Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x      Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended  March 31, 2013

 

o         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 000-19969

 

ARKANSAS BEST CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

71-0673405

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

3801 Old Greenwood Road

Fort Smith, Arkansas 72903

(479) 785-6000

(Address, including zip code, and telephone number, including

area code, of the registrant’s principal executive offices)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report.)

 

Indicate by check mark whether the 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 such 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.  x Yes  o  No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  x Yes  o  No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o Yes  x No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at May 3, 2013

Common Stock, $0.01 par value

 

25,709,926 shares

 

 

 



Table of Contents

 

ARKANSAS BEST CORPORATION

 

INDEX

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets —
March 31, 2013 and December 31, 2012

3

 

 

 

 

Consolidated Statements of Operations —
For the Three Months Ended March 31, 2013 and 2012

4

 

 

 

 

Consolidated Statements of Comprehensive Income —
For the Three Months Ended March 31, 2013 and 2012

5

 

 

 

 

Consolidated Statement of Stockholders’ Equity —
For the Three Months Ended March 31, 2013

6

 

 

 

 

Consolidated Statements of Cash Flows —
For the Three Months Ended March 31, 2013 and 2012

7

 

 

 

 

Notes to Consolidated Financial Statements

8

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

44

 

 

 

Item 4.

Controls and Procedures

44

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

45

 

 

 

Item 1A.

Risk Factors

45

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

45

 

 

 

Item 3.

Defaults Upon Senior Securities

45

 

 

 

Item 4.

Mine Safety Disclosures

45

 

 

 

Item 5.

Other Information

45

 

 

 

Item 6.

Exhibits

46

 

 

 

SIGNATURES

 

47

 



Table of Contents

 

PART I.

FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

ARKANSAS BEST CORPORATION

CONSOLIDATED BALANCE SHEETS

 

 

 

March

 

December 31

 

 

 

2013

 

2012

 

 

 

(Unaudited)

 

 

 

 

 

(in thousands, except share data)

 

ASSETS

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

75,071

 

$

90,702

 

Short-term investments

 

29,891

 

29,054

 

Restricted cash, cash equivalents, and short-term investments

 

5,904

 

9,658

 

Accounts receivable, less allowances (2013 – $5,360; 2012 – $5,249)

 

190,036

 

180,631

 

Other accounts receivable, less allowances (2013 – $1,376; 2012 – $1,334)

 

6,011

 

6,539

 

Prepaid expenses

 

19,397

 

17,355

 

Deferred income taxes

 

37,302

 

39,245

 

Prepaid and refundable income taxes

 

7,851

 

5,681

 

Other

 

7,288

 

7,185

 

TOTAL CURRENT ASSETS

 

378,751

 

386,050

 

 

 

 

 

 

 

PROPERTY, PLANT AND EQUIPMENT

 

 

 

 

 

Land and structures

 

243,990

 

243,699

 

Revenue equipment

 

588,809

 

589,729

 

Service, office, and other equipment

 

119,642

 

119,456

 

Software

 

105,164

 

103,164

 

Leasehold improvements

 

23,357

 

23,272

 

 

 

1,080,962

 

1,079,320

 

Less allowances for depreciation and amortization

 

653,862

 

635,292

 

 

 

427,100

 

444,028

 

 

 

 

 

 

 

GOODWILL

 

75,032

 

73,189

 

 

 

 

 

 

 

INTANGIBLE ASSETS, net

 

78,518

 

79,561

 

 

 

 

 

 

 

OTHER ASSETS

 

51,994

 

51,634

 

 

 

$

1,011,395

 

$

1,034,462

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

Bank overdraft and drafts payable

 

$

11,737

 

$

13,645

 

Accounts payable

 

84,966

 

84,292

 

Income taxes payable

 

75

 

59

 

Accrued expenses

 

167,848

 

158,668

 

Current portion of long-term debt

 

39,861

 

43,044

 

TOTAL CURRENT LIABILITIES

 

304,487

 

299,708

 

 

 

 

 

 

 

LONG-TERM DEBT, less current portion

 

105,169

 

112,941

 

 

 

 

 

 

 

PENSION AND POSTRETIREMENT LIABILITIES

 

105,922

 

104,673

 

 

 

 

 

 

 

OTHER LIABILITIES

 

12,366

 

12,832

 

 

 

 

 

 

 

DEFERRED INCOME TAXES

 

35,858

 

45,309

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

Common stock, $0.01 par value, authorized 70,000,000 shares; issued 2013: 27,307,505 shares; 2012: 27,296,285 shares

 

273

 

273

 

Additional paid-in capital

 

290,776

 

289,711

 

Retained earnings

 

269,955

 

284,157

 

Treasury stock, at cost, 1,677,932 shares

 

(57,770

)

(57,770

)

Accumulated other comprehensive loss

 

(55,641

)

(57,372

)

TOTAL STOCKHOLDERS’ EQUITY

 

447,593

 

458,999

 

 

 

$

1,011,395

 

$

1,034,462

 

 

See notes to consolidated financial statements.

 

3



Table of Contents

 

ARKANSAS BEST CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

Three Months Ended

 

 

 

March 31

 

 

 

2013

 

2012

 

 

 

(Unaudited)

 

 

 

(in thousands, except share and per share data)

 

 

 

 

 

 

 

OPERATING REVENUES

 

$

520,687

 

$

440,867

 

 

 

 

 

 

 

OPERATING EXPENSES AND COSTS

 

544,037

 

463,854

 

 

 

 

 

 

 

OPERATING LOSS

 

(23,350

)

(22,987

)

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

Interest and dividend income

 

171

 

253

 

Interest expense and other related financing costs

 

(1,207

)

(1,142

)

Other, net

 

1,083

 

1,340

 

 

 

47

 

451

 

 

 

 

 

 

 

LOSS BEFORE INCOME TAXES

 

(23,303

)

(22,536

)

 

 

 

 

 

 

INCOME TAX BENEFIT

 

(9,908

)

(4,374

)

 

 

 

 

 

 

NET LOSS

 

$

(13,395

)

$

(18,162

)

 

 

 

 

 

 

LOSS PER COMMON SHARE

 

 

 

 

 

Basic

 

$

(0.52

)

$

(0.71

)

Diluted

 

$

(0.52

)

$

(0.71

)

 

 

 

 

 

 

AVERAGE COMMON SHARES OUTSTANDING

 

 

 

 

 

Basic

 

25,638,333

 

25,455,607

 

Diluted

 

25,638,333

 

25,455,607

 

 

 

 

 

 

 

CASH DIVIDENDS DECLARED PER COMMON SHARE

 

$

0.03

 

$

0.03

 

 

See notes to consolidated financial statements.

 

4



Table of Contents

 

ARKANSAS BEST CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

 

Three Months Ended

 

 

 

March 31

 

 

 

2013

 

2012

 

 

 

(Unaudited)

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

NET LOSS

 

$

(13,395

)

$

(18,162

)

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME, net of tax

 

 

 

 

 

Amortization of unrecognized net periodic benefit costs, net of tax of (2013 – $1,114; 2012 – $1,089):

 

 

 

 

 

Net actuarial loss

 

1,779

 

1,739

 

Prior service credit

 

(29

)

(29

)

Change in foreign currency translation, net of tax of (2013 – $11; 2012 – $8)

 

(19

)

13

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME, net of tax

 

1,731

 

1,723

 

 

 

 

 

 

 

TOTAL COMPREHENSIVE LOSS

 

$

(11,664

)

$

(16,439

)

 

See notes to consolidated financial statements.

 

5



Table of Contents

 

ARKANSAS BEST CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

Other

 

 

 

 

 

Common Stock

 

Paid-In

 

Retained

 

Treasury Stock

 

Comprehensive

 

Total

 

 

 

Shares

 

Amount

 

Capital

 

Earnings

 

Shares

 

Amount

 

Loss

 

Equity

 

 

 

(Unaudited)

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2012

 

27,296

 

$

273

 

$

289,711

 

$

284,157

 

1,678

 

$

(57,770

)

$

(57,372

)

$

458,999

 

Net loss

 

 

 

 

 

 

 

(13,395

)

 

 

 

 

 

 

(13,395

)

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

1,731

 

1,731

 

Issuance of common stock under share-based compensation plans

 

12

 

 

 

 

 

 

 

 

 

 

 

 

Tax effect of share-based compensation plans and other

 

 

 

 

 

(238

)

 

 

 

 

 

 

 

 

(238

)

Share-based compensation expense

 

 

 

 

 

1,303

 

 

 

 

 

 

 

 

 

1,303

 

Dividends declared on common stock

 

 

 

 

 

 

 

(807

)

 

 

 

 

 

 

(807

)

Balances at March 31, 2013

 

27,308

 

$

273

 

$

290,776

 

$

269,955

 

1,678

 

$

(57,770

)

$

(55,641

)

$

447,593

 

 

See notes to consolidated financial statements.

 

6



Table of Contents

 

ARKANSAS BEST CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Three Months Ended

 

 

 

March 31

 

 

 

2013

 

2012

 

 

 

(Unaudited)

 

 

 

(in thousands)

 

OPERATING ACTIVITIES

 

 

 

 

 

Net loss

 

$

(13,395

)

$

(18,162

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

Depreciation and amortization

 

22,150

 

19,320

 

Amortization of intangibles

 

1,043

 

 

Share-based compensation expense

 

1,303

 

1,442

 

Provision for losses on accounts receivable

 

969

 

275

 

Deferred income tax benefit

 

(8,756

)

(4,301

)

Gain on sale of property and equipment

 

(212

)

(285

)

Changes in operating assets and liabilities:

 

 

 

 

 

Receivables

 

(9,886

)

(859

)

Prepaid expenses

 

(2,042

)

(1,621

)

Other assets

 

(964

)

(96

)

Income taxes

 

(1,548

)

1,793

 

Accounts payable, accrued expenses, and other liabilities

 

11,124

 

7,371

 

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

 

(214

)

4,877

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

Purchases of property, plant and equipment

 

(3,440

)

(2,388

)

Proceeds from sale of property and equipment

 

842

 

1,315

 

Purchases of short-term investments

 

(3,752

)

(14,335

)

Proceeds from sale of short-term investments

 

2,940

 

3,185

 

Capitalization of internally developed software and other

 

(2,090

)

(1,618

)

NET CASH USED IN INVESTING ACTIVITIES

 

(5,500

)

(13,841

)

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

Payments on long-term debt

 

(10,955

)

(6,075

)

Net change in bank overdraft and other

 

(1,909

)

(10,056

)

Net change in restricted cash, cash equivalents, and short-term investments

 

3,754

 

23,149

 

Deferred financing costs

 

 

(36

)

Payment of common stock dividends

 

(807

)

(797

)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

 

(9,917

)

6,185

 

 

 

 

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

(15,631

)

(2,779

)

Cash and cash equivalents at beginning of period

 

90,702

 

141,295

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

75,071

 

$

138,516

 

 

 

 

 

 

 

NONCASH INVESTING ACTIVITIES

 

 

 

 

 

Accruals for equipment received

 

$

173

 

$

2,060

 

 

See notes to consolidated financial statements.

 

7



Table of Contents

 

ARKANSAS BEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

NOTE A — ORGANIZATION AND DESCRIPTION OF THE BUSINESS AND FINANCIAL STATEMENT PRESENTATION

 

Arkansas Best Corporation (the “Company”), the parent holding company, is a freight transportation services and integrated logistics 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 are Premium Logistics and Expedited Freight Services, Truck Brokerage and Management, Emergency and Preventative Maintenance, and Household Goods Moving Services (see Note K).

 

ABF represented approximately 78% of the Company’s total revenues before other revenues and intercompany eliminations for first quarter 2013. As of March 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”), which extended through March 31, 2013. Prior to expiration of the collective bargaining agreement, ABF and the IBT agreed to a 30-day extension of the contract under the same terms and conditions of the existing NMFA. A subsequent and similar extension was agreed to which is effective through May 31, 2013. On May 3, 2013, ABF and the IBT reached a tentative five-year collective bargaining agreement which is currently subject to ratification by a majority of ABF’s IBT member employees who choose to vote. In the event ABF’s union employees do not ratify the tentative collective bargaining agreement, 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.

 

On June 15, 2012, the Company acquired 100% of the common stock of Panther Expedited Services, Inc. (“Panther”), which is reported as the Premium Logistics and Expedited Freight Services segment (see Note K). The fair value measurements related to Panther reflected in the accompanying consolidated financial statements are preliminary, as fair values of acquired assets and liabilities are subject to revision during the measurement period if information becomes available that warrants further adjustments. See Note C for further discussion of the Panther acquisition.

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and applicable rules and regulations of the Securities and Exchange Commission (the “Commission”) pertaining to interim financial information. Accordingly, these interim financial statements do not include all information or footnote disclosures required by accounting principles generally accepted in the United States for complete financial statements and, therefore, should be read in conjunction with the audited financial statements and accompanying notes included in the Company’s 2012 Annual Report on Form 10-K and other current filings with the Commission. In the opinion of management, all adjustments (which are of a normal and recurring nature) considered necessary for a fair presentation have been included.

 

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 reported amounts of assets and liabilities, the disclosed amounts of contingent liabilities, and the reported amounts of revenues and expenses. If the underlying estimates and assumptions upon which the financial statements and accompanying notes are based change in future periods, actual amounts may differ from those included in the accompanying consolidated financial statements.

 

8



Table of Contents

 

ARKANSAS BEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — continued

 

NOTE B — FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

 

Financial Instruments

 

The following table presents the components of cash and cash equivalents, short-term investments, and restricted funds:

 

 

 

March 31

 

December 31

 

 

 

2013

 

2012

 

 

 

(in thousands)

 

Cash and cash equivalents

 

 

 

 

 

Cash deposits(1)

 

$

39,715

 

$

48,293

 

Variable rate demand notes(1)(2)

 

29,855

 

29,807

 

Money market funds(3)

 

5,501

 

12,602

 

 

 

$

75,071

 

$

90,702

 

 

 

 

 

 

 

Short-term investments

 

 

 

 

 

Certificates of deposit(1)

 

$

29,891

 

$

29,054

 

 

 

 

 

 

 

Restricted cash, cash equivalents, and short-term investments(4)

 

 

 

 

 

Cash deposits(1)

 

$

5,904

 

$

5,901

 

Certificates of deposit(1)

 

 

3,757

 

 

 

$

5,904

 

$

9,658

 

 


(1)         Recorded at cost plus accrued interest, which approximates fair value.

(2)         Amounts may be redeemed on a daily basis with the original issuer.

(3)         Recorded at fair value as determined by quoted market prices (see amounts presented in the table of financial assets measured at fair value within this Note).

(4)         Amounts restricted for use are subject to change based on the requirements of the Company’s collateralized facilities (see Note F).

 

The Company’s long-term investment financial instruments are presented in the table of financial assets measured at fair value within this Note.

 

Concentrations of Credit Risk of Financial Instruments

 

The Company is potentially subject to concentrations of credit risk related to its cash, cash equivalents, and short-term investments. The Company reduces credit risk by placing its cash, cash equivalents, and short-term investments with major financial institutions and corporate issuers that have high credit ratings and by investing unrestricted short-term investments primarily in FDIC-insured certificates of deposit with varying original maturities of ninety-one days to one year. However, certain cash deposits and certificates of deposit, including those pledged as collateral for outstanding letters of credit (see Note F), may exceed federally insured limits. At March 31, 2013 and December 31, 2012, cash, cash equivalents, and certificates of deposit of $49.8 million and $53.8 million, respectively, were not FDIC insured.

 

Fair Value Disclosure of Financial Instruments

 

Fair value disclosures are made in accordance with the following hierarchy of valuation techniques based on whether the inputs of market data and market assumptions used to measure fair value are observable or unobservable:

 

·                  Level 1 — Quoted prices for identical assets and liabilities in active markets.

·                  Level 2 — Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

·                  Level 3 — Unobservable inputs (Company’s market assumptions) that are significant to the valuation model.

 

9



Table of Contents

 

ARKANSAS BEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — continued

 

The fair value of the Company’s Term Loan and note payable debt obligations (see Note F) approximate the amounts recorded in the consolidated balance sheets as presented in the following table:

 

 

 

March 31

 

December 31

 

 

 

2013

 

2012

 

 

 

(in thousands)

 

 

 

Carrying

 

Fair

 

Carrying

 

Fair

 

 

 

Value

 

Value

 

Value

 

Value

 

Term loan(1)

 

$

92,500

 

$

92,500

 

$

95,000

 

$

95,000

 

Notes payable(2)

 

34,080

 

34,042

 

37,756

 

37,904

 

 

 

$

126,580

 

$

126,542

 

$

132,756

 

$

132,904

 

 


(1)         The Term Loan, which was entered into on June 15, 2012, carries a variable interest rate based on LIBOR, plus a margin, that is considered to be priced at market for debt instruments having similar terms and collateral requirements (Level 2 of the fair value hierarchy).

(2)         Fair value of the notes payable was determined using a present value income approach based on quoted interest rates from lending institutions with which the Company would enter into similar transactions (Level 2 of the fair value hierarchy).

 

Financial Assets Measured at Fair Value

 

The following table presents the assets that are measured at fair value on a recurring basis, based upon quoted prices for identical assets in active markets (Level 1 of the fair value hierarchy):

 

 

 

March 31

 

December 31

 

 

 

2013

 

2012

 

 

 

(in thousands)

 

 

 

 

 

 

 

Money market funds(1)

 

$

5,501

 

$

12,602

 

Equity, bond, and money market mutual funds held in trust related to the Voluntary Savings Plan(2)

 

2,520

 

3,035

 

 

 

$

8,021

 

$

15,637

 

 


(1)         Included in cash and cash equivalents.

(2)         Nonqualified deferred compensation plan investments consist of U.S. and international equity mutual funds, government and corporate bond mutual funds, and money market funds which are held in a trust with a third-party brokerage firm. Quoted market prices are used to determine fair values of the investments which are included in other long-term assets, with a corresponding liability reported within other long-term liabilities.

 

NOTE C — ACQUISITION

 

On June 15, 2012, the Company acquired 100% of the common stock of Panther for $180.0 million in cash, net of cash acquired. The acquisition was funded with cash on hand and a $100.0 million secured Term Loan (see Note F). The results of Panther’s operations subsequent to the acquisition date have been included in the accompanying consolidated financial statements. The acquisition of Panther enhances the Company’s end-to-end logistics solutions and expands the Company’s customer base and business diversification. Panther is reported as the Premium Logistics and Expedited Freight Services operating segment (see Note K).

 

10



Table of Contents

 

ARKANSAS BEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — continued

 

The following table summarizes the estimated fair values of the acquired assets and liabilities at the acquisition date. The Company is in the process of making a final determination of acquired assets and liabilities, with remaining matters primarily relating to net operating loss carryovers and certain other items; thus, the provisional measurements are subject to change. A measurement period adjustment was recorded to Panther’s goodwill during the three months ended March 31, 2013 as presented in Note D.

 

 

 

Preliminary

 

 

 

Allocation

 

 

 

(in thousands)

 

 

 

 

 

Accounts receivable

 

$

31,824

 

Prepaid expenses

 

5,205

 

Deferred income taxes

 

1,796

 

Property and equipment (excluding acquired software)

 

5,678

 

Software

 

31,600

 

Intangible assets

 

79,000

 

Other assets

 

3,866

 

Total identifiable assets acquired

 

158,969

 

 

 

 

 

Accounts payable

 

13,344

 

Accrued expenses and other current liabilities

 

7,436

 

Other liabilities

 

228

 

Deferred income taxes

 

29,294

 

Total liabilities

 

50,302

 

 

 

 

 

Net identifiable assets acquired

 

108,667

 

Goodwill

 

71,372

 

Cash paid, net of cash acquired

 

$

180,039

 

 

The estimated fair value of accounts receivable acquired was $31.8 million, having a gross contractual amount of $32.3 million as of June 15, 2012 and $0.5 million expected by the Company to be uncollectible. The value assigned to acquired software reflects estimated reproduction costs, less an obsolescence allowance. The recorded amount of acquired software is expected to be amortized on a straight-line basis over seven years. Software is included within property, plant and equipment in the Company’s consolidated balance sheets. See Note D for further discussion of acquired goodwill and intangibles.

 

The following unaudited pro forma supplemental information presents the Company’s consolidated results of operations for the three months ended March 31, 2012 (presented in thousands, except per share data) as if the Panther acquisition had occurred on January 1, 2011:

 

Revenue

 

$

492,597

 

Loss before income taxes

 

$

(22,600

)

Net loss

 

$

(13,562

)

Diluted EPS

 

$

(0.53

)

 

The pro forma results of operations are based on historical information adjusted to include the pro forma effect of applying the Company’s accounting policies; eliminating sales transactions between the Company and Panther; adjusting amortization expense for the estimated acquired fair value and the amortization periods of software and intangible assets; adjusting interest expense and interest income for the financing of the acquisition; eliminating transaction expenses related to the acquisition; and the related tax effects of these adjustments. The pro forma information has also been adjusted for the impact on the income tax provision or benefit, as applicable, resulting from changes in deferred tax asset valuation allowances which were primarily attributable to the Panther acquisition. As a result, the pro forma information excludes $4.7 million ($0.18 per share) of deferred tax valuation allowances (see Note E). The pro forma information is presented for

 

11



Table of Contents

 

ARKANSAS BEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — continued

 

illustrative purposes only and does not reflect either the realization of potential cost savings or any related integration costs. Certain business synergies and cost savings may result from the Panther acquisition, although there can be no assurance these will be achieved. This pro forma information does not purport to be indicative of the results that would have actually been obtained if the acquisition had occurred as of the date indicated, nor does the pro forma information intend to be a projection of results that may be obtained in the future.

 

NOTE D — GOODWILL AND INTANGIBLE ASSETS

 

Goodwill represents the excess of cost over the fair value of net identifiable tangible and intangible assets acquired. Goodwill by reportable operating segment consisted of the following:

 

 

 

 

 

Premium Logistics

 

 

 

 

 

Household Goods

 

and Expedited

 

 

 

 

 

Moving Services

 

Freight Services

 

Total

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

Balance December 31, 2012

 

$

3,660

 

$

69,529

 

$

73,189

 

Purchase accounting adjustment — Panther

 

 

1,843

 

1,843

 

Balance March 31, 2013

 

$

3,660

 

$

71,372

 

$

75,032

 

 

Goodwill associated with the Panther acquisition was attributable primarily to intangible assets that do not qualify for separate recognition, an assembled workforce, and the recognition of deferred tax liabilities for the acquired intangible assets, including software, which are not deductible for income tax purposes. A substantial portion of the goodwill is not deductible for income tax purposes. The fair value of goodwill associated with the Panther acquisition is preliminary and could change until the final determination of value has been completed, with remaining matters primarily relating to net operating loss carryovers and certain other items.

 

Intangible assets consisted of the following as of March 31, 2013:

 

 

 

Weighted Average

 

 

 

Accumulated

 

Net

 

 

 

Amortization Period

 

Cost

 

Amortization

 

Value

 

 

 

(in years)

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Finite-lived intangible assets

 

 

 

 

 

 

 

 

 

Customer relationships

 

14

 

$

43,500

 

$

2,460

 

$

41,040

 

Driver network

 

3

 

3,200

 

844

 

2,356

 

 

 

13

 

46,700

 

3,304

 

43,396

 

 

 

 

 

 

 

 

 

 

 

Indefinite-lived intangible assets

 

 

 

 

 

 

 

 

 

Trade name

 

N/A

 

32,300

 

N/A

 

32,300

 

Other

 

N/A

 

2,822

 

N/A

 

2,822

 

 

 

 

 

35,122

 

N/A

 

35,122

 

Total intangible assets

 

N/A

 

$

81,822

 

$

3,304

 

$

78,518

 

 

Intangible assets, except for the $2.8 million of other indefinite-lived assets, were acquired in conjunction with the June 2012 acquisition of Panther. Intangible amortization expense totaled $1.0 million (all of which pertained to the intangibles acquired in the Panther acquisition) for the three-month period ended March 31, 2013. Amortization expense on intangible assets (excluding acquired software which is reported within property, plant and equipment) is expected to approximate $4 million for 2013 and is anticipated to range between $3 million and $4 million per year for 2014 through 2017. Acquired software is expected to be amortized on a straight-line basis over seven years, resulting in approximately $5 million of annual amortization expense for 2013 through 2017, which is reported within depreciation expense.

 

12



Table of Contents

 

ARKANSAS BEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — continued

 

NOTE E — INCOME TAXES

 

The Company’s statutory federal tax rate is 35%. State tax rates vary among states and average approximately 6.0% to 6.5%, although some state rates are higher and a small number of states do not impose an income tax. Due primarily to the alternative fuel tax credit, the effective tax benefit rate for the three months ended March 31, 2013 was 42.5%. The effective tax benefit rate for the three months ended March 31, 2012 was 19.4%, reflecting a valuation allowance for deferred tax assets of $4.7 million based on management’s conclusion during first quarter 2012 that a part of federal deferred tax assets was not more likely than not to be realized.

 

A reconciliation of the 2013 and 2012 rates to the statutory federal rates is shown in the table within this Note. Due to the retroactive reinstatement in January 2013 of the alternative fuel tax credit that had previously expired on December 31, 2011, the $0.9 million benefit of the 2012 credit and the $0.3 million benefit of the first quarter 2013 credit were recognized in the first quarter of 2013. In addition to the effect of the alternative fuel tax credit on the effective tax benefit rate in 2013, for both 2013 and 2012, the difference between the Company’s effective tax rate and the federal statutory rate primarily results from state income taxes, nondeductible expenses, changes in the cash surrender value of life insurance and policy proceeds, and changes in valuation allowances for deferred tax assets.

 

As of March 31, 2013, the Company’s deferred tax assets exceeded the deferred tax liabilities which will reverse in future years. The Company evaluated the total deferred tax assets at March 31, 2013 and concluded that, other than for certain deferred tax assets related to foreign tax credits or certain state tax benefits, the assets did not exceed the amount for which realization is more likely than not. In making this determination, the Company considered the future reversal of existing taxable temporary differences, taxable income in carryback years, future taxable income, and tax planning strategies. For example, certain expense components that generate deferred tax assets are eligible for a significantly longer carryback period if the Company so elects. Because there is sufficient taxable income in the longer carryback period, the assets related to these expense items are expected to be fully realized. Also, taking into account the changes in capitalization as a result of its June 2012 acquisition (see Note C), Panther would have had substantial taxable income that would have exceeded the Company’s taxable loss in recent years.

 

During the three months ended March 31, 2013, the Company received no refunds of federal or state income taxes, and the Company paid state and foreign income taxes of $0.5 million.

 

Reconciliation between the effective income tax rate, as computed on loss before income taxes, and the statutory federal income tax rate for the three months ended March 31, 2013 and 2012 is presented in the following table:

 

 

 

Three Months Ended

 

 

 

March 31

 

 

 

2013

 

2012

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Income tax benefit at the statutory federal rate

 

$

(8,156

)

(35.0

)%

$

(7,888

)

(35.0

)%

Federal income tax effects of:

 

 

 

 

 

 

 

 

 

Increase in valuation allowances

 

312

 

1.3

 

4,660

 

20.7

 

Alternative fuel tax credit

 

(1,180

)

(5.0

)

 

 

Effect of permanent differences and other

 

18

 

0.1

 

(235

)

(1.0

)

State income taxes

 

(902

)

(3.9

)

(911

)

(4.1

)

Total income tax benefit

 

$

(9,908

)

(42.5

)%

$

(4,374

)

(19.4

)%

 

13



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ARKANSAS BEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — continued

 

NOTE F — LONG-TERM DEBT AND FINANCING ARRANGEMENTS

 

Long-Term Debt Obligations

 

Long-term debt consisted of a Term Loan under the Credit Agreement further described in Financing Arrangements within this Note and notes payable and capital lease obligations related to the financing of revenue equipment (tractors and trailers used primarily in ABF’s operations), real estate, and certain other equipment as follows:

 

 

 

March 31

 

December 31

 

 

 

2013

 

2012

 

 

 

(in thousands)

 

 

 

 

 

 

 

Term Loan (interest rate of 1.7% at March 31, 2013)

 

$

92,500

 

$

95,000

 

Notes payable (weighted average interest rate of 3.0% at March 31, 2013)

 

34,080

 

37,756

 

Capital lease obligations (weighted average interest rate of 4.4% at March 31, 2013)

 

18,450

 

23,229

 

 

 

145,030

 

155,985

 

Less current portion

 

39,861

 

43,044

 

Long-term debt, less current portion

 

$

105,169

 

$

112,941

 

 

Scheduled maturities of long-term debt obligations as of March 31, 2013 were as follows:

 

 

 

 

 

Term

 

Notes

 

Capital Lease

 

 

 

Total

 

Loan(1)

 

Payable

 

Obligations(2)

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Due in one year or less

 

$

42,771

 

$

13,434

 

$

16,728

 

$

12,609

 

Due after one year through two years

 

32,802

 

15,796

 

14,227

 

2,779

 

Due after two years through three years

 

25,679

 

18,184

 

4,282

 

3,213

 

Due after three years through four years

 

18,872

 

18,658

 

 

214

 

Due after four years through five years

 

32,306

 

32,085

 

 

221

 

Due after five years

 

421

 

 

 

421

 

Total payments

 

152,851

 

98,157

 

35,237

 

19,457

 

Less amounts representing interest

 

7,821

 

5,657

 

1,157

 

1,007

 

Long-term debt

 

$

145,030

 

$

92,500

 

$

34,080

 

$

18,450

 

 


(1)         The future interest payments included in the scheduled maturities due under the Term Loan are calculated using variable interest rates based on the LIBOR swap curve, plus the anticipated applicable margin (see Term Loan within the Financing Arrangements section of this Note).

(2)         Minimum payments of capital lease obligations include maximum amounts due under rental adjustment clauses contained in the capital lease agreements.

 

Assets securitized by notes payable or held under capital leases were included in property, plant and equipment as follows:

 

 

 

March 31

 

December 31

 

 

 

2013

 

2012

 

 

 

(in thousands)

 

 

 

 

 

 

 

Land and structures (terminals)

 

$

1,794

 

$

1,794

 

Revenue equipment

 

81,588

 

93,004

 

Service, office, and other equipment

 

1,503

 

1,813

 

 

 

84,885

 

96,611

 

Less accumulated amortization(1)

 

31,689

 

35,183

 

Net assets securitized by notes payable or held under capital leases

 

$

53,196

 

$

61,428

 

 


(1)         Amortization of assets under capital leases and notes payable is included in depreciation expense.

 

14



Table of Contents

 

ARKANSAS BEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — continued

 

Financing Arrangements

 

Term Loan

 

The Company has a credit agreement (the “Credit Agreement”) with a syndicate of financial institutions. Pursuant to the Credit Agreement, a five-year, $100.0 million secured term loan (the “Term Loan”) was provided to finance a portion of the cost of the acquisition of Panther (see Note C). The Credit Agreement also provides the Company with the right to request revolving commitments thereunder up to an aggregate amount of $75.0 million, subject to the satisfaction of certain additional conditions provided in the agreement. There have been no borrowings under the revolving commitments. The Term Loan is secured by a lien on certain of the Company’s assets and pledges of the equity interests in certain subsidiaries (with these assets and subsidiaries defined in the Credit Agreement). The Term Loan requires quarterly principal payments and monthly interest payments, with remaining amounts outstanding due upon the maturity date of June 15, 2017. Borrowings under the Term Loan can be repaid in whole or in part at any time, without penalty, subject to required notice periods and compliance with minimum prepayment amounts. The Term Loan allows for the election of interest at a base rate or LIBOR plus a margin based on the adjusted leverage ratio, as defined, which is measured at the end of each fiscal quarter. The Credit Agreement contains conditions, representations and warranties, events of default, and indemnification provisions that are customary for financings of this type including, but not limited to, a minimum fixed charge coverage ratio, a maximum adjusted leverage ratio, and limitations on incurrence of debt, investments, liens on assets, transactions with affiliates, mergers, consolidations, and purchases and sales of assets. As of March 31, 2013, the Company was in compliance with the covenants. For the reporting period ended March 31, 2013, the Company’s fixed charge coverage ratio was 1.5 to 1.0, compared to the minimum ratio required by the Credit Agreement of 1.25 to 1.0.

 

Accounts Receivable Securitization Program

 

The Company has an accounts receivable securitization program with PNC Bank which provides for cash proceeds of an amount up to $75.0 million. Under this facility, which matures on June 15, 2015, certain subsidiaries of the Company continuously sell a designated pool of trade accounts receivables to a wholly owned subsidiary which, in turn, may borrow funds on a revolving basis. This wholly owned consolidated subsidiary is a separate bankruptcy-remote entity, and its assets would be available only to satisfy the claims related to the lender’s interest in the trade accounts receivables. Advances under the facility bear interest based upon LIBOR, plus a margin, and an annual facility fee. The securitization agreement contains representations and warranties, affirmative and negative covenants, and events of default that are customary for financings of this type, including a maximum adjusted leverage ratio covenant. As of March 31, 2013, the Company was in compliance with the covenants. There have been no borrowings under this facility.

 

The accounts receivable securitization program includes a provision under which the Company may request and the letter of credit issuer may issue standby letters of credit, primarily in support of workers’ compensation and third-party casualty claims liabilities in various states in which the Company is self-insured. The outstanding standby letters of credit reduce the availability of borrowings under the facility. As of March 31, 2013, standby letters of credit of $19.8 million have been issued under the facility, which reduced the available borrowing capacity to $55.2 million.

 

As previously discussed in Note A, ABF and the IBT reached a tentative five-year collective bargaining agreement which is currently subject to ratification by a majority of ABF’s IBT member employees who choose to vote. Until a collective bargaining agreement for the contract period subsequent to March 31, 2013 is in place, the accounts receivable securitization program requires the Company to maintain $50.0 million of available liquidity, which may consist of unrestricted cash, cash equivalents, and short-term investments on hand, available borrowing capacity under the accounts receivable securitization facility, or any other revolving liquidity facility of the Company. The Company has maintained compliance with this provision, and had $160.2 million of available liquidity, as defined, as of March 31, 2013.

 

Letter of Credit Agreements

 

The Company has agreements with certain financial institutions to provide collateralized facilities for the issuance of letters of credit (“LC Agreements”). These financial institutions issue letters of credit on behalf of the Company primarily in support of the self-insurance program previously discussed within this Note. The Company pays quarterly fees to the financial institutions based on the amount of letters of credit outstanding. The LC Agreements contain no financial ratios or financial covenants which the Company is required to maintain. The LC Agreements require cash or short-term investments to be pledged as collateral for outstanding letters of credit. As of March 31, 2013, the Company had letters of credit

 

15



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ARKANSAS BEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — continued

 

outstanding of $26.3 million (including $19.8 million which were issued under the accounts receivable securitization facility previously described within this Note), of which $5.9 million were collateralized by restricted cash under the LC Agreements. The Company had up to $69.1 million available as of March 31, 2013 for issuance of letters of credit, subject to the Company’s compliance with the requirements of issuance.

 

The Company has programs in place with multiple surety companies for the issuance of partially secured or unsecured surety bonds in support of the self-insurance program previously discussed within this Note. As of March 31, 2013, surety bonds outstanding related to the collateralized self-insurance program totaled $13.8 million, which were collateralized by letters of credit of $3.8 million issued under the previously described accounts receivable securitization facility. Under separate uncollateralized bond programs, surety bonds outstanding related to the Company’s self-insurance program totaled $41.2 million as of March 31, 2013.

 

NOTE G — PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

 

Nonunion Defined Benefit Pension, Supplemental Benefit Pension, and Postretirement Health Benefit Plans

 

The following is a summary of the components of net periodic benefit cost:

 

 

 

Three Months Ended March 31

 

 

 

Nonunion Defined

 

Supplemental

 

Postretirement

 

 

 

Benefit Pension Plan

 

Benefit Pension Plan

 

Health Benefit Plan

 

 

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

 

 

(in thousands)

 

Service cost

 

$

2,367

 

$

2,297

 

$

 

$

 

$

83

 

$

79

 

Interest cost

 

1,923

 

2,173

 

37

 

52

 

188

 

187

 

Expected return on plan assets

 

(3,154

)

(3,016

)

 

 

 

 

Amortization of prior service credit

 

 

 

 

 

(48

)

(48

)

Amortization of net actuarial loss and other

 

2,713

 

2,692

 

65

 

51

 

134

 

104

 

Net periodic benefit cost

 

$

3,849

 

$

4,146

 

$

102

 

$

103

 

$

357

 

$

322

 

 

In April 2013, the Company made a $3.0 million contribution to its nonunion defined benefit pension plan. Based upon currently available actuarial information, the Company’s required minimum contribution to its nonunion defined benefit pension plan for the 2013 plan year is estimated to be $9.1 million. The Company could make contributions in excess of the required minimum during 2013, depending on all relevant factors. The plan had a preliminary adjusted funding target attainment percentage (“AFTAP”) of 92% as of the January 1, 2013 valuation date. The AFTAP is determined by measurements prescribed by the IRC, which differ from the funding measurements for financial statement reporting purposes.

 

The Company’s nonunion defined benefit pension plan covers substantially all noncontractual employees hired before January 1, 2006. All eligible noncontractual employees hired subsequent to December 31, 2005 participate in a defined contribution plan to which the Company may make discretionary contributions on an annual basis.

 

Multiemployer Plans

 

Under the provisions of the Taft-Hartley Act, retirement and health care benefits for ABF’s contractual employees are provided by a number of multiemployer plans. ABF contributes to multiemployer pension and postretirement benefit plans monthly based generally on the time worked by its contractual employees, in accordance with its collective bargaining agreement with the IBT and other related supplemental agreements. ABF recognizes as expense the contractually required contribution for the period and recognizes as a liability any contributions due and unpaid. The Company intends to meet its obligations to the multiemployer plans under its collective bargaining agreement with the IBT, which is currently under extension.

 

16



Table of Contents

 

ARKANSAS BEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — continued

 

ABF contributes to 25 multiemployer pension plans, which vary in size and in funded status. In the event of the termination of certain multiemployer pension plans or if ABF were to withdraw from certain multiemployer pension plans, under current law, the Company would have material liabilities for its share of the unfunded vested liabilities of each such plan. Multiemployer plans that enter reorganization status subject contributing employers to an increased contribution requirement but will generally not require a contribution increase of more than 7% over the level required in the preceding year. ABF has not received notification of any plan reorganization or plan termination, and ABF does not currently intend to withdraw from these plans. Therefore, the Company believes the occurrence of events that would require recognition of liabilities for its share of unfunded vested benefits is remote.

 

Approximately one half of ABF’s total contributions to multiemployer pension plans are made to the Central States, Southeast and Southwest Areas Pension Plan (the “Central States Pension Plan”). As disclosed in the Annual Funding Notice for the 2012 plan year, the actuarial funded percentage of the Central States Pension Plan was 53.9% as of January 1, 2012. ABF received a Notice of Critical Status for the Central States Pension Plan which reported that on March 29, 2013, the plan’s actuary certified that the plan remained in critical status, as defined by the Pension Protection Act of 2006, for the plan year beginning January 1, 2013.

 

The multiemployer plan administrators have provided to the Company no other significant changes in information related to multiemployer plans from the information disclosed in the Company’s 2012 Annual Report on Form 10-K.

 

NOTE H — STOCKHOLDERS’ EQUITY

 

Accumulated Other Comprehensive Loss

 

 

 

March 31

 

December 31

 

 

 

2013

 

2012

 

 

 

(in thousands)

 

 

 

 

 

 

 

Pre-tax amounts:

 

 

 

 

 

Unrecognized net periodic benefit costs

 

$

(83,873

)

$

(86,737

)

Foreign currency translation

 

(692

)

(662

)

 

 

$

(84,565

)

$

(87,399

)

After-tax amounts:

 

 

 

 

 

Unrecognized net periodic benefit costs

 

$

(55,218

)

$

(56,968

)

Foreign currency translation

 

(423

)

(404

)

 

 

$

(55,641

)

$

(57,372

)

 

The following is a summary of the changes in accumulated other comprehensive loss, net of tax, by component for the three months ended March 31, 2013:

 

 

 

 

 

Unrecognized

 

Foreign

 

 

 

 

 

Net Periodic

 

Currency

 

 

 

Total

 

Benefit Costs

 

Translation

 

 

 

(in thousands)

 

 

 

 

 

Balance at January 1, 2013

 

$

(57,372

)

$

(56,968

)

$

(404

)

Other comprehensive loss before reclassifications

 

(19

)

 

(19

)

Amounts reclassified from accumulated other comprehensive loss

 

1,750

 

1,750

 

 

Net current-period other comprehensive income (loss)

 

1,731

 

1,750

 

(19

)

Balance at March 31, 2013

 

$

(55,641

)

$

(55,218

)

$

(423

)

 

17



Table of Contents

 

ARKANSAS BEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — continued

 

The following is a summary of the significant reclassifications out of accumulated other comprehensive loss by component for the three months ended March 31, 2013:

 

 

 

Amortization of

 

 

 

Unrecognized

 

 

 

Net Periodic

 

 

 

Benefit Costs(1)

 

 

 

(in thousands)

 

 

 

 

 

Net actuarial loss(2)

 

$

(2,912

)

Prior service credit(2)

 

48

 

Total, pre-tax

 

(2,864

)

Tax benefit

 

1,114

 

Total, net of tax

 

$

(1,750

)

 


(1)         Amounts in parentheses indicate increases in expense or loss.

(2)         These components of accumulated other comprehensive loss are included in the computation of net periodic pension cost (see Note G).

 

Dividends on Common Stock

 

On April 23, 2013, the Company’s Board of Directors declared a dividend of $0.03 per share payable to stockholders of record as of May 7, 2013.

 

The following table is a summary of dividends declared during the applicable quarter:

 

 

 

2013

 

2012

 

 

 

Per Share

 

Amount

 

Per Share

 

Amount

 

 

 

(in thousands, except per share data)

 

 

 

 

 

First quarter

 

$

0.03

 

$

807

 

$

0.03

 

$

797

 

Second quarter (2013 amount estimated)

 

$

0.03

 

$

806

 

$

0.03

 

$

808

 

 

NOTE I — SHARE-BASED COMPENSATION

 

Restricted Stock Awards

 

A summary of the Company’s restricted stock award program is presented below:

 

 

 

Units

 

 

 

 

 

Outstanding — January 1, 2013

 

1,281,480

 

Granted

 

 

Vested

 

(16,500

)

Forfeited

 

(1,950

)

Outstanding — March 31, 2013

 

1,263,030

 

 

18



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ARKANSAS BEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — continued

 

Stock Options

 

A summary of the Company’s stock option program is presented below:

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

Weighted-

 

Remaining

 

Intrinsic

 

 

 

Shares

 

Average

 

Contractual

 

Value(2)

 

 

 

Under Option(1)

 

Exercise Price

 

Term (Years)

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Outstanding — January 1, 2013

 

240,425

 

$

27.40

 

 

 

 

 

Granted

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

Forfeited

 

(94,000

)

24.76

 

 

 

 

 

Outstanding — March 31, 2013

 

146,425

 

$

29.10

 

0.8

 

-

 

 


(1)         Options outstanding at March 31, 2013 are vested and available to be exercised.

(2)         The intrinsic value for each option represents the excess, if any, of the market value of the Company’s Common Stock on March 31, 2013 over the exercise price of the option.

 

As of March 31, 2013, the Company had not elected to treat any exercised options as employer Stock Appreciation Rights (“SARs”) and no employee SARs had been granted. No stock options have been granted since 2004.

 

NOTE J — EARNINGS PER SHARE

 

The following table sets forth the computation of basic and diluted loss per share:

 

 

 

Three Months Ended

 

 

 

March 31

 

 

 

2013

 

2012

 

 

 

(in thousands, except share and per share data)

 

Basic

 

 

 

 

 

Numerator:

 

 

 

 

 

Net loss

 

$

(13,395

)

$

(18,162

)

Effect of unvested restricted stock awards

 

(38

)

(34

)

Adjusted net loss

 

$

(13,433

)

$

(18,196

)

Denominator:

 

 

 

 

 

Weighted-average shares

 

25,638,333

 

25,455,607

 

Loss per common share

 

$

(0.52

)

$

(0.71

)

Diluted

 

 

 

 

 

Numerator:

 

 

 

 

 

Net loss

 

$

(13,395

)

$

(18,162

)

Effect of unvested restricted stock awards

 

(38

)

(34

)

Adjusted net loss

 

$

(13,433

)

$

(18,196

)

Denominator:

 

 

 

 

 

Weighted-average shares

 

25,638,333

 

25,455,607

 

Effect of dilutive securities

 

 

 

Adjusted weighted-average shares and assumed conversions

 

25,638,333

 

25,455,607

 

Loss per common share

 

$

(0.52

)

$

(0.71

)

 

19



Table of Contents

 

ARKANSAS BEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — continued

 

Under the two-class method of calculating earnings per share, dividends paid and a portion of undistributed net income, but not losses, are allocated to unvested restricted stock and restricted stock units, which are considered participating securities. For the three months ended March 31, 2013 and 2012, outstanding stock awards of 0.7 million and 0.8 million were not included in the diluted loss per share calculations because their inclusion would have the effect of decreasing the loss per share.

 

NOTE K — OPERATING SEGMENT DATA

 

The Company uses the “management approach” to determine its reportable operating segments, as well as to determine the basis of reporting the operating segment information. The management approach focuses on financial information that the Company’s management uses to make operating decisions. Management uses operating revenues, operating expense categories, operating ratios, operating income, and key operating statistics to evaluate performance and allocate resources to the Company’s operations.

 

Certain reclassifications have been made to the prior year’s operating segment data to conform to the current year presentation. Financial 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.

 

The Company’s reportable operating segments are impacted by seasonal fluctuations, as described below, and as a result, operating results for the interim periods presented may not necessarily be indicative of the results for the fiscal year.

 

The Company’s reportable operating segments are as follows:

 

·                  Freight Transportation, the Company’s principal operating segment, includes the results of operations of ABF Freight System, Inc. and certain other subsidiaries of the Company (collectively “ABF”). ABF Freight System, Inc.’s self-move service operations provided by U-Pack Moving® are also reported in the Freight Transportation segment.

 

ABF is impacted by seasonal fluctuations which affect tonnage and shipment levels and, consequently, revenues and operating results. The second and third calendar quarters of each year usually have the highest tonnage levels while the first quarter generally has the lowest, although other factors, including the state of the U.S. and global economies, may influence quarterly tonnage levels.

 

·                  Premium Logistics and Expedited Freight Services includes the results of operations of Panther, which the Company acquired on June 15, 2012 (see Note C). The segment provides expedited freight transportation services to commercial and government customers and offers premium logistics services that involve the rapid deployment of highly specialized equipment to meet extremely specific linehaul requirements, such as temperature control, hazardous materials, geofencing (routing a shipment across a mandatory, defined route with satellite monitoring and automated alerts concerning any deviation from the route), specialized government cargo, security services, and life sciences. Through its premium logistics and global freight forwarding businesses, Panther offers domestic and international freight transportation with air, ocean, and ground service offerings. The segment provides services to the Freight Transportation and Truck Brokerage and Management segments. Revenue and expense associated with these intersegment transactions are eliminated in consolidation.

 

Operations of the Premium Logistics and Expedited Freight Services segment are influenced by seasonal fluctuations that impact customers’ supply chains and the resulting demand for expedited services. Expedited shipments may decline during winter months because of post-holiday slowdowns but can be subject to short-term increases depending on the impact of weather disruptions to customers’ supply chains. Plant shutdowns during summer months may affect shipments for automotive and manufacturing customers, but hurricanes and other weather events can result in higher demand for expedited services.

 

20



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ARKANSAS BEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — continued

 

·                  Truck Brokerage and Management includes the results of operations of the Company’s transportation brokerage services subsidiary, FreightValue, Inc.®

 

The truck brokerage industry is impacted by seasonal fluctuations which affect tonnage and shipment levels and, consequently, revenues and operating results. The second and third calendar quarters of each year usually have the highest tonnage levels while the first quarter generally has the lowest, although other factors, including the state of the U.S. and global economies, may influence quarterly tonnage levels. However, seasonal fluctuations are less apparent in the operating results of Truck Brokerage and Management than in the industry as a whole because of business growth in the segment.

 

·                  Emergency and Preventative Maintenance includes the results of operations of FleetNet America, Inc., the subsidiary of the Company that provides roadside assistance and equipment services for commercial vehicles through a network of third-party service providers.

 

Emergency roadside services are impacted by weather conditions that affect commercial vehicle operations, and the segment’s results of operations will be influenced by seasonal variations in business levels.

 

·                  Household Goods Moving Services includes the results of operations of Albert Companies, Inc. and Moving Solutions, Inc., the Company’s subsidiaries that provide transportation, warehousing, and delivery services to the consumer, corporate, and military household goods moving markets. Certain costs incurred by Household Goods Moving Services in support of ABF Freight System, Inc.’s self-move services are allocated to Freight Transportation at cost. Revenue and expense associated with these intersegment allocations are eliminated in consolidation.

 

Operations of the Household Goods Moving Services segments are impacted by seasonal fluctuations, resulting in higher business levels in the second and third calendar quarters of the year as the demand for moving services is typically higher in the summer months.

 

The Company’s other business activities and operating segments that are not reportable include Arkansas Best Corporation, the parent holding company, and other subsidiaries. Certain costs incurred by the parent holding company are allocated to the reporting segments. The Company eliminates intercompany transactions in consolidation. However, the information used by the Company’s management with respect to its reportable segments is before intersegment eliminations of revenues and expenses.

 

Further classifications of operations or revenues by geographic location are impracticable and, therefore, are not provided. The Company’s foreign operations are not significant.

 

21



Table of Contents

 

ARKANSAS BEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — continued

 

The following table reflects reportable operating segment information for the three months ended March 31:

 

 

 

Three Months Ended

 

 

 

March 31

 

 

 

2013

 

2012

 

 

 

(in thousands)

 

OPERATING REVENUES

 

 

 

 

 

Freight Transportation

 

$

407,281

 

$

396,513

 

Premium Logistics and Expedited Freight Services

 

53,252

 

 

Truck Brokerage and Management

 

14,604

 

8,039

 

Emergency and Preventative Maintenance

 

32,522

 

22,378

 

Household Goods Moving Services

 

13,576

 

15,052

 

Other and eliminations

 

(548

)

(1,115

)

Total consolidated operating revenues

 

$

520,687

 

$

440,867

 

 

 

 

 

 

 

OPERATING EXPENSES AND COSTS

 

 

 

 

 

Freight Transportation

 

 

 

 

 

Salaries, wages, and benefits

 

$

267,178

 

$

265,061

 

Fuel, supplies, and expenses

 

83,332

 

80,640

 

Operating taxes and licenses

 

10,990

 

10,801

 

Insurance

 

4,484

 

4,881

 

Communications and utilities

 

3,933

 

3,799

 

Depreciation and amortization

 

19,574

 

18,573

 

Rents and purchased transportation

 

38,469

 

33,216

 

Gain on sale of property and equipment

 

(212

)

(282

)

Other

 

2,082

 

1,682

 

Total Freight Transportation

 

429,830

 

418,371

 

 

 

 

 

 

 

Premium Logistics and Expedited Freight Services

 

 

 

 

 

Purchased transportation

 

41,036

 

 

Depreciation and amortization

 

2,550

 

 

Salaries, benefits, insurance, and other

 

10,530

 

 

Total Premium Logistics and Expedited Freight Services

 

54,116

 

 

Truck Brokerage and Management

 

13,837

 

7,645

 

Emergency and Preventative Maintenance

 

31,811

 

22,515

 

Household Goods Moving Services

 

13,807

 

15,844

 

Other and eliminations

 

636

 

(521

)

Total consolidated operating expenses and costs

 

$

544,037

 

$

463,854

 

 

 

 

 

 

 

OPERATING INCOME (LOSS)

 

 

 

 

 

Freight Transportation

 

$

(22,549

)

$

(21,858

)

Premium Logistics and Expedited Freight Services

 

(864

)

 

Truck Brokerage and Management

 

767

 

394

 

Emergency and Preventative Maintenance

 

711

 

(137

)

Household Goods Moving Services

 

(231

)

(792

)

Other and eliminations

 

(1,184

)

(594

)

Total consolidated operating loss

 

$

(23,350

)

$

(22,987

)

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

Interest and dividend income

 

$

171

 

$

253

 

Interest expense and other related financing costs

 

(1,207

)

(1,142

)

Other, net(1)

 

1,083

 

1,340

 

 

 

$

47

 

$

451

 

 

 

 

 

 

 

LOSS BEFORE INCOME TAXES

 

$

(23,303

)

$

(22,536

)

 


(1) Other, net includes changes in cash surrender value and proceeds of life insurance policies.

 

22



Table of Contents

 

ARKANSAS BEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — continued

 

NOTE L — LEGAL PROCEEDINGS, ENVIRONMENTAL MATTERS, AND OTHER EVENTS

 

The Company is involved in various legal actions arising in the ordinary course of business. The Company maintains liability insurance against certain risks arising out of the normal course of its business, subject to certain self-insured retention limits. The Company routinely establishes and reviews the adequacy of reserves for estimated legal, environmental, and self-insurance exposures. While management believes that amounts accrued in the consolidated financial statements are adequate, estimates of these liabilities may change as circumstances develop. Considering amounts recorded, routine legal matters are not expected to have a material adverse effect on the Company’s financial condition, results of operations, or cash flows; however, the Company is currently involved in certain legal proceedings, as further described below, for which the outcome and the related financial impact cannot be determined at this time.

 

Legal Proceedings

 

National Master Freight Agreement

 

On November 1, 2010, ABF Freight System, Inc. filed a grievance with the National Grievance Committee, consisting of union and employer representatives established by the NMFA for resolving national contract disputes, against the following parties: the IBT; the Teamsters National Freight Industry Negotiating Committee; Trucking Management, Inc. (“TMI”); every Teamster Local Union that is party to the NMFA; and YRC Inc., New Penn Motor Express, Inc., and USF Holland, Inc. (collectively “YRC”). A lawsuit was simultaneously filed in the United States District Court for the Western Division of Arkansas (the “Trial Court”) against the parties previously named and Teamster Local Unions 373 and 878 individually and as representatives of a class of Teamsters Local Unions that are parties to the NMFA. The lawsuit seeks appointment of a third-party neutral tribunal to rule on the grievance in place of the National Grievance Committee or, alternatively, for the Trial Court to rule on the lawsuit.

 

The grievance and lawsuit assert that ABF Freight System, Inc. is an equal signatory to the NMFA which, as a national collective bargaining agreement, is designed to establish a single national standard for wages and other employment terms for all employers who are parties to the agreement. However, ABF Freight System, Inc. has not been granted the same wage and benefit concessions under the NMFA as YRC since 2009. The grievance filed by ABF Freight System, Inc. is a claim that the IBT and the other named parties have violated the NMFA. The grievance and lawsuit seek to declare the amendments made to the NMFA on YRC’s behalf null and void. The grievance and lawsuit also seek payment for damages associated with the amendments on YRC’s behalf.

 

On December 20, 2010, the Trial Court granted motions filed by the IBT, the Teamsters National Freight Industry Negotiating Committee, Teamsters Local Unions 373 and 878, and, separately, by YRC to dismiss the lawsuit for lack of subject matter jurisdiction. On January 18, 2011, ABF Freight System, Inc. filed an appeal in the United States Court of Appeals for the Eighth Circuit (St. Louis) (the “Court of Appeals”). On April 12, 2011, the Court of Appeals held a hearing regarding the dismissal of the lawsuit and oral arguments were presented on behalf of ABF Freight System, Inc. On July 6, 2011, the Court of Appeals reversed the Trial Court’s decision and remanded the case to the Trial Court for further proceedings. On October 12, 2011, ABF Freight System, Inc. filed an amended complaint. On November 11, 2011, the IBT, TMI, and YRC filed motions to dismiss this amended complaint and on December 9, 2011, ABF Freight System, Inc. filed a response to the defendants’ motions to dismiss. On January 16, 2012, the IBT, TMI, and YRC filed reply briefs to the response filed by ABF Freight System, Inc. On January 23, 2012, the IBT filed a request for oral arguments, which was supported by the other parties to the lawsuit. On August 1, 2012, the Trial Court entered an order dismissing the lawsuit without prejudice. ABF Freight System, Inc. appealed the dismissal to the Court of Appeals on August 30, 2012, and oral arguments were heard by the Court of Appeals on April 10, 2013. Although the timing of the appeals process is uncertain, the Company expects a decision from the Court of Appeals within 60 to 90 days.

 

23



Table of Contents

 

ARKANSAS BEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — continued

 

Environmental Matters

 

The Company’s subsidiaries store fuel for use in tractors and trucks in 67 underground tanks located in 22 states. Maintenance of such tanks is regulated at the federal and, in most cases, state levels. The Company believes it is in substantial compliance with all such regulations. The Company’s underground storage tanks are required to have leak detection systems. The Company is not aware of any leaks from such tanks that could reasonably be expected to have a material adverse effect on the Company.

 

The Company has received notices from the Environmental Protection Agency and others that it has been identified as a potentially responsible party 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 or determined that its obligations, other than those specifically accrued with respect to such sites, would involve immaterial monetary liability, although there can be no assurances in this regard.

 

At March 31, 2013 and December 31, 2012, the Company’s reserve, which was reported in accrued expenses, for estimated environmental cleanup costs of properties currently or previously operated by the Company totaled $1.0 million and $0.9 million, respectively. Amounts accrued reflect management’s best estimate of the future undiscounted exposure related to identified properties based on current environmental regulations, management’s experience with similar environmental matters, and testing performed at certain sites.

 

24



Table of Contents

 

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.

 

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, 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 business and future growth opportunities. If we are unable to reach agreement on a new collective bargaining agreement 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 three months ended March 31, 2013. As of March 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”), which extended through March 31, 2013. Prior to expiration of the collective bargaining agreement, ABF and the IBT agreed to a 30-day extension of the contract under the same terms and conditions of the existing NMFA. A subsequent and similar extension was agreed to which is effective through May 31, 2013.

 

On May 3, 2013, ABF and the IBT reached a tentative five-year collective bargaining agreement which is currently subject to ratification by a majority of ABF’s IBT member employees who choose to vote. In the event ABF’s union employees do not ratify the tentative collective bargaining agreement, 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.

 

25



Table of Contents

 

Results of Operations

 

Consolidated Results

 

 

 

Three Months Ended

 

 

 

March 31

 

 

 

2013

 

2012

 

 

 

(in thousands)

 

OPERATING REVENUES

 

 

 

 

 

Freight Transportation

 

$

407,281

 

$

396,513

 

Premium Logistics and Expedited Freight Services

 

53,252

 

 

Truck Brokerage and Management

 

14,604

 

8,039

 

Emergency and Preventative Maintenance

 

32,522

 

22,378

 

Household Goods Moving Services

 

13,576

 

15,052

 

Other and eliminations

 

(548

)

(1,115

)

Total consolidated operating revenues

 

$

520,687

 

$

440,867

 

 

 

 

 

 

 

OPERATING INCOME (LOSS)

 

 

 

 

 

Freight Transportation

 

$

(22,549

)

$

(21,858

)

Premium Logistics and Expedited Freight Services

 

(864

)

 

Truck Brokerage and Management

 

767

 

394

 

Emergency and Preventative Maintenance

 

711

 

(137

)

Household Goods Moving Services

 

(231

)

(792

)

Other and eliminations

 

(1,184

)

(594

)

Total consolidated operating loss

 

$

(23,350

)

$

(22,987

)

 

 

 

 

 

 

NET LOSS

 

$

(13,395

)

$

(18,162

)

 

 

 

 

 

 

DILUTED LOSS PER SHARE

 

$

(0.52

)

$

(0.71

)

 

Consolidated revenues for the three months ended March 31, 2013 increased 18.1% compared to the same prior-year period, 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 and Preventative Maintenance segment also contributed to the consolidated revenue growth. Total non-asset-based segments generated approximately 22% of first quarter 2013 total revenues before other revenues and intercompany eliminations. Freight Transportation revenues were 2.7% higher for the first quarter of 2013, despite fewer workdays in the period, compared to first quarter 2012. On a per-day basis, Freight Transportation revenues were 5.2% higher in first quarter 2013 compared to the same prior-year period. The Freight Transportation revenue improvement reflects the impact of an increase in tonnage per day, partially offset by a decrease in billed revenue per hundredweight, including fuel surcharges.

 

The consolidated operating loss, net loss, and per share amounts for first quarter 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. The consolidated net loss comparison was impacted by unusually high workers’ compensation claims costs