Arkansas Best Corp. 10-Q Summary: Quarter Ended June 30, 2002
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2002, and the six months ended on that date. Arkansas Best Corporation is a diversified holding company primarily engaged in motor carrier and intermodal transportation operations through subsidiaries ABF Freight System, Inc. and Clipper Exxpress Company. The company sold its G.I. Trucking subsidiary in August 2001; therefore, 2001 comparative figures include G.I. Trucking operations, while 2002 figures do not.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2002 | Six Months Ended June 30, 2002 |
|---|---|---|
| Operating Revenues | $345.1 million | $665.3 million |
| Operating Income | $13.3 million | $18.1 million |
| Net Income (Loss) | $6.5 million | ($16.0) million |
| Diluted EPS | $0.26 | ($0.63) |
| Cash from Operations (6mo) | $34.4 million | |
| Cash and Equivalents (End of Period) | $10.2 million | |
| Total Debt (Current + Long-Term) | $116.5 million | |
| Available Credit Facility | $84.2 million |
Material Changes vs. Prior Period
- Revenue Decline: Consolidated revenues decreased 15.1% for the quarter and 17.6% for the six-month period compared to 2001. This is primarily due to the absence of G.I. Trucking revenue and a broader decline in U.S. economic activity affecting ABF and Clipper.
- Operating Income: Operating income fell to $13.3 million (quarter) and $18.1 million (six months) from $19.9 million and $40.0 million in the prior year periods, driven by lower tonnage and increased operating ratios.
- Accounting Change Impact: The six-month net loss of $16.0 million includes a non-cash impairment loss of $23.9 million (net of tax) related to the write-off of Clipper goodwill. This was recognized as a cumulative effect of adopting FASB Statement No. 142. Excluding this item, income before the accounting change was $7.9 million for the six months.
- Debt Reduction: The company retired the remaining $5.0 million of WorldWay debentures in February 2002 and entered into a new $225 million credit agreement in May 2002.
Outlook, Risks, and Management Commentary
- Economic Outlook: Management notes that tonnage levels continue to be impacted by the U.S. economic decline and the September 11 terrorist attacks. The impact is expected to continue through the third quarter of 2002 if the economy does not improve.
- Union Negotiations: Approximately 77% of ABF employees are covered by a collective bargaining agreement expiring March 31, 2003. Negotiations for a new agreement are anticipated, though no assurance of a timely resolution exists.
- Insurance Exposure: Reliance Insurance Company, which insured excess workers' compensation claims, was declared insolvent. The company estimates a current exposure of $0.5 million, with reserves established. Reimbursement from state guaranty funds is expected but may take years.
- Capital Expenditures: The company forecasts total spending of approximately $45.0 million for capital expenditures in 2002, primarily for revenue equipment.
- Wingfoot Investment: The company holds a 19% interest in Wingfoot Commercial Tire Systems with a "Put" option to sell to Goodyear for approximately $73.4 million exercisable between April 2003 and April 2004.
Investor Verification Checklist
- Verify the impact of the $23.9 million non-cash goodwill impairment on the reported six-month net loss.
- Monitor the status of negotiations for the ABF collective bargaining agreement expiring in March 2003.
- Assess the recovery timeline and amounts from state guaranty funds regarding the insolvent Reliance Insurance Company claims.
- Review the company's ability to maintain compliance with the new $225 million Credit Agreement covenants given the current economic downturn.
- Track the execution of the Wingfoot "Put" option and the potential $14.0 million pre-tax gain recognition in 2003 or 2004.