Arkansas Best Corporation (ARCBEST) — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing also reports fourth-quarter results. Arkansas Best was primarily an asset-based LTL carrier through ABF Freight, which generated about 90% of consolidated revenue; three smaller businesses provided brokerage, vehicle maintenance and logistics services.
Financial performance and liquidity
| Metric | 2011 | 2010 |
|---|---|---|
| Consolidated revenue | $1.908 billion | $1.658 billion |
| Operating income (loss) | $9.8 million | $(54.5) million |
| Net income (loss) attributable to Arkansas Best | $6.2 million | $(32.7) million |
| Diluted EPS | $0.23 | $(1.30) |
| Cash from operations | $100.9 million | $26.3 million |
| Unrestricted cash and short-term investments | $175.3 million | $141.9 million |
| Total debt, including current portion | $71.0 million | $56.7 million |
- Consolidated operating margin was approximately 0.5%. ABF’s operating ratio improved to 99.8% from 103.9% in 2010, a return to slight operating profitability.
- ABF revenue rose 14.3% per workday: tonnage per day increased 4.0%, and billed revenue per hundredweight, including fuel surcharge, increased 10.0%.
- Fourth-quarter 2011 revenue was $463.2 million; operating income was $1.6 million and net income attributable to the company was $1.4 million, or $0.05 per share. Fourth-quarter 2010 had an operating loss of $6.7 million and net loss of $3.1 million.
- Capital expenditures, net of asset-sale proceeds, were $46.2 million. The company financed $30.4 million of equipment purchases through leases and notes. Unrestricted liquidity excludes $52.7 million of restricted cash and investments pledged principally for letters of credit and surety bonds.
- The $75 million accounts-receivable securitization facility was undrawn at year-end; the company reported covenant compliance. Total current assets were $445.1 million and current liabilities were $263.7 million.
Changes, outlook and material matters
- Results improved sharply from 2010, led by ABF revenue growth, pricing actions and operating leverage. Fuel, supplies and expenses rose to 19.3% of ABF revenue from 17.3%, as its average fuel cost per gallon increased 35.7%. ABF labor expense declined as a percentage of revenue, but labor costs rose in dollars.
- Non-asset-based segment revenue and operating income increased 28.9% and 30.6%, respectively, in 2011. Special Services Logistics revenue growth included the acquired moving business; the company purchased the remaining 25% interest in that subsidiary during 2011 for $4.1 million.
- Management estimated 2012 net capital expenditures of $80–90 million, primarily replacement equipment, and depreciation and amortization of $80–85 million. It said spending could be adjusted to business levels. No specific earnings guidance was provided.
- Through mid-February 2012, ABF’s average daily tonnage was down approximately 6–7% year over year, partly attributed to severe weather and difficult comparisons; revenue was approximately 2–3% higher, supported by increased billed revenue per hundredweight. Management cautioned that economic conditions, pricing and account-profitability initiatives could affect volumes and results.
- About 75% of ABF employees were covered by an IBT agreement expiring March 31, 2013. Contractual wage and benefit increases, labor negotiations and multiemployer pension exposure remain important risks. About 62% of contributions went to multiemployer pension plans in critical status, including the Central States fund; withdrawal or plan termination could create material liabilities.
- The nonunion defined-benefit pension plan was 66.0% funded on a projected benefit obligation basis. Pension and postretirement liabilities increased $41.2 million in 2011, mainly reflecting lower discount rates and investment losses. Required 2012 minimum pension contributions were estimated at $12–15 million.
- Material litigation includes ABF’s dispute over concessions granted to YRC under the national labor agreement and PODS Enterprises’ trademark suit; outcomes and financial impacts were not determinable. Environmental cleanup reserves were $0.9 million. The company reported no material cybersecurity incident, though it had experienced attempted attacks.
- The $64 million ABF goodwill impairment was recorded in 2009, not 2011. The 2011 results included $1.1 million of supplemental pension settlement expense. The company maintained its quarterly dividend at $0.03 per share.
Most important facts for investors to verify
- Whether ABF can sustain positive operating income and pricing gains as tonnage trends and the broader freight market evolve.
- Whether higher fuel, contractual labor and benefit costs can be recovered through base rates and fuel surcharges.
- The funding outlook and potential contribution or withdrawal liabilities for multiemployer and nonunion pension plans.
- Progress and potential outcomes of the labor-agreement and PODS litigation, including any resulting costs or business effects.
- Execution and funding of the 2012 capital plan, and liquidity availability under the receivables facility and letter-of-credit arrangements.
Ernst & Young issued unqualified opinions on the 2011 financial statements and internal control over financial reporting.