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ABFS > SEC Filings for ABFS > Form 10-Q on 7-Nov-2012All Recent SEC Filings

Show all filings for ARKANSAS BEST CORP /DE/

Form 10-Q for ARKANSAS BEST CORP /DE/


7-Nov-2012

Quarterly Report


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

General

Arkansas Best Corporation (the "Company"), the parent holding company, is a freight transportation services and solutions provider. The Company's principal operations are conducted through its Freight Transportation segment, which consists of ABF Freight System, Inc. and certain other subsidiaries of the Company (collectively "ABF"). The Company's other reportable operating segments, primarily non-asset-based businesses utilizing the services of third-party providers, are Premium Logistics and Expedited Freight Services (Panther Expedited Services, Inc. ("Panther") acquired on June 15, 2012), Truck Brokerage and Management, Emergency and Preventative Maintenance, and Household Goods Moving Services (see additional segment description in Note K to the Company's consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q).

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. Certain reclassifications have been made to the financial and operational results that were presented in the Company's September 30, 2011 Quarterly Report on Form 10-Q to conform to the current year's presentation of reportable operating segments.

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") describes the principal factors affecting results of operations, liquidity and capital resources, and critical accounting policies 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, 2011. The Company's 2011 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. One of those risk factors disclosed in the 2011 Form 10-K includes the following:

We depend on our employees to support our operating business and future growth opportunities. If our relationship with our employees deteriorates, we could be faced with labor disruptions or stoppages, which could have a material adverse effect on our business, reduce our operating results, and place us at a disadvantage relative to nonunion competitors.

ABF represented 79% of the Company's revenues for the three months ended September 30, 2012. As of September 2012, approximately 75% of ABF's employees are covered under a five-year collective bargaining agreement with the International Brotherhood of Teamsters ("IBT"). The agreement with the IBT, which extends through March 31, 2013, provides for compounded annual contractual wage and benefit increases of approximately 3% to 4%, subject to additional increases for cost-of-living adjustments. As previously announced, contract negotiations for periods subsequent to March 31, 2013 are expected to begin in late December 2012. The negotiation of terms of the collective bargaining agreement is very complex. The inability to agree on acceptable terms for the next contract period prior to the expiration of ABF's current agreement could result in a work stoppage, the loss of customers, or other events that would have a material adverse effect on the Company's competitive position, results of operations, and financial position in 2013 and subsequent years.


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Results of Operations



Consolidated Results



                                             Three Months Ended           Nine Months Ended
                                                September 30                 September 30
                                              2012         2011         2012(1)         2011
                                                               ($ thousands)
OPERATING REVENUES
Freight Transportation                     $  455,997    $ 459,325    $ 1,302,292    $ 1,308,723
Premium Logistics and Expedited Freight
Services                                       60,445            -         71,280              -
Truck Brokerage and Management                 11,395        6,977         29,455         18,488
Emergency and Preventative Maintenance         32,785       24,801         85,264         70,419
Household Goods Moving Services                25,702       27,768         61,233         68,879
Other and eliminations                         (8,778 )     (7,984 )      (20,568 )      (22,140 )
Total consolidated operating revenues      $  577,546    $ 510,887    $ 1,528,956    $ 1,444,369
OPERATING INCOME (LOSS)
Freight Transportation                     $    8,442    $  17,729    $    (5,858 )  $     2,269
Premium Logistics and Expedited Freight
Services                                          804            -          1,284              -
Truck Brokerage and Management                    706          613          1,755          1,566
Emergency and Preventative Maintenance            872        1,006          1,430          2,845
Household Goods Moving Services                 1,425        1,682            798          2,766
Other and eliminations                            (16 )         88         (2,962 )       (1,322 )
Total consolidated operating income
(loss)                                     $   12,233    $  21,118    $    (3,553 )  $     8,124
NET INCOME ATTRIBUTABLE TO ARKANSAS
BEST CORPORATION                           $    6,518    $  12,265    $       197    $     4,755
DILUTED EARNINGS PER SHARE                 $     0.24    $    0.46    $         -    $      0.18



(1) Includes operations of the Premium Logistics and Expedited Freight Services segment since the June 15, 2012 acquisition of Panther.

Consolidated revenues for the three and nine months ended September 30, 2012 increased 13.0% and 5.9%, respectively, compared to the same prior-year periods, primarily reflecting the revenues of Panther (reported as the Premium Logistics and Expedited Freight Services segment) whose operations were acquired on June 15, 2012. In addition, higher revenues reported by the Truck Brokerage and Management segment and the Emergency and Preventative Maintenance segment contributed to the consolidated revenue growth. With the addition of Panther, total non-asset-based segments generated over 20% of third quarter 2012 consolidated revenues. Freight Transportation revenues were 0.7% and 0.5% lower for the three and nine months ended September 30, 2012 compared to the same prior-year periods. The revenue comparisons were impacted by fewer workdays in 2012, and, on a per-day basis, revenues were 0.9% higher in third quarter 2012 and slightly lower during the nine months ended September 30, 2012 compared to the same prior-year periods. The year-over-year changes in Freight Transportation revenues reflect the impact of increases in billed revenue per hundredweight, including fuel surcharges, and decreases in tonnage per day.


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The Company's consolidated operating results and earnings per share primarily represent the operating results of ABF reported as the Freight Transportation segment, which generated 79.0% of the Company's consolidated revenues for the three months ended September 30, 2012. Consolidated operating results and earnings per share for the three and nine months ended September 30, 2012 were impacted by the items identified in the non-GAAP table(1) shown below.

                                             Three Months Ended       Nine Months Ended
                                                September 30             September 30
                                              2012         2011        2012         2011
                                                            ($ thousands)

Operating Income (Loss)
Amounts on a GAAP basis                    $    12,233   $ 21,118   $    (3,553 ) $  8,124
Transaction costs(2)                                 -          -         2,129          -
Operating income (loss), as adjusted       $    12,233   $ 21,118   $    (1,424 ) $  8,124

Net Income (Loss) Attributable to
Arkansas Best Corporation
Amounts on a GAAP basis                    $     6,518   $ 12,265   $       197   $  4,755
Tax benefits(3)                                      -          -        (3,333 )        -
Transaction costs, after-tax(2)                      -          -         1,294          -
Net income (loss) attributable to
Arkansas Best Corporation, as adjusted     $     6,518   $ 12,265   $    (1,842 ) $  4,755

Diluted Earnings (Loss) Per Share
Amounts on a GAAP basis                    $      0.24   $   0.46   $         -   $   0.18
Tax benefits(3)                                      -          -         (0.13 )        -
Transaction costs, after-tax(2)                      -          -          0.05          -
Diluted earnings (loss) per share, as
adjusted                                   $      0.24   $   0.46   $     (0.08 ) $   0.18



(1) The Company reports its financial results in accordance with generally accepted accounting principles ("GAAP"). However, management believes that certain non-GAAP performance measures and ratios utilized for internal analysis provide financial statement users meaningful comparisons between current and prior-period results, as well as important information regarding performance trends. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported results.

(2) Transaction costs associated with the June 15, 2012 acquisition of Panther Expedited Services, Inc. (See Note C to the Company's consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.)

(3) Tax benefits relate to reductions in deferred tax asset valuation allowances. (See the Income Taxes section within MD&A for further discussion of deferred tax valuation allowances.)

The Company's year-to-date 2012 operating results were also impacted by certain items that did not change in accordance with business levels:

$11.1 million increase in costs associated with sales, customer service, and information technology. The Company has invested in additional sales personnel and information technology to enhance customer service levels in the Freight Transportation segment and to more fully develop the Company's non-asset-based businesses.

$8.6 million increase in depreciation and amortization expense. Depreciation expense in the Freight Transportation segment increased in 2012 due to a higher number of road tractors and trailers acquired in 2011 at higher per-unit costs. Depreciation and amortization expense of the Premium Logistics and Expedited Freight Services segment, which totaled $3.0 million since the June 15, 2012 acquisition date, also impacted the 2012 year-to-date results. A substantial portion of Panther's depreciation and amortization reflects acquired software and definite-lived intangible assets based on June 15, 2012 acquisition date fair values.

$5.6 million increase in pension and retirement expenses. The increase in pension and retirement expenses includes higher expenses for the Company's nonunion defined benefit pension plan, resulting from a historically low discount rate used to remeasure plan obligations at December 31, 2011 and lower than expected returns on pension investments in 2011.

$3.9 million increase in workers' compensation claims costs. These costs in the Freight Transportation segment were slightly above the ten-year historical average as a percent of revenue, primarily in first quarter 2012, due to


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increased severity on new and existing claims and the impact of unfavorable experience on the ultimate expected development of claims. Workers' compensation claims costs are accrued when claims are incurred, and, as a result, associated expense may fluctuate depending on the frequency and severity of claims incurred from period to period. Therefore, the higher level of workers' compensation claims costs in the first nine months of 2012 is not indicative of future costs. Third quarter 2012 workers' compensation claims costs were slightly lower than the prior year period costs and the ten-year historical average as a percent of revenue.

In addition to the above items, the consolidated net income comparison for the nine months ended September 30, 2012 versus the same period of 2011 was impacted by $0.7 million higher income from changes in the cash surrender value of life insurance policies. This item contributed $2.3 million of additional income in third quarter 2012 compared to third quarter 2011. A portion of the Company's cash surrender value of variable life insurance policies have investments, through separate accounts, in equity and fixed income securities and, therefore, are subject to market volatility. The Company recognized gains associated with changes in the cash surrender value and proceeds from life insurance policies of $1.0 million and $2.2 million in other income within the consolidated statement of comprehensive income for the three and nine months ended September 30, 2012, compared to a loss of $1.3 million and a gain of $1.5 million for the same prior-year periods, respectively.

Consolidated Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA")

Adjusted EBITDA was relatively consistent for the three-month periods ended September 30 and increased approximately 5% in the nine-month period ended September 30, 2012 versus the same prior year period.

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