General
Arkansas Best Corporation (the "Company") is a holding company engaged, through its subsidiaries, primarily in motor carrier freight transportation. The Company's principal operations are conducted through ABF Freight System, Inc. and other subsidiaries of the Company that are engaged in motor carrier freight transportation (collectively "ABF").
The following Management's Discussion and Analysis of Financial Condition and Results of Operations describes the principal factors affecting critical accounting policies, liquidity and capital resources, and results of operations of the Company. This discussion should be read in conjunction with the accompanying quarterly unaudited condensed consolidated financial statements and the Company's Annual Report on Form 10-K for the year ended December 31, 2008. The Company's 2008 Annual Report on Form 10-K includes additional information about significant accounting policies, practices and the transactions that underlie the Company's financial results, as well as a detailed discussion of the most significant risks and uncertainties to which its financial and operating results are subject. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Critical Accounting Policies and Recent Accounting and Disclosure Requirements Impacting the Company
The Company's accounting policies that are "critical," or the most important, to understand the Company's financial condition and results of operations and that require management of the Company to make the most difficult judgments are described in the Company's 2008 Annual Report on Form 10-K. There have been no material changes in these critical accounting policies during the six months ended June 30, 2009.
In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("FAS 157"). This statement defines fair value, establishes a framework for measuring fair value and expands the disclosures on fair value measurements. In February 2008, the FASB issued FASB Staff Position FAS 157-2, Effective Date of FASB Statement No. 157 ("FSP 157-2"), which provided a one-year deferral of the effective date of FAS 157 for nonfinancial assets and liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. In accordance with FSP 157-2, the Company adopted the provisions of FAS 157 with respect to its assets and liabilities that are measured at fair value within the financial statements on a recurring basis effective January 1, 2008 and adopted the provisions of FAS 157 with respect to its nonfinancial assets and liabilities that are measured at fair value within the financial statements on a nonrecurring basis as of January 1, 2009. The adoption of FAS 157 did not have a material effect on the Company's consolidated financial statements (see Note D to the accompanying consolidated financial statements). Effective January 1, 2009, the Company adopted FASB Staff Position No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities ("FSP EITF 03-6-1"). FSP EITF 03-6-1 established that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities. The Company's unvested restricted stock and restricted stock units are paid nonforfeitable dividends or dividend equivalents at the same rate and at the same time as the dividends paid on outstanding shares of Common Stock and are therefore considered participating securities. In accordance with FSP EITF 03-6-1, the Company's calculation of earnings per share allocates dividends paid and a portion of unallocated net income, but not losses, to unvested restricted stock and restricted stock units. The adoption of FSP EITF 03-6-1, which also requires retrospective adjustment of earnings per share for prior-periods, decreased basic earnings per share by $0.02 for the three and six months ended June 30, 2008 and decreased diluted earnings per share by $0.01 and $0.02 for the three and six months ended June 30, 2008, respectively (see Note H to the accompanying consolidated financial statements).

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued

The FASB issued three staff positions related to fair value accounting and disclosure which were effective for the Company as of June 30, 2009 and are reflected in the disclosures in Note D to the accompanying consolidated financial statements. FASB Staff Position FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, requires disclosures about fair value of financial instruments for interim reporting periods. FASB Staff Position FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, requires the Company to disclose the contractual maturities of debt securities in interim financial statements and addresses the recognition and measurement of an impairment loss when an entity does not intend or will not be required to sell an impaired security. FASB Staff Position FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, requires disclosure of the valuation techniques used to measure fair value of financial instruments and provides additional guidance for estimating fair value when the level of market activity for assets and liabilities covered by FAS 157 has significantly declined. Effective June 30, 2009, the Company adopted the provisions of Statement of Financial Accounting Standards No. 165, Subsequent Events ("FAS 165") which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. Management performed an evaluation of events through August 5, 2009, the date of filing this Quarterly Report on Form 10-Q, and believes that there are no material subsequent events requiring additional disclosure or recognition in this Form 10-Q.
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash and short-term investments on-hand, cash generated by operations and borrowing capacity under its revolving credit agreement.
Cash Flow and Short-Term Investments: Components of cash and cash equivalents and short-term investments are as follows:

                                                          June 30        December 31
                                                           2009             2008
                                                                ($ thousands)

 Cash and cash equivalents, primarily money market
 funds                                                   $  62,318      $     100,880
 Short-term investments (FDIC-insured certificates of
 deposit)                                                  129,049            117,855

 Total                                                   $ 191,367      $     218,735

During the six months ended June 30, 2009, cash, cash equivalents and short-term investments declined $27.4 million, primarily reflecting purchases of revenue equipment (tractors and trailers used primarily in ABF's operations) and other property and equipment totaling $9.8 million net of asset sales, payment of dividends on Common Stock of $7.7 million and the acquisition of a privately-owned logistics company for net cash consideration of $6.2 million including repayment of debt assumed in the acquisition.
During the six months ended June 30, 2008, cash provided from operations of $58.9 million and proceeds from asset sales of $12.8 million were used to purchase revenue equipment and other property and equipment totaling $16.1 million and pay dividends on Common Stock of $7.7 million. The decrease in operating cash flow during the six months ended June 30, 2009 as compared to the same period of 2008 primarily reflects the effect of the weaker freight tonnage environment on ABF's operating results.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued

Credit Agreement: The Company has a revolving credit agreement (the "Credit Agreement") with a syndicate of financial institutions. The Credit Agreement, which has a maturity date of May 4, 2012, provides for up to $325.0 million of revolving credit loans (including a $150.0 million sublimit for letters of credit). The Credit Agreement contains various customary covenants which limit, among other things, indebtedness and dispositions of assets and which require the Company to maintain compliance with certain quarterly financial ratios. As of June 30, 2009, the Company was in compliance with the covenants. As of June 30, 2009 and December 31, 2008, there were outstanding letters of credit issued of $51.5 million and $50.9 million, respectively, under the Credit Agreement and there were no outstanding revolver advances. The Company's borrowing ability under the Credit Agreement is restricted by performance covenants, specifically the leverage ratio that limits total outstanding indebtedness to 3.0 times the Company's trailing twelve months earnings before interest, taxes, depreciation and amortization, as defined in the Credit Agreement. Due to this limitation, total unused borrowing capacity was approximately $125 million as of June 30, 2009.
The Credit Agreement allows the Company to request extensions of the maturity date for a period not to exceed two years, subject to approval of a majority of the participating financial institutions. The Credit Agreement also allows the Company to request an increase in the amount of revolving credit loans of up to $200.0 million to an aggregate amount of $525.0 million, to the extent commitments are received from participating lenders. The Credit Agreement requires the payment of a utilization fee if the borrowings under the Credit Agreement exceed 50% of the facility amount. Interest rates under the agreement are at variable rates as defined by the Credit Agreement. The Credit Agreement contains a pricing grid, based on the Company's senior debt ratings, that determines its interest rate, facility fees, utilization fees and letter of credit fees. The Company's senior unsecured debt rating of BBB+ and outlook by Standard & Poor's Ratings Services are on watch with negative implications and its senior unsecured debt rating of Baa2 and outlook by Moody's Investors Service, Inc. are under review for possible downgrade.
As further discussed in the Executive Overview of Management's Discussion and Analysis of Financial Condition and Results of Operations, ABF's operating results have been adversely impacted by the economic recession. As a result, the Company has reported consolidated net losses in each of the last three quarterly periods beginning with fourth quarter 2008. These operating losses have led to a declining fixed charge coverage ratio which was 4.7 to 1 for the reporting period ended June 30, 2009 compared to the 2.0 to 1 minimum ratio required by the Credit Agreement. While ABF has implemented cost reduction initiatives, unless operating results improve from second quarter 2009 levels, the Company may not meet the required fixed charge coverage ratio during the remaining 2009 reporting periods. If this financial covenant is not met, the letters of credit currently issued under the Credit Agreement would have to be replaced with cash deposits, performance bonds or other acceptable forms of securities. Although there can be no assurances, management believes that the Company could obtain an amendment to the Credit Agreement or other satisfactory financing arrangements as needed; however, due to recent liquidity disruptions and continued uncertainty in the credit markets, the terms of any new financing arrangements may be less favorable and result in higher costs than the current Credit Agreement.

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
          OF OPERATIONS - continued


Contractual Obligations: The following table provides the aggregate annual
contractual obligations of the Company including capital and operating lease
obligations, purchase obligations and near-term estimated benefit plan
distributions as of June 30, 2009. The Company's 2008 Annual Report on Form 10-K
includes additional information and description of these obligations.

                                                     Payments Due by Period
                                                          ($ thousands)
                                            Less Than          1-3            3-5          More Than
Contractual Obligations       Total          1 Year           Years          Years          5 Years

Capital lease
obligations, including
interest                    $   2,383      $       233      $     511      $     435      $     1,204
Operating lease
obligations(1)                 44,684           11,291         16,993          8,377            8,023
Purchase obligations(2)        27,709           27,709              -              -                -
Voluntary savings plan
distributions(3)                2,144            2,144              -              -                -
Postretirement health
expenditures(4)                   825              825              -              -                -
Deferred salary
distributions(5)                1,144            1,144              -              -                -
Supplemental pension
distributions(6)                2,175            2,175              -              -                -

Total                       $  81,064      $    45,521      $  17,504      $   8,812      $     9,227

(1) While the Company owns the majority of its larger terminals and distribution centers, certain facilities and equipment are leased. As of June 30, 2009, the Company had future minimum rental commitments, net of noncancelable subleases, totaling $44.3 million for terminal facilities and $0.4 million for other equipment. The future minimum rental commitments are presented exclusive of executory costs such as insurance, maintenance and taxes. In addition, the Company has provided lease guarantees through March 2012 totaling $0.7 million related to Clipper, a former subsidiary of the Company.

(2) Purchase obligations relating to revenue equipment, other equipment and property are cancelable if certain conditions are met. These commitments are included in the Company's 2009 annual net capital expenditure plan, which is estimated to be approximately $45.0 million to $50.0 million.

(3) Represents elective distributions anticipated within the next twelve months under the Voluntary Savings Plan, a nonqualified deferred compensation plan. Future distributions are subject to change for retirement, death or disability of current employees. As a result, estimates of distributions beyond one year cannot be made with a reasonable level of accuracy and are not presented.

(4) Represents distributions projected over the next twelve months related to postretirement health benefits. Future distributions are subject to change based upon increases and other changes in premiums and medical costs and continuation of the plan for current participants. As a result, estimates of distributions beyond one year are not presented.

(5) Represents deferred salary agreement distributions projected over the next twelve months. Future distributions are subject to change based upon assumptions for projected salaries and retirements, deaths, disability or early retirement of current employees. As a result, estimates of distributions beyond one year cannot be made with a reasonable level of accuracy and are not presented.

(6) Represents distributions within the next twelve months under the unfunded supplemental pension benefit plan. The amounts and dates of distributions in future periods are dependent upon actual retirement dates of eligible officers and other events and factors, including assumptions involved in distribution calculations such as the discount rate, years of service and future salary changes. As a result, estimates of distributions beyond one year cannot be made with a reasonable level of accuracy and are not presented.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued

The Company made voluntary tax-deductible contributions totaling $15.5 million to its nonunion pension plan in March 2009. Based upon current information, the Company is evaluating making additional contributions in 2009 of up to $10.0 million, which would not exceed the maximum tax-deductible contribution (see Note F to the accompanying consolidated financial statements). ABF contributes to multiemployer health, welfare and pension plans based generally on the time worked by its contractual employees, as specified in the collective bargaining agreement and other supporting supplemental agreements (see Note F to the accompanying consolidated financial statements). Other Liquidity Information: Management believes cash generated by operations, cash and cash equivalents, short-term investments and amounts available under the Credit Agreement, including any future amendments thereof, will be sufficient for the foreseeable future to finance the Company's lease commitments; letter of credit commitments; quarterly dividends; stock repurchases; nonunion benefit plan contributions; unfunded supplemental pension benefits; capital expenditures; health, welfare and pension contributions under collective bargaining agreements; and other expenditures. At this point in time, the Company's liquidity has not been significantly impacted by the current credit environment.
Financial Instruments: The Company has not historically entered into financial instruments for trading purposes, nor has the Company historically engaged in a program for hedging fuel prices. No such instruments were outstanding as of June 30, 2009 or 2008.
Off-Balance-Sheet Arrangements: The Company's off-balance-sheet arrangements include future minimum rental commitments, net of noncancelable subleases, of $44.7 million under operating lease agreements. The Company has no investments, loans or any other known contractual arrangements with affiliated special-purpose entities, variable interest entities or financial partnerships.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued

Results of Operations
Executive Overview
Arkansas Best Corporation ("the Company") is a holding company engaged, through its subsidiaries, primarily in motor carrier freight transportation. The Company's principal operations are conducted through ABF, which represented 95% of the Company's consolidated revenues for the six months ended June 30, 2009. On an ongoing basis, ABF's ability to operate profitably and generate cash is impacted by tonnage (gross weight hauled), which influences operating leverage as tonnage levels vary; the pricing environment; customer account mix; and the ability to manage costs effectively, primarily in the area of salaries, wages and benefits ("labor").
For the three and six months ended June 30, 2009, respectively, the Company reported consolidated net losses of $15.4 million and $33.6 million after taxes, primarily reflecting the operating results of ABF. During the three and six months ended June 30, 2009, ABF's revenues decreased 27.7% and 25.6%, respectively, on a per-day basis compared to the same periods in 2008. This revenue decline primarily reflects decreases in tonnage levels and changes in revenue per hundredweight, including fuel surcharges. ABF's second quarter 2009 operating ratio increased to 107.8% from 94.7% in the second quarter of 2008. During the six months ended June 30, 2009, ABF's operating ratio increased to 108.0% from 95.8% during the same period of 2008. The ABF operating results are more fully discussed in the ABF section of Management's Discussion and Analysis of Financial Condition and Results of Operations.
ABF's operations are affected by general economic conditions, as well as a number of other competitive factors that are more fully described in the General Development of Business and Risk Factors sections of the Company's 2008 Annual Report on Form 10-K. The prolonged unfavorable economic environment has impacted the business activities of ABF's customers which has had a corresponding adverse effect on ABF's tonnage levels and limited ABF's ability to secure adequate pricing for its services. ABF's second quarter 2009 operating results were impacted by a 17.0% year-over-year decline in tonnage per day, which was preceded by year-over-year declines in tonnage per day of 5.1% in third quarter 2008, 11.5% in fourth quarter 2008 and 15.7% in first quarter 2009. ABF's management believes that these tonnage trends are representative of the weakened domestic and global economies due, in part, to turmoil in the financial markets and the related effects on industrial production and the residential and commercial construction and retail sectors. For the month of July 2009, average daily total tonnage for ABF declined approximately 13% compared to the same period last year. There can be no assurances that ABF will not experience further declines in tonnage levels due to a number of factors including, but not limited to, continued weakness in general economic activity.
As a result of the extended period of an adverse economic environment and the historically severe tonnage declines that have continued from the fourth quarter of 2008, ABF has implemented cost reduction programs. ABF is generally effective in managing its costs to business levels. However, incremental reductions in labor and other operating costs become increasingly challenging and less effective as ABF maintains service levels and continues its focus on serving the regional markets. A larger proportion of ABF's operating costs are fixed in nature when maintaining customer service levels. ABF's ability to effectively manage labor costs, which amounted to 71.8% of ABF's revenues for the six months ended June 30, 2009, has a direct impact on its operating performance. Labor costs, including retirement and health care benefits for ABF's contractual employees that are provided by a number of multiemployer plans (see Note F to the accompanying consolidated financial statements), are impacted by ABF's contractual obligations under its labor agreement primarily with the International Brotherhood of Teamsters ("IBT"). The current five-year collective bargaining agreement, which became effective April 1, 2008, provides for compounded annual contractual wage and benefit increases of approximately 4%, subject to wage rate cost-of-living adjustments, as further discussed in the ABF section of Management's Discussion and Analysis of Financial Condition and Results of Operations. ABF's operating results will continue to be adversely impacted if tonnage remains at the current levels.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued

The industry pricing environment is another key to ABF's operating performance. The pricing environment, which generally becomes more competitive during periods of lower tonnage levels, influences ABF's ability to obtain compensatory margins and price increases on customer accounts. ABF's pricing is typically measured by billed revenue per hundredweight, which is a reasonable, although approximate, measure of price change. This measure is affected by freight profile factors such as average shipment size, average length of haul, freight density and customer and geographic mix. ABF focuses on individual account profitability rather than billed revenue per hundredweight when considering customer account or market evaluations due to the difficulty in quantifying, with sufficient accuracy, the impact of changes in freight profile characteristics, which is necessary to estimate true price changes. However, total company profitability for ABF is considered together with measures of billed revenue per hundredweight. Total billed revenue per hundredweight decreased 13.1% and 11.3%, respectively, during the three and six months ended June 30, 2009 versus the same periods of 2008, primarily due to lower fuel surcharges resulting from lower fuel-related costs. The fuel surcharge constituted a higher proportion of the total freight rate during the majority of 2008, as further discussed below. Management believes that higher fuel surcharges, along with the competitive environment, prevented ABF from securing adequate increases in base LTL rates during periods of higher fuel surcharge levels in 2008. Obtaining base rate increases involves a lengthy process to address the pricing and resulting profitability of individual customer accounts. Prolonged periods with insufficient base LTL rate improvements result in higher operating ratios as elements of unit cost, including contractual wage and benefit rates, continue to increase. ABF also experienced freight profile changes during the six months ended June 30, 2009 that impacted the reported billed revenue per hundredweight, as further discussed in the ABF section of Management's Discussion and Analysis of Financial Condition and Results of Operations. Excluding freight profile changes and the changes in fuel surcharges, pricing on ABF's traditional less-than-truckload ("LTL") business declined slightly in the second quarter of 2009. During the three and six months ended June 30, 2009, the pricing environment was very competitive and management expects the pricing environment to remain competitive throughout the remainder of 2009.
ABF operates in a highly competitive industry with both union and nonunion motor carriers. The Company's nonunion competitors have a lower fringe benefit cost structure for their freight-handling and driving personnel than union carriers. In addition, wage concessions granted to certain union competitors allow for a lower wage and benefit cost structure than that of ABF. Competitors with lower labor cost structures could reduce freight rates to gain market share which may further limit ABF's ability to maintain or increase base freight rates and therefore adversely impact the Company's competitiveness in the industry. ABF has recently engaged in discussions with the IBT to attempt to address this issue.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued

The transportation industry is dependent upon the availability of adequate fuel supplies. The Company has not experienced a lack of available fuel but could be . . .