPERATING EXPENSES AND COSTS
ABF FREIGHT SYSTEM, INC.
Salaries and wages ................................. $ 208,972 $ 199,409 $ 607,346 $ 589,300
Supplies and expenses .............................. 37,001 31,475 102,543 93,528
Operating taxes and licenses ....................... 9,650 8,904 28,372 27,787
Insurance and claims ............................... 5,643 5,200 15,470 14,669
Communications and utilities ....................... 4,098 3,697 11,641 10,405
Depreciation and amortization ...................... 8,029 6,641 22,313 18,801
Rents and purchased transportation ................. 27,535 26,857 73,137 71,999
Other .............................................. 1,250 1,719 3,748 4,663
(Gain) on sale of revenue equipment ................ (430) (464) (677) (2,084)
----------- ----------- ----------- -----------
301,748 283,438 863,893 829,068
----------- ----------- ----------- -----------
G.I. TRUCKING COMPANY
Salaries and wages ................................. 16,206 15,333 46,927 43,438
Supplies and expenses .............................. 2,842 2,670 8,211 7,967
Operating taxes and licenses ....................... 820 582 2,395 1,822
Insurance and claims ............................... 907 626 2,942 2,858
Communications and utilities ....................... 454 443 1,309 1,219
Depreciation and amortization ...................... 1,054 824 2,559 2,364
Rents and purchased transportation ................. 11,518 10,341 32,287 29,106
Other .............................................. 807 703 2,500 2,278
(Gain) on sale of revenue equipment ................ (25) (4) (80) (66)
----------- ----------- ----------- -----------
34,583 31,518 99,050 90,986
----------- ----------- ----------- -----------
CLIPPER
Cost of services ................................... 25,268 27,969 69,691 81,921
Selling, administrative and general ................ 3,547 3,987 10,262 12,148
(Gain) on sale of revenue equipment ................ -- -- (33) (64)
----------- ----------- ----------- -----------
28,815 31,956 79,920 94,005
----------- ----------- ----------- -----------
TREADCO, INC.
Cost of sales ...................................... 36,524 37,071 97,992 96,988
Selling, administrative and general ................ 14,619 13,659 40,542 37,416
----------- ----------- ----------- -----------
51,143 50,730 138,534 134,404
----------- ----------- ----------- -----------
Other expenses and eliminations ....................... 3,707 2,037 8,866 3,418
----------- ----------- ----------- -----------
Total consolidated operating expenses and costs .... $ 419,996 $ 399,679 $ 1,190,263 $ 1,151,881
=========== =========== =========== ===========
OPERATING INCOME (LOSS)
ABF Freight System, Inc. .............................. $ 30,554 $ 19,547 $ 72,528 $ 48,016
G.I. Trucking Company ................................. 321 785 2,301 1,731
Clipper ............................................... 778 (371) 948 (319)
Treadco, Inc. ......................................... 2,790 1,407 3,027 2,331
Other income (loss) and eliminations .................. (1,589) (630) (2,937) (689)
----------- ----------- ----------- -----------
Total consolidated operating income ................ $ 32,854 $ 20,738 $ 75,867 $ 51,070
=========== =========== =========== ===========
</TABLE>
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
OPERATING SEGMENT DATA
The following table sets forth, for the periods indicated, a summary of the
Company's operating expenses by segment as a percentage of revenue for the
applicable segment. The Company has restated its 1998 segment information to
conform to the current year's segment presentation, which is in accordance with
the requirements of FAS No. 131. Note I to the Consolidated Financial
Statements, for the year ended December 31, 1998, contains additional
information regarding the Company's operating segments.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1999 1998 1999 1998
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING EXPENSES AND COSTS
ABF FREIGHT SYSTEM, INC.
Salaries and wages .................................. 62.9% 65.8% 64.9% 67.2%
Supplies and expenses ............................... 11.1 10.4 11.0 10.7
Operating taxes and licenses ........................ 2.9 2.9 3.0 3.2
Insurance and claims ................................ 1.7 1.7 1.7 1.7
Communications and utilities ........................ 1.2 1.2 1.2 1.2
Depreciation and amortization ....................... 2.4 2.2 2.4 2.1
Rents and purchased transportation................... 8.3 8.9 7.8 8.2
Other ............................................... 0.4 0.6 0.4 0.4
(Gain) on sale of revenue equipment.................. (0.1) (0.2) (0.1) (0.2)
---- ----- ---- -----
90.8% 93.5% 92.3% 94.5%
---- ----- ---- -----
G.I. TRUCKING COMPANY
Salaries and wages .................................. 46.4% 47.5% 46.3% 46.9%
Supplies and expenses ............................... 8.1 8.3 8.1 8.6
Operating taxes and licenses ........................ 2.3 1.8 2.4 2.0
Insurance and claims ................................ 2.6 1.9 2.9 3.1
Communications and utilities ........................ 1.3 1.4 1.3 1.3
Depreciation and amortization ....................... 3.0 2.6 2.5 2.5
Rents and purchased transportation................... 33.0 32.0 31.9 31.4
Other ............................................... 2.5 2.1 2.4 2.4
(Gain) on sale of revenue equipment.................. (0.1) - (0.1) (0.1)
---- ----- ---- -----
99.1% 97.6% 97.7% 98.1%
---- ----- ---- -----
CLIPPER
Cost of services..................................... 85.4% 88.5% 86.2% 87.4%
Selling, administrative and general ................. 12.0 12.7 12.6 13.0
(Gain) on sale of revenue equipment ................. - - - (0.1)
---- ----- ---- -----
97.4% 101.2% 98.8% 100.3%
---- ----- ---- -----
TREADCO, INC.
Cost of sales........................................ 67.7% 71.1% 69.2% 70.9%
Selling, administrative and general ................. 27.1 26.2 28.7 27.4
---- ----- ---- -----
94.8% 97.3% 97.9% 98.3%
---- ----- ---- -----
OPERATING INCOME
ABF Freight System, Inc................................. 9.2% 6.5% 7.7% 5.5%
G. I. Trucking Company ................................. 0.9% 2.4% 2.3% 1.9%
Clipper ................................................ 2.6% (1.2)% 1.2% (0.3)%
Treadco, Inc............................................ 5.2% 2.7% 2.1% 1.7%
</TABLE>
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - continued
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999, COMPARED TO THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1998
Consolidated revenues from continuing operations of the Company for the three
and nine months ended September 30, 1999, increased 7.7% and 5.3%, respectively,
compared to the same periods in 1998, due primarily to increases in revenues for
ABF, G.I. Trucking and Treadco. These increases were offset somewhat by declines
in Clipper revenues. The Company's operating income from continuing operations
for the three and nine months ended September 30, 1999, increased 58.4% and
48.6% compared to the same periods in 1998. Increases in operating income from
continuing operations are attributable to improved operations at ABF, Clipper
and Treadco offset, in part, by a decline in the operating income of G.I.
Trucking during the third quarter of 1999 and increases in corporate incentive
pay accruals. Income from continuing operations for the three and nine months
ended September 30, 1999, increased 79.1% and 69.4% from the same periods in
1998. The improvements in income from continuing operations reflect primarily
the improvements in operating income. Diluted earnings per share from continuing
operations improved 76.3% to $0.67 per share and 67.8% to $1.46 per share for
the three and nine months ended September 30, 1999, when compared to the same
periods in 1998.
ABF FREIGHT SYSTEM, INC.
Effective September 13, 1999, ABF implemented an overall rate increase of 5.1%.
Previous overall rate increases effective January 1, 1999 and January 1, 1998
were 5.5% and 5.3%, respectively. ABF does not plan to implement a rate increase
on January 1, 2000. Revenues for the three and nine months ended September 30,
1999, increased 9.7% and 6.8% to $332.3 million and $936.4 million,
respectively, from $303.0 million and $877.1 million for the same periods in
1998. ABF generated operating income for the three and nine months ended
September 30, 1999, of $30.6 million and $72.5 million compared to $19.5 million
and $48.0 million for the three and nine months ended September 30, 1998.
ABF's increase in revenue is due primarily to increases in LTL revenue per
hundredweight of 6.6% and 5.9% to $19.45 and $19.31, respectively, for the three
and nine months ended September 30, 1999, compared to the same periods in 1998,
reflecting a continuing favorable pricing environment. ABF's revenue increase
also results from LTL tonnage increases of 3.6% and 1.1% for the three and nine
months ended September 30, 1999, compared to the same periods in 1998. In
addition, ABF implemented a fuel surcharge on July 7, 1999, based on the
increase in diesel fuel prices compared to an index price. Revenue attributable
to the fuel surcharge was $2.4 million in the third quarter of 1999. There was
no fuel surcharge in effect for the third quarter of 1998.
ABF's operating ratio improved to 90.8% and 92.3% for the three and nine months
ended September 30, 1999, from 93.5% and 94.5% for the same periods in 1998, as
a result of the revenue yield improvements previously described and as a result
of improvements in certain operating expense categories as follows:
Salaries and wages expense decreased as a percent of revenue by 2.9% and 2.3%
for the three and nine months ended September 30, 1999, compared to the same
periods in 1998. The decreases for the three and nine months ended September 30,
1999 are due in part to lower line haul and dock labor costs due to retirements
and a lower effective wage rate associated with more new hires, offset in part
by an increase
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - continued
- --------------------------------------------------------------------------------
in incentive pay amounts. Wage rates for new hires increase to full scale levels
over a two year period. In addition, the decrease in line haul wages for the
nine months ended September 30, 1999 is due in part to an increase in rail
utilization for freight transportation. Rail usage increased to 17.7% of total
miles for the nine months ended September 30, 1999 compared to 16.4% for the
same period in 1998.
Supplies and expenses increased 0.7% and 0.3% as a percent of revenue for the
three and nine months ended September 30, 1999, compared to the same periods in
1998. This change is due primarily to higher diesel fuel prices, as described
previously, which increased 34.8% on an average price per gallon basis when the
third quarter of 1999 is compared to the third quarter of 1998. The previously
mentioned fuel surcharge on revenue is intended to offset the fuel cost
increase. In addition, trailer repair costs were higher due to the installation
of conspicuity tape to road and city trailers, in accordance with Federal
regulations. Such regulations require that the installation process be complete
by June 1, 2001. As of September 30, 1999, the Company has completed the
installation on approximately 82% of all road trailers and a small number of
city trailers.
Depreciation and amortization increased 0.2% and 0.3% as a percent of revenue
for the three and nine months ended September 30, 1999, compared to the same
periods in 1998. Increases in depreciation resulted from an increase in the
number of road tractors under capital leases. A larger portion of ABF's road
tractor fleet was under operating leases in the first nine months of 1998.
Rents and purchased transportation expense decreased 0.6% and 0.4% as a percent
of revenue for the three and nine months ended September 30, 1999, compared to
same periods in 1998, due primarily to declines in operating lease expense,
reflecting ABF's replacement of road tractors under operating leases with road
tractors under capital leases. This decrease was offset, in part, by the
increase in rail utilization for the nine months ended September 30, 1999. As
described above, ABF's rail usage increased during this period when compared to
the same period in 1998.
G.I. TRUCKING
G.I. Trucking revenues increased 8.1% and 9.3% to $34.9 million and $101.4
million for the three and nine months ended September 30, 1999, from $32.3
million and $92.7 million, respectively, for the same periods during 1998. The
revenue increase resulted from increases in G.I. Trucking's revenue per
hundredweight of 1.1% and 1.4% to $10.68 and $10.74 for the three and nine
months ended September 30, 1999, compared to the same periods during 1998.
Tonnage increased 6.8% and 7.8% for the three and nine months ended September
30, 1999, compared to the same periods in 1998. In addition, G.I. Trucking
implemented a fuel surcharge of 1.15% during the last week of August 1999, based
upon a West Coast average fuel index. G.I. Trucking's fuel surcharge generated
revenue of $.2 million in the third quarter of 1999. There was no fuel surcharge
revenue in the third quarter of 1998. G.I. Trucking implemented a general rate
increase of 5.5% effective October 1, 1999. G. I. Trucking's previous general
rate increase was effective on November 1, 1998 and amounted to 5.5%.
G.I. Trucking's operating ratio increased to 99.1% from 97.6% when the third
quarter of 1999 is compared to the third quarter of 1998. However, during the
nine months ended September 30, 1999, G.I. Trucking's operating ratio improved
to 97.7% from 98.1% for the nine months ended September 30, 1998. Changes in the
operating ratios indicated are the result of changes in yield and changes in
certain operating expenses as follows:
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - continued
- --------------------------------------------------------------------------------
Salaries and wages expense declined 1.1% and 0.6% as a percent of revenue during
the three and nine months ended September 30, 1999, as compared to the same
periods in 1998. The decrease is due to lower pension costs and improved
productivity of the labor force. In addition, a portion of salaries and wages
expense is generally fixed in nature and declines as a percent of revenue with
increases in revenue levels.
Supplies and expenses decreased 0.2% and 0.5% as a percent of revenue for the
three and nine months ended September 30, 1999, compared to the same periods
during 1998. This decrease is due primarily to lower repair and maintenance
costs on revenue equipment during the three and nine months ended September 30,
1999, compared to the same periods in 1998, reflecting new equipment purchased
during 1998 and 1999 to replace older equipment which required more maintenance.
In addition, G.I. Trucking's efforts to control fixed costs for its terminals
and the fact that a portion of terminal costs are fixed in nature have resulted
in decreases in terminal office and general supplies expenses as a percent of
revenue. Improvements in these areas were offset in part during the third
quarter by higher fuel costs, which increased in total dollars by 40.9% when the
third quarter of 1999 is compared to the third quarter of 1998.
Operating taxes and licenses increased 0.5% and 0.4% as a percent of revenue for
the three and nine months ended September 30, 1999, compared to the same periods
during 1998. This increase is due primarily to real estate taxes associated with
the six new terminals opened during 1998. In addition, vehicle licenses and
registration fees increased for the three and nine months ended September 30,
1999, as compared to the same periods during 1998, due to G.I. Trucking's
increased fleet size resulting from the purchase of 81 tractors and 145 trailers
during the first nine months of 1999. G.I. Trucking plans to dispose of some
older equipment during the fourth quarter of 1999 as freight volumes decline.
Insurance expense increased 0.7% as a percent of revenue for the third quarter
of 1999 compared to the third quarter of 1998. This increase is due primarily to
a favorable claims experience for bodily injury and property damage during the
third quarter 1998 as compared to the third quarter 1999. However, for the nine
months ended September 30, 1999 compared to the same period in 1998, bodily
injury and property damage experience was more favorable, resulting in a 0.2%
improvement, as a percentage of revenue. In addition, the third quarter of 1999
had an increase in cargo claims costs, compared to the third quarter of 1998.
Depreciation and amortization expense increased 0.4% as a percent of revenue for
the three months ended September 30, 1999, compared to the same period during
1998 due primarily to G.I. Trucking's increased fleet size and the purchase of
new equipment, as previously described. Prior to the third quarter of 1999,
depreciation and amortization had been lower than the comparable period in 1998
due to older tractors and trailers becoming fully depreciated in the first six
months of 1999. As a result, year to date 1999 depreciation and amortization is
the same as 1998, as a percent of revenue.
Rents and purchased transportation expenses increased 1.0% and 0.5% as a percent
of revenue for the three and nine months ended September 30, 1999, as compared
to the same periods during 1998. This increase is due primarily to the costs
associated with additional linehaul miles run in order to meet customer service
needs. In addition, G.I. Trucking's terminal rent cost increased due to the
opening of new terminals during 1998.
19
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - continued
- --------------------------------------------------------------------------------
Other operating expenses increased 0.4% as a percent of revenue for the three
months ended September 30, 1999, as compared to the same period during 1998, due
primarily to lower pension insurance premiums during the third quarter of 1998.
CLIPPER
Revenues for Clipper were $29.6 million and $80.9 million for the three and nine
months ended September 30, 1999, representing a decrease of 6.3% and 13.7% from
the three and nine months ended September 30, 1998, which had revenues of $31.6
million and $93.7 million, respectively. Beginning in the fourth quarter of
1997, Clipper was adversely affected by the service problems with the U.S. rail
system. During the fourth quarter of 1998, Clipper experienced some improvements
in the on-time service levels of its rail suppliers. In the first nine months of
1999, rail service continued to improve; however, in certain lanes, rail service
remains inconsistent. In addition, late in the third quarter of 1999, heavy
rains and flooding from Hurricane Floyd added to the rail delays and equipment
shortages on the East Coast. Intermodal shipments decreased 4.1% for the nine
months ended September 30, 1999, compared to the same period in 1998. These
declines result primarily from business lost as a result of inconsistent rail
service in 1998. Clipper is aggressively trying to regain this business but is
faced with competition from truckload carriers and other rail service providers.
Clipper experienced declines of 9.4% and 7.5% in the number of LTL shipments
from the three and nine months ended September 30, 1998 to the three and nine
months ended September 30, 1999. The declines in LTL shipments resulted from
management's decision to concentrate on metro-to-metro, long-haul lanes,
resulting in the elimination of certain unprofitable lanes and from an emphasis
on improving Clipper's account profile. In addition, LTL business levels were
negatively impacted by heavy snowfall in the Chicago, Illinois area in January
1999.
Clipper's operating ratio improved to 97.4% and 98.8% for the three and nine
months ended September 30, 1999, from 101.2% and 100.3% for the three and nine
months ended September 30, 1998. Clipper's operating ratio improvements result
from the elimination of certain unprofitable lanes, higher percentages of rail
utilization of 60.9% and 57.9%, respectively, for the three and nine months
ended September 30, 1999, compared to 49.2% and 49.4% for the same periods
during 1998, and cost reductions implemented because of lower revenue levels.
TREADCO, INC.
Revenues for Treadco, Inc. were $53.9 million and $141.6 million for the three
and nine months ended September 30, 1999, compared to $52.1 million and $136.7
for the same periods in 1998. For the three months ended September 30, 1999,
"same store" sales increased 3.3% compared to the same period in 1998. For the
nine months ended September 30, 1999, "same store" sales increased 3.2% compared
to the same period in 1998. "New store" sales accounted for 0.1% and 0.3% of the
increase from the three and nine months ended September 30, 1998, respectively.
"Same store" sales includes both production locations and sales locations that
have been in existence for the entire periods presented. "New store" sales
resulted from one new sales location for the three months and two new sales
locations for the nine months. Revenues from retreading for the three months
ended September 30, 1999, were $19.5 million, representing a decrease of 0.9%
from $19.7 million for the three months ended September 30, 1998. Retread
revenues for the nine months ended September 30, 1999, were $53.6 million, which
equaled retread revenues for the same period in 1998. Retread revenues for the
three months ended
20
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - continued
- --------------------------------------------------------------------------------
September 30, 1999 were lower due to a decrease in the volume of units sold of
approximately 4.9% from the same period in 1998. This decrease was offset in
part by an increase in the sales price per unit of approximately 3.6% from the
same period in 1998. Revenues from new tires increased 3.7% to $27.9 million for
the three months ended September 30, 1999 from $26.9 million for the comparable
period in 1998, due to a 4.6% increase in unit sales from the 1998 third
quarter, offset in part by a 0.9% decrease in the sales price per unit. For the
nine months ended September 30, 1999, revenues from new tire sales increased
4.0% to $71.6 million from $68.9 million for the same period in 1998 due
primarily to a 5.4% increase in units sold, offset in part by a decrease in the
sales price per unit of 1.3%. Service revenues for the three and nine months
ended September 30, 1999 increased 16.4% to $6.4 million and 14.8% to $16.3
million, respectively, compared to $5.5 million and $14.2 million for the
comparable periods in 1998. Service revenues increased due to Treadco's
continued emphasis on its service business.
Treadco's operating ratio improved to 94.8% and 97.9% for the three and nine
months ended September 30, 1999, from 97.3% and 98.3% for the comparable periods
in 1998. The decrease in cost of sales of 3.4% and 1.7% of revenue for the three
and nine months ended September 30, 1999, resulted primarily from improvements
in retread and new tire margins. Of the overall improvement in new tire margins
of 2.3% in the third quarter of 1999, approximately 1% related to a one-time
volume discount from a new tire supplier for August and September purchases. The
increase in selling, administrative and general expenses of 0.9% and 1.3% of
revenue for the three and nine months ended September 30, 1999, from the same
periods in 1998, resulted primarily from higher salaries and wages due to
salesmen's commissions, which are based on gross margins, and increased service
and inventory control personnel. In addition, bad debt expense was lower as a
result of an improved aging and more timely collections on accounts receivable.
OTHER OPERATING LOSS. The operating loss for the "other" category increased $1.0
million and $2.2 million for the three and nine months ended September 30, 1999,
due primarily to increases in corporate incentive pay accruals.
INTEREST EXPENSE. Interest expense increased $0.3 million and $0.8 million for
the three and nine months ended September 30, 1999, due primarily to borrowings
related to the purchase of the non-ABC-owned shares of Treadco (see Note H).
INCOME TAXES. The difference between the effective tax rate for 1999 and the
federal statutory rate resulted from state income taxes, amortization of
nondeductible goodwill, minority interest, nondeductible tender offer response
costs incurred by Treadco and other nondeductible expenses.
PREPAID EXPENSES. Prepaid expenses decreased $5.2 million from December 31, 1998
to September 30, 1999 due primarily to a $2.4 million claims payment from a
prepaid claims deposit account. In addition, a one-time payment for ABF
contractual employees paid in August 1998, that was being amortized on a monthly
basis, with a balance of $1.7 million at December 31, 1998, became fully
amortized in March 1999.
ACCRUED EXPENSES. Accrued expenses increased $15.1 million from December 31,
1998 to September 30, 1999 due primarily to increases in incentive accruals for
ABF and corporate employees.
21
<PAGE> 22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - continued
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the nine months ended September
30, 1999, was $74.0 million compared to $40.6 million for the nine months ended
September 30, 1998. The increase is due primarily to the improvement in
operating results and net income, as well as increases in accrued expenses for
the nine months ended September 30, 1999, compared to the same periods during
1998. Cash provided by operations, proceeds from asset sales of $13.9 million
and borrowings were used to purchase revenue equipment and other property and
equipment in the amount of $42.5 million, to purchase the non-ABC-owned shares
of Treadco for $23.7 million and to pay down outstanding debt during the nine
months ended September 30, 1999. During the nine months ended September 30,
1998, cash provided by operations, proceeds from the sale of assets of $14.3
million and borrowings were used to purchase operating assets of $48.5 million.
The Company is party to a $250 million credit agreement (the "Credit Agreement")
with Societe Generale, Southwest Agency, as Administrative Agent and with Bank
of America National Trust and Savings Association and Wells Fargo Bank (Texas),
N.A., as Co-Documentation Agents. The Credit Agreement provides for up to $250
million of revolving credit loans (including letters of credit) and extends
through 2003.
At September 30, 1999, there were $122.6 million of Revolver Advances and
approximately $22.8 million of letters of credit outstanding. At September 30,
1999, the Company had approximately $104.6 million of borrowing availability
under the Credit Agreement. The Credit Agreement contains various covenants,
which limit, among other things, indebtedness, distributions, disposition of
assets and capital expenditures, and require the Company to meet certain
quarterly financial ratio tests. As of September 30, 1999, the Company was in
compliance with the covenants.
The Company is party to an interest rate swap on a notional amount of $110
million. The purpose of the swap is 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 is fixed at
5.845% plus the Credit Agreement margin, which was .625% at September 30, 1999.
The Company borrowed $26.1 million under capital lease obligations for the nine
months ended September 30, 1999. Funds from these borrowings were used to
purchase revenue equipment.
At December 31, 1998, Treadco was a party to a revolving credit facility with
Societe Generale (the "Treadco Credit Agreement"), providing for borrowings up
to the lesser of $20 million or the applicable borrowing base.
The Treadco Credit Agreement was terminated on June 25, 1999.
Management believes, based upon the Company's current levels of operations, that
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.
22
<PAGE> 23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - continued
- --------------------------------------------------------------------------------
YEAR 2000
The Year 2000 issue derives from computer programs being written using two
digits rather than four to determine the applicable year. The Company recognizes
that the approach of the Year 2000 brings a unique challenge to the ability of
computer systems to recognize the date change from December 31, 1999, to January
1, 2000. As a result, the arrival of the Year 2000 could result in system
failures or miscalculations, causing disruption of operations, including, among
other things, a temporary inability to process transactions or to conduct other
normal business activity.
Management of the Company began addressing the impact of the Year 2000 on its
business operations in 1996. The Company concluded that the Year 2000 would
impact its internal information technology (IT) and non-information technology
(non-IT) systems. In addition, the Company believes that the Year 2000 will
impact its supplier chain environment and electronic data-interchange
environment. Beginning in 1996, and continuing since that time, the Company has
designated a group of personnel, composed primarily of employees of the
Company's computer information services subsidiary, Data-Tronics Corp., to
manage the conversion process for its own internal systems, including purchased
software, and to monitor the conversion process for supplier chain environment
systems and effects, as well as for the Company's data-interchange environment.
Internal IT and Non-IT Systems
Year 2000 conversions within the Company's mainframe environment have been
completed. The mainframe environment, which is Year 2000 ready and operational,
includes the Company's computer hardware and operating system, its customized
application software, and its purchased software. The Year 2000 readiness of
computer mainframe hardware, operating systems, and system utilities has been
verified by vendors and tested by Data-Tronics Corp. The Company's customized
application software required renovation and regression testing and the revised
Year 2000 ready software was installed and operational by the end of 1998.
Purchased software has been upgraded to a vendor defined Year 2000 ready
version, or replaced by another vendors' Year 2000 ready version. The carrying
value of software systems that were replaced for Year 2000 compliance is
nominal.
The Year 2000 readiness upgrades and testing of the numerous PC servers is
complete for all PC servers significant to the Company's business. Server
hardware has been tested and is Year 2000 ready. All operating systems have been
converted and upgraded with Year 2000 ready upgrades. From time to time, vendors
release new Year 2000 upgrades. The Company will continually monitor various
vendor resources for Year 2000-related compliance and install new upgrade
packages as necessary.
The Company's desktop PC hardware, operating systems, and applications have been
tested for Year 2000 readiness. All desktop PC environments that are significant
to the Company's business have been upgraded and are Year 2000 ready.
The Company's embedded systems are those that are automated with embedded
computerized microprocessor chips. The Company's evaluation of embedded systems
concluded that all affected systems are Year 2000 ready.
The Company has completed Year 2000 conversions of its electronic
data-interchange software.
23
<PAGE> 24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - continued
- --------------------------------------------------------------------------------
External IT and Non-IT Systems
The Company has completed the process of identifying critical exposures arising
from the Company's suppliers. The Company's list of critical suppliers includes
financial institutions, telecommunications providers, utility companies, and
insurance providers, as well as basic suppliers critical to the operations of
the Company's subsidiaries and to the Company. The Company has sent and is
continuing to send questionnaires to suppliers considered to be significant to
operations to determine their status with respect to Year 2000 issues. The
Company continually updates its list of critical exposures.
The Company does not have any single customer that would be material to the
Company as a whole. However, the Company has some customers who, in the
aggregate, are significant to the Company's operations and financial results.
Year 2000 Costs
The Company is using existing personnel who work primarily for Data-Tronics
Corp., to perform Year 2000 conversions and evaluations of third-party systems.
Since the beginning of the process, the Company estimates its expenditures at
approximately $1.6 million, including labor costs and costs that relate to
equipment and software purchases. Since 1996, Year 2000 costs have been absorbed
in the Company's normal operating expenses, which are funded with the Company's
internally generated funds or its revolving credit facility. The Company's cash
flows have not been adversely impacted to a material degree by Year 2000 costs.
Costs incurred through the current date for the Year 2000 conversion represent
less than 8% of the Company's budgeted information services costs for 1999. It
is management's conclusion that there have been no significant projects deferred
as a result of Year 2000 efforts.
The Company estimates it will spend an additional $0.2 million in Year 2000
related costs. The Company expects to continue to expend these costs in normal
operations and to fund them with internally generated funds or its revolving
credit facility.
Contingency Planning
Management of the Company has assessed its most reasonably likely worst case
scenario using currently available information regarding the status of the
internal and external IT systems and non-IT systems. As described above, the
Company has completed Year 2000 conversions within the Company's mainframe
environment, certain purchased software and its critical PC server and desktop
environments. The primary risk the Company faces is with third-party suppliers
and vendors not becoming Year 2000 compliant. The Company is still in the
process of receiving and in some cases sending follow-up questionnaires and
having discussions with critical suppliers of its subsidiaries. The Company
mailed more than 10,000 Year 2000 readiness questionnaires in order to assess
Year 2000 readiness of vendors, suppliers and other third parties. To date, the
Company has received the following response rates with respect to its
questionnaires: 69.0% for fuel vendors, 90.4% for communications suppliers,
73.9% for utility suppliers and 58.9% of its other suppliers. Substantially all
responses received have indicated that Year 2000 issues are being addressed and
that the respondents plan to achieve Year 2000 readiness. The Company continues
to monitor and assess questionnaires received and to follow up where considered
necessary.
24
<PAGE> 25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - continued
- --------------------------------------------------------------------------------
The Company has a written contingency plan that outlines procedures to deal with
Year 2000 risks and uncertainties that do not rise to the level of a most
reasonably likely worst case scenario. The Company's contingency plan includes
plans to assess the need to increase fuel inventories in late 1999,
identification of alternate fuel suppliers, identification of substitute data
collection points for localized power shortages, adjustments to staffing as
required for changing business levels, dynamic adjustments to freight routes to
bypass temporarily bottlenecked distribution centers, and stockpiles of freight
forms and reference lists for manual workarounds. The Company's contingency plan
also includes additional staffing levels to test certain critical systems
immediately after the Year 2000 rollover on January 1, 2000. Management of the
Company intends to continually monitor and update its Year 2000 contingency plan
as appropriate.
Based on responses contained in the questionnaires and other available
information, the Company believes that fuel supply shortages, widespread
communications systems interruptions, widespread utility systems interruptions
and tire and rubber products shortages (which would most affect Treadco) are not
most reasonably likely occurrences. The Company believes the most reasonably
likely worst case scenario is that some smaller customers will experience data
processing system problems because of non Year 2000 compliant software or
hardware and that the flow of freight from these customers could be disrupted as
a result. Such an event would impact the Company to a limited degree, resulting
in lower revenue in the early part of Year 2000. The Company also believes that
there could be spot shortages of fuel as a result of the Year 2000 issue,
primarily as a result of stockpiling by fuel users. The result of stockpiling of
fuel and other supplies by companies attempting to prepare for Year 2000 could
result in short-term increases in the cost of such products to the Company.
Although the Company has fuel surcharge provisions in its freight contracts, it
is uncertain that the Company would be able to increase prices to its customers
to cover all the additional costs the Company would incur in such a scenario.
With respect to the Company's primary business of freight transportation, if
stockpiling of industrial and other supplies by businesses and by consumers of
consumer goods is widespread in the fourth quarter of 1999, such stockpiling
would most likely decrease freight volumes in the first quarter of Year 2000 as
stockpiles are used. The most likely result of this combination of factors is
that the Company will experience lower freight volumes and higher costs in the
first quarter of Year 2000 and that operating results will be adversely
impacted. Management does not presently believe that any individual factor
described or the combination of factors described will likely have a material
long-term impact on the Company, although there can be no assurance in this
regard.
If there are any major disruptions to the overall economy or business levels
resulting from Year 2000 issues, the Company could be materially adversely
impacted. The Company could also be the subject of litigation for computer
systems products failure such as, for example, equipment shutdown or failure to
properly date business records. The amount of potential liability, increased
costs or lost revenue from any Year 2000 issue cannot be predicted at this time.
Like virtually all other public and private companies, the Company and its
suppliers and customers are dependent on telecommunications services, banking
services, and utility services provided by a large number of entities. At this
time, the Company is not aware of any of these entities or of any significant
supplier that has disclosed that it will not be Year 2000 compliant by January
1, 2000. However, many of these entities are still engaged in the process of
attempting to become Year 2000 compliant. As described previously, the Company
has attempted to and continues to attempt to obtain written assurance of Year
2000 compliance from all entities which management considers critical to the
operations of the Company and its subsidiaries. However, it is likely that some
critical suppliers will not give written assurance as to
25
<PAGE> 26
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - continued
- --------------------------------------------------------------------------------
Year 2000 compliance because of concerns as to legal liability. Even where
written assurance is provided by critical suppliers and even if the Company has
a contingency plan in place to deal with possible non-compliance by other
critical suppliers, the Year 2000 conversion process will continue to create
risk to the Company which is outside the control of the Company. There can be no
assurance that a major Year 2000 disruption will not occur in a critical
supplier which would have an impact on the Company that could be material.
SEASONALITY
ABF and G.I. Trucking 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. Clipper's operations are similar to 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 nine months of the calendar year generally having the highest
levels of sales.
FORWARD-LOOKING STATEMENTS
Statements contained in the Management's Discussion and Analysis section of this
report that are not based on historical facts are "forward-looking statements."
Terms such as "estimate," "expect," "predict," "plan," "anticipate," "believe,"
"intend," "should," "would," "scheduled," and similar expressions and the
negatives of such terms are intended to identify forward-looking statements.
Such statements are by their nature subject to uncertainties and risk, including
but not limited to union relations; availability and cost of capital; shifts in
market demand; weather conditions; the performance and needs of industries
served by Arkansas Best's subsidiaries; 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, the
timing and amount of capital expenditures; the accuracy of assessments and
estimates relating to Year 2000 computer issues; competitive initiatives and
pricing pressures; general economic conditions; and other financial, operational
and legal risks and uncertainties detailed from time to time in the Company's
SEC public filings.
26
<PAGE> 27
ITEM 2A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------------
INTEREST RATE INSTRUMENTS
The Company has historically been subject to market risk on all or a part of its
borrowings under bank credit lines which have variable interest rates.
In February 1998, the Company entered into an interest rate swap effective April
1, 1998. The swap agreement is a contract to exchange floating interest rate
payments for fixed rate payments over the life of the instrument. The notional
amount is used to measure interest to be paid or received and does not represent
the exposure to credit loss. The purpose of the swap is to limit the Company's
exposure to increases in interest rates on the notional amount of bank
borrowings over the term of the swap. The fixed interest rate under the swap is
5.845% plus the Credit Agreement margin (currently .625%). This instrument is
not recorded on the balance sheet of the Company. Details regarding the swap, as
of September 30, 1999, are as follows:
<TABLE>
<CAPTION>
Notional Rate Rate Fair
Amount Maturity Paid Received Value (2)
------ -------- ---- -------- ---------
<S> <C> <C> <C> <C>
$110.0 million April 1, 2005 5.845% Plus Credit Agreement LIBOR rate (1) $3.0 million
Margin (currently .625%) Plus Credit Agreement
Margin (currently .625%)
</TABLE>
(1) LIBOR rate is determined two London Banking Days prior to the first day of
every month, and continues up to and including the maturity date.
(2) The fair value is an estimated amount the Company would have received at
September 30, 1999, to terminate the agreement.
OTHER MARKET RISKS
Since December 31, 1998, there have been no significant changes in the Company's
other market risks, as reported in the Company's Form 10-K Annual Report.
27
<PAGE> 28
PART II.
OTHER INFORMATION
ARKANSAS BEST CORPORATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, the Company is named as a defendant in legal
actions, the majority of which arise out of the normal course of its business.
The Company is not a party to any pending legal proceeding which the Company's
management believes to be material to the financial condition of the Company.
The Company maintains liability insurance in excess of self-retention levels of
certain risks arising out of the normal course of its business (see Note E to
the Company's Unaudited Consolidated Financial Statements).
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS.
Financial Data Schedule
(B) REPORTS ON FORM 8-K.
None.
28
<PAGE> 29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ARKANSAS BEST CORPORATION
(Registrant)
Date: November 4, 1999 /s/ David E. Loeffler
-------------------------------------------------
David E. Loeffler
Vice President-Treasurer, Chief Financial Officer
and Principal Accounting Officer
29
<PAGE> 30
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
</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 NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,374
<SECURITIES> 0
<RECEIVABLES> 194,049
<ALLOWANCES> 5,646
<INVENTORY> 32,161
<CURRENT-ASSETS> 242,416
<PP&E> 618,850
<DEPRECIATION> 277,701
<TOTAL-ASSETS> 732,830
<CURRENT-LIABILITIES> 279,366
<BONDS> 202,370
0
15
<COMMON> 197
<OTHER-SE> 205,216
<TOTAL-LIABILITY-AND-EQUITY> 732,830
<SALES> 139,893
<TOTAL-REVENUES> 1,266,130
<CGS> 97,992
<TOTAL-COSTS> 1,190,263
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,831
<INTEREST-EXPENSE> 14,232
<INCOME-PRETAX> 59,427
<INCOME-TAX> 24,776
<INCOME-CONTINUING> 34,651
<DISCONTINUED> (664)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,987
<EPS-BASIC> 1.57
<EPS-DILUTED> 1.43
</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 nine months ended
September 30, 1998 as restated for discontinued operations and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,405
<SECURITIES> 0
<RECEIVABLES> 168,215
<ALLOWANCES> 7,104
<INVENTORY> 31,509
<CURRENT-ASSETS> 246,570
<PP&E> 564,820
<DEPRECIATION> 246,298
<TOTAL-ASSETS> 729,332
<CURRENT-LIABILITIES> 263,242
<BONDS> 224,956
0
15
<COMMON> 196
<OTHER-SE> 164,946
<TOTAL-LIABILITY-AND-EQUITY> 729,332
<SALES> 135,044
<TOTAL-REVENUES> 1,202,951
<CGS> 96,988
<TOTAL-COSTS> 1,151,881
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,899
<INTEREST-EXPENSE> 13,389
<INCOME-PRETAX> 34,340
<INCOME-TAX> 13,888
<INCOME-CONTINUING> 20,452
<DISCONTINUED> (1,340)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,112
<EPS-BASIC> .81
<EPS-DILUTED> .80
</TABLE>
