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<SEC-DOCUMENT>0000894405-97-000006.txt : 19970326
<SEC-HEADER>0000894405-97-000006.hdr.sgml : 19970326
ACCESSION NUMBER: 0000894405-97-000006
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 5
CONFORMED PERIOD OF REPORT: 19961231
FILED AS OF DATE: 19970325
SROS: NASD
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ARKANSAS BEST CORP /DE/
CENTRAL INDEX KEY: 0000894405
STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213]
IRS NUMBER: 710673405
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-19969
FILM NUMBER: 97562029
BUSINESS ADDRESS:
STREET 1: 3801 OLD GREENWOOD RD
CITY: FORT SMITH
STATE: AR
ZIP: 72903
BUSINESS PHONE: 5017856000
MAIL ADDRESS:
STREET 1: P O BOX 48
CITY: FORT SMITH
STATE: AR
ZIP: 72902
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<TEXT>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year December 31, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ---------- to ----------.
Commission file number 0-19969
ARKANSAS BEST CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 71-0673405
- ---------------------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3801 Old Greenwood Road, Fort Smith, Arkansas 72903
- ---------------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 501-785-6000
------------
Securities registered pursuant to Section 12(b) of the Act:
None
----------------
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
- -------------------------------------- -----------------------
Common Stock, $.01 Par Value Nasdaq Stock Market/NMS
$2.875 Series A Cumulative Convertible
Exchangeable Preferred Stock,
$.01 Par Value Nasdaq Stock Market/NMS
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of The Securities Exchange Act
of 1934 during the preceding 12 months (or for shorter period that the
Registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ X].
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 10, 1997, was $88,818,440.
The number of shares of Common Stock, $.01 par value, outstanding as of
March 10, 1997, was 19,504,473.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the proxy statement for the Arkansas Best Corporation annual
shareholders' meeting to be held May 8, 1997 are incorporated by reference
into Part III.
<PAGE>
ARKANSAS BEST CORPORATION
FORM 10-K
TABLE OF CONTENTS
ITEM PAGE
NUMBER NUMBER
PART I
Item 1. Business 2
Item 2. Properties 12
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 13
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations 15
Item 8. Financial Statements and Supplementary Data 31
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 31
PART III
Item 10. Directors and Executive Officers of the Registrant 32
Item 11. Executive Compensation 32
Item 12. Security Ownership of Certain Beneficial
Owners and Management 32
Item 13. Certain Relationships and Related Transactions 32
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 33
<PAGE>
PART I
ITEM 1. BUSINESS
(a) General Development of Business
Corporate Profile
Arkansas Best Corporation (the "Company") is a diversified holding company
located in Fort Smith, Arkansas. The Company is engaged through its motor
carrier subsidiaries in less-than-truckload ("LTL") and truckload shipments
of general commodities, through its intermodal and logistics subsidiaries in
intermodal marketing and freight logistics services and through its 46%-owned
subsidiary, Treadco, Inc. ("Treadco") in truck tire retreading and new truck
tire sales.
Historical Background
In 1988, the Company was acquired in a leveraged buyout
by a corporation organized by Kelso & Company, L.P. ("Kelso").
In 1992, the Company completed an initial public offering of Common Stock par
value $.01 (the "Common Stock") by the Company. The Company also repurchased
substantially all the remaining shares of Common Stock beneficially owned by
Kelso, thus ending Kelso's investment in the Company.
In 1993, the Company completed a public offering of 1,495,000 shares of
preferred stock ("Preferred Stock").
(b) Financial Information about Industry Segments
The response to this portion of Item 1 is included in "Note M - Business
Segment Data" of the notes to the Company's consolidated financial statements
for the year ended December 31, 1996, which is submitted as a separate
section of this report.
(c) Narrative Description of Business
The Company
Acquisition
On July 14, 1995, ABC Acquisition Corporation (the "Purchaser"), a wholly
owned subsidiary of the Company, commenced a tender offer (the "Offer") to
purchase all outstanding shares of common stock of WorldWay Corporation
("WorldWay"), at a purchase price of $11 per share (the "Acquisition").
Pursuant to the Offer, on August 11, 1995, the Purchaser accepted for payment
shares of WorldWay validly tendered, representing approximately 91% of the
shares outstanding. On October 12, 1995, the remaining shares of WorldWay's
common stock were converted into the right to receive $11 per share in cash.
Principal subsidiaries of WorldWay included Carolina Freight Carriers Corp.
("Carolina Freight") and Red Arrow Freight Lines, Inc. ("Red Arrow"), which
were merged into the Company's subsidiary, ABF Freight System, Inc. ("ABF")
on September 24, 1995, Cardinal Freight Carriers, Inc. ("Cardinal"), G.I.
Trucking Company ("G.I. Trucking"), CaroTrans International, Inc.
("CaroTrans"), The Complete Logistics Company ("Complete Logistics"), Motor
Carrier Insurance, Ltd., and Carolina Breakdown Service, Inc. ("Carolina
Breakdown").
<PAGE>
Employees
At December 31, 1996, the Company had a total of 16,328 employees of which
67% are members of a labor union.
Less-Than-Truckload Motor Carrier Operations
General
The Company's LTL motor carrier operations are conducted through ABF, ABF
Freight System (B.C.), Ltd. ("ABF-BC"), ABF Freight System Canada, Ltd. ("ABF-
Canada"), ABF Cartage, Inc. ("Cartage"), and Land-Marine Cargo, Inc. ("Land-
Marine")(collectively the "ABF Group") and G.I. Trucking Company.
LTL carriers offer services to shippers which are tailored to the need to
transport a wide variety of large and small shipments to geographically
dispersed destinations. LTL carriers pick up small shipments throughout the
vicinity of a local terminal with local trucks and consolidate them at each
terminal according to destination for transportation by intercity units to
their destination cities or to distribution centers, where shipments from
various locations can be reconsolidated for transportation to distant
destinations, other distribution centers or local terminals. Once delivered
to a local terminal, a shipment is delivered to the customer by local trucks
operating from such terminal. In some cases, when a sufficient number of
different shipments at one origin terminal are going to a common destination,
they can be combined to make a full trailerload. A trailer then is dispatched
to that destination without the freight having to be rehandled.
Competition, Pricing and Industry Factors
The trucking industry is highly competitive. The Company's LTL motor carrier
subsidiaries actively compete for freight business with other national,
regional and local motor carriers and, to a lesser extent, with private
carriage, freight forwarders, railroads and airlines. Competition is based
primarily on personal relationships, price and service. In general, most of
the principal motor carriers use similar tariffs to rate interstate
shipments. Competition for freight revenue, however, has resulted in
discounting which effectively reduces prices paid by shippers. In an effort
to maintain and improve its market share, the Company's LTL motor carrier
subsidiaries offer and negotiate various discounts.
The trucking industry, including the Company's LTL motor carrier
subsidiaries, is affected directly by the state of the overall economy. In
addition, seasonal fluctuations also affect tonnage to be transported.
Freight shipments, operating costs and earnings also are affected adversely
by inclement weather conditions.
ABF Freight System, Inc.
The largest subsidiary of the Company, ABF currently accounts for
approximately 65% of the Company's consolidated revenues and 92% of LTL
operations revenue. ABF is the fourth largest LTL motor carrier in the United
States, based on revenues for 1996 as reported to the U.S. Department of
Transportation ("D.O.T."). ABF provides direct service to over 98.5% of the
cities in the United States having a population of 25,000 or more. The ABF
Group provides interstate and intrastate direct service to more than 40,000
points through 317 terminals in all 50 states, Canada and Puerto Rico.
Through an alliance and relationships with trucking companies in Mexico, ABF
provides motor carrier services to customers in that country as well. ABF was
<PAGE>
incorporated in Delaware in 1982 and is the successor to Arkansas Motor
Freight, a business originally organized in 1935.
ABF concentrates on long-haul transportation of general commodities freight,
involving primarily LTL shipments. General commodities include all freight
except hazardous waste, dangerous explosives, commodities of exceptionally
high value, commodities in bulk and those requiring special equipment. ABF's
general commodities shipments differ from shipments of bulk raw materials
which are commonly transported by railroad, pipeline and water carrier.
General commodities transported by ABF include, among other things, food,
textiles, apparel, furniture, appliances, chemicals, non-bulk petroleum
products, rubber, plastics, metal and metal products, wood, glass, automotive
parts, machinery and miscellaneous manufactured products. During the year
ended December 31, 1996, no single customer accounted for more than 3% of
ABF's revenues, and the ten largest customers accounted for less than 8% of
ABF's revenues.
Employees
At December 31, 1996, ABF employed 12,362 persons. Employee compensation and
related costs are the largest components of LTL motor carrier operating
expenses. In 1996, such costs amounted to 69.4% of LTL operations revenues.
ABF is a signatory with the International Brotherhood of Teamsters
("Teamsters") to the National Master Freight Agreement (the "National
Agreement") which became effective April 1, 1994, and expires March 31, 1998.
Under the National Agreement, employee wages and benefits increased an
average of 2.7%, 3.3% and 3.8% annually during 1994, 1995 and 1996,
respectively, and will increase an average of 3.9% on April 1, 1997. Under
the terms of the National Agreement, ABF is required to contribute to various
multiemployer pension plans maintained for the benefit of its employees who
are members of the Teamsters. Amendments to the Employee Retirement Income
Security Act of 1974 ("ERISA") pursuant to the Multiemployer Pension Plan
Amendments Act of 1980 (the "MPPA Act") substantially expanded the potential
liabilities of employers who participate in such plans. Under ERISA, as
amended by the MPPA Act, an employer who contributes to a multiemployer
pension plan and the members of such employer's controlled group are jointly
and severally liable for their proportionate share of the plan's unfunded
liabilities in the event the employer ceases to have an obligation to
contribute to the plan or substantially reduces its contributions to the plan
(i.e., in the event of plan termination or withdrawal by the Company from the
multiemployer plans). Although the Company has no current information
regarding its potential liability under ERISA in the event it wholly or
partially ceases to have an obligation to contribute or substantially reduces
its contributions to the multiemployer plans to which it currently
contributes, management believes that such liability would be material. The
Company has no intention of ceasing to contribute or of substantially
reducing its contributions to such multiemployer plans. ABF is also a party
to several smaller union contracts. Approximately 88% of ABF's employees are
unionized, of whom approximately 1% are members of unions other than the
Teamsters.
Four of the five largest LTL carriers are unionized and generally pay
comparable wages. Non-union companies typically pay employees less than union
companies. Due to its national reputation and its high pay scale, ABF has not
historically experienced any significant difficulty in attracting or
retaining qualified drivers.
<PAGE>
Insurance and Safety
Generally, claims exposure in the motor carrier industry consists of cargo
loss and damage, auto liability, property damage and bodily injury and
workers' compensation. The Company's motor carrier subsidiaries are
effectively self-insured for the first $100,000 of each cargo loss, $300,000
of each workers' compensation loss and $200,000 of each general and auto
liability loss, plus an aggregate of $750,000 of auto liability losses
between $200,000 and $500,000. The Company maintains insurance contracts
covering the excess of such losses in amounts it believes are adequate. While
insurance for motor carriers has become increasingly more expensive and more
difficult to obtain, it remains essential to the continuing operations of a
motor carrier. The Company has been able to obtain adequate coverage and is
not aware of problems in the foreseeable future which would significantly
impair its ability to obtain adequate coverage at comparable rates.
G.I. Trucking Company
Headquartered in La Mirada, California, G.I. Trucking is a non-union regional
LTL motor carrier. G.I. Trucking provides transportation services and
coverage throughout 13 Western states and the Western Canadian provinces of
Alberta and British Columbia, as well as service to Hawaii and Alaska. One-
to three-day regional service is provided through 70 service centers.
Transcontinental service is facilitated through a partnership with three
other regional carriers providing service through six major hub terminals
located throughout the Midwest and East Coast. Customer service is enhanced
through EDI communications between partners, allowing for single pro tracing,
invoicing and a full range of other EDI and information management services.
G.I. Trucking's Hawaiian container operation, located in La Mirada, provides
excellent transit times to the Islands. Service to points in Alaska and
Western Canada is provided through the company's service center in Seattle,
Washington.
G.I. Trucking's linehaul structure utilizes company solo drivers, company
sleeper teams, contract power and one-way carriers, providing total
flexibility in maintaining superior service and lane balance.
Truckload Operations
Cardinal Freight Carriers, Inc.
Cardinal is an irregular route carrier providing dry van and flatbed service
throughout the eastern two-thirds of the United States and Canada.
Headquartered in Concord, North Carolina, Cardinal operates via a central
dispatch system utilizing a state-of-the-art computer system. Cardinal has
grown from 14 company-owned power units in 1981 to more than 400 tractors in
the van division and over 100 tractors in the flatbed division. The trailer
fleet consists of 1,307 vans and 150 aluminum flatbeds.
<PAGE>
Cardinal's services, both van and flatbed, can be labeled as interregional.
Cardinal's system averages 530 miles per trip, providing next day, on-time
service that patterns today's manufacturing and distribution system of closer
proximity to their customer base. With the flexibility for both longhaul and
shorthaul, Cardinal offers one-thousand-mile plus service, along with
regional length of haul, including intrastate service, in 11 states. Cardinal
has a facility network consisting of 6 locations to perform timely preventive
maintenance to better ensure safety in the community and equipment
reliability.
Cardinal operates in a competitive and highly service-sensitive market and,
therefore, is committed to providing its customers with premier quality
service. Cardinal's customers have defined a premier quality service as on-
time, claim-free pickups and deliveries, accurately invoiced, and thorough
communications, along with information support technology.
During 1996, Cardinal's largest customer accounted for 10% of Cardinal's
revenue and the ten largest customers accounted for 41% of Cardinal's
revenue.
Intermodal Operations
Clipper WorldWide
During 1996, CaroTrans joined the Clipper Group to form Clipper WorldWide, a
new business unit which will focus on worldwide logistics, transportation and
trade facilitation. The Clipper Group consists of Clipper Exxpress Company
("Clipper"), Agricultural Express of America, Inc. ("AXXA"), and Agile
Freight System, Inc. ("Agile").
Clipper WorldWide will link the Clipper Group's domestic rail intermodal
network with CaroTrans' strong ocean intermodal network.
Clipper Exxpress Company
Clipper, the largest of the three Clipper Group companies, accounted for
approximately 60% of the Company's intermodal operations revenues during
1996. Clipper is a non-asset, non-labor intensive, knowledge-based provider
of contract freight management and LTL intermodal services to its customers.
Clipper is the largest consolidator and forwarder of LTL shipments and one of
the largest intermodal marketing companies ("IMC") in the United States.
Through its contract freight management business unit, Clipper provides
logistics and transportation services, including intermodal and truck
brokerage, warehousing, consolidation, transloading, repacking, and other
ancillary services.
As an IMC, Clipper arranges for loads to be picked up by a drayage company,
tenders them to a railroad, and then arranges for a drayage company to
deliver the shipment on the other end of the move. Clipper's role in this
process is to select the most cost-effective means to provide quality
service, and to expedite movement of the loads at various interface points to
ensure seamless door-to-door transportation.
<PAGE>
Clipper's LTL collection and distribution network consists of 38
geographically dispersed locations throughout the United States. Selection of
markets depends on size (lane density), availability of quality rail service
and truck line-haul service, length of haul and competitor profile. Traffic
moving between its ten most significant market pairs generates approximately
34% of Clipper's LTL revenue. Virtually all of Clipper's LTL revenue is
derived from long-haul, metro area-to-metro area transportation.
Although pickup and delivery and terminal handling is performed by agents,
Clipper has an operations and customer service staff located at or near the
agent's terminal to monitor service levels and provide an interface between
customers and agents.
Agricultural Express of America, Inc. (D/B/A Clipper Controlled Logistics)
AXXA provides high quality, temperature-controlled intermodal service to
fruit and produce brokers, growers, shippers and receivers and supermarket
chains, primarily from the West to the Midwest, Canada, and the eastern
United States. AXXA owns 425 temperature-controlled trailers that it deploys
in the seasonal fruit and vegetable markets. These markets are carefully
selected in order to take advantage of various seasonally high rates which
peak at different times of the year. By focusing on the spot market for
produce transport, AXXA is able to generate on average, a higher revenue per
load compared to standard temperature-controlled carriers that pursue more
stable year-round temperature-controlled freight.
AXXA and Clipper are closely integrated, with Clipper relying on AXXA
equipment to move its westbound freight, particularly during the winter
months.
Agile Freight System, Inc. (D/B/A Clipper Highway Services)
Agile is a non-asset intensive, premium service, long-haul truckload carrier
that utilizes two-person driver teams provided primarily by owner-operators.
Agile provides "near airfreight" truckload service in tightly focused long-
haul lanes that originate or terminate near a Clipper market. Much of Agile's
value to the Clipper Group is that it can be relied upon if other carriers
are not available to move full truckloads of consolidated LTL shipments by
Clipper. During 1996, Agile began a local drayage operation.
CaroTrans International, Inc.
CaroTrans is a neutral, non-vessel operating common carrier ("NVOCC"),
providing import and export, door-to-door and door-to-port service to more
than 140 countries with 225 ports of discharge. Headquartered in Cherryville,
North Carolina, CaroTrans is one of the largest NVOCC's in the world,
offering more destinations by a "master loader" than any other NVOCC.
Overseas, CaroTrans is recognized as a leader in international shipping
between North America and many worldwide destinations. CaroTrans maintains
offices in Rotterdam, Holland; London and Liverpool, United Kingdom;
Singapore and San Juan. These strategically located offices direct the
operations and sales activities of the carefully selected agents within its
geographic region.
<PAGE>
Logistics Operations
The Complete Logistics Company
The Complete Logistics Company is a logistics organization dedicated to
providing supply chain management to its customers, including such services
as equipment leasing, logistics modeling, communications networks, warehouse
management, consolidation and cross-dock facilities, computerized routing,
and experienced drivers, dock workers, supervisors, and clerical staff. All
services are controlled through an integrated computer system which allows
Complete Logistics to administer all services provided in a seamless manner.
As an asset-based, third-party, single-source logistics company, Complete
Logistics has the capability to manage and coordinate a customer's logistics
resources to meet their competitive requirements. Complete Logistics listens
carefully to a customer's needs and then offers a range of customized options
designed to give the customer control over their costs and performance.
Ongoing success is ensured by maintaining constant communication and a close
working partnership with the customer.
Integrated Distribution, Inc.
Integrated Distribution is a logistics company that manages the flow of goods
and related information. Integrated Distribution's services include truckload
and large LTL transportation, customized handling, freight consolidation,
contract and public warehousing, and logistics. Transportation services are
aimed at pickup and delivery of truckload and large LTL shipments.
Integrated's trucks are equipped with satellite tracking and communications
so that a customer always knows the location of their product. An in-house
licensed brokerage service supplements the carrier operations.
Through its customized handling of a customer's product, Integrated
Distribution adds value by cross-docking, building store-ready displays,
making final assemblies, applying bar code and price labels, and packaging.
Integrated Distribution offers freight consolidation for membership clubs,
grocery chains and distributors, and mass merchandisers. Integrated's program
offers scheduled deliveries of LTL shipments with the economy of truckload
rates. Logistics services include development and implementation of the
optimal solution for a customer's distribution requirements, using owned or
subcontracted assets.
Tire Operations
Treadco, Inc.
Treadco is the nation's largest independent tire retreader for the trucking
industry and the third largest commercial truck tire dealer. Treadco's
revenues currently account for approximately 9% of the Company's consolidated
revenues and are divided approximately 41%, 51% and 8% between retread sales,
new tire sales and service revenues, respectively. In 1996, Treadco sold
approximately 568,000 retreaded truck tires and approximately 399,000 new
tires.
<PAGE>
Treadco has a total of 54 locations positioned across the South, Southwest,
lower Midwest and West. Treadco retreads and sells truck tires at 26
production facilities located in Arizona, Arkansas, California, Florida,
Georgia, Louisiana, Missouri, Nevada, Ohio, Oklahoma and Texas. The remaining
28 locations are sales facilities located in the states listed above, as well
as Kansas, Kentucky, Mississippi and Tennessee.
Precure Retread Process
In August 1995, Bandag, Inc. ("Bandag"), Treadco's tread rubber supplier and
franchiser of the retreading process used by substantially all of Treadco's
locations, advised Treadco that certain franchise agreements would not be
renewed upon expiration in 1996. Bandag subsequently advised Treadco that
unless Treadco used the Bandag process exclusively, Bandag would not renew
any of Treadco's franchise agreements when they expired.
In October 1995, Treadco reached an agreement with Oliver Rubber Company
("Oliver") to be a supplier of equipment and related materials for Treadco's
truck tire precure retreading business. Oliver agreed to supply Treadco with
retreading equipment and related materials for all production facilities
which ceased being Bandag franchised locations. During the first three
quarters of 1996, Treadco converted its production facilities that were under
Bandag retread franchises to Oliver licensed facilities.
Under the Oliver license agreements, Treadco purchases from Oliver precured
tread rubber and bonding cushion gum and PNEUFLEX tread rubber (collectively
"Rubber Products"). Treadco's obligation to purchase Rubber Products from
Oliver is subject to (i) Oliver's continuing to produce Rubber Products of no
less quality and durability than it presently produces, and (ii) Oliver's
overall pricing program for Treadco.
Mold Cure Retread Process
On February 1, 1996, Treadco gained Bridgestone certification to produce and
sell ONCOR remanu-factured tires at its St. Louis (MO) production facility.
This is the first plant in the United States using Bridgestone's "ONCOR Tread
Renewal System." However, the Bridgestone mold cure process has been used for
many years outside the United States, predominately in Japan.
Sales and Marketing
Treadco's sales and marketing strategy is based on its service strengths,
network of production and sales facilities and strong regional reputation. In
addition to excellent service, Treadco offers broad geographical coverage
across the South, Southwest, lower Midwest and West. This coverage is
important for customers because they are able to establish uniform pricing,
utilize national account billing processes similar to those used by major new
tire suppliers, and generally reduce the risk of price fluctuations when
service is needed.
None of Treadco's customers for retreads and new tires, including ABF or
other affiliates, represented more than 2% of Treadco's revenues for 1996.
ABF accounted for approximately $2.5 million of Treadco's revenues in 1996
(1.8%), and has not accounted for more than 3% of Treadco's revenues in any
of the last ten years. Treadco's customers are primarily mid-sized companies
that maintain in-house trucking operations and rely on Treadco's expertise in
servicing their tire management programs. Treadco markets its products
through sales personnel located at each of its 54 locations. The sales
locations are supplied with retreads from nearby Treadco production
<PAGE>
facilities. Treadco locates its facilities in close proximity to interstate
highways and operates mobile service trucks to provide ready accessibility
and convenience to its customers, particularly fleet owners.
Ownership
As of December 31, 1996, the Company's percentage ownership of Treadco was
45.7%. Treadco is consolidated with the Company for financial reporting
purposes, with the ownership interest of the other stockholders reflected as
a minority interest.
Carolina Breakdown Service, Inc.
Carolina Breakdown Service, Inc., ("CBS") is a third-party vehicle
maintenance logistics company operating from a Cherryville, North Carolina
base, with service capabilities in the 48 contiguous states, and Central and
Eastern Canada. The CBS nationwide operation provides any and all necessary
scheduled and unscheduled vehicle repairs and driver assistance to all
classes and types of trucks, trailers, and combination units 24 hours a day,
7 days a week. In-house maintenance expertise and regimentation also allows
for additional business as a technical assistance provider to the original
equipment manufacturer community, and through the use of strategic
outsourcing via a qualified vendor network of over 53,000 vendors nationwide,
CBS handles over 100 service and technical calls a day from its client base
of approximately 700 trucking and OEM accounts compared to 492 at the end of
1995. Carolina Breakdown Service, Inc., was incorporated in 1993 but derives
its professional training from over four decades of experience, having
serviced equipment for Carolina Freight.
Environmental and Other Government Regulations
The Company is subject to federal, state and local environmental laws and
regulations relating to, among other things, contingency planning for spills
of petroleum products, and its disposal of waste oil. Additionally, the
Company is subject to significant regulations dealing with underground fuel
storage tanks. The Company's subsidiaries store some of its fuel for its
trucks and tractors in approximately 148 underground tanks located in 33
states. The Company believes that it is in substantial compliance with all
such environmental laws and regulations and is not aware of any leaks from
such tanks that could reasonably be expected to have a material adverse
effect on the Company's competitive position, operations or financial
condition.
The Company has in place policies and methods designed to conform with these
regulations. The Company estimates that capital expenditures for upgrading
underground tank systems and costs associated with cleaning activities for
1997 will not be material.
The Company has received notices from the EPA and others that it has been
identified as a potentially responsible party ("PRP") under the Comprehensive
Environmental Response Compensation and Liability Act or other federal or
state environmental statutes at several hazardous waste sites. After
investigating the Company's or its subsidiaries' involvement in waste
disposal or waste generation at such sites, the Company had either agreed to
de minimis settlements (aggregating approximately $250,000 over the last five
years), or believes its obligations with respect to such sites would involve
immaterial monetary liability, although there can be no assurances in this
regard.
<PAGE>
Treadco is affected by a number of governmental regulations relating to the
development, production and sale of retreaded and new tires, the raw
materials used to manufacture such products (including petroleum, styrene and
butadiene), and to environmental, tax and safety matters. In addition, the
retreading process creates rubber particulate, or "dust," which requires
gathering and disposal, and Treadco disposes of used and nonretreadable tire
casings, both of which require compliance with environmental and disposal
laws. In some situations, Treadco could be liable for disposal problems, even
if the situation resulted from previous conduct of Treadco that was lawful at
the time or from improper conduct of, or conditions caused by, persons
engaged by Treadco to dispose of particulate and discarded casings. Such
cleanup costs or costs associated with compliance with environmental laws
applicable to the tire retreading process could be substantial and have a
material adverse effect on Treadco's financial condition. Treadco believes
that it is in substantial compliance with all laws applicable to such
operations, however, and is not aware of any situation or condition that
could reasonably be expected to have a material adverse effect on Treadco's
financial condition.
As of December 31, 1996, the Company has accrued approximately $3.1 million
to provide for environmental-related liabilities. The Company's environmental
accrual is based on management's best estimate of the actual liability. The
Company's estimate is founded on management's experience in dealing with
similar environmental matters and on actual testing performed at some sites.
Management believes that the accrual is adequate to cover environmental
liabilities based on the present environmental regulations.
<PAGE>
ITEM 2. PROPERTIES
The Company owns its executive offices in Fort Smith, Arkansas.
LTL Motor Carrier Operations Segment
The ABF Group currently operates out of 317 terminal facilities of which it
owns 82, leases 59 from an affiliate and leases the remainder from non-
affiliates. ABF's principal terminal facilities are as follows:
No. of Doors Square Footage
Owned:
Dayton, Ohio 315 218,000
Ellenwood, Georgia 228 109,845
South Chicago, Illinois 228 109,650
Winston-Salem,
North Carolina 150 95,700
Carlisle, Pennsylvania
(two structures) 241 82,960
Dallas, Texas 108 72,500
Leased from affiliate,
Transport Realty:
North Little Rock,
Arkansas 195 82,050
Pico Rivera, California 94 22,500
G.I. Trucking currently operates out of 70 service centers of which it owns
10 facilities, leases two facilities from an affiliate and leases the
remainder from agents or non-affiliates.
Tire Operations Segment
Treadco currently operates from 54 locations. Treadco owns 13 production and
4 sales facilities and leases the remainder from non-affiliates.
ITEM 3. LEGAL PROCEEDINGS
Various legal actions, the majority of which arise in the normal course of
business, are pending. None of these legal actions is expected to have a
material adverse effect on the Company's financial condition or results of
operations. The Company maintains liability insurance against most risks
arising out of the normal course of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders during the fourth quarter
ended December 31, 1996.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market and Dividend Information
The Company's Common Stock trades on The Nasdaq Stock Market under the symbol
"ABFS." The following table sets forth the high and low recorded last sale
prices of the Common Stock during the periods indicated as reported by Nasdaq
and the cash dividends declared:
Cash
High Low Dividend
1996
First quarter $9.375 $5.000 $.01
Second quarter 9.250 6.875 -
Third quarter 7.688 5.125 -
Fourth quarter 7.375 4.125 -
1995
First quarter $13.000 $10.500 $.01
Second quarter 11.500 7.938 .01
Third quarter 13.875 8.500 .01
Fourth quarter 11.875 6.625 .01
At March 10, 1997, there were 19,504,473 shares of the Company's stock
outstanding which were held by 959 shareholders of record and through
approximately 7,000 nominee or street name accounts with brokers.
The Company's Board of Directors suspended payment of dividends on the
Company's Common Stock during the second quarter of 1996. The declaration and
payment of, and the timing, amount and form of future dividends on the Common
Stock will be determined based on the Company's results of operations,
financial condition, cash requirements, certain corporate law requirements
and other factors deemed relevant by the Board of Directors.
The Company's credit agreement limits the total amount of "restricted
payments" that the Company may make, including dividends on its capital
stock, to $6.5 million in any one calendar year. The annual dividend
requirements on the Company's preferred stock totals approximately $4.3
million.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
Selected Financial Data - Five-Year Summary
Arkansas Best Corporation
<CAPTION>
Year Ended December 31
1996 1995 (6) 1994 1993 1992
($ in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Operating revenues $1,659,184 $1,437,279 $1,098,421 $1,009,918 $ 959,949
Operating income (loss) (22,328) (23,459) 48,115 51,369 57,255
Minority interest in subsidiary (1,768) 1,297 3,523 3,140 2,825
Other expenses, net 4,309 5,185 968 731 1,496
Interest expense 31,869 17,046 6,985 7,248 17,285
Income (loss) before income taxes,
extraordinary item and cumulative
effect of accounting change (56,738) (46,987) 36,639 40,250 35,649
Provisions (credit) for income taxes (20,135) (14,195) 17,932 19,278 16,894
Income (loss) before extraordinary
item and cumulative effect
of accounting change (36,603) (32,792) 18,707 20,972 18,755
Extraordinary item (1) - - - - (661) (15,975)
Cumulative effect on prior years of
change in revenue recognition method (2) - - - - (3,363)
Net income (loss) (36,603) (32,792) 18,707 20,311 (583)
Income (loss) per common share
before extraordinary item
and cumulativeeffect
of accounting change (2.10) (1.90) .74 .89 .99
Net income (loss) per common share (2.10) (1.90) .74 .85 (.03)
Cash dividends paid per common share (3) .01 .04 .04 .04 .02
Pro Forma Data (4):
Income (loss) before extraordinary item $ (36,603) $ (32,792) $ 18,707 $ 20,972 $ 18,755
Income (loss) before extraordinary
item per common share (2.10) (1.90) .74 .89 .99
Net income (loss) (36,603) (32,792) 18,707 20,311 2,780
Net income (loss) per common share (2.10) (1.90) .74 .85 .15
Balance Sheet Data
(as of the end of the period):
Total assets $ 843,200 $ 985,837 $ 569,045 $ 447,733 $ 428,345
Current portion of long-term debt 39,082 26,634 65,161 15,239 28,348
Long-term debt (including capital leases
and excluding current portion) 326,950 399,144 59,295 43,731 107,075
Other Data
Capital expenditures (5) $ 41,599 $ 74,808 $ 64,098 $ 33,160 $ 26,596
Depreciation and amortization 56,389 46,627 28,087 28,266 34,473
Goodwill amortization 4,609 5,135 3,527 3,064 3,034
Other amortization 3,740 1,044 501 319 755
<FN>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA -- Continued
<F1>
(1)For 1993, represents an extraordinary charge of $661,000 (net of tax of
$413,000) from the loss on extinguishment of debt. For 1992, represents
an extraordinary charge of $15,975,000 (net of tax of $9,700,000) from
the loss on extinguishment of debt in May 1992.
<F2>
(2)Represents a charge of $3,363,000 (net of tax of $2,100,000) to reflect
the cumulative effect on prior years of the change in method of
accounting for the recognition of revenue as required under the Financial
Accounting Standards Board's Emerging Issues Task Force Ruling 91-9
("EITF 91-9").
<F3>
(3)Cash dividends on the Company's Common Stock were indefinitely suspended
by the Company as of the second quarter of 1996. No cash dividends were
paid by the Company during the first three quarter of 1992.
<F4>
(4)Assumes the change in accounting method for recognition of revenue as
required under EITF 91-9 occurred January 1, 1992.
<F5>
(5)Net of equipment trade-ins. Does not include revenue equipment placed in
service under operating leases, which amounted to $24.6 million in 1995,
$24.8 million in 1993 and $25.5 million in 1992. There were no operating
leases for revenue equipment entered into for 1996 and 1994. See
"Management's Discussion and Analysis-Liquidity and Capital Resources."
<F6>
(6)1995 selected financial data is not comparative to the prior years'
information due to the WorldWay acquisition effective August 12, 1995. In
conjunction with the WorldWay acquisition, assets with a fair value of
$313 million were acquired and liabilities of approximately $252 million
were assumed. Approximately $134 million in revenues for the period from
August 12, 1995 to December 31, 1995, are included in the 1995
consolidated statement of operations generated by subsidiaries acquired
as part of the WorldWay acquisition.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Arkansas Best Corporation (the "Company") is a diversified holding company
engaged through its subsidiaries primarily in less-than-truckload ("LTL")
and truckload motor carrier operations, logistics and freight intermodal
operations and truck tire retreading and new tire sales. Principal
subsidiaries owned are ABF Freight System, Inc. ("ABF"), Treadco, Inc.
("Treadco"), and, effective September 30, 1994, Clipper Exxpress Company
("Clipper"). Also, effective August 12, 1995, pursuant to its acquisition of
WorldWay Corporation ("WorldWay"), the Company owns Cardinal Freight
Carriers, Inc. ("Cardinal"), G.I. Trucking Company ("G.I. Trucking"),
CaroTrans International, Inc. ("CaroTrans"), and The Complete Logistics
Company ("Complete Logistics"). (See discussion below.)
The Company in 1991 reduced its ownership in Treadco, through an initial
public offering of Treadco common stock, to approximately 46%, while
retaining control of Treadco by reason of its stock ownership, board
representation and provision of management services. As a result, Treadco is
consolidated with the Company for financial reporting purposes, with the
ownership interests of the other stockholders reflected as minority
interest.
<PAGE>
On September 30, 1994, the Company consummated the purchase of all
outstanding stock of the Clipper Group. Assets of approximately $26.2 million
were acquired and liabilities of approximately $14.7 million were assumed.
The Company's total purchase price was $60.9 million.
The Clipper acquisition was accounted for under the purchase method,
effective September 30, 1994. The purchase price was allocated to assets and
liabilities based on their estimated fair values as of the date of
acquisition. Approximately $49.4 million of goodwill was recorded as a result
of the purchase allocation and is being amortized over a 30-year period.
On July 14, 1995, ABC Acquisition Corporation (the "Purchaser"), a wholly
owned subsidiary of the Company, commenced a tender offer (the "Offer") to
purchase all outstanding shares of common stock of WorldWay Corporation at a
purchase price of $11 per share. Pursuant to the Offer, on August 11, 1995,
the Purchaser accepted for payment shares of WorldWay validly tendered,
representing approximately 91% of the shares outstanding. On October 12,
1995, the remaining shares of WorldWay's common stock were converted into the
right to receive $11 per share in cash.
For financial statement purposes, the WorldWay acquisition has been accounted
for under the purchase method effective August 12, 1995. Consequently, the
accompanying financial statements include the results of operations for
WorldWay and its subsidiaries since August 12, 1995. During 1996, the Company
finalized the allocation of the purchase cost which resulted in an increase
in goodwill of $13 million from the preliminary allocation. Assets with a
fair value of approximately $313 million were acquired and liabilities with a
fair value of approximately $252 million were assumed. The Company's total
purchase price was $76 million. Approximately $15 million of goodwill was
recorded as a result of the purchase allocation and is being amortized over a
30-year period.
Segment Data
The following tables reflect information prepared on a business segment
basis, which includes reclassification of certain expenses and costs between
the Company and its subsidiaries and elimination of the effects of
intercompany transactions. Operating profit on a business segment basis
differs from operating income as reported in the Company's Consolidated
Financial Statements. Other income and other expenses (which include
amortization expense), except for interest expense and minority interest,
which appear below the operating income line in the Company's Statement of
Operations, have been allocated to individual segments for the purpose of
calculating operating profit on a segment basis.
During 1996, the Company changed the name of its Forwarding Operations
Segment to the Intermodal Operations Segment.
The segment information for 1994 has been restated to reflect the Company's
current reported business segments. For 1995 and subsequent periods,
information that was previously reported in the service and other business
segment will be reported in the logistics operations segment.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
($ thousands)
<S> <C> <C> <C>
OPERATING REVENUES
LTL motor carrier
operations $ 1,199,437 $1,088,416 $ 918,663
Intermodal operations 180,619 140,691 31,468
Truckload motor carrier
operations 74,623 27,992 -
Logistics operations 54,849 31,699 7,514
Tire operations 141,613 145,127 138,665
Other 8,043 3,354 2,111
----------- ---------- ----------
$ 1,659,184 $1,437,279 $1,098,421
=========== ========== ==========
OPERATING EXPENSES AND COSTS
LTL MOTOR CARRIER OPERATIONS
Salaries and wages $ 832,474 $ 779,453 $ 613,187
Supplies and expenses 130,330 120,439 96,210
Operating taxes and
licenses 47,552 45,906 35,928
Insurance 28,393 24,122 18,237
Communications and
utilities 29,897 26,776 22,639
Depreciation and
amortization 41,755 37,822 24,302
Rents and purchased
transportation 95,169 76,823 67,550
Other 12,296 8,219 4,298
Other non-operating (net) (269) 1,771 690
----------- ---------- ----------
1,217,597 1,121,331 883,041
INTERMODAL OPERATIONS
Cost of services 151,799 117,455 26,817
Selling, administrative
and general 27,658 18,711 3,542
Other non-operating (net) 1,708 1,705 414
---------- ---------- ----------
181,165 137,871 30,773
<PAGE>
<CAPTION>
Year Ended December 31
1996 1995 1994
($ thousands)
<S> <C> <C> <C>
TRUCKLOAD MOTOR
CARRIER OPERATIONS
Salaries and wages $ 27,483 $ 9,746 $ -
Supplies and expenses 13,552 4,530 -
Operating taxes and
licenses 7,060 2,571 -
Insurance 2,208 980 -
Communications and
utilities 1,038 420 -
Depreciation and
amortization 3,580 1,249 -
Rents and purchased
transportation 14,880 5,348 -
Other 434 108 -
Other non-operating (net) 17 9 -
---------- ---------- ----------
70,252 24,961 -
LOGISTICS OPERATIONS
Cost of services 50,612 30,588 7,100
Selling, administrative
and general 7,081 3,711 1,388
Other non-operating (net) (62) 11 (6)
---------- ---------- ----------
57,631 34,310 8,482
TIRE OPERATIONS
Cost of sales 109,673 108,686 100,909
Selling, administrative
and general 37,491 31,642 26,206
Other non-operating (net) (730) 375 471
---------- ---------- ----------
146,434 140,703 127,586
SERVICE AND OTHER 12,742 6,747 1,392
---------- ---------- ----------
$1,685,821 $1,465,923 $1,051,274
========== ========== ==========
OPERATING PROFIT (LOSS)
LTL motor carrier
operations $ (18,160) $ (32,915) $ 35,622
Intermodal operations (546) 2,820 695
Truckload motor carrier
operations 4,371 3,031 -
Logistics operations (2,782) (2,611) (968)
Tire operations (4,821) 4,424 11,079
Other (4,699) (3,393) 719
---------- ---------- ----------
TOTAL OPERATING PROFIT
(LOSS) (26,637) (28,644) 47,147
INTEREST EXPENSE 31,869 17,046 6,985
MINORITY INTEREST (1,768) 1,297 3,523
---------- ---------- ----------
INCOME (LOSS) BEFORE
INCOME TAXES $ (56,738) $ (46,987) $ 36,639
========== ========== ==========
</TABLE>
<PAGE>
The following table sets forth for the periods indicated a summary of the
Company's operations as a percentage of revenues presented on a business
segment basis as shown in the table on the preceding page. The basis of
presentation for business segment data differs from the basis of
presentation for data the Company provides to the Department of
Transportation ("D.O.T.").
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
<S> <C> <C> <C>
LTL MOTOR CARRIER OPERATIONS
Salaries and wages 69.4% 71.6% 66.7%
Supplies and expenses 10.9 11.1 10.5
Operating taxes
and licenses 4.0 4.2 3.9
Insurance 2.4 2.2 2.0
Communications
and utilities 2.5 2.5 2.5
Depreciation and
amortization 3.5 3.5 2.6
Rents and purchased
transportation 7.9 7.1 7.4
Other 1.0 0.7 0.4
Other non-operating (net) (0.1) 0.1 0.1
------ ------ ------
Total LTL Motor
Carrier Operations 101.5% 103.0% 96.1%
====== ====== ======
INTERMODAL OPERATIONS
Cost of services 84.0% 83.5% 85.2%
Selling, administrative
and general 15.3 13.3 11.3
Other non-operating (net) 1.0 1.2 1.3
------ ------ ------
Total Intermodal Operations 100.3% 98.0% 97.8%
====== ====== ======
TRUCKLOAD MOTOR CARRIER OPERATIONS
Salaries and wages 36.8% 34.8% -
Supplies and expenses 18.2 16.2 -
Operating taxes
and licenses 9.5 9.2 -
Insurance 3.0 3.5 -
Communications and
utilities 1.4 1.5 -
Depreciation and
amortization 4.8 4.5 -
Rents and purchased
transportation 19.9 19.1 -
Other 0.6 0.4 -
Other non-operating (net) (0.1) - -
------ ------ ------
Total Truckload Motor
Carrier Operations 94.1% 89.2% -
====== ====== ======
<PAGE>
<CAPTION>
Year Ended December 31
1996 1995 1994
<S> <C> <C> <C>
LOGISTICS OPERATIONS
Cost of sales 92.3% 96.5% 94.5%
Selling, administrative
and general 12.9 11.7 18.5
Other non-operating (net) (0.1) - (0.1)
------ ------ ------
Total Logistics Operations 105.1% 108.2% 112.9%
====== ====== ======
TIRE OPERATIONS
Cost of sales 77.4% 74.9% 72.8%
Selling, administrative
and general 26.5 21.8 18.9
Other non-operating (net) (0.5) 0.3 0.3
------ ------ ------
Total Tire Operations 103.4% 97.0% 92.0%
====== ====== ======
OPERATING PROFIT
LTL motor carrier
operations (1.5)% (3.0)% 3.9%
Intermodal operations (0.3) 2.0 2.2
Truckload motor
carrier operations 5.9 10.8 -
Logistics operations (5.1) (8.2) (12.9)
Tire operations (3.4) 3.0 8.0
</TABLE>
Results of Operations
1996 as Compared to 1995
Consolidated revenues for 1996 increased 15.4% due to the subsidiaries
acquired in the WorldWay acquisition being included for all of 1996 versus 4
1/2 months of 1995.
Earnings per common share for 1996 and 1995 give consideration to preferred
stock dividends of $4.3 million. Outstanding shares for 1996 and 1995 do not
assume conversion of preferred stock to common shares, because conversion
would be anti-dilutive for these periods.
The Company had an operating loss of $26.6 million in 1996 compared to an
operating loss of $28.6 million for 1995.
Less-Than-Truckload Motor Carrier Operations Segment. The Company's LTL motor
carrier operations are conducted primarily through ABF and effective August
12, 1995, through G.I. Trucking.
<PAGE>
Revenues from the LTL motor carrier operations segment for 1996 increased
10.2% over 1995. In 1996, ABF accounted for 92% of the LTL segment revenues.
The increase in revenues was due in part because ABF was more successful in
retaining its January 1, 1996 rate increase of 5.8% than it had been in
recent years. ABF's total tonnage increased 4.3% which consisted of a 5.9%
increase in LTL tonnage offset in part by a 1.5% decrease in truckload
tonnage. ABF's tonnage increased primarily as a result of including a full
year of business retained from the merger of the operations of Carolina
Freight Carriers ("Carolina Freight") and Red Arrow Freight Lines ("Red
Arrow") into ABF in September 1995.
On January 1, 1997, ABF implemented an overall rate increase of 5.9%.
The LTL segment revenues also increased as a result of including a full year
of G.I. Trucking's operations for 1996. During 1996, G.I. Trucking continued
to replace revenues lost as a result of the ABF/Carolina merger. G.I. had
served Carolina Freight customers with deliveries to western states where
Carolina Freight did not have terminal operations. ABF serves ABF and former
Carolina Freight customers coast-to-coast. Fourth quarter 1996 revenues were
44% higher than the fourth quarter of 1995, which reflected the substantial
decrease in revenue caused by the merger.
Effective with the ABF/Carolina merger, ABF inherited Carolina Freight's
regional distribution terminal operations which reconfigured the way freight
flowed through ABF's terminal system. This reconfiguration created
many operating inefficiencies in ABF's system. Labor dollars as a
percent of revenue increased, empty miles increased and weight per trailer
decreased, which all had an adverse impact on expenses.
During 1996, ABF discontinued twelve of the inherited regional distribution
terminal operations. These closings, which occurred during the first two
quarters, returned ABF to its normal terminal system configuration. This
reconfiguration allowed ABF to gradually improve its direct labor costs,
improve its weight per trailer and reduce its empty miles. ABF's operating
ratio as reported to the D.O.T. was 99.3% in the fourth quarter of 1996
compared to 109.3% in the fourth quarter of 1995.
Salaries, wages and benefits increased 3.8% annually effective April 1, 1996,
pursuant to ABF's collective bargaining agreement with its Teamsters
employees. Effective April 1, 1997, for the final year of the Teamsters'
agreement, ABF's salaries, wages and benefits will increase 3.9%.
Intermodal Operations Segment. The Company's intermodal operations are
conducted primarily through the Clipper Group and effective August 12, 1995,
CaroTrans.
Comparisons for 1996 were affected by the WorldWay acquisition in August
1995. Therefore, certain comparisons of the results of operations for the
intermodal operations segment are not meaningful and are not presented.
Revenues for the intermodal operations segment increased 28.4% in 1996,
resulting primarily from the inclusion of CaroTrans for the full year and a
6% increase in revenues for the Clipper Group. Effective January 1, 1997,
Clipper implemented a 5.9% rate increase, with an effective rate of 4% on LTL
revenues.
<PAGE>
During 1996, Clipper experienced an increase in the weight per shipment,
resulting in a decline in revenue per hundredweight without a proportionate
reduction in cost per hundredweight with a resulting decline in margins on
the higher revenue.
CaroTrans expanded into some higher cost markets during 1996 and also
experienced a shift in market mix to more full container-load freight. Also,
ocean container costs increased. Both of these factors negatively impacted
operating results.
Truckload Motor Carrier Operations Segment. Effective August 12, 1995, with
the WorldWay acquisition, the Company began reporting a new business segment,
truckload motor carrier operations.The Company's truckload motor carrier
operations are conducted through Cardinal.
Cardinal's revenues increased over 1995 primarily from the inclusion of a
full year of operations in 1996. However, revenues were lower than expected
in 1996 due to the continuing driver shortage in the truckload transportation
industry.
Higher fuel prices per gallon resulted in higher-than-expected fuel costs
which were only partially recovered by fuel surcharges.
Cardinal also experienced higher-than-normal maintenance costs due to aging
of revenue equipment. Cardinal anticipates replacing some of its older
equipment in 1997.
Logistics Operations Segment. Effective August 12, 1995, with the WorldWay
acquisition, the Company began reporting a new business segment, logistics
operations. The Company's logistics operations are conducted through
Integrated Distribution, Inc. and effective August 12, 1995, through Complete
Logistics and Innovative Logistics.
During the 1996 fourth quarter, the operations of Innovative Logistics were
merged with and into Complete Logistics and the Clipper Group. Innovative's
non-asset intensive customer accounts and operations were merged into the
Clipper Group with the remaining accounts absorbed by Complete Logistics.
Comparisons for 1996 were affected by the WorldWay acquisition in August
1995. Therefore, comparisons of the results of operations for the intermodal
operations segment are not meaningful and are not presented.
The increase in logistics operations revenues in 1996 resulted primarily from
the inclusion of Complete Logistics and Innovative Logistics for the full
year and a 14% increase in revenues at Integrated Distribution.
Tire Operations Segment. Treadco's revenues for 1996 decreased 2.4% to $141.6
million from $145.1 million for 1995. For 1996, "same store" sales decreased
9.2%, offset in part by a 6.7% increase in "new store" sales. "Same store"
sales include both production locations and satellite sales locations that
have been in existence for all of 1996 and 1995. Revenues from retreading for
1996 decreased 9.4% to $69.2 million from $76.4 million for 1995. Revenues
from new tire sales increased 5.3% to $72.4 million for 1996 from $68.7
million for 1995.
<PAGE>
As previously disclosed in 1995, Treadco's longtime tread rubber supplier,
Bandag Incorporated ("Bandag"), advised Treadco that certain franchises
expiring in 1996 would not be renewed. Bandag subsequently advised the
Company that unless the Company used the Bandag process exclusively, Bandag
would not renew any of the Company's franchise agreements when they expired.
The Company's remaining Bandag franchise agreements had expiration dates in
1997 and 1998. Subsequently, Treadco management made the decision to convert
all of its Bandag franchise locations to Oliver Rubber Company ("Oliver")
licensed facilities.
During September 1996, Treadco completed the conversion of its production
facilities to Oliver licensed facilities. The conversion was completed in
phases throughout the first three quarters of 1996 with approximately one-
third of its production facilities converted each quarter.
The conversion resulted in up to two lost production days during each
conversion, some short-term operational inefficiencies and time lost as
production employees familiarized themselves with the new equipment. Also,
management has been required to spend time with the conversion at the expense
of normal daily operations.
Treadco has seen increased competition as Bandag has granted additional
franchises in some locations currently being served by Treadco. The new
competition has led to increased pricing pressures in the marketplace. As
anticipated, Bandag continues to target Treadco's customers which has caused
the loss of a substantial amount of national account business. In addition,
in many cases, the business retained is at lower profit margins.
Costs of sales for the tire operations segment as a percent of revenue
increased primarily due to expenses incurred during the conversion and
because tire margins are less as a result of increased pricing pressures.
Selling, administrative and general expenses as a percent of revenue
increased as a result of several factors including costs associated with the
conversion from Bandag, higher self-insurance costs, expenses associated with
employee medical benefits and legal costs.
Other non-operating items for 1996 include a $1 million gain on the sale of
assets related to the conversion from Bandag to Oliver.
Interest. Interest expense was $31.9 million for 1996 compared to $17.0
million for 1995, primarily due to a higher level of outstanding debt. The
increase in long-term debt consisted primarily of debt incurred in the
WorldWay acquisition and debt incurred for working capital requirements
during the fourth quarter of 1995.
Income Taxes. The difference between the effective tax rate for 1996 and the
federal statutory rate resulted primarily from state income taxes,
amortization of goodwill, minority interest, and other nondeductible expenses
(see Note G to the consolidated financial statements).
At December 31, 1996, the Company had deferred tax assets of $48.2 million,
net of a valuation allowance of $1.2 million, and deferred tax liabilities of
$54.2 million. The Company believes that the benefits of the deferred tax
assets of $48.2 million will be realized through the reduction of future
taxable income. Management has considered appropriate factors in assessing
the probability of realizing these deferred tax assets. These factors include
the deferred tax liabilities of $54.2 million and the presence of significant
taxable income in 1994 and the extended carryforward period for net operating
<PAGE>
losses included in deferred tax assets. The valuation allowance has been
provided for the benefit of net operating loss carryovers in certain states
with relatively short carryover periods.
Management intends to evaluate the realizability of deferred tax assets on a
quarterly basis by assessing the need for any additional valuation allowance.
1995 as Compared to 1994
Consolidated revenues of the Company for 1995 were $1.4 billion compared to
$1.1 billion for 1994. The Company had an operating loss of $28.6 million for
1995 compared to operating profit of $47.1 million for 1994. For 1995, the
Company had a net loss of $32.8 million, or a loss of $1.90 per common share,
compared to net income of $18.7 million, or $.74 per common share for 1994.
Revenues for 1995 increased due to the acquisition of WorldWay and the
acquisition adversely impacted operating results for the same period. For the
period from August 12 to September 30, 1995, WorldWay incurred a consolidated
after-tax net loss of $13.6 million and a pre-tax loss from operations of
$20.4 million. The WorldWay loss is attributable to Carolina Freight and Red
Arrow which as of September 24, 1995 were merged into ABF. Consolidated
revenues and income for 1994 were adversely affected by the 24-day labor
strike by the Teamsters' union employees of ABF in April 1994.
Earnings per common share for 1995 and 1994 give consideration to preferred
stock dividends of $4.3 million. Average common shares outstanding for 1995
were 19.5 million shares compared to 19.4 million shares for 1994.
Outstanding shares for 1995 and 1994 do not assume conversion of preferred
stock to common shares, because conversion would be anti-dilutive for these
periods.
Less-Than-Truckload Motor Carrier Operations Segment. The Company's LTL motor
carrier operations are conducted primarily through ABF and effective August
12, 1995, through G.I. Trucking.
Comparisons for 1995 were affected by the acquisition of WorldWay in August
1995 and by the ABF Teamsters' employees strike in April 1994 (see discussion
above). Therefore, comparisons of the results of operations for the LTL motor
carrier operations segment are not meaningful and are not presented. As a
result of the acquisition of WorldWay, LTL motor carrier operations segment
includes the results of Carolina Freight and Red Arrow for the period from
August 12, 1995 to their merger into ABF on September 24, 1995.
Revenues from the LTL motor carrier operations segment for 1995 were $1.1
billion, with an operating loss of $32.9 million. Earnings at ABF were
negatively affected by a slowing economy and increased pricing pressure which
resulted in tonnage levels below Company expectations for 1995.
ABF retained less revenue from the merger of Carolina Freight and Red Arrow
than was originally estimated, resulting in over-staffing and excess
equipment. This shortfall in revenue was compounded by weakened shipper
demand and continued price competition during the fourth quarter. The over-
staffing resulted in increased salaries and wages expense while depreciation
expense was higher because of the excess revenue equipment.
<PAGE>
Effective with the merger, ABF inherited Carolina Freight's regional
distribution terminal operations, which reconfigured the way freight flowed
through ABF's terminal system. This reconfiguration created many operating
inefficiencies in ABF's system. Labor dollars as a percent of revenue
increased, empty miles increased and weight per trailer decreased, all of
which had an adverse impact on expenses.
ABF has implemented a combination of cost-cutting and revenue-raising
measures to stem its operating losses. ABF has closed a number of regional
distribution terminal operations which it inherited when Carolina Freight and
Red Arrow were merged into ABF. These closings will realign ABF to its normal
terminal system configuration. ABF implemented a 5.8% freight rate increase
on January 1, 1996 and is in the process of selling excess real estate and
revenue equipment resulting from the Carolina Freight and Red Arrow merger.
Salaries, wages and benefits increased 3.3% annually effective April 1, 1995,
pursuant to ABF's collective bargaining agreement with its Teamsters'
employees and will increase 3.8% annually effective April 1, 1996.
Intermodal Operations Segment. Effective September 30, 1994, with the
purchase of the Clipper Group, the Company began reporting a new business
segment, intermodal operations. The Company's intermodal operations are
conducted primarily through the Clipper Group, effective September 30, 1994,
and CaroTrans, effective August 12, 1995.
Comparisons for 1995 were affected by the WorldWay acquisition in August 1995
and by the acquisition of the Clipper Group in September 1994. Therefore,
comparisons of the results of operations for the intermodal operations
segment are not meaningful and are not presented.
For 1995, the intermodal operations segment had revenues of $140.7 million
with an operating profit of $2.8 million. Intermodal operations were
adversely affected during 1995 by soft economic conditions.
Truckload Motor Carrier Operations Segment. Effective August 12, 1995, with
the WorldWay acquisition, the Company began reporting a new business segment,
truckload motor carrier operations. The Company's truckload motor carrier
operations are conducted through Cardinal.
From August 12, 1995 to December 31, 1995, Cardinal had revenues of $28.0
million with an operating profit of $3.0 million. Cardinal's operations were
adversely affected during 1995 by soft economic conditions.
Logistics Operations Segment. Effective August 12, 1995, with the acquisition
of WorldWay, the Company began reporting a new business segment, logistics
operations. The Company's logistics operations are conducted through
Integrated Distribution, Inc. and effective August 12, 1995, through Complete
Logistics and Innovative Logistics.
For 1995, the logistics operations segment had operating revenues of $31.7
million with an operating loss of $2.6 million.
<PAGE>
Tire Operations Segment. Treadco's revenues for 1995 increased 4.7% to $145.1
million from $138.7 million for 1994. For 1995, "same store" sales increased
2.4% and "new store" sales accounted for 2.7% of the increase from 1994.
"Same store" sales include both production locations and satellite sales
locations that have been in existence for all of 1995 and 1994. Although a
softer economy during the quarter slowed demand for both new replacement and
retreaded truck tires, "same store" sales were higher primarily as a result
of an increase in market share in the areas served. Treadco has seen
increased competition as Bandag Incorporated ("Bandag") has granted
additional franchises in some locations currently being served by Treadco.
Revenues from retreading for 1995 increased 1.6% to $76.4 million from $75.2
million for 1994. Revenues from new tire sales increased 8.3% to $68.7
million for 1995 from $63.5 million for 1994.
Tire operations segment operating expenses as a percent of revenues were
97.0% for 1995 compared to 92.0% for 1994. Cost of sales for the tire
operations segment as a percent of revenues increased to 74.9% for 1995 from
72.8% for 1994. Bandag, Treadco's tread rubber supplier, implemented three
price increases, totaling 9.6%, during 1994 and the beginning of 1995 which
Treadco was unsuccessful in fully passing along to customers. Selling,
administrative and general expenses for the tire operations segment increased
to 21.8% for 1995 from 18.9% for 1994. The increase resulted primarily from
costs resulting from Bandag's termination of the Company's franchises, an
increase in bad debt expense, costs associated with employee medical benefits
and data processing costs associated with the installation of a production
and inventory control system.
In August 1995, Bandag, Treadco's tread rubber supplier and franchiser of the
retreading process used by substantially all of Treadco's locations,
announced that certain franchise agreements would not be renewed
upon expiration in 1996. Bandag subsequently advised Treadco that unless
Treadco used the Bandag process exclusively, Bandag would not renew any of
Treadco's franchise agreements when they expired.
In October 1995, Treadco announced it had reached an agreement for the Oliver
Rubber Company ("Oliver") to be a supplier of equipment and related materials
for Treadco's truck tire precure retreading business. The agreement provides
that Oliver will supply Treadco with retreading equipment and related
materials for any Treadco facilities which ceased being a Bandag franchised
location.
Interest. Interest expense was $17.0 million for 1995 compared to $7.0
million for 1994, primarily due to a higher level of outstanding debt. The
increase in long-term debt consisted primarily of debt incurred in the
acquisition of WorldWay and debt incurred for working capital requirements
during the fourth quarter of 1995. Also, the Company incurred additional debt
in the latter part of 1994 in the acquisition of the Clipper Group and a term
loan used to finance construction of the Company's corporate office building
which was completed in 1995.
Income Taxes. The difference between the effective tax rate for 1995 and the
federal statutory rate resulted primarily from state income taxes,
amortization of goodwill, minority interest, and other nondeductible expenses
(see Note G to the consolidated financial statements).
<PAGE>
At December 31, 1995, the Company had deferred tax assets of $45.6 million,
net of a valuation allowance of $1.2 million, and deferred tax liabilities of
$62.0 million. The Company believes that the benefits of the deferred tax
assets of $45.6 million will be realized through the reduction of future
taxable income. Management considered appropriate factors in assessing the
probability of realizing these deferred tax assets. These factors include the
deferred tax liabilities of $62.0 million and the presence of significant
taxable income in 1993 and 1994 and the extended carryforward period for net
operating losses included in deferred tax assets. The valuation allowance has
been provided for the benefits of net operating loss carryovers in certain
states where operations were affected by the merger of Carolina Freight into
ABF.
Liquidity and Capital Resources
The ratio of current assets to current liabilities was .86:1 at December 31,
1996 compared to 1.06:1 at December 31, 1995. Net cash provided by operating
activities for 1996 was $30.2 million compared to net cash used of $66.2
million in 1995. The increase is due primarily to the reductions in
receivables, other assets and income tax refunds on loss carrybacks.
The Company is a party to a $347 million credit agreement (the "Credit
Agreement") with Societe Generale, Southwest Agency as Managing and
Administrative Agent and NationsBank of Texas, N.A., as Documentation Agent,
and with 14 other participating banks. The Credit Agreement included a $72
million term loan and provides for up to $275 million of revolving credit
loans (including letters of credit).
At December 31, 1996, there were $187 million of Revolver Advances, $40.9
million of Term Advances and approximately $71.9 million of letters of
credit outstanding. The Revolver Advances are payable on August 11, 1998.
The Term Loan is payable in installments through August 1998. The Credit
Agreement requires that net proceeds received from certain asset sales be
applied against the Term Loan balance. Outstanding revolving credit advances
may not exceed a borrowing base calculated using the Company's equipment and
real estate, the Treadco common stock owned by the Company, and eligible
receivables. The Company has pledged on the Credit Agreement substantially
all revenue equipment and real property not already pledged under other debt
obligations.
The Credit Agreement contains various covenants which limit, among other
things, indebtedness, distributions, capital expenditures, asset sales,
restricted payments, investments, loans and advances, as well as requiring
the Company to meet certain financial tests. As of December 31, 1996, the
Company was not in compliance with certain covenants relating to financial
tests, and the Company obtained a waiver through January 31, 1997. On January
31, 1997, the Company obtained an amendment to the Credit Agreement which
included revised financial covenants with which the Company is in compliance.
The Credit Agreement had previously been amended in February, 1996, including
a revision of term and financial covenants.
As a part of the February, 1996 amendment, the Company obtained an additional
credit agreement which provides for borrowings of up to $30 million.
Borrowings under this agreement bear interest at either an adjusted prime
rate plus 2% or a maximum rate as defined in the agreement, or the Eurodollar
rate plus 3% or a maximum rate as defined in the agreement. The maturity date
of this agreement is March 31, 1997. In connection with the January, 1997
amendment, the available borrowings were reduced to $15 million, and by March
31, 1997, the Company may, at its option, extend the maturity date to
<PAGE>
September 30, 1997. As of December 31, 1996, and during the year then ended,
there were no borrowings under this additional credit agreement. This
agreement contains covenants that are substantially the same as the covenants
contained in the primary Credit Agreement.
The Company assumed the Subordinated Debentures of WorldWay which were issued
in April 1986. The debentures bear interest at 6.25% per annum, payable semi-
annually, on a par value of $50,000,000. The debentures are payable April 15,
2011. The Company may redeem the debentures at a price of 100%. The Company
is required to redeem through a mandatory sinking fund commencing before
April 15, in each of the years from 1997 to 2010, an amount in cash
sufficient to redeem $2,500,000 annually of the aggregate principal amount of
the debentures issued.
Treadco is a party to a revolving credit facility with Societe Generale (the
"Treadco Credit Agreement"), providing for borrowings of up to the lesser of
$20 million or the applicable borrowing base. Borrowings under the Treadco
Credit Agreement are collateralized by accounts receivable and inventory.
Borrowings under the agreement bear interest, at Treadco's option, at 3/4%
above the bank's LIBOR rate, or at the higher of the bank's prime rate or the
"federal funds rate" plus 1/2%. At December 31, 1995, the interest rate was
7.1%. At December 31, 1995, Treadco had $10 million outstanding under the
Revolving Credit Agreement. The Treadco Credit Agreement is payable in
September 1998. Treadco pays a commitment fee of 3/8% on the unused amount
under the Treadco Credit Agreement.
The Treadco Credit Agreement contains various covenants which limit, among
other things, dividends, disposition of receivables, indebtedness and
investments, as well as requiring Treadco to meet certain financial tests.
The Treadco Credit Agreement was amended in June 1996, restating certain
financial test requirements through December 31, 1996.
The Company is a party to an interest rate cap arrangement to reduce the
impact of increases in interest rates on its floating-rate long-term debt.
The Company will be reimbursed for the difference in interest rates if the
LIBOR rate exceeds a fixed rate of 9 3/4% applied to notional amounts, as
defined in the contract, ranging from $40 million as of December 31, 1995 to
$2.5 million as of October 1999. As of December 31, 1995 and 1994, the LIBOR
rate was 5.5% and 6.5%, respectively; therefore, no amounts were due to the
Company under this arrangement. In the event that amounts are due under this
agreement in the future, the payments to be received would be recognized as a
reduction of interest expense (the accrual accounting method). Fees totaling
$385,000 were paid in 1994 to enter into this arrangement. These fees are
included in other assets and are being amortized to interest expense over the
life of the contract.
<PAGE>
The following table sets forth the Company's historical capital expenditures
(net of equipment trade-ins) for the periods indicated below:
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
($ millions)
<S> <C> <C> <C>
LTL motor carrier operations $ 13.0 $ 75.0 $ 44.2
Intermodal operations 0.4 0.4 -
Truckload motor carrier operations 0.8 2.1 -
Logistics operations 3.1 5.3 -
Tire operations 23.0 4.5 4.3
Service and other 1.3 12.1 15.6
41.6 99.4 64.1
Less: Operating leases - (24.6) -
-------- -------- --------
Total $ 41.6 $ 74.8 $ 64.1
======== ======== ========
</TABLE>
The amounts presented in the table under operating leases reflect the
estimated purchase price of the equipment had the Company purchased the
equipment versus financing through operating lease transactions.
In 1997, the Company anticipates spending approximately $49 million in total
capital expenditures net of proceeds from equipment sales. Of the $49
million, ABF is budgeted for approximately $24.5 million to be used
primarily for revenue equipment. Treadco is budgeted for $7.1 million of
expenditures for retreading and service equipment and facilities, and
Cardinal has $7.3 million budgeted for revenue equipment purchases.
Cash from operations and the sale of assets resulted in reduction of debt of
approximately $70 million in 1996.
At December 31, 1996, the Company had approximately $16 million of
availability under the Credit Agreement as well as $15 million under the
additional credit agreement.
Management believes, based upon the Company's current levels of operations
and anticipated growth, the Company's cash, capital resources, borrowings
available under the Credit Agreement and cash flow from operations will be
sufficient to finance current and future operations and meet all present and
future debt service requirements.
Seasonality
The LTL and truckload motor carrier segments are affected by seasonal
fluctuations, which affect tonnage to be transported. Freight shipments,
operating costs and earnings are also affected adversely by inclement
weather conditions. The third calendar quarter of each year usually has the
highest tonnage levels while the first quarter has the lowest. Intermodal
operations are similar to the LTL and truckload segments with revenues being
weaker in the first quarter and stronger during the months of September and
October. Treadco's operations are somewhat seasonal with the last six months
of the calendar year generally having the highest levels of sales.
<PAGE>
Environmental Matters
The Company's subsidiaries store some fuel for its tractors and trucks in
approximately 148 underground tanks located in 33 states. Maintenance of such
tanks is regulated at the federal and, in some cases, state levels. The
Company believes that it is in substantial compliance with all such
regulations. The Company is not aware of any leaks from such tanks that could
reasonably be expected to have a material adverse effect on the Company.
Environmental regulations have been adopted by the United States
Environmental Protection Agency ("EPA") that will require the Company to
upgrade its underground tank systems by December 1998. The Company currently
estimates that such upgrades, which are currently in process, will not have a
material adverse effect on the Company.
The Company has received notices from the EPA and others that it has been
identified as a potentially responsible party ("PRP") under the Comprehensive
Environmental Response Compensation and Liability Act or other federal or
state environmental statutes at several hazardous waste sites. After
investigating the Company's or its subsidiaries' involvement in waste
disposal or waste generation at such sites, the Company has either agreed to
de minimis settlements (aggregating approximately $250,000 over the last five
years), or believes its obligations with respect to such sites would involve
immaterial monetary liability, although there can be no assurances in this
regard.
As of December 31, 1996, the Company has accrued approximately $3,100,000 to
provide for environmental-related liabilities. The Company's environmental
accrual is based on management's best estimate of the actual liability. The
Company's estimate is founded on management's experience in dealing with
similar environmental matters and on actual testing performed at some sites.
Management believes that the accrual is adequate to cover environmental
liabilities based on the present environmental regulations.
Forward-Looking Statements
The Management's Discussion and Analysis Section of this report contains
forward-looking statements that are based on current expectations and are
subject to a number of risks and uncertainties. Actual results could differ
materially from current expectations due to a number of factors, including
general economic conditions; competitive initiatives and pricing pressures;
union relations; availability and cost of capital; shifts in market demand;
weather conditions; the performance and needs of industries served by the
Company's businesses; actual future costs of operating expenses such as fuel
and related taxes; self-insurance claims and employee wages and benefits;
actual costs of continuing investments in technology; and the timing and
amount of capital expenditures.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response of this item is submitted in a separate section of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The sections entitled "Election of Directors," "Directors of the Company,"
"Board of Directors and Committees," "Executive Officers of the Company" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's
proxy statement for the annual meeting of stockholders to be held on May 8,
1997, set forth certain information with respect to the directors, nominees
for election as directors and executive officers of the Company and are
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The sections entitled "Executive Compensation," "Aggregated Options/SAR
Exercises in Last Fiscal Year and Fiscal Year-End Options/SAR Values,"
"Options/SAR Grants Table," "Executive Compensation and Development Committee
Interlocks and Insider Participation," "Retirement and Savings Plan,"
"Employment Contracts and Termination of Employment and Change in Control
Arrangements" and the paragraph concerning directors' compensation in the
section entitled "Board of Directors and Committees" in the Company's proxy
statement for the annual meeting of stockholders to be held on May 8, 1997,
set forth certain information with respect to compensation of management of
the Company and are incorporated herein by reference, provided, however, the
information contained in the sections entitled "Report on Executive
Compensation by the Executive Compensation and Development Committee and
Stock Option Committee" and "Stock Performance Graph" are not incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Principal Shareholders and Management Ownership" in the
Company's proxy statement for the annual meeting of stockholders to be held
on May 8, 1997, sets forth certain information with respect to the ownership
of the Company's voting securities and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Certain Transactions and Relationships" in the
Company's proxy statement for the annual meeting of stockholders to be held
on May 8, 1997, sets forth certain information with respect to relations of
and transactions by management of the Company and is incorporated herein by
reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
The response to this portion of Item 14 is submitted as a
separate section of this report.
(a)(2) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a
separate section of this report.
(a)(3) Exhibits
The exhibits filed with this report are listed in the Exhibit
Index which is submitted as a separate section of this report.
(b) Reports on Form 8-K
Form 8-K dated February 27, 1997
Item 5. On January 31, 1997, Arkansas Best Corporation's (the
"Company") existing $346,971,312 Amended and Restated Credit
Agreement with Societe Generale, Southwest Agency as Managing
Agent and Administrative Agent, NationsBank of Texas, N.A., as
Documentation Agent, and certain other banks was amended. Also,
on January 31, 1997, the Company's existing $30,000,000 Credit
Agreement with Societe Generale, Southwest Agency as Agent and
certain other banks was amended.
(c) Exhibits
See Item 14(a)(3) above.
(d) Financial Statements Schedules
The response to this portion of Item 14 is submitted as a separate
section of this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ARKANSAS BEST CORPORATION
By: /s/Donald L. Neal
----------------------------
Donald L. Neal
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- -----
/s/William A. Marquard Chairman of the Board, Director 3/18/97
- ------------------------ -------
William A. Marquard
/s/Robert A. Young, III Director, Chief Executive Officer 3/19/97
- ------------------------ -------
Robert A. Young, III and President (Principal
Executive Officer)
/s/Donald L. Neal Senior Vice President - Chief 3/19/97
- ------------------------ Financial Officer (Principal -------
Donald L. Neal Financial and Accounting Officer)
/s/Frank Edelstein Director 3/19/97
- ------------------------ -------
Frank Edelstein
/s/Arthur J. Fritz Director 3/18/97
- ------------------------ -------
Arthur J. Fritz
/s/John H. Morris Director 3/19/97
- ------------------------ -------
John H. Morris
/s/Alan J. Zakon Director 3/17/97
- ------------------------ -------
Alan J. Zakon
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) and (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1996
ARKANSAS BEST CORPORATION
FORT SMITH, ARKANSAS
<PAGE>
FORM 10-K -- ITEM 14(a)(1) and (2)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
ARKANSAS BEST CORPORATION
The following consolidated financial statements of Arkansas Best Corporation
are included in Item 8:
Consolidated Balance Sheets -- December 31, 1996 and 1995
Consolidated Statements of Operations -- Years ended December 31, 1996,
1995 and 1994
Consolidated Statements of Shareholders' Equity -- Years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows -- Years ended December 31, 1996,
1995 and 1994
The following consolidated financial statement schedule of Arkansas Best
Corporation is included in Item 14(d):
Schedule II -- Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and, therefore, have been
omitted.
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Directors
Arkansas Best Corporation
We have audited the accompanying consolidated balance sheets of Arkansas Best
Corporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and the schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Arkansas Best Corporation and subsidiaries at December 31, 1996 and 1995,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
Little Rock, Arkansas
January 31, 1997
<PAGE>
<TABLE>
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31
1996 1995
($ thousands)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents -- Note N $ 1,806 $ 16,945
Receivables -- Note E
Trade, less allowances for
doubtful accounts (1996 -- $6,118,000;
1995 -- $19,403,000) 186,065 205,196
Inventories -- Notes D and E 33,831 36,850
Prepaid expenses 13,593 13,927
Deferred income taxes -- Note G 16,490 32,080
Federal and state income taxes
refundable -- Note G 7,320 17,489
-------- --------
TOTAL CURRENT ASSETS 259,105 322,487
PROPERTY, PLANT AND EQUIPMENT -- Note E
Land and structures 228,051 228,706
Revenue equipment 268,270 285,045
Manufacturing equipment 18,815 8,289
Service, office and other equipment 65,532 65,458
Leasehold improvements 9,273 10,675
-------- --------
589,941 598,173
Less allowances for depreciation
and amortization (222,308) (190,690)
-------- --------
367,633 407,483
OTHER ASSETS 57,160 70,452
NET ASSETS HELD FOR SALE -- Note C 9,148 39,937
GOODWILL, less amortization
(1996 -- $28,006,000; 1995 --
$24,027,000) -- Notes B and C 150,154 145,478
-------- --------
$843,200 $985,837
======== ========
<PAGE>
<CAPTION>
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31
1996 1995
($ thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Bank drafts payable $ 646 $ 12,999
Trade accounts payable 79,140 74,998
Accrued expenses -- Note F 182,011 188,708
Current portion of long-term debt -- Note E 39,082 26,634
-------- --------
TOTAL CURRENT LIABILITIES 300,879 303,339
LONG-TERM DEBT, less current portion --
Notes E and N 326,950 399,144
OTHER LIABILITIES 21,416 18,665
DEFERRED INCOME TAXES -- Note G 22,505 48,560
MINORITY INTEREST -- Note A 34,020 38,265
SHAREHOLDERS' EQUITY -- Notes A and H
Preferred stock, $.01 par value, authorized
10,000,000 shares; issued and outstanding
1,495,000 shares 15 15
Common stock, $.01 par value, authorized
70,000,000 shares; issued and outstanding
1996: 19,504,473 shares;
1995: 19,519,061 shares 195 195
Additional paid-in capital -- Note H 192,328 192,436
Retained earnings (deficit) (55,108) (14,782)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 137,430 177,864
COMMITMENTS AND CONTINGENCIES --
Notes I, J and K
-------- --------
$843,200 $985,837
======== ========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Year Ended December 31
1996 1995 1994
($ thousands, except share
and per share data)
<S> <C> <C> <C>
OPERATING REVENUES -- Note B
Less than truckload motor
carrier operations $1,199,437 $1,088,416 $ 918,663
Truckload motor carrier
operations 74,623 27,992 -
Intermodal operations 180,619 140,691 31,468
Logistics operations 54,849 31,699 7,514
Tire operations 141,613 145,127 138,665
Service and other 8,043 3,354 2,111
--------- --------- ---------
1,659,184 1,437,279 1,098,421
OPERATING EXPENSES AND COSTS --
Notes B and L
Less than truckload motor
carrier operations 1,217,866 1,119,560 882,351
Truckload motor carrier
operations 70,235 24,952 -
Intermodal operations 179,457 136,166 30,359
Logistics operations 57,693 34,299 8,488
Tire operations 147,164 140,328 127,115
Service and other 9,097 5,433 1,993
--------- --------- ---------
1,681,512 1,460,738 1,050,306
--------- --------- ---------
OPERATING INCOME (LOSS) (22,328) (23,459) 48,115
OTHER INCOME (EXPENSE)
Gains on asset sales 3,334 3,194 2,168
Interest (31,869) (17,046) (6,985)
Minority interest in
subsidiary -- Note A 1,768 (1,297) (3,523)
Other, net (7,643) (8,379) (3,136)
--------- --------- ---------
(34,410) (23,528) (11,476)
--------- --------- ---------
INCOME (LOSS) BEFORE
INCOME TAXES (56,738) (46,987) 36,639
FEDERAL AND STATE INCOME
TAXES (CREDIT) -- Note G
Current (16,400) (5,200) 14,743
Deferred (3,735) (8,995) 3,189
--------- --------- ---------
(20,135) (14,195) 17,932
--------- --------- ---------
NET INCOME (LOSS) $ (36,603) $ (32,792) $ 18,707
========= ========= =========
<PAGE>
<CAPTION>
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
Year Ended December 31
1996 1995 1994
($ thousands, except share
and per share data)
<S> <C> <C> <C>
INCOME (LOSS) PER
COMMON SHARE --
Notes C and H
NET INCOME (LOSS) $ (2.10) $ (1.90) $ 0.74
========= ========= =========
CASH DIVIDENDS PAID PER
COMMON SHARE $ 0.01 $ 0.04 $ 0.04
========= ========= =========
AVERAGE COMMON SHARES
OUTSTANDING -- Note C 19,510,589 19,520,756 19,351,796
========== ========== ==========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
Additional
Paid-In Stock Payable Retained
Preferred Common Capital -- to Employee Earnings
Stock Stock Note H Benefit Plans (Deficit)
($ thousands)
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1994 $15 $ 192 $ 191,086 $ 205 $ 10,492
Net income - - - - 18,707
Issuance of common stock to
employee benefit plans - - 205 (205)
Stock options exercised - - 36 -
Acquisition of Traveller
Group -- Note B - 3 938 -
Dividends paid (5,069)
--- ---- -------- ------ --------
Balances at December 31, 1994 15 195 192,265 - 24,130
Net loss - - - - (32,792)
Stock options exercised - - 171 - -
Dividends paid - - - - (5,079)
Adjustment to recognize minimum
pension liability -- Note K - - - - (1,041)
--- ---- -------- ------ --------
Balances at December 31, 1995 15 195 192,436 - (14,782)
Net loss - - - - (36,603)
Dividends paid - - - - (4,493)
Adjustment to recognize minimum
pension liability -- Note K - - - - 770
Retirement of common stock - - (108) - -
--- ---- -------- ------ --------
Balances at December 31, 1996 $15 $ 195 $ 192,328 $ - $ (55,108)
=== ==== ======== ====== ========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31
1996 1995 1994
($ thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(36,603) $(32,792) $ 18,707
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization 56,389 46,627 28,087
Amortization of intangibles 4,609 5,135 3,527
Other amortization 3,740 1,044 501
Provision for losses on
accounts receivable 9,489 4,185 2,070
Provision (credit) for
deferred income taxes (3,735) (8,995) 3,189
Gains on asset sales (3,334) (3,194) (2,168)
Minority interest in subsidiary (1,768) 1,297 3,773
Changes in operating assets
and liabilities, net of
acquisitions:
Receivables 13,540 (23,795) (15,312)
Inventories and prepaid
expenses 3,165 3,529 (6,428)
Other assets 9,203 (11,751) (1,566)
Accounts payable, bank
drafts payable, taxes
payable, accrued expenses
and other liabilities (24,499) (47,514) 14,373
-------- -------- --------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 30,196 (66,224) 48,753
INVESTING ACTIVITIES
Purchases of property, plant
and equipment, less
capitalized leases (27,747) (49,690) (47,298)
Proceeds from asset sales 65,313 15,748 7,841
Acquisition of the Clipper Group,
net of cash acquired -- Note B - (84) (49,556)
Acquisition of WorldWay
Corporation, net of cash
acquired -- Note B - (81,482) -
-------- -------- --------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES 37,566 (115,508) (89,013)
<PAGE>
<CAPTION>
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Year Ended December 31
1996 1995 1994
($ thousands)
<S> <C> <C> <C>
FINANCING ACTIVITIES
Deferred financing costs and
expenses incurred in borrowing
activities $ (3,512) $ (4,578) $ (147)
Proceeds from receivables
purchase agreement - - 56,000
Payments under receivables
purchase agreement - (40,000) (16,000)
Borrowings under revolving
credit facilities 272,585 238,275 34,000
Borrowings under term loan
facilities - 75,000 20,000
Principal payments under
revolving credit facilities (288,285) (30,275) (39,000)
Principal payments under term
loan facility (34,052) - -
Net proceeds from the issuance
of common stock - 171 37
Principal payments on other
long-term debt and capital
leases (24,704) (31,844) (18,616)
Dividends paid to minority
shareholders of subsidiary (440) (462) (438)
Dividends paid (4,493) (5,079) (5,069)
Net increase (decrease) in
bank overdraft - (5,989) 5,989
-------- -------- --------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (82,901) 195,219 36,756
-------- -------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (15,139) 13,487 (3,504)
Cash and cash equivalents at
beginning of year 16,945 3,458 6,962
-------- -------- --------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 1,806 $ 16,945 $ 3,458
======== ======== ========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS
Arkansas Best Corporation (the "Company") is a diversified holding company
engaged through its subsidiaries primarily in motor carrier, intermodal
operations and truck tire retreading and sales (see Note M). Principal
subsidiaries are ABF Freight System, Inc., ("ABF"), Treadco, Inc.
("Treadco"), and Clipper Exxpress Company and related companies (the "Clipper
Group") and, effective August 12, 1995, WorldWay Corporation ("WorldWay")
(see Note B). The principal subsidiaries of WorldWay included Carolina
Freight Carriers Corp., which was merged into ABF on September 24, 1995,
Cardinal Freight Carriers, Inc. ("Cardinal"), G.I. Trucking Company ("G.I.
Trucking"), CaroTrans International, Inc. ("CaroTrans"), and The Complete
Logistics Company ("Complete Logistics").
As of December 31, 1996, the Company's percentage ownership of Treadco was
46%. The Company's consolidated financial statements reflect full
consolidation of the accounts of Treadco, with the ownership interests of the
other stockholders reflected as minority interest, because the Company
controls Treadco through stock ownership, board representation and management
services provided under a transition services agreement.
Summarized condensed financial information for Treadco is as follows:
<TABLE>
TREADCO, INC.
<CAPTION>
December 31
1996 1995
($ thousands)
<S> <C> <C>
Current assets $ 57,829 $ 61,615
Property, plant and equipment, net 33,186 16,339
Other assets 14,401 15,081
-------- --------
Total assets $ 105,416 $ 93,035
======== ========
Current liabilities $ 23,786 $ 16,737
Long-term debt and other 19,682 10,280
Stockholders' equity 61,948 66,018
-------- --------
Total liabilities and stockholders' equity $ 105,416 $ 93,035
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
($ thousands)
<S> <C> <C> <C>
Sales $ 144,154 $ 147,906 $ 140,678
Operating expenses and costs 149,799 143,382 129,625
Interest expense 899 510 270
Other (income) expense (1,192) (88) 9
Income taxes (2,093) 1,711 4,265
-------- -------- --------
Net income (loss) $ (3,259) $ 2,391 $ 6,509
======== ======== ========
</TABLE>
NOTE B - ACQUISITIONS
On July 14, 1995, ABC Acquisition Corporation (the "Purchaser"), a wholly
owned subsidiary of the Company, commenced a tender offer (the "Offer") to
purchase all outstanding shares of common stock of WorldWay Corporation
("WorldWay"), at a purchase price of $11 per share (the "Acquisition").
Pursuant to the Offer, on August 11, 1995, the Purchaser accepted for
payment shares of WorldWay validly tendered, representing approximately 91%
of the shares outstanding. On October 12, 1995, the remaining shares of
WorldWay's common stock were converted into the right to receive $11 per
share in cash.
For financial statement purposes, the WorldWay acquisition has been
accounted for under the purchase method effective August 12, 1995. The
accompanying financial statements include the results of operations for
WorldWay and its subsidiaries since August 12, 1995. Because of the
decentralized accounting functions of WorldWay's subsidiaries, the purchase
allocation was finalized in 1996 after completing the comprehensive
determination of WorldWay's asset values and liabilities. The Company's
allocation of the purchase cost resulted in an increase in goodwill of $13
million from the preliminary allocation. Assets with a fair value of
approximately $313 million were acquired and liabilities with a fair value
of approximately $252 million were assumed. The Company's total purchase
price was $76 million. Approximately $15 million of goodwill was recorded as
a result of the purchase allocation and is being amortized over a 30-year
period.
On September 30, 1994, the Company consummated the purchase of all
outstanding stock of the Clipper Group pursuant to a stock purchase agreement
entered into on August 18, 1994. Assets of approximately $26.2 million were
acquired and liabilities of approximately $14.7 million were assumed. The
Company's total purchase price was $60.9 million.
The Clipper acquisition has been accounted for under the purchase method,
effective September 30, 1994. The accompanying financial stat