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<SEC-DOCUMENT>0000950134-01-002083.txt : 20010314
<SEC-HEADER>0000950134-01-002083.hdr.sgml : 20010314
ACCESSION NUMBER: 0000950134-01-002083
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 4
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010313
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:
SEC FILE NUMBER: 000-19969
FILM NUMBER: 1566987
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
<FILENAME>d84898e10-k405.txt
<DESCRIPTION>FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 2000
<TEXT>
<PAGE> 1
UNITED STATES
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, 2000.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to .
----------- -----------
Commission file number 0-19969
-------
ARKANSAS BEST CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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 February 26, 2001, was $320,747,123.
The number of shares of Common Stock, $.01 par value, outstanding as of February
26, 2001, was 20,369,570.
Documents incorporated by reference into the Form 10-K:
1) The following sections of the 2000 Annual Report to Stockholders:
- Market and Dividend Information
- Selected Financial Data
- Management's Discussion and Analysis of Financial Condition and
Results of Operations
- Quantitative and Qualitative Disclosures About Market Risk
- Consolidated Financial Statements
2) Proxy Statement for the Annual Stockholders' meeting to be held April 25,
2001.
INTERNET:www.arkbest.com
1
<PAGE> 2
ARKANSAS BEST CORPORATION
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
NUMBER NUMBER
<S> <C> <C>
PART I
Item 1. Business .................................................................................... 3
Item 2. Properties .................................................................................. 9
Item 3. Legal Proceedings ........................................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders ......................................... 10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ....................... 11
Item 6. Selected Financial Data ..................................................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................................................. 11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk................................... 11
Item 8. Financial Statements and Supplementary Data ................................................. 11
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ........................................................ 11
PART III
Item 10. Directors and Executive Officers of the Registrant .......................................... 12
Item 11. Executive Compensation ...................................................................... 12
Item 12. Security Ownership of Certain Beneficial Owners and Management .............................. 12
Item 13. Certain Relationships and Related Transactions .............................................. 12
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ............................ 13
</TABLE>
2
<PAGE> 3
PART I
Except for historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties.
Arkansas Best Corporation's (the "Company") actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in Item 1,
"Business."
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
CORPORATE PROFILE
Arkansas Best Corporation (the "Company") is a diversified holding company
engaged through its subsidiaries primarily in motor carrier transportation
operations, intermodal transportation operations, and truck tire retreading and
new tire sales (see Note R of the Consolidated Financial Statements appearing on
page 42 of the registrant's Annual Report). Principal subsidiaries are ABF
Freight System, Inc. ("ABF"); G.I. Trucking Company ("G.I. Trucking"); Clipper
Exxpress Company and related companies ("Clipper"); FleetNet America LLC; and
until October 31, 2000, Treadco, Inc. ("Treadco") (see Note R appearing on page
42 of the registrant's Annual Report).
HISTORICAL BACKGROUND
The Company was publicly owned from 1969 until 1988, when it was acquired in a
leveraged buyout by a corporation organized by Kelso & Company, L.P. ("Kelso").
In 1992, the Company completed a public offering of Common Stock, par value $.01
(the "Common Stock"). The Company also repurchased substantially all the
remaining shares of Common Stock beneficially owned by Kelso, thus ending
Kelso's investment in the Company.
In 1993, the Company completed a public offering of 1,495,000 shares of
Preferred Stock ("Preferred Stock").
On July 10, 2000, the Company purchased 105,000 shares of its Preferred Stock at
$37.375 per share, for a total cost of $3.9 million. All of the shares purchased
were retired. As of December 31, 2000, the Company had outstanding 1,390,000
shares of Preferred Stock.
In August 1995, pursuant to a tender offer, a wholly owned subsidiary of the
Company purchased the outstanding shares of common stock of WorldWay Corporation
("WorldWay"), at a price of $11 per share (the "Acquisition"). WorldWay was a
publicly held company engaged through its subsidiaries in motor carrier
operations. The total purchase price of WorldWay amounted to approximately $76
million. Assets acquired had an estimated fair value of approximately $313.0
million and liabilities assumed had a fair value of approximately $252.0
million.
During the first half of 1999, the Company acquired 2,457,000 shares of Treadco
common stock for $23.7 million via a cash tender offer pursuant to a definitive
merger agreement. As a result of the transaction, Treadco became a wholly owned
subsidiary of the Company (see Note Q appearing on page 42 of the registrant's
Annual Report).
On September 13, 2000, Treadco entered into an agreement with The Goodyear Tire
& Rubber Company ("Goodyear") to contribute its business to a new limited
liability company called Wingfoot Commercial Tire Systems, LLC ("Wingfoot") (see
Note R appearing on page 42 of the registrant's Annual Report). The transaction
closed on October 31, 2000.
3
<PAGE> 4
ITEM 1. BUSINESS - continued
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The response to this portion of Item 1 is included in "Note M - Operating
Segment Data" appearing on pages 36 through 38 of the registrant's Annual Report
to Stockholders for the year ended December 31, 2000, and is incorporated herein
by reference under Item 14.
(c) NARRATIVE DESCRIPTION OF BUSINESS
GENERAL
During the periods being reported on, the Company operated in four defined
reportable operating segments: (1) ABF; (2) G.I. Trucking; (3) Clipper; and (4)
Treadco (which was contributed to Wingfoot on October 31, 2000) (see Note R
appearing on page 42 of the registrant's Annual Report). Note M to the
Consolidated Financial Statements contains additional information regarding the
Company's operating segments and appears on pages 36 through 38 of the
registrant's Annual Report to Stockholders for the year ended December 31, 2000,
and is incorporated herein by reference under Item 14.
DISCONTINUED OPERATIONS
At December 31, 1998, the Company was engaged in international ocean freight
services through its subsidiary, CaroTrans International, Inc. ("Clipper
International"), a non-vessel operating common carrier (N.V.O.C.C.). On February
28, 1999, the Company completed a formal plan to exit its international ocean
freight N.V.O.C.C. services by disposing of the business and assets of Clipper
International. On April 17, 1999, the Company closed the sale of the business
and certain assets of Clipper International, including the trade name "CaroTrans
International, Inc." Substantially all of the assets have been liquidated by the
Company.
EMPLOYEES
At December 31, 2000, the Company and its subsidiaries had a total of 15,963
employees of which approximately 68% are members of a labor union.
MOTOR CARRIER OPERATIONS
LESS-THAN-TRUCKLOAD MOTOR CARRIER OPERATIONS
GENERAL
The Company's less-than-truckload ("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 "ABF") and G.I. Trucking Company
("G.I. Trucking").
LTL carriers offer services to shippers transporting a wide variety of large and
small shipments to geographically dispersed destinations. LTL carriers pick up
small shipments throughout the vicinity of a local terminal and consolidate them
at the terminal. Shipments are consolidated by destination for transportation by
intercity units to their destination cities or to distribution centers.
Shipments from various locations can be reconsolidated for transportation to
distant destinations, other distribution centers or local terminals. Once
delivered to a local terminal, a shipment is delivered to the customer by local
trucks operating from the terminal. In some cases, when a sufficient number of
different shipments at one origin terminal are going to a common destination,
they can be combined to make a full trailer load. A trailer is then dispatched
to that destination without the freight having to be rehandled.
4
<PAGE> 5
ITEM 1. BUSINESS - continued
COMPETITION, PRICING AND INDUSTRY FACTORS
The trucking industry is highly competitive. The Company's LTL motor carrier
subsidiaries actively compete for freight business with other national, regional
and local motor carriers and, to a lesser extent, with private carriage, freight
forwarders, railroads and airlines. Competition is based primarily on personal
relationships, price and service. In general, most of the principal motor
carriers use similar tariffs to rate interstate shipments. Competition for
freight revenue, however, has resulted in discounting which effectively reduces
prices paid by shippers. In an effort to maintain and improve its market share,
the Company's LTL motor carrier subsidiaries offer and negotiate various
discounts.
The trucking industry, including the Company's LTL motor carrier subsidiaries,
is directly affected by the state of the overall economy. The trucking industry
faces rising costs including government regulations on safety, maintenance and
fuel economy. In addition, seasonal fluctuations also affect tonnage to be
transported. Freight shipments, operating costs and earnings also are affected
adversely by inclement weather conditions.
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 $1,870,000 of auto liability losses between $200,000 and
$500,000. The Company maintains insurance adequate to cover losses in excess of
such amounts. The Company has been able to obtain adequate coverage and is not
aware of problems in the foreseeable future which would significantly impair its
ability to obtain adequate coverage at comparable rates for its motor carrier
operations.
ABF FREIGHT SYSTEM, INC.
Headquartered in Fort Smith, Arkansas, ABF is the largest subsidiary of the
Company. ABF currently accounts for approximately 75% of the Company's
consolidated revenues. ABF is the fourth largest national LTL motor carrier in
the United States, based on revenues for 2000 as reported to the U.S. Department
of Transportation ("D.O.T."). ABF provides direct service to over 98.6% of the
cities in the United States having a population of 25,000 or more. ABF provides
interstate and intrastate direct service to more than 40,000 points through 311
terminals in all 50 states, Canada and Puerto Rico. Through an alliance and
relationships with trucking companies in Mexico, ABF provides motor carrier
services to customers in that country as well. ABF was incorporated in Delaware
in 1982 and is the successor to Arkansas Motor Freight, a business originally
organized in 1935.
ABF offers long-haul, interstate, regional and intrastate transportation of
general commodities through LTL, assured services and expedited 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, 2000, no single customer accounted for more than 3% of ABF's
revenues, and the ten largest customers accounted for less than 9% of ABF's
revenues.
5
<PAGE> 6
ITEM 1. BUSINESS - continued
EMPLOYEES
At December 31, 2000, ABF employed 13,601 persons. Employee compensation and
related costs are the largest components of ABF's operating expenses. In 2000,
such costs amounted to 62.4% of ABF's revenues. Approximately 78% of ABF's
employees are covered under a collective bargaining agreement with the
International Brotherhood of Teamsters ("IBT"). The IBT voted in favor of a new
labor contract on April 9, 1998. The contract was effective April 1, 1998, and
is for a five-year term. The contract provides for an average annual wage and
benefit increase of approximately 2.3% during its term, including a lump-sum
payment of $750 for the first contract year for all active employees who are IBT
members. Under the terms of the National Agreement, ABF is required to
contribute to various multiemployer pension plans maintained for the benefit of
its employees who are members of the IBT. Amendments to the Employee Retirement
Income Security Act of 1974 ("ERISA") pursuant to the Multiemployer Pension Plan
Amendments Act of 1980 (the "MPPA Act") substantially expanded the potential
liabilities of employers who participate in such plans. Under ERISA, as amended
by the MPPA Act, an employer who contributes to a multiemployer pension plan and
the members of such employer's controlled group are jointly and severally liable
for their proportionate share of the plan's unfunded liabilities in the event
the employer ceases to have an obligation to contribute to the plan or
substantially reduces its contributions to the plan (i.e., in the event of plan
termination or withdrawal by the Company from the multiemployer plans). Although
the Company has no current information regarding its potential liability under
ERISA in the event it wholly or partially ceases to have an obligation to
contribute or substantially reduces its contributions to the multiemployer plans
to which it currently contributes, management believes that such liability would
be material. The Company has no intention of ceasing to contribute or of
substantially reducing its contributions to such multiemployer plans.
Four of the five largest LTL carriers are unionized and generally pay comparable
amounts for wages and benefits. Non-union companies typically pay employees less
than union companies. Due to its national reputation and its high pay scale, ABF
has not historically experienced any significant difficulty in attracting or
retaining qualified drivers.
G.I. TRUCKING COMPANY
Headquartered in Brea, California, G.I. Trucking is one of the five largest
western states-based non-union regional LTL motor carriers. G.I. Trucking offers
one- to three-day regional service through a network of 41 terminals and 41
agent partners in 15 western and southwestern states including Hawaii and
Alaska. G.I. Trucking accounted for approximately 9% of the Company's
consolidated revenues in 2000. During the year ended December 31, 2000, G.I.
Trucking's largest customer and its suppliers accounted for approximately 30% of
G.I. Trucking's revenues.
G.I. Trucking provides transcontinental service through a partnership with three
other regional carriers through three major hub terminals located in the Midwest
and the East Coast. Customer service is enhanced through EDI communications
between the partners.
G.I. Trucking's linehaul structure utilizes company solo drivers, company
sleeper teams, contract carriers, one-way carriers and rail, providing
flexibility in maintaining customer service and lane balance. G.I. Trucking's
family of electronic services include EDI information, customer FAX
capabilities, tracing, rating and reporting interface.
6
<PAGE> 7
ITEM 1. BUSINESS - continued
INTERMODAL OPERATIONS
GENERAL
The Company's intermodal transportation operations are conducted through
Clipper, headquartered in Lemont, Illinois. Clipper operates through two
business units: Clipper Freight Management ("CFM") and Clipper LTL, and offers
domestic intermodal freight services, utilizing a variety of transportation
modes including rail and over-the-road.
COMPETITION, PRICING AND INDUSTRY FACTORS
Clipper operates in highly competitive environments. Competition is based on the
most consistent transit times, freight rates, damage-free shipments and on-time
delivery of freight. Clipper competes with other intermodal transportation
operations, freight forwarders and railroads, as well as with other national and
regional LTL and truckload motor carrier operations. Intermodal transportation
operations are akin to motor carrier operations in terms of market conditions,
with revenues being weaker in the first quarter and stronger in the months of
September and October. Freight shipments, operating costs and earnings are also
affected by inclement weather. The reliability of rail service is also a
critical component of Clipper's ability to provide service to its customers.
CLIPPER
Clipper's revenues accounted for approximately 7% of consolidated revenues for
2000. During the year ended December 31, 2000, no single customer accounted for
more than 6% of Clipper's revenues.
CFM
CFM provides services through Clipper Express Company, Agricultural Express of
America, Inc. (d/b/a/ Clipper Controlled Logistics) and Agile Freight System,
Inc. (d/b/a Clipper Highway Services). CFM accounted for approximately 67% of
Clipper's revenues during 2000.
CFM provides an extensive list of transportation services such as intermodal and
truck brokerage, warehousing, consolidation, transloading, repacking, and other
ancillary services. As an intermodal marketing operation, CFM arranges for loads
to be picked up by a drayage company, tenders them to a railroad, and then
arranges for a drayage company to deliver the shipment on the other end of the
move. CFM's role in this process is to select the most cost-effective means to
provide quality service and to expedite movement of the loads at various
interface points to ensure seamless door-to-door transportation.
Clipper Controlled Logistics provides high quality, temperature-controlled
intermodal transportation 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. As of December 31, 2000, Clipper
Controlled Logistics owns or leases 621 temperature-controlled trailers that it
deploys in the seasonal fruit and vegetable markets. These markets are carefully
selected in order to take advantage of various seasonally high rates, which peak
at different times of the year. By focusing on the spot market for produce
transport, Clipper Controlled Logistics is able to generate, on average, a
higher revenue per load compared to standard temperature-controlled carriers
that pursue more stable year-round temperature-controlled freight. Clipper
Controlled Logistics' services also include transportation of non-produce loads
requiring protective services and leasing trailers during non-peak produce
seasons.
Clipper Highway Services is a non-asset intensive, premium service, long-haul
truckload carrier that primarily utilizes two-person driver teams provided by
contractors and provides truck brokering. Clipper Highway Services provides
expedited truckload service in tightly focused long-haul lanes that originate or
terminate near a Clipper LTL market. Clipper Highway Services moves full
truckloads of consolidated LTL shipments for Clipper LTL, as well as for other
shippers.
7
<PAGE> 8
ITEM 1. BUSINESS - continued
CLIPPER LTL
Clipper LTL operates primarily through Clipper Exxpress Company ("Clipper
Exxpress"). Management believes Clipper Exxpress is one of the largest
intermodal consolidators and forwarders of LTL shipments in the United States.
Clipper LTL accounts for approximately 33% of Clipper's 2000 revenues.
Clipper LTL's collection and distribution network consists of 28 service centers
geographically dispersed throughout the United States. Clipper LTL's selection
of markets depends on size (lane density), availability of quality rail service
and truck line-haul service, length of haul and competitor profile. Traffic
moving between its ten most significant market pairs generates approximately 40%
of Clipper's LTL revenue. A majority of Clipper's LTL revenue is derived from
long-haul, metro area-to-metro area transportation.
Although pickup and delivery and terminal handling is performed by agents,
Clipper LTL has an operations and customer service staff located at or near many
of its principal agents' terminals to monitor service levels and provide an
interface between customers and agents.
TREADCO
On September 13, 2000, Treadco entered into an agreement with The Goodyear Tire
& Rubber Company to form a new limited liability company called Wingfoot
Commercial Tire Systems, LLC (see Note R appearing on page 42 of the
registrant's Annual Report). The transaction closed on October 31, 2000.
ENVIRONMENTAL AND OTHER GOVERNMENT REGULATIONS
The Company is subject to federal, state and local environmental laws and
regulations relating to, among other things, contingency planning for spills of
petroleum products and its disposal of waste oil. In addition, the Company is
subject to significant regulations dealing with underground fuel storage tanks.
The Company's subsidiaries store some fuel for their tractors and trucks in
approximately 82 underground tanks located in 26 states. Maintenance of such
tanks is regulated at the federal and, in some cases, state levels. The Company
believes that it is in substantial compliance with all such regulations. The
Company is not aware of any leaks from such tanks that could reasonably be
expected to have a material adverse effect on the Company.
The Company has received notices from the EPA and others that it has been
identified as a potentially responsible party ("PRP") under the Comprehensive
Environmental Response Compensation and Liability Act or other federal or state
environmental statutes at several hazardous waste sites. After investigating the
Company's or its subsidiaries' involvement in waste disposal or waste generation
at such sites, the Company has either agreed to de minimis settlements
(aggregating approximately $340,000 over the last 12 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, 2000, the Company has accrued approximately $2.7 million to
provide for environmental-related liabilities. The Company's environmental
accrual is based on management's best estimate of the actual liability. The
Company's estimate is founded on management's experience in dealing with similar
environmental matters and on actual testing performed at some sites. Management
believes that the accrual is adequate to cover environmental liabilities based
on the present environmental regulations. Accruals for environmental liabilities
are included in the balance sheet as accrued expenses.
8
<PAGE> 9
ITEM 2. PROPERTIES
The Company owns its executive office building in Fort Smith, Arkansas, which
contains approximately 196,000 square feet.
ABF
ABF currently operates out of 311 terminal facilities of which it owns 81,
leases 49 from an affiliate and leases the remainder from non-affiliates. ABF's
principal terminal facilities are as follows:
<TABLE>
<CAPTION>
No. of Doors Square Footage(1)
------------ -----------------
<S> <C> <C>
Owned:
Dayton, Ohio 330 252,940
Ellenwood, Georgia 227 153,209
South Chicago, Illinois 276 149,610
Carlisle, Pennsylvania (East) 101 72,497
Dallas, Texas 108 87,534
Leased from affiliate, Transport Realty:
North Little Rock, Arkansas 196 117,502
Albuquerque, New Mexico 84 67,700
Carlisle, Pennsylvania (West) 140 66,484
Pico Rivera, California 99 58,840
Leased from non-affiliate:
Winston-Salem, North Carolina 150 160,700
Salt Lake City, Utah 92 42,310
</TABLE>
(1) Includes shop and driver room square footage.
G.I. TRUCKING
G.I. Trucking currently operates out of 82 terminal facilities of which 41 are
company operated and 41 are agent terminals. G.I. Trucking owns 10 facilities,
leases 3 facilities from an affiliate and the remainder of the facilities are
leased from non-affiliates.
CLIPPER
Clipper operates from 28 service centers, geographically dispersed throughout
the United States. Eleven of the service centers are facilities leased by
Clipper and 17 of the service centers are agent locations.
9
<PAGE> 10
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.
On October 30, 1995, Treadco filed a lawsuit in Arkansas State Court, alleging
that Bandag Incorporated ("Bandag") and certain of its officers and employees
had violated Arkansas statutory and common law in attempting to solicit
Treadco's employees to work for Bandag or its competing franchisees and
attempting to divert customers from Treadco. The Federal District Court ruled
that under terms of Treadco's franchise agreements with Bandag, all of the
issues involved in Treadco's lawsuit against Bandag were to be decided by
arbitration. The arbitration hearing began September 21, 1998, and in December
1998, prior to the completion of the arbitration, to avoid the uncertainty, cost
and burden of continuing the arbitration action, Treadco entered into a
settlement with Bandag, and certain of Bandag's current and former employees,
resolving all disputes and liabilities arising between them. Under the
settlement terms, Treadco received a one-time payment of $9,995,000 in
settlement of all the Company's claims. The settlement agreement represented a
compromise in settlement of disputed liabilities, obligations and claims and did
not constitute an admission of liability by either Treadco or Bandag. The
settlement resulted in other income for Treadco of $9,124,000. (See Note R
appearing on page 42 of the registrant's Annual Report regarding the agreement
between Treadco and The Goodyear Tire & Rubber Company).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of stockholders during the fourth quarter
ended December 31, 2000.
10
<PAGE> 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information set forth under the caption "Market and Dividend Information" on
page 7 of the registrant's Annual Report to Stockholders for the year ended
December 31, 2000, is incorporated by reference under Item 14 herein.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Selected Financial Data" on page 6
of the registrant's Annual Report to Stockholders for the year ended December
31, 2000, is incorporated by reference under Item 14 herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," appearing on pages 8 through 15 of the registrant's Annual Report
to Stockholders for the year ended December 31, 2000, is incorporated by
reference under Item 14 herein.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
"Quantitative and Qualitative Disclosures About Market Risk," appearing on page
16 of the registrant's Annual Report to Stockholders for the year ended December
31, 2000, is incorporated by reference under Item 14 herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors, consolidated financial statements and
supplementary information, appearing on pages 17 through 44 of the registrant's
Annual Report to Stockholders for the year ended December 31, 2000, are
incorporated by reference under Item 14 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
11
<PAGE> 12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The sections entitled "Election of Directors," "Directors of the Company,"
"Board of Directors and Committees," "Executive Officers of the Company" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be filed by the Company with
the Securities and Exchange Commission ("Definitive Proxy Statement") set forth
certain information with respect to the directors, nominees for election as
directors and executive officers of the Company and are incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The sections entitled "Executive Compensation," "Aggregated Options/SAR
Exercises in Last Fiscal Year and Fiscal Year-End Options/SAR Values,"
"Options/SAR Grants Table," "Executive Compensation and Development Committee
Interlocks and Insider Participation," "Retirement and Savings Plan,"
"Employment Contracts and Termination of Employment and Change in Control
Arrangements" and the paragraph concerning directors' compensation in the
section entitled "Board of Directors and Committees" in the Company's Definitive
Proxy Statement set forth certain information with respect to compensation of
management of the Company and are incorporated herein by reference, provided,
however, the information contained in the sections entitled "Report on Executive
Compensation by the Executive Compensation and Development Committee and Stock
Option Committee" and "Stock Performance Graph" are not incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Principal Stockholders and Management Ownership" in the
Company's Definitive Proxy Statement sets forth certain information with respect
to the ownership of the Company's voting securities and is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Certain Transactions and Relationships" in the Company's
Definitive Proxy Statement sets forth certain information with respect to
relations of and transactions by management of the Company and is incorporated
herein by reference.
12
<PAGE> 13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) FINANCIAL STATEMENTS
The following information appearing in the 2000 Annual Report to Stockholders is
incorporated by reference in this Form 10-K Annual Report as Exhibit (13):
<TABLE>
<CAPTION>
Page
<S> <C>
Market and Dividend Information 7
Selected Financial Data 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 15
Quantitative and Qualitative Disclosures About Market Risk 16
Consolidated Financial Statements 18 - 42
Report of Independent Auditors 17
Quarterly Results of Operations 41
</TABLE>
With the exception of the aforementioned information, the 2000 Annual Report to
Stockholders is not deemed filed as part of this report. Financial statements
other than those listed are omitted for the reason that they are not required or
are not applicable. The following additional financial data should be read in
conjunction with the consolidated financial statements in such 2000 Annual
Report to Stockholders.
(a)(2) FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page
<S> <C>
For the years ended December 31, 2000, 1999, and 1998:
Schedule II - Valuation and Qualifying Accounts and Reserves 15
</TABLE>
Schedules other than those listed are omitted for the reason that they are not
required or are not applicable, or the required information is shown in the
financial statements or notes thereto.
(a)(3) EXHIBITS
The exhibits filed with this report are listed in the Exhibit Index, which is
submitted as a separate section of this report.
(b) REPORTS ON FORM 8-K
None
(c) EXHIBITS
See Item 14(a)(3) above.
(d) FINANCIAL STATEMENT SCHEDULES
The response to this portion of Item 14 is submitted as a separate
section of this report.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ARKANSAS BEST CORPORATION
BY: /s/ David E. Loeffler
--------------------------------
David E. Loeffler
Vice President - Chief Financial
Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ William A. Marquard Chairman of the Board, Director March 13, 2001
- ------------------------------------- ---------------------------
William A. Marquard
/s/ Robert A. Young, III Director, Chief Executive Officer March 13, 2001
- ------------------------------------- and President (Principal ---------------------------
Robert A. Young, III Executive Officer)
/s/ David E. Loeffler Vice President - Chief Financial Officer March 13, 2001
- ------------------------------------- and Treasurer ---------------------------
David E. Loeffler
/s/ Frank Edelstein Director March 13, 2001
- ------------------------------------- ---------------------------
Frank Edelstein
/s/ Arthur J. Fritz Director March 13, 2001
- ------------------------------------- ---------------------------
Arthur J. Fritz
/s/ John H. Morris Director March 13, 2001
- ------------------------------------- ---------------------------
John H. Morris
/s/ Alan. J. Zakon Director March 13, 2001
- ------------------------------------- ---------------------------
Alan J. Zakon
</TABLE>
14
<PAGE> 15
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ARKANSAS BEST CORPORATION
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- ---------- ---------- -------------- ------------ -------------
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS - BALANCE AT
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE END OF PERIOD
----------- ---------- ---------- -------------- ------------ -------------
($ thousands)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 2000:
Deducted from asset accounts:
Allowance for doubtful 6,381(B)
accounts receivable............ $ 5,775 $ 3,797 $ 2,598(A) $ 1,194(C) $ 4,595
============ ============ =========== ============ ===========
Year Ended December 31, 1999:
Deducted from asset accounts:
Allowance for doubtful
accounts receivable............ $ 7,051 $ 2,967 $ 2,664(A) $ 6,907(B) $ 5,775
============ ============ =========== ============ ===========
Year Ended December 31, 1998:
Deducted from asset accounts:
Allowance for doubtful
accounts receivable............ $ 6,815 $ 4,275 $ 2,980(A) $ 7,019(B) $ 7,051
============ ============ =========== ============ ===========
</TABLE>
Note A - Recoveries of amounts previously written off.
Note B - Uncollectible accounts written off.
Note C - The allowance for doubtful accounts for Treadco, Inc., as of the
date of the contribution of substantially all of Treadco's assets and
liabilities to Wingfoot (see Note R appearing on page 42 of the
registrant's Annual Report).
NOTE: ALL INFORMATION REFLECTED IN THE ABOVE TABLE HAS BEEN RESTATED TO
EXCLUDE VALUATION ALLOWANCES OF DISCONTINUED OPERATIONS.
15
<PAGE> 16
FORM 10-K -- ITEM 14(c)
EXHIBIT INDEX
ARKANSAS BEST CORPORATION
The following exhibits are filed with this report or are incorporated by
reference to previously filed material.
EXHIBIT
NO.
3.1* Restated Certificate of Incorporation of the Company (previously
filed as Exhibit 3.1 to the Company's Registration Statement on Form
S-1 under the Securities Act of 1933 filed with the Commission on
March 17, 1992, Commission File No. 33-46483, and incorporated
herein by reference).
3.2* Amended and Restated Bylaws of the Company (previously filed as
Exhibit 3.2 to the Company's Registration Statement on Form S-1
under the Securities Act of 1933 filed with the Commission on March
17, 1992, Commission File No. 33-46483, and incorporated herein by
reference).
4.1* Form of Indenture, between the Company and Harris Trust and Savings
Bank, with respect to $2.875 Series A Cumulative Convertible
Exchangeable Preferred Stock (previously filed as Exhibit 4.4 to
Amendment No. 2 to the Company's Registration Statement on Form S-1
under the Securities Act of 1933 filed with the Commission on
January 26, 1993, Commission File No. 33-56184, and incorporated
herein by reference).
4.2* Indenture between Carolina Freight Corporation and First Union
National Bank, Trustee with respect to 6 1/4% Convertible
Subordinated Debentures Due 2011 (previously filed as Exhibit 4-A to
the Carolina Freight Corporation's Registration Statement on Form
S-3 filed with the Commission on April 11, 1986, Commission File No.
33-4742, and incorporated herein by reference).
10.1*# Stock Option Plan (previously filed as Exhibit 10.3 to the Company's
Registration Statement on Form S-1 under the Securities Act of 1933
filed with the Commission on March 17, 1992, Commission File No.
33-46483, and incorporated herein by reference).
10.2* First Amendment dated as of January 31, 1997 to the $346,971,321
Amended and Restated Credit Agreement dated as of February 21, 1996,
among the Company as Borrower, Societe Generale as Managing Agent
and Administrative Agent, NationsBank of Texas, N.A. as
Documentation Agent and the Banks named herein as the Banks
(previously filed as Exhibit 10.1 to the Company's Current Report on
Form 8-K, filed with the Commission on February 27, 1997, Commission
File No. 0-19969, and incorporated herein by reference).
10.3* First Amendment dated as of January 31, 1997, to the $30,000,000
Credit Agreement dated as of February 21, 1996, among the Company as
Borrower, Societe Generale as Agent, and the Banks named herein as
the Banks (previously filed as Exhibit 10.3 to the Company's Current
Report on Form 8-K, filed with the Commission on February 27, 1997,
Commission File No. 0-19969, and incorporated herein by reference).
16
<PAGE> 17
FORM 10-K -- ITEM 14(c)
EXHIBIT INDEX
ARKANSAS BEST CORPORATION
(CONTINUED)
EXHIBIT
NO.
10.4*# Arkansas Best Corporation Performance Award Unit Program effective
January 1, 1996 (previously filed as Exhibit 10.6 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995, Commission File No. 0-19969, and incorporated herein by
reference).
10.5* Second Amendment, dated July 15, 1997, to the $346,971,312 Amended
and Restated Credit Agreement among the Company as Borrower, Societe
Generale as Managing Agent and Administrative Agent, NationsBank of
Texas, N.A., as Documentation Agent, and the Banks named herein as
the Banks (previously filed as Exhibit 10.3 to the Company's Current
Report on Form 8-K, filed with the Commission on August 1, 1997,
Commission File No. 0-19969, and incorporated herein by reference).
10.6* Interest-Rate Swap Agreement effective April 1, 1998 on a notional
amount of $110,000,000 with Societe Generale (previously filed as
Exhibit 10.1 to the Company's Form 10-Q filed with the Commission on
May 13, 1998, Commission File No. 0-19969, and incorporated herein
by reference).
10.7* $250,000,000 Credit Agreement dated as of June 12, 1998 with Societe
Generale as Administrative Agent and Bank of America National Trust
Savings Association and Wells Fargo Bank (Texas), N.A., as
Co-Documentation Agents (previously filed as Exhibit 10.2 to the
Company's Form 10-Q filed with the Commission on August 6, 1998,
Commission File No. 0-19969, and incorporated herein by reference).
10.8*# The Company's Supplemental Benefit Plan (previously filed as Exhibit
4.1 to the Company's Registration Statement on Form S-8 filed with
the Commission on December 22, 1999, Commission File No. 333-93381,
and incorporated herein by reference).
10.9* The Company's National Master Freight Agreement covering
over-the-road and local cartage employees of private, common,
contract and local cartage carriers for the period of April 1, 1998
through March 31, 2003.
10.10* First amendment dated as of February 12, 1999, to the $250,000,000
Credit Agreement dated as of June 12, 1998, among the Company as
Borrower; Societe Generale, Southwest Agency, as Administrative
Agent; and Bank of America National Trust and Savings Association
and Wells Fargo Bank (Texas), N.A., as Co-Documentation Agents.
10.11* Amendment dated March 15, 1999, to Amendment No. 1 dated as of
February 12, 1999, to the $250,000,000 Credit Agreement dated as of
June 12, 1998, among the Company as Borrower; Societe Generale,
Southwest Agency, as Administrative Agent; and Bank of America
National Trust and Savings Association and Wells Fargo Bank (Texas),
N.A., as Co-Documentation Agents.
10.12* Second amendment dated as of August 2, 2000, to the $250,000,000
Credit Agreement dated as of June 12, 1998, among the Company as
Borrower; Wells Fargo Bank (Texas), N.A., as Administrative Agent;
and Bank of America National Trust and Savings Association and Wells
Fargo Bank (Texas), N.A., as Co-Documentation Agents, as amended by
Amendment No. 1 and Consent and Waiver dated as of February 12, 1999
and Amendment to Amendment No. 1 and Consent and Waiver dated as of
March 15, 1999.
17
<PAGE> 18
FORM 10-K -- ITEM 14(c)
EXHIBIT INDEX
ARKANSAS BEST CORPORATION
(CONTINUED)
EXHIBIT
NO.
10.13* Third amendment dated as of September 30, 2000, to the $250,000,000
Credit Agreement dated as of June 12, 1998, among the Company as
Borrower; Wells Fargo Bank (Texas), N.A., as Administrative Agent;
and Bank of America National Trust and Savings Association and Wells
Fargo Bank (Texas), N.A., as Co-Documentation Agents, as amended by
Amendment No. 1 and Consent and Waiver dated as of February 12,
1999, Amendment to Amendment No. 1 and Consent and Waiver dated as
of March 15, 1999, and Amendment No. 2 dated as of August 2, 2000
(as amended, the "Credit Agreement").
10.14* Agreement dated September 13, 2000, by and among The Goodyear Tire &
Rubber Company and Treadco, Inc., a wholly owned subsidiary of
Arkansas Best Corporation.
13 2000 Annual Report to Stockholders
21 List of Subsidiary Corporations
23 Consent of Ernst & Young LLP, Independent Auditors
* Previously filed with the Securities and Exchange Commission and incorporated
herein by reference.
# Designates a compensation plan for Directors or Executive Officers.
18
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>2
<FILENAME>d84898ex13.txt
<DESCRIPTION>2000 ANNUAL REPORT TO STOCKHOLDERS
<TEXT>
<PAGE> 1
EXHIBIT 13
Market and Dividend Information
Selected Financial Data
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
<PAGE> 2
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:
<TABLE>
<CAPTION>
CASH
HIGH LOW DIVIDEND
---------- ------------ --------
<S> <C> <C> <C>
2000
First quarter ...................................................... $ 13.625 $ 9.313 $ -
Second quarter...................................................... 14.063 9.938 -
Third quarter....................................................... 16.375 10.688 -
Fourth quarter...................................................... 20.125 13.266 -
1999
First quarter ...................................................... $ 8.875 $ 5.250 $ -
Second quarter...................................................... 9.938 7.000 -
Third quarter....................................................... 13.750 9.688 -
Fourth quarter...................................................... 14.563 11.969 -
</TABLE>
At February 26, 2001, there were 20,369,570 shares of the Company's Common Stock
outstanding, which were held by 565 stockholders of record.
The Company's Board of Directors suspended payment of dividends on the Company's
Common Stock during the second quarter of 1996. The declaration and payment of
and the timing, amount and form of future dividends on the Common Stock will be
determined based on the Company's results of operations, financial condition,
cash requirements, certain corporate law requirements and other factors deemed
relevant by the Board of Directors.
The Company's Credit Agreement limits the total amount of "restricted payments"
that the Company may make, excluding dividends on the Company's Preferred Stock,
to $25.0 million in any one calendar year. The annual dividend requirements on
the Company's Preferred Stock totaled approximately $4.1 million, $4.3 million
and $4.3 million during 2000, 1999 and 1998, respectively.
<PAGE> 3
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
2000 1999 1998 1997(1) 1996
----------- ----------- ----------- ----------- -----------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues ................................ $ 1,839,567 $ 1,721,586 $ 1,607,403 $ 1,593,218 $ 1,550,392
Operating income (loss) ........................... 140,152 109,707 69,977 64,503 (15,673)
Minority interest income (expense) in
Treadco, Inc. ................................... -- 245 (3,257) 1,359 1,768
Other (income) expenses, net ...................... (647) 3,920 3,255 8,814 5,944
Gain on sale of Cardinal Freight Carriers, Inc. ... -- -- -- 8,985 --
Fair value net gain - Wingfoot
Commercial Tire Systems, LLC(2) ................. 5,011 -- -- -- --
Settlement of litigation(3) ....................... -- -- 9,124 -- --
Interest expense, net ............................. 16,687 18,395 18,146 23,765 30,451
Income (loss) from continuing
operations before income taxes .................. 129,123 87,637 54,443 42,268 (50,300)
Provision (credit) for income taxes ............... 52,968 36,455 23,192 20,086 (17,757)
Income (loss) from continuing operations .......... 76,155 51,182 31,251 22,182 (32,543)
Loss from discontinued operations,
net of tax ...................................... -- (786) (2,576) (6,835) (4,060)
Net income (loss) ................................. 76,155 50,396 28,675 15,347 (36,603)
Income (loss) per common share
from continuing operations (diluted) ............ 3.17 2.14 1.32 0.91 (1.89)
Net income (loss) per common
share (diluted) ................................. 3.17 2.11 1.21 0.56 (2.10)
Cash dividends paid per
common share(4) ................................. -- -- -- -- 0.01
BALANCE SHEET DATA:
Total assets ...................................... 797,124 731,929 707,330 693,649 823,492
Current portion of long-term debt ................. 23,948 20,452 17,504 16,484 37,197
Long-term debt (including capital leases
and excluding current portion) .................. 152,997 173,702 196,079 202,604 317,874
OTHER DATA:
Gross capital expenditures(5) ..................... 93,585 76,209 86,446 14,135 41,599
Net capital expenditures(6) ....................... 83,801 61,253 70,243 (23,775) (23,713)
Depreciation and amortization ..................... 52,186 45,242 40,674 44,316 56,389
Goodwill amortization ............................. 4,051 4,195 4,515 4,629 4,609
Other amortization ................................ 217 324 2,420 4,139 3,740
</TABLE>
(1) Selected financial data is not comparable to the prior years' information
due to the sale of Cardinal on July 15, 1997.
(2) Fair value net gain on the contribution of Treadco's assets and
liabilities to Wingfoot Commercial Tire Systems, LLC ("Wingfoot") (see
Note R to the Consolidated Financial Statements).
(3) Income results from the settlement of Treadco litigation (see Note K).
(4) Cash dividends on the Company's Common Stock were indefinitely suspended
by the Company as of the second quarter of 1996.
(5) Does not include revenue equipment placed in service under operating
leases, which amounted to $21.9 million in 1997. There were no operating
leases for revenue equipment entered into for 2000, 1999, 1998 and 1996.
(6) Capital expenditures, net of proceeds from the sale of property, plant and
equipment.
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
Arkansas Best Corporation (the "Company") is a diversified holding company
engaged through its subsidiaries primarily in motor carrier transportation
operations, intermodal transportation operations, and truck tire retreading and
new tire sales (see Note R). Principal subsidiaries are ABF Freight System, Inc.
("ABF"); G.I. Trucking Company ("G.I. Trucking"); Clipper Exxpress Company and
related companies ("Clipper"); FleetNet America LLC; and, until October 31,
2000, Treadco, Inc. ("Treadco") (see Note R).
See Note Q to the Consolidated Financial Statements regarding the acquisition of
non-ABC-owned Treadco shares and subsequent merger resulting in Treadco becoming
a wholly owned subsidiary of the Company. See Note R regarding the contribution
of substantially all of Treadco's assets and liabilities to Wingfoot. See Note A
regarding the consolidation of Treadco in the Company's consolidated financial
statements for 1998. See Note C regarding the Company's discontinuation of
Clipper International.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities. The
Statement addresses the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts and hedging activities. The
Statement will require the Company to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to fair
value through income. If a derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of the derivative will either be offset against
the change in fair value of the hedged asset, liability, or firm commitment
through earnings, or recognized in other comprehensive income until the hedged
item is recognized in earnings. In June 1999, the FASB issued Statement No. 137,
which deferred for one year the implementation date of FASB Statement No. 133.
As a result, Statement No. 133 is effective for the Company in 2001.
The Company is party to an interest rate swap on a notional amount of $110.0
million with a fair value of ($0.1) million as of December 31, 2000. The swap
agreement is a contract to exchange variable interest rate payments for fixed
rate payments over the life of the instrument. The purpose of the swap is to
limit the Company's exposure to increases in interest rates on the notional
amount of bank borrowings over the term of the swap. The fixed interest rate
under the swap is 5.845% plus the Company's Credit Agreement margin (currently
.55%). Once FASB Statement No. 133 becomes effective, the Company plans to
record the swap on its balance sheet at fair value with the adjustment to fair
value for the hedged portion recognized in other comprehensive income.
Subsequent changes in fair value on the hedged portion will be recognized
through other comprehensive income until the hedged item is recognized in
earnings. Management continually evaluates the effectiveness of the swap
arrangement based on its forecasted borrowing levels and whether the interest
paid on $110.0 million of bank borrowings is at the fixed swap rate plus the
Credit Agreement margin. If the swap arrangement, hedged portion or notional
amount is changed, the Company will evaluate these factors as they relate to
FASB No. 133 and the Company's derivative accounting policy at that time.
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - continued
- --------------------------------------------------------------------------------
OPERATING SEGMENT DATA
The following table sets forth, for the periods indicated, a summary of the
Company's operating expenses by segment as a percentage of revenue for the
applicable segment. Note M to the Consolidated Financial Statements contains
additional information regarding the Company's operating segments.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
OPERATING EXPENSES AND COSTS
ABF FREIGHT SYSTEM, INC
Salaries and wages ..................... 62.4% 64.1% 66.5%
Supplies and expenses .................. 12.6 11.0 10.8
Operating taxes and licenses ........... 3.0 3.0 3.1
Insurance .............................. 1.6 1.6 1.7
Communications and utilities ........... 1.1 1.2 1.2
Depreciation and amortization .......... 2.6 2.4 2.2
Rents and purchased transportation ..... 6.8 8.0 8.4
Other .................................. 0.2 0.4 0.5
(Gain) on sale of revenue equipment .... -- (0.1) (0.2)
--------- --------- ---------
90.3% 91.6% 94.2%
========= ========= =========
G.I. TRUCKING COMPANY
Salaries and wages ..................... 47.0% 46.8% 47.2%
Supplies and expenses .................. 9.4 8.0 8.5
Operating taxes and licenses ........... 2.1 2.4 2.1
Insurance .............................. 2.5 2.7 3.2
Communications and utilities ........... 1.3 1.3 1.3
Depreciation and amortization .......... 3.0 2.6 2.5
Rents and purchased transportation ..... 30.0 32.3 31.4
Other .................................. 2.3 2.5 2.6
(Gain) on sale of revenue equipment .... -- (0.1) (0.1)
--------- --------- ---------
97.6% 98.5% 98.7%
========= ========= =========
CLIPPER
Cost of services ....................... 85.5% 85.9% 87.6%
Selling, administrative and general .... 13.3 12.8 13.4
(Gain) on sale of revenue equipment .... -- -- (0.1)
--------- --------- ---------
98.8% 98.7% 100.9%
========= ========= =========
TREADCO, INC
Cost of services ....................... 66.6% 68.8% 70.6%
Selling, administrative and general .... 30.4 29.3 28.0
--------- --------- ---------
97.0% 98.1% 98.6%
========= ========= =========
</TABLE>
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
OPERATING INCOME (LOSS)
ABF Freight System, Inc. ..... 9.7% 8.4% 5.8%
G.I. Trucking Company ........ 2.4 1.5 1.3
Clipper ...................... 1.2 1.3 (0.9)
Treadco, Inc. ................ 3.0 1.9 1.4
</TABLE>
RESULTS OF OPERATIONS
2000 COMPARED TO 1999
Consolidated revenues from continuing operations of the Company for 2000 were
$1,839.6 million compared to $1,721.6 million for 1999, representing an increase
of 6.9%, due primarily to increases in revenue for ABF, G.I. Trucking and
Clipper, offset by a decline in revenues for Treadco as a result of the
contribution of substantially all of the Treadco assets and liabilities to
Wingfoot on October 31, 2000 (see Note R). The Company's operating income from
continuing operations for 2000 increased 27.8% to $140.2 million from $109.7
million in 1999. Increases in operating income from continuing operations for
2000 are attributable to improved operating income for ABF, G.I. Trucking,
Clipper and Treadco. Income from continuing operations for 2000 was $76.2
million, or $3.17 per diluted common share, compared to $51.2 million, or $2.14
per diluted common share, for 1999. The improvements in income from continuing
operations reflect improvements in operating income, lower interest costs and a
fair value net gain on the Treadco/Wingfoot transaction (see Note R) of $5.0
million or $0.12 per diluted common share.
The Company experienced a slowdown in business levels, resulting from a decline
in the economy, beginning in mid-2000. As a result, LTL tonnage levels for ABF,
the Company's largest subsidiary, declined 4.3% on a per-day basis in the fourth
quarter of 2000 from the fourth quarter 1999. G.I. Trucking's fourth quarter
2000 tonnage increased at a slower pace than previous quarters of 2000 and
Clipper's fourth quarter 2000 LTL and intermodal shipment levels declined
relative to the same period in 1999, where previous quarters of 2000 showed
primarily increases. If business levels continue at this slower pace, the
Company's 2001 business levels, and potentially its results of operations, could
be adversely impacted relative to 2000.
ABF FREIGHT SYSTEM, INC.
Effective August 14, 2000, ABF implemented a general rate increase of 5.7%.
Previous overall rate increases effective January 1, 1999 and September 13, 1999
were 5.5% and 5.1%, respectively. Revenues for 2000 increased 8.0% to $1,379.3
million from $1,277.1 million for 1999. ABF generated operating income for 2000
of $133.8 million compared to $107.0 million for 1999.
ABF's increase in revenue is due primarily to an increase in LTL revenue per
hundredweight of 8.0% to $21.13 for 2000 compared to $19.57 in 1999, reflecting
a favorable pricing environment. ABF's revenue increase also results from a
slight increase in LTL tonnage of 0.6% for 2000 compared to 1999. However, total
tonnage for ABF declined from 1999 by 0.5%. LTL tonnage per day for the fourth
quarter of 2000 declined 4.3% when compared to the fourth quarter of 1999. ABF's
fourth quarter 2000 performance was affected by less available freight due to
decreased business levels at customer facilities. In addition, tonnage declines
reflect declining density in ABF's freight mix and the fact that customers were
shipping more heavily in the fourth quarter of 1999 to prepare for the "Year
2000."
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - continued
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ABF implemented a fuel surcharge on July 7, 1999, based on the increase in
diesel fuel prices compared to an index price. The fuel surcharge in effect
during 2000 ranged from 1.5% to 6.0% of revenue. The fuel surcharge in effect
during the third and fourth quarters of 1999 ranged from 0.5% to 2.0% of
revenue.
ABF's operating ratio improved to 90.3% for 2000 from 91.6% in 1999. The
improvements are the result of the revenue yield improvements previously
described and as a result of changes in certain operating expense categories as
follows:
Salaries and wages expense for 2000 declined 1.7% as a percent of revenue
compared to 1999. The decline results primarily from the revenue yield
improvements previously discussed. These improvements were offset, in part, by
the annual general union wage and benefit rate increase on April 1, 2000 of
approximately 3.0%, and an increase in incentive pay amounts.
Supplies and expenses increased 1.6% as a percent of revenue for 2000 compared
to 1999. This change is due primarily to higher diesel fuel prices, which
increased 61.2% on an average price-per-gallon basis, net of fuel taxes, when
the year 2000 is compared to 1999. The previously mentioned fuel surcharge on
revenue is intended to offset the fuel cost increase.
Depreciation and amortization expense increased 0.2% as a percent of revenue for
the year 2000 compared to 1999, due primarily to the purchase of 608 road
tractors during 2000. The road tractors purchased include approximately 101
additions with the remaining units replacing older tractors in the fleet,
including many which were under operating leases in the same periods of 1999.
Rents and purchased transportation expense decreased 1.2% as a percent of
revenue for 2000 compared to 1999, due to the disposal of tractors under
operating leases, as previously mentioned. In addition, total rail costs
decreased as a percent of revenue, as a result of a decline in the utilization
of rail for 2000. Rail utilization was 15.6% of total miles compared to 18.3%
during 1999.
G.I. TRUCKING COMPANY
Effective September 1, 2000 and October 1, 1999, G.I. Trucking implemented a
general rate increase of 5.9% and 5.5%, respectively. G.I. Trucking revenues for
2000 increased 17.8% to $161.9 million from $137.4 million in 1999. The revenue
increase resulted from an increase in G.I. Trucking's tonnage of 13.2% for 2000
from 1999. In addition, revenue per hundredweight increased 4.1% from the same
period in 1999. During the early part of first quarter 2000, G.I. Trucking
expanded its operational capabilities in the states of Texas, New Mexico,
Oklahoma, Kansas and parts of Missouri, in preparation for adding new business
from an existing carrier partner. In addition, G.I. Trucking increased its sales
management and sales staff throughout its system by nearly 50% over 1999 levels.
G.I. Trucking implemented a fuel surcharge during the last week of August 1999,
based upon a West Coast average fuel index. The fuel surcharge in effect during
2000 ranged from 2.6% to 7.3% of revenue, while the fuel surcharge in effect for
the last four months of 1999 ranged from 1.6% to 2.4% of revenue.
G.I. Trucking's operating ratio improved to 97.6% for 2000 from 98.5% in 1999,
as a result of the increases in tonnage and revenue yield improvements
previously described. In addition, the change in the operating ratio results
from changes in certain operating expenses as follows:
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - continued
- --------------------------------------------------------------------------------
Salaries and wages expense increased 0.2% as a percent of revenue during 2000
compared to 1999. This increase is due primarily to increased salaries and
benefits related to the addition of sales staff described above and unfavorable
workers' compensation claims experience, offset in part by lower pension costs.
Supplies and expenses increased 1.4% as a percent of revenue for 2000 compared
to 1999. The increase is due primarily to higher fuel costs, which increased in
total dollars by 73.7% in 2000 compared to 1999 and as a result of more miles
run on company-owned equipment rather than by third party purchased
transportation providers. G.I. Trucking's fuel surcharge on revenue is intended
to offset the fuel cost increase.
Operating taxes and licenses expense decreased 0.3% as a percent of revenue for
2000 compared to 1999, due primarily to the fact that a portion of such costs is
primarily fixed in nature and declines as a percent of revenue with increases in
revenue levels.
Insurance expense decreased 0.2% as a percent of revenue for 2000 compared to
1999. This decrease is due to favorable claims experience for bodily injury and
property damage claims during 2000 as compared to 1999.
Depreciation and amortization increased 0.4% as a percent of revenue for 2000
compared to 1999, due primarily to G.I. Trucking adding 307 trailers and 29
tractors to their fleet during 2000 as a result of revenue growth and an effort
to utilize company-owned equipment rather than purchased transportation for
certain linehaul moves.
Rents and purchased transportation expenses decreased 2.3% as a percent of
revenue for 2000 compared to 1999. G.I. Trucking has decreased its purchased
transportation costs by utilizing company-owned equipment for specific linehaul
moves during 2000 compared to 1999, as previously discussed.
CLIPPER
Clipper implemented a general rate increase of 5.9% for LTL shipments as of
August 1, 2000. Revenues for Clipper increased 16.0% to $130.2 million for 2000
from $112.2 million in 1999. Intermodal revenue per shipment increased 26.7%
during 2000 compared to 1999. However, intermodal shipments declined 5.8% during
2000 compared to 1999. LTL revenue per shipment increased 3.9% during 2000
compared to 1999 while LTL shipments declined 2.1% in 2000 compared to 1999. LTL
and intermodal shipment declines reflect Clipper's movement away from
unprofitable business and lower business levels.
Revenues for Clipper in the fourth quarter 2000 increased only 1.9% on a per day
basis from the same period in 1999. Intermodal revenue per shipment increased
41.5% during the fourth quarter 2000 compared to fourth quarter 1999. However,
intermodal shipments declined 18.9% during the fourth quarter 2000 compared to
fourth quarter 1999. LTL revenue per shipment decreased 3.1% and LTL shipments
declined 16.1% in the fourth quarter 2000 compared to fourth quarter 1999. Both
the intermodal and LTL divisions continued to move away from some unprofitable
business during the fourth quarter of 2000. The intermodal division was able to
add some new business with improved profit margins. The LTL division was not
able to readily replace its lost revenue. In addition, the LTL division suffered
from changes in the shipping pattern of a large customer, which reduced the LTL
shipments handled by Clipper.
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - continued
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Clipper's operating ratio increased slightly to 98.8% for 2000 from 98.7% in
1999, due primarily to an increase in selling, administrative and general costs
of 0.5% as a percent of revenue for the year 2000. Clipper experienced a
higher-than-normal increase in bad debt expense, resulting from bankruptcies
during 2000. Additional costs were also incurred for information technology
improvements and lease termination charges. These increases were offset, in
part, by gross margin improvements on its intermodal and produce shipments.
Clipper's gross margins improved, in part, as a result of a higher level of rail
utilization for the year 2000. Clipper's rail utilization was 63.8% of total
miles for 2000 compared to 59.3% during 1999. For Clipper, rail costs per mile
are less expensive than over-the-road costs per mile.
TREADCO, INC.
On September 13, 2000, Treadco entered into an agreement with The Goodyear Tire
& Rubber Company ("Goodyear") to form a new limited liability company called
Wingfoot Commercial Tire Systems, LLC (see Note R). The transaction closed on
October 31, 2000. For the year ended December 31, 2000, tire operations include
the operations of Treadco for the ten months ended October 31, 2000 only.
INTEREST
Interest expense was $16.7 million for 2000 compared to $18.4 million for 1999.
The decline resulted from lower average debt levels when 2000 is compared to
1999.
INCOME TAXES
The difference between the effective tax rate for the year ended December 31,
2000 and the federal statutory rate resulted from state income taxes,
amortization of nondeductible goodwill and other nondeductible expenses (see
Note F).
At December 31, 2000, the Company had deferred tax assets of $30.8 million, net
of a valuation allowance of $2.2 million, and deferred tax liabilities of $58.8
million. The Company believes that the benefits of the deferred tax assets of
$30.8 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 deferred tax
liabilities of $58.8 million and the presence of significant taxable income in
2000 and 1999. The valuation allowance has been provided for the benefit of net
operating loss carryovers in certain states with relatively short carryover
periods and other limitations and for the excess tax basis in the investment in
Wingfoot.
Management intends to evaluate the realizability of deferred tax assets on a
quarterly basis by assessing the need for any additional valuation allowance.
ACCOUNTS RECEIVABLE, INVENTORIES, MANUFACTURING EQUIPMENT AND ACCOUNTS PAYABLE
Accounts receivable decreased $14.4 million, inventories decreased $30.1
million, manufacturing equipment decreased $15.9 million and accounts payable
decreased $16.6 million from December 31, 1999 to December 31, 2000, due
primarily to the contribution of substantially all of the assets and liabilities
of Treadco to Wingfoot on October 31, 2000 (see Note R).
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - continued
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INVESTMENT IN WINGFOOT
The investment in Wingfoot relates to the contribution of substantially all of
the assets and liabilities of Treadco to Wingfoot on October 31, 2000 (see Note
R).
OTHER ASSETS
Other assets increased $11.6 million from December 31, 1999 to December 31,
2000, due primarily to incentive pay deferrals and matching contributions made
to the Company's Voluntary Savings Plan assets, which are held in a trust
account.
GOODWILL
The Company's assets include goodwill, net of amortization, of $105.4 million,
representing 13.2% of total assets and 36.1% of total stockholder's equity.
Goodwill includes $66.3 million (with a remaining life of 28 years), resulting
from a 1988 leveraged buyout transaction and $39.1 million (with a remaining
life of 24 years), resulting from the 1994 acquisition of Clipper. The Company's
accounting policy for reviewing the carrying amount of its goodwill for
impairment is reflected in Note B to the Consolidated Financial Statements. No
indications of impairment existed at December 31, 2000.
ACCRUED EXPENSES
Accrued expenses increased $8.2 million from December 31, 1999 to December 31,
2000, due primarily to the reclassification of $10.0 million in income
tax-related accrued interest from other long-term liabilities to current
liabilities during 2000 (see Note F) and increases in incentive pay amounts.
These increases were offset, in part, by a decrease in loss, injury, damage and
workers' compensation reserves as a result of the contribution of substantially
all of the assets and liabilities of Treadco to Wingfoot on October 31, 2000
(see Note R).
1999 COMPARED TO 1998
Consolidated revenues from continuing operations of the Company for 1999 were
$1,721.6 million compared to $1,607.4 million for 1998, representing an increase
of 7.1%, primarily due to increases in revenues for ABF, G.I. Trucking and
Treadco, offset in part by declines in Clipper revenues. The Company's operating
income from continuing operations increased 56.8% to $109.7 million for 1999
from $70.0 million for 1998. Increases in operating income from continuing
operations are attributable to improved operations at ABF, G.I. Trucking,
Clipper and Treadco, offset in part by increases in corporate incentive pay
accruals reflected in the Company's "other" segment. Income from continuing
operations for 1999 was $51.2 million, or $2.14 per common share (diluted),
compared to $31.3 million, or $1.32 per common share (diluted), for 1998.
The improvement in income from continuing operations for 1999, as compared to
1998, reflects primarily the improvements in operating income.
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - continued
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ABF FREIGHT SYSTEM, INC.
Effective January 1, 1999 and September 13, 1999, ABF implemented overall rate
increases of 5.5% and 5.1%, respectively. ABF had a previous overall rate
increase effective January 1, 1998 of 5.3%. Revenues for 1999 increased 8.7% to
$1,277.1 million from $1,175.2 million in 1998. ABF generated operating income
for 1999 of $107.0 million compared to $67.6 million in 1998.
ABF's increase in revenue is due primarily to an increase in LTL revenue per
hundredweight of 7.0% to $19.57 for 1999 compared to $18.29 in 1998, reflecting
a continuing favorable pricing environment. ABF's revenue increase also results
from an increase in LTL tonnage of 1.8% for 1999 compared to 1998. ABF
implemented a fuel surcharge on July 7, 1999, based on the increase in diesel
fuel prices compared to an index price. The fuel surcharge represented 0.5% of
revenue for 1999. There was no fuel surcharge in effect during 1998.
ABF's operating ratio improved to 91.6% for 1999 from 94.2% in 1998, as a result
of the revenue yield improvements and increases in tonnage previously described
and as a result of improvements in certain operating expense categories as
follows:
Salaries and wages expense decreased as a percent of revenue by 2.4% for 1999
compared to 1998. The decrease is due in part to lower linehaul and dock labor
costs due to retirements and a lower effective wage rate associated with more
new hires, offset in part by an increase in incentive pay amounts. Wage rates
for new hires increase to full-scale levels over a two-year period. In addition,
the decrease in linehaul wages for 1999 is due in part to an increase in rail
utilization for freight transportation. Rail usage increased to 18.3% of total
miles for 1999 compared to 17.3% for 1998.
Supplies and expenses increased 0.2% as a percent of revenue for 1999 compared
to 1998. This change is due primarily to higher diesel fuel prices, as described
previously, which increased 14.0% on an average price-per-gallon basis when 1999
is compared to 1998. The previously mentioned fuel surcharge on revenue is
intended to offset the fuel cost increase. In addition, trailer repair costs
were higher due to ongoing trailer refurbishing and the installation of
conspicuity tape to road and city trailers, in accordance with federal
regulations. Such regulations require that the installation process be complete
by June 1, 2001. As of December 31, 1999, the Company had completed the
installation on approximately 90% of all road trailers and city trailers.
Depreciation and amortization increased 0.2% as a percent of revenue for 1999
compared to 1998. Increases in depreciation resulted from an increase in the
number of road tractors under capital leases. A larger portion of ABF's road
tractor fleet was under operating leases in 1998.
Rents and purchased transportation expense decreased 0.4% as a percent of
revenue for 1999 compared to 1998, due primarily to declines in operating lease
expense, reflecting ABF's replacement of road tractors under operating leases
with road tractors under capital leases. This decrease was offset, in part, by
the increase in rail utilization for 1999. As described above, ABF's rail usage
increased during this period when compared to the same period in 1998.
<PAGE> 12
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OPERATIONS - continued
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G.I. TRUCKING COMPANY
G.I. Trucking revenues increased 10.3% to $137.4 million for 1999 from $124.5
million during 1998. The revenue increase resulted from an increase in G.I.
Trucking's tonnage of 8.6% in 1999 when compared to 1998 and an increase in
revenue per hundredweight of 1.6%. G.I. Trucking implemented a fuel surcharge
during the last week of August 1999, based upon a West Coast average fuel index.
The fuel surcharge in effect for the last four months of 1999 ranged from 1.6%
to 2.4% of revenue. There was no fuel surcharge in effect during 1998. G.I.
Trucking implemented a general rate increase of 5.5% effective October 1, 1999.
G.I. Trucking's previous general rate increase was effective on November 1, 1998
and amounted to 5.5%.
G.I. Trucking's operating ratio improved to 98.5% for 1999 from 98.7% in 1998.
The improvement results from yield improvements and changes in certain operating
expenses as follows:
Salaries and wages expense declined 0.4% as a percent of revenue during 1999 as
compared to 1998. The decrease is due to the improved productivity of the labor
force and lower pension costs. In addition, a portion of salaries and wages
expense is generally fixed in nature and declines as a percent of revenue with
increases in revenue levels.
Supplies and expenses decreased 0.5% as a percent of revenue for 1999 compared
to 1998. This decrease is due primarily to lower repair and maintenance costs on
revenue equipment during 1999 compared to 1998, reflecting new equipment
purchased during 1999 and 1998 to replace older equipment which required more
maintenance. Improvements in these areas were offset in part by higher fuel
costs, which increased in total dollars by 12.1% when 1999 is compared to 1998.
Operating taxes and licenses increased 0.3% as a percent of revenue for 1999
compared to 1998. This increase is due primarily to real estate taxes associated
with the six new terminals opened during 1998. In addition, vehicle licenses and
registration fees increased for 1999 as compared to 1998, due to G.I. Trucking's
increase in fleet size of 75 tractors and 16 trailers during 1999.
Insurance expense decreased 0.5% as a percent of revenue for 1999 compared to
1998. This decrease is due primarily to favorable claims experience for bodily
injury and property damage during 1999 as compared to 1998.
Rents and purchased transportation expenses increased 0.9% as a percent of
revenue for 1999 as compared to 1998. This increase is due primarily to an
increase in purchased transportation costs resulting from additional linehaul
miles run in order to meet customer service needs. This increase is offset in
part by a decline in terminal rent costs as a percent of revenue. This decline
resulted from higher revenue levels and the fact that terminal rents are fixed
in nature.
CLIPPER
Revenues for Clipper were $112.2 million for 1999, representing a decrease of
8.4% from 1998 revenues of $122.5 million. Beginning in the fourth quarter of
1997, Clipper was adversely affected by the service problems with the U.S. rail
system. During the fourth quarter of 1998, Clipper experienced some improvements
in the on-time service levels of its rail suppliers. In 1999, rail service
continued to improve; however, in certain lanes, rail service was inconsistent.
In addition, late in the third quarter of 1999, heavy rains and flooding from
Hurricane Floyd added to the rail delays and equipment shortages on the East
Coast. Revenue from intermodal shipments decreased 0.6% for 1999 compared to
1998. This decline resulted primarily from business lost as a result of
inconsistent rail service in 1998. Clipper is aggressively trying to
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - continued
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regain this business but is faced with competition from truckload carriers and
other rail service providers. Clipper experienced a decline of 5.7% in the
number of LTL shipments from 1998 to 1999. The declines in LTL shipments
resulted from management's decision to concentrate on metro-to-metro, long-haul
lanes, resulting in the elimination of certain unprofitable lanes and from an
emphasis on improving Clipper's account profile. In addition, LTL business
levels were negatively impacted by heavy snowfall in the Chicago, Illinois area
in January 1999.
Although Clipper's revenues declined for the 1999 year from 1998, for the fourth
quarter 1999, Clipper's revenues increased 8.8% from fourth quarter 1998.
Clipper experienced some success in regaining intermodal customers lost, with
intermodal revenues increasing 31.1% for the fourth quarter of 1999 compared to
the fourth quarter of 1998. LTL revenues were down only slightly, 0.8%, for
fourth quarter 1999 from the same period in 1998, which is an improvement over
the LTL revenue declines experienced in previous 1999 quarters.
Clipper's operating ratio improved to 98.7% for 1999 from 100.9% in 1998.
Clipper's operating ratio improvements result from the elimination of certain
unprofitable lanes, higher percentages of rail utilization of 59.3% for 1999
compared to 50.9% for 1998 and cost reductions implemented because of lower
revenue levels.
TREADCO, INC.
Revenues for Treadco increased 2.9% to $186.6 million for 1999, compared to
$181.3 million for 1998. For 1999, "same store" sales increased 2.7% compared to
1998. "New store" sales accounted for 0.2% of the increase from 1998. "Same
store" sales include locations that have been in existence for the entire
periods presented. "New store" sales resulted from the addition of two new
sales-only locations. Revenues from retreading for 1999 were $70.7 million,
representing a decrease of 0.2% from $70.8 million in 1998. Retread revenues for
1999 were lower due to a decrease in units sold of approximately 3.0% from the
same period in 1998. This decrease was offset by an increase in the average
sales price per unit of approximately 3.0% from the same period in 1998.
Declines in retread units sold result from less customer demand and a more
competitive marketplace. Revenues from new tires increased 2.9% to $94.2 million
in 1999 from $91.6 million during 1998, due to a 4.0% increase in unit sales
from 1998, offset, in part, by a 1.0% decrease in the sales price per unit. The
decrease in the sales price per unit primarily is a result of lower commissions
received from new tire manufacturers for new tires sold on national accounts.
Service revenues for 1999 increased 14.5% to $21.6 million from $18.9 million in
1998.
Treadco's operating ratio improved to 98.1% in 1999, from 98.6% during 1998.
Improvements in Treadco's operating ratio result from improvements in retread
and new tire margins which are reflected in cost of sales as a 1.8% of revenue
improvement, offset by an increase in selling, administrative and general
expenses of 1.3% of revenue. New tire margins improved approximately 0.6%,
primarily as a result of a one-time volume discount from a new tire supplier for
August and September purchases. Retread margins improved as a result of an
increase in the average sales price per unit. Selling, administrative and
general expenses increased primarily as a result of higher salaries and wages
due to increased salesmen's commissions and increased service and inventory
control personnel.
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - continued
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OTHER OPERATING LOSS
The operating loss for the "other" category increased $3.7 million for 1999
compared to 1998, due primarily to increases in corporate incentive pay
accruals.
INTEREST
Interest expense was $18.4 million for 1999 compared to $18.1 million for 1998,
due primarily to an increase in interest expense accruals related to pending
Internal Revenue Service ("IRS") examinations (see Note F) offset by reductions
in interest expense associated with lower debt levels.
INCOME TAXES
The difference between the effective tax rate for 1999 and the federal statutory
rate resulted from state income taxes, amortization of nondeductible goodwill,
minority interest, nondeductible tender offer response costs incurred by Treadco
(see Note Q) and other nondeductible expenses (see Note F).
LIQUIDITY AND CAPITAL RESOURCES
Net income plus depreciation and amortization was $132.6 million for the year
ended December 31, 2000 compared to $100.2 million for 1999. Cash provided from
operations and proceeds from assets sales of $9.8 million were used primarily to
purchase revenue equipment and other property and equipment totaling $93.6
million, reduce outstanding debt and purchase preferred stock of $3.9 million
during 2000. Cash provided by operations and proceeds from assets sales of $15.0
million were used to purchase revenue equipment and other property and equipment
in the amount of $50.1 million, purchase the non-ABC-owned shares of Treadco for
$23.7 million and pay down outstanding debt during 1999.
The Company is party to a $250 million credit agreement (the "Credit Agreement")
with Wells Fargo Bank (Texas), N.A., as Administrative Agent and with Bank of
America National Trust and Savings Association and Wells Fargo Bank (Texas),
N.A. as Co-Documentation Agents. The Credit Agreement provides for up to $250
million of revolving credit loans (including letters of credit) and extends into
2003.
At December 31, 2000, there were $110.0 million of Revolver Advances and
approximately $22.8 million of letters of credit outstanding. At December 31,
2000, the Company had approximately $117.2 million of borrowing availability
under the Credit Agreement. The Credit Agreement contains various covenants,
which limit, among other things, indebtedness, distributions and dispositions of
assets and require the Company to meet certain quarterly financial ratio tests.
As of December 31, 2000, the Company was in compliance with the covenants.
The Company is party to an interest rate swap on a notional amount of $110.0
million. The purpose of the swap is to limit the Company's exposure to increases
in interest rates on $110.0 million of bank borrowings over the seven-year term
of the swap. The interest rate under the swap is fixed at 5.845% plus the Credit
Agreement margin, which is currently 0.55% (see Notes G and N).
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - continued
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The following table sets forth the Company's historical capital expenditures
(net of gains on equipment trade-ins) for the periods indicated below. Proceeds
from the sale of property and equipment have not been netted against the capital
expenditures:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
2000 1999 1998
------- ------- -------
($ thousands)
<S> <C> <C> <C>
CAPITAL EXPENDITURES (GROSS)
ABF Freight System, Inc. ............................. $71,337 $49,342 $58,364
G.I. Trucking Company ................................ 11,693 7,946 11,730
Clipper .............................................. 4,346 5,309 2,805
Treadco, Inc. ........................................ 3,916 9,801 11,205
Other ................................................ 2,293 3,811 2,342
------- ------- -------
Total consolidated capital expenditures (gross) ... $93,585 $76,209 $86,446
======= ======= =======
</TABLE>
The amounts presented in the table include equipment purchases financed with
capital leases of $26.1 million and $25.6 million in 1999 and 1998,
respectively. No capital lease obligations were incurred in the year ended
December 31, 2000.
In 2001, the Company forecasts total spending of $90.0 to $100.0 million for
capital expenditures net of proceeds from equipment and real estate sales. Of
the $90.0 to $100.0 million, ABF is budgeted for $65.0 to $75.0 million to be
used primarily for revenue equipment and facilities. G.I. Trucking is budgeted
for approximately $10.0 million of expenditures to be used primarily for revenue
equipment. Clipper is budgeted for approximately $4.0 million of expenditures to
be used primarily for revenue equipment. In addition, the Company plans an
addition to its corporate headquarters building in Fort Smith, Arkansas.
Management believes, based upon the Company's current levels of operations, the
Company's cash, capital resources, borrowings available under the Credit
Agreement and cash flow from operations will be sufficient to finance current
and future operations and meet all present and future debt service requirements,
as well as fund its commitment to purchase $26.0 million in revenue equipment
(see Note J) and to fund the payment of potential tax and interest liabilities
(see Note F).
SEASONALITY
ABF and G.I. Trucking are affected by seasonal fluctuations, which affect
tonnage to be transported. Freight shipments, operating costs and earnings are
also affected adversely by inclement weather conditions. The third calendar
quarter of each year usually has the highest tonnage levels while the first
quarter has the lowest. Clipper's operations are similar to operations at ABF
and G.I. Trucking with revenues being weaker in the first quarter and stronger
during the months of September and October.
ENVIRONMENTAL MATTERS
The Company's subsidiaries store some fuel for their tractors and trucks in
approximately 82 underground tanks located in 26 states. Maintenance of such
tanks is regulated at the federal and, in some cases, state levels. The Company
believes that it is in substantial compliance with all such regulations. The
Company is not aware of any leaks from such tanks that could reasonably be
expected to have a material adverse effect on the Company.
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - continued
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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 $340,000 over the last 12 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, 2000, the Company has accrued approximately $2.7 million to
provide for environmental-related liabilities. The Company's environmental
accrual is based on management's best estimate of the actual liability. The
Company's estimate is founded on management's experience in dealing with similar
environmental matters and on actual testing performed at some sites. Management
believes that the accrual is adequate to cover environmental liabilities based
on the present environmental regulations. Accruals for environmental liability
are included in the balance sheet as accrued expenses.
FORWARD-LOOKING STATEMENTS
Statements contained in the Management's Discussion and Analysis section of this
report that are not based on historical facts are "forward-looking statements."
Terms such as "estimate," "forecast," "expect," "predict," "plan," "anticipate,"
"believe," "intend," "should," "would," "scheduled," and similar expressions and
the negatives of such terms are intended to identify forward-looking statements.
Such statements are by their nature subject to uncertainties and risks,
including but not limited to union relations; availability and cost of capital;
shifts in market demand; weather conditions; the performance and needs of
industries served by Arkansas Best's subsidiaries; actual future costs of
operating expenses such as fuel and related taxes; self-insurance claims and
employee wages and benefits; actual costs of continuing investments in
technology; the timing and amount of capital expenditures; competitive
initiatives and pricing pressures; general economic conditions; and other
financial, operational and legal risks and uncertainties detailed from time to
time in the Company's Securities and Exchange Commission ("SEC") public filings.
<PAGE> 17
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------------
INTEREST RATE INSTRUMENTS
The Company has historically been subject to market risk on all or a part of its
borrowings under bank credit lines, which have variable interest rates.
In February 1998, the Company entered into an interest rate swap effective April
1, 1998. The swap agreement is a contract to exchange variable interest rate
payments for fixed rate payments over the life of the instrument. The notional
amount is used to measure interest to be paid or received and does not represent
the exposure to credit loss. The purpose of the swap is to limit the Company's
exposure to increases in interest rates on the notional amount of bank
borrowings over the term of the swap. The fixed interest rate under the swap is
5.845% plus the Credit Agreement margin (currently 0.55%). This instrument is
not recorded on the balance sheet of the Company. Details regarding the swap, as
of December 31, 2000, are as follows:
<TABLE>
<CAPTION>
NOTIONAL RATE RATE FAIR
AMOUNT MATURITY PAID RECEIVED VALUE(2)
------- -------- ---- -------- --------
<S> <C> <C> <C> <C>
$110.0 million April 1, 2005 5.845% Plus Credit Agreement LIBOR rate(1) ($0.1) million
Margin (currently 0.55%) Plus Credit Agreement
Margin (currently 0.55%)
</TABLE>
(1) LIBOR rate is determined two London Banking Days prior to the first day of
every month and continues up to and including the maturity date.
(2) The fair value is an amount estimated by Societe Generale ("process agent")
that the Company would have paid at December 31, 2000 to terminate the
agreement.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for all financial instruments, except for the interest
rate swap agreement disclosed above.
CASH AND CASH EQUIVALENTS. The carrying amount reported in the balance sheets
for cash and cash equivalents approximates its fair value.
LONG-AND SHORT-TERM DEBT. The carrying amounts of the Company's borrowings
under its Revolving Credit Agreements approximate their fair values, since the
interest rate under these agreements is variable. Also, the carrying amount of
long-term debt was estimated to approximate their fair values, with the
exception of the Subordinated Debentures and Treadco equipment debt, which are
estimated using current market rates. Treadco equipment debt is not included as
of December 31, 2000 because of the contribution of substantially all of
Treadco's assets and liabilities to Wingfoot on October 31, 2000 (see Note R).
The carrying amounts and fair value of the Company's financial instruments at
December 31 are as follows:
<TABLE>
<CAPTION>
2000 1999
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------ ------------- ------------
($ thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents....................... $ 36,742 $ 36,742 $ 4,319 $ 4,319
Short-term debt................................. $ 21 $ 21 $ 1,166 $ 1,080
Long-term debt.................................. $ 138,814 $ 141,451 $ 135,780 $ 132,648
</TABLE>
<PAGE> 18
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - continued
- --------------------------------------------------------------------------------
Borrowings under the Company's Credit Agreement in excess of $110.0 million are
subject to market risk. During 2000, outstanding debt obligations under the
Credit Agreement periodically exceeded $110.0 million. The Company's highest
borrowings during 2000 reached $120.0 million, and the average borrowings during
the year were $110.0 million. A 100-basis-point change in interest rates on
Credit Agreement borrowings above $110.0 million would change annual interest
cost by $100,000 per $10.0 million of borrowings.
The Company is subject to market risk for increases in diesel fuel prices;
however, this risk is mitigated by fuel surcharges which are included in the
revenues of ABF, G.I. Trucking and Clipper based on increases in diesel fuel
prices compared to relevant indexes.
The Company does not have a formal foreign currency risk management policy. The
Company's foreign operations are not significant to the Company's total revenues
or assets. Revenue from non-U.S. operations amounted to less than 1.0% of total
revenues for 2000. Accordingly, foreign currency exchange rate fluctuations have
never had a significant impact on the Company, and they are not expected to in
the foreseeable future.
The Company has not historically entered into financial instruments for trading
purposes, nor has the Company historically engaged in hedging fuel prices. No
such instruments were outstanding during 2000 or 1999.
<PAGE> 19
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholders 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, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 2000 and 1999, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States.
Ernst & Young LLP
Little Rock, Arkansas
January 17, 2001
<PAGE> 20
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31
2000 1999
---------- ----------
($ thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ..................................... $ 36,742 $ 4,319
Accounts receivables less allowances
(2000 -- $4,595; 1999 -- $5,775) ............................ 173,485 187,837
Inventories ................................................... 2,928 33,050
Prepaid expenses .............................................. 8,325 7,428
Deferred income taxes ......................................... 11,442 7,231
Other ......................................................... 1,531 3,234
---------- ----------
TOTAL CURRENT ASSETS ....................................... 234,453 243,099
PROPERTY, PLANT AND EQUIPMENT
Land and structures ........................................... 208,220 222,421
Revenue equipment ............................................. 347,388 292,493
Manufacturing equipment ....................................... -- 15,851
Service, office and other equipment ........................... 74,397 82,508
Leasehold improvements ........................................ 12,693 10,520
---------- ----------
642,698 623,793
Less allowances for depreciation and amortization ............. 296,679 286,699
---------- ----------
346,019 337,094
INVESTMENT IN WINGFOOT ........................................... 59,341 --
OTHER ASSETS ..................................................... 50,792 39,154
ASSETS HELD FOR SALE ............................................. 1,101 3,197
GOODWILL, less amortization (2000 -- $40,416; 1999 -- $36,365) ... 105,418 109,385
---------- ----------
$ 797,124 $ 731,929
========== ==========
</TABLE>
<PAGE> 21
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31
2000 1999
--------- ---------
($ thousands)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft and drafts payable ...................................... $ 24,667 $ 16,187
Accounts payable ....................................................... 59,999 76,597
Accrued expenses ....................................................... 168,625 160,469
Federal and state income taxes ......................................... 4,127 8,434
Current portion of long-term debt ...................................... 23,948 20,452
--------- ---------
TOTAL CURRENT LIABILITIES ........................................... 281,366 282,139
LONG-TERM DEBT, less current portion ...................................... 152,997 173,702
OTHER LIABILITIES ......................................................... 31,052 29,845
DEFERRED INCOME TAXES ..................................................... 39,519 25,191
COMMITMENTS AND CONTINGENCIES ............................................. -- --
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, authorized 10,000,000 shares;
issued and outstanding 2000: 1,390,000 shares;
1999: 1,495,000 shares .............................................. 14 15
Common stock, $.01 par value, authorized 70,000,000 shares;
issued 2000: 20,219,137 shares; 1999: 19,752,333 shares ............. 202 197
Additional paid-in capital ............................................. 194,211 194,155
Retained earnings ...................................................... 98,718 26,685
Treasury stock, at cost, 2000: 59,782 shares ........................... (955) --
Accumulated other comprehensive income ................................. -- --
--------- ---------
TOTAL STOCKHOLDERS' EQUITY .......................................... 292,190 221,052
--------- ---------
$ 797,124 $ 731,929
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 22
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
2000 1999 1998
----------- ----------- -----------
($ thousands, except per share data)
<S> <C> <C> <C>
OPERATING REVENUES
Transportation operations ................................................... $ 1,683,212 $ 1,537,271 $ 1,428,421
Tire operations ............................................................. 156,355 184,315 178,982
----------- ----------- -----------
1,839,567 1,721,586 1,607,403
----------- ----------- -----------
OPERATING EXPENSES AND COSTS
Transportation operations ................................................... 1,546,847 1,430,294 1,360,261
Tire operations ............................................................. 152,568 181,585 177,165
----------- ----------- -----------
1,699,415 1,611,879 1,537,426
----------- ----------- -----------
OPERATING INCOME ............................................................... 140,152 109,707 69,977
OTHER INCOME (EXPENSE)
Net gains on sal