-----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, TYEApvcK4vWUL+Y5xUiYZKXjnoKtRds+ZWx8iOPXACuc+lvnfFMypFazSHFzWg2e 5eb3FRUeaY/w0ICYmmRp6A== 0000950134-98-004207.txt : 19980514 0000950134-98-004207.hdr.sgml : 19980514 ACCESSION NUMBER: 0000950134-98-004207 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980513 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARKANSAS BEST CORP /DE/ CENTRAL INDEX KEY: 0000894405 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 710673405 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19969 FILM NUMBER: 98618261 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 10-Q 1 FORM 10-Q FOR QUARTER ENDED MARCH 31, 1998 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended March 31, 1998 ------------------ [ ] 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 6711 71-0673405 - ------------------------------------- ------------------------------------ --------------------------------------- (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code No.) Identification No.)
3801 Old Greenwood Road Fort Smith, Arkansas 72903 (501) 785-6000 -------------------------------------------------------- (Address, including zip code, and telephone number, including area code, of the registrant's principal executive offices) Not Applicable - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of The Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at April 30, 1998 - --------------------------------------------------- --------------------------------------------------- Common Stock, $.01 par value 19,610,213 shares
2 ARKANSAS BEST CORPORATION INDEX
PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets -- March 31, 1998 and December 31, 1997 .................................................. 3 Consolidated Statements of Operations -- For the Three Months Ended March 31, 1998 and 1997 ..................................... 5 Consolidated Statements of Shareholders' Equity For the Three Months Ended March 31, 1998 ............................................. 7 Condensed Consolidated Statements of Cash Flows -- For the Three Months Ended March 31, 1998 and 1997 ..................................... 8 Notes to Consolidated Financial Statements - March 31, 1998 .............................. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .................................................... 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings ........................................................................ 22 Item 2. Changes in Securities .................................................................... 22 Item 3. Defaults Upon Senior Securities .......................................................... 22 Item 4. Submission of Matters to a Vote of Security Holders ...................................... 22 Item 5. Other Information ........................................................................ 22 Item 6. Exhibits and Reports on Form 8-K ......................................................... 22 SIGNATURES ..................................................................................... 23 EXHIBITS 10.1 Schedule and Confirmation Pertaining to the Interest-Rate Swap Agreement Dated February 23, 1998. ................................................................. 24
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ARKANSAS BEST CORPORATION CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------
MARCH 31 DECEMBER 31 1998 1997 --------------- --------------- (UNAUDITED) NOTE ASSETS CURRENT ASSETS Cash and cash equivalents.................................................... $ (4,018) $ 7,203 Trade receivables less allowances 1998 -- $7,568,000; 1997--$7,603,000)..................................... 167,509 175,693 Inventories.................................................................. 31,195 30,685 Prepaid expenses ............................................................ 14,505 14,456 Deferred income taxes ....................................................... 5,590 5,584 Other ....................................................................... 3,346 3,275 - -------------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS ..................................................... 218,127 236,896 PROPERTY, PLANT AND EQUIPMENT Land and structures ......................................................... 213,025 212,847 Revenue equipment ........................................................... 218,657 207,471 Manufacturing equipment ..................................................... 17,119 18,891 Service, office and other equipment ......................................... 66,217 64,598 Leasehold improvements ...................................................... 7,240 7,281 - -------------------------------------------------------------------------------------------------------------------------- 522,258 511,088 Less allowances for depreciation and amortization ........................... (231,491) (225,733) - -------------------------------------------------------------------------------------------------------------------------- 290,767 285,355 OTHER ASSETS ................................................................... 42,007 41,999 ASSETS HELD FOR SALE ........................................................... 2,623 3,342 GOODWILL, less amortization (1998 -- $ 32,975,000 1997 -- $31,867,000) ..................................................... 129,639 130,747 - -------------------------------------------------------------------------------------------------------------------------- $ 683,163 $ 698,339 ==========================================================================================================================
3 4 ARKANSAS BEST CORPORATION CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------
MARCH 31 DECEMBER 31 1998 1997 --------------- --------------- (UNAUDITED) NOTE LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Bank overdraft .............................................................. $ - $ 13,801 Bank drafts payable ......................................................... 1,415 1,172 Trade accounts payable ...................................................... 76,896 77,403 Accrued expenses............................................................. 155,796 157,622 Federal and state income taxes............................................... 1,671 1,222 Current portion of long-term debt ........................................... 16,106 16,484 - -------------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES ................................................ 251,884 267,704 LONG-TERM DEBT, less current portion ........................................... 200,424 202,604 OTHER LIABILITIES .............................................................. 21,605 21,921 DEFERRED INCOME TAXES .......................................................... 25,448 24,448 MINORITY INTEREST .............................................................. 31,990 32,600 SHAREHOLDERS' EQUITY Preferred stock, $.01 par value, authorized 10,000,000 shares; issued and outstanding 1,495,000 shares .................................. 15 15 Common stock, $.01 par value, authorized 70,000,000 shares; issued and outstanding 1998: 19,610,213 shares; 1997: 19,596,213 shares ................................................. 196 196 Additional paid-in capital .................................................. 193,117 192,910 Retained earnings (deficit) ................................................. (41,516) (44,059) - -------------------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY ............................................... 151,812 149,062 COMMITMENTS AND CONTINGENCIES .................................................. - -------------------------------------------------------------------------------------------------------------------------- $ 683,163 $ 698,339 ==========================================================================================================================
NOTE: The balance sheet at December 31, 1997 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying notes are an integral part of the consolidated financial statements. 4 5 ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS - -------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31 1998 1997 -------------- ------------- (UNAUDITED) ($ thousands, except per share data) OPERATING REVENUES LTL motor carrier operations .................................................. $ 308,754 $ 296,535 Truckload motor carrier operations ............................................ - 19,021 Intermodal operations ......................................................... 39,059 44,789 Tire operations ............................................................... 37,067 32,094 Service and other ............................................................. 3,027 2,174 - -------------------------------------------------------------------------------------------------------------------------- 387,907 394,613 - -------------------------------------------------------------------------------------------------------------------------- OPERATING EXPENSES AND COSTS LTL motor carrier operations .................................................. 296,079 285,086 Truckload motor carrier operations ............................................ - 18,490 Intermodal operations ......................................................... 39,600 45,223 Tire operations ............................................................... 37,679 34,638 Service and other ............................................................. 3,313 2,226 - -------------------------------------------------------------------------------------------------------------------------- 376,671 385,663 - -------------------------------------------------------------------------------------------------------------------------- OPERATING INCOME ................................................................. 11,236 8,950 OTHER INCOME (EXPENSE) Net gains (losses) on sales of property and non-revenue equipment .................................................. 592 (694) Interest expense .............................................................. (4,468) (7,085) Minority interest in Treadco, Inc. ............................................ 341 1,025 Other, net .................................................................... (1,463) (1,759) - -------------------------------------------------------------------------------------------------------------------------- (4,998) (8,513) - -------------------------------------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES ............................................. 6,238 437 FEDERAL AND STATE INCOME TAXES (CREDIT) Current ....................................................................... 3,871 (360) Deferred ...................................................................... (1,251) 217 - -------------------------------------------------------------------------------------------------------------------------- 2,620 (143) - -------------------------------------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS ................................................ 3,618 580 - --------------------------------------------------------------------------------------------------------------------------
5 6 ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS -- Continued - --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31 1998 1997 ------------- ------------- (UNAUDITED) ($ thousands, except per share data) DISCONTINUED OPERATIONS: Loss from discontinued operations (net of tax benefits of $506 for the three months ended March 31, 1997) ................................. $ - $ (898) - -------------------------------------------------------------------------------------------------------------------------- LOSS FROM DISCONTINUED OPERATIONS ................................................ - (898) - -------------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) ................................................................ 3,618 (318) Preferred stock dividends ..................................................... 1,075 1,075 - -------------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) FOR COMMON SHAREHOLDERS ...................................................... $ 2,543 $ (1,393) ========================================================================================================================== EARNINGS (LOSS) PER COMMON SHARE BASIC AND DILUTED: Continuing operations (1)...................................................... $ 0.13 $ (0.03) Discontinued operations ....................................................... - (0.04) - -------------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) PER SHARE (1) .................................................. $ 0.13 $ (0.07) - -------------------------------------------------------------------------------------------------------------------------- CASH DIVIDENDS PAID PER COMMON SHARE ............................................. $ - $ - ==========================================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. (1) Gives consideration to preferred stock dividends of $1.1 million per quarter. 6 7 ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - --------------------------------------------------------------------------------
ACCUMULATED ADDITIONAL RETAINED OTHER PREFERRED COMMON PAID-IN EARNINGS COMPREHENSIVE STOCK STOCK CAPITAL (DEFICIT) INCOME (NOTE) - -------------------------------------------------------------------------------------------------------------------------- ($ thousands) Balances at January 1, 1998 ..................... $ 15 $ 196 $ 192,910 $(43,788) $ (271) Net income ...................................... - - - 3,618 - Common stock issued on exercise of stock options.............................. - - 89 - - Dividends paid .................................. - - - (1,075) - Tax effect of stock options exercised ........... - - 118 - - - -------------------------------------------------------------------------------------------------------------------------- Balances at March 31, 1998 ...................... $ 15 $ 196 $ 193,117 $(41,245) $ (271) ==========================================================================================================================
NOTE: Included in retained earnings in the accompanying consolidated balance sheet. 7 8 ARKANSAS BEST CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31 1998 1997 -------------- ------------- ($ thousands) OPERATING ACTIVITIES Net cash provided by operating activities ................................... $ 19,519 $ 17,588 INVESTING ACTIVITIES Purchase of property, plant and equipment, less capitalized leases ................................................... (16,253) (1,556) Proceeds from asset sales ................................................... 1,642 10,272 - -------------------------------------------------------------------------------------------------------------------------- NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES ................................. (14,611) 8,716 FINANCING ACTIVITIES Borrowings under revolving credit facilities ................................ 143,400 77,875 Payments under revolving credit facilities................................... (141,400) (92,675) Payments on long-term debt................................................... (2,844) (3,576) Payments under term loan facilities ......................................... (500) (6,984) Dividends paid to minority shareholders of Treadco, Inc. .................... - (110) Dividends paid on preferred stock............................................ (1,075) (1,075) Decrease in outstanding checks .............................................. (13,801) - Deferred financing costs and expenses ....................................... - (898) Other, net .................................................................. 91 - - -------------------------------------------------------------------------------------------------------------------------- NET CASH USED BY FINANCING ACTIVITIES ............................................ (16,129) (27,443) NET DECREASE IN CASH AND CASH EQUIVALENTS ........................................ (11,221) (1,139) Cash and cash equivalents at beginning of period ............................ 7,203 1,806 - -------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ....................................... $ (4,018) $ 667 ==========================================================================================================================
8 9 ARKANSAS BEST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 1997 - -------------------------------------------------------------------------------- NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS Arkansas Best Corporation (the "Company") is a diversified holding company engaged through its subsidiaries primarily in motor carrier transportation operations, intermodal transportation operations and truck tire retreading and new tire sales. Principal subsidiaries are ABF Freight System, Inc., ("ABF"); Treadco, Inc. ("Treadco"); and Clipper Exxpress Company, CaroTrans International, Inc. ("Clipper Worldwide"), and related companies (collectively "Clipper Group"); G.I. Trucking Company ("G.I. Trucking"); and FleetNet America, Inc.; and, until July 15, 1997, Cardinal Freight Carriers, Inc. ("Cardinal"). Approximately 80% of ABF's employees are covered under a new five-year collective bargaining agreement beginning April 1, 1998 with the International Brotherhood of Teamsters ("IBT"). The agreement was reached February 9, 1998 and approved by vote of IBT members on April 9, 1998. NOTE B - FINANCIAL STATEMENT PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 1998, are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. For further information, refer to the Company's financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. The differences between the effective tax rate for the three months ended March 31, 1998, and the federal statutory rate resulted from state income taxes, amortization of goodwill, minority interest, and other nondeductible expenses. NOTE C - DISCONTINUED OPERATIONS As of June 30, 1997 and prior periods since 1995, the Company was engaged in providing logistics services, including warehousing and distribution, through two wholly owned subsidiaries, The Complete Logistics Company ("CLC") and Integrated Distribution Inc. ("IDI"). CLC was sold on August 8, 1997. In September 1997, the Company completed a formal plan to exit the logistics segment by disposing of IDI. The Company closed the sale of IDI on October 31, 1997. 9 10 ARKANSAS BEST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued - -------------------------------------------------------------------------------- Results of operations of the logistics segment have been reported as discontinued operations as of September 30, 1997 and the statements of operations for all prior periods have been restated to remove revenue and expenses of the logistics segment. Results of the logistics operations segment included in discontinued operations are summarized as follows:
THREE MONTHS ENDED MARCH 31 1998 1997 ------------ ------------- Revenues ........................................................................... $ - $ 12,134 Operating loss ..................................................................... - (1,184) Pre-tax loss ....................................................................... - (1,404)
NOTE D - INVENTORIES
MARCH 31 DECEMBER 31 1998 1997 ------------ ------------- ($ thousands) Finished goods ..................................................................... $ 23,190 $ 22,392 Materials .......................................................................... 5,005 4,934 Repair parts, supplies and other ................................................... 3,000 3,359 - -------------------------------------------------------------------------------------------------------------------------- $ 31,195 $ 30,685 ==========================================================================================================================
10 11 ARKANSAS BEST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued - -------------------------------------------------------------------------------- NOTE E - OPERATING EXPENSES AND COSTS
THREE MONTHS ENDED MARCH 31 1998 1997 ------------ ------------ (UNAUDITED) ($ thousands) LTL Motor Carrier Operations: Salaries and wages .............................................................. $ 204,341 $ 197,979 Supplies and expenses ........................................................... 29,150 29,753 Operating taxes and licenses .................................................... 10,395 10,397 Insurance ....................................................................... 6,059 6,610 Communications and utilities .................................................... 6,954 6,713 Depreciation and amortization ................................................... 7,556 9,118 Rents and purchased transportation .............................................. 29,322 23,517 Other ........................................................................... 2,425 1,840 (Gain) on sale of revenue equipment ............................................. (123) (841) - -------------------------------------------------------------------------------------------------------------------------- 296,079 285,086 Truckload Motor Carrier Operations: Salaries and wages .............................................................. - 6,920 Supplies and expenses ........................................................... - 3,687 Operating taxes and licenses .................................................... - 1,755 Insurance ....................................................................... - 913 Communications and utilities .................................................... - 283 Depreciation and amortization ................................................... - 957 Rents and purchased transportation .............................................. - 3,766 Other ........................................................................... - 207 Loss on sale of revenue equipment ............................................... - 2 - -------------------------------------------------------------------------------------------------------------------------- - 18,490 Intermodal Operations: Cost of services ................................................................ 32,728 38,172 Selling, administrative and general ................................................ 6,892 7,051 (Gain) on sale of revenue equipment.............................................. (20) - - -------------------------------------------------------------------------------------------------------------------------- 39,600 45,223 Tire Operations: Cost of sales ................................................................... 26,666 24,475 Selling, administrative and general ............................................. 11,013 10,163 - -------------------------------------------------------------------------------------------------------------------------- 37,769 34,638 Service and other: ................................................................. 3,313 2,226 - -------------------------------------------------------------------------------------------------------------------------- $ 376,671 $ 385,663 ==========================================================================================================================
11 12 ARKANSAS BEST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued - -------------------------------------------------------------------------------- NOTE F - LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS Various legal actions, the majority of which arise in the normal course of business, are pending. None of these legal actions are expected to have a material adverse effect on the Company's financial condition cash flows or results of operations. The Company maintains liability insurance against certain risks arising out of the normal course of its business, subject to certain self-insured retention limits. The Company's subsidiaries store some fuel for its tractors and trucks in approximately 108 underground tanks located in 30 states. Maintenance of such tanks is regulated at the federal and, in some cases, state levels. The Company believes that it is in substantial compliance with all such regulations. The Company is not aware of any leaks from such tanks that could reasonably be expected to have a material adverse effect on the Company. Environmental regulations have been adopted by the United States Environmental Protection Agency ("EPA") that will require the Company to upgrade its underground tank systems by December 1998. The Company currently estimates that such upgrades, which are currently in progress, will not have a material adverse effect on the Company. The Company has received notices from the EPA and others that it has been identified as a potentially responsible party ("PRP") under the Comprehensive Environmental Response Compensation and Liability Act or other federal or state environmental statutes at several hazardous waste sites. After investigating the Company's or its subsidiaries' involvement in waste disposal or waste generation at such sites, the Company has either agreed to de minimis settlements (aggregating approximately $250,000 over the last five years), or believes its obligations with respect to such sites would involve immaterial monetary liability, although there can be no assurances in this regard. As of March 31, 1998, the Company has accrued approximately $3.2 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. NOTE G - INTEREST RATE SWAP In February 1998, the Company entered into an interest-rate swap effective April 1, 1998, on a notional amount of $110 million. The swap agreement has a term of seven years with an interest rate of 5.845% plus the Credit Agreement margin (currently 1%). The Company entered into the interest-rate swap agreement to fix the interest rate on a portion of its outstanding credit agreement debt. The interest-rate swap agreement has been designated with all or a portion of the outstanding balance and expected term of revolving credit debt. The agreement involves the exchange of amounts based on a fixed interest rate for amounts based on variable interest rates over the life of the agreement without an exchange of the notional amount upon which the payments are based. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment of interest expense related to the debt (the accrual accounting method). The related amount payable to or receivable from counterparties is included in other liabilities or assets. The fair value of the swap agreements and changes in the fair value as a result of changes in market interest rates are not recognized in the financial statements. 12 13 ARKANSAS BEST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued - -------------------------------------------------------------------------------- Under the Company's accounting policy, gains and losses on terminations of interest-rate swap agreements are deferred as an adjustment to the carrying amount of the outstanding debt and amortized as an adjustment to interest expense related to the debt over the remaining term of the original contract life of the terminated swap agreement. In the event of the early extinguishment of a designated debt obligation, any realized or unrealized gain or loss from the swap would be recognized in income coincident with the extinguishment gain or loss. Any swap agreements or portions thereof, that are not designated with outstanding debt or notional amounts (or durations) of interest-rate swap agreements in excess of the principal amounts (or expected maturities) of the underlying debt obligations will be recorded as an asset or liability at fair value, with changes in fair value recorded in other income or expense (the fair value method). NOTE H - RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued Statement No. 131, Disclosures about Segments of an Enterprise and Related Information. The Statement changes the way public companies report segment information in annual financial statements and also requires those companies to report selected segment information in interim financial reports to shareholders. The proposal superseded FASB Statement No. 14 on segments. The Statement is effective for the Company in 1999. The Company is currently evaluating the impact that the Statement will have on its segment of business reporting. In March 1998, the Accounting Standards Executive Committee of The American Institute of CPA's ("AcSEC") issued Statement of Position ("SOP") 98-1, Accounting for Costs of Computer Software Developed For or Obtained For Internal Use. Under the SOP, qualifying computer software costs incurred during the "application development stage" are required to be capitalized and amortized over the software's estimated useful life. The SOP will be effective for the Company on January 1, 1999. The SOP will result in capitalization of costs related to internal computer software development. All such costs are currently expensed. The amount of costs capitalized within any period will be dependent on the nature of software development activities and projects in that period. In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income. The Statement requires the classification components of other comprehensive income by their nature in a financial statement and display of the accumulated balance of other comprehensive income separately from retained earnings and additional paid in capital in the consolidated financial statements. The Company adopted FASB Statement No. 130 on January 1, 1998. Comprehensive income was the same as net income for the periods ended March 31, 1997 and 1998. 13 14 ARKANSAS BEST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued - -------------------------------------------------------------------------------- NOTE I - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share.
THREE MONTHS ENDED MARCH 31 1998 1997 --------------- ------------- ($ thousands, except per share data) NUMERATOR: Numerator for basic earnings per share -- Net income (loss) ............................................................ $ 3,618 $ (318) Preferred stock dividends .................................................... (1,075) (1,075) - -------------------------------------------------------------------------------------------------------------------------- Numerator for basic earnings per share -- Net income (loss) available to common shareholders ........................... 2,543 (1,393) Effect of dilutive securities ................................................... - - - -------------------------------------------------------------------------------------------------------------------------- Numerator for diluted earnings per share -- Net income (loss) available to common shareholders ........................... $ 2,543 $ (1,393) ========================================================================================================================== DENOMINATOR: Denominator for basic earnings per share -- weighted average shares ............. 19,605,213 19,504,473 Effect of dilutive securities: Employee stock options ....................................................... 469,868 - - -------------------------------------------------------------------------------------------------------------------------- Denominator for diluted earnings per share -- adjusted weighted-average shares and assumed conversions ............................................... 20,075,081 19,504,473 ========================================================================================================================== EARNINGS (LOSS) PER COMMON SHARE BASIC: Continuing operations ........................................................... $ 0.13 $ (0.03) Discontinued operations ......................................................... - (0.04) - -------------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) PER SHARE ........................................................ $ 0.13 $ (0.07) ========================================================================================================================== AVERAGE COMMON SHARES OUTSTANDING (BASIC): ......................................... 19,605,213 19,504,473 DILUTED: Continuing operations ........................................................... $ 0.13 $ (0.03) Discontinued operations ......................................................... - (0.04) - -------------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) PER SHARE ........................................................ $ 0.13 $ (0.07) ========================================================================================================================== AVERAGE COMMON SHARES OUTSTANDING (DILUTED): ....................................... 20,075,081 19,504,473 ========================================================================================================================== CASH DIVIDENDS PAID PER COMMON SHARE ............................................... $ - $ - ==========================================================================================================================
14 15 ITEM 2. 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 three defined business segments: 1) Motor carrier which includes less-than-truckload ("LTL") conducted by ABF and G.I. Trucking, and truckload operations which were handled primarily by Cardinal until its sale in July, 1997; 2) Intermodal operations which includes the domestic and international operations of Clipper Group (including Clipper Worldwide); and 3) Tire operations which consists of the operations of Treadco. At March 31, 1998, the Company's percentage ownership of Treadco was 46%. The Company's consolidated financial statements reflect full consolidation of the accounts of Treadco, with the ownership interests of the other stockholders reflected as minority interest, because the Company controls Treadco through stock ownership, board representation and management services provided under a transition services agreement. OPERATING RESULTS The discussion and analysis of results of operations reflects information regarding the operating units within the Company before intercompany eliminations. 15 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued - --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31 1998 1997 ---------- --------- ABF FREIGHT SYSTEM, INC. Salaries and wages .................................................................. 68.1% 68.0% Supplies and expenses ............................................................... 10.9 11.4 Operating taxes and licenses ........................................................ 3.4 3.6 Insurance ........................................................................... 1.8 2.1 Communications and utilities ........................................................ 1.2 1.3 Depreciation and amortization ....................................................... 2.1 2.6 Rents and purchased transportation................................................... 7.9 6.8 Other ............................................................................... 0.4 0.2 (Gain) on sale of revenue equipment ................................................. 0.0 (0.3) - -------------------------------------------------------------------------------------------------------------------------- 95.8% 95.7% ========================================================================================================================== G.I. TRUCKING COMPANY Salaries and wages .................................................................. 47.4% 50.0% Supplies and expenses ............................................................... 9.3 9.3 Operating taxes and licenses ........................................................ 2.3 1.8 Insurance ........................................................................... 3.6 3.8 Communications and utilities ........................................................ 1.3 1.4 Depreciation and amortization ....................................................... 2.4 4.0 Rents and purchased transportation................................................... 30.1 27.8 Other ............................................................................... 2.6 3.2 (Gain) on sale of revenue equipment ................................................. 0.0 0.0 - -------------------------------------------------------------------------------------------------------------------------- 99.0% 101.3% ========================================================================================================================== CLIPPER DOMESTIC Cost of services..................................................................... 87.8% 87.9% Selling, Administrative & General ................................................... 13.7 11.8 (Gain) on sale of revenue equipment ................................................. (0.1) 0.0 - -------------------------------------------------------------------------------------------------------------------------- 101.4% 99.7% ========================================================================================================================== CLIPPER INTERNATIONAL Cost of services..................................................................... 75.7% 80.1% Selling, Administrative & General ................................................... 25.0 24.0 (Gain) on sale of revenue equipment ................................................. 0.0 0.0 - -------------------------------------------------------------------------------------------------------------------------- 100.7% 104.1% ========================================================================================================================== TREADCO, INC. Cost of sales........................................................................ 72.0% 76.4% Selling, Administrative & General ................................................... 29.5 31.2 (Gain) on sale of revenue equipment ................................................. 0.0 0.0 - -------------------------------------------------------------------------------------------------------------------------- 101.5% 107.6% ==========================================================================================================================
16 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1997 Consolidated revenues from continuing operations of the Company for the three months ended March 31, 1998 were $387.9 million compared to $394.6 million for the three months ended March 31, 1997. The Company had operating income from continuing operations of $11.2 million for the three months ended March 31, 1998 compared to operating income from continuing operations of $8.9 million for the three months ended March 31, 1997. The Company had income from continuing operations of $3.6 million, or $0.13 per common share (basic and diluted), for the first quarter of 1998 compared to income from continuing operations of $580,000, or a loss of ($0.03) per common share (basic and diluted), for the first quarter of 1997. The Company had net income of $3.6 million, or $0.13 per common share (basic and diluted), compared to a net loss of $(318,000), or ($0.07) per common share (basic and diluted), for the first quarter of 1997. Earnings per common share from continuing operations for the first quarter of 1998 and 1997 give consideration to preferred stock dividends of $1.1 million. Outstanding shares for the first quarter ended 1998 and 1997 do not assume conversion of preferred stock to common shares because conversion would be anti-dilutive. MOTOR CARRIER OPERATIONS. The Company's LTL motor carrier operations are conducted by ABF (including the U.S., Canadian and Puerto Rican affiliates of ABF) and G.I. Trucking. ABF. Effective January 1, 1997 and January 1, 1998, ABF implemented overall rate increases of 5.5% and 5.3%, respectively. Revenues for the three months ended March 31, 1998 were $280.3 million, with operating income of $11.8 million compared to revenues of $274.0 million and operating income of $11.8 million for the three months ended March 31, 1997. For the three months ended March 31, 1998, ABF accounted for 91% of LTL revenues. ABF's revenues increased 2.3% for the three months March 31, 1998 compared to the same period in 1997. ABF's revenue per hundredweight increased to $18.22 for the three months ended March 31, 1998, a 4.5% increase from the first quarter of 1997, reflecting a continuing favorable pricing environment. This increase was offset by a slight decrease in tonnage resulting from some freight diversions caused by customer concerns regarding labor contract negotiations. ABF's first quarter 1998 tonnage per day decreased 1.8% from the first quarter of 1997. The IBT voted for approval of the labor contract on April 9, 1998. The contract is for a five-year term and provides for average annual wage and benefit increases of approximately 2.1% including a lump-sum payment for all active employees who are IBT members of $750 for the first contract year. The lump sum payment will be amortized over 12 months. ABF's operating ratio ("O.R.") remained steady with an O.R. of 95.8% in the first quarter of 1998 compared to 95.7% in the first quarter of 1997. 17 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued - -------------------------------------------------------------------------------- The decrease in operating supplies and expenses of 0.5% of revenue from the first quarter of 1997 to the first quarter of 1998 reflects lower fuel prices, which were below first quarter 1997 levels by approximately 27.0%. Insurance expense declined 0.3% as a percentage of revenue from first quarter of 1997 to first quarter of 1998. The decline is attributable to better claims experience for self-insured worker's compensation claims and bodily injury and property damage claims. ABF's fleet of road tractors increased 2.7% when the first quarter of 1998 is compared to the same period in 1997. Depreciation and amortization decreased 0.5% of revenue when the first quarter of 1998 is compared to the first quarter of 1997. Decreases in depreciation resulted from a reduced number of owned road tractors relative to the total fleet of road tractors. An increase in the number of road tractors on operating lease relative to the total fleet of road tractors, as well as an increase in the use of rail transportation resulted in a 1.1% increase in rents and purchased transportation costs. ABF's rail usage increased to 13.5% of total miles as compared to 10.8% for the first quarter of 1997. G.I. Trucking. Revenues increased 26.2% to $28.6 million for the first quarter of 1998 compared to $22.7 million for the three months ended March 31, 1997. G.I. Trucking has continued to expand its operations, opening new terminal locations in Oklahoma City, OK, Tulsa, OK, Albuquerque, NM, and El Paso, TX since January 1, 1998. G.I. Trucking's tonnage increased 23.8% for the three months ended March 31, 1998 from the same period in 1997. G.I. Trucking's operating ratio improved to 99.0% for the first quarter of 1998 compared to 101.3% for the first quarter of 1997. Operating expense improvements relate to salaries and wages, insurance and depreciation and amortization. Offsetting these improvements were increases in rents and purchase transportation and operating taxes and licenses. Salaries and wages expense declined 2.6% as a percent of revenue due to lower pension costs and the fact a portion of salaries and wages expense is generally fixed in nature and declines as a percentage of revenue with increases in revenue levels. Insurance expense declined 0.2% of revenue reflecting better claims experience for self-insured worker's compensation claims. Operating taxes and licenses increased 0.5% of revenue, as a result of a one-time weight-distance tax credit received in the first quarter of 1997. G.I. Trucking is in the process of replacing its older fleet of revenue equipment. Declines in depreciation and amortization of 1.6% of revenues from first quarter of 1997 result from revenue equipment that incurred depreciation in the first quarter of 1997, but which was fully depreciated by the first quarter of 1998. A portion of this equipment was replaced with new equipment late in the first quarter of 1998 or will be replaced later in 1998. 18 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued - -------------------------------------------------------------------------------- A 2.3% increase in rents and purchased transportation reflects higher purchased transportation costs associated with G.I. Trucking's revenue increases. INTERMODAL OPERATIONS. The Company's intermodal operations are conducted primarily by Clipper Group (including Clipper Worldwide). Clipper Domestic. Revenues from the domestic operation of Clipper Group were $30.2 million for the three months ended March 31, 1998, a decrease of 10.5% from the three months March 31, 1997, which had revenues of $33.7 million. Beginning in the fourth quarter of 1997, Clipper Group's domestic operations were adversely affected by the service problems with the U.S. rail system. This trend continued into the first quarter of 1998, causing decreases in the number of LTL shipments by 6.6% and the number of intermodal shipments by 29.7% when first quarter 1998 is compared to first quarter 1997. Improvements in rail service are expected to be gradual. Clipper Domestic's operating ratio increased to 101.4% in the first quarter of 1998 when compared to the first quarter of 1997. This increase reflects an increase in selling, administrative and general costs of 1.9% as a percentage of revenue when the first quarter of 1998 is compared to the first quarter of 1997. Selling, administrative and general costs are primarily fixed in nature and increase as a percentage of revenue with a decline in revenue levels. Clipper International. Clipper International's revenue declined 14.5% when first quarter of 1998 is compared to first quarter 1997. Declines in revenues in the first quarter of 1998 when compared to the first quarter of 1997 result from a focus on account profitability as well as tightening of pricing. Clipper International improved its costs of services category of expense by 4.4% when the quarter ended March 31, 1998 is compared to the quarter ended March 31, 1997. This decline also results from Clipper International's focus on account profitability and from lower costs of ocean transportation in some lanes. Clipper International reported an improved operating ratio of 100.7% for the first quarter of 1998 compared to 104.1% for the first quarter of 1997. TIRE OPERATIONS. Treadco, Inc. Revenues for the three months ended March 31, 1998 increased 12.9% to $37.5 million from $33.2 million for the three months ended March 31, 1997. For the first quarter of 1998, "same store" sales increased 12.7% and "new store" sales increased 0.2%. "Same store" sales include both production locations and sales locations that have been in existence for the entire periods presented. "New store" sales resulted from one new sales location. Revenues from retreading for the three months ended March 31, 1998 increased 13.2% when compared to the same period in 1997. Retread revenue increases resulted primarily from a 12.1% increase in the number of units sold when the 1998 first quarter is compared to 1997's first quarter. Revenues from new tire sales increased 11.2% for the first quarter 1998 when compared to the same period in 1997, due to an increase of 12.0% in the number of new tire units sold which was offset by a slight decrease in the price per unit of new tires. Service revenues for the 1998 first quarter increased approximately 20.4%. 19 20 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued - ------------------------------------------------------------------------------- Treadco's operating ratio improved from 107.6% for the first quarter of 1997 compared to 101.5% for the first quarter of 1998. This improvement results from an improvement in both cost of sales and selling, general and administrative costs. The decrease in cost of sales of 4.4% of revenue resulted primarily from lower new-tire costs and production efficiencies resulting from higher sales levels which allowed higher production volume. The decrease in selling, administrative, and general expenses of 1.7% resulted from lower expenses related to employee insurance costs and bad debt expenses. INTEREST. Interest expense was $4.5 million for three months ended March 31, 1998 compared to $7.1 million for three months ended March 31, 1997 primarily due to a reduction of outstanding debt, although lower interest rates also impacted interest cost. INCOME TAXES. The difference between the effective tax rate for 1998 and the federal statutory rate resulted from state income taxes, amortization of nondeductible goodwill, minority interest, and other nondeductible expenses. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities for the three months ended March 31, 1998 was $19.5 million compared to net cash provided by operations of $17.6 million for the three months ended March 31, 1997. The increase is due primarily to the improvement in operating results and net income for the first quarter of 1998 compared to the first quarter of 1997. Cash was used to purchase revenue equipment and other assets in the amount of $14.6 million, net of proceeds from asset sales of $1.6 million in the first quarter of 1998. Cash was provided by the sale of assets was $8.7 million and asset purchases were $1.6 million in the first quarter of 1997. The Company is party to a $347 million credit agreement (the "Credit Agreement") with Societe Generale, Southwest Agency, as Managing and Administrative Agent and NationsBank of Texas, N.A., as Documentation Agent, and with 11 other participating banks. The Credit Agreement provides for up to $275 million of revolving credit loans (including letters of credit). At March 31, 1998, there were $113.8 million of Revolver Advances and approximately $44.8 million of letters of credit outstanding. At March 31, 1998, the Company had approximately $116.4 million of borrowing availability under the Credit Agreement. Concurrent with the closing of the sale of Cardinal on July 15, 1997, the Company and its banks agreed to a second amendment to the Credit Agreement, the primary effect of which was to extend the maturity from August 1998 to August 1999. In February, 1998, the Company entered into an interest rate swap effective April 1, 1998, on a notional amount of $110 million. The purpose of the swap was to limit the Company's exposure to increases in interest rates from current levels on $110 million of bank borrowings over the seven-year term of the swap. The interest rate under the swap will be 5.845% plus the Credit Agreement margin (currently 1%). Treadco is a party to a revolving credit facility with Societe Generale (the "Treadco Credit Agreement"), providing for borrowings up to $20 million. The Treadco Credit Agreement contains various covenants 20 21 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued - ------------------------------------------------------------------------------- which limit, among other things, dividends, disposition of receivables, indebtedness and investments, as well as requiring Treadco to meet certain financial tests. The Treadco Credit Agreement was amended and restated on September 30, 1997, primarily to extend the termination date, to revise certain financial covenants and to revise Treadco's interest rate on advances. Management believes, based upon the Company's current levels of operations and anticipated growth, the Company's cash, capital resources, borrowings available under the Credit Agreement and cash flow from operations will be sufficient to finance current and future operations and meet all scheduled debt service requirements. YEAR 2000 Management of the Company has considered the impact of the Year 2000 on its business operations. The Company undertook the Year 2000 conversion in 1996 and is at various stages of completion. The most significant project is the revision of the mainframe system. This project has completed the renovation phase and will be tested during 1998, with a planned completion date of December 31, 1998. The impact on the Company's financial condition and cash flows is expected to immaterial for all years. The Company has not identified any significant risks or uncertainties associated with the Year 2000 rollover. SEASONALITY Motor carrier operations are affected by seasonal fluctuations, which affect tonnage to be transported. Freight shipments, operating costs and earnings are also affected adversely by inclement weather conditions. The third calendar quarter of each year usually has the highest tonnage levels while the first quarter has the lowest. Intermodal operations are similar to motor carrier operations with revenues being weaker in the first quarter and stronger during the months of September and October. Treadco's operations are somewhat seasonal with the last nine months of the calendar year generally having the highest levels of sales. FORWARD-LOOKING STATEMENTS The Management's Discussion and Analysis Section of this report contains forward-looking statements that are based on current expectations and are subject to a number of risks and uncertainties. Actual results could differ materially from current expectations due to a number of factors, including general economic conditions; competitive initiatives and pricing pressures; union relations; availability and cost of capital; shifts in market demand; weather conditions; the performance and needs of industries served by the Company's businesses; actual future costs of operating expenses such as fuel and related taxes; self-insurance claims and employee wages and benefits; actual costs of continuing investments in technology; and the timing and amount of capital expenditures. 21 22 PART II. OTHER INFORMATION ARKANSAS BEST CORPORATION ITEM 1. LEGAL PROCEEDINGS. From time to time, the Company is named as a defendant in legal actions, the majority of which arise out of the normal course of its business. The Company is not a party to any pending legal proceeding which the Company's management believes to be material to the financial condition of the Company. The Company maintains liability insurance in excess of self retention levels of certain risks arising out of the normal course of its business (see Note F to the Company's Unaudited Consolidated Financial Statements). ITEM 2. CHANGES IN SECURITIES. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. In February 1998, the Company entered into an Interest-Rate Swap Agreement effective April 1, 1998 on a notional amount of $110 million with Societe Generale, Southwest Agency. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS. 10.1 Schedule and confirmation pertaining to the Interest-Rate Swap Agreement. 27.1 Financial Data Schedule (b) REPORTS ON FORM 8-K. None. 22 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. ARKANSAS BEST CORPORATION (Registrant) Date: May 8, 1998 /s/ David E. Loeffler ---------------------------------------- David E. Loeffler Vice President-Treasurer, Chief Financial Officer and Principal Accounting Officer 23 24 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.1 Schedule and confirmation pertaining to the Interest-Rate Swap Agreement. 27.1 Financial Data Schedule
EX-10.1 2 SCHEDULE & CONFIRMATION TO INTEREST-RATE SWAP AGMT 1 EXHIBIT 10.1 EXECUTION COPY ISDA SCHEDULE TO THE MASTER AGREEMENT DATED AS OF FEBRUARY 23, 1998 BETWEEN : SOCIETE GENERALE, NEW YORK BRANCH ("PARTY A") (whose Office is located at 1221 Avenue of the Americas, New York, New York 10020) AND : ARKANSAS BEST CORPORATION ("PARTY B") (whose Office is located at 3801 Old Greenwood Road, Fort Smith, Arkansas 72903) PART 1 TERMINATION PROVISIONS In this Agreement: (a) "SPECIFIED ENTITY" does not apply. (b) "SPECIFIED TRANSACTION" has the meaning specified in Section 14 of this Agreement. (c) The "CROSS DEFAULT" provisions of Section 5(a)(vi) will apply to Party A and Party B. "SPECIFIED INDEBTEDNESS" means any obligation (whether present or future, contingent or otherwise, as principal or surety or otherwise) in respect of borrowed money (other than, with respect to Party A, indebtedness in respect of deposits received), including, without limitation, reimbursement obligations in respect of letters of credit, bankers' acceptances with third parties and capital leases. "THRESHOLD AMOUNT" means US $ 20,000,000 for Party A and US $20,000,000 for Party B, or its equivalent in any other currency; provided, however, that the "Threshold Amount" shall mean zero (0) with respect to any Specified Indebtedness of Party B owed to Party A. (d) The "CREDIT EVENT UPON MERGER" provisions of Section 5(b)(iv) will apply to Party A and Party B. 2 (e) The "AUTOMATIC EARLY TERMINATION" provision of Section 6(a) will not apply to Party A or Party B; provided, however, that where there is an Event of Default under Section 5(a)(vii)(1), (3), (4), (5), (6), or, to the extent analogous thereto, (8), and the Defaulting Party is governed by a system of law that does not permit termination to take place after the occurrence of such Event of Default, then the Automatic Early Termination provisions of Section 6(a) will apply. (f) PAYMENTS ON EARLY TERMINATION. For the purpose of Section 6(e) of this Agreement: (i) Loss will apply; (ii) The Second Method will apply. For purposes hereof, Loss in respect of each Transaction will be based on the present value of cash flows representing the differential between the Fixed Amounts for such Transaction and the fixed amounts computed at the fixed rate prevailing in the market at the time of such determination, for the period from the day on which such determination is made until the original Termination Date for such Transaction. (g) "TERMINATION CURRENCY" means the currency selected by the Non-defaulting Party or the Non-affected Party, or in circumstances where there are two Affected Parties, agreed by Party A and Party B, and failing such agreement the Termination Currency shall be United States Dollars. However, the Termination Currency selected by the Non-defaulting Party or the Non-affected Party (i) shall be one of the currencies in which payments in respect of the Terminated Transactions are required to be made, and (ii) shall be freely transferable into all other currencies in which payments are to be made in respect of any Terminated Transaction. (h) "ADDITIONAL TERMINATION EVENT" provision of Section 5(b) will apply. The following shall be an Additional Termination Event: Party B shall notify Party A that it wishes to terminate a Transaction (in whole or in part) on a Business Day to occur no sooner than two Business Days after the day on which such notice is given. With respect to such Additional Termination Event, Party B shall be the only Affected Party and the Transaction being terminated (in whole or in part) shall be the only Affected Transaction. PART 2 TAX REPRESENTATIONS (a) PAYER REPRESENTATION. For the purpose of Section 3(e) of this Agreement, Party A and Party B will make the following representation: It is not required by any applicable law, as modified by the practice of any relevant governmental revenue authority, of any Relevant Jurisdiction, to make any deduction or withholding for or on account of any Tax from any payment (other than interest under Section 2(e), 6(d)(ii) or 6(e) of this Agreement) to be made by it to the other party under this Agreement. In making this representation, it may rely on: (i) the accuracy of any representations made by the other party pursuant to Section 3(f) of this Agreement; 2 3 (ii) the satisfaction of the agreement contained in Section 4(a)(i) or 4(a)(iii) of this Agreement and the accuracy and effectiveness of any document provided by the other party pursuant to Section 4(a)(i) or 4(a)(iii) of this Agreement; and (iii) the satisfaction of the agreement of the other party contained in Section 4(d) of this Agreement, provided that it shall not be a breach of this representation where reliance is placed on clause (ii) and the other party does not deliver a form or document under Section 4(a)(iii) by reason of material prejudice to its legal or commercial position. (b) PAYEE REPRESENTATIONS. For the purpose of Section 3(f) of this Agreement, Party A and Party B make no representations unless otherwise provided in the relevant Confirmation. PART 3 AGREEMENT TO DELIVER DOCUMENT For the purpose of Section 4(a)(i) and (ii) of this Agreement, each party agrees to deliver the following documents, as applicable: (a) Tax forms, documents or certificates to be delivered are:
PARTY REQUIRED TO FORM/DOCUMENT/ DELIVER DOCUMENT CERTIFICATE Party A and Party B No documents.
(b) Other documents to be delivered are:
PARTY REQUIRED TO FORM/DOCUMENT/ DATE BY WHICH TO BE COVERED BY SECTION 3(d) DELIVER DOCUMENT CERTIFICATE DELIVERED REPRESENTATION Party A The current authorized Upon execution of this Yes signature book of Party A Agreement and specifying the names and thereafter upon the authority, and containing the reasonable request of specimen signatures of the the other party. persons authorized to execute this Agreement and each Confirmation on its behalf.
3 4
PARTY REQUIRED TO FORM/DOCUMENT/ DATE BY WHICH TO BE COVERED BY SECTION 3(d) DELIVER DOCUMENT CERTIFICATE DELIVERED REPRESENTATION Party B Evidence satisfactory in form Upon execution of this Yes and substance to Party A of Agreement and the authority of the thereafter upon the signatory of Party B to reasonable request of execute this Agreement and the other party. each Confirmation on its behalf. Party A and An opinion of counsel Upon execution of this No Party B acceptable in form and Agreement. substance to the other party. Party A and A copy of its most Upon execution of this Yes Party B recent annual report Agreement and containing audited financial thereafter upon the statements. reasonable request of the other party.
4 5 PART 4 MISCELLANEOUS (a) ADDRESSES FOR NOTICES. For the purpose of Section 12(a) of this Agreement: ADDRESSES FOR NOTICES OR COMMUNICATIONS TO PARTY A: WITH RESPECT TO TRANSACTIONS ENTERED INTO BY THE RATE AND DERIVATIVES PRODUCTS GROUP: 1221 Avenue of the Americas NEW YORK, New York 10020 Attention: Treasury Operations Telephone: (212) 278-6000 Telex: ITT 428802 Answerback: SOCIEGEN Fax: (212) 278-7136 WITH RESPECT TO FX TRANSACTIONS ENTERED INTO BY THE FX DESK: 1221 Avenue of the Americas NEW YORK, New York 10020 Attention: Clive Sohan Telephone: (212) 278-6845 Telex: ITT 428802 Answerback: SOCIEGEN Fax: (212) 278-7451 unless otherwise specified in the relevant Confirmation. ADDRESS(ES) FOR NOTICES OR COMMUNICATIONS TO PARTY B: 3801 Old Greenwood Road Fort Smith, Arkansas 72903 Attn: David E. Loeffler Telephone: (501) 785-6157 Facsimile: (501) 785-6124 (b) PROCESS AGENT. For the purpose of Section 13(c) of this Agreement: - Party A appoints as its Process Agent: SOCIETE GENERALE, New York, 1221 Avenue of the Americas, New York, NY 10020 - Attention: General Counsel's Office. - Party B appoints as its Process Agent: Not applicable. (c) OFFICES. The provisions of Section 10(a) will apply to this Agreement. 5 6 (d) MULTIBRANCH PARTY. For the purpose of Section 10(c) of this Agreement: - Party A is not a Multibranch Party. - Party B is not a Multibranch Party. (e) CALCULATION AGENT. The Calculation Agent is Party A, unless otherwise specified in a Confirmation in relation to the relevant Transaction. (f) CREDIT SUPPORT DOCUMENT. Details of any Credit Support Document: None. (g) CREDIT SUPPORT PROVIDER. Credit Support Provider means in relation to Party A: None. Credit Support Provider means in relation to Party B: None. (h) GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO CHOICE OF LAW DOCTRINE. WAIVER OF JURY TRIAL. THE PARTIES HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY JUDICIAL PROCEEDINGS TO WHICH THEY ARE BOTH PARTIES INVOLVING ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT. (i) "NET PAYMENTS". Section 2(c)(ii) of this Agreement will apply. (j) "AFFILIATE" will have the meaning specified in Section 14 of this Agreement. PART 5 OTHER PROVISIONS (a) MODIFICATIONS TO THE AGREEMENT (i) SECTION 1(b) - INCONSISTENCY - is amended to add the following at the end thereof: "In the event of any inconsistency between the provisions of this Agreement and any of the definitional booklets published by ISDA from time to time (as amended by this Agreement), this Agreement shall prevail." (ii) SECTION 3(a) - BASIC REPRESENTATIONS - is amended to add the following new subsections: (vi) NO RELIANCE. It has, in connection with the negotiation, execution and delivery of this Agreement and any Transaction (i) the knowledge and sophistication to independently appraise and understand the financial and legal terms and conditions of each Transaction and to assume the economic consequences and risks thereof and has, in fact, done so as a result of arm's 6 7 length dealings with the other party; (ii) to the extent necessary, consulted with its own independent financial, legal or other advisors and has made its own investment, hedging and trading decisions in connection with any Transaction based upon its own judgment and the advice of such advisors and not upon any view expressed by the other party; (iii) not relied upon any representations (whether written or oral) of the other party, other than the representations expressly set forth hereunder and in any Credit Support Document and is not in any fiduciary relationship with the other party; (iv) not obtained from the other party (directly or indirectly through any other person) any advice, counsel or assurances as to the expected or projected success, profitability, performance, results or benefits of any Transaction; and (v) determined to its satisfaction whether or not the rates, prices or amounts and other economic terms of any Transaction and the indicative quotations (if any) provided by the other party reflect those in the relevant market for similar transactions. (vii) ELIGIBLE SWAP PARTICIPANT. It is an "eligible swap participant" as such term is defined in Section 35.1(b)(2) of 17 CFR Part 35. (iii) SECTION 5(a)(vi) - CROSS DEFAULT - is amended to add the following proviso at the end thereof: "provided, however, that notwithstanding the foregoing, an Event of Default shall not occur if: (aa) the event or condition referred to in (1) or the failure to pay referred to in (2) is caused by an error or omission of an administrative or operational nature; and (bb) (A) funds were available to such party, any Credit Support Provider of such party or any applicable Specified Entity of such party, as the case may be, to enable it to make the relevant payment when due and (B) such relevant payment is made within three Local Business Days after notice of such failure is given to such party, any Credit Support Provider of such party or any applicable Specified Entity of such party, as the case may be;" (iv) SECTION 6 - EARLY TERMINATION - is amended to add the following Section 6(f): "SET OFF: Any amount (the "Early Termination Amount") payable to one party (the "Payee") by the other party (the "Payer") under Section 6(e), in circumstances where there is a Defaulting Party or one Affected Party in the case where a Termination Event under Section 5(b)(iv) has occurred, will, at the option of the party ("X") other than the Defaulting Party or the Affected Party (and without prior notice to the Defaulting Party or the Affected Party), be reduced by its set-off against any amount(s) (the "Other Agreement Amount") payable (whether at such time or in the future or upon the occurrence of a contingency) by the Payee to the Payer (irrespective of the currency, place of payment or booking office of the obligation) under any other agreement(s) between the Payee and the Payer or instrument(s) or undertaking(s) issued or executed by one party to, or in favor of, the other party (and the Other Agreement Amount will be discharged promptly and in all respects to the extent it is so set-off). X will give notice to the other party of any set-off effected under this Section 6(f). 7 8 For this purpose, either the Early Termination Amount or the Other Agreement Amount (or the relevant portion of such amounts) may be converted by X into the currency in which the other is denominated at the rate of exchange at which such party would be able, acting in a reasonable manner and in good faith, to purchase the relevant amount of such currency. If an obligation is unascertained, X may in good faith estimate that obligation and set-off in respect of the estimate, subject to the relevant party accounting to the other when the obligation is ascertained. Nothing in this Section 6(f) shall be effective to create a charge or other security interest. This Section 6(f) shall be without prejudice and in addition to any right of set-off, combination of accounts, lien or other right to which any party is at any time otherwise entitled (whether by operation of law, contract or otherwise)." (b) CONFIRMATIONS FOR FX TRANSACTIONS (i) The Confirmation for each FX Transaction shall be substantially in the form of either (a) Exhibit I to the 1992 Definitions or (b) in such other form as the parties may agree. (ii) If an FX Transaction is confirmed by means of an electronic messaging system that the parties have elected to use to confirm such FX Transaction (a) such confirmation will constitute a "Confirmation" as referred to in this Agreement even where not so specified in the Confirmation, (b) such Confirmation will supplement, form part of, and be subject to this Agreement and all provisions in this Agreement will govern the Confirmation and (c) the definitions and provisions contained in the 1992 Definitions will be incorporated into the Confirmation. (c) OTHER PROVISIONS (i) TELEPHONE RECORDING. Each party may tape record any telephone conversation between the parties and each party agrees that any such tape recording shall be admissible as evidence in any court or other legal proceeding for the purpose of establishing any matters pertinent to such Transaction. Upon the execution and delivery of a written Confirmation, such Confirmation shall supersede and replace such tape recording. (ii) SEVERABILITY. If any term, provision, covenant, or condition of this Agreement, or the application thereof to any party or circumstance, shall be held to be illegal, invalid or unenforceable (in whole or in part) for any reason, the remaining terms, provisions, covenants, and conditions hereof shall continue in full force and effect as if the Agreement had been executed with the illegal, invalid or unenforceable portion eliminated, so long as the Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter of this Agreement and the deletion of such portion of this Agreement will not substantially impair the respective benefits or expectations of the parties of this Agreement. It shall in particular be understood that this Severability clause shall not affect the "single agreement" concept of provision 1(c) of the Agreement. 8 9 (iii) PARI PASSU. Party B agrees that at all times its obligations under any unsecured Transaction shall rank at least pari passu in right of payment and security with all of Party B's unsecured and unsubordinated Specified Indebtedness other than Specified Indebtedness preferred by law. In addition, in the event Party B has pledged, or at any time hereafter does pledge, collateral as security for any of its outstanding Specified Indebtedness, then Party B's obligations to Party A under any Transaction shall be secured on a pari passu basis with such Specified Indebtedness. SOCIETE GENERALE, ARKANSAS BEST CORPORATION NEW YORK BRANCH (PARTY B) (PARTY A) By: By: --------------------------------- -------------------------------- Name: Name: ------------------------------- ------------------------------ Title: Title: ----------------------------- ----------------------------- 9 10 February 26, 1998 Rate Swap Transaction From: Susan Vetri/Treasury Ops. Tel: 212-278-7182 Attn: David E. Loeffler Fax: 212-278-7650 Arkansas Best Corporation P.O. Box 10048 Fort Smith, Arkansas 72917-0048 Re: SG Ref # 10030 Fax: 501-785-6124 Tel: 501-785-6157 REVISED MARCH 4, 1998 Dear Sirs: The purpose of this letter agreement is to set forth the terms and conditions of the Transaction entered into between Societe Generale, New York Branch ("Party A") and Arkansas Best Corporation ("Party B") on the Trade Date specified below (the "Transaction"). This letter agreement constitutes a "Confirmation" as referred to in the Agreement specified below. The definitions and provisions contained in the 1991 ISDA Definitions (the "Definitions") published by the International Swap and Derivatives Association, Inc. are incorporated by reference into this Confirmation. For these purposes, all references in the Definitions to a "Swap Transaction" shall be deemed to apply to the Transaction referred to herein. In the event of any inconsistency between the Definitions and this Confirmation, this Confirmation will govern. This Confirmation evidences a complete and binding agreement between Party A and Party B as to the terms of the Transaction to which this Confirmation relates. In addition, Party A and Party B agree to use their best efforts promptly to negotiate, execute and deliver a Master Agreement (Multicurrency -- Cross Border) in the form published by ISDA, with such modifications as Party A and Party B shall in good faith agree. 1. Upon the execution by Party A and Party B of such a Master Agreement (the "Agreement"), this Confirmation will supplement, form part of, and be subject to the Agreement. All provisions contained or incorporated by reference in the Agreement will govern this Confirmation except as expressly modified below. Prior to execution of the Agreement, the provisions of the Master Agreement (Multicurrency -- Cross Border) shall be incorporated by reference herein and shall form a part of this Confirmation. In 11 the event of any inconsistency between those provisions and this Confirmation, this Confirmation will govern. Party A shall prepare and provide Party B with a draft of the Schedule to the Agreement. 2. The terms of the particular Transaction to which this Confirmation relates - which is a rate swap - are as follows: Notional Amount: USD 110,000,000.00 Trade Date: February 23, 1998 Effective Date: April 1, 1998 Termination Date: April 1, 2005, subject to adjustment in accordance with the Modified Following Business Day Convention Fixed Amounts: Fixed Rate Payer: Party B Fixed Rate Payer Payment Dates: Every 1st of Each Month, commencing May 1, 1998, up to and including the Termination Date Fixed Rate: 5.845 % Fixed Rate Day Count Fraction: Actual/360 Floating Amounts: Floating Rate Payer: Party A Floating Rate Payer Payment Dates: Every 1st of Each Month, commencing May 1, 1998, up to and including the Termination Date
12 Floating Rate for initial Calculation Period: To be determined two London Banking Day prior to the Effective Date using the Floating Rate Option Floating Rate Option: USD-LIBOR-BBA Designated Maturity: 1 Month Floating Rate Day Count Fraction: Actual/360 Reset Dates: First day of each Calculation Period Business Days for Floating Rate Determination: London Business Days for Payment Dates: London and New York Business Day Convention: Modified Following Calculation Agent: Party A 3. Account Details Payments to Party A: Federal Reserve Bank of New York ABA # 026004226 F/O Societe Generale, New York Payments to Party B: PLEASE PROVIDE
4. The Office of Party A for this Transaction is New York. The Office of Party B for this Transaction is Arkansas. 13 5. Non-Reliance: Each party represents that (i) it is not relying upon any advice (whether written or oral) of the other party to this Transaction, other than the representations expressly set forth in the Agreement or this Confirmation; (ii) it has made its own decisions in entering into this Transaction based upon advice from such professional advisors as it has deemed necessary; and (iii) it understands the terms, conditions and risks of this Transaction and is willing to assume (financially and otherwise) those risks. Please confirm that the foregoing correctly sets forth the terms of our agreement by executing one copy of this Confirmation and returning it to us. Yours sincerely, SOCIETE GENERALE, NEW YORK BRANCH By: -------------------------------- Name: Susan Vetri Title: Assistant Treasurer Confirmed as of the date first written above: By: -------------------------------- Name: Jeremy Henderson Arkansas Best Corporation, Title: First V.P. Arkansas By: ------------------------ Name: Title: EX-27.1 3 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ARKANSAS BEST CORPORATION QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000894405 ARKANSAS BEST CORPORATION 1,000 3-MOS DEC-31-1998 MAR-31-1998 (4,018) 0 167,509 7,568 31,195 218,127 522,258 231,491 683,163 251,884 200,424 0 15 196 151,601 683,163 37,067 387,907 26,666 376,671 0 893 4,468 6,238 2,620 3,618 0 0 0 3,618 .13 .13
-----END PRIVACY-ENHANCED MESSAGE-----