Arkansas Best Corporation — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; unaudited. Amounts are in millions of dollars unless otherwise indicated. The company provided freight transportation and logistics services through five reportable segments. Its Freight Transportation segment, ABF, generated about 78% of revenue before other revenues and intercompany eliminations.
Financial performance and liquidity
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Operating revenue | $520.7 | $440.9 |
| Operating loss | $(23.4) | $(23.0) |
| Loss before income taxes | $(23.3) | $(22.5) |
| Income tax benefit | $9.9 | $4.4 |
| Net loss | $(13.4) | $(18.2) |
| Diluted loss per share | $(0.52) | $(0.71) |
| Operating cash flow | $(0.2) | $4.9 |
| Capital expenditures, net of asset-sale proceeds | $2.6 | $1.1 |
Revenue rose 18.1%, mainly reflecting the June 2012 Panther acquisition and growth in Truck Brokerage and Emergency and Preventative Maintenance. Operating loss remained similar to the prior year; net loss improved, in part because Q1 2012 included unusually high workers’ compensation claims costs and a lower tax benefit rate. The 2013 tax benefit rate was 42.5%, including the retroactive alternative fuel tax credit.
ABF revenue increased 2.7% to $407.3 million, or 5.2% per workday. Daily tonnage rose 6.7%, while billed revenue per hundredweight, including fuel surcharges, fell 2.3%. ABF’s operating loss was $22.5 million, and its operating ratio was 105.5%, unchanged year over year. Non-asset-based segments generated $3.4 million of EBITDA versus negative $0.2 million in Q1 2012; consolidated EBITDA was $5.3 million versus $2.2 million. EBITDA is a non-GAAP measure.
Cash and cash equivalents were $75.1 million at March 31, compared with $90.7 million at year-end. Unrestricted cash, cash equivalents, and short-term investments totaled $105.0 million; including restricted funds, the total was $110.9 million. Operating cash flow was pressured mainly by receivables growth. The company repaid $11.0 million of long-term debt and paid $0.8 million in dividends during the quarter.
Total debt, including capital leases, was $145.0 million, down from $156.0 million at December 31, 2012. The company reported $105.2 million of long-term debt, excluding its current portion. It had $55.2 million of available borrowing capacity under its $75 million receivables facility and reported $160.2 million of available liquidity under the facility’s defined measure. It was in compliance with debt covenants; its fixed-charge coverage ratio was 1.5 to 1.0 against a 1.25 minimum. No borrowings were outstanding under the receivables facility or the optional revolving commitments.
Outlook, material developments, and risks
- After quarter-end, on May 3, ABF and the Teamsters reached a tentative five-year labor agreement, subject to employee ratification. The existing agreement had been extended through May 31. A failure to ratify could lead to a work stoppage, customer losses, and material harm to results and liquidity. ABF represented about 75% of employees covered by the agreement.
- Management was evaluating ABF network changes, including possible terminal and distribution-center closures, to reduce costs and restore profitability. It cautioned that benefits were not assured. No specific consolidated earnings guidance was provided.
- Management expected liquidity to meet needs for the foreseeable future, but warned that weaker operating results could threaten future covenant compliance. Failure to obtain a required amendment or waiver could make the term loan immediately payable. The company’s 2013 capital spending plan depended on the labor agreement and could not yet be accurately estimated.
- Panther contributed $53.3 million in revenue and an operating loss of $0.9 million in Q1. Management cited subdued expedited-shipping demand and ongoing sales, service-location, and global-forwarding investments. Panther purchase accounting remained preliminary; changes in forecasts could trigger goodwill or intangible-asset impairment.
- ABF faced pricing pressure, a higher labor cost structure than many competitors, and uncertainty around recovering fuel surcharges. Management cited seasonal first-quarter weakness; April ABF revenue per day was approximately 2%–3% below April 2012, despite broadly consistent daily tonnage.
- ABF’s contributions support multiemployer plans; the Central States Pension Plan remained in critical status, with a reported funded percentage of 53.9% as of January 1, 2012. The company estimated a $9.1 million minimum 2013 contribution to its nonunion defined-benefit pension plan and made a $3.0 million contribution in April.
- ABF’s NMFA-related grievance and lawsuit remained unresolved; the company said the outcome and financial impact could not be determined. Environmental cleanup reserves were $1.0 million. The filing also identified cybersecurity, economic, fuel-price, insurance, and financing risks.
Important facts for investors to verify
- Whether employees ratified the tentative five-year labor agreement and what its terms mean for ABF’s costs and network plans.
- Whether ABF can improve its operating ratio through pricing, volume, productivity, and cost actions.
- Cash generation, working-capital needs, available liquidity, and headroom against debt covenants.
- Panther’s performance and whether its preliminary purchase accounting or forecasts lead to impairment charges.
- Developments in the NMFA litigation and multiemployer pension obligations.
- The sustainability of dividends and the eventual 2013 capital spending plan.