<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, 2000
-------------
[ ] 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.
<TABLE>
<S> <C>
Class Outstanding at July 31, 2000
---------------------------- ----------------------------
Common Stock, $.01 par value 19,795,733 shares
</TABLE>
<PAGE> 2
ARKANSAS BEST CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 2000 and December 31, 1999 .................................................... 3
Consolidated Statements of Operations -
For the Three and Six Months Ended June 30, 2000 and 1999............................... 5
Consolidated Statement of Shareholders' Equity
For the Six Months Ended June 30, 2000.................................................. 7
Condensed Consolidated Statements of Cash Flows -
For the Six Months Ended June 30, 2000 and 1999 ........................................ 8
Notes to Consolidated Financial Statements - June 30, 2000 ............................... 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................................ 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ........................................................................ 24
Item 2. Changes in Securities .................................................................... 24
Item 3. Defaults Upon Senior Securities .......................................................... 24
Item 4. Submission of Matters to a Vote of Security Holders ...................................... 24
Item 5. Other Information ........................................................................ 24
Item 6. Exhibits and Reports on Form 8-K ......................................................... 24
SIGNATURES .......................................................................................... 25
</TABLE>
<PAGE> 3
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
2000 1999
------------ ------------
(UNAUDITED) NOTE
($ thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ........................... $ 4,473 $ 4,319
Trade receivables, less allowances
(2000 -- $5,085,000; 1999 -- $5,775,000) ............ 197,335 187,837
Inventories ......................................... 32,111 33,050
Prepaid expenses .................................... 8,370 7,428
Deferred income taxes ............................... 7,091 7,231
Other ............................................... 3,243 3,234
------------ ------------
TOTAL CURRENT ASSETS ............................ 252,623 243,099
PROPERTY, PLANT AND EQUIPMENT
Land and structures ................................. 226,224 222,421
Revenue equipment ................................... 329,008 292,493
Manufacturing equipment ............................. 15,702 15,851
Service, office and other equipment ................. 87,588 82,508
Leasehold improvements .............................. 11,745 10,520
------------ ------------
670,267 623,793
Less allowances for depreciation and amortization ... 307,206 286,699
------------ ------------
363,061 337,094
OTHER ASSETS ........................................... 49,686 42,351
GOODWILL, less amortization (2000 -- $38,390,000;
1999 -- $36,365,000) ............................ 107,360 109,385
------------ ------------
$ 772,730 $ 731,929
============ ============
</TABLE>
3
<PAGE> 4
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS - CONTINUED
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
2000 1999
------------ ------------
(UNAUDITED) NOTE
($ thousands)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft and drafts payable ................................. $ 17,471 $ 16,187
Trade accounts payable ............................................ 85,076 76,597
Accrued expenses .................................................. 158,800 160,469
Federal and state income taxes .................................... 8,846 8,434
Current portion of long-term debt ................................. 25,030 20,452
------------ ------------
TOTAL CURRENT LIABILITIES ..................................... 295,223 282,139
LONG-TERM DEBT, less current portion ................................. 164,224 173,702
OTHER LIABILITIES .................................................... 37,082 29,845
DEFERRED INCOME TAXES ................................................ 26,113 25,191
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 2000: 19,786,933 shares;
1999: 19,752,333 shares ....................................... 198 197
Additional paid-in capital ........................................ 194,418 194,155
Retained earnings ................................................. 55,457 26,685
Accumulated other comprehensive income ............................ -- --
------------ ------------
TOTAL SHAREHOLDERS' EQUITY .................................... 250,088 221,052
COMMITMENTS AND CONTINGENCIES ........................................
------------ ------------
$ 772,730 $ 731,929
============ ============
</TABLE>
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at the 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
2000 1999 2000 1999
---------- ---------- ---------- ----------
(UNAUDITED)
($ thousands, except per share data)
<S> <C> <C> <C> <C>
CONTINUING OPERATIONS:
OPERATING REVENUES
Transportation operations ............................... $ 424,293 $ 372,772 $ 826,537 $ 726,687
Tire operations ......................................... 47,694 46,133 88,465 86,593
---------- ---------- ---------- ----------
471,987 418,905 915,002 813,280
---------- ---------- ---------- ----------
OPERATING EXPENSES AND COSTS
Transportation operations ............................... 390,298 347,793 766,070 683,533
Tire operations ......................................... 46,598 45,807 87,559 86,734
---------- ---------- ---------- ----------
436,896 393,600 853,629 770,267
---------- ---------- ---------- ----------
OPERATING INCOME ........................................... 35,091 25,305 61,373 43,013
OTHER INCOME (EXPENSE)
Net gains (losses) on sales of property and
non-revenue equipment ................................. 252 (32) 1,569 464
Interest expense ........................................ (4,342) (4,784) (8,863) (9,327)
Minority interest in Treadco, Inc. ...................... -- -- -- 245
Other, net .............................................. (609) (1,356) (1,132) (2,376)
---------- ---------- ---------- ----------
(4,699) (6,172) (8,426) (10,994)
---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES ................................... 30,392 19,133 52,947 32,019
FEDERAL AND STATE INCOME TAXES (CREDIT)
Current ................................................. 13,206 7,144 20,963 13,832
Deferred ................................................ (563) 892 1,063 (388)
---------- ---------- ---------- ----------
12,643 8,036 22,026 13,444
---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS .......................... 17,749 11,097 30,921 18,575
DISCONTINUED OPERATIONS:
Loss from discontinued operations (net of tax benefits
of $394 for the six months ended June 30, 1999) ....... -- -- -- (664)
---------- ---------- ---------- ----------
LOSS FROM DISCONTINUED OPERATIONS .......................... -- -- -- (664)
---------- ---------- ---------- ----------
NET INCOME ................................................. 17,749 11,097 30,921 17,911
Preferred stock dividends ............................... 1,074 1,074 2,149 2,149
---------- ---------- ---------- ----------
NET INCOME FOR
COMMON SHAREHOLDERS ...................................... $ 16,675 $ 10,023 $ 28,772 $ 15,762
========== ========== ========== ==========
</TABLE>
5
<PAGE> 6
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2000 1999 2000 1999
-------------- -------------- -------------- --------------
(UNAUDITED)
($ thousands, except per share data)
<S> <C> <C> <C> <C>
NET INCOME (LOSS) PER COMMON SHARE
BASIC:
Continuing operations (1) .............. $ 0.84 $ 0.51 $ 1.46 $ 0.83
Discontinued operations ................ -- -- -- (0.03)
-------------- -------------- -------------- --------------
NET INCOME PER SHARE (1) ............... $ 0.84 $ 0.51 $ 1.46 $ 0.80
-------------- -------------- -------------- --------------
AVERAGE COMMON SHARES
OUTSTANDING (BASIC) .................... 19,785,000 19,632,533 19,774,067 19,623,093
============== ============== ============== ==============
DILUTED:
Continuing operations (2) .............. $ 0.74 $ 0.47 $ 1.28 $ 0.79
Discontinued operations ................ -- -- -- (0.03)
-------------- -------------- -------------- --------------
NET INCOME PER SHARE (2) .............. $ 0.74 $ 0.47 $ 1.28 $ 0.76
-------------- -------------- -------------- --------------
AVERAGE COMMON SHARES
OUTSTANDING (DILUTED) .................. 24,081,375 23,780,913 24,077,569 23,681,525
============== ============== ============== ==============
CASH DIVIDENDS PAID PER COMMON SHARE ... $ -- $ -- $ -- $ --
============== ============== ============== ==============
</TABLE>
(1) Gives consideration to preferred stock dividends of $1.1 million per
quarter.
(2) For the three and six months ended June 30, 2000 and 1999, conversion of
preferred shares into common is assumed.
6
<PAGE> 7
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
PREFERRED COMMON PAID-IN RETAINED COMPREHENSIVE TOTAL
STOCK STOCK CAPITAL EARNINGS INCOME EQUITY
---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
($ thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 2000 ............ $ 15 $ 197 $ 194,155 $ 26,685 $ -- $ 221,052
Net income ............................. -- -- -- 30,921 -- 30,921
Issuance of common stock ............... -- 1 113 -- -- 114
Tax effect of stock options exercised .. -- -- 150 -- -- 150
Dividends paid on preferred stock ...... -- -- -- (2,149) -- (2,149)
---------- ---------- ---------- ---------- ---------- ----------
BALANCES AT JUNE 30, 2000 .............. $ 15 $ 198 $ 194,418 $ 55,457 $ -- $ 250,088
========== ========== ========== ========== ========== ==========
</TABLE>
7
<PAGE> 8
ARKANSAS BEST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
2000 1999
---------- ----------
(UNAUDITED)
($ thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by operating activities .......... $ 53,927 $ 54,004
INVESTING ACTIVITIES
Purchases of property, plant and equipment,
less capitalized leases .......................... (54,198) (28,048)
Purchase of Treadco, Inc. stock .................... -- (23,673)
Proceeds from asset sales and other ................ 5,905 8,397
---------- ----------
NET CASH USED BY INVESTING ACTIVITIES ................. (48,293) (43,324)
---------- ----------
FINANCING ACTIVITIES
Deferred financing costs and expenses .............. -- (125)
Borrowings under revolving credit facilities ....... 89,800 231,250
Payments under revolving credit facilities ......... (81,100) (222,500)
Payments on long-term debt ......................... (8,880) (8,641)
Dividends paid ..................................... (2,149) (2,149)
Net increase (decrease) in bank overdraft .......... 1,366 (4,018)
Retirement of bonds ................................ (4,781) (4,768)
Other, net ......................................... 264 164
---------- ----------
NET CASH USED BY FINANCING ACTIVITIES ................. (5,480) (10,787)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .. 154 (107)
Cash and cash equivalents at beginning of period ... 4,319 4,543
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............ $ 4,473 $ 4,436
========== ==========
</TABLE>
8
<PAGE> 9
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
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. Principal subsidiaries are ABF Freight System, Inc., ("ABF");
Treadco, Inc. ("Treadco"); Clipper Exxpress Company and related companies
("Clipper"); G.I. Trucking Company ("G.I. Trucking"); and FleetNet America, 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,
2000 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2000. 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, 1999.
The difference between the effective tax rate for the six months ended June 30,
2000 and the federal statutory rate resulted from state income taxes,
amortization of nondeductible goodwill and other nondeductible expenses.
NOTE C - DISCONTINUED OPERATIONS
At December 31, 1998, the Company was engaged in international ocean freight
services through its subsidiary CaroTrans International, Inc. ("Clipper
International"), a non-vessel operating common carrier (N.V.O.C.C.). On February
28, 1999, the Company completed a formal plan to exit its international ocean
freight N.V.O.C.C. services by disposing of the business and assets of Clipper
International. On April 17, 1999, the Company closed the sale of the business
and certain assets of Clipper International, including the trade name "CaroTrans
International, Inc." Remaining assets are being liquidated. The aggregate of the
selling price of these assets and the estimated liquidation value of the
retained Clipper International assets aggregated approximately $5.0 million
which was approximately equal to the Company's net investment in the related
assets.
9
<PAGE> 10
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
--------------------------------------------------------------------------------
Results of operations of Clipper International have been reported as
discontinued operations, and the statements of operations for all periods have
been restated to remove revenue and expenses of this segment. Results of Clipper
International included in discontinued operations are summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30 JUNE 30
2000 1999
---------- ----------
($ thousands)
<S> <C> <C>
Revenues ........................... $ -- $ 6,777
Operating loss ..................... -- (1,114)
Pre-tax loss ....................... -- (1,058)
</TABLE>
NOTE D - INVENTORIES
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
2000 1999
---------- ----------
($ thousands)
<S> <C> <C>
Finished goods ..................... $ 25,410 $ 26,253
Materials .......................... 4,143 4,042
Repair parts, supplies and other ... 2,558 2,755
---------- ----------
$ 32,111 $ 33,050
========== ==========
</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 82 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.
The Company has received notices from the EPA and others that it has been
identified as a potentially responsible party ("PRP") under the Comprehensive
Environmental Response Compensation and Liability Act or other federal or state
environmental statutes at several hazardous waste sites. After investigating the
Company's or its subsidiaries' involvement in waste disposal or waste generation
at such sites, the Company has either agreed to de minimis settlements
(aggregating approximately $300,000 over the last ten years), or believes its
obligations with respect to such sites would involve immaterial monetary
liability, although there can be no assurances in this regard.
As of June 30, 2000, the Company has accrued approximately $2.5 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.
10
<PAGE> 11
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
--------------------------------------------------------------------------------
NOTE F - RECENT ACCOUNTING PRONOUNCEMENTS
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. In June 1999, the FASB issued Statement No. 137, which deferred for
one year the implementation date of FASB Statement No. 133. As a result,
Statement No. 133 is effective for the Company in 2001. The Company is
evaluating the impact the Statement will have on its financial statements and
related disclosures.
On December 3, 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements, which among other guidance clarifies certain conditions to be met in
order to recognize revenue. On June 26, 2000, the SEC issued SAB 101B,
Amendment: Revenue Recognition in Financial Statements, which delayed the
effective date of SAB 101 for registrants with fiscal years beginning between
December 16, 1999 and March 15, 2000. SAB 101 is effective for the Company in
the fourth quarter of 2000. The Company is evaluating SAB 101's impact on its
financial statements and related disclosures.
In March 2000, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 44 ("FIN 44"), Accounting of Certain Transactions involving
Stock Compensation, an interpretation of Accounting Principles Board Opinion No.
25. FIN 44 clarifies the application of Opinion 25 for (a) the definition of an
employee for purposes of applying Opinion 25, (b) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. FIN 44 is effective July 1, 2000, but certain
conclusions cover specific events that occur after either December 15, 1998, or
January 12, 2000. Management believes that FIN 44 will not have a material
effect on the financial position or results of operations of the Company.
In March 2000, the Emerging Issues Task Force ("EITF") issued EITF No. 00-2,
Accounting for Website Development Costs, which addresses how an entity should
account for costs incurred to develop a Web site. EITF No. 00-2 did not change
the Company's accounting practices with respect to Web site development costs.
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
2000 1999 2000 1999
------------ ------------ ------------ ------------
($ thousands, except per share data)
<S> <C> <C> <C> <C>
NUMERATOR:
Numerator for basic earnings per share --
Net income .................................. $ 17,749 $ 11,097 $ 30,921 $ 17,911
Preferred stock dividends ..................... (1,074) (1,074) (2,149) (2,149)
------------ ------------ ------------ ------------
Numerator for basic earnings per share --
Net income available to
common shareholders ......................... 16,675 10,023 28,772 15,762
Effect of dilutive securities (1) ............. 1,074 1,074 2,149 2,149
------------ ------------ ------------ ------------
Numerator for diluted earnings per share --
Net income available
to common shareholders ...................... $ 17,749 $ 11,097 $ 30,921 $ 17,911
============ ============ ============ ============
DENOMINATOR:
Denominator for basic earnings
per share -- weighted-average shares ....... 19,785,000 19,632,533 19,774,067 19,623,093
Effect of dilutive securities:
Conversion of preferred stock ................. 3,796,852 3,796,852 3,796,852 3,796,852
Employee stock options ........................ 499,523 351,528 506,650 261,580
------------ ------------ ------------ ------------
Denominator for diluted earnings
per share -- adjusted weighted-average
shares and assumed conversion .............. 24,081,375 23,780,913 24,077,569 23,681,525
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE
BASIC:
Continuing operations ......................... $ 0.84 $ 0.51 $ 1.46 $ 0.83
Discontinued operations ....................... -- -- -- (0.03)
------------ ------------ ------------ ------------
NET INCOME PER SHARE ............................. $ 0.84 $ 0.51 $ 1.46 $ 0.80
============ ============ ============ ============
AVERAGE COMMON SHARES
OUTSTANDING (BASIC): .......................... 19,785,000 19,632,533 19,774,067 19,623,093
============ ============ ============ ============
DILUTED:
Continuing operations ......................... $ 0.74 $ 0.47 $ 1.28 $ 0.79
Discontinued operations ....................... -- -- -- (0.03)
------------ ------------ ------------ ------------
NET INCOME PER SHARE ............................. $ 0.74 $ 0.47 $ 1.28 $ 0.76
============ ============ ============ ============
AVERAGE COMMON SHARES
OUTSTANDING (DILUTED): ........................ 24,081,375 23,780,913 24,077,569 23,681,525
============ ============ ============ ============
CASH DIVIDENDS PAID
PER COMMON SHARE .............................. $ -- $ -- $ -- $ --
============ ============ ============ ============
</TABLE>
(1) For the three and six months ended June 30, 2000 and 1999, conversion of
preferred shares into common is assumed.
12
<PAGE> 13
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
--------------------------------------------------------------------------------
NOTE H - SUBSEQUENT EVENT
On July 10, 2000, the Company purchased 105,000 outstanding shares of Arkansas
Best Corporation Preferred Stock (ABFSP) for $37.375 per share or total purchase
price of approximately $3.9 million.
NOTE I - OPERATING SEGMENT DATA
The Company used the "management approach" to determine its reportable operating
segments as well as to determine the basis of reporting the operating segment
information. The management approach focuses on financial information that the
Company's decision makers use to make decisions about operating matters.
Management uses operating revenues, operating expense categories, operating
ratios, operating income, and key operating statistics to evaluate performance
and allocate resources to the Company's operating segments.
During the periods being reported on, the Company operated in four defined
reportable operating segments: 1) ABF; 2) G.I. Trucking; 3) Clipper; and 4)
Treadco.
Results of operations for Clipper International, previously reflected as a
reportable segment, have been reported as discontinued operations for the six
months ended June 30, 1999.
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, 1999.
13
<PAGE> 14
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
--------------------------------------------------------------------------------
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
2000 1999 2000 1999
---------- ---------- ---------- ----------
(UNAUDITED)
($ thousands)
<S> <C> <C> <C> <C>
OPERATING REVENUES
ABF Freight System, Inc. .................. $ 344,671 $ 308,667 $ 676,507 $ 604,119
G.I. Trucking Company ..................... 42,795 34,913 80,496 66,447
Clipper ................................... 34,126 26,810 63,757 51,275
Treadco, Inc. ............................. 48,292 46,684 89,556 87,629
Other revenues and eliminations ........... 2,103 1,831 4,686 3,810
---------- ---------- ---------- ----------
Total consolidated operating revenues ... $ 471,987 $ 418,905 $ 915,002 $ 813,280
========== ========== ========== ==========
OPERATING EXPENSES AND COSTS
ABF FREIGHT SYSTEM, INC ......................
Salaries and wages ........................ $ 217,449 $ 201,658 $ 426,441 $ 398,374
Supplies and expenses ..................... 41,936 34,515 85,293 65,542
Operating taxes and licenses .............. 10,478 9,114 20,744 18,722
Insurance ................................. 5,731 4,809 10,601 9,827
Communications and utilities .............. 3,592 3,882 7,613 7,543
Depreciation and amortization ............. 8,900 7,296 17,136 14,284
Rents and purchased transportation ........ 23,070 23,160 47,035 45,602
Other ..................................... 1,083 1,140 2,023 2,499
(Gain) on sale of revenue equipment ....... (190) (207) (242) (248)
---------- ---------- ---------- ----------
312,049 285,367 616,644 562,145
---------- ---------- ---------- ----------
G.I. TRUCKING COMPANY
Salaries and wages ........................ 19,453 15,938 37,644 30,722
Supplies and expenses ..................... 3,627 2,826 7,125 5,370
Operating taxes and licenses .............. 774 813 1,630 1,574
Insurance ................................. 931 1,004 1,785 2,035
Communications and utilities .............. 526 427 1,028 855
Depreciation and amortization ............. 1,117 763 2,184 1,505
Rents and purchased transportation ........ 13,562 10,979 25,348 20,768
Other ..................................... 968 796 1,909 1,693
(Gain) on sale of revenue equipment ....... (8) (48) (10) (54)
---------- ---------- ---------- ----------
40,950 33,498 78,643 64,468
---------- ---------- ---------- ----------
CLIPPER
Cost of services .......................... 28,646 22,932 54,454 44,423
Selling, administrative and general ....... 4,671 3,383 8,467 6,715
(Gain) on sale of revenue equipment ....... -- (2) (3) (33)
---------- ---------- ---------- ----------
33,317 26,313 62,918 51,105
---------- ---------- ---------- ----------
</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
2000 1999 2000 1999
---------- ---------- ---------- ----------
(UNAUDITED)
($ thousands)
<S> <C> <C> <C> <C>
TREADCO, INC.
Cost of sales ...................................... $ 32,260 $ 32,562 $ 60,163 $ 61,469
Selling, administrative and general ................ 14,639 13,629 27,996 25,922
---------- ---------- ---------- ----------
46,899 46,191 88,159 87,391
---------- ---------- ---------- ----------
Other expenses and eliminations ....................... 3,681 2,231 7,265 5,158
---------- ---------- ---------- ----------
Total consolidated operating expenses and costs .... $ 436,896 $ 393,600 $ 853,629 $ 770,267
========== ========== ========== ==========
OPERATING INCOME (LOSS)
ABF Freight System, Inc. .............................. $ 32,622 $ 23,300 $ 59,863 $ 41,974
G.I. Trucking Company ................................. 1,845 1,415 1,853 1,979
Clipper ............................................... 809 497 839 170
Treadco, Inc. ......................................... 1,393 493 1,397 238
Other income (loss) and eliminations .................. (1,578) (400) (2,579) (1,348)
---------- ---------- ---------- ----------
Total consolidated operating income ................ $ 35,091 $ 25,305 $ 61,373 $ 43,013
========== ========== ========== ==========
</TABLE>
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (UNAUDITED)
--------------------------------------------------------------------------------
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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2000 1999 2000 1999
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING EXPENSES AND COSTS
ABF FREIGHT SYSTEM, INC.
Salaries and wages .................... 63.1% 65.3% 63.0% 65.9%
Supplies and expenses ................. 12.2 11.2 12.6 10.8
Operating taxes and licenses .......... 3.0 3.0 3.1 3.1
Insurance ............................. 1.7 1.6 1.6 1.6
Communications and utilities .......... 1.0 1.3 1.1 1.2
Depreciation and amortization ......... 2.6 2.4 2.5 2.4
Rents and purchased transportation .... 6.7 7.5 7.0 7.5
Other ................................. 0.3 0.3 0.3 0.6
(Gain) on sale of revenue equipment ... (0.1) (0.1) -- --
-------- -------- -------- --------
90.5% 92.5% 91.2% 93.1%
-------- -------- -------- --------
G.I. TRUCKING COMPANY
Salaries and wages .................... 45.5% 45.7% 46.8% 46.2%
Supplies and expenses ................. 8.5 8.1 8.9 8.1
Operating taxes and licenses .......... 1.8 2.3 2.0 2.4
Insurance ............................. 2.2 2.9 2.2 3.1
Communications and utilities .......... 1.2 1.2 1.3 1.3
Depreciation and amortization ......... 2.6 2.2 2.7 2.3
Rents and purchased transportation .... 31.7 31.4 31.5 31.3
Other ................................. 2.2 2.2 2.3 2.4
(Gain) on sale of revenue equipment ... -- (0.1) -- (0.1)
-------- -------- -------- --------
95.7% 95.9% 97.7% 97.0%
-------- -------- -------- --------
CLIPPER
Cost of services ...................... 83.9% 85.5% 85.4% 86.6%
Selling, administrative and general ... 13.7 12.6 13.3 13.2
(Gain) on sale of revenue equipment ... -- -- -- (0.1)
-------- -------- -------- --------
97.6% 98.1% 98.7% 99.7%
-------- -------- -------- --------
TREADCO, INC.
Cost of sales ......................... 66.8% 69.7% 67.1% 70.1%
Selling, administrative and general ... 30.3 29.2 31.3 29.6
-------- -------- -------- --------
97.1% 98.9% 98.4% 99.7%
-------- -------- -------- --------
OPERATING INCOME
ABF Freight System, Inc. ................. 9.5% 7.5% 8.8% 6.9%
G. I. Trucking Company ................... 4.3 4.1 2.3 3.0
Clipper .................................. 2.4 1.9 1.3 0.3
Treadco, Inc. ............................ 2.9 1.1 1.6 0.3
</TABLE>
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) - continued
--------------------------------------------------------------------------------
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2000, COMPARED TO THE THREE AND SIX MONTHS
ENDED JUNE 30, 1999
Consolidated revenues from continuing operations of the Company for the three
and six months ended June 30, 2000 increased 12.7% and 12.5%, respectively,
compared to the same periods in 1999, due to increases in revenues for ABF, G.I.
Trucking, Clipper and Treadco. The Company's operating income from continuing
operations for the three and six months ended June 30, 2000 increased 38.7% and
42.7%, respectively, compared to the same periods in 1999. Increases in
operating income from continuing operations for the three months ending June 30,
2000 are attributable to improved operations at ABF, G.I. Trucking, Clipper and
Treadco. Increases in operating income for the six months ended June 30, 2000
are attributable to improved operations at ABF, Clipper and Treadco. Income from
continuing operations for the three and six months ended June 30, 2000 increased
59.9% and 69.0% from the same periods in 1999. The improvements in income from
continuing operations reflect primarily improvements in operating income.
Diluted earnings per share from continuing operations improved 57.4% to $0.74
per share and 62.0% to $1.28 per share for the three and six months ended June
30, 2000, when compared to the same periods in 1999.
ABF FREIGHT SYSTEM, INC.
ABF announced that it will implement a general rate increase of 5.7%, effective
August 14, 2000.
Effective January 1, 1999 and September 13, 1999, ABF implemented overall rate
increases of 5.5% and 5.1%, respectively. Revenues for the three and six months
ended June 30, 2000 increased 11.7% and 12.0% to $344.7 million and $676.5
million, respectively, from $308.7 million and $604.1 million for the same
periods in 1999. ABF generated operating income for the three and six months
ended June 30, 2000 of $32.6 million and $59.9 million compared to $23.3 million
and $42.0 million for the three and six months ended June 30, 1999.
ABF's increase in revenue is due to an increase in LTL revenue per hundredweight
and an increase in LTL tonnage. LTL revenue per hundredweight increased 7.4% and
6.3% to $20.70 and $20.45 when the three and six months ended June 30, 2000 are
compared to the same periods in 1999, reflecting a continuing favorable pricing
environment. ABF's LTL tonnage increased 4.4% and 5.6% for the three and six
months ended June 30, 2000, compared to the same periods in 1999. ABF
implemented a fuel surcharge on July 7, 1999, based on the increase in diesel
fuel prices compared to an index price. The fuel surcharge in effect during the
three months ending June 30, 2000 ranged from 3.0% to 4.0% of revenue, and the
fuel surcharge in effect for the six months ending June 30, 2000 ranged from
2.0% to 4.0% of revenue. There was no fuel surcharge in effect during the six
months ended June 30, 1999.
ABF's operating ratio improved to 90.5% and 91.2% for the three and six months
ended June 30, 2000 from 92.5% and 93.1% during the same periods in 1999. The
improvements are the result of the revenue yield, rate and fuel surcharge
improvements and increases in tonnage previously described and as a result of
changes in certain operating expense categories as follows:
Salaries and wages expense for the three and six months ended June 30, 2000
declined 2.2% and 2.9% as a percent of revenue compared to the same periods in
1999. The decline results primarily from the revenue improvements previously
discussed, offset, in part, by the annual general Teamster wage and benefit rate
increase on April 1, 2000 of approximately 3.0%, an increase in incentive pay
amounts and unfavorable claims experience for workers' compensation.
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) - continued
--------------------------------------------------------------------------------
Supplies and expenses increased 1.0% and 1.8% as a percent of revenue for the
three and six months ended June 30, 2000, compared to the same periods in 1999.
This change is due primarily to higher diesel fuel prices, which increased 62.6%
and 83.2% on an average price-per-gallon basis when the three and six months
ended June 30, 2000 are compared to the same periods in 1999. The previously
mentioned fuel surcharge on revenue is intended to offset the fuel cost
increase.
Communication and utilities expense decreased 0.3% and 0.1% as a percent of
revenue when the three and six months ended June 30, 2000 are compared to the
same periods in 1999. During the second and third quarters of 1999, the Company
began installing a new communications system network in all terminals, through a
parallel conversion, which was completed in September 1999. As a result, both
the existing and new systems were being used during the second and third
quarters of 1999, which increased costs for those periods.
Depreciation and amortization expense increased 0.2% and 0.1% as a percent of
revenue for the three and six months ended June 30, 2000, compared to the same
periods in 1999, due primarily to the purchase of 557 road tractors during the
first six months of 2000. The 557 road tractors purchased includes approximately
165 additions with the remaining units replacing older tractors in the fleet
under operating leases.
Rents and purchased transportation expense decreased 0.8% and 0.5% as a percent
of revenue for the three and six months ended June 30, 2000, compared to the
same periods in 1999, due to the disposal of tractors under operating leases,
previously mentioned. In addition, total rail costs, as a percent of revenue,
declined as a result of a decline in rail utilization for the three and six
months ended June 30, 2000 to 15.2% and 15.7% of total miles, respectively, from
16.4% during both the three and six months ended June 30, 1999.
G.I. TRUCKING COMPANY
G.I. Trucking plans to implement a general rate increase of 5.9%, effective
September 1, 2000.
Effective October 1, 1999, G.I. Trucking implemented a general rate increase of
5.5%. G.I. Trucking revenues for the three and six months increased 22.6% and
21.1% to $42.8 million and $80.5 million from $34.9 million and $66.4 million
during the same periods in 1999. The revenue increase resulted from an increase
in G.I. Trucking's tonnage of 18.8% and 18.3% for the three and six months ended
June 30, 2000, compared to the same periods in 1999. In addition, revenue per
hundredweight increased 3.2% and 2.4% for the three and six months ended June
30, 2000 compared to the same periods in 1999. During the early part of first
quarter 2000, G.I. Trucking expanded its operational capabilities in the states
of Texas, New Mexico, Oklahoma, Kansas and parts of Missouri, in preparation for
adding new business from an existing carrier partner. This business began
February 1 and steadily grew through the second quarter 2000. In addition, G.I.
Trucking increased its sales management and sales staff throughout its system by
nearly 50% over 1999 levels.
G.I. Trucking implemented a fuel surcharge during the last week of August 1999,
based upon a West Coast average fuel index. The fuel surcharge in effect during
the second quarter of 2000 ranged from 3.1% to 4.2% of revenue, while the fuel
surcharge range for the six months ending June 30, 2000 was 2.6% to 4.6% of
revenue. There was no fuel surcharge in effect during the six months ended June
30, 1999.
G.I. Trucking's operating ratio improved to 95.7% for the three months ended
June 30, 2000 from 95.9% during the same period in 1999, as a result of the
increases in tonnage, revenue yield and fuel surcharge improvements previously
described. However, during the six months ended June 30, 2000, G.I. Trucking's
operating ratio increased to
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) - continued
--------------------------------------------------------------------------------
97.7% from 97.0% during the same period in 1999, due primarily to start-up costs
associated with the expansion described above. In addition, the change in the
operating ratio results from changes in certain operating expenses as follows:
Salaries and wages expense decreased 0.2% as a percent of revenue during the
three months ended June 30, 2000, compared to the same period in 1999. This
decrease is due primarily to revenue improvements previously discussed, lower
pension costs and favorable health claims experience, offset, in part, by
increased salaries and benefits related to the addition of sales staff and the
expansion described above. However for the six months ended June 30, 2000,
salaries and wages expense increased 0.6% as a percent of revenue, compared to
the same period in 1999. The increase is due primarily to unfavorable claims
experience for workers' compensation and increased salaries and benefits related
to the addition of sales staff and the expansion described above, offset, in
part, by lower pension costs and favorable health claims experience.
Supplies and expenses increased 0.4% and 0.8% as a percent of revenue for the
three and six months ended June 30, 2000, compared to the same periods in 1999.
The increase is due primarily to higher fuel costs, which increased in total
dollars by 53.8% and 84.6% for the three and six months ending June 30, 2000
compared to the same periods in 1999. G.I. Trucking's fuel surcharge on revenue
is intended to offset the fuel cost increase.
Operating taxes and licenses expense decreased 0.5% and 0.4% for the three and
six months ended June 30, 2000, compared to the same periods in 1999 due
primarily to the fact that a portion of such costs are primarily fixed in nature
and decline as a percent of revenue with increases in revenue levels.
Insurance expense decreased 0.7% and 0.9% as a percent of revenue for the three
and six months ended June 30, 2000, compared to the same periods in 1999. This
decrease is due to favorable claims experience for bodily injury and property
damage and cargo claims during the three and six months ended June 30, 2000, as
compared to the same period in 1999.
Depreciation and amortization increased 0.4% as a percent of revenue for both
the three and six months ended June 30, 2000, compared to the same periods in
1999, due primarily to G.I. Trucking's adding approximately 100 trailers to
their fleet during the six months ended June 30, 2000.
Rents and purchased transportation expenses increased 0.3% and 0.2% as a percent
of revenue for the three and six months ended June 30, 2000, as compared to the
same periods in 1999. This increase is due primarily to an increase in purchased
transportation costs resulting from higher fuel costs passed through from
purchased transportation providers and additional linehaul miles run in order to
meet customer service needs. The previously mentioned fuel surcharge is intended
to offset the fuel increase included in purchased transportation costs. This
increase is offset in part by a decline in terminal rent costs as a percent of
revenue. This decline resulted from higher revenue levels and the fact that
terminal rents are primarily fixed in nature.
CLIPPER
Clipper implemented a general rate increase of 5.9% for LTL shipments as of
August 1, 2000.
Revenues for Clipper were $34.1 million and $63.8 million for the three and six
months ended June 30, 2000, representing increases of 27.3% and 24.3% from same
periods in 1999. Clipper continued its first quarter 2000 trend of revenue
growth with LTL shipments increasing 11.6% and 8.3% for the three and six months
ended June 30, 2000, compared to the same periods in 1999. Intermodal shipments
increased 1.6% and 1.5% for the three and six months ended June 30, 2000
compared to the same periods in 1999. Intermodal revenue per
19
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) - continued
--------------------------------------------------------------------------------
shipment for the three and six months ended June 30, 2000 increased 17.0% and
16.1% from the same periods in 1999.
Clipper's operating ratio improved to 97.6% and 98.7% for the three and six
months ended June 30, 2000 from 98.1% and 99.7% during the same periods in 1999,
primarily as a result of volume and margin improvements on its intermodal and
produce shipments. Clipper's margins improved, in part, as a result of a higher
level of rail utilization for the three and six months ended June 30, 2000.
Clipper's rail utilization was 65.9% and 64.5% of total miles for the three and
six months ending June 30, 2000 compared to 55.9% and 56.4% for the three and
six months ending June 30, 1999. Rail costs per mile for Clipper are less
expensive than over-the-road costs per mile. These improvements were offset, in
part, by an increase in selling, administrative and general costs of 1.1% and
0.1% as a percent of revenue for the three and six months ended June 30, 2000.
This increase is due primarily to additional costs incurred to maintain
operations in the northeast following the abandonment of the Jersey City
location by the agent.
TREADCO, INC.
Revenues for Treadco increased 3.4% to $48.3 million and 2.2% to $89.6 million
for the three and six months ended June 30, 2000, respectively, compared to the
same periods in 1999. For the three and six months ended June 30, 2000, "same
store" sales increased 3.1% and 1.8% compared to the same periods in 1999. "New
store" sales accounted for 0.3% and 0.4% of the increase from the three and six
months ended June 30, 1999, respectively. "Same store" sales include locations
that have been in existence for the entire periods presented. "New store" sales
resulted from the addition of a new sales-only location during the second
quarter of 1999. Revenues from retreading for the three and six months ended
June 30, 2000 decreased 1.1% to $17.7 million and 1.2% to $33.6 million,
respectively, compared to the same periods in 1999. Retread revenues for the
three and six months ended June 30, 2000 were lower due to a decrease in units
sold of approximately 3.4% and 2.8%, respectively, from the same periods in
1999. The decreases were offset in part by increases in the average sales price
per unit of approximately 2.5% and 2.0%, respectively, from the same periods in
1999. Declines in retread units sold resulted from pricing pressures from new
tire manufacturer's specials and a more competitive marketplace. Also, rising
fuel costs had a negative impact on customer retread demand during the periods.
Revenues from new tires increased 4.2% to $24.4 million and 2.0% to $44.6
million for the three and six months ended June 30, 2000, respectively, from the
same periods in 1999. Units sold increased 5.3% and 3.8% from the three and six
months ended June 30, 1999, due primarily to an increase in new tires sold on
national accounts which are sold on a commission basis. Also contributing to
higher new tire revenues was an increase in the average selling price of new
tires sold to non-national accounts compared to the same periods in 1999.
Service revenues for the three and six months ended June 30, 2000 increased
15.5% to $6.1 million and 15.0% to $11.4 million compared to the same periods in
1999. The increase is primarily due to the addition of service equipment and
personnel and to management's efforts to improve pricing.
Treadco's operating ratio improved to 97.1% and 98.4% during the three and six
months ended June 30, 2000, respectively, from 98.9% and 99.7% for the same
periods in 1999. Improvements in Treadco's operating ratio resulted from
improvements in retread, new tire and service gross margins reflecting better
pricing for all three lines of business for the three and six months ended June
30, 2000 when compared to the same periods in 1999. Selling, administrative and
general expenses increased primarily as a result of higher salaries and wages
due to increased office, service and inventory control personnel. Also,
insurance costs were higher due to increases in claim reserves, and truck
expense rose due to higher fuel costs.
20
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) - continued
-------------------------------------------------------------------------------
INCOME TAXES
The difference between the effective tax rate for the three and six months ended
June 30, 2000 and the federal statutory rate resulted from state income taxes,
amortization of nondeductible goodwill and other nondeductible expenses.
OTHER ASSETS
Other assets increased $7.3 million from December 31, 1999 to June 30, 2000, due
primarily to incentive pay deferrals and matching contributions to the Company's
Voluntary Savings Plan assets, which are held in a trust account.
OTHER LIABILITIES
Other liabilities increased $7.2 million from December 31, 1999 to June 30,
2000, due primarily to incentive pay deferrals and matching contributions to the
Company's Voluntary Savings Plan.
LIQUIDITY AND CAPITAL RESOURCES
Net income plus depreciation and amortization was $58.7 million for the six
months ended June 30, 2000 compared to $41.7 million for the same period in
1999. Working capital changes for the first six months of 2000 resulted in a
decrease in cash provided by operations of $4.8 million compared to an increase
in cash provided by operations from working capital changes of $12.3 million in
the first six months of 1999. Cash provided by working capital changes declined
for the six months ended June 30, 2000 from 1999 primarily because of increases
in accounts receivable. During the six months ended June 30, 2000, cash provided
from operations and proceeds from assets sales of $7.2 million were used
primarily to purchase revenue equipment and other property and equipment
totaling $54.2 million and to reduce outstanding debt by $4.9 million. During
the six months ended June 30, 1999, cash provided by operations and proceeds
from assets sales of $9.1 million were used primarily to purchase revenue
equipment and other property and equipment in the amount of $28.0 million, to
purchase the non-ABC-owned shares of Treadco for $23.7 million and to pay down
outstanding debt.
The Company is party to a $250 million credit agreement (the "Credit Agreement")
with Societe Generale 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, 2000, there were $110.0 million of Revolver Advances and
approximately $23.6 million of letters of credit outstanding. At June 30, 2000,
the Company had approximately $116.4 million of borrowing availability under the
Credit Agreement. The Credit Agreement contains various covenants, which limit,
among other things, indebtedness, distributions and dispositions of assets and
require the Company to meet certain quarterly financial ratio tests. As of June
30, 2000, 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 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 at June 30, 2000 was 0.40%.
21
<PAGE> 22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) - continued
--------------------------------------------------------------------------------
During 1999, the Company entered into $26.1 million in capital lease obligations
for the purchase of revenue equipment. The Company has not entered into any
capital lease obligations in 2000.
In 2000, the Company forecasts total spending of $85.0 to $95.0 million for
capital expenditures net of proceeds from equipment sales. Of the $85.0 to $95.0
million, ABF is budgeted for $63.0 to $73.0 million to be used primarily for
revenue equipment and facilities. Treadco is budgeted for approximately $4.0
million of expenditures to be used primarily for retreading and service
equipment and facilities and G.I. Trucking is budgeted for approximately $10.0
million of expenditures to be used primarily for revenue equipment. Clipper is
budgeted for approximately $4.0 million of expenditures to be used primarily for
revenue equipment.
For the year 2000, the Company forecasts total revenues of approximately $1.9
billion. Included in the $1.9 billion are forecasted revenues for ABF of
approximately $1.4 billion, G.I. Trucking of approximately $160.0 million,
Clipper of approximately $131.0 million and Treadco of approximately $195.0
million.
Management believes, based upon the Company's current levels of operations, the
Company's cash, capital resources, borrowings available under the Credit
Agreement and cash flow from operations will be sufficient to finance current
and future operations and meet all present and future debt service requirements.
SEASONALITY
ABF and G.I. Trucking are affected by seasonal fluctuations, which affect
tonnage to be transported. Freight shipments, operating costs and earnings are
also affected adversely by inclement weather conditions. The third calendar
quarter of each year usually has the highest tonnage levels while the first
quarter has the lowest. Clipper's operations are similar to motor carrier
operations with revenues being weaker in the first quarter and stronger during
the months of September and October. Treadco's operations are somewhat seasonal
with the last nine months of the calendar year generally having the highest
levels of sales.
FORWARD-LOOKING STATEMENTS
Statements contained in the Management's Discussion and Analysis section of this
report that are not based on historical facts are "forward-looking statements."
Terms such as "estimate," "expect," "predict," "plan," "anticipate," "believe,"
"intend," "should," "would," "scheduled," and similar expressions and the
negatives of such terms are intended to identify forward-looking statements.
Such statements are by their nature subject to uncertainties and risk, including
but not limited to union relations; availability and cost of capital; shifts in
market demand; weather conditions; the performance and needs of industries
served by Arkansas Best's subsidiaries; actual future costs of operating
expenses such as fuel and related taxes; self-insurance claims and employee
wages and benefits; actual costs of continuing investments in technology, the
timing and amount of capital expenditures; 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.
22
<PAGE> 23
ITEM 2a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------------------------
INTEREST RATE INSTRUMENTS
The Company is a party to an interest rate swap agreement which was 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 .40%). This instrument is not
recorded on the balance sheet of the Company. Details regarding the swap, as of
June 30, 2000, 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) $5.2 million
Margin (currently .40%) Plus Credit Agreement
Margin (currently .40%)
</TABLE>
(1) LIBOR rate is determined two London Banking Days prior to the first day of
every month and continues up to and including the maturity date.
(2) The fair value is an amount estimated by Societe Generale ("process agent")
that the Company would have received at June 30, 2000 to terminate the
agreement.
OTHER MARKET RISKS
Since December 31, 1999, there have been no significant changes in the Company's
other market risks, as reported in the Company's Form 10-K Annual Report.
23
<PAGE> 24
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 April 19,
2000. 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>
Arthur J. Fritz Jr. 17,834,118 185,908
John H. Morris 17,835,382 184,644
</TABLE>
The second proposal was to ratify the appointment of Ernst & Young LLP
as independent auditors for the fiscal year 2000. This proposal
received 17,948,513 votes for adoption, 32,997 against adoption, 38,516
abstentions and no broker non-votes.
The third proposal was to approve the Executive Officer Annual
Incentive Compensation Plan. This proposal received 14,849,389 votes
for adoption, 459,275 votes against adoption, 246,436 abstentions and
2,464,926 broker non-votes.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
Financial Data Schedule
(b) REPORTS ON FORM 8-K.
None.
24
<PAGE> 25
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 8, 2000 /s/ David E. Loeffler
---------------------
David E. Loeffler
Vice President-Treasurer, Chief Financial Officer
and Principal Accounting Officer
25
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
