-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
DH8YL17W6pkODfoLtYLvncOCFm/ikn+W1HXEyfOI/6lz/IeHtVetFaBoNmt3ZDgU
QFgBVYIhddpkGb0xCmqD+A==
<SEC-DOCUMENT>0000950134-02-001934.txt : 20020415
<SEC-HEADER>0000950134-02-001934.hdr.sgml : 20020415
ACCESSION NUMBER: 0000950134-02-001934
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 5
CONFORMED PERIOD OF REPORT: 20011231
FILED AS OF DATE: 20020308
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ARKANSAS BEST CORP /DE/
CENTRAL INDEX KEY: 0000894405
STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213]
IRS NUMBER: 710673405
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-19969
FILM NUMBER: 02570692
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>d94808e10-k405.txt
<DESCRIPTION>FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 2001
<TEXT>
<PAGE>
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, 2001.
[ ] 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 479-785-6000
Securities registered pursuant to Section 12(b) of the Act:
None
----------------------------
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
<Table>
<Caption>
Name of each exchange
Title of each class on which registered
------------------- ----------------------
<S> <C>
Common Stock, $.01 Par Value ..................................... Nasdaq Stock Market/NMS
</Table>
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 25, 2002, was $579,133,549.
The number of shares of Common Stock, $.01 par value, outstanding as of February
25, 2002, was 24,594,115.
Documents incorporated by reference into the Form 10-K:
1) The following sections of the 2001 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
- Financial Statements and Supplementary Data
2) Proxy Statement for the Annual Stockholders' meeting to be held April 24,
2002.
INTERNET: www.arkbest.com
1
<PAGE>
ARKANSAS BEST CORPORATION
FORM 10-K
TABLE OF CONTENTS
<Table>
<Caption>
ITEM PAGE
NUMBER NUMBER
<S> <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>
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 and intermodal transportation operations. Principal subsidiaries are
ABF Freight System, Inc. ("ABF"); Clipper Exxpress Company and related companies
("Clipper"); FleetNet America, LLC; and until August 1, 2001, G.I. Trucking
Company ("G.I. Trucking") (see Note S appearing on page 49 of the registrant's
Annual Report). The Company's operations included the truck tire retreading and
new tire sales operations of Treadco, Inc. ("Treadco") until October 31, 2000
(see Note R appearing on page 48 of the registrant's Annual Report).
HISTORICAL BACKGROUND
The Company was publicly owned from 1966 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 $2.875
Series A Cumulative Convertible Exchangeable Preferred Stock ("Preferred
Stock"). The Company's Preferred Stock traded on The Nasdaq National Market
("Nasdaq") under the symbol "ABFSP".
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.
On August 13, 2001, the Company announced the call for redemption of its
Preferred Stock. As of August 10, 2001, 1,390,000 shares of Preferred Stock were
outstanding. At the end of the extended redemption period on September 14, 2001,
1,382,650 shares of the Preferred Stock were converted to 3,511,439 shares of
Common Stock. A total of 7,350 shares of Preferred Stock were redeemed at the
redemption price of $50.58 per share. The Company paid $0.4 million to the
holders of these shares in redemption of their Preferred Stock. The Company
delisted its preferred stock trading on Nasdaq under the symbol "ABFSP" on
September 12, 2001, eliminating the Company's annual dividend requirement.
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 $76.0
million.
3
<PAGE>
ITEM 1. BUSINESS - continued
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 48 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 48 of the registrant's Annual
Report). The transaction closed on October 31, 2000.
On August 1, 2001, the Company sold the stock of G.I. Trucking for $40.5 million
in cash to a company formed by the senior executives of G.I. Trucking and Estes
Express Lines ("Estes") (see Note S appearing on page 49 of the registrant's
Annual Report).
(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 42 through 44 of the registrant's Annual Report
to Stockholders for the year ended December 31, 2001, 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 (which was sold on
August 1, 2001) (see Note S appearing on page 49 of the registrant's Annual
Report); (3) Clipper; and (4) Treadco (which was contributed to Wingfoot on
October 31, 2000) (see Note R appearing on page 48 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 42
through 44 of the registrant's Annual Report to Stockholders for the year ended
December 31, 2001, 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." All of the assets have been liquidated by the Company.
EMPLOYEES
At December 31, 2001, the Company and its subsidiaries had a total of 11,865
employees of which approximately 73% are members of a labor union.
4
<PAGE>
ITEM 1. BUSINESS - continued
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 until August 1, 2001, G.I.
Trucking Company (see Note S appearing on page 49 of the registrant's Annual
Report).
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.
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, $1,000,000 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. However, the Company has experienced situations where excess
insurance carriers have become insolvent (see Note T appearing on page 49 of the
registrant's Annual Report). The Company pays premiums to state guaranty funds,
in states where it has workers' compensation self-insurance authority. In some
of these self-insured states, depending on each states rules, the guaranty funds
will pay excess claims if the insurer can't, due to insolvency. However, there
can be no certainty of the solvency of individual state guaranty funds. The
Company has been able to obtain adequate coverage for 2002 and is not aware of
problems in the foreseeable future which would significantly impair its ability
to obtain adequate coverage at market rates for its motor carrier operations.
5
<PAGE>
ITEM 1. BUSINESS - continued
ABF FREIGHT SYSTEM, INC.
Headquartered in Fort Smith, Arkansas, ABF is the largest subsidiary of the
Company. ABF accounted for more than 84.0% of the Company's consolidated
revenues for 2001. ABF is one of North America's largest national LTL motor
carriers based on revenues for 2001 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 309
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, 2001, no single customer accounted for more than 3.0% of ABF's
revenues, and the ten largest customers accounted for less than 9.0% of ABF's
revenues.
EMPLOYEES
At December 31, 2001, ABF employed 11,267 persons. Employee compensation and
related costs are the largest components of ABF's operating expenses. In 2001,
such costs amounted to 65.6% of ABF's revenues. Approximately 77% 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.
6
<PAGE>
ITEM 1. BUSINESS - continued
G.I. TRUCKING COMPANY
On August 1, 2001, the Company sold the stock of G.I. Trucking for $40.5 million
in cash to a company formed by the senior executives of G.I. Trucking and Estes
(see Note S appearing on page 49 of the registrant's Annual Report).
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 the state of the overall economy and 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 8.0% of consolidated revenues for
2001. During the year ended December 31, 2001, Clipper's largest customer
accounted for approximately 10.0% of Clipper's revenues.
CFM
CFM provides services through Clipper Express Company and Agricultural Express
of America, Inc. (d/b/a/ Clipper Controlled Logistics). CFM accounted for
approximately 71.0% of Clipper's revenues during 2001.
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, 2001, Clipper
Controlled Logistics owns or leases 594 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.
7
<PAGE>
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 29.0% of Clipper's 2001 revenues.
Clipper LTL's collection and distribution network consists of 21 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
42.0% 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 independent
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, INC.
On September 13, 2000, Treadco entered into an agreement with Goodyear to form a
new limited liability company called Wingfoot Commercial Tire Systems, LLC (see
Note R appearing on page 48 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, or lessees, store fuel for use in tractors and
trucks in approximately 76 underground tanks located in 25 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, 2001, the Company has accrued approximately $2.4 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.
8
<PAGE>
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 309 terminal facilities of which it owns 81,
leases 48 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 330 259,765
Ellenwood, Georgia 227 153,209
South Chicago, Illinois 274 149,610
Carlisle, Pennsylvania (East) 260 156,468
Dallas, Texas 106 95,110
Leased from affiliate, Transport Realty:
North Little Rock, Arkansas 196 148,712
Albuquerque, New Mexico 85 70,980
Carlisle, Pennsylvania (West) 140 66,484
Pico Rivera, California 99 57,460
Leased from non-affiliate:
Winston-Salem, North Carolina 150 160,700
Salt Lake City, Utah 91 42,310
</Table>
(1) Includes shop and driver room square footage.
CLIPPER
Clipper operates from 21 service centers, geographically dispersed throughout
the United States. Nine of the service centers are facilities leased by Clipper
and 12 of the service centers are agent locations.
9
<PAGE>
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 are expected to have a
material adverse effect on the Company's financial condition, cash flows or
results of operations. The Company maintains insurance against certain risks
arising out of the normal course of its business, subject to certain
self-insured retention limits.
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, 2001.
10
<PAGE>
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, 2001, 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, 2001, 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 19 of the registrant's Annual Report
to Stockholders for the year ended December 31, 2001, 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
20 of the registrant's Annual Report to Stockholders for the year ended December
31, 2001, 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 21 through 51 of the registrant's
Annual Report to Stockholders for the year ended December 31, 2001, are
incorporated by reference under Item 14 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
11
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The sections entitled "Election of Directors," "Directors of the Company,"
"Board of Directors and Committees," "Executive Officers of the Company" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be 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 Plans,"
"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>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) FINANCIAL STATEMENTS
The following information appearing in the 2001 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 - 19
Quantitative and Qualitative Disclosures About Market Risk 20
Report of Independent Auditors 21
Consolidated Financial Statements 22 - 49
Quarterly Results of Operations 47
</Table>
With the exception of the aforementioned information, the 2001 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 2001 Annual
Report to Stockholders.
(a)(2) FINANCIAL STATEMENT SCHEDULES
<Table>
<S> <C>
For the years ended December 31, 2001, 2000, and 1999.
Schedule II - Valuation and Qualifying Accounts and Reserves Page 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
The Company filed Form 8-K dated September 24, 2001, for Item No. 5 -
Other Events. The filing announced the results of its call for
redemption of all outstanding shares of its $2.875 Series A Cumulative
Convertible Exchangeable Preferred Stock.
The Company filed Form 8-K dated August 20, 2001, for Item No. 5 -
Other Events. The filing announced of its call for redemption of all
outstanding shares of its $2.875 Series A Cumulative Convertible
Exchangeable Preferred Stock.
(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>
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 8, 2002
- ------------------------------------- ---------------------------
William A. Marquard
/s/ Robert A. Young, III Director, Chief Executive Officer March 8, 2002
- ------------------------------------- and President (Principal ---------------------------
Robert A. Young, III Executive Officer)
/s/ David E. Loeffler Vice President - Chief Financial Officer March 8, 2002
- ------------------------------------- and Treasurer ---------------------------
David E. Loeffler
/s/ Frank Edelstein Director March 8, 2002
- ------------------------------------- ---------------------------
Frank Edelstein
/s/ Arthur J. Fritz Director March 8, 2002
- ------------------------------------- ---------------------------
Arthur J. Fritz
/s/ John H. Morris Director March 8, 2002
- ------------------------------------- ---------------------------
John H. Morris
/s/ Alan. J. Zakon Director March 8, 2002
- ------------------------------------- ---------------------------
Alan J. Zakon
</Table>
14
<PAGE>
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, 2001:
Deducted from asset accounts:
Allowance for doubtful $ 274(D)
accounts receivable............ $ 4,595 $ 2,966 $ 1,104(A) 4,908(B) $ 3,483
============ ============ =========== ========== ===========
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
============ ============ =========== ========== ===========
</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 48 of the
registrant's Annual Report).
Note D - The allowance for doubtful accounts for G.I. Trucking., as of the date
of the sale (see Note S appearing on page 49 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>
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.
<Table>
<Caption>
EXHIBIT
NO.
<S> <C>
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).
</Table>
16
<PAGE>
FORM 10-K -- ITEM 14(c)
EXHIBIT INDEX
ARKANSAS BEST CORPORATION
(CONTINUED)
<Table>
<Caption>
EXHIBIT
NO.
<S> <C>
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.
</Table>
17
<PAGE>
FORM 10-K -- ITEM 14(c)
EXHIBIT INDEX
ARKANSAS BEST CORPORATION
(CONTINUED)
<Table>
<Caption>
EXHIBIT
NO.
<S> <C>
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.
10.15* Stock Purchase Agreement by and between Arkansas Best Corporation
and Estes Express Lines dated as of August 1, 2001.
10.16# Letter re: Proposal to adopt the Company's 2002 Stock Option Plan
13 2001 Annual Report to Stockholders
21 List of Subsidiary Corporations
23 Consent of Ernst & Young LLP, Independent Auditors
</Table>
* 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-10.16
<SEQUENCE>3
<FILENAME>d94808ex10-16.txt
<DESCRIPTION>LETTER RE: PROPOSAL OF 2002 STOCK OPTION PLAN
<TEXT>
<PAGE>
EXHIBIT 10.16
March 4, 2002
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, DC 20549
Re: Arkansas Best Corporation/Definitive Proxy Materials
Ladies and Gentlemen:
On behalf of Arkansas Best Corporation (the "Company"), pursuant to Rule
14a-6(b) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), enclosed for filing by EDGAR is a copy of the Company's definitive proxy
statement and form of proxy (the "Proxy Materials").
Among the items slated for approval at the Annual Meeting is a proposal to adopt
the Company's 2002 Stock Option Plan. In accordance with Instruction 3 to Item
10 of Schedule 14A, a copy of the plan as proposed to be adopted is included
with this letter via EDGAR as an appendix to the Proxy Statement. Pursuant to
Instruction 5 to the same item, the Company advises the Commission that the
Company intends to register the shares to be issued under the Stock Option Plan
on a registration statement on Form S-8 prior to the exercise of any options to
be granted under the plan.
Copies of the definitive Proxy Materials will be mailed by the Company on or
about March 15, 2002, to its stockholders of record on February 25, 2002.
Please call me at (479) 785-6130 if you have any questions or comments regarding
this filing.
Sincerely,
/s/ Richard F. Cooper
Richard F. Cooper
Secretary
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>4
<FILENAME>d94808ex13.txt
<DESCRIPTION>2001 ANNUAL REPORT TO STOCKHOLDERS
<TEXT>
<PAGE>
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>
MARKET AND DIVIDEND INFORMATION
The Common Stock of Arkansas Best Corporation ("the Company") trades on The
Nasdaq National 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>
2001
First quarter ...................................................... $ 24.688 $ 15.625 $ --
Second quarter...................................................... 23.050 15.000 --
Third quarter....................................................... 27.860 19.140 --
Fourth quarter...................................................... 30.230 18.950 --
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 --
</Table>
At February 25, 2002, there were 24,594,115 shares of the Company's Common Stock
outstanding, which were held by 495 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. Restricted payments include payments
for the redemption of subordinated debentures, dividends on Common Stock, and
other distributions that are in payment for the purchase or redemption of any
shares of capital stock. The annual dividend requirements on the Company's
Preferred Stock totaled approximately $2.5 million, $4.1 million, and $4.3
million during 2001, 2000, and 1999, respectively.
On August 13, 2001, the Company announced the call for redemption of its $2.875
Series A Cumulative Convertible Exchangeable Preferred Stock ("ABFSP"). As of
August 10, 2001, 1,390,000 shares of Preferred Stock were outstanding. At the
end of the extended redemption period on September 14, 2001, 1,382,650 shares of
the Preferred Stock were converted to 3,511,439 shares of Common Stock. A total
of 7,350 shares of Preferred Stock were redeemed at the redemption price of
$50.58 per share. The Company paid $0.4 million to the holders of these shares
in redemption of their Preferred Stock. The Company delisted its preferred stock
trading on The Nasdaq National Market under the symbol "ABFSP" on September 12,
2001, eliminating the Company's annual dividend requirement.
<PAGE>
SELECTED FINANCIAL DATA
<Table>
<Caption>
YEAR ENDED DECEMBER 31
2001(1) 2000(1) 1999 1998 1997(1)
------------ ------------ ------------ ------------ ------------
($ thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues .......................... $ 1,526,206 $ 1,839,567 $ 1,721,586 $ 1,607,403 $ 1,593,218
Operating income ............................ 75,934 140,152 109,707 69,977 64,503
Minority interest income (expense) in
Treadco, Inc. ............................. -- -- 245 (3,257) 1,359
Other (income) expenses, net ................ 1,221 (647) 3,920 3,255 8,814
Gain on sale of Cardinal Freight
Carriers, Inc. ............................ -- -- -- -- 8,985
Fair value net gain - Wingfoot
Commercial Tire Systems, LLC (2) .......... -- 5,011 -- -- --
Gain on sale of G.I. Trucking Company (7) ... 4,642 -- -- -- --
Settlement of litigation (3) ................ -- -- -- 9,124 --
Interest expense, net ....................... 12,636 16,687 18,395 18,146 23,765
Income from continuing
operations before income taxes ............ 66,719 129,123 87,637 54,443 42,268
Provision for income taxes .................. 25,315 52,968 36,455 23,192 20,086
Income from continuing operations ........... 41,404 76,155 51,182 31,251 22,182
Loss from discontinued operations,
net of tax ................................ -- -- (786) (2,576) (6,835)
Net income .................................. 41,404 76,155 50,396 28,675 15,347
Income per common share from continuing
operations (diluted) ...................... 1.66 3.17 2.14 1.32 0.91
Net income per common share (diluted) ....... 1.66 3.17 2.11 1.21 0.56
Cash dividends paid per common share (4) .... -- -- -- -- --
BALANCE SHEET DATA:
Total assets ................................ 723,153 797,124 731,929 707,330 693,649
Current portion of long-term debt ........... 14,834 23,948 20,452 17,504 16,484
Long-term debt (including capital leases
and excluding current portion) ............ 115,003 152,997 173,702 196,079 202,604
OTHER DATA:
Gross capital expenditures (5) .............. 74,670 93,585 76,209 86,446 14,135
Net capital expenditures (6) ................ 64,538 83,801 61,253 70,243 (23,775)
Depreciation and amortization ............... 50,315 52,186 45,242 40,674 44,316
Goodwill amortization ....................... 4,053 4,051 4,195 4,515 4,629
Other amortization (8) ...................... 180 217 324 2,420 4,139
</Table>
(1) Selected financial data is not comparable to the prior years'
information due to the sale of Cardinal Freight Carriers, Inc. on July
15, 1997, the contribution of Treadco's assets and liabilities to
Wingfoot Commercial Tire Systems, LLC ("Wingfoot") on October 31, 2000,
(see Note R to the Consolidated Financial Statements) and the sale of
G.I. Trucking Company ("G.I. Trucking") on August 1, 2001 (see Note S).
(2) Fair value net gain on the contribution of Treadco's assets and
liabilities to Wingfoot.
(3) Income results from the settlement of Treadco litigation.
(4) Cash dividends on its Common Stock were indefinitely suspended by
Arkansas Best Corporation 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 2001, 2000,
1999 and 1998.
(6) Capital expenditures, net of proceeds from the sale of property, plant
and equipment.
(7) Gain on the sale of G.I. Trucking on August 1, 2001.
(8) Deferred financing cost amortization.
<PAGE>
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 and intermodal transportation operations. Principal subsidiaries are
ABF Freight System, Inc. ("ABF"); Clipper Exxpress Company and related companies
("Clipper"); FleetNet America, LLC; and until August 1, 2001, G.I. Trucking
Company ("G.I. Trucking") (see Note S). The Company's operations included the
truck tire retreading and new tire sales operations of Treadco, Inc. ("Treadco")
until October 31, 2000 (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 in 1999. See Note R regarding the
contribution of substantially all of Treadco's assets and liabilities to
Wingfoot Commercial Tire Systems, LLC ("Wingfoot"). See Note A regarding the
consolidation of Treadco in the Company's Consolidated Financial Statements for
1999. See Note C regarding the Company's discontinuation of Clipper
International. See Note S regarding the sale of G.I. Trucking.
The Company utilizes tractors and trailers primarily in its motor carrier
transportation operations. Tractors and trailers are commonly referred to as
"revenue equipment" in the transportation business.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The Company's accounting policies (see Note B) that are "critical," or the most
important, to understand the Company's financial condition and results of
operations and that require management of the Company to make the most difficult
judgments are described as follows:
The Company's accounting policy for revenue recognition is a method prescribed
by the Emerging Issues Task Force ("EITF") 91-9 for motor carrier transportation
companies, where revenue is recognized based on relative transit times in each
reporting period with expenses being recognized as incurred. Management of the
Company utilizes a bill-by-bill analysis to establish the associated revenue to
recognize in each reporting period.
The Company's accounting policy for its allowance for doubtful accounts is based
on the Company's historical write-offs, as well as trends and factors
surrounding the credit risk of specific customers. In order to gather
information regarding these trends and factors, the Company performs ongoing
credit evaluations of its customers. The Company's allowance for revenue
adjustments is based on the Company's historical revenue adjustments. Actual
write-offs or adjustments could differ from the allowance estimates the Company
makes as a result of a number of factors. These factors include unanticipated
changes in the overall economic environment or factors and risks surrounding a
particular customer. The Company continually updates the history it uses to make
these estimates to reflect the most recent trends, factors and other information
available. Actual write-offs and adjustments are charged against the allowances
for doubtful accounts and revenue adjustments.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - continued
Under its accounting policy for property, plant and equipment, management
establishes appropriate depreciable lives and salvage values for the Company's
revenue equipment (tractors and trailers) based on their estimated useful lives
and estimated fair values to be received when the equipment is sold or traded
in. Management has a policy of purchasing its revenue equipment or entering into
capital leases rather than utilizing off-balance sheet financing.
The Company has elected to follow Accounting Principles Board ("APB") No. 25,
Accounting for Stock Issued to Employees and related interpretations in
accounting for stock options because the alternative fair value accounting
provided for under FASB Statement No. 123, Accounting for Stock-Based
Compensation ("Statement 123") requires the use of option valuation models that
were not developed for use in valuing employee stock options. Under APB 25,
because the exercise price of the Company's employee and director options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.
The Company is self-insured up to certain limits for workers' compensation and
certain property damage and liability claims. These claims liabilities recorded
in the financial statements totaled $46.3 million at December 31, 2001. The
Company does not discount its claims liabilities. Under the Company's accounting
policy for claims, management annually estimates the development of the claims
based upon the Company's historical development factors over a number of years.
The Company utilizes a third party to calculate the development factors and
analyze historical trends. Actual payments may differ from management's
estimates as a result of a number of factors. These factors include increases in
medical costs and the overall economic environment, as well as many other
factors. The actual claims payments are charged against the Company's accrued
claims liabilities.
The Company hedged its interest rate risk by entering into a fixed rate interest
rate swap on $110.0 million of revolving Credit Agreement borrowings. The
Company's accounting policy for derivative financial instruments is as
prescribed by FAS 133, Accounting for Derivative Financial Instruments and
Hedging Activities. The Company's fixed rate interest rate swap is an effective
hedge on $110.0 million of revolving Credit Agreement borrowings in accordance
with its accounting policy. As a result, the fair value of the swap ($5.4)
million is recorded on the Company's balance sheet through other comprehensive
income rather than through the income statement. If the swap terminated at
December 31, 2001, the Company would have had to pay $5.4 million. Future
changes in the fair value of the swap will also be reflected in other
comprehensive income as long as the swap remains in place and is effectively
hedged.
The Company's accounting policy for its 19% investment in Wingfoot Commercial
Tire Systems, LLC ("Wingfoot") is the equity method of accounting, similar to a
partnership investment. Under the terms of the LLC operating agreement, the
Company does not share in the profits or losses of Wingfoot during the term of
the Company's "Put" option. Therefore, the Company's investment balance of $59.3
million at December 31, 2001 should not change during the "Put" period. If the
Company "puts" its interest to The Goodyear Tire & Rubber Company ("Goodyear"),
the Company will record a pre-tax gain in the amount of $14.1 million in the
quarter its interest is "put." If Goodyear "calls" the Company's interest in
Wingfoot, the Company will record a pre-tax gain of $19.1 million during the
quarter the "call" is made by Goodyear (see Note R).
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - continued
RECENT ACCOUNTING PRONOUNCEMENTS
On July 20, 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 142, Goodwill and Other Intangible Assets ("Statement 142"). Under
Statement 142, goodwill and indefinite lived intangible assets are no longer
amortized but are reviewed annually for impairment. Statement 142 was effective
for the Company on January 1, 2002, and as of that date, the Company no longer
amortizes its goodwill, but reviews it annually for impairment. At December 31,
2001, the Company's assets included goodwill of $101.3 million of which $63.8
million is from a 1988 leveraged buyout transaction and $37.5 million was from
the 1994 acquisition of Clipper. The Company's annual goodwill amortization
expense for 2001 was $4.1 million. Statement 142 requires that the Company
perform transitional impairment testing on its goodwill during the first six
months of 2002 based on January 1, 2002 values. The Company has performed the
first phase of impairment testing on its leveraged buyout goodwill, which is
based on ABF's operations and fair value. There is no indication of impairment
with respect to this goodwill. The Company has performed both the first and
second phases of the transitional impairment testing on its Clipper goodwill and
will recognize a non-cash impairment loss of $23.9 million, net of taxes, as a
change in accounting principle as provided in Statement 142, in the first
quarter of 2002. This will eliminate all of the $37.5 million of Clipper
goodwill from the Company's balance sheet. The impairment loss results from the
change in the method of determining recoverable goodwill from using undiscounted
cash flows, as prescribed by FAS 121, Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of, to the fair value method
determined by using quoted market prices or other valuation techniques,
including the present value of discounted cash flows, as prescribed by Statement
142.
On August 15, 2001, the FASB issued Statement 143, Accounting for Asset
Retirement Obligations. Statement 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated retirement costs. This Statement applies to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and/or the normal operation of a
long-lived asset, except for certain obligations of lessees. The Statement is
effective for the Company in 2003. The Company is evaluating the impact, if any,
the Statement will have on its financial statements and related disclosures.
On October 3, 2001, the FASB issued Statement 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. Statement 144 supersedes Statement 121 and the
accounting and reporting provisions of APB Opinion No. 30, Reporting the Results
of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,
for the disposal of a segment of a business. The Statement is effective for the
Company January 1, 2002. The impact on the Company's financial statements and
related disclosures of the adoption of Statement 144 is expected to be
immaterial.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - continued
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations of $64.8 million, proceeds from asset sales of $10.1
million, gross proceeds from the sale of G.I. Trucking of $40.5 million and
available cash were used primarily to purchase revenue equipment and other
property and equipment totaling $74.7 million, reduce outstanding debt,
including the retirement of $24.9 million in face value of the Company's
WorldWay 6 1/4% Convertible Subordinated Debentures (see Note G), and pay
approximately $33.0 million in tax and interest payments to the IRS, related to
a tax pension issue (see Note F). Cash provided by operations of $127.7 million
and proceeds from asset 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. Revenue equipment includes tractors and trailers used primarily in the
Company's motor carrier transportation operations.
On August 13, 2001, the Company announced the call for redemption of its $2.875
Series A Cumulative Convertible Exchangeable Preferred Stock ("ABFSP"). As of
August 10, 2001, 1,390,000 shares of Preferred Stock were outstanding. At the
end of the extended redemption period on September 14, 2001, 1,382,650 shares of
Preferred Stock were converted to 3,511,439 shares of Common Stock. A total of
7,350 shares of Preferred Stock were redeemed at the redemption price of $50.58
per share. The Company paid $0.4 million to the holders of these shares in
redemption of their Preferred Stock. As a result of this transaction, the
Company no longer has an obligation to pay Preferred Stock dividends, which
approximated $4.0 million per year. Outstanding shares of Preferred Stock had
historically been included in the Company's diluted earnings per share on an
as-converted basis. Therefore, the conversion of preferred shares into common
did not result in an increase in the Company's diluted common shares.
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, 2001, there were $110.0 million of Revolver Advances and
approximately $23.6 million of letters of credit outstanding. At December 31,
2001, the Company had approximately $116.4 million of borrowing availability
under the Credit Agreement. The Credit Agreement contains various covenants,
which limit, among other things, indebtedness, distributions and dispositions of
assets and require the Company to meet certain quarterly financial ratio tests.
As of December 31, 2001, the Company was in compliance with the covenants.
The Company's Credit Agreement contains two pricing grids. One of the grids is
based on a leverage ratio and the other grid is based on the Company's senior
debt rating agency ratings. The Company may choose whichever pricing grid to use
at any time. The effect of a senior debt rating increase or decrease could
potentially impact the Company's Credit Agreement pricing. In addition, if the
Company achieves certain senior debt ratings, which it has, the Company's Credit
Agreement provides for no collateral filings, an increase in restricted payments
allowed and no capital expenditure covenant. In January 2002, Standard & Poor's
upgraded the Company's senior debt rating to BBB from BBB-. This upgrade
represents a higher investment grade rating. The Company has no downward rating
triggers that would accelerate the maturity of its debt.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - continued
The Company is in the process of negotiating a new credit facility that will
replace its existing Credit Agreement, which expires in June 2003. The Company
expects to have its new credit facility in place by the end of June 2002.
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 0.575%. The fair value of the Company's
interest rate swap was ($5.4) million and ($0.1) million at December 31, 2001
and December 31, 2000, respectively. The fair value of the swap is impacted by
changes in rates of similarly termed Treasury instruments. The Company
recognized this liability on its balance sheet in accordance with Statement No.
133, at December 31, 2001, through other comprehensive income, net of income tax
benefits.
The Company's primary subsidiary, ABF, maintains ownership of most all of its
larger terminals or distribution centers. Both ABF and Clipper lease certain
terminal facilities. At December 31, 2001, the Company has future minimum rental
commitments, net of noncancellable subleases totaling $44.5 million for terminal
facilities, and $1.6 million primarily for revenue equipment.
The following is a table providing the aggregate annual obligations of the
Company including debt, capital lease maturities and future minimum rental
commitments:
<Table>
<Caption>
PAYMENTS DUE BY PERIOD
---------------------------------------------------------------
($ thousands)
LESS THAN 1-3 4-5 AFTER
CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR YEARS YEARS 5 YEARS
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Long-term debt (1) $ 114,940 $ 24 $ 110,054 $ 51 $ 4,811(2)
Capital lease obligations 14,896 14,810 86 -- --
Minimum rental commitments under
operating leases, net of subleases 46,124 11,214 15,233 10,011 9,666
Unconditional purchase obligations -- -- -- -- --
Other long-term debt obligations -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total contractual cash obligations $ 175,960 $ 26,048 $ 125,373 $ 10,062 $ 14,477
========== ========== ========== ========== ==========
</Table>
(1) The Company is negotiating a new revolving credit facility that it
expects to have in place by June 2002, which would extend the maturity
of the $110.0 million due in years 1-3.
(2) Subsequent to year end, the Company called for redemption, the
remaining WorldWay Corporation 6 1/4% Convertible Subordinated
Debentures (see Note U).
The Company has guaranteed $0.5 million of payments related to a former
subsidiary of the Company. The Company's exposure to this guarantee should
decline by $60,000 per year.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - continued
The following table sets forth the Company's historical capital expenditures for
the periods indicated below. Proceeds from the sale of property and equipment
have not been netted against the capital expenditures:
<Table>
<Caption>
YEAR ENDED DECEMBER 31
2001 2000 1999
-------- -------- --------
($ thousands)
<S> <C> <C> <C>
CAPITAL EXPENDITURES (GROSS)
ABF Freight System, Inc. ............................ $ 62,332 $ 71,337 $ 49,342
G.I. Trucking Company (see Note S) .................. 4,537 11,693 7,946
Clipper ............................................. 3,582 4,346 5,309
Treadco, Inc. (see Note R) .......................... -- 3,916 9,801
Other ............................................... 4,219 2,293 3,811
-------- -------- --------
Total consolidated capital expenditures (gross) .. $ 74,670 $ 93,585 $ 76,209
======== ======== ========
</Table>
The amounts presented in the table include equipment purchases financed with
capital leases of $26.1 million in 1999. No capital lease obligations were
incurred in the years ended December 31, 2001 or 2000.
In 2002, the Company forecasts total spending of approximately $45.0 million for
capital expenditures, net of proceeds from equipment and real estate sales. Of
the $45.0 million, ABF is budgeted for approximately $40.0 million primarily for
revenue equipment and facilities.
The Company has two principal sources of available liquidity, which are its
operating cash and the $116.4 million it has available under its revolving
Credit Agreement at December 31, 2001. The Company has generated between $60.0
million and $130.0 million of operating cash for the years 1999 through 2001,
and it expects cash from operations and its available revolver to continue to be
principal sources of cash to finance its annual debt maturities and lease
commitments; fund its 2002 capital expenditures, which includes a commitment to
purchase $25.6 million of revenue equipment; and pay income taxes.
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 2001 or 2000. The Company has no
relationships with special-purpose entities or financial partnerships.
<PAGE>
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
2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
OPERATING EXPENSES AND COSTS
ABF FREIGHT SYSTEM, INC
Salaries and wages ................... 65.6% 62.4% 64.1%
Supplies and expenses ................ 13.0 12.6 11.0
Operating taxes and licenses ......... 3.2 3.0 3.0
Insurance ............................ 1.4 1.6 1.6
Communications and utilities ......... 1.2 1.1 1.2
Depreciation and amortization ........ 3.1 2.6 2.4
Rents and purchased transportation ... 6.1 6.8 8.0
Other ................................ 0.2 0.2 0.4
(Gain) on sale of equipment .......... -- -- (0.1)
---- ---- ----
93.8% 90.3% 91.6%
==== ==== ====
G.I. TRUCKING COMPANY (see Note S)
Salaries and wages ................... 51.8% 47.0% 46.8%
Supplies and expenses ................ 9.7 9.4 8.0
Operating taxes and licenses ......... 2.4 2.1 2.4
Insurance ............................ 2.4 2.5 2.7
Communications and utilities ......... 1.4 1.3 1.3
Depreciation and amortization ........ 3.4 3.0 2.6
Rents and purchased transportation ... 26.4 30.0 32.3
Other ................................ 2.5 2.3 2.5
(Gain) on sale of equipment .......... (0.1) -- (0.1)
---- ---- ----
99.9% 97.6% 98.5%
==== ==== ====
CLIPPER
Cost of services ..................... 87.3% 85.5% 85.9%
Selling, administrative and general .. 12.3 13.3 12.8
---- ---- ----
99.6% 98.8% 98.7%
==== ==== ====
TREADCO, INC. (see Note R)
Cost of sales ........................ -- 66.6% 68.8%
Selling, administrative and general .. -- 30.4 29.3
---- ---- ----
-- 97.0% 98.1%
==== ==== ====
OPERATING INCOME
ABF Freight System, Inc. ................. 6.2% 9.7% 8.4%
G.I. Trucking Company (see Note S) ....... 0.1 2.4 1.5
Clipper .................................. 0.4 1.2 1.3
Treadco, Inc. (see Note R) ............... -- 3.0 1.9
</Table>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - continued
RESULTS OF OPERATIONS
2001 COMPARED TO 2000
Consolidated revenues from continuing operations of the Company in 2001 were
$1,526.2 million compared to $1,839.6 million in 2000, representing a decrease
of 17.0%, due primarily to decreases in revenues for Treadco and G.I. Trucking.
On October 31, 2000, substantially all of the assets and liabilities of Treadco
were contributed to Wingfoot (see Note R) and on August 1, 2001, the Company
sold the stock of G.I. Trucking (see Note S). In addition, there were declines
in revenues for ABF and Clipper for 2001 compared to 2000, as a result of a
decline in the U.S. economy beginning in mid-2000. This economic decline was
further accelerated by the September 11 terrorist attacks on the World Trade
Center and on the Pentagon. Operating income decreased 45.8% to $75.9 million in
2001 from $140.2 million in 2000. The decrease in operating income is due
primarily to a decline in operating income for ABF, which relates primarily to
the previously discussed revenue declines. Income from continuing operations for
2001 was $41.4 million, or $1.66 per diluted common share, compared to $76.2
million, or $3.17 per diluted common share, for 2000. The decrease in income
from continuing operations reflects primarily the decrease in operating income
offset, in part, by a pre-tax gain of $4.6 million from the sale of G.I.
Trucking, lower interest expense from lower average debt levels and a tax
benefit of $1.9 million resulting from the resolution of certain tax
contingencies arising in prior years. Income from continuing operations for 2000
includes a fair value net gain on the Treadco/Wingfoot transaction (see Note R)
of $5.0 million.
Tonnage levels for 2001 at ABF, the Company's primary subsidiary, continued to
be impacted by the decline in the U.S. economy, as discussed above. The declines
in tonnage increased by approximately 2.0% to 3.0% following the September 11
terrorist attacks. Tonnage levels in early 2002 continue to be impacted by the
decline in the U. S. economy. The Company expects this impact to continue
through the first quarter of 2002 and potentially further into 2002.
The Company's 2001 results included seven months of operations for G.I. Trucking
(see Note S). The Company's 2000 results included ten months of operations for
Treadco (see Note R) and a full twelve months of operations for G.I. Trucking.
Reliance Insurance Company ("Reliance") insured the Company's workers'
compensation claims in excess of $300,000 ("excess claims") for the period from
1993 through 1999. According to an Official Statement by the Pennsylvania
Insurance Department on October 3, 2001, Reliance was determined to be
insolvent, with total admitted assets of $8.8 billion and liabilities of $9.9
billion, or a negative surplus position of $1.1 billion, as of March 31, 2001.
As of December 31, 2001, the Company estimates its workers' compensation claims
insured by Reliance to be approximately $5.8 million. The Company has been in
contact with and has received either written or verbal confirmation from a
number of state guaranty funds that they will accept excess claims, representing
a total of approximately $2.5 million of the $5.8 million. Based upon the
limited available Reliance financial information, the Company estimates its
current exposure to Reliance to be $0.5 million, for which it established
reserves in the third quarter of 2001. In evaluating that same financial
information, the Company anticipates receiving, from guaranty funds or through
orderly liquidation, partial reimbursement for future claims payments, a process
that could take several years.
The Company's defined benefit pension plans experienced returns on assets that
were below the 9.0% to 10.0% return on assets assumed for calculating its
pension expense under FASB Statement No. 87, Employers' Accounting for Pensions.
As a result of this and other factors relating to normal plan cost fluctuations,
the Company's net periodic pension cost increased to an expense of $3.8 million
from a credit of $2.5 million in
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - continued
2000. If the same stock market trends continue into 2002, the Company could
experience additional increases in its pension expense.
ABF FREIGHT SYSTEM, INC.
Effective August 1, 2001 and August 14, 2000, ABF implemented general rate
increases of 4.9% and 5.7%, respectively, in part, to cover known and expected
cost increases.
Revenues for 2001 declined 7.0% to $1,282.3 million from $1,379.3 million in
2000. ABF generated operating income for 2001 of $79.4 million compared to
$133.8 million in 2000.
ABF's decline in revenue is due to a decrease in LTL tonnage and fuel
surcharges, which was partially offset by an increase in revenue per
hundredweight. ABF's LTL tonnage decreased 9.3% in 2001, compared to 2000. ABF's
performance for 2001 was affected by less available freight, due to decreased
business levels at customer facilities, primarily as a result of a decline in
the U.S. economy. The decrease in tonnage was offset, in part, by an LTL revenue
per hundredweight increase of 2.3% to $21.62 in 2001 compared to $21.13 in 2000,
as the pricing environment remained relatively firm.
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 2001 averaged 3.3% of revenue. The fuel surcharge in effect during 2000
averaged 4.1% of revenue.
ABF's operating ratio increased to 93.8% for 2001 from 90.3% in 2000, primarily
as a result of tonnage declines and changes in certain operating expense
categories as follows:
Salaries and wages expense for 2001 increased 3.2% as a percent of revenue
compared to 2000. The increase results from the annual general International
Brotherhood of Teamsters ("IBT") contractual wage and benefit rate increase on
April 1, 2001 of approximately 3.0%, as well as an increase in wages and
benefits costs for road drivers, resulting from ABF's decision to utilize
additional road drivers and company-owned equipment to move freight in certain
poor service rail lanes rather than rail. In addition, portions of such costs
are primarily fixed in nature and increase as a percent of revenue with
decreases in revenue levels.
Supplies and expenses increased 0.4% as a percent of revenue for 2001, compared
to 2000. Equipment repair costs have increased due to ABF's older trailer fleet.
This increase was offset by a decline in fuel costs, excluding taxes that on a
price-per-gallon basis declined to $0.87 for 2001 from $0.95 in 2000.
Operating taxes and licenses increased 0.2% as a percent of revenue for 2001,
compared to 2000, due primarily to an increase of approximately 200 road
trailers owned by the Company. In addition, portions of such costs are primarily
fixed in nature and increase as a percent of revenue with decreases in revenue
levels.
Insurance expense decreased 0.2% as a percent of revenue for 2001, compared to
2000. This improvement was due primarily to favorable claims experience for
property damage and liability claims and cargo claims.
Depreciation and amortization expense increased 0.5% as a percent of revenue for
2001, compared to 2000, due primarily to the purchase of 500 road tractors
during 2001. The road tractors purchased were to replace older tractors in the
fleet that have been transferred to city use, including some that were under
operating leases in the first quarter of 2000. In addition, portions of such
costs are primarily fixed in nature and increase as a percent of revenue with
decreases in revenue levels.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - continued
Rents and purchased transportation expense decreased 0.7% as a percent of
revenue for 2001, compared to 2000. This is due primarily to a decline in rail
utilization to 13.5% of total miles for 2001, compared to 15.6% in 2000, as the
Company is utilizing more company-owned equipment and road drivers for certain
linehaul moves, as previously discussed. In addition, rents and purchased
transportation costs decreased due to the disposal of some tractors under
operating leases, as previously mentioned.
As previously mentioned, ABF's general rate increase of 4.9% on August 1, 2001
was put in place to cover known and expected cost increases for the next twelve
months. ABF's ability to retain this rate increase is dependent on the pricing
environment, which, in 2001, remained relatively firm. The pricing environment
could potentially worsen in 2002, if the U.S. economy continues to decline, and
it could become firmer if the U.S. economy improves. ABF will experience an
effective annual general contractual wage and benefit increase for 2002, of an
estimated 3.0% under its agreement with the IBT. The base wage and pension cost
portion of the increase will occur on April 1, 2002 and the health and welfare
cost portion of the increase will occur on August 1, 2002. In addition, ABF
could be impacted by fluctuating fuel prices during 2002. Although fuel prices
stabilized during the latter part of 2001, there can be no assurances that they
will remain stable. ABF's fuel surcharges on revenue are intended to offset any
fuel cost increases. ABF's insurance premium costs for 2002 will increase, in
part, because of the terrorist acts of September 11. The increase is
approximately 180.0% or $7.0 million, from its 2001 premiums. In 2001, insurance
premiums represented only 10% of ABF's total insurance costs. In 2002, it is
anticipated that insurance premiums will represent approximately 29.0% of total
insurance costs. During 2001, ABF experienced increases in its nonunion benefit
costs of 41.0%, representing increased medical, prescription drug and pension
costs. These costs represented approximately 2.0% of ABF's revenue in 2001.
Based on recent trends, these costs could continue to increase during 2002 as
well, although there can be no certainty of this.
G.I. TRUCKING COMPANY
On August 1, 2001, the Company sold the stock of G.I. Trucking for $40.5 million
in cash to a company formed by the senior executives of G.I. Trucking and Estes
Express Lines ("Estes") (see Note S). The Company recognized a pre-tax gain on
the sale of $4.6 million in the third quarter of 2001. Cash proceeds from the
sale, net of costs and income taxes, of approximately $33.0 million were used to
pay down the Company's outstanding debt. The Company retained ownership of three
California terminal facilities and has agreed to lease them for an aggregate
amount of $1.6 million per year to G.I. Trucking for a period of up to four
years. G.I. Trucking has an option at any time during the four-year lease term
to purchase these terminals for $19.5 million. The facilities have a net book
value of approximately $6.0 million. If the terminal facilities are sold to G.I.
Trucking, the Company will recognize a pre-tax gain of approximately $14.0
million in the period they are sold.
The Company's revenue and operating income includes seven months of operations
for G.I. Trucking for 2001. Revenues for G.I. Trucking for 2001 were $95.5
million, compared to $161.9 million in 2000. Operating income was $0.1 million
for 2001, compared to $3.9 million in 2000 (see Note M).
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - continued
CLIPPER
Effective August 13, 2001 and August 1, 2000, Clipper implemented general rate
increases of 4.9% and 5.9%, respectively, for LTL shipments. Revenues for
Clipper decreased 2.3% to $127.3 million in 2001 from $130.2 million in 2000.
LTL revenue per shipment increased 5.5% for 2001, compared to 2000. LTL
shipments declined 18.5% for 2001, compared to 2000. LTL shipment declines
reflect Clipper's movement away from unprofitable LTL business and lower
business levels, resulting from the decline in the U.S. economy, including the
impact of the September 11, 2001 terrorist attacks. In addition, the LTL
division suffered from changes in the shipping pattern of a large customer,
which reduced the LTL shipments handled by Clipper.
Intermodal revenue per shipment increased only 0.8% for 2001, when compared to
2000, due to increased competition for business, resulting from unused capacity
in the over-the-road truckload industry, which impacted the intermodal pricing
environment. The number of intermodal shipments increased 14.8% for 2001,
compared to 2000, due primarily to increased shipment volumes from existing
customers.
Clipper's operating ratio increased to 99.6% for 2001, from 98.8% in 2000.
Clipper's operating ratio increased as a result of several factors. Clipper's
LTL division experienced steep shipment declines during 2001, as discussed
above. In addition, a change in the mix of shipments handled by the LTL division
contributed to a decline in rail utilization, which increased linehaul costs.
Clipper's rail utilization was 57.1% of total miles for 2001, compared to 63.8%
in 2000. For Clipper, rail costs per mile are generally less expensive than
over-the-road costs per mile. Finally, Clipper's Controlled Logistics division
experienced increased trailer maintenance costs on its older 45-foot
refrigerated trailers. Clipper plans to either dispose of or move these trailers
out of its rail operations during 2002.
TREADCO, INC.
On September 13, 2000, Treadco entered into an agreement with Goodyear to form a
new limited liability company called Wingfoot Commercial Tire Systems, LLC (see
Note R). The transaction closed on October 31, 2000. Effective October 31, 2000,
Treadco contributed substantially all of its assets and liabilities to Wingfoot
in a non-taxable transaction in exchange for a 19% ownership in Wingfoot. For
the year ended December 31, 2000, tire operations included the operations of
Treadco for the ten months ended October 31, 2000 only. Revenue and operating
income for Treadco for the ten months ended October 31, 2000 were $158.3 million
and $4.7 million, respectively (see Note M). There were no operations for
Treadco during 2001.
In the last half of the 1990's, changes were occurring in the traditional
relationship between tire retreaders and raw materials franchisors and new tire
suppliers in Treadco's truck tire retreading and new tire sales business. As a
result of these changes, in the first quarter of 1998, the Company began
evaluating its then 46% investment in Treadco. This evaluation resulted in the
Company's January 1999 proposal to Treadco's Board of Directors for the Company
to acquire all outstanding Treadco common stock. The Company believed this would
lower costs associated with Treadco being a small public company, lower state
income tax costs and other tax benefits available to the Company if Treadco were
a wholly owned subsidiary, and maximize its flexibility in managing Treadco in
this changing environment. As these changes continued to evolve throughout 1999
and 2000, the Company concluded that an alliance of Treadco with one of the
major new tire manufacturers, who were expanding their presence in the retread
industry, provided Treadco the best opportunity at long-term survival and
maximized its current value to the Company. In September 2000, the
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - continued
Company entered into its agreement with Goodyear, which created Wingfoot and
gave the Company the right to "put" its interest to Goodyear for $73.4 million,
as described below.
Under the agreement with Goodyear, the Company has the right, at any time after
April 30, 2003 and before April 30, 2004, to sell its interest in Wingfoot to
Goodyear for a cash "Put Price" equal to approximately $73.4 million. Goodyear
has the right, at any time after April 30, 2003 until October 31, 2004, to
purchase the Company's entire interest, for cash, at a "Call Price" equal to the
"Put Price" plus $5.0 million. As provided in the agreement between Goodyear and
Treadco, the Company will not share in the profits or losses of Wingfoot during
the term of the "Put." If the Company does not exercise its right to sell its
19% interest in Wingfoot, the Company will account for its share of Wingfoot's
profits or losses beginning May 1, 2004, as provided in the Wingfoot Operating
Agreement. If the Company "puts" its interest to Goodyear, the Company will
record a pre-tax gain in the amount of $14.1 million in the quarter its interest
is "Put." If Goodyear "calls" the Company's interest in Wingfoot, the Company
will record a pre-tax gain of $19.1 million during the quarter the "call" is
made by Goodyear (see Note R).
INTEREST
Interest expense was $12.6 million for 2001 compared to $16.7 million for 2000.
The decline resulted from lower average debt levels when 2001 is compared to
2000.
INCOME TAXES
The difference between the effective tax rate for 2001 and the federal statutory
rate resulted from state income taxes, amortization of nondeductible goodwill
and other nondeductible expenses, as well as the impact of the $1.9 million tax
benefit resulting from the resolution of certain tax contingencies arising in
prior years (see Note F).
At December 31, 2001, the Company had deferred tax assets of $45.0 million, net
of a valuation allowance of $3.4 million, and deferred tax liabilities of $54.5
million. The Company believes that the benefits of the deferred tax assets of
$45.0 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 $54.5 million and the presence of significant taxable income in
2001 and 2000. 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
Accounts receivable decreased $57.1 million from December 31, 2000 to December
31, 2001, due primarily to a decrease in revenue levels and the sale of G.I.
Trucking on August 1, 2001 (see Note S).
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).
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - continued
OTHER NONCURRENT ASSETS
Other assets increased $8.2 million from December 31, 2000 to December 31, 2001,
due to incentive pay deferrals and matching contributions made to the Company's
Voluntary Savings Plan assets, which are held in a trust account, and as a
result of the Company paying off $13.2 million of life insurance loans which
were netted against the cash surrender value on the policies included in other
assets. These increases were offset by a decline in the Company's pension asset
of $6.4 million, which was due to the sale of G.I. Trucking on August 1, 2001
(see Note S) and $3.8 million in net periodic pension cost recorded in 2001 (see
Note L).
GOODWILL
The Company's assets include goodwill, net of amortization, of $101.3 million,
representing 14.0% of total assets and 30.0% of total stockholder's equity.
Goodwill includes $63.8 million resulting from a 1988 leveraged buyout
transaction and $37.5 million 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, 2001. However,
the Company is required to test its goodwill for impairment under the new
goodwill accounting rules prescribed by Statement 142. These rules were
effective for the Company on January 1, 2002.
ACCRUED EXPENSES
Accrued expenses decreased $47.2 million from December 31, 2000 to December 31,
2001, due primarily to a decrease in incentive pay accruals as a result of a
decline in profits, a decrease in the required reserves for loss, injury, damage
and workers' compensation claims, which resulted from better claims experience
and a reduction in the required reserves related to a company acquired in 1995,
a decrease in accrued interest due to the payment of interest to the IRS (see
Note F) and due to the sale of G.I. Trucking on August 1, 2001 (see Note S).
OTHER LIABILITIES
Other liabilities increased $9.0 million from December 31, 2000 to December 31,
2001, due to incentive pay deferrals and matching contributions made to the
Company's Voluntary Savings Plan assets, which are held in a trust account. In
addition, other liabilities increased due to an increase in the accruals for
supplemental pension benefits.
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 were 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.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - continued
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.
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."
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
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - continued
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:
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 property damage
and liability 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.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - continued
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.
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.
Effective October 31, 2000, Treadco contributed substantially all of its assets
and liabilities to Wingfoot in a non-taxable transaction in exchange for a 19%
ownership in Wingfoot (see Note R). For the year ended December 31, 2000, tire
operations included the operations of Treadco for the ten months ended October
31, 2000 only. Revenue and operating income for Treadco for the ten months ended
October 31, 2000 were $158.3 million and $4.7 million, respectively. Revenue and
operating income for Treadco for 1999 were $186.6 million and $3.6 million,
respectively (see Note M).
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).
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - continued
SEASONALITY
ABF is affected by seasonal fluctuations which affects its 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 with revenues
being weaker in the first quarter and stronger during the months of September
and October.
ENVIRONMENTAL MATTERS
The Company's subsidiaries, or lessees, store fuel for use in tractors and
trucks in approximately 76 underground tanks located in 25 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, 2001, the Company has accrued approximately $2.4 million to
provide for environmental-related liabilities. The Company's environmental
accrual is bas