Arkansas Best Corp. (ARCBEST) - 10-Q Summary
Business Context and Reporting Period
Company: Arkansas Best Corporation (Delaware)
Reporting Period: Quarter and nine months ended September 30, 2001
Business Overview: 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 previously held a 19% interest in Wingfoot Commercial Tire Systems, LLC (formerly Treadco) and sold G.I. Trucking Company on August 1, 2001.
Key Financial Metrics
| Metric ($ thousands) | 3 Months Ended Sep 30, 2001 | 9 Months Ended Sep 30, 2001 | 3 Months Ended Sep 30, 2000 | 9 Months Ended Sep 30, 2000 |
|---|---|---|---|---|
| Operating Revenues | $381,554 | $1,188,707 | $488,468 | $1,403,470 |
| Operating Income | $21,207 | $61,168 | $44,395 | $105,767 |
| Net Income | $13,020 | $31,932 | $23,325 | $54,246 |
| Net Income (Common) | $12,531 | $29,445 | $22,326 | $51,123 |
| Diluted EPS | $0.52 | $1.28 | $0.97 | $2.27 |
| Cash from Operations (9mo) | $48,599 | $94,792 | ||
| Cash & Equivalents (Sep 30, 2001) | $13,134 | $6,839 (Sep 30, 2000) | ||
| Total Debt (Current + Long-Term) | $131,703 | $176,945 (Dec 31, 2000) |
Material Changes vs. Prior Period
- Revenue Decline: Consolidated revenues decreased 21.9% (quarterly) and 15.3% (year-to-date) compared to 2000. This is primarily due to the divestiture of Treadco (contributed to Wingfoot in late 2000) and the sale of G.I. Trucking (August 2001), alongside a general decline in the U.S. economy and the impact of the September 11 terrorist attacks.
- Operating Income: Decreased 52.2% (quarterly) and 42.2% (year-to-date). The decline is driven by lower tonnage at ABF and Clipper, partially offset by a $4.6 million pre-tax gain from the sale of G.I. Trucking.
- Segment Performance:
- ABF: Operating ratio worsened to 93.3% (Q3) and 93.6% (9mo) from 88.5% and 90.2% in 2000 due to tonnage declines and increased labor costs (IBT contract).
- Clipper: Operating ratio increased to 99.2% (Q3) and 99.0% (9mo) due to shipment declines and reduced rail utilization.
- Debt Reduction: Proceeds from the sale of G.I. Trucking ($40 million) and cash flow were used to pay down debt, including the retirement of $24.8 million in face value of WorldWay debentures.
Outlook, Risks, and Contingencies
- Economic Outlook: Management anticipates the economic decline will continue to negatively impact operations for the remainder of 2001 and potentially into 2002. Capital expenditure forecasts for 2001 were reduced to approximately $70 million from a previous $90-$100 million range.
- Insurance Insolvency: Reliance Insurance Company, which insured workers' compensation claims (1993-1999), was declared insolvent. The company estimates a current exposure of $0.5 million and has established reserves, though reimbursement may take years.
- Tax Contingency: The IRS has raised issues regarding the deductibility of multiemployer pension plan contributions. If decided adversely, the company estimates an additional tax and interest liability of approximately $28 million. Management believes this will not have a material adverse effect on financial position.
- Wingfoot Put/Call Option: The company holds a 19% interest in Wingfoot with a "Put" right to sell to Goodyear for ~$74 million between April 2003 and April 2004. During this period, the company does not share in Wingfoot's profits or losses.
- Derivatives: The company has an interest rate swap on $110 million of debt. As of September 30, 2001, the fair value liability was $6.9 million, recorded in other comprehensive income.
Investor Verification Checklist
- Debt Covenants: Verify continued compliance with the $250 million Credit Agreement covenants, specifically financial ratio tests, given the revenue decline.
- Tax Liability Resolution: Monitor the status of the IRS dispute regarding pension plan contributions and the potential $28 million liability.
- Reliance Insurance Recovery: Track the liquidation process of Reliance Insurance to assess the timeline and probability of recovering the $5.4 million in insured claims.
- Wingfoot Exit Strategy: Confirm the company's intent and timing regarding the "Put" option to sell its Wingfoot interest to Goodyear in 2003-2004.
- ABF Labor Costs: Assess the long-term impact of the IBT collective bargaining agreement on operating margins as tonnage levels fluctuate.