<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 June 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 July 31, 1999
---------------------------------- ---------------------------------
Common Stock, $.01 par value 19,667,333 shares
<PAGE> 2
ARKANSAS BEST CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets --
June 30, 1999 and December 31, 1998 ................................................... 3
Consolidated Statements of Operations --
For the Three and Six Months Ended June 30, 1999 and 1998 .............................. 5
Consolidated Statements of Shareholders' Equity
For the Six Months Ended June 30, 1999 ................................................. 7
Condensed Consolidated Statements of Cash Flows --
For the Six Months Ended June 30, 1999 and 1998 ........................................ 8
Notes to Consolidated Financial Statements - June 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................................ 26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ........................................................................ 27
Item 2. Changes in Securities .................................................................... 27
Item 3. Defaults Upon Senior Securities .......................................................... 27
Item 4. Submission of Matters to a Vote of Security Holders ...................................... 27
Item 5. Other Information ........................................................................ 27
Item 6. Exhibits and Reports on Form 8-K ......................................................... 27
SIGNATURES ................................................................................................... 28
</TABLE>
<PAGE> 3
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1999 1998
------------ ------------
(UNAUDITED) NOTE
($ thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ........................... $ 4,436 $ 4,543
Trade receivables less allowances
(1999 -- $5,573,000; 1998 -- $7,051,000) ......... 174,543 166,520
Inventories ......................................... 31,239 33,150
Prepaid expenses .................................... 8,104 12,700
Deferred income taxes ............................... 852 874
Net assets of discontinued operations ............... 1,145 3,546
Other ............................................... 3,367 5,467
------------ ------------
TOTAL CURRENT ASSETS ............................. 223,686 226,800
PROPERTY, PLANT AND EQUIPMENT
Land and structures ................................. 219,261 218,250
Revenue equipment ................................... 280,294 256,474
Manufacturing equipment ............................. 15,688 17,506
Service, office and other equipment ................. 77,835 73,891
Leasehold improvements .............................. 9,974 9,484
------------ ------------
603,052 575,605
Less allowances for depreciation and amortization ... (269,988) (255,732)
------------ ------------
333,064 319,873
OTHER ASSETS ........................................... 41,218 35,682
GOODWILL, less amortization (1999 -- $34,348,000;
1998 -- $36,740,000) ................................ 111,433 124,975
------------ ------------
$ 709,401 $ 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>
JUNE 30 DECEMBER 31
1999 1998
--------------- --------------
(UNAUDITED) NOTE
($ thousands)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft and drafts payable ........................................... $ 15,992 $ 19,830
Trade accounts payable ...................................................... 73,910 69,983
Accrued expenses............................................................. 156,290 145,432
Federal and state income taxes............................................... 5,699 8,179
Current portion of long-term debt ........................................... 19,119 17,504
--------------- --------------
TOTAL CURRENT LIABILITIES ................................................ 271,010 260,928
LONG-TERM DEBT, less current portion ........................................... 207,663 196,079
OTHER LIABILITIES .............................................................. 25,590 20,577
DEFERRED INCOME TAXES .......................................................... 15,296 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: 19,634,133 shares;
1998: 19,610,213 shares .................................................. 196 196
Additional paid-in capital .................................................. 193,282 193,117
Retained earnings (deficit) ................................................. (3,651) (19,413)
Accumulated other comprehensive income....................................... - -
---------------- --------------
TOTAL SHAREHOLDERS' EQUITY ............................................... 189,842 173,915
COMMITMENTS AND CONTINGENCIES ..................................................
--------------- --------------
$ 709,401 $ 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 SIX MONTHS ENDED
JUNE 30 JUNE 30
1999 1998 1999 1998
------------ ------------ ------------ ------------
(UNAUDITED)
($ thousands, except per share data)
<S> <C> <C> <C> <C>
CONTINUING OPERATIONS:
OPERATING REVENUES
Transportation operations ..................... $ 372,772 $ 359,133 $ 726,687 $ 699,011
Tire operations ............................... 46,133 46,456 86,593 83,523
------------ ------------ ------------ ------------
418,905 405,589 813,280 782,534
------------ ------------ ------------ ------------
OPERATING EXPENSES AND COSTS
Transportation operations ..................... 347,793 341,327 683,533 669,275
Tire operations ............................... 45,807 45,248 86,734 82,927
------------ ------------ ------------ ------------
393,600 386,575 770,267 752,202
------------ ------------ ------------ ------------
OPERATING INCOME ................................. 25,305 19,014 43,013 30,332
OTHER INCOME (EXPENSE)
Net gains (losses) on sales of property
and non-revenue equipment .................. (32) 756 464 1,348
Interest expense .............................. (4,784) (4,449) (9,327) (8,831)
Minority interest in Treadco, Inc. ............ -- (470) 245 (129)
Other, net .................................... (1,356) (1,982) (2,376) (3,445)
------------ ------------ ------------ ------------
(6,172) (6,145) (10,994) (11,057)
------------ ------------ ------------ ------------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES ............. 19,133 12,869 32,019 19,275
FEDERAL AND STATE INCOME TAXES (CREDIT)
Current ....................................... 7,144 4,407 13,832 8,316
Deferred ...................................... 892 743 (388) (519)
------------ ------------ ------------ ------------
8,036 5,150 13,444 7,797
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS ................ 11,097 7,719 18,575 11,478
------------ ------------ ------------ ------------
DISCONTINUED OPERATIONS:
Loss from discontinued operations
(net of tax benefits of $112 for the three
months ended June 30, 1998 and $394
and $140 for the six months ended
June 30, 1999 and 1998, respectively) ......... -- (318) (664) (459)
------------ ------------ ------------ ------------
LOSS FROM DISCONTINUED OPERATIONS ................ -- (318) (664) (459)
------------ ------------ ------------ ------------
NET INCOME ....................................... 11,097 7,401 17,911 11,019
Preferred stock dividends ..................... 1,074 1,074 2,149 2,149
------------ ------------ ------------ ------------
NET INCOME
FOR COMMON SHAREHOLDERS ....................... $ 10,023 $ 6,327 $ 15,762 $ 8,870
============ ============ ============ ============
</TABLE>
5
<PAGE> 6
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS -- Continued
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 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) ........... $ 0.51 $ 0.34 $ 0.83 $ 0.47
Discontinued operations ............. -- (0.02) (0.03) (0.02)
-------------- -------------- -------------- --------------
NET INCOME PER SHARE (1) ............... $ 0.51 $ 0.32 $ 0.80 $ 0.45
============== ============== ============== ==============
AVERAGE COMMON SHARES OUTSTANDING
(BASIC): ............................ 19,632,533 19,610,213 19,623,093 19,607,713
============== ============== ============== ==============
DILUTED:
Continuing operations (2) ........... $ 0.47 $ 0.32 $ 0.79 $ 0.46
Discontinued operations ............. -- (0.01) (0.03) (0.02)
-------------- -------------- -------------- --------------
NET INCOME PER SHARE (2) ............... $ 0.47 $ 0.31 $ 0.76 $ 0.44
-------------- -------------- -------------- --------------
AVERAGE COMMON SHARES OUTSTANDING
(DILUTED) ........................... 23,780,913 23,850,481 23,681,525 20,065,431
============== ============== ============== ==============
CASH DIVIDENDS PAID PER COMMON SHARE ... $ -- $ -- $ -- $ --
============== ============== ============== ==============
</TABLE>
(1) Gives consideration to preferred stock dividends of $1.1 million per
quarter.
(2) For the six months ended June 30, 1998, consideration is given to
preferred dividends of $2.1 million. Conversion of preferred stock into
common would be antidilutive for the six months ended June 30, 1998.
For the three months ended June 30, 1999 and 1998, and the six months
ended June 30, 1999, conversion of preferred shares into common is
assumed.
6
<PAGE> 7
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL RETAINED OTHER
PREFERRED COMMON PAID-IN EARNINGS COMPREHENSIVE TOTAL
STOCK STOCK CAPITAL (DEFICIT) INCOME EQUITY
--------- ------ ------- --------- ------------ ------
(UNAUDITED)
($ thousands)
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1999 ........... $ 15 $ 196 $ 193,117 $ (19,413) $ -- $ 173,915
Net income ............................ -- -- -- 17,911 -- 17,911
Common stock issued on
exercise of stock options............ -- -- 158 -- -- 158
Tax effect of stock options exercised . -- -- 7 -- -- 7
Dividends paid on preferred stock ..... -- -- -- (2,149) -- (2,149)
----- ------- ---------- ---------- ------ ----------
Balances at June 30, 1999 ............. $ 15 $ 196 $ 193,282 $ (3,651) $ -- $ 189,842
===== ======= ========== ========== ====== ==========
</TABLE>
7
<PAGE> 8
ARKANSAS BEST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
1999 1998
---------- ----------
(UNAUDITED)
($ thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by operating activities ............... $ 54,004 $ 26,881
INVESTING ACTIVITIES
Purchases of property, plant and equipment,
less capitalized leases ............................... (28,736) (39,694)
Purchase of Treadco, Inc. stock ......................... (23,673) --
Proceeds from asset sales and other ..................... 9,085 9,463
---------- ----------
NET CASH USED BY INVESTING ACTIVITIES ...................... (43,324) (30,231)
---------- ----------
FINANCING ACTIVITIES
Deferred financing costs and expenses ................... (125) (688)
Borrowings under revolving credit facilities ............ 231,250 291,700
Payments under revolving credit facilities .............. (222,500) (261,700)
Payments on long-term debt .............................. (13,409) (12,922)
Payments under term loan facilities ..................... -- (13,000)
Dividends paid .......................................... (2,149) (2,149)
Other, net .............................................. (3,854) 1,250
---------- ----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES ........... (10,787) 2,491
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS .................. (107) (859)
Cash and cash equivalents at beginning of period ........ 4,543 7,203
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................. $ 4,436 $ 6,344
========== ==========
</TABLE>
8
<PAGE> 9
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 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 Domestic"); G.I. Trucking Company ("G.I. Trucking"); and
FleetNet America, Inc.
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 six months ended June 30,
1999 and 1998, 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 differences between the effective tax rates for the three and six month
periods ended June 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
The Company has engaged, since 1995, 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 will be liquidated. The aggregate of the
selling price of these assets and the estimated liquidation value of the
remaining Clipper International assets was approximately $5.0 million which is
approximately equal to the Company's net investment in the related assets.
9
<PAGE> 10
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - Continued
- --------------------------------------------------------------------------------
Results of operations of the international ocean freight services segment have
been reported as discontinued operations as of June 30, 1999 and the statements
of operations for all periods have been restated to remove revenue and expenses
of this segment. Results of Clipper International included in discontinued
operations are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1999 1998 1999 1998
---------- ---------- ---------- ----------
($ thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues .................................... $ -- $ 11,269 $ 6,777 $ 22,231
Operating loss .............................. -- (338) (1,114) (420)
Pre-tax loss ................................ -- (430) (1,058) (599)
</TABLE>
NOTE D - INVENTORIES
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1999 1998
---------- ----------
($ thousands)
<S> <C> <C>
Finished goods ................................................................. $ 23,609 $ 25,523
Materials ...................................................................... 4,844 5,147
Repair parts, supplies and other ............................................... 2,786 2,480
---------- ----------
$ 31,239 $ 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 81 underground tanks located in 26 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 the
deadline set by the EPA.
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 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.
10
<PAGE> 11
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - Continued
- --------------------------------------------------------------------------------
As of June 30, 1999, the Company has accrued approximately $3.1 million to
provide for environmental-related liabilities. The Company's environmental
accrual is based on management's best estimate of the actual liability. The
Company's estimate is founded on management's experience in dealing with similar
environmental matters and on actual testing performed at some sites. Management
believes that the accrual is adequate to cover environmental liabilities based
on the present environmental regulations. 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 six months
ended June 30, 1999, the Company capitalized internal software development costs
amounting to approximately $.7 million and $1.1 million, respectively, which
increased net income (basic and diluted) and income from continuing operations
(basic and diluted) by $.02 per share and $.03 per share, respectively.
In April 1998, the AcSEC issued Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities. Under the SOP, certain costs associated with
start-up activities are required to be expensed as incurred. The Company adopted
SOP 98-5 in 1999. The Company has historically expensed start-up costs and,
therefore, there is no impact of adoption on the Company's financial statements
and related disclosures.
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Statement addresses the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and hedging activities. The Statement will require the Company
to recognize all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income. If a
derivative is a hedge, depending on the nature of the hedge, changes in the fair
value of the derivative will either be offset against the change in fair value
of the hedged asset, liability, or firm commitment through earnings, or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The Statement is effective for the Company in 2001. The Company is
evaluating the impact the Statement will have on its financial statements and
related disclosures.
11
<PAGE> 12
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - Continued
- --------------------------------------------------------------------------------
NOTE G - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1999 1998 1999 1998
------------ ------------ ------------ ------------
($ thousands, except per share data)
<S> <C> <C> <C> <C>
NUMERATOR:
Numerator for basic earnings per share --
Net income .................................... $ 11,097 $ 7,401 $ 17,911 $ 11,019
Preferred stock dividends ....................... (1,074) (1,074) (2,149) (2,149)
------------ ------------ ------------ ------------
Numerator for basic earnings per share --
Net income available to common shareholders ... 10,023 6,327 15,762 8,870
Effect of dilutive securities (1) ............... 1,074 1,074 2,149 --
------------ ------------ ------------ ------------
Numerator for diluted earnings per share --
Net income available to common shareholders ... $ 11,097 $ 7,401 $ 17,911 $ 8,870
============ ============ ============ ============
DENOMINATOR:
Denominator for basic earnings per
share -- weighted-average shares .............. 19,632,533 19,610,213 19,623,093 19,607,713
Effect of dilutive securities:
Conversion of preferred stock (1) ............. 3,796,852 3,796,852 3,796,852 --
Employee stock options ........................ 351,528 443,416 261,580 457,718
------------ ------------ ------------ ------------
Denominator for diluted earnings per
share -- adjusted weighted-average
shares and assumed conversions ................ 23,780,913 23,850,481 23,681,525 20,065,431
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE
BASIC:
Continuing operations ........................... $ 0.51 $ 0.34 $ 0.83 $ 0.47
Discontinued operations ......................... -- (0.02) (0.03) (0.02)
------------ ------------ ------------ ------------
NET INCOME PER SHARE ............................... $ 0.51 $ 0.32 $ 0.80 $ 0.45
============ ============ ============ ============
AVERAGE COMMON SHARES
OUTSTANDING (BASIC): ............................. 19,632,533 19,610,213 19,623,093 19,607,713
============ ============ ============ ============
DILUTED:
Continuing operations ........................... $ 0.47 $ 0.32 $ 0.79 $ 0.46
Discontinued operations ......................... -- (0.01) (0.03) (0.02)
------------ ------------ ------------ ------------
NET INCOME PER SHARE ............................... $ 0.47 $ 0.31 $ 0.76 $ 0.44
============ ============ ============ ============
AVERAGE COMMON SHARES
OUTSTANDING (DILUTED): ........................... 23,780,913 23,850,481 23,681,525 20,065,431
============ ============ ============ ============
CASH DIVIDENDS PAID PER COMMON SHARE ............... $ -- $ -- $ -- $ --
============ ============ ============ ============
</TABLE>
(1) For the six months ended June 30, 1998, consideration is given to
preferred dividends of $2.1 million. Conversion of preferred stock into
common would be antidilutive for the six months ended June 30, 1998.
For the three months ended June 30, 1999 and 1998, and the six months
ended June 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 in 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 six months ended
June 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
-------------------------
1999 1998
<S> <C> <C>
Operating revenues ................. $ 813,280 $ 782,534
Net income.......................... 17,699 11,245
Net income per share (diluted)...... 0.75 0.45
</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 Domestic;
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 six months ended June 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 SIX MONTHS ENDED
JUNE 30 JUNE 30
1999 1998 1999 1998
------------- ------------- ------------- ------------
(UNAUDITED)
($ thousands)
<S> <C> <C> <C> <C>
OPERATING REVENUES
ABF Freight System, Inc.............................. $ 308,667 $ 293,832 $ 604,119 $ 574,099
G.I. Trucking Company................................ 34,913 31,816 66,447 60,414
Clipper Domestic..................................... 26,810 31,856 51,275 62,101
Treadco, Inc......................................... 46,684 47,094 87,629 84,599
Other revenues and eliminations...................... 1,831 991 3,810 1,321
------------- ------------- ------------- ------------
Total consolidated operating revenues.............. $ 418,905 $ 405,589 $ 813,280 $ 782,534
============= ============= ============= ============
OPERATING EXPENSES AND COSTS
ABF FREIGHT SYSTEM, INC.
Salaries and wages................................... $ 201,658 $ 199,146 $ 398,374 $ 389,890
Supplies and expenses................................ 34,515 31,416 65,542 62,053
Operating taxes and licenses......................... 9,114 9,396 18,722 18,883
Insurance............................................ 4,809 4,445 9,827 9,468
Communications and utilities......................... 3,882 3,383 7,543 6,708
Depreciation and amortization........................ 7,296 6,294 14,284 12,160
Rents and purchased transportation................... 23,160 23,054 45,602 45,142
Other................................................ 1,140 1,491 2,499 2,945
(Gain) on sale of revenue equipment ................. (207) (1,501) (248) (1,619)
------------- ------------- ------------- ------------
285,367 277,124 562,145 545,630
------------- ------------- ------------- ------------
</TABLE>
14
<PAGE> 15
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1999 1998 1999 1998
------------ ------------ ------------ ------------
(UNAUDITED)
($ thousands)
<S> <C> <C> <C> <C>
G.I. TRUCKING COMPANY
Salaries and wages ................................. 15,938 14,550 30,722 28,105
Supplies and expenses .............................. 2,826 2,644 5,370 5,297
Operating taxes and licenses ....................... 813 595 1,574 1,240
Insurance .......................................... 1,004 1,197 2,035 2,232
Communications and utilities ....................... 427 417 855 776
Depreciation and amortization ...................... 763 852 1,505 1,540
Rents and purchased transportation ................. 10,979 10,149 20,768 18,765
Other .............................................. 796 812 1,693 1,575
(Gain) on sale of revenue equipment ................ (48) (57) (54) (62)
------------ ------------ ------------ ------------
33,498 31,159 64,468 59,468
------------ ------------ ------------ ------------
CLIPPER DOMESTIC
Cost of services ................................... $ 22,932 $ 27,400 $ 44,423 $ 53,952
Selling, administrative and general ................ 3,383 4,010 6,715 8,161
(Gain) on sale of revenue equipment ................ (2) (44) (33) (64)
------------ ------------ ------------ ------------
26,313 31,366 51,105 62,049
------------ ------------ ------------ ------------
TREADCO, INC ..........................................
Cost of sales ...................................... 32,562 32,902 61,469 59,917
Selling, administrative and general ................ 13,629 12,691 25,922 23,757
------------ ------------ ------------ ------------
46,191 45,593 87,391 83,674
------------ ------------ ------------ ------------
Other expenses and eliminations ....................... 2,231 1,333 5,158 1,381
------------ ------------ ------------ ------------
Total consolidated operating expenses and costs .... $ 393,600 $ 386,575 $ 770,267 $ 752,202
============ ============ ============ ============
OPERATING INCOME (LOSS)
ABF Freight System, Inc. .............................. $ 23,300 $ 16,708 $ 41,974 $ 28,469
G.I. Trucking Company ................................. 1,415 657 1,979 946
Clipper Domestic ...................................... 497 490 170 52
Treadco, Inc. ......................................... 493 1,501 238 925
Other income (loss) and eliminations .................. (400) (342) (1,348) (60)
------------ ------------ ------------ ------------
Total consolidated operating income ................ $ 25,305 $ 19,014 $ 43,013 $ 30,332
============ ============ ============ ============
</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 prior period 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 contains additional information regarding the Company's
operating segments.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1999 1998 1999 1998
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING EXPENSES AND COSTS
ABF FREIGHT SYSTEM, INC.
Salaries and wages .......................... 65.3% 67.8% 65.9% 67.9%
Supplies and expenses ....................... 11.2 10.7 10.8 10.8
Operating taxes and licenses ................ 3.0 3.2 3.1 3.3
Insurance ................................... 1.6 1.5 1.6 1.6
Communications and utilities ................ 1.3 1.2 1.2 1.2
Depreciation and amortization ............... 2.4 2.1 2.4 2.1
Rents and purchased transportation .......... 7.5 7.8 7.5 7.9
Other ....................................... 0.3 0.5 0.6 0.5
(Gain) on sale of revenue equipment ......... (0.1) (0.5) -- (0.3)
-------- -------- -------- --------
92.5% 94.3% 93.1% 95.0%
-------- -------- -------- --------
G.I. TRUCKING COMPANY
Salaries and wages .......................... 45.7% 45.7% 46.2% 46.5%
Supplies and expenses ....................... 8.1 8.3 8.1 8.8
Operating taxes and licenses ................ 2.3 1.9 2.4 2.1
Insurance ................................... 2.9 3.8 3.1 3.7
Communications and utilities ................ 1.2 1.3 1.3 1.3
Depreciation and amortization ............... 2.2 2.7 2.3 2.5
Rents and purchased transportation .......... 31.4 31.9 31.3 31.1
Other ....................................... 2.2 2.5 2.4 2.5
(Gain) on sale of revenue equipment ......... (0.1) (0.2) (0.1) (0.1)
-------- -------- -------- --------
95.9% 97.9% 97.0% 98.4%
-------- -------- -------- --------
CLIPPER DOMESTIC
Cost of services ............................ 85.5% 86.0% 86.6% 86.9%
Selling, administrative and general ......... 12.6 12.6 13.2 13.1
(Gain) on sale of revenue equipment ......... -- (0.1) (0.1) (0.1)
-------- -------- -------- --------
98.1% 98.5% 99.7% 99.9%
-------- -------- -------- --------
TREADCO, INC.
Cost of sales ............................... 69.7% 69.9% 70.1% 70.8%
Selling, administrative and general ......... 29.2 26.9 29.6 28.1
-------- -------- -------- --------
98.9% 96.8% 99.7% 98.9%
-------- -------- -------- --------
OPERATING INCOME (LOSS)
ABF Freight System ....................... 7.5% 5.7% 6.9% 5.0%
G.I. Trucking Company .................... 4.1% 2.1% 3.0% 1.6%
Clipper Domestic ......................... 1.9% 1.5% 0.3% 0.1%
Treadco, Inc. ............................ 1.1% 3.2% 0.3% 1.1%
</TABLE>
16
<PAGE> 17
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - continued
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999, COMPARED TO THE THREE AND SIX MONTHS
ENDED JUNE 30, 1998
Consolidated revenues from continuing operations of the Company for the three
and six months ended June 30, 1999, increased 3.3% and 3.9%, respectively,
compared to the same periods in 1998, due primarily to increases in revenues for
ABF and G.I. Trucking. These increases were offset somewhat by declines in
Clipper Domestic revenues. The Company's operating income from continuing
operations for the three and six months ended June 30, 1999, increased 33.1% and
41.8% compared to the same periods in 1998. Increases in operating income from
continuing operations are attributable to improved operations at ABF and G.I.
Trucking, offset, in part, by a decline in the operating income of Treadco.
Income from continuing operations for the three and six months ended June 30,
1999, increased 43.8% and 61.8% 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
46.8% to $0.47 per share and 71.7% to $0.79 per share for the three and six
months ended June 30, 1999, when compared to the same periods in 1998.
ABF FREIGHT SYSTEM, INC.
Effective January 1, 1999, and January 1, 1998, ABF implemented overall rate
increases of 5.5% and 5.3%, respectively. Revenues for the three and six months
ended June 30, 1999, increased 5.0% and 5.2% to $308.7 million and $604.1
million, respectively, from $293.8 million and $574.1 million for the same
periods in 1998. ABF generated operating income for the three and six months
ended June 30, 1999, of $23.3 million and $42.0 million compared to $16.7
million and $28.5 million for the three and six months ended June 30, 1998.
ABF's increase in revenue is due primarily to increases in LTL revenue per
hundredweight of 5.6% and 5.4% to $19.28 and $19.23 when the three and six
months ended June 30, 1999, are compared to the same periods in 1998, reflecting
a continuing favorable pricing environment. ABF's LTL tonnage declined slightly,
0.1%, for the three months ended June 30, 1999, compared to the same period in
1998; however, LTL tonnage increased slightly, 0.3%, for the six months ended
June 30, 1999, when compared to the same period in 1998.
ABF's operating ratio improved to 92.5% and 93.1% for the three and six months
ended June 30, 1999, from 94.3% and 95.0% 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 2.5% and 2.0% for
the three and six months ended June 30, 1999, compared to the same periods in
1998. This decrease is due in part to lower line-haul costs due to driver
retirements, a lower effective wage rate associated with more new hires and an
increase in rail utilization for freight transportation. Rail usage increased to
16.4% of total miles for both the three and six months ended June 30, 1999,
compared to 15.2% and 14.4% in the same periods of 1998. 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.
17
<PAGE> 18
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - continued
- -------------------------------------------------------------------------------
Supplies and expenses, as a percent of revenue, remained constant, as a percent
of revenue, for the first six months of 1999, compared to the first six months
of 1998. However, supplies and expenses increased 0.5% of revenue from the
second quarter of 1998 to the second quarter of 1999. This increase is due
primarily to trailer repair costs associated with 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 June 30, 1999, the Company has completed the installation
on over 48% of all road trailers and a small number of city trailers. In
addition, fuel costs, as a percent of revenue, were slightly above second
quarter 1998, due to higher diesel prices, which increased 4.5% for the second
quarter of 1999 compared to the second quarter of 1998.
Depreciation and amortization increased 0.3% as a percent of revenue for the
three and six months ended June 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 six months of 1998.
Rents and purchased transportation expense decreased 0.3% and 0.4% as a percent
of revenue for the three and six months ended June 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. As described above, ABF's rail usage increased for
the three and six months ended June 30, 1999, compared to the same periods in
1998.
G.I. TRUCKING
Effective November 1, 1998, G.I. Trucking implemented a general rate increase of
5.5%. Revenues increased 9.7% and 10.0% to $34.9 million and $66.4 million for
the three and six months ended June 30, 1999, compared to $31.8 million and
$60.4 million for the same periods in 1998. The revenue increase resulted from
increases in revenue per hundredweight of 1.8% and 1.5%, to $10.80 and $10.76,
respectively, for the three and six months ended June 30, 1999, compared to the
same periods in 1998. In addition, tonnage increased 7.8% and 8.4% for the three
and six months ended June 30, 1999, compared to the same periods in 1998.
G.I. Trucking's operating ratio improved to 95.9% and 97.0% for the three and
six months ended June 30, 1999, from 97.9% and 98.4% for the same periods in
1998. The improvement results from the revenue yield improvement discussed above
and improvements in certain operating expenses as follows:
Salaries and wages expense declined 0.3% as a percent of revenue during the six
months ended June 30, 1999, as compared to the same period in 1998. This
decrease is due to lower pension costs and improved productivity of the labor
force.
Supplies and expenses decreased 0.2% and 0.7% as a percent of revenue for the
three and six months ended June 30, 1999, as compared to the same periods during
1998. This decrease is due primarily to the fact that repair and maintenance
costs on revenue equipment were lower during the three and six months ended June
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.
18
<PAGE> 19
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - continued
- -------------------------------------------------------------------------------
Operating taxes and licenses increased 0.4% and 0.3% as a percent of revenue for
the three and six months ended June 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 six months ended June 30, 1999, as
compared to the same periods during 1998, due to G.I. Trucking's increased fleet
size resulting from the purchase of 91 tractors and 145 trailers during the
first six months of 1999. G.I. Trucking expects to dispose of some old equipment
during the last half of 1999.
Insurance expense declined 0.9% and 0.6% as a percent of revenue for the three
and six months ended June 30, 1999, compared to the same periods in 1998. This
improvement was due to favorable claims experience for worker's compensation.
Depreciation and amortization expense decreased 0.5% and 0.2% as a percent of
revenue for the three and six months ended June 30, 1999, compared to the same
periods during 1998 due primarily to several older tractors and trailers
becoming fully depreciated during the first six months of 1999.
Rents and purchased transportation expenses decreased 0.5% as a percent of
revenue from the three months ended June 30, 1998 to the three months ended June
30, 1999, primarily as a result of lower purchased transportation costs, offset
in part by an increase in G.I. Trucking's terminal rent cost, related to the
opening of new terminals during 1998. For the six months ended June 30, 1999,
compared to the six months ended June 30, 1998, rents and purchased
transportation increased 0.2% as a percent of revenue due primarily to an
increase in G.I. Trucking's terminal rent costs, also related to the opening of
new terminals during 1998.
CLIPPER DOMESTIC.
Revenues from Clipper Domestic were $26.8 million and $51.3 million for the
three and six months ended June 30, 1999, representing a decrease of 15.8% and
17.4% from the three and six months ended June 30, 1998, which had revenues of
$31.9 million and $62.1 million, respectively. Beginning in the fourth quarter
of 1997, Clipper Domestic was adversely affected by the service problems with
the U.S. rail system. During the fourth quarter of 1998, Clipper Domestic
experienced some improvements in the on-time service levels of its rail
suppliers. In the first and second quarters of 1999, rail service continued to
improve; however, in certain lanes, rail service remains inconsistent. Clipper
Domestic's intermodal shipments declined 9.3% and 8.6% for the three and six
months ended June 30, 1999, compared to the same periods in 1998. These declines
result primarily from business lost as a result of inconsistent rail service in
1998. Clipper Domestic is aggressively trying to regain this business but is
faced with competition from truckload carriers and other rail service providers.
Clipper Domestic experienced declines of 10.9% and 6.4% in the number of LTL
shipments from the three and six months ended June 30, 1998 to the three and six
months ended June 30, 1999. The declines in LTL shipments resulted from
management's decision to concentrate on metro-to-metro, long-haul lanes,
therefore eliminating certain unprofitable lanes. In addition, LTL business
levels were negatively impacted by the heavy snowfall in the Chicago, Illinois
area in January 1999.
Clipper Domestic's operating ratio improved to 98.1% and 99.7% for the three and
six months ended June 30, 1999, from 98.5% and 99.9% for the three and six
months ended June 30, 1998. Clipper Domestic's operating ratio improvements
result from the elimination of certain unprofitable lanes, higher
19
<PAGE> 20
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - continued
- -------------------------------------------------------------------------------
percentage of rail utilization of 57.8% and 56.4% for the three and six months
ended June 30, 1999, compared to 48.4% 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 $46.7 million and $87.6 million for the three
and six months ended June 30, 1999, compared to $47.1 million and $84.6 million
for the same periods in 1998. For the three months ended June 30, 1999, "same
store" sales decreased 1.1% compared to the same period in 1998. For the six
months ended June 30, 1999, "same store" sales increased 2.9% compared to the
same period in 1998. "New store" sales increased 0.2% and 0.7% from the three
and six months ended June 30, 1998. "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 two new sales locations. Revenues
from retreading for the three months ended June 30, 1999, were $17.9 million,
representing a decrease of 3.0% from $18.4 million for the three months ended
June 30, 1998. Retread revenues for the six months ended June 30, 1999, were
$34.0 million, which equaled retread revenues for the same period in 1998.
Retread revenues for the three months ended June 30, 1999, were lower due to a
decrease in the volume of units sold of approximately 5.4% from the same period
in 1998. This decrease was offset in part by an increase in the sales price per
unit of approximately 2.4% from the three months ended June 30, 1998. Revenues
from new tire sales decreased slightly, 0.9%, to $23.5 million for the second
quarter 1999, from $23.7 million during the same period in 1998, due to a 3.0%
decrease in the sales price per unit, offset in part by a 2.1% increase in unit
sales from the second quarter 1998. However, revenues from new tire sales
increased 4.2% to $43.7 million for the six months ended June 30, 1999, from
$42.0 million during the same period in 1998, due primarily to a 5.9% increase
in units sold, offset, in part, by a decrease in the sales price per unit of
1.6%. Service revenues for the three and six months ended June 30, 1999, were
$5.3 million and $9.9 million, compared to $5.0 million and $8.7 million during
the same periods in 1998. Service revenues increased due to Treadco's continued
emphasis on its service operations.
Treadco's operating ratio increased to 98.9% and 99.7% for the three and six
months ended June 30, 1999, from 96.8% and 98.9% during the same periods in
1998. The decrease in cost of sales of 0.2% and 0.7% of revenue for the three
and six months ended June 30, 1999, resulted primarily from improvements in
retread margins, offset, in part, by lower new tire margins. The increase in
selling, administrative, and general expenses of 2.3% and 1.5% for the three and
six months ended June 30, 1999, from the same periods in 1998 resulted primarily
from higher salaries and wages as a percent of revenue due to increased service
and inventory control personnel. In addition, during the second quarter of 1999,
Treadco incurred $.4 million in costs associated with stock option and
performance plan payments made as a result of the Company's purchase of the
non-ABC-owned shares of Treadco. These increases were offset in part by
decreases in legal fees due to the settlement of the litigation with Bandag,
Inc. in the fourth quarter of 1998. In addition, bad debt expense was lower as
the result of improved aging and collection of accounts receivable.
INTEREST EXPENSE. Interest expense increased $0.4 million and $0.5 million for
the three and six months ended June 30, 1999, due primarily to the purchase of
the non-ABC-owned shares of Treadco (see Note H).
INCOME TAXES. The differences between the effective tax rates for the three and
six month periods ended June 30, 1999, and the federal statutory rate resulted
from state income taxes, amortization of
20
<PAGE> 21
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - continued
- -------------------------------------------------------------------------------
nondeductible goodwill, minority interest, nondeductible tender offer response
costs incurred by Treadco and other nondeductible expenses.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the six months ended June 30,
1999, was $54.0 million compared to $26.9 million for the six months ended June
30, 1998. The increase is due primarily to the improvement in operating results
and net income, as well as increases in accrued expenses including income taxes
for the six months ended June 30, 1999, compared to the same periods during
1998. Cash provided by operations, proceeds from asset sales of $9.1 million and
borrowings were used to purchase revenue equipment and other property and
equipment in the amount of $28.7 million, to purchase the non-ABC-owned shares
of Treadco for $23.7 million and to pay down outstanding debt during the six
months ended June 30, 1999. During the six months ended June 30, 1998, cash
provided by operations, proceeds from the sale of assets of $9.5 million and
borrowings were used to purchase operating assets of $39.7 million.
The Company is party to a five-year, $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 June 30, 1999, there were $129.6 million of Revolver Advances and
approximately $38.2 million of letters of credit outstanding. At June 30, 1999,
the Company had approximately $82.2 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 June 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 June 30, 1999.
The Company borrowed $17.8 million under capital lease obligations for the six
months ended June 30, 1999. Funds from these borrowings were used to purchase
revenue equipment.
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.
21
<PAGE> 22
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, who work primarily for 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
has revealed that all affected systems are Year 2000 ready.
The Company has completed Year 2000 conversions of its electronic
data-interchange software.
22
<PAGE> 23
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 $1.4 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 7% 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 $0.4 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 to
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: 65.3% for fuel
vendors, 82.8% for communications suppliers, 70.1% for utility suppliers and
54.6% 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.
23
<PAGE> 24
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
24
<PAGE> 25
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 Domestic'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.
25
<PAGE> 26
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 June 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) $2.0 million
Margin (currently .625%) Plus Credit Agreement
Margin (currently .625%)
(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 June 30, 1999, to terminate the agreement.
</TABLE>
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.
26
<PAGE> 27
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.
The Company's Annual Meeting of Shareholders was held on May 6, 1999.
The first proposal considered at the Annual Meeting was to elect two
persons to serve as directors of the Company. The results of this
proposal are as follows:
<TABLE>
<CAPTION>
Directors Votes For Votes Withheld
<S> <C> <C>
William A. Marquard 16,278,320 216,257
Alan J. Zakon 16,331,151 163,426
</TABLE>
The second proposal was to ratify the appointment of Ernst & Young LLP
as independent auditors for the fiscal year 1999. This proposal
received 16,417,868 votes for adoption, 59,990 against adoption, 16,719
abstentions and -0- broker non-votes.
ITEM 5. OTHER INFORMATION.
Effective April 16, 1999, the Company entered into a three-year, $13.2
million capital lease agreement with Mercedes-Benz Credit Corporation
for the purchase of 250 tractors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
10.2 Three-year, $13.2 million capital lease agreement with
Mercedes-Benz Credit Corporation effective April 16, 1999.
Financial Data Schedule
(b) REPORTS ON FORM 8-K.
None.
27
<PAGE> 28
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: August 11, 1999 /s/ David E. Loeffler
-------------------------------------------------
David E. Loeffler
Vice President-Treasurer, Chief Financial Officer
and Principal Accounting Officer
28
<PAGE> 29
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.2 Three-year, $13.2 million capital lease agreement
with Mercedes-Benz Credit Corporation effective
April 16, 1999.
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.2
MASTER LEASE AGREEMENT
(Quasi)
THIS MASTER LEASE AGREEMENT, dated as of April 16, 1999 ("Agreement"),
between Mercedes-Benz Credit Corporation, with an office at 1011 Warrenville
Road, Suite 600, Lisle IL 60532 (hereinafter called, together with its
successors and assigns, if any, "Lessor"), and ABF Freight System, Inc., a
corporation organized and existing under the laws of the State of Delaware with
its mailing address and chief place of business at 3801 Old Greenwood Road, Fort
Smith, AR 72903 (hereinafter called "Lessee"). WITNESSETH:
I. LEASING:
(a) Subject to the terms and conditions set forth below, Lessor agrees to lease
to Lessee, and Lessee agrees to lease from Lessor, the equipment ("Equipment")
described in Annex A to any schedule hereto ("Schedule"). Terms defined in a
schedule and not otherwise defined herein shall have the meanings ascribed to
them in such Schedule. (b) The obligation of Lessor to purchase Equipment from
the manufacturer or supplier thereof ("Supplier") and to lease the same to
Lessee under any Schedule shall be subject to receipt by Lessor, prior to the
Lease Commencement Date (with respect to such Equipment), of each of the
following documents in form and substance satisfactory to Lessor: (i) a Schedule
relating to the Equipment then to be leased hereunder, (ii) paid in full invoice
or other evidence of ownership of the Equipment, (iii) evidence of insurance
which complies with the requirements of Section IX, and (iv) such other
documents as Lessor may reasonably request. As a further condition to such
obligations of Lessor, Lessee shall, upon delivery of such Equipment (but not
later than the Last Delivery Date specified in the applicable Schedule) execute
and deliver to Lessor a Certificate of Acceptance (in the form of Annex C to the
applicable Schedule) covering such Equipment. Lessor hereby appoints Lessee its
agent for inspection and acceptance of the Equipment from the Supplier. Upon
execution by Lessee of any Certificate of Acceptance, the Equipment described
thereon shall be deemed to have been delivered to, and irrevocably accepted by,
Lessee for lease hereunder.
II. TERM, RENT AND PAYMENT:
(a) The rent payable hereunder and Lessee's right to use the Equipment shall
commence on the date of execution by Lessee of the Certificate of Acceptance for
such Equipment ("Lease Commencement Date"). The term of this Agreement shall be
the period specified in the applicable Schedule. If any term is extended, the
word "term" shall be deemed to refer to all extended terms, and all provisions
of this Agreement shall apply during any extended terms, except as may be
otherwise specifically provided in writing. (b) Rent shall be paid to Lessor at
its address stated above, except as otherwise directed by Lessor. Payments of
rent shall be in the amount set forth in, and due in accordance with, the
provisions of the applicable Schedule. If one or more Advance Rentals are
payable, such Advance Rental shall be (i) set forth on the applicable Schedule,
(ii) due upon acceptance by Lessor of such Schedule, and (iii) when received by
Lessor, applied to the first rent payment and the balance, if any, to the final
rental payment(s) under such
<PAGE> 2
Schedule. In no event shall any Advance Rental or any other rent payments be
refunded to Lessee. If rent is not paid within ten (10) days of its due date,
Lessee agrees to pay a late charge of five cents ($0.05) per dollar on, and in
addition to, the amount of such rent but not exceeding the lawful maximum, if
any.
III. TAXES:
Lessee shall have no liability for taxes imposed by the United States of America
or any State or political subdivision thereof which are on or measured by the
net income of Lessor. Lessee shall report (to the extent that it is legally
permissible) and pay promptly all other taxes, fees and assessments due,
imposed, assessed or levied against any Equipment (or the purchase, ownership,
delivery, leasing, possession, use or operation thereof), this Agreement (or any
rentals or receipts hereunder), any Schedule, Lessor or Lessee by any foreign,
federal, state or local government or taxing authority during or related to the
term of this Agreement, including, without limitation, all license and
registration fees, and all sales, use, personal property, excise, gross
receipts, franchise, stamp or other taxes, imposts, duties and charges, together
with any penalties, fines or interest, thereon (all hereinafter called "Taxes").
Lessee shall (i) reimburse Lessor upon receipt of written request for
reimbursement for any Taxes charged to or assessed against Lessor, (ii) on
request of Lessor, submit to Lessor written evidence of Lessee's payment of
Taxes, (iii) send a copy thereof to Lessor.
IV. REPORTS:
(a) Lessee will notify Lessor in writing, within ten (10) days after any tax or
other lien shall attach to any Equipment, of the full particulars thereof and of
the location of such Equipment on the date of such notification. (b) Lessee will
within 90 days of the close of each fiscal year of Lessee, deliver to Lessor,
Lessee's balance sheet and profit and loss statement, certified by a recognized
firm of certified public accountants. Upon request Lessee will deliver to Lessor
quarterly, within 90 days of the close of each fiscal quarter of Lessee, in
reasonable detail, copies of Lessee's quarterly financial report certified by
the chief financial officer of Lessee. (c) Lessee will permit Lessor to inspect
any Equipment during normal business hours. (d) Lessee will keep the Equipment
at the Equipment location (specified in the applicable schedule) and will
promptly notify Lessor of any relocation of the Equipment. Upon the written
request of Lessor, Lessee will notify Lessor forthwith in writing of the
location of any Equipment as of the date of such notification. (e) Within 60
days after any request by Lessor, Lessee will furnish a certificate of an
authorized officer of Lessee stating that he has reviewed the activities of
Lessee and that, to the best of his knowledge, there exists no default (as
described in Section XI) or event which with notice or lapse of time (or both)
would become such a default.
V. DELIVERY, USE AND OPERATION:
(a) All Equipment shall be shipped directly from the Supplier to Lessee. (b)
Lessee agrees that the Equipment will be used by Lessee solely in the conduct of
its business and in a manner complying with all applicable federal, state, and
local laws and regulations. (c) LESSEE SHALL NOT ASSIGN, MORTGAGE, SUBLET OR
HYPOTHECATE ANY EQUIPMENT, OR THE INTEREST OF LESSEE HEREUNDER, NOR SHALL
<PAGE> 3
LESSEE REMOVE ANY EQUIPMENT FROM THE CONTINENTAL UNITED STATES, MEXICO, OR
CANADA WITHOUT THE PRIOR WRITTEN CONSENT OF THE LESSOR. (d) Lessee will keep the
Equipment free and clear of all liens and encumbrances other than those which
are granted in favor of or result from acts of Lessor.
VI. SERVICE:
(a) Lessee will, at its sole expense, maintain each unit of Equipment in good
operating order, repair, condition and appearance in accordance with
manufacturer's recommendations, normal wear and tear excepted. Lessee shall, if
at any time requested by Lessor, affix in a prominent position on each unit of
Equipment plates, tags or other identifying labels showing ownership thereof by
Lessee and Lessor's security interest therein. (b) Lessee will not, without the
prior consent of Lessor, affix or install any accessory, equipment or device on
any Equipment if such addition will impair the originally intended function or
use of such Equipment. All additions, repairs, parts, supplies, accessories,
equipment, and devices furnished, attached or affixed to any Equipment which are
not readily removable shall be made only in compliance with applicable law; and
shall become subject to the lien of Lessor. Lessee will not, without the prior
written consent of Lessor and subject to such conditions as Lessor may impose
for its protection, affix or install any Equipment to or in any other personal
or real property. (c) Any alterations or modifications to the Equipment that
may, at any time during the term of this Agreement, be required to comply with
any applicable law, rule, or regulation shall be made at the expense of Lessee.
VII. STIPULATED LOSS VALUE:
Lessee shall use its best efforts to promptly notify Lessor in writing if any
unit of Equipment shall be or become worn out, lost, stolen, destroyed,
irreparably damaged in the reasonable determination of Lessee, or permanently
rendered unfit for use from any cause whatsoever (such occurrences being
hereinafter called "Casualty Occurrences"). On the rental payment date next
succeeding a Casualty Occurrence (the "Payment Date"), Lessee shall pay Lessor
the sum of (x) the Stipulated Loss Value of such unit calculated as of the
rental payment date next preceding such Casualty Occurrence ("Calculation
Date"); and (y) all rental and other amounts which are due hereunder as of the
Payment Date. Upon payment of all sums due hereunder, the term of this lease as
to such unit shall terminate and (except in the case of the loss, theft, or
complete destruction of such unit) provided no event of default shall have
occurred and be continuing hereunder, Lessee shall be entitled to possession of
such unit.
VIII. LOSS OR DAMAGE:
Lessee hereby assumes and shall bear the entire risk of any loss, theft, damages
to, or destruction of, any unit of Equipment from any cause whatsoever from the
time the Equipment is shipped to Lessee.
IX. INSURANCE:
Unless (and then only to the extent) waived by Lessor in writing, Lessee shall,
at its own expense, keep all Equipment insured for casualty loss for such
amounts and against such
<PAGE> 4
hazards as Lessor may require, including, but not limited to, insurance for
damage to or loss of such Equipment and liability coverage for personal
injuries, death or property damage, with Lessor named as additional insured on
the liability coverage and with a loss payable clause in favor of Lessor as
regards physical damage coverage and as its interest may appear, irrespective of
any breach of warranty or other act or omission of Lessee. The insurance shall
provide (i) liability coverage in an amount equal to at least ONE MILLION U.S.
DOLLARS ($1,000,000.00) total liability per occurrence, and (ii) casualty
coverage in an amount equal at a minimum to the Stipulated Loss Value or the
full replacement cost of the Equipment; or at such other amounts as may be
required by Lessor. Any such policies shall be with companies, and on terms,
mutually satisfactory to Lessor and Lessee. Upon Lessor's declaration, Lessee
agrees to deliver to Lessor evidence of insurance satisfactory to Lessor. No
insurance shall be subject to any co-insurance clause. Lessee hereby appoints
Lessor as Lessee's attorney-in-fact to make proof of loss and claim for damages
and to receive payment of and execute or endorse all documents, checks or drafts
in connection with such claims for damage. Any expense of Lessor in adjusting or
collecting insurance shall be borne by Lessee. Said policies shall provide that
the insurance may not be altered or cancelled by the insurer until after thirty
(30) days written notice to Lessor. Lessor may, at its option, apply any
proceeds of insurance, in whole or in part, to (i) repair or replace Equipment
or any portion thereof, or (ii) satisfy any obligation of Lessee to Lessor
hereunder.
X. RETURN OF EQUIPMENT:
(a) Subject to the provisions of Section XX of this Lease, upon any expiration
or termination of this Agreement or any Schedule, Lessee shall promptly, at its
own cost and expense return the Equipment to a location within the continental
United States as Lessor shall direct. (b) Until Lessee has fully complied with
the requirements of Section X(a) above, Lessee's rent payment obligation and all
other obligations under this Agreement shall continue from month to month
notwithstanding any expiration or termination of the lease term. Lessor may
terminate such continued leasehold interest upon ten (10) days notice to Lessee.
XI. DEFAULT:
(a) Lessor may in writing declare this Agreement in default if: Lessee breaches
its obligation to pay rent or any other sum when due and fails to cure the
breach within ten (10) days after Lessor has sent to Lessee written notice of
said default; Lessee fails to comply with its notification obligations under
Section VII hereof; Lessee breaches any of its insurance obligations under
Section IX; Lessee breaches any of its other obligations to Lessor hereunder or
under any instrument, document or agreement between Lessor and Lessee and fails
to cure that breach within thirty (30) days after written notice thereof; any
representation or warranty made by Lessee in connection with this Agreement
shall be false or misleading in any material respect; Lessee becomes insolvent
or ceases to do business as a going concern; Lessee is not owned and/or
controlled by Arkansas Best Corporation or one of its wholly-owned subsidiaries
and Lessee's Tangible Net Worth, as defined in accordance with GAAP, is equal to
or less than $120 million and the Total Liabilities divided by Total Net Worth,
both terms as defined in accordance with GAAP, is greater than 3:1 immediately
following the change of ownership or control: If Lessee
<PAGE> 5
is not owned and/or controlled by Arkansas Best Corporation, Lessee will
maintain a Total Liabilities divided by Total Net Worth less than or equal to
3:1 and a Tangible Net Worth greater than $120 million on a continuing basis
measured quarterly; any Equipment is illegally used; or a petition is filed by
or against Lessee under any bankruptcy or insolvency laws. Such declaration
shall apply to all Schedules except as specifically excepted by Lessor. (b)
After default, at the request of Lessor, Lessee shall comply with the provisions
of Section X(a) above. Lessee hereby authorizes Lessor upon the default of
Lessee (and failure to cure within any applicable cure period) to enter, with or
without legal process, any premises where any Equipment is believed to be and
take possession thereof. Lessee shall, without further demand, forthwith pay to
Lessor (i) as liquidated damages for loss of a bargain and not as a penalty, the
Stipulated Loss Value of the Equipment (calculated as of the rental next
preceding the declaration of default), and (ii) all rentals and other sums then
due hereunder. Lessor may, but shall not be required to, sell Equipment at
private or public sale, in bulk or in parcels, with or without notice, and
without having the Equipment present at the place of sale; or Lessor may, but
shall not be required to, lease, otherwise dispose of or keep idle all or part
of the Equipment; and Lessor may use Lessee's premises for any or all of the
foregoing without liability for rent, costs, damages or otherwise, except to the
extent of damages directly caused by the negligence or misconduct of Lessor. The
proceeds of sale, lease or other disposition, if any, shall be applied in the
following order of priorities: (1) to pay all of the Lessor's costs, charges and
expenses incurred in taking, removing, holding, repairing and selling, leasing
or otherwise disposing of Equipment; then, (2) to the extent not previously paid
by Lessee to pay Lessor all sums due from Lessee, hereunder; then (3) to
reimburse to Lessee any sums previously paid by Lessee as liquidated damages;
and (4) any surplus shall be retained by Lessee. Lessee shall pay any deficiency
in (1) and (2) forthwith. (c) The foregoing remedies are cumulative, and any or
all thereof may be exercised in lieu of or in addition to each other or any
remedies at law, in equity, or under statute. Lessee waives notice of sale or
other disposition (and the time and place thereof), and the manner and place of
any advertising. Lessee shall pay Lessor's actual attorney's fees incurred in
connection with the enforcement, assertion, defense or preservation of Lessor's
rights and remedies hereunder, or if prohibited by law, such lesser sum as may
be permitted. Waiver of any default shall not be a waiver of any other or
subsequent default. (d) Any default under the terms of this or any other
agreement between Lessor and Lessee may be declared by Lessor a default under
this and any other such agreement.
XII. ASSIGNMENT:
(a) Lessor may not assign its rights hereunder without Lessee's prior written
consent, which consent shall not be unreasonably withheld. Notwithstanding the
foregoing, in the event Lessor does assign all or any part of its rights
hereunder in violation of this section and Lessee objects to such assignment,
Lessor shall have thirty (30) days from its receipt of written notice thereof
from Lessee to remedy such assignment by repurchasing the Lease from the
assignee, by commencing a new Lease with the Lessee on the same terms as
previously applicable, covering the affected Equipment, or affecting such other
remedy as may be reasonably acceptable to Lessee in its discretion. (b) Subject
to the provisions of subsection (a) above, if Lessee receives written notice of
an assignment from Lessor, Lessee will pay all rent and other amounts payable
under any assigned
<PAGE> 6
Equipment Schedule to such assignee as instructed by Lessor. Lessee further
agrees to confirm in writing receipt of a notice of assignment as may be
reasonably requested by assignee. Lessee hereby agrees not to assert against any
such assignee, or assignee's assigns, any defense, set-off, recoupment claim or
counterclaim ("Claims") which Lessee has or may at any time have against Lessor
for any reason whatsoever. However, nothing contained in the foregoing sentence
shall limit whatever rights Lessee would otherwise have (i) to assert directly
against such assignee those Claims which arise out of the acts or omissions of
such assignee, or (ii) to assert directly against Lessor those Claims which
arise out of the acts or omissions of Lessor. (c) Lessee may not assign its
rights hereunder without Lessor's prior written consent, which consent shall not
be unreasonably withheld.
XIII. NET LEASE; NO SET-OFF, ETC:
This Agreement is a net lease. Lessee's obligation to pay rent and other amounts
due hereunder, shall be absolute and unconditional. Lessee shall not be entitled
to any abatement or reductions of, or set-offs against, said rent or other
amounts, including, without limitation, those arising or allegedly arising out
of claims (present or future, alleged or actual, and including claims arising
out of strict tort of negligence of Lessor) of Lessee against Lessor under this
Agreement of otherwise. Nor shall this Agreement terminate or the obligations of
Lessee be affected by reason of any defect in or damage to, or loss of
possession, use or destruction of, any Equipment from whatsoever cause. It is in
the intention of the parties that rents and other amounts due hereunder shall
continue to be payable in all events in the manner and at the times set forth
herein unless the obligation to do so shall have been terminated pursuant to the
express terms hereof.
XIV. INDEMNIFICATION:
(a) Lessee hereby agrees to indemnify, save and keep harmless Lessor, its
agents, employees, successors and assigns from and against any and all losses,
damages, penalties, injuries, claims, actions and suits, including legal
expenses, of whatsoever kind and nature, in contract or tort, except to the
extent directly caused by the negligence or misconduct of Lessor, and including,
but not limited to, Lessor's strict liability in tort, arising out of (i) the
selection, manufacture, purchase, acceptance or rejection of Equipment, the
ownership of Equipment during the term of this Agreement, and the delivery,
lease, possession, maintenance, uses, condition, return or operation of
Equipment (including, without limitation, latent and other defects, whether or
not discoverable by Lessor or Lessee and any claim for patent, trademark or
copyright infringement or environmental damage) or (ii) the condition of
Equipment sold or disposed of after use by Lessee, any sublessee or employees of
Lessee. Lessee shall, upon request, defend any actions based on, or arising out
of, any of the foregoing. (b) All of Lessor's rights, privileges and indemnities
contained in this Section XIV shall survive the expiration or other termination
of this Agreement and the rights, privileges and indemnities contained herein
are expressly made for the benefit of, and shall be enforceable by Lessor, its
successors and assigns.
<PAGE> 7
XV. DISCLAIMER:
LESSEE ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT WITHOUT ANY ASSISTANCE
FROM LESSOR, ITS AGENTS OR EMPLOYEES. LESSOR DOES NOT MAKE, HAS NOT MADE, NOR
SHALL BE DEEMED TO MAKE OR HAVE MADE, ANY WARRANTY OR REPRESENTATION, EITHER
EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE EQUIPMENT LEASED
HEREUNDER OR ANY COMPONENT THEREOF, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY
AS TO DESIGN, COMPLIANCE WITH SPECIFICATIONS, QUALITY OF MATERIALS OR
WORKMANSHIP, MERCHANTABILITY, FITNESS FOR ANY PURPOSE, USE OR OPERATION, SAFETY,
PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT, OR TITLE. All such risks, as
between Lessor and Lessee, are to be borne by Lessee. Without limiting the
foregoing, Lessor shall have no responsibility or liability to Lessee or any
other person with respect to any of the following, except to the extent directly
resulting from the negligence or misconduct of Lessor: (i) any liability, loss
or damage caused or alleged to be caused directly or indirectly by any
Equipment, any inadequacy thereof, any deficiency or defect (latent or
otherwise) therein, or any other circumstance in connection therewith; (ii) the
use, operation or performance of any Equipment or any risks relating thereto;
(iii) any interruption of service, loss of business or anticipated profits or
consequential damages; or (iv) the delivery, operation, servicing, maintenance,
repair, improvement or replacement of any Equipment. If, and so long as, no
default exists under this Lease, Lessee shall be, and hereby is, authorized
during the term of this Lease to assert and enforce, at Lessee's sole cost and
expense, from time to time, in the name of and for the account of Lessor and/or
Lessee, as their interests may appear, whatever claims and rights Lessor may
have against any Supplier of the Equipment.
XVI. REPRESENTATIONS AND WARRANTIES OF LESSEE:
Lessee hereby represents and warrants to Lessor that on the date hereof and on
the date of execution of each Schedule; (a) Lessee has adequate power and
capacity to enter into, and perform under, this Agreement and all related
documents (together, the "Documents") and is duly qualified to do business
wherever necessary to carry on its present business and operations, including
the jurisdiction(s) where the Equipment is or is to be located. (b) The
Documents have been duly authorized, executed and delivered by Lessee and
constitute valid, legal and binding agreements, enforceable in accordance with
their terms, except to the extent that the enforcement of remedies therein
provided may be limited under applicable bankruptcy and insolvency laws. (c) No
approval, consent or withholding of objections is required from any governmental
authority or instrumentality with respect to the entry into or performance by
Lessee of the Documents except such as have already been obtained. (d) The entry
into and performance by Lessee of the Documents will not: (i) violate any
judgement, order, law or regulation applicable to Lessee or any provision of
Lessee's Certificate of Incorporation or By-Laws; or (ii) result in any breach
of, constitute a default under or result in the creation of any lien, charge,
security interest or other encumbrance upon any Equipment pursuant to any
indenture, mortgage, deed of trust, bank loan or credit agreement or other
instrument (other than this Agreement) to which Lessee is a party. (e) There are
no suits or proceedings pending or threatened in court or before any commission,
board or other
<PAGE> 8
administrative agency against or affecting Lessee, which will have a material
adverse effect on the ability of Lessee to fulfill its obligations under this
Agreement. (f) The Equipment accepted under any Certificate of Acceptance is and
will remain tangible personal property. (g) Each Balance Sheet and Statement of
Income delivered to Lessor has been prepared in accordance with generally
accepted accounting principles, and since the date of most recent such Balance
Sheet and Statement of Income, there has been no material adverse changes. (h)
Lessee is and will be at all times validly existing and in good standing under
the laws of the State of its incorporation (specified in the first sentence of
this Agreement). (i) The Equipment will at all times be used for commercial or
business purposes.
XVII. OWNERSHIP FOR TAX PURPOSES, GRANT OF SECURITY INTEREST; USURY SAVINGS:
(a) For income tax purposes, the parties hereto agree that it is their mutual
intention that Lessee shall be considered the owner of the Equipment.
Accordingly, Lessor agrees (i) to treat Lessee as the owner of the equipment on
its federal income tax return, (ii) not to take actions or positions
inconsistent with such treatment on or with respect to its federal income tax
return, and (iii) not to claim any tax benefits available to an owner of the
Equipment on or with respects to its federal income tax return. The foregoing
undertakings by Lessor shall not be violated by Lessor's taking a tax position
inconsistent with the foregoing sentence to the extent such a position is
required by law or is taken through inadvertence so long as such inadvertent tax
position is reversed by Lessor promptly upon its discovery. Lessor shall in no
event be liable to Lessee if Lessee fails to secure any of the tax benefits
available to the owner of the Equipment. (b) Lessee hereby grants to Lessor a
first security interest in the Equipment, together with all additions,
attachments, accessions, accessories and accessions thereto whether or not
furnished by the Supplier of the Equipment and any and all substitutions,
replacements or exchanges therefor, and any and all insurance and/or other
proceeds of the property in and against which a security interest is granted
hereunder. Notwithstanding anything to the contrary contained elsewhere in this
Agreement, to the extent that Lessor asserts a purchase money security interest
in any items of Equipment ("PMSI Equipment"): (i) the PMSI Equipment shall
secure only those sums which have been advanced by Lessor for the purchase of
the PMSI Equipment, or the acquisition of rights therein, or the use thereof
(the "PMSI Indebtedness"), and (ii) no other Equipment shall secure the PMSI
Indebtedness. (c) It is the intention of the parties hereto to comply with any
applicable usury laws to the extent that any Schedule is determined to be
subject to such laws; accordingly, it is agreed that, notwithstanding any
provision to the contrary in any Schedule or the Lease, in no event shall any
Schedule require the payment or permit the collection of interest in excess of
the maximum amount permitted by applicable law. If any such excess interest is
contracted for, charged or received under any Schedule or the Lease, or in the
event that all of the principal balance shall be prepaid, so that under any of
such circumstances the amount of interest contracted for, charged or received
under any Schedule or the Lease shall exceed the maximum amount of interest
permitted by applicable law, then in such event (a) the provisions of this
paragraph shall govern and control, (b) neither Lessee nor any other person or
entity now or hereafter liable for the payment hereof shall be obligated to pay
the amount of such interest to the extent that it
<PAGE> 9
is in excess of the maximum amount of interest permitted by applicable law, (c)
any such excess which may have been collected shall be either applied as a
credit against the then unpaid principal balance or refunded to Lessee, at the
option of the Lessor, and (d) the effective rate of interest shall be
automatically reduced to the maximum lawful contract rate allowed under
applicable law as now or hereafter construed by the courts having jurisdiction
thereof. It is further agreed that without limitation of the foregoing, all
calculations of the rate of interest contracted for, charged or received under
any Schedule or the Lease which are made for the purpose of determining whether
such rate exceeds the maximum lawful contract rate, shall be made, to the extent
permitted by applicable law, by amortizing, prorating, allocating and spreading
in equal parts during the period of the full stated term of the indebtedness
evidenced hereby, all interest at any time contracted for, charged or received
from the Lessee or otherwise by Lessor in connection with such indebtedness;
provided, however, that if any applicable state law is amended or the law of the
United States of America preempts any applicable state law, so that it becomes
lawful for Lessor to receive a greater interest per annum rate than is presently
allowed, the Lessee agrees that, on the effective date of such amendment or
preemption, as the case may be, the lawful maximum hereunder shall be increased
to the maximum interest per annum rate allowed by the amended state law or the
law of the United States of America.
XVIII. EARLY TERMINATION
(a) On or after the First Termination Date (specified in the applicable
Schedule), Lessee may, so long as no default exists hereunder, terminate this
Agreement as to all (but not less than all) of the Equipment on such Schedule as
of a Rent Payment Date ("Termination Date") upon at least 90 days prior written
notice to Lessor. (b) Lessee shall, and Lessor may, solicit cash bids for the
Equipment on an AS IS, WHERE IS BASIS without recourse to or warranty from
Lessor, express or implied ("AS IS BASIS"). Prior to the Termination Date,
Lessee shall (i) certify to Lessor any bids received by Lessee and (ii) pay to
Lessor (A) the Termination Value (calculated as of the rental due on the
Termination Date) for the Equipment, and (B) all rent and other sums due and
unpaid as of the Termination Date. (c) Provided that all amounts due hereunder
have been paid on the Termination Date, Lessor shall (i) sell the Equipment on
an AS IS BASIS for cash to the highest bidder and (ii) refund the proceeds of
such sale (net of any related expenses) to Lessee up to the amount of the
Termination Value. If such sale is not consummated, no termination shall occur
and Lessor shall refund the Termination Value (less any expenses incurred by
Lessor) to Lessee. (d) Notwithstanding the foregoing, Lessor may elect by
written notice, at any time prior to the Termination Date, not to sell the
Equipment. In that event, on the Termination Date Lessee shall (i) return the
Equipment (in accordance with Section X) and (ii) pay to Lessor all amounts
required under Section XVIII(b) less the amount of the highest bid certified by
Lessee to Lessor.
XIX. EARLY PURCHASE OPTION:
(a) Provided that the Lease has not been earlier terminated and provided further
that Lessee is not in default under the Lease or any other agreement between
Lessor and Lessee, Lessee may, UPON AT LEAST 30 DAYS BUT NO MORE THAN 270 DAYS
PRIOR WRITTEN NOTICE TO LESSOR OF LESSEE'S IRREVOCABLE ELECTION
<PAGE> 10
TO EXERCISE SUCH OPTION, purchase all (but not less than all) of the Equipment
listed and described in this schedule on any Rent Payment Date following the
First Termination Date as set forth in this Schedule, and prior to the date
which is the scheduled expiration of this Lease (the "Early Purchase Date"), for
a price equal to (i) the Termination Value (calculated as of the Early Purchase
Date) for the Equipment, and (ii) all rent and other sums due and unpaid as of
the Purchase Date (the "Early Option Price"), plus all applicable sales taxes on
an AS IS BASIS, (The purchase option granted by this subsection shall be
referred to herein as the "Early Purchase Option"). (b) If Lessee exercises its
Early Purchase Option with respect to the Equipment leased hereunder, then on
the Early Purchase Date, Lessee shall pay to Lessor any rent and other sums due
and unpaid on the Early Purchase Date and Lessee shall pay the Early Option
Price, plus all applicable sales taxes, to Lessor in cash.
XX. PURCHASE OPTION:
(a) So long as no default exists hereunder and the lease has not been earlier
terminated, Lessee may at lease expiration purchase all (but not less than all)
of the Equipment in any Schedule on an AS IS, WHERE IS BASIS for cash equal to
the amount indicated in such Schedule (the "Option Payment"). The Option Payment
shall be due and payable in immediately available funds on the Expiration Date.
(b) Lessee shall be deemed to have waived this option unless it provides Lessor
with written notice of its irrevocable election to exercise the same not less
than 90 days prior to the Expiration Date.
XXI. MISCELLANEOUS:
Any controversy or claim arising out of or relating to this Lease shall be
governed by the substantive laws of the State of Illinois, and shall be heard by
a Federal Court located in the State of Illinois; provided, however, that Lessor
may also institute suit in any jurisdiction where any of the Equipment, or any
guarantor or their assets may be located. (b) Unless and until Lessee exercises
its rights under Section XIX above, nothing herein contained shall give or
convey to Lessee any right, title or interest in and to any Equipment except as
a lessee. Any cancellation or termination by Lessor, pursuant to the provision
of this Agreement, any Schedule, supplement or amendment hereto, or the lease of
any Equipment hereunder, shall not release Lessee from any then outstanding
obligations to Lessor hereunder. All Equipment shall at all times remain
personal property of Lessor regardless of the degree of its annexation to any
real property and shall not by reason of any installation in, or affixation to,
real or personal property become a part thereof. (c) Time is of the essence of
this Agreement. Lessor's failure at any time to require strict performance by
Lessee of any of the provisions hereof shall not waive or diminish Lessor's
right thereafter to demand strict compliance therewith. Lessee agrees, upon
Lessor's request, to execute any instrument necessary or expedient for filing,
recording or perfecting the interest of Lessor. All notices required to be given
hereunder shall be deemed adequately given if sent by registered or certified
mail to the addressee at its address stated herein, or at such other place as
such addressee may have designated in writing. This Agreement and any Schedule
and Annexes thereto constitute the entire agreement of the parties with respect
to the subject matter hereof. NO VARIATION OR MODIFICATION OF THIS AGREEMENT OR
ANY WAIVER OF ANY OF ITS PROVISIONS OR CONDITIONS, SHALL BE VALID UNLESS IN
<PAGE> 11
WRITING AND SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE PARTIES HERETO.
______________ Initials
(d) In case of a failure of Lessee to comply with any provision of this
Agreement, Lessor shall have the right, ten (10) days after sending written
notice thereof to Lessee, but shall not be obligated to, effect such compliance,
in whole or in part; and all moneys spent and expenses and obligations incurred
or assumed by Lessor in effecting such compliance shall constitute additional
rent due to Lessor within five days after the date Lessor sends notice to Lessee
requesting payment. Lessor's effecting such compliance shall not be a waiver of
Lessee's default. (e) Any rent or other amount not paid to Lessor when due
hereunder shall bear interest, both before and after any judgment or termination
hereof, at the lesser of eighteen percent per annum or the maximum rate allowed
by law. Any provisions in this Agreement and any Schedule which are in conflict
with any statute, law or applicable rule shall be deemed omitted, modified or
altered to conform thereto.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Agreement to be executed
by their duly authorized representatives as of the date first above written.
LESSOR: LESSEE:
Mercedes-Benz Credit Corporation ABF Freight System, Inc.
By: By:
----------------------------- -----------------------------
Name: Name:
---------------------------- ---------------------------
Title: Title:
-------------------------- --------------------------
<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 SIX MONTHS ENDED JUNE 30,
1999 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,436
<SECURITIES> 0
<RECEIVABLES> 174,543
<ALLOWANCES> 5,573
<INVENTORY> 31,239
<CURRENT-ASSETS> 223,686
<PP&E> 603,052
<DEPRECIATION> 269,988
<TOTAL-ASSETS> 709,401
<CURRENT-LIABILITIES> 271,010
<BONDS> 207,663
0
15
<COMMON> 196
<OTHER-SE> 189,631
<TOTAL-LIABILITY-AND-EQUITY> 709,401
<SALES> 86,593
<TOTAL-REVENUES> 813,280
<CGS> 61,469
<TOTAL-COSTS> 770,267
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 827
<INTEREST-EXPENSE> 9,327
<INCOME-PRETAX> 32,019
<INCOME-TAX> 13,444
<INCOME-CONTINUING> 18,575
<DISCONTINUED> (664)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,911
<EPS-BASIC> .80
<EPS-DILUTED> .76
</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 SIX MONTHS ENDED JUNE 30,
1998 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-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,344
<SECURITIES> 0
<RECEIVABLES> 160,742
<ALLOWANCES> 7,019
<INVENTORY> 30,459
<CURRENT-ASSETS> 235,323
<PP&E> 554,263
<DEPRECIATION> 238,546
<TOTAL-ASSETS> 717,716
<CURRENT-LIABILITIES> 259,880
<BONDS> 221,675
0
15
<COMMON> 196
<OTHER-SE> 157,928
<TOTAL-LIABILITY-AND-EQUITY> 717,716
<SALES> 83,523
<TOTAL-REVENUES> 782,534
<CGS> 59,917
<TOTAL-COSTS> 752,202
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,734
<INTEREST-EXPENSE> 8,831
<INCOME-PRETAX> 19,275
<INCOME-TAX> 7,797
<INCOME-CONTINUING> 11,478
<DISCONTINUED> (459)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,019
<EPS-BASIC> .45
<EPS-DILUTED> .44
</TABLE>
