-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, PR8tSDfcDALteI4ESu6wZwLepn7V3NH0dpt2H1+sjn+HEQG2cvw3J/8sPNb5fxdF hQfW2zAeJRoTABWfQ3DgGw== 0000894405-94-000001.txt : 19940314 0000894405-94-000001.hdr.sgml : 19940314 ACCESSION NUMBER: 0000894405-94-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940311 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARKANSAS BEST CORP /DE/ CENTRAL INDEX KEY: 0000894405 STANDARD INDUSTRIAL CLASSIFICATION: 4213 IRS NUMBER: 710673405 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 000-19969 FILM NUMBER: 94515567 BUSINESS ADDRESS: STREET 1: 1000 SOUTH 21 ST CITY: FORT SMITH STATE: AR ZIP: 72901 BUSINESS PHONE: 5017856000 MAIL ADDRESS: STREET 1: P O BOX 48 CITY: FORT SMITH STATE: AR ZIP: 72902 10-K 1 DECEMBER 31, 1993 FORM 10-K 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, 1993 [ ] 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.) 1000 South 21st Street, Fort Smith, Arkansas 72901 - ---------------------------------------------- ---------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 501-785-6000 ------------ Securities registered pursuant to Section 12(b) of the Act: None ---------------- (Title of Class) Securities registered pursuant to Section 12(g) of the Act: Name of each exchange Title of each class on which registered - -------------------------------------- ----------------------- Common Stock, $.01 Par Value Nasdaq Stock Market/NMS $2.875 Series A Cumulative Convertible Exchangeable Preferred Stock, $.01 Par Value Nasdaq Stock Market/NMS Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of The Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X]. The aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 1, 1994, was $228,832,409. The number of shares of Common Stock, $.01 par value, outstanding as of March 1, 1994, was 19,200,077. Documents incorporated by reference: Portions of the proxy statement for the Arkansas Best Corporation annual shareholders' meeting to be held May 10, 1994 are incorporated by reference into Part III. PART I. ITEM 1. BUSINESS (a) General Development of Business Corporate Profile Arkansas Best Corporation (the "Company") is primarily engaged, through its motor carrier subsidiaries, in less-than-truckload ("LTL") shipments of general commodities. The Company is also engaged through its 46%-owned subsidiary, Treadco, Inc. ("Treadco"), in truck tire retreading and new truck tire sales. ABF Freight System, Inc. ("ABF"), founded in 1935, is the largest motor carrier subsidiary of the Company, accounting for approximately 87% of the Company's consolidated revenues. ABF has grown to become the fifth largest LTL motor carrier in the United States from the forty-eighth largest in 1965, based on revenues for 1993 as reported to the Interstate Commerce Commission (the "ICC"). Treadco, which accounted for approximately 11% of the Company's consolidated revenues, is the nation's largest independent tire retreader for the trucking industry and the second largest commercial truck tire dealer. Historical BackgroundIn July 1988, the Company was acquired in a leveraged buyout by a corporation organized by Kelso & Company, L.P., the predecessor of Kelso & Company, Inc. In May 1992, the Company completed a recapitalization, which included (i) an initial public offering of Common Stock par value $.01 (the "Common Stock") by the Company, the net proceeds of which were used to repurchase approximately $114 million in principal amount of its 14% Senior Subordinated Notes due 1998 (the "Notes") pursuant to a tender offer and related consent solicitation and to pay related fees and expenses, and (ii) the refinancing of the Company's existing bank indebtedness. On November 13, 1992, the Company repurchased approximately 4,439,000 shares of Common Stock beneficially owned by Kelso Best Partners, L.P. for approximately $55.5 million in the aggregate, or $12.50 per share (a discount of $1.50 per share to the then quoted NASDAQ/NMS sale price). Prior to the Repurchase, Kelso Partners was the Company's largest stockholder, with beneficial ownership of approximately 21.7% of the total outstanding shares of the Company's Common Stock. Kelso Partners distributed its remaining 650,000 shares to certain of its individual partners, thus ending Kelso Partners' investment in the Company. To pay for the repurchase of such shares, the Company borrowed $50 million under a new five-year term loan credit facility (the "Term Loan") provided by its existing bank group through an amendment and restatement of its existing credit agreement and used $5.5 million in available cash. See "Management's Discussion and Analysis -- Liquidity and Capital Resources." On February 3, 1993, the Company completed a public offering of 1,495,000 shares of preferred stock ("Preferred Stock"). The Company used the net proceeds of $72.3 million to repay the $50 million Term Loan and for general corporate purposes. See "Management's Discussion and Analysis -- Liquidity and Capital Resources." (b) Financial Information about Industry Segments The response to this portion of Item 1 is included in "Note M - Business Segment Data" of the notes to the Company's consolidated financial statements for the year ended December 31, 1993, which is submitted as a separate section of this report. (c) Narrative Description of Business Motor Carrier Operations General The Company's 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"). ABF, which concentrates on long-haul transportation of general commodities freight, involving primarily LTL shipments, is the Company's largest motor carrier subsidiary, accounting for approximately 98% of the Company's motor carrier revenues for 1993. ABF-BC and ABF Canada operate out of eleven terminals in Canada. Cartage focuses on shipments in and out of Hawaii and Land-Marine currently concentrates on shipments in and out of Puerto Rico. ABF Freight System, Inc. ABF is the largest subsidiary of the Company, accounting for approximately 87% of the Company's consolidated revenues. ABF has grown to become the fifth largest LTL motor carrier in the United States from the forty-eighth largest in 1965, based on revenues for 1993 as reported to the ICC. ABF, which concentrates on long-haul LTL shipments, provides direct service to 939 of the 952 cities in the United States having a population of 25,000 or more. ABF and the Company's other motor carrier subsidiaries have 339 terminals and operate 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 has more than 50,000 customers, including approximately 335 national accounts. ABF was incorporated in Delaware in 1982 as a successor to Arkansas Motor Freight, a business originally organized in 1935. ABF concentrates on long-haul transportation of general commodities freight, involving primarily LTL shipments. General commodities include all freight except hazardous waste, dangerous explosives, commodities of exceptionally high value, commodities in bulk and those requiring special equipment. ABF's general commodities shipments differ from shipments of bulk raw materials which are commonly transported by railroad, pipeline and water carrier. General commodities transported by ABF include, among other things, food, textiles, apparel, furniture, appliances, chemicals, non-bulk petroleum products, rubber, plastics, metal and metal products, wood, glass, automotive parts, machinery and miscellaneous manufactured products. During the year ended December 31, 1993, no single customer accounted for more than 4% of ABF's revenues, and the ten largest customers accounted for less than 11% of ABF's revenues. LTL Operations LTL carriers differ substantially from full truckload carriers by offering service to shippers which is tailored to the need to transport a wide variety of large and small shipments to geographically dispersed destinations. Generally, full truckload companies operate from the shipper's dock to the receiver's facility and require very little fixed investment beyond the cost of the trucks. LTL carriers pick up small shipments throughout the vicinity of a local terminal with local trucks and consolidate them at each terminal according to destination for transportation by intercity units to their destination cities or to breakbulk (rehandling) terminals, where shipments from various locations can be reconsolidated for transportation to distant destinations, other breakbulk terminals or local terminals. In most cases, a single driver's trip will consist of a day's run to the terminal or relay point which is appropriately located on the route, where the trailer containing the shipments will be transferred to continue towards its destination. Once delivered to a local terminal, a shipment is delivered to the customer by local trucks operating from such terminal. In some cases, when a sufficient number of different shipments at one origin terminal are going to a common destination, they can be combined to make a full trailerload. A trailer then is dispatched to that destination without having to rehandle the freight. In order to improve efficiency, reduce labor costs and enhance customer service, ABF seeks to minimize the number of times it handles freight. ABF estimates that at its breakbulk terminals it handles its LTL shipments, on average, approximately one and a quarter times. ABF's low average handling per shipment tends to result in fewer damage claims and reduced transit time. ABF has concentrated on increasing the LTL segment of its business, which has grown from 52.6% of its revenues in 1978 to 88.3% of its revenues in 1993. The Company believes that the opportunity to achieve economies of scale in LTL operations and the service-sensitive nature of the LTL freight business make this an attractive market. In addition, this market has been less affected by increased competition from new entrants because transportation of LTL freight requires significant capital assets, including terminal facilities and complex computer and communications systems, a skilled work force and a large sales organization. Expansion Program In anticipation of deregulation of the trucking industry, in the mid-1970's ABF determined it would be necessary to embark on a program of expansion designed to extend its services geographically and transform itself from a regional into a national carrier. The acquisition of Navajo Freight Lines, Inc. in 1978 extended ABF's routes and services into the Western and Southwestern United States and the acquisition of East Texas Motor Freight in 1982 added to ABF's existing services in the Midwestern and Southern United States and extended coverage into the Northwestern United States. Upon completion of these two acquisitions, ABF had a framework of routes and terminals that substantially covered all regions of the continental United States. Over the period of these acquisitions ABF increased its number of terminals from 67 in 1978 to 160 in 1982, with ABF and the Company's other motor carrier subsidiaries now having 339 terminals. ABF-Canada and ABF-BC operate out of eleven terminals in Canada. Although the Company does not maintain terminals in Mexico, through an alliance and relationships with trucking companies in Mexico, ABF provides motor carrier services to customers in that country as well. Although the Company expects to continue adding terminals and relocating existing terminals when and where strategically important, it does not expect to continue the rapid rate of growth experienced during the eighties. In April 1992, ABF announced that it had entered into an intermodal strategic alliance with Votainer International B.V. ("Votainer"). The alliance provides ABF and Votainer customers with world-wide intermodal transportation services to and from points in the United States. Such services feature through-rates based on a single factor, a through-bill-of-lading, and electronic shipment tracing from origin to destination. Although the Company believes that the alliance is unique in the international trade industry, the Company does not expect the strategic alliance to have a material effect on the Company's revenues or operating results in the near term. In January 1993, ABF announced the formation of an alliance with Servicio Libre a Bordo ("LAB") giving ABF single-bill service to major points in Mexico. The alliance gives ABF's customers a unique opportunity to move their freight in and out of Mexico. LAB is an LTL specialist in the Mexico market while most other Mexican carriers have truckload as their core business. The alliance features proportional through rates, single-carrier responsibility of limited cargo liability, single freight bill including all freight charges, the option for freight charges to be prepaid origin to destination, collect origin to destination or a combination of prepaid and collect, electronic tracing from origin to destination, and consistent transit times. In August 1993, ABF announced an alliance with Burnham Service Corporation ("Burnham") which provides specialized delivery and setup services. The alliance serves all points served by the ABF system, to any point in the 48 contiguous states. Utilizing the hookup of electronic services of both companies, it gives customers seamless service between ABF and Burnham. Primary product features include through-rates, single freight bill containing freight and setup charges, single-carrier liability, instant electronic shipment tracing from origin to destination, and consistent transit times. Statistical Information The following table sets forth certain statistical information regarding ABF's operations (including inter-Company operations) for the five years ended December 31, 1993.
Year Ended December 31 1993 1992 1991 1990 1989 (Unaudited) Operating ratio 95.8% 94.9% 96.3% 95.1% 96.9% Average length of haul (miles) 1,198 1,201 1,192 1,175 1,173 Employees (1) 10,719 10,545 10,184 10,159 8,848 Miles per gallon 6.12 5.87 5.65 5.62 5.56 Fuel cost per mile (2) $.094 $.110 $.116 $.132 $.105 Terminals (at end of period) 323 317 320 319 312 Tractors Road Tractors 1,385 1,385 1,385 1,338 1,288 City Tractors 2,469 2,474 2,368 2,188 2,133 Trailers Road Trailers -- doubles 12,263 11,718 11,405 10,679 10,178 Road Trailers -- long 231 251 274 274 305 City Trailers 1,395 1,365 1,187 1,219 1,183 Less-than-Truckload (3) Revenue (000's) $772,872 $748,470 $697,602 $661,611 $548,950 Percent of total revenue 88.3% 88.8% 89.1% 88.2% 87.2% Tonnage (000's) 2,620 2,542 2,384 2,326 1,956 Percentage of total tonnage 76.5% 77.2% 78.5% 76.9% 74.7% Shipments (000's) 4,948 4,899 4,793 4,779 4,054 Revenue per hundredweight $14.75 $14.72 $14.63 $14.22 $14.03 Average weight per shipment (pounds) 1,059 1,038 995 973 965 Truckload Revenue (000's) $102,635 $ 94,242 $ 85,013 $ 88,917 $ 80,867 Tonnage (000's) 807 752 654 700 662 Shipments (000's) 96 89 78 82 75 Revenue per hundredweight $6.36 $6.27 $6.50 $6.36 $6.11 Average weight per shipment (pounds) 16,776 16,858 16,707 17,034 17,541 (1) At end of period for salaried employees and mid-December for hourly employees. (2) Excludes fuel tax per mile of $.057, $.059, $.069, $.067 and $.071 for 1989 through 1993, respectively. (3) Defined by the ICC as shipments weighing less than 10,000 pounds.
Marketing Prior to the partial deregulation of the trucking industry beginning in 1980, rates were extensively regulated by the ICC and were not a significant competitive factor, but now marketing, cost and rate of return have become an integral part of carrier operations. By expanding ABF's transcontinental system through the addition of terminals, ABF has increased its ability to service a greater number of customers directly. Maintaining ABF's competitive position requires operational and sales support that is customer oriented. To achieve this objective, ABF has sales representation in all cities in which it has terminals and also has ten separate national account sales offices. To improve service, ABF makes information readily accessible to its customers through various electronic pricing, billing and tracing services, referred to by ABF as the "Q-Family" of services. The ABF Q-Family offers a complete package of computer-supported information services. Q-Stat is the newest member of the Q-Family. It provides a monthly statistical report of a customer's shipping activity with ABF. Q-Bill offers most of the functions of a traffic department in a PC software package. Q-Bill provides for bill- of-lading preparation, automatic rating with an ABF tariff or competitor tariff, case label production and summary manifesting. Q-EDI is ABF's computer-to-computer electronic data interchange (EDI) system. The following standard transaction sets are presently supported:(i) shipment status information for shipment tracking and performance monitoring; (ii) freight bills for payment and auditing, and (iii) bill-of-lading information for carrier billing and rating. Q-Info is a PC-based shipment status information system designed to aid ABF customers in the performance of their daily traffic-related functions. Q-Info provides customized shipment status reports, up-to-the-minute tracing information and freight bill copies. Q-Line is a nationwide hotline which can be reached 24-hours a day, seven days a week, from any touch-tone telephone. It is a voice response system which allows "conversation" with the ABF computer for tracing, rates, loss and damage claims, and transit time information. Q-Rate III is ABF's third generation rating program. ABF originated diskette rating and, in management's opinion, continues to set the industry standard. Q-Rate III provides nationwide rating on two diskettes. In addition to supporting the ABF tariffs, information regarding coverage, transit times, and mileage is provided. Quality Improvement Process In 1984, ABF began implementing a Quality Improvement Process to focus on the specific requirements of customers and to develop measurement systems that determine the degree of success or failure in conforming to those requirements. Non-conforming results trigger a structured approach to problem solving, error identification and classification. The Quality Improvement Process requires that all levels of employees be educated in the process itself and trained in their respective job responsibilities so that the focus on customer requirements drives job performance. In that vein, ABF maintains permanent educational facilities in strategic locations to teach the Quality Improvement Process to sales personnel, branch managers and operations personnel in classroom environments. ABF believes that the Quality Improvement Process has enhanced performance in a number of areas. As an example, ABF has been able to reduce the incidence of inaccurate freight bills by over 70% in the last five years. Revenue Equipment and Truck Terminals In anticipation of the partial deregulation of the trucking industry, ABF began in 1978 to expand carrier services and geographic coverage. ABF and the Company's other motor carrier subsidiaries have increased their market coverage by expanding the number of terminals from 67 in early 1978 to 339 currently. A rapid period of terminal expansion from 1978 gave ABF substantially complete national geographic coverage and has not continued at the same pace since 1988. ABF owns 26 of its terminal facilities, leases 82 terminals from its affiliate, ABC Treadco, Inc. ("ABC Treadco") and leases the remaining terminals from independent third parties. ABF's equipment replacement policy generally provides for replacing intercity tractors every three years, intracity tractors every five to seven years, and trailers (which have a depreciable life of seven years) on an as needed basis (generally seven years or more), resulting in a relatively new and efficient tractor fleet and minimizing maintenance expenses. ABF presently intends to continue its tractor and trailer replacement policy. ABF has a comprehensive preventive maintenance program for its tractors and trailers to minimize equipment downtime and prolong equipment life. Repairs and maintenance are performed regularly at ABF's facilities and at independent contract maintenance facilities. In late 1993, ABF initiated a new computerized maintenance program which tracks equipment activity and provides automatic notification of the maintenance needs of each tractor, trailer and converter gear. The program keeps records of preventive maintenance schedules and governmental inspection requirements for each piece of equipment and routes the unit to the nearest ABF maintenance facility where the service can be performed. As of December 31, 1993, ABF owned or operated the following revenue equipment, which, excluding operating leases, had an aggregate net book value of approximately $78.5 million:
Total No. Approximate Age in Years of Units 1 2 3 4 5 6 7 Over 7 Intercity Tractors (1) 1,385 500 500 225 160 Intercity Trailers (2) 231 100 131 Intercity Trailers-Doubles (3) 12,263 820 600 749 500 410 599 2,146 6,439 Intracity Tractors 2,469 395 280 300 264 125 174 484 447 Intracity Trailers 1,395 1,395 Pickup/Delivery Trucks 90 17 20 36 17 Converters (used to connect two 28-foot trailers) (4) 2,538 50 615 1,873 (1) Includes 1,225 tractors being leased under operating leases. (2) Includes 100 trailers being leased under capitalized leases. (3) Includes 7,706 trailers being leased under capitalized leases and 924 trailers being leased under operating leases. (4) Includes 665 converters being leased under capitalized leases.
In 1993, under its equipment replacement program, ABF acquired 500 intercity tractors, 350 intracity tractors and 820 trailers. Internally generated funds, borrowings under the credit agreement and leases have been sufficient to finance these additions. Data Processing The Company, through its wholly owned service bureau subsidiary, is able to provide timely information, such as the status of all shipments in the system at any given point in time, that aids the marketing efforts of ABF as well as assisting its operating personnel. During 1993, ABF implemented a new on- line city manifest computer program which further enhances shipment tracing. The program also provides additional information which will improve operations. The service bureau is staffed with 182 data processing specialists. The Company believes that its allocation of resources to data processing has assisted ABF in providing the type of quality services required by a sophisticated shipping public. Employees At December 31, 1993, ABF employed 10,719 persons. Employee compensation and related costs are the largest components of carrier operating expenses. In 1993, such costs amounted to 67.6% of ABF's general commodities revenues. ABF is a signatory with the Teamsters to the National Master Freight Agreement (the "National Agreement") which became effective April 1, 1991, and expires March 31, 1994. Terms of the new agreement, which is currently under negotiation, are unknown at this time. Under the National Agreement, employee wages increased an average of 3.2% annually during 1991 and an average of 2.7% annually from April 1, 1992 through March 31, 1994. Health, welfare and pension costs increased 10.6% annually during 1991 and an average of 6.7% annually from April 1, 1992 through March 31, 1994. Under the terms of the National Agreement, ABF is required to contribute to various multiemployer pension plans maintained for the benefit of its employees who are members of the Teamsters. Amendments to the Employee Retirement Income Security Act of 1974 ("ERISA") pursuant to the Multiemployer Pension Plan Amendments Act of 1980 (the "MPPA Act") substantially expanded the potential liabilities of employers who participate in such plans. Under ERISA, as amended by the MPPA Act, an employer who contributes to a multiemployer pension plan and the members of such employer's controlled group are jointly and severally liable for their proportionate share of the plan's unfunded liabilities in the event the employer ceases to have an obligation to contribute to the plan or substantially reduces its contributions to the plan (i.e., in the event of plan termination or withdrawal by the Company from the multiemployer plans). Although the Company has no current information regarding its potential liability under ERISA in the event it wholly or partially ceases to have an obligation to contribute or substantially reduces its contributions to the multiemployer plans to which it currently contributes, management believes that such liability would be material. The Company has no intention of ceasing to contribute or of substantially reducing its contributions to such multiemployer plans. ABF is also a party to several smaller union contracts. Approximately 80% of ABF's employees are unionized, of whom approximately 1% are members of unions other than the Teamsters. Five of the six largest LTL carriers are unionized and generally pay comparable wages. Non-union companies typically pay employees less than union companies. Over the past ten years, ABF's operations have not been significantly affected by any work stoppages and management believes that it enjoys good labor relations with both union and non-union employees. There can be no assurance, however, that labor problems will not arise in the future that would adversely affect the operations and profitability of the motor carrier industry in general and ABF in particular. Since December 1989, the Department of Transportation ("DOT") has required ABF and other domestic motor carriers to implement drug testing programs for their truck drivers to deter drug use. In December 1991, ABF implemented a random testing program to cover its entire driver work force. ABF has since April 1992 been testing as required by the federal government at an average rate of 50% of its driver work force. Statistics for 1993 indicate that ABF has administered 4,409 random, biennial re-certification and post-accident tests to its employees, with a pass rate of 99.2%. Due to its national reputation and its high pay scale, the Company has not historically experienced any significant difficulty in attracting or retaining qualified drivers. 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 is generally self-insured for the first $100,000 of each cargo loss, $300,000 of each workers' compensation loss and $200,000 of each general and auto liability loss, plus an aggregate of $750,000 of auto liability losses between $200,000 and $500,000. The Company maintains insurance contracts covering the excess of such losses in amounts it believes are adequate. While insurance for motor carriers has become increasingly more expensive and more difficult to obtain, it remains essential to the continuing operations of a motor carrier. Although such insurance has become more difficult to obtain, the Company has been able to obtain adequate coverage and is not aware of problems in the foreseeable future which would significantly impair its ability to obtain adequate coverage at comparable rates. The Company also believes that it has one of the best safety records in the trucking industry, based in part on having received first, second or third place safety awards from the American Trucking Associations ("ATA") every year for the past 21 years. In 1993, ABF was awarded the ATA's President's Trophy for the company with the most outstanding safety program. ABF had previously won the President's Trophy in 1989 and 1984. ABF's tractors are equipped with governors which prevent drivers from driving at speeds in excess of 57 mph, thereby maximizing safety and fuel economy. Of the ABF general commodities shipments handled during the year ended December 31, 1993, more than 99% were free of any cargo claim, and of those having cargo claims, 89% were settled within 30 days of the claim date. The following table shows accidents and claims results for the last five years:
Year Ended December 31 1993 1992 1991 1990 1989 Linehaul miles (000) per DOT linehaul accident (1) 1,868 1,962 1,816 1,543 1,730 Selected categories of insurance expense as a percent of revenue: Cargo loss and damage claims 1.00% 0.94% 1.03% 1.03% 0.94% Public liability 0.86 1.08 0.98 0.69 0.82 Workers' Compensation 1.79 1.83 2.00 1.61 1.53 ----- ----- ----- ----- ----- Total 3.65% 3.85% 4.01% 3.33% 3.29% ===== ===== ===== ===== ===== (1) An accident, as defined by the DOT, involves personal injury with treatment sought immediately away from the scene of the accident or disabling damage that requires a vehicle to be towed from the scene of the accident.
Fuel The motor carrier industry is dependent upon the availability of diesel fuel. Material adverse effects on the operations and profitability of the industry, as well as ABF, could occur as a result of significant increases in fuel costs, fuel taxes or shortages of fuel. Management, however, believes that the Company would be impacted to a lesser extent than truckload carriers if prices increased dramatically because fuel costs are a smaller percentage of costs for LTL carriers. Further, management believes that the Company's operations and financial condition are no more susceptible to fuel price increases or fuel shortages than its competitors. On October 1, 1993, the new Federal Diesel Fuel Regulations went into effect. The new regulations require the use of low sulfur highway diesel in all on- road diesel powered motor vehicles. The Company is in compliance with the new regulations. The low sulfur requirement initially increased the price per gallon, but the overall price per gallon decreased late in 1993. At present, the price per gallon of diesel fuel, excluding taxes, is at its lowest level since 1990. Competition, Pricing and Industry Factors The trucking industry is highly competitive. ABF actively competes 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, ABF and most of the other principal motor carriers use similar tariffs to rate interstate shipments. Intense competition for freight revenue, however, has resulted in discounting which effectively reduce prices paid by shippers. In an effort to maintain and improve its market share, ABF offers and negotiates various discounts. See "Business -- Motor Carrier Operations -- Regulation." Deregulation of the trucking industry has resulted in easier entry into the industry and increased competition, although there has also been consolidation in the industry, as a number of companies have since gone out of business. See "Business -- Motor Carrier Operations -- Regulation." New entrants (some of which have grown rapidly in regional markets) include some non-union carriers which have lower labor costs. ABF conducts the ABF Profit Improvement Program, which is designed to improve the overall profitability of ABF by working with those accounts which do not have an acceptable profit margin. Action to improve profitability may include changing the packaging and price renegotiation. The trucking industry, including the Company, is affected directly by the state of the overall economy. In addition, seasonal fluctuations also affect tonnage to be transported. Freight shipments, operating costs and earnings also are affected adversely by inclement weather conditions. Regulation ABF's operations in interstate commerce are regulated by the ICC which has power to authorize motor carrier operations; approve rates, charges and accounting systems; require periodic financial reporting; and approve certain mergers, consolidations and acquisitions. Certain of the intrastate motor carrier operations of ABF are subject to the licensing requirements, rate regulations and financial reporting requirements of state public utility commissions and similar authorities. The Company, like other interstate motor carriers, is subject to certain safety requirements governing interstate operations prescribed by the DOT. ABF has earned a "satisfactory" rating (the highest of three grading categories) from the DOT. In addition, vehicle weight and dimensions remain subject to both federal and state regulations. More restrictive limitations on vehicle weight and size or on trailer length or configuration could adversely affect the profitability of the Company. The Motor Carrier Act of 1980 (the "MCA") was the start of an effort to increase competition among motor carriers and reduce the level of regulation in the industry. The MCA enables applicants to obtain ICC operating authority easily and allows interstate motor carriers, such as ABF, to change their rates by a certain percentage per year without ICC approval and to provide discounts to shippers. The MCA also resulted in the removal of route and commodity restrictions on the transportation of freight, making it easier for interstate motor carriers to obtain nationwide authority to carry general commodities throughout the continental United States. Management believes that the Company is in compliance in all material respects with applicable regulatory requirements relating to its operations. The failure of the Company to comply with the regulations of ICC, DOT or state agencies could result in substantial fines or revocation of the Company's operating authorities. Specialized Motor Carriers In addition to ABF, the Company has four other motor carrier subsidiaries: ABF-BC, ABF-Canada, Land-Marine and Cartage. ABF-BC and ABF-Canada concentrate on shipments of general commodities freight primarily in Canada. Land-Marine currently concentrates on shipments of general commodities freight in and out of Puerto Rico and has ICC common carrier authority to operate in the continental United States. Cartage focuses on shipments in and out of Hawaii. In 1993, ABF-BC, ABF-Canada, Land-Marine and Cartage collectively provided approximately 2% of the Company's motor carrier revenues. Best Logistics, Inc. Best Logistics, Inc., a wholly-owned subsidiary of Arkansas Best Corporation, ("Best") is engaged in third-party logistics management. Best offers logistics planning and management services to companies desiring to outsource these activities. Customers choosing to outsource logistics management do so to reduce logistics costs, to concentrate on their core business or to improve customer service. Logistics focuses on the management of inventory and information through the supply chain from vendor to consumer. Best's role is to design the logistics network, contract with the necessary suppliers, to implement and then manage the design. Although, third-party logistics is a relatively new industry, a large number of participants exist in the market. Many are related to transportation or warehousing companies. Tire Operations Treadco, Inc. Treadco is the nation's largest independent tire retreader for the trucking industry and the second largest commercial truck tire dealer. Treadco's revenues accounted for approximately 11% of the Company's consolidated revenues in 1993, and are divided approximately 56% and 44% between retread sales and new tire sales, respectively. In 1993, Treadco sold approximately 535,000 retreaded truck tires, which were manufactured at its production facilities in Arizona, Arkansas, Florida, Georgia, Louisiana, Missouri, Ohio, Oklahoma and Texas, and sold approximately 268,000 new tires. In August 1993, Treadco acquired substantially all the assets and liabilities of Trans-World Tire Corporation. As a result of the acquisition, Treadco added four production facilities which retread tires under Bandag Incorporated ("Bandag") franchise agreements and one satellite sales outlet. Retreaded truck tires are significantly less expensive than new truck tires (about one-third of the cost) and generally last as long as new tires used in similar applications. Moreover, most tire casings can be retreaded one or two times. The retail selling price of Treadco's retread tires ranges from about $75 to $110 with an average retail selling price of $82, compared to $260 to $325 for a new tire. Treadco also sells retreads including casings not supplied by the customer for $150 to $180, averaging about $161 per tire. Since tire expenses are a significant operating cost for the trucking industry, many truck fleet operators develop comprehensive periodic tire replacement and retread management programs. On its weekly sales routes, Treadco picks up a fleet's casings and returns them the following week, thus providing a continuous supply of both retreads and new tires as needed. In order to fully service its customers, Treadco also sells new truck tires manufactured by Bridgestone, Michelin, General, Dunlop, Sumitomo, Kumho, Toyo and other manufacturers. According to Bridgestone, Treadco is its largest domestic truck tire dealer, and according to Michelin, Treadco is one of its largest domestic truck tire dealers. Treadco was organized in June 1991 as the successor to the tire business conducted and developed by ABC Treadco, a wholly owned subsidiary of the Company. ABC Treadco transferred the tire business-related assets, including the Bandag Incorporated ("Bandag") franchise agreements, to Treadco in exchange for all the outstanding capital stock of Treadco. At the same time, Treadco assumed substantially all of the liabilities relating to the tire business, including bank debt which, prior to the asset transfer, has been outstanding under a credit agreement, and indebtedness owed to the Company. Treadco's assets were pledged to secure repayment of the bank debt under the credit agreement. In connection with the assumption of the bank debt, Treadco became the primary obligor with respect to such debt. In October 1991, Treadco completed an initial public offering of 2,679,300 shares (including 179,300 shares sold by ABC Treadco pursuant to an over-allotment option) of its common stock at $16.00 per share (the "Treadco Offering"). The net proceeds of the Treadco Offering were used to repay all of the outstanding bank debt and to repay the affiliate indebtedness owed to the Company. Upon prepayment of the bank debt, Treadco's obligations under the credit agreement were terminated and the pledge against the assets was released. In December 1993, ABC Treadco's investment in Treadco was transferred to the Company. As of December 31, 1993, the Company's percentage ownership of Treadco is 46%, while retaining control of Treadco by reason of its stock ownership, board representation and provision of management services. As a result, Treadco is consolidated with the Company for financial reporting purposes, with the ownership interest of the other stockholders reflected as a minority interest. The Bandag Relationship Treadco retreads truck tires pursuant to multi-year franchise agreements with Bandag. Bandag's proprietary, high quality retreading processes have enabled it to achieve the largest market presence in the retreading industry. Each of Treadco's production facilities is covered by a separate Bandag franchise agreement that grants Treadco the non-exclusive right to retread truck tires at the facility using Bandag's retreading process, materials and equipment and to sell such retread tires, using the "Bandag" trademark, without any territorial restrictions. In return, each of Treadco's production facilities covered by a Bandag franchise agreement must purchase its rubber requirements from Bandag at prices established by Bandag. The franchises also provide Treadco with a number of support programs, including training for technical and sales personnel, field-service engineering back-up, marketing programs and ongoing research and development. Bandag has informed Treadco that Treadco, with its 26 separate franchise locations, is Bandag's largest domestic franchisee in terms of the number of Bandag franchises and rubber purchases from Bandag. In 1991, Treadco renewed and amended its existing franchise agreements with Bandag, for terms ranging from five to seven years each. Each Bandag franchise agreement grants Treadco the non-exclusive right to make, use and sell tires retreaded by the Bandag method, including improvements developed by Bandag, during the term of the agreement. Treadco has the right to sell Bandag retreads whenever, to whomever and at any price Treadco may choose, but Treadco may manufacture retreaded tires using the Bandag method only at the authorized location referred to in each agreement. The new franchise agreements do not provide Treadco with an exclusive production or sales territory, nor do they prohibit Treadco (or any other Bandag franchisees) from opening sales offices in other desired locations. Sales and Marketing Treadco's sales and marketing strategy is based on its service strengths, network of production and sales facilities and strong regional reputation. In addition to excellent service, Treadco offers broad geographical coverage across the South and the lower Midwest. This coverage is important for customers because they are able to establish uniform pricing, utilize national account billing processes of the major new tire suppliers, and generally reduce the risk of price fluctuations when service is needed. None of Treadco's customers for retreads and new tires, including the Company and ABF, represented more than 4% of Treadco's revenues for 1993. ABF accounted for approximately $1.7 million of Treadco's revenues in 1993 (1.5%), and has not accounted for more than 10% of Treadco's revenues in the last ten years. Treadco's customers are primarily mid-sized companies that maintain their own in-house trucking operations and rely on Treadco's expertise in servicing their tire management programs. Treadco markets its products through sales personnel located at each of its 26 production facilities and, in addition, through 19 "satellite" sales locations maintained in Arizona, Arkansas, Florida, Georgia, Louisiana, Mississippi, Missouri, Ohio and Texas. These satellite sales locations are supplied with retreads by nearby Treadco production facilities. Treadco locates its production facilities and sales locations in close proximity to interstate highways and operates approximately 80 mobile service trucks to provide ready accessibility and convenience to its customers, particularly fleet owners. Employees At December 31, 1993, Treadco employed 652 full-time employees. Thirteen employees at one Treadco facility are represented by a union. Treadco's management believes it enjoys a good relationship with its employees. Environmental and Other Government Regulations The Company is subject to federal, state and local environmental laws and regulations relating to, among other things, contingency planning for spills of petroleum products, and its disposal of waste oil. Additionally, the Company is subject to significant regulations dealing with underground fuel storage tanks. ABF stores some of its fuel for its trucks and tractors in approximately 103 underground tanks located in 27 states. The Company believes that it is in substantial compliance with all such environmental laws and regulations and is not aware of any leaks from such tanks that could reasonably be expected to have a material adverse effect on the Company's competitive position, operations or financial condition. The Company has in place policies and methods designed to conform with these regulations. The Company estimates that capital expenditures for upgrading underground tank systems and costs associated with cleaning activities for 1994 will not be material. The Company has received notices from the EPA and others that it has been identified as a potentially responsible party ("PRP") under the Comprehensive Environmental Response Compensation and Liability Act or other federal or state environmental statutes at several hazardous waste sites. After investigating the Company's or its subsidiaries' involvement in waste disposal or waste generation at such sites, the Company has either agreed to de minimis settlements (aggregating approximately $210,000 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. The Company remains responsible for certain environmental claims that arose with respect to its ownership of Riverside Furniture Corporation ("Riverside") prior to its sale in 1989. Riverside was notified in 1988 that it has been identified as a PRP for hazardous wastes shipped to two separate sites in Arkansas. To date, the Company, as a part of a PRP group, has paid approximately $50,000 on Riverside's behalf related to one site, with additional assessments expected related to that site. Riverside was dismissed as a PRP from the second site in March 1993. Management currently believes that resolution of its remaining site is unlikely to have a material adverse effect on the Company, although there can be no assurance in this regard. Treadco is affected by a number of governmental regulations relating to the development, production and sale of retreaded and new tires, the raw materials used to manufacture such products (including petroleum, styrene and butaliene), and to environmental, tax and safety matters. In addition, the retreading process creates rubber particulate, or "dust," which requires gathering and disposal, and Treadco disposes of used and nonretreadable tire casings, both of which require compliance with environmental and disposal laws. In some situations, Treadco could be liable for disposal problems, even if the situation resulted from previous conduct of Treadco that was lawful at the time or from improper conduct of, or conditions caused by, persons engaged by Treadco to dispose of particulate and discarded casings. Such cleanup costs or costs associated with compliance with environmental laws applicable to the tire retreading process could be substantial and have a material adverse effect on Treadco's financial condition. Treadco believes that it is in substantial compliance with all laws applicable to such operations, however, and is not aware of any situation or condition that could reasonably be expected to have a material adverse effect on Treadco's financial condition. ITEM 2. PROPERTIES Directly or indirectly through its subsidiaries, the Company owns its executive offices in Fort Smith, Arkansas, and owns or leases approximately 390 other operating facilities, approximately 339 and 45 of which relate to its motor carrier operations, and tire retreading and sales operations, respectively. In addition to its executive offices, the Company's principal motor carrier facilities are as follows: Location --------- North Little Rock, Arkansas Los Angeles, California Sacramento, California Denver, Colorado Ellenwood, Georgia Springfield, Illinois Albuquerque, New Mexico Asheville, North Carolina Dayton, Ohio Portland, Oregon Harrisburg/Camp Hill, Pennsylvania Dallas, Texas Salt Lake City, Utah The properties listed above are leased by ABF from ABC Treadco, with the exception of the facilities in Asheville, North Carolina and Sacramento, California, which are owned by ABF, and the facilities in Portland, Oregon and Salt Lake City, Utah, which are leased from outside third parties. There are three facilities at the Harrisburg/Camp Hill, Pennsylvania location. The Camp Hill and one of the Harrisburg facilities are leased from outside third parties. ITEM 3. LEGAL PROCEEDINGS In August 1990, a lawsuit was filed in the United States District Court for the Southern District of New York, by Riverside Holdings, Inc., Riverside Furniture Corporation and MR Realty Associates, L.P. ("Plaintiffs") against the Company and ABC Treadco ("Defendants"). Plaintiffs have asserted state law, ERISA and securities claims against Defendants in conjunction with Defendants' sale of Riverside Furniture Corporation in April 1989. Plaintiffs are seeking approximately $4 million in actual damages and $10 million in punitive damages. The Company is contesting the lawsuit vigorously. After consultation with legal counsel, the Company has concluded that resolution of the foregoing lawsuit is not expected to have a material adverse effect on the Company's financial condition. Various other legal actions, the majority of which arise in the normal course of business, are pending. None of these other legal actions is expected to have a material adverse effect on the Company's financial condition. The Company maintains liability insurance against risks arising out of the normal course of its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of stockholders during the fourth quarter ended December 31, 1993. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market and Dividend Information The Company's Common Stock trades on The Nasdaq Stock Market under the symbol "ABFS". The following table sets forth the high and low recorded last sale prices of the Common Stock during the periods indicated as reported by Nasdaq and the cash dividends declared:
Cash High Low Dividend 1993 First quarter $16.750 $12.125 $.01 Second quarter 13.000 8.375 .01 Third quarter 11.500 8.500 .01 Fourth quarter 15.625 11.125 .01 1992 Second quarter (since May 13, 1992) $14.875 $ 9.375 $ - Third quarter 12.000 10.375 .01 Fourth quarter 17.000 10.500 .01
On December 31, 1993, there were 786 shareholders of record. The declaration and payment of, and the timing, amount and form of future dividends on the Common Stock will be determined by the Company's results of operations, financial condition, cash requirements, certain corporate law requirements and other factors deemed relevant by the board of directors. The Company's credit agreement limits the total amount of "restricted payments" that the Company may make, including dividends on its capital stock, to $10 million in any one calendar year. The annual dividend requirements on the Company's preferred stock issued February 3, 1993 (approximately $4.3 million) and dividends paid on the Common Stock at the quarterly rate of $.01 per share (approximately $0.8 million based on the current number of issued and outstanding shares) would aggregate dividends of approximately $5.1 million on an annual basis. ITEM 6. SELECTED FINANCIAL DATA Selected Financial Data - Five-Year Summary
The Company Year Ended December 31 1993 1992 1991 1990 1989 ($ in thousands except per share amounts) Statement of Operations Data: Operating revenues $1,009,918 $959,949 $884,498 $848,737 $713,669 Operating income 51,369 57,255 43,123 47,671 26,375 Gain on sale of subsidiary stock - - 14,141 - - Minority interest in subsidiary 3,140 2,825 690 - - Other income and (expenses), net (731) (1,496) (6,638) (4,533) (3,050) Interest expense 7,248 17,285 34,421 39,257 40,280 Income (loss) before income taxes, extraordinary item and cumulative effect of accounting change 40,250 35,649 15,515 3,881 (16,955) Provisions for income taxes (credit) 19,278 16,894 7,763 3,415 (4,227) Income (loss) before extraordinary item and cumulative effect of accounting change 20,972 18,755 7,752 466 (12,728) Extraordinary item (1) (661) (15,975) (515) - - Cumulative effect on prior years of change in revenue recognition method (2) - (3,363) - - - Net income (loss) 20,311 (583) 7,237 466 (12,728) Income (loss) per common share before extraordinary item and cumulative effect of accounting change .89 .99 .61 .04 (1.01) Net income (loss) per common share .85 (.03) .57 .04 (1.01) Cash dividends paid per common share (3) .04 .02 - - - Pro Forma Data (4): Income before extraordinary item $ 20,972 $ 18,755 $ 8,253 $ (1,124) $(12,667) Earnings per common share .89 .99 .65 (.09) (1.01) Net income (loss) 20,311 2,780 7,738 (1,124) (12,667) Earnings (loss) per common share .85 .15 .61 (.09) (1.01) Selected Financial Data - Five-Year Summary (Continued) The Company Year Ended December 31 1993 1992 1991 1990 1989 ($ in thousands except per share amounts) Balance Sheet Data (as of the end of the period): Total assets $447,733 $428,345 $447,098 $475,487 $477,700 Current portion of long-term debt 15,239 28,348 34,995 39,957 35,272 Long-term debt (including capital leases and excluding current portion) 43,731 107,075 210,987 270,193 291,161 Other Data Capital expenditures (5) $ 33,160 $ 26,596 $ 19,369 $ 31,336 $ 36,692 Depreciation and amortization 28,266 34,473 39,755 40,002 39,451 Goodwill amortization 3,064 3,034 3,024 3,024 2,909 Other amortization 319 755 2,290 3,103 3,229 (1) For 1993, represents an extraordinary charge of $661,000 (net of tax of $413,000) from the loss on extinguishment of debt. For 1992, represents an extraordinary charge of $15,975,000 (net of tax of $9,700,000) from the loss on extinguishment of debt relating to the Recapitalization in May 1992. For 1991, represents an extraordinary charge of $515,000 (net of tax of $320,000) from the loss on extinguishment of debt relating to the Treadco Offering in September 1991. (2) Represents a charge of $3,363,000 (net of tax of $2,100,000) to reflect the cumulative effect on prior years of the change in method of accounting for the recognition of revenue as required under the Financial Accounting Standards Board's Emerging Issues Task Force Ruling 91-9 ("EITF 91-9"). (3) No cash dividends were paid by the Company from 1989 until the third quarter of 1992. (4) Assumes the change in accounting method for recognition of revenue as required under EITF 91-9 occurred January 1, 1989. (5) Net of equipment trade-ins. Does not include revenue equipment placed in service under operating leases, which amounted to $24.8 million in 1993, $25.5 million in 1992, $15 million in 1991, and $5 million in 1990. There were no operating leases for revenue equipment entered into for 1989. See "Management's Discussion and Analysis-Liquidity and Capital Resources."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company is primarily engaged, through its motor carrier subsidiaries, in LTL shipments of general commodities. The Company is also engaged through its 46%-owned consolidated subsidiary, Treadco, in truck tire retreading and sales. The Company in 1991 reduced its ownership in Treadco, through an initial public offering of Treadco common stock, to approximately 46%, while retaining control of Treadco by reason of its stock ownership, board representation and provision of management services. As a result, Treadco is consolidated with the Company for financial reporting purposes, with the ownership interests of the other stockholders reflected as minority interest. Segment Data The following tables reflect information prepared on a business segment basis, which includes reclassification of certain expenses and costs between the Company and its subsidiaries and elimination of the effects of intercompany transactions. Operating profit on a business segment basis differs from operating income as reported in the Company's Consolidated Financial Statements. Other income and other expenses (which include amortization expense), except for interest expense, minority interest, and gain on sale of subsidiary stock, which appear below the operating income line in the Company's Statement of Operations, have been allocated to individual segments for the purpose of calculating operating profit on a segment basis.
Year Ended December 31 1993 1992 1991 ($ thousands) OPERATING REVENUES Carrier operations $ 893,504 $858,755 $797,405 Tire operations 111,585 96,254 83,193 Other 4,829 4,940 3,900 ---------- -------- -------- $1,009,918 $959,949 $884,498 ========== ======== ======== OPERATING EXPENSES AND COSTS CARRIER OPERATIONS Salaries and wages $ 594,213 $560,460 $517,597 Supplies and expenses 99,146 99,613 95,220 Operating taxes and licenses 35,152 32,697 31,863 Insurance 16,835 17,567 16,263 Communications and utilities 23,680 23,782 23,573 Depreciation and amortization 25,714 32,370 37,667 Rents 53,192 39,561 35,752 Other 3,779 4,324 4,481 Other non-operating (net) 148 1,656 5,044 ---------- -------- -------- 851,859 812,030 767,460 TIRE OPERATIONS Cost of sales 79,718 69,070 59,367 Selling, administrative and general 21,522 18,412 15,687 Other non-operating (net) 159 5 965 ---------- -------- -------- 101,399 87,487 76,019 SERVICE AND OTHER 6,022 4,673 4,534 ---------- -------- -------- $ 959,280 $904,190 $848,013 ========== ======== ======== OPERATING PROFIT (LOSS) Carrier operations $ 41,645 $ 46,725 $ 29,945 Tire operations 10,186 8,767 7,174 Other (1,193) 267 (634) ---------- -------- -------- TOTAL OPERATING PROFIT 50,638 55,759 36,485 GAIN ON SALE OF SUBSIDIARY STOCK - - 14,141 INTEREST EXPENSE 7,248 17,285 34,421 MINORITY INTEREST 3,140 2,825 690 ---------- -------- -------- INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 40,250 $ 35,649 $ 15,515 ========== ======== ========
The following table sets forth for the periods indicated a summary of the Company's operations as a percentage of revenues presented on a business segment basis as shown in the table on the preceding page. The basis of presentation for business segment data differs from the basis of presentation for data the Company provides to the ICC.
Year Ended December 31 1993 1992 1991 CARRIER OPERATIONS Salaries and wages 66.5% 65.3% 64.9% Supplies and expenses 11.1 11.6 11.9 Operating taxes and licenses 3.9 3.8 4.0 Insurance 1.9 2.0 2.0 Communications and utilities 2.7 2.8 3.0 Depreciation and amortization 2.9 3.8 4.7 Rents 5.9 4.6 4.5 Other 0.4 0.5 0.6 Other non-operating (net) - 0.2 0.6 ---- ---- ---- Total Carrier Operations 95.3% 94.6% 96.2% ==== ==== ==== TIRE OPERATIONS Cost of sales 71.5% 71.8% 71.4% Selling, administrative and general 19.3 19.1 18.9 Other non-operating (net) 0.1 - 1.1 ---- ---- ---- Total Tire Operations 90.9% 90.9% 91.4% ==== ==== ==== OPERATING PROFIT Carrier operations 4.7% 5.4% 3.8% Tire operations 9.l 9.1 8.6
Results of Operations 1993 as Compared to 1992 Consolidated revenues of the Company for 1993 were $1.0 billion compared to $959.9 million for 1992. Operating profit for the Company was $50.6 million in 1993 compared to $55.8 million during 1992. Net income for 1993 was $20.3 million, or $.85 per common share, compared to a net loss of $(583,000), or $(.03) per common share in 1992. Income before extraordinary item was $21.0 million, or $.89 per common share for 1993, compared to income before extraordinary item and cumulative effect of accounting change of $18.8 million, or $.99 per common share for 1992. During 1993, the Company recorded an extraordinary loss of $(661,000) (net of income tax benefit of $413,000), or $(.04) per common share, for the net loss on extinguishments of debt. During 1992, the Company recorded an extraordinary loss of $(16.0) million (net of income tax benefit of $9.8 million), or $(.84) per common share, for the net loss on extinguishments of debt. Also, during 1992, the Company recorded a charge for the cumulative effect on prior years of an accounting change in the recognition of revenue of $(3.4) million (net of income tax benefit of $2.1 million), or $(.18) per common share. Earnings per common share for 1993 give consideration to preferred stock dividends of $3.9 million. Average common shares outstanding for 1993 were 19.2 million shares compared to 19.0 million shares for 1992. As reported in the third quarter, net income for 1993 was reduced by $828,000, or $.04 per common share, to reflect the effect on current and deferred taxes of the retroactive corporate tax rate increase which became law in the third quarter of 1993. Motor Carrier Operations Segment. Revenues for the motor carrier operations segment increased 4.0% to $893.5 million in 1993 from $858.8 million in 1992, reflecting primarily 4.0% increase in total tonnage. The increase in total tonnage consisted of a 3.1% increase LTL tonnage and a 7.3% increase in truckload tonnage. The 4.6% rate increase effective January 1, 1993 was aggressively discounted by rate competition during the first six months of 1993. The discounting stabilized in the last half of the year and for the fourth quarter of 1993, ABF's LTL revenue per hundredweight reflected a 1.0% increase over the fourth quarter of 1992. For 1993, ABF's LTL revenue per hundredweight was up .2% compared to the average for 1992. Discounting and a relatively slow economy during the first half of the year also affected tonnage growth for 1993. Effective January 1, 1994, ABF implemented a general freight rate increase of 4.5% which is expected to result in a 3 to 3.25% initial impact on revenues. The diminished effect is the result of pricing that is on a contract basis which can only be increased when the contract is renewed. Motor carrier segment operating expenses as a percent of revenues was 95.3% for 1993 compared to 94.6% for 1992. Salaries and wages for motor carrier operations as a percent of revenues increased to 66.5% in 1993 from 65.3% in 1992, resulting primarily from contractual wage increases (averaging 2.7% annually for 1993) which went into effect in April 1993 under the current collective bargaining agreement. The current agreement expires March 31, 1994. The new agreement is currently under negotiation and terms are unknown at this time. Supplies and expenses for motor carrier operations as a percent of revenues decreased to 11.1% in 1993 from 11.6% in 1992 resulting primarily from the covering of the fixed portion of supplies and expenses by increased revenues. Depreciation and amortization expense for motor carrier operations as a percent of revenues decreased to 2.9% in 1993 from 3.8% in 1992. During the last three years, ABF financed its road tractor replacement program with operating leases instead of capital leases, which decreased both interest and depreciation expense and increased rent expense. Rent expense for motor carrier operations as a percent of revenues increased to 5.9% in 1993 from 4.6% in 1992. The additional rent expense was incurred primarily as a result of the operating leases discussed above and the utilization of alternate modes of outside transportation. Tire Operations Segment. Treadco's revenues for 1993 increased 15.9% to $111.6 million from $96.3 million in 1992. The increase resulted primarily from internal growth and the addition of four production facilities and one sales facility through the August 30, 1993 acquisition of Trans-World Tire Corporation in Florida. Revenues from retreading in 1993 increased 17.6% to $61.9 million from $52.6 million in 1992. Revenues from new tire sales increased 13.9% to $49.7 million in 1993 from $43.7 million in 1992. Tire operations segment operating expenses as a percent of revenues were 90.9% for each of 1993 and 1992. Cost of sales for the tire operations segment as a percent of revenues decreased to 71.5% in 1993 from 71.8% in 1992. Selling, administrative and general expenses for the tire operations segment increased to 19.3% in 1993 from 19.1% in 1992. Interest. Interest expense decreased 58.1% to $7.2 million in 1993 from $17.3 million during 1992. A reduction in long-term debt outstanding using proceeds from the Company's stock offerings, lower interest rates and utilization of operating leases resulted in the decrease in interest expense. The reduction in long-term debt consisted primarily of retiring its 14% Senior Subordinated Notes due 1998, maintaining a lesser average balance outstanding under the revolving credit facilities, and financing a portion of its revenue equipment with operating leases. Income Taxes. The difference between the effective tax rate in 1993 and the federal statutory rate resulted primarily from state income taxes, amortization of goodwill, minority interest, undistributed earnings of Treadco and other nondeductible expenses (see Note G to the consolidated financial statements). In August 1993, the Revenue Reconciliation Act of 1993 was enacted, which required a retroactive increase in the corporate federal tax rate. This resulted in an increase in the tax expense and a corresponding decrease in net income of $828,000. The increase in the corporate federal tax rate was accounted for in accordance with Financial Accounting Standards Board Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). 1992 As Compared With 1991 Consolidated revenues of the Company for 1992 increased 8.5% to $959.9 million from $884.5 million in 1991. Operating profit of the Company increased 52.8% to $55.8 million from $36.5 million in 1991. For 1992, the Company had income before an extraordinary item and the cumulative effect of an accounting change of $18.8 million, or $.99 per share, compared to $7.8 million, or $.61 per share, for 1991. In 1992, the Company recorded an extraordinary loss of $(16.0) million (net of income taxes of $9.8 million), or $(.84) per share, for the net loss on extinguishments of debt, following its public offering in May 1992. Pursuant to a pronouncement by the Emerging Issues Task Force of the Financial Accounting Standards Board, effective January 1, 1992, the Company changed its accounting method whereby revenue is recognized based on relative transit time in each reporting period with expenses continuing to be recognized as incurred. This change in accounting method resulted in a charge to earnings for 1992 having a cumulative effect of $(3.4) million (net of income taxes of $2.1 million), or $(.18) per share. After giving effect to the extraordinary item and the cumulative effect of the accounting change, the Company had a net loss for 1992 of $(583,000), or $(.03) per share, compared to net income of $7.2 million, or $.57 per share, for 1991. Net income for 1991 included a gain on the sale of subsidiary stock of $8.8 million (net of income taxes of $5.3 million), or $.69 per share. Average shares outstanding for 1992 increased to 19.0 million shares from 12.7 million shares in 1991. Motor Carrier Operations Segment. Revenues for the motor carrier operations segment increased 7.7% to $858.8 million in 1992 from $797.4 million in 1991, reflecting primarily an 8.4% increase in total tonnage offset in part by a 0.7% decrease in revenue per hundredweight. The decrease in revenue per hundredweight is due to some shift in the mix of shipment sizes, continued price competition and competitive pressure from truckload carriers on the larger shipments. The increase in total tonnage consisted of a 6.6% increase in LTL tonnage and a 15.0% increase in truckload tonnage. Effective January 1, 1993, ABF implemented a general freight rate increase of 4.6% which is expected to result in a 2.5 - 3% initial impact on revenues. The diminished effect is the result of pricing that is on a contract basis which can only be increased when the contract is renewed. Motor carrier segment operating expenses as a percent of revenues improved to 94.6% in 1992 from 96.2% in 1991. Salaries and wages for motor carrier operations as a percent of revenues increased to 65.3% in 1992 from 64.9% in 1991, resulting primarily from contractual wage increases (averaging 2.8% annually for 1992) which went into effect in April 1992 under the current collective bargaining agreement. Under the agreement, contractual wage increases are expected to increase approximately 2.7%, for 1993. Supplies and expenses for motor carrier operations as a percent of revenues decreased to 11.6% in 1992 from 11.9% in 1991. The decrease resulted primarily from the covering of the fixed portion of supplies and expenses by increased revenues. Operating taxes and licenses for motor carrier operations as a percent of revenues decreased to 3.8% during 1992 from 4.0% in 1991. The decrease resulted primarily from the higher level of revenues. Depreciation and amortization expense for motor carrier operations as a percent of revenues decreased to 3.8% in 1992 from 4.7% in 1991. In 1992 and 1991, ABF financed its road tractor replacement program with operating leases instead of capital leases, which decreased both interest and depreciation expense and increased rents. Rent expense for motor carrier operations as a percent of revenues increased to 4.6% in 1992 from 4.5% in 1991. The additional rent expense incurred as a result of the operating leases discussed above was partially offset by the covering of other rents by increased revenues. Other motor carrier operating expense decreased to 0.5% during 1992 from 0.6% in 1991. Other non-operating expenses decreased to 0.2% in 1992 from 0.6% in 1991. The decrease resulted primarily from gains on asset sales of $1.4 million for 1992 compared to a $1.2 million loss during 1991. Also, amortization of deferred financing costs decreased to $60,000 in 1992 from $1.4 million in 1991. Deferred financing costs associated with the Notes retired were written off and therefore reduced amortization expense. Tire Operations Segment. Treadco's revenues for 1992 increased 15.7% to $96.3 million from $83.2 million during 1991, reflecting primarily the addition of two production facilities in August 1991 and April 1992, three sales locations in 1991 and two sales locations in 1992. Revenues from retreading for 1992 increased 18.0% to $52.6 million from $44.6 million in 1991. Revenues from new tire sales for 1992 increased 13.0% to $43.7 million from $38.6 million in 1991. Tire operations segment operating expenses as a percent of revenues improved to 90.9% in 1992 from 91.4% in 1991, reflecting primarily a decrease in other non-operating expenses. Other non-operating expenses as a percent of revenues were negligible for 1992 compared to 1.1% for 1991. Included in other non-operating expenses is the amortization of deferred financing costs which was $18,500 for 1992 compared to $881,000 in 1991. Deferred financing costs associated with the debt retired as a result of the Treadco Offering were written off and therefore reduced amortization expense. Cost of sales as a percent of revenues increased to 71.8% in 1992 from 71.4% in 1991. The increase is due primarily to costs relating to a Bandag price increase for tread rubber, which were not fully passed on to customers. Management does not know to what extent future price increases can be passed on to customers. Selling, administrative and general expenses increased to 19.1% in 1992 from 18.9% for 1991, reflecting costs associated with being public and an increase in insurance reserves to cover expected losses. Interest. Interest expense decreased 49.8% to $17.3 million during 1992 from $34.4 million in 1991. A reduction in long-term debt outstanding, lower interest rates and utilization of operating leases resulted in the decrease in interest expense. The reduction in long-term debt consisted primarily of the tender for $113.8 million of the Notes with the proceeds from the Company's Common Stock offering and the repayment of $36.6 million of outstanding bank debt in connection with the Treadco Offering. Income Taxes. The difference between the effective tax rate for 1992 and the federal statutory rate resulted primarily from state income taxes, amortization of goodwill, minority interest, undistributed earnings of Treadco and other nondeductible expenses (see Note G to the consolidated financial statements). Liquidity and Capital Resources The Company and certain banks are parties to a Credit Agreement with Societe Generale, as Agent and NationsBank of Texas as Co-Agent (the "Credit Agreement") which provides funds available under a three-year Revolving Credit Facility of $100 million, including $40 million for letters of credit. There are no borrowings outstanding under the Revolving Credit Facility and approximately $39 million of letters of credit outstanding at December 31, 1993. The Revolving Credit Facility is payable on June 30, 1996. Outstanding revolving credit advances may not exceed a borrowing base calculated using the Company's revenue equipment, real property and the Treadco common stock owned by the Company. At December 31, 1993, the borrowing base was $93.9 million. The Company has paid and will continue to pay certain customary fees for such commitments and loans. Amounts advanced under the revolving credit facility bear interest, at the Company's option, at a rate per annum of either:(i) the greater of (a) the agent bank's prime rate and (b) the Federal Funds Rate plus 1/2%; or (ii) LIBOR plus 1 1/2%. The Credit Agreement contains various covenants which limit, among other things, dividends, indebtedness, capital expenditures, loans and investments, as well as requiring the Company to meet certain financial tests. As of December 31, 1993, these covenants have been met. If there is an event of default which is not remedied or waived within 10 days, the Credit Agreement will become secured to the extent of amounts then outstanding of all of the Company's revenue equipment, real property and common stock included in the borrowing base (subject to certain exceptions). The Credit Agreement also, at December 1992, included a $50 million Term Loan Facility. In February 1993, the Company completed its public offering of 1,495,000 shares of Preferred Stock. The Company used the net proceeds of approximately $71.9 million to repay the Term Loan and for general corporate purposes. The Preferred Stock is convertible at the option of the holder into Common Stock at the rate of 2.54 shares of Common Stock for each share of Preferred Stock. Annual dividends are $2.875 and are cumulative. The Preferred Stock is redeemable at the Company's option on or after February 15, 1996 at $52.01 per share plus accumulated unpaid dividends, and is exchangeable at the option of the Company for the Company's 5 3/4% Convertible Subordinated Debentures due February 15, 2018 at a rate of $50 principal amount of debentures for each share of Preferred Stock. The holders of the Preferred Stock have no voting rights unless dividends are in arrears six quarters or more, at which time the holders have the right to elect two directors of the Company until all dividends have been paid. Treadco is a party to a revolving credit facility with Societe Generale (the "Treadco Credit Agreement") providing for borrowings of up to the lesser of $12 million or the applicable borrowing base. At December 31, 1993, the borrowing base was $22.7 million. Borrowings under the Treadco Credit Agreement are collateralized by accounts receivable and inventory. Borrowings under the agreement bear interest, at Treadco's option, at 1% above the bank's LIBOR rate, or at the higher of the bank's prime rate or the "federal funds rate" plus 1/2%. At December 31, 1993, the interest rate was 5%. At December 31, 1993, Treadco had $7 million outstanding under the Treadco Credit Agreement. Treadco pays a commitment fee of 3/8% on the unused amount under the Treadco Credit Agreement. The Treadco Credit Agreement contains various convenants which limit, among other things, dividends, disposition of receivables, indebtedness and investments, as well as requiring Treadco to meet certain financial tests which have been met. Under the Treadco Credit Agreement, Treadco's assets are subject to pledge and, therefore, are available for use only by that subsidiary. The following table sets forth the Company's historical capital expenditures (net of equipment trade-ins) for the periods indicated below:
Year Ended December 31 1993 1992 1991 ($ millions) Carrier operations $ 48.6 $ 47.7 $ 32.2 Tire operations 6.1 2.2 2.1 Service and other 3.3 2.2 0.1 ------ ------ ------ 58.0 52.1 34.4 Less: Operating leases (24.8) (25.5) (15.0) ------ ------ ------ Total $ 33.2 $ 26.6 $ 19.4 ====== ====== ======
The amounts presented in the table under operating leases reflect the estimated purchase price of the equipment had the Company purchased the equipment versus financing through operating lease transactions. In 1994, the Company anticipates spending approximately $70.9 million in total capital expenditures net of proceeds from equipment sales. It is expected that approximately $20 million of the expenditures for facilities will be financed through a term loan facility, $16.4 million of equipment expenditures will be financed by capital leases and the remaining $34.5 million will be financed through internally generated funds and borrowings under the Credit Agreement and Treadco Credit Agreement.
Capital Expenditures Program for 1994 Net of Equipment Trade-Ins Facilities Equipment Miscellaneous Total ($ millions) Carrier operations $12.3 $28.4 $2.6 $43.3 Tire operations 0.8 2.2 0.3 3.3 Service and other 18.1 0.2 6.0 24.3 ----- ----- ---- ----- $31.2 $30.8 $8.9 $70.9 ===== ===== ==== =====
Management believes, based upon the Company's current levels of operations and anticipated growth, the Company's cash, capital resources, borrowings available under the Credit Agreement and cash flow from operations will be sufficient to finance current and future operations and meet all present and future debt service requirements. The Company is a signatory with the Teamsters to the National Master Freight Agreement which expires March 31, 1994. Terms of the new agreement, which is currently under negotiation, are unknown at this time. There has not been a strike under this agreement since 1979; however, in the event of a strike, the Company's liquidity could be adversely impacted. The motor carrier segment is 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. Treadco's operations are somewhat seasonal with the last six months of the calendar year generally having the highest levels of sales. Subsequent Event On March 2, 1994, ABF, Renaissance Asset Funding Corp. ("Renaissance") and Societe Generale entered into a receivables purchase agreement. The agreement allows ABF to sell to Renaissance interests of up to $55 million in a pool of receivables. ABF does not have any receivables sold at this time, but expects to use this facility from time to time throughout the year for various corporate needs, including working capital. New Accounting Standards In November 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("FAS 112"), requiring accrual accounting for non- accumulating postemployment benefits, such as disability and death benefits instead of recognizing an expense for those benefits when paid. The Company will comply with the new rules beginning January 1, 1994, using the cumulative effect method. The Company is accumulating the necessary data to adopt the standard and does not anticipate that adoption of this statement will materially impact net income in 1994. Environmental Matters ABF stores some fuel for its tractors and trucks in approximately 103 underground tanks located in 27 states. Maintenance of such tanks is regulated at the federal and, in some cases, state levels. ABF believes that it is in substantial compliance with all such regulations. ABF 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 ABF to upgrade its underground tank systems by December 1998. ABF currently estimates that such upgrades, which are currently in process, will not have a material adverse effect on the Company. The Company has received notices from the EPA and others that it has been identified as a potentially responsible party ("PRP") under the Comprehensive Environmental Response Compensation and Liability Act or other federal or state environmental statutes at several hazardous waste sites. After investigating the Company's or its subsidiaries' involvement in waste disposal or waste generation at such sites, the Company has either agreed to de minimis settlements (aggregating approximately $210,000 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. The Company remains responsible for certain environmental claims that arose with respect to its ownership of Riverside prior to its sale in 1989. Riverside was notified in 1988 that it had been identified as a PRP for hazardous wastes shipped to two separate sites in Arkansas. To date, the Company, as a part of a PRP group, has paid approximately $50,000 on Riverside's behalf related to one site, with additional assessments expected related to that site. Riverside was dismissed as a PRP from the second site in March 1993. Management currently believes that resolution of its remaining site is unlikely to have a material adverse effect on the Company, although there can be no assurance in this regard. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response of this item is submitted in a separate section of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III. ITEM 10. DIRECTORS AND 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 "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the Company's proxy statement for the annual meeting of stockholders to be held on May 10, 1994, 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," "Option/SAR Exercises and Holdings," "Executive Compensation and Development and Stock Option Committees Interlocks and Insider Participation," "Retirement and Savings Plan," "Termination of Employment Agreements" and the paragraph concerning directors compensation in the section entitled "Board of Directors and Committees" in the Company's proxy statement for the annual meeting of stockholders to be held on May 10, 1994, 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 Committees" and "Stock Performance Graph" are not incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The section entitled "Principal Shareholders and Management Ownership" in the Company's proxy statement for the annual meeting of stockholders to be held on May 10, 1994, set forth certain information with respect to the ownership of the Company's voting securities and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The section entitled "Certain Transactions and Relationships" in the Company's proxy statement for the annual meeting of stockholders to be held on May 10, 1994, set forth certain information with respect to relations of and transactions by management of the Company and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)(1) Financial Statements The response to this portion of Item 14 is submitted as a separate section of this report. (a)(2) Financial Statement Schedules The response to this portion of Item 14 is submitted as a separate section of this report. (a)(3) Exhibits Exhibit 10 - Receivables Purchase Agreement dated as of March 2, 1994, by and between ABF Freight System, Inc., Renaissance Asset Funding Corp. and Societe Generale. Exhibit 11 - Statement Re: Computation of Per Share Earnings (Loss) Exhibit 22 - List of Subsidiary Corporations Exhibit 23 - Consent of Independent Auditors (b) Reports of Form 8-K There were no reports filed on Form 8-K during the last quarter of 1993. (c) Exhibits See Item 14(a)(3) above. (d) Financial Statements Schedules The response to this portion of Item 14 is submitted as a separate section of this report. 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 underesigned, thereunto duly authorized. ARKANSAS BEST CORPORATION By: s/Donald L. Neal -------------------------------- Donald L. Neal Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- s/William A. Marquard Chairman of the Board, Director 3/7/94 - ---------------------------- ------- William A. Marquard s/Robert A. Young, III Director, Chief Executive Officer 3/9/94 - ---------------------------- and President (Principal -------- Robert A. Young, III Executive Officer) s/Donald L. Neal Senior Vice President - Chief 3/9/94 - ---------------------------- Financial Officer (Principal -------- Donald L. Neal Financial and Accounting Officer) s/Frank Edelstein Director 3/7/94 - ---------------------------- -------- Frank Edelstein s/Arthur J. Fritz Director 3/4/94 - ---------------------------- -------- Arthur J. Fritz s/John H. Morris Director 3/7/94 - ---------------------------- -------- John H. Morris s/Alan J. Zakon Director 3/3/94 - ---------------------------- -------- Alan J. Zakon ANNUAL REPORT ON FORM 10-K ITEM 8, ITEM 14(a)(1) and (2), (c) and (d) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA CERTAIN EXHIBITS FINANCIAL STATEMENT SCHEDULES YEAR ENDED DECEMBER 31, 1993 ARKANSAS BEST CORPORATION FORT SMITH, ARKANSAS FORM 10-K -- ITEM 14(a)(1) and (2) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES ARKANSAS BEST CORPORATION The following consolidated financial statements of Arkansas Best Corporation are included in Item 8: Consolidated Balance Sheets -- December 31, 1993 and 1992 Consolidated Statements of Operations -- Years ended December 31, 1993, 1992 and 1991 Consolidated Statements of Shareholders' Equity -- Years ended December 31, 1993, 1992 and 1991 Consolidated Statements of Cash Flows -- Years ended December 31, 1993, 1992 and 1991 The following consolidated financial statement schedules of Arkansas Best Corporation are included in Item 14(d): Schedule V -- Property, Plant and Equipment Schedule VI -- Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment Schedule VIII -- Valuation and Qualifying Accounts Schedule X -- Supplementary Income Statement Information All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Directors Arkansas Best Corporation We have audited the accompanying consolidated balance sheets of Arkansas Best Corporation and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1993. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Arkansas Best Corporation and subsidiaries at December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Note C to the consolidated financial statements, in 1992 the Company changed its revenue recognition method. ERNST & YOUNG Little Rock, Arkansas January 28, 1994 ARKANSAS BEST CORPORATION CONSOLIDATED BALANCE SHEETS
December 31 1993 1992 ($ thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 6,962 $ 5,644 Trade receivables, less allowances for doubtful accounts (1993 -- $2,200,000; 1992 -- $1,850,000) 104,598 89,057 Inventories -- Notes D and E 29,086 21,383 Prepaid expenses 9,916 8,367 --------- --------- TOTAL CURRENT ASSETS 150,562 124,451 PROPERTY, PLANT AND EQUIPMENT -- (Notes C, E and I) Land and structures 108,422 104,080 Revenue equipment 169,573 177,689 Manufacturing equipment 5,997 4,349 Service, office and other equipment 33,913 28,486 Leasehold improvements 8,096 6,648 --------- --------- 326,001 321,252 Less allowances for depreciation and amortization (147,799) (139,559) --------- --------- 178,202 181,693 OTHER ASSETS 12,839 14,111 GOODWILL, less amortization (1993 -- $16,267,000; 1992 -- $13,203,000) -- Note C 106,130 108,090 --------- --------- $ 447,733 $ 428,345 ========= =========
ARKANSAS BEST CORPORATION CONSOLIDATED BALANCE SHEETS
December 31 1993 1992 ($ thousands) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Bank drafts payable $ 7,661 $ 6,729 Trade accounts payable 36,143 32,672 Accrued expenses -- Note F 71,278 69,693 Federal and state income taxes -- Note G 6,398 8,095 Deferred income taxes - Note G 3,503 5,503 Current portion of long-term debt -- Note E 15,239 28,348 --------- --------- TOTAL CURRENT LIABILITIES 140,222 151,040 LONG-TERM DEBT, less current portion -- Note E 43,731 107,075 OTHER LIABILITIES 3,933 1,842 DEFERRED INCOME TAXES -- Note G 26,158 26,266 MINORITY INTEREST -- Note B 31,699 28,471 SHAREHOLDERS' EQUITY -- Notes A, H and P Preferred stock, $.01 par value, authorized 10,000,000 shares; issued and outstanding 1993: 1,495,000 shares 15 - Common stock, $.01 par value, authorized 70,000,000 shares; issued and outstanding 1993: 19,185,325 shares; 1992: 19,058,472 shares 192 191 Additional paid-in capital 206,457 133,279 Stock payable to employee benefit plans -- Note K 205 701 Predecessor basis adjustment -- Note A (15,371) (15,371) Retained earnings (deficit) 10,492 (5,149) --------- --------- TOTAL SHAREHOLDERS' EQUITY 201,990 113,651 COMMITMENTS AND CONTINGENCIES (Notes I, J, K and P) --------- --------- $ 447,733 $ 428,345 ========= ========= See notes to consolidated financial statements.
ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31 1993 1992 1991 ($ thousands, except per share data) OPERATING REVENUES Carrier operations $ 893,504 $ 858,755 $ 797,405 Tire operations 111,585 96,254 83,193 Service and other 4,829 4,940 3,900 ----------- ----------- ----------- 1,009,918 959,949 884,498 OPERATING EXPENSES AND COSTS -- Note L Carrier operations 851,711 810,374 762,416 Tire operations 101,240 87,482 75,054 Service and other 5,598 4,838 3,905 ----------- ----------- ----------- 958,549 902,694 841,375 ----------- ----------- ----------- OPERATING INCOME 51,369 57,255 43,123 OTHER INCOME Gains (loss) on asset sales 2,509 2,127 (1,028) Gain on sale of subsidiary stock -- Note B - - 14,141 Other 465 533 626 ----------- ----------- ----------- 2,974 2,660 13,739 OTHER EXPENSES Interest 7,248 17,285 34,421 Other 3,705 4,156 6,236 Minority interest in subsidiary -- Note B 3,140 2,825 690 ----------- ----------- ----------- 14,093 24,266 41,347 ----------- ----------- ----------- INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 40,250 35,649 15,515 FEDERAL AND STATE INCOME TAXES (CREDIT) -- Note G Current 21,386 15,682 7,651 Deferred (2,108) 1,212 112 ----------- ----------- ----------- 19,278 16,894 7,763 ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Continued) Year Ended December 1993 1992 1991 ($ thousands, except per share data) INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 20,972 $ 18,755 $ 7,752 EXTRAORDINARY ITEM Loss on extinguishments of debt -- Notes A and B (661) (15,975) (515) CUMULATIVE EFFECT ON PRIOR YEARS OF ACCOUNTING CHANGE IN RECOGNITION OF REVENUE (Note C) - (3,363) - ----------- ----------- ----------- NET INCOME (LOSS) $ 20,311 $ (583) $ 7,237 =========== =========== =========== PER COMMON SHARE -- Notes C and H Income before extraordinary item and cumulative effect of accounting change $ .89 $ .99 $ .61 Extraordinary item: Loss on extinguishments of debt (.04) (.84) (.04) Cumulative effect on prior years of accounting change in recognition of revenue - (.18) - ----------- ----------- ----------- Net income (loss) $ .85 $ (.03) $ .57 =========== =========== =========== CASH DIVIDENDS PAID PER COMMON SHARE $ .04 $ .02 $ - =========== =========== =========== AVERAGE COMMON SHARES OUTSTANDING --Note C 19,193,582 19,040,103 12,731,141 =========== =========== =========== See notes to consolidated financial statements.
ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ($ thousands)
Additional Stock Payable Predecessor Retained Common Preferred Paid-In to Employee Basis Earnings Treasury Stock Stock Capital Benefit Plans Adjustment (Deficit) Stock Balances at January 1, 1991 $ 126 $ - $ 45,651 $ 2,636 $(15,371) $(11,333) $ - Net income - - - - - 7,237 - Issuance of common stock to employee benefit plans -- Note K 2 - 2,634 (2,636) - - - Purchase of treasury stock - - - - - - (43) Stock payable to employee benefit plans - Note K - - - 744 - - - ----- ---- -------- ------- -------- -------- ---- Balances at December 31, 1991 128 - 48,285 744 (15,371) (4,096) (43) Net loss - - - - - (583) - Issuance of common stock - Note A 106 - 140,760 - - - - Purchase of common stock for employee benefit plan - Note K - - - (744) - - - Retirement of common stock (43) - (55,766) - - - 43 Stock payable to employee benefit plans -- Note K - - - 701 - - - Dividends paid - - - - - (470) - ----- ---- -------- ------- -------- -------- ---- Balances at December 31, 1992 191 - 133,279 701 (15,371) (5,149) - Net income - - - - - 20,311 - Issuance of common stock to employee benefit plans - Note K 1 - 1,299 (701) - - - Stock payable to employee benefit plans -- Note K - - - 205 - - - Issuance of preferred stock - Note H - 15 71,879 - - - - Dividends paid - - - - - (4,670) - ----- ---- -------- ------- -------- -------- ---- Balances at December 31, 1993 $ 192 $ 15 $206,457 $ 205 $(15,371) $ 10,492 $ - ===== ==== ======== ======= ======== ======== ==== See notes to consolidated financial statements.
ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 1993 1992 1991 ($ thousands) OPERATING ACTIVITIES Net income (loss) $ 20,311 $ (583) $ 7,237 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Loss on extinguishment of debt 661 15,975 515 Cumulative effect of accounting change in method of revenue recognition - 3,363 - Depreciation and amortization 28,266 34,473 39,755 Amortization of intangibles 3,064 3,034 3,024 Other amortization 319 755 2,290 Contribution of stock to employee benefit plans 804 (43) 744 Provision for losses on accounts receivable 1,902 2,343 2,945 Provision for deferred income taxes (2,108) 1,212 112 (Gain) loss on asset sales (2,509) (2,127) 1,028 Gain on sale or issuance of subsidiary stock (37) - (14,141) Minority interest in subsidiary 3,390 3,076 690 Changes in operating assets and liabilities, net of acquisition: Accounts receivable (14,152) (12,172) (1,387) Inventories and prepaid expenses (5,985) (3,377) (797) Other assets 1,859 (2,266) (3,881) Accounts payable, bank drafts payable, taxes payable, accrued expenses and other liabilities (193) 15,775 2,225 --------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 35,592 59,438 40,359 INVESTING ACTIVITIES Purchases of property, plant and equipment, less capitalized leases (13,692) (21,105) (7,528) Proceeds from asset sales 10,839 10,417 3,461 Acquisition of Trans-World Tire Corp. (2,500) - - --------- --------- --------- NET CASH USED BY INVESTING ACTIVITIES (5,353) (10,688) (4,067) ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Year Ended December 31 1993 1992 1991 ($ thousands) FINANCING ACTIVITIES Deferred financing costs and expenses incurred in borrowing activities $ (47) $ (721) $ (421) Borrowings under revolving credit facilities 35,000 40,000 40,000 Borrowings under term loan facilities - 50,000 - Principal payments under term loan facility (50,000) - (37,158) Payments under revolving credit facilities (48,000) (53,000) (51,000) Payments to retire 14% senior subordinated notes (8,437) (135,507) - Net proceeds from the issuance of common stock - 140,868 - Net proceeds from the issuance of preferred stock 71,894 - - Net proceeds from sale of subsidiary stock - - 39,275 Principal payments on other long-term debt (24,766) (35,613) (27,851) Dividends paid to minority shareholders of subsidiary (432) (429) - Dividends paid (4,133) (470) - Purchase of treasury stock - - (43) Repurchase of common stock -- Note H - (55,768) - --------- --------- --------- NET CASH USED BY FINANCING ACTIVITIES (28,921) (50,640) (37,198) --------- --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,318 (1,890) (906) Cash and cash equivalents at beginning of year 5,644 7,534 8,440 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 6,962 $ 5,644 $ 7,534 ========= ========= ========= See notes to consolidated financial statements.
ARKANSAS BEST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1993 NOTE A - ORGANIZATION, PUBLIC OFFERINGS AND DESCRIPTION OF BUSINESS Arkansas Best Corporation (the "Company") is a diversified holding company engaged through its subsidiaries primarily in motor carrier operations and truck tire retreading and sales. The Company acquired its subsidiaries pursuant to a cash tender offer on July 26, 1988. For financial statement purposes, the acquisition was accounted for under the purchase method effective July 26, 1988. Principal subsidiaries owned are ABF Freight System, Inc., ("ABF"), Treadco, Inc. ("TREADCO"), and ABC Treadco, Inc. ("ABC Treadco"). Due to the extent of management shareholders of the predecessor company continuing their ownership interest in the Company subsequent to the 1988 acquisition, the equity interest of these management shareholders was valued at the predecessor basis rather than at fair market value. Accordingly, the new basis of reporting for the Company's net assets using fair market values at the date of the acquisition was reduced by $15,371,000 to reflect the carryover basis of the management shareholders. In February 1993, the Company completed a public offering of 1,495,000 shares of $2.875 Series A Cumulative Convertible Exchangeable Preferred Stock at $50 per share. The total net proceeds to the Company were approximately $71.9 million and were used to repay the $50 million term loan with Societe Generale. This transaction resulted in a loss on extinguishment of debt of $167,000 (net of income tax benefit of $103,000), which is reported as an extraordinary item in the accompanying consolidated financial statements. The Company completed an initial public offering of 15.7 million shares of common stock at $14 per share (the "Offering") on May 13, 1992. The Company sold 10.7 million shares with the remaining shares being sold by a shareholder. The total net proceeds to the Company as a result of the Offering were approximately $140.9 million and were used to repurchase $113.9 million of the Company's outstanding 14% Senior Subordinated Notes due 1998 (the "Notes") and to make premium and consent payments and pay certain other related expenses. This transaction resulted in a loss on extinguishment of debt of $15.9 million (net of income tax benefit of $9.7 million) which is reported as an extraordinary item in the accompanying consolidated financial statements. Assuming the public offering had occurred on January 1, 1992, with the Notes repurchased at that time, pro forma income before extraordinary items and cumulative effect of accounting change would have been approximately $22,902,000, or $.97 per share, for the year ended December 31, 1992. The average shares outstanding used in this computation was 23,531,434, which does not give consideration to the repurchase of 4,439,000 shares of Common Stock in November 1992 (see Note H). NOTE B - SALE OF SUBSIDIARY STOCK In June 1991, TREADCO was organized as the successor to the tire business previously conducted by ABC Treadco, a wholly owned subsidiary of the Company. In 1991, TREADCO completed an initial public offering of 2,679,300 of its common shares for $16 per share. The Company recognized an $8.8 million gain (net of tax of $5.3 million) on the transaction. The net proceeds of the offering were $39.3 million and were used to prepay outstanding bank and intercompany debt. TREADCO incurred a loss on extinguishment of debt of $.5 million (net of tax benefit of $.3 million) due to the write-off of deferred financing costs, which is reported as an extraordinary item in the accompanying consolidated financial statements. In December 1993, ABC Treadco's investment in TREADCO was transferred to the Company. As of December 31, 1993, the Company's percentage ownership of TREADCO is 46%. The Company's consolidated financial statements continue to consolidate the accounts of TREADCO, with the ownership interests of the other stockholders reflected as minority interest, because the Company continues to control TREADCO through stock ownership, board representation and agreement to provide management services under a transition services agreement. Summarized condensed financial information for TREADCO is as follows:
December 31 1993 1992 ($ thousands) Current assets $50,950 $41,959 Property, plant and equipment, net 14,320 10,387 Other assets 16,162 14,175 ------- ------- Total assets $81,432 $66,521 ======= ======= Current liabilities $15,338 $12,463 Long-term debt and other 7,606 1,154 Stockholders' equity 58,488 52,904 ------- ------- Total liabilities and stockholders' equity $81,432 $66,521 ======= ======= 1993 1992 1991 ($ thousands) Sales $113,277 $98,833 $84,740 Operating expenses and costs 103,671 90,417 77,044 Interest expense 195 51 2,810 Other (income) expense (252) (377) 594 Income taxes 3,832 3,471 1,780 Extraordinary loss - - 515 -------- ------- ------- Net income $ 5,831 $ 5,271 $ 1,997 ======== ======= =======
On August 29, 1993, TREADCO purchased substantially all of the assets and liabilities of Trans-World Tire Corporation Inc., a new and retread truck tire operation. Assets of approximately $8.2 million and liabilities of approximately $6.4 million were acquired for a purchase price of $2.9 million. A total of $1.1 million of goodwill was recognized in connection with the purchase. NOTE C - ACCOUNTING POLICIES Consolidation: The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. Cash and Cash Equivalents: Short term investments which have a maturity of ninety days or less when purchased are considered cash equivalents. Concentration of Credit Risk: The Company's services are provided primarily to customers throughout the United States and Canada. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. Historically, credit losses have not been significant. Inventories: Inventories are stated at the lower of cost (first-in, first- out basis) or market. Property, Plant and Equipment: As of July 26, 1988, property, plant and equipment was recorded at its estimated fair market value in connection with the purchase described in Note A. Purchases of property, plant and equipment subsequent to July 26, 1988 are recorded at cost. For financial reporting purposes, such property is depreciated principally by the straight-line method. For tax reporting purposes, accelerated depreciation or cost recovery methods are used, with the assets' predecessor tax basis being used. Gains and losses on asset sales are reflected in the year of disposal. Trade- in allowances in excess of the book value of revenue equipment traded are accounted for by adjusting the cost of assets acquired. Tires and tubes purchased with revenue equipment are capitalized as a part of the cost of such equipment, with replacement tires and tubes being expensed when placed in service. Goodwill: Excess cost over fair value of net assets acquired (goodwill) is amortized on a straight-line basis over 15 to 40 years. The carrying value of goodwill will be reviewed if the facts and circumstances suggest that it may be impaired. If this review indicates that goodwill will not be recoverable, as determined based on the undiscounted cash flows over the remaining amortization period, the Company's carrying value of the goodwill would be reduced by the estimated shortfall of cash flows. No reduction was required for 1991 through 1993. Income Taxes: Effective January 1, 1993, the Company adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). As permitted under the new rules, prior years' financial statements have not been restated. The Company previously used the liability method required by FAS 96. The adoption of FAS 109 as of January 1, 1993, had no impact on income. Under FAS 109, the liability method is used in accounting for income taxes. Under this method, deferred income taxes relate principally to asset and liability basis differences arising from the 1988 purchase transaction, to the timing of the depreciation and cost recovery deductions previously described and to temporary differences in the recognition of certain revenues and expenses of carrier operations. Revenue Recognition: Prior to 1992, carrier operating revenues were recognized on the date the shipments were picked up from the customer, with expenses recognized as incurred. In January 1992, the Emerging Issues Task Force of the Financial Accounting Standards Board reached a consensus that recognition of revenue for freight when picked up from the customer is no longer an acceptable accounting method. As a result, the Company adopted a new revenue recognition method effective January 1, 1992 whereby revenue is recognized based on relative transit time in each reporting period with expenses continuing to be recognized as incurred. This change in accounting method resulted in a charge to earnings in the first quarter of 1992 having a cumulative effect of approximately $3,400,000 (net of income taxes of $2,000,000). Unaudited pro forma results of operations as though the Company had adopted the change in accounting method as of January 1, 1991 and actual information for comparison purposes are as follows:
1992 1991 ($ thousands, except per share amounts) As reported in the consolidated statements of operations: Income before extraordinary item $18,755 $7,752 Earnings per common share $ .99 $ .61 Net income (loss) $ (583) $7,237 Earnings (loss) per common share $ (.03) $ .57 Pro forma amounts as though the new revenue recognition policy had been applied retroactively: Income (loss) before extraordinary item $18,755 $8,253 Earnings (loss) per common share $ .99 $ .65 Net income (loss) $ 2,780 $7,738 Earnings (loss) per common share $ .15 $ .61
Earnings (Loss) Per Share: The calculation of earnings (loss) per share is based on the weighted average number of common and common equivalent shares outstanding during the applicable period and retroactively adjusted for the effect of a March 1992 2.797 for 1 stock split in the form of a stock dividend. (See Note H.) The calculation reduces income available to common shareholders by preferred stock dividends paid or accrued during the period. Accounting for Sales of Stock by Subsidiaries: It is the Company's policy to recognize gains and losses on sales of subsidiary stock when incurred. Claims Liabilities: The Company is self-insured up to certain limits for workers' compensation, cargo loss and damage and certain property damage and liability claims. Provision has been made for the estimated liabilities for such claims as incurred. Recently Issued Financial Accounting Standards: In November 1993, the Financial Accounting Standards Board issued FAS 112, requiring accrual accounting for non-accumulating postemployment benefits, such as disability and death benefits instead of recognizing an expense for those benefits when paid. The Company will be required to comply with the new rules beginning January 1, 1994, using the cumulative effect method. The Company is accumulating the necessary data to adopt the standard and does not anticipate that adoption of this standard will materially impact net income in 1994. NOTE D - INVENTORIES
December 31 1993 1992 ($ thousands) Finished goods $ 20,240 $ 14,626 Materials 6,784 4,528 Repair parts, supplies and other 2,062 2,229 -------- -------- $ 29,086 $ 21,383 ======== ========
NOTE E - LONG-TERM DEBT AND CREDIT AGREEMENTS
December 31 1993 1992 ($ thousands) Term Loan Facility (1) $ - $ 50,000 Revolving Credit Facility (1) - 20,000 Treadco Credit Agreement (2) 7,000 - Senior subordinated notes (3) - 7,950 Capitalized lease obligations (4) 49,419 55,894 Other 2,551 1,579 -------- -------- 58,970 135,423 Less current portion 15,239 28,348 -------- -------- $ 43,731 $107,075 ======== ========
(1) Term Loan and Revolving Credit Facilities: The Company and certain banks are parties to a Credit Agreement with Societe Generale, as Agent and NationsBank of Texas as Co-Agent (the "Credit Agreement") which provides funds available under a three-year Revolving Credit Facility of $100 million, including $40 million for letters of credit. There are no borrowings outstanding under the Revolving Credit Facility and approximately $39 million of letters of credit outstanding at December 31, 1993. The Revolving Credit Facility is payable on June 30, 1996. The Credit Agreement also requires mandatory prepayments to be made under certain circumstances, including the sales of certain assets and net cash proceeds from the issuance of certain equity or debt securities. The Credit Agreement also, at December 1992, included a $50 million Term Loan Facility. This facility was repaid with proceeds from the issuance of preferred stock in February 1993 (see Note A). The Company pays a commitment fee of 3/8% on the unused amount under the Revolving Credit Facility. Loans under the Credit Agreement bear interest at the Company's option, at a rate per annum of either: (i) the greater of (a) the agent bank's prime rate and (b) the Federal Funds Rate plus 1/2%; or (ii) LIBOR plus 1 1/2%. The Credit Agreement contains various covenants which limit, among other things, dividends, indebtedness, capital expenditures, loans and investments, as well as requiring the Company to meet certain financial tests. As of December 31, 1993, these covenants have been met. If there is an event of default which is not remedied or waived within 10 days, the Credit Agreement will become secured to the extent of amounts then outstanding of all of the Company's receivables, revenue equipment, real property and TREADCO common stock included in the borrowing base (subject to certain exceptions). (2) TREADCO is a party to a revolving credit facility with Societe Generale (the "TREADCO Credit Agreement") providing for borrowings of up to the lesser of $12 million or the applicable borrowing base. Borrowings under the TREADCO Credit Agreement are collateralized by accounts receivable and inventory. Borrowings under the agreement bear interest, at TREADCO's option, at 1% above the bank's LIBOR rate, or at the higher of the bank's prime rate or the "federal funds rate" plus 1/2%. At December 31, 1993, the interest rate was 5%. At December 31, 1993, TREADCO had $7 million outstanding under the Revolving Credit Agreement. TREADCO pays a commitment fee of 3/8% on the unused amount under the TREADCO Credit Agreement. The TREADCO Credit Agreement contains various covenants which limit, among other things, dividends, disposition of receivables, indebtedness and investments, as well as requiring TREADCO to meet certain financial tests which have been met. Under the TREADCO Credit Agreement, TREADCO's assets are subject to pledge and, therefore, are available for use only by that subsidiary. (3) The Notes were redeemed during the year at a premium of 8.75% and 5.25%. The balance of deferred financing costs were expensed. The total extraordinary loss recognized with the repurchase was $494,000 (net of income tax benefit of $310,000). (4) Includes approximately $46,823,000 relative to leases of carrier revenue equipment with an aggregate net book value of approximately $47,388,000 at December 31, 1993. These leases have a weighted average interest rate of approximately 8.3%. Also includes approximately $2,596,000 relative to leases of various terminals and a data processing building expansion, financed by Industrial Revenue Bond Issues, with a weighted average interest rate of approximately 7.4%. The net book value of the related assets was approximately $4,857,000 at December 31, 1993. Annual maturities on long-term debt, excluding capitalized lease obligations (see Note I), in 1994 through 1998 aggregate approximately $1,537,000; $187,000; $7,125,000; $109,000 and $120,000, respectively. Interest paid was $7,226,000 in 1993, $22,174,000 in 1992, and $36,385,000 in 1991. NOTE F - ACCRUED EXPENSES
December 31 1993 1992 ($ thousands) Accrued salaries, wages and incentive plans $11,969 $15,521 Accrued vacation pay 21,074 19,284 Accrued interest 1,053 1,030 Taxes other than income 4,736 5,971 Loss, injury, damage and workers' compensation claims reserves 29,229 25,588 Pension costs 989 763 Other 2,228 1,536 ------- ------- $71,278 $69,693 ======= =======
NOTE G - FEDERAL AND STATE INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of December 31, 1993, are as follows (in thousands).
Deferred tax liabilities: Depreciation and basis differences for property, plant and equipment $19,277 Revenue recognition 4,182 Basis difference on asset and stock sale 3,037 Prepaid expenses 3,818 Equity in earnings of Treadco 1,064 ------- Total deferred tax liabilities 31,378 Deferred tax assets: Accrued expenses 1,452 Uniform capitalization of inventories 154 Postretirement benefits other than pensions 111 ------- Total deferred tax assets 1,717 ------- Net deferred tax liabilities $29,661 =======
Significant components of the provision for income taxes are as follows:
Current: Federal $18,263 State 3,123 ------- Total current 21,386 Deferred (credit): Federal (1,786) State (322) ------- Total deferred (credit) (2,108) ------- Total income tax expense $19,278 =======
Components of the provision for deferred income taxes are as follows:
Year Ended December 31 1992 1991 ($ thousands) Depreciation, capital leases and gains on asset sales $ (603) $(1,661) Sale of subsidiary stock - 3,791 Accrued expenses 762 (1,307) Revenue recognition 522 (1,560) Prepaid expenses 58 45 Revenue equipment tires 221 275 Deferred charges (545) 539 Equity in earnings of TREADCO 788 - Other 9 (10) ------- ------- Deferred income tax expense $ 1,212 $ 112 ======= =======
Deferred income taxes include deferred state income taxes, net of federal benefits of $126,000 for 1992 and $12,000 for 1991. A reconciliation between the effective income tax rate, as computed on income before extraordinary items and the cumulative effect of an accounting change, and the statutory federal income tax rate is presented in the following table:
Year Ended December 31 1993 1992 1991 ($ thousands) Income tax at the statutory federal rate of 35% for 1993 and 34% for 1992 and 1991 $14,088 $12,121 $ 5,275 Federal income tax effects of: State income taxes (981) (812) (415) Amortization of goodwill 1,058 1,003 1,028 Other nondeductible expenses 490 476 442 Minority interest 1,099 961 235 Undistributed earnings of TREADCO 189 705 - Rate difference for TREADCO (98) - - Retroactive tax rate change effect on deferred taxes 677 - - Other (45) 53 (22) ------- ------- ------- Federal income taxes 16,477 14,507 6,543 State income taxes 2,801 2,387 1,220 ------- ------- ------- $19,278 $16,894 $ 7,763 ======= ======= ======= Effective tax rate 47.9% 47.4% 50.0% ======= ======= =======
Income taxes paid were $20,740,000 in 1993, $6,302,000 in 1992, and $5,285,000 in 1991. In August 1993, the Revenue Reconciliation Act of 1993 was enacted, which required a retroactive increase in the corporate federal tax rate. This resulted in an increase in the tax expense and a corresponding decrease in net income of $828,000. The increase in the corporate federal tax rate was accounted for in accordance with FAS 109. The Company has a foreign tax credit carryover of approximately $100,000. If unused, the foreign tax credit carryover expires in 1998. Tax benefits of $320,000 for the 1991 extraordinary item are not included in the amounts disclosed above. NOTE H - SHAREHOLDERS' EQUITY Preferred Stock. On February 19, 1993, the Company completed a public offering of 1,495,000 shares of Preferred Stock at $50 per share. The preferred stock is convertible at the option of the holder into Common Stock at the rate of 2.5397 shares of Common Stock for each share of Preferred Stock. Annual dividends are $2.875 and are cumulative. The Preferred Stock is exchangeable, in whole or in part, at the option of the Company on any dividend payment date beginning February 15, 1995, for the Company's 5 3/4% Convertible Subordinated Debentures due February 15, 2018, at a rate of $50 principal amount of debentures for each share of Preferred Stock. The Preferred Stock is redeemable at any time on or after February 15, 1996, in whole or in part, at the Company's option, initially at a redemption price of $52.0125 per share and thereafter at redemption prices declining to $50 per share on or after February 15, 2003, plus unpaid dividends to the redemption date. Holders of Preferred Stock have no voting rights unless dividends are in arrears six quarters or more, at which time they have the right to elect two directors of the Company until all dividends have been paid. Total dividends paid during 1993 were $3,904,000. Stock Split. On March 13, 1992, the Company's Board of Directors voted to amend its Certificate of Incorporation to increase the Company's authorized Common Stock, $.01 par value, from 9,000,000 to 70,000,000 shares. In addition, the Company declared a 2.797 for 1 stock split of the Common Stock, $.01 par value (effected in the form of a stock dividend of 1.797 shares on each outstanding share). All references to share and per share data in the accompanying consolidated financial statements have been retroactively restated to give effect to the stock split. Repurchase of Common Stock. On November 13, 1992, 4,439,000 shares of Common Stock were repurchased from Kelso Best Partners, L.P. ("Kelso"), the Company's largest shareholder. These were purchased at a cost of $12.50 per share (a discount of $1.50 per share to the then quoted NASDAQ NMS sale price). These shares were subsequently retired by the Company. Stock Options. On March 13, 1992, the Company adopted a stock option plan which provides 1,000,000 shares of Common Stock for the granting of options to directors and key employees of the Company. On May 1993, the Company adopted a disinterested directors stockholder plan, which provides 225,000 shares of common stock for the granting of options to directors who administer the Company's stock option plan and are not permitted to receive stock option grants under such plan. These options are exercisable at the date they are granted. Option transactions are summarized as follows:
1993 1992 Options outstanding at the beginning of the year 551,600 - Options granted 37,500 551,600 Options cancelled - - Options exercised - - ------- ------- Options outstanding as of December 31 589,100 551,600 ======= ======= Option price range as of December 31 $9.50 to $10.87 $10.87 =============== ====== Options exercisable at December 31, 1993 132,820 =======
Shareholders' Rights Plan. Each issued and outstanding share of Common Stock has associated with it one Common Stock purchase right to purchase a share of Common Stock from the Company at a price of $60.00. Such rights are not exerciseable until certain events occur as detailed in the rights agreement. NOTE I - LEASES AND COMMITMENTS Rental expense amounted to approximately $58,369,000 in 1993, $45,875,000 in 1992, and $42,130,000 in 1991. The future minimum rental commitments, net of future minimum rentals to be received under noncancelable subleases, as of December 31, 1993 for all noncancellable operating leases are as follows ($ thousands):
Terminals Equipment and Recap and Period Total Plants Other 1994 $27,876 $ 8,630 $19,246 1995 19,496 6,474 13,022 1996 7,721 3,905 3,816 1997 3,189 1,950 1,239 1998 1,414 1,156 258 Thereafter 6,615 6,595 20 ------- ------- ------- $66,311 $28,710 $37,601 ======= ======= =======
Certain of the leases are renewable for substantially the same rentals for varying periods. Future minimum rentals to be received under noncancellable subleases totaled approximately $2,870,000 at December 31, 1993. The future minimum payments under capitalized leases at December 31, 1993, consisted of the following ($ thousands):
1994 $17,073 1995 15,403 1996 8,493 1997 4,718 1998 6,430 Thereafter 6,709 ------- Total minimum lease payments 58,826 Amounts representing interest 9,407 ------- Present value of net minimum lease included in long-term debt - Note E $49,419 ========
Assets held under capitalized leases are included in property, plant and equipment as follows:
December 31 1993 1992 ($ thousands) Revenue equipment $ 84,882 $111,492 Land and structures 7,498 8,624 -------- -------- 92,380 120,116 Less accumulated amortization 40,134 58,859 -------- -------- $ 52,246 $ 61,257 ======== ========
The revenue equipment leases extend from two to seven years and contain renewal or fixed price purchase options. The lease agreements require the lessee to pay property taxes, maintenance and operating expenses. Lease amortization is included in depreciation expense. Capital lease obligations of $17,885,000, $5,491,000 and $11,841,000 were incurred for the years ended December 31, 1993, 1992 and 1991, respectively. Commitments for purchase of revenue equipment aggregated approximately $31,327,000 at December 31, 1993. Commitments for capital expenditures aggregate approximately $13,685,000 at December 31, 1993, for construction of a new corporate office building. The Company incurred annual fees of $300,000 in 1992, and $400,000 in 1991 for services rendered by Kelso. In 1992, an additional $1,000,000 was paid to Kelso as an advisory fee in connection with the repurchase of the Notes. The service agreement with Kelso was terminated effective December 31, 1992. NOTE J - LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS In August 1990, a lawsuit was filed in the United States District Court for the Southern District of New York, by Riverside Holdings, Inc., Riverside Furniture Corporation ("Riverside") and MR Realty Associates, L.P. ("Plaintiffs") against the Company and Treadco. Plaintiffs have asserted state law, Employee Retirement Income Security Act of 1974 and securities claims against the Company in conjunction with the Company's sale of Riverside in April 1989. Plaintiffs are seeking approximately $4 million in actual damages and $10 million in punitive damages. The Company is vigorously contesting the lawsuit. After consultation with legal counsel, the Company has concluded that resolution of the foregoing lawsuit is not expected to have a material adverse effect on the Company's financial condition. Various other legal actions, the majority of which arise in the normal course of business, are pending. None of these other legal actions is expected to have a material adverse effect on the Company's financial condition. The Company maintains liability insurance against risks arising out of the normal course of its business. ABF stores some fuel for its tractors and trucks in approximately 103 underground tanks located in 27 states. Maintenance of such tanks is regulated at the federal and, in some cases, state levels. ABF believes that it is in substantial compliance with all such regulations. ABF 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 State Environmental Protection Agency ("EPA") that will require ABF to upgrade its underground tank systems by December 1998. ABF currently estimates that such upgrades, which are currently in process, will not have a material adverse effect on the Company. The Company has received notices from the EPA and others that it has been identified as a potentially responsible party ("PRP") under the Comprehensive Environmental Response Compensation and Liability Act or other federal or state environmental statutes at several hazardous waste sites. After investigating the Company's or its subsidiaries' involvement in waste disposal or waste generation at such sites, the Company has either agreed to de minimis settlements (aggregating approximately $210,000 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. The Company remains responsible for certain environmental claims that arose with respect to its ownership of Riverside prior to its sale in 1989. Riverside was notified in 1988 that it has been identified as a PRP for hazardous wastes shipped to two separate sites in Arkansas. To date, the Company, as a part of a PRP group, has paid approximately $50,000 on Riverside's behalf related to one site, with additional assessments expected related to that site. Riverside was dismissed as a PRP from the second site in March 1993. Management currently believes that resolution of its remaining site is unlikely to have a material adverse effect on the Company, although there can be no assurance in this regard. NOTE K - EMPLOYEE BENEFIT PLANS The Company and its subsidiaries have noncontributory defined benefit pension plans covering substantially all noncontractual employees. Benefits are based on years of service and employee compensation. Contributions are made based upon at least the minimum amounts required to be funded under provisions of the Employee Retirement Income Security Act of 1974, with the maximum amounts not to exceed the maximum amount deductible under the Internal Revenue Code. The plans' assets are held in a common bank- administered trust fund and are primarily invested in governmental and equity securities. Additionally, the Company participates in several multiemployer plans, which provide defined benefits to the Company's union employees. In the event of insolvency or reorganization, plan terminations or withdrawal by the Company from the multiemployer plans, the Company may be liable for a portion of the plan's unfunded vested benefits, the amount of which, if any, has not been determined. A summary of the components of net periodic pension costs for the defined benefit plans for the periods indicated and the total contributions charged to pension expense for the multiemployer plans follows:
Year Ended December 31 1993 1992 1991 ($ thousands) Defined Benefit Plans Service cost - benefits earned during the year $ 4,225 $ 3,683 $ 2,891 Interest cost on projected benefit obligations 5,675 5,162 4,580 Actual return on plan assets (6,656) (3,601) (8,137) Net amortization and deferral 1,542 (1,851) 3,482 ------- ------- ------- Net pension cost of defined benefit plans 4,786 3,393 2,816 Multiemployer Plans 37,846 36,066 32,126 ------- ------- ------- Total pension expense $42,632 $39,459 $34,952 ======= ======= =======
Assumptions used in determining net periodic pension cost for the defined benefit plans were:
Year Ended December 31 1993 1992 1991 Weighted average discount rate 8.49% 8.90% 9.84% Annual compensation increases 5.00% 5.00% 5.00% Expected long-term rates of return on assets 9.25% 9.75% 9.75%
The following sets forth the funded status and amounts recognized in the consolidated balance sheets for the Company's defined benefit pension plans at December 31:
1993 1992 ($ thousands) Actuarial present value of benefit obligations: Vested benefit obligation $(56,798) $(43,182) ======== ======== Accumulated benefit obligation $(65,303) $(50,414) ======== ======== Projected benefit obligation $(79,195) $(66,875) Plan assets at fair value 68,515 61,724 -------- -------- Projected benefit obligation in excess of plan assets (10,680) (5,151) Unrecognized net loss 15,095 10,377 Prior service benefit not yet recognized in net periodic pension cost 218 230 Unrecognized net asset at January 1, 1987, net of amortization (73) (76) -------- -------- Net pension asset $ 4,560 $ 5,380 ======== ========
At December 31, 1993, the net pension asset is reflected in the accompanying financial statements as an accrued expense of $989,000 and a noncurrent asset of $5,549,000 included in other assets. At December 31, 1992, the net pension asset is reflected in the accompanying financial statements as an accrued expense of $763,000 and a noncurrent asset of $6,143,000 included in other assets. The following assumptions were used in determining the pension obligation:
December 31 1993 1992 Weighted average discount rate 7.24% 8.49% Annual compensation increases 3.00% 5.00% Expected long-term rates of return on assets 9.25% 9.75%
The Company has deferred compensation agreements with certain executives for which liabilities aggregating $975,000 and $1,118,000 as of December 31, 1993 and 1992, respectively, have been accrued. The Company has a supplemental benefit plan for the purpose of supplementing benefits under the Company's retirement plans. The plan will pay sums in addition to amounts payable under the retirement plans to eligible participants. Participation in the plan is limited to employees of the Company who are participants in the Company's retirement plans and who are also either participants in the Company's executive incentive plan or are designated as participants in the plan by the Company's Board of Directors. As of December 31, 1993, the Company has a liability of $1,677,000 for future costs under this plan with $934,000 reflected in the accompanying consolidated financial statements as an accrued expense and $743,000 included in other liabilities. In July 1993, the Employee Stock Ownership Plan (the "ESOP") was merged with the employees investment plan to create a new plan known as the Arkansas Best Corporation Employees' Investment Plan (the "Investment Plan"). Participant account balances were transferred from the ESOP to the Investment Plan. The Investment Plan covers substantially all full-time, noncontractual employees of the Company and its subsidiaries. The Investment Plan permits participants to defer up to 15% of their salary by salary reduction as provided in Section 401(k) of the Internal Revenue Code. The percentage of Company match is set annually. In 1993, 1992 and 1991, up to 4% of a participant's compensation contributed to the Investment Plan was matched by a Company deposit of 25% of such contribution. The Company's matching contribution can be made in cash or common stock of the Company. The matching contributions charged to operations under the investment plans totaled approximately $875,000 for 1993, $805,000 for 1992, and $784,000 for 1991. At December 31, 1993 and 1992, the contribution payable was reflected as a component of shareholders' equity. In 1993, 67,813 shares were issued in settlement of the 1992 contributions payable. The number of shares to be issued in settlement of the 1993 contribution payable will be determined based upon the market value of the shares at the date of settlement. Shares were issued on a quarterly basis during 1993 for settlement of the 1993 liability. Total shares issued were 59,040. In 1991, TREADCO established an employee stock ownership plan (the "TREADCO ESOP") and a related trust (the "TREADCO Trust") covering substantially all employees of TREADCO. The cost of the TREADCO ESOP is borne by TREADCO through annual contributions to the TREADCO Trust in amounts determined by TREADCO's Board of Directors. Contributions may be paid in cash or in shares of TREADCO Common Stock. Participants become 100% vested after five years of service from January 1, 1990. Distribution of balances normally would be made in TREADCO's Common Stock. Charges to operations for contributions to the TREADCO ESOP totaled $250,000 for 1993 and $250,000 for 1992. No contributions were made to the TREADCO ESOP for 1991. The stock contributions to the ESOP and investment plans do not have a material effect on earnings per share. The Company sponsors plans that provide postretirement medical benefits, life insurance and accident and vision care to full-time officers of the Company. The plan is noncontributory, with the Company paying up to 80% of covered charges incurred by participants of the plan. In 1993, the Company adopted FAS 106, "Employers' Accounting for Postretirement Benefits Other than Pensions." The effect of adopting the new rules increased net periodic postretirement benefit cost by $275,000 and decreased 1993 net income by $179,000. These costs are based on a 20-year amortization of the transition obligation. Postretirement benefit costs for prior years, which was recorded on a cash basis, have not been restated. The following table represents the amounts recognized in the Company's consolidated balance sheets:
December 31 1993 1992 Accumulated postretirement benefit obligation: Retirees $ (1,354) $ (1,360) Fully eligible active plan participants (489) (299) Other active plan participants (1,159) (1,032) -------- -------- (3,002) (2,691) Unrecognized net loss 171 - Unrecognized transition obligation 2,556 2,691 -------- -------- Accrued postretirement benefit cost $ (275) $ - ======== ========
Net periodic postretirement benefit cost includes the following components:
1993 1992 Service cost $ 53 Interest cost 223 Amortization of transition obligation over 20 years 134 -------- -------- Net periodic postretirement benefit cost $ 410 $ 72 ======== ========
The weighted-average annual assumed rate of increase in the per capita cost of covered benefits (in health care cost trend) is 10.5% for 1994 (11.5% for 1993) and is assumed to decrease gradually to 4.5% in years 2006 and later. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by 1% in each year would increase the accumulated postretirement benefit obligation as of December 31, 1993, by $444,000 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1993 by $41,000. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.24% at December 31, 1993. Additionally, the Company's union employees are provided postretirement health care benefits through multiemployer plans. The cost of such benefits cannot be readily separated between retirees and active employees. The aggregate contribution to the multiemployer health and welfare benefit plans totaled approximately $45,400,000 for the year ended December 31, 1993. NOTE L - OPERATING EXPENSES AND COSTS
Year Ended December 31 1993 1992 1991 ($ thousands) CARRIER OPERATIONS Salaries and wages $594,213 $560,460 $517,597 Supplies and expenses 99,146 99,613 95,220 Operating taxes and licenses 35,152 32,697 31,863 Insurance 16,835 17,567 16,263 Communications and utilities 23,680 23,782 23,573 Depreciation and amortization 25,714 32,370 37,667 Rents 53,192 39,561 35,752 Other 3,779 4,324 4,481 -------- -------- -------- 851,711 810,374 762,416 TIRE OPERATIONS Cost of sales 79,718 69,070 59,367 Selling, administrative and general 21,522 18,412 15,687 -------- -------- -------- 101,240 87,482 75,054 SERVICE AND OTHER 5,598 4,838 3,905 -------- -------- -------- $958,549 $902,694 $841,375 ======== ======== ========
NOTE M - BUSINESS SEGMENT DATA The Company operates principally in two industries: carrier operations and tire operations. Carrier operations include freight transportation services as a common carrier of general commodities and import/export container cargo between ports and inland points. These services are provided to a wide range of customers in various industries. Tire operations include the cold- cap retreading of truck tires and the sale of new tires primarily for trucks. Intersegment sales are not significant. Operating profit is total revenue less operating expenses, excluding interest. Identifiable assets by business segment include both assets directly identified with those operations and an allocable share of jointly used assets. General corporate assets consist primarily of cash and other investments. The following information reflects selected business segment data (information relative to revenues is reflected in the consolidated statements of operations):
Year Ended December 31 1993 1992 1991 ($ thousands) OPERATING PROFIT (LOSS) Carrier operations $ 41,645 $ 46,725 $ 29,945 Tire operations 10,186 8,767 6,484 Other (1,193) 267 (634) -------- -------- -------- TOTAL OPERATING PROFIT 50,638 55,759 35,795 Gain on sale of subsidiary stock - - 14,141 Interest expense 7,248 17,285 34,421 Minority interest 3,140 2,825 - -------- -------- -------- INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 40,250 $ 35,649 $ 15,515 ======== ======== ======== IDENTIFIABLE ASSETS Carrier operations $331,507 $332,604 $359,792 Tire operations 80,377 65,480 56,562 Other 10,008 8,139 10,746 -------- -------- -------- 421,892 406,223 427,100 General corporate assets 25,841 22,122 19,998 -------- -------- -------- TOTAL ASSETS $447,733 $428,345 $447,098 ======== ======== ======== DEPRECIATION AND AMORTIZATION EXPENSE Carrier operations $ 28,043 $ 35,284 $ 41,400 Tire operations 2,614 2,221 3,027 Other 992 757 642 -------- -------- -------- $ 31,649 $ 38,262 $ 45,069 ======== ======== ======== CAPITAL EXPENDITURES Carrier operations $ 26,530 $ 24,001 $ 17,103 Tire operations 6,137 2,339 2,129 Other 492 256 137 -------- -------- -------- $ 33,159 $ 26,596 $ 19,369 ======== ======== ========
NOTE N - FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and Cash Equivalents. The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. Long- and Short-term Debt. The carrying amounts of the Company's borrowings under its revolving credit agreements approximate their fair values, since the interest rate under these agreements is variable. Also, the carrying amount of long-term debt was estimated to approximate their fair values. The carrying amounts and fair value of the Company's financial instruments at December 31, 1993 are as follows:
Carrying Fair Amount Value ($ thousands) Cash and cash equivalents $ 6,962 $ 6,962 Short-term debt 1,542 1,542 Long-term debt 8,009 8,009
NOTE O - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The tables below present unaudited quarterly financial information for 1993 and 1992:
1993 Three Months Ended March 31 June 30 September 30 December 31 ($ thousands, except per share amount) Operating revenues $229,210 $244,622 $267,106 $268,980 Operating expenses and costs 221,415 234,243 247,718 255,173 -------- -------- -------- -------- Operating income 7,795 10,379 19,388 13,807 Other expense - net 3,334 2,069 2,504 3,212 Income taxes 2,299 3,879 8,130 4,970 -------- -------- -------- -------- Income before extra- ordinary item 2,162 4,431 8,754 5,625 Loss on extinguishment of debt (167) (162) - (332) -------- -------- -------- -------- Net income $ 1,995 $ 4,269 $ 8,754 $ 5,293 ======== ======== ======== ======== Income per common share before extraordinary item $ .08 $ .18 $ .38 $ .24 Loss on extinguishment of debt per common share (.01) (.01) - (.02) -------- -------- -------- -------- Net income per common share $ .07 $ .17 $ .38 $ .22 ======== ======== ======== ======== Average common shares outstanding 19,194,595 19,127,064 22,971,916 19,288,988 ========== ========== ========== ==========
1992 Three Months Ended March 31 June 30 September 30December 31 ($ thousands, except per share amount) Operating revenues $229,109 $241,690 $248,573 $240,577 Operating expenses and costs 213,141 227,705 232,593 229,255 -------- -------- -------- -------- Operating income 15,968 13,985 15,980 11,322 Other expense - net 8,676 5,811 3,300 3,819 Income taxes 3,471 3,891 5,724 3,808 -------- -------- -------- -------- Income before extra- ordinary item and cumulative effect of accounting change 3,821 4,283 6,956 3,695 Loss on extinguishment of debt - (15,853) - (122) Cumulative effect of change in recognition of revenue (3,363) - - - -------- -------- -------- -------- Net income (loss) $ 458 $(11,570) $ 6,956 $ 3,573 ======== ======== ======== ======== Income per share before extraordinary item and cumulative effect of accounting change $ .30 $ .23 $ .30 $ .17 Loss on extinguishment of debt per share - (.85) - - Cumulative effect of change in recognition of revenue per share (26) - - - -------- -------- -------- -------- Net income (loss) per share $ .04 $ (.62) $ .30 $ .17 ======== ======== ======== ======== Average shares out- standing - Note H 12,800,000 18,549,906 23,514,918 21,298,471 ========== ========== ========== ==========
PSCHEDULE V PROPERTY, PLANT AND EQUIPMENT ARKANSAS BEST CORPORATION
Column A Column B Column C Column D Column E Column F Balance at Other changes - beginning Additions add (deduct) - Balance at Description of period at cost Retirements describe end of period Year Ended December 31, 1993: Land and structures Land $ 38,204,261 $ 1,557,404 $ 32,936 $ (53,897)(D) $ 39,674,832 Structures 65,875,433 2,871,545 - - 68,746,978 ------------ ------------ ------------ ------------ ------------ 104,079,694 4,428,949 32,936 (53,897) 108,421,810 Revenue equipment 177,688,664 18,438,230(A) 26,553,976 - 169,572,918 Manufacturing equipment 4,348,835 1,634,635 735 14,500 (C) 5,997,235 Service, office and other equipment 28,485,873 7,210,727(B) 1,768,346 (15,555)(C) 33,912,699 Leasehold improvements 6,648,063 1,447,512 - - 8,095,575 ------------ ------------ ------------ ------------ ------------ $321,251,129 $ 33,160,053 $ 28,355,993 $ (54,952) $326,000,237 ============ ============ ============ ============ ============ Year Ended December 31, 1992: Land and structures Land $ 36,359,413 $ 2,378,789 $ 533,941 $ - $ 38,204,261 Structures 63,923,462 2,061,509 487,587 378,049 (C) 65,875,433 ------------ ------------ ------------ ------------ ------------ 100,282,875 4,440,298 1,021,528 378,049 104,079,694 Revenue equipment 184,644,048 16,158,888(A) 23,114,272 - 177,688,664 Manufacturing equipment 3,755,071 642,970 49,206 - 4,348,835 Service, office and other equipment 25,417,395 4,350,847(B) 1,282,369 - 28,485,873 Leasehold improvements 6,037,543 1,002,975 14,406 (378,049)(C) 6,648,063 ------------ ------------ ------------ ------------ ------------ $320,136,932 $ 26,595,978 $ 25,481,781 $ - $321,251,129 ============ ============ ============ ============ ============ Year Ended December 31, 1991: Land and structures Land $ 36,049,731 $ 309,682 $ - $ - $ 36,359,413 Structures 62,933,793 989,669 - - 63,923,462 ------------ ------------ ------------ ------------ ------------ 98,983,524 1,299,351 - - 100,282,875 Revenue equipment 179,179,721 12,912,815(A) 7,448,488 - 184,644,048 Manufacturing equipment 3,260,399 494,672 - - 3,755,071 Service, office and other equipment 22,649,343 4,293,670(B) 1,525,618 - 25,417,395 Leasehold improvements 5,711,368 368,897 42,722 - 6,037,543 ------------ ------------ ------------ ------------ ------------ $309,784,355 $ 19,369,405 $ 9,016,828 $ - $320,136,932 ============ ============ ============ ============ ============ Note A - Primarily relates to revenue equipment replacement program. Note B - Composed principally of the purchase of forklifts and other terminal equipment by ABF Freight System, Inc., and the purchase of computer equipment and office furniture and fixtures by all subsidiaries. Note C - Transfers between accounts. Note D - Transfer to other assets Note E - The annual provisions for depreciation and amortization have been computed principally using the following ranges of lives: structures - 15 to 20 years; revenue equipment - 3 to 7 years; manufacturing equipment - 5 to 8 years; service, office and other equipment - 3 to 10 years; and leasehold improvements - 4 to 10 years.
SCHEDULE VI ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT ARKANSAS BEST CORPORATION
Column A Column B Column C Column D Column E Column F Additions Balance at charged to Other changes - beginning costs and add (deduct) - Balance at Description of period expenses Retirements describe end of period Year Ended December 31, 1993: Structures $ 23,427,860 $ 4,627,625 $ - $ - $ 28,055,485 Revenue equipment 92,422,267 17,036,245 18,579,133 - 90,879,379 Manufacturing equipment 2,026,476 667,026 735 2,742 (A) 2,695,509 Service, office and other equipment 17,318,262 5,037,586 1,445,201 (3,796)(A) 20,906,851 Leasehold improvements 4,364,421 897,827 - - 5,262,248 ------------ ------------ ------------ ------------ ------------ $139,559,286 $ 28,266,309 $ 20,025,069 $ (1,054) $147,799,472 ============ ============ ============ ============ ============ Year Ended December 31, 1992: Structures $ 19,066,028 $ 4,611,334 $ 327,437 $ 77,935 (A) $ 23,427,860 Revenue equipment 84,129,754 24,087,149 15,794,636 - 92,422,267 Manufacturing equipment 1,523,344 524,366 21,234 - 2,026,476 Service, office and other equipment 13,949,920 4,402,132 1,033,790 - 17,318,262 Leasehold improvements 3,608,549 848,213 14,406 (77,935)(A) 4,364,421 ------------ ------------ ------------ ------------ ------------ $122,277,595 $ 34,473,194 $ 17,191,503 $ - $139,559,286 ============ ============ ============ ============ ============ Year Ended December 31, 1991: Structures $ 13,842,814 $ 5,223,214 $ - $ - $ 19,066,028 Revenue equipment 59,150,248 28,612,614 3,633,108 - 84,129,754 Manufacturing equipment 1,040,739 482,605 - - 1,523,344 Service, office and other equipment 10,343,146 4,474,250 867,476 - 13,949,920 Leasehold improvements 2,672,671 962,534 26,656 - 3,608,549 ------------ ------------ ------------ ------------ ------------ $ 87,049,618 $ 39,755,217 $ 4,527,240 $ - $122,277,595 ============ ============ ============ ============ ============ Note A - Reclassification
SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS AND RESERVES ARKANSAS BEST CORPORATION
Column A Column B Column C Column D Column E Column F Additions (1) (2) Balance at Charged to Charged to beginning costs and other accounts Deductions - Balance at Description of period expenses describe describe end of period Year Ended December 31, 1993: Deducted from asset accounts: Allowance for doubtful accounts receivable $ 1,850,000 $ 1,901,958 $ 909,223(A) $ 2,461,181(B) $ 2,200,000 ============ ============ ============ ============ ============ Year Ended December 31, 1992: Deducted from asset accounts: Allowance for doubtful accounts receivable $ 1,460,924 $ 2,343,419 $ 1,167,842(A) $ 3,122,185(B) $ 1,850,000 ============ ============ ============ ============ ============ Year Ended December 31, 1991: Deducted from asset accounts: Allowance for doubtful accounts receivable $ 1,355,000 $ 2,944,786 $ 982,011(A) $ 3,820,873(B) $ 1,460,924 ============ ============ ============ ============ ============ Note A - Recoveries of amounts previously written off. Note B - Uncollectible accounts written off.
SCHEDULE X SUPPLEMENTARY INCOME STATEMENT INFORMATION ARKANSAS BEST CORPORATION
Column A Column B Charged to costs Item and expenses Year Ended December 31 1993 1992 1991 Maintenance and repairs $44,011,699 $42,407,208 $40,382,430 Amortization of intangible assets: Amortization of goodwill (A) (A) (A) Amortization of deferred financing costs (A) (A) (A) Taxes, other than payroll and income taxes: Fuel taxes 22,019,446 20,038,743 19,266,245 Property taxes (A) (A) (A) Other (A) (A) (A) Royalties None None None Advertising costs (A) (A) (A) Note A - Amount not presented, as such amounts are less than one percent of total sales and revenues.
FORM 10-K -- ITEM 14(c) LIST OF EXHIBITS ARKANSAS BEST CORPORATION The following exhibits are filed with this report. Exhibit No. Page 10 Receivables Purchase Agreement dated as of March 2, 1994, by and between ABF Freight System, Inc., Renaissance Asset Funding Corp. and Societe Generale. 73 11 Statement Re: Computation of Earnings per Share 175 22 List of Subsidiary Corporations 177 23 Consent of Independent Auditors 179 EX-10 2 RECEIVABLES PURCHASE AGREEMENT MARCH 2, 1994 RECEIVABLES PURCHASE AGREEMENT Dated as of March 2, 1994 ABF Freight System, Inc. a Delaware corporation (the "Seller"), Renaissance Asset Funding Corp., a Delaware corporation (the "Issuer"), and Societe Generale, a French banking corporation acting through its United States branches or agencies, as agent (the "Agent") for the Investors, agree as follows: PRELIMINARY STATEMENTS. Certain terms that are capitalized and used throughout this Agreement are defined in Exhibit I to this Agreement. References in the Exhibits to "the Agreement" refer to this Agreement, as amended, modified or supplemented from time to time. The Seller has Receivables in which it is prepared to sell undivided fractional ownership interests (referred to herein as Receivable Interests"). The Issuer is prepared to purchase such Receivable Interests on the terms set forth herein. Accordingly, the parties agree as follows: ARTICLE I AMOUNTS AND TERMS OF THE PURCHASES SECTION 1.01. Purchase Facility. (a) On the terms and conditions hereinafter set forth, the Issuer may, in its sole discretion, purchase Receivable Interests from the Seller from time to time during the period from the date hereof to the Facility Termination Date. Under no circumstances shall the Issuer make any such purchase if after giving effect to such purchase the aggregate outstanding Capital of Receivable Interests, together with the aggregate outstanding "Capital" of "Receivable Interests" under the Alternate Receivables Purchase Agreement, would exceed the Purchase Limit. (b) The Seller may, upon at least five Business Days' notice to the Agent, from time to time, reduce in part the unused portion of the Purchase Limit; provided that each partial reduction shall be in the amount of at least $1,000,000 or an integral multiple thereof. (c) The Agent, on behalf of the Investors which own Receivable Interests, may have the proceeds of Collections attributable to such Receivable Interests automatically reinvested pursuant to Section 1.04 in additional undivided percentage interests in the Pool Receivables by making an appropriate readjustment of such Receivable Interest until the Agent gives the Seller the notice provided in Section 2(b)(iv) of Exhibit II to this Agreement. SECTION 1.02. Making Purchases. (a) Each purchase shall be made on at least three Business Days' notice from the Seller to the Agent. Each such notice of a purchase shall specify (i) the amount requested to be paid to the Seller (such amount, which shall not be less than $1,000,000, being referred to herein as the initial "Capital" of the Receivable Interest then being purchased), (ii) the date of such purchase (which shall be a Business Day), and (iii) the desired duration of the initial Fixed Period for such Receiv able Interest. The Agent shall promptly thereafter notify the Seller whether the Issuer has determined to make a purchase and, if so, whether all of the terms specified by the Seller are acceptable to the Issuer. (b) Prior to 12:00 noon New York City time on the date of each such purchase of a Receivable Interest, the Issuer shall, upon satisfaction of the applicable conditions set forth in Exhibit II hereto, make available to the Seller in same day funds, at First National Bank of Fort Smith for the account of ABF Freight System, Inc., an amount equal to the initial Capital of such Receivable Interest. (c) Effective on the date of each purchase pursuant to this Section 1.02 and each reinvestment pursuant to Section 1.04, the Seller hereby sells and assigns to the Agent, for the benefit of the Investors, an undivided percentage ownership interest, to the extent of the Receivable Interest then being purchased, in each Pool Receivable then existing and in the Related Security and Collections with respect thereto. SECTION 1.03. Receivable Interest Computation. Each Receivable Interest shall be initially computed on its date of purchase. Thereafter until the Termination Date for such Receivable Interest, such Receivable Interest shall be automatically recomputed (or deemed to be recomputed) on each day other than a Liquidation Day. Any Receivable Interest, as computed (or deemed recomputed) as of the day immediately preceding the Termination Date for such Receivable Interest, shall thereafter remain constant. Such Receivable Interest shall become zero when Capital thereof and Yield thereon shall have been paid in full, all the amounts owed by the Seller hereunder to the Investors or the Agent are paid in full and the Collection Agent shall have received the accrued Collection Agent Fee thereon. SECTION 1.04. Settlement Procedures. (a) Collection of the Pool Receivables shall be administered by a Collection Agent, in accordance with the terms of this Agreement and the Collection Agent Agreement. The Seller shall provide to the Collection Agent (if other than the Seller) on a timely basis all information needed for such administration, including notice of the occurrence of any Liquidation Day and current computations of each Receivable Interest. (b) The Collection Agent shall, on each day on which Collections of Pool Receivables are received by it with respect to any Receivable Interest: (i) set aside and hold in trust (and, at the request of the Agent, segregate) for the Investors, out of the percentage of such Collections represented by such Receivable Interest, an amount equal to the Yield and Collection Agent Fee accrued through such day for such Receivable Interest and not previously set aside; (ii) if such day is not a Liquidation Day, reinvest with the Seller, on behalf of the Investors, the remainder of such percentage of Collections, to the extent representing a return of Capital, by recomputation of such Receivable Interest pursuant to Section 1.03; (iii) if such day is a Liquidation Day, set aside and hold in trust (and, at the request of the Agent, segregate) for the Investors the entire remainder of such percentage of Collections; provided that if amounts are set aside and held in trust on any Liquidation Day and thereafter during such Settlement Period, the conditions set forth in Paragraph 2 of Exhibit II are satisfied or are waived by the Agent, such previously set aside amounts shall, to the extent representing a return of Capital, be reinvested in accordance with the preceding paragraph (ii) on the day of such subsequent satisfaction or waiver of conditions; and (iv) during such times as amounts are required to be reinvested in accordance with the foregoing paragraph (ii) or the proviso to paragraph (iii), release to the Seller for its own account any Collections in excess of such amounts and the amounts that are required to be set aside pursuant to paragraph (i) above. (c) The Collection Agent shall deposit into the Investor Account, on the last day of each Settlement Period for a Receivable Interest, Collections held for the Investors that relate to such Receivable Interest pursuant to Section 1.04(b). (d) Upon receipt of funds deposited into the Investor Account, the Agent shall distribute them as follows: (i) if such distribution occurs on a day that is not a Liquidation Day, first to the Investors in payment in full of all accrued Yield and then to the Collection Agent in payment in full of all accrued Collection Agent Fee. (ii) if such distribution occurs on a Liquidation Day, first to the Investors in payment in full of all accrued Yield, second to the Investors in reduction to zero of all Capital, third to the Investors or the Agent in payment of any other amounts owed by the Seller hereunder, and fourth to the Collection Agent in payment in full of all accrued Collection Agent Fee. After the Capital and Yield and Collection Agent Fee with respect to a Receivable Interest, and any other amounts payable by the Seller to the Investors or the Agent hereunder, have been paid in full, all additional Collections with respect to such Receivable Interest shall be paid to the Seller for its own account. (e) For the purposes of this Section 1.04: (i) if on any day the Outstanding Balance of any Pool Receivable is reduced or adjusted as a result of any defective, rejected, returned, repossessed or foreclosed merchandise or services, or any cash discount or other adjustment made by the Seller, or any setoff or dispute between the Seller and an Obligor (including but not limited to any reduction or setoff attributed to Receivables generated through a shipment routing involving an interline carrier), the Seller shall be deemed to have received on such day a Collection of such Pool Receivable in the amount of such reduction or adjustment; (ii) if on any day any of the representations or warranties in paragraph (h) of Exhibit III is no longer true with respect to any Pool Receivable, the Seller shall be deemed to have received on such day a Collection of such Pool Receivable in full; (iii) except as provided in paragraph (i) or (ii) of this Section 1.04(e), or as otherwise required by applicable law or the relevant Contract, all Collections received from an Obligor of any Receivables shall be applied to the Receivables of such Obligor in the order of the age of such Receivables, starting with the oldest such Receivable, unless such Obligor designates its payment for application to specific Receivables; and (iv) if and to the extent the Agent or the Investors shall be required for any reason to pay over to an Obligor any amount received on its behalf hereunder, such amount shall be deemed not to have been so received but rather to have been retained by the Seller and, accordingly, the Agent or the Investors, as the case may be, shall have a claim against the Seller for such amount, payable when and to the extent that any distribution from or on behalf of such Obligor is made in respect thereof. SECTION 1.05. Fees. The Seller shall pay to the Agent certain fees in the amounts and on the dates set forth in a separate fee agreement of even date between the Seller and the Agent. SECTION 1.06. Payments and Computations, Etc. (a) All amounts to be paid or deposited by the Seller or the Collection Agent hereunder or under the Collection Agent Agreement shall be paid or deposited no later than 11:00 A.M. (New York City time) on the day when due in same day funds to the Investor Account. (b) The Seller shall, to the extent permitted by law, pay interest on any amount not paid or deposited by the Seller (whether as Collection Agent or otherwise) when due hereunder, at an interest rate per annum equal to 2% per annum above the Alternate Base Rate, payable on demand. (c) All computations of interest under subsection (b) above and all computations of Yield, fees, and other amounts hereunder shall be made on the basis of a year of 360 days for the actual number of days elapsed. Whenever any payment or deposit to be made hereunder shall be due on a day other than a Business Day, such payment or deposit shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of such payment or deposit. SECTION 1.07. Dividing or Combining Receivable Interests. Either the Seller, on notice to the Agent received at least three Business Days prior to the last day of any Fixed Period, or the Agent, on notice to the Seller on or prior to the last day of any Fixed Period, may either (i) divide any Receivable Interest into two or more Receivable Interests having aggregate Capital equal to the Capital of such divided Receivable Interest, or (ii) com bine any two or more Receivable Interests originating on such last day or having Fixed Periods ending on such last day into a single Receivable Interest having Capital equal to the aggregate of the Capital of such Receivable Interests. SECTION 1.08. Increased Costs. (a) If Societe Generale, the Agent, an Investor, any entity which enters into a commitment to purchase Receivable Interests or interests therein, or any of their respective Affiliates (each an "Affected Person") determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Affected Person and such Affected Person determines that the amount of such capital is increased by or based upon the existence of any commitment to make purchases of or otherwise to maintain the investment in Pool Receivables or interests therein related to this Agreement or to the funding thereof or any related liquidity facility or credit enhancement facility (or any participation therein) and other commitments of the same type, then, upon demand by such Affected Person (with a copy to the Agent), the Seller shall immediately pay to the Agent, for the account of such Affected Person (as a third-party beneficiary), from time to time as specified by such Affected Person, additional amounts sufficient to compensate such Affected Person in the light of such circumstances, to the extent that such Affected Person reasonably determines such increase in capital to be allocable to the existence of any of such commitments. A certificate as to such amounts submitted to the Seller and the Agent by such Affected Person shall be conclusive and binding for all purposes, absent manifest error. (b) If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements referred to in Section 1.09) in or in the interpretation of any law or regulation or (ii) compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to an Investor of agreeing to purchase or purchasing, or maintaining the ownership of Receivable Interests in respect of which Yield is computed by reference to the Eurodollar Rate, then, upon demand by such Investor (with a copy to the Agent), the Seller shall immediately pay to the Agent, for the account of such Investor (as a third-party beneficiary), from time to time as specified, additional amounts sufficient to compensate such Investor for such increased costs. A certificate as to such amounts submitted to the Seller and the Agent by such Investor shall be conclusive and binding for all purposes, absent manifest error. SECTION 1.09. Additional Yield on Receivable Interests Bearing a Eurodollar Rate. The Seller shall pay to each Investor, so long as such Investor shall be required under regulations of the Board of Governors of the Federal Reserve System to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities, additional Yield on the unpaid Capital of each Receivable Interest of such Investor during each Fixed Period in respect of which Yield is computed by reference to the Eurodollar Rate, for such Fixed Period, at a rate per annum equal at all times during such Fixed Period to the remainder obtained by subtracting (i) the Eurodollar Rate for such Fixed Period from (ii) the rate obtained by dividing such Eurodollar Rate referred to in clause (i) above by that percentage equal to 100% minus the Eurodollar Rate Reserve Percentage of such Investor for such Fixed Period, payable on each date on which Yield is payable on such Receivable Interest. Such additional Yield shall be determined by such Investor and notified to the Seller through the Agent within 30 days after any Yield payment is made with respect to which such additional Yield is requested. A certificate as to such additional Yield submitted to the Seller and the Agent by such Investor shall be conclusive and binding for all purposes, absent manifest error. SECTION 1.10. Requirements of Law. In the event that any requirement of law or any change therein or in the interpretation or application thereof by the relevant governmental authority to an Investor after the date hereof or compliance by an Investor with any request or directive (whether or not having the force of law) from any central bank or other governmental authority: (i) does or shall subject such Investor to any tax of any kind whatsoever with respect to this Agreement, any increase in the amount of Receivable Interests owned by such Investor, or change the basis of taxation of payments to such Investor on account of Collections, Yield or any other amounts payable hereunder (excluding taxes imposed on the income of such Investor, and franchise taxes imposed on such Investor, by the jurisdiction under the laws of which such Investor is organized or a political subdivision thereof); (ii) does or shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, purchases, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Investor which are not otherwise included in the determination of the Eurodollar Rate or the Alternate Base Rate hereunder; or (iii) does or shall impose on such Investor any other condition; and the result of any of the foregoing is to increase the cost to such Investor of maintaining a Receivable Interest funded by reference to the Eurodollar Rate or the Alternate Base Rate or to reduce any amount receivable hereunder funded by reference to the Eurodollar Rate or the Alternate Base Rate, then, in any such case, the Seller shall pay such Investor, upon its demand, any additional amounts necessary to compensate such Investor for such additional cost or reduced amount receivable with regard to such Investor's Receivable Interest funded by reference to the Eurodollar Rate or the Alternate Base Rate. All such amounts shall be payable as incurred. A certificate from such Investor or the Agent, as the case may be, to the Seller certifying, in reasonably specific detail, the basis for, calculation of, and amount of such additional costs shall be conclusive in the absence of manifest error. SECTION 1.11. Inability to Determine Eurodollar Rate. In the event that the Agent shall have determined prior to the first day of any Fixed Period (which determination shall be conclusive and binding upon the parties hereto) by reason of circumstances affecting the interbank Eurodollar market, either (a) dollar deposits in the relevant amounts and for the relevant Fixed Period are not available, (b) adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Fixed Period or (c) the Eurodollar Rate determined pursuant hereto does not accurately reflect the cost to the Investors (as conclusively determined by the Agent) of maintaining Receivable Interests during such Fixed Period, the Agent shall promptly give telephonic notice of such determination, confirmed in writing, to the Seller prior to the first day of such Fixed Period. If such notice is given, the Assignee Rate applicable to the relevant Receivable Interest shall be determined without reference to the Eurodollar Rate. ARTICLE II REPRESENTATIONS AND WARRANTIES; COVENANTS; EVENTS OF TERMINATION SECTION 2.01. Representations and Warranties; Covenants. The Seller hereby makes the representations and warranties, and hereby agrees to perform and observe the covenants, set forth in Exhibits III and IV, respectively, hereto. SECTION 2.02. Events of Termination. If any of the Events of Termination set forth in Exhibit V hereto shall occur and be continuing, the Agent may, by notice to the Seller, take either or both of the following actions: (x) declare the Facility Termination Date to have occurred (in which case the Facility Termination Date shall be deemed to have occurred), and (y) without limiting any right under the Collection Agent Agreement to replace the Collection Agent, designate another Person to succeed the Seller as the Collection Agent; provided that, automatically upon the occurrence of any event (without any requirement for the passage of time or the giving of notice) described in subsection (g) of Exhibit V, the Facility Termination Date shall occur. Upon any such declaration or designation or upon any such automatic termination, the Investors and the Agent shall have, in addition to the rights and remedies which they may have under this Agreement, all other rights and remedies provided after default under the UCC and under other applicable law, which rights and remedies shall be cumulative. ARTICLE III INDEMNIFICATION SECTION 3.01. Indemnities by the Seller. Without limiting any other rights that the Agent or the Investors or any of their respective Affiliates or agents (each, an "Indemnified Party") may have hereunder or under applicable law, the Seller hereby agrees to indemnify each Indemnified Party from and against any and all claims, losses and liabilities (including reasonable attorneys' fees) (all of the foregoing being collectively referred to as "Indemnified Amounts") arising out of or resulting from this Agreement or the use of proceeds of purchases or reinvestments or the ownership of Receivable Interests or in respect of any Receivable or any Contract, excluding, however, (a) Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of such Indemnified Party, (b) recourse (except as otherwise specifically provided in this Agreement) for uncollectible Receivables or (c) any income taxes or franchise taxes imposed on such Indemnified Party by the jurisdiction under the laws of which such Indemnified Party is organized or any political subdivision thereof, arising out of or as a result of this Agreement or the ownership of Receivable Interests or in respect of any Receivable or any Contract. Without limiting or being limited by the foregoing, the Seller shall pay on demand to each Indemnified Party any and all amounts necessary to indemnify such Indemnified Party from and against any and all Indemnified Amounts relating to or resulting from any of the following: (i) the creation of an undivided percentage ownership interest in any Receivable which purports to be part of the Net Receivables Pool Balance but which is not at the date of the creation of such interest an Eligible Receivable or which thereafter ceases to be an Eligible Receivable; (ii) reliance on any representation or warranty or statement made or deemed made by the Seller (or any of its officers) under or in connection with this Agreement which shall have been incorrect in any material respect when made; (iii) the failure by the Seller to comply with any applicable law, rule or regulation with respect to any Pool Receivable or the related Contract; or the failure of any Pool Receivable or the related Contract to conform to any such applicable law, rule or regulation; (iv) the failure to vest in the Investors a perfected undivided percentage ownership interest, to the extent of each Receivable Interest, in the Receivables in, or purporting to be in, the Receivables Pool and the Related Security and Collections in respect thereof, free and clear of any Adverse Claim; (v) the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivables in, or purporting to be in, the Receivables Pool and the Related Security and Collections in respect thereof, whether at the time of any purchase or reinvestment or at any subsequent time; (vi) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable in, or purporting to be in, the Receivables Pool (including, without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms, or any other claim resulting from the sale of the merchandise or services related to such Receivable or the furnishing or failure to furnish such merchandise or services or relating to collection activities with respect to such Receivable (if such collection activities were performed by the Seller or any of its Affiliates acting as Collection Agent); (vii) any failure of the Seller, as Collection Agent or otherwise, to perform its duties or obligations in accordance with the provisions hereof or of the Collection Agent Agreement or to perform its duties or obligations under the Contracts; (viii) any products liability or other claim arising out of or in connection with merchandise, insurance or services which are the subject of any Contract; (ix) the commingling of Collections of Pool Receivables at any time with other funds; (x) any investigation, litigation or proceeding related to this Agreement or the use of proceeds of purchases or reinvestments or the ownership of Receivable Interests or in respect of any Receivable, Related Security or Contract; (xi) any theft of payments with respect to Pool Receivables resulting from the Seller's established payment remittance procedures; (xii) any failure of payments with respect to Pool Receivables to be deposited into the Collection Account within three Business Days after receipt by the Seller; or (xiii) any claim relating to a Receivable which is generated through a shipment routing involving an interline carrier. ARTICLE IV MISCELLANEOUS SECTION 4.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement or consent to any departure by the Seller therefrom shall be effective unless in a writing signed by the Agent, as agent for the Investors, and, in the case of any amendment, by the Seller, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of the Investors or the Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. No material amendment of this Agreement shall be effective unless a written statement is obtained from Duff & Phelps Credit Rating Co., Fitch Investors Service, Inc. and Standard & Poor's Corporation that the rating of the Issuer's commercial paper notes will not be downgraded or withdrawn solely as a result of such amendment. SECTION 4.02. Notices, Etc. (a) All notices and other communications hereunder shall, unless otherwise stated herein, be in writing (which shall include facsimile communication) and faxed or delivered, to each party hereto, at its address set forth under its name on the signature pages hereof or at such other address as shall be designated by such party in a written notice to the other parties hereto. Notices and communications by facsimile shall be effective when sent (and shall be followed by hard copy sent by regular mail), and notices and communications sent by other means shall be effective when received. (b) The Agent shall furnish Duff & Phelps Credit Rating Co., Fitch Investors Service, Inc. and Standard & Poor's Corporation with notice of the occurrence of a Liquidation Day, notice of waiver of the conditions set forth in Paragraph 2 of Exhibit II, notice of the occurrence of any Event of Termination under this Agreement, notice of any waiver of an Event of Termination under this Agreement, notice of any assignment pursuant to Section 4.03 of this Agreement and notice of an extension of the Facility Termination Date pursuant to Section 4.09 of this Agreement. SECTION 4.03. Assignability. (a) This Agreement and the Investors' rights and obligations herein (including ownership of each Receivable Interest) shall be assignable by the Investors and their successors and assigns. Each assignor of a Receivable Interest or any interest therein shall notify the Agent and the Seller of any such assignment. Each assignor of a Receivable Interest may, in connection with the assignment or participation, disclose to the assignee or participant any information, relating to the Seller or the Receivables, furnished to such assignor by or on behalf of the Seller or by the Agent. (b) This Agreement and the rights and obligations of the Agent herein shall be assignable by the Agent and its successors and assigns. (c) The Seller may not assign its rights or obligations hereunder or any interest herein without the prior written consent of the Agent. (d) Without limiting any other rights that may be available under applicable law, the rights of the Investors may be enforced through them or by their agents. SECTION 4.04. Costs, Expenses and Taxes. (a) In addition to the rights of indemnification granted under Section 3.01 hereof, the Seller agrees to pay on demand all costs and expenses in connection with the preparation, execution, delivery and administration (including periodic auditing of Receivables) of this Agreement, any asset purchase agreement or similar agreement relating to the sale or transfer of interests in Receivable Interests and the other documents and agreements to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Agent, the Issuer and their respective agents with respect thereto and with respect to advising the Agent, the Issuer and their respective agents as to their rights and remedies under this Agreement, and all costs and expenses, if any (including reasonable counsel fees and ex penses), of the Agent, the Investors and their respective agents, in connection with the enforcement of this Agreement and the other documents and agreements to be delivered hereunder. (b) In addition, the Seller shall pay (i) any and all commissions of placement agents and commercial paper dealers in respect of commercial paper notes issued to fund the purchase or maintenance of any Receivable Interest, (ii) any and all costs and expenses of any issuing and paying agent or other Person responsible for the administration of the Issuer's commercial paper program in connection with the preparation, completion, issuance, delivery or payment of commercial paper notes issued to fund the purchase or maintenance of any Receivable Interest, and (iii) any and all stamp and other taxes and fees payable in connection with the execution, delivery, filing and recording of this Agreement or the other documents or agreements to be delivered hereunder, and agrees to save each Indemnified Party harmless from and against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. (c) The Seller also shall pay on demand all other costs, expenses and taxes (excluding income taxes) incurred by the Issuer or any stockholder or agent of the Issuer ("Other Costs"), including the cost of administering the operations of the Issuer, the cost of auditing the Issuer's books by certified public accountants, the cost of rating the Issuer's commercial paper by independent financial rating agencies, the taxes (excluding income taxes) resulting from the Issuer's operations, and the reasonable fees and out-of-pocket expenses of counsel for any stockholder or agent of the Issuer with respect to advising as to rights and remedies under this Agreement, the enforcement of this Agreement or advising as to matters relating to the Issuer's operations; provided that the Seller and any other Persons who from time to time sell receivables or interests therein to the Issuer ("Other Sellers") each shall be liable for such Other Costs ratably in accordance with the usage under their respective facilities; and provided further that if such Other Costs are attributable to the Seller and not attributable to any Other Seller, the Seller shall be solely liable for such Other Costs. SECTION 4.05. No Proceedings. Each of the Seller, the Agent, each Investor, each assignee of a Receivable Interest or any interest therein and each entity which enters into a commitment to purchase Receivable Interests or interests therein hereby agrees that it will not institute against, or join any other person in instituting against, the Issuer any proceeding of the type referred to in paragraph (g) of Exhibit V so long as any commercial paper issued by the Issuer shall be outstanding or there shall not have elapsed one year plus one day since the last day on which any such commercial paper shall have been outstanding. SECTION 4.06. Confidentiality. Unless otherwise required by applicable law, the Seller, the Agent and the Investors agree to maintain the confidentiality of this Agreement (and all drafts thereof) in communications with third parties and otherwise; provided that this Agreement (a) may be disclosed to third parties to the extent such disclosure is made pursuant to a written agreement of confidentiality in form and substance reasonably satisfactory to the parties hereto, (b) may be disclosed to the parties' legal counsel and auditors if they agree to hold it confidential and (c) may be filed with the Securities and Exchange Commission as an Exhibit to the Parent's annual report on Form 10-K. SECTION 4.07. Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the state of New York (without giving effect to the conflict of laws principles thereof), except to the extent that the perfection of the interests of the investors in the receivables or remedies hereunder, in respect thereof, are governed by the laws of a jurisdiction other than the state of New York. SECTION 4.08. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. SECTION 4.09. Termination. The then current date set forth in clause (a) of the definition of Facility Termination Date may be extended for additional one year periods upon 30 days prior written notice from the Seller to the Agent. The provisions of Sections 1.08, 1.09, 1.10, 3.01, 4.04, 4.05 and 4.06 shall survive any termination of this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. SELLER: ABF FREIGHT SYSTEM, INC. By: _______________________________ Name: Title: 1000 South 21st Street Fort Smith, Arkansas 72901 Attention: General Counsel Tel. No. (501) 785-6130 Facsimile No. (501) 785-6124 ISSUER: RENAISSANCE ASSET FUNDING CORP. By: ______________________________ Name: Title: c/o Merrill Lynch Money Markets Inc. Merrill Lynch World Headquarters World Financial Center--South Tower 225 Liberty Street, 8th Floor New York, New York 10080-6108 Attention: Gary Carlin Tel. No. (212) 236-7200 Facsimile No. (212) 236-7584 AGENT: SOCIETE GENERALE By: ________________________________ Name: Title: By: ________________________________ Name: Title: 181 West Madison Street, Suite 3400 Chicago, IL 60602 Attention: Migdalia Lagoa Tel. No. (312) 578-5058 Facsimile No. (312) 578-5099 EXHIBIT I DEFINITIONS As used in the Agreement (including its Exhibits), the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Adverse Claim" means a lien, security interest or other charge or encumbrance, or any other type of preferential arrangement. "Affiliate" means, as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by or is under common control with such Person or is a director or officer of such Person. "Affiliated Obligor" means any Obligor that is an Affiliate of another Obligor. "Aged Receivable Ratio" means, on any date, the average of the ratios (expressed as a percentage) computed, as of the last day of each of the three calendar months ended immediately preceding such date or, if such date is the last day of a calendar month, the three calendar months ended on such last day, by dividing (i) the aggregate Outstanding Balance of all Pool Receivables that were Defaulted Receivables on each such day or that would have been Defaulted Receivables on each such day had they not been written off the books of the Seller during each such month, reduced by the Outstanding Balance of all such Pool Receivables that were Defaulted Receivables on each such day and that remain unpaid for 121 or more days from the original billing date for such payment, but that have not yet been written off the Seller's books as uncollectible by (ii) the "Total Revenue" as defined in the Seller's Monthly Revenue Adjustment Report for the one month period ending three calendar months prior to the date of the computation for each such calendar month. "Alternate Base Rate" means a fluctuating interest rate per annum as shall be in effect from time to time, which rate shall be at all times equal to the higher of: (a) the rate of interest announced publicly by Societe Generale in New York from time to time as its prime rate; and (b) 1% per annum above the Federal Funds Rate. "Alternate Receivables Purchase Agreement" means the Alternate Receivables Purchase Agreement, dated as of the date hereof, among the Seller, Societe Generale and certain other banks, and the Agent, as the same may, from time to time, be amended, modified or supplemented. "Assignee Rate" for any Fixed Period for any Receivable Interest means an interest rate per annum equal to 1 1/2% per annum above the Eurodollar Rate for such Fixed Period; provided, however, that in the case of (i) any Fixed Period on or prior to the first day of which an Investor shall have notified the Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Investor to fund such Receivable Interest at the Assignee Rate set forth above (and such Investor shall not have subsequently notified the Agent that such circumstances no longer exist), (ii) any Fixed Period of one to (and including) 29 days, (iii) any Fixed Period as to which the Agent does not receive notice, by no later than 12:00 noon (New York City time) on the third Business Day preceding the first day of such Fixed Period, that the related Receivable Interest will not be funded by issuance of commercial paper, or (iv) any Fixed Period for a Receivable Interest the Capital of which allocated to the Investors is less than $500,000, the "Assignee Rate" for each such Fixed Period shall be an interest rate per annum equal to the Alternate Base Rate in effect on the first day of such Fixed Period; provided, further, however, that in the case of any Fixed Period during which an Event of Termination shall exist, the "Assignee Rate" for such Fixed Period shall be an interest rate per annum equal to 2% per annum above the Alternate Base Rate in effect on the first day of such Fixed Period. "Average Maturity" means at any time that period of days equal to the calendar days outstanding of the Pool Receivables calculated by the Collection Agent in the then most recent Seller Report; provided if the Agent shall disagree with any such calculation, the Agent may recalculate such Average Maturity. "Business Day" means any day on which (i) banks are not authorized or required to close in New York City and (ii) if this definition of "Business Day" is utilized in connection with the Eurodollar Rate, dealings are carried out in the London interbank market. "Capital" of any Receivable Interest means the original amount paid to the Seller for such Receivable Interest at the time of its purchase by the Issuer pursuant to the Agreement, or such amount divided or combined in accordance with Section 1.07, in each case reduced from time to time by Collections distributed on account of such Capital pursuant to Section 1.04(d); provided that if such Capital shall have been reduced by any distribution and thereafter all or a portion of such distribution is rescinded or must otherwise be returned for any reason, such Capital shall be increased by the amount of such rescinded or returned distribution, as though it had not been made. "Collection Account" means the account (account number 1002155) maintained at First National Bank of Fort Smith into which will be deposited Collections of Pool Receivables. "Collection Account Agreement" means an agreement, in substantially the form of Annex B, between the Seller and First National Bank of Fort Smith. "Collection Agent" means at any time the Person then authorized pursuant to the Collection Agent Agreement to administer and collect Pool Receivables. "Collection Agent Agreement" means an agreement between the Seller and the Agent (and, if the Seller does not act as Collection Agent, consented to by the Collection Agent), in form and substance satisfactory to them, governing the appointment and responsibilities of the Collection Agent as to administration and collection of the Pool Receivables, and requiring the Collection Agent to perform its obligations set forth in the Agreement. "Collection Agent Fee" shall mean the collection agent fee referred to in the Collection Agent Agreement. "Collection Agent Fee Reserve" for any Receivable Interest at any time means the sum of (i) the unpaid Collection Agent Fee relating to such Receivable Interest accrued to such time, plus (ii) an amount equal to (a) the aggregate Pool Receivables relating to such Receivable Interest on such date multiplied by (b) the product of (x) the percentage per annum at which the Collection Agent Fee is accruing on such date and (y) a fraction having the sum of the Average Maturity plus the Collection Delay Period (each as in effect at such date) as its numerator and 360 as its denominator. "Collection Delay Period" means 10 days or such other number of days as the Agent may select upon three Business Days' notice to the Seller. "Collections" means, with respect to any Receivable, (a) all funds which are received by the Seller or the Collection Agent in payment of any amounts owed in respect of such Receivable (including, without limitation, purchase price, finance charges, interest and all other charges), or applied to amounts owed in respect of such Receivable (including, without limitation, insurance payments and net proceeds of the sale or other disposition of repossessed goods or other collateral or property of the related Obligor or any other party directly or indirectly liable for the payment of such Receivable and available to be applied thereon), (b) all Collections deemed to have been received pursuant to Section 1.04 and (c) all other proceeds of such Receivable. "Contract" means an agreement between the Seller and any Obligor, pursuant to or under which such Obligor shall be obligated to make payments to the Seller for services from time to time. "Credit and Collection Policy" means those receivables credit and collection policies and practices of the Seller in effect on the date of the Agreement and described in Schedule I hereto, as modified in compliance with the Agreement. "Debt" means (without duplication), at any time and with respect to any Person, (i) indebtedness of such Person for borrowed money (whether by loan or the issuance and sale of debt securities) or for the deferred purchase price of property and services purchased (other than amounts constituting trade payables or bank drafts (payable within 120 days) arising in the ordinary course), (ii) indebtedness of others which such Person has directly or indirectly assumed or guaranteed or otherwise provided credit support therefor; (iii) indebtedness of others secured by a lien on assets of such Person, whether or not such Person shall have assumed such indebtedness; (iv) obligations of such Person in respect of letters of credit, acceptance facilities, or drafts or similar instruments issued or accepted by banks and other financial institutions for the account of such Person (other than trade payables or bank drafts (payable within 120 days) arising in the ordinary course); (v) obligations of such Person under capital leases; and (vi) liabilities in respect of unfunded vested benefits under plans covered by Title IV of ERISA. "Defaulted Receivable" means a Receivable: (i) as to which any payment, or part thereof, remains unpaid for 91 days from the original billing date for such payment; (ii) as to which the Obligor thereof or any other Person obligated thereon or owning any Related Security in respect thereof has taken any action, or suffered any event to occur, of the type described in paragraph (g) of Exhibit V; or (iii) which, consistent with the Credit and Collection Policy, would be written off the Seller's books as uncollectible. "Delinquency Ratio" means on any date, the average of the ratios (expressed as a percentage) computed as of the last day of each of the three calendar months ended immediately preceding such date by dividing (i) the aggregate Outstanding Balance of all Pool Receivables that were Delinquent Receivables on such day by (ii) the Outstanding Balance of Pool Receivables reduced by the Outstanding Balance of such Pool Receivables that have become Defaulted Receivables. "Delinquent Receivable" means a Receivable that is not a Defaulted Receivable and: (i) as to which any payment, or part thereof, remains unpaid for 61 days from the original billing date for such payment; or (ii) which, consistent with the Credit and Collection Policy, would be classified as delinquent by the Seller. "Designated Obligor" means, at any time, each Obligor; provided, however, that any Obligor shall cease to be a Designated Obligor upon notice by the Agent to the Seller. "Eligible Receivable" means, at any time, a Receivable: (i) the Obligor of which is a United States resident, is not an Affiliate of any of the parties hereto, and is not a government or a governmental subdivision or agency; (ii) the Obligor of which, at the time of the initial creation of an interest therein under the Agreement, is a Designated Obligor and is not the Obligor of any Defaulted Receivables which in the aggregate constitute 25% or more of the aggregate Outstanding Balance of all Receivables of such Obligor; (iii) which is not a Defaulted Receivable or which, at the time of the initial creation of an interest therein under the Agreement, is not a Delinquent Receivable; or (iv) which, according to the Contract related thereto, is required to be paid in full within 30 days of the original billing date therefor; (v) which is an "account," or "general intangible" within the meaning of the UCC of the applicable jurisdictions governing the perfection of the interest created by a Receivable Interest; (vi) which is denominated and payable only in United States dollars in the United States; (vii) which is generated in the ordinary course of the Seller's business; (viii) which is not generated through a shipment routing involving an interline carrier; (ix) which arises under a Contract (a) which is substantially in the form of the form of contract or the form of invoice (in the case of any open account agreement) previously approved by the Agent; (b) which, together with such Receivable, is in full force and effect and constitutes the legal, valid and binding obligation of the Obligor of such Receivable to pay a determinable amount; (c) the terms of which do not require the consent of the Obligor to sell or assign; and (d) which is not subject to any dispute, offset, counterclaim or defense whatsoever (except the potential discharge in bankruptcy of such Obligor); (x) which, together with the Contract related thereto, does not contravene in any material respect any laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to usury, consumer protection, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and with respect to which no party to the Contract related thereto is in violation of any such law, rule or regulation in any material respect; (xi) which (a) satisfies all applicable requirements of the Credit and Collection Policy and (b) complies with such other criteria and requirements (other than those relating to the collectibility of such Receivable) as the Agent may from time to time specify to the Seller upon 30 days' notice; and (xii) as to which, at or prior to the time of the initial creation of an interest therein under the Agreement, the Agent has not notified the Seller that such Receivable (or class of Receivables) is no longer acceptable for purchase by the Issuer hereunder. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Rate" means, for any Fixed Period, an interest rate per annum (expressed as a decimal and rounded upwards, if necessary, to the nearest one hundredth of a percentage point) equal to the offered rate per annum for deposits in U.S. dollars in a principal amount of not less than $1,000,000 for such Fixed Period as of 11:00 A.M., London time, two Business Days before the first day of such Fixed Period, which appears on the display designated as "Page 3750" on the Telerate Service (or such other page as may replace "Page 3750" on that service for the purpose of displaying London interbank offered rates of major banks) (the "Telerate LIBO Page"); provided that if on any Business Day on which the Eurodollar Rate is to be determined, no offered rate appears on the Telerate LIBO Page, the Agent will request the principal London office of each of Societe Generale and Chemical Bank (the "Eurodollar Reference Banks"), to provide the Agent with its quotation at approximately 11:00 A.M., London time, on such date of the rate per annum it offers to prime banks in the London interbank market for deposits in U.S. dollars for the requested Fixed Period in an amount substantially equal to the Capital associated with such Fixed Period and, if these two quotations are provided, the Eurodollar Rate shall be equal to the average (rounded upwards, if necessary, to the nearest one hundredth of a percentage point) of such rates; if the Eurodollar Reference Banks do not furnish timely information to the Agent for determining the Eurodollar Rate, then the Eurodollar Rate shall be considered to be the Alternate Base Rate for such Fixed Period. "Eurodollar Rate Reserve Percentage" of any Investor for any Fixed Period in respect of which Yield is computed by reference to the Eurodollar Rate means the reserve percentage applicable two Business Days before the first day of such Fixed Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) (or if more than one such percentage shall be applicable, the daily average of such percentages for those days in such Fixed Period during which any such percentage shall be so applicable) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for such Investor with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurocurrency Liabilities is determined) having a term equal to such Fixed Period. "Event of Termination" has the meaning specified in Exhibit V. "Facility Termination Date" means the earliest of (a) March 2, 1997 or (b) the date determined pursuant to Section 2.02 or (c) the date the Purchase Limit reduces to zero pursuant to Section 1.01(b) or (d) the Business Day which the Seller so designates by notice to the Agent at least 60 days in advance for such Receivable Interest. The date set forth in clause (a) above may be extended pursuant to Section 4.09 of the Agreement. "Federal Funds Rate" means, with respect to any day, the rate set forth in H.15(519) for that day opposite the caption "Federal Funds (Effective)". If on any date of determination, such rate is not published in H.15(519), such rate will be the rate set forth in Composite 3:30 P.M. Quotations for U.S. Government Securities for that day under the caption "Federal Funds/Effective Rate". If on any date of determination, the appropriate rate is not published in either H.15(519) or Composite 3:30 P.M. Quotations for U.S. Government Securities, such rate will be the arithmetic mean of the rates for the last transaction in overnight Federal funds arranged by three leading brokers of Federal funds transactions in New York City prior to 9:00 a.m., New York City time, on that day. "Fixed Period" means with respect to any Receivable Interest: (a) initially the period commencing on the date of purchase of such Receivable Interest and ending such number of days as the Seller shall select and the Agent shall approve pursuant to Sec tion 1.02, up to 180 days from such date; and (b) thereafter each period commencing on the last day of the immediately preceding Fixed Period for such Receivable Interest and ending such number of days (not to exceed 180 days) as the Seller shall select and the Agent shall approve on notice by the Seller received by the Agent (including notice by telephone, confirmed in writing) not later than 11:00 A.M. (New York City time) on such last day, except that if the Agent shall not have received such notice or approved such period on or before 11:00 A.M. (New York City time) on such last day, such period shall be one day; provided that (i) any Fixed Period in respect of which Yield is computed by reference to the Assignee Rate shall be a period from one to and including 29 days, or a period of one, two or three months, as the Seller may select as provided above; (ii) any Fixed Period (other than of one day) which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day (provided, however, if Yield in respect of such Fixed Period is computed by reference to the Eurodollar Rate, and such Fixed Period would otherwise end on a day which is not a Business Day, and there is no subsequent Business Day in the same calendar month as such day, such Fixed Period shall end on the next preceding Business Day); (iii) in the case of any Fixed Period of one day, (A) if such Fixed Period is the initial Fixed Period for a Receivable Interest, such Fixed Period shall be the day of purchase of such Receivable Interest; (B) any subsequently occurring Fixed Period which is one day shall, if the immediately preceding Fixed Period is more than one day, be the last day of such immediately preceding Fixed Period, and, if the immediately preceding Fixed Period is one day, be the day next following such immediately preceding Fixed Period; and (C) if such Fixed Period occurs on a day immediately preceding a day which is not a Business Day, such Fixed Period shall be extended to the next succeeding Business Day; and (iv) in the case of any Fixed Period for any Receivable Interest which commences before the Termination Date for such Receivable Interest and would otherwise end on a date occurring after such Termination Date, such Fixed Period shall end on such Termination Date and the duration of each Fixed Period which commences on or after the Termination Date for such Receivable Interest shall be of such duration as shall be selected by the Agent. "Investment Grade" means, with respect to any entity's long-term public senior securities, a rating of at least BBB- by Standard & Poor's Corporation or BBB- by Duff & Phelps Credit Rating Co. or BBB- by Fitch Investors Service, Inc.; provided, that if such entity's long-term public senior securities are rated by more than one of the rating agencies set forth above, then each rating agency which rates such securities shall have given them a rating at least equal to the categories specified above. "Investor"means the Issuer and all other owners by assignment or otherwise of a Receivable Interest or any interest therein and, to the extent of the undivided interests so purchased, shall include any participants. "Investor Account" means the special account (account number 322-2-66495) maintained at the office of Chemical Bank in New York for the benefit of the Investors. "Investor Rate" for any Fixed Period for any Receivable Interest means, to the extent the Issuer funds such Receivable Interest for such Fixed Period by issuing commercial paper, the rate (or if more than one rate, the weighted average of the rates) at which commercial paper notes of the Issuer having a term equal to such Fixed Period and to be issued to fund such Receivable Interest may be sold by any placement agent or commercial paper dealer selected by the Agent on behalf of the Issuer, as agreed between each such agent or dealer and the Agent and notified by the Agent to the Collection Agent; provided if the rate (or rates) as agreed between any such agent or dealer and the Agent with regard to any Fixed Period for any Receivable Interest is a discount rate (or rates), then such rate shall be the rate (or if more than one rate, the weighted average of the rates) resulting from converting such discount rate (or rates) to an interest- bearing equivalent rate per annum. "Issuer" means Renaissance Asset Funding Corp. and any successor or assign of the Issuer that is a receivables investment company which in the ordinary course of its business issues commercial paper or other securities to fund its acquisition and maintenance of receivables. "Liquidation Day" means, for any Receivable Interest, (i) each day during a Settlement Period for such Receivable Interest on which the conditions set forth in paragraph 2 of Exhibit II are not satisfied, and (ii) each day which occurs on or after the Termination Date for such Receivable Interest. "Liquidation Fee" means, for any Fixed Period during which a Liquidation Day occurs, the amount, if any, by which (i) the additional Yield (calculated without taking into account any Liquidation Fee or any shortened duration of such Fixed Period pursuant to clause (iv) of the definition thereof) which would have accrued during such Fixed Period on the reductions of Capital of the Receivable Interest relating to such Fixed Period had such reductions remained as Capital, exceeds (ii) the income, if any, received by the Investors' investing the proceeds of such reductions of Capital. "Loss Horizon Ratio" means, on any date the ratio (expressed as a percentage) computed as of the last day of each calendar month by dividing (i) the sum of the "Total Revenues" as defined in the Seller's Monthly Revenue Adjustment Report for each of the preceding three calendar months by (ii) the Net Receivables Pool Balance on such day. "Loss Percentage" means, for any Receivable Interest on any date, the greater of (a) 10.0% or (b) the product of 2.25, the highest Aged Receivable Ratio during the previous twelve months and the Loss Horizon Ratio on such date. "Loss Reserve" means, for any Receivable Interest on any date, an amount equal to LP x (C + YR) where: LP = the Loss Percentage for such Receivable Interest on such date. C = the Capital of such Receivable Interest at the close of business of the Collection Agent on such date. YR = the Yield Reserve for such Receivable Interest on such date. "Monthly Revenue Adjustment Report" means a report, in substantially the form of Annex F, furnished by the Seller to the Agent. "Net Receivables Pool Balance" means at any time the Outstanding Balance of Eligible Receivables then in the Receivables Pool (i) reduced by the aggregate amount by which the Outstanding Balance of Eligible Receivables of each Obligor then in the Receivables Pool exceeds the product of (a) the Normal Concentration Percentage for such Obligor multiplied by (b) the Outstanding Balance of the Eligible Receivables then in the Receivables Pool and (ii) increased by the sum of (a) an amount equal to the lesser of (x) 2.5% of the Outstanding Balance of all Eligible Receivables then in the Receivables Pool and (y) the Outstanding Balance of all Receivables which are generated through a shipment routing involving an interline carrier and (b) an amount equal to the lesser of (x) 10% of the Outstanding Balance of all Eligible Receivables then in the Receivables Pool and (y) an amount equal to the Outstanding Balance of all Receivables which would otherwise be Eligible Receivables but which are required to be paid in full within 31 to 60 days of the original billing date therefor. "Normal Concentration Percentage" for any Obligor means at any time 2%, provided that in the case of an Obligor with any Affiliated Obligor, the Normal Concentration Percentage shall be calculated as if such Obligor and such Affiliated Obligor are one Obligor. "Obligor" means a Person obligated to make payments pursuant to a Contract. "Outstanding Balance" of any Receivable at any time means the then outstanding principal balance thereof. "Parent" means Arkansas Best Corporation, a Delaware corporation. "Parent Undertaking Agreement" means an agreement substantially in the form of Annex D hereto. "Person" means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "Pool Receivable" means a Receivable in the Receivables Pool. "Purchase Limit" means $55,000,000, as such amount may be reduced pursuant to Section 1.01. References to the unused portion of the Purchase Limit shall mean, at any time, the Purchase Limit, as then reduced pursuant to Section 1.01(b) or pursuant to the next sentence, minus the sum of the then outstanding Capital of Receivable Interests under the Agreement and the then outstanding "Capital" of "Receivable Interests" under the Alternate Receivables Purchase Agreement. Furthermore, on each day on which the Seller reduces the unused portion of (or terminates) the "Commitment" under the Alternate Receivables Purchase Agreement, the Purchase Limit automatically shall reduce by the same amount (or so terminate). "Receivable" means the indebtedness of any Obligor under a Contract, and includes the right to payment of any interest or finance charges and other obligations of such Obligor with respect thereto. "Receivable Interest" means, at any time, an undivided percentage ownership interest in (i) all then outstanding Pool Receivables arising prior to the time of the most recent computation or recomputation of such undivided percentage interest pursuant to Section 1.03, (ii) all Related Security with respect to such Pool Receivables, and (iii) all Collections with respect to, and other proceeds of, such Pool Receivables and Related Security. Such undivided percentage interest shall be computed as C + YR + LR + CAFR ------------------ NRPB where: C = the Capital of such Receivable Interest at the time of computation. YR = the Yield Reserve of such Receivable Interest at the time of computation. LR = the Loss Reserve of such Receivable Interest at the time of computation. CAFR = the Collection Agent Fee Reserve of such Receivable Interest at the time of computation. NRPB = the Net Receivables Pool Balance at the time of computation. Each Receivable Interest shall be determined from time to time pursuant to the provisions of Section 1.03. "Receivables Pool" means at any time the aggregation of each then outstanding Receivable in respect of which the Obligor is a Designated Obligor at such time or was a Designated Obligor on the date of the initial creation of an interest in such Receivable under the Agreement or the Alternate Receivables Purchase Agreement. "Related Security" means with respect to any Receivable: (i) all security interests or liens and property subject thereto from time to time purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise, together with all financing statements signed by an Obligor describing any collateral securing such Receivable; and (ii) all guaranties, insurance and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable whether pursuant to the Contract related to such Receivable or otherwise. "Seller Report" means a report, in substantially the form of Annex A hereto (with such changes as the Agent may request from time to time), furnished bythe Collection Agent to the Agent pursuant to the Collection Agent Agreement. "Settlement Period" for any Receivable Interest means each period commencing on the first day and ending on the last day of each Fixed Period for such Receivable Interest and, on and after the Termination Date for such Receivable Interest, such period (including, without limitation, a period of one day) as shall be selected from time to time by the Agent or, in the absence of any such selection, each period of thirty days from the last day of the immediately preceding Settlement Period. "Termination Date" for any Receivable Interest means the earliest of (i) the Business Day which the Agent so designates by notice to the Seller at least one Business Day in advance for such Receivable Interest and (ii) the Facility Termination Date. "UCC" means the Uniform Commercial Code as from time to time in effect in the specified jurisdiction. "Yield" means: (i) for each Receivable Interest for any Fixed Period to the extent the Issuer will be funding such Receivable Interest during such Fixed Period through the issuance of commercial paper, IR x C x ED+ LF --------------- 360 (ii) for each Receivable Interest for any Fixed Period to the extent the Investors will not be funding such Receivable Interest during such Fixed Period through the issuance of commercial paper, AR x C x ED + LF ----------------- 360 where: AR = the Assignee Rate for such Receivable Interest for such Fixed Period C = the Capital of such Receivable Interest during such Fixed Period IR = the Investor Rate for such Receivable Interest for such Fixed Period ED = the actual number of days elapsed during such Fixed Period LF = the Liquidation Fee, if such Receivable Interest for such Fixed Period; provided that no provision of the Agreement shall require the payment or permit the collection of Yield in excess of the maximum permitted by applicable law; and provided further that Yield for any Receivable Interest shall not be considered paid by any distribution to the extent that at any time all or a portion of such distribution is rescinded or must otherwise be returned for any reason. "Yield Reserve" for any Receivable Interest at any time means the sum of (i) the Liquidation Yield at such time for such Receivable Interest, and (ii) the then accrued and unpaid Yield for such Receivable Interest. For purposes of this definition, (a) "Liquidation Yield" means, for any Receivable Interest on any date, an amount equal to the Rate Variance Factor on such date multiplied by the product of (i) the Capital of such Receivable Interest on such date and (ii) the product of (a) the Alternate Base Rate for such Receivable Interest for a 30-day Fixed Period deemed to commence on such date and (b) a fraction having the sum of the Average Maturity plus the Collection Delay Period (each as in effect at such date) as its numerator and 360 as its denominator; and (b) "Rate Variance Factor" means a number greater than one that reflects the potential variance in selected interest rates over a period of time designated by the Agent, as computed by the Collection Agent each month and set forth in the Seller Report in accordance with the provisions thereof; provided that the factors used in computing the "Rate Variance Factor" may be changed from time to time upon at least five days' prior notice to the Collection Agent. - - - - - - Other Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9. EXHIBIT II CONDITIONS OF PURCHASES 1. Conditions Precedent to Initial Purchase. The initial purchase of a Receivable Interest under the Agreement is subject to the conditions precedent that the Agent shall have received on or before the date of such purchase the following, each (unless otherwise indicated) dated such date, in form and substance satisfactory to the Agent: (a) Certified copies of the resolutions of the Board of Directors of the Seller approving the Agreement and certified copies of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to the Agreement. (b) Certified copies of the resolutions of the Board of Directors of the Parent approving the Parent Undertaking Agreement and certified copies of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to the Parent Undertaking Agreement. (c) A certificate of the Secretary or Assistant Secretary of the Seller certifying the names and true signatures of the officers of the Seller authorized to sign the Agreement and the other documents to be delivered by it hereunder. (d) A certificate of the Secretary or Assistant Secretary of the Parent certifying the names and true signatures of the officers thereof authorized to sign the Parent Undertaking Agreement. (e) Acknowledgment copies, or time stamped receipt copies of proper financing statements, duly filed on or before the date of such initial purchase under the UCC of all jurisdictions that the Agent may deem necessary or desirable in order to perfect the ownership interests contemplated by the Agreement. (f) Acknowledgment copies, or time stamped receipt copies of proper financing statements, if any, necessary to release all security interests and other rights of any Person in the Receivables, Contracts or Related Security previously granted by the Seller. (g) Completed requests for information, dated on or before the date of such initial purchase, listing the financing statements referred to in sub section (e) above and all other effective financing statements filed in the jurisdictions referred to in subsection (e) above that name the Seller as debtor, together with copies of such other financing statements (none of which shall cover any Receivables, Contracts or Related Security). (h) A favorable opinion of Richard F. Cooper, Esq., in house counsel for the Seller, substantially in the form of Annex C hereto and as to such other matters as the Agent may reasonably request. (i) A favorable opinion of Richard F. Cooper, Esq., in house counsel for the Parent, substantially in the form of Annex E hereto and as to such other matters as the Agent may reasonably request. (j) The Collection Agent Agreement. (k) The fee agreement referred to in Section 1.05, together with payment of all fees referred to therein which are due and payable on such date. (l) The Parent Undertaking Agreement, duly executed by the Parent. (m) Satisfactory results of a review and audit of the Seller's collection, operating and reporting systems, Credit and Collection Policy, historical receivables data and accounts. (n) A copy of the executed Collection Account Agreement. (o) A listing by invoice, on computer tape, of all Pool Receivables. 2. Conditions Precedent to All Purchases and Reinvestments. Each purchase (including the initial purchase) and each reinvestment shall be subject to the further conditions precedent that (a) in the case of each purchase, the Collection Agent shall have delivered to the Agent on or prior to such purchase, in form and substance satisfactory to the Agent, a completed Seller Report as of the previous month end, dated within three days prior to the date of such purchase together with a summary of all Pool Receivables (and, if requested by the Agent, a listing by invoice or by Obligor), and such additional information as may reasonably be requested by the Agent, (b) on the date of such purchase or reinvestment the following statements shall be true (and acceptance of the proceeds of such purchase or reinvestment shall be deemed a representation and warranty by the Seller that such statements are then true): (i) The representations and warranties contained in Exhibit III are correct on and as of the date of such purchase or reinvestment as though made on and as of such date, (ii) No event has occurred and is continuing, or would result from such purchase or reinvestment, that constitutes an Event of Termination or that would constitute an Event of Termination but for the requirement that notice be given or time elapse or both, (iii) All of the Parent's long-term public debt securities, if any, and convertible preferred securities are rated Investment Grade; provided that if the Parent does not have any such rated securities outstanding, the Agent has determined, in its sole discretion, that if the Parent did have such securities, that they would receive at least such a rating, (iv) The Agent shall not have given the Seller at least one Business Day's notice that the Investors have terminated the reinvestment of Collections in Receivable Interests, and (c) the Agent shall have received such other approvals, opinions or documents as it may reasonably request. EXHIBIT III REPRESENTATIONS AND WARRANTIES The Seller represents and warrants as follows: (a) The Seller is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware, and is duly qualified to do business, and is in good standing, in every jurisdiction where the nature of its business requires it to be so qualified. (b) The execution, delivery and performance by the Seller of the Agreement and the other documents to be delivered by it thereunder, including the Seller's use of the proceeds of purchases and reinvestments, (i) are within the Seller's corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) do not contravene (1) the Seller's charter or by-laws, (2) any law, rule or regulation applicable to the Seller, (3) any contractual restriction binding on or affecting the Seller or its property or (4) any order, writ, judgment, award, injunction or decree binding on or affecting the Seller or its property, and (iv) do not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties. The Agreement has been duly executed and delivered by the Seller. (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Seller of the Agreement or any other document to be delivered thereunder. (d) The Agreement constitutes the legal, valid and binding obligation of the Seller enforceable against the Seller in accordance with its terms. (e) The balance sheets of the Seller and its subsidiaries as at December 31, 1992, and the related statements of income and retained earnings of the Seller and its subsidiaries for the fiscal year then ended, copies of which have been furnished to the Agent, fairly present the financial condition of the Seller and its subsidiaries as at such date and the results of the operations of the Seller and its subsidiaries for the period ended on such date, all in accordance with generally accepted accounting principles consistently applied, and since December 31, 1992 there has been no material adverse change in the business, operations, property or financial or other condition of the Seller. (f) There is no pending or threatened action or proceeding affecting the Seller or any of its subsidiaries before any court, governmental agency or arbitrator which may materially adversely affect the financial condition or operations of the Seller or any of its subsidiaries or the ability of the Seller to perform its obligations under the Agreement, or which purports to affect the legality, validity or enforceability of the Agreement. (g) No proceeds of any purchase or reinvestment will be used to acquire any equity security of a class which is registered pursuant to Section 12 of the Securities Exchange Act of 1934. (h) The Seller is the legal and beneficial owner of the Pool Receivables and Related Security free and clear of any Adverse Claim; upon each purchase or reinvestment, the Investors shall acquire a valid and perfected first priority undivided percentage ownership interest to the extent of the pertinent Receivable Interest in each Pool Receivable then existing or thereafter arising and in the Related Security and Collections with respect thereto. No effective financing statement or other instrument similar in effect covering any Contract or any Pool Receivable or the Related Security or Collections with respect thereto is on file in any recording office, except those filed in favor of the Agent relating to the Agreement. (i) Each Seller Report (if prepared by the Seller or one of its Affiliates, or to the extent that information contained therein is supplied by the Seller or an Affiliate), information, exhibit, financial statement, document, book, record or report furnished or to be furnished at any time by or on behalf of the Seller to the Agent or the Investors in connection with the Agreement is or will be accurate in all material respects as of its date or (except as otherwise disclosed to the Agent or the Investors, as the case may be, at such time) as of the date so furnished, and no such document contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not misleading. (j) The principal place of business and chief executive office of the Seller and the office where the Seller keeps its records concerning the Pool Receivables are located at the address or addresses referred to in para graph (b) of Exhibit IV. EXHIBIT IV COVENANTS Covenants of the Seller. Until the latest of the Facility Termination Date, the date on which no Capital of or Yield on any Receivable Interest shall be outstanding or the date all other amounts owed by the Seller hereunder to the Investors or the Agent shall be paid in full: (a) Compliance with Laws, Etc. The Seller will comply in all material respects with all applicable laws, rules, regulations and orders and preserve and maintain its corporate existence, rights, franchises, qualifications, and privileges except to the extent that the failure so to comply with such laws, rules and regulations or the failure so to preserve and maintain such existence, rights, franchises, qualifications, and privileges would not materially adversely affect the collectibility of the Receivables Pool or the ability of the Seller to perform its obligations under the Agreement or the Collection Agent Agreement. (b) Offices, Records and Books of Account. The Seller will keep its principal place of business and chief executive office and the office where it keeps its records concerning the Pool Receivables at the address of the Seller set forth under its name on the signature page to the Agreement or, upon 30 days' prior written notice to the Agent, at any other locations in jurisdictions where all actions reasonably requested by the Agent to protect and perfect the interest in the Pool Receivables have been taken and completed. The Seller also will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Pool Receivables and related Contracts in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of all Pool Receivables (including, without limitation, records adequate to permit the daily identification of each Pool Receivable and all Collections of and adjustments to each existing Pool Receivable). (c) Performance and Compliance with Contracts and Credit and Collection Policy. The Seller will, at its expense, timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Pool Receivables, and timely and fully comply in all material respects with the Credit and Collection Policy in regard to each Pool Receivable and the related Contract. (d) Sales, Liens, Etc. The Seller will not sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or with respect to, the Seller's undivided interest in any Pool Receivable, Related Security, related Contract or Collections, or upon or with respect to any account to which any Collections of any Pool Receivable are sent, or assign any right to receive income in respect thereof. (e) Extension or Amendment of Receivables. Except as provided in the Collection Agent Agreement, the Seller will not extend the maturity or adjust the Outstanding Balance or otherwise modify the terms of any Pool Receivable, or amend, modify or waive any term or condition of any Contract related thereto. (f) Change in Business or Credit and Collection Policy. The Seller will not make any change in the character of its business or in the Credit and Collection Policy that would, in either case, adversely affect the collectibility of the Receivables Pool or the ability of the Seller to perform its obligations under the Agreement or the Collection Agent Agreement. The Seller shall not make any other change without the prior written consent of the Agent and the Seller shall notify the Agent ten Business Days in advance of any such proposed change in the Credit and Collection Policy. (g) Audits. The Seller will, from time to time during regular business hours as requested by the Agent, permit the Agent, or its agents or representatives, (i) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in the possession or under the control of the Seller relating to Pool Receivables and the Related Security, including, without limitation, the related Contracts, and (ii) to visit the offices and properties of the Seller for the purpose of examining such materials described in clause (i) above, and to discuss matters relating to Pool Receivables and the Related Security or the Seller's performance hereunder or under the Contracts with any of the officers or employees of the Seller having knowledge of such matters. (h) Change in Payment Instructions to Obligors. The Seller will not make any change in its instructions to Obligors regarding payments to be made directly to the Seller or payments to be made directly to the Collection Account without the prior written consent of the Agent. (i) Deposits to Collection Account. Except as otherwise provided in the Credit and Collection Policy, the Seller will cause each of the Seller's terminal managers to deposit all Collections of Pool Receivables received with the Seller's local bank within one Business Day after receipt. The Seller will deposit or cause to be deposited, such Collections of Pool Receivables into the Collection Account within two Business Days after the deposit into such local bank accounts. (j) Marking of Records. At the request of the Agent, the Seller will mark, at its expense, its master data processing records evidencing Pool Receivables and related Contracts with a legend evidencing that Receivable Interests related to such Pool Receivables and related Contracts have been sold in accordance with the Agreement. (k) Reporting Requirements. The Seller will provide to the Agent (in multiple copies, if requested by the Agent) the following: (i) as soon as available and in any event within 45 days after the end of the first three quarters of each fiscal year of the Parent and of the Seller, a copy of the Parent's quarterly report on Form 10-Q, filed with the Securities and Exchange Commission certified by the chief financial officer of the Parent, a balance sheet of the Seller as of the end of such quarter, and a statement of income and retained earnings of the Seller for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, certified by the chief financial officer of the Seller; (ii) as soon as available and in any event within 90 days after the end of each fiscal year of the Seller a balance sheet of the Seller for such year and a statement of income and retained earnings of the Seller for such year audited by Ernst & Young or other independent public accountants acceptable to the Agent; (iii) as soon as possible and in any event within five days after the occurrence of each Event of Termination or event which, with the giving of notice or lapse of time, or both, would constitute an Event of Termination, a statement of the chief financial officer of the Seller setting forth details of such Event of Termination or event and the action that the Seller has taken and proposes to take with respect thereto; (iv) promptly after the sending or filing thereof, copies of all reports that the Seller sends to any of its security holders, and copies of all reports and registration statements that the Seller or any subsidiary files with the Securities and Exchange Commission or any national securities exchange; (v) promptly after the filing or receiving thereof, copies of all reports and notices that the Seller or any Affiliate files under ERISA with the Internal Revenue Service or the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or that the Seller or any Affiliate receives from any of the foregoing or from any multiemployer plan (within the meaning of Section 4001(a)(3) of ERISA) to which the Seller or any Affiliate is or was, within the preceding five years, a contributing employer, in each case in respect of the assessment of withdrawal liability or an event or condition which could, in the aggregate, result in the imposition of liability on the Seller and/or any such Affiliate in excess of $1,000,000; (vi) at least ten Business Days prior to any change in the Seller's name, a notice setting forth the new name and the effective date thereof; (vii) such other information respecting the Receivables or the condition or operations, financial or otherwise, of the Seller or any of its subsidiaries as the Agent may from time to time reasonably request; (viii) promptly after the Seller obtains knowledge thereof, notice of any litigation, investigation or proceeding which may exist at any time between the Seller and any governmental authority or any other third party which, if not cured or if adversely determined, as the case may be, would have a material adverse effect on the business, operations, property or financial or other condition of the Seller; and (ix) promptly after the occurrence thereof, notice of a material adverse change in the business, operations, property or financial or other condition of the Seller. EXHIBIT V EVENTS OF TERMINATION Each of the following shall be an "Event of Termination": (a) The Collection Agent (if the Seller or any of its Affiliates) (i) shall fail to perform or observe any term, covenant or agreement under the Agreement or under the Collection Agent Agreement (other than as referred to in clause (ii) of this paragraph (a)) and such failure shall remain unremedied for three Business Days or (ii) shall fail to make when due any payment or deposit to be made by it under the Agreement or the Collection Agent Agreement; or (b) The Seller shall fail (i) to transfer to the Agent when requested any rights, pursuant to the Agreement or the Collection Agent Agreement, which the Seller then has as Collection Agent, or (ii) to make any payment required under Section 1.04; or (c) Any representation or warranty made or deemed made by the Seller or the Parent (or any of its their respective officers) under or in connection with the Agreement or the Parent Undertaking Agreement or any information or report delivered by the Seller pursuant to the Agreement or the Parent pursuant to the Parent Undertaking Agreement shall prove to have been incorrect or untrue in any material respect when made or deemed made or delivered; or (d) The Seller shall fail to perform or observe any other term, covenant or agreement contained in the Agreement on its part to be performed or observed and any such failure shall remain unremedied for 10 days after written notice thereof shall have been given to the Seller by the Agent (or, with respect to a failure to deliver the Seller Report pursuant to the Agreement or the Collection Agent Agreement, as the case may be, such failure shall remain unremedied for five days, without a requirement for notice); or (e) The Seller or any of its subsidiaries or the Parent shall fail to pay any principal of or premium or interest on any of its Debt which is outstanding in a principal amount of at least $5,000,000, individually, or when aggregated with all such Debt so in default when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to Debt which is outstanding in a principal amount of at least $5,000,000 individually or when aggregated with all such Debt so in default and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; or (f) Any purchase or any reinvestment pursuant to the Agreement shall for any reason (other than pursuant to the terms hereof) cease to create, or any Receivable Interest shall for any reason cease to be, a valid and perfected first priority undivided percentage ownership interest to the extent of the pertinent Receivable Interest in each applicable Pool Receivable and the Related Security and Collections with respect thereto; or (g) The Seller or any of its subsidiaries or the Parent shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Seller or any of its subsidiaries or the Parent seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 30 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or the Seller or any of its subsidiaries or the Parent shall take any corporate action to authorize any of the actions set forth above in this paragraph (g); or (h) As of the last day of any calendar month, either the Aged Receivable Ratio shall exceed 4.0% or the Delinquency Ratio shall exceed 6.75%; or (i) The Net Receivables Pool Balance shall for a period of five consecutive Business Days be less than 115% of the sum of the aggregate outstanding Capital of all Receivable Interests and the aggregate outstanding "Capital" of all "Receivable Interests" under the Alternate Receivables Purchase Agreement; or (j) The sum of the numerators of all Receivable Interests plus the sum of the numerators of all "Receivable Interests" under the Alternate Receivables Purchase Agreement shall for a period of five consecutive Business Days be greater than 95% of the Net Receivables Pool Balance; or (k) There shall have occurred any material adverse change in the business, operations, property or financial or other condition of the Seller or the Parent since December 31, 1992; or there shall have occurred any event which may materially adversely affect the collectibility of the Receivables Pool or the ability of the Seller to collect Pool Receivables or otherwise perform its obligations under the Agreement or the Collection Agent Agreement; or (l) The Parent Undertaking Agreement shall cease to be in full force and effect or the Parent shall fail to perform or observe any term, covenant or agreement contained in the Parent Undertaking Agreement on its part to be performed or observed and any such failure shall remain unremedied for ten days after written notice thereof shall have been given by the Agent to the Seller; or (m) Any of the Parent's long-term public debt securities or convertible preferred securities are rated less than Investment Grade (or if the Parent does not have any such rated securities outstanding, the Agent has determined, in its sole discretion, that if the Parent did have such securities, they would receive a less than Investment Grade rating). ALTERNATE RECEIVABLES PURCHASE AGREEMENT Dated as of March 2, 1994 ABF Freight System, Inc., a Delaware corporation (the "Seller"), Societe Generale, a French banking corporation acting through its United States branches or agencies ("Societe Generale"), and Societe Generale, as agent (the "Agent") for the Banks, agree as follows: PRELIMINARY STATEMENTS. Certain terms that are capitalized and used throughout this Agreement are defined in Exhibit I to this Agreement. References in the Exhibits to "the Agreement" refer to this Agreement, as amended, modified or supplemented from time to time. The Seller has Receivables in which it is prepared to sell undivided fractional ownership interests (referred to herein as "Receivable Interests"). The Banks are prepared to purchase such Receivable Interests on the terms set forth herein. Accordingly, the parties agree as follows: ARTICLE I AMOUNTS AND TERMS OF THE PURCHASES SECTION 1.01. Commitment. (a) On the terms and conditions hereinafter set forth, the Banks shall, ratably in accordance with their respective Bank Commitments, purchase Receivable Interests from the Seller from time to time during the period from the date hereof to the Commitment Termination Date. Under no circumstances shall the Banks be obligated to make any such purchase if, after giving effect to such purchase, the aggregate outstanding Capital of Receivable Interests, together with the aggregate outstanding "Capital" of "Receivable Interests" under the Receivables Purchase Agreement, would exceed the Total Commitment. (b) The Seller may, upon at least five Business Days' notice to the Agent from time to time, reduce in part the unused portion of the Total Commitment; provided that each partial reduction shall be in the amount of at least $1,000,000 or an integral multiple thereof. (c) The Agent, on behalf of the Banks which own Receivable Interests, shall have the proceeds of Collections attributable to such Receivable Interests automatically reinvested pursuant to Section 1.04 in additional undivided percentage interests in the Pool Receivables by making an appropriate readjustment of such Receivable Interests until the Commitment Termination Date. SECTION 1.02. Making Purchases. (a) Each purchase shall be made on at least three Business Days' notice from the Seller to the Agent. Each such notice of a purchase shall specify (i) the amount requested to be paid to the Seller (such amount, which shall not be less than $1,000,000, being referred to herein as the initial "Capital" of the Receivable Interest then being purchased), (ii) the date of such purchase (which shall be a Business Day) and (iii) the desired duration of the initial Fixed Period for such Receiv able Interest. The Agent shall notify the Seller whether the desired duration of the initial Fixed Period for the Receivable Interest to be purchased is acceptable, and the Agent shall promptly notify the Banks of the proposed purchase. Such notice of purchase shall be sent by telecopier, telex or cable to all Banks concurrently and shall specify the date of such purchase, each Bank's Percentage multiplied by the aggregate amount of Capital of the Receivable Interest being purchased, the Fixed Period for such Receivable Interest and whether Yield for the Fixed Period for such Receivable Interest is calculated based on the Eurodollar Rate (which may be selected only if such notice is given at least two Business Days prior to the purchase date) or the Alternate Base Rate. (b) Prior to 12:00 noon New York City time, on the date of each such purchase of a Receivable Interest, the Banks, ratably in accordance with their respective Bank Commitments, shall, upon satisfaction of the applicable conditions set forth in Exhibit II hereto, make available to the Agent the amount of their respective purchases by deposit of the applicable amount in immediately available funds to the Agent's Account and, after receipt by the Agent of such funds, the Agent will cause such funds to be made available to the Seller in immediately available funds at First National Bank of Fort Smith for the account of ABF Freight System, Inc. (c) Effective on the date of each purchase pursuant to this Section 1.02 and each reinvestment pursuant to Section 1.04, the Seller hereby sells and assigns to the Agent, for the benefit of the Banks, an undivided percentage ownership interest, to the extent of the Receivable Interest then being purchased, in each Pool Receivable then existing and in the Related Security and Collections with respect thereto. (d) Notwithstanding the foregoing, a Bank shall not be obligated to make purchases under this Section 1.02 at any time in an amount which would exceed such Bank's Bank Commitment less (in the case of any Bank other than Societe Generale) the "Capital" (as defined therein) of any "Percentage Interests" purchased by such Bank under the Liquidity Asset Purchase Agreement. Each Bank's obligation shall be several, such that the failure of any Bank to make available to the Seller any funds in connection with any purchase shall not relieve any other Bank of its obligation, if any, hereunder to make funds available on the date of such purchase, but no Bank shall be responsible for the failure of any other Bank to make funds available in connection with any purchase. SECTIONS 1.03 through 1.04. Incorporation by Reference. Each of Sections 1.03 through 1.04 of the Receivables Purchase Agreement is hereby incorporated herein by this reference, except that each reference therein to the "Investors" or the "Investor Account" shall be deemed to be a reference to the Banks and the Agent's Account, respectively. SECTION 1.05. Fees. The Seller shall pay to the Agent certain fees in the amounts and on the dates set forth in a separate fee agreement of even date between the Seller and the Agent. SECTIONS 1.06 through 1.07. Incorporation by Reference. Each of Sections 1.06 through 1.07 of the Receivables Purchase Agreement is hereby incorporated herein by this reference. SECTION 1.08. Increased Costs. (a) If any Bank or any Affiliate of any Bank (each an "Affected Person") determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Affected Person and such Affected Person determines that the amount of such capital is increased by or based upon the existence of any commitment to make purchases of or otherwise to maintain the investment in Pool Receivables or interests therein, hereunder or under any commitments to the Investors related to this Agreement or to the funding thereof and other commitments of the same type, then, upon demand by such Affected Person (with a copy to the Agent), the Seller shall immediately pay to the Agent, for the account of such Affected Person (as a third-party beneficiary), from time to time as specified by such Affected Person, additional amounts sufficient to compensate such Affected Person in the light of such circumstances, to the extent that such Affected Person reasonably determines such increase in capital to be allocable to the existence of any of such commitments. A certificate as to such amounts submitted to the Seller and the Agent by such Affected Person shall be conclusive and binding for all purposes, absent manifest error. (b) If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements referred to in Section 1.09) in or in the interpretation of any law or regulation or (ii) compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Bank of agreeing to purchase or purchasing, or maintaining the ownership of Receivable Interests in respect of which Yield is computed by reference to the Eurodollar Rate, then, upon demand by such Bank (with a copy to the Agent), the Seller shall immediately pay to the Agent, for the account of such Bank (as a third-party beneficiary), from time to time as specified by such Bank, additional amounts sufficient to compensate such Bank for such increased costs. A certificate as to such amounts submitted to the Seller and the Agent by such Bank shall be conclusive and binding for all purposes, absent manifest error. SECTION 1.09. Additional Yield on Receivable Interests Bearing a Eurodollar Rate. The Seller shall pay to any Bank, so long as such Bank shall be required under regulations of the Board of Governors of the Federal Reserve System to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities, additional Yield on the unpaid Capital of each Receivable Interest of such Bank during each Fixed Period in respect of which Yield is computed by reference to the Eurodollar Rate, for such Fixed Period, at a rate per annum equal at all times during such Fixed Period to the remainder obtained by subtracting (i) the Eurodollar Rate for such Fixed Period from (ii) the rate obtained by dividing such Eurodollar Rate referred to in clause (i) above by that percentage equal to 100% minus the Eurodollar Rate Reserve Percentage of such Bank for such Fixed Period, payable on each date on which Yield is payable on such Receivable Interest. Such additional Yield shall be determined by such Bank and notified to the Seller through the Agent within 30 days after any Yield payment is made with respect to which such additional Yield is requested. A certificate as to such additional Yield submitted to the Seller and the Agent by such Bank shall be conclusive and binding for all purposes, absent manifest error. SECTIONS 1.10 through 1.11. Incorporation by Reference. Each of Sec tions 1.10 and 1.11 of the Receivables Purchase Agreement is hereby incorporated herein by this reference, except that each reference therein to the "Investors" shall be deemed to be a reference to the Banks. ARTICLE II REPRESENTATIONS AND WARRANTIES; COVENANTS; EVENTS OF TERMINATION SECTION 2.01. Representations and Warranties; Covenants. The Seller hereby makes the representations and warranties, and hereby agrees to perform and observe the covenants, set forth in Exhibits III and IV, respectively, hereto. SECTION 2.02. Events of Termination. If any of the Events of Termination set forth in Exhibit V hereto shall occur and be continuing, the Agent may, by notice to the Seller, take either or both of the following actions: (x) declare the Total Commitment to be terminated (in which case the Commitment Termination Date shall be deemed to have occurred), and (y) without limiting any right under the Collection Agent Agreement to replace the Collection Agent, designate another Person to succeed the Seller as the Collection Agent; provided that, automatically upon the occurrence of any event (without any requirement for the passage of time or the giving of notice) described in subsection (g) of Exhibit V, the Commitment Termination Date shall occur. Upon any such declaration or designation or upon any such automatic termination, the Banks and the Agent shall have, in addition to the rights and remedies which they may have under this Agreement, all other rights and remedies provided after default under the UCC and under other applicable law, which rights and remedies shall be cumulative. ARTICLE III INDEMNIFICATION SECTION 3.01. Indemnities by the Seller. Without limiting any other rights that the Banks or the Agent or any of their respective Affiliates or agents (each, an "Indemnified Party") may have hereunder or under applicable law, the Seller hereby agrees to indemnify each Indemnified Party from and against any and all claims, losses and liabilities (including reasonable attorneys' fees) (all of the foregoing being collectively referred to as "Indemnified Amounts") arising out of or resulting from this Agreement or the use of proceeds of purchases or reinvestments or the ownership of Receivable Interests or in respect of any Receivable or any Contract, excluding, however, (a) Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of such Indemnified Party, (b) recourse (except as otherwise specifically provided in this Agreement) for uncollectible Receivables or (c) any income taxes or franchise taxes imposed on such Indemnified Party by the jurisdiction under the laws of which such Indemnified Party is organized or any political subdivision thereof, arising out of or as a result of this Agreement or the ownership of Receivable Interests or in respect of any Receivable or any Contract. Without limiting or being limited by the foregoing, the Seller shall pay on demand to each Indemnified Party any and all amounts necessary to indemnify such Indemnified Party from and against any and all Indemnified Amounts relating to or resulting from any of the following: (i) the creation of an undivided percentage ownership interest in any Receivable which purports to be part of the Net Receivables Pool Balance but which is not at the date of the creation of such interest an Eligible Receivable or which thereafter ceases to be an Eligible Receivable; (ii) reliance on any representation or warranty or statement made or deemed made by the Seller (or any of its officers) under or in connection with this Agreement which shall have been incorrect in any material respect when made; (iii) the failure by the Seller to comply with any applicable law, rule or regulation with respect to any Pool Receivable or the related Contract; or the failure of any Pool Receivable or the related Contract to conform to any such applicable law, rule or regulation; (iv) the failure to vest in any Bank or any other owner of a Receivable Interest a perfected undivided percentage ownership interest, to the extent of such Receivable Interest, in the Receivables in, or purporting to be in, the Receivables Pool and the Related Security and Collections in respect thereof, free and clear of any Adverse Claim; (v) the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivables in, or purporting to be in, the Receivables Pool and the Related Security and Collections in respect thereof, whether at the time of any purchase or reinvestment or at any subsequent time; (vi) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable in, or purporting to be in, the Receivables Pool (including, without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms, or any other claim resulting from the sale of the merchandise or services related to such Receivable or the furnishing or failure to furnish such merchandise or services or relating to collection activities with respect to such Receivable (if such collection activities were performed by the Seller or any of its Affiliates acting as Collection Agent); (vii) any failure of the Seller, as Collection Agent or otherwise, to perform its duties or obligations in accordance with the provisions hereof or of the Collection Agent Agreement or to perform its duties or obligations under the Contracts; (viii) any products liability or other claim arising out of or in connection with merchandise, insurance or services which are the subject of any Contract; (ix) the commingling of Collections of Pool Receivables at any time with other funds; (x) any investigation, litigation or proceeding related to this Agreement or the use of proceeds of purchases or reinvestments or the ownership of Receivable Interests or in respect of any Receivable, Related Security or Contract; (xi) any theft of payments with respect to Pool Receivables resulting from the Seller's established payment remittance procedures; (xii) any failure of payments with respect to Pool Receivables to be deposited into the Collection Account within three Business Days after receipt by the Seller; or (xiii) any claim relating to a Receivable which is generated through a shipment routing involving an interline carrier. ARTICLE IV MISCELLANEOUS SECTION 4.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement (including, without limitation, any provision of the Receivables Purchase Agreement which is incorporated herein by reference) or consent to any departure by the Seller therefrom shall be effective unless in a writing signed by the Agent, as agent for the Banks, and, in the case of any amendment, by the Seller, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of the Banks or the Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. SECTION 4.02. Notices, Etc. All notices and other communications hereunder shall, unless otherwise stated herein, be in writing (which shall include facsimile communication) and faxed or delivered, if to the Seller, Societe Generale, or the Agent, to each such party at its address set forth under its name on the signature pages hereof, and if to any other Bank, to such Bank at its address specified in the Assignment and Acceptance pursuant to which it became a Bank, or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties hereto. Notices and communications by facsimile shall be effective when sent (and shall be followed by hard copy sent by regular mail), and notices and communications sent by other means shall be effective when received. SECTION 4.03. Assignability. (a) Rights and Limitations of Banks. Each Bank may assign to any Eligible Assignee or to any other Bank all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Bank Commitment and any Receivable Interests or interests therein owned by it). Each assignor of a Receivable Interest may, in connection with the assignment or participation, disclose to the assignee or participant any information, relating to the Seller or the Receivables, furnished to such assignor by or on behalf of the Seller or by the Agent. (b) The Agent. This Agreement and the rights and obligations of the Agent herein shall be assignable by the Agent and its successors and assigns. (c) The Seller. The Seller may not assign its rights or obligations hereunder or any interest herein without the prior written consent of the Agent. (d) The Banks. Without limiting any other rights that may be available under applicable law, the rights of the Banks may be enforced through them or by their agents. SECTION 4.04. Costs, Expenses and Taxes. (a) In addition to the rights of indemnification granted under Section 3.01 hereof, the Seller agrees to pay on demand all costs and expenses in connection with the preparation, execution, delivery and administration (including periodic auditing of Receivables) of this Agreement, and the other documents and agreements to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Agent, Societe Generale and their respective agents with respect thereto and with respect to advising the Agent, Societe Generale and their respective agents as to their rights and remedies under this Agreement, and all costs and expenses, if any (including reasonable counsel fees and expenses), of the Agent, the Banks and any of their respective agents, in connection with the enforcement of this Agreement and the other documents and agreements to be delivered hereunder. (b) In addition, the Seller shall pay any and all stamp and other taxes and fees payable in connection with the execution, delivery, filing and recording of this Agreement or the other documents or agreements to be delivered hereunder, and agrees to save each Indemnified Party harmless from and against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. SECTION 4.05. Confidentiality. Unless otherwise required by applicable law, the Seller and the parties hereto agree to maintain the confidentiality of this Agreement (and all drafts thereof) in communications with third parties and otherwise; provided that this Agreement (a) may be disclosed to third parties to the extent such disclosure is made pursuant to a written agreement of confidentiality in form and substance reasonably satisfactory to the parties hereto and (b) may be disclosed to the parties' legal counsel and auditors if they agree to hold it confidential and (c) may be filed with the Securities and Exchange Commission as an Exhibit to the Parent's annual report on Form 10-k. SECTION 4.06. Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of New York (without giving effect to the conflict of laws principles thereof), except to the extent that the perfection of the interests of the banks in the receivables or remedies hereunder, in respect thereof, are governed by the laws of a jurisdiction other than the State of New York. SECTION 4.07. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. SECTION 4.08. Termination. The then current date set forth in clause (a) of the definition of Commitment Termination Date may be extended for additional 360 day periods in the sole discretion of Societe Generale upon no less than 30 days written notice to the Seller prior to the then current Commitment Termination Date. The provisions of Sections 1.08, 1.09, 1.10, 3.01, 4.04 and 4.05 shall survive any termination of this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. SELLER: ABF FREIGHT SYSTEM, INC. By: _______________________________ Name: Title: 1001 South 21st Street Fort Smith, Arkansas 72901 Attention: General Counsel Tel No. (501) 785-6130 Facsimile No. (501) 785-6124 BANK: SOCIETE GENERALE By: ________________________________ Name: Title: By: ________________________________ Name: Title: Trammel Crow Center 2001 Ross Avenue Dallas, Texas 75201 Attention: Louis P. LaVille III Tel. No. (214) 979-1104 Facsimile No. (312) 578-5099 AGENT: SOCIETE GENERALE By: ________________________________ Name: Title: By: ________________________________ Name: Title: 181 West Madison Street, Suite 3400 Chicago, IL 60602 Attention: Migdalia Lagoa Tel. No. (312) 578-5058 Facsimile No. (312) 578-5099 EXHIBIT I DEFINITIONS As used in the Agreement (including its Exhibits), the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Agent's Account" means the special account (account number 144-8- 17247) of the Agent maintained at the office of Chemical Bank in New York for the benefit of the Banks. "Assignment and Acceptance" means an assignment and acceptance agreement entered into by a Bank, an Eligible Assignee and the Agent, pursuant to which such Eligible Assignee may become a party to the Agreement. "Bank Commitment" of any Bank means, (a) with respect to Societe Generale, $55,000,000 or such amount as reduced by any Assignment and Acceptance entered into between Societe Generale and other Banks or (b) with respect to a Bank that has entered into an Assignment and Acceptance, the amount set forth therein as such Bank's Bank Commitment or such amount as reduced by an Assignment and Acceptance entered into between such Bank and an Eligible Assignee, in each case as reduced (or terminated) pursuant to the next sentence. Any reduction (or termination) of the Total Commitment pursuant to the terms of the Agreement shall reduce ratably (or terminate) each Bank's Bank Commitment. "Banks" means Societe Generale and each Eligible Assignee that shall become a party to the Agreement pursuant to Section 4.03. "Capital" of any Receivable Interest means the original amount paid to the Seller for such Receivable Interest at the time of its purchase by the Banks, pursuant to the Agreement, or such amount divided or combined in accordance with Section 1.07, in each case reduced from time to time by Collections distributed on account of such Capital pursuant to Section 1.04(d); provided that if such Capital shall have been reduced by any distribution and thereafter all or a portion of such distribution is rescinded or must otherwise be returned for any reason, such Capital shall be increased by the amount of such rescinded or returned distribution, as though it had not been made. "Collection Agent" means at any time the Person then authorized pursuant to the Collection Agent Agreement to administer and collect Pool Receivables. "Collection Agent Agreement" means an agreement between the Seller and the Agent (and, if the Seller does not act as Collection Agent, consented to by the Collection Agent), in form and substance satisfactory to them, governing the appointment and responsibilities of the Collection Agent as to administration and collection of the Pool Receivables, and requiring the Collection Agent to perform its obligations set forth in the Agreement. "Commitment Termination Date" means the earliest of (a) February 25, 1995, (b) the Facility Termination Date under the Receivables Purchase Agreement, (c) the date determined pursuant to Section 2.02, and (d) the date the Total Commitment reduces to zero. The date set forth in clause (a) above may be extended pursuant to Section 4.08 of the Agreement. "Eligible Assignee" means Societe Generale, any of its Affiliates, any Person managed by Societe Generale or any of its Affiliates, or any financial or other institution acceptable to the Agent. "Event of Termination" has the meaning specified in Exhibit V. "Liquidity Asset Purchase Agreement" means the Liquidity Asset Purchase Agreement entered into by a Bank concurrently with the Assignment and Acceptance pursuant to which it became party to this Agreement, that relates to the Receivables Purchase Agreement. "Parent Undertaking Agreement" means the Parent Undertaking Agreement, dated as of the date hereof, by Arkansas Best Corporation, a Delaware corporation in favor of Societe Generale, as Agent for the Banks, as the same may, from time to time, be amended, modified or supplemented. "Percentage" of any Bank means, (a) with respect to Societe Generale, 100% or such amount as reduced by any Assignment and Acceptance entered into with an Eligible Assignee, or (b) with respect to a Bank that has entered into an Assignment and Acceptance, the amount set forth therein as such Bank's Percentage, or such amount as reduced by an Assignment and Acceptance entered into between such Bank and an Eligible Assignee. "Receivables Purchase Agreement" means the Receivables Purchase Agreement, dated as of the date hereof, among the Seller, Renaissance Asset Funding Corp. and Societe Generale, as Agent, as the same may, from time to time, be amended, modified or supplemented. "Termination Date" for any Receivable Interest means the earlier of (i) that Business Day which the Seller so designates by notice to the Agent at least one Business Day in advance for such Receivable Interest effective as of the last day of the Fixed Period with respect to such Receivable Interest and (ii) the Commitment Termination Date. "Total Commitment" means $55,000,000, as such amount may be reduced pursuant to Section 1.01. References to the unused portion of the Total Commitment shall mean, at any time, the Total Commitment, as then reduced pursuant to Section 1.01(b) or pursuant to the next sentence, minus the sum of the then outstanding Capital of Receivable Interests under the Agreement and the then outstanding "Capital" of "Receivable Interests" under the Receivables Purchase Agreement. Furthermore, on each day on which the Seller reduces the unused portion of (or terminates) the "Purchase Limit" under the Receivables Purchase Agreement, the Total Commitment automatically shall reduce by the same amount (or so terminate). "Yield" means for each Receivable Interest for any Fixed Period the result of: AR x C x ED + LF ---------------- 360 where: AR = the Assignee Rate for such Receivable Interest for such Fixed Period C = the Capital of such Receivable Interest during such Fixed Period ED = the actual number of days elapsed during such Fixed Period LF = the Liquidation Fee, if any, for such Receivable Interest for such Fixed Period; provided that no provision of the Agreement shall require the payment or permit the collection of Yield in excess of the maximum permitted by applicable law; and provided, further, that Yield for any Receivable Interest shall not be considered paid by any distribution to the extent that at any time all or a portion of such distribution is rescinded or must otherwise be returned for any reason. Defined Terms Incorporated by Reference. Unless otherwise defined in the Agreement and subject to the modifications herein set forth, capitalized terms used in the Agreement or in any provisions of the Receivables Purchase Agreement incorporated in the Agreement by reference shall have the meanings given to them in the Receivables Purchase Agreement. Without limiting the foregoing, the defined terms "Credit and Collection Policy," "Seller Report" and "Collection Account Agreement" are hereby incorporated by reference together with the related Schedule II, Annex A and Annex B, respectively, of the Receivables Purchase Agreement. All references to the "Agent" and "Agreement" in provisions of the Receivables Purchase Agreement (including Exhibits and Schedules) incorporated in the Agreement by reference shall, without further reference, mean Societe Generale, as Agent under the Agreement and the Receivables Purchase Agreement, respectively. Furthermore, all references in such incorporated provisions to "Collections," "Contract," "Net Receivables Pool Balance," "Pool Receivable," "Receivable Interest," "Receivables Pool" and "Related Security" shall mean the Collections, a Contract, the Net Receivables Pool Balance, a Pool Receivable, a Receivable Interest, the Receivables Pool and the Related Security under the Agreement, respectively. To the extent any word or phrase is defined in the Agreement, any such word or phrase appearing in provisions so incorporated by reference from the Receivables Purchase Agreement shall have the meaning given to it in the Agreement. The incorporation by reference into the Agreement from the Receivables Purchase Agreement is for convenience only, and the Agreement and the Receivables Purchase Agreement shall at all times be, and be treated as, separate and distinct facilities. Incorporations by reference in the Agreement from the Receivables Purchase Agreement shall not be affected or impaired by any subsequent expiration or termination of the Receivables Purchase Agreement, nor by any amendment thereof or waiver thereunder unless the Agent, as Agent for the Banks, shall have consented to such amendment or waiver in writing. Other Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9. EXHIBIT II CONDITIONS OF PURCHASES 1. Conditions Precedent to Initial Purchase. The initial purchase of a Receivable Interest under the Agreement is subject to the conditions precedent that the conditions precedent to the initial purchase under the Receivables Purchase Agreement shall have been satisfied on or prior to the date of such purchase under the Agreement and that the Agent shall have received on or before the date of such purchase under the Agreement the following, each (unless otherwise indicated) dated such date, in form and substance satisfactory to the Agent: (a) Certified copies of the resolutions of the Board of Directors of the Seller approving the Agreement and certified copies of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to the Agreement. (b) Certified copies of the resolutions of the Board of Directors of the Parent approving the Parent Undertaking Agreement and certified copies of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to the Parent Undertaking Agreement. (c) A certificate of the Secretary or Assistant Secretary of the Seller certifying the names and true signatures of the officers of the Seller authorized to sign the Agreement and the other documents to be delivered by it hereunder. (d) A certificate of the Secretary or Assistant Secretary of the Parent certifying the names and true signatures of the officers thereof authorized to sign the Parent Undertaking Agreement. (e) Acknowledgment copies or time stamped receipt copies of proper financing statements, duly filed on or before the date of such initial purchase under the UCC of all jurisdictions that the Agent may deem necessary or desirable in order to perfect the ownership interests contemplated by the Agreement. (f) Acknowledgment copies or time stamped receipt copies of proper financing statements, if any, necessary to release all security interests and other rights of any Person in the Receivables, Contracts or Related Security previously granted by the Seller. (g) Completed requests for information, dated on or before the date of such initial purchase, listing the financing statements referred to in subsection (e) above and all other effective financing statements filed in the jurisdictions referred to in subsection (e) above that name the Seller as debtor, together with copies of such other financing statements (none of which shall cover any Receivables, Contracts or Related Security). (h) A favorable opinion of Richard F. Cooper, Esq., in-house counsel for the Seller, substantially in the form of Annex C hereto and as to such other matters as the Agent may reasonably request. (i) A favorable opinion of Richard F. Cooper, Esq., in-house counsel for the Parent, substantially in the form of Annex F hereto and as to such other matters as the Agent may reasonably request. (j) The Collection Agent Agreement. (k) The fee agreement referred to in Section 1.05. (l) The Parent Undertaking Agreements duly executed by the Parent. (m) Satisfactory results of a review and audit of the Seller's collection, operating and reporting systems, Credit and Collection Policy, historical receivables data and accounts. (n) A copy of the executed Collection Account Agreement. (o) A listing by invoice, on computer tape, of all Pool Receivables. 2. Conditions Precedent to All Purchases and Reinvestments. Each purchase (including the initial purchase) and each reinvestment shall be subject to the further conditions precedent that (a) in the case of each purchase, the Collection Agent shall have delivered to the Agent on or prior to such purchase in form and substance satisfactory to the Agent, a completed Seller Report as of the previous month end dated within three days prior to the date of such purchase together with a summary by invoice (and, if requested by the Agent, by Obligor) of all Pool Receivables and such additional information as may reasonably be requested by the Agent, (b) on the date of such purchase or reinvestment the following statements shall be true (and acceptance of the proceeds of such purchase or reinvestment shall be deemed a representation and warranty by the Seller that such statements are then true): (i) the representations and warranties contained in Exhibit III are correct on and as of the date of such purchase or reinvestment as though made on and as of such date, (ii) no event has occurred and is continuing, or would result from such purchase or reinvestment, that constitutes an Event of Termination or that would constitute an Event of Termination but for the requirement that notice be given or time elapse or both, and (iii) all of the Parent's long-term public debt securities, if any, and convertible preferred securities are rated Investment Grade; provided that if the Parent does not have any such rated securities outstanding, the Agent has determined, in its sole discretion, that if the Parent did have such securities, that they would receive at least such a rating, and (c) the Agent shall have received such other approvals, opinions or documents as it may reasonably request. EXHIBIT III REPRESENTATIONS AND WARRANTIES Exhibit III of the Receivables Purchase Agreement is hereby incorporated herein by reference, except that each reference therein to the "Investors" shall be deemed to be a reference to the Banks. EXHIBIT IV COVENANTS Exhibit IV of the Receivables Purchase Agreement is hereby incorporated herein by reference, except that each reference therein to the "Facility Termination Date" shall be deemed to be a reference to the Commitment Termination Date. EXHIBIT V EVENTS OF TERMINATION Each of the "Events of Termination" set forth in Exhibit V of the Receivables Purchase Agreement is hereby incorporated by reference, except that the references in subsections (i) and (j) thereof to the "Alternate Receivables Purchase Agreement" shall be deemed to be references to the Receivables Purchase Agreement. COLLECTION AGENT AGREEMENT COLLECTION AGENT AGREEMENT, dated as of March 2, 1994, between ABF Freight System, Inc., a Delaware corporation, individually (the "Seller") and as collection agent (the "Collection Agent"), and Societe Generale, a French banking corporation, acting through its United States branches or agencies (the "Agent"). W I T N E S S E T H: WHEREAS, the Seller and the Agent are parties to the Receivables Purchase Agreement, dated as of March 2, 1994, with Renaissance Asset Funding Corp. (the "Issuer") and to the Alternate Receivables Purchase Agreement, dated as of March 2, 1994, with Societe Generale (collectively, the "Agreements"). WHEREAS, it is a condition precedent to the execution and delivery of the Agreements that the parties hereto enter into this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, and for other consideration, the receipt of which is hereby acknowledged, the parties agree as follows: SECTION 1. Definitions. Unless otherwise defined herein, capitalized terms shall have the meanings assigned to such terms in the Agreements. SECTION 2. Designation of Collection Agent. The servicing, administration and collection of the Pool Receivables shall be conducted by the Collection Agent so designated hereunder from time to time. Until the Agent gives notice to the Seller of the designation of a new Collection Agent, the Seller is hereby designated as, and hereby agrees to perform the duties and obligations of, the Collection Agent pursuant to the terms hereof and of each Agreement. The Agent at any time may designate as Collection Agent any Person (including the Agent) to succeed the Seller or any successor Collection Agent, if such Person shall consent and agree to the terms hereof. The Agent shall notify Duff & Phelps Credit Rating Co., Fitch Investors Service, Inc. and Standard & Poor's Corporation of the designation of a new Collection Agent. The Collection Agent may, with the prior consent of the Agent, subcontract with any other Person for the servicing, administration or collection of the Pool Receivables. Any such subcontract shall not affect the Collection Agent's liability for performance of its duties and obligations pursuant to the terms hereof. SECTION 3. Duties of Collection Agent. The Collection Agent shall take or cause to be taken all such actions as may be necessary or advisable to collect each Pool Receivable from time to time, all in accordance with applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policy. The Seller and the Agent hereby appoint the Collection Agent, from time to time designated pursuant to Section 1 hereof, as agent for themselves, for the Banks and for the Investors to enforce their respective rights and interests in the Pool Receivables, the Related Security and the related Contracts. (b) The Collection Agent shall administer the Collections in accordance with the procedures described in Section 1.04 of each Agreement. The Collection Agent also shall perform the other obligations of the "Collection Agent" set forth in each Agreement. (c) If no Event of Termination or event that but for notice or lapse of time or both would constitute an Event of Termination shall have occurred and be continuing, the Seller, while it is the Collection Agent, may, in accordance with the Credit and Collection Policy, extend the maturity or adjust the Outstanding Balance of any Receivable as the Seller deems appropriate to maximize Collections thereof. (d) The Collection Agent shall hold in trust for the Seller and each Investor, in accordance with their respective interests, all documents, instruments and records (including, without limitation, computer tapes or disks) which evidence or relate to Pool Receivables. At the request of the Agent, the Collection Agent shall mark conspicuously the Seller's copy of each invoice evidencing each Pool Receivable and the related Contract with a legend, acceptable to the Agent, evidencing that Receivable Interests therein have been sold and shall mark the Seller's master data processing records evidencing such Pool Receivables and related Contracts with such a legend. (e) The Collection Agent shall, as soon as practicable following receipt, turn over to the Seller any cash collections or other cash proceeds received with respect to Receivables not constituting Pool Receivables. (f) The Collection Agent shall, from time to time at the request of the Agent, furnish to the Agent (promptly after any such request) a calculation of the amounts set aside for the Investors and the Banks pursuant to Section 1.04 of the Agreements. (g) Prior to the 20th day of each month, the Collection Agent shall prepare and forward to the Agent (i) a Seller Report relating to the Receivable Interests outstanding on the last day of the immediately preceding month, and (ii) a summary of all Pool Receivables outstanding on such last day, together with an analysis of the aging of such Receivables. SECTION 4. Certain Rights of the Agent. The Agent is authorized at any time to date, and to deliver to the First National Bank of Fort Smith the Notice of Effectiveness provided for in the Collection Account Agreement. The Seller hereby transfers to the Agent, effective when the Agent delivers such Notice of Effectiveness, the exclusive ownership and control of the Collection Account. The Seller shall take any actions reasonably requested by the Agent to effect such transfer. Upon the delivery of such Notice of Effectiveness, the Agent shall hold in trust for the Seller all amounts in the Collection Account which do not represent Collections of Receivables. All such amounts held in trust for the Seller may, at the request of the Seller, be utilized to pay the general operating expenses of the Seller. All amounts which represent Collections of Receivables may, in accordance with the Agreements, be deposited into the Investor Account or the Agent's Account, pro rata in accordance with outstanding Capital, as the Agent may determine. (b) At any time: (I) The Agent may direct the Obligors of Pool Receivables that all payments thereunder be made directly to the Agent or its designee. (ii) At the Agent's request and at the Seller's expense, the Seller shall notify each Obligor of Pool Receivables of the ownership of Receivable Interests under the Agreements and direct that payments be made directly to the Agent or its designee. (iii) At the Agent's request and at the Seller's expense, the Seller shall (A) assemble all of the documents, instruments and other records (including, without limitation, computer tapes and disks) that evidence or relate to the Pool Receivables, and the related Contracts and Related Security, or that are otherwise necessary or desirable to collect the Pool Receivables, and shall make the same available to the Agent at a place selected by the Agent or its designee, and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections of Pool Receivables in a manner acceptable to the Agent and, promptly upon receipt, remit all such cash, checks and instruments, duly indorsed or with duly executed instruments of transfer, to the Agent or its designee. (iv) The Seller authorizes the Agent to take any and all steps in the Seller's name and on behalf of the Seller that are necessary or desirable, in the determination of the Agent, to collect amounts due under the Pool Receivables, including, without limitation, endorsing the Seller's name on checks and other instruments representing Collections of Pool Receivables and enforcing the Pool Receivables and the Related Security and related Contracts. SECTION 5. Further Assurances. The Seller agrees from time to time, at its expense, promptly to execute and deliver all further instruments and documents, and to take all further actions, that may be necessary or desirable, or that the Agent may reasonably request, to perfect, protect or more fully evidence the Receivable Interests purchased under the Agreements, or to enable the Investors, the Banks or the Agent to exercise and enforce their respective rights and remedies hereunder or under the Agreements. Without limiting the foregoing, the Seller will, upon the request of the Agent, execute and file such financing or continuation statements, or amendments thereto, and such other instruments and documents, that may be necessary or desirable, or that the Agent may reasonably request, to perfect, protect or evidence such Receivable Interests. (b) The Seller authorizes the Agent to file UCC financing continuation statements, and assignments thereof, relating to the Pool Receivables and the Related Security, the related Contracts and the Collections with respect thereto without the signature of the Seller where permitted by law. A photocopy or other reproduction of the applicable Agreement and this Agreement shall be sufficient as a financing statement where permitted by law. SECTION 6. Collection Agent Fee. The Collection Agent shall be paid a collection agent fee of 1/4 of 1% per annum on the average daily Outstanding Balance of Pool Receivables relating to each Receivable Interest, from the date of purchase of such Receivable Interest until the later of the Termination Date for such Receivable Interest or the date on which such Capital is reduced to zero, payable on the last day of each Settlement Period for such Receivable Interest. Upon three Business Days' notice to the Agent, the Collection Agent (if not the Seller or its designee) may elect to be paid, as such fee, another percentage per annum on the average daily Capital of such Receivable Interest, but in no event in excess for all Receivable Interests relating to a single Receivables Pool of 110% of the reasonable costs and expenses of the Collection Agent in administering and collecting the Receivables in such Receivables Pool. The collection agent fee shall be payable only from Collections pursuant to, and subject to the priority of payment set forth in, Section 1.04 of each Agreement. SECTION 7. Rights and Remedies. If the Collection Agent fails to perform any of its obligations hereunder or under the Agreements, the Agent may (but shall not be required to) itself perform, or cause performance of, such obligation; and the Agent's costs and expenses incurred in connection therewith shall be payable by the Seller (if the Collection Agent that fails to so perform is the Seller or its designee). (b) The exercise by the Agent on behalf of the Investors and the Banks of their rights hereunder and under the Agreements shall not release the Collection Agent or the Seller from any of their duties or obligations with respect to any Pool Receivables or under the related Contracts. Neither the Agent, the Banks nor the Investors shall have any obligation or liability with respect to any Pool Receivables or related Contracts, nor shall any of them be obligated to perform the obligations of the Seller thereunder. (c) The Seller shall perform its obligations under the Contracts related to the Pool Receivables to the same extent as if Receivable Interests had not been sold. (d) The Investors and the Banks shall be third party beneficiaries of this Agreement. SECTION 8. Term of Agreement. The term of this Agreement shall be coterminous with the Agreements unless earlier terminated upon notice by any party hereto. Upon termination of this Agreement, the Collection Agent shall remit all funds then held by it to the parties as required by Section 1.04 of the Agreements. SECTION 9. Execution in Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which shall be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. SECTION 10. Amendments. The provisions of this Agreement may be supplemented, modified or amended only by written instrument signed on behalf of the parties hereto by their duly authorized officers; provided, however, that no material amendment of this Agreement shall be effective unless a written statement is obtained from Duff & Phelps Credit Rating Co., Fitch Investors Service, Inc. and Standard & Poor's Corporation that the rating of the Issuer's commercial paper notes will not be downgraded or withdrawn solely as a result of such amendment. SECTION 11. Waivers, Consents and Approvals. No party hereto shall be deemed to have consented to, approved or waived any matter under this Agreement, unless any purported consent, approval or waiver is expressly set forth in writing and signed by the party giving the consent, approval or waiver. No failure on the part of any party hereto to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof with the exercise of any other right or be construed as a waiver to or of any other breach of the same or any other covenant, condition or duty. SECTION 12. Notices, Etc. Except when telephone communications are expressly authorized in this Agreement, all demands, notices and communications hereunder shall be in writing (which shall include facsimile transmission), shall be personally delivered, express couriered, electronically transmitted (in which case a hard copy shall also be sent by regular mail) or mailed by registered or certified mail to each party hereto at its address set forth under its name on the signature pages hereof or at such other address as shall be specified in a notice furnished hereunder. Notices and communications by facsimile shall be effective when sent and notices and communications sent by other means shall be effective when received. SECTION 13. Headings. Section headings used in this Agreement are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. SECTION 14. No Third Party Rights. Nothing expressed or implied herein is intended or shall be construed to confer upon or to give to any person, firm or corporation, other than the parties hereto or as specified in Section 7(d), any right, remedy or claim under or by reason of this Agreement or of any term, covenant or condition hereof, and all the terms, covenants, conditions, promises and agreements contained herein shall be for the sole and exclusive benefit of the parties hereto and their successors and permitted assigns. SECTION 15. Assignability. This Agreement and the rights and obligations hereunder may not be assigned by the Seller or the Collection Agent without the prior written consent of the Agent. SECTION 16. Severability. If any provision of this Agreement is invalid or unenforceable, the balance of this Agreement shall remain in effect and, if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. SECTION 17. No Proceedings. The Seller, the Collection Agent and the Agent each hereby agree that it shall not institute against, or join any other person in instituting against, the Issuer any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding or other proceedings under any federal or state bankruptcy or similar law, for one year and a day after the latest maturing commercial paper note issued by the Issuer is paid. SECTION 18. Governing Law. This agreement shall be governed by, and construed in accordance with, the law of the State of New York, without giving effect to the conflict of laws principles thereof. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. SELLER: ABF FREIGHT SYSTEM, INC., Individually and as Collection Agent By _______________________________ Name: Title: 1000 South 21st Street Fort Smith, Arkansas 72901 Attention: General Counsel Tel. No: (501) 785-6130 Facsimile No: (501) 785-6124 AGENT: SOCIETE GENERALE By________________________________ Name: Title: By________________________________ Name: Title: 181 West Madison Street, Suite 3400 Chicago, IL 60602 Attention: Migdalia Lagoa Tel No: (312) 578-5058 Facsimile No: (312) 578-5099 COLLECTION ACCOUNT AGREEMENT March 2, 1994 First National Bank of Fort Smith Sixth and Garrison Avenue Fort Smith, Arkansas 72901 Re: ABF Freight System, Inc. Account No. 1002155 Ladies and Gentlemen: ABF Freight System, Inc. (the "Assignor") hereby notifies you that in connection with certain transactions involving the Assignor's accounts receivables, the Assignor will transfer exclusive ownership and control of its account no. 1002155 maintained with you (the "Collection Account") to Societe Generale as agent (the "Agent"). This transfer will become effective upon your receipt of a notice of effectiveness, substantially in the form attached hereto as Attachment 1 (the "Notice of Effectiveness"), which shall be delivered via facsimile transmission to your attention. In connection with the foregoing, the Assignor and the Agent hereby instruct you, beginning on the date of receipt of the Notice of Effectiveness to transfer all funds deposited in the Collection Account pursuant to instructions given to you by the Agent from time to time. You are hereby further instructed: (i) that unless and until the Agent notifies you to the contrary, you shall make such transfers from the Collection Account at such times and in such manner as the Assignor, in its capacity as servicer for the Agent, shall from time to time instruct to the extent such instructions are not inconsistent with the instructions set forth herein, and (ii) to permit the Assignor (in its capacity as servicer for the Agent) and the Agent to obtain upon request any information relating to the Collection Account, including, without limitation, any information regarding the balance of activity or the Collection Account. The Assignor also hereby notifies you that, beginning on the date of receipt by facsimile of the Notice of Effectiveness from the Agent, notwithstanding anything herein or elsewhere to the contrary, the Agent shall be irrevocably entitled to exercise any and all rights in respect of or in connection with the Collection Account, including, without limitation, the right to specify when payments are to be made out of the Collection Account. The Agent acts as agent for persons having a continuing interest in all of the checks and their proceeds and all monies and earnings, if any, thereon in the Collection Account, and you shall be the Agent's agent for the purpose of holding such property. The funds deposited into the Collection Account will not be subject to deduction, set-off, banker's lien, or any other right in favor of any person other than the Agent (except that you may set off (i) all amounts due to you in respect of your customary fees and expenses for the routine maintenance and operation of the Collection Account, and (ii) the face amount of any checks returned unpaid because of uncollected or insufficient funds). This Agreement may not be terminated at any time by the Assignor or you, without the prior written consent of the Agent. Neither this Agreement nor any provision hereof may be changed, amended, modified or waived orally but only by an instrument in writing signed by the Agent and the Assignor. You shall not assign or transfer your rights or obligations hereunder (other than to the Agent) without the prior written consent of the Agent and the Assignor. Subject to the preceding sentence, this Agreement shall be binding upon each of the parties hereto and their respective successors and assigns, and shall inure to the benefit of, and be enforceable by, the Agent, each of the parties hereto and their respective successors and assigns. You hereby represent that the person signing this Agreement on your behalf is duly authorized by you to so sign. You agree to give the Agent and the Assignor prompt notice if the Collection Account becomes subject to any writ, judgment, warrant of attachment, execution or similar process. Any notice, demand or other communication required or permitted to be given hereunder shall be in writing and may be (a) personally served, (b) sent by courier service, (c) telecopied or (d) sent by United States mail and shall be deemed to have been given when (i) delivered in person, (ii) delivered by courier service, (iii) upon receipt of the telecopy or (iv) three Business Days after deposit in the United States mail (registered or certified, with postage prepaid and properly addressed). For the purposes hereof, (x) the addresses of the parties hereto shall be as set forth below each party's name below, or, as to each party, at such other address as may be designated by such party in a written notice to the other party and the Agent, and (y) the address of Societe Generale shall be 181 West Madison Street, Suite 3400, Chicago, Illinois 60602, facsimile: (312) 578-5099, Attn: Migdalia Lagoa or at such other address as may be designated by the Agent in a written notice to each of the parties hereto. Please agree to the terms of, and acknowledge receipt of, this Agreement by signing in the space provided below. Very truly yours, ABF FREIGHT SYSTEM, INC. By: Name: Title: 1000 South 21st Street Fort Smith, Arkansas 72901 Attention: General Counsel Tel. No: (501) 785-6130 Facsimile No: (501) 785-6124 ACKNOWLEDGED AND AGREED: FIRST NATIONAL BANK OF FORT SMITH By: Title: Date: Address: Sixth and Garrison Avenue Fort Smith, Arkansas 72901 Attention: Mont Echols, Executive Vice President Facsimile No.: (501) 782-8856 ATTACHMENT 1 COLLECTION ACCOUNT AGREEMENT NOTICE OF EFFECTIVENESS VIA FACSIMILE TRANSMISSION TO: First National Bank of Fort Smith DATED: [Date] ATTENTION: Re: Account No. 1002155 Gentlemen: Pursuant to the Collection Account Agreement between ABF Freight System, Inc. and you, dated as of March 2, 1994 (the "Agreement"), we hereby give you notice that the transfers of the above-referenced Collection Account, as described in the Agreement, are effective as of the date hereof. You are hereby instructed to comply immediately with the instructions set forth in the Agreement and, until we notify you to the contrary, to transfer all funds deposited in the Collection Account to account number ________ at ______________________________. SOCIETE GENERALE as Agent By: Name: Title: ACKNOWLEDGED AND AGREED: FIRST NATIONAL BANK OF FORT SMITH By: Title: Date: Address: Sixth and Garrison Avenue Fort Smith, Arkansas 72901 Attention: Mont Echols, Executive Vice President Facsimile No.: (501) 782-8856 PARENT UNDERTAKING AGREEMENT AGREEMENT, dated as of March 2, 1994, made by Arkansas Best Corporation, a corporation organized and existing under the laws of Delaware (the "Parent"), in favor of Renaissance Asset Funding Corp. (the "Issuer"), a Delaware corporation, and Societe Generale as agent (the "Agent") for the Investors. PRELIMINARY STATEMENTS: (1) The Issuer and the Agent have entered into a Receivables Purchase Agreement, dated as of March 2, 1994 (such agreement, as it may hereafter be amended or otherwise modified from time to time, being the "Receivables Agreement," the terms defined therein and not otherwise defined herein being used herein as therein defined) with ABF Freight System, Inc., a corporation organized and existing under the laws of Delaware (the "Seller"). (2) It is a condition precedent to the making of purchases of Receivable Interests by the Issuer under the Receivables Agreement that the Parent, as beneficial owner of one hundred percent of the outstanding shares of stock of the Seller, shall have executed and delivered this Agreement. NOW, THEREFORE, in consideration of the premises and in order to induce the Issuer to make purchases under the Receivables Agreement, the Parent hereby agrees as follows: SECTION 1. Unconditional Undertaking. (a) The Parent hereby unconditionally and irrevocably undertakes and agrees with and for the benefit of the Agent (and the parties for whom it acts as agent) to cause the due and punctual performance and observance by the Seller and its successors and assigns of all of the terms, covenants, conditions, agreements and undertakings on the part of the Seller (whether as Seller, Collection Agent or otherwise) to be performed or observed under the Receivables Agreement, Collection Agent Agreement or any document delivered in connection with the Receivables Agreement in accordance with the terms thereof, including the punctual payment when due of all obligations of the Seller now or hereafter existing under the Receivables Agreement, whether for indemnification payments, fees, expenses or similar obligations (all of the foregoing being the "Obligations"), and agrees to pay any and all expenses (including reasonable counsel fees and expenses) incurred by the Agent (and the parties for whom they act as agent) in enforcing any rights under this Agreement. (b) In the event that the Seller shall fail in any manner whatsoever to perform or observe any of the Obligations when the same shall be required to be performed or observed under the Receivables Agreement or any such other document, then the Parent will duly and punctually perform or observe, or cause to be duly and punctually performed or observed, such Obligations, and it shall not be a condition to the accrual of the obligation of the Parent hereunder to perform or observe any Obligation (or to cause the same to be performed or observed) that the Agent shall have first made any request of or demand upon or given any notice to the Parent or to the Seller or their respective successors or assigns, or have instituted any action or proceeding against the Parent or the Seller or their respective successors or assigns in respect thereof. SECTION 2. Obligation Absolute. The Parent undertakes that the Obligations will be performed or paid strictly in accordance with the terms of the Receivables Agreement and any other document delivered in connection with the Receivables Agreement, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Agent or the Investors with respect thereto. The obligations of the Parent under this Agreement are independent of the Obligations, and a separate action or actions may be brought and prosecuted against the Parent to enforce this Agreement, irrespective of whether any action is brought against the Seller or whether the Seller is joined in any such action or actions. The liability of the Parent under this Agreement shall be absolute and unconditional irrespective of: (i) any lack of validity or enforceability of the Receivables Agreement or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to departure from the Receivables Agreement or any other agreement or instrument relating thereto, including, without limitation, any increase in the Obligations resulting from additional purchases of Receivable Interests or otherwise; (iii) any taking, exchange, release or non-perfection of any collateral, or any taking, release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Obligations; (iv) any manner of application of collateral, or proceeds thereof, to all or any of the Obligations, or any manner of sale or other disposition of any collateral for all or any of the Obligations or any other assets of the Seller or any of its subsidiaries; (v) any change, restructuring or termination of the corporate structure or existence of the Seller or any of its subsidiaries; or (vi) any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Seller or a guarantor. This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by the Agent or any Investor upon the insolvency, bankruptcy or reorganization of the Seller or otherwise, all as though payment had not been made. SECTION 3. Waiver. The Parent hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Obligations and this Agreement and any requirement that the Agent or any Investor protect, secure, perfect or insure any security interest or lien or any property subject thereto or exhaust any right or take any action against the Seller or any other person or entity or any collateral. SECTION 4. Subrogation. The Parent will not exercise any rights which it may acquire by way of subrogation under this Agreement, by any payment or performance made hereunder or otherwise, until all the Obligations and all other amounts payable under this Agreement shall have been paid and performed in full and the Facility Termination Date shall have occurred. If any amount shall be paid to the Parent on account of such subrogation rights at any time prior to the later of (x) the payment and performance in full of the Obligations and the payment of all other amounts payable under this Agreement and (y) the Facility Termination Date, such amount shall be held in trust for the benefit of the Agent and the Investors and shall forthwith be paid to the Agent to be credited and applied upon the Obligations, whether matured or unmatured, in accordance with the terms of the Receivables Agreement or to be held by the Agent as collateral security for any Obligations thereafter existing. If (i) the Parent shall make payment to the Agent or the Investors of all or any part of the Obligations, (ii) all the Obligations and all other amounts payable under this Agreement shall be paid and performed in full and (iii) the Facility Termination Date shall have occurred, the Agent and the Investors will, at the Parent's request, execute and deliver to the Parent appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer by subrogation to the Parent of an interest in the Obligations resulting from such payment by the Parent. SECTION 5. Representations and Warranties. The Parent represents and warrants as follows: (a) The Parent is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its organization. (b) The execution, delivery and performance by the Parent of this Agreement are within the Parent's corporate powers, have been duly authorized by all necessary corporate action, do not contravene (i) the charter, articles of incorporation or by-laws of the Parent or (ii) law or any contractual restriction binding on or affecting the Parent. (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Parent of this Agreement. (d) This Agreement is the legal, valid and binding obligation of the Parent enforceable against the Parent in accordance with its terms, subject to bankruptcy, insolvency or other similar laws affecting creditors' rights generally and to general principles of equity (whether considered in a proceeding in equity or at law). (e) The consolidated financial statements of the Parent as of December 31, 1992 and for the fiscal year then ended, copies of which have been furnished to the Agent, fairly present the financial condition of the Parent on a consolidated basis as at such date and its results of operations on a consolidated basis for the period covered, all in accordance with generally accepted accounting principles consistently applied (except as stated in the notes thereto), and since such date there has been no material adverse change in such financial condition or results of operations on a consolidated basis. (f) There is no pending threatened action or proceeding affecting the Parent before any court, governmental agency or arbitrator which may materially adversely affect the financial condition or operations of the Parent or the ability of the Parent to perform its obligations under this Agreement or which purports to affect the legality, validity or enforceability of this Agreement. (g) Each information, financial statement, document, book, record or report furnished or to be furnished at any time by the Parent to the Agent or any Investor in connection with this Agreement is or will be accurate in all material respects as of its date or (except as otherwise disclosed to the Agent or such Investor, as the case may be, at such time) as of the date so furnished, and no such document contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not misleading. (h) There are no conditions precedent to the effectiveness of this Agreement that have not been satisfied or waived. (i) The Parent is the direct or indirect beneficial owner of all of the issued and outstanding shares of each class of the capital stock of the Seller and all such shares of capital stock have been duly authorized and issued and are fully paid and nonassessable. (j) The obligations of the Parent under this Agreement do rank and will rank at least pari passu in priority of payment and in all other respects with all other unsecured Debt of the Parent. SECTION 6. Covenants. The Parent covenants and agrees that, until the latest of the Facility Termination Date, the date on which no Capital of any Receivable Interest shall be outstanding or the date all other amounts owed by the Seller under the Receivables Agreement to the Investors or the Agent are paid in full, the Parent will, unless the Agent shall otherwise consent in writing: (a) Compliance with Laws, Etc. Comply in all material respects with all applicable laws, rules, regulations and orders with respect to it, its business and properties. (b) Preservation of Corporate Existence. Preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation in each relevant jurisdiction, except to the extent that the failure so to preserve and maintain such existence, rights, franchises, privileges and qualification would not materially adversely affect the interests of the Investors or the Agent hereunder, or the ability of the Parent to perform its obligations hereunder. (c) Reporting Requirements. Furnish to the Agent: (i) as soon as available and in any event within 45 days after the end of the first three quarters of each fiscal year of the Parent, a copy of the Parent's quarterly report on Form 10-Q, filed with the Securities and Exchange Commission certified by the chief financial officer of the Parent; (ii) as soon as available and in any event within 90 days after the end of each fiscal year of the Parent, a copy of the Parent's annual report on Form 10-K for such year for the Parent and its subsidiaries, containing financial statements for such year audited by Ernst & Young or other independent public accountants acceptable to the Agent; (iii) as soon as possible and in any event within five days after the occurrence of each Event of Termination and each event which, with the giving of notice or lapse of time, or both, would constitute an Event of Termination, a statement of the chief financial officer of the Parent setting forth details of such Event of Termination or event and the action that the Parent has taken and proposes to take with respect thereto; (iv) promptly after the sending or filing thereof, copies of all reports which the Parent sends to any of its security holders, and copies of all reports and registration statements which the Parent files with the Securities and Exchange Commission or any national securities exchange; (v) promptly after the filing or receiving thereof, copies of all reports and notices, if any, which the Parent or any subsidiary files under ERISA with the Internal Revenue Service or the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or which the Parent or any subsidiary receives from any of the foregoing or from any multiemployer plan (within the meaning of Section 4001(a)(3) of ERISA) to which the Seller or any subsidiary is or was, within the preceding five years, a contributing employer, in each case in respect of the assessment of withdrawal liability or an event or condition which could, in the aggregate, result in the imposition of liability on the Seller and/or any such subsidiary in excess of $1,000,000; and (vi) such other information, documents, records or reports respecting the condition or operations, financial or otherwise, of the Parent or any of its subsidiaries as the Agent may from time to time reasonably request. (d) Stock Ownership. Be the registered and beneficial owner of all of the issued and outstanding shares of each class of the capital stock of the Seller. SECTION 7. Amendments, Etc. No amendment or waiver of any provision of this Agreement, and no consent to any departure by the Parent herefrom, shall in any event be effective unless the same shall be in writing and signed by the Parent (only with respect to amendments) and the Agent, as agent for the Investors, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 8. Addresses for Notices. All notices and other communications hereunder shall be in writing (which shall include facsimile communication), shall be personally delivered, express couriered, electronically transmitted (in which case a hard copy shall also be sent by regular mail) or mailed by registered or certified mail, if to the Agent, at the following address: Societe Generale, 181 West Madison Street, Suite 3400, Chicago, Illinois 60602, Facsimile: (312) 578-5099, Attention: Migdalia Lagoa and if to the Parent, at the address set forth under its name on the signature pages hereof, or, as to any party, at such other address as shall be designated by such party in a written notice to each other party. Notices and communications by facsimile shall be effective when sent, and notices and communications sent by other means shall be effective when received. SECTION 9. No Waiver; Remedies. No failure on the part of the Agent or any Investor to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 10. Continuing Agreement; Assignments under the Receivables Agreement. This Agreement is a continuing agreement and shall (i) remain in full force and effect until the later of (x) the payment and performance in full of the Obligations and the payment of all other amounts payable under this Agreement and (y) the Facility Termination Date, (ii) be binding upon the Parent, its successors and assigns, and (iii) inure to the benefit of, and be enforceable by, the Agent, the Investors and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii), any Investor may assign all or any of its interest in Receivable Interests under the Receivables Agreement to any assignee permitted under the Receivables Agreement, and such assignee shall thereupon become vested with all the benefits in respect thereof granted to such Investor herein or otherwise. SECTION 11. Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of New York, without giving effect to the conflicts of laws principles thereof. IN WITNESS WHEREOF, the Parent has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. ARKANSAS BEST CORPORATION By:__________________________________ Name: Title: Address: 1000 South 21st Street Fort Smith, Arkansas 72901 Attention: General Counsel Facsimile: (501) 785-6124 PARENT UNDERTAKING AGREEMENT AGREEMENT, dated as of March 2, 1994, made by Arkansas Best Corporation, a corporation organized and existing under the laws of Delaware (the "Parent"), in favor of Societe Generale, as agent (the "Agent") for the Banks. PRELIMINARY STATEMENTS: (1) The Agent has entered into an Alternate Receivables Purchase Agreement, dated as of March 2, 1994 (such agreement, as it may hereafter be amended or otherwise modified from time to time, being the "Alternate Receivables Agreement," the terms defined therein and not otherwise defined herein being used herein as therein defined) with ABF Freight System, Inc., a corporation organized and existing under the laws of Delaware (the "Seller"). (2) It is a condition precedent to the making of purchases of Receivable Interests by the Banks under the Alternate Receivables Agreement that the Parent, as beneficial owner of one hundred percent of the outstanding shares of stock of the Seller, shall have executed and delivered this Agreement. NOW, THEREFORE, in consideration of the premises and in order to induce the Issuer to make purchases under the Alternate Receivables Agreement, the Parent hereby agrees as follows: SECTION 1. Unconditional Undertaking. (a) The Parent hereby unconditionally and irrevocably undertakes and agrees with and for the benefit of the Agent (and the parties for whom it acts as agent) to cause the due and punctual performance and observance by the Seller and its successors and assigns of all of the terms, covenants, conditions, agreements and undertakings on the part of the Seller (whether as Seller, Collection Agent or otherwise) to be performed or observed under the Alternate Receivables Agreement, Receivables Purchase Agreement, Collection Agent Agreement or any document delivered in connection with the Alternate Receivables Agreement in accordance with the terms thereof, including the punctual payment when due of all obligations of the Seller now or hereafter existing under the Alternate Receivables Agreement, whether for indemnification payments, fees, expenses or similar obligations (all of the foregoing being the "Obligations"), and agrees to pay any and all expenses (including reasonable counsel fees and expenses) incurred by the Agent (and the parties for whom they act as agent) in enforcing any rights under this Agreement. (b) In the event that the Seller shall fail in any manner whatsoever to perform or observe any of the Obligations when the same shall be required to be performed or observed under the Alternate Receivables Agreement or any such other document, then the Parent will duly and punctually perform or observe, or cause to be duly and punctually performed or observed, such Obligations, and it shall not be a condition to the accrual of the obligation of the Parent hereunder to perform or observe any Obligation (or to cause the same to be performed or observed) that the Agent shall have first made any request of or demand upon or given any notice to the Parent or to the Seller or their respective successors or assigns, or have instituted any action or proceeding against the Parent or the Seller or their respective successors or assigns in respect thereof. SECTION 2. Obligation Absolute. The Parent undertakes that the Obligations will be performed or paid strictly in accordance with the terms of the Alternate Receivables Agreement and any other document delivered in connection with the Alternate Receivables Agreement, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Agent or the Banks with respect thereto. The obligations of the Parent under this Agreement are independent of the Obligations, and a separate action or actions may be brought and prosecuted against the Parent to enforce this Agreement, irrespective of whether any action is brought against the Seller or whether the Seller is joined in any such action or actions. The liability of the Parent under this Agreement shall be absolute and unconditional irrespective of: (i) any lack of validity or enforceability of the Alternate Receivables Agreement or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to departure from the Alternate Receivables Agreement or any other agreement or instrument relating thereto, including, without limitation, any increase in the Obligations resulting from additional purchases of Receivable Interests or otherwise; (iii) any taking, exchange, release or non-perfection of any collateral, or any taking, release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Obligations; (iv) any manner of application of collateral, or proceeds thereof, to all or any of the Obligations, or any manner of sale or other disposition of any collateral for all or any of the Obligations or any other assets of the Seller or any of its subsidiaries; (v) any change, restructuring or termination of the corporate structure or existence of the Seller or any of its subsidiaries; or (vi) any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Seller or a guarantor. This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by the Agent or any Bank upon the insolvency, bankruptcy or reorganization of the Seller or otherwise, all as though payment had not been made. SECTION 3. Waiver. The Parent hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Obligations and this Agreement and any requirement that the Agent or any Bank protect, secure, perfect or insure any security interest or lien or any property subject thereto or exhaust any right or take any action against the Seller or any other person or entity or any collateral. SECTION 4. Subrogation. The Parent will not exercise any rights which it may acquire by way of subrogation under this Agreement, by any payment or performance made hereunder or otherwise, until all the Obligations and all other amounts payable under this Agreement shall have been paid and performed in full and the Commitment Termination Date shall have occurred. If any amount shall be paid to the Parent on account of such subrogation rights at any time prior to the later of (x) the payment and performance in full of the Obligations and the payment of all other amounts payable under this Agreement and (y) the Commitment Termination Date, such amount shall be held in trust for the benefit of the Agent and the Banks and shall forthwith be paid to the Agent to be credited and applied upon the Obligations, whether matured or unmatured, in accordance with the terms of the Alternate Receivables Agreement or to be held by the Agent as collateral security for any Obligations thereafter existing. If (i) the Parent shall make payment to the Agent or the Banks of all or any part of the Obligations, (ii) all the Obligations and all other amounts payable under this Agreement shall be paid and performed in full and (iii) the Commitment Termination Date shall have occurred, the Agent and the Banks will, at the Parent's request, execute and deliver to the Parent appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer by subrogation to the Parent of an interest in the Obligations resulting from such payment by the Parent. SECTION 5. Representations and Warranties. The Parent represents and warrants as follows: (a) The Parent is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its organization. (b) The execution, delivery and performance by the Parent of this Agreement are within the Parent's corporate powers, have been duly authorized by all necessary corporate action, do not contravene (i) the charter, articles of incorporation or by-laws of the Parent or (ii) law or any contractual restriction binding on or affecting the Parent. (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Parent of this Agreement. (d) This Agreement is the legal, valid and binding obligation of the Parent enforceable against the Parent in accordance with its terms, subject to bankruptcy, insolvency or other similar laws affecting creditors' rights generally and to general principles of equity (whether considered in a proceeding in equity or at law). (e) The consolidated financial statements of the Parent as of December 31, 1992 and for the fiscal year then ended, copies of which have been furnished to the Agent, fairly present the financial condition of the Parent on a consolidated basis as at such date and its results of operations on a consolidated basis for the period covered, all in accordance with generally accepted accounting principles consistently applied (except as stated in the notes thereto), and since such date there has been no material adverse change in such financial condition or results of operations on a consolidated basis. (f) There is no pending threatened action or proceeding affecting the Parent before any court, governmental agency or arbitrator which may materially adversely affect the financial condition or operations of the Parent or the ability of the Parent to perform its obligations under this Agreement or which purports to affect the legality, validity or enforceability of this Agreement. (g) Each information, financial statement, document, book, record or report furnished or to be furnished at any time by the Parent to the Agent or any Bank in connection with this Agreement is or will be accurate in all material respects as of its date or (except as otherwise disclosed to the Agent or such Bank, as the case may be, at such time) as of the date so furnished, and no such document contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not misleading. (h) There are no conditions precedent to the effectiveness of this Agreement that have not been satisfied or waived. (i) The Parent is the direct or indirect beneficial owner of all of the issued and outstanding shares of each class of the capital stock of the Seller and all such shares of capital stock have been duly authorized and issued and are fully paid and nonassessable. (j) The obligations of the Parent under this Agreement do rank and will rank at least pari passu in priority of payment and in all other respects with all other unsecured Debt of the Parent. SECTION 6. Covenants. The Parent covenants and agrees that, until the latest of the Commitment Termination Date, the date on which no Capital of any Receivable Interest shall be outstanding or the date all other amounts owed by the Seller under the Alternate Receivables Agreement to the Banks or the Agent are paid in full, the Parent will, unless the Agent shall otherwise consent in writing: (a) Compliance with Laws, Etc. Comply in all material respects with all applicable laws, rules, regulations and orders with respect to it, its business and properties. (b) Preservation of Corporate Existence. Preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation in each relevant jurisdiction, except to the extent that the failure so to preserve and maintain such existence, rights, franchises, privileges and qualification would not materially adversely affect the interests of the Bank or the Agent hereunder, or the ability of the Parent to perform its obligations hereunder. (c) Reporting Requirements. Furnish to the Agent: (i) as soon as available and in any event within 45 days after the end of the first three quarters of each fiscal year of the Parent, a copy of the Parent's quarterly report on Form 10-Q, filed with the Securities and Exchange Commission certified by the chief financial officer of the Parent; (ii) as soon as available and in any event within 90 days after the end of each fiscal year of the Parent, a copy of the Parent's annual report on Form 10-K for such year for the Parent and its subsidiaries, containing financial statements for such year audited by Ernst & Young or other independent public accountants acceptable to the Agent; (iii) as soon as possible and in any event within five days after the occurrence of each Event of Termination and each event which, with the giving of notice or lapse of time, or both, would constitute an Event of Termination, a statement of the chief financial officer of the Parent setting forth details of such Event of Termination or event and the action that the Parent has taken and proposes to take with respect thereto; (iv) promptly after the sending or filing thereof, copies of all reports which the Parent sends to any of its security holders, and copies of all reports and registration statements which the Parent files with the Securities and Exchange Commission or any national securities exchange; (v) promptly after the filing or receiving thereof, copies of all reports and notices, if any, which the Parent or any subsidiary files under ERISA with the Internal Revenue Service or the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or which the Parent or any subsidiary receives from any of the foregoing or from any multiemployer plan (within the meaning of Section 4001(a)(3) of ERISA) to which the Seller or any subsidiary is or was, within the preceding five years, a contributing employer, in each case in respect of the assessment of withdrawal liability or an event or condition which could, in the aggregate, result in the imposition of liability on the Seller and/or any such subsidiary in excess of $1,000,000; and (vi) such other information, documents, records or reports respecting the condition or operations, financial or otherwise, of the Parent or any of its subsidiaries as the Agent may from time to time reasonably request. (d) Stock Ownership. Be the registered and beneficial owner of all of the issued and outstanding shares of each class of the capital stock of the Seller. SECTION 7. Amendments, Etc. No amendment or waiver of any provision of this Agreement, and no consent to any departure by the Parent herefrom, shall in any event be effective unless the same shall be in writing and signed by the Parent (only with respect to amendments) and the Agent, as agent for the Banks, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 8. Addresses for Notices. All notices and other communications hereunder shall be in writing (which shall include facsimile communication), shall be personally delivered, express couriered, electronically transmitted (in which case a hard copy shall also be sent by regular mail) or mailed by registered or certified mail, if to the Agent, at the following address: Societe Generale, 181 West Madison Street, Suite 3400, Chicago, Illinois 60602, Facsimile: (312) 578-5099, Attention: Migdalia Lagoa and if to the Parent, at the address set forth under its name on the signature pages hereof, or, as to any party, at such other address as shall be designated by such party in a written notice to each other party. Notices and communications by facsimile shall be effective when sent, and notices and communications sent by other means shall be effective when received. SECTION 9. No Waiver; Remedies. No failure on the part of the Agent or any Bank to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 10. Continuing Agreement; Assignments under the Alternate Receivables Agreement. This Agreement is a continuing agreement and shall (i) remain in full force and effect until the later of (x) the payment and performance in full of the Obligations and the payment of all other amounts payable under this Agreement and (y) the Commitment Termination Date, (ii) be binding upon the Parent, its successors and assigns, and (iii) inure to the benefit of, and be enforceable by, the Agent, the Banks and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii), any Bank may assign all or any of its interest in Receivable Interests under the Alternate Receivables Agreement to any assignee permitted under the Alternate Receivables Agreement, and such assignee shall thereupon become vested with all the benefits in respect thereof granted to such Investor herein or otherwise. SECTION 11. Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of New York, without giving effect to the conflicts of laws principles thereof. IN WITNESS WHEREOF, the Parent has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. ARKANSAS BEST CORPORATION By:__________________________________ Name: Title: Address: 1000 South 21st Street Fort Smith, Arkansas 72901 Attention: General Counsel Facsimile: (501) 785-6124 EX-11 3 EARNINGS PER SHARE EXHIBIT 11 EXHIBIT 11 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE ARKANSAS BEST CORPORATION
Year Ended December 31 1993 1992 1991 ($ thousands, except per share data) PRIMARY: Average shares outstanding 19,132,386 19,005,887 12,731,141 Net effect of dilutive stock options -- Based on the treasury stock method using average market price 61,196 34,216 - ---------- ---------- ---------- Average common shares outstanding 19,193,582 19,040,103 12,731,141 ========== ========== ========== Income before extraordinary item and cumulative effect of accounting change $ 20,972 $ 18,755 $ 7,752 Less: preferred stock dividend 3,904 - - ---------- ---------- ---------- 17,068 18,755 7,752 Extraordinary item: Loss on extinguishments of debt (661) (15,975) (515) Cumulative effect on prior years of change in recognition of revenue - (3,363) - ---------- ---------- ---------- Net income (loss) available for common shareholders $ 16,407 $ (583) $ 7,237 ========== ========== ========== Per common and common equivalent share: Income before extraordinary item and cumulative effect of accounting change $ .89 $ .99 $ .61 Extraordinary item: Loss on extinguishments of debt (.04) (.84) (.04) Cumulative effect on prior years of change in recognition of revenue - (.18) - ---------- ---------- ---------- $ .85 $ (.03) $ .57 ========== ========== ==========
EX-22 4 LIST OF SUBSIDIARIES EXHIBIT 22 EXHIBIT 22 LIST OF SUBSIDIARY CORPORATIONS ARKANSAS BEST CORPORATION The Registrant owns and controls the following subsidiary corporations:
Jurisdiction of % of Voting Name Incorporation Securities Owned Subsidiary of Arkansas Best Corporation: ABF Freight System, Inc. Delaware 100 Treadco, Inc. Delaware 45.9 ABC-Treadco, Inc. Arkansas 100 Data-Tronics Corp. Arkansas 100 Clover Insurance Company, Ltd. Bermuda 100 Arkansas Underwriters Corporation Arkansas 100 Advertising Counselors, Inc. Arkansas 100 ABF Cartage, Inc. Delaware 100 ABF Farms, Inc. Arkansas 100 Land-Marine Cargo, Inc. Puerto Rico 100 Integrated Distribution Systems, Inc. Arkansas 100 ABF Freight System Canada, Ltd. Canada 100 ABF Freight System de Mexico, Inc. Delaware 100 Best Logistics, Inc. Delaware 100 Subsidiary of ABF Freight System, Inc.: ABF Freight System (B.C.), Ltd. British Columbia 100 Subsidiary of Treadco, Inc.: Trans World Casings, Inc. Delaware 100
EX-23 5 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-66694) pertaining to the Arkansas Best Corporation Stock Option Plan and Arkansas Best Corporation Disinterested Director Stockholder Plan of our report dated January 28, 1994, with respect to the consolidated financial statements and schedules of Arkansas Best Corporation included in this Annual Report (Form 10-K) for the year ended December 31, 1993. ERNST & YOUNG Little Rock, Arkansas March 9, 1994 -----END PRIVACY-ENHANCED MESSAGE-----