Arkansas Best Corporation (now ArcBest) — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. This is an annual filing, not a standalone fourth-quarter filing; it also reports unaudited quarterly results. The company provided freight transportation and logistics services through five reportable segments. ABF Freight was the core business, representing about 82% of annual revenue before other revenues and eliminations. Panther Expedited Services was acquired on June 15, 2012.
Financial performance and liquidity
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Operating revenue | $2.066 billion | $1.908 billion |
| Operating income (loss) | $(14.6) million | $9.8 million |
| Net income (loss) attributable to Arkansas Best | $(7.7) million | $6.2 million |
| Diluted earnings (loss) per share | $(0.31) | $0.23 |
| Cash provided by operating activities | $84.5 million | $100.9 million |
| Capital expenditures, net of asset-sale proceeds | $30.9 million | $46.2 million |
| Debt, including current portion | $156.0 million | $71.0 million |
Consolidated revenue increased 8.3%, driven largely by Panther’s post-acquisition contribution and growth in truck brokerage and emergency maintenance. Consolidated EBITDA, a company-defined non-GAAP measure, was $93.5 million, down 5.2% from $100.8 million.
ABF revenue was $1.725 billion, down 0.3% on a per-day basis. Tonnage per day fell 4.6%, partly offset by a 4.4% increase in billed revenue per hundredweight including fuel surcharges. ABF posted a $19.4 million operating loss, versus $3.6 million operating income in 2011; its operating ratio deteriorated to 101.1% from 99.8%.
Panther contributed $132.3 million revenue and $2.4 million operating income from acquisition through year-end. Other segment results: truck brokerage revenue was $42.7 million and operating income $2.6 million; emergency and preventative maintenance revenue was $116.0 million and operating income $1.9 million; household goods revenue was $77.6 million and operating income $0.7 million.
At year-end, cash and cash equivalents were $90.7 million, short-term investments $29.1 million, and restricted cash and investments $9.7 million. Unrestricted cash and short-term investments totaled $119.8 million, down $55.5 million year over year. The company had a $95 million secured term loan outstanding, maturing June 15, 2017, and $37.8 million in notes payable; the term loan rate was 2.0% at year-end. A $75 million receivables facility had no borrowings, but $16.2 million of letters of credit reduced availability to $58.8 million. The company reported compliance with financing covenants; its fixed-charge coverage ratio was 1.5:1 against a 1.25:1 minimum.
Material changes versus prior period
- Revenue growth mainly reflects the Panther acquisition; Freight Transportation revenue was essentially flat, while ABF tonnage declined.
- Consolidated operating results reversed from profit to loss, primarily due to ABF’s return to operating losses and higher costs. ABF labor costs rose to 62.2% of revenue from 61.3%; depreciation and amortization and rents/purchased transportation also increased as percentages of revenue.
- Cash from operations decreased $16.3 million, including an $18 million contribution to the nonunion defined-benefit pension plan, compared with no contribution in 2011.
- Debt increased principally to fund Panther. The acquisition cost was $180 million net of cash acquired, funded with cash on hand and a $100 million term loan.
- Non-asset-based businesses increased to about 18% of annual revenue before other revenues and eliminations, from about 10% in 2011; they contributed about 22% in fourth-quarter 2012.
Outlook, risks and unusual items
- Management outlook: No formal earnings or revenue guidance is provided. Management said ABF was evaluating network changes, potentially including terminal or distribution-center closures, to align costs with business levels and return the segment to profitability; benefits were not assured. Capital spending and depreciation for 2013 could not be estimated accurately because they depended partly on labor-contract terms. Management stated existing liquidity, operating cash flow and available facilities were expected to meet foreseeable needs.
- Early 2013 trends: Through late February 2013, ABF’s average daily tonnage was approximately 6%–7% above the prior-year period and revenue approximately 3%–4% higher, but comparisons were against weak prior-year levels and revenue per hundredweight declined due partly to customer and freight mix.
- Labor and pension exposure: About 75% of ABF employees were covered by the Teamsters agreement, expiring March 31, 2013. Negotiations were ongoing; a failure to reach agreement could cause a work stoppage, customer losses or adverse operating and liquidity effects. About 63% of ABF’s multiemployer pension contributions went to plans in critical status and 12% to plans in endangered status. Central States, receiving roughly half of ABF’s multiemployer pension contributions, was 53.9% funded as of January 1, 2012. Withdrawal or plan termination could create material liabilities.
- Other key risks: Competitive pricing, fuel-price and surcharge recovery, weak economic demand, fixed labor and network costs, pension contributions, self-insured claims, third-party provider availability, regulation, weather, and cybersecurity. The company reported prior attempted denial-of-service and malware incidents, with no known material operational impact to date.
- Legal and contingency matters: ABF’s litigation concerning alleged unequal NMFA concessions for YRC was on appeal after dismissal without prejudice; outcome and financial effect were indeterminable. Environmental cleanup reserves were $0.9 million. ABF’s self-insured workers’ compensation and third-party casualty reserves totaled $77.6 million at year-end, up from $67.4 million.
- Unusual items: The 2012 tax benefit rate was 54.5%, materially affected by a $3.1 million net reduction in deferred-tax valuation allowances, including reversal of a $4.0 million allowance following the Panther acquisition. Acquisition-related costs were $2.1 million. Fourth-quarter results included a $2.7 million after-tax adjustment to workers’ compensation and casualty reserves, described as immaterial to prior periods. Panther’s purchase-price allocation remained preliminary.
Most important facts for investors to verify
- Whether a new Teamsters contract was reached, its wage and benefit terms, and any resulting changes to ABF’s network or service capacity.
- ABF’s subsequent tonnage, base-rate pricing, fuel-surcharge recovery and operating ratio; in particular, whether reported early-2013 volume gains translated into profitable growth.
- Progress on Panther integration, its sustained operating margins and cash contribution, and the final acquisition accounting and impairment assumptions for goodwill and intangibles.
- Liquidity and covenant headroom, including the fixed-charge coverage threshold, receivables-facility availability and required liquidity if no labor agreement was in place near expiration.
- Actual pension funding requirements and multiemployer plan developments, as well as changes in self-insurance claims and environmental or labor-litigation exposures.