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ABFS > SEC Filings for ABFS > Form 10-Q on 9-Aug-2013All Recent SEC Filings

Show all filings for ARKANSAS BEST CORP /DE/ | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for ARKANSAS BEST CORP /DE/


9-Aug-2013

Quarterly Report


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

General

Arkansas Best Corporation (the "Company") is a freight transportation services and integrated logistics solutions provider with five reportable operating segments. 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 are the following non-asset-based businesses:
Premium Logistics and Expedited Freight Services, Truck Brokerage and Management, Emergency and Preventative Maintenance, and Household Goods Moving Services. The Company's non-asset-based segments represent emerging lines of business which provide a complementary set of transportation, logistics, and related solutions to the Freight Transportation segment. (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 prior year's operating segment data and statistics to conform to the current year presentation. Financial and operating information of Global Supply Chain Services and Supply Chain Services, businesses which provide ocean container transport and warehousing services, respectively, have been reclassified from the Freight Transportation segment to "Other and eliminations." There was no impact on consolidated amounts as a result of these reclassifications. Effective July 1, 2013, the Company formed a new operating segment, ABF Logistics, consisting of Global Supply Chain Services, Supply Chain Services, and the Company's transportation brokerage services subsidiary, FreightValue, Inc., which was reported as the Truck Brokerage and Management segment as of June 30, 2013. This strategic realignment of the Company's sales and logistics functions better supports the delivery of these transportation solutions and allows customers to gain greater awareness for these service offerings in an evolving marketplace.

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 consolidated financial statements and the Company's Annual Report on Form 10-K for the year ended December 31, 2012. The Company's 2012 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 2012 Form 10-K is as follows:

We depend on our employees to support our operating businesses and future growth opportunities. If we are unable to reach agreement on a new collective bargaining agreement [and related supplemental agreements] or 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 further disadvantage relative to our competitors.

ABF represented approximately 78% of the Company's total revenues before other revenues and intercompany eliminations for the six months ended June 30, 2013. As of June 2013, approximately 75% of ABF's employees were covered under a collective bargaining agreement, the National Master Freight Agreement (the "NMFA"), with the International Brotherhood of Teamsters (the "IBT"). Prior to the March 31, 2013 expiration of the NMFA, ABF and the IBT agreed to an extension of the collective bargaining agreement under the same terms and conditions of the existing contract. Subsequent and similar extensions were agreed to, the most recent of which is effective through August 31, 2013.

On June 27, 2013, a new collective bargaining agreement, the ABF National Master Freight Agreement (the "2013 ABF NMFA"), was ratified by a majority of ABF's IBT member employees who chose to vote. A majority of the supplements to the 2013 ABF NMFA were also approved. ABF is currently seeking approval of the remaining supplemental agreements. Upon ratification of the remaining supplemental agreements, the 2013 ABF NMFA


Table of Contents

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

would be implemented and remain in effect through March 31, 2018. The primary changes to the labor agreement under the 2013 ABF NMFA include an immediate 7% wage rate reduction from the implementation date through March 31, 2014 followed by wage rate increases of 2% in the next three years and a 2.5% increase in the fifth year of the contract; a one-week reduction in annual compensated vacation effective for anniversary dates on or after April 1, 2013; the option to expand the use of purchased transportation; and increased flexibility in labor work rules. The 2013 ABF NMFA and the related supplemental agreements provide for continued contributions to health, welfare, and pension plans for which the rates would be applied retroactively back to August 1, 2013 and are estimated to increase an average of approximately 3.5% to 4.5% annually over the life of the agreement. Not all of the contract changes would be implemented immediately upon ratification of the remaining supplements, and therefore expected net cost reductions would be realized over time.

In the event the remaining supplemental agreements are not ratified, a work stoppage, the loss of customers, or other events could occur that could have a material adverse effect on the Company's competitive position, results of operations, cash flows, and financial position in 2013 and subsequent years. In the event of a temporary work stoppage, the Company plans to meet its liquidity needs primarily through existing liquidity, cash flows from its non-asset-based operations, available net working capital, funds from the sale or financing of other assets, reduction of spending levels, and elimination of dividends. The Company is also evaluating adjustments to the ABF network that would reduce operating costs on an ongoing basis as further discussed in the ABF Overview section of MD&A.

Results of Operations



Consolidated Results



                                       Three Months Ended            Six Months Ended
                                             June 30                      June 30
                                       2013           2012          2013           2012
                                                        (in thousands)
OPERATING REVENUES
Freight Transportation              $   446,750    $  440,351    $   854,031    $  836,864
Premium Logistics and Expedited
Freight Services                         60,431        10,835        113,683        10,835
Truck Brokerage and Management           16,335        10,021         30,939        18,060
Emergency and Preventative
Maintenance                              32,935        30,101         65,457        52,479
Household Goods Moving Services          21,252        20,479         34,828        35,531
Other and eliminations                     (804 )      (1,244 )       (1,352 )      (2,359 )
Total consolidated operating
revenues                            $   576,899    $  510,543    $ 1,097,586    $  951,410

OPERATING INCOME (LOSS)
Freight Transportation              $     5,497    $    7,621    $   (17,052 )  $  (14,238 )
Premium Logistics and Expedited
Freight Services                          1,506           480            642           480
Truck Brokerage and Management              692           655          1,459         1,049
Emergency and Preventative
Maintenance                                 810           694          1,522           558
Household Goods Moving Services             948           165            717          (626 )
Other and eliminations                   (1,036 )      (2,414 )       (2,222 )      (3,009 )
Total consolidated operating
income (loss)                       $     8,417    $    7,201    $   (14,934 )  $  (15,786 )

NET INCOME (LOSS)                   $     4,878    $   11,841    $    (8,517 )  $   (6,321 )

DILUTED EARNINGS (LOSS) PER
SHARE                               $      0.18    $     0.44    $     (0.33 )  $    (0.25 )

Consolidated revenues for the three and six months ended June 30, 2013 increased 13.0% and 15.4%, respectively, compared to the same prior-year periods, primarily reflecting the revenues of Panther Expedited Services, Inc. which was acquired by the Company on June 15, 2012 and is reported as the Premium Logistics and Expedited Freight Services segment. Higher volume-driven revenues reported by the Truck Brokerage and Management segment and the Emergency


Table of Contents

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

and Preventative Maintenance segment also contributed to the consolidated revenue growth. Total non-asset-based segments generated approximately 22% of total revenues (before other revenues and intercompany eliminations) for the six months ended June 30, 2013. Freight Transportation revenues, which represented 78% of the Company's consolidated revenues (before other revenues and intercompany eliminations), were 1.5% and 2.1% higher for the three and six months ended June 30, 2013, respectively, compared to the same periods in 2012. On a per-day basis, Freight Transportation revenues were 0.7% and 2.9% higher for the three and six months ended June 30, 2013, respectively, compared to the same prior-year periods. The Freight Transportation revenue improvements primarily reflected the impact of an increase in tonnage per day for the three and six months ended June 30, 2013.

Total consolidated operating results for the three and six months ended June 30, 2013 were slightly improved compared to the same prior year periods. Consolidated net income and earnings per share included a tax benefit of $8.0 million for the three months ended June 30, 2012 and $3.3 million for the six months ended June 30, 2012 related to the reversal of previously established deferred tax asset valuation allowances (as further described in the Income Taxes section of MD&A) and transactions costs of $2.1 million (pre-tax) related to the Panther acquisition, the combined effect of which impacted the year-over-year consolidated net income comparison by approximately $0.26 per share for the three month period and $0.08 per share for the six month period. Excluding the effect of these items, the consolidated operating loss, net loss, and per share amounts for the six months ended June 30, 2013 and 2012 primarily reflect the operating results of the Freight Transportation segment which are discussed in further detail within the Freight Transportation Segment sections of Results of Operations.

In June 2013, the Company amended its nonunion defined benefit pension plan, which covers substantially all noncontractual employees hired before January 1, 2006, to freeze the participants' final average compensation and years of credited service as of July 1, 2013 (see Note G to the Company's consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q). The plan amendment resulted in a plan curtailment which reduced the pension liability and the pre-tax unrecognized net actuarial loss of the plan by $46.3 million as of June 30, 2013. The curtailment of the plan had no impact on net periodic benefit cost for the three- and six-month periods ended June 30, 2013. Effective July 1, 2013, service cost of the plan will be eliminated. The Company may incur pension settlement expense for periods subsequent to June 30, 2013 if annual lump sum distributions exceed annual service and interest cost of the plan. The anticipated net reduction in nonunion defined benefit pension expense is expected to be offset, in part, by discretionary contributions under the defined contribution feature of the Company's nonunion defined contribution plan for which the participants of the nonunion defined benefit pension plan who are active employees of the Company became eligible as of July 1, 2013.


Table of Contents

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

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

Consolidated EBITDA increased for the three and six months ended June 30, 2013 versus the same prior-year period, primarily reflecting the cash flow from Panther's operations for the full periods presented for 2013 while the 2012 periods included Panther's results since the June 15, 2012 acquisition date. Improved operating results of the other non-asset-based segments also contributed to the consolidated EBITDA increases for the three and six months ended June 30, 2013.

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